Relevance of Guidelines to BOP Compilation

37. International guidelines on concepts and definitions used in the compilation of ITS may be found in “International Trade Statistics: Concepts and Definitions” of the United Nations Statistical Papers.⁸

38. The BOP compiler should be aware of the guidelines and the extent to which they are, or are not, implemented by customs and national statistical authorities in the compiler’s country. The guidelines do not fully conform to the principles of the SNA and the BPM. For example, customs records essentially reflect the physical movement of goods across borders, whereas the SNA and the BPM require the BOP compiler to measure goods on a change of ownership basis. Subsequent sections of this chapter elaborate on conceptual differences between the guidelines and the BPM.

Coverage of ITS

39. The guidelines essentially state that ITS should cover all “merchandise” entering and leaving a country. However, the guidelines also indicate that too rigid an application of this rule would lead to inclusion of goods that it would be desirable to exclude. (On this point, the guidelines are more in harmony with requirements of the BPM and the SNA.) Treatment of questionable cases is discussed in the guidelines, and these treatments—along with corresponding BOP treatments—are shown in table 2.1 on pages 7-8. In addition, the guidelines present the concept of a frontier or statistical boundary that defines the borders of a country for customs purposes. The frontier concept is clarified in the section on special and general trade systems in this chapter, and national frontiers or statistical boundaries are listed in “Customs Areas of the World” of the United Nations Statistical Papers.⁹

Table 2.1.

Treatment of Questionable Cases in ITS and the BOP

¹The BPM also Includes, in goods, goods imported from third countries by a country’s armed forces and diplomatic representatives abroad.

²In each case, it is recognized that customs may not collect the relevant data. The ITS compiler should use other sources for the collection of information. Because of collection difficulties, bunkers, stores, etc. acquired abroad are excluded from ITS. Fish and salvage sold abroad or to foreign vessels by national vessels are excluded from ITS for practical reasons. Finally, the guidelines note in respect of (e) that mining by vessels belonging to the country acquiring the goods should not be regarded as imports—a ruling that conforms with treatments in the SNA and BPM.

³However, goods subject to operational leases are regarded as changing ownership if they are leased to a branch by its foreign head office.

Table 2.1.

Treatment of Questionable Cases in ITS and the BOP

	ITS Treatment	BOP Treatment
Goods to Be Included in ITS
1.	Nonmonetary gold The guidelines recognize the distinction between monetary gold and nonmonetary gold.	Treatment in the BPM conforms with that in the guidelines.
2.	Trade on government account The emphasis is on including all goods entering and leaving the country. However, goods consigned by a government to its armed forces abroad should be excluded.	Treatment in the BPM1 conforms with that in the guidelines.
3.	Military goods The emphasis is on including all goods entering and leaving the country. However, military goods consigned by a government to its armed forces abroad should be excluded.	Treatment in the BPM1 conforms with that in the guidelines.
4.	Electricity and water The recommendation is to include sales and purchases of these items even if the items are not recorded by customs.	Treatment in the BPM conforms with that in the guidelines.
5.	Postal items These should, in principle, be included—especially when certain items of light weight and high value are involved. Insofar as this trade is not significant, fewer details may be recorded or the items may be omitted.	Treatment in the BPM conforms with that in the guidelines. Treatment in the BPM recognizes that these transactions should, in principle, be included. In practice, these goods should be included when they are significant.
6.	Transactions that represent service transactions These (e.g., blueprints, videos, and tapes) should be valued at the value of material support, which is the only value that can be relatively easily assessed by customs.	These transactions should be excluded from goods and included, at market values, in services.
7.	Transactions in which one or both national boundaries are not crossed These include (a) trade in marine vessels and aircraft engaged in international traffic, (b) drilling rigs operating in international waters, (c) export of bunkers (fuel), stores, ballast, and dunnage to foreign marine vessels and aircraft engaged in international waters, (d) imports and exports by fishing craft of one country in the harbors of another country (as well as deliveries, at sea or in harbors, of fish caught by vessels of one country and transferred to vessels of another country), and (e) imports of products mined from the seabed in international waters.2	The theoretical treatment in the guidelines conforms, in each case, to treatment in the BPM. However, for practical reasons, these goods will not always be recorded in ITS. With respect to (c), the BPM also includes, in goods, imports of bunkers, stores, etc. acquired abroad for mobile equipment operated by resident enterprises. With respect to (d), the BPM also includes, in goods, fish and salvage sold abroad or to foreign vessels by national vessels.
Goods to Be Included in, or Excluded from, ITS but Recorded Separately if Possible
8.	Goods for processing and improvement and repair trade The guidelines recommend that the value of goods for processing should be included in ITS, whereas goods for repair and improvement should be excluded (but recorded separately).	The BPM requires that goods for processing be included in goods if the processed goods are returned to the countries of origin. If the goods are to be sent to a third country, the goods should not be recorded in the goods item of the processing country. For goods for repair, the BPM includes the value of repairs in goods. However, the value of the goods being repaired, both before and after repair, is excluded from goods.
9.	Goods on lease While the distinction between financial and operational leasing is recognized, the practical recommendation is that goods on lease for one year or more should be included in ITS.	The BPM requires that goods under financial lease be recorded but those under operational lease should not.3
Goods to Be Excluded from ITS
10.	Goods consigned by a government to the country’s armed forces and diplomatic representatives abroad	Treatment in the BPM conforms with that in the guidelines.
11.	Monetary gold	Treatment in the BPM conforms with that in the guidelines.
12.	Securities, bank notes, and coins in circulation When such notes and coins are not in circulation, they should be included in ITS at commercial value.	Treatment in the BPM conforms with that in the guidelines.
13.	Goods on temporary admission These include goods on lease for less than a year.	Treatment in the BPM conforms with that in the guidelines.
14.	Transit trade	Treatment in the BPM conforms with that in the guidelines.

¹The BPM also Includes, in goods, goods imported from third countries by a country’s armed forces and diplomatic representatives abroad.

²In each case, it is recognized that customs may not collect the relevant data. The ITS compiler should use other sources for the collection of information. Because of collection difficulties, bunkers, stores, etc. acquired abroad are excluded from ITS. Fish and salvage sold abroad or to foreign vessels by national vessels are excluded from ITS for practical reasons. Finally, the guidelines note in respect of (e) that mining by vessels belonging to the country acquiring the goods should not be regarded as imports—a ruling that conforms with treatments in the SNA and BPM.

³However, goods subject to operational leases are regarded as changing ownership if they are leased to a branch by its foreign head office.

View Table

Table 2.1.

Treatment of Questionable Cases in ITS and the BOP

	ITS Treatment	BOP Treatment
Goods to Be Included in ITS
1.	Nonmonetary gold The guidelines recognize the distinction between monetary gold and nonmonetary gold.	Treatment in the BPM conforms with that in the guidelines.
2.	Trade on government account The emphasis is on including all goods entering and leaving the country. However, goods consigned by a government to its armed forces abroad should be excluded.	Treatment in the BPM1 conforms with that in the guidelines.
3.	Military goods The emphasis is on including all goods entering and leaving the country. However, military goods consigned by a government to its armed forces abroad should be excluded.	Treatment in the BPM1 conforms with that in the guidelines.
4.	Electricity and water The recommendation is to include sales and purchases of these items even if the items are not recorded by customs.	Treatment in the BPM conforms with that in the guidelines.
5.	Postal items These should, in principle, be included—especially when certain items of light weight and high value are involved. Insofar as this trade is not significant, fewer details may be recorded or the items may be omitted.	Treatment in the BPM conforms with that in the guidelines. Treatment in the BPM recognizes that these transactions should, in principle, be included. In practice, these goods should be included when they are significant.
6.	Transactions that represent service transactions These (e.g., blueprints, videos, and tapes) should be valued at the value of material support, which is the only value that can be relatively easily assessed by customs.	These transactions should be excluded from goods and included, at market values, in services.
7.	Transactions in which one or both national boundaries are not crossed These include (a) trade in marine vessels and aircraft engaged in international traffic, (b) drilling rigs operating in international waters, (c) export of bunkers (fuel), stores, ballast, and dunnage to foreign marine vessels and aircraft engaged in international waters, (d) imports and exports by fishing craft of one country in the harbors of another country (as well as deliveries, at sea or in harbors, of fish caught by vessels of one country and transferred to vessels of another country), and (e) imports of products mined from the seabed in international waters.2	The theoretical treatment in the guidelines conforms, in each case, to treatment in the BPM. However, for practical reasons, these goods will not always be recorded in ITS. With respect to (c), the BPM also includes, in goods, imports of bunkers, stores, etc. acquired abroad for mobile equipment operated by resident enterprises. With respect to (d), the BPM also includes, in goods, fish and salvage sold abroad or to foreign vessels by national vessels.
Goods to Be Included in, or Excluded from, ITS but Recorded Separately if Possible
8.	Goods for processing and improvement and repair trade The guidelines recommend that the value of goods for processing should be included in ITS, whereas goods for repair and improvement should be excluded (but recorded separately).	The BPM requires that goods for processing be included in goods if the processed goods are returned to the countries of origin. If the goods are to be sent to a third country, the goods should not be recorded in the goods item of the processing country. For goods for repair, the BPM includes the value of repairs in goods. However, the value of the goods being repaired, both before and after repair, is excluded from goods.
9.	Goods on lease While the distinction between financial and operational leasing is recognized, the practical recommendation is that goods on lease for one year or more should be included in ITS.	The BPM requires that goods under financial lease be recorded but those under operational lease should not.3
Goods to Be Excluded from ITS
10.	Goods consigned by a government to the country’s armed forces and diplomatic representatives abroad	Treatment in the BPM conforms with that in the guidelines.
11.	Monetary gold	Treatment in the BPM conforms with that in the guidelines.
12.	Securities, bank notes, and coins in circulation When such notes and coins are not in circulation, they should be included in ITS at commercial value.	Treatment in the BPM conforms with that in the guidelines.
13.	Goods on temporary admission These include goods on lease for less than a year.	Treatment in the BPM conforms with that in the guidelines.
14.	Transit trade	Treatment in the BPM conforms with that in the guidelines.

¹The BPM also Includes, in goods, goods imported from third countries by a country’s armed forces and diplomatic representatives abroad.

²In each case, it is recognized that customs may not collect the relevant data. The ITS compiler should use other sources for the collection of information. Because of collection difficulties, bunkers, stores, etc. acquired abroad are excluded from ITS. Fish and salvage sold abroad or to foreign vessels by national vessels are excluded from ITS for practical reasons. Finally, the guidelines note in respect of (e) that mining by vessels belonging to the country acquiring the goods should not be regarded as imports—a ruling that conforms with treatments in the SNA and BPM.

³However, goods subject to operational leases are regarded as changing ownership if they are leased to a branch by its foreign head office.

Special Trade and General Trade

40. The guidelines outline the measurement of trade flows on the basis of (1) the special trade system and (2) the general trade system. For imports, the first measure is based on the concept of clearance (of goods) through customs for home use; whereas the second measure is based on the concept of goods entering and leaving the national territory. Special trade exports consist of exports of goods of national origin and of exports of imported goods that have previously crossed the customs frontier (that is, goods in free circulation within the country). General trade exports comprise all goods moving out of the national territory.

41. Under the special trade system, the customs frontier is regarded as the statistical boundary whereas, under the general trade system, the national frontier is regarded as the statistical boundary. According to a strict definition of special trade, a particular difficulty arises in recording goods that are imported into a customs free zone for processing and then exported. For example, crude petroleum may be imported into a customs free zone, refined, and subsequently exported. According to a strict definition of special trade, these goods will not be recorded if they are not cleared by customs. However, since such goods contribute to the value of an economy’s production, they are included as imports and exports in the special trade system.

42. The reader should refer to illustrations 2.1 and 2.2 on page 10 for treatments of trade flows. The first illustration shows four groups of import flows. In the first group (A), goods enter directly, via customs, into the domestic territory. In the second group (B), goods enter into customs warehouses and free trade areas where most will be cleared, at a later time, into the domestic territory. In the third group (C), goods enter into a manufacturing free trade zone. The fourth group of flows (D) relates to direct transit trade. General trade imports, which measure goods entering the domestic territory, equal A₁ + B₁ + C₁. Special trade imports, which measure goods cleared into the domestic territory plus goods entering customs manufacturing zones, equal A₁ +B₂ + C₁. Therefore, it is the B element that causes the differences between the two types of measurement. Goods in transit are excluded from both general and special trade.

Import Flows

Note: B₁ does not necessarily equal B₂ in any period because goods, after entering the economy (B₁), may spend some time in the customs store before being cleared into the domestic economy (B₂) or be exported directly from the customs store (B₃). Similarly, C₁ does not necessarily equal C₂ because it may be some time before goods entering the domestic economy (C₁) are transformed and leave the economy (C₂).

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Import Flows

Note: B₁ does not necessarily equal B₂ in any period because goods, after entering the economy (B₁), may spend some time in the customs store before being cleared into the domestic economy (B₂) or be exported directly from the customs store (B₃). Similarly, C₁ does not necessarily equal C₂ because it may be some time before goods entering the domestic economy (C₁) are transformed and leave the economy (C₂).

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Import Flows

Note: B₁ does not necessarily equal B₂ in any period because goods, after entering the economy (B₁), may spend some time in the customs store before being cleared into the domestic economy (B₂) or be exported directly from the customs store (B₃). Similarly, C₁ does not necessarily equal C₂ because it may be some time before goods entering the domestic economy (C₁) are transformed and leave the economy (C₂).

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Import and Export Flows

Note: E₁ represents exports of goods produced in the domestic territory and E₂ represents exports of goods originally imported into the domestic territory; that is, some part of A₁ and B₂ are re-exported.

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Import and Export Flows

Note: E₁ represents exports of goods produced in the domestic territory and E₂ represents exports of goods originally imported into the domestic territory; that is, some part of A₁ and B₂ are re-exported.

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Import and Export Flows

Note: E₁ represents exports of goods produced in the domestic territory and E₂ represents exports of goods originally imported into the domestic territory; that is, some part of A₁ and B₂ are re-exported.

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43. Illustration 2.2, which shows imports and exports, is the same as illustration 2.1 with two new lines (E₁ and E₂) added. Exports may include goods that are produced in the domestic territory and then exported (E₁); goods that enter the domestic territory, circulate freely, and then are re-exported (E₂); goods that are exported from customs warehouses and free trade zones (B₃); and goods that are exported from customs-controlled manufacturing plants (C₂). Under the general trade system, flows that would be included as exports are E₁ + E₂ + B₃ + C₂. In the general trade system, a distinction is made between national exports and re-exports. In illustration 2.2, national exports are flows E₁ and C₂; re-exports are flows E₂ and B₃. Goods exported from customs warehouses and free trade zones (B₃) would be excluded from the special trade system, which would comprise E₁ + E₂ + C₂.

44. The 1982 ITS guidelines state that the ITS compiler may use either the special or general trade system to record ITS but encourage the use of both systems—at least at less frequent intervals. The 1970 edition of the guidelines recommended the special trade system for compilation of ITS.

45. The BPM stresses that measurements for BOP compilation should be based on change of ownership rather than on the general trade system (goods entering or leaving an economy) or the special trade system (goods cleared by customs). The general trade system appears to be a better proxy for measuring change of ownership because it provides broader coverage and the date of change of ownership may be closer to the date goods cross the national frontier (shipment date) than to the date goods clear through customs. Some countries that use the special trade system make coverage adjustments in the BOP for goods that cross the border and are not included in ITS. BOP compilers should attempt to ascertain the impact on the BOP of the time of measurement used in ITS. In some countries where it is known that the clearance or shipment date for certain significant goods does not coincide with change of ownership, the BOP compiler selectively substitutes data from other sources.

Commodity Classification

46. The guidelines describe the Standard International Trade Classification (SITC), the Harmonized Commodity Description and Coding System (HS), and their relationships to other classifications such as Broad Economic Category (BEC). An understanding of these classifications is important for BOP compilation, publication, analysis, and projection. Since the guidelines were published in 1982, much work has been done on developing commodity classifications at an international level, and the reader is referred to other papers in the United Nations Statistical Papers series.¹⁰ The primary groupings in the SITC and BEC classifications are shown in chapter 11, paragraph 471 of this Guide.

Valuation

47. The guidelines provide an explanation of the difference between the transactions value, which is the price actually paid by the importer, and the value declared for customs purposes, which is typically the value recorded in ITS. The guidelines also trace the development of customs valuations. Most countries have adopted, for purposes of valuing imports, the recommendations in the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade (GATT). This agreement essentially accepts the importer transaction values. However, customs officials can, under certain conditions, adjust such values if they think importer valuation is based on avoidance (for example, by false invoicing or use of artificial transfer prices) of some part of the import duty. The recommendations in the agreement also define the valuation to be adopted for imports for which no accompanying movements of cash or credit take place. From examination of available evidence, it appears that, in practice, the customs valuation for total recorded imports exceeds, under Article VII of GATT, the transactions valuation by a small margin. The customs value may be considered a reasonable proxy for the market value. Some countries may still rely on a definition of value that is based upon a concept of “normal price.” In these countries, the margin between customs and transactions values is likely to be greater.

48. Another valuation issue concerns the point of valuation, namely, whether goods are valued at the importer’s border—that is, at the cost, insurance, and freight (c.i.f.) value at the importer’s border—or at the free on board (f.o.b.) value at the exporter’s border. The guidelines recommend the adoption of the c.i.f. valuation for imports whereas, for BOP compilation purposes, the f.o.b. valuation is required. In view of this requirement, the guidelines recommend that supplementary data be collected for imports valued on an f.o.b. basis. Sampling import entries is suggested as a possible means by which this data could be gathered. The guidelines recommend that exports be recorded on a f.o.b. basis, a practice that is consistent with BOP requirements.

49. Neither the f.o.b. nor the c.i.f. basis may represent the contract price, which depends upon delivery arrangements made by the importer and the exporter. Therefore, many bases of valuation are possible in practice, and the f.o.b./c.i.f. bases may require some degree of estimation by importers and exporters. Some countries do not adhere strictly to the f.o.b. or the c.i.f. basis. (For example, the United States uses a free along side ship (f.a.s.) basis that is considered to be close to the f.o.b. basis.) In the ITS procedures adopted by the European Union for the measurement of intra-union trade flows, information is collected on the basis of contract price, and adjustments are made to place the statistics on the valuation basis required by international standards.

50. An additional valuation issue concerns currency conversion. The guidelines state:

For practical reasons, Article 9 of the GATT Agreement provides that, when the conversion of currency is necessary for the determination of the customs value, the rate of exchange used should be that published by the competent authorities of the importing countries. It must reflect, as effectively as possible in respect to the period covered, the current value of such currency in commercial transactions in terms of the currency of the country of importation. Article 9 further provides that the conversion rate to be used is that in effect at the time of exportation or importation, as provided by each contracting party.¹¹

51. How do these valuation principles compare with BOP compilation requirements? For BOP purposes, the point of valuation required for both exports and imports is f.o.b. When a c.i.f. or other valuation is provided, the BOP compiler should estimate the freight and insurance components separately to arrive at a f.o.b. valuation. The BOP compiler essentially requires a market price for valuing trade. The transactions price is usually a good proxy for market price; in exceptional cases of transfer pricing, other values could be substituted. When the GATT basis of valuation is used, customs value may be considered a reasonable proxy for transactions value, although the BOP compiler may have to investigate the actual situation to determine whether a valuation adjustment should and can be made. An assessment of the exchange rates prescribed by customs law or regulation and their conformity to BOP recording principles should be made by the BOP compiler. This assessment should be accompanied by an investigation of actual practice. Adjustments should be made if inappropriate conversion of import and export values from foreign currencies to the unit of account causes significant errors in BOP accounts.

Quantity Measurement

52. The guidelines explain various quantity measures required for ITS. While the BOP compiler essentially compiles data in current values, quantity measures should be of interest and should be included in any analysis accompanying BOP statistics. Some quantity measures of goods will also be essential for the BOP compiler charged with making projections of BOP goods series.

Partner Country Classification

53. Trade in goods classified by partner country provides the basis for compilation of a regional BOP statement in respect of goods. The guidelines present various concepts that could be used to determine partner country classification and provide a useful discussion of each. For a more extensive discussion of this issue, refer to chapter 17 of this Guide.