Quality issues THE CONTRACTOR IS ACTING UNDER A FRAMEWORK CONTRACT CONCLUDED WITH THE COMMISSION

Content The challenge of compiling national BOP in a multi-national world Asymmetries Quality reporting

General Double entry system means that current + capital should = FA. But, Imperfections in measurement Integrated framework means this will not happen. Resulting errors and omissions (E&O)are a measure of the imbalance and the overall “quality” of the accounts. Large and volatile E&O hampers interpretation Consistent +ve or –ve E&O implies structural mismeasurement

National BoP in a multinational world MNEs organise themselves globally rather than constrained to national borders. But should still compile national financial statements. Although, may rely on HQ for some information (delays). Problem of transfer pricing.

Transfer pricing BoP aims to capture “market” price. Transaction price usually a good proxy. Not always the case between MNEs – especially between companies in a direct investment relationship. A company may sell goods to a related company for prices unrelated to the cost of production Perhaps to transfer profits from one economy to another for tax reasons.

Transfer pricing – an example A DIENT produces copper. If this copper is sold to unrelated companies, the DIENT could expect to earn 50 units per ton. However, the government of the economy has imposed restrictions on repatriation of income to nonresidents. The DIENT sells to its direct investor 1,000 tons of copper at only 10 units per ton. In this case, nonmarket transfer pricing is used to repatriate income.

Transfer pricing 3 BPM6 recommends that the compiler make an adjustment to transaction prices…. Not easy and rarely done in practice. Revalue to market prices where actual market prices exist.

Production sharing arrangements Similar problem with “royalties” recorded in intellectual property category of trade in services. Royalties may be used to transfer profits between different companies within a MNE, in part to reduce tax paid in the global business. Value may not reflect economic reality… Current initiatives to require national breakdowns of MNE activities may eventually aid the compiler

FATS statistics Collect activity of foreign affiliate in the compiling economy (Inward) and activity abroad (outward). Variables – turnover, employment, Value Added, Trade etc. Help understand impact on economies of MNEs (Next course)

Asymmetries Measure of quality (or otherwise) of EU BOP data. BOP current account asymmetries are part of Eurostat work programme http://ec.europa.eu/eurostat/en/web/products-statistical-working-papers/-/KS-AN-03-001 Under recording of intra-EU imports Analysis has led to bilateral discussions on particular problems (eg UK – Spain travel) Extra-EU aggregates presented, so no problem with intra-EU asymmetries

Current account - asymmetries (intra-EU15) EUR (bn) 1993 1994 1995 1996 1997 1998 1999 2000 2001 11.2 9.3 22.0 35.7 50.3 64.3 43.9 47.3 3 34.3 in % of GDP (EU15) 0.18 0.15 0.33 0.52 0.69 0.84 0.55 0.55 0.39

Quality reporting

Why is quality reporting important?

Quality reporting ESTAT quality report on BOP, trade in services and FDI http://ec.europa.eu/eurostat/documents/3888793/7117012/KS-TC-15-005-EN-N.pdf/749f05d3-ee0d-4a19-95d5-ea9911e47b3a A number of national assessments also e.g. IE http://www.cso.ie/en/media/csoie/surveysandmethodologies/surveys/bop/documents/pdfs/bop_quality_report2011.pdf

ESTAT quality reporting Annual assessment based on Member State data submissions. Follows standard DQAF Relevance Accuracy Timeliness and punctuality Comparability Coherence

Relevance Completeness was over 95% in most of the cases. Data availability to the final users was satisfactory, in most cases with 95% of main items publishable. However, some Member States exceedingly flag their data as 'non-publishable' or as 'confidential'. Accuracy The preliminary analysis of revisions shows stable estimates for the monthly and quarterly current account items and lower stability for the primary income and financial accounts items. The indicator on directional reliability shows a good predictability of the first assessments for monthly BOP. Timeliness and punctuality The timeliness of BOP and IIP kept gradually improving during the assessed period. The majority of Member States respected the transmission deadlines for ITSS and FDI. Comparability The asymmetries for the current account components have improved during the reference periods but continue to remain an issue. Coherence The overall consistency with integrity rules improved slightly but not yet sufficiently. There have been almost no discrepancies between the quarterly and annual ITSS data, while there have been some differences for FDI flows and income. Significant efforts have been made by the Member States to reduce the size of errors and omission; however, their size is still high.

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