From the October 1998 SURVEY OF CURRENT
BUSINESSMichael A. Mann and Laura L. Brokenbaugh prepared the section on cross-border transactions. Sylvia E. Bargas prepared the section on sales by affiliates.
In 1997, U.S. cross-border sales of private services grew slower, at 7 percent, than U.S. cross-border purchases of private services, at 10 percent (table A). In contrast, over the decade of 1986–96, U.S. sales grew faster—11 percent (average annual rate)—than purchases—8 percent (chart 1). This longer term pattern is consistent with the United States' comparative advantage in the provision of services, as evidenced by the growing surplus in private services for most years in the past quarter century and for every year since 1985. Despite the faster growth in purchases in 1997, this surplus reached a record $83.0 billion. The largest surplus was in royalties and license fees, which represent receipts and payments for intellectual property rights, such as patents, trademarks, and copyrights. Large surpluses were also recorded for travel; business, professional, and technical services; financial services; and education. The surplus in services contrasted sharply with the U.S. deficit on trade in goods, which increased to a record $198.0 billion.
The United States' strong competitive position in the provision of services is also evidenced by the services sold by majority-owned affiliates of multinational companies. In 1996, the most recent year for which data are available, as well as in every year since 1987, the value of services sold abroad by majority-owned foreign affiliates of U.S. companies exceeded the value of services sold in the United States by majority-owned U.S. affiliates of foreign companies. The strong competitive position of U.S. companies in the provision of services may reflect the state of development of the U.S. economy, with its high share of services in gross domestic product and an abundance of firms that are capable of competing on a global scale, whether through cross-border trade or through locally established affiliates. In 1996, sales of services abroad by foreign affiliates grew faster than sales of services in the United States by U.S. affiliates for the third consecutive year; sales by foreign affiliates grew 16 percent, while sales by U.S. affiliates grew 8 percent.
This article presents detailed estimates of U.S. cross-border sales and purchases of private services and of U.S. sales and purchases of services through nonbank majority-owned affiliates of multinational companies. Cross-border sales and purchases are transactions between U.S. residents and foreign residents. They represent international trade in the conventional sense—exports and imports—and are recorded, in summary form, in the U.S. international transactions accounts./1/ Sales of services through nonbank majority-owned affiliates of multinational companies represent services sold in international markets through the channel of direct investment./2/ (See the box "Channels of Delivery of Services Sold in International Markets.") The data are drawn from larger data sets on affiliate operations that are presented in annual articles on the operations of U.S. multinational companies and of U.S. affiliates of foreign companies./3/
In 1996, the most recent year for which data are available for both cross-border transactions and sales through affiliates, for both channels of delivery, U.S. sales of services to foreigners expanded more rapidly than U.S. purchases of services from foreigners. For cross-border transactions, U.S. sales increased 10 percent, and U.S. purchases increased 7 percent; for services sold by majority-owned affiliates, U.S. sales increased 16 percent, and U.S. purchases increased 8 percent./4/
Additional highlights for 1996 include the following:
The remainder of this article is presented in two parts. The first part discusses cross-border sales and purchases, and it presents preliminary estimates for 1997 and revised estimates for 1986–96. The second part discusses sales through majority-owned affiliates, and it presents preliminary estimates for 1996 and revised estimates for 1995.
In 1997, U.S. exports of private services (receipts) increased 7 percent, to $239.2 billion, following a 10-percent increase in 1996. U.S. imports of private services (payments) increased 10 percent, to $156.2 billion, following a 7-percent increase in 1996. The U.S. surplus on private services edged up 1 percent in 1997, to $83 billion, compared with a 16-percent increase in 1996.
Additional highlights for 1997 are as follows:
| Percent change from prior year | ||||
| Exports | Imports | |||
| 1996 | 1997 | 1996 | 1997 | |
| Private services | 10 | 7 | 7 | 10 |
| Travel and
passenger fares |
10 | 4 | 7 | 9 |
| Other
transportation |
0 | 3 | 1 | 6 |
| Royalties
and license fees |
8 | 3 | 14 | 20 |
| Other
private services |
15 | 12 | 8 | 12 |
| Change from prior year in millions of dollars | ||||
| Exports | Imports | |||
| 1996 | 1997 | 1996 | 1997 | |
| Private services | 19,984 | 15,002 | 8,906 | 13,975 |
| Travel and
passenger fares |
7,860 | 3,999 | 4,287 | 5,589 |
| Other
transportation |
-7 | 837 | 369 | 1,546 |
| Royalties
and license fees |
2,534 | 853 | 935 | 1,557 |
| Other
private services |
9,597 | 9,313 | 3,315 | 5,283 |
The following two sections discuss cross-border transactions in services in 1997 by type of service and by geographic area. These sections, along with the accompanying tables, provide information for more types of services and more geographic areas than are available in the quarterly U.S. international transactions accounts. The estimates of cross-border transactions incorporate recent reclassifications and improvements in source data (see the box "Revisions to the Estimates of Cross-Border Services Transactions"). The transactions covered are those between U.S. residents and both affiliated and unaffiliated foreign residents./5/
Affiliated transactions consist of intrafirm trade by multinational companies—specifically, the transactions between U.S. parent companies and their foreign affiliates and between U.S. affiliates and their foreign parent groups. (Cross-border transactions between affiliated enterprises should not be confused with sales by affiliates, which are discussed in the second half of this article.) In this article, new detail by type of service for these transactions is presented (see the box below).
Cross-border services transactions are classified under the same five broad categories used in the U.S. international transactions accounts: Travel, passenger fares, other transportation, royalties and license fees, and other private services.
Travel.—This category covers purchases of goods and services by U.S. persons traveling abroad and by foreign persons traveling in the United States for business or personal reasons for less than 1 year. The types of goods and services most likely to be purchased are lodging, food, recreation and entertainment, local transportation, and gifts. U.S. travel transactions with both Canada and Mexico include border transactions, which often involve stays of less than 24 hours.
U.S. receipts for travel increased 5 percent in 1997, to $73.3 billion, following a 10-percent increase in 1996. Travelers from Central and South America accounted for 60 percent of the increase in 1997, although they accounted for only 16 percent of total travel receipts.
Travelers from the Asia and Pacific area—mainly from Japan and the Republic of Korea—accounted for 30 percent of receipts from overseas travel (all countries except Canada and Mexico) in 1997 after accounting for 32 percent in 1996. Receipts from Japan decreased 6 percent and those from Korea decreased 12 percent; these decreases are attributable partly to decelerations in the growth rates of the two economies and partly to depreciation of those countries' currencies against the dollar.
Travel receipts from Canada, which accounted for 9 percent of travel receipts, were unchanged in 1997, following a 10-percent increase in 1996. Reflecting the appreciation of the U.S. dollar against the Canadian dollar, the number of travelers from Canada to the United States—most of whom are same-day auto travelers—declined 1.8 million in 1997. Receipts from Mexico increased 14 percent in 1997, following a 5-percent increase in 1996, but they were still well below those before the large devaluation of the peso in late 1994.
U.S. payments for travel increased 7 percent in 1997, to $51.2 billion, following a 7-percent increase in 1996. Payments of U.S. travelers overseas accounted for most of the increase in 1997. U.S. travelers to Western Europe accounted for two-thirds of the increase, although they accounted for only one-third of total travel payments. U.S. payments to Canada increased 5 percent after increasing 8 percent, and payments to Mexico increased 8 percent after increasing 12 percent.
Passenger fares.—This category covers fares paid by residents of one country to airline and vessel operators that reside in another country. Exports consist of fares received by U.S. operators for transporting foreign residents between the United States and a foreign country and between foreign countries. Imports consist of fares paid to foreign operators by U.S. residents for travel to and from the United States.
U.S. passenger fare receipts increased 2 percent in 1997, to $20.9 billion, following an 8-percent increase in 1996. The slowdown, which continues a trend that began in 1995, reflects a smaller increase in the number of foreign travelers coming to the United States on U.S. airlines. U.S. passenger fare payments increased 15 percent in 1997, to $18.2 billion, following an 8-percent increase.
Other transportation.—This category primarily covers transactions for freight and port services for the transportation of goods by ocean, air, and truck to and from the United States. Freight receipts of U.S. carriers are for transporting U.S. goods exports and for transporting goods between two foreign points; freight payments to foreign carriers are for transporting U.S. goods imports./6/ Port services receipts are the value of the goods and services procured by foreign carriers in both U.S. sea and air ports; port services payments are the value of goods and services procured by U.S. carriers in foreign sea and air ports.
U.S. receipts for "other transportation" increased 3 percent in 1997, to $26.9 billion, following virtually no change in 1996. Receipts increased 6 percent for freight services and 1 percent for port services. The increase in freight receipts was almost entirely accounted for by air freight receipts, which were boosted by a 9-percent increase in the export tonnage transported by U.S. air carriers. Ocean freight receipts decreased 3 percent; a decline in the export revenues earned by U.S. liner vessels offset an increase in the export revenues earned by U.S. tanker vessels, and the export revenues earned by U.S. tramp vessels decreased slightly./7/ In recent years, the increase in ocean freight receipts has been tempered by stagnant freight rates on some routes and by the reflagging of some U.S. vessels to foreign registry.
U.S. trucking firms' freight receipts for transporting goods from the U.S.-Canadian border to destinations in Canada and from origins in Canada to the border increased 3 percent to $1.3 billion. U.S. cross-border trucking transactions with Mexico are insignificant due to the restrictions on such transactions in both countries. The North American Free Trade Agreement provides for progressive relaxation of these restrictions, but implementation has been delayed until a number of safety-related issues can be resolved.
Port services increased slightly, as a small increase in air port services was partly offset by a decrease in ocean port services. Ocean port services receipts decreased 2 percent, as a decline in the export volumes of foreign vessels and lower average costs in U.S. ports more than offset an increase in the import volumes of foreign vessels.
U.S. payments for "other transportation" increased 6 percent in 1997, to $28.9 billion, following a 1-percent increase in 1996. Payments for freight services increased 7 percent, and payments for port services increased 4 percent. The increase in freight payments was the result of an increase in the import tonnage transported by foreign ocean and air carriers. Payments to Canadian carriers for transporting goods by truck in the United States increased 6 percent.
Payments for port services increased 4 percent, mostly as the result of a 6-percent increase in air port services that was attributable to increases in the import and export volumes of U.S. air carriers. Ocean port services payments decreased 2 percent, as a decline in the import and export tonnage transported by U.S. liner vessels more than offset increases in the import and export tonnage transported by U.S. tanker and tramp vessels.
Royalties and license fees.—This category covers transactions with foreign residents that involve patented and unpatented techniques, processes, formulas, and other intangible property rights used in the production of goods; transactions involving copyrights, trademarks, franchises, broadcast rights, and other intangible rights; the rights to distribute, use, and reproduce computer software; and the rights to sell products under a particular trademark, brand name, or signature.
Receipts of royalties and license fees increased 3 percent in 1997, to $33.7 billion, following an 8-percent increase in 1996. The increase in 1997 was largely attributable to a 3-percent increase in receipts of U.S. parent companies from their foreign affiliates. Receipts from unaffiliated foreigners increased less than 1 percent in 1997. Receipts from the sale or use of industrial processes decreased 6 percent; in contrast, receipts from software licensing fees increased 13 percent.
Payments of royalties and license fees increased 20 percent in 1997, to $9.4 billion, following a 14-percent increase in 1996. The increase in 1997 was more than accounted for by an increase in affiliated transactions, primarily payments by U.S. affiliates to their foreign parents. Royalty and license fee payments to unaffiliated foreigners were virtually unchanged in 1997, reflecting large, nearly offsetting shifts in the various components. Payments for the rights to broadcast and record live events were $0.1 billion in 1997, down sharply from $0.5 billion in 1996 when large payments were made to the International Olympic Committee for broadcast rights to the Summer Olympic Games. "Other" unaffiliated payments were $0.6 billion in 1997, up from $0.3 billion in 1996; the large amount in 1997 was primarily attributable to software licensing fee payments in Europe.
Other private services.—This category consists of a variety of services: Education; financial services; insurance; telecommunications; business, professional, and technical services; and other affiliated and unaffiliated services.
Receipts for "other private services" increased 12 percent in 1997, to $84.5 billion, following a 15-percent increase in 1996. Affiliated services receipts increased 11 percent, to $26.3 billion, reflecting increased receipts by U.S. affiliates from their foreign parents and by U.S. parents from their foreign affiliates. Unaffiliated services receipts increased 13 percent, to $58.1 billion, reflecting increases across most services categories.
Payments for "other private services" increased 12 percent in 1997, to $48.4 billion, following an 8-percent increase in 1996. Payments to affiliated foreigners increased 10 percent, to $18.3 billion; the increase was mostly attributable to a 16-percent increase in payments by U.S. parents to their foreign affiliates. Payments to unaffiliated foreigners increased 14 percent, to $30.1 billion, following a 3-percent increase in 1996.
"Education" receipts consist of expenditures for tuition and living expenses by foreign students enrolled in U.S. colleges and universities; payments consist of tuition and living expenses of U.S. students for study abroad. Education receipts increased 5 percent to $8.3 billion, and payments increased 8 percent to $1.3 billion, as the number of foreign students studying in the United States increased less than the number of U.S. students studying abroad.
"Financial services" covers a variety of services, including funds management, credit card services, explicit fees and commissions on transactions in securities, fees on credit-related activities, and other miscellaneous financial services; implicit fees paid and received on bond trading are also covered. In 1997, receipts for financial services increased 32 percent to $11.1 billion, and payments increased 30 percent to $3.9 billion; both increases reflect stepped-up activity in U.S. and foreign financial markets. The strong growth in receipts reflected an acceleration in trading by foreigners in U.S. securities: Foreigners purchased record amounts of U.S. stocks and near-record amounts of U.S. corporate bonds and U.S. Treasury bonds. Payments were bolstered by substantial U.S. trading in foreign securities.
"Insurance" includes premiums earned and paid for primary insurance and for reinsurance; losses paid by U.S. insurers and losses recovered from foreign insurers are netted against the premiums. Primary insurance consists of life insurance, accident and health insurance, and property and casualty insurance. Each type of primary insurance may be reinsured; reinsurance is the ceding of a portion of a premium to another insurer, who then assumes a corresponding portion of the risk. Reinsurance is one way of providing coverage for events with so high a degree of risk or liability that a single insurer is unwilling or unable to underwrite insurance against their occurrence.
In 1997, net insurance receipts increased 21 percent to $2.4 billion. The increase was largely attributable to a reduction in losses paid for both primary insurance and reinsurance, as premiums received were virtually unchanged. Net insurance payments increased 38 percent to $5.2 billion; the increase was largely the result of a sharp fall in the losses recovered from foreign insurers.
"Telecommunications" consists of settlements between U.S. and foreign communications companies for the transmission of messages between the United States and other countries; channel leasing; telex, telegram, and other jointly provided (basic) services; value-added services, such as electronic mail and video conferencing; and telecommunications support services. Receipts for telecommunications services increased 15 percent to $3.8 billion in 1997, and payments decreased 2 percent to $8.1 billion. The United States continues to run a large trade deficit in telecommunications services because the outgoing minutes of calls from the United States exceed the incoming minutes of calls to the United States./8/ The large number of outgoing calls from the United States reflect several factors, including the relatively low international calling rates from the United States, the relative wealth of the United States, and the large immigrant population.
"Business, professional, and technical services" covers a wide variety of services. Receipts increased 8 percent to $21.3 billion in 1997, following an increase of about 20 percent in 1996. The strong increase in 1996 reflected sizable increases in all the subcategories of these services. The 1996 increase in "construction, engineering, architectural, and mining services" was particularly strong and was largely accounted for by a high level of construction activity in the Middle East, which continued in 1997.
Receipts for legal services and for "management, consulting, and public relations services"—two of the fastest growing categories of business, professional, and technical services—each surpassed $2.0 billion in 1997. Strong receipts in the latter category reflect U.S. expertise in areas such as business process re-engineering.
Receipts for "computer and data processing services" were virtually unchanged, at $1.6 billion, from those in 1996. Cross-border sales of these services were dwarfed by sales of these services through foreign affiliates./9/ Computer-related services are also delivered from the United States to foreign markets through software-licensing agreements. As mentioned in the section "Royalties and license fees," computer-software-licensing fee receipts were nearly $2.5 billion in 1997.
Payments for business, professional, and technical services increased 18 percent in 1997, to $6.6 billion, following a 15-percent increase in 1996. "Miscellaneous disbursements" increased 32 percent to $1.1 billion; the step-up was largely accounted for by a 40-percent increase, to $0.5 billion, in the production costs of motion picture companies and of companies producing broadcasts other than news broadcasts. (Miscellaneous disbursements also covers outlays to fund news-gathering costs of broadcasters and the print media; disbursements to maintain tourism and business promotion offices; and disbursements for participating in foreign trade shows.)
Receipts for "other unaffiliated services" mainly consists of expenditures by foreign governments for services related to maintaining embassies and consulates in the United States; expenditures of international organizations—such as the United Nations, the International Monetary Fund, and the World Bank—headquartered in the United States; receipts from unaffiliated foreigners for sales and rentals of U.S. motion picture and television films and tapes; and expenditures of foreign residents employed temporarily in the United States. Payments primarily consist of earnings of foreign residents who are employed temporarily in the United States and of payments by U.S. film distributors to unaffiliated foreign residents for purchases and rentals of motion picture and television films and tapes. In 1997, receipts for "other unaffiliated services" increased 11 percent to $11.3 billion; payments increased 8 percent to $5.0 billion.
Twelve countries accounted for 61 percent of U.S. cross-border exports and for 63 percent of U.S. cross-border imports (table B). The top seven of these countries for both exports and imports of U.S. services—Japan, the United Kingdom, Canada, Germany, Mexico, France, and South Korea—accounted for roughly one-half of both exports and imports of U.S. services and for 42 percent of the U.S. surplus on private services. By area, Europe and Asia and Pacific together accounted for two-thirds of exports and for slightly less than two-thirds of imports (chart 4).
Europe.—Europe accounted for 36 percent of exports and for 40 percent of imports of private services in 1997. The U.S. services surplus with Europe decreased 14 percent, to $24.1 billion, following a 38-percent increase in 1996. Imports of private services increased 14 percent in 1997, while exports increased 4 percent. In contrast, imports increased only 2 percent in 1996, while exports increased 12 percent.
The United Kingdom accounted for 10 percent of all U. S. exports of services in 1997, compared with 9 percent in 1996, and ranked second to Japan as a destination of U.S. exports of services. Exports to the United Kingdom grew 16 percent in 1997, more than twice the growth in total U.S. exports of private services. The strong growth reflected a step-up in "other private services" that was largely accounted for by a nearly 50-percent increase in exports of financial services.
The United Kingdom accounted for 14 percent of all U.S. imports of services in 1997, compared with 12 percent in 1996, and ranked as the leading source of U. S. imports of services. Imports from the United Kingdom grew 29 percent in 1997, nearly three times the growth in total U.S. imports of private services. Payments by U.S. residents for travel and passenger fares to the United Kingdom increased 21 percent. Net insurance payments to the United Kingdom also increased sharply, reflecting a falloff in losses recovered through reinsurance. These recoveries were relatively low in 1997, reflecting an absence of catastrophic events that would have triggered large payments from foreign reinsurers. The U.S. services surplus with the United Kingdom was $2.4 billion in 1997.
In both 1996 and 1997, Germany accounted for 6 percent of U.S. exports of services and for 5 percent of U.S. imports of services. In 1997, exports to Germany decreased 1 percent, and imports from Germany grew 3 percent—one-third of the growth in total U.S. imports of services. The U.S. services surplus with Germany fell 5 percent, to $5.5 billion, following a 12-percent increase.
Excluding the United Kingdom, U.S. exports of private services to Europe increased 1 percent, and U.S. imports from Europe increased 7 percent. These countries accounted for 26 percent of all U.S. exports and imports of services and for $21.8 billion of the U.S. services surplus.
Asia and Pacific.—This area accounted for 31 percent of exports and for 25 percent of imports of private services in 1997. The U.S. services surplus with Asia and Pacific, the largest for any area, decreased 1 percent in 1997, to $33.9 billion, following an 8-percent increase in 1996. In 1997, exports of private services increased 8 percent after increasing 7 percent, and imports of private services increased 4 percent after increasing 6 percent.
Japan accounted for 14 percent of total U.S. exports of services in 1997, down slightly from 15 percent in 1996, but still ranked first as a destination of U.S. exports of services. Japan accounted for 12 percent of "other transportation" receipts, for 9 percent of "other private services" receipts, and for 20 percent of royalties and license fees receipts in 1997. Mainly because of weakness in the Japanese economy, U.S. services exports to Japan grew only 1 percent, considerably less than the 7-percent increase in total U.S. exports of services and the 6-percent growth in exports to the Asia and Pacific area excluding Japan. Receipts for travel and passenger fares from Japanese visitors to the United States fell by more than $1.0 billion, to $16.5 billion.
Japan accounted for 9 percent of total U.S. imports of services in 1996 and 1997 and ranked second as a source of U.S. imports of services. This growth in imports kept pace with the growth in total U.S. imports of services in 1997. Reflecting a surge in payments by U.S. affiliates to their foreign parents, royalty and license fee payments to Japan increased 45 percent in 1997, compared with an 8-percent decrease in 1996. The U.S. services surplus with Japan decreased 4 percent in 1997, to $19.7 billion, compared with a 5-percent increase in 1996. This pattern, which is consistent with the increase in the trade deficit in goods with Japan in 1997 after the decrease in 1996, reflects the strength of the U.S. economy relative to that of Japan in 1997./10/
Excluding Japan, exports of private services to Asia and Pacific increased 6 percent in 1997, to $39.6 billion, and imports increased 8 percent, to $25.4 billion; the U.S. services surplus was $14.2 billion.
Latin America and Other Western Hemisphere.—This area accounted for 18 percent of exports and for 21 percent of imports of private services in 1997. The U.S. services surplus with the area nearly doubled, reaching $9.6 billion, as U.S. exports to most of the major countries in this area increased much more rapidly than imports. More than one-half of the surplus was attributable to travel and passenger fares.
Mexico accounted for 4 percent of total U.S. exports of services and for 8 percent of total U.S. imports of services in 1997. Mexican visitors to the United States accounted for 5 percent of total U.S. travel and passenger fare receipts, while U.S. visitors to Mexico accounted for 10 percent of travel and passenger fare payments. U.S. exports to Mexico increased 15 percent in 1997, to $9.3 billion, following a 10-percent increase in 1996. U.S. imports from Mexico increased 11 percent to $13.1 billion. The U.S. services deficit with Mexico increased to $3.8 billion—of which $2.9 billion was attributable to travel and passenger fares.
Excluding Mexico, exports of private services to Latin America and Other Western Hemisphere increased 22 percent, and imports increased 6 percent. The U.S. services surplus was $13.4 billion; travel and passenger fares accounted for more than one-half of the increase in this surplus.
Canada.—Canada accounted for 9 percent of both U.S. exports and U.S. imports of private services in 1997. U.S. imports from Canada increased more rapidly than exports to Canada, reflecting the strengthening U.S. dollar. The U.S. services surplus with Canada decreased 10 percent in 1997, to $6.4 billion, compared with a 9-percent increase in 1996. Nearly one-half of the surplus in 1997 was attributable to travel and passenger fares. Partly reflecting the high volume of goods shipped by truck, pipeline, and inland waterway between the United States and Canada, both U.S. exports to and imports from Canada of "other transportation" services ranked second to those of Japan. U.S. exports and imports of "other private services" with Canada were second only to those with the United Kingdom.
Other.—The remaining areas—Africa, the Middle East, and "International organizations and unallocated"—combined accounted for 7 percent of exports and for 5 percent of imports of private services in 1997. Exports to these areas increased 7 percent and kept pace with the worldwide growth in exports. In contrast, imports from these areas decreased 5 percent. Payments (imports) to international organizations had been boosted to an unusually high level in 1996 by a large payment for the rights to broadcast the 1996 Summer Olympic Games.
In 1996, the latest year for which data are available, worldwide sales of private services by nonbank majority-owned foreign affiliates of U.S. companies were $235.8 billion, up 16 percent from 1995 (table C)./11/ Worldwide sales of services by nonbank majority-owned U.S. affiliates of foreign companies were $171.1 billion, up 8 percent.
Sales of services by affiliates tend to be predominantly local transactions, reflecting the importance of proximity to the customer in the delivery of many services. In 1996, sales in the country of the affiliate (local sales) accounted for 80 percent of worldwide sales of services by foreign affiliates, well above the corresponding share—63 percent—for sales of goods. Sales of services to other foreign countries accounted for 13 percent of worldwide sales by foreign affiliates of U.S. companies. Only 6 percent of sales by foreign affiliates were to U.S. persons, and most of these sales were to the U.S. parents of the affiliate making the sale. Partly reflecting the large U.S. market, local sales accounted for 94 percent of sales by U.S. affiliates of foreign companies.
Sales by foreign affiliates to foreign persons and sales by U.S. affiliates to U.S. persons both represent services delivered to international markets through the channel of direct investment. Unlike cross-border transactions, which are generally classified by type of service, these sales are classified by the primary industry of the affiliate; they are shown by country of affiliate or by ultimate beneficial owner (UBO) in table 8./12/ The sales by foreign affiliates in table 9 and by U.S. affiliates in table 10 are shown by industry of affiliate cross-classified by country.
In 1996, foreign affiliates' sales of services to foreign persons were $221.1 billion. By area, affiliates in Europe accounted for 58 percent of these sales, and affiliates in Asia and Pacific accounted for 22 percent. By industry, affiliates classified in the "services" division of the Standard Industrial Classification (SIC) system accounted for 38 percent of the total, and affiliates in insurance accounted for 19 percent./13/
Foreign affiliates' sales increased $31.0 billion, or 16 percent, in 1996, following a 19-percent increase in 1995. Sales grew strongly in 1996 despite a 4-percent rise in the trade-weighted value of the U.S. dollar against the currencies of 10 major trading partners (which also are major host countries for U.S. direct investment); the rise reduced the dollar value of foreign-currency-denominated sales by foreign affiliates. The growth resulted from strong demand for computer services (traditionally regarded as an area in which U.S. multinational companies have a competitive advantage), from favorable economic conditions in most host countries, and from foreign acquisitions by U.S. multinational companies. In particular, U.S. utility companies acquired a number of overseas providers of electricity and telephone services, largely in response to the new investment opportunities created by the privatizations of Government-owned utilities abroad./14/
By area, sales of services to foreign persons by affiliates increased in all the major areas. Sales by affiliates in Europe rose $22.1 billion and accounted for 71 percent of the total increase. Half of the increase in Europe and more than a third of the total increase were accounted for by affiliates in the United Kingdom—particularly by affiliates classified in computer-related activities and by affiliates that are public utilities; the remainder was concentrated among affiliates in Germany and in the Netherlands.
Foreign sales of services by affiliates in the Asia and Pacific area rose $4.9 billion—16 percent of the total increase. Affiliates in Australia—particularly public utilities—accounted for nearly half of the increase in Asia and Pacific. Sales by affiliates in Japan were virtually unchanged, partly because of the 12-percent appreciation of the dollar against the yen, which reduced the value of sales in terms of U.S. dollars. In Canada, sales increased $2.2 billion—7 percent of the total increase. In Latin America and Other Western Hemisphere, sales increased $1.6 billion—5 percent of the total increase; nearly two-thirds of the increase in this area was accounted for by affiliates in Argentina and in Brazil.
By industry, sales increased in all major industries except wholesale trade, which decreased slightly. Sales by affiliates in "services" rose $11.4 billion, accounting for 37 percent of the total increase. Sales by affiliates in "other industries" increased $8.9 billion—29 percent of the total increase—and sales by affiliates in manufacturing increased $5.4 billion—18 percent of the total increase. Reflecting strong overseas demand for computer-related services, the increase in "services" was mainly accounted for by affiliates that primarily provide computer and data processing services, and the increase in manufacturing, by affiliates that primarily manufacture computers and related equipment./15/ Within "other industries," public utilities and communications accounted for almost all of the increase, partly because of the acquisitions of overseas providers of electricity and telephone services.
In 1996, sales of services to U.S. businesses and individuals by U.S. affiliates of foreign companies were $161.0 billion. By area, affiliates with UBO's in Europe accounted for 60 percent of the total. Affiliates with UBO's in the Asia and Pacific area accounted for 18 percent, and affiliates with UBO's in Canada accounted for 17 percent. By industry, affiliates in insurance accounted for 35 percent of the total, and affiliates in "services" and in "other industries" accounted for 24 percent and 13 percent, respectively.
U.S. affiliates' sales in the United States increased $11.3 billion, or 8 percent, in 1996, following a 3-percent increase in 1995. More than three-fourths of the increase was accounted for by net additions to the affiliate universe—following a record number of new direct investments by foreign multinational companies—rather than by growth in sales by affiliates already in the affiliate universe./16/
By area, sales by affiliates with UBO's in Europe rose $6.6 billion—58 percent of the total increase. Nearly two-thirds of the increase for Europe and more than a third of the total increase were accounted for by affiliates with UBO's in Germany—particularly insurance affiliates; the remainder was concentrated among affiliates with UBO's in Switzerland and in Norway.
Sales by affiliates with UBO's in the Asia and Pacific area rose $3.0 billion—27 percent of the total increase. Japan had the largest increase, followed by Australia. Sales by affiliates with UBO's in Latin America and Other Western Hemisphere rose $0.9 billion. Almost all of this increase was accounted for by countries in Other Western Hemisphere—particularly the Netherlands Antilles, Bahamas, and Bermuda; sales by affiliates with UBO's in South and Central America were virtually unchanged. Sales by affiliates with UBO's in Canada rose $0.7 billion.
By industry, sales by affiliates in "other industries" increased $5.0 billion; almost all of this increase was in communications. Sales by affiliates in insurance increased $4.4 billion as a result of a number of acquisitions of U.S. insurers that were motivated by foreign insurance companies' desire to consolidate into larger, more efficient units and to become better able to spread risks. Life insurers, particularly those with UBO's in the United Kingdom and the Netherlands, accounted for three-fourths of the increase in insurance; property and casualty insurers, particularly those with UBO's in Germany, accounted for most of the remainder.
As a result of several acquisitions of U.S. financial companies, sales by affiliates in "finance, except depository institutions" rose $4.2 billion, two-thirds of which was accounted for by affiliates with UBO's in Japan. These acquisitions were motivated by foreign financial institutions' desire to broaden their range of services, to spread the cost of new technology across a broader base, to acquire U.S. expertise in particular financial services areas, and to improve access to the large U.S. capital market.
The largest decrease—$1.9 billion—was in "services." Within "services," sales by affiliates in the motion picture industry fell $3.7 billion as a result of liquidations and of changes in industry classification. In contrast, sales by affiliates in health services rose $1.9 billion, following a number of acquisitions by foreign companies seeking access to the growing and profitable medical care market.
Box: Data Sources and Availability
Footnotes:
1. See tables 1 and 3 in the quarterly article on the U.S. international transactions in this issue. In table 1, cross-border exports of private services are presented in lines 5–9, and cross-border imports, in lines 19–23. In table 3, additional detail is provided.
2. These data cover all sales of services by nonbank majority-owned affiliates, irrespective of the percentage of foreign ownership. The data are limited to nonbank affiliates because the surveys used to collect the data do not cover banking affiliates. The data exclude minority-owned affiliates because data on sales of services by foreign affiliates are collected only for affiliates that are majority-owned by U.S. direct investors. However, the exclusion of minority-owned affiliates may also be preferred for another reason: Since the direct investor may own as little as 10 percent of a minority-owned affiliate, the principal interest in the affiliate's sales may lie with local investors.
3. See Raymond J. Mataloni, Jr., "U.S. Multinational Companies: Operations in 1996," SURVEY OF CURRENT BUSINESS 78 (September 1998): 47–73, and Mahnaz Fahim-Nader and William J. Zeile, "Foreign Direct Investment in the United States: New Investment in 1997 and Affiliate Operations in 1996," SURVEY 78 (June 1998): 39–67.
4. The estimate presented in this article for U.S. cross-border sales (exports) in 1996 is approximately $2 billion higher than the estimate in the international transactions accounts. This new estimate, which is based on a correction to the previously published value for business, professional, and technical services, will be incorporated into the accounts next June as part of the annual revision.
5. The term "affiliated" refers to a direct investment relationship—that is, a relationship in which an investor in one country directly or indirectly owns or controls 10 percent or more of the voting stock of an incorporated business, or an equivalent interest of an unincorporated business, in another country.
6. By balance-of-payments accounting convention, the importer is deemed to assume ownership of the goods when they cross the border of the exporting country and to bear all subsequent transportation costs. Thus, receipts of U.S. carriers for transporting U.S. imports are excluded from U.S. transportation receipts because, by this convention, they represent transactions between U.S. importers and U.S. vessel, airline, and truck operators. Similarly, payments to foreign carriers for transporting U.S. exports are excluded from U.S. payments because they represent transactions between foreign importers and foreign carriers.
7. Liner vessels carry dry cargo on a schedule; tanker vessels carry liquid cargo; and tramp vessels carry dry cargo on an unscheduled basis.
8. Under the current settlements-based system for international telecommunications transactions, a carrier in one country agrees on a price (an accounting rate) for handling a call with a carrier from another country. If a carrier originates more minutes of calls to a foreign carrier than it completes, it periodically makes a settlement payment to the foreign carrier.
9. Sales of computer and data processing services are not only made through foreign affiliates in the industry that provides these services, but also in several other industries, including machinery manufacturing and wholesale trade.
10. Real gross domestic product (GDP) in the United States grew 3.9 percent in 1997 and 3.4 percent in 1996; real GDP in Japan grew 0.9 percent in 1997, and 3.9 percent in 1996.
11. In this section, sales of services are defined as sales of the types of services that are usually sold by establishments classified in the industries listed in the footnote to table C.
12. The UBO of a U.S. affiliate is that person (in the broad legal sense, including a company), proceeding up the affiliate's ownership chain beginning with the foreign parent, that is not owned more than 50 percent by another person. The UBO ultimately owns or controls the affiliate and derives the benefits associated with ownership or control. Unlike the foreign parent, the UBO of a U.S. affiliate may be located in the United States.
13. In the SIC, the "services" division includes a variety of business and personal services (see the group "services" in tables 9 and 10), but it excludes several industries—such as finance, insurance, transportation, and communication—that are classified as services-producing industries in this article in order to disaggregate total sales into sales of goods and sales of services.
14. For additional information about U.S. direct investment abroad in 1996, see Sylvia E. Bargas, "Direct Investment Positions for 1996: Country and Industry Detail," SURVEY 77 (July 1997): 34–41, and Mataloni, "Operations in 1996."
15. The "services" and manufacturing industries in which foreign affiliates are likely to sell computer-related services are, respectively, "computer and data processing services" and "computer and office equipment manufacturing" (part of "machinery" in table 9). Sales of services to foreigners by affiliates classified in these two industries increased $10.5 billion in 1996—a third of the total increase. Not all services sold by affiliates in these industries are computer and data processing services, but most of them probably are. In addition, some computer and data processing services may be sold by affiliates classified in other industries.
16. According to data from BEA's survey of new foreign direct investments, foreign direct investors' outlays to acquire or establish U.S. businesses were a record $79.9 billion in 1996. See Fahim-Nader and Zeile, "Foreign Direct Investment in the United States."
