U.S. international sales and purchases of private services: U.S. cross-border transactions, 1986-91; sales by affiliates, 1989-90.

Sondheimer, John A. ; Bargas, Sylvia E.

This article presents detailed estimates of U.S. international sales and purchases of private services, including services delivered both through cross-border (balance of payments) transactions and through majority-owned affiliates.(1) Data on affiliate sales are needed to complement the data on cross-border transactions, because a large portion of international services business is conducted through locally established affiliates that can provide the close contact between customers and producers that many services require.(2)

In 1990, the latest year for which data on both types of transactions are available, U.S. firms received $138.1 billion from the cross-border sale of services, somewhat more than the $118.6 billion that their majority-owned foreign affiliates (MOFA's) received from the sale of services abroad (table 1). Foreign firms, in contrast, received somewhat less from the cross-border sale of services to U.S. persons than their majority-owned U.S. affiliates (MOUSA's) received from the sale of services in the United States - $97.0 billion, compared with $110.1 billion.

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A portion of both the cross-border and affiliate sales of services represents trade between parents and affiliates or between affiliates of the same parent company. Of the $138.1 billion in U.S. cross-border sales of services, $22.0 billion represented U.S. parent companies' sales to their foreign affiliates, and $4.4 billion represented U.S. affiliates' sales to their foreign parents.(3) By comparison, of the $97.0 billion in U.S. cross-border purchases of services, $5.2 billion represented U.S. parents' purchases from their foreign affiliates, and $5.7 billion represented U.S. affiliates' purchases from their foreign parents. Of the $118.6 billion in MOFA sales abroad, $13.3 billion was accounted for by sales to other foreign affiliates within the same multinational company. Comparable information is not available for MOUSA's, because they report to BEA on a consolidated basis.

For cross-border service transactions, this year's article provides preliminary estimates for 1991 and revised estimates for 1986-90. (See the accompanying box on page 84 for a discussion of the revisions.) For sales of services by affiliates, it provides preliminary estimates for 1990 and revised estimates for 1989.

U.S. Cross-Border

(Balance of Payments) Transactions

In 1991, U.S. cross-border receipts (exports) for sales of private services continued to increase faster than U.S. cross-border payments (imports) for purchases of private services. Receipts increased $14.2 billion, or 10 percent, to $152.3 billion, and payments increased $3.0 billion, or 3 percent, to $100.0 billion (table 2). These increases were less than in 1990, when receipts increased 17 percent and payments 15 percent.

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Major developments in 1991

Major developments in cross-border transactions, which are highlighted in this section, include an increase in receipts for "other" private services and a slowdown in both receipts and payments for travel and passenger fares. The detailed estimates of cross-border transactions are shown in tables 3-9 at the end of the article.

Receipts for "other" private services - the main source of growth in service receipts in 1991 - increased 16 percent to $46.4 billion, compared with an increase of 9 percent in 1990. Most of the increase in 1991 was in receipts from unaffiliated foreigners for business, professional, and technical services, for which coverage was improved as a result of the 1991 benchmark survey (see the box for details). Excluding unaffiliated business, professional, and technical services, "other" private service receipts increased 8 percent, compared with 9 percent in 1990. Receipts from unaffiliated foreigners increased 7 percent, about the same as in 1990, and receipts from affiliated foreigners increased 10 percent, down from 15 percent in 1990.

Payments for "other" private services increased 12 percent to $25.2 billion in 1991, compared with an increase of 18 percent in 1990. Among payments to unaffiliated foreigners, those for business, professional, and technical services increased the most - 33 percent, compared with an increase of 1 percent in 1990.(4) The growth in telecommunications payments decelerated to 1 percent in 1991 from 6 percent in 1990. Affiliated service payments increased 10 percent, down from 22 percent.

Receipts of royalties and license fees increased 8 percent to $17.8 billion, compared with an increase of 26 percent in 1990. Payments increased 27 percent to $4.0 billion, up from 20 percent. The increases in payments were largely attributable to payments by U.S. affiliates to their foreign parents and partly reflected the sharp step-up in foreign direct investment in the United States during the late 1980's. As a result of the faster growth in payments than in receipts in recent years, the ratio of total affiliated receipts to total affiliated payments of royalties and license fees fell from 6.6 in 1986 to 4.9 in 1991. For unaffiliated transactions, this ratio was 3.4 in 1991, compared with 4.0 in 1986.

Combined receipts for travel and passenger fares grew more slowly in 1991 than in 1990; they increased 10 percent to $64.4 billion, down from 24 percent. Combined payments decreased 1 percent to $47.6 billion, in contrast to an increase of 15 percent. Both receipts and payments were depressed in 1991 because of the war in the Persian Gulf.

Receipts for other transportation increased 3 percent to $23.6 billion in 1991, and payments were almost unchanged at $23.3 billion. In 1990, the increases were 9 percent and 13 percent, respectively. Freight earnings of U.S. and foreign carriers were depressed in 1991 by a decrease in the volume of U.S. export and import freight.

Changes in the composition of cross-border

service transactions

Except for travel and passenger fare receipts, the shares of most major components of private service receipts and payments changed only slightly from 1986 (when data for several services first became available) to 1991. Travel and "other" private services are the two largest components of service receipts (chart 1). Travel is the largest component of service payments. Among receipts, the largest change was in combined travel and passenger fares, which increased their share of total service receipts to 42 percent in 1991 from 34 percent in 1986. The increase reflected a surge in visitors to the United States from overseas. The share of "other" private service receipts decreased to 31 percent in 1991 from 35 percent in 1986; the 1991 share would have been somewhat lower except for the improved coverage of business, professional, and technical services. The share of royalties and license fees increased to 12 percent in 1991 from 10 percent in 1986, and the share of other transportation decreased to 16 percent from 20 percent.

Among payments, the combined share of travel and passenger fares decreased to 48 percent from 50 percent, and the share of other transportation decreased to 23 percent from 26 percent. The share of "other" private service payments increased to 25 percent in 1991 from 22 percent in 1986; the increase reflected growth in services other than business, professional, and technical services. The share of royalties and license fees increased to 4 percent from 2 percent.

Sales by Affiliates

Table 10 shows a summary of all available data for 1989-90 on sales of services by nonbank majority-owned affiliates for all countries and industries combined. Highlights for 1990 - the most recent year for which estimates are available - are discussed in the following two sections. The first section covers sales by foreign affiliates of U.S. companies, and the second section covers sales by U.S. affiliates of foreign companies.

Sales by foreign affiliates

Worldwide sales of services by nonbank majority-owned foreign affiliates (MOFA's) of U.S. companies were $130.9 billion in 1990, up 19 percent from 1989.(5) Of total MOFA sales in 1990, 84 percent, or $110.1 billion, were to unaffiliated - mainly foreign - persons, and 16 percent, or $20.8 billion, were to affiliated persons. Of the sales to affiliated persons, a little more than one-third were to U.S. parent companies, and the rest were to other foreign affiliates of the U.S. parent of the affiliate that made the sale. By location of customer, 9 percent of MOFA sales of services were to U.S. persons, and the remainder were to foreign - mainly unaffiliated - persons.

The rest of this section focuses on MOFA sales to foreign persons, which represent sales delivered by U.S. companies to foreign markets through the channel of direct investment. Those sales are shown by country in table 11 and by industry of affiliate cross-classified by country in table 12.

Sales to foreign persons. - Sales of services by MOFA's to foreign persons were $118.6 billion in 1990, Up 20 percent from 1989. Of this total, 88 percent, or $104.1 billion, were sold within the country of the affiliate; the rest were sold to other foreign (non-U.S.) countries.

By area, affiliates in Europe accounted for s68.6 billion, or 58 percent, of MOFA sales of services to foreign persons in 1990 (table 11). Sales by European affiliates increased 29 percent in 1990, partly reflecting the depreciation of the U.S. dollar against major European currencies, which raised the dollar value of sales denominated in those currencies. Within Europe, the largest sales were by affiliates in the United Kingdom ($25.4 billion). Also large were sales by affiliates in France ($8.8 billion), Germany ($8.4 billion), and the Netherlands ($7.8 billion). Outside Europe, the largest sales were by MOFA's in Canada ($16.1 billion) and Japan ($10.2 billion).

By industry, affiliates classified in the "services" division of the Standard Industrial Classification (sic) had the most sales of services to foreign persons in 1990 - $38.6 billion, up 31 percent from 1989.(6) Affiliates in Europe accounted for 72 percent of "services" sales. Within "services," affiliates in computer and data processing and in "other" services had the largest sales. Outside "services," affiliates in insurance had the next largest sales, totaling $20.9 billion in 1990. Of this total, 80 percent was accounted for by five countries (Canada, Japan, the United Kingdom, Bermuda, and Hong Kong), each of which had sales exceeding $1.0 billion. In the case of Bermuda, a portion of the sales were by "captive" offshore affiliates of U.S. parents that were not themselves insurance companies.(7)

Affiliates in manufacturing, wholesale trade, and finance (except banking) also had large sales of services to foreigners in 1990. In manufacturing, most of the sales were of computer and data processing services by machinery affiliates. In wholesale trade, over two-thirds of the sales were by European affiliates. In finance, nearly one-half of the sales were by British affiliates.

Sales by U.S. affiliates

Worldwide sales of services by nonbank majority-owned U.S. affiliates (MOUSA's) of foreign companies were $116.9 billion in 1990, up 17 percent from 1989.(8) These sales were nearly 90 percent as large as those by MOFA's. By location of customer, 94 percent, or $110.1 billion, of MOUSA sales of services were to U.S. persons, and 6 percent, or $6.8 billion, were to foreign persons. The sales to foreign persons were almost entirely to members of the U.S. affiliates' foreign parent groups and to unaffiliated foreigners. (U.S. affiliates of foreign companies have few foreign affiliates of their own.)

The rest of this section focuses on MOUSA Sales of services to U.S. persons, which represent sales delivered by foreign companies to the United States through the channel of direct investment. These sales are shown by country of ultimate beneficial owner (UBO) in table 11 and by industry of affiliate cross-classified by country of UBO in table 13.(9)

Sales to U.S. persons. - Sales of services by MOUSA's to U.S. persons increased 17 percent in 1990. Sales by affiliates with European UBO's were $64.5 billion, or 59 percent of total sales of services by MOUSA's to U.S. persons. Within Europe, the largest sales were by affiliates in the United Kingdom ($28.9 billion). Also sizable were sales by affiliates with UBO's in Switzerland ($12.2 billion), the Netherlands ($7.9 billion), Germany ($5.3 billion), and France ($5.1 billion). Outside Europe, the largest sales were by affiliates with UBO's in Canada ($22.6 billion) and Japan ($12.6 billion).

By industry, MOUSA's in insurance had the largest sales to U.S. persons in 1990. Life insurers - most of which had Canadian UBO's - accounted for nearly one-half of total insurance sales. Property and casualty insurers with UBO's in Switzerland and the United Kingdom accounted for most of the remainder. After insurance, affiliates in "services" had the next largest sales ($25.3 billion). Within "services," sales were largest in motion pictures, hotels and other lodging, and "other" services. Also sizable were sales by affiliates in real estate ($13.4 billion) and "other industries" ($11.0 billion). Within "other industries," sales were largest in transportation, where almost one-half of the sales were accounted for by affiliates with UBO's in the United Kingdom and Canada.

Tables 3 through 13.2 follow.

Revisions in the Estimates of Cross-Border Service Transactions

Estimates of cross-border service transactions were revised earlier this year to reflect definitional changes and improvements in source data. The revised estimates were first published, in summary form, in tables 1 and 3 of the article "U.S. International Transactions" in the June 1992 Survey of Current Business. That article contained a detailed discussion of the revisions. Unless noted otherwise, the revisions affect the data for all years shown in this article.

Definitional changes. - There were two major definitional changes that affected private services. First, estimates of receipts and payments of royalties and license fees and of "other" private services are now published before deduction of nonresident taxes withheld. Previously, these estimates were published after deduction of taxes withheld.

Second, estimates of royalties and license fees and of "other" private service transactions of direct investors are now presented on a gross basis in the U.S. international accounts; previously, they were on a net basis and differed from the gross estimates of U.S. direct investors were netted against each other and entered as exports, and receipts and payments of U.S. affiliates of foreign direct investors were netted and entered as imports. On a gross basis, all receipts are recorded as exports and all payments are recorded as imports, regardless of whether they are transactions of U.S. direct investors or of U.S. affiliates of foreign direct directors.

Improvements in source data. - Travel and passenger fares were revised to incorporate new data for U.S. international cruise transactions. In addition, travel receipts from Canada and Mexico incorporate new source data from Statistics Canada and the Bank of Mexico. Beginning with 1990, passenger fare receipts and payments include new estimates of interline settlements between U.S. and foreign airlines.

Other transportation receipts were revised to include new estimates of U.S. rail carrier's revenues for transporting foreign-owned goods through the United States.

Estimates of "other" private services were revised to incorporate preliminary results of the 1991 benchmark survey of selected services transactions with unaffiliated foreigners. The coverage of the benchmark survey was expanded by introducing a new exemption criterion that permitted the capture of more small transactions and by adding new types of servicers (table A). The number of companies with reportable transactions increased 75 percent, to 1,399 in 1991 from 792 in 1986, when the last benchmark survey was conducted. Most of the estimates in business, professional, and technical services in tables 2, 5, and 9 are based on data from the benchmark surveys and the annual follow-on surveys (table B). For certain servicers, detail by type was collected in the benchmark surveys, but only aggregate data were collected in the follow-on surveys. The added detail available for 1986 and 1991 is shown in table C.

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(1.) These estimates were first presented in this format in "U.S. International Sales and Purchases of Services," Survey of Current Business 70 (September 1990): 37-72.

(2.) A formal framework for analysis of sales and purchases of services (and goods), which is based on the concept of ownership rather than of residency and thus supplements the residency-based balance of payments accounts, is presented by the National Research Council's Panel on Foreign Trade Statistics. That framework requires information going beyond that presented in this article, including information on purchases by affiliates, and requires that certain issues of duplication be formally addressed. See National Research Council, Panel on Foreign Trade Statistics, Behind the Numbers: U.S. Trade in the World Economy (Washington, DC: National Academy Press, 1992). Additional discussion of the use of direct investment as a channel of delivery and of ways to account for this activity may be found in DeAnne Julius, Global Companies and Public Policy: The Growing Challenge of Foreign Direct Investment (New York: Council on Foreign Relations Press, 1990); and Evelyn Parrish Lederer, Walther Lederer, and Robert L. Sammons, International Services Transactions of the United States: Proposals for Improvement in Data Collection, Report prepared for the U.S. Departments of State and Commerce and the Office of the Trade Representative, 1982.

(3.) These figures are derived from the export data in table 2. U.S. parents' sales are the sum of lines 13 and 20, and U.S. affiliates' sales are the sum of lines 14 and 21. The amounts cited in this paragraph for affiliated cross-border purchases are derived analogously from the import data in table 2.

(4.) The 1991, estimate of payments to unaffiliated foreigners includes miscellaneous disbursements abroad to cover the costs of news gathering, motion picture production, production of broadcast material other than news, State tourism and business promotion offices, sales and representative offices, and participation in foreign trade shows. Such disbursements are not included in the estimates for earlier years. Excluding these disbursements, the increase in 1991 was 17 percent.

(5.) A MOFA is a foreign affiliate in which the combined ownership of all U.S. parents exceeds 50 percent.

(6.) The "services" division of the sic comprises the industries listed under "services" in tables 12 and 13.

(7.) These affiliates are used primarily as a means of providing self-insurance within the U.S. multinational companies of which they are a part, and a large share of their premiums is derived from providing casualty insurance to other foreign affiliates.

(8.) A MOUSA is a U.S. affiliate in which the combined ownership of all foreign parents exceeds 50 percent.

(9.) The UBO of a U.S. affiliate is that person, 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.