## Chapter 10 Goods Account Goods and Services Account ## Source details **Canonical URL:** [Chapter 10 Goods Account Goods and Services Account](https://www.imf.org/-/media/files/data/statistics/bmp7/draft-chapters/draft-bpm7-chapter-10-goods-account-v7gc.pdf) ## Other formats - [Markdown version](/-/media/files/data/statistics/bmp7/draft-chapters/draft-bpm7-chapter-10-goods-account-v7gc.pdf.md) - [Structured JSON version](/-/media/files/data/statistics/bmp7/draft-chapters/draft-bpm7-chapter-10-goods-account-v7gc.pdf.json) --- ### A. Overview - The goods account shows international transactions in goods defined as "physical, produced objects, over which ownership rights can be established and whose ownership can be transferred from one institutional unit to another by engaging in transactions on markets." Electricity, which is not a physical object, is shown in the goods account. (10.1) - Goods may be used to satisfy household or community needs or to produce other goods or services; production of a good can be separated from its subsequent sale or resale. (10.1) - The goods and services account records exchanges between a resident and a nonresident; national accounts also focus on production, consumption, or use in capital formation. (10.2) - Production is defined as activity under responsibility, control and management of an institutional unit using inputs (labor, capital, goods and services) to produce outputs; the SNA term "product" covers both goods and services. (10.4) - Corresponding entries may appear in the financial, current, or capital accounts depending on timing and form of payment (examples: simultaneous payment, trade credit, advances, barter, aid or gifts). (10.5) - Table 10.1 presents the broad structure with balancing items for goods, services, and total goods and services; supplementary items relate to merchanting, re-exports, processing and factoryless goods production. (10.2 / Table 10.1) ### B. Distinction between goods and services - Determined by the nature of economic value supplied; goods and services are outcomes of the production process while other resources (labor, land, natural resources, financial resources) appear in other accounts. (10.6) - Transactions can involve products generated in previous periods (second-hand goods, inventory sales, knowledge-capturing products like software/patents). Re-exports and merchanting may embody output of other territories. (10.6) - Goods: physical, produced items enabling transfer of economic ownership between institutional units. (10.7) - Services: results of production that change conditions of consuming units or facilitate exchange; generally not separate ownership items. Knowledge-capturing products may resemble goods when traded separately. (10.8) - Valuation interactions: goods valuation usually includes transport within exporting economy and wholesale/retail services; some service items include values of goods (examples: travel, construction, government goods and services n.i.e.); some services (manufacturing services, repairs, freight) relate to goods. (10.7) ### C. Digital trade and e‑commerce - Digital trade comprises all international trade that is digitally ordered and/or digitally delivered; digitally ordered trade aligns with the 2009 OECD definition of e‑commerce but focuses only on international transactions. Both goods and services can be digitally ordered; only services can be digitally delivered. (10.10) - Digital trade guidance: further discussion in Annex 5 and Chapter 16; shipping charges associated with digital trade are allocated in line with the FOB valuation principle (10.24). Digital intermediation platforms charge intermediation fees. (10.10) - E‑commerce defined as ordering or delivering products at least partly by electronic means. Charges for electronically delivered products are usually services; products supplied across the border are usually goods. Shipping charges follow FOB valuation; financial services associated with e‑commerce are included in financial services. (E‑commerce note under 10.10) ### D. Valuation, timing, and price/volume data - Price and volume dimensions are important; compilers should collect volume, price, and current price values for analysis and validation. (10.12) - Time of recording: transactions in general merchandise should be recorded at the time of change of ownership to match corresponding financial account timing where possible; IMTS uses entry/exit dates (customs declaration lodgment) as suitable approximations. Practical adjustments may be necessary to align timing. (10.20/10.26; 10.21/10.27) - Valuation principle for general merchandise: market value at exporter’s border (FOB) is standard. (10.24/10.30) - Converting imports from CIF to FOB: deduct freight services and insurance premiums incurred from the frontier of the exporting country to the border of the importing country. CIF to FOB ratios vary by good type, weight, bulk, handling, mode, distance, fuel prices, competition, technology, goods mix, and source economies. (10.29/10.34) - Situations requiring market-price equivalent estimates: barter trade, aid goods, affiliated‑enterprise deliveries, under/overinvoicing, goods on consignment or where final price determined later; may require corresponding financial account items. (10.35–10.36) - Although FOB-type valuation is recommended, observed transaction (invoice) value is conceptually preferred and proposed for future standard; compilers are encouraged to collect invoice values in addition to FOB values. (10.32) ### E. General merchandise — scope and specific inclusions - General merchandise (balance of payments basis) covers goods whose economic ownership changes between a resident and a nonresident and excludes goods under merchanting, nonmonetary gold, and parts of travel, construction, and government goods and services n.i.e. (10.13) - Main source: IMTS, which defines goods that add to or subtract from the stock of material resources by entering or leaving economic territory; IMTS basis differs from change-of-ownership principle so adjustments may be required. (10.14 / 10.16) - Selected items included when change of ownership occurs (paragraph references preserved): - Banknotes and coins not in current circulation and unissued securities; valued as commodities not at face value. Sales of coins to collectors at a premium are valued at transaction price. (10.17 (a)) - Electricity, gas, oil, and water; separately invoiced transmission/transport/distribution charges are included in services. (10.17 (b)) - Noncustomized packaged software and video/audio recordings on physical media with a perpetual license are included in general merchandise at full transaction value. Other software is services. (10.17 (c)) - Goods procured in ports by carriers (fuels/bunkering, provisions, stores, ballast, dunnage) procured by nonresident transport operators from resident providers are exports of general merchandise; converse for resident operators procuring from nonresident providers. (10.17 (d)) - Goods supplied or acquired by carriers away from territory of residence (fish caught by resident‑operated ships sold abroad directly; oil/minerals retrieved from ocean floor and sold abroad directly). (10.17 (e)) - Goods acquired by a lessee under a financial lease are recorded at start of lease because lessee is economic owner; operating leases do not change ownership and are not included. (10.17 (f)) - Goods sent abroad without change of ownership but later sold should be recorded when sold (consignment, storage, repair, exhibition, processing). (10.17 (g)) - Export sales to merchants and import purchases from merchants; merchant‘s corresponding entries are recorded in goods under merchanting. (10.17 (h)) - Goods sold to or purchased from nonresidents without goods leaving reporting economy (including in global manufacturing arrangements where goods do not leave reporting economy). (10.17 (i)) - Goods acquired or sold to be processed without passing through owner's territory; goods sold after processing without passing through owner's territory; goods in global manufacturing arrangements without passing through reporting economy (principal’s viewpoint). (10.17 (j)) - Equipment sold or given away while outside residence territory of original owner. (10.17 (k)) - Illegal goods. (10.17 (l)) - Additional scope items enumerated elsewhere: smuggled goods legal in content, gifts in kind, parcel post with change of ownership, goods lost after importer ownership acquired, livestock changing ownership, government purchases/sales including military equipment, goods financed by grants/loans, humanitarian aid in goods form, transfers to/from buffer stock organizations, goods acquired/sold to be processed without passing through owner territory, and other goods not identified in IMTS but with change of ownership. (paragraphs consolidated) ### F. Exclusions from general merchandise - Items excluded because no international transaction/change of ownership or no value: - Transit trade admitted under special customs procedures. (10.17/10.22) - Migrants' personal effects (no change in ownership). - Goods consigned to embassies, military bases from home authorities and vice versa. - Goods sent to an enterprise’s external operations not constituting a branch. - Temporarily exported/imported goods without change of ownership (repairs, operating leases, storage, exhibitions, competitions); track movements for later sales. (10.17(f)) - Inward/outward processing where entity does not own goods. (10.17(f)) - Goods acquired by a lessor under a financial lease (lessor legal title but not economic ownership) — shown as acquired by lessee. (10.17(g)) - Goods with no positive value (dangerous goods for disposal); waste and scrap with positive values are included. - Returned goods where change of ownership was annulled — recommend revised entries for original period; possible period-of-return adjustments for minor cases. (10.17(h)(i)) - Samples of no commercial value. (10.17(i)(j)) - Trade between customs free trade zones and residents of same economy. (10.17(j)(k)) - Any other goods included in source data though no change of ownership. (10.17(k)(l)) ### G. Items excluded because accounted elsewhere - Excluded from general merchandise because included in other components: - Goods under merchanting (goods bought and resold by residents that do not enter economic territory). (10.41–10.49/51) - Nonmonetary gold shown separately. (10.50–10.56) - Goods included in travel. ([10.89–10.91/96]) - Goods locally acquired for construction by nonresident enterprises (included under construction). ([10.104]) - Devices with stored customized software/data are under computer services. ([10.143]) - Packaged software on physical media with fixed‑period license included in computer or audiovisual services ([10.143(d)] and [10.163]); related products in goods addressed in 10.127(c) - Licenses to reproduce/distribute audio/video conveyed by supply of original recordings on physical media are charges for the use of intellectual property n.i.e. (10.137) - Customized blueprints and nonbulk newspapers/periodicals on direct subscription are information services; bulk provision of newspapers/periodicals is general merchandise ### H. Shuttle trade and customs data adjustments - Shuttle trade (informal cross‑border trade) is included in general merchandise when intent is business/resale and the purchase is by travelers transporting goods back to sell; shuttle trade is part of the informal economy and discussed further in Chapter 18. (10.14/10.19) - When using IMTS/customs data, compilers should adjust for coverage, timing, valuation and classification differences to align with change‑of‑ownership principle. Cases needing adjustment include: - Shuttle trade; acquisition of ships, aircraft, satellites; trade between customs free zones and other special zones and residents of other economies; goods in bonded/customs warehouses under special trade system; amounts below customs thresholds. (10.13/10.18; 10.14/10.19; 10.25) - When using international transactions reporting systems, adjust to include goods with change of ownership but no payment (humanitarian goods, gifts, goods to affiliated enterprises, barter, trade credit, payments via residents’ bank accounts held abroad). (10.16/10.21) ### I. High‑value capital goods, consignment, and ownership evidence - High‑value capital goods (ships, heavy machinery) recorded when economic ownership conveyed; ownership transfer may be progressive with stage payments or in full on delivery. Evidence of progressive transfer can include partial buyer ownership of unfinished asset; stage payments may indicate progressive transfer. (10.22/10.28) - Goods on consignment dispatched before sale are not recorded until ownership changes; if impractical, IMTS-based approximations acceptable, with adjustments for substantial delays. (10.23/10.29) - Deliveries between affiliated enterprises require assessment of economic ownership (who bears risks and rewards). For quasi‑corporations, identify which part assumes risks/rewards based on accounting responsibility and sales responsibility. (10.33–10.34) ### J. Re‑exports and re‑imports - Re‑exports: foreign goods previously imported and exported again with no substantial transformation; price differences can reflect transport, margins, holding gains/losses. To be re‑exports, resident must acquire and resell with goods passing through territory; goods not passing through territory of owner are merchanting. (10.35) - Goods in transit are not recorded in imports or re‑exports; goods cleared by customs but re‑exported without coming into ownership by a resident should not be included as re‑exports. (10.36) - Substantial transformation (possible HS code change) indicates domestic production export rather than re‑export. Used goods may be re‑exports depending on national rules of origin. (10.37) - Re‑imports: domestic goods imported back without substantial transformation; inclusion requires nonresident acquisition and subsequent resale to a resident with goods leaving and re‑entering territory. (10.40) ### K. Merchanting — definition, recording, and examples - Merchanting: purchase of goods by a resident from a nonresident combined with resale to another nonresident without goods entering the compiling economy. (10.41) - Recording principles: - Acquisition by merchant shown as negative export of the merchant’s economy. (10.43(a)) - Sale by merchant shown as exports of goods sold under merchanting. (10.43(b)) - Net exports of goods under merchanting = sales minus purchases; includes margins, holding gains/losses, inventory changes; net exports may be negative. (10.43(c)) - Merchanting entries are valued at transaction prices as agreed by parties, not FOB. (10.43(d)) - Partner allocation of net exports: sum positive and negative merchanting entries per partner economy. (10.44) - Rationale: purchases recorded as negative exports to avoid inflating gross trade in the merchant economy and to treat merchant output as trade margin. (10.45) - Inverse merchanting: seller and purchaser are resident in same economy and goods do not leave/re‑enter that economy; for merchant economy recorded as net exports under merchanting; non‑merchant economy should reflect two ownership changes and adjust IMTS flows. (10.47) - Merchanting of nonmonetary gold is included under nonmonetary gold. (10.51) - Box 10.1 Examples: - Example 1 — Merchanting with minor manufacturing services: - Economy A acquires books from Economy C for 10 (Goods acquired under merchanting: –10). - Economy B boxes books for charge 3 payable by Economy A (Manufacturing services on physical inputs owned by others: 3). - Economy A sells books to Economy D for 20 (Goods sold under merchanting: 20). - Net exports of goods under merchanting for Economy A: 10. - Example 2 — Re‑exports: - Car dealer in Economy A imports car from Economy C for 1000 (General merchandise imports from Economy C: 1000). - Resident of Economy B buys car for 1200 and takes it to Economy B (General merchandise exports to Economy B: 1200; Re‑exports: 1200). ### L. Nonmonetary gold - Nonmonetary gold: all gold other than monetary gold, including bullion (coins, ingots, bars with purity at least 995 parts per 1,000), gold powder, unwrought or semi‑manufactured forms; jewelry and watches containing gold are general merchandise. (10.52) - Sales/purchases not shipped are valued at transaction prices including dealer margins/commissions not billed separately. (10.52) - Allocated gold accounts are storage arrangements for bullion; change in ownership of allocated account holdings is treated as bullion; putting bullion into or withdrawing from allocated account without sale is no transaction. (10.53) - Unallocated gold accounts are financial assets; deposit/withdrawal of bullion to/from unallocated account is exchange of nonmonetary gold for a financial asset unless both parties are monetary authorities or international organisations. (10.53) - Sales between monetary authorities holding gold as reserve assets or international financial organisations are recorded as monetary gold in financial account; otherwise sales recorded under nonmonetary gold. (10.54) - Nonmonetary gold shown separately due to special financial market role and because sales/purchases largely relate to existing stocks. (10.55) - Change in ownership is the recording criterion; nonmonetary gold can be subdivided into store‑of‑value and other (industrial) gold as supplementary data. ### M. Global manufacturing arrangements — processing and factoryless goods production - Global manufacturing arrangements involve a principal outsourcing transformation to a nonresident processor/contractor; ownership changes may differ from physical flows. Two arrangements: processing arrangements and factoryless goods production. - Common features: principal controls design, selling price and global production aspects; retains ownership of critical inputs (materials and/or intellectual property) during production; processor/contractor substantially transforms material inputs or applies supplied intellectual property. Processing arrangements - Principal owns/acquires material inputs and purchases manufacturing services from nonresident processor; ownership does not change during manufacturing; finished goods returned to principal or dispatched elsewhere. Manufacturing services fee is recorded in services account. - If principal acquires material inputs from residents of primary or third economies, treatment differs: purchases from residents of same economy as principal = no international transaction; purchases from residents of same economy as processor or a third economy = principal records imports. Sales of finished goods similarly depend on buyer residence. (paragraphs consolidated) Factoryless goods production - Factoryless goods producer supplies intellectual property and entrepreneurial control, fully outsources material transformation and acquisition of material inputs to nonresident contractor. - Principal buys finished goods from contractor at a price including material inputs and processing but not the value of intellectual property; finished goods may be used domestically or sold abroad. - Guideline: input values of intellectual property and marketing assets supplied by principal typically at least as large as amount paid to contractor less contractor’s cost of material inputs. - Recording: purchases of finished goods by factoryless producer recorded as general merchandise imports at agreed value; sales to nonresidents recorded as exports of general merchandise. No manufacturing services recorded between contractor and principal. Sales of material inputs by the principal - If processor/contractor contributes material inputs acquired from the principal, change of ownership occurs between principal and processor/contractor. - Principal may act as merchant when procuring inputs abroad and selling to processor/contractor without goods passing through principal’s territory; such flows may be shown as supplementary items (goods traded within a global manufacturing arrangement). Adjustments and partner allocation - Compilers must adjust IMTS source data wherever change of ownership differs from physical movement; adjustments affecting total imports/exports should be shown in reconciliation (Table 10.2). - Specific adjustments include: - Record changes of ownership in goods for processing and remove flows without ownership change. - For factoryless arrangements where contractor dispatches goods to final buyer, principal’s economy must record purchase and resale of finished goods that IMTS may not capture. - Contractor economy may need export valuation adjustments if IMTS dispatch values differ from agreed contractor/principal prices. - Adjust partner economy allocation when physical movement differs from change of ownership. Box 10.21 Examples (selected figures preserved) - Processing arrangement example: - Economy A acquires oil from Economy BC for 10. Oil sent to Economy CB for refining for charge 15; ownership remains with Economy A. Oil sold to Economy D for 30. - Economy A entries: - General merchandise import (from Economy BC) 10 DR.Debit/Expenditure - General merchandise export (to Economy D) 30 CR.Credit/Revenue - Import of manufacturing services on physical inputs owned by others (from Economy CB) 15 DR.Debit/Expenditure - Factoryless goods production example: - Principal in Economy A contracts manufacturer in Economy B; contractor buys inputs from Economy C for 3. Principal purchases finished goods from contractor for 7 and resells to final buyer in Economy D for 28 without goods passing through Economy A. - Economy A entries: - General merchandise imports (from Economy B) 7 Debit/Expenditure - General merchandise exports (to Economy D) 28 Credit/Revenue - Economy B entries: - General merchandise imports (from Economy C) 3 Debit/Expenditure - General merchandise exports (to Economy A) 7 Credit/Revenue - Factoryless goods production with merchanting example: - Principal in Economy A sources inputs from Economy C for 3 and resells to contractor in Economy B for 4 without goods passing through Economy A. Principal purchases finished goods for 8 and resells to final buyer in Economy D for 28. - Economy A entries: - Goods acquired under merchanting (from Economy C) –3 Credit/Revenue - Goods sold under merchanting (to Economy B) 4 Credit/Revenue - Net exports of goods under merchanting 1 Credit/Revenue - General merchandise imports (from Economy B) 8 Debit/Expenditure - General merchandise exports (to Economy D) 28 Credit/Revenue - Items marked with an asterisk are recommended to be shown separately as supplementary items for recording global production arrangements of the principal's economy. ### N. Transport costs, valuation exceptions, and distinctions - Transport costs are payable according to party invoiced (10.69). - For goods included in general merchandise, FOB principles apply: - Transport costs up to exporting country customs frontier treated as payable by exporter. - Transport costs after frontier treated as payable by importer. - For goods not included in general merchandise (materials delivered to processor with no ownership change), transport costs payable per party arrangements. (10.69; 10.79) - For goods traded within global manufacturing arrangements where change of ownership differs from physical movement, FOB‑type values do not apply; transport and insurance costs shown payable according to invoiced party. (10.79; 10.25) - Distinction: if goods substantially changed while owned (manufacturing services that change form) or are results of factoryless production, record under general merchandise; if no substantial change, record as re‑exports if passing through owner’s territory or as merchanting if not. (10.80) ### O. Supplementary presentations, classifications, and reconciliations - General merchandise is a single standard item but additional presentations are encouraged (10.83). Possible breakdowns: - Major products/commodity groups, industry of origin, Broad Economic Categories (BEC), Harmonized System (HS), Standard International Trade Classification, Central Product Classification (CPC). (10.84) - Trade by Enterprise Characteristics as a supplementary presentation. (10.85) - Supplementary presentation of goods account by currency at least annually; currency composition discussed in Annex 5. (10.86) - Compilers are encouraged to produce and publish a reconciliation table between merchandise trade (IMTS) and balance of payments goods (recommended at least annually). The reconciliation illustrates conceptual differences from sources, coverage, classification, valuation, timing, and is useful for global value chain analysis. (10.87) - Typical reconciliation adjustments (illustrative items from Table 10.2; paragraph references preserved): - Valuation adjustments: – CIF/FOB adjustment (10.34/10.29); ± High‑value capital goods if delivery differs from change of ownership (10.28/10.22). - Change‑of‑ownership principle adjustments: ± Goods lost or destroyed in transit (10.17(m)/10.12(p)); ± Goods changing ownership in customs warehouses or special zones (10.25/10.19); – Migrants' personal effects (10.22/10.17(b)); – Returned goods (10.22(i)/10.17(h)); – Goods for repair or storage without ownership change (10.22/10.17(e)). - Merchanting and global manufacturing adjustments: + Net exports of goods under merchanting (10.44I/10.44(c)); + Exports/imports from inverse merchanting (10.47); + Goods sold to/purchased from nonresident principal within processing/factoryless arrangements without goods leaving reporting economy (10.17(i)); – Dispatches/arrivals without ownership change in processing arrangement (10.61); + Goods acquired for processing abroad and sold without passing through principal’s territory (10.65(b)); + Acquisition/sale of finished goods by factoryless goods producer without goods passing through its economy (10.58/10.68/10.69); ± Adjustment to contractor’s export valuation to principal if different from IMTS dispatch valuation (10.74). - Other conceptual adjustments: – Goods imported for construction by nonresident enterprises (10.22(d)); + Goods changing ownership entering/leaving territory illegally (10.17(i)/(j)); + Nonmonetary gold sales/purchases not shipped (10.50–54); + Fish catch, seabed minerals and salvage sold from resident‑operated vessels (10.17(e)); + Goods procured in ports by carriers (10.17(d)). - Reconciliation should be read in parallel with IMTS Chapter 1 inclusions/exclusions; some adjustments unnecessary if IMTS treats items similarly; additional adjustments may be needed for national IMTS coverage gaps. (10.88) *Chapter 10 of the draft BPM7: "Goods Account Goods and Services Account".* ### Chapter 10 Goods Account Goods and Services Account ### Chapter 10 Goods Account Goods and Services Account ### A. Overview of the Goods and Services Account - The goods account shows international transactions in goods; goods are "physical, produced objects, over which ownership rights can be established and whose ownership can be transferred from one institutional unit to another by engaging in transactions on markets." Electricity, which is not a physical object, is shown in the goods account. (Chapter 10, paragraph 10.1) - Goods may be used to satisfy household or community needs or to produce other goods or services; production of a good can be separated from its subsequent sale or resale. (10.1) - The goods and services account focuses on the point at which goods and services are exchanged between a resident and a nonresident; national accounts also focus on production, consumption, or use in capital formation. (10.2) - Production is defined as an activity carried out under the responsibility, control and management of an institutional unit using inputs (labor, capital, goods and services) to produce outputs of goods and services; the SNA term "product" covers both goods and services. (10.4) - Corresponding entries to goods and services flows may appear in the financial, current, or capital accounts depending on timing and form of payment; examples include simultaneous payment (financial account), trade credit or bills of exchange (established when payment is not made at ownership change), advances (payment before ownership change), barter (entry in goods or services or capital account), and aid or gifts (current or capital transfers). (10.5) - Table 10.1 presents the broad structure of the goods and services account with balancing items for goods, services, and total goods and services; supplementary items relate to distribution (merchanting and re-exports) and global manufacturing arrangements (processing and factoryless goods production). (10.2 / Table 10.1) ### B. Distinction between Goods and Services - The distinction is determined by the nature of economic value supplied: goods and services represent outcomes of the production process; other resources (labor, land, natural resources, financial resources) are shown in other accounts. (10.6) - Both goods and services accounts can include transactions in products generated in previous periods (e.g., second-hand goods, goods sold from inventories, knowledge-capturing products such as software and research embodied in patents). Re-exports and goods under merchanting may embody a large proportion of output of other economic territories. (10.6) - Goods: physical, produced items over which ownership rights can be established and whose economic ownership can be passed between institutional units by transaction. (10.7) - Services: results of production activities that change conditions of consuming units or facilitate exchange of products or financial assets; services are not generally separate items over which ownership rights can be established and cannot generally be separated from production. Knowledge-capturing products (e.g., computer software, other intellectual property products) may be traded separately and resemble goods in some cases. (10.8) - In the balance of payments goods and services account, valuation of goods usually includes transport within the exporting economy and wholesale and retail services indistinguishably in the price of the goods; the value of some service items includes values of some goods (examples: travel, construction, government goods and services n.i.e.). Some services (manufacturing services, repairs, freight transport) also relate to goods. (10.7) ### C. Digital Trade and E-commerce - International trade in goods and services includes digital trade. Digital trade comprises all international trade that is digitally ordered and/or digitally delivered. Digitally ordered trade aligns with the 2009 OECD definition of e-commerce but focuses only on international transactions in goods and services. Both goods and services can be digitally ordered; only services can be digitally delivered. (10.10) - Digital trade is discussed further in Annex 5 and digitalization is discussed in Chapter 16. Shipping charges associated with digital trade are allocated in line with the FOB valuation principle (paragraph 10.24). Digital trade is often facilitated by digital intermediation platforms (online marketplaces) that charge a fee for the intermediation service. (10.10) - E-commerce definition: a method of ordering or delivering products at least partly by electronic means (Internet or other computer-mediated networks). Charges for electronically delivered products are usually included in services, whereas products supplied across the border are usually classified as goods. Shipping charges associated with e-commerce are allocated in line with the FOB valuation principle. Financial services associated with e-commerce are included in financial services. (E‑commerce note under 10.10) ### D. Transactions between Affiliated Enterprises and Valuation Issues - A high proportion of exchanges of goods and services are between affiliated enterprises, giving rise to treatment and valuation issues (examples: temporary provision of equipment by a direct investor to its direct investment enterprise may be an operating lease). Additional guidance on goods deliveries between affiliated enterprises is provided in paragraph 10.24. Valuation issues are discussed in paragraphs 3.77–3.78 and 10.35; consequential effects on income are discussed in paragraphs 11.101–11.102. (10.11) ### E. Price and Volume Data - Goods and services have price and volume dimensions; having volume and price data, as well as current price values, is useful for analysis and data validation. (10.12) ### F. General Merchandise (Balance of Payments Basis) - General merchandise on a balance of payments basis covers goods whose economic ownership changes between a resident and a nonresident and that are not included in: goods under merchanting, nonmonetary gold, and parts of travel, construction, and government goods and services n.i.e. (10.13) - International merchandise trade statistics (IMTS) are usually the main data source for general merchandise in the goods and services account; IMTS standards are set out in United Nations IMTS: Concepts and Definitions. IMTS cover goods “which add to or subtract from the stock of material resources of a country by entering (imports) or leaving (exports) its economic territory.” This basis differs from the change of ownership between residents and nonresidents required for balance of payments, so adjustments may be needed. (10.14 / 10.16) - Data sources for general merchandise include customs data, international transactions reporting systems, other administrative data (including value-added tax systems), surveys of traders, and direct reporting by enterprises, or combinations. Adjustments to IMTS source data may be needed for coverage, timing, valuation, and classification differences with balance of payments guidelines. Compilers must be aware of national IMTS practices. (10.11) ### G. Items to Be Included in General Merchandise (selected enumerated items) Because a change of ownership occurs between a resident and a nonresident, the balance of payments definition of general merchandise includes (paragraph numbers preserved): - (a) Banknotes and coins not in current circulation and unissued securities; valued as commodities rather than at face value. Sales of coins to or between collectors at a premium are valued at the transaction price. (10.17 (a)) - (b) Electricity, gas, oil, and water. Charges invoiced separately for transmission, transport, or distribution are included in services under transport and other business services. Allowing water to flow when required by international law on river flows is not an international transaction. (10.17 (b)) - (c) Noncustomized packaged software (systems and applications), and video and audio recordings, on physical media with a license for perpetual use are included in general merchandise at full transaction value. Other software is included in services. Noncustomized software is for general use, not made to order. (10.17 (c)) - (d) Goods procured in ports by carriers (fuels/bunkering, provisions, stores, ballast, dunnage) procured by nonresident transport operators in ports from resident providers are included in exports of general merchandise; likewise resident operators procuring from nonresident providers are included in imports. Ports include sea and ocean terminals, airports, inland waterways, and providers of goods and services used in a territory by road and rail transport providers that are residents of another economy. Goods procured by ship’s crew, drivers, etc. for their own use are included in travel. Maintenance and repair costs of transport operators are transport services; fuel costs of small-scale transport operators are goods procured in port by carriers rather than travel. (10.17 (d)) - (e) Goods supplied or acquired by carriers away from the territory of residence of the operator (e.g., fish or marine products caught by ships operated by residents and sold abroad directly; oil and minerals retrieved from the ocean floor by resident operators and sold abroad directly). Goods could be acquired or sold in foreign ports or at sea to foreign vessels. (10.17 (e)) - (f) Goods acquired by a lessee under a financial lease: because the lessee is the economic owner, a change of ownership between the seller and the lessee is recorded at the start of the lease. Operating leases do not change ownership and are not included in general merchandise when delivered to the lessee. (10.17 (f)) - (g) Goods sent abroad without a change of ownership but later sold: goods sent abroad on consignment or for storage, repair, exhibition, processing, etc., without change of ownership are not recorded when sent abroad; if later sold to a resident of a different economy than the owner, they should be recorded in general merchandise. (10.17 (g)) - (h)/(2) Export sales to merchants and import purchases from merchants (merchant’s corresponding entries are recorded in goods under merchanting, see 10.41). (10.17 (h)) - (i)/(3) Goods sold to or purchased from nonresidents without the goods leaving the reporting economy (examples: export sales to merchants and import purchases from merchants under an inverse merchanting arrangement; within global manufacturing arrangements purchases and sales by the principal from or to residents of the same economy as the contractor or processor where the goods do not leave the reporting economy: see 10.62(b), 10.63(b), 10.69(b)). (10.17 (i)) - (j)/(s) Goods acquired or sold to be processed without the goods passing through the territory of the owner; goods sold after processing without passing through the owner’s territory; goods acquired from or sold to nonresidents in a global manufacturing arrangement (from the principal’s viewpoint) without passing through the reporting economy. (10.17 (j)) - (k)/(h) Equipment sold or given away while outside the territory of residence of its original owner (examples: equipment taken out for temporary purposes and subsequently sold or given away). (10.17 (k)) - (l)/(i) Illegal goods. (10.17 (l)) Italic attribution: *Chapter 10 of the draft BPM7: "Goods Account Goods and Services Account".* ### Chapter 10 Goods Account Goods and Services Account ### Chapter 10 Goods Account Goods and Services Account ### Scope and items included in general merchandise - The chapter lists goods to be included in general merchandise when there is a change of ownership between a resident and a nonresident (paragraphs referenced throughout the chapter). Examples explicitly included are: - Smuggled goods that are otherwise legal (m)(j) - Gifts in kind (n)(k) - Parcel post where there is a change of ownership (o)(l) - Goods lost or destroyed after ownership has been acquired by an importer but before the goods have crossed a frontier (p)(m) (goods lost or destroyed before ownership is acquired by an importer are excluded from merchandise trade) - Livestock that changes ownership (q)(n) - Government sales of goods to and purchases of goods from nonresidents; acquisitions of military equipment from nonresidents should be included in general merchandise (r)(o) - Goods supplied by governments to their own embassies, military bases, and so forth are resident-to-resident and therefore not covered in international external accounts; expenditure by embassies and military bases is included under government goods and services n.i.e. (see paragraph [10.175]) (r)(o) - Goods where there is no associated payment, such as those financed by grants or loans (s)(p) - Humanitarian aid in the form of goods (t)(q) - Goods transferred to or from a buffer stock organization (u)(r) - Goods acquired to be processed without passing through the territory of the owner and goods sold after processing without passing through the territory of the owner (s) (see paragraphs 10.65–10.66) - Any other goods not identified in the data sources (IMTS) where there is a change of ownership that was not identified from data sources (v)(t) ### Adjustments when using customs or international transactions reporting systems - When customs data (IMTS) are used as a source, the chapter recommends adjustments to include goods not recorded in customs data where there is a change of ownership (paragraph 10.13/10.18). Cases that may require adjustment include: - Shuttle trade (paragraph 10.14/10.19) - Acquisition of ships, aircraft, and satellites - Trade between customs free trade zones and other special zones of an economy and residents of other economies - Goods in bonded/customs warehouses in economies using the special trade system (see paragraph [10.25]) - Amounts below customs thresholds - When an international transactions reporting system is used, adjustments are needed to include goods where there is a change of ownership but no associated payment, such as: - Humanitarian goods as aid, goods as gifts, goods provided to affiliated enterprises, goods under barter transactions, goods under trade credit, and goods where payment involves residents’ bank accounts held in other economies (paragraph 10.16/10.21) ### Shuttle trade and travel-related goods - Shuttle trade (sometimes called informal cross-border trade) is included in general merchandise (paragraph 10.14/10.19). Characteristics: - Purchases by travelers (nonresidents) in an economy who transport goods back to their economy of residence to sell - Purchases by travelers in their home country for resale abroad - Purchases by travelers abroad in one economy and sold abroad in a second economy - Intent is business/resale (not personal use), so goods are recorded under general merchandise rather than travel - Shuttle trade is usually considered part of the informal economy and is discussed further in Chapter 18 - Goods for own use or to give away acquired by travelers in excess of customs thresholds and included in customs statistics are included in general merchandise (paragraph 10.15/10.20). Care is needed to avoid double counting with travel (see paragraphs [10.86–10.90]). ### Items excluded from general merchandise because there is no international transaction - Exclusions where there is no change of ownership between a resident and a nonresident, or the goods have no value (paragraph 10.17/10.22): - Transit trade admitted under special customs procedures (excluded from transit territory general merchandise) - Migrants’ personal effects (no change in ownership) - Goods consigned to embassies, military bases, and so forth from their home authorities and vice versa - Goods sent to an enterprise’s external operations not sufficiently substantial to constitute a branch (e.g., goods sent abroad from the home base for use in a construction project not undertaken by a separate entity) - Goods temporarily exported or imported without a change of ownership (e.g., goods for repair, as part of an operating lease, for storage, animals or artifacts for exhibitions or competitions); such movements should be tracked in case the goods are subsequently sold (see paragraph 10.1710.12(g)) - Inward and outward flows of goods for processing, assembly, labeling, or packing by an entity that does not own the goods concerned; both inward and outward movements should be tracked to reconcile IMTS with general merchandise and to identify associated services (paragraph 10.17(f)) - Goods acquired by a lessor under a financial lease (lessor has legal title but not economic ownership; goods shown as acquired by the lessee) (paragraph 10.17(g)) - Goods with no positive value (e.g., dangerous goods exported for disposal or storage) (paragraph 10.17(g)(h)); waste and scrap with positive values are included in general merchandise - Returned goods where a change of ownership was annulled; recommended that revised entries be made for the original period, with possible period-of-return adjustments for minor cases (paragraph 10.17(h)(i)) - Samples of no commercial value (paragraph 10.17(i)(j)) - Trade in goods between customs free trade zones and residents of the same economy (paragraph 10.17(j)(k)) - Any other goods that have been included in the data source although there was no change of ownership (paragraph 10.17(k)(l)) ### Items excluded from general merchandise because they are included elsewhere - The chapter specifies items excluded from general merchandise because they belong to other components (paragraph 10.18/10.23): - Goods bought and subsequently resold by residents but that do not enter the economic territory: goods under merchanting (paragraphs 10.41–10.4951) - Nonmonetary gold shown as a separate item within goods (paragraphs 10.50–10.5410.52-10.56) - Goods included in travel (paragraphs [10.89–10.9196]) - Goods locally acquired for construction undertaken by nonresident enterprises; these are included under construction (paragraph [10.104]) - Devices with stored computer software or data customized to order are included under computer services (paragraph [10.143]) - Packaged software and similar products delivered on physical media but obtained with a fixed-period license (requiring ongoing periodic payments) are included in computer or audiovisual and related services (paragraph [10.143(d)] and [10.163]); related products included in goods are addressed in paragraph 10.127(c) - Licenses to reproduce or distribute audio and video conveyed by supply of original recordings on physical media are included under charges for the use of intellectual property n.i.e. (paragraph [10.137]) - Customized blueprints and nonbulk newspapers and periodicals sent on direct subscription are included in information services; bulk provision of newspapers and periodicals is included in general merchandise ### General trade versus special trade (IMTS basis) - IMTS may be prepared on a general trade or special trade basis (paragraph 10.19/10.25): - General trade basis: covers goods registered to enter the economic territory, including customs free zones and bonded warehouses; preferred for international external accounts because it captures transactions involving goods for the whole economy and aligns better with corresponding financing entries - Special trade basis (strict sense): covers goods cleared to enter the free circulation area only; if only special trade data are available, adjustments are needed for movements into and out of customs free zones, bonded warehouses, export processing zones, and commercial free zones ### Time of recording - Transactions in general merchandise should be recorded at the time of the change of ownership of the goods (paragraph 10.20/10.26). The change of ownership should match the time of corresponding financial account entries where possible. - IMTS: Concepts and Definitions recommends recording based on when goods enter or leave the territory, with the date of lodgment of the customs declaration a suitable approximation (paragraph 10.21/10.27). Practical adjustments recommended: - Remove recorded merchandise movements that did not involve a change of ownership in the period - Add merchandise that changed ownership during the period but was recorded in the source data in earlier or later periods - In practice, timing of change of ownership is usually assumed to be approximately the same as customs recording ### High-value capital goods - Transactions in high-value capital goods (e.g., ships, heavy machinery) should be recorded when economic ownership is conveyed from seller to buyer (paragraph 10.22/10.28). Ownership transfer may be: - Progressive in line with stage payments, or - In full on delivery - Evidence of progressive transfer can include buyer ownership of partially completed assets (e.g., in case of producer bankruptcy). Stage payments may indicate progressive transfer of ownership. If change of ownership differs from time of payment, accounts receivable/payable arise (paragraph [5.71]). ### Goods on consignment - Goods on consignment are dispatched before sale and the change of ownership may occur later; such goods should not be included in international accounts/balance of payments until ownership changes to avoid discrepancies between goods flows and corresponding financial entries (paragraph 10.23/10.29). - If impractical to record at ownership change, approximations based on IMTS recording are acceptable; substantial delays in sale may warrant adjustments to actual time of change of ownership. ### Valuation principles (FOB-type and CIF-type) - Valuation principle for general merchandise: market value or market price at the point of uniform valuation, defined as valuation at the exporter’s border (free on board, FOB) (paragraph 10.24/10.30). Market value price guidance in paragraphs 3.67–3.80 3.141-3.142. - Cases problematic for FOB-type application (e.g., goods under merchanting, nonmonetary gold changing ownership without delivery, goods processed and sold in the economy of processing) should be valued at transaction prices as agreed by the parties, acknowledging possible bilateral valuation asymmetries (paragraph 10.25/10.32a). - IMTS conventions (paragraphs 10.27/10.32 and 10.28/10.33): - FOB-type valuations include: - FOB—at port on the frontier of the exporting country (sea/inland waterway) - “free carrier” (FCA)—at terminal on the frontier of the exporting country (other transport) - “delivered at frontier” of the exporting country (other transport, e.g., railroad or pipeline) - CIF-type valuations include: - “cost, insurance, and freight” (CIF) at the border of the importing country - “carriage and insurance paid” to the border of the importing country - To convert imports from CIF to FOB for balance of payments purposes, deduct freight services and insurance premiums incurred from the frontier of the exporting country to the border of the importing country (paragraph 10.29/10.34). CIF to FOB ratios vary by type of good, weight, bulk, special handling, mode of transport, distance, and over time due to factors such as fuel prices, competition and technology in transport, changes in goods mix, and changes in source economies. *The chapter, draft BPM7, Chapter 10 Goods Account Goods and Services Account* ### Chapter 10 Goods Account Goods and Services Account ### Chapter 10 Goods Account Goods and Services Account ### Valuation of goods - The FOB valuation point treats export taxes as payable by the exporter and import duties and other taxes of the importing economy as payable by the importer; when this is not the case, adjustments like those for freight and insurance are necessary (paragraphs 10.30–10.36). - An estimate of a market-price equivalent may be required for cases such as barter trade, aid goods, provision of goods and services between affiliated enterprises, under- or overinvoicing, goods on consignment or for auction, or where goods change ownership but a final price is determined later; such adjustments may require corresponding financial account items (paragraph 10.35–10.36). - Compilers should verify that realistic valuations have been used in customs declarations rather than notional figures such as zero or a highly rounded price; when the price is determined later, subsequent adjustments should be made when the final price becomes available (paragraph 10.31). - Although FOB-type valuation is recommended, valuation at the observed transaction value (invoice value) is conceptually preferred and, subject to further testing and agreement, will be introduced as the standard in the next version of the Manual; compilers are strongly encouraged to collect invoice values in addition to FOB values as part of IMTS (paragraph 10.32). ### Deliveries between affiliated enterprises - Many cross-border movements of goods are between affiliated enterprises for processing, resale, and other purposes; the key question is whether there has been a change of economic ownership (paragraphs 10.33–10.34). - Economic ownership is determined by which party bears the risks and rewards of ownership; when change of ownership is uncertain, consider: - When affiliated enterprises are separate legal entities, treat transactions according to the parties’ arrangements on change of ownership. - Between a quasi-corporation and its owner, legal title is not usually available as evidence; identify which part of the legal entity assumes the risks and rewards of ownership based on evidence such as which location records the goods in its accounts and is responsible for sale of the goods (paragraph 10.33). - Transactions between affiliated enterprises may give rise to valuation issues and have consequential effects on income (paragraphs 10.34 and references to [3.77–3.78], [11.101–11.102]). ### Re-exports and re-imports - Re-exports are foreign goods previously imported that are exported with no substantial transformation from the state in which they were previously imported; the price of re-exported goods may differ from the original import price due to transport costs, dealer’s margins, and holding gains or losses (paragraph 10.35). - For goods to be included as re-exports in balance of payments statistics, a resident must acquire and subsequently resell the goods with the goods passing through the territory; goods bought and resold that do not pass through the territory of the owner are included in goods under merchanting (paragraph 10.35). - Goods in transit are not recorded in imports or in re-exports; goods cleared by customs but re-exported without coming into ownership by a resident should not be included in re-exports for balance of payments purposes (paragraph 10.36). - Where goods are substantially transformed (which could be indicated by a change in Harmonized System (HS) code), they are recorded as domestically produced exports rather than re-exports; used goods retaining the same HS code but suffering wear and tear could in most cases be included in re-exports depending on national rules of origin (paragraph 10.37). - Re-imports are domestic goods imported in the same state as previously exported without substantial transformation; for inclusion as re-imports a nonresident must have acquired the goods and subsequently resold them to a resident with the goods leaving and re-entering the territory (paragraph 10.40). ### Goods under merchanting - Definition: Merchanting is the purchase of goods by a resident from a nonresident combined with the subsequent resale of the same goods to another nonresident without the goods being present in the compiling economy (paragraph 10.41). - Goods under merchanting are recorded in the accounts of the owner as any goods it owns, but are shown separately in international accounts statistics of the economy of the merchant because they are not covered by that economy’s customs system (paragraphs 10.42–10.43). - If the physical form of goods is changed while owned (manufacturing services performed by others that change form), transactions are recorded under general merchandise rather than merchanting; if form does not change, goods are included under merchanting with selling price reflecting minor processing costs and wholesale margins (paragraph 10.42). - Treatment of merchanting (paragraph 10.43 / 10.44): - (a) Acquisition of goods by merchants is shown as a negative export of the merchant’s economy (Goods acquired under merchanting). - (b) Sale of goods by merchants is shown as exports of goods sold under merchanting. - (c) The difference between sales and purchases is shown as “net exports of goods under merchanting,” which includes merchants’ margins, holding gains and losses, and changes in inventories of goods under merchanting; net exports may be negative. - (d) Merchanting entries are valued at transaction prices as agreed by the parties, not FOB (paragraph 10.43). - Partner allocation of net exports of goods under merchanting should be done by summing positive and negative merchanting entries for each partner economy (paragraph 10.44). - Rationale for recording merchanting purchases as negative exports: the merchant is treated like a wholesaler or retailer whose output is the trade margin; treating net exports as goods maintains a global trade in goods balance; recording gross imports and exports would artificially inflate merchandise trade in the merchant economy (paragraph 10.45). - Inverse merchanting: occurs when seller and subsequent purchaser are both resident in the same economy and goods do not leave and re-enter that economy; for the merchant economy it is recorded as net exports of goods under merchanting; for the non-merchant economy, accounts should reflect two changes of economic ownership and adjust IMTS-sourced flows accordingly (paragraph 10.47). - When a merchant resells goods to a resident of the same economy as the merchant, the purchase is shown as imports of general merchandise for that economy; sales by the purchasing entity to residents of other economies are recorded in exports of general merchandise from the economy where both merchant and purchaser are resident (paragraphs 10.50 and 10.48). - Merchanting of nonmonetary gold is included under the nonmonetary gold item (paragraph 10.51). - Example illustrations (Box 10.1): - Example 1—Merchanting with manufacturing services that do not change condition of goods: - Resident of Economy A acquires books from Economy C for 10 (Goods acquired under merchanting: –10 Credit/Revenue). - Economy B boxes the books for a charge of 3 payable by Economy A (Manufacturing services on physical inputs owned by others: 3 Debit/Expenditure). - Economy A sells books to Economy D for 20 (Goods sold under merchanting: 20 Credit/Revenue). - Net exports of goods under merchanting for Economy A: 10 Credit/Revenue. - Example 2—Re-exports: - Car dealer in Economy A imports car from Economy C for 1000 (General merchandise imports from Economy C: 1000 Debit/Expenditure). - Resident of Economy B buys the car for 1200 and takes it to Economy B (General merchandise exports to Economy B: 1200 Credit/Revenue; Of which Re-exports: 1200 Credit/Revenue) (paragraphs accompanying Box 10.1). ### Nonmonetary gold - Nonmonetary gold covers all gold other than monetary gold (monetary gold is owned by monetary authorities and held as a reserve asset) and can be in forms such as bullion (coins, ingots, or bars with a purity of at least 995 parts per 1,000, including gold held in allocated gold accounts), gold powder, and other unwrought or semi-manufactured forms; jewelry and watches containing gold are included under general merchandise, not nonmonetary gold (paragraph 10.52). - Nonmonetary gold sales and purchases that are not shipped are valued at transaction prices, not FOB; the price should include any dealer’s margins or commissions not billed separately (paragraph 10.52). - Allocated gold accounts are treated as storage arrangements for gold bullion; a change in ownership of allocated gold account holdings is treated as gold bullion (no transaction when bullion is put into or withdrawn from an allocated account without sale) (paragraph 10.53). - Unallocated gold accounts are financial assets (included under monetary gold or deposits, depending on the holder); a deposit of bullion to an unallocated gold account is an exchange of nonmonetary gold for a financial asset; a withdrawal is the reverse unless both parties are monetary authorities or international organizations (paragraph 10.53). - When both parties to a gold transaction are monetary authorities that hold the gold as reserve assets or international financial organizations, gold sales are recorded as monetary gold in the financial account; otherwise sales are recorded under nonmonetary gold (paragraph 10.54). - Nonmonetary gold is shown separately from other goods because of gold’s special role in financial markets and because gold sales and purchases largely relate to existing stocks (paragraph 10.55). *International Monetary Fund — Draft BPM7 Chapter 10: Goods Account Goods and Services Account* ### Chapter 10 Goods Account Goods and Services Account ### Chapter 10 Goods Account Goods and Services Account ### Nonmonetary gold - Change in ownership is the criterion for the recording of nonmonetary gold; gold sales and purchases should be recorded even when there is no physical movement. - Nonmonetary gold may be held either as a store of value or for other (industrial) purposes, such as manufacturing of jewelry or for use in dental work. - When feasible, nonmonetary gold can be subdivided into gold held as a store of value and other (industrial) gold as supplementary data. ### Global manufacturing arrangements — overview - A significant proportion of international transactions in goods occur within global manufacturing arrangements whereby a principal manufacturer outsources the transformation of goods to a nonresident, possibly affiliated, manufacturing entity. - Such arrangements can result in changes of ownership that differ from the physical flow of goods. - Two distinct arrangements: processing arrangements and factoryless goods production. - In both cases the lead enterprise (the principal) has control over design, selling price and other aspects of the global production process, outsources some or all manufacturing activities to a nonresident processor or contractor, and retains ownership of critical inputs such as materials and/or intellectual property during the production process. - Under these arrangements material inputs are substantially transformed by the processor or contractor, which may be indicated by a change in HS code, or may have come about through the supply of intellectual property. ### Processing arrangements - Under a processing arrangement: - The principal owns or acquires material inputs and purchases manufacturing services from a nonresident processor (who may provide some material inputs) to substantially change the goods. - Ownership of the goods does not change during the manufacturing process. - Finished goods are then returned to the principal, sent elsewhere for further processing or dispatched to final customers. - In the simplest scenario, goods are sent physically abroad from the economy of the principal to the economy of the processor and returned after processing. Movement of goods are recorded in the IMTS of both economies, but no general merchandise transactions are recorded in the goods account. - The manufacturing services fee that the processor charges the principal is shown in the services account. - Treatment of purchases of material inputs by the principal (paragraphs consolidated): - (a) when the goods are acquired from residents of the same economy as the principal, there is no international transaction; and - (b) when the goods are acquired from residents of the same economy as the processor or a third economy, the principal records imports of general merchandise. - Treatment of sales of finished goods by the principal: - (a) when the goods are sold to residents of the same economy as the principal, there is no international transaction; and - (b) when the goods are sold to residents of the same economy as the processor or a third economy, the principal records the sale as exports of general merchandise. - The principal could report merchanting in the case of minor processing. ### Factoryless goods production - A factoryless goods producer is a principal that controls production by undertaking entrepreneurial steps and providing technical specifications required to produce the good, but fully outsources the material transformation process to a nonresident contractor. - The factoryless goods producer supplies inputs of intellectual property such as product design without charging for the right to use the intellectual property, but outsources acquisition of all material inputs and the manufacturing process to a nonresident contractor. - The factoryless goods producer buys the finished goods from the contractor at a price that includes the value of material inputs and processing but does not include the value of intellectual property used in the transformation process. - The finished goods may be used by the principal as inputs into further production, sent elsewhere for further processing or dispatched to final customers. - Under factoryless goods production: - The material inputs are substantially transformed by the contractor. - The role of intellectual property products provided by the principal to the contractor, without receiving a payment for right to use, should be significant. - As a general guideline, the input values of intellectual property products as well as marketing assets supplied by the factoryless goods producer will be at least as large the amount paid to the contractor less the cost to the contractor of the material inputs. - Recording rules: - Goods that the factoryless goods producer buys from the contractor are recorded as general merchandise imports at the value agreed between the principal and the contractor. - Sales of finished goods: - (a) when sold to residents of the same economy as the factoryless goods producer, there is no international transaction; and - (b) when sold to residents of the same economy as the contractor or a third economy, the factoryless goods producer records the sale as exports of general merchandise. - There are no manufacturing services to record between the contractor and the principal in a factoryless goods production arrangement. ### Sales of material inputs by the principal - Material inputs that the processor or contractor contribute to the manufacturing process may be acquired from the principal, in which case there is a change of ownership of goods between the principal and the processor or contractor. - Materials may also be procured by the principal from abroad and sold to the processor or contractor in which case the principal may act as a merchant. - Where the principal sells goods directly or is engaged in merchanting to provide materials into the global manufacturing arrangement, compilers may include these transactions in a supplementary item of general merchandise or supplementary items of goods under merchanting. ### Adjustments to source IMTS data and partner allocation - In each economy where the change of ownership differs from the physical flow of goods, compilers may need to make adjustments to the source IMTS data. - Adjustments that impact total imports and exports should be shown in the table reconciling between merchandise trade data and total trade on a balance of payments basis (Table 10.2). - Specific adjustments: - In a goods for processing arrangement, adjustments to source data of each economy are needed to record changes of ownership between residents and nonresidents, and to remove flows where a change of ownership has not occurred. - In a factoryless goods production arrangement, if the contractor dispatches the goods directly to the final buyer, compilers in the economy of the principal need to record the purchase and resale of finished goods that would not be included in the IMTS data. - In the contractor economy, the export value recorded by IMTS compilers may be different from the price agreed between the principal and the contractor which should be recorded in the balance of payments, so adjustments to the value of exports may be needed. - Under both arrangements, whenever the physical movement of goods differs from the change of ownership, adjustments to source data may further be needed to show the correct allocation of partner economy of goods on a balance of payments basis. ### Box 10.21 — Examples of processing arrangements and factoryless goods production - Example 1 — Processing arrangement: Manufacturing services that change the condition of the goods - A resident of Economy A (the principal) acquires oil from a resident of Economy B C for 10. The oil is sent to Economy CB, without passing physically through Economy A, for refining by a resident of Economy CB, for a charge of 15; the oil continues to be owned by the resident of Economy A. The oil is then sold to a resident of Economy D for 30. - Economy A entries: - General merchandise import (withfrom Economy BC) 10 DR.Debit/Expenditure - General merchandise export (withto Economy D) 30 CR.Credit/Revenue - Import of Mmanufacturing services on physical inputs owned 15 DR.Debit/Expenditure by others (withfrom Economy CB) - Economy B C records goods exports of 10 to Economy A (10 CR.); Economy C B records only manufacturing services exports of 15 to Economy A (not exports or imports of goods); Economy D records goods imports of 30 from Economy A under general merchandise. - Example 2 — Factoryless goods production - A resident of Economy A (the principal) contracts the production of sportswear to a manufacturer in Economy B. The contractor in Economy B purchases the material inputs from Economy C for 3. The principal purchases the finished sportswear from the contractor for 7 and resells these goods directly to the final buyer in Economy D for 28 without the goods passing through Economy A. - Economy A entries: - General merchandise imports (from Economy B) 7 Debit/Expenditure - General merchandise exports (to Economy D) 28 Credit/Revenue - Economy B entries: - General merchandise imports (from Economy C) 3 Debit/Expenditure - General merchandise exports (to Economy A) 7 Credit/Revenue - Economy D and Economy C should record the counterpart transactions with Economy A and Economy B, respectively. No trade is recorded between Economy B and Economy D. - Example 3 — Factoryless goods production with material inputs acquired and resold under merchanting by the principal to the contractor - A resident of Economy A (the principal) sources material inputs from Economy C for 3 and resells the material inputs to the contractor in Economy B for 4, without the goods passing through Economy A. The principal purchases the finished goods from the contractor for 8, and resells these goods to the final buyer in Economy D for 28 without the goods passing through Economy A. - Economy A entries: - Goods acquired under merchanting (from Economy C) –3 Credit/Revenue (negative exports) - Goods sold under merchanting (to Economy B) 4 Credit/Revenue - Net exports of goods under merchanting 1 Credit/Revenue - General merchandise imports (from Economy B) 8 Debit/Expenditure - General merchandise exports (to Economy D) 28 Credit/Revenue - Economy C records goods exports of 3 to Economy A; Economy B records goods imports of 4 and goods exports of 8 with Economy A; Economy D records goods imports of 28 from Economy A. - Items marked with an asterisk are recommended to be shown separately as supplementary items for recording global production arrangements of Economy A. ### Providing information on global manufacturing to users; supplementary items - Compilers may record supplementary sub-items in the balance of payments presentation in the economy of the principal where these activities are important. - A sub-item of general merchandise, “Goods traded within a global manufacturing arrangement”, may be introduced to record transactions between the principal and other parties irrespective of whether the goods pass through the economy of the principal. Goods traded under a global manufacturing arrangement include: - material inputs purchased by the principal from nonresidents in a processing arrangement; - sales of finished goods to nonresidents in a processing arrangement; - purchases of finished goods by a factoryless goods producer from the contractor; - sales by the factoryless goods producer of finished goods to nonresidents; and - material inputs sold to a contractor or processor by the principal in a processing or factoryless goods production arrangement. - When a factoryless goods producer acquires material inputs and sells them via merchanting to the contractor: - (a) Goods acquired by the factoryless goods producer are recorded as negative exports under “Material inputs acquired abroad from third parties by the principal within a global manufacturing arrangement”; and - (b) Goods sold by the factoryless goods producer to the contractor are recorded as exports under “Material inputs sold by the principal to the contractor abroad within a global manufacturing arrangement.” *Chapter 10, draft BPM7: Goods Account Goods and Services Account* ### 10.69 Transport costs may be incurred on movements on goods as payable according to the arrange- ### Chapter 10 Goods Account — Transport Costs, Global Manufacturing, Merchanting, and Reconciliations (extract) ### Transport costs and valuation principles (paragraphs 10.69; 10.65–10.66; 10.79; 10.77; 10.25) - Transport costs may be incurred on movements of goods as payable according to the arrangements of the parties; that is, the amount is payable by the party invoiced to pay the expense (10.69). - For goods included in general merchandise (i.e., in the cases mentioned in paragraphs 10.65–10.66), general principles for FOB valuation apply: - Transport costs up to the customs frontier are treated as being payable by the exporter. - Transport costs after the frontier are treated as payable by the importer. - For goods not included in general merchandise (such as materials delivered from the owner to the processor with no change of ownership), transport costs are shown as payable according to the arrangements of the parties (10.69). - For goods traded within a global manufacturing arrangement (for instance transactions discussed in paragraph 10.77 and where the change of ownership differs from the physical movement of the goods), the application of FOB-type values does not apply; instead, transport and insurance costs are shown as payable according to the arrangements of the parties; that is, the amount is payable by the party invoiced to pay the expense (10.79; see also 10.25). - For movements of goods not included in general merchandise, such as goods that the processor receives or dispatches with no change of ownership in a processing arrangement, transport and insurance costs are shown as payable according to the arrangements of the parties (10.79). ### Distinction between global manufacturing and global distribution arrangements; merchanting and re-exports (paragraphs 10.42; 10.80; 10.77; 10.78) - Merchanting arrangements and re-exports are used for wholesaling and retailing and may also be used in commodity dealing and for the management and financing of global manufacturing processes (10.80; see, for instance, 10.78). - If the physical form of the goods is substantially changed during the period the goods are owned, as a result of manufacturing services performed by other entities, or if the goods are the results of factoryless goods production, then the goods transactions are recorded under general merchandise rather than merchanting and may be recorded as goods traded under a global manufacturing arrangement (10.80). - If there is no substantial change to the goods, then: - The goods may be recorded as re-exports if they pass through the territory of the owner. - The goods may be included under merchanting if they do not pass through the territory of the owner, with the selling price reflecting minor processing costs as well as wholesale margins (10.80). - When the merchant organizes a global manufacturing process, the selling price may cover planning, management, patents and other know-how, marketing, and financing; non-physical contributions can be large relative to materials and assembly, particularly for high-technology goods (10.80). ### Examples: Merchanting vs. Processing (Box 10.1) - Example 1 — Merchanting with manufacturing services that do not change the condition of the goods: - A resident of Economy A acquires books from a resident of Economy B for 10. - Books are sent to Economy C (do not pass through Economy A) for boxing for a charge of 3 payable by Economy A. - Books are sold by Economy A to a resident of Economy D for 20. - Entries for Economy A: - Goods under merchanting (with Economy B) –10 CR. - Goods under merchanting (with Economy D) 20 CR. - Net exports of goods under merchanting 10 CR. - Manufacturing services on physical inputs owned by others (with Economy C) 3 DR. - Corresponding entries: Economies B and D record exports and imports under general merchandise; Economy C records manufacturing services exports. - Example 2 — Manufacturing services that change the condition of the goods: - A resident of Economy A acquires oil from a resident of Economy B for 10. - Oil sent to Economy C for refining (does not pass through Economy A) for a charge of 15; ownership remains with Economy A. - Oil sold to a resident of Economy D for 30. - Since the goods change condition, processing-treatment applies. Entries for Economy A: - General merchandise (with Economy B) 10 DR. - General merchandise (with Economy D) 30 CR. - Manufacturing services on physical inputs owned by others (with Economy C) 15 DR. - Economy B records goods exports to Economy A (10 CR.); Economy C records only manufacturing services exports to A (not goods exports/imports); Economy D records goods imports from Economy A (not from Economy C). - Economy C may identify values of goods received and goods sent abroad as supplementary items in both examples (Box 10.1). ### Factoryless goods producers and recording of transactions (paragraph 10.81; 10.58; 10.68; 10.69) - Factoryless goods producers control the production process and supply intellectual property or ‘knowhow’ for production; they are treated as manufacturers (10.81). - For a factoryless goods producer, purchases of finished goods from the contractor and subsequent sales to the final buyer are recorded gross under general merchandise in the economy of the factoryless goods producer (not as net exports under merchanting or re-exports) (10.81). - Related adjustments and treatments concerning factoryless goods producers are referenced in paragraphs 10.58, 10.68, 10.69 and in supplementary items for global manufacturing arrangements (see 10.77 and Figure 10.3 notes). ### Supplementary presentations, breakdowns, and classification (paragraphs 10.83–10.86) - General merchandise is shown as a single item in the standard components; the Manual encourages additional presentations according to compiling-economy priorities (10.83). - Possible detailed breakdowns include: - Major products (or commodities), major product groups, industry of origin, and broad economic categories (10.84). - International standard product classifications referenced include the Harmonized System (HS), the Standard International Trade Classification, and the Central Product Classification (CPC) and the Broad Economic Categories (BEC) (10.84). - Disaggregation by characteristics of the trading enterprise (Trade by Enterprise Characteristics) is recommended as a supplementary presentation to highlight roles of enterprises with different characteristics in the current account (10.85). - A supplementary presentation of the goods account classified by currency to be published at least annually is recommended (10.86). Currency composition of international trade is discussed further in Annex 5 (10.86). ### Reconciliation between merchandise trade data and total goods on a balance of payments basis (paragraphs 10.87; 10.88; Table 10.2) - Compilers are encouraged to produce and publish a reconciliation table of differences between merchandise trade statistics and goods on a balance of payments basis; recommended to publish at least annually (10.87). - The reconciliation illustrates conceptual differences arising from different sources, coverage, classification, valuation, and timing, and is useful for analysis of global value chains (10.87). - Table 10.2 (sample reconciliation) lists typical adjustments, including but not limited to: - Valuation adjustments: – CIF/FOB adjustment (10.34 10.29) n.a.; ± High-value capital goods, if delivery differs from change of ownership (10.28 10.22). - Adjustments arising from change of economic ownership principle: ± Goods lost or destroyed in transit (10.17(m) 10.12(p)); ± Goods changing ownership in customs warehouses or other special zones (10.25 10.19); – Migrants’ personal effects (10.22 10.17(b)); – Returned goods (10.22(i) 10.17(h)); – Goods for repair or storage without change of ownership (10.22 10.17(e)). - Adjustments relating to merchanting and global manufacturing arrangements: - + Net exports of goods under merchanting (10.44I 10.44(c)) n.a. - + Exports to and imports from a merchant in an economy of inverse merchanting (10.47). - + Goods sold to or purchased from a nonresident principal within a processing or factoryless goods production arrangement, without the goods leaving the reporting economy (see 10.17(i)). - – Dispatches of goods from, or arrivals of goods to, either the economy of the principal or the economy of the processor without change of ownership in a processing arrangement (10.61). - + Goods acquired from other economies for processing abroad, and goods sold abroad after processing, without the goods passing through the economy of the resident principal (10.65(b)) (10.12j, 10.62, 10.63). - + Acquisition and sale to other economies of finished goods by a factoryless goods producer without the goods passing through the economy of the factoryless goods producer (10.58, 10.68, 10.69). - ± Adjustment to the contractor's valuation of exports of finished goods to a factoryless goods producer if different from IMTS valuation of dispatches to final buyer (10.74) n.a. - Other conceptual adjustments: – Goods imported for construction projects by nonresident enterprises (10.22(d)); + Goods changing ownership entering / leaving territory illegally (10.17(i) / (j)); + Nonmonetary gold sales and purchases that are not shipped (10.50–54); + Fish catch, minerals from the seabed and salvage sold from resident-operated vessels (10.17(e)); + Goods procured in ports by carriers (10.17(d)). - The reconciliation table should be read in parallel with the inclusions and exclusions recommended in Chapter 1 of IMTS 2010; some adjustments may be unnecessary if IMTS data treat items similarly; additional adjustments may be needed to account for national IMTS coverage gaps (10.88). --- _Source: https://www.imf.org/-/media/files/data/statistics/bmp7/draft-chapters/draft-bpm7-chapter-10-goods-account-v7gc.pdf_