Manufacturing services on physical inputs owned by others

Definition

14.71.        Manufacturing services on physical inputs owned by others is defined as covering the processing, assembly, labelling, packing, and other such processes undertaken by enterprises that do not own the physical inputs concerned. Only the fee (the manufacturing service) charged by the enterprise undertaking the manufacturing service is included under this item.

14.72.        The classic example of a manufacturing service transaction involves a principal (in country A) providing material inputs to a foreign enterprise (country B) which then undertakes some form of transformative manufacturing (e.g. processing, assembly) on these inputs (which are at all times owned by the principal). The final output is then sold and the service fee (which may be less than the difference between the cost of the material inputs and the eventual sale prices or indeed the difference between the cost of the material inputs and any imputed value included in the merchandise trade export figures in the processing economy) is recorded in the BPM6 current account, service component under the item 'Manufacturing services on physical inputs owned by others'. Common examples of manufacturing services given in BPM6 include oil refining, liquefaction of natural gas, and assembly of electronics and clothing.

14.73.        To avoid any misunderstanding, it is also best to clarify the origin of the inputs in the manufacturing services transaction here. The MSITS 2010, paragraphs 3.69 and 3.70, under the heading "Recording of related purchases and sales of goods and services" outlines the situation well and this is worth repeating here:

-       When the goods are acquired from residents of the same economy as that of the owner, there is no international transaction

-       When the goods are acquired from residents of the same economy as that of the processor or a third economy, the owner of the goods to be processed records imports of general merchandise

-       When the goods are sold to residents of the same economy as that of the owner, there is no international transaction

-        When the goods are sold to residents of the same economy as that of the processor or a third economy, the owner of the goods under processing records the sale as exports of general merchandise

Recording and compilation

14.74.        Manufacturing services are recorded in the services account, and includes two supplementary items: the gross flows of the physical inputs and of the final goods. Assuming the classic case where the owner, a resident of the compiling economy, sends goods to a non-resident processor (in another economy) who processes the goods and returns them to the owner in the compiling economy, the balance of payments entries would reflect an import of manufacturing services and be recorded as follows:

-       Supplementary items

14.75.        Likewise, in the country of the processor, an export of manufacturing services is recorded, with two complementary items:

-       Supplementary items

Conceptual and compilation challenges

14.76.        There are at least three conceptual and compilation challenges that a compiler must address when recording manufacturing services transactions.


Back to B.1.2.Existing conceptual guidance