TRADE ENTERPRISES CHARACTERISTICS: COSTA RICAN EXPERIENCE

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2 TRADE ENTERPRISES CHARACTERISTICS: COSTA RICAN EXPERIENCE ABSTRACT International trade statistics are critical economic variables for any country. In order to obtain data of companies involved in international trade, the Macroeconomic Statistics Department of the Central Bank of Costa Rica (BCCR) design a software called Declarations of Exports and Imports (DEI) that combines information from three different sources, using as a unifying variable the enterprise s ID. This software combines customs information from General Customs Office (tariff heading such as connector with other classifications), Economic Variables Register from Central Bank (economic variables by firm and establishment) and information from the D- 151 of the Ministry of Finance (sales distribution of retailers and wholesalers). DEI contains information about international trade by different categories of enterprises such as: economic activity, type of trader, size class, partner country, among others and also an import matrix. The authors wish to thank Henry Vargas for his advice and support. We also thank Cinthya Marín for her work on the data. Ideas expressed in this document are those of the authors and do not necessarily represent views of the Central Bank of Costa Rica. 1

3 CONTENT 1. Context Producing Trade by Enterprises Characteristics (TEC) Linking data sources Resulting processes import-export process Import matrix process Main Results The way ahead References Annexe

4 ACRONYMS AECR BEC CIF CPC DEI FOB GFCF HS ITR ISIC NPCR REVEC SITC SPC-CR Standard Classification of Economic Activities for Costa Rica Broad Economic Categories Cost Insurance Freigh Central Product Classification Declarations of Exports and Imports Free on Board Gross Fixed Capital Formation Harmonized System International Trade Registers International Standard Industrial Classification Standard Products Classification of Costa Rica Registry of Economic Variables Standard International Trade Classification Costa Rica s Standard Product Classification 3

5 1. CONTEXT Costa Rica has traditionally been an open economy with a degree of openness of 68% 1. Exports and imports of the country represent 32% and 36% of Gross Domestic Product (GDP), respectively. A significant share of these exports and imports are driven by foreign companies located in free zone areas. In this context, international trade statistics are critical for economic analysis of the country. For that reason international trade statistics are among the most widely consulted data. However, such conventional international trade statistics do not offer information on the actors who are actually engaged in cross-border trade. The trade by enterprise characteristics (TEC) 2 database aims to fill this gap, and contains information about international trade by different categories of enterprises such as: economic activity, type of trader, size class, partner country, etc. The aim of this paper is to explain the process used by the Macroeconomic Statistics Department of the Central Bank of Costa Rica to characterize trade by enterprises and it is based on linking trade microdata with business register and customs information (using as unique identification or key identification the enterprise ID), allowing a deeper analysis of the impact of trade on employment and production 3. 1 Measured as export plus import as share of the GDP. 2 Trade by enterprise characteristics data are available for 26 OECD and 6 non-oecd countries: including 27 EU member states (except Ireland) plus Canada, Norway, Israel, Turkey and the United States. 3 The production of trade by enterprises characteristics represents for the country a challenge in terms of time, human resources and technology. 4

6 2. PRODUCING TRADE BY ENTERPRISES CHARACTERISTICS (TEC) The Macroeconomic Statistics Department has different databases or sources that can be linked through the enterprise s ID to achieve a complete characterization of trade by enterprises: Economic Variables Register (REVEC for its acronym in Spanish). Developed and updated by Central Bank of Costa Rica. The Economic Variables Register contains characteristics by enterprise s ID such as: location variables, sales, number of establishments, employment, revenues, type of ownership, wages, Economic Activity Classification (EACR), International standard industrial classification (ISIC rev.4). See Diagram 1. Diagram 1. Source: Economic Variables Register (REVEC) Source: Own Elaboration. 5

7 International trade registers (ITR). The Customs Office of Costa Rica provides a dataset for exports and imports comprising tariff heading and their respective codes of Harmonized Commodity Description and Coding System (HS) by: importer or exporter ID, partner country, weight, CIF value (imports), FOB value (exports), freight, insurance, port of entry or exit, regimen, mode of transportation, and others. The Macroeconomic Statistics Department matches microdata of ITR and REVEC according to the enterprise s ID (key identification). This match allows us to know which products are being traded by which enterprise, and classify the trade flows according to the economic activity and other variables of interest. Furthermore, the Harmonized Commodity Description and Coding System (HS 2012) has correspondence tables with other classifications such as: Central Products Classification (CPC 2.0), Economic Activity Classification (EACR), Classification of Broad Economic Categories (BEC), International standard industrial classification (ISIC rev.4), and Nomenclature of Products (NPCR). See Diagram 2. Diagram 2. Source: Customs Database Source: Own elaboration. 6

8 Annual declaration of customers, suppliers, and specific expenditure (Special report form D-151 ). All Costa Rican companies with sales or purchases by counterpart for amounts higher than the equivalent of US$4.700 in a fiscal year must submit this declaration to the Ministry of Finance every year. This form is a detailed administrative record that shows the value of the transaction, as well as the identification of both the buyer and the seller. The firm that fills out the declaration is named Reporter, and has to declare the value and name of the other firm to which it has sold or purchased from in a specific year (called Reported ). D-151 is matched with REVEC to obtain distribution channels and, this allows for a classification of the wholesaler s sales by economic activity. For some countries it is difficult to obtain the final buyer of a product when sales come from a wholesaler or a retailer. However, in Costa Rica the D-151 allows for the construction of a database in which the final user of the goods imported by the merchants is known. Diagram 3. Source: Ministry of Finance Special Report D-151 Source: Own elaboration. 7

9 3. LINKING DATA SOURCES Enterprise s ID allows the combination of three data sources: Customs, Economic Variables Register and D-151 of the Ministry of Finance, obtaining a large number of variables: trade by economic activity, enterprise size class, partner country, concentration of trade, type of trader, type of ownership, export and import intensity and others. The output obtained in the process is called Datasets. See Diagram 4. Diagram 4. Linking data sources Source: Own elaboration. 8

10 4. RESULTING PROCESSES As previously mentioned, DEI software combines information of three sources: customs, REVEC and D-151; to produce information about trade enterprises companies that users can visualize in Excel and Qlikview 4. The output of this process is called Datasets 5. The Information Technology Department of Central Bank is working on a new functionality that allows for the exclusion of the data of goods belonging to non-residents. These have to be excluded from the statistics of exports and imports according to the sixth Balance of Payments Manual (BPM6), and have to be included in services instead 6. See Diagram 5. Diagram 5. Declaration of Exports and Imports Software: Data connection Source: Own elaboration. 4 Qlikview is a software for data visualization. 5 Corresponds to each of the reports that can be obtained from the system. 6 For more detail consult the document: Saborío. G, Torres. R, (2016). Services on Physical Inputs Owned by Others Methodological and Practical Aspects. An Update.

11 4.1 IMPORT-EXPORT PROCESS The resulting process is the same for exports and imports, the only difference is the reports that you can obtain. See Diagram 6. Diagram 6. Resulting Processes: Export-Import Process Source: Own elaboration. 10

12 4.2 IMPORT MATRIX PROCESS With the information from the reports previously discussed, it is possible to compile a table for imports that allows us to distinguish the use of imported goods and services from the use of domestic goods and services. It is possible to separate the import matrix in two parts: intermediate use that shows the use of imported goods and services by product and industry; and the final demand that shows the use of imported goods and services by categories of final use. See Figure 1. Figure 1. Use table for imports Source: Based on SNA2008 and Manual of Supply Use and Input-Output Table, Eurostat. 11

13 The following steps are required to produce the import matrix for Costa Rica: Import information is obtained from the customs database. Knowing that from these imported goods by companies, some products can be used for intermediate consumption or for capital formation, a threshold was defined (US$500 dollars) based on the import s value (under this threshold is considered intermediate consumption). Low value imports undertaken by households and courier companies are considered as final consumption. The customs information is matched with REVEC to obtain information by economic activity and industry. Matching the importer s profile and code in the Harmonized System (HS) at the most detailed level allows for identification of users of specific imported products, and also allows us to determine if the products are used for intermediate consumption, final consumption or gross capital formation. Over 90% of the value of imports is matched with specific importers in the database. The classification used for products is consistent with the one used for domestic production. Connecting tariff heading-establishment (connectors): The reporting unit is the enterprise rather than the establishment. According to REVEC, some companies undertake more than one economic activity. Depending on its intrinsic type, the imported product is assigned to the corresponding economic activity that uses it. For example, if one company undertakes two economic activities with two establishments, e.g. footwear and wearing apparel, those tariff headings associated with fabrics are allocated to wearing apparel and those associated with leather are allocated to footwear. DEI Software keeps these links between tariff heading and economic activities of the company. It is important to mention that DEI uses the distribution of activities for establishments from the previous year. Therefore, new products are assigned to the main activity when they are below to the threshold (previously established). If they are above to the threshold it is necessary to associate with the respective establishment. 12

14 Trade-Distributions: Wholesalers and retailers sales are tracked using data from the D- 151 form. As mentioned previously, this database is matched with REVEC to classify wholesalers and retailers sales by economic activity. Intermediate consumption is allocated according to 136 economic activities. Also, it is possible to estimate final consumption and gross capital formation, especially for products such as computers and passenger vehicles. Diagram 7. Resulting Processes: Import matrix process GFCF: Gross Formation of Fixed Capital. Source: Based on System of National Accounts 2008 and Manual of Supply Use and Input-Output Table, Eurostat. 13

15 5. MAIN RESULTS The main findings presented in this section focus on concentration of trade value, partner countries, intensity and two ways trader. Concentration trade by number of enterprises This dataset presents the value of exports undertaken by the top 5, 10, 20, etc. exporting and importing enterprises in the economy. The concentration of trade around the top exporting and importing enterprises is disaggregated along three economic industries: industry B-C-D-E, trade and repair represented by G letter and other sectors. The Top 5 enterprises accounted for 17% of the total of exports in 2015, Top 10 for 27% and the Top 50 for 56%. It shows the degree of concentration of the exports in few enterprises. See Figure 2. Figure 2. Concentration of exports by number of enterprises, 2015 Source: Own elaboration. 14

16 Partner country This dataset shows the percentage of total of value that is exported to 1 partner country, 2 partners, 3-5 partners, 6-9 partners, partners, partners and more than 20 partner countries. Figure 3 indicates the concetration of trade by partner country; 15% of total value is exported by enterprises that sent products to partner countries and 26% to more than 20 partner countries. Figure 3. Concentration of exports by number of partner countries, 2015 Source: Own elaboration. Two way trader Two way exporting enterprises acconted for at least 93% of total of export of the country. Only 7% accounted for exporters only. Two way importer enterprises accounted for 75% of the total of import value. The rest 25% is for importers only. Most enterprises are two way traders. See Graph 1. 15

17 Graph 1. Costa Rica: trade share of two way trader and export/import only, % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 7% 93% Exports Two way trader 25% 75% Imports Exporter/importer only Source: Own elaboration. Export intensity This dataset presents data by export intensity: that is the share of exports on total turnover. It is an indicator of degree of enterprise involvement in international trade. In Costa Rica, for the period export intensity is higer in foreign-controlled enterprises (60% approximately) than in domestic controlled exporters (about 30%). See Graph 2. Export intensity shows a slight increase from 2013 to 2015 for foreign controlled enterpries, while domestic controlled enterprises presents a reduction. 16

18 Graph 2. Costa Rica: export intensity of domestic and foreign controlled enterprises, % 60% 61% 59% 62% 50% 40% 30% 36% 33% 31% 20% 10% 0% Domestic Foreign Source: Own elaboration. 17

19 6. THE WAY AHEAD 1. Incorporate improvements in the software in order to streamline the different processes. 2. Add exports of services by company and country of destination because services comprise over 40% of all exports in Costa Rica, and servies industries represent around 60% of Gross Domestic Product. 3. Include value added information by company whenever it is available. 4. Add inventories and other information from Income Tax Return data (D-101 form of the Ministry of Finance). See Annex 1. 18

20 7. REFERENCES European Commission, IMF, OECD, United Nations, and World Bank System of National Accounts 2008, New York, United Nations. Eurostat Manual of Supply, Use and Input-Output Tables, 2008 edition. Lequiller, F. and D. Blades Understanding National Accounts, (Second Edition). París, OECD. Saborio, G. and Ramírez, F Costa Rica Import Matrices Compilation: Proportionality Assumption and Tracking Imported Inputs. Rebase of National Accounts Project, Macroeconomic Statistics Department. Central Bank of Costa Rica. Saborio, G. and Torres R, Costa Rica: Services on Physical Inputs Owned by Others Methodological and Practical Aspects. An Update. Rebase of National Accounts Project, Macroeconomic Statistics Department. Central Bank of Costa Rica. United Nations Handbook of Input-Output Table Compilation and Analysis. Studies in Methods Series F, No. 74, New York. 19

21 8. ANNEXE Annex 1. Income Tax Return data from the Ministry of Finance Source: Own elaboration. 20