- Chapter 14 discusses the compilation of resident and non-resident trade in services statistics. It is important to stress that the chapter does not aim to be exhaustive, but rather to complement the existing guidance provided in the BPM6 Compilation Guide on specific aspects, and focuses on the needs outlined in MSITS2010. It is also strongly suggested that compilers consult the online version of that Compilation Guide for additional compilation guidance, including on certain services items and complementary groupings, as well as the EBOPS-Central Product Classification (CPC) correspondence table, which may facilitate the classification of certain transactions under the EBOPS classification system.
- After the summary of good practices (section A), section B describes the compilation of the EBOPS 2010 service categories by bundling them into several groups that are often similar in the nature of their compilation and their use of underlying source data:
(a) Goods-related services, including manufacturing services on physical inputs owned by others, maintenance and repair services and freight transport and insurance;
(b) Passenger transport and travel;
(d) Insurance, pension and financial services;
(e) Services related to intellectual property products (IPP), telecommunications, computer and information services, other business services, as well as personal, cultural and recreational services);
(f) Government goods and services n.i.e.
- Note that in the case of transport, the treatment is split between freight transport and insurance (goods-related) and passenger transport (travel-related). For each of those subsections, the compilation of providing partner country detail is separately discussed. Such a breakdown is recommended in MSITS 2010, at least at the level of the 12 major components of the BPM6 classification of services, and, where possible, at the more detailed EBOPS 2010 level. MSITS 2010, paras. 3.57-3.58.
- Subsequently, section C discusses the compilation of statistics on the international supply of services by mode of supply insofar as it relates to resident/non-resident transactions. Section D elaborates the statistical treatment relevant to services transactions between related enterprises.
A. Summary of good practices
- When compiling resident/non-resident trade in services statistics, it is good practice to follow the BPM6 recommendations on the principles of recording residence, valuation, time of recording, unit of account and currency conversion. The highest priority should be given to the compilation of data at the level of the BPM6 main EBOPS categories, followed by the EBOPS 2010 level of detail and the compilation of related supplementary items and complementary groupings. Compilers are also strongly advised to consult the online version of the present Guide, where more compilation guidance is available on certain services items and complementary groupings, as well as the EBOPS-CPC correspondence table that may facilitate the classification of certain transactions in the EBOPS classification system.
- Compilers should note that, in the compilation of goods-related services statistics, enterprise surveys generally represent the most efficient collection method. An ITRS and customs declarations, as well as other data sources, may also be used, although they are generally not a sufficient source of data and may need to be supplemented with enterprise survey data. For manufacturing services on inputs owned by others, compilers should be aware that the difference between the value of the goods before processing and the value of the goods after processing may differ from the value of the manufacturing fee. Compilers should also evaluate if and how received data must be adjusted, especially in the absence of complete information or misreporting. Compilers also need to carefully distinguish between manufacturing services and manufacturing on own account, using the economic ownership of the inputs as the distinguishing criterion. Also, a clear difference should be made between transactions related to manufacturing services on inputs owned by others, and those related to merchanting, based on whether or not the nature of the goods changes.
- For freight transport and freight insurance services, it is not always possible to measure the value of services directly. However, the information may be derived from the cost, insurance and freight/free on board (CIF/FOB) adjustments that are made to the merchandise trade statistics for balance of payment (BOP) purposes. Compilers should note, however, that when calculating the freight transport and insurance costs for BOP purposes, the statistical value does not necessarily reflect the sum of the actual invoice values, but instead follows the principle adopted in the accounting framework.
- Regarding passenger transport and travel, transport should be recorded on a gross basis. That means that the value of passenger transport includes fares and other expenditures related to the carriage of passengers. When passenger fares are a component of package tour payments, the compiler should separate passenger transport from other travel components.
- The compilation of the travel item is closely related to the compilation of tourism statistics. Thus, it is useful for compilers to understand the conceptual framework of tourism statistics. The BPM6 and EBOPS 2010 recommendations should be followed and compilers should provide further breakdowns of travel, in order to better assess the scope of travel activities, gauge their possible impact, in terms of economic activity, and ensure consistency between travel and other related statistics, such as tourism statistics, the Tourism Satellite Account or supply and use tables.
- When compiling statistics on construction, compilers should take care to value transactions on a gross basis, i.e., inclusive of all goods and services used as inputs to the work (whether subcontracted or not), other costs of production and the operating surplus that accrues to the owners of the construction enterprise. It is particularly important to precisely identify the residence of the enterprise realizing the construction work in order to differentiate between exports of services and direct investment operations, using criteria such as the length of a project. Given the complexity involved in cross-border construction projects and the level of detail required, surveys are the preferred method for collecting data on construction. Such surveys could possibly be used to collect information on FDI and other resident/non-resident transactions, as well.
- Regarding insurance, pension and financial services, it should be noted that some services are provided without explicit fees, which means that their compilation requires a certain degree of estimation and imputation. It is good practice to base insurance and pension services on earned premiums, which are consistent with the accrual recording. To compile the exports of insurance services, compilers can generally obtain comprehensive data by surveying resident insurance enterprises. If comprehensive surveys are not feasible, compilers may be able to obtain information directly from domestic insurance companies, which can also provide information for estimating imports of insurance services.
- To avoid the volatility and negative figures that can be generated by catastrophic events, an adjustment in claims due is required to reflect a more long-term view of the functioning of the insurance sector. The compiler is invited to analyse the three possible adjustment methods for smoothing the amounts of claims by policyholders on insurance corporations, i.e., the expectation approach, the accounting approach and the sum of cost plus "normal profit" approach, and to use the one that is most efficient for the national circumstances.
- For financial services, transactions without explicit fees are included in financial intermediation services indirectly measured (FISIM). FISIM is produced only by certain financial corporations and only on the loan and deposit instruments on their balance sheets. Compilers should take special care to properly calculate the reference rate. As recommended by the Advisory Expert Group on National Accounts (AEG), the calculation of the reference rate should be determined according to national circumstances, using preferably either a reference rate based on a single observable exogenous rate for a specific instrument, such as interbank lending rates; a reference rate based on a weighted average of observable exogenous rates of maturities with different terms (weighted by the stock of loans and deposits in each maturity); or a weighted average of the endogenous interest rates on loans and deposits. The most comprehensive source data for exports and imports of FISIM come from (a) resident financial corporations (surveys or administrative data collections or financial supervision authorities), which can identify the deposits and loans of non-residents, as well as (b) surveys of selected nonfinancial corporations, households and non-profit institutions serving households (NPISHs), which could provide data on residents' accounts with financial corporations abroad to support the compilation of FISIM imports.
- Services related to intellectual property products may be particularly difficult to measure, because the distinctions among the categories, from a reporter's perspective, may not always be clear, and because intrafirm transactions, which are frequent in those services categories, may be affected by transfer pricing phenomena or more general tax planning issues. When recording transactions on the use of intellectual property n.i.e., compilers should note that franchise and trademark licensing fees are related to charges for using non-produced assets and should, hence, theoretically, according to the SNA, not be recorded. However, the payments are often bundled with additional service items, making it difficult to separate out the pure payments for the use of the underlying brand and, therefore, both 2008 SNA and BPM6 recommend that such payments be recorded as payments for services. For payments related to licences for the use of outcomes of research and development, care should be taken to differentiate between payments for entire originals. Similar differences exist for computer services, where compilers should distinguish between licences to reproduce (of more than one year) and software originals. In contrast, compilers should note that research and development services primarily relate to "new" research and development, such as newly produced customized software, or transactions in "originals", where ownership and the concomitant rights are transferred to the purchaser. Care is needed differentiate this from the licences to reproduce, identified above. Compilers are strongly advised to consider using the Frascati-based OECD, Frascati Manual: Proposed Standard Practice for Surveys on Research and Experimental Development, 6th ed. (Paris, 2002). Note that at the time of writing, the Frascati Manual is being revised, in part to provide better alignment with the national accounts. survey approach, which provides perhaps the best mechanism for improving their measurement of trade in research and development services.
- For the compilation of data on resident/non-resident transactions in education or health services, the collection of data is often problematic. Compilers are advised to consider that sources of information from such specialized entities as the ministries of education and health may be necessary, and also to explore other types of sources, including higher education institutions and surveys on health insurance companies in combination with travel surveys (e.g., with reference to the purpose of stay), data available at embassies and consulates or administrative data from health and social insurance records.
- Government goods and services n.i.e. includes only those services related to government functions that cannot be classified to another specific service category. The majority of government services transactions are most commonly compiled using administrative records. Data on government expenditure abroad should also be available from an ITRS, although it may be more difficult to capture expenditures by foreign governments and international institutions located in the compiling economy using an ITRS. In that case, an enterprise survey of non-resident bank accounts or a survey of foreign embassies and international institutions could be used.
- When allocating resident/non-resident trade by mode of supply, compilers may start with a simplified allocation, following table V.2 in MSITS 2010, and applying a three-step procedure of allocate, evaluate and refine. However, compilers should treat such an allocation only as a first rough approximation of resident/non-resident services transactions by mode of supply, as that technique has important limitations. The present Guide strongly encourages compilers to gather additional information on modes of supply that may be collected for all services sectors using generic business surveys with added questions. Alternatively, compilers may choose to obtain information only for a selection of specific service sectors of interest to the compiling economy, using focused sources of information, possibly through sector-specific survey that also integrates such other statistical domains as FATS, SBS or innovation. It may be useful to consider collaboration with other agencies and institutions that have a special interest and/or expertise in obtaining modes of supply data. In such circumstances, it is important for the agency in charge of the collection and compilation of official trade in services statistics (generally the national statistical office or central bank) to work in coordination with such specialized agencies to ensure that the international recommendations for the collection and compilation of trade in services statistics are followed and that the collected information can be used in a broader context. It is suggested that the compiler investigate how to collect and compile more details for items for which mode 4 or 2 (both involving natural persons) is deemed important for the compiling economy.
- Finally, compilers are advised to develop appropriate procedures to separately identify service transactions between related (affiliated) enterprises, as recommended in MSITS 2010. It is good practice to carefully examine the valuation of services transactions between related enterprises, since the recorded transactions could be under- or overestimated, misrepresenting the real flows of the economy. Compilers should be concerned that intrafirm trade might not reflect the real trade, as measured by market prices, that benefits from fiscal and taxation regulations, since transfer pricing is used for the valuation of services transactions.
B. Compilation of individual service categories
B.1 Goods-related services
- Subsection B.1 deals with goods-related services, which include manufacturing services on physical inputs owned by others; maintenance and repair services n.i.e.; and freight transport and insurance (as subcomponent of transport). Those service categories are strongly related to flows of imported and exported goods. However, the value of services cannot necessarily be directly derived from the gross value of merchandise trade statistics. Additional information, from surveys, for example, is often needed to measure the exact value of the services provided.
- Manufacturing services on physical inputs owned by others include activities such as processing, assembly, labelling and packing that are undertaken by enterprises that do not own the goods (see also MSITS 2010, paras. 3.66-3.77). Such services may also be referred to as contract manufacturing, toll manufacturing or toll services and are also described in BPM6 See BPM6, paras. 10.62-10.71, and boxes 10.1. and 10.2 and table 10.2. and the BPM6 Compilation Guide. BPM6 Compilation Guide, paras. 12.5-12.25 and paras. 3.15-3.17. In the case of manufacturing services imports (those services can, for example, be rendered under a special customs procedure: outward processing of goods), the principal In this chapter, the following terminology is applied: The "principal" is a unit that enters in a contractual relationship with another unit (here called "processor") to carry out some part (or all) of the production process; the processor is a unit that carries out a specific production process on the basis of a contractual relationship with a principal. The activities performed by the processor are denominated "on a fee or contract basis". "Processing" is a contractual agreement according to which the principal requires the processor to carry out a specific production process. The term "subcontracting" is sometimes used, as well. In that context, the production process also includes supporting activities. Manufacturing services on physical inputs owned by others can be performed on goods leaving the county of the principal and entering the country of the processor under various arrangements, depending on the customs laws of the countries involved, including (but not limited to) specific customs procedures called "outward" and "inward" processing. Outward processing customs procedures means the customs procedure under which goods in free circulation in a customs territory may be temporarily exported for manufacturing, processing or repair abroad and then reimported with total or partial exemption from import duties and taxes. Inward processing customs procedures means the customs procedures under which certain goods can be brought into a customs territory conditionally relieved from payment of import duties and taxes, on the basis that such goods are intended for manufacturing, processing or repair and subsequent exportation. See IMTS 2010, paras. 1.19-1.21 and annex B, para. B.1-B.12. (goods owner) has goods it owns processed by another unit (processor), which is resident of another economy. The principal pays a fee to the processor for the services provided. In the case of manufacturing services exports (those services can, for example, be rendered under a special customs procedure: inward processing of goods), a processor transforms goods belonging to the principal who is resident of another economy. In return for a processing fee, the processor transforms the goods using its own labour and capital. Over the course of the transformation process, the economic ownership of the goods remains with the principal. The manufacturing service equals the processing fee, i.e., the value of the contract between the owner of the goods and the manufacturer. Gross values of goods associated with manufacturing services should be identified as EBOPS supplementary items in economies in which such an activity is significant. See BPM6, paragraph 12.5.
- Maintenance and repair services n.i.e. include maintenance and repair work by residents on goods that are owned by non-residents and vice versa. The value recorded for maintenance and repairs is the value of the repair work, not the gross value of the goods before and after repairs (see also MSITS 2010, paras. 3.78-3.79). No distinction is made between repairs that maintain the item in working order and are considered as intermediate consumption, as opposed to those that extend the efficiency or capacity of the goods or extend its life and thus are included in capital formation.
- Freight transport and related freight insurance services are part of the EBOPS categories of transport and insurance services, respectively (see MSITS 2010, paras. 3.97-3.103 for freight transport and 3.178-3.180 for freight insurance). It refers to freight charges between residents of the compiling economy and non-residents on goods with change of ownership, as well as on freight where there is no change of ownership.
Compiling statistics for goods-related services
- It is suggested that compilers consider that enterprise surveys generally represent the most efficient method for collecting information on goods-related services. The surveys could include questions on the value of the service fee, as well as the value of the goods sent and received for processing or repair. That information can be used to adjust the goods account to measure merchandise trade on a change of ownership basis.
- An ITRS and customs declarations may also be used for the compilation of goods-related services, although those sources are generally not sufficient and may need to be supplemented with enterprise survey data. When using ITRS data for information on fees for manufacturing services or maintenance and repair services, the compiler should ensure that such amounts do not include payments for other goods and services. Administrative sources, including tax records, can also provide useful information (see BPM6 Compilation Guide, paras. 12.20-12.25, for manufacturing services, and 12.35-12.37 (including tables 12.1 and 12.2), for freight transport).
- Compilers may consider combining data from customs declarations with the results of enterprise surveys, when both data sets are available. While such merged data would not necessarily provide compilers with advantages in developing aggregate measures of goods-related services, such data could be very useful, in combination with appropriate screening questions on enterprise surveys, for determining partner country attribution and the detailed product composition of exports and imports for firms that indicate that they either receive or send goods abroad for processing or repair.
- Compilers may also consider comparing the trend in the value of goods under inward and outward customs procedures (and the pattern of the application of the transaction codes) with the trend in the magnitude of manufacturing services over time. While the actual monetary amounts will be different, compilers could expect the growth trend between the series to be similar, which could provide a useful quality check for compiling statistics on the international trade of manufacturing services.
Compilation of manufacturing services
- Compilers should be aware that the difference between the value of the goods before processing and the value of the goods after processing may differ from the value of the manufacturing fee for various reasons, including the sale of processed goods in the economy of the processor or in third countries, holding gains or losses or the inclusion of brand names after processing (see BPM6 Compilation Guide, para. 12.14).
- The compilation of data on manufacturing services on inputs owned by others may be facilitated by following the change of ownership principle in general merchandise trade statistics. However, the recording of the movements of goods across borders and statistical surveys on trade in services are usually independent and therefore not mutually consistent.
- As for the export and import of manufacturing services, box 14.1 provides an example of a possible data adjustment in the compilation of resident/non-resident trade in services statistics when not all necessary information is available to the compiler and misreporting of goods after processing can be expected to be the main cause of the difference between the processing services and the value of goods before and after processing. It also provides an example of other adjustments of data on the import and export of goods related to the import of processing services that may be conducted in order to compile BOP statistics. Table 14.1 presents possible combinations of related movements of goods and services across borders for processing and after processing, as well as without cross-border movements. It also explains the difference in the recording of exports and imports of goods between International Merchandise Trade Statistics: Concepts and Definitions 2010 (IMTS 2010) (cross-border concept) and BPM6 (ownership concept). It is obvious that, in some cases, there is no cross-border movements of goods related to the transfer of goods between processor and principal (either before the processing or after the services have been provided).
Box 14.1 Numerical example of possible adjustments to the import and export of goods for balance of payments purposes in relation to the import of processing services in the absence of full information
Assume that country A imports processing services from country B in the value of 7 (5 is related to processed goods returned to the economy of principal A, 1 is related to goods that were sent for processing without returning to country A and 1 is related to goods sourced abroad that were processed in country B and imported (brought) to country A after processing). A's international merchandise trade statistics (IMTS) record—export of goods for processing (returning to country A after processing) — is 10, but the import of goods after processing is only 5, therefore the imports value in the IMTS record must be corrected.
The margin between goods sent for processing (10) and returning after processing (5) is -5. The value of those goods cannot be accounted for as general merchandise in the BOP and their value is therefore subtracted to obtain the gross flows of exports and imports according to the BPM6/MSITS 2010 recommendations. In addition, the import of services related to the goods returning to A is 5, so the adjustment of the import after processing value has to be +10 (=5+5), i.e., the adjustment of general merchandise according to BPM6/MSITS 2010 is 10.
Apart from the adjustment for misreporting, there may be also other adjustments in goods due to insufficient data sources and imported processing services. Assume that country A exports goods for processing with a value of 10 that are not returning to country A after processing. Strictly speaking, the value of the goods should be also subtracted from general merchandise, since no change of ownership occurs when the goods cross the border and exports of goods should be recorded only when a sale abroad after processing occurs (e.g., in the value of 11, 10 + 1, for the processing services). However, there is usually no data source for such sales abroad and, thus, the value of goods exported for processing that do not returning to the exporting country may not be subtracted from that of general merchandise (10). In addition, the import of services for 1 (corresponding to the value of imported services processed on goods sold abroad) is supposed to be imputed to the export of goods. Analogously, assume that the import of goods purchased abroad and processed in country B (in the value of 11: purchase for 10, services for 1). The value of import, according to BPM6/MSITS 2010, should include only the value of goods brought from abroad (excluding the 1 corresponding to the value of imported services processed on goods purchased abroad and imported to country A).
Table 14.1 (a)
Export of processing services (resident is the processor (contractor))
Recording BOP, national accounts and IMTS
Residence of principal (owner of goods to be processed)
Residence of processor
Origin of goods before processing
Residence of entity acquiring transformed goods from principal
Export of processing services
Goods that should be captured in IMTS of processor's territory
Goods and services that should be recorded in the BOP and national accounts of processor's economy
Goods received by resident processor for processing. Transformed goods leave processor's economy once processed.
Import of goods for processing
Export of processed goods
Service: Processing fee.
Goods received by resident processor. Transformed goods are purchased by residents of processor's economy once processed.
Import of goods for processing
Goods: Purchase of processed goods
Service: Processing fee.
Goods purchased by non-resident principal in the resident processor's economy.
Goods: Purchase of processed goods
Service: Processing fee
Goods purchased by non-resident principal in the resident processor's economy.
Export of processed goods
Service: Processing fee
Table 14.1 (b)
Import of processing services; resident is the owner (principal)
Recording in BOP, national accounts and IMTS
Residence of the principal (owner of the goods to be processed)
Residence of the processor
Origin of physical inputs before processing
Residence of entity acquiring transformed goods from principal
Import of processing services
Goods that should be captured in IMTS of principal's territory (physical movement of goods)
Goods and services that should be recorded in the BOP and national accounts of principal's economy
Resident principal sends goods (inputs) to non-resident processor.
Export of goods for processing
Import of processed goods
Service: Processing fee
Resident principal sends goods to non-resident processor.
Export of goods for processing
Goods: Sales of goods (includes processing fee)
Service: Processing fee
Resident principal purchases goods from non-resident.
Goods: Sales of processed goods (includes processing fee)
Service: Processing fee
Resident principal purchases goods (input) from non-resident.
Import of processed goods
Service; Processing fee
Manufacturing services: borderline cases
- It is important to separate manufacturing services on inputs owned by others from transactions that may have similar aspects, but should be recorded differently, according to BPM6.
- First, compilers should carefully distinguish between manufacturing services and manufacturing on own account, using the economic ownership of the inputs as the distinguishing criterion. Even if the processor not only transforms the goods owned by others (i.e., the principals), but also provides some physical inputs in the process, their exported output will be recorded under manufacturing services (i.e., including the value of physical inputs provided by the processor). That distinction is particularly relevant for countries with locations or zones with special taxation arrangements, such as export processing zones or free zones. Compilers should be aware that enterprises that operate in such zones are not necessarily by definition engaged in manufacturing services. If such enterprises are the economic owners of the goods that they process (whether purchased domestically or from the rest of the world), their exported output would not qualify as manufacturing services, but as general merchandise. Similarly, many enterprises may be engaged in manufacturing services, without necessarily being in special locations (see also BPM6 Compilation Guide, paras. 12.15-12.16).
- Some enterprises may be affiliates of direct investors abroad, and may use technology transferred to them by that direct investor. Technology transfer includes patenting, licences, know-how, technical assistance and the provision of research and development services (see OECD, Measuring Globalization: OECD Handbook on Economic Globalization Indicators (Paris, OECD Publishing, 2005). Compilers should note that the mere existence of a direct investment relationship does not imply the provision of manufacturing services, even when the processed products are sold to the direct investor. Since the classification is determined solely by the economic ownership of the inputs, the activity would still be recorded by the affiliate as manufacturing on own account (and hence not a manufacturing service).
- A second area in which compilers need to make a careful distinction is the difference between transactions related to manufacturing services on inputs owned by others, and those related to merchanting (see BPM6 Compilation Guide, para. 12.19). When, in the case of merchanting, the nature of the goods does not change, the gross values of the associated goods must be recorded as trade in goods (negative and positive exports).
- In the case that goods under a merchant's ownership are subjected to certain manufacturing services that change the condition of the goods, relevant purchases and sales of those goods should be recorded under general merchandise instead of merchanting, whereas the minor processing or packaging fee would still be recorded under manufacturing services.
- Compilers are advised to also consult the present Guide to measuring global production for more suggestions on how to deal with the different cases with which compilers may be confronted, as well as possible solutions for compiling the related items in the goods and services account. ECE, Task Force on Global Production, "Guide to measuring global production", 2014). Available from www.unece.org/fileadmin/DAM/stats/documents/ece/ces/bur/2014/Guide_to_Measuring_Global_Production_-_CES.pdf.
Country experience: Czech Republic
- In the movements of goods within the European Union, the processing services cannot be estimated by the difference between goods crossing borders before and after the processing (e.g., a long-term negative margin on outward processing with other European Union countries has been recorded). There are at least three main reasons for this:
(a) The non-resident principal has the goods, after processing, shipped directly from the economy of the processor to a third economy. The resident processor had reported receiving the goods for processing in Intrastat (system for collecting information and producing statistics on the trade in goods between European Union countries), but the non-resident did not report them as goods sent after processing, but rather as a simple merchandise export;
(b) Goods, after processing, are sold by the non-resident principal to a resident of the processor's economy (i.e., without the goods leaving the processor's economy). The non-resident principal must be registered in the processor's economy for VAT purposes. The processor had reported only acquiring goods for processing in Intrastat, but there is no cross-border movement of goods after processing between the principal's and processor's economies;
(c) Goods sent for processing, and especially those received after processing, may be significantly affected by misreporting or asymmetrical reporting. Goods sent for processing within the European Union are not under customs control in the Czech Republic. For that reason, it is difficult to report consistently on both sides in manufacturing chains. For example, processor A reports the physical entry of goods into the country (for processing) in a certain value, eventually processes them and transfers them to processor B, which, after its own processing, reports the exit from the country with a completely different value. Holding gains/losses or overheads are not likely to be among them as the entity obliged to report the movements of goods across the borders in the Intra-community trade statistics (Intrastat) is the processor (not the owner of the goods).
- The reasons mentioned under (a) and (b) lead to differences between processing services and margins resulting from gross cross-border flows in goods for processing. Since the compilation of the export and import of goods is based on the change-of-ownership principle The national concept of foreign trade in goods, which represents a change-of-ownership approach, takes into account sales and purchases by non-residents within the Czech market, and eliminates all cross-border movements of goods reported by non-residents, since those cross-border flows cannot be considered as transactions related to the Czech economy. (not on the cross-border principle), there is no need for any additional adjustments. In the case of (a), the goods sent for processing by the non-resident are excluded from the non-resident's exports of general merchandise and all cross-border exports, even though they are reported as general merchandise by the resident processor. In the case of (b), the goods received for processing by the resident processor are excluded from the non-resident's general merchandise exports, and only sales by non-residents within the Czech market are recorded as the import of goods. The sales of non-residents are known from the VAT statements they submit.
- However, the difference caused by point (c) must be eliminated by the additional adjustment of goods excluded from general merchandise in order to avoid affecting the balance of trade of goods and services. In fact, the first adjustment is done mostly at the level of Intrastat data collection by comparing the processing services (declared by exporters or importers of services) and declared cross-border movements of goods (reported into Intrastat by the same reporting units, as those units are usually the same – exempt from chain-linked processing). The adjustment requires sufficient data comparison of both data sources at the individual level of the reporting units. Nonetheless, other adjustments may be needed at the aggregate level, mostly because of the misreporting caused by chain-linked processing.
- For the purposes of those adjustments, an ad hoc annual survey on a voluntary basis alongside the regular survey on international trade in services is conducted among the processors (exporters of services) and the principals of goods to be processed abroad (importers of services). Detailed information is collected on the relationship between services exports and imports and the related movements of goods across the border and the transfer of transformed goods to the principal within the processor's economy. The additional adjustment of goods owing to misreporting may be carried out in order to keep the margin between goods after processing and goods before processing in accordance with the particular processing services related to the movements of the goods (especially when the goods are returning after processing; see box 14.1).
Country experience: Hong Kong: imports of manufacturing services and related goods transactions
Case I: Outward processing to mainland China with processed goods returned to Hong Kong
- In processing activities between Hong Kong (principal in the reporting economy) and mainland China (non-resident processor), the import value of the manufacturing services is derived from the total processing fee charged by the non-resident processor and the amount reimbursable by the principal for the materials procured by the processor.
- The cost of materials supplied by the principal from or via Hong Kong for processing without change of ownership is not included in "exports of goods" in the BOP statistics. By the same token, the value of the processed goods returned to Hong Kong should not be treated as "imports of goods". The cost of input materials supplied by the principal to the processor from a third economy directly is included in "imports of goods" of the economy of the principal.
Case II: Offshore trade activities involving outward processing with processed goods sold offshore
- As with case I, the value of manufacturing services is reported under "imports of services". The import value of the manufacturing services is derived from the total processing fee charged by the non-resident processor and the amount reimbursable by the principal for the materials procured by the processor. Margins earned from the offshore sale of the processed goods are not included in "exports of services".
- As for trade in goods, the cost of goods for processing supplied by the principal from or via Hong Kong to the processor without change of ownership is not included in "exports of general merchandise". The value of the processed goods sold offshore directly without their returning to Hong Kong is treated as "exports of general merchandise". The cost of materials supplied by the principal to the processor from a third economy directly is included in "imports of general merchandise" in the economy of the principal.
Country Experience: Hong Kong: exports of manufacturing services and related goods transactions
- For illustration purposes, it is assumed that a Hong Kong company provides manufacturing services on materials owned and supplied by an Australian company (non-resident principal) and the processed goods are returned to Australia. The value of manufacturing services is reported under "exports of services". The respondent can provide the export value of manufacturing services based on the total processing fee charged and the amount reimbursable by the non-resident principal for the materials the processor procured. For trade in goods, the value of the processed goods is not treated as "exports of general merchandise" because the ownership belongs to the Australian company. Besides, the value of the input materials supplied to the processor by the principal from Australia or a non-resident are not included in "imports of general merchandise". However, the value of materials procured by the Hong Kong company from a non-resident to be used in the processing activity has already been already recorded under "imports of general merchandise" and would be part of the manufacturing fee.
Freight transport and freight insurance services: cost, insurance and freight and free on board valuations
- It is not always possible to measure the value of freight transport and freight insurance services directly. However, freight cost estimates, including both transport and insurance premiums, can be derived from the cost, insurance and freight (CIF) and free on board (FOB) adjustments that are made to the merchandise trade statistics for BOP purposes. The difference between CIF and FOB values is considered a freight cost (transport and insurance premiums). That cost is generally deemed payable by the importer of the goods. Where that cost is provided by residents to non-residents, or by non-residents to residents, there will be recordings in the BOP. Table 14.2 displays those differences in recording.
Table 14.2 Valuation principles of merchandise statistics and balance of payments
Statistical values for CIF (cost, insurance and freight) and statistical values for FOB (free on board)
Statistical values for FOB
Import and exports
Statistical values for FOB
- As table 14.2 shows, it is recommended that merchandise exports be valued on an FOB basis, following the BPM6 principle for recording general merchandise credits. It is recommended that imports, in international merchandise trade statistics, be valued on a CIF basis (countries are encouraged to compile FOB-type values for imported goods as supplementary information See IMTS 2010, para. 4.8.), whereas in the BOP, imports of goods should be valued on an FOB basis, i.e., the value of the transportation cost and insurance premiums from the border of the exporter to the border of the importer is recorded as imports of those services (if the services are provided by non-residents) and the remaining value is recorded as imports of goods.
- Compilers should note that, when calculating the freight transport and insurance costs for BOP purposes, the statistical value does not necessarily reflect the sum of the actual invoice values, The report from Statistics Denmark provides an overview on differences between the statistical cost, insurance and freight (CIF) and free on board (FOB) value; the EuroGrant 2009 Balance of Payments, grant agreement number 20821.2009.001-2009.715, final report May 2010. The Glaab report recommends collecting invoice values instead of statistical value and the import and export of freight services should be collected. but instead follows the principle adopted in the accounting framework (see the numerical example in MSITS 2010, box III.4). However, many users are also strongly interested in obtaining data on the actual costs, as they reflect the total value of freight-related services provided; that is why MSITS 2010 suggests making those data available to users on a supplementary basis (i.e., beyond the BPM6/EBOPS 2010 recommendations). The valuation of freight transport services on a transaction basis indicates market-price transactions, excluding any adjustments or estimations. Such additional information MSITS 2010, para. 3.107-3.110. can be used as supplements to the FOB/FOB valuation principle in BOP statistics or the CIF/FOB principle in international merchandise trade statistics.
- A variety of methods for estimating freight and insurance on imports is described in the BPM6 Compilation Guide, table 12.2. A common approach of CIF/FOB adjustments is to calculate conversion factors, or ratios of CIF imports to FOB imports, that should take into consideration the mode of transport, the geographical distance and the type of commodity transported. International merchandise trade data from customs can be used to estimate CIF/FOB ratios, provided that those data include information on invoice and delivery terms. Dedicated surveys are also used in some countries.
- To compile the ratios between the statistical value (CIF-type) and the invoiced value (of transactions with FOB-type delivery terms The delivery-terms FOB method was developed by Statistics Netherlands.), it is suggested that compilers use transactions for which FOB-type delivery terms are available, and to calculate the ratio between the FOB-type invoiced value and the corresponding CIF-type statistical value. The ratio thus compiled can subsequently be applied to the total statistical value (CIF-type) to obtain an FOB-type value. Such a ratio should be calculated for freight transport and insurance, respectively. When there is insufficient information available from customs merchandise trade statistics, a combination of the techniques detailed above and direct data collection or surveys can be used to allow full coverage of all the cases of imports and exports, types of contracts and residence of the carrier.
- Freight insurance services are usually estimated by compilers on the basis of insurance premiums, the former often calculated as a ratio with the non-life insurance premiums. Depending on the terms of the freight, additional adjustments may be needed on the basis of the value of the goods being traded (i.e., if the terms are not on an FOB basis) and the terms of contract (i.e., whether the shipment between the borders of the exporter and the importer is undertaken by a resident or a non-resident).
- It is advised to compile the value of total freight insurance, whereas the freight transport component must be broken down by mode, as follows: sea, air, other, of which, space, rail, road, inland waterway, pipeline transport and electricity transmission.
Country experience: Germany
- In Germany, the following formula is applied for the calculation of transportation costs: transportation costs = weight x freight rate (subject to mode of transport, product group (in the case of sea transport) and distance). In order to apply that formula, the information matrix of table 14.3 is used.
Table 14.3 Information matrix to calculate transportation costs
Inland Waterways cargo
a In the case of sea and air cargo, unit costs already take account of the distance.
- In order not to increase the burden for reporters, the information needed for the estimation is taken from the public data sources set out in paragraphs 14.54 through 14.59.
- Weights The weights for imported and exported goods are taken from foreign trade statistics and are available on a monthly basis.
- Freight rates As a second best solution, information extracted from online publications specialized in transport, which focus on more than 30 major carriers and data from transport services associations, is used. On the basis of that information, the transport costs for a standard container (20 ft. equivalent unit (TEU) with an average loading weight of 14 tons) are calculated for the various modes of transport. With regard to sea transport, owing to the availability of additional information, a further breakdown of transport costs by container, bulk goods and crude oil is made.
- Transport prices The transport prices for each mode of transport, which fluctuate considerably over the course of a year, are updated on the basis of transport price indices calculated by the Federal Statistical Office.
- Mode of transport As an expedient, a "main mode of transport" is used as the basis for the estimation. The longest part of the total transport route (and, hence, as a rule, also the stretch with the highest value) is covered using that mode of transport. Information on the mode of transport is derived from foreign trade statistics, in which an obligatory inquiry is made about the active mode of transport used to cross the external border of the European Union. That is mainly sea or air, and is a good approximation of the actual main mode of transport. If another mode of transport is stated in the trade statistics, it is assumed that, in the case of non-European countries, the goods were transported by sea to large ports in the Netherlands and Belgium For mineral oil imports, Italy (Trieste) is assumed to be the unloading port for the Middle East countries. and then transported to Germany on the stated mode of transport. Table 14.4 shows an example of transportation cost calculation.
Table 14.4 Example of transportation cost calculation for imports from China
Imports from China: 1,109,537 tons
Mode of transport (percentage)
€139 per ton
€8,479 per ton
Inland waterways cargo
€4.90 per ton
€0.08776 per ton per km
€0.04636 per ton per km
Note: 1,109,537 x (0.856+0.039+0.083+0.002) x 139 = 151,141
- Nationality of carrier A number of different sets of statistics are used to determine the relevant partner country. The nationality composition of road toll statistics is used for the regionalization of truck transport (adjusted to compensate for the disproportionately large share of German trucks due to domestic transport). The ownership (not flag) share of the countries among the world fleet is used for sea transport. Since only some sea transport is carried out using scheduled services, the breakdown of the world fleet by country can be regarded as an informative approximation. The same applies to air transport, i.e., the world market shares of the airlines are used. With respect to inland shipping, information on the flags of the ships is the sole data available, hence only that information is currently used. As cross-border rail transport has been liberalized only since 2007, no statistics for it are yet available. A robust estimation for the rail system is carried out on the basis of the technical systems of national railway networks (e.g., track width, line voltage and operating licences).
- Transport insurance The amount of transport insurance is also estimated using this procedure, although no further details are supplied regarding the methodological particularities of insurance companies (service fee included in the insurance premium, etc.). Unlike transport costs, the insurance costs are calculated as a share of the import value. That share is in line with the premium rates set by transport insurance brokers for transportation to and from various regions. The rates were calculated in tandem with the determination of the transport costs by surveying several international transport insurance companies. The reported country structure for transport insurance is used for the regional breakdown of those costs.
B.2Passenger transport and travel
- Passenger transport and travel are service categories that are strongly related and for which compilation often involves the same or similar data sources. Passenger transport includes fares and other expenditures related to the carriage of passengers, including any taxes levied on passenger services, such as sales or VAT (see MSITS 2010, para. 3.95). Travel covers goods and services for own use or to be given away, acquired from an economy by non-residents during visits to that economy. Hence, travel is transactor-based, which makes the compilation of data on travel challenging compared with most other service categories that follow a product-based classification (see MSITS 2010, para. 3.115).
Compiling statistics for passenger transport and travel
- To compile statistics for passenger transport and travel, compilers can draw from a variety of data sources, including an ITRS (which can provide information on monetary flows between travellers and tourism services providers and payments made through bank notes, traveller's cheques or credit cards), payment card data and other administrative sources, such as immigration records. However, surveys remain an especially important data source. For passenger transport, those may include dedicated transport surveys aimed at large transport enterprises, such as airlines or railway operators.
- For the EBOPS travel item (exports), survey types can include traveller surveys, border surveys, household surveys and enterprise surveys, covering accommodation establishments and tourist intermediaries, such as travel agencies and tour operators. Travel agencies are the traditional intermediaries between travellers and travel-related services providers, such as hotels, car rental agencies, cruise lines and package tour operators. Direct reporting allows for a better measure of travel expenditures booked through those intermediaries than is possible with an ITRS. Travel agencies can distinguish travel components for individual travellers only when those travellers purchase tours to foreign countries. Tour operators are often better able to provide the product classification of the different services assembled for package tours. That information can be obtained through a direct report for tour operators.
- Visitor surveys may provide more detailed insights, such as the purpose of travel, the type of person travelling, the structure of the expenses made during the trip and those expenses are paid. Supplemental sources include tourism activity statistics (accommodation providers' statistics) and accommodation prices in the consumer price index. On the debits side, mirror statistics from partner countries can be used.
- Transport services should be recorded on a gross basis: the value of passenger transport services should include fares and other expenditures, such as commissions of ticket sales, related to the carriage of passengers.
- Given prevalent practices of interlining and code sharing by airlines, compilers should obtain data on revenue earned by an airline from residents of other countries, rather than data on sales by an airline to residents. It may be possible to collect such data since airlines keep records on revenue generated by country of sale. However, as not all airlines earning revenue from residents of a particular country have offices in that country, it may be difficult for compilers to obtain complete coverage of passenger fare revenue earned by non-resident operators from residents of the home country. In such cases, a data model based upon the number of non-resident passengers carried by resident operators, passengers' countries of origin and destination and average fare rates could be used to produce an estimated value.
- An alternative means of measuring passenger fare revenue earned by non-resident operators is to collect information on the total value of tickets sold in the compiling country and to deduct the earnings of resident carriers from that total value. An estimate of ticket sales may be derived from a household budget survey or other surveys of individuals.
- In some cases, passenger fares may be a component of package tour payments, and the compiler may, in consultation with travel industry representatives, have to separate passenger transport and other travel components.
Country experience: Ireland
- In Ireland, export sales data for passenger transport are obtained from resident airline and ferry operators through receipts from non-residents for travel to and from Ireland.
- Direct data on receipts for other types of resident transport companies are not available, such expenditure by non-resident visitors to Ireland being captured indistinguishably in the travel and tourism receipts (exports). Respondents may provide only their best estimates in respect of the geographical breakdown required, because of the difficulty of knowing the precise country of residence of all their customers. Payments by Irish residents to non-resident transport enterprises, in general, cannot be directly distinguished at present. Such payments (imports) are included in the travel and tourism expenditure data. Receipts by resident airline and shipping companies for freight services provided (exports) to non-residents are obtained from those enterprises, the geographical breakdown being provided on a best estimates' basis, where necessary.
Country experience: Australia
- In Australia, passenger transportation services are obtained from the quarterly survey of international trade in services (SITS) of the Australian Bureau of Statistics (ABS), with estimates for freight debits derived from the ABS international merchandise trade statistics. Survey responses for passenger transport are adjusted to ensure that only international services are captured, as described below.
- The SITS requests non-resident providers of passenger transport services to report revenue earned from the sale of international tickets within Australia. Survey responses could therefore include tickets sold to both resident and non-resident travellers, and regardless of whether the transactions involve transport between Australia and the rest of the world or within Australia as part of an international journey. Data from the international visitors survey conducted by Tourism Research Australia and ABS overseas arrivals and departures data are used to estimate the value of international tickets sold within Australia to non-residents on non-resident airlines, and that value is deducted from the survey total for passenger transport debits. Similarly, estimates are made for the value of international tickets sold within Australia to non-residents on resident airlines, and that value is added to the survey total for passenger transport credits. It should be noted that the survey requests the same information from resident providers of passenger transport services for the sale of international tickets abroad. However, no adjustment is currently made to account for purchases by Australian residents abroad.
- The value of services provided to non-residents by Australian carriers in Australia, when sold abroad as part of an international ticket (on-carriage), is collected from the carriers and allocated to travel. Services provided on purely domestic travel in Australia by non-residents, whether pre-purchased abroad or while in Australia, are also included in travel. No classification adjustments are made for non-resident earnings from residents for internal flights abroad; all earnings from sales in Australia for on-carriage in a foreign country and for pre-purchased domestic travel in a foreign country are included indistinguishably in transportation debits. Cruise fares are excluded from passenger services and included in travel, although sea passenger services sold in Australia and provided to residents travelling from one country to another and any resident sea passenger earnings are included in transportation.
- The concept of travel, as used in MSITS 2010, is closely related to the concept of tourism. Thus, it is advised that trade in services compilers understand the conceptual framework of tourism statistics, including the Tourism Satellite Account (TSA). Detailed descriptions are available in two United Nations publications, International Recommendations for Tourism Statistics (IRTS) 2008 and Tourism Satellite Account: Recommended Methodological Framework (TSA:RMF) 2008), and in the International Recommendations for Tourism Statistics 2008 Compilation Guide.
- In addition to the aggregate measure of travel exports (credits) and imports (debits), BPM6 and EBOPS 2010 recommend the compilation of further breakdowns of travel. Such breakdowns can be used not only to better assess the scope of travel activities and to gauge their possible impact in terms of economic activity, but also to ensure consistency between data on travel compiled in accordance with MSITS 2010 and other related statistics, such as tourism statistics, the TSA or the supply and use table.
- Some of the aforementioned requirements, such as the mandatory split between business and personal travel and the breakdown of personal travel into health-related, education-related and other motives, are not new compared with the previous editions of MSITS and BPM. Other breakdowns, such as the alternative presentation of travel according to the types of goods and services, are new challenges for the BOP compilation. To meet those requirements, compilers should draw on the advantages of the increased proximity with agents directly involved in external operations and on the availability of more detailed information. Table 14.5 shows complementary data sources that can be used to compile different breakdowns.
Table 14.5 Travel breakdown: data sources (example)
Payment card database
Direct reporting: travel agencies and tour operators, visitor and household surveys
Personal purposes: health-related, education-related, other
Survey, administrative data
Group of travellers: border, seasonal and other short-term workers
Types of goods and services
Payment card database
Direct reporting: travel agencies and tour operators
- When defining the specific level of detail for each breakdown, other specifications should be considered to achieve an integrated and consistent framework that provides all details required by other statistical domains, such as the TSA, national accounts and the harmonized index of consumer prices. A needs assessment is essential for understanding how the available data sources can deliver the level of detail required. For that purpose, cooperation between different statistical authorities appears crucial for reducing compilation costs, as well as for integrating diverse statistical systems and conceptual frameworks.
- In particular, compilers who are responsible for estimating receipts and expenses for travel could work closely with the ministry of tourism or similar governmental agencies. Likewise, thorough discussions should take place between the compilers of trade in services statistics and the ministry of tourism when international passenger surveys and other surveys are conducted or outsourced. Such discussions would contribute to the consistency of the primary data used for the compilation of trade in services and tourism statistics, including the TSA.
- The interconnected sources can be seen as rooms on different floors of a house (see figure 14.1, which is based on the experience of Austria), where the SNA serves as the rooftop, sending inputs down to the TSA and receiving input from the travel item of the balance of payments (T-BOP). The basic tourism statistics, accommodation statistics and the sample survey are major inputs for compiling the TSA and T-BOP compound statistics. The basic statistics should be harmonized conceptually and the outcomes should be reconciled where they describe the same thing.
Figure 14.1 Integrated aspects of tourism and travel statistics
Harmonization of questionnaires
Non-paid accommodationAccommodation StatisticsSample SurveyOutbound data
Breakdown by goods and servicesTourism StatisticsOutbound data
Breakdown by goods and servicesOvernight dataExpendituresBridge tablesTSAData from input/output statisticsSNA/BOPT-BOP
Country experience: Austria
- In Austria, Oesterreichische Nationalbank (OeNB) and Statistics Austria run a joint survey for tourism expenditure and the travel item. For collecting or compiling domestic, outbound and inbound tourism, an accommodation statistics survey (covering inbound and domestic) and a sample survey are used. The two basic surveys cover all forms of tourism with respect to the physical flows. For variables for inbound expenditure, the T-Mona survey, designed for basic tourism statistics, is used. The sets of basic statistics stemming from the three surveys are followed by compound statistics from the TSA and the T-BOP, which, together, provide key measurements.
- Since it is possible to isolate such travel components as seasonal and border workers, students, medical patients and those crossing the border but remaining within their usual environment, T-BOP data can be used as key measurements for the TSA. The TSA uses several other data sources, including accommodation statistics survey, the sample survey and the T-Mona. The T-BOP that goes beyond the concept of tourism statistics also uses tourism statistics as inputs. The T-BOP serves as input for compiling the rest of the world account, delivering bridge tables for private consumption and identifying business travel, which is seen as production input in the national accounts.
- Reconciliation of basic tourism statistics The selection of the T-Mona sample is based on accommodation statistics, as those data are available on a detailed geographical level. Those data are further used for weighting and grossing up. In addition, the questionnaires are harmonized in major fields, so, for example, the same categories are used in both sets of accommodation statistics. The accommodation statistics do not incorporate stays at the homes of friends and relatives, but as that information is included in the T-Mona survey, inputs from the accommodation statistics are used to establish the proper sample basis.
- The sample survey and T-Mona questionnaires are harmonized according to accommodation establishments and other definitions, according to the tourism concept. The data sources of both the sample survey and accommodation statistics survey cover domestic tourism. Therefore, the outcomes, at least for the physical flows of the number of overnights and arrivals of Austrian residents in Austria, are cross checked.
- The BOP travel item and tourism statistics are reconciled on both the credit and debit sides of T-BOP as follows:
(a) Credit side of the T-BOP The first major data source for the compilation of the credit side of the T-BOP is T-Mona questionnaire, as it delivers the average expenditure of non-resident tourists in Austria in paid and non-paid accommodation establishments. The expenditure questions in the T-Mona meet T-BOP needs and are harmonized with concepts used in BPM6 and MSITS 2010. The second major data source for the compilation of the credit side of the T-BOP is the accommodation survey, which delivers the population of non-resident tourists in paid accommodation establishments by country of origin. However, due to survey restrictions, the number of countries directly surveyed is limited to 60. In contrast to that limited geographical breakdown, the T-BOP considers data from credit and debit card companies delivered by the OeNB and, therefore, delivers detailed information about the geographical breakdown. Therefore, that data can be used to further break down the accommodation statistics geographically on the basis of expenditure data;
(b) Debit side of the T-BOP The major data source for the compilation of the debit side of the T-BOP is a sample survey. As that sample survey is based on the tourism concept, harmonized questions are implemented to meet the needs of the travel concept of the T-BOP. Besides the differentiation between business and personal travel, same-day visitors are also included; T-BOP does not distinguish between lengths of stay, as only the expenditure variable is important. Credit and debit card data, which are implemented in the T-BOP, are used for doing plausibility checks with the outcome of the sample survey. The data are also used to create a detailed geographical breakdown of the sample survey, since in the sample survey, the geographical breakdown is limited to approximately 10 because of sampling error. That reconciliation exercise helps to overcome the limits of the sample survey.
Country experience: Portugal
- The framework designed in Portugal to compile travel statistics is to a large extent based on the instruments used to pay for travel expenditures, that is to say (a) payment cards, (b) traveller's cheques and (c) cash. Regarding transactions settled in cash, the introduction of the euro resulted in an additional difficulty for compilers, particularly in the euro area countries. It is necessary to estimate those expenditures and that estimation can be quite challenging, since the use of cash differs according to the type of good or service acquired by travellers.
- The selection of the data sources mentioned above to use in such a framework depends upon the moment of payment of the expenditure, pre-payment or local payment, and upon the channel used to book and/or pay for travel arrangements: (a) direct reservation or (b) reservation made through a travel agency or tour operator (resident or non-resident). The approach and sources selected for compiling travel credits and debits may be somewhat different, taking into account that the scope of data sources available and the degree of coverage that is possible to obtain from each data source individually can differ for the credit and the debit sides.
- Tables 14.6 and 14.7 present an overview of the main sources selected for each combination of channel, moment of payment and payment instrument used. The combinations showed in the tables are the ones that are more likely to occur. For example, the pre-payment of a trip booked through a direct reservation channel most probably will not be performed in cash. Therefore, that alternative was excluded from both tables.
Table 14.6 Main source for travel credit (supply side)
Channel used to carry out travel arrangements
Moment of payment
Payment card database
Payment card database
Direct reporting: banks and money transfer operator
Payment card database
Direct reporting: – banks
Reservation made through a travel agency or tour operator (resident or non-resident)
Tourist activity statistics; accommodation prices;
Payment cards database
Direct reporting: banks and money transfer operator
Payment cards database
Direct reporting: banks
Table 14.7 Main source for travel debit (demand side)
Channel used to carry out travel arrangements
Moment of payment
Payment card database
Payment card database
Direct reporting: banks and money transfer operator
Payment card database
Direct reporting: banks
Reservation made through a resident travel agency or tour operator
Direct reporting: travel agencies and tour operators
Payment card database
Direct reporting: banks and money transfer operator
Payment card database
Direct reporting: banks and MTO
Reservation made through a non-resident travel agency or tour operator
Payment card database; survey
Payment card database
Direct reporting: banks and money transfer operator
Payment card database
Direct reporting: banks
Country experience: Hungary: health-related travel
- The Hungarian Central Statistical Office (HCSO) compiles services transactions between residents and non-residents. Data for business and transportation services are based on annual and quarterly conducted surveys by HCSO. The statistical units are the resident enterprises, Government and non-profit organizations, which supply services to non-residents and use services of non-residents. The surveys contain a list of 62 service types, including health services. According to the methodology, respondents should report all services of category 86 of the Statistical Classification of Economic Activities in the European Community (NACE) between residents and non-residents, provided by physicians, nurses and other qualified personnel working in health care. Even services provided from a distance, such as laboratories through the Internet, should be included.
- The main data provider for health services is the National Health Insurance Fund (OEP). Among the other companies that reported export data for health services were university hospitals, air emergency rescue companies and pharmaceutical trade companies. According to an agreement between OEP and HCSO (and based on international methodology) the insurance fund export data cover emergency and other health services provided by Hungarian health institutes for foreigners in Hungary. The invoices are paid by foreign health insurance companies or by foreigners at the site.
- Imports cover emergency and other health services provided by foreign institutes for Hungarians, invoices paid by OEP directly and services paid for by Hungarians at the site and reimbursed by OEP later. Health services for Hungarians who travel abroad for the verified purpose of medical treatment are considered to be part of the tourism service and are not reported here. The differences between the methodology of external trade statistics and the system of health accounts (SHA) have, as result, different values for the national health accounts of Hungary and the international trade in health services. In the trade statistics, the difference is part of the tourism services import.
- Data on tourism expenditure is based on two surveys: a questionnaire on foreigners visiting Hungary and a questionnaire on travel abroad. The stratified non-probability sample, which excludes truck drivers, covers outgoing foreign and incoming Hungarian citizens who cross the border, including participants in package tours. On a yearly basis, the average sample sizes are approximately 120,000 questionnaires for foreigners and approximately 50,000 questionnaires for Hungarians. The selection of days for data collection is systematic and casual. Data collection is conducted through personal interviews. The surveyed locations are 24 road border stations and Budapest-Liszt Ferenc International Airport. Participation in the survey is voluntary.
- Out of the entire set of questions, two contain information that can be related to health care, namely the questions on the purpose of visit and on expenditures. The purpose of visit, among others, can be "medical treatment" and "spa, wellness". In the latter, both spending at spas based on a physician's prescription and spending for the purpose of wellbeing or recreation should be accounted for.
- However, the mechanical use of data from tourism statistics may lead to double-counting on the aggregate level, since household survey data (the Hungarian out-of-pocket expenditure data being based mainly on the household survey) contain all household spending whether it took place in the country or abroad, even though the household survey guide makes no reference to payments abroad. The exports of health services to non-residents are greater than the imports, given the lower prices of Hungarian health care providers.
Country experience: United States: education-related travel
- Exports of education services measure foreign students' education expenditures in the United States. Foreign students are defined as individuals enrolled in institutions of higher education in the United States who are not United States citizens, immigrants or refugees. Data on the number of students are obtained from an annual survey of about 2,700 accredited United States institutions, conducted by the Institute of International Education (IIE). Characteristics of the population used in the estimates include the geographic area of origin (residence), type of institution (public or private), enrolment status (part‐time or full‐time) and academic level of institution (two-year, four-year or university).
- Estimates of average expenditures for tuition and for room and board are developed from annual surveys of most United States accredited institutions conducted by the National Center for Education Statistics, Department of Education, and matched by the Bureau of Economic Analysis (BEA) to the characteristics of the student population. Data on living expenses are based on estimates by the Bureau of Labor Statistics of the Department of Labor, of low‐income level family budgets in metropolitan and non-metropolitan areas, reduced to a single person, and adjusted for inflation each year. Estimates of foreign students' expenditures are made by multiplying the number of students by the average expenditure.
- Imports of education services measure United States students' expenditures abroad. Those students are defined as (a) United States residents who receive academic credit for study abroad from an accredited institution of higher education in the United States and (b) students who enrol directly with foreign institutions, including medical students, and who receive no academic credit from United States institutions. The total of United States students' expenditures abroad is the sum of the estimates for the two groups of students.
- For students who receive academic credit from United States institutions, data on the number of students are obtained from an annual survey of about 1,300 United States institutions conducted by IIE. Characteristics of the population used in the estimates include country of study, type of institution (public or private) and academic level of institution in the United States (two-year, four-year or university). Data do not include students who study abroad without receiving academic credit from a United States institution, or students enrolled for a degree overseas.
- Student payments to United States colleges and universities for tuition and room and board are assumed to be forwarded to foreign institutions. Estimates of average expenditures for tuition and room and board are developed from an annual survey of most accredited United States institutions; the survey is conducted by the National Center for Education Statistics. Average living expenses are estimated by applying a ratio of United States‐to‐foreign living costs to the low‐income‐level family budget series developed for foreign students who study in the United States. Estimates of United States students' expenditures abroad are made by multiplying the number of students by average expenditures for tuition and room and board and for average living expenses.
- For students who enrol directly in foreign institutions and receive no academic credit from United States institutions, supplemental estimates of education payments for Australia, Canada, Ireland and the United Kingdom of Great Britain and Northern Ireland, based on national data from those countries, are used to capture the expenditures of United States students.
- Construction covers the creation, management, renovation, repair or extension of fixed assets in the form of buildings, land improvements of an engineering nature and such other constructions as roads, bridges and dams. It includes related installation and assembly work, site preparation and general construction, as well as specialized services such as painting, plumbing and demolition (see MSITS 2010, paras. 3.132-3.135).
- Construction is valued on a gross basis, i.e., inclusive of all goods and services used as inputs to the work (whether subcontracted or not), other costs of production and the operating surplus that accrues to the owners of the construction enterprise. BPM6 Compilation Guide, para. 12.95. Construction is also valued on a gross basis in the sense that it can be disaggregated into construction abroad and construction in the compiling economy. The construction exports (credits) would result from summing up the credit entries (a) from construction abroad and (b) from construction in the compiling economy. Similarly, the construction imports (debits) would consist of debit entries (a) from construction abroad and (b) from construction in the compiling economy. Ibid., paras. 12.99 and 12.101. If the external operations of a construction company are substantial enough, a separate branch, resident in the host economy, may be constituted which will usually give rise to a direct investment relationship between the parent company and the branch.
Compiling statistics for construction
- With respect to the value of the goods and services used as inputs to the work, compilation difficulties may arise when it is not possible to identify separately the goods purchased in the home economy and the host economy. For practical reasons, the compiler may need to estimate a breakdown, or otherwise attribute all goods purchased to either the host or the home economy of the construction enterprise (see also box 14.2). Also, it may not always be possible to identify the purchase of goods and services separately from labour costs. In that case, the compiler will need to estimate a breakdown or, alternatively, allocate all costs either as goods and services or as compensation of employees (for employees that are residents of the host economy).
- In order to correctly compile the item, it is particularly important to precisely identify the residence of the enterprise realizing the construction work. Indeed, a construction enterprise established in one economy may undertake construction projects in another economy directly (no local entity created) or through a branch, i.e., via a direct investment relationship. In the former case, the construction activities are regarded as export of services, whereas in the other case, they are considered direct investment operations.
- In the case of long-term projects where no local entity needs to be created, MSITS 2010 and BPM6 suggest a number of factors to identify if a unit of one economy, which is active in another, has operations substantial enough to consider that the unit has a branch resident in that other economy (see MSITS 2010, para. 3.142). The operations, therefore, need to be analysed to identify if they are substantial. In particular, compilers should avoid creating too many notional units.
- First of all, the compiler should identify the duration of the construction project. If the project extends over a period of at least one year, it is a strong indication that the compiler should investigate the project further. If certain other factors are met, the construction work undertaken is to be treated as if a separate institutional unit—a branch (subsidiary)—has been created that is resident in the economy in which the activity is being carried out. That branch would be considered a direct investment enterprise. If some or all of those factors are not met, the activity is to be treated as an export by the construction enterprise. The other suggested criteria are the following:
(a) The maintenance of a complete and separate set of accounts for the activity (i.e., income statement, balance sheet, transactions with the parent company, etc.);
(b) The activity being subject to tax in the host country;
(c) The existence of a substantial physical presence;
(d) The receipt of funds for its work for its own account, etc.
- The decision is based on the weight of the evidence for a set of criteria and not on any single criterion; for example, it would be very difficult to identify a branch if, for the construction activity, a separate set of accounts cannot be prepared or maintained. Construction activities involving major projects (bridges, dams, power stations, etc.) that are carried out through unincorporated site offices, in many cases meet the criteria of a direct investment enterprise and thus are treated as part of the production of the host economy, not as an export of services to that economy. Ibid., paras. 12.92-12.94.
- In the case of construction projects conducted in the context of aid programmes, the treatment should be to record a transaction under services if relevant (i.e., if the project is small scale, using the criteria defined in the previous paragraphs) between the economy in which the aid agency financing the project is located (credits) and the economy in which the construction is taking place (debits). The counterpart entry should be in the capital account. If the contractor is not a resident of the economy of the donor, then there would also be some (construction) transactions to record between the economy of the donor and the economy from which the contractor is conducting its operations (using a gross recording). Such treatment is not limited to construction.
- To compile statistics on construction, both an ITRS and surveys can be used as sources of information regarding construction. However, surveys may provide more detailed and relevant data than the ITRS, in particular when it comes to gathering information on construction abroad (debit) and construction in the compiling economy (credit). The complexity of cross-border construction activities is another reason to prefer a survey, in particular if the compiling economy has many international construction projects (either exports or imports). If countries decide to use ITRS data, particular care should be taken to measure transactions involving bank accounts of construction companies in the host economy, because some of those companies may meet the criteria for treatment as residents. A survey collecting data on construction could also jointly collect information on foreign direct investment and other resident/non-resident transactions (BPM6 Compilation Guide, table 12.4).
Numerical example of measurement of construction
A construction enterprise resident in economy A starts a construction project in economy B on 1 February. The end date of the project is 10 April of the same year. The gross construction value is 100,000. The project is considered a construction service, as it lasts less than one year (69 days). The enterprise is requested to report the construction project in the questionnaires related to both the first and the second quarters, specifying the project start and end dates, the counterpart country and the gross value of the construction.
In order to undertake the construction project, the enterprise purchases inputs (materials, services and labour) during the first quarter. The purchases are reported as follows:
- Goods purchased in Italy: 20,000
- Goods, services and labour purchased/acquired abroad: 50,000
The gross construction value pertaining to Q1, to be allocated in A's BOP as construction abroad (export with counterpart country B) is computed as follows:
(100,000 / 69 total days) x (59 days in the quarter) = 85,507
The reported goods, services and labour purchased/acquired abroad are allocated as construction abroad (import with counterpart country B). The reported goods purchased in Italy are deducted from the goods exports, again with partner country B, of the BOP. The complete recording for Q1 is shown in the table that follows:
In Q2, the enterprise does not purchase any input either in Italy or abroad. Thus, it has only to report the construction start and end dates, the counterpart country and the gross construction value. The construction value pertaining to Q2, to be allocated to the BOP as construction abroad (export with counterpart country B) is computed as follows:
(100,000 / 69 total days) x (10 days in the quarter) = 14,493.
Hence, the BOP recording for Q2 is the following:
Country experience: Italy
- In the system of Italy, the construction activity is regarded as an FDI-related operation, if the construction work extends over a period of at least one year, or as a service transaction, if the construction work takes less time. In Italy, the gross construction value of projects lasting one year or more largely exceeds that of short-term projects, both for construction abroad (98 per cent vis-à-vis 2 per cent as an average in the period 2008-2012) and for construction in Italy (80 per cent vis-à-vis 20 per cent).
- Construction lasting less than one year The quarterly non-financial transactions questionnaire (TTN questionnaire) collects specific information needed to compile the construction item. In particular, for constructions abroad only, firms are required to report the following transactions, in relation to the reference quarter (see chapter 6, paras. 6.78-6.87, for data collection for construction):
(a) Goods, services and labour purchased/acquired abroad, used to compile the construction abroad debits According to MSITS 2010, the goods and services acquired by the construction enterprise from third economies should be recorded under the appropriate general merchandise or services item. However, in order to reduce the reporting burden, firms are not required to split the inputs purchased in the host economy from those acquired in third countries; as a consequence, the inputs purchased abroad are all allocated to construction abroad debits, and to the host economy as the partner country. Moreover, labour costs are included in construction abroad debits, as it was not feasible for firms to separately identify that cost component; MSITS 2010 para. 3.141.
(b) Goods purchased in Italy, used to adjust the BOP goods item, by deducting the corresponding amounts from merchandise exports This is necessary in order to avoid duplication, as the goods purchased in Italy by the resident construction enterprise are also recorded in merchandise exports on the basis of foreign trade statistics. Ibid., para. 3.140, footnote 14, and BPM6, para. 10.22 (d). In principle, the services acquired by the resident construction enterprise from residents of the home economy should be excluded; however, in order to simplify the reporting, it is assumed that all services are acquired from the host economy.
- Table 14.8 shows the different sources used for each component of construction services. The construction abroad, as exports, and the construction in Italy, as imports, are computed assuming that the gross construction value is uniformly distributed throughout the duration of the work.
- For construction in Italy, detailed information is usually not available to the reporting enterprises receiving the service. In order to fill that information gap, an assumption is made that the cost structures of construction abroad and in Italy are similar. Therefore, the missing information (i.e. the goods, services and labour purchased/acquired in Italy and the goods purchased in the country of residence of the construction firm) is estimated on the basis of the ratio of the corresponding items reported for construction abroad to the gross construction value.
Table 14.8 Methodology for the compilation of the construction services item in Italy
Total contract value pertaining to the reference quarter
Goods, services and labour purchased/acquired abroad
Construction in Italy
Goods, services and labour purchased/acquired in Italy (estimated)
Total contract value pertaining to the reference quarter
- Construction lasting one year or more Also in the case of construction lasting one year or more, the gross construction value is uniformly distributed throughout the entire duration of the work. The quota pertaining to the reference quarter is considered an increase of FDI equity stock (FDI abroad, or assets, in the case of construction abroad, and FDI in the reporting economy, or liabilities, in the case of construction in the compiling country).
- For construction abroad, in the quarter in which the construction project ends, the reporting agent has to report the additional information on the net margin, i.e., the difference between the gross construction value and all costs incurred by the construction enterprise in relation to the project. For construction in Italy, the compiler estimates the net margin, which is not directly available to the reporting agent, by applying to the gross construction value the average rate of return observed for construction abroad.
- Consequently, in the BOP for the quarter in which the construction ends: (a) the gross construction value is recorded as FDI disinvestment (on the assets side, in the case of construction abroad; on the liabilities side, in the case of construction in Italy), since the construction is delivered to the client and (b) the net margin is recorded as FDI income (on the credit side, in the case of construction abroad; on the debit side, in the case of constructions in Italy).
B.4Insurance, pension and financial services
- The present subsection describes the compilation of insurance and pension services as well as financial services, maintaining consistency with the recommendations of the BPM6 Compilation Guide. The BPM6 Compilation Guide provides recommendations on the treatment of insurance, pension and financial services, in particular, in its appendix 2, "Insurance transactions and positions and pension schemes" and appendix 3, "Financial intermediation services indirectly measured". Some of those services are provided without explicit fees, which are included in property income and other flows. Thus, the calculation of services needs a certain degree of estimation or imputation, based on balance sheet and/or profit/loss, which is often provided through supervisory reports. Other services, in particular auxiliary services, are provided with explicit fees.
- According to MSITS 2010, insurance and pension services are disaggregated into four separate subcomponents: direct insurance, reinsurance, auxiliary insurance According to MSITS 2010, auxiliary insurance services are included in insurance and pension services. That fact should not be confused with the sectoral classification of the 2008 SNA, whereby insurance brokers andalike are classified under "financial auxiliaries." and pension and standardized guarantee services. MSITS 2010 does not recognize fees paid to administrators of pension funds as a separate category, while the 2008 SNA recommends that pension fund managers (administrators of pension funds, which only manage the activities of pension funds without taking ownership of the assets or liabilities), be classified as financial auxiliaries. Direct insurance is further broken down into life insurance, freight insurance and other direct insurance. Pension and standardized guarantee services is further broken down into pension services and standardized guarantee services.
Insurance and pension services
- The insurance and pension services reflect the output of specific industries whose calculation is best described in the context of balance of payments recordings. BPM6, appendix 6, provides some background to the operation of the insurance and pension schemes and the BPM6 Compilation Guide, appendix 2, provides more details on the overall recording of transactions in the balance of payments, including the relevant services. The present section summarizes the main aspects related to the calculation and data sources for insurance and pension services.
Compiling insurance and pension services
- The estimation methods and necessary data for various insurance and pension services, if they are provided without explicit fees, are basically a variation The value of the output of standardized guarantee providers can be calculated in the same manner as that of non-life direct insurance. For reinsurance, commission payable should be further deducted from the premiums earned and the claims adjusted for profit sharing in excess of loss reinsurance. of those for direct insurance, as shown below and in the example in box 14.3. The insurance services are calculated on the basis of premiums earned and losses incurred pertaining to the accounting period:
Gross premiums earned (from direct business)
plus net income from investments attributable to policyholders (premium supplements)
minus estimated claims incurred (adjusted for claim volatility, if necessary)
equals insurance service charges
Numerical example of direct insurance services
For resident insurers with separate data on policyholders abroad:
Premiums earned from abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Claims payable abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Income attributable to policyholders . . . . . . . . . . . . . . . . . . . . 20 (premium supplements)
Insurance service charge is . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 [=100+20-95]
- For life insurance and pension services, the net increase in life insurance actuarial reserves or pension reserves (pension entitlement) should be further deducted, as such increase is regarded as asset accumulation to their policyholders.
Gross premiums earned
plus premium supplements
minus benefits due
minus net in life insurance actuarial reserves
equals life insurance service charges
- To compile the exports of insurance services, compilers can generally obtain comprehensive data from surveying resident insurance enterprises, particularly in countries in which surveys are the major source of data for trade in services data collection (see paras. 6.46-6.59).
- Alternatively, if comprehensive surveys are not feasible, compilers may be able to obtain information directly from domestic insurance corporations that would allow them calculate an approximate insurance service in a given reporting period. Specifically, if they can collect data on the breakdowns of premiums received from resident clients and those from non-resident clients, insurance services provided to non-resident clients can be calculated assuming that the service-to-premium ratio is the same between resident and non-resident clients. Such a ratio could also be used for estimating imports of insurance services, if payments of insurance premiums are captured through general enterprise surveys, as shown in box 14.4. Nevertheless, compilers should pay attention to possible differences between the service-to-premium ratio of domestic insurance companies and that of foreign insurance companies.
Numerical example of exports of insurance services
For resident insurers with separate data on policyholders abroad for premiums only:
Total insurance services (to residents and non-resident clients combined) . . . . . . ….50
Total premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
Of which: premiums from residents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120
Premiums from non-residents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
Estimated insurance services provided to non-residents are. . . . . . . . . 20 [= (80/200)x50]
- Compilers, depending on the ITRS as a main source data, may not be able to compile a comprehensive set of accounts to approximate insurance services exports. However, from the ITRS, compilers may obtain settlement data for insurance premiums received from abroad and insurance claims paid abroad. Also, compilers may also obtain settlement data for insurance premiums paid abroad and insurance claims received from abroad to estimate insurance services imports. Insurance services can be estimated by multiplying those data by a service-to-premium ratio (box 14.5). Premiums are a better indicator than claims for determining the service charge because claims are contingent on events incurred to trigger payments, and there may be periods without claims or with unusually large claims. The service-to-premium ratio needs to be fixed and revised periodically by checking financial reports of domestic insurance enterprises or direct inquiries to them.
Numerical example of imports of insurance services
Premiums from residents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . .. . . . . . 40
Ratio of service charge to premiums (average from data on insurers abroad). . . . 25 per cent
Estimated insurance services from non-residents . . . . . . . . . . . . . . . . . . 10 [40x0.25]
- The concept of accrual recording is an important aspect of calculating insurance services as insurance contracts may spread over different periods of time than the ones used in the compilation of statistics. In estimating insurance services on an accrual basis, compilers need to differentiate between the earned premiums and the written premiums. The estimation of insurance services should be based on the earned premiums, which are consistent with accrual recording. At the time that a policy is first written, the total of the premium may be unearned, as premiums are often fully paid at the inception of the policy. Direct written premiums are the amount charged to and actually paid over the life of a contract by the policyholders for insurance coverage. Each day thereafter, the premium amount accrues to the insurance unit until the end of the policy. At the end of the reporting period, the insurance corporation assesses the premium reserves representing the unexpired terms of the policy. The earned premiums plus the unearned premiums for a policy equal the written premium.
Figure 14.2 The relationship between earned premiums and written premiums
- For insurance services, major catastrophes that may require large payments of claims are expected to occur once in several years. When they do occur, the payments of claims in the year of the catastrophe could exceed the value of premiums. If only the claims incurred in the accounting period are used in the formula, the value of insurance services could be highly irregular and, in some cases, could even be negative. Therefore, an adjustment in claims due is required to reflect a more long-term view of the functioning of the insurance sector, in line with the decision-making process in the insurance industry. The adjustment for claims volatility shows the difference between the actual claims in the period and the normally expected value of claims, where the expected value of claims removes the effects of claims volatility. In periods in which large values of claims are incurred, the adjustment, if it is to be made, would be negative, while in other periods the adjustment would be positive.
- Regarding the adjustment for smoothing the amounts of claims by policyholders on insurance corporations, BPM6, appendix 6c, paragraph 22, proposes three methods: (a) the expectation approach, (b) the accounting approach and (c) the sum of cost plus "normal profit" approach.
- In the expectation approach, output is calculated as premiums plus expected premium supplements minus expected claims. That approach replicates the ex-ante model used by insurer corporations to set their premiums on the basis of their expectations. In accepting risk and setting premiums, insurers consider both their expectation of loss (claims) and of income (premiums and premium supplements). Ideally, the microdata of the insurance corporations accounts could be used in the expectation approach for estimating the output of the insurance corporation. However, that information is seldom available to the compiling agencies. In the absence of such data, a statistical technique to simulate that approach can be applied by using macrostatistics, to smooth past data to forecast the expected claims.
- In the accounting approach, output is calculated as actual premiums earned plus premium supplements less adjusted claims incurred, where adjusted claims are determined by using claims due plus the changes in equalization provisions and, if necessary, changes to own funds. In the sum of cost plus "normal profit" approach, the output is calculated as the sum of costs (including intermediate costs, labour and capital costs) plus an allowance for "normal profit".
Country experience: United States: insurance services
- The United States method for measuring trade in insurance services most closely conforms to that outlined in example 4 in MSITS 2010. See MSITS 2010, box III.7. In addition to premiums minus a proxy measure of expected claims (actual claims payable with an adjustment for claims volatility), called normal losses, and premium supplements, as outlined in table 14.9, the United States measure of insurance services also includes a measure of auxiliary insurance services. The measure includes separate estimates of trade in direct insurance and reinsurance. Although both the present Guide and BPM6 recommend estimating life and non-life insurance separately, the United States treats all direct insurance as non-life insurance because United States cross-border transactions in life insurance are thought to be insignificant.
- The United States measure of trade in insurance services is compiled using data from a variety of sources. The main source is a survey of United States insurance enterprises. That survey, conducted by the Bureau of Economic Analysis (BEA), collects quarterly data on reinsurance premiums sold to and purchased from abroad and annual data on reinsurance claims paid and received, primary insurance premiums sold and claims paid and auxiliary insurance services. Every five years, BEA conducts a benchmark survey of insurance enterprises to collect information on enterprises that fall below the reporting threshold on the quarterly survey. A separate survey of United States businesses, also conducted by BEA, collects data on primary insurance premiums purchased and claims received by non-insurance enterprises and additional data on auxiliary insurance. Data on the income generated by insurance enterprises' reserves, used to calculate premium supplements, are from Best's Aggregates and Averages: Property/Casualty by A.M. Best Company.
- Insurance services include three components: (a) premiums less normal losses, called "risk-pooling services", (b) premium supplements and (c) auxiliary insurance. The calculation of risk-pooling services requires information on current premiums and a measure of what insurers expect their claims to be. Premiums are collected on BEA surveys as outlined above. The proxy measure for insurers' expected claims, called normal losses, is estimated by applying a ratio based on historical premiums and claims to current period premiums. That method assumes that insurance enterprises base current premiums on their expectation of current period losses and that they base their expectation of losses on their loss history.
- The United States method assumes that insurance enterprises plan for two basic types of losses: (a) regularly-occurring losses that occur every period and (b) catastrophic losses that occur at infrequent intervals. Separate estimates are made for the two types of losses. To calculate separate estimates, catastrophic losses must be separated from regularly-occurring losses in the loss data reported by insurance enterprises. When a catastrophe, such as a major hurricane, occurs, the magnitude of the related loss is estimated using data from the survey of insurance enterprises and publically available reports from insurance enterprises affected by the event. Losses other than catastrophic losses are considered regularly-occurring.
- Expected regularly occurring losses are estimated by applying to current period premiums a six-year arithmetic moving average of each prior period's ratio of regularly occurring losses to premiums. Loss data for the current period are not included in the average in order to achieve an ex ante concept of regularly occurring losses.
- Because catastrophic losses occur much less frequently than regularly occurring losses, they are assumed to affect loss expectations over a much longer period. To account for this, catastrophic losses are removed from current period losses, and spread over the 20 years following their occurrence in equal increments. Similar to regularly occurring losses, expected catastrophic losses are estimated by applying to current period premiums a six-year arithmetic moving average of the ratio of each prior period's share of catastrophic losses to premiums. Thus, only a small fraction of catastrophic losses is factored into each year's calculation of expected claims.
- Normal losses are the sum of expected regularly occurring and catastrophic losses. Separate estimates of normal losses are calculated for primary insurance, reinsurance and credits and debits. For the United States, the ratio of losses to premiums is lower for primary insurance than for reinsurance because administrative and financial intermediation services differ for those two types of insurance. Primary insurance is more retail-oriented, with a large number of individual policies sold and written, and, thus, may have higher administrative and other costs than reinsurance, which involves fewer, larger transactions between insurance enterprises.
- BEA does not directly collect information on the technical reserves of insurance enterprises on its surveys because such collection is deemed too burdensome for enterprises. Due to the lack of data on technical reserves, it is not possible for BEA to use a relationship between investment returns and technical reserves to estimate premium supplements. As a result, BEA developed a ratio of expected investment gains to premiums, and multiplies that ratio by current premiums to estimate premium supplements. The ratio of investment income to premiums is from Best's Aggregates and Averages: Property-Casualty by A.M. Best Company. A.M. Best provides data on investment gains that are attributable to insurance transactions, as opposed to investment gains attributable to the insurers' own funds. The ratio is a weighted moving average of the previous ratios of actual investment gains to premiums. In the cross-border trade data, the expected investment gains-to-premiums ratio is estimated separately for primary insurance and reinsurance, in recognition of the fact that reinsurers may have different ratios of net gains to premiums than primary insurers. The different ratios may arise because reinsurers hold larger reserves than primary insurers, or because reinsurers hold reserves for a longer period of time.
- Once those ratios have been calculated, they are applied to the estimates of premium receipts for direct insurance and reinsurance obtained from BEA surveys to derive premium supplement receipts. Because similar data on the investment income of foreign insurance enterprises are not available for payments, the ratio used for receipts is applied to the estimates of premium payments in order to estimate premium supplement payments.
- Auxiliary insurance services cover items such as agents' commissions, actuarial services, insurance brokering and agency services and salvage administration services. Data are collected on BEA surveys. Auxiliary insurance is a component of primary insurance; there are no auxiliary services associated with reinsurance.
Table 14.9 Numerical example of measuring insurance services in United States
Country example: Japan: recording insurance services on an accrual basis
- Since Japan employs an ITRS as a major data source, recording insurance services on an accrual basis has been challenging. To deal with the problem, Bank of Japan (BOJ) adjusts ITRS data in implementing a method that most closely conforms to that outlined in example 3 in MSITS 2010, box III.7. The method measures insurance services by multiplying actual premiums earned by the insurance service ratio.
- The ITRS captures premiums actually paid rather than actual premiums earned that accrue to the accounting period. Thus, data are adjusted under the following assumption: BOJ assumes that insurance premiums payable cover 12 months' risks and, as insurance premiums are generally paid at the inception of a policy, actual premiums earned are calculated by equally allocating premiums in the subsequent 12 months (figure 14.3). That adjustment is made for other direct insurance and reinsurance. Since freight insurance policies cover a single contract, which is usually short-term, the same adjustment is not applied to freight insurance premiums. Life insurance and pension services are excluded from the estimation of services, as cross-border life insurance and annuity contracts are negligible in Japan.
- The insurance service ratio for other direct insurance and reinsurance, which is the ratio of service charges to gross premiums earned, is estimated from resident non-life insurance enterprises' financial statements and is applied to both imports and exports. Operating and administrative expenses are regarded as costs for providing insurance services, and the service ratio is estimated by dividing aggregated operating and administrative expenses by corresponding premiums. That ratio is fixed for a year and is updated when new financial statements become available. The insurance service ratio for freight insurance is captured separately and obtained from resident insurance enterprises.
Figure 14.3 Estimation of actual premiums earned
- Insurance services are calculated by multiplying the service ratio and mon
- the actual premiums earned. Freight insurance premiums receivable on both exported and imported goods are obtained through a direct report from resident non-life insurance companies. The corresponding values for imported goods are also used to derive a premium ratio. Freight insurance premiums paid by a resident to a non-resident on imported goods are estimated by excluding those earned by resident insurance companies from the total value. The total value is derived by multiplying the premium ratio on imported goods by the total value of imports. Premium supplements are regarded as zero, since retained incomes for non-life insurance reserves are negligible. Claims are recorded when paid, under secondary income for normal claims and under capital transfer for high claims, when catastrophic events have occurred.
Numerical example of actual premiums received and claims paid to non-residents
Actual premiums received for December ¥180
Insurance service ratio for year 40 per cent
Claim paid to non-resident in December ¥85
Insurance service (export) 72 (=180 x 40 per cent)
Secondary income (credit, net premiums earned) 108 (= 180 - 72)
Secondary income (debit, claim paid to non-resident) 85
- That method is likely to stabilize outputs. Compared with a simple cash-based method, which calculates premiums minus claims, the volatility of the outputs is substantially reduced. More importantly, negative figures, which are due mainly to lumped claims, are avoided.
Country Example: Germany: smoothing of insurance premiums paid/received
- Calculation of insurance imports In Germany, there is no administrative data for compiling imports of insurance services. Therefore, the data available from external sector statistics, which are available on a monthly basis, are used. Those data are not detailed enough, however, and must be supplemented by the following types of estimates:
(a) Adjustments for premiums paid to premiums payable;
(b) Estimates for premium supplements;
(c) Estimates for changes in insurance technical reserves;
(d) Estimates on the stock of insurance technical reserves.
- The first step is to smooth the premiums paid, which are relatively volatile, to premiums payable by using a 12 month moving average. The decision is related to the fact that premiums usually are paid in advance for one year. The second step is to apply the ratio of premiums earned to service derived from the export side to the smoothed premiums of the import side, in line with the BPM6 recommendations.
Figure 14.4 Premiums paid from Germany to insurance companies abroad
- Premiums received but not yet earned The technical reserves represent the amounts identified by insurance companies to account for prepayments of premiums and claims submitted, but not yet paid. Germany intends to use the same approach as for smoothing premiums paid to premiums payable for the two components which contribute to the development of technical reserves, the premiums paid to insurance companies abroad and the claims received. If the premiums paid are larger than the premiums payable, the technical reserves increase; if the other way round, they decrease.
Figure 14.5 Claims received in Germany from insurance companies abroad
- If the claims received are larger than the claims receivable, the technical reserves decrease; if the other way round, they increase. The sum of the changes of technical reserves must be recorded in the financial account.
Figure 14.6 Development of technical reserves in Germany
- It is still necessary to estimate premium supplements as the interest on technical reserves. There are two ways to make that calculation: (a) to calculate interest on the estimated stock of technical reserves or (b) to apply a ratio to the premiums payable derived from the export side. The intention of Germany is to use the second possibility, since it is immediately available.
- Financial services may be charged for explicitly or implicitly, and some transactions in financial assets may involve both explicit and implicit charges. The most common implicit charges relate to (a) margins on buying and selling transactions; (b) asset management costs deducted from property income receivable, in the case of asset-holding entities; or (c) margins between the interest rate and the reference rate on loans and deposits (FISIM). EBOPS 2010 identifies FISIM separately from all other financial services.
- Among financial services provided without explicit fees, margins on buying and selling are regarded as services charged by securities dealers. In theory, margins are identifiable for each transaction by securities dealers. Thus, one way to collect the data is to process such microdata, if they can be collected. Another way, which appears more realistic, is to estimate margins on an aggregate basis, for example by multiplying their transaction volumes by spread ratio. Transaction volumes can be obtained from the financial accounts of balance of payments statistics and spread ratio can be obtained from financial market data providers. The BPM6 Compilation Guide, chapter 12, paragraphs 114 to 116, provides additional detail on data collection for such services.
Compiling financial intermediation services indirectly measured
- The 2008 SNA and BPM6 recognize financial intermediation services indirectly measured (FISIM) produced only by certain financial corporations and only on the loan and deposit instruments on their balance sheets. Thus, FISIM exports are calculated on the loan assets and deposit liabilities of resident financial corporations for which the counterparty is a non-resident unit as follows:
(a) For loans, it is the difference between the interest receivable by a financial corporation and the interest cost of funds calculated at a reference rate on the loan balance;
(b) For deposits, it is the difference between the interest payable at the reference rate on the deposit balance and actual interest payable to the depositor.
- FISIM imports are calculated on the resident institutional sector's (mostly nonfinancial) loan liabilities and deposit assets with non-resident financial corporations.
- The 2008 SNA refers to the cost of funds at the reference rate as "SNA interest". Determining the reference rate is a key element in compiling FISIM. The reference rate should contain no service element and should reflect the risk and maturity structure of deposits and loans. The rate prevailing for interbank borrowing and lending may be a suitable choice as a reference rate. However, different reference rates may be needed for loans and deposits in other currencies, in particular for transactions with non-resident financial institutions. The reference rate changes over time with market conditions.
- For FISIM exports, the reference rate is, in principle, the cost of funds from the liability side of balance sheets of resident financial corporations. However, exports of FISIM on loans to non-residents can be estimated, using the reference rate for domestically produced FISIM, as interest receivable less the product of the loan position and the (domestic) reference rate, if it can be assumed that transactions are mostly in national currency. Exports of FISIM for deposits of non-residents (excluding financial corporations) can be estimated as the product of the deposit position and the domestic reference rate, less interest payable (BPM6 Compilation Guide, appendix 3, para. A3.11).
- For FISIM imports, the reference rate is, in principle, the cost of funds from the liability sides of the balance sheets of non-resident financial corporations by economy of residency. Imports of FISIM for loans received from non-residents can thus be estimated as interest payable to non-resident financial corporations, less the product of the loan position and the reference rate for the applicable funds lent. Imports of FISIM for deposits with non-resident financial corporations can be estimated as the product of the deposit position multiplied by the reference rate for the funds deposited, less the deposit interest receivable from the non-resident FISIM provider (BPM6 Compilation Guide, appendix 3, para. A3.13).
- The most comprehensive source data for exports and imports of FISIM come from (a) resident financial corporations (surveys or administrative data collection or financial supervision authorities), which can identify deposits and loans with non-residents, as well as (b) surveys of selected non-financial corporations and households as well as non-profit institutions serving households, which could provide data on residents' accounts with financial corporations abroad to support the compilation of FISIM imports (see chapter 6). FISIM imports by general government are often derived from administrative data (see chapter 9) or government financial accounts. Information on interest flows and deposit and loan positions can alternatively be sourced from the compilation of balance of payments and the international investment position. Statistics on interest rates and/or data on interest flows are used to calculate the reference rate as well as deposit/lending rates.
- The data sources available for economies' own financial corporations sectors and for those of their FISIM trading partners will tend to control the specific approach to determining the relevant reference rates for international trade in FISIM.
- Additional difficulties in sourcing data may be encountered in compiling FISIM imports. Thus, partner country data, including data sourced from international organizations (most relevant here, the Bank of International Settlements) may provide useful information. In that context, the domestic reference rates of the economies supplying financial intermediation services may be used. To ensure data consistency, it would be helpful for economies to disseminate their domestic reference rates for possible use by non-resident compilers.
- For economies in which cross-border FISIM is small, it can be measured with relatively simplified methods based on aggregated data. For example, FISIM for deposits with financial corporations is calculated by deducting deposit interest flows from the value obtained by multiplying deposit stocks by the reference rates. FISIM for loans from financial corporations is calculated by deducting the value obtained by multiplying loan stocks by the reference rates from loan interest flows. More elaboration on calculating the imports and exports of FISIM is provided in the BPM6 Compilation Guide, appendix 3.
- In general, the FISIM of financial corporations (calculated on loan assets and deposit liabilities) is expected to be positive. However, the calculation of the FISIM of financial corporations can be negative if the reference rate temporarily becomes higher than the lending rate and/or lower the deposit rate temporarily. In that case, for practical reasons, the compiler may wish to assume that the value of the FISIM is zero. A negative FISIM may reflect erroneous calculations and inappropriate reference rates. If the negative values continue for a long time, compilers should review the calculation of the reference rates.
Reference rate in FISIM
- Given the complexities involved in estimating imports and exports of FISIM the Advisory Expert Group on National Accounts (AEG), at its May 2013 meeting, provided a series of recommendations applicable to international transactions. Those recommendation are summarized below and trade in services compilers are encouraged to follow them.
- For estimating imports and exports, FISIM should be calculated by at least two groups of currencies, both national and foreign. The reference rate for a specific currency need not be the same for FISIM providers, which are residents in different economies. However, they are normally expected to be relatively close. Use of partner country information or other relevant information is thus encouraged, when national estimates are not available.
- The calculation (definition) of the reference rate should be determined according to national circumstances, using preferably one of the following approaches:
(a) A reference rate based on a single observable exogenous rate for a specific instrument, such as interbank lending rates;
(b) A reference rate based on a weighted average of observable exogenous rates of maturities with different terms (weighted by the stock of loans and deposits in each maturity);
(c) A weighted average of the endogenous interest rates on loans and deposits.
- Estimation of FISIM over periods of volatile movement in reference rates should be carefully monitored, in particular if the results are negative, particularly for depositors, but also for borrowers. In such cases, countries are encouraged to review the applicability of the underlying reference rate for that period to calculate FISIM.
- Research continues in the area of credit default risk related to FISIM and the merits of its exclusion from FISIM, including for practical reasons.
Country experience: Estonia: calculating FISIM
- For Estonia, external FISIM is less important compared with internal FISIM because most of the banking sector belongs to foreign banks, and loan resources for the local economy are made available through interbank transactions. The latter form the overwhelming majority in external transactions of loans and deposits. Having considered the size of the external FISIM, a cost-effective approach has been taken and simplifications have been made in compilation practice, instead of additional data collection with its increase in burden for data providers.
- The compilation process is based on the stock and interest income figures available through BOP surveys and banking statistics. To compile FISIM, the average interbank rate is needed to calculate and apply for stock figures. FISIM is the margin between the interest actually charged and the adjusted interest.
- For stocks data, the balance of loans and deposits is needed. In the case of assets related to loans and liabilities related to deposits, stock data are needed only for institutional sectors S.122 and S.125 of the European System of National and Regional Accounts (ESA 2010).
- The main difficulty is that assets and liabilities between financial intermediaries should be excluded from the stock data. Therefore, the counterpart data must be taken into account when determining the stock from which FISIM is derived. This does not concern banking sector statistics that already have data from counterpart sectors. For other financial intermediaries (S.125), no loan data are available from counterpart sectors or the aggregation of the data is too great (leasing companies). The compilation of stocks for S.125 includes the assumption that they have loan liabilities against financial intermediaries. On the asset side of loans, all stocks of S.125 are taken into account, reflecting those with other financial intermediaries.
- Another issue concerns stock data of households for which the main data source is the ITRS, which does not give a good indication of positions. One solution is to use mirror data, i.e., banking sector statistics of other countries by counterpart sector. However, the household sector continues to be estimated.
- The reference rate is derived from the credit institutions report on the balance of loans and resources from which the stocks against non-resident financial intermediaries are taken by currency and maturity. Each stock is multiplied by the corresponding contractual interest rates from the same reports. The amounts to be paid or received are then divided by the stocks. The result of that compilation is an average weighted interbank rate that is used as a reference rate.
- Before multiplying stocks with the reference rate, both the stocks and unadjusted interest income are distinguished by counterpart sectors. That step is taken to exclude the stocks and interest income between financial intermediaries. Data by counterpart sectors for both items could be derived by using the credit institutions report on the balance of loans and resources. However, the stocks and income cannot be divided for other financial intermediaries due to the lack of proper data sources.
- Experiences up to the present indicate that preconditions still exist to eliminate stocks and income between financial intermediaries properly. Therefore, data sources have to include data by currency and by counterpart sector for other financial intermediaries as well. For the household sector, further estimations for stocks must be developed. Additional estimations are also needed in the case of negative FISIM. This usually occurs with large transactions in deposits by the general government sector, in which the stocks at both the beginning and the end of the period were zero, while at the same time interest was earned. In order to keep a cost-effective approach for data providers, detailed sectorized data in different currencies are not required. Instead, the weighted average reference rate itself reflects the weights of the currencies and maturity.
Country experience: Japan: margins on buying and selling transactions
- Dealers implicitly charge services by incorporating a spread between their buying and selling prices. Japan estimates margins on debt security transactions by multiplying their transaction volumes by the corresponding spread ratios. Transaction volumes and spread ratios are estimated as follows.
- In most cases, a resident dealer exports services through inward investment transactions. Correspondingly, a resident investor imports services through outward investment transactions.
- Therefore, Japan assumes that the export of services occurs only in inward investment, and that the import of services occurs only in outward investment. Some inward (outward) investment transactions are conducted with non-resident (resident) dealers, and such transactions are excluded. Volumes (the sum of buying and selling transactions) of inward investment and outward investment by type of security are obtained from direct reports from financial institutions and ITRS.
- A spread ratio is the difference (as a ratio) of an ask price and a mid-price, where a mid-price is the average of an ask price and a bid price. The spread ratio varies by every transaction, but there is no perfect data source. Therefore, Japan chooses the most common products and uses their spread ratios for approximation. For inward investment (export of services), spread ratios of Japanese Government Bonds (JGB) are used. For outward investment (import of services), spread ratios of six major countries' government securities, that account for the majority of outward portfolio investment, are used and applied to investment in corresponding countries. As they are significantly different, spread ratios of short-term securities and spread ratios of long-term securities are separately measured. Data are obtained from Bloomberg.
Table 14.10 Numerical example of exports involving margins on buying and selling
Bid price for ¥10 JGB 101.675
Ask price for ¥10 JGB 101.695
Mid-price [(bid + ask) / 2]: 101.685
Spread [(ask – mid) / mid]: 0.01 per cent
Table 14.10 continued
(Billion yen, percentage)
Transaction volume (inward investment)
Spread on JGB
Country of investor
Table 14.11 Numerical example of imports involving margins on buying and selling
(Billion yen, percentage)
Transaction volume (outward investment)
Spreads on government bonds (percentage)
Country of issuer
Country experience: Luxembourg :e-commerce (merchandising) services
- Luxembourg hosts an increasing number of subsidiaries of international groups By combining the advantages of both European directives (Council of the European Union directive 2002/38/ EC and Council of the European Communities directive 77/388/EEC), the subsidiaries from international groups providing e-commerce services were allowed to apply the Luxembourg rate of 15 per cent VAT on services provided, and not the higher VAT rates applicable in the country of residence of European clients. that provide worldwide e-commerce services and are active in well-diversified domains (distribution of music, audio books and audiovisual products, online trading platform services, operation of websites for the purpose of selling, auctioning, renting or otherwise distributing products and services, etc.). Thus, "service merchandising" has become one of the important components of telecommunications, computer and information services, audiovisual and related services, royalties or other business services.
- Given the importance of the international transactions of such subsidiaries, the aim of Luxembourg was to include all of them in its monthly BOP report for services. While there are a few international groups that operate through different local operational entities, in most cases, the international groups act through a single operational legal entity with a low physical presence through which services are provided to a multitude of clients, especially inside the European Union, whereas expenses (i.e., imports) are often intercompany retrocessions in different forms of services (including royalties), both within and outside the European Union. Therefore, while the gross flows may be sizeable, in many cases, on a net basis, the international trade in services transactions nearly cancel out because the overall accounting result of the resident legal entities is often around zero, due to the intercompany retrocessions. Thus, because the value of merchandising services exported from and imported to Luxembourg is recorded on a gross basis, the resulting values may seem inflated, given the fact that there is a low physical presence of international groups in Luxembourg. That treatment is applicable because most of the firms hosted in Luxembourg trade services that are classified to the appropriate specific service classification (such as telecommunications, computer and information services, audiovisual and related services, charges for the use of intellectual property n.i.e. or other business services), and if the firms act as agents on a commission basis, only the commission is recorded as the service provided.
- Luxembourg covers external transactions through its survey and completes monthly figures with an estimate for FDI income.
B.5 Services related to intellectual property products
- The present subsection discusses the compilation of services related to intellectual property products (IPP), and covers the EBOPS category entitled use of intellectual property n.i.e., as well as parts of other main EBOPS categories, including telecommunications, computer, and information services, other business services and personal, cultural and recreational services. The present Guide combines those components in the present subsection because of the partial overlap of and interrelationships among the categories.
- Services derived from IPP cover the following items in the EBOPS 2010:
(a) Charges for the use of intellectual property n.i.e. (main EBOPS category);
(b) Computer and information services (included in telecommunications, computer and information services);
(c) Research and development services (included in other business services);
(d) Architectural, engineering, scientific and other technical services (included in other business services);
(e) Audiovisual and related services (included in personal, cultural and recreational services).
- Recent decades have seen an explosion in transactions related to those categories. Many of the transactions relate to the use of an underlying produced asset (typically research and development, software, databases and audiovisual originals). However, the categories present significant measurement challenges. Firstly, because the distinction between the categories from a reporter's perspective may not always be clear (for example, software versus research and development, or software versus audiovisual). And, secondly, because intrafirm transactions may be affected by transfer pricing phenomena or indeed by more general tax planning issues, meaning that the distinction between flows recorded as trade in services and flows recorded in the primary income account of the BOP as property income may not always be clear-cut.
- The present section provides a detailed description of each of the service categories derived from IPP. It focuses on the particular challenges concerning flows relating to IPP recorded as assets in the system of national accounts. Special mention is also made of the treatment of transactions related to franchise and trademark licence fees. Such fees usually also reflect payments for the use of marketing assets, which are considered to be non-produced assets. As a consequence, in theory, transactions should be recorded in the primary income account in the balance of payments. However, given that the payments also include a service element, and if it is not possible to make the distinction with the income element, then by convention the full value is recorded under franchise and trademark licence fees.
- Despite the guidance offered below, it is important to note that it is unlikely that compilers will ever be able to fully account for transactions in intellectual property in a way that is consistent with the underlying principles of economic ownership. However, it is at least possible to make progress on achieving more coherence both internationally, by encouraging compilers to engage in asymmetry reconciliation exercises, and nationally, by improving the coherence of capital stock and productivity estimates. Ultimately, pragmatic approaches to measurement are necessarily advocated here. Improvements in a few key areas could significantly improve quality.
Use of intellectual property n.i.e.
- Charges for the use of intellectual property n.i.e. are defined in paragraph 3.214 of MSITS 2010, and include franchises and trademark licensing fees, licences for the use of outcomes of research and development, licences to reproduce and/or distribute computer software, licences to reproduce and/or distribute audiovisual products and licences to reproduce and/or distribute other products.
- Franchises and trademark licensing fees are, in theory, related to charges for the use of non-produced assets (marketing assets). As such and, if one were to follow the underlying principles of national accounts, payments would not be recorded in production accounts of national accounts nor in the goods and services account of the BOP. Rather, the payments correspond to property income. However, often, the payments are bundled with additional service items that make it difficult to disentangle the pure payments for the use of the underlying brand and, as such, both the 2008 SNA and BPM6 recommend that such payments be recorded as payments for services. Nevertheless, outright purchases of the entire brand (the marketing asset) or indeed rights to use the brand in certain regions, such that the licence has the characteristics of a licence to reproduce, should not be recorded in the goods and services account and should instead be recorded in the capital account.
- Licences for the use of outcomes of research and development include payments for licences to use and licences to reproduce. The latter reflects a transaction in a pre-existing produced asset in the SNA corresponding to negative gross fixed capital formation (GFCF) for the unit selling the licence and positive GFCF for the acquiring unit.
- Care should be taken to differentiate between payments included in that category from those included in EBOPS category 10.1, which includes payments for customized (made to order) research and development as well as acquisitions of entire research and development originals. Differentiating between sales/purchases of licences to reproduce and sales/purchases of entire originals may not always be trivial, but the latter will usually, at least for transactions between unaffiliated parties, be accompanied by sales/purchases of legal instruments, such as a patent or copyright.
- Since the 1993 SNA, when software was recognized as a produced asset for the first time, significant improvements have been made in measuring software and software-related transactions, and the proposed changes for more details in the latest EBOPS classification system should consolidate those advancements. The inclusion of a separate category, "licences to reproduce and/or distribute computer software", which specifically relates to licences to reproduce and not licences to use (which are included in EBOPS category 9.2) was requested by the national accounts community to assist in efforts to estimate GFCF in software. Licences to reproduce (with a contract period of more than one year) are recorded as GFCF by the purchaser and negative GFCF by the seller.
- Similar improvements have been made with respect to other intellectual property products, such as databases, audiovisual, literary and other artistic originals. "Licences to reproduce and/or distribute audiovisual products" and "licences to reproduce and/or distribute other products" refer only to licences to reproduce and not licences to use.
- MSITS 2010, in paragraph 3.224, defines "computer services" as covering "hardware- and software-related services and data processing services". Compilers should take particular care with respect to the coverage of computer software, in particular its distinction from "licences to reproduce and/or distribute computer software" (see also MSITS 2010, para. 3.225 ).
- The key difference vis-à-vis licences to reproduce concerns the recording of flows in the national accounts. Whereas "licences to reproduce" (of more than one year) are not considered to reflect new output, transactions in computer software, with the potential exception of "software originals" (which may have been produced in prior periods) are. That item does not include the value of software embodied in other products, such as a computer, and sold as a bundle where the software component and value are not separately invoiced. Moreover, with the exception of sales to households and expenditures on licences with one year or less, all domestic expenditures in this category are typically recorded as GFCF in the national accounts.
- Also of note is the recording of software provided on a physical storage device with a periodic licence fee as transactions in services, whereas software acquired on physical media with a one-off payment are recorded as transactions in goods.
- It is clear that the blurring of lines between a good and a service, magnified by the difficulties that may exist in differentiating between the two categories in practice, complicates measurement. A complementary grouping (C.3) in EBOPS is included for computer software transactions", which includes all related transactions whether embodied on physical media or not (see below). An additional grouping, C.3.1, is included to separately identify transactions that concern licences (explicit or otherwise) whose duration is for more than one year, which are recorded as GFCF when acquired by producers.
- "Other computer services" (EBOPS 9.2.2) includes all other related transactions that are generally not recognized as investment in the national accounts. The detailed coverage of other computer services is given in MSITS 2010, paragraph 3.230.
- MSITS 2010 divides information services into news agency services and other information services. Those are defined in paragraph 3.232 of MSITS 2010. One particular issue worthy of mention here concerns database-related transactions. The use and outright purchase or sale of originals and copies of databases are included in that category. However, some care is needed to ensure that software development costs in developing databases are not included in that category but in "computer software".
Research and development services
- Research and development services are defined in paragraph 3.234 of MSITS 2010. EBOPS 2010 recommends a breakdown of research and development services into two subgroupings: work undertaken on a systematic basis to increase the stock of knowledge (reflecting the coverage of research and development within a 2008 SNA context) and other research and development services.
- It is important to note that the categories above within the provision of customized and non-customized research and development services (10.1.1.1) primarily relate to "new" research and development, such as newly produced customized software, or transactions in "originals", where ownership and the concomitant rights are transferred to the purchaser. Care is needed in that context to differentiate between licences to reproduce and originals. Most, if not all, of such expenditures will be recorded as investment in the accounts of the importing country. Note, too, that not all acquisitions necessarily need reflect patented, copyrighted or other protected forms of research and development. In many cases, companies may deliberately opt not to patent the outcomes of some of their research and development. This may be motivated by a desire to preserve secrecy, by the cost of patenting, which may be perceived as outweighing the benefits, or by the research and development subject matter not being patentable.
- Other research and development services primarily reflect other research and development-related expenditures that are not expected to add to the stock of knowledge as defined in the OECD Frascati Manual and recognized in the SNA and, therefore, will not be treated as investment in the national accounts.
- There are other borderline issues to consider however. They chiefly concern design originals and the potential overlap with "architectural, engineering, scientific and other technical services", which is covered below.
Audiovisual and related services
- "Audiovisual and related services" relates to the production of motion pictures (on film, videotape or disk or transmitted electronically), radio and television programmes (live or on tape) and musical recordings (see MSITS 2010, para. 3.256). As noted above, care should be taken to ensure that "licences to reproduce and/or distribute audiovisual products" are not included in that category. There may, however, be borderline issues concerning the rights acquired by transmitters such as television companies and radio stations, when the contractual arrangements allow for multiple transmissions. Where the fees are paid on a "pay as you go" basis, for example, when a royalty payment is made every time a song is played on a radio station, they should be recorded under 11.1.1 (audiovisual). If, however, a one-off fee is paid that provides for unlimited airtime it should be recorded as being equivalent to a licence to reproduce (intellectual property).
- Performing arts and other live entertainment event presentation and promotion services (namely, live performances such as concerts and plays) are excluded from audiovisual services and are instead included in artistic related services. The transaction corresponding to the performance of resident actors, musicians or other artists for the shooting of a movie (or other types of visual programmes) or musical recording by a non-resident entity (and vice-versa) is also included under artistic services, under the condition that artists are not in an employer-employee relationship with the recording entity. However, the subsequent transactions for the result of the recording will be included in audiovisual services. If for the recording the services of an independent recording studio or similar services are outsourced, then transactions will be included under audiovisual services if they are between residents and non-residents, and there is no employer-employee relationship, if the transactions correspond to the services of an independent service provider. Also included in audiovisual services are amounts receivable or payable for rentals of audiovisual and related products and charges for access to encrypted television channels, such as those offering cable and satellite services.
- Like software, a complementary grouping is provided for "audiovisual transactions" in recognition of the grey borderline between transactions in goods and services. In the same way a complementary grouping is included to account for transactions that reflect investment expenditure in the national accounts (i.e., licences for more than one year), when undertaken by producers.
- For artistic related services, care should be taken to ensure that transactions are included only if the service providers are not employees of the entity making payments; otherwise, they should be recorded as compensation of employees.
- Sales of ownership rights of literary or other artistic originals (excluding those covered under audiovisual), should be recorded under 11.1.2 (artistic related services). There may be borderline issues for rights that restrict reproductions to certain markets or languages, where transactions should be recorded under EBOPS 8.4.2 (intellectual property).
- Other borderline issues may concern transactions relating to the selling of exclusive rights before any originals have been created (for example, the exclusivity of a publisher to publish future literary works of an author). Those types of rights should be recorded as contracts for future production, and therefore payments should be included in the capital account. However, at the point in time when the "original" is produced, an imputation should be recorded for either (a) the transfer of the entire ownership from the "author/producer" to the "funder" or (b) a licence to reproduce.
Compiling intellectual property product-related services
- Despite some of its current shortcomings in identifying international transactions in trade in research and development services, with the addition of supplementary questions, the Frascati-based OECD, Frascati Manual. survey approach provides perhaps the best mechanism for improving the measurement of trade in research and development services. The OECD Handbook on Deriving Capital Measures of Intellectual Property Products describes a prototype questionnaire with a comprehensive list of questions that could inform the design of new or modified surveys (see also below).
- The key challenge for measuring research and development flows, however, concerns transactions between affiliated parties. Research and development-related transactions between affiliated enterprises are not always observable and, often, payments that are implicitly related to research and development are instead recorded in the primary income account of BPM6. At the same time, flows may also be channelled through convoluted chains of affiliates, including special purpose entities, that have been set up to maximize post-tax profits for the controlling multinational enterprise.
- The Task Force on Global Production See Guide to Measuring Global Production, chap. 4 (forthcoming). and its predecessor, the Task Force on Globalization in the National Accounts, have the goal of developing guidance on the issue of ensuring that flows for the funding, performance and use of research and development align with the concept of "economic ownership" in the national accounts. Since the conclusions reported in the interim "Guide to measuring global production" of the Task Force on Global Production are still under discussion in other intergovernmental bodies at the time of writing of the present Guide, more concrete guidance on those issues will be provided on the online version of the Guide. In the interim "Guide to measuring global production" the Task Force proposes that the most expedient approach to ensuring an underlying consistency between payments for the use of an asset and economic ownership would likely be through adjustments to balance sheets and, where possible, through the recording of transfers of assets from one affiliated party to another.
- Central to that proposition is a desire to remain close to recorded and observed flows. This partly reflects practicalities, in particular the difficulties in making corrective imputations in the absence of complementary data, but it also reflects a desire to retain a close consistency between recorded profits and taxes paid, even if such payments suggest departures from the principles of economic ownership. Nevertheless, in two specific cases, the Task Force on Global Production suggests imputations to correct for flows recorded "incorrectly" as property income, where evidence is available.
- The first case relates to affiliates using an underlying asset, owned by the parent or other affiliate, but where no explicit payment for use is recorded, and, instead, related flows are recorded as property income. In such circumstances, the interim "Guide to measuring global production" proposes that, in principle, an imputed payment for the use of the underlying asset should be recorded as charges for the use of intellectual property n.i.e. Since the conclusions reported in the forthcoming Guide to Measuring Global Production are still under discussion in other intergovernmental bodies at the time of writing of the present Guide, more concrete guidance on those issues will be provided on the online version of the present Guide.. The imputation could be based on observable flows in property income that can be related to the underlying asset, or failing that, the imputation should be based on the affiliate enterprise's share of total relevant multinational enterprise output multiplied by the total income generated by the underlying asset. However, the data requirements of such an approach are arduous as it requires not only information on the entire multinational enterprise, but also on the income generated by the asset, or proxies, such as the value of capital services provided by the asset. As such, more often than not, it is unlikely that such imputations will be made in practice. Nevertheless, if compilers do make such imputations, they should ensure that counterpart transactions (in particular, international transactions) should be coherent, requiring coordination with other statistics agencies.
- The second case concerns dedicated affiliates engaged in the production of intellectual property products for use by other affiliated parties in production, but where the affiliate producing the intellectual property does not itself use the asset in production or receive any revenue through sales of licence to use or reproduce the asset or related income. Often such units have no recorded output beyond the production of the asset itself, which is recorded as own-account production of GFCF. In such circumstances the interim "Guide to measuring global production" proposes that an imputation be made such that the produced asset is transferred (exported in cases of international transactions) to the parent company. Sources of such information are scarce but some potential sources or approaches exist.
- The first source relates to firm-level data and, in particular, data collections on the activities of multinational enterprises and foreign affiliates. Units classified to research and development activity (ISIC rev.4, division 72) but with no identifiable output, except for own-account production of research and development originals, or with no expectation of revenue through sales of licences (which can be indicated if historically this is also the case) can be considered as satisfying the criteria established in the interim "Guide on measuring global production" for imputing unrecorded or misreported exchanges of research and development assets to their parents. In such cases, the value attributed to the asset should be equivalent to the valuation used in estimating the own-account production (typically based on the sum of costs with an estimated mark-up for gross operating surplus).
- A second potential source is the surveys used for the collection of research and development data in the Frascati framework. Data on the external funding of business research and development are collected in a large number of countries as part of that framework. The information includes funding from abroad by affiliated and non-affiliated enterprises. Although business enterprises mainly perform market transactions, those flows of funding might include donations and subsidies and not necessarily represent acquisitions of research and development, so some care is needed in interpreting the information. Nevertheless, the source can serve as a useful proxy or diagnostic for investigating flows recorded as acquisitions of research and development originals or payments for customized research and development services within the EBOPS category for research and development services.
Country experience: Germany: Charges for the use of intellectual property
- Germany collects all BOP-relevant service transactions via a cut-off survey directly from enterprises, public authorities and natural persons on a monthly basis. Therefore, a generic questionnaire must be used by respondents to submit all their service transactions to Deutsche Bundesbank, as long as the value of a single transaction is above the reporting threshold of €12,500. Thus, the collection of data on "charges for the use of intellectual property" builds only one block in the frame of the general approach. Instead of asking explicitly what kind of intellectual property has been used and charged for in the reporting period, respondents must report only a transaction code indicating for which licences payments have been made/received (use or reproduction).
- The list of transaction codes for filling out the forms is part of the basic law on the collection of BOP data. However, as the list may not always be self-explanatory enough for respondents, Deutsche Bundesbank has published, in addition, an explanatory note on the code list. As for other BOP items, in the case of intellectual property, the note describes, in more than three pages and in an understandable way, what types of transactions should be reported under a specific code and explains the differences between codes.
- From the following excerpt from the explanatory note, it can be seen that, at the beginning of the section on intellectual property, a small table summarizes all relevant codes falling under that category. It becomes obvious from the table that, under this section, not only codes belonging to the item "charges for the use of intellectual property" are listed, but also codes for transactions with intellectual property which have to be assigned to other Extended Balance of Payments Services Classification (EBOPS) items. This is done for practical reasons because respondents usually get confused if transactions in intellectual property are spread over various service items. The structure of the table mainly follows the structure presented in table III.1, treatment of intellectual property, in chapter III, subparagraph 8, of MSITS 2010. Subsequently, for each category (licences, distribution rights and purchase/sale) a general definition of the category is given, followed by detailed remarks about and examples of transactions to be reported under the respective codes. All the codes are in line with the recommendations of MSITS 2010 and BPM6.
Figure 14.7 Treatment of intellectual property
- Currently the reports of the reporting agents are the only source used to compile the item "charges for the use of intellectual property". Besides the transaction code, the respondent must provide for each transaction (credit and/or debit), the partner country and the amount paid.
- The incoming reports are checked by staff members for plausibility and completeness, mainly by cross-checking them with the reports of former periods. In case of doubt about accuracy, declarants are contacted to clarify the transaction in question. In the event that an open request could not be answered in due time by the respondent, imputations are made at least for important reporters. Usually they are replaced by the confirmed or corrected transaction in the following month. The monthly values for the total and each partner country are then calculated by aggregating the transaction codes belonging to the item "charges for the use of intellectual property" of all individual reports. Codes for transactions with intellectual property belonging to other EBOPS items, for example, use of software (code 613 in the table above), are separated automatically and assigned to the appropriate item, such as software services.
B.6. Education and health services
- For the compilation of data on resident/non-resident transactions in education or health services, additional sources of information from administrative sources (e.g., the ministry of education or health), specialized entities or other third party sources may be necessary, or other types of sources. In particular, on the receipts side, relevant ministries usually gather such information (i.e., for mode 2, but also other modes) or would have an interest in doing so. Another option is to collect data from all higher education institutions and universities operating in the country with the aim of collecting data on foreign students studying in the compiling economy. Additional questions relevant to mode 2 could be added to the survey questionnaires. Data from health insurance companies could be used and combined with administrative sources and information from travel surveys for further analysis of health services.
- Embassies and consulates may also hold information for both exports and imports of such services. For health services, it is advised that compilers use administrative data from health and social insurance programs. Other breakdowns could also be encouraged for sectors of particular interest to an economy; e.g., cultural services or leisure. For example, given the interest of Australia in the exports of education services, the Australian Bureau of Statistics compiles a breakdown of education travel data by type of expenditure (i.e., education fees and other expenditures) and type of institution.
- Given the increasing demand for information on health-related or cultural services, for example, and the complexity of some existing questionnaires, other methods could be envisaged to compile more details on such services, such as combining household surveys with administrative data, or health insurance and credit card data expenditures to health care providers, as that information could be extracted by the appropriate merchant code categories. For example, Austria derives information on health-related services that residents consume in Hungary as a neighbouring country from a household survey, together with administrative information from the project Health Region – Regional Network for the Improvement of Healthcare Services, which is run by the European Union. Both relevant information sources are combined to establish sound estimations.
- Some information on health services could be derived from the travel purpose variables used for education-related travel by including a breakdown for study and courses and medical treatment. Additional information could be derived from linking the aforementioned sources with administrative data, such as VAT data (from the national tax and customs administration).
B.7Government goods and services n.i.e.
- While services supplied by and to Governments should be classified to the relevant service category (business services, health, etc.), if possible, services related to government functions that cannot be classified to another specific service category should be classified as government services. Transactions covered by government goods and services n.i.e. include trade of goods and services between the government unit and the territory in which it is physically located, i.e., as government and international organization enclaves are not residents of the territory in which they are physically located, their transactions with residents of the territory of location are international transactions. Other official entities are also considered government transactors, such as aid missions, government tourism information and trade promotion offices, and international organizations. Other examples of such transactions include charges for visas, payments for police-type services, technical assistance under certain circumstances and government supply of a licence or permit classified as the provision of a service.
- MSITS 2010 recommends that government goods and services n.i.e. be further classified according to the following breakdown based on the transactor: embassies and consulates, military units and agencies and other government goods and services n.i.e.. Administrative costs incurred in the donor economy as a result of providing technical assistance or aid should be included under the specific services provided. Technical assistance provided by a Government or international organization is classified under government goods and services only when not specified to a service and if the technical assistance personnel are employed by the donor Government or an international organization.
- If the issue of government licences involves little or no work on the part of the Government, with the licences being granted automatically upon payment, it is likely that they are simply a device through which to raise taxes and should therefore not be considered a service. For example, by convention, amounts payable by households for licences to own or use vehicles, boats or aircraft, along with licences for recreational hunting, shooting or fishing, are treated as taxes. On the other hand, cases in which the licensing is used to check the competence or qualifications of the person concerned, to check the efficient and safe functioning of equipment or to carry out some other form of control, the payments made should be treated as purchases of services from the Government, unless the payments are clearly out of all proportion to the cost of providing the services. MSITS 2010, paras. 3.277-3.279.
- All expenditures on goods and services by diplomats, consular staff and military personnel and dependent members of the same household in the economies in which they are located are also included in "government goods and services n.i.e." However, the expenditures of locally engaged staff of embassies, military bases and so forth, and international organization staff are not included in "government goods and services n.i.e." Moreover, all staff of international institutions staying in the host economies for 12 months or more should be regarded as residents of those host economies and their expenditures are therefore not included. On the other hand, staff of international institutions staying in host economies for less than 12 months should be regarded as residents of the economies in which they maintain permanent households, which are typically their economies of origin (see BPM6 Compilation Guide, chap. 12, footnote 37.
Compiling government goods and services n.i.e.
- As discussed in chapter 11, the majority of government services transactions are most commonly compiled using administrative records. Data on government expenditures abroad should also be available from an ITRS. See BPM6 Compilation Guide, para. 12.150. Moreover, estimates of expenditures of diplomats and other government personnel posted abroad could be based on the wages paid to those persons, details of which should be available from administrative records, and an assumption about the percentage of wages spent on such expenditures. Ibid. It may be more difficult to capture expenditures by foreign Governments and international institutions located in the compiling economy using an ITRS, in which case an enterprise survey of non-resident bank accounts or a survey of foreign embassies and international institutions could be used. When comprehensive data collection is difficult, existing replies to past surveys could be used as representative values.
- For provision and receipt of aid, compilers of the donor country could obtain information on the cost and type of provided services from official sources. In the recipient country, compilers could obtain information from the embassy of the donor country or the relevant domestic ministry or agency. An ITRS can also provide information on several related transactions (e.g., current transfers to Government received through the banking system) or from customs (data on imports of materials and equipment). An alternative source is OECD official development assistance records. Ibid., para. 12.159.
- If data on government expenditures abroad are not timely, or source data provide only broad aggregates or partial data, it may be necessary to extrapolate certain series or create data models based on past survey data or historical trends. In such cases, government expenditure policies, budget planning and decisions and observed statistical relationships among historical indicators should be considered.
Country experience: Denmark
- In Denmark, information for the expenditure side of government goods and services n.i.e. is provided by the Ministry of Foreign Affairs and the Ministry of Defence. Data on the personal expenditure of officials (ambassadors, military personnel, etc.) in the host country in which they are located is based on their wages. Importantly, Statistics Denmark assumes that those government officials spend 50 per cent of their salary on personal expenditures in the host country in which they are located. The data for military units, however, is based purely on expenditure data rather than data on wages.
- The revenue side of government goods and services n.i.e. is compiled by combining information from different sources. The Ministry of Foreign Affairs provides lists of embassies and international organizations located in Denmark, which Statistics Denmark contacts to obtain the number of their employees of Danish and foreign origin. Non-responses are supplemented by information from the Ministry of Foreign Affairs. It is assumed that government officials of foreign origin located in Denmark spend a similar amount on personal expenditures in Denmark as Danish government officials spend when abroad. Thus, the number of staff of foreign origin per embassy or international organization located in Denmark is multiplied by the average expenditure on goods and services of Danish government officials located abroad, which Statistics Denmark has previously estimated as described above.
Country experience: Japan
- Japan relies on an ITRS as the data source for most of its BOP statistics, including government goods and services n.i.e, when possible. However, there are certain transactions of government goods and services that are carried out with no monetary settlement, which therefore cannot be captured by the ITRS and must be estimated.
- Following BPM6 convention, See BPM6, para. 12.49. the value of transactions that occur without monetary settlement in the absence of appropriate market prices is regarded as the sum of the relevant costs of providing the good or service (in this case, government expenditures for providing the goods and services in question). Actual government expenditure data in Japan have certain limitations that preclude their effective use in the statistical compilation process; namely, such data are not timely Data on government spending are not released in Japan until the end of the fiscal year, which is too late for inclusion in the compilation of the relevant statistics. and are not reported according to official BOP definitions. Therefore, Bank of Japan (BOJ) uses government budget data, which are more timely than government expenditure data Government budget data in Japan are released before the beginning of the fiscal year. and follow BOP classifications, in place of actual government spending data in order to compile government goods and services n.i.e. when the ITRS does not suffice. The discrepancy between the budget data and the actual expenditure is usually insignificant, according to BOJ research. The budget data are then allocated to the correct time period in accordance with the duration covered by the budget. If a supplementary budget is passed, it is also incorporated into the budget data used to compile government goods and services transactions.
C. Allocation of resident/non-resident trade in services to modes of supply
- MSITS 2010 recommends that statistics on the international supply of services also be broken down by mode of supply on the basis of the resident/non-resident trade in services and FATS statistical frameworks. FATS output data for services should be used to measure mode 3, whereas the resident/non-resident trade in services data need to be broken down by mode. Different options exist to compile such information, either via a simplified allocation of EBOPS 2010 categories, or on the basis of collected data. The present section describes those options in more detail (it should be noted that deriving modes of supply using a data model is also a possibility; that option is described in chapter 17).
- The present section starts with an explanation of the MSITS 2010 recommendation that, in the absence of special data collection, compilers use a simplified (mechanical) allocation of FATS and balance of payments data to modes of supply. See also MSITS 2010, chap. V and table V.2, and chap. 1, para. 1.5. (C.2). Subsequently, given that the goal is ultimately to implement data collection and the compilation of a breakdown of the international supply of services by mode of supply on the basis of collected data, section C.3 describes the steps compilers can take to set up such data collection in the most efficient and policy-relevant manner. Section C.4 concludes with suggestions on how more detailed information regarding modes 2 and 4 can be compiled.
C.2 Resident/non-resident trade in services data by mode of supply: a simplified allocation
- Given that the compilation of resident/non-resident trade in services data broken down by mode of supply is a relatively new area of data compilation, and given that amending existing data collection mechanisms or creating new ones may be difficult, it is recommended to adopt a step-by-step approach for compiling such a breakdown. In the absence of relevant data, or if only some sporadic information is available, it is first proposed that compilers conduct a simplified allocation of existing statistics, as given in table V.2 in MSITS 2010. Ibid. That method consists of attributing EBOPS service categories to either one dominant mode or to several modes using a distribution, on the basis of an assumption of how specific EBOPS 2010 service items are most probably supplied by exporters (or to importers) of the economy.
- That method provides a first set of estimates on modes of supply comparable at the international level (which also could be disseminated in a common manner; see chapter 20 for more information). Such an allocation has the advantage of being a relatively low-cost solution, as the compiler can start working with the available BOP services data and gradually build his/her knowledge of how services are supplied internationally. However, compilers should treat such an allocation only as a first rough approximation of resident/non-resident services transactions by mode of supply as the technique has important limitations. The present Guide strongly encourages compilers to undertake efforts to develop more precise estimation procedures at a later stage.
- Using table V.2 in MSITS 2010, compilers are advised to make the allocation in three steps: (a) allocate (b) evaluate and (c) refine, as described below.
- Firstly, compilers can allocate each service item to one of the columns identified in the table on the basis of an assumption of how a specific service item is most probably supplied by exporters (or to importers) of the economy. In order to provide a first approximation in a comparable way, all compilers are strongly encouraged to conduct such a generic allocation.
- Secondly, compilers should evaluate if the "generic" allocation as conducted at the first step is relevant for their economy, and review results accordingly. For example, it may be worthwhile for the compiler to discuss with the institution in charge of trade in services negotiations if the results reflect their knowledge of how services are supplied abroad and to their national economy, as far as it relates to transactions recorded in the BOP.
- Thirdly, and based on the results obtained in the second stage, compilers can refine their allocation by gathering additional information to improve the knowledge of some specific service sectors. Such additional information can be gathered in cooperation with the institution in charge of trade in services negotiations and might validate the assumptions made earlier by statisticians or negotiators.
- Various ways of gathering more information may be envisaged, such as contacting major services providers or trade or consumer associations, conducting qualitative interviews with one or two relevant services providers in a specific sector (e.g., legal services, computer services, consultancy, construction, etc.) or conducting interviews with employment agencies that have international services transactions with clients abroad. Compilers can also approach relevant ministries, in particular for sectors in which internationalization is known to be important (e.g., the ministries of industry, education or health), or approach compilers in other statistical domains to obtain further information on particular sectors and to adjust the allocation if needed (e.g., through microdata linking).
- When making refinements to the initial allocation, compilers should also consider such other factors as the business structure of the compiling economy (e.g., the dominance of large enterprises or small and medium-sized enterprises/microenterprises), the type of service traded (some specific or technical services require the physical presence of the service provider), the geographical location of the compiling country and/or the distance to the trading partner (i.e., the less distant the partner, the more likely trade in modes 2 or 4 can occur), language barriers, the evolution of business strategies and tradability over time (e.g., technological advances).
Limitations to the simplified allocation
- The compiler should always keep in mind that table V.2 of MSITS 2010 and the methods described above are simply theoretical guides for classifying resident/non-resident services transactions according to the most likely predominant modes of supply. In each specific economy, other modes than those indicated may be involved for some specific services categories, considering their nature. For example, in table V.2, personal, cultural and recreational services are shown as deemed to be provided or consumed through modes 1 (cross-border) or 4 (temporary presence of service provider, either himself/herself, if self-employed, or his/her employee). However, in the case of countries that are important destinations for the shooting of films, mode 2 (presence of consumer abroad to consume services) may also need to be considered. In other words, such assumptions may need to be reviewed to identify how well they respond to national needs. It would also be useful to conduct some analysis of contracts for specific groups of persons to better understand how they operate in the context of trade in services.
- There are also other shortcomings to be considered when following the procedures outlined above. Compilers should ask themselves such questions as the following: How is the most significant mode allocated? Regarding enterprises that report their main economic activity, how should secondary economic activities be treated? Regarding manufacturing enterprises that also provide production services or services packages relating to high-value goods, how should such services be treated? Even if the proposed framework provides an approach for a first rough measurement of trade in services by mode of supply with a minimum use of resources, relevant qualitative background information and research are needed. Compilers need to consider such aspects when performing the conceptual allocation.
- Compilers are encouraged to make use of their own information about modes of supply and other possible country-specific distributions among services beyond the general allocations. Allocations to the modes may be based on the knowledge compilers have about the provision of services from their close contact with respondents or on the basis of their knowledge of the business structure gained in the enterprise survey design process. More generally, such an exercise is encouraged for improving the knowledge of compilers with respect to the international supply of services.
C.3 Resident/non-resident services transactions by mode of supply: towards full data collection and compilation
- As indicated above, the ultimate goal is to implement data collection and compilation of a breakdown of resident/non-resident services transactions by mode of supply. That compilation can be done in much detail for (a) specific service sectors of interest to the compiling economy (i.e., using the simplified allocation for the other sectors of less interest) or (b) through the compilation for all services sectors. The compilation of such data may entail a number of challenges, mainly because it may be difficult to collect the raw data itself. However, it should be noted, that once the relevant details are collected, there are no additional compilation issues, besides the general considerations (i.e., grossing up, dealing with non-response, the quality of information obtained and data confidentiality, etc.).
- A variety of options have been developed, or can be envisaged, by countries to set up a new data collection system, or to add questions to existing data collection systems, regarding trade in services by mode of supply. Another possibility would be for the data compiler to establish a data model for certain services categories or modes (see chapter 17). A broader data collection exercise, as well as collaboration with other agencies and institutions, can be envisaged as described below. Alternatively, data on modes could be derived through the combination of multiple sources of information, e.g., through a data model, as described in chapter 17.
Broad data collection and generic surveys
- For collecting data on the value of supply of services by mode of supply, the most relevant source would be through surveys, mainly enterprise surveys (see chapter 6). By amending existing surveys, for example, or integrating appropriate questions in survey forms, data from existing enterprise surveys can be used as a way forward to estimate the value of the international supply of services by mode. Hence, potentially, such estimates could be generated without establishing a new and additional data collection system, while still being of acceptable quality. Even efforts targeted towards a limited number of relevant services categories in the compiling economy can ensure the production of policy-relevant results. Importantly, because the expected respondents' burden could be high, it would be good practice to conduct, at the initial stages, sample surveys of enterprises, which should address questions needed to estimate or allocate services by modes. At a later stage, questions on modes of supply could be integrated into the existing questionnaires as mandatory data elements.
- That approach, of amending existing surveys in a step–by-step manner, would necessitate some knowledge building from the compiler's side. As a starting point, the considerations outlined in the section on the conceptual allocation could be followed. In addition, a "screening" survey could be conducted to identify the sectors and enterprises that should be targeted, or existing academic research could be reviewed to identify how services are generally rendered. Relevant enterprises could be extracted from existing business registers (see also chapter 5, section E, and chapter 6) focusing as a first step only on some key business services, such as legal, engineering or computer services. See also Eurostat, A detailed module for structural statistics on business services, annex VIII of European Parliament and Council of the European Union regulation No. 295/2008 (see
- Structural business statistics provide compilers with additional information regarding business structure, size and class, employment, etc., which could be useful for national industry policies. Information on small and medium-sized enterprises and specific characteristics of enterprises related to a particular breakdown of activities might be important for national policy to promote cross-border services trade for enterprises which do not export services, or to support enterprises that are already active in the export of services. Important service sectors could be identified from the shares of the services in the GDP or share in total services. Some countries compile jointly international trade in services and structural business statistics, making the whole business population available; the relevant subpopulation of interest for a specific mode could be derived from that source. In some cases, the information is also available in internally maintained registers, so-called BOP registers.
- A focused or specific data collection system could be developed on the basis of economic, political-economic and socioeconomic issues; for example, mode 4 could be integrated into a broader concept of cross-border movements and related international transactions in globalization theories. In addition to enterprise surveys, surveys of persons and households (see chapter 7) could also be partially useful for certain mode 4 niches; e.g., services provided by self-employed persons, or households as consumers of services provided by contractual service providers, although the latter may not be significant for the majority of compiling countries (small proportion of population, small transactions as compared to mode 4 transactions of enterprises). Surveys of persons and households could also be used to identify mode 2 (i.e., travel).
- Finally, a pluralistic-integrated approach, i.e., a sector-specific survey that integrates various statistical domains, including trade in services (but also FATS, SBS, innovation or others), can provide relevant statistical information for different statistical domains. Focusing on different user interests, specific sector studies would serve several purposes; policy makers could also be interested in specific studies, such as those incidental to agriculture or environment services. A more in-depth approach for such surveys, identifying modes for more detailed services categories, could be implemented, but policy needs would, in many cases, have to be identified by the national authorities for such surveys to be developed.
Specialized surveys in collaboration with other agencies
- As described in chapter 6, the collection and compilation of resident/non-resident statistics on the international supply of services by mode of supply could also be established in collaboration with agencies, such as ministries of the economy or trade, that have specific interests in obtaining such data. In such circumstances, it is important for the agency in charge of the collection and compilation of official trade in services statistics (generally, the national statistical office or central bank) to coordinate with the specialized agency so that international recommendations are followed, and to ensure that the collected information can be used in a broader context.
- An example of such a data collection is presented in chapter 10, paragraphs 10.63 to 10.67. That example shows that the International Legal Services Advisory Council (ILSAC) of Australia has for a number of years been conducting its own compilation of statistics on the international supply of legal services to non-residents. That approach benefited from the assistance of the Australian Bureau of Statistics. Such collaboration has highlighted the desirability, from the point of view of ILSAC, of increasing the focus on compiling data that is more closely aligned to the specific modes of service delivery recognized by economies in trade negotiations and, although it does not mention it, to ensure that the data collected follows international standards as closely as possible. That experience is as an example of positive collaboration between the body in charge of compiling trade in services statistics and an institution with a strong interest in collecting sector-specific data. Although from the statistical compiler's perspective, it would seem difficult to replicate the process for all services sectors, such an experience can prove useful for improving the quality of statistics, as well as for providing some first estimates according to the four modes.
- Similarly, large employment or recruitment agencies For example, since 1994, recruitment agencies in Germany have been able to recruit in all occupational fields; before that year, there were some exceptions in management and artistic related activities.
that might have important cross-border activities could be targeted. Those might include agencies working with persons from new European Union member countries or persons in so-called regional or border clusters. It might be possible to use the data from such agencies on types of contracts to identify the services relevant for measuring mode 4.
C.4 Compiling more detailed mode of supply statistics for resident/non-resident trade in services
Specific considerations regarding mode 4
- It is suggested that the compiler investigate how to collect and compile more details for items where mode 4 (presence of natural persons) is deemed important for the compiling economy. Professional and management consulting services (mainly business services) are generally considered to be predominantly provided (or consumed) through mode 1 (cross-border supply) or mode 4 as the provision of those services often necessitates proximity to the consumer. Alternatively, providing processing services or maintenance and repair services would most likely involve mode 2 (consumption abroad) or mode 4. Therefore, including a question that asks for the share of mode 4 for specific services categories may be sufficient to greatly improve the statistics on the international supply of services by mode.
Specific considerations regarding mode 2
- As presented in MSITS 2010, some EBOPS components are strongly linked to the supply of services through mode 2, including manufacturing services, maintenance and repair services and travel and waste treatment. Travel has the most obvious link to mode 2 supply of services. In that context BPM6 See BPM6, paras. 10.85-10.100. and MSITS 2010 See MSITS 2010, paras. 3.115-3.131. propose an alternative breakdown of travel into goods, local transport services, accommodation services, food-serving services and other services. That level of detail would already serve many information needs, including those related to mode 2. It is particularly important to identify goods separately, as they are of minor interest from a GATS-trade in services perspective.
- There are various possibilities for compiling such breakdowns for the travel item, such as the use of credit card data, border surveys or household surveys, which are often used in the context of data models. Tax-free purchases could be used as complementary sources to separately estimate the goods purchased by persons going abroad for travel reasons, because those travelling can request a refund for the VAT paid on the goods when exporting the goods.
- In the case of credit card data, the use of information included in merchant codes is suggested. That could enable a more detailed analysis of travel and tourism data and would also allow the identification of transport services and the extraction of data separated by goods and services. For example, payments by or to a company that provides maintenance and repair services would be reported, since that company provides services and the payments must be reported. Also, such merchant code categories as hotels/motels/inns/resorts, car rentals or tourist attractions and exhibits are subject to reporting. Using merchant code information from credit card data has several advantages, including the relatively low cost for compilers, and the fact that, in addition to the EBOPS travel item, other services categories, namely other business services, communication services, government services, could be compiled or verified.
- In addition, customs data could help to identify thresholds in order to adjust travel and goods, according to the EBOPS concept, accordingly (i.e., durable goods and valuables). BPM6, MSITS 2010 and ITRS 2008 have different treatments concerning some goods purchased by those travelling: the BPM6 and MSITS 2010 travel item excludes purchases of valuables and consumer durables above a customs threshold, whereas ITRS 2008 includes all such purchases, irrespective of the threshold; see MSITS 2010, box III.5, for the relationship between data on travel and tourism statistics. Such adjustment would entail the calculation of totals on travel-related inflow from travel survey data or credit card data and the value of the total amount of valuables and durable goods in excess of custom thresholds from customs data; efforts must be made to avoid double-counting.
Country experience: New Zealand on collecting data on modes of supply
- The user is invited to read the experience of New Zealand in collecting data on modes of supply as presented in the country example of chapter 6. In New Zealand, respondents were asked in the 2011 census of international trade in services and royalties to estimate the percentage of the export value delivered through modes 1, 2 and 4. Testing showed that most respondents understood the modes of supply concepts, although feedback suggested that the guide provided along with the questionnaire was helpful, as well.
Country experience: Turkey
- The compilation system of Turkey entails some advantages for mode of supply analysis. The first advantage stems from the prior existence of a breakdown of travel, that comes close to an EBOPS 2010 classification, by type of product for mode 2 purposes for both travel credit and debit and personal and business travel. (Expenditure on package tour —the share pertaining to Turkey for credit and that pertaining to non-residents for debit—is not included). The travel item is broken down as follows: (a) goods, (b) local transport services, (c) accommodation services, (d) food-serving services, (e) health services and (f) sports, education and culture. In EBOPS 2010, the distinction regarding "other services" is between education services and health services. In addition, some mode 4 type of transactions can be identified through ITRS forms.
- It may be useful to provide more information on the Turkish Statistical Institute's travel surveys, which are conducted in cooperation with the Central Bank of the Republic of Turkey (CBRT) and the Ministry of Culture and Tourism, in connection with mode 4 purposes. These are quarterly face-to-face surveys conducted at the border gates, on a nationality basis. For instance, the departing non-resident visitors survey for travel credit is carried out at 25 border gates, covering 90 percent of all departing visitors according to the departure mode (air, road, rail and sea). Over the years, new departure gates have been added and existing gates excluded. The purpose of the survey is to determine the traveller's profile (age, sex, education level, occupational status) and travel characteristics (purpose of visit, place stayed, accommodation type, nights spent, types of expenditures) in order to estimate the travel income for Turkey from foreigners and citizens residing abroad. The number of foreign visitors is based on the administrative border statistics of the Directorate General for Security for the related periods that cover all arrivals and departures at all border gates, in terms of the details covered, which include citizen or foreign status, nationality, month and border gate, for both overnight visitors and excursionists.
- The survey is carried out for overnight visitors and excursionists with a 0.5 per cent sample rate to estimate on the basis of means of departure and nationality, and estimations are provided quarterly for 26 selected nations and 10 country groups. Turkish Statistical Institute, Tourism Statistics (2011). Available from www.turkstat.gov.tr/PreTablo.do?alt_id=1072. The sample survey results estimate average expenditures, with a breakdown of overnight stays and excursions, which are expanded with the related border statistics of the Directorate General for Security. In order to estimate average expenditure figures for Turkish travellers abroad, sample surveys are also conducted on a quarterly basis for resident visitors arriving in Turkey.
- In the light of the above considerations, the departing non-resident visitors survey has questions on general occupational status and purpose of the visit, with one of the options being "business (conferences, meetings, assignments, etc.)", albeit with no further breakdown. That option may be broken down further into (a) conferences, meetings, trade fairs and exhibitions, etc., (b) as a contractual service supplier and (c) other. The next step would be to modify the questions on general occupational status to identify the type of employer-employee relationship for those whose purpose of visit is business and professional activities, determining if their employer is in Turkey or outside Turkey. The resulting matrix of the questions mentioned above may then prove to be useful, provided that a statistically meaningful expansion can be achieved, which should be assessed with statistical scrutiny.
- The compilation of the additional item on tourism services-related expenditure in travel and passenger transport should also be encouraged to establish a clearer link between the BOP and tourism statistics. Finally, it is necessary for BOP and tourism statisticians to cooperate and, in particular, to investigate if more detailed services categories would be of interest. Also, some data for TSAs could probably be integrated.
Country experience: Portugal
- A separate alternative breakdown of travel into types of goods and services is recommended by BPM6 and MSITS 2010. Box 14.8 shows the level of product detail required as supplementary breakdowns for travel according to BPM6 and EBOPS 2010, integrated with additional requirements to provide the necessary level of detail for other statistical domains and respond to mode 2 information needs.
Box 14.8 Level of product detail required for supplementary
breakdown of travel
- The forthcoming payment card database can provide important information for meeting those new requirements, using the activity sector code of the goods and service provider. For payments made in Portugal with cards issued abroad, the NACE category of the point of sale (POS) owner is available, while for payments made abroad with cards issued by resident institutions, the merchant category code (MCC) of the POS owner is provided. Those variables are used as proxies. A correspondence table between the NACE or MCC codes and the different travel expenditures on goods and types of services must be developed. Furthermore, to identify local transport services, other than rental services, separately from international transport services, the border survey will be used.
- In addition, when travel expenditures are prepaid to resident travel agencies, in terms of both travel credits and debits, the direct reporting by such companies will provide the breakdown by good and type of service for both travel credits and debits. That information complements payment card data. For the same breakdown of payments made to non-resident travel agencies, on the debits side, the border survey is being considered as a possible data source. In terms of travel expenditures on goods, BPM6 recommends the acquisition of valuables, consumer durable goods and other consumer purchases for own use or to give away acquired by travellers in excess of customs thresholds to be registered under general merchandise and not under travel. To identify the acquisition of such goods, different variables from the payment card database must be combined, namely, restricting the activity classification of the goods provider to jewellery, art, cars and electronic goods, and considering a minimum threshold for the value of the operation.
D.Service transactions between related (affiliated) enterprises
- MSITS 2010 acknowledges that information on the value of all transactions between affiliated enterprises is helpful in understanding the degree to which the globalization of services is taking place. Such intrafirm trade in services can take up a substantial share of total services trade; for example, transactions between related (affiliated) enterprises accounted for 28 per cent of both United States exports and imports of private services in 2013. United States cross-border trade in private services excludes transactions by the United States Government (including the military). Trade in private services is the most appropriate basis for comparison because intrafirm trade covers only trade by businesses. In addition, statistics on intrafirm services trade can highlight the role of services, in particular those related to intellectual property products, provided by one unit but used throughout the multinational enterprise. For example, the information for the United States shows that intrafirm trade accounted for 59 per cent of receipts of royalties and licence fees and 71 per cent of payments of charges for the use of intellectual property in 2013.
- MSITS 2010, therefore, recommends that data on resident/non-resident transactions in services separately identify transactions with related and unrelated enterprises. Although such a breakdown would be most informative at the level of the detailed EBOPS 2010 classification, it is recognized that this could place an additional burden on both suppliers and compilers of data and could raise issues of confidentiality. In that connection, MSITS 2010 recommends that such a breakdown be carried out at the aggregate level for total services transactions (under the complementary grouping of EBOPS entitled total services transactions between related enterprises), although countries willing to provide additional detail are encouraged to do so for some relevant aggregated EBOPS 2010 categories. See MSITS 2010, para. 3.56. Note that for some transactions/services items, compiling such a breakdown would not be relevant, e.g., transactions in which individuals are consuming services and education services.
- MSITS 2010 associates related enterprises (intrafirm trade) to direct investment relationships. See MSITS 2010, paras. 4.58-4.60 for further details. Should the criteria for related enterprises depart from that recommendation, it is good practice to clearly describe the criteria chosen in a country's trade in services metadata.
- It is good practice to carefully examine the valuation of services transactions between related enterprises, as the recorded transactions could underestimate or overestimate and misrepresent the real flows of trade (as measured by market prices) if such transactions between related enterprises are based on transfer prices (see also chapter 1 for transfer/market prices).
Country experience: United States
- For conceptual reasons or due to source data limitations, the Bureau of Economic Analysis (BEA) of the United States presents statistics only on intrafirm trade for selected types of services. Transactions between individuals and businesses are considered to be between unaffiliated parties. Thus, personal and business travel services, which are transactions by individuals who travel to foreign countries; education, which consists of expenditures for tuition and living expenses of students studying in foreign countries; medical services, which cover expenditures by patients in foreign countries; and expenditures by non-resident workers, are all considered to be unaffiliated transactions. Passenger transportation, which covers transactions between individuals and foreign airline or vessel operators, are also considered to be unaffiliated transactions. Transactions in insurance services are deemed to be unaffiliated even when they are between affiliated companies because the services are deemed to be provided to the policyholders who pay the insurance premiums and are unaffiliated with the multinational company. Transport services, other than passenger transport, are treated as unaffiliated because the source data do not allow transactions between affiliated parties to be separately identified from transactions between unaffiliated parties.
- The remaining categories, including charges for the use of intellectual property; telecommunications, computer and information services; financial services; and other business services, can have affiliated transactions. The source data for those statistics are BEA surveys. Financial services are collected on the United States Department of Commerce, Bureau of Economic Analysis BE-185 Quarterly Survey of Financial Service Transactions between United States Financial Service Providers and Foreign Persons and the BE-180 Benchmark Survey of Financial Service Transactions between United States Financial Service Providers and Foreign Persons. Telecommunications and most business, professional and technical services are collected on the BE-125 Quarterly Survey of Transactions in Selected Services and Intangible Assets with Foreign Persons and the BE-120 Benchmark Survey of Transactions in Selected Services and Intellectual Property with Foreign Persons. Those surveys can be found on Bureau's website, www.bea.gov, by looking under "International" and clicking on "Survey forms and related materials." On the surveys, United States companies are asked to report their transactions in a specific service type by country and, for each country, by whether the transaction was with their foreign affiliates, with their foreign parent or with foreign affiliates of their foreign parent or with unaffiliated parties.
- The definitions of affiliated parties are the same as those used to identify a direct investment relationship. A foreign affiliate is a foreign business enterprise in which a United States person directly or indirectly owns or controls 10 per cent or more of the voting stock in an incorporated business enterprise or an equivalent interest in an unincorporated business, including a branch. A foreign parent is the first person outside the United States that owns or controls 10 per cent or more of the voting stock in an incorporated United States business enterprise or an equivalent interest in an unincorporated United States business, including a branch. Foreign affiliates of the foreign parent are defined according to more restrictive criteria than above as they are any foreign persons, proceeding up the foreign parent's ownership chain, that owns more than 50 per cent of the person below it up to and including that person that is not owned more than 50 per cent by another foreign person and any foreign persons, proceeding down the ownership chains of each of those members, that is owned more than 50 per cent by the person above it.
- By collecting data on transactions with foreign affiliates separately from those with foreign parents and foreign affiliates of the foreign parent, transactions within United States multinational enterprises, i.e., between United States parent enterprises and their foreign affiliates, can be distinguished from those within foreign multinational enterprises, i.e., between United States affiliates and the foreign multinational enterprises that invest in them.
- Multinational enterprises sometimes allocate expenses across various divisions or parts of the enterprise, rather than billing them separately. Such allocations, often called allocated expenses, headquarters services or miscellaneous charges, are sometimes for a designated service, such as for research and development, but sometimes no specific service is designated. It is important to note here that the management of patents and licence fees, which may be similar to allocated expenses, should be recorded in other business services n.i.e. If the type of headquarters service is known, BEA asks reporters to include those allocated expenses in its data for that type of service. If the type of service is not known, BEA asks reporters to include them in the category of "management, consulting and public relations (including allocated expenses)."