Introduction

460. ITS are the subject of Chapter 2, which discusses the nature, conceptual framework, classifications, and measurement of these statistics. Most BOP compilers use ITS as the main source of data to compile goods for the BOP; consequently, compilers should be aware of the extent to which ITS meet international statistical standards and the extent to which ITS comply with requirements of the BPM. BOP compilers should note any deficiencies, encourage ITS compilers to make any appropriate amendments to procedures. Alternatively, BOP compilers may make any necessary coverage, classification, timing, and valuation adjustments to ITS to align them more closely with BOP requirements.

461. Adjustments that may be required to ITS are shown in tables 11.2 through 11.5. These tables should not be regarded as an exhaustive list, and compilers should add any other items considered important. Adjustments that have a material impact on the calculation of exports and imports should be made. If a compiler is unsure of the potential significance of some adjustments, investigating and quantifying the possible magnitude is appropriate, particularly when a large adjustment may be in order. If adjustments are not made as a result of these investigations, publication of the findings may provide a suitable alternative.

Table 11.2

Use of ITS for Compilation of Goods: Adjustments for Coverage

Table 11.2

Use of ITS for Compilation of Goods: Adjustments for Coverage

Description	Source and Method of Compilation
Possible deductions from ITS Government goods consigned to armed forces and diplomatic representatives abroad Goods for temporary admission Transit trade	These items should be excluded from ITS by the ITS compiler. (See table 2.1; items 10, 13, and 14.) If not, these items should be excluded by the BOP compiler. If included in ITS, these items should be readily identifiable.
Possible additions to ITS Nonmonetary gold Trade on government account Military goods Electricity and water Postal items Migrants’ effects	These goods should be included in ITS by the ITS compiler. (See table 2.1; items 1 through 5.) If not, these goods should be included by the BOP compiler, Data on some of these items may have to be collected in ES (see Chapter 4, paragraphs 140–146) or through a supplement to an ITRS. Note that the offset to migrants’ effects should be recorded as a transfer in the capital account (item x431).
Goods for processing (without a legal change of ownership)	Goods for processing should be included as goods in the BOP if the processed goods will be returned to the countries of origin. Other goods for processing should be excluded from goods. All goods for processing will probably be excluded from ITS but may be recorded separately. (See table 2.1; item 8.) ITS may therefore provide a source of information for BOP adjustments. However, the BOP compiler may have to use ES or a supplementary inquiry to an ITRS to obtain the full range of information required. See paragraphs 484–486 of this chapter for further information on goods for processing.
Goods for repair	The value of repairs should be included in the BOP as part of goods. However, the underlying values of goods being repaired are excluded from the BOP. Goods for repair will probably be excluded from ITS but may be recorded separately. (See table 2.1; item 8.) ITS may therefore provide a source of information for BOP adjustments. However, the BOP compiler may have to use ES or an ITRS to obtain information on the values of repairs.
Goods under financial lease	These items should be included as goods in the BOP. Leased goods (both operational and financial) should be excluded from ITS but may be recorded separately. (See table 2.1; item 9) ITS may therefore provide a source of information for BOP adjustments. However, the BOP compiler may have to use ES or a supplementary inquiry to an ITRS to obtain, particularly with regard to the treatment of lease payments, the full range of information required. See paragraphs 784–786 of Chapter 16 for further information on financial leases.
Goods not crossing both borders Mobile equipment used in international waters or airspace Goods delivered to offshore installations Fuel, provisions, stores, ballast, and dunnage Certain fish catches Certain products mined from seabed	Theoretically, these goods should be included in ITS. (See table 2.1; item 7.) However, in practice, many of these goods will be excluded from ITS, and the BOP compiler will have to use other sources, such as ES (possibly as part of ES of transportation enterprises) or a supplementary ITRS collection to obtain the necessary information for BOP adjustments.
Goods lost or destroyed after having crossed one national boundary	Goods that change ownership before being lost or destroyed should be recorded as imports by the acquiring economy. Goods that do not change ownership before being lost or destroyed should be deducted from the producing economy’s exports. The information for BOP adjustments could, at least in significant cases, be obtained by approaching exporters, importers, or insurance enterprises through ES.
Changes in stocks of goods that never cross the border of the owner’s economy	These changes in stocks (which arise from merchanting) should be included in goods. Possible sources of data are ES or an ITRS supplement. Paragraphs 138–139 of Chapter 4 provide further information on the treatment of merchanting in the BOP.
Other coverage adjustments	Other coverage adjustments might be necessary if ITS suffer from some general coverage deficiency. Such deficiencies are sometimes identified from partner country analysis, and partner country data could be used as the basis for appropriate BOP adjustments. The Canada/United States reconciliation is an example of this type of adjustment. (See Chapter 9, paragraph 378.)

View Table

Table 11.2

Use of ITS for Compilation of Goods: Adjustments for Coverage

Description	Source and Method of Compilation
Possible deductions from ITS Government goods consigned to armed forces and diplomatic representatives abroad Goods for temporary admission Transit trade	These items should be excluded from ITS by the ITS compiler. (See table 2.1; items 10, 13, and 14.) If not, these items should be excluded by the BOP compiler. If included in ITS, these items should be readily identifiable.
Possible additions to ITS Nonmonetary gold Trade on government account Military goods Electricity and water Postal items Migrants’ effects	These goods should be included in ITS by the ITS compiler. (See table 2.1; items 1 through 5.) If not, these goods should be included by the BOP compiler, Data on some of these items may have to be collected in ES (see Chapter 4, paragraphs 140–146) or through a supplement to an ITRS. Note that the offset to migrants’ effects should be recorded as a transfer in the capital account (item x431).
Goods for processing (without a legal change of ownership)	Goods for processing should be included as goods in the BOP if the processed goods will be returned to the countries of origin. Other goods for processing should be excluded from goods. All goods for processing will probably be excluded from ITS but may be recorded separately. (See table 2.1; item 8.) ITS may therefore provide a source of information for BOP adjustments. However, the BOP compiler may have to use ES or a supplementary inquiry to an ITRS to obtain the full range of information required. See paragraphs 484–486 of this chapter for further information on goods for processing.
Goods for repair	The value of repairs should be included in the BOP as part of goods. However, the underlying values of goods being repaired are excluded from the BOP. Goods for repair will probably be excluded from ITS but may be recorded separately. (See table 2.1; item 8.) ITS may therefore provide a source of information for BOP adjustments. However, the BOP compiler may have to use ES or an ITRS to obtain information on the values of repairs.
Goods under financial lease	These items should be included as goods in the BOP. Leased goods (both operational and financial) should be excluded from ITS but may be recorded separately. (See table 2.1; item 9) ITS may therefore provide a source of information for BOP adjustments. However, the BOP compiler may have to use ES or a supplementary inquiry to an ITRS to obtain, particularly with regard to the treatment of lease payments, the full range of information required. See paragraphs 784–786 of Chapter 16 for further information on financial leases.
Goods not crossing both borders Mobile equipment used in international waters or airspace Goods delivered to offshore installations Fuel, provisions, stores, ballast, and dunnage Certain fish catches Certain products mined from seabed	Theoretically, these goods should be included in ITS. (See table 2.1; item 7.) However, in practice, many of these goods will be excluded from ITS, and the BOP compiler will have to use other sources, such as ES (possibly as part of ES of transportation enterprises) or a supplementary ITRS collection to obtain the necessary information for BOP adjustments.
Goods lost or destroyed after having crossed one national boundary	Goods that change ownership before being lost or destroyed should be recorded as imports by the acquiring economy. Goods that do not change ownership before being lost or destroyed should be deducted from the producing economy’s exports. The information for BOP adjustments could, at least in significant cases, be obtained by approaching exporters, importers, or insurance enterprises through ES.
Changes in stocks of goods that never cross the border of the owner’s economy	These changes in stocks (which arise from merchanting) should be included in goods. Possible sources of data are ES or an ITRS supplement. Paragraphs 138–139 of Chapter 4 provide further information on the treatment of merchanting in the BOP.
Other coverage adjustments	Other coverage adjustments might be necessary if ITS suffer from some general coverage deficiency. Such deficiencies are sometimes identified from partner country analysis, and partner country data could be used as the basis for appropriate BOP adjustments. The Canada/United States reconciliation is an example of this type of adjustment. (See Chapter 9, paragraph 378.)

462. Investigation of potential adjustments should be undertaken in close consultation with ITS compilers, who may have much of the data necessary to make the BOP adjustments. If such data are unavailable in ITS, these statistics may nonetheless provide a starting point for identification of enterprises to be approached. Many of the adjustments may be made by approaching enterprises—typically on a selective basis—through ES or through supplementary ITRS inquiries. (Paragraphs 140-146 of Chapter 4 outline the use of ES to supplement ITS, and many of the observations made there are also relevant to supplementary ITRS inquiries.) In some circumstances, it may be more appropriate to approach official sources or partner countries. In making adjustments to ITS, BOP compilers should ensure that any relevant offsetting entries are identified and correctly treated in the BOP.

Coverage Adjustments

463. BOP compilers may make coverage adjustments to ITS by excluding from the BOP goods that have not changed ownership but have been recorded in ITS. Compilers may also make adjustments to include in the BOP goods that have changed ownership but have not been recorded in ITS.⁸² Adjustments may be necessary to:

• exclude goods that should, according to the guidelines for these statistics, be excluded from ITS but are not;

• include goods that should, according to the guidelines for these statistics, be included in ITS but are not;

• include certain goods for processing, goods under financial lease, and the value of repairs, which may be included in ITS but recorded separately;

• adjust for goods (other than goods lost or destroyed) that may have crossed only one national boundary;

• adjust for goods that were lost or destroyed after they crossed the national boundary of the exporter’s country but before they crossed the frontier of the importer’s economy;

• record the change in stocks of goods associated with merchanting transactions; and

• overcome general undercoverage problems.

Each of these categories is explained in table 11.2.

Classification Adjustments

464. Classification adjustments are required when certain transactions not appropriate for goods items in the BOP are classified as goods in ITS. Generally, the most important classification adjustment is correction of distributive services, such as international freight and insurance, that have been included in import values. This adjustment and other classification adjustments that may be appropriate to ITS are explained in table 11.3 (on page 106).

Table 11.3

Use of ITS for Compilation of Goods: Adjustments for Classification

Table 11.3

Use of ITS for Compilation of Goods: Adjustments for Classification

Description	Source and Method of Compilation
Financial items Monetary gold Securities, bank notes, coin in circulation	These items should be excluded from ITS by the ITS compiler. (See table 2.1; items 11 and 12.) If not, these items should be excluded from goods by the BOP compiler and included in the financial account. If included in ITS, these items should be readily identifiable.
Conversion of imports from c.i.f. to f.o.b. valuation	Several methods may be used to make this adjustment, which reclassifies an element of goods to services. The service transactions should be included in the services component of the BOP to the extent that the services have been provided by nonresidents. See paragraphs 505–507 of Chapter 12 for further details on methods for making the necessary BOP adjustments.
Goods forming part of service transactions	The material values of these goods, which include blueprints, videos, tapes, and computer disks, should be excluded from goods in the BOP. These values should be readily identifiable from ITS. The full values of these products, including their material contents, should be included in appropriate services items, such as x266 and x288.

View Table

Table 11.3

Use of ITS for Compilation of Goods: Adjustments for Classification

Description	Source and Method of Compilation
Financial items Monetary gold Securities, bank notes, coin in circulation	These items should be excluded from ITS by the ITS compiler. (See table 2.1; items 11 and 12.) If not, these items should be excluded from goods by the BOP compiler and included in the financial account. If included in ITS, these items should be readily identifiable.
Conversion of imports from c.i.f. to f.o.b. valuation	Several methods may be used to make this adjustment, which reclassifies an element of goods to services. The service transactions should be included in the services component of the BOP to the extent that the services have been provided by nonresidents. See paragraphs 505–507 of Chapter 12 for further details on methods for making the necessary BOP adjustments.
Goods forming part of service transactions	The material values of these goods, which include blueprints, videos, tapes, and computer disks, should be excluded from goods in the BOP. These values should be readily identifiable from ITS. The full values of these products, including their material contents, should be included in appropriate services items, such as x266 and x288.

Valuation Adjustments

465. Paragraphs 47–51 of Chapter 2 discuss valuation issues that may have an impact on the compilation of goods. These issues include:

• replacement, when actual values become available, of estimated values for certain exports;

• replacement of transfer prices with market prices;

• use of transaction values instead of customs values;

• correction for any biases in conversion rates.

• These adjustments are outlined in table 11.4 (on page 107).

Table 11.4

Use of ITS for Compilation of Goods: Adjustments for Valuation

Table 11.4

Use of ITS for Compilation of Goods: Adjustments for Valuation

Description	Source and Method of Compilation
Replacement of estimates with actual values	The values of certain exports may not be known at the time of export; therefore, the values may have to be estimated. The ITS compiler should make the necessary adjustments when actual data become available. If not, the BOP compiler should make the necessary adjustments by approaching exporters through ES or by using an ITRS.
Replacement of transfer prices with market prices	The BPM recommends that the BOP compiler make this type of adjustment in certain circumstances and that corresponding changes be made to the distributed income or financial transactions of the direct investors/direct investment enterprises affected. The replacement of transfer prices might be made by the ITS compiler in ITS; if not, a special approach in ES or an ITRS may be necessary. If the ITS compiler does make adjustments, the BOP compiler should be made aware of these so that the necessary adjustments to other BOP items can be made. The issue of transfer pricing is discussed further in paragraphs 487–491 of this chapter.
Replacement of customs values used in ITS with transactions values	In some circumstances, the value for duty recorded by customs officials may differ from the actual transaction price. In these cases, an adjustment should be made in the BOP to reflect the transaction price. The required information could come from customs records, if both valuations are recorded, or from a sample investigation of import entries.
Corrections for inappropriate exchange rates used in ITS	The impact of inappropriate exchange rates could be assessed by sampling import and export entries. The results of such investigations could be used to adjust BOP statistics.

View Table

Table 11.4

Use of ITS for Compilation of Goods: Adjustments for Valuation

Description	Source and Method of Compilation
Replacement of estimates with actual values	The values of certain exports may not be known at the time of export; therefore, the values may have to be estimated. The ITS compiler should make the necessary adjustments when actual data become available. If not, the BOP compiler should make the necessary adjustments by approaching exporters through ES or by using an ITRS.
Replacement of transfer prices with market prices	The BPM recommends that the BOP compiler make this type of adjustment in certain circumstances and that corresponding changes be made to the distributed income or financial transactions of the direct investors/direct investment enterprises affected. The replacement of transfer prices might be made by the ITS compiler in ITS; if not, a special approach in ES or an ITRS may be necessary. If the ITS compiler does make adjustments, the BOP compiler should be made aware of these so that the necessary adjustments to other BOP items can be made. The issue of transfer pricing is discussed further in paragraphs 487–491 of this chapter.
Replacement of customs values used in ITS with transactions values	In some circumstances, the value for duty recorded by customs officials may differ from the actual transaction price. In these cases, an adjustment should be made in the BOP to reflect the transaction price. The required information could come from customs records, if both valuations are recorded, or from a sample investigation of import entries.
Corrections for inappropriate exchange rates used in ITS	The impact of inappropriate exchange rates could be assessed by sampling import and export entries. The results of such investigations could be used to adjust BOP statistics.

Timing Adjustments

466. As Chapter 2 states, the timing basis of ITS may be a special trade or a general trade basis. Of the two, the general trade basis is usually thought to be the closest proxy for change of ownership, but neither the general nor the special trade basis will necessarily coincide with the principal of change of ownership used in the BOP. As a result, various timing adjustments of the type set out in table 11.5 (on page 107) are made to ITS by BOP compilers. For certain goods, such as large items of transportation equipment and bulk goods sold on consignment, the cost of obtaining data necessary for timing adjustments is relatively inexpensive, and these adjustments can have a significant impact on the quality of the BOP.

Table 11.5

Use of ITS for Compilation of Goods: Adjustments for Timing

Table 11.5

Use of ITS for Compilation of Goods: Adjustments for Timing

Description	Source and Method of Compilation
Replacing ITS with data from the books of enterprises	Adjustments may be made when it is known that the period in which a transaction is recorded in the accounts of an enterprise does not coincide with the period in which the transaction is recorded in ITS. Such adjustments are typically made only when significant amounts, such as for large items of transportation equipment, are involved. ES or a supplementary approach through an ITRS can be used to obtain the information necessary for these adjustments.
Consignment trade adjustments and adjustments for goods sold from stocks	Goods shipped abroad on consignment should be deducted from exports recorded in ITS and replaced with the actual sales of goods from stocks held abroad by residents. Similarly, goods shipped to the compiling country on consignment should be deducted from imports recorded in ITS and replaced with actual sales from stocks held in the compiling country by nonresidents. Such adjustments are typically made only when the amounts involved are significant. ES or an ITRS can be used to obtain the information necessary for these adjustments.
Adjustments to correct ITS recorded on the basis of processing dates	In countries where ITS are based on the date on which customs entries are processed rather than on a true general or special trade basis, adjustments may be made (or, at least, supplementary data published) to show the impact of not using a true basis. Such adjustments may be made by analyzing changes in customs processing rates, including the stockpile of entries that remains unprocessed.

View Table

Table 11.5

Use of ITS for Compilation of Goods: Adjustments for Timing

Description	Source and Method of Compilation
Replacing ITS with data from the books of enterprises	Adjustments may be made when it is known that the period in which a transaction is recorded in the accounts of an enterprise does not coincide with the period in which the transaction is recorded in ITS. Such adjustments are typically made only when significant amounts, such as for large items of transportation equipment, are involved. ES or a supplementary approach through an ITRS can be used to obtain the information necessary for these adjustments.
Consignment trade adjustments and adjustments for goods sold from stocks	Goods shipped abroad on consignment should be deducted from exports recorded in ITS and replaced with the actual sales of goods from stocks held abroad by residents. Similarly, goods shipped to the compiling country on consignment should be deducted from imports recorded in ITS and replaced with actual sales from stocks held in the compiling country by nonresidents. Such adjustments are typically made only when the amounts involved are significant. ES or an ITRS can be used to obtain the information necessary for these adjustments.
Adjustments to correct ITS recorded on the basis of processing dates	In countries where ITS are based on the date on which customs entries are processed rather than on a true general or special trade basis, adjustments may be made (or, at least, supplementary data published) to show the impact of not using a true basis. Such adjustments may be made by analyzing changes in customs processing rates, including the stockpile of entries that remains unprocessed.

Across-the-board Estimation

472. While prepared to estimate certain BOP items, many compilers avoid estimating goods. Therefore, the timing of BOP publications is often predicated on the availability of data from ITS, an ITRS, or ES (whichever is the main source) on goods transactions. However, compilers may have to estimate goods when basic data do not exist, are untimely, or reflect poor coverage.

473. One approach to estimation consists of gathering available data, using known relationships between national account aggregates, and estimating the BOP goods item as a residual. For example, in a country with a simple economic structure, it may be possible for the compiler to collect data on exports from a few major exporters and data on services from a few large enterprises and the official sector. These data may then be used with other national account aggregates to derive imports of goods as a residual.⁸⁵

474. Another approach uses—especially for major agricultural and mineral products—supply and utilization analysis of commodity flows. Because, for a specific period, the closing stock of a commodity equals the opening stock plus production and imports less consumption and exports, any component can be derived as a residual from the others. For example, if a compiler knows the volumes of production, consumption, and changes in stock and if there are no imports, export volumes may be derived as residuals. Price data may then be applied to these estimates to derive current values of exports.

Use of Preliminary ITS

475. Although ITS may provide preliminary broad aggregate data for more recent periods, some data required to complete BOP accounts may be missing. The BOP compiler may, with relative ease, be able to estimate missing components by taking into account the relationship between those components and various aggregates for past periods. For example, there may be a reliable relationship between exports of a particular agricultural commodity and the size of the harvest. If the latter is known, this relationship could be used, in the absence of data, to estimate exports. Another method of estimation would consist of assuming that trade in missing components has increased (or decreased) at the same rate as measured trade; the rate of increase (or decrease) would then be applied to the estimate for the previous period to obtain an estimate of the missing component for the current period.

476. Preliminary data may be subject to known biases, and the BOP compiler may adjust for these biases to reduce the size of subsequent revisions to data. In evaluating preliminary results from ITS, the compiler may find some anomalies. Less than complete data validation procedures may have been applied to preliminary ITS, and the BOP compiler may have data from other sources that cast some doubt on the validity of certain components of ITS.⁸⁶ In these circumstances, the BOP compiler may have to obtain more reliable data from exporters and importers or even to estimate certain components.

Other Estimations Required

477. The compiler may have to adjust imports valued on a c.i.f. basis to an f.o.b. basis. Methods for doing so are discussed in Chapter 12, paragraphs 505–507. Other adjustments may be made by compilers to overcome coverage, timing, and valuation errors resulting from periodic examinations of trade data. For example, compilers could, by using supply and utilization analysis for selected commodities or periodic estimates obtained from customs officials, make adjustments for smuggling (undercoverage).⁸⁷

Exports

478. Projections for exports of goods may be undertaken by using one of several methods or a combination of methods. In one method—supply and utilization analysis—volumes of opening and closing stocks, production, consumption, imports (if any), exports, and prices are projected separately. The price may consist of two elements: the projected world price (often quoted in U.S. dollars) and the projected conversion rate between the unit of account and a foreign currency. Market conditions may vary from country to country and from commodity to commodity. Some or all of the exportable production may have a guaranteed market, or a market may have to be found for surplus production; alternatively, surplus production may be placed in closing stock. Markets may be segmented—for example, some sugar exporters may have quotas in the European Union and the United States and sell remaining production on the world market—and each market has a separate price. A country’s production may affect the world price or a country may be a “price-taker.”

479. Data on world prices may come from a number of sources. For example, International Financial Statistics and Primary Commodities: Market Development and Outlook, both published by the IMF, provide comprehensive information on world commodity prices. Data on projections of production and consumption may also come from many sources, including industrial organizations or marketing authorities. These organizations might also be good sources of information on market arrangements, known or likely orders, price information, etc. Because of the importance of these commodities, official projections of commodity production and exports are, in many countries, made on a commodity-by-commodity basis by other institutions. The compiler may use these projections but should allow for factors unknown at the time such projections were made and for any biases on the part of those making the projections.

480. Econometric equations may be used to project export volumes and prices. In such equations, identified historical relationships are used to project future activity. Projections of volume are often based on levels of economic activity in importing countries and on changes in relative prices. Production indexes, which are weighted according to the relative importance of the partners, of trading partner countries may be used as proxies for economic activity. To assess changes in relative prices, price indexes (such as wholesale prices) from trading partners may be used in conjunction with the comparable price index in the home country and with exchange rates. World Economic Outlook, which is published by the IMF in May and October of each year, is a particularly valuable source of information on projections of world economic activity. This information may be used as input for equations. Equations may range from simple to complex. Equation results should be used with an appropriate degree of judgement.

481. Another method for projecting exports is to measure export orders. Performed selectively, this approach is particularly useful for commodities with large order-to-delivery lags and for high value items, such as mobile equipment and defense goods. Exporters may be approached for details of orders.

482. The compiler may also use a simple projection that takes into account past historical trends to make projections.

Imports

483. Projecting imports involves methodologies similar to those previously discussed for exports. The compiler may use supply and utilization analysis for certain commodities, such as food and raw materials (including petroleum). Supply and utilization analysis uses information on stocks held at the beginning of the projection period, target stocks for the end of the period, domestic production, consumption requirements, and the likely level of world production (if the country is a significant consumer of world production). This approach also takes into account, with regard both to price and the level of domestic economic activity, any elasticities of demand and the effect of substitutes. A supply and utilization model developed for certain exports with components that are imported—for example, the manufacturing of textiles or motor vehicles could involve a significant number of imported components—may be used to project imports of intermediate goods. The compiler may use econometric equations that take into account the projected level of economic activity in the home country and relative prices. The derivation of imports as a residual, as discussed in paragraph 473 of this chapter, is an example of a simple model approach. Alternatively, sets of equations may be developed to link broad ranges of goods, such as BEC categories, to various national account aggregates, such as national income, consumption, and investment. Also, the compiler may collect data on orders placed for large items of equipment. In addition, projection (at least in respect of some items) may involve continuing trends observed in historical data.