Avoidance Behaviors of Exporters and Importers: Evidence from the U.S.-China Trade Data Discrepancy

U.S. International Trade Commission Economics Working Paper No. 2008-09-B

31 Pages Posted: 11 Sep 2008

See all articles by Michael J. Ferrantino

Michael J. Ferrantino

World Bank - Trade and Competitiveness Global Practice

Xuepeng Liu

Kennesaw State University - Department of Economics and Finance

Zhi Wang

U.S. International Trade Commission

Date Written: September 10, 2008

Abstract

Since the late 1990s, reported U.S. imports from China and Hong Kong have regularly and increasingly exceeded reported exports of China and Hong Kong to the United States. This discrepancy, which is not caused by re-exporting through Hong Kong, varies by product categories, and in some cases takes the opposite sign. In this paper, we focus on China's direct exports to the United States, and find strong statistical evidence of underreporting exports at Chinese border to avoid paying value-added tax (VAT). There is also indirect evidence of transfer pricing (i.e. overreporting at U.S. border to avoid higher U.S. corporate income tax for U.S. based multi-nationals) and avoidance of Chinese capital controls (i.e. money-laundering). We also provide evidence that tariff evasion at the U.S. border tends to take the form of underreporting unit values for differentiated products.

Keywords: trade data, traders' behavior, tax evasion, money laundering

JEL Classification: H26, F10, C81

Suggested Citation

Ferrantino, Michael J. and Liu, Xuepeng and Wang, Zhi, Avoidance Behaviors of Exporters and Importers: Evidence from the U.S.-China Trade Data Discrepancy (September 10, 2008). U.S. International Trade Commission Economics Working Paper No. 2008-09-B, Available at SSRN: https://ssrn.com/abstract=1266159 or http://dx.doi.org/10.2139/ssrn.1266159

Michael J. Ferrantino (Contact Author)

World Bank - Trade and Competitiveness Global Practice ( email )

Washington, DC
United States

Xuepeng Liu

Kennesaw State University - Department of Economics and Finance ( email )

United States

HOME PAGE: http://ksuweb.kennesaw.edu/~xliu6/

Zhi Wang

U.S. International Trade Commission ( email )

500 E Street, SW
Washington, DC 20436
United States

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