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UK Trade in Goods estimates and the ‘Rotterdam Effect’

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Correction

An error was identified in table 1 of the article "UK Trade in Goods estimates and the 'Rotterdam Effect'" published on 6 February 2015. The percentage contributions of individual SITCs to the total value of imports from the Netherlands have been corrected. All other data in table 1 and table 2 are unaffected.

ONS apologises for any inconvenience caused.

Explaining the impact of the Rotterdam effect on UK Trade

Background

The Rotterdam effect is the theory that trade in goods with the Netherlands is artificially inflated by those goods dispatched from or arriving in Rotterdam despite the ultimate destination or country of origin being located elsewhere.

Some commentators feel that the Rotterdam effect distorts the UK’s trade relationship with EU and non-EU countries. For example, oil exported from Saudi Arabia to Rotterdam and re-exported to the UK (possibly without processing) may be counted as an EU import rather than a non-EU import. Conversely, a product exported by the UK to Rotterdam and subsequently transited to a non-EU country may be counted as an export to the EU rather than the rest of the world.

The port of Rotterdam is not unique in acting as a ‘gateway’ for other countries; it is accurate to say that this form of trading can occur in almost any place. For example, goods arriving in France from China could, after clearing customs, be distributed to other EU member states and potentially be recorded as imports from France. The main difference is that the port of Rotterdam is one of the largest in the world and the sheer quantity and value of goods being traded separates the Rotterdam effect from other, similar, cases and therefore attracts more attention.

UK Trade with the Netherlands

Data collected by Her Majesty’s Revenue and Customs (HMRC) estimates that approximately 40-50% of the UK’s exports to the Netherlands, in an average month, is attributed to mineral fuels; specifically crude oil. Due to the Netherlands’ significant oil refining capacity, substantial processing takes place before the goods are re-exported, mainly, to other EU member states. This is an important point as, although the UK’s top export commodity with the Netherlands tends to be re-exported, the product (mineral fuels) largely remains in the EU market and therefore does not distort estimates of the UK’s EU/non-EU export picture.

Table 1 summarises the UK’s trade with the Netherlands in 2013 by Standard Industrial Trade Classification (SITC). The figures provided are based on HMRC data, which show the physical movement of goods, rather than the change of ownership principle (known as the balance of payments basis), on which ONS UK trade aggregates are published. However, they do give an insight into the proportion of fuels exported to the Netherlands in comparison with other commodities and similarly, the proportion of manufactured goods imported by the UK from the Netherlands.

Table 1: Summary of UK Trade with the Netherlands in 2013

SITC Exports Imports
£m % £m %
0 & 1 - Food, beverages and tobacco 1,185 5.0 4,675 13.6
2 & 4 - Basic Materials 430 1.8 1,475 4.3
3 - Fuels 11,079 46.4 6,070 17.7
5 & 6 - Semi-manufactures 6,068 25.4 8,463 24.7
7 & 8 - Finished manufactures 5,074 21.3 13,529 39.5
9 - Miscellaneous 40 0.2 50 0.1
Total 23,876   34,262  

Table source: HM Revenue and Customs

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How UK Trade in Goods are Measured

The UK Trade in Goods figures are one of the strongest data sources available in the UK statistical system. The overseas trade statistics, upon which the UK Trade data are based, have been collected by HMRC for over 300 years and those relating to trade with other EU member states are subject to HMRC’s Intrastat system. The Intrastat survey is set at a threshold that covers 97% of exports to the EU and 93% of UK imports from the EU.

Customs declarations are used to record the export and import of goods to and from countries outside of the EU.

The UK Trade figures are estimated in line with international standards, but, as with any statistics these figures are ‘estimates’ and subject to statistical error. For example, import statistics can be estimated on a country of origin basis (the country responsible for the last substantial processing) or a country of dispatch basis (the country who first exported the good). Import figures for the UK are available by country of origin where the country is outside the EU, but such data are not available where the country of dispatch is within the EU.

Impact on UK Trade with the EU

Given the way data are recorded in line with international guidelines, it is extremely difficult to quantify the Rotterdam effect. Instead we can consider the change to the proportion of UK trade with the EU under different assumptions. We look at 2 two such assumptions:

  1. If we make the extreme assumption that all trade with the Netherlands is destined for re-export to, or originated from, countries outside the EU, the value of exports and imports to the EU each fall by around 8% annually on average, (Figure 1). However, we know, via HMRC declarations, that a proportion of that trade genuinely occurs between the UK and the Netherlands and we also know that a proportion of that trade is distributed to the rest of the EU (rather than outside the EU), suggesting that the actual impact would be lessened.  

  2. Perhaps a more realistic assumption would be that 50% of trade with the Netherlands is destined for re-export to, or originated outside of the EU. This estimate is, perhaps, towards the top end of the range and is linked to the evidence that the oil exports refined in the Netherlands would have a final destination in the EU and that a relatively small proportion of other commodities exported to the Netherlands remains in the country.

Figure 1: Value of UK Trade with the EU

Figure 1: Value of UK Trade with the EU
Source: Office for National Statistics

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Table 2 shows the impact of these assumptions on UK Trade estimates with the EU and the rest of the world in 2013, compared with the actual published data:

Table 2: Impact of UK Trade with the Netherlands, 2013

Value (£ billion) and % of total trade in goods
EU exports Non-EU exports EU imports Non-EU imports
£ billion % £ billion % £ billion % £ billion %
Currently Published 154.6 50.4 152.2 49.6 223.7 53.3 195.7 46.7
Excluding Netherlands from EU 128.4 41.9 178.4 58.1 188.3 44.9 231.1 55.1
Excluding 50% Netherlands from EU 141.5 46.1 165.3 53.9 206.0 49.1 213.4 50.9

Table source: Office for National Statistics

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Other Considerations

Another approach to estimating the impact of the Rotterdam effect is to analyse trade by capita (the level of trade compared with population). The expectation is that international trade with the Netherlands would be broadly proportionate to its population. However, trade between the UK and the Netherlands is high even in comparison with countries that have notably larger populations than its own. In 2013, the population of the Netherlands was estimated to be 16.8 million, whilst Germany and France have populations of 80.6 million and 66.0 million respectively. The anomaly could be attributed to the Rotterdam effect, however, there is no way of confirming this.

Summary

Annually, the Netherlands is the UK’s third largest trading partner in the EU. There are legitimate, proven reasons as to why trade with the Netherlands is high, even relative to its population. It is also reasonable to assume that trade with the Netherlands suffers from an element of distortion. However, it is not possible to estimate, with any certainty, the impact that the Rotterdam effect has on UK Trade with the Netherlands and its subsequent impact on UK Trade with EU and non-EU countries.

Estimates can, however, be based on certain assumptions. The most likely assumption indicates that UK exports to EU countries account for somewhere between 46.1% and the currently published (for 2013) 50.4% of total UK exports, if the Rotterdam effect was considered. Similarly, UK imports from EU countries account for somewhere between 49.1% and the currently published 53.3% of total UK imports.

We also remind users that UK trade estimates are produced in line with international standards and that, ultimately, the port of Rotterdam is not unique and that other ‘gateways’ could counter the impact of the Rotterdam effect.

This story was created by Simon Eddolls at ONS, based on data from the UK Trade. If you would like to find out more about these statistics, you can read the release. If you have any comments or suggestions, we would like to hear them. Please email us at: trade.in.goods@ons.gsi.gov.uk.

Categories: Economy, National Accounts, Balance of Payments
Content from the Office for National Statistics.
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