Merchanting
SNA Chapter 14 (External transactions)
A wholesaler in Country A buys goods from Country B for 80.
It resells the goods in Country C for 100.
Current treatment:
If goods pass through Country A, then A records imports of
goods of 80 and exports of goods of 100.
If goods do not pass through A, then A records exports of
merchanting services of 20.
In both cases, Country B records an export of 80 and Country
C records an import of goods of 100.
• Note: BOP is international transactions accounts;
production and holding gains on goods are not
international processes.
Some more complex cases:
The merchant is a pure speculator (e.g., on oil or gold market)
not a wholesaler, so the difference is entirely holding gain.
There is a holding loss.
Transactions straddle reporting period.
The three entities involved are all related.
In this case, the “merchant” may be managing a production
and distribution process without physically holding the
goods. (Or it may be transfer pricing.)
• Does wholesaling between two related enterprises make
sense?
1993 SNA
14.60.The third exception is one in which a change of ownership may
occur but is ignored in the accounts. The exception relates to
merchants or commodity dealers who buy commodities or other goods
from non-residents and then sell them again to non-residents within the
same accounting period without the commodities actually entering the
economy in which the merchants are resident.
The difference between the receipts and the sales of such dealers is
treated as measuring the value of the services they provide and
recorded under exports or imports of services.
If, however, the goods are not resold within the same accounting
period, the purchases have to be recorded as imports of goods which
are temporarily held in inventory; when they are sold abroad in a later
period they should be treated as negative imports.
(Italics added)
Concerns
Merchanting is a residual which includes the value of
wholesaling services:
Includes holding gains/losses.
• Commodity arbitrage and speculation is an
important component of merchanting.
• BOP shows international transactions, not
production account.
Concerns
Imputation of no change in ownership gives inappropriate balance
sheet.
Is not consistent with treatment of other wholesale margins on
exports, which are included in the price (purchaser’s price
concept).
Not shown for imports, so is asymmetric.
However, SNA specifies merchanting imports, presumably an
error?
Loss of the link between the margin and the associated goods
flows.
Quite different treatment to that of goods that are delivered
through the merchant’s economy.
Possibly different treatment of same transaction in national and
currency union data.
Changes in inventories as imports or negative imports are hard to
interpret.
Concerns
However, without merchanting goods flows would be
larger and include even more of the “straight-in
straight-out” goods flows.
Services would be lower.
Hong Kong wheat exports, etc.
Question 1/2
(1) Should the change of ownership in goods
subject to merchanting be recorded as
imports and exports of goods in
merchandise?
(2) Alternatively, should the change of ownership
be ignored in this case and the difference in
value between the selling price and buying
price be treated as a service provided by the
merchant to the purchaser of his goods?
Question 3
If (2), should the disposal of the goods in a
subsequent period be recorded as negative
imports at the original value (as now) or as
exports at the original value (leaving an
export of services)?
Question 4
If (1), should a new subcategory of goods under
merchanting be introduced under the trade in goods
category?
BOPCOM Answers
1) The Committee expressed the objective of properly reflecting
complex global production and marketing processes while
taking into account concerns both about deviating from the
change of ownership principle and avoiding excessive grossing
up of export and import flows.
•
Possible separation of commodity dealers and others?
•
Possible report net but under goods?
2) The Committee proposed that a working group be set up to
investigate further.
3) In the meantime, it is suggested that the AEG discuss the
issues now, but that a decision be delayed.