1. Nature of transaction in ITGS Reflection Group “Nature of transaction"
BP Balance of Payments Working Group April 2018

2. Outline Background Consultation on Nature of Transaction
Other input to Nature of Transaction review
Way forward
BOP WG 25-26/04/2018

3. Background
BOP WG 25-26/04/2018

4. International Trade in Goods Statistics
ITGS follow border crossing/physical movement principle
"to record all goods which add to or subtract from the stock of material resources of a country by entering (imports) or leaving (exports) its economic territory" (UN IMTS 2010)
EU ITGS built around this principle while adapted for the EU purposes
Separate data sources for intra- and extra-EU trade (Intrastat and customs)
National ITGS may differ from the EU ITGS
ITGS data serves as source data for other statistics, most notably Balance of Payments and National Accounts
BoP and NA follow change of ownership principle => methodological differences
BOP WG 25-26/04/2018

5. Intrastat modernisation
11/ 2011 the Council: "ESS to take effective measures ensuring a substantial reduction of the response burden by redeveloping Intrastat, while maintaining at the same time, a sound level of quality"
: ESS.VIP.SIMSTAT and ESS.VIP.REDESIGN
May 2016: ESSC conclusions on key elements of the targeted modernised Intrastat
Harmonised statistical output
Multiple data sources
An additional data - exchanged micro-data on intra-EU exports
Innovative and flexible compilation methodologies
Modernisation through evaluation
: Intrastat Modernisation project to deploy the key elements
FRIBS
BOP WG 25-26/04/2018

6. Nature of Transaction
Data element in ITGS data: Nature of Transaction (NoT)
Serves to determine the different characteristics which are deemed useful in distinguishing transactions
For NA/BoP purposes
For national ITGS purposes (not recorded or not separately identified in the EU ITGS)
Usually three dimensions to consider
Physical movement of goods
Change of ownership
Financial compensation
Two-digit coding
Only first digit mandatory in intra-EU trade
To be reported by the data provider for each transaction
BOP WG 25-26/04/2018

7. Current Nature of Transaction codingB 1
Transactions involving actual or intended transfer of ownership from residents to non-residents against financial or other compensation (except the transactions listed under 2, 7 and 8)
Outright purchase/sale 2
Supply for sale on approval or after trial, for consignment or with the intermediation of a commission agent 3
Barter trade (compensation in kind) 4
Financial leasing (hire-purchase) 9
Other
Return and replacement of goods free of charge after registration of the original transaction
Return of goods
Replacement for returned goods
Replacement (e.g. under warranty) for goods not being returned
Transactions involving transfer of ownership without financial or in kind compensation (e.g. aid shipments)
Operations with a view to processing under contract (no transfer of ownership to the processor)
Goods expected to return to the initial Member State/country of export
Goods not expected to return to the initial Member State/country of export 5
Operations following processing under contract (no transfer of ownership to the processor)
Goods returning to the initial Member State/country of export
Goods not returning to the initial Member State/country of export 6
Particular transactions recorded for national purposes 7
Operations under joint defence projects or other joint intergovernmental production programs 8
Transactions involving the supply of building materials and technical equipment under a general construction or civil engineering contract for which no separate invoicing of the goods is required and an invoice for the total contract is issued
Other transactions which cannot be classified under other codes
Hire, loan, and operational leasing longer than 24 months

8. Review of Nature of Transaction
NoT coding revised last time in 2009
WG Methodology November 2014: proposal to review NoT (coding/descriptions) if the current coding is fit for its purposes
User needs vs respondent burden
Intrastat modernisation project
Review of NoT : a task under WP Globalisation
Specific EU ITGS aspects emerged
NoT coding under MDE: same data may be used in the compilation by two Member States
Enhance coherence between intra- and extra-EU trade
ITGS SG June 2017: proposal to set up a reflection group
July 2017: Discussion opened in Circabc
WG Methodology October 2017: Presentation of the outcomes of the Reflection Group
More output needed => consultation to be launched
BOP WG 25-26/04/2018

9. Consultation on Nature of Transaction
BOP WG 25-26/04/2018

10. Consultation on Nature of Transaction coding
Consultation on NoT coding December 2017 – January 2018
26 replies (25 MS + CH)
Key aspects of the consultation:
What: which types of transactions should be distinguished/separately identified?
Why: for which purposes they should be distinguished/separately identified?
Part 1: Current use of Nature of Transaction coding in NA/BoP
Part 2: Changes to NoT codes proposed by ITGS experts
2 types of transactions to be deleted
7 types of transactions to be separately identified
Any other change
Part 3: ITGS specific aspects related to NoT coding
BOP WG 25-26/04/2018

11. Current use of Nature of Transaction coding in NA/BoP
Questions
Does NA/BoP use NoT codes to distinguish transactions?
Which types of transactions NA/BoP identifies separately?
Are national NoT codes used by NA/BoP?
Are any other ITGS information used by NA/BoP to distinguish transactions?
BOP WG 25-26/04/2018

12. Use of NoT codes in NA
NoT used to separately identify certain types of transactions
Yes: 23, No:3
Most commonly used NoT codes
Processing (4 or 4*): 23 and (5 or 5*): 22
Temporary trade (9): 12
Sale/purchase with change of ownership (1 or 1*): 10
Transfer without change of ownership (3): 9
Returned goods (2): 8
National NoT codes used in many MS for NA needs
Other ITGS information used sometimes for NA needs
BOP WG 25-26/04/2018

13. Use of NoT codes in BoP
NoT used to separately identify certain types of transactions
Yes: 22, No:3, Not known: 1
17 use same way as NA, 5 differently
Most commonly used NoT codes
Processing (4 or 4*): 21 and (5 or 5*): 20
Temporary trade (9): 12
Sale/purchase with change of ownership (1 or 1*): 11
Transfer without change of ownership (3): 10
Returned goods (2): 10
BOP WG 25-26/04/2018

14. Changes to NoT codes proposed by ITGS experts
Questions
Should the transaction be identified separately?
Yes, by using dedicated NoT code
Yes, but can be identified via other means
No, there is no need to identify
If Yes:
Why it is important to have a NoT code?
Definition for the code?
If Yes, but:
How it can be identified?
If No:
Which current NoT code could be used
BOP WG 25-26/04/2018

15. Codes suggested to be deleted
NoT code 7: Joint defence projects or intergovernmental production programs
Yes: 5, Yes but: 1, No: 20
Not widely used
Unclear for data providers, wrongly used => not helpful for NA/BoP
NoT code 3: Transfer of ownership without financial or in kind compensation
Yes: 17, Yes but: 2, No: 7
NA/BoP need
Important to differentiate from the transactions with normal financial compensation
BOP WG 25-26/04/2018

16. Codes suggested to be created 1/4
Transactions involving movements to warehouses in other Member States (stock movements)
Yes: 16, Yes but: 2, No: 8
Movement of goods without a change of ownership (at the time of export/import) => NA/BoP need to identify such movements
Similarities to movements related to processing
Re-exports
Yes: 12, Yes but: 9, No: 5
Needed in I/O-tables in NA, economic analysis (re-exports differ from exports from domestic production)
Related to quasi-transit (coherent approach needed)
BOP WG 25-26/04/2018

17. Codes suggested to be created 2/4
Quasi-import
Yes: 19, Yes but: 2, No: 5
No change of ownership in the "transit MS", only administrative procedures (by a non-resident or a their representative) => NA/BoP need to identify such movements
3 movements concerned in 2 MS: extra-EU import and intra-EU export in the "transit MS", intra-EU import in the "destination MS" => all three movements recorded under one NoT code to enhance coherence of EU ITGS?
Indirect export
Yes: 18, Yes but: 3, No: 5
No change of ownership in the "exporting MS", only exporting declaration is lodged (by non-residents) => NA/BoP need to identify such movements
BOP WG 25-26/04/2018

18. Codes suggested to be created 3/4
Goods send for processing but sold to a resident in the processing MS after the processing
Yes: 15, No: 11
Sub-case of current NoT 42 (goods not expected to return to initial MS) => same treatment in ITGS
Treatment in BoP: general merchandise instead of processing?
Carried out by a non-resident => transfer of goods from VAT point of view (similar to stock movements)?
Transfers between Member States under customs inward processing procedure
Yes: 9, No: 17
Preceded and followed by extra-EU processing recordings
Helpful for ITGS purposes to distinguish from normal intra-EU processing movements
BOP WG 25-26/04/2018

19. Codes suggested to be created 4/4
Distance sales
Yes: 20, No: 6
Sale to private consumers/individuals
Growing analytical needs
Could be helpful in MDE context
Other codes suggested
Intra-group trade
Triangular trade
Transactions where ITGS and VAT do not match
Transactions not included in national statistics
BOP WG 25-26/04/2018

20. ITGS specific aspects related to NoT coding
NoT codes used for any type of ITGS compilation purposes?
Dissemination of ITGS by different types of transactions?
Different NoT coding for intra- and extra-EU trade?
Suggestions to change definitions of existing codes to improve their relevance or usability?
Any other comment?
BOP WG 25-26/04/2018

21. Other input to Nature of Transaction review
BOP WG 25-26/04/2018

22. Note from Banque de France and Deutsche Bundesbank 1/4
Reflection on the NoT welcomed
ITGS important for BoP compilation => any change in the NoT code list impacts BoP compilation
A list of proposals submitted on aspects where a change in the NoT coding list could contribute to a better understanding of globalisation or where simplifications are possible to reduce burden of reporters
Multinational enterprises
Processing under contract
Intergovernmental production programmes
BOP WG 25-26/04/2018

23. Note from Banque de France and Deutsche Bundesbank 2/4
Multinational Enterprises (MNE)
"Not least since the “Irish Case”, the need for information about the role of MNEs in the context of globalisation has increased. The identification of intra-group transactions is one key element for analysing the effects of globalisation and identifying distortions in external statistics due to transfer pricing. Thus, it is important to start separating inter-company from arms-length transactions in international trade in the near future." 
BOP WG 25-26/04/2018

24. Note from Banque de France and Deutsche Bundesbank 3/4
"A possible way to collect this information is to introduce an obligatory two-digit code for the following transactions:"
Column A
Column B
… (“0”) - Intra-group transactions, ie transactions with and without transfer of ownership between different units of an MNE
1 - outright purchase/sale
2 – other transactions with intended transfer of ownership and compensation
3 – return or replacement of goods (recorded previously with code (0)1 or (0)2)
4 – transactions with transfer of ownership without compensation
5 - operations with a view to processing under contract (no transfer of ownership)
6 - operations following processing under contract (no transfer of ownership)
[7 – operations under joint defence projects or other  intergovernmental production programmes (when required)]
8 – transactions involving the supply of building materials etc under general contract
9 – other
BOP WG 25-26/04/2018

25. Note from Banque de France and Deutsche Bundesbank 4/4
NoT “41/42” and “51/52” (… processing under contract …)
"Since the introduction of BPM6, the current distinction of goods under processing between "returning" (code 41/51) and "not returning" (code 42/52) is not necessary anymore and, in our opinion, could be deleted if the creation of intra-group NoT is accepted." 
NoT “7x” (… intergovernmental production programmes)
"From the viewpoint of the BOP, we question the need to separate "operations under joint defense projects or other joint intergovernmental production programs" because we are not aware of any of such programmes. At least to our knowledge, the code was introduced decades ago to identify movements of goods in the context of Airbus. Today, Airbus operates like any other MNE and its transactions should be coded accordingly. Therefore, it seems appropriate to delete NoT "7".
However, in the event that those programmes still exist, we suggest that Eurostat provide a “positive” list of them in order to identify them unambiguously."
BOP WG 25-26/04/2018

26. ITGS seminar on Intrastat Modernisation
17-18 April 2018 in Lisbon
Review of the outcomes of the Consultation on Nature of Transaction
Presentation by Statistics Denmark "Why are the nature of transaction codes essential for BoP/NA"
Discussion on the other feedback received
Discussion on the way forward
BOP WG 25-26/04/2018

27. "Why are the nature of transaction codes essential for BoP/NA" by DK
1 Transactions involving actual or intended transfer of ownership from residents to non-residents against compensation 11 Outright purchase/sale except direct trade with private consumers 15 Goods sold to private consumers 2 Return and replacement of goods free of charge after registration of the original transaction 21 Return of goods 22 Replacement for returned goods 23 Replacement (e.g. under warranty) for goods not being returned 4 Operations with a view to processing under contract (no transfer of ownership to the processor) 41 Goods expected to return to the initial Member State/country of export 42 Goods not expected to return to the initial Member State/country of export 43 Goods expected to be sold in the Member State of processing 44 Goods under inwards processing procedure 5 Operations following processing under contract (no transfer of ownership to the processor) 51 Goods returning to the initial Member State/country of export 52 Goods not returning to the initial Member State/country of export 8 Transactions involving the supply of building materials and technical equipment under a general construction or civil engineering contract for which no separate invoicing of the goods is required and an invoice for the total contract is issued 9 Other transactions which cannot be classified under other codes 91 Hire, loan, and operational leasing longer than 24 months without change of ownership 92 Goods being transported to a warehouse without a change of ownership 93 Goods being transported from a warehouse with a change of ownership 94 Goods returning from a warehouse without a change of ownership 95 Goods transiting directly through the economy 96 Goods transiting through the economy in a Merchanting chain 99 Other issues
BOP WG 25-26/04/2018

28. ITGS seminar on Intrastat Modernisation
Outcomes of the consultation reviewed
New user needs acknowledged
Implications of MDE should be explained also to other domains using ITGS data
Harmonisation necessary for the modernised Intrastat
Connected (subsequent extra- and intra-EU) transactions should be identified
Not obvious if all aspects (existing and new) can be reflected in the NoT coding
Intra-group trade: data linking possibilities should be explored
Implications to the data providers should not be underestimated
Suggestion to create a group to design new NoT coding
BOP WG 25-26/04/2018

29. Way forward
BOP WG 25-26/04/2018

30. State of play Key aspects of the Consultation on NoT coding Next:
What: which types of transactions should be distinguished/separately identified? 
Why: for which purposes they should be distinguished/separately identified? 
Next:
How: which coding should be used distinguish/identify separately those transactions? 
BOP WG 25-26/04/2018

31. Conclusions drawn so far
Most of the current NoT codes deemed useful
Codes 1, 2, 4, 5 most widely used
Code 3 needed (one way or another)
Code 7 appears to be obsolete
Codes 6 and 9 widely used => many MSs use "national" codes or "other" codes to identify certain transactions
New NoT codes/change of current codes would be helpful to
Identify globalisation aspects such as re-exports, quasi-transit, intra-group trade
Better measure new business models (warehouse movements, distance sales, etc.)
BOP WG 25-26/04/2018

32. Aspects to consider in the design of new NoT coding 1/2
Complexity of coding creates burden for data providers
Statistical concepts may not be familiar to businesses
Statistical language <> business language
How to categorise different movements without overlap?
Which criteria to use: not just the movement but also who is involved (resident/non-resident, related/non-related…)?
Some movements (re-exports, quasi-transit) concern more than one related movement, involving both intra- and extra-EU trade
Coherence between intra- and extra-EU trade important for the EU ITGS to better address quasi-transit
BOP WG 25-26/04/2018

33. Aspects to consider in the design of new NoT coding 2/2
Harmonisation across MSs
MDE implies that also NoT coded should be relevant and re-usable for the receiving MSs
National codes?
Are data providers always in a position to categorise and report their transactions like statisticians want?
Should some categorisations be done rather by NSAs => do data providers understand residency or change of ownership?
Coding to use
1- or 2-digits?
Something different than the current coding?
BOP WG 25-26/04/2018

34. Way forward
A group of experts to be set up to prepare a proposal for a new NoT coding
BoP and NA compilers to be consulted
New NoT coding to be included in the FRIBS IA
BOP WG 25-26/04/2018

35. Thank you for your attention!
BOP WG 25-26/04/2018