BEHIND THE NUMBERS

U.S. Trade in the World Economy

ANNE Y. KESTER, Editor

Panel on Foreign Trade Statistics

ROBERT E. BALDWIN Chair,

Committee on National Statistics

Commission on Behavioral and Social Sciences and Education

National Research Council

NATIONAL ACADEMY PRESS
Washington, D.C.
1992



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BEHIND THE NUMBERS: U.S. Trade in the World Economy BEHIND THE NUMBERS U.S. Trade in the World Economy ANNE Y. KESTER, Editor Panel on Foreign Trade Statistics ROBERT E. BALDWIN Chair, Committee on National Statistics Commission on Behavioral and Social Sciences and Education National Research Council NATIONAL ACADEMY PRESS Washington, D.C. 1992

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BEHIND THE NUMBERS: U.S. Trade in the World Economy NATIONAL ACADEMY PRESS 2101 Constitution Ave., N.W. Washington, D.C. 20418 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competencies and with regard for appropriate balance. This report has been reviewed by a group other than the authors according to procedures approved by a Report Review Committee consisting of members of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. This project was supported by funds from the Bureau of the Census, the Bureau of Economic Analysis, and the International Trade Administration, all of the U.S. Department of Commerce; the Customs Service of the U.S. Department of the Treasury; and a research grant from the Chase Manhattan Bank. Library of Congress Cataloging-in-Publication Data National Research Council (U.S.). Panel on Foreign Trade Statistics. Behind the numbers : U.S. trade in the world economy / Panel on Foreign Trade Statistics, Committee on National Statistics, Commission on Behavioral and Social Sciences and Education, National Research Council ; Anne Y. Kester, editor. p. cm. Includes bibliographical references and index. ISBN 0-309-04590-8 1. Exports—United States. 2. United States—Commerce. 3. United States—Foreign economic relations. I. Kester, Annie Y. II. Title. HF3031.N38 1992 382'.0973—dc20 91-42746 CIP This book is printed on acid-free recycled stock that is made from 70% de-inked fiber of which 10% is postconsumer waste. Copyright © 1992 by the National Academy of Sciences No part of this book may be reproduced by any mechanical, photographic, or electronic procedure, or in the form of a phonographic recording, nor may it be stored in a retrieval system, transmitted, or otherwise copied for public or private use, without written permission from the publisher, except for the purpose of official use by the United States government. Printed in the United States of America

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BEHIND THE NUMBERS: U.S. Trade in the World Economy PANEL ON FOREIGN TRADE STATISTICS ROBERT E. BALDWIN (Chair), Department of Economics, University of Wisconsin, Madison ANDREW F. BRIMMER, Brimmer & Co., Inc., Washington, D.C. ROSANNE COLE, IBM Corporation, Armonk, New York RICHARD N. COOPER, Department of Economics, Harvard University DAVID T. DEVLIN, Citibank, New York City A. BLANTON GODFREY, Juran Institute, Wilton, Connecticut JERRY A. HAUSMAN, Department of Economics, Massachusetts Institute of Technology HELEN B. JUNZ, International Monetary Fund, Washington, D.C. ROBERT Z. LAWRENCE, John F. Kennedy School of Government, Harvard University EDWARD E. LEAMER, Anderson Graduate School of Management, University of California, Los Angeles S. JAMES PRESS, Department of Statistics, University of California, Riverside W. ALLEN SPIVEY, Department of Statistics, Graduate School of Business Administration, University of Michigan MARTIN B. WILK, Department of Mathematics and Statistics, Carleton University, Ottawa, Canada ANNE Y. KESTER, Study Director EDWIN D. GOLDFIELD, Consultant THOMAS B. JABINE, Consultant SAMUEL PIZER, Consultant JACOB DEUTCH, Consultant ELLEN TENENBAUM, Consultant LINDA INGRAM, Consultant FLORENCE E. WOLF, Administrative Assistant MELISSA MARSDEN, Project Assistant MICHELE CONRAD, Project Assistant HELEN LOPEZ, Office Assistant

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BEHIND THE NUMBERS: U.S. Trade in the World Economy COMMITTEE ON NATIONAL STATISTICS 1990-1991 BURTON H. SINGER (Chair), Department of Epidemiology and Public Health, Yale University NORMAN M. BRADBURN, National Opinion Research Center, University of Chicago RONALD S. BROOKMEYER, Department of Biostatistics, Johns Hopkins University MARTIN H. DAVID, Department of Economics, University of Wisconsin ANGUS S. DEATON, Woodrow Wilson School of Public and International Affairs, Princeton University LOUIS GORDON, Department of Mathematics, University of Southern California ROBERT M. HAUSER, Department of Sociology, University of Wisconsin GRAHAM KALTON, Survey Research Center, Institute for Social Research, University of Michigan WILLIAM A. MORRILL, Mathtech, Inc., Princeton, New Jersey DOROTHY P. RICE, Department of Social and Behavioral Sciences, School of Nursing, University of California, San Francisco JOHN E. ROLPH, The RAND Corporation, Santa Monica, California DONALD B. RUBIN, Department of Statistics, Harvard University KENNETH W. WACHTER, Department of Statistics, University of California, Berkeley MIRON L. STRAF, Director

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BEHIND THE NUMBERS: U.S. Trade in the World Economy Contents     ACKNOWLEDGMENTS   ix     SUMMARY OF MAJOR CONCLUSIONS AND RECOMMENDATIONS   1      Supplementing the Existing Statistical Framework and Integrating Disparate Data Sets,   2      Enhancing Data Quality,   6      Improving the Data Collection and Data Analysis Interface,   14     INTRODUCTION   19      The International Economic Environment,   21      Data Needs,   22      Focus of Analysis,   24      Methodology and Report Structure,   28  PART I   ENHANCING THE USABILITY OF DATA ON U.S. INTERNATIONAL TRANSACTIONS       1  SUPPLEMENTING THE BALANCE-OF-PAYMENTS FRAMEWORK   33      Existing Statistical Framework,   34      A Supplemental Framework,   37      Recommendation,   45

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BEHIND THE NUMBERS: U.S. Trade in the World Economy     2  EXTENDING THE COMPARABILITY OF INTERNATIONAL AND DOMESTIC ECONOMIC DATA   46      Comparable Data: Needed But Lacking,   46      Merchandise Data,   52      Services Data,   56      Other Data,   58      Recommendations,   61     3  DEVELOPING A FLEXIBLE DATA SYSTEM FOR U.S. INTERNATIONAL ECONOMIC ACTIVITIES   63      Current Data,   64      Role of Statistical Agencies,   66      Recommendations,   72  PART II   IMPROVING DATA ON MERCHANDISE TRADE, INTERNATIONAL SERVICES TRANSACTIONS, AND CAPITAL FLOWS       4  MERCHANDISE TRADE   77      Data on Merchandise Trade: Key Features,   77      Collection System for Merchandise Trade Data,   82      Shortcomings of the Data System,   93      Improved Data Quality,   99      Recommendations,   111     5  INTERNATIONAL SERVICES TRANSACTIONS   114      Data on International Services Transactions: Key Features,   115      Methods of Estimating International Services Transactions,   118      Limitations of the Data,   150      Recommendations,   154     6  INTERNATIONAL CAPITAL FLOWS   156      Data on Capital Flows: Key Features,   158      Data Systems for Private Capital Flows,   159      Limitations of the Data,   164      Recommendations,   172

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BEHIND THE NUMBERS: U.S. Trade in the World Economy     APPENDICES       A  Sales and Purchases of Goods and Services Between Americans and Foreigners   177     B  Canvass of Data Users   187     C  A Comparison of U.S. Export Statistics With Those of Major Trading Partners   221     D  Variability in Month-to-Month Changes in the Seasonally Adjusted Merchandise Trade Balance   225     E  An Alternative Seasonal Adjustment Procedure for Merchandise Trade Data   237     F  Options for the Use of Sampling to Collect Merchandise Trade Data   245     G  Biographical Sketches of Panel Members and Staff   258     ACRONYMS   264     REFERENCES AND BIBLIOGRAPHY   267     INDEX   285

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BEHIND THE NUMBERS: U.S. Trade in the World Economy The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Frank Press is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Robert M. White is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Stuart Bondurant is acting president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Frank Press and Dr. Robert M. White are chairman and vice chairman, respectively, of the National Research Council.

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BEHIND THE NUMBERS: U.S. Trade in the World Economy Acknowledgments This report covers many major issues and areas concerning the information needed to guide public and private decision making in the increasingly internationalized U.S. economy. In undertaking the study, the panel benefited greatly from the technical assistance provided by the capable staffs of the sponsoring agencies, as well as from the help of numerous experts from other federal agencies, international organizations, businesses, trade associations, and private researchers. For their invaluable assistance, we are particularly indebted to Charles Waite and Don Adams of the Census Bureau; Samuel Banks of the Customs Service; Allan Young, Carol Carson, Steven Landefeld, and Obie Whichard of the Bureau of Economic Analysis; William Sullivan of the International Trade Administration; Lois Stekler of the staff of the Federal Reserve Board; Fuku Kimura of the State University of New York at Stonybrook; Mark Watson of Northwestern University; and Ruth Judson at the Massachusetts Institute of Technology. We are also grateful to many others: From the Census Bureau: Bruce Walter, Gerald E. Kotwas, Walter Neece, Francis McCormick, John Govoni, Kathy Puzzilla, Charles Wood, and Michael Farrell. From the Customs Service: Roland Bernier. From the Bureau of Economic Analysis: Betty Barker, Anthony J. Dilullo, Ralph Kozlow, Howard Murad, David Belli, Russell Scholl, and Paula Young. From the International Trade Administration: Victor Bailey, Lester Davis, Bruce Guthrie, Douglas Cleveland, and Roger Palmeroy. From

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BEHIND THE NUMBERS: U.S. Trade in the World Economy the Office of Business Analysis of the Department of Commerce: John E. Cremeans. From the Federal Reserve Board: Peter Hooper III, Guy V.G. Stevens, Albert M. Teplin, and Kathryn Morisse. From the Federal Reserve Bank of New York: Akbar Akhtar and Beth Schwartzberg. From other government agencies: Bernard Ascher and Geza Feketekuty, Office of the U.S. Trade Representative; Paul Bugg, Office of Management and Budget; Henry Kelly, Office of Technology Assessment; Ashby McCown, U.S. Department of the Treasury; Katrina Reut and Brian MacDonald, Bureau of Labor Statistics; and Eugene A. Rosengarden, U.S. International Trade Commission. From the International Monetary Fund: Jack J. Bame, Mahinder Gill, Keith McAlister, and John McLenoghan. From the World Bank: Michael Finger. From the Organization for Economic Cooperation and Development: Andrew Wyckoff. Researchers, business executives, and others: Walter Joelson, General Electric; Walter Lederer, private consultant; Clopper Almon, University of Maryland; William Cline, Institute for International Economics; Joseph Duncan, Dun & Bradstreet; Jacob Ryten, Statistics Canada; Nicholas Sargen, Salomon Brothers, Inc.; Robert Mellman, J.P. Morgan; F. Helmut Brammen, the National Trade Facilitation Council; Brian Horrigan, WEFA Group; Alvis Pauga, Foreign Trade Data Users Group; Margaret McCarthy, University of Maryland; and staff of the Committee on International Trade and Foreign Relations, National Governors ' Association. Many data users and data filers participated in our canvass of their views of the existing statistical systems on U.S. international transactions. To each of them, we extend our gratitude for their insightful comments. The completion of the study would not have been possible without the dedication and expertise of the panel's staff. Under the capable leadership of our study director, Anne Kester, our consultants worked effectively to gather information, analyze it, and develop options. We thank Thomas Jabine for his analyses of the possible uses of sampling in the collection of data and of users' data needs, Samuel Pizer for his reviews of existing data on international services transactions and capital flows, Jacob Deutch for his work on quality control and the need for increased automation, and Ellen Tenenbaum for her assessments of the comparability of trade and domestic economic data. We could not have undertaken this effort had it not been for Miron Straf, director of the Committee on National Statistics, and Edwin Goldfield, senior associate on the committee staff, who

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BEHIND THE NUMBERS: U.S. Trade in the World Economy were instrumental in the formation of the panel, sought funding for its work, and freely shared their many insights about the federal statistical systems. We are also grateful to Eugenia Grohman, associate director for reports of the Commission on Behavioral and Social Sciences and Education, for her able and efficient guidance throughout the editing and production of this report. We thank Melissa Marsden and Helen Lopez for their patience in typing various drafts of the report and their capable assistance on a host of administrative matters. Our special appreciation goes to Anne Kester for her outstanding efforts in directing the study. Anne recruited our consultants. She worked untiringly with panel members to thoroughly investigate the issues and enthusiastically coordinate our work with numerous experts in the United States and abroad. Anne also made significant substantive contributions to the study. Finally, over the past 2 years, the panel members provided their untiring services despite their busy schedules. I am especially grateful to them for their efforts and achievements on behalf of the study. Robert E. Baldwin, Chair Panel on Foreign Trade Statistics

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