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B.   General Description

15.5.        FATS data should be compiled for as many variables as possible. Some are more closely related to the needs of GATS (output or turnover, employment and number of enterprises), but for broader analytical purposes other variables would be of interest, such as assets and research and development.   The main elements of the FATS conceptual framework and its scope for services are described in chapter IV of MSITS 2010. For additional guidance, compilers are advised to refer to the OECD Benchmark Definition of Foreign Direct Investment, 4th edition,  chapter 8, as well as Measuring Globalization: OECD Handbook on Economic Globalization Indicators (HEGI).[1] All sources identified above also include some practical information on FATS compilation.

15.6.        FATS are the main data source for assessing mode 3, or commercial presence.[2] In the majority of cases,  that mode of supply corresponds to the activities of entities that are controlled or owned from abroad in the territory in which they are established. The supply of services through mode 3 by non-resident suppliers to residents of the compiling economy is made by the resident affiliate of that supplier (i.e., recorded as transactions between residents of the same economy).

15.7.        The main interest, from a mode 3 perspective, is in compiling data broken down by destination/origin of control and service type. However, in the absence of data by service type, or if such a breakdown is difficult to compile, it is possible to estimate the most likely type of service being provided according to the primary activity of the firm. For example, a company in the telecommunications services industry is likely to have been set up abroad to provide mainly telecommunications services.

15.8.        FATS will include such variables as output or turnover/sales and employment.. Although the interest, from a mode 3 perspective, is not limited to such output, output is the measure of the mode 3 supply of services, which, in a GATS context, is analogous to exports and imports of services recorded in the BOP (corresponding to modes 1, 2 and 4). In the absence of output data, a solution could be to use FATS sales/turnover of services data, keeping in mind the mode 3 measurement issues associated with wholesale and retail trade, financial services and insurance services (see section C.1, below).

15.9.        It is also important to consider what has in fact been supplied to consuming entities of the economy in which the affiliate is established. The measure of mode 3 supply of services is a subset of a foreign affiliate’s output figures, i.e., output that is not exported to third economies or back to the economy of the controlling enterprise. As shown in box 15.1, company B’s production and delivery of services to consumers of B is supply of services through mode 3 for economy B (originating from A). Company B’s exports of services to the rest of the world are part of output figures as a FATS variable, but are not included as economy B’s mode 3 consumption of services. It could be supply of services through modes 1, 2 or 4. Similarly, company C’s production and delivery of services within economy C is supply of services through mode 3 to consumers of C (from economy A). The services output produced by company B (or company C), but provided to non-resident consumers outside their economy of establishment should be accounted for as trade in services (either mode 1, 2 or 4) between the economy of residence of that company and the economy of residence of the consuming entities. In other words, that information is already covered in the BOP services data of the respective economies.  When analysing the international supply of services by mode, only data derived from the FATS framework that correspond to mode 3 should be considered, to compare to data derived from the BOP services account.[3]

15.10.        Within the list of variables recommended for FATS compilation, employment is also of great interest, particularly if compilers are able to separately identify the portion of employees from abroad (i.e. non-residents). That information would be useful in relation to mode 4 commitments, as further described in section C.4 of the present chapter, as well as in chapter 16. Data on the number of intracorporate transferees would be useful, particularly given the high level of commitments made in trade negotiations for that category of persons.

15.11.        The variables should be broken down as follows:

(a) The country of location of the foreign affiliate for outward FATS, or the origin of ultimate control/FDI for inward FATS;

(b) The activity of affiliates;

(c) The type of products produced by the foreign affiliates for the variables for which such a breakdown is possible, at a minimum distinguishing services from goods. Although that is generally seen as a longer term goal, some compiling economies have already compiled such data, or such a breakdown is feasible;

(d) For output or sales, distinguishing among those within the host economy, the home economy and third economies.

15.12.        Supplementary data may also need to be compiled as a separate dataset depending upon the specific circumstances of some economies, such as the existence of significant joint ventures, or where control cannot be determined solely using the guideline of more than 50 per cent ownership of voting power, or in economies in which control is not possible by law.

15.13.        FATS often require the integration of multiple data sources, which can present measurement challenges. Different data sources are often necessary to identify the population covered by the framework, as well as the breakdowns by partner country.

 

Next: C. Selecting data sources



[1] Another valuable source of information for compilers is the Foreign Affiliates Statistics (FATS) Recommendations Manual, produced by Eurostat.

[2] Mode 3 also refers to cases in which there is the establishment of a non-resident entity (e.g., for less than one year) delivering services to customers of the economy of establishment. In such cases, international transactions in services will be recorded in the BOP statistics. However, MSITS 2010 recommends considering those only if it is believed that such cases are important for the compiling economy.

[3] Keeping in mind other considerations with respect to the comparability of those data, see chapter 20, on data and metadata dissemination.