Direct investment positions for 2002: country and industry detail.

Borga, Maria

IN 2002, the historical-cost position of foreign direct investment in the United States (FDIUS) decreased for the first time since at least 1946, when the data were first compiled on an annual basis. The 1-percent decrease followed an 8-percent increase in 2001. In contrast, the historical-cost position of U.S. direct investment abroad (USDIA) grew 10 percent in 2002, up from a 5-percent increase in 2001 (table A and chart 1).

[GRAPHIC OMITTED]

The decrease in the FDIUS position in 2002 reflected financial restructuring and write-downs of investments in the wake of the boom in foreign investors' acquisitions of U.S. companies between 1998 and 2000, reduced requirements by existing U.S. affiliates for financing from their foreign parents, and a sharp slowdown in new investment by foreign parents. A primary cause of the decrease in the position was that some affiliates repaid substantial loans to their foreign parents that had been used to finance major acquisitions during the 1998-2000 boom. In addition, several affiliates wrote down the value of acquisitions made during the boom. Finally, despite a return to positive earnings by U.S. affiliates in 2002, reinvested earnings were negative because foreign parents chose not to reinvest their share of those earnings in their affiliates. The reduced intercompany debt financing from parents and lack of reinvestment in 2002 may indicate that parents are not expanding, and may even be cutting back, the operations of their U.S. affiliates. Spending on new investments in 2002 was not large enough to offset the decrease in the intercompany debt position, negative reinvested earnings, and write-downs of assets. The sharp slowdown in new investment reflected continuing modest economic growth in the United States and many foreign countries and uncertainty about the value and future prospects of targets for acquisition.

The 10-percent increase in the USDIA position in 2002 was due to strong reinvested earnings and to a shift from inflows to outflows on intercompany debt transactions between parents and affiliates. (1) European affiliates accounted for about half of the total reinvested earnings. Within Europe, chemical manufacturers, wholesale traders, and holding companies of U.S. chemical and integrated petroleum companies accounted for most of the reinvested earnings. Earnings, and also reinvested earnings, of European affiliates increased, partly due to the depreciation of the dollar against the euro. Reinvested earnings have historically played a much greater role in the growth of the USDIA position than in that of the FDIUS position; the greater importance of reinvested earnings in the growth of the USDIA position partly reflects the higher earnings of foreign affiliates of U.S. companies relative to those of U.S. affiliates of foreign companies. (2) The USDIA position also increased because intercompany debt shifted to outflows in 2002, as net lending by U.S. parents to their foreign affiliates increased.

The remainder of this article is presented in two sections. The first section discusses changes in the USDIA position by type of capital flow and by host country. The second section discusses the changes in the FDIUS position by type of capital flow and by country of the foreign parent.

Tables presenting country and industry estimates of the USDIA and FDIUS positions for 1999 through 2002 are at the end of the article. Because of the incorporation of the North American Industry Classification System (see the box "New Industry Classifications" on page 26) and of many other statistical and methodological improvements (see "Annual Revision of the U.S. International Accounts, 1992-2002" in this issue), detailed country-by-industry estimates are not yet available. These estimates will be available on BEEs Web site, <www.bea.gov>, by late summer.

U.S. Direct Investment Abroad

The USDIA position valued at historical cost--the book value of U.S. direct investors' equity in, and net outstanding loans to, their foreign affiliates--was $1,521.0 billion at the end of 2002 (table A and chart 1). In 2002, as in 2001, the largest positions were those in the United Kingdom ($255.4 billion, or 17 percent of the total position), in Canada ($152.5 billion, or 10 percent), and in the Netherlands ($145.5 billion, or 10 percent) (table 1 and chart 2).

The USDIA position increased $137.7 billion in 2002, more than double the increase in 2001 (table B). Capital outflows were $119.7 billion in 2002, 15 percent larger than in 2001. By account, reinvested earnings accounted for the largest portion of capital outflows, at 64 percent. Intercompany debt accounted for 21 percent, and equity capital accounted for 15 percent.

Reinvested earnings, at $76.1 billion, increased 36 percent in 2002, reflecting both higher earnings and an increase in the share of earnings that was reinvested. Earnings increased 16 percent, to $119.5 billion. Much of the increase in earnings was by affiliates in Europe and partly reflected the depreciation of the dollar against the euro, which raised the value of affiliates' earnings in dollar terms. The share of total earnings reinvested by foreign affiliates increased from 54 percent in 2001 to 64 percent in 2002. Holding companies (classified in "other industries" under NAICS; see the box "New Industry Classifications" on page 26), chemical manufacturers, and wholesale traders had the largest reinvested earnings.

Equity capital outflows fell 64 percent in 2002, to $18.1 billion. Equity capital increases were $48.3 billion, and equity capital decreases were $30.2 billion. Equity capital increases were divided almost evenly between capital contributions to existing affiliates, accounting for 52 percent of the total, and equity flows for the direct acquisition or establishment of foreign businesses, accounting for the remaining 48 percent. Equity capital increases were largest in Europe, in Latin America and Other Western Hemisphere, and in Canada. In Europe and in Latin America and Other Western Hemisphere, the increases were largely due to capital contributions to existing affiliates in finance (except depository institutions) and insurance. In Canada, the increases were largely due to the acquisition or establishment of affiliates in computers and electronic products manufacturing and in mining. In 2002, liquidations and sales of affiliates accounted for 64 percent of equity capital decreases, and returns of equity capital accounted for the remaining 36 percent. The largest equity capital decreases were in Europe, primarily from selloffs of affiliates.

Intercompany debt flows shifted $28.1 billion, from inflows of $2.5 billion in 2001 to outflows of $25.6 billion in 2002. This shift was primarily the result of increased net lending by U.S. parents to their European chemical manufacturing affiliates, finance and insurance affiliates, and holding companies.

A positive valuation adjustment of $18.0 billion also contributed to the increase in the position (see the box "Key Terms"). The positive currency-translation adjustment reflects the rise in the dollar value of investments in foreign affiliates caused by the depreciation of the U.S. dollar in 2002, particularly against the euro.

Changes by area and by country

In 2002, the USDIA position grew 25 percent in Asia and Pacific, 11 percent in Europe, and 8 percent in Canada. The USDIA position in Latin America and Other Western Hemisphere declined 4 percent. Growth in the USDIA positions in both Africa and the Middle East exceeded 10 percent, but the levels of these positions remained very small. Position changes that exceeded $3 billion in absolute value by area and by country are shown in table C.

Within Asia and Pacific, the largest increase in position was in Singapore, followed by Japan. The increase in Singapore was primarily the result of a corporate restructuring in which existing affiliates in other countries were consolidated under a holding company in Singapore; this increase was largely offset by decreases in the positions in the host countries of the affiliates that were consolidated. The increase in Singapore was also attributable to reinvested earnings and to increased lending from U.S. parents to their holding companies. The increase in the position in Japan was primarily due to reinvested earnings in finance (except depository institutions) and insurance.

Within Europe, position increases were largest in the Netherlands, the United Kingdom, and Switzerland. The increases in all three countries were partly due to strong reinvested earnings of holding companies, especially those owned by U.S. parents in petroleum and chemicals. The holding companies derive virtually all of their earnings from affiliates that operate in other industries and that, in many cases, are located in other foreign countries. (3) Reinvested earnings in Dutch chemical affiliates and Swiss wholesale trade affiliates also lifted the positions in these countries. An increase in net lending to affiliates in finance (except depository institutions) and insurance boosted the positions in the Netherlands and the United Kingdom. Acquisitions of beverage makers also boosted the position in the United Kingdom.

The increase in the position in Canada was boosted by acquisitions of computer and electronic products manufacturers and of mining companies and by increased lending to transportation equipment manufacturers.

The decreases in the position in Latin America and Other Western Hemisphere were largest in Panama, Argentina, and Brazil. A negative valuation adjustment in finance (except depository institutions) and insurance more than accounted for the decrease in Panama. In Argentina and Brazil, the decreases in the positions were more than accounted for by negative currency-translation adjustments resulting from the strengthening of the U.S. dollar against these countries' currencies.

Foreign Direct Investment in the United States

The FDIUS position valued at historical cost--the book value of foreign direct investors' equity in, and net outstanding loans to, their U.S. affiliates--was $1,348.0 billion at the end of 2002 (table A and chart 1). The largest position remained that of the United Kingdom ($283.3 billion, or 21 percent of the total position), but the positions of both France ($170.6 billion, or 13 percent) and the Netherlands ($154.8 billion, or 11 percent) surpassed that of Japan ($152.0 billion, or 11 percent), which fell to fourth largest (table 2 and chart 3).

In 2002, the FDIUS position decreased for the first time since at least 1946 when the data were first compiled on an annual basis--falling $7.1 billion, or 1 percent (table D). Capital inflows decreased substantially in 2002, falling to $30.0 billion from $144.0 billion in 2001. In 2002, equity capital inflows were partly offset by outflows on intercompany debt and by negative reinvested earnings.

Equity capital inflows were $70.3 billion, about half as much as in 2001. Equity capital increases of $84.1 billion were partly offset by equity capital decreases of $13.8 billion. Equity capital increases were half those in 2001, reflecting the slowdown in cross-border merger and acquisition activity. (4) Equity capital increases result from acquisitions of U.S. businesses by foreigners and contributions of equity to existing U.S. affiliates. The largest acquisitions in 2002 were in beverage manufacturing, advertising (classified in professional, scientific, and technical services), utilities (classified in "other industries"), and motion picture and video industries (classified in information). (5) In 2002, several of the contributions of equity capital to existing affiliates were transactions in which debt owed to foreign parents by U.S. affiliates was converted into equity capital. Because the equity capital inflows associated with these transactions were largely offset by intercompany debt outflows, they had little impact on the overall capital flows. Equity capital decreases reflected selloffs of affiliates by, and returns of capital to, foreign direct investors (transactions that are reported as U.S. capital outflows).

Intercompany debt shifted $80.8 billion, to outflows of $37.4 billion in 2002. This shift reflected a drop in foreign parents' debt financing of new and existing affiliates in the United States and the reduction in the debt position with affiliates that acquired new businesses in earlier years. To the extent that U.S. affiliates' borrowing from their foreign parents is used to fund acquisitions in the United States, the sharp reduction in acquisitions in 2002 slowed borrowing for this purpose. The shift to outflows was also the result of existing affiliates reducing the debt owed to their foreign parents. Much of this debt was incurred in the past few years to fund acquisitions of new businesses. The debt reduction was accomplished either through repaying loans or through the debt-to-equity capital conversions discussed above.

Reinvested earnings were -$2.8 billion in 2002, compared with -$36.7 billion in 2001. Reinvested earnings remained negative despite improved earnings of U.S. affiliates, which shifted to profits of $16.7 billion in 2002 from losses of $11.4 billion in 2001, because U.S. affiliates distributed an even larger amount--$19.6 billion--to their foreign parents.

The capital inflows were more than offset by negative valuation adjustments of $37.2 billion. Capital losses contributed to the negative "other" valuation adjustment (see the box "Key Terms"). A new accounting rule, Financial Accounting Standard 142, may have contributed to an increase in capital losses in 2002. Under the new rule, companies are no longer required to amortize acquired goodwill (the amount paid for a company in excess of the fair market values of the recognized assets acquired and the liabilities assumed) and certain other intangible assets, but they are required to periodically test for impairment in the value of these assets. If the assets are deemed to have permanently declined in value, the reduction in value must be written off at once and not spread over many years. BEA treats these writeoffs as capital losses. This accounting rule will likely result in increased volatility in "other" valuation adjustments. In 2002, U.S. affiliates that had purchased technology and communications companies in the late 1990s were particularly affected by this new rule because they were required to take charges for the reduction in the value of goodwill from these acquisitions.

Changes by area and by country

In 2002, affiliates with parents in Canada and in Latin America and Other Western Hemisphere more than accounted for the decrease in the FDIUS position. These decreases were partly offset by small increases for parents in Asia and Pacific and in Europe. By country, the largest dollar decreases in position were for parents in Germany, Canada, Belgium, and Switzerland. The largest dollar increases were for parents in France and the United Kingdom.

Table E presents major changes in position from 2001 to 2002 by area and by country. The largest decreases were in the positions of Germany, Canada, Belgium, Switzerland, and Bermuda. The German position fell largely as a result of negative valuation adjustments in the information sector, and the Canadian position fell largely as a result of selloffs of affiliates in the information sector. The positions of Belgium and Switzerland fell because of a shift to intercompany debt outflows for affiliates in manufacturing. For Bermuda, the position fell as a result of negative reinvested earnings.

In contrast, the positions of France, the United Kingdom, Hungary, and Australia increased. Equity capital inflows related to acquisitions boosted the positions of France, the United Kingdom, and Australia. For France, the acquisitions were in information and in professional, technical, and scientific services; for the United Kingdom, they were in manufacturing; and for Australia, they were in real estate and rental and leasing. Some of the acquisitions by French investors were of existing U.S. affiliates owned by investors in other countries, so this portion of the increase in the position of France was offset by decreases in the positions of the countries of the former foreign parents. The intercompany debt position of Hungary increased; in many cases, the U.S. affiliates were owned by foreign parents in other countries, but the intercompany debt increases involved Hungarian members of the affiliates' foreign parent groups (see the box "Key Terms").

Tables 1 and 2 follow.

Key Terms

The key terms used in this article are described in this box. For a more detailed discussion of these terms and the methodologies used to prepare the estimates, see Foreign Direct Investment in the United States: Final Results from the 1997 Benchmark Survey (Washington, DC: U.S. Government Printing Office, June 2001) and U.S. Direct Investment Abroad: 1994 Benchmark Survey, Final Results (Washington, DC: U.S. Government Printing Office, May 1998). (Publication of the final results of the 1999 benchmark survey of U.S. direct investment abroad, including an updated methodology, is scheduled for later this year.) The methodologies are also available at BEA's Web site at <www.bea.gov>.

Direct investment. Investment in which a resident of one country obtains a lasting interest in, and a degree of influence over the management of, a business enterprise in another country. In the United States, the criterion used to distinguish direct investment from other types of investment is ownership of at least 10 percent of the voting securities of an incorporated business enterprise or the equivalent interest in an unincorporated business enterprise.

U.S. direct investment abroad (USDIA). The ownership or control, directly or indirectly, by one U.S. resident of 10 percent or more of the voting securities of an incorporated foreign business enterprise or the equivalent interest in an unincorporated foreign business enterprise.

Foreign direct investment in the United States (FDIUS). The ownership or control, directly or indirectly, by one foreign resident of 10 percent or more of the voting securities of an incorporated U.S. business enterprise or the equivalent interest in an unincorporated U.S. business enterprise.

Foreign affiliate. A foreign business enterprise in which a single U.S. investor (that is, a U.S. parent) owns at least 10 percent of the voting securities, or the equivalent.

U.S. affiliate. A U.S. business enterprise in which a single foreign investor (that is, a foreign parent) owns at least 10 percent of the voting securities, or the equivalent.

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

Foreign parent group. Consists of (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 UBO, 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.

Direct investment capital flows. Funds that parent companies provide to their affiliates net of funds that affiliates provide to their parents. For USDIA, capital flows also include the funds that U.S. direct investors pay to unaffiliated foreign parties when affiliates are acquired and the funds that U.S. investors receive from them when affiliates are sold. Similarly, FDIUS capital flows include the funds that foreign direct investors pay to unaffiliated U.S. residents when affiliates are acquired and the funds that foreign investors receive from them when affiliates are sold. FDIUS capital flows also include debt and equity transactions between U.S. affiliates and members of their foreign parent groups other than their foreign parents, described as follows.

Direct investment capital flows consist of equity capital, intercompany debt, and reinvested earnings. Equity capital flows are the net of equity capital increases and decreases. Equity capital increases consist of payments by parents to third parties for the purchase of capital stock when they acquire an existing business, payments made to acquire additional ownership interests in their affiliates, and capital contributions to their affiliates. Equity capital decreases are the funds parents receive when they reduce their equity interest in their affiliates. Intercompany debt flows result from changes in net outstanding loans and trade accounts between parents (and for FDIUS, other members of the foreign parent groups) and their affiliates, including loans by parents to affiliates and loans by affiliates to parents. Reinvested earnings are the parents' claim on the current-period undistributed after-tax earnings of the affiliates.

Direct investment position. The value of direct investors' equity in, and net outstanding loans to, their affiliates. The position may be viewed as the direct investors' net financial claims on their affiliates, whether in the form of equity (including retained earnings) or debt.

BEA prepares estimates of the positions for USDIA and for FDIUS that are valued on three bases--historical cost, current cost, and market value. See the box "Alternative Measures of the Direct Investment Positions."

Valuation adjustments to the historical-cost position. Adjustments that are made to account for the differences between changes in the historical-cost position, which are measured at book value, and direct investment capital flows, which are measured at transaction value. (Unlike the positions on a current-cost and market-value basis, the historical-cost position is not adjusted to account for changes in the replacement cost of the tangible assets of affiliates or in the market value of parent companies' equity in affiliates.)

Valuation adjustments to the historical-cost position consist of currency translation and "other" adjustments. Currency-translation adjustments are made to account for changes in the exchange rates that are used to translate affiliates' foreign-currency-denominated assets and liabilities into U.S. dollars. The precise effects of currency fluctuations on these adjustments depend on the value and currency composition of affiliates' assets and liabilities. If an affiliate's assets exceed its liabilities denominated in a particular foreign currency, depreciation (appreciation) of the currency against the dollar will result in negative (positive) translation adjustments. In the less common, but not unusual, case of a net liability position in a foreign currency, depreciation (appreciation) of the currency will result in positive (negative) translation adjustments.

"Other" valuation adjustments are made to account for differences between the proceeds from the sale or liquidation of affiliates and their book values, for differences between the purchase prices of affiliates and their book values, for writeoffs resulting from uncompensated expropriations of affiliates, for changes in industry of affiliate or country of foreign parent, and for capital gains and losses (other than currencies-translation adjustments). These capital gains and losses represent the revaluation of the assets of ongoing affiliates for reasons other than exchange-rate changes, such as the sale of assets (other than inventory) for an amount different from their book value. For individual industries, adjustments may be made to reflect changes in the industry of an affiliate. For USDIA, adjustments may be made for individual countries to reflect changes in the country of a foreign affiliate. Similarly, for FDIUS, adjustments may be made for individual countries to reflect changes in the country of the foreign parent.

Revisions

The revised estimates of the U.S. Direct Investment Abroad (USDIA)position for 1999-2001 incorporate the results of BEA's 1999 USDIA benchmark survey. Previously, these estimates had been linked to the 1994 benchmark survey. Benchmark surveys are conducted once every 5 years and cover virtually the entire universe of direct investment (in terms of value). In nonbenchmark years, a quarterly survey with higher exemption levels is used. BEA derives estimates for the affiliates that are not required to be reported in the quarterly surveys by extrapolating forward from the benchmark survey using sample data from the quarterly surveys. Because of the more comprehensive coverage of the benchmark surveys, a number of previously unreported affiliates were identified in the 1999 survey and were added to the affiliate universe. In addition, a number of other affiliates that had been carried forward from the 1994 benchmark survey were discovered to have been subsequently sold or liquidated and were removed from the universe. Overall, a net addition of affiliates to the universe is reflected in the change in the USDIA position from 1998 to 1999. Additional information on the incorporation of the 1999 benchmark survey results into the USDIA estimates will be provided in "U.S. Direct Investment Abroad: Detail for Historical-Cost Position and Related Capital and Income Flows, 2002" in the September 2003 issue of the SURVEY OF CURRENT BUSINESS. The revised estimates also incorporate new or adjusted data from BEA's quarterly sample surveys of USDIA.

The revisions to the estimates of the foreign direct investment in the United States (FDIUS) position for 2000-2001 incorporate new and adjusted data from the quarterly surveys of FDIUS.

For details, see table 3 in "Annual Revision of the U.S. International Accounts, 1992-2002" in this issue.

Table A. U.S. Direct Investment Position Abroad and
Foreign Direct Investment Position in the United
States on a Historical-Cost Basis, 1982-2002

 Percent change
 Billions of dollars from preceding
 year

Yearend USDIA FDIUS USDIA FDIUS

1982 207.8 124.7 ... ...
1983 212.2 137.1 2.1 9.9
1984 218.1 164.6 2.8 20.1
1985 238.4 184.6 9.3 12.2
1986 270.5 220.4 13.5 19.4
1987 326.3 263.4 20.6 19.5
1988 347.2 314.8 6.4 19.5
1989 381.8 368.9 10.0 17.2
1990 430.5 394.9 12.8 7.0
1991 467.8 419.1 8.7 6.1
1992 502.1 423.1 7.3 1.0
1993 564.3 467.4 12.4 10.5
1994 612.9 480.7 (1) (1)
1995 699.0 535.6 14.1 11.4
1996 795.2 598.0 13.8 11.7
1997 871.3 681.8 9.6 14.0
1998 1,000.7 778.4 14.8 14.2
1999 1,216.0 (r) 955.7 (r) 21.5 22.8
2000 1,316.2 (r) 1,256.9 (r) 8.2 31.5
2001 1,383.2 (r) 1,355.1 (r) 5.1 7.8
2002 1,521.0 (p) 1,348.0 (p) 10.0 -0.5

(p) Preliminary.

(r) Revised.

(1.) The USDIA and FDIUS positions reflect a discontinuity
between 1993 and 1994 because of the reclassification from
direct investment to other investment accounts of intercompany
debt between parent companies and affiliates that are
nondepository financial intermediaries.

USDIA U.S. direct investment abroad

FDIUS Foreign direct investment in the United States

Table B. Change in the U.S. Direct Investment Position
Abroad by Account

[Billions of dollars]

 2001 2002

Total 67.0 137.7
 Capital outflows 103.8 119.7
 Equity capital 50.4 18.1
 Increases 76.2 48.3
 Decreases 25.8 30.2
 Intercompany debt -2.5 25.6
 Reinvested earnings 55.8 76.1
 Valuation adjustments -36.8 18.0
 Currency translation -13.8 10.5
 Other -23.0 7.5

Table C. Change in the U.S. Direct Investment Position Abroad by
Country of Foreign Affiliate, 2002

[Billion of dollars]

All countries 137.7

 Canada 10.7

 Europe 80.0
 Of which:
 Netherlands 19.4
 United Kingdom 16.6
 Switzerland 9.4
 Ireland 5.9
 Luxembourg 5.8
 Belgium 4.7
 Italy 3.5
 Spain 3.4
 France 3.1
 Denmark 3.1

 Latin America and Other
 Western Hemisphere -10.0
 Of which:
 Panama -5.2
 Argentina -4.5
 Brazil -3.8

 Asia and Pacific 53.5
 Of which:
 Singapore 34.6
 Japan 7.4
 Australia 3.8
 Hong Kong 3.7

Table D. Change in the Foreign Direct Investment Position in the
United States by Account

[Billions of dollars]

 2001 2002

Total 98.2 -7.1
 Capital inflows 144.0 30.0
 Equity capital 137.3 70.3
 Increases 168.6 84.1
 Decreases 31.3 13.8
 Intercompany debt 43.4 -37.4
 Reinvested earnings -36.7 -2.8
 Valuation adjustments 45.7 -37.2
 Currency translation -1.9 0.6
 Other -43.9 -37.7

Table E. Change in the Foreign Direct Investment Position in the
United States by Country of Foreign Parent, 2002

[Billion of dollars]

All countries -7.1

 Canada -10.1

 Europe 0.9
 Of which:
 Germany -27.0
 Belgium -7.2
 Switzerland -5.2
 Netherlands -2.8
 Hungary 3.5
 United Kingdom 14.0
 France 22.3

Latin America and Other Western Hemisphere -1.8
 Of which:
 Bermuda -3.6

Asia and Pacific 3.3
 Of which:
 Australia 2.2
 Japan 2.0

Table 1. U.S. Direct Investment Position Abroad on a
Historical-Cost Basis, 1999-2002

[Millions of dollars]

 1999 (r) 2000 (r)

 All countries, all industries 1,215,960 1,316,247

 By country of foreign affiliate

Canada 119,590 132,472

Europe 627,754 687,320
 Austria 3,848 2,872
 Belgium 21,756 17,973
 Czech Republic 1,038 1,228
 Denmark 3,846 5,270
 Finland 1,379 1,342
 France 43,120 42,628

 Germany 53,399 55,508
 Greece 760 795
 Hungary 2,409 1,920
 Ireland 25,157 35,903
 Italy 17,889 23,484
 Luxembourg 22,148 27,849
 Netherlands 121,315 115,429

 Norway 5,944 4,379
 Poland 3,281 3,884
 Portugal 2,188 2,664
 Russia 1,678 1,147
 Spain 19,970 21,236
 Sweden 10,624 25,959
 Switzerland 40,532 55,377
 Turkey 1,792 1,826
 United Kingdom 216,638 230,762
 Other 7,042 7,885

Latin America and Other Western Hemisphere 253,928 266,576
 South America 83,477 84,220
 Argentina 18,865 17,488
 Brazil 37,164 36,717
 Chile 10,177 10,052
 Colombia 3,775 3,693
 Ecuador 1,116 832
 Peru 3,148 3,130
 Venezuela 7,385 10,531
 Other 1,828 1,778

 Central America 73,761 73,841
 Costa Rica 1,493 1,716
 Honduras 347 399
 Mexico 37,151 39,352
 Panama 33,493 30,758
 Other 1,277 1,618

 Other Western Hemisphere 96,690 108,515
 Barbados 3,030 2,141
 Bermuda 50,847 60,114
 Dominican Republic 968 1,143
 United Kingdom Islands, Caribbean 29,762 33,451
 Other 12,083 11,665

Africa 13,118 11,891
 Egypt 2,210 1,998
 Nigeria 233 470
 South Africa 3,474 3,562
 Other 7,202 5,861

Middle East 10,950 10,863
 Israel 4,777 3,735
 Saudi Arabia 3,336 3,661
 United Arab Emirates 540 683
 Other 2,298 2,784

Asia and Pacific 190,621 207,125
 Australia 35,386 34,838
 China 9,401 11,140
 Hong Kong 22,759 27,447
 India 2,390 2,379
 Indonesia 8,402 8,904
 Japan 55,120 57,091
 Korea, Republic of 7,474 8,968
 Malaysia 6,222 7,910
 New Zealand 4,852 4,271
 Philippines 3,517 3,638
 Singapore 20,665 24,133
 Taiwan 6,744 7,836
 Thailand 5,500 5,824
 Other 2,190 2,746

Addenda:
 Eastern Europe (1) 14,441 14,989
 European Union (15) (2) 564,037 609,674
 OPEC (3) 23,479 28,545

 By industry of affiliate

Mining 72,526 72,111
Utilities 22,472 21,964
Manufacturing 327,282 343,899
 Of which:
 Food 23,268 23,497
 Chemicals 81,727 75,807
 Primary and fabricated metals 21,569 21,644
 Machinery 21,501 22,229
 Computers and electronic products 46,783 59,909
 Electrical equipment, appliances,
 and components 8,212 10,005
 Transportation equipment 43,322 49,887
Wholesale trade 86,313 93,936
Information 50,062 52,345
Depository credit intermediation (banking) 40,879 40,152
Finance (except depository institutions)
 and insurance 198,749 217,086
Professional, scientific, and technical
 services 29,568 32,868
Other industries 387,709 441,886

 2001 (r) 2002 (p)

 All countries, all industries 1,383,225 1,520,965

 By country of foreign affiliate

Canada 141,789 152,522

Europe 716,901 796,913
 Austria 3,629 3,988
 Belgium 19,395 24,122
 Czech Republic 1,058 1,345
 Denmark 4,615 7,688
 Finland 1,421 1,397
 France 40,839 43,978

 Germany 65,800 64,739
 Greece 842 1,056
 Hungary 1,989 2,460
 Ireland 35,712 41,636
 Italy 25,015 28,499
 Luxembourg 29,940 35,727
 Netherlands 126,076 145,474

 Norway 5,659 7,348
 Poland 4,272 4,750
 Portugal 2,852 3,394
 Russia 709 617
 Spain 20,514 23,884
 Sweden 17,356 18,999
 Switzerland 60,675 70,051
 Turkey 1,698 1,888
 United Kingdom 238,773 255,391
 Other 8,060 8,482

Latin America and Other Western Hemisphere 282,328 272,363
 South America 82,799 74,694
 Argentina 15,799 11,303
 Brazil 35,523 31,715
 Chile 12,026 11,625
 Colombia 3,603 3,735
 Ecuador 480 1,082
 Peru 3,127 3,237
 Venezuela 10,632 10,819
 Other 1,608 1,177

 Central America 84,659 81,199
 Costa Rica 1,677 1,602
 Honduras 242 184
 Mexico 56,554 58,074
 Panama 25,170 20,003
 Other 1,015 1,336

 Other Western Hemisphere 114,870 116,470
 Barbados 1,435 1,487
 Bermuda 66,144 68,856
 Dominican Republic 1,233 1,123
 United Kingdom Islands, Caribbean 30,242 29,252
 Other 15,815 15,751

Africa 13,411 15,066
 Egypt 2,537 2,959
 Nigeria 788 1,761
 South Africa 3,088 3,428
 Other 6,998 6,919

Middle East 12,351 14,154
 Israel 4,864 5,207
 Saudi Arabia 3,527 3,687
 United Arab Emirates 847 1,398
 Other 3,113 3,862

Asia and Pacific 216,445 269,947
 Australia 32,574 36,337
 China 11,387 10,294
 Hong Kong 32,089 35,764
 India 2,775 3,678
 Indonesia 8,227 7,546
 Japan 58,233 65,676
 Korea, Republic of 10,524 12,192
 Malaysia 7,748 8,576
 New Zealand 4,395 4,383
 Philippines 3,279 4,097
 Singapore 26,749 61,361
 Taiwan 9,109 10,091
 Thailand 6,444 6,883
 Other 2,911 3,068

Addenda:
 Eastern Europe (1) 15,118 16,572
 European Union (15) (2) 632,781 699,970
 OPEC (3) 28,745 30,831

 By industry of affiliate

Mining 78,319 80,976
Utilities 23,214 20,932
Manufacturing 365,924 392,553
 Of which:
 Food 24,681 28,240
 Chemicals 93,779 99,371
 Primary and fabricated metals 22,699 24,359
 Machinery 21,292 22,025
 Computers and electronic products 65,559 69,208
 Electrical equipment, appliances,
 and components 10,118 10,166
 Transportation equipment 44,210 48,378
Wholesale trade 102,322 114,895
Information 50,492 53,841
Depository credit intermediation (banking) 52,681 52,935
Finance (except depository institutions)
 and insurance 225,556 244,480
Professional, scientific, and technical
 services 34,704 38,307
Other industries 450,013 522,047

(p) Preliminary.

(r) Revised.

(1.) "Eastern Europe" comprises Albania, Armenia, Azerbaijan, Belarus,
Bulgaria, Czech Republic, Estonia, Georgia, Hungary, Kazakhstan,
Kyrgyzstan, Latvia, Lithuania, Moldova, Poland, Romania, Russia,
Slovakia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan.

(2.) The European Union (15) comprises Austria, Belgium, Denmark,
Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
Netherlands, Portugal, Spain, Sweden, and the United Kingdom.

(3.) OPEC is the Organization of Petroleum Exporting Countries.
Its members are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya,
Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.

Table 2. Foreign Direct Investment Position in the United States
on a Historical-Cost Basis, 1999-2002

[Millions of dollars]

 1999 2000 (r)

 All countries, all industries 955,726 1,256,867

 By country of foreign parent

Canada 90,559 114,309

Europe 639,923 887,014
 Austria 3,216 3,007
 Belgium 11,011 14,787
 Denmark 5,215 4,025
 Finland 4,816 8,875
 France 89,945 125,740

 Germany 112,126 122,412
 Ireland 14,958 25,523
 Italy 4,444 6,576
 Liechtenstein 287 319
 Luxembourg 35,644 58,930
 Netherlands 125,010 138,894

 Norway 2,854 2,665
 Spain 2,749 5,068
 Sweden 18,954 21,991
 Switzerland 52,973 64,719
 United Kingdom 153,797 277,613
 Other 1,927 5,869

Latin America and Other Western Hemisphere 40,771 53,691
 South and Central America 8,340 13,384
 Brazil 735 882
 Mexico 1,999 7,462
 Panama 5,275 3,819
 Venezuela -65 792
 Other 396 429

 Other Western Hemisphere 32,431 40,307
 Bahamas 1,581 1,254
 Bermuda 14,798 18,336
 Netherlands Antilles 3,153 3,807
 United Kingdom Islands, Caribbean 11,573 15,191
 Other 1,327 1,719

Africa 1,361 2,700
 South Africa 236 704
 Other 1,125 1,996

Middle East 4,362 6,506
 Israel 2,485 3,012
 Kuwait 850 908
 Lebanon -1 1
 Saudi Arabia 945 (D)
 United Arab Emirates 13 64
 Other 71 (D)

Asia and Pacific 178,749 192,647
 Australia 15,616 18,775
 Hong Kong 885 1,493
 Japan 153,815 159,690
 Korea, Republic of 2,691 3,110
 Malaysia 71 310
 New Zealand 425 395
 Philippines 101 47
 Singapore 1,365 5,087
 Taiwan 3,021 3,174
 Other 761 566

Addenda:
 European Union (15) (1) 582,006 814,033
 OPEC (2) 1,896 4,330

 By industry of affiliate

Manufacturing 406,415 480,561
 Of which:
 Food 15,015 18,073
 Chemicals 96,614 120,413
 Primary and fabricated metals 18,831 24,184
 Machinery 30,462 32,283
 Computers and electronic products 62,566 92,782
 Electrical equipment, appliances,
 and components 13,413 43,109
 Transportation equipment 52,809 55,750
Wholesale trade 106,745 173,991
Retail trade 22,387 26,703
Information 78,035 145,856
Depository credit intermediation (banking) 61,972 64,236
Finance (except depository institutions)
 and insurance 132,203 167,007
Real estate and rental and leasing 47,816 49,985
Professional, scientific, and technical
 services 11,682 30,492
Other industries 88,473 117,037

 2001 (r) 2002 (p)

 All countries, all industries 1,355,114 1,347,994

 By country of foreign parent

Canada 102,127 92,041

Europe 1,005,606 1,006,530
 Austria 2,878 3,439
 Belgium 16,796 9,608
 Denmark 1,736 1,924
 Finland 7,615 7,212
 France 148,282 170,619

 Germany 164,017 137,036
 Ireland 24,958 26,179
 Italy 6,629 6,695
 Liechtenstein 248 259
 Luxembourg 34,111 34,349
 Netherlands 157,596 154,753

 Norway 2,570 3,416
 Spain 4,640 4,739
 Sweden 22,011 21,989
 Switzerland 118,447 113,232
 United Kingdom 269,321 283,317
 Other 23,751 27,763

Latin America and Other Western Hemisphere 54,082 52,291
 South and Central America 16,338 16,917
 Brazil 598 971
 Mexico 7,336 7,857
 Panama 4,391 5,668
 Venezuela 3,954 4,447
 Other 59 -2,027

 Other Western Hemisphere 37,744 35,374
 Bahamas 1,153 1,332
 Bermuda 4,611 977
 Netherlands Antilles 4,255 4,680
 United Kingdom Islands, Caribbean 26,200 25,502
 Other 1,526 2,884

Africa 2,397 2,344
 South Africa 555 540
 Other 1,843 1,804

Middle East 6,145 6,766
 Israel 2,945 3,205
 Kuwait 964 989
 Lebanon 1 1
 Saudi Arabia (D) (D)
 United Arab Emirates 45 68
 Other (D) (D)

Asia and Pacific 184,757 188,023
 Australia 22,289 24,470
 Hong Kong 1,542 2,189
 Japan 150,008 152,032
 Korea, Republic of 3,218 2,439
 Malaysia 327 358
 New Zealand 426 546
 Philippines 28 31
 Singapore 3,490 2,902
 Taiwan 2,537 2,311
 Other 893 744

Addenda:
 European Union (15) (1) 861,314 862,630
 OPEC (2) 7,211 7,923

 By industry of affiliate

Manufacturing 484,042 470,893
 Of which:
 Food 15,240 15,113
 Chemicals 123,748 112,602
 Primary and fabricated metals 19,217 18,482
 Machinery 32,924 35,502
 Computers and electronic products 58,053 54,040
 Electrical equipment, appliances,
 and components 61,103 53,834
 Transportation equipment 60,881 61,570
Wholesale trade 177,396 188,819
Retail trade 28,323 28,341
Information 199,809 185,408
Depository credit intermediation (banking) 71,628 80,726
Finance (except depository institutions)
 and insurance 174,109 162,853
Real estate and rental and leasing 49,828 50,769
Professional, scientific, and technical
 services 41,659 40,245
Other industries 128,320 139,939

(p) Preliminary.

(r) Revised.

(D) Suppressed to avoid disclosure of data of individual companies.

(1.) The European Union (15) comprises Austria, Belgium, Denmark,
Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
Netherlands, Portugal, Spain, Sweden, and the United Kingdom.

(2.) OPEC is the Organization of Petroleum Exporting Countries. Its
members are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria,
Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.

Chart 2. U.S. Direct Investment Position Abroad,
2002: Host-Country Shares

Other (25.3%)
United Kingdom (16.8%)
Canada (10.1%)
Netherlands (9.6%)
Switzerland (4.6%)
Bermuda (4.5%)
Japan (4.3%)
Germany (4.3%)
Singapore (4.0%)
Mexico (3.8%)
France (2.8%)
Ireland (2.7%)
Australia (2.4%)
Hong Kong (2.4%)
Luxembourg (2.3%)

U.S. Bureau of Economic Analysis

Note: Table made from pie chart.

Chart 3. Foreign Direct Investment Position
in the United States, 2002: Parent-Country Shares

United Kingdom (21.0%)
France (12.7%)
Netherlands (11.5%)
Japan (11.3%)
Germany (10.2%)
Switzerland (8.4%)
Canada (6.8%)
Luxembourg (2.5%)
Other (15.6%)

U.S. Bureau of Economic Analysis

Note: Table made from pie chart.

Acknowledgments

The data for U.S. direct investment abroad were drawn from BEA's quarterly survey of transactions between U.S. parent companies and their foreign affiliates. The survey was conducted under the supervision of Mark W. New, assisted by Laura A. Downey, Javier J. Hodge, Marie K. Laddomada, Sherry Lee, Leila C. Morrison, Chad M. Poist, John E. Terpening, and Dwayne Torney. Computer programming for data estimation and tabulation was provided by Marie Colosimo.

The data for foreign direct investment in the United States were drawn from BEA's quarterly survey of transactions between U.S. affiliates of foreign companies and their foreign parents. The survey was conducted under the supervision of Gregory G. Fouch, assisted by Peter J. Fox, Michelle L. Granson, Barbara C. Huang, Y. Louise Ku-Graf, Susan M. LaPorte, and Beverly E. Palmer. Computer programming for data estimation and tabulation was provided by Karen E. Poffel, assisted by Paula D. Brown and Tracy K. Leigh.

(1.) From 1994 to 2001, the USDIA position grew at an average rate of 12 percent annually, a little higher than the growth in the position in 2002.

(2.) For a discussion of the profitability of U.S. affiliates, see Raymond J. Mataloni, Jr., "An Examination of the Low Rates of Return of Foreign-Owned U.S. Companies" SURVEY OF CURRENT BUSINESS 80 (March 2000): 55-73.

(3.) In recent years, U.S. parent companies have been funneling an increasing share of their direct investments abroad through holding companies. For more information, see the "Technical Note" in Maria Borga and Raymond J. Mataloni, Jr., "Direct Investment Positions for 2000: Country and Industry Detail," SURVEY 81 (July 2001): 23-25.

(4.) According to preliminary data from BEA's survey of new foreign direct investment, total outlays to acquire or establish U.S. businesses, including those financed by capital inflows from foreign parents, decreased 64 percent to $52.6 billion in 2002 from $147.1 billion in 2001. 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, and they include financing other than that from the foreign parent, such as local borrowing by existing U.S. affiliates. In contrast, the changes in the FDIUS position reflect transactions of both new and existing U.S. affiliates with their foreign parents or other members of their foreign parent groups and valuation adjustments, and they exclude financing not provided by the foreign parent group.

Notwithstanding these differences, the two types of data are related. Any outlays to acquire or establish U.S. businesses that are funded by foreign parent groups are part of capital inflows for FDIUS, a component of the change in the position. Data from the new investments survey indicate that foreign parent groups funded 71 percent of outlays to acquire or establish new U.S. affiliates in 2002, compared with 54 percent in 2001.

(5.) A few of the larger acquisitions were accomplished by U.S. shareholders exchanging their stock in the acquired firms for shares in the foreign firms. These transactions resulted in large, but offsetting, financial flows in the U.S. international transactions accounts: The large inflows on direct investment that resulted from the foreign investors' acquisitions of U.S. companies were offset by the outflows on foreign securities that resulted from the U.S. shareholders receiving the stock of the foreign firms. The outflows were recorded as foreign securities transactions rather than as U.S. direct investment abroad because the exchanges of stock did not result in any single U.S. investor owning as much as 10 percent of the shares of a foreign firm.

RELATED ARTICLE: Alternative measures of the direct investment positions.

This article presents country and industry detail on the positions of U.S. direct investment abroad and of foreign direct investment in the United States. These detailed estimates are prepared only on a historical-cost basis and, thus, largely reflect price levels of earlier periods. Current-cost and market-value estimates of the positions are also prepared, but only at an aggregate level. The current-cost estimates value the U.S. and foreign parents' shares of their affiliates' investment in plant and equipment, using the current cost of capital equipment; in land, using general price indexes; and in inventories, using estimates of their replacement cost. The market-value estimates value the equity portion of direct investment, using indexes of stock market prices. Because the historical-cost estimates are not ordinarily adjusted to reflect changes in the current costs of tangible assets or in the stock market prices of firms, the estimates on this valuation basis are less than BEA's current-cost and market-value estimates of the positions. The revised estimates of the position for 2001 and the preliminary estimates for 2002 are shown on all three valuation bases below. The current-cost and market-value estimates of the position are discussed in "The International Investment Position of the United States at Yearend 2002" in this issue.

Alternative Direct Investment Position Estimates,
2001 and 2002

[Millions of dollars]

 Changes in 2002
 (decrease (-))

 Position at
 Valuation method yearend Total Capital
 2001 (r) flows

U.S. direct investment
 abroad:

 Historical cost 1,383,225 137,740 119,742
 Current cost 1,598,072 153,780 137,836
 Market value 2,301,913 -265,690 137,836

Foreign direct investment
 in the United States:

 Historical cost 1,355,114 -7,120 30,032
 Current cost 1,514,374 -9,946 39,633
 Market value 2,552,580 -545,837 39,633

 Changes in
 2002
 (decrease
 (-))

 Position at
 Valuation method Valuation yearend
 adjustments 2002 (p)

U.S. direct investment
 abroad:

 Historical cost 17,998 1,520,965
 Current cost 15,944 1,751,852
 Market value -403,526 2,036,223

Foreign direct investment
 in the United States:

 Historical cost -37,152 1,347,994
 Current cost -49,579 1,504,428
 Market value -585,470 2,006,743

(p) Preliminary.

(r) Revised.

RELATED ARTICLE: New industry classifications.

This article introduces two changes in industry classifications. First, the position data are classified by International Survey Industry (ISI) classifications derived from the 1997 North American Industry Classification System (NAICS). (1) Previously, the position data had been classified on ISI classifications derived from the 1987 Standard Industrial Classification (SIC) system. (2) Second, petroleum is no longer shown as a separate major industry in the tables; instead, the various petroleum-related activities are distributed among the major NAICS industry groups or sectors to which they belong.

NAICS is the current industry classification system of the United States, Canada, and Mexico. For the United States, the 1997 NAICS supplanted the 1987 Standard Industrial Classification system. (3) Many of the NAICS industries correspond to SIC industries. However, many of these industries have been rearranged among the higher level groups in which they appear. In addition, NAICS introduces several new higher level groups. At the highest level of aggregation, the 20 industry groups--termed "sectors"--in the NAICS replace the 10 industry divisions in the SIC. Several of the NAICS sectors do not correspond directly to these SIC industry divisions. For example, the "information" sector consists of industry groups from several SIC industry divisions. (4)

Under NAICS, the finance and insurance sector includes data for depository institutions. However, in the tables in this article (and for other BEA data on direct investment) that show data for depository institutions, these firms are not grouped with other finance and insurance firms but are instead shown in a separate category titled "depository credit intermediation (banking)." All the other data for the finance and insurance sector are shown in the category "finance (except depository institutions) and insurance." For USDIA, the coverage of this category differs from that of the SIC-based category "finance (except depository institutions), insurance, and real estate" in that the new NAICS-based category excludes real estate firms and nonbank holding companies.5 For FDIUS, this category also excludes nonbank holding companies and includes firms that were shown in the SIC-based categories "finance (except depository institutions)" and "insurance." Under the NAICS-based classifications, the data for nonbank holding companies are in the "management of nonbank companies and enterprises" industry (included in "other industries" in the tables).

The second major change in industry presentation is that the various petroleum-related activities are no longer grouped in the major industry group "petroleum" but are, instead, spread among the major NAICS industry groups or sectors to which they belong. For example, oil and gas extraction is now included in mining, petroleum refining is in manufacturing, and gasoline stations are in retail trade. This change was made so that industry presentation of the direct investment data would conform with that used for most other data on the U.S. economy.

To facilitate assessment of the effects of these two changes and to provide a bridge between the data classified on the new basis and the data classified on the old basis, the data on the direct investment positions and related items on both bases will be available in September 2003 on BEA's Web site, at <www.bea.gov>. The USDIA position on both bases will be available for 1999, and the FDIUS position on both bases will be available for 1997 through 1999.

(1.) Office of Management and Budget, North American Industry Classification System: United States, 1997 (Lanham, MD: Bernan Press, 1998). Beginning with the 2002 benchmark survey of foreign direct investment in the United States, the ISI classifications will be derived from the 2002 NAICS manual, Office of Management and Budget, North American Industry Classification System: United States, 2002 (Lanham, MD: Bernan Press, 2002). Information on NAICS is available online at <www.census.gov/epcd/www/naics.html>.

(2.) For a description of the NAICS-based ISI classifications that are used for the position data, see Bureau of Economic Analysis, Guide to Industry and Foreign Trade Classifications for International Surveys at <www.bea.gov.bea.surveys.htm>. A concordance between the new NAICS-based ISI codes and the old SIC-based ISI codes is available at the same Web address.

(3.) See Office of Management and Budget, Standard Industrial Classification Manual, 1987 (Washington DC: U.S. Government Printing Office, 1987).

(4.) Specifically, the NAICS information sector includes publishing, which is included in the SIC manufacturing industry division; "motion picture and sound recording industries" and "information and data processing services" which are included in the SIC services division; and broadcasting and communications, which are included in the SIC transportation, communications, electric, gas, and sanitary services division.

For additional information on the differences between the NAICS and the SIC classifications, see NAICS: United States, 1997 and U.S. Bureau of the Census, 1997 Economic Census: Bridge Between NAICS and SIC (Washington, DC: U.S. Government Printing Office, 2000), or <www.census.gov/epcd/ec97brdg/>.

(5.) Bank holding companies are grouped with depository institutions in both the NAICS-based and SIC-based classifications.