1. OECD - WGGS Merchanting Michael Connolly – National Accounts, CSO Ireland October 2010

2. Outline of Presentation  Group of Experts on Globalisation  Merchanting – scale of activity  Merchanting - explanation  SNA 93 & BPM5  SNA 2008 & BPM6 (IMTS2010,para. 1.20)  Merchanting of Services  Conclusion Oct 2010 2OECD WGGS

3. International Merchanting Activity 2004 – 2008 Index 2004 = 100 Oct 2010OECD WGGS3

4. 18 October 2015National Accounts Income4

5. Merchanting - definition the purchase of a good by a resident (of the compiling economy) from a non-resident and the subsequent resale of the good to another non-resident; during this process the good does not enter or leave the compiling economy Source IMF BPM5 In addition no transformation of the good has taken place - if so, then goods for processing

6. Merchanting Germany exporter/seller USA importer/buyer Ireland Merchant Value of exports = 80Value of imports =100 Value of services exports = 20 Change in ownership Cash settlement

8. Merchanting  So what is the problem with merchanting?  In the trade data for countries Germany and USA the exports and imports are included  How do we treat the transactions in the accounts of Ireland?

9. Merchanting – BPM5, SNA 93  The solution to this difficulty centred around the treatment for the change of ownership.  Change in ownership would normally require that  we record exports from Germany to Ireland and  record exports from Ireland to USA

10. Merchanting  This difficulty was simplified by imputing no change in ownership involving the merchant and therefore  recording the merchant’s margin as the net export of a service in Ireland and  record the exports /imports of goods between Germany and USA

11. Merchanting  Solution agreed in BPM5/SNA’93 solved one problem and created others  Goods account does not add up  Difference between the value of imports and exports is the merchants surplus  Recorded under Services

12. Merchanting SNA Rev.1 and BPM 6

13. Merchanting BPM 6 & SNA 2008  Current treatment causes asymetries in Goods account (no services)  Inconsistencies in recommended treatment and impact on inventories and balance sheets  Inconsistencies with Supply and Use tables  Valuation in Cross Border transactions

14. Merchanting BPM6 & SNA 2008  New proposals apply to the merchanting of goods only - no mention of merchanted services  Acquisition of goods by merchant to be recorded as negative exports of merchant’s economy  Similarly sale of goods by merchant recorded as a positive export  Difference between sales and purchases of merchanted goods is recorded under : “Net exports of goods under merchanting”

15. Merchanting Proposals BPM6 & SNA 2008  In Supply and Use Tables the difference between sales and purchases to be shown as production of a service In general Merchanting activities to be recorded in Goods account rather than the Services account

16. Merchanting – BPM6, SNA 2008 Oct 2010OECD WGGS16 Germany exporter/seller South Africa importer/buyer Ireland Merchant Movement of goods/services Change in ownership Cash settlement

17. Merchanting

18. Merchanting Impact of New Proposals  Resolves the difficulty with asymmetric recording  Resolves the issues with inventories and holding gains  Valuation principles are consistent  Recording of transactions in BOP still an issue

19. Merchanting – Activities Included  Commodity Trading  International Wholesale Retail  Global Manufacturing and  Interaffiliate transactions in Goods and Services  Outsourcing of Services (abroad)

20. Merchanting Global Manufacturing Country B owner of goods Country D importer/buyer Country A Group Company Movement of goods/services Change in ownership Cash settlement Country C Processor/exporter Goods for processing

21. Merchanting of Services  Not addressed in the current manuals  Was mentioned as far back as 1961 “ the compiling country’s residents may carry out international transactions in goods and services that are entered only on a net basis. Such transactions involve the purchase of goods or services in one foreign country and the sale or granting of them to another foreign country ”

23. Merchanting, CSO Treatment  Impact of Globalisation on services  Inclusion of transactions in services  Potential for statistical distortion arising from large transactions in goods and services sourced and delivered abroad  Outsourced services  Third era of Globalisation

24. Merchanting of Goods and Services 2009 Oct 2010 OECD WGGS

25. Merchanting Goods & Services Country IE owner of goods Country DE Producer Goods Market EMEA Many customers Country US Direct Investor Country FR Producer services 100%

26. Merchanting of Services  Does not consider or address the merchanting of services  major aspect of Globalisation  falls within the definition of merchanting  Transformation - how to determine if service has been transformed?

27. Merchanting Conclusions  Merchanting of services needs serious consideration  Revised treatment for Merchanting of goods is now adequate  Separate recommendations are required for Merchanting of Services similar to BPM5 i.e. separate item in Services Account

28. Any questions?