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

Mann, Michael A. ; Bargas, Sylvia E.

This Article presents detailed estimates of U.S. international sales and purchases of private services.(1) The estimates measure transactions that take place through two distinct channels: (1) Cross-border trade in services between U.S. residents and foreign residents, and (2) services transactions by majority-owned affiliates, which cover sales of services abroad by majority-owned foreign affiliates of U.S. companies and sales of services in the United States by majority-owned U.S. affiliates of foreign companies (see the box "Channels of Delivery of Services to Foreign Markets: Cross-Border Transactions and Sales by Affiliates' on page 71).

For cross-border transactions, U.S. purchases of services from foreigners rose 9 percent in 1994, more rapidly than U.S. sales of services to foreigners, which rose 6 percent. The more rapid growth of purchases over sales is a recent phenomenon; in 1987-92, cross-border sales grew considerably faster than purchases.

The most recent year for which data are available on delivery of services through majority-owned affiliates is 1993; in that year, for both channels of delivery, U.S. purchases of services from foreigners expanded more rapidly than U.S. sales of services to foreigners. Purchases were stimulated by economic expansion in the United States, while sales tended to be constrained by sluggish economic conditions in major foreign economies.

Additional highlights for 1993 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 affiliate channel predominated (table 1,

chart 1).

[CHART OMITTED]

* For Canada and Europe, both sales and purchases

were predominantly through the affiliate

channel, reflecting heavy concentrations

of direct investment in and from the United

States. 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 (chart 2).

[CHART OMITTED]

* Most U.S. sales of services to Japan, as to Asia

and Pacific generally, 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.

The remainder of this article is in two parts. The first part discusses cross-border sales and purchases and presents preliminary estimates for 1994 and revised estimates for 1986-93. The second part discusses sales through majority-owned affiliates and presents preliminary estimates for 1993 and revised estimates for i992. This year, the country and area detail shown in several of the tables has been expanded (see the box "Expanded Detail by Country and Region" on page 73).

U.S. Cross-Border (Balance-of-Payments)

Transactions in 1994

Exports of cross-border services (receipts) increased 6 percent in 1994, compared with a 5-percent increase in 1993. Imports of cross-border services (payments) increased 9 percent, the same rate as in 1993. This marked the second consecutive year that imports of private services increased at a faster rate than exports of private services.

The following are highlights of these transactions:

* Exports and imports of all major types

of services increased in 1994. In percentage

terms, the fastest growing categories for

exports were "other transportation' and royalties

and license fees. The fastest growing

category for imports was royalties and license

fees, followed by "other private services."

 Percent change from prior year
 Exports Imports
 1993 1994 1993 1994
Private services 5 6 9 9
 Travel and passenger fares 4 5 6 8
 Other transportation 1 9 4 7
 Royalties and license fees 3 9 -4 17
 Other private services 8 7 22 11

* In dollar terms, the largest increase in exports

in 1994 was in "other private services," particularly

business, professional, and technical

services. The largest increase in imports was

in travel and passenger fares.

 Change from prior year in millions
 of dollars
 Exports Imports
 1993 1994 1993 1994
Private services 8,145 11,212 9,591 10,456
 Travel and passenger fares 3,126 3,397 2,918 4,232
 Other transportation 292 2,095 1,099 1,815
 Royalties and license fees 622 1,799 -211 803
 Other private services 4,104 3,921 5,785 3,606

* By country, U.S. service exports to Japan

continued to far exceed those to any other

country. 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 1994 by major type of service and by geographic area.

By type of service

U.S. services exports and imports of an major types increased in 1994. The continued growth in imports was partly attributable to sustained economic expansion in the United States. The increased growth in exports partly reflected a pickup in economic growth abroad since 1993; nevertheless, growth rates in a number of key trading-partner countries remained well below that in the United States.

Receipts. - U.S. receipts for travel and passenger fares combined increased 5 percent, to $77.9 billion, in 1994, following a 4-percent increase in 1993. The increase in 1994 was more than accounted for by a substantial increase in receipts from travelers from overseas, which was partly offset by a decrease in receipts from Canada. The higher receipts from overseas visitors in 1994 partly reflected the depreciation of the dollar against many foreign currencies; an increase in travel from the Asia and Pacific region accounted for more than 80 percent of the total increase. Travel to the United States from Canada may have been reduced by the depreciation of the Canadian dollar. Receipts from Mexico, in contrast, were about the same as in 1993; the sharp slowdown in the Mexican economy resulting from the devaluation of the peso near the end of 1994 did not greatly affect receipts from Mexico until early 1995.

Receipts for "other transportation" increased 9 percent, to $26.1 billion, in 1994, following a 1-percent increase in 1993. The sharp acceleration largely reflected a pickup in freight receipts for transporting U.S. merchandise exports. Merchandise exports increased 10 percent, compared with a 4-percent increase in 1993. Receipts from port services also contributed to the pickup.

Receipts for royalties and license fees increased 9 percent, to $22.4 billion, in 1994, compared with a 3-percent increase in 1993. Nearly three-quarters of the 1994 increase was the result of a rise in receipts by U.S. parent companies from their foreign affiliates, most of which were concentrated in the manufacturing industry. The increase also partly reflected an increase in receipts of licensing fees from unaffiliated companies abroad for the use of industrial processes.

Receipts for "other private services" increased 7 percent, to $59.0 billion, in 1994, following an 8-percent increase in 1993. Affiliated services receipts increased 10 percent, and unaffiliated services receipts increased 6 percent. In dollar terms, however, the increase in unaffiliated services receipts exceeded that in affiliated receipts, largely reflecting an increase in business, professional, and technical services, which include approximately 20 categories of services. Other unaffiliated services categories were mixed: Net receipts for insurance services (that is, premiums received less losses paid) increased sharply, though from a low level; education and financial services each increased at modest rates; and telecommunications services were virtually unchanged.

Payments. - U.S. payments for travel and passenger fares increased 8 percent, to $56.3 billion, in 1994, a moderate acceleration from a 6-percent increase in 1993. The increase in 1994 reflected an increase in U.S. travel overseas despite the depreciation of the dollar against many foreign currencies.

Payments for "other transportation" increased 16 percent, to $28.4 billion, compared with a 4-percent increase in 1993. Increases in ocean freight and port services accounted for much of the step-up. Freight charges for the transportation of goods by truck between the United States and Canada also increased more rapidly in 1994. Nearly one-half of the 1994 increase was in "other transportation" payments to European countries, while another one-quarter was in payments to Canada.

Payments for royalties and license fees increased 16 percent, to $5.7 billion, in sharp contrast with a 4-Percent decrease in 1993. The increase in 1994 largely reflected payments for special, nonrecurring events-specifically, broadcast rights and sponsorship fees for the Winter Olympics and the World Cup soccer tournament. However, all subcomponents of this category exhibited moderate to strong growth.

Payments for "other private services" increased 11 percent, to $36.0 billion, a sharp deceleration from the 22-percent increase in 1993. The deceleration was almost entirely accounted for by payments to the United Kingdom, which increased $0.4 billion, or 5 percent, after an unusually large increase of $2.6 billion, or 62 percent; much of the deceleration reflected developments in insurance. Net payments for insurance services (premiums received less losses paid) to the United Kingdom fell slightly after an unusually large - $1.4 billion - increase in 1993; this large increase reflected a return to more normal levels, following the large claims related to Hurricane Andrew paid by British reinsurers in 1992. Reduced growth in financial services payments to the United Kingdom also contributed to the deceleration in total payments in 1994.

By area

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 total U.S. cross-border transactions in private services in 1994 (table A). Moreover, the top five countries accounted for nearly one-half of both total exports and total imports of private services.(2)

[TABULAR DATA OMITTED]

For both cross-border services receipts and payments, the United States' five largest trading partners are Japan, the United Kingdom, Canada, Germany, and Mexico. These five partners also accounted for a large share of trade in each of the major services categories. For travel and "other private services" - the two largest categories - these countries accounted for 54 percent and 40 percent, respectively, of total U.S. exports, and for 41 percent and 56 percent, respectively, of total U.S. imports in 1994.

Japan accounted for 16 percent of exports and 11 percent of imports. The U.S. services surplus with Japan reached $16.0 billion in 1994. This surplus, which is the largest with any country, contrasts sharply with the large merchandise trade deficit with Japan. Much of the surplus was attributable to travel; Japanese travelers to the United States accounted for approximately 20 percent of total U.S. travel and passenger fare receipts in 1994. In contrast, U.S. residents traveling to Japan accounted for less than 6 percent of total U.S. travel and passenger fare payments.

Japan accounted for nearly 20 percent of "other transportation" payments and more than 20 percent of royalty and license fee receipts in 1994. The high share of "other transportation" payments reflects the large, volume of U.S. merchandise imports from Japan along with the relatively long distance between the two countries. The high share of royalty and license fee receipts largely resulted from U.S. parent companies' receipts from their foreign affiliates.

The United Kingdom accounted for 9 percent of exports and 13 percent of imports. U.S. services imports from the United Kingdom, which were the highest from any country, reached $16.9 billion in 1994. The United Kingdom ranked as the leading country of origin for all major components of services except "other transportation." Passenger fare payments to the United Kingdom accounted for nearly 18 percent of total U.S. passenger fare payments. More U.S. residents traveled to the United Kingdom than to any other country overseas, either as a final destination or as a gateway to other overseas destinations.

Canada accounted for 9 percent of both exports and imports of private services. The U.S. surplus with Canada reached $5.6 billion in 1994 - the largest surplus with any country except Japan. The high level of "other transportation" exports and imports with Canada reflects the high volume of merchandise trade between the two countries. Exports of "other private services" to Canada exceeded those to any other country, this high level was widespread across the services that comprise this category. Of particular note, exports of telecommunications services to Canada exceeded those to any other country.

Germany accounted for 6 percent of both exports and imports. Receipts from Germany accounted for more than 10 percent of total U.S. receipts of royalties and license fees - the largest share for any country other than Japan. These transactions primarily reflected U.S. parents' receipts from their foreign affiliates, which were largely concentrated in the manufacturing industry. Among transactions with unaffiliated foreigners, passenger fare payments to Germany were relatively high. Apart from the United Kingdom, Germany was the most common destination for U.S. travelers to Europe, either as a final destination or as a gateway to other overseas destinations.

Mexico accounted for 5 percent of exports and 7 percent of imports. Travel and passenger fares dominated services transactions between the United States and Mexico: They accounted for more than 6o percent of total U.S. receipts from Mexico and for nearly 70 percent of total U.S. payments to Mexico. Moreover, Mexico accounted for more than 7 percent of total U.S. travel and passenger fare exports and for 10 percent of total U.S. travel and passenger fare imports. In contrast, Mexico accounted for less than 3 percent of total U.S. receipts of royalties and license fees and less than 1 percent of U.S. payments.

The next seven largest U.S. trading partners for both services exports and imports were primarily in Europe and Asia. Combined, these seven countries accounted for 17 percent of both services exports and services imports in 1994. For both exports and imports, France was in sixth place, well above the seventh place countries. In contrast, the rankings of the other countries varied, depending on whether the focus is on exports or imports. For exports, the Netherlands was the seventh largest trading partner, whereas, for imports, Italy was the seventh largest. Brazil and Australia were among the top 12 countries for exports; Switzerland and Hong Kong were among the top 12 for imports.

Sales by Affiliates in 1993

In 1993, worldwide sales of services by nonbank majority-owned foreign affiliates of U.S. companies were $156.7 billion, up 3 percent from 1992 (table 9). Worldwide sales of services by nonbank majority-owned U.S. affiliates of foreign companies were $149.0 billion, up 9 percent. The disparity in growth rates largely reflected the generally more rapid economic growth in the United States than in several other major economies in 1993.

Sales of services by affiliates tend to be predominantly local, reflecting the importance of proximity to the customer in the delivery of many services. In 1993, sales in the country of the affiliate accounted for 79 percent of worldwide sales of services by foreign affiliates. Reflecting in part the large internal market of the United States, they accounted for an even larger share - 94 percent - of sales by U.S. affiliates.(3) For foreign affiliates, an additional 12 percent of sales were to foreign (non-U.S.) countries other than the one in which the affiliate was located. Only 9 percent of foreign-affiliate sales were to U.S. persons, and a majority of these sales were to the U.S. parents of the affiliate making the sale.

The following two sections discuss foreign affiliates' sales to foreign persons and U.S. affiliates' sales to U.S. persons, both of which represent sales delivered to international markets through the channel of direct investment. These sales are classified according to the primary industry of the affiliate, unlike the cross-border transactions, which are generally classified by type of service. The sales are shown by country of affiliate or ultimate beneficial owner (UBO) in table 10 and by industry of affiliate cross-classified by country in table 11 (for foreign affiliates) and table 12 (for U.S. affiliates).

Foreign affiliates' sales to foreign persons

In 1993, foreign affiliates' sales of services to foreign persons were up 2 percent, to $143.1 billion, following a 7-percent increase in 1992. The 1993 increase was the smallest since 1984. The sluggish growth was partly due to economic stagnation in Europe; it also reflected the appreciation of the U.S. dollar against major European currencies, which lowered the dollar value of sales denominated in foreign currencies. For the first time since this series began in 1982, foreign sales of services by European affiliates decreased, by $0.6 billion. Within Europe, the decrease was concentrated in Italy, France, and the United Kingdom.

In other major areas, sales by affiliates increased. Affiliates in Asia and Pacific had the largest increase, at $1.5 billion; affiliates in Japan more than accounted for this increase. Affiliates in Canada had the next largest increase - $0.9 billion.

By industry, affiliates in insurance had the largest increase in sales - $2.4 billion - nearly one-half of which was accounted for by affiliates in life insurance.(4) The largest decrease in sales - $1.9 billion - was in wholesale trade and was more than accounted for by affiliates in "professional and commercial equipment and supplies."

By area. - Affiliates in Europe had the largest share of foreign affiliates' sales of services to foreigners in 1993. These affiliates accounted for 56 percent of the total, up from 54 percent in 1989, the earliest year for which comparable data are available for both foreign affiliates and U.S. affiliates. Within Europe, affiliates in the United Kingdom, Germany, France, and the Netherlands accounted for the largest shares of sales.

After European affiliates, affiliates in Canada had the largest share, 13 percent, down from 16 percent in 1989; this decline probably reflects the relatively sluggish economic conditions in Canada during this period. The share of Japanese affiliates was 11 percent, up from of percent in 1989.

By industry. - Affiliates classified in the "services' division of the Standard Industrial Classification (SIC) - a narrower definition of "services" than that used elsewhere in this article - had the most sales of services to foreign persons in 1993.(5) These affiliates accounted for 33 percent of total sales of services to foreigners. Within "services," sales were largest in computer and data processing and in "other" services (mainly personnel supply and other miscellaneous business services). After "services," sales were largest in insurance, which accounted for 19 percent of the total. Nearly 80 percent of the sales in insurance were by affiliates in Japan, Canada, the United Kingdom, Bermuda, and Taiwan, each of which had sales exceeding $1.0 billion.

Also large were sales of services by affiliates in manufacturing, wholesale trade, and "other industries." Affiliates in manufacturing accounted for 12 percent of total sales of services to foreigners, and those in wholesale trade, for 11 percent. In both industries, most of the sales were of computer and data processing services provided by affiliates whose primary line of business was the manufacture or distribution of computers and related peripheral equipment. Affiliates in "other industries" - mainly transportation and public utilities - accounted for a 9-percent share of sales.

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

In 1993, sales of services to U.S. persons by U.S. affiliates of foreign companies were up 10 percent, to $140.5 billion, following a 7-percent increase in 1992. Affiliates with UBO's in Europe had the largest increase in sales, $6.9 billion, most of which was accounted for by insurance affiliates. Affiliates with UBO's in Canada had the next largest increase - $3.4 billion - followed by those with UBO's in Asia and Pacific, with a $2.1 billion

By area. - Affiliates with European UBO's accounted for the largest share of U.S. affiliates' total sales of services to U.S. persons in 1993. These affiliates accounted for 60 percent of the total, down slightly from 1989. Within Europe, affiliates with UBO's in the United Kingdom, France, Switzerland, and Germany accounted for the largest shares of sales.

After affiliates with European UBO's, affiliates with UBO's in Canada had the largest share of sales - 17 percent, down from 20 percent in 1989. The share of Japanese-owned affiliates was 14 percent, up from 8 percent in 1989. The gain in the share of Japanese-owned affiliates at the expense of that of Canadian-owned affiliates largely reflected the much more rapid growth in Japanese investment in the United States during this period.

By industry. - U.S. affiliates in insurance had the largest sales to U.S. persons in 1993. Nearly one-half of the sales in insurance were by affiliates with UBO's in the United Kingdom and Canada. By type of insurance, sales by life insurers - primarily those with UBO's in Canada and France - accounted for nearly one-half of the total. Most of the remaining sales were by property and casualty insurers - primarily those with UBO's in the United Kingdom, Switzerland, and Germany.

After insurance affiliates, affiliates classified in "services" had the largest sales to U.S. persons in 1993, accounting for 24 percent of the total. Within services," sales were largest in motion pictures, "other" services (mainly personnel supply and other miscellaneous business services), and hotels and other lodging places.

[TABULAR DATA OMITTED]

Channels of Delivery of Services to Foreign Markets:

Cross-Border Transactions and Sales by Affiliates

Services are delivered to foreign markets through two distinct channels. In cross-border transactions, services are sold by persons in one country to persons in another country. The full amounts of these transactions are recorded directly in the international transactions accounts of both countries - as exports in the accounts of the seller's country and as imports in the accounts of the buyer's country. The second channel of delivery is sales by affiliates - 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 enter the international transactions accounts of the parent's country only indirectly. The income earned by the affiliate on its sales its included (as investment income), but the sales themselves are not.

Although conceptually distinct, both channels may sometimes be involved in the delivery of a particular service. This would be true, for example, in cases where an affiliate sells services abroad, but some of the work is done by the affiliate's parent and billed to the affiliate. In this case, the amount received by the affiliate from the foreign customer would be recorded under sales by affiliates, and the funds received by the parent for its share of the work would be recorded in cross-border transactions, as intra-firm trade between parents and affiliates.

The two channels of delivery typically differ in their impact on an economy. All other things being equal, an economy will accrue more benefits from international sales and purchases when local factors of production (such as labor) are used to generate the value added. (The potential benefits even extend to the government, because tax revenues may increase.) Therefore, the economy of the seller usually benefits more from cross-border exports than from sales through foreign affiliates. By the same reasoning, the purchasing economy generally benefits more if the services are bought from local affiliates of foreign companies, rather than through cross-border imports.

Notwithstanding these different economic impacts, the channel of delivery is often largely predetermined by the nature of the service, rather than reflecting a choice between equally viable alternatives. Travel and transportation, for example, are inherently cross-border in nature. Market conditions can also dictate the choice. For example, certain business, professional, and technical services are usually delivered through affiliates because of the need for close and continuing contact between the service providers and their customers. Some services can be delivered equally well through either channel, but these services are more the exception than the rule. Overall, a majority of U.S. sales of services to foreigners have been affected by cross-border transactions in recent years, whereas a majority of U.S. purchases of services from foreigners have been from the foreigners' affiliates located in the United States.

Expanded Detail by Country and Region

During the past year, Bea has completed an initiative to expand the level of detail at which the country estimates of international services are published. Tables, 2, 3, and 5 now include estimates for an additional 22 countries. Previously, estimates of cross-border services transactions with each of these countries were not available, but were included implicitly in area totals.

Tables, 2, 3, and 5 now also include new regional groups for Africa, for the Middle East, and for Asia and Pacific. Previously these regions were aggregated and shown as "other countries". The new groups indicate the 87 percent of services transactions previously included in "other countries" were with countries in Asia and Pacific, 8 percent were with countries in the Middle East, and 5 percent were with countries in Africa.

The expanded number of countries and the new regional groups will now be presented consistently in all of the detailed tables, beginning with the estimates for 1992; estimates for prior years could not be prepared, because of limitations of the source data. It was possible to introduce these new estimates because of both improved source data and utilization of greater detail in other source data. For travel and passenger fares, increased airline participation and a larger number of responses to voluntary travel surveys permitted estimation for the additional countries. In addition, source data on the number of visitors, which are an integral part of the travel and passenger fare estimates, are now available more promptly. For "other transportation," data from Bea's surveys of receipts and payments were applied to data on shipping weights of exports and imports available by country from the Census Bureau. For "other private services," most data are available by country from Bea's surveys of selected services with affiliated and unaffiliated foreigners.

Also new this year is table A, which identifies the major trading partners and provides a cross-section of the relative size of various transactions with major trading partners. Among these partners are three countries - Switzerland, Brazil, and Hong Kong - for which data were previously included in area totals.

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 Kathy Hoang

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, Ralph Kozlow, Shirley J. Davis, Rafael I. Font, Annette Boyd, Faith Brannam, Hope Jones, Christine Locke-Paddon, Steven Muno, Daniel Thomas, John Sondheimer, and Kimberly Chesley.

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 U.S. Branch.

John Sondheimer was responsible for consolidating the information contained in tables 2, 3, and 5. Smith W. Allnutt, Peter Bowman, Jane M. Fry-Emond, and Arnold Gilbert established data retrieval systems and were responsible for the computer generation of most of the remaining tables for this article.

Data Availability

The estimates are available on diskette for $20.00. The diskette covers cross-border transactions for 1986-94 and transactions by majority-owned affiliates for 1989-93. Estimates for years before 1992 do not reflect the expanded country detail presented in this article. To order this diskette, call (202) 606-9545; Mastercard and Visa are accepted. When ordering, please provide accession number 58-93-40-501.

(1) Most of the estimates in this article are based upon surveys conducted by Bea. Bea's surveys collect data for both sales through affiliates and selected cross-border transactions. For some cross-border 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. (2) The top five countries with whom U.S. merchandise trade was the largest in 1994 accounted for slightly more than one-half of both total exports and imports. For merchandise exports, these countries are the same five with whom services transactions were the largest. For imports, the top five includes China instead of the United Kingdom. (3) For foreign affiliates, local sales are a significantly higher share of total sales of services than of goods. In 1989, the most recent year for which comparable data are available, the shares were 78 percent of the services and 66 percent for goods. (4) Sales of services by affiliates in insurance differ conceptually form the balance of payments measure of cross-border insurance transactions. The cross-border transactions are measured as premiums of losses, while the data on sales by affiliates largely represent premiums and are not net of losses. However, estimates of cross-border receipts and payments of insurance premiums are shown separately in table 6. (5) 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 "services" in table 11 and 12.