International Trade in Services: Recent Methodological Developments

The Interagency Task Force on Statistics of International Trade in Services (Task Force), which is authorized by the United Nations Statistical Commission, has developed a Manual on Statistics of International Trade in Services (Manual) that provides international guidelines for the compilation of statistics related to international trade in services. The final Manual is now available at http://unstats.un.org/unsd/tradeserv/manual.asp

The Task Force was established by the United Nations Statistical Commission in 1994. Membership comprises the Statistical Office of the European Communities (Eurostat), the IMF, the Organisation for Economic Co-operation and Development (OECD), the United Nations Statistical Division (UNSD), the United Nations Conference on Trade and Development (UNCTAD), and the World Trade Organisation (WTO), with OECD as chair and secretariat. Up until the end of 2001, the main focus of the Task Force was the development of a manual that would provide guidelines for definitions, classification and coverage for statistics of international trade in services. The Task Force has now shifted its focus towards providing guidance and assistance to countries in the implementation of the recommendations contained in the Manual, with particular emphasis on the compilation of statistics on foreign affiliates trade in services.

This first Manual was prepared by the Task Force to meet the needs of a variety of producers and users of statistics on international trade in services — particularly statistical compilers, but also governments and international organizations that must use statistical information in connection with international negotiations pertaining to trade in services, and also businesses and others that wish to assess developments in international services markets. A particular impetus for the preparation of a separate manual on statistics of international trade in services is the recent tendency for trade agreements to cover services as well as goods, and the need for statistics both to guide the negotiations relating to these agreements and to support implementation of such agreements. The most well known and far reaching is the General Agreement on Trade in Services, or GATS, which became effective in 1995. A new round of negotiations, GATS 2000, is now underway and it is clear that the existence of a more fully articulated statistical framework for international services transactions will help to support these negotiations and the agreements that are reached as a result of these negotiations.

While the Manual features important new areas in the field of international services statistics, it does so by building upon, rather than by modifying, internationally agreed standards for statistical compilation. It provides a framework and a set of recommendations that will allow for the provision of a range of statistics on international trade in services. These recommendations are summarized in Chapter 1 and elaborated on in the remainder of the Manual. Chapter 2 proposes the framework and describes its links to existing international standards and frameworks. Chapter 3 focuses on the compilation of statistics relating to resident-nonresident trade in services, building on the balance of payments framework described in the fifth edition of the Balance of Payments Manual (BPM5). Chapter 4 recommends standards for compiling statistics on "foreign affiliates trade in services", or FATS, drawing to a considerable extent on the concepts and definitions of the System of National Accounts 1993 (1993 SNA).

The Manual describes four modes through which services may be traded internationally. It does so by considering the location of the supplier and consumer of the traded service. The first of these modes, mode 1 or cross-border supply, applies when suppliers of services in one country supply services to consumers in another country without either supplier or consumer moving into the territory of the other. Mode 2, consumption abroad, describes the process by which a consumer resident in one country moves to another country to obtain a service. Further, enterprises in an economy may supply services internationally through the activities of their foreign affiliates abroad. This mode of supply, mode 3, is called commercial presence. The last of these modes of supply, mode 4 or presence of natural persons, describes the process of supply of service when the producer moves to the country of the consumer in order to provide the service.

The BPM5 framework contains, among other things, recommendations for the definition, valuation, classification, and recording of resident-nonresident trade in services. By building on this framework, the Manual recommends extending the BPM5 classification of transactions by type of service to provide more detail through the Extended Balance of Payments Services (EBOPS) classification. A correspondence table showing the relationship between the EBOPS classification and version 1.0 of the Central Product Classification is included as an annex to the Manual. This table assists in the provision of clear definitions of the various components of the EBOPS classification. Except for the treatment of construction services (discussed in paras. 3.92-3.98 of the Manual), the recommendations contained in the Manual are consistent with BPM5. Thus, a country’s balance of payments statistics will provide many of the data that are needed to implement the recommendations relating to the measurement of resident-nonresident trade in services. Recommendations are made in the Manual on the attribution of resident-nonresident transactions across the modes of supply. A separate annex discusses the relationship between the definitions and coverage of travel and traveler used in the Manual (and in BPM5) and the coverage of the tourism satellite account.¹

As well as providing services by way of trade between residents and nonresidents of an economy (measured in balance of payments statistics), enterprises in an economy may also supply services internationally through the activities of foreign affiliates abroad. The Manual recognizes this in its discussions on and recommendations for FATS statistics, which comprise the major part of the third mode of supply, commercial presence. Included are recommendations on (1) the selection of foreign affiliates to be covered (which follows the definition of foreign-controlled enterprises used in the 1993 SNA)²; (2) the attribution of FATS statistics (including a discussion on attribution by activity and by product); and (3) the variables to be compiled. While this is a less well-developed area statistically than the balance of payments statistics, some FATS statistics for foreign-owned affiliates in the compiling economy may be found in, or derived from, existing statistics on domestic production, including national accounts statistics based on the recommendations of the 1993 SNA.

The recommended basic FATS variables discussed in the Manual are: sales (turnover) and/or output, employment, value added, exports and imports of goods and services, and number of enterprises. Additional FATS variables identified are assets, compensation of employees, net worth, net operating surplus, gross fixed capital formation, taxes on income, and research and development expenditures. The definitions of these variables are drawn from the 1993 SNA.

The final area in which the Manual moves beyond existing statistical frameworks is in the area where enterprises producing services in one country employ individuals who are residents of another country (in the BPM5 and 1993 SNA sense) on a non-permanent basis. This area is one in which countries make commitments under the GATS, and while some limited data are available from balance of payments statistics, there is a need for further development of statistics related to employment and income of foreign nationals. However, this area, which is part of the fourth mode of supply (presence of natural persons), is still under discussion by the Task Force, so there is relatively little discussion on, or recommendation for, compiling relevant statistics included in the Manual.

The Manual proposes a phased approach to implementation so that countries, including those that are beginning to develop statistics on international trade in services, can implement these developments gradually and 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. However, the order is quite flexible, so that countries can meet the priority needs of their own institutions. Full implementation — to be seen as a long term goal — would represent a considerable increase in the detail of information available on trade in services.

The Manual takes account of comments received as a result of world-wide consultations with a range of statisticians and users of statistics, including balance of payments compilers, national accountants, compilers of data on employment and income, classifications experts, statisticians responsible for the compilation of data on production and/or use of services, and trade negotiators. An earlier draft of the Manual (November 2000) was translated into the official languages of the United Nations (Arabic, Chinese, French, Russian, and Spanish) and presented in March 2001 to the United Nations Statistical Commission for its approval. This approval was given and the Manual was finalized and published in English in 2002, in Chinese and Spanish in 2003 and in Russian in 2004 (see http://unstats.un.org/unsd/tradeserv/manual.asp. It is expected that Arabic and French versions of the final Manual will become available progressively.

The Task Force is now focusing on providing compilation guidance, particularly in the area of foreign affiliates trade in services. In addition, further development work is planned by the Task Force, in particular in the areas of telecommunications, internet-related, and environment-related services, as well as statistics relating to the movement of natural persons to take up employment on a non-permanent basis.

Questions may be sent to bopmethodology@imf.org

² This is implemented statistically as covering affiliates that are majority-owned by a direct investor.

Other useful websites:

UNSD at http://unstats.un.org/unsd/tradeserv/
Eurostat at http://www.oecd.org/std/trade-services
WTO at http://www.wto.org/english/tratop_e/serv_e/serv_e.htm and http://www.wto.org/english/res_e/statis_e/statis_e.htm