OECD - WGGS
Merchanting
Michael Connolly – National Accounts, CSO Ireland
October 2010

Outline of Presentation
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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
2 OECD WGGS
Oct 2010

International Merchanting Activity
2004 – 2008 Index 2004 = 100
3 OECD WGGS Oct 2010

European Union of which:
Belgium
Denmark
Germany
Ireland
France
Italy
Cyprus
Luxembourg
Hungary
Malta
Netherlands
Austria
Slovenia
Slovakia
Finland
Sweden
United Kingdom
Other Countries:
Switzerland
United States
Japan
2004
25,543
1,233
:
4,284
2,480
3,323
140
319
270
988
35
1,020
1,406
1
:
4,337
3,459
690
2,949
:
:
€millions
2005
34,223
2006
41,453
1,469
1,286
5,301
4,018
5,864
141
1,408
1,544
10,156
5,301
6,213
164
404
305
1,234
61
1,059
2,029
58
-8
4,493
3,936
1,261
468
353
1,157
80
1,143
2,273
111
-24
4,929
4,866
361
3,787
:
:
5,602
:
:
47,055
2007
52,329
4,580
1,707
9,714
8,816
5,631
132
369
345
1,235
51
1,196
2,538
168
-15
5020*
6,669
1,549
6,523
:
:
2008
56,145
4,251
1,907
8,771
9,817
8,220
106
627
801
1,317
82
1240*
2,773
189
-22
5100*
7,392
1,341
9,100
:
:

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 BPM5
In addition no transformation of the good has taken place - if so, then goods for processing

Merchanting
Value of exports = 80
Germany exporter/seller
Change in ownership
Value of imports =100
USA importer/buyer
Cash settlement
Ireland
Merchant
Value of services exports = 20

Goods
Exports
Imports
Ireland
Services
Exports
Imports
Cash
Payments
Receipts
Total
-20
-80
100
0
Germ any USA
-80
80
0
100
-100
0

Merchanting
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So what is the problem with merchanting?
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In the trade data for countries Germany and USA the exports and imports are included
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How do we treat the transactions in the accounts of
Ireland?

Merchanting – BPM5, SNA 93
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The solution to this difficulty centred around the treatment for the change of ownership.
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Change in ownership would normally require that we record exports from Germany to Ireland and record exports from Ireland to USA

Merchanting
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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
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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

Merchanting
BPM 6 & SNA 2008
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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
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New proposals apply to the merchanting of goods only
- no mention of merchanted services
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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
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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
16
Germany exporter/seller
Movement of goods/services
South Africa importer/buyer
Change in ownership
Cash settlement
Ireland
Merchant
OECD WGGS Oct 2010

Merchanting
Ireland
Goods under merchanting (x)
Goods under merchanting (m)
Currency & deposits
Germany
Goods
Currency & deposits
South Africa
Goods
Currency & deposits
Global Total Goods
Global Total Currency &Depos
Credit
100
-80
Debit
20
80
100
100
100
80
100
100
100

Merchanting
Impact of New Proposals
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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
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Commodity Trading
International Wholesale Retail
Global Manufacturing and
Interaffiliate transactions in Goods and Services
Outsourcing of Services (abroad)

Merchanting
Global Manufacturing
Goods for processing
Country B owner of goods
Movement of goods/services
Country D importer/buyer
Change in ownership Cash settlement
Country C
Processor/exporter
Country A
Group Company

Merchanting of Services
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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 1 st
Edition - 1948 Record net under Other Transactions in
Merchandise Merchandise
BPM 2nd Edition - 1950 Record gross under Other Transactions in
Merchandise Merchandise
BPM 3rd Edition - 1961 Record net under Merchandise transactions
Merchandise abroad
BPM 4th Edition - 1977 Record net under Other Other Goods Services and
Goods Services and Income
Income
BPM 5 th
Edition - 1993 Record net under Business Services
Services

Merchanting, CSO Treatment
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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
OECD WGGS
Oct 2010

Merchanting
Goods & Services
100%
Country US
Direct Investor
Country DE
Producer Goods
100%
Country FR
Producer services
Country IE owner of goods
Market EMEA
Many customers

Merchanting of Services
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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?

Merchanting
Conclusions
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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