STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Why Foreign Affiliates Statistics and what can we do with them? William Cave and Andreas Fuchs OECD Statistics Directorate

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Two parts About FATS Trying to use FATS and BOP data together

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Why FATS? FATS less developed than BOP trade in services For goods and services international sales can be achieved through direct investment For services particularly important Close and continuing contact between supplier and customer Commercial presence is… …largely reflected by FATS Not international trade in the national accounting sense but..part of business statistics Important for market access and trade negotiations… and defined by GATS as component of trade in services Gives insight into role of multinationals

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Revised MSITS Chapter 4 Foreign affiliates statistics and the international supply of services 4 No large change from MSITS 2002…. FATS = foreign affiliates statistics (name change) –Not international trade in SNA sense –but related to market access for services Subset of Activities of multinational enterprises (AMNEs) Aligned with OECD Handbook (HEGI), OECD BD4 and Eurostat FA regulation

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Coverage of FATS  10% criteria for foreign direct investment  But MSITS recommends the foreign-controlled subset of foreign affiliates  Now “Control” by non-resident instead of “majority- ownership”  Control is said to exist if there is majority ownership of voting power  At each stage of ownership chain  Control defined in BD4 framework for foreign direct investment  Objective criterion  Interest in services delivery and trade negotiations is privileged

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Statistical units? Enterprises or establishments? Enterprises will have more variables, financial information and indicators Enterprises also used for FDI facilitates linking Establishments are easier to classify FATS often to be developed in the context of existing systems

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics FATS and trade in services Sales or gross output of services represented in international trade Same variable used for FATS Other variables collected Inward and outward FATS FATS and AMNEs mainly used for globalisation analysis and behaviour of multinationals

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Attribution of FATS variables by country Inward – recommend ultimate investing country For trade reasons Outward – ultimate host country Separately identify FAs ultimately controled in reporting country For international aggregation Attribute affiliates activity to country of operation But it may be easier to identify the immediate investor Equal ownership cases: guidelines to identify those more likely to be in control

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Attribution by activity and product Ideally all FATS variables would be available by industry/activity SIC of main activity For sales/gross output and exports and imports by product In practice main activity is easiest and first priority in MSITS Also recommend split of products for sales and trade into goods and services if possible

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Attribution by activity and product 2 Use ISIC for international comparability – relate to national SIC classification Standard set of breakdowns provided in ICFA Covers goods and services, but sufficient detail required in services Primary activity of units to be identified but keep in mind secondary activities and if these can be identified so much the better Can sales be broken down into goods and services

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Main economic variables for FATS Sales or gross output should match what is collected in trade in services (by activity and if possible of goods and of services) Gross output is more refined and most relevant in distributive trade, insurance, financial services Other variables give insight into activity of multinationals and their role Employment Gross value added Number of enterprises Exports of goods and services Imports of goods and services X, M if possible broken down

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Other suggested FATS variables of interest Assets financial and non-financial Compensation of employees Net worth Net operating surplus Gross fixed capital formation Taxes on income R&D expenditures Purchases of goods and services (of which local purchases) International intra-firm trade or trade with affiliated parties

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Inward v Outward FATS 13 Inward FATS are foreign-controlled subset of national business statistics Whatever variables you collect from businesses could be available for FATS Outward FATS are businesses abroad controlled by entities in the reporting economy May be legal limitations to what can be collected And practical reporting considerations In practice sales, employment, number of enterprises are most likely to be available

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Availability of FATS data FATS infrastructure less developed than BOP FATS – inward 23 OECD countries 2007 FATS – outward 14 OECD countries 2007 Where FATS not available FDI stocks and FDI income could be used as a (rough) broad indicator of FATS activity

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Compilation issues Two basic approaches not mutually exclusive:- –1 Surveys of resident affiliates of foreign firms and foreign affiliates of domestic firms –2 (inward only) identifies the subset of existing data on domestic enterprises that are foreign controlled In both cases there are links to FDI information and surveys FDI registers can be used to identify foreign-controlled affiliates for which FATS variables could be collected FDI surveys could be supplemented to collect outward FATS information Private sector sources on ownership and published company accounts can be useful Inward investment agencies may have information Link this to national business register

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Analysing international delivery of services by mode of supply Andreas Fuchs and William Cave OECD Statistics Directorate

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Contents of paper 1.INTRODUCTION1.INTRODUCTION 2.MEASURING SERVICES BY GATS MODE OF SUPPLY2.MEASURING SERVICES BY GATS MODE OF SUPPLY –2.1Mode 1: Cross-border supply2.1Mode 1: Cross-border supply –2.2Mode 2: Consumption abroad2.2Mode 2: Consumption abroad –2.3Mode 3: Commercial presence2.3Mode 3: Commercial presence –2.4Summary2.4Summary 3.INWARD DELIVERY OF SERVICES BY MODE3.INWARD DELIVERY OF SERVICES BY MODE –3.1Cross-country comparison of inward delivery of services3.1Cross-country comparison of inward delivery of services –3.2Evolution over time of inward delivery of services3.2Evolution over time of inward delivery of services 4.FOREIGN SERVICE PENETRATION RATIO4.FOREIGN SERVICE PENETRATION RATIO 5.OUTWARD DELIVERY OF SERVICES BY MODE5.OUTWARD DELIVERY OF SERVICES BY MODE –5.1Cross-country comparison of outward delivery of services5.1Cross-country comparison of outward delivery of services –5.2Evolution over time of outward delivery of services by mode5.2Evolution over time of outward delivery of services by mode 6.BALANCE OF INTERNATIONAL SERVICE SUPPLY6.BALANCE OF INTERNATIONAL SERVICE SUPPLY 7.SECTORAL ANALYSIS: BUSINESS SERVICES7.SECTORAL ANALYSIS: BUSINESS SERVICES 8.CONCLUSION8.CONCLUSION A.APPENDIX on data tables and data availabilityA.APPENDIX 17

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Overview 18 OECD Statistics working paper on globalisation of services 2008 compared trade in services and FATS for 2000 outlined a methodology for estimating modes of supply Rare attempt to look at the two datasets TIS and FATS together FATS data supplied by OECD DSTI OECD TIS data ( no partners) variable sales or gross output common to trade and FATS estimates delivery of services by modes 1, 2 and 3

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Overview continued.. 19 evolution 2000 to 2005 Five broad sectors Up to 20 countries analysed Foreign service penetration ratio looks at exposure of markets to foreign competition Basic data supplied Some missing values in time series interpolated

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Conceptual issues and difficulties A range of conceptual and practical difficulties when comparing datasets on EBOPS and FATS trade in services data are collected broadly by product FATS data are classified by the main activity of affiliate One represents international trade and the other essentially domestic output and transactions Does it make sense to combine them? Modes are not independent so what are the linkages? Paper reviews problems to estimate the international delivery of services related to data collected and makes recommendations for improvements

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Estimated allocation of BOP and FATS sales by modes of supply Broad brush approach BOP services and FATS sales of services allocated to mode 1,2 and 3 Mode 1 =TRANSPORTATION (EBOPS:205) - Sea transport, other (EBOPS:209) - Air transport, other (EBOPS:213) - Other transport, other (EBOPS:217) + COMMUNICATION SERVICES (EBOPS:245) + INSURANCE SERVICES (EBOPS:253) + FINANCIAL SERVICES (EBOPS:260) + COMPUTER AND INFORMATION SERVICES (EBOPS:262) + ROYALTIES AND LICENCE FEES (EBOPS:266). + OTHER BUSINESS SERVICES (EBOPS:268) - Agricultural, mining and on-site processing services (EBOPS:281) + PERSONAL/CULTURAL/RECREATIONAL SERVICES (EBOPS:287)

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Estimated allocation by mode contd Mode 2 = TRAVEL (EBOPS:236) + Sea transport, other (EBOPS:209) + Air transport, other (EBOPS:213) + Other transport, other (EBOPS:217) + Waste treatment and depollution (EBOPS:282)

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Estimated allocation by mode ctd.. Mode 3 (adjusted 1) = TOTAL SERVICES (FATS:5095 sales of ISIC industries G-P) * Wholesale and retail trade; repair (FATS:5295) + CONSTRUCTION (FATS:4500) + CONSTRUCTION (EBOPS:249)

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Affiliated trade in services (US BEA) (an indicator of modal linkages?)

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Inward delivery of services by mode adjustment 1 ( )

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Share of inward supply by mode adjustment 1

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Share of inward supply by mode adjustment 2

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Evolution of inward modes in G

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Evolution of inward modes medium size countries

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Foreign service penetration ratio

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Adjustment issues Should exclude services exported by FA to country of parent and third countries FA sales don’t contribute directly to UCI country GDP FDI income contributes directly to GNP

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Outward and Sectoral analyses Similar analyses possible for outward sales of services and sectors But for sectors problem of matching EBOPS to ISIC

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Share of outward supply by mode

STD/PASS/TAGS – Trade and Globalisation Statistics STD/SES/TAGS – Trade and Globalisation Statistics Conclusions Interesting exercise but comes with a health warning Need more FATS and multinational data Biases in estimation by mode Sensitivity of estimates to treatment of distributive trade Mode 3 dominance increases Outward mode 3 more important for large countries Modal linkages seem important but unknown. Would like more data on intra-firm trade Mode 3 supply more concentrated in and dominated by large countries If countries can link TIS surveys and industry of trader it would facilitate comparisons with FATS