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

Sondheimer, John A. ; Bargas, Sylvia E.

SERVICES TRANSACTIONS between the United States and foreign countries take place through two distinct channels. One channel is through cross-border transactions, which cover trade in services between U.S. residents and foreign residents. The second channel is through sales by majority-owned affiliates, which for the United States cover sales of services abroad by foreign affiliates of U.S. companies and purchases of services in the United States from U.S. affiliates of foreign companies--in other words, sales delivered through the channel of direct investment (see box on page 102). In 1993, U.S. cross-border services transactions were in surplus by $59.1 billion, slightly below the record level of $60.2 billion in 1992. The United States also had a record surplus, at $14.6 billion, on sales through affiliates in 1992, the latest year for which data on sales of services by affiliates are available. The United States has had surpluses both on services delivered through cross-border transactions and on those delivered through affiliates in every year since 1987, the entire period for which comparable data exist (chart 1, table 1).

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 to be 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 is included (as investment income), but the sales themselves are not.

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 econoic 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 effected 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.

For specific services, it is difficult to gauge the relative importance of the two channels because the available data on services delivered through the two channels are classified in two different ways. U.S. cross-border transactions are generally classified by type of service, whereas sales of services by affiliates are classified according to the primary industry of the affiliate. Notwithstanding this difference, it is possible to make a rough determination of the relative importance of the two channels of delivery for certain services. Judging by the size of sales and purchases of services by affiliates classified in computer-related industries, for example, it is apparent that these sales and purchases are much larger than their cross-border counterparts.(1) Similarly, for advertising, affiliate sales appears to be the predominant method of delivery.(2)

(1.)The major industries in which foreign affiliates are likely to sell computer-related services are "computer and data processing services," "computer and office equipment manufacturing," and wholesale trade in "professional and commercial equipment and supplies." Sales of services to foreigners by affiliates classified in these industries were over $40 billion in 1992, compared with cross-border exports of $1.8 billion. Although not all of the affiliate sales are of computer and data processing services, a relatively high fraction of them probably are, inasmuch as most of the sales are accounted for by affiliates of U.S. computer manufacturers and computer services concerns. In addition, some computer and data processing services may be sold by affiliates classified in other industries.

The major industries in which U.S. affiliates are likely to sell computer-related services are "computer and data processing services" and "computer and office equipment manufacturing." Sales of services in the United States by affiliates classified in these industries were over $3 billion in 1992, compared with cross-border imports of $0.1 billion. (Sales by U.S. affiliates in wholesale trade in "professional and commercial equipment and supplies" also may have included some computer-related services. However, unlike the foreign affiliates in this industry, the U.S. affiliates do not appear to be predominantly in computer-related activities.)

(2.)In 1992, U.S. cross-border sales and purchases of advertising services were $0.3 billion and $0.5 billion, respectively. In contrast, sales of services abroad by foreign affiliates classified in advertising were $4.2 billion, and sales of services in the United States by U.S. affiliates classified in advertising were $2.4 billion.

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This article presents detailed estimates of U.S. sales and purchases of private services through both channels of delivery. For cross-border transactions, the article provides preliminary estimates for 1993 and revised estimates for 1986-92. For sales of services by majority-owned affiliates, it provides preliminary estimates for 1992 and revised estimates for 1991. A technical note provides new information on the components of construction and related services and discusses the methodology used in recording these services in the U.S. international transactions accounts.

Between 1987 and 1992, U.S. sales of services to foreigners, both cross-border and through affiliates combined, grew faster than U.S. purchases of services from foreigners; sales grew at an average annual rate of 14 percent, compared with 11 percent for purchases. The share of total sales to foreigners that was accounted for by nonbank majority-owned foreign affiliates of U.S. companies (hereafter, "foreign affiliates") changed little throughout this period--remaining between 46 and 47 percent--as foreign-affiliate sales and U.S. cross-border exports grew at about the same rate. By 1992, U.S. receipts from cross-border sales of services totaled $164.9 billion, compared with $141.6 billion in sales abroad by foreign affiliates (chart 2, table 1).

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In contrast to the stable pattern that existed for U.S. sales, the share of total U.S. purchases of services from foreigners that was accounted for by nonbank majority-owned U.S. affiliates of foreign companies (hereafter, "U.S. affiliates") grew sharply during 1987-92, from 46 percent to 55 percent, as purchases from U.S. affiliates grew at an average annual rate that was more than twice as fast as that for cross-border imports--15 percent, compared with 7 percent. In 1992, U.S. purchases of services from U.S. affiliates totaled $127.0 billion, compared with $104.7 billion in U.S. imports of services. Purchases from U.S. affiliates have accounted for a majority of U.S. purchases of services from foreigners only since 1989; their high share since then has mainly reflected the rapid growth of foreign direct investment in the United States during the late 1980's.

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

The surplus on U.S. cross-border private services transactions was $59.1 billion in 1993, slightly below the record level of $60.2 billon in 1992. The 1993 surpulus reflected a 5-percent increase in exports (receipts) of private services and an 8-percent increase in imports (payments). The increase in exports was mostly the result of increases in travel, in financial services, and in business, professional, and technical services. The increase in imports was mostly the result of an increase in financial services.

This section discusses the 1993 cross-border transactions in the longer run perspective of the period since 1986.(1) The analysis divides the 1986-93 period into two sub-periods--1986-90 and 1990-93--based on average annual growth rates. Several major conclusions emerge:

* Year-to-year growth rates in both services exports and services imports have fluctuated widely.

* In very broad terms, rapid annual growth in services exports in 1986-90 has been followed by substantially slower annual growth in 1990-93; a similar pattern exists for services imports. The pattern appears to apply across nearly all major exports and import categories, as can be seen from the following tabulation of average annual growth rates:

 Exports Imports
 1986- 1990- 1993 1986- 1990- 1993
 90 93 90 93
Private services 15 8 5 11 5 8
 Travel and passenger
 fares 22 8 4 10 3 5
 Other transportation 9 2 2 9 2 4
 Royalties and license
 fees 20 7 2 23 16 -3
 Other private services 10 11 8 14 12 21

* The growth rate of services exports slowed in 1993, continuing a downtrend that began in 1990. By contrast, the growth rate of services imports accelerated in 1993.

Developments in 1986-93

During 1986-93, exports increased faster than imports. Exports more than doubled, increasing to $172.6 billion in 1993 (table 2). Export growth occurred most rapidly in 1986-90; during this period, growth averaged 15 percent per year, as major foreign economies expanded strongly. Growth slowed to 8 percent in 1990-93, partly reflecting the economic slowdown abroad, particularly in the developed countries, which in 1993 accounted for about two-thirds of U.S. services exports. Imports of services increased 75 percent during 1986-93, rising to $113.4 billion in 1993. In 1986-90, the average annual growth rate for imports was 11 percent. Import growth slowed to 5 percent in 1990-93, partly in response to the 1990-91 recession in the United States.

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These broad movements since 1986 have been accompanied by changes in composition for both exports and imports, reflecting the increasing importance of travel and passenger fares and "other private services," as well as the increasing importance of the developed countries in trade with the United States. Within exports, the largest change in composition during 1986-93 was in the share of travel and passenger fares, which rose from 34 percent in 1986 to 43 percent in 1993. Other transportation exports showed the largest drop in share during this period, falling from 21 percent in 1986 to 13 percent in 1993. By area, the composition of exports was relatively stable during 1986-93; the shares of Japan and Europe increased slightly in relation to those of other areas. Within imports, the largest change in composition during 1986-93 was in the share of travel and passenger fares, which rose from 51 percent to 54 percent. The growth in the share of this component occurred as the shares of other transportation and "other private services" decreased slightly. As with exports, the composition by area changed little during 1986-93, with the shares of Japan and Europe increasing slightly in relation to those of other areas.

Receipts.--Combined U.S. receipts for travel and passenger fares increased 4 percent in 1993 to $74.2 billion.(2) This rate of increase was down substantially from the average annual growth rate of 22 percent in 1986-90 and was also below the 8-percent average of 1990-93. The lower growth rate since 1990 in both travel and passenger fares can be attributed to a slowdown in the number of foreign visitors to United States, which resulted from sluggish economic growth abroad and appreciation of the U.S. dollar against most foreign currencies. The slowdown in growth was greatest for Canada and included a 7-percent decline in 1993; in addition to the effects of a slowdown in economic activity, receipts from Canada were affected by depreciation of the Canadian dollar, especially in 1992 and 1993, which had a large impact on automotive travelers. Receipts from Mexico, particularly expenditures in the border area, were affected by depreciation of the Mexican peso. The slowdown in growth for the overseas component of travel receipts was largest for Western Europe and Japan.

Receipts for other transportation increased 2 percent in 1993 to $23.2 billion.(3) This rate of increase was lower than the average annual growth rate of 9 percent in 1986-90, but was the same as the average for 1990-93. The lower growth rate since 1990 can be attributed to the worldwide economic slowdown, which caused a decline in demand for merchandise imports and exports. Most of the impact was on ocean freight receipts, which have shown little growth in recent years, in contrast to sizable increases in air freight receipts. Air freight receipts have benefited from the aggressive expansion of U.S. airlines overseas and the resultant growth in the share of merchandise exports shipped on U.S.-flag airlines.

Receipts of royalties and license fees increased 2 percent to $20.4 billion in 1993. This rate of increase was considerably lower than the average annual growth rate of 20 percent in 1986-90 and was also below the 7-percent average of 1990-93. The lower growth rate since 1990 was especially sharp for receipts from Western Europe, where receipts actually declined in 1993. Affiliated royalties and license fees--that is, receipts by U.S. parents from their foreign affiliates and receipts by U.S. affiliates from their foreign parents--have shown the largest slowdown, declining from an annual average growth rate of 22 percent in 1986-90 to 6 percent in 1990-93; nearly all of the decline was in transactions between U.S. parents and their foreign affiliates.

Receipts for "other private services" increased 8 percent to $54.9 billion in 1993; more than one-fourth of the increase was in financial services. This rate of increase is somewhat below the average annual growth rates of 10 percent in 1986-90 and 11 percent in 1990-93. Growth since 1990 mostly reflected increases in unaffiliated services, which increased 103 percent to $38.9 billion in 1993. Within that category, most of the increase since 1990 was in business, professional, and technical services and in financial services.

Payments.--Combined U.S. payments for travel and passenger fares increased 5 percent to $52.0 billion in 1993. This rate of increase was only one-half of the average annual growth rate in 1986-90, but was somewhat above the 3-percent average in 1990-93. The lower growth rate since 1990 reflected declines in the rate of growth for all three major components of travel payments--Canada, Mexico, and overseas. Payments to Canada since 1990 showed the largest deceleration and included a 4-percent decline in 1992, largely as a result of a drop in same-day automotive travel. The decline in growth of payments to Mexico reflected a decline in the number of travelers to the border area. The decline in growth of overseas payments mostly reflected an 8-percent decrease in 1991 that was due to reduced international travel by U.S. residents during the Persian Gulf war.

Payments for other transportation increased 4 percent to $24.5 billion in 1993. This rate of increase was less than one-half of the average annual growth rate of 9 percent in 1986-90, but was higher than the 2-percent average in 1990-93. The lower growth rate since 1990 can be largely attributed to slower growth in payments for air port services, reflecting lower payments by U.S. airlines for jet fuel overseas as a result of the decline in world oil prices.

Payments of royalties and license fees decreased 3 percent to $4.8 billion in 1993; the decline in payments was to unaffiliated foreigners and reflected the inclusion in 1992, but not in 1993, of payments associated with broadcasting rights for the summer Olympics. The 1993 decrease is in sharp contrast to the average annual growth rates of 23 percent in 1986-90 and 16 percent in 1990-93. The moderately lower growth rate since 1990 was mostly due to a deceleration in payments to manufacturing and wholesale trade affiliates in Western Europe, Canada, and Japan.

Payments for "other private services" increased 21 percent to $32.1 billion in 1993. This rate of increase was about in line with the annual average growth rate of 24 percent in 1986-90 and was considerably above the 5-percent average growth in 1990-93. Both affiliated and unaffiliated components of this account showed lower growth rates, but U.S. parents' payments to their foreign affiliates showed the largest slowdown. In contrast, the average growth rate of unaffiliated services increased from 9 percent in 1986-90 to 15 percent in 1990-93, largely because of sharp increases in financial services accompanying the stepped-up purchases of foreign securities by U.S. residents.

Sales by Affiliates

In 1992, worldwide sales of services by foreign affiliates were $153.7 billion, up 7 percent from 1991. Worldwide sales of services by U.S. affiliates were $134.5 billion, up 6 percent. Data for 1991-92 on sales of services by affiliates for all countries and industries combined are summarized in table 10.

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 1992, sales in the country of the affiliate accounted for 81 percent of worldwide sales by foreign affiliates and for 94 percent of those by U.S. affiliates. For foreign affiliates, an additional 11 percent of sales were to foreign (non-U.S.) countries other than the one in which the affiliate was located. Only 8 percent of their sales were to U.S. persons, and a majority of these were to the U.S. parents of the affiliate making the sale. The pattern for U.S. affiliates was similar, although there was a somewhat greater tendency for their services exports to be to unaffiliated customers.

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 shown by country of affiliate or ultimate beneficial owner (UBO) in table 11 and by industry of affiliate cross-classified by country in table 12 (for foreign affiliates) and table 13 (for U.S. affiliates). In the discussion that follows, estimates for 1992 are compared with estimates for the earliest year for which comparable data by country and industry are available (1989 for foreign affiliates, and 1987 for U.S. affiliates).

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Foreign affiliates' sales to foreign persons

In 1992, foreign affiliates' sales of services to foreign persons were $141.6 billion, up 8 percent from 1991. The increase was significantly slower than between 1989 and 1991, when growth averaged 15 percent a year; however, the rapid growth during this earlier period was partly due to depreciation of the U.S. dollar during 1990.

The increase in sales in 1992 was concentrated in two areas--in Europe and in Asia and Pacific. In Europe, the increase was concentrated by country in the United Kingdom, Germany, and France and by industry in computer and data processing services, insurance, and manufacturing. In Asia and Pacific, affiliates in Japan accounted for over 60 percent of the increase in sales; in that country, more than one-half of the increase was in insurance. Significant increases also occurred in Taiwan, Malaysia, Korea, and Singapore.

By area, affiliates in Europe had the largest share of foreign affiliates' total sales of services to foreigners in 1992. These affiliates accounted for 57 percent of the total, up from 54 percent in 1989. Within Europe, affiliates in the United Kingdom, Germany, France, and the Netherlands accounted for the largest shares of sales. Outside Europe, affiliates in Canada had the largest share, 12 percent, although their share was down significantly from 1989, when it was 16 percent; this decline probably reflects the relatively sluggish economic conditions in Canada during this period. The share of Japanese affiliates, at 10 percent, was unchanged from 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 1992.(4) These affiliates accounted for 32 percent of total sales of services to foreigners, up slightly from 30 percent in 1989. Within "services," sales in 1992 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 18 percent of the total in both 1989 and 1992. Nearly 80 percent of the sales in insurance were by affiliates in Canada, Japan, the United Kingdom, Bermuda, and Taiwan, each of which had sales exceeding $1.0 billion.(5)

Also large were sales by affiliates in manufacturing, wholesale trade, and "other industries." Affiliates in manufacturing accounted for 13 percent of total sales of services to foreigners, unchanged from 1989. Those in wholesale trade accounted for a 12-percent share, down from 15 percent. In both manufacturing and wholesale trade, most of the sales were of computer and data processing services provided by affiliates whose principal business was the manufacture or distribution of computers and related equipment. Affiliates in "other industries"--mainly transportation and communications--accounted for a 10-percent share of sales, up from 7 percent in 1989.

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

In 1992, sales of services to U.S. persons by U.S. affiliates of foreign companies were $127.0 billion, up 6 percent from 1991. Between 1987 and 1991, these sales grew at an average annual rate of 18 percent, three times as fast as the 6-percent annual growth in current-dollar private services industry GDP in the United States.(6) To at least some extent, the high growth rate in sales by U.S. affiliates reflects the increased share of the U.S. economy accounted for by foreign-owned firms, largely as a result of acquisitions by foreigners of existing U.S. companies. The increase in sales in 1992 was concentrated among affiliates with UBO's in three countries--Japan, France, and the Netherlands.

By area, affiliates with European UBO's had the largest share of U.S. affiliates' total sales of services to U.S. persons. These affiliates accounted for 60 percent of the total, up from 58 percent in 1987. Within Europe, affiliates with UBO's in the United Kingdom, Switzerland, the Netherlands, and Germany accounted for the largest shares of sales. Outside Europe, affiliates with UBO's in Canada had the next largest share of sales, 16 percent, down sharply from 26 percent in 1987. The share of Japanese-owned affiliates was 14 percent, up considerably from 5 percent in 1987. The gain in the share of Japanese-owned affiliates at the expense of that of Canadian-owned affiliates largely reflects 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 1992; these affiliates' sales also were largest in 1987. In 1992, 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 property and casualty insurers--primarily those with UBO's in the United Kingdom, Switzerland, and Germany--accounted for 80 percent of the total. Most of the remaining sales were by life insurers, and over one-half of these sales were by affiliates with Canadian UBO's.

After insurance affiliates, affiliates in "services" had the largest sales to U.S. persons in 1992. They accounted for 25 percent of total sales to U.S. persons, up from 23 percent in 1987. Within "services," sales were largest in "other" services (mainly personnel supply and other miscellaneous business services), motion pictures, and hotels and other lodging places.

Technical Note: Cross-Border Transactions in Construction and Related

Services

Because of certain unique aspects of cross-border trade in construction and related services, this note is provided to aid users in understanding the estimates recorded in the U.S. international transactions accounts. It also provides new detail on the activities underlying the estimates.

BEA's data on U.S. cross-border sales and purchases of architectural, engineering, mining, and construction services, presented in tables 2 and 9, include transactions with unaffiliated foreign persons in the following types of services performed on a contract, fee, or similar basis: The services of general contractors in building construction and heavy construction; construction work by special trade contractors; professional services in engineering, architecture, and land surveying; and mining services in the development and operation of mineral properties, including oil and gas field services. Only construction-type engineering is included; industrial engineering is recorded as a separate category.

Data on these sales and purchases are collected in annual surveys conducted by BEA. For U.S. sales, the data are collected in a specialized survey of U.S. companies that provide such services to foreigners. Information is obtained on the companies' gross operating revenues from foreign contracts, related foreign expenses, and U.S. merchandise exports included in gross operating revenues. The survey also collects information on new contracts awarded during the year; as explained below, this information is not recorded in the U.S. international transactions accounts, but it is useful in forecasting future developments in construction and related services in these accounts. For U.S. purchases, data on the gross value of purchases is collected as part of a survey of selected services transactions between U.S. and unaffiliated foreign persons. Because the data are collected from the U.S. purchasers, who do not have information on the disposition of the funds they disburse to foreign contractors, only information on the gross payments to these contractors is collected.

U.S. sales of architectural, engineering, mining, and construction services are recorded in the U.S. international transactions accounts on a net basis. Net receipts equal U.S. contractors' gross operating revenues from foreign projects less the sum of (1) U.S. merchandise exports included in gross operating revenues (which are recorded in the merchandise trade account of the balance of payments) and (2) foreign expenses, such as those for local labor or locally procured materials and supplies.(7) Net receipts measures the portion of gross operating revenues retained by the U.S. contractor, either as profits or as returns to other U.S.-located factors of production employed in connection with a foreign project (for example, its own employees or equipment). Net receipts from all projects performed by U.S. contractors for unaffiliated foreigners are included in U.S. exports, whether the projects are financed by private U.S. or foreign sources, by U.S. Government grants or loans (such as the Agency for International Development or the Export-Import Bank), by foreign governments, or by international organizations. Excluded are revenues for projects carried out by foreign affiliates of U.S. companies; only U.S. parent companies' shares in the earnings of these affiliates are included in the current account of the U.S. international transactions accounts, where they are recorded as investment income rather than as sales of services.

U.S. imports of engineering, architectural, construction, and mining services are recorded simply as foreign contractors' gross operating revenues from U.S. projects. Although deductions should, in principle, be made for related U.S. merchandise imports and for foreign contractors' outlays in the United States for wages and other expenses, BEA has little basis for estimating them, and to date no estimates have been attempted.

The net receipts measure indicates the net value of international transactions between U.S. contractors and foreign customers, suppliers, employees, and governments (which may receive tax payments from the contractors). However, for some purposes, the gross components of net receipts--which until now have not been published--may be more analytically useful. For example, gross operating revenues--the total value of construction that U.S. contractors put in place abroad during the year--is an indicator of the total foreign business of U.S. contractors and can be compared with their U.S. business or with business abroad by their foreign competitors. The new fifth edition of the International Monetary Fund's Balance of Payments Manual notes the usefulness of gross magnitudes as indicators of relative economic importance. It also specifically calls for the presentation of construction-related, as well as other current-account, flows on a gross basis.(8) As BEA attempts to come into compliance with the recommendations of the new Manual, it will review its methodology in this area.

Table A shows net U.S. receipts for 1987-93, along with the gross components from which the net receipts are derived. In 1993, U.S. contractors' net receipts from foreign projects (column 1 of table A) were $2.3 billion, up from $1.9 billion in 1992. Gross operating revenues (column 2) were $4.3 billion, up from $3.2 billion. The $2.0 billion difference between gross operating revenues and net receipts for 1993 consists of $0.3 billion in U.S. merchandise exports (column 3) and $1.7 billion in foreign outlays or expenses (column 4).

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Overall, net receipts grew faster than gross operating revenues in 1987-93, reflecting a relative decline in the deduction for U.S. exports. The mix between exports and foreign expenses--the two deductions to gross operating revenues--changed during this period, as U.S. contractors incurred a larger share of their costs abroad. Foreign expenses accounted for 86 percent of total deductions in 1993, compared with only 29 percent in 1987.

Although new contracts awarded (column 5 of table A) do not enter the international transactions accounts, they are useful in forecasting future developments in construction and related services in those accounts. The predictive value of this measure can be seen in chart 3, which shows, for 1988-93, a close association between gross operating revenues and contracts awarded a year earlier. During 1993, new foreign contracts awarded to U.S. contractors totaled $6.0 billion, up from $5.2 billion in 1992.

Tables 3.1 through 13.2 follow.

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(1.)The year 1986 was chosen as the beginning year for this analysis for two reasons: First, to continue and update the annual presentation of detailed data on services that began with the September 1990 SURVEY OF CURRENT BUSINESS; and second, and most importantly, to begin with the earliest year for which data can be prepared on a consistent methodological basis and with consistent coverage at this expanded level of detail. Cross-border services data for years before 1986 are not comparable with the data for 1986 forward, nor are they available at this level of detail. The noncomparability stems from the very substantial improvements in services methodologies and measurements that BEA has introduced over the last several years.

(2.)For international passenger fares, only those receipts and payments between a U.S. resident and a foreign resident are used in calculating a country's balance of payments. Thus, receipts of U.S. operators for the transportation of U.S. residents overseas, which are transactions between domestic residents, are not included in passenger fare receipts. Similarly, payments to foreign operators for the transportation of foreign residents to the United States, which are transactions between foreign residents, are not included in U.S. passenger fare payments.

(3.)The cost of transporting freight usually is borne by the importer because of the convention that goods belong to the importer once they leave the customs frontier of the exporting country. Thus, the earnings of foreign vessel and airline operators for the transportation of U.S. export freight are not included in the transportation estimates, because those earnings are transactions between foreign residents--foreign operators and foreign importers--and have no direct effect on the U.S. international accounts. Similarly, earnings of U.S. operators for the transportation of U.S. import freight are not included in the transportation estimates, because those earnings represent transactions between U.S. residents--U.S. operators and U.S. importers--and are not international transactions.

(4.)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 detailed list, see the group "services" in tables 12 and 13.

(5.)Insurance affiliates in Bermuda are largely "captive" offshore affiliates of U.S. parents that are not themselves insurance companies; these affiliates primarily provide self-insurance within their multinational companies.

(6.)Private services industry GDP in current dollars was $2,756.9 billion in 1987 and $3,542.7 billion in 1991. Unlike the figures for sales by nonbank majority-owned affiiates, the GDP figures reflect the value added of service-producing industries. Whatever the effect of this difference, the rate of growth in services sales by U.S. affiliates is still likely to exceed that of the overall U.S. services sector during this time because these sales also reflect the sharp growth in foreign direct investment in the United States during the late 1980's.

(7.)Other cross-border services transactions in which the service provider performs the service in the country of the foreign customer could also involve foreign expenses or, more rarely, merchandise exports. However, these items are more likely to be significant for construction-related services than for other services, and it is only for the former that an attempt is made to measure and adjust for them. In addition, for other services, some foreign expenses will be reflected in expenditures for business travel.

(8.)International Monetary Fund, Balance of Payments Manual, 5th edition, (Washington, 1993). The specific methodology recommended for construction is as follows: For a country's sales to foreigners, the gross operating revenues of its contractors would be recorded as a services export, the related foreign expenses would be recorded as a services import, and related merchandise exports would be deducted from exports of goods. Purchases are to be recorded analogously.