7.17. Construction services cover work on construction projects and installations by construction enterprises in locations outside the economic territory of the enterprise. This includes all goods and services that form an integral part of construction contracts relating to: site preparation work; construction work for buildings and their completion; construction work for civil engineering; installation of machinery and assembly work; renting services of construction or demolition equipment with operator; and exterior cleaning work on buildings. Goods imported by the enterprise for use in the projects are included in the value of construction services rather than under goods; expenditures on local supplies are included under other business services.
7.18. In Australia’s case it is not possible to meet fully the international standard in regard to goods used in providing construction services. This reflects the fact that it is difficult to exclude the value of goods imported or exported as part of providing construction services (to be included as other business services acquired by the construction enterprise) from international trade statistics. (Implementing this standard definition would require the compiling economy to identify, and exclude from imports of goods, those materials being imported by foreign construction enterprises, from whatever source. Similarly, the economies of the construction enterprises would need to distinguish, and exclude, exports of materials to those construction activities. Further, the construction enterprises would need to distinguish their purchases from third countries (to be recorded as imports of other business services), purchases from their home economy (excluded from the accounts), and local supplies (recorded in other business services). This application is not possible in the Australian context. Instead, all purchases by Australian construction enterprises abroad are recorded in other business services debits, to compensate for any overstatement of exports. Similarly, all purchases by foreign construction enterprises are included in other business services credits.)
7.19. However, much of the construction activity which at first glance appears to be a cross-border trade in construction services may be the trade of foreign affiliates and therefore outside the scope of the services component of the balance of payments. Construction businesses often establish a site office which may be treated as a branch in economic statistics if it is set up for twelve months or more, keeps separate accounts, etc. (see paragraph 2.32). Construction services provided by the branch to the client then become resident-to-resident transactions and hence outside the scope of the balance of payments. However, any services provided by the head office to the branch are included in the balance of payments. Further, income earned by the branch, after provision for taxes, depreciation and all other costs of operation, is included in direct investment income. If a construction business sets up a subsidiary in the client’s country, the subsidiary is a resident entity in that country and is treated in the same way as the branch just described.
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