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

1. 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.

2. 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” www.bea.gov

3. 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 www.bea.gov

4. Principles Underpinning FATS Statistics In line with international standards • SNA 1993 (National Accounts) • BPM5 (BOP) • OECD Benchmark Definition of FDI www.bea.gov

5. 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 www.bea.gov

6. Time of Recording FATS Variables Recording when the activity (production, employment, etc.) occurs rather than when the related payment is made Accrual basis Period of recording Flow variables reference year Stock variables end of reference year Calendar year in principle Reference year If only fiscal or accounting year is available, disclose this. www.bea.gov

7. Economic Variables for FATS Most are drawn from SNA 93 • Sales (turnover) and/or output • Employment • Value added • Exports and imports of goods • and services • Number of enterprises Basic FATS variables (minimum recommended by MSITS) • Assets • Compensation of employees • Net worth • Net operating surplus • Gross fixed capital formation • Taxes on income • Research and development expenditures Additional FATS variables www.bea.gov

8. Geographical Attribution: Inward investment Foreign investor (immediate) COMPILING COUNTRY Majority ownership Operations of foreign-owned affiliate Majority ownership Foreign Investor (ultimate) Described Statistics on inward FATS Operations attributed to the country of www.bea.gov

9. Resident investor Geographical Attribution - Outward Investment: Treatment of Indirectly Held Affiliates Directly held foreign affiliate COMPILING COUNTRY Majority ownership Majority ownership Indirectly held foreign affiliate Statistics on outward FATS Described Operations attributed to the country of www.bea.gov

10. 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 www.bea.gov

11. 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 www.bea.gov

12. 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 www.bea.gov

13. 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 www.bea.gov

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

15. 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 www.bea.gov

16. FATS coverage of Mode 4 • Services supplied through: • intra-corporate transferees • other foreign individuals working on a non-permanent basis for foreign affiliates www.bea.gov

17. 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 www.bea.gov

18. 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? www.bea.gov

19. 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 www.bea.gov

20. How Does the U.S. Estimate the Components of “Remittances”? • Workers remittances • Migrants transfers • Compensation of employees www.bea.gov

21. 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 www.bea.gov

22. 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 www.bea.gov

23. 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 www.bea.gov

24. Questions? www.bea.gov