Commodity Trade Mispricing: Evidence from Lao P.D.R.

Abstract

ABSTRACT Trade mispricing is a significant channel for tax base erosion from developing countries; however, evidence based on aggregated annual trade data remains limited. This article combines statistical price filter methods based on legal rules for customs valuation and transfer pricing analysis with extensive commodity sector research to present new evidence of commodity trade mispricing from Laos. Our analysis of transaction-level export data finds significant undervaluation in exports of coffee beans and identifies multiple risks of trade mispricing in copper exports. We identify trade between related firms, regulatory loopholes, and lack of customs valuation capacity as the main drivers of this phenomenon.