## BPM7 Chapter 15/2025 SNA Chapter 23. Globalization: Annotated Outline

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### Introduction
- Globalization is defined as the economic integration of countries that has increased fragmentation of production across national economies and more mobile capital and people.
- Drivers cited: reductions in transportation costs, the information technological revolution, lower production costs, and more open economic policies.
- Effects highlighted:
  - Production processes fragmented across resident and non-resident firms in production chains.
  - Capital increasingly intangible; capital and people move more freely across borders.
  - Increasingly complex corporate structures that cross multiple economic borders.
- Conceptual challenge: the concepts of residence and economic presence are more difficult to interpret when activities extend across national boundaries for MNEs.
- Purpose of the chapter: elaborate issues relevant to both SNA and BPM, explain measurement challenges created by globalization, motivate supplemental presentations, and promote internationally agreed methodological guidelines to foster international comparability.
- Editorial coordination: SNA and BPM editors will include only issues relevant to their respective manuals (SNA for national accounts; BPM for external sector statistics).

### Multinational Enterprises (MNEs)
- Definition and control:
  - The chapter begins with the definition of MNE (also introduced in 2025 SNA Chapter 5/BPM7 Chapter 4) and highlights the definition of control as stated in BPM6 paragraphs 6.12–6.14, aligned per GN G.2.
- Roles and behaviours of MNEs:
  - MNEs manage production, trade, direct investment, and international transfer of knowledge and technology to maximize global after-tax profits.
  - MNEs increasingly set up global structures to benefit from different legal and tax regimes and employ tax planning strategies, such as profit-shifting, that exploit gaps and mismatches in tax rules to shift profits to low or no-tax locations where there is little to no economic activity.
  - MNEs establish special purpose entities (SPEs) to channel financial investments and to manage intellectual property rights, research and development, and trade.
- SPEs:
  - The chapter will refer to a standardized and internationally agreed definition of SPEs (from GN G.4) and discuss a typology of SPEs (GN G.4, Annex V).
  - The definition of SPEs will be aligned across macroeconomic statistics manuals, including the MFSMCG and the GFSM.
  - The chapter will recommend the use of the decision tree from the UNECE Guide to Measuring Global Production (GMGP) to identify economic owners of previously produced IPPs (GN G.5) and clarify that SPEs can be the economic owners of IPP assets.

### Global Production
- Overview:
  - Global production describes production fragmented across economies in production chains between resident and non-resident firms—the basis of global value chains (GVCs).
- Production arrangements covered:
  - Factoryless goods production.
  - Manufacturing services performed on inputs owned by others.
  - Merchanting (GN C.4, expected to be finalized soon).
- Linkages and cross-references:
  - Concepts also discussed in BPM7 Chapter 10, Goods Account, Box 10.1, and BPM7 Chapter 11, Services Account, Box 11.1.
  - The typology for global production arrangements (GN C.4, Annex III) will be introduced.
  - Links to ISIC for classification of units will be provided.

### Measurement Challenges
- High-level summary: MNEs and global production arrangements present measurement challenges for SNA and BPM; detailed guidance will appear in the Balance of Payments Compilation Guide or other guidance.
- Specific challenges listed:
  - Allocation challenge: complex global corporate structures and fragmented production raise issues in allocating activities to different economies.
  - Financial flows: complex financing and ownership structures can mask ultimate ownership links and “inflate” DI flows and positions as each flow into and out of each economy is counted even if funds or income are just passing through.
  - Trade inflation: production fragmentation inflates gross trade flows (to be illustrated in GN G.7, Annex II).
  - Ambiguity of profit and value added location: cross-border mobility of corporate assets (including IPPs), ease of changing legal domicile, transfer pricing, and intra-group services make the true location of generation of profits and value added ambiguous.
  - Entity coverage and allocation: ensuring that all activity of an MNE is captured, not duplicated, and properly allocated by economic territory is a statistical challenge because current standards do not view the MNE as a single entity; misallocation can misstate GDP and distort macroeconomic indicators.
- Drafting note: for the high-level outline the measurement challenges are presented separately; at drafting stage they may be incorporated differently in SNA and BPM contexts.

### Alternative Indicators and Supplementary Information to Monitor the Impact of Globalization and Meet Users Needs
- Overarching approach:
  - Emphasize macroeconomic indicators within existing frameworks, develop more granular supplemental data consistent with the core framework, and consider alternative presentations that extend beyond the core frameworks.
- Macroeconomic indicators within the SNA/BPM frameworks:
  - Highlighted indicators that are generally less distorted by globalization: gross/net national income (GNI/NNI), gross/net national disposable income (GNDI/NNDI), and household (adjusted) disposable income (reference GN G.2).
  - Statistics on the Activities of Multinational Enterprises (AMNE) and Foreign AffiliaTes Statistics (FATS) provide additional information beyond traditional FDI statistics; coverage, statistical units, time of recording and valuation, attribution of AMNE variables and compilation issues from BPM6 Appendix 4 will be brought into the chapter with updates.
  - Emphasize reconciling FDI and AMNE statistics to address measurement challenges and to support analyses and policymaking (GN D.9).
- Granular or supplemental data consistent with core frameworks:
  - Supplemental presentations of DI statistics by ultimate investing economy and by ultimate host economy (covered in updated BPM7 Annex 6; GN D.6).
  - Additional granularity in institutional sector accounts (ISAs), based on control and ownership of corporations, subject to statistical infrastructure and resources (GN G.2); include figure showing additional granularity in ISAs based on GN G.2, Annex II.
  - Supplemental presentation of trade and investment income by enterprise characteristics (ownership and size) with general criteria for thresholds as in paragraphs 12–15 of GN C.2; introduce the template from Annex I of GN C.2 as a table.
  - Separate identification of SPEs within cross-border statistics: recommend SPE data collection within ESS, encouraged breakdowns per GN G.4 and extensions, and identification of SPEs within ISAs as an “of which” supplementary category for foreign-controlled financial and non-financial corporations where SPEs are significant.
  - Enhanced imputations for government sponsored SPEs (GN D.5, expected to be finalized soon) covered in the updated Financial Account chapter (BPM6 paragraphs 8.24–8.26).
  - Supplemental statistics within BPM framework (additional detail by geography or by product) to improve GVC analysis (see GN G.7 Annex V).
- Alternative presentations or extensions outside SNA/BPM:
  - Encourage a voluntary option to extend the core framework with a supplemental presentation reclassifying SPEs from countries of legal incorporation to countries of their parents for economies where SPEs are important.

### Analytical Tools
- Trade in Value Added (TiVA):
  - Introduces the concept of TiVA, which measures value added by each country and industry in production of traded and consumed goods and services; provides an overview of TiVA indicators and references the OECD-WTO TiVA initiative.
- Global Value Chain (GVC) satellite account:
  - Described as a tool to identify and articulate a GVC for specific products or product groups.
  - Comprised of GVC-specific SUTs (national or multi-country) based on an enterprise-centered approach with integrated detailed business statistics, business lines/functions, and GVC-specific ISAs.
  - Compilation guidance will refer to materials such as the 2019 GVC Handbook.
- Extended Supply-Use Tables (eSUTs):
  - Designed to provide granularity on the role of MNEs in production and to aid GVC and TiVA analysis.
  - Compilers expected to implement eSUTs flexibly according to national circumstances.
  - Section will describe possible extensions and refer to UN guidelines on Accounting for Global Value Chains: GVC Satellite Accounts and Integrated Business Statistics and the forthcoming OECD Handbook on Extended Supply and Use Tables.

### Schematic Overview (chapter components and annexes)
- I Introduction
- II Multinational Enterprises (MNEs)
  - Definition of MNEs and Concept of Control
  - Understanding the Role of MNEs
  - Box: Typology of SPEs
  - Figure: GMGP Decision Tree
- III Global Production
  - Global Production Arrangements
  - Box: Typology of Global Production Arrangements
- IV Measurement Challenges
  - Figure: Effect of Production Fragmentation on Gross Trade Flows
- V Alternative Indicators and Supplementary Information to Monitor the Impact of Globalization and Meet Users Needs
  - Existing Macroeconomic Indicators
  - Granular or Supplemental Data
  - Figure: ISAs: Financial and Non-financial Corporations
  - Table: Template for Identifying the Role of Enterprise Characteristics in the Current Account (from GN C.2, Annex 1)
  - Alternative Presentations or Extensions
- VI Analytical Tools
  - TiVA Indicators
  - GVC Satellite Account
  - Extended SUTs
- References included: BPM6 Appendix 4; GNs G.2, G.4, G.5, G.7, C.2, C.4, D.5, D.6, and D.9; UNECE Guide to Measuring Global Production; UNECE Impact of Globalization on National Accounts; UN Accounting for Global Value Chains: GVC Satellite Accounts and Integrated Business Statistics; IMF “Final Report of the Working Group on Balance of Payments Statistics Relevant for the Analysis of Global Value Chains”; OECD Benchmark Definition of Foreign Direct Investment, fourth edition; IMF “Final Report of the Task Force on Special Purpose Entities”; IMF Special Purpose Entities: Guidelines for a Data Template.
- Key stakeholders consulted: SNA and BPM Editors; IMF Statistics Department GO and FI; GZTT Secretariat.

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_Source: https://www.imf.org/-/media/files/data/statistics/bmp7/final-annotated-outlines/bpm7-chapter-152025-sna-chapter-23-globalization-annotated-outline.pdf_