UK Trade in Goods Statistics – A QIF project

1. UK Trade in Goods Statistics – A QIF project Rafael Mastrangelo (HMRC) Jonathan Digby-North (ONS)

2. Outline • Introduction • Current methodology • Analysis • Recommendations • Implementation

3. Introduction • Estimate EU imports (arrivals) and EU exports (dispatches) for those businesses below the Intrastat threshold. • Threshold for EU imports changing from £0.6m (95%) to £1.2m (93%) • Question: Is the current methodology good enough to estimate the BTT when the threshold increases? • …thresholds will change yet again in future (imports from 93% to 90%, and exports from 97% to 95%)

4. Current Methodology • Two allocations, monthly and annual • The factors produced for the annual BTTAs are used for the following year’s monthly BTTAs. • Assumes that traders below the threshold are similar to traders just above the threshold. • Performed completely separately for Arrivals and Dispatches.

5. Just Above Threshold Trade (JATT) • The JATT forms the basis for the annual allocations. • Calculated by: • Total the BTT to be allocated (total Global Declarations by below threshold traders) • Total the Supplementary Declarations by each trader • Sort traders from smallest to largest • Select traders from the smallest upwards until the total trade is equal to the BTT total (or larger). • The trade by these traders is the JATT.

6. SD JATT ij SD TATT ij = = i Country, j 4 digit comcode, = SD Supplementary declarations = JATT Just above threshold trade, = TATT Total above threshold trade. Calculating the Factors • For each partner country and 4-digit heading, the factor is the trade in that combination in the JATT as a proportion of all declared trade in that combination.

7. Approach B14 B14 B8 B8 B7 B7 B1 B1

8. Approach B8-14 = 75% NB6-7

9. Approach JATT = TATT = 130% NB6-7

10. Recap – Current Methodology • JATT size defined so: Total trade in JATT = Total trade in BTT • For each country/4-digit product combination use previous year’s annual dataset to calculate proportion of total trade conducted by the JATT • Apply factor to total in month of current year to obtain estimates • Scale these estimates so sum to known BTT total in month • Aggregate to level required (e.g. Country level) • Refer to as ‘4-digit Annual’ model

11. Possible alternative methods • Calculate factor using monthly data? • Calculate factor at 2/4/8-digit (HS2/HS4/CN8) product level? • Include SIC? • Use admin data (e.g. VAT Information Exchange System) / survey some of BTT?

12. Models to investigate • Vary product level and time period in factor calculation • Six models: 2,4,8-digit Monthly; 2,4,8-digit Annual • Test with an increasing JATT size • Recommend: • Best JATT size for current model (‘4-digit Annual’) • Best overall JATT size/model combination • Compare to extension of current methodology: • B8-14 JATT (= approx 75% of NB6-7) with ‘4-digit Annual’ model

13. Requirements and model evaluation • Both recommendations required at a country, HS2 Chapter and country by HS2 Chapter level • Evaluate model performance using: • Total annual absolute difference between estimates and actual values at each level – want minimum • Value of Pearson’s correlation coefficient at each level – want maximum

14. Analysis JATT=TATT Best JATT size for current model B8-14 JATT with current model Best JATT size/model combination

17. Application of models • Apply below models at a country and HS2 Chapter level • Current Methodology • B8-14(= approx 75% of NB6-7) as JATT with 4-digit Annualmodel • Optimal JATT with Current Model • 21%of NB6-7 as JATT with 4-digit Annualmodel • Optimal JATT with Optimal Model • 25%of NB6-7 as JATT with 4-digit Monthly model

18. Application of models • High trade (>£10bn) – Germany, Netherlands, France, Belgium, Italy, Irish Republic, Spain • Medium trade (£2.5bn - £10bn) – Sweden, Poland, Denmark, Czech Republic, Hungary, Austria • Low trade (<£2.5bn) – Finland, Portugal, Slovakia, Romania, Luxembourg, Greece, Lithuania, Latvia, Slovenia, Bulgaria, Estonia, Malta, Cyprus • 98 HS2 Chapters (products): High trade >£500m; Low trade <£500m

19. Application of models – Country level

20. Application of models – HS2 level

21. Recommendations Future reductions • Conduct similar analyses to assess quality of estimates • Also recommend sampling from BTT and using standard estimation methodology if quality deteriorates

22. HMRC implementation of methodology • Implement the Optimal JATT with Optimal Model: • 25% of NB6-7 as JATT with 4-digit Monthly model • For Jan 2015 account which is published in Mar 2015. • Evaluate publishing at HS2 digit and country instead of CN8 digit and country.

23. Questions?