Chapter

I. Foundations of the Manual: general introduction and overview

Author(s):
International Monetary Fund
Published Date:
March 2003
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A. Introduction

1.1. The Manual on Statistics of International Trade in Services represents an important advance in providing a clearer, more detailed and more comprehensive system for the measurement of such trade. The Manual has been prepared to address the needs of a variety of producers and users of statistics on international trade in services. While it is primarily a guide for statistical compilers, it is also a useful tool for Governments and international organizations that use statistical information in connection with international negotiations on trade in services. Furthermore, it can aid businesses and others that need to assess developments in international services markets.

1.2. A particular impetus for the preparation of a separate manual on statistics of international trade in services has arisen from the recent tendency for trade agreements to cover services as well as goods, and the need for statistics both to guide the negotiations and to support implementation of these agreements. The most well known and wide-reaching agreement involving services is the General Agreement on Trade in Services (GATS), which became effective in 1995. Its specific requirements are discussed in the present Manual, and these requirements have informed several of the Manual’s recommendations for extensions to existing statistical frameworks. A new round of multilateral negotiations, known as GATS 2000, was under way as the Manual went to press, and it is clear that the existence of a more fully articulated statistical framework for services should help to support these negotiations and any agreement that is reached. Statistics are necessary for analysing the increasingly important phenomenon of globalization, which is a concept that usually entails the internationalization of both production and sales, as well as for monitoring the performance of service industries. This need for statistics has fuelled the demand for development of a more comprehensive and better integrated approach to statistical issues pertaining to trade in services.

1.3. To meet these diverse needs, in recognition of the role of both affiliated enterprises and individuals locating abroad for the delivery of services to foreign customers, and in light of the increasing tendency for trade agreements to cover such methods of supply, the term international trade in services is construed broadly in the Manual. It covers trade in services in the conventional sense of transactions between residents and non-residents. It extends the meaning of trade in services to cover services delivered through locally established enterprises. In the Manual, these latter transactions are designated as foreign affiliates trade in services (FATS). Also discussed in the context of trade in services are certain categories of service related employment of individuals non-permanently located abroad to the extent that they are covered by trade agreements. Although it extends the concept of trade in services, it does not extend the concept of services, and it conforms almost entirely to existing international statistical standards. Discussion of the usage of the terms services and international trade in services in this Manual is provided in boxes 1 and 2, respectively.

1.4. This construction of these terms signals the approach of the Manual, for while it features some important steps forward in the field of measurement of international trade in services, it does so by building on, rather than suggesting modifications to, internationally agreed standards for compilation. First and foremost among these standards is the fifth edition of the International Monetary Fund (IMF) Balance of Payments Manual1 (BPM5), which contains recommendations for the definition, valuation, classification, and recording of resident/non-resident trade in services. Also important is the System of National Accounts, 19932 (1993 SNA), whose concepts and definitions underpin many of the Manual’s recommendations about data on services delivered through foreign affiliates. Although there are important advances in the Manual, it recognizes that in some areas there is farther to go; where questions are raised that are not adequately resolved, this Manual also sets an agenda for further research and development work.

1.5. For services trade between residents and non-residents, the Manual recommends building on the BPM5 framework by elaborating its classification of transactions by type of service to form the Extended Balance of Payments Services Classification (EBOPS). Annex III provides tables showing the correspondence between EBOPS, the Central Product Classification, Version 1.03 (CPC, Version 1.0) of the United Nations, and the GNS/W/120 list of services identified within the scope of GATS.

1.6. An important feature of the Manual is a discussion of the modalities through which services may be delivered, of which the GATS identifies four: cross border, consumption abroad, commercial presence and presence of natural persons. Distinctions are made based on whether the service supplier, the consumer, or neither, moves from one country to another for the transaction to be effected.

1.7. For services delivered through subsidiaries and branches abroad, referred to in the present Manual as the commercial presence mode, methodological antecedents are not fully developed. However, drawing on work conducted by the Organisation for Economic Cooperation and Development (OECD) and the Statistical Office of the European Communities (Eurostat), as well as on the experience of a number of countries in collecting this type of data, the Manual reflects the emerging international consensus that statistics on such services should be developed for firms in which a foreign investor has a majority interest. They should be classified as a first priority on an activity basis (i.e., by industry of the producer rather than by type of service produced). Industry groupings drawn from the International Standard Industrial Classification of All Economic Activities, Revision 34 (ISIC, Rev.3), are provided for use in reporting these statistics to international organizations. These groupings, known as the ISIC Categories for Foreign Affiliates (ICFA), allow the activities of services enterprises to be viewed in the context of the activities of all enterprises. Although detail by product for foreign-owned firms is encouraged to enable comparability between FATS data and trade between residents and non-residents, compilation on a product basis will remain a longer-term goal for most countries because of current limitations on data collection.

1.8. The most pertinent information on the activities of affiliates may be considered to be data on their sales. Services delivered through transactions between residents and non-residents are measured in terms of sales, and a comparable measure must be available for affiliates in order to measure services delivered through foreign affiliates on a parallel basis. However, additional information is generally required for an adequate assessment of the economic effects of affiliate operations and of measures to liberalize the delivery of services through the commercial presence mode of supply. Accordingly, the Manual recommends multiple indicators, or variables, for FATS, rather than sales only.

1.9. With respect to one of the modes of supply, the presence of natural persons, the definitions and concepts used in GATS require some information that lies outside the BPM5 and FATS domains or that pertains to transactions that BPM5 records in components other than services. Because these domains are not subject to modification, and because the statistical requirements in this area are less well defined, these requirements are addressed in an annex to the Manual. The lack of a precise definition and a suitable existing framework has led to the identification of this mode of supply as a key area for further development work.

1.10. The Manual provides descriptions of the major services involved in international trade as well as the GATS nomenclature and provisions. However, for a range of services that have attracted particular attention in trade negotiations, there is insufficient agreement on a detailed taxonomy and corresponding statistical treatment. These include telecommunications, financial services, professional services, environmental services, and internet related services. For these services, some further development work, beyond their treatment in the Manual, is recommended.

1.11. The Manual does not give more than summary practical guidance to national compilers as is the purpose of the IMF Balance of Payments Compilation Guide.5 It is recognized, however, that the successful implementation of the Manual’s recommendations will be greatly aided by further guidance and technical support from international agencies to supplement existing provision.

1.12. The treatment in the present Manual of both balance of payments statistics on trade in services and FATS statistics, even within the constraints of current statistical frameworks, represents a significant step toward building links between these two bases. This linkage poses a challenge to statisticians who may draw on expertise and information spread among central banks, national statistical offices, and government ministries. As statistics on trade in services are developed, close cooperation will be required among the institutions involved.

1.13. Measurement of trade in services is inherently more difficult than measurement of trade in goods. Services are more difficult to define. Some services are defined through abstract concepts rather than by any physical attribute or physical function. Unlike trade in goods, for trade in services there is no package crossing the customs frontier with an internationally recognised commodity code; a description of the contents; information on quantity, origin, and destination; an invoice; and an administrative system based on customs duty collection that is practised at assembling these data. The required information on services trade, once defined, is dependent on reaching a common understanding of concepts with data providers. It depends on information that may be reported either from business accounting and record keeping systems or by individuals, and on a variety of data sources, including administrative sources, surveys, and estimation techniques.

1.14. National agencies need to weigh the demand of users for more detail about services trade against the cost of collection, the burden of extra information provision on business, and the need for certain minimum quality thresholds. As with other statistical data collections, there is a requirement in most countries to protect the confidentiality of individual firms’ data. These constraints and considerations limit in a very real sense the amount of detail on international trade in services that it is practical to provide. The level of detail set out in the Manual accordingly represents a compromise between the need that trade negotiators, analysts, and policy makers have for information and the difficulties of data collection that national agencies may encounter.

B. Set of recommended elements for phased implementation

1.15. The Manuch recommends a complete set, of, elements for compilers to implement that build on internationally agreed standards so as progressively to achieve comparability of published statistics on international trade in services. These elements, if fully implemented, would represent a considerable increase in the detail of information available on trade in services. It is recognized that many countries will see the full implementation of the recommendations as a long-term goal. The ten elements are listed below and represent a summary of the recommendations.

1.16. The first five are proposed as core elements to tackle first. It is suggested that these five core elements should be given particular priority and that the other elements can be implemented incrementally thereafter. The five core elements would, when implemented, provide a basis for a common internationally comparable basic data set. All countries, including those that are beginning to develop statistics on international trade in services, can follow this phased approach to begin to structure available information in line with this new international standard framework. The sequence of elements, as suggested, takes into account the relative ease that many compilers may find in their implementation, commencing with the easier elements. However, the order is intended to be quite flexible so that countries can meet the priority needs of their own institutions.

1.17. In general, as countries implement the recommendations in the present Manual, it is suggested that they provide explanatory notes along with published data in order to enhance the transparency of their methodologies and users’ ability to compare data internationally. These notes should include information about data coverage and definitions, particularly where these deviate from the Manual’s recommendations. Such metadata provide users of the statistics with useful background information on such things as how the data are collected or estimated, where coverage is thought to be deficient, and where the data deviate from the internationally agreed standards (as described in the present Manual). The provision of such explanatory notes along with the actual data is a practice now followed by many countries in a broad range of statistics.

1. Recommended core elements

BPM5

1.18. Implement the BPM5 recommendations, including the definition, valuation, classification and recording of service transactions between residents and non-residents.6

EBOPS: first part - disaggregation

1.19. Compile balance of payments data according to EBOPS,7 which involves disaggregating the BPM5 standard components for services into EBOPS subcomponents. Where the compilation of the main EBOPS classification is developed and carried out in stages, compilers should commence with the disaggregation of services of major economic importance to their own economies. Where data for related memorandum items are available as part of this compilation process, these memorandum items should also be compiled.

Foreign direct investment statistics

1.20. Collect complete statistics on foreign direct investment (FDI) (i.e., the flows, income, and period-end positions) classified by ISIC, Rev.3 activities to be complementary to the FATS statistics. For those countries that must delay the implementation of FATS statistics, FDI statistics provide an alternative interim indicator of commercial presence.8

FA TS: basic variables

1.21. Record certain basic FATS statistics, such as sales (turnover) and/or output, employment, value added, exports and imports of goods and services, and number of enterprises. For achieving comparability when reporting to international organizations, these are classified by specified activity categories based on ISIC, Rev.3, i.e., ICFA.9

Trade in services by partner country

1.22. Compile statistics on trade in services by partner country. For transactions between residents and non-residents, the aim would be to report partner country detail at the level of services trade as a whole and for each of the main types of services in BPM5. In the case of FATS and FDI, it would be to report partner country detail both in the aggregate and for the major industry categories within ICFA. In both cases, it is recommended that countries give a higher priority to providing data with respect to their most important trading partners. To the extent possible, countries should use a common geographical basis for all three sets of statistics.10

2. Other recommended elements

EBOPS: second part—completion

1.23. Complete the implementation of EBOPS11 to the extent relevant to the compiling economy, including the memorandum items. As above, memorandum items should be compiled where the data necessary for this purpose are available as part of the data collection process for the related EBOPS components. Other memorandum items should be compiled where there is a demand for these data in the compiling economy. An elaboration of the full EBOPS classification and its memorandum items together with their correspondence to CPC, Version 1.0 is shown in annex III.

FATS: further details

1.24. Augment the basic FATS statistics by compiling data on additional aspects of the operations of foreign affiliates, such as assets, net worth, operating surplus, gross fixed capital formation, taxes on income, research and development expenditures, and compensation of employees.12

1.25. Detail of sales by product is desirable, not least because of the potential comparability between FATS data and trade between residents and nonresidents. While compilation on this basis may well have to remain a long-term goal for most countries, as a first step toward a product basis, countries may wish to disaggregate sales in each industry as between services and goods. In addition, countries that are building their statistical systems for FATS on existing data systems that already include product detail may wish to use this detail from the outset because it could help them in monitoring commitments under GATS that are specified in terms of services products. Similarly, countries that are building their FATS data systems from the ground up should consider the feasibility of providing for a product dimension.13

Persons working abroad

1.26. Collect statistics on natural persons under the GATS framework, both those from the compiling economy working abroad and foreign natural persons working in the compiling economy, taking into account the needs, resources, and special circumstances of the compiling country. In this process, the framework, and definitions set out in annex I should be used as a guide.14

Trade between related15 and unrelated parties

1.27. Within the statistics on trade in services between residents and non-residents, separate out the trade with related parties from that with unrelated parties.16

GATS modes of supply

1.28. Allocate the transactions between residents and non-residents over the GATS modes of supply. The simplified procedure set out in paras. 3.41-3.49 below may be used as a starting point in compiling a first approximation of this allocation.

C. Shape of the Manual

1.29. Chapter II of the present Manual discusses user needs, describes links with existing international frameworks, sets out the approach of the Manual with a statistical framework for measurement of international trade in services, and considers the modes of supply, introducing a simplified approach for statistical analysis of these. Chapter III addresses services trade between residents and non-residents, describes EBOPS in detail and explains how its components should be measured. Chapter IV describes the new domain of FATS statistics, the criteria used to define the coverage of FATS, the classifications used, and the variables recommended for compilation.

1.30. Supplemental information is provided in the annexes. Annex I discusses how to approach the compilation of trade statistics on services delivered by the movement of natural persons. Other annexes cover EBOPS; the correspondence between EBOPS, CPC, Version 1.0 and GNS/W/120, between ICFA and ISIC, Rev.3, and between ISIC, Rev.3 and ICFA; the GATS; the list of services used by GATS negotiators; and tourism satellite accounts. A glossary and bibliography conclude the Manual.

Box 1.Services definition

The term services covers a heterogeneous range of intangible products and activities that are difficult to encapsulate within a simple definition. Services are also often difficult to separate from goods with which they may be associated in varying degrees.

The present Manual generally respects the 1993 SNA use of the term services, which is defined as follows: “Services are not separate entities over which ownership rights can be established. They cannot be traded separately from their production. Services are heterogeneous outputs produced to order and typically consist of changes in the condition of the consuming units realised by the activities of the producers at the demand of the customers. By the time their production is completed they must have been provided to the consumers.”

However, the 1993 SNA then qualifies this relatively simple definition as follows: “There is a group of industries, generally classified as service industries, that produce outputs that have many of the characteristics of goods, i.e., those concerned with the provision, storage, communication and dissemination of information, advice and entertainment in the broadest sense of those terms—the production of general or specialized information, news, consultancy reports, computer programs, movies, music, etc. The outputs of these industries, over which ownership rights may be established, are often stored on physical objects—paper, tapes, disks, etc.—that can be traded like ordinary goods. Whether characterized as goods or services, these products possess the essential characteristic that they can be produced by one unit and supplied to another, thus making possible division of labour and the emergence of markets.”

The 1993 SNA recommends the use of CPC for the classification of products or outputs of industry. Services are classified using sections 5 through 9 of CPC, Version 1.0. The 1993 SNA recommends the use of ISIC, Rev.3 for the classification of industry. In practice, service industries (or activities) are taken to be those in sections G through Q of ISIC, Rev.3. In BPM5, the concept of services is, in principle, essentially that of the 1993 SNA, but for practical measurement reasons international trade in services between residents and non-residents includes some trade in goods, such as those bought by travellers and those purchased by embassies. On the other hand, under certain circumstances international trade in goods may indistinguishably include such service charges as insurance, maintenance contracts, transport charges, royalty payments and packaging.

Examples of service activities are wholesale, retail, certain kinds of repair, hotel, catering, transport, postal, telecommunication, financial, insurance, real estate, property rental, computer-related, research, professional, marketing and other business support, government, education, health, social, sanitation, community, audiovisual, recreational, cultural, personal, and domestic services.

Box 2.International trade in services

Before the publication of the present Manual, the conventional statistical meaning of international trade in services was that described in BPM5, which defines international trade in services as being between residents and non-residents of an economy. This also corresponds very closely to the concept of trade in services in the “rest of the world” account of the 1993 SNA. Such trade is described in chapter III of the present Manual.

This concept of international trade in services combines with the concept of international trade in goods, to form international trade in goods and services in the BPM5 current account. But as described in box 1, it is not always practical to separate trade in goods from trade in services.

Services differ from goods in a number of ways, most commonly in the immediacy of the relationship between supplier and consumer. Many services are non-transportable, i.e., they require the physical proximity of supplier and customer—for example, the provision of a hotel service requires that the hotel is where the customer wishes to stay, a cleaning service for a business must be provided at the site of the business, and a haircut requires that both hairstylist and client be present.

For international trade in such non-transportable services to take place, either the consumer must go the supplier or the supplier must go to the consumer. International trade agreements concerning services, in particular those embodied in GATS, make provision for agreement on suppliers moving to the country of the consumer.

To reflect this type of trade, the Manual extends the definition of international trade in services to include the value of services provided through foreign affiliates established abroad, described here as foreign affiliates trade in services (FATS). Such trade is described in chapter IV below.

Services are also supplied by individuals located abroad, either as service suppliers themselves or employed by service suppliers including those in the host country. A large part of this type of trade in services is covered by the BPM5 and FATS frameworks; the rest is discussed in annex I.

Note: Although the present Manual extends the scope of the term international trade in services, the Manual does not suggest that these extensions be regarded as imports or exports.

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