Business

Why discrepancies in our copper trade records?

ZIPAR CORNER with SHEBO NALISHEBO & MWANDA PHIRI
THE destination of Zambia’s copper exports has recently triggered a myriad of reactions from various stakeholders, raising questions on the accuracy of trade data reported by the Central Statistical Office (CSO) in their monthly bulletin.
The contentious issue that has emerged suddenly is that while official Zambian trade statistics name Switzerland as the major export destination of Zambia’s exports (about 53.5 percent of all Zambian exports of which 98.6 percent were cathodes and sections of cathodes of refined copper and copper blister in December 2014), many stakeholders contend that it is in fact China which is the major destination market of Zambia’s copper exports.
This large volume of trade between Zambia and Switzerland comes as a surprise to many stakeholders, largely because copper is not a product for which there is particular significant demand in Switzerland, whose main economic activities include micro-technology, hi-technology, bio-technology and pharmaceuticals, as well as banking, insurance and tourism.
As trade statistics are concerned, the general expectation is to see a symmetric pattern between two trading countries, whereby the amount that country A exports to country B should be equal to what country B imports from country A. However, in reality, this is seldom the case. It is common to see a variance between the reported export value of one country and the corresponding value of imports of the trade partner country and there are a number of reasons cited for this disparity. These include:
• Different valuations for imports (CIF – cost, insurance and freight) and exports (FOB – free on board). According to international standards, exports are valued at FOB and imports at CIF. However, some countries do not follow this standard;
• Different trade recording systems for imports and exports, namely the general trade system (includes trade made in free trade zones) versus special trade system (excludes trade made in free trade zones);
• Quantity measurements resulting from some countries reporting gross weights while others report net weights.
• Timing of measurement (for instance,  exports recorded in the year 2013 in the exporting country are recorded as imports in the corresponding trade partner country in 2014)
• Discrepancies resulting from product mis-classification, mis-allocation of a trade partner country, and smuggling;
• Irregularity in proper recording of exchange rate fluctuations. (Exchange rate fluctuations are not always properly recorded in international trade statistics. Values are normally aggregated over one year in local currency and converted into United States dollars);
• Treatment of re-exports and goods in transit. According to the United Nations recommendations on International Merchandise Trade Statistics National Compilation and Reporting Practices; port statistics should be compiled by country of origin, export statistics should be compiled by last known destination and goods in transit should be excluded from trade statistics.
This implies that the country of origin is neither the country that has re-exported the product nor the country where the product has transited.
Perhaps, the latter reason brings the national trade statistics under deep scrutiny. Although it is known that copper exports from Zambia are sold to Switzerland-based traders who in turn re-export to other countries, including China; if Zambia adheres to the UN recommendation, which it does, then it goes without saying that if China is indeed the final destination of copper exports from Switzerland, our trade statistics should show that China is our major copper export market.
Arguably, there are other plausible reasons alluded to the above that could explain the disparity between the value of our copper exports to China and China’s corresponding value of copper imports from Zambia.
At the same time, we cannot easily discount that there is lack of transparency surrounding tax havens such as Switzerland which may preclude Zambian customs from information on the final destination of the copper products after they are exported to Switzerland. After all, export statistics are compiled based on the last known destination.
Possibly, the major concern is not so much the final destination of Zambia’s exports but rather transfer pricing and tax avoidance associated to it. Transfer pricing is simply the price at which affiliated companies transact with each other. It is, for instance, the price at which a subsidiary company sells goods and services to or buys them from its parent company. While transfer pricing in itself is not illegal, it becomes a concern when prices are set artificially high or low to lower profits in a subsidiary to avoid tax.
The final destination of Zambia’s exports, therefore, becomes of interest more so if the quality of Swiss copper sold to China does not differ significantly from Zambian copper but, is sold at a higher price than what is sold from our mining firms. A serious implication of this is that Zambia could be losing out on potential revenue needed for developmental projects and poverty reduction, thereby undermining the country’s development.
The authors are researchers at the Zambia Institute for Policy Analysis and Research (ZIPAR). Telephone: +260 211 252559. Email: info@zipar.org.zm

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