Foreign Affiliates' Trade in Services Statistics: Concepts, Data collection, and Use for Mode 4

Michael Mann U.S. Bureau of Economic Analysis Presented to the UNSD Subgroup on MODE 4 Paris, France September 16, 2004 *

These slides draw heavily on a presentation by BEA's Obie Whichard for the IMF Institute's Course on Balance of Payments Statistics, March 2004. The slides on the treatment of FATS in the Manual of Statistics on International Trade in Services were, in turn, adapted from materials prepared by the WTO.

Outline for Presentation

• FATS treatment in MSITS • FATS data collection: The U.S. experience • FATS statistics and Mode 4 • BEA’s methods for estimating “remittances” 2 www.bea.gov

What

are

FATS statistics?

• Conceptually: Information relevant to services delivered through foreign affiliates • Practically: A range of indicators pertaining to the activities of foreign affiliates – With a particular focus on services 3 www.bea.gov

Principles Underpinning FATS Statistics In line with international standards

•

SNA 1993

(National Accounts) •

BPM5

(BOP) •

OECD Benchmark Definition of FDI

4 www.bea.gov

•

Firms Covered in FATS

Ownership criteria Majority-owned foreign affiliates

(

a single foreign investor owns more than 50% of their ordinary shares or voting power

)

Types of producers Affiliates producing goods, services Statistical Units Enterprises vs Establishments

5 www.bea.gov

Time of Recording FATS Variables

Accrual basis Period of recording Recording when the activity (production, employment, etc.) occurs rather than when the related payment is made

Flow

variables

Stock

variables reference year end of reference year Reference year Calendar year in principle If only fiscal or accounting year is available, disclose this. 6 www.bea.gov

Economic Variables for FATS

Most are drawn from SNA 93 Basic FATS variables

(minimum recommended by MSITS) • Sales (turnover) and/or output • Employment • Value added • Exports and imports of goods and services • Number of enterprises • Assets • Compensation of employees • Net worth • Net operating surplus • Gross fixed capital formation • Taxes on income • Research and development expenditures 7

Additional FATS variables

www.bea.gov

Geographical Attribution: Inward investment

COMPILING COUNTRY

Operations of foreign-owned affiliate

Described

Statistics on inward FATS Foreign investor (immediate) Operations attributed to the country of 8 Foreign Investor (ultimate) www.bea.gov

Geographical Attribution - Outward Investment: Treatment of Indirectly Held Affiliates COMPILING COUNTRY

Directly held foreign affiliate Resident investor Statistics on outward FATS

Described Operations attributed to the country of

Indirectly held foreign affiliate 9 www.bea.gov

Compilation Issues

• Two principal methods of data collection: – Identifying the foreign-owned subset of domestic firms for which data are already collected (can be used only for inward investment) – Separate surveys 10 www.bea.gov

United States Experience

• First collected FDI operations data for 1950, covering outward investment • Collection became more regular and more detailed in the late 1970’s / early 1980’s • Authority provided by the International Investment Survey Act of 1976, later expanded and redesignated as the International Investment and Trade in Services Survey Act 11 www.bea.gov

U.S. Experience (Cont’d): Collection methods

• A survey-based system – Benchmark surveys every 5 years • Most comprehensive in subject matter • Lowest reporting thresholds – Annual surveys in interim years • Higher exemption levels and fewer items • Are starting to make use of statistical sampling • Estimates are made for below-threshold companies 12 www.bea.gov

U.S. Collection methods (Cont’d)

• Link to Census Bureau establishment-level data every 5 years Advantages: – Greatly increased industry detail (still not product based, but gives more precise clues to products produced and sold) – No added reporting burden Limitations: – Applies only to inward investment – Less timely – Less frequent 13 www.bea.gov

Types of data collected

• Balance sheets • Income statements • Sales • Employment and employee compensation • Research and development expenditures • Taxes • U.S. trade in goods 14 www.bea.gov

Adaptation to Services Needs

• Sales of goods and sales of services now reported separately • More detailed industry classification for services – Aided by new North American Industry Classification System (introduced in 1997) • Introduced annual presentation that combines data on cross-border (resident/nonresident) trade with data on sales through foreign affiliates 15 www.bea.gov

FATS coverage of Mode 4

• Services supplied through: – intra-corporate transferees – other foreign individuals working on a non permanent basis for foreign affiliates 16 www.bea.gov

Measuring Services Delivered by non Permanent Workers in Foreign Affiliates

• Compensation – Collected from FATS statistics – Workers remittances (not collected from FATS): will understate compensation and would cover all migrant workers 17 www.bea.gov

Data collection challenges

• How to avoid double counting FATS compensation-based data, and data collected from companies on their sales of services to foreigners. • What if the number of foreign employees at the end of year does not reflect normal operations? 18 www.bea.gov

Data collection challenges (continued)

• Can companies readily provide additional information of interest for Mode 4? - the number of non-permanent employees working for their foreign affiliates - citizen vs non-citizen - for non-citizen, break out by citizenship - contract employees vs payroll - employments by occupation - intra-corporate transferees vs other 19 www.bea.gov

How Does the U.S. Estimate the Components of “Remittances”?

• Workers remittances • Migrants transfers • Compensation of employees 20 www.bea.gov

How Does the U.S. Estimate the Components of “Remittances” (continued) • Workers remittances - basic model: # of workers * average per capita income * propensity to remit - the model considers several demographic characteristics including family status, age, length of U.S. residency, and country of origin 21 www.bea.gov

How Does the U.S. Estimate the Components of “Remittances” (continued) • Migrants transfers – For Canada - partner country data – Basic model for countries other than Canada: Immigrants transfers - # of immigrants * average per capita income * wealth-to-income ratio Emigrants transfers - # of emmigrants * median net worth 22 www.bea.gov

How Does the U.S. Estimate the Components of “Remittances” (continued) • Best to estimate remittances as compensation less expenditures • Compensation of employees – U.S. Receipts: • Partner country data from Germany, the UK, and Canada. Estimates for other countries are based on data from the IRS (the U.S. tax collection authority) – U.S. Payments: • Foreign professionals - IRS data • Seasonal and border workers: # of workers * average compensation 23 www.bea.gov

Questions?

24 www.bea.gov