UK Trade in Goods Statistics – A QIF project Rafael Mastrangelo (HMRC) Jonathan Digby-North (ONS)

Outline Introduction Current methodology Analysis Recommendations Implementation

Introduction Estimate EU imports (arrivals) and EU exports (dispatches) for those businesses below the Intrastat threshold. Threshold for EU imports changing from £0.6m (95%) to £1.2m (93%) Question: Is the current methodology good enough to estimate the BTT when the threshold increases? …thresholds will change yet again in future (imports from 93% to 90%, and exports from 97% to 95%)

Current Methodology Two allocations, monthly and annual The factors produced for the annual BTTAs are used for the following year’s monthly BTTAs. Assumes that traders below the threshold are similar to traders just above the threshold. Performed completely separately for Arrivals and Dispatches.

Just Above Threshold Trade (JATT) The JATT forms the basis for the annual allocations. Calculated by: –Total the BTT to be allocated (total Global Declarations by below threshold traders) –Total the Supplementary Declarations by each trader –Sort traders from smallest to largest –Select traders from the smallest upwards until the total trade is equal to the BTT total (or larger). –The trade by these traders is the JATT.

Calculating the Factors For each partner country and 4-digit heading, the factor is the trade in that combination in the JATT as a proportion of all declared trade in that combination. trade. thresholdabove TotalTATT trade, thresholdaboveJustJATT declarationsSupplementarySD comcode,digit 4 Country, TATT JATT SD     ji ij

Approach B7 B1 B8 B14 B8 B14 B7 B1

Approach B8-14 = 75% N B6-7

Approach JATT = TATT = 130% N B6-7

Recap – Current Methodology JATT size defined so: Total trade in JATT = Total trade in BTT For each country/4-digit product combination use previous year’s annual dataset to calculate proportion of total trade conducted by the JATT Apply factor to total in month of current year to obtain estimates Scale these estimates so sum to known BTT total in month Aggregate to level required (e.g. Country level) Refer to as ‘4-digit Annual’ model

Possible alternative methods Calculate factor using monthly data? Calculate factor at 2/4/8-digit (HS2/HS4/CN8) product level? Include SIC? Use admin data (e.g. VAT Information Exchange System) / survey some of BTT?

Models to investigate Vary product level and time period in factor calculation Six models: 2,4,8-digit Monthly; 2,4,8-digit Annual Test with an increasing JATT size Recommend: Best JATT size for current model (‘4-digit Annual’) Best overall JATT size/model combination Compare to extension of current methodology: B8-14 JATT (= approx 75% of N B6-7 ) with ‘4-digit Annual’ model

Requirements and model evaluation Both recommendations required at a country, HS2 Chapter and country by HS2 Chapter level Evaluate model performance using: Total annual absolute difference between estimates and actual values at each level – want minimum Value of Pearson’s correlation coefficient at each level – want maximum

Analysis JATT=TATT B8-14 JATT with current model Best JATT size/model combination Best JATT size for current model

Country by HS2 Chapter Level Absolute DifferenceCorrelation Current Model (4-digit Annual) JATT = 60%JATT = 78% Optimum Method JATT = 40% with 4-digit Monthly JATT = 40% with 4-digit Monthly Country by HS2 Chapter Level Current Model (4-digit Annual) JATT = 78% Optimum Method JATT = 40% with 4-digit Monthly

HS2 Chapter Level Absolute DifferenceCorrelation Current Model (4-digit Annual) JATT = 22% Optimum Method JATT = 44% with 2-digit Annual JATT = 26% with 4-digit Monthly HS2 Chapter Level Absolute DifferenceCorrelation Current Model (4-digit Annual) JATT = 22% Optimum Method JATT = 26% with 4-digit Monthly JATT = 26% with 4-digit Monthly Country Level Absolute DifferenceCorrelation Current Model (4-digit Annual) JATT = 20%JATT = 18% Optimum Method JATT = 24% with 4-digit Monthly JATT = 24% with 4-digit Monthly Country/HS2 Chapter Level Current Model (4-digit Annual)JATT = 21% Optimum Method JATT = 25% with 4-digit Monthly

Application of models Apply below models at a country and HS2 Chapter level Current Methodology B8-14 (= approx 75% of N B6-7 ) as JATT with 4-digit Annual model Optimal JATT with Current Model 21% of N B6-7 as JATT with 4-digit Annual model Optimal JATT with Optimal Model 25% of N B6-7 as JATT with 4-digit Monthly model

Application of models High trade (>£10bn) – Germany, Netherlands, France, Belgium, Italy, Irish Republic, Spain Medium trade (£2.5bn - £10bn) – Sweden, Poland, Denmark, Czech Republic, Hungary, Austria Low trade (<£2.5bn) – Finland, Portugal, Slovakia, Romania, Luxembourg, Greece, Lithuania, Latvia, Slovenia, Bulgaria, Estonia, Malta, Cyprus 98 HS2 Chapters (products): High trade >£500m; Low trade <£500m

YearDifference from CM Using CMOJUsing OM 2011High Trade-£147.9m (-44%)-£167.5m (-50%) Medium Trade +£6.8m (+10%)+£18.7m (+27%) Low Trade+£10.2m (+23%)-£14.5m (-33%) Overall -£131.0m (-29%)-£163.3m (-36%) 2012High Trade-£33.1m (-17%)-£79.9m (-42%) Medium Trade+£15.0m (+53%)+£16.0m (+57%) Low Trade-£7.4m (-7%)-£18.3m (-18%) Overall -£25.5m (-9%)-£82.2m (-29%) Application of models – Country level

YearDifference from CM Using CMOJUsing OM 2011 High Trade (>£500m) -£271.3m (-42%)-£178.0m (-28%) Low Trade (<£500m) +£45.4m (+34%)-£16.0m (-12%) Overall -£225.9m (-29%)-£194.0m (-25%) 2012 High Trade (>£500m) -£25.7m (-5%)-£95.3m (-18%) Low Trade (<£500m) +£21.3m (+16%)-£32.1m (-24%) Overall -£4.4m (-1%)-£127.4m (-19%) Application of models – HS2 level

Recommendations JATT Size Country or HS2 ChapterCountry by HS2 Chapter Retention of CM (‘4-digit Annual’) 21% of N B6-7 78% of N B6-7 Adopting OM (‘4-digit Monthly’) 25% of N B6-7 40% of N B6-7 Future reductions Conduct similar analyses to assess quality of estimates Also recommend sampling from BTT and using standard estimation methodology if quality deteriorates

HMRC implementation of methodology Implement the Optimal JATT with Optimal Model: 25% of N B6-7 as JATT with 4-digit Monthly model For Jan 2015 account which is published in Mar Evaluate publishing at HS2 digit and country instead of CN8 digit and country.

Questions?