U.S. International Services: Cross-border trade in 2002 and sales through affiliates in 2001

LIKE previous articles in this series, this article examines international sales of services from a dual perspective. It considers services trade not only in the conventional sense of exports and imports that cross borders, but also in the sense of services sold by locally established affiliates of

multinational firms. This broader concept of "trade" has been adopted for this article in recognition of the key role that has been assumed in the delivery of services internationally by affiliates that are located within-but owned outside-the markets they serve. It is also consistent with the way that many firms view their worldwide operations.

Transactions that cross borders are perhaps the better known and more widely publicized channel of delivery, but in recent years, most services delivered to the U.S. market from abroad and from the U.S. market to foreign countries have been delivered through affiliates. In both 2000 and 2001, for example, services delivered through affiliates exceeded cross-border trade in services by wide margins (table A and chart 1).

In contrast to its persistent deficit on cross-border trade in goods, the United States has run regular surpluses on cross-border trade in services. In 2002, cross-border exports of services, at $280 billion, exceeded cross-border imports by $74 billion, virtually the same difference as in 2001. In addition, sales of services abroad by foreign affiliates of U.S. companies have regularly exceeded sales in the United States by U.S. affiliates of foreign companies. In 2001 (the most recent year that data are available), foreign affiliates' sales, at $432 billion, were $65 billion larger than the sales by U.S. affiliates; in 2000, foreign affiliates' sales exceeded U.S. affiliates' sales by an even larger amount-$70 billion.

IMAGE TABLE 1

Table A. Sales of Services to Foreign and U.S. Markets

[Billions of dollars]

Sales through affiliates have not only been larger than sales across borders in recent years, but they have also tended to grow faster. In 2000, both U.S. sales to foreigners through affiliates and foreigners' sales to the United States through affiliates grew faster than the corresponding measures for cross-border exports and imports (table B). In 2001, both cross-border exports and imports declined, but sales through affiliates continued to grow.

IMAGE CHART 2

Chart 1. U.S. International Sales and Purchases of Private Services, 1987-20021

In 2002, U.S. cross-border exports and imports grew slowly: Exports increased 1 percent after falling 3 percent in 2001, and imports increased 2 percent after falling 2 percent. For both exports and imports, increases occurred in both royalties and license fees and in "other private services" (which includes services such as education, financial services, insurance, and business, professional, and technical services). The increases reflect pickups in economic activity in the United States and in many major foreign countries. Furthermore, insurance services increased strongly, largely reflecting the impact of higher premium rates that were prompted partly by the September 11th terrorist attacks and partly by weakening returns on investments. For both exports and imports, travel services and passenger fares decreased. The decreases reflect the lingering effects of the terrorist attacks; in 2002, these services remained below their preattack levels.

IMAGE TABLE 3

Table B. Sales of Services to Foreign and U.S. Markets Through Cross-Border Trade and Through Affiliates

In 2001, sales of services by foreign affiliates of U.S. companies grew 5 percent, and sales of services by U.S. affiliates of foreign companies grew 7 percent. Although representing a significant expansion, these rates were well below those recorded in 2000, when sales of services by foreign affiliates and by U.S. affiliates each increased 17 percent. The slowdowns in 2001 reflected slower growth in the U.S. economy and in the economies of many of the countries that are significant markets for foreign affiliates of U.S. multinational companies. A sharp falloff in cross-border merger and acquisition activity in 2001 also contributed to the slowdowns. From 1998 to 2000, sales by newly acquired businesses accounted for much of the growth in the sales of services by affiliates, as cross-border mergers and acquisitions boomed. Merger activity had been particularly strong in industries with large sales of services, such as telecommunications, utilities, insurance, finance, and computer services. In 2001, there were fewer acquisitions to fuel the growth in sales of services.

This article presents detailed preliminary estimates of U.S. cross-border exports and imports of private services in 2002 and revised estimates for 1992-2001. It also presents preliminary estimates of U.S. sales of services through, and purchases of services from, non-bank majority-owned affiliates of multinational companies in 2001 and revised estimates for 2000. Cross-border exports and imports are transactions between U.S. residents and foreign residents; they represent international trade in the conventional sense and are recorded in summary form in the U.S. international transactions accounts.1 Sales of services through non-bank majority-owned affiliates of multinational companies represent services sold in international markets through the channel of direct investment (see the box "Channels of Delivery of Services Sold in International Markets").2 The estimates 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

As noted earlier, services delivered through nonbank majority-owned affiliates exceeded those delivered through cross-border trade in 2001. Because of differences in coverage and measurement, comparisons between these two channels of delivery cannot be precise, but the substantial differences clearly indicate that delivery through affiliates was the larger channel for both U.S. sales and U.S. purchases of private services.4 The use of each channel of delivery for 2001 is shown for major geographic areas in chart 2 and for selected countries in chart 3. For specific types of services, however, the relative importance of the two channels is difficult to gauge because of the differences in measurement and coverage and because of differences in the basis of classification. Available data on cross-border trade are generally classified by type of service, whereas the data on sales of services through affiliates are classified by primary industry of the affiliate.

IMAGE CHART 4

Chart 2. U.S. Sales and Purchases of Services by Major Area in 2001

Chart 3. U.S. Sales and Purchases of Services by Major Country in 2001

U.S. Cross-Border Trade in 2002

In 2002, U.S. exports of private services (receipts) increased 1 percent, to $279.5 billion, following a 3-percent decrease in 2001. U.S. imports of private services (payments) increased 2 percent, to $205.2 billion, following a 1-percent decrease in 2001. The modest recovery in exports and in imports occurred in the context of pickups in economic activity in the United States and in many foreign countries.

Changes in the foreign-currency value of the dollar may also have affected U.S. cross-border trade in services, but the effect cannot be precisely measured, because it cannot be clearly distinguished from the effects of other variables that affected U.S. services flows. In 2002, the dollar's movement against the currencies of most major U.S. trading partners was mixed after appreciating against most of these currencies in 2001. For the year, the dollar depreciated 5 percent against the euro and 4 percent against the British pound, and it appreciated 3 percent against the Japanese yen and 1 percent against the Canadian dollar.5

IMAGE TABLE 5

Table C. Cross-Border Services: Percent Change from Prior Year

IMAGE CHART 6

Chart 4. U.S. Cross-Border Services Transactions: Share by Area in 2002

The sluggish 1-percent year-over-year increase in services exports in 2002 masked the steady recovery during 2002 from the trough near the end of 2001, a period that was severely depressed by the effects of the September 11th terrorist attacks. By the end of 2002, services exports had returned to the level before the attacks. For the year 2002, increases in "other private services," royalties and license fees, and "other transportation" were largely offset by decreases in travel and passenger fares.

After many years of relatively strong growth, the weak U.S. economic conditions in 2001 and the moderate expansion in 2002 left the level of imports in 2002 no higher than in 2000. Imports grew steadily during 2002 from the low levels at the end of 2001. For 2002, increases in "other private services" and royalties and license fees were largely offset by decreases in travel and passenger fares. "Other transportation" was virtually unchanged.

Europe and Asia and Pacific together accounted for two-thirds of total U.S. cross-border exports and imports of private services in 2002 (chart 4). Three countries-the United Kingdom, Japan, and Canada-accounted for nearly a third of both total U.S. exports and total U.S. imports of services (table D).

Of total cross-border trade in services, trade within multinational companies accounted for $76.4 billion, or 27 percent, of exports of private services and for $48.0 billion, or 23 percent, of imports of private services. Table E, which combines cross-border trade within multinational companies with unaffiliated cross-border trade, presents a more complete picture of trade by type of service. The major categories of services in table E-travel, passenger fares, "other transportation," royalties and license fees, and "other private services"-correspond to the major categories in table 1. Table F provides updated estimates of cross-border trade in services, by type, between U.S. parents and their foreign affiliates and between U.S. affiliates and their foreign parent groups for 1997-2002.6

Additional information about the five broad categories of cross-border trade in private services in the U.S. international transactions accounts-travel, passenger fares, "other transportation," royalties and license fees, and "other private services"-follows. In previous articles, the discussions of the individual categories of services tended to focus on unaffiliated transactions because of the greater amount of detail available for unaffiliated services. However, the following discussions of the individual services focus on the sum of affiliated transactions and unaffiliated transactions. The expansion in the quantity of data available on affiliated services by type of service has enabled BEA to shift the focus to total transactions in these services and away from unaffiliated transactions. Importantly, this change also is consistent with BEA's long-term and continuing efforts to improve the comparability of its data with international statistical standards.

IMAGE TABLE 7

Table D. Cross-Border Services Exports and Imports by Type and Country, 2002

[Millions of dollars]

Travel

Travel receipts decreased 7 percent in 2002, to $66.5 billion, following a 13-percent decrease in 2001. The continued slide reflected weakening economic conditions abroad and the lingering effects of the attacks of September 11th over an entire year. Travel activity picked up in the fourth quarter as economic conditions improved in the countries that account for many of the visitors to the United States. Substantial appreciation of several major currencies against the dollar throughout the year also contributed to the increase in travelers in the fourth quarter. Despite the fourth-quarter recovery, receipts at yearend were still well below pre-September 11th levels. For the year, travel receipts from countries other than Canada and Mexico decreased 9 percent. Receipts from Canada decreased 5 percent, and receipts from Mexico increased 4 percent. The number of Canadians traveling to the United States by air and land decreased in 2002. Receipts from Europe and Japan each fell about 5 percent. The decreases in travel receipts from Latin America and the Middle East were particularly sharp.

IMAGE TABLE 8

Table E. Affiliated and Unaffiliated Trade in Services, 1997-2002

[Billions of dollars]

The country with the largest decrease and the country with the largest increase in travel to the United States are both in Latin America. Receipts from Argentina, which have decreased nearly 75 percent since 2000, fell sharply in 2002, reflecting the deteriorating economic conditions in the Argentine economy. Receipts from Mexico, however, increased in 2002. Nearly two-thirds of the travel receipts from Mexico represent visits in the border area, which are typically day trips.

Travel payments decreased 4 percent in 2002, to $58.0 billion, following a 7-percent decrease in 2001. Despite improving economic conditions in the United States, travel activity was sluggish for most of the year because of concerns about travel in the wake of the terrorist attacks. Like foreign travel to the United States, U.S. travel overseas picked up toward the end of 2002, but it remained well below pre-September 11th levels.

IMAGE TABLE 9

Table F. Intrafirm Trade in Services, by Type, 1997-2002

[Billions of dollars]

Travel payments to almost all of the overseas countries decreased. Travel payments to both Canada and Mexico, however, increased. The number of U.S. residents traveling to Canada by air and by land both decreased slightly in 2002, but their average expenditures increased. Payments by U.S. residents traveling in the Mexican border area increased faster than payments to the rest of the country.

Passenger fares

Passenger fare receipts decreased 5 percent in 2002, to $17.0 billion, following a 13-percent decrease in 2001. The decrease reflected the same factors that affected travel. These factors were partly offset by a small increase in the share of foreigners traveling on U.S. airlines rather than on foreign airlines. A falloff in receipts from Argentines traveling to the United States on U.S airlines accounted for more than half of the decrease.

Passenger fare payments decreased 12 percent, to $20.0 billion, following a 7-percent decrease. Almost all of the decrease was accounted for by a falloff in payments for travel to Europe. The share of U.S. residents traveling on foreign airlines rather than on U.S. airlines was little changed.

Other transportation

Receipts for "other transportation" services increased 3 percent in 2002, to $29.2 billion, following a 5-percent decrease in 2001. The increase was largely accounted for by a 5-percent increase in freight receipts. Port services receipts increased 1 percent, as a small increase in air port services was largely offset by a small decrease in ocean port services.

The increase in freight receipts reflected increases in air freight and "other freight" that were only partly offset by a small decrease in ocean freight. The increase in air freight was mostly attributable to higher freight rates. The increase in "other freight" was attributable to a pickup in receipts of U.S. firms for transporting goods by truck and for launching satellites for foreigners. Ocean freight fell slightly as tanker rates remained near record lows, U.S. tramp vessel revenues fell, and liner vessel revenues were unchanged. The volume of goods transported by U.S.-operated ocean carriers to Europe decreased.

Payments for "other transportation" services were virtually unchanged in 2002, at $38.5 billion, following a 7-percent decrease in 2001. A small increase in freight services was offset by a decrease in port services.

Payments for air freight increased sharply, reflecting an increase in import volume. More than three-fourths of the increase resulted from higher air imports from Asia; a small part of the increase in air imports was due to a 10-day ocean port strike on the West coast of the United States toward the end of 2002. Despite the strike, import volume on liners was strong during the last half of the year. "Other freight" payments increased, reflecting a pickup in payments to Canadian carriers for transporting goods by truck in the United States. The increases in air and "other freight" more than offset a decrease in ocean freight.

The decrease in port services payments was attributable to a decrease in U.S. carriers' payments in foreign airports. The falloff in the number of U.S. air travelers led U.S. carriers to reduce the number of flights, resulting in lower expenditures abroad. Lower prices for jet fuel because of reduced demand also lowered U.S. carriers' expenditures in foreign ports.

Royalties and license fees

U.S. receipts of royalties and license fees increased 7 percent in 2002, to $44.1 billion, following a 5-percent decrease in 2001. The increase was entirely accounted for by affiliated transactions; unaffiliated transactions fell slightly. A nearly 60-percent increase in U.S. affiliates receipts from their foreign parents was concentrated in the pharmaceuticals industry.

Unaffiliated receipts from the rights to use and to distribute general-use computer software, the largest category of royalty and license fee receipts, were nearly $5.0 billion in 2002, falling slightly from their level in 2001. Additional receipts from software-licensing agreements stemmed from transactions through affiliated (intrafirm) channels, but the value of these receipts cannot be separately identified (see the box "Delivery of Computer Services to Foreign Markets").

Unaffiliated royalties and license fees receipts may have been dampened in recent years by the transfer of intellectual property (such as patents, trademarks, and copyrights) to foreign affiliates. Under this practice, the affiliate rather than the U.S. parent company collects the royalties and license fees from unaffiliated foreign persons on sales of the products associated with the intellectual property, and the portion of the total amount received that is transferred by the affiliate to the parent, either as royalties and license fees or as income, is recorded in the international accounts as affiliated transactions rather than as unaffiliated royalties and license fees.7 A variety of considerations may motivate these transactions. For example, intellectual property may be transferred to affiliates in countries with low taxes in order to reduce overall taxes, or it may be transferred in order to facilitate its adaptation to local markets, such as the adaptation of computer software to the local language and to the locally available hardware and operating systems.

Payments of royalties and license fees increased 15 percent in 2002, to $19.3 billion, following a 1-percent increase in 2001. These payments have nearly quadrupled since 1993 and have been the fastest growing major category of services imports during this period. Most of the increase in 2002 was accounted for by payments by U.S. affiliates to their foreign parents, partly due to the entry of new affiliates. Payments by U.S. companies to unaffiliated foreign companies also contributed to the increase. The increase in unaffiliated transactions was largely attributable to a jump in payments for the broadcasting and recording of live events, including payments to an international sports organization for rights to televise live sporting events.

Other private services

Receipts

Receipts for "other private services" increased 6 percent in 2002, to $122.6 billion, following an 8-percent increase in 2001. Increases were widespread across most types of other private services (table E; for more detailed estimates, see tables 5-7 at the end of the article).

Education receipts. Receipts for education increased 11 percent in 2002, to $12.8 billion, following an 11-percent increase in 2001. The number of foreign students studying in the United States increased 6 percent in both years, the largest percentage increases since 1980. In 2002, more than 580,000 foreign students studied in the United States. Roughly 45 percent of these students were graduate students, who accounted for nearly 15 percent of all the graduate students in the United States. The number of students from nearly every area of the world increased.

Financial services receipts. Financial services receipts increased 3 percent, to $19.9 billion, in 2002, following a 1-percent increase in 2001. An increase in unaffiliated receipts was primarily attributable to an increase in brokerage commissions from securities transactions (table G). Brokerage commissions were higher as foreigners traded heavily in outstanding U.S. bonds; trading in stocks was up slightly. The increase in commissions was partly offset by a decrease in private placement and underwriting services, as foreigners reduced their new issues of both stocks and bonds in the United States. Management and advisory services decreased slightly; an increase in management services was offset by a decrease in financial advisory services that was due to the slow pace of merger and acquisition activity. Credit card and other credit-related services increased slightly, as gains in credit card services more than offset decreases in "other credit-related services." "Other financial services" increased mostly because of a gain in electronic funds transfer services. Transactions between affiliated parties decreased 5 percent in 2002. The decrease resulted from a falloff in transactions between U.S. parent companies and their foreign affiliates.

Insurance services receipts. Insurance services receipts increased 18 percent, to $2.8 billion in 2002, following a 4-percent decrease in 2001. Insurance services are measured as total premiums minus the portion of premiums attributable to expected or "normal" losses.8 (Premiums are reported by insurance companies to BEA, and the portion of premiums attributable to normal losses is estimated by BEA on the basis of the relationship between actual losses and premiums earned averaged over several years.9) In percentage terms, normal losses paid increased more strongly than premiums received in 2002 (48 percent and 40 percent, respectively), but in dollar terms, premiums increased more strongly, resulting in the increase in the estimate of services.

Telecommunications services receipts. Receipts for telecommunications services decreased 9 percent in 2002, to $4.1 billion, following a 16-percent increase in 2001. Reductions in calling rates continued to reduce the value of basic message telephone services. In addition, alternative channels of telecommunications that enable companies to obtain enhanced services have resulted in lower demand for basic message telephone services. The share of telecommunications services receipts that is attributable to message telephone and other basic telecommunications services has decreased since 1996, as transactions associated with privately leased channel services, value-added services (such as videoconferencing and broadband access services), and support services have surged (see table I in the appendix to this article).

Business, professional, and technical services receipts. Business, professional, and technical (BPT) services receipts increased 6 percent, to $65.4 billion in 2002. following a 12-percent decrease in 2001. The three largest BPT services categories-"other BPT" services; computer and information services; and research and development (R&D) and testing services-account for more than four-fifths of BPT receipts (table E). Receipts for computer and information services, which changed little in 2000-2001, increased in 2002, as an increase in affiliated services more than offset a decrease in unaffiliated services. These services may be delivered to foreign markets in several different ways (see the box "Delivery of Computer Services to Foreign Markets"). R&D services increased about 30 percent. "Other BPT" services-which increased 5 percent, to $35.6 billion-continued to account for most BPT receipts in 2002. This category consists of allocated expenses (which represent charges by parent companies on their operating units for overhead and support activities except those related to R&D services and to management and consulting) and professional and technical services, such as public relations, advertising, and legal services.

IMAGE TABLE 10

Table G. Unaffiliated Financial Services Transactions, 1994-2002

[Millions of dollars]

Film and television tape rentals receipts. Film and television tape rentals receipts increased 10 percent, to $9.8 billion, following a 3-percent increase. These services cover receipts for the rights to display, reproduce, and distribute U.S. motion pictures and television programming abroad.

Payments

Payments for "other private services" increased 10 percent in 2002, to $69.4 billion, following a 10-percent increase in 2001. The increase in 2002 was mostly accounted for by a large increase in insurance services (table E; for more detailed estimates, see tables 5-7 at the end of the article).

Education payments. Education payments increased 9 percent in 2002, to $2.5 billion, following a 12-percent increase in 2001. Roughly 90 percent of U.S. students studying abroad attend semester-long or shorter term programs. About 40 percent of the U.S. students studying abroad attend educational institutions in three countries-the United Kingdom, Italy, and Spain.

Financial services payments. Financial services payments decreased 15 percent, to $9.3 billion, in 2002, following a 6-percent decrease in 2001. A decrease in unaffiliated transactions in 2002 was attributable to a decrease in brokerage commissions from securities transactions (table G). Private placement and underwriting services decreased sharply because of a significant slowdown in new issues of U.S. stocks and bonds abroad. Securities brokerage commissions changed little. Financial management and advisory services increased slightly. Credit card and other credit-related services increased because of gains in credit card services. Financial services transactions between affiliated parties decreased 20 percent; most of the decrease resulted from transactions between U.S. affiliates and their foreign parents.

Insurance services payments. Insurance services payments increased 32 percent, to $15.3 billion, in 2002 after increasing 53-percent increase in 2001.10 The increase in premiums paid reflected substantially higher rates, as foreign reinsurers sought to recoup past losses (including investment losses) and to ensure that they maintained adequate reserves based on their assessments of the current risk environment. Rates for property-casualty policies in major metropolitan areas surged; the increased rates partly reflected the additional costs associated with specialty policies and coverage, including protection against terrorism-related losses.

Telecommunications services payments. Payments for telecommunications services decreased 12 percent in 2002, to $4.2 billion, after decreasing by the same percentage in 2001. Like receipts, payments were also driven down by reductions in calling rates, and the reduction more than offset an increase in the volume of calls. The share of telecommunications services that is attributable to basic telecommunications services is much higher for telecommunications receipts than for payments because foreign companies provide relatively little value added, support, and other types of nonmessage services to U.S. residents (table I in the appendix to this article).

Business, professional, and technical services payments. Business, professional, and technical (BPT) services payments increased 13 percent, to $37.5 billion, following a 9-percent increase. The largest share of BPT services activities are accounted for by "other BPT" services, which consists of allocated expenses (which represent charges by parent companies on their operating units for overhead and support activities except those related to R&D services and to management and consulting) and professional and technical services, such as public relations, advertising, and legal services. The increase in "other BPT" services in 2002 was largely attributable to payments by U.S. affiliates to their foreign parents (table F).

Film and television tape rentals payments. Film and television tape rentals payments doubled to $0.2 billion in 2002. However, payments for these rentals remained much smaller than receipts for these rentals, reflecting the smaller U.S. audience for foreign films and television programming, compared with the large foreign audience for U.S. films and television programming.

Sales Through Affiliates in 2001

In 2001, the latest year for which data are available, worldwide sales (the combined sales to foreign and U.S. persons) of services by U.S. multinational companies through their nonbank, majority-owned foreign affiliates were $456.1 billion, up 5 percent from 2000. Worldwide sales of services by foreign multinational companies through their nonbank, majority-owned U.S. affiliates were $394.5 billion, up 6 percent (table H).11

IMAGE TABLE 11

Table H. Sales of Services by U.S. MNCs Through Their Nonbank MOFAs and by Foreign MNCs Through Their Nonbank MOUSAs, 2000-2001

[Millions of dollars]

Sales by affiliates-of both goods and services-are predominantly local transactions. In 2001, 84 percent of worldwide sales of services by foreign affiliates of U.S. companies were local sales-that is, transactions with parties located in the same country as the affiliate; the corresponding share for goods was 61 percent. Services' larger share reflects the importance of proximity to the customer in the delivery of services. Partly reflecting the large U.S. market, local sales accounted for 93 percent of sales of services by U.S. affiliates of foreign companies and for an estimated 91 percent of sales of goods.12

Sales of services to foreign persons by nonbank foreign affiliates (that is, their local sales plus their sales to other foreign countries) and sales of services to U.S. persons by nonbank U.S. affiliates (that is, their local sales) both represent services delivered to international markets through the channel of direct investment. These sales are presented by country of foreign affiliate or by country of the U.S. affiliates' ultimate beneficial owner (UBO) for 1994-2001 in table 8.13 Tables 9.1 and 9.2 present sales by primary industry of the foreign affiliate cross-classified by country in 2000 and 2001. Tables 10.1 and 10.2 present sales by primary industry of the U.S. affiliate cross-classified by country of UBO in 2000 and 2001.

Foreign affiliates' sales to foreign persons

In 2001, sales of services to foreign customers by nonbank, majority-owned foreign affiliates of U.S. companies were $432.2 billion. By area, affiliates in Europe accounted for 54 percent of the total sales, followed by affiliates in Asia and Pacific (20 percent), Latin America and Other Western Hemisphere (13 percent), and Canada (12 percent). By country, the United Kingdom accounted for the largest share of sales, followed by Canada, Japan, and Germany.

By industry sector, sales of services were largest in finance (except depository institutions) and insurance; in utilities; in professional, scientific, and technical services; and in information. In nonbank finance and insurance, affiliates in insurance accounted for the majority of sales. In professional, scientific, and technical services, the largest sales were by affiliates in computer systems design and related services, followed by affiliates in architectural, engineering, and related services and in management, scientific, and technical consulting.14 In information, the largest sales were by affiliates in broadcasting and telecommunications (primarily telecommunications), followed by affiliates in information services and data processing services and in publishing industries.

Sales of services abroad by foreign affiliates increased 5 percent in 2001 after increasing 17 percent in 2000. Growth in sales slowed in 2001 because of slow economic growth in many of the countries that are important markets for sales of services abroad, including the United Kingdom, Canada, Japan, and Germany. In addition, growth in sales of services from 1998 to 2000 had been stimulated by exceptionally high levels of cross-border mergers and acquisitions. However, this period ended after 2000. As a result, in 2001, there were fewer newly acquired businesses to fuel the growth in sales of services.

By region, affiliates in Europe had the largest increase in sales, followed by those in Latin America and Other Western Hemisphere. Within Europe, the United Kingdom, the Netherlands, and Germany accounted for most of the increase. In the United Kingdom, affiliates in utilities accounted for the largest share of the increase, followed by affiliates in finance (except depository institutions) and insurance and in information. In utilities, the increase was largely attributable to sales by newly acquired utility companies and to growth in sales by energy traders. In nonbank finance and insurance, the increase was largely the result of increased sales by existing affiliates in securities, commodity contracts, and other intermediation and related activities; in information, the increase largely resulted from increased sales by affiliates in information and data processing services. In the Netherlands, the increase was largely in utilities and was entirely attributable to increased sales by energy traders. In Germany, the increase was largely in nonbank finance and insurance and was due to growth in sales by finance affiliates, mostly those associated with manufacturing firms. In Latin America and Other Western Hemisphere, the increase in sales was mainly accounted for by newly acquired Mexican affiliates in nonbank finance and insurance and newly acquired utilities in several Latin American countries. In Asia and Pacific and in the Middle East, sales of services fell. In Asia and Pacific, the decrease was spread across many industries. In the Middle East, the decrease was largely in information and reflected the completion of a few large contracts.

By industry sector, the largest increases were in utilities, in finance (except depository institutions) and insurance, and in information. In utilities, the increase was attributable to new acquisitions and to the increased sales of energy traders in Europe. In nonbank finance and insurance, the increase was due to new acquisitions in Mexico and to increased sales by affiliates in Germany and the United Kingdom. In information, the increase reflected increased sales by affiliates in information services in the United Kingdom and by affiliates in software publishing in Japan.

U.S. affiliates' sales in the United States

In 2001, sales of services to U.S. customers by nonbank majority-owned U.S. affiliates of foreign companies were $366.9 billion. By area of the affiliates' ultimate beneficial owner (UBO), Europe accounted for the largest share of total sales (68 percent), followed by Canada (13 percent), Asia and Pacific (11 percent), and Latin America and Other Western Hemisphere (7 percent). By country of UBO, the United Kingdom accounted for the largest share of sales, followed by Canada, the Netherlands, France, and Germany.

By industry sector, the largest sales were in finance (except depository institutions) and insurance, followed by information and by professional, scientific, and technical services. Insurance accounted for most of the sales in nonbank finance and insurance. In information, the largest sales were in broadcasting and telecommunications (primarily telecommunications), followed by publishing. In professional, scientific, and technical services, the largest sales were in advertising.

U.S. affiliates' sales of services in the United States increased 7 percent in 2001 after increasing 17 percent in 2000. Weak U.S. economic growth coincided with the end of the period of exceptionally high levels of cross-border mergers and acquisitions that had contributed to the growth in sales of services by U.S. affiliates from 1998 to 2000. New direct investments by foreign multinational companies decreased significantly in 2001, falling 56 percent from the record level established in 2000.15 However, despite the decrease in cross-border merger and acquisition activity, the increase in sales of services in 2001 was mostly attributable to the acquisitions that did occur.

The largest increase in affiliates' sales of services was by affiliates with UBO's in Europe. Within Europe, the largest increases were by French and Dutch affiliates. For France, the largest increases were by affiliates in the motion picture and sound recording industry and in the food services and drinking places industry. The increased sales of services by affiliates in these industries resulted from acquisitions, some of which were of existing U.S. affiliates owned by investors in other countries. Consequently, a portion of the increase in sales of services by French-owned affiliates was offset by decreases in the sales of services by affiliates from the countries of the former foreign parents. For the Netherlands, the increase was more than accounted for by increased sales by nonlife insurance carriers, mainly due to acquisitions. The second largest increase in sales of services was by affiliates with UBO's in Latin America and Other Western Hemisphere, largely due to affiliates in management, scientific, and technical consulting with UBO's in Bermuda. These affiliates resulted from inversions in ownership for U.S. companies that had previously been headquartered in the United States or that had been units of U.S.-headquartered companies.16 Elsewhere in Latin America and Other Western Hemisphere, the acquisitions of new affiliates providing support activities for mining operations boosted the sales of services. Sales of services by affiliates with UBO's in Asia and Pacific fell; the decrease was more than accounted for by Japanese-owned affiliates and was due to reduced sales by existing affiliates in computers and electronics manufacturing and in motor vehicle wholesaling. Sales of services by Canadian-owned affiliates fell because of the selloffs of affiliates in the information sector.

By industry sector, the largest increase in sales of services by U.S. affiliates was by affiliates in professional, scientific, and technical services, followed by those in utilities, in the accommodation and food services industry, and in finance (except depository institutions) and insurance. The increase in professional, scientific, and technical services was due to the entry of new affiliates, including those created by corporate inversions. For utilities, accommodation and food services, and nonbank finance and insurance, the increases were largely the result of acquisitions.

SIDEBAR

Channels of Delivery of Services Sold in International Markets Cross-Border Trade and Sales Through Affiliate

Services are sold in international markets through two distinct channels. In the first channel, the residents of one country sell services to the residents of another country. These transactions-cross-border trade-include both trade within multinational companies (intrafirm trade) and trade between unaffiliated parties.1 They are recorded in the international transactions accounts of both countries-as exports of services by the seller's country and as imports by the buyer's country.

The second channel of delivery is sales through foreign affiliates of multinational companies, which from the U.S. viewpoint, are sales to foreigners by foreign affiliates of U.S. companies and U.S. purchases from other countries' U.S. affiliates. These sales are not considered U.S. international transactions, because under the residency principle of balance-of-payments accounting, affiliates of multinational companies are regarded as residents of the countries where they are located rather than of the countries of their owners. Thus, sales abroad by foreign affiliates are transactions between foreign residents, and sales in the United States by U.S. affiliates are transactions between U.S. residents. (However, the direct investors' shares of the profits earned on these sales are recorded as U.S. international transactions.)

The two channels of delivery typically differ in their effects on an economy. For example, U.S. cross-border exports usually have a greater effect on the U.S. economy than the equivalent sales through foreign affiliates, because most, or all, of the income generated by the production generally accrues to U.S.-supplied labor and capital. In contrast, for sales through foreign affiliates, only the U.S. parent company's share in profits accrues to the United States (and is recorded as a U.S. international transaction); the other income generated by production-including compensation of employees-typically accrues to foreigners.

Some services can be delivered equally well through either channel, but the channel of delivery is often largely predetermined by the nature of the service. For example, many travel services are inherently delivered through the cross-border channel. In contrast, many business, professional, and technical services are mainly delivered through the affiliate channel because of the need for close, continuing contact between the service providers and their customers.

To obtain a complete picture of the services transactions of affiliates, it would be necessary to examine not only their sales of services, as in this article, but also their purchases of services, both in their countries of location and elsewhere. However, the only available data on their purchases of services are those for transactions between parents and affiliates, which are discussed in the section on cross-border trade.

1. The term "cross-border trade" differs from the term "cross-border mode of supply" that is used in the General Agreement on Trade in Services to refer to the provision of a service by a resident of one country to a resident of another country in which neither the producer nor the consumer goes to the country of the other (for example, a consultant sending a report electronically or by mail).

SIDEBAR

Data Availability

The estimates of cross-border trade for 1986-2002 and the estimates of sales through majority-owned affiliates for 1989-2001 are available as files that can be downloaded from BEA's Web site. To access these files, go to <www.bea.gov>, click on "More" under "International," and look under "International services."

SIDEBAR

Ongoing Efforts to Improve the Estimates of International Services

As part of its ongoing effort to improve the data on international services, BEA has initiated several changes in data collection that will lead to improved estimates of both cross-border trade in services and of sales of services through affiliates. Several of these changes implement proposals that were presented in Obie G. Whichard and Maria Borga, "Selected Issues in the Measurement of U.S. International Services," SURVEY OF CURRENT BUSINESS 82 (June 2002): 36-56.

Cross-border trade

Implicit services. Just as charges for the services associated with checking accounts would be imposed or would be higher if banks could not lend or invest the funds of their depositors, insurance premiums would be higher if insurance companies were unable to earn income on funds held in reserve against future claims. In recognition of this fact, the 1993 System of National Accounts (SNA) included income that may be earned from the investment of reserves in its recommended measure of output for the insurance industry. The income is treated as accruing to the policyholders, who pay it back to insurers as supplements to premiums; thus, the measure of insurance services exported and imported is raised.

When the results of the 2003 comprehensive revision of the national income and products accounts are released in December 2003, the value of the expected income on the funds on which insurance policymakers have claim will be included in the estimates of insurance industry output. This methodology will be reviewed for possible use in the 2004 annual revision of the international transactions accounts.

Medical services. Estimates of medical services receipts are currently based on information provided to BEA voluntarily by state regulatory agencies, hospital associations, and hospitals. To improve these estimates, in its annual survey of services transactions, BEA has begun collecting data on medical services receipts (payments are not covered but are believed to be small). This item covers services provided to foreign residents at U.S. hospitals for inpatient services and "other medical services," including outpatient care to foreign patients in the United States. "Other medical services" also includes remote diagnostic and remote monitoring (telemedicine) services provided from the United States to patients, practitioners, and medical institutions in foreign countries and the services of medical laboratories.

Quarterly surveys. BEA has designed and submitted additional quarterly surveys of services to the Office of Management and Budget for clearance in order to begin conducting these surveys in 2004. Until now, most BEA surveys of services have been conducted on an annual basis.

Data collected on these quarterly surveys, which will cover many of the largest and most volatile types of services, will replace the data currently collected on annual surveys; the information collected will not change. The quarterly surveys will improve the reliability of BEA's quarterly estimates of the Nation's international transactions accounts and gross domestic product because international services transactions are an important component of both. The quarterly surveys will also provide more reliable and timely information on services transactions to support U.S. international economic policy, including trade promotions and trade negotiations.

Sales through affiliates

In the 2002 benchmark survey of foreign direct investment in the United States (FDIUS), which is currently being conducted, BEA is collecting data that will provide the basis for improved estimates of insurance services, of sales of services through bank affiliates, and of services provided by wholesale and retail trade affiliates. If the initial data collection efforts are successful, BEA will consider including these items on the follow-on annual surveys of FDIUS and the surveys of U.S. direct investment abroad (USDIA), beginning with the 2004 benchmark survey of USDIA.

Insurance. Currently, the estimates of insurance services provided by U.S. affiliates represent revenues generated by affiliates' operations in the insurance industry. These estimates largely represent premiums earned with no deduction for losses. In contrast, cross-border trade in insurance services is measured as premiums earned less "normal" losses. Because of this difference, the current measure of the sales of services through affiliates in insurance exaggerates the relative importance of sales through affiliates as a channel of delivery for international services when compared with cross-border transactions.

The 2002 benchmark survey of FDIUS is collecting data on premiums and losses from U.S. affiliates that offer insurance services. These data will provide the basis for estimating insurance services in a consistent manner.

Banks. Currently, the estimates of sales of services through affiliates excludes services provided by bank affiliates. Because most of the information on bank affiliates that is needed for policymaking is already collected by other U.S. Government agencies, BEA collects only limited data on sales through bank affiliates. However, the absence of estimates of services provided through bank affiliates causes a potentially significant gap in the coverage of financial services sold through affiliates. To close this gap, BEA is collecting data on sales of services through bank affiliates in the 2002 benchmark survey of FDIUS. These data cover explicit commissions and fees charged for services.

In addition to explicit fees and commission, banks may also charge implicitly for services that they provide by paying lower interest rates to those who lend them money in the form of deposits and loans than they charge to those who borrow from them. The resulting net receipts of interest are used to defray expenses and provide an operating surplus. Because banks often do not charge explicitly for their services, their values must be imputed. To provide a basis for imputing the value of services provided without an explicit charge, BEA is collecting data on the total interest paid and received by U.S. bank affiliates on the 2002 benchmark survey of FDIUS.

Wholesale and retail trade. The wholesale and retail trade industries provide distributive services-selling, or arranging for the sale of, goods to intermediate and final users. In BEA's data on sales through affiliates, the value of distributive services provided by affiliates' wholesale and retail trade operations is embedded in the value of the final goods sold through affiliates. However, in the national income and product accounts, distributive services in wholesale and retail trade are measured as trade margins-wholesale or retail sales of goods less the cost of the goods resold. To provide a basis for the estimation of the value of these distributive services, BEA has added two questions to the 2002 benchmark survey of FDIUS in order to collect data on the cost of goods purchased for resale and on the inventories of these goods. These data will allow the estimation of the margin, or output, of the wholesale and retail trade operations of affiliates.

SIDEBAR

Delivery of Computer Services to Foreign Markets

For computer-related services, as well as for many other types of services, the means of delivery is further divided within the two major channels of cross-border trade and sales through affiliates. As a result, the total value of these services is scattered across several categories in the tables for cross-border trade and for sales by affiliates.

Cross-border exports to unaffiliated foreigners of "computer and data processing services" and "database and other information services" are shown in table 1 under "business, professional, and technical services."1 Computer-related services that are delivered to foreign markets through cross-border software-licensing agreements are shown under "royalties and license fees."2 Exports through agreements with unaffiliated foreigners are shown in table 4 in the column "general-use software." Exports through agreements with affiliated foreigners (intrafirm trade) are included in affiliated royalty and license fee transactions in table 1, but their value cannot be identified. Intrafirm exports of computer and information services, which consists of computer and data processing services and of database and other information services, are shown in tables E and F.

The wages of U.S. residents who provide computer services to nonresidents is included in "compensation receipts" (line 17, table 1) of the U.S. international transactions accounts (ITAs), but their value cannot be identified. Compensation, which covers earnings of U.S. individuals who are employees of nonresident firms and the earnings of certain independent individuals who provide services to nonresidents, is classified in "income" in the ITAs rather than in services trade. If the U.S. individual goes abroad to provide these services, the length of stay must be less than 1 year; otherwise, the individual is considered a foreign resident.

Sales of computer-related services through foreign affiliates exceeded cross-border exports of these services in 2001, the most recent year for which comparable data are available, reflecting the advantages of a local presence when delivering these services to foreign customers (table 9.2). The available data on sales through affiliates are classified by primary industry of the affiliate rather than by type of service; thus, computer-related services may be sold not only through foreign affiliates in the computer services industry but also by affiliates in several other industries, particularly machinery manufacturing and wholesale trade.

1. For detailed estimates of the exports of these services to numerous countries and areas, see table 7.

2. Receipts and payments for general-use software that is packaged and physically shipped to or from the United States are included in trade in goods. The value of software that is preinstalled on computer equipment and peripherals is captured in the value of this hardware and thus also included in trade in goods.

SIDEBAR

Types of Cross-Border Services: Coverage and Definitions

The estimates of cross-border transactions cover both affiliated and unaffiliated transactions between U.S. residents and foreign residents. Affiliated transactions consist of intrafirm trade within multinational companies-specifically, the trade between U.S. parent companies and their foreign affiliates and between U.S. affiliates and their foreign parent groups. Unaffiliated transactions are with foreigners that neither own, nor are owned by, the U.S. party to the transaction.

Cross-border trade in private services is classified into the same five, broad categories that are used in the U.S. international transactions accounts-travel, passenger fares, "other transportation," royalties and license fees, and "other private services."

Travel. The travel accounts cover purchases of goods and services by U.S. persons traveling abroad and by foreign travelers in the United States for business or personal reasons. These goods and services include food, lodging, recreation, gifts, entertainment, and other items incidental to a foreign visit. Expenditures for local transportation in the country of travel are also covered. U.S. travel transactions with both Canada and Mexico include border transactions, such as day trips for shopping and sightseeing.

A "traveler" is a person who stays less than a year in a country and is not a resident of that country. Diplomats and military and civilian government personnel are not classified as travelers regardless of their length of stay; their expenditures are included in other international transactions accounts. Students' educational expenditures and living expenses and medical patients' expenditures are included in "other private services."

Passenger fares. The passenger fare accounts cover fares paid by residents of one country to airline and vessel operators (carriers) that reside in another country. Receipts consist of fares received by U.S. air carriers from foreign residents for travel between the United States and foreign countries and between two foreign points and by U.S. vessel operators for travel on cruise vessels. Payments consist of fares paid by U.S. residents to foreign air carriers for travel between the United States and foreign countries and to foreign vessel operators for travel on cruise vessels.

"Other transportation." The "other transportation" accounts cover U.S. international transactions arising from the transportation of goods by ocean, air, land (truck and rail), pipeline, and inland waterway carriers to and from the United States and between two foreign points. The accounts cover freight charges for transporting exports and imports of goods and expenses that transportation companies incur in U.S. and foreign ports. Freight charges cover the receipts of U.S. carriers for transporting U.S. exports of goods, for transporting goods between two foreign points, and the payments to foreign carriers for transporting U.S. imports of goods. (Freight insurance on goods exports and imports is included in insurance in the "other private services" accounts.)

Port services receipts consist of the value of the goods and services purchased by foreign carriers in U.S. ports. Port services payments consist of the value of goods and services purchased by U.S. carriers in foreign ports.

Royalties and license fees. The royalties and license fees accounts cover transactions with nonresidents that involve patented and unpatented techniques, processes, formulas, and other intangible assets and proprietary rights used in the production of goods; transactions involving trademarks, copyrights, franchises, broadcast rights, and other intangible rights; and the rights to distribute, use, and reproduce general-use computer software.

"Other private services." These accounts consist of other affiliated and unaffiliated services. The unaffiliated services consist of six major categories: Education; financial services; insurance; telecommunications; business, professional, and technical services; and "other unaffiliated services."

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 excludes fees associated with distance-learning technologies and educational and training services provided on a contract or fee basis; these transactions are included in training services under business, professional, and technical services.

Financial services cover a variety of services that include funds management, credit card services, explicit fees and commissions on transactions in securities, fees on credit-related activities, and other financial services. Implicit fees paid and received on bond trading are also covered.

Insurance consists of the portion of premiums earned or incurred for primary insurance and for reinsurance that is for the provision of services. It therefore excludes the portion of premiums earned or incurred that is for the payment of expected or "normal" losses. It also includes auxiliary insurance services, such as agents' commissions, actuarial services, insurance brokering and agency services, and salvage administration services. Primary insurance mainly consists of life insurance and property and casualty insurance, and each type may be reinsured.1

Telecommunications consists of receipts and payments 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, video conferencing, and online access services (including Internet backbone services, router services, and broadband access services); and telecommunications support services.

Business, professional, and technical services cover a variety of services, such as legal services, accounting services, and advertising services (see the list in table 1).

"Other unaffiliated services" receipts consist mainly of expenditures (other than employee compensation) by foreign Governments in the United States for services such as maintaining their embassies and consulates; non-compensation-related expenditures by international organizations-such as the United Nations, the International Monetary Fund, and the World Bank-that are headquartered in the United States; expenditures of foreign residents employed temporarily in the United States; and receipts from unaffiliated foreigners for the display, reproduction, or distribution of motion pictures and television programs. Payments consist primarily of payments by U.S. distributors to unaffiliated foreign residents for the display, reproduction, or distribution of foreign motion pictures and television programs.

1. 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.

SIDEBAR

Data Sources

The estimates in this article are primarily based on data from the surveys conducted by the Bureau of Economic Analysis (BEA). However, the estimates for some services are based on data from a variety of other sources, including the U.S. Customs Service, surveys conducted by other Federal Government agencies, private sources, and partner countries.

BEA conducts 11 surveys of cross-border trade with unaffiliated foreigners-that is, with foreigners that neither own nor are owned by the U.S. party to the transaction. These surveys cover six broad categories of services: (1) Selected services (mainly miscellaneous business, professional, and technical services), (2) construction, engineering, architectural, and mining services, (3) insurance, (4) financial services, (5) royalties and license fees, and (6) transportation. Each of these categories is covered by a separate survey or by a group of surveys.

More detailed information on these surveys is available in U.S. International Transactions in Private Services: A Guide to the Surveys Conducted by the Bureau of Economic Analysis. The Guide presents general information about the classification, definition, and release schedules of all the surveys, and it provides details on the items covered on each survey, the frequency of the surveys, the numbers of respondents, and the methods used to prepare the estimates. The Guide is available on BEA's Web site at <www.bea.gov>, or by e-mail at <internationalaccounts@bea.gov>. For further information, call 202-606-9853.

The data on intrafirm trade in services and on sales by majority-owned affiliates are collected in BEA's surveys of U.S. direct investment abroad and of foreign direct investment in the United States. For the methodologies for these surveys, see Foreign Direct Investment in the United States: Final Results From the 1997 Benchmark Survey (Washington, DC: U.S. Government Printing Office, 2001) and U.S. Direct Investment Abroad: 1994 Benchmark Survey, Final Results (Washington, DC: U.S. Government Printing Office, 1998). (The final results of the 1999 benchmark survey of U.S. direct investment abroad, including an updated methodology, is scheduled to be published in the coming months.) For additional information on the methodology used to prepare the estimates of both affiliated and unaffiliated cross-border trade, see The Balance of Payments of the United States: Concepts, Data Sources, and Estimating Procedures (Washington DC: U.S. Government Printing Office, 1990).

For detailed information on the changes in the methodology that have been made since 1990, see the section "Technical Notes" in the quarterly articles on the U.S. international transactions in the June 1990 and 1991 issues of the SURVEY OF CURRENT BUSINESS, the section "Revised Estimates for 1976-91" in the June 1992 issue, and the annual articles on the revised estimates of U.S. international transactions in the June 1993-95 issues and in the July 1996-2002 issues. The changes in methodology since 1990 are summarized in the appendix to this article "Improvements to BEA's Estimates of U.S. International Services, 1990-2003" on page 74.

These methodologies and the SURVEY articles for July 1996-2002 are also available on BEA's Web site at <www.bea.gov/bea/pubs.htm>.

Acknowledgments

The estimates of cross-border trade were prepared by the following staff members of the Balance of Payments Division and the International Investment Division.

Travel and passenger fares-Joan E. Bolyard and Laura L. Brokenbaugh

Other transportation-Edward F. Dozier

Royalties and license fees and "other private services," affiliated-Gregory G. Fouch (for transactions of U.S. affiliates) and Mark W. New (for transactions of U.S. parents)

Royalties and license fees and other private services, unaffiliated-Christopher J. Emond, Shirley J. Davis, Rafael I. Font, Pamela Aiken, Damon C. Battaglia, Annette Boyd, Faith M. Brannam, Hope R. Jones, Eddie L. Key, Christine L. Hagerty, Steven J. Muno, John A. Sondheimer, Robert A. Becker, Erin Engasser, and Matthew J. Argersinger

The estimates of sales of services through majority-owned affiliates were prepared by staff members of the International Investment Division.

The information in tables 1, 2, 3, and 5 was consolidated by John A. Sondheimer, assisted by Robert A. Becker. Computer programming for data estimation and the generation of the other tables was provided by Marie Colosimo, Carole J. Henry, Neeta B. Kapoor, Fritz H. Mayhew, Xia Ouyang, and Diane I. Young.

FOOTNOTE

1. In the quarterly articles on U.S. international transactions, table 1 presents cross-border exports of private services in lines 6-10 and cross-border imports in lines 23-27; table 3 provides additional details.

2. These data cover all the sales of services by nonbank majority-owned affiliates, irrespective of the percentage of foreign ownership. 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. Excluding minority-owned affiliates may be preferable because the direct investor may own as little as 10 percent of a minority-owned affiliate and thus have less interest than local investors in the affiliate's sales. The data are limited to nonbank affiliates because bank affiliates were not required to report annual data on sales of services to BEA. (However, banks will report their sales of services on the 2002 benchmark survey of foreign direct investment in the United States. See the box "Ongoing Efforts to Improve the Estimates of International Services" on page 62.)

3. See Raymond J. Mataloni, Jr., "Operations of U.S. Multinational Companies: Operations in 2000," SURVEY OF CURRENT BUSINESS 82 (December 2002): 111-131, and William J. Zeile, "U.S. Affiliates of Foreign Companies: Operations in 2001," SURVEY 83 (August 2003): 38-56. An article covering the 2001 operations of U.S. multinational companies will be published in the November 2003 SURVEY.

4. An example of a difference in coverage is that the estimates of cross-border exports and imports include services provided by banks, while those of sales through affiliates cover only nonbank affiliates. An example of a difference in measurement is that cross-border exports and imports of primary insurance and reinsurance services largely reflect premiums minus "normal" losses, while sales of services by affiliates in insurance largely reflect premium income with no deductions for losses; this difference tends to exaggerate the relative importance of sales through affiliates. (BEA is using a new method for estimating cross-border trade in insurance services; see the appendix "Improvements to BEA's Estimates of International Services, 1990-2003" on page 74.) BEA has also begun implementing changes to the measurement and coverage of selected services to improve the comparability of the two series; for details, see the box "Ongoing Efforts to Improve the Estimates of International Services" on page 62.

5. Annual exchange rates are period averages.

6. The foreign parent group is defined as (1) the foreign parent, (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 ultimate beneficial owner, and (3) any foreign person, proceeding down the ownership chain(s) of each of these members, that is owned more than 50 percent by the person above it.

7. The form and volume in which the royalty revenues of the foreign affiliate flow back to the U.S. parent company depend on the contractual arrangements governing the transfer. If the flows are in the form of royalties or license fees, they are recorded in affiliated royalties and license fees receipts. If they are in the form of income, they are recorded in direct investment income receipts. In either case, the flows are in the current account. Thus, these transfers may have reduced U.S. receipts of unaffiliated royalties and license fees, but the reduction may be offset by other receipts recorded elsewhere in the current account. In addition, these transfers may lead to increased sales through foreign affiliates.

8. Insurance services also include auxiliary insurance services, such as agents' commissions, actuarial services, insurance brokering and agency services, and salvage administration services.

9. For a detailed description of the new methodology, see Christopher L. Bach, "Annual Revision of the U.S. International Accounts, 1992-2002," SURVEY 83 (July 2003): 35-37.

10. As noted earlier, insurance services are measured as total premiums on primary insurance and reinsurance minus the portion of premiums attributable to expected or "normal" losses. Insurance services also include auxiliary insurance services, such as agents' commissions, actuarial services, insurance brokering and agency services, and salvage administration services.

11. In this section, sales of services are defined as sales that are typically associated with selected industry groups, which are listed in the note to table H.

12. Because the data on sales of goods by U.S. affiliates are not disaggregated by destination, the local and foreign shares have been estimated from the data on exports of goods shipped by affiliates. In 2001, these exports represented 9 percent of total sales of goods by these affiliates.

13. 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 maybe located in the United States.

14. Computer-related services are also likely to have been sold by affiliates classified in other industries, especially those in computers and electronic products manufacturing and in wholesale trade of professional and commercial equipment and supplies. See the box "Delivery of Computer Services to Foreign Markets" on page 68.

15. According to data from BEA's survey of new foreign direct investment in the United States (FDIUS), outlays to acquire or establish U.S. businesses were $147.1 billion in 2001, down from $335.6 billion in 2000; see Thomas W. Anderson, "Foreign Direct Investment in the United States: New Investment in 2002," SURVEY 83 (June 2003): 55-62. These data cover only transactions involving U.S. businesses newly acquired or established by foreign direct investors. For additional information about FDIUS, including transactions involving both new and existing U.S. affiliates, see Zeile, "Operations in 2001" and Maria Borga and Daniel R. Yorgason, "Direct Investment Positions in 2001: Country and Industry Detail," SURVEY 82 (July 2002): 21-31. (These articles contain preliminary data for 2001; for the direct investment position, revised data for 2001 were published in Maria Borga, "Direct Investment Positions in 2002: Country and Industry Detail," SURVEY 83 (July 2003): 22-31.)

16. A corporate inversion occurs when a U.S. corporation forms a corporation, typically in a foreign low- or no-tax country and simultaneously "inverts" the corporate chain of ownership, so that the new foreign corporation becomes the parent company and the U.S.-based company becomes its affiliate. While the U.S. affiliate in an inverted corporate structure is owned by a foreign parent company, that company, in turn, generally is largely or wholly owned by U.S. persons-namely, the U.S. affiliate's former stockholders.

AUTHOR_AFFILIATION

Michael Mann prepared the section on cross-border trade, and Maria Borga prepared the section on sales through affiliates.

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Appendix: Improvements to BEA's Estimates of U.S. International Services, 1990-2003

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Appendix: Improvements to BEA's Estimates of U.S. International Services, 1990-2003

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Appendix: Improvements to BEA's Estimates of U.S. International Services, 1990-2003

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Appendix: Improvements to BEA's Estimates of U.S. International Services, 1990-2003

Table I. Detail Collected in the 1996 and 2001 Benchmark Survey of Selected Services Transactions With Unaffiliated Foreign Persons

[Billions of dollars]

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Table 1. Private Services Trade by Type, 1992-2002

[Billions of dollars]

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Table 1. Private Services Trade by Type, 1992-2002

[Millions of dollars]

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Table 2. Private Services Trade by Area and Country, 1992-2002

[Millions of dollars]

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Table 2. Private Services Trade by Area and Country, 1992-2002

[Millions of dollars]

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Table 3.1. Travel, Passenger Fares, and Other Transportation, 1999

[Millions of dollars]

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Table 3.2. Travel, Passenger Fares, and Other Transportation, 2000

[Millions of dollars]

IMAGE CHART 22

Table 3.3. Travel, Passenger Fares, and Other Transportation, 2001

[Millions of dollars]

IMAGE CHART 23

Table 3.4. Travel, Passenger Fares, and Other Transportation, 2002

[Millions of dollars]

IMAGE CHART 24

Table 4.1. Royalties and License Fees, 1999

[Millions of dollars]

IMAGE CHART 25

Table 4.1. Royalties and License Fees, 1999

[Millions of dollars]

IMAGE CHART 26

Table 4.2. Royalties and License Fees, 2000

[Millions of dollars]

IMAGE CHART 27

Table 4.2. Royalties and License Fees, 2000

[Millions of dollars]

IMAGE CHART 28

Table 4.3. Royalties and License Fees, 2001

[Millions of dollars]

IMAGE CHART 29

Table 4.3. Royalties and License Fees, 2001

[Millions of dollars]

IMAGE CHART 30

Table 4.4. Royalties and License Fees, 2002

[Millions of dollars]

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Table 4.4. Royalties and License Fees, 2002

[Millions of dollars]

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Table 5.1. Other Private Services, 1999

[Millions of dollars]

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Table 5.1. Other Private Services, 1999

[Millions of dollars]

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Table 5.2. Other Private Services, 2000

[Millions of dollars]

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Table 5.2. Other Private Services, 2000

[Millions of dollars]

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Table 5.3. Other Private Services, 2001

[Millions of dollars]

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Table 5.3. Other Private Services, 2001

[Millions of dollars]

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Table 5.4. Other Private Services, 2002

[Millions of dollars]

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Table 5.4. Other Private Services, 2002

[Millions of dollars]

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Table 6.1. Insurance, 1999

[Millions of dollars]

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Table 6.2. Insurance, 2000

[Millions of dollars]

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Table 6.3. Insurance, 2001

[Millions of dollars]

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Table 6.4. Insurance, 2002

[Millions of dollars]

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Table 7.1. Business, Professional, and Technical Services, Unaffiliated, 1999

[Millions of dollars]

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Table 7.1. Business, Professional, and Technical Services, Unaffiliated, 1999

[Millions of dollars]

IMAGE CHART 46

Table 7.2. Business, Professional, and Technical Services, Unaffiliated, 2000

[Millions of dollars]

IMAGE CHART 47

Table 7.2. Business, Professional, and Technical Services, Unaffiliated, 2000

[Millions of dollars]

IMAGE CHART 48

Table 7.3. Business, Professional, and Technical Services, Unaffiliated, 2001

[Millions of dollars]

IMAGE CHART 49

Table 7.3. Business, Professional, and Technical Services, Unaffiliated, 2001

[Millions of dollars]

IMAGE CHART 50

Table 7.4. Business, Professional, and Technical Services, Unaffiliated, 2002

[Millions of dollars]

IMAGE CHART 51

Table 7.4. Business, Professional, and Technical Services, Unaffiliated, 2002

[Millions of dollars]

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Table 8. Sales of Services to Foreign Persons by U.S. MNCs Through Their Nonbank MOFAs and to U.S. Persons by Foreign MNCs Through Their Nonbank MOUSAs, by Country, 1994-2001

[Millions of dollars]

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Table 9.1 Sales of Services to Foreign Persons by U.S. MNCs Through Their Nonbank MOFAs, Industry of Affiliate by Country of Affiliate, 2000

[Millions of dollars]

IMAGE CHART 54

Table 9.2 Sales of Services to Foreign Persons by U.S. MNCs Through Their Nonbank MOFAs, Industry of Affiliate by Country of Affiliate, 2001

[Millions of dollars]

IMAGE CHART 55

Table 10.1. Sales of Services to U.S. Persons by Foreign MNCs Through Their Nonbank MOUSAs, Industry of Affiliate by Country of UBO, 2000

[Millions of dollars]

IMAGE CHART 56

Table 10.2. Sales of Services to U.S. Persons by Foreign MNCs Through Their Nonbank MOUSAs, Industry of Affiliate by Country of UBO, 2001

[Millions of dollars]