Net exports of goods under merchanting

Definition

14.65.        Merchanting is defined in BPM6 (paragraphs 10.41 to 10.49) as the purchase of goods by a resident, of the compiling economy, from a non-resident followed by the subsequent resale of the goods to another non-resident without the ever goods entering the residents’ compiling economy. It should be noted that merchanting only relates to transactions in international merchandise trade. As an example, a resident in the compiling economy purchases goods (the merchandise) from another economy (from a non-resident) and then resells these goods either in the same economy they were purchased in or in a third economy (again to non-residents); at no time do the goods ever enter the economy of the resident owner of the goods (the compiling economy).

14.66.        Merchanting is largely, although not exclusively, undertaken for the purposes of wholesaling and retailing and commodity dealing. An important characteristic of merchanting is the absence of changes to the physical form of the good: if the physical form of the goods is changed, then transactions related to the goods should not be recorded under merchanting. Minor processing (for example packaging books into boxes) and nonphysical contributions e.g. planning, management, marketing etc., are however considered part of the merchanting transaction.

14.67.        If minor processing takes place, that does not change the physical characteristics of the good, a balance of payments transaction for manufacturing services on physical inputs owned by others (the 'minor processing' fee) can be included in addition to the entry for merchanting service (see also BPM6 Box 10.1)

Recording and compilation

14.68.        BPM6 recommends that merchanting be recorded in the goods account of the balance of payments as net exports of goods under merchanting, as follows:

• the purchase of the goods by the merchant is recorded in the goods account, credits, as 'goods acquired under merchanting (negative credits)' of the economy of the merchant;
• the sale is recorded in the goods account, credits, as 'goods sold under merchanting'; and
• the difference between the purchase and the sale recorded as 'net exports of goods under merchanting' i.e. a credit in the goods account.

14.69.        Importantly, the 'net' item reflects not only the merchants' margin from providing what are essentially akin to distribution services, but also any holding gains and losses^_[1] and also any changes in inventories incurred during the period. As such the 'net' item may be negative as a result of changes in inventories and holding losses.

Conceptual and compilation challenges

14.70.        Three important conceptual and compilation challenges are involved in compiling merchanting transactions, as also noted for example in the Guide on Measuring Global Production.

• The first is how to establish if the nature of the good under ownership of the merchant has changed (e.g. been transformed), which determines if a transaction should be recorded as merchanting or rather a manufacturing service.
• The second relates to whether or not significant input from intellectual property products owned by the merchant are embodied in the value of merchanting transactions (i.e. if the merchant is an organiser of a global production processes and is therefore a possible Factoryless Goods Producer).
• The third challenge is more practical, namely how to identify transactions in goods that do not cross the customs frontier of the merchant.