OECD - WGGS

Merchanting

Michael Connolly – National Accounts, CSO Ireland

October 2010

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 20102 OECD WGGS

International Merchanting Activity 2004 – 2008 Index 2004 = 100

Oct 2010OECD WGGS 3

April 20, 2023National Accounts Income4

€millions 2004 2005 2006 2007 2008 European Union 25,543 34,223 41,453 52,329 56,145 of which: Belgium 1,233 1,469 1,408 4,580 4,251 Denmark : 1,286 1,544 1,707 1,907 Germany 4,284 5,301 10,156 9,714 8,771 Ireland 2,480 4,018 5,301 8,816 9,817 France 3,323 5,864 6,213 5,631 8,220 Italy 140 141 164 132 106 Cyprus 319 404 468 369 627 Luxembourg 270 305 353 345 801 Hungary 988 1,234 1,157 1,235 1,317 Malta 35 61 80 51 82 Netherlands 1,020 1,059 1,143 1,196 1240* Austria 1,406 2,029 2,273 2,538 2,773 Slovenia 1 58 111 168 189 Slovakia : -8 -24 -15 -22 Finland 4,337 4,493 4,929 5020* 5100* Sweden 3,459 3,936 4,866 6,669 7,392 United Kingdom 690 1,261 361 1,549 1,341

Other Countries:

Switzerland 2,949 3,787 5,602 6,523 9,100 United States : : : : : Japan : : : : :

TOTAL 28,492 38,009 47,055 58,852 65,245

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 BPM5In addition no transformation of the good has

taken place - if so, then goods for processing

Merchanting

Germanyexporter/seller

USAimporter/buyer

IrelandMerchant

Value of exports = 80 Value of imports =100

Value of services exports = 20

Change in ownershipCash settlement

Ireland Germany USAGoods Exports -80 Imports 100

Services Exports -20 ImportsCash Payments -80 -100 Receipts 100 80

Total 0 0 0

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?

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

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

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

Merchanting

SNA Rev.1 and BPM 6

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

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”

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

Merchanting – BPM6, SNA 2008

Oct 2010OECD WGGS 16

Germanyexporter/seller

South Africaimporter/buyer

IrelandMerchant

Movement of goods/services

Change in ownershipCash settlement

Merchanting

MerchantingImpact 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

Merchanting – Activities Included

Commodity Trading International Wholesale Retail Global Manufacturing

and Interaffiliate transactions in Goods and

Services Outsourcing of Services (abroad)

Merchanting Global Manufacturing

Country Bowner of goods

Country Dimporter/buyer

Country AGroup Company

Movement of goods/services

Change in ownership Cash settlement

Country CProcessor/exporter

Goods for processing

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”

Edition of the Manual Required recording Classified in the BPM

Methodology

BPM 1st Edition - 1948 Record net under

Merchandise

Other Transactions in

Merchandise

BPM 2nd Edition - 1950 Record gross under

Merchandise

Other Transactions in

Merchandise

BPM 3rd Edition - 1961 Record net under

Merchandise

Merchandise transactions

abroad

BPM 4th Edition - 1977 Record net under Other

Goods Services and

Income

Other Goods Services and

Income

BPM 5th Edition - 1993 Record net under

Services

Business Services

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

Merchanting of Goods and Services 2009

Oct 2010OECD WGGS

Merchanting Goods & Services

Country IEowner of goods

Country DEProducer Goods

Market EMEAMany customers

Country USDirect Investor

Country FRProducer services

100% 100%

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?

MerchantingConclusions

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

Any questions?