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EUROPEAN COMMISSIONEUROSTAT

Directorate C: Macro-economic statisticsUnit C5: Integrated global accounts and Balance of Payments

BP/18/32

13 February 2019

FINAL DETAILED MINUTESOF THE

BALANCE OF PAYMENTS WORKING GROUPLUXEMBOURG, 27-28 NOVEMBER 2018

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Luxembourg, 13 February 2019

FINAL DETAILED MINUTES

OF THE MEETING OF THE BALANCE OF PAYMENTS WORKING GROUP (BP/18/32)

HELD IN LUXEMBOURG ON 27-28 NOVEMBER 2018

The Balance of Payments Working Group (BOPWG) is a regular Eurostat Working Group for national and international experts in the area of BOP statistics and other relevant areas, organised twice per year.

Delegations in the November BOPWG included representatives from all the EU Member States (except Malta), Iceland, Norway, Switzerland, Serbia, Montenegro, Albania, Kosovo1, Bosnia and Herzegovina, Turkey, European Central Bank (ECB2), International Monetary Fund (IMF) and Organisation for Economic Co-operation and Development (OECD).

Speakers from Lloyd’s List Intelligence (UK) were invited to join the BOPWG meeting for Agenda item 8.

The following points were discussed and deliverables agreed by the BOWPG:

1. Introductory statement of the Chairperson and adoption of the agendaReference document: BP/18/14 and BP/18/15

The meeting was chaired by Ms Lena Frej Ohlsson, Head of Unit C5 Integrated global accounts and Balance of Payments at Eurostat.

Changes in the composition of the BOPWG (and new delegates) were announced as follows:

- Mr Joji ISHIKAWA, Balance of Payments Division, IMF - Ms Giovanna BUA, External Statistics, Central Bank of Ireland- Ms Katie O'FARREL, ONS (UK)- Mr Sami HAMROUSH, ONS (UK)- Mr Peter SPELEERS, External statistics, National Bank of Belgium- Ms Annette MEINUSCH, Deutsche Bundesbank- Mr Robert WEDERKINCK, Danmarks Nationalbank - Mr Marios PAPASPYROU, Bank of Greece- Ms Katri KAAJA, Statistics Finland- Ms Nikolett PUCKLER, Hungarian Central Statistical Office- Mr Frédéric PIERRET, Banque Centrale du Luxembourg- Mr Aigars KALNINS, Bank of Latvia- Ms Slobodanka SKEROVIC, Central Bank of Montenegro- Mr Dior KURTA, Statistics Norway- Ms Elisabet GÖRANSSON, Statistics Sweden- Ms Liv HAKIMI FARD, Bank of Sweden- Ms Neraida HOXHAJ, Trainee in BOP team, Central Bank of Albania- Mr Sebastian Otterstad VILLYN, Lloyd's List Intelligence, Informa- Mr Rezaul HOQUE, Lloyd's List Intelligence, Informa

The minutes of the previous BOPWG (25-26 April 2018) and the agenda of the current meeting were approved without comments.

2. Framework Regulation Integrating Business Statistics (FRIBS)1 Kosovo under UNSCR 1244.2 Full list of abbreviations is available in the Annex.

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Reference document: BP/18/16

Eurostat updated the BOPWG members on the status of the legislative process of the FRIBS. The European Parliament adopted its report at ITRE Committee on 21 March 2018 and confirmed its decision to enter into inter-institutional negotiations during the Plenary on 19 April 2018. The draft proposal is currently being discussed in the European Council Working Party on Statistics (CWPS). One open issue concerns International Trade in Service Statistics (ITSS), where the Commission proposal would introduce some changes in the Regulation (EC) No 184/2005 in order to include ITSS in FRIBS.

The outcome of the discussions at the CWPS meetings will be reflected in the Presidency’s compromise text, which will be discussed during the CWPS on 5 December 2018. During this meeting, an agreement among Member States on the proposal with amendments incorporated will be sought by the Austrian Presidency.

In addition to the Commission proposal, two alternative proposals will be discussed: (i) Art. 25 unchanged and Annex IV changed (additional items to be included in the Table 3 of

Annex I of Regulation (EC) No 184/2005), (ii) Art. 25 and Annex IV deleted, which would keep Regulation (EC) No 184/2005 unchanged.

Eurostat further informed that it has already started preparing implementing and delegated acts. An updated version of the general implementing act will be discussed at the December 2018 BSDG meeting.

Conclusions:The BOPWG took good note of the ongoing negotiations in the CWPS.

3. Changes in the current BOP BPM6-based Vademecum and planned release calendar 2019. Implications of the United Kingdom's withdrawal from the European Union. Issues in data transmissionReference document: BP/18/17

Eurostat presented the changes that would apply to the December 2018 update of the BOP Vademecum and informed about the timetable for data transmission and publications. Eurostat also informed about implications of the United Kingdom's withdrawal from the European Union on the transmission of BOP, IIP, ITSS and FDI data. Intra EU28 and Extra EU28 remain mandatory counterpart areas at least until the data transmissions for the reference month March 2019, due in May 2019, and for reference quarter 2019Q1, due in June 2019. Afterwards, i.e. starting from data transmissions for April 2019 and for reference quarter 2019Q2, new aggregates Intra EU27 (without the UK) and Extra EU27 (with the UK) will become obligatory. For annual international trade in services and foreign direct investment, the EU27 composition will become mandatory starting from reference year 2019, i.e. from the data transmission due on 30 September 2020. Data to be reported in 2019 (for reference year 2018) are still mandatory with the current EU28 composition and voluntary with the new EU27 composition.

Conclusions:The BOPWG took good note on the changes in the BOP Vademecum and the timetable. Eurostat thanked the Member States for the voluntary data transmissions and informed that at the moment there are no coordinated, cross-domain public guidelines, related to implications of the United Kingdom's withdrawal from the European Union. The BOPWG will be informed when they are available.

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4. 2018 BOP quality assessmentReference document: BP/18/18

Eurostat presented the outcome of the written consultation of the European Statistical System Committee (ESSC) and the main recommendations included in the Level 2 quality report. Eurostat also informed about planned minor changes in the templates of national and Level 2 reports, which aim to the even closer alignment with the ECB quality report.

On the basis of the 2018 quality assessment, Eurostat recommends to the Member States to address especially the following issues:- compilation and transmission of the remaining missing data;- reductions of bilateral asymmetries; - reduction of the size of errors and omissions; - further alignment between balance of payments and national accounts data;- elimination of the remaining methodological discrepancies among the Member States.

The indicative timetable for the 2019 quality assessment cycle concerning BOP, ITSS and FDI statistics was provided:- December 2018 – January 2019: drafting the BOP, ITSS and FDI Level 2 quality report and

pre-filling of the national reports;- January/March 2019: written consultation of the BOPWG and ECB WG ES – Level 2 report

should be sent out at the same time as national reports;- 11-12 April 2019: Presentation of the results at the BOPWG meeting;- April 2019: final version of the report;- May/June 2019: preparation by Eurostat of assessments of the results of the national quality

reports and their written consultation by BOPWG;- May/June 2019: consultation of the Level 2 report by the ESSC;- June/July 2019: European Commission inter-service consultation;- August/September 2019: submission of the Level 2 report to the European Parliament and the

Council and publication on Eurostat's website.

ECB stressed importance of sending the same data to the ECB and Eurostat, which is necessary for having the same values of indicators in both quality reports. Germany and France indicated that ECB and Eurostat should align timing of sending their reports for national consultations and suggested that it would be preferable to have only one quality report from both institutions. Eurostat agreed to align further the timetable with the ECB but explained that, at the moment, a common report is not feasible due to different coverage and legal basis.

Conclusions:The BOPWG took good note of the results of 2018 quality reporting exercise. Eurostat and the ECB will take steps to further align timetables of their reports.

5. Consistency issues in balance of payments and national accounts (RoW)Reference document: BP/18/19

Eurostat presented an update on the current situation of inconsistencies between BOP and NA (RoW) based on the latest available quarterly statistics. It was concluded that inconsistencies in country statistics have persisted in some Member States, although from an overall point of view significant improvements have been made. Eurostat pointed at the controversial balances in the BOP and sector accounts of at least 3 Member States (Finland, Luxembourg, Greece) that pose considerable problems to economic reading by users. These specific country cases should be ideally complemented by metadata, in order to educate users about directional inconsistencies. On the positive side, Eurostat also emphasised the overall improvements which have been made in the recent past – although still a prominent contributor to inconsistencies in services, France has considerably reduced its levels of discrepancies and completely abandoned controversial signs in it

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the services balances of its country statistics. The Netherlands have recently reconciled their data completely, and thus contributed to a considerable downward shift in particularly primary income inconsistencies.

Further it was mentioned that the more detailed quantitative analysis of the most exposed current account components (i.e. services and primary income) faces severe limitations due either lack of comparable services industry breakdowns (in the sector accounts) or conceptual differences in the two statistics (functional/instrument categories) which leaves measures inconclusive. In this light it was suggested by Eurostat to move forward with a topical approach, rather than quantitative measures, by presenting selected and relevant issues where necessary, that complement the current methodological guidelines issues by the CMFB.

In the ensuing discussion, Finland and Luxembourg explained their difficulties in realigning the balances in the respective accounts. Due to different dissemination time tables in Finland, coordination appears difficult, especially for primary income data. This could be addressed by getting hold of comparable benchmark data at earlier instances.

The controversial balances of the Luxembourg goods balance are related in particular to net transactions in merchanting by multinationals and the different data sources applied in the compilation of this item. Due to the high relative importance of such transaction in the Luxembourg economy, the problem of coordinating these data sources is more evident. In reply, Eurostat emphasised the high importance of realigned balances in the accounts, in order to avoid reputational effects and ensure conclusive economic reading of BOP and sector accounts statistics.

France emphasised its recent successes in realigning misleading balances in the services component through more coordination efforts, and reducing the overall levels of inconsistencies in the accounts. As for the outlier in the 2015-data of the financial accounts, an earlier Eurostat enquiry will be addressed in due course. It was suggested to resort to bilateral consultations in order share conclusions between national compiler and Eurostat. In reply, Eurostat agreed to this and will continue its practice of bilateral consultations for analysing particularly relevant outliers.

The ECB delegate emphasised once more the relevance of the recommendations made by the CMFB Task Force (Phase 1 and Phase 2), as well as the recently issued ESS/ESCB methodological note in order to tackle financial account inconsistencies.

Conclusions:The BOPWG took good note of the current situation and agreed on further reconciliation measures with a high priority of abolishing controversial balances in the accounts. In view of the forthcoming benchmark revisions, Eurostat stressed the importance of liaising actively with the national accounts counterparts in Member States in order to achieve a high degree of reconciliation. Metadata should complement efforts, where discrepancies still persist. In view of harmonised European revision policies it was repeatedly suggested that closer institutional cooperation and the harmonisation of revision and production calendars could pave an essential way forward to achieve consistent statistics in BOP and NA.

6. Harmonisation of macro-economic statistics in the NetherlandsReference document: BP/18/20

De Nederlandsche Bank (DNB) presented its new common production process between Statistics Netherlands and DNB that allows achieving full consistency between the rest-of-the-world account in national accounts and balance of payments. Quality improvements and higher efficiency were the main drivers of the integration project.

Five principles that were followed during the implementation of the integration project were explained: (i) aligning responsibilities and tasks (according to both organizations’ comparative

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advantages); (ii) aligning working methods (joint methodology, production calendar, revision policy, estimation models); (iii) distinction between source and integrated statistics; (iv) aligning sources; and (v) focus on quarterly statistics.

Compilation of BOP in the integrated environment was described in detail. Totals from the RoW account serve as the starting point, to which more detailed BOP data are aligned and the differences are distributed according to specific distribution rules. A numerical example was presented to illustrate the whole production process.

The delegates in the discussion appreciated the work done by the Netherlands on implementation of the integrated production system and transparency in the communication about its features. Several aspects of the new system were discussed like the effect of the new system on bilateral asymmetries, revision policy, legal framework for data exchange between institutions, timetable of the production process and distribution rules.

Conclusions:The BOPWG congratulated DNB for the work and good results achieved.

7. Treatment of reinvested earnings on FDI for 4th own resource purposesReference document: BP/18/21

Eurostat briefly recapped the definition of reinvested earnings on FDI (RIE) as laid down in §  4.64 of ESA 2010, where operating surplus of an FDI enterprise is used as the basis for further calculations. Operating profit has been accepted as an approximation of the operating surplus in the calculation of RIE under the ESA 95. This approximation provided good results as expenditures incurred by an enterprise on R&D were treated as intermediate consumption both in the national accounts and in the business accounting. However, under the terms of the ESA 2010, expenditures on R&D are treated as gross fixed capital formation and further use of the approximations may lead to significant distortions to GNI.

Eurostat stressed that there is full consistency in the definition of RIE in the ESA 2010 and the definitions presented in the Balance of Payments and International Investment Position Manual (BPM6) and in the OECD Benchmark definition of Foreign Direct Investment, fourth edition (2008).

Currently, compilation practices of RIE deviate from the national accounts standards under the provisions of the ESA 2010 in most Member States. The issue was raised at the GNI Committee meeting held on 21-22 November 2018, where Eurostat presented a proposal to revise the GNI recommendation. The GNI Committee asked Eurostat to consult the issue with the BOPWG and the Joint ESS-ESCB Task Force on FDI (TFFDI), and sought practical guidance on how to compile RIE under the terms of the ESA 2010.

Eurostat invited BOPWG members to comment on the issue of the calculation of RIE and to reflect on how to implement methodological changes under the terms of the ESA 2010, relevant for the calculation of RIE.

In the following discussion Spain proposed that the issue should be further studied by the TFFDI due to its complex nature, both from conceptual and practical perspectives. The Netherlands mentioned that it would be extremely difficult to collect data from reporting units and stressed a need for development of a common estimation method. The ECB pointed out that according to results of their survey on compilation practices of FDI income among Member States, about half of the compilers already apply some adjustments to RIE. However, this is mostly done only on the debit side (enterprises resident in the country of compilation).

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Conclusions:Eurostat recalled that national compilers should make their calculation of RIE as requested under the terms of the ESA 2010. The BOPWG took good note of the ongoing discussions. The issue, and in particular the practical implementation, will be further discussed in the meeting of the TFFDI on 29 November 2018.

8. Task Force on the recording and compilation of maritime transactions in national accounts and balance of payments

Data sources and methods used for the compilation of maritime activitiesReference documents: BP/18/22(a)-(e)

a) Report from the Task Force on the recording and compilation of maritime transactions in NA and BOP

Eurostat reported on the ongoing activities of the ‘Task Force on the recording and compilation of maritime transactions in NA and BOP’, since its first meeting in April 2018. Eurostat have had meetings and communication with various stakeholders from the maritime sector, including European Banking Federation (EBF), EIB, Association des Banques et Banquiers Luxembourg (ABBL), European Community Shipowners’ Asscociations (ECSA), Intesea Sanpaolo and Jan de Nul.

Following the discussions between Eurostat and EBF, EBF performed a survey among its member banks, in order to gain insight on financial aspects related to shipping. Some clarification regarding the EBF responses given in the document provided to the BOPWG (BP-18-22b) was made by Eurostat.

As a follow-up of the discussions held at the first Task Force meeting in Athens, Eurostat has been contacted by Lloyd's List Intelligence in order to design a variable ‘economic ownership’ applicable in commercial databases. This variable should be in accordance with the requirements laid down in the ESA 2010 and the ITGS manual. Eurostat thanked delegates for the useful comments given on the draft documents prepared by Lloyd's List Intelligence related to the issue.

Eurostat pointed out that the difference between IAS 17 and IFRS 16 treatments is that under the new standard lessees are required to capitalise all leases, except for short-term leases and leases of low-value assets. This is a significant change from IAS 17, where operating leases were off balance sheet. This will result in more expenses in profit or loss during the earlier life of a leasing, with an associated impact on key accounting metrics. In case a vessel is on-balance under the terms of IAS 17, a change of economic ownership is treated as ITGS transfer. One important issue for the Task Force is to analyse where the physical asset (vessel) is being booked. A movement between the balance sheets creates a new relationship with impact on profits or loss. The debate on the issue will be continued in Cyprus.

Eurostat explained the Task Force position to record transactions between the owner/investor and branch/office as FDI other capital in case of legal or equity relation between ship management company/operator. The Task Force came to the conclusion that there is no FDI relationship in case of ‘standard ship management agreements’ and long-term bareboat charter. Transactions between branch/office and owner/investor should be recorded under ‘services/transport’.

Delegates of the BOPWG were informed that at the next meeting of the Task Force the following items — among others — will be discussed: - preparation of a reconcilation table for financial leasing and related depreciation of a vessel;- elaboration on a stratification model for value of 2nd hand vessels;- impact assessment of IFRS 16 on shipping.

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Finally, the BOPWG was invited to contribute to the Task Force and attend the next meeting in Cyprus on 11-12 December 2018. In addition, the BOPWG was encouraged to apply for Eurostat’s grants related to ships and aircrafts.

b) Eurostat survey on ‘economic ownership related to vessels’Secondly, Eurostat informed the BOPWG on the results of a recent Eurostat survey on ‘economic ownership related to vessels’. 19 Member States, Norway and Turkey participated in the survey. The survey aimed at providing insights on countries practices with open issues relating to identification and recording of transactions of shipping activities. The Task Force uses the results in order to formulate homogenous recommendations on how to properly record transport services in the balance of payments. The survey showed that almost half of countries use business accounts in compliance with IAS 17 as a source. Discussed were also whom exports/imports of vessels were assigned to. Countries’ practices were different: either to ultimate beneficial owner (UBO), special purposes vehicle (SPV) or economic owner. It was also observed that freight earnings were recorded either as FDI other capital or transport services. Further, related to the distribution of dividends, there were a variety of approaches used among countries. A particular issue was the assignment of residency in case of multi-territory shipping companies. The countries looked at a whole range of criteria in order to define economic ownership.

c) Cooperation with Lloyd's List Intelligence

In response to a request made by the Task Force in April 2018, Lloyd's List Intelligence introduced its approach to identify the ‘economic owner’ of vessels in its database. The BOPWG was informed on the various layers of ownership assigned by Lloyd's List Intelligence: ultimate beneficial owner, commercial operator, third-party operator, nominal owner, IMS manager, registered owner, technical manager.

Lloyd's List Intelligence presented case studies on different group structures, based on real structures observed in particular countries. The commercial operator referred to an entity within a group, which was managing the operations of the fleet. It was emphasised that the concept of commercial operator in shipping business is quite vague.

Lloyd's List Intelligence noted that the BPM6 and the draft Eurostat Handbook on the maritime cluster assigned in most cases the ‘economic ownership’ to the registered owner of a vessel, rather than to the charterer. The only exception was bareboat charter and financial leases. This approach was different from Lloyd's List Intelligence's methodology: in many cases the legal owner of a vessel was perceived as a ‘brass plate company’.

d) Discussion

During the discussion which followed, Greece stated that the common structure of special purpose vehicles (SPVs) acting as ship-owning companies is rather that one company (SPV) owns only one ship, due to considerations of risk exposure, liabilities and claims. It was acknowledged that the standard case is that one SPV owns one vessel, however this model might differ under certain circumstances, e.g. in Scandinavian structures as observed by Lloyd's List Intelligence. Further, Greece stressed that the role of an SPV should not be simply reduced to the notion of a ‘brass plate company’. It was highlighted that the SPV is a crucial institutional unit, legally holding the non-financial asset (vessel). It was underlined that the SPV is the legal contract partner of counterparties and banks, receiving the loan, paying off the loan and interest. The bank granting the loan takes as collateral the asset.

Greece emphasised that the ship-owner accepts the risks and receives economic benefits. The SPV employs a ship management company, acting on behalf of the ship-owner under the ‘standard ship management agreement’. The economic ownership is adopted by the registered ship-owner. A change in ownership of a vessel is performed only in cases of bareboat charter and financial leasing. This is an important aspect for official statistics, as these cases can be identified in data-

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bases. The underlying contract gives an indication on change of economic ownership. It is rather difficult to obtain information on time/voyage charter. This might be possible for listed companies having publication obligations, but not for non-listed companies. Greece stressed that in view of practical implementation and the fulfilment of methodological requirements, the economic ownership rests with the legal owner. Statistical concepts and methods — as applied in official statistics — might be interpreted differently by other stakeholders in the shipping industry. In the end, the national statistical compiler finally decides to which institutional unit the ‘economic ownership’ is assigned to. The decision follows a resource and work intensive process of combining various sources. The operation of an econometric model is quite challenging, due to the application of various data-sources.

According to its methodology, Lloyd's List Intelligence firstly looks at the legal ownership, which could be easily identified. In order to define commercial operator and beneficial owner, Lloyd's List Intelligence employs specialist company investigators having subject matter expertise. It was confirmed that data could be provided as required by statisticians.

Greece was concerned that the variable ‘commercial operator’ — according to their analysis —matched in 98% of cases the variable ‘country of economic benefit’, which was considered not to really represent ‘economic ownership’. During the discussion Lloyd's List Intelligence admitted that a clear methodology needs to be developed, which however cannot be achieved without any good cooperation with the statistical community.

During the presentation of the case studies further points were raised: can the ship owning company and the management company be the same company? This was considered possible for technical and ISM management, being performed under in-house or third party management. Greece was of the view thatin case the physical person (UBO) ultimately owns only one ship (or very limited number of ships) this job can be run vertically, by one company, and this is the ship owning company. However, it is the ship owning company who runs the business in this case and not in any case the physical person. In the case of a large group of vessels, management companies are employed, in general managing a particular type of vessel which is the case most frequently faced.

Further points were raised by Denmark in the discussion: most difficult areas are the use and combination of various (commercial) data-sources; common agreement among countries having different national approaches on how to reconcile

their accounting methods; persistent asymmetries due to the use of a variety of data-sources or compilation methods.

Denmark recommended using the results of variable ‘economic ownership’ as an indicator and trigger to contact ship-owners. It uses commercial data for the recording of transactions, which are not covered in the national ship register. Denmark signalled its interest to use the variable, depending on the results of the Task Force.

Conclusions:The BOPWG took good note of the ongoing work of the Task Force. The delegates were encouraged to apply for grants related to ships and aircrafts and to participate in the next Task Force meeting in Cyprus on 11-12 December 2018. The outcome of the Task Force will result in a revised version of the Handbook.

9. Benchmark revisions of national accounts and BOP/IIP in 2019Reference document: BP/18/23

Eurostat presented the recommendations of the DMES Task Force on Benchmark Revisions, which addressed many practical aspects of the implementation of benchmark revisions. The recommendations concern especially timing of the dissemination of benchmark revisions, breaks

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in series, consistency, metadata, and communication. The links between the ESA 2010 data transmission and EDP/GNI were also addressed. Eurostat encouraged the Member States to implement the recommendations in the revision process as far as possible.

A majority of EU member states will do their benchmark revisions of national accounts in the near future. Eurostat informed about the decision of the last DMES meeting (June 2018) to start collecting information from the Member States on the content and impact of the revisions in order to identify common issues and messages that should be communicated to users. Eurostat intends to send a questionnaire to Member States by the beginning of 2019 to collect such information.

The BOPWG enquired about the addressee of the official letter on benchmark revisions. Eurostat clarified that this requirement stems from the 2007 CMFB ‘Guidelines on communication of major statistical revisions in the European Union’ which require that the official letter is sent to ‘to the Chairperson of the Statistical Programme Committee’ (SPC). The SPC had its last meeting in 2009, and has been replaced by the ESSC (chaired by the Director General of Eurostat). In any case, when both NSIs and NCBs are involved in the compilation of statistics impacted by the benchmark revision, a common letter could be jointly prepared and addressed to both, Eurostat (Director General) and ECB (Director General Statistics). The BOPWG proposed that the questionnaire identifying the impact of revisions and the communication strategy are jointly prepared by Eurostat and the ECB.

Conclusions:In the context of the benchmark revisions of national accounts and BOP/IIP in 2019, the BOPWG was invited to take steps to implement the practical aspects on data compilation and transmission, the communication strategy, to ensure transmission of appropriate metadata, to ensure close inter-institutional co-operation (NA-BOP), to inform Eurostat about changes in the planning of benchmark revisions and to send an official notification letter to Eurostat's Director-General, at least 3 months in advance.

10. Asymmetries in trade data: analysis of UK bilateral trade dataReference document: BP/18/24

ONS presented its work on analyzing asymmetries in trade in services with the selected priority countries. In the last 18 months, ONS has published 3 reports focused on asymmetries. The first report aimed at providing general assessment of the UK’s trade asymmetries, both for goods and services. Based on its result, more in-depth analysis has been conducted on asymmetries with the US and the Republic of Ireland, two countries for which the asymmetries were the most prominent, and published in a second report. In the third report, the in-depth analysis has been extended by five other EU Member States, which also record high bilateral asymmetries with the UK. Service asymmetries have been given a priority, as they are higher than for goods.

A structured approach for analysis of asymmetries has been developed and followed, comprising(i) analysis of publicly available bilateral trade data; (ii) comparison of published information on trade data sources and methods;(iii) establishing contact and conducting bilateral discussions with trade statisticians in the

partner country;(iv) exchange of trade data at the lowest level available, along with information on sources,

collection and compilation methods; and (v) collaborative analysis of differences in data, sources, methods, and classifications.

Three main types of causes of asymmetries have been distinguished: (i) definitional differences: mainly due to adherence to different international standards and

concepts (BPM5/BPM6) and inclusion/exclusion of different services and/or service sub-components;

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(ii) methodological differences: arising from use of different methodologies and compilation practices; and

(iii) statistical differences: arising from use of different data sources, sampling variability, survey non-response, etc.

Further, ONS presented some of the causes of asymmetries that were identified and improvements that have already been implemented or are about to be implemented in existing surveys, in the production system, and by the use of new data sources. As a significant share of UK overall trade in services estimates are filled by an International Trade in Services (ITS) survey, both quarterly and annual surveys were improved. For the quarterly survey, the sample size was doubled and the sample both for broad industry coverage and for geographical coverage was optimized. Some improvements have been made to the annual survey as well as to the production system. The combination of those improvements has resulted in release of more granular data, essential for further asymmetries analysis.

In the discussion, delegates from the countries that took part in the bilateral analysis with the UK emphasized the good cooperation and the well-structured approach used. They also confirmed their willingness to continue with these activities in the future. Concerning resources, ONS explained that a dedicated asymmetries team has been working on the issue, as the regular trade production team would not be able to cope with the amount of work. With regard to identified methodological and statistical differences, ONS stressed that long-term methodological improvements and use of new data sources are preferred over top-bottom adjustments.

Conclusions:The BOPWG congratulated UK for the work done and encouraged similar work in other EU Member States.

11. Asymmetries in trade data between US-EUReference document: BP/18/25

Eurostat presented a recent study on EU-US current account asymmetries with a detailed comparison of services and primary income statistics that proved to be the most exposed current account components. The quantitative analysis was complemented with a geographical profile of asymmetries and controversial balances in country statistics for services, as well as a brief overview on identified causes. These causes which are still subject to investigations so far can be referred to different geographical concepts, a methodological bias due to deviations from the BPM6 standard, different partner country classification (transactor, creditor/debtor approach), and different capturing methods related to the design of samples populations and to chains of ownership for MNE structures.

Joint investigations by Eurostat are ongoing together with ECB and BEA (US BOP compiler) and will result in the publication of a joint Eurostat/BEA paper during 1st quarter 2019. At this stage, no valid statements can be made about over- or underestimation of the respective country statistics, neither about the originator of asymmetries.

Further, possible ways forward were discussed, such as the wider application of EU grants for bilateral reconciliations exercises, informed adjustments of aggregates where deemed necessary by the compiler (due to information asymmetries), a high-level agreement to foster statistical cooperation and as a necessary consequence tighter technical cooperation with the US.

In the ensuing discussion Germany and France supported the idea of a high-level agreement that could further enable bilateral reconciliation exercises more effectively. There was in this context also a general tenor for preferring bottom-up reconciliation to top-down adjustments, which was supported by the OECD.

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The difficulties in reconciling data on SPEs were mentioned by the Netherlands and UK as regards the ultimate beneficial owner as a major issue in understanding the prominent asymmetries in primary income. UK also emphasised the occurrence of controversial balances (in services) as a major rationale for its extensive investigations during the past year.

Austria highlighted also the impact of FISIM calculations to foster asymmetries both in services and primary income with the US.

The Netherlands mentioned that the complete capturing of income of affiliates within MNE structures that involve SPEs, proofs to be very difficult, and for practical reasoning includes only income flows with immediate counterparts.

Conclusions:The BOPWG appreciated the work undertaken by Eurostat. The delegates proposed that a high-level agreement between Eurostat and BEA could foster a more dynamic, future technical cooperation between EU Member States and the US. Eurostat supported the ongoing bilateral reconciliation exercises and promoted more thematic publications, also in the Member States, that could help to educate the public on the issue and to correct misperceptions recently circulated by the press and one research institute.

12. Progress report from the OECDReference document: BP/18/26

The OECD focused its presentation on the progress achieved and the next steps in two distinct areas:

a) Measuring Multinational Enterprises (MNEs)As a response to a growing demand for more data on MNEs and their activities, the OECD has been developing the Analytical Database on Individual Multinationals and their Affiliates (ADIMA). ADIMA aims at facilitating the development of statistics on MNEs and supporting national compilers in their profiling activities.

The work builds on and complements several other initiatives trying to measure MNEs, such as Eurostat’s EuroGroups Register (EGR) and Early Warning System (EWS), and the work of the Global Legal Entity Identifier Foundation (GLEIF) to create a harmonised identification number (LEI) of all entities worldwide.

ADIMA consists of a Register of MNE parent-affiliates structures; a series of economic indicators at both the level of the MNE and the individual countries in which it operates; and a monitoring tool that aims to provide a timely flow of information on MNEs restructurings to aid the work of national compilers.

The main features of ADIMA comprise: individual MNEs as units of observation, including their majority-controlled affiliates, location, and type of activities; availability of a variety of indicators, aligned as much as possible with the statistical concepts; use of publically available sources only, combining traditional data sources (annual reports, company accounts) with emerging data sources and text analytics of MNEs websites (unstructured data); validation of collected data against other data sources; high degree of automation and scalability in collecting data; and public dissemination without any restrictions.

The starting point of the data collection on each MNE are the annual reports, followed by a repetitive looping of other data sources: MNE’s websites, PermID (open database of ThomsonReuters), LEI identifiers (Global Legal Entity Identifier Foundation), SSL security certificates used by websites (common within a group), and national business registers.

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Currently, the first version of ADIMA is being finalized and is expected to be made available on the OECD’s website at the beginning of 2019, accompanied by detailed methodological documentation. Further development will be directed towards increased coverage (from 100 largest MNEs at the launch up to 500 by the end of 2020) and increased level of detail at a country level.

b) Digital tradeHigh policy demand for improved statistics capturing digital flows has recently led to co-ordinated actions of several international players. The OECD briefly summarized the activities of inter-institutional Task Force on International Trade Statistics (TFITS) directed towards building a conceptual framework for measuring digital trade. A significant progress has been achieved in preparation of the Handbook on Measuring Digital Trade, which is expected to be published at the beginning of 2019. In order to keep up with quick development in the area of digital trade, the Handbook will be published as a ‘living document’, expected to receive further updates after its publication.

Further, the OECD outlined the conceptual framework and core definitions included in the Handbook. More specifically, three types of trade transactions were identified as parts of digital trade:(i) digitally ordered trade transactions; (ii) digitally delivered trade transactions; and (iii) digital intermediary platform-enabled trade transactions.

Proposed treatment of digital intermediary platform-enabled transactions was explained in detail, including a separate identification of the intermediation fee and recording of transactions related to digital intermediary platforms on a net basis.

In the following discussion, several delegates appreciated achievements in both presented areas:(i) With regard to ADIMA database, topics such as resources needed for its maintenance and

combination of collected data with the data from other sources were further discussed. Importance of careful validation and expert assessment of information obtained from public sources were stressed.

(ii) As for measuring digital trade, several delegates welcomed finalization of the conceptual framework and confirmed high demand for it in order to produce national statistics on digital trade using the common framework. OECD elaborated further on the definition of digital trade, which is based on the nature of the transaction. No consensus has been achieved yet on a definition of digital products (digital goods, digital services) or digital industries.

Conclusions:The BOPWG took good note of the activities of the OECD and welcomed in particular the work on the ADIMA database.

13. Global production and Integrated global accountsReference document: BP/18/27

Eurostat gave an update of the activities under the IGA project. As the current project will come to an end in December 2018, Eurostat has decided to launch a new project, IGA 2, starting from January 2019.

The delegate from Germany stressed the importance of the globalisation related work undertaken by the IGA project and encouraged Member States to participate in the project activities.

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Answering to an enquiry from the Latvian delegate, Eurostat said that the final country reports concerning IGA grants will be available in a dedicated CIRCABC site under https://circabc.europa.eu/w/browse/509a1d48-37c2-472c-bda5-5680416ceed8.

The delegate from Denmark and the Netherlands said that they would send their suggestions in writing by the deadline.

Conclusions:The BOPWG was invited to suggest relevant topics, which could be dealt with within the IGA2 project as well as topics to be included in the upcoming call for IGA grant proposals (subject to Commission financing decision). Member States were invited to provide their suggestions in writing by 12 December 2018.

14. Update on IMF BOPCOM activitiesReference document: BP/18/28

The IMF informed the BOPWG on main outcomes of the last BOPCOM meeting, held on 24-26 October 2018 in Washington, D.C. All papers that were presented at the BOPCOM meeting will be soon posted on the IMF website with a summary of discussions (papers and a summary of discussion have already been posted on the IMF website).

In February 2018 the IMF’s Task Force on Special Purpose Entities (TFSPE) conducted a survey aiming at obtaining information on national practices in compiling statistics on SPEs. More than 140 countries took part and the results of the survey served as an input for the work of the TFSPE.

The survey revealed that the definitions of SPEs used by national compilers vary across countries. Having carefully reviewed current national practices, the TFSPE agreed on three proposals: (i) the definition of SPEs in the context of external sector statistics; (ii) decision tree to support practical implementation of the definition; and (iii) typology of SPEs.

The proposed definition of SPEs in the context of external sector statistics is based on four criteria to be met simultaneously: - An SPE resident in an economy, is a formally registered and/or incorporated legal entity

recognized as an institutional unit, with no or little employment up to maximum of five employees, no or little physical presence, and no or little physical production in the host economy.

- SPEs are directly or indirectly controlled by nonresidents. - SPEs transact almost entirely with nonresidents and a large part of their financial balance sheet

typically consists of cross-border claims and liabilities. - SPEs are established to obtain specific advantages provided by the host jurisdiction with an

objective to: (i) grant its owner(s) access to capital markets or sophisticated financial services; and/or (ii) isolate owner(s) from financial risks; and/or (iii) reduce regulatory and tax burden; and/or (iv) safeguard confidentiality of their transactions and owner(s).

The decision tree and extensive typology of SPEs are presented in the final report of the TF.

Already about 50 countries collect data on SPEs in the framework of BOP and IIP. In a view of the future IMF data collection on resident SPEs, the TFSPE prepared a template that consists of a subset of items listed in the BPM6, Appendix 9 (Standard components and supplementary items). Among the items of the template, those of high priority were identified. In case a country does not compile all items of the template, it is encouraged to start with high priority items and then further extends the coverage to all items of the template gradually. The launch of the new reporting framework was proposed by the end of the year 2021 for 2020 annual data. The IMF stressed that data are provided by countries on voluntary basis, technical details are still to be worked out.

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The proposals from the TFSPE were discussed at the BOPCOM meeting. The BOPCOM expressed appreciation for the work done by the TFSPE and endorsed the report.

As a follow-up, the IMF will initiate a consultation on the TFSPE report with the Working Group on National Accounts, develop an implementation plan for launching the data collection, and report to the BOPCOM at its 2019 meeting on the status of the preparations.

The IMF also outlined the main priorities of the BOPCOM Work Program for 2019 that comprise: (i) report from the Task Force on Informal Economy, (ii) report from the OECD–IMF Working Group on Global Value Chains,(iii) implementation plan for data collection on SPEs, and (iv) guidance on the Treatment of reserve assets in BOP and IIP for members of a centralized

currency union.

Among medium-term priorities, the following ones were specifically mentioned: (i) assessment of feasibility of full reconciliation between BOP and IIP, (ii) assessment of feasibility of IIP with a country breakdown, and (iii) currency composition of IIP. Concerning the last item, countries were encouraged to start transmitting to IMF data on currency composition of IIP, even if they are not complete at the moment.

In the discussion, the Spanish delegate stressed a need to ensure consistency between the results of the TFSPE and the Task Force on Head Offices, Holdings and SPEs. A representative of Eurostat (Unit G6) in his response indicated that the report of the Task Force on Head Offices, Holdings and SPEs has been shared with the members of the TFSPE and that the work on the implementation of the definitions will be further followed up and any issues will be reported back to the IMF.

The OECD in its intervention provided additional information on the joint OECD-IMF work on better measuring Global Value Chains using the BOP indicators.

Conclusions:The BOPWG took good note of the presentation. It was agreed that the final report of the TFSPE will be shared with the BOPWG after the meeting, as not all of the delegates seemed to be aware of it. The BOPWG was also invited to make comments to Eurostat relating to the development of a practical implementation plan related to the data collection strategy of SPEs. Possible feedback will be forwarded by Eurostat to the IMF. Eurostat will cooperate with the ECB on practical implementation of the definition within the ESS.

15. International Data Coordination projectReference document: BP/18/29

Eurostat presented the International Data Coordination project (IDC) in the domain of Balance of Payments and International Investment Position statistics. The aim of the project is twofold: (i) to reduce the reporting burden, and (ii) to ensure that the same data are disseminated by different international organisations.The project was set up by the European Central Bank (ECB), Eurostat, and the International Monetary Fund (IMF.

According to the project, Member States will have an option to include all the voluntary items they are currently reporting to the IMF in the compulsory transmissions to Eurostat and the ECB and to discontinue transmissions to the IMF. For this purpose, Eurostat presented a common reporting template for quarterly BOP and IIP, which merges data requests of the ECB/Eurostat and the IMF. According to the proposed arrangement, responsibility for data validation and data provision to other international organisations would be divided as follows:

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- ECB – Euro Area Member States;- Eurostat – non Euro Area EU Member States (possibly also EFTA countries);- IMF – all other countries.

In the discussion, Germany and France informed that they intend to continue transmissions to the IMF. Eurostat stressed that participation in the project is voluntary, transmission of the additional items requested by the IMF is voluntary and there are no plans to amend Regulation (EC) No 184/2005 and the ECB Guideline to make them mandatory. Member States, which currently transmit additional series to the IMF and which will take part in the project, will provide these additional data series only to Eurostat/ECB. Eurostat/ECB will in turn share them with the IMF so there is no loss of information at the IMF. Data sharing concerns only series flagged as ‘free for publication’; goods data according to the community concept will not be shared. For the first quarters of the pilot exercise in 2019, it is recommended for countries participating in the project to continue in parallel transmissions to the IMF until new system proves to be well functioning. Additionally, voluntary series should still be provided to the IMF by countries subscribed to SDDS+ (Special Data Dissemination Standard Plus) as they are not part of the IDC project.

Conclusions:The BOPWG was invited to start using the new template on a regular basis from April 2019 (data for the reference period 2018Q4). Participating Member States are requested not to discontinue direct data reporting to the IMF until the data sharing procedures become stable.

16. Follow up on the recording of illegal economic activities at international levelReference document: BP/18/30

The BOPWG was informed on the progress of two international initiatives related to the statistical recording and estimation of illegal economic activities: (i) the UNODC/UNCTAD expert group on illicit financial flows, and (ii) the IMF Task Force on the informal economy. A short publication on expanding the coverage of illegal economic activities in national accounts in Eurostat EURONA journal is envisaged.

Conclusions:The BOPWG took good note of the presentation and the worldwide activities related to statistics on illegal economic activities.

17. Any other businessOral report

1. Draft Commission delegated Regulation

Eurostat provided an overview of the Commission’s Brexit preparedness measure in the area of balance of payments statistics – the draft Commission delegated Regulation amending Annex I to Regulation (EC) 184/2005, as regards the geographical breakdown levels (legal basis: Article 2(3) of Regulation (EC) 184/2005 – empowerment granted to the Commission to adopt delegated acts when, as a result of economic or technical changes, the geographical breakdown levels set out in Table 6 needed to be updated).

Its aim is to update the composition of EU aggregates and to ensure continuity of Member States’ submission of quarterly BOP and IIP data with counterpart United Kingdom (UK) after its withdrawal from the EU. To that aim, the draft act updates Table 6 ‘Geographical breakdown levels’ of Annex I as follows:(i) the UK is included as a separate counterpart country in level GEO 4; and

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(ii) counterpart country UK in levels GEO 5 and GEO 6 is re-positioned under aggregate ‘Other European Countries’.

The rationale for the proposed act as well as its adoption process, timing and next steps were also presented. Taking into account the 3-month scrutiny period applying to this delegated act and the necessity to have an updated Table 6 as of the date of UK’s withdrawal from the EU, the act will need to be adopted in December 2018 with a view to being applicable as of 30 March 2019.

In the following discussion Belgium asked if the above-mentioned changes would be reflected in the next edition of the BOP Vademecum. Eurostat intended to publish the BOP Vademecum in December 2018, i.e. before the withdrawal date 30 March 2019. The UK would therefore remain in its current place in the December 2018 edition of the BOP Vademecum, which would be subsequently updated. Given the ongoing negotiations between the EU and the UK on the withdrawal agreement and in the absence of more information at the moment, Eurostat undertook to be very clear in its future communication to Member States as to what is expected from them and when as soon as there is more clarity.

Belgium further said that in theory the update of Table 6 would not pose difficulties for the BOP compilers but was uncertain about trade statistics because of the clear distinction between Intrastat and Extrastat. In response, Eurostat explained that given the ongoing negotiations between the EU and the UK in this unprecedented withdrawal process, it was not yet known with certainty what the future relationship between the EU and the UK would be and if the UK would be part of the Customs Union or not. The UK’s participation in the EU Customs Union would have implications on the customs checks and the Intrastat and Extrastat systems.

The UK delegation said that it was not briefed on what the future relationship would be.

Conclusions:The BOPWG took good note on the legislative procedure.

2. Next Eurostat meetings with relevance for BOP 11-12 December 2018 – Task Force on the recording and compilation of maritime

transactions in national accounts and balance of payments, Cyprus 13-14 December 2018 – BSDG, Luxembourg 11-12 April 2019 – BOPWG, Luxembourg 26-28 June 2019 – Task Force on the recording and compilation of maritime transactions

in national accounts and balance of payments, Norway 02-03 December 2019 - BOPWG, Luxembourg

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Annex

List of abbreviations

BOP / b.o.p Balance of payments BOPWG Balance of Payments Working Group BPM6 IMF Balance of Payments and International Investment Position Manual, 6th editionBSDG Business Statistics Directors GroupCIRCABC Communication and Information Resource Centre for Administrations, Businesses and

CitizensCMFB Committee on Monetary, Financial and Balance of Payments Statistics DG ECFIN European Commission’s Directorate General for Economic and Financial Affairs DG TRADE European Commission’s Directorate General for TradeDMES Directors of Macroeconomic Statistics ECB European Central Bank ESA 95 European System of National and Regional Accounts, version 1995ESA 2010 European System of National and Regional Accounts, version 2010 ESCB European System of Central BanksESS European Statistical System EU European Union FATS Foreign Affiliate Trade Statistics FDI Foreign Direct Investment FIU Financial Intelligence UnitFTS Foreign Trade Statistics GNI Gross National Income IIP / i.i.p. International Investment PositionIMF International Monetary FundIMTS International Merchandise Trade StatisticsITGS International Trade in Goods Statistics ITSS International Trade in Services Statistics MIP Macroeconomic Imbalances Procedure MNE Multinational EnterprisesMSITS 2010 Manual on Statistics of International Trade in Services (2010)NA National AccountsNAWG National Accounts Working Group OECD Organisation for Economic Co-operation and Development RoW Rest of the WorldSDMX-ML Statistical Data and Metadata eXchange (using XML syntax)SIMSTAT Single Market StatisticsSPE Single Purpose EnterpriseWTO World Trade Organisation

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