>> Processing The Danish experience in adapting the data collection SSSU Study Visit June 2014

>> Manufacturing is global BPM6:  Flows of goods for processing (under contract) are excluded from the goods account...  …and manufacturing services on physical inputs owned by others are included in the service account  Semi-finished goods and materials bought abroad (by the principal/owner) and used for processing abroad must be recorded as imports of goods. BPM6 induced change in Denmark:  Goods sold abroad after processing must be recorded as exports of goods

>> Main challenges 1. Identifying goods for processing  Crucial to identify processing transactions in order to adjust the goods account. Failure to identify the transactions will lead to an exaggeration of the gross flows of the goods account.  Preferably, the transactions should be identified at the commodity level in order to link them to the supply and use tables in the National accounts.  Goods for processing can be identified in the ITGS by the nature of transaction codes (NoT) and/or the customs procedure codes (CPC) to some extent. - DK does not have NoT in Extrastat!

>> Main challenges 2. Collect new information  Goods sold abroad after processing  Materials bought abroad and used for processing abroad  Manufacturing services on input owned by others The information will be collected on the ITS questionnaire

>> Identifying goods for processing - NoT Nature of transaction code in Intrastat  Operations with a view to processing under contract: 41. Goods expected to return to the initial Member State of dispatch 42. Goods not expected to return to the initial Member State of dispatch  Operations following processing under contract: 51. Goods returning to the initial Member State of dispatch 52. Goods not returning to the initial Member State of dispatch

>> Identifying goods for processing - NoT ITGS Inward and outward processingImportsExports Inward processing (IP) Goods for processing - goods expected to return to the initial country (41) goods not expected to return to the initial country (42) 74 Goods following processing - goods returning to the initial country (51) goods not returning to the initial country (52) 98 Outward processing (OP) Goods for processing - goods expected to return to the initial country (41) goods not expected to return to the initial country (42)337 Goods following processing - goods returning to the initial country (51) goods not returning to the initial country (52)139 Goods for processing in the EU (2011, mill. DKK)

>> Identifying goods for processing - NoT Inward processing, EU  The value of the goods that return to the initial country after processing is 9 per cent higher than value before. This is surprisingly low since the 9 per cent includes both processing fee and domestically owned materials used.  The ratio between the value of exports and imports fluctuates - from 2005 to 2008 between 1.35 and 1.50 – but since 2009 there have been large fluctuations and in 2010 the ratio was 0.98 clearly indicating that some exports are missing – quality improvement needed Outward processing, EU  The value of the goods sent for processing has increased by 40 per cent upon return. Similar to Extrastat (38 pct.)

>> Identifying goods for processing - CPC Some procedures indicate goods for processing:  21/22: Temporary export under outward processing  41: Inwards processing procedure - drawback system  51: Inwards processing procedure - suspension system  91: Processing under customs control Some procedures can only exit as a previous procedure:  54: A previous procedure indicating that goods were under inward processing procedure in another MS (suspension system).  92: A previous procedure indicating that goods were under processing under customs control in another MS.  Might be normal imports or imports following processing under contract. – to be investigated further.

>> Identifying goods for processing - CPC  CPC 41 and 51 are used when the goods are expected to be re-exported. In case of CPC 51 the goods are not in free circulation of the EU (‘T1 goods’) and after processing the exports of the processed goods must be documented. In case of CPC 41 the customs duties are paid and the goods are in free circulation (‘T2 goods’).  CPC 91. No requirement – or intention – that the goods must be re-exported following processing. Thus only a fraction (16 pct. in 2011) of the goods imported for processing under customs control should be associated with processing under contract  CPC 21/22 are export procedure codes that are used when the processed goods are expected to return. When semi- finished goods are not expected to return after processing the procedure for normal exports is likely to be used.

>> Identifying goods for processing - CPC Goods for processing according to CPCs:  Denmark is a processing country! (for the next two slides!)  Different pattern for CPC 41 and 51 – indicates that not all 41 leaves DK after processing  Highly concentrated - the 10 largest processors imported for 4.2 bill. DKK – we contacted them… 2011, bill. DKKImportsExports Inward processing CPC CPC Outward processing

>> Identifying goods for processing - CPC  The eight largest CPC 41 importers accounted for 3.2 bill. DKK out of a total import of 3.7 bill. DKK and only in one case export to non-EU countries exceeded import! - either the goods stay in Denmark or are re-exported in the Intrastat system.  Nine companies reported – surprisingly – that they were the legal owner of the semi-finished goods/materials! I.e. the trade flows are equivalent to normal imports/exports.

>> Identifying goods for processing - CPC Goods for processing according to CPCs - adjusted:  The preliminary adjustment of CPC figures gives a very different picture – having the EU processing flows in mind, it is seen that outward processing exceeds inward processing activities (as expected). 2011, bill. DKKImportsExports Inward processing 0,3 1,4 - CPC 41 0,2 0,8 - CPC 51 0,1 0,6 Outward processing

>> Identifying goods for processing - CPC Outward processing  The amount of imports after OP is only slightly higher than the value exported, however, this ratio is influenced by exports that – despite the intention – do not return to DK.  We have accurate data from the CPCs to identify goods that do not return. In 2011 the value was increased by 38 per cent following OP for goods that returned to DK.  Poor coverage – normal exports reported when the goods are not expected to return.

>> Identifying goods for processing - CPC In sum, the CPCs are not a good source for identifying trade flows to and from processing for the following reasons: Inward processing: 1)Some of the imported goods remain in the country after processing, thus the import should not be adjusted. 2)Most of the trade recorded by using the inward processing procedures are intended for processing on own account, thus the import should not be adjusted. 3)Under-coverage: Some imports for processing under contract is likely to be recorded as normal imports if there is no tariff on the goods. Outward processing: 4)Under-coverage: If the goods are not intended to return to the original country the outward processing procedures are not used and the goods are recorded as normal exports.

>> Identifying goods for processing The way forward  We need the NoT…  Information on goods for processing (gross flows) might be collected on the service questionnaire in 2013 until the NoT codes are available in Extrastat  Aggregate adjustment of the BoP…  … but that is a problem vis-á-vis supply/use tables Back data  We need to identify goods for processing back to 2005 – a challenge when missing the NoT

>> Thank you for your patience!