Session IIa: Selected Measurement Issues: Some Current Account Issues

1. Session IIa: Selected Measurement Issues: Some Current Account Issues Papers by: Hong Kong SAR (HK); Hungary (HU); EuroStat (EU)

2. Structure of the Discussion • Due to globalization outsourcing across borders has increased: • It includes – engaging in joint production, with and without crossing borders: global manufacturing, merchanting (HK,and HU) remittances (EU). • The papers cover implementing problems, suggestions and plans for implementation

3. General • Globalization also Leads to the Following: • Complicated Movements of Commodities and Services which include: • Involvement of additional agents (third parties) • Movements without Crossing Borders • Movements without Really Moving (accounting movements) • Involvement of Several Currencies and Accounting Methods • Globalization - An Increase in volume and Importance

4. HK Paper • Topic: The changed treatment of goods for processing and merchanting in SNA, rev. 1 and BPM6 • The revisions discussed: • Goods for Processing • Merchanting

5. Goods for Processing: • Before: Goods were reported – gross – and as goods - in both directions • After: Net Difference is recorded as services • Advantages: • Trade data in commodities are not “inflated”. • No discrepancy between payments and value of goods crossing the border

6. Problems • Goods are crossing the border • Only value added is reflected in the data so that production processes are difficult to analyze • Hard to find the data in custom’s records • Production processes difficult to analyze

7. Merchanting • Definition: Purchase and sale of goods by a resident, from and to a non-resident, without the goods crossing the border. • Revision: • Before: Registered as net export of services • Recommendation: registered as net exports of goods

8. Advantages • Consistency in recording between countries. (The country of final destinations registers it as goods).

9. Disadvantages • Inconsistency with the recommendation concerning goods for processing

10. About a valuation of transactions with the rest of the world (HU) • The problem: VAT residents that are not required to set up business, local unit or employ a person, but pay VAT. • Some of the activity can be treated as Merchanting (differences between custom data and banking data) • VAT data can be used to separate net flows of merchanting services

11. Layman‘s comments • Two issues that are raised • The major difficulty and revisions is not in the “change of ownership” principle, but in the change in classifications between trade in commodities and services • Possible solution: separate the reclassified items for easy reconstruction of the SNA93 accounts

12. Layman’s comments • The “special distributor” in VAT • Hungary has actually two different (virtual) borders: the custom border and the VAT border. The “special distributor” is in the between-borders zone. • The paper suggests methods for separating the data for net flows of merchanting services

15. Layman’s comments • An important issue: The bottom line (the deficit or surplus) does not change • The components do change • Missing issues: Over and under invoicing • Volatility of exchange rates • Calls for • Mirror images of trade data • Co-ordination among countries in applying the revisions

16. The work of the Luxembourg Group on Remittances (EU) • The group was established to prepare guidelines for measuring remittances sent home by migrant workers • Possible Sources of data: household’s surveys, International Transaction Reporting Systems, Direct Reporting by money transfer operators, indirect methods based on modeling.

17. Remittances • A practical step-by-step approach is suggested

18. Layman’s comments • The advantage of households’ surveys with respect to other methods is the ability to evaluate the effect on inequality and poverty.

19. Questions • HK and HU: • Should be a threshold of value added to distinguish between reporting in gross (inflated) terms and net terms • Should there be mirror reporting with major partners? • Do the revisions inflate the GDP of Tax Heavens?

20. Layman’s Questions • (HU) Is there a VAT on Merchanting of “Special Distributors”?

21. Questions to EU-papers • Problems and Questions: • Is there a way to distinguish between remittances transferred by residents and non-residents? • Are there guidelines for improving coverage and reducing reporting errors in households’ surveys

22. The END • The END • The End • The end • The end • The end • The end

23. The rest is redundancies

24. Sources of Information • Goods in BoP: Export/Import Declarations • Monthly Survey of value of “contractual re-importation” • Annual survey of “trade in services”

25. Merchanting • Definitions: r-resident; nr-non-resident • Definition: (involve) “A Purchase of goods by an r from nr and subsequent resale to another nr without the goods crossing the border and • Transaction of good manufactured by nr through sub-contract processing arrangement and directly sold to nr without crossing the border.

26. Issues Discussed • Regulations: The effect of Changed Regulations (Hong-Kong) • Unobserved Economy: Measurement of Remittances (Euro-Stat) • Determining the Border Line – (Hungary)

27. Hong-Kong SAR • Relevance to Other Countries: On one hand – one major partner; on the Other Ratio of MT Transactions to GDP 340% • Important Problem for Small Open Economies • Production in the Mainland. Other activities In HK. • The Movement of Raw Materials and Products • The movement of Services (“Merchanting”)

28. The Accounting • Definition of An International Transaction: • SNA 93 – Crossing a border • SNA 93 – Rev. 1 : Change of Ownership