OPERATION 2007

National Statistics Open Day

Victoria Park Plaza Hotel

11 October 2002

Glenn EverettChief Adviser on Statistics

DTI

Operation 2007 – Background The UN is making rapid progress towards the revision

of ISIC in 2007. A UN Convergence Group was appointed to produce

various scenarios concerning the convergence of the EU and UN systems and NAICS.

Some degree of convergence by 2007 is an objective which has been agreed at the UN Stats Commission.

A "same structure" scenario has been put forward by the Group.

It is described as non-binding and for discussion. Within the Group, Eurostat is representing itself as an

organisation rather than its member states.

Operation 2007 – Background (cont)

Eurostat has taken the convergence scenario as a set of specific proposals for NACE 2007 and distributed to member states for consultation.

Main risks are that the EU NACE system will be tied to convergence decisions made for ISIC in the UN context.

Operation 2007 – Background (cont)

The ‘scenario’ identifies 20 major categories for the top of the classification and 379 classes in common.

The Convergence Group's scenario looks at how

existing classifications systems might be brought closer together.

The scenario represents a strong move towards the NAICS structure and methodology and it is notable that it involves far more disruption to EU classification systems than to NAICS itself.

Operation 2007 – Provisional Timetable

Establish UK co-ordinators Despatch documents to co-

ordinators 1st steering group meeting Operation 2007 Workshop Obtain all UK proposals 2nd steering group meeting Send co-ordinated UK proposals

to Eurostat

March 2002 April 2002

22 July 2002 27 September 2002 Mid October 2002 End October 2002 22 November 2002

Operation 2007 – Provisional Timetable (cont)

Participate in UK and Eurostat consideration of national and other proposals.

As a member of the Eurostat NACE/CPA Working Group and of Eurostat Operation 2007 Task Forces, achieve a final version of NACE 2007.

Commence UK consultation on the national 5 digit Subclass level . 

Achieve an agreed set of Subclasses.

Publish new SIC.

During 2003 & 2004

End of 2004 (the timing is determined by EU legislative processes)

Beginning of 2005

End September 2005

Beginning 2007

Operation 2007 – Key Issues

Tight timetable: all proposals needing to reach the ONS ICB by mid October 2002.

Convergence scenario: the extent to which it ties EU hands and the position UK should take.

Organisation of consultation within the UK. Probable 'softening' of the link between

NACE and the Classification of Products by Activity (CPA) (eg affecting PRODCOM).

Operation 2007 – Key Issues

Lack of representation of individual countries at the UN working level meetings.

UK financial, organisational and resource issues (eg UK to seek EU money for the work related to Op 2007, to ensure supply of data, implications for time-series and surveys)

How the steering group might provide strategic guidance and support the operational work of the ONS ICB.

Operation 2007 – Key Issues

Opportunities: presented by Operation 2007.

Impact: within the UK of Operation 2007 and ensuring that all interested parties are identified, informed and prepared.

Communication: to manage the impact of Operation 2007 on particular work areas.

Operation 2007: Overview of the Convergence Scenario

The UK Standard Industrial Classification (SIC) has to comply with NACE, the harmonised classification used across the EU

NACE is being revised in 2007. Eurostat is using what is now known as the ‘convergence scenario’ as the basis for consultations on the 2007 revision

Convergence scenario

A possible structure for the 2007 classification system which tries to improve comparability between NACE and NAICS, the North American Industrial Classification System

The scenario was produced by a group consisting of the statistical agencies of Canada, the EU and the US

The Convergence Scenario 20 major categories

379 classes in common (counting classes at all levels of detail)

“wavy line”. The scenario does not go down to the same level of disaggregation in all areas of the classification

NACE has to maintain a close relationship with the UN’s ISIC (International Standard Industrial Classification). ISIC is also being revised in 2007

The UN now participates directly in the work of the Convergence Group. The Group’s recommendations are now also inputs to the 2007 ISIC revision

Convergence Scenario (cont)

Convergence is a significant factor in negotiations between EU member states and Eurostat in arriving at proposals for NACE 2007

BUT

The EU is not bound by the convergence scenario and this is an opportunity for the UK to contribute completely new ideas and directions

Fully harmonising NACE and NAICS is a long term goal, perhaps taking 20 years or so….

What are the criteria to use to reach a useful and deliverable degree of comparability before then?

What is the optimum number of major categories and more detailed classes for the 2007 revision?

What sort of process is desirable to maintain, eventually to increase, the converged state in future?

Coding or numbering system The scenario does not contain any

recommendations concerning numbering. Some issues are:

• current systems do not have sufficient ‘free’ numbers in some areas to allow the addition of new categories

• maintaining (or not) the one-to-one relationship between NACE classes andproducts of the EU CPA (Classification of Products by Activities)

• the cost and disruption to users of the SICfaced with large-scale changes to codes

Some differences between NACE and NAICS

NACE classification based on one or more of:

• the character of the goods and services produced • the uses to which the goods and services areput

• the inputs, processes and technology of production

NAICS based (in theory) on production-oriented or supply-based conceptual framework(reasoning that a classification system should group producing units, not products or services)

NACE Vs NAICS (cont..)

NACE classification is often based on “case law”, where individual classification problems are researched, discussed in Eurostat Committees and then voted on(There are pros and cons to this)

Boundaries between industries demarcate, in principle, differences in production processes and production technologies(but, in practice, some sort of case law process will be unavoidable)

Key features of the convergence scenario

The following slides summarise the main changes HOWEVER

• the scenario actually involves a large number of changes affecting most of the SIC

• a small change overall might be a major revision for someone interested in a particular part of the SIC

It is essential to examine the complete convergence scenario in detail to obtain a complete picture of the impact.

Agriculture, Forestry, Fishing and Hunting

new class proposed for aquaculture

fishing to include fish processing on ships

treatment of some activities at the boundary of agriculture and manufacturing (eg integrated farming and food processing) to be decided

Mining a separate grouping would be introduced for

support services (eg making geological observations) to mining and quarrying

salt manufacturing establishments not integrated with salt mining would be classified to food manufacturing

Construction development and selling of real estate by

people who do no physical construction themselves would move from ‘Real Estate’ in NACE to construction

test drilling and boring would disappear as a class

installation of machinery other than by manufacturers themselves would be treated as construction (NACE treats as manufacturing)

Manufacturing: NACE divisions 15 -22

new grouping called ‘Textile, leather and apparel’

all publishing would be removed from printing and go to a new ‘Information’ sector

Manufacturing: NACE divisions 23 - 28

Some industries would be relocated.

For example, textile dye preparations and other household dye or tinting preparations would move to paints, adhesives and sealers manufacturing as they have similar production processes.

Manufacturing: NACE divisions 29 - 37

Significant changes to NACE, primarily a separation of electrical equipment from electronic equipment

There would be one grouping for Computers, Communications Equipment, Electronic Components and Related Electronic Equipment

and another for Electrical Equipment, Wire, Wiring Devices and Electric and Non-electric Household Appliances

Wholesale and retail trade

the NACE motor trades division would disappear

motor trades activity would go to wholesaling, retailing or repair and maintenance according to its nature

Transportation and storage

the scenario has a new concept, ‘scenic transportation’. This cuts across the disaggregation by mode of transport concept used by NACE

Information

a major new sector, pulling in activity from many parts of NACE

it would bring together, for example: • publishing • telecommunications • motion picture and sound recording

industries • broadcasting • internet activities

it would be based on the information sector in NAICS

Hotels and restaurants

looks like whole NACE classes could largely be regrouped into the proposed scenario headings

the scenario headings are peculiarly worded, but in concept not very different

Finance and insurance

Reinsurance would be given its own, separate classes

Real estate and rental and leasing

Development and selling of real estate by people who do no physical construction themselves is in ‘Real Estate’ in NACE but would be part of construction in the scenario

Buying and selling of own real estate currently has its own NACE class. The scenario would either consider it out of scope of an activity classification or include it in ‘Lessors of real estate.’

Professional, Scientific and technical services

At the highest level, there would be 2 new sectors: • Professional, scientific and technical services • Administrative and support services

Professional, scientific and technical services sector involves moving a number of existing NACE classes

But it is quite similar to the present NACE

Administrative and Support services

New Administrative and support services sector would have a major impact on NACE

Many parts of NACE would have to be moved to form the new grouping, for example:

• employment services• call centres• travel arrangements and reservation

services• investigation and security services

Education

There is some confusion over whether educational support services (eg careers guidance and educational testing) would be separately identified under the scenario

The task for the UK is to recommend the best structure for education, irrespective of the scenario (and, if different, from the scenario, to say why it is better)

Arts, Entertainment and Recreation

the approaches in NACE and NAICS differ widely

consequently, the scenario states that it aims for convergence at an aggregated level only

but the scenario involves pulling together several different parts of NACE and the impact is not trivial

Repair and maintenance

In a fairly major change, repair and maintenance would move from its various locations in the current NACE to a single, new sector

Public Administration

Convergence will probably not be sought below sector level given the major differences between NACE and NAICS

The scenario is currently unclear on whether various activities, fire-fighting for example, should be part of public administration (as in NACE) or classified to specific headings outside public administration (as in NAICS)

Issues

We have just seen the convergence scenario proposals by sector. It is useful to end this presentation with some further examples of the broader issues which extend across the whole classification system

Examples

the balance between manufacturing and services

the content of the new ‘Information’ sector

the disappearance of a separate division for motor trades

the desirable level of aggregation for the system as a whole

whether the system should be based on a single, clear classification principle

Examples (cont.) how far NACE should line up with NAICS and

in what time-scale

methodological issues, including the numbering system to adopt for the revised classification system, the top-down approach, vertical integration and stability rules

how the revision should take into account issues relating to time-series

….. Etc.

And finally.…

• Although we have to consider the convergence scenario, we are not bound by it.

• Operation 2007 is an opportunity to propose any desirable change.

• The aim is to create a structure (and methodology) which best reflects modern economic activity

Contacts Industry Coding Branch, ONS:

David.Knight@ons.gov.uk (tel: 01633 812 371)Tom.Cuffe@ons.gov.uk (tel: 01633 813 405)

Chief adviser on statistics, DTI: Glenn.Everett@dti.gsi.gov.uk (Tel: 020 7215 3276)

More information: http://www.taforum.org/showarticle.pl?id=166&n=&toparticle=166