Eurostat Task Force on goods sent abroad for processing 2nd meeting France 23-24 Feb. 2012

Goods sent abroad for processing Draft treatment for bilateral flows The issue of multilateral flows The case of automobile Eurostat Task Force on goods sent abroad for processing – 2nd meeting 23-24 Feb. 2012

Goods sent abroad for processing: a possible treatment The idea in short is to Begin with the bilateral case Use customs data by detailed nature of transactions to estimate - the gross amount of imports and exports of goods sent (received from) abroad to be removed from the total imports and exports by product - the processing fee by product (1) or (2) Adjust the processing fees on the global amount given by BoP (=> to be split between bilateral/other flows) Eurostat Task Force on goods sent abroad for processing – 2nd meeting 23-24 Feb. 2012

Goods sent abroad for processing Customs data (1) Goods for processing: a small part of French trade 1999-2010: between 1% and 4% of trade with EU contries between 0.5% and 2% of trade with other countries Data by product, nature of transaction and area Billion € Eurostat Task Force on goods sent abroad for processing – 2nd meeting 23-24 Feb. 2012

Goods sent abroad for processing Customs data (2) Work in progress First step : bilateral flows of inward and outward processing by product Gross values 41 : operations with a view to processing; to return 51 : operations following processing; to return Give the gross amount of goods to be removed of total imports and exports by product Concentrated on some classes of products Imports for inward processing to return: essentially pharmaceutical products and chemicals Export for outward processing to return: more variety, the first contributor being aeronautical products Eurostat Task Force on goods sent abroad for processing – 2nd meeting 23-24 Feb. 2012

Goods sent abroad for processing Customs data (3) Work in progress First step : bilateral flows of inward and outward processing by product Manufacturing services for processing First try – using the invoice value (« valeur facture ») Assumption to estimate the net service by product France as contractor: the invoice value of exports following processing sent back to the initial country may represent the net service of processing France as principal: the invoice value of imports coming back after processing may represent the net service of processing Eurostat Task Force on goods sent abroad for processing – 2nd meeting 23-24 Feb. 2012

Goods sent abroad for processing Customs data (4) However, estimating the net service by the invoice value appears to be fruitless: Too weak amounts, especially concerning the bilateral inward et outward processing with EU Content of this variable to be checked over Second approach : breaking down by product the amount of manufacturing services for processing given by the BoP. Needs to estimate the part of the bilateral flows for consistency at this stage. And to define keys of breakdown: in proportion of gross amounts of bilateral flows by products involved Eurostat Task Force on goods sent abroad for processing – 2nd meeting 23-24 Feb. 2012

BoP – a global evaluation of manufacturing services for processing (1) Banque de France – Balance of Payments – BPM6 Goods account Transactions in goods will be cleared of gross flows of goods sent or received for processing; they will be adjusted from customs data by nature of transaction. BPM5 : Customs data are already the source for the row « Processing » (« Travail à façon ») in the current transactions account under BPM5 (gross amounts, value of goods included) Eurostat Task Force on goods sent abroad for processing – 2nd meeting 23-24 Feb. 2012

BoP – a global evaluation of manufacturing services for processing (2) Banque de France – Balance of Payments – BPM6 Services account Manufacturing services will appear among services Evaluation => businesses data: Direct General Declarers (Déclarants Directs Généraux) New Complementary Survey on Services (enquête complémentaire sur les services - ECEIS), launched in 2011 Global measurement: No breakdown by product or industry All types of flows : bilateral and other flows are not differentiated Publication : 2014 New data prepared in 2012-2013 Curent evaluation under BPM5 already available In terms of order of size          Eurostat Task Force on goods sent abroad for processing – 2nd meeting 23-24 Feb. 2012

BoP – a global evaluation of manufacturing services for processing (3) Banque de France – Balance of Payments – Direct General Declarers (Déclarants Directs Généraux) what we have now Individual data Threshold : €30 million of receipts and expenses of services and incomes with the rest of the world Rather few manufacturing enterprises And fewer declaring manufacturing services for processing However useful to study some specific cases (Will be used mainly for the new treatment of merchanting, according to ESA2010) what we have not No information on transactions on goods, except merchanting Can be an issue to evaluate flows of goods which don’t cross the border but have to be recorded under BPM6 Eurostat Task Force on goods sent abroad for processing – 2nd meeting 23-24 Feb. 2012

Goods sent abroad for processing Supply and use tables Second step : bilateral flows – to be continued (March-June 2012) By and large, breackdown of the total adjustments by product (60 and 138 positions) seems rather consistent => could facilitate the supply and use balance of some specific products Odd results to be examined (by products, by flows, by areas) Work with responsibles of industries and products accounts to check the consistency with manufacturing output survey for the record: the annual output survey in manufacturing industries already applies the concept of economic ownership => production by industry and product, value added by industry examine if the suggested corrections can be taken in supply and use tables Work on the input-output table Eurostat Task Force on goods sent abroad for processing – 2nd meeting 23-24 Feb. 2012

Goods sent abroad for processing Multilateral flows Work in progress Third step Volume / price Long term series Unknown: multilateral flows Goods that once cross the border but do not return in the initial country Goods that don’t cross the border, without being a kind of merchanting because of manufacturing services that change the condition of goods Big issue: lack of information about these transactions on goods (not explicitely reported in French BoP so far) Eurostat Task Force on goods sent abroad for processing – 2nd meeting 23-24 Feb. 2012

Between goods for processing and merchanting Manufacturing services that change the condition of goods ESA2010, § 18.39 "For example, an enterprise may contract the assembly of a good among one or more contractors, such that the goods are acquired by this enterprise and resold without passing through the territory of the owner. If the physical form of the goods is changed during the period the goods are owned, as a result of manufacturing services performed by other entities, then the goods transactions are recorded under general merchandise rather than merchanting. In other cases where the form of the goods does not change, the goods are included under merchanting, with the selling price reflecting minor processing costs as well as wholesale margins.” ESA2010, § 18.42 Wholesaling, retailing, commodity dealing, and management of manufacturing may also be carried out under arrangements where the goods are present in the economy of the owner, in which case they are recorded as general merchandise, rather than as merchanting. In cases where the goods do not pass through the economy of the owner, but the physical form of the goods changes, because they are processed in another economy, international transactions are recorded under general merchandise, rather than merchanting. (The processing fee is recorded as a manufacturing service paid for by the owner). Eurostat Task Force on goods sent abroad for processing – 2nd meeting 23-24 Feb. 2012

Manufacturing services that change the condition of goods Illustration of BPM6 – Chap. 10 – Box 10.1, example 2 Sales of refined oil products from A to D, according to business relationships Purchase of crude oil, according to business relationships Resident of Economy A « Principal », owner of the oil (crude then refined) 30 BoP : General merchandise, export from Economy A to Economy D BoP : Manufacturing services on physical inputs owned by others, import for Economy A from Economy C 15 10 BoP : General merchandise, import for Economy A from Economy B Resident of Economy D Physical purchaser of the refined oil products Resident of Economy C Refinery unit, acting as a contractor Customs data: Export of refined oil products, from Economy C to Economy D 30 ? 10 Customs data : Import of crude oil, from Economy B to Economy C Economy B Crude oil producer Fictive example Eurostat Task Force on goods sent abroad for processing – 2nd meeting 23-24 Feb. 2012

How to deal with multilateral flows? Issue: lack of data on movements of goods Goods that once cross the border but without return in the initial country Goods that don’t cross the border, without being merchanting because of manufacturing services that change the condition of goods In the French BoP, these transactions echo only by the related financial flows, included in the whole of financial operations Consequences if these transactions on goods are not correctly reported in BoP and in national accounts: No impact on total GDP, because value-added comes from fiscal data and structural busines survey But what about the GDP components? Impact on the position towards the Rest of the World? How to impute these transactions on goods? Should countries launch a new survey on that topic, or extend an existent survey? NSI? BoP? How to be ready for 2014? Eurostat Task Force on goods sent abroad for processing – 2nd meeting 23-24 Feb. 2012

Goods sent abroad for processing Draft treatment for bilateral flows The issue of multilateral flows The automobile case Eurostat Task Force on goods sent abroad for processing – 2nd meeting 23-24 Feb. 2012

The case of automobile (1) Main question: how to record the production made abroad? General scheme Analysis after profiling: Accounts provided by profiled unit don’t distinguish purchase of inputs and purchase of manufacturing services; the finished vehicles are bought in a whole The units abroad are considered as autonomous for the purchase of their inputs Principle of economic ownership applies => The resident profiled unit in France is not the owner of the inputs The purchase of finished vehicles made abroad is considered as purchase of marchandise, for trade => Not in manufacturing production Eurostat Task Force on goods sent abroad for processing – 2nd meeting 23-24 Feb. 2012

The case of automobile (2) 2000 Base: the resident units in France were considered as principals; the output made abroad was included in the national automobile output 2005 Base (current base): the output made abroad has been removed from the national automobile output Revision of  €20 billion on output and intermediate consumption of automobile industry => 21 - 2008 B2005 Products Output: €67.3 bn ; IC: €19.9 bn Purchases and sales of finished vehicles abroad are treated as merchanting 2010 Base: analysis maintened; possibility to amend the estimation, confronting it with BdP individual data (merchanting and « other merchandises » positions) Eurostat Task Force on goods sent abroad for processing – 2nd meeting 23-24 Feb. 2012

The case of automobile (3) Customs data - 29 Motor vehicles, trailers and semi-trailers BoP - Direct General Declarers  3 declarers Manufacturing services : weak amont Merchanting: several billons Eurostat Task Force on goods sent abroad for processing – 2nd meeting 23-24 Feb. 2012

Eurostat Task Force on goods sent abroad for processing Thank you for your attention Eurostat Task Force on goods sent abroad for processing – 2nd meeting 23-24 Feb. 2012