FBR resolves Sino-Pak ‘trade gap’ issue
30 November 2023
Published in: Business Recorder
ISLAMABAD: The Federal Board of Revenue (FBR) has resolved the issue of the trade gap between Pakistan and China, as the actual trade gap remained at US$545 million due to adjustments/ off-setting involving both over-invoicing and under-invoicing.
This has been stated by Fayaz Rasool Maken, Director of Customs Valuation, Karachi, while briefing the Senate Standing Committee on Finance on Trade Gaps at the Parliament House on Wednesday.
A senior valuation official from Karachi rejected misreporting that the trade gap stood at US$ 6.75 billion between China and Pakistan.
Maken presented detailed data analysis – particularly with reference to China before the committee, which was highly appreciated by the senators.
FBR Member Customs-Operations Zeba Hai Azhar called for the need to understand the impugned issue in view of the actual statistics.
The chairperson of the Senate Committee also observed exaggerated figures in the letter, issued by the Pakistan Business Council, regarding the trade gap of Pakistan. For instance, all the members of the Senate Committee agreed that the figures of Afghan Transit Trade to the tune of US$ 3.51 billion have wrongly been added to the trade gap of Pakistan vis-à-vis China. The members also agreed that the value of stuck cargo, to the tune of US$ 0.44 billion which was not cleared during 2022, has incorrectly been added to the trade gap figures of Pakistan.
In the reported news, discrepancies to the tune of US$ 7.5 billion have been claimed in import figures involving Pakistan’s main trading partners (i.e., China, Singapore, Germany, and UK). The issue has been examined and analysed to figure out the correct position and trade-related statistical limitations in the reporting mechanism.
According to the International Trade Centre (ITC)’s Trade Map Guide, the import/ export values (declared for the same trade flow) do not coincide. Export statistics rarely line up with the statistics of partner countries. And, there are over 20 reasons to explain this statistical phenomenon. These reasons are also enumerated/ highlighted by all the leading international organisations including the International Monetary Fund (IMF), the United National Conference on Trade and Development (UNCTAD), and World Customs Organisation (WCO). Some of the main reasons for the statistical discrepancies are:
(i) Destination mismatch, due to transit trade or uncertain destination when exporting. Goods in transit should be excluded from trade statistics as the exporting country does not always know the destination of the product.
(ii) Goods are valued at different prices due to exchange rate volatility. Second, exchange rate fluctuations are not always properly recorded in international trade statistics. Values in local currencies are normally aggregated over a period of one year and only then converted to the US dollar leading to the trade gap anomalies.
(iii) Discrepancies result when exports are registered in one year and the corresponding imports in the following year.
(iv) Delayed customs clearances owing to storage of imported goods in warehouses and not cleared in the year where in the same were imported/ in-bonded.
(v) Exports going to the Free Zones of the importing countries.
In view of the above-tabulated statistics, it is self-evident that trade gap remains US$ 545 million which is subject to adjustments/ off-setting as it may involve both over-invoicing and under-invoicing. Therefore, the figures/ findings highlighted in said news report are presumptive and without taking into consideration the statistical discrepancies encountering the trade between two countries. The FBR is already vigorously implementing the Action Plan to address mis-invoicing (over-invoicing/ under-invoicing).
Maken added that Pakistan Customs has already established EDI linkages with China for preferential trade.
This data is being shared by China and is accordingly being examined by Pakistan Customs. However, EDI linkages with China for non-preferential trade are being established through the Pakistan Single Window (PSW) and a MoU has been signed with China, as well.
The FBR has time and again approached the China Customs authorities (even through the Foreign Office of Pakistan) to provide the transaction-level data but to no avail. Fresh/concerted efforts have been undertaken to get the desired data which shall go a long way in curbing under-invoicing/over-invoicing.
The FBR has forwarded (through the Foreign Office of Pakistan) drafts of the MoU on Electronic Data Interchange with, Singapore, Hong Kong, the UAE, and Afghanistan. However, no significant headway is achieved despite regular pursuance by the FBR. Fresh efforts are underway to get these MoUs finalised. In order to effectively cope with mis-invoicing (i.e., under-invoicing/ over-invoicing), Pakistan Customs is currently processing a Request For Proposal (RFP) through Pakistan Single Window Company to strengthen its Risk Management System to target high-risk cargoes. Under this arrangement, AI-technologies would be acquired to augment the Risk Management System of WeBoc to check mis-declaration/under-invoicing, the Director of Customs Valuation, Karachi added.
