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 end

• 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

•