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6. Foreign Affiliate Statistics (FATS)
THE CONTRACTOR IS ACTING UNDER A FRAMEWORK CONTRACT CONCLUDED WITH THE COMMISSION
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Introduction Foreign AffiliaTes Statistics (FATS) aim at describing the overall operations of foreign-controlled affiliates (affiliates in which a single investor owns more than 50% of the voting power). A major mode of supply for trade in services: need of a close and continuing contact between a supplier and a customer through commercial presence. But also mode of supply for trade in goods. Commercial presence (GATS mode 3) reflected by FATS, a set of variables measuring the activity of foreign affiliates.
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GATS Mode 3: Commercial Presence
Country A Country B GATS Mode 3: Commercial Presence Mode 3 covers the supply of a service by a service supplier of the country A, through a commercial presence in the country B of the service consumer Service supplier Service consumer © WTO/OMC 3 3
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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.
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FATS v Foreign Direct Investment
Enterprises covered in FATS are a subset of FDI enterprises built on the majority owned or controlled affiliates. FDI relationship establishes a lasting interest by a resident enterprise from one economy (the direct investor, or DI) in an enterprise which is resident in another economy (the direct investment enterprise, or DIE). FDI relationship: More than 50% of the equity capital or voting power: control Between 10% and 50%: influence Less than 10%: no influence 10% for defining FDI, majority ownership for FATS.
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FDI and FATS enterprises
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Inward and outward FATS
Inward FATS: a measure of the activity of foreign controlled affiliates in the reporting economy. Outward FATS: a measure of the activity of foreign controlled affiliates of MNEs of the reporting economy. Priority given to inward FATS: easier to compile and more meaningful for the GATS. Inward FATS: statistical unit (resident affiliate) = reporting unit (resident affiliate) Outward FATS: statistical unit (non-resident affiliate) different from reporting unit (resident mother company)
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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 breakdown
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Additional variables Total of financial and non-financial assets
Net worth: assets - liabilities Compensation of employees Research and development Gross capital formation
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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 beneficial owner (UBO) - known in FDI as the Ultimate Controlling Institutional Unit (UCI). MSITS recommends UBO for FATS in contrast to FDI statistics which use the Immediate country of investment. UBO is more meaningful: Derives the benefits from controlling the direct investment affiliate Country of the immediate owner may be used when UBO is not known and to align on FDI concepts.
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Looking for UBO C is directly controlled (60%) by D (country 4)
A (country 1) is directly controlled (70%) by C (country 2) C is directly controlled (60%) by D (country 4) D directly controlled by F which is not controlled by another company C is the A’s mother company and F (country 6) is its UBO 11
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Example of inward FATS Three new enterprises in the compiling economy (France): A: 100% owned by USA parent company, with no other foreign ownership. B: 30% owned by a Dutch parent company C: 51% owned by a Luxembourg holding company. Owner of holding company is from USA. Classified as follows A: FATS and FDI: UBO and UCI = USA; B: FDI only: UCI = Netherlands C: FATS and FDI: UBO = USA, UCI (immediate ownership)= Luxembourg
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Industry and product classification
FATS variables need to be classified on an activity basis Foreign affiliates are classified by their primary activity, according to ISIC categories for foreign affiliates (ICFA) ICFA can be linked to EBOPS In the long term FATS variables such as sales, imports or exports should also be broken down by product More appropriate to be compared with data on services delivered through cross-border trade (EBOPS) and product breakdown needed for GATS
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The 100 per cent rule FATS variables for a given affiliate need to be attributed in their entirety 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% of the voting shares export US$ 100 million. All of the exports should be treated as the exports of this foreign-owned enterprise and not the foreigner owners’ share of US$ 65 million.
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4. Data collection
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Two main data collection approaches
FATS surveys Survey to MNEs resident affiliates for inward FATS, survey to resident parent companies for outward FATS Alternative: FDI stock survey with an extra sheet for FATS or separate survey with foreign controlled subset of the FDI population Add questions to existing surveys Identification of the foreign controlled subset of FDI enterprises Cross-cutting with Structural Business Statistics (SBS) Mixed approach
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Inward FATS data collection
As affiliates relate to resident enterprises, source data describing their activity directly from structural business statistics (SBS) Data still collected for national accounts GDP calculation Linking FDI survey with SBS data through common identifiers. Priority variables (sales, employment, value added, exports and imports, number of enterprises) with a breakdown by activity are easily available. Ensures the consistency with local enterprises data and comparisons are easier. The only additional data needed is the country of control allocation
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Outward FATS data collection
Data cannot be collected directly Foreign affiliates are located outside the compiling economy, Resident parent companies need to be surveyed on their activity abroad. Use of existing FDI survey Identification of all stakes above 50% One extra sheet for FATS variables Limits the burden (one survey) New surveys as an alternative Targeted on those enterprises with foreign-controlled affiliates
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Main issues (3) Asymmetries Inward vs. Outward FATS
Inward FATS ‘easier’ and thus more complete International comparisons and consultations very useful in order to improve Outward FATS Asymmetric burden distribution between countries Level of business internationalisation different Number of Outward FATS statistical units ranging from less than 50 to more than …..it depends on the country Countries with the most impact on global figures have the most burden to cope with
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FATS compilation in the EU
A common legal framework Regulation (EC) No 716/2007 of the European Parliament and of the Council of 20 June 2007 on Community statistics on the structure and activity of foreign affiliates. FATS Recommendations Manual 2009 edition Mandatory FATS variables Outward FATS: number of enterprises, turnover, persons employed Inward FATS: number of enterprises, turnover, number of persons employed, value added, gross investment in tangible goods, personnel costs, production value, total purchases of goods and services, purchases for resale, total intra-mural R&D expenditure, total number of R&D personnel. Breakdown by activity and partners
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Austria Statistics Austria is responsible for compiling the FATS statistics. It is however the result of a collaborative effort with the OeNB which provides FDI data. Inward FATS statistics Two major sources: the comprehensive structural business statistics from Statistics Austria and the FDI survey (OeNB). OeNB provides the list of foreign-controlled enterprises and the country of the UCIs. Statistics Austria links the OeNB list of enterprises with its own business register and SBS database to get FATS variables.
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Austria (cont) Outward FATS statistics
Adaptation of the FDI questionnaire to collect the company name, address, employment and sales figures of all enterprises abroad controlled by Austrian direct investors, irrespective of the length of the chain of control. The survey applies a reporting threshold with a possible under-reporting as there is no grossing-up of the survey results. Cross-checking with the European Groups Register (EGR) including information available from commercial sources and from counterpart countries.
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United States FATS are compiled by the US Department of Commerce (BEA) under the authority of the International Investment and Trade in Services Survey Act. The collection method relies on FDI surveys Benchmark surveys every 5 years Most comprehensive for coverage and data content Different forms depending on firm size Basis for estimates between benchmark years Annual surveys in interim years Smaller affiliates do not report Statistical sampling
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United-States Link to Census Bureau establishment-level data every 5 years Provides increased industry detail Facilitates the comparison with domestic economy Types of data collected Balance sheets, income statements, sales, employment and employee compensation, R&D expenditures, taxes, trade in goods and services, value added. Special focus on services Majority-owned affiliates only: US affiliates and foreign affiliates Sales broken down between goods, services, and investment income, Sales recorded by destination, More detailed industry classification, aided by the use of the NAICS A costly process.
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US inward FATS questionnaire
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US outward FATS questionnaire
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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 extra costs to statistical agencies and respondents, the globalisation of the world economies has motivated a number of countries to develop such data. FATS compilation should focus first on inward side and priority variables. SBS may be the easier approach for data collection in most circumstances.
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