Merchanting

Michael Connolly

CSO, Ireland

Geneva April 2008

UNECE/EUROSTAT/OECDWGGNA

Agenda item 9Invited paper 15/Rev.1

Merchanting

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

Merchanting

CountryBexporter/seller

Country Cimporter/buyer

Country AMerchant

Movement of goods/services

Change in ownership Cash settlement

Merchanting So what is the problem with merchanting?

In the trade data for countries B &C the exports and imports are included

How do we treat the transactions in the accounts of Country A?

Merchanting

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 County B to Country A

and

record exports from Country A to country C

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 Country A

and record the exports /imports of goods

between B and C

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

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

CountryBexporter/seller

Country Cimporter/buyer

Country AMerchant

Value of exports = 60 Value of imports =80

Value of services exports = 20

Country A Country B Country CGoods Exports -80 Imports 100

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

Total 0 0 0

Merchanting

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”

MerchantingCSO 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 Goods & Services

Country IEowner of goods

Country DEProducer Goods

Market EMEAMany customers

Country USDirect Investor

Country FRProducer services

100% 100%

Merchanting

SNA Rev.1 and BPM 6

Merchanting SNA Rev.1 and BPM 6

Current treatment causes assymetries 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 Proposals BPM6 & SNA Rev1

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 Rev1

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

CountryBexporter/seller

Country Cimporter/buyer

Country AMerchant

Movement of goods/services

Export 80Import100

Change in ownership Cash settlement

100 Cash settlement80

Goods under Merchanting

20 (-80+100)

Country A CountryB CountryCExports -80Imports 100Goods under merchanting Exports -80

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

Total 0 0 0

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

MerchantingDifficulties with New

Proposals

Does not consider or address the merchanting of services» major aspect of Globalisation

» falls within the definition of merchanting

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?