14.95. In practice therefore, because of limitations with customs data, countries typically rely on business surveys (albeit with one eye on customs statistics for anecdotal checks).
Reasons for differences between the value of goods before and after processing compared to the manufacturing service (i.e. the processing fee)
Sale of goods after processing in the economy of the manufacturer or to a third economy; in such cases, the value of the processed goods that are returned to the owner is diminished by the value of goods sold to the economy of the manufacturer or to a third economy, the latter being separately recorded as exports by the owner of the goods.
Incorrect assessment of the values of goods sent and returned; since there is no sale or purchase of the goods, the values recorded by customs at the time of import and re-export are notional values, whose balance probably does not differ by the amount of the processing fee received (resulting in balance of payments errors and omissions). Also, these values may be assessed differently by the customs authorities of the economy of the sender and the customs of the economy of the receiver.
Recording of the goods before and after processing across different periods.
Inclusion of holding gains or losses; holding gains or losses accrue to the owner of the goods. However, it is likely that the changes in the value of the goods while in the possession of the manufacturing company could be included in the value of the goods and hence be mistaken for part of the manufacturing services. For example, if the price of oil changes substantially after the manufacturer takes possession of the consignment, then the value of oil after manufacturing would include the price increase, the manufacturing services, and the value of other inputs.
Scrapping of the goods while in the possession of the manufacturer; these goods may be included in the value of goods sent but excluded in the value of goods returned.
Inclusion of manufacturer’s overheads in the value of the goods after processing*; the manufacturing services should include overhead costs only to the extent they relate to the processing of the goods.
Value of brand names in goods after processing; for example, a shoe manufacturer’s logo adds value to the goods after processing. However, this value should not be included in the manufacturing services.
Inclusion of the value of materials sourced from the economy of the manufacturer; materials procured by the processor as inputs in the production process and that may be sourced from the economy of the manufacturer (or sourced from third economies and then transported directly to the economy of the manufacturer) are included in the overall cost of production. It may be that only a portion of their value is reflected in the manufacturing services, the rest being inputs in other processing activities including on its own.
* Overhead costs include expenses related to the operation of a business. Most commonly, overhead costs include accounting fees, advertising, depreciation, insurance, interest, legal fees, rent, repairs, supplies, taxes, telephone bills, travel, and utilities costs.
Source: Balance of Payments and International Investment Position Compilation Guide, BPM6CG
14.96. It should be noted that some countries still rely, to some degree, on the International Transactions Reporting System (ITRS). For example, France notes that it is able to identify and capture over 80% of merchanting through this system (direct reporters). However, even in this case, surveys are required and contacts are often made with direct reporters to ensure accuracy and quality. In addition, there are many other limitations of the ITRS (see for example BPM6 CG paras. 4.73-4.78), which has seen many countries move away from using this source for their balance of payments compilation.
The Situation in the United Kingdom Office for National Statistics - Short-term Solution
The move to BPM6 saw the ONS add a new question to their International Trade in Services Survey to capture manufacturing services on the physical inputs owned by others.
For imports: Include the fees charged by foreign businesses for the processing, assembly, labelling and packing of goods overseas that are owned by your business.
For exports: Include services such as processing, assembly, labelling and packing of goods that are owned by another foreign business.
In addition the ONS is investigating other possible avenues: