Changing the Treatment of Goods Sent Abroad for Processing (GSAP) Practical and Analytical Impacts...
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Transcript of Changing the Treatment of Goods Sent Abroad for Processing (GSAP) Practical and Analytical Impacts...
Changing the Treatment of Changing the Treatment of Goods Sent Abroad for Goods Sent Abroad for
Processing (GSAP)Processing (GSAP)
Practical and Analytical Impacts Practical and Analytical Impacts on Production Accountson Production Accounts
Michel Girard - Statistics CanadaMichel Girard - Statistics Canada
Presented to the working Group on the Presented to the working Group on the Impact of Globalization on National AccountsImpact of Globalization on National Accounts
Geneva, April 2008Geneva, April 2008 Statistics Canada Statistique Canada
Agenda item 8
Invited paper 18
OverviewOverview
Background – Goods send for processingBackground – Goods send for processing
Current conceptCurrent concept– Balancing the Canadian supply-use tables (SU)Balancing the Canadian supply-use tables (SU)– Consequences on IO accounts Consequences on IO accounts
New conceptNew concept– Transportation marginsTransportation margins– Analytical aspectsAnalytical aspects– SurveysSurveys
Statistics Canada Statistique Canada
BackgroundBackgroundTrendTrend
Companies moving away from only transforming Companies moving away from only transforming their own materialtheir own material
Companies now act as agentCompanies now act as agent– Provide processing services to other companiesProvide processing services to other companies– Receive processing feesReceive processing fees
Ownership of raw materials remains the property Ownership of raw materials remains the property of the customerof the customer
Statistics Canada Statistique Canada
BackgroundBackgroundReasons Reasons
Separate companies seeking advantages of Separate companies seeking advantages of specialized servicesspecialized services
Companies within the same group seeking tax Companies within the same group seeking tax minimization advantagesminimization advantages
For the processing company, a way to avoid the For the processing company, a way to avoid the risk of holding stocks or finding customersrisk of holding stocks or finding customers
For the client company, a way to avoid the risk of For the client company, a way to avoid the risk of maintaining infrastructure of productionmaintaining infrastructure of production
Statistics Canada Statistique Canada
BackgroundBackgroundMeasurementMeasurement
Treatment of material provided by the client Treatment of material provided by the client company to the processing company company to the processing company – Sometimes a transaction is imputed; sometimes notSometimes a transaction is imputed; sometimes not
Inconsistent treatmentInconsistent treatment– A transaction is imputed when material cross the border A transaction is imputed when material cross the border
or when material is exchanged between two parent or when material is exchanged between two parent companies in domestic economycompanies in domestic economy
– No imputation when transactions take place between No imputation when transactions take place between two separate companies on domestic markettwo separate companies on domestic market
Statistics Canada Statistique Canada
Production context Production context
Material is sent by a unit in country A (client) Material is sent by a unit in country A (client) to another unit in country B (processor) to another unit in country B (processor) Material is transformed in a substantive way and Material is transformed in a substantive way and returned to country Areturned to country AThe client unit maintains legal ownership of the The client unit maintains legal ownership of the semi-processed and processed goodssemi-processed and processed goods
Impact of having client and processor units on Impact of having client and processor units on the SU tablesthe SU tables
Statistics Canada Statistique Canada
Balancing supply-use tablesBalancing supply-use tablesMeasurementMeasurement
Data collection Data collection – Production-related surveys contain a mixture of Production-related surveys contain a mixture of
producers that are traditional producers, offering producers that are traditional producers, offering processing services or users of processing services, processing services or users of processing services, making difficult “imputing” for GSAPmaking difficult “imputing” for GSAP
– For administrative reasons, exports and imports are For administrative reasons, exports and imports are valued at a “market price equivalent”valued at a “market price equivalent”
Statistics Canada Statistique Canada
Data availableData available
Annual Survey of Manufactures (ASM)Annual Survey of Manufactures (ASM)Establishment-based surveyEstablishment-based survey
Shipments and inventoriesShipments and inventories
Custom workCustom work
Cost of own materialCost of own material
Sub-contracts (expenses)Sub-contracts (expenses)
No explicit questions about GSAPNo explicit questions about GSAP
International Trade International Trade Imports and exports at a “market price equivalent”Imports and exports at a “market price equivalent”
AnecdotalAnecdotal evidence of companies sending goods evidence of companies sending goods for processing servicesfor processing services
Statistics Canada Statistique Canada
Consequence – Industry accountConsequence – Industry accountTraditional Traditional processing processing
industryindustry
Traditional Traditional processing processing
industryindustry
ProcessorProcessor TotalTotal
Gross outputGross output 200200 100100 5050 150150
Intermediate Intermediate inputsinputs
125125 62.562.5 12.512.5 7575
Value addedValue added 7575 37.537.5 37.537.5 7575
IO coefficientIO coefficient 62.5%62.5% 50.0%50.0%
Currently difficult to assess quality if unaware of GSAPCurrently difficult to assess quality if unaware of GSAP
New proposal: New proposal:
Better relationship of labour and surplus to productionBetter relationship of labour and surplus to production
Balancing supply-use tableBalancing supply-use tableProcessor case with current surveysProcessor case with current surveys
Step 1 – Material is sent to the processorStep 1 – Material is sent to the processorProd + Prod + MM = inputs + final use + X + inventories = inputs + final use + X + inventories
7575 0 0 Fixing the imbalance?Fixing the imbalance?Step 2 – A good is producedStep 2 – A good is produced
Prod + M = inputs + final use + Prod + M = inputs + final use + XX + inventories + inventories Fixing the imbalance? Fixing the imbalance? 100100Step 3 – Payment stage (processing fee)Step 3 – Payment stage (processing fee)ProdProd + M = inputs + final use + X + inventories + M = inputs + final use + X + inventories
2525 25? 25?If M/X were “net” of the value of goods: balancing would If M/X were “net” of the value of goods: balancing would be easier be easier End up with very little information about supply and useEnd up with very little information about supply and use
Statistics Canada Statistique Canada
Balancing supply-use tableBalancing supply-use tableClient case with current surveysClient case with current surveys
Step 1 – Material is sent to the processorStep 1 – Material is sent to the processorProd + M = inputs + final use + Prod + M = inputs + final use + XX + inventories + inventories
75 75 75 75 7575 Imbalance? Imbalance?Step 2 – A good is producedStep 2 – A good is produced
Prod + M = inputs + final use + X + inventoriesProd + M = inputs + final use + X + inventories 100 100 X1 X2 X3 Imbalance?100 100 X1 X2 X3 Imbalance?Step 3 – Payment stageStep 3 – Payment stage Prod + M = inputs + final use + X + inventoriesProd + M = inputs + final use + X + inventories 25 25?25 25?
If M/X were “net” of the value of goods: balancing would If M/X were “net” of the value of goods: balancing would be easier be easier Value of production ?Value of production ?
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New conceptNew conceptTransportation marginsTransportation margins
By not imputing a value for goods sent for By not imputing a value for goods sent for processing, the link between transport margins processing, the link between transport margins and commodities will no longer existand commodities will no longer exist
Will not associate transport margins with Will not associate transport margins with processing feesprocessing fees
Transportation surveys will continue to collect Transportation surveys will continue to collect revenues and the associated goods transported revenues and the associated goods transported
Transportation services will replace Transportation services will replace transportation margins (Imports/exports)transportation margins (Imports/exports)
Statistics Canada Statistique Canada
New conceptNew conceptAnalytical issuesAnalytical issues
IO coefficientsIO coefficients
Import intensityImport intensity
ProductivityProductivity– ProcessorProcessor– ClientClient
IO ModelsIO Models
Statistics Canada Statistique Canada
New conceptNew conceptIO – Industry AccountIO – Industry Account
Under current treatmentUnder current treatmentProduction function reflects full range of intermediate inputsProduction function reflects full range of intermediate inputs
Under new treatmentUnder new treatmentDoes not allow establishing a clear relationship of all Does not allow establishing a clear relationship of all intermediate inputs involved in the production processintermediate inputs involved in the production process
Requires an adjusting entry or split industries into Requires an adjusting entry or split industries into processors, clients and traditional producersprocessors, clients and traditional producers
Prefer adjusting entry linked with either Prefer adjusting entry linked with either intermediate inputs or gross output – recreating intermediate inputs or gross output – recreating production technologyproduction technology
Statistics Canada Statistique Canada
New conceptNew conceptIO modelIO model
Impact studies: Currently, the larger share of imports is Impact studies: Currently, the larger share of imports is compensated by an increased level of intermediate compensated by an increased level of intermediate demand, leaving value added unaffecteddemand, leaving value added unaffected
Concept of commodity of origin: Concept of commodity of origin: – Commodity is mainly produced by one industryCommodity is mainly produced by one industry– If custom work cannot be associated with specific industriesIf custom work cannot be associated with specific industries– Allocating the demand for custom work to the proper producing Allocating the demand for custom work to the proper producing
industries based on market shares will spread the output to all industries based on market shares will spread the output to all producers involved in custom workproducers involved in custom work
Will require adapting the IO commodity structureWill require adapting the IO commodity structure
Statistics Canada Statistique Canada
New conceptNew conceptLabour productivity - HypothesisLabour productivity - Hypothesis
Switching to a more “client type” industrySwitching to a more “client type” industryPotentially a more efficient industry with lower value addedPotentially a more efficient industry with lower value added
Contributing less to overall productivityContributing less to overall productivity
Switching to a more “processor type” industrySwitching to a more “processor type” industry An industry with less gross output but same value addedAn industry with less gross output but same value added
Labour productivity not affectedLabour productivity not affected
Statistics Canada Statistique Canada
New conceptNew conceptMultifactor productivity - HypothesisMultifactor productivity - Hypothesis
Impact depends on how multifactor productivity Impact depends on how multifactor productivity is derivedis derived
Net approach: No impact in the case of the Net approach: No impact in the case of the processing industry processing industry – ∆∆GDP/hours=(∆MFP + SGDP/hours=(∆MFP + Sk*∆(K/hours) + S*∆(K/hours) + Sll*∆Lc)*∆Lc)
Statistics Canada Statistique Canada
New conceptNew conceptMultifactor productivity - HypothesisMultifactor productivity - Hypothesis
KLEMS – taking into accounts gross output and KLEMS – taking into accounts gross output and intermediate inputsintermediate inputs– Processing economyProcessing economy
Direction of the growth rate is not clearDirection of the growth rate is not clear
Output will play a larger role in the final resultOutput will play a larger role in the final result
– Client economyClient economyPotentially a more efficient industry with lower value added Potentially a more efficient industry with lower value added
Contributing less to overall productivityContributing less to overall productivity
Statistics Canada Statistique Canada
New conceptNew conceptImports and exportsImports and exports
Not imputing a change of ownership Not imputing a change of ownership
Level of imports/exports often compared to Level of imports/exports often compared to value addedvalue added– Misleading in terms of sizeMisleading in terms of size– Exchange rate Exchange rate relationship with export and relationship with export and
import is affected since established against a import is affected since established against a transaction that never took placetransaction that never took place
However, lost of information about goods However, lost of information about goods send for processingsend for processing
Statistics Canada Statistique Canada
SurveysSurveysPotential of new statisticsPotential of new statistics
ImportsImportsFrom Canadian Border Services AgencyFrom Canadian Border Services Agency
– Duties relief applicationDuties relief application
– Statistics related to inward processingStatistics related to inward processing
Goods entering country for processingGoods entering country for processing– Inward goodsInward goods
– Must be recorded in order to avoid paying VATMust be recorded in order to avoid paying VAT
ExportsExportsUnder investigationUnder investigation
Questions related to goods not soldQuestions related to goods not sold
Statistics Canada Statistique Canada
SurveysSurveys
Switch to “client or processor types” will affect sampling Switch to “client or processor types” will affect sampling strategystrategy
Could say the same for editing, imputation and estimation Could say the same for editing, imputation and estimation steps of a given surveysteps of a given survey
Strategy related to the use of administrative data must be Strategy related to the use of administrative data must be adjusted adjusted
Data for contract processing could be recorded by Data for contract processing could be recorded by another entity within the firm, such as head office. The another entity within the firm, such as head office. The plant may not have that information and is most likely not plant may not have that information and is most likely not the one paying the processing fees the one paying the processing fees
Statistics Canada Statistique Canada
Preparing IO accounts Preparing IO accounts and related productsand related products
For accuracy and analytical reasonsFor accuracy and analytical reasons
– Requires preparing IO accounts according to the Requires preparing IO accounts according to the imputation conceptimputation concept
Preserving statistics for structural analysisPreserving statistics for structural analysis
While respecting SNA rulesWhile respecting SNA rules
– Recognizing some goods send for processing on Recognizing some goods send for processing on domestic market would remained not imputed unless domestic market would remained not imputed unless changes are made to questionnaires (non affiliates)changes are made to questionnaires (non affiliates)
Statistics Canada Statistique Canada