India Profiting From ‘Trade Misinvoicing’, Says UN Report

Cocoa beans drying in the sun. Credit: Wikimedia Commons

Cocoa beans drying in the sun. Credit: Wikimedia Commons

Geneva/Nairobi: A new UN report lists China, Germany, India, Italy, Japan, the Netherlands, Spain, Switzerland, Britain and the US among countries that are benefiting from ‘trade misinvoicing’ practiced by a large number of Commodity Dependent Developing Countries (CDDCs).

Trade misinvoicing – involving deliberately misreporting the value of a commercial transaction on an invoice submitted to customs – “continues to be used as a key mechanism of capital flight and illicit financial flows from developing countries”, says a study by the Geneva-based UNCTAD, the United Nations Conference on Trade and Development.

Nearly 90 developing countries are losing commodity export earnings worth billions of dollars in valuable foreign exchange earnings, taxes and income that might otherwise be spent on development.

According to UNCTAD, in 2012-13, two out of three developing countries were Commodity Dependent Developing Countries (CDDCs), half of which were in Africa. It also indicates that commodity dependence increased between 2009-10 and 2012-13, with half of the developing countries seeing their dependence on commodities grow during this period.

Dependency on commodities is even more severe in the most vulnerable countries, such as the Least Developed Countries (LDCs) group. In 2012-13, 85% of the LDCs could be considered CDDCs. Their situation deteriorated compared to 2009-10.

UNCTAD data reveal that while developing countries rely heavily on commodities, their commodity exports are highly concentrated and export revenues dependent on a handful of primary products. For instance, the top three commodities exported from any given country contributed for more than 60% of merchandise exports in 90% of the 45 CDDCs in Africa in 2012-13.

Released during the UNCTAD Global Commodities Forum, an integral part of the 14th UNCTAD session from July 17-22 in Nairobi, Kenya, the study avails of two decades’ worth of data covering exports of commodities such as cocoa, copper, gold and oil from Chile, Côte d’Ivoire, Nigeria, South Africa and Zambia.

“This research provides new detail on the magnitude of this issue, made even worse by the fact that some developing countries depend on just a handful of commodities for their health and education budgets,” UNCTAD secretary-general Mukhisa Kituyi said.

Commodity exports may account for up to 90% of a developing country’s total export earnings, he said, adding that the study generated fresh lines of enquiry to understand the problem of illicit trade flows.

“Importing countries and companies that want to protect their reputations should get ahead of the transparency game and partner with us to further research these issues,” Kituyi said.

The UNCTAD study highlights that between 2000 and 2014, under-invoicing of gold exports from South Africa amounted to $78.2 billion or 67% of total gold exports. Trade with the leading partners exhibited the highest amounts, as follows: India ($40 billion), Germany ($18.4 billion), Italy ($15.5 billion) and Britain ($13.7 billion).

Between 1996 and 2014, under-invoicing of oil exports from Nigeria to the US was worth $69.8 billion or 24.9% of all oil exports to the US. Zambia recorded $28.9 billion in copper exports to Switzerland between 1995 and 2014, more than half of all its copper exports, yet these exports did not appear in Switzerland’s books.

Chile, in the years 1990-2014, recorded $16 billion in copper exports to the Netherlands, but these exports did not appear in the Netherlands’ books. Also, 31.3% of Côte d’Ivoire’s cocoa exports worth $17.2 billion between 1995 and 2014 did not appear in the Netherlands’ books. Between 2000 and 2014, under invoicing of iron ore exports from South Africa to China was worth $3 billion.

The UNCTAD study aims to contribute to research and policy debates by providing empirical evidence on the magnitude of trade misinvoicing in the particular case of primary commodity exports from five natural-resource-rich developing countries: Chile, Côte d’Ivoire, Nigeria, South Africa and Zambia.

This sample comprises four resource-dependent developing countries and a more diversified resource-rich middle-income country (South Africa). It covers a representative sample of products in the three main categories of primary commodities: oil and gas; minerals, ores and metals (copper, gold, iron ore, silver and platinum); and agricultural commodities (cocoa).

According to the authors of the study, the inclusion of two copper exporters in the sample makes it possible to compare and contrast patterns of copper misinvoicing between two countries and over time.

This article originally appeared in IDN-InDepthNews. IDN is flagship agency of the International Press Syndicate.