Technical Notes

Historical Background
The need for the development of the Central Product Classification originated from initiatives in the early 1970s to harmonize international classifications. In the development of those initiatives, a standard classification of all products was perceived as a k ey element. The twenty-first session of the Conference of European Statisticians, in 1973, and meetings of members of both bodies with the secretariats of international organizations, there was general agreement on the need to improve harmonization among the various classifications prepared under the auspices of the United Nations and other international bodies, in economic and other fields.
With regards to the preconditions for creating a comprehensive classification of all goods and services, an important development too k place in the 1970s. The Customs Cooperation Council (CCC) undertoo k the revision of its nomenclature (CCCN) and its extension from a four-digit system to a six-digit system. As a result, a new nomenclature, called the Harmonized Commodity Description and Coding System (HS) was adopted in 1993 and entered into force on 1 January 1988 . The Statistical Office of the United Nations Secretariat participated in the development of HS, mainly in order to ensure that the disaggregations applied in HS were, to the extent possible, consistent with the Standard International Trade Classification (SITC) of the United Nations and the industrial origin of the goods.
Based on the recommendations of an Expert Group convened by the United Nations Secretariat, the Statistical Commission at its nineteenth session, in 1976, approved a programme to harmonize the existing activity classifications of the United Nations, the European Communities and the Council for Mutual Economic Assistance and to simultaneously develop a system of different, but interrelated, classifications of economic activities and goods and services. Development of a new classification covering both goods and services – the Central Product Classification (CPC) – was intended to provide a basic tool in this programme. The proposed product classification was to use the detailed subheadings of HS as building bloc k s for the part dealing with transportable goods and to ta k e into account the basic categories of economic supply and use as specified in the System of National Accounts (SNA), such as intermediate consumption, final consumption, capital formation and imports and exports. The Statistical Commission endorsed the programme and supported its continuation at subsequent sessions, with the provision that existing systems maintain their essential character.
During the period 1977 – 1987, the Statistical Office of the United Nations Secretariat and the Statistical Office of the European Communities (Eurostat) convened six meetings of the Joint Wor king Group on World Level Classifications for the purpose of developing an Integrated System of Classifications of Activities and Products (SINAP) to serve as an interim classification. It was intended that categories of SINAP be used as building bloc ks for the second revision of the International Standard Industrial Classification of All Economic Activities (ISIC), the General Industrial Classification of Economic Activities within the European Communities (NACE), and for related classifications for goods and services. The joint Wor king Group also contributed proposals on the relationship between SITC and CPC.
During the period 1983 – 1988, the Statistical Office of the United Nations Secretariat organized a series of related expert group meetings dealing with economic classifications. Countries from different parts of the world and at various stages of development were represented at the meetings, as were regional commissions and international organizations. The main tas k of the meetings was to review the drafts of ISIC Rev. 3 and CPC prepared by the Statistical Office.
The first complete draft of the CPC was reviewed by the Statistical Commission at the twenty-fourth session, in 1987. On the Commission’s recommendation, wor k on CPC continued in conjunction with international organizations, in particular Eurostat and the Organization for Economic Cooperation and Development (OECD). The development of services classifications and related explanatory notes for service products was the main item on the agenda at the early meetings of the Voorburg Group on Service Statistics. In 1987 and 1988 the Joint Wor k ing Group on World level Classifications and a United Nations expert group meeting reviewed subsequent drafts of the CPC. The Expert Group on Harmonization of Economic Classifications recommended that the abbreviation CPC for Central Product Classification be included in the title, regardless of language, to facilitate international recognition when referring to the classification.
The Statistical Commission at its twenty-fifth session, in 1989, considered the final draft and approved its publication as a provisional document. The Commission recommended that member States start testing the Provisional CPC in order to gain experience in obtaining internationally comparable data on goods and services.
The Provisional CPC was published by the United Nations in 1991. The experience of national and international users provided a sound basis for its subsequent revision. Account was also ta k en of the experience gained in the development of the European Union’s Classification of Products by Activity (CPA).
The Provisional CPC was revised, updated and finalized and presented for adoption to the United Nations Statistics Division as Central Product Classification (CPC) Version 1.0. The CPC Version 1.0 was published in 1998 in response to the need to update and revise parts of the provisional version. Particular attention was paid to the services part of the classification to ensure that the structure of CPC adequately reflects new technologies, and growth in the services sector of the economy. In addition, the goods part of the Provisional CPC and the Standard International Trade Classification (SITC Rev. 3) were brought up to date with the 1996 edition of the Harmonized Commodity Description and Coding System (HS).
The Statistical Commission at its thirtieth session recommended that the Expert Group on international Economic and Social Classifications should be the central coordinating body for implementing the proposed wor k program on statistical classifications, and that its tas k s should include classification revisions, practical proposals to bring about convergence of existing international and multinational classifications and review of the underlying principles. The Expert Group, at its meeting in November 1999, approved the establishment of a Technical Subgroup to the Expert Group. This technical Subgroup was as k ed to ta k e action to update CPC Version 1.0.
The 2002 update to Version 1.0
The Technical Subgroup was set up to carry out technical, analytical and exploratory tas k s in the further development of CPC resulting in the development of the new classification, CPC Version 1.1. The wor k on developing CPC Version 1.1 consisted of the following stages., leading to its approval by the Statistical Commission, at its thirty-third session. The members of the Technical Subgroup discussed the shortcomings of CPC Version 1.0 based on feedbac k from users of the classification, then considered and finalized the draft of CPC Version 1.1. This draft was then widely circulated to a number of national statistical offices and regional and international agencies for comment. Recommendations for change were ta k en into consideration before the classification was completed and submitted to the Statistical Commission at its thirty-third session, in 2002.
The members of the Technical Sub-group made significant contributions to the update and further development of CPC Version 1.1, with Statistics Canada playing the k ey coordinating role in the process. Without the valuable voluntary contributions of the statistical agencies of Australia, Austria, Canada, France, the United States of America, the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development (OECD), the Statistical Office of the European Communities (Eurostat), as well as statistical offices of a number of other countries, it would not have been possible to complete CPC Version 1.1. 2000
The focus in this round of revisions for 2002 was to ma k e all the necessary changes and updates to CPC Version 1.0 since its inception and official use in 1998. These included the recommended changes in selected parts of the classification relating to services, including updates.
Recognizing the need to develop a national product classification to be related to relevant international classification, the National Statistical Coordination Board ( NSCB ) developed the Philippine Central Product Classification (PCPC) using the UN –CPC Version 1.1 as the reference.
Brief Description
The PCPC was patterned after the UN classification, with some modifications to suit national situation and requirements. The purpose of PCPC is to serve as an instrument for assembling and tabulating all k inds of statistics that needed product detail. Such statistics cover production, intermediate and final consumption, capital formation and foreign trade and may refer to commodity flows, stoc k s or balances and may be compiled in the context of input-output tables, balance-of-payments and other analytical presentations.
Each item of the PCPC consists of goods or services that are predominantly produced in one class of PSIC. This predominant PSIC class is shown in the column next to each UN-CPC subclass. By using this k ind of correlation table in the reverse way, i.e., from PSIC to PCPC, one can usually find which products are the characteristic output of a certain industry.
Coding System of the PCPC
 The coding system of PCPC is hierarchical and purely decimal. The classification consists of sections (first digit), divisions (first and second digits), groups (first three digits), classes (first four digits), subclasses (first five digits) and items (identified by all six digits, ta k en together). The codes for the sections range from 0 to 9 and each section was divided into nine divisions.
Principles Used in Constructing PCPC
The expression “physical properties and intrinsic nature” means criteria that are proper to the goods themselves, e.g., the raw materials of which they are made, their stage of production, the way in which they are produced, the purpose or user category for which they are intended, the prices at which they are sold, whether or not they can be stored, etc. Sometimes, an industry produces goods of a totally different nature, for example meat and hides, which are both produced by slaughterhouses. These products are not put together in one category nor in the same section of the PCPC. Unprocessed hides are considered raw animal materials and are classified in section 0 (Agriculture, forestry and fishery products), whereas meat is classified in section 2 among food products.
Similar problems concerning industrial origin arise when industries produce both goods and services. Examples of such services are repair, maintenance and manufacturing on a fee or contract basis. Although the industrial origin of these services is often the same as the origin of the goods themselves, it should be clear that the nature of the services involved may be mar k edly different from that of the goods, so that the goods and services should be classified under different parts of the PCPC. These services are therefore given a separate division, specifically divisions 86 and 87, in the classification.
The PSIC itself provides a framewor k for structuring production activities according to industries, and in doing so, it uses the industrial origin of products as one criterion among others for classifying activities. Accordingly, there is no one-to-one correspondence between PCPC and PSIC. Such a relationship would lin k the products directly to their producers. However, it would lead to inadequate description of PCPC categories, especially at the higher levels, and to unrealistic aggregates. It would also ma k e harmonization with the PSCC more difficult than necessary. As mentioned in the preceding paragraphs, the PCPC is meant to be used not only for production statistics but also for other k inds of statistics. For these reasons it was decided to give priority to the nature of the products rather than to their industrial origin.
Although not the sole criterion used, the industrial origin of goods and services was, nevertheless, considered to be important in developing the PCPC. As in the UN classification, its importance was recognized by attempting to group into one subclass only those products that are produced by a single industry. However, since all PCPC categories in the goods area are aggregates of HS subheadings, and since the criterion of origin was not always ta k en into account in the HS, the industrial origin principle could only be applied in so far as the HS allowed it.
With a view to accommodating users of PCPC who want to identify a direct relationship between PCPC and PSIC, each PCPC item is accompanied in this publication by a reference to the PSIC industry in which most of the goods or services in question are generally produced. By rearranging the PCPC according to this PSIC reference one finds the main goods or services that are the output of a certain industry. It should be realized, however, that this PSIC code refers to the principal producing industry of the PCPC category.
Goods and Services in PCPC
Several criteria are used in differentiating goods from services: e.g., tangible versus intangible, storable versus non-storable or transportable versus non-transportable. Most of these criteria hold in the majority of cases, but there are always exceptions or borderline cases which cannot be simply resolved. Based on the variety of criteria used and the diverse experience around the world, it appears that no single criterion provides a valid, practical and unambiguous basis for distinguishing between goods and services in all cases. Examples of borderline situations are photographs, computer tapes and meals or drin k s in restaurants. In these cases as well as others, a bundle, i.e., a combination or mixture of products, is sold and more often than not this bundle consists of a tangible and an intangible component. In the case of meals or drin k s consumed in a restaurant, for example, the tangible component would be the foods and beverages consumed. The intangible component would be the coo k ing and serving services, the seating and the locality of the restaurant. The purchaser of such a mixed product usually does not give much thought to whether a good or a service is purchased. The customer in a boo k shop wants to buy a good and is probably not aware of the services provided by the author, the publisher, and the retail salesman. On the other hand, the person who has a pair of shoes resoled probably regards the transaction as a purchase of a service and does not thin k of the pieces of leather that are involved. In the case of a restaurant meal the situation is more ambiguous and varied with respect to the goods portion of the transaction compared to the service portion.
The precise distinction between goods and services is interesting from a theoretical point of view and may be relevant for the compilation and analysis of certain economic statistics. However, there is no need to embody such a distinction into a classification such as the PCPC, which is intended to be for general purpose and to cover both goods and services. If an object does not fit into a category for goods, it must automatically fit into another category of the PCPC, because everything that can be the object of a transaction is covered by the PCPC.