The purpose of this note is to quantify and explain the range of adjustments taking the goods data from a cross-border International Trade basis to an ownership basis in Irish Balance of Payments (BOP) and the National Accounts. The BOP goods data are sourced from the International Trade monthly series which is measured on a cross border basis. For BOP purposes adjustments are applied to the International Trade series which follow the recommendations of the Balance of Payments manual (BPM6). The adjustments applied relate mainly to the recognition of a change in economic ownership taking place, rather than crossing Ireland’s frontier.
Cross-border International Trade versus BOP merchandise (on an ownership basis) in years 2012 to 2016 are shown in Figures 1 and 2.
|International Trade||BOP Merchandise|
|International Trade||BOP Merchandise|
What is contract manufacturing / goods for processing?
Emerging trends in globalised economies have been towards cross-border production arrangements.These include (a) goods sent abroad for further processing in another economy, (b) goods received from abroad for processing in Ireland, or (c) goods purchased abroad and further processed abroad.These arrangements are often termed ‘processing abroad', 'contract manufacturing', and 'factoryless production'. An export or import as a result of these arrangements is only recorded in BOP when a change of ownership occurs. [CSO 2015] In Ireland, these exports and imports of goods are significant and often involve a large royalty or management service fee payment (as well as the processing fee) that offset the trade balance on the goods.This has almost entirely been the case up to 2014, but in 2015 the goods for processing exports were not offset by service costs which dramatically increased the balance of trade.
What is Merchanting of goods?
Merchanting occurs when goods are purchased and subsequently sold without transformation, by Irish merchants from abroad, without the goods entering or leaving Ireland. International Trade statistics are recorded at the time the goods cross the border of the State, therefore Balance of Payments incorporate an adjustment for the transactions related to merchanting because they are not already included in the International Trade statistics even though a change of economic ownership has occurred. The adjustment is applied on a net basis, i.e. sales net of purchases.
Other Conceptual adjustments
These adjustments include estimates for purchases of aviation fuel abroad by Irish resident airlines, estimates for illegal cross-border trade, certain price adjustments applied to more accurately reflect the impact of merchandise exports and imports on the Irish economy, adjustments for goods owned by Irish residents which cross the border for repair but where there is no change of ownership and estimates for storage and provision costs.
The ‘c.i.f. to f.o.b.' adjustment
International Trade imports are valued on a carriage, insurance, freight basis (c.i.f.) which means that the cost of goods includes the transportation and insurance costs. BOP estimate and remove from the imports of goods, the transportation and insurance charges from the border of the exporting country to the border of the importing country. The portion of these charges provided by foreign service providers is added to the imports of services. This valuation is called free on board (f.o.b.). It is a routine adjustment for all international compilers of BOP statistics.
Imports and exports of aircraft in our goods statistics
Aircraft imports and exports both on a cross-border and on an ownership basis are already included in the International Trade data.
Range of adjustments
The range of adjustment are presented below in Table 1, Table 2 (with EU/non EU breakdown), Figure 3 and Figure 4.
Exports of contract manufacturing/goods for processing increased significantly between 2014 and 2015 from €18.6bn in 2014 to €78.6bn in 2015. Net exports of goods under merchanting also increased in the same period from €3.5bn to €6.4bn (see Table 1).
In 2016, 68% of goods for processing exports were to non-EU countries (see Table 2).
|Table 1 : International Trade (Cross-border) to BOP Merchandise (Ownership basis)||€ million|
|International Trade (Cross-border basis)||Exports||93,507||89,175||92,616||112,408||117,609|
|Of which: Aircraft||Exports||1,349||1,555||312||5,170||3,868|
|Goods for processing||Exports||6,141||7,124||18,569||78,633||67,567|
|Net exports of goods under merchanting||Exports||3,278||3,715||3,506||6,400||5,332|
|Other Conceptual adjustments||Exports||-1,057||-1,282||-230||2,887||3,562|
|c.i.f. to f.o.b.||Imports||-1,672||-1,622||-1,782||-2,061||-2,111|
|Merchandise (Ownership basis)||Exports||101,869||98,732||114,461||200,327||194,070|
|Table 2 : BOP Merchandise with EU/non EU detail||€ million|
|International Trade (Cross-border basis)||Exports||117,609||60,084||57,525|
|Goods for processing||Exports||67,567||21,326||46,241|
|Net exports of goods under merchanting||Exports||5,332||-3,990||9,322|
|Other Conceptual adjustments||Exports||3,562||1,949||1,613|
|c.i.f. to f.o.b.||Imports||-2,111||-718||-1,393|
|Merchandise (Ownership basis)||Exports||194,070||79,369||114,701|
|The term ‘EU’ relates to transactions between residents of Ireland and other residents of the EU-28 area.|
|Conceptual adjustments||Goods for processing||Merchanting||International Trade|
|Conceptual adjustments||Goods for processing||c.i.f. to f.o.b.||International Trade|
FOR FURTHER INFORMATION CONTACT:
Annette Hayes (+353) 01 4984319 or Margaret Kinsella (+353) 01 4984352
or email Bop@cso.ie
Central Statistics Office