Tatiana Mrlianova SBS ESTP training, 14 March 2013 Foreign Affiliates Statistics (FATS): concepts, requirements, data production Tatiana Mrlianova SBS ESTP training, 14 March 2013

Foreign affiliates statistics (FATS) Outline General concepts EU data requirements Data production Examples of data analysis 06/12/2018 06/12/2018 Foreign affiliates statistics (FATS) 2

How do we understand FATS? Abbreviation: In the past: Foreign Affiliates’ Trade in Services Now extended: Foreign AffiliaTes Statistics Statistics describing the overall operations of foreign-controlled affiliates (direct investment enterprises) part of AMNE statistics (Activities of Multinational Enterprises) Traditional focus on services now extended by including manufacturing sector 06/12/2018 Foreign affiliates statistics (FATS)

Rationale for compiling FATS extend the information provided by international trade statistics (transactions) and FDI statistics (transactions, stocks, income) describe international commercial presence of enterprises measure the economic impact of one country on another one very relevant for research on economic globalisation – both in terms of reasons and effects/impacts policy relevant – GATS, taxation, investment 06/12/2018 Foreign affiliates statistics (FATS)

Foreign affiliates statistics (FATS) Inward vs. Outward FATS 06/12/2018 Foreign affiliates statistics (FATS)

Statistical unit vs. reporting unit Inward FATS: …we ask a resident enterprise being an affiliate of a foreign enterprise group about its own characteristics THUS: statistical unit = reporting unit Outward FATS: …we ask a resident enterprise being head of an enterprise group about characteristics of other enterprises (its foreign affiliates) THUS: statistical unit ≠ reporting unit 06/12/2018 06/12/2018 Foreign affiliates statistics (FATS) 6

Foreign affiliates statistics (FATS) Dimensions of FATS Economic activity of the foreign affiliate MSITS: ISIC (ICFA groupings, focus on services) EU: NACE (EU implementation of ISIC, goods and services) Partner country Inward FATS: country of the (ultimate) controlling investor Outward FATS: country of residency of the foreign affiliate Characteristics (variables) Product – longer-term goal, applicable to some variables 06/12/2018 06/12/2018 Foreign affiliates statistics (FATS) 7

Common legal framework of FATS in the EU Regulation (EC) No 716/2007 of the European Parliament and of the Council of 20 June 2007 on Community statistics on the structure and activity of foreign affiliates http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2007:171:0017:0031:EN:PDF Implementing regulations of the European Commission on derogations, definitions, classifications, quality reporting FATS Recommendations Manual 2012 edition (not legally binding) http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-AR-09-014/EN/KS-AR-09-014-EN.PDF 06/12/2018 06/12/2018 Foreign affiliates statistics (FATS) 8

UCI concept vs. national perspective UCI = Ultimate Controlling Institutional Unit UCI in the most cases is global group head, i.e. the enterprise on the top of the control chain in a multinational corporation, able to influence the management of lower level enterprises (i.e. appoint the board), but not controlled itself by any other unit UCI approach (required for data sent to Eurostat): Inward FATS: partner country is the country of ownership/control where the UCI of a foreign affiliate is resident Outward FATS: data are collected only from resident companies being UCI’s of an enterprise group = having foreign affiliates UCI approach necessary in order to avoid double-counting when data aggregated for the whole European Union National perspective: data on all affiliates irrespective UCI collected and published by some EU Member States for their national purposes but UCI-based data transmitted to Eurostat 06/12/2018 06/12/2018 Foreign affiliates statistics (FATS) 9

Obligatory FATS characteristics (variables) Number of enterprises Turnover Number of persons employed Value added at factor cost Gross investment in tangible goods Personnel costs Production value Total purchases of goods and services Purchases of goods and services for resale Total intra-mural R&D expenditure Total number of R&D personnel Inward & Outward FATS Inward FATS 06/12/2018 06/12/2018 Foreign affiliates statistics (FATS) 10

Foreign affiliates statistics (FATS) Data requirements Periodicity: annual (first compulsory reference period 2007) Timeliness: t+20 months (2 months after the final SBS data) Classification: NACE Rev. 2 (in Outward FATS from the reference year 2010) Dimensions: Inward FATS: 1) 26+14 main partners x detailed activities 2) all partners x total economy (B-N excl. K) Outward FATS: 1) 9 main partners x detailed activities 2) 24 other partners x 17 main activities 3) all partners x total economy (B-S excl. O) 06/12/2018 06/12/2018 Foreign affiliates statistics (FATS) 11

Data collection of Inward FATS institutional framework: collected usually by national statistical institutes data sources: annual business survey (synergies with SBS: subsets of SBS population and variables), business register, dedicated surveys foreign affiliates encoded in SBS by a dedicated question or linking with other sources: FDI, tax data, annual financial reports, commercial databases, media variable definitions and activity codes as in SBS (but less detail) partner country: country of the UCI economic activity: principal activity of the affiliate, consistent with SBS 06/12/2018 06/12/2018 Foreign affiliates statistics (FATS) 12

Data collection of Outward FATS institutional framework: responsibility at NSIs or/and NCBs first step: population frame (profiling of enterprise groups, UCI attribution), based on the FDI register, business register, annual financial statements, media information and direct contacts with enterprises second step: data collection - separate survey or part of the FDI survey variable definitions as in SBS partner country: country of residence of the affiliate economic activity: principal activity of the affiliate, activity codes as in FDI statistics (~same level of detail) 06/12/2018 06/12/2018 Foreign affiliates statistics (FATS) 13

Limitations and challenges complexity, intransparency and dynamics of large multinationial corporations’ structures data completeness – population frame, sampling, size thresholds, response rate, estimations and imputation consolidated reporting (turnover, trade variables) confidentiality – level of detail for economic activity, links to other statistical domains (SBS), size of the economy asymmetries Inward vs. Outward FATS – international cooperation very useful lack of data cross-checking possibilities knowledge of corporate structures (shares’ distribution, control) is never perfect; many groups are very intransparent; rapid changes of ownership, large impact on FATS possible; constant updates of enterprise groups registers necessary; risk of double counting or missing of some affiliates/parents; solution: consultation between countries (inward vs. outward FATS, registers); intransparent Special Purpose Entities (SPE); equally shared control (joint ventures etc.); multiple minority ownership 06/12/2018 06/12/2018 Foreign affiliates statistics (FATS) 14

OFATS data production - workflow Countries send the data by 31 August (20 months after the reference period) – via edamis using gesmes format Correct gesmes format? Yes: data automatically uploaded in db No: contact the country to re-transmit the file 06/12/2018 Foreign affiliates statistics (FATS)

OFATS data production - workflow Data treatment Basic controls (data availability, check for double values, confidential data, comparability with previous years etc) Verify the validation rules – data consistency If something can be repaired here, it is preferred to do so instead of asking the country for a new transmission  save time Secondary confidentiality (S.C.) Send report and harmonized datasets to the country for agreement/confirmation (in particular S.C. treatment) Dissemination 06/12/2018 Foreign affiliates statistics (FATS)

OFATS data production – some facts Ref. year 2009 first year when no derogation any more, all the 27 MSs delivered data, however not all of them according to the legal deadline 3 obligatory variables (EMP, ENT, TUR) Voluntary variables : 8 countries for the ref. year 2008 06/12/2018 Foreign affiliates statistics (FATS)

OFATS data production – some facts Legal request on the detail by country of location and activity – 3 datasets/variable Voluntary request on the detail by country of location and activity , in particular for: Total World , EU27, EU countries Agriculture, forestry and fishing - Sec. A Ref year 2008 - NACE Rev.1.1 data (+ NACE Rev 2 for 3 countries) Ref. year 2008-2009 - double codification (NACE Rev.1.1 + NACE Rev.2) on a voluntary basis Ref. year 2010 - NACE Rev.2 data, legal request 06/12/2018 Foreign affiliates statistics (FATS)

OFATS data production – some issues Incorrect gesmes format - still many countries Files sent by e-mail (instead of edamis) Duplicated records/values – correct technical format but several identical records or double values for a same cell (more serious) Comparability of data (over time) Different concepts (until 2006, from 2007 on) Different units (for ex. Thousands/millions EUR) Different response rates, different estimation methods (imputing or not imputing missing data…) 06/12/2018 Foreign affiliates statistics (FATS)

Foreign affiliates statistics (FATS) Data coverage Inward FATS: 2006: 15 Member States 2007: 24 Member States + Norway 2008: 22 Member States + Norway 2009: 27 EU Member States + Norway first EU aggregates published for 2009 data 2010: 27 EU Member States + Norway + Croatia Outward FATS: 2006: 12 Member States 2007: 23 Member States + Croatia (derogations: ES, LU, PL, UK) 2008: 23 Member States + Croatia (derogations: ES, FR, LU, UK) 06/12/2018 06/12/2018 Foreign affiliates statistics (FATS) 20

FATS in Eurostat's database 06/12/2018 06/12/2018 Foreign Affiliates Statistics (FATS) Foreign affiliates statistics (FATS) 21

Outward FATS data – some figures… 2009 data, the biggest partners of the reporter EU according to employment: Reporting country Partner country % share on the total extra-EU-27 employment EU-27 US United States of America 26 CN China 8 BR Brazil 7 C4 Offshore financial centers 4 IN India RU Russia MX Mexico 3 AU Australia CA Canada HK Hong Kong 2 06/12/2018 Foreign affiliates statistics (FATS)

Outward FATS data – some figures… 2009 data, the biggest partners of reporter EU-27 according to turnover Reporting country Partner country % share on the total extra-EU-27 turnover EU-27 US United States of America 35 BR Brazil 6 C4 Offshore financial centers CH Switzerland 6,5 NO Norway 4 CN China 5 CA Canada AU Australia JP Japan 3 RU Russia 2,8 06/12/2018 Foreign affiliates statistics (FATS) 23

Outward FATS data – some figures… 2008+2009 data, total of non-EU affiliates, total economic activity variable No. of enterprises Turnover (in bn €) Employment (x1.000) Country of UCI 2009 2008 Germany 11,447 11,552 664 682 2284 2309 France (*2007) 13,846 10,300* 425 443* 2383 1785* Italy 8,239 7,765 137 142 806 739 Netherlands 6,726 6,056 228 295 647 666 Sweden 5,478 4,244 98 88 511 568 Denmark 3,095 2,915 n.a. 242 250 Finland 1,664 1,512 64 67 218 214 Slovenia 1,500 3 47 Belgium 883 1,176 26 19 96 110 Austria 1,143 1,049 29 35 164 153 06/12/2018 Foreign affiliates statistics (FATS) 24

…and interesting facts in 2008, Germany was the biggest contributor in all 3 variables and almost all destinations, however in 2009 the situation differs: France has got most number of affiliates abroad as well as is the largest employer the highest employment per affiliate: Luxembourg: 835 number of persons employed, the lowest in Latvia: 21 persons employed people per affiliate in 2009, 39 % of ‘German’ turnover and almost a half of the UK turnover (49.8%) that was created by the US affiliates activities of US affiliates are very important also for France, the Netherlands, Italy and Spain Italy particularly present in Africa, Netherlands in S-E Asia 18% of turnover for the Netherlands recorded by affiliates resident in offshore financial centres 06/12/2018 Foreign affiliates statistics (FATS)

Inward FATS data overview 2008+2009 data, total of foreign affiliates controlled from outside the EU, total economy activity variable No. of enterprises Turnover (in bn €) Employment (x1.000) Country 2009 2008 UK 12,810 13,206 617 793 2,006 2,102 Germany 10,191 9,231 398 558 1,013 1,429 Italy 5,144 5,331 181 197 453 482 Hungary 7,100 6,381 40 49 179 Bulgaria 4,625 3,847 10 80 74 Sweden 4,408 4,206 69 84 226 246 Austria 2,408 2,383 61 70 123 121 Czech Republic 7,555 3692 47 50 243 260 Luxembourg 6,483 n.a. 20 39 France 5,280 5,635 269 316 651 717 06/12/2018 Foreign affiliates statistics (FATS)

Some IFATS related facts and interpretations for most of the EU countries the US parent companies play the most important role as regards the share on the total turnover in non-EU controlled enterprises in Ireland 89%, in the Netherlands 67% - in France 62% Germany, Hungary and the UK attractive for companies from S-E Asia; Bulgaria for Russia, Ukraine and countries of Central Asia and Middle East large turnover of Swiss-controlled affiliates in Slovenia (39%) and in Germany (21%) and Austria (22%) Portugal with 42% and Cyprus with 35% out of non-EU controlled affiliates controlled from offshore financial centres affiliates controlled from another EU Member State more numerous than those controlled by non-EU countries (except for UK) importance of neighbours’ links 06/12/2018 Foreign affiliates statistics (FATS)