Central Statistics Office of Ireland
14.137. Ireland is a small open economy that given its taxation structure has become a well-known location for foreign-owned multinational enterprises (MNEs). As an indication of the dominance of MNE in the Irish economy, in 2016 gross value added for the following MNE dominated sectors represented 39% of the total: Reproduction of recorded media; Manufacture of chemicals and chemical products; Manufacture of basic pharmaceutical products and pharmaceutical preparations; Manufacture of computer, electronic and optical products; Manufacture of electrical equipment; Manufacture of medical and dental instruments and supplies; Publishing activities; and Information service activities.
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14.141. Type 1 - Goods sent abroad and returned after processing (the 'classic case'). The national enterprise decides to outsource part (or all) of the production process. The goods are shipped abroad (recorded as exports in the IMTS) and after processing shipped back (recorded as imports in the IMTS), all while there has been no change of ownership. For the balance of payments, the exports and imports of the goods are recorded as zero and the processing fee is recorded as an import of service under 'Manufacturing services on physical inputs owned by others'.
Irish example of type 1
14.142. A multinational pharmaceutical enterprise has its European manufacturing site located in Ireland. Goods are shipped into Ireland where the product is finished and returned to the original country. Notably the value of exports in IMTS far exceeds imports (suggesting significant value added undertaken in Ireland), however there is an inconsistency with the company accounts. Discussion with the enterprise reveals that the production in Ireland is on a fee basis and no ownership is taken of the inputs or the outputs.
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14.144. Type 2 - Goods sent abroad for processing and then sold abroad. Goods produced in Ireland are sent aboard to be finished and then sold in another economy without coming back to Ireland. Ownership of the goods remains with the Irish enterprise up until they are sold.
Irish example of type 2
14.145. An electronics manufacturer based in Ireland with a plant of 300 workers is part of a global structure where a lot of the production is sent abroad for further testing and processing. The finished goods are sold without being returned to Ireland.
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14.148. Type 3 - Goods purchased, processed and sold abroad. This is common for MNEs based in Ireland where materials are purchased abroad (which are not shipped to Ireland) and then are processed abroad before being finally sold abroad. The Irish MNE at all times, up until the sale, has ownership of the goods but they never enter Ireland.
Irish example of type 3
14.149. A pharmaceutical company based in Ireland arranges the manufacture of pharmaceuticals abroad. Bulk raw materials are purchased from abroad by the Irish company, there are provided to the processor who transforms the materials into the final goods. The goods are then sold to the final consumer without ever entering Ireland. The Irish company considers itself the owner of the inputs until the product is sold and the inventory is recorded in the accounts of the Irish company.
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14.152. Type 3 shares commonalities with factoryless production (where the principal specifies the production, provides non-material inputs and knowhow (IPP, blueprints, etc.), and has ownership of the final good). However, the crucial difference is that the processor sources the material inputs. The principal in a factoryless goods arrangement is classified as a distributer and the activity is treated in the same way as merchanting.
Lessons from the CSO
14.153. Goods for processing (and merchanting) adjustments in the balances of payments are significant. For example in 2016 'net exports of goods under merchanting' represented around 2% of GDP while the adjustments made to goods exports and imports to account for processing abroad represented 25% and 4% of GDP respectively. These are major amounts and point to a real need to understand, capture and record these balance of payments flows. The amounts recorded also suggest that corporations increasingly choose to send goods overseas for further production.
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14.156. In summary, for Ireland globalisation has seen an increase in production arrangements where the production process is split between different countries. The need to follow the BPM6 principal of ownership makes identifying these arrangements a challenge, more so considering that most of these arrangements are undertaken by MNEs and this is where the CSO has gained most experience. In this context the CSO has taken two approaches: comparing source data across the organisation (IMTS, balance of payments, PRODCOM[1], structural business survey, etc.); and the LCU which monitors all statistical outputs of MNEs.
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