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Type 3 shares commonalities with factoryless production (where the principal specifies the production, provides non-material inputs and knowhow (IPP, blueprints, etc.), and has ownership of the final good). However, the crucial difference is that the processor sources the material inputs. The principal in a factoryless goods arrangement is classified as a distributer and the activity is treated in the same way as merchanting.
Lessons from the CSO
Goods for processing (and merchanting) adjustments in the balances of payments are significant. For example in 2016 'net exports of goods under merchanting' represented around 2% of GDP while the adjustments made to goods exports and imports to account for processing abroad represented 25% and 4% of GDP respectively. These are major amounts and point to a real need to understand, capture and record these balance of payments flows. The amounts recorded also suggest that corporations increasingly choose to send goods overseas for further production.
Questions are asked as in what is meant by 'processing'? According to BMP6 this type of manufacturing covers processing, assembly, labelling, packing and so forth. This leaves gaps and questions can arise for compilers.
For mirror data to be of use, countries need to publish goods for processing adjustments (to goods imports and exports). In many cases this is company level data and introduces confidentiality issues in sharing and exchanging of microdata.
In summary, for Ireland globalisation has seen an increase in production arrangements where the production process is split between different countries. The need to follow the BPM6 principal of ownership makes identifying these arrangements a challenge, more so considering that most of these arrangements are undertaken by MNEs and this is where the CSO has gained most experience. In this context the CSO has taken two approaches: comparing source data across the organisation (IMTS, balance of payments, PRODCOM[1], structural business survey, etc.); and the LCU which monitors all statistical outputs of MNEs.