1. Trade Data by Level of Processing International Trade Conference September 2008 Ken Smart

2. A new classifcation for trade data The New Zealand Standard Trade Classification – Level of Processing …or LOP

3. Overview • Why LOP was developed • How it was developed • The theory behind the classification • Consultation • What we’ve done with it • What we’d like to do with it • What others might do with it…

4. Why LOP was developed • In 2006, interest was expressed in trade data by ‘level of processing’ • Client was aware of the Australian Trade Exports Classification (TREC) and wanted the same available for NZ trade data… …something that everybody could use

5. Why LOP was developed - TREC • TREC is published by the Australian Department of Foreign Affairs and Trade (DFAT). • TREC groups commodities by ‘level of processing’. • In 2001 Statistics NZ published an experimental NZ version of TREC. • In 2006, a consultation reviewed the merits of TREC and the Standard International Trade Classification (SITC). • SITC was preferred to TREC (and is now published in our monthly HOTP information release) • However, it was clear the theory of TREC had a lot to offer and there was still considerable interest in data of this sort

6. How LOP was developed • Use SITC to develop an alternative to TREC? • Multiple benefits: • SITC is an international standard – allows for international comparability • minimal maintenance • SITC already has simple ‘level of processing’ implications • detail, but not too much detail – LOP development would be more manageable • starting from scratch allowed Statistics NZ to adopt a theory and structure that allowed the arbitrary nature of ‘level of processing’ assignments to be minimised • Problems?

7. How LOP was developed - cont • Using SITC as base classification for LOP limits size and complexity – but also limits detail and flexibility. • There are limitations in the HS to SITC aggregations. • Any ‘level of processing’ classification requires arbitrary decisions and definitions. • Groupings used in SITC and HS became a tool for use in LOP (e.g. meat Vs meat preparations, found in different HS chapters – 02 & 16). • Arbitrary definitions are not a significant problem if they are consistently applied.

8. How LOP was developed - Structure • SITC has a ‘natural’ top level split which matches TREC – Primary Products Vs Manufactures. • Added validity from a standardised classification producing the same numbers at the top level. • Following TREC: • ‘unprocesssed’ and ‘processed primary products’ • ‘simply’ and ‘elaborately transformed manufactures’ • Anything more than a two-way split problematic. • SITC provided direction regarding the divisions but consistent criteria necessary.

9. LOP Structure - cont A hierarchical classification of five levels • Level one has 3 categories • Level two has 5 categories • Level three has 20 categories • Level four has 59 categories • Level five has 208 categories – excluding residual categories Which looks like….

10. The theory behind LOP Primary Products – unprocessed or processed: Unprocessed primary products – simply preserved or worked: simply preserved - fresh, chilled, frozen, dried or otherwise simply preserved simply worked - cut, sliced, trimmed, ground or rolled, but of a composition the same as the original product Processed primary products: processed beyond simple preservation or working

11. The theory behind LOP – cont Manufactures – simply or elaborately transformed: Simply transformed: bulk; unidentified on the world market Elaborately transformed: complex product; brandable product identifiable on the world market

12. LOP – consultation Consultation was of two sorts (although there was overlap!): • Potential users – what was wanted • Technical advice – what was possible

13. LOP – user consultation • Consultation started with SITC / TREC option • When LOP development began, we had already been speaking to most of our main stakeholders • Key stakeholders – CMA, MFAT, MED, Treasury, RBNZ, FoRST, NZTE, DFAT (owners of TREC), etc. Overlap into technical consultation…

14. LOP – technical consultation • Stats NZ classifications and standards department – ensured we followed best practice • CMA (an industry expert) • DFAT (owners of TREC) Fed back into user consultation…

15. What we’ve done with LOP • Initially a customised job / experimental series • But, created using best practice • Involvement and sponsorship from Stats NZ classifications and standards department • Made it possible for LOP to be put forward as a NZ standard classification One of the initial goals was to have something everyone could use…. …..LOP as a standard makes this possible

16. What we’ve done with LOP – dissemination • LOP is prepared and disseminated quarterly • List of (stakeholders and) interested parties is growing slowly, but growing • Added to INFOS (to 4-digit level) • Full details of LOP are available on Stats NZ website • Referenced in our monthly release • Article on Stats NZ website – “Ways of looking at New Zealand merchandise trade data using different economic classifications” – HS, BEC, ANZSIC, SITC, LOP

17. What we’d like to do with LOP Very simple really – we want to continue promoting it so that people use it • The simplicity means that everyone can use it • The detail means it can be relevant to various different sections of the economy

18. What others might do with LOP Domestically, we want people to use it – for it to become the common source of Level of Processing trade data Internationally, we’d like people to use it – country specific at 6-digit but internationally comparable / adaptable for usage at 4-digit (or even 3-digit) levels

19. Benefits of LOP LOP – limited detail and functionality? Yes but.... …for detailed commodity information, clients should always use HS • LOP provides a simple look at a very complicated subject • LOP ties in with SITC • LOP provides a single tool for common usage • LOP allows international comparability (and is intended to be internationally adaptable)