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World Trade and World Production

Learn about challenges in merchandise exports and production overstating economic activity in Netherlands due to globalization. Explore solutions and recommendations for accurate trade statistics and value-added production.

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World Trade and World Production

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  1. World Trade and World Production Mike Berends-Ballast Jan van Laaden

  2. 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

  3. 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?)

  4. Exports and Re-Exports (Billion €)

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. World Re-exports and production abroad Billion US$

  11. 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.

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