Abnormal pricing in international commodity trade: Empirical evidence from Switzerland. (December 2021)

• Record Type: Journal Article
• Authors: Mehrotra, Rahul; Carbonnier, Gilles
• Is Part Of: Resources policy. Volume 74(2021)
• Publication Date: 2021-12
• Subjects: Natural resource governance -- International trade -- Commodity trading -- Trade mispricing -- Switzerland; F14 -- O24 -- Q17 -- Q32; Mines and mineral resources -- Periodicals; Ressources minérales -- Périodiques; Ressources naturelles -- Gestion -- Périodiques; Environnement -- Politique gouvernementale -- Périodiques; 333.8
• DOI: 10.1016/j.resourpol.2021.102352
• Languages: English
• ISSNs: 0301-4207

Abstract

Abstract: Mispricing of international trade in natural resources poses a significant risk for tax base erosion from resource-rich, developing countries, while also contributing to regulatory and financial risks for commodity trading hubs. This paper presents a novel empirical approach which combines statistical price-filter analysis methods with commodity market research to provide evidence on the magnitude of abnormally priced Swiss commodity imports. Our analysis compares transaction-level import prices to an arm's length price range representing fair market value and defined using contemporaneous benchmark prices from commodity exchanges, adjusted for product-specific factors. We find a significant magnitude of abnormally under-valued unwrought gold doré imports as well as relatively smaller magnitudes of abnormally under-valued cocoa and coffee imports. Next, we contrast our new estimates with traditionally used proxies for trade mispricing based on aggregate mirror trade statistics to highlight the unreliability of widely used methods and data sources. Finally, we discuss the limitations in our analysis even using the best available administrative data which reinforces the urgency to improve the statistical infrastructure used to record international commodity trading in order to promote transparency and improve international trade governance. Highlights: Trade mispricing contributes to tax base erosion from resource-rich countries and regulatory risks for trading hubs. We present a novel empirical approach to provide evidence on the magnitude of abnormally priced Swiss commodity imports. Transaction-level prices are compared to an arm's length price range defined using commodity exchange benchmarks. We find a significant magnitude of abnormally under-valued unwrought gold doré imports into Switzerland between 2012-17. Our estimates are compared with mirror trade statistics to highlight the unreliability of aggregate methods and databases.