1. Methodology and data collection
MEDSTAT III Euro-Mediterranean Statistical Cooperation Foreign Affiliates Statistics
Methodology and data collection
workshop on trade in services, FDI and FATS
rOMA 7-8 May 2011

2. Summary Usefulness of FATS Guidelines and recommendations
FATS data collection

3. 1. Usefulness of FATS

4. Foreign affiliates in 2007 Employees: 82 million (1982: 22 million)
parent companies and affiliates - responsible for two-thirds of world trade.
Foreign affiliates
Employees: 82 million (1982: 22 million)
Sales: $31 trillion (1982: $3 trillion)
Exports: $6 trillion (1982: $1 trillion)
Assets: $ 69 trillion (1982: $2 trillion)
Source: UNCTAD World Investment Report 2008

5. FATS MSITS 2002: Foreign Affiliates Trade in Services
(limited to services)
MSITS 2010: Foreign AffiliaTes Statistics
(now includes manufacturing sectors)

6. Why Measure FATS?
Analyse the role of MNEs and their affiliates in international production of goods and services: measure their activities and assess their economic impact
As part of ITS, correspond to the GATS mode 3 (provision of services through commercial presence)
FATS variables gain analytical interest when viewed in conjunction with comparable information on total home or host economy.
FATS measure the impact on:
Labor market;
Technology transfer;
Innovation and research and development (R&D);
International trade;
Economic efficiency and competition.

7. What do FATS Measure? The overall economic activity of affiliates
Activity of foreign controlled affiliates in the reporting economy (inward FATS)
Activity of foreign controlled affiliates of the reporting economy (outward FATS)
FATS is at the crossroad of business statistics, balance of payments and IIP
BOP and IIP: flows and stocks of FDI to identify the foreign- owned subset of companies.
Business statistics: for the identification of the relevant economic variables.

8. Principles underpinning FATS
The Manual on International trade in Services (MSITS) provided the first internationally accepted guidelines for FATS data compilation
The Manual’s recommendations are in line with international standards:
SNA : comparability with statistics on the domestic economy.
BPM (balance of payments): cross-border trade in services.
OECD Benchmark Definition of FDI.
OECD handbook on Globalization.

9. 2- FATS guidelines

10. Enterprises covered in FATS
A subset of the FDI population: majority owned (controlled) foreign affiliates
De facto control against majority ownership
A single foreign investor or associate investor group owns more than 50% of their ordinary shares or voting power.
In line with SNA concept of foreign-controlled enterprises.
Includes subsidiaries and branches but excludes associates.
FATS cover affiliates producing both goods and services

11. FATS enterprises in the economy

12. Priority variables for FATS
Sales or output: directly comparable with cross-border trade in services and as such the most important information on FATS to be collected
Employment: assess the impact of affiliates on labour market
Value added: output originated from the affiliate itself (total output less intermediate output)
Exports and imports of goods and services: to be computed separately, and between related and unrelated parties
Number of enterprises: to be compared with the total of firms in the compiling economy
Also country and Industry

13. Additional FATS variables
Assets: financial and non-financial assets
Net worth: difference between assets and liabilities
Net operating surplus: value added less compensation of employees and consumption of fixed capital
Compensation of employees: total remuneration (cash and in kind)
Gross fixed capital formation: acquisition less disposals during the accounting period
Taxes on income: corporate income and profits taxes
Research and development expenditures

14. Country classification of FATS
In what country does the production of the affiliates take place? and what country is the owner of the producing affiliate?
There are two possibilities for FATS:
Immediate host / home country
Ultimate beneficiary owner (UBO) - known in FDI the Ultimate Controlling Institutional Unit (UCI)
Abstracting from practical considerations, MSITS recommends the use of UBO for FATS in contrast to FDI statistics which use the Immediate country of investment
It is the UBO which derives the benefits from owning or controlling the direct investment enterprise

15. Control and ultimate beneficiary (UBO)
Foreign control: The controlling institutional unit is resident in a different country from the one where the institutional unit over which it has control is resident.
UBO: The country of the institutional unit, proceeding up a foreign affiliate’s chain of control, which is not controlled by another institutional unit.
The decision about the UBO should be taken proceeding the ownership chain of the units step by step, in each step determining control.

16. Geographical Attribution
Inward FATS
Foreign
investor
COMPILING COUNTRY
Majority ownership
Operations of foreign-owned affiliate
Immediate owner
Majority ownership
Foreign
investor
Supplementary information
Described
Statistics on inward FATS
UBO
Operations allocated to the country of

17. Geographical Attribution
Outward FATS
COMPILING COUNTRY
Foreign affiliate
(holding company)
Majority ownership
Resident investor
Majority ownership
Operations
of foreign
affiliate
Described
Statistics on outward FATS
Operations allocated to the country of

18. Industry and product classification
FATS variables classified as a first priority on an activity basis
Foreign affiliates classified by their primary activity, according to ISIC Categories for Foreign Affiliates (ICFA)
ICFA can be linked to EBOPS (to a limited extent).
Long term priority
FATS variables such as sales, imports and exports should also be broken-down by product
More appropriate to be compared with data on services delivered through cross-border trade (EBOPS) and needed for GATS

19. The 100 per cent rule
FATS variables for a given foreign affiliate are attributed as a total to a single country of owner. No adjustment should be made for the percentage of foreign ownership.
EXAMPLE: a domestic enterprise, in which foreigners own 65 per cent of the voting shares, exports EUR 100 million.
All of the exports should be treated as the exports of this foreign-owned enterprise and not the foreigner owners’ share of EUR 65 million.

20. 3- FATS data collection

21. Two basic approaches
There are two basic approaches of data collection which are not mutually exclusive
Surveys of resident affiliates of foreign firms (inward) and foreign affiliates of domestic firms (outward)
Identification of 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

22. Identification of majority owned companies
Several possible data sources to identify the majority- owned companies:
Statistical registers (General Business Register, FDI register, enterprise group register)
Surveys (business surveys, FDI surveys, statistics on business demography…)
Administrative sources (VAT register, published companies accounts…)
Systematic analysis of press reports.
Ownership criterion, and possibly the chain of ownership, need to be included in one or more of these data sources.

23. Inward FATS (1/2)
Affiliate enterprises can be surveyed directly on their activity
The most important data to collect, as GATS make commitments with respect to the supply of services in the compiling own economy, rather than services supplied abroad.
Easier to collect: data already included in existing statistics on resident enterprises.
Target population to be surveyed
All foreign controlled enterprises and all branches, whether they themselves control affiliates abroad or not.

24. Inward FATS (2/2)
Data should be already available as part of regular surveys (business and employment surveys), subset of business statistics.
The only additional data needed for inward FATS is for the country allocation of control.
Ensures the consistency with local enterprises data.
Statistical information can be combined using identification number.

25. Outward FATS (1/2)
Target population to be surveyed (whose activity has to be recorded): the affiliates are located outside the compiling economy and the variables cannot be collected directly.
Resident parent companies therefore need to be surveyed on the activity of their affiliates abroad.

26. Outward FATS (2/2) Use of existing FDI survey
Identification of all stakes> 50%
One extra sheet for FATS variables and instructions for data collection.
Efficiency gains for the compiler and the reporting population (one survey).
New surveys as an alternative
Tailor-made surveys for those enterprises with foreign-controlled affiliates (in addition to the FDI survey).

27. Availability of FATS data
FATS infrastructure is less developed than BOP
FATS inward: 23 OECD countries in 2007
FATS outward: 14 OECD countries in 2007
Where FATS are not available, FDI stocks and FDI income could be used as a rough indicator of FATS activities

28. Conclusion and recommendations

29. Importance of FATS Growing importance of MNEs in the world economy
Need to evaluate the economic impact of these MNEs
FATS are particularly important for analysing trade in services, as lot of them need a close contact between the consumer and the producer
Despite the extra costs to statistical agencies and respondents, the globalisation of the world economies has motivated a number of countries to develop such data

30. Recommendations
FATS should cover controlled affiliates as defined in the FDIR
FATS variables should be compiled for all foreign affiliates: those in goods and services
Geographical attribution of inward FATS variables should be the country of the UCI; the country of the first foreign parent should be provided to facilitate linkages with FDI
Geographical attribution of outward FATS should be the country of location of the affiliates whose activity is described
FATS to be compiled on an activity basis and on a product basis as a long term goal
Priority variables: sales (or turnover) and/or output, employment, value added, exports and imports of goods and services, number of enterprises
A variety of sources and methods can be used to collect and compile FATS variable

31. Thank you for your attention