Foreign Affiliates Statistics (FATS): concepts, requirements, data production

1. Foreign Affiliates Statistics (FATS):concepts, requirements, data production Tatiana Mrlianova SBS ESTP training, 14 March 2013

2. Outline • General concepts • EU data requirements • Data production • Examples of data analysis 20/12/2019 Foreign affiliates statistics (FATS) 2

3. How do we understand FATS? Abbreviation: • In the past: Foreign Affiliates’ Trade in Services • Now extended: Foreign AffiliaTes Statistics • Statistics describing the overall operations of foreign-controlled affiliates (direct investment enterprises) • part of AMNE statistics (Activities of Multinational Enterprises) • Traditional focus on services now extended by including manufacturing sector Foreign affiliates statistics (FATS)

4. Rationale for compiling FATS • extend the information provided by international trade statistics (transactions) and FDI statistics (transactions, stocks, income) • describe international commercial presence of enterprises • measure the economic impact of one country on another one • very relevant for research on economic globalisation – both in terms of reasons and effects/impacts • policy relevant – GATS, taxation, investment Foreign affiliates statistics (FATS)

5. Inward vs. Outward FATS Foreign affiliates statistics (FATS)

6. Statistical unit vs. reporting unit • Inward FATS: …we ask a resident enterprise being an affiliate of a foreign enterprise group about its own characteristics THUS: statistical unit = reporting unit • Outward FATS: …we ask a resident enterprise being head of an enterprise group about characteristics of other enterprises (its foreign affiliates) THUS: statistical unit ≠ reporting unit 20/12/2019 Foreign affiliates statistics (FATS) 6

7. Dimensions of FATS • Economic activity of the foreign affiliate • MSITS: ISIC (ICFA groupings, focus on services) • EU: NACE (EU implementation of ISIC, goods and services) • Partner country • Inward FATS: country of the (ultimate) controlling investor • Outward FATS: country of residency of the foreign affiliate • Characteristics (variables) • Product – longer-term goal, applicable to some variables 20/12/2019 Foreign affiliates statistics (FATS) 7

8. Common legal framework of FATS in the EU • Regulation (EC) No 716/2007 of the European Parliament and of the Council of 20 June 2007 on Community statistics on the structure and activity of foreign affiliates http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2007:171:0017:0031:EN:PDF • Implementing regulations of the European Commission on derogations, definitions, classifications, quality reporting • FATS Recommendations Manual 2012 edition (not legally binding) http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-AR-09-014/EN/KS-AR-09-014-EN.PDF 20/12/2019 Foreign affiliates statistics (FATS) 8

9. UCI concept vs. national perspective • UCI = Ultimate Controlling Institutional Unit • UCI in the most cases is global group head, i.e. the enterprise on the top of the control chain in a multinational corporation, able to influence the management of lower level enterprises (i.e. appoint the board), but not controlled itself by any other unit • UCI approach (required for data sent to Eurostat): • Inward FATS: partner country is the country of ownership/control where the UCI of a foreign affiliate is resident • Outward FATS: data are collected only from resident companies being UCI’s of an enterprise group = having foreign affiliates • UCI approach necessary in order to avoid double-counting when data aggregated for the whole European Union • National perspective: data on all affiliates irrespective UCI collected and published by some EU Member States for their national purposes but UCI-based data transmitted to Eurostat 20/12/2019 Foreign affiliates statistics (FATS) 9

10. Obligatory FATS characteristics (variables) • Number of enterprises • Turnover • Number of persons employed • Value added at factor cost • Gross investment in tangible goods • Personnel costs • Production value • Total purchases of goods and services • Purchases of goods and services for resale • Total intra-mural R&D expenditure • Total number of R&D personnel Inward & Outward FATS Inward FATS 20/12/2019 Foreign affiliates statistics (FATS) 10

11. Data requirements • Periodicity: annual (first compulsory reference period 2007) • Timeliness: t+20 months (2 months after the final SBS data) • Classification: NACE Rev. 2 (in Outward FATS from the reference year 2010) • Dimensions: • Inward FATS: 1) 26+14 main partners x detailed activities 2) all partners x total economy (B-N excl. K) • Outward FATS: 1) 9 main partners x detailed activities 2) 24 other partners x 17 main activities 3) all partners x total economy (B-S excl. O) 20/12/2019 Foreign affiliates statistics (FATS) 11

12. Data collection of Inward FATS • institutional framework: collected usually by national statistical institutes • data sources: annual business survey (synergies with SBS: subsets of SBS population and variables), business register, dedicated surveys • foreign affiliates encoded in SBS by a dedicated question or linking with other sources: FDI, tax data, annual financial reports, commercial databases, media • variable definitions and activity codes as in SBS (but less detail) • partner country: country of the UCI • economic activity: principal activity of the affiliate, consistent with SBS 20/12/2019 Foreign affiliates statistics (FATS) 12

13. Data collection of Outward FATS • institutional framework: responsibility at NSIs or/and NCBs • first step: population frame (profiling of enterprise groups, UCI attribution), based on the FDI register, business register, annual financial statements, media information and direct contacts with enterprises • second step: data collection - separate survey or part of the FDI survey • variable definitions as in SBS • partner country: country of residence of the affiliate • economic activity: principal activity of the affiliate, activity codes as in FDI statistics (~same level of detail) 20/12/2019 Foreign affiliates statistics (FATS) 13

14. Limitations and challenges complexity, intransparency and dynamics of large multinationial corporations’ structures data completeness – population frame, sampling, size thresholds, response rate, estimations and imputation consolidated reporting (turnover, trade variables) confidentiality – level of detail for economic activity, links to other statistical domains (SBS), size of the economy asymmetries Inward vs. Outward FATS – international cooperation very useful lack of data cross-checking possibilities 20/12/2019 Foreign affiliates statistics (FATS) 14

15. OFATS data production - workflow • Countries send the data by 31 August (20 months after the reference period) – via edamis using gesmes format • Correct gesmes format? • Yes: data automatically uploaded in db • No: contact the country to re-transmit the file Foreign affiliates statistics (FATS)

16. OFATS data production - workflow • Data treatment • Basic controls (data availability, check for double values, confidential data, comparability with previous years etc) • Verify the validation rules – data consistency • If something can be repaired here, it is preferred to do so instead of asking the country for a new transmission  save time • Secondary confidentiality (S.C.) • Send report and harmonized datasets to the country for agreement/confirmation (in particular S.C. treatment) • Dissemination Foreign affiliates statistics (FATS)

17. OFATS data production – some facts • Ref. year 2009 • first year when no derogation any more, all the 27 MSs delivered data, however not all of them according to the legal deadline • 3 obligatory variables (EMP, ENT, TUR) • Voluntary variables : 8 countries for the ref. year 2008 Foreign affiliates statistics (FATS)

18. OFATS data production – some facts • Legal request on the detail by country of location and activity – 3 datasets/variable • Voluntary request on the detail by country of location and activity , in particular for: • Total World , EU27, EU countries • Agriculture, forestry and fishing - Sec. A • Ref year 2008 - NACE Rev.1.1 data (+ NACE Rev 2 for 3 countries) • Ref. year 2008-2009 - double codification (NACE Rev.1.1+NACERev.2) on a voluntary basis • Ref. year 2010 - NACE Rev.2 data, legal request Foreign affiliates statistics (FATS)

19. OFATS data production – some issues • Incorrect gesmes format - still many countries • Files sent by e-mail (instead of edamis) • Duplicated records/values – correct technical format but several identical records or double values for a same cell (more serious) • Comparability of data (over time) • Different concepts (until 2006, from 2007 on) • Different units (for ex. Thousands/millions EUR) • Different response rates, different estimation methods (imputing or not imputing missing data…) Foreign affiliates statistics (FATS)

20. Data coverage • Inward FATS: • 2006: 15 Member States • 2007: 24 Member States + Norway • 2008: 22 Member States + Norway • 2009: 27 EU Member States + Norway • first EU aggregates published for 2009 data • 2010: 27 EU Member States + Norway + Croatia • Outward FATS: • 2006: 12 Member States • 2007: 23 Member States + Croatia (derogations: ES, LU, PL, UK) • 2008: 23 Member States + Croatia (derogations: ES, FR, LU, UK) • 2009: 27 EU Member States + Norway • first EU aggregates published for 2009 data • 2010: 27 EU Member States + Norway + Croatia 20/12/2019 Foreign affiliates statistics (FATS) 20

21. FATS in Eurostat's database 20/12/2019 Foreign affiliates statistics (FATS) Foreign Affiliates Statistics (FATS) 21

22. Outward FATS data – some figures… 2009 data, the biggest partners of the reporter EU according to employment: Foreign affiliates statistics (FATS)

23. Outward FATS data – some figures… 2009 data, the biggest partners of reporter EU-27 according to turnover 20/12/2019 Foreign affiliates statistics (FATS) 23

24. Outward FATS data – some figures… 2008+2009 data, total of non-EU affiliates, total economic activity 20/12/2019 Foreign affiliates statistics (FATS) 24

25. …and interesting facts • in 2008, Germany was the biggest contributor in all 3 variables and almost all destinations, however in 2009 the situation differs: France has got most number of affiliates abroad as well as is the largest employer • the highest employment per affiliate: Luxembourg: 835 number of persons employed, the lowest in Latvia: 21 persons employed people per affiliate • in 2009, 39 % of ‘German’ turnover and almost a half of the UK turnover (49.8%) that was created by the US affiliates • activities of US affiliates are very important also for France, the Netherlands, Italy and Spain • Italy particularly present in Africa, Netherlands in S-E Asia • 18% of turnover for the Netherlands recorded by affiliates resident in offshore financial centres Foreign affiliates statistics (FATS)

26. Inward FATS data overview 2008+2009 data, total of foreign affiliates controlled from outside the EU, total economy activity Foreign affiliates statistics (FATS)

27. Some IFATS related facts and interpretations • for most of the EU countries the US parent companies play the most important role as regards the share on the totalturnover in non-EU controlled enterprises • in Ireland 89%, • in the Netherlands 67% - in France 62% • Germany, Hungary and the UK attractive for companies from S-E Asia; Bulgaria for Russia, Ukraine and countries of Central Asia and Middle East • large turnover of Swiss-controlled affiliates in Slovenia (39%) and in Germany (21%) and Austria (22%) • Portugal with 42% and Cyprus with 35% out of non-EU controlled affiliates controlled from offshore financial centres • affiliatescontrolled from another EU MemberState morenumerousthanthosecontrolled by non-EU countries (except for UK) • importance of neighbours’ links Foreign affiliates statistics (FATS)