1. IGA-project 2017-2018: Global Production Data Sources and Adjustments
Kristian Taskinen
IGA seminar, 17 May 2019

2. IGA–project in Finland (7/2017-12/2018)
WP1: Integrated global accounts
No tasks
WP2: Global production
Stocktaking of available data sources related to global production on quarterly and annual basis
Developing processes for global production adjustments
WP3: Improving the quality of data on globalisation
Consistent time series for BOP current account and NA rest of the world sector from 2004 on
WP4: Knowledge sharing for NA and BoP on globalisation
Participating IGA TF, Internal co-operation with business statistics, Documentation of current global production recordings practices

3. Enterprises with global production in Finland
Around 90 enterprises with global production arrangements have been identified
~30 processing abroad
~30 processing in Finland
~10 merchanting
~15 factoryless goods producers (FGP)
High share of FGPs due to the dominance of IPP emphasized electronics industry in the past
Enterprises are identified in co-operation of business register, business statistics and NA
Some of these enterprises belong to the target group of LCU
Significance level in global production arrangements: total turnover > 10 million €
11 December 2019

4. Example – Inward processing in Finland
Foreign trade of cars (number of cars)
Imports Exports
Source: International Trade Statistics, Customs
”Finland is exporting German cars to Germany – New record of exported cars”

5. Example – Identification and analysis of FGPs
GUIDELINES
PRIMARY SOURCES
GUIDE TO MEASURING GLOBAL PRODUCTION (2015) * recommendations for FGPs
ESA2010 and BPM6
COMPANY, OUTPUT, PRODUCT AND INDUSTRY INFORMATION
FINANCIAL STATEMENTS INQUIRY FOR ENTERPRISES * turnover from trade – no deliveries of products * no raw-material costs, high costs on R&D, marketing, subcontracting
INTERNATIONAL TRADE IN SERVICES SURVEY * records sales and purchases of factoryless production
ARTICLES ABOUT FGP
business statistics data warehouse
YTY
SUPPORTING
SOURCES
BUSINESS REGISTER * NACE – manufacturing industry
FIRM’S ANNUAL REPORT * Possible information about outsourcing production abroad
LCU COMPANY VISIT * company defined itself to be FGP
TAX RECORDS (Administrative data) Annual financial statements
PRODCOM * production: no product information
SALES INQUIRY * high share of turnover from sales abroad to abroad
EMPLOYMENT STATISTICS * major share of company workers are experts (engineers, designers etc.)
INTERNATIONAL TRADE IN GOODS STATISTICS (CUSTOMS) * small share of goods export compared to turnover

6. Summary on regular data sources on global production

7. Goods sent abroad for processing, ”outward processing” (1/2) -adjustments for goods import and export
Finnish company outsources manufacturing abroad
Economic ownership in Finland, so…
Foreign supplier
Processor
Receives processing fee
Finnish principal
Bears risk
Owns IPP:s
Usually owns and purchases raw-materials
Owns finished products
Pays prosessing fee (recorded as service import)
Excluded export: Materials sent for processing purchased from Finland
Excluded import: Output of manufuctured good, sales to Finland
Vuonna 2014:
Valmistuttaminen ulkomailla 4 % koko tavaraviennistä
Valmistuttaminen ulkomailla 3 % koko tavaratuonnista
Added import: Materials purchased for prosessing from abroad
Added export: Output of manufactured goods, sales abroad

8. Goods sent abroad for processing, ”outward processing” (2/2) -main data sources for adjustments
SPECIFICATION
MAIN DATA SOURCE
added
export
Sales of finished goods to abroad
ITS Survey – code GB2
excluded
Raw-materials sent for processing purchased from Finland
Financial statements and notes
LCU (direct information from companies)
ITGS export
Raw-materials sent for processing purchased from Finland, based on customs NoT-codes
Finnish customs ITGS –export NoT 41,42
import
Raw-materials for prosessing purchased from abroad
ITS Survey – code GB1
Finished goods delivered to Finland
STS (short-term business statistics) sales inquiry, domestic turnover
Finished goods delivered to Finland, based on customs NoT-codes
Finnish customs ITGS –import NoT 51 (52)

9. Goods sent abroad for processing, ”inward processing” (1/2) -adjustments for goods import and export
Foreign company has outsourced manufacturing to Finland
Economic ownership is not in Finland, so…
Foreign principal
Bears risk
Usually owns IPP:s
Usually owns and purchases raw-materials
Owns finished products
Pays prosessing fee
Finnish supplier, processor
Processor
Receives processing fee, recorded as service export
Excluded import: Raw-materials for processing in Finland, purchased abroad
Excluded export: Finished goods delivered to abroad
Vuonna 2014:
Valmistuttaminen Suomessa -5 % koko tavaraviennistä
Valmistuttaminen Suomessa -3 % koko tavaratuonnista
Added import: Finished goods, sales to Finland
Added export: Raw-materials for processing purchased from Finland

10. Goods sent abroad for processing, ”inward processing” (2/2) -main data sources for adjustments
SPECIFICATION
MAIN DATA SOURCE
added
export
Raw-materials for processing purchased from Finland
Inquiry of manufactured goods, which in Finland includes also raw-materials used in production
ITGS (if raw-materials not imported then purchased from Finland)
excluded
Finished goods delivered to abroad
List of recognized companies which export finished goods and raw-materials for processing in Finland
Finished goods delivered to abroad, based on customs NoT-codes
Finnish customs ITGS –export NoT 51, 52
import
Finished goods, sales to Finland
Tax return data
Inquiry of manufactured goods
ITGS (if finished goods are not exported then possibly sold to Finland)
Raw-materials for processing in Finland, purchased abroad
List of recognized companies which imports raw-materials for processing in Finland and exports finished goods
Raw-materials for processing in Finland, purchased abroad, based on customs NoT-codes
Finnish customs ITGS –import NoT 41, 42

11. Development of annual SBS-questionnaire
New global production questions to annual SBS-questionnaire
Turnover from foreign industrial production
Turnover from foreign contract manufacturing
Turnover of sales from abroad to abroad
Turnover from foreign construction projects
Purchases of raw-materials and intermediate products for foreign production
Purchases of products from abroad to be re-sold abroad
Processing fees for foreign sub-contractor
2018 yes/no questions, 2019 values (~30 enterprises), 2020?
 Consistency between quarterly and annual economic statistics
 Balancing supply and use items annually on enterprise level

12. New process for global production adjustments (1/2)
Main task of this project with following objectives:
Take into account all regular source data
Consistency between NA, BOP and source data
Adjustments for preliminary quarterly NA and BOP figures
Effective process which enables quarterly volume calculations

13. New process for global production adjustments (2/2)
Adjustments mainly on quarterly basis
For some adjustments fresh ITGS and ITSS quarterly data are available, others are based on estimates (mainly on enterprise level)
Same adjustments for BOP, International trade in goods and services and quarterly NA (common process and database)
NA product classification is integrated in BOP-system
Revised/final adjustments for annual national accounts
Revised adjustments for QNA, International trade in goods and services, BOP
Final estimates with T+9 months (at the moment T+15)
New process was introduced in December 2018

14. Summary of adjustments made for ITGS exports
PHENOMENON
SPECIFICATION
VALUE 2016 (million €)
% OF TOTAL EXPORTS OF GOODS (NA)
ITGS export - Finnish Customs
51 878
98 %
added
Goods sent abroad for processing; “outward processing” (finnish principal)
Sales of finished goods to abroad
3 157
6 %
excluded
Raw-materials sent for processing purchased from Finland (Customs NoT-codes are not used)
-405
-1 %
Raw-materials sent for processing purchased from Finland (Based on Customs NoT-codes)
-157
0 %
Goods sent abroad for processing;
“inward processing” (finnish supplier)
Raw-materials for processing purchased from Finland
902
2 %
Finished goods delivered to abroad (Customs NoT-codes are not used)
-3 649
-7 %
Finished goods delivered to abroad. (Based on Customs NoT-codes)
-137
Factoryless goods production
Marginal (sales-purchases)
519
1 %
Goods under merchanting
1 089
added/
Other
Total
53 198
100 %

15. Summary of adjustments made for ITGS imports
PHENOMENON
SPECIFICATION
VALUE 2016 (million €)
% OF TOTAL IMPORT OF GOODS (NA)
ITGS imports - Finnish Customs
55 003
104 %
CIF/FOB-adjustment
-3328
-6 %
added
Goods sent abroad for processing; finnish principal
Raw-materials purchased from abroad
1 765
3 %
excluded
Output of manufuctured good, sales to Finland (Customs NoT-codes are not used)
-274
-1 %
Output of manufuctured good, sales to Finland (Based on Customs NoT-codes)
-236
0 %
Goods sent abroad for processing; finnish supplier
Finished goods, sales to Finland
984
2 %
Raw-materials for processing in Finland, purchased abroad (Customs NoT-codes are not used)
-2 483
-5 %
Raw-materials for processing in Finland, purchased abroad (Based on Customs NoT-codes)
-54
Smuggling
117
E-commerce
659
1 %
Import of private vehicles
281
added/
Other
416 1%
Total
52 851
100 %

16. Challenges encountered (1/2)
What is the type of global production?
Mixed and changing business models of MNEs
HQ’s vs. affiliate’s perspective
When merchantor becomes FGP?
How large marginal for principal?
Share of IPP revenue?
What is the correct activity for FGPs?
UN ISIC Rev 4.: Trade but further research needed
In Finland FGPs are included according to the product  Mainly to industry activities
T-shirts Mobile phones
Share of IPP

17. Challenges encountered (2/2)
Prices and volume measures: where to find deflators for global production revenues?
Producer price index (PPI) for export covers only exports from Finland, not exports from other countries
No price index for margin of foreign sales and purchases
How to communicate with the MNEs and users of statistics on global production?
Theoretical and partly old-fashioned concepts
Corresponding items in business accounting
Handbook on globalisation to users of economic statistics (published 3/2019 in Finnish, will be translated in English)
How to treat global production in business statistics?
“Production provides a measure of the volume trend in value added over a given reference period” (Commission regulation on STS-variables 1503/2006)
Should STS indicators include global production adjustments too in order to maintain consistency between NA and Business statistics?

18. Thank you!