9.17 The classification used for industries is the NACE rev. 1 and the classification employed for products is the CPA; these classifications are fully aligned to each other: at each level of aggregation, the CPA shows the principal products of the industries according to the NACE rev. 1.

9.18 In the supply and use tables, the classification for products is at least as detailed as the classification for industries, e.g. the three digit-level of the CPA and the two digit-level of the NACE rev. 1.

9.19 The distinction between market output, output for own final use and other non-market output is only to be used for the total output by industry; the distinction is not required for each product group.

9.20 The distinction between market producers and producers for own final use on the one hand and other non-market producers on the other hand should only be used by industry when both types of producers are present within one industry. In general, this distinction will therefore only be used for subclassifying a very limited number of industries, e.g. health care and education (see paragraph 3.66.).

9.21 Imports and exports should be subdivided into:

1. intra-EU deliveries;
2. imports and exports with other countries.

9.22 In the supply table, flows of goods and services are valued at basic prices. In the use table, the flows of goods and services are valued at purchasers' prices. In order to attain identities between supply and use, Table 9.5 also shows the transition of supply at basic prices to supply at purchasers'prices. As supply should be equal to use, the table reveals also the transition of uses at purchasers'prices to uses at basic prices. As a consequence, two identities can be derived from this transition:

1. supply at purchasers' prices is equal to use at purchasers' prices;
2. supply at basic prices is equal to use at basic prices.

9.23 Value added is recorded at basic prices. It is the net result of output valued at basic prices less intermediate consumption valued at purchasers' prices.

9.24 Value added at factor cost is not a concept in the ESA. Nevertheless, it could be derived from value added at basic prices by subtracting other taxes less subsidies on production.

9.25 GDP is valued at market prices. This aggregate can be derived from the supply and use tables in three different ways:

1. the aggregate of output at basic prices by industry minus the aggregate of intermediate consumption at purchasers'prices by industry plus net taxes on products (the production approach);
2. the aggregates of the various components of value added at basic prices by industry plus the net taxes on products (the income approach);
3. the sum of final uses categories minus imports: exports – imports + final consumption expenditure + gross capital formation (all at purchasers’ prices) (the expenditure approach).

9.26 The use Table 9.6 also contains some supplementary information: gross fixed capital formation, stocks of fixed assets and labour inputs by industry. This information is crucial for productivity analysis and may also serve several other types of analyses, e.g. analysis of employment.

9.27 In the ESA, the stocks of fixed assets are valued at the market prices prevailing on the date of the balance sheet. For fixed assets bought in earlier years, this implies that consumption of fixed capital of the foregoing years is to be deducted from the current market prices of new assets of the same type and quality. This net concept of fixed capital stock could be used in calculating capital intensity. However, for productivity analysis more often a specific gross concept of fixed capital stock is used. According to this gross concept all fixed assets should be valued at the current market prices of new assets of the same type and quality; no deduction should be made for capital consumption in the last and earlier years. This gross concept of fixed capital stock is no standard concept in the ESA, but can easily be calculated with the aid of the Perpetual Inventory Method. Considering the great use of such gross figures, it is recommended to include both gross and net figures on fixed capital stock as supplementary information.

9.28 For productivity analysis, hours worked is the preferable labour input variable. In drawing inferences about employed persons, however, also the number of jobs may be relevant. Both variables can be subclassified, e.g. into the part pertaining to employees and to self-employed persons.

9.29 For a proper compilation and understanding of the supply and use tables, it is important to recall some of the accounting conventions employed in the ESA:

1. the outputs of ancillary activities are not recorded separately; all the inputs consumed by an ancillary activity are treated as inputs into the principal or secondary activity which it supports. Ancillary activities may be, for example, marketing, accounting, storage and cleaning (see paragraphs 3.12. and 3.13.);
2. goods or services produced and consumed within the same accounting period and within the same local KAU are not separately identified. They are therefore not recorded as part of the output or intermediate consumption of that local KAU. This may pertain for example to:

   (1) seeds and plants for sowing and planting;

   (2) hard coal consumed in the production of briquettes by coal mines;

   (3) electrical energy consumed by power stations.

3. minor processing, maintenance, servicing or repair on behalf of other local KAUs is to be recorded net, i.e. excluding the value of the goods involved. By contrast, when the goods are subject to a substantial physical change, the transaction should be recorded gross, i.e. as the purchase and sale of the goods involved;
4. durable goods can be rented or be subject to operating leasing. In such instances, they are recorded as fixed capital formation and fixed capital stock in their owner’s industry; in the industry of the user intermediate consumption by amount of the rent is recorded;
5. persons working via temporary agencies are recorded as being employed in the industry of these agencies and not in the industries in which they are actually working. As a consequence, in the latter industries, the payments for these persons are recorded as intermediate consumption and not as compensation of employees. Labour contracted out is treated similarly;
6. employment and compensation of employees in the ESA are broad concepts:

   (1) employment for social reasons is also counted as employment; this applies, for example, to work placements for disabled people, employment projects for people who have been unemployed for a long time and employment programmes for young people seeking jobs. As a consequence, the people involved are employees and receive compensation of employees (not social transfers), though their productivity may be (much) lower than that of the other employees;

   (2) employment includes also some cases in which the persons involved are not expected to work at all, e.g. persons dismissed but receiving for some period payments from their former employer. However, labour input in terms of hours worked is not distorted by this convention, as no hours are actually worked.

9.30 In the supply and use tables, two adjustment items should be introduced for reconciling the valuation of imports in the supply and use tables and in the sector accounts (see also Tables 9.5 and 9.6).

In the supply table, imports of goods are valued at cif values. This is an overstatement of the costs of imports when the transport and insurance services incorporated in the cif value are provided by residents (e.g. own-account transport or transport by specialised resident carriers). In order to obtain the right balance between imports and exports, exports of services should thus also be increased by amount of this overstatement of imports. In the sector accounts, imports of goods are valued at fob values. This is an overstatement of imports like in the case of cif valuation. However, in the case of fob valuation the overstatement is smaller, which implies that the imputed increase in exports is smaller too. The result of employing different valuation principles is thus that net total imports are the same, but that both total imports and total exports are larger for cif valuation. The two valuation principles can be reconciled in the supply and use tables by introducing adjustment items for imports as well as exports. The adjustment items should be equal to the value of the transport and insurance services by residents incorporated in the cif value but not in the fob value, i.e. referring to the transport and insurance from the border of the exporting country to the border of the importing country. These adjustment items, once incorporated in the supply and use tables, need no special treatment in the input-output calculations.

9.31 The transfer of existing goods is recorded in the use table as a negative expenditure for the seller and a positive expenditure for the purchaser. For the product group involved, the transfer of an existing good amounts to a reclassification among uses. Only the transaction costs are not a reclassification: they are recorded as a use of business or professional services. For the purposes of description and analysis, it can be useful to show for some product groups the relative size of the transfer of existing goods separately, e.g. the importance of second-hand cars or the importance of recycled paper.

9.32 Direct purchases abroad by residents and purchases on the domestic territory by non-residents are commonly estimated as a special exercise in the statistical compilation process. They are introduced as adjustments to initial estimates of imports, exports and, by amount of the consumption part of the purchases abroad, final consumption expenditure. In order to obtain a balance between supply and use by product, all these purchases should be split over the various product groups involved. For the product groups where these types of purchases are important, they could be shown as a subcategory, e.g. expenditure on accommodation.

9.33 (paragraph deleted by Council Regulation 448/98 of 16 February 1998)

9.34 The transition from supply and use at basic prices to purchasers'prices involves:

1. reallocating trade margins;
2. reallocating transport margins;
3. adding taxes on products (except deductible VAT);
4. deducting subsidies on products.

The estimation of this transition is an important part of the balancing process. Separate tables can show the transition in more detail (see Tables 9.7 and 9.8). These tables can also serve important analytical purposes, e.g. analysis of prices and analysis of the consequences of changes in the rates of taxes on products.

Table 9.7 A simple trade and transport margins table

Table 9.8 A simple taxes less subsidies on products table

9.35 In general, when preparing supply and use tables and making the proper balancing between the two sides, there is always a choice of emphasis between two opposite ways of adjusting statistical data:

1. supply of each product at basic prices could be adjusted to a purchasers'prices valuation to allow balancing with uses at purchasers' prices;
2. each of the uses at purchasers' prices could be adjusted to a basic prices' valuation to match with supply at basic prices.

9.36 In practice, both types of balances may be needed to build up a supply and use table. Both alternatives deal with or require similar kinds of adjustments, i.e. for taxes less subsidies on products and trade and transport margins by products. In fact, the first alternative is not possible without the second, since it is usually not possible to know the columns of taxes on products, subsidies on products and trade and transport margins broken down by products in the supply table unless the distribution among uses of the individual products is known from the use table at purchasers'prices (Table 9.6).

9.37 Thus, the following tables are involved in the balancing process:

1. the supply and use Tables 9.5 and 9.6 showing the final results of balancing totals of supply and use by products at purchasers'prices and at basic prices;
2. the tables on trade and transport margins and on taxes less subsidies on products (Tables 9.7 and 9.8).

9.38 The transition of supply and use from basic prices to purchasers'prices (see paragraph 9.34.) amounts to reallocating trade margins: valuation at basic prices implies that the trade margins are recorded as part of the product trade, while valuation at purchasers’ prices implies that the trade margins are allocated to the products to which they pertain. An analogous situation holds for transport margins.

9.39 The total of trade margins by product is equal to the total of trade margins by the trade industries plus the secondary trade margins by other industries. An analogous equation holds for the transport margins.

9.40 The transport margins include transportation costs paid separately by the purchaser and included in the use of products at purchasers' prices but not in the basic prices of a manufacturers’ output or in the trade margins of wholesale or retail traders. Such transport margins include in particular:

1. transport of goods from the place where it is manufactured to the place where the purchaser takes delivery of it in case the manufacturer pays a third party for the transport, if this amount is invoiced separately to the purchaser;
2. transport of goods arranged by the manufacturer or by the wholesale or retail trader in such a way that the purchaser has to pay separately for the transport costs even when the transport is done by the manufacturer or the wholesale or retail trader himself.

All other costs of transporting goods are not recorded as transport margins, e.g.:

1. if the manufacturer transports the goods himself, these transportation costs will be included in the basic prices of the manufacturer's output; this transport represents an ancillary activity and the individual costs of transport will be not identifiable as transportation costs;
2. if the manufacturer arranges for the goods to be transported without a separate invoice for the transport services, these transportation costs will be included in the basic prices of the manufacturer's output; these transportation costs will be identifiable as such and be recorded as part of the manufacturer's intermediate consumption;
3. if wholesale and retail traders arrange for goods to be moved from where they take delivery of them to where another purchaser takes delivery, these costs will be included in the trade margin if no separate charge is made for transportation to the purchaser. Again, as with manufacturers, these costs may represent ancillary activity of wholesale and retail traders or the purchase of an intermediate service, thus entering trade margins but not transport margins;
4. if a household buys goods for final consumption purposes and arranges for transport by a third party, these transport costs are recorded as final consumption expenditure on transport services and not included in some trade or transport margin.

9.41 Table 9.7 shows a somewhat simplified picture of a trade and transport margins matrix, because:

1. no explicit distinction is made between trade and transport margins. Both types of margins could be shown for each product group. Another solution is to have separate tables: one for trade margins and one for transport margins;
2. for trade margins, a distinction between wholesale trade and retail trade should be made in order to take account of the differences in their prices. In drawing up the tables, it should be realised that wholesale traders may also sell directly to households (e.g. furniture) and that retail traders may also sell to industries (e.g. to cafes and restaurants);
3. in calculating and analysing trade margins on products for final consumption expenditure by households, for each product group the most important distribution channels could also be distinguished in order to take account of the differences in their prices; the distinction between wholesale trade and retail trade is in fact too rough. For example, goods and services can be bought by households in the supermarket, the grocery, flower shop, department store, abroad or obtained as income in kind. Furthermore, for some products, secondary sales may be very important, e.g. in the case of cigarettes this can pertain to the sales by cafes, restaurants and petrol stations. Of course, such more refined distinctions can only be introduced if the available data sources provide sufficient information for at least rough estimates of the importance of each of the distribution channels;
4. In calculating transport margins, a distinction by type of transport (e.g. by rail, air, sea/inland waterway or road) could be very useful.

9.42 Taxes on production and imports consist of:

1. taxes on products (D.21):

   (1) value-added-type taxes (VAT) (D.211);

   (2) taxes and duties on imports; except VAT (D.212);

   (3) taxes on products, except VAT and import taxes (D.214).

2. other taxes on production (D.29).

Similar categories are distinguished for subsidies on production and imports. Subsidies are treated as if they were negative taxes on production and imports.

The definitions of all these categories are given in paragraphs 4.14. – 4.40.

9.43 Supply at basic prices includes net other taxes on production, i.e. less other subsidies on production. In order to make the transition from basic prices to purchasers' prices (or vice versa; see paragraph 9.34.), the various taxes on products should be added and the subsidies on products should be deducted (or vice versa).

9.44 VAT may be deductible, non-deductible or just not applicable:

1. deductible VAT usually applies to most of intermediate consumption, most of gross fixed capital formation and part of changes in inventories;
2. non-deductible VAT often applies to final consumption expenditure, part of gross fixed capital formation, part of changes in inventories and part of intermediate consumption;
3. VAT is in general not applicable for:

   (1) exports (at least those to countries outside the EU);

   (2) any goods or services subject to a zero rate of VAT regardless of their use;

   (3) any producers exempted from VAT registration, e.g. small businesses and religious organisations.

9.45 VAT is recorded net in the ESA: all supplies are valued at basic prices, i.e. excluding invoiced VAT; intermediate and final uses are recorded at purchasers' prices, i.e. excluding deductible VAT.

9.46 Table 9.8 on taxes less subsidies on products is simplified, because:

1. the different types of taxes on products are not distinguished and subsidies are not shown separately;
2. different tax rates and subsidies can apply to different distribution channels; the latter should therefore also be distinguished when relevant and sufficient information exists.

9.47 The way of recording taxes and subisidies on products is defined in points 4.27 and 4.40 respectively. Taxes (and subsidies) on products are usually estimated by product by applying the official tax (subsidy) rates to the various flows. Afterwards an analysis should be made of the differences with the tax assessments or the amounts actually paid.

1. Some of these differences indicate that the initial estimate of taxes on products does not comply to the ESA definitions:

   (1) in case of exemption the initial estimate of taxes on products should therefore be lowered;

   (2) in case of evasion of the payment of taxes on products (e.g. the payment of taxes is compulsory but there is no tax assessment), the estimate of taxes on products should therefore be lowered;

   (3) in case of fines the estimate of taxes on products should be increased.

   Changes in the estimates of taxes on products have concomitant effects on variables estimated by adding up or deducting the estimates of taxes on products. For example, output at basic prices of a specific product group may be estimated by deducting inter alia taxes on products from the estimated use at purchasers'prices. However, an estimate of output at basic prices may also be combined with inter alia estimates of taxes on products to arrive at an estimate of uses at purchasers' prices.

2. several other types of differences should not be accounted for in the supply and use table:

   (1) differences in timing, e.g. payments may relate to tax assessments of several years;

   (2) enterprises being unable to pay (bankruptcies).

3. in some instances, the differences may also indicate that the initial estimate for taxes and subsidies on products is subject to serious error, e.g. because the output of some product is underestimated. Then also modifications of the estimates of the flows of goods and services can be justified.

In the transition from uses by product at purchasers’ prices to basic prices, the modification of the initial estimate of taxes and subsidies on products may be shown as a separate item. However, for all input-output calculations it will be necessary to allocate this modification by product, even if this can only be based on a simple mathematical device, e.g. proportional allocation.

Table 9.9 A use table for imports

Table 9.10 A use table at basic prices for domestic output

9.48 The use Table 9.6 does not show to what extent the goods and services used have been produced domestically or imported. This information is necessary for all analyses in which the link between supply and use of goods and services within the national economy plays a role. A case in point is the analysis of the impact of changes in exports or final consumption expenditure on imports, domestic production and related variables such as employment. In fact, it applies to most analyses indicated in paragraphs 9.14. and 9.15. The input-output framework therefore contains also a use table for imported products and one for domestically produced goods and services (see Tables 9.9 and 9.10).

9.49 The use table for imported products should be compiled by exploiting all information available on the uses of imports, e.g. for some products the major importing enterprises may be known and for some producers information on the amount of imports may exist. However, in general, direct statistical information on the use of imports is scarce. This information has therefore usually to be supplemented by assumptions by product group.

9.50 The use table for goods and services produced domestically can then be obtained by deducting the use table for imported products from the general use table.

9.51 In order to serve more specific purposes, the supply and use tables presented above can be modified by introducing alternative and supplementary classifications. Important cases in point are:

1. more detailed product and industry classifications based on national classifications or to take account of specific purposes, e.g. for the analysis of the role of research and development in the national economy;
2. more detailed geographical breakdown of imports and exports, e.g. intra-EU trade subclassified by country and extra-EU trade subclassified by economic regions and some specific countries such as the United States and Japan;
3. classification of imports into:

   (1) imports of products that are also domestically produced ('competitive imports’);

   (2) imports of products that are not domestically produced ('complementary imports’).

   Both types of imports can be expected to have a different relationship with and importance for the national economy. Competitive imports can be the subject of analysis and economic policy as they may be a substitute for domestic output; they could therefore be incorporated as a separate category of (potential) final use in the use tables. For complementary imports, analyses will mainly focus on the impact of changes in their prices or volume (e.g. in the case of an oil crisis) on the national economy;

4. classification of compensation of employees by criteria such as level of education, part-time/full-time, age and sex. This classification could then also be applied to the supplementary information on employment. In this way, the supply and use tables can also be used for all kinds of analyses of the labour market;
5. breakdown of compensation of employees into:

   (1) wages and salaries, of which:

   – social contributions by employees ;

   (2) employers'social contributions.

   This breakdown permits analysis of the role of social contributions for the price of labour inputs and the shifting of this burden towards gross operating surplus;

6. classification of final consumption by purpose (for households: COICOP and for government: COFOG). The functional classification of these expenditure enables the impact of each function on the rest of the economy to be assessed. For example, the importance of public and private expenditure on health care, transport and education can then be assessed. Another case in point is the analysis of the impact of government expenditure on defence for some domestic industries, in particular the producers of aircraft, trucks and weapons;
7. reclassification of fixed capital formation and fixed capital stock for fixed assets that are rented out by the owner, e.g. in the case of operating leasing: the fixed assets can be recorded as if owned by the user (unlike the standard treatment in the ESA). The purpose of this reclassification is to make the cost structures of industries that rent fixed assets and those that own similar fixed assets comparable. For a consistent accounting treatment, this reclassification requires also the modification of the intermediate consumption of the lessee and the output of the lessor by amount of the rent of the fixed asset;
8. reclassification of employment and compensation of employees for labour contracted out and persons working via temporary employment agencies: the purpose of this reclassification is to make the cost structure of industries more comparable by recording persons as employees in the industries ‘where they actually work'. This reclassification also amounts to a modification of the concepts of intermediate consumption and output of the industries involved.