458. The goods component of the BOP current account covers (with a few exceptions) moveable goods for which changes of ownership (between residents and nonresidents) occur. These goods should be measured at market value on an f.o.b. basis. Exceptions to the change of ownership rule include goods on financial lease, goods transferred between a parent enterprise and a branch, and some goods for processing; transactions in these items are also recorded in goods.81 Table 11.1 presents the primary entries for the compilation of goods in the BOP. The table shows the various adjustments to source data. These adjustments are required to satisfy requirements of the BPM and are covered in more detail in subsequent tables. Also shown are the standard components required by the BPM and the corresponding codes in the Guide.


458. The goods component of the BOP current account covers (with a few exceptions) moveable goods for which changes of ownership (between residents and nonresidents) occur. These goods should be measured at market value on an f.o.b. basis. Exceptions to the change of ownership rule include goods on financial lease, goods transferred between a parent enterprise and a branch, and some goods for processing; transactions in these items are also recorded in goods.81 Table 11.1 presents the primary entries for the compilation of goods in the BOP. The table shows the various adjustments to source data. These adjustments are required to satisfy requirements of the BPM and are covered in more detail in subsequent tables. Also shown are the standard components required by the BPM and the corresponding codes in the Guide.

Table 11.1

Compilation of Goods

article image

Derived as item × 100 less the sum of items × 150, × 160, × 170, and × 180

459. The next three sections in this chapter describe how goods items may be compiled by using information from ITS, an ITRS, and ES. A discussion of commodity classifications follows. The preparation of estimates in the absence of data and the projection of goods items are then discussed. The chapter concludes with descriptions of treatments of goods for processing and transfer pricing.

ITS as a Primary Source for Compilation of Goods


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

article image
article image

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

article image

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

article image

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

article image

An ITRS as a Primary Source for Compilation of Goods

467. Some countries use an ITRS as the primary source for compilation of goods in the BOP. In most cases, goods are recorded in an ITRS when payments for the goods are made. As described in Chapter 3, paragraphs 97–102, there are a number of adjustments that a compiler should make to record noncash transactions involving goods. Adjustments to goods recorded in an ITRS may also be made under the headings of coverage, classification, timing, and valuation adjustments. These adjustments are set out in table 11.6 (on pages 108–109).

Table 11.6

Use of an ITRS for Compilation of Goods

article image
article image

ES as Primary Sources for Compilation of Goods

468. Paragraphs 133–135 of Chapter 4 discuss the use, in the absence of ITS or an ITRS, of ES to measure goods. The material describes a model form that a compiler may use to collect across-the-board data on goods exported and imported and data on goods for processing and the value of repairs. Paragraphs 212–217 of Chapter 5 discuss model forms that a compiler may use to collect information, inter alia, on goods procured by resident transportation operators in ports abroad (imports) and on goods procured by nonresident transport operators in ports of the compiling economy (exports).

469. The Guide does not recommend one collection system above others. However, compilers who use ES (in lieu of ITS or an ITRS) as the data source for goods items in the BOP must be particularly careful that adequate coverage is maintained—particularly in economies that are growing significantly, undergoing liberalization of trading relations, or are in transition to a market-based economy. (For further information on maintaining the coverage of ES, see Chapter 18, paragraphs 853–872.)

Subclassification of Commodities

470. As listed in the BPM, standard components of the BOP contain a limited subclassification of goods. Because transactions classified as goods may be quite dissimilar, the BOP compiler should provide a more detailed breakdown than that contained in the BPM. Some goods are more durable than others. Some goods may be sold quickly; others may be stored to await stronger demand. Exports and imports of foods follow patterns of production and demand that differ greatly from those of investment goods. It is also important that the BOP compiler provide a subclassification that is nationally appropriate.83

471. Two particularly useful classifications of goods are the SITC and the BEC.84 Tables 11.7 and 11.8 show the main groupings of goods in these classifications.

Table 11.7

SITC (Rev 3) Main Groupings

article image
Table 11.8

BEC Main Groupings

article image

Estimation in the Absence of Data

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



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.


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.

Treatment of Goods for Processing

484. The BPM requires that goods for processing be included, on a gross basis, in the goods item if goods are returned to the country of origin after the completion of processing. The value of materials imported and the value of finished products exported could be identified in ITS, in ES, or in a supplementary inquiry in an ITRS. The BOP treatment of goods for processing also requires entries in the financial account to offset changes in stocks. Such entries are shown in the example provided in table 11.9. An importer in country A imports from country B materials valued at 600 and 610 in years 1 and 2, respectively, and exports back to country B the finished products, which are valued at 620 and 630, in years 2 and 3, respectively. It is assumed that, as part of the value of imports, there are international transportation costs, payable to a resident of country C, of 50 in each year and no insurance costs. The earnings on processing are therefore 20 in each of years 2 and 3. Table 11.9 shows the entries required in the BOP of country A.

Table 11.9

Balance of Payments Treatment of Goods for Processing

Example 1

article image

485. If processing arrangements are undertaken by branches and subsidiaries of companies owned by nonresidents, a transaction equivalent to the change in stocks should be included in direct investment, as shown in the example. If there is no direct investment relationship between the owner of the materials and the enterprise providing the processing, the change in stocks would be included in other investment—trade credits.

486. If goods for processing are sold to a third country or on-sold into the country of processing rather than returned to the country of origin, the BPM recommends that only the actual change of ownership be recorded in the goods item of the BOP and that the processing fee be shown as a service under the merchanting and other trade-related services item (x269). In the previous example, if the goods sent to country A in year 1 had been sold to country C and the goods sent to country A in year 2 had been on-sold in country A during year 3 (rather than both sets of goods being returned to country B after the completion of processing), the entries shown in table 11.10 would be recorded in the BOP of country A.

Table 11.10

Balance of Payments Treatment of Goods for Processing

Example 2

article image

Value of goods on-sold in country A less international transportation costs

Treatment of Transfer Pricing

487. Between enterprises in a direct investment relationship, transactions may occur wherein values shown in the books of transactors are significantly distorted from market values. An enterprise may sell goods to a related enterprise for prices unrelated to the cost of production or the acquisition cost of the goods. Such a sale might be made, for example, to transfer profits from one country to another for tax reasons or because the country of the direct investment enterprise imposes restrictions on the repatriation of income. In other instances, transfer prices may be used as a means by which a direct investor makes a financial investment in a direct investment enterprise.

488. The BPM recommends that the compiler make an adjustment to transaction prices in the BOP when actual transaction prices of transfers of real resources between enterprises in a direct investment relationship differ from values that could have been expected if the enterprises had been independent. However, the BPM cautions that such adjustments should be made only when significant distortions are encountered.

489. When adjustments are made to one side of a BOP transaction, offsetting adjustments must be made to preserve equality between credit and debit entries. For adjustments to transfer prices, offsetting adjustments should always be made to direct investment income or to financial account transactions.

490. The following example illustrates these adjustments. In a certain country, a direct investment enterprise produces copper. If this copper is sold to unrelated enterprises, the direct investment enterprise could expect, on the basis of the production cost of the copper, to earn 50 units per ton. However, as the government of the country has imposed restrictions on repatriation of income to nonresidents, the direct investment enterprise sells to its direct investor 1,000 tons of copper at only 10 units per ton. In this case, transfer pricing is used to repatriate income. The following entries should be made in the BOP of the country of the direct investment enterprise:

article image

491. Table 11.11 shows all possible cases of transfer pricing and adjustments required in the BOP.

Table 11.11

Adjustments to BOP in Cases of Transfer Pricing

article image