OECD Statistics Directorate Do we need a new trade classification and presentation for goods and services? OECD Statistics Directorate

Overview Why a new classification/presentation? Trade in goods Trade in services (and goods) Goods and services or trade in products Problem areas Possible structure of a new trade classification or presentation Benefits Conclusions/suggestions

Trade in goods and trade in services? but never the two really meet… Trade in goods described by HS 2007 and SITC rev 4 – physical movement of goods cross frontiers Trade in services – BOP/EBOPS 2010 – resident non-resident transactions – goods is “general merchandise” The detail is in one (IMTS for goods) or the other (BOP for services) but not both The original list of topics for analysing the trade in services was the following. Theme 3 addressing links between merchandise trade and balance of payments trade in goods and services should be addressed in Chapter 3. Theme 5, the sectoral analysis was seen as a possible example for Chapter 5., It is currently an annex to the analytical annex. Suggestions noted were the inclusion of Country case study materials; the creation of a virtual annex on Internet; reduce the number of themes; market access indicators; and inclusion of an example on global outsourcing.

Goods and services together Central Product Classification version 2 CPC classifies all transactable products Movable goods CPC 0-4 mainly related to HS Other products CPC 5-9 Structure not helpful for trade or production Goods and service products are difficult to separate

Problem areas Trade and BOP relate to transactions not production E.g. distribution services Charges for the use of intellectual property Manufacturing services – need to keep commodity flow information Information products Travel  

What would a product presentation look like? Maybe something like this… In order to illustrate how the different channels of service delivery can intervene in the day-to-day activity of a service provider, the example here below presents the Alpha software company which has an affiliate and a customer in country A and its headquarters and research and development activities in country B. 1- The software was sold to the customer by Alpha’s affiliate in country A. This illustrates the mode 3 (commercial presence) delivery of service. The FATS sales information would be the statistical source for measuring this activity. 2- The Alpha software company is also sending software solutions directly to the customer in country A. This would reflect Mode 1 (cross border supply) delivery of services. The balance of payments components "computer and information services" as well as "charges for the use of intellectual property" would record this type of information. 3- At the same time, the headquarters can send software professionals to its affiliate. This would correspond to Mode 4, presence of natural persons and FATS employment data would be the statistical source of information regarding these flows. 4- Customers from country A can travel to country B to buy software development services on their own account. This flow illustrates the second mode (consumption abroad) of service delivery. The travel item of the balance of payments would provide some information regarding this flow.  Recommendation on statistics of international migration (RSIM)

Contd.. Why it is of interest? This kind of linkage could help analysts to assess how open or dependent (on services imports for instance) an economy is. The correspondence of the EBOPS with other product classifications could also be addressed here. What would the annex say? Where there are surveys of trade in services and service production a register marker by activity as well as trade information may be available. It allows a better link to other economic data generally for input-output analysis. More broad brush Indicators (as presented in the HEGI) may include: - Export propensity for services (Indicator which measures the exports by the size of the GPD of a country.) - Import penetration for services (The import penetration rate shows the degree of domestic demand satisfied by imports) “Relationship Between Statistical, Accounting and Administrative Units” is very useful to understand the role of business registers, the meaning of institutional units and establishment as defined by the national accounts. André monty, Statistics Canada .

Contd… This indicator that we have just described can be divided by the GDP And if the aim of the analysis is to look…… Rate of return of outward FDI is : FDI income credits as a percentage of outward FDI positions,

Contd…. etc To sum up the different flows, we can look at this nice graph that I have stolen from my colleague Andreas Fuchs (who will do a presentation later today) Looking at the outward delivery of services (or the benefit of “exporting” services) from the perspective of the home economy A. If we first look at the trade flows: Country A is exporting services to the rest of the world and all the money from the rest of the world accrues to the home economy. If we secondly look at country A’s outward sales activities in the rest of the world, only the share of the profit that accrues to the parent company would accrue to the home economy A. Consequently if one wants to consider the benefits of outward delivery of services (exports + foreign affiliates outward sales) on the home economy, equal weights should not be put on exports and outward sales of foreign affiliates and one could multiply outward sales of foreign affiliates by a weight w that could be the rate of return on outtward direct investment i.e FDI income credit a percentage of inward FDI position.

Benefits Would give us a common language and with production statisticians but it would need refining If a useful idea, another version could be developed using ISIC 3, HS2002, and EBOPS2002 for immediate use Use building blocks that fit into trade data sources and relate closely to input-output perspectives Bring integration of trade data and estimation that is done at the I-O stage in SNA into trade area in transparent way Over time would help give a more complete view of trade A broader view of inward delivery of services can also be taken by adding up for instance Balance of payments imports to Foreign affiliates inward sales. Once again The outward foreign affiliates sales of services would excluded Wholesales , retail trade and repairs (ISIC G) and Construction (ISIC F) because those items include the value of the goods. The outward foreign affiliates sales would also be limited to local sales i.e. excluding FA exports of services to the country of the parent or a third country to avoid coverage issue between the BoP and the Fats frameworks..

Conclusions and suggestions split into goods and services has become progressively more problematic While data are needed separately, need to find a way of considering trade in products altogether - for trade, production, and I_O analysis.  Propose new classification/presentation of trade in goods and services Pilot exercise to produce estimated data from existing data sources, with any necessary adjustments made explicit. Review measurement of trade in goods and services through enterprise surveys - consider business register links to activity codes– facilitate estimation of alternative views of trade.

Questions for discussion Is this alternative presentation or classification of trade in goods and services worth researching further?   Given that implementation of BPM6 may take some years, should presentation be researched also in terms of current classifications ISIC Rev.3, CPC Ver. 1.1 and BPM5? Any other comments or suggestions?