U.S. affiliates of foreign companies: Operation in 1999

PRELIMINARY results from BEA's 1999 annual survey of foreign direct investment in the United States (FDIUS) indicate that U.S. affiliates of foreign companies accounted for a slightly larger share of U.S. gross domestic product (GDP) in private industries in 1999 than in 1998.1 This increased share

continued a 4-year uptrend in the context of strong overall growth in the U.S. economy and a worldwide surge in mergers and acquisitions. The affiliate share of private-industry GDP increased from 6.3 percent in 1998 to a record 6.4 percent in 1999 (table 1 and chart 1). (For affiliates that were majority-owned by foreign direct investors, the share increased from 5.3 percent to 5.5 percent.)

The gross product of U.S. affiliates in current dollars increased 8 percent in 1999, to $451.7 billion, following an 8-percent increase in 1998. Despite record new foreign direct investments, affiliate gross product in both years increased at a slightly slower pace than in 1996 and 1997.2 To some extent, the slower growth reflected the offsetting effect of selloffs of affiliates, particularly minority-owned affiliates. In addition, growth in 1998 was slowed by the large reduction in the gross product of petroleum affiliates that resulted from depressed markets for petroleum and petroleum products.

The contribution of new foreign investments to affiliate gross product in 1999 was smaller than that in 1998, reflecting differences in the types of U.S. businesses in which investments were made. In 1998, the largest new investments were predominantly in old-line manufacturing businesses with established value added, whereas in 1999, they were concentrated in information-related businesses that had relatively low value added but appeared to offer favorable prospects for future growth. In some of the investments in 1999, foreign investors offered very high prices to fight off competing bids to acquire the U.S. companies. As a result, the gross product associated with each dollar of new investments was much smaller in 1999 than in 1998.3

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Table 1.

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CHART 1

In 1999, employment by affiliates increased 6 percent, to 6.0 million, following a 9-percent increase in 1998. The increase in 1999 resulted from both new investments and expansions in the operations of existing affiliates. The affiliate share of U.S. private-industry employment increased from 5.2 percent in 1998 to a record 5.4 percent.4 Affiliate exports and imports of goods also increased in 1999, but the affiliate shares of total U.S. exports and imports of goods decreased.

The following are additional highlights of the operations of U.S. affiliates in 1999:

* By country of ownership, the United Kingdom remained the largest investing country in terms of affiliate gross product. Germany was second largest, having overtaken Japan in 1998.

* By industry, affiliates classified in manufacturing accounted for more than half of the gross product of all affiliates. Within manufacturing, transportation equipment emerged as the largest industry, closely followed by chemicals.

* The affiliate share of U.S. employment rose substantially in the information sector as a result of new foreign acquisitions.

* By State, the affiliate share of private-industry employment was highest in Hawaii, South Carolina, and North Carolina. Affiliates accounted for more than a fifth of manufacturing employment in Kentucky and South Carolina.

* The decline in the affiliate share of US. exports of goods was mainly due to a large decrease in exports by Japanese-owned wholesale trade affiliates, reflecting depressed market conditions in Japan.

* The decline in the affiliate share of U.S. imports of goods partly reflected increases in imports by other U.S. firms from countries, such as Mexico and China, that do not have a major investment presence in the United States.

This article examines changes in the gross product, employment, and trade in goods of U.S. affiliates in 1999, particularly as they relate to the corresponding totals for the U.S. economy. For each of these measures, changes in affiliate operations are examined, both in the aggregate and by major investing country. For gross product, the changes are also examined by industry of affiliate, and for employment, the affiliate shares of the economy are examined by industry and by State.

Gross Product

In 1999, the gross product (or value added) of nonbank U.S. affiliates in current dollars increased 8 percent, from $420 billion to $452 billion. In comparison, total U.S. GDP in private nonbank industries increased 6 percent.' The U.S. affiliates' share of total U.S. GDP in private industries edged up from 6.3 percent in 1998 to a record 6.4 percent in 1999.

The gross product of U.S. affiliates that are majority-owned by foreign direct investors increased 10 percent; in contrast, the gross product of affiliates that are not majority-owned decreased 8 percent, primarily as a result of selloffs. The majority-- owned affiliates' share of the gross product of all affiliates increased from 84 percent to 87 percent, and their share of U.S. GDP in private industries increased from 5.3 percent to 5.5 percent.

By country of ownership

Affiliates with ultimate beneficial owners (UBO's) in seven major investing countries-Canada, France, Germany, Japan, the Netherlands, Switzerland, and the United Kingdom-have accounted for more than 80 percent of the gross product of all nonbank affiliates since at least 1977, the first year for which annual data on affiliate operations are available. In 1999, as throughout 1977-98, the largest investing country in terms of affiliate gross product was the United Kingdom: British-owned affiliates accounted for 18.2 percent of the gross product of all nonbank affiliates and for 1.2 percent of total U.S. GDP in private industries (table 2 and chart 2). German-owned affiliates accounted for the second-largest share of affiliate gross product (15.5 percent), and Japanese-owned affiliates accounted for the third-largest share (14.3 percent). Germany replaced Japan as the second-largest country in terms of gross product in 1998, when German direct investors made some very large new investments.

In 1999, the gross product of the Netherlands-- owned affiliates increased 22 percent, a rate substantially faster than the rates of the affiliates of the other six major investing countries. The sharp increase reflected both acquisitions of large U.S. companies and substantial increases in production and sales by existing affiliates (particularly those in petroleum, which had reduced output during a market downturn in 1998). Among investing countries, the increase in the gross product of the Netherlands-owned affiliates in dollar terms ($6.5 billion) was exceeded only by that of British-- owned affiliates ($6.7 billion). Despite large-scale new investments in 1999, the rate of increase in the gross product of British-owned affiliates-9 percent-was only slightly higher than that of all non-- bank affiliates, reflecting the offsetting effect of selloffs of British ownership interests in several large U.S. companies.6

The gross product of Japanese-owned affiliates was virtually flat in 1999. Growth in the gross product of Japanese-owned affiliates was held down by large reductions in value added for a number of affiliates in finance and by selloffs of minority interests in U.S. companies; these reductions more than offset substantial increases in gross product for Japanese-owned affiliates in motor-vehicle manufacturing and motor-vehicle wholesale trade.

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CHART 2

By industry of affiliate

In 1999, as in 1998, affiliates classified in manufacturing accounted for more than half of the gross product of all nonbank affiliates (table 3). Among other sectors, wholesale trade accounted for the largest share of affiliate gross product; wholesale trade includes a number of large affiliates with substantial secondary operations in manufacturing.

The manufacturing share of total affiliate gross product decreased slightly, from 54 percent in 1998 to 52 percent in 1999. The rate of increase in affiliate gross product in manufacturing was more modest than the rates in most other sectors, partly because of selloffs of foreign ownership interests in U.S. manufacturing companies. Within manufacturing, the gross product of affiliates classified in primary metals decreased 25 percent, mainly as a result of selloffs. Because many of these selloffs were of minority interests, the decrease in the gross product of majority-owned affiliates in primary metals was much smaller-only 8 percent. Affiliate gross product in chemicals also decreased, partly because of affiliate selloffs of business units. In contrast, affiliate gross product in transportation equipment increased substantially, reflecting stepped-up production and sales by affiliates in the motor vehicle industry. As a result of these changes, transportation equipment overtook chemicals to become the largest manufacturing subsector in terms of affiliate gross product. Prior to 1998, a year of major new foreign investment in the motor vehicle industry, the gross product of affiliates in transportation equipment had been less than half that of affiliates in chemicals.

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Table 2.

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Table 3.

Outside of manufacturing, the gross product of affiliates increased substantially in 1999 in the information, the finance and insurance, and the "real estate and rental and leasing" sectors. The increase in the information sector was mainly due to new foreign investments in the telecommunications and publishing industries. In the finance and insurance sector, the increase in affiliate gross product reflected both new acquisitions and increases in value added from existing affiliate operations. In the "real estate and rental and leasing" sector, the increase was partly due to changes in the industry classification of affiliates with operations in more than one industry.7

Employment

In 1999, employment by U.S. affiliates of foreign companies increased 6 percent, somewhat slower than in 1998 but faster than in any other year since 1989 (table 4). The increase, from 5.6 million to .6.0 million, reflected both new foreign investments and expansions in the operations of existing affiliates. In contrast, the increase in 1998 was mainly due to new investments. In 1999, employment by majority-owned affiliates more than accounted for the increase; employment by other affiliates decreased slightly, mainly as a result of selloffs.

The affiliate share of U.S. private-industry employment increased from 5.2 percent in 1998 to a record 5.4 percent in 1999. For majority-owned affiliates, the share increased from 4.3 percent to 4.5 percent.

By industry

In 1999, as in 1998, the affiliate share of U.S. employment at the broad sectoral level was highest in mining (15.9 percent), followed by manufacturing (13.6 percent) and information (9.3 percent) (table 5).11 In mining and in manufacturing, the affiliate shares edged up despite slight decreases in affiliate employment, because of proportionally larger decreases in total U.S. employment in the two sectors. In information, the affiliate share increased more than 1 percentage point, reflecting a 49,000 increase in affiliate employment. Most of this increase was due to foreign acquisitions of existing U.S. companies, particularly in the telecommunications industry.

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Table 4.

Within manufacturing, the affiliate share of all-- U.S.-business employment was highest in chemicals (33.3 percent), followed by nonmetallic mineral products (22.9 percent), electrical equipment, appliances and components (22.5 percent), and transportation equipment (20.2 percent). The affiliate share in electrical equipment, appliances, and components increased more than 3 percentage points, partly as a result of acquisitions by existing affiliates. The affiliate share in transportation equipment also increased substantially, reflecting increases in employment associated with both expanded production by affiliates in motor vehicles and new foreign investment in motor vehicle parts manufacturing. The affiliate share of employment in food and in beverages and tobacco decreased substantially; the decrease in the food industry mainly resulted from selloffs of foreign ownership interests in companies with large bakery operations, and the decrease in beverages and tobacco was mainly due to affiliate selloffs of beverage manufacturing units.

In other sectors, the affiliate share of employment in "administration, support, waste management, and remediation services" increased substantially, reflecting large increases in employment associated with acquisitions, including some by existing affiliates. Within the finance and insurance sector, the affiliate share of employment in insurance increased, also as a result of acquisitions.

By State

In 1999, as in earlier years, the U.S.-affiliate shares of private-industry employment were highest in Hawaii (10.1 percent), South Carolina (8.7 percent), and North Carolina (7.7 percent); these three States also had the highest shares for majority-owned affiliates (table 6). Employment by affiliates in Hawaii was predominantly by Japanese-- owned affiliates, particularly those in accommodation and food services. In contrast, affiliates with UBO's in Europe accounted for about three-- fourths of the employment by affiliates in both South Carolina and North Carolina.

Affiliates accounted for more than a fifth of manufacturing employment in two States-Kentucky (23.8 percent) and South Carolina (21.5 percent) (table 7). Most of the manufacturing employment of affiliates in Kentucky was by Japanese- and German-owned affiliates. Affiliates with UBO's in Germany, France, and Japan together accounted for most of the manufacturing employment of affiliates in South Carolina. In both States, the affiliate shares of manufacturing employment increased in 1999, partly as a result of new investments. In contrast, the affiliate share of manufacturing employment decreased substantially in New Jersey-from 19.6 percent to 17.6 percent-- mainly as a result of selloffs of foreign ownership interests in US. companies.

Trade in Goods

U.S. affiliates of foreign companies have a major presence in U.S. trade in goods. In most years since 1977, they have accounted for 20-25 percent of U.S. exports of goods and for 30-35 percent of U.S. imports of goods; these shares are much higher than affiliates' shares of either gross product or employment (table 8).9 The relatively high affiliate shares in trade partly reflect the concentration of foreign direct investment activity in manufacturing, a sector that is much more trade intensive than most service sectors. They also reflect the activity of wholesale trade affiliates, which have served as conduits for flows of goods between the United States and the foreign investing countries.10 Trade in goods by U.S. affiliates has been dominated by majority-owned affiliates: In the past decade, these affiliates have consistently accounted for more than 80 percent of affiliate exports and more than 90 percent of affiliate imports.

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Table 5.

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Table 6.

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Table 7.

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Table 8.

Much of the trade in goods by affiliates-about 40 percent of exports and 70 percent of imports-- is intrafirm trade (that is, trade between the affiliates and their foreign parents or other member companies of their foreign parent groups). In most years, U.S.-affiliate intrafirm trade has accounted for 8-12 percent of U.S. exports and for 20-28 percent of US. imports; almost all of this trade has been by majority-owned affiliates.

Exports

In 1999, exports of goods by U.S. affiliates increased 1 percent, to $152.2 billion (table 8). The increase was slightly slower than the 2-percent growth rate for total U.S. exports of goods; as a resuit, the affiliate share of U.S. exports of goods decreased slightly from 22.1 percent in 1998 to 21.9 percent in 1999. In 1998, affiliate exports had increased 7 percent despite a decrease in total U.S. exports, mainly as a result of foreign acquisitions of U.S. manufacturing companies with large exports.

The slow growth in affiliate exports in 1999 can be attributed to a $4.8 billion, or 10-percent, decrease in exports by Japanese-owned affiliates; exports by affiliates with UBO's in other countries increased 6 percent (table 9). The decrease in exports by Japanese-owned affiliates, which followed a 12-percent decrease in 1998, partly reflected sluggish growth in the Japanese economy, which held down Japanese demand for US. goods.11 The decreases in both years were mainly accounted for by reduced exports by wholesale trade affiliates, particularly affiliates of Japan's large general trading companies, which have long played a central role in handling shipments of U.S. goods to Japan. As a result of the decreases in exports, the Japanese-owned affiliates' share of total U.S.-affiliate exports of goods dropped from 37 percent in 1997 to 27 percent in 1999.

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Table 9.

Among affiliates of other investing countries, exports by German-owned affiliates increased $2.8 billion in 1999, largely as a result of expanded exports by affiliates in the motor vehicle and electrical equipment industries; the German-owned affiliates' share of U.S.-affiliate exports of goods increased from 19 percent to 21 percent. Exports by the Netherlands-owned affiliates increased $1.2 billion, mainly as a result of expanded exports by affiliates in the computer and electronic products industry.

Imports

In 1999, imports of goods by U.S. affiliates increased 5 percent, to $307.1 billion. Total U.S. imports of goods increased at a much faster rate of 12 percent, so the affiliate share of U.S. imports of goods decreased from 32.0 percent in 1998 to 30.0 percent in 1999. The affiliate share had increased in 1998 as a result of foreign acquisitions of companies with large imports.

The decrease in the affiliate share of U.S. imports was partly attributable to large increases in imports by other U.S. firms from countries, such as Mexico and China, that do not have a major investment presence in the United States and thus for which U.S.-affiliate trade has been relatively minor."

By country of UBO, imports increased only marginally for Japanese-owned affiliates (which accounted for the largest share of affiliate imports) and decreased 3 percent for German-owned affiliates (which accounted for the second-largest share). The low rate of increase for Japaneseowned affiliates was partly due to reduced imports by wholesale trade affiliates. The decrease for German-owned affiliates was mainly a result of reduced imports by manufacturing affiliates.

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Table 10.1

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Table 10.2

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Table 11.1

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Table 11.2

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Key Terms

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The following key terms are used to describe U.S. affiliates of foreign companies and their operations.

U.S. affiliate. A U.S. business enterprise in which there is foreign direct investment-that is, in which a single foreign person owns or controls, directly or indirectly, 10 percent or more of the voting securities of an incorporated U.S. business enterprise or an equivalent interest in an unincorporated U.S. business enterprise. "Person" is broadly defined to include any individual, corporation, branch, partnership, associated group, association, estate, trust, or other organization and any government (including any corporation, institution, or other entity or instrumentality of a government). A "foreign person" is any person resident outside the United States-that is, outside the 50 States, the District of Columbia, the Commonwealth of Puerto Rico, and all U.S. territories and possessions.

Majority-owned US. affiliate. A U.S. affiliate that is owned more than 50 percent by foreign direct investors.

Foreign parent. The first person outside the United States in a US. affiliate's ownership chain that has a direct investment interest in the affiliate.

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Ultimate beneficial owner (UBO). That person, proceeding up a U.S. affiliate's ownership chain, beginning with and including the foreign parent, that is not owned more than 50 percent by another person. Unlike the foreign parent, the UBO of an affiliate may be located in the United States. The UBO of each U.S. affiliate is identified to ascertain the person that ultimately owns or controls the U.S. affiliate and that therefore ultimately derives the benefits from ownership or control.

Foreign parent group. Consists of (1) the foreign parent,

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(2) any foreign person, proceeding up the foreign parent's ownership chain, that owns more than 50 percent of the person below it, up to and including the UBO, and (3) any foreign person, proceeding down the ownership chains) of each of these members, that is owned more than 50 percent by the person above it.

Gross product. The contribution to U.S. gross domestic product, which is the goods and services produced by labor and property located in the United States. Gross product, often referred to as "value added:' can be measured as gross output (sales or receipts and other operating income plus inventory change) minus intermediate inputs (purchased goods and services). Alternatively, it can be measured as the sum of the costs incurred (except for intermediate inputs) and the profits earned in production. The gross product estimates presented in this article were prepared by summing cost and profit data collected in the annual and benchmark surveys of foreign direct investment in the United States.

The estimates of gross product of U.S. affiliates are conceptually consistent with BEA's estimates of U.S. GDP by industry; both sets of estimates are measured as the sum of the costs incurred (except for intermediate inputs) and the profits earned in production. However, there are some minor differences in measurement. For example, in the profits measure used to estimate U.S.-affiliate gross product, amortization of intangible assets is treated as an expense, which is not the case in the profits measure used to estimate U.S. GDP by industry. This and other differences in measurement are small relative to total affiliate gross product and thus have a negligible effect on the affiliate shares of private-industry GDP shown in tables 1 and 2.

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Data on Foreign Direct Investment in the United States

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BEA collects three broad sets of data on foreign direct investment in the United States (FDIUS): (1) Financial and operating data of U.S. affiliates, (2) data on U.S. businesses newly acquired or established by foreign direct investors (new investment data), and (3) international transactions (balance of payments) and direct investment position data. This article presents the financial and operating data; new investment data were published in "Foreign Direct Investment in the United States: New Investment in 2000" in the June 2001 issue of the SURVEY OF CURRENT BUSINESS; the international transactions and direct investment position data were published in the articles "The International Investment Position of the United States at Yearend 2000," "U.S. International Transactions, First Quarter 2001," and "Direct Investment Positions for 2000: Country and Industry Detail," in the July 2001 issue of the SURVeY.

Each of the three data sets focuses on a distinct aspect of FDIUS. The financial and operating data provide a picture of the overall activities of the U.S. affiliates; the new investment data provide information about U.S. businesses that are newly acquired or established by foreign direct investors, regardless of whether the invested funds were raised in the United States or abroad; and the international transactions and direct investment position data cover foreign investors' transactions with, and positions in, both new and existing U.S. affiliates.1

Financial and operating data of U.S. affiliates. The data on the overall operations of U.S. affiliates are collected in BEAs annual and benchmark surveys of FDIUS. (Benchmark sur

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veys, which are BEAs most comprehensive surveys of foreign direct investment in terms of both coverage of companies and subject matter, are taken in place of the annual survey once every 5 years.) The data cover U.S. affiliates' balance sheets and income statements, employment and compensation of employees, trade in goods, research and development expenditures, sources of finance, and selected data by State. In addition, the gross product of affiliates is estimated from data reported in these surveys.

Except in benchmark survey years, these data, unlike the new investment data, cover only nonbank affiliates. The financial and operating data for affiliates are on a fiscal year basis. The data cover the entire operations of the U.S. affiliate, irrespective of the percentage of foreign ownership.

New investment data. The data on outlays by foreign direct investors to acquire or establish affiliates in the United States are collected on a calendar year basis in BEAs survey of new FDIUS. In addition, the new investment survey collects selected data on the operations of the newly acquired or established affiliates. For newly acquired affiliates, these data are for (or as of the end of) the most recent fiscal year preceding the acquisition, and for newly established businesses, they are projected for (or as of the end of) the first year of operation. The data cover the entire operations of the business, irrespective of the percentage of foreign ownership.

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International transactions and direct investment position data. These data are collected in the quarterly survey of FDIUS. The data cover the U.S. affiliate's transactions and positions with its foreign parent or other members of its foreign parent group, so these data focus on the foreign parent's share, or interest, in the affiliate rather than on the affiliate's overall size or level of operations. The major items included in the U.S. international transactions (balance of payments) accounts are direct investment financial flows, direct investment income, royalties and license fees, and other services transactions with the foreign parent group.

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1. For a more detailed discussion of the differences between these three sets of data, see Alicia M. Quijano, "A Guide to BEA Statistics on Foreign Direct Investment in the United States," SURVEY 70 (February 1990): 29-37. This guide is available on BEA's Web site at <www.bea.doc.gov/bea/ail.htm>.

For a comparison ofthe data on affiliate operations with the data on new investment, see the appendix "Sources of Data" in Mahnaz Fahim-Nader and William J. Zeile, "Foreign Direct Investment in the United States: New Investment in 1994 and Affiliate Operations in 1993," SURVEY 75 (May 1995): 68-70.

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Acknowledgments

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The 1999 annual survey was conducted under the supervision of Joseph F. Cherry III, with contributions by Juris E. Abolins, Chester C. Braham, Hien X. Dang, Constance T. Deve, Charles R. Gravitz, Lonnie Hunter, Edna A. Ludden, Betty K. Maddy, Isabel L. McConnell, Demetria A. McCormick, Gregory L. McCormick, Sidney A. Moskowitz, Christine L. Perrone, Clarence D. Smith, Marie P Smith, John R. Starnes, and Kimyetta Whitehead.

Computer programming for data estimation and the generation of data tables was provided by Diane Young and Neeta Kapoor.

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Using Employment Data to Estimate Affiliate Shares of the U.S. Economy by Industry

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In this article, data on employment are used to estimate affiliate shares of the U.S. economy by North American Industry Classification System (NAILS) industry because these data can be disaggregated by industry of sales, a basis that approximates the disaggregation of the data for all US. businesses by industry of establishment.' Thus, the data on affiliate employment can be used to calculate the affiliate shares of the U.S. economy at a greater level of industry detail than can be calculated using the gross product estimates or other data, which can only be disaggregated on the basis of industry of affiliate.'

In the classification by industry of sales, the data on affili

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ate employment (and sales) are distributed among all of the industries in which the affiliate reports sales. As a result, employment classified by industry of sales should approximate that classified by industry of establishment (or plant), because an affiliate that has an establishment in an industry usually also has sales in that industry.'

In contrast, in the classification by industry of affiliate, all of the operations data (including the employment data) for an affiliate are assigned to that affiliate's "primary" industry-that is, the industry in which it has the most sales.4As a result, any affiliate operations that take place in secondary industries will be classified as operations in the primary industry.

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1. The data for all U.S. businesses used to compute the affiliate shares of employment by NAICS industry are from the Census Bureau (see table 5, footnote 1).

2. Establishment-level data from a joint project of BEA and the Bureau of the Census can be used to calculate affiliate shares at an even greater level of detail. These data show each four-digit manufacturing industry in the Standard industrial Classification; they are currently available for 1987-92. The data for foreign-owned manufacturing establishments are analyzed in a number of SURVEY articles that can be accessed at BEA's Web site at <www.bea.doc.gov/bea/.htm>. A forthcoming publication will present establishment data for both manufacturing and nonmanufacturing industries in the economic census year 1997 and will be on a NAILS basis.

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3. However, this is not the case if one establishment of an affiliate provides all of its output to another establishment of that affiliate. For example, if an affiliate operates both a metal mine and a metal-manufacturing plant and if the entire output of the mine is used by the manufacturing plant, all of the affiliate's sales will be in metal manufacturing, and none in metal mining. When the mining employees are distributed by industry of sales, they are classified in manufacturing even though the industry of that establishment is mining.

4. An affiliate's primary industry is based on a breakdown of the affiliate's sales by BEA International Surveys Industry classification code.

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Data Availability

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This article presents a summary of the preliminary estimates from the 1999 annual survey of foreign direct investment in the United States. More detailed estimates will be published this fall; the availability of these will be announced on the inside back cover of the SuRvEY. Revised estimates will be published next year.

Estimates of U.S. affiliate operations in 1977-98 are available in compressed files that can be downloaded from BEA's Web site at <www.bea.doc.gov>. The estimates for 1991-98 are also available in publications.

For more information on these products and how to order them, see the International Investment Division Product Guide on BEA's Web site at <www. bea.doc.gov/bea/dil.htm>, or write to the Research Branch (BE-50), International Investment Division, Bureau of Economic Analysis, U.S. Department of Commerce, Washington, DC 20230.

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Tables 10 and 11 follow.

FOOTNOTE

1. The estimates of gross product of U.S. affiliates are conceptually consistent with those of total U.S. GDP, or gross product originating, by industry (see the box "Key Terms").

The financial and operating data of nonbank U.S. affiliates presented in this article cover the entire operations of each U.S. affiliate, irrespective of the percentage of foreign ownership. All data are on a fiscal year basis. Thus, for 1999, an individual affiliate's fiscal year is its financial reporting year that ended in calendar year 1999.

The estimates of gross product and the other data items for affiliate operations for 1999 are preliminary. The estimates for 1998 are revised; for most of the key data items, the revisions to the totals ranged from -3 percent,to 1 percent.

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2. According to data from BEA's annual survey of new foreign investments, outlays by foreign direct investors to acquire or establish businesses in the United States increased from $69.7 billion in 1997 to $215.3 billion in 1998 and to $275.0 billion in 1999 (the high before 1998 was $79.9 billion in 1996). Investment outlays increased further in 2000, to a record $320.9 billion; see Ned G. Howenstine, "Foreign Direct Investment in the United States: New Investment in 2000;' SURVEY or CURRENT BUSINESS81 (June 2001): 27-34. Investments also grew rapidly as measured by the foreign direct investment position in the United States, which measures financing provided to U.S. affiliates by members of their foreign parent groups. Measured at historical cost, the position increased 14 percent in 1998 and 24 percent in 1999 (and 28 percent in 2000); see Maria Borga and Raymond J. Mataloni, Jr., "Direct Investment Positions for 2000: Country and Industry Detail," SURVEY 81 (July 2001): 16-29.

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3. Additional evidence for lower value-added levels for new investments in 1999 is provided by data from the annual survey of new foreign investments. These data indicate that while the investments themselves were larger in 1999 than in 1998, the sales of the U.S. business enterprises acquired or established were 25 percent lower, and the net income was 81 percent lower. See table 5 in Ned G. Howenstine and Rosaria Troia, "Foreign Direct Investment in the United States: New Investment in 1999," SuavE 80 (June 2000): 58 and table 5 in Howenstine, "New Investment in 2000," 30.

4. Because U.S. affiliates tend to be relatively concentrated in less labor-intensive sectors of the economy (such as manufacturing), their share ofemployment has consistently been lower than their share of gross product.

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5. The rate of change in U.S. private-industry GDP serves as a convenient benchmark against which the increase in U.S.-affiliate gross product can be evaluated, but the two growth rates are not strictly comparable, because the latter partly reflects transfers in ownership that do not represent increased production for the whole economy. Similarly, changes in U.S.-affiliate employment, exports, and imports, which partly reflect changes in ownership, are not strictly comparable with the corresponding changes for the whole economy.

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6, In 1999, outlays by British direct investors to acquire or establish U.S. businesses in the United States totaled $109 billion, 40 percent ofthe total outlays by all direct investors. See table 4 in Howenstine, "New Investment in 2000," 29.

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7. Each U.S. affiliate is classified in the industry that accounts for the largest portion of its sales. Many U.S. affiliates are involved in a variety of business activities; changes in the mix of these activities can cause an affiliate's industry classification to change, but an affiliate is reclassified only if the changes are significant or have persisted for at least 2 years.

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8. Employment data by industry of sales are used to estimate shares; this basic approximates the establishment-based disaggregation of the corresponding data for all U.S. businesses. See the box "Using Employment Data to Estimate Affiliate Shares of the U.S. Economy by Industry."

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9. U.S. trade flows with foreign affiliates of U.S. parent companies have accounted for roughly comparable shares of U.S. exports and imports of goods-about 25-30 percent of exports and about 20 percent of imports in most years since 1982.

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10. In 1999, affiliates in wholesale trade accounted for 32 percent of affiliate exports and for 51 percent of affiliate imports. These affiliates played an even larger role in U.S.-affiliate trade in earlier years: In each year in 1977-91, wholesale trade affiliates accounted for more than 50 percent of affiliate exports and for more than 60 percent of affiliate imports.

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11. Data on the destination of U.S.-affiliate exports, which were most recently collected in the 1997 Benchmark Survey of Foreign Direct Investment in the United States, indicate that exports to Japan accounted for 52 percent of the total exports of Japanese-owned affiliates in 1997.

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12. Data on the origin of U.S.-affiliate imports, which were collected most recently in the 1997 benchmark survey, indicate that affiliates accounted for only 14 percent ofU.S. imports from Mexico and only 4 percent of U.S. imports from China. In contrast, affiliates accounted for 37 percent of U.S. imports from Europe and 82 percent of U.S. imports from Japan.

AUTHOR_AFFILIATION

By William J. Zeile