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Final minutes of the 2nd meeting of the Task Force on goods sent abroad for processing Luxembourg, 23-24 February 2012

I. OPENING

Mr Francis Malherbe, Chairman of the Task Force on goods sent abroad for processing, opened the meeting and welcomed the participants to the 2nd meeting.

II. ADOPTION OF THE AGENDA

The agenda was adopted by the participants.

III. ADOPTION OF THE MINUTES OF THE LAST MEETING

The minutes of the last meeting were approved.

IV. PRESENTATION OF THE ISSUE BY EUROSTAT

The Chairman informed that the aim of this meeting was to study and discuss the problems raised at the last meeting and to propose recommendations and the way of work before the 3 rd

and last meeting on 6 June 2012.

V. PRESENTATIONS BY NSOs

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SPAIN

Ms Ana Luisa Solera (Instituto Nacional de Estadística - INE) presented a paper on goods sent abroad for processing. The situation in Spain was similar to other Member States: currently gross movement of goods across borders were recorded, although there was no change of ownership. This would change with the implementation of the ESA 2010, as reflected in paragraph 18.33 and following the Balance of Payments and International Investment Position Manual 2008 (sixth edition) (BPM6): only the net value must to be recorded, which seemed more consistent with how to record these transactions when there was no real international trade. This methodological consistency between national accounts and the BPM6 was ensured. However, INE observed that this would create an inconsistency with the international merchandise trade statistics, which would continue to record the gross value of the exports for processing and returning imports processed (and vice versa).

The principal statistical sources for valuing exports and imports of goods were the foreign trade statistics, drawn up by the Department of Customs and Special Taxes of the Taxation Authority. Foreign trade statistics were compiled on the basis of two very different types of questionnaires: Intrastat declarations and 'single administrative documents'. The use of these two sources provided the intra-community trade and the trade with third countries, respectively. In both questionnaires, exports of goods are valued FOB (the value at the customs frontier of the exporting economy, that is, free on board), including those cases in which goods were transferred free of charge, and imports were valued CIF (cost, insurance and freight). In order to obtain exports and imports of goods in national accounts terms, the necessary adjustments were introduced in the foreign trade statistics.

While in global terms it seemed to be no impact on GDP between a gross or a net system, problems arose when supply-use tables were compiled from these statistics. This was one of the most important repercussions for Spain.

Spainish imports and exports of goods had been analyzed by nature of the transaction (codes 4 and 5), for years 2006 to 2010, broken down by chapters in order to try to detect which products (or industries) were performing or requiring processing activities, both inside and outside the country.

The delegate from Spain concluded the following:

Both gross and net data were not too significant compared to total imports and exports of goods and services in the Spanish economy. These data were:

- For all the years considered if the import code 4 to export code 5 (and vice versa) were crossed, the figures appeared to be of the same order. In this way, the imported goods to be processed were compared with exports of processed goods. The results showed data consistency.

- But, like in other Member States, Spain seemed to be more a processor of goods than a country that exports goods for processing. In 2009, the values for imports of goods for processing were EUR 1.2 billion, and for exports of goods after processing EUR 0.9 billion. On the other hand, the values for exports of goods for processing were EUR 333.3 million and imports of goods after processing were EUR 372.63 million.

- Analyses of products showed that they were concentrated in imports of chemicals for processing, and processed pharmaceuticals exports. These products were classified in different chapters of the combined nomenclature: they were imported under chapter 29, like goods for processing, and exported under chapter 30, like goods after processing.

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- Other important products for the Spanish economy were textile products, although the figures were lower than the previous ones; in this case Spain exported textile products to be manufactured (processed) in another country, and re-imported them as clothes.

- These finding could complicate the analysis, or rather, the calculation of fees by product, since a product could be classified under one code when it was imported for processing and reclassified in a different one when exported after processing.

In relation to alternative sources of information to calculate the processing fee, INE conducted annually an industrial business survey (Encuesta Industrial de Empresas - EIE) and an industrial products survey (Encuesta Industrial de Productos - EIP). Both surveys followed the European recommendations. The industrial business survey had included questions to investigate the production outsourced. The industrial products survey investigated the traded output during the reference period of the survey in quantity and value, for more than 5,000 industrial products through 78 separate questionnaires. However, it was not possible to know if subcontractors were residents or non-residents.

Finally, INE made a reflection about the different classification of the processing fees in the balance of payments statistics and in the supply-use tables. With the new product classification CPA 2008, every industrial process carried out under sub-contracting was classified as a manufactured product also, and then the so-called processing services would be classified as manufactured goods and not as services. Adjustments were necessary in order to reclassify the processing fees (services in balance of payments statistics) as manufactured goods in the supply-use tables, and by type of products.

Examples presented were the following: if one country refined crude oil imported from another country, under a contract for processing, it would obtain gasoline through an industrial process. In this case, this country exported sub-contracted operation as part of manufacturing of refined petroleum products, which was an industrial product. Another example could be clothes: in this case the outsourced manufacturing process was classified as sub-contracted operations as part of manufacturing of other wearing apparel and accessories (CPA 2008). This problem was similar to the adjustments made in the goods that were classified as services.

GERMANY

Ms Liane Ritter (Destatis) presented a power point-presentation about cross-border processing in Germany, including an example of processing considered in supply-use tables.

Data were based on the foreign trade statistics and the balance of payments. Foreign trade statistics data for outward processing under customs control and for free market circulation was used. These data were different from the data classified by kind of transaction. Processing under customs control included goods which were sent abroad to extra-EU for processing from a mother enterprise to a daughter enterprise and which were sent back to the mother enterprise after processing, even if fictive payments were done between mother and daughter enterprise. Cases in which enterprises sold goods to a processor in another country and re-purchased them back with guarantee were not considered as processing, but as selling and back-purchases. However, this scheme became more and more common. Therefore exports for processing and imports after processing presented here may be overestimated to

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some extent. But even if data classified by kind of transaction would to be used in future, further investigation was necessary to make sure, that exports for processing and imports after processing would not include any sales between mother and daughter enterprises. Inward processing was more important for Germany than outward processing. Cross-border processing accounted about 6% of the total value of imports and exports in the year 2010.

Processing in Germany was concentrated on a few product groups. Problems were observed only for some product groups, not over the whole economy. Inward processing was mainly done for aircrafts and pharmaceutical products. Outward processing was more important for vehicles, textiles, metals and machinery.

Outward processing as well as inward processing in free market circulation was more important for the total economy than processing under customs control. Inward processing under free market circulation was mainly done for product group CN 88 (aircraft, spacecraft, and parts thereof) and product group CN 30 (pharmaceutical products). Problems could be specified for product group CN 88. In this case data showed that imports for processing were higher than re-exports after processing. Exports after inward processing might by underestimated since these transactions were often not declared as such, but rather as normal exports. Another reason could be that the processing might not be completed within the period.

Foreign products, which came to Germany only temporary for inward processing, were recorded by the foreign trade statistics. Therefore they had to be recorded as imports in national accounts as well up to now. Their importance for imports had been increasing during the last years. In the German national accounts the goods imported for inward processing were not accounted for as inputs for the domestic production. They were accounted for changes in inventories. The value of output was limited to the payment of the foreign enterprise for processing as well. The exports after processing equalled the processing fees received (by the German inward processor) plus the value of imported raw materials/semi processed goods for processing. Further to the previous entries into inventories now withdrawals from inventories occurred. There could be an impact on the balancing item, if entries and withdrawals were not recorded in the same period or exports after processing were record in a different product group than imports for processing.

The delegate of Germany stated that with regard to the data consistency there were no unsolvable difficulties for the recording of processing.

IRELAND

Mr John McCartney (Central Statistics Office Ireland – CSO) gave a power-point presentation on processing in the pharmaceutical industry in Ireland, which was with ca. 120 companies a major industrial player in Ireland. The manufacture of pharmaceuticals was one of the chief industrial operations in Ireland and accounted for a very large proportion of the industrial workforce in Ireland. 13 of the 15 top world pharmaceutical companies had a base in Ireland and contributed with around 24,500 jobs to the Irish economy. Gross exports accounted for some EUR 52 billion which accounted for about 58.6% of Ireland's total merchandise exports, net exports accounted for EUR 44 billion (28% of GDP). Ireland was the second largest net exporter (exports less imports) of pharmaceuticals products in the world (Ireland’s pharmaceutical exports were the 7th largest in the world).

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The balance of payments survey addressed 219 larger companies, which were consulted on a quarterly basis. Among the reporting population were 87 pharmaceutical companies, which were directly surveyed and thus presenting a representative picture from the viewpoint of a balance of payments compiler, representing 33% of all profits of non-financial corporations and 6.3% of inward FDI in Ireland.

In the year 2010, 76 companies were identified for a special treatment (half of them were pharmaceutical or chemical companies), which were very material from a national accounts and balance of payments perspective. The CSO engaged with these companies very closely on an ongoing basis, at least one face-to-face meeting per quarter. In addition to this, an infrastructure was set up to enable to cross-reference of the balance of payments data received through the survey-mechanism with other data sources, such as administrative data sources and other data sources within the CSO.

Three important different scenarios were illustrated with regard to goods for processing within the Irish pharmaceutical sector. Goods sent abroad for processing might subsequently be:

- returned to the country of origin;

- remained in the country of processing;

- being shipped to a third country.

In the case study, the non-resident principal (processee) sent ingredients to the processing country, which recorded imports in foreign trade statistics. The goods were re-exported as finished products to the non-resident processee, including a value added through processing. There was obviously no change of ownership. Under the BPM5, there was an exception to the change of ownership principle, and merchandise import before processing and merchandise export after processing were recorded from the viewpoint of the Irish compiler. Processing exports (which equals the value added through processing) were not recorded. The delegate of Ireland explained that under the regime of the BPM5, no transactions were recorded with regard to the processing fee, but under the BPM6 this would change. Because there was no change of ownership, the imports and exports were removed, and only a service export (which equals the value added through processing) would be recorded for Ireland.

In the second case, goods were imported for processing, and after processing the finished goods were sold to residents: the balance of payments survey picked up a service export (which equals the value added through processing). Finally, the goods were sold from the non-resident owner to resident customers, the original imports were removed and replaced by an import value including the initial import value, valued added through processing and a mark-up on sales.

In the final scenario – which was a quite common scenario for Ireland in the pharmaceutical industry - the finished goods after processing were sold ultimately by the non-resident owner and shipped to a third country. Exports (initial import value, value added and mark-up on sales) were recorded for the inward processing country. There was no change of ownership between the principal and the processing country or the processing country and the third country. Thus the figures had to be eradicated from the official foreign trade statistics, and only the processing fee had to be recorded for Ireland. For illustrative purpose it was assumed in all scenarios that Ireland was the processing country. But in fact the figures showed that processing imports and exports were evenly balanced in Ireland, both were at EUR 1 billion per annum for all sectors of industries, and in the pharmaceutical industry imports exceeded exports by a ratio of 3:1. In fact, Ireland got other countries to do the processing on its behalf than vice versa. The processing companies were surveyed and as inter-group transactions

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follows, the CSO was aware where the finished goods were sent to. The delegate of Ireland informed that the CSO had a large profiling unit which followed the cases presented.

In the discussion that followed, Mr Ghislain Poullet (Banque Nationale de Belgique) noted that the third case, the non-returning of goods to the country of the principal, was a common scenario for most of the Member States. The initial owners of goods had to correct the Intrastat/Extrastat declarations, but in fact they did not. It was very difficult to follow completely the issue in a small country like Belgium, and to get corrected data. The situation might be better in bigger countries. Direct contact with big companies allowed identifying the relevant cases.

Mr Simon Lohner (Deutsche Bundesbank) said that data were available in the common balance of payments collection framework. In surveys there was a question on how many goods had been sold abroad after processing and how many goods had been purchased in Germany after processing. The quality of the first question was high, because the owner was asked. With regard to the second question, it was unsure whether the reporter (buyer) knew that the goods were coming out of a processing scheme. He questioned whether Intrastat declarations had to be corrected or not. In these cases, nature of transaction code 42 (goods not to be expected to return to the initial Member State of dispatch) had to be applied.

Ms Alzbeta Ridzonova (Eurostat) commented that it would be very difficult for the reporting population to correctly declare the nature of transaction. The values of the goods which were brought into a country for inward processing and goods re-exported after processing to the principal or sold to third countries or domestic markets were unclear. The country which sent the goods abroad for processing should declare the nature of transaction as 'outright purchase/sale' due to an intended change of ownership.

NORWAY

Ms Trude Nygård Evensen (Statistics Norway) presented a power-point presentation on Norway’s experience including two case studies. The structural business statistics was the main source for national accounts and covered local kind-of-activity units in manufacturing, mining and quarrying. The Prodcom survey in Norway asked questions about input of raw materials and other input, in addition to questions about output, and was used in the national accounts to establish figures for intermediate consumption in manufacturing industries. Trade statistics covered external trade in goods and services. External trade in goods was based on administrative data from customs declarations, exports of crude oil and natural gas: reports from the enterprises operating the petroleum fields, terminals and pipelines, and the Petroleum Directorate. Imports and exports of ships and oil platforms were based on reports from Norwegian companies. External trade in services was compiled by reports from non-financial enterprises on the basis of quarterly sample surveys.

The Prodcom survey asked a question on the part of sales produced abroad. In year 2010, about 10% of all reported sales were reported as production abroad. The 10 largest reporting units recorded an output abroad of 59% of the total output abroad, and the 3 largest reporting units with output abroad account for 41% of the total output abroad. The Prodcom survey did yet not distinguish between different kinds of organisation of output abroad.

In cases when production was outsourced, it was important for the future to properly distinguish between ‘goods for processing’ and ‘merchanting’. This choice might have major

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implications for recorded trade in goods and services, and the uncertainty about the underlying nature of the transactions could lead to discrepancies.

Based on responses to the questions in Prodcom survey and on other information about specific companies, enterprises/establishments with production abroad, companies and establishments in the Norwegian Business register were labelled as 'enterprises with output abroad'. In February 2011, 37 establishments and 29 enterprises were marked 'with output abroad'.

The information collected in the national surveys on international sourcing in year 2007 had been considered of a quality not allowing for cross-country analysis. According to Statistics Norway there was no separation between goods sent abroad for processing and other kind of international sourcing.

The first case study showed an example for inward processing: Xstrata (former Falconbridge), which was a large nickel refinery based in Norway. The Canadian/Swiss parent company owned the imported raw materials processed by Xstrata and the exported products. In the company accounts, processing fees were recorded as income. In addition, imports and exports were compiled for foreign trade statistics. These figures had been used to gross up output and intermediate consumption in the national accounts. Under the ESA 2010, there would be no need to further gross up the figures related to this company in national accounts. However, additional information was still needed to correct import and export data from the trade statistics in order to establish import and export figures for national accounts.

The second case study presented an example for outward processing: National Oilwell Varco Norway AS, which produced major mechanical components and equipment for land and offshore drilling rigs, as well as supply chain services with clients in Norway and other countries. Large parts of the output were produced abroad, but the company kept ownership to the concept and finished goods. The sub-contractors abroad seemed in general not to be a part of the same company. Further clarity was needed on the principles to determine the economic owner of the raw materials (inputs). Statistics Norway assumed that the company was in most cases the owner of the raw materials.

Another point that needed follow up was the statistical measurement of the domestic economic activities of National Oilwell Varco AS and the part of its sales to non-residents. Not all of the necessary information about export and import of processing fees was available in the accounting system.

In the discussion that followed, the delegate said that the company was a resident institutional unit in Norway. The company reported in the structural business survey the total income, which had been used as output in the national accounts.

With the quarterly trade in services surveys, it was currently not possible to compile net exports and imports of the processing fees, because there was no particular question on “processing fees”. A dialog with the company should help to clarify whether it was possible to separate processing fees from other kind of income or not.

The delegate from Norway argued that the conceptual changes in the ESA 2010 had several negative implications:

- analytical use of the supply-use tables in production and productivity analyses;

- environmental issues related to production, by blurring the description of the relationship between output and the use of production factors, including energy use (there were satellite accounts for environment and emissions) and manpower.

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Future work should focus on the development of operational criteria to distinguish between processing and merchanting, as well as other forms of global manufacturing. This included especially factory-less goods producers. Statistics Norway would contact selected reporting companies to ensure their capabilities with regard to data reporting.

BULGARIA

The next power point presentation was given by Ms Margarita Tzvetkova (Bulgarian National Statistical Institute) on the treatment of goods sent abroad for processing in national accounts and in the supply-use tables. Since 2000 a net system (instead of the gross system) for recording services for processing goods had been applied in supply-use tables. The current national accounts system was based on a gross recording. Data were compiled from annual enterprises’ reports and detailed customs data at the level of the reporting unit. The main industries in Bulgaria for which processing of goods showed high incidence were manufacturing of wearing apparel, textiles and leather and related products.

Data on exports and imports before and after net recording showed a high volatility. However, after the implementation of the Intrastat/Extrastat system data were less volatile. The compilation of processing fees based on the Prodcom survey showed that the time series became more stable. The main source for the processing fees was the Prodcom survey, in particular the 'annual questionnaire on manufactured and sold industrial products'. The value of processing fee was recorded at basic prices (without VAT and excise duties). Before 2009, the data on processing fees were available on NACE 4-digit level. Since 2009 the data for processing fees had been recorded at the product level (Prodcom). The survey provided data on total production sold, production sold in domestic markets, total processing fees received, and processing fees received from non-resident principals at product level. The information for exports (excluding processing) could be derived as difference between total amounts of the sales and the sales on domestic market from the Prodcom survey (excluding processing). When comparing this value with the value of total exports (from foreign trade statistics), the amount of processing fees could be derived. It was more exact if the calculation was made on a low product level – 4 or 6 digit using CPA as a relation between Prodcom list codes and CN codes.

The annual survey covered 90% of the production sold in terms of value at the national level for each NACE Rev.2 class. The reporting population comprised all enterprises carrying out main or secondary industrial activities.

The following indicators were used for the sampling frame:

- 4-digit NACE code of the main enterprise activity;

- receipts from sales of production and services for industrial enterprises;

- industrial turnover for non-industrial enterprises.

The net recording with regard to supply-use tables for the national level of the economy was based on the following assumptions:

- The values of goods imported (as recorded in foreign trade statistics) in the country for processing plus the value of processing fees (services) were equal to the value of goods exported from the country after processing.

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- The second assumption was that total sales (processing goods and processing fees were excluded) minus domestic sales (processing goods and processing fees were excluded) equalled exports.

- Balance of payments statistics and foreign trade statistics were also used, but it was not possible to derive the value of processing fees directly from these sources.

The delegate from Bulgaria highlighted that a comparison of Prodcom and foreign trade statistics data at enterprise level would result in more consistent information. The application of the Prodcom survey had some advantages. The value of processing fee was derived directly from processing contractors. However, there was no information about the countries of origin sending the goods for processing.

During the discussion that followed, the representative from the Czech Republic asked how the problem of direct and indirect exports was treated. In some cases, the inward processor might not know that the processed goods were considered for exports. In the case of the Czech economy, 30% of exports were considered as indirect exports. The values in Intrastat declarations might be different form the value declared in the Prodcom survery. Typical cases were related to IT and cars. In the Czech survey on industrial statistics questions on direct and indirect exports were included. The values for indirect exports were estimated by the company, due to the fact that actual prices were not known. The difference of goods imported for processing and exported after processing in the Czech Republic was 50%. The Bulgarian delegate replied that the contractor recorded the values of services, and in this case the net recording caused no difficulties.

The delegate from Belgium questioned that processing fees were estimated as difference between imports and exports of goods before and after processing. The domestic company which received goods for processing could only declare an artificial price (value) for the goods imported. The situation might be better for a company belonging to a multinational enterprise, because the attributed price was a conventional price.

The Chairman argued that in the net system only the declared value was needed, because this value had to be deducted from official statistics in order to estimate processing fees. It was not important to know the true value of imported raw materials, because under the ESA 2010 and the System of National Accounts 2008 (2008 SNA) only exports of services (processing fees) were relevant. There was a need to eliminate imports and exports in foreign trade statistics. In the new supply-use tables only the services were considered.

Ms Alzbeta Ridzonova (Eurostat) explained that a company, which sent goods to another country for processing, was obliged to register for VAT in this country. From a VAT point of view this transaction was treated as acquisition. The subsequent sale in the domestic market was considered as domestic transaction, the sale in a foreign market as a supply to another Member State. The transaction would be recorded in Intrastat by the VAT trader, and not by the processing company. The same issue was described by the representative of the Czech Republic: processing fees would completely disappear. The same turnover should be declared in Intrastat as a supply to another Member State. The representative of Eurostat was concerned that non-resident VAT traders could not correctly report processing: it would be difficult to adjust the figures and exclude theses transactions from statistics, mainly in the processing country.

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ESTONIA

Ms Iljen Dedegkajeva (Statistics Estonia) presented a power-point presentation describing the measurement and recording of goods for processing in a framework of supply-use tables. Cross-border processing activities were quite significant in Estonia, which was mainly an inward processing country. The share of imports for inward processing in total imports of goods had been decreased from 30% in year 2000 to 5% in year 2008. The share of exports after inward processing in total exports of goods had been decreased from 42% in year 2000 to 8% in year 2008. Figures for exports of processed goods valued on a gross basis from foreign trade statistics showed a decrease, whereas the time series representing processing fees recorded on a net basis was stable.

In the supply-use tables goods for processing and all contract processing activities were treated on a gross basis. Imputations were made for output and intermediate consumption according to activities and changes in inventories. Distinction was made between significant processing and other processing: if processing involved a substantial physical change of goods, it was considered as production (manufacturing) and recorded on a gross basis in supply-use tables. Other processing, which involved minor operations on goods, such as packaging, labelling, fuel oil blending, storage, was treated as service activity and recorded on a net basis. These amounts were removed from imports and exports of goods for processing and instead, a service was recorded as exports. The total value of the processing fees was estimated on the basis of structural business statistics (processing fees received from the principal; fees paid to sub-contractors) and Prodcom surveys (total value of the contract processing, i.e. fees received from the principal enterprise for the work performed, the processing fee received from non-resident units).

In the following step, Statistics Estonia asked information from foreign trade statistics. For extra-EU trade, data on processing were available from the customs procedures. For intra-EU trade (imports and exports), data for inward and outward processing were identified by nature of transaction. The data in imports and exports were reclassified according to the concepts of customs procedures. In year 2008, inward processing represented 12% of total imports and 14% of total exports, outward processing represented 0.5% of total imports and total exports. Three different groups of enterprises were defined by Statistics Estonia when integrating data from Prodcom surveys and foreign trade statistics at enterprise level. A first group of enterprises consisted of manufacturing enterprises, which were really engaged in cross-border processing (167 contractors in 2008).

For the first group a gross treatment was adopted in supply-use tables: output was adjusted by the value of exports of goods for processing and intermediate consumption by the value of imports.

The second group of enterprises, which were involved in other processing, was not covered by the Prodcom survey. Their transactions were recorded on a net basis (i.e. goods for processing were not included in exports and imports of goods; the processing fees were instead recorded as exports of services).

For the remaining enterprises no information was available. This group was treated in supply-use tables on a gross basis. Imputations were neither made for output nor for intermediate consumption. Values of imports and exports of goods for processing were not removed from goods; they were recorded as changes in inventories.

Major difficulties observed by Statistics Estonia were:

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- If a reporting unit in the foreign trade statistics was not a contractor, but another unit like a branch of foreign parent company registered in the business register/VAT register, it was difficult to identify the relevant enterprises.

- Contractor enterprises could be identified from the Prodcom list of enterprises being engaged in international processing. Theses enterprises declared the total or a certain amount of goods for processing as normal imports or exports. In these cases it was essential for Statistics Estonia to adjust the figures.

Ms Alzbeta Ridzonova (Eurostat) explained that the drop of processing in foreign trade data of EU-12 could be routed to the fact that analysis was based only on customs procedures for inward and outward processing, which did not completely reflect the change of ownership principle. Companies avoided paying duties and taxes due to the fact that goods would finally be re-exported to third countries, and declared these transactions as inward processing, even if a real change of ownership occurred. The evaluation of the processing activities should not be done only on the customs procedures. They should be linked also to the nature of transactions, because the goods, which were finally bought from extra-EU, processed under inward processing and re-exported afterwards, could remain as property of the processor.

AUSTRIA

The results of a one-time exercise conducted in Statistics Austria aiming at improving the quality of recording goods for processing were presented by Mr Oliver Schöner in a powerpoint-presentation before the Task Force members for their suggestion. This one-time exercise was conducted due to the fact that the calculation of goods sent abroad for processing lead to problems in the context of supply-use tables, which were the only statistical framework which explicitly showed the flows of goods and services within the economy and with the rest of the world.

Data on exports for and imports after (outward) processing and imports for and exports after (inward) processing were provided by the common foreign trade statistics. These data were compared with data on production derived from the short-term statistics and structural business statistics; the latter provided data on the processing fees paid (intermediate consumption) and processing fees produced in activities not covered by structural business statistics.

In the foreign trade statistics the processing fee was estimated as the difference between exports for outward processing and re-imports after outward processing and imports for inward processing and re-exports after inward processing. The value of manufacturing services on physical inputs owned by third parties was not necessarily the same as this difference between the value of goods sent abroad for processing and the value of processed goods. In addition to this valuation problem, the most important problem for foreign trade statistics was that goods exported for outward processing were not re-imported after processing, but sold directly on foreign markets. The results led to implausible results, if only foreign trade statistics were used to estimate the value of goods sent abroad for processing.

In foreign trade statistics all transactions were recorded gross, in short-term statistics inward processing was recorded net and in structural business statistics all transactions were recorded net. The data were used to check the plausibility of declarations.

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The delegate from Austria questioned whether the shortcomings could be overcome when a supply-use framework was applied. One assumption was that processing mainly took place within the same industry, and goods processed were characteristic for this industry. It was possible to compile a basic version of a product account, with imports and exports from foreign trade statistics calculated as the respective difference.

Checks on the unit level referred to the following cases:

- outward processing (net): imports of 'processing fee' (difference from the foreign trade statistics) could be checked with intermediate consumption (structural business statistics);

- inward processing (net): exports of 'processing fee' (difference from the foreign trade statistics) could be checked with production (short-term statistics/structural business statistics);

- outward and inward processing (net): 'processing fee' (foreign trade statistics-difference) outward processing and production (short-term statistics/structural business statistics); inward processing with intermediate consumption (structural business statistics), outward processing.

The calculation of the processing fee only based on foreign trade statistics showed in most cases implausible results. Analyses of the short-term statistics, structural business statistics and supply-use tables helped identifying inconsistencies. A substitution of inconsistent values in supply-use tables in order to balance the tables was not considered sufficient; therefore a direct survey of the cross-border processing fees was envisaged. The reporting population could be directly addressed during the surveying process. The Austrian delegate informed that no special adaptation for quasi transit trade was taken into account.

CZECH REPUBLIC

In the presentation, Mr Jaroslav Sixta (Czech Statistical Office - CZSO) discussed the relevance of the issue for national data, cross-border external trade statistics and impacts on balance of payments statistics. According to the presentation, firstly the inconsistencies inherent in foreign trade statistics should be solved, and than secondly the issue of goods sent abroad for processing should be tackled. The current concept of Intrastat/Extrastat caused significant problems for national accounts and balance of payments statistics with regard to the measurement of imports and exports. The conceptual change for processing in national accounts and balance of payments statistics was not in line with foreign trade statistics due to the legislation. Important for national accounts were the monetary flows and the change of economic ownership; the physical transfer of goods was less important.

The current concept of foreign trade statistics was based on customs concepts and an approximation of the change of ownership by cross-border statistics, which had some significant weaknesses, because the Intrastat/Extrastat concept worked only when residents declared a movement of goods. If it was possible for a non-resident enterprise to import goods into the host country, a phenomenon similar to 'quasi-transit trade' could occur within a single country and the declared value in the Intrastat/Extrastat declarations differed significantly from actual payments to the residents.

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The CZSO introduced with the 'national concept of foreign trade' in year 2009 a significant change in the capture of foreign trade transactions in order to better reflect the principle of the national concept and allow for a realistic look at the structure of the Czech economy. The whole time series since 2004 had been revised in 2011. The new concept was based on the combination of two main data sources: individual figures from foreign trade statistics and individual VAT declarations from VAT residents of foreign enterprises.

Non-residents of the Czech Republic (who were residents of the Union or the European Economic Area) were enabled to register as VAT payers in the Czech Republic. In particular multinational companies purchased or sold goods, and their counterparties were residents of the Czech Republic and foreign companies. Some multinational companies used logistics services located on the Czech territory. Foreign companies registered as VAT payers in the Czech Republic neither had their registered offices nor paid income tax in the Czech Republic (but in the country where they had their registered offices). They were registered in the Czech Republic only under their tax ID number. In the external goods trade statistics, the cross-border activities of these companies were recorded as exports and imports of goods according Intrastat/Extrastat. In the case study presented (which was considered by the delegate of the Czech Republic as significant for computers, electronics, cars and textiles industries), a global manufacturer was registered in the Czech Republic only as a VAT payer and has very few employees or no physical presence at all. The multinational company paid income tax in the country in which it has its registered office, e.g. the Netherlands. It imported components from third countries into the Czech Republic (reported in the cross-border external trade statistics) and selling them at a higher price to resident companies assembling the parts. This resulted in a change of ownership of the goods between a non-resident and a resident unit. The global manufacturer was then purchasing the assembled products at an agreed price and, after exports to a third country, e.g. Germany, declaring them in the external trade statistics at higher prices that are usual on the external market (including the brand name). The global manufacturer was then collecting the price difference on both imports and exports of goods, while only the smaller portion of the value added associated with the assembled product was allocated to the Czech economy.

During the discussion that followed, Ms Daniela Comini (Eurostat) explained, that this phenomenon occured within the context of economic globalisation, and was considered as branding (or 'quasi-transit trade'). 'Branding' was an 'adjustment item' in the area of services in relation to the declared trade balance (it was the 'import' of the trade name of an internationally registered brand), introduced into Eurostat's services code list after having been identified in a series of Member States (Belgium, Hungary, Luxembourg, the Netherlands and Slovenia). The gap between declared exports and imports was connected with the inclusion of the multinational company’s general costs, e.g. research and development costs and overhead costs. 'Branding' was used to bridge the gap between Member States' national data and Eurostat's data for EU-aggregates for balance of payments statistics and national accounts. A removal of quasi-transit trade in total imports led to asymmetries for the importing country. Only smaller Member States could identify these transactions, for which these transactions were more important. Instead of removing quasi-transit trade this should be kept in the European concept, an imputation for the imports of services (branding) should be done. As a result, data were harmonized at EU-level. For practical reasons, (i.e. regardless of whether this was an intra-group transaction or transaction between independent parties or not), Eurostat and the ECB preferred the imputation to be made under 'branding' for intra-group transactions or 'import of services' for transactions between independent parties. ESA 2010 required in chapter 19 the inclusion of quasi-transit trade in imports and exports of goods.

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Mr Sixta stressed that in the case of the Czech Republic the solution using the branding item seemed unsustainable, as it significantly distorted the structure of the goods and services balance towards a higher goods surplus and worse balance of (other) services. Macroeconomic discrepancies were identified in the external sector. According to available information, the branding item rose in size during the financial and economic crisis compared to the previous period. The traditional annual services surplus was shifted into a deficit in 2010. Therefore it was seen as necessary to transfer to reporting of national external trade data for the needs of national accounts and balance of payments statistics alongside the cross-border external trade statistics data. The CZSO could not calculate the total amount of branding without comparing the export and import data with individual items of the data from the tax returns of non-residents paying VAT in the Czech Republic. The refunding of VAT to non-residents was performed centrally by the Prague 1 tax office and the individual data were not provided to the CZSO by the Ministry of Finance of the Czech Republic until 2009. The refunding of VAT to non-residents was only possible for VAT paid for the value of the contract with domestic suppliers. The volume of national exports and how the data declared in the external goods trade statistics must be adjusted could be derived from the refunding. A time shift between the performance of the external transaction and the refunding of the VAT existed. The CZSO adjusted the value of exports and imports for some commodities, in particular CPA 26-28 (manufacture of electronics and machinery). The CZSO used purchases of non-residents based on VAT declarations and exports declared from Intrastat/Extrastat as an approximation for the commodity structure. On the import side, national imports were calculated as imports declared by non-residents increased according to the actual payments made by residents when purchasing the goods from non-residents. Transactions of VAT-traders recorded in Intrastat/Extrastat declarations were cut-off and substituted by VAT figures. The delegate of the Czech Republic proposed to record the transfer of profits by the global manufacturer as dividends, which could be identified from VAT declarations. He concluded by saying that the SNA 2008 and the ESA 2010 could not be successfully applied without further investigations into the impact of VAT legislation on foreign trade statistics.

Mr Poullet said that since the year 2000 two data sets had been published for Belgium. The company with little or no staff employed (but with a VAT number) managing the customs procedures was considered as non-resident for national account purposes, and the transactions concerned would not be included in the goods compiled according to the national concept. However, they were included in the community concept followed in merchandise trade and balance of payments statistics. These VAT traders accounted for 35%-40% of exports and imports in foreign trade statistics of Belgium. Following EU-enlargements, the transit trade phenomenon was discovered by several Member States, particularly those with large borders and with a growing trade with Asian or sub-Mediterranean countries.

Ms Alzbeta Ridzonova stated that the VAT regulation set up by EU-Directive and the VAT systems applied in Member States were different. It would not be possible to identify values and transactions on the basis of national VAT declarations. She proposed to further look into the activities of VAT traders before adjusting statistics. The representative of Belgium added that transactions between VAT-traders and residents could be considered erroneously as domestic transactions due to the Belgium prefix of the VAT-number.

The delegate of the ECB noted that the EU-EMU aggregates could be heavily influenced by monetary flows generated by quasi-transit trade. He preferred further investigations on possible impacts.

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DENMARK

Ms Maria Nilsson (Statistics Denmark) made a powerpoint-presentation on the implications of goods sent abroad for processing for the supply-use tables framework. In the case study presented the inward processor did not own the goods processed for foreign or domestic principals. In this case, Statistics Denmark did not impute any imports or exports of the processed goods. Another issue was to identify goods for processing in Intrastat/Extrastat declarations. Only some companies filled in Extrastat declarations. The delegate noted that the important challenge was to identify goods which should be removed from the supply-use tables, because the imbalance (no flows were imputed) was influencing the input structure for the different industries. Another issue was how to treat purchases from and sales to third countries. Currently production of the survey processing was classified according to industry. Simimlar breakdowns were necessary for the import and export of the processing fee to improve the quality of the supply-use tables. The problem mentioned by the delegate of Belgium, how to deflate the values of goods for processing, was also relevant for Denmark. There were plans to modify the survey on trade in service in order to ask for the exported and imported values of processing services and for the total value of goods exported and imported for processing, since the nature of transaction is not yet mandatory in Extrastat.

In the follow-up discussion the delegate from the Czech Republic mentioned that with regard to the issue of deflation, the CZSO had different commodities for inward (without the fees) and outward processing. The import values for inward processing (without the fees) were deflated on the basis of the import price index, and the export values for outward processing were deflated on the basis of the export price index. PPI were applied for the deflation of the fees itself. There was on no impact on the Czech GDP with regard to the goods treated by VAT traders, which were not part of economy according to current standards; in ESA 2010 this situation would not occur.

The Chairman added that for deflating prices only indices representing prices of the goods were available, but for services is was difficult to select price indices. This problem would be relevant for the future. The delegate of France asked whom was the survey on trade in services (value of imported and exported processing goods) addressed to. Ms Nilsson replied that in Denmark a small sample was conducted by the balance of payments compiler. The delegate of Belgium was wondering whether a detailed breakdown of goods for processing was available in Extrastat. Statistics Denmark did not collect this information, because it was not mandatory.

LUXEMBOURG

Ms Octavia Domp-Sandu (Institut national de la statistique et des études économiques du Grand-Duché du Luxembourg - STATEC) made a powerpoint-presentation describing the issue of goods sent abroad for processing for the Luxembourgish Economy. The compilation of the figures was conducted gradually: the first step was the compilation of foreign trade statistics covering goods without the change of economic ownership. The estimates were reconciled one year later based on information from the enterprises business statistics. STATEC analysed independently data for inward processing and outward processing. As imports related to inward processing were not added and only exports after processing were recorded, Luxembourg recorded a positive balance. In cases when such transactions resulting from global manufacturing occured, a decision had to be taken whether there was a real

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change of ownership (buying and selling transactions) or not (goods for processing). This was problematic even with the analysis of declarations.

STATEC experienced that frequently the declarations showed either 'processing transactions' or 'buying and selling transactions' of intermediary goods and processing goods in the reference period. Quasi-transit trade was also included in processing. Export values for post-processing were significantly higher than import values for pre-processing.

Currently quasi transit trade was very significant in Belgium, Luxembourg and the Netherlands. The international airport of Luxembourg was an example of a case for airports with significant cargo volumes which were situated close to another Member State’s border. Mr Hoffmann (STATEC) considered cases as quasi-transit trade, when the customs procedure and clearance was done by a non-resident entity in Luxembourg and then the goods were re-exported to a third country within the Union. He informed that the volume of goods for real transit (95%) was estimated higher than the volume of 'quasi transit trade' (5%) for the Luxembourgish economy.

In the discussion that followed the representative of Germany remarked, that there could be an underestimation of manufacturing service (fee) in balance of payments statistics for the outward processor, when the service was calculated as the difference between imports and exports for outward processing on the basis of foreign trade statistics. The delegate of Luxembourg explained that STATEC could differentiate between goods and services. Services were included in the structural business survey, which also provided information on transactions with and without change of ownership.

FRANCE

Ms Myriam Broin (Institut national de la statistique et des études économiques - INSEE) provided a powerpoint-presentation describing the treatment for bilateral flows, multilateral flows (at least three countries were involved) and showed a case study from the car industry. In the bilateral case, goods were exported and subsequently re-imported; customs data were used by detailed nature of transactions in order to estimate the gross amount of imports and exports of goods sent or received from abroad, to be removed from the total imports and exports by product. Goods for processing accounted for a small part of French trade: 1-4% of trade with EU countries and 0.5-2% of trade with other countries in 1999/2010. The nature of transaction was used to select the flows returning to the initial Member State of dispatch, which gave the gross amount of goods to be removed of total imports and exports by product. There was a concentration on some classes of products. Imports for inward processing which returned to the country of dispatch concerned essentially pharmaceutical products and chemicals; exports for outward processing which returned to France concerned mainly aeronautical products.

In a first evaluation, the processing fee by product was measured on the basis of customs data. Manufacturing services for processing by product were estimated by using the invoice value (“valeur facture”), which was presumed to give the net service by product. In cases when France was the inward processor, the invoice value of exports following processing and sent back to the initial country might represent the net service of processing. In cases when France was the principal, the invoice value of imports coming back after processing might represent the net service of processing [addendum: this first approch has been abandonned,

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since the customs service confirmed that the invoice value was not asked for Intrastat flows and then was inappropriate in that case].

Within the second approach, the amount of manufacturing services for processing provided by the balance of payments statistics had to be broken down by product. There was a need to estimate the part of the bilateral flows for consistency at this stage and to define keys of breakdown: in proportion of gross amounts of bilateral flows by products involved, using the structure given by customs data by nature of transaction.

Under BMP6, the main source for the manufacturing service would be the goods account from the balance of payments statistics, transactions in goods would be cleared of gross flows of goods sent or received for processing; they would be adjusted from customs data by nature of transaction. Customs data were already the source for the row 'processing' in the current transactions account under the BPM5. Within the services account, manufacturing services would appear among services. The evaluation came from businesses data via direct reporting ('direct general declarers'). In addition, a new complementary survey on services (enquête complémentaire sur les services) had been launched in 2011 in order to meet the requirements of the BPM6.

The 'direct general declarers' provided individual data. On the whole, it represented at least 50% of the manufacturing services recorded by balance of payments statistics, declared by ca. 500 companies. Because of the reporting threshold of EUR 30 million of receipts and expenses of services and incomes with the rest of the world, there were rather few manufacturing enterprises reporting manufacturing services for processing. These individual data would be used mainly for the new treatment of merchanting according to the ESA 2010. No information on transactions on goods was available, except merchanting. It could be an issue to evaluate flows of goods which didn’t cross the border but had to be recorded under the BPM6.

In the French balance of payments statistics was no explicit information available for two kinds of multilateral flows (at least three countries were involved):- goods that once cross the border but did not return in the initial country;- goods that did not cross the border, without being a kind of merchanting. During the

time between purchases and sales and the transformation, the manufacturing services changed the condition of goods.

The case study of the car industry described issues related to measures of production abroad by global manufacturers. The delegate informed that INSEE set up a profiling unit. The accounts provided by the profiled French global manufacturers did not differentiate between purchases of inputs or manufacturing services when purchasing finished vehicles from the non-resident factories. These non-resident factories were considered as autonomous units when purchasing inputs and thus receiving economic ownership of the finished cars. The transaction was considered as purchases of merchandise; production made abroad and sold abroad was treated as merchanting.

With base year 2000, resident units in France were considered as principals; the output made abroad was included in the national automobile output. Under the current base year (year 2005) the output made abroad had been removed from the national automobile output. Due to the change of the base year, output and intermediate consumption of automobile industry had been revised by EUR 20 billion in 2008. Purchases and sales of finished vehicles abroad were treated as merchanting. For the base year 2010, analysis was maintained; but it would be possible to amend the estimation, confronting it with individual data from the balance of

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payments statistics for merchanting and 'other merchandises' (transactions related to affiliated companies) positions. Differences between the figures for merchanting compiled by the balance of payments statistics the national accounts' profiling unit could be mainly due to international transfer pricing strategies of multinational car producers. With regard to inward and outward processing recorded in customs data, manufacturing services were negligible and merchanting was very high.

The delegates supported the approach as illustrated in an example of the car industry, to consider cases as processing, when the principal maintained legal ownership of the raw materials and semi-processed goods throughout, as well as of the processed goods. The principal paid the contractor a fee for the processing or assembly of the car. When the parent was fully charged for the (final) products obtained from (foreign) affiliates, the latter taking full risk and responsibility for their own operations, and the parent contributed only the 'logo' of a car, here the parent seemed to take on the role of merchant.

SLOVAK REPUBLIC

The powerpoint-presentation made by Mr Jaroslav Dolinic (Statistical Office of the Slovak Republic - SOSR) outlined that the basic sources for goods for processing were Intrastat/Extrastat declarations and the balance of payments survey. The same data were used for the national accounts and balance of payments statistics. Empirical data (e.g. for ships) showed that for the time series 2008-2010 the volume of goods leaving the Slovak Republic before processing was higher than the values of imports of goods after processing (the same issue was observed for inward processing for years 2008-2009). With the current system, gross flows of exports and imports were recorded, but not the processing fees. Issues were the existence of entities with no physical presence, which could be indentified in Extrastat mainly due to the prefix of the VAT-number with a foreign code. The quality of recording was affected e.g. by measurement errors associated with the valuation of goods movements where there was no sale, time differences between processing and sending back of goods and classifications. It was necessary to detect the processing chain, and to follow goods after processing which were not sent back to the dispatching country. However, in practice it was difficult to identify supply chains in order to trace the exports of processed goods to third countries. The delegate of the Slovak Republic proposed to add questions to the balance of payments survey. He informed that the SOSR would further investigate this issue.

LATVIA

Ms Evita Kupče (Central Statistical Bureau of Latvia) presented in a powerpoint-presentation Latvia's experience and recent developments on the issue of goods sent abroad for processing. Data from foreign trade statistics showed that the value of goods sent abroad for processing was lower than the value of goods re-imported after processing. Balance of payments data showed for year 2008 that inward processing accounted for about 2% of the total trade imports and outward processing for about 5% of total exports when measured by means of the nature of transaction. Goods after processing did not return to Latvia. As a consequence, the processing fee could not be calculated from foreign trade statistics.

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HUNGARY

The powerpoint-presentation prepared by Ms Lidia Basso (Hungarian Central Statistical Office - HCSO), because of her absence, was presented by Mr. Matthias Ludwig. It provided an overview on the issue, including a case study on inward processing. Intrastat is closely related to the system of value added tax in Hungary. All VAT registered entities in Hungary above the threshold are obliged to report their cross-border transactions. In certain cases, defined by VAT regulations, non-resident traders have to register for VAT and consequently they become respondents to Intrastat in Hungary, even if they have no physical presence in the host country. Enterprises resident in Hungary and VAT-registrations (in Hungary) of enterprises resident in other countries (VAT traders) have to provide Intrastat declarations. (In contrast, according to the concepts of balance of payments statistics and national accounts, VAT traders without any physical existence are considered as non-residents.)

It is a national characteristics of the Hungarian Intrastat that the processing fee is recorded as invoiced value for movements declared under nature of transaction codes 51/52. Processing might be underestimated in foreign trade statistics, either due to missing enterprises (in the usual “two boxes” of VAT processing transactions are not included) or because these transactions being recorded under a different nature of transaction code (in the case of VAT traders involved).

The HCSO conducted a survey on inward processing data of 2010. This survey included questions on the residence of processee, the distribution of value added (own material and other costs), purchases of inputs (raw materials/semi-processed goods) in Hungary by the processee, sales of finished goods in Hungary, reasons for the discrepancy of calculated (inputs plus fees) and reported values of finished goods, and the time lag between material imports for processing and exports of goods after processing. The survey aimed at improving data quality, revealing special cases and separating "goods for processing" from normal transactions (change of ownership principle). Given the upcoming changes of the BPM6 in the recording of processing, it was a relevant finding of the survey that the revealed significant discrepancies between collected and calculated added values are most often justified. Consequently, an estimation of processing fee as the difference between the value of finished products and that of inputs was far from reliable. As for the estimation of the country of the processee, it seems that, except for the most complicated cases, it might be done from the data of foreign trade statistics.

The case study presented by HCSO described an active processing case in the electronic manufacturing industry where the processee and the processor are both Hungarian affiliates of global enterprises. The inputs arrived through several VAT traders as well as from non-EU sellers to the processor, while the invoices are sent to the procesee. Sales of the processed goods were carried out either direcly by the processee or through various VAT traders both at the domestic and foreign markets. The problem noted by the case study referred to the complicated network of players in a single processing transaction including several VAT traders. For the validation of data and the right interpretation of the nature of trade flows, such networks of domestic entities and VAT traders must be mapped.

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In the follow-up discussion, the delegate from the Czech Republic confirmed the practical relevance of this complex case study. He stated that the compilation of foreign trade statistics without VAT declarations would not be possible. The delegate from Belgium questioned whether it was possible form a legal point of view to approach non-resident VAT traders or not, because as non-residents they were not obliged to report to the balance of payments statistics. Ms Alzbeta Ridzonova (Eurostat) confirmed that more statistical information could not be required from non-resident VAT traders apart from Intrastat/Extrastat declarations. The Chairman concluded in view of the Hungarian case study, that the links between national accounts and balance of payments statistics had to be improved.

BELGIUM

Mr Ghislain Poullet (Banque Nationale de Belgique) presented two cases studies referring to chemical and car manufacturing. Based on the case studies, the different valuations and differing measurements applied by merchandise trade statistics were illustrated by the following basic transactions: some non-resident companies with VAT registration in Belgium were considered as entities without physical presence, having the same brass plate address. The examples showed that the net between the imports of goods sent abroad for processing and the exports of goods after processing was not the processing fee. In some cases brass plate companies recorded exports after inward processing, even without physical presence and no person employed. A reconcilation between the balance of payments survey and Intrastat/Extratstat declarations was necessary to avoid double-counting. The delegate from Belgium noted that when the international value chain was spread across a number of countries, it became very difficult to measure and locate its various components within a multinational company, in particular because the goods after processing did not return to the initial member state of dispatch. He informend the Task Force that ca. 20,000 companies were submitting Intrastat/Extrastat declarations. Among the reporting population 300 cases were considered as complex and 50-100 were followed in detailed by the central bank.

GERMANY

Mr Simon Lohner (Deutsche Bundesbank) provided a powerpoint-presentation highlighting concepts of foreign trade statistics and balance of payments statistics. He recalled the different concepts of international manuals and guidelines. At the starting point, the processing fees could be calculated as the net difference between the value of „goods return after processing' (nature of transaction 51) and „goods send abroad for processing' (nature of transaction 41), according to the requirements in Intrastat/Extrastat. Provided that the goods after processing did not return to the initial country of dispatch, the sale abroad had to be captured with a different statistical source. In order to estimate the processing fees, sales to a third country had to be recorded on the basis of balance of payments statistics. In addition, a link between imports and re-exports had to be established. In cases were no goods (inputs not necessarily originating from the principal's own economy, goods before or after processing) crossed the border of the principal's country, foreign trade statistics did not record any flows. These flows were recorded in the balance of payments statistics. It was not possible to

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calculate the processing fees, as the margin was included in the sales figure. With regard to global manufacturing, the case could be varied when the goods did not leave the country of the principal, and a non-resident processor assembled the goods in the client's country (outward processing in the host country). These transactions were not captured in foreign trade statistics, and in balance of payments a service would be recorded. The delegate of Germany argued that foreign trade statistics should provide data on movements of goods without the change of economic ownership principle (nature of transaction code 4/5).

Ms Ridzonova remarked that the problem arose due to different concepts in the balance of payments statistics and foreign trade statistics. She informed that currently the guidelines for the implementation of Intrastat/Extrastat were prepared. She annouced to prepare a case study or questionnaire in order that delegates could express their opinion related to balance of payments and national accounts: how different transactions should be coded, to define transactions which should be treated as processing, services, or movements of goods. The outcome could be the starting point for recommendations and discussions at the next meeting of this Task Force in June 2012.

The delegate of France replied that goods sent aboard concerned in most cases raw materials/semi-processed goods. Imports after processing were recorded in a different product classes. As a consequence, it was not possible to make a link between the two transactions and to calculate the processing fee as difference. In addition to the nature of transaction, it was also important to trace goods being imported after transformation. This was also necessary for the supply-use tables.

The representative of Belgium noted that it would be interesting to have a distinction between intra-group and extra-group transactions and the (transfer-) prices applied.

The Chairman remarked that the estimation of the processing as difference between exports and imports would be problematic for national accounts. He considered structural business surveys as a reliable source for the calculation of the processing fees, because it contained information on output, intermediate consumption (and thus valued added). This source based on business accounting was the main source for the production approach to estimate GDP in national accounts and thus consistent with the requirements of the balance of payments statistics. This approach of direct reporting was supported by the delegates.

CZECH REPUBLIC

In the case study for the Czech Republic, Mr Jaroslav Sixta described issues related to trading by non-residents registered for VAT in the host country. After the Czech Republic’s accession to the Union, the values recorded for processing significantly decreased. One explanation was that the regime under customs procedures was no longer suitable and favorable for companies. The trend observed in the Czech Republic was now to sale and purchase goods rather than providing the service itself. A change was already introduced in 2004. During the preparation of the annual national accounts, discrepancies were discovered between the creation and use of resources in individual years. The CZSO adjusted and reclassified a significant part of goods exports into the regime of processing. Output and intermediate consumption were adjusted with the same value, with no impact on value added and GDP. Statistical data collection based on structural business surveys (by CPA) and

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Prodcom surveys facilitated the estimate of the processing fee. Data on products and fees were submitted, the latter data were broken down into domestic and foreign customers. Estimates of the processing fees calculated as difference between exports and imports from foreign trade statistics were less reliable, due to holding gains/losses, the inclusion of overheads (such as financing, marketing, and know-how included in the finished good price), and measurement errors associated with the valuation of goods, movements where there was no sale, and links to be established between raw materials/semi-processed goods and the finished goods. The delegate of the Czech Republic explained that foreign trade data were divided for national accounts and balance of payments purposes based on the change of ownership principle. Adjustments in order to estimate the processing fees were done mainly on the basis of the Prodcom surveys.

VI. ANY OTHER BUSINESS

The next meeting of this Task Force is scheduled for 6 June 2012.

The powerpoint-presentations will be available on the Commission's CIRCA Website.

The final report of this Task Force will be presented to the Directors of Macro Economic Statistics (DMES) in February 2013.

A synthesis of this meeting will be sent to the delegates for comments.

A questionnaire including a case study with regard to the delegates' view on the future treatment (from the viewpoint of the national accounts and balance of payments statistics) of processing in foreign trade statistics will be sent to the delegates for comments.

Since the agenda was completed, the Chairman thanked the participants and declared the meeting closed.

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Present at the meeting were:

Belgium Mr Ghislain Poullet

Bulgaria Ms Margarita Tzvetkova

Czech Republic Mr Jaroslav Sixta

Denmark Ms Maria Nilsson

Germany Ms Liane Ritter

Mr Simon Lohner

Estonia Ms Iljen Dedegkajeva

Ireland Mr John McCartney

Spain Ms Ana Luisa Solera

France Ms Myriam Broin

Mr Jean-Michel Pourchon

Italia Ms Carmela Pascucci

Latvia Ms Evita Kupče

Lithuania Mr Jurijus Sluka

Luxembourg Ms Octavia Domp-Sandu

Mr Alain Hoffmann

Netherlands Mr Leo Hiemstra

Norway Ms Trude Nygård Evensen

Austria Mr Oliver Schöner

Romania Ms. Florentina Vasile

Slovenia Ms Jelena Ćirjaković

Slovak Republic Mr Jaroslav Dolinič

Finland Mr Juha Martikainen

United Kingdom Ms Marilyn Thomas

ECB Mr Ruben van der Helm

OECD Ms Bettina Wistrom

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Eurostat Mr Francis Malherbe (Chairman), Mr. Leonidas Akritidis, Mr. Matthias Ludwig, (Unit C1: Methodology; sector accounts; financial indicators);

Ms Daniela Comini (Unit C2 National accounts-Balance of payments) Ms Alzbeta Ridzonova, Ms Hionia Vlachou (Unit G4: Global transactions)

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