Merchanting SNA Chapter 14 (External transactions)

A wholesaler in Country A buys goods from Country B for 80. It resells the goods in Country C for 100. Current treatment: If goods pass through Country A, then A records imports of goods of 80 and exports of goods of 100. If goods do not pass through A, then A records exports of merchanting services of 20. In both cases, Country B records an export of 80 and Country C records an import of goods of 100. Note: BOP is international transactions accounts; production and holding gains on goods are not international processes.

Some more complex cases: The merchant is a pure speculator (e.g., on oil or gold market) not a wholesaler, so the difference is entirely holding gain. There is a holding loss. Transactions straddle reporting period. The three entities involved are all related. In this case, the “merchant” may be managing a production and distribution process without physically holding the goods. (Or it may be transfer pricing.) Does wholesaling between two related enterprises make sense?

1993 SNA The third exception is one in which a change of ownership may occur but is ignored in the accounts. The exception relates to merchants or commodity dealers who buy commodities or other goods from non-residents and then sell them again to non-residents within the same accounting period without the commodities actually entering the economy in which the merchants are resident. The difference between the receipts and the sales of such dealers is treated as measuring the value of the services they provide and recorded under exports or imports of services. If, however, the goods are not resold within the same accounting period, the purchases have to be recorded as imports of goods which are temporarily held in inventory; when they are sold abroad in a later period they should be treated as negative imports. (Italics added)

Concerns Merchanting is a residual which includes the value of wholesaling services: Includes holding gains/losses. Commodity arbitrage and speculation is an important component of merchanting. BOP shows international transactions, not production account.

Concerns Imputation of no change in ownership gives inappropriate balance sheet. Is not consistent with treatment of other wholesale margins on exports, which are included in the price (purchaser’s price concept). Not shown for imports, so is asymmetric. However, SNA specifies merchanting imports, presumably an error? Loss of the link between the margin and the associated goods flows. Quite different treatment to that of goods that are delivered through the merchant’s economy. Possibly different treatment of same transaction in national and currency union data. Changes in inventories as imports or negative imports are hard to interpret.

Concerns However, without merchanting goods flows would be larger and include even more of the “straight-in straight-out” goods flows. Services would be lower. Hong Kong wheat exports, etc.

Question 1/2 (1) Should the change of ownership in goods subject to merchanting be recorded as imports and exports of goods in merchandise? (2) Alternatively, should the change of ownership be ignored in this case and the difference in value between the selling price and buying price be treated as a service provided by the merchant to the purchaser of his goods?

Question 3 If (2), should the disposal of the goods in a subsequent period be recorded as negative imports at the original value (as now) or as exports at the original value (leaving an export of services)?

Question 4 If (1), should a new subcategory of goods under merchanting be introduced under the trade in goods category?

BOPCOM Answers 1)The Committee expressed the objective of properly reflecting complex global production and marketing processes while taking into account concerns both about deviating from the change of ownership principle and avoiding excessive grossing up of export and import flows. Possible separation of commodity dealers and others? Possible report net but under goods? 2)The Committee proposed that a working group be set up to investigate further. 3)In the meantime, it is suggested that the AEG discuss the issues now, but that a decision be delayed.