SPECIAL CASES AND THEIR TREATMENT

2.62 The majority of international merchandise trade transactions are straightforward - the classification and treatment in international merchandise trade statistics can be clearly determined by following the rules defined in the UN standards. However, conceptual or statistical questions and challenges can arise. These are addressed through: a thorough examination of the issues, querying the company exporting or importing the goods in question, consultation with international statistical colleagues and application of the basic principles to the available information.

2.63 The following paragraphs explain in greater detail the treatment of some of these types of transactions and events in international merchandise trade statistics.


AIRCRAFT ENGINES AND PARTS

2.64 There are difficulties in consistently treating exports and imports of aircraft engines and parts due to the sometimes limited information supplied about these transactions and the different circumstances under which they cross the customs frontier. These include:

• Short-term loans of aircraft engines and parts for aircraft emergencies, where the engines and parts are expected to be returned or replaced. Both the export and import transactions should be recorded as international non-merchandise trade.
• Swaps of engines and parts at required maintenance intervals or at the end of their shelf life. Both the export and import transactions should be recorded as international non-merchandise trade.
• Obtaining (through purchase or financial lease) new parts and spares, or shedding (through sale or disposal) of excess engines and parts by Australian-owned airline companies. These transactions should be included in international merchandise trade statistics. When these items are imported by foreign airline companies for their aircraft in Australia, or are at the end of an operational lease to Australian-owned airline companies, they should be recorded as international non-merchandise trade.
• Faulty engines and parts returned for repair or replacement. Both transactions should be recorded as international non-merchandise trade.

2.65 Australian owned aircraft used on international routes sometimes return to Australia after undergoing repairs. If import declarations are received the aircraft and repairs (recorded separately) are treated as international non-merchandise trade but the value of the repair will be included in the balance of payments under maintenance and repair services. There is normally no corresponding non-merchandise export declaration as the aircraft were functioning as a means of transport (see paragraph 2.54 in Goods Excluded from Australia's International Merchandise Trade Statistics). Where identifiable, any parts shipped from Australia to assist with the repairs are recorded as international non-merchandise trade.

2.66 Large value customs declarations relating to exports and imports of aircraft engines and parts are identified by the ABS during editing. The ABS editors use the identity of the exporter or importer to help determine treatment and if necessary the owner or their agent are contacted to confirm entry details and obtain additional information useful for correctly classifying the goods.

2.67 Values vary substantially depending on the nature of the parts and the aircraft in which they are used. Shipments occur reasonably frequently and sometimes contribute significantly to international merchandise trade statistics. The ABS, attempts to record large value shipments and the overall exports and imports of aircraft engines and parts in a consistent manner.


VESSEL REPAIRS AND UPGRADES

2.68 Repair and maintenance activities reinstate or maintain the quality of the product. Vessel repairs do not result in the creation of a new or a substantially improved vessel. When a vessel crosses the customs frontier for repair purposes, the movements into and out of the country should be recorded as international non-merchandise trade. Any parts exported from the country of the vessel's owner to assist with the repair (usually only identifiable if the value is in excess of the ABS edit value threshold - see Glossary) are also recorded as international non-merchandise trade. However, low value parts are unlikely to be identified and would be included in international merchandise trade statistics.

2.69 Where substantial improvements are made to the vessel, resulting in a significant increase in its value, the type and value of the improvements are recorded as international merchandise trade. Improvements which have the effect of moving the vessel from one statistical code to another, will also be recorded as international merchandise trade. These improvements are not considered to be repairs.

2.70 Australian components exported for incorporation into a new vessel, to be subsequently imported to Australia, should be recorded as international merchandise trade. Their value upon return to Australia will be included in the overall value of the vessel.


COMPUTER SOFTWARE

2.71 The recording of international merchandise exports and imports of computer software for statistical purposes is complicated by the fact that computer software often consists of a good (to be included in international merchandise trade statistics) and a service component (to be excluded) that are difficult to quantify separately. This is further complicated by the growth in online delivery of software and other goods (to be excluded). Accordingly, Australia's treatment of computer software in international merchandise trade statistics is described below:

• Media whether or not recorded for general use (not customised) is included at the full transaction value (the value of both the carrier medium, e.g. the CD or DVD and the software).
• Media containing customised software or software written for a specific client is excluded. The value of such software is included in services in the balance of payments. Although the value of customised software includes the cost of the software medium (e.g. the CD or DVD), the predominant portion of value is usually a service component (i.e. design, modification, development and programming services, maintenance and repair services or licence fees, distribution fees, copyright, patent fees and trademarks).
• Non-customised software downloaded or otherwise electronically delivered is excluded. Software which is delivered electronically is not reported to DIBP and not included in Australia's international merchandise trade statistics.

2.72 The ABS investigates Australia's international computer software transactions and attempts to separate general use from customised (non-standard) software, as this distinction is not made possible by the HS. While both exports and imports are investigated, greater attention is given to imports due to their greater relative volume. Tailored edits, contact with exporters, importers or their agents, and other information are used including the nature of business undertaken, the per unit value of software, and other goods involved in the transaction. Transactions which are found to contain customised computer software are not included in international merchandise trade statistics, but are referred to balance of payments compilers for inclusion in international trade in services in the balance of payments.


LIQUIFIED NATURAL GAS PROJECTS

2.73 Australia has abundant natural gas resources in north Western Australia, Queensland, the Timor Sea and Bass Strait. The production and export of natural gas as Liquified Natural Gas (LNG) requires significant investment in infrastructure in what is often referred to as an LNG project. The value of an LNG project usually encompasses the design, construction and engineering costs, as well as the LNG plant, LNG train and related infrastructure, e.g. vessels or pipelines.

2.74 LNG 'trains' are refrigeration units which cool and condense the natural gas into a colourless and odourless liquid (LNG) for transportation and storage. An LNG train contains a range of components, e.g. gas compressor, pumps, filters and storage tanks. An LNG plant can comprise onshore and offshore infrastructure including an LNG train, accommodation modules (for workers involved in the construction and production phases), trunkline, flowline, jetty, treatment plant, pipeline, jacket and platform. (footnote 1)

2.75 Included in international merchandise imports are all goods imported for inclusion in the LNG project. The goods are reported to the DIBP close to the time that they enter Australia. Because the transactions are usually high in value, ABS editors confirm with the importer all the details including the value, quantity and gross weight. These import transactions are included in international merchandise trade statistics in the month that the import transaction is finalised by the DIBP. Machinery and equipment imported temporarily for the construction phase are excluded from Australia's international merchandise trade and included in international non-merchandise trade.

2.76 Goods for an LNG project can appear in different periods in Australia's international merchandise trade, balance of payments and gross fixed capital formation in the national accounts statistics. Goods imported into Australia are recorded in the balance of payments when ownership changes. Change of ownership for large value projects can occur progressively. In the case of an LNG project, this means that the Australian resident company has accepted the risks and responsibilities associated with ownership prior to and sometimes more than a year ahead of the arrival of some imported components. For example, change of ownership may occur progressively as major imported components like a storage tank or gas compressor are completed and the expenditure occurs. The recording of large capital imports for LNG projects is the same in the balance of payments and gross fixed capital formation in the national accounts.

2.77 Where the design, construction or engineering services for the LNG project are provided by a non-resident company the transactions are included in international trade in services in the balance of payments.

2.78 When the LNG plant commences production, LNG which is exported is recorded in international merchandise export statistics in the month that it is shipped (or transported via pipeline) from Australia.

2.79 Appendix 3 shows the treatment of transactions for a hypothetical $1b LNG project in international merchandise trade, balance of payments and private gross fixed capital formation statistics. The Feature Article: Mining Investment in ABS Publications was published in the March 2012 issue of Private New Capital Expenditure and Expected Expenditure, Australia (cat. no. 5625.0). The article explains in detail the recording of mining investment across ABS economic statistics.


FLOATING, PRODUCTION, STORAGE AND OFF-LOADING (FPSO) VESSELS

2.80 Floating, Production, Storage and Off-loading (FPSO) vessels are used to extract oil or gas from below the seabed, and to process and store it on-board for later off-loading onto tankers or transportation through a pipeline. An FPSO vessel can be either a converted oil tanker or purpose built and may provide accommodation. Processing occurs in modules, known as topsides, and storage occurs in the hull. The FPSO vessel is not fixed to the seabed but is designed to be moored on location (via a turret) for an extended period of time. FPSO vessels are relatively easy and less expensive to relocate compared to fixed platforms.

2.81 To enable oil or gas production there is a range of associated equipment including: sub-sea equipment which is used to bring the oil onto the FPSO vessel, the manifold which connects the wells and flexible risers to connect the FPSO vessel to the seabed wells. (footnote 1)

2.82 Imports of FPSO vessels and any associated equipment (like the turret and wells) are included in Australia's international merchandise trade statistics in the month that the imported goods are initially finalised by the DIBP. Usually the goods will be transported to Australia as needed and may therefore be recorded in international merchandise trade statistics over a number of months. Components for an FPSO vessel may also be produced in several countries (including Australia) and assembled prior to being imported. Australian produced components which are exported for assembly are included in international merchandise trade exports and subsequently included in the value of the imported FPSO vessel. The time of recording for an FPSO vessel and its components can be different in international merchandise trade statistics (when the customs declaration is finalised) compared to the balance of payments and national accounts (when change of ownership occurs).

2.83 Occasionally an FPSO vessel may be exported for refurbishment. If this involves a significant transformation (not simply maintenance or repair) the FPSO vessel will be included in export statistics when it leaves Australia and included in import statistics when it returns. The value of the refurbished FPSO vessel will include the cost of the refurbishment. FPSO vessels which are temporarily exported for maintenance or repair are recorded as international non-merchandise trade and the value of the maintenance or repair is included in international trade in services in the balance of payments.

2.84 When an FPSO vessel commences production, exported petroleum or gas is recorded in international merchandise export statistics.


FINANCIAL AND OPERATING LEASES

2.85 Often goods like aircraft, ships, FPSO vessels and other capital equipment are leased rather than purchased. There are two kinds of leases, financial and operating. Financial leases are included in international merchandise trade statistics, while operating leases are excluded. Under financial leases the lessee assumes the rights, risks, rewards and responsibilities associated with the goods and can be considered the economic owner. Operating leases do not have these characteristics. When it is difficult to determine which type of lease is in place the duration of the lease is used in conjunction with the economic life of the goods:

• Where the owner of the good being imported or exported advises that a financial lease is in place, the goods are included in international merchandise trade.
• Where the owner of the good advises that an operational lease is in place the ABS checks the duration of the lease. If the lease duration is considered to cover the remaining economic life of the good, the lease will be treated as a financial lease and the goods included in international merchandise trade. If the lease does not cover the economic life of the good, the goods are included in international non-merchandise trade.
• Bare boat charters had been treated as financial leases until March 2014 when it was recognised that not all the risks and rewards of ownership were transferred to the charterer.

2.86 ABS editors closely check the reported values on financial and operating lease transactions to ensure that the values reflect the prices of similar goods exported/imported as a result of sale.


TIMOR SEA

2.87 The Timor Sea has been the subject of claims between Indonesia (and more recently East Timor) and Australia concerning the location of the seabed boundary between the countries. While part of the boundary was agreed upon by Indonesia and Australia in 1972, a gap remained (which subsequently became known as the 'Timor Gap'), opposite what was then Portuguese Timor. After Australia recognised Indonesian sovereignty over East Timor, disagreement arose as to whether the boundary line should follow a notional line midway between Australia and East Timor or whether it should follow the physical features of the Timor Trough (these being closer to East Timor). Due to the lack of agreement on the boundary issue all exploration activity in the area of overlapping claims was suspended.

2.88 On 20 May 2002, the newly independent East Timor and Australia signed the Timor Sea Treaty (the Treaty), which entered into force on 2 April 2003. The Treaty provides the basis for the development of the major oil and gas deposits in the Timor Sea between Australia and East Timor in the Joint Petroleum Development Area (JPDA) (see Image 2.2 below). The Treaty states that exploration and production activity in the JPDA is to be administered by an authority, the Designated Authority, established by the Australian and East Timorese governments.



2.89 The Treaty outlines agreement on a range of issues including administration of the area and the way in which taxation and resource royalty flows from the petroleum production will be distributed between the two countries. However, the Treaty does not address the issue of sovereign rights over the seabed in the Timor Sea and no maritime boundary between the countries has been established. Both Australia and East Timor continue to claim sovereign rights over 100% of the seabed in the JPDA.

2.90 Since that time Australia and East Timor have signed two additional agreements. The International Unitisation Agreement for Greater Sunrise which came into force in 2007 and the 2006 Treaty on Certain Maritime Arrangements in the Timor Sea (CMATS Treaty). These agreements provide legal and regulatory certainty to allow for the development of the Greater Sunrise gas and oil resources, but like The Treaty signed in 2002 the agreements do not address either Australian, or East Timorese claims on the maritime boundary.

2.91 At the time of writing, the Bayu Undan field is the largest operating field in the JPDA. The Bayu Undan field has been in production since 2004. The international merchandise trade treatment of production from Bayu Undan and any other operating fields in the JPDA reflects the DIBP treatment of the JPDA as outside Australia's customs territory. Consequently:

• gas which is extracted from the Bayu Undan field and transported via the pipeline to Darwin is included in Australia's international merchandise import statistics
• equipment or materials exported to the Bayu Undan field from Australia are included in Australia's export statistics
• condensate and Liquified Propane Gas (LPG) exported directly from Bayu Undan to foreign countries are not included in Australia's international merchandise trade statistics.

2.92 This treatment is different from the treatment in the balance of payments and national accounts where the JPDA is treated as the joint territory of Australia and East Timor reflecting the fact that both countries claim sovereignty over the area. This treatment is explained fully in the Feature Article: Statistical Treatment of Economic Activity in the Timor Sea, published in the September quarter 2003 issue of Australian National Accounts: National Income, Expenditure and Product (cat. no. 5206.0).

2.93 At the time of writing, the development of the Greater Sunrise fields has not commenced as negotiations between Australia and East Timor are still underway. These fields straddle the JPDA (20.1%) and Australia's territory (79.9%) meaning the claim to sovereign rights is an ongoing issue and until an agreement is reached the treatment in international merchandise trade statistics cannot be established. Decisions on the treatment of these fields in Australia's international merchandise trade statistics will be influenced by jurisdictional decisions made by the DIBP and the availability of data once production begins.


FOOTNOTES
Footnote 1: General information about LNG projects and FPSO vessels can be found in:

Australia Pacific LNG 2010, Australia Pacific LNG Project, Australia Pacific LNG, Barney Point, Queensland. http://www.aplng.com.au/pdf/eis/Volume_4/Vol_4_Chapter3_Project_descrip.pdf

West Australian Department of State Development 2011, LNG on Western Australia, West Australian Department of State Development, Perth, Western Australia. http://www.dsd.wa.gov.au/about-the-state/major-resource-producer/lng-profile

Habibullah A., Lardi P. and Passmore M. 2009, LNG Conceptual Design Strategies, WorleyParsons, California, USA. http://www.worleyparsons.com/CSG/Hydrocarbons/Documents/LNG%20Conceptual%20Design%20Strategies.pdf

Lombardo L. 2003, Overview of Floating Production, Storage and Offtake (FPSO) Services Agreements, Australian resources and energy law journal Issue 22(4). pp, 468 to 484, The Resources and Energy Law Association, Melbourne, Australia. http://www.austlii.edu.au/au/journals/AURELawJl/2003/104.pdf

Net Resource International 2012, Darwin LNG Project, Darwin Harbour, Australia, Hydrocarbons Technology Melbourne, Australia. http://www.hydrocarbons-technology.com/projects/darwin/darwin6.html

Woodside Energy Limited n.d, Browse LNG Development, Woodside, Perth, Western Australia. http://www.woodside.com.au/Our-Business/Developing/Browse/Pages/Browse.aspx

Woodside Energy Limited n.d, North West Shelf Project, Woodside, Perth, Western Australia. http://www.woodside.com.au/Our-Business/Producing/Documents/NWSV%20Corporate%20Brochure.PDF

Woodside Petroleum 2012, ASX Announcement - Woodside Investor Site Tour, Woodside, Perth, Western Australia. http://www.woodside.com.au/Investors-Media/Announcements/Documents/29.05.2012%20Woodside%20Investor%20Site%20Tour.pdf (back)