U.S. International Services: Cross-Border Trade in 2005 and Sales Through Affiliates in 2004

THE Bureau of Economic Analysis (BEA) takes a broad perspective in this presentation of U.S. international sales and purchases of services, including information on services that cross borders and are recorded in the international transactions accounts as exports and imports and information on services

that are delivered through the channel of direct investment. This perspective recognizes the importance of affiliates that are located in-but owned outside of-the markets that they serve. Because a local commercial presence is often necessary to deliver services to foreign customers, many companies choose to serve foreign markets, in part or in whole, through their affiliates. In 2004 (the latest year for which data on sales through affiliates are available), the majority of both U.S. international sales and purchases of services continued to be through affiliates (table A and chart 1).1

In 2005, U.S. cross-border exports of private services, at $360.5 billion, exceeded U.S. cross-border imports of private services, at $280.6 billion, resulting in a U.S. surplus on cross-border trade in private services of $79.9 billion, up from $70.8 billion in 2004. In contrast to the large and growing U.S. deficit on international trade in goods, which reached $782.7 billion in 2005, the United States has historically run surpluses on trade in services. In 2004, U.S. sales of services to foreign markets through the foreign affiliates of U.S. companies, at $489.6 billion, exceeded foreign sales to the U.S. market through U.S. affiliates of foreign companies, at $382.8 billion.

In 2005, cross-border exports of services increased 10 percent after increasing 13 percent in 2004, and imports increased 9 percent after increasing 16 percent (table B). In 2005, cross-border exports increased in all major categories: Increases in "other private services" (such as "business, professional, and technical services," financial services, insurance services, and education) and travel contributed the most to the increase in exports in dollar terms, while "other transportation" had the largest increase in percentage terms (table C). Cross-border imports of services also increased in each of the major categories: The largest increases were in "other private services" and "other transportation." For both exports and imports, every major category increased at a slower rate in 2005 than in 2004.

After an adjustment to remove the effects of a change in reporting requirements, U.S. sales of services abroad through the foreign affiliates of U.S. companies increased 11 percent in 2004 after increasing 7 percent in 2003.2 This was the second year of improved sales growth, following a historical low of 0.4-percent growth in 2002. The 2004 increase in foreign affiliates' sales of services resulted from several factors, including a pickup in real economic growth in many foreign markets served by affiliates. The weakening of the U.S. dollar against a number of major foreign currencies boosted the dollar value of affiliates' sales. The increase was also affected by changes in the corporate structure of multinational companies, including increased ownership in affiliates so that minority-owned affiliates became majority-owned affiliates, and the restructuring of a large foreign media company as a U.S. company.

Sales in the United States through the U.S. affiliates of foreign multinationals increased 2 percent in 2004, the same as in 2003. Sales by U.S. affiliates continued to grow slowly despite a pickup in economic growth in the United States and an increase in foreign companies' spending to acquire or establish U.S. businesses. Most of the growth was driven by increased sales by existing affiliates rather than by sales of newly acquired or established affiliates.

Sales of services delivered through cross-border trade cannot be precisely compared with sales through affiliates because of differences in coverage, measurement, and classification.3 For example, sales of services through cross-border trade are generally classified by type of service, whereas sales through affiliates are classified by the primary industry of the affiliate. Despite these differences, the large gap between sales through cross-border trade and sales through affiliates suggests that the latter is the larger channel of delivery for both U.S. sales of services abroad and foreign sales of services in the United States (charts 2 and 3).

The remainder of this article consists of two major sections and two appendixes. The first section focuses on international services transactions through cross-border exports and imports. It presents the preliminary estimates of exports and imports of private services for 2005 and revised estimates for 2002-2004.4 The second section presents preliminary estimates of owned affiliates of nonbank U.S. companies and sales sales of services abroad through nonbank majority-in the United States by nonbank majority-owned U.S. affiliates of foreign companies for 2004 and revised through affiliates are from the larger data sets on the timates for 2003. The estimates of sales of services operations of U.S. multinational companies and of U.S. affiliates of foreign companies, which are described in annual articles.5 The appendix "Modes of Supply and Channels of Delivery of Services Sold in International Markets" describes the delivery of services on the basis of the General Agreement on Trade in Services and the relationship of these modes to BEA's channels of delivery. The appendix "Improvements to the Estimates of Cross-Border Trade in Services" describes recent changes in BEA's data collection and methodology.

U.S. Cross-Border Trade in 2005

U.S. exports of private services (receipts) increased 10 percent, to $360.5 billion, in 2005 after increasing 13 percent in 2004. U.S. imports of private services (payments) increased 9 percent to $280.6 billion after increasing 16 percent. The services surplus increased for the first time since 1999, as the increase in the value of services exports outpaced imports.

Growth in both exports and imports was strong, but not as brisk as in 2004. Services export growth slowed from an unusually fast rate, partly because of slower economic growth in several key partner countries in 2005. Similarly, slower growth in the United States in 2005 slowed growth in demand for services imports. In the United States, real gross domestic product (GDP) grew 3.2 percent in 2005, down from 3.9 percent in 2004. Real GDP growth in the United Kingdom slowed to 1.8 percent from 3.1 percent; real GDP growth in the euro area slowed to 1.3 percent from 2.1 percent. Real GDP growth in Canada was unchanged, at 2.9 percent, in 2005. Real GDP growth in Japan accelerated slightly, to 2.7 percent from 2.3 percent.

Much of the growth in both exports and imports of private services in 2005 was accounted for by increases in "other private services," especially in business, professional, and technical services and in financial services. Growth in travel, passenger fares, and "other transportation" in 2005 decelerated; payments slowed more than receipts, reflecting slowdowns in international travel and in the growth of goods exports and goods imports transported by both ocean and air carriers.

Trade with Europe and Asia accounted for two-thirds of total U.S. cross-border exports and imports of private services in 2005 (chart 4). The composition of trade by area was little changed. Japan, the United Kingdom, Canada, and Mexico continue to be the largest services trading partners of the United States (table D). Although China and India grew rapidly in comparison with other countries, they remain small markets for U.S. exports and imports of services.

Trade within multinational companies (affiliated trade) accounted for 25 percent of total exports of private services in 2005 and for 21 percent of total imports of private services (table E). Affiliated exports of private services increased 9 percent in 2005 after increasing 7 percent in 2004. Affiliated imports of private services increased 14 percent after an 11-percent increase.

Travel

Receipts. Travel receipts increased 10 percent, to $81.7 billion, in 2005 after increasing 16 percent in 2004. Although growth in travel receipts slowed, 2005 marked the second straight year of strong increases after declining for 3 years. Most of the slowdown in 2005 was attributable to travel receipts from overseas visitors, which increased 9 percent in 2005 after increasing 16 percent in 2004. Growth in the number of visitors from overseas slowed to 7 percent in 2005 from 13 percent in 2004. The slowdown also reflected higher airline ticket prices. Growth in the number of visitors from Japan slowed to 4 percent in 2005 from 18 percent in 2004. Similarly, the growth in the number of visitors from the euro area slowed to 11 percent from 15 percent. Average expenditures of overseas visitors in the United States increased 2 percent in 2005, roughly the same as in 2004.

Growth in travel receipts from Canada fell to 12 percent in 2005 from 17 percent in 2004. Growth in the number of travelers from Canada slowed slightly, to 5 percent from a 6-percent increase.

Travel receipts from Mexico increased 9 percent in 2005 after increasing 10 percent in 2004. The number of Mexican travelers to the U.S. border area, which accounts for approximately 95 percent of Mexican travelers to the United States, was down slightly; most of the increase in receipts from Mexico in 2005 was due to an increase in average expenditures by border travelers. In contrast, the number of Mexican travelers to the interior of the United States and their average expenditures increased strongly in 2005. Receipts from Mexican travelers to the interior increased 13 percent in 2005, up from 10 percent.

Payments. Travel payments increased 5 percent, to $69.2 billion, in 2005 after increasing 14 percent in 2004. The slowdown reflected higher airline ticket prices, mainly attributable to higher fuel costs. Like travel receipts, payments increased for the second straight year after declining for 3 years. The increases in travel payments have been smaller than those in travel receipts, resulting in an improved trade balance in travel services for the second year in a row.

Growth in travel payments to overseas countries slowed to 6 percent in 2005 from 15 percent in 2004. The slowdown was most pronounced for U.S. travelers to Asia. Growth slowed to 10 percent in 2005 from 25 percent in 2004, as higher fuel prices contributed to higher airline ticket prices, particularly for long, trans-Pacific flights. In addition, the growth rate in 2004 was unusually strong, reflecting a rebound from the combined effects of September 11th, the start of the war in Iraq, and Severe Acute Respiratory Syndrome (SARS), events that disrupted travel in recent years.

Travel payments to Canada turned down, decreasing 4 percent in 2005 after increasing 14 percent in 2004. The number of U.S. travelers to Canada decreased 9 percent, reflecting a depreciation of the U.S. dollar against the Canadian dollar. The drop in the number of travelers was partly offset by an increase in U.S. travelers' average expenditures.

Growth in travel payments to Mexico slowed to 10 percent in 2005 from 13 percent in 2004. Most of the slowdown in payments reflected less travel to the interior of Mexico, where Hurricane Wilma destroyed major tourist areas and constrained U.S. travel to Mexico in the last 3 months of 2005. The depreciation of the U.S. dollar against the Mexican peso may have also contributed to the slowdown. In contrast, travel payments to the Mexican border region increased strongly, as the number of U.S. travelers increased 3 percent and their average expenditures rose strongly.

Passenger fares

Receipts. Receipts for passenger fares increased 11 percent, to $20.9 billion, in 2005 after increasing 20 percent in 2004. The slowdown partly reflected a slowdown in the growth of foreign visitors to the United States, to 1 percent in 2005 from 6 percent in 2004. However, in 2005, airline ticket prices (especially for business class) increased, and more in-flight services were offered by U.S. carriers on international routes, both of which provided a strong boost for passenger fares.

In 2005, jet fuel prices increased 52 percent. Higher fuel prices affected passenger fares on Asia-Pacific routes more than on trans-Atlantic routes, mainly because of the longer distances and higher fuel consumption on trans-Pacific flights. However, the commodity-like nature of a passenger seat has forced airlines to compete for customers mainly on the basis of price, particularly for economy class seats on trans-Atlantic routes. These seats are often deeply discounted, and with low-cost carriers increasingly emerging in the international market, there was incomplete passthrough of higher fuel costs and other costs to economy class customers. As a result, carriers in developed countries-including the United States-have adopted a variety of strategies to increase revenues by attracting passengers who are willing to pay higher ticket prices. One strategy was to charge higher business class fares in exchange for value-added services and amenities, such as Internet access, teleconferencing facilities, and redesigned cabins that provide more comfort and privacy. Another strategy was to shift capacity from highly competitive national markets to more profitable (particularly for business class) international routes. U.S. carriers' domestic capacity shrank in 2005, while their capacity in international markets increased. The higher volume of U.S. carriers' international flights, combined with their ability to charge higher business class fares that more than offset lower economy class fares, has contributed to the increase in passenger fares receipts in 2005.6

Payments. Payments for passenger fares increased 10 percent, to $26.1 billion, in 2005 after a 13-percent increase in 2004. The slowdown partly reflected slower growth in the number of U.S. travelers-1 percent in 2005, compared with 5 percent in 2004. The share of U.S. travelers on foreign-flag carriers changed little. Sizable increases in ticket prices resulted primarily from higher fuel costs. Passenger fare payments to Europe and Asia and Pacific increased in 2005, and the increases offset the decreases in payments to Latin America and Canada.

Other transportation

Receipts. Receipts for "other transportation" services increased 13 percent, to $42.2 billion, in 2005 after increasing 19 percent in 2004. Slowdowns in both freight receipts and port services receipts reflected slowdowns in U.S. goods exports to, and imports from, all major countries and areas in 2005. Growth in the volume of U.S. goods exports slowed to 7 percent in 2005 from 9 percent in 2004; growth in the volume of U.S. imports slowed to 7 percent in 2005 from 11 percent in 2004. Nonetheless, the continued increases in export and import volumes contributed to the strong growth in transportation receipts.

The increase in freight receipts was attributable mostly to an increase in air freight rates. Several air carriers raised rates as early as the first quarter of 2005 in response to soaring fuel prices. The airlines then repeatedly raised prices over the course of the year as fuel prices continued to increase. In contrast, ocean freight rates, particularly for U.S.-operated tramp and tanker vessels, were down in 2005. In 2004, tanker and tramp rates rose sharply, partly as a result of China's rapid exported economic expansion. Returns from higher rates and increased trade with Asia prompted an increase in ship building, which added many new ships to the world's fleet. In 2005, rates decreased because of increased capacity and the slowing growth of world trade.

The increase in port services receipts was attributable to increases in both ocean and air port services. The increase in ocean port receipts reflected increases in bunker fuel revenues and in imports and exports transported by foreign-operated vessels. The increase in air port services receipts reflected higher jet fuel prices and increases in nonpetroleum imports and exports and in the number of foreign visitors to the United States. Jet and bunker fuel prices increased significantly because of strong global demand for oil and the disruption in U.S. refinery production and capacity as a result of Hurricanes Katrina and Rita late in the year.

"Other transportation" receipts from all areas except Africa rose in 2005. Receipts from Europe, Japan, and Latin America increased strongly in 2005, reflecting higher trade volumes.

Payments. Payments for "other transportation" services increased 15 percent to $62.1 billion in 2005 after increasing 21 percent in 2004. The increase in 2005, which was mostly in ocean freight payments, reflected increases in import volumes that were partly offset by decreases in ocean freight rates.

Port services payments increased, reflecting an increase in air port services. In contrast, ocean port services decreased. The increase in air port services, which includes fuel purchases, was attributable to higher jet fuel prices and an increase in the number of U.S. travelers overseas. The decrease in ocean port services was attributable to a decrease in the export and import volumes transported by U.S.-operated liner, tanker, and tramp vessels.

"Other transportation" payments increased in all areas, reflecting strong U.S. economic growth and increased demand for goods imports from all regions. The increase in import volumes from Asia was less robust in 2005 than in 2004. The increase in 2004 was especially strong, leading to record high ocean liner rates that reflected tight vessel capacity.

Royalties and license fees

Receipts. U.S. receipts of royalties and license fees increased 9 percent, to $57.4 billion, in 2005 after increasing 12 percent in 2004. Most of the increase in 2005 was accounted for by U.S. parents' receipts from their foreign affiliates; affiliated receipts accounted for nearly 75 percent of receipts for royalties and license fees in 2005, about the same share as in recent years. Affiliated transactions account for a large portion of royalty and license fees partly because firms with marketable intellectual property usually prefer to exercise some degree of control over the distribution and use of this property, which may be instrumental to the firm's competitive position in the global market.7 U.S. parents' receipts from their foreign affiliates accounted for 90 percent of affiliated receipts; in multinational firms, the parent companies rather than the affiliates are generally the holders of intellectual property.

U.S. parents' receipts from their foreign affiliates increased 7 percent to $36.0 billion in 2005. The largest increases were receipts from foreign affiliates in the wholesale trade and transportation equipment manufacturing industries. By area, receipts from affiliates in all the major areas increased. The largest increase was from affiliates in Europe. Within Europe, the increase was generally widespread across countries; affiliates in Switzerland accounted for the largest increase. Receipts from affiliates in Asia and Pacific also increased substantially; affiliates in Japan accounted for the largest increase.

U.S. companies' receipts from unaffiliated foreign companies increased 14 percent, to $15.3 billion, in 2005. The increase was mostly accounted for by receipts for the use of industrial processes, including patents and trade secrets, that are used in connection with the production of goods. The increase also reflected increased unaffiliated receipts for the rights to distribute and use general use computer software. Additional receipts from software licensing agreements were transacted through affiliated channels, but the value of these receipts cannot be separately identified (see the box "Delivery of Computer Services to Foreign Markets").

Payments. U.S. payments of royalties and license fees increased 6 percent, to $24.5 billion, in 2005, after increasing 22 percent in 2004. The slowdown was due primarily to a falloff in U.S. companies' payments to unaffiliated foreigners. Unaffiliated payments tend to spike in years that include major international sporting events, when U.S. companies pay international sports organizations for the rights to broadcast and record live events. The latest such spike occurred in 2004, an Olympic year.

Although unaffiliated payments accounted for most of the slowdown, affiliated payments continued to account for the largest share of U.S. payments in 2005, 84 percent. U.S. affiliates' payments increased 13 percent. The largest increases were payments by affiliates in the wholesale trade, chemicals manufacturing, and transportation equipment manufacturing industries. In wholesale trade, automobile wholesalers and pharmaceutical wholesalers were large contributors to the increase. By country, affiliates with parents in Japan had the largest increase, followed by affiliates with parents in Switzerland, the Netherlands, and Germany.

Other private services

Receipts for "other private services" increased 9 percent, to $158.2 billion, in 2005 after increasing 11 percent in 2004. The largest dollar increases were in "other business, professional, and technical services" and financial services (table 1 and tables 5-8). Payments for "other private services" increased 9 percent, to $98.7 billion, after increasing 13 percent. The largest dollar increases were in computer and information services and "other business, professional, and technical services" (table 1). "Other private services" consists of education, financial services, insurance services, telecommunications, and business, professional, and technical services.

Education

Receipts. Receipts for education increased 4 percent, to $14.1 billion, in 2005 after increasing 2 percent in 2004. The increase in 2005, like that in 2004, resulted primarily from a continued increase in tuition rates. Tuition rates at private 4-year colleges and universities increased 6 percent in academic year 2005-2006 after increasing 6 percent in 2004-2005. Tuition at public 4year colleges and universities continued to increase, but the rate of increase slowed in 2005.8 Slowing growth in public tuition rates may have contributed to the slowdown in the rate of decrease in the number of foreign students enrolled in U.S. higher education institutions. The number of foreign student enrollments decreased 1 percent in 2005 and more than 2 percent in 2004 after decades of annual increases. Most of the decrease in 2005 was attributable to undergraduate students, 80 percent of whom rely on personal and family funds to finance their educations (most foreign graduate students receive support from U.S. sources, primarily from the institutions where they study).

The total number of students from the top three countries of origin-India, China, and the Republic of Korea-increased in 2005. The rate of growth in the number of students from India, which remains the country from which the most foreign students in the United States originate, slowed to 1 percent in 2005 from 7 percent in 2004 and 12 percent in 2003. The total number of students from China increased 1 percent in 2005, a turnaround from a 5-percent decrease in 2004. The total number of students from the Middle East, Northern Africa, and countries with majority Muslim populations in Asia continued to decrease in 2005. However, decreases in students from countries with majority Muslim populations were not as sharp as in previous years; since 2001, the number of these students has decreased 18 percent.

Payments. Payments for education increased 13 percent, to $4.0 billion, in 2005 after increasing 13 percent in 2004. The increase reflected increases in both the number of students from U.S. universities participating in study abroad programs and the number of students enrolled directly in universities abroad. The United Kingdom, Italy, Spain, and France continue to be the top destinations for U.S. students in study abroad programs. The number of students studying abroad in China nearly doubled after the programs that were cancelled as a result of the SARS outbreak resumed. Further, the number of students studying abroad in financial centers in Asia (such as Japan, Hong Kong, Republic of Korea, and Singapore) increased. Business and management majors' share of U.S. students studying abroad increased, while foreign-language majors' share decreased. Since the end of the 2001-2002 academic year, the number of students from the United States studying in the Middle East, Northern Africa, and countries with majority Muslim populations in Asia has continued to grow.

Financial services

Receipts. Financial services receipts increased 13 percent, to $34.1 billion, in 2005 after increasing 26 percent in 2004. The deceleration was due primarily to unaffiliated services, which slowed from 35-percent growth in 2004 to a still strong 16 percent in 2005 (table F). The slowdown in unaffiliated services resulted mainly from a slowdown in management and advisory services; fees for these services had surged in 2004 as a result of large inflows of capital to both established and newly formed investment funds and a strong rebound in merger and acquisition activity. Affiliated receipts for financial services continued to decrease, falling 2 percent in 2005 after falling 6 percent in 2004.

In 2005, fees for securities transactions increased, largely as a result of growth in private placement and underwriting services for foreign securities issued in the United States. Credit card and credit-related services increased, mostly from continued strong growth in credit card transactions. "Other financial services" also increased, reflecting gains in securities lending, electronic fund transfers, and other financial services.

Payments. Financial services payments increased 7 percent, to $12.3 billion, in 2005 after increasing 17 percent in 2004. In 2005, strong growth in unaffiliated payments was partly offset by a slowdown in affiliated payments. The increase in unaffiliated payments resulted from increases in most categories of financial services. "Other financial services" recorded the largest igain as a result of a surge in securities lending services. Securities transactions were higher as a result of increased trading in foreign stocks and bonds, which were partly offset by decreased underwriting services for U.S. securities issued abroad. Payments for management and advisory services increased as both finan cial management and financial advisory activity picked up. Credit card and credit-related services decreased, as a deceleration in credit-related activity was partly offset by steady growth in credit card services. Affiligain ated payments for financial services decreased, falling 6 percent after increasing 7 percent in 2004.

Insurance services

Receipts. Insurance services receipts remained flat, at $6.8 billion, in 2005 after increasing 14 percent in 2004. A decrease in reinsurance services was partly offset by an increase in primary insurance services. The decrease in reinsurance resulted primarily from a fall in premium supplements and from premiums rates that were lower in 2005 than in previous years.9 In 2005, the United Kingdom continued to be the top U.S. export market for insurance services, but Japan became the second largest market. Receipts from Japan surpassed receipts from Germany and Canada-traditionally the second and third top export markets-for the first time.

Payments. Insurance services payments decreased 2 percent, to $28.5 billion, in 2005 after increasing 15 percent in 2004. The decrease was primarily the result of a decrease in premium rates, which fell slightly for most types of policies. Before September 11, 2001, premiums rates had been rising because of consolidation in the insurance industry and the need to recoup investment losses after the stock market downturn in 2000; after September 11th, premium rates increased sharply, resulting in strong increases in 2002 and 2003. In 2004, growth in premium rates slowed.

The decrease in insurance services payments appears unrelated to Hurricanes Katrina and Rita, which caused damage in late 2005. Insurance services payments are mostly based on premiums, and the premiums on most policies were set before the hurricanes occurred.

Telecommunications

Receipts. Receipts for telecommunications services increased 6 percent, to $4.7 billion, in 2005 after remaining nearly flat in 2004. Globally, landline telecommunication services increased less than 2 percent for the second consecutive year. The slow growth in the use of landlines for international telephone traffic reflects the increasing use of wireless communications technology. Globally, wireless transmission services accounted for 47 percent of total telecommunication services revenue in 2005, up from 26 percent in 2000.

Payments. Payments for telecommunications services increased 3 percent, to $4.7 billion, in 2005 after increasing 7 percent in 2004. The slowdown may be partly attributable to the increasing availability of lower cost means of communicating across borders, such as e-mail.

Business, professional, and technical services

Receipts. Business, professional, and technical (BPT) services receipts increased 12 percent, to $80.9 billion, in 2005 after increasing 10 percent in 2004. BPT services consist of five major categories: Computer and information services; management and consulting services; research, development, and testing services; operational leasing services; and "other BPT services." Unaffiliated receipts accounted for most of the increase, and "other BPT services" accounted for nearly all of the increase in unaffiliated receipts.

Receipts for computer and information services decreased 8 percent, to $8.2 billion, in 2005. A drop in unaffiliated receipts was dampened by a modest increase in affiliated receipts. Receipts for management and consulting services continued to increase strongly, increasing 24 percent, to $6.4 billion, in 2005 after increasing 22 percent in 2004. The increase in 2005 was attributable to an increase in both affiliated and unaffiliated receipts. Receipts for research, development, and testing services increased 15 percent, to $10.1 billion, in 2005 after decreasing 7 percent in 2004. Most of the increase was attributable to affiliated receipts, which increased 17 percent in 2005 after decreasing 9 percent in 2004. Affiliated receipts typically account for most of the receipts for research, development, and testing services because companies often prefer to retain control over their intellectual property. Receipts for operational leasing services increased 11 percent, to $9.5 billion, primarily because of an acceleration in unaffiliated receipts.10

Receipts for "other BPT services" increased 15 percent, to $46.6 billion, in 2005 after increasing 14 percent in 2004. The slight acceleration was accounted for by unaffiliated receipts, which increased 26 percent after increasing 15 percent; affiliated receipts decelerated, increasing 5 percent after increasing 13 percent. "Other BPT services" include a variety of services that are not recorded in the other categories of BPT services and costs that parent firms charge to their affiliates that are not further disaggregated by type of service.11 Most of the acceleration in unaffiliated receipts was accounted for by industrial engineering, trade-related services, and installation, maintenance, and repair of equipment.

Payments. Payments for BPT services increased 17 percent, to $47.6 billion, in 2005 after increasing 12 percent in 2004. The acceleration was accounted for by affiliated payments, which increased 19 percent in 2005 after increasing 8 percent in 2004; unaffiliated payments decelerated, increasing 11 percent after increasing 20 percent.

Payments for computer and information services increased 34 percent, to $9.0 billion, in 2005 after increasing 22 percent in 2004. Increases in affiliated payments accounted for most of the increases in both years. Affiliated payments increased 41 percent in 2005 and 28 percent in 2004. The increase in 2005 was driven by increased payments from U.S. affiliates to their foreign parents; the increase in 2004 was driven by payments from U.S. parents to their affiliates. Unaffiliated payments increased 19 percent in 2005 and 10 percent in 2004. Canada continues to be the top provider of unaffiliated computer and information services to the U.S. market. Payments for management and consulting services increased 19 percent, to $5.9 billion in 2005. An acceleration in affiliated payments accounted for most of the increase. The greater focus on risk management and governance standards contributed to the growth in management and consulting services. Payments to firms that specialize in assisting companies in the United States (and other major industrialized countries) with offshoring business processes also account for some of the increase in unaffiliated management and consulting services. Payments for research, development, and testing services increased 35 percent, to $6.7 billion, in 2005, as payments by U.S. affiliates to their foreign parents surged after remaining flat in 2004. Payments for operational leasing services increased 5 percent, to $1.2 billion, after increasing 37 percent in 2004.

Payments for "other BPT services" increased 8 percent, to $24.8 billion, in 2005 after increasing 5 percent in 2004. Affiliated payments accounted for most of the acceleration. Unaffiliated payments decelerated; a deceleration in accounting, auditing, and bookkeeping services partly accounted for the deceleration in unaffiliated payments; despite the deceleration, the growth in these services was still strong, which may reflect U.S. companies' outlays to comply with Sarbanes-Oxley accounting and auditing standards, which came into effect in 2004.

Film and television tape rentals

Receipts. Receipts for film and television tape rentals increased 2 percent, to $10.4 billion, in 2005 after increasing 4 percent in 2004. Film and television tape rentals cover the rights to display, reproduce, and distribute U.S. motion pictures and television programming abroad.

Payments. Payments for film and television tape rentals more than doubled, to $0.9 billion, in 2005 after nearly doubling in 2004. Payments to Australia have accounted for most of the increases since 2003. Although payments have increased rapidly, they continue to be only a small fraction of receipts, reflecting the relatively small U.S. audience for foreign films and television programs, compared with the large foreign audience for U.S. films and television programs.

Sales Through Affiliates in 2004

In 2004, sales of services by nonbank U.S. multinationals through their nonbank majority-owned foreign affiliates to both foreign and U.S. persons were $525.2 billion, up 12 percent from 2003, after an adjustment to remove the effects of the change in reporting requirements for nonbank units of U.S. banks (table G). Before the adjustment, the year-to-year increase in 2004 was 9 percent. Worldwide sales of services by foreign multinationals through their nonbank majority-owned U.S. affiliates rose 4 percent, to $415.2 billion.

Sales of both goods and services through affiliates are typically dominated by local transactions-that is, transactions with parties in the same country as the affiliate. In 2004, local sales accounted for 78 percent of the worldwide sales of services by foreign affiliates of U.S. multinational companies and for 60 percent of their worldwide sales of goods. Local sales account for a particularly large share of worldwide sales by U.S. affiliates of foreign multinational companies, reflecting the large U.S. market. In 2004, local sales accounted for 92 percent of worldwide sales of services by U.S. affiliates of foreign companies and for an estimated 92 percent of their worldwide sales of goods.12

Both the sales of services by foreign affiliates of U.S. companies to the local host market and to other foreign markets and the sales of services to U.S. persons (local sales) by U.S. affiliates of foreign companies represent the delivery of services to international markets through the channel of direct investment. Sales by country of foreign affiliate and by country of the U.S. affiliate's ultimate beneficial owner (UBO) for 1997-2004 are presented in table 9.13 Sales by primary industry of the foreign affiliate cross-classified by country for 2003 and 2004 are presented in tables 10.1 and 10.2. Sales by primary industry of the U.S. affiliate cross-classified by country of UBO for 2003 and 2004 are presented in tables 11.1 and 11.2.

Foreign affiliates' sales to foreign persons

Sales of services to foreign persons by nonbank majority-owned foreign affiliates of nonbank U.S. companies were $489.6 billion in 2004. By area, foreign affiliates in Europe had the largest share of sales of services to foreign persons, accounting for 54 percent of total sales. Affiliates in Asia and Pacific accounted for 23 percent; affiliates in Latin America and Other Western Hemisphere, for 12 percent; and affiliates in Canada, for 10 percent. By country, affiliates in the United Kingdom had the largest sales of services to foreign persons, followed by affiliates in Japan, Canada, Germany, and France.

By industry sector, sales of services to foreign persons by affiliates were largest in "finance (except depository institutions) and insurance," in information, and in professional, scientific, and technical services.14 In nonbank finance and insurance, more than 70 percent of sales of services abroad were accounted for by insurance carriers and related activities; affiliates in Asia and Pacific accounted for the largest share of these sales. In information, affiliates in telecommunications accounted for the largest share of sales, followed by affiliates in publishing industries, and in "Internet services providers, web search portals, data processing services, internet publishing and broadcasting, and other information services." In professional, scientific, and technical services, affiliates in computer systems design and related services had the largest sales, accounting for more than half of the sector's total sales.

After an adjustment for the change in reporting requirements for the nonbank units of U.S. banks, sales of services abroad by foreign affiliates increased 11 percent in 2004 after increasing 7 percent in 2003.15 The increase in 2004, which was spread across several industries, reflected increased demand as real economic growth picked up in most major markets served by foreign affiliates. In addition, the dollar value of foreign affiliates' sales of services was boosted by the depreciation of the U.S. dollar against several major currencies, including the euro, the British pound, the Canadian dollar, and the Japanese yen.

In 2004, sales of services abroad by foreign affiliates increased in all major areas. Affiliates in Europe had the largest increase in sales, accounting for over 50 percent of the total increase, followed by affiliates in Asia and Pacific and Canada. Within Europe, the increase was widespread; the largest increases were in the United Kingdom, Germany, and the Netherlands. In the United Kingdom, the largest increases were in accommodation and food services and in administration, support, and waste management. In accommodation and food services, the increase was largely attributable to majority-owned foreign affiliates that had previously been minority-owned (and therefore excluded from the data set) and to increased sales by existing affiliates. In administration, support, and waste management, affiliates in employment services were the largest contributors to the increase. In Germany, increases were spread across several industry sectors but were largest in utilities and in professional, scientific, and technical services. In utilities, the increase was largely attributable to new affiliates in natural gas distribution. In the Netherlands, the largest increase was in professional, scientific, and technical services, mainly due to acquisitions by existing affiliates in "other professional, scientific, and technical services." Within Asia and Pacific, affiliates in Japan had the largest increase, accounting for more than 40 percent of the increase for the area. In Japan, the largest increases were in information and in professional, scientific, and technical services. In information, sales by majority-owned telecommunications affiliates that had previously been minority owned contributed to the increase. In Canada, the largest increase was in utilities, due to sales by newly acquired affiliates in natural gas distribution.

By industry sector, the largest increases in sales of services abroad were in information, in professional, scientific, and technical services, and in administration, support, and waste management. In information, the increase was broadly based among subsectors and countries; affiliates in Japan, Luxembourg, and Italy recorded the largest increases. Changes in corporate structure contributed substantially to the increase in sales of services, especially in telecommunications, in "broadcasting (except Internet)," and in "other information services." Corporate restructurings-such as an increased ownership share by U.S. companies of minority-owned affiliates and the restructuring of a foreign media company with worldwide operations as a U.S. company-boosted sales by adding new majority-owned affiliates to the universe.

In professional, scientific, and technical services, the largest increase was in computer systems design and related services, reflecting continued growth in affiliates' services activities relative to computer equipment manufacturing and sales and the reclassification of some affiliates into the industry.16 In administration, support, and waste management, affiliates in employment services had the largest increase in sales, reflecting improved market conditions, increased use of flexible staffing, and higher hourly rates.

U.S. affiliates' sales in the United States

Sales of services to U.S. persons by U.S. affiliates of foreign companies were $382.8 billion in 2004. By area, sales of services by affiliates with ultimate beneficial owners (UBOs) in Europe were the largest, accounting for 68 percent of total sales. Affiliates with UBOs in Asia and Pacific had the next largest share, accounting for 12 percent of the total. Affiliates with UBOs in Canada accounted for 10 percent and affiliates with UBOs in Latin America and Other Western Hemisphere, for 9 percent. By country of UBO, affiliates with owners in the United Kingdom had the largest sales, followed by Germany, France, and Canada.

By industry sector, sales of services to U.S. residents by U.S. affiliates of foreign companies were largest in "finance (except depository institutions) and insurance" and in information. In nonbank finance and insurance, affiliates in insurance accounted for 77 percent of sales. In information, affiliates in telecommunications had the largest sales.

In 2004, the growth in sales of services in the United States by U.S. affiliates remained modest, at 2 percent, despite strong real economic growth in the United States. The growth of U.S. affiliates' sales of services in the United States has been modest since 2002, when sales were flat. In contrast, in 1998-2000, strong growth in U.S. affiliates' sales was fueled by a wave of international mergers and acquisitions. In 2004, spending by foreign persons to establish or acquire U.S. businesses increased, but outlays for new investment were just 26 percent of their peak level in 2000.17 Most of the growth in sales of services to U.S. residents in 2004 was fueled by increased sales by existing affiliates. Selloffs of some affiliates and corresponding decreases in sales dampened the overall increase.

Sales of services in the United States by U.S. affiliates with UBOs in all the major areas except Canada and the United States increased in 2004. The largest increase was by affiliates with UBOs in Latin America and Other Western Hemisphere, followed by Asia and Pacific and Europe. Within Latin America and Other Western Hemisphere, affiliates with UBOs in Bermuda, particularly affiliates in the insurance carriers and related activities industry, accounted for the largest share of the increase. The increase was largely due to the reorganization of the foreign owners of U.S. affiliates, which caused the location of the UBOs to shift from the United Kingdom to Bermuda.18 Within Asia and Pacific, affiliates with UBOs in Japan and Australia had the largest increases in sales of services to U.S. residents, which were widespread by industry sector. Within Europe, affiliates with UBOs in Germany and in France more than accounted for the increase. For Germany, the largest increases were in machinery manufacturing and in information. In machinery manufacturing, the increase was attributable to increased sales in affiliates' secondary services activities. In information, the addition of new customers significantly increased sales in wireless telecommunications. For affiliates with UBOs in France, the largest increase was in professional, scientific, and technical services, mainly reflecting increased sales by existing affiliates in advertising and related services. In contrast, sales of services to U.S. residents decreased for affiliates with UBOs in the Netherlands, mainly because of selloffs of affiliates in the insurance carriers and related activities industry.

By industry sector, affiliates in professional, scientific, and technical services had the largest increase, followed by affiliates in utilities and in manufacturing. In professional, scientific, and technical services, sales by existing affiliates with French UBOs in advertising and related services increased substantially. In utilities, some affiliates' industry classification shifted from pipeline transportation to natural gas distribution, and sales by existing affiliates in electric power generation, transmission, and distribution increased. In manufacturing, the increase largely reflected growth in the secondary services activities of affiliates in machinery manufacturing. In contrast, sales of services to U.S. residents decreased in "finance (except depository institutions) and insurance," reflecting selloffs of affiliates in insurance carriers and related activities and reduced premium income for life insurance carriers.

Revisions

The revised estimates of cross-border trade in services published in this article are consistent with the less detailed estimates that were published in the July 2006 SURVEY. The revised estimates of sales through affiliates are presented for the first time. The revised estimates published in this article supersede those presented in the October 2005 SURVEY.

Cross-border trade. The estimates of cross-border exports of private services for 2004 have been revised up $4.6 billion, or 1 percent, to $328.0 billion, and the estimates of cross-border imports have been revised down $0.8 billion, or less than 1 percent, to $257.2 billion. For 2003, exports were revised down $2.4 billion, or less than 1 percent, to $289.1 billion, and imports were revised down $2.8 billion, or 1 percent, to $221.8 billion. For 2002, both exports and imports were virtually unrevised.

These revisions to the estimates of cross-border trade in services reflect the regular annual revisions that are released in June and are published in the international transactions accounts in the July SURVEY. These revisions generally reflect the incorporation of regular source data as well as statistical and methodological improvements. The revisions also include the incorporation of the results from BEA's benchmark surveys, such as the 2002 benchmark survey of foreign direct investment in the United States and the 2004 benchmark survey of financial services transactions with unaffiliated foreigners.

Sales through affiliates. The estimates of sales of services through affiliates for 2004 are preliminary.

The estimates for 2003 have been revised to reflect the incorporation of newly available and improved source data, the correction of errors or omissions, or other changes resulting from the regular annual revision of the data on multinational companies' operations. Estimates for 2002 and the preceding years are unchanged.

For 2003, the estimates of sales of services abroad through nonbank majority-owned foreign affiliates of nonbank U.S. multinational companies were revised down $25.0 billion, or 5 percent, to $452.5 billion. The estimates of sales of services to U.S. persons by U.S. affiliates of foreign multinational companies were revised down $7.3 billion, or 2 percent, to $374.1 billion.

Appendix: Modes of Supply and Channels of Delivery of Services Sold in International Markets

BEA's presentation of U.S. international sales and purchases of services takes into account two channels of delivery: Cross-border exports and imports, which BEA records in its international transactions accounts, and sales of services through direct investment. However, the General Agreement on Trade in Services (GATS)-the outcome of the Uruguay Round of trade negotiations-takes a different approach. It distinguishes international delivery of services through four "modes" that categorize how services are sold in international markets. This appendix describes these modes and how they relate to BEA data.19

BEA is not able to precisely identify trade through each mode, though in some cases, the mode may be evident from the nature of the service. There are important definitional differences between BEA's data on channels of delivery and the GATS modes of supply.

BEA channels of delivery

BEA collects data according to two distinct channels.

Cross-border trade. This channel covers transactions in which the residents of one country sell services to the residents of another country. These transactions include both trade within multinational companies (intrafirm trade) and trade between unaffiliated parties. They are recorded in the international transactions accounts of both countries-as exports of services by the seller's country and as imports of services by the buyer's country.

Direct investment. This channel covers sales delivered through the foreign affiliates of multinational companies. From the U.S. viewpoint, these transactions include sales to foreigners by foreign affiliates of U.S. companies and sales to U.S. residents by the U.S. affiliates of foreign companies. These sales are not considered U.S. international transactions, because under the residency principle of balance-of-payments accounting, affiliates of multinational companies are considered residents of the countries where they are located rather than of the countries of their owners. Thus, sales abroad by foreign affiliates of U.S. companies are transactions between foreign residents, and sales in the United States by U.S. affiliates of foreign companies are transactions between U.S. residents.

GATS modes of supply

The GATS, which became effective in January 1995, defines four "modes" through which services may be supplied internationally.

* GATS mode 1 is cross-border supply, which covers services supplied from one country to another without either the producer or the consumer traveling to the country of the other. In effect, the service crosses the border (for example, a lawyer provides legal services to a foreigner by telephone or e-mail).

* GATS mode 2 is consumption abroad, which covers consumers traveling abroad to obtain a service in another country (for example, medical services in which a resident of one country travels to another country to obtain medical care).

* GATS mode 3 is commercial presence, which covers companies from one country setting up subsidiaries, branches, or other operations to provide services in another country (for example, banks setting up an operation in a foreign country or construction services provided through short-term operations abroad).

* GATS mode 4 is the presence of "natural" persons, which covers individuals traveling temporarily from their own country to supply services in another country (for example, consultants).20

In general, modes of supply 1, 2, and part of 4 correspond to cross-border trade, and mode 3 corresponds, with minor exceptions, to direct investment. However, there are significant differences in concepts and definitions between GATS modes of supply and BEA's channels of delivery.

Specifically, to be included in cross-border trade, a transaction must occur between a resident and a nonresident; this definition is consistent with international standards for balance-of-payments accounting and bases the residency of a person (broadly defined to include both individuals and businesses) on a 1-year rule; that is, if the person stays, or intends to stay, in a country for 1 year or more, with few exceptions, he is regarded as a resident of that country. In contrast, GATS allows different and more flexible rules to determine whether an individual's or business' presence in a foreign country falls within the scope of the GATS agreement. For example, in the case of individuals, mode 4 applies to individuals whose period of residence or employment in a foreign country is nonpermanent, but "permanence" is not defined; in practice, countries commonly use periods of 2-5 years rather than the 1-year rule used in determining residency for balance-of-payments purposes.

In the case of businesses, GATS generally considers enterprises operating in foreign countries to be supplying services in that country through mode 3 even if the duration of the operations is, or will be, less than a year. In contrast, only sales of services by business enterprises in a foreign country for 1 year or more and otherwise qualifying as a foreign affiliate are included in the direct investment channel.

Primary modes of supply and channels of delivery

Although some services can be delivered equally well through various modes of supply or either channel of delivery, the type of service provided often determines the primary mode of supply and the channel of delivery. For example, travel, medical, and education services and some services purchased by carriers in foreign ports are primarily supplied through GATS mode 2 (consumption abroad) and delivered through the cross-border channel, because they usually require the movement of consumers outside their country of residence. In contrast, business, professional, and technical services are often supplied through GATS mode 3 (commercial presence) and delivered through the direct investment channel, because of the need for close, continuing business contact between the service providers and their customers.

The effect on the economy of the four modes of supply and the two channels of delivery varies. U.S. exports of services supplied through GATS modes 1 and 2 or the channel of cross-border trade usually affect the U.S. economy more than the equivalent services supplied through GATS mode 3 or the channel of direct investment, because most, or all, of the income generated by the production accrues to U.S.-supplied labor and capital. In contrast, for GATS mode 3 and direct investment, only the U.S. parent company's share in profits accrues to the United States (and is recorded as an international transaction); the other income generated by production-including compensation of employees-typically accrues to foreigners. For GATS mode 4, portions of the income generated by services production may accrue to the United States in the form of exports of services or receipts of income or remittances, but a portion may also accrue to the foreign host economy.

BEA's traditional presentation of services includes most, but not all, of the data that are conceptually included in the four GATS modes of supply. The following briefly describes how BEA's data relate to the four GATS modes.

Mode 1 (cross-border supply). In BEA's international accounts, royalties and license fees, financial services, and telecommunications are examples of services supplied through GATS mode 1. Although some of these services may include a combination of GATS modes 1 and 4 (for example, when a financial advisor or manager travels abroad to discuss the terms of a deal), most of the value of these services represent delivery through GATS mode 1.

Mode 2 (consumption abroad). Travel, port services, education, and medical services are primarily supplied through GATS mode 2.21 However, education and medical services could also be supplied through GATS mode 4 if professors and physicians travel abroad to provide their services. Education and medical services are increasingly supplied through GATS mode 1 as communications technology advances. The provision of education services through online course-work (distance learning) or of medical services through remote monitoring and diagnostics via the Internet are methods for delivering these services that did not exist until recently.

Mode 3 (commercial presence). Sales through affiliates are a substantial subset of GATS mode 3 services. However, in cases in which a company with a commercial presence outside its home country is not considered a resident of its host country, BEA considers any services sold abroad by the company to have been delivered through the cross-border channel. For example, a construction company may set up an unincorporated site office in a foreign country to carry out a short-term construction project, establishing a foreign commercial presence but not a foreign affiliate. The construction services provided by this company to foreign residents fall under GATS mode 3, but they are accounted for under the cross-border channel of delivery rather than the direct investment channel.

Mode 4 (presence of persons). Services supplied through GATS mode 4 are often connected with the cross-border supply (GATS mode 1) of business, professional, and technical services. Supply through the presence of persons in the country of the consumer often occurs when the cross-border supply of services requires some direct contact between the service providers and their customers but does not require a commercial presence (GATS mode 3). For example, the services of an architect who designs a project and delivers drawings via mail or e-mail and visits the country of the consumer during the implementation phase of the project would be apportioned between modes 1 and 4.

The differences in definitions and coverage between BEA data on channels of delivery and the GATS modes of supply are significant for mode 4. In addition to the differing definitions of residency, services supplied through mode 4 may be directly supplied by self-employed individuals abroad or by employees abroad sent by nonresident firms to the host country, or services may be indirectly supplied by individuals working for a service supplier resident in the host country. Only services directly supplied by a nonresident supplier to a resident consumer would be counted as international trade in services in BEA's trade accounts, in accordance with international guidelines. When a service is indirectly supplied by a U.S.-resident who is employed by an enterprise resident in the host country, the remuneration of this individual is recorded under "compensation of employees" in BEA's international transactions accounts if the individual resides in the host country for less than a year (otherwise, the individual is deemed to be a resident of the host country).

Compensation of employees is classified in the international transactions accounts as "income" rather than as services, and it covers income in the form of wages, salaries, and other compensation received by nonresidents of a country regardless of whether those individuals are employed in manufacturing, agriculture, or industries primarily producing services. BEA does not have the source data to separately identify the part of compensation of employees arising from the production of services.

Appendix: Improvements to the Estimates of Cross-Border Trade in Services

As part of its continuing efforts to improve the data on international services, BEA has recently initiated several improvements to the estimates of cross-border trade in services.22 Some of these improvements have already been implemented; others are under way.23

Geographic detail. Beginning with estimates for 2005, the presentation of the U.S. international transactions accounts has been greatly expanded in order to portray cross-border trade in services with foreigners in substantially greater geographic detail. The U.S. international accounts now provide quarterly estimates of trade in services that were previously available only annually in this article. The expanded presentation now shows quarterly estimates for the euro area, Africa, the Middle East, and Asia and Pacific. Within Europe, additional country detail is available for Belgium, France, Germany, Italy, Luxembourg, and the Netherlands. Within South and Central America, additional country detail is available for Argentina, Brazil, and Venezuela. Within Africa, new country detail is available for South Africa. Within Asia and Pacific, new country detail is available for China, Hong Kong, India, the Republic of Korea, Singapore, and Taiwan. These estimates for 2005 forward are available in the interactive data tables on BEA's Web site.24

Affiliated transactions. The estimates of royalties and license fees and "other private services" between U.S. affiliates and their foreign parents for 2002-2005 were revised to incorporate the results of BEA's 2002 Benchmark Survey of Foreign Direct Investment in the United States and to incorporate new or adjusted data from sample surveys for those years.

Financial services. The estimates of financial services were revised to incorporate the results of BEA's Benchmark Survey of Financial Services Transactions Between U.S. Financial Services Providers and Unaffiliated Foreign Persons covering transactions in 2004. The benchmark survey is more comprehensive than BEA's quarterly surveys of financial services transactions, principally because of lower reporting thresholds. In addition to revised survey results, BEA conducted research into the bid-ask spreads that are used to estimate dealer fees and commissions on U.S. and foreign bond transactions. BEA estimates bond commissions by applying average, market-based bid-ask spreads to cross-border transactions in bonds reported by the U.S. Treasury. BEA's research indicates that in recent years, these spreads have fallen significantly, both in the United States and abroad. The decline is attributable to technological advances in executing trades in global bond markets, to heightened transparency of bond transactions cost data, and to increased efficiency and competition in global and U.S. bond markets. In recognition that bid-ask spreads in recent years have dropped below those included in previously published estimates, the estimates have been revised to incorporate updated, smaller spreads.

Benchmark survey. BEA has proposed to consolidate its reports of cross-border services transactions. Under this proposal, data for affiliated and unaffiliated foreign persons will be reported on the same form, beginning with the benchmark survey of transactions in selected services and intangible assets that BEA will conduct in early 2007, covering 2006 transactions. In addition, BEA will collect more detailed data by type of service for affiliated transactions. By collecting unaffiliated and affiliated trade data by type of service, BEA will be able to provide a more complete picture of services trade by type of service. Moreover, the detailed data on affiliated services are of analytical interest for several purposes, including questions related to offshore outsourcing.

The quality of BEA's estimates should improve because the collection of unaffiliated and affiliated trade data on the same form should reduce the potential for duplicate reporting or for omissions. In addition, the benchmark survey will include an open-ended "other services" category for transactions with unaffiliated foreign persons for the first time, which will make the estimates more comprehensive. Finally, BEA also plans a number of steps to simplify reporting, such as eliminating the requirement to report detailed information about trade in several types of services for which U.S. trade has been small.

Insurance services. BEA has refined its method of calculating the shares of premiums attributable to insurance services and to normal losses. Premiums over and above those required to cover normal losses were regarded as payments for the provision of insurance services. In calculating "normal" losses, BEA previously had separately averaged actual past losses in relation to premiums for primary insurance and for reinsurance. Separate averaging was done because the relationship between premiums and losses varies systematically by type of insurance: Losses relative to premiums are generally higher for reinsurance than for primary insurance.

BEA is now treating "finite reinsurance" as a third category of insurance for which premium-related service charges are separately calculated. Finite reinsurance is a type of insurance in which the reinsurer's risk is limited by a number of possible contractual conditions, such as loss caps or rights to receive rebates of premiums if actual losses are lower than expected. Because the reinsurer's obligation for claims is usually known with a high degree of confidence to be within narrow bounds, the share of premiums attributable to insurance services is assumed to be much lower for this type of reinsurance than for either primary insurance or other types of reinsurance.

Strategies to improve coverage. BEA has adopted a number of long-term strategies for improving its estimates of cross-border trade in services. These strategies include an external review of its statistical procedures for estimating unreported transactions, an external review of the clarity of its surveys and instructions, and increased outreach to survey respondents. BEA has also been working with the Census Bureau and the Internal Revenue Service to expand its access to Census Bureau information that would help BEA expand its mailing list of companies that receive its surveys. This past year, BEA has reached an agreement with the Census Bureau to include a screening question on its 2006 Company Organization Survey to identify companies that import services so that they can be included in subsequent BEA surveys on international services trade. Additionally, BEA will fund a large expansion to the Census Bureau's survey sample. BEA will continue working to improve its mailing lists and plans to request contact information from the Census Bureau's business register in the future.