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Behind the Numbers: U.S. Trade in the World Economy (1992)

Chapter: 5. International Services Transactions

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Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
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5

International Services Transactions

Along with improvements in transportation, communications, information technology, and expansion in domestic services in the past decade, there has been a rapid growth in U.S. international services transactions, both in cross-border delivery of services and in the sales of services abroad by foreign affiliates of U.S. firms. As a consequence, the demand for international services data has greatly increased. The federal government needs such data to better measure economic activities and to formulate and evaluate domestic and international trade policies. The private sector needs such data to monitor trends and assess market opportunities. In addition, for the first time, services are a subject for negotiation in the current Uruguay Round of the General Agreement on Tariffs and Trade (GATT). More specific data on U.S. international services transactions will be needed in the future when the United States begins negotiations on individual services.

Two pieces of U.S. legislation during the 1980s—the Trade and Tariff Act of 1984 and the Omnibus Trade and Competitiveness Act of 1988—have mandated enhancements of statistical programs for international transactions in services. Over the past 5 years, the Bureau of Economic Analysis (BEA) has made great strides in improving the coverage and accuracy of data on U.S. cross-border trade in services and sales of services by majority-owned foreign affiliates of U.S. firms. Nonetheless, there remains a considerable range in the quality of the data now available, and much more needs to be done.

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

This chapter describes the key features of international services trade data; delineates the existing methods of data collection; analyzes the adequacy of the data; and makes recommendations for their improvement.

DATA ON INTERNATIONAL SERVICES TRANSACTIONS: KEY FEATURES

International sales of services differ from sales of goods: goods can usually be consumed in a different country from the one in which they are produced, but services often must be produced and consumed in the same country. Services sales to foreigners can involve many different forms of delivery: the cross-border movement of a producer, such as the provision of professional and business services to foreigners; the cross-border movement of a consumer, such as services provided to foreign tourists, students, and medical patients; information, including electronic transmission of voice, video, or data; legal instruments, such as contractual arrangements to use intellectual property, including patents, trademarks, and broadcast rights; the movement of services themselves, including transportation of goods and passengers. Unlike the collection of merchandise trade data, the various forms of delivery of international services require the use of different data sources to gather information on transactions.

Also unlike merchandise trade statistics, data on U.S. international services cover two kinds of transactions: (1) cross-border ones, in which services move across national boundaries or are purchased or produced by temporary visitors who cross borders (for example, transportation services for passengers and cargoes and communications and information services); and (2) establishment transactions, which involve the delivery of services through foreign affiliates located in the consuming country (for example, banking, accounting, engineering, and advertising).

Statistics on U.S. international services transactions are compiled and estimated by BEA largely on the basis of periodic surveys of companies engaged in international services transactions. This method is used because international services transactions do not usually generate official records or customs documentations. Some data on international services transactions are based on benchmark surveys conducted at 5-year intervals; others are compiled from annual or quarterly surveys. In developing its estimates for different services categories, BEA often refers to data from other government agencies, private organizations, foreign

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

governments, and international organizations. When only annual data are available, quarterly estimates are interpolations of annual estimates. BEA relies on various sources to update its mailing lists of respondents for its surveys. It also has obtained legal authority to gain access to the Census Bureau's Standard Statistical Establishment List (SSEL), a comprehensive list of business establishments used in Census Bureau 's surveys, to enhance the completeness and accuracy of its sampling frames.

Prior to the mid-1980s, data on sales of services to foreigners consisted largely of cross-border transactions of traditional services (such as royalties and fees on the use or sale of U.S. intangible properties, travel, transportation, telecommunications, construction, reinsurance, and film rentals). Separate sales and purchases data on establishment transactions were not available.

Since the mid-1980s, several major developments have improved the coverage and quality of U.S. international services data. Mandatory reporting, as required under the Trade and Tariff Act of 1984, has increased response rates of surveys, improving the quality of the data. In addition to the traditional service categories, new surveys have been conducted by BEA to collect sales and purchases data not previously gathered on business, professional, and technical services, including: advertising; computer and data processing; database and other information services; telecommunications; research, development, and testing services; industrial engineering; management, consulting, and public relations services; legal services; installation, maintenance, and repair of equipment; agricultural services; management of health care facilities; accounting, auditing and bookkeeping services; mailing, reproduction, and commercial art; personnel supply services; sports and performing arts; primary insurance; and construction, engineering, architectural, and mining services. Estimates of medical services sales have been available since 1987 and of educational services sales and purchases since 1989. Noninterest income of U.S. banks, which had been commingled with interest income, was reclassified to services in 1989. Although data on establishment transactions (sales of services through affiliates) have been available since 1982 for foreign affiliates of U.S. companies, corresponding data for U.S. affiliates of foreign firms have been available only since 1987. Since June 1989, incomes paid and received on investments, which had been included in “services” broadly defined, have been labeled separately from services in the U.S. balance of payments.

In addition, the Omnibus Trade and Competitiveness Act of

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

1988 has provided for U.S. international services data to be included in the National Trade Data Bank and for the improvement of eight specified groups of services: banking services; information services, including computer software services; brokerage services; transportation services; travel services; engineering services; construction services; and health services. Most of the eight services are already covered by surveys. For the two major uncovered services—banking and brokerage transactions—BEA is actively studying ways to improve the data, including investigating the feasibility of instituting a new survey for financial services transactions.

Due to budgetary constraints and for reasons of efficiency, BEA limits its surveys of purchases and sales of services to companies believed to have large transactions, except for travel data, which are collected from individual travelers. Information reported to BEA is confidential. Numbers of responses on which estimates are based vary with different surveys. In 1988 about 35,000 responses were used for the travel estimates; 14 to 130 for different transportation sectors; 900 for business, professional, and technical services; 500 for royalties and fees; 200 for insurance surveys; and 130 for construction, engineering, architectural, and mining services. The differences reflect the degree of industry concentration in the various services categories: for example, there are fewer than 10 U.S. airlines that provide international flights. They also partly reflect the concentration of international service transactions undertaken by firms in certain industries: for example, there are only a small number of firms that do international business in the construction industry.

Unlike merchandise trade statistics, which are published in 14,000 import and 8,000 export commodity categories covering 212 countries and regions, international services transactions statistics are collected in aggregate values in approximately 25 broad categories, and country breakdowns are available only for major services. These statistics on a highly aggregated basis are reported in the quarterly release of the U.S. balance-of-payments accounts. BEA publishes annually the more detailed tables on international services in its September issues of Survey of Current Business.

Several difficulties complicate the collection of international services data, making them vulnerable to inaccuracy and inadequate coverage, primarily the diversity of the various service activities and the manner in which transactions occur. Even determining what data should be collected requires a clear understanding of the nature and scope of services and their international dimensions. In addition, rapid technological and organiza-

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

tional changes in service industries further complicate definition, classification, and measurement of services transactions. It is also not easy to delineate boundaries between individual service sectors because some service activities overlap one another. Telecommunications, for example, may cover the same ground as data processing and information transmission; tourism involves transportation. In addition, goods and services sold or provided jointly in a package (such as turnkey manufacturing facilities and major office and computing equipment) present problems of classification; there is no standard for allocating value to services associated with production of goods (this problem also applies to domestic services).

Full coverage of transactions is difficult, in part because it would not be easy to locate all possible respondents to surveys, including newly established companies. In addition, similar transactions may not be reported consistently by different companies. Surveys on services transactions are also subject to sampling and nonsampling errors and errors in the gathering and processing of data. The reporting burden on respondents can limit the volume of data that can be gathered, and the complexity of surveys can affect response rates and quality of data reported. Data compiled in large sector aggregates also mask major changes in particular components.

METHODS OF ESTIMATING INTERNATIONAL SERVICES TRANSACTIONS

Our discussion on sources and methods used in estimating U.S. data on international services transactions focuses on procedures that have been used since 1986, when a program of major improvements was initiated. The improvements resulted in a small upward revision of net receipts for 1985 (from +$10.5 billion to +$13.1 billion), followed by a net increase of $6.9 billion in the revised 1986 data and an upward revision of $6.0 billion in the previously published 1987 data; see Table 5-1. Nearly all of the changes represent revisions of transactions with nonaffiliated foreign parties; there is comparatively little change in the data on transactions between U.S. enterprises and their foreign affiliates or parent corporations.

Sources and methods differ for the collection of data on services transactions between affiliated parties of multinational corporations; data on “other” private services transactions with

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

TABLE 5-1 Revisions in Data for U.S. International Services Transactions (in billions of dollars)

 

Revised Data

 

1987

1988

1989

Service

1985

1986

1985

1986

1987

1985

1986

1987

1988

Private service receipts, total

16.8

19.0

16.7

19.7

22.3

19.9

29.4

32.1

35.1

Royalties and fees from affiliates

4.2

4.7

4.1

5.4

6.9

5.4

6.9

8.3

Royalties and fees from other nonresidents

1.9

2.1

1.9

1.9

2.1

6.0

1.8

2.2

2.4

Other service receipts from affiliates

2.5

3.1

2.5

3.0

2.4

3.0

2.2

2.9

Other service receipts from other nonresidents

8.2

9.1

8.2

9.4

10.9

13.9

19.2

20.8

21.5

Private service payments, total

−6.2

−6.7

−6.2

−7.0

−8.9

−6.8

−9.8

−12.7

−13.5

Royalties and fees to affiliates

−0.5

−0.6

−0.5

−0.6

−0.8

−0.6

−0.8

−1.0

Royalties and fees to other nonresidents

−0.4

−0.5

−0.4

−0.4

−0.6

−0.9

−0.5

−0.5

−1.1

Other service payments to affiliates

0.7

1.3

0.7

1.3

1.9

1.3

0.6

0.7

Other service payments to nonresidents

−6.0

−6.9

−6.0

−7.3

−8.4

−5.9

−10.0

−12.0

−12.1

Net private services

10.6

12.3

10.5

12.7

13.4

13.1

19.6

19.4

21.6

With affiliates

6.9

8.5

6.8

9.1

9.4

9.1

8.9

10.9

Othera

3.7

3.8

3.7

3.6

4.0

10.5

10.5

10.7

aThis category does not include shipping or travel; it does include the services enumerated in Table 5-2, Table 5-3, and Table 5-4.

SOURCE: Survey of Current Business, various June issues.

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

unaffiliated parties, including those covering royalties, fees, and payments for intangible rights, reinsurance and direct insurance, and construction and engineering services; data on the two major traditional service sectors, international shipping and tourism; and data on financial, educational, and medical services transactions. For some of the data, BEA uses various surveys; see Figure 5-1.

TRANSACTIONS BETWEEN AFFILIATED PARTIES OF MULTINATIONAL CORPORATIONS

Services between affiliated parties of multinational corporations primarily include intracorporate receipts and payments of royalties, fees, and other service items between foreign affiliates and their parent companies. Data on services transactions between U.S. corporations and their foreign affiliates, as well as those between foreign corporations and their U.S. affiliates, are compiled from a portion of the information collected in direct investment surveys. Separate surveys are used to cover U.S. direct investment abroad and foreign direct investment in the United States.

Services Transactions Related to U.S. Direct Investment Abroad

A hierarchy of BEA surveys are used to collect information on U.S. direct investment abroad. First are the benchmark surveys of U.S. direct investments abroad, the BE-10 series, which are generally scheduled at 5-year intervals; second are the annual surveys of these investments, the BE-11 series; and third are the quarterly series (BE-577).

The most recent benchmark covers 1989. The benchmark surveys are intended to be all-inclusive: a direct mailing is made by BEA to all U.S. firms identified as being a parent of a foreign affiliate (that is, a U.S. person, or affiliated group, owning a 10 percent or greater voting interest in a foreign corporation, or a comparable interest in an unincorporated foreign business). The BEA mailing list is comprehensive, having been built up over many successive surveys, and it is updated daily on the basis of a wide variety of public and other sources reporting on the establishment of a direct-investment relationship. The exemption level for reporting for individual foreign affiliates is fairly low: a foreign affiliate whose assets, sales, or net income fall between $3 million and $15 million is required to be reported on the short form (BE-10B(SF)); one whose assets, sales, or net income are in excess of $15 million is required to be reported on the long form

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

FIGURE 5-1 BEA Surveys (Forms Used) on Direct Investment and International Services Transactions

Direct Investment

Direct Transactions of U.S. Reporter With Foreign Affiliate (BE-577)

Transactions of U.S. Affiliate, Except an Unincorporated Bank, With Foreign Parent (BE-605); Transactions of U.S. Banking Branch or Agency With Foreign Parent (BE-606B)

Benchmark Survey of U.S. Direct Investment Abroad (BE-10A, BE-10A Bank, BE-10B, BE-10B Bank)

Benchmark Survey of Foreign Direct Investment in the U.S. (BE-12)

Annual Survey of U.S. Direct Investment Abroad (BE-11)

Annual Survey of Foreign Direct Investment in the United States (BE-15)

Initial Report on a Foreign Person's Direct or Indirect Acquisition, Establishment, or Purchase of the Operating Assets of a U.S. Business Enterprise, Including Real Estate (BE-13)

Travel

Survey of U.S. Travelers Visiting Canada (BE-536)

Expenditures of United States Travelers in Mexico (BE-575)

Transportation

Ocean Freight Revenues and Foreign Expenses of U.S. Carriers (BE-30)

U.S. Airline Operators' Foreign Revenues and Expenses (BE-37)

Foreign Ocean Carriers' Expenses in the United States (BE-29)

Foreign Airline Operators' Revenues and Expenses in the United States (BE-36)

Other Services

Benchmark Survey of Selected Services Transactions With Unaffiliated Foreign Persons (BE-20)

Annual Survey of Selected Services Transactions With Unaffiliated Foreign Persons (BE-22)

Annual Survey of Royalties, License Fees, and Other Receipts and Payments

for Intangible Rights Between U.S. and Unaffiliated Foreign Persons (BE-93)

Annual Survey of Construction, Engineering, Architectural, and Mining

Services Provided by U.S. Firms to Unaffiliated Foreign Persons (BE-47)

Annual Survey of Reinsurance and Other Insurance Transactions by U.S. Insurance Companies With Foreign Persons (BE-48)

(BE-10B(LF)); even if there is no reportable foreign affiliate, a parent company must reply to that effect. There are also specialized reports for banks. In these surveys, more detailed data are collected for majority-owned affiliates than for those that are minority owned.

The annual surveys (BE-11A, B, and C) are not primarily intended to amplify the data used in the balance-of-payments accounts, but rather to keep current other aspects of the operations of the multinational enterprises—such as sales or revenues, employment, details of the balance sheets and profit-and-loss accounts, and trade with parent companies in the United States. Conse-

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

quently, the data derived from these surveys has no significant bearing on the magnitude of international services transactions in the U.S. balance of payments, but they can be used as a partial measure of the sale of services by U.S. companies in foreign markets.

In contrast, the quarterly survey (BE-577) is used to generate data for the balance-of-payments accounts. Data obtained from the quarterly survey are directly linked back to the coverage of the benchmark surveys. Filing is required for each foreign affiliate with assets, sales, or net income exceeding $20 million. The relative scopes of the benchmark and the quarterly surveys are reflected in the number of reporters and affiliates covered by each. In the benchmark census of 1982, 2,245 reports were filed by U.S. parent companies, covering 33,650 foreign affiliates, of whom 18,339 were required to report detailed information. Recent reporting on the BE-577 has covered 1,200 U.S. parent companies and 9,160 foreign affiliates. Another measure of coverage is given by the percentage of statistical features of the benchmark that is also covered by the quarterly BE-577. On that basis, it is estimated by BEA that almost 90 percent of the current income and service transactions of the universe of direct investors is covered by the quarterly reports, and that percentage, within narrow margins, is used to expand the data cells derived from the quarterly survey to yield universe estimates.

An indication of the magnitude of services transactions between U.S. companies and their foreign affiliates is given in Table 5-1 (above). The net receipts by U.S. parent companies of royalties, fees, and earnings from the use of intangible property rose very rapidly from 1985 through 1988, while receipts from affiliates for other service items, including intracorporate charges for management services, were relatively flat over that period. Table 5-1 also shows that receipts of royalties, fees, and other service items from foreign affiliates of U.S. companies account for almost one-third of all receipts from these types of private services.

These data can be extracted from the various direct investment surveys. In the benchmark report (BE-10B(LF)) filed for each sizable foreign affiliate, items 101-107 provide a set of data on service transactions between an affiliate and its U.S. parent, covering royalties, fees, and payments for the use of intangible property, as well as allocated expenses and service transactions between the affiliate and the U.S. parent. For smaller foreign affiliates reporting on the short form (BE-10B(SF)), service transactions with the parent are covered in items 67-69, with some breakdown by

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

type. In addition, data for royalties, fees, and the like are given in items 82 and 83, but these yield operating rather than balance-of-payments data. As a rough generalization, the coverage of current-account entries in the balance of payments expected to be provided by the short form is estimated at less than 10 percent of the combined coverage of the long and short forms.

There are specialized benchmark reports for banks (BE-10A Bank and BE-10B Bank). Items 70-72 on the BE-10 Bank form parallel the other forms in covering certain service transactions between an affiliate and a U.S. parent company. These entries provide a basis for the entries in the balance-of-payments accounts, but they cover only a small part of the overall entries for international banking services in the accounts.

The annual surveys covering parent companies contain no balance-of-payments type of data on services transactions; the form covering majority-owned foreign affiliates (BE-11B) contains some entries (items 47-50) that cover sales of services abroad by their foreign affiliates, but not by type.

The quarterly reporting system (BE-577) provides the continuing basis for the regular quarterly revisions of the balance-of-payments accounts. This form is limited to entries directly pertinent to the balance-of-payments accounts. For the royalties, fees, and other intracorporate services relevant to this discussion, the data are given in items 17, 18, 19.1, and 19.2. These items follow the comparable items in the benchmark reports; they cover only transactions with the parent company, and some types of transactions or charges for services are not required in detail. In processing these incoming quarterly reports, BEA “ blows up” the sample data for each industry/country cell to yield universe estimates. As the incoming reports accumulate, the amount of blow-up required is reduced; when the full sample is in, the amount of blow-up across cells averages about 10 percent. It should be noted that this is not a random sample: essentially all known significant direct investors are required to report quarterly.

Services Transactions Related to Foreign Direct Investment in the United States

For foreign direct investments in the United States, a similar reporting structure has evolved. For these transactions, the most recent benchmark survey (BE-12) covered 1987; the preliminary results were published in the July 1989 issue of the Survey of Current Business, and the final results in the July 1990 issue.

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

More detailed results were published in separate data publications. To speed the tabulation process, the larger returns are tabulated first. The final count of such affiliates for 1987 was 8,577. Given the mandatory filing requirement and the extensive efforts by BEA to search out all potential respondents, it is reasonable to consider the benchmark totals as effectively complete. BEA estimates that more than 80 percent of the balance-of-payments entries or assets of foreign direct investments in the United States is accounted for by majority-owned affiliates.

The basic benchmark form (BE-12(LF)) is filed by each U.S. affiliate with $20 million or more of assets, sales, or net income. Information on international services transactions is rather limited. Lines 75-79 give data on sales of services, not differentiated by type, separately for sales to foreign parents and affiliates and sales to unrelated foreign persons. These data can serve in part to check other data collected on overall sales of services to nonresidents. Lines 253-257 provide greater detail on transactions in services between a reporting U.S. affiliate and its foreign parent, covering all types of services. Moreover, there is an extensive section (Part IV) devoted to gathering information on transactions of a U.S. affiliate with foreign affiliates of the foreign parent company, which yields considerable amounts of information. It appears that in the benchmark years there is complete coverage of services transactions with nonresidents carried out by U.S. affiliates of foreign firms.

The annual report form (BE-15) has two reporting levels: for sales, assets, or net income exceeding $20 million, a long form is required; between $10-20 million, a short form must be filed. At these levels, the annual long form would cover about 95 percent of the benchmark level of assets. The information collected on services only partly parallels the coverage of the benchmark surveys: lines 70-73 cover all sales of services by the U.S. affiliate, but not in detail, although the industry classification of the affiliate may indicate the nature of the services sold. However, no information on services is collected that is relevant to the balance-of-payments accounts. This form is intended primarily to compile data on operational aspects of the U.S. affiliates of foreign firms in the United States.

The quarterly report forms (BE-605 and BE-606B for branch banks) provide basic information for the ongoing entries on services in the balance-of-payments accounts. The reporting requirement (over $20 million) is the same as for the benchmark long form. On average, the coverage of current-account transactions, including

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

services, is estimated at about 90 percent. Blow-ups by BEA are carried out at the level of industry/country cells. On form BE-605, the relevant information on services transactions with foreign parents is given in Part III, lines 19-23, although the breakdown by type is limited. There is also an extended section in Part VII for reporting service and other transactions with foreign affiliates of the parent company. On form BE-606B, there is information (lines 16-19) on services transactions performed between affiliates and parents, but it does not cover the much larger category of service charges to nonaffiliated customers.

As shown in Table 5-1 (above), U.S. affiliates of foreign firms are net recipients of charges from their foreign parent organizations. This partly results from the operations of U.S. affiliates of Japanese firms, which carry out extensive marketing and other functions in the United States on behalf of their parent organizations. Another major source of U.S. receipts from foreign parents for services performed is reimbursement for warranty work.

Other Private Services, Unaffiliated

Under the BEA category of “other private services, unaffiliated” appear all the services between U.S. residents and unaffiliated foreign persons other than tourism and international shipping. Table 5-2, Table 5-3, and Table 5-4 present detailed information on receipts and payments for these services. They show how inadequate the coverage was before later surveys were undertaken and the significant revisions for some of the services (see below). For some years there had been dissatisfaction with the coverage and quality of data for these other private services, and there were widespread estimates of their “true” levels. Responding to its own concerns about these data, as well as to competing estimates that were circulating, BEA used the International Investment and Trade in Services Survey Act (through the Trade and Tariff Act of 1984), a broadened and redesigned version of the International Investment Survey Act of 1976, to revise forms and enlarge mailing lists. Also under that act, reporting of services transactions became mandatory.

The main instrument for improving the data was the introduction in 1986 of a new mandatory reporting system (using form BE-20, and, subsequently, BE-22) that calls for much greater detail by type of service. At the direction of the Office of Management and Budget to work with the respondent community and through consultations with the Business Council on the Reduction of Paper-

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

TABLE 5-2a Receipts, Other Private Services, Unaffiliated, 1986 (in millions of dollars)

Service

Original

Revised

Total

9,393

19,150

Education

3,480

Financial services

1,656

3,301

Insurancea

479

2,041

Primary insurance, net

1,600

Reinsurance, net

479

441

Telecommunications

1,628

1,827

Business, professional, and technical services

1,614

4,368

Accounting, auditing, and bookkeeping

21

Advertising

94

Computer and data processing

985

Database and other information services

124

Engineering, architectural, construction, and mining, netb

1,124

857

Installation, maintenance, and repair of equipment

973

Legal services

97

Management, consulting, and public relations

306

Medical services

490

490

Research and development, commercial testing, and laboratory services

282

Other

139

Other

4,016

4,133

Wages of temporary workers

104

104

Film rentals

550

656

Expenditures of foreign governments and international organizations

3,006

3,015

Other

356

357

Amount of change (current less previous)

9,757

New information

7,478

Transferred from other accounts

2,394

Revisions

−115

NOTES: The original figures are those reported based on earlier surveys; the revised figures are based on later BEA surveys. A dash indicates the data are not available.

aInsurance receipts are published net of losses paid, and payments are published net of losses recovered.

bEngineering, architectural, construction, and mining receipts are published net of merchandise exports, which are included in the merchandise trade account, and net of outlays abroad for wages, services, materials, and other expenses.

SOURCE: Survey of Current Business (1989:57).

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

TABLE 5-2b Payments, Other Private Services, Unaffiliated, 1986 (in millions of dollars)

Service

Original

Revised

Total

7,252

10,014

Education

461

Financial services

1,874

1,769

Insurancea

1,406

2,201

Primary insurance, net

477

Reinsurance, net

1,406

1,724

Telecommunications

3,027

3,252

Business, professional, and technical services

1,252

Accounting, auditing, and bookkeeping

29

Advertising

77

Computer and data processing

32

Database and other information services

23

Engineering, architectural, construction, and mining, netb

379

Installation, maintenance, and repair of equipment

466

Legal services

40

Management, consulting, and public relations

60

Medical services

Research and development, commercial testing, and laboratory services

76

Other

70

Other

945

1,079

Wages of temporary workers

698

833

Film rentals

77

73

Expenditures of foreign governments and international organizations

Other

170

173

Amount of change (current less previous)

2,762

New information

2,094

Transferred from other accounts

321

Revisions

347

NOTES: The original figures are those reported based on earlier surveys; the revised figures are based on later BEA surveys. A dash indicates the data are not available.

aInsurance receipts are published net of losses paid, and payments are published net of losses recovered.

bEngineering, architectural, construction, and mining receipts are published net of merchandise exports, which are included in the merchandise trade account, and net of outlays abroad for wages, services, materials, and other expenses.

SOURCE: Survey of Current Business (1989:57).

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

Table 5-3a Receipts, Other Private Services, Unaffiliated, 1987 (in millions of dollars)

Service

Original

Revised

Total

10,851

20,763

Education

3,804

Financial services

2,232

3,731

Insurancea

690

2,285

Primary insurance, net

1,596

Reinsurance, net

690

689

Telecommunications

1,791

2,105

Business, professional, and technical services

1,690

4,270

Accounting, auditing, and bookkeeping

27

Advertising

108

Computer and data processing

629

Database and other information services

138

Engineering, architectural, construction, and mining, netb

1,174

936

Installation, maintenance, and repair of equipment

1,023

Legal services

148

Management, consulting, and public relations

379

Medical services

516

516

Research and development, commercial testing, and laboratory services

182

Other

184

Other

4,448

4,568

Wages of temporary workers

120

120

Film rentals

658

740

Expenditures of foreign governments and international organizations

3,293

3,332

Other

377

376

Amount of change (current less previous)

9,912

New information

7,763

Transferred from other accounts

2,266

Revisions

−117

NOTES: The original figures are those reported based on earlier surveys; the revised figures are based on later BEA surveys. A dash indicates the data are not available.

aInsurance receipts are published net of losses paid, and payments are published net of losses recovered.

bEngineering, architectural, construction, and mining receipts are published net of merchandise exports, which are included in the merchandise trade account, and net of outlays abroad for wages, services, materials, and other expenses.

SOURCE: Survey of Current Business (1989:57).

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

Table 5-3b Payments, Other Private Services, Unaffiliated, 1987 (in millions of dollars)

Service

Original

Revised

Total

8,406

12,006

Education

513

Financial services

2,077

Insurancea

2,443

3,168

Primary insurance, net

1,634

552

Reinsurance, net

2,616

Telecommunications

1,634

3,701

Business, professional, and technical services

3,334

1,425

Accounting, auditing, and bookkeeping

37

Advertising

140

Computer and data processing

61

Database and other information services

28

Engineering, architectural, construction, and mining, netb

368

Installation, maintenance, and repair of equipment

506

Legal services

56

Management, consulting, and public relations

50

Medical services

Research and development, commercial testing, and laboratory services

127

Other

52

Other

995

1,122

Wages of temporary workers

740

888

Film rentals

73

48

Expenditures of foreign governments and international organizations

182

Other

186

Amount of change (current less previous)

3,600

New information

2,442

Transferred from other accounts

415

Revisions

743

NOTES: The original figures are those reported based on earlier surveys; the revised figures are based on later BEA surveys. A dash indicates the data are not available.

aInsurance receipts are published net of losses paid, and payments are published net of losses recovered.

bEngineering, architectural, construction, and mining receipts are published net of merchandise exports, which are included in the merchandise trade account, and net of outlays abroad for wages, services, materials, and other expenses.

SOURCE: Survey of Current Business (1989:57).

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

Table 5-4a Receipts, Other Private Services, Unaffiliated, 1988 (in millions of dollars)

Service

Original

Revised

Total

11,224

21,471

Education

4,111

Financial services

1,966

3,835

Insurancea

833

1,564

Primary insurance, net

1,311

Reinsurance, net

833

253

Telecommunications

1,970

2,357

Business, professional, and technical services

1,704

4,787

Accounting, auditing, and bookkeeping

Advertising

Computer and data processing

Database and other information services

Engineering, architectural, construction, and mining, netb

1,163

Installation, maintenance, and repair of equipment

Legal services

Management, consulting, and public relations

Medical services

541

541

Research and development, commercial testing, and laboratory services

Other

Other

4,751

4,817

Wages of temporary workers

129

129

Film rentals

724

776

Expenditures of foreign governments and international organizations

3,487

3,504

Other

411

408

Amount of change (current less previous)

10,247

New information

8,244

Transferred from other accounts

2,855

Revisions

−852

NOTES: The original figures are those reported based on earlier surveys; the revised figures are based on later BEA surveys. A dash indicates the data are not available.

aInsurance receipts are published net of losses paid, and payments are published net of losses recovered.

bEngineering, architectural, construction, and mining receipts are published net of merchandise exports, which are included in the merchandise trade account, and net of outlays abroad for wages, services, materials, and other expenses.

SOURCE: Survey of Current Business (1989:57).

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

Table 5-4b Payments, Other Private Services, Unaffiliated, 1988 (in millions of dollars)

Service

Original

Revised

Total

8,716

12,094

Education

555

Financial services

2,057

1,656

Insurancea

1,922

2,781

Primary insurance, net

603

Reinsurance, net

1,922

2,179

Telecommunications

3,681

4,264

Business, professional, and technical services

1,646

Accounting, auditing, and bookkeeping

Advertising

Computer and data processing

Database and other information services

Engineering, architectural, construction, and mining, netb

Installation, maintenance, and repair of equipment

Legal services

Management, consulting, and public relations

Medical services

Research and development, commercial testing, and laboratory services

Other

Other

1,056

1,192

Wages of temporary workers

793

950

Film rentals

70

50

Expenditures of foreign governments and international organizations

Other

193

192

Amount of change (current less previous)

3,378

New information

2,873

Transferred from other accounts

514

Revisions

−9

NOTES: The original figures are those reported based on earlier surveys; the revised figures are based on later BEA surveys. A dash indicates the data are not available.

aInsurance receipts are published net of losses paid, and payments are published net of losses recovered.

bEngineering, architectural, construction, and mining receipts are published net of merchandise exports, which are included in the merchandise trade account, and net of outlays abroad for wages, services, materials, and other expenses.

SOURCE: Survey of Current Business (1989:57).

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

work, BEA sets exemption levels for filing detailed data. Reports are mandatory for individual transactions of $250,000 or more (though this has been interpreted to mean annual transactions with a single customer); reports for smaller transactions are voluntary, with some indication to be provided of the overall magnitude of the transactions, but not by type or country.

In the initial distribution of these forms, over 20,000 were mailed directly to lists of firms considered to be likely respondents. Of that original universe, almost 1,000 returns were filed that contained statistics that could be used. Although this number appeared to be quite limited, the result was a notable increase in the amounts reported for these types of services, and amounts were reported for services not covered at all up to that time (see Table 5-2, Table 5-3, and Table 5-4).

It is clear that the new BE-22 survey added considerably to the receipts of services shown in the balance-of-payments accounts, although some of the amounts shown as new information may reflect improved compliance with the reporting requirements rather than new transactions. According to BEA, the new survey was more successful in filling gaps on the receipt side than in identifying payments abroad for services by U.S. residents, but this is always to be expected when coverage on one side or the other requires canvassing a much more widely dispersed universe. The extent of the bias is not known, and there is no obvious practical solution to this imbalance, although persistent checking of source materials may help to broaden the coverage. Although the number of potential purchasers of foreign services is small, the introduction of the new survey did succeed in improving the coverage of payments. For telecommunications, data on payments were increased considerably more than those on receipts; this difference appears to reflect the fact that more companies responded to the new mandatory survey.

In addition to the improved reporting through form BE-22, there are three specialized surveys that were brought under the new act in 1986 and were strengthened in 1987 by increases in both coverage and detail. Form BE-93, revised in 1987, covers receipts and payments of royalties, fees, and charges for the use of intangible property between U.S. firms and unaffiliated nonresidents, supplementing the coverage of the multinational direct investment surveys. The number of respondents is now over 400. BEA continues its efforts to broaden the reporting base for this survey, checking with the Patent Office, booking agents, and other possible sources of mailing lists. Given the wide dispersal of participants in this

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

type of services and the relatively small magnitude of individual contract arrangements, it seems unlikely that there will be major changes in these data.

Another special form (BE-48) covers premiums earned and paid and losses paid and recovered on reinsurance and premiums earned (and associated claims) on primary insurance transactions of insurance companies with nonresidents. Reinsurance had been covered for many years, but the revised mandatory form introduced in 1987 also covered U.S. sales of primary insurance, and the number of insurance companies or groups responding increased from just under 250 to about 300. As shown in Table 5-2, Table 5-3, and Table 5-4, there were some sizable revisions from earlier reports, raising reinsurance payments considerably in 1987 (from $1.6 to $2.6 billion) and reducing reinsurance receipts in 1988 (from $0.8 to almost $0.3 billion). It should be noted that the insurance entries are shown on a net basis, reflecting the difference between premiums received and paid, as well as losses paid and recovered. Thus, the 1988 revision reflects a larger figure for losses paid than was reported earlier.

Primary insurance sales to nonresidents by U.S. insurance companies was first measured in 1987 and showed a sizable surplus of premiums over losses paid. However, there is little reporting on primary insurance between the U.S. residents and foreign insurance companies; the exemption level is high ($250,000), but, a priori, this would not seem likely to be a significant service activity. There are certain difficulties in calculating the value of these transactions—apart from the difficulties in measuring the direct investment transactions of this industry. Premium receipts are generally recorded on a cash basis, reinsurance premiums paid are as reported, and the report filers estimate the corresponding loss experience. No account is taken of any accumulating asset or liability positions that are built into some forms of insurance, which might be useful as part of the overall effect of this industry 's operations.

A new annual reporting form (BE-47) also came under the new mandatory reporting system and was expanded. It improved and refined the coverage of services related to construction and engineering operations as well as architectural and mining services. The data showed that U.S. international transactions in these services were conducted by a fairly small number of firms. Currently, the number of respondents is fewer than 100. BEA continues to expand coverage by reference to trade publications and other information on sizable foreign projects. There is more lim-

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

ited coverage of foreign contractors, engineering, or architectural firms operating in the United States. It should be noted that it is especially difficult to separate the strictly service aspects of this industry from activities defined as direct investments. In principle, in addition to other criteria set up by BEA, when a firm establishes a relatively permanent presence to carry out a contract, the activity is reported under the heading of direct investments. Although BEA (in its instructions to form BE-47) provides criteria used for determining whether a foreign activity or operation should be reported as direct investment or cross-border services transactions (including the nature of the operation and the types of records kept), the distinction probably baffles some of the reporting companies, which may not maintain their records on those criteria.

TRADITIONAL SERVICES: SHIPPING AND TOURISM
International Shipping

Collection of data on international freight and shipping activities is one of the oldest and most complex activities reported in the U.S. balance of payments. These transactions involve very large receipts and payments, as shown in Table 5-5. A breakdown of the elements entering these accounts is shown in Table 5-6 for 1970-1988. Estimating each transaction involves several steps.

For ocean shipping, on the payments side, the convention is to consider that all payments for freight on imports are paid by the importer. To compile the balance-of-payments accounts, it is necessary to determine how much of the total freight bill for imports is paid to foreign fleets and how much to the U.S. fleet; payments by U.S. importers to the U.S. fleet do not enter the balance of payments

TABLE 5-5 Selected Service Transactions, 1986-1988 (in millions of dollars)

Service

1986

1987

1988

Exports of selected services

70,886

79,405

92,058

Travel

20,454

23,505

29,202

Passenger fares

5,546

6,882

8,860

Other transportations

15,458

16,989

18,930

Freight

3,969

4,700

5,345

Port services

10,480

11,575

12,830

Other

1,009

714

755

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

Service

1986

1987

1988

Exports of selected services—continued

     

Royalties and license fees

7,254

9,070

10,735

Affiliated, net

5,412

6,900

8,319

U.S. parents' receipts

5,518

7,049

8,431

U.S. parents' payments

106

150

112

Unaffiliated

1,842

2,171

2,416

Other private services

22,174

22,959

24,331

Affiliated services, net

3,024

2,196

2,858

U.S. parents' receipts

5,375

5,106

6,168

U.S. parents' payments

2,351

2,910

3,310

Unaffiliated services

19,150

20,763

21,471

Education

3,480

3,804

4,111

Financial services

3,301

3,731

3,835

Insurancea

2,041

2,285

1,564

Telecommunications

1,827

2,105

2,357

Business, professional, and technical services

4,368

4,270

4,787

Other unaffiliated servicesb

4,133

4,568

4,817

Imports of selected services

59,281

67,455

73,073

Travel

26,000

29,215

32,112

Passenger fares

6,774

7,423

7,872

Other transportations

16,715

18,062

19,641

Freight

10,687

10,999

11,841

Port services

5,201

6,360

7,059

Other

827

703

741

Royalties and license fees

1,062

1,365

2,048

Affiliated, net

602

843

968

U.S. affiliates' receipts

171

240

238

U.S. affiliates' payments

773

1,083

1,205

Unaffiliated

461

522

1,080

Other private services

8,730

11,390

11,400

Affiliated services, net

−1,284

−616

−694

U.S. affiliates' receipts

2,808

2,683

3,028

U.S. affiliates' payments

1,524

2,067

2,334

Unaffiliated services

10,014

12,006

12,094

Education

461

513

555

Financial services

1,769

2,077

1,656

Insurancea

2,201

3,168

2,781

Telecommunications

3,252

3,701

4,264

Business, professional, and technical services

1,252

1,425

1,646

Other unaffiliated servicesb

1,079

1,122

1,192

aInsurance receipts (exports) are published net of losses paid, and payments (imports) are published net of losses recovered.

bOther unaffiliated services receipts (exports) include mainly expenditures of foreign governments and international organizations in the United States. Payments (imports) include mainly wages of foreign residents temporarily employed in the United States and Canadian and Mexican commuters in U.S. border areas.

SOURCE: Survey of Current Business (1989:76).

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

TABLE 5-6 U.S. Receipts and Payments for International Transportation: 1970-1988 (in millions of dollars)

Item

1970

1980

1981

1982

1983

1984

1985

1986

1987

1988

Total receipts

3,669

14,208

15,671

15,491

16,200

17,824

19,062

21,004

23,870

27,790

Ocean transportation

2,256

7,757

8,028

7,685

8,133

8,849

8,846

9,169

10,060

11,116

Export freight earnings

604

2,641

2,803

2,549

2,881

2,702

2,866

2,610

2,806

2,959

Freight earnings on shipments between foreign countries

209

588

561

555

575

563

574

576

595

689

Port expenditures

1,406

4,435

4,552

4,468

4,562

5,457

5,274

5,843

6,514

7,315

Charter hire

37

93

112

113

115

127

132

140

145

153

Air transportation

1,240

5,946

7,160

7,326

7,596

8,460

9,735

10,966

12,825

15,652

Export freight earnings

187

742

752

762

576

645

706

783

982

1,385

Passenger fares

541

2,591

3,111

3,174

3,610

4,015

4,388

5,546

6,882

8,860

Port expenditures

512

2,613

3,297

3,390

3,410

3,800

4,641

4,637

4,961

5,407

Other transportation

173

505

483

480

471

515

481

869

985

1,022

Total payments

4,058

15,397

16,961

16,482

18,225

20,753

22,314

23,489

25,484

27,513

Ocean transportation

2,380

8,447

8,900

8,307

8,624

10,560

11,018

11,619

11,649

12,641

Import freight payments

1,444

5,809

6,073

5,562

5,827

7,755

8,114

8,636

8,657

9,505

Passenger fares

245

268

287

290

305

305

320

320

328

328

Port expenditures

316

1,905

2,054

1,957

1,980

1,972

2,048

2,125

2,114

2,244

Charter hire

375

465

486

498

512

528

536

538

550

564

Air transportation

1,581

6,705

7,785

7,938

9,361

9,950

11,070

11,581

13,527

14,525

Import freight payments

115

562

671

725

1,066

1,633

1,666

2,051

2,242

2,226

Passenger fares

970

3,339

4,200

4,482

5,698

5,605

6,351

6,454

7,095

7,544

Port expenditures

496

2,804

2,914

2,731

2,597

2,712

3,053

3,076

4,190

4,755

Other transportation

97

245

276

237

240

243

226

289

308

347

Balance

−389

−1,189

−1,290

−991

−2,025

−2,929

−3,252

−2,485

−1,614

277

SOURCE: Survey of Current Business, June issues, and unpublished data from the Bureau of Economic Analysis.

NOTE: Data are international transportation transactions recorded for balance-of-payment purposes. Receipts include freight on exports carried by U.S.-operated carriers and foreign carrier expenditures in U.S. ports. Payments include freight on imports carried by foreign carriers and U.S. carrier port expenditures abroad. Freight on exports carried by foreign carriers is excluded since such payments are directly or indirectly for foreign account. Similarly, freight on U.S. imports carried by U.S. carriers is a domestic rather than an international transaction.

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

since they are resident-to-resident payments. Determining the total freight bill on U.S. imports is relatively simple, since the merchandise trade data are tabulated on both cost-insurance-freight (c.i.f.) and free-on-board (f.o.b.) basis—the difference being freight and insurance. BEA makes an arbitrary estimate that 1 percent of the import bill represents insurance payments, and the rest of the c.i.f. – f.o.b. difference represents freight payments.

The next step is to determine how much of those payments is to the foreign fleet. The Census Bureau tabulations on merchandise imports identify the carriers bringing in the goods by flag of registry, and there are vessel clearance reports filed with the U.S. Customs Service that indicate the operator of each vessel. From this information and information gathered over many years of studying shipping industry practices, BEA prepares estimates of how much of the total ocean import freight bill is paid to foreign operators; this estimate is shown as part of import freight payments ($9.5 billion in 1988).

One feature of ocean ship operations is that a very large part of gross freight revenues is spent in the ports of the importing countries to cover a wide variety of operating expenses; BEA collects this information on foreign-operated ships calling at U.S. ports (form BE-29). At present, the procedure is to send this form early in the year to U.S. agents of foreign shippers, asking them to complete the form for 10 port calls during the year. A report is required from an agent handling 40 or more port calls with aggregate expenditures of $250,000; however, it is difficult to determine, a priori, whether a given agent is required to report. The form separates vessels into three classes (liner, tramp, and tanker) and collects information on several types of expenditures in U.S. ports. The agent is requested to fill in both the amounts spent by the vessels and the shipping weight of the cargo handled. Since the total shipping weight of imports is known from Census Bureau merchandise trade data, this factor can be used to blow up this sample of returns to the universe to estimate foreign port expenditures in the United States ($7.3 billion in 1988).

However, this estimating procedure is not smooth sailing. Agents' responses may not be reliable, and the data for shipping weight are often missing. Also, data for one of the most important elements, bunker fuel, may be incomplete. Furthermore, it is necessary to obtain sufficient coverage for each type of vessel for overall estimates. The reporting requirement changed in 1989 (covering 1988 data) to a 10 port-call sample rather than a report covering all port calls, as an inducement for better compliance with the

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

request for data, but compliance is still not entirely satisfactory. When reports on the BE-29 by agents do not provide full breakdowns by the type of vessel or type of expenditures, the reliability of the sample is greatly reduced; BEA is working on procedures to arrive at improved estimates for more of the cells in the forms. For example, there is an external source for the bunker fuel component from Census Bureau data on fuel loaded in vessels by flag, giving both quantity and value.

Port expenditure receipts must be viewed as an element in the balance-of-payments accounts that still depends on a less than robust reporting and estimating procedure. There may be some possibility for bias, tending to overstate port expenditure receipts, in the method used to estimate totals from the BE-29 returns. However, there is a certain amount of discipline in deriving these port expenditure figures because of the historical relationship of freight payments to foreign vessels. Over the 1980-1988 period, port expenditure receipts averaged 74 percent of the ocean freight payments, and there were no large year-to-year variations. It might be noted, however, that the global shipping data suggest that port expenditure receipts for the world as a whole may be understated.

On the other side of the ocean shipping account, it is necessary to measure the freight earnings of the U.S. fleet from both shipping U.S. exports and carriage of cargoes in foreign countries, as well as the port expenditures abroad incurred by the U.S. fleet in earning those revenues. The main source for this information is form BE-30, which covers revenues from exports and from charter hire and expenses in foreign countries. It also contains information on inbound cargoes that helps to sort out the import freight bill between U.S. and foreign operators.

The number of U.S. carriers, or operators, is relatively small, fewer than 50. These carriers operate mainly as fleet or line operators or as tanker operators. It is believed the coverage of U.S. carriers is comprehensive. It can be seen from Table 5-6 (above) that the freight earnings of the U.S. fleet have scarcely changed during the 1980s and that the associated port expenditures have averaged only about 60 percent of revenues (including freight on cross-trade: that is, carriage of freight among foreign countries abroad by U.S. fleet). The U.S. fleet is reported to carry less than 20 percent of U.S. exports, and it would require an intensive study of the basic data to determine whether the low ratio is in the nature of the activities of the U.S. fleet or results from the estimating procedures. International shipping and freight ac-

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

tivities yielded net receipts of about $1.5 billion to the U.S. balance-of-payments accounts.

Transportation by air has clearly become a major factor in the U.S. balance of payments, as shown in Table 5-6. For foreign airlines coming to the United States, relevant data are collected on form BE-36, which is filed by 80-85 percent of relevant airlines. Import freight is derived from this form, but Census Bureau data may also be used. The quantity data shown in the form can be used for cross-checking against Census Bureau data, and an annual check is made to determine coverage based on weight information. The BE-36 form is the prime source for aircraft port expenditures in the United States ($5.4 billion in 1988). These port expenditures relate primarily to the transportation of U.S. and foreign travelers, and the information on passenger fares paid or received is collected as part of the information on travel (described below). The combined total of U.S. payments to foreign airlines for freight and passengers was $9.8 billion in 1988 (see Table 5-6), and this was partially offset by port expenditures receipts of $5.4 billion (which relate essentially to passenger fares).

International receipts and payments by U.S. airline operators are reported on form BE-37. The coverage of this report is believed to be comprehensive, since there are few international operators. U.S. air carriers derive comparatively little from freight earnings ($1.4 billion in 1988), but they have larger revenues from carrying foreign passengers ($8.9 billion in 1988). The latter figure is obtained from data collected in connection with the travel estimates. Offsetting these revenues, the U.S. airlines spent $4.8 billion in foreign ports in 1988. Also, aircraft leasing to foreign airlines earns a substantial amount for U.S. carriers. (The passenger fare figures are net of interline settlements between U.S. and foreign carriers.) Since the coverage of the airline operators is believed to be comprehensive, any shortcomings in the data entered in the U.S. accounts would result from faulty reporting rather than from the estimating procedures used by BEA. In particular, there seems to be no basis for a systematic bias on the side of either receipts or payments.

There are a number of other smaller elements in the shipping account that require special treatment. One is pipeline freight from Canada, as some Canadian pipelines run partly through U.S. territory. Another is traffic across the Great Lakes, which is part of the ocean transportation account. For surface traffic, information is obtained from railroad companies on freight carried across land borders, and estimates are made for freight car rentals on the

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

basis of the number of cars being rented and the rates paid. A sizable problem exists for the measurement of the earnings of U.S. truckers from hauling freight within Canada or Mexico and the corresponding earnings of foreign truckers in the United States. No data have ever been obtained from U.S. truckers. There are differences between U.S. and Canada in the treatment of payments to truckers involved in cross-border hauling, with the U.S. side counting inland freight paid in Canada as part of the value of U.S. imports, and Canadians counting inland freight in the United States as part of transportation (freight) payments. The amounts involved are large: the Census Bureau began collecting c.i.f.–f.o.b. data on imports by truck in July 1989; Canada began to do the same in 1991.

With additional funding, BEA plans to develop an improved method of covering overland freight payments and receipts for Canada and Mexico. One possibility is to treat such transportation payments analogously to air freight—that is, as covering the cost of delivering goods from the shipping point to the destination in the bordering country. This would be counter to the present definition of export valuation, which, in principle, counts freight costs within the exporting country as part of the value of goods, rather than a service element. However, the suggested change seems to make sense if it can be reconciled with other relevant data and if the bordering countries agree to such a reformulation. It might then be possible to amend the shipping documents to give the necessary information on transportation costs.

Travel and Tourism

The travel accounts in the balance of payments comprise expenditures by U.S. residents as travelers in foreign countries and on foreign airlines or other means of transportation and receipts from nonresident travelers in the United States for their expenditures within the United States as well as their fares paid to U.S. transportation companies. As can be seen in Table 5-5 (above), these receipts and expenditures are much larger than those for any other service category, and they will probably grow rapidly in line with the generally buoyant condition of the travel industry as a whole. However, in many respects the quality of the data in this sector of the accounts is less than robust. There are three major subdivisions of the travel category that require individual statistical treatment: air travel overseas, travel with Canada, and travel with Mexico.

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

Air Travel Overseas Overseas air travel is the largest component of international travel, accounting for about two-thirds of both receipts and payments. Collecting data covering either U.S. residents traveling abroad or foreigners traveling to the United States has been one of the perennial problem areas in the balance-of-payments accounts. The basic concept is fairly simple: information on the number of U.S. residents traveling abroad, by principal destination, is available from the Immigration and Naturalization Service (INS), and therefore it is only necessary to obtain information on their length of stay and average expenditures per day. Similarly, data are available from the INS on the number of non-residents arriving by air from abroad, and this information can be combined with data on length of stay and daily expenditure rate. The difficulty is finding a way to obtain information on length of stay and expenditures (together with other information) from travelers, since there is no mandatory requirement that travelers supply such information to the government.

For a long time, the Commerce Department, through BEA and its predecessor agencies, and with the help of the Customs Service, distributed a questionnaire card to a sample of arriving passengers. The U.S. travelers were requested to complete the card and mail it in as soon as possible, giving information on their foreign travel expenditures, itinerary, etc. Foreign travelers were requested to mail in the card when their trip to the U.S. was completed. Response rates to this questionnaire survey were very low and declining, and the coverage of information was limited to the essential needs of the balance-of-payments accounts. Beginning with the second quarter of 1984, the U.S. Travel and Tourism Administration (USTTA) of the Commerce Department took over the task of distributing a more extensive questionnaire and developing a procedure that would raise the response rate.

The questionnaire that is now distributed is the Survey of International Air Travelers Departing the United States. It is intended to serve the interests of the tourist industry in general, as well as the statistical needs of BEA. For balance-of-payments purposes, there are several key items: for foreign travelers to the United States, their country, length of U.S. stay, and expenditures in the United States by type; for U.S. residents traveling abroad, number of nights outside the United States, principal places visited and length of stay, and estimated amount to be spent outside the United States by type. In both cases, data on fares paid are also collected and the questionnaire shows which airline and which flight is being surveyed. The technique used by USTTA is to seek

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

agreements from airlines to pass out these cards to all passengers on selected flights, to collect them from passengers who choose to complete them, and to return them to USTTA. At present all 7 U.S. airlines that operate overseas do hand out cards, and 35 of 60 foreign airlines do so, covering about 80 percent of passengers carried on foreign airlines.

A random sample of flights departing the United States in each time period is selected by USTTA, and cards are sent to the participating airline for distribution on those flights. It should be noted that an important problem in this system is that the U.S. travelers are requested to estimate their expenditures abroad before they have made any foreign expenditures. The actual compilation of the data is contracted to an organization in San Diego, California. For each quarterly period, BEA receives a computer tape with the information for the period and prepares all the estimates of expenditures and receipts for the air travel account from these sample data. BEA uses these estimates for the balance-of-payments accounts and makes them available to USTTA as well.

In 1988 about 200,000 cards were handed out on planes, and about 50 percent were turned in and sent for tabulation. Of the 100,000 cards returned, USTTA found about 70,000 were usable for its purposes. BEA found useful information for the balance-of-payments accounts on about 37,000 cards, of which 17,000 were returned by foreign visitors and 20,000 by U.S. residents. In 1988 the number of foreign visitors carried by the airlines was 12,493,000, and the number of U.S. overseas travelers was 14,529,000, so the usable cards represented about one-tenth of 1 percent of U.S. international airline travel. Although that coverage seems small, it is considerably larger than the sample obtained under the earlier BEA procedure. Moreover, it is possible to test the reliability of the sample results by comparing the reported daily expenditure rates and fares to those estimated independently by industry researchers on travel costs and airfares and those estimated by researchers in other countries. Some of these tests are applied by BEA before arriving at the published estimates, and BEA also attempts to detect and eliminate extreme data.

The shift from the BEA system of collecting data on air travel to the USTTA system resulted in a major shift in the levels of receipts and payments and a considerable shift in the net result; see Table 5-7. For the travel account, receipts and payments were each raised by over $7 billion in the 1984-1987 period, with the result of raising net payments by $800 million to $1.8 billion in 1984 through 1986, but with no net change in the account in

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

TABLE 5–7 Differences in Data on International Travel Account From Old and New Surveys (in billions of dollars)

 

Year

Survey

1984

1985

1986

1987

BEA card survey

Travel

Receipts

10.9

11.2

12.5

14.8

Payments

15.0

16.0

17.3

20.5

Net

−4.1

−4.8

−4.8

−5.7

Passenger Fares

Receipts

3.6

3.6

4.2

5.4

Payments

7.0

7.9

7.5

8.8

Net

−3.4

−4.3

−3.3

−3.4

USTTA card survey

Travel

Receipts

17.8

17.9

20.5

23.5

Payments

22.7

24.5

26.0

29.2

Net

−4.9

−6.6

−5.5

−5.7

Passenger Fares

Receipts

4.0

4.4

5.5

6.9

Payments

5.9

6.7

6.8

7.4

Net

−1.9

−2.3

−1.3

−0.5

Travel difference, net

−0.8

−1.8

−0.7

0

Fare difference, net

1.5

2.0

2.0

2.9

Combined difference, net

0.7

0.2

1.3

2.9

SOURCE: Data from Survey of Current Business, June 1988 and June 1989.

1987. However, the figures for passenger fares were raised on the receipt side and lowered on the payments side, leading to an addition to net receipts of nearly $3 billion in 1987. These changes imply large increases in estimated daily expenditures on both sides of the account, together with a significant shift in average fares paid by foreigners traveling on U.S. airlines (an increase in fares received) and U.S. residents traveling on foreign airlines (a decrease in fares paid). No analysis has yet explored the reasons for the changes in the results yielded by the two data collection methods.

Clearly, there are many possibilities of gaps and biases in the new procedure, but there is also some degree of safeguard against extreme errors. One safeguard is the continuity of the actual count of travelers to and from the United States by air. That particular data source has been consistent over many years. An-

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

other safeguard is the expectation of consistency over time in the average daily expenditures being reported, allowing for differences in different destinations or residences of travelers and for changes in price levels and exchange rates. Nonetheless, there is some question of whether the sampling procedure does result in consistent and reliable expenditure data, since some large abnormalities, in fact, have shown up.

The BEA procedure for expanding a sample of returns by U.S. travelers to an estimated universe is fairly detailed. BEA receives information on the cards returned from particular flights and has data on the number of passengers on that flight. BEA proceeds to use the sample from these flights to generate total data for all flights to that destination. BEA has data for the total number of U.S. travelers to that destination in the period being covered and expands the average expenditure data from the sample to the total for that destination on the basis of total U.S. travel traffic to that destination. BEA also has information on the breakdown of travelers between U.S. residents and others so that the correct population allocation can be closely approximated. In practice, a number of considerable difficulties must be overcome. One problem is that in the random sampling of the flights chosen by USTTA to receive cards there are episodes of underrepresentation or overrepresentation of particular destinations. Another problem is that cards are often returned with only some data: the missing data items are treated implicitly as if the reply matched the average for completed cards, possibly causing an overstatement of the coverage of the sample, though not necessarily affecting the estimates. Still another problem arises when a U.S. traveler visits several destinations in addition to the first destination of record. In that case, BEA uses the data on nights spent (or expected to be spent) at each destination to prorate the total expenditures for each destination. Allowance is made for differences in likely costs in each destination (based on data from returns by travelers who only visited one destination), but the precision of the data for individual countries, except for the most popular destinations, is clearly questionable. The data on a regional basis (for example, Europe, Asia, and Latin America) are presumably not much affected, although the estimates made by U.S. travelers under this system may have some unknown bias.

BEA has reported wide quarterly variations in the daily expenditure rates for particular destinations for which there are no explanations. However, as noted, the switch from the BEA-administered survey to the USTTA system resulted in large increases in

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

both receipts and payments. Given the weaknesses in the BEA procedure, probably some large changes could be expected, but a test for possible biases in the new system and a detailed review of the estimated daily expenditure rates would certainly help to shore up the credibility of the expenditure data. There are similar problems when dealing with expenditures in the United States by foreign air travelers, and here, too, a test of the consistency of daily expenditures data would seem to be in order. However, these travelers do report on the basis of their actual expenditures.

As noted above, the questionnaire cards are also used to derive data on average fares paid by U.S. and foreign travelers. These average fares are combined with data available to BEA on the nationalities of travelers and the ownership of airlines to derive estimates of total fares paid by U.S. travelers to foreign airlines and by foreign travelers to U.S. airlines. The average fare data derived from the cards have not been checked for consistency with generally available data on air fares. Such a check might be worth doing on a spot basis for a sample of flights for which BEA would have specific information. One major difficulty reported by BEA is that the necessary data on the number of travelers by nationality and airline, provided by Department of Transportation, are very late in arriving, so the published fare data for the most recent two to four quarters are extrapolations based on earlier data. Also, the fare data received from cards for U.S. airlines alone, or for foreign airlines alone, yield questionable results, given what is known about air fares in general, so that the two data sets are merged to smooth out the result. This result also suggests some difficulties in the sampling process.

Travel With Canada For data on overland travel to and from Canada, the standard procedure for some years has been that BEA, through the Customs Service, carries out a questionnaire card survey of U.S. residents returning from Canada, and Statistics Canada surveys Canadians returning from the United States. The agencies then exchange the data on expenditures and length of stay, to be combined with data on the number of border crossings. This system seemed to be efficient and adequate, but the Canadians decided that they wanted a wider range of information on the expenditures of U.S. travelers in Canada and that the number of travelers covered on the U.S. side was insufficient. Starting in 1990, Statistics Canada has also been covering U.S. travel in Canada by giving questionnaires to Americans entering Canada and asking that they be mailed back, in Canada, before the traveler re-

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

turns to the United States. The results will be made available to BEA. It remains to be seen what the new system will reveal and whether any revisions of the older data will be needed.

Travel With Mexico To cover most U.S. overland travel in Mexico, BEA uses a card (handed out by the Customs Service according to a program designed by BEA) covering U.S. travelers returning across the border. It is assumed that nearly all such travel takes place within a 3-mile wide border area. The INS provides data on the number of border crossings. For this segment of travel, the statistical routine is similar to the sampling technique for Canada, described above. The data on border travel is supplemented by data collected by the Bank of Mexico from U.S. travelers who travel farther than 3 miles into Mexico. The resulting estimates are supplied to BEA. There is, however, no procedure for checking the validity of the information provided.

For data on travel by Mexicans in the United States, BEA depends entirely on estimates developed by the Bank of Mexico. These estimates are based on personal interviews with returning visitors conducted by representatives of the Bank of Mexico. There is no independent check on these travel expenditure estimates.

FINANCIAL SERVICES AND EDUCATIONAL AND MEDICAL TRANSACTIONS
Financial Services

The rapid growth of the international activities of banks and other financial institutions and the introduction of new financial instruments and new services performed for investors and borrowers should result in a considerable escalation of the fees and commissions earned by resident financial institutions from non-residents and in payments for services performed by foreign institutions for U.S. residents. In practice, however, it has been proved very difficult to establish procedures for obtaining information on international receipts and payments for financial services. This is not only a U.S. problem —most countries are having similar problems. As shown in Table 5-2 (above), the coverage of U.S. receipts for financial services was improved in the mid-1980s, and the level of such receipts has risen slowly to nearly $4 billion. Nearly one-half of the amount now recorded as receipts for financial services had been entered earlier as part of portfolio income receipts. Much work remains to be done before the coverage of financial services can be considered to be comprehensive.

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

At present, the major element in financial fees is the commissions generated in connection with transactions in securities between U.S. and foreign residents. The principal data on the turnover in these transactions are provided by the monthly Treasury S forms, which show purchases and sales, for an extended list of countries, in U.S. bonds, U.S. equities, foreign bonds, and foreign equities. The amounts reported in the S forms include the value of the securities and fees and commissions. Until recently, no effort was made to adjust the capital flow data by subtracting an estimate of the implicit services component. At present, the S form data are adjusted for fees and commissions estimated by BEA before being entered in the capital accounts.

To estimate the services component of securities transactions, BEA takes into account many aspects of the trades taking place: the nature of the security and the market where traded, the residence of the transactors, the size and other characteristics of the reported trades (for example, separating new issues and redemptions from trading in the secondary market), and the changes in the fee structure that are occurring. Information on fee structures is kept up to date by the use of a variety of published sources and discussions with market participants. For foreigners purchasing U.S. securities, separate fee structures are developed for each type of security, and separate account is taken of trade in U.S. government issues for which the fee may take the form of a markup on purchases. Fees paid on sales of new U.S. issues in foreign markets are also calculated. In short, BEA attempts to develop the estimates carefully. For U.S. trading in foreign securities, it is assumed that most transactions are effected abroad, and an estimated fee paid to foreign financial institutions is deducted from the gross trading prices reflected in the S form data.

There are many peculiarities of the fee structures—such as intercompany trading to adjust inventories or wholesale trading of certain kinds—that must be taken into account in constructing the fee structure applicable to these trades. In addition, there remains the difficulty that the S form data system is not capturing many kinds of transactions under present market conditions, such as ready direct access by investors to foreign markets and increased activity in these markets of mutual funds or pension funds that may by-pass the usual financial intermediaries. To the extent that portfolio capital flow data are deficient, there is also a deficiency in estimating the fees connected with such trading.

Difficult though it is to develop estimates for fees and commissions connected with transactions in securities, there are much

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

greater obstacles in doing so for the various kinds of financial services performed by commercial banks. Certain kinds of bank fees can be covered fairly easily (though not with great confidence) because data on the volume of business are available or can be estimated —including fees on acceptances and on commercial and standby letters of credit, commitment fees from potential borrowers, and charges for collections. In all these cases a fee structure can be established by consultations with a sample of large banks. The situation is much more difficult, however, for other important types of transactions —including foreign exchange trading, fees related to the rescheduling or renegotiation of loans, and syndication fees.

For foreign exchange trading, it is believed that nearly all trading in foreign exchange for U.S. customer accounts takes place in markets abroad, and any fees that are earned are booked to the foreign branches of the U.S. bank or broker. Most trading in the U.S. market is believed to be resident-to-resident, so no international fee payment is involve. Consequently, there is no balance-of-payments entry in the United States for earnings on foreign exchange trading. In principle, the accounts of the countries in which the trading occurs should be picking up a financial services receipt that, from the U.S. point of view, is part of the revenue of a direct investment establishment abroad. This is an illustration of the difficulty of comparing data on specific services transactions across countries.

For fees related to loan reschedulings or the conduct of financial deals (for example, takeover bids) that involve many kinds of services, the complexity of the internal organization of major financial institutions creates barriers to the extraction of the pieces of the transaction that can be accounted for as fees earned from nonresidents. Even when that can be done, the fees may be parceled out arbitrarily between the U.S. and foreign components of the organization, confusing the national residency basis for international data collection.

In addition to sorting out the relevant data from these complex operations, there are other kinds of transactions and transactors that are not now covered by any data collection—including the business of U.S.-resident foreign banks with nonresidents, certain major operations of investment bankers or merchant banks, income of banks' custody or trust departments, and fees charged for financial consulting.

There are serious definitional and theoretical problems connected with trading in financial assets that are under consider-

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

ation in the context of the revision of the U.N. systems of national accounts and the revision of the IMF Balance of Payments Manual on balance-of-payments accounting. These considerations may lead to further modifications of the distinctions between capital gains, investment income, and returns for the provision of financial services. Some convention is likely to be adopted that will come to terms with the kinds of accounts maintained by financial institutions. Other difficulties that need to be overcome arise from the complexity of these operations and of the organization of financial institutions. BEA is currently studying the problems of collecting data on noninterest income of U.S. financial firms and has requested funding for fiscal 1992 to develop a survey to collect such information.

Medical Services Receipts

Estimates for U.S. receipts for medical services are based on a special informal inquiry conducted in 1985, in which hospital administrators at medical centers and university hospitals were asked to analyze their records to determine how many of their patients were nonresidents and to provide data on average hospital costs and on associated physicians ' fees. The hospitals covered were estimated to account for about two-thirds of the medical treatment services for foreigners, and the reported totals were raised by 50 percent to reflect the missing one-third. It was also estimated that about 10 percent of the gross foreign payments for medical care was paid by U.S. charitable or other sources.

The estimates prepared for 1985 were carried back to 1981 and are being carried forward, based essentially on changes in relevant costs as measured in the Consumer Price Index. There has not been a repeated attempt to collect data from hospital administrators, primarily because the necessary records identifying the nationality of patients are very difficult to obtain and analyze, so that an effort of this magnitude cannot be undertaken frequently. Although the apparent magnitude of the receipts (about $550 million annually) would not seem to justify a more intensive effort, the 1985 effort is becoming increasingly dated as a basis for current estimates. In the future, BEA may want to consider investigating whether questions on sales of medical services to foreign patients can be added to existing surveys of health care providers. There are no similar data for medical expenditures abroad by U.S. residents. It is believed that the amount is not large, and it would be extremely difficult, in any case, to arrive at a satisfactory estimate.

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×
Education Services

As shown in Table 5-2, Table 5-3, Table 5-4 (above), the introduction of estimates for expenditures by foreign students in the United States resulted in a significant increase (over $4 billion in 1988) in services receipts. These estimates are developed by BEA from several sources (for a detailed description of the methodology used, see Survey of Current Business [June 1989:58]). Statistics on the population of foreign students at U.S. institutions of higher learning are developed by the Institute for International Education, including considerable detail about the characteristics of the population. Estimates of expenditures for tuition and room and board come through the U.S. Department of Education and are refined by BEA to match the profile of the foreign student population. Data on living expenses are derived from Bureau of Labor Statistics budget data. Some of this gross expenditure figure is offset elsewhere in the international accounts to allow for financing received by foreign students from U.S. private and public sources and for earnings by the students.

A similar process is used to estimate the much smaller amount of expenditures abroad by U.S. students. Again, a student population figure is obtained through the Institute for International Education. Estimates of expenditures per student come from U.S. institutions that are the sponsors of most of the foreign study programs. Estimates of living expenses abroad are based on data on living costs abroad. The coverage of U.S. students abroad is smaller than the coverage for foreign students in the United States, and BEA makes estimates for nonresponse cases. The coverage of U.S. study abroad is narrowly confined to those students who receive academic credit from a U.S. institution. There is no coverage of the large population of students following independent casual courses; some of their expenditures are included in the tourist expenditure and fare estimates.

LIMITATIONS OF THE DATA

Although the coverage and accuracy of the data on U.S. international services transactions have been improved in recent years, the considerable range in the quality of the data now available warrants significant additional attention.

A major concern about international services data is the difficulty of developing a complete sampling frame. BEA can use the press or other publicity avenues to call to the attention of the

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

public the existence of the reporting requirements and especially to bring to the attention of businesses that may be participants in the services transactions the importance of accurate and comprehensive U.S. international services data. To enhance the usefulness and reliability of the data, BEA needs to work closely with industry representatives and trade associations in developing new inquiries, conferring with them on kinds of records that are available in firms and the kinds of information that can and cannot be reported. This should be done because complete and consistent reporting of transactions depends on the manner in which records are kept by respondents as well as clear and uniform understanding of the types of transactions to be included. BEA should also conduct periodic reviews of the quality of the incoming data to assure their quality. Cooperation from the services industries in providing accurate and timely information is critical to enhancing the usefulness of data on U.S. international services transactions.

Another concern relates to the fact that the size and complexity of services transactions are growing, requiring constant effort just to keep up with more or less routine development. This leaves little opportunity for new initiatives. Additional efforts are needed to improve concepts and methodologies, especially to determine, by sector, how trade in services should be measured, develop appropriate sampling frames and sample sizes, and refine survey questionnaires. There is also need to broaden coverage to reach new respondents and new services and to produce estimates providing greater detail by industry. Exemption levels also need to be reviewed because the present exemption level is adversely affecting the validity of some of the data being sought. Other limitations pertaining to specific services data are discussed below.

TRANSACTIONS BETWEEN AFFILIATED PARTIES OF MULTINATIONAL CORPORATIONS

The most reliable U.S. international services data appear to be those derived from long-standing mandatory surveys of multilateral corporations, covering intracorporate service receipts and payments. As indicated in Table 5-1 (above), revisions in intracorporate data for royalties, fees, and other services have been relatively small. Nonetheless, given the present interest in data on international services, there are inadequate detailed breakdowns of the types of services between affiliated parties, and more precision is required in defining royalties, fees, and charges for the use of intangible property.

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

Also, although the reporting systems for these transactions are well developed, there are some reasons for concern. Most important is the less than satisfactory compliance by filers with the reporting requirements, especially by certain U.S. affiliates of foreign firms in the United States. When there are increasing delays in filing reports, the blow-up procedures used by BEA involve more potential error and larger revisions between preliminary and final estimates. Part of the problem of tardy returns may reflect the rather demanding questionnaires, which represents a formidable reporting burden. To a large extent, the details of the questionnaires, in turn, reflect the rising interests in aspects of the operations of the multinational corporations that are not covered by the balance-of-payments accounts.

OTHER PRIVATE SERVICES, UNAFFILIATED

Great strides have been made by BEA in recent years in improving coverage of other services and in covering services that were previously not covered. The new mandatory reporting requirements have helped. Nonetheless, the present exemption levels for some services are so high that some types of transactions (for example, legal services) are substantially underreported or simply not represented.

In addition, in the specialized survey on royalties and fees with nonaffiliated foreign persons, which covers services for which there are many widely dispersed potential filers and for which individual transactions are typically small, omissions are possible. The estimates now being published seem low on both the receipts and payments sides. The less than satisfactory response rate to this mandatory questionnaire also poses a problem. The other two specialized surveys—on reinsurance and primary insurance and on construction, engineering, architectural, and mining services—cover relatively specific and well-identified industries, and coverage is believed to be reasonably complete. There are technical problems with both surveys, however. In particular, the insurance sector does not have adequate data on insurance claims paid. It is also difficult to separately identify investment activities and services transactions undertaken by insurance companies. Likewise, for the engineering industry, the main problem is the possible duplication of trade data and direct investment data. Some of these definitional problems are currently being reviewed under the U.N.'s efforts on the system of national accounts.

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×
TRADITIONAL SERVICES: SHIPPING AND TOURISM

There are classic problems with the data on shipping and tourism. In the case of the shipping account, the identification of the “ U.S. fleet” by residence of operator is difficult, although the number of potential filers is small. It is also extremely difficult to check the data being reported as port expenditures abroad. Similar obstacles exist for ascertaining the accuracy of freight earnings, especially in cross-trades. For freight payments to foreign carriers, however, the existence of both c.i.f. and f.o.b. valuations of imports helps to confine any error within reasonable limits.

There is the possibility of major errors or biases in the travel account, in which major revisions of expenditures and fares have been made in recent years. The samples used to establish levels for land expenditures and fares are small; there is no assurance of consistency of the data collected from the respondent; and there is also no standard procedure to monitor for biases. In addition, steps are needed to revise the present questionnaire so as to present the balance-of-payments data up front, rather than buried in a rather lengthy inquiry. A better procedure would be to separate the balance-of-payments questions on a separate card, or a detachable part of the card, and urge flight attendants to give more emphasis to having these cards turned in. Since there are serious misgivings about the quality of the tourist and fare data now entering the travel account, benchmarks for daily expenditure levels and average fares can be used to check the validity of the sample responses and guard against major biases or arbitrary quarter-to-quarter or year-to-year variations.

FINANCIAL SERVICES AND EDUCATIONAL AND MEDICAL TRANSACTIONS

For financial services, the main data problem is that there are substantial sectors in the financial industry, and certain kinds of transactions, for which little or no data or estimates are available. To some degree this results from the inherent complexity of the industry and the arbitrariness of the allocations of earnings from the provision of financial services. However, it is clear that BEA does not have adequate resources to conduct the exploratory work needed to form a basis for designing a reporting or estimating system—or even for testing the feasibility of establishing such a system. In view of the growing importance of international sales of financial services by U.S. firms and substantial funds involved,

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
×

accurate reporting of these transactions will substantially enhance the quality of U.S. international services data. In addition to BEA, the agencies responsible for oversight of the financial system, notably the Treasury Department and the Federal Reserve, should have a role in closely studying this feature of the activities of banks and other financial institutions.

For medical services in the United States purchased by foreigners, the present estimates depend on a single survey in 1985. The quality of current estimates is inevitably affected by the dated information. There is no information on medical expenditures abroad by U.S. residents.

The estimates of expenditures in the United States by foreign students are probably as well done as can be expected, given the inherent difficulty in covering such a diffuse population. There is a possible understatement of expenditures abroad by the floating population of U.S. “students.”

RECOMMENDATIONS

Our recommendations for improving data on U.S. international services data are listed in the order of their relative importance, with the most important one listed first.

Recommendation 5-1 Among the international services categories, improvements in data on international financial services should be accorded a high priority. The Bureau of Economic Analysis, the Treasury Department, and the Federal Reserve should work together to develop a clear conceptual framework, as well as effective statistical methods and procedures for collecting the information.

Recommendation 5-2 The Bureau of Economic Analysis should place greater emphasis on increasing the response rates of the mandatory surveys.

Recommendation 5-3 For the travel accounts, a study should be made of the feasibility of introducing methods other than the current questionnaire card surveys or of obtaining improved responses from the present method.

Recommendation 5-4 For information on international sales and purchases of services by affiliates, beyond that required for the balance-of-payments tabulations, the Bureau of Eco-

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
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nomic Analysis should develop separate and expressly designed surveys, in coordination with the service sectors concerned, to obtain the additional data. Burdening the existing system with additional details would increase time lags in reporting, reduce the quality of responses, and weaken the basic data requirements of the balance-of-payments accounts.

Recommendation 5-5 To maintain and enhance the quality of services data, the Bureau of Economic Analysis should allocate additional resources to improving the analytical usefulness of the data. BEA should also enhance its capacity to analyze the statistics compiled and to present the analyses in ways that contribute to public understanding of this growing component of U.S. international transactions. At the same time, public access to detailed information should be as free as possible. Efforts to establish comparability with Census Bureau industry data should be encouraged.

Recommendation 5-6 The Bureau of Economic Analysis should be given the authority to establish appropriate exemption levels for reporting requirements for various services categories consistent with the nature of the data to be collected.

Recommendation 5-7 The Bureau of Economic Analysis should take further steps to obtain better information on payments to foreigners for services performed for U.S. residents abroad.

Suggested Citation:"5. International Services Transactions." National Research Council. 1992. Behind the Numbers: U.S. Trade in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1865.
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America's international economic decisions rest to a large degree on the information available to policymakers. Yet the quality of international trade and financial data is in serious doubt. This book reveals how our systems for collecting and analyzing trade data have fallen behind the times—and presents recommendations for new approaches to accuracy and usefulness of these economic data.

The volume traces the burgeoning use of international economic data by public and private analysts at a time when the United States is becoming increasingly integrated into the world economy. It also points out problems of capturing new transactions, comparing data from different sources, limited access to the data, and more. This is the first volume to review all three types of U.S. international data—merchandise trade, international services transactions, and capital flows. Highlights include:

  • Specific steps for U.S. agencies to take.
  • Special analyses on improving the accuracy of merchandise trade data, filling data gaps on the fast-growing international services transactions, and understanding structural changes in world capital markets.
  • Comments, complaints, and suggestions from an original survey of more than 100 key users of trade data.

This practical volume will be invaluable to policymakers, government officials, business executives, economists, statisticians, and researchers.

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