Census of International Trade in Services and Royalties: Year ended June 2005

The Census of International Trade in Services and Royalties 2005 (ITSS 2005)

The census collected information about New Zealand's international trade in commercial services and royalties. Commercial services (primarily 'other' services in the Balance of Payments (BOP) Hot Off the Press tables) are defined as services other than transport, travel, insurance and government services nie. Examples of the types of commercial services measured by the census are business services, information technology and communication services, financial services, technical and professional services (a full list of the services encompassed by the census is presented later in these notes). The 2005 Census of International Trade in Services and Royalties surveyed New Zealand businesses who were asked to report, for the year ended June 2005, their sales (revenue, exports) of services to overseas, revenue from royalties and other intangible assets, purchases (expense, imports) of services from abroad, and payments for use of royalties and other intangible assets.

International developments in services statistics

The 1992 and 1999 Censuses used the classification of services as set out in the IMF's Balance of Payments Manual, Edition 4 and edition 5 respectively, as far as these could be applied in the New Zealand situation. Since 1999, extensive work has progressed internationally on the statistical framework for measuring international trade in services. As a result of this work The Manual on Statistics of International Trade in Services was published in 2002. This manual is a joint production by six international organisations – the United Nations Statistical Commission, the European Commission, the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), the United Nations Conference on Trade and Development (UNCTD), and the World Trade Organization (WTO).

The aim of the new services manual is to set out an internationally agreed framework for the compilation and reporting of statistics on international trade in services, in order to address the growing need for more detailed, comparable and comprehensive statistics on this type of trade in its various forms. The manual conforms with, and explicitly relates to, the System of National Accounts 1993 (SNA) and the fifth edition of the BOP manual (BPM5). It also prescribes the collection of data in a manner which is closer to the information set required to inform policy around General Agreement on Trade in Services (GATS).

The new manual provides a more detailed view on international trade in services delivered through conventional trade between residents and non-residents, includes a treatment of local delivery of services through a foreign commercial presence, and attempts to link the two systems. The main features of the manual are the redefinition of services into 12 main sectors (with regards to the WTO’s requirements see the list below, and expanded into 120 service types, the W120), and the introduction of the concept of 'modes of supply', which categorise the ways in which services are delivered across territorial boundaries.

WTO and modes of supply

The 12 major categories of the WTO are:

• Business services
• Communication services
• Construction and related engineering services
• Distribution services
• Educational services
• Environmental services
• Financial services
• Health related and social services
• Tourism and travel related services
• Recreational, cultural, and sporting services
• Transport services
• Other services not included elsewhere (nie).

The four modes of supply identified by the WTO are:

Mode 1 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. (For example, an architect in New Zealand providing plans and advice to a client in Singapore, through one or more mediums of communication, eg Internet/phone/fax/mail).

Mode 2 Consumption abroad describes the process by which a consumer resident in one country moves to another country to obtain a service. (For example, a tertiary student from Hong Kong travelling to New Zealand to study, which is a New Zealand export; or a New Zealand tertiary student travelling to the United States to study, which is a New Zealand import).

Mode 3 Commercial presence applies where an enterprise establishes a foreign affiliate abroad in order to deliver services internationally. (For example, a New Zealand engineering firm establishing a branch in China to provide engineering services to Chinese customers).

Mode 4 Presence of natural persons describes the process by which an individual resides temporarily in the country of the consumer in order to provide a service, whether on his/her own behalf or for an employer. (For example, a New Zealand professor of law visiting the United States for several months to give a series of lectures at the invitation of a local university).

The 2005 Census and the Extended Balance of Payments Services classification (EBOPS)

The focus of this census was to collect data on 'other' services based on the Extended Balance of Payments Services classification (EBOPs). The EBOPs classification of trade in services is an extension of the BOP IMF Manual Edition 5 standard component for services. To this classification of services, Statistics New Zealand expanded some categories of services to broadly meet the W120 classification. This extension was for: Computer services, Financial services, and Other personal services.

The EBOPS classification of services

• Transportation
• Travel
• Communication
• Construction
• Insurance
• Financial
• Computer and information
• Royalties and license fees
• Other business
• Personal cultural and recreational
• Government services not included elsewhere (nie).

In the New Zealand presentation of BOP services statistics, transportation, travel, insurance, and Government services not included elsewhere (nie) are separate components in the current account. The subject of the census was the remainder of the service categories, which in Table 5 of the Balance of Payments and International Investment Position Hot off the Press are: Other services; and Personal, cultural and recreational services (collectively categorised as 'other services'). In this release, for ease of reference, these 'other' services are collectively described as 'commercial' services.

The 2005 Census questionnaire used the following categories of services (more detailed descriptions are available on request from Statistics New Zealand, phone Salendra Kumar or Peter Roche, 04 931 4600):

• Information and communication technology (ICT)
• Financial
• Trade and sales
• Business
• Entertainment and recreational
• Technical and professional
• Intellectual property
• Miscellaneous.

Previous censuses

Previous censuses of international trade in services and royalties were conducted in 1992 and 1999. Each of these censuses, and the 2005 Census, has used a June year reference period. In that respect, the data for each census can be used to track changes over time. These export and import values are in current prices, so no adjustment has been made for price changes that occur over time. This means that the increase in commercial services and royalties exports and imports since the June 1999 year could reflect price increases, volume increases, or a combination of both. However, some useful conclusions about the series over time can be made by assessing the relative importance to New Zealand's international trade in commercial services to total services, and to the contribution over time of specific commercial service types to total commercial services.

Since the previous censuses, definitions and classifications of service activity which are used internationally have evolved. While the broad categories of service types remains (the EBOPS classification used in the census is an extension of the IMF's Balance of Payments Manual, Edition 5, (BPM5) classification), the 2005 Census questionnaire used more disaggregated and explicit descriptions of services under each category, drawing on the developments in the 2002 Manual on Statistics on International Trade in Services. This has assisted respondents to the Census to report more accurate data than in earlier censuses, and in the regular quarterly sample survey.

The census and the BOP quality plan

The need to improve the measurement of New Zealand's international trade in services statistics was identified in the BOP quality plan, which was developed in 2004. Specific areas identified as requiring improvements to the services statistics were the need to meet the data requirements of users (for disaggregated statistics and for country data) and concerns about the quality of the non sampled estimate. This estimate, derived from the 1999 Census benchmark, is added to the regular quarterly sample survey estimates to represent data for the whole population. While the sample of enterprises for the regular quarterly survey is updated each year, the services sector is dynamic and in the national accounts has shown sustained growth since the last services census in 1999. In addition, the size and direction of the net errors and omissions (residual, a balancing item in the balance of payments accounts and an overall indicator of the quality of the accounts) has indicated a need to improve the quality of the source data used in compiling the accounts. These factors indicated a need for a new benchmark measure of New Zealand's international trade in 'other' services and royalties.

The 2005 Census

The 2005 Census was directed at a population of approximately 4,000 New Zealand businesses. These businesses were identified as being relevant to the census, primarily from the Statistics New Zealand Business Frame, a database of New Zealand businesses, which uses GST registration information as a primary source. New Zealand businesses are required to register for GST once their taxable turnover exceeds $30,000. Therefore, the census population generally excluded enterprises below that threshold. Also excluded from the census coverage were New Zealand individuals engaged in international service transactions with non-residents. In determining the census population, Statistics New Zealand added further enterprises determined to be relevant to the census, using information from other sources. These other sources included other official and industry sources, and the business and news media.

The response rate to the Census was 89 percent. Of all the enterprises surveyed, 54.3 percent responded with data, ie the enterprises did engage in and report international service and royalty transactions for the reference period; 34.7 percent reported no data, ie no transactions engaged in; and 11 percent did not respond. Many of the census respondents spent considerable time and effort in providing data: Statistics New Zealand is very appreciative of all the contributions by the survey respondents, a contribution which makes the production of quality statistics possible.

In order to maximise data quality and mitigate the effects of reporting errors arising from, for example unintended interpretations of the data requirement and reporting and processing, the census data was subjected to a variety of quality checks. These checks, which, due to resource and time constraints, focused on the more significant apparent anomalies, included:

• At the aggregate level significant values (outliers) were identified and queried, usually by contacting respondents and obtaining either confirmation of reported values, or their replacement with correct values.
• For those enterprises which reported to both the census and the quarterly sample, comparison of data was performed and significant differences queried with respondents. Changes were made as appropriate to either the census or quarterly data.
• Logic checks were performed on the data dissaggregated by country, and by service type. Types of errors identified included mis- coding of country, mis-classification of services, and incorrect interpretation of the data requirement.

The treatment of merchanting services

'Merchanting' occurs where, for example, a New Zealand company buys goods from abroad, and then sells those goods abroad without the goods entering New Zealand. In the New Zealand statistics, the data collection for merchanting does not distinguish between trading in goods which are not further processed, and situations where the goods are processed or transformed (eg materials bought abroad, manufactured into finished products in a factory abroad, and then sold abroad). The merchanting data is reported to the survey questionnaire gross (ie purchases of goods and sales of goods) and recorded in the statistical outputs as a net value; the sales are netted against purchases and recorded on the exports side in the account. This net exports value is attributed to 'country unknown', as the net value cannot be attributed to particular countries.

The merchanting component has shown significant growth in the 2005 Census compared with the 1999 result. While some of the growth in this net service is from the purchase and sale of goods without further transformation, an important element in the 2005 period is growth in New Zealand companies having goods transformed into finished products abroad. How this activity is recorded in the BOP accounts depends on how the New Zealand company undertakes this activity. For example, where a New Zealand company establishes a subsidiary company abroad to undertake manufacturing, then the impact is in the financial account and the IIP (New Zealand direct investment abroad), and the current account item investment income. There are also likely to be services transactions between the New Zealand parent and its overseas subsidiary. An alternative scenario is for the New Zealand company to contract a factory in an overseas country to undertake manufacturing to its specification; this type of situation will be recorded in the services component merchanting as a net exports value.

How the census results are used

While the census results are used in GDP estimates and trade indexes, the main use is in respect of the BOP current account. The census provides new benchmark data to re-estimate the quarterly services series back to the December 2000 quarter, and to generate a new non-sampled estimate for use in the ongoing quarterly sample survey. From the 2005 Census population a new sample of enterprises has been selected for the ongoing quarterly (September 2005 quarter) services survey. The new sample going forward is approximately 1,000 enterprises, versus approximately 700 in the previous sample. In addition, the census provides more comprehensive information about disaggregations at country and service type levels than are available from the regular quarterly sample survey. This more comprehensive data is used to inform international trade policy.

Relationship between the census and the currently published quarterly series: June 2005 year

Indications are that the quarterly series for the year ended June 2005 will be revised upwards, on both revenue and expenditure, as a result of the application of the new Census benchmark to the previous quarterly sample survey results. The revisions to the quarterly series will extend back to the December 2000 quarter. These revisions will be published on 21 December 2005, with the release of the September 2005 quarter BOP and IIP statistics. In addition, the census results will contribute to the 17 November 2005 release of National Accounts (Year ended March 2005) statistics and revisions to the series.

The level of both revenue and expenditure measured by the census shows change compared with the previous sample based quarterly series. The main reasons for the changes are:

• quality of the non-sampled estimate in the quarterly series; this was previously identified as a reason for conducting a new census.
• growth in the sector which is not reflected in the quarterly series and non-sampled estimate.
• better reporting to the census versus the quarterly survey. The new questionnaire used in the census used improved definitions and classifications of services; this may have prompted more accurate reporting by survey respondents. For those enterprises which reported to both the census and the quarterly sample, comparison of data identified reporting issues in both the census and the quarterly sample survey.

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Balance of Payments and International Investment Position: September 2005 quarter will be released on 21 December 2005.