Thank you, Mr. Chairman.
Today I'm going to divide my time with my colleague from the balance of payments division. We're going to give you a very brief overview of trade statistics and the balance of payments. What I'm going to do is talk about merchandise trade statistics. I'm going to tell you a bit about what we do and how we do it. Then I'm going to identify some of the quality issues we have with the merchandise trade statistics, and then I'll describe some of the actions we've taken in concert with our colleagues from Canada Border Services Agency in the last few years to address some of those quality issues.
In terms of my program, we have responsibility for producing monthly merchandise trade statistics. We do that on both a customs and a balance of payments basis. We also have price indices that we measure so that we can deflate the trade data. We also maintain what we call the harmonized commodity classification system, which is an internationally agreed-upon classification of merchandise. Our representative on that for Canada is the CBSA. It's a classification that's used widely throughout the world.
I call the other part of my program our “non-core” program. I call it that because it's not part of our core funding. We do a lot of this work on a cost-recovery basis with our policy colleagues. We've built what we call importer and exporter registers; we take information from the merchandise trade, aggregate those data on a company basis, and link it to our business register so that we can talk a bit about the characteristics of the importers and the exporters, the industries they're in, their employment size, etc.
We also produce what we call a world trade analyzer, which is a database we purchase from the United Nations statistical office. It includes the trade data from all of the countries. Then, through an algorithm, we try to reconcile those data, try to better understand the partner trade flows. We basically create a synthetic database of world trade.
The other activity we undertake is reconciliations. We deal with our bilateral partners and try to resolve some of the quality issues that I will mention later. We try to understand what is causing some of the differences between the import and export statistics.
The import statistics are generally viewed to be more accurate than export statistics. That's generally because there's been an interest on the customs side in terms of collecting duties, and lately GST and things like that, which leads our colleagues at Customs to be more focused on the inward flow of goods than on the outward flow of goods. In terms of our data sources, we get data from CBSA on the import side. On the export side, since 1990 we've had a data exchange with the United States: we use U.S. import data that we receive from the U.S. Census Bureau as Canadian exports to the United States, and vice versa; they use Canadian imports as U.S. exports to Canada in their trade statistics program.
The other part that we receive is non-U.S. exports. We have a variety of mechanisms for getting those data. Some of it is directly through CBSA, through paper forms called the B13A Export Declaration. The other program we run is called the computer-automated export declaration, and we do that in partnership with CBSA. They submit the data via computer; the data go jointly to CBSA and Statistics Canada. That's how we get the data.
In terms of some of the quality issues I mentioned, I have a list here. This is not a new list. If I go back to 1926, one of our former chief statisticians wrote a paper called “Canadian Trade Statistics; Imports and Exports: what they are; how to use them”. He identified all of these issues back in 1926 as issues related to the quality of trade statistics. There was a subsequent paper written in 1988 by one of our assistant chief statisticians that again went through errors in foreign trade statistics and proposed the methodology that we use to create what I mentioned earlier--the world trade analyzer database--in terms of doing an algorithmic reconciliation of those data.
The two issues I would like to focus on today are export under-coverage and misallocation of exports.
Export under-coverage refers to exports that are not reported to Canada Border Services Agency, so these are goods that are leaving the country without proper documentation. This is a problem we've been aware of for a long time. It's one of the problems that led to the data exchange with the United States when, in the 1970s, we did a number of trade reconciliations with them. As those differences became more acute, we finally signed a memorandum of understanding with them in 1989 to initiate the exchange of data starting in 1990.
The other issue is misallocated exports, and that is goods that are leaving the country. In this case they could be going through a second country. They may be declared. For instance, they could be goods that are going to the United States that are being cleared for consumption in the United States, but then are subsequently being destined to a third country, be it China or Mexico. This is a different issue for us, because at the aggregate level those trade flows are in our data, but they just aren't in the right country allocation. That's the concern we have with that.
I'll show you a graph, and this is perhaps one of the most egregious examples of the combined effect of these two factors. There is also perhaps some valuation issues that are in here. What we have in the dark blue line on the top is Mexican imports from Canada. On the bottom we have Canadian exports to Mexico, as reported by Statistics Canada. These are the two official trade statistics series, and you can see they diverge quite markedly.
These are measuring theoretically the same transactions, and they should be the same. What happens often is we have goods that are going through the United States, either in transit or they've been cleared for consumption in the United States, that are subsequently exported to Mexico. That's what's causing this problem. There may be markups as well for those goods if they're going through middlemen.
In terms of what we've been doing for the last few years, our colleagues at CBSA have been very cooperative, and they've consulted with us quite a bit. In 2003 they put in what they call administrative monetary penalties, and that's where they can actually fine exporters for not reporting correctly or not reporting at all. They have also put in place new regulations that require exporters to declare their exports prior to the goods leaving the country.
The one exception to that now is where they've started to negotiate with the marine and the air carriers what they call no load MOUs, which require that the carriers verify in advance that they have all the proper documentation, and if they do have all that documentation, then they are allowed to submit, I believe, in some cases up to a day later the transportation documentation to CBSA.
The other area where they have helped us a lot is we've developed jointly this computer-automated export declaration program, and it's become very popular. It's really taken off in the last four to five years. We started originally with this in 1998, but it's really since the implementation of the administrative monetary penalties that it's taken off, and we're in the neighbourhood of about 52,000 registered users of that right now.
With that, I will pass it over to my colleague to talk about the balance of payments basis.