Trade account - includes imports and exports of goods that contribute to the gross domestic product. Such imports and exports include:

	imports for national consumption - goods imported for free circulation and paid by residents;
	national exports - exports the sale of which provides receipts to residents;
	imports of goods for processing and exports of processed goods.

Estonia's trade account is based on the special trade system of official trade statistics, registering goods exceeding free circulation¹. Exports exclude re-exports of imported goods previously stored in customs warehouses or provisions for sea and air transport. Imports exclude customs warehousing of imported goods, yet reflect deliveries of goods from customs warehouses into free circulation and processing. As the official trade statistics and customs statistics do not comply with the balance of payments compilation principles (imports in c.i.f. prices, residency principle vs. territorial principle etc.), necessary supplements are added to the balance of payments. The most significant of them include:
a) goods not declared in customs and not crossing frontiers but which are balance of payments transactions (e.g. fish caught in foreign waters);
b) goods purchased for carriers abroad: fuel, provisions, merchandise, etc;
c) repair of capital goods purchased and sold;
d) translation of imports into f.o.b. price, i.e. separation of transportation and insurance costs;
e) taking into account price distortions upon exports of goods through customs warehouses and free zone;
f) estimates of black economy.

As of 1 May 2004 foreign trade statistics is based on the combination of two reporting systems: trade with non-EU countries is still calculated on the basis of customs declarations submitted to the Tax and Customs Board (the so-called Extrastat), whereas intra-Community trade is registered through the so-called Intrastat survey organised by the Statistical Office (see www.stat.ee/125965). While Extrastat still enables to apply the special trade system, which excludes trade through customs warehouses, then Intrastat does not allow to filter out goods that have moved through intermediate warehouses and that have not really entered Estonia's internal market, thus rather reflecting the principles of the general trade system. Therefore the general level of both imports and exports of goods is higher than in earlier periods and that peculiarity has to be taken into account when comparing time series. Moreover, due to the structural differences between Intrastat reports and customs declarations it is no longer possible to distinguish sufficiently accurately the so-called normal exports and imports from the imports of goods for processing and from the exports of processed goods.

¹General trade system is also used, which registers movements of goods across customs frontiers. This system is not suitable for the compilation of the balance of payments, as it also includes the movement of goods of non-residents through Estonian customs warehouses.

Services account reflects the services sold to and purchased from non-residents by Estonian residents:

	transportation - passenger, freight and other transportation services by significant modes of transport (marine, air and other transport modes);
	travel services - include expenditure on package tours of tourists and one-day visitors, as well as on goods and services in the country of destination. Besides the above items, travel services also include education and health care costs in the country of destination. While generally residence abroad up to one year accounts as tourism, with students and those receiving health care in the country of destination there is no time limit. Tourism is distinguished from travel services by the fact that international passenger transport services that are regarded as tourism services according to international practice are recorded in the balance of payments under transportation services entries;
	communication services - comprise charges for telecommunication (TV and radio transmission, telegraph, telex and facsimile communications, satellite and cable television, e-mail etc), postal and courier services (packaging, mailing, transportation, delivery of items, lease of letter boxes etc.);
	construction services - generally cover the cost of construction activities abroad by resident companies or of construction activities in Estonia by non-residents. Construction services, as a rule, include sites or installation to be completed within one year, longer projects are treated as direct investment;
	insurance services - charges collected and paid upon conclusion of life and non-life insurance contracts, loss adjustment expenses, insurance expert assessments, etc. Non-life insurance premiums and claims payable are recorded under current transfers while life insurance premiums and payments are recorded in the financial account under other long-term capital.;
	financial services - financial intermediation services and auxiliary services (other than insurance) related to commissions and fees of banking and securities brokerage or to custodial services, clearing, depository services, financial consulting etc.;
	computer and information services - cover transactions related to fees for the use and development of databases, data processing and programming, hardware consultations, software implementation etc. as well as services of news agencies;
	royalties and licence fees - receipts and payments for the use of copyrights, licences, franchises, patents, industrial processes or other intellectual property;
	merchanting - commissions and fees of commodity brokers and dealers. The value of trade services is the difference between the value of goods purchased by residents abroad and the value of these goods resold abroad during the same period. The goods must never enter the customs territory of the compiling state;
	operational lease - payments where the lessee uses the assets during the contract period and returns the assets to the lessor upon the expiry of the contract. (Capital lease - see below);
	miscellaneous business services - services related to consulting (legal assistance, accounting, audit, management consultong etc.), public relations and marketing (advertising, opinion polls, market research etc.) or other technical services (waste management, environmental protection, architectural and engineering solutions, printing services etc.);
	personal, cultural and recreational service - audio-visual services related to radio, television and production of motion pictures, organising concerts and other events, fees to performers, organising exhibitions and museum exhibits, producer services and other sports, cultural and recreational services;
	government services not included elsewhere - other services rendered by government institutions related to embassies and consular services, military and other public sector services, state fees and foreign aid received and provided as a service (for foreign aid see also current transfers).

Income account reflects income related to the use and render for use of production factors (capital and labour). Income falls into two categories:
a) compensation of employees - gross wages together with social transfers earned abroad under a labour contract with a duration of up to a year and paid to foreigners in Estonia;
b) investment income - generally reflecting income on foreign (direct, portfolio and other) investment claims and payable from foreign investment liabilities (interests, dividends and other proprietory income). Investment income also includes reinvested earnings reflected as direct investment, being a proportional change equal to investment in the undistributed profit of the investment company.

Accounting income on realised and unrealised exchange rates and spreads are not recorded as income, because the balance of payments records movement of financial instruments at market prices. For accounting purposes the latter comprises acquisition cost and realised exchange rate and/or price profit/loss.

Current transfers account includes all remaining transactions related to the accumulation of residents' disposable income but not recorded elsewhere under the current account. Current transfers are unilateral, i.e. there is no consignment or service following (or preceding) the transfer and neither is it income for the use of production factors. Current transfers are usually related to taxes, fines, subsidies, donations, inheritance, membership fees, insurance premiums, and indemnities. Current transfers include also the cost of goods and services received or provided as foreign aid as offsetting entries. The current transfers account records money flows by two institutional sectors:
a) general government;
b) other sectors.

General government transfers are the amounts related to the transfers received from and paid by the Estonian public sector. Workers' remittances recorded under other sectors indicate remittances to the home country of outside workers (also migrants - persons who have lived and worked in a foreign country more than a year) in case they have been hired by a company in a foreign country.

Capital transfers are unilateral, similarly to current transfers, but amounts received or paid have no direct impact on residents' gross disposable income. Major capital transfers include:
a) various grants from international funds to finance building infrastructure objects;
b) transfers of migrants;
c) acquisition of non-produced, non-financial intangible assets (intellectual property) and disposal thereof (franchises, patents, trademarks, industrial processes etc.);
d) debt forgiveness or write-offs.

The capital account records money flows by two sectors:
a) general government capital transfers;
b) capital transfers by other sectors.

Direct investments in Estonia's balance of payments refers to investment involving a qualifying, which amounts to 10% or more of the equity capital of the investment company². According to international standards, lending and other investments between a company and an investor with a qualifying holding are also reflected as direct investment (except with financial intermediaries in case of whom only subordinated debt is recorded as direct investment) .

	Direct investment company - an company in which an investor or direct investor has a qualifying holding.
	Direct investor - an investor who has a qualifying holding in a direct investment company.

The direct investment account falls into the following categories:
a) equity capital of direct investment companies;
b) reinvested earnings - direct investor's proportional share calculated by equity method in the operating profit or loss of a direct investment company;
c) other direct investment capital - claims and liabilities related to lending, debt securities and trade credit between a direct investment company and a direct investor.

²The concept describes direct investment as financial resources applied leading to a qualifying holding and a casting vote of the investor in managing the direct investment enterprise, regardless of the actual holding. As such an approach does not ensure similar treatment of the investment in the investor and recipient country, the 10% criterion is recommended to avoid statistical errors (OECD Benchmark Definition of Foreign Direct Investment, 1996).

Portfolio investment account records, under claims and liabilities, securities investments that fall into the following categories:
a) equity securities - securities investment into equity capital not comprising a qualifying holding, i.e. remaining below 10% of the fixed capital of a company;
b) debt securities - bonds and money market instruments that prove the debt claim:

	bonds - securities proving the right of claim of their holders containing the borrower's commitment to repay the loan to the creditor on the agreed date and pay interest. As a rule, bonds are long-term instruments.
	money-market instruments - treasury bills, certificates of deposit, commercial papers or other short-term securities that are usually discountable (i.e. whose notional principal amount is repaid to the investor by the issuer upon maturity and whose interest is the difference of the issue price and the repurchase price). As a rule, money market instruments are short-term.

Portfolio investments are recorded by institutional sectors in the balance of payments.

Financial derivatives are securities related to a financial instrument, index or commodity allowing trading in financial risks on markets. Major financial derivatives are options, forwards, futures, and swaps. Financial derivatives are recorded in the balance of payments by institutional sectors, assets and liabilities separately.

Other investment cover all other investments that are neither direct investment nor portfolio investment, nor related to financial derivatives:

	trade credit - outstanding or unpaid amounts for goods and services and advance payments, recorded on an accrual basis in the balance of payments as well as in the international investment position;
	loans - short-term and long-term lending of institutional sectors not related to direct investment. Loans also cover capital lease and repurchase agreements;
	currency and deposits - foreign currency held by residents and their deposits with non-resident credit institutions are recorded as assets. Estonian kroons held by non-residents and their deposits with Estonian credit institutions are recorded as liabilities;
	other assets and liabilities - other overdue sums (accounts receivable and accounts payable) recorded on an accrual basis, as well as other assets and liabilities unrelated to other entries. In addition, life insurance premiums collected and disbursements made by insurance companies are recorded here.

Reserves - gold and foreign exchange reserves of the central bank comprising assets backing the kroon in Estonia's monetary system. Reserves are usually highly liquid tradable external assets of the central bank, entered as:
a) monetary gold - gold held as reserve assets;
b) SDRs (special drawing rights) - units of account created by the International Monetary Fund. Their value is based on a basket of four currencies (USD, EUR, JPY, and GBR). Each IMF Member State has a SDR account for borrowing and other related operations between the Member State and the IMF;
c) International Monetary Fund (IMF) reserve position - contribution to the IMF that is a loan in character available to the member state, if necessary;
d) foreign exchange - foreign exchange or equal reserve assets: foreign currency and deposits, equity securities, bonds, money market instruments, and financial derivatives;
e) other claims - other liquid external assets (also financial derivatives).

BALANCE OF PAYMENTS DEFINITIONS AND ENTRIES

Entries