1. Finland: Compiling merchanting according to BPM6
Item 16, Balance of Payments Working Group
Juha Martikainen, Statistics Finland

2. Introduction Definition Change in the treatment of merchanting
Reporting
Different forms of merchanting
Data collection in Finland
Difficulties
Large enterprise work and profiling
BPM6 revision in Statistics Finland

3. Definition of Merhancting
“Merchanting transactions—that is, the purchase of goods by a resident (of the compiling economy) from a nonresident combined with the subsequent resale of the same goods to another nonresident without the goods being present in the compiling economy”
If there is a change in the physical form of the goods during the period they are owned by the merchant, as a result of manufacturing services, then the transaction should be classified as general merchandise, and not as merchanting”. (BMP6, 10.41)
In the manuals the definition of merchanting is short and sweet but we dealing with the complexity of the globalized world, which make it much more sweeter

4. The change on the treatment of merchanting in BPM6

5. The physical movement of goods does not reflect a change of ownership
Economy: A
Merchanting (A to C)
Negative exports BPM6 (B to A) -100
Exports BPM6 (A to C) 150 $
Economy: C
Generel merchandise (B to C)
Imports IMTS (B to C) 150
The Goods
Economy: B
Exports IMTS (B to C) 100
A recidence of the country A acquires the ownership of the goods €
Ownership rights
Ownership rights

6. Recording of merchanting in BPM5 and BPM6

7. Reporting the geographical breakdown – two possible options as discussed in previous BoP WG
The example considers two transactions:
Transaction 1: DE buys goods from Russia for 100 and sells it to France for 120
Transaction 2: DE buys goods from China for 150 and sells it to Denmark for 200

8. Reporting the geographical breakdown
Finland is in favor of option 2
Reporting of the net export to the country of buyer
It is difficult to get gross values of the goods in case of global production
Transfer prices are used in a large extent
Information just on the net values
Gross values have to be estimated
Option 2 is in line with the European accounts
No extra information needed for EU/Euro area accounting 8

9. Different forms of merchanting
Global wholesaling and retailing trade
Merchant earns a margin by purchasing and selling
Commodity trading
Historically merchanting often involved on price differences of commodities
Trading in commodity derivatives is not regarded as merchanting
Transactions resulting from global manufacturing
Many transactions within a multinational enterprise (MNE) fall in the definition of merchanting

10. Multinational enterprise in global manufacturing type of merchanting
Similar as other type of merchanting except that all transactions take place within the MNE.
In reality global manufacturing type of transactions combine elements of merchanting and processing
If the good is processed while the ownership stays in compiling economy, the transaction should be recorded in the BPM6 heading ”manufacturing services on physical inputs owned by others” in the service account.
The ”manufacturing” of the good can be organized in a various ways which gives room for an interpretation

11. The data collection in Finland
Business survey on International trade in services has questions on global production and trade
Merchanting
Manufacturing services on physical inputs owned by others (inward, outward)
Geographical breakdown
The gross value of the goods / the net value of the margin
Merchanting might be under reported in the survey
Quality control: comparison with other information, especially sales statistics – sales from aboard to aboard

12. Some enterprises have had difficulties on reporting of the merchanting
The concepts can be difficult to understand
Merchanting can be bounded in the other global production activities
No information in the business accounting
Geographical breakdown of the production
In the business survey it is impossible to cover all unique cases
Some companies have strict policy for the interpretation
No answering if not precisely asked

13. Large enterprise work and profiling in Statistics Finland
Cooperation with the largest enterprises
Response burden vs. quality of the information
Coherency in statistics
BoP, National accounting, business statistics
The key problem is, how to truncate a MNE into the national level?
ESSNET on profiling
GEN – global enterprise group
TEN – truncated enterprise group

14. The global business arrangements can be extremely complex
In the production of high-technology goods the most valuable resource is in intangible assets
The ownership of the intermediate product aren’t in a significant role in the value chain of the MNE
The concept of ownership is not always clear
Who gets the economic benefit?
Transfer prices are common in the transactions within the MNE
Selling price may cover elements of R&D, marketing, financing etc.
Cases are unique

15. Merchanting and the global value chain
Merchanting is closely connected to the global value chain
What is the “critical resource” behind the value added?
Where the global company wants to show value added?
The most difficult issues for the compiler of the statistics
Cooperation with the transfer pricing unit of corporate tax authorizes on the phenomenon
No enterprise level information
Substance over form in the interpretation
Is it the head office, which carries the risk, controls the business, which gets most of the value added?
No any exact rule of formula for dividing the global value added

16. Comparing the source statistics
International merchandise trade statistics (IMTS)
The customs statistics on goods
International trade in services statistics (MSITS)
The Sales inquiry
Sales to abroad
Sales from abroad to abroad
Structural business statistics
Inventories statistics
Foreign affiliate trade statistics (FATS)
Financial statements of the companies

17. Critic for the business profiling type of macroeconomic statistic

18. Why to do business profiling in Finland?
Some MNE have a huge impact to the statistics in Finland
Concentration just to the most important cases
It is the best way to get to know the phenomenon and develop accounting and IT-systems
Coherency in concepts and processing
After all enterprises are quite willing to do cooperation
Developing statistics in EU and participation in other international projects

19. Ongoing revision in Statistics Finland
Revised time series for the merchanting
Net values from services to goods
With the existing information
Estimations are needed
Studying the impact of the BPM6-revised business survey
Changes in the time series can be considered
Improve practices and methods on the treatment of the asymmetry of the source information
Merchanting on the suppley and use tables (National Accounts)
International projects

20. Recent guides and on going work on the subject
Guide on Impact of globalization on national accounts, UNECE, 2012
Manual on Goods Sent Aboard for Processing, Eurostat (2013)
Task Force on Global Production, UNECE (2014)
Typology of Global Production Arrangements
Principles of Economic Ownership
Ownership of IPP
Large and complex cases units
Multiterritory enterprises
Quasi-Transit Trade

21. Thank You!