Ag.12 Methodology of Extra-EU Correction Coefficients, revised text Doc.A6465/14/11 Ag.12 Methodology of Extra-EU Correction Coefficients, revised text Working Group on Article 64 and Article 65 of the Staff Regulations Meeting in Luxembourg 24th & 25th March 2014

Content of this presentation : Revised text in methodology Extra-EU to reflect regulation 1023/2013 Previous issue A64/11/28 dated March 2011 Current issue A64/14/60 dated March 2014 Why else do we change our methodology? Increased cooperation with UN.ICSC and OECD.ISRP NB. Basic methodology by which PPP are aggregated and CC calculated has NOT changed (still Laspeyres- Paascje- Fisher- type indices)

1- Legal Framework (see previous presentation) Text affected in: 1- Legal Framework (see previous presentation) 2-The system for the calculation of correction coefficients in extra-EU duty stations 3-The COICOP classification in 57 basic headings 5-Differences between Extra-EU and Intra-EU work. 6-Comparison of UN and Extra-EU methodologies 7-Consumption structures 8-Price level surveys (place-to-place) 9-Price trend surveys 10-Disseminating results Some changes are minor. Chapter 4-Differences with Allowance for living conditions is the only unmodified chapter.

2-The system for the calculation of correction coefficients in extra-EU duty stations Old version: The gathering of statistical data is organized in close cooperation with Commission delegations and in collaboration with other international organisations, (1) Price level surveys (Place-to-place (P2P)), which allow cost-of-living comparison between Brussels and any other duty station. The resulting purchasing power parities and correction coefficients are updated every month by means of suitable price indices. (3) Price trend surveys (Time-to-time (T2T) until 2009 and replaced with CPI from 2010) for the calculation of the price indices. They were conducted only where other sources were not available or were not considered appropriated for the purposes. New version:: The gathering of statistical data is organized in close cooperation with other international organisations (UN ICSC and OECD ISRP) (1) UN ICSC Price level surveys (Place-to-place (P2P)), which allow price comparison between Brussels and any other duty station for a range of consumer goods and services (purchasing power parities at basic heading level: see next page for a definition of basic parities). (3) Monthly consumer price indices (CPI) for the updating of the parities. Pages 10-12 External subcontracting replaced with international collaboration. Price trend surveys replaced with national monthly price indices.

3-The COICOP classification in 57 basic headings Old version: Lastly, within each basic heading corresponding to the COICOP classification, Eurostat specifies particular products, chosen for representativity of the basic heading to which they relate. New version: Lastly, within each basic heading corresponding to the COICOP classification, in collaboration with the UN, Eurostat specifies particular products, chosen for representativity of the basic heading to which they relate. Page 14 Item selection and item definition specified in collaboration.

5-Differences between Extra-EU and Intra-EU work. Old version: Administrative responsibility lies with different Commission Directorates-General (DG HR and DG RELEX). New version: Administrative responsibility lies with Commission Directorate-General (DG HR). Old version: Until 2009, price surveys and data processing, were sub-contracted to the winner of a call for tender (Either INS or private external contractor). From 2010, following the signature of a Memorandum of Understanding in July 2009, the average price data, in the Extra-EU duty stations, are obtained mainly directly from the UN-ICSC and OECD-ISRP. New version: Since 2010 onwards, surveys are based on the UN-ICSC list with 320 products. This list was developed in collaboration between UN-ICSC and Eurostat. Pages 17-18 Following creation of EEAS in 2009, administrative roles clarified.

6-Comparison of UN and Extra-EU methodologies Old version: 1-Until 2009 the list of product included 500 definitions (Rent, healthcare, education and pension schemes are excluded). From 2010 the list of products is harmonised with UN-ICSC and includes 320 definitions. New version:1-From 2010 the list of products is harmonised with UN-ICSC and includes 320 definitions. Page 20 Increasing synergy

7-Consumption structures Old version: Duty stations outside the EU have a very limited number of staff. Therefore it has been decided in 2001 to pool together all the questionnaires from these places except for ECP countries for which specific weights are available. New version: Duty stations outside the EU have a very limited number of staff. Information from persons in broadly similar situation (eg. expatriate staff of international organisations, multinational companies) may be collected in parallel, however the number of responses is still likely to be small. Therefore, since 2001 it has been decided to pool together all the questionnaires from these places (except for ECP countries for which specific weights are available). Page 21 Even with a high overall response rate, individual locations have low numbers of respondents, and there can be regular mobility, so it is difficult to establish robust consumption structures

8-Price level surveys (place-to-place) Old version: .The list of item definitions for Extra-EU survey purposes was updated in 2005 and again in 2008. It comprised about 600 definitions, of which at least 400 were expected to be priced during surveys. Several price quotations are expected for each definition (around 5). In the past, the frequency of place-to-place surveys in duty stations has been triennial to decennial, depending on several factors. During 2008-2009 more concrete prioritisation criteria were introduced, aiming to increase the frequency of surveys in certain duty stations, and decrease it in others. New version: Since August 2009, closer collaboration with UN.ICSC and OECD.ISRP has been pursued. For duty stations in countries coordinated by ESTAT/OECD within the Joint Comparison Programme, price data will be drawn from those surveys. For remaining duty stations, price data will be obtained from UN.ICSC surveys. The UN.ICSC works on a five year cycle but if in a given duty Station, because prices market, X-rates or political stability are quite volatile, the UN.ICSC reserves the right to increase the frequency at which surveys can be performed. The current UN list (2010-2015) comprises about 320 definitions. Several price quotations are expected for each definition (around 5). With effect from 2010, the collection and validation of price data is the responsibility either of UN.ICSC or OECD.ISRP, depending on the duty station concerned.

8-Price level surveys (place-to-place) Old version: , the staffs of the E.U. delegations were always contacted for their opinions on the proposed shops list (although suggestions are not being considered prescriptive) New version: the staffs of the E.U. delegations are occasionally contacted for their opinions on the proposed shops list (although suggestions are not being considered prescriptive) Deleted: In general, Groups that consist of only one BH will always have survey data collected and will never be estimated. Old version: For Domestic Services, an index will be calculated based on the agreed upon new methodology. Since this BH index will include usage amounts in addition to wage information, this BH will not be used to estimate any other BHs. New version: For Domestic Services, an index will be calculated based on the data collected in the housing survey. Reliance on quality (objectivity) of work done by UN.ICSC New methodology for Domestic Services

9-Price trend surveys Pages 28-29 Insertion: Different solutions are possible to establish these monthly updating indices, including existing indices produced by national statistical offices; indices produced by other international organisations. Insertion: In a very limited number of duty Stations (4), where UN, ECP, NSI, CB CPIs are not available, then other sources are used and inflation data are crosschecked (IMF, Mundi, trading economics, CIA world fact book…) The following paragraphs were removed: (a) Frequency of the price trend surveys (b) The product list for price trend surveys (c) The shop list for price trend surveys (d) The number of price quotations per item to collect for price trend surveys Pages 28-29

10-Disseminating results Old version: Producing the results package These data are based on spatial price surveys (see chapter 8) which are updated by temporal indices (see chapter 9). Until 2009 the initial production work was done by an external contractor. From 2010 this work is all done by Eurostat. New version:These data are updated by temporal indices (see chapter 9). Old version: The extrapolation method to be used will depend on the duty stations and the results. Typically, either the inflation rate of the previous period (1 month) or the arithmetic average inflation of the whole observation period (6 months) serves as the base of extrapolating data into the future New version: The extrapolation method to be used will depend on the duty stations and the results. Typically, either the inflation rate of the previous period (6 month) or the arithmetic average inflation of the whole observation period (Up to 12 months) serves as the base of extrapolating data into the future. Pages 30-33.

10-Disseminating results Old version:The 2009 meeting of the Article 64 Working Group approved the principle of smoothing PPPs. If the current CC is greater than 90 and the global PPP from a new place-to-place survey is more than 10% different from the global PPP of the old survey updated to the same date, then the impact is smoothed (ie. delayed). 10% change is taken immediately in the month of the new survey introduction, with the balance spread over the available period (eg. 2% per month). The normal available period is either 6 months until the next results package transmission, or 12 months until next July. New version (Shortened): The normal available period is adjusted as followed: -If PPP difference is < or = to 5%, the new PPP take effect immediately, -If the difference is > to 5% but <= to 12%, the impact is smoothed 6 months -If the difference is > to 12% but <= to 24%, the impact is smoothed 12 months -If the difference is > to 24% but <+ to 36% the impact is smoothed 18 months -In the case the difference is higher than 36%, the impact won’t be smoothed for a period greater than 18 months. The complete smoothing factor rule is described in the manual. Pages 30-33.

10-Disseminating results The process to adopt Extra-EU correction coefficients: Old version: Extra-EU CCs for July each year are adopted by means of a Council Regulation, and take effect from the date of publication in the Official Journal. New version: Extra-EU CCs for January and July each year are not adopted anymore by means of a Commission decision and Council Regulation respectively. Bi-annual update of CCs, are subject to a regular and automatic update and will be done in an automatic manner. Those bi-annual updates will be published by the Commission in the Official Journal of the European Union for information purposes.

Other changes: DG Relex is replaced with EEAS (European External Action Service) BII (Brussels international index) is replaced with Joint index. Council regulation is replaced with Commission decision 4 New duty stations added 57 Comores - Moroni 309 Turkménistan - Achgabat 310 Émirats Arabes Unis - Abou Dabi 311 Myanmar - Yangon Annexes were updated to reflect changes introduced in the manual. Annex 1: List duty stations updated (From 139 to 143), Croatia & Taiwan cases Annex 2 : List duty station UN (updated) Annex 3 : ECP participating countries (No change, excepted Croatia case) Annex 4 : Intra-Eu 80 BHs and Extra-EU 57 BHs (Simplified) Annex 5 : Summary product list on 57 BHs and 12 Groups (More complete) Annex 6 : UN ICSC Instruction price surveyor (No change)

Annex 7 : Treatment P2P surveys (Updated) Annex 8 : Quality indicators to help review surveys (new version) Annex 9 : Prioritisation flowshart review surveys (New version) Annex 10 : Automatic filters and checks in the electronic database (New version) Annex 11 : Treatment of domestic services (Example) (New version ) Annex 12 : Family budget survey ( New Version 2010) Annex 13 : Staff housing survey (On line) Annex 14 : Calculation steps establishing CC. T2T reference removed. Annex 15 : Summary comparison Intra-EU / Extra-EU (Updated) Annex 16 : Summary comparison Extra-EU / Un-ICSC (No change) Annex 17 : Possible reasons for apparent differences in evolution of PPP over time and local consumer price index mouvment.

Conclusion: Delegates are invited to comment on the information presented in this presentation and the supporting documents.