Identifying enterprises involved in merchanting and manufacturing services
14.81. Due to the nature of the transactions involved, surveys are generally considered the best data source to collect information on manufacturing services and merchanting. While, in theory, an intuitively simple approach would be to add questions to standard business surveys that ask firms to report revenues and costs related to these activities, this in turn raises burden issues and, moreover, additional challenges pertaining to sampling. Stratification methods typically used in sampling firms relate to size and industry, in other words, at least with conventional stratification methods, representivity and results would be questionable. A preferred approach in this respect therefore is to capitalise on existing sources or mechanisms that can be used to identify merchanting and processing firms, and either design surveys on the basis of this population of firms or using complementary administrative data linked to the firms.
14.82. For many countries, an important source for identifying enterprises is the tax records (in particular VAT or GST data). VAT records in a number of countries are integrated with customs records and can therefore be cross referenced to import/export information and so in turn manufacturing service and/or merchanting transactions. In the European context, the VAT Information Exchange System (VIES) has a cross-border dimension that can, at least, partially identify enterprises engaged in merchanting through ‘triangular trade’.
14.83. Customs records, when linked to business registers, are another important source, in particular the Customs Procedure Codes (CPCs); which identify the customs and/or excise regimes entered into and removed from (where this applies). While not all Customs Services have CPCs, for those that do they provide another source to identify enterprises undertaking in particular, processing transactions. Some care is need in their application however as they may not always be well maintained. In addition, flow mismatches may occur due to timing differences, or when third or fourth countries are involved, or when the domestic trader is not the actual merchant.
Using CPCs to identify manufacturing services: examples from the United Kingdom and Canada
In the United Kingdom's customs records, a CPC code is included, which identifies the customs regime to which goods are entering, e.g. removal from warehouse, entry to free zone, and export under Outward Processing Relief (OPR). The code also identifies the regime from which goods are being withdrawn. When linked with business registers these codes help identify enterprises involved in manufacturing services.
In the Canadian customs data, two customs’ programmes have been identified that enable better tracking of inward and outward processing activities. These are the Exporter of Processing Services Program (EOPS), which allows the tax-free importation of goods by a Canadian processor for the purpose of processing the goods in Canada and subsequent export, and the Canadian Goods Abroad Program (CGAP) which entitles enterprises to full or partial relief of duties and taxes, including the value-added taxes, for goods that have been repaired, altered, or worked on outside Canada.
In the European context, Nature of Transaction (NoT) codes, at the 2-digit level, can also be used to identify enterprises engaged in manufacturing services, as illustrated in Table 1 below, which provides an overview of the relevant codes. However, the 2-digit level is not compulsory in every EU member state and can therefore not be used uniformly.
14.84. In the European context, Nature of Transaction (NoT) codes, at the 2-digit level, can also be used to identify enterprises engaged in manufacturing services, as illustrated in Table 1 below, which provides an overview of the relevant codes. However, the 2-digit level is not compulsory in every EU member state and can therefore not be used uniformly.
Table Add.1 Nature of Transaction Codes relevant for identifying enterprises engaged in manufacturing services
4. Operations with a view to processing under contract (no transfer of ownership to the processor)
4.1 Goods expected to return to the initial country of export
4.2 Goods not expected to return to the initial country of export
5. Operations following processing under contract (no transfer of ownership to the processor)
5.1 Goods returning to the initial country of export
5.2 Goods not returning to the initial country of export
14.85. Another option is to introduce checkboxes into existing surveys of (mainly multinational) enterprises to identify those enterprises undertaking international manufacturing services and merchanting; from which additional surveys could be designed that focus only on the target population. In addition to these sources, company profiling can be used to cross-check information from different statistical domains as well as from public domains such as company reports, media articles etc.
14.86. Compilers may also be able to identify enterprises undertaking manufacturing services if special registration arrangements exist (e.g. for duty reductions, export processing zones or special trade zones). Free trade zones for example are likely to have disproportionate representation of processing firms for example, so compilers should investigate the possibility of accessing administrative data from these zones.
14.87. Business registers also provide a useful source for identifying enterprises engaged in merchanting activities as these are more likely to be recorded in the distribution sector, therefore narrowing the scope of firms that could be captured in a dedicated survey. Overall, however a combination of different sources may be the most appropriate means to correctly identify all enterprises engaged in the relevant transactions, as the example in Box 2 for Belgium illustrates.
Identifying enterprises engaged in merchanting: example from Belgium
The Belgian merchanting questionnaire, administered by the National Bank of Belgium, collects detailed information on merchanting transactions, including information on the transaction type (goods acquired under merchanting, goods sold under merchanting, trade margins under merchanting); the partner country; currency; and value of the transaction. To be included as a respondent to the Belgian merchanting questionnaire, enterprises must meet one or more of the following criteria:
i) the enterprise declares triangular trade in the VIES;
ii) declares more than 10 million Euro per year in Intrastat;
iii) declares more than 1 million Euro per year in Extrastat;
iv) has an NACE activity code starting with 451, 4531, 454 or 46; or
v) be a known merchant or enterprise with e.g. "trading" as part of their name.