It has always bothered me that the balance of trade figures are so
enormously high, and yet world trade seems to continue with the US
unabated. True, the dollar has been shrinking as a result of the deficit,
and will likely continue to do so. Nevertheless, I am suspicious
that there is something "phony" about our reported balance of trade
deficit. I just can't quite put my finger on it.

So I was not surprised to read that two finance professors, using
software designed to examine the prices of different products imported
from and exported to 235 countries by the US, have
stumbled on what is at least a partial explanation. Invoice fraud.
The source of this information is an article in Forbes Magazine
14 Aug, 1995, p.56.

The headline of this article is "SALAD OIL, $720", and the subheadline
reads "Using phony invoices, importers are laundering dirty money,
cheating the taxpayer, and, incidentally, making the U.S. trade deficit
look worse than it is". The article was written by Damon Darlin.
Here are some excerpts.

Last year's $166 billion merchandise trade deficit could have been inflated
by more than $100 billion. That's because crooked import/export firms
cheated the U.S. Treasury out of more than $40 billion in tax revenues.
This startling claim comes from John S. Zdanowicz and Simon J. Pak,
finance professors at Florida International University in  Miami.

The feds have already tracked a few cases of suspected invoicing fraud.
Sunrider International is a $30 million direct-sales retailer of herbal
cosmetics and health foods based in Torrance, California. It is owned
by Palos Verdes Estates, CA, residents Tei-u Chien and his wife,
Oi-Lin Chen. Federal cutoms agents claim Sunrider imported raw materials
from Taiwan, Japan, and South America and inflated the imports' values
on invoices by as much as 900%. Sunrider paid a little extra in customs
duty, which generally runs under 10% of invoiced value, but saved
much more in taxes. How? Simple. It had shipped most of the profits
to Hong Kong disguised as the cost of imports.

In a similar case early this year, federal prosecutors won convictions
against four Pakistanis who used a Springfield, VA-based medical supplies
importer, Falcon Instruments, to funnel $1.4 millian to Pakistan.
In one instance, cited by prosecutors during the trial, Falcon imported
equipment that probably cost it about $19,000 but invoiced it at $42,000,
sending the full amount to Pakistan. the scheme had a second benefit.
One of the men used the invoice scam to avoid paying his U.S. income
taxes.

There is a table in a sidebar which shows examples of fraudulent
over-invoicing of imports and under-invoicing of exports.

Exports:
Product:                      Exported to    Price per unit
Radial tires                  Colombia       $  3.03
Snow plows                    Jamaica        $267.70
Spark plugs                   Taiwan         $   .01
Instant-print cameras         France         $  3.05
Upright pianos                France         $ 38.00
Missile and rocket launchers  Egypt          $ 38.20

Imports:
Product:                      Imported from  Price
Sand                          Japan          $6,025 / ton
New truck tires               Sweden         $2,266 / unit
Toilet paper                  Japan          $    6 / roll
Brassieres                    Italy          $1,576 / dozen
Spark plugs                   Canada         $   70 / unit
Instant-print cameras         Japan          $2,538 / unit

Hmmmm.

2 responses total.

That's very interesting.  But, how could you prove it (I doubt the
government really wants to appraise everything being imported or exported,
but maybe it should).  On the other hand, I can believe Italian brassieres
run $1500/dozen, judging from prices in fancy women's stores... :-)

$38 for a missile and rocket launcher?  That's scary.  That's very scary.

very interesting of course, butthis is the latest fad in the business
world.  some of the offshore companies have been set up since before
the big ww2.  of course in those days they taught ethics and responsibility
in school.  something that has taken a back seat in this screw your buddy
society that we live in.  open your eyes folks. their will be changes- tho
they will come rather slo. the benefactors of this rip-off of the
proletariot are already abandoning the ship.  how many of our trusted and
revered elected officials have quit in he last 12 months???????  how many
will leave in the next 4 years??????  also, it looks like the greed is 
so great and the sharing of the wealth so small that we may loose more
people due to accidents and suicide < or should we call it genocide, 54
at last count plus innocent bystanders> during this administrations tour
of duty.

nuff said.  the police state has arrived and your vote, or no vote will
be the vehicle of change.

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