1. www.bea.gov Measuring Factoryless Manufacturing Evidence from U.S. Surveys Brent Moulton (with Fariha Kamal, Jennifer Ribarsky) BEA Advisory Committee May 10, 2013

2. www.bea.gov 2 Importance of Contract Manufacturing Globalization has affected global manufacturing arrangements: Traditional, integrated manufacturer Manufacturing service provider Factoryless goods producer Concerns in measuring international transactions: Re-exports Merchanting Manufacturing services on goods owned by others Free trade and other special zones Changes in classification and international guidelines

3. www.bea.gov U.S. Classification Guidance on Factoryless Goods Producers Explicit guidance to classify factoryless goods producers in the manufacturing sector Report the value of final product produced Report purchases of CMS Manufacturing service providers are also classified in manufacturing sector Report receipts from CMS 3

4. www.bea.gov International Standards: BPM6 and SNA 2008 New treatment of goods-for-processing When ownership does not change and goods are returned after processing Gross merchandise trade flows are excluded Value of the processing service included as services trade measured by the processing fee No impact on overall trade balance but it shifts the balance between goods and services Impacts input-output accounts 4

5. www.bea.gov Contract Manufacturing Services CMS is a key element in identifying the relationship between firms that outsource the fabrication of productswhile still controlling the production process and firms that do the processing May help classify units to appropriate industry May help identify the goods-for-processing international trade flows 5

6. www.bea.gov Surveys with CMS Questions BEA Surveys 2009 Benchmark Survey of U.S. Direct Investment Abroad (BE-10) 2011 Benchmark Survey of Transactions in Selected Services and Intellectual Property Products with Foreign Persons (BE-120) Census Bureau Surveys 2007 Economic Census 2011 Report of Organization Survey (COS) 2012 Economic Census 6

7. www.bea.gov BE-10 CMS Responses U.S. Parents Who Purchased CMS, 2009 Number of Respondents Percent of Respondents Yes88823% No2,86075% No response822% 7 U.S. Parents Who Performed CMS for Foreigners, 2009 Number of Respondents Percent of Respondents Yes 3248% No 3,42389% No response 832% U.S. Parents Who Purchased CMS, by Sector, 2009 ManufacturingWholesaleInformation Professional, Scientific, Technical Services Other 72%13%5%1%9%

8. www.bea.gov Distribution of U.S. Parents Who Purchased CMS, 2009 8 U.S. parents who purchased CMS 888 of which: U.S. parents owned materials used by contract manufacturers who are located inside the U.S.579 U.S. parents owned materials used by contract manufacturers who are located outside the U.S.330 U.S. parents did not own materials used by contract manufacturers who are located inside the U.S.369 U.S. parents did not own materials used by contract manufacturers who are located outside the U.S.323 Can respond yes to more than one type of arrangement 10 percent of U.S. parents that purchased CMS responded yes to all four types of arrangements Of the U.S. parents that reported purchasing CMS from outside the U.S., nearly half of the respondents answered yes to both owning the material inputs and not owning the material inputs used by the contract manufacturer

9. www.bea.gov Conclusions Responses from BEA and Census surveys indicate: Domestic purchases of CMS more prevalent Firms that purchased CMS from their affiliates are larger than other firms purchasing CMS outside the U.S. For U.S. parents who purchased CMS outside the U.S., they were just as likely to own as to not own the material inputs 9