OECD - WGGS Merchanting

1. OECD - WGGSMerchanting Michael Connolly – National Accounts, CSO Ireland October 2010

2. Outline of Presentation • Group of Experts on Globalisation • Merchanting – scale of activity • Merchanting - explanation • SNA 93 & BPM5 • SNA 2008 & BPM6 (IMTS2010,para. 1.20) • Merchanting of Services • Conclusion OECD WGGS

3. International Merchanting Activity 2004 – 2008 Index 2004 = 100 OECD WGGS

4. National Accounts Income

5. Merchanting - definition the purchase of a good by a resident (of the compiling economy) from a non-resident and the subsequent resale of the good to another non-resident; during this process the good does not enter or leave the compiling economy Source IMF BPM5 In addition no transformation of the good has taken place - if so, then goods for processing

6. Merchanting Value of exports = 80 Value of imports =100 Germany exporter/seller USA importer/buyer Change in ownership Cash settlement Ireland Merchant Value of services exports = 20

8. Merchanting • So what is the problem with merchanting? • In the trade data for countries Germany and USA the exports and imports are included • How do we treat the transactions in the accounts of Ireland?

9. Merchanting – BPM5, SNA 93 • The solution to this difficulty centred around the treatment for the change of ownership. • Change in ownership would normally require that • we record exports from Germany to Ireland and • record exports from Ireland to USA

10. Merchanting • This difficulty was simplified by imputing no change in ownership involving the merchant and therefore • recording the merchant’s margin as the net export of a service in Ireland and • record the exports /imports of goods between Germany and USA

11. Merchanting • Solution agreed in BPM5/SNA’93 solved one problem and created others • Goods account does not add up • Difference between the value of imports and exports is the merchants surplus • Recorded under Services

12. Merchanting SNA Rev.1 and BPM 6

13. Merchanting BPM 6 & SNA 2008 • Current treatment causes asymetries in Goods account (no services) • Inconsistencies in recommended treatment and impact on inventories and balance sheets • Inconsistencies with Supply and Use tables • Valuation in Cross Border transactions

14. Merchanting BPM6 & SNA 2008 • New proposals apply to the merchanting of goods only - no mention of merchanted services • Acquisition of goods by merchant to be recorded as negative exports of merchant’s economy • Similarly sale of goods by merchant recorded as a positive export • Difference between sales and purchases of merchanted goods is recorded under : “Net exports of goods under merchanting”

15. Merchanting Proposals BPM6 & SNA 2008 • In Supply and Use Tables the difference between sales and purchases to be shown as production of a service In general Merchanting activities to be recorded in Goods account rather than the Services account

16. Merchanting – BPM6, SNA 2008 Movement of goods/services Germany exporter/seller South Africa importer/buyer Change in ownership Cash settlement Ireland Merchant OECD WGGS

17. Merchanting

18. MerchantingImpact of New Proposals • Resolves the difficulty with asymmetric recording • Resolves the issues with inventories and holding gains • Valuation principles are consistent • Recording of transactions in BOP still an issue

19. Merchanting – Activities Included • Commodity Trading • International Wholesale Retail • Global Manufacturing and • Interaffiliate transactions in Goods and Services • Outsourcing of Services (abroad)

20. Merchanting Global Manufacturing Movement of goods/services Country B owner of goods Country D importer/buyer Change in ownership Goods for processing Cash settlement Country A Group Company Country C Processor/exporter

21. Merchanting of Services • Not addressed in the current manuals • Was mentioned as far back as 1961 “the compiling country’s residents may carry out international transactions in goods and services that are entered only on a net basis. Such transactions involve the purchase of goods or services in one foreign country and the sale or granting of them to another foreign country”

23. Merchanting, CSO Treatment • Impact of Globalisation on services • Inclusion of transactions in services • Potential for statistical distortion arising from large transactions in goods and services sourced and delivered abroad • Outsourced services • Third era of Globalisation

24. Merchanting of Goods and Services 2009 OECD WGGS

25. Merchanting Goods & Services 100% 100% Country US Direct Investor Country DE Producer Goods Country FR Producer services Country IE owner of goods Market EMEA Many customers

26. Merchanting of Services • Does not consider or address the merchanting of services • major aspect of Globalisation • falls within the definition of merchanting • Transformation - how to determine if service has been transformed?

27. MerchantingConclusions • Merchanting of services needs serious consideration • Revised treatment for Merchanting of goods is now adequate • Separate recommendations are required for Merchanting of Services similar to BPM5 i.e. separate item in Services Account

28. Any questions?