Comparison studies with partner countries, port audits and information from those involved in
exports have raised two significant questions regarding the U.S. merchandise export
statistics: "How complete are the export data?" and "What can done to improve them?"
Merchandise exports, which accounted for just 3.9 percent of gross domestic product (GDP) in
1960, now account for 8 percent of GDP. However, based upon comparisons with partner
country data, port audits, other studies and information from those familiar with export trade, the
Census Bureau believes that merchandise exports are understated. Our best estimate is that the
understatement ranges from 3 to 7 percent of the published export value, but could be as high as
10 percent. We do not have adequate information, however, to develop estimates of
understatement by country or by product area.
There is no evidence of significant errors in the import data. Thus, the estimated export
undercount means that the trade deficit could be overstated by as much as $58 billion (over 40
percent) in 1995. We do not adjust the export value because the information on understatement
is not sufficiently accurate.
The Census Bureau has identified four major causes of error in the merchandise export statistics:
underestimation of low valued transactions;
failure of exporters to file the required documentation;
missing or incomplete information on the documents that are filed; and
undervaluation of export shipments in response to foreign quotas or tariffs.
To address these problems, several actions are proposed:
full implementation of the Automated Export System,
increased outreach and education,
increased Customs enforcement of export filing requirements, and
improved coverage of low valued transactions.
Understatement of Export
Merchandise Trade Data
Based upon a variety of studies and anecdotal evidence, the U.S. Census Bureau, which compiles
and publishes the merchandise trade statistics, believes that the value of exports is understated.
From the information available, however, it is not possible to develop a single, reliable estimate
of the export understatement. The Census Bureau has used several approaches to estimate the
export understatement, including comparisons with partner country data, port audits, and other
studies/observations. Based upon these studies, we estimate that export understatement is most
likely in the 3 to 7 percent range, but could be as high as 10 percent. The studies upon which this
estimate is based are detailed in the appendix.
Since 1960, the significance of exports to the U.S. economy has increased substantially. In 1995,
exports of goods accounted for 8 percent of U.S. gross domestic product, up from 3.9 percent in
1960. If our most conservative estimate of 3 percent understatement is correct, the merchandise
trade deficit for 1995 would be overstated by about $17 billion (more than 10%). If our worst
case estimate of 10 percent understatement is correct, the trade deficit would be overstated by
nearly $58 billion (more than 40%).
Part of the increase in exports is a result of changes in trade patterns in recent years. More, and
quite often smaller, U.S. companies have gotten involved in international trade. For example, in
the last decade, Mexico has significantly reduced its tariff and nontariff barriers to trade, and
encouraged processing and assembly operations in its maquiladora zones. Many of the top
exporters, in terms of number of documents filed, are now located along the southern border of
the United States. Many industries have established operations close to the U.S. - Mexico border.
This permits more, smaller shipments to satisfy "just-in-time" delivery demands. This has
increased the importance of low valued trade.
In addition, the easing of trade barriers and the ease of shipment by inexpensive international air
parcel companies has made it economically feasible for smaller companies to export worldwide.
The trade statistics are an integral part of the gross domestic product compiled by the Bureau of
Economic Analysis. Other major users include the Federal Reserve Board, the Council of
Economic Advisors, the International Trade Commission, the International Trade
Administration, the U.S. Trade Representative, the Maritime Administration, and the Army
Corps of Engineers. In addition, many private industry and academic users depend upon these
data to perform market studies, analyze competition, and develop trade routes, among other
uses.
We have identified four basic reasons for the understatement of U.S. exports, which are
compounded by the changing patterns of trade mentioned above: 1) underestimation of low value
transactions, 2) failure to file, 3) missing or incomplete information on filed documents, and
4) undervaluation in reported information.
Low Value Underestimation
It appears that our estimates of low value trade are too low. Exporters are not required to report
transactions valued less than $2,500. Instead, Census estimates the value of these transactions
based upon historical patterns of trade. However, the data upon which these factors are based is
now very old and does not reflect recent shifts in trade patterns. We have not collected data on
transactions valued below $1,000 in over a decade. Information on transactions valued between
$1,500 and $2,500 have not been reported since October 1989. We have little information on
which to accurately assess the effects of recent changes in trade patterns. Companies involved in
air cargo trade tell us that our estimates significantly understate the proportion of low valued
transactions in U.S. exports.
We have examined the issue in our reconciliation studies and found that underestimation of low
value trade accounted for up to 3 percent of the reported value of U.S. exports to those countries.
However, this estimate is very rough since trading partners can define their reporting codes
differently than the United States, thus creating more or less low valued trade relative to the
United States. We were only able to obtain this information from three trading partners--Australia, Korea and Mexico. The underestimation appears to differ significantly from country
to country. So, while these comparisons support our belief that we underestimate low value
trade, they do not provide a basis firm enough for correcting our estimates.
Failure to File
Failure to file the required export documentation has been a longstanding problem, particularly
for overland and parcel trade. As noted above, it can be very difficult to collect paper
documentation for overland truck and rail shipments. In addition, smaller exporters may be less
knowledgeable of reporting requirements and more likely to see those requirements as a burden.
And, although we have not found any firm evidence of this, we think that some exporters may be
under the false impression that the passage of the North American Free Trade Agreement
eliminated reporting requirements.
Missing or Incomplete Information
A 1992 analysis of one month's export reporting showed that roughly half of all paper
documents contained at least one error. Most of these errors involve missing or invalid
commodity classification codes, and missing or incorrect quantities or shipping weights. These
errors have a negligible effect on the reported export values or the balance of trade, but can
significantly affect detailed commodity and transportation analyses. A 1995 joint
Census/Customs review of selected vessel manifests suggests that for this segment of trade the
error rate may be as high as 70 percent.
Undervaluation of Reported Information
Finally, in some cases there appears to be some intentional misreporting. The 1989 port audit of
air shipments showed what appeared to be deliberate misclassification and undervaluation of a
small percentage of export shipments out of Miami to Central and South America. These
practices were intended to circumvent high tariffs or quotas in the countries of destination. The
audits, however, uncovered no evidence of this practice at the other three airports studied.
No single solution will resolve all of these concerns. Instead Census proposes the following
combination of approaches: 1) full implementation of the Automated Export System (AES),
2) continued outreach and education efforts by both the Census Bureau and the Customs Service,
3) increased Customs efforts to ensure compliance with reporting requirements, and 4) expanded
coverage of low valued shipments. Several of these efforts are currently underway, others will
require either additional resources or regulatory changes.
Automated Export System
The single most important step that can be taken to improve export coverage is full
implementation by the Customs Service of the AES, a new Customs/Census program designed to
permit direct electronic submission of export documentation to the Customs Service. The AES
will improve the export data in several ways. First, it will eliminate the logistics problems of
collecting paper documents, particularly from trucks and trains. Second, it will allow editing of
the data as they are received, so that incomplete or incorrect information can be corrected by the
reporting party.
In addition to the statistical benefits, the AES benefits exporters and their agents by simplifying
the export reporting process. In fact, because the system is designed to meet the reporting
requirements of most federal agencies, it should reduce total reporting burden.
Several of our major trading partners already get most or all of their export documentation
electronically, often with exceptions for small filers or small ports. These include Mexico
(mandatory electronic filing), Japan (largely electronic except for small brokers without
terminals), Korea (largely electronic filing). Roughly 80 percent of Canada's exports are to the
United States, so it receives the data for these transactions electronically through the data
exchange.
There are several private service company initiatives underway to facilitate AES reporting,
including at least one that permits small companies to complete electronic forms and submit
them to a private service center via the Internet.
At present, however, the Census Bureau and the Customs Service are shouldering a double cost
burden. They must pay the costs of developing, expanding and maintaining the AES system,
while continuing to pay for handling and processing large numbers of paper documents.
Currently, the AES is still in its initial implementation period and accounts for less than
one percent of export records. The Census Bureau expects to spend $3.7 million in FY1997 to
review and key the information from the paper export documents. Most of this information is
already stored in the computer systems of exporters, freight forwarders and carriers.
Outreach and Education
Outreach to and education of the exporting community are essential to improving the quality of
the export statistics. The Census Bureau has made several such efforts. From 1991 through
1993, an intensive exporter education program was conducted that involved contacting exporters
with frequent reporting errors to educate them as to proper filing procedures. This program was
discontinued in 1993 due to budget cutbacks. In 1995 and 1996, the Customs Service and the
Census Bureau have conducted many seminars and meetings with the export community.
Initially these programs concentrated mostly on explaining and promoting the Automated Export
System. More recently, the agencies have launched an Outbound Compliance program to
increase, first through education and eventually through enforcement, compliance with export
reporting requirements. These programs, again, are very costly and must be maintained.
Otherwise, the reporting improvements are quickly lost.
Enforcement
Additional enforcement efforts are essential to improved export statistics. Over the years, the
Customs Service has not stringently enforced export reporting requirements, since no taxes or
tariffs were involved. While the AES system will eliminate the undercoverage that occurs
because of logistical problems (for example, where the exporter prepared the proper documents but the truck driver did not submit them), it will do nothing to ensure compliance with reporting
requirements from those companies that are either unaware of the reporting requirements or who
intentionally violate them.
The Customs Service, with the assistance of the Census Bureau, has begun an effort to increase
"outbound compliance." This program is starting with voluntary compliance efforts involving
educating exporters, forwarders and carriers regarding their responsibilities. Later, enforcement
actions are planned to ensure compliance. It is essential that these efforts be continued.
Continued export understatement can be expected until there is a reasonable expectation on the
part of the export community that noncompliance will be penalized.
One planned feature of the AES system would aid in ensuring proper reporting. This feature
would involve matching of the electronic data for exports and for air and vessel manifests. This
will allow Customs to identify shipments for which no export documentation was filed.
Currently, all such matching must be done against paper manifests, which is very time
consuming and expensive.
Improve Low Value Coverage
As noted earlier, it appears that we are underestimating the aggregate value of low valued
transactions. The current minimum reporting threshold for exports has two main purposes--to
reduce the reporting burden on small exporters and to reduce government processing costs. With
electronic reporting, there is often no benefit to reporting companies in eliminating the lower
valued transactions.
One feature requested by the export community under AES was permission to report at the level
at which their company records are kept, instead of aggregating by product as is now required.
This was approved, provided the companies report all transactions, regardless of value. If most
companies choose this option, it should provide the information needed to improve our estimates
of low value trade once AES participation expands.
The trade statistics significantly understate the value of U.S. exports. The major causes of this
understatement are changing trade patterns, which have increased the number of companies
exporting, including many small companies; the boom in the small package/air courier trade,
which has increased the proportion of shipments below the reporting threshold, failure of some
companies to file, reporting errors and intentional fraud. If nothing is done to improve export
reporting, the understatement of exports will increase. In addition, the escalating costs of
processing large quantities of paper documents could force an increase in the reporting threshold,
further reducing export coverage.
However, there are several actions that can and should be taken to improve coverage, including
full implementation of the Automated Export System, increased outreach and education
programs, greater Customs enforcement of reporting requirements, and improved coverage of
low valued transactions. In addition, mandatory electronic filing, with exceptions for small
exporters, should be considered as a way to significantly improve accuracy and reduce
processing costs.
The most extensively used approach to estimate export understatement is to compare U.S. trade
data with that of our major trading partners. We have undertaken several studies each with
Japan, Korea, Australia and the European Union. Through these studies, we attempt to identify
and quantify the reasons behind the discrepancies between the trade data published by the United
States and its major trading partners. Some of the discrepancies result from legitimate
conceptual differences. Working with the partner country statistical agency, we further analyze
the discrepancies and adjust for as many conceptual and other differences as possible. However,
since the resulting "residual discrepancy" between the final adjusted values for the United States
and the partner country may still contain the effects of conceptual differences that we either
could not identify or could not quantify, it provides only a rough estimate of the export
undercount. In the various reconciliation studies, the combined effect of proven nonreporting,
underestimation of low value trade, and unresolved discrepancies ranged from 3 to 9 percent of
the reported U.S. export value, with most of the studies falling in the 3 - 7 percent range.
Exports to Canada and Mexico are special cases. There is virtually no underreporting of exports
to Canada. Since 1990, under a bilateral agreement, the United States and Canada have each
based their export statistics upon the partner country's import data. Before this agreement,
however, the understatement of U.S. exports to Canada was estimated to be as high as 20
percent. This high undercount, in large part, reflected the difficulties of collecting data on
overland shipments moving across this open border.
While Census suspects that the underreporting of exports to Mexico is greater than that to
overseas partners, it does not believe it to be as high as that experienced with Canada before the
data exchange. One reason is that increased automated reporting of exports has eliminated some
of the errors resulting from the careless handling of paper documents by truck drivers and others
at the border crossings.
From 1991 - 1994 the discrepancy between published U.S. exports and Mexican imports ranged
between 8 and 12 percent. However, for 1995 and 1996 (through July), the discrepancy has
increased to nearly 17 percent. However, it is unlikely that these discrepancies reflect the true
underreporting in U.S. exports. Based upon discussions with Mexican officials, Census believes
that the discrepancies reflect both an understatement of U.S. exports as well as an overstatement
of Mexican imports from the United States. Mexican officials believe that foreign goods,
particularly those imported for use in maquiladora and automotive operations, may be incorrectly
attributed to the United States. The Census Bureau is currently working with several Mexican
agencies to further investigate the discrepancy.
II. Port Audits
In 1988 and 1989, Census and the U.S. Customs Service conducted spot audits at four major
airports. The audit teams assessed the compliance with export filing requirements at the time of
export and looked for missing export documents. These audits estimated the export
understatement at between 2 and 8 percent. Although the agencies originally planned additional
audits at vessel and overland ports, these plans were not carried out due to the high cost of
conducting these audits.
III. Other Observations
Census and Customs have frequent contact with carriers, freight forwarders, exporters and others
with knowledge of the export trade. In addition, the agencies have conducted occasional checks
of carrier manifests and export document filing compliance. Although information gathered
from these sources is inexact and often anecdotal, it cannot be ignored. These sources indicate
that export understatement may be somewhat higher than the partner studies and port audits
indicated, particularly in certain situations, most notably the international undervaluation of
exports to countries with high import duties.
