<!-- TITLE: NACE Rev. 2 revision --> <!-- SUBTITLE: Eurostat has asked EFCA to propose changes to the NACE Rev. 2 classification of economic activities. --> # NACE Rev. 2 revision # ## Final proposals ## EFCA's proposals to Eurostat for the NACE Rev. 2 economic activity classification revision are available as a **[summary - PDF](/uploads/efca-nace-revision-proposals-summary.pdf "EFCA NACE proposals summary")** and as a **[report - PDF](/uploads/efca-nace-revision-proposals-final-30-jun-19.pdf "EFCA NACE proposals")** The proposals: - consolidate the principal consulting engineering activity (NACE 7112) by: - adding activities to sub-categroies - adding a new category (project supervision) - rectifying the mis-classification or under-reporting of integrated engineering activities for design-build & turnkey projects - incorporating engineering design that tends to be classified elsewhere - incorporating engineering design associated with building information modelling, marine & costal engineering, built environment ecosystems and prefabricated construction modules - rationalise engineering and consulting activities by proposing environmental engineering categories (for sites, noise abatement, health and safety, and resource management) - include new categories for engineering R&D - propose a new scheme to rationalise the somewhat confused classification of increasingly digitalised drilling, tunnelling, inspection, surveying, and handling activities. ## Introduction ## Eurostat has asked EFCA to propose changes to the NACE Rev. 2 classification of economic activities (see the [text of request without its confidential information](/uploads/efcaeurostat.pdf)). EU Member States have already made proposals, see [presentation](http://www.efsi-europe.eu/fileadmin/MEDIA/Event/8th_European_Conference/PPT/M.Mietzner.pdf). In spite of activity classifications such as NACE being "technology neutral" (e.g., to the use of information technology), Member States claim that changes in the economic structures and organization, as well as technological developments, have introduced new activities. This page will consolidate comments, suggestions and analyses in the course of a survey of EFCA Member Associations, the preparation of a position paper and the completion of the Eurostat questionnaire by 30 June 2019. ## EFCA activities ## A presentation [PDF](http://survey.fidic.pro/uploads/fidic_efca_survey_europe28_2019_presentation.pdf) at the EFCA 2019 Conference in Brussels (9-10 May 2019) of the 2019 update of the FIDIC-EFCA Survey highlighed that significant changes were arising in the way specialised design and consulting services activities were being reported by Eurostat and others. The update's analysis of the use of consulting engineering services which was summarised in the presentation is [available](/use/ce-services). A survey questionnaire will be sent to EFCA Member Associations. It is planned to separate this question into two parts dealing with: - NACE 7112 (the principal activity of the consulting engineering industry) - other activities covered by several NACE categories. Available are: - background to the NACE revision - [trends](/classifications/trends) affecting the classification of consulting engineering industry activities; - [summary of national versions](/classifications/activity-national) of the NACE 7112 category to establish if specific adjustments need to be made to NACE 7112; - [preliminary analysis](/classifications/nace) of the NACE classifications that make up the consulting engineering industry's activities to establish how all relevant NACE categories need to be adjusted to account for broad based changes arising throughout the economy. ## ISIC Revision ## The UN ISIC is the basis for NACE. The *Technical Subgroup of the Expert Group for ISIC Assessment* will consider once again at its June 2019 meeting ([agenda](https://unstats.un.org/unsd/classifications/ExpertGroup/TSG-ISIC2019/Draft_Agenda_TSG-ISIC_June2019.pdf)) if a revision (to ISIC 5) or an update (to ISIC 4.1) is needed. UN Statistics Division presentations at the 2017 experts meeting concluded that ISIC was "adequate to reliably describe current economic structures" so it is not immediately obvious that a revision or update is necessary owing to: - misunderstanding due to there being no explicit references to new activities (e.g., Building Information Management in construction) and products (e.g., the use of drones for surveying) gave no reason to adjust the concepts underpinning ISIC and its structure; - the subdivision of categories to cater for emerging activities and industries needed "verification of their actual importance"; - the impact of the internet-driven household production of services (e.g. AirBnB for accommodation; Uber for transport; Google for travel services) on investment (GFCF). ## The context of the NACE revision ## In general, the classification of services by economic activity is unjustifiably much less rich than for the production of goods. For example, in the UK in 2016 NACE Revision 2 breaks down manufacturing into 44 activities and services into 51 activities despite accounting for almost eight times the total output of manufacturing. Authorities say that the UK's ONS "should be proactive in pressing the case for the next industrial classification system to provide a richer picture of services activity" otherwise classification lags reality, "under-representing newer industries and over-representing ones that have declined in importance" [](https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/507081/2904936_Bean_Review_Web_Accessible.pdf). Other major trends that are impacting national accounts for which some NACE 2 revision proposals can be drawn are: - *household participation* - Households now supply infrastructure services in the sharing economy (e.g. AirBnB for accommodation services, Uber for transport services) which results in misclassification. - *individual suppliers* - Many individuals engaged in consulting and construction activities set up limited companies to offer their services in a more tax-efficient way compared to self-employment or normal employment (this results in a large difference between the numbers of registered firms and of firms with websites [](https://www.glass.ai/glass-news/2019/1/28/a-comparison-of-uk-sectors-based-on-web-presence-and-official-statistics)). - *professionals* - SPADA: professional sector output poorly quantified since in spite of very different obligations to society and roles in society, professional and non-professional occupations are loosely classified under NACE 74, and some professional activities are missing [](http://www.infiniteglobal.com/infiniteSpada/media/infiniteSpadeMedia/news%20events/2009-BritishProfessionsToday_1.pdf). - *innovation* - EVOREG: Knowledge-Intensive Business Services referred to in NACE 024 (forest management consulting), 642 (activities of holding companies not engaged in management), 742 (aerial photography), 749 (agronomy consulting; weather forecasting; quantity surveying), and 856 (educational support) categories should have specific sub-categories [](http://www.evoreg.eu/docs/files/shno/ResearchNote_25_classificationKIBS_SCE_AZ_9_jb.pdf). - Eurostat: NACE 71 is classified under Tier 2 (Knowledge-intensive market services) and not under Tier 1 (High-tech knowledge-intensive services) which includes NACE 62, 63, and 72 [](https://www.innovationpost.it/wp-content/uploads/2019/06/ETAY19181ENN.pdf) using a composite index that includes the employment share of NACE 45 to 77 services (i.e., outside manufacturing, construction and the public sector) of knowledge-intensive services (%)[](https://ec.europa.eu/eurostat/statistics-explained/index.php/Glossary:Knowledge-intensive_services_(KIS)); - *intellectual property rights (IPR)-intensive industries* - NACE 7112 was rated the second most important IPR-intensive economoc activity in the EU in terms of added value for the period 2010-13 [](http://documents.epo.org/projects/babylon/eponet.nsf/0/419858BEA3CFDD08C12580560035B7B0/$File/ipr_intensive_industries_report_en.pdf). - NACE 1712 in Norway was the eight most important IPR-intensive economic activity in 2018 [](https://www.patentstyret.no/globalassets/om-oss/rapporter/ipr-intensive-norway-complete-report.pdf). - *R&D intensive* - OECD: NACE 71 is classified with NACE 69-75 under Tier 4 (Medium-low R&D intensity industries) and not under Tier 2 (Medium-high R&D intensity industries) which includes NACE 62 and 63, measured as industry’s business R&D expenditure divided by gross value added [](http://www.inovasyon.org/pdf/OECD.Taxonomy.of.Economic.Activities.Based.on.R&D.Intensity.2016.pdf). - *design* - OECD: uses NACE 741 as representing all design activity, so 741 includes fashion design, industrial design, graphic design, & interior design but excludes architectural design & engineering design [](https://www.interregeurope.eu/fileadmin/user_upload/tx_tevprojects/library/file_1541431898.pdf). - Eurostat: sees no issues (all design activities in 74.10, with the exception of advertising developer-design, architectural and engineering as for OECD in 7111 and 7112, and IT design in 6201) [](https://www.cnis.fr/wp-content/uploads/2018/04/DC_2010_1re_reunion_CNNES_nace.pdf). - BEDA European Design Report 2.0: proposes to introduce aligned subcategories to NACE 7410 (Specialised Design Activities) [European Design Report 2.1, BECA 2018](https://www.interregeurope.eu/fileadmin/user_upload/tx_tevprojects/library/file_1543245130.pdf). - Ireland policy [](https://dbei.gov.ie/en/Publications/Publication-files/Policy-Framework-Design-in-Enterprise-in-Ireland.pdf) makes use of all standard references to establish: - design-intensive sectors (at least 30% design staff; more or less traditionally associated with design) of which close to 7112 are: - Specialised design (741 "Specialised Design Activities") - Architecture (711) - Engineering (Design and Development Engineers: 7112 with civil & mechanical engineers excluded + NACE 1629 "Manufacture of Other Products and Woods" + NACE 264 "Manufacture of consumer electronics") - design emphasis sectors (emphaise design-related activity) of which close to 7112 are: - Advanced manufacturing (NACE manufacturing categories) - Built evironment (NACE built evironment categories including gardeners and landscapers) - *cultural heritage* - ECCO: recognise conservation - restoration and culture with a NACE Division M (Professional, scientific and technical activities: 69 - 74) category [On the classification of the Cultural Heritage sector within NACE, ECCO 2014](/uploads/eccoonnacefinal-3.pdf). - *engineering services in project delivery* - WTO: industry surveys classify firms as "architect, engineer, engineer-contractor, architect-engineer, engineer-architect, environmental, geotechnical engineer, landscape architect, and planner" [](https://www.wto.org/english/tratop_e/serv_e/w44.doc). - WTO Services Sectoral Classification List [](https://www.wto.org/english/tratop_e/serv_e/w44.doc): - includes "integrated engineering services" (corresponding to CPC Ver. 1 8673) to cover the engineering aspect of "construction project management services" in turnkey projects; for other actitivites the engineering aspect is clasified under 8672. - CPC Ver. 1 8673 classes 8673/1,/2,/3,/9 cover a) turnkey projects and integrated engineering and project management for transportation infrastructure, water supply and sanitation works, and the construction of manufacturing facilities); b) turnkey projects in general [](https://wmy9605.files.wordpress.com/2009/11/integrated-engineering-services.ppt). - CPA 2008 [](https://ec.europa.eu/eurostat/documents/1995700/1995914/CPA2008structureexplanatorynotesEN.pdf/79e7f2e5-4e8c-493b-8684-bafaf75801d3) as for CPC Ver. 2.1 [](https://unstats.un.org/unsd/classifications/unsdclassifications/cpcv21.pdf) has references in sub-categories to: - "integrated facility and process engineering projects" for mining and metallugical, petrochemical in CPA 71.12.16. - "integrated facilities for power generation, flood control, irrigation, navigation and recreation" in CPA 84.13.17. - CPA 2002 [](https://ec.europa.eu/eurostat/ramon/miscellaneous/rulings_example.pdf) has a 74.20.40 ("integrated engineering services for turnkey projects") sub-category that corresponded to CPC Ver. 1 8331 "Integrated engineering services". - Eurostat: all bundled design-build services are classified under construction, because construction is the principal added value [](https://www.oecd-ilibrary.org/docserver/9789264220676-15-en.pdf?expires=1560980228&id=id&accname=guest&checksum=D568B57DA4B1336CD232E39C4E94258B) [](https://ec.europa.eu/eurostat/documents/3859598/6485893/KS-04-14-661-EN-N.pdf/f8f5d9d6-50c4-4fa1-9322-c9c00a6377fd). - Eurostat: split turnkey plant construction projects between engineering (7112) and project management and all the manufacturing and construction work or create a sub-category[](https://www.cnis.fr/wp-content/uploads/2018/04/DC_2010_1re_reunion_CNNES_nace.pdf). - Italy ATECO 2007: has a sub-category 7112/2 ("Integrated engineering design services") which specifically recognises the bundling of several types of services. - UK SIC 2007; has a sub-category 7112/9 ("Other engineering activities, including integrated engineering activities for turnkey projects") which specifically references turnkey projects. - *climate-change taxonomy* - EU TEG: a framework has been developed [](https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/190618-sustainable-finance-teg-report-taxonomy_en.pdf) to screen the climate-change mitigation and adaptation potential of NACE activities. Whether this will impact NACE is unclear (see [technical note](/uploads/eu-taxonomy.pdf) for NACE 7112). - *prefabricated prefinished prefitted volumetric assemblies* - *digitalisation* - overall - each construction-related activity affected throughout a project life-cycle by digitalisation sees the impact differently. For example, for building information modelling (BIM) for a construction project: - ICIS: BIM activity classified separately under 2.150 (specialist consultants) [](https://www.icis.org/wp-content/uploads/2017/11/ICIS-report_Classification_Identification_and_BIM_final_2017-10.pdf) - CIC: BIM activity fully integrated under a Protocol in design and construct contracts [](http://cic.org.uk/admin/resources/bim-protocol-2nd-edition-2.pdf). - virtual reality and simulation technologies demonstrate not only the physical aspects of the design, but also the assembly processes which is crucial for the assessment of constructability. - EFCA - digitilisation is driving many economic activities (finance and accounting, accomodation, transport, distribution, R&D, travel services) as well as value chains based increasingly on intangible assets with new centres of production, notably households [Future trends on the consulting engineering industry](http://www.efcanet.org/Portals/EFCA/ELOKET/32867/Future%20Trends_May%202019.pdf). - professional activities, particularly those that profit from the digital delivery of services such as consulting engineering, are responding by developing new management models and new forms of organisation structure that integrate the talents of geographically dispersed individuals and organisations. - closely scrutinised in a world that increasingly needs to meet environmental and social goals are: - new digitalised enablers (CAD; BIM; parametric modelling; virtual and augmented reality; digitial twin applications) often using Cooperative Patent Classifications codes [identified](https://ificlaims.com/uploads/filedump/partners/IALE_IFIClaims_Post_Digital_Twins_Patents.pdf?1537290452). - management and decision making enablers (digital intermediation platforms; dashboards; big data, metrics); - contractual agreements and frameworks; - digitalised practices for engineering and design and for construction and manufacturing (drone-based automated surveying; robotic construction and manufacturing; automated assembly; integrated GIS; preassembled building and infrastructure components; the internet of things) that blur the line between goods and services; - simulation models for performance optimisation and verification at all project phases (initial planning, feasibility, design, construction, commisioning, operation, and rennovation). - given the importance of NACE 7112 in defining the consulting engineering industry, the main issue is to determine whether some increasingly digitalised 7112 services will be reclassified elsewhere, and conversely whether services that are tending to be classfied elsewhere should be classified under 7112. - OECD - questions whether classifications of economic activities and of good and services are equipped to deal with the challenges of digital trade. - proposed conceptual framework for measuring digital trade: - classifies the digital nature of a transaction, the type of product and the actors involved. The framework does not evisage splitting goods and services into into ‘digital’ and 'non-digital'. Some preliminary conclusions as to how the classification of consulting engineering may be revised can be drawn [proposed](https://unstats.un.org/unsd/nationalaccount/aeg/2018/M12_3f_Digital_Trade_OECD.pdf). - a transaction will be classified as digitally ordered, digital-platform enabled, or digitally delivered and the product as a good, service or non-monetray information/data. Digital services will be by definition digitally delivered so a revised NACE will not immediately aim to classify all of 7112 as digital services since much of 7112 requires physical presence such as on-site project supervision. ## Difficulties Changing the NACE classification of economic activities and the classification itself presents several difficulties: - Economic activities are cclassified according to their function rather than to where they take place. While several economic activities can easily be classified as maritime (e.g. fishing), others are not maritime by nature, in that – for instance – they can be carried out both onshore and offshore (e.g. production of wind energy). For NACE 7112, it is not possible to identify specifically marine engineering in the main engineering NACE categories [](https://www.ouroceanwealth.ie/sites/default/files/sites/default/files/news/Final%20Semru%20-%20Ireland%27s%20Ocean%20Economy%202015%20Report.pdf). Combining EU statistical classifications of activities (NACE) and spatial areas (NUTS) has been proposed, e.g. [Marnet](https://cbe.miis.edu/cgi/viewcontent.cgi?article=1007&context=joce). More useful would be to create mixed maritime/non-maritime NACE categories with their corresponding CPA product categories [](https://cbe.miis.edu/cgi/viewcontent.cgi?article=1050&context=joce). - Economic activities are classified according to their function rather than to which industry they serve. - - Production units are group according to the similarity of their productive processes, technology, inputs, and equipment. - Revising a statistical classification is not an easy task, may take a long time, and might also undermine accounting consistency, unless it is embraced worldwide. - Revision may not necessarily work for all economic activities. For instance, a firm that manufactures navigation equipment that can be used on ships, trains, or planes may find it difficult to register its business with a code that is too restrictive [](https://www.msp-platform.eu/sites/default/files/ea0217517enn.en_.pdf). - Emerging activities are inherently more difficult to capture: quite often emerging economic activities have not yet been included. - Non-commercial activities are not classified. ## Types of changes ## Revision to NACE could include: - NACE codes - creating a new NACE code - aggregation of different NACE codes - disaggregation of a NACE code - exclusions - adding, removing, moving or consolidating exclusions - NACE nomenclature - improvements or changes to explanations of the NACE nomenclatures - other suggestions ## Classification aims ## - Provide a hierarchical partition of economic activities into finer and finer categories, with a view to making it possible to collect and present the information at various levels of aggregation. - Enable an exhaustive coverage of economic activities. - Contain only categories that are homogeneous and mutually exclusive, where each economic activity is classified in only one category. - Provide methodological principles allowing the consistent allocation of economic activities to the various classification categories. - Base classification of emerging activities on an aggregation of different categories, taking into account new cross-sector linkages that define the emerging activity such as capital raising, cross-sector investment, patents, growth potential and the extent to which a single new emerging activity can be defined by a group of current codes [](https://ec.europa.eu/research/industrial_technologies/pdf/emerging-industries-report_en.pdf). ## Link to the Classification of Products by Activity (CPA) ## NACE is closely linked to CPA and while both should be considered in parallel, the NACE revision is not specifically linked to a CPA revision. It is noted that [](https://ec.europa.eu/eurostat/documents/1995700/1995914/CPA2008structureexplanatorynotesEN.pdf/79e7f2e5-4e8c-493b-8684-bafaf75801d3): - An activity defined by NACE produces services classified in the CPA by their intrinsic nature. - The first four digits of a CPA category (formally called a "class") correspond to the NACE category (formally called a "class") in which services are produced. - CPA category titles aim to define the boundary of each CPA item. Eexplanatory notes clarify the border and content of an item. However, the explanatory notes do not present an exhaustive list of all the products under each item. These lists are lists of examples to illustrate the content. ## The importance of the NACE revision ## It is important that EFCA responds to Eurostat's request for proposals to revise the NACE economic activities' classification for many reasons. - NACE 74 that groups professional and non-professional occupations (where human capital is the major input, activities are defined by the expertise and training of the service provider and there are very different obligations to society and roles in society) needs to be updated to reflect more accurately economic and **social contributions** and to consolidate **recognition** (*British professions today*, 2009). - Classification **legitimises industries**, thereby opening up routes for access to finance, talent and recognition in general, and **acknowledges importance** [](https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/507081/2904936_Bean_Review_Web_Accessible.pdf) - For an **effective single market**, it is essential, for both macro- and microeconomic analysis and for commercial marketing, to have a single, up-to-date classification system that includes a clearly defined consulting engineering industry [](https://ec.europa.eu/eurostat/documents/1995700/1995914/CPA2008introductoryguidelinesEN.pdf/df1e8d19-1156-4a1c-b384-4f95a12515e5). - Many statistical **legal acts** refer to NACE when detailing the characteristics of statistics produced by EU Member States in the various statistical domains relevant for EU policies, e.g. the SBS regulation, the STS regulation, etc. - The economic structures of countries change, and so does the composition of certain and often very visible and heavily scrutinised **aggregates in national accounts** that are classified by industry and/or product. - While existing product and service classifications clearly define and identify digital products, national statistic agencies aim to develop **measures of trade** in digital products broken down by the nature of the transaction (i.e., digitally ordered, digital intermediary platform enabled, and/or digitally delivered) that may impact NACE 7112 sub-categories. - Emerging or even established sectors remain under-represented in robust economic measurements and **under-valued** unless they are adequately classified, e.g., the maritime "blue economy" [](https://www.msp-platform.eu/sites/default/files/ea0217517enn.en_.pdf) and the bio-economy [](https://www.mdpi.com/2071-1050/10/6/1698/pdf), although NACE and its related ISIC and NAICS classifications that group production units according to the similarity of their productive processes, technology, inputs and equipment are only partly applicable for these situation-based activities. - Activity classification: - offers: - spatial and inter-industry comparability (data consistent at all levels) - temporal comparability (data sufficiently consistent over time so that changes can be measured) - theoretical and accounting consistency ( data reflects standard economic theory describing the measurement of economic activity, avoiding double counting, meaning all measures can be summed across industries) - replicability (uses a methodology that can be replicated and is the basis for the continued generation of data) - is used for important non-statistical purposes such as **taxation**, **subsidies** for and the **regulation** of firms that have a strong financial impact on firms. - allows the analysis sectoral employment flows in connection with **productivity** trends [](https://www.ilo.org/wcmsp5/groups/public/---dgreports/---stat/documents/publication/wcms_422402.pdf) - allows the monitoring of **licensed** business activities [](https://www.lexology.com/library/detail.aspx?g=50525131-fb73-457d-be11-ba63be0e048d). - define the NACE code of several thousand firms, thus defining the **relative importance** of the branches in the economy [](http://www.nbb.be/doc/dq/e/method/b_necd10.pdf). - provide the basis for preparing statistics of output, the various inputs to the production process (labour, materials, energy, etc.), capital formation and the financial transactions of classified units which provide power insights into the way **supply and demand** is changing [](https://unstats.un.org/unsd/classifications/ExpertGroup/egm2015/ac289-9.PDF).. - define the **tax treatment** of international digitally delivered services under the World Trade Organization's WTO Information Technology Agreement. - allow **auditors** of management systems to be assigned only when they have relevant industry experience [](https://www.oxebridge.com/emma/how-to-ensure-your-registrar-uses-the-right-industry-codes-and-why-its-important/). - recognises new and **emerging industries** and clusters [](https://ec.europa.eu/research/industrial_technologies/pdf/emerging-industries-report_en.pdf). - is used to forecast the demand for land for industrial use provided activitity classification remains sufficiently fine grained and appropriate as economies change [](https://www.london.gov.uk/sites/default/files/ilds_final_report_june_2017.pdf). *Updated 18 June 2019*