Data quality, concepts and methodology

Services

1. Concepts

International transactions in services are a major component of the Current account of the Balance of payments. Services are grouped under four major categories: travel, transportation, commercial services and government services. ¹ Such services, together with goods, investment income and current transfers make up the Current account of the Balance of payments (BOP). ² The Balance of payments of Canada measures the economic transactions of Canadian residents with the residents of other countries.

Services covers a wide and complex variety of transactions on products that are generally intangible in nature.

Unlike goods, services are not separate entities over which ownership rights can be established. They cannot be traded separately from their production. Services are heterogeneous outputs produced to order and typically consist of changes in the conditions of the consuming units realized by the activities of producers at the demand of the consumers. By the time their production is completed they must have been provided to the consumers. ³

Since, by nature, most services are not traded separately from their production, these transactions usually require the simultaneous presence of the producer and the consumer of the services. This simultaneity is not easily realized between countries where distance and political boundaries separate the supplier and client. This largely explains the lower volume of trade in services when compared with goods, where both the seller and buyer of goods remain in their respective domestic economies, while the goods they trade move across the border.

International trade negotiations which extended in recent years to cover services and which have resumed at the World Trade Organization (WTO) have increased the demand to provide detailed breakdowns of service categories as well as data for individual countries. Canadian statistics on crossborder services are produced for over 40 categories based on the international standards initially set out by the International Monetary Fund in 1993 and subsequently extended by the OECD and Eurostat (the statistical arm of the European Union). ⁴ This breakdown is based to a significant extent in the Central Product Classification (CPC), ⁵ whose main objective "is to provide a framework for international comparison of various kinds of statistics dealing with goods, services and assets." ⁶ Since the CPC is also used by trade negotiators to classify services, a formal development of the link between the balance of payments classification and the CPC has various implications for data specification and development, which is driven, in part, by the requirements of the WTO.

The definitions and breakouts now form a key chapter in a new manual on services trade data, approved by the United Nations Statistical Commission in March 2001 for international use. ⁷ Some 60 types of services are provided for in what is known as the Extended Balance of Payments classification. These breakouts are linked more fully than earlier norms to the UN's Central Product Classification. ⁸

Services are largely traded by Canadian business corporations. A small portion is also traded by Canadian governments and their enterprises. Moreover, because Canada's balance of payments does not include a distinct account for labour income as called for by international standards, income from compensation of employees is treated as commercial services as if the employees were self-employed service providers. Data limitations restrict their identification.

Special care needs to be taken in establishing the residency of the Canadian transactors involved for services, since it is not always clear if the services are provided by a resident or by a non-resident entity. For example, if a Canadian company has a subsidiary located in the United States, sales of services by the U.S. subsidiary to clients outside Canada are not to be recorded in Canada's balance of payments statistics, since such sales are considered as non-resident to non-resident transactions and, hence, beyond the balance of payments framework. Although this treatment also applies to goods and other accounts, corporations are often motivated to set up foreign concerns for the sole purpose of trading services. Sales outside the domestic economy are referred to as 'establishment trade' (that is, trade arising from a business established abroad) or 'foreign affiliate trade in services' (FATS). ⁹ 'Commercial presence' trade (named after the third of four main channels for supplying services in the multilateral WTO General Agreement on Trade in Services [GATS]) is more narrowly defined, referring only to sales within the host market. The net profits of such foreign subsidiaries accruing to Canada are, however, recorded as direct investment income in the current account. This treatment is in keeping with the balance of payments and other national accounting principles that focus on cross-border activities of Canadian residents.

A full discussion of the concepts and measurement of foreign affiliate trade statistics is also found in the new UN manual on services trade statistics noted above.

2. Sources

Services can take numerous forms and thus entail a wide range of data sources. Significant portions of the data on services, particularly travel and commercial services, are derived from surveys. In addition, 40% of all receipts and about 30% of payments are based directly or indirectly on administrative records. For travel estimates, expenditure factors from survey sources are synthesized with administrative data on the number of travellers; from time to time, administrative data are also used in the verification of travel data. For commercial services and transportation services, survey data are the main source, with annual administrative data used to assess and improve survey results. Administrative data are largely used for government services. Benchmark indicators are used to derive certain service estimates for which current direct measures are not available. Finally, long established reconciliations of current account statistics with the U.S. Bureau of Economic Analysis has now led to some 13% of bilateral services data for Canada being supplied by the United States.

3. Methods

Travel series are compiled by the Culture, Tourism and Centre for Education Statistics Division of Statistics Canada. All other services are compiled by the Balance of Payments Division drawing on diverse surveys and other sources from within and outside the Division. Details follow in the sections below for each major services account.

4. Products

4.1 Data accuracy and quality

The quality of the data varies, from reliable in the case of commercial and government services to acceptable in the case of travel and transportation series. (For each of the accounts, a qualitative indicator has been adopted: most reliable, reliable and acceptable. By its very nature, this assessment is subjective in that it represents the professional judgement of statisticians as to the degree of error and bias, taking into account the available sources of information and the methodology used).

4.2 Data accessibility

The quarterly and annual series on commercial services are published as total receipts, payments and balances in the quarterly publication Canada's Balance of International Payments (available in electronic format on the Internet) and in CANSIM.

In the present annual publication Canada's International Trade in Services (available in electronic format on the Internet) and in CANSIM, the annual series for services are published for the six geographical groupings: United States, United Kingdom, Other European Union, Japan, Other OECD and Other Countries. The annual services series are broken down among four major categories of services: travel, transportation, commercial and government, with a maximum detail of 42 categories for all countries in total.

Total services are available for 59 countries (from 1990 through 2003 on CANSIM), as well as for 19 global trading areas. Each country and area has a breakout of travel; commercial services; and transportation and government services combined.

The total for all services is also summarized by country and broad geographic regions of the world in Table 13-1 of this publication. In the past, the listing of world areas largely paralleled those in the presentation of trade data on goods on a customs basis, with which many users are already familiar. User preferences and the development of partner country compilations at the Organization for Economic Cooperation and Development however, have led to some modifications of geographic zones to align more closely with actual continental boundaries. For example Turkey and Egypt have been respectively shifted to Europe and Africa so that the Middle East region pertains only to Asia. The Antilles designates the Caribbean islands and Bermuda separately from Central America. Three OECD countries in eastern Europe together with Iceland are a sub grouping of Europe, and the Maghreb countries are a subgrouping of continental Africa. An estimate of the CARICOM countries joins the FTAA as a memorandum item.

The great majority of detail is published separately for the United States as well. Starting with the 1997 edition of this publication, a quarterly breakout with sub-series under travel, transportation and commercial services was introduced from 1995 onward, both on a raw and seasonally adjusted basis. Quarterly travel data is broken down into two sub-categories, transportation into three, and commercial services into 14 components.