4

Merchandise Trade

Of all the data on U.S. international transactions, those on merchandise trade probably have improved most in recent years. Despite having to monitor a volume of merchandise trade that has dramatically increased in the 1980s and despite significant budgetary constraints, the Customs Service and the Bureau of the Census have made significant strides in improving the data. However, several areas warrant further attention: doing so will result in a more accurate picture of U.S. merchandise trade.

This chapter describes the key features of merchandise trade data; delineates the existing collection system for those data; discusses the shortcomings of the system; and makes recommendations for their improvement. The emphasis is on ways to improve the quality of the data through strengthened quality assessment and quality assurance procedures, greater automation, and wider use of sampling techniques.

DATA ON MERCHANDISE TRADE: KEY FEATURES

Unlike other U.S. international economic statistics, which are estimates based on sample surveys of firms or establishments and other entities, merchandise trade data are compiled on the basis of full tabulation of the official import and export documents required by the Customs Service for tariff collection and export administration. Since January 1989, U.S. imports have been clas-



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BEHIND THE NUMBERS: U.S. Trade in the World Economy 4 Merchandise Trade Of all the data on U.S. international transactions, those on merchandise trade probably have improved most in recent years. Despite having to monitor a volume of merchandise trade that has dramatically increased in the 1980s and despite significant budgetary constraints, the Customs Service and the Bureau of the Census have made significant strides in improving the data. However, several areas warrant further attention: doing so will result in a more accurate picture of U.S. merchandise trade. This chapter describes the key features of merchandise trade data; delineates the existing collection system for those data; discusses the shortcomings of the system; and makes recommendations for their improvement. The emphasis is on ways to improve the quality of the data through strengthened quality assessment and quality assurance procedures, greater automation, and wider use of sampling techniques. DATA ON MERCHANDISE TRADE: KEY FEATURES Unlike other U.S. international economic statistics, which are estimates based on sample surveys of firms or establishments and other entities, merchandise trade data are compiled on the basis of full tabulation of the official import and export documents required by the Customs Service for tariff collection and export administration. Since January 1989, U.S. imports have been clas-

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BEHIND THE NUMBERS: U.S. Trade in the World Economy sified into 14,000 categories derived from the international Harmonized Commodity Description and Coding System (HS); exports have been classified in terms of 8,000 HS-based codes.1 The Census Bureau enters these data into computers, tabulates them in various forms, and publishes them every month. Many data are collected at the request of various public and private organizations. Monthly merchandise data record the physical movement of U.S. imports and exports of goods by value, commodity, and country of origin or destination, as well as the dutiable status and tariff rates of imports. They also capture the quantity, shipping weight, Customs Service district of exit or entry, method of transportation, and data by state. These detailed monthly statistics comprise more than 200,000 data cells. Their monthly tabulations and publication are beyond the requirements of federal statutes: Public Law 96-39 only requires reporting of imports by commodity (about 14,000 data cells) and the total for exports (one data cell) on a monthly basis. The Census Bureau releases to the public highlights of the nation 's merchandise imports, exports, and trade balance about 45 days after the end of the reference month. The monthly statistics include transactions of the reference month and transactions of earlier months that arrive too late for inclusion in previous reference months (that is, the carryovers). Data disaggregated at detailed commodity levels are often released later in various printed and machine-readable forms but with no regular publication schedules. Major monthly aggregate data series are seasonally adjusted. Aggregate data are also available on an annual basis. In addition, the Census Bureau tabulates various series of specific data at users' requests on a cost-reimbursable basis. The Census Bureau disseminates merchandise trade statistics in various forms, including printed reports, CD-ROMs (computer disk —read only memory), and magnetic tapes. The agency recently eliminated the production of microfiche reports. The Census Bureau's monthly merchandise trade statistics are also disseminated by the National Trade Data Bank, along with other economic data series. Figure 4-1 lists sets of data on merchandise trade prepared by the Census Bureau. Merchandise trade statistics are the most widely used data on U.S. international transactions. Federal agencies that closely monitor U.S. international trade include the Federal Reserve Board, the 1   There are more commodity codes for imports than exports because imports are subject to tariffs, and they are classified in greater detail in conformance with U.S. tariff schedules.

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BEHIND THE NUMBERS: U.S. Trade in the World Economy Department of Commerce, the Department of Agriculture, the International Trade Commission, and the Office of the U.S. Trade Representative. These agencies use the data to assess the U.S. trade outlook and trends in exchange and interest rates, to develop export promotion activities in international markets, and to formulate policy positions in bilateral and multilateral trade negotiations. Other major users of merchandise trade statistics include state and local government agencies, businesses, academic researchers, and private analysts. They use the data to assess trade patterns, evaluate foreign competition, and identify market opportunities at home and abroad. Also, increasingly, the transportation industry relies on shipment data to plan where and how much to invest in terminals and other facilities (U.S. General Accounting Office, 1989). In addition to the Census Bureau's merchandise trade statistics, other specialized primary data on U.S. exports and imports of specific commodities—not covered in this study—are collected and compiled by other federal agencies and private organizations. These data include: establishment data on exports of U.S. manufactured products compiled in quinquennial economic censuses and the Annual Survey of Manufactures (ASM) by the Census Bureau; monthly (since 1989) and quarterly export and import price indexes produced by the Bureau of Labor Statistics (BLS), based on BLS surveys of importers and exporters of selected commodities; statistics on imports and exports of crude oil and petroleum products generated by the Energy Information Administration (EIA), based on EIA data collected directly from importers and exporters; information on imports and exports of major agricultural commodities (such as grains, cotton, and oilseeds), gathered directly from corporate entities by the Department of Agriculture; and detailed information on U.S. waterborne cargoes to and from foreign countries for 63 U.S. ports, compiled under the privately owned Piers Import/Export Reporting Service (PIERS) of the Journal of Commerce. In addition, there are federal agencies, international organizations, and private businesses that take the Census Bureau data and add value to them by making them easier for users to get the specific information —for specific commodities and countries, on a time-series basis, seasonally adjusted, or using different classifications than those provided by the Census Bureau. These secondary sources include U.S. federal agencies like the International Trade Administration, which operates a foreign trade data bank, COMPRO, for government users; the International Trade Com-

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BEHIND THE NUMBERS: U.S. Trade in the World Economy FIGURE 4-1 Available Data on Merchandise Trade Monthly Publications and Hard-Copy Reports FT900 U.S. Merchandise Trade FT920 U.S. Merchandise Trade: Selected Highlights FT925 Exports, General Imports, and Imports for Consumption, SITC-Rev.3 Commodity by Country TM985 U.S. Waterborne Exports and General Imports Monthly Computer Printouts of Selected Foreign Trade Commodities IM145 U.S. General Imports, by harmonized TSUSA commodity IM146 U.S. Imports for Consumption, by harmonized TSUSA commodity EM545 U.S. Exports of Domestic and Foreign Merchandise, by harmonized Schedule B commodity Annual Publications and Hard-Copy Reports FT247 Imports for Consumption, 10-Digit HTSUSA by Country FT447 Exports, 10-digit HS Schedule-B Commodity by Country FT895 U.S. Trade with Puerto Rico and U.S. Possessions FT927 Exports and General Imports, Country by 3-digit SITC-Rev.3 Commodity FT947 Exports and General Imports, 6-digit HS Commodity by Country TA987 Vessel Entrances and Clearances Microcomputer Compact Discs CDEX(yr-mo) U.S. Exports of Merchandise Detail Database Commodity Summary Database Country Summary Database District of Export Summary Database Harmonized Commodity Masters, Exports Concordance Database Harmonized Commodity Masters, Commodity Descriptions Harmonized Commodity Masters, SITC Descriptions Country Name Database District Database CDIM(yr-mo) U.S. Imports of Merchandise Detail Database Commodity Summary Database Country Summary Database District of Entry Summary Database District of Unlading Summary Database Harmonized Commodity Masters, Imports Concordance Database Harmonized Commodity Masters, Commodity Descriptions Harmonized Commodity Masters, SITC Descriptions Country Name Database District Database U.S. Merchandise Trade Magnetic Tape IM145 Data Bank U.S. General Imports and Imports for Consumption EM545 Data Bank U.S. General Exports of Domestic and Foreign Merchandise

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BEHIND THE NUMBERS: U.S. Trade in the World Economy U.S. Merchandise Trade Magnetic Tape—Continued EM595 Shipments of Merchandise Between the United States and Puerto Rico and Shipments from the United States to the Virgin Islands Exports by State/Region/Port Magnetic Tapes EQ912 U.S. Exports of Domestic and Foreign Merchandise by State EQ932 U.S. Exports of Domestic and Foreign Merchandise by Region EQ952 Exports of Domestic and Foreign Merchandise by Port Transportation Magnetic Tapes TM380 U.S. Waterborne General Imports and Inbound Intransit Shipments TM780 U.S. Waterborne Exports and Outbound Intransit Shipments TM385 Monthly Vessel Entrances TM785 Monthly Vessel Clearances Microfiche IM175 U.S. General Imports and Imports for Consumption EM575 U.S. Exports by 4-digit SIC-Based Product Code EM595 Shipments of Merchandise Between the United States and Puerto Rico and Shipments from the United States to the Virgin Islands TM380 U.S. Waterborne General Imports and Inbound Intransit Shipments TM780 U.S. Waterborne Exports and Outbound Intransit Shipments TM385 Monthly Vessel Entrances TM785 Monthly Vessel Clearances TM980 Exports and General Imports by Vessel and Air Other Related Merchandise Trade Data Products and Sources CENDATA An on-line data service offering the most current and widely used facts, specializing in press releases and information on ordering the latest data products; includes entire monthly U.S. Merchandise Trade Press Release and Supplement. EBB The Economic Bulletin Board of the Department of Commerce provides information on economic growth, inflation, monetary and fiscal policy, and foreign trade subscribers. National Trade Data Bank Includes merchandise trade import and export data from the Census Bureau. Network Access to Compact Discs (CD-ROMs); HTSUSA and Schedule B Data IM145 U.S. General Imports IM146 U.S. Imports for Consumption IM545 U.S. Exports of Domestic and Foreign Merchandise Standard International Trade Classification (SITC) Databases   U.S. Exports U.S. General Imports End-Use Commodity Category Classification Databases U.S. Exports by State Database U.S. Imports Databank Database (HTSUSA) International Trade Administration COMPRO System

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BEHIND THE NUMBERS: U.S. Trade in the World Economy mission, which develops and maintains time-series data on U.S. foreign trade, now available to the public through the National Trade Data Bank operated by the Department of Commerce; the Bureau of Economic Analysis, which issues quarterly balance-of-payments data; and several others. International organizations, including the United Nations, the International Monetary Fund, the World Bank, the General Agreement on Tariffs and Trade, and the Organization for Economic Cooperation and Development (OECD), also receive and compile foreign trade data from member countries and produce numerous publications and other data products. In the private sector, many trade associations, consulting and research firms, and other organizations also act as retailers of the Census Bureau merchandise trade data to their clients or members. Some specialize in particular groups of commodities; others process a wide range of data from many of the primary and secondary sources and offer on-line access, tailored reports, and other information services. COLLECTION SYSTEM FOR MERCHANDISE TRADE DATA Under federal regulations (authorized under U.S. Code, Title XIII and its amendments), the Customs Service is responsible for collecting import and export documents, and the Census Bureau is charged to process them to compile merchandise trade statistics. The federal regulations stipulate that the Customs Service has overall responsibility for import documents (for example, the Customs Form 7501); the Census Bureau and the Bureau of Export Administration of the Department of Commerce are responsible for export documents (for example, the shippers' export declaration [SED]). Because of the bifurcation of responsibilities between Customs and Census, different federal regulations, methods, and procedures are applied to collect and process data on exports and imports. Figure 4-2 provides an overview of the collection and processing system for merchandise trade statistics. Exporters, importers, and their agents can file export and import documents either in paper form or electronically. Filing is mandatory except under certain conditions. SEDs are not required for export shipments when the value of commodities classified under each individual export commodity code is $2,500 or less, but commodities that are covered under export control regulations are not exempted. Reporting requirements for imports apply to transactions valued at $250 or more for selected commodities for which there are import quotas, and for all transactions

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BEHIND THE NUMBERS: U.S. Trade in the World Economy FIGURE 4-2 Merchandise trade data collection process.

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BEHIND THE NUMBERS: U.S. Trade in the World Economy valued at $1,250 or more for other commodities. To account for shipments below these cutoff levels in its monthly reports, the Census Bureau includes estimates for these shipments; however, the estimates are derived from outdated historical patterns of these shipments. According to Customs and Census officials, in 1991 about 86 percent of import transactions and about 48 percent of export transactions are being reported electronically. For 1990, a total of approximately 26 million import and export transactions were processed, an increase from about 18 million in 1980. The import and export documents are not protected by the confidentiality provision of Section 9 of Title XIII, U.S. Code. As a matter of policy, when individual companies object to the publication of data that reveal their own activities, Census has sometimes accommodated them by combining data for detailed commodities into larger groups. EXPORTS A carrier has 4 working days after the clearance date for departure of a shipment to submit to the Customs Service a manifest consisting of a batch of bills of lading and a summary sheet. The bills of lading contain information on quantities and destinations but not on values. The carrier must also present with each bill of lading a shippers ' export declaration (SED) showing the commodity shipped and its value or an explanation why no SED is required (for example, a low-value shipment). If a required SED is not forwarded by the carrier, Customs is supposed to pursue the matter. Small fines are sometimes imposed for failure to comply. The Customs Service ordinarily gives the SEDs little or no review for completeness or accuracy and forwards them daily to the Census Bureau's Data Processing Division at Jeffersonville, Indiana. According to Census, about 500,000 SEDs are currently received monthly by the Jeffersonville center. These account for about 52 percent of the export transactions (60 percent of the value of exports). SEDs are not required of more than 100 companies participating in the Census Bureau's Automatic Export Reporting Program (AERP). These companies send the required information monthly by modem, computer tapes, floppy disks, or machine-prepared shipment summaries directly to Census's Foreign Trade Division in Suitland, Maryland; 15 percent of export transactions (about 20 percent of the value) is reported through AERP. In addition, since January 1990, under a merchandise data-exchange program between

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BEHIND THE NUMBERS: U.S. Trade in the World Economy the United States and Canada, SEDs are generally not required for U.S. exports to Canada.2 The United States uses the import data compiled by Canada to report on U.S. exports to Canada. (Similarly, Canada uses U.S. import data to report Canadian exports to the United States.) These data are electronically transmitted by Statistics Canada (the Canadian government 's main statistical agency) to the Census Bureau's Foreign Trade Division; they account for about 32.5 percent of the export transactions (about 20 percent of the value of total U.S. exports). SEDs are also not required for export shipments under U.S. military assistance program aid to foreign countries, which are reported directly to the Census Bureau by the Department of Defense. IMPORTS Import data are collected on Customs Form 7501. The forms must be submitted by importers or their brokers to Customs during a period beginning 4 days before and ending 10 days after the arrival of the goods and must be accompanied by commercial documents showing the required tariffs. Because of cash-flow considerations, brokers may delay filing the forms until near the end of the period. According to Customs, in 1991 about 14 percent of the import transactions (22 percent of the value) were reported on Form 7501, which contains a (yellow) statistical copy. Until recently, Customs ordinarily mailed the statistical copy in daily batches to Jeffersonville without review. This “rip-and-strip” procedure was instituted in 1987 to improve timeliness of data processing. Because of problems with data accuracy, however, Customs started to phase out this procedure in December 1989 and to send the statistical copies to Customs import specialists for review and for necessary corrections before forwarding them by mail to Jeffersonville for processing. As a result, data have been received on a less timely basis, and Customs is working to reduce these delays. Currently, about 100,000 import documents are received by Jeffersonville monthly. The other 86 percent of import transactions (78 percent of the value) are filed under the Customs Bureau's Automated Broker 2   This exemption applies for general license merchandise; SEDs are required for merchandise transshipped through Canada, for grain shipments exported to Canada (whether or not the country of destination is shown as Canada or a third country), and for shipments exported to Canada that require a validated export license.

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BEHIND THE NUMBERS: U.S. Trade in the World Economy Interface (ABI) program, in which brokers transmit information by computer directly to the ABI. The ABI has a computer edit program, which includes statistical edits and parameters jointly developed by Customs and Census. Entries that fail the editing are sent back by computer to the brokers for corrections. Accepted entries are transmitted to the Customs mainframe in Franconia, Virginia. The Customs Service weekly extracts statistical data onto magnetic tapes, which are forwarded also on a weekly basis to Census's Foreign Trade Division at Suitland, Maryland, for further processing. Customs conducts a routine review of accepted entries. A complete review by an import specialist is made of a 2 percent random sample; a 100 percent review is made of certain categories of cases. When changes are needed in the ABI computer edit parameters, they are developed jointly by Customs and Census. CENSUS BUREAU PROCESSING When the shipping documents (7501s and SEDs) are received, staff members at Jeffersonville sort out all documents for high-value shipments (those worth more than $2 million for imports and $1 million for exports), which account for 1-2 percent of all documents but represent 40-50 percent of the total value of imports and exports filed manually. They are subjected to close scrutiny by higher level clerical staff. The remaining documents are subjected to various forms of clerical review, which include checking the completeness of the statistical data, identifying nonstatistical documents and separating them, and referring selected documents to higher level clerical staff. About 73 percent of the export documents are entered into the computer system, 24 percent are withdrawn because they are nonstatistical, and 3 percent are referred to higher level clerical staff for review because they contain high-value shipments or lack entries. For imports, the comparable figures are 72 percent entered, 11 percent rejected as nonstatistical, and 17 percent missing data, or, occasionally, of high value. More senior clerks impute missing data either by referring to manuals or, occasionally, by contacting importers or exporters. After these cursory reviews, serial numbers are affixed to SEDs, and the SEDs are then microfilmed. To minimize processing costs, import documents are no longer microfilmed. (Both the export and import documents are retained in batches for 2-3 months.) The next step is data entry, during which data are subjected to

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BEHIND THE NUMBERS: U.S. Trade in the World Economy simple computer edits. Computer files of the keyed data are transmitted by telephone daily to the Foreign Trade Division in Suitland for further processing. At Suitland the data undergo a more complex computer edit called the edit master. It contains commodity codes, permissible parameters and ranges for commodity prices, quantities, and other information. It checks the validity of commodity codes of all transactions. It also examines relationships between commodity value and quantity, commodity and country, and commodity and Customs Service's district. Data that fail this computer edit are either referred back to Jeffersonville for correction or reviewed and reconciled by the professional staff at Suitland. Data that pass are tabulated monthly. QUALITY CONTROL Although the Census staff subjects high-value shipments to close scrutiny, there are few formal procedures to ensure timely, accurate, and complete filing of documents (either manually or electronically) by importers and exporters. Computer edits currently represent the major quality-control tool of the data collection system. As noted above, the Customs Service does not routinely examine export documents. In contrast, it does review import documents as part of the tariff-collection process. In an effort to promote U.S. exports, Customs seeks to avoid creating obstacles to exports. In addition, Census regulations allow a carrier 4 working days after the departure of a shipment to file an SED or an explanation of why none is required. These policies and procedures make export data more vulnerable to inaccurate reporting than import data. Customs and Census do not systematically coordinate or communicate with importers, exporters, or their agents, except to resolve errors in some documents. Yet data filers directly determine the quality of trade statistics. Unless filers comply with reporting requirements, data will not be timely and accurate. Yet, neither Customs nor Census has systematic controls to ensure that all required 7501s and SEDs are filed and that they are received at the Jeffersonville data processing center. A Census supervisor recalled, for example, a case in which a mail pouch was received with a note from the post office that the pouch had broken in transit. The contents were in disarray. Whether any SED was lost could not be determined.

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BEHIND THE NUMBERS: U.S. Trade in the World Economy geted for delay in approval for shipping because of a history of incomplete or inaccurate statistical reporting. Customs may actually select the target because of a drug or other control program but announce and display SED inaccuracy as the cause of such an action. The information from the trading community suggests that word travels fast and such delays would raise concerns about the effects on operating profit and provide an incentive for better compliance with statistical reporting requirements. This strategy is similar to that used by the IRS and other compliance enforcement agencies. Producer- User Interface The Foreign Trade Division provides statistical products much needed by federal government agencies, state and local governments, academia, and private industry. User needs are central to any consideration of data quality, and FTD would be better able to decide what to produce if it had more information on user needs. FTD has received some such feedback and has been responsive to some of the demands for data, but there are many users or prospective ones who remain less than completely satisfied with the data now available. Periodic surveys of both public and private current and prospective users should be undertaken. The panel's survey of data users clearly revealed that different users attach different priorities to having merchandise trade statitsics that are accurate, timely, detailed, or as comprehensive in coverage as possible. In view of resource and other constraints, meeting one user's needs might not fulfill another's. Nonetheless, the panel believes that improvements in process productivity through enhanced data management should enable Customs and Census to improve data accuracy, timeliness, and coverage to better meet the needs of most users. Producer-Filer Interface The quality of merchandise trade data depends not only on Custom's and Census's resources, but also on the completeness and accuracy of the original data provided by exporters, importers, brokers, forwarders, and carriers. Customs and Census should make additional efforts to cultivate and develop a symbiotic relationship with filers. Users should be encouraged to educate the public on the advantages of having reliable trade data and the need to support programs that generate

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BEHIND THE NUMBERS: U.S. Trade in the World Economy them. In addition, private industry, through its trade organizations, meetings, and publications, should be urged to take steps to ensure greater accuracy of the raw data provided to FTD. The accounting and financial management professions should be asked to assist in establishing standards for the basic record-keeping necessary to provide the required information to FTD. Reporting Data Adjustments for Undercounts and Imputations Before the commencement of the current U.S.-Canada data exchanges, Census adjusted export totals to account for the undercount of U.S. exports to Canada on the basis of results of reconciliation studies. If the completion of several more port audits and the establishment of a continuous independent review system produce evidence to permit quantification of the extent of undercount of U.S. merchandise exports to other countries, actual adjustment of published data to incorporate the undercount should be done. Relegating mention of undercounts to footnotes or technical publications, while perhaps sufficient for academicians, may not best serve policy interests. Public perceptions about the U.S. trade balance and the country's economic well-being, as well as the reaction of financial markets, may be highly conditioned by newspaper headlines and the 20 seconds of airtime on television and radio devoted monthly to the release of trade data. In addition, since little has been published on the methods used in the U.S.-Canada data reconciliations, such information on future data adjustments should be documented and made available to users. Moreover, where more than a certain number or percent of the entries of a given cell are based upon imputations—the criteria should be statistically determined—data users should be alerted either by means of a footnote or by use of a different type or size of print for that cell. Matrix Organization Although top Census and Customs officials almost certainly are highly committed to fulfilling their joint responsibility to provide accurate import and export statistics, this may not always be the case at working levels. Management attention, incentives, resources, and rewards in any organizatoin are directed at the major functions of the organizations and their subcomponents: Customs is necessarily more concerned with collecting tariffs on

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BEHIND THE NUMBERS: U.S. Trade in the World Economy imports and controlling selected imports and exports; Census focuses on processing statistical data. The preoccupation of organizations with their primary mission to the detriment of secondary or tertiary responsibilities has been addressed in the managerial literature, which is replete with suggestions on how to deal with it. One approach that might have merit for trade statistics would be to create a matrix organization, in which employees of different units or functions are temporarily placed in a unit working on a common problem. Some staff members from Customs and Census have expressed a desire for greater contact and “networking ” among employees of the two organizations. Port audits, difficult cases, commodity classification problems, and contact with trade sources are just a few areas for which joint efforts at the working level could be intensified. Long-Range Planning Because of the ever-increasing and evolving nature of international trade, fundamental changes in concepts, collection methods, processing procedures, and methods of dissemination will be required to respond adequately to changing data needs. Collecting, tabulating, and disseminating data are arduous tasks requiring attention to immediate problems; those who manage these operations seldom have time to address future concerns. To permit more detached attention to longer range planning related to trade statistics, consideration should be given to the establishment of a small high-level unit at Census or Commerce. Its principal function would be to deal with long-range problems associated with concepts, computerization, new product development, and organizational adjustments that may be needed in the months and years ahead. INCREASED AUTOMATION Although there has recently been a substantial rise in electronic filing of import data under Customs' ABI program, Census has had little success in increasing electronic filing of export data. As a result, there remains a large volume of trade documents that have to be processed manually by Census each month (about 8 million in 1990, in comparison with 13 million in 1985). Indeed, the manual processing of import and export documents consumes about one-third of the $16 million annual budget of Census's Foreign Trade Division. More electronic filing of trade documents

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BEHIND THE NUMBERS: U.S. Trade in the World Economy by importers and exporters would significantly reduce collection costs. This change, accompanied by a substantial increase in FTD 's data processing capabilities, should enhance data accuracy and timeliness. Electronic reporting of imports has increased substantially in recent years, and the prospects are good that additional importers, exporters, brokers, and carriers will automate their operations in the future. Accuracy The undercount of exports and erroneous detailed product data are problems relating to accuracy. They result from a failure to file documents and from inaccuracies in information contained in the filed documents. As illustrated by the electronic reporting of imports, greater automation of export reporting could bring benefits. It could facilitate data capture and improve data processing capabilities. It might also reduce costs of implementing improved procedures to detect and correct anomalies in data reported, as well as of following up on missing data. Moreover, it would facilitate the reporting of the apparently growing volume of low-value shipments that are now too costly to capture and tabulate. Each of these changes could increase the accuracy of reported trade data. Although merely increasing the fraction of documents filed electronically would not necessarily provide more accurate data, an improved database would make it less costly to conduct audits and cross-checks of trade data with other data sources, such as the in-house Census data on manufactured exports reported on the Annual Survey of Manufactures (ASM) questionnaires. Furthermore, a greatly improved data processing capability would enable Census to treat international trade data, domestic production data, and input data as part of a consistent, coherent body of economic information. Revisions FTD currently revises monthly import and export statistics in several ways. On a monthly basis, aggregate import, export, and trade balance figures for the prior month are adjusted for carryovers. On a quarterly basis, FTD publishes a list of errata for prior months' statistics. Recently, on an annual basis in May, FTD has been publishing revised merchandise trade statistics for the prior year. With an improved capability to manipulate data, it would be pos-

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BEHIND THE NUMBERS: U.S. Trade in the World Economy sible for FTD to undertake revisions at the detailed level for the calendar year at minimal costs and on a timely basis. Timeliness Increased automation could improve the timeliness not only of the initial trade data releases, which already take place fairly promptly (and which, with improved editing procedures, would be more accurate), but also of the later detailed data that presently have no preassigned schedule for regular release. With both greater processing flexibility and tabulation capability, it would be possible, at little incremental cost, to generate reports that otherwise might have to be delayed or discontinued because of their cost. Automated Export Reporting The capture of data can be automated in the paper-handling process by using various available imaging and character recognition or electronic note-pad technologies. It also can be automated by moving toward an all-electronic system of filing trade documents. Two considerations led us to give most attention to the second approach. The first is that many obstacles and disincentives to the electronic filing of export documents have been eliminated or reduced. Until recently, FTD's automated reporting program for exports was perceived to be limited to large exporters. Although the set-up costs had declined markedly since the program was initiated in the early 1970s, it was apparently still considered too costly to be worthwhile for small exporters to participate. The extension of the program to freight forwarders and carriers in recent years has removed a major obstacle, making it feasible for small exporters' shipments to be reported electronically. Our second consideration is that in the not-too-distant future there is likely to be a major effort to standardize international electronic trade and shipping documentation. Simplification and consolidation of export documentation through the development of a universal electronic shipping and trade document should provide an incentive to filers to participate in FTD's automated reported program for exports. A better understanding is needed of why many exporters are reluctant to file electronically. Our discussions of the program with nonparticipant exporters and forwarders yielded explanations that ranged from “ I had not heard of it” to “What's in it for me?” Others noted there is no pressure to participate comparable to

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BEHIND THE NUMBERS: U.S. Trade in the World Economy that applied by Customs to get importers and brokers to participate in ABI. A forwarder participating in the automated export program for 3 years, who was the only exporter or forwarder in his port to participate, stated that his decision to participate was based on three considerations: his export operations had been computerized 5 or 6 years ago; the trend of all export operations was toward computerization; and steamship companies and exporters were starting to ask for, if not insist on, more computerized handling of data. He suggested that the participation of other forwarders would depend primarily on their current and future use of computers. He also noted that an obstacle to his beginning use of AERP had been that helpful commercial software was not available. As a result, his in-house programmer had to devise a system for his firm. These views may not be representative of the thousands of exporters and forwarders, but they clearly indicate the need for marketing and educational programs. Customs and Census should consider other measures to advance use of automated reporting in the export clearance process. Such measures might include frequent imposition of penalties for failing to file SEDs or for filing incorrect SEDs and, perhaps, last-in-line handling of nonautomated reporting shipments. More generally, Customs might take more leadership in this area, which would convey the impression that it is Customs, and not Census, that is driving the program. Customs and Census have developed a joint proposal to expand the Custom's existing Automated Commercial Systems linkage for electronic data interchange with brokers, importers, carriers, and port authorities, which would process data on exports as well as imports. The two agencies tentatively termed this proposal the automated export system (AES). A multiagency committee would be assembled to coordinate development of the system and provide operational guidelines. In addition to Customs and Census, export licensing agencies, including the Departments of Commerce, State, Defense, Agriculture, and Energy, as well as the Office of the U.S. Trade Representative, would be represented on the committee. The proposal anticipates funding largely by Customs. Census would finance its own increase in computer capacity to handle the additional workload. Other participating agencies would underwrite improvements in their own computer systems and the costs of linking to the Customs computer. Initial costs for Custom's share of the export system are projected to be $38 million over a 5-year period. FTD has requested $3 million ($600,000 per year for fiscal 1992-1996) for its portion of development costs.

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BEHIND THE NUMBERS: U.S. Trade in the World Economy These costs include capital expenditures as well as four additional full-time employees. It projects that the participating rates of the exporting community will be 10, 20, 40, 50, and 60 percent over the 5 years beginning in fiscal 1992. FTD summarizes the benefits of AES as follows: reducing the distortions in the trade balance by substantially eliminating the nonreporting and undervaluation of exports; cutting the manual documentation costs to private industry; eliminating the manual data capture of 6 million SEDs annually; facilitating export trade; speeding the export process; assisting in curtailing illegal exports; and providing the potential to release trade statistics earlier. FTD estimates that under AES, it would achieve cost savings of $600,000 in 1994, $900,000 in 1995, and $1.2 million in 1996. In evaluating the proposed development of the AES, one must recognize that securing more accurate merchandise export statistics is only one element. Administration and congressional approval will also depend on the other objectives. Nevertheless, if the projected net benefits can be validated, the proposal should be supported as desirable. A recent survey by the National Trade Facilitation Council, a large trade association, indicated many current manual reporters would voluntarily consider converting to electronic filing only if convinced that, despite the initial investment of money and time necessary for the conversion, the system would cut their overhead and personnel costs. Our interviews with foreign government officials suggest that importers and exporters have provided the impetus for the automated trade data reporting systems in their countries. Thus, to achieve the desired participation rate, emphasis should be placed on working with exporters and their agents in designing the system so that it is user friendly and economical and advantageous to them. An extensive educational effort should be conducted under the leadership of Customs. In addition, however, since there are incentives for underreporting and nonreporting, concerned agencies should also continue efforts in other areas, such as interchange of data, port audits, and a continuous independent review system. USE OF SAMPLING TECHNIQUES As described above, export data are currently based on the processing of official documents for all transactions valued at $2,500 or more, and import data are based on all transactions valued at $1,500 or more (plus those valued at $250 or more that are cov-

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BEHIND THE NUMBERS: U.S. Trade in the World Economy ered by import quotas). The panel was asked to consider whether sampling should be used, primarily in order to reduce the high cost of manual processing of documents; a detailed analysis is presented in Appendix F. We concluded that probability sampling of shipments above the cutoffs (that is, all reported shipments) is not a practical option in the short term because of the large number of cells for which data are published each month. The majority of the cells have fewer than five transactions, and the sampling errors for estimates of these cells would be unacceptably large. The savings for imports would be relatively small because most imports are reported electronically. For the longer term, the panel sees three options: (1) introducing probability sampling while substantially reducing the level of detail in which monthly data are published; (2) making substantial efforts to increase the proportion of export transactions reported electronically or in another form that will not require manual data entry; and (3) collecting import and export data directly from a sample survey of establishments. Options (1) and (2) should be considered as alternatives. Although several panel members suggested that the present level of monthly detail is unnecessary for public policy-making purposes, the panel decided in favor of option (2), which would preserve the ability to provide the present amount of detailed monthly information on merchandise trade. Option (1) should be considered only as a fallback position if efforts to reduce or at least contain the cost of processing the documents are unsuccessful. In the longer term, option (3) deserves serious consideration. Future increases in bilateral free trade agreements and regional free trade zones may make it impossible to obtain adequate information from official trade documents. Data on trade in services are already being collected in establishment surveys, and increasing difficulties in distinguishing trade in goods and services may make it desirable to collect information on both types from the same source. In addition, collecting data from establishments and enterprises would make it possible to obtain certain kinds of information not readily available from official trade documents, such as intracompany trade activities and the use of imported intermediate inputs in exported commodities. Another use of sampling techniques would be to collect data on international air shipments (including low-value ones) in surveys of transportation companies, which would include all such large firms; many low-value shipments are currently excluded from coverage by the reporting cutoffs.

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BEHIND THE NUMBERS: U.S. Trade in the World Economy RECOMMENDATIONS Our recommendations for improving merchandise trade statistics are grouped in three major areas: data quality and quality control, automation, and sampling. Within each area, recommendations are listed in order of their relative importance, with the most important one listed first. DATA QUALITY AND QUALITY CONTROL Recommendation 4-1 The Customs Service and the Census Bureau should strengthen their enforcement efforts to assure accurate and timely reporting of exports to correct the problem of export underreporting. The Census Bureau should no longer allow carriers to report exports as late as 4 days after departures of shipments. Incentives should be provided to exporters to file promptly and accurately. Increased efforts should be made to exchange and reconcile data with major trading partners and to perform port audits. In order to guide the allocation of resources devoted to data quality improvement, the Census Bureau should identify the characteristics of those filers prone to incomplete or inaccurate reporting. Recommendation 4-2 The Customs Service and the Census Bureau, in order to guide those responsible for data collection, analysis, and dissemination, should identify and develop measures of the quality of merchandise trade statistics. The quality measures should permit overall estimates of the quality of the published merchandise trade data and estimates of the quality of specific key processes, such as data collection, coding, editing, imputation, error correction, and revision procedures. Recommendation 4-3 The Census Bureau and the Customs Service should work closely with data filers to evaluate and improve the quality of the incoming trade data. They should also work closely with merchandise trade statistics users to monitor continuously the users' perceptions of the quality of trade statistics and to improve continuously their production processes and the quality of the data. Recommendation 4-4 The Census Bureau should establish a continuous independent review system (CIRS), in which the incoming information for a small sample of import and export transactions would be independently reviewed by professional staff and the results would be used to determine

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BEHIND THE NUMBERS: U.S. Trade in the World Economy the sources and causes of errors and to develop procedures to improve data quality. Recommendation 4-5 In addition to coordinating with the Customs Service, the Census Bureau should develop mechanisms for comparing Census data with monthly agricultural export data compiled by the Department of Agriculture directly from firms and with monthly oil import data gathered by the Energy Information Administration (EIA) of the Department of Energy directly from oil companies. Agricultural exports and oil imports not only represent two large components of U.S. trade, but also are subject to large seasonal changes. Cross-checking of monthly data with Agriculture and EIA should enhance the ability of the Census Bureau to detect error-prone data and work toward improving their accuracy. Furthermore, comparisons of Census's Foreign Trade Division annual export data on manufactured goods with data on manufactured exports recorded in the Annual Survey of Manufactures (ASM) conducted by Census's Industry Division should yield similar payoffs. Recommendation 4-6 Measures of uncertainty about the accuracy of trade data should be published. In particular, attention should be given to establishing normally acceptable ranges for the fluctuations displayed in monthly trade balance figures. In addition, the Census Bureau should assess the feasibility of applying alternative seasonal adjustment procedures to produce data more indicative of underlying trends. Recommendation 4-7 The Customs Service and the Census Bureau should develop a continuing port audit program. Recommendation 4-8 The Census Bureau should strengthen its research and analytic capabilities so that it can develop a consistent concept to measure the trade balance and derive consistent time-series data on U.S. imports and exports. It should also work with the Bureau of Economic Analysis to develop concepts, definitions, and measures to capture the fast-growing intracompany trade and trade in intermediate inputs. The Census Bureau and the Bureau of Economic Analysis should seek outside professional advice from analytic users and other experts in these efforts. Recommendation 4-9 Users should be actively encouraged, in meetings of user groups and by other means, to inform the

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BEHIND THE NUMBERS: U.S. Trade in the World Economy Census Bureau about suspected errors in the data cells that are of particular interest to them. Census should make a commitment to use such feedback, not just to correct any errors that may be identified, but to look for improvements in processes to reduce future errors. AUTOMATION Recommendation 4-10 The Census Bureau should accelerate its efforts to improve its processes for collecting, processing, and disseminating trade data through increased automation. The Census Bureau should initiate a joint effort with other appropriate agencies to develop a simplified universal electronic shipping and trade document. SAMPLING Recommendation 4-11 The Census Bureau and the Bureau of Economic Analysis should consider initiating a substantial multiyear effort to develop and test concepts, content, design, and procedures for surveys to collect integrated merchandise and services trade data from establishments. Initially, the goal of such surveys might be to supplement existing sources of data, but the Census Bureau should give serious consideration to the long-run objective of replacing the compilation of merchandise trade data from official documents. Common data sources will enhance comparability of data. Recommendation 4-12 The Census Bureau should stop including estimates for low-value shipments by country because of the questionable quality of these monthly estimates in the official monthly figures. Available information about the effects of excluding transactions below the cutoffs should be included in statements that describe the sources and limitations of the data. An independent establishment-based survey of international air shipments should be considered as a way of filling one of the significant gaps resulting from the exclusion of low-value transactions, especially if interested user groups are willing to provide partial funding. Recommendation 4-13 Probability sampling procedures should be used to the greatest extent possible in the Census Bureau's effort to control and improve the quality of its foreign trade data.