OECD Working Party on International Trade in Goods and Trade in Services Statistics November 2011 Australian Bureau of Statistics Foreign Affiliate Trade in Services

Overview BoP covers resident to non-resident activity From this perspective, trade by foreign affiliates is considered non- resident Trade by foreign affiliates important for trade negotiations and understanding reach of an economy

Overview (continued) Service providers can and do establish overseas presence The WTO’s General Agreement on Trade in Services (GATS) identifies four “modes of supply” Wider definition than BoP

Modes of Supply

ABS Studies Australian Outward Finance and Insurance Foreign Affiliate Trade, (5485.0) Australian Outward Foreign Affiliate Trade, (5495.0) Economic Activity of Foreign Owned Businesses in Australia, (5494.0)

SOFI FATS Survey of Outward Finance and Insurance Foreign Affiliate Trade in Services (SOFI FATS) Survey funded by the Australian Department of Foreign Affairs and Trade (DFAT) Limited Resources No funding for inwards equivalent

SOFI FATS (continued) Run in respect of the reference period –only for OUTWARD trade –only for the finance and insurance industry Survey in identified finance and insurance industry as the largest services industry Sent to ALL Australian enterprises who may have affiliates overseas that primarily trade in finance and/or insurance

SOFI FATS (continued) Only affiliates that were controlled by Australian resident enterprises were included (i.e. greater than 50% ownership) Frame created from a question about direct investment in the International Investment survey. Direct investment includes all investment where the investor owns 10% or more of total equity capital.

SOFI FATS (continued) Survey collected data on: –Number of affiliates –Employment, wages and salaries –Sales and purchases of services –Equity and profit FISIM and GVA data were derived from the data collected

SOFI FATS (continued) Processing was done using IPS and Microsoft EXCEL Confidentiality –ABS confidentiality rules –Perturbation –Collapsing cells

The Form Very detailed Large provider burden Asked for Balance sheet information, and detailed profit/loss statements Electronic and utilised macros Split between resident/non-resident was key

The Form (continued) Original plan to send to affiliates, but feedback indicated that parents wished to complete themselves

Results 30 Australian enterprises with 1,245 finance and insurance affiliates 70 Countries

Results (continued) 75,919 staff employed –$6.7 billion in wages and salaries paid. $71.1 billion in Australian equity $6.5 billion in profit New Zealand, United Kingdom and the United States dominated data.

Results (continued) $39b in finance & insurance sales FISIM high proportion of total sales 96% of sales (mode of supply 3) Shows most activity in host country

Global Financial Crisis Impacts GFC likely to have impacted profits. Return on equity 6.8% Difficult to measure impact Ratio of income earned to stock down.

Global Financial Crisis Impacts (continued) Americas only $99 million profit. Rates of return on equity for each region: –Americas -0.1% –Europe 2.7% –Asia-Pacific 13.2%

 Comparison Number of affiliates rose from 463 to 1245 (169%) Sales (excl. FISIM) rose 11% Purchases (excl. FISIM) rose 150%

Conclusion Unlikely for a survey like this to be run in near future Prefer to cover all industries Prefer to collect both inward and outward OECD provided useful comments which will be used in future studies

Discussion points Experience of other countries Managing expectations from a client-funded survey Impact of confidentiality Testing data collection from non- residents The challenge of presenting asymmetrical views of data