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

Mann, Michael A. ; Atherton, Daniel J. ; Brokenbaugh, Laura L. 等

U.S. International trade in both goods and services relative to total U.S. economic activity has grown over time, reflecting among other factors, the rise in incomes in the United States and abroad, the dismantling of trade barriers, and the technological revolution in communications and transportation. For exports, the growth has been relatively stronger for services than for goods, while for imports, it has been relatively stronger for goods than for services. Associated with these developments have been shifts in trade balances that suggest the emergence of a U.S. comparative advantage in the provision of services. In 1960, the United States had a trade surplus on goods of $4.9 billion, but trade on private services was roughly in balance. By 1971, the trade surplus on goods had turned into a deficit, which subsequently grew. In contrast, by 1964, the U.S. had a trade surplus on private services, which increased in most of the years that followed. By 1995, the goods deficit had reached $173.4 billion, while the services surplus had expanded to $66.8 billion. Concurrent with these developments in cross-border trade, rapid growth in international direct investment fostered an expansion in the volume of services delivered through affiliates of multinational companies.

This article presents detailed estimates of U.S. international sales and purchases of private services through two distinct channels. The first is cross-border transactions between U.S. residents and foreign residents. These transactions represent international trade in the conventional sense and are recorded, in summary form, in the U.S. international transactions accounts that are published quarterly in the January, April, July, and October issues of the Survey of Current Business. The second channel is sales of services by majority-owned affiliates of multinational companies, which cover the sales of services abroad by nonbank majority-owned foreign affiliates of U.S. companies and the sales of services in the United States by nonbank majority-owned U.S. affiliates of foreign companies.(1) These sales are drawn from larger data sets on affiliate operations that are presented and discussed in annual articles in the Survey on the operations of U.S. multinational companies and of U.S. affiliates of foreign companies. (For further discussion, see the box below.) Most of the estimates are based on surveys conducted by BEA (see the box "Data Sources" on page 74).

For cross-border transactions, U.S. sales of services to foreigners rose 8 percent in 1995, slightly above the 7-percent growth in U.S. purchases of services from foreigners. In 1995, as in 1994 but not as in most other recent years, both growth rates were well below the corresponding growth rates of trade in goods: U.S. exports of goods increased 15 percent, and U.S. imports of goods increased 12 percent.

Annual data for cross-border transactions now cover 1995, but 1994 is the most recent year for which data are available on services delivered through majority-owned affiliates; in 1994, for both channels of delivery, U.S. purchases of services from foreigners expanded more rapidly than U.S. sales of services to foreigners. For cross-border transactions, U.S. purchases increased 9 percent, and U.S. sales increased 6 percent. For services delivered through majority-owned affiliates, U.S. purchases increased 7 percent, and U.S. sales increased 3 percent.(2)

Additional highlights for 1994 include the following:

* For U.S. sales of services to foreigners, the predominant channel of delivery was the cross-border channel; for U.S. purchases of services from foreigners, in contrast, the predominant channel was the affiliate channel (table A, chart 1).

[TABULAR DATA OMITTED]

* For Europe, both sales and purchases were predominantly through the affiliate channel, reflecting heavy concentrations of direct investment in and from the United States (chart 2). For Latin America and for Asia and Pacific, sales and purchases were predominantly through the cross-border channel, reflecting the smaller concentrations of direct investment in and from those areas.

* Most U.S. sales of services to Japan were through the cross-border channel (chart 3). However, most U.S. purchases of services from Japan were through the affiliate channel, reflecting the large amount of Japanese direct investment in the United States. For the United Kingdom, the affiliate channel predominated for both sales and purchases. For Canada, purchases were predominantly through the affiliate channel, but sales through the two channels were roughly equal.

The remainder of this article is in two parts. The first part discusses cross-border sales and purchases, and it presents preliminary estimates for 1995 and revised estimates for 1986-94. The second part discusses sales through majority-owned affiliates, and it presents preliminary estimates for 1994 and revised estimates for 1993. The estimates for cross-border transactions in financial services presented in this article reflect new source data (see the box "Improved Estimates of Unaffiliated Financial Services" on page 75).

U.S. Cross-Border Transactions in 1995

U.S. exports of cross-border services (receipts) increased 8 percent in 1995, compared with a 6-percent increase in 1994. U.S. imports of cross-border services (payments) increased 7 percent in 1995, down from a 9-percent increase in 1994. The faster growth of exports than of imports in 1995 reversed the pattern of the previous 2 years.

Additional highlights for 1995 are as follows:

* Exports and imports of all the major categories of services increased in 1995. In percentage

In percentage terms, the fastest growing category of exports was royalties and license fees, followed by "other transportation." The fastest growing category of imports was royalties and license fees, closely followed by "other private services."

 Percent change from prior year

 Exports Imports
 1994 1995 1994 1995

Private services ............ 6 8 9 7
 Travel and passenger fares. 1 6 9 6
 Others transportation ..... 8 9 6 4
 Royalties and license fees. 10 21 16 14
 Other private services..... 11 4 11 10

* In dollar terms, the largest increase in exports in 1995 was in royalties and license fees, particularly receipts of U.S. parent companies from their foreign affiliates. This increase was largely accounted for by transactions with affiliates in two industries - manufacturing and wholesale trade - and in two areas - in Europe and in Asia and Pacific. The largest increase in imports was in travel and passenger fares.

 Change from prior year in millions
 of dollars

 Exports Imports

 1994 1995 1994 1995

Private services.............. 10,565 13,707 10,132 8,507
 Travel and passenger fares .. 1,014 4,171 4,641 3,501
 Other transportation ........ 1,967 2,202 1,655 1,222
 Royalties and license fees ...1,949 4,681 753 794
 other private services ........5,635 2,653 3,083 2,990

* By country, U.S. exports of services to Japan continued to far exceed those to any

other country and, in contrast to the large U.S. deficit in trade in goods with Japan, were more than double U.S. imports of services from Japan. U.S. services imports from the United Kingdom continued to exceed those from any other country.

The following two sections discuss cross-border services transactions in 1995 by major 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 U.S. international transactions accounts. The transactions covered are those of U.S. residents with both affiliated and unaffiliated foreign residents.(3) Affiliated transactions consist of within-firm trade by multinational companies-specifically, transactions between U.S. parent companies and their foreign affiliates and transactions 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.)

By type of service

Cross-border services 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. These categories are described below, followed by a discussion of developments in each category in 1995.

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

U.S. receipts for travel increased 5 percent in 1995, to $61.1 billion, following a 1-percent increase in 1994. The increase in 1995 was more than accounted for by an increase in receipts from travelers from overseas, which partly reflected continued depreciation of the dollar against many foreign currencies; one-half of the increase in overseas receipts was accounted for by the Asian and Pacific area. Receipts from Canada were down 1 percent in 1995, following a 16-percent decrease in 1994. Receipts from Mexico decreased 41 percent, as the sharp decline in the value of the peso at year end 1994 and a weak Mexican economy throughout much of 1995 severely restrained Mexican expenditures in the United States.

U.S. payments for travel increased 5 percent in 1995, to $45.9 billion, following an 8-percent increase in 1994. This deceleration largely reflected a fall off in payments for overseas travel - to 5 percent in 1995 from 8 percent in 1994. U.S. payments to Canada increased 8 percent in 1995, following a 6-percent increase in 1994. U.S. payments to Mexico decreased slightly, following a 3-percent increase.

Passenger fares. - This category covers fares paid by residents of one country to vessel and airline operators resident 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 8 percent in 1995, to $18.5 billion, following a 3-percent increase in 1994. The acceleration largely reflected a step-up in travel from Central and South America and from Japan. U.S. passenger fare payments increased 11 percent, to $14.3 billion, in 1995, following a 14-percent increase in 1994. The 1995 increase reflected a rise in travel to the United Kingdom and to the Far East.

Other transportation. - This category primarily covers transactions for freight and port services arising from the transportation of goods by ocean, air, and truck to and from the United States. Freight receipts of U.S. carriers arise from transportation of U.S. goods exports and from the transportation of goods between two foreign points; freight payments to foreign carriers arise from the transportation of U.S. goods imports.(4) Port services receipts are the value of the goods and services procured by foreign carriers in both U.S. ocean and air ports; port services payments are the value of the goods and services procured by U.S. carriers in foreign ocean and air ports.

Receipts for "other transportation" increased 9 percent in 1995, to $28.1 billion, following an 8-percent increase in 1994. Freight receipts increased 11 percent, following a 12-percent increase; these increases reflected strong foreign demand for U.S. products, as U.S. goods exports increased 15 percent in 1995 - the second consecutive year of strong growth. Port services receipts also contributed to the pickup, as foreign ocean carriers' expenses in U.S. ports increased nearly 10 percent.

Payments for "other transportation" increased 4 percent in 1995, to $29.2 billion, following a 6-percent increase in 1994. The increase in 1995 was limited by a leveling off of U.S. imports in the second half of the year. Port expenditures by U.S. airlines in the Asian and Pacific area increased 10 percent, but they were more than offset by an 8-percent drop in ocean freight payments to Japan. This drop was attributable to a 12-percent decrease in U.S. import tonnage from Japan in 1995, following a 14-percent increase in 1994.

Royalties and license fees. - This category covers transactions with foreign residents that involve patented or unpatented techniques, processes, formulas, and other intangible property rights used in the production of goods, as well as transactions involving copyrights, trademarks, franchises, broadcast rights, and other intangible rights.

Receipts of royalties and license fees increased 21 percent in 1995, to $29.2 billion, following a 6-percent increase in 1994. The large increase in 1995 was attributable to a 23-percent increase in receipts of U.S. parent companies from their foreign affiliates. This increase was largely concentrated in two industries - manufacturing and wholesale trade, mainly from affiliates whose U.S. parents are in the computer industry - and in two areas - in Europe and in Asia and Pacific. Royalties and license fees received from unaffiliated foreigners increased 10 percent in 1995, reflecting a 9-percent increase in fees for the use of industrial processes.

Payments for royalties and license fees increased 14 percent in 1995, to $6.3 billion, close to the rate of increase in 1994. However, there were large divergent movements within this category. Payments to affiliated foreigners surged, largely reflecting a 32-percent increase in payments by U.S. affiliates to their foreign parent companies. In contrast, payments to unaffiliated foreigners decreased 32 percent in 1995, partly because payments for broadcast rights and corporate sponsorships associated with the Winter Olympics in Norway and the World Cup soccer tournament in the United States pushed payments to an unusually high level in 1994.

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

Receipts for "other private services" increased 4 percent in 1995, to 61.7 billion, following an 11-percent increase in 1994. Affiliated services receipts increased 7 percent, to $19.5 billion, primarily reflecting increased receipts by U.S. affiliates from their foreign parents. Unaffiliated services receipts increased 3 percent, to $42.3 billion, reflecting modest increases across most services categories.

Payments for "other private services" increased 10-percent in 1995, to $34.0 billion, following an 11-percent increase in 1994. Payments to affiliated foreigners increased 17 percent; the increase was distributed evenly between U.S. parents' and U.S. affiliates' transactions. Payments to unaffiliated foreigners increased 5 percent, approximately one-half the rate of increase in 1994.

"Education" receipts consists largely 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 in 1995, and payments increased 7 percent.

"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. (For additional information, see the box "Improved Estimates of Unaffiliated Financial Services.") Receipts for financial services increased 9 percent in 1995, and payments increased 6 percent.

"Insurance" includes premiums received 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 includes life insurance, accident and health insurance, and property and casualty insurance. Each type of primary insurance may be reinsured by the primary insurer; 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 1995, net insurance receipts decreased 7 percent. Net insurance payments increased 19 percent, as losses recovered returned to more normal levels, reflecting a general lack of catastrophic events that would have triggered large payments from foreign reinsurers in 1995.

"Telecommunications" includes 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; and value-added services, such as electronic mail, video conferencing, and support services. Receipts for telecommunications services decreased 1 percent in 1995 and payments decreased 2 percent, as the dollar value of settlements related to international long distance telephone traffic was depressed by rate reductions in the United States and abroad.

"Business, professional, and technical services" covers a variety of services, such as computer and data processing and installation, maintenance, and repair of equipment (see table 1). Receipts for business, professional, and technical services increased 3 percent in 1995; increases in database services, research and development, and construction services were partly offset by a decrease in the installation, maintenance, and repair of equipment. Payments for business, professional, and technical services increased 6 percent.

"Other unaffiliated services" receipts covers a wide variety of services, including expenditures by foreign governments for services related to maintaining embassies and consulates in the United States; expenditures of international organizations headquartered in the United States, such as the United Nations, the International Monetary Fund, and the World Bank; and receipts from unaffiliated foreigners for the sale and rental of U.S. motion picture and television films and tapes. Payments consist primarily of earnings of foreign residents employed temporarily in the United States and of payments by U.S. film distributors to unaffiliated foreign residents for the purchase of motion picture and television films and tapes. Receipts increased 2 percent in 1995, a payments increased 4 percent.

By area

For both exports and imports, the European area and the Asian and Pacific area accounted for more than two-thirds of total U.S. cross-border transactions in private services in 1995 (chart 4). In addition, most U.S. services transactions are with a relatively small number of countries. For both exports and imports, 12 countries accounted for almost two-thirds of the total transactions in private services (table B). Moreover, the top six countries accounted for nearly one-half of total exports and more than one-half of total imports of private services.

[TABULAR DATA OMITTED]

Europe. - This area accounted for 36 percent of exports and 40 percent of imports of private services in 1995. The U.S. services surplus with Europe reached $19.1 billion. The United Kingdom ranked as the worldwide leader in all the major categories of imports of services except "other transportation."

European travelers to the United States accounted for 32 percent of total U.S. travel and passenger fare receipts; payments by U.S. travelers to Europe accounted for 41 percent of U.S. travel and passenger fare payments. The United Kingdom and Germany were the two most common destinations for U.S. travelers to Europe, either as a final destination or as a gateway to other overseas destinations.

For royalties and license fees, receipts from Germany accounted for more than 10 percent of U.S. receipts - second only to those from Japan. The transactions with both Germany and Japan primarily reflected U.S. parents' receipts from their foreign affiliates, which were largely concentrated in the manufacturing industry.

Asia and Pacific. - This area accounted for 32 percent of exports and 26 percent of imports of private services in 1995. The U.S. services surplus with this area reached $29.2 billion, the highest of any area.

Among the countries in this area, Japan was the largest U.S. trading partner in services; it accounted for 16 percent of U.S. exports and for 11 percent of U.S. imports in 1995. The U.S. services surplus with Japan reached $l7.0 billion, the largest surplus with any country; this surplus contrasts sharply with the large goods deficit with Japan. Much of the surplus was attributable to travel; Japanese travelers to the United States accounted for more than 21 percent of total U.S. travel and passenger fare receipts in 1995. In contrast, U.S. residents traveling to Japan accounted for less than 6 percent of total U.S. travel and passenger fares payments.

In addition, Japan accounted for 19 percent of other transportation" payments and 20 percent of royalty and license fee receipts in 1995. The high share of "other transportation" payments reflects the large volume of U.S. goods imports from Japan and the relatively large distance between the two countries. The high share of royalty and license fee receipts largely reflected U.S. parent companies' receipts from their foreign affiliates.

Latin America and Other Western Hemisphere. - This area accounted for 15 percent of U.S. exports and 19 percent of U.S. imports of private services in 1995. The surplus with the area was $6.1 billion. Travel and passenger fares dominated the transactions between the United States and Latin America and Other Western Hemisphere, accounting for 56 percent of U.S. exports and 62 percent of U.S. imports with this area. Mexico accounted for nearly 5 percent of U.S. travel exports and more than 12 percent of U.S. travel imports. Within the "other private services" category, 25 percent of U.S. receipts for financial services were accounted for by Latin America and Other Western Hemisphere. This high percentage was largely attributable to services provided to financial institutions in Caribbean financial centers. Latin America and Other Western Hemisphere accounted for 41 percent of U.S. net insurance payments, primarily to Bermuda, and for 35 percent of U.S. telecommunications payments. The large net payments to Bermuda reflected the premiums paid to reinsurance companies, many of which are located in Bermuda because of favorable tax conditions.

Canada. - Canada accounted for 9 percent of U.S. exports and 10 percent of U.S. imports of private services in 1995. The U.S. surplus with Canada reached $5.6 billion, the next largest surplus after that with Japan. The high level of "other transportation" exports and imports with Canada partly reflects the high volume of goods shipped by truck between the two countries. Exports of "other private services" to Canada exceeded those to any other country; Canada's proximity to the United States may enable U.S. firms to deliver business, professional, and technical services to Canadian markets that in the case of more distant trading partners, could only be delivered through foreign affiliates.

Other. - The remaining areas - Africa, the Middle East, and "International organizations and unallocated" - together accounted for 7 percent of U.S. exports and 65 percent of U.S. imports of private services in 1995. Within "other private services," more than 9 percent of U.S. exports of education services were accounted for by students from Africa and the Middle East who are studying in the United States, and more than 6 percent of U.S. receipts for business, professional, and technical services were accounted for by Saudi Arabia.

Sales by Affiliates in 1994

In 1994, worldwide sales of services by nonbank majority-owned foreign affiliates of U.S. companies were $165-.6 billion, up 6 percent from 1993 (table 8).(5) However, roughly 70 percent of this increase was accounted for by affiliates that were established or acquired by U.S. direct investors in prior years but were not reported to BEA until data for 1994 were reported in its 1994 Benchmark Survey of U.S. Direct Investment Abroad.(6) Thus, the 6-percent increase of 1994 overstates the actual increase in sales that occurred between 1993 and 1994. If the returns of these affiliates are omitted from the total for 1994, sales in 1994 were up $2.9 billion, or about 2 percent. Worldwide sales of services by nonbank majority-owned U.S. affiliates of foreign companies were $153.6 billion, up 7 percent.

Sales of services by affiliates tend to be predominantly local, reflecting the importance of proximity to the consumer in he delivery of many services. In 1994, sales in the country of the affiliate (local sales) accounted for 84 percent of worldwide sales of services by foreign affiliates.(7) An additional 9 percent of sales were to other foreign countries. Only 7 percent of sales by foreign affiliates were to U.S. persons, and a majority of these sales were to the U.S. parents of the affiliate making the sale. Partly reflecting the large internal market of the United States, local sales accounted for 94 percent of sales by U.S. affiliates.

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 according to the primary industry of the affiliate.(8) These sales are shown by country of affiliate or ultimate beneficial owner (UBO) in table 9.(9) The sales by foreign affiliates in table 10 and by U.S. affiliates in table 11 are shown by industry of affiliate cross-classified by country.

In the discussion in the following two sections, the estimates for 1994 are compared with the estimates for 1993 and for 1989, the earliest year for which comparable data by country and by industry are available for both foreign affiliates and U.S. affiliates.

Foreign affiliates' sales to foreign persons

In 1994, foreign affiliates' sales to foreign persons were up $10.9 billion, or 8 percent, to $153.5 billion. Excluding the returns of affiliates that were established or acquired in prior years but that were first reported to BEA in the 1994 benchmark survey, sales were up $4.6 billion, or about 3 percent, compared with a 1-percent increase in 1993. Continuing operations of affiliates already in the direct investment universe accounted for a little over one-half of the 1994 increase, and the rest was accounted for by affiliates that were established or acquired in 1994.

By area, almost all of the $10.9 billion increase in foreign affiliates' sales in 1994 was accounted for by a $9.2 billion increase in sales by affiliates located in the Asia and Pacific area. The increase in Asia and Pacific reflected strong economic growth in several countries, the entrance of new affiliates into the direct investment universe, and - in the case of Japan - depreciation of the dollar against the yen, which raised the dollar value of yen-denominated sales. By country, the increase was largest for affiliates in Japan, followed by those in New Zealand and Australia.

In the other major areas, sales of services by affiliates grew only slightly or decreased. Despite the effect of dollar depreciation against the European currencies, foreign sales by European affiliates increased only $0.4 billion in 1994. Sales by affiliates in Canada decreased $1.3 billion, falling to their lowest level since 1989.

By industry, sales by affiliates classified in the "services" division of the Standard Industrial Classification (sic) - a narrower definition of "services" than that used elsewhere in this article - increased $8.6 billion, accounting for more than three-fourths of the total increase in foreign affiliate sales.(10) Within "services," affiliates whose primary industry was the provision of computer and data processing services had the largest increase, much of it due to the entrance of new affiliates into the direct investment universe. The largest decrease in sales - $2.9 billion - was in wholesale trade and was almost entirely accounted for by wholesalers of "professional and commercial equipment and supplies."

By area. - Affiliates in Europe had the largest share of foreign affiliates' sales of services to foreigners in 1994, accounting for 52 percent of the total. This share has drifted downward slightly since 1989. Within Europe, affiliates in the United Kingdom, Germany, France, and the Netherlands accounted for the largest shares of sales. Affiliates in Asia and Pacific had the next largest share, 25 percent, up from 20 percent in 1989. Affiliates in Japan accounted for nearly one-half of the sales within Asia and Pacific.

The share of affiliates in Canada was 11 percent, down from 16 percent in 1989. This decline probably reflects relatively sluggish economic conditions in Canada during this period.

Affiliates in Latin America and Other Western Hemisphere had an 8-percent share. Affiliates in the "Other" area - Africa, Middle East, and international - had a 3-percent share.

By industry. - Affiliates classified in "services" had the most sales of services to foreigners in 1994 and accounted for 36 percent of the total, up from 30 percent in 1989. Within "services," sales were largest in computer and data processing and in "other" services (mainly personnel supply and other miscellaneous business services).

Sales were next largest by affiliates in insurance, which accounted for 20 percent of the total, up from 18 percent in 1989. By type of insurer, sales were largest for property and casualty insurers, followed by life insurers and by accident and health insurers.

Also large were sales of services by affiliates in "other industries" - 11 percent of total sales, up from 7 percent in 1989 - and by affiliates in finance, except depository institutions. Most of the sales in "other industries" were in transportation; the rest were mainly in public utilities and communications.

U.S. affiliates' sales to U.S. persons

In 1994, sales of services by U.S. affiliates of foreign companies to U.S. persons were up 7 percent, to $144.4 billion, following a 5-percent increase in 1993. From 1989 to 1992, the growth in sales averaged 11 percent a year, reflecting, at least to some extent, the rapid growth of foreign direct investment in the United States during the late 1980's.

About one-fifth of the increase in 1994 was accounted for by the entrance of affiliates into the direct investment universe, rather than by continuing operations of affiliates already in the universe.

By area, affiliates with UBO's in Europe had the largest increase in sales, $7.4 billion, most of which was accounted for by insurance affiliates. Affiliates with UBO's in Asia and Pacific had the next largest increase - $2.9 billion. Sales by affiliates with UBO's in Canada decreased $1.0 billion.

By industry, sales by affiliates in "services" had the largest increase - $4.9 billion, more than half of the total increase. Sales by affiliates in insurance increased $4.3 billion. Sales by affiliates in real estate had the largest decrease - $1.1 billion.

By area. - Affiliates with UBO's in Europe accounted for the largest share of U.S. affiliates' total sales of services to U.S. persons in 1994. These affiliates accounted for 59 percent of the total, down slightly from 1989. Within Europe, affiliates with UBO's in the United Kingdom, Switzerland, France, and Germany accounted for the largest shares of sales.

Affiliates with UBO's in Asia and Pacific (primarily in Japan) had the next largest share of sales - 21 percent, up from 14 percent in 1989 - followed by affiliates with UBO's in Canada (16 percent), Latin America and "Other" Western Hemisphere (3 percent) and "Other" (Africa, Middle East, and United States) (2 percent). Japan and Canada each had a 16-percent share in 1994. For Japanese-owned affiliates, the share doubled from 8 percent in 1989; in contrast, for Canadian-owned affiliates, the share was down from 20 percent in 1989. The gain in the share of Japanese-owned affiliates reflects the rapid growth in Japanese investment in the United States during this period.

By industry. - Affiliates in insurance had the largest sales to U.S. persons in 1994, accounting for 34 percent of the total, down slightly from 1989. A little more than one-half of the sales by affiliates in insurance were by affiliates with UBO's in the United Kingdom and Canada. By type of insurer, sales by property and casualty insurers - primarily those with UBO's in the United Kingdom, Switzerland, and Germany - accounted for nearly one-half of the total. Most of the remaining sales were by life insurers - primarily those with UBO's in Canada and France.

Affiliates classified in "services" had the next largest sales to U.S. persons, accounting for 27 percent of the total, up from 22 percent in 1989. Within "services" sales were largest in "other" services (mainly personnel supply and other miscellaneous business services), in motion pictures, and in hotels and other lodging places.

Data Sources

Most of the estimates in this article are based on surveys conducted by BEA. For some services, however, the estimates are based on a variety of other sources, including surveys conducted by other Government agencies, data provided by private sources, customs data, and data obtained from partner countries. BEA's surveys of cross-border transactions with unaffiliated foreigners cover the by a separate survey or by a group of surveys: (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. For transportation, four survey are conducted, differentiated by mode of transport and by residency of carrier. BEA is preparing a publication that describes the methodologies for these surveys and that will be available in the half of 1997. Data on cross-border transactions with affiliated foreigners and on sales by majority-owned affialiated are collected in BEA's surveys of U.S. direct investment abroad and of foriegn direct investment in the United States; the methodologies for these surveys are described in U.S. Direct Investment Abroad: 1989 Benchmark Survey, Final Results (Washington, DC: U.S. Government Printing Office, 1992) and in Foreign Direct Investment in the United States: 1992 Benchmark Survey, Final Results (Washington, DC: U.S. Government Printing Office, 1995).

For information on the methodology for 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). The changes in methodology that have been made since 1990 are described in the June 1990-95 and July 1996 issues of the Survey.

Improved Estimates of Unaffiliated Financial Services

This year, BEA completed an initiative to improved coverage of financial services transactions. The improved estimates are based on BEA's first quinquennial Benchmark Survey of Financial Services Transactions Between U.S. Financial Service Providers and Unaffiliated Foreign Persons. This survey, which covers 1994, provides more complete coverage of financial services transactions: It collects data on many types of financial services that were not covered in other surveys, and it provides data that permits BEA to more accurately estimates many other types of financial services.

The services newly covered are financial management, advisory, and custody services; credit card services; securities lending services; foreign exchange brokerage services; payments for credit-related services; and several other miscellaneous services.

The services previously estimated for which survey-based data are now available include explicit fees paid and received for trading in outstanding stocks, private securities placements, and underwriting services; and fees received for credit-related services (such as standby letters of credit), and for futures in outstanding bonds are not covered in the benchmark survey and will continue to be estimated by BEA.

The survey results and discussions with market participants have greatly increased BEA's understanding of current market practices. The survey and discussions showed that there was duplication in the coverage of transactions between unaffiliated and affiliated foreigners because a much larger share of transactions takes place through affiliated networks than was earlier recognized; these transactions were already included in BEA's quarterly and annual direct investment surveys. In addition, the survey results indicated that transactions were increasingly at wholesale, rather than at retail, fee rates and sometimes even below-wholesale-free rates. The previous methods of estimation made some, but insufficient, allowance for these pricing differences.

Estimates based on the survey results, combined with the refined understanding of market practices, led to the significant revision shown below. The revision were carried back to 1992; source data and assumptions do not permit reliable estimation before the year. Next year, the estimates will incorporate the annual survey results for 1995 and 1996.

 Estimates of Unaffiliated Financial Services, 1994
 [Millions of dollars]

Financial services receipts:
 Revised 5,626
 Changes due to improved estimates -1,336
 Previous 6,962

Financial services payments:
 Revised 1,611
 Changes due to improved estimates -5,224
 Previous 6,835

For a more detailed analysis of the improved and previous methodologies and estimates, see "U.S. International Transactions, Revised Estimates for 1986-95" in the July 1996 Survey of Current Business.

Data Availability

Estimates for cross-border transactions for 1986-95 and transactions by majority-owned affiliates for 1989-94 are available on STAT-USA's National Trade Data Bank CD-ROM, by subscription to STAT-USA's online statistical services, and on diskette from BEA. For years before 1992, the estimates do not reflect the expanded country detail available for later years.

To order the CD-ROM or to subscribe to STAT-USA's online services, call (202) 482-1986. To order the diskette, send a check or money order for $20.00 payable to "Bureau of Economic Analysis" to the Public Information Office, Order Desk, BE-53, Bureau of Economic Analysis, U.S. Department of Commerce, Washington, DC 20230. For further information or to order using MasterCard or Visa, call (202) 6o6-9545. When ordering, please specify accession number 58-93-40-501.

(1.) These data are limited to nonbank affiliates because the surveys used to collect the data do not cover banking affiliates. The data are limited to majority-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 limitation to majority-owned affiliates may also be preferred on conceptual grounds; with minority-owned affiliates, a direct investor may own as little as 10 percent of the affiliate, but the principal in the affiliate's sales may lie with other investors. (2.) The growth rate for sales has been adjusted to exclude the effect of a discontinuity associated with the 1994 Benchmark Survey of U.S. Direct Investment Abroad. See the discussion at the beginning of the section "Sales by Affiliates in 1994." (3.) The term "affiliated" refers to a direct investment relationship, in which a business enterprise located in one country is directly or indirectly owned or controlled by an investor in another country to the extent of 10 percent or more of its voting stock for an incorporated business, or an equivalent interest for an unincorporated business. (4.) By balance-of-payments accounting convention, the importer assumes ownership of the goods and bears all subsequent costs of transportation when the goods cross the border of the exporting country. Thus, receipts of U.S. carriers for transporting U.S. imports are excluded from U.S. transportation receipts because by this convention, they represent transaction between U.S. residents (that is, U.S. importers and U.S. vessel and airline operators). Similarly, revenues of foreign carriers for transporting U.S. exports are excluded from U.S. payments because they represent transactions between foreign importers and foreign carriers. (5.) For purposes of this section, sales of services are defined as sales characteristic of the industries listed in the footnote to table 8. (6.) Most of the added affiliates were established or acquired in the 4 years that followed the previous benchmark survey - which covered 1989 - rather than in 1994, but these affiliates were not large enough to be included in BEA's annual sample surveys. (7.) For foreign affiliates, local sales are a significantly higher share of total sales of services than of goods. In 1994, the share for goods was 65 percent. (8.) Although data by type of service would be useful, they are not collected in BEA's direct investment surveys, because of concerns about respondent burden. (9.) 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 and including the foreign parent, that is not owned more than 50 percent by another person. The UBO ultimately owns or controls the U.S. 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. (10.) The "services" category of the SIC is dominated by business services, such as advertising, accounting, and computer and data processing services. It also includes hotel, health, and motion picture services. For a more complete list, see the group "service" in