The New Zealand Broad Economic Category (NZBEC) Classification System - article

Key Statistics - article, May 2003, p. 9-11

The New Zealand Broad Economic Category (NZBEC) is a classification system designed to classify and analyse international trade by the end-use of commodities. An objective of the NZBEC is to provide categories which can be aligned with the basic classes of the System of National Accountants (SNA); capital goods, intermediate goods and consumer goods. When making use of trade data by NZBEC it is important to include knowledge and data from other sources to enhance analyses.

The New Zealand Broad Economic Category (NZBEC) Classification System1

Introduction

The New Zealand Broad Economic Category (NZBEC) is a classification system designed to allow analysis of merchandise imports and exports by end-use. The New Zealand Harmonised System Classification (NZHSC) is the predominant commodity classification for merchandise trade data in New Zealand. Each 10-digit NZHSC code is allocated to a five-digit NZBEC code according to the predominant enduse of commodities in that code. These NZBEC codes can be combined to produce aggregates that are comparable to the three basic System of National Accounts (SNA) expenditure classes.

System of National Accounts (SNA) expenditure classes

Economists define most goods as belonging to one of three SNA expenditure classes: capital, intermediate, or consumption, depending on their use in the economy. Capital goods are used as a means of producing other goods or services, intermediate goods are transformed or used up in the production of goods or services, and consumption goods (and services) are used by households.

Passenger motor cars, petrol and avgas warranted the establishment of separate NZBEC categories not allocated to the three SNA expenditure classes. They are dual-use commodities and their separation allows analysts to make their own apportionment among the SNA classes. Passenger motor cars can be defined as capital goods when owned by a business, because they are used in the production of goods and services.

They can also be classified as consumption goods when they are used by households.

Similarly, petrol and avgas can be classified in the intermediate or consumption categories. Military and other goods are classified separately because they are, with a few minor exceptions, neither used by households nor in the production of goods or services.

Imports and exports

Overseas trade represents a major component of the New Zealand economy. For the year ending December 2002, the nominal value of expenditure on gross domestic product (GDP) in New Zealand was $126,094 million. For the same period, merchandise exports were $31,323 million (or 25 percent of GDP) and merchandise trade imports were $30,111 million (or 24 percent of GDP), illustrating the importance of merchandise trade within the economy.2 Note: due to SNA conceptual adjustments, the values for imports and exports are not equivalent to merchandise trade annual export and import values.

Imports of intermediate goods accounted for 44.0 percent of total imports for the year ended December 2002, while consumption and capital goods made up 25.0 and 19.6 percent respectively. Passenger motor cars accounted for 9.7 percent of total imports, while petrol and avgas comprised 1.4 percent. By comparison, over half the value of exports is exports of consumption goods. A further 42 percent is exports of intermediate goods.

Graph, Merchandise Imports.

Consumption goods

In the year ended December 2002, over half of imported consumption goods were household items as opposed to other consumables, such as food. Of these, the largest import values were for clothing and medicinal and pharmaceutical products.

Since the 1997 calendar year, import values of consumption goods have risen by about 44 percent. Holding prices constant, import volumes over the same period rose by just over 25 percent. During this period, the trade weighted index, a measure of the strength of the New Zealand dollar against the currencies of our major trading partners, depreciated by 16 percent. A depreciating New Zealand dollar will generally increase the price of imported goods when measured in New Zealand dollars, and contribute to import values increasing at a greater rate than the volume of goods imported.

Capital goods

Capital goods are used for the production of goods and services and do not form part of the goods or services being produced. They are themselves manufactured.

Transport equipment, and industrial and office machinery (including computers) are typical of the capital goods imported. They are defined in the SNA as part of gross fixed capital formation. New Zealand imports considerably more capital goods than it exports. Imports of capital goods accounted for 20 percent ($6.3 billion) of imports in the 2002 calendar year, compared with exports (including re-exports) of capital goods being only 6 percent of exports.

Graph, Capital Goods.

Intermediate goods

Intermediate goods are used up or transformed in the production of goods and services. The costs of intermediate goods and services utilised in the production process are deducted from the final market value of the goods in order to calculate value added or GDP.

The main intermediate imports are chemicals, crude oil, and parts and accessories. Imports of crude oil have ranged from 8 percent to 13 percent of imports in the last 15 years.

NZBEC structure

The NZBEC comprises 231 categories in a fivetier structure. It is possible to arrive at approximate aggregates of the three basic SNA classes by partial rearrangement of the NZBEC classification.

  1. Capital goods
    Sum of the categories
    41 Capital goods (except transport equipment)
    521 Transport equipment, industrial
  2. Intermediate goods
    Sum of the categories
    111 Food and beverages, primary, mainly for industry
    121 Food and beverages, processed, mainly for industry
    2 Industrial supplies
    31 Fuels and lubricants, primary
    322 Fuels and lubricants, processed (other than motor spirit)
    42 Parts and accessories of capital goods (except transport equipment)
    53 Parts and accessories of transport equipment
  3. Consumption goods
    Sum of categories
    112 Food and beverages, primary, mainly for household consumption
    122 Food and beverage, processed, mainly for household consumption
    522 Transport equipment, non-industrial
    6 Consumer goods not elsewhere specified

The structure also allows for dual use, as in the case of petrol and avgas (motor spirit category 321) and passenger motor cars (category 51), which are used extensively both for industry and household consumption. When making use of trade data by NZBEC, it is important to take account of the fact that it is not always possible to completely align a commodity to its end-use. In these situations the NZBEC code is generally determined by the predominant end-use. For example the main end use of most food commodities is household consumption; therefore, they are classified as consumption goods. This is despite the fact that businesses such as restaurants also use many of the same food commodities.

The NZBEC was published in 1987 and since then there have been a number of commodities whose predominant end-use has changed, but this is not replicated in the NZBEC classification. Amongst the most notable is the treatment of cell phones and computers, which are now dual use products. In the NZBEC they are entirely classified for use by industry as capital goods as their predominant end-use, however, these items are now increasingly purchased for household consumption. Cell phones are included in NZBEC category 41193 ‘telecommunications and sound recording equipment, etc’, along with fax machines and hand-held CB radios.

In other instances, the NZHSC does not provide sufficient information to classify some commodities correctly by end-use, for example by not distinguishing between military helicopters (which are not treated as capital expenditure in the SNA) and civilian helicopters (which should be in capital goods). Helicopters for military use (such as the recently imported Seasprite helicopters) are as a result classified to capital goods (transport equipment) thereby, in some years, overstating the increase in capital goods. Other military items, including the frigate Te Kaha, are separately classified under military and other goods.

NZBEC is just one of many ways to analyse trade data. It is important to remember the purpose for which it was designed – to classify and analyse international trade by the predominant end-use of commodities. It is also important not to use NZBEC in isolation, but to include knowledge and data from other sources to enhance analyses.

Footnotes

1 This article was prepared by Bill Humphrey of the International Accounts Division of Statistics New Zealand.
2 Statistics New Zealand, Expenditure on GDP in nominal New Zealand dollars for the year ended December 2002, (INFOS series SNCQ.S1NB15).

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