Reconciliation of the United States-Canadian Current Account, 2010 and 2011^{Note 1}

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Reconciled Current Account Balances
Summary of reconciliation methodology
Note on the Canadian - U.S. current account reconciliation
Acknowledgements

This article presents the results of a reconciliation of the bilateral current account statistics of Canada and the United States for 2010 and 2011^{Note 2}. Bilateral reconciliation exercises are useful for identifying potential improvements in measures of international transactions between trading partners.

On a reconciled basis, the Canadian current account balance with U.S. is a Canadian deficit or a U.S. surplus of US$2.2 billion for 2010 and a Canadian deficit or a U.S. surplus of US$2.4 billion for 2011 (see tables)^{Note 3}. The official U.S. current account balance with Canada is a U.S. surplus (Canadian deficit) of US$18.1 billion for 2010 and a U.S. surplus (Canadian deficit) of US$27.1 billion for 2011. The official Canadian current account balance is a Canadian deficit of US$5.4 billion for 2010 and a Canadian surplus of US$5.2 billion for 2011.

For 2011, the total downward adjustment to the official U.S. current account balance to arrive at the reconciled balance was US$24.6 billion or 3.2 percent of total transactions (goods, services, income, and unilateral current transfers) between the United States and Canada based on the official U.S. statistics. For 2011, the total downward adjustment to the official Canadian current account balance was US$7.6 billion or 0.9 percent of total transactions based on the official Canadian statistics.

Aggregated results of the reconciliations are presented in this article followed by summary tables^{Note 4}. Supplementary tables of the current account reconciliation for 2010 and 2011 are available on demand^{Note 5}.

Reconciled Current Account Balances

For the Canadian current account, the reconciliation results in a downward adjustment to the Canadian deficit of US$3.2 billion for 2010 and in a downward adjustment to the Canadian surplus of US$7.6 billion for 2011. For 2010, the downward adjustment to the Canadian deficit reflects downward adjustments to Canadian northbound transactions that are partly offset by downward adjustments to Canadian southbound transactions^{Note 6}. For 2011, the downward adjustment to the Canadian surplus reflects downward adjustments to Canadian southbound transactions that are slightly offset by downward adjustments to Canadian northbound transactions. For both years, the largest downward adjustments to Canadian southbound transactions result from definitional adjustments to eliminate withholding taxes from unilateral current transfers; from definitional adjustments to unaffiliated services, mainly financial services; and from statistical adjustments to affiliated services^{Note 7}. For both years, the largest downward adjustments to Canadian northbound transactions result from statistical adjustments to affiliated services and unilateral current transfers and from definitional adjustments to goods.

For the U.S. current account, the reconciliation results in a downward adjustment to the U.S. surplus of US$15.9 billion for 2010 and a downward adjustment to the U.S. surplus of US$24.6 billion for 2011. For both years, the downward adjustments to the U.S. surplus reflect upward adjustments to U.S. southbound transactions that are partly offset by upward adjustments to U.S. northbound transactions. For both years, the largest upward adjustments to U.S. southbound transactions result from definitional adjustments to add Canadian re-exports to U.S. goods imports and from statistical adjustments to “other” services^{Note 8}. Within “other” services, the largest statistical adjustments were in affiliated services, computer services, and financial services. For both years, the largest upward adjustments to U.S. northbound transactions result from statistical adjustments to “other” services and from statistical and definitional adjustments to “other” investment income^{Note 9}. Within “other” services, the largest statistical adjustment was in affiliated services. Within “other” investment income, the largest statistical and definitional adjustment was in interest on portfolio investment.

Summary of reconciliation methodology

To reconcile the official Canadian and U.S. bilateral current account statistics, the official statistics are first restated to a common basis, that is, they are adjusted for definitional and methodological differences; and then statistical adjustments are applied to reach the reconciled values. The framework for restating the statistics to a common basis mainly follows the international guidelines published in the International Monetary Fund's Balance of Payments Manual (fifth edition). The official Canadian and U.S. statistics now largely conform to the international guidelines, but some differences from the international guidelines, and between the Canadian and U.S. statistics, remain because of data limitations, difficulties in determining country attribution, and differences in classification. In addition the international guidelines can sometimes provide for more than one acceptable treatment.

Definitional adjustments mainly reflect data limitations and differences in country attribution. For example, as part of the reconciliation, U.S. official statistics on imports of goods from Canada are adjusted upward to include Canadian re-exports to the United States (goods imported by Canada from third countries and then re-exported to the United States without substantial changes) because U.S. imports of goods are recorded on a country of origin basis. This adjustment increases the U.S. goods deficit with Canada and reduces the U.S. goods deficit with other countries. Another example of a definitional adjustment is that the Canadian official statistics, mainly investment income, are adjusted to a common basis that is net of withholding taxes because some U.S. withholding tax are included on a global basis in the U.S. official statistics and cannot be allocated by country for comparison with the Canadian statistics. While this definitional adjustment results in reconciled statistics that are inconsistent with international guidelines, the statistics could not be compared on a common basis without it.

Methodological adjustments mainly reflect differences in classification. For example, in the U.S. official statistics, education services are recorded in “other” services; for the reconciliation, they are reclassified to travel services. A few U.S. and Canadian accounts, mainly interest income, are adjusted to a net or gross basis for comparability. These adjustments do not affect the current account balance because the northbound and the southbound adjustments are offsetting.

Statistical differences reflect the use of different source data in the United States and Canada, the difficulty in determining country attribution because of insufficient data, the preliminary nature of some data (particularly for the most recent year), and the use of sample data between benchmarks. For both the northbound and the southbound statistics, most of the statistical differences are in the “other” services and investment income accounts.

Note on the Canadian - U.S. current account reconciliation

The Canadian-U.S. current account reconciliation, which explains the differences between the official bilateral statistics published by Statistics Canada and those published by the U.S. Bureau of Economic Analysis (BEA), is undertaken because of the extensive economic links between Canada and the United States. The reconciled estimates are intended to assist analysts who use both countries' statistics and to show how the current account estimates would appear if both countries used common definitions, methodologies, and data sources.^{Note 10}

In principle, the bilateral current account of one country should mirror the bilateral current account of the other country. Differences occur in the official statistics of the U.S. and Canadian current accounts because of variations in the definitions, methodologies, and sources used by each country. Some of the differences for 2011 are in components of the current account for which data are preliminary and subject to revision; these differences may be reduced or eliminated when final data for these components are incorporated.

The longstanding Canadian-U.S. current account reconciliation is among the leading examples of the benefits of international data exchanges. As a part of the reconciliation process, Canada and the United States have evaluated the accuracy of each other's statistics, and as a result, each country now includes in its official statistics data that are provided by the other country. The exchange of data between Canada and the United States for transactions such as trade in goods, travel, passenger fares, Canadian and U.S. Government transactions, and some large transportation transactions covers a substantial portion of the value of the Canadian and U.S. current account and has eliminated some of the differences in the Canadian and U.S. official statistics. In addition, the reconciliation process has identified areas where errors and omissions may exist helping each country to target data improvement efforts.

Although the U.S. and Canadian official statistics are reconciled and extensive exchange of data take place between Canada and the United States, differences in the official statistics remain. Complete substitution of the reconciled statistics for official statistics and complete exchange of data are not feasible for several reasons. For trade in goods, imports in the U.S. accounts would be affected because the United States attributes Canadian re-exports to the country of origin rather than to Canada, the last country of shipment. For some accounts, the protection of the confidentiality of the source data bars the exchange of data. Finally, a few differences are attributable to different requirements for integrating the international and national (domestic) accounts in each country.

Acknowledgements

The reconciliations were carried out under the direction of Edward Dozier, Chief, Travel and Transportation Section and Barbara Berman, international economist from the Bureau of Economic Analysis and of Éric Boulay, Chief, Financial Account, Denis Caron, Chief, Current Account, and Bryan van Tol, Chief, Direct Investment Redesign from Statistics Canada.

At BEA, Mai-Chi Hoang was responsible for reconciling goods; Edward Dozier and Anne Flatness, for services, with the assistance of Lori Chang for financial services; Peter Fox, for the accounts related to Canadian direct investment in the United States; Mark New, for the accounts related to U.S. direct investment in Canada; and Barbara Berman, for the portfolio income accounts.

At Statistics Canada, Denis Caron was responsible for reconciling Canadian goods and services; Bryan van Tol, for Canadian direct investment income; and Éric Boulay, for Canadian portfolio investment income, with the collaboration and assistance of David Benes, Komal Bobal, Marie-Josée Lamontagne, and Éric Simard.

Table 1 Canada-United States Current Account Reconciliation - 2010

Table 2 Canada-United States Current Account Reconciliation - 2011

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Notes:

1. Except for minor editorial changes and the addition in Table 1 of a Canadian dollar column to link with Canadian statements, the text is the same as that published in the U.S. Department of Commerce Survey of Current Business, January 2013. However, supplementary tables are included in the article of the Survey of Current Business.
2. A country’s current account, a component of its balance of payments (or international transactions) accounts, measures transactions in goods, services, income, and net unilateral current transfers between residents of that country and non residents.
3. The reconciled statistics show how current account items would appear if both countries used the same definitions, methodologies, and data sources.  In this article, all values are expressed in U.S. dollars. The reconciled statistics presented in the tables following this article may differ from the official statistics published by the U.S. Bureau of Economic Analysis (BEA) and by Statistics Canada.
4. The reconciliation of the current account was undertaken each year from 1970-2008.  Following the 2008 reconciliation, BEA and Statistics Canada agreed to reconcile every other year.  Summary results of the reconciliations were published in the United States in the following issues of the Survey of Current Business: June 1975, September 1976 and 1977, December 1978 and 1979, June 1981, and each December of 1981-91.  Complete details of the reconciliations were published in the following issues of the Survey:  November 1992, each October of 1993-95, and each November of 1996-2008, and in December 2010.  In Canada, the results were published in the following issues of Canada’s Balance of International Payments (catalogue 67-001), a publication of Statistics Canada:  Fourth Quarter 1973, Second Quarter 1976 and 1977, Third Quarter 1978 and 1979, First Quarter 1981, and each Third Quarter of 1981-2008; and in Canada’s Canadian Economic Accounts Quarterly Review (catalogue 13-010-XE), a publication of Statistics Canada, Fourth Quarter of 2010.
5. To receive the supplementary tables, contact us (toll free 1-800-263-1136; infostats@statcan.gc.ca). For the reconciliation, some of the details presented in the tables in this article differ from those presented in the balance of payments tables regularly published by the U.S. Bureau of Economic Analysis and by Statistics Canada.
6. In this article, the term "northbound" refers to U.S. exports of goods and services, U.S. income receipts, and current unilateral transfers to the United States, and it refers to Canadian imports of goods and services, Canadian income payments, and current unilateral transfers from Canada. The term "southbound" refers to U.S. imports of goods and services, U.S. income payments, and current unilateral transfers from the United States, and it refers to Canadian exports of goods and services, Canadian income receipts, and current unilateral transfers to Canada.
7. Affiliated transactions consist of intra-firm trade within multinational companies, specifically, trade between U.S. parent companies and their foreign affiliates and trade between U.S. affiliates and their foreign parent groups.
8. “Other services” includes royalties and license fees, insurance, financial services, education and training, communications, computer services, business services, sports and entertainment, government services, and military services.
9. “Other” investment income includes dividends and interests on portfolio investment holdings of equity and debt securities and interests on deposits, loans, and other types of debt instruments, and excludes income from direct investment.
10. A detailed article on the methodology was published by BEA in "Reconciliation of the U.S.-Canadian Current Account" in the November 1992 Survey and by Statistics Canada in Reconciliation of the Canadian-United States Current Account, 1990-1991. Statistics Canada also published a shortened version in the December 1992 Canadian Economic Observer and in Canada's Balance of International Payments, Third Quarter 1992.