International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 1/37 International Guidelines on Trade Indices Slides based on a presentation by Ronald Jansen Trade Statistics Branch United Nations Statistics Division

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 2/37 International Guidelines on External Trade Indices  International Merchandise Trade Statistics: Concepts and Definitions (Rev 2, 1998)  Guidelines on Price and Quantity Statistics (1977)  Strategies for the Measurement of External Trade Indices (1981)  National Practices in compilation of External Trade indices (2005)  XMPI Manual (IMF and others, 2008)

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 3/37 International Guidelines on External Trade Indices Main uses of external trade indices: Government economic policy (monetary policy) Analysis of country competitiveness (on domestic and external markets) Terms of Trade Measuring inflation risk, forecasting future price trends (including CPI, PPI) Exchange rate analysis (pass through into import prices) Compilation of National Accounts (Deflators) Specific market analysis

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 4/37 International Recommendation ( IMTS, Rev.2,1998 ) Paragraph 160 : Index numbers. Many users need more information than trade values by country or by commodity, and require information on prices and volumes as well. Two kinds of indices may be produced to reflect prices: unit value indices based primarily on customs documents and price indices based on survey data. The relative strengths and weaknesses of those two approaches to index number compilation are described in the United Nations publication Strategies for Price and Quantity Measurement in External Trade. Although price indices are generally preferred, in practice countries may not have the resources available to compile that information.

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 5/37 International Recommendation (IMTS, Rev.2) Index numbers.  It is recommended that all countries produce and publish volume (quantum) indices and either unit value or price indices for their total imports and exports on a monthly, quarterly and annual basis.  Countries are also encouraged to calculate and publish such indices for the detailed commodity groups at least quarterly

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 6/37 Guidelines on Price and Quantity Statistics Deals with all macro-economic indicators Published in 1977… Provides general guidelines on: 1.Uses of price and quantity statistics 2.Design of price and quantity indices 3.Choice of units of observation 4.Types of index formulae 5.Choice of index formulae and weighting methods

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 7/37 Guidelines on Price and Quantity Statistics Export/Import price indices are elements in a broader structure of price indexes described in the System of National Accounts … Export/Import priced indices must be adapted to the needs of National Accounts (product classification,…) National Accounts aggregates (GDP) may be sensitive to XMPI

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 8/37 Summarized structure of price and quantity indices in the frame of SNA SUPPLY OF OUTPUT : PRODUCER'S PRICES CommoditiesActivities Gross output Intermediate Consumption Value addedNet sector output Agriculture PPI… Mining Manufacturing Electricity, Gas, water Construction Distributive trades Transport and communications Finance Services USES OF OUTPUT: PURCHASER'S PRICES Consumption by Households CPI… Consumption by Government Consumption by Non-profit institutions Gross Fixed capital formation Change in stocks ExportsXPI (SITC) ImportsMPI (SITC)

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 9/37 Guidelines on Price and Quantity Statistics Choice of units of observation The choice of units of observation determines what is counted as a change in price and what is counted as a change in quantity. For instance, if differences are taken into account between cars with small, cars with large engines, sports cars and pick-up trucks, then those differences are reflected as differences in quantity. The price differences are taken between the same type of car. If cars are not differentiated, then all changes in structure or in quality will be seen as an increase or decrease in the price of a car.

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 10/37 Guidelines on Price and Quantity Statistics Types of index formulae 1.Laspeyres 2.Paasche 3.Fisher 4.Relation Price and Quantum Indexes

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 11/37 ∑ P it Q i0 ∑ P i0 Q i0 i=1 n n PL=PL= Guidelines on Price and Quantity Statistics Types of index formulae

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 12/37 Guidelines on Price and Quantity Statistics Choice of index formulae and weighting methods

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 13/37 Strategies for the Measurement of External Trade Indices 1.Source of data 2.Limitations of unit values and survey prices 3.Major problems of pricing 4.Types of index-number formulae 5.Strategies for compiling index numbers

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 14/37 Strategies for the Measurement of External Trade Indices Source of data (part I) 1. Customs records - Data useful for indices: a)Commodity codes b)Trading partner codes c)Customs procedure codes d)Quantity unit codes e)Mode of Transportation code f)Identification of importer/exporter - Almost exhaustive coverage, but : - Greater scrutiny generally applied on imports - Commodity classification often more detailed on imports - Access to detailed transactions not always possible

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 15/37 Strategies for the Measurement of External Trade Indices Source of data (part I) 2. Export and Import – price surveys a)List of importers/exporters : Business associations, business Registers, Customs b)Sampling Design: Draw sample from the list of enterprises Discuss with each firm the particular items to be selected for pricing c)Survey taking

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 16/37 Strategies for the Measurement of External Trade Indices Limitations of unit values and survey prices (part II) 1.Main problem of unit values: heterogeneity a)Different products in same item Other problem : quantity measurement (definition, customs controls)

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 17/37 Strategies for the Measurement of External Trade Indices Limitations of unit values and survey prices (part II) 1.Main problem of unit values: heterogeneity Example of refrigerators (page 15)  Overstatement of price increase by unit value of 36%

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 18/37 Strategies for the Measurement of External Trade Indices Limitations of unit values and survey prices (part II) 2.Main problems of price surveys: a)Cost b)Choice of product varieties to be priced c)If items too specific, they may change quickly

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 19/37 Strategies for the Measurement of External Trade Indices Major problems of pricing (valuation) – (Part III) 1.Quality Changes 2.Unique Goods 3.Seasonal Goods 4.Transfer pricing 5.Prices CIF or FOB

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 20/37 Strategies for the Measurement of External Trade Indices Some tentative solutions – (Part V) 1.Measuring Unit value bias - through examination of distribution of unit values within each category of the classification, consultation with enterprises,… 2.Refining Unit values -use of all possible data available in Customs records: partner country, size of transaction, mode of transport, identity of importer/exporter, tariff classification 3.Combining sources of data : “The overall measurement of price changes in external trade could be improved by combining the Customs-based data with information drawn from a variety of sources” (direct surveys, domestic producer prices,…)

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 21/37 Strategies for the Measurement of External Trade Indices Strategies for compiling index numbers (part VI) 1.Limited Budget a)Unit Value Indexes – detailed Customs data – selection of “stable” items - data screening 2.Average Budget a)Unit Value Indexes – sophisticated data editing b)Commodity specialists – possible use of a variety of sources to fill the gaps 3.Large Budget a)sophisticated Unit Values and Price surveys (dual or combined strategy) b)Commodity specialists

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 22/37 National Practices in compilation of External Trade indices Questionnaire ( 8 questions, conducted in , 77 respondents) a)Index number series produced b)Source of Information c)Index calculation methods d)Limitations of indices e)Release dates f)Revision Policy g)Dissemination h)Compiling agency

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 23/37 National Practices in compilation of External Trade indices Results: Index number series produced Unit Value index only - 75% Price Index only - 17% Both UV and Price - 8% SITC - 45% HS - 19% BEC - 16% ISIC - 20% Annual only - 16% Annual and Quarterly - 34% Annual, Quarterly, Monthly - 50%

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 24/37

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 25/37 National Practices in compilation of External Trade indices Results: Problems encountered

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 26/37 National Practices in compilation of External Trade indices Results: ESCWA countries Respondents: Egypt, Jordan, Kuwait, Oman, Qatar, Syria, Turkey Egypt – Annual; Unit Value (Paasche), Quantum (Laspeyres); CAPMAS Jordan – Monthly, quarterly and annual; Price (Laspeyres); HS and BEC; Customs records; DOS Kuwait – Annual; Unit Value (Paasche), Quantum (Laspeyres); Customs records, oil authority, Kuwait airlines; CSO Oman – Annual; Unit Value (Laspeyres); SITC section; Customs records; Ministry of National Economy Qatar – Annual; Unit Value (Fisher), Quantum (Fisher); Customs records; Planning Council Syria – Annual; Unit Value and Quantum (Laspeyres and Paasche); SITC section and division; Customs records; CBS

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 27/37 Export Import Price Index (XMPI) Manual Draft Manual available on the IMF website: Draft written in coordination with ILO, IMF, ECE, OECD, World Bank, Eurostat, and UNSD

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 28/37 Export Import Price Index (XMPI) Manual

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 29/37 Export Import Price Index (XMPI) Manual

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 30/37 Export Import Price Index (XMPI) Manual

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 31/37 Export Import Price Index (XMPI) Manual – 2008 Summary – 100 pages 1.Uses of XMPIs 2.Unit value indices and price indices 3.Basic index number formulas and economic approach 4.Elementary Price indices 5.Concepts, Scope and Classifications 6.Source data: Customs and Surveys 7.Adjusting Prices for Quality Change 8.Weights 9.Publication and Dissemination

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 32/37 Export Import Price Index (XMPI) Manual – 2008 Unit Value and Price Indices Unit Values Indices and their potential bias: Unit value are suitable for the aggregation of price changes of homogeneous items Mains advantages of unit value indices are their coverage and relatively low resource cost Some unit value changes are highly volatile For heterogeneous items, bias arises from compositional changes in exported /imported goods Changes in quality are not taken in account Problematic measurement of quantities by Customs Unit value indices rely to a large extent on outlier detection and deletion Outliers detection routines may remove some of the signal as well as the noise

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 33/37 Export Import Price Index (XMPI) Manual – 2008 Unit Value and Price Indices Strategic options: A move to price indices based on establishment surveys has resource consequences The Manual advises that countries using unit value indices undertake a staged progressive adoption of hybrid indices with, overtime, increasing proportions of unit value indices being substituted by establishment-based survey data

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 34/37 Export Import Price Index (XMPI) Manual – 2008 Concepts : Valuation, Coverage and Classifications (chapter 4) Coverage : linked to the SNA 1993 definition Time of recording : Change of ownership Commodity classification : HS, SITC, BEC, CPC… Valuation: Unit value indices : CIF / FOB value Surveys: basic price for exports, purchaser price for imports (but in practice: deflators should be consistent with nominal values of imports/exports…)

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 35/37 Export Import Price Index (XMPI) Manual – 2008 Data Sources 1.Customs Records 2.Enterprise Surveys Concepts are close to those used in other price surveys (Production Price Index) Sampling must be used for both the establishments surveyed and the commodities exported or imported Samples must be unbiased and cost-effective Data can be collected by various means: postal survey, personal interview, telephone interview, Internet data provision

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 36/37 Export Import Price Index (XMPI) Manual – 2008 Data Sources (chapter 5)

International Guidelines on trade indices Training on calculation of External trade indices for statisticians in ESCWA countries December Beirut 37/37 Export Import Price Index (XMPI) Manual – 2008 Summary – Appendix 1.1 : Basic Steps in XMPI Development