World Trade and World Production

Mike Berends-Ballast

Jan van Laaden

Problem

• Merchandise export figures are only weakly linked to economic activity in the Netherlands

• Merchandise production overstates economic activity in the Netherlands

• Both growing problems because of globalisation

Merchandise exports - scope

• Include:– Exports of domestically produced goods– Re-exports (imported goods exported after

some processing)

• Exclude:– Goods in transit– Quasi-transit (like re-exports but no change of

ownership)– Transito trade (merchanting?)

Exports and Re-Exports (Billion €)

Domestic Exports

Re-exports Re-exports / Total Exports

2002 135 98 42

2003 136 98 42

2004 145 111 43

2005 161 121 43

Trade problems (1)

• Export – import – re-export

– Drugs in bulk from A, sent to B for packaging, imported and subsequently re-exported.

– Double counting – twice in imports and twice in exports T

Trade problems (2)

• Contract processing

– Country A sends goods to country B for processing. Country A supervises the processing and retains ownership

– The processing enterprise may be an affiliate or it may be an independent firm

– Included in country A’s exports even though almost all the value added occurred abroad

Trade problems (3)

• Distribution centres– Goods – e.g. cars – imported into Netherlands and

owned by the distribution centre. The cars are subsequently exported to other countries

– Overstatement of Netherlands exports

– The car producer decides to retain ownership of the cars while in the distribution centre

– The cars now become quasi-transit and should be excluded from trade statistics

Production problems

• Contract processing– When country A sends goods to country B for

processing, retaining control of the work and ownership of the goods, the value of the processing work appears as production in both countries

– Netherlands production is 10% overstated

Recommendations

• Exports– Separate re-exports and exports from domestic

production– Record both total value and value added of re-exports– Record quasi-transit trade

• Production– Record separately sales of goods made under

contract abroad– Distinguish between intra-firm and extra-firm

processing abroad

World Re-exports and production abroad Billion US$

Minimum estimate of re-

exports

Maximum estimate of re-

exports

Production abroad

European Union 493 1359 22

World 804 2249 27

Comments

• Ownership not relevant for international trade statistics (ITMS 1998). Quasi transit not a problem!

• What is value-added? Increase in value or national accounts definition?

• Use “net exports” for goods typically re-exported – chemicals, transport and other machinery.