CARICOM TRADE IN SERVICES STATISTICS (CTIS)PROJECT June-December 2016 Regional Training Workshop November 21 to 25, 2016 by Lucilla Lewis, Lead Consultant

FOREIGN AFFILIATES TRADE IN SERVICES (FATS)

What are FATS FATS are FDIs with more than 50% foreign ownership of voting power, that is majority ownership What does FATS measure? Commercial presence abroad of service suppliers and their impacts

Foreign Affiliates Trade in Services (FATS) Comprises: Inward FATS: Foreign controlled affiliates in the compiling economy are called inward FATS Outward FATS: Foreign controlled affiliates held outside the compiling economy are called outward FATS Examples?????

Why are FATS Established Affiliates are usually established abroad to deliver services that require close contact between the supplier and the consumer. On this basis, in MSITS 2010 domestic sales by foreign affiliates is referred to as international supply of services. For the BOP however sales by foreign affiliates to residents of the host country are excluded, as foreign affiliates are treated as residents

What are the FATS Variables Priority variables -sales turnover and/or output -employment -value added -exports and imports of goods and services -number of enterprises Long-term variables -assets -compensation of employees -net worth -net operating surplus -gross fixed capital formation -taxes on income -research and development expenditure -purchases of goods and services

FATS Variables cont’d Priority variables -sales turnover and/or output Output is the preferred variable to be compiled, however for services, sales data may be easier to obtain and is also desirable. While the 2 may sometimes be the same for wholesale and retail distribution the output is the service which is measured as the margin and not the total sales value which includes cost of the good. Same is true for financial services including insurance.

FATS variables Cont’d Sales measures gross operating revenues less rebates, discounts and returns and should not include consumption and sales taxes and value added taxes Sales indicates the extent to which Foreign Affiliates are used to deliver outputs to customers irrespective of where output originated -employment The number of persons on the payrolls of foreign affiliates at the end of a year or if there is a great level of seasonality should be given for a specified period. This data can be used to measure the contribution of Foreign affiliates in job creation in the domestic economy and to what extent it complements, supplements or competes with other sources of employment in the economy

FATS Variables Cont’d -value added According to SNA 2008 gross value added of an enterprise is the amount by which the value of the outputs produced exceeds the value of the intermediate inputs consumed, while net value added is defined as gross value added less the consumption of fixed capital. Gross value added is also equal to the sum of primary incomes generated in production, that is, compensation of employees, profits etc.

FATS Variables Cont’d Gross value added can therefore provide information on contribution of foreign affiliates to gross domestic product of the host country in total and by industry and is a very useful measure from the perspective of GATS and analysis of impacts of globalisation .

FATS Variables Cont’d -exports and imports of goods and services This is an important indicator of the impact of foreign affiliates on the domestic country’s external accounts -number of enterprises -number of enterprises It is a basic indicator of the prevalence of foreign control of enterprises in the host economy, although size differences relative to domestic companies must be taken into consideration

FATS Variables Cont’d Long-term variables -assets: are entities owned and from which economic benefits may be derived. Assets include both financial and nonfinancial -compensation of employees: the total remuneration in cash or in kind payable by an enterprise to an employee for work done during an accounting period -net worth: the difference between the value of all assets produced, non produced and financial, and liabilities -net operating surplus: gross value added less compensation of employees, consumption of fixed capital and taxes on production, plus subsidies receivable -gross fixed capital formation: total value of a producer’s acquisitions, less disposals of fixed assets during the accounting period plus additions to the value of non-produced assets realized by productive activity -taxes on income: corporate income taxes, corporate profit taxes, , corporate surtaxes etc. -research and development expenditure: expenditure of work undertaken on a systematic basis to increase the stock of knowledge and to use this stock of knowledge to for the purpose of discovering or developing new products -purchases of goods and services: is also described as intermediate consumption is expenditure on goods and services consumed as a process of production (excludes fixed assets)

FATS Classifications MSITS 2010 recommends classification of FATS variables by activity according to the ISIC Categories for Foreign Affiliates (ICFA) Rev.1 which is derived from ISIC Rev. 4. ICFA covers all activities including goods production Recommended ICFA Classifications Recommended template for FDI FATS Statistics based on ICFA

FATS DATA SOURCES Domestic affiliates of foreign enterprises are to be surveyed directly – inward FATS Resident parent enterprises are to be surveyed directly on the activities of their affiliates overseas – outward FATS FDI statistics is a good starting point for determining the FATS target population It identifies the portion of majority owned affiliates on the register of establishments It provides information for the geographical allocation of FATS data

APPROACH TO SURVEY OF FOREIGN AFFILIATES Design new survey Forms for foreign affiliates and resident parents with overseas affiliates or add FATS variables to existing FDI surveys. (Priority levels will vary from country to country) For inward FATS only identify the subset of existing statistics on resident enterprises referring to majority owned foreign affiliates Close collaboration between national statistical offices, the various ministries and the Central Bank The approach used will depend on available resources. The US and most EU countries use FDI surveys. Many other countries compile only inward FATS based on existing business statistics

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