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    1. One of the sources used for statistics on international trade in services is the international transactions reporting system (ITRS). Chapter 8 describes how the ITRS can be used and discusses its advantages and disadvantages as a data source. It should be noted that MSITS 2010 and the present Compiler's Guide deal with the use of the ITRS for the compilation of statistics on international trade in services. In doing so, they are consistent with the IMF Balance of Payments and International Investment Position Compilation Guide) that discusses the ITRS See BPM6 Compilation Guide for more information on the use of the international transactions reporting system (ITRS) for other parts of the balance of payments at http://www.imf.org/external/pubs/ft/bop/2007/bop6comp.htm. as a source for compiling BOP and international investment position statistics.


Summary of good practices

    1. Compilers are advised to use the ITRS as a source for statistics of international trade in services, to review the advantages and limitations of that data source, as summarized in table 8.1, and to assess that data's relevance and comparative importance in the context of their countries. In particular, it is good practice for compilers to explore to what extent it is possible to mitigate the limitations of that source by using such additional data sources as surveys. Some of the limitations are the undercoverage of small transactions when reporting thresholds are in place; the absence of data on services that cannot be measured or identified via the ITRS; problems with the recording of partner countries; and a lack of information on breakdowns by modes of supply.


Table 8.1 Summary of the advantages and limitations of the international transactions reporting system

Advantages

Limitations

  • Timeliness and high frequency: facilitates data compilation
  • Comprehensiveness: new reporting entities can easily be covered
  • Limited number and stability of respondents : banks can report on behalf of their clients
  • Burden of reporting and compiling is not heavy once the international transactions reporting system is implemented
  • Reporting is often mandatory
  • Use of thresholds (simplification or exemption) has effect on data accuracy
  • Transactions are approximated by settlements
  • Possible misclassifications of services items, in particular for some detailed EBOPS 2010 items
  • Geographical allocation may be biased (country of settlements versus country of transactions)
  • An increased number of transactions and growing share of inter-company transactions with netting practices makes it difficult to manage





General description and purpose of the international transactions reporting system


    1. The ITRS is a system of collecting data of individual international settlements and/or transactions as reported by banks, enterprises and/or households. See also BPM6 Compilation Guide, para. 4.2. In the present Guide, the ITRS system, in which reporters are resident banks that report to the authority (the central bank in most cases) on behalf of transactors (enterprises or households) is called a bank ITRS, while the ITRS based on reports to the authority from transactors themselves is called a direct reporting ITRS.


    1. In most countries that maintain an ITRS, the reporting is mandatory. Because the ITRS is often a by-product of present or past foreign exchange controls, the data collected involve settlements (as opposed to transactions In countries in which the ITRS was not maintained after the abolishment of foreign exchange controls, surveys have become main source for statistics on trade in services and the focus has already shifted from settlement to transaction data.). The most comprehensive ITRS collects data on (a) settlements with non-residents through resident banks, (b) settlements with non-residents through non-resident banks, (c) settlements with non-residents through intercompany accounts and (d) transactions without cash settlements. See BPM6 Compilation Guide, para. 4.3.


    1. Historically, the use of the ITRS started with settlement reports by resident banks in most countries. However, as resident transactors increasingly started to use non-resident banks for international settlements, direct reporting from such transactors (i.e., not through resident banks) became necessary to maintain the completeness of data collection. In addition, requests of resident banks to reduce reporting burdens have made data collection more dependent upon reporting from transactors.


    1. When the bank ITRS is complemented with direct reporting, the information included in the ITRS can be extremely useful for identifying the major players involved in international trade in services, especially if the reports include not only settlement amounts, but also the names of transactors. This point is especially important for countries changing their collection system from a bank ITRS to direct reporting and surveys. In some countries, the framework of the ITRS is maintained even after the introduction of surveys specifically to capture international settlements with large amounts. By accumulating such information, a balance of payments enterprise register can be established, which can be used when conducting periodical surveys to measure small value transactions or adopting survey systems in place of the ITRS (see chapter 5, on business registers and survey frames). For the proper maintenance of such a register, the international payments database would need to include, at least once a year, the total sum of transactions in services conducted by individual enterprises.


    1. In addition to its use for statistics of international trade in services, the ITRS can also be used for statistics of other financial transactions, as the ITRS can cover a wide range of financial operations, including currency exchanges in foreign exchange companies and bank information on settlements, as well as position and flow data regarding foreign assets and liabilities.


Using the international transactions reporting system for collecting data on international trade in services


    1. There are many reasons that the ITRS can be useful for collecting data on international trade in services. First, the data are collected frequently and in a timely manner. See BPM6 Compilation Guide, para. 4.69. Data can be reported as soon as international settlements have been completed, in an exhaustive way, at least when there is no reporting threshold or it is very small. The transaction codes included in the ITRS for identifying the purpose of the settlement generally facilitate classification in conformity with the recommendations of MSITS 2010, except in some cases in which it is difficult to obtain the appropriate information, such as for FISIM and construction and for certain detailed EBOPS 2010 classifications, as discussed below. Indeed, the classification of international settlements according to the type of transaction (although with precautions against misclassification) is the most important condition for the ITRS to be used in compiling statistics of international trade in services.


    1. An additional benefit of the ITRS is that it can be maintained with relatively light burdens of reporting and data processing. Although setting up or restructuring an ITRS may be costly and may require a period of more intense contact with respondents to inform and train them on the reporting forms, procedures and coding systems. In a bank ITRS, the reporting burden is concentrated in banks in which the procedures of reporting are relatively mechanical, once the ITRS is implemented, and can be computerized. Data compilation is generally also efficient because its procedure is mechanical and compilers do not have to depend on complex statistical techniques that are often used for grossing up survey results. In addition, new reporting entities can easily be covered if they have significant transactions. This makes data reporting more comprehensive and stable and reduces compilers' burdens significantly.


    1. When assessing the 12 BPM6 main services components individually, data from the ITRS may be useful in compiling statistics on international trade in services for (a) manufacturing services, While the ITRS may provide information about the fee charged, it may not provide the data necessary to adjust the corresponding goods transaction in the trade in goods account (b) repairs and maintenance, (c) insurance, (d) charges for the use of intellectual property n.i.e., (e) telecommunications, However, depending on its set-up, an ITRS may also suffer from under-coverage, as payments for some telecommunications services are made on a settlement (net) basis. Care should be taken to ensure the gross reporting of transactions (see BPM6 Compilation Guide, para 3.11 and p. 287). computer and information services, (f) other business services and (g) personal, cultural and recreational services. The ITRS is also useful for financial services, with the exception of FISIM, in which amounts are often estimated on the basis of accounting figures of financial corporations, as discussed in chapter 14. The ITRS captures construction, but it has certain limitations, as discussed in paragraph 8.18. The ITRS can be used, in part, for transport and travel. Since the compensation for transport services is often included in the total price of the goods that are transported, it is difficult to identify corresponding international settlements. In addition, in the case of travel, the ITRS may not ensure appropriate coverage in countries belonging to monetary unions, such as the euro area, since the residents of those countries who are travelling use the same currency as their own country's during intra-area journeys. Consequently, that mode of payment cannot be tracked by banks and other financial intermediaries.


    1. Although the ITRS has benefits for collecting data on international trade in services, it also has major drawbacks that compilers should be aware of and should aim to mitigate when using that system.


    1. First, resident banks reporting under the ITRS may have difficulty in correctly classifying each transaction to their relevant transaction codes, especially for complex cases (for example, when services are bundled with other financial transactions, as in the case of interest payments that include fees). Misclassifications may occur if the information on the purpose of international settlements is not correctly transmitted by transactors to reporting banks. A breakdown of trade in services by EBOPS 2010 categories and supplementary items and complementary groupings, as recommended by MSITS 2010, requires more detailed transaction codes. The greater number of codes exacerbates the problem.


    1. Secondly, the transaction partner country may be incorrectly classified. The ITRS generally includes country codes of counterparties of international settlements. In some cases, however, the country of the settlements counterparty and the country of transaction counterparty differ from each other. This occurs when settlement vehicles are used by transacting enterprises, for example.


    1. Thirdly, small value services transactions may not be captured owing to the existence of reporting thresholds. This may be particularly problematic for small value transactions made by households, such as for telecommunications, computer and information services or personal, cultural and recreational services, which may be small taken individually but can represent large amounts summed up at the level of the total economy. A bank ITRS generally has thresholds to reduce reporting burdens. The threshold can be either an exemption threshold (no reporting required under the threshold) or a simplification threshold (a lump sum amount is reported without an indication of the nature of the transactions). The general trend is for reporting thresholds to rise as the regulations related to foreign exchange controls are gradually lifted. For example, in European Union countries, since the reporting threshold was raised from 12,500 to 50,000 euros, a considerable loss of information has been observed. Box 8.1 explains options for mitigating the lack of information due to thresholds.


    1. A fourth caveat is that ITRS-based data may not accurately reflect the timing of the transaction, as the time of the transaction and of the settlement may not always match. Also see chapter 11 for a more in-depth discussion of the advantages and disadvantages of using the ITRS as a data source for selected service categories. Under the ITRS, the time of settlement is the only choice for recording the time of transaction. However, there are cases in which settlements are deferred or advanced for some reason, such as in construction and insurance services.


    1. Regarding construction, as noted in chapter 6, paragraph C.7, the use of an ITRS may give rise to several biases. First, it may prove difficult to correctly identify the relevant settlements corresponding to services transactions, in particular, in defining the residence of units conducting construction projects. For example, from a BOP perspective, a site office may be regarded as a resident if substantive (long-term) construction work is undertaken, even if legally it is not necessarily treated as resident in the host country. Second, difficulties may arise in collecting data with the required level of detail, for example for the identification of goods and services sourced from the economy in which the construction is taking place, and used as an input in a construction project. Third, the ITRS thresholds set in some countries may be too high to properly cover some of the payments related to construction projects, especially for smaller-scale work or, especially, in the case of fractionated settlements.


    1. In some countries, the authorities oblige ITRS reporters to use foreign exchange rates fixed by the Government, rather than prevailing market foreign exchange rates. If large discrepancies exist between fixed rates and market rates, owing to fluctuations of market rates and/or the time lag between transactions and settlements, reported data do not reflect the economic reality of international trade in services.


    1. Netting contracts can make the settlement amounts smaller than the transaction amounts. Netting is a common practice for telecommunications and postal services, among others. It is also common for multinational enterprises that use treasury centres. Ideally, data reported under ITRS should be derived from a gross basis, i.e., before netting. In the case of netting contracts, a direct reporting ITRS is more appropriate than a bank ITRS with indirect reporting. If transaction data, rather than settlement data, were reported on a gross basis using the prevailing market exchange rates, most of technical limitations of ITRS could be overcome. Although the timeliness of data reporting might be sacrificed to some extent, such an evolution of ITRS could improve the accuracy and completeness of the reported data.


    1. Finally, an ITRS is not a complete source of information. It does not provide adequate detail for all service categories recommended by MSITS 2010 (as mentioned above in 8.10), nor for preparing the recommended breakdowns (e.g., for government goods and services n.i.e.). In such cases, administrative data may provide useful information, especially if the international settlements of Governments do not go through private banks.


    1. Regarding statistics on the international supply of services by mode, MSITS 2010 recommends that each EBOPS component either be allocated to one dominant mode or broken down by mode. In particular, it is often difficult to identify modes of supply (e.g., modes 1 and 4) in ITRS transactions, as well as the partner countries, although those transactions may be reflected in transfers of funds or exchanges of foreign currency with a certain time lag.


D. Country experiences A more elaborate description of the French and South African country examples in the present chapter is available online. The Japanese example is also described more elaborately online, and includes coding schemes, example forms and more detail on the below-threshold statistical estimation methods.
Country experience: South Africa

    1. The research department of South African Reserve Bank (SARB), responsible for the compilation and dissemination of quarterly balance of payment statistics, relies mainly on ITRS (managed by the financial surveillance department), to compile statistics on international trade in services. The electronic ITRS was introduced in 2001, replacing the previous paper system, as a compulsory reporting system to be used by all reporting entities (banks and foreign currency exchange offices), using the United Nations Electronic Data Interchange for Administration, Commerce and Transport (UN/EDIFACT) international electronic reporting standard. During the transition, which coincided with the liberalization of exchange controls, special care was taken to ensure that the data needs for compiling balance of payments were covered. In an ITRS, the reporting entities provide all details of payments made to foreign parties by South African residents, as well as payments received by South African residents from foreign parties, irrespective of the value.


    1. SARB considers the ITRS to be a cost effective reporting system that provides accurate and timely information that is validated via the SARB data exchange architecture (SARBDEX). The information contains comprehensive details of all transactions including the names, surnames, addresses, identification numbers, company registration numbers, telephone numbers and physical addresses of transactors. The confidentiality of the data is guaranteed by using Internet encryption, SARBDEX senders' validation and the Society for Worldwide Interbank Financial Telecommunication's SWIFTNet system.


    1. The ITRS of South Africa has been enhanced several times since its introduction. The most recent improvement, at the end of 2013, has also ensured better alignment with the requirements of BPM6, although it required a substantial additional investment by reporters. The ITRS is used to assist the compilation of balance of payments statistics in general, but from the point of view of SARB, it has special benefits for collecting trade in services data. Given that the ITRS of South Africa has no threshold, it can identify potential new services traders and serve as a sampling framework for surveys aimed at better understanding specific transactions in international trade in services.


    1. The ITRS is seen as a primary tool for obtaining information for statistics on international trade in services. To mitigate any potential downsides related to inaccurate reporting (e.g., misclassification) the financial surveillance department conducts regular onsite and offsite inspections. In addition, the systems of the reporting entities are certified annually to ensure compliance.


Country experience: Japan

    1. The core data source for compiling statistics on international trade in services in Japan is the ITRS, which is regulated by the Foreign Exchange and Foreign Trade Act. Under the ITRS of Japan, all residents who make payments to or receive payments from non-residents under certain conditions There are some exemptions from the reporting requirement, including transactions below the reporting threshold (the current reporting threshold is ¥30 million or the equivalent in foreign currency per transaction, in principle) and payments/receipts related to the export/import of goods which have gone through the customs of Japan. Other exemptions are specified in the ministerial ordinance. must report their underlying transactions. Resident transactors must report their cross-border transactions to the Minister of Finance through Bank of Japan (BOJ). Transactions via non-resident banks are reported directly.


    1. The information reported includes data on the transactor, the counterparty, the date, the type of payment (payment or receipt), the currency used, the value and the classification and description of the purpose of the transaction. For the last variable, reporters use a BOP classification code to report their purpose of transaction, choosing from a list of 186 BOP codes provided by ministerial decree, of which 61 relate to trade in services.


    1. Under the Japanese ITRS, transactions that do not involve cash payments are required to be reported on a gross settlement basis. For example, if a resident imports and exports services under offsetting or netting arrangements, not only must the amount settled be reported, but also the underlying transactions on a gross basis.


    1. The Japanese ITRS reporting threshold has gradually increased to a relatively high level (¥30 million). Therefore, a considerable number of transactions may be missing, especially small value service transactions. In order to estimate trade in services (other than transport and travel) Transport is captured mainly by direct reports. Travel is estimated by using border and household surveys and official statistics. below the threshold, Japan will start employing statistical methods consistent with BPM6. Empirical research suggests that the frequency of transactions increases exponentially as the value of transactions decreases. Statistically, a Pareto distribution fits the data well. Assuming that transactions below the threshold also follow a Pareto distribution, data below the threshold can be estimated. Those estimations are made on annual basis for each service item.


    1. Compared to using information on transactions from before a threshold increase, the Japanese approach to estimating below-threshold transactions is advantageous as the estimations can be updated periodically with recent data so that structural and price changes over time can be captured. Further, since the fit of the Pareto distribution is assessed on a regular basis, statisticians are able to choose another statistical approach if the implemented method does not fit the data.


Country experience: France

    1. Until 2010, France used an ITRS as a data source for statistics on international trade in services. Under the French ITRS, banks reported all payments between residents and non-residents registered in their books, whether the transaction was on their own account or on the account of their clients.


    1. Since 1990, data from the central bank has been complemented by direct reporting by firms with annual cross-border transactions greater than €30 million. That system covers approximately 500 firms, which are required to report all transactions, on a monthly basis, and positions, on a quarterly basis, with non-residents conducted through accounts with domestic banks or banks abroad or through intercompany accounts.


    1. The French ITRS had several advantages. It delivered information in a timely and frequent manner and it was highly detailed, allowing, in principle, for an almost exhaustive knowledge of international services transactions. In addition, the ITRS facilitated data access for compilers and was cost-efficient because data processing and compilation took place at the Directorate General Statistics of Banque de France, and the bank is also the institution that oversees payment systems and operations of resident banks.


    1. The French ITRS, however, also displayed serious limitations common to other national ITRS, such as misclassifications, stemming from the fact that the largest part of the transactions was classified by intermediaries (banks) on behalf of their clients. Potential remedies would either involve additional resources or increase the risk of substantial data omission.


    1. In addition, transactions were registered on a cash basis, whereas BPM6 recommends recording on an accrual basis. Furthermore, the system did not capture all transactions that did not have a payment counterpart, such as intragroup transactions, and was able to register transactions made via non-resident banks. As the evolving patterns in international trade show increased settlements through non-resident bank accounts and in intragroup flows, such limitations become progressively prominent.


    1. Finally, an ITRS is vulnerable to administrative changes imposed for other motives, but that may have negative consequences for collecting and producing statistics. For example, in Europe, the creation of the Single Euro Payments Area (SEPA), that aims to improve the smoothness of cross-border payments and to lower their cost, has resulted in the adjustment of the reporting obligations of banks and an increase in reporting thresholds (up to €50,000 as of 2008).


    1. In order to assess the magnitude of the limitations of the ITRS, Banque de France organized a parallel run between the "old" ITRS-based system and the new system based on the Enquête complémentaire sur les échanges internationaux de services (ECEIS), in order to perform all appropriate testing on the ECEIS survey (see chapter 6, para. 6.56 (b). The results indicated that the ITRS could be replaced by a direct reporting system. It should be noted, however, that some traces of the old system have been retained in the new system: an ITRS still provides data from all transactions higher than €50,000 that intermediaries complete for their clients vis-à-vis counterparties located outside SEPA. The survey is particularly useful for identifying firms that should be integrated into the direct reporting system.



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