CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz1 Prague, May 28, 2013 FOREIGN TRADE IN NATIONAL ACCOUNTS AND BALANCE OF PAYMENT Tereza Košťákova Marek Rojíček Jaroslav Sixta

CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz2 CONTENT 1)Foreign trade and its measuring (estimation) 2)Foreign merchants and Single market of the EU 3)Examples – recording of trade by non-EU merchants in the EU aggregates 4)Impact on EU aggregates of foreign trade and on Member States 5)Czech approach – national concept 6)ESA 2010 Challenges

CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz3 FOREIGN TRADE AND ITS MEASURING Definition of foreign trade trading between residents with non-residents (change of ownership – money flows expected) Measuring of foreign trade Movements of goods across the borders = approximation to the foreign trade Single market of the EU and the globalization break the link between cross-border movements and the trade => Impact both on EU-aggregates of foreign trade and on national statistics (difference between cross-border movements and ownership change is increasing)

CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz4 MAIN DATA SOURCES FOR FOREIGN TRADE IMTS: Intrastat and Extrastat Traditional data source Physical movements of goods across the borders Based on (former) custom statistics Cannot record trade with non-residents within the borders Do not comply with ownership (and money flows) VAT declarations by non-residents Additional data source Covers trading by non-residents within the borders of the Member States and between the Member States

CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz5 SINGLE MARKET IN THE EU Any merchant (EU-resident, non-EU-resident) can take advantage from the Single market and do trade in any member state  O bligation to register for VAT in the MS  Data suppliers to Intrastat for all units registered for VAT above national threshold => foreign merchants report to Intrastat (and Extrastat) => the value of cross-border movements of goods by non-residents included in the IMTS figures => over-estimation of balance of trade

CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz6 EXAMPLES: RECORDING OF FOREIGN TRADE OF NON-EU-RESIDENTS‘ TRADING EU foreign trade: Trading of EU-residents with non-EU-residents Non-EU-residents trading within the EU: 1)Transactions between Member States 2)Transactions within one Member State 3)Transactions between EU and non-EU countries At the national level the issue is even broader as non-residents are also from other Member States.

CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz7 EXAMPLE 1: TRADE BETWEEN MEMBER STATES EU aggregates - IMTS EU exports = 0 EU imports = 0 EU balance = 0 EU aggregates – NA, BoP EU exports = 100 EU imports = 150 EU balance = -50 Czech Republic- IMTS CZ exports = 150 CZ imports = 0 CZ balance = +150 Czech Republic- NA, BoP CZ exports = 100 CZ imports = 0 CZ balance = +100

CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz8 EXAMPLE 1: TERRITORY BREAKDOWN – BALANCE OF PAYMENT

CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz9 EXAMPLE 2: TRADE WITHIN ONE MEMBER STATE EU aggregates - IMTS EU exports = 0 EU imports = 0 EU balance = 0 EU aggregates – NA, BoP EU exports = 100 EU imports = 150 EU balance = -50 Czech Republic- IMTS CZ exports = 0 CZ imports = 0 CZ balance = 0 Czech Republic- NA, BoP CZ exports = 100 CZ imports = 150 CZ balance = -50

CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz10 EXAMPLE 2: TERRITORY BREAKDOWN – BALANCE OF PAYMENT

CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz11 EXAMPLE 3: TRADE WITH NON-EU COUNTRY EU aggregates - IMTS EU exports = 0 EU imports = 100 EU balance = -100 EU aggregates – NA, BoP EU exports = 0 EU imports = 150 EU balance = -150 Czech Republic- IMTS CZ exports = 0 CZ imports = 100 CZ balance = -100 Czech Republic- NA, BoP CZ exports = 0 CZ imports = 150 CZ balance = -150

CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz12 EXAMPLE 3: TERRITORY BREAKDOWN – BALANCE OF PAYMENT

CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz13 EU AGGREGATES – OWNERSHIP PRINCIPLE Imports into the EU = imports by EU-residents (Extrastat) + sales by non-EU-residents within the EU (VAT) Exports from the EU = exports by EU-residents (Extrastat) + purchases by non-EU-residents within the EU (VAT) Rotterdam effect is only a specific case of more general phenomena = of non-residents trading in the internal market (of the EU or Member State)

CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz14 IMPACT OF USING PHYSICAL MOVEMENTS OF GOODS FOR EU-AGGREGATES  Over-estimation of the balance of trade  Imbalance between current account and financial account (Balance of Payment - BoP)  Imbalance between resources and uses (Supply and Use Tables - SUT)  Incorrect territorial breakdown of BoP The impact even more significant at the national level due to  non-residents that are residents in other Member States  quasi-transit with other Member States

CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz15 APPROACH FOR EU-AGGREGATES  Intrastat and Extrastat data should be adjusted by other data sources  Taking into account change of ownership <= non-EU merchants trading in the Single market <= EU-residents trading with non-EU-residents  Consolidation at EU level <= each MS considers EU-residents from other MS as non-residents  All MS affected but at different extent: CZ, BE, HU, SK, AT, NL…

CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz16 NATIONAL CONCEPT IN THE CZECH REPUBLIC After accession to the EU in 2004 => increasing imbalance in the BoP and in the NA (over-estimation of balance of trade and both value of imports and exports in certain commodities) New national concept of foreign trade developed => Exclusion of cross-border movements reported by non-residents to Intrastat and Extrastat => Inclusion of their purchases and sales in the Czech market => Used in NA and BoP (ownership principle)

CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz17 IMPACT IN THE CZECH REPUBLIC Balance of trade is significantly over-estimated according to the cross-border statistics (CIF/FOB)

CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz18 GLOBALIZATION LEADS TO INCREASING DIFFERENCE BETWEEN TRADE AND MOVEMENTS The trade between residents and non-residents is often not accompanied by reported cross-border movements of goods and vice versa System of data collection of cross-border movements is affected by globalized world that brings e.g. Transfer pricing across different countries Tax optimalization Costs optimalization

CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz19 ESA 2010 CHALLENGES ESA 2010 follows absolute change of ownership approach for foreign trade, e.g. new recording of Goods sent abroad for processing Quasi-transit and non-residents trading within the borders Merchanting => As the globalization affects increasingly any economy detailed data sources are needed, especially for reliable identification of all transactions across the borders without any change of ownership between residents and non-residents

CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz20 SUMMARY 1)Intrastat and Extrastat are not sufficient for estimate of EU- aggregates of foreign trade, neither at the national level 2)If non-EU merchants in the Single market are not taken into account, EU-balance of trade is over-estimated 3)Impact is at the EU level as well as at the national level 4)Purchases/Sales by non-residents in the internal market (national/EU) must be considered as exports and imports (instead of cross-border movements) 5)Foreign traders affect all Member States (but at different extent)

CZECH STATISTICAL OFFICE | Na padesátém 81, Prague 10 | czso.cz21 Thank you for your attention