Principles of international trade in services statistics

The term “services” covers a wide range of intangible and varied products and activities that are difficult to describe with a single definition.

Broadly there are two types of services:

• Transformation services – services that are the result of a production activity that changes the mental or physical condition of a good or consumer (e.g. the provision of education, repair or accommodation).
• Margin services – services that facilitate the exchange of products or financial assets (e.g. transport and financial services).

Services are often difficult to separate from the goods with which they may be associated. Some service categories (such as Travel, Construction and Government goods and services not included elsewhere) specifically include the value of goods. Similarly, trade in goods statistics may include service charges for insurance, intellectual property payments or packaging.

In macroeconomic terms, the main principle of international trade in services statistics is to record the services trade between residents and non-residents of an economy. This is consistent with the Balance of Payments and System of National Accounts.

International trade in services statistics measure export (credit) and import (debit) transactions and the resulting balance (credits minus debits), consistent with methodological standards for macroeconomic statistics compilation.

The ABS compile international trade in service statistics in accordance with international conceptual and classification frameworks including the:

• Manual on Statistics of International Trade in Services 2010 (MSITS 2010);
• International Monetary Fund’s Sixth Edition of the Balance of Payments and International Investment Position Manual (BPM6) - which includes the Extended Balance of Payments Services Classification 2010 (EBOPS 2010);
• System of National Accounts 2008 (2008 SNA); and
• World Trade Organisation’s General Agreement on Trade in Services (GATS).

The Balance of Payments Manual (BPM6) defines twelve, categories of services trade which are then extended into detailed sub-items by the Extended Balance of Payments Services Classification (EBOPS 2010):

1. Manufacturing services on physical inputs owned by others
2. Maintenance and repair services not included elsewhere
3. Transport
4. Travel
5. Construction
6. Insurance and pension services
7. Financial services
8. Charges for the use of intellectual property not included elsewhere
9. Telecommunications, computer and information services
10. Other busines services
11. Personal, cultural and recreational services
12. Government goods and services not included elsewhere

The concept of residency is vital for international trade statistics – including for international trade in services.

Residency is not based on location, nationality or legal status (e.g. citizenship). Instead, residency is defined by ‘the centre of predominant economic interest’ of an organisation or individual.

It is not always easy to determine the residency for an organisation or individual. Typically, residency is determined based on (or intent to engage in) significant economic activity. Economic activity can be deemed significant either by value, or by time (usually a minimum of one year).

An exception to this residency guideline is for international students, who are deemed residents of their home economies for the duration of their study.

For example, a tourist from New Zealand who visits Australia for a month is classed as a non-resident and therefore their travel would contribute to international trade in services. If that tourist decided to stay in Australia to undertake study, they would continue to be classed as a non-resident and their education related travel would continue to contribute to international trade in services statistics. If instead, they chose to extend their holiday to Australia and stayed for longer than twelve months, they would transition from a non-resident to a resident for the purposes of international trade statistics. Their expenditure would no longer be captured in international trade in services statistics as it is assumed that they have set up a household within Australia and are contributing to the economy domestically.

Where possible, international trade in services transactions should be recorded at the time in which they were rendered (delivered or received). This may differ from the time at which payment for those services was received. That is, transactions should be recorded on an accrual rather than a cash accounting basis.

An example of this would be a rock band performing an international tour. It is likely that venues along the tour route would be secured and payed for well in advance of each concert, but these transactions should be recorded as occurring at the concert date. 

All transactions should be recorded in Australian dollars, the common unit of account.

When services are transacted in other currencies, the market exchange rate at the time of the transaction should be used to convert the value to Australian dollars.

The price at which buyers and sellers trade the service in an open marketplace (the market price) should be used as the basis of valuation for international trade in services transactions.

Exchanges between affiliated enterprises often use the book-keeping concept of “transfer pricing” which may not be based on market considerations. Adjustments may be made to reports of transfer pricing to reflect market price equivalents.