How can a RTA have a trade imbalance with itself?

Question

I'm looking at ASEAN data for 2015. It seems the intra-ASEAN exports are 305bn USD while the intra-ASEAN imports are only 238 billion USD. Am I misreading the statistics or is it actually possible for a group of countries to have such an imbalance in the group?

Answer 1

Yes, such imbalances or asymmetries are possible in practice and quite frequent across RTAs. These statistics simply mean that each ASEAN member exports more on average to the other members than they import from them. But this pattern is not true for all ASEAN countries.

• Singapore exports 118bn USD to the other ASEAN countries and imports 64bn USD from them.
• Mynamar exports 4bn to the other ASEAN countries and and imports 7bn USD from them.

Finally, they define the `intra-ASEAN exports' as the sum of the exports of the individual ASEAN countries (305 billion USD in the second column of ASEAN data).

In theory, this number should be equal to the sum of the individual imports from the other ASEAN members. To fix ideas, consider a RTA with 3 countries A,B, and C. If each country exports 10 to each partner. The sum of exports is equal to 60, and if A->B is equal to B<-A, etc. the sum of imports is also equal to 60.

In practice, this number is not equal because intra-RTA exports may not be calculated the same way as intra-RTA imports. This is explained in this Eurostat website for the intra-EU trade.

Asymmetries occur when the declaration of the importer in country A is not consistent with the declaration of the exporter in country B. Asymmetries come either from errors in reporting or from differences in the concepts and definitions applied by the partner countries. Some of the asymmetries of a methodological nature could disappear thanks to further harmonisation in national practices; others will continue as they are linked to basic principles for compiling ITGS which are unlikely to change (e.g. CIF/FOB valuation). The most common causes of methodological asymmetries are the following:

• simplified product reporting: Where the EU legislation allows simplified codification of goods for certain transactions, some Member States apply the simplifications but others do not;
• different approaches to estimating or compiling trade data for specific goods and movements not covered by customs or statistical declarations, such as gas, electricity, vessels or aircraft;
• confidentiality: It is possible that data are considered confidential by only one of the two partners. However, the application of the confidentiality procedures should not impact the results at total trade level;
• time lag: the same operation can be recorded under a different reference period because of transport times or processing delays;
• CIF/FOB valuation: imports are valued on a CIF basis and exports on a FOB basis. This causes a systematic asymmetry as the value of the imports should then be higher than the value of the mirror exports;
• differences in methods and data used to estimate missing trade;
• different practices in the treatment of revisions;
• problems of currency conversion; and
• other methodological differences such as definition of partner country, definition of statistical territory, trade system (special or general).

---

Why is the intra-EU trade balance not equal to zero?

Considering that the intra-EU trade data are based on common and largely harmonised rules, one might expect the intra-EU trade balance to be zero or at least close to it. However, it is worth underlining that a perfect match is made impossible first of all by the CIF/FOB approach: the import value should be higher than the mirror export value as it includes extra transport costs.

---

What is the 'Rotterdam effect'?

Dutch trade flows are over-estimated because of the so-called ‘Rotterdam effect’ (or quasi-transit trade): that is goods bound for other EU countries arrive in Dutch ports and, according to EU rules, are recorded as extra-EU imports by the Netherlands (the country where goods are released for free circulation). This in turn increases the intra-EU flows from the Netherlands to those Member States to which the goods are re-exported. To a lesser extent, Belgian figures are similarly overestimated.