Chapter 9. Goods and Services Account: A. Introduction To The Current Account
Chapter 9. Goods and Services Account: A. Introduction To The Current Account
Chapter 9. Goods and Services Account: A. Introduction To The Current Account
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Chapter 9. Goods and Services Account
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A. Introduction to the Current Account
9.1 The current account will be introduced, as in Chapter 2 Overview.
B. Introduction to the Goods and Services Account
9.2 This section will deal with the purpose of the goods and services account. It will
define goods and services, showing their special economic role, as the outputs of the
production process. It will be noted that the focus on goods and services in the balance of
payments is not the point of production but the point when they are exchanged between a
resident and a nonresident, that is, exported or imported. The section will show the
relationship of the goods and services account and its balancing item to other international
accounts.
9.3 Goods and services will be identified as outcomes of the production process, in
contrast to income and transfers. The scope of goods and services will follow the 1993 SNA
definition of production as the process of combining inputs to produce an output or putting a
produced fixed asset at the disposal of another entity. Production will be contrasted with
property income, which involves putting a nonproduced asset at the disposal of another
entity. Some examples of the borderlines between production and other entries will be given,
for example, payment to contractor vs. compensation of employees; rent of land vs. rental of
buildings; use of internet domain names; charges by financial institutions for early
redemption of term deposits; rebates; government fees.
9.4 The manual will maintain the BPM5 distinction of goods and services, which reflects
in part the means by which products are supplied and the sources of data. While the new
manual will still make the BPM5 distinction, it will note the increasing blurring of the
distinction between goods and services and that the distinction is based on data sources, as
opposed to following the 1993 SNA definition (paras. 6.76.8).
9.5 The manual will illustrate the overall structure of the goods and services account
along the following lines:
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Table 9.1 Overview of Goods and Services Account
Exports Imports
CR. DR.
General merchandise on a BOP basis
of which: re-exports
Nonmonetary gold
Goods for processing
Total goods
Balance on trade in goods
Services
Repairs on goods
Transport
Travel
Information technology services
Construction services
Insurance services
Financial services
Franchise fees and payments for the use of proprietary
rights
Other business services
Personal, cultural, and recreational services
Government services, n.i.e.
Total services
Balance on trade in services
Total goods and services
Balance on goods and services
9.6 Separate balances have been shown in the above table for each of goods and services.
The goods balance would differ from the one shown in international merchandise trade
statistics, but the international accounts balance is more comprehensive and involves a
consistent f.o.b. valuation basis for both exports and imports.
[Question: Should separate balances be shown for each of goods and services?]
9.7 There is interest in separating goods and services trade that occurs between related
parties, called foreign affiliates trade statistics. They are discussed as an appendix to this
manual.
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C. Classification and Coverage
1. Goods
a. General merchandise
Concepts and coverage
9.8 General merchandise will be defined along the lines of BPM5 paras. 196 and
205215. This concept will be linked to the United Nations International Merchandise Trade
Statistics: Concepts and Definitions (IMTS) with differences noted.
9.9 The coverage of merchandise trade will be unchanged from BPM5, except for
excluding the personal effects of individuals who change their territory of residence (see
Chapters 3 Accounting Principles and 8 Other Changes in Financial Assets and Liabilities
Account of this annotated outline). However, the discussion of the treatments of financial
leases and flows of goods between branches and parents will emphasize that in these cases
legal title does not coincide with economic ownership and that the manual follows economic
concepts.
9.10 The section will emphasize that international accounts statistics include all flows
between residents and nonresidents, so that trade omitted (or inappropriately included) from
the main data source may need to be adjusted (e.g., military equipment, aid goods, ships,
airplanes, oil rigs, shuttle trade below customs thresholds, goods procured in ports by
carriers, and smuggling). It will also be recognized that data collection problems may imply
that the data are poor. Goods whose export or import is illegal will be specifically included in
the scope of this item, although practical data problems will be recognized.
9.11 The section will recognized that general merchandise will typically be a large and
very broad item, so that compilers may wish to provide more detailed breakdowns for
particular products or groups of products as supplementary items. For example, they may
specify primary products, industry of origin, and major commodities that are particularly
important to the economy. However, it is proposed not to have international standards for
these breakdowns within the international accounts, but to encourage breakdowns that are
related to national conditions or to make reference to other sources for these breakdowns.
(Note: The proposal below for a reconciliation table for differences between balance of
payments and international merchandise trade statistics is designed to enhance users
understanding of linkages between these statistics.)
9.12 Furthermore, the section will note that transit trade is excluded from the merchandise
trade of the territory of transit. It will note that the distinction between transit trade and re-
exports is becoming blurred by trade liberalization, so that a high proportion of re-exports
may be, in effect, transit trade or may involve minor additional services, such as
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reconsignment. In such cases, the economic interpretation of re-exports is unlike other
exports and more like transit trade. Two options to deal with this situation are to:
(a) show re-exports separately, when significant; or
(b) exclude re-exports from both imports and exports. (The estimate of imports for re-
export would be slightly smaller than re-exports, with the difference shown as exports
of services for transport, etc. Any timing differences between import and re-export
would be ignored unless information were available about particularly large
consignments being held over the end of the reporting period.)
The first solution is proposed, as being less elaborate than the second, while making it
possible to see the extent of re-exports relative to both exports and imports.
[Question: Which treatment is preferredno change, re-exports to be shown
separately, or re-exports to be excluded from merchandise?]
Particular issues
9.13 This section will specify the treatment of a number of specific cases. If an entry is not
included under general merchandise, the manual will state where it should be included, if at
all. Except where noted, all the treatments follow existing guidelines in BPM5, BPT, or
IMTS. A rationale for any deviations from the change of ownership principle will be given.
Samples of cases requiring specific treatment are:
(a) banknotes and coin not in current circulation and unissued securities (BPM5
para. 215); it will be noted that movements of banknotes and coin in circulation and
issued securities represent financial account transactions;
(b) books, newspapers, and magazines (BPM5 para. 212);
(c) electricity, gas, and water (BPM5 para. 215);
(d) empty bottles (IMTS para. 40);
(e) fish and other marine products caught and sold abroad directly from the compiling
economys ships (BPT para. 196);
(f) goods acquired by travelers, diplomats, nonresident workers, etc. (BPM5 para. 208);
(g) goods changing ownership that are temporary or not related to significant economic
activity (BPM5 para. 208);
(h) goods changing ownership without crossing frontiers (BPM5 para. 208);
(i) goods crossing frontiers but not changing ownership (BPM5 para. 209);
(j) goods dispatched by post or courier (BPM5 para. 215);
(k) goods delivered to or dispatched from offshore installations, embassies, etc. (BPT
para. 201);
(l) goods in bonded warehouses (IMTS paras. 8990);
(m) goods lost or destroyed (BPT para. 213);
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(n) goods procured in port by carriers (defined in BPM5, paras. 156 and 201) will be
included under general merchandise (in contrast, in BPM5, these were shown as a
separate item under goods);
(o) goods supplied between unincorporated branches and parents (BPM5 para. 205);
(p) goods temporarily exported, for display, exhibitions, etc. (BPT para. 214);
(q) goods transferred from or to a buffer stock organization (BPM5 para. 215);
(r) goods for merchanting (see BPM5 paras. 207 and 262; net changes in inventories
shown as imports to the country of the merchantand, in principle, exports in the
country of locationpossibly including negative entries; otherwise not shown;
merchants margin shown in country of merchant as export, goods shown at full value
including merchants margin in country of import);
(s) goods under financial leases (BPM5 para. 206);
(t) goods under operating leases (BPT para. 209);
(u) livestock driven across frontiers (BPM5 para. 215);
(v) migrants effects (to be excluded from balance of payments statistics, contrary to
BPM5 para. 215);
(w) minerals from the sea bed (IMTS paras. 38, 58);
(x) ships, aircraft, and other mobile equipment that changes hands outside the country of
residence of the original owner (IMTS para. 36);
(y) ships, aircraft, and other mobile equipment that enters a territory on a temporary basis
(BPT para. 210);
(z) returned goods (BPM5 para. 210, BPT para. 205);
(aa) salvage landed from vessels (IMTS paras. 38, 58);
(bb) software (IMTS paras. 27 and 48);
(cc) waste and scrap (IMTS paras. 41 and 54);
(dd) samples (BPM5 para. 209); and
(ee) products such as software and music that are generally available (that is, not
customized) and delivered electronically will be classified as goods.
[Questions: (i) Is the proposed treatment of products delivered electronically
appropriate? (ii) Do any of the other treatments need to be reconsidered?]
9.14 Where published international merchandise trade statistics differ from estimates of
general merchandise on a balance of payments basis, the manual will suggest that a
reconciliation table be provided, so that the reasons are available to users. A sample
reconciliation table is shown in Table 9.2 below (based on Appendix B in BPM4; a similar
appendix is not included in BPM5). It will be recognized that compilers may not be able to
publish fully such a table, particularly for short periods, because of confidential items.
Nevertheless, they should be able to prepare one internally, because it is simply a tabulation
of adjustments already made.
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Table 9. 2. Reconciliation between Merchandise Trade Statistics
and General Merchandise on a BOP Basis
Exports Imports
Merchandise trade as published
Coverage adjustments
(major factors specified)
Classification adjustments
(major factors specified)
Timing adjustments
(major factors specified)
Valuation adjustments
fob/cif adjustment for imports
(other major factors specified)
Other adjustments
(major factors specified)
General merchandise on a BOP basis
b. Other goods
9.15 The treatment of goods for processing where the processor does not acquire
ownership (i.e., the processing is done for a fee or commission) will be spelled out, following
the existing treatment, described in BPM5 paras. 197199. The related financial account
entries will be elaborated. This section will note the difference with the 1993 SNA (i.e., the
1993 SNA only treats the processing as an export of goods if there is substantial change) and
will continue with a rationale of the difficulty of separately identifying goods subject to
minor processing. It will provide a rationale for treatments (e.g., the creation of one type of
good from another is an economic event that should be treated as a transaction, although
legal title does not change hands; data availability concerns could arise; the large flows in
each direction should be shown separately because of their different characteristics from
other goods flows). It will note that where goods for processing change ownership, they are
treated as general merchandise.
[Question: Would it be preferable to merely show the processing as a service charge,
like repairs?]
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9.16 It is proposed to show separately goods for processing abroad and goods for
processing in the compiling economy because these each have quite different relationships to
the economy. Goods for processing abroad comprises:
(a) goods owned by residents of the economy being sent for processing abroad
(credit); and
(b) goods owned by residents of the economy being returned after processing
abroad (debit).
Goods for processing in the compiling economy comprises:
(a) goods owned by nonresidents of the economy being received for processing in
the economy (debit); and
(b) goods owned by nonresidents of the economy being returned after processing
in the economy (credit).
[Comment: The existing presentation combines goods processed abroad with goods
processed in the compiling economy.]
[Question: Would it be desirable to separate goods for processing abroad and goods
for processing in the compiling economy?]
9.17 The option will be raised of showing goods purchased and sold by merchants as a
separate category, instead of showing the margin as a service. (In that case, merchants
would need to be defined more narrowly than its usual meaning, as those who undertake
merchanting, as defined in BPM5 para. 262. Alternatively, a specific term would need to
be developed.)
[Comments: This proposal would avoid the need for an exception to the change of
ownership principle, avoid the possibility of a negative import flow, remove the
asymmetry between exports and imports, and allow the gross flows to be netted out if
desired, while bringing the treatment into line with goods for processing.
If this treatment were adopted, the goods flows would be recorded gross, and there
would be no item for merchanting services. If adopted, the flows would be shown
separately from other goods flows.]
[Question: (i) Should the treatment of merchanting be changed?]
[Question: (ii) Should the treatment of goods in transit, re-exported goods, goods for
processing, repair, storage, and merchanting be reviewed together with a view to
developing either a coherent approach or a rationale for different approaches to
them?]
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[Comment: Implications for supply and use/input-output tables would need to be
considered.]
9.18 Nonmonetary gold will be discussed, as per BPM5 para. 202. There will be a cross-
reference to transactions in monetary gold (Chapter 7 Financial Account) and the
monetization and demonetization of gold (Chapter 8, Other Changes in Financial Assets and
Liabilities Account). The possibility of reclassifying financial gold as a financial asset is
discussed under Chapter 5 Classifications. If that change is adopted, only industrial gold
would be included in goods.
Timing
9.19 The discussion will follow BPM5 paras. 216218 and Chapter 3 Accounting
Principles. In principle, exports and imports of goods should be recorded when economic
ownership of the good changes from a resident to a nonresident, or vice versa. The manual
will note that this principle for recording change of economic ownership may not coincide
with the recording in the books of the parties involved. In view of the difficulties in obtaining
the data on the correct conceptual basis, balance of payments compilers often use trade
statistics.
9.20 It will be noted that trade statistics are usually recorded on the basis of customs
documents, reflecting the physical movements of goods across the national or customs
frontier of an economy, which is taken for balance of payments statistics as an approximation
to change of economic ownership. It will be stated as preferable to take the customs data
reflecting the timing of the goods crossing the frontier rather than those reflecting the time
when customs declarations are processed.
9.21 In cases when data sources record large individual flows of goods in one period, but
the changes in ownership and the corresponding financial transactions occur in another
period, the manual will recommend that adjustments be made to the flows of goods.
However, it will be recognized that identification of timing differences is not always
practical, and it would only be considered for particularly significant individual transactions.
This issue was discussed in BPM5 para. 217.
9.22 In some cases, goods leave the territory without a transaction having occurred, for
example, for storage or on consignment. Ideally, these goods flows would be excluded from
exports, with adjustments made later if and when the goods are subsequently sold. Goods on
temporary loan should be excluded. It may be practical to make adjustments for large
commodity shipments or major trading corporations. In other cases, it may be necessary to
accept data based on the time that the goods left the territory as the best available
approximation. This issue was discussed in BPM5 para. 218.
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Valuation
9.23 The general principles for valuation (transactions/market price) will be stated briefly.
The issues will be discussed along similar lines to BPM5 paras. 219229, and BPT paras.
218249 and 281286, as well as BPM4 paras. 236 to 247.
9.24 Valuation on the f.o.b. basis will be stated as the standard, that is the price including
costs of freight and insurance to the ships rail or other carrier, but excluding subsequent
freight, insurance, and taxes. The definition will be discussed following IMTS paras. 115
120. The valuation for balance of payments statistics coincides with the f.o.b.-type
valuation in IMTS, in that f.o.b. is, strictly speaking, a shipping concept not applicable to
other modes of transport (see IMTS para. 118). This section will note that the arrangements
between exporters and importers as to who pays for components of associated services and
taxes can vary. Payments for loading, storage, handling, and insurance, as well as import
duties and other taxes, may be arranged between exporter and importer for each transaction
according to the circumstances. To provide a consistent basis for valuing goods and including
associated services, the f.o.b. valuation basis is adopted for both exports and imports. It will
be noted that this will differ from the transaction price, except when the contractual terms are
f.o.b. This section will cross-reference the consequent effects on transport and insurance
(discussed under services below).
9.25 A rationale for the use of f.o.b. valuation of imports will be given. The section will
note that, even though the f.o.b. valuation basis may not align with the value at the time of
change of ownership, a consistent valuation and split between goods and service components
is considered to be a higher priority. It will be noted that national accounts and international
trade statistics typically value imports at c.i.f. value, which reflects the good plus the costs
incurred up to the time of arrival in the port of destination.
9.26 Market prices will be specified as indicating the price received by the seller after
taking into account the application of rebates, discounts, refunds, adjustments, etc. paid by
the seller.
9.27 Export taxes are included in exports f.o.b., so that the tax is shown as being paid and
received in the territory of export. If an importer of a good had contractually agreed to pay
export taxes, then the amount of the taxes should be added to the contract price to get the
f.o.b. price.
9.28 Import duties are excluded from imports f.o.b., because the duties only become
payable after the good arrives in the territory and are therefore outside the scope of the
balance of payments. If an exporter of a good had contractually agreed to pay import duties,
then the amount of the duties should be deducted from the contract price to get the f.o.b.
price. An example will be given.
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9.29 In the cases of gifts, aid, barter, and transactions within a company (e.g., between a
parent and a nonresident branch), prices may not be assigned by the parties. The manual will
state that, in these cases, a market equivalent price should be used. Similarly, an artificial or
unrealistic price may be designated by the parties (e.g., for tax minimization, transfer pricing,
avoidance of exchange controls, or for pro forma reasons in the absence of a known price). In
these cases, the manual will recommend that a market equivalent price should be used, to the
extent feasible. It will be noted that such adjustments to the value of goods will require
offsetting adjustments to other items (e.g., understated price of imports supplied by a
subsidiary to a direct investor may be treated as an addition to dividends).
9.30 When goods on consignment or for auction leave the territory without the selling
price having been determined, the ideal result would be to exclude them from exports until
they are sold. While this treatment may be practical for large transactions or traders, in other
cases, it may be necessary to accept data based on physical movement of the goods, valued
on an estimate of the selling price.
2. Services
a. Concepts and coverage
9.31 Services will be introduced, along similar lines to the Manual on Statistics of
International Trade in Services (MSITS) paras. 1.117 and Box 1. As in Box 1 of MSITS, this
section will note that although the international accounts measure has some variations from
the 1993 SNA definition of services, it is still considered to be a useful grouping. It will be
noted that for some components (most notably travel, government services n.i.e, and
construction services), the service provided/consumed is actually a mixture of goods and
services.
9.32 The manual will refer to the more detailed discussion of services in MSITS. Any
differences from MSITS will be noted. (The only changes proposed are a rearrangement of
computing and information services, different terminology for royalties, a reclassification of
expenditures by nonresident construction enterprises in the economy in which they are
working, and a lower level of detail.)
9.33 The standard classification of services is shown in Table 9.3 and will be broadly the
same as BPM5. The classification will be described as a mixture of transactor-based (for
travel and government services n.i.e.) and product-based (other cases) components. It is not
proposed to introduce the full MSITS classification of services and the associated
memorandum items as standard components. It is proposed that there be a link table between
the classification of services in the balance of payments standard components with the
Central Product Classification (CPC). Such a table would provide specific information on the
coverage of items and assist in the use of the data for other purposes, notably the construction
of supply and use tables in the national accounts. A reconciliation of the CPC and services
classification will be given, along the lines of BPM5 Appendix III, or the detailed version in
MSITS Table A.III.1 will be cited.
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Table 9.3. Comparison between Classification of Services:
Proposed Classification and BPM5 Classification
Proposed classification BPM5 classification
0. Repairs on goods (included in goods)
1. Transport 1. Transportation
of which:
Passenger
Freight
Other
Other
Health-related*
Education-related
Education-related*
Other
Other*
3. Information technology services
3.1 Communications services
3.2 Computer services
3.3 Internet provision services
3.4 Other information provision services
3. Communications services
7. Computer and information services
4. Construction services 4. Construction services
4.1 Construction abroad
4.2 Construction in the compiling economy
5. Insurance services 5. Insurance services
Gross premiums**
Gross claims**
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Proposed classification BPM5 classification
6. Financial services 6. Financial services
8. Franchise fees and payments for the use of
proprietary rights
8. Royalties and license fees
9. Other business services 9. Other business services
9.1 Merchanting and other trade-related
services
9.1 Merchanting and other trade-related
services
9.2 Operational leasing services 9.2 Operational leasing services
9.3 Miscellaneous business, professional,
and technical services
9.3 Miscellaneous business, professional,
and technical services
Legal, accounting, management
consulting, and public relations
Other*
10. Personal, cultural, and recreational
services
10. Personal, cultural, and recreational
services
10.1 Audiovisual and related services 10.1 Audiovisual and related services
10.2 Other personal, cultural, and
recreational services
10.2 Other personal, cultural, and
recreational services
Health services
Education services
Other services
Transport services
Accommodation services
Note: