U.S. international sales and purchases of private services.

Mann, Michael A. ; Brokenbaugh, Laura L. ; Bargas, Sylvia E. 等

In 1997, U.S. cross-border sales of private services grew slower, at 7 percent, than U.S. cross-border purchases of private services, at 10 percent (table A). In contrast, over the decade of 1986-96, U.S. sales grew faster--11 percent (average annual rate)--than purchases--8 percent (chart 1). This longer term pattern is consistent with the United States' comparative advantage in the provision of services, as evidenced by the growing surplus in private services for most years in the past quarter century and for every year since 1985. Despite the faster growth in purchases in 1997, this surplus reached a record $83.0 billion. The largest surplus was in royalties and license fees, which represent receipts and payments for intellectual property rights, such as patents, trademarks, and copyrights. Large surpluses were also recorded for travel; business, professional, and technical services; financial services; and education. The surplus in services contrasted sharply with the U.S. deficit on trade in goods, which increased to a record $198.0 billion.

[Chart 1 OMITTED]

Table A.--Sales of Services to Foreign and U.S. Markets Through Cross Border Transactions and by Affiliates

 U.S. cross-border (balance of Sales by nonbank
 payments) transactions majority-owned affiliates

 U.S. sales U.S. purchases Sales to for- Sales to
 (exports) (imports) eign persons U.S.
 by foreign persons
 affiliates of by U.S.
 U.S. compa- affili-
 nies(1) ates of
 foreign
 companies

 Billions of dollars

1986 77.2 66.4 60.5 n.a.
1987 87.0 75.5 72.3 62.6
1988 101.1 82.4 83.8 73.2
1989 118.1 87.0 99.2 94.2
1990 137.3 100.6 121.3 109.2
1991 152.5 102.7 131.6 119.5
1992 163.8 103.5 140.6 128.0
1993 172.0 111.3 142.6 134.7
1994 187.8 123.3 159.1 145.4
1995 204.2 133.4 190.1 149.7
1996 224.2 142.3 221.1 161.0
1997 239.2 156.2 n.a. n.a.

 Percent change from prior year

1987 12.6 13.7 19.5
1988 16.3 9.2 15.9 17.0
1989 16.8 5.5 18.4 28.7
1990 16.3 15.6 22.2 15.9
1991 11.1 2.1 8.5 9.5
1992 7.4 0.8 6.8 7.1
1993 5.1 7.5 1.5 5.3
1994 9.1 10.8 11.6 8.0
1995 8.8 8.2 19.4 2.9
1996 9.8 6.7 16.3 7.6
1997 6.7 9.8 n.a n.a.

n.a. Not available.

(1.) The figures shown in this column for 1986-88 have been adjusted, for the purposes of this article, to be consistent with those for 1989 forward, which reflect definitional and methodological improvements made in the 1989 Benchmark Survey of U.S. Direct Investment Abroad. The primary improvements was that investment income of affiliates in finance and insurance was excluded from sales of services. The adjustment was made by assuming that investment income of finance and insurance affiliates in 1986-88 accounted for the same share of sales of services plus investment income as in 1989.

The United States' strong competitive position in the provision of services is also evidenced by the services sold by majority-owned affiliates of multinational companies. In 1996, the most recent year for which data are available, as well as in every year since 1987, the value of services sold abroad by majority-owned foreign affiliates of U.S. companies exceeded the value of services sold in the United States by majority-owned U.S. affiliates of foreign companies. The strong competitive position of U.S. companies in the provision of services may reflect the state of development of the U.S. economy, with its high share of services in gross domestic product and an abundance of firms that are capable of competing on a global scale, whether through cross-border trade or through locally established affiliates. In 1996, sales of services abroad by foreign affiliates grew faster than sales of services in the United States by U.S. affiliates for the third consecutive year; sales by foreign affiliates grew 16 percent, while sales by U.S. affiliates grew 8 percent.

This article presents detailed estimates of U.S. cross-border sales and purchases of private services and of U.S. sales and purchases of services through nonbank majority-owned affiliates of multinational companies. Cross-border sales and purchases are transactions between U.S. residents and foreign residents. They represent international trade in the conventional sense--exports and imports--and are recorded, in summary form, in the U.S. international transactions accounts.(1) Sales of services through nonbank majority-owned affiliates of multinational companies represent services sold in international markets through the channel of direct investment.(2) (See the box "Channels of Delivery of Services Sold in International Markets.") The data are drawn from larger data sets on affiliate operations that are presented in annual articles on the operations of U.S. multinational companies and of U.S. affiliates of foreign companies.(3)

In 1996, the most recent year for which data are available for both cross-border transactions and sales through affiliates, for both channels of delivery, U.S. sales of services to foreigners expanded more rapidly than U.S. purchases of services from foreigners. For cross-border transactions, U.S. sales increased 10 percent, and U.S. purchases increased 7 percent; for services sold by majority-owned affiliates, U.S. sales increased 16 percent, and U.S. purchases increased 8 percent.(4)

Additional highlights for 1996 include the following:

* The excess of U.S. sales over U.S. purchases was greater for services sold across the U.S. border than for services sold through affiliates. Cross-border exports exceeded cross-border imports by $82.0 billion, or 58 percent, while sales abroad by foreign affiliates exceeded sales in the United States by U.S. affiliates by $60.1 billion, or 37 percent (table A).

* For U.S. sales of services to foreigners, the cross-border and affiliate channels of delivery were roughly equal: U.S. exports of services were $224.2 billion, and sales of services through foreign affiliates were $221.1 billion (chart 1). For U.S. purchases of services, the affiliate channel was somewhat more important than the cross-border channel of delivery: Purchases of services from U.S. affiliates were $161.0 billion, 13 percent more than U.S. cross-border imports of services, at $142.3 billion.

* For Europe, both sales and purchases were predominantly through the affiliate channel (chart 2). For Latin America and for Asia and Pacific, both sales and purchases were predominantly through the cross-border channel.

[Chart 2 OMITTED]

* For the United Kingdom and Germany, the affiliate channel predominated for both sales and purchases. For Japan, most sales were through the cross-border channel, but most purchases were through the affiliate channel. For Canada, sales through the two channels were about equal, but purchases were mainly through the affiliate channel (chart 3).

[Chart 3 OMITTED]

The remainder of this article is presented in two parts. The first part discusses cross-border sales and purchases, and it presents preliminary estimates for 1997 and revised estimates for 1986-96. The second part discusses sales through majority-owned affiliates, and it presents preliminary estimates for 1996 and revised estimates for 1995.

U.S. Cross-Border Transactions in 1997

In 1997, U.S. exports of private services (receipts) increased 7 percent, to $239.2 billion, following a 10-percent increase in 1996. U.S. imports of private services (payments) increased 10 percent, to $156.2 billion, following a 7-percent increase in 1996. The U.S. surplus on private services edged up 1percent in 1997, to $83 billion, compared with a 16-percent increase in 1996.

Additional highlights for 1997 are as follows:

* Transactions in all major categories of services increased. In percentage terms, the fastest growing categories of exports were "other private services" (such as education, financial, insurance, telecommunications, and business, professional, and technical services) and travel and passenger fares. The fastest growing categories of imports were royalties and license fees and "other private services."

 Percent change from prior year

 Exports Imports

 1996 1997 1996 1997

Private services 10 7 7 10
 Travel and passenger fares 10 4 7 9
 Other transportation 0 3 1 6
 Royalties and license fees 8 3 14 20
 Other private services 15 12 8 12

* In dollar terms, the largest increase in exports was in "other private services"; within this category, increases in financial services were particularly large. The largest increases in imports were in travel and passenger fares and in "other private services."

 Change from prior year in millions
 of dollars

 Exports Imports

 1996 1997 1996 1997

Private services 19,984 15,002 8,906 13,975
 Travel and passenger tares 7,860 3,999 4,287 5,589
 Other transportation -7 837 369 1,546
 Royalties and license fees 2,534 853 935 1,557
 Other private services 9,597 9,313 3,315 5,283

* By country, U.S. exports of services to Japan continued to substantially exceed those to any other country. The U.S. surplus on trade in services with Japan decreased to $19.7 billion; it partly offset the $57.1 billion deficit on trade in goods with Japan. U.S. imports of services from the United Kingdom continued to exceed those from any other country and increased at a faster rate than those of any other country. In dollar terms, U.S. exports and imports of services with the United Kingdom increased more than those of any other country: Exports increased $3.2 billion, and imports increased $4.8 billion.

The following two sections discuss cross-border transactions in services in 1997 by type of service and by geographic area. These sections, along with the accompanying tables, provide information for more types of services and more geographic areas than are available in the quarterly U.S. international transactions accounts. The estimates of cross-border transactions incorporate recent reclassifications and improvements in source data (see the box "Revisions to the Estimates of Cross-Border Services Transactions"). The transactions covered are those between U.S. residents and both affiliated and unaffiliated foreign residents.(5)

Affiliated transactions consist of intrafirm trade by multinational companies--specifically, the transactions between U.S. parent companies and their foreign affiliates and between U.S. affiliates and their foreign parent groups. (Cross-border transactions between affiliated enterprises should not be confused with sales by affiliates, which are discussed in the second half of this article.) In this article, new detail by type of service for these transactions is presented (see the box below).

By type of service

Cross-border services transactions are classified under the same five broad categories used in the U.S. international transactions accounts: Travel, passenger fares, other transportation, royalties and license fees, and other private services.

Travel.--This category covers purchases of goods and services by U.S. persons traveling abroad and by foreign persons traveling in the United States for business or personal reasons for less than 1 year. The types of goods and services most likely to be purchased are lodging, food, recreation and entertainment, local transportation, and gifts. U.S. travel transactions with both Canada and Mexico include border transactions, which often involve stays of less than 24 hours.

U.S. receipts for travel increased 5 percent in 1997, to $37.3 billion, following a 10-percent increase in 1996. Travelers from Central and South America accounted for 60 percent of the increase in 1997, although they accounted for only 16 percent of total travel receipts.

Travelers from the Asia and Pacific area--mainly from Japan and the Republic of Korea--accounted for 30 percent of receipts from overseas travel (all countries except Canada and Mexico) in 1997 after accounting for 32 percent in 1996. Receipts from Japan decreased 6 percent and those from Korea decreased 12 percent; these decreases are attributable partly to decelerations in the growth rates of the two economies and partly to depreciation of those countries' currencies against the dollar.

Travel receipts from Canada, which accounted for 9 percent of travel receipts, were unchanged in 1997, following a 10-percent increase in 1996. Reflecting the appreciation of the U.S. dollar against the Canadian dollar, the number of travelers from Canada to the United States--most of whom are same-day auto travelers--declined 1.8 million in 1997. Receipts from Mexico increased 14 percent in 1997, following a 5-percent increase in 1996, but they were still well below those before the large devaluation of the peso in late 1994.

U.S. payments for travel increased 7 percent in 1997, to $51.2 billion, following a 7-percent increase in 1996. Payments of U.S. travelers overseas accounted for most of the increase in 1997. U.S. travelers to Western Europe accounted for two-thirds of the increase, although they accounted for only one-third of total travel payments. U.S. payments to Canada increased 5 percent after increasing 8 percent, and payments to Mexico increased 8 percent after increasing 12 percent.

Passenger fares.--This category covers fares paid by residents of one country to airline and vessel operators that reside in another country. Exports consist of fares received by U.S. operators for transporting foreign residents between the United States and a foreign country and between foreign countries. Imports consist of fares paid to foreign operators by U.S. residents for travel to and from the United States.

U.S. passenger fare receipts increased 2 percent in 1997, to $20.9 billion, following an 8-percent increase in 1996. The slowdown, which continues a trend that began in 1995, reflects a smaller increase in the number of foreign travelers coming to the United States on U.S. airlines. U.S. passenger fare payments increased 15 percent in 1997, to $18.2 billion, following an 8-percent increase.

Other transportation.--This category primarily covers transactions for freight and port services for the transportation of goods by ocean, air, and truck to and from the United States. Freight receipts of U.S. carriers are for transporting U.S. goods exports and for transporting goods between two foreign points; freight payments to foreign carriers are for transporting U.S. goods imports.(6) Port services receipts are the value of the goods and services procured by foreign carriers in both U.S. sea and air ports; port services payments are the value of goods and services procured by U.S. carriers in foreign sea and air ports.

U.S. receipts for "other transportation" increased 3 percent in 1997, to $26.9 billion, following virtually no change in 1996. Receipts increased 6 percent for freight services and 1 percent for port services. The increase in freight receipts was almost entirely accounted for by air freight receipts, which were boosted by a 9-percent increase in the export tonnage transported by U.S. air carriers. Ocean freight receipts decreased 3 percent; a decline in the export revenues earned by U.S. liner vessels offset an increase in the export revenues earned by U.S. tanker vessels, and the export revenues earned by U.S. tramp vessels decreased slightly.(7) In recent years, the increase in ocean freight receipts has been tempered by stagnant freight rates on some routes and by the reflagging of some U.S. vessels to foreign registry.

U.S. trucking firms' freight receipts for transporting goods from the U.S.-Canadian border to destinations in Canada and from origins in Canada to the border increased 3 percent to $1.3 billion. U.S. cross-border trucking transactions with Mexico are insignificant due to the restrictions on such transactions in both countries. The North American Free Trade Agreement provides for progressive relaxation of these restrictions, but implementation has been delayed until a number of safety-related issues can be resolved.

Port services increased slightly, as a small increase in air port services was partly offset by a decrease in ocean port services. Ocean port services receipts decreased 2 percent, as a decline in the export volumes of foreign vessels and lower average costs in U.S. ports more than offset an increase in the import volumes of foreign vessels.

U.S. payments for "other transportation" increased 6 percent in 1997, to $28.9 billion, following a 1-percent increase in 1996. Payments for freight services increased 7 percent, and payments for port services increased 4 percent. The increase in freight payments was the result of an increase in the import tonnage transported by foreign ocean and air carriers. Payments to Canadian carriers for transporting goods by truck in the United States increased 6 percent.

Payments for port services increased 4 percent, mostly as the result of a 6-percent increase in air port services that was attributable to increases in the import and export volumes of U.S. air carriers. Ocean port services payments decreased 2 percent, as a decline in the import and export tonnage transported by U.S. liner vessels more than offset increases in the import and export tonnage transported by U.S. tanker and tramp vessels.

Royalties and license fees.--This category covers transactions with foreign residents that involve patented and unpatented techniques, processes, formulas, and other intangible property rights used in the production of goods; transactions involving copyrights, trademarks, franchises, broadcast rights, and other intangible rights; the rights to distribute, use, and reproduce computer software; and the rights to sell products under a particular trademark, brand name, or signature.

Receipts of royalties and license fees increased 3 percent in 1997, to $33.7 billion, following an 8-percent increase in 1996. The increase in 1997 was largely attributable to a 3-percent increase in receipts of U.S. parent companies from their foreign affiliates. Receipts from unaffiliated foreigners increased less than 1 percent in 1997. Receipts from the sale or use of industrial processes decreased 6 percent; in contrast, receipts from software licensing fees increased 13 percent.

Payments of royalties and license fees increased 20 percent in 1997, to $9.4 billion, following a 14-percent increase in 1996. The increase in 1997 was more than accounted for by an increase in affiliated transactions, primarily payments by U.S. affiliates to their foreign parents. Royalty and license fee payments to unaffiliated foreigners were virtually unchanged in 1997, reflecting large, nearly offsetting shifts in the various components. Payments for the rights to broadcast and record live events were $0.1 billion in 1997, down sharply from $0.5 billion in 1996 when large payments were made to the International Olympic Committee for broadcast rights to the Summer Olympic Games. "Other" unaffiliated payments were $0.6 billion in 1997, up from $0.3 billion in 1996; the large amount in 1997 was primarily attributable to software licensing fee payments in Europe.

Other private services.--This category consists of a variety of services: Education; financial services; insurance; telecommunications) business, professional, and technical services; and other affiliated and unaffiliated services.

Receipts for "other private services" increased 12 percent in 1997, to $84.5 billion, following a 15-percent increase in 1996. Affiliated services receipts increased 11 percent, to $26.3 billion, reflecting increased receipts by U.S. affiliates from their foreign parents and by U.S. parents from their foreign affiliates. Unaffiliated services receipts increased 13 percent, to $58.1 billion, reflecting increases across most services categories.

Payments for "other private services" increased 12 percent in 1997, to $48.4 billion, following an 8-percent increase in 1996. Payments to affiliated foreigners increased 10 percent, to $18.3 billion; the increase was mostly attributable to a 16-percent increase in payments by U.S. parents to their foreign affiliates. Payments to unaffiliated foreigners increased 14 percent, to $30.1 billion, following a 3-percent increase in 1996.

"Education" receipts consist of expenditures for tuition and living expenses by foreign students enrolled in U.S. colleges and universities; payments consist of tuition and living expenses of U.S. students for study abroad. Education receipts increased 5 percent to $8.3 billion, and payments increased 8 percent to $1.3 billion, as the number of foreign students studying in the United States increased less than the number of U.S. students studying abroad.

"Financial services" covers a variety of services, including funds management, credit card services, explicit fees and commissions on transactions in securities, fees on credit-related activities, and other miscellaneous financial services; implicit fees paid and received on bond trading are also covered. In 1997, receipts for financial services increased 32 percent to $11.1 billion, and payments increased 30 percent to $3.9 billion; both increases reflect stepped-up activity in U.S. and foreign financial markets. The strong growth in receipts reflected an acceleration in trading by foreigners in U.S. securities: Foreigners purchased record amounts of U.S. stocks and near-record amounts of U.S. corporate bonds and U.S. Treasury bonds. Payments were bolstered by substantial U.S. trading in foreign securities.

"Insurance" includes premiums earned and paid for primary insurance and for reinsurance; losses paid by U.S. insurers and losses recovered from foreign insurers are netted against the premiums. Primary insurance consists of life insurance, accident and health insurance, and property and casualty insurance. Each type of primary insurance may be reinsured; reinsurance is the ceding of a portion of a premium to another insurer, who then assumes a corresponding portion of the risk. Reinsurance is one way of providing coverage for events with so high a degree of risk or liability that a single insurer is unwilling or unable to underwrite insurance against their occurrence.

In 1997, net insurance receipts increased 21 percent to $2.4 billion. The increase was largely attributable to a reduction in losses paid for both primary insurance and reinsurance, as premiums received were virtually unchanged. Net insurance payments increased 38 percent to $5.2 billion; the increase was largely the result of a sharp fall in the losses recovered from foreign insurers.

"Telecommunications" consists of settlements between U.S. and foreign communications companies for the transmission of messages between the United States and other countries; channel leasing; telex, telegram, and other jointly provided (basic) services; value-added services, such as electronic mail and video conferencing; and telecommunications support services. Receipts for telecommunications services increased percent to $3.8 billion in 1997, and payments decreased 2 percent to $8.1 billion. The United States continues to run a large trade deficit in telecommunications services because the outgoing minutes of calls from the United States exceed the incoming minutes of calls to the United States.(8) The large number of outgoing calls from the United States reflect several factors, including the relatively low international calling rates from the United States, the relative wealth of the United States, and the large immigrant population.

"Business, professional, and technical services" covers a wide variety of services. Receipts increased 8 percent to $21.3 billion in 1997, following an increase of about 20 percent in 1996. The strong increase in 1996 reflected sizable increases in all the subcategories of these services. The 1996 increase in "construction, engineering, architectural, and mining services" was particularly strong and was largely accounted for by a high level of construction activity in the Middle East, which continued in 1997.

Receipts for legal services and for "management, consulting, and public relations services"--two of the fastest growing categories of business, professional, and technical services--each surpassed $2.0 billion in 1997. Strong receipts in the latter category reflect U.S. expertise in areas such as business process re-engineering.

Receipts for "computer and data processing services" were virtually unchanged, at $1.6 billion, from those in 1996. Cross-border sales of these services were dwarfed by sales of these services through foreign affiliates.(9) Computer-related services are also delivered from the United States to foreign markets through software-licensing agreements. As mentioned in the section "Royalties and license fees," computer software-licensing fee receipts were nearly $2.5 billion in 1997.

Payments for business, professional, and technical services increased 18 percent in 1997, to $6.6 billion, following a 15-percent increase in 1996. "Miscellaneous disbursements" increased 32 percent to $1.1 billion; the step-up was largely accounted for by a 40-percent increase, to $0.5 billion, in the production costs of motion picture companies and of companies producing broadcasts other than news broadcasts. (Miscellaneous disbursements also covers outlays to fund news-gathering costs of broadcasters and the print media; disbursements to maintain tourism and business promotion offices; and disbursements for participating in foreign trade shows.)

Receipts for "other unaffiliated services" mainly consists of expenditures by foreign governments for services related to maintaining embassies and consulates in the United States; expenditures of international organizations--such as the United Nations, the International Monetary Fund, and the World Bank--headquartered in the United States; receipts from unaffiliated foreigners for sales and rentals of U.S. motion picture and television films and tapes; and expenditures of foreign residents employed temporarily in the United States. Payments primarily consist of earnings of foreign residents who are employed temporarily in the United States and of payments by U.S. film distributors to unaffiliated foreign residents for purchases and rentals of motion picture and television films and tapes. In 1997, receipts for "other unaffiliated services" increased 11 percent to $11.3 billion; payments increased 8 percent to $5.0 billion.

By area

Twelve countries accounted for 61 percent of U.S. cross-border exports and for 63 percent of U.S. cross-border imports (table B). The top seven of these countries for both exports and imports of U.S. services--Japan, the United Kingdom, Canada, Germany, Mexico, France, and South Korea--accounted for roughly one-half of both exports and imports of U.S. services and for 42 percent of the U.S. surplus on private services. By area, Europe and Asia and Pacific together accounted for two-thirds of exports and for slightly less than two-thirds of imports (chart 4).

[Chart 4 OMITTED]

Table B.--Cross-Border Service Exports and Imports by Type and Country, 1997

[Millions of dollars]

 Total Travel Passenger Other
 services trans-
 portation

 Exports

All countries 239,215 73,268 20,895 26,911

12 major countries(1) 145,968 45,861 14,705 15,034

 Japan 34,002 11,068 5,442 3,231
 United Kingdom 23,631 7,090 2,191 1,715
 Canada 20,501 6,824 1,409 2,384
 Germany 13,492 4,142 1,366 957
 France 9,436 2,485 929 577
 Mexico 9,334 3,430 859 576
 Netherlands 7,648 972 188 761
 Korea, Republic of 6,885 2,056 132 2,040
 Brazil 6,401 3,021 841 631
 Italy 5,012 1,647 613 347
 Australia 5,001 1,839 621 324
 Taiwan 4,625 1,287 114 1,491

Other countries 93,247 27,407 6,190 11,877

 Imports

All countries 156,236 51,220 18,235 28,949

12 major countries(1) 98,950 29,748 10,540 17,710

 United Kingdom 21,246 4,703 3,209 2,205
 Japan 14,253 2,939 757 4,182
 Canada 14,063 4,901 470 3,037
 Mexico 13,120 6,443 777 800
 Germany 8,015 1,984 1,225 1,748
 France 6,883 2,752 615 687
 Korea, Republic of 4,541 1,174 1,083 1,762
 Italy 3,720 2,107 440 467
 Netherlands 3,549 670 865 707
 Taiwan 3,380 757 678 1,528
 Bermuda 3,140 394 0 0
 Hong Kong 3,038 924 421 587

Other countries 57,286 21,472 7,695 11,239

 Royalties Other private
 and licenses services
 fees

 Exports

All countries 33,676 84,465

12 major countries(1) 23,160 47,208

 Japan 6,643 7,618
 United Kingdom 3,175 9,460
 Canada 1,561 8,323
 Germany 2,750 4,277
 France 2,214 3,231
 Mexico 628 3,841
 Netherlands 2,656 3,071
 Korea, Republic of 813 1,844
 Brazil 489 1,419
 Italy 1,032 1,373
 Australia 697 1,520
 Taiwan 502 1,231

Other countries 10,516 37,257

 Imports

All countries 9,411 48,421

12 major countries(1) 6,968 33,984

 United Kingdom 2,116 9,013
 Japan 2,082 4,293
 Canada 317 5,338
 Mexico 117 4,983
 Germany 904 2,154
 France 723 2,106
 Korea, Republic of 38 484
 Italy 116 590
 Netherlands 498 809
 Taiwan 19 398
 Bermuda 8 2,738
 Hong Kong 30 1,076

Other countries 2,443 14,437

1. Ranked by trade in dollar amounts.

Europe.--Europe accounted for 36 percent of exports and for 40 percent of imports of private services in 1997 The U.S. services surplus with Europe decreased 14 percent, to $24.1 billion, following a 38-percent increase in 1996. Imports of private services increased 14 percent in 1997, while exports increased 4 percent. In contrast, imports increased only 2 percent in 1996, while exports increased 12 percent.

The United Kingdom accounted for 10 percent of all U. S. exports of services in 1997, compared with 9 percent in 1996, and ranked second to Japan as a destination of U.S. exports of services. Exports to the United Kingdom grew 16 percent in 1997, more than twice the growth in total U.S. exports of private services. The strong growth reflected a step-up in "other private services" that was largely accounted for by a nearly so-percent increase in exports of financial services.

The United Kingdom accounted for 14 percent of all U.S. imports of services in 1997, compared with 12 percent in 1996, and ranked as the leading source of U. S. imports of services. Imports from the United Kingdom grew 29, percent in 1997, nearly three times the growth in total U.S. imports of private services. Payments by U.S. residents for travel and passenger fares to the United Kingdom increased 21 percent. Net insurance payments to the United Kingdom also increased sharply, reflecting a falloff in losses recovered through reinsurance. These recoveries were relatively low in 1997, reflecting an absence of catastrophic events that would have triggered large payments from foreign reinsurers. The U.S. services surplus with the United Kingdom was $2.4 billion in 1997.

In both 1996 and 1997, Germany accounted for 6 percent of U.S. exports of services and for 5 percent of U.S. imports of services. In 1997, exports to Germany decreased 1percent, and imports from Germany grew 3 percent--one-third of the growth in total U.S. imports of services. The U.S. services surplus with Germany fell 5 percent, to $5.5 billion, following a 12-percent increase.

Excluding the United Kingdom, U.S. exports of private services to Europe increased 1percent, and U.S. imports from Europe increased 7 percent. These countries accounted for 26 percent of all U.S. exports and imports of services and for $21.8 billion of the U.S. services surplus.

Asia and Pacific.--This area accounted for 31 percent of exports and for 25 percent of imports of private services in 1997. The U.S. services surplus with Asia and Pacific, the largest for any area, decreased 1percent in 1997, to $33.9 billion, following an 8-percent increase in 1996. In 1997, exports of private services increased 8 percent after increasing 7 percent, and imports of private services increased 4 percent after increasing 6 percent.

Japan accounted for 14 percent of total U.S. exports of services in 1997, down slightly from 15 percent in 1996, but still ranked first as a destination of U.S. exports of services. Japan accounted for 12 percent of "other transportation" receipts, for 9 percent of "other private services" receipts, and for 20 percent of royalties and license fees receipts in 1997. Mainly because of weakness in the Japanese economy, U.S. services exports to Japan grew only 1percent, considerably less than the 7-percent increase in total U.S. exports of services and the 6-percent growth in exports to the Asia and Pacific area excluding Japan. Receipts for travel and passenger fares from Japanese visitors to the United States fell by more than $1.0 billion, to $16.5 billion.

Japan accounted for 9 percent of total U.S. imports of services in 1996 and 1997 and ranked second as a source of U.S. imports of services. This growth in imports kept pace with the growth in total U.S. imports of services in 1997. Reflecting a surge in payments by U.S. affiliates to their foreign parents, royalty and license fee payments to Japan increased 45 percent in 1997, compared with an 8-percent decrease in 1996. The U.S. services surplus with Japan decreased 4 percent in 1997, to $19.7 billion, compared with a 5-percent increase in 1996. This pattern, which is consistent with the increase in the trade deficit in goods with Japan in 1997 after the decrease in 1996, reflects the strength of the U.S. economy relative to that of Japan in 1997.(10)

Excluding Japan, exports of private services to Asia and Pacific increased 6 percent in 1997, to $39.6 billion, and imports increased 8 percent, to $25.4 billion; the U.S. services surplus was $14.2 billion.

Latin America and Other Western Hemisphere.--This area accounted for 18 percent of exports and for 21 percent of imports of private services in 1997. The U.S. services surplus with the area nearly doubled, reaching $9.6 billion, as U.S. exports to most of the major countries in this area increased much more rapidly than imports. More than one-half of the surplus was attributable to travel and passenger fares.

Mexico accounted for 4 percent of total U.S. exports of services and for 8 percent of total U.S. imports of services in 1997. Mexican visitors to the United States accounted for 5 percent of total U.S. travel and passenger fare receipts, while U.S. visitors to Mexico accounted for 10 percent of travel and passenger fare payments. U.S. exports to Mexico increased 15 percent in 1997, to $9.3 billion, following a 10-percent increase in 1996. U.S. imports from Mexico increased 11percent to $13.1 billion. The U.S. services deficit with Mexico increased to $3.8 billion--of which $2.9 billion was attributable to travel and passenger fares.

Excluding Mexico, exports of private services to Latin America and Other Western Hemisphere increased 22 percent, and imports increased 6 percent. The U.S. services surplus was $13.4 billion; travel and passenger fares accounted for more than one-half of the increase in this surplus.

Canada.--Canada accounted for 9 percent of both U.S. exports and U.S. imports of private services in 1997. U.S. imports from Canada increased more rapidly than exports to Canada, reflecting the strengthening U.S. dollar. The U.S. services surplus with Canada decreased 10 percent in 1997, to $6.4 billion, compared with a 9-percent increase in 1996. Nearly one-half of the surplus in 1997 was attributable to travel and passenger fares. Partly reflecting the high volume of goods shipped by truck, pipeline, and inland waterway between the United States and Canada, both U.S. exports to and imports from Canada of "other transportation" services ranked second to those of Japan. U.S. exports and imports of "other private services" with Canada were second only to those with the United Kingdom.

Other.--The remaining areas--Africa, the Middle East, and "International organizations and unallocated"--combined accounted for 7 percent of exports and for 5 percent of imports of private services in 1997. Exports to these areas increased 7 percent and kept pace with the worldwide growth in exports. In contrast, imports from these areas decreased 5percent. Payments (imports) to international organizations had been boosted to an unusually high level in 1996 by a large payment for the rights to broadcast the 1996 Summer Olympic Games.

Sales by Affiliates in 1996

In 1996, the latest year for which data are available, worldwide sales of private services by nonbank majority-owned foreign affiliates of U.S. companies were $235.8 billion, up 16 percent from 1995 (table C).(11) Worldwide sales of services by nonbank majority-owned U.S. affiliates of foreign companies were $171.1 billion, up 8 percent.

Table C.--Sales of Services by Nonbank Majority-Owned Foreign Affiliates of U.S. Companies and by Nonbank Majority-Owned U.S. Affiliates of Foreign Companies, 1995-96

[Millions of dollars]

 1995 1996

 Sales by foreign affiliates

Total 202,950 235,789
 To affiliated persons 23,419 27,752
 To unaffiliated persons 179,531 208,037

 To U.S. persons 12,893 14,728
 To U.S. parents 7,825 8,947
 To unaffiliated U.S. persons 5,068 5,781

 To foreign persons 190,057 221,061
 To other foreign affiliates 15,593 18,806
 To unaffiliated foreign persons 174,463 202,255

 Local sales 169,212 189,386
 To other foreign affiliates 7,166 6,386
 To unaffiliated foreigners 162,046 183,000

 Sales to other countries 20,845 31,675
 To other foreign affiliates 8,427 12,420
 To unaffiliated foreigners 12,418 19,255

 Sales by U.S. affiliates

Total 159,026 171,114
 To U.S. persons 149,663 160,990
 To foreign persons 9,362 10,125
 To the foreign parent group 4,682 6,032
 To foreign affiliates 243 390
 To other foreigners 4,438 3,702

NOTE.--Sales of services in this table are those characteristic of establishments in the following industries: Industries in the "services" division of the Standard Industrial Classification; finance (except depository institutions), insurance, and real estate agricultural, mining, and petroleum services; and transportation, communication and public utilities. Depository institutions are excluded from this listing because data on them are not available.

Sales of services by affiliates tend to be predominantly local transactions, reflecting the importance of proximity to the customer in the delivery of many services. In 1996, sales in the country of the affiliate (local sales) accounted for 80 percent of worldwide sales of services by foreign affiliates, well above the corresponding share--63 percent--for sales of goods. Sales of services to other foreign countries accounted for 13 percent of worldwide sales by foreign affiliates of U.S. companies. Only 6 percent of sales by foreign affiliates were to U.S. persons, and most of these sales were to the U.S. parents of the affiliate making the sale. Partly reflecting the large U.S. market, local sales accounted for 94 percent of sales by U.S. affiliates of foreign companies.

Sales by foreign affiliates to foreign persons and sales by U.S. affiliates to U.S. persons both represent services delivered to international markets through the channel of direct investment. Unlike cross-border transactions, which are generally classified by type of service, these sales are classified by the primary industry of the affiliate; they are shown by country of affiliate or by ultimate beneficial owner (UBO) in table 8.(12) The sales by foreign affiliates in table 9 and by U.S. affiliates in table 10 are shown by industry of affiliate cross-classified by country.

Foreign affiliates' sales to foreign persons

In 1996, foreign affiliates' sales of services to foreign persons were $221.1 billion. By area, affiliates in Europe accounted for 58 percent of these sales, and affiliates in Asia and Pacific accounted for 22 percent. By industry, affiliates classified in the "services" division of the Standard Industrial Classification (SIC) system accounted for 38 percent of the total, and affiliates in insurance accounted for 19 percent.(13)

Foreign affiliates' sales increased $31.0 billion, or 16 percent, in 1996, following a 19-percent increase in 1995. Sales grew strongly in 1996 despite a 4-percent rise in the trade-weighted value of the U.S. dollar against the currencies of 10 major trading partners (which also are major host countries for U.S. direct investment); the rise reduced the dollar value of foreign-currency-denominated sales by foreign affiliates. The growth resulted from strong demand for computer services (traditionally regarded as an area in which U.S. multinational companies have a competitive advantage), from favorable economic conditions in most host countries, and from foreign acquisitions by U.S. multinational companies. In particular, U.S. utility companies acquired a number of overseas providers of electricity and telephone services, largely in response to the new investment opportunities created by the privatizations of Government-owned utilities abroad.(14)

By area, sales of services to foreign persons by affiliates increased in all the major areas. Sales by affiliates in Europe rose $22.1 billion and accounted for 71 percent of the total increase. Half of the increase in Europe and more than a third of the total increase were accounted for by affiliates in the United Kingdom--particularly by affiliates classified in computer-related activities and by affiliates that are public utilities; the remainder was concentrated among affiliates in Germany and in the Netherlands.

Foreign sales of services by affiliates in the Asia and Pacific area rose $4.9 billion--16 percent of the total increase. Affiliates in Australia--particularly public utilities--accounted for nearly half of the increase in Asia and Pacific. Sales by affiliates in Japan were virtually unchanged, partly because of the 12-percent appreciation of the dollar against the yen, which reduced the value of sales in terms of U.S. dollars. In Canada, sales increased $2.2 billion--7 percent of the total increase. In Latin America and Other Western Hemisphere, sales increased $1.6 billion--5 percent of the total increase; nearly two-thirds of the increase in this area was accounted for by affiliates in Argentina and in Brazil.

By industry, sales increased in all major industries except wholesale trade, which decreased slightly. Sales by affiliates in "services" rose $11.4 billion, accounting for 37 percent of the total increase. Sales by affiliates in "other industries" increased $8.9 billion--29 percent of the total increase--and sales by affiliates in manufacturing increased $5.4 billion--18 percent of the total increase. Reflecting strong overseas demand for computer-related services, the increase in "services" was mainly accounted for by affiliates that primarily provide computer and data processing services, and the increase in manufacturing, by affiliates that primarily manufacture computers and related equipment.(15) Within "other industries," public utilities and communications accounted for almost all of the increase, partly because of the acquisitions of overseas providers of electricity and telephone services.

U.S. affiliates' sales in the United States

In 1996, sales of services to U.S. businesses and individuals by U.S. affiliates of foreign companies were $161.0 billion. By area, affiliates with UBO'S in Europe accounted for 60 percent of the total. Affiliates with UBO'S in the Asia and Pacific area accounted for 18 percent, and affiliates with UBO'S in Canada accounted for 17 percent. By industry, affiliates in insurance accounted for 35 percent of the total, and affiliates in "services" and in "other industries" accounted for 24 percent and 13 percent, respectively.

U.S. affiliates' sales in the United States increased $11.3 billion, or 8 percent, in 1996, following a 3-percent increase in 1995. More than three-fourths of the increase was accounted for by net additions to the affiliate universe--following a record number of new direct investments by foreign multinational companies--rather than by growth in sales by affiliates already in the affiliate universe.(16)

By area, sales by affiliates with UBO'S in Europe rose $6.6 billion--58 percent of the total increase. Nearly two-thirds of the increase for Europe and more than a third of the total increase were accounted for by affiliates with UBO'S in Germany--particularly insurance affiliates; the remainder was concentrated among affiliates with UBO'S in Switzerland and in Norway.

Sales by affiliates with UBO'S in the Asia and Pacific area rose $3.0 billion--27 percent of the total increase. Japan had the largest increase, followed by Australia. Sales by affiliates with UBO'S in Latin America and Other Western Hemisphere rose $0.9 billion. Almost all of this increase was accounted for by countries in Other Western Hemisphere--particularly the Netherlands Antilles, Bahamas, and Bermuda; sales by affiliates with UBO'S in South and Central America were virtually unchanged. Sales by affiliates with UBO'S in Canada rose $0.7 billion.

By industry, sales by affiliates in "other industries" increased $5.0 billion; almost all of this increase was in communications. Sales by affiliates in insurance increased $4.4 billion as a result of a number of acquisitions of U.S. insurers that were motivated by foreign insurance companies' desire to consolidate into larger, more efficient units and to become better able to spread risks. Life insurers, particularly those with UBO'S in the United Kingdom and the Netherlands, accounted for three-fourths of the increase in insurance; property and casualty insurers, particularly those with UBO'S in Germany, accounted for most of the remainder.

As a result of several acquisitions of U.S. financial companies, sales by affiliates in "finance, except depository institutions" rose $4.2 billion, two-thirds of which was accounted for by affiliates with UBO'S in Japan. These acquisitions were motivated by foreign financial institutions' desire to broaden their range of services, to spread the cost of new technology across a broader base, to acquire U.S. expertise in particular financial services areas, and to improve access to the large U.S. capital market.

The largest decrease--$1.9 billion--was in "services." Within "services," sales by affiliates in the motion picture industry fell $3.7 billion as a result of liquidations and of changes in industry classification. In contrast, sales by affiliates in health services rose $1.9 billion, following a number of acquisitions by foreign companies seeking access to the growing and profitable medical care market.

Table 1.--Private Services Transactions by Type, 1986-97

[Millions of dollars]

 Exports

 1986 1987

 Total private services 77,205 86,962

Travel 20,385 23,563
 Overseas 15,650 18,044
 Canada 2,701 3,309
 Mexico 2,034 2,210

Passenger fares 5,582 7,003

Other transportation 15,438 17,027
 Freight 4,864 5,452
 Port services 10,574 11,575

Royalties and other license fees 8,113 10,183
 Affiliated 6,174 7,897
 U.S. parents' transactions 5,994 7,668
 U.S. affiliates transactions 180 229
 Unaffiliated 1,939 2,286
 Industrial processes n.a. 1,593
 Other n.a. 694

Other private services 27,687 29,186
 Affiliated services 8,385 8,494
 U.S. parents' transactions 5,577 5,658
 U.S. affiliates transactions 2,808 2,836
 Unaffiliated services 19,302 20,692
 Education 3,495 3,821
 Financial services 3,301 3,731
 Insurance, net 1,385 1,573
 Premiums 3,424 3,615
 Losses 2,039 2,042
 Telecommunications 1,827 2,111
 Business, professional, and 4,813 4,765
 technical services
 Accounting, auditing, and 21 27
 bookkeeping services
 Advertising 94 109
 Agricultural services 4 7
 Computer and data processing
 services 985 649
 Construction, engineering,
 architectural, and mining
 services 759 668
 Data base and other information
 services 124 133
 Industrial engineering 98 304
 Installation, maintenance, and
 repair of equipment 1,033 1,087
 Legal services 97 147
 Mailing, reproduction, and
 commercial art (D) 22
 Management of health care facilities 1 0
 Management, consulting, and public
 relations services 306 327
 Medical services 490 516
 Miscellaneous disbursements n.a. n.a.
 Operations leasing 384 484
 Personnel supply services (D) 38
 Research, development, and testing
 services 282 177
 Sports and performing arts 32 11
 Training services 73 60
 Other business, professional, and
 technical services(1) n.a. n.a.

 Other unaffiliated services(2) 4,482 4,692

 Exports

 1988 1989

 Total private services 101,120 118,081

Travel 29,434 36,205
 Overseas 22,314 26,939
 Canada 4,150 5,340
 Mexico 2,970 3,926

Passenger fares 8,976 10,657

Other transportation 19,311 20,526
 Freight 6,491 7,209
 Port services 12,820 13,318

Royalties and other license fees 12,146 13,818
 Affiliated 9,501 10,961
 U.S. parents' transactions 9,238 10,612
 U.S. affiliates transactions 263 349
 Unaffiliated 2,646 2,857
 Industrial processes 1,863 1,947
 Other 782 910

Other private services 31,253 36,875
 Affiliated services 9,568 12,296
 U.S. parents' transactions 6,808 9,117
 U.S. affiliates transactions 2,760 3,179
 Unaffiliated services 21,685 24,580
 Education 4,142 4,575
 Financial services 3,831 5,036
 Insurance, net 847 103
 Premiums 3,534 3,117
 Losses 2,687 3,015
 Telecommunications 2,196 2,519
 Business, professional, and 5,970 6,823
 technical services
 Accounting, auditing, and 37 124
 bookkeeping services
 Advertising 145 145
 Agricultural services 4 3
 Computer and data processing
 services 1,198 978
 Construction, engineering,
 architectural, and mining
 services 790 939
 Data base and other information
 services 196 205
 Industrial engineering 278 219
 Installation, maintenance, and
 repair of equipment 1,276 1,717
 Legal services 272 397
 Mailing, reproduction, and
 commercial art 29 9
 Management of health care facilities (*) 0
 Management, consulting, and public
 relations services 344 300
 Medical services 541 588
 Miscellaneous disbursements n.a. n.a.
 Operations leasing 544 671
 Personnel supply services (D) 2
 Research, development, and testing
 services 231 375
 Sports and performing arts (D) 43
 Training services 54 109
 Other business, professional, and
 technical services(1) n.a. n.a.

 Other unaffiliated services(2) 4,699 5,524

 Exports

 1990 1991

 Total private services 137,322 152,510

Travel 43,007 48,385
 Overseas 30,806 34,518
 Canada 7,093 8,500
 Mexico 5,108 5,367

Passenger fares 15,298 15,854

Other transportation 22,042 22,631
 Freight 8,379 8,651
 Port services 13,662 13,979

Royalties and other license fees 16,634 17,819
 Affiliated 13,250 14,106
 U.S. parents' transactions 12,867 13,523
 U.S. affiliates transactions 383 583
 Unaffiliated 3,384 3,712
 Industrial processes 2,333 2,435
 Other 1,052 1,277

Other private services 40,341 47,821
 Affiliated services 13,622 14,539
 U.S. parents' transactions 9,532 9,976
 U.S. affiliates transactions 4,090 4,563
 Unaffiliated services 26,719 33,282
 Education 5,126 5,679
 Financial services 4,417 5,012
 Insurance, net 230 491
 Premiums 3,388 3,365
 Losses 3,158 2,874
 Telecommunications 2,735 3,291
 Business, professional, and 7,752 12,045
 technical services
 Accounting, auditing, and 119 168
 bookkeeping services
 Advertising 130 274
 Agricultural services 4 56
 Computer and data processing
 services 1,031 1,738
 Construction, engineering,
 architectural, and mining
 services 867 1,478
 Data base and other information
 services 283 442
 Industrial engineering 473 363
 Installation, maintenance, and
 repair of equipment 2,031 2,574
 Legal services 451 1,309
 Mailing, reproduction, and
 commercial art 8 18
 Management of health care facilities 0 22
 Management, consulting, and public
 relations services 354 870
 Medical services 630 672
 Miscellaneous disbursements n.a. 89
 Operations leasing 801 796
 Personnel supply services 1 160
 Research, development, and testing
 services 384 602
 Sports and performing arts 47 71
 Training services 138 345
 Other business, professional, and
 technical services(1) n.a. n.a.

 Other unaffiliated services(2) 6,459 6,765

 Exports

 1992 1993

 Total private services 163,754 172,031

Travel 54,742 57,875
 Overseas 40,864 45,298
 Canada 8,182 7,458
 Mexico 5,696 5,119

Passenger fares 16,618 16,528

Other transportation 21,531 21,958
 Freight 8,441 8,594
 Port services 13,088 13,364

Royalties and other license fees 20,841 21,695
 Affiliated 15,658 15,688
 U.S. parents' transactions 14,925 14,936
 U.S. affiliates transactions 733 752
 Unaffiliated 5,183 6,007
 Industrial processes 2,525 2,820
 Other 2,657 3,187

Other private services 50,022 53,975
 Affiliated services 16,823 16,813
 U.S. parents' transactions 10,479 10,902
 U.S. affiliates transactions 6,344 5,911
 Unaffiliated services 33,199 37,162
 Education 6,186 6,738
 Financial services 4,034 4,999
 Insurance, net 682 1,020
 Premiums 3,852 3,981
 Losses 3,170 2,961
 Telecommunications 2,885 2,785
 Business, professional, and 11,722 12,958
 technical services
 Accounting, auditing, and 164 164
 bookkeeping services
 Advertising 315 338
 Agricultural services 54 47
 Computer and data processing
 services 776 986
 Construction, engineering,
 architectural, and mining
 services 1,935 2,407
 Data base and other information
 services 641 694
 Industrial engineering 212 268
 Installation, maintenance, and
 repair of equipment 2,744 2,978
 Legal services 1,358 1,442
 Mailing, reproduction, and
 commercial art 14 12
 Management of health care facilities 22 19
 Management, consulting, and public
 relations services 728 826
 Medical services 708 750
 Miscellaneous disbursements 97 222
 Operations leasing 854 834
 Personnel supply services 127 113
 Research, development, and testing
 services 611 464
 Sports and performing arts 43 77
 Training services 320 319
 Other business, professional, and
 technical services(1) n.a. n.a.

 Other unaffiliated services(2) 7,690 8,663

 Exports

 1994 1995

 Total private services 187,760 204,229

Travel 58,417 63,395
 Overseas 47,299 64,331
 Canada 6,252 6,207
 Mexico 4,866 2,857

Passenger fares 16,997 18,909

Other transportation 23,754 26,081
 Freight 9,575 11,273
 Port services 14,180 14,809

Royalties and other license fees 26,712 30,289
 Affiliated 20,275 22,859
 U.S. parents' transactions 19,250 21,399
 U.S. affiliates transactions 1,025 1,460
 Unaffiliated 6,437 7,430
 Industrial processes 3,026 3,513
 Other 3,411 3,917

Other private services 61,880 65,555
 Affiliated services 20,043 20,791
 U.S. parents' transactions 13,530 13,341
 U.S. affiliates transactions 6,513 7,450
 Unaffiliated services 41,838 44,764
 Education 7,174 7,515
 Financial services 5,763 7,029
 Insurance, net 1,676 1,296
 Premiums 4,921 5,491
 Losses 3,245 4,195
 Telecommunications 2,865 3,228
 Business, professional, and
 technical services 15,330 16,064
 Accounting, auditing, and
 bookkeeping services 132 181
 Advertising 487 425
 Agricultural services 30 30
 Computer and data processing
 services 1,306 1,340
 Construction, engineering,
 architectural, and mining
 services 2,474 2,550
 Data base and other information
 services 1,026 1,078
 Industrial engineering 575 726
 Installation, maintenance, and
 repair of equipment 3,497 3,218
 Legal services 1,617 1,667
 Mailing, reproduction, and
 commercial art 10 4
 Management of health care facilities 18 18
 Management, consulting, and public
 relations services 1,134 1,489
 Medical services 794 841
 Miscellaneous disbursements 222 251
 Operations leasing 925 978
 Personnel supply services 85 95
 Research, development, and testing
 services 522 638
 Sports and performing arts 86 116
 Training services 388 421
 Other business, professional, and
 technical services(1) n.a. n.a.

 Other unaffiliated services(2) 9,032 9,633

 Exports

 1996 1997

 Total private services 224,213 239,215

Travel 69,751 73,268
 Overseas 59,905 63,014
 Canada 6,842 6,824
 Mexico 3,004 3,430

Passenger fares 20,413 20,895

Other transportation 26,074 26,911
 Freight 11,146 11,773
 Port services 14,929 15,137

Royalties and other license fees 32,823 33,676
 Affiliated 24,710 25,515
 U.S. parents' transactions 22,781 23,457
 U.S. affiliates transactions 1,929 2,058
 Unaffiliated 8,113 8,161
 Industrial processes 3,488 3,272
 Other 4,625 4,889

Other private services 75,152 84,465
 Affiliated services 23,779 26,336
 U.S. parents' transactions 14,772 16,164
 U.S. affiliates transactions 9,007 10,172
 Unaffiliated services 51,374 58,128
 Education 7,888 8,278
 Financial services 8,382 11,064
 Insurance, net 1,971 2,391
 Premiums 5,978 5,952
 Losses 4,007 3,561
 Telecommunications 3,270 3,771
 Business, professional, and
 technical services 19,678 21,304
 Accounting, auditing, and
 bookkeeping services 253 255
 Advertising 551 581
 Agricultural services 20 25
 Computer and data processing
 services 1,634 1,616
 Construction, engineering,
 architectural, and mining
 services 3,560 4,084
 Data base and other information
 services 1,164 1,431
 Industrial engineering 915 1,098
 Installation, maintenance, and
 repair of equipment 3,703 3,468
 Legal services 1,973 2,085
 Mailing, reproduction, and
 commercial art 64 29
 Management of health care facilities 17 33
 Management, consulting, and public
 relations services 1,680 2,139
 Medical services 872 888
 Miscellaneous disbursements 338 362
 Operations leasing 1,281 1,422
 Personnel supply services 101 63
 Research, development, and testing
 services 688 862
 Sports and performing arts 152 174
 Training services 403 384
 Other business, professional, and
 technical services(1) 308 305

 Other unaffiliated services(2) 10,185 11,321

See footnotes at end of table.

Acknowledgments

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

Travel and passenger fares--Joan Bolyard and Laura Brokenbaugh

Other transportation--Patricia Watts and Ed Dozier

Royalties and license fees and other private services- affiliated, Gregory G. Fouch (for transactions of U.S. affiliates) and Mark W. New (for transactions of U.S. parents); unaffiliated, David H. Galler, Shirley J. Davis, Christopher J. Emond, Rafael I. Font, Pamela Aiken, Debra Blagburn, Annette Boyd, Faith Brannam, Hope Jones, Eddie L. Key, Christine Locke-Paddon, Steven Muno, John Sondheimer, Jane Newstedt, and Robert Becker.

The estimates of sales of services by affiliates were prepared by staff members of the International Investment Division. The estimates of sales by foreign affiliates were prepared by the staff of the Annual and Benchmark Section of the Direct Investment Abroad Branch; the estimates of sales by U.S. affiliates were prepared by the staff of the Annual and Benchmark Section of the Foreign Direct Investment in the United States Branch.

The information in tables 1, 2, 3, and 5 was consolidated by John Sondheimer, assisted by Robert Becker. Computer programming for data estimation and the generation of the remaining tables was provided by Arnold Gilbert and Angela Roberts, assisted by Neeta Kapoor.

(1.) See tables 1 and 3 in the quarterly article on the U.S. international transactions in this issue. In table 1, cross-border exports of private services are presented in lines 5-9, and cross-border imports, in lines 19-23. In table 3, additional detail is provided.

(2.) These data cover all sales of services by nonbank majority-owned affiliates, irrespective of the percentage of foreign ownership. The data are limited to nonbank affiliates because the surveys used to collect the data do not cover banking affiliates. The data exclude minority-owned affiliates because data on sales of services by foreign affiliates are collected only for affiliates that are majority-owned by U.S. direct investors. However, the exclusion of minority-owned affiliates may also be preferred for another reason: Since the direct investor may own as little as 10 percent of a minority-owned affiliate, the principal interest in the affiliate's sales may lie with local investors.

(3.) See Raymond J. Mataloni, Jr., "U.S. Multinational Companies: Operations in 1996," Survey of Current Business 78 (September 1998): 47 - 73, and Mahnaz Fahim-Nader and William J. Zeile, "Foreign Direct Investment in the United States: New Investment in 1997 and Affiliate Operations in 1996," Survey 78 (June 1998): 39-67.

(4.) The estimate presented in this article for U.S. cross-border sales (exports) in 1996 is approximately $2 billion higher than the estimate in the international transactions accounts. This new estimate, which is based on a correction to the previously published value for business professional, and technical services, will be incorporated into the accounts next June as part of the annual revision.

(5.) The term "affiliated" refers to a direct investment relationship--that is, a relationship in which an investor in one country directly or indirectly owns or controls 10 percent or more of the voting stock of an incorporated business, or an equivalent interest of an unincorporated business, in another country.

(6.) By balance-of-payments accounting convention, the importer is deemed to assume ownership of the goods when they cross the border of the exporting country and to bear all subsequent transportation costs. Thus, receipts of U.S. carriers for transporting U.S. imports are excluded from U.S. transportation receipts because, by this convention, they represent transactions between U.S. importers and U.S. vessel, airline, and truck operators. Similarly, payments to foreign carriers for transporting U.S. exports are excluded from U.S. payments because they represent transactions between foreign importers and foreign carriers.

(7.) Liner vessels carry dry cargo on a schedule; tanker vessels carry liquid cargo; and tramp vessels carry dry cargo on an unscheduled basis.

(8.) Under the current settlements-based system for international telecommunications transactions, a carrier in one country agrees on a price (an accounting rate) for handling a call with a carrier from another country. If a carrier originates more minutes of calls to a foreign carrier than it completes, it periodically makes a settlement payment to the foreign carrier.

(9.) Sales of computer and data processing services are not only made through foreign affiliates in the industry that provides these services, but also in several other industries, including machinery manufacturing and wholesale trade.

(10.) Real gross domestic product (GDP) in the United States grew 3.9 percent in 1997 and 3.4 percent in 1996; real GDP in Japan grew 0.9 percent in 1997 and 3.4 percent in 1996.

(11.) In this section, sales of services are defined as sales of the types of services that are usually sold by establishments classified in the industries listed in the footnote to table C.

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

(13.) In the SIC, the "services" division includes a variety of business and personal services (see the group "services" in tables 9 and 10), but it excludes several industries--such as finance, insurance, transportation, and communication--that are classified as services-producing industries in this article in order to disaggregate total sales into sales of goods and sales of services.

(14.) For additional information about U.S. direct investment abroad in 1996 see Sylvia E. Bargas, "Direct Investment Positions for 1996: Country and Industry Detail," Survey 77 (July 1997): 34-41, and Mataloni, "Operations in 1996."

(15.) The "services" and manufacturing industries in which foreign affiliates are likely to sell computer-related services are, respectively, "computer and data processing services" and "computer and office equipment manufacturing" (part of "machinery" in table 9). Sales of services to foreigners by affiliates classified in these two industries increased $10.5 billion in 1996--a third of the total increase. Not all services sold by affiliates in these industries are computer and data processing services, but most of them probably are. In addition, some computer and data processing services may be sold by affiliates classified in other industries.

(16.) According to data from BEA'S survey of new foreign direct investments, foreign direct investors' outlays to acquire or establish U.S. businesses were a record $79.9 billion in 1996. See Fahim-Nader and Zeile, "Foreign Direct Investment in the United States."

RELATED ARTICLE: Channels of Delivery of Services Sold in International Markets: Cross-Border Transactions and Sales by Affiliates

Services are sold in international markets through two distinct channels. The first channel is cross-border transactions in services that are sold by residents of one country to residents of another country. These transactions consist of 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 by the buyer's country.

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

Since 1986, a majority of U.S. sales of services to foreigners appear to have been delivered through cross-border transactions (data on bank affiliate sales are not available), but sales for the two channels were about equal in 1996. In contrast, since 1989, a majority of U.S. purchases of services from foreigners have been from the foreigners' affiliates located in the United States.

Both channels may sometimes be involved in the delivery of a particular service. For example, if an affiliate sells services abroad and if the affiliate's parent does some of the work and bills the cost to the affiliate, the amount received by the affiliate from the foreign customer is recorded under sales by affiliates, and the funds received by the parent from the affiliate for its share of the work is recorded as intrafirm trade in cross-border transactions However, because the parent's receipts are recorded under both channels directly in the cross-border transactions and implicitly embodied in the sales by affiliates the data for the two channels may be duplicated and therefore cannot simply be added together.(1)

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

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

For specific services, the relative importance of the two channels is difficult to gauge because the available data on U.S. cross-border transactions are generally classified by type of service, whereas the data on sales of services by affiliates are classified by primary industry of the affiliate. The difference in classification reflects BEA'S effort, in designing its direct investment surveys, to strike a reasonable and appropriate balance between the needs of data users for detailed data and the concerns of respondents about the burdens imposed. A disaggregation of affiliate sales by type of service would be useful, but this detail would add significantly to the burden imposed on respondents.

(1.) At an aggregate level and for transactions in goods as well as in services, BEA has provided a duplication-free economic-accounting framework for integrating data on cross-border trade with data on sales by affiliates; however, because of differences in the basis of classification and for other technical reasons, this framework cannot be extended to the level of detail reflected in this article. See J. Steven Landefeld, Obie G. Whichard, and Jeffrey H. Lowe, "Alternative Frameworks for U.S. International Transactions," Survey of Current Business 73 (December 1993): 50 - 61; and Obie G. Whichard and Jeffrey H. Lowe, "An Ownership-Based Disaggregation of the U.S. Current Account, 1982-93," Survey 75 (October 1995): 52-61.

RELATED ARTICLE: New Detail on Intrafirm Trade in Cross-Border Transactions in Services

As part of its initiative to improve the source data used in preparing the estimates of U.S. international transactions in private services, BEA has begun collecting more detailed data by type of service on cross-border sales and purchases of services between U.S. parents and their foreign affiliates and between foreign parents and their U.S. affiliates. These affiliated (intrafirm) services transactions previously were included in the cross-border estimates of "other private services," but the data were not collected in a form that could be disaggregated by type of service.

The expanded detail was first collected in BEA'S 1994 benchmark survey of U.S. direct investment abroad (USDIA) and has since been reported once a year on BEA'S quarterly sample survey of USDIA. This detail is also being collected on surveys of foreign direct investment in the United States, beginning with the benchmark survey for 1997, which is currently being processed.

In the surveys, respondents disaggregate their affiliated services transactions into five categories of services and a residual category: Insurance services, financial services, transportation services, computer and information services, communications services, and all other services.(1) The five categories were selected partly to conform with the services categories in cross-border transactions and partly on the basis of the classifications for services recommended in the fifth edition of the International Monetary Fund's Balance of Payments Manual.

Preliminary estimates of the transactions between U.S. parents and their foreign affiliates for 1994-97 are now available (see the accompanying table). The estimates for 1994 incorporate the 1994 benchmark survey data; the estimates for 1995-97 were extrapolated from the benchmark data on the basis of movements in the data reported on the quarterly sample surveys.

As shown in the table, more than three-fourths of receipts and more than two-thirds of payments are in the "Other services" category. A significant portion of the transactions in "Other services" is believed to be accounted for by overhead expenses, such as management services and research and development assessments, that are allocated among the various divisions or parts of an enterprise.

The new detail on affiliated services by type of service will be published annually in this article. In the coming year, BEA will be considering how best to incorporate the new detail into the cross-border estimates.

New Detail on Sales and Purchases of Services Between U.S. Parents and Their Foreign Affiliates, by Type, 1994-97--Preliminary Estimates [Billions of dollars]

 1994 1995 1996 1997

U.S. parents' receipts:
 Total(1) 10.8 10.4 11.6 12.6
 Financial services .8 .9 .9 .9
 Transportation services .2 .3 .4 .4
 Computer and information services .8 .8 1.0 1.5
 Communication services .1 .1 .1 .2
 Other services 8.8 8.3 9.2 9.6

U.S. parents' payments:
 Total(1) 6.8 7.1 7.6 9.0
 Insurance services .1 .1 .1 .2
 Financial services .7 1.1 1.5 1.8
 Transportation services .5 .6 .6 .4
 Computer and information services .4 .3 .3 .5
 Communication services (*) .1 .1 .2
 Other services 5.1 4.9 4.9 5.9

(*) Less than $0 million.

(1.) Included in U.S. parents' transactions under "other private services," affiliated, in table 1. (That item also includes receipts and payments of rentals for the use of tangible property and of film and television tape rentals.)

(1.) The transactions reported for insurance services are limited to those not already collected on other surveys--specifically, to purchases of primary insurance (and the related recovery of losses) by U.S. parent companies from foreign affiliates in insurance.

RELATED ARTICLE: Revisions to the Estimates of Cross-Border Services Transactions

The estimates of cross-border services transactions were revised to incorporate several reclassifications and improvements in source data. The revised estimates were first presented in summary form in tables 1and 3 of "U.S. International Transactions, Revised Estimates for 1986-97" in the July 1998 Survey of Current Business. That article also discussed the sources of the revisions, which are summarized below.

Transportation services.--"Other" freight receipts and payments for the transportation of U.S. goods exports by truck between the United States and Canada were revised to incorporate new source data from Statistics Canada. A new analysis by Statistics Canada of some of the key components of the U.S. estimates of receipts and payments for truck transportation indicated that these estimates were overstated.

The estimates of operational leasing of transportation equipment without crew were reclassified from the "other" transportation accounts to the "other" private services accounts. Concurrently, operational leasing of transportation equipment with crew, which is closer in nature to the provision of transportation services than to equipment rentals, was retained in the transportation account, but it was reclassified to the freight component from the "other" component. As a result, "other" transportation receipts and payments each now have two components--freight services and port services--in tables 3.1-3.4 of this article, rather than the three shown previously.

Affiliated transactions.--Receipts and payments of royalties and license fees and of "other" private services between U.S. parents and their foreign affiliates were revised to incorporate the results of BEA's benchmark survey of U.S. direct investment abroad for 1994. Revisions from the quarterly follow-on surveys for 1995-97 were also incorporated.

Royalties and license fees.--Beginning with 1992, computer software royalties and fees were reclassified to royalties and license fees from "other" private services. The reclassification better reflects the acquisitions and sales of rights to use or reproduce computer software as transactions involving intangible, nonproduced, nonfinancial assets and proprietary rights (such as patents, copyrights, trademarks, industrial processes, and franchises) and combines them with other, similar transactions

"Other" private services.--The estimates of business, professional, and technical services were revised to incorporate the final results of BEA'S 1996 Benchmark Survey of Selected Services Transactions with Unaffiliated Foreign Persons; preliminary results of this survey for most of these services were introduced into the accounts last year. The final results were also incorporated into the detailed estimates of transactions for telecommunications, advertising receipts, computer and data processing receipts, and database and other information receipts that are collected only in the quinquennial benchmark surveys (see the accompanying table).

This year, operational leasing and merchanting services were introduced into the accounts as components of "business, professional, and technical services."(1) The coverage of receipts and payments for operational leasing of equipment is now more comprehensive as a result of the expanded coverage on BEA'S 1996 benchmark survey of selected services.

The 1996 survey provided data that filled gaps in several new and growing services categories, such as operational leasing services and "other business, professional, and technical services," which include language translation services, merchanting services, security services, collection services, actuarial services, salvage services, selling agent services, satellite photography services, and oil spill and toxic waste cleanup services. Preliminary estimates for most of these services were introduced into the accounts last year.

Estimates for business, professional, and technical services transactions that fall below the exemption levels for reporting on the benchmark and annual follow-on surveys were introduced into the accounts this year. The amounts, though small, have been growing, and their inclusion in the universe estimates eliminates a source of understatement. On the benchmark survey, all U.S. individuals, companies, and other organizations whose sales or purchases of a service exceeded $500,000 are required to file a report. On the annual follow-on surveys, the threshold is $1 million. For 1996, $140 million was added to receipts and $82 million was added to payments; for 1997, $155 million was added to receipts, and $100 million was added to payments.

In addition, the data from respondents whose total transactions in some types of services were at or below the threshold for reporting have been distributed by country and area. These respondents may voluntarily report the total receipts and total payments for each service but without a disaggregation by country. A newly developed estimation procedure is used to distribute the data that were previously included in the "Unallocated" area category; the procedure distributes the data using proportions based on reports from respondents who do provide a disaggregation by country. For 1996, receipts of $60 million and payments of $70 million were distributed by country, and for 1997, receipts of $65 million and payments of $105 million were distributed; total receipts and payments were not affected by this distribution.

Added Detail Collected in the 1996 Benchmark Survey of Selected Services Transactions With Unaffiliated Foreign Persons Revised--Estimates

[Billions of dollars]

 U.S. receipts

Advertising 0.6
 Through agencies .3
 Direct sales by media companies .2

Computer and data processing services .6
 Data entry, processing, and tabulation .3
 Systems analysis, design, engineering, .6
 and custom programming
 Integrated hardware/software systems .3
 Other .4

Data base and other information services 1.2
 Business and economic data base services .3
 Miscellaneous data base services .1
 Other .7

 U.S. payments

Telecommunications 3.3
 Message telephone services 2.6
 Private leased channel services .4
 Telex, telegram, and other (*)
 jointly-provided (basic) services (*)
 Value added services .2
 Support services

Telecommunications 8.3
 Message telephone services 8.2
 Private leased channel services (*)
 Telex, telegram, and other (*)
 jointly-provided (basic) services
 Value added services (*)
 Support services (*)

(*) Less than $50 million.

NOTE.--Details may not add to totals because of rounding.

(1.) Merchanting services consist of buying goods (such as crude oil, grain, and other commodities) abroad and reselling them to unaffiliated foreign persons. The goods do not undergo significant processing between the time they are purchased and the time they are sold. The transaction is reported as the difference between the cost of the goods and the resale price of the goods.

RELATED ARTICLE: Data Sources and Availability

Data sources

Most of the estimates of the transactions in private services are based primarily on data from the surveys conducted by BEA. However, the estimates for some services are based on a variety of other sources, including surveys conducted by other Federal Government agencies, data provided by private sources, customs data, and data from partner countries.

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

More detailed information on these surveys is available in the recently published U.S. International Transactions in Private Services: A Guide to the Surveys Conducted by the Bureau of Economic Analysis. The Guide presents general information about the classification, definition, and release schedules of all the surveys, and it provides details for each survey on the transactions covered, the frequency of the surveys, the numbers of respondents, and the methods that were used to prepare the estimates.

The Guide is available on BEA'S Web site at <www.bea.doc.gov>, or by writing to the International Investment Division, BE-50, Bureau of Economic Analysis, Washington, DC 20230. For further information, call 202-606-9804.

Data on cross-border transactions with affiliated foreigners and on sales by majority-owned affiliates are collected in BEA'S surveys of U.S. direct investment abroad and of foreign direct investment in the United States; the methodologies for these surveys are described in U.S. Direct Investment Abroad: 1994 Benchmark Survey, Final Results (Washington, DC: U.S. Government Printing Office, 1998) and in Foreign Direct Investment in the United States: 1992 Benchmark Survey, Final Results (Washington, DC: U.S. Government Printing Office, 1995).

For additional information on the methodology used to prepare the estimates of cross-border transactions-- both affiliated and unaffiliated--and on the balance-of payments concepts, see The Balance of Payments of the United States: Concepts, Data Sources, and Estimating Procedures (Washington DC: U.S. Government Printing Office, 1990). For changes in methodology that have been made since 1990, see the section "Technical Notes" in the quarterly articles on the U.S. international transactions in the June 1990, and 1991 issues of the Survey of Current Business, the section Revised Estimates for 1976-91" in the June 1992 issue, and the annual articles on the revised estimates of U.S. international transactions in the June 1992-95 issues and in the July 1996-98 issues.

These methodologies and the Survey articles for July 1996-98 are available on BEA'S Web site at <www.bea.doc.gov>.

Data availability

The estimates of cross-border transactions for 1986-97 and of transactions by majority-owned affiliates for 1989-96 are available as "U.S. International Private Services, 1986-97," product number IDN-0215.(1)

This product is available as a downloadable file for free on BEA'S Web site at <www.bea.doc.gov> and as a diskette for $20.00 from BEA. To access the file on the Web site, click on Catalog of Products, and look under International Accounts Products, Balance of Payments. To order the diskette using MasterCard or Visa, call the BEA Order Desk at I-800-704-0415 (outside the United States, 202-606-9666). To order by mail, send a check or money order payable to "Bureau of Economic Analysis, BE-53 to BEA Order Desk, BE-53, Bureau of Economic Analysis, U.S. Department of Commerce, Washington, DC 20230.

(1.) The estimates for 1986-91 do not include the expanded country detail. Some estimates of transactions by majority-owned affiliates are available for years before 1989, but they are not comparable with the estimates beginning with 1989.

Michael A. Mann and Laura L. Brokenbaugh prepared the section on cross-border transactions. Sylvia E. Bargas prepared the section on sales by affiliates.