BPM5 Conceptual Framework: Concept of Residence

1. BPM5 Conceptual Framework: Concept of Residence ESCWA Workshop on the Compilation of Statistics on Trade in Services Cairo, Egypt February 6-9, 2007

2. Introduction • The balance of payments summarizes for a specific time period, the economic transactions of an economy with the rest of the world. • Concept of residence is central to identifying and measuring transactions between residents and nonresidents.

3. Defining Residence • MSITS concept of residence identical to that used in BPM5 and the 1993 SNA, and is based on a transactor’s center of economic interestnot on nationality or legal criteria. • In this regard, recognizing the economic territory is key to identifying the sectoral transactor’s center of economic interest.

4. Economic Territory • The economic territory of a country is the relevant geographical area to which the concept of residence is applied.

5. Residence of Enterprises • An enterprise has a center of economic interest, and thus residence, in an economy when it engages and intends to continue to engage in economic activities on a significant scale either indefinitely or over along period of time. A period of one year is the guideline.

6. Special Cases: Operations of Mobile Equipment Operations of mobile equipment outside the economic territory where the enterprise is resident (example, airline, railway, trucking, shipping). Operations taking place in international waters or airspace; or in another economy.

7. Foreign Direct Investment • Ownership of land and structures located within a country’s economic territory (para. 64) • Notional unit as owner (direct investment). • Purpose is to maintain land as always being an asset held by residents. • The FDI enterprise is resident in the economy in which it operates -> services produced and supplied to nonresidents are exports; services consumed, supplied by nonresidents are imports.

8. Special Zones Discuss: • Special zones or legislative exemptions for particular enterprises (para. 59): • Manufacturing (e.g., free trade zones); • Financial or other services (e.g., “offshore financial centers”).

9. Construction Projects/Agents Discuss: • Large, long-term construction or installation projects (para. 78) • Site office. • Agents (para. 83) • Transactions on behalf of principal included in economy of principal. • Agent’s own services in agent’s economy.

10. Residence of Households • A household has a center of economic interest where it maintains one or more dwellings in the country that members of the household use as their primary residence. An individual may cease to be a member of a resident household when he/she works continuously for one year or more in foreign country.

11. Households: Refugees • Refugees are persons displaced from their home economy by natural disasters or other causes (such as conflict). Such displacement to other economies may be for a short period or on along term basis. In the case of short-term displacement, refugees continue to be resident of their home economies; however, if the displacement is for a long period and the refugees change their center of economic interest, they are considered to be migrants and thus no longer residents of their original economies. Lebanese residents crossing into Syria during the 2006 summer war with Israel; have since returned = short-term Iraqi residents who have moved to Jordan, Syria and other countries = long period

12. Government • Special cases • Embassies (resident of home country) • Military bases (resident of home country) • International organizations (nonresidents of any one country)

13. BPM5 and modes of supply • Balance of payments service transactions broadly correspond to modes 1, 2 and part of 4, in the GATS modes of supply.

14. Statistical Coverage of GATS Modes of Supply Source: Manual on Statistics of International Trade in Services