Implications of the new treatment of goods for processing in the supply and use tables Discussion Joint UNECE/Eurostat/OECD Meeting on National Accounts Geneva, April 24, 2008 Bent Thage Agenda item 8

Production units and institutional units Dual classification Production units (Establishments and industries) (Down to the generation of income account) Institutional units (Enterprise units, instit. sectors) (All accounts) What does ”change of ownership” mean when dealing with production units (even their intermediate consumption is not a transaction)?

Institutional characteristics Also production units have institutional characteristics Establishments with the same kind of output may have different input ratios and structures Because of (for example) More or less vertical integration Renting of owning capital equipment Different degree of outsourcing

What can be done about it? In general these institutional characteristics cannot be removed Therefore the notion of ”technological structures” has always been misleading Therefore the text qouted (p.11) from SNA, Rev 1, Par is also misleading, and may be changed. What we have is a table of (interindustry) transactions, even in the case of a product x product symmetric input-output table.

However….. The choices we make when compiling the supply and use tables should be made with the subsequent analytical uses in mind The choice of industrial detail Redefinitions (for example agriculture and trade), grossing up etc. While retaining as much as possible the micro-macro links. And consistency within the NA system

How big is the problem? Denmark Billions DKK Imports for processing Exports from processing Exports for processing Imports from processing Total exports of goods

The balancing problem Foreign trade statistics (goods) will remain on a border-crossing basis (Intrastat special case) Processing industries and client industries report on a net basis Is this balancing problem different in nature from many other, that we have to deal with? Difficult to justify additional data collection, but a few additional questions in existing surveys may be OK.

Analytical issues I Present treatment exaggerates import intensity and export performance of goods producing industries Understates the value of international trade in services Calculate import content of exports to get the correct picture?

Direct and indirect imports contents Direct and indirect import contents of final uses. Denmark Private consumption 23,2424,1920,6722,9423,25 Government consumption 10,6510,9910,0810,1510,76 GFCF. Machinery and equipment 50,9156,3252,9856,8554,68 GFCF. Transportation equipment 66,2742,1543,0656,2253,29 GFCF. Buildings and structures 19,1520,6217,1016,8917,51 Other GFCF 34,6931,0421,5832,2727,51 Changes in inventories -31,2667,3864,8958,4882,96 Exports of goods and services 34,5839,6738,3143,1844,06

Analytical issues II The (too large) import coefficients leads to an understatement of impact coefficients Productivity measures (par ). Are there any adverse effects?

Labour productivities Tabel 7.14 Average annual increases in labour productivities Denmark DirectDirect and indirect Global Per cent Agriculture etc.6,055,945,30 2. Manuf. industries2,813,202,60 3. Energy-, water etc..3,161,631,99 4. Construction1,561,611,59 5. Trade etc.1,491,481,40 6. Transportation, tele3,534,134,14 7. Financial and business serv 0,940,340,17 8. Government and pers. services 0,75 0,78

Adjustments of data in new treatment Merchandise exports and imports must be adjusted for the value of ”goods for processing” (Requires additional information – international agreements) The net values of the ”removed” exports and imports must be compared to the processing costs from client units and revenue data from processing units. Must take place at the lowest level of HS

Additional data collection For client units: Question on value of goods of own manufacture that are sent abroad for processing, the post- processing value, and the fee paid. For processing units: The processor will not know the market value. Can give information on the type of goods processed, and the cost of the processing service.

Impact on the supply and use tables Present recording a mixture of net and gross treatment Role of the supply and use table: - Balancing in an integrated framework - Derive GDP and double-deflated data - Database to derive structural measures New treatment and the ”technology” question Drawback that (some) forward and backward linkages will disappear.

The oil refinery example The refining of crude oil is done by a contract processor (an oil refinery) The oil refinery has only ”refining services” as output The linkages between: - crude petroleum extraction - oil refinery (in Canada) - Production of petroleum by-products (start) will be interrupted. In which branch is the client classified?

Multiregional supply and use tables Linkages not only across production processes, but also across regions via inter-regional trade matrices A net treatment is build into this system as no ”gross” information is available If goods are sent to other regions for processing there are limited possibilities to document technological dependencies between industries and regions In the oil refinery case an imputation was exceptionally made to overcome this problem

Conclusion The existing treatment have important analytical and data-collection disadvantages The new treatment poses certain disadvantages for the supply and use tables Suggest that both the ”gross” and the ”net” treatment should be implemented and data presented to users on both bases Question: In that case, why not implement only the ”gross” version in the supply and use tables, and make the necessary adjustments to the SNA, rev1 and BPM6 definitions for the aggregates (Perhaps only in the BOP)?