## Factoryless goods production: IMF guidance (factoryless-goods-production-cg)

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### Introduction and purpose
- Globalization and fragmentation of production have led to factoryless goods production (FGP), where a principal provides technical specifications and entrepreneurial steps but outsources all or most material transformation.
- A factoryless goods producer (FGP) is treated as a manufacturer if it maintains control over what is produced, how it is produced, and how outputs are handled.
- The note:
  - Discusses treatment of FGP in macroeconomic statistics standards.
  - Reviews development of definitions, relationship with other global production forms, rationale for the treatment, and economic impacts.
  - Explains compilation challenges and provides guidance drawing on national accounts and BOP compilers’ practices, recommending better visibility of FGP activities.
- Recent standards alignment:
  - White cover editions of BPM7 and the 2025 SNA (March 2025) define FGPs and outline treatment.
  - ISIC Rev. 5 (2024) expands manufacturing to cover FGPs if units organize and control production, assume production risk, and supply key inputs, including IPP.
  - IMTS and planned MSITS (2026) updates incorporate global production considerations and standardized nature-of-transaction codes.

### Definition and distinguishing features
- Combined 2025 SNA/BPM7 glossary definition of an FGP principal:
  - Controls production by undertaking entrepreneurial steps and providing technical specifications, and
  - Outsources all or most material transformation.
- Key distinguishing features relative to other arrangements:
  - Contractor typically owns material inputs in FGP.
  - Principal provides IPP or know-how and does not receive payment for its use from the contractor.
  - Principal owns or has rights to IPP embedded in final goods, controls production, and manages marketing and sales.
- ISIC Rev. 5 classification guidance:
  - Classify FGP activities in manufacturing (Section C) in the same class as if the principal carried out production, contingent on ownership or right to use the IPP.
  - If the principal does not own or have rights to use IPP, treat as principal buying a completed good for resale.

### Illustrative transaction scenarios (summary of Figure 1 cases)
- Case 1: Principal A provides design; contractor B manufactures using procured materials; principal purchases finished goods from contractor and sells to buyer in C — physical flows recorded in IMTS for B and C; BOP records import by A from B and subsequent export by A to C.
- Case 2: Principal imports goods from contractor for sale within principal’s economy — BOP and IMTS may report same partner country but different values due to valuation methods.
- Case 3: Finished goods sold in contractor’s economy — no IMTS entries on completion and sale, but BOP of A records imports from B then exports to B; Economy B records exports to A then imports from A.
- Case 4: Principal, contractor, and final buyer resident in same economy — no BOP or IMTS entries; transactions captured in national accounts as production and consumption; principal and contractor classified in manufacturing under ISIC Rev. 5.

### FGP versus goods-for-processing (key differences)
- Ownership of material inputs:
  - Processing: principal retains ownership of most or all material inputs.
  - FGP: contractor acquires material inputs; principal acquires finished goods.
- Role of IPP:
  - Processing: IPP may be owned or paid for but is not required.
  - FGP: principal must provide IPP as an essential input to be classified as a manufacturer.
- Intermediate consumption and output classification:
  - Processing: material inputs and manufacturing payments are intermediate consumption of the principal; processor’s output considered a service (manufacturing services on physical inputs owned by others).
  - FGP: finished goods purchased are intermediate consumption of principal; outputs of both principal and contractor are classified as goods.
- Industry classification:
  - Contractors and processors are classified under manufacturing; principals are classified in manufacturing in the same class they would occupy if producing themselves.

### Quantitative illustration (Box 1): goods-for-processing vs FGP
- Case 1. Good Sent for Processing
  - Principal purchases raw materials from country D for 20 units.
  - Principal ships raw materials to processor in Economy B.
  - Processor paid 25 units fee.
  - Finished products sold by principal to country C for 100 units.
  - BOP transactions:
    - Principal: imports of goods (20); imports of services (25); and exports of goods (100)
    - Processor: exports of services (25)
  - Value added:
    - Principal: 100 – 20 – 25 = 55
    - Processor: 25 - 1 = 24
- Case 2. Factoryless Goods Production
  - Contractor purchases raw materials from Economy D for 20 units and manufactures the product.
  - Contractor sells the goods to the principal for 45 units.
  - Finished products sold by principal to country C for 100 units.
  - BOP transactions:
    - Principal: imports of goods (45); and exports of goods (100)
    - Processor: imports of goods (20); exports of goods (45)
  - Value added:
    - Principal: 100 – 45 = 55
    - Contractor: 45 - 20 - 1 = 24
- Note: Principal’s markup in both cases represents return to IPP and branding.

### Role of Intellectual Property Products (IPP) in FGP
- IPP defines the principal’s contribution: design, technical specifications, patents, trademarks, and related IPP underpin control of production and justify higher resale price.
- BPM7 guidance (paragraph 10.67): “the input values of intellectual property products as well as marketing assets (such as trademarks, brand names and logos) supplied by the factoryless goods producer will be at least as large as the amount paid to the contractor less the cost to the contractor of the material inputs.”
- Assessment criteria and compiler actions:
  - Compare principal’s IPP input with contractor’s production cost.
  - Consider R&D, design, technical specifications, or other innovation-related IPP and extent of control over production.
  - Use indicators such as increase in value between purchase and sale, but not as sole determinant.
  - Gather quantitative information on IPP input and cost of goods purchased; estimate value of material inputs if needed.
  - Observe whether principal charges contractor for right to use IPP.
- Classification tests (conditions indicating FGP when met together):
  - Significant IPP input by principal.
  - No charge to contractor for use of IPP.
  - Significant principal control of manufacturing process.
  - Most input materials acquired by contractor.
  - Finished goods sold to principal by contractor.
- Treatment of licensed IPP:
  - Licenses that qualify as fixed assets (expected use > one year and licensee assumes risks/rewards of ownership) are treated as a return to capital; non-qualifying license payments treated as intermediate consumption.

### Implications for BOP, IMTS, and national accounts
- Change-in-ownership (BOP) vs cross-border (IMTS) principles produce partner attribution and valuation differences:
  - Example valuation mechanics:
    - Goods exported from Economy B to Economy A should include raw materials and contractor’s margin: 20+25=45.
    - Goods exported by Economy A to Economy C should include principal’s markup: 45+55=100.
  - Table 2 illustrative values:
    - A imports from B: BOP value 45, IMTS partner n/a
    - A exports to C: BOP value 100, IMTS partner n/a
    - B exports to A: BOP value 45; IMTS partner: C; Possible IMTS value: 45, 100
    - C imports from A: BOP value 100; IMTS partner: B; Possible IMTS value: 100, 45
- Misclassification consequences:
  - Treating FGP as merchanting under older understanding understates gross goods transactions in the FGP economy.
  - Failure to record change-in-ownership and appropriate valuation may understate goods balance and GDP by expenditure approach for the principal’s economy.
  - If contractor’s domestic sales are not recorded as export to principal at ex-factory and subsequent import from principal at wholesale, contractor’s current account would be overstated.
- Recommended BOP presentation:
  - Supplementary sub-item under General merchandise: “Goods traded within a global manufacturing arrangement” to record purchases of finished goods by FGPs from contractors, sales by FGPs to nonresidents, and material inputs sold to contractors by the principal.
  - Merchanting-related supplementary items for material inputs acquired and sold via merchanting within FGP arrangements.

### Compilation challenges, data sources, and core principles
- No single source suffices; compilers should triangulate:
  - IMTS (requires adjustments for change-of-ownership without physical movement), ITRS, company accounts, enterprise surveys, LCUs, SBRs, administrative records (tax, patent), and special surveys.
- Key data sources and uses:
  - IMTS: primary for trade in goods but needs adjustments for ownership and valuation.
  - ITRS: captures financial flows, can reflect ownership changes better than customs but may miss non-banked transactions.
  - Statistical Business Registers and LCUs: identify and profile enterprises and coordinate cross-domain data collection.
  - Administrative sources and special enterprise surveys: identify IPP ownership, contract terms, and whether goods are sold to foreign buyers.
- Core compilation principles:
  - Sales and purchases reported should correspond to turnover and costs in company accounts.
  - Determine ownership of input materials used by contractor.
  - Distinguish FGP from merchanting and goods-for-processing by establishing presence and significance of IPP.
- Recommended practical steps:
  - Reconcile IMTS and enterprise/financial data through bridge tables before constructing SUTs or eSUTs.
  - Apply same adjustments in BOP and national accounts to reflect principal’s sales abroad even when goods do not cross borders.
  - Record imports of goods by FGPs as intermediate consumption even if not appearing in raw IMTS.

### Addressing asymmetries and institutional arrangements
- Asymmetries arise from uneven application of FGP recording across partner economies: partner attribution differences, valuation differences, and gaps if IMTS used instead of change-of-ownership.
- Company financial statements and ITRS can help identify partner allocation and valuation consistent with 2025 SNA / BPM7, but require adjustments for residence, timing, valuation, transfer pricing, inventories, transport and insurance costs.
- Institutional coordination:
  - BOP often compiled by central bank; IMTS and national accounts by NSO — close cooperation recommended.
  - LCUs enable coordinated data collection for large enterprises, supporting consistency across BOP, SUTs, and business statistics.

### Enhanced compilation tools and codes
- IMTS: Concepts and Definitions 2026 recommends standardized NOT codes to identify ownership changes and processing status, including:
  - 1.1.2 Goods sold by or bought from a factoryless goods producer/principal with a view to contract manufacturing (material inputs)
  - 1.1.3 Goods sold to or bought by a factoryless goods producer/principal after contract manufacturing (processed goods)
  - 2.1 Goods for processing without a change of ownership (material inputs)
  - 2.2 Goods resulting from processing without a change of ownership (processed goods)
- Suggested ITRS categories to identify principals and contractors under processing or FGP (illustrative categories described in the guidance).

### Country experiences and implementation examples (selected facts)
- United Kingdom:
  - LCU established early in 2019; complementary national accounts/BOP team in 2021.
  - Staged industry approach: pharmaceuticals first, then aerospace, oil and gas.
  - Mixed Manufacturing Model case:
    - 2019 output composition: In-house manufacturing 82%, overseas affiliate manufacturing 8%, independent contractor manufacturing 10%.
    - 2023 output composition: In-house manufacturing 68%, Processing 29%, Factoryless goods production 3%.
    - MNE discontinued independent contractor relationship in 2025.
- China:
  - Divergence: Customs-based surpluses have been persistently above BOP-based surpluses since 2019, with the gap over one percent of GDP in 2024.
  - Data source change in 2022: switched from Customs data to direct reporting by more than 13,000 large enterprises (accounting for about 70 percent of total goods trade); ITRS used for remaining enterprises.
- Singapore:
  - Identification via targeted surveys, consultations, and desktop research; FGP criteria aligned with ISIC Rev. 5.
  - BPM7 adoption planned in 2029-2030; enhancements to capture cross-border BOP transactions for FGPs.
- Denmark:
  - Combined data-driven method and LCU analysis; NACE Rev. 2.1 classification implemented by Statistics Denmark in 2025.
  - Indicators include merchanting transactions with large margins, processing service purchases, Prodcom data on subcontracted operations, and large turnovers of goods not produced domestically.
  - Identified FGPs flagged in SBR and classified as manufacturers.

### Practical compilation examples: Denmark and Ireland
- Denmark:
  - Collects both sales and purchases for FGP transactions from principals using additional ITSS codes.
  - Since 2022, collects country of purchase for merchanting goods to support BPM7 transition.
  - Example arrangement: Danish contractor sold final goods at ex-factory price to a non-resident VAT registration which reported full value including IPP to customs; BOP adjusts exports using VAT data.
- Ireland (CSO Large Cases Unit):
  - LCU assigned account managers and statisticians to largest MNEs; collects monthly, quarterly, and annual data for BOP, business statistics, and national accounts.
  - Performs consistency checks across turnover, trade exports/imports, costs, inventories, wages, and balance sheet transactions; uses audited accounts around T+18 months for final validation.
  - Consistency work involves positive and negative adjustments to imports and exports based on contract manufacturing and prior-period exports; monitors derived measures internally as “BOP Gap” and “Trade Gap”.

### Data integration, surveys, and recommended collection instruments
- Recommended instruments and data items (selected):
  - Business register scoping survey to identify companies outsourcing production to nonresidents or manufacturing for nonresidents.
  - Manufacturing or Industrial Production Surveys with ownership and processing-fee modules.
  - Trade in Services and Goods for Processing Surveys capturing cross-border processing arrangements.
  - Customs records with ownership flags or processing codes; NOT codes for ownership change and processing status.
  - FDI and MNE surveys, administrative data from export-processing zones, and ITRS with enhanced classification.
- Sample survey questions (selected preserved wording):
  - Does your enterprise own the materials used in production? (Y/N)
  - Does your enterprise perform manufacturing or assembly on goods owned by another entity? (Y/N)
  - Does your enterprise outsource all manufacturing to other firms while retaining design/intellectual property rights or ownership? (Y/N)
  - Indicate your main production model: ☐ Traditional manufacturer ☐ Processor (for others) ☐ Principal who outsources processing while retaining ownership of materials ☐ Factoryless producer
  - Does your enterprise hold the design, trademark, or patent for the products manufactured by contractors? (Y/N)
  - Did your enterprise engage contract manufacturers abroad during the year? (Y/N) If yes, identify partner countries and value of output produced abroad.

### Recommendations, communication, and revisions
- Compilers should:
  - Triangulate multiple data sources (customs, enterprise surveys, ITRS, LCUs, administrative records).
  - Reconcile IMTS and BOP via published reconciliation tables highlighting FGP adjustments.
  - Use extended SUTs (eSUTs) and bridge tables to align enterprise-level data with macro aggregates and ISIC Rev. 5 classifications.
  - Include supplementary BOP sub-items for “Goods traded within a global manufacturing arrangement”.
  - Communicate methodologies and revisions clearly to users per 2025 SNA/BPM7 Joint Chapter on Communication, with technical detail for experts and accessible explanations for non-specialists.
- Institutional recommendation:
  - Strong cooperation between central banks, NSOs, and other authorities (tax, customs) is recommended to address modern global production arrangements and ensure consistency across macroeconomic statistics.

### Questions posed for global consultation (selected)
- Do you agree that all the features of factoryless goods production have been outlined in the Note?
- Do paragraphs 16–28 accurately characterize the role of Intellectual Property Products (IPP) in factoryless goods production?
- Do you agree with the approaches recommended for compilers as outlined in Section 3 (from paragraph 54 onwards)?
- Do you have any further comments or country experiences you would be willing to share to enrich the note?

*Source: International Monetary Fund — Guidance on measuring factoryless goods production, FGP, and related compilation practices (factoryless-goods-production-cg).*

### Section 1: Introduction ................................................................................................

### Section 1: Introduction

### Globalization and fragmentation of production
- Globalization has led to fragmentation of production processes with firms outsourcing stages of manufacturing domestically and internationally.
- Factoryless goods production (FGP) is an organizational model in which a principal provides technical specifications and undertakes entrepreneurial steps but outsources all or most of the material transformation.
- A factoryless goods producer (FGP) is considered a manufacturer even if it does not perform manufacturing activities at its own facilities, provided it maintains control over what is produced, how it is produced, and how outputs are handled.

### Purpose and scope of the IMF note
- The note discusses the treatment of factoryless goods production in macroeconomic statistics standards.
- It reviews the development of current treatment and definitions of FGP and FGPs, the relationship with other global production forms, the rationale for the treatment, and economic impacts.
- The note explains compilation challenges and provides guidance drawing on practices of national accounts and balance of payments (BOP) compilers, recommending better visibility of these activities in the accounts.

### Recent standards alignment and manual updates
- The white cover editions of the BPM7 and the 2025 SNA, released in March 2025, define FGPs and outline their treatment in detail.
- ISIC Rev. 5 (2024) expanded the definition of manufacturing to cover FGPs, classifying as manufacturers those units that organize and control production—even if processing is outsourced—provided they assume production risk and supply key inputs, including IPPs.
- The alignment of ISIC Rev. 5, BPM7, and the 2025 SNA improves consistency of FGP treatment across national accounts and balance of payments statistics.
- Updated trade manuals also incorporate global production considerations:
  - International Merchandise Trade Statistics: Concepts and Definitions introduces Chapter 2, Section C (Globalization and the cross-border principle) and Chapter 10, Section A with standardized nature of transaction codes to identify goods traded under global manufacturing arrangements.
  - The Manual on Statistics of International Trade in Services (MSITS) to be published in 2026 enhances contextual understanding of manufacturing services on physical inputs owned by others and highlights different treatments of processing arrangements and FGP under trade in services.

### Terminology note
- In the compilation note, the acronym FGP refers to factoryless goods production; “FGPs” refers to factoryless goods producers; when referring to a single factoryless goods producer, the term is spelled out.

---

### Section 2: Definition and Context

### Definition of a factoryless goods producer
- The combined 2025 SNA/BPM7 glossary defines a factoryless goods producer as a principal that:
  - controls production of a good by undertaking entrepreneurial steps and providing technical specifications required to produce the good, and
  - outsources all or most of the material transformation process required to produce the output.
- The definition reflects a shift where core value-adding activities—design, branding, and IPP ownership—are retained by the principal while physical production is outsourced.

### Distinction from other global production arrangements
- Other arrangements include merchanting and processing arrangements (also called “toll manufacturing”).
- Key distinguishing features of FGP arrangements:
  - Contractor typically owns the material inputs.
  - Principal provides IPP or know-how and does not receive payment for its use from the contractor.
  - Principal owns or has rights to the IPP embedded in final goods, controls the production process, and manages marketing and sales.
- Differences in statistical treatment across BPM6 and prior standards may have led to inconsistent country practices before the recent standards updates.

### ISIC Rev. 5 classification guidance
- ISIC Rev. 5 recommends classifying FGP activities in the manufacturing industry (Section C) within the same class that would apply if the principal carried out production themselves, contingent on ownership or right to use the IPP.
- If the principal does not own or have rights to use the IPP, the scenario is treated as the principal buying a completed good for resale (not as FGP).

### Illustrative scenarios of FGP arrangements (summary of Figure 1 cases)
- Case 1: Principal in Economy A provides design; contractor in Economy B procures materials and manufactures; principal purchases finished goods from contractor and sells to final buyer in Economy C. Physical flow B → C recorded in IMTS for B and C; BOP records an import by A from B and subsequent export by A to C.
- Case 2: Principal imports goods from contractor for sale within principal’s economy; BOP and IMTS identify same partner country but may report different values due to valuation methods.
- Case 3: Finished goods sold in same economy as contractor; no IMTS entries upon completion and sale, but BOP of Economy A records imports from B then exports to B; Economy B records exports to A then imports from A.
- Case 4: Principal, contractor, and final buyer are residents of the same economy; no BOP or IMTS entries; transactions are captured in national accounts as production and intermediate/final consumption; principal and contractor are classified in manufacturing under ISIC Rev. 5.

---

### FGP versus Processing

### Key differences
- Ownership of material inputs:
  - Processing: principal retains ownership of most or all material inputs throughout production.
  - FGP: principal acquires finished goods from the contractor; principal is not responsible for acquiring material inputs.
- Role of IPP:
  - Processing: principal may own or pay for use of IPP, but IPP is not required for an arrangement to qualify as processing.
  - FGP: principal must provide IPP as an essential input to be classified as a manufacturer.
- Intermediate consumption:
  - Processing: material inputs and payments for manufacturing services are recorded as the principal’s intermediate consumption.
  - FGP: finished goods purchased by the principal from the contractor represent intermediate consumption of the principal.
- Classification of output:
  - Processing: principal’s output recorded as goods; processor’s output considered a service (manufacturing services on physical inputs owned by others).
  - FGP: output of both principal and contractor is classified as goods.
- Industry classification:
  - Contractor under FGP and processor providing manufacturing services are classified under the manufacturing industry, similar to units producing same goods for their own account.
  - Principals under both FGP and processing arrangements are classified in manufacturing in the same class they would occupy if they carried out manufacturing themselves.

### Variations and overlaps
- In processing, the processor may provide some material inputs; those costs can be included in the manufacturing service fee.
- A principal that provides some material inputs and the IPP would be considered an FGP.
- Under FGP, the contractor may source material inputs from the principal (with change of ownership) or the principal may sell material inputs to the contractor via merchanting.
- In both processing and FGP, decisions between arrangements can be driven by market access considerations (who has better access to inputs or markets), while production follows the principal’s specifications.

### Implications for accounting and measurement
- Distinguishing FGP from goods-for-processing is essential to avoid double counting and to ensure consistent treatment across BOP and national accounts.
- Although BOP recordings may differ between processing and FGP, value added for the parties involved can remain unchanged when switching arrangements.

---

### Box 1: Example comparing goods-for-processing with FGP (quantitative illustration)

Case 1. Good Sent for Processing
- Principal purchases raw materials from country D for 20 units.
- Principal ships raw materials to processing plant in Economy B.
- Processor is paid a fee of 25 units to complete and package the product (processor does not take ownership of material inputs).
- Finished products sold by principal to country C for 100 units.

BOP transactions (Case 1)
- Principal: imports of goods (20); imports of services (25); and exports of goods (100)
- Processor: exports of services (25)

Value added (Case 1)
- Principal: 100 – 20 – 25 = 55
- Processor: 25 - 1 = 24

Case 2. Factoryless Goods Production
- Contractor purchases raw materials from Economy D for 20 units and manufactures the product.
- Contractor sells the goods to the principal for 45 units.
- Finished products sold by principal to country C for 100 units.

BOP transactions (Case 2)
- Principal: imports of goods (45); and exports of goods (100)
- Processor: imports of goods (20); exports of goods (45)

Value added (Case 2)
- Principal: 100 – 45 = 55
- Contractor: 45 - 20 - 1 = 24

Note:
- In both cases the principal’s markup is large compared to the cost of production, representing the return to IPP and branding for the principal.

*Source: IMF compilation note on factoryless goods production (Section 1: Introduction).*

### 16.        In FGP arrangements, IPP plays a central role in defining the principal's contribution to the

### Intellectual Property Products (IPP) and Factoryless Goods Production (FGP)

### Role of IPP in defining the principal’s contribution
- IPP is central to defining the principal’s contribution to the manufacturing process in FGP arrangements.
- Principals outsource physical transformation to contractors while retaining ownership or control of product design, technical specifications, patents, and other IPP.
- Control over IPP allows the principal to dictate how goods are made despite not operating physical manufacturing facilities.
- IPP enables firms to maintain strategic control and economic ownership of goods without direct production activities and justifies a higher resale price when principals sell to end consumers or distributors.

### BPM7 guidance and assessment criteria
- BPM7 paragraph 10.67: “the input values of intellectual property products as well as marketing assets (such as trademarks, brand names and logos) supplied by the factoryless goods producer will be at least as large as the amount paid to the contractor less the cost to the contractor of the material inputs.”
- Assessment should compare the value of the principal’s IPP input with the cost of production of the good.
- Compilers should consider:
  - Whether the principal’s role reflects a significant input of research and development, design, technical specifications, or other innovation-related IPP.
  - Whether the principal exercises control over key aspects of production.
- Indicators such as the increase in value between purchase from contractor and subsequent sale may be informative but are not determinative because differences may reflect wages, markups, or market structure rather than IPP.
- The classification should not rely solely on whether the principal’s value added exceeds that of the contractor, but on whether the principal’s contribution reflects substantive intellectual inputs and control over production.

### Practical data issues and compilation guidance
- Accurate information on material-input values provided by the contractor may not be available to the principal; contractor generally does not know principal’s IPP input value.
- Incorrect classification of FGP versus merchanting for the principal could arise but should have no net impact on the current account; contractor misestimation of contracting value does not affect contractor accounts because general merchandise is treated the same regardless of buyer type.
- Compilers in the principal economy should:
  - Gather quantitative information on the IPP input of the principal and the cost to the principal of goods purchased from the contractor.
  - Estimate the value of material inputs into the production process if needed.
  - Observe IPP input from cost of capital expensed in the income statement or by measuring the increase in the value of goods from purchase to final sale.
  - Use amounts paid by the principal for rights to use IPP as the value of the IPP input when applicable (see paragraph 27).
- Compilers in both economies should gather qualitative information on:
  - Whether the contractor pays for the right to use the IPP.
  - Which entity has ownership of material goods during manufacturing.
  - The extent of the principal’s control of the manufacturing process.

### Classification rules and tests
- Conditions indicating classification as FGP (when met together):
  - IPP input by the principal is considered significant.
  - There is no charge to the contractor for the use of IPP.
  - There is significant control of the manufacturing process by the principal.
  - Most input materials are acquired by the contractor.
  - Finished goods are sold to the principal by the contractor.
- The assessment of IPP input should not be the sole basis to distinguish FGP from processing; processing implies contractor provides manufacturing services on material inputs owned by the principal with no change in ownership.
- Under FGP the principal either owns or pays for rights to use IPP; the contractor should not pay the principal for the rights to use the IPP.
- The principal does not need outright ownership of IPP to be an FGP; paying another unit for rights to use IPP (including rights for the contractor to incorporate IPP into production) suffices.
- Licensed IPP that qualifies as a fixed asset (expected use > one year and licensee assumes risks and rewards of ownership) is treated as a return to capital; non-qualifying license payments are treated as intermediate consumption.

### Implications for national accounts, BOP, and IMTS
- Classifying FGPs as manufacturers (rather than distributors or merchants) has important macroeconomic implications:
  - Supports gross recording of international goods transactions involving FGPs so principals’ control of production and ownership of IPP are reflected in national accounts and balance of payments data.
  - Requires adjustments to IMTS to reflect change-in-ownership principal and appropriate valuation of goods (as shown in BPM7 Table 10.2).
  - Requires reconciliation of ownership flows with supply and use tables to capture economic reality of FGPs in line with global value chains.
- BOP uses change-in-ownership principle; IMTS uses physical movement (cross-border principle), leading to partner attribution differences.
- Example valuation mechanics in BOP/IMTS (numbers preserved exactly):
  - Value of goods exported from Economy B to Economy A should include raw materials and contractor’s margin: 20+25=45.
  - Value of goods exported by Economy A to Economy C should include principal’s markup: 45+55=100.
  - In IMTS, customs in Economy C may value imports at wholesale value (100); value dispatched from Economy B at its frontier may be recorded as ex-factory value (45) or wholesale value (100).
- Valuation and change-in-ownership recording can significantly affect the goods balance and GDP (expenditure approach) of the principal’s economy; without change-in-ownership and appropriate valuation, goods balance and GDP may be understated.
- If FGP goods sold in the contractor’s domestic market are not accounted for in the contractor’s BOP by recording an export to the principal at ex-factory price and subsequent import from the principal at wholesale price, the contractor’s current account would be overstated.
- Treating FGP as merchanting (as in BPM6 understanding) would understate gross goods transactions in the FGP economy while leaving goods balance correct.
- Table 2 (illustrative values from the source):
  - A imports from B: BOP value 45, IMTS partner n/a
  - A exports to C: BOP value 100, IMTS partner n/a
  - B exports to A: BOP value 45; IMTS partner: C; Possible IMTS value: 45, 100
  - C imports from A: BOP value 100; IMTS partner: B; Possible IMTS value: 100, 45

### Asymmetries, financial-account links, and business statistics integration
- Uneven application of FGP recording among partner economies causes asymmetries in BOP goods account:
  - Differences in partner country attribution.
  - Differences in valuation.
  - Gaps if IMTS is used instead of change-of-ownership (e.g., Economy A not recording imports from B and exports to C).
- Company financial statements, enterprise surveys, and International Transactions Reporting Systems (ITRS) can provide information to identify partner allocation and valuation consistent with 2025 SNA / BPM7, but company accounting data require adjustments for residence, timing, valuation, transfer pricing, inventories, transport and insurance costs, and other accounting differences.
- Integration of FGP measurement with structural business statistics, business registers, enterprise group profiling, and survey frameworks is recommended to collect consistent information on turnover, cost of goods sold, employment, IPP ownership, and outsourced production arrangements across national accounts, BOP, and business statistics.
- Correct distinction between FGP and processing affects corresponding financial-account entries:
  - Under FGP, purchases of finished goods and subsequent sales involve changes in economic ownership with financial-account entries reflecting timing and form of settlement (currency and deposits, trade credits and advances, accounts receivable/payable).
  - Under processing, cross-border payment is for a manufacturing service; corresponding financial-account entry reflects payment for that service rather than value of goods.
- Reliance on IMTS alone can introduce discrepancies between goods and services or production accounts and the financial accounts; without appropriate adjustments, imports/exports may be inconsistent with output, intermediate consumption, inventories, supply and use tables, and corresponding financial-account transactions and positions.

*Source: IMF — Guidance on Factoryless Goods Production, BPM7 and 2025 SNA related guidance*

### 43.        Considering the challenges in understanding how production that takes place in a different

### 43. Considering the challenges in understanding how production that takes place in a different economy can impact the BOP goods account and the value added in the domestic economy

### Supplementary BOP presentation for global manufacturing arrangements
- BPM7 recommends that, in the economy of the principal in a global manufacturing arrangement, compilers include a supplementary sub-item to General merchandise: "Goods traded within a global manufacturing arrangement".
- A supplementary sub-item of general merchandise, “Goods traded within a global manufacturing arrangement”, should record goods transactions between the principal in global manufacturing arrangements (processing or FGP) and other parties irrespective of whether the goods pass through the economy of the principal, including:
  - 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 the contractor by the principal in a processing or factoryless goods production arrangement, except when sold via merchanting.

### Merchanting-related supplementary items under FGP
- When the principal acquires material inputs and sells them via merchanting to the contractor:
  - Goods acquired by the principal are recorded as negative exports under “Material inputs acquired abroad from third parties by the principal within a global manufacturing arrangement”;
  - Goods sold by the principal to the contractor are recorded as exports under “Material inputs sold by the principal to the contractor abroad within a global manufacturing arrangement”.
- Such supplementary merchanting information should be recorded not only in the principal economy but may also be useful for contractor economies to provide a more complete understanding of FGP arrangements.

### Reconciliation with IMTS and recommended BOP adjustments
- BPM7 recommends compilers produce and publish a reconciliation table of differences between merchandise trade statistics (IMTS) and goods on a BOP basis, providing the opportunity to highlight adjustments arising from FGP.
- Example adjustments compilers in the economy of the principal would make:
  - + Acquisition from 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.
- If final goods are sold in the economy of the contractor, the compiler in that economy would make the adjustment:
  - + Goods sold to or purchased from a nonresident principal within a processing or factoryless goods production arrangement, without the goods leaving the reporting economy.
- Additional necessary adjustments to contractor dispatch values:
  - ± 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.

### National accounts treatment: SUTs, ISIC Rev. 5, and the 2025 SNA
- The national accounts require appropriate adjustments through Supply and Use Tables (SUTs) consistent with the industrial classification under ISIC Rev. 5 and the recording principles outlined in the 2025 SNA.
- ISIC Rev. 5 ensures that the manufacturing output of FGPs is recorded in SUTs even though physical processing occurs abroad:
  - On the supply side, FGPs contribute gross output in manufacturing.
  - On the use side, exports are recorded to reflect the principal’s sales abroad, with adjustments made to IMTS data to account for exports of goods that never cross the domestic border.
- ISIC Rev. 5 clarifies that units outsourcing transformation without supplying IPPs or controlling production should be classified under wholesale and retail trade (Section G), distinguishing FGPs from pure distributors or merchants for accurate industry-level GVA estimates.
- The residual value added—after deducting intermediate consumption of materials and services—represents the return to IPP, design, and branding for FGPs and is explicitly allocated to the manufacturing sector, not to wholesale and retail distribution (Section G).

### Extended SUTs (eSUTs), bridge tables, and data adjustments
- Some economies have utilized extended Supply and Use Tables (eSUTs) to link types of enterprises (MNEs, SMEs, contract manufacturers) with macroeconomic aggregates, explicitly identifying FGP roles in global production chains and their reliance on intangible assets.
- Standard SUTs relying on customs-based IMTS face challenges because FGPs typically do not physically handle the goods they sell; recommended practice:
  - Reconcile IMTS and enterprise/financial data through bridge tables before constructing eSUTs.
  - Apply the same adjustments used in the BOP to ensure exports in eSUT reflect the principal’s sales abroad rather than the contractor’s shipments.
  - Record imports of goods by FGPs as intermediate consumption even if they do not appear in trade statistics without adjustments.

### Communication, revisions, and user engagement
- Incorporating new data sources and measurement approaches requires clear communication to ensure users understand revisions to economic statistics, especially for FGP and processing arrangements where measurement depends on detailed structural information regarding principals and contractors.
- The 2025 SNA and BPM7 Joint Chapter on Communication recommends NSOs and central banks customize messaging for different audiences: technical details for expert users and clear, accessible explanations for non-specialists using appropriate dissemination channels (press releases, webinars, guides).
- Revisions to older data may be expected as improved source data become available, including where globalization-related manufacturing arrangements have been longstanding. Users should be informed through NSO/Central Bank revision policies about the nature, timing, and whether updates will be incorporated incrementally or at a single point in time.
- Revisions applied to FGPs or processing arrangements should be consistent with revisions policies and communicated as reflecting progressive incorporation of more complete and higher-quality source data rather than changes in underlying economic developments.

### Compilation guidance: key data sources and principles
- No single data source suffices; compilers should integrate customs data, special enterprise surveys, ITRS, administrative records, and Large Case Units (LCUs).
- The IMF’s 2025 survey of compilers in countries likely hosting FGPs found:
  - More than half of respondents captured international transactions of principals on a change-of-ownership basis although some captured these activities as merchanting;
  - In some countries, information is found using LCUs;
  - No contractor-hosting countries reported that they can fully account for FGP transactions (including correcting for partner country attribution).
- Core compilation principles:
  - Sales and purchases under these arrangements should correspond to turnover and costs in financial statements of principals and contractors.
  - Determine ownership of input materials used by the contractor.
  - Distinguish FGP from merchanting by establishing whether significant IPP is involved.

### Transactions of contractors and final buyers; partner attribution
- In FGP arrangements, contractors sell finished goods to principals; principal payments should cover material inputs plus contractor production costs but exclude value of intellectual property.
- IMTS flows may misallocate partner economies when goods are shipped to third countries or sold within the contractor’s economy; for BOP compilation, the partner should be the economy of the principal from which economic ownership is acquired rather than consignment/origin/dispatch.
- Addressing partner attribution may require ad hoc alignment to invoice values and broader moves from FOB towards transaction‑value reporting.
- Information from contracting companies should specify whether there is a change of ownership or processing and, if change of ownership, the counterpart country of the change to avoid asymmetries.

### Key data sources: characteristics and uses
- International Merchandise Trade Statistics (IMTS):
  - Primary source for trade in goods on a BOP basis but requires adjustments to capture ownership changes without physical movement, correct partner economy attribution, and valuation adjustments to reflect combined inputs, contractor work, and IPP.
- Statistical Business Registers (SBR):
  - Provide structured business data but often lack visibility on complex global manufacturing; scoping surveys can identify resident/nonresident production or contractor activities.
- Large Case Units (LCUs):
  - Manage portfolios of economically significant companies to gather comprehensive data spanning multiple statistical domains and bridge gaps across IMTS, SBRs, enterprise surveys, ITRS, and company accounts.
  - LCUs promote cooperation and controlled data sharing among compilers (NSO, central bank) to ensure consistency and coherence.
  - Eurostat has developed the European Guidelines for Large Cases Units (2026, forthcoming).
- Administrative data sources:
  - Tax records, patent databases, and other administrative records can reveal where IPP-intensive activities occur, identifying principals outsourcing production.
- Special enterprise surveys:
  - Modified surveys can collect direct evidence on ownership/control of input materials; role and value of IPP; licensing arrangements for IPP; and whether enterprises sell goods directly to foreign buyers—crucial to distinguish FGP from processing and merchanting.
- International Transactions Reporting System (ITRS):
  - Captures detailed cross-border transaction data via banking systems and tends to better reflect changes in economic ownership than customs data, though it may suffer from misclassification and incomplete coverage of entities not using domestic banks.
  - Countries can extend ITRS classifications to identify merchanting, processing, and FGP transactions; classification codes should identify goods sold by the contractor under FGP and goods purchased and sold by a principal under FGP.

### Exchange of information and cross-economy cooperation
- Enhanced interaction and information sharing between compilers in partner economies (principals and contractors) can mitigate complexities by exchanging qualitative information (arrangements, ownership structures, production processes) and quantitative data (transaction values, timing of ownership changes, payment flows).
- Where confidentiality, legal, or institutional constraints limit data sharing, closer dialogue, indirect estimation methods, and bilateral reconciliation exercises can reduce asymmetries and improve coherence in external sector statistics and national accounts.

### Combining data sources for comprehensive measurement
- Compilers are encouraged to triangulate multiple data sources to identify, measure, and classify complex global manufacturing arrangements, improving accuracy and coherence of trade, production, and macroeconomic statistics.
- An LCU is an example of a combined approach matching data from multiple administrative and survey sources to develop an understanding of large enterprises’ activities; other approaches include combining customs data with survey data or ITRS.

*International Monetary Fund — guidance on measuring factoryless goods production, FGP, and related compilation practices (paragraphs 43–73).*

### 74.        Compilers with access to company-level trade data, combined with enterprise survey data or

### Compilers with access to company-level trade data, combined with enterprise survey data or ITRS data, can identify discrepancies between reported purchases and sales to nonresidents, and IMTS imports and exports of goods

### Data integration, reconciliation, and institutional roles
- Matching IMTS data with company accounts is highlighted as a highly effective method to identify the existence of global manufacturing arrangements.
- Indicators from company-level data:
  - If a company reports purchases and sales of goods to nonresidents but no corresponding IMTS imports or exports, this may indicate the company is a principal in a global production arrangement.
  - A large discrepancy between purchases and sales provides additional evidence of factoryless goods production.
  - If a manufacturing company reports IMTS imports and exports but does not record purchases and sales of goods in their accounts, this suggests no change of ownership and that the company may be providing manufacturing services in a goods for processing arrangement.
- Institutional arrangements and challenges:
  - In many countries, the BOP compilation is entrusted to the central bank, while IMTS and national accounts responsibilities lie with the NSO. This division can challenge consistency and completeness of macroeconomic statistics in the presence of complex global production arrangements.
  - Some jurisdictions have legislation or institutional arrangements permitting close collaboration and the exchange of confidential statistical information between the central bank and NSO, facilitating integration of customs-based data into trade statistics.
  - For countries lacking enabling legislation, integration and reconciliation typically occur within the NSO (for instance, the LCU linking traders in merchandise trade data to company accounts). Results (possibly aggregated) produced by the NSO can still inform BOP data compiled by the central bank.
- Recommendation:
  - Effective cooperation between central banks, NSOs, and other relevant authorities is strongly recommended to address challenges from modern global production arrangements.

### Comprehensive use of enterprise survey data for FGP measurement
- Approach:
  - Partial or full utilization of enterprise survey data can replace traditional sources for trade in goods to compile trade on a BOP basis.
  - Surveys could cover all traders or all traders above a threshold; traders not in the selection would use IMTS or ITRS.
  - This approach is especially suitable for economies heavily engaged in FGP arrangements.
- Rationale:
  - IMTS often fails to capture FGP activities when change of ownership occurs without physical movement; enterprise surveys bridge these gaps and help compilers identify, classify, and measure FGP in line with international standards.
- Trade-offs:
  - If survey data lack granularity, compilers may accurately capture FGP transactions but lose product-level detail demanded for other uses of IMTS data, and/or partner country detail (although partner country could be collected in surveys).

### Improving IMTS, customs NOT codes, and ITRS to capture globalization activities
- Enhancing IMTS and ITRS:
  - Compilers are encouraged to explore opportunities to enhance IMTS content on FGP and improve ITRS to provide more comprehensive FGP information.
- Customs and Nature of Transaction (NOT) codes:
  - Customs declarations can capture relevant data for goods processed without change of ownership; standardized NOT codes can support statistical purposes.
  - Revised Kyoto Convention customs procedure codes encourage collection of inward/outward processing information, but compilers cannot be certain whether these procedures include a change in ownership.
  - Countries can introduce specifically designed NOT codes (not specified in the convention) to declare if movement of goods relates to global manufacturing.
  - Recommended standardized NOT codes relating to globalization activities (as set out in IMTS: Concepts and Definitions 2026):
    1. Imports and exports with a change of ownership between residents and non-residents
       - 1.1. Outright purchases/sales of goods
         - 1.1.1. Outright purchases/sales of goods, excluding goods to and from contract manufacturing
         - 1.1.2. Goods sold by or bought from a factoryless goods producer/principal with a view to contract manufacturing (material inputs)
         - 1.1.3. Goods sold to or bought by a factoryless goods producer/principal after contract manufacturing (processed goods)
    2. Imports and exports without a change of ownership between residents and non-residents
       - 2.1. Goods for processing without a change of ownership (material inputs)
       - 2.2. Goods resulting from processing without a change of ownership (processed goods)
  - These NOT codes would be collected by customs authorities at the request of IMTS/BOP compilers to support reconciliation and correct valuation from a BOP perspective.
- Enhanced ITRS categories (suggested, not tested):
  - Principal Involved in a Processing Arrangement:
    - Material inputs purchased from a nonresident economy used in production outside the state (while remaining under your ownership).
    - Goods sold to nonresidents that have undergone production (while remaining under your ownership) outside the state.
  - Principal/Contractor Under FGP:
    - Goods sold by your enterprise to a nonresident principal enterprise, where the principal is responsible for product design and related intellectual inputs used in production, and no charge is made for the use of these intangible inputs.
    - Goods purchased by your enterprise from a nonresident contractor, where your enterprise is responsible for product design and related intellectual inputs used in production, and no charge is made for provision of these intangible inputs.
    - Sales of finished goods produced abroad, where your enterprise is responsible for product design and related intellectual inputs used in production, and no charge is made for provision of these intangible inputs.

### Country experiences and implementation examples

- United Kingdom (UK)
  - Institutional setup:
    - Large Case Unit (LCU) established early in 2019 to analyze globalization and MNE effects.
    - Complementary team across national accounts and BOP set up in 2021 for methodology and implementation support.
    - Skills across business register, surveys, and national accounting methods are essential.
  - Staged industry approach:
    - Began with pharmaceuticals, moving to aerospace, and oil and gas.
  - Case study: Mixed Manufacturing Model (large UK-based MNE)
    - 2019 output composition:
      - In-house manufacturing: 82% of output in 2019
      - Manufacturing via an overseas affiliate in Country B: 8%
      - Manufacturing via an independent contractor in Country C: 10%
    - Coherency issues between survey returns, domestic sales, exports in customs data, and trade in services survey required detailed engagement.
    - 2023 output composition:
      - In-house manufacturing: 68%
      - Processing: 29%
      - Factoryless goods production: 3%
    - In 2025, the MNE discontinued the relationship with the independent contractor and reverted to in-house and overseas affiliate manufacturing.
    - Lesson: Delineating flows from each arrangement requires close collaboration with MNEs and robust data integration; ongoing tracking is essential.

- China
  - Divergence:
    - China's BOP goods trade surpluses have diverged from Customs-based surpluses, with the gap over one percent of GDP in 2024.
    - Since 2019, Customs-based trade surpluses have been persistently above BOP-based surpluses, with widening in recent years.
  - Mechanism:
    - Factoryless manufacturing can reduce China’s overall goods trade surplus in BOP because:
      - When a Chinese contractor sells produced goods to a nonresident enterprise that outsourced production, exports are recorded in BOP even if goods remain in China.
      - If the nonresident subsequently sells those goods in China, imports are recorded in BOP.
      - Contractors’ ex-factory prices (China’s exports) are normally lower than nonresident enterprises’ wholesale prices for Chinese distributors (China’s imports), producing a deficit in goods trade balance in BOP.
      - Customs do not record these transactions because goods never cross the border.
  - Data source change:
    - To capture exports and imports of goods that do not physically cross the border, Chinese BOP compilers switched data sources in 2022 from Customs data to direct reporting of financial information by large enterprises.
    - More than 13,000 large enterprises directly report goods trade data, accounting for about 70 percent of total goods trade.
    - Cross-border receipts and payments on goods trade from the ITRS are used for the rest of enterprises.
    - The new sources help produce BOP trade data aligned with the change-of-ownership principle and actual transaction prices rather than declared Customs prices.

- Singapore
  - Identification approach:
    - Collects information via targeted surveys, consultations, and desktop research; covers firms outsourcing to domestic and international contractors.
    - FGP criteria aligned with ISIC Rev. 5:
      - (i) Predominantly engage in outsourcing production processes, with these outsourced arrangements contributing the most to the entity’s value-added (i.e. principal activity);
      - (ii) Control the production process and supply intellectual property products (IPP) without charging for the right to use;
      - (iii) Outsource most or all material transformation processes.
  - Methodological challenges:
    - Firms often cannot disaggregate revenue between outsourced manufacturing and service activities, viewing outsourced manufacturing as a cost rather than revenue; financial reporting standards do not require revenue allocation disclosure for outsourced production.
    - Determining control over the production process is difficult; the boundary between control and coordination can be ambiguous in complex supply chains.
  - Solutions:
    - Surveys include questions asking firms if they outsource most production while retaining control via technical specifications, quality oversight, and IPP supply, and whether outsourced goods contribute most to sales.
    - If firms cannot provide information, desktop research focuses on wholesale firms selling own-brand products that provide IPP and control manufacturing; direct contact with firms may be used.
    - Singapore will enhance data collection to capture cross-border BOP transactions for firms with FGP activities with BPM7 adoption in 2029-2030, including for FGPs.

- Denmark
  - Identification strategy:
    - Two combined methods: data-driven method and Large Cases Unit (LCU) analysis.
    - Data-driven indicators for potential principals engaged in FGP:
      a) BOP merchanting transactions with large margins — large turnover reported as goods sold under merchanting by manufacturing enterprises may indicate FGP.
      b) Data on purchase of processing services and intermediate inputs for processing abroad and goods sold after processing abroad (transactions from BOP).
      c) Turnover of goods sold under sub-contracted operations (data reported to Prodcom statistics).
      d) Large turnover of goods not produced by the reporting enterprise registered in manufacturing (data from Prodcom and SBS).
    - LCU manually scrutinizes annual reports and engages in dialogue with large MNEs to identify FGP.
  - Implementation:
    - A working group (LCU, BOP, Prodcom, SBS, SBR) identified FGPs; identified FGPs are flagged in the SBR and classified as manufacturers per NACE Rev. 2.1 (implemented by Statistics Denmark in 2025).
    - An enterprise can be a principal or contractor in FGP arrangements; in most Danish cases, the Danish enterprise acts as the principal.
    - Most FGP arrangements are intra-group; principals often use contractors and wholesalers within the same enterprise group, controlling the majority or most valuable part of the global production chain.
    - Goods are generally produced outside Denmark and sold in a third economy.

*Source: IMF (factoryless goods production guidance and country experiences).*

### 105.      For the compilation of FGP-related transactions of the principals, both sales and purchases are

### factoryless-goods-production-cg - 105.      For the compilation of FGP-related transactions of the principals, both sales and purchases are

### Compilation of FGP-related transactions in Denmark (paras 105–106)
- Denmark collects both sales and purchases for FGP-related transactions directly from principal enterprises using additional codes in the Danish international trade in services survey (ITSS).
- Under BPM6 these transactions are recorded as merchanting, collected as sales and purchases (positive and negative exports) in the country of the merchanting sale.
- Since 2022, Statistics Denmark has been collecting the country of purchase for merchanting goods as a supplement to the regular merchanting items.
  - This enables recording of the actual country of import to support the transition to BPM7 and implementation of recording FGP transactions.
- Identified global production arrangements involving Danish-resident contractors producing for non-Danish-resident principals are few.
  - Only one arrangement met the FGP definition; the others were “processing” set-ups.
  - The single FGP-related contractor involves a large Danish-controlled enterprise group that relocated some IPPs to an affiliate abroad while maintaining production in Denmark.
    - The sale of the final goods related to the IPP are recorded as domestic sale at ex-factory price to a non-resident VAT registration.
    - That non-resident VAT registration reports the full value of the goods (including the IPP value) to the custom authorities (and the IMTS) when the goods are exported.
    - Balance of Payments adjusts the exports accordingly using VAT data.

### How the Large Cases Unit (LCU) works in Ireland (paras 107–116)
- The Large Cases Unit (LCU) in the Central Statistics Office (CSO) is a standalone Division with key functions:
  - To act as a dedicated centralized point of contact for the largest foreign-owned multinational enterprises (MNEs) in Ireland.
  - To provide a coordinated data collection and processing function for economic data from these MNEs for delivery to Balance of Payments, Short Term and Structural Business Statistics, and National Accounts.
  - To manage communications around all CSO survey requirements.
- Relationship management and staffing:
  - Each MNE is assigned an account manager, a primary and secondary statistician, and an accountant.
  - LCU resources recognize the impact of these MNE data on key macroeconomic aggregates.
- Data collection and quality assurance:
  - The LCU’s monthly, quarterly, and annual survey forms collect business statistics for Short-Term and Structural Business Statistics and economic statistics for Balance of Payments.
  - The LCU collects, processes, validates and ensures consistency to deliver high-quality critical data to BOP, Business Statistics and National Accounts domains.
- Company engagement:
  - Company meetings are integral to understanding business models and operations, including manufacturing processes, economic ownership, and value-added activities.
  - Merchanting and contract manufacturing are common phenomena among LCU MNEs; the LCU emphasizes correct reporting of globalization data in survey forms.
- Consistency checks on monthly data include monitoring:
  - levels of production abroad and merchanting;
  - seasonal sales or production patterns; and
  - Irish production value compared with trade export values.
- More extensive quarterly consistency checks (based on full P&L and balance sheet data) include:
  - monthly / quarterly turnover versus trade export data;
  - materials costs versus trade import data;
  - stock changes versus production values, where valuation methodologies for each are similar;
  - quarterly wages versus survey earnings data;
  - balance sheet transactions versus treasury company data; and
  - consistency in geography for processing fees where inventories are being held abroad.
- Administrative data sources used in quarterly consistency work:
  - International trade data from the Customs arm of the Tax Authorities;
  - Corporate taxation data from the Tax Authorities;
  - Dividend Withholding Tax data from the Tax Authorities; and
  - Statutory accounts from the Companies Registration Office (CRO).
- Final consistency is checked utilizing enterprises’ audited accounts (received around T+18 months).
- Table 4A LCU Sources Compared for Quarterly Consistency (as described):
  - Monthly & quarterly turnover ↔ Monthly trade exports
  - Quarterly Cost of Goods ↔ Monthly trade imports
  - Quarterly GVA ↔ Annual GVA
  - BOP profits ↔ Revenue (tax authority) profits
  - EHECS/PMOD labour market statistics ↔ Quarterly payroll
  - Balance sheet transactions ↔ Treasury companies
  - Foreign inventories ↔ Processing fees to foreign counterparties
- Change of economic ownership principle:
  - Consistency work involves making both positive and negative adjustments to imports and exports for multiple companies based on contract manufacturing activities in Ireland and abroad, and for goods exported in prior periods.
- Quarterly reviews also assess derived value added in Ireland, referenced internally as the “BOP Gap” and the “Trade Gap”.

### Questions for global consultation (as posed)
- Do you agree that all the features of factoryless goods production have been outlined in the Note?
- Do paragraphs 16–28 accurately characterize the role of Intellectual Property Products (IPP) in factoryless goods production?
- Do you agree with the approaches recommended for compilers as outlined in Section 3 (from paragraph 54 onwards)?
- Do you have any further comments or country experiences you would be willing to share to enrich the note?

### Annex — Model questionnaire: summary of recommendations, data needs, collection instruments, and sample questions
- Main recommendation:
  - SNA 2025 and BPM7 clarify recording of global manufacturing arrangements where ownership of inputs—not physical location of production—determines whether output is recorded as manufacturing or as a manufacturing service.
  - Updated guidance distinguishes:
    1. Traditional manufacturers who own material inputs and produce goods,
    2. Enterprises who outsource manufacture but retain ownership of material inputs during production (goods for processing arrangements),
    3. Factoryless goods producers (FGPs) who supply product design/intellectual property and control production but contract out all fabrication.
  - Cross-border arrangements must be consistently reflected in national accounts (production, trade, and income) and the balance of payments (goods vs services).
- Types of data needed (selected items preserved exactly):
  - Identification of whether the enterprise outsources production but supplies the material inputs and/or the intellectual property input to the manufacturing process;
  - Identification of whether the enterprise owns the inputs it processes or produces for others.
  - Value of materials supplied by clients vs materials purchased on own account.
  - Fees earned for processing or assembly services performed for others.
  - Goods sent abroad or received for processing without change of ownership (physical flows and partner countries).
  - Design, R&D, and IP ownership related to outsourced production.
  - Contract terms—who bears inventory, quality control, and marketing risk.
  - Exports/imports of processed goods and corresponding service fees.
  - Employment, plant location, and physical production data for processors vs factoryless producers.
  - Intra-group relationships (affiliate vs independent contractor) to support BPM7’s functional classifications.
- Potential collection instruments:
  - Business register scoping survey to identify: (a) Companies that outsource production to nonresidents; (b) Companies that manufacture on behalf of nonresidents.
  - Manufacturing or Industrial Production Surveys with added ownership and processing-fee modules.
  - Trade in Services and Goods for Processing Surveys capturing cross-border processing arrangements (also called “toll manufacturing”).
  - Customs records with ownership flags or processing codes (inward/outward processing).
  - FDI and MNE surveys collecting information on contract manufacturing abroad.
  - Administrative data from export-processing zones and customs warehouses.
- Selected sample survey questions (preserved wording where given):
  - Production Arrangement Type:
    - Does your enterprise own the materials used in production? (Y/N)
    - Does your enterprise perform manufacturing or assembly on goods owned by another entity? (Y/N)
    - Does your enterprise outsource all manufacturing to other firms while retaining design/intellectual property rights or ownership? (Y/N)
    - Indicate your main production model: ☐ Traditional manufacturer ☐ Processor (for others) ☐ Principal who outsources processing while retaining ownership of materials ☐ Factoryless producer
  - International Trade in Services survey (ITS) ITS questionnaire: Include the following category of expenditures and revenues with nonresidents
    1. Manufacturing services on physical inputs owned by others (all work done on goods by a resident of one economy for the owner of goods (principal) who is resident in another economy)
    - Please also supply the gross values of goods received and goods sent
  - Ownership and Risk:
    - Who owns the inputs during production? ☐ Client (foreign/domestic) ☐ Reporting enterprise.
    - Who determines product specifications, quality, and branding? Who bears risk for defective production or unsold inventory?
  - Cross-Border Dimensions:
    - Did your enterprise engage contract manufacturers abroad during the year? (Y/N) If yes, identify partner countries and value of output produced abroad.
    - Did your enterprise provide processing services to foreign clients? (Y/N) Report associated service-fee revenue and counterpart country.
  - SBS survey P&L details to identify FGP and processing Turnover (selected headings preserved):
    1. Goods sold
      1.1 Goods sold to nonresidents
        1.1.1 Of which
          a) Goods produced by your enterprise within the reporting jurisdiction
          b) Goods produced by your enterprise in another jurisdiction and shipped to the buyer from that other jurisdiction
            b.1) After contract manufacturing
            b.2) (under FGP) i.e., where the goods have been produced abroad under your enterprise design specification and are now sold to final buyers.
    2. Cost of goods sold
      2.1 Goods purchased from nonresidents
        2.1.1 Of which:
          a) Goods physically entering the reporting jurisdiction
          b) Goods not entering the reporting jurisdiction
            b1. Goods purchased by your enterprise from nonresidents to be used in contract manufacturing abroad
            b.2 (goods under FGP) purchased by your enterprise after production abroad where your enterprise provided the manufacturing design specifications, and where this input of intellectual property is significant
  - R&D and IP Ownership:
    - Does your enterprise hold the design, trademark, or patent for the products manufactured by contractors? (Y/N)
    - If not, identify the entity that owns the design or IP (domestic affiliate, foreign affiliate, client).
  - Employment and Location:
    - Number of employees engaged in manufacturing/processing activities.
    - Number of employees engaged in design, R&D, and coordination of outsourced production.
    - Countries where main contractors or affiliates are located.

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_Source: https://www.imf.org/-/media/files/data/statistics/bmp7/implementation-support/factoryless-goods-production-cg.pdf_