How do criteria change between levels?

Criteria change between levels because the classification groups activities by different characteristics at different levels of aggregation. At lower levels, similarities in the actual production process are considered, while at more aggregated levels, the production process is largely irrelevant. At higher levels, characteristics of outputs and their use become more important.

What criteria define classes?

Classes are defined mainly by the production process. The manual states that at the lowest level, preference has been given to the process and technique of production to define individual classes, particularly in classes related to services. It also states that the criteria concerning the way activities are combined in, and allocated among, production units are central to the definition of classes, and that activities are grouped together when they share a common process for producing goods or services. The aim is that units whose principal activity is classified in the same class will be similar with respect to the activities in which they engage.

Two conditions support that aim. The manual states that classes are defined so that the output of the category characterising a class represents a major part of the output of the units whose principal activity is classified in that class, and so that the class contains the units that produce most of the category of goods and services that characterise it. Those conditions are design conditions for the classification. They explain why a class boundary is drawn where it is, and why a class can be used to group similar units for statistics. They do not decide the principal activity of a particular unit, which is determined by applying the classification rules to the information held about that unit.

Level	Criterion given the most weight in the manual
Class	Process and technique of production, shared production process
Group and division	Character of goods and services, uses, inputs, process and technique, with varying weights
Section	General characteristics of outputs and services, and potential use of the statistics

What criteria define groups, divisions and sections?

Groups, divisions and sections are defined by broader criteria, with the weight of each criterion varying between categories. The manual states that the main criteria for delineating groups and divisions concern the character of the goods and services produced, the uses to which the goods and services are put, and the inputs, process and technique of production. Regarding the character of goods and services, account is taken of physical composition and stage of fabrication, and of the needs served by them. Distinguishing categories by the nature of goods and services produced provides the basis for grouping production units according to similarities in, and links between, the raw materials consumed and the input output framework.

The manual adds that the weight assigned to the criteria varies. In some cases, such as food manufacturing, textile, clothing and leather industries, machinery and equipment manufacturing, and service activities, the three characteristics are so closely related that the problem of assigning weights does not arise. For intermediate goods, physical composition and stage of fabrication are often given the greatest weight. For goods with complicated production processes, end use, technique and organisation of production are frequently given priority over physical composition. A reader must therefore not assume that the same criterion dominates every group or division. The note for the category states the scope that resulted from applying the criteria, and the note is the definition to be read.

Why is strict application of the criteria not used?

The manual states that a strict application of the criteria has not proven useful, and that the weight applied to each criterion therefore changes throughout the classification. Practical considerations also influence how categories are defined at different levels, such as the organisation of economic production in most countries and the need for stability of the classification. The underlying technology is not a general criterion for defining economic activities in NACE. The manual gives an example: financial technology provides, improves or increases access through digitalisation to financial services already carried out in the past, and activities of financial intermediation are classified in section L, while provision of digital technology supporting a financial service is classified in section K. Technology alone therefore does not decide the category. The activity, its process, its output and its use must be considered together, as stated in the note.

Stability is a further practical consideration. The manual states that intervals between updates must not be too long, since relevance diminishes, nor too short, since comparability over time is adversely affected. Categories are therefore defined with an eye to keeping the classification usable over a period, not only to reflecting the finest possible distinction at the moment of drafting. A category that is stable across a period can be used for a time series, while a category that changes with every technical change cannot. The criteria are applied with that stability in mind.

What do the criteria not decide?

The criteria do not decide the code for a specific activity on their own. They are the principles used to design the categories. The categories as designed are stated in the structure and defined in the explanatory notes. A reader who applies the criteria directly to an activity, without reading the note for the category, risks placing the activity by a general principle where the note states a specific boundary. The manual states that the content and scope of each position is defined through detailed explanatory notes, which highlight boundary issues. The note is the application of the criteria to a category, and it must be read as the definition.

Read the criteria in the manual to understand how categories were designed, read the note for the category to see the resulting scope, and confirm any entry with the national statistical institute or the business register that holds the record.