BPM5 Conceptual Framework: Concept of Residence

ESCWA Workshop on the Compilation of Statistics on Trade in ServicesCairo, EgyptFebruary 6-9, 2007

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Introduction

The balance of payments summarizes for a specific time period, the economic transactions of an economy with the rest of the world.

Concept of residence is central to identifying and measuring transactions between residents and nonresidents.

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Defining Residence

MSITS concept of residence identical to that used in BPM5 and the 1993 SNA, and is based on a transactor’s center of economic interestnot on nationality or legal criteria.

In this regard, recognizing the economic territory is key to identifying the sectoral transactor’s center of economic interest.

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Economic Territory

The economic territory of a country is the relevant geographical area to which the concept of residence is applied.

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Residence of Enterprises

An enterprise has a center of economic interest, and thus residence, in an economy when it engages and intends to continue to engage in economic activities on a significant scale either indefinitely or over along period of time. A period of one year is the guideline.

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Special Cases: Operations of Mobile Equipment

Operations of mobile equipment outside the economic territory where the enterprise is resident (example, airline, railway, trucking, shipping).

Operations taking place in international waters or airspace; or in another economy.

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Foreign Direct Investment

Ownership of land and structures located within a country’s economic territory (para. 64)

Notional unit as owner (direct investment). Purpose is to maintain land as always being an

asset held by residents. The FDI enterprise is resident in the economy in

which it operates -> services produced and supplied to nonresidents are exports; services consumed, supplied by nonresidents are imports.

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Special Zones

Discuss: Special zones or legislative exemptions for

particular enterprises (para. 59):Manufacturing (e.g., free trade zones); Financial or other services (e.g., “offshore

financial centers”).

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Construction Projects/Agents

Discuss: Large, long-term construction or

installation projects (para. 78)Site office.

Agents (para. 83) Transactions on behalf of principal included in

economy of principal. Agent’s own services in agent’s economy.

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Residence of Households

A household has a center of economic interest where it maintains one or more dwellings in the country that members of the household use as their primary residence. An individual may cease to be a member of a resident household when he/she works continuously for one year or more in foreign country.

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Households: Refugees

Refugees are persons displaced from their home economy by natural disasters or other causes (such as conflict). Such displacement to other economies may be for a short period or on along term basis. In the case of short-term displacement, refugees continue to be resident of their home economies; however, if the displacement is for a long period and the refugees change their center of economic interest, they are considered to be migrants and thus no longer residents of their original economies.

Lebanese residents crossing into Syria during the 2006 summer war with Israel; have since returned = short-term

Iraqi residents who have moved to Jordan, Syria and other countries = long period

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Government

Special cases Embassies (resident of home country)Military bases (resident of home country) International organizations (nonresidents of

any one country)

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BPM5 and modes of supply Balance of

payments service transactions broadly correspond to modes 1, 2 and part of 4, in the GATS modes of supply.

Territorial Presence of Transactors

Mode of Supply

Major Statistical

Areas

Consumer outside territory of residence

Mode 2: consumption abroad

BPM5

Consumer in territory of residence

1.Supplier outside the territory of

consumer

2. Supplier in the territory of

consumer:

2.1 Through commercial presence

2.2 Through the presence of natural persons

Mode 1: cross-border supply

Mode 3: commercial presence

Mode 4: presence of natural persons

BPM5

FATS

BPM5/Other

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Statistical Coverage of GATS Modes of Supply

Mode Statistical coverage Mode 1 Cross border supply

BPM5: transportation (most of), communications services, insurance services, financial services, royalties and license fees Part of: computer and information services, other business services, and personal, cultural, and recreational services

Mode 2 Consumption abroad

BPM5: travel (excluding goods bought by travellers); repairs to carriers in foreign ports (goods); part of transportation (supporting and auxiliary services to carriers in foreign ports)

Mode 3 Commercial presence

FATS: FATS statistics, each ICFA category BPM5: part of construction services

Mode 4 Presence of natural persons

BPM5: part of: computer and information services; other business services; personal, cultural and recreational services; and construction services FATS (supplementary information): foreign employment in foreign affiliates BPM5 (supplementary information): labour-related flows Other sources (see Annex 1 of MSITS)

Source: Manual on Statistics of International Trade in Services