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5368.0 - International Trade in Goods and Services, Australia, May 2006  
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Feature Article: Revised Treatment of Goods for Processing in Merchandise Trade and Balance of Payments Statistics


Introduction

1. This paper describes changes to the treatment of goods for processing in merchandise trade and Balance of Payments (BoP) statistics and the impact on the related statistical series including the national accounts. The changed treatment of goods for processing will impact in particular on non-monetary gold as some non-monetary gold exports and imports are currently classified as goods for processing.

2. The changed treatment of goods for processing in merchandise trade and BoP statistics will be introduced in respect of the June 2006 reference month. The reclassification of import and export transactions from goods for processing to other components will not have any impact on the balance of goods (in original, current price terms) nor the chain volume measures in the quarterly national accounts but it will result in a break in series for one merchandise trade export series.

What are goods for processing?

3. Paragraph 3.11 of International Merchandise Trade, Australia: Concepts, Sources and Methods, 2001 (cat. no. 5489.0) says:

    Goods for processing (included in merchandise exports and imports statistics) are goods entering or leaving Australia for processing and returning to the country from which they were consigned for processing. As processing is more than minor operations and repairs, the gross value of the exports and imports is recorded. The fee earned for processing is included in the gross value of the goods.

4. Australia's merchandise trade statistics are based on documents lodged by exporters and importers with the Australian Customs Service. Merchandise trade statistics form the basis of goods data in the BoP but adjustments are included in the BoP for significant transactions which are not consistent with the BoP change of ownership, timing or coverage principles.

5. Consistent with current international standards, goods for processing are currently included in the BoP even though the nature of the transaction described in paragraph 3 implies that ownership has not changed between a resident and a non-resident. This treatment is being reconsidered in the current review of the international Balance of Payments Manual.

Current treatment of goods for processing

6. Goods imported for processing are reported under the Harmonised System Tariff item statistical code appropriate for the commodity being imported. Treatment codes, which are applied to certain goods receiving duty or other concessions, are used to distinguish goods imported for processing. Two codes are currently used - 721 and 821. Treatment code 821 is allocated to goods covered by the TRADEX scheme which was implemented in June 2000 and allows "the importation of goods without payment of duty or other taxes provided the goods are subsequently exported or incorporated in goods which are exported". While validating the data, ABS staff allocate treatment code 721 to other commodities identified as being imported for processing.

7. The goods allocated to these treatment codes are included in merchandise trade import statistics according to their substantive statistical code but separate statistics by treatment code are also available.

8. Goods exported after processing can be reported under Australian Harmonized Export Commodity Classification (AHECC) statistical code 9805.00.00, Goods re-exported from Australia after industrial processing. If ABS staff identify an export shipment reported under a different statistical code which should be classified as goods for processing, it is reclassified to AHECC 9805.00.00.

9. In BoP statistics treatment codes 721 and 821 are used to identify goods imported for processing and AHECC 9805.00.00 is used to identify goods exported after processing. The value of imported goods identified as goods for processing are reclassified from 'Processed industrial supplies n.e.s.' or 'Non-monetary gold' to 'Goods for processing' in BoP goods debits. The value of exported non-monetary gold identified as goods for processing is reclassified from 'Non-monetary gold' to 'Goods for processing' in BoP goods credits. (Refer to tables 3 and 4 of International Trade in Goods and Services, Australia (cat. no. 5368.0) for an example of this presentation.)

10. An investigation in the 1990s determined that most non-monetary gold imported into Australia did not change ownership between a resident and non-resident and was re-exported after processing. Consequently, criteria were determined which identified a significant number of non-monetary gold transactions as goods for processing and this treatment has been applied to transactions meeting these criteria since then.

Revised treatment of goods for processing

11. Merchandise trade statistics are compiled from about 200,000 export transactions and 800,000 import transactions per month. It is not possible to validate all these transactions and the ABS quality assurance strategy aims at guaranteeing the quality of trade statistics at the six digit level of the Harmonized System. As part of the quality assurance strategy the ABS periodically undertakes a detailed review of particular processes or parts of the data. A review of the treatment of goods for processing has been completed and, as a result, revised procedures identified.

12. The review identified that goods imported under treatment code 821 (TRADEX scheme) should not be automatically treated as goods for processing. This scheme was introduced in June 2000 to encourage exporting of goods manufactured in Australia using imported components. Although these goods are currently treated by the ABS as goods for processing, the goods usually involve a change of ownership and do not satisfy the goods for processing definition in paragraph 3.

13. The review clarified the nature of gold credits which are usually received in exchange for non-monetary gold. Gold credits are a financial instrument and change of ownership occurs when gold credits are exchanged for non-monetary gold. The investigation also revealed that there had been some consolidation in the processing industry and some changes in practices. The review concluded that while some non-monetary gold continues to be imported for processing (and can be significant in some months), most imported non-monetary gold is purchased by an Australian resident from non-residents and subsequently exported to different non-residents. These non-monetary gold imports are not processed separately from other non-monetary gold.

14. The ABS will revise BoP statistics to correct the classification of these transactions but will not revise merchandise trade statistics due to the cost and complexity of doing so. The following tables summarise the changes that will occur from the June 2006 reference month:

Table 1 - Current and proposed treatment in merchandise trade statistics

Statistical seriesCurrent treatmentProposed treatmentImpact on time series
Merchandise trade exportsGoods for processing classified to AHECC 9805.00.00No change (but fewer transactions will be classified to AHECC 9805.00.00)Break in series between May and June 2006 for AHECC 9805.00.00 and the related SITC items(a)
Merchandise trade imports - commodity statisticsGoods for processing classified to their nominal Harmonised System Tariff item statistical code No changeNo impact on merchandise imports by statistical code nor by the related SITC items(a)
Merchandise trade imports - treatment code statisticsTreatment code 721 allocated to commodities identified as being imported for processingNo change (but fewer transactions will be classified to treatment code 721)Break in series for treatment code 721 between May and June 2006.
No impact on treatment code 821 (but this treatment code will no longer be used to identify goods for processing for BoP purposes)
(a) The relevant Standard International Trade Classification (SITC) items are 93 - Special transactions and commodities not classified according to kind and 97 - Gold, non-monetary (excl. gold ores and concentrates).

Table 2 - Current and proposed treatment in BoP statistics

Statistical seriesCurrent treatmentProposed treatmentImpact on time series
BoP credits (exports)AHECC 9805.00.00 classified as goods for processingAHECC 9805.00.00 classified as goods for processing (but fewer transactions will be classified to 9805.00.00)The relevant SITC items(a) and the relevant items in the BoP export classification(b) will be revised back to 1998–99 to reclassify non-monetary gold transactions no longer considered goods for processing
BoP debits (imports)Treatment codes 721 and 821 classified as goods for processingTreatment code 721 classified as goods for processing (but fewer transactions will be classified to this treatment code)The relevant SITC items(a) and the relevant items in the BoPBEC classification(c) will be revised back to 1998–99 to remove treatment code 821 and to reclassify non-monetary gold transactions no longer considered goods for processing
(a) The relevant Standard International Trade Classification (SITC) items are 93 - Special transactions and commodities not classified according to kind and 97 - Gold, non-monetary (excl. gold ores and concentrates).
(b) The relevant BoP export classification items (as presented in table 3 of International Trade in Goods and Services, Australia (cat. no. 5368.0)) are Goods for processing and Non-monetary gold.
(c) The relevant BoP Broad Economic Category (BoPBEC) (import) items (as presented in table 4 of International Trade in Goods and Services, Australia (cat. no. 5368.0)) are Goods for processing, Non-monetary gold and Processed industrial supplies n.e.s..

15. Consistent with the transaction data available, BoP time series will be revised for the above changes from 1998–99 onwards. Revisions to earlier periods may be made in the future if subsequent investigations, possibly associated with the upcoming revisions to the Balance of Payments Manual, identify any other transactions incorrectly classified.

16. The impact on the estimates varies for each financial year but in broad terms the impact on goods credits (exports) for 2004–05 is that goods for processing will be reduced by about $700m and non-monetary gold increased by the same amount. With goods debits (imports) for 2004–05 goods for processing will be reduced by almost $3b and non-monetary gold and processed industrial supplies n.e.s. will be increased by about $2b and $1b, respectively.

17. It is important to note that the reclassification of import and export transactions from goods for processing to other components will not have any impact on the balance of goods (in original, current price terms).

18. As the revised treatment of goods for processing only involves a reclassification, it will not have an impact on the national accounts. In particular, the reclassification will not impact on the quarterly chain volume measures as goods for processing are deflated using the same deflators as those for non-monetary gold and processed industrial supplies n.e.s..
    Conclusion

    19. The merchandise trade and BoP quality assurance strategy includes periodic reviews of ABS procedures or parts of the data. A review into goods for processing identified errors in current procedures and these are being rectified from the June 2006 reference month. Correcting these series will not impact on the balance of goods in the BoP (in current price, original terms) nor the chain volume measures in the quarterly national accounts.

    20. If you require more information about the changes please contact Stephen Wallace on (02) 6252 5501.

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