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Cablegate: China-Philippines Trade Discrepancy

VZCZCXRO4852
OO RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHPB
DE RUEHML #0668/01 0741009
ZNR UUUUU ZZH
O 141009Z MAR 08
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0154
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
INFO RUCPDOC/USDOC WASHDC IMMEDIATE
RUEHGZ/AMCONSUL GUANGZHOU IMMEDIATE 4382
RUEHGH/AMCONSUL SHANGHAI IMMEDIATE 0062
RUEHIN/AIT KAOHSIUNG IMMEDIATE
RUEAWJB/DEPT OF JUSTICE WASHINGTON DC IMMEDIATE
RUCNARF/ASEAN REGIONAL FORUM IMMEDIATE
RHMCSUU/FBI WASHINGTON DC IMMEDIATE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION IMMEDIATE
RHHMUNA/CDR USPACOM HONOLULU HI//FPA//

UNCLAS SECTION 01 OF 02 MANILA 000668

SIPDIS

SIPDIS
SENSITIVE

STATE FOR EAP/MTS, EAP/EP, EEB/IFD/OMA
STATE PASS EXIM, OPIC, AND USTR
STATE PASS USAID FOR AA/ANE, AA/EGAT, DAA/ANE
TREASURY FOR OASIA
USDOC FOR 4430/ITA/MAC/ASIA & PAC/KOREA & SE ASIA/ASEAN

E.O. 12958: N/A
TAGS: KTFN KCRM ETRD ECCT PGOV RP
SUBJECT: China-Philippines Trade Discrepancy

Ref: Manila 603

MANILA 00000668 001.2 OF 002


1. (SBU) Summary: There is a difference in excess of USD20 billion
between Philippine and Chinese estimates of 2007 bilateral trade
between the two countries. Even after various adjustments, a large
discrepancy remains compared with China's trade statistics with
other ASEAN countries. The discrepancy is worth exploring because
of possible policy implications and possible illicit activities. End
Summary.

Trade numbers discrepancy
------------------------

2. (SBU) At a mid-February economic briefing, Philippine President
Arroyo cited China as the Philippines's largest trade partner. The
statement appears to have been based on PRC Customs statistics that
show its trade with the Philippines at USD30.6 billion in 2007.
However, according to the Philippine National Statistics Office,
bilateral trade with mainland China was only USD9.76 billion
(ranking third among the Philippines' trading partners), while
bilateral trade with the United States was USD16.5 billion (ranking
first).

Why the huge discrepancy?
-------------------------

3. (SBU) One can be reasonably sure that the Philippines-U.S. trade
numbers are correct, as they roughly correspond to U.S. customs
numbers, adjusted for shipping costs. The largest discrepancy
involves statistics on Philippine exports to the PRC. According to
PRC Customs data, China imported USD23.1 billion of goods from the
Philippines in 2007, while the Philippines recorded only USD5.7
billion in exports to the PRC.

Transshipment and Shipping Costs Explain Little
--------------------------------------------- --

4. (U) The most significant adjustment that can be made to the
statistics is for transshipment of goods through Hong Kong. Goods
that are exported from the Philippines to Hong Kong are often
ultimately destined for China, yet are recorded in the Philippine
trade statistics as an export to Hong Kong. The PRC Customs
authorities, however, record the goods as Philippine exports to
China. In 2007, Philippine exports to Hong Kong totaled USD5.8
billion. Extrapolating from Hong Kong Customs numbers in 2005,
perhaps USD4.4 billion of Philippine exports actually ended up in
China. This still leaves an unexplained discrepancy of around USD13
billion in 2007.

5. (U) The next adjustment to be made is for shipping charges. The
Philippine estimates of Philippine exports to China do not include
shipping and insurance costs, while the Chinese estimates of imports
from the Philippines do. A typical estimate is that insurance and
freight adds about 5-8 percent to the cost of exported goods. This
amount is clearly not enough to account for the large difference in
the Philippines, but by including the Hong Kong re-exports, it could
bring down the discrepancy by another USD1 billion, leaving around
USD12 billion unexplained.

Statistical Issues
------------------

6. (SBU) An International Monetary Fund task force found that in
2002 that imports into the Philippines were being routinely
underestimated, resulting in a downwards revision of the 2001 trade
balance from a surplus of 3.8 percent of GDP to a deficit of 8.8
percent of GDP. However, the type of problem the task force found
affected Philippine imports, but not its exports. Thus far, none of
the financial organizations that we spoke with in Manila have been
able to explain the discrepancy in PRC and Philippine trade
statistics.

7. (SBU) Chinese estimates of their global trade surplus are often
far below that reported by their trading partners, even after
adjusting for shipping costs and transshipment. But although other
ASEAN countries also experience some amount of trade discrepancy,

MANILA 00000668 002.2 OF 002


they are dwarfed by the relative size of the discrepancy in the
Philippines. PRC Embassy officials also had no explanation for the
huge statistical discrepancy in its bilateral trade with the
Philippines.

Illicit Activities?
------------------

8. (SBU) Smuggling into the Philippines is a serious problem that
has received a lot of publicity (reftel). The Philippines records
large differences in the value of imports from China, with official
imports about USD2.8 billion less than what PRC statistics claim in
2007. Apart from Indonesia, which reputedly also has serious
smuggling problems, other countries in ASEAN record modest
discrepancies in imports from China.

9. There are a few areas where there are incentives for smuggling
exports out of the Philippines. A local mining industry association
reports that there are significant gaps in Philippine data on its
mineral exports. However, both PRC and Philippines Customs data
indicate the statistical discrepancy probably lies in electronics
exports, which account for over 80% of Philippine exports to China
and which are primarily semiconductors.

Discrepancy in Semiconductor Valuation
--------------------------------------

10. (SBU) Our conversations with the semiconductor industry
association in Manila lend support to the Philippine Customs
statistics of a lower figure for Philippines exports of electronics
to China. The data indicate that semiconductors valued at around
USD3.5 billion when exported from the Philippines were assigned a
much higher value (as much as USD14 billion) when they arrived in
China. The head of the semiconductor industry association said the
valuation discrepancy of Philippine semiconductor exports to China
was far larger than the valuation discrepancies of similar
semiconductors exported by other ASEAN countries to China.

11. (SBU) Comment: Although PRC statistics indicate that China has
become the Philippines largest trade partner, both U.S. and
Philippine trade statistics show that Philippine trade with the
United States in 2007 was still larger than its trade with China,
even after including transshipments through Hong Kong. However, if
current trade trends continue, it is highly likely that China will
overtake the United States as the largest Philippine trading partner
in the near future by all measures. The discrepancy in statistics
may be deliberate over/under-invoicing goods in order to move money
into China, which has a closed capital account, or to move money out
of China into foreign bank accounts.

Kenney

© Scoop Media

 
 
 
 
 
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