Re-design of the trade in commercial services program in Canada October 2010 OECD Working Party on Trade in Goods and Services

Background: Currently available detail Trade in commercial services preliminary quarterly results published 2 months after reference period for the quarterly BOP and GDP statistics, with limited category and geographical detail first level of annual details available 6-8 months after reference period all annual details released months after reference period … 29 categories; 59 countries; 9 regions detailed annual services categories only for United States and European Union; only totals for other individual countries

Introduction: Re-design project Concerns over the quality and increasing demand for detailed statistics on services … growing importance of trade in services; trend to off-shoring; use in trade negotiations International accounts program in the process of re- designing survey systems and processing in 3 phases Linking to the STATCAN business register Improving the trade in commercial services estimates Improving the financial surveys and estimates (in progress) Services trade component … project spread over 3 years (April March 2009) Improving the coverage of international trade in commercial services Improving the quality of details by commodity, industry, and geographical areas

Coverage: Business register (BR) link to improved methodology STATCAN BR provides information on the composition and population of businesses (legal entities) in Canada organizational structure, industrial activity, size, geography central to enterprise-establishment surveys International accounts needed to move from a list frame perspective (6K enterprises) towards improved methodology and coverage … link to BR was critical and led to: coverage in both goods and services industries; ability to leverage other agency surveys; improved frame updates; cleaner overall frame (duplication eliminated)

Coverage: Business register (BR) link to improved methodology ( contd) Creation of a sub-universe (population) on the basis of criteria in term of industrial activity and revenue size … established at about 36K enterprises Challenge: Measuring just trade in services that is international, whereas the size indicators (e.g., sales, total revenue) on the BR do not necessarily correlate to international activity in services a number of adjustments to survey strategy Stratified survey with modifications to the take-all strata … where units have significant transactions and are self- representing.

Methodological improvements Frame stratification: Take-all strata Main survey vehicle (annual): Enterprises that have reported large transactions Main survey vehicle (annual): Enterprises that have reported medium-sized transactions, surveyed on a rotating basis about 1/3 of these surveyed each year, with remainder imputed Other sources – annual surveys: Approximately 30 other (mainly activity-based establishment) agency surveys include questions trade in commercial services (with specific trade modules added to about half of these in 2005). Because the selection was based on other criteria, these entities are included as self-representing and included in the take-all strata. Though limited in detail, these surveys have contributed to coverage (information for about 30K businesses). Only if these entities have large trade transactions are they covered by the survey (above)

Methodological improvements Frame stratification: Take-all (contd) Other sources – annual administrative data: - Businesses that trade services with foreign affiliates (parents and/or subs) are required to complete a specific tax schedule itemizing this activity. Information from this schedule is used for all units not included on any survey described above. These data have improved the estimates of intra-firm trade collected on the main survey vehicle. - While the information is detailed in terms of individual legal entities, the activity is more aggregated and some assumptions must be used for distribution. These surveys have also contributed significantly increased to coverage (information for about 5K Canadian businesses trading with affiliates) … however, especially significant in value terms.

Methodological improvements Frame stratification: Take-some; take-none Main survey vehicle (annual) – Take-some strata: Business units expected to have medium to small sized transactions make up this group. A sample is drawn based on revenue size and economic activity … with varying thresholds by industry. Take-none strata: Business units not covered above and according to the frame are expected to have small revenues (varying thresholds by industry) associated with trade in commercial services make up this estimated strata.

Digression: Annual and quarterly surveys Annual survey on international trade in commercial services 3500 enterprises; statistics for a long list of services as well as the country of trade and the relation between the trading partners – affiliated or not. Observations from tax records and other surveys are added. Imputation for non-response (last response for the unit adjusted for growth rates of reporting units) and estimation to blow up to the universe (weighting responses from the take-some strata and adding the relatively small estimates for the take-none strata) Content improved for 2008 (e.g., more detail on health services and repairs) and questions on processing for 2010 survey. Quarterly survey on international trade in commercial services smaller in scope a sub-sample of the annual survey with representative units selected on the basis of their transactions by type of service. Commodity detail much more aggregated (estimated from the annual survey), country detail is requested. Estimates adjusted for non-response (last response for the unit adjusted for growth rates of reporting units) and to represent the universe (using weights from the most recent annual process)

Summary impact of new methodology Processing: A feature of the re-design was a substantially upgraded systems to generate (unduplicated) estimates from the different sources and significantly improved flexibility and analytical capacity. Estimates: The values of trade in commercial services are generated from the following, with the largest impact on coverage from the first two items: - Main survey vehicle with a sampling strategy and adjustments to universe 41% - Tax data on affiliated transactions 27% - Other agency surveys on services 8% - Specific insurance international surveys 10% - Other (mainly estimated commissions on securities; some adjustments for import under-coverage) 14%

Analysis and release of new estimates of trade in commercial services New approach partly implemented improved growth rates for trade in commercial services Full integration pending, given that the new approach generates larger values a break in the estimates for trade in services … some components 15%-20% … impact on current account balance, trade balance and GDP. RESULT: New estimates have to be assessed in coming months and back-casted by component … using a variety of indicators and economic information Results incorporated at 2012 historical revision to the Canadian System of National Accounts … at which time we will also implement new international standards to the extent possible (e.g., repairs moved to services, FISIM part of financial services, labour income removed from services). Notably, merchanting will not be assigned to goods and the implementation of goods for processing is deferred

Future steps/challenges with respect to trade in commercial services Improved geographical detail from better coverage TBD; improved timeliness of annual release TBD Improved estimates of trade by regions within Canada, for use in inter-provincial trade flows (better coverage for complex enterprises and their establishments in regions Modes of supply for services … under consideration Industry detail – possibly also for establishments Integrative trade estimates, FAS and record linkages Forthcoming survey changes - shorter survey for small transaction respondents; - more detailed quarterly survey more detailed and accurate quarterly data