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

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

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

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

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

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

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

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

Disadvantages Inconsistency with the recommendation concerning goods for processing

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

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

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

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

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.

Remittances A practical step-by-step approach is suggested

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

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?

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

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

The END The End The end

The rest is redundancies

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

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.

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

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”)

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