Trade in Services: Exports and Foreign

Revenues

September 1986

NTIS order #PB87-118204
Recommended Citation:

U.S. Congress, Office of Technology Assessment, Trade in Services: Exports and Foreign Revenues—Special Report, OTA-ITE-316 (Washington, DC: U.S. Government

Printing Office, September 1986).

Library of Congress Catalog Card Number 86-600576

For sale by the Superintendent of Documents

U.S. Government Printing Office, Washington, DC 20402
Foreword

part of a larger assessment of international competition in the service industries, this special report gives a quantitative overview of U.S. international trade

in services and discusses policy options for improving Federal Government data

on services trade—data now subject to major sources of error. OTA’s full assessment report on competition in the services, requested by the Senate Committees

on Governmental Affairs and Foreign Relations and the House Committee on Small

Business, will examine a broader range of issues, including:

● services trade in the world economy, and linkages between the services and

manufacturing;

● competitive dynamics in international banking services, engineering and construction, technical licensing, and telecommunications, data processing, information services, and computer software;

• U.S. employment in service industries; and

● U.S. and foreign government policies toward services and the new round

of multilateral trade negotiations.

The special report in this volume was prepared after the Senate Committee

on Governmental Affairs requested separate publication of OTA’s estimates of the

impacts of services trade on the Nation’s balance of payments. The Governmental

Affairs Committee has expressed particular interest in the procedures used by Federal agencies for compiling such data, and the adequacy of the results for analyzing international competition in the services. The latter question is especially

important given U.S. preparations for the next round of multilateral trade negotiations, scheduled to begin shortly under the auspices of the General Agreement on

Tariffs and Trade.

In this special report, OTA examines alternative methods of defining and measuring international services trade—distinguishing, in particular, between direct exports (or imports) and the revenues of foreign affiliates of U.S. companies. The

report estimates the level of U.S. international trade in services over the period

1982 to 1984, and compares these estimates with the official figures reported in

the U.S. balance of payments.

OTA is grateful for the assistance provided by many individuals, inside and

outside the Federal Government, during the preparation of this special report, Full

responsibility for the contents rests with OTA.

Director

.,, ///
International Competition in the Services Advisory Panel

Robert Gilpin, Chairman

Princeton University

C. Michael Aho Robert Kuttner

Council on Foreign Relations, Inc. Brookline, MA

Mark Anderson Martin Mayer

AFL-CIO New York, NY

John Bowles William Nolen

Public Policy Analysis, Inc. Highlands Insurance Co.

Robert B, Cohen K. Nagaraja Rao

New York State Urban Development Corp. Wentworth Institute of Technology

Richard L. Crandall Cathy A. Schoen

Comshare Service Employees International Union

Ronnie L. Goldberg Jeffrey J. Schott

New York Chamber of Commerce and Institute for International Economics

Industry Ronald K. Shelp

Stephen D. Krasner Celanese Corp.

Stanford University

George Kohl

Communications Workers of America

NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the advisory panel members. The panel does not, however, necessarily approve, disapprove, or endorse this report. OTA assumes full responsibility

for the report and the accuracy of its contents.

iv
OTA Project Staff: International Competition in the Service Industries–Special Report

Lionel S. Johns, Assistant Director, OTA

Energy, Materials, and International Security Division

Audrey Buyrn, Industry, Technology, and Employment Program Manager

John A. Alic, Project Director

Kenneth L. Conca

Contributors

Douglas R. Ostrom

H, Peter Gray

Jeffrey Hart

Kenan P. Jarboe

Mary Ellen Mogee

Philip Mundo

Jeffrey H. Taylor

Administrative Staff

Edna Thompson, Administrative

Andrea Amiri

Joyce Wills

Assistant
Contents

Chapter Page

1. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Principal Findings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Policy Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. Measuring International Service Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3. Services in the Balance of Payments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Federal Government Figures for the U.S. Balance of Payments in Services . . . . . . . . . . . . . .

Federal Government Procedures for Measuring Services and

Investment in the Balance of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Travel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Passenger Fares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fees and Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other Private Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other Private Receipts and Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Direct Investment Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. OTA Estimates of International Service Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance of Payments in Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Foreign Revenues in Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5. Individual Sector Summaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Advertising. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commercial Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Data Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Educational Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Engineering, Architecture, and Surveying. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Franchising. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Health Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Information Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Investment Banking and Brokerage Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Legal Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Licensing, . . . . . . . . . . . . . . . . . . . .

Management, Consulting, and Public Rela

Motion Pictures . . . . . . . . . . . . . . . . . . . . . .

Computer Software . . . . . . . . . . . . . . . . . . .

Telecommunications . . . . . . . . . . . . . . . . . .

Transportation . . . . . . . . . . . . . . . . . . . . . . .

Travel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Miscellaneous Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

List of Tables

3

3

5

15

21

21

23

26

28

28

29

30

31

32

37

37

41

47

47

51

53

58

61

63

65

68

70

72

73

77

79

82

83

86

88

89

91

94

98

102

7able No. Page

1. Summary Comparisons of Balance of Payments and Foreign Revenues

Figures for the Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2, Categories for Invisible Transactions in the U.S. Current Account. . . . . . . . . . . . . . . . . . . . . 25

3. Summary of Deficiencies in BEA Database on Invisible Transactions . . . . . . . . . . . . . . . . . . 27

4.OTA Estimates of Service Balance of Payments, 1982-84 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

5.OTA Estimates of Foreign Revenues of U.S. Service Firms, 1982-84 . . . . . . . . . . . . . . . . . . . 41

vi
Contents–continued

Table No. Page

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

21.

22.

23.

24.

25.

26.

27,

28,

29,

30,

31,

32.

33.

34,

35.

36.

37.

38.

39.

40.

41.

42.

43.

44,

45.

46.

47.

48.

49.

50.

51.

OTA Estimates of U.S. Revenues of Foreign Service Firms, 1982-84 . . . . . . . . . . . . . . . . . . . 42

Ratio of U.S. Exports to Total Foreign Revenues, 1983 ......, . . . . . . . . . . . . . . . . . . . . . . . . 43

Foreign Revenues in Accounting Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Foreign Revenues in Advertising Services . . . . . . . . . . . . ., . . . . . . . . . . 52

U.S. Commercial Bank Offices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,...., . . . . . . . . . 53

U.S. Banking System Assets by Type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Foreign Banks in the United States by Organizational Form . . . . . . . . . . . . . . . . . . . . . . . . , 56

Foreign-Owned U.S. Banks Ranked by Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Foreign Revenues in Commercial Banking Services. . . . . . . . . . . . . . . . . . . . . . . 57

Foreign Revenues in Construction Services. . . . . . . . . . . . . . , , ,....., . . . . . . . . . . . , . 60

New Foreign Contract Awards of U,S, Construction Firms . . . . . . , . . . . . . . . . . . . . . . . . , . . 61

U.S. International Construction Activity by Region, 1982 .. . . . . . . . . . . , 61

Foreign Revenues in Data Processing Services ...., . . . . . . ..., , , . . . . . . . . . . . . . ., ..., , . 62

Foreign Revenues in Educational Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Foreign Students in the United States by Nationality , . . . . , , . . . . . . . . . . . ..., , . . . . 64

U.S. Engineering, Architecture, and Surveying Establishments Indicating

Sales to Nonresidents, 1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Percent of Receipts From Nonresidents for U.S. Engineering, Architecture,

and Surveying Establishments Reporting Nonresident Sales, 1982 . . . . , . . . , . . . . . , . . . , 66

Foreign Revenues in Engineering, Architecture, and Surveying Services ..., , . . . . . . . . . . 67

U.S. Franchising Sales by Type of Business, 1984 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , 68

Foreign Operations of U.S. Franchisers ..,...., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , . 69

Foreign Revenues in Franchising Services . . . . . . , , .,..,..., . . . . . . . . . . . . . ., . . . . , , , . . 69

Estimated U.S. Health Care Expenditures, 1985 . . . ., ,. . . . . . . . . . . . . . . . . . . . 70

Health Care Establishments in the United States Other Than Hospitals, 1982 . . . . . . . . . . 71

Foreign Revenues in Health Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Information Services Offered by U.S. Firms, 1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Foreign Revenues in Information Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

Foreign Revenues in Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

International Insurance Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Foreign Revenues in Investment Banking and Brokerage Services . . . . . . . . . . . . . . . . . . . . , 79

Leasing as a Percentage of Business Investment in Equipment , ., ..., , , . . . . . . . . . . . . . . . 80

Receipts From Nonresidents for U.S. Leasing Establishments Reporting Nonresident

Receipts, 1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,.. 81

Foreign Revenues in Equipment Rental and Leasing, . . . . . . . . . . . . . . . . . . . . . . . , , . 81

Foreign Revenues in Legal Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , . . . . . . . . . . . . . . . . . 83

Distribution by Industry of 1982 Net Licensing Receipts of U.S.

Parent Firms From Their Foreign Affiliates . . . . . , , ..., , , ..., . . . . . . . . . . . . . . ..., ..., , 84

Balance of Payments in Licensing ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

U.S. Parents’ Net Affilliated Receipts of Royalties and License Fees in Manufacturing . . . . 85

Percent of U.S. Management, Consulting, and Public Relations

Establishments Indicating Sales to Nonresidents, 1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Percent of Receipts From Nonresidents for U.S. Management, Consulting,

and Public Relations Establishments Reporting Nonresident Sales, 1982 . . , . . . , . , . . . , . 87

Foreign Revenues in Consulting Services . . . , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Estimated Percentage Distribution of Foreign Revenues in the

U.S. Motion Picture Industry . . . . . . . . . . . . ., ,. . . . . . . . . . . . . . . . . . . . , 88

Foreign Revenues in Motion Pictures. ..., , ,..., , . . . . . . . . . . . . . . . . . . ..., . . . . . . . . . 88

U.S. Software Firms with International Sales, 1984 . . . . . . . . . . . . . ., . . . . . ., . . . . . . . . , . . 90

Type of Foreign Presence for U.S. Software Firms, 1984 ., ..., ., ., . . . . . . . ..., . . . . . . . . 90

Foreign Revenues in Computer Software. ..., . . . , ..., , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

U.S. Telecommunication Industry Revenues by Market Segment . . . . . . . . . . . . . . . . . . . . . . 92

U.S. International Telephone and Telegraph Communications, 1983 . . . . . . . . . . . . . . . . . . . 93

vii
Contents–continued

Table No. Page

52. Foreign Revenues in Telecommunications Services . . . . . . . . . . . , , . . . . . . . . . . . , . . . . . . . . , 93

53. U.S. Revenues for International Voice and Message Communications Terminating

in the United States, 1983 . . . . . , . . . . . . . , . . , .., , . . . . . . . , . . . . . . . . . . 94

54. U.S. Payments to Foreign Carriers on International Voice and Message Transmissions

Originating in the United States, 1983 . . . . . . . . . . . . . . . . . . . . . . . . . , .., , , , . . . . . . . . . 94

55. U.S. Transportation Services Revenues . . . . . , , . . . , , , . . . . . . . . . . . . , . . ., , , , . . , . . . , , , . . 94

56. Foreign Revenues in Transportation Services ., . . , , ., ., . . . . . . , , . . . . . . . , , . . . . . , . . . . . . 97

57, Geographic Distribution of U.S. Direct Trade in Transportation Services, 1984 ..., . . . . . . 97

58. Balance of Payments in Travel Services. . . , . . . . , ., . . . . . . . . . , . . . . . . . , . . . . . . , . . . . , . . .101

59. U.S. Travel Receipts and Payments by Region, 1984 ...., . . . . . . . , , ..., . . . . . . . . . . , . . . .102

60. Foreign Revenues in Miscellaneous Services . , . , , . . . . . . . . . . , , . . . . . . , . . ., . . . . . . . . . . ,102

List of Figures

Figure No. Page

1. BEA Estimates of U,S, Current Account Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

2. BEA Estimates of U.S. Current Account Payments, . . . . . . . . . . . . . . . . . . . . . . . 22

3 .BEA Estimates of U,S, Current Account Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

4. BEA Estimates of U.S. Invisible Receipts, 1985 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

5. BEA Estimates of U.S. Invisible Payments, 1985 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

6, U.S. Service Exports, 1982-84 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

7. U.S. Service Imports, 1982-84 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

8. U.S. Balance of Payments Surplus in Services, 1982-84 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

9. Foreign Revenues in Services, 1982-83 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

10. Receipts of Accounting, Auditing, and Bookkeeping Firms by Type of Activity, 1982 .. 48

11, Geographic Distribution of Chargeable Hours for a Major U.S. Accounting Firm in 1985. 51

12, Net Interest Income and Other Operating Income, U.S. Insured Commercial Banks . . . . . 53

13. Distribution of U,S. Banking System Assets by Type as of Dee, 31, 1984 . . . . . . . . . . . . . . 54

14. Distribution of Assets Among the World’s 500 Largest Banks, . . . . . . . . . . . . . . . . . . . . 54

15. Assets of U.S, Offices of Foreign Banks as of Dec. 31, 1984 . . . . . . . . . . . . . . . . . . . . , 56

16.New U.S. Construction, 1985 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

17. Foreign Contract Awards of Major U.S. Construction Firms ., . . . .. . . . . . . . . . . . . 60

18. Foreign Students in the United States . . . . . . , . . . . . . . , . . . . . . . . . ,., . . . . . . . . . ,.. 65

19. U.S. Students Abroad, 1981 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

20, Total Billings of Top 500 U.S. Design Firms by Type of Project, 1984 . . . . . . . . . . . . . . . . . 66

21, Foreign Billings of Largest U.S. Design Firms by Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

22, U.S. Revenues of Foreign Design Firms, 1984 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

23. Foreign Franchising Outlets of U.S. Firms by Type, 1984 . . . . . . . . . . . . ,...., ,.. 68

24, U.S. Franchisors by Region, 1984 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

25, U.S. Securities Industry Revenues, 1984 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , 77

26. Global Leasing Market . . . . . . . . . . . . . . . . . . . . . , .. ...,., . . . . . . . . . . . ,. ....., . . 81

27. U.S. Unaffiliated Receipts of Fees and Royalties by Industry, 1982-84 . . . . . . . . . . . . . , . . . . 85

28. U.S. Unaffiliated Fees and Royalties, 1984 . . . . . . . . . ,, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

29. Management, Consulting, and Public Relations Industry Receipts, 1982 . . . . . . . . . . . . . . . . 86

30. U.S. Transportation Receipts, 1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

31. Net U.S. International Transportation Transactions, 1984 . . . . . . . . . . . . . . . , . . . . . . . . . . . . 97

32, U.S. Revenues of Foreign Transportation Firms, 1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

33. International Travel by Purpose of Trip, 1984 ., ,....., , . . . . . . , ,. ....,., . . . . . . . . . . . .100

34. U.S. Expenditures of Foreign Visitors, 1984........,10 1

35. U.S. Travel Surplus or Deficit by Region, 1984 . . . . . . . . . . . . . . . ................,.,..101

Vlll
Chapter 1

Summary
Chapter 1

Summary

Using data from government, industry, trade

associations, the business press, and other

sources, OTA has estimated the level of U.S.

international service activity in 22 categories

for the years 1982-84. OTA’s estimates indicate

that Federal Government balance of payments

figures significantly understate both exports

and imports of services. As much as half of the

Nation’s exports of services may escape the official statistics. The causes range from low rates

of response on voluntary surveys to data categories that are conceptually flawed or outdated.

(For example, the Nation’s trade statistics make

no explicit provision for computer software,

one of the most critical service-related products in a high-technology economy, )

Although the responsible Federal agencies

have been working to improve procedures for

collecting data on trade in services, progress

has been slow, impeded by concerns over added

costs to both business and government. OTA’s

analysis, however, suggests that substantial improvements in the data on trade and investment

in services would be possible at little or no additional cost. OTA’s own estimates represent

no more than 2 person-years of effort. The re1. The current Federal Government

PRINCIPAL

system of

reporting services in the balance of payments

is subject to large errors. These errors, much

greater than those for trade in goods, arise

in part from difficulties inherent in measuring production and trade in the services.

Most services, as intangibles, cannot be

stored, transported, or counted as they cross

national borders. The historical origins of

the services account as a residual category

for all nongoods transactions create further

sources of error. Procedures for data collection and estimation have not kept pace with

the growth in volume and diversity of international service activity. (While the Federal

suits reveal very large uncertainties. A relatively

modest effort by the Federal Government could

greatly reduce these uncertainties, narrowing

the range of probable error and thereby providing more accurate data on the balance of

trade in services. The benefits would include

better understanding of the importance of service transactions relative to trade in goods and

flows of capital in determining the Nation’s

overall trade position,

Thus far, U.S. preparations for the upcoming

round of multilateral trade negotiations, where

trade in services will be a major issue, have been

hampered by a database that is not only incomplete but subject to substantial errors. Because

the new trade round will probably extend into

the 1990s, action now to revamp procedures

for collecting and anaIyzing data on trade in

services could help to support the evolving U.S.

negotiating position. Such action would also

aid U.S. negotiators in the bilateral discussions

that have become a more prominent feature of

the Nation’s trade policy. On pages 7 to 11, OTA

outlines specific options for improving the services database,

FINDINGS

Government collects trade statistics for about

10,000 categories of goods, the service account at its most disaggregated can be broken down into perhaps 40 categories.) Errors

result from incomplete coverage of service

activity, commingling of service transactions

with investment income, misclassification of

service activities, and the inability to assign

value to some kinds of transactions,

2, Excluding banking (and services bundled

with goods], OTA estimates that the U.S. balance of payments understated exports of

services by $25 to $47 billion in 1984 (table

1); nonbanking imports of services were

3
4

Table 1 .—Summary Comparisons of Balance of Payments and Foreign Revenues Figures for the Servicesa

(in billions of current U.S. dollars)

Exports Imports

Official U.S. Government figures:

1983 . . . . . . . . . . . . . . . . . . . . . . . $41.8 $35.4

1984 . . . . . . . . . . . . . . . . . . . . . . . 43.8 41.5

OTA estimates:

1983 . . . . . . . . . . . . . . . . . . . . . . . $67-84 $52-66

1984 . . . . . . . . . . . . . . . . . . . . . . . 69-91 57-74

3,

underreported by an estimated $16 to $33billion.1 The official balance of payments

figures for both exports and imports, as compiled by the Commerce Department’s Bureau

of Economic Analysis (BEA), reflect errors

of similar magnitude for 1982 and 1983.

OTA’s midrange estimates (ch. 4) suggest that

the current account understated the U.S.

service surplus (i. e., net exports) by $11 billion in 1982 and 1983, and $12 billion in 1984.

Trade in services made a significant positive

contribution to the U.S. balance of payments

over the years 1982 to 1984. OTA’s midrange

estimates suggest a 1984 surplus on services

of roughly $14 billion. While much greater

than the official balance of payments figure

for services—a surplus of slightly more than

$2 billion–the Nation’s 1984 deficitof$114

billion on trade in goods far overshadows net

11 n fact, the u nderreporti n,g i n the current ac(; ou nt is almost

(:ertainlj! greater; as discussed below, OTA’s figures include onljr

those service transactions which could be reliabl} estimated, and

thus may not reflect the full impact of ser\rices on the balance

of payments, Ilanking, in particular, has been excluded from these

so m ma rjr figures because Federal Go\rern ment data on i nternational banking does not permit separation of fee-for-ser~. ice income from receipts and payments associated with foreign in-

~estrnent (see p. 40). The latter are conceptually quite different,

and, in OTA’s view, should not be considered as trade in ser\’-

ices. Nor is it possible to estimate ser~’ice exports from the United

States by the U.S. affiliates of foreign firms in a number of service industries. For details, see Chapter z: Ijfea.?[lrjrlg International Sf;rlricf? Actil’itJr.

4’Ser\ri(:es in the [ ;.S. Balance of Payments, 1982-84: Documentation of OTA Estimates,” July 1986, available from the National

Te(;hnical Information Service [NTIS), presents (lTA’s estimating procwiu res and assumptions in detail.

Not compiled

4.

5,

service exports. Both the BEA’s figures and

OTA’s estimates show a decline in the services surplus over the period 1982-84.

OTA estimates that U.S. service exports

(again excluding banking services and services bundled with goods) came to $65 to $81

billion in 1982,$67 to $84 billion in 1983, and

$69 to $91 billion in 1984. As table 1 indicates, sales of services in foreign markets by

the overseas affiliates of American firms exceed direct exports of services.

U.S. affiliates overseas had sales totaling

an estimated $92 to $102 billion in 1982 and

$87 to $97 billion in 1983. (Figures for 1984

could not be estimated; the apparent decline

in sales from 1982 to 1983 in part reflects

rises in the value of the dollar relative to local currencies, rather than declines in foreign sales measured in those local currencies.) Similarly, service sales in the United

States by affiliates of foreign firms substantially exceeded the Nation’s direct imports

of services. OTA estimates direct imports at

$52 to $66 billion in 1983 and $57 to $74 billion in 1984, with service receipts of the U.S.

affiliates of foreign firms coming to $69 to

$75 billion in 1983.

The leading services exported directly from

the United States were transportation services, travel services, construction, and licensing (table 5, page 41), OTA estimates that

these sectors as a group accounted for 63 percent of U.S. nonbank service exports in 1982,

58 percent in 1983, and 57 percent in 1984.
5

-——

6.

7

Transportation services, travel, and insurance accounted for the bulk of U.S. imports

of services over 1982 to 1984, nearly threequarters of the Nation’s direct imports of

nonbank services during these years.

While direct exporting is common in some

service industries, in others, sales through

foreign affiliates are far more important, The

22 service categories OTA has examined can

be divided into three groups: those in which

most or all foreign revenues are generated

by direct exports (including travel, educational and legal services, and technology

licensing); those in which most or all were

generated by sales through affiliates (including insurance, accounting, and advertising);

and those in which both direct sales and affiliate sales contributed significantly to totaI foreign revenues (including transportation, construction, consulting, and computer

software).

For most U.S. service industries, like most

strips foreign revenues (ch. 5). Prominent examples include construction, health services,

and education. While thousands of companies (or other providers) populate most of the

service industries, in many cases a few large

firms generate most of the foreign revenues

—whether these result from direct exports

or sales by affiliates. For instance, domestic

revenues of the roughly 50,000 U.S. accounting establishments came to about $19 billion

in 1984, with OTA’s estimates of foreign revenues totaling $4.1 to $4.7 billion. Of these

foreign revenues, almost all were accounted

for by affiliates of U.S. accounting firms,

rather than exports, and almost all of these

affiliates were associated with the “Big Eight”

U.S. firms. Such observations suggest that

liberalization of trade and investment in the

services will, in at least some industries, benefit primarily the small number of large firms

with substantial overseas activities.

goods industries, domestic output far outPOLICY IMPLICATIONS

Given the historical trends and modes of product ion characteristic of most service industries, exports of services can be expected to

make a modest positive contribution, over the

foreseeable future, to the U.S. balance of payments. But even though trade in services will

remain small compared with trade in goods,

the services are of considerable importance internationally. In some cases—ego, engineering

and construction contracts—exports of goods

may follow from sales of services. In other

cases, American service firms have followed

American manufacturers overseas, High-technology goods exports, almost by definition, embody high service content in forms such as

engineering or other professional knowledge.

Linkages between overseas sales of goods and

services, already strong, will grow as American

companies seek new international business

strategies, approaching their markets in global

rather than national terms, In view of such

trends, improving the system for collecting and

analyzing data on services trade could help government policy makers evaluate future prospects for U.S. industries and develop effective

negotiating strategies both bilaterally and in

multilateral forums such as the General Agreement on Tariffs and Trade (GATT).
6

,

i=

.

i

I!’J

Phofo credit Elechte/ Power Corp

The Shoubrah El-Kheima generating plant, being built for the Egyptian Electricity Authority

by an American construction company.

project, indirect benefits to the U.S. economy

may greatly exceed those that can be directly

traced to the contract. But in general, when

U.S.-based firms invest in overseas affiliates in

the services, these affiliates are staffed by local people and purchase in the local market;

they may have little if any relation to economic

activities within the United States. Exports

from the United States and overseas revenues

of affiliates should not be confused, nor should

their potential benefits to the Nation’s economy.

At present, the Federal Government does not

collect enough statistical data on trade and investment in services to address such matters

in much detail—e. g., the balance of interests

at stake when offering concessions on trade in

goods in exchange for relaxed barriers on services trade. Certainly the database seems inadequate to support negotiations during a longrunning and complex round of trade talks—a

problem acknowledged by the United States

during the early stages of preparations for the

forthcoming GATT round.3 Perhaps most important, even given adequate data, the Federal

3

See, for example, “U.S. National Study on Trade in Services:

A Submission by the United States Government to the General

Agreement on Tariffs and Trade, ” prepared under the direction

of the Office of the United States Trade Representative, Washington, DC, December 1983, p. 172.

The deficiencies in Federal Government data on trade and investment have been of concern to Congress for a number of years.

See, for example, “Responses to Written Questions Submitted

by Senator Roth,” Government Organization for Trade, hearing, Committee on Governmental Affairs, U.S. Senate, June 4,

1981, p. 24. More recently, Title 111 of the Trade and Tariff Act

of 1984 [Public Law 98-573] specifically authorized the President to collect and analyze data on U.S. trade in services. For

a summary of executive branch authority and duties, see 22 U,S. C.

sec. 3101 (1986].
/

Government may not possess the analytical expertise to define objectives, weigh possible

trade-offs, and develop effective alternative negotiating positions over the course of the upcoming trade round.

Consider, specifically, the decision by the

United States prior to the 1982 GATT Ministerial to place a high priority on services in the

next round—a decision taken in the midst of

a period of deterioration in the ability of the

world trading system to manage the impacts

on trade in goods of nontariff barriers, bilateralism, and the national industrial policies that

have become standard in many parts of the

world. Would a better grasp of the prospects

for U.S. exports of services have led to a different approach to the new round? Certainly the

poor quality and coverage of the data impair

the ability of policy makers to gage the importance of services trade—as a whole, on a sectorby-sector basis, or bilaterally.

The very large uncertainties in the data—

illustrated by the ranges in table l—make it

more difficult to design effective negotiating

strategies as well as to weigh trade-offs among

objectives. Note that, while the midrange estimates in the table offer a reasonable basis for

comparisons with official statistics, the data are

so poor and the uncertainties so large that OTA

cannot even state with complete confidence

that BEA’s balance of payments figures understate rather than overstate the Nation’s net exports of services. (The extremes of OTA’s estimates for the 1984 services balance range from

a deficit of $4 billion to a surplus of $32 billion,

while the BEA figure is a $2.3 billion surplus.]

Furthermore, because exports and imports affect calculations of gross national product and

related macroeconomic statistics, errors in the

balance of payments data reduce the accuracy

of BEA estimates here as well. Improvements

now could aid U.S. trade negotiators while the

new trade round is underway, and into the

future,

Although the responsible agencies have been

making progress in improving the services database, this progress has been slow. Budgetary

constraints and reluctance to impose additional

reporting requirements on businesses are legitimate concerns, but OTA’s analysis suggests that

substantial improvements in the accuracy of

the data would be possible without much additional cost to either the Federal Government

or the private sector. The benefits of better analytical understanding of trade and investment

in the services, and their impacts on other parts

of the economy, should far outweigh any additional costs.

The remainder of this chapter outlines alternative approaches to improving the statistics.

Table 3 (in ch, 3), which outlines the principal

weaknesses in current procedures, provides the

logical framework for improvements. Possible

steps

1.

2.

include:

Implement the Proposed BE-20 Survey.—

As discussed in chapter 3, BEA has proposed a new benchmark survey, BE-20,

of unaffiliated service transactions to fill

some of the major gaps in the data now

collected. This survey was rejected by the

Office of Management and Budget (OMB)

for reasons involving both the anticipated

burden on respondents and BEA’s methods of developing the survey. Implementation of such a survey, perhaps in modified form, along with annual sample

surveys thereafter, would help eliminate

what is perhaps the greatest deficiency

in current services data coverage. If the

reasons cited by OMB in rejecting BE-2o

are judged to outweigh the benefits such

a survey would provide, it should be possible to redesign the survey to provide useful, if more limited data, while reducing

the costs for businesses surveyed.

Implement a Truncated Version of BE20, Focusing on a Limited Number of the

Most Important Industries.–If OMB’S objections cannot be satisfied by a redesigned BE-2o survey, a less ambitious

survey could nevertheless give needed information on unaffiliated service transactions. By including only those service

industries expected to account for large

volumes of such transactions, the uncertainties in the balance of payments could
8

be substantially reduced. A less than comprehensive survey would not fill all the

gaps in BEA’s database, but would be far

better than the present situation,

While one purpose of a benchmark survey such as BE-2o is to identify which industries are, in fact, the most significant

in terms of international trade, OTA’s estimates (chs. 4 and 5) indicate that a few

categories account for the bulk of service exports and imports. (As the industry

summaries in ch. 5 demonstrate, data on

imports of services are particularly poor,)

These industries could be surveyed with

a truncated version of BE-20, followed by

annual sampling of the universe of firms,

Based on OTA’s work, a list of services

to be surveyed should include at a minimum banking (if not dealt with elsewhere

—see below), insurance, computer software, and investment banking and brokerage services. In combination with better

versions of existing surveys on transportation, travel, and engineering and construction, a large fraction of U.S. trade

in services could be covered. In addition,

services currently experiencing rapid international growth (management consulting, information services, health care)

could be considered for inclusion,

Photo credit World-W/de Photo

American soft drinks are bottled in many parts of the

world under franchise arrangements,

3. Expand the Nonresident Questionnaire

in the Census of Service Industries.—The

Commerce Department’s 1982 Census of

Service Industries included, for the first

time, questions on sales by U.S. firms to

nonresidents, Establishments in four industry groups were asked: whether any

portion of their sales were to nonresidents; whether these receipts were included in total receipts reported in the

Census; and, if so, the level of those

receipts. (The four industry groups were:

computer and data processing services;

engineering, architecture, and surveying;

management, consulting, and public relations services; and equipment rental and

leasing.) Continuing this line of questioning in the next Census, scheduled for

1987, and perhaps expanding it to include

more service industries, would provide

information not currently collected by

any Federal agency.

While data at the 5-year Census intervals provides no more than a limited tool

for analysis (e.g., of competitiveness),

such information is needed to help identify sectors experiencing rapid growth internationally. To get the most from such

questionnaires, care must be exercised in

selecting the industries to cover; the 1982

results for both data processing and computer services and equipment rental and

leasing appear to greatly understate the

level of trade because establishments

whose major business falls in some other

industry category account for a large fraction of receipts (e. g., equipment leasing

by banks).

4. Improve the Data on International Banking.—Poor data has prevented BEA from

including banking as a separate line item

in the balance of payments—a major deficiency, given the size and importance of

the international banking industry. Banking transactions are currently lumped together with nonservice invisible transactions (ch, 3) such as income from portfolio

investments, Also because of poor quality data, OTA has been unable to estimate

the share of international banking activ-
5,

6.

ity accounted for by direct trade as opposed to affiliate sales.

American banks report information on

international transactions to the Federal

Reserve Board (FRB). With minor modifications, these data should be sufficient

to calculate banking exports. However,

the government does not collect comprehensive data on the revenues of foreign

banks operating in the United States.

While it is probably impossible to compile complete data on banking service imports from the foreign offices of foreign

banks, the FRB currently monitors on a

quarterly basis the asset levels of the U.S.

offices of these banks. The Board could

presumably extend these surveys to receipts. This would be particularly useful

for fee-based services, on which almost

no information now exists.

Another option for improving banking

data would be to include banks in the

benchmark and annual BEA surveys of

inbound and outbound direct investment.

(Banks are now covered by a much more

limited BEA survey.) To avoid duplication, such a step would have to be coordinated with current FRB data-collection

efforts, but it could provide needed information on parent-affiliate transactions,

particularly of foreign-owned U.S. banks,

and other aspects of international banking operations.

Survey U.S. Holders of Foreign Securities.—As indicated in chapter 3, estimates

of portfolio investment income (income

from holdings totaling less than 10 percent of a foreign firm’s equity] are currently based on extrapolations of a survey conducted more than 40 years ago.

Although the Treasury Department has

concluded that comprehensive coverage

of U.S. holders of foreign securities would

be prohibitively expensive, a narrower

survey —e. g., of banks, brokerage houses,

mutual funds, and other major participants in foreign securities markets—

would be a great improvement.

Survey Purchases of Services by Affiliates.—Enhancements to the serviice por7

8

9

tions of the inbound and outbound direct

investment surveys have provided much

more information on sales of services by

the overseas affiliates of U.S. firms and

by the U.S. affiliates of foreign firms.

Nonetheless, there is still no coverage

of purchases of services by affiliates. As

a result, it is impossible to determine

whether firms located in the United States

purchase the services they require as inputs to production here or import them

(from an overseas parent, from other affiliates of the parent firm, or from unaffiliated firms).

This question is particularly important

in the context of trade negotiations, because such transactions (e. g., involving

R&D or management services) may have

major impacts on competitiveness in

manufacturing as well as service industries. Because it could prove difficult for

firms to provide this information, depending on accounting practices, BEA might

begin by exploring the possible addition

of questions on service purchases to its

direct investment surveys in order to determine whether this would be an unreasonable burden on respondents. (Some

firms might also resist such disclosures.)

Expand the ]nbound Direct lnvestmeni

Survey. -At present, the Federal Government

collects less information on the direct investments of foreign firms in the

United States than on the overseas holdings of American firms. The shortcomings in the data on inward investrnent

make it difficult to estimate service imports from overseas parents as well as exports from U.S. affiliates either to parent

firms or to other trading partners. The

next inbound investment benchmark survey, scheduled for 1987, would be more

useful if the U.S. affiliates of foreign firms

were asked for information on transactions with the parent, and on the distribution of their sales between U.S. and

foreign markets.

Expand the Use of Data from Sources

Outside the Federal Government.-As

chapter 5 indicates, much useful but un-
10

official data on international trade in services exists—e.g,, industry surveys, estimates compiled by trade associations.

Advertising Age’s annual surveys, for instance, proved quite useful for OTA’s estimates, while in recent editions of the U.S.

Industrial Outlook, the Commerce Department has increased its use of private

sector data, particularly for international

trade.4

The quality of such data varies greatly.

Private sector sources will seldom be adequate substitutes for government statistics, and must always be used with discretion. Nonetheless, they are better than

nothing; OTA has been forced to rely

heavily on private sector data sources in

its previous assessments of international

competitiveness. So long as steps have

been taken to ensure reasonable reliability in the original database—a noteworthy

example being Advertising Age’s recent

decision to request accountant certification from responding firms—these can be

useful supplements to official government

data.

One way to provide markedly better

data on services trade would be to charge

BEA or some other Federal agency with

making ongoing “best-estimate” compilations following procedures similar to

those OTA has used in preparing this report, Such a departure from normal government practices would need to be approached with care—in part because it

might establish unfortunate precedents

(e.g., leading to curtailment rather than

enhancement of the government’s own

efforts). But with experience, and continued refinements in technique, the dataqWhile the International Trade Administration, charged with

preparing the Outlook, has broadened and deepened its co\’erage for b~th goods and services through such means, further

progress is certainly possible; perhaps the greatest need is for

more careful and consistent distinctions between sales b}’ foreign affiliates and direct trade.

9,

10.

base could be improved relatively quickly

even in the absence of new surveys.

Much of the private sector data is limited to worldwide totals, rather than

country-by-country figures. Trade negotiators, as well as analysts, typically need

country-specific data. Should the government begin to use more data from unofficial sources, the responsible agencies

could work with those collecting the data

to seek country-by-country disaggregation,

Alert Users to Shortcomings in the Database, While Also Informing Users of Data

in Which They Can Place Confidence.—

In the Survey of Current Business, and

elsewhere, balance of payments figures

for the services based on information collected directly (i.e., on the same basis as

for goods crossing the Nation’s borders)

could be segregated from those based on

surveys. Furthermore, the survey data

could be presented in two or more categories, with that based on universal surveys

segregated from that based on sample surveys. By clearly identifying extrapolations

from limited, out-of-date, or otherwise

poor quality samples, users would know

when they could presume that the figures

presented were reasonably accurate and

when they were speculative; indeed, with

little additional effort, BEA should be able

to place error bands on its more tentative

figures,

Hasten Revisions of the SIC Code, and

Update the Code More Frequently .—The

Standard Industrial Classification (SIC)

system, which provides the framework

for a great deal of the Federal Government’s information on production, employment, and trade, is currently being

revised—a long overdue set of revisions,

the first since 1972. (Currently, for example, nearly all computer systems, from

personal computers to the largest supercomputers—some $60 billion in U.S. output during 1985—fall in a single category,

SIC 357311.) Rapid structural shifts in the

U.S. economy mean that, if the SIC system is to remain useful for analytical pur-
11

poses, it will have to be revised at more

frequent intervals than in the past (while

preserving historical continuity),

While SIC revisions will not directly affect balance of payments figures, the new

categories will have major impacts on the

organization and presentation of many

types of service industry data, including

that on revenues, employment, wages,

and capital expenditures. Over-aggregation of existing services data creates serious problems for analysts and policymakers. Decisions on service categories

in the SIC codes need careful consideration; they will have long-term impacts on

our ability to understand and respond to

ongoing shifts in the structure of the U.S.

economy.

It would make little sense to take some of the

steps outlined above—e. g,, to make greater use

of data from nongovernment sources—unless

these steps were accompanied by a greater effort on the part of Federal agencies to critically

analyze and evaluate the data they compile and

present. To use nongovernment data sources

effectively means to acknowledge the errors

and uncertainties in the official data and seek

practical remedies, rather than continue with

outdated and conceptually flawed procedures.

For BEA to prepare “best-estimates,” rather

than report data that seem precise but may be

subject to large errors, would represent a substantial change in direction for the agency.

Nonetheless, OTA suggests that, given the rapid

changes taking place in the U.S. and world

economies, it may be appropriate to acknowledge more bluntly the uncertainties and other

flaws in the existing database, and move toward

a set of categories and estimating procedures

that are conceptually correct and more useful

analytically. This would be a major step toward

building a database that could support ongoing analysis of the international competitive position of U.S. industries, and thereby provide

policy makers with the kind of information they

need.
Chapter 2

Measuring International Service Activity
Chapter 2

Measuring International Service Activity

This report addresses two fundamental questions. First, what is the impact of international

service activity on the U.S. balance of payments? Second, to what extent are service products exported and imported directly, as opposed

to being sold in foreign markets through local

affiliates? To answer these and related questions, it is first necessary to adopt a rigorous

set of definitions for trade in services, the subject of this chapter, and for service transactions

themselves—a subset of invisible transactions,

and one of the subjects of chapter 3.

In general, an American company wishing

to sell services overseas—or a foreign company

wishing to sell services here—can choose from

alternatives that include direct exports, investments in foreign affiliates, licensing agreements, and joint ventures, While these can be

combined in various ways, the underlying alternatives reduce to two—exporting services directly, or operating in some way through foreign affiliates; licensing agreements can be

viewed as exports of intangible assets or rights,

while joint ventures involve the establishment

of an affiliate.

Services can be exported directly if the service is transportable (motion pictures, computer

software], if the buyer comes to the source of

supply (travel services), or if a cross-border linkage between buyer and seller can be established

(either directly, as in the case of transportation

and telecommunications, or by sending skilled

empIoyees to the site, as in construction and

management consulting). Alternatively, firms

may choose to do business in foreign markets

by investing in foreign affiliates (and may export to them), This maybe the preferred mode

of operation because of inherent difficulties in

producing or marketing a particular service

away from the site of consumption (many kinds

of health services), because of barriers preventing exports to the buyer nation (many governments 1imit or prohibit cross-border insurance

underwriting], or because of competitive advantages stemming from local operations (advertising, many other types of business services). The equity share held by an American

firm in a foreign affiliate may range from 10

to 100 percent; the U.S. Government treats holdings of less than 10 percent as portfolio investments rather than foreign direct investment

(FDI). Other governments may use different

definitions.

Exports and imports enter the balance of payments directly because buyer and seller reside

in different countries. Local sales by foreign

affiliates are not U.S. balance of payments

transactions, but direct investment may nonetheless affect the balance of payments in several ways—e. g,, transfer of investment funds,

repatriation of profits from the foreign affiliate, licensing agreements and other charges for

services transferred between parent and affiliate, Of the sales of the foreign affiliate, only

exports from its own country of operation constitute balance of payments transactions; only

if those exports were sold to the United States

would they affect the U.S. balance of payments,

This fundamental distinction leads to the two

alternative measures of international service

activity that OTA has adopted for this report.

One is the standard balance of payments measure of exports (receipts) and imports (payments), reflecting the flow of service products

across national borders. This is the indicator

most significant for direct impacts on the Nation’s economy —e.g., employment generated

by export sales.

The second and broader measure includes

exports while also reflecting the operations of

foreign affiliates. Particularly for services,

where both the nature of production and the

frequency of regulatory and trade barriers may

make FDI the only way to penetrate a market,

affiliate sales should be included in a comprehensive measure of international activity. The

more useful indicators for analytical purposes

treat service output on an ownership rather

than a geographic basis. Thus OTA defines the

“foreign revenues” of U.S. firms as including

15
16

Photo credit Port of New Orleans

Foreign ship docked in New Orleans. U.S. imports of freight transportation services came to $10.8 billion in 1984.

sales by U.S. affiliates regardless of where the

service is produced.1

1 As such, the foreign revenues measure resembles the ‘‘ownership” measure suggested in “International Services Transactions

of the United States: Proposals for Improvement in Data Collection, ” prepared by E.P. Lederer, W. Lederer, and R.L. Sammons

for the Departments of State and Commerce and the Office of

the United States Trade Representative, January 1982. However,

Lederer, et al., define exports on an ownership hasis to he sales

hy a U.S.-owned entity to a non- U.S.-owned entity. As discussed

more fully below, the definition of foreign revenues used by OTA

is based on sales by a U.S.-owned entity to a nonresident of the

United States, thus combining the purely geographic and purely

ownership concepts of international trade and yielding a definition more nearly consistent with the normal definition of foreign revenues that a multinational corporation would tend to

employ (e. g., in its annual report).

Ideally, only the U.S. ownership share of sales by affiliates

should be included in the foreign revenues measure, For examDirect exports of services by U.S.-owned

firms fit the definitions for both the ownership

(i.e., foreign revenues) and balance of payments

pie, if an overseas affiliate with non-U. S. sales of $100 million

were 25 percent owned or controlled on an equity basis by a

U.S. firm, the contribution to U.S. foreign revenues of that firm

should be taken as $25 million. In practice, data on sales by foreign affiliates are not available on a U S.-equity-share basis, only

total sales by affiliates. The extent of the distortion will vary from

industry to industry. For example, in 1983 almost all of the sales

by overseas affiliates in management, consulting, and public relations were accounted for by majority-owned affiliates (i.e., over

50 percent U.S. equity control), ! n this case, using total sales

as a proxy for the U,S. equity share of sales is a reasonable approximation. However, for transportation and communication

affiliates, only about 18 percent of total sales were by majorityowned affiliates, with the rest accounted for by firms where U.S.

equity holdings ranged from 10 to 50 percent.
.-,

measures and are included in both measures,

Transactions between parent firms and their

foreign affiliates should be included in the balance of payments measure, but netted out when

measuring foreign revenues on an ownership

basis (both buyer and seller fit under the same

national umbrella of ownership), Exports of

services from the United States by a foreign

owned or controlled U.S. firm are excluded

from measures of foreign revenues on an ownership basis, but do constitute U.S. exports on

a balance of payments basis, Similarly, sales

of services to the United States by U.S. affiliates abroad are not included in the foreign revenues measure; such transactions are U.S. imports in a balance of payments sense, but not

in an ownership sense (both buyer and seller

are U. S,-owned). Thus:

U.S. exports (balance of payments basis) = export sales of all firms located in the United

States, including sales to the overseas affiliates of U.S. firms and the exports of foreignowned firms in the United States.

Foreign revenues of U.S. firms (ownership basis) = foreign sales of all U.S.-owned firms

regardless of location, and therefore including both exports from the United States of

U.S.-owned firms and sales to foreign entities by overseas affiliates of U.S. firms,

Transactions between U.S. parent and foreign affiliate are excluded, as both buyer and

seller are U. S.owned; transactions between

U, S.-owned firms located overseas and unaffiliated U.S. firms are excluded for the

same reason.

A parallel set of definitions holds on the import side:

U.S. imports (balance of payments basis) =

sales to U.S. residents by all firms located

in other countries, including the foreign affiliates of U.S. firms,

U.S. revenues of foreign firms {ownership basis) = sales to U.S. residents of all foreignowned firms regardless of location (i. e., including both foreign-based firms and the

U.S. affiliates of foreign firms). Transactions

between U.S. affiliates and their foreign parents are excluded, as both buyer and seller

are foreign-owned. Transactions between

foreign-owned U.S. firms and unaffiliated

foreign firms are likewise excluded.

Strictly speaking, a complete picture of trade

in services on an ownership basis should also

include purchases of services in the United

States by foreign-owned firms located here, and

local purchases by U, S.-owned firms abroad.

Because of a nearly complete vacuum in the

data on such purchases, OTA has had to omit

them; however, indirect evidence indicates that

they may be substantial, For example, in 1982

nonbank foreign affiliates of nonbank U.S. firms

reported that their total expenses net of taxes,

employee compensation, and nonoperating expenses came to $742 billion; for foreign affiliates in the United States, the corresponding total was $440 billion. These expenses reflect the

cost (excluding labor) of goods sold, as well as

marketing, administrative, and other indirect

expenses. Some portion of these totals represents local purchases of services used in the

course of operations, OTA’s estimates of U.S.

service exports, imports, and foreign revenues

do not in any instance exceed $100 billion, even

at the upper bounds of the estimated ranges,

Even if local purchases of services were a small

fraction of affiliate expenses, they would probably be significant relative to this amount of

services trade. Unfortunately, there is no way

to estimate these local purchases, even roughly,
Chapter 3

Services in the Balance of Payments
Chapter 3

Services in the Balance of Payments

FEDERAL GOVERNMENT FIGURES FOR THE U.S.

BALANCE OF PAYMENTS IN SERVICES

According to official Bureau of Economic

Analysis (BEA) figures, the U.S. current account deficit came to $31.9 billion in 1983 and

$95.9 billion in 1984. Preliminary results for

1985 put the deficit at an estimated $102.9

bill ion,’

The current account can be divided into two

components: 1 ) trade in goods; and 2) other,

nongoods transactions, or invisibles. The invisiblee portion of the current account is sometimes referred to as the “services” account, a

usage that differs from the terminology adopted

by OTA and one that is misleading, The reason is as follows, The invisible account includes

two different types of receipts: 1) factor income

(primarily returns to capital–e,g., dividends,

interest income—but also returns to labor, such

as the foreign wages of U.S. residents abroad);

and 2] non factor income (receipts and payments

for value-added services), In this report, OTA

refers to the group of all nongoods transactions

in the current account as the invisible account,

reserving the term services for invisible transactions in which firms or people add value (by

providing a service), Thus services are a subset of invisible transactions:

invisible — factor income nonfactor income

receipts(mostly investment income)+(value-added service)

with a parallel definition for invisible payments.

Figures 1 and 2 present the official U.S, current account figures for receipts and payments,

respectively, divided between goods and the

two primary invisible categories, services and

investment income. Figure 3 presents the U.S.

current account balance (surplus or deficit)

1 These figures, and a 1 ] the rest o f the B EA data LI sed i n this

rfli)ort, ex[,lu(le transfers of goods and ser~’ ices uncler U, S, m i] itar}’ grant programs. ‘rhe~’ also e~clude net unilateral transfers,

such as Federal Coi’ernmen[ grants and pen~ions. Including net

unilateral transfers would increase the U.S. current account deficit b~’ $8, T hi] 1 ion i n 1983, $ I I.4 hill ion in 1984 and $14,8 hill ion

(preliminary}) in 1985.

Figure l.— BEA (Bureau of Economic Analysis)

Estimates of U.S. Current Account Receipts

c1

a)

c1

a)

L

200

1

I

150

t

Goods/

100 -

50 -

0 “

1960 1965 1970 1975 1980 1985

Year

SOURCES 1960-83: R C Krueger “U S International Transact Ions First Quar

ter 1985, ” Survey of Current Bus(r?ess, June 1985, pp 34-71 1984.85:

C L Bach “U S International Transactions Fourth Quarter and Year

1985, ’ Survey of Current Bustness March 1986 pp 2454

for each of these items. The deficit on goods

reached $114.1 billion in 1984, and an estimated

$124.3 billion in 1985, As figure 3 shows, the

United States last ran a surplus in the goods

account in 1975.

Figure 3 also presents the balance on investment income, the single largest component of

invisible transactions. As the figure shows, the

United States has consistently realized a substantial surplus on income from foreign direct

investment (FDI), although the magnitude of

the surplus has declined in recent years from

a peak of $34,1 billion in 1981 to $19.1 billion

in 1984; preliminary figures for 1985 put the

investment income surplus at $24.7 billion.

The final major component in the current account consists of receipts and payments—or ex21
22

Figure 2.— BEA (Bureau of Economic Analysis)

Estimates of U.S. Current Account Payments

350 r

75

U 250

z t

0

} /

Goods

Investment

1960 1965 1970 1975 1980 1985

Year

SOURCES: 1960.83: R.C Krueger, “US International Transactions, First Quarter 1985,” Survey of Current Business, June 1985, pp. 34-71 1984.85:

C L. Bach, “U S. International TransactIons, Fourth Quarter and Year

1985,” Survey of Current Business, March 1988, pp. 24.54

Figure 3.—BEA (Bureau of Economic Analysis)

Estimates of U.S. Current Account Balance

60 r

a)

c1

c

Cm 1

3

n

–20

z

3 –40

o

v

om –60[

I

c

a) –80 LL

: – 100

(/j

3 – 120

1

– 140 I

1 1 i I J

1960 1965 1970 1975 1980 1985

Year

SOURCES: 1960-83: R.C Krueger, “US International Transactions, First Quarter 1985, ” Survey of Current Business, June 1985, pp. 34-71 1984-85:

C L Bach, “U.S. International Transactions, Fourth Quarter and Year

1985, ” Survey of Current Business, March 1988, pp 24-54

ports and imports—for value-added services.

As figure 3 indicates, official estimates for the

service account show a consistent deficit position from 1960 to 1974, followed by a fairly

rapid shift to a surplus of over $7 billion in 1981

and 1982. BEA’s totals show a declining surplus since then, shifting to the deficit side in

1985—an excess of imports over exports of $1.2

billion, according to the preliminary figures—

the first deficit since 1974. (OTA’s estimates,

presented in ch. 4, result in larger surpluses.)

Figures 4 and 5 present greater detail on invisible transactions in the official current account statistics. As figure 4 indicates, the largest

contributors to U.S. invisible receipts in 1985

were not service exports but rather nonservice

invisible transactions generating investment income, The category “other private receipts, ”

consisting primarily of U.S. portfolio investment abroad and bank income on foreign assets, made up the largest component of invisible receipts in 1985 at $49,9 billion. Income

resulting from U.S. FDI contributed $35.3 billion to invisible receipts, while U.S. Government receipts on assets abroad added $5.3 billion (including interest on loans to developing

countries). Combined, these three nonservice

invisible categories accounted for nearly twothirds of all invisible receipts in the official balance of payments.

According to BEA’s figures, service transactions as a whole contributed $46.0 billion to

invisible receipts in 1985, Transportation services were the single largest component at $14.3

billion, followed by exports of travel services

(i.e., travel expenditures in the United States

by visitors from overseas) at $11.7 billion, Fees

and royalties added $8.5 billion, while the category “receipts for other private services, ” including business services, generated $7.6

billion,

As figure 5 shows, the pattern for invisibles

was similar on the import (payments) side. Combined, the three nonservice invisible categories

totaled $65.8 billion, or 58 percent of all invisible payments. Services came to $47.2 billion,
23

Figure 4.— BEA (Bureau of Economic Analysis) Estimates of U.S. Invisible Receipts, 1985 (preliminary)

U.S. Government receipts

Other private receipts

Direct investment income

5.3

49

35.3

Government services

Other private services

Fees and royalties

Transportation

Passenger fares

Travel

14.3

I I 1 I 1 I 1 I

o 5 10 15 20 25 30 35 40 45 50

Receipts (billions of dollars)

SOURCE C L Bach, “U S International Transactions, Fourth Quarter and Year 1985, ” Survey of Current Business, March 1986, pp 24.54

with travel ($17. o billion) and transportation

($16.3 billion) the largest components.

The official figures show that trade in services and other international invisible transactions have a substantial impact on the U.S.

balance of payments. However, OTA’s analysis indicates that estimates of U.S. invisibles

transactions, and particularly exports and imports of services, are subject to much greater

errors than estimates for trade in goods, Thus

the BEA figures summarized above are not a

very accurate reflection of the actual level of

U.S. trade in invisibles, particularly services.

As discussed in the next section, most of the

errors in the current account reflect underestimates of service transactions, with both exports

and imports likely to be underreported. Chapter 4 presents OTA’s estimates of the impact

of services on the balance of payments, constructed by supplementing Federal Government

data with information from other sources.

FEDERAL GOVERNMENT PROCEDURES FOR MEASURING SERVICES AND

INVESTMENT IN THE BALANCE OF PAYMENTS

BEA, part of the Department of Commerce, veying participants in international services

collects most U.S. data on invisibles trade, and transactions (exports and imports of services)

is responsible for all the reporting on invisibles and by surveys of international direct investthat appears in the U.S. balance of payments, ment activities of both U.S. firms and the AmerThe Bureau collects this data primarily by sur- ican affiliates of foreign firms,
24

Other private payments 35.5

Direct investment income 9

Fees and royalties

Transportation 16.3

Travel 17

I I 1 1 I 1 I

o 5 10 15 20 25 30 35 40 45 50

Payments (billions of dollars)

SOURCE” C.L Bach, “U. S International Transactions, Fourth Quarter and Year 1985, ” Survey of Current Business, March 1988, pp. 24-54.

Quarterly articles in the Survey of Current

Business, published by BEA, summarize U.S.

international transactions, presenting data on

receipts and payments for private invisibles

transactions in six major service categories

(travel, passenger fares, transportation, affiliated and unaffiliated fees and royalties, and

other private services) and three investment income categories (direct investment, other private payments and receipts, and U.S. Government payments and receipts). The tabulations

also include a category for miscellaneous government service transactions.

In addition, BEA publishes periodic articles

in the Survey covering specific components of

the invisibles account—e.g., an annual review

on travel and passenger fares. These provide

data in considerably more detail than the quarterly summaries. The Bureau also publishes

occasional articles summarizing definitions,

changes in measurement techniques, and other

points of methodology,

In November of 1981, BEA published data

on invisibles transactions over time at the maximum level of available detail.2 Updates through

1984 of most of the tables presented in that

article are available from the Bureau. Table 2

summarizes the categories used under current

methods of data collection and estimation, Geographic detail is also available by region and

by selected individual countries for several of

the categories listed.

While BEA’s summary figures provide useful indicators of the order of magnitude and

distribution of international service transactions, the official data on invisibles trade contain a variety of omissions and misclassifications, many of which have been previously

identified by BEA. These deficiencies stem primarily from the origins of the invisibles ac-

‘A, J, DiLullo, “Service Transactions in the U.S. International

Accounts, 1970-1980, ” Surve~~ of Current Business, November

1981, pp. 29-46.
25

Table 2.—Categories for Invisible Transactions in the

U.S. Current Account

Travel

● Overseas travel

c Canada and Mexico

Passenger fares

Transportation

● Ocean freight

c Air freight

s Other freight

● Ocean port services

. A i r port services

● Other port services

s Other transportation

Fees and royalties

● Affiliated royalties and Iicense fees (by industry group)

● Other affiIiated fees and royalties

● Unaffiliated fees and royalties (by industry group)

Private miscellaneous receipts and payments

● Contractors’ fees (net receipts only)

c Reinsurance

● Communications

● Foreign governments/international organizations

● Canadian affiIiate trade u n ions

. Temporary resident wages and expenditures

● FiIm rentals

● Commissions (receipts only)

s Other private miscelIaneous services

Investment Income

● Direct investment income (by industry group)

● Other private receipts and payments

. U.S, Government receipts and payments

U.S. Government transactions

● Defense agencies

● Other U.S. Government agencies

SOURCE Service Transact/or?s (n the U S /nferr?af/orra/ Accounts, 1977.1983

(Washington, DC U S Department of Commerce, Bureau of EconomIC Analysis, no date)

count, which was at first intended simply as

a home for residual transactions in the balance

of payments—i.e., for entries other than imports

and exports of goods; the data collection and

reporting system was not designed to provide

detailed information by sector and type of transaction, An additional and inherent difficulty

is that, unlike tangible goods, Customs receipts

cannot be used to measure the volume of invisible trade; surveys of firms and individuals

participating in international invisible transactions must be undertaken.

Sources of errors and omissions in the official data include:

● Lack of Detail,—The government collects

and presents data on merchandise trade

for roughly 10,000 categories of goods. By

comparison, the invisibles account can be

disaggregated into about 40 categories at

most, and data are typically published at

higher levels of aggregation. This lack of

detail results in part from the historical lack

of interest in invisibles relative to goods.

It also reflects the intrinsic problems of

measuring many types of service and investment transactions.

● Incomplete Coverage .—The service account

in the balance of payments omits many

service transactions that take place in nonservice industries (for example, financing

provided by a manufacturing firm, or software sold by a computer hardware firm).

Also, some of the survey forms for gathering data on service transactions are voluntary, which generally means poor response

rates and incomplete coverage. Finally,

comprehensive surveys are impractical or

impossible for some types of transactions—

e.g., foreign holdings of private portfolio

investment by Americans, or the U.S. portfolio holdings of foreigners.

● Valuation .—For some kinds of service transactions, assigning values or prices poses

vexing problems, Many services are sold

bundled with goods—that is, a single price

is charged for a bundle of goods and services. In such cases, the value of the service

export or import generally appears in the

merchandise portion of the trade accounts.

Common examples include maintenance

or training provided along with the sale of

equipment. (Similar problems, of course,

exist within the goods account; no figures

exist for steel or tires that enter the United

States as part of automobile shipments

from Japan.) Furthermore, many services—

e.g., research and development—are provided by U.S. parent firms to their overseas affiliates (or by foreign parents to U.S.

affiliates). In such cases, the value assigned

to the service may be more a function of

bookkeeping or tax considerations than the

cost to the company of providing the service or the value added that it represents;

this is also true of licensing fees charged

to affiliates.
26

erage, increasing the level of detail, and developing more accurate methods for estimating

trade and investment flows. Table 3 summaPhoto credit National Aeronautics and Space Administration

Satellite receiving antenna for instructional

television in India.

Classification.—Somewhat analogous to

the bundling problem, factor income and

nonfactor income are in some cases mingled in the same account. When this occurs, service transactions cannot be separated from investment income. In addition,

transactions involving many of the service industries appear in several different

accounts, making analysis of the total international transactions of the industry difficult. The invisibles account classifies some

payments and receipts by type of activity

(regardless of the industry classification of

the firm) and some by primary industry of

firm (regardless of activity). For example,

international banking transactions appear

in three accounts: direct investment income, other private receipts and payments,

and fees and royalties. As another example, the software exports of a computer

hardware manufacturer might appear in

the goods account (bundled with hardware

exports) or in the invisible account as a

service, a fee, or a royalty; many software

exports escape the balance of payments accounts entirely.

Given these difficulties, along with the upsurge of interest in services, BEA has sought

to improve data collection by broadening covJ

noting those likely to have the greatest impacts

on BEA’s balance of payments figures, The table also indicates where BEA is taking steps

to improve the quality of data. The remainder

of this chapter expands on the summary in table 3, taking the invisible account by category

and including a discussion of BEA methodology, weaknesses in the database, and steps

planned or already taken for improving the data

collection and estimation process, Federal Government service and investment transactions

have been excluded from the discussion below;

not only are they relatively small, but the data

should be more reliable than for private transactions. 3

Travel

This account measures expenditures (excluding passenger fares) of U.S. residents traveling

abroad (travel imports) and of foreign residents

traveling in the United States (travel exports).

BEA collects data through survey forms distributed by the Customs Service at selected U.S.

ports of entry and exit,

In theory, the survey population represents

all travelers; in practice, sampling has suffered

from very low response rates (the actual response rate cannot be calculated because BEA

does not know precisely the number of surveys

distributed). A second methodological problem

arises because the entry/exit ports surveyed

have not been chosen at random, but in part

for the convenience of the Customs Service.

In addition to the entry/exit surveys, the U.S.

Travel and Tourism Administration (USTTA),

part of the Commerce Department, administers

its own in-flight surveys. While not used in the

official balance of payments, these surveys prosMuch of the rest of this chapter draws on discussions with

13EA staff members, as well as a BEA staff paper summarizing

the data collection process—O.G. Whichard, ‘(U.S. International

Trade and Investment in Services: Data Needs and Availability, ” Department of Commerce, Bureau of Economic Analysis

Staff Paper 41, Washington, DC, September 1984.
Table 3.—Summary of Deficiencies in

Passenger

Type of problem Travel fares Transport

Voluntary survey/low

response rate . . Voluntary Low response

“mail-i n“ for U.S

response a b freighters a

BEA Database on Invisible Transactions

Affiliated Unaffiliated Miscellaneous Other direct

fees and fees and private private investment

royalties royalties services transactions data

Low response

on technical

servlces a

Surveys old or

out of date . . . . . 1975 survey Portfolio

for ocean Income

passengers estimated

from 1942

benchmark

Other methodological

problems . . . . . . . . . Nonrandom Survey BE-47 No annual

survey voluntary b

outbound data

distribution b

before 1982

Inherent problems in

asslgnlng value to

transaction s Trucking Values reflect Exchanges Inherent

cannot be bookkeeping not assigned problem In

measured considerations values affiliated

transactions

Highly aggregate data

presentation . . . . . . Estimated on Llmlted detail Poor data Poor data

net basisb

by Industry quality quallty

or country prevents prevents

dlsaggregatlon dlsaggregatlon

Gaps In coverage. . . . . . . . . Land freight Exchanges Many services Individual

(trucking)

Minority

not covered’ portfolios, afflllates,

bank feesa

service

SOURCE Office of Technology Assessment
28

vide independent estimates for the overseas expenditures of Americans traveling abroad and

of visitors to the United States. Only airline passengers get these survey forms, Results from

USTTA surveys have indicated a higher level

of per-traveler expenditures than do the Customs/BEA surveys (thus a higher level of trade

in travel services).

BEA and USTTA have begun to plan coordinated travel surveys intended to eliminate

duplication and produce more accurate estimates. BEA has agreed in principle to use

USTTA data for estimating travel expenditures

by foreign visitors, with the decision on which

source to use for information on U.S. expenditures abroad pending as of mid-1986. Neither

survey provides data for estimating travel expenditures broken down by purpose of trip

(business, pleasure, education, health, etc.);

there is no standard way of apportioning costs

on multipurpose trips, which represent a large

fraction of international travel.

Passenger Fares

Exports in this account include receipts by

U.S. carriers from foreign residents traveling

to or from the United States. When an American carrier transports a foreigner between two

foreign points, an export is also registered. Imports consist of payments by U.S. residents to

foreign carriers. By convention, and according to the guidelines of the International Monetary Fund (which collates trade data on services from more than 120 countries), receipts of

U.S. carriers for foreign travel by U.S. residents

are treated as purely domestic transactions;

these do not appear in the balance of payments,

nor do receipts of foreign carriers from foreign

residents traveling to or from the United States,

Passenger fares exists as a category separate

from other travel-related receipts and payments

because the nationalities of the carrier and the

passenger together determine whether a fare

transaction affects the balance of payments, For

example, when a U.S. citizen flies to Europe

on a U.S. airline, the fare payment is a purely

domestic transaction. Once in Europe, however, the traveler’s expenditures would belong

in the travel account as a balance of payments

item,

The shortcomings in the passenger fares

account are primarily the result of outdated

benchmark surveys and problematic classification procedures, Import estimates for ocean

passenger fares—i.e., payments by U.S. passengers to foreign carriers—are based on extrapolations of a survey conducted by the Immigration and Naturalization Service which was

discontinued in 1975 (this may not be a major

source of error; extrapolated 1984 payments

came to only a little more than $3OO million).

In other cases, data belonging conceptually in

the passenger fares account have been classified elsewhere, For example, fare expenditures

for land travel between the United States and

Mexico or Canada are included in the travel

account and cannot be estimated separately or

combined with other passenger fares. Similarly,

some portion of port services expenditures reported in the transportation account (described

below) results from passenger travel.’ Geographic detail in the passenger fares account

is available for 10 world regions but not by individual country.

Transportation

BEA measures international transportation

transactions through surveys, now mandatory,

of U.S. air and ocean carriers’ foreign earnings

(surveys BE-37 and BE-30, respectively), along

with U.S. operations of foreign air and ocean

carriers (surveys BE-36 and BE-29). The air carrier surveys include questions on both passenger traffic and freight shipping, The Bureau

uses this passenger traffic data in compiling

the passenger fares account discussed above,

although not as the primary source of information on such fares.
29

Response rates on the mandatory surveys of

foreign carriers operating in the United States

have been good. The surveys of U.S. carriers

remained voluntary until 1986, For these voluntary surveys, response rates had been acceptable for air carriers but poor for ocean carriers,

particularly tankers (a problem partially offset

when BEA gained access to Census Bureau data

on ocean freight billings).

Shipping by truck between the U.S. and Canada or Mexico does not appear in the transportation balance of payments. As BEA points out,

even if complete data were available, it would

be necessary to subdivide expenditures, with

travel up to the border of the exporting country belonging in the merchandise trade account

(thus appearing as a service bundled with trade

in goods), and travel in the importing country

belonging in the transportation account.

Fees and Royalties

Fees and royalties are classed in two categories: affiliated transactions, which occur between U.S. parent firms and their foreign affiliates, or between foreign firms and their U.S.

affiliates; and unaffiliated transactions, those

between firms without direct ownership or investment ties (or with ties amounting to less

than 10 percent of equity, the dividing line

adopted by the U.S. Government for distinguishing portfolio investment from FDI).

Affiliated Fees and Royalties

Direct investment can be of two types: outbound, in which an investment relationship exists between a U.S. parent firm (or individual

or group) and a foreign affiliate; and inbound,

in which a foreign firm or individual invests

in a business located in the United States. BEA

estimates inbound and outbound transactions

on a quarterly basis from sample data reported

on mandatory forms BE-577 (Direct Transactions of U.S. Reporter with Foreign Affiliate)

and BE-605 (Transactions of U.S. Affiliate with

Foreign Parent). These surveys sample gross

receipts and payments in three categories: 1)

royalties, license fees, and other fees for the

use or sale of intangible property; 2) charges

for the use of tangible property (including film

and TV rentals); and 3) allocated expenses (such

as R&D assessments) and reimbursements for

management, professional, technical, or other

services. The universe from which sampling

occurs is determined from periodic inbound

and outbound benchmark surveys, which also

provide independent data on affiliated fees and

royalties (these surveys are discussed in detail

in the section, “Direct Investment Data” below).

The affiliated fee and royalty data have little

real meaning because the prices attached to

such transactions must be regarded as bookkeeping values. They cannot be assumed to correspond with market values—i. e., with prices

that would hold in arms-length transactions.

Because there is no practical way of establishing market valuations, balance of payments

figures for transactions between parents and

affiliates are seldom useful for analytical

purposes.

Beyond this, BEA for many years presented

its worldwide totals and geographic subtotals

for affiliated royalties and fees on a net rather

than a gross basis. Thus published values for

affiliated receipts actually represented receipts

of U.S. firms minus their payments to affiliates;

similarly, the value published for payments of

affiliated fees represented payments by U.S. affiliates to foreign parents net of receipts from

foreign parents. Companies report receipts and

payments separately, but the Bureau subtracted

receipts from payments before expanding the

sample to generate an estimate for the universe

of firms. Until recently, receipts by U.S. parent firms were much larger than payments to

affiliates, so that there was relatively little difference between the figures for net and gross receipts. This is no longer true; in recent years,

affiliated payments have grown relative to

receipts.

BEA is now converting its estimating procedures to a gross basis for affiliated fees and

royalties. As of June 1984, the Bureau has estimated inbound data on a gross basis. BEA is

also preparing new estimates of gross inbound

receipts and payments back to 1980. At present,

outbound data is available on a gross basis only
30

for benchmark years (most recently, 1982);

yearly gross estimates (and quarterly estimates

not disaggregated by industry or country) will

be available following benchmarking to the recently released 1982 benchmark survey of outbound FDI.

Unaffiliated Fees and Royalties

A mandatory annual survey on unaffiliated

fee and royalty transactions (form BE-93, International Transactions in Royalties, Licensing

Fees, Management Fees, etc. with Unaffiliated

Foreign Residents) covers receipts and payments by country of transaction. Here the pricing problem of affiliated transactions is not a

concern, given the assumption, which should

normally be valid, that charges will reflect armsIength valuations when equity ties are no more

than 10 percent. The primary limitation in

BEA’s coverage of unaffiliated transactions

arises from the exclusion of “reciprocal exchange(s) of intangible assets or rights where

no monetary or in kind compensation is paid. ”

This means, for example, that technology exchange agreements between unaffiliated firms

will not be reported unless prices are explicitly

negotiated as part of the deal (table 2). There

is a further shortcoming, particularly troublesome for analysis based on this data series: no

distinctions are made between new license payments and those under ongoing multi-year

agreements, While this has no effect on the balance of payments, it does make it impossible

to identify changes in the volume and value of

licensing on a year-by-year basis.

Other Private Services

Major contributors to this category include

contractors’ fees, reinsurance, communications, and expenditures by foreign governments

and international organizations. The account

also contains a number of smaller items—wages

and expenditures of U.S. residents working

abroad and foreign residents working in the

United States; film and videotape rentals between unaffiliated parties; consular fees; miscellaneous commissions—while omitting many

business services that belong conceptually. The

omissions include accounting, advertising, and

direct insurance; other intermediate and business services are significantly underreported,

Some services have been left out of the surveys

because they were originally judged to be of

negligible importance, or because they have

only recently become significant internationally; in other cases, surveys have been voluntary, with very low response rates,

Several survey forms contribute to the data

BEA reports under this category. BE-47, for

instance—which collects information on overseas contracts of U.S. firms—is intended to

cover a broad range of technical and business

services. The survey was voluntary until April

1986, with few firms outside the architecture,

engineering, and construction (AEC) industry

responding, Since the survey became mandatory, it has been restricted to AEC firms, and

to those engaged in a few other technical activities, such as mining services. Moreover, the

form covers exports but not imports; the latter

will be reflected only if the reporting firm nets

out overseas expenditures associated with a

contract. Form BE-48, Reinsurance Transactions with Insurance Companies Resident

Abroad, illustrates another of the omissions in

this category. The form covers premiums and

losses on reinsurance only —i.e., insured risks

passed along to third parties, There are no surveys of direct international insurance transPhoto credit Bechte/ Power Corp

Computer-aided drafting for construction project

in Papua New Guinea
9 +

actions, which go unreported in the balance of

payments.

Because major gaps exist in BEA’s coverage

of the “other services’ account, the agency recently proposed a new mandatory benchmark

survey of unaffiliated transactions, BE-2o, to

be followed by yearly sample surveys. BE-2o

would replace existing surveys for fees and

royalties, franchising fees, reinsurance, and

technical services. In addition, the survey

would cover a number of service transactions,

some representing substantial revenue flows,

on which the Federal Government currently

collects no data: direct insurance; advertising;

computer and data processing services; database and other information services; telecommunication services; performing arts, sports,

and other live performances, presentations, and

events. AS proposed, BE-20 would also include

a category of selected miscellaneous services,

only a few covered previously: research and

development; management services; consulting; public relations; accounting, auditing,

and bookkeeping; agricultural services; legal

services; education and training; mailing, reproduction and commercial art; health care

management; employment services; industrial

engineering; maintenance and repair services;

installation, startup and training in connection

with sales of goods; and construction, engineering, architectural, and mining services (purchases only).

Late in 1985, the Office of Management and

Budget (OMB) rejected the proposed BE-2o survey. OMB called it “unreasonably burdensome”

for reasons including a format said to be nonstandard and complicated, instructions that

OMB asserted were difficult to interpret, and

failure by BEA to pre-test the reporting forms.

According to OMB, the Commerce Department

had also underestimated the costs to firms of

responding. A revised survey may or may not

be approved at some later date; in any event,

no survey before 1987 at the earliest (i. e., covering 1986 data) would, as of this writing, be

possible,

Other Private Receipts and Payments

This account includes three types of items:

1. receipts and payments of bank income, including interest on short- and long-term

loans, deposits, and other claims (but excluding direct investment income);

2. receipts of fees for bank services provided

to foreign customers; and

3. earnings on foreign portfolio investments

(i.e., security holdings amounting to less

than 10 percent of a firm’s outstanding

equity).

BEA constructs estimates for all three, basing

interest payment figures, for example, on prevailing interest rates together with estimates

of U.S. holdings of foreign assets and foreign

holdings of U.S. assets; the overall revenue figure will therefore only be as accurate as the

underlying holdings data and BEA’s information on prevailing yields.

A major shortcoming of this account is that

it commingles nonfactor income (e. g., fees

earned by banks) with factor income (e. g.,

returns to U.S. holders of foreign portfolio investments). This is a fundamental conceptual

problem; the value-added services provided by

U.S. banks should be viewed quite differently

than investment earnings.

In addition to the commingling problem, a

number of transactions that belong conceptually in this account are either missing or underreported. Examples include:

●

●

Fees Earned by Banks for Services.-In addition to commingling of bank fee income

(as collected by the Federal Reserve Board)

with various types of factor income, BEA

lacks a basis for estimating some types of

bank fee income–e.g., charges for providing guarantees,

Bank Earnings on Foreign Exchange Dealings.—Here, the gap in coverage appears

to be a minor one, While there is little information on the size of unreported bank

earnings from these transactions, most foreign exchange transactions by U.S. banks
32

are either purely domestic in a balance of

payments sense (matching U.S. buyers and

U.S. sellers) or purely foreign (i.e., between

foreign customers and U.S. banks’ foreign

offices). As such, these transactions are not

cross-border and should not appear in the

balance of payments.

c private Broker Transactions .—Because it

is difficult to gage the portfolio transactions

of private parties, BEA has little information on the extent to which such transactions—purchase and sale of foreign securities by U.S. holders, and of U.S. securities

by foreign holders—may be under- or overestimated. Commissions and fees earned

by brokerage firms on such transactions

may or may not be balance of payments

items, depending on whether broker and

client are residents of the same country.

Such commissions and fees should appear

in the “other private services” category,

but in practice they go essentially unreported. In a 1978 benchmark survey of

U.S. issuers of debt and equity instruments,

the Treasury Department estimated U.S.

portfolio investment holdings by foreigners. This benchmark greatly improved the

accuracy of the portfolio account on the

inbound side (in terms of earnings on investment, not brokerage commissions), but

no similar benchmarking has been undertaken for U.S. holdings of foreign portfolio

investments. Not only do a very large number of individuals hold such investments,

but the U.S. Government also lacks the authority to survey foreign issuers.5 Private

portfolio earnings are currently extrapolated from a 1942 survey.

Direct Investment Data

The Federal Government gathers considerable data on the operating activities and financial status of firms and individuals with direct

investments overseas. The FDI category in the

5 A Treasury Department feasibility study indicated that a full

benchmarking survey (covering the universe of investors) would

be prohibitively expensive, although a survey of selected banks,

brokerage houses, and insurance companies might help improve

the accuracy of this account. See Whichard, op. cit., p. 39.

current account measures receipts associated

with outbound investment (U.S. firms or individuals with direct investments abroad) and

payments associated with inbound investment

(foreign firms or individuals with investments

in the United States). BEA estimates receipts

through quarterly sampling of the universe of

firms and individuals known to hold such investments, and payments from quarterly samples of the universe of U.S. firms known to be

affiliates of foreign investors. In addition,

benchmark surveys of the universe of firms and

annual sample surveys based on benchmark results provide more detailed financial and operating information. In general, BEA has good

balance of payments data on FDI income and

payments, certainly in comparison with many

of the service categories described above.

BEA surveys direct investment activities in

three ways:

1.

2.

3.

For

Quarterly surveys of affiliated transactions

which impact the balance of payments (income, capital, and fees and royalties—surveys BE-577 and BE-605),

Benchmark surveys of direct investment

(both outbound and inbound), conducted

periodically to identify the universe of FDI

relationships for quarterly sampling. These

surveys also gather basic financial and

operating data from affiliates and parent

firms. Outbound benchmark surveys at

varying levels of detail were conducted in

1950, 1957, 1966, 1977, and 1982; under

current authorization, they will continue

at 5-year intervals. The last inbound benchmark survey took place in 1980, BEA will

wait until 1987 to conduct the next inbound

benchmark, collecting inbound and outbound benchmark data concurrently beginning in that year.

Annual sample surveys consisting of less

detailed versions of the benchmark surveys. These are now in place for both inbound (since 1977) and outbound (since

1983) direct investment, sampling from the

population of firms identified through the

benchmarks.

the benchmark and annual FDI surveys,

BEA collects data for 40 service industry sec-
33

tors (including construction as a service) and

91 goods-producing sectors (including wholesale trade as a goods sector), Twelve new service classifications were added in the 1982 outbound benchmark; in addition, insurance was

subdivided into three subcategories (life, accident and health, and other).”

Major shortcomings in the direct investment

data include:

● Coverage Gaps.—While inbound data are

available on a yearly basis beginning with

1977, there were no annual outbound surveys during the period 1978-81; BEA lacked

the authority for such surveys prior to 1982.

Lack of information on minority-owned

affiliates (from 10 to 50 percent ownership)

restricts the usefulness of the outbound surveys. All U.S. firms responding to both annual and benchmark surveys must provide

information on service transactions with

affiliates. If the affiliate is majority-owned,

BEA requires a detailed statement of financial and operating information, including

service transactions with unaffiliated U.S.

parties, but the Bureau’s experience has

been that many U.S. parents holding a minority interest in foreign affiliates cannot

provide such information. Since the affiliates are foreign companies, BEA has no

authority to question them directly, This

creates more serious problems for some

sectors than others. In 1982, for example,

majority-owned firms accounted for nearly

all of the $1.8 billion in sales by U.S. affiliates in management, consulting, and public relations. However, minority-owned affiliates registered more than $1.0 billion of

the $1.1 billion in sales by air transport affiliates that year. For the inbound surveys,

the affiliates are American firms; these

companies can be required to answer, and

BEA asks the same questions of majorityand minority-owned affiliates.

V’he 12 new c I ass ificat ions are: metal m i n i n g services: trak’el

agents; franchising; R&D and commercial testing laboratories;

management, consult ing, and public relations; employment services; (.ornputer and data processing ser~rices; automotive rental

and leas ing; equipment rental and leasing (exc]udin~ automoti~’e and computer): health services; legal ser~’ices; and educational ser~ices.

● Classification. —The benchmark F D I surveys measure sales revenues of affiliates

by industry of affiliate (defined as the industry of the affiliate’s primary activity)

and by industry of sales. For example, 1982

sales by foreign affiliates classified in the

business services industry came to $10.4

billion, including sales in categories other

than business services. Total sales of business services by all firms—including those

in other industry categories—came to $16.8

billion. Thus at least $6.4 billion in business services represents revenues of firms

whose primary activity fell into some other

industry category (and perhaps more than

$6.4 billion, since some unknown portion

of the $10.4 billion in sales by business service industry firms would have been nonbusiness-service sales).

The outbound and inbound benchmark

surveys and the outbound annual survey

present sales data classified by industry of

affiliate and by industry of sales; the inbound annual survey does not. Beginning

with the 1982 outbound benchmark and the

1983 inbound and outbound sample surveys, total sales of goods and services have

been reported separately, broken down by

industry of affiliate. But while service sales

by firms not classified in a service industry category are reported, as are goods sales

of service industry firms, the type of service provided is not identified.

An additional classification problem arises

for inbound FDI, because the overseas parent may not be in the same industrial sector as the “ultimate beneficial owner”

(UBO). An affiliate’s foreign parent is defined as the firm one step up the ownership chain, while the UBO is at the top of

the chain. Just as the industries of the parent and the UBO may differ, so may the

countries in which parent and UBO are incorporated. The foreign parent of a U.S.

affiliate, for example, might in turn be controlled by a UBO based in the United States.

BEA typically has published some data

from the inbound surveys by industry or

country of parent, some by industry or

country of UBO, and other data disaggregate by both parent and UBO. In the
34

future, the Bureau plans to emphasize data

disaggregated by UBO.

● Purchases of Services .—While BEA gathers

data on the purchases by affiliates of services from parent firms, no reporting has

been required on affiliates’ purchases of

services from unaffiliated parties. BEA

considered adding such questions to the

1982 outbound benchmark, but decided to

gain experience with affiliates’ sales of

services before surveying purchases.7 Also,

firms have indicated in consultations with

BEA that such data would in many cases

be difficult to supply using current bookkeeping procedures.

7

1bid,, p. 42.
Chapter 4

OTA Estimates

International Service Activity
Chapter 4

OTA Estimates of International Service Activity

Given the sources of error in the Federal Government’s data on services, OTA undertook an

independent estimate of impacts on the balance

of payments. This chapter summarizes the aggregated results based on both the geographic

(balance of payments) and ownership (foreign

revenues) definitions for service activity given

in chapter 2. Chapter 5 presents detailed estimates on a sector-by-sector basis,

OTA’s figures were compiled using the best

avaiIable data from sources including:

reports and surveys of the Department of

Commerce (Bureau of Economic Analysis,

the Census Bureau, the International Trade

Administration, the Travel and Tourism

Administration, and the National Telecommunications and Information Administration);

BEA’s inbound and outbound surveys of

foreign direct investment (FDI];

reports and surveys by other government

agencies [the Federal Reserve Board, the

Departments of Transportation, Education, Labor, and Treasury, the International

Trade Commission, the Federal Communications Commission);

company annual reports and 1O-K data

reported to the Securities and Exchange

Commission;

previous reports of the Office of Technology Assessment;

●

●

●

reports and articles in the general and business press (e.g., Wall Street Journal, Financial Times, Fortune), as well as the specialized trade press;

other private sector surveys and publications—e.g., by trade associations; and

interviews with people having knowledge

and expertise concerning the industry in

question, including Commerce Department and other government officials, private sector and trade association representatives, independent consultants, and

academics.

For each sector, the data judged most reliable were used to construct an estimate of the

value of U.S. service exports and imports, as

well as sales through foreign affiliates, for the

years 1982 to 1984. OTA relied exclusively on

the official U.S. balance of payments data only

for those sectors (notably licensing and transportation) where no alternative sources of information were available. Where no precise

estimate was possible—often the case—ranges

reflect the degree of uncertainty. A detailed discussion of the sources, methods, and assumptions used to construct the estimates that follow here and in chapter 5 is available from

NTIS.’

“’Services in the U.S. Balance of })aymeots, 1982-84: Do(:umentat ion of OTA Estimates, ” ]ul}r 1986, atailable frt]nl the Nat if)n,il

Technical Information Ser\.;ce (NTIS), Spr]ngfit’lt~, J’A

BALANCE OF PAYMENTS IN SERVICES

Table 4 and figures 6 and 7 present OTA’s

estimates of the impact of service activity on

the U.S. balance of payments for the period

1982-84, indicating that the U.S. current account (“BEA estimate” in figures 6 and 7) understates both imports and exports of services,

Evidently, the understatement for exports exceeds that for imports. The U.S. surplus on services trade (i. e., net exports), in consequence,

appears to be greater than reflected in the official statistics. As table 4 shows, OTA puts 1984

service exports at an estimated $69 to $91 billion, while the corresponding figure in the U.S.

balance of payments was $43.8 billion. Table

4 thus suggests an omission of $25 to $47 bil1ion in service exports in that year’s current

account.

Imports were understated to a lesser extent,

although the total understatement represents

37
38

—

Table 4.—OTA Estimates of Service Balance of Payments, 1982-84a

Exports (receipts) Imports (payments)

(billions of dollars) (billions of dollars)

Net exportsb

(billions of dollars)

1982

$0.2-0.5

0.1-0.5

5.6

0.1-12

1.5-2.2

1.2-1.7

0.2-1.0

1.0-25

0.0-2.6

5,6-7.7

1983

$0.2-0.5-

0,1-0,5

4.8

0.1-1.2

16-2.3

1.1-1.6

0.2-1.1

1.0-2.5

0.0-2.9

6.1-8.2

1984

$0.2-0.5

0.1-0.5

4.0-6.0

0.1-1.2

1.8-2.5

1.0-1.4

0.2-1.2

1.0-2.5

0.0-3.1

6.9-9.1

1982

—c

— c

0.0-2.2

0.0-2.0

0.1-0.3

0.1-0.3

— c

— c

0.0-1.0

6.3-8.6

1983 1982 1983 1984

— c

— c

0.0-1,7

0.0-2.0

0.1-0.3

0.1.0.3

— c

— c

0.0-1.0

6.7-9.1

4.3-4.8

0.0-1.0

0.0-1.0

0.8

0.6-1.1

0.1-1.7

— c

0.0-2.2

2.0

19.1

15.8

1,9

$52-66

$59

$35.4

1984

—c

— c

0.0-2,0

0.0-2.0

0.1-0.3

0.1-0.3

—c

— c

0.0-1.0

7.4-9.8

4.3-5.6

0.0-1.0

0.0-1.0

1.0

0.6-1.1

0.2-2.7

—c

0.0-2.7

2.4

22.8

16.4

2.1

$57-74

$66

$41.5

Accounting, ...................

Advertising ... .. .

Construction . . . . . .

Data processing . .

Educatio n

Engineering ., ., . .

Franchising ., ... .. .

Health .. .

Information. ... ., .. .

$0.2 -0.5

0.1 -0.5

3.4 -5.6

(1 .9)- 1,2

1.2 -2,1

0.9- 1.6

0.2 -1.0

1.0 -2.5

(1 .0)- 2.6

(1.1)-(0.5)d

$0.2 -0.5

0.1 -0.5

3,1 -4.8

(1 .9)- 1.2

1.3 -2,2

0.8- 1.5

0,2 -1.1

1,0 -2.5

(1 ,0)- 2,9

(1..l)-(0.4)d

$0.2 -0.5

0.1 -0.5

2.0 -6.0

(1 ,9)- 1.2

1,5 -2,4

0.7 -1,3

0.2 -1.2

1.0 -2.5

(1 ,0)- 3.1

(0.9)-(0.2)d

Insurance ... ... . .

Investment banking/

brokerage .. .

Leasing ..., ..., . . . . . .

Lega l

Licensing .

Management/

2,1-4.8

0.2-1.2

0.0-2.0

5.2

3.2-6.4

0.2-1.2

0.0-2.0

5.2

3.2-8.5

0.2-1.2

0,0-2.0

5.5

3.6-41

0.0-1.0

0.0-10

0.7

(2.0)- 1.2

(0.8)-12

(1.0)- 2.0

4.5

(1.6)- 2.1 (2.4)- 4,2

(0.8)- 1.2 (0,8)- 1.2

(1.0)- 2.0 (1.0)- 2,0

4,4 4,5

consulting .

Motion pictures. . ...,

Retailin g

Software ..., . . . . . . . . . .

Telecommunications .

Transportation . . . . . .

Travel ..., . . . . . . ...,

Miscellaneous ., . . . .

0.5-1 1

1.6

— c

1,6-1.7

1.1

16,7

15.7

47

$65-81

0.6-1.4

1.9

— c

2,5-2.6

1,3

17.1

14,1

5.3

$67-84

0.6-1.6 0.6-1.1

0.1-1.4

—c

0.0-1.7

1.9

17.7

13.7

1.8

$47-61

(0,6)- 0.5

0.2-1.5

—c

(01)- 1.7

(0,8)

(1,0)

2.0

2.9

$6.3 -32.8d

(0,5)- 0.8 (0.5)- 1.0

0,2-1,8 (0.8)-1.7

— c

0.3-2.6 0,1-2,9

(0.7) (1.1)

(2,0) (4.3)

(1.7) (2.7)

3.4 3,6

$2.7 -30.7d$(3.5)-31.5 d OTA tota l

OTA mid-range

estimate . .

$69-91

$73

$41,7

$76

$41.8

$80

$43.8

$54

$326

$20

$ 9.1

$17 $14

IBEA total,...,.. . . . . $6.4 $ 2.3]

acommerclal banking IS excluded from this table, for reasons d!scussed on P 40

bparentheses Indicates negative balance

cNeallalble.

dRa~g~of estimates for net exports not that Implied by ranges for exports and Imports, for reasons explalned on p 76

and the midrange estimates

SOURCES OTA estimatm-ch 5 of th!s report, BEA estimatas—Survey of Current Bus/ness, various Issues

a substantial fraction of total service imports.

OTA places 1984 imports at $57 to $74billion,

compared with unofficial figure of $41.5 billion. This implies an understatement of service imports in the range of $16 to $33 billion.

Taking the middle of the range for OTA’s estimates of exports and imports suggests a U.S.

service surplus in 1984 of about $14 billion,

while the official balance of payments surplus

for the corresponding categories was reported

as slightly over $2 billion (figure 8),

Similarly for 1982 and 1983, OTA’s midrange

estimates suggest surpluses of $20 billion and

$17 billion respectively (figure 8), while the official figures were reported as surpluses of $9

billion in 1982 and slightly more than $6 billion in 1983. The current account, when compared to the midrange estimates, thus understated the U.S. service surplus by about $11

billion in both 1982 and 1983, and $12 billion

in 1984. Note that, in spite of this understatement of services trade, both the official balance

of payments data

of table 4 reflect a decline in the U.S. service

surplus over the period 1982-84 (figure 8).

Three qualifications must be added. The first

concerns the ranges spanned by OTA’s estimates, which point to very large remaining uncertainties, The difference between upper and

lower bound on the export estimate for 1984

was $22 billion; for imports the range was $17’

billion. Comparisons based on midrange estimates provide a reasonable if somewhat arbitrary indicator of possible errors in the services account, but have no claim to statistical

validity. (Nor can BEA’s figures have any such

claim; the Bureau does not report on possible

errors in services accounts,)

A second qualification is necessary because

neither the BEA nor OTA totals presented in

table 4 include banking services, Given that the

official estimates for banking are commingled

with investment income in the balance of pay-
39

Figure 6.– U.S. Service Exports, 1982-84 Figure 8.— U.S. Balance of Payments Surplus

20 “

18 -

16 -

14 -

12 -

10 -

8 -

6 “

4 -

2 -

0 -

in Services, 1982-84

91 2 0

84 81 17

69 67 65

44 42—

—

42

1982 1983 1984

1982 1983 1984

Year

OTA high ❑

OTA low

estimate BEA estimate estimate

u

NOTE All estimates rounded to nearest b!lllon dollars

SOURCES OTA estimates—Table 4 BEA estimates—R C Krueger, “U S lntern atlonal t ransactlons, FI rst Quarter 1985, Survey of Current BusiSOURCES” OTA estimates—Table 4 BEA estimates—R C Krueger, ‘U S Inter

national transactions, FI rst Quarter 1985 Survey of Current BUS I

rress, June 1985, pp 34.71

ments, there is no way to estimate the services

portion of banking in the current account data.

Even if banking services could be isolated in

the balance of payments, the reported figures

could not be checked because the government

has no comprehensive data on banking imports.

The United States apparently realized a substantial but declining current account surplus

(in the range of $16 to $20 billion annually) in

banking over the years 1982 to 1984. However,

much of this represents gross international interest payments rather than value-added services according to the definitions adopted in this

report (see box A, as well as “Commercial Banking” in ch, 5).

Finally, OTA’s figures must be qualified because some balance of payments flows in services could not be estimated and have therefore

been omitted. The primary omissions are exports of services in some industries by U.S. affiliates of foreign firms and U.S. imports from

80

70

I 61

7A

— 52 — 47

42 —

— — —

1982 1983 1984

Year

OTA high estimate❑ OTA low estimate BEA estimate

NOTE All esttmates rounded to nearest btllion dollars

SOURCES OTA estimates–Table 4 BEA estimates—R C Krueger, U S Inter

national t ransactlons, FI rst Quarter 1985 Survey of Current Busi

ness June 1985, pp 3471
40

minority-owned foreign affiliates of U.S. firms substantial trade in these categories is known

(data are available for majority-owned affiliates to occur, OTA has made rough estimates; otheronly], BEA’s direct investment surveys do not wise such transactions are not reflected in

provide data on these flows. In sectors where OTA’s figures.

Box A Measuring Banking Services

Banking includes transactions that are conceptually different from most other service transactions.

Beyond this, banking data in a few crucial areas of international activity are very poor. For these

reasons, banking and financial services demand special attention when measuring the balance of

payments.

Typically, measurements of the level of trade in services begin with company receipts: a company

receives a fee for performing a service; the fee represents the market value of the service. Them are

exceptions. For transactions between affiliated firms, receipts cannot be assumed to represent market

values and therefore do not adequately describe the impact of service transactions on the international economy. International transactions in insurance introduce a different sort of complexity, involving not only fee payments to insurers (premiums) but also claims paid to policyholders. While

premium receipts may be the appropriate measure of the value of the insurance service provided,

claims paid must also be included in measuring impacts on the balance of payments.

For most industries, any such discrepancies between fee receipts and overall impact on the balance of payments (i.e., fee receipts pIus other transactions affecting the balance of payments) will

be negligible, but not for comnercial banking services. When a bank charges a fee for performing

a service, that fee is the appropriate measure of the service’ s value, as it would be for any service

product. The majority of international receipts and payments in banking, however, are not fee-based

services but rather gross interest receipts and payments on loans and other cross-border assets and

liabilities. A complete description of the effect of banking an the balance of payments must include

these payments, as well as those for fee-based value-added services. For interest and related charges,

the net margin is the appropriate measure of the value of the service. In other words, if a bank raises

funds at 8 percent and lends them at 10 percent, the banking service should be valued at 2 percent

of the amount lent, not 10 percent.

Nonetheless, it is fee~based services plus gross interest receipts and payments that affect the balance of payments figures themselves. A bank may borrow money in the United States and lend it

overseas-meaning th at only a portion of the overall loan transaction will be a balance of payments hat

entry. In an case, such measures cannot be computed with any precision because the data are inadequate (see c . 5]. If they could, they would show without doubt that: i 1) banking has a greater effect

on the balance of payments than any other service activity; and 2] the U.S. banking surplus in the

balance of payments has been declining in recent years.

In this report, to put banking on a basis more comparable to other services, OTA bases its estimates on fees for value-added banking services and net interest receipts. Estimated in this way, foreign revenues in banking are substantial but do not overshadow other service industries. In cases

where the gross receipts/payments measure would be appropriate-i.e., in the tables and figures summarizing the full effect of services on the balance of’ payments (table 4, figures 6, 7, and 8)-OTA

has omitted banking entirely because the data do not permit useful estimates. Except where banking

services have been specifically excluded, all other data presented in this report which include banks

ing use the net interest definition.
41

FOREIGN REVENUES IN SERVICES

A second major question concerns direct

trade in services contrasted with sales through

foreign affiliates. Tables 5 and 6 give OTA’s

estimates of the foreign revenues of U.S. service firms and U.S. revenues of foreign service

firms based on the ownership definition of trade

(ch. 2).

Note that, for several reasons, the totals for

service exports in tables 4 and 5 do not match.

The foreign revenues definition, as reflected

in table 5, excludes exports from the United

States by foreign-owned U.S. firms, while these

exports are included in the balance of payments

definition that provides the basis for table 4.

Similarly, table 5 excludes imports of services

to the United States from U.S.-owned firms

abroad; these are included in table 4. Tables

5 and 6 also exclude trade between parent and

affiliate firms, because the nationality of ownership is the same for buyer and seller. Such a

transaction does not constitute international

trade on an ownership basis, although it does

impact the balance of payments and thus appears in table 4. One final difference between

table 4 and tables 5 and 6: the latter also include data on banking. Banking was excluded

from the balance of payments figures in table

4 to permit comparison with BEA balance of

payments data, in which banking services cannot be isolated from nonservice invisible transactions.

As table 5

service sales

an estimated

$161 to $178

and figure 9 indicate, total U.S.

on an ownership basis came to

$164 to $180 billion in 1982 and

billion in 1983. (Data that would

permit estimates for 1984 were not available

when OTA was preparing this report.) Of these

totals, direct exports by U.S.-owned firms loTable 5.—OTA Estimates of Foreign Revenues of U.S. Service Firms, 1982-84

Direct export s Affiliate sales

(billions of dollars) (billions of dollars)

1982 1983 1984 1982 1983 1984

Accounting, $02-0.5

Advertising ., 0.1-0.5

Construction . 5,6

Data processin g 0.1-1.2

Education . . . . . . . 1.5-2.2

Engineerin g 1.2-1.7

Franchising . , 0.2-1.0

Health ... ., 1.0-2.5

Information, ., 0.0-2.6

Insurance ... ., 2,6-3,5

Investment banking/

brokerag e 0.5-1,5

Leasing ., ... .. . 0.2-1.2

Lega l 00-2.0

Licensing ., ., ., 5.2

Management/

consulting . 0.5-1.1

Motion pictures . , 1.6

Retailing ... . . —a

Software ... ... .. . 1.6-1.7

Telecommunication s 1,1

Transportatio n 16.7

Travel ., . ., 15.7

Miscellaneous . . . . . . . 4.7

Subtotal (excluding

banking) $603 -73.8

Banking. ., ., . . ., NA

Total ., . . . NA

aNegllglble

NA = not available

SOURCE Ch 5 of this report

$0.2-0.5

0.1-05

4.8

0.1-1.2

1.6-2.3

1.1-1,6

0.2-1.1

1.0-2.5

0.0-2.9

2.7-3.6

10-2.0

0.2-1.2

0.0-2.0

5.2

0,6-1,4

1.9

— a

2.5-2.6

1.3

17.1

14.1

5.3

$610-751

NA

NA — —

$0.2-0.5 0.1-0.5

40-6.0

01-1.2

1.8-2.5

1.0-1.4

0.2-1.2

1.0-2.5

0.0-3.1

2.8-3.7

1.0-2.5

0,2-1,2

0.0-2.0

5,5

0.6-1.6

1.9 — a

2.8-2.9

1.3

18.5

13.7

5.7

$62.5 -79.4

NA

NA

$3.6-3.9

1.6

3.2-3.6

2.3-3.4

0.0-0.1

3.6 — a

0.9

0.0-2.6

9.4-11.3

10.8

3.6-5.3

0,1

— a

1.2

1,5

27.3

3,0-4.1

1,2

13,5

0,0

5.5

$3.7-4.0

1.7

2.9-3.3

2.5-3.7

0.0-0.1

4.0

—a

1.1

0.0-2.9

10,1 -12,1

7.7

3.7-5.4

0.1

—a

1.2

2.0

25.4

3.2-4.4

1.3

10.9

0.0

6.0

$92.3 -102.0$875-97.3

NA NA

NA NA

$3,9-4.2

1.8

NA

N A

NA

NA

—a

NA

0.0-3.1

11.0 -13.0

NA

3.8-5.5

NA

—a

NA

NA

NA

3.4-4.7

NA

NA

0.0

NA

NA

NA

NA

Total foreign-revenues

(billions of dollars) —

1982 —

$3.8-4.4

1.7-2.1

8.8-9.2

2.4-4.6

1.5-2.3

4.8-5,3

0.2-1.0

1.9-3.4

2,6

12,0 -14,8

11,3 -12.3

4.4-5.5

0.1-2.1

5.2

1,7-2.3

3.1

27.3

4.6-5,8

2.3

30.2

15.7

10.2

$156-172

$8.6

$164-180

1983

$3.9-4.5

18-2,2

7.7-81

2.6-4,9

16-2.4

51-5.6

02-1.1

2.1-3.6

2.9

12.8 -15.7

8.7-9.7

4.5-5.6

0,1-2.1

5 2

1.8-2.6

3 9

25,4

5.7-7.0

2.6

28.0

14.1

113

$152-169

$9.4

$161-178

1984

$4.1-4.7

1.9-23

NA

27-51

NA

NA

0.2-12

NA

3.1

13,8 -16.7

NA

46-5.7

NA

55

NA

NA

NA

6,2-7.6

NA

NA

13.7

NA

NA

$12.2

NA
42

Table 6.—OTA Estimates of U.S. Revenues of Foreign Service Firms, 1982.84

Direct imports Affiliate sales

(billions of dollars) (billions of dollars)

1982 1983 1984

--- --- -- 1982 1983 1984

Total U.S. revenues

(billions of dollars)

1982 1983 1984

Accounting. ., . . . . . . . .

Advertising . .. .

Construction . . . . . . .

Data processing ... .

Education . . ., ., ...

Engineering ... . .

Franchising . . . . . .

Health . ,

Information, . . . . . . . .

Insurance ., . . . .

Investment banking/

brokerage . . . . . ...

Leasing .,..., . . . . . . .

Legal . . . . . . . . . . . . .

Licensing . . . . . . . . . .

Management/

consulting .

Motion pictures. . . . . .

Retailing .

Software . . . . . .

Telecommunications . .

Transportation . .

Travel . . . . . . . . . . . . .

Miscellaneous ., . . . . . . .

Subtotal (excluding

a .

— a

$0.0-2.2

0.0-2.0

0.1-0.3

0.1-0.3

—a

—a

0.0-1.0

4.2

0.0-0.5

0.0-1.0

0.0-1.0

0.7

0.0-0.5

01-1.4

—a

0.0-1.7

1.9

17.7

13.7

1.8

banking) . . . . . . . . . $40,3-51,9

Banking. . . . . . . . . . . . . . . . NA

Total . . . . . . . . . . . . NA

aNegl!gible

bData not available but felt to be neghgible

NA == not available.

SOURCE Ch 5 of this report

— a

—a

$0.0-1.7

0.0-2.0

0.1-0.3

0.1-0.3

— a

—a

0.0-1.0

4.5

0.0-0.5

0.0-1.0

0.0-1.0

0.8

0.0-0.5

0.1-1.7

— a

0.0-2.2

2.0

19.1

15.8

1.9

$44.4-56.3

NA

NA

— a

— a

$0.0-2.0

0.0-2.0

0.1-0.3

0.1-0.3 — a

— a

0.0-1,0

4.8

0.0-0.5

0.0-1.0

0.0-10

1.0

0.0-0.5

0.2-2.7

—a

0.0-2.7

2.4

22,8

16,4

2.1

$49.9-63.5

NA

NA

$0.6-0.8

0.2

3.5

0.0-0.2

—a

1,0

—a

NAb

0.0-1.0

16,9-19.0

4.9-6.6

0.2-0.3

— a

. a

~ A b

0.8

31.8

0.0-0,2

0,2

4.8

—a

2,8-3,5

$67.7-73.9

NA

NA

$0.7-0.9

0.2

3.2

0.0-0.2

— a

0.9

—a

0.4

0.0-1.0

14.7-16.5

6.7-8.9

0.2-0.3

—a

— a

0,1

1.0

32.1

0.0-0.2

0.0-0.6

5.1

—a

3.2

$68.5-74.8

NA

NA

$0.8-1.0

NA

NA

NA

NA

NA

— a

NA

0.0-1.0

15.2-20,3

NA

0,2-0,3

NA

—a

0.0-0,5

NA

NA

NA

NA

NA

— a

NA

NA

NA

NA

$0.6-0.8

0.2

3.5-5,7

0.0-2,2

0.1-0.3

1.1-1,3

—a

—a

0.0-2.0

21.2-23.2

4.9-7.1

0.2-1.3

0.0-1.0

0.7

NA

0.9-2.2

31.8

0.0-1.9

2.1

22.5

13.7

4.6-5.3

$108-125

$4.4-13.5

$112-139.-

$0.7-0.9

0.2

3.2-4,9

0.0-2.2

0.1-0.3

1.0-1.2

—a

0.4

0.0-2.0

19.2-21.0

6.7-9.4

0,2-1.3

0.0-1.0

0.8

0.1-0.6

1.1-2.7

32.1

0.0-2.4

2.0-2.6

24.2

15.8

5.1

$113-131

$5.0-15.8

$118-147

$0.8-1.0

NA

NA

NA

NA

NA

—a

NA

0.0-2.0

20.0-25.1

NA

0.2-1.3

NA

1.0

NA

NA

NA

NA

NA

NA

16.4

NA

NA

$6.1-181

NA

cated in the United States came to $60 to $74

billion (excluding banks) in 1982 and $61 to $75

billion in 1983—-less than half of total nonbank

foreign revenues. Sales of foreign affiliates (excluding their sales to the United States) accounted for the remainder. The midrange estimates suggest that direct exports accounted for

about 40 percent of total nonbank foreign revenues in 1982 and 45 percent in 1983. Note,

however, that table 5 overstates by some unknown amount the contribution of foreign affiliates to total foreign revenues because the

data do not, in most cases, permit affiliate sales

to be compiled on an equity-share basis. Table

5 also presents data on banking services, although the share of banking services represented by direct exports as opposed to affiliate

sales cannot be estimated,

In terms of total foreign revenues, the leading U.S. service sectors in 1983 were transportation, retailing, insurance, and travel services,

each generating in excess of $10 billion, Service categories in the $5 to $10 billion range

included commercial banking, investment banking, construction, computer software, licensing, engineering, and leasing,

Table 6 presents the results for the U.S. service revenues of foreign firms. Total revenues

came to $112 to $139 billion in 1982 and $118

to $147 billion in 1983. Midrange estimates

from table 6 indicate that direct imports to the

United States by foreign-owned firms (excluding banks) accounted for roughly 40 percent

of the U.S. non bank service revenues of foreign firms in both 1982 and 1983. Service activ-
Figure 9.— Foreign Revenues in Services, 1982.83

(OTA midrange estimates)

172 170

1982

Year

1983

Foreign revenues U.S. revenues

of U.S. firms of foreign firms

NOTE All estimates rounded to nearest bllllon dollars

SOURCES Foreign revenues of U.S. firms–computed from table 5

U.S. revenues of foreign firms—computed from table 6

i ties which generated $10 billion or more in U.S.

revenues during 1983 included retail trade,

transportation, insurance, and travel services, z

Table 7 gives the ratios of direct exports to

total foreign revenues of U.S. owned and controlled firms for the services covered in this report, based on the midrange estimates of table

5. These ratios illustrate the wide variability

across sectors in the contribution of direct exports to total foreign revenues. The 22 sectors

in table 7 can be divided into three distinct

groups:

2Note that while retailing is a major factor in foreign revenues

of U.S. firms and U.S. revenues of foreign firms, table 4 shows

no import or export activity associated with either While Sales

figures would appear to suggest that retailing is extremely important, such figures reflect the value of goods sold and do not,

even roughly, measure the value-added by the retailer in conn nection with sales, which is likely to be a small fraction of reported revenues. For these reasons, retailing is not really comparable with other service industries and has not been included

in ch. 5.

4 J

Table 7.— Ratio of U.S. Exports to

Total Foreign Revenues,” 1983a

Travel . . . . . . . . . . . . . . . . . . . . . . . .

Franchising . . . . . . . . . . . . . . . . . . . . . . . . .

Licensing . . . . . . . . . . . . . . . . . . . . . .

Education . . . . . . . . . . . . . . . . ...

Legal . . . . . . . . . . . . . . . . . . . . . . . . .

Health . . . . . . . . . ... . . . . . . . . . . . . . . . . . . .

Transportation . . . . . . . . . . . . . . . . . . .

Construction . . . . . . . . . .

Information . . . . . . . . . . . . . . . . . . . . . . . .

Telecommunications . . ... . .,

Motion pictures ... . . . . . . . . . . . . . . .

Miscellaneous . . . . . . . . . . . . . . . . . . . . .

Management/consulting . . ... ... . . .

Software . . . . . . . . . . . . . . . . . . . . .

Engineering . . . . . . . . . . . . . . . . . ., ...

Insurance . . . . . . . . . . . ... ... ., ., . . .

Data processing . . . . . . . . . . . . .

Investment banking/brokerage . . . . .

Advertising . . . . . . . ... ... ... . .

Leasing . . . . . . . . . . . . . . . . . . . . .

Accounting . . . . . . . . . . . . ... . .

Retailing . . . . . . ... ... ... ...

Total . . . . . . . . . . . . . . ... ... . .

Banking . . . . . . ... . . . . —

NA = not available

aBased on midrange estimates of table 5

bDlrec t export totais equal foreign revenue totals by definition

SOURCE Table 5

1.00b

1 00ob

1 00b

0,98

0,95

0.61

0.61

0.61

0,50

0.50

0,50

0,47

0.45

0.40

0.25

0,22

0,17

0.16

0.15

0.14

0.08

.

0.42

NA

1. those for which direct exports accounted

2.

3.

for 95 percent or more of total foreign revenues: travel, franchising, licensing, education, and legal services;

those for which direct exports represented

40 to 60 percent of total foreign revenues:

health, transportation, construction, information, telecommunications, motion

pictures, miscellaneous, consulting, and

computer software; and

those for which direct exports represented

25 percent or less of foreign revenues: engineering, insurance, data processing, investment banking, advertising, leasing, accounting, and retail trade.

Plainly, some U.S. service industries do most

of their overseas business through affiliates that

may contribute little to the U .S, balance of payments and to domestic jobs, while others, those

that export services in substantial volume, contribute much more directly to the Nation’s

economy,
Chapter 5

Individual Sector Summaries
Chapter 5

Individual Sector Summaries

This chapter contains brief summary discussions of the 22 service sectors for which OTA

has estimated trade and foreign revenue figures.

Each sector summary covers:

c domestic industry data, including major

business activities, revenues, employment,

and, where possible, some mention of concentration and the distribution of firms by

size, as well as typical forms of organization;

● difficulties encountered and definitions

employed in measuring international activity in the industry;

● nature of industry practices and industrial

structure internationally, particularly the

respective roles of foreign affiliates and

direct exporting in providing services

overseas;

c estimates of the magnitude of international

trade, using both the geographic (balance

of payments) and ownership (foreign revenues) definitions set out in chapter 2; and

. where possible, information on geographic

patterns of trade.

Sources of data and estimating procedures used

for each of these sectors can be found in a separate publication, “Services in the U.S. Balance

of Payments, 1982-84: Documentation of OTA

Estimates,” July 1986, available from the National Technical Information Service.

The 22 service industries covered below include all those with major balance of payments

impacts, but OTA has not attempted to include

each and every service for which there is some

foreign activity. The extensive U.S. borders

with Canada and Mexico mean, for example,

that almost any service will be traded among

the residents of adjacent communities. Texans

may cross into Mexico if shoe repair or dry

cleaning costs are lower; a caterer in Windsor,

Ontario may do some business on the other side

of the Detroit River. But this kind of trade remains small compared with the industries

treated below.

In one sense, retailing—which has not been

included—seems an exception. Total retailing

revenues are huge, and some U.S. retailers are

foreign-owned. Chains like Benetton have expanded rapidly in the U.S. market, while American firms have likewise moved overseas, But

while foreign revenues are very large, they dramatically overstate the value added by foreignowned retail affiliates. Most of reported revenues simply represent the costs of goods sold.

Furthermore, except for border regions, the retailing service itself will seldom involve exports

and imports. (Retail purchases by international

travelers are counted as part of “Travel.”)

In other cases, identifiable industries have

not been separately treated because they fall

naturally into one or more other classifications.

For instance, many hotel chains maintain a foreign presence primarily through franchises;

rather than covering lodging as a separate industry, these activities have been included in

the section on “Franchising, ” while the lodging expenditures of Americans overseas, or of

foreign visitors in this country, appear in the

“Travel” category. In a few other cases, OTA

has omitted industries because of a total lack

of information or because they are very small

relative to those covered below.

ACCOUNTING

This industry includes firms providing finan- included, as these tend to be an integral part

cial and managerial accounting, auditing serv- of the accounting business rather than indeices, and tax accounting services. Management pendent activities. However, firms that supply

consulting, data processing, and other related these services as a primary business, rather than ,

services supplied by accounting firms are also accounting, are not included in this sector (see

47
48

“Data Processing” and “Management, Consulting, and Public Relations”).

The accounting industry is thoroughly internationalized, but generates little in the way of

exports or imports. American accounting firms

followed their multinational clients overseas,

establishing partnerships and affiliating with

foreign concerns to provide services for subsidiaries of U.S.-based multinational corporations (MNCS). The latter have sought consistent accounting standards across the countries

in which they do business.

Domestic Industry

The 1982 Census of Service Industries reported some 49,OOO U.S. accounting firms, with

revenues totaling $14.6 billion. Domestic revenues for 1983 and 1984 were estimated at $17.4

billion and $19.3 billion, respectively. The 1982

Census of Service Industries reveals that the

“Big Eight” U.S. accounting firms had 28.3 percent of all U.S. industry receipts that year; the

12 largest firms accounted for nearly one-third

of total receipts (32 percent).1 Less than 3 percent of U.S. accounting firms (1414) had revenues of more than $1 million in 1982, and less

than 1 percent (294) had revenues exceeding

$2,5 million.

Based on the 1982 Census, figure 10 indicates

the breakdown of receipts by type of service

for the U.S. industry. The single largest component of revenues consists of billings to clients

for accounting and auditing services. These billings generate perhaps 50 to 75 percent of total

receipts for a Big Eight accounting firm. Other

major business activities include tax accounting services (e.g., consultation and tax preparation, typically 15 to 25 percent of billings for

a Big Eight firm) and management consulting

(typically 10 to 30 percent). For most of the Big

Eight, management consulting or “management advisory services” (MAS) has been the

most rapidly growing line of business in recent

IThe so-called Big Eight firms are Arthur Andersen, Peat Marwick, Ernst & Whinney, Coopers & Lybrand, Price Waterhouse,

Arthur Young, Deloitte Haskins & Sells, and Touche Ross. A ninth

firm, Kleinveld Main Goerdeler, is in this size range but earns

over 80 percent of its revenues outside the United States.

Figure IO.— Receipts of Accounting, Auditing, and

Bookkeeping Firms by Type of Activity, 1982

Tax Other

consulting 2.4%0

5.60/0

Management

advisory A

8.2°/0

Bookkeeping

11.9”/0 }~

preparation \ D

21

tingl

SOURCE: 1982 Census of Service Industries” Miscellaneous Subjects (Washington, DC Department of Commerce, Bureau of the Census, December

1985), p. 140.

years. MAS fees for the Big Eight as a whole

grew an estimated 25 percent between 1984 and

1985, nearly twice as fast as total revenues.z

Larger firms, and particularly the Big Eight,

account for most of the MAS billings.

Only about one-third of U.S. accounting firms

are incorporated, The most common organizational form is the individual proprietorship, representing about 45 percent of all firms. Partnerships are also common, particularly among

the larger regional and national firms,

About 387,000 people worked in the U.S.

accounting industry in 1984, compared with

363,000 in 1983.

Measuring Foreign Activity in

Accounting Services

Foreign billings on a chargeable-hour basis

are the appropriate measure of international

accounting services. None of the Big Eight

firms are publicly owned and therefore none

are subject to Securities and Exchange Commission financial disclosure requirements; data

on industry receipts, particularly foreign billZTotal revenues grew an estimated 12.9 percent. See “Largest

and Smallest Grow Fastest Among the Big Eight, ” Public

Accounting Report, March 1986.
49

ings, are therefore limited. The Bureau of Economic Analysis (BEA) direct investment surveys provide partial data on international

operations of U.S. accounting firms; some companies also publish statements of operating results or disclose information to the trade press.

Structure and Nature of

Industry Practices Internationally

The largest U.S. accounting firms maintain

extensive international operations, primarily

to serve U. S,-based MNCS. These operations

tend to be organized as loose collections of

largely autonomous partnerships. Reasons for

this organizational form include variations in

accounting practices among nations, as well

as trade barriers such as work permit restrictions, visa delays, and difficulty in obtaining

certification for foreign professionals. Even if

the financial linkages are limited, U.S. firms

benefit from their international affiliations because they can offer services ranging from

referrals to standardized worldwide accounting practices to their clients.

In general, host nations have been ready to

accept partnerships involving U.S. accounting

firms. Because accounting is culture-sensitive,

and because regulations, standard practices,

and tax laws differ from country to country,

these branches or partnerships operate with a

good deal of autonomy; rather than close control and day-to-day interaction with the U.S.

parent, communications take place on an asneeded basis. With some exceptions, the pattern is this: the foreign subsidiary of a U. S.-

based MNC purchases accounting services

from the subsidiary of the parent’s accounting

firm. There is little direct involvement by the

U.S. accounting firm except to ensure that its

subsidiary follows proper procedures. Explicit

intra-firm charges for indirect supervision of

this kind would be unusual. Exports of services are negligible; the local accounting partnership hires employees in the host country and

bills the MNC’S local subsidiary. Under such

circumstances, there is little or no international

trade in accounting. profits may or may not

flow to the parent accounting firm.

Variations on this pattern take two common

forms, both leading to exports or imports of

accounting services. First, the foreign partnership might have temporary need of the skills

of employees from the accounting firm’s head

office or from a third country. Should one or

more people be “loaned” to the foreign partnership, international trade in accounting services would follow from intra-firm billing for salaries and related expenses. In the future, such

practices will probably grow, with teams of experts drawn from international accounting

partnerships undertaking specialized work —

e.g., for MNCS diversified across many lines

of business in many parts of the world.

In the second variation, an overseas client

which is the subsidiary of a U.S.-based MNC

may ask that its head office be billed. In that

case, the local accounting partnership would

bill its own parent, which in turn would bill

the MNC; the U.S. balance of payments would

register an export of accounting services,

The foreign accounting firms linked to U.S.

firms as described above may seldom be affiliates in the strict sense of the term—that is, there

may be no equity holdings involved. BEA’s 1982

benchmark survey of direct investment identified only 51 foreign affiliates in accounting,

with 6 U.S. firms accounting for 35 of these

(including nonaccounting affiliates). While

OTA has treated the revenues generated by

these overseas operations as foreign revenues

of U.S. firms, they may in fact have little or no

impact on the balance of payments,

No U.S. accounting affiliates of foreign firms

were reported by the Department of Commerce

over the period 1977-82, and only one affi~iate,

with negligible receipts, in 1983. Foreign accounting firms use networking strategies for

penetrating the U.S. market similar to those of

U.S. firms operating abroad, For example, the

Dutch firm Kleinveld Main Goerdeler (KMG)

earned over 20 percent of its worldwide revenues in the United States during fiscal 1984

through its U.S. arm KMG Main Hurdman.

Similarly, the multinational firm Coopers &

Lybrand was formed in 1957 when the U.K.

firm Coopers merged with Lybrand, a U.S. com-
50

pany. This enabled Coopers to follow Unilever

into the American market, just as it enabled

Lybrand to serve Ford Motor Co, ’s growing

European operations.3

Foreign Revenues in Accounting

The Big Eight accounting firms had an estimated $3.8 billion in non-U. S. billings in 1984,

compared with $3.6 billion in 1983 and $3.5

billion in 1982. Foreign billings accounted for

at least 25 percent of total billings for each of

the Big Eight, and more than 50 percent for four

of these companies. Foreign billings as a percentage of total billings for the Big Eight declined slightly over the 1982-84 period, from

an estimated 44.7 percent in 1982 to 41.4

percent 2 years later, largely because of the

strengthening U.S. dollar over these years.

Smaller accounting firms conduct considerably less international business. A second tier

of U.S. accounting firms includes about a dozen

companies with revenues in the range of $20

million or more. Of these, nine were part of international groups that earned more than half

their fees outside the United States; three were

part of groups earning more than half of their

fees in the United States (including one purely

U.S. operation). If the former are thought of

loosely as foreign firms operating in the U.S.

market and the latter as U.S. firms operating

internationally, then the non-U.S.-based firms

in this second tier had U.S. revenues totaling

$764 million in fiscal 1984, while the U, S.-based

firms generated $117 million in non-U.S. revenues.A While several associations of smaller U.S.

firms have been organized to provide interna-

“’Foreign Attorneys’ Practice in Japan, Other Services Issues

Focus of Chicago Conference, ” International Trade Reporter,

Feb. 12, 1986, p. 222,

qThe second-tier U.S. firms in predominantly non-U. S. groups

are KMG Main Hurdman, Alexander Grant, McGladrey Hendrickson & Pullen, Fox & Co., Seidman & Seidman, Pannell Kerr

Forster, Oppenheim Appel Dixon, Cherry Bekaert & Holland,

and Clifton Gunderson. Laventhol & Horwath and Kenneth

Leventhal belong to networks with large U.S. revenues. The other

top-20 firm in 1984, Moss Adams, is an independent (J. S. firm

with no foreign linkages.

tional services for their clients, these services

consist almost exclusively of referrals and contribute only a negligible amount to earnings.

Table 8 summarizes total estimated foreign revenues of U.S. firms and U.S. revenues of foreign firms for 1982 to 1984.

Balance of Payments in Accounting

Because U.S. accounting firms maintain an

overseas presence primarily through networks

of autonomous partnerships, and to a lesser extent through ownership of foreign accounting

firms, exports of accounting services are small.

Most of the transactions that enter the balance

of payments consist of fees that one firm in the

network charges another—e. g., for consultations, referrals, or “loans” of skilled employees. In the 1982 foreign direct investment (FDI)

survey, for example, the six U.S. accounting

firms with foreign affiliates reported a total of

less than $2OO million in exports of services.

Overall, accounting exports probably do not exceed $500 million annually. Direct U.S. imports

of accounting services are negligible.

Geographic Distribution of International Activity

There is no systematic information on the distribution of accounting activities worldwide by

the international groups of which U.S. accounting firms are part. Figure 11 summarizes the

distribution of chargeable hours in 1985 for the

worldwide operations of one of the largest

American firms.

Table 8.— Foreign Revenues in Accounting Services

(billions of dollars)

1982 1983 1984

Foreign revenues of U.S. fhms:

Direct exports . . . . . . $0.2-0.5 $0.2-0.5 $0.2-0.5

Affiliate sales . . . . . . 3.6-3.9 3.7-4.0 3.9-4.2

$3.8-4.4 $3.9-4.5 $4.1-4.7

U.S. revenues of foreign firms:

Direct imports . . . . . . —a —a

Affiliate sales . . . . . . $0.6-0.8 $0.7-0.9 $0.8-1.0

aNegligible

SOURCE Office of Technology Assessment.
51

Figure 11 .—Geographic Distribution of Chargeable

Hours for a Major U.S. Accounting Firm in 1985

South America

Africa/ 5.5 ”/0

Middle East

Asia

h America

% 0

SOURCE Peat-Marwick lnfernatioflal Annual Review (no date), p 5

ADVERTISING

This industry includes advertising agencies,

media advertising representatives, and firms

involved in related businesses such as outdoor

advertising services. OTA’s estimates of international trade cover only advertising agencies.

Like accounting, advertising is culturesensitive. Advertising services must normally

be provided by people located in the client’s

market; New York copywriters, no matter how

gifted, will not strike the right note for a French

advertising campaign. As a result, the foreign

affiliates of advertising firms — mostly branch

partnerships — operate quite autonomously in

terms of production and billing. An international advertising firm is likely to be little more

than a loose conglomeration of largely independent units, with the most important institutional linkages those through which clients are

steered to affiliates. The net result, once again:

little international trade in advertising. As in

accounting, most exports and imports follow

from the temporary assignment of employees

to affiliated firms, with the affiliate billed for

the services these people provide.

Domestic Industry

According to the most recent Census of Service Industries, gross income (billings net of media time) for the U.S. advertising industry came

to $8,3 billion in 1982, The Department of

Commerce estimates that receipts rose to $8.7

billion in 1983 and $9.9 billion in 1984. According to the Census, advertising agencies accounted for 71 percent of domestic advertising revenues in 1982 ($5.9 billion), with the

remainder attributable to media representatives

and other related services. Of 9,089 domestic

agencies identified in the Census, 88 large firms

accounted for half of all agency revenues in

1982. Commissions on media sales generated

59.4 percent of 1982 agency receipts, while service fees accounted for an additional 20,6 percent. Network TV, the single largest source of

domestic commissions for the major agencies,

accounted for one-third of 1984 billings. Spot

TV placements followed at 21 percent, followed

by magazines and newspapers.

U.S. employment in the advertising industry

came to about 183,000 in 1984.

Measuring Foreign Activity in

Advertising Services

There are two standard measures of activity

in advertising: 1) gross billings; and 2) gross income, or billings net of associated media costs.

Because media costs are typically passed di-
52

rectly through to the advertiser, and do not reflect the value of the service provided by the

agency, income net of media time is the appropriate measure of trade. Gross income for the

20 largest U.S. agencies averaged about 15 percent of gross billings in both the domestic and

foreign markets in 1984 (i.e., media time represented about 85 percent of total billings), although the percentage varies from firm to firm

and among national markets.

Structure and Nature of Industry Practices

Internationally

Of 145 agencies surveyed for foreign earnings by Advertising Age in 1984, 32 reported

non-zero foreign income, including 22 of the

25 largest agencies but only 10 of the next 120;

8 agencies and their subsidiaries accounted for

more than 70 percent of total reported foreign

incomes U.S. agencies operate abroad almost

exclusively through affiliates and joint ventures,

in part because of the culture-sensitive dimensions of advertising, and in part because of government restrictions in some countries. According to the Commerce Department, 20 U.S.

advertising firms reported a total of 182 foreign affiliates (including nonadvertising affiliates) in 1982. Including the affiliates of U.S.

firms not themselves primarily involved in the

advertising business, 177 advertising affiliates

were reported.

While U.S. firms have been pushing notions

of global marketing, designing advertising campaigns to be exported rather than developed

and sold by affiliates abroad, most of the production will remain local, if only because of

language differences. Other market- and culture-specific requirements, coupled with restrictions such as requirements that commercials be filmed locally, will continue to limit

direct exports. The export in a global marketing campaign may then consist solely or primarily of a concept, which is then shaped to

fit the local market.

Foreign advertising agencies seeking to penetrate the highly competitive U.S. market do so

almost exclusively through affiliates and joint

ventures. The Department of Commerce identified nine agencies in 1983 as being affiliates

of foreign firms. Foreign firms also enter the

U.S. market through informal agreements, in

which no equity link exists between participating firms. No data are available on the extent

of such activity, but the direct impact on the

balance of payments is reportedly negligible.

Foreign Revenues in Advertising Services

Table 9 summarizes foreign revenues of the

U.S. advertising industry for 1982 to 1984.

These estimates are based on the direct investment surveys of the Department of Commerce

and annual data reported by the trade publication Advertising Age. A comprehensive estimate of U.S. revenues of foreign firms cannot

be made in the absence of data on joint ventures; table 9 does give sales of U.S. affiliates.

Balance of Payments in Advertising Services

Because most of the overseas business of U.S.

agencies takes place through affiliates and joint

ventures, rather than direct trade, the impact

on the balance of payments is rather limited

(table 9).

Table 9.—Foreign Revenues in Advertising Services

(billions of dollars)

1982 1983 1984

Foreign revenues of U.S. firms:

Direct exports . . . . . . . . . . $0.1-0.5 $0.1-0.5 $0.1-0.5

Affiliate sales . . . . . . . . . . 1.6 1.7 1.8

Majority-owned . . . . 1.4 1.5 NA

Minority-owned . . . . . . . 0.2 0.2 NA

$1.7-2.1 $1.8-2.2 $1.9-2.3

5The eight were Young & Rubicam, Ted Bates Worldwide, U.S. revenues of foreign firms:

Ogilvy & Mather International, ]. Walter Thompson, BBDO Inter- Direct imports . . . . . . . . . . —a —a —a

national, Saatchi & Saatchi Compton Worldwide, McCann- Affiliate saies . . . . . . . . . . 0.2 0.2 NA

Erickson, and SSC&B Lintas Worldwide. All figures exclude data Joint ventures . . . . . . . . . . NA NA NA

on 17 subsidiaries whose income and gross billings are also reaNegl!g!ble.

ported for the parent agency. See “41st Report on U.S. Agen- NA = Not available

cies,” Advertising Age, Mar. 28, 1985, p. 14. SOURCE: Off Ice of Technology Assessment
53

Geographic Distribution of Trade in cent of sales by majority-owned affiliates in adAdvertising Services vertising, U.S. affiliates in other developed

nations accounted for 26 percent, with the reAccording to the 1982 benchmark survey of maining 11 percent the sales of affiliates in dedirect investment abroad, the European affili- veloping countries.

ates of American firms accounted for 63 perCOMMERCIAL BANKING

Banking services fall into two fundamentally

different categories: 1) interest-earning activities, in which a bank receives interest on claims

it holds against its customers; and 2) fee-based

or value-added services (e. g., trust and fiduciary activities, credit cards). Investment banking and other financial services provided by

nonbanking firms—e. g., brokerage services—

are treated elsewhere (see “Investment Banking and Brokerage Services”), But given that

many U.S. banks provide banking services overseas that they are prohibited from offering in

the U.S. market, there will inevitably be some

overlap in estimates of fee-based services between banking and nonbank financial service

firms.

Domestic Industry

As table 10 shows, about 15,000 U.S. commercial banks operated some 57, OOO offices in

1984. (These figures exclude mutual savings

banks, savings and loan associations, and credit

unions, some of which offer products similar

to those of commercial banks.) Insured commercial banks in the United States earned $75.2

billion in net interest income (total interest income net of interest expense) during 1984; other

operating income, including fee-based services,

added another $3o.3 billion. As indicated in figure 12, other operating income increased from

22 percent of total income ($15.7 billion) in 1980

to 29 percent ($30.3 billion) in 1984; net interest income increased by 38 percent (in current

dollars) over this period, while other operating

income nearly doubled. As indicated in figure

13 and table 11, loans represented 56,8 percent

of commercial bank assets; they accounted for

two-thirds of interest-earning assets,

Table 1O.—U.S. Commercial Bank Offices

1982 1983 1984

Number of banks . . . . . . . . . . 15,030 15,050 15,100

Number of banking offices ., . 54,810 55,680 57,010

SOURCE U S Department of Commerce, Internatlonai Trade Admlnistratlon un

publlshed data Onglnal source Federal Deposit Insurance Corpo

ration

Figure 12.— Net Interest Income and Other Operating

Income, U.S. Insured Commercial Banks

60

1

54.6

50

40

30

20

10

0

I—

1980

9.:

—

19.2

1

1981

6.6

1

—

22.0

1

1982

70.9 —

—

25.2

1

1983

75.2 —

—

30.3 —

—

1984

Year

❑Net interest income Other operating income

SOURCE “Profitability of Insured Commercial Banks In 1984, ’ Federal Reserve

Bullet/n, November 1985

The 10 largest banking corporations in the

United States controlled 20.2 percent of total

banking system assets at the end of 1984, a decline from 1982 (21. 7 percent). The share of to-
54

Figure 13.— Distribution of U.S. Banking System

Assets by Type as of Dec. 31, 1984

Nonlearning assets

15.1 “/0

Other

earn i ng

assets

1 0.50/0 Loans

56.80/o

Securities’

17.60/o =

SOURCE “Profltabillty of I lsured Commercial Banks in 1984,” Federal ffeserve

Bu//et/r?, November 1985

Table 11 .—U.S. Banking System Assets by Typea

Percent of average

consolidated assets

Loans. . . . . . . . . . . . . . . . . . . . . . . . . . .

● Commercial and industrial . . . . . . .

● Real estate . . . . . . . . . . . .

c Personal . . . . . . . . . . . . . . . . . . . . . .

● Other . . . . . . . . . . . . . . . . . . . . . . .

Securities . . . . . . . . . . . . . . . . . . . . . . .

● U.S. Government . . . . . . . . . . . .

. Other securities . . . . . . . . . . . .

Other interest-earning assets . . . . . .

● Interest-bearing deposits . . . . . . . .

● Gross Federal funds purchased

and repurchase agreements . . . . .

Noninterest-earning assets . . . . . . . .

aAs of Dec. 31, 1984

NOTE Totals may not add due to rounding.

SOURCE Federal Reserve Elu//et/n, November 1985

56.80/o

22.5

14.8

9.7

9.8

17.6

9.9

7.7

10.5

6.3

4.2

15.1

100.0 ”/0

tal deposits controlled by the top 10 also

dropped somewhat, from 18.4 percent in 1980

to 16.8 percent in 1984.

Figure 14 summarizes the position of the major U.S. banks among the world’s largest banks,

based on the annual survey of the trade publication American Banker. With 117 banks in

the Top 500 the United States had the greatest

representation of any single nation, followed

by Japan with 93 and Germany with 33. Japanese banks, however, controlled more assets—

28.8 percent of the Top 500 total—while U.S.

banks controlled only 17.7 percent of the asFigure 14.— Distribution of Assets Among the

World’s 500 Largest Banksa

United

Kingdom

(20) 5.30/0

France

(20) 7.3%

Italy

(25) 4.90/0 West Germany

(33) 7.50/0

aNumber of banks I n parentheses

SOURCE “Annual Survey of the World’s Largest Banks, ” Arnemarr Banker, July

1985

sets of the Top 500. West German and French

banks trailed well behind,

Over the years 1982 to 1984, U.S. employment

in the commercial banking industry remained

essentially unchanged, at roughly 1.5 million

people.

Measuring Foreign Activity in Banking

Of the two broad categories of banking services, interest-earning activities can be measured

on a gross or net basis, For reasons discussed

in chapter 4, the net interest margin is appropriate for comparisons with other service industries. OTA thus defines the value of the

banking service in terms of the net interest

margin—that is, the difference between gross

interest earned on assets and gross interest paid

on the liabilities corresponding to those assets.

Thus foreign revenues on interest-bearing activities are presented below net of the cost of

money, but not net of other costs of doing business (e.g., labor costs),

To capture all banking services, the entire

earning portfolio of the bank must be considered, not just loans. This is because the service

function which the bank provides through its

earning assets is intermediation, or matching

sources of funds with need for funds, and accepting the associated risks. While loans will

predominate on the balance sheet, any asset on
55

which the bank earns returns is similar conceptually. (Banks are not the only enterprises

which perform such functions, of course. The

portfolio and FDI receipts of nonbank firms and

individuals also represent a form of international intermediation. Arguably, these flows

could be viewed as banking services performed

by nonbanks. By convention, these items appear in the balance of payments as separate

items—i.e., portfolio or direct investment—

aggregated across the industries in which they

occur. )

Fee-based commercial banking services include letters of credit, deposit services, foreign

exchange trading, trust and fiduciary activity,

mortgage servicing, credit and charge card

operations, business services, and other miscellaneous fees and commissions. In most

cases, fee-based services cannot be separated

from other sources of noninterest income (such

as the sale of assets or various extraordinary

items); thus OTA’s estimates for income other

than interest income represent an upper bound

on income from fee-based activities.

Perhaps the greatest difficulty in measuring

the foreign revenues of banks, and the consequent impact of banking on the balance of payments, is that there may be little or no correlation between where banking activity is booked

and where the activity actually takes place. For

example, a European-owned bank may operate

a Cayman Islands office to handle some of its

American business, in which case the assets

dedicated to this business would not appear as

assets held by a U.S. office of a foreign bank.

Thus, while it is possible to draw a quantitative picture of international banking in an

accounting sense, such a picture may not be

fully representative of international business

activity in banking.

Structure and Nature of

Industry Practices Internationally

U.S. banks operating internationally can

choose from a broad range of organizational

forms, An International Banking Facility (IBF)

is a banking unit physically located in the

United States but permitted to conduct certain

international activities free from domestic reserve requirements, (IBF’s may lend and borrow in any currency, but may not issue negotiable certificates of deposit, bankers’ acceptances,

or other bearer instruments. They may accept

interbank offshore deposits without restriction

as to maturity or size. However, deposits from

nonbank customers must originate outside the

United States, must have a maturity of two business days or more and be valued at $100,000

or more.) Another form of domestic subsidiary,

the Edge Act corporation, allows American

banks to take deposits and make loans across

State lines if related to international banking

transactions.

To do business “on the ground” in foreign

countries, U.S. banks may work through representative offices, shell branches, or full

branches—all of which are legal extensions of

the U.S. parent. Alternatively, they can establish affiliates, subsidiaries, or consortia as separate legal entities, A representative office is

limited to providing liaison, customersolicitation, and information services for the

parent. Agencies may also make loans and take

foreign deposits. Shell branches are booking

offices located in foreign countries; they do not

administer the business carried on their books

and have no contact with the local market, The

most common foreign presence is the full

branch, which may make loans and take deposits and will typically be backed by the larger

capital base of the parent. A banking affiliate

is a foreign bank in which the U.S. parent holds

a minority ownership share; with more than

50 percent ownership the foreign bank becomes

a subsidiary. b In some cases, affiliates or subsidiaries offer U.S. banks less freedom of action than branches, but many foreign government regulations require or encourage them—

e.g., by restricting branches and agencies more

than affiliates and subsidiaries. Finally, banks

may also enter into consortia, in which several

banks—generally all holding minority shares—

pool resources.

6 In some of the data presented below for subsidiaries, the figures

i include data for affiliates with ownership shares of 25 to 50 percent because the Federal Reser\’e Board makes no distinction

between subsidiaries and affiliates with a [ 1.S. oti’nership sha r[I

of 25 ~)ercent or more.
56

By the end of 1984, 163 U.S. banks were operating 905 foreign branches, 523 IBFs, and 146

Edge Act corporations with 138 branches. The

most recent comprehensive data on foreign affiliates and subsidiaries of U.S. banks comes

from the 1982 FDI benchmark survey. This indicates that 133 U.S. banks had foreign affiliates and subsidiaries, including those with nonbank affiliates and subsidiaries. In all, U.S. interests controlled 882 foreign banks at the 10

percent equity level or greater.

Foreign banks seeking to do business here

face the same basic organizational alternatives;

table 12 summarizes the distribution of total

assets by organizational type for foreign banks

in the United States as of the end of 1984. Figure 15 gives the breakdown of U.S. assets of

foreign banks’ American offices by nationalTable 12.—Foreign Banks in the United States

by Organizational Forma

Assets

Number (billion dollars)

Branches . . . . . . . . . . . . . . . . . . 305 $215.3

Agencies . . . . . . . . . . . . . . . . . . 176 56.6

Subsidiaries b . . . . . . . . . . . . . . . 66 105.6

Edge Act corporations . . . . . . . 39 0.9

Investment companies, . . . . . . 10 Not available

596 Not available

aAs of December 1984.

bsubsidiaries include all U S. banks owned greater than 25 percent by forei9n

banks.

SOURCE’ Federal Reserve Board, unpublished data.

ity of the parent bank, while table 13 lists the

largest foreign owned or controlled U.S. banks.

Foreign Revenues in Commercial

Banking Services

Table 14 gives OTA’s estimates for foreign

revenues of U.S. banks and U.S. revenues of

foreign banks. These estimates include banking services provided to non-U.S, customers (including the overseas affiliates of U.S. multinational corporations), both foreign operations of

U.S. banks and international banking activities

Figure 15.—Assets of U.S. Offices of Foreign Banks

as of Dec. 31, 1984 (billions of dollars)

Other

$62.6 (16.6°/0)

Switzerland

$15.3 (4.0% )

Hong Kong

$17.3 (4.6°/0)

France

$18.3 (4.8°/0)

Italy

$23.9 (6.3°/0)

Canada

$38,1 (10.1 0/0) United Kingdom

$51.4 (13.6°/0)

SOURCE, Federal Reserve Board, unpublished data

Table 13.—Foreign-Owned U.S. Banks Ranked by Sizea

Assets

(billions of dollars) Parent Nationality of parent

Crocker National Bank . . . . . . . . . . . . . . . . .

Marine Midland Bank. . . . . . . . . . . . . . . . . . .

Union Bank . . . . . . . . . . . . . . . . . . . . . . . . . . .

National Westminster Bank . . . . . . . . . . . . .

Harris Trust and Savings Bank . . . . . . . . . .

European American Bank . . . . . . . . . . . . . . .

California First Bank . . . . . . . . . . . . . . . . . . .

First National Bank of Maryland . . . . . . . . .

Bank of Tokyo Trust . . . . . . . . . . . . . . . . . . .

Lloyds Bank of California . . . . . . . . . . . . . . .

Bank of California . . . . . . . . . . . . . . . . . . . . .

Sumitomo Bank of California. . . . . . . . . . . .

$17.5

15.4

7.8

7.1

6.3

5.7

4.6

3.4

2.9

2.7

2.7

2.5

Midland Bank plcb

Hongkong & Shanghai

Standard-Chartered Group

National Westminster Bank

Bank of Montreal

European-American Group

Bank of Tokyo

Allied Irish Banks

Bank of Tokyo

Lloyds Group

Mitsubishi Bank

Sumitomo Bank

United Kingdom

Hong Kong

United Kingdom

United Kingdom

Canada

—c

Japan

Ireland

Japan

United Kingdom

Japan

Japan

aAs of Dec. 31, 1984.

bcrocker was subsequently purchased by wells Fargo.

C E uropean .A mer i can Group is a conso~lum of EUrOpean banks; shareholders include AMSterdanl.ROtterdaM Bank N .V. (The Netherlands), Creditanstalt-Ban kverei n

(Austria), Deutsche Bank AG (Federal Republic of Germany), Midland Bank plc (United Kingdom), Socibte Generaie de Banque S.A. (Belgium) and Soci6t6 G6n6rale (France)

SOURCES Federal Reserve Board, unpublished data, annual reports
57

Table 14.— Foreign Revenues in Commercial Banking Services (billions of dollars)

—

1982 1983 1984

Foreign revenues of U.S. banks:

Net interest income . . . . . . . . . . . . . . . . . . . . . . $5.8 $6.4 $8.5

Booked in U.S. (excluding IBFsa) . . . . . . . . . NA NA 1.7

Booked in U.S. (IBFs only) . . . . . . . . . . . . . . . NA NA 3.8

Booked in foreign offices. . . . . . . . . . . . . . . . NA NA 3.0

Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8 3.0 3.7

Booked in U.S. (excluding IBFs) . . . . . . . . . . NA NA 1,0

Booked in foreign offices and U.S. IBFs . . . NA NA 2.7

$8.6 $9.4 $12.2

U.S. revenues of foreign banks:

Booked in foreign banks

Net interest income . . . . . . . . . . . . . . . . . . . . $1.1- 2.7 $1.4- 3,6 $1.7- 4.3

Noninterest income. . . . . . . . . . . . . . . . . . . . . 0.0- 2.0 0.0- 2.0 0.0- 2.0

Booked in U.S. offices . . . . . . . . . . . . . . . . . . . . 3,3- 8.8 3.6-10.2 4,4-11.8

$4.4 -13.5 $5.0 -15.8 $6.1 -18.1

alnternatlonal Bank!ng Facillty

NA = Not available

NOTES Totals may not add due to rounding For foreign revenues of U S banks, “booked In fore!gn offices” Includes fore{gn

branches, agencies, and other offices, foreign subsidiaries (25 percent or greater U S ownership), and U S Edge and

Agreement subsldlanes Actlvttles of foreign affiliates of less than 25 percent U S ownership are not Included.

SOURCE Off Ice of Technology Assessment

carried out from the United States. According

to the table, foreign revenues of U.S. commercial banks (defined to include net interest income and gross noninterest income) came to

$12,2 billion in 1984, with net interest income

representing $8,5 billion and other income an

additional $3.7 billion. Foreign revenues inc-eased nearly 30 percent from 1983 to 1984,

after rising about 9 percent from 1982 to 1983,

The share of total foreign revenues represented by affiliate sales cannot be calculated,

as subtotals for affiliates and subsidiaries

abroad cannot be separated from the totals reported for all foreign offices. The data indicate

that 64 percent of net interest income was

booked in IBFs and other U.S. offices, with the

remainder booked at foreign offices and foreign subsidiaries.7

There are no comprehensive earnings data

for foreign banks in the United States. OTA has

based the lower bound estimate in table 14 on

the reported earnings of major foreign-owned

U.S. banks, as well as a “low-profitability” assumption for U.S. branches and agencies of for7N0 similar booking distribution for non interest income (: an

be calculated, because the noninterest income of CJ. S, IBF~ is

in[; ]udecl with the data for foreign offices. U ,S, offices exclud -

Inx 1 H Fs ac(, ounted for 26 percent of noninterest income att ributahle to international operations.

eign banks, The upper bound assumes that foreign banks in the United States earn profits

equaling the average for all U.S. banking (a

“high-profitability” assumption).

Balance of Payments in Commercial

Banking Services

Receipts for banking services enter the balance of payments under “Receipts of income

on U.S. assets abroad. ” The “Other private

receipts and payments” category includes banking services along with all interest and dividends on foreign securities and earnings from

claims on foreigners by nonbank entities in the

United States (ranging from individual holdings of stock to the overseas deposits of U.S.

corporations). Banking payments, likewise, fall

into the much broader category “payments of

income on foreign assets in the United States. ”

BEA does not release separate estimates of the

share of “Other private receipts and payments”

attributable to banking, However, after consultations with BEA staff and an analysis of statistics on international claims and liabilities

published by the U.S. Department of the Treasury, OTA estimates that the net effect of banking as reflected in the official balance of payments was probably in the range of a $16 to

$21 billion surplus over the years 1982 to 1984–
58

closer to the high end at the beginning of the

period, closer to the low end at the close. (Note

that this reflects the impact of gross interest

receipts and payments, as well non-interest

receipts and payments. As discussed earlier,

OTA’s definition of banking services elsewhere

in this report has been based on net interest

income; thus the data on direct exports of interest-earning services in table 14 do not reflect

the full impact on the balance of payments.) The

overall surplus in the “Other private receipts

and payments” account, of which banking represents the lion’s share, declined from $23.4 billion in 1982 to $20.8 billion in 1984, with estimates for 1985 showing a further drop to $14.4

billion.

How accurate are BEA’s figures? This is difficult to judge, for two reasons. First, there are

almost no data on direct imports of fee-based

(i.e. noninterest) banking services from the

home offices of foreign banks. If the ratio of

interest to noninterest income for foreign

banks’ U.S. activities were the same as for U.S.

banks’ overseas activities, then direct fee-based

banking service imports could have been as

much as $2 billion by 1984, much of which is

probably not reflected in BEA’s estimates. The

second difficulty follows from a lack of information on typical yields for foreign banks’

interest-bearing activities in the United States.

Estimates of interest earnings must be based

on knowledge of the level of claims on U.S. residents by foreign banks, coupled with the best

available evidence on yields. But the ratio of

estimated U.S. banking receipts to U.S. bank

claims on foreigners implicit in B EA’s estimates

does not equal the ratio of estimated U.S. banking payments to U.S. liabilities to foreign banks,

implying different aggregate interest rates on

the import and export sides. If the same ratio

had been used for payments as for receipts,

gross U.S. payments to foreign banks for

interest-earning activities would have differed

from the estimated figure by some $4 billion.

Because of differences in risk, portfolio composition, maturities, and future expectations

concerning exchange rates, there is no reason

to anticipate that the rates would be identical

or even similar. However, this example does

illustrate the considerable level of uncertainty

associated with estimating revenues by applying assumed interest rates to estimates of the

level of claims and liabilities.

Nonetheless, a clear conclusion can be drawn

for this sector: the balance of gross banking

receipts and payments represents a substantial,

if declining, U.S. surplus. At the same time, the

official balance of payments figures may be in

error by several billion dollars because of the

lack of information on foreign banks’ U.S. earnings for both interest-earning and fee-based

services.

CONSTRUCTION

General contracting firms, heavy construction contractors, and a variety of specialized

companies populate the construction industry.

Management services supplied by construction

firms are also included here, with construction

management by firms primarily engaged in

engineering and architecture covered in the

“Engineering, Architecture, and Surveying”

section.

Domestic Industry

The U.S. construction industry is a huge one,

with the value of new construction in 1984

placed at $313 billion and the total for 1985 estimated to be $343 billion. The most recent

Census of Construction Industries identified

almost 1.4 million construction establishments

in 1982, including subdividers and developers.

Of these, 71 percent were individual proprietorships. Slightly over 4,OOO establishments had

receipts of $10 million or more; they represented less than 1 percent of all establishments

in the industry, but as a group accounted for

36 percent of total industry revenues. According to the 1982 Census, builders accounted for

the largest component of industry receipts, 36

percent, followed by heavy construction at 20

percent. Figure 16 shows 1985 new construction by type; private residential construction
59

Figure 16.— New U.S. Construction, 1985

(percent by value of total) (billions of dollars)

Other public

$42.4 (12.4%)

New housing u

Highways $1134 (33 1 0

0

)

and streets

$199 (5 8% )

Other private

non restdential

$560 (16.5%)

other Commercial

$286 (8 4“ O)

$348 (10.2%)

Off Ice Industrial

nits

$314 $15.8

(9.2% ) (4 6° o)

TOTAL $342.4 billion

NOTE Totals may not add due to rounding

SOURCE “Annual Value of New Construct Ion Put In Place In the United States

I n Current Dollars and 1977 Dol tars, ” U S Department of Commerce

News Apr 1, 1986

represents 43 percent of the total, other private

construction 39 percent, and public construction 18 percent.

As might be expected, the industry employs

a large number of Americans: roughly 4.3 million in 1984.

Measuring Foreign Activity in Construction

Because many large projects take several

years to complete, international construction

contracting can be measured in several ways:

new contract awards on an annual basis; gross

foreign receipts, which reflect total payments

for work performed; or net foreign receipts,

payments net of foreign expenses (and excluding associated merchandise exports). The bulk

of the subcontracts on most international

projects go to local firms; here it seems appropriate to treat the subcontracts as domestic services provided by the local firms to the ultimate

purchaser of the construction services. Thus

gross receipts net of local subcontracting and

other foreign expenses would be the ideal measure of international value-added in construction. (Alternatively, gross foreign receipts could

be taken as the measure of construction exports

and subcontracting an imported service. This

would generate the same total estimate for net

exports, while significantly increasing the

figures for exports and imports,) In practice,

however, such data are not available; instead,

net receipts must be used. This is not a major

drawback, because subcontracting is the largest

single component of foreign expenses—thus net

foreign receipts are a reasonable approximation of gross foreign receipts net of subcontracting.

Structure and Nature of Industry

Practices Internationally

Construction firms may export services

directly, either through the parent firm or

through a domestic subsidiary established expressly for international operations. They also

operate internationally through foreign affiliates, The preferred method will depend on the

location, nature, and duration of the project.

In some cases, international contractors employ

both foreign affiliates and direct contracting

on the same project, Joint ventures involving

two or more firms—perhaps with headquarters

in different countries—provide another mechanism. Sometimes parent firms enter into joint

ventures with their own overseas affiliates.

While most joint venture agreements are negotiated prior to submitting a bid on a project,

they can also be formed after bid approval. Joint

ventures spread risks among the participants.

They may also help in putting together an

attractive bid package, if the participating

firms bring complementary strengths (technical, managerial, financial) to the venture. Needless to say, a joint venture with a host country

firm can also help to win contracts, particularly from foreign governments.

Foreign Revenues in Construction Services

Table 15 summarizes OTA’s estimates of foreign revenues in construction services, indicating that 60 to 65 percent of foreign receipts (after netting out foreign subcontracting expenses)

result from direct exports of construction services from the United States, with overseas affiliates accounting for the remainder of foreign

revenues,
60

Table 15.—Foreign Revenues in Construction Services (billions of dollars)

1982 1983 1984

Foreign revenues of U.S. firms:

Direct exports. . . . . . . . . . . . . . . . . . . . . . . . . . . . $5.6 $4.8 $4.0-6.0

Affiliate sales: gross total . . . . . . . . . . . . . . . . . $13.8 $13.4 NA

Majority-owned . . . . . . . . . . . . . . . . . . . . . . 12.2 11.8 NA

Minority-owned. . . . . . . . . . . . . . . . . . . . . . . 1.6 1.6 NA

Net of foreign subcontracting . . . . . . . . . . . . 3.2-3.6 2.9-3.3 NA

$8.8-9.2 $7.7-8.1

U.S. revenues of foreign firms:

Direct imports . . . . . . . . . . . . . . . . . . . . . . . . . . $0.0-2.2 $0.0-1.7 $0.0-2.0

Affiliate sales: gross total . . . . . . . . . . . . . . . . . $7.5 $6.9 NA

Net of U.S. subcontracting . . . . . . . . . . . . . . 3.5 3.2 NA

$3.5-5.7 $3.2-4.9

NA = not available

NOTES Totals may not add due to rounding Direct exports are net of subcontracting with U S firms Direct Imports are net

of subcontracting wtth foreign firms.

SOURCE Off Ice of Technology Assessment

Balance of Payments in Construction Services

Because the share of foreign firms’ U.S. earnings that represent U.S. imports of construction services—as opposed to sales through U.S.

affiliates—is unknown, the balance of payments

in construction cannot be estimated with great

accuracy. The data in table 15 suggest, however, a U.S. surplus in the range of $3 to $5 billion annually for both 1982 and 1983. For this

industry, a best estimate would be somewhat

below the middle of the range; this would still

be a considerably greater surplus than shown

in the official balance of payments figures ($1.8

billion for 1982, and $1.1 billion for 1983, including design services in addition to construction). As table 15 indicates, both U.S. firms operating abroad and foreign firms operating in the

American market saw a drop in international

revenues for direct trade as well as affiliate sales

in 1983 relative to 1982.

Geographic Distribution of International

Construction Activity

Figure 17 and table 16 summarize the geographic distribution of U.S. foreign contract

awards as reported to the trade publication

Engineering News Record by the 400 largest

U.S. construction contractors (the geographic

breakdowns for 1984 and 1985 are incomplete).

The Middle East remained the largest single

source of new awards over the period 1979-85,

although its share fell below 27 percent in 1985

Figure 17.— Foreign Contract Awards of Major

U.S. Construction Firms

1981 1982 1983

Year Distribution

1984 1985

not available

❑ L. America Canada/other

Europe Far East Middle East

SOURCE Engineering News Record (various issues)

after peaking at 43 percent in 1983. Awards in

Africa and Latin America have also fallen,

while Asia’s share increased from 14 percent

in 1979 to 27 percent in 1985,
61

Table 16.— New Foreign Contract Awards of

U.S. Construction Firms (billions of dollars)

1981 1982 1983 1984 1985

Africa . . . . . . . . . ..$ 2.5 $ 2.9 $ 2.5 NA NA

Latin America . . . . . 10.3 4.5 1.7 NA NA

Canada and other . 5.4 3.7 3.2 NA NA

Europe . . . . . . . . . . 7.5 6.9 4.7 $ 5.5 NA

Far East . . . . . . . . . . 10.3 8.9 4.9 8.8 $ 7.8

Middle East, . . . . . 12.8 18.4 12.8 10,8 7.8

$48.8 $45.3 $29.8 $30.9 $29.0

NA = not available

SOURCE Eng/neer/ng News Record, var!ous Issues

Table 17 gives the estimated geographic distribution of U.S. foreign revenues for 1982, the

most recent year for which geographic data on

both exports and affiliate sales are available.

These data suggest that the bulk of exported

construction services go to the developing

world, with affiliate sales more evenly distributed between developed and developing nations, (Care must be exercised in interpreting

these data, as the direct export figures are based

on voluntary responses of firms to the Department of Commerce. )

Table 17.—U.S. International Construction Activity

by Region, 1982

Developed nations:

Canada . . . . . . . . . . . . . . . . .

Europe. . . . . . . . . . . . . . . . . .

Japan. . . . . . . . . . . . . . . . . . .

ANZSAa 

. . . . . . . . . . . . . . . . .

Subtotal . . . . . . . . . . . . . .

Developing nations:

Latin America. . . . . . . . . . . .

Africa. . . . . . . . . . . . . . . . . . .

Middle East . . . . . . . . . . . . .

Asia Pacific . . . . . . . . . . . . .

Unallocated . . . . . . . . . . . . .

Subtotal . . . . . . . . . . . . . .

Data processing (DP) services include batch

and remote computing services, facilities management, and system integration services. Services range from complete handling of payroll

or accounting functions for business clients to

simple data entry or making DP equipment

available on an hourly or time-sharing basis.

This industry does not include electronic information and databases services (see “Information Services”); OTA has also treated software, both packaged and custom, as a separate

industry (see “Computer Software”).

Domestic Industry

The Computer Software and Services Industry Association (which has retained the

ADAPSO acronym since changing its name)

puts 1985 revenues of the DP services industry

at roughly $15 billion. Using a slightly more

restrictive definition of the industry, the Census

Bureau estimates total receipts at $11.6 billion

in 1984, and $10.3 billion in 1983.

Net direct Sales of

exports affiIiates

4.0 ”/0

10.0

2.5

3.3

19,80/o

7.9 ”/0

NA

NA

NA

72.2

80.1 0/0

100.0 ”/0

15.1 %

16.6

—

10.7

42.40/o

11 .9%

1,5

34.8

NA

9.4

57.60/o

100.0 ”/0

aAu~traila, New Zealand, and South Africa

NA = Not available,

NOTES” Totals may not add due to round!ng Affillate sales are for affiliates of

construction parents, Including nonconstructlon affi Ilates Dtrect export

esttmates include other technical services

SOURCES Direct exports -Serv/ce Transacf/ons (n the # S /n fernat/ona/ Ac

counts, 1977.1983 (Wash i ngton, DC U S Department of Corn merce,

Bureau of Economic Analysls, no date), affiliate sales—U S Dfrect

/nvestrnenf Abroad” 1982 Benchmark Survey Data (Washington, DC

U S Department of Commerce, Bureau of Economic Analysls, Decem.

ber 1985)

DATA PROCESSING

The 1982 Census of Service Industries reports

about 5,100 DP service firms, most small, and

a total of 6,700 establishments. The 15 largest

firms, each with receipts of $100 million or

more, accounted for 37 percent of industry

sales. In all, 116 firms—2.3 percent—had receipts in excess of $10 million, and two-thirds

of industry sales.

U.S. DP establishments employed about

249,000 people in 1984 (many more people, of

course, work in the DP departments of firms

in other industries).

Measuring Foreign Activity in

Data Processing Services

A number of the larger DP services suppliers

are divisions of firms that do most of their business in other industries (e. g., Boeing Computer
62

Services, hardware manufacturers like Control

Data), SIC-based surveys of international

operations—such as the voluntary report of

technical service exports filed with the Department of Commerce, or the international section of the 1982 Census of Service Industries

survey form on Computer and Data Processing Services—do not capture the DP receipts

of these firms. Some of the DP revenues of firms

classed in other industries appear with figures

for other industry groups—e.g., international

data processing fees collected by banks. Others

do not.

Structure and Nature of Industry

Practices Internationally

Of the 6,700 DP services establishments identified by the 1982 Census, only 173—mostly

from among the larger—reported revenues from

nonresidents of the United States, i.e., direct

exports of DP services. Not all provided an estimate of nonresident receipts; of those that did,

export sales averaged 6.2 percent of total

receipts. ADAPSO’S 1983 annual survey arrived

at similar figures, indicating an 8 percent export share, while a study by Price Waterhouse

placed exports at 7 percent of industry receipts

for 1982.

In addition to direct exports of their services,

U.S. DP firms supply services internationally

through foreign subsidiaries and affiliates. The

1982 benchmark survey of direct investment

abroad identified 16 firms in the category of

“computer and data processing services”

(which includes software firms and is therefore

broader than the DP services industry) with a

total of 55 overseas subsidiaries and affiliates.

Adding the affiliates of U.S. firms whose primary business places them in another industry brings the number to 97, with total 1982 sales

of nearly $2.8 billion.

While no data on direct imports of DP services are collected, given the size of the U.S. market and the relative weakness of foreign industries, it seems unlikely that imported services

could be of great significance. Foreign firms

have also invested in U.S.-based DP companies.

The annual survey of inward FDI includes a

category “computer and data processing services, ” again including software, with a total of

11 affiliates reported in 1983; their sales totaled

$190 million.

Foreign Revenues in Data Processing Services

Table 18 summarizes OTA’s estimates of U.S.

foreign revenues, as well as U.S. revenues of

foreign firms. The lower bound on the direct

export figure is based on the reported export

sales of U.S. DP firms in the 1982 Census of

Service Industries. The upper bound reflects

an estimate for DP exports of non-DP firms as

well; thus a best estimate probably lies closer

to the upper bound. The figures for affiliate

sales necessarily include some software revenues, As table 18 indicates, affiliates with parents in some industry other than computer and

data processing services account for the bulk

of affiliate sales.

Balance of Payments in Data Processing

Services

Given the absence of data on imports, OTA

could not calculate a balance of payments figure for DP services. It seems unlikely, however,

that the balance would exceed a surplus (or deficit) in the range of $1 billion annually.

Table 18.—Foreign Revenues in Data Processing

Services (billions of dollars)

1982 1983 1984

Foreign revenues of U.S. firms:

Direct exports . . ... ... ... .$0.1-1.2

Affiliate sales . . . . . . . . . . . . . . 0.2-0.8

Majority-owned . . . . . . . . . . . NA

Minority-owned . . . . . . . . . . . NA

Noncomputer service

affiliates . . . . . . . . . . . . . . . . 2.1-2.6

$2.4-4.6

U.S. revenues of foreign firms:

Direct imports ... , ... ... ... .$0.0-2.0

Affiliate sales . . . . . . . . . . . . . . 0.0-0.2

0.0-2.2

$0.1-1.2

0.2-0.8

NA

NA

2.3-2.9

$2.6-4.9

$0.0-2.0

0,0-0.2

0.0-2.2

$0.1-1.2

0.2-0,8

NA

NA

2.4-3.1

$2.7-5.1

$0.0-2.0

NA

NA = not available,

a

lncludes software and data processing sales of noncomputer service affiliates

SOURCE Off Ice of Technology Assessment
63

Geographic Distribution of International Activity in Western Europe, and the major European

countries probably still account for most U.S.

Although there are no geographic data on the exports and affiliate sales.

overseas DP businesses of U.S. firms, most of

the earlier foreign affiliates were established

EDUCATIONAL SERVICES

Education, largely a public sector responsibility in the United States, and even more so

in most other countries, hardly constitutes an

industry in the conventional sense, Yet trade

takes place, notably when foreign nationals

come to the United States to attend school or

college, and when Americans study abroad. Exports of management services in education and

investment in foreign firms providing education also generate foreign revenues, but employee

training programs are not included in this industry (see “Miscellaneous Services”).

Domestic Industry

The United States spent some $245 billion on

education during the 1984-85 academic year,

with the figures for 1983-84 and 1982-83 totaling

$229 billion and $212 billion, respectively. Elementary and secondary schools account for

about 60 percent of the total, higher education

the rest. Public spending represented 82 percent of the 1984-85 total, with the remainder

going to private schools, colleges, and other institutions. U.S. educational institutions at all

levels enrolled about 57 million students in the

fall of 1985, including 12.2 million college and

university students.

Public elementary and secondary schools employed 2.2 million teachers in 1982, and public and private colleges and universities another

0.9 million.

Measuring Foreign Activity in

Educational Services

Most foreign study takes place at college and

graduate school levels. When foreigners study

in the United States or Americans go abroad,

their total expenditures, including tuition,

room, board, entertainment, and local travel—

but excluding expenditures funded by U.S.

sources, such as scholarships or local employment—determine the level of trade, Given that

students also fall within the definition of international travelers, some student expenditures

will be mirrored in the travel surveys used to

generate estimates for that sector. The fraction

of student expenditures included in the travel

surveys appears to be small, however, Perhaps

15 to 30 percent of foreign student expenditures

other than tuition show up in these surveys. B

Because some of the funding for foreign students comes from U.S. sources, the estimates

for trade in educational services must be adjusted by subtracting out the purely domestic

expenditures. However, estimates by the Institute for International Education for 1982-84 indicate that 82 to 84 percent of foreign students

in the United States were supported primarily

by foreign funds, with most of the money coming from families or the home country government.

Structure and Nature of Industry Practices

Internationally

Attracted by the reputation for excellence of

American higher education, the number of foreign students attending colleges and universities here far exceeds the number of Americans

abroad. About 34,OOO foreign students were enrolled in the United States in the 1954-55 acaBTravel surveys by the U.S. Tratrel a n d Tourism Ad m 1 n i st ration indicate that about 4 percent of thf’ all nonresidents tra\cling to the United States do so for educatlona] purposes, Spending by these travelers cannot be isolated, but if they corresponded

to the average for all trips the resulting expenditures included

in the travel account would be in the range of $0.4 to $0.6 billion

annuallj’. Because foreign students stay in the United States much

longer than the average tra~’eler, this is no doubt considerahl~’

belo~ the total estimated expen(iitures of foreign students in

the United States, as giken below’,
64

demic year; by 1984-85, the number had risen

to nearly 350,000. An influx of students from

oil-exporting nations in the Middle East spurred

especially rapid growth during the mid-to-late

1970s. Since the early 1980s, the rate of increase

has dropped to less than 1 percent annually,

While the numbers of U.S. students abroad are

not known as precisely, the United Nations

Educational, Scientific, and Cultural Organization (UNESCO) estimated that nearly 24,000

Americans attended institutions in the 44 leading host countries for foreign students in 1981,

Other forms of trade in educational services

have been small, The Department of Commerce

has added a category for foreign investment in

educational services to its benchmark and annual FDI surveys in both inbound and outbound

directions. For 1982 and 1983, the foreign

educational affiliates of U.S. firms had receipts

in the range of $100 million or less, No U.S.

educational affiliates of foreign firms were reported in 1983, the first year for which such

questions were included.

Foreign Revenues in Educational Services

Table 19 summarizes estimated foreign revenues in educational services for 1982-84. The

United States has maintained a large and growing surplus in this account, not only because

Table 19.—Foreign Revenues in Educational Services

(billions of dollars)

1982a 1983a 1984a

Foreign students’ U.S. expenditures:

Tuition paid by foreign

sources . . . . . . . . . . . . . . . . $0.6 $0.6

Other expensesb . . . . . . . . . . 0.9-1.6 1.0-1.7

Affiliate sales . . . . . . . . . . . . . . 0.0-0.1 0.0-0.1

$1.5-2.3 $1.6-2.4

U.S. students’ foreign

expenditures b

. . . . . . . . . . . . .$0.1 -0.3 $0.1 -0.3

Affiliate sales . . . . . . . . . . . . . . — —

$0.1-0.3 $0,1-0.3

tiACademic year be9inn in9

bEXCIUdeS estlrnateci expenditures covered in trawl account

NA = Not available

SOURCE Off Ice of Technology Assessment

$0.7

1.1-1.8

NA

NA

$0.1-0.3

NA

of the large numbers of foreign students who

come here but because tuition and living expenses in the United States generally exceed

those for Americans studying abroad. Except

for the quite small receipts of overseas educational affiliates of U.S. firms, all the revenues

in table 19 impact the balance of payments

directly. Thus the U.S. ran a current account

surplus on educational services in the range

of $1.5 to $2.0 billion annually for the 1982-84

period.

Geographic Distribution of International

Educational Services Activity

Table 20 lists foreign students in the United

States by home country for the academic years

1964-65 and 1984-85. The distribution has

shifted substantially. Only Taiwan and Iran

were among the top five countries of origin in

both years. Canada, India, and Japan were

replaced by Malaysia, Nigeria, and South Korea. Overall, as indicated in figure 18, the distribution of foreign students in the United States

has shifted away from Europe and the Americas

toward Africa, the Middle East, and South and

East Asia.

Table 20.—Foreign Students in the United States

by Nationality

1984-85 1964-65

Taiwan . . . . . . 22,590

Malaysia. . . . . . 21,720

Nigeria . . . . . . . 18,370

Iran . . . . . . . . . . 16,640

Korea . . . . . . . . 16,430

Canada . . . . . . . 15,370

India . . . . . . . . . 14,610

Japan . . . . . . . . 13,160

Venezuela . . 10,290

Hong Kong . . . 10,130

China . . . . . . . . 10,100

Saudi Arabia . . 7,760

Thailand . . . . . . 7,220

Indonesia . . . . . 7,190

Lebanon . . . . . . 6,940

Canada . . . . . . . . . 9,250

India . . . . . . . . . . . 6,810

Taiwan . . . . . . . . . 6,780

Iran . . . . . . . . . . . . 3,720

Japan . . . . . . . . . . 3,390

Hong Kong . . . . . . 3,280

Korea. . . . . . . . . . . 2,600

Philippines . . . . . . 2,470

United Kingdom . 1,960

Thailand . . . . . . . . 1,630

Cuba . . . . . . . . . . . 1,570

Greece . . . . . . . . . 1,540

Israel . . . . . . . . . . . 1,540

Germany . . . . . . . . 1,500

Nigeria . . . . . . . . 1,380

Subtotal, Subtotal,

top 15. . ..198,520 (580/o) top 15 . . . . ..49,420 (60°/0)

All others . ....143,590 All others . ......32,620

342,110 82,040

SOURCE Open Doors” 1984/85 (New York: Institute for International Education,

no date), p. 16
65

Figure 18.— Foreign Students in the United States

100

90

80

I1

“

1954 1964 1974

Year

1984

Asia/Ocean i a Middle East

❑ North America ■ Latin America ❑ Europe

SOURCE O~en Doors 1984/85 (New York Institute for International Education,

no date), p 12

Based on the 1981 UNESCO survey data, figure 19 summarizes the distribution of Americans studying abroad by host country. Five

nations—West Germany, Canada, France, the

United Kingdom, and Italy—accounted for 70

percent of the total.

39

1.7

Figure 19.– U.S. Students Abroad, 1981

other countries West Gerl

7,151 (30.0°/0)

many

4%)

Italy

’88 (7,5°/0)

United Kingdom h

Canada

4,243

( 17.8 ‘/’o)

2,455 (10.3°/0) 3,576 (15.0°~o)

TOTAL: 23,838

SOURCE. Open Doors” 1984/85 (New York Institute for International Education,

no date), p 10, original source UNESCO Stat/sf/ca/ Yearbook 1984

ENGINEERING, ARCHITECTURE, AND SURVEYING

This industry group (EAS, also referred to as

the design industry) consists of firms providing

professional services in the fields of engineering, architecture, and land surveying. Construction management, project general management,

and other activities directly related to construction are included only if undertaken by a firm

whose primary business is in the EAS industry. (Construction management by firms primarily engaged in construction is included in

the “Construction” section.)

Domestic Industry

Receipts of U.S. EAS firms totaled $35.6 billion in 1982, $37,3 billion in 1983, and $40,2

billion in 1984. The most recent Census of Service Industries found 42,()()0 such firms in 1982

(and more than 45,OOO establishments), with

those whose business consisted primarily of

engineering accounting for the great majority

of revenues—79.5 percent of the total. Receipts

of architectural firms represented 17.2 percent

of the total, with surveying establishments trailing, at 3.3 percent. The 20 largest EAS firms

had 25,6 percent of industry receipts in 1982.

The 134 companies with receipts of more than

$25 million accounted for 44 percent of the industry total.

For the 500 largest U.S. design firms, Engineering News Record reports annually on revenues by type of firm and type of project. Figure 20, summarizing the 1984 survey, shows

that building design work accounted for 29 percent of receipts, followed by power and transportation at 15 percent each.
66

Figure 20.—Total Billings of Top 500 U.S. Design Firms

by Type of Project, 1984

Other

1 00/0

Water supply ~

Sewer 7

and waste A

1230 Y

Bulldlng

29°0

,portat ion

TOTAL BILLINGS: $9.6 billion

SOURCE: “Design Billings Gain 12 Percent in 1984, ” Engineering News Record,

May 16, 1985, pp. 36-66

Employment in the EAS industry grew by 7

percent from 1983 to 1984, reaching a level of

about 616,000 people. According to the 1982

Census of Service Industries, 30 percent of the

jobs in the industry are held by licensed or registered engineers, architects, and surveyors and

38 percent by certified engineering technicians

and other technical personnel.

Measuring Foreign Activity in EAS Services

As with construction, international subcontracting, either directly or through joint venture subsidiaries, has been common on overseas

design projects. Because most subcontracting

costs are passed through to the purchaser, the

preferred measure of trade consists of billings

net of subcontracting and other foreign expenses; these billings reflect most closely the

value added by the contracting design firm. The

alternative, treating gross billings as exports of

design services and subcontracting as imports,

would, of course, yield the same net export total. But given that the bulk of subcontracts on

international projects go to local firms, as in

the construction industry, subcontracted work

is best treated as a domestic service provided

to the ultimate purchaser.

Structure and Nature of Industry Practices

Internationally

Almost 2,oOO (4.4 percent) of the EAS establishments responding to the 1982 Census of

Service Industries reported sales to non-U.S.

residents—i. e., direct exports, table 21, Again

as in the construction industry (and many other

service industries), most of the exports originate with relatively large establishments. For

those establishments providing information on

the level of their exports, rather than merely

indicating that exports occurred, on average

21 percent of their total receipts came from

sales to nonresidents. Within this group, the

engineering establishments proved somewhat

more export-oriented (table 22).

Foreign Revenues in EAS Services

OTA’s estimates, table 23, suggest that perhaps 25 to 30 percent of the foreign revenues

of U.S. EAS firms result from the direct export

of design services, with the remainder generated by affiliates. For foreign firms operating

in the U.S. market, affiliates accounted for at

Table 21 .—U.S. Engineering, Architecture, and

Surveying (EAS) Establishments Indicating

Sales to Nonresidents, 1982

Engineering establishments . . . . . . . . . . . . . . . 6.1 %

Architecture establishments . . . . . . . . . . . . . . . 2.6

Surveying establishments . . . . . . . . . . . . . . . . . 1.7

All EAS establishments . . . . . . . . . . . . . . . . . . . 4.4 ”/0

SOURCE’ 1982 Census of.$ervice /ndusfries” Miscellaneous Subjects (Washing.

ton, DC. U.S Department of Commerce, Bureau of the Census, December 1985), p 142

Table 22.—Percent of Receipts From Nonresidents

for U.S. Engineering, Architecture, and Surveying

Establishments Reporting Nonresident Sales, 1982a

Engineering establishments . . . . . . . . . . . . . . . 21 .60/0

Architectural establishments. . . . . . . . . . . . . . . 17,4

Surveying establishments . . . . . . . . . . . . . . . . . 19.8

Overall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.1 “/0

alncludes Only those establishments reporting dollar value of nonresident sales.

SOURCE 1982 Census of Serwce /rrdustrles: Miscellaneous Subjects (Washing

ton, DC U S. Department of Commerce, Bureau of the Census, Decem.

ber 1985), p 142.
6 7

Table 23.— Foreign Revenues in Engineering,

Architecture, and Surveying Services (billions of dollars)

1982 1983 1984

Figure 21 .—Foreign Billings of Largest U.S. Design

Firms by Region

1,400 r I I

Foreign revenues of U.S. firms:

Direct exports . . ... . . $1.2-1.7

Affiliate sales . . . . . . . . . . . . 3.6

Majority-owned . , ., . . . 3.2

Minority-owned . . . . . 0.4

$1.1-1.6 $1.0-1.4

4.0 NA

3.3 NA

0.7 NA

$4.8-5.3 $5.1-5.6

U.S. revenues of foreign firms:

Direct imports . . . ... ., .. .$0.1-0,3

Affiliate sales . . . . . 1.0

$1.1-1.3 —

NA = not available

SOURCE Off Ice of Technology Assessment

$0.1-0.3 $0.1-0.3

0.9 NA

$1 .0-1:2

least 75 percent (and perhaps as much as 90

percent) of total U.S. revenues.

1983 1984

Canada/other Europe Africa

Balance of Payments in EAS Services

Mideast As indicated in table 23, the United States

has run a surplus in the range of $1.0 to $1.5

billion in this industry, The balance appears

to have declined slightly over the 1982-84 period

as exports have fallen—perhaps in part due to

the strength of the dollar—but any such conclusion is tentative at best, given the uncertainty

in the estimates, particularly for imports.

Figure 22.— U.S. Revenues of

Design Firms, 1984

Other

7,5 %

Foreign

The Netherlands

anc

S w i

Geographic Distribution of Foreign Activity

Figure 21, based on reports by Engineering

News Record for the largest international design firms, gives the geographic distribution of

foreign billings for the largest U,S, design firms. Sc

As figure 22 shows, most of the design firms

operating in the U.S. market have been Canadian and European, Over the period 1980 to

1984, the Canadians have lost market share to

European firms, Although Japanese and other

Asian firms have reportedly begun to penetrate

the U.S. market, data reflecting this are not yet

available,

NOTE: US revenue figures for non-Canad\an foreign firms Include some Cana.

dlan revenues

SOURCE: Computed from data tn “Foreign Bllllngs of Top Designers Fell 10 Per

cent In 1984,” Englneerlng News Record, Aug 1, 1985, pp 26-39
68

FRANCHISING

International franchising falls into two general categories. Business format franchising entails licensing of trademarks, know-how, and

often an entire operating package that may include training programs, marketing plans, and

manuals, standards, and quality control procedures. Close continuing relationships are

common—e.g., for McDonald’s or Holiday Inn

franchises. In product and trade name agreements, the franchised dealer (franchisee) markets the franchiser’s product or service line and

will normally identify to a more limited extent

with the franchiser’s company.

Domestic Industry

The Department of Commerce placed the

number of franchised establishments in the

United States at 444,000 in 1984, with total sales

of $492 billion. Franchising has been growing

rapidly, with sales projected to increase by 8.6

percent in 1986. Three-quarters of sales by franchisees come under product and trade name

agreements— many of them with auto and truck

dealers and gasoline service stations, table 24–

the remainder representing business format

franchising. Many franchising firms offer both

kinds of agreements.

Measuring Foreign Activity in

Franchising Services

International trade occurs when a franchiser grants rights to a franchisee under some

other national ownership. The franchising fee,

generally set at something less than 5 percent

of the franchisee’s sales, measures the value of

the service provided. In many cases, only a fraction of the fees due will be repatriated by the

U.S. franchiser, particularly in the early years

of setting up overseas franchising operations.

The data on foreign franchising are sparse;

in the absence of better information, OTA’s estimates of franchising fees have been based on

the assumption that sales-per-outlet for foreign

franchisees are roughly comparable to salesper-outlet for U.S. franchisees.

Structure and Nature of Industry Practices

Internationally

A Commerce Department survey has shown

that, by 1984, 328 U.S. franchisers had over

27,000 outlets outside the United States; of

these, automobile and truck rental outlets (21.6

percent) and restaurants (21.2 percent) were the

most common (figure 23). Table 25 summarizes

Table 24.—U.S. Franchising Sales by

Type of Business, 1984

Sales

Billions Percent

of dollars of total

Auto and truck dealers . . . . . . . . . . . . $252.1 51 .20/0

Gasoline service stations. . . . . . . . . . 101.0 20.5

Restaurants . . . . . . . . . . . . . . . . . . . . . 43.4 8.8

Soft drink bottlers . . . . . . . . . . . . . . . . 16.7 3.4

Nonfood retailing . . . . . . . . . . . . . . . . 15.5 3.2

Lodging . . . . . . . . . . . . . . . . . . . . . . . . . 13.2 2.7

Convenience stores . . . . . . . . . . . . . . 10.3 2.1

Business aids and services . . . . . . . . 9.8 2.0

Auto products and services. . . . . . . . 9.2 1,9

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.9 4.2

$492.1 100.0 ”/0

SOURCE Frarrcfr/sing in the Economy 1984-1986 (Washington, DC: U.S Depart.

men! of Commerce, International Trade Adm}n!stration, January 1986),

p 25

Figure 23.—Foreign Franchising Outlets

of U.S Firms by Type, 1984

Other

27.7 0/0 @

rental

o

au rant

Auto

service

7,1 0/0

21 .2 ”/0

Nonfood retailing

1 2,20/0 Business aids/services

10.2 ”/0

SOURCE: Frarrchising In tfre ,Ecorrorny 1984-1986 (Washington, DC Department

of Commerce, International Trade Administration, January 1986), p 43.
Table 25.— Foreign Operations of U.S. Franchisers

Number of U.S. Total --

franchisors foreign outlets

1972 . . . . . . . . . . . .

1974 . . . . . . . . . . . .

1976 . . . . . . . . . . . .

1978 . . . . . . . . . . . .

1980 . . . . . . . . . . . .

1981 . . . . . . . . . . . .

1982 . . . . . . . . . . . .

1983 . . . . . . . . . . . .

1984 . . . . . . . . . . . .

175

217

234

266

279

288

295

305

328

6,153

9,663

12,348

17,156

20,428

21,416

23,524

25,682

27,021

SOURCE Franch/slfrg/nfhe Economy 1984.1986 (Washington, DC US Depart

merit of Commerce, lnternattonal Trade Admlntstratlon, January 1986)

p 9

the growth in the number of U.S. franchisers

with international operations as well as the

number of outlets.

Foreign Revenues in Franchising Services

Table 26 gives OTA’s estimates for the foreign fee revenues of U.S. franchisers, in the

form of ranges based on estimated sales and

typical fees as a percentage of sales. As indicated in the table, it seems unlikely that annual

fees generated by international franchising

could exceed $1 billion by much. Evidently,

U.S. franchising yields negligible fee income

for overseas franchisers.

69 — —

Table 26.—Foreign Revenues in Franchising Services

(billions of dollars)

1982 1983 1984

Foreign fees of U.S.

franchisers . . . . . . . . . . . . . . . $0,2-1.0 $0.2-1.1 $0.2- 1,2

U.S. fees of foreign

franchisers . . . . . . . . . . . . . . . —a — a —a

aNeglig!ble

SOURCE Off Ice of Technology Assessment

Balance of Payments in Franchising Services

The uncertainties concerning sales levels and

fee structures make the impact of franchising

on the balance of payments likewise uncertain.

The net impact could be negligible; in any case,

it will not exceed the level of fees estimated in

table 26. (Such figures, of course, exclude any

exports of goods associated with franchising

operations.)

Geographic Distribution of International

Franchising Activity

As figure 24 indicates, Canada was the single most popular location for U.S. franchisers,

with 233 having Canadian operations in 1984.

OTA could locate no information on sales or

fees by country.

Figure 24.–U.S. Franchisers by Region, 1984

Canada 233

Caribbean 90

Europe texclud[ng

United Kingdom

68

Asia [excludln9

Japan I 67

Japan ] 5 6

South America U’3

I

Central America

D’g

Africa 29

New Zealand 22

I 1 1 1 J

o 50 100 150 200 250

N ~) ~1” bf r ,f U S f r~rl, h I +t <

SOURCE Frar?ch/s/r?g in (he Economy 1984.1986 (Washington, DC Department of Commerce, International Trade Admlnls

tratlon, January 1986) p 10
70

HEALTH SERVICES

Trade takes place when a foreign national

comes to the United States specifically for medical treatment, or when an American firm provides health-related services—e.g., management

expertise—internationally. The incidental

health care expenditures of international

travelers, however, are covered under “Travel.”

This first form of U.S. health care exports thus

resembles exports of educational services; they

are a matter of foreign nationals traveling to

the United States. The resemblance goes further in that total exports are a miniscule fraction of domestic revenues—well under 1 percent for health care, including revenues flowing to U. S,-owned hospitals overseas. While

there are a small but growing number of the

latter, at least 90 percent of the world’s hospitals are run on a not-for-profit basis; in many

parts of the world, governments bear much of

the cost of health care services, particularly the

operation of hospitals. Even in the United

States, where most physicians remain in private practice, the government not only operates hospitals—e. g., through the Veteran’s

Administration—but pays for a substantial fraction of physicians’ services through programs

like Medicare. Regardless of growth rate, it will

be many years before overseas hospitals owned

or operated by U.S.-based firms become at all

significant compared to the domestic industry.

As for education, this means that the notion

of international competition has no more than

limited application; parallels with profitseeking firms in other service industries, and

the government policies that affect them, are

few.

Domestic Industry

The United States spent $424 billion on health

care in 1985, an increase of 9.4 percent over

1984’s figure of $387 billion. Hospital care accounts for about 40 percent of the total, and

physicians’ services nearly 20 percent. Table

27 gives the Commerce Department’s estimated

breakdown of expenditures for 1985.

Medicare outlays in 1985 reached $70 billion,

a 14 percent increase over the previous year

Table 27.–Estimated U.S. Health Care Expenditures, 1985

Expenditures

Billions Percent

of dollars of total

Hospital care . . . . . . . . . . . . . . . . . . . .

Physicians’ services . . . . . . . . . . . . . .

Dentists’ services . . . . . . . . . . . . . . . .

Drugs and medical sundriesa 

. . . . . .

Nursing home care . . . . . . . . . . . . . . .

Other health services . . . . . . . . . . . . .

Program administration and net

cost of insurance. . . . . . . . . . . . .

Government public health

activities . . . . . . . . . . . . . . . . . . . . . .

Research b 

. . . . . . . . . . . . . . . . . . . . . . .

Construction of medical facilities . .

$171.6

83.5

28.3

28.5

35.2

28.9

19.1

11.5

7.3

9.9

S423.8

40.4 ”/0

19.7

6.7

6.7

8.3

6.8

4.5

2.7

1.7

2.3

100.0 ”/0

aspendin~ for drugs dispensed in hospitals and by physicians repofled within

those categories

bResearch expenditures of drug companies and other manufacturers and

providers of medical equipment and supplies are Included In the category In

which the product falls.

NOTE” Totals may not add due to rounding

SOURCE. 1986 U S Irrdusfnal Outlook (Washington, DC U S Department of Commerce, January 1986), p 54-3

and about 16 percent of total health care spending, These payments included $45 billion for

the Hospital Insurance (inpatient care) program

and about $25 billion for Supplementary Medicare Insurance (physician, outpatient-hospital,

and other services),

As of 1985, the 6,800 hospitals in the United

States maintained approximately 1,3 million

beds. As of September 1984, investor-owned

hospitals numbered 1685 (including company

owned and managed hospitals), with nearly

204,000 beds.

The 1982 Census of Service Industries reported nearly 173,000 physicians’ offices, with

receipts of $51 billion. Various other nonhospital health care establishments added

another $45 billion in revenues. Table 28 summarizes health care establishments other than

hospitals as reported in the 1982 Census.

Structure and Nature of Industry Practices

Internationally

International transactions in health care services fall into two distinct categories: 1) travel

by patients to receive health care services; and

2) foreign ownership and/or operation of hos-
77

Table 28. —Health Care Establishments in the

United States Other Than Hospitals, 1982

Receipts

Number (billions

(in thousands) of dollars)

Offices of physicians . . . . . .

Offices of dentists . . . .

Offices of osteopathic

physicians . . . . . . . . . . . .

Offices of chiropractors .

Offices of optometrists . . . . . .

Nursing and personal care

facilities . . . . . . . . . . ...

Other. . . . . . . . . . . . . . . . . .

172.9

95.0

6.6

12.4

14.5

11.3

34.1

346.6

$50.7

16.1

1.4

1.4

2.1

13.2

10.8

$95.6

NOTE Figures Include only establishments subject to Federal Income Tax Totals

may not add due to rounding

SOURCE 1982 Census of Serv/ce /rrdustr/es Establishment and F/rrn Sfze

(Washlng[on, DC U S Department of Commerce, Bureau of the Cen

SUS, May 1985} pp 115.117

pitals and other health care facilities. Due in

large measure to the quality and reputation of

American health care—and the specific services available here (e. g., heart transplants)—

foreigners traveling to the United States greatly

exceed Americans venturing abroad for care.

Foreign patients tend to be concentrated in a

relatively small number of facilities—e. g., the

Mayo Clinic, the Cleveland Clinic, major university hospitals. The Mayo Clinic, for instance,

estimated that slightly more than 2 percent of

its patients in 1985 were foreigners who had

come to the United States explicitly for treatment, with the Cleveland Clinic placing the figure at about 1 percent.

OTA puts the direct health service revenues

generated by foreign patients in the United

States at less than $100 million annually. Other

expenditures associated with travel to the

United States by those seeking treatment—e.g.,

air fare, accommodations—are greater. (These

expenditures are included in the estimates presented below under “Travel.”) The Cleveland

Clinic, for example, estimates that the 6,000 to

7,OOO foreign patients it treated in 1985 spent

more than $70 million over and above payments

for health care services.

U.S. firms have begun to move into ownership and management of hospitals and other

health care facilities overseas, with foreign revenues substantial (table 29). The Federation of

American Hospitals reports that in 1985 its

Table 29.—Foreign Revenues in Health Services

(billions of dollars)

1982 ‘1 983 1984

Foreign revenues of U.S. firms:

Direct exports ... ... ... ... . .$1.0-2.5 $1.0-2.5 $1.0-2.5

Affiliate sales . . . . . . . . . . . . . . 0.9 1.1 NA

Majority-owned . . . . . . . . . . . 0.9 1,0 NA

Minority-owned . . . . . . . . . . . 0.1 0.1 NA

$1.9-3.4 $2.1-3.6

U.S. revenues of foreign firms:

Direct imports . . . . . . . . . . . . . . —a —a —a

Affiliate sales . . . . . . . . . . . . . . NA 0.4 NA —

NA = Not available.

aNegllglble

NOTE Totals for affiliate sales may not add due to roundtng

SOURCE Off Ice of Technology Assessment

members owned 70 foreign hospitals (with

9,420 beds) in 11 countries, and managed an

additional 11 (3,490 beds) in 8 countries.

Another 15 hospitals were under construction.

The Federation estimates that its members account for about 90 percent of U.S. activity

abroad, and in excess of 90 percent of revenues

generated overseas. They also estimate that foreign activities produce 10 percent of the total

revenues of U.S. profit-seeking hospitals.

Foreign Revenues in Health Services

Table 29 summarizes estimated foreign revenues for American health care firms, as well

as the U.S. revenues of foreign providers.

Nearly all the direct exports result from overseas hospital management and consulting activities, which far outstrip expenditures by foreign patients in the United States. Direct

exports of health care management and consulting services account for 50 to 75 percent

of foreign revenues, sales through affiliates the

remainder.

Balance of Payments in Health Services

Based on table 29, OTA estimates the U.S.

surplus in health care services to have been at

least $1 billion annually during the years 1982

to 1984, and perhaps as great as $2.5 billion.

Geographic Distribution of Foreign Revenues

No information is available on the nationalities of foreign patients visiting the United States
72

for medical treatment. According to the Fed- facilities and 2 more under American manageeration of American Hospitals, the United King- ment. U.S. companies own 20 facilities in Ausdom is the leading site for U.S. hospital opera- tralia and manage 2, followed by Brazil with

tions abroad, with 30 U. S,-owned health care 7 facilities and

INFORMATION SERVICES

This category includes videotex services,

value-added networks (VANS), electronic database services, custom search and abstracting,

document supply services, and other services

that add value to raw information and/or raw

computing capability.9 The data below include

print media services such as abstracts, indices,

and bibliographic material because these cannot be disaggregated from on-line information

services.

Domestic Industry

Based on a survey of its members, the Information Industry Association (11A) placed the

revenues of the U.S. information industry in

1982 at $11 billion (excluding non-U.S. sales).

Of this, $2.6 billion represented computer-based

information services, which includes but is not

limited to electronic databases. The remaining

revenues represent more conventional information sources ranging from printed materi-

‘Information-related activities considered parts of other industries include:

. data-processing services (see ‘‘Data Processing’ section);

. telecommunications services with no additional value-added

component (see “Telecommunications”);

● research and analysis not centered on the provision of information (see “Management, Consulting, and Public Relations”).

als to indexing

Saudi Arabia with 5.

to seminars and conferences.

The 11A projected revenue growth at 14 percent annually through 1987. The Department

of Commerce has estimated U.S. electronic

database markets, alone, at more than $1.4 billion in 1984 and roughly $1,9 billion in 1985.

Data compiled by Information Market Indicators shows that the relatively specialized U.S.

information center/library market for wordoriented electronic databases was $174 million

in 1983 and $224 million in 1984. No data are

available on the size of small but growing U.S.

videotex and teletex markets.

Structure and Nature of Industry Practices

Internationally

The United States dominates the international market in electronic databases. As of

1985, roughly 70 percent of the world’s bibliographic and statistical databases were produced

in the United States. Table 30 summarizes the

results concerning international operations of

the 1,249 American companies in the 1982 11A

survey. Eighteen percent offered hard-copy distribution services in Europe, with 18 percent

also offering such services in some non-European foreign market. Eleven percent could provide computer-based distribution services in

Table 30.—lnformation Services Offered by U.S. Firms, 1982

Number of Number of firms offering

firms offering service overseas

Type of service service Europe Other areas

Hard-copy distribution . . . . . . . . . . . . . . . 1,093 225 222

Computer-based distribution . . . . . . . . . 582 139 128

Information support . . . . . . . . . . . . . . . . . 355 92 98

Seminars/conferences ., , . . . . . . . . . . . . 314 90 92

Information retailing . . . . . . . . . . . . . . . . . 282 58 55

All other services . . . . . . . . . . . . . . . . . . . 126 26 32

NOTE Total number of firms does not add due to multiple service offerings by some of the 1,249 f!rms surveyed

SOURCE A Cornpet/t/ve Assessment of the U.S /nforrrrat/on Serwces /rrdustry (Washington, DC: U S. Department of Commerce, International Trade Administration, May 1984), p 40, original source. The Bus/ness of /n formation (Washington, DC: Information Industry Association, 1983)
Europe, and 10 percent could do so in foreign

markets outside of Europe,

Foreign Revenues in Information Services

Because OTA could not separate direct exports from sales through foreign affiliates for

this industry, table 31 presents only totals. Some

fraction of the totals in the table represents exports by foreign-owned U.S. firms, which could

not be isolated either.

No data on U.S. imports of information services exist. But given the dominant U.S. position in the international market for information services, and the estimated magnitude of

U.S. information exports, it seems unlikely that

U.S. imports could have been even $0.5 billion

annually over the years 1982 to 1984.

73

Balance of Payments in Information Services

Because the relative shares of exports and affiliate sales remain unknown, balance of payments impacts are bounded above by the total

level of foreign revenues, OTA could identify

no realistic lower bound, but it seems plain that

the United States runs a positive balance in the

information services current account.

Table 31 .—Foreign Revenues in Information Services

(billions of dollars)

1982 1983 1984

Foreign revenues of U.S.

firms a 

. . . . . . . . . . . . . . . . . . . $2.6 $2.9 $3.1

U.S. revenues of foreign

firms . . . . . . . . . . . . . . . . . . . . $0.0-2.0 $0.0-2.0 $0. O-2.()

a No breakdown between cllrect trade and afflilate Sales available

SOURCE: Off Ice of Technology Assessment

INSURANCE

The insurance industry divides more-or-less

naturally into two segments: 1) life insurance,

including health policies and annuities; and 2)

property/casualty coverage, including but not

limited to general liability, marine, fire, and automobile insurance. Many international transactions take the form of reinsurance, or risk

sharing; the original insurer lays off part of its

liability by reinsuring with another carrier,

thereby diversifying its risk portfolio. Risk

diversification improves expected profitability

and reduces the likelihood of a serious loss on

any one policy. Lloyd’s Underwriters, the traditional insurer of last resort, remains the largest

final recipient of laid-off insurance.

While reinsurance is as old as the insurance

business, so-called jumbo risks have called for

a relatively recent variant, Joint participation

by a number of companies, through either reinsurance or syndication, maybe the only way

to provide coverage for jumbo-jets or nuclear

powerplants, to take two examples where a major disaster could bankrupt a single carrier. To

the extent that firms from different countries

enter into such syndications, international

trade in insurance takes place. The New York

Insurance Exchange has been effectively

exempted from a number of restrictive State

regulations so that members can undertake to

insure jumbo risks.

As far as possible, OTA has included the

many other activities of insurance firms—e. g.,

brokerage, sales of computer software packages

—under other industry headings, as appropriate.

Domestic Industry

Premium receipts of U.S. life insurance companies totaled $135 billion in 1984 and an estimated $148 billion in 1985. According to the

American Council of Life Insurance, life insurance itself represented 38 percent of 1984

premiums in this segment of the industry, followed by annuities at 32 percent, and health

insurance premiums at 30 percent, Premiums

net of benefits paid came to $74 billion in 1984

and an estimated $81 billion in 1985. The life

insurance in force in the United States as of

1985 exceeded $5.9 trillion.

For the property and casualty insurance portion of the industry, the Insurance Information

Institute reports net premiums written (premiums retained net of business reinsured) as
74

$116 billion for 1984 and an estimated $135 billion for the next year. The industry sustained

an estimated underwriting loss of roughly $20

billion in 1985, marking the seventh consecutive year that such losses were posted, but in

1985, as for most of the past years of underwriting losses, insurance companies earned

enough on their invested funds to show an

industry-wide profit, The Insurance Information Institute estimates that in 1984, the exception to this pattern, underwriting losses of $20.5

billion exceeded net investment income by

nearly $3 billion.

Information from the Swiss Reinsurance

Company indicates that the U.S. insurance market is the largest by far in the world, accounting for 48 percent of worldwide premiums (excluding Communist countries) in 1983. Japan,

the second largest national market, followed

at about 15 percent, with the members of the

European Community accounting for another

22 percent of world premiums. In 1983, the

United States was second only to Switzerland

in insurance premium receipts per capita, and

was second to none in terms of the size of the

insurance industry as a percentage of gross domestic product.

Total employment in all portions of the U.S.

industry reached nearly 1.8 million in 1984.

More than 1.2 million Americans worked for

insurance carriers, with the remainder employed by agencies, brokers, and related service providers.

Measuring Foreign Activity in

Insurance Services

premium receipts give the basic measure of

international business in life insurance. In the

balance of payments, however, benefits paid

should be subtracted from receipts. Because the

data on benefits paid internationally are inadequate, the balance of payments impacts

can only be approximated. This entails basing

claims for international payouts on U.S. premium/benefit ratios and available information

on international premiums, and, for reinsurance, premium/claim ratios available on an annual basis from the Department of Commerce.

For property and casualty business, the fundamental measure of international activity is

net premiums underwritten, representing total premiums net of reinsurance ceded. As in

life insurance, a lack of data on international

claims payments means approximations must

be used.

Structure and Nature of Industry Practices

Internationally

Insurance companies can seek international

business by establishing or acquiring affiliates,

designating authorized agents among domestic insurers in the foreign market, or entering

the reinsurance market. Other than for reinsurance, a company must have a foreign presence

to market most types of policies, if only because

of government regulations, which commonly

prohibit direct imports—i.e., selling policies to

residents from a base outside the country’s

border.

Freedom to trade, in the jargon of the insurance industry, means the ability to do business

in a country without having established a subsidiary there. This implies that the insurer can

serve clients without meeting the financial requirements (primarily, capital adequacy) imposed by government regulations (nominally

intended to protect consumers against the risk

of a bankrupt insurer unable to pay legitimate

claims). Typically, government regulations

specify the minimum capital the insurer must

hold within the nation’s borders, A foreign company must thus have a local presence to participate in the market, but other nontariff barriers may keep foreign insurers out anyway.l0

When permitted, however, unadmitted insurers

may have greater freedom from regulatory constraints than local firms, subsidiaries, or agents.

In contrast, the market for very large policies

tends to be a global one. For jumbo risks, reinsurance, or worldwide coverage for an MNC,

IOH indley, for instance, cites the Japanese market for whole

life insurance as being among the most protected in the world.

See B. Hindley, “Economic Analysis and Insurance Policy in

the Third World, ” Thames Essays No. 32, London, Trade Policy

Research Centre, 1982, p. 16.
the number of actors on either side of the market is small enough that prospective insurers

have little need for a foreign presence. Underwriters and other professionals may be sent

overseas to analyze risks and help determine

contract terms, but these are simply costs of

doing business; they will enter the balance of

payments as travel, When claims arise, the insurer may choose to have them examined and

validated by a local claims agent (who may or

may not be an employee of the insurer or of

an associated firm); alternatively, the insurance

company may send an employee from its home

office to the site. To some extent, then, volumes

of international trade in insurance services will

be determined by the corporate practices of the

companies involved.

The U.S. market is one where foreign firms

can sell policies as unadmitted insurers if they

wish. Nonetheless, the market here is so large

and populated with so many insurance companies that most foreign entrants have chosen

to establish or acquire wholly owned or majority-owned affiliates, The most prominent exception, Lloyd’s Underwriters, does a substantial business in the United States as an

unadmitted insurer. Lloyd’s accounts for some

95 percent of the total value of all trust accounts

established by unadmitted insurers and registered with the National Association of Insurance Commissioners.

In Europe, the original Treaty of Rome, which

established the European Community (EC),

called for free trade in insurance, but this has

been achieved to only a limited extent. An insurance company with headquarters in any

member country can open an office and conduct business in any other EC state. Total financial reserves within the EC become the

yardstick for capital adequacy. In contrast, a

firm with headquarters outside the Community

must meet capital requirements on a countryby-country basis. (This has major competitive

implications because large EC insurance companies can economize on their capital needs

more effectively than outsiders. )

75

Foreign Revenues in Insurance

As shown in table 32, OTA estimates that nonU.S. premium receipts of U.S. insurance affiliates abroad came to $9.4 to $11.3 billion in 1982,

$10,1 to $12,1 billion in 1983 and $11.0 to $13.0

billion in 1984, These figures include only

premiums, not payments on claims. In addition, American firms have had annual premium

receipts on direct international business running in the range of $0,2 to $0.6 million for life

and health insurance, and $1.5 to $2. o billion

for property and casualty insurance. International reinsurance added another $1.1 billion

in premium receipts in 1984, The midrange estimates for total foreign receipts of U.S. insurance firms would be about $13.4 billion in 1982,

$14,3 billion in 1983, and $15.3 billion in 1984,

excluding investment income.

For foreign firms operating in the U.S. market, OTA’s midrange estimates for total

premium receipts (including reinsurance) are

$22.5 billion for 1982, $20.1 billion for 1983,

and $22.2 billion for 1984. Excluding reinsurance and Lloyd’s, affiliates account for nearly

all the U.S. market share of foreign firms. Reinsurance premiums in the U.S. market generated $2.4 billion for foreign firms in 1984.

Balance of Payments in Insurance Services

Cross-border insurance affects the balance

of payments not only through premiums but

also through claims paid by insurers, Both

premiums and claims flows, of course, travel

Table 32.—Foreign Revenues in Insurance

(billions of dollars)

1982 ‘ --- ‘‘- ‘

Foreign revenues of U.S. firms:

Direct exports. . . . . . . . . $1.7- 2.6

Affiliate sales . . . . . . . . . 9.4-11.3

Reinsurance exports . . . 0.9

$12.0 -14.8

U.S. revenues of foreign firms:

Direct imports . . . . . . . . $2.1

Affiliate sales . . . . . . . . . 16.9-19.0

Reinsurance imports . 2.1

$21,1 -23.2

SOURCE Off Ice of Technology Assessment

1983 1 1984 —

$ 1.7- 2.6 $ 1.7- 2.6

10,1 -12.1 11.0 -13.0

1.0 1.1

$12.8 -15.7 $13.8 -16.7

$2,2 $2.4

14.7 -16.5 15.2 -20.3

2.3 2,4

$19.2 -21.0 $20.0 -25.1
76

in both directions, but the claims flows on international direct insurance are not known.

They can be crudely estimated, as noted above,

based on domestic premium/claim ratios and

international reinsurance premium/claim ratios. Using such data, and the estimates of crossborder premium receipts given above, the U.S.

current account deficit in the insurance sector would be $0,5 to $1,1 billion in 1982, $0.4

to $1,1 billion in 1983, and $0.2 to $0.9 billion

in 1984. Gross U.S. receipts (including both premium receipts of U.S. insurers and claim receipts from foreign insurers) are estimated to

have been $5.6 to $7.7 billion in 1982, $6.1 to

$8.2 billion in 1983, and $6.9 to $9.1 billion in

1984. OTA estimates gross payments (including both premium payments to foreign insurers

and claim payments by U.S. insurers to foreign

clients) at $6,3 to $8.6 billion in 1982, $6.7 to

$9.1 billion in 1983, and $7.4 to $9,8 billion in

1984.11

I IThe higher estimate for premium receipts imp]ieS a correspondingly higher estimate for claim payments, because claims

are approximated as a percentage of receipts. For this reason,

the range for net receipts is less than implied by comparing the

ranges for gross receipts and gross payments.

The figures above for U.S. insurance imports

include estimated premiums flowing to U.S. insurance affiliates abroad from clients in the

United States, Data from BEA direct investment

surveys indicate that foreign insurance affiliates realized 13.8 percent of their income in

1982 and 11.8 percent in 1983 from business

with the United States, Even though the affiliates are U.S.-owned, the premiums count as imports in a balance of payments sense,

Geographic Distribution of International Activity

in Insurance

Data on the geographic distribution of insurance receipts and payments are not available.

For foreign affiliates, table 33 summarizes the

geographic distribution of total income (interest income as well as premiums) based on the

Commerce surveys of FDI. Premiums cannot

be isolated from other income of foreign affiliates. As table 33 indicates, about one-fourth of

the income of foreign insurance affiliates comes

from policies written in developing countries.

European and Canadian ownership accounts

for roughly 90 percent of the total income of

the U.S. insurance affiliates of foreign firms.

Table 33.—lnternational Insurance Activity (billions of dollars)

Foreign affiliates U.S. affiliates

of U.S. firms of foreign firmsa

1982 1983 1982 1983

Total income of affiliates. . $16.8 $16.5 $23.6 $21.7

Distribution of income of affiliates:

Canada . . . . . . . . . . . . . . . 27.60/o 29.30/o 21.1 % 19.70/0

Europe. . . . . . . . . . . . . . . . 38.1 36.0 68.9 69.1

Japan. . . . . . . . . . . . . . . . . 4.0 5.4 NA NA

ANZSAb . . . . . . . . . . . . . . . 3.7 3.9 —c —c

Latin America. . . . . . . . . . 23.2 21.3 0.3 0.3

Other . . . . . . . . . . . . . . . . . 3.4 4.2 NA NA

1OO.OO/O 100.00/0 100.0”/0 100.0 ”/0

NA = not available.

alncludes foreign-owned u S, firms whose ultlmate beneficial owners are U S firms Or !ndlviduals

bAuStralia, New Zealand, and South Africa.

cNegligible

NOTE: Totals may not add due to rounding.

SOURCES Foreign afflliatos, 19.82:U.S D/rect Irrvestrnerrt Abroad: 1982 Benchmark Survey Data (Washington, DC: U S, Depart.

ment of Commerce, December 1985), Foreign affiliates, 1983: US. Direct /rrvestment Abroad: Operations of US.

parent Companies and ~helr Foreign Affiliates, Preliminary 1983 Estimates (Washington, DC: U S. Department of

Commerce, December 1985); U.S. atflliatea, f962: Foreign Direct hrvestmerrf in (he United States: Operatiorrs of

US. Affiliates of Foreign Companies, Revised 1982 Estimates (Washington, DC: U.S. Department of Commerce,

December 1985), U.S. afflllates, 1983: Foreign Direct /rrvestment in the United States Operations of US Affiliates

of Foreign Companies, Preliminary 198.3 Estimates (Washington, DC U S Department of Commerce, December 1985).
77

INVESTMENT BANKING AND BROKERAGE SERVICES

This category includes a broad range of financial services, Although the primary focus

is on investment banking and brokerage (buying and selling securities), the data presented

below on foreign revenues include some activities of credit agencies, savings and loans, lease

financing firms, credit card operations, and

other financial services. OTA has excluded the

following categories from the estimates in this

section: commercial banking, insurance, franchising and, to the extent possible, lease financing (see sections on “Commercial Banking,”

“Insurance, “ “Franchising,” and “Leasing”).

Because fee income for standard commercial

banking services can seldom be separated from

other financial service revenues of commercial

banks, these other revenues have been included

in the “Commercial Banking” section, although

conceptually they belong here.

The heart of the investment banking business

consists of handling capital transactions for

companies and wealthy individuals. Major

services include helping corporations raise capital, arranging financing for large projects (e.g.,

real estate developments), and aiding in mergers and acquisitions. To be consistently successful in buying and selling securities, an investment banker must have intimate working

knowledge of capital markets. The bank must

be prepared to enter the market at any time in

response to a client’s business needs. Given the

complex, organic nature of capital markets, an

investment banker cannot expect to be away

from them for long without losing the skills that

clients depend on.

Domestic Industry

While more than 10 large U.S. investment

banks have been purchased or have become

publicly traded firms over the last half-dozen

years, a number of the New York houses (and

their overseas subsidiaries) remain private corporations, typically partnerships, As such, they

have not been required to file 1O-K earnings

statements with the Securities and Exchange

Commission. Many of the publicly held securities firms are subsidiaries of multi-industry

corporations, which disclose little useful data

on subsidiaries in their annual statements. As

a result, the size of the industry can only be

approximated.

Total revenues in the securities industry were

estimated at about $38 billion in 1985. The trade

journal Financial World placed brokerage revenues at $30 billion in 1984, including brokerage services and underwriting of new issues

but excluding merger and acquisition services,

broken down as shown in figure 25. Agency

fees, primarily brokerage commissions, accounted for about one-quarter of revenues, as

did principal trading and investment, in which

firms buy and sell securities for their own accounts. Margin interest, which includes earnings from renting shares to help cover short positions, followed.

Estimates of total earnings from mergers and

acquisitions vary. Each year Fortune magazine

publishes figures for fees earned by investment

banks on the largest mergers and acquisitions.

In 1985, 32 mergers and acquisitions worth

$67.4 billion (out of a U.S. total of about $200

billion) earned the participating investment

banks an estimated $341 million in fees. Fortune put the fees on the 32 largest deals in 1984,

worth a total of $60 billion, at $284 million,

Figure 25.— U.S. Securities Industry Revenues, 1984

Agency fees

Other revenues ~ 25°10

co

management

funds 5°/0

Underwriting L

Margi

~ Principal trading

n interest and investment

10 “/0 24 0/0

SOURCE P. Hall, “Taking Stock of the Brokerage Industry, Firtanc/a/ Wor/d, Jan

9-22, 1985, pp 17-21
78

Employment in the securities industry averaged 341,000 during 1984.

Measuring Foreign Activity in

Financial Services

Given the uncertainties surrounding the size

of the domestic industry, the scarcity of data

on the foreign revenues of U.S. investment

banks and brokerage firms should be no surprise. Foreign revenues must be estimated indirectly. There are two possible approaches.

The first begins with estimates of the level of

foreign activity–foreign securities issued in the

United States, U.S. purchases of foreign securities, international mergers and acquisitions,

Eurobond and syndicated loan activity, Revenues can then be estimated based on typical

fee structures. The second method is based on

data for a subset of firms in the Commerce Department’s direct investment surveys, which

cover exports of U.S. parents maintaining overseas affiliates, including exports of financial

services, While the two methods yield similar

results, as indicated below, the uncertainties

remain large,

Structure and Nature of Industry Practices

Internationally

American firms provide investment banking

and brokerage services for foreign customers

in the U.S. market, in foreign national markets,

and in Euromarkets and other less regulated

markets. Transactions may take place through

U.S. offices, foreign offices, or through affiliates. With major clients consisting of large corporations, many of them multinational, U.S.

investment banks have sought foreign establishments on a regional basis, but generally do not

need offices in all the major countries in a region (not even in Europe). They do need offices

wherever there are important capital markets:

New York, London, Singapore, and Tokyo, perhaps Zurich as well. [By the same token, investment banks with headquarters elsewhere that

expect to do business internationally must

maintain offices in New York.)

As for many other service products, the performance of an investment bank can only be

evaluated after the fact; therefore, bankers depend heavily on their reputation and on client

relationships built up over the years. These relationships entail deep knowledge of the client’s

needs and ways of doing business; to maintain

its reputation and hold on to its clients, the

banking firm must, of course, continue to service these needs effectively. Losing a major client through unsatisfactory performance can do

great harm to the bank’s reputation. In part,

it is these relationships, along with the small

number of internationally active investment

banks, that makes a presence in every country

unnecessary. The U.S. banking house will involve overseas partners as needed when working with each client.

A total of 34 U.S. financial service firms

owned or controlled 129 foreign affiliates, including nonfinancial affiliates, in 1983. The total number of foreign financial service affiliates is much larger—800 in 1983, a drop of about

17o from the previous year—with the rest

owned or controlled by U.S. firms whose primary lines of business place them in other industries. These affiliates include not only investment banking and brokerage operations,

but credit agencies, savings and loan associations, lease financing operations, and other nonbank financial service affiliates.

Beyond selling financial services locally, the

overseas affiliates of American firms export financial services to the United States in substantial volume, and in particular supply services

to their U.S. parents. Majority-owned affiliates

alone sold $3.6 billion in financial services to

the United States in 1982, all but $300 million

to their parent firms, and $4.5 billion in 1983,

with $4.3 billion representing affiliate-parent

sales.

Foreign Revenues in Financial Services

Table 34 contains OTA’s estimates of the foreign revenues of U.S. financial service firms

(excluding commercial banks), along with the

U.S. revenues of foreign firms, The decrease

from 1982 to 1983 resulted in part from the drop
79

in total number of affiliates noted above; sales

by minority-owned affiliates were nearly $3 billion greater in 1982 than in 1983. Most foreign

revenues come from affiliate sales, with less

than 20 percent representing direct exports.

The U.S. revenues of foreign firms are similarly weighted toward affiliate sales. Data to

estimate the relative proportions of income

from interest and fees do not exist.

Balance of Payments in Financial Services

As table 34 notes, a midrange estimate for

exports of financial services by U.S. firms

would be perhaps $1,0 to $1.5 billion during

each of the years 1982 to 1984. In addition, the

U.S. affiliates of foreign firms sell financial services to non-U. S. customers. Such transactions

also count as U.S. exports in a balance of payments sense, but there are no data on their magnitudes, If U.S. affiliates of foreign firms sold

as high a percentage of their services abroad

as foreign affiliates of U.S. firms sold back to

the United States, then 35 to 40 percent of their

sales may have been exported from the United

States. Total sales by foreign affiliates in the

United States were $8.2 billion in 1982 and

$11,1 billion in 1983. A reasonable upper limit

on exports by the U.S. affiliates of foreign firms

would then seem to be about $3 billion in 1982

and $4 billion in 1983.

Foreign-owned firms sold perhaps $0.5 billion directly to the United States in the form

of imported financial services during each of

the years 1982 to 1984. The other major source

Table 34.—Foreign Revenues in Investment Banking

and Brokerage Servicesa (billions of dollars)

1982 1983

Foreign revenues of U.S. firms:

Direct exports . . . . . . $ 0.5- 1.5 $1.0-2.0

Affiliate sales . . . . . . 10.8 7,7

Majority-owned . . . 6.3 6,0

Minority -owne d

b . 4.5 1,7

$11.3 -12.3 $8.7-9.7

U.S. revenues of foreign firms:

Direct imports . . . . . . $ 0.0- 0.5 $0.0-0.5

Affiliate sales . . . . . . $ 4.9. 6.6 $6.7-8.9

$ 4.9- 7.1 $6,7-9,4

NA = not available

%1 I figures exc I ude commerc Ial bank{ ng reven ~~es

blncludes some unknown amount of U S revenues

SOURCE Off Ice of Technology Assessment

1984

$1.0-2.5

NA

NA

NA

$0.0-0.5

NA

of imported financial services, the foreign affiliates of U.S. firms, had much higher sales,

as pointed out above. U.S. sales accounted for

36 percent of total sales for majority-owned foreign affiliates in 1982 and 43 percent in 1983.

Given the many uncertainties in this industry, particularly the lack of data on non-U. S.

sales of U.S. affiliates of foreign firms, OTA’s

estimates span a considerable range. It seems

likely that the U.S. balance of payments position in this sector was at worst a deficit of perhaps $1.5 to $2.5 billion annually over 1982 to

1984—which would be due primarily to imports

by U.S. parent firms from their foreign affiliates—and at best a surplus of more than $2.o billion. Midrange estimates would be: a deficit of

$0.4 billion in 1982, a surplus of $0.3 billion

in 1983, and a surplus of $0.9 billion in 1984.

LEASING

With a financial lease ownership of the leased

item transfers ultimately to the lessee, while

the lessor retains title with an operating lease

or rental agreement. In both cases, the lessee

makes pre-arranged payments for the use of the

leased assets. Financial leasing may be either

direct, in which the lessor provides full financing, or leveraged, in which third-party investors may provide debt funding in addition to

lessor financing, In recent years, tax advantages

have encouraged the rental or leasing of computers, automobiles and trucks, and other capital equipment—e. g., industrial machinery.

Small and/or rapidly expanding firms with

limited sources of capital also find it to their

advantage to rent or lease. Because financiaI

leases function much like purchases of goods

on credit, the emphasis in this section is on

operating leases, which are unambiguously

service products, However, separation of the

two has not always been possible,
80

Equipment manufacturers may operate subsidiaries that rent or lease their own products

(e.g., computers). Banks have also entered the

leasing business alongside independent leasing and rental firms. OTA has been unable to

separate foreign leasing by U.S. banks from

other revenue-generating bank activities, so that

bank leasing revenues are included in the

“Commercial Banking” section. The estimates

in this section cover only firms whose primary

business is leasing, including, however, subsidiaries of banks and equipment manufacturers set up for this purpose,

Domestic Industry

New lease receivables reached an estimated

$74.5 billion in 1984, and $80,5 billion in 1985,

Table 35 shows that new leases have remained

at a level of about 27 to 28 percent of business

investment in capital equipment over the past

few years, following rapid growth during the

latter part of the 197os. Because no single SIC

group encompasses all leasing activity, and because organizations ranging from insurance

companies and banks to captive financing firms

engage in leasing, Federal Government sources

do not provide information on the number and

size of firms constituting this sector.

No reliable estimates of employment in the

U.S. equipment rental and leasing industry are

available.

Measuring Foreign Activity in

Equipment Leasing

Foreign leasing may be either cross-border,

where lessor and lessee are located in two different countries, or indirect, where the lessor

is a foreign affiliate. No comprehensive data

on cross-border leasing revenues are available;

the estimates below are based on partial data

from major international lessors as well as

OTA’s estimates of internationally leased

assets,

Structure and Nature of Industry Practices

Internationally

The Department of Commerce places the

world leasing market, in terms of new lease investment, at approximately $92 billion in 1982,

with developed countries accounting for over

95 percent of the total, and the United States

alone about two-thirds of the worldwide total.

Japan was the second largest market for new

lease investment at $9.2 billion, or roughly 10

percent of the world total (figure 26).

As with leasing in the U.S. market, many

types of firms engage in leasing internationally.

Tax policies affect international leasing patterns, along with the other factors that have led

to extensive leasing in the United States—

reduced front-end expenditures for capital

goods, greater flexibility for the lessee, and, on

the lessor’s side, diversification of asset-earning

portfolios.l2 Among the tax benefits peculiar

to cross-border leasing, “double-dipping” OCcurs when both lessor and lessee can claim tax

preferences because of differing national definitions and/or tax treatment of leased assets,

Recent U.S. legislation has limited the extent

to which U.S. tax benefits can be transferred

lzon the financia] benefits of leasing, see World Leasing yearbook 1985 (London: Hawkins Publishers Ltd., 1985).

Table 35.—Leasing as a Percentage of Business Investment in Equipment

Equipment leasing Business investment Leasing as a percent of

(new lease receivables) in equipment business investment

(billions of dollars) in equipment

1978 . . . . . . . . . $26.5 $170.2 15.60/o

1980 . . . . . . . . . 43.5 197.8 22.0

1982 . . . . . . . . . 57.6 207.5 27.8

1984 . . . . . . . . . 74.5 274.5 27.1

1985 b . . . . . . . . 80.5 300.1 26.8

aBusiness investment in equipment represents private nonresidential investment in producers’ durable equipment.

bEstimated.

SOURCE 1986 U.S /rrdustria/ Out/ook (Washington, DC US Department of Commerce, January 1986), p, 53-1
81

Figure 26.–Global Leasing Market (new leases, 1982)

(billions of dollars)

Other Developing

developed nations

nations $4.0 (4°/0)

Unli‘ed

France

$39 (4°/0) /

Australia

$4.5 (50/0 ) 1

TOTAL: $92 billion

SOURCE Computed from data tn Cornpet/tive Assessrnenf of the U S Equ/prrrent

Leas/rtg Industry (Washington, DC Department of Commerce, Inter.

national Trade Admln!strat!on, March 1985), p 23

to non-U.S. entities via cross-border leasing. As

a consequence, U.S. lessors have evidently curtailed their cross-border business.

For independent equipment leasing and

rental firms, the 1982 Census of Service Industries provided information, for the first time,

on the international business of U.S. operating

lessors. The Census identified over 17,000 operating leasing establishments, excluding automobile and computer rental/leasing. Of these, less

than 3 percent (481 establishments, mostly

among the larger firms, as indicated by a share

of total industry receipts of 7 percent) indicated

that some fraction of their receipts came from

nonresidents of the United States. Not all of

these establishments reported the level of their

foreign receipts; of those that did, an average

of one-third of total receipts represented leases

with nonresidents. Table 36 indicates the relative importance of heavy construction equipment in foreign leasing.

U.S. lessors also operate through affiliates

and subsidiaries abroad. The 1982 benchmark

survey of FDI indicated that 9 U.S. equipment

rental and leasing firms maintained 19 affiliates abroad (including nonleasing affiliates).

Table 36.—Receipts From Nonresidents for

U.S. Leasing Establishments Reporting

Nonresident Receipts, 1982

Equipment leasing, except finance leasing . . . . 43.20/o

Rental of heavy construction equipment

with operators . . . . . . . . . . . . . . . . . . . . . . . . 26.4

Equipment rental . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.5

Leasing and rental of heavy construction

equipment without operators . . . . . . . . 4,2

Overall. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.8 0/0

SOURCE: 1982 Census of Service /ndustr/es M/sce//aneous Subjects (wdShlflCJ.

ton, DC U S Department of Commerce, Bureau of the Census Decem.

ber 1985), p 142

The survey also identified 84 other affiliates

classified as equipment leasing and rental firms,

which emphasizes the importance of the leasing

affiliates of U.S. parents whose primary business places them in other industries, (Once

again, these affiliate figures exclude automobile and computer rental and leasing firms; nor

do they include banking and financial affiliates

abroad that engage in leasing in addition to their

other financial services activities. )

Foreign Revenues in Equipment Leasing

Table 37 summarizes OTA’s estimates. At

most direct cross-border leasing appears to generate about 25 percent of foreign revenues; leasing revenues of foreign affiliates account for

the remaining 75-plus percent. While data on

direct foreign leasing in the United States are

almost totally lacking, the stream of revenues

generated by cross-border leasing into the

United States seems to be less than $1 billion

annually.

Table 37.— Foreign Revenues in Equipment

Rental and Leasing (billions of dollars)

1982 1983 1984

Foreign revenues of U.S. firms:

$4.4-5.5

U.S. revenues of foreign firms:

Direct imports . . . . . . $0.0-1.0

Affiliate sales . . . . . . 0.2-0.3

$0.2-1.3

SOURCE Off Ice of Technology Assessment

$4.5-5.6 $4.6-5.7

$0.0- 1.0 $0.0-1.0

0.2-0.3 0.2-0,3

$0.2-1.3 $0.2- 1.3
82

Balance of Payments in Equipment Leasing

Because data on foreign leasing operations

in the United States are so scarce, OTA could

not estimate with confidence the U.S. current

account balance in leasing, nor even determine

whether the Nation runs a current account surplus or deficit in this category. However, it can

probably be assumed that the annual current

account surplus or deficit in leasing is less than

$1 billion (table 37).

LEGAL SERVICES

Trade takes place when legal services are provided directly in foreign markets, or when foreign customers purchase them in the domestic market of the service provider. Specialized

legal services supplied in conjunction with

other services—e. g., accounting, management

consulting, financial services—are generally

treated as part of the service in question; this

discussion covers only those business entities

established primarily to supply legal services.

Domestic Industry

A growth industry in the United States,

receipts for legal services have increased by 12

percent or more each year since 1979. The industry’s revenues reached $55 billion in 1985.

Most of the firms in the U.S. legal services industry are small, often practices with one or

two lawyers and annual receipts of less than

$100,000, In 1982, almost three-fourths of all

firms in the industry had receipts of less than

$250,000; fewer than 1 percent had receipts in

excess of $5 million. The 1982 Census of Service Industries found that the 50 largest legal

service firms that year accounted for about 7

percent of total industry receipts. According

to that Census, business clients accounted for

49 percent of the industry’s revenues, and individuals (including estates) 44.5 percent. The

remainder represented government purchases

of legal services and other sources of income.

About one-fourth of the 700,000-some people employed in legal services in 1985 were lawyers. About 70 percent of practicing attorneys

work for legal service firms or in private practice, with the rest holding jobs in corporations,

trade associations, government, and other organizations. Of those in the legal services industry, about 44 percent work in general practice,

with 10 percent specializing in negligence, 7.4

percent in corporate law, and 5.4 percent in

real estate,

Structure and Nature of Industry Practices

Internationally

Trade in legal services takes two forms: lawyers and legal service firms can seek customers in foreign markets; they can also work in

their domestic market, providing services to foreigners.ls Given the regulatory structures typical of the legal profession, American lawyers

and legal service firms operating abroad generally provide legal consultation rather than

practice in courts of law; they may give legal

advice (notably, advice on U.S. law for foreign

clients), engage in negotiations, prepare documents. The restrictions faced by American lawyers in foreign markets vary from country to

country, and may include: citizenship requirements for admission to the local bar; restrictions to acting as legal advisors; restraints that

prevent local and foreign attorneys from working for or with one another.

Foreign lawyers seeking to practice in the

United States also must deal with restrictions,

generally at the State level. Citizenship cannot

be a requirement for bar admission, following

a Supreme Court decision in 1973. In New

York, the largest center of foreign legal activity in the United States and one of the four or

five centers for international legal practices,

consultants from foreign countries may be

licensed without passing the bar exam, but

licensed foreign legal consultants can only give

13 Much of the following discussion is based on S. M. Cone, III,

“Government Trade Policy and the Professional Regulation of

Foreign Lawyers, ” unpublished manuscript, Feb. 8, 1986.
83

advice based on that received from a member

of the New York bar. Pending proposals in the

District of Columbia and Hawaii would create

similar guidelines for the licensing of foreign

attorneys, but a recently adopted Michigan rule,

and a pending proposal in California, prohibit

foreign attorneys from advising on State or Federal law, although permitting consulting on the

laws of their own countries. Similarly, the Illinois Supreme Court recently rejected a petition that would have permitted foreign legal

consultants to offer advice on U.S. and Illinois

law.

Foreign Revenues in Legal Services

Table 38 summarizes estimated U.S. foreign

revenues in legal services, as well as the U.S.

revenues of foreign legal service providers. The

figures on direct trade have been based on judgments of informed industry sources. Foreign

affiliates of U.S. legal firms had negligible revenue in 1982 and 1983; most overseas operations represent a direct extension of a firm’s

domestic business, rather than a locally incorporated entity. The most recent Commerce survey of FDI, in 1983, reported no U.S. legal affiliates of foreign firms.

Balance of Payments in Legal Services

Essentially all of the foreign revenues in table

38, then, represent direct trade in legal services, as opposed to affiliate sales. The United

States is almost certainly a net exporter of legal services, although the magnitude of the surplus is unlikely to be more than $1 billion annually.

Table 38.—Foreign Revenues in Legal Services

(billions of dollars)

1982 1983 1984

Foreign revenues of U.S. firms:

Direct exports ... ... ... ... . .$0.0-2.0 $0.0-2.0 $0.0-2.0

Affiliate sales . . . . . . . . . . . . . . 0.1 0.1 NA

$0,1-2.1 $0.1-2.1

U.S. revenues of foreign iirms:

Direct imports ... ... ... ... . .$0.0-1.0 $0.0-1.0 $0.0-1.0

Affiliate sales . . . . . . . . . . . . . . —a

$0.0-1.0 $0.0- 1.0 $0.0-1.0

NA = Not available

aNegl!gible

SOURCE Office of Technology Assessment

Companies negotiate licenses for the use of

patents, trademarks, and know-how, with

charges in the form of royalties and license fees

that normally depend on the licensee’s sales volume. More so than franchising or leasing, this

category of services is not an industry, but a

business activity that cuts across most industries, goods-producing as well as serviceproducing. Unless otherwise noted, charges

other than royalty and license fees—management fees, charges for the use of tangible property, fees for services rendered, film rentals—

have been excluded from this category.

Domestic Industry

While licensing is common domestically as

well as internationally, the Federal Government

does not collect data on the extent of licensing

payments within the United States.

Measuring Foreign Activity in Licensing

For analytical purposes, licensing between

parent firms and affiliates must be distinguished from unaffiliated licenses. The latter

can be assumed to represent arms-length transactions, with charges that reflect a market

value. The former cannot, because multinationals make use of licensing fees to move funds

internationally—e. g., seeking to minimize their

worldwide tax bills, to circumvent foreign exchange restrictions. Outbound licensing, in

which U.S. firms charge fees to foreign firms

for patents, know-how, or trademarks, greatly

exceeds inbound licensing.

BEA gathers quarterly data on receipts and

payments of royalties and license fees. The BEA

data can be disaggregated into affiliated and

unaffiliated receipts and payments, and subdivided to some extent by industry and geo-
84

graphic region. Unfortunately, the disaggregation cannot be extended to new licensing

agreements versus receipts and payments on

continuing agreements. Because many agreements remain in force for years, there is no way

to directly determine trends in new licensing

agreements over time. In addition, some types

of licenses—primarily technology exchange

agreements, in which the parties do not assign

explicit prices—are not reported.

Structure and Nature of Licensing

Internationally

For licensing between affiliated

Practices

firms, the

1982 outbound benchmark of U.S. direct investment abroad provides the maximum level of

available detail by industry. Table 39 shows that

net licensing receipts of U.S. parent firms have

been concentrated most heavily in manufacturing, particularly nonelectrical machinery

(which includes computers and office equipment) and chemical products (including pharmaceuticals). Service industry parents accounted for $135 million in net receipts, less

than 4 percent of the total.

Table 39.—Distribution by Industry of 1982

Net Licensing Receipts of U.S. Parent Firms

From Their Foreign Affiliatesa

Percent of all

affiliated net

Iicensina receipts

Manufacturing. . . . . . . . . . . . . . . . . . . . .

Food and kindred products . . . . . . .

Chemicals and allied products . . . .

Primary and fabricated metals . . . .

Machinery except electrical . . . . . . .

Electric and electronic equipment .

Transportation equipment . . . . . . . .

Instruments and related products . .

Other manufacturing . . . . . . . . . . . . .

Other industries . . . . . . . . . . . . . . . . . . .

Wholesale trade . . . . . . . . . . . . . . . . .

Services b 

. . . . . . . . . . , . . . . . . . . . . . .

Other . . . . . . . . . . . . . . . . . . . . . . . . . .

78.20/o

3.1 “/0

17.5

1.7

36.0

5.2

1.5

5.2

8.0

21.8

17.1

3.8

0.8

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0 ”/0

Total net receipts . . . . . . . . . . . . . . . . . . $3.57 billion

aDistribution by tndustry of U.S Parent

bAlso includes construction, transportation, communication, banking, finance,

insurance, real estate, and reta!l trade,

NOTE’ Subtotals may not add due to rounding

SOURCE U.S. Direct /nvesfrnent Abroad 1982 Benchmark Survey Data

(Washington, DC: U.S Department of Commerce, Bureau of Economic

Analysis, December 1985)

The data on the receipts and payments of the

U.S. affiliates of foreign parents—i.e., inbound

affiliated receipts and payments—provide less

detail. Manufacturing industries account for

about half of all royalty and license payments

of U.S. affiliates, with chemicals making up half

the payments in manufacturing.

While the dollar values assigned to unaffiliated royalty and license fees are more meaningful, the relatively high level of aggregation

hinders interpretation. Moreover, royalty and

license fees for patents, trademarks, and knowhow cannot be separated from other fee and

royalty charges—e. g., management fees, However, BEA believes that royalty and license fees

represent the predominant share of unaffiliated

fee and royalty data. Unaffiliated receipts by

U.S. firms and individuals exceeded payments

by $1.3 billion in 1982 and 1983, and $1,2 billion in 1984. Payments grew more rapidly over

the period, increasing by 23 percent from 1982

to 1984, with receipts essentially unchanged.

Figure 27 shows receipts by industry; there are

no comparable data for payments.

Balance of Payments in Licensing

Table 40 summarizes the impact of licensing

on the U.S. balance of payments. The overall

surplus has been about $4.5 billion, one of the

larger surpluses in the service categories. Net

affiliated receipts accounted for 80 percent of

the total surplus in 1982 and 1983, and 84 percent in 1984.

Geographic Distribution of Licensing Activity

Table 41 summarizes net receipts (at the maximum level of available detail) of affiliated

royalty and license fees in manufacturing industries by location of the foreign affiliate. The

industrialized nations account for almost all of

the net receipts, 92 to 95 percent annually over

the period 1978-84, with the most rapid growth

in receipts from Canada, the non-Latin American developing nations, and the Australia/New

Zealand/South Africa (ANZSA) group.
85

—

(n

c

0.—=.—

g

(n

al

.—

(n

cl)

al

‘5

Figure 27.— U.S. Unaffiliated Receipts of Fees

and Royalties by Industry, 1982-84

1,600

1,400

1,200

1,000

800

600

400

200

0

1982 1983 1984

Year

Chemicals

NOTE Data Include royaltles and Ilcense fees and other unaffiliated fees

SOURCE Department of Commerce, Bureau of Economtc Analysls, unpublished

data

Figure 28 gives the distribution of unaffiliated

fee and royalty receipts and payments for 1984.

The United States ran a surplus with all regions,

including a surplus of $471 million with Japan

and $371 million with Western Europe.

Table 40.– Balance of Payments in Licensing

(billions of dollars)

1982 1983 1984

U.S. receipts:

Unaffiliated ... . . . . . . . .

Affiliated inbound . . . . . . . .

Affiliated outbound . . . . . . .

U.S. payments:

Unaffiliated ., . . . . . . . . . .

Affiliated inbound . . . . . . . . .

Affiliated outbound . . . . . . .

U.S. net receipts:

Unaffiliated ., . . . . . . . . . . . .

Affiliated inbound . . . . . . . . .

Affiliated outbound . . . . . .

$1.5 $1.6 $1.6

—a —a —a

3.6 3.5 3.8

$5.2 $5,2 $5.5

$0.3 $0.3 $0.3

0.4 0.5 0.6

—a —a —a

$0.7 $0.8 $1.0

$1.3 $1.3 $1.2

–0,3 – 0.4 –0.6

3.6 3.5 3,8

$4,5 .—

$4.4 $4.5

a Less than $100 m{lllon NOTE Totals may not add due to rounding

SOURCES Survey of Current E?us/ness, various Issues U S D/reef /nvesfrrrent

.Abroad’ 1982 Benchmark Survey Data (Washington, DC U S Department of Commerce, Bureau of Economic Analysis, December 1985)

Figure 28.– U.S. Unaffiliated Fees and Royalties, 1984

Western Europe T 1

1 J

Canada/Aust ral la/

New Zealand

G

Other 1 1

1

1 1 1 1 1 1

300-200 100 0 100 200 300 400 500 600 700

Mill Ions of dollar s

Net receipts Payments Recel pts

SOURCE C L Bach, ‘ U S International Transact Ions, Fourth Quarter and Year

1984, ’ Survey of Current Busirress, March 1985 pp 29-58

Table 41 .—U.S. Parents’ Net Affiliated Receipts of Royalties and License Fees in Manufacturing

1978 – 1980 1982 1983 1984 Percent increase

(millions of dollars) 1984 over 1978

Canada . . . . . . . . . . . . . . . . . . . . . . . . . $-

279 $ 334 $ 364 $ 400 $ 439 57.3 “/0

United Kingdom . . . . . . . . . . . . . . . . . . 350 433 418 408 436 24.6

Other Europe . . . . . . . . . . . . . . . . . . . . 1,132 1,586 1,316 1,514 1,517 34,0

Japan . . . . . . . . . . . . . . . . . . . . . . 273 NA 261 335 380 39,2

ANZSA a 

. . . . . . . . ... , . . ... . . 80 NA 99 90 120 50,0

Latin America . . . . . . . . . . . . . . . . . . . . 86 138 102 76 107 24.4

Other ., . . . . . . . . . . ... . . . . 39 66 67 69 68 74.4

$2,242 $3,014 $2,627 $2,891 — $3,067 36.80/o

aAu Stralla, NeW Zealmcj and south Africa

NOTE Totals may not add due to rounding

SOURCES 1978.83 :Serv~ce Trar?sacttons tn the U S Interr?attonal Accounts, 1977-7983 (Washington, DC U S Department of Commerce, Bureau of Economic Analysis,

n o date), and 1984: U S Department of Commerce Bureau of Econom IC Analysls, u n publ tshed data
86

MANAGEMENT, CONSULTING, AND PUBLIC RELATIONS

Companies in this industry group provide

management and administrative services, public relations services, management consulting,

economic, behavioral, and marketing research,

and related service products on a contract or

fee basis.l0

Domestic Industry

Firms in this sector had sales estimated at

$28 billion in 1984. Receipts were $24.8 billion

in 1983 and $20.6 billion in 1982. As reported

in the 1982 Census of Service Industries and

indicated in figure 29, management consulting

has been the biggest segment of the industry,

which is populated by relatively small enterprises. Of nearly 39,OOO consulting firms (and

more than 41,000 establishments) identified in

the 1982 Census, only 88 had revenues of more

than $10 million. The 50 largest took in 17.6

percent of total industry revenues.

As might be expected from the rapid growth

in revenues, employment has also expanded—

from 366,000 in 1982 and 403,000 in 1983 to

458,000 in 1984.

Measuring Foreign Activity in

Consulting Services

Many firms provide consulting and management services—e.g., to their foreign subsidiaries—as part of other businesses. So far as possible, these activities, along with consulting

provided by accounting and financial service

firms, law offices, health service management

firms, etc., have been excluded from the estimates below.

lqThe following are not included:

●

●

●

●

consulting supplied as a byproduct of other services (see,

for example, “Accounting” and “Advertising”);

firms engaged primarily in the business of providing information, database, and videotex services (see “lnforrnation

Services”];

firms providing management services that also include operating staff (hotel management, computer facilities management]; and

firms proiiding construction management services (see

“Construction” and “Engineering, Architecture, and Surveying”).

Structure and Nature of Industry Practices

Internationally

The 1982 benchmark survey of U.S. FDI revealed that U.S. firms had direct equity positions in 118 foreign management, consulting,

and public relations affiliates, The parent firms

of more than half the affiliates fell in industries

other than management, consulting, and public relations, Independently, the U.S. International Trade Commission (ITC) estimated in

1981 that 75 to 80 American consulting firms

maintained overseas offices.

Slightly more than 4,OOO of 41,OOO establishments reported sales to nonresidents in the 1982

Census of Service Industries. As tables 42 and

43 indicate, for those with sales to nonresidents,

the share was substantial, 22.6 percent of

receipts overall. These 4,000-plus establishments held a combined share of the U.S. market in 1982 of about 18 percent, indicating that

Figure 29.— Management, Consulting, and Public

Relations Industry Receipts, 1982 (billions of doilars)

Public relations

$1.1 (6.6°/0) Management

Ec

be

re:

$2

Other c

$2.1 (13

onomlcl

havioral

search

6 (16,2°,

-lg

4 “/0)

Management/admi nist rat ive

services

$4.2 (26.40/o)

TOTAL: $16.0 billion

SOURCE: 1982 Census of Service Industries: Misce/Lwreous Subjects (Washington, DC: Department of Commerce, Bureau of the Census, December

1985), p 142
87

Table 42.—Percent of U.S. Management, Consulting,

and Public Relations Establishments Indicating

Sales to Nonresidents, 1982

Economic and behavioral research . . . . . . . . . . . . 10.5 %

Management consulting . . . . . . . . . . . . . . . . . . . . 12.9

Public relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.8

Management and administrative services . . . . . 4.2

Overall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.80/o — —

SOURCE 1982 Census of Service Irrcfus(ftes M/scellar?eous Su@ecfs (Washing.

ton, DC U S Department of Commerce, Bureau of the Census, December 1985) p 142

Table 43.—Percent of Receipts From Nonresidents for

U.S. Management, Consulting, and Public Relations

Establishments Reporting Nonresident Sales, 1982

Economic and behavioral research . . . . . . . . . . . . 23.8% 

Management consulting . . . . . . . . . . . . . . . . . . . . . 17.6

Public relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.8

Management and administrative services. . . . . . . 35.4

Overall ! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.6°/0

SOURCE 1982 Cer?sus of SewIce Industries Mfsce//aneous Sub/ects (Washington DC U S Department of Commerce, Bureau of the Census, December 1985), p 142

exporting firms were somewhat larger than

average. This was particularly true for management and administrative consulting.

Incomplete information on foreign consulting activity in the U.S. market indicates that

total sales were well under $1 billion annually

over the 1982-84 period, mostly provided by

overseas affiliates of U.S. firms. The latter get

roughly one-third of their sales through transactions with U.S. parent firms. Nevertheless,

U.S. purchases of management, consulting, and

public relations services from foreign affiliates

come to only 2 or 3 percent of total domestic

sales.

Foreign Revenues in Consulting Services

Table 44 indicates that direct exports accounted for perhaps one-third to one-half of

total foreign revenues, with the remainder generated by affiliates. U.S. imports of management, consulting, and public relations services

are unknown, but probably amount to less than

$0.5 billion annually exclusive of sales to the

Table 44.—Foreign Revenues in Consulting Services

(billions of dollars)

1982

Foreign revenues of U.S. firms:

Direct exports ... ... ... ... . .$0.5-1.1

Affiliate sales . . . . . . . . . . . . . . 1.2

Majority-owned . . . . . . . . . . . 1.2

Minority-owned . . . . . . . . . . . —a

$1.7-2.3

1983

$0.6- 1.4

1.2

1.2

—a

$1.8-2.6

U.S. revenues of foreign firms:

Direct imports ... ... ... ... . .$0.0-0.5 $0.0-0.5

Affiliate sales . . . . . . . . . . . . . . NA 0.1

1984

$0.6-1.6

NA

NA

NA

$0.0-0.5

NA

$0.1-0.6 —

NA –- Not avallableaNegllglble

SOURCE Off Ice of Technology Assessment

United States by the foreign consulting affiliates of U.S. firms.

Balance of Payments in Consulting Services

OTA cannot say with certainty whether the

United States runs a surplus or deficit in direct trade of consulting services, but the balance either way is probably less than $1 billion.

The estimates in table 44 indicate that the Nation maintains a positive balance in direct trade

among unaffiliated parties This is offset to some

degree by imports from U.S. affiliates abroad.

Foreign affiliates of U.S. firms sold $0.6 billion

annually in services to the United States in 1982

and 1983; essentially all of these sales were to

their U.S. parents.

Geographic Distribution of Foreign Revenues

Responses to the ITC survey mentioned above

suggest that as much as two-thirds of foreign

revenues come from Canada and Europe. (The

Commission’s sample included accounting

firms that provided consulting services.) It appears that private companies purchase most of

the exports of U.S. consulting services in the

industrialized world, but that in developing

countries, governments and international organizations are major customers.
88

MOTION PICTURES

American movies and television programming play in many parts of the world, with payments for film and videotape rentals abroad a

substantial source of income for the industry.

This category of trade includes distribution

agreements covering all types of film and videotape, as well as production costs incurred in

overseas locations.

Domestic Industry

Industry revenues came to an estimated $15.6

billion in 1984, $14.5 billion in 1983, and $14.0

billion in 1982. The most recent Census of Service Industries identified more than 7,3oo firms

engaged in the production, distribution, and

services segment of the industry in 1982, but

11 large concerns, each with revenues in excess of $100 million, had nearly half (46.6 percent) of total receipts.

Employment for 1984 was about 220,000,

with some 47 percent having jobs in production firms.

Measuring Foreign Activity in Motion Pictures

While films remain the single largest component of rental receipts, in recent years, foreign revenues from the various forms of television programming have increased rapidly.

The Motion Picture Association of America

(MPAA) estimates that by 1984 foreign revenues from television, pay-TV, and videotapes

for home use totaled more than film rentals

from theaters. Table 45 gives the distribution

of receipts for 1980 and 1984, showing in particular the rapid growth in home video rentals.

Revenues from foreign films shown in the

Table 45.—Estimated Percentage Distribution of

Foreign Revenues in the U.S. Motion Picture Industry

1980 1984

Theatrical . . . . . . . . . . . . . . . . . . 73.7 ”/0 41 .9 ”/0

Television . . . . . . . . . . . . . . . . . . 25.7 33.9

Pay-TV. . . . . . . . . . . . . . . . . . . . . — 0.6

Home video . . . . . . . . . . . . . . . . 0.7 23.6

100.0 ”/0 100.0 ”/0

NOTE Totals may not add due to rounding

SOURCE Motion Picture Association of Amer!ca, unpublished data

United States trail considerably behind the

overseas rentals of American films, although

foreign films represent a significant fraction

of all releases in the United States—34 percent

in 1985, according to Variety.

Structure and Nature of Industry Practices

Internationally

Production in foreign countries also creates

trade flows. In 1984, 46 of 130 film starts by

major Hollywood producers, and 105 of 188 independent studio productions, took place overseas. Since costs are lower abroad, U.S. producers frequently look to other countries for

sites, but foreign producers seldom come here.

An upper bound on the overseas expenditures

of U.S. film makers, and hence on imports of

production services, would be about $2 billion

(based on assuming costs per film start to be

the same here and overseas). While the U.S. affiliates of foreign firms in this industry had total sales of $0.8 billion in 1982 and nearly $1,0

billion in 1983, no breakdowns by industry segment (production, distribution, box office) are

available.

Foreign Revenues in Motion Pictures

Table 46, summarizing OTA’s estimates, includes the estimated overseas expenditures of

U.S. film production companies, as well as inTable 46.—Foreign Revenues in Motion Pictures

(billions of dollars)

1982 1983 1984

Foreign revenues of U.S. firms:

Direct exports . . . . . . . . . . . . . . $1.6

Affiliate sales . . . . . . . . . . . . . . 1.5

Majority-owned . . . . . . . . . . . 1.4

Minority-owned . . . . . . . . . . . 0.1

$3.1

U.S. revenues of foreign firms:

Direct imports a ... ... ... ... .$0.1-1.4

Affiliate sales . . . . . . . . . . . . . . 0.8

$1.9 $1.9

2.0 NA

1.9 NA

0.1 NA

$3.9

$0.1-1.7 $0.2-2.7

1.0 NA

0.9-2.2 1,1-2.7

NA = Not available

alncludes estimated overseas expenditures of U.S film producers as well as Us

film rental payments

SOURCE Office of Technology Assessment
89

ternational film rental fees, in the direct export

and import figures. As the table indicates, direct exports produce about half of U.S. foreign

revenues, affiliate sales the rest. Uncertainties

concerning overseas production expenditures

by U.S. companies translate into a wide range

of estimates for imports. If foreign film production costs were comparable to U.S. costs, then

the annual overseas expenditures of the American industry would exceed $1 billion. But these

costs are certainly less. How much? Not only

will that depend on the country of production,

but on whether the film maker is one of the major firms or an independent. Many of the latter

have much lower costs, and in 1984 they accounted for fully 70 percent of foreign film

starts by U.S. production companies (compared

with 59 percent of all film starts, domestic plus

foreign). Finally, some unknown fraction of the

costs of foreign film starts by U.S. firms will

be incurred in the United States—e.g., some

salaries.

ments estimates. While the United States has

run an estimated annual surplus of at least $0,5

billion and possibly in excess of $1.5 billion in

the film rental and distribution segment of the

industry, some of this will be offset by foreign

production expenditures. Overall, the balance

of payments in the motion picture industry has

probably been on the order of a $1 billion surplus annually.

Geographic Distribution of Foreign Revenues

The MPAA ranks the 10 largest markets for

U.S. motion pictures in this order: Japan, Canada, France, West Germany, the United Kingdom, Italy, Spain, Australia, Mexico, and

Sweden. Variety’s summary of the geographic

distribution of rental receipts for major U.S.

distributors puts Canada in first place, however,

with 17 percent of foreign rentals, followed by

Japan at 12 percent, France at 11 percent, and

West Germany at 7 percent.

Balance of Payments in Motion Pictures

The uncertainties in overseas production expenditures carry over to the balance of payCOMPUTER SOFTWARE

Companies in this industry develop, produce,

maintain, and upgrade software on both a custom and packaged basis. OTA includes the software content of turnkey systems, along with

the software revenues of firms that manufacture hardware. Data processing, database, and

other information services and computer services have been excluded (see sections on “Data

Processing” and “Information Services”).

Domestic Industry

In part because hardware manufacturers sell

so much software—more than 4 billion dollars’

worth for IBM alone in 1985—there are no official government figures on the size of the industry or the size of the U.S. market, Worldwide, 1985 software sales have been put at

perhaps $3o billion, with U.S. suppliers, including the foreign affiliates of American firms, taking about 70 percent of the total, or $21 billion.

The Commerce Department estimates that the

sales of American firms broke down as follows:

packaged programs, $14 billion; custom software, about $4 billion; and systems integration,

perhaps $3.5 billion. By type of firm, the market divides roughly as follows: hardware manufacturers and independent software producers, each 40 percent, and systems integrators,

20 percent,

Estimated total employment in the U.S. industry was 508,000 as of mid-1985, excluding systems analysts and self-employed programmers,

Measuring Foreign Activity in Software

Hardware manufacturers and systems integrators provide a great deal of computer software bundled with hardware, making it diffi-
90

cult to estimate software revenues. When the

software does not carry a separate price, but

is included in the system price, the value of software exports must be approximated. Such approximations tend to be crude—e.g., based on

rules of thumb for the fraction of system cost

or price that can be attributed to software as

a function of the size of the system (software

tends to represent a greater fraction of system

cost for large machines).

Structure and Nature of Industry Practices

Internationally

Sixty percent of firms responding to the 1984

International Software Survey of the Computer

Software and Services Industry Association

(still known as ADAPSO) reported foreign revenues. As table 47 shows, many of the smaller

companies in this industry do business internationally as well as in the United States.

Among the firms surveyed with international

operations, 71 percent maintained a presence

in the United Kingdom, followed by Canada

and Australia (both 59 percent), France (56 percent), and West Germany (49 percent). The

ADAPSO survey also indicated that 8 percent

of these firms marketed software abroad exclusively through subsidiaries, 38 percent through

agents or distributors, with 54 percent using

both methods. Distribution patterns and type

of foreign presence vary with country. For instance, of the firms surveyed with a presence

in West Germany, 55 percent maintained subsidiaries. In Japan, the corresponding figure

Table 47.—U.S. Software Firms With

International Sales, 1984

Size of firm Number of firms Percent with

by 1983 sales surveyed international sales

<$5 million . . . . . . . . 80 (70%) 49 ”/0

$5 to $20 million . . . . 19 (17%) 75 ”/0

$20 to $50 million . . . 6 (5°/0) 100 ”/0

>$50 million . . . . . . . — 9 (8°/0) — 100 ”/0

Overall . . . . . . . . . . . . 114 (100°/0) 610/’0

SOURCE “lnternatlonal Software Survey, ” Association of Data Processing Service Organizations, July 1984

was only 23 percent (table 48); 80 percent of

American firms with a presence in Japan had

agents’ or distributors’ offices.

Foreign Revenues in Software

OTA’s estimates, table 49, suggest that perhaps 30 to 40 percent of total foreign revenues

of U.S. firms result from direct exports, with

the rest accounted for by sales through affiliates. While there are no data on the Nation’s

software imports, analysts agree that the United

States maintains a healthy surplus of exports

over imports. American firms do, however, import some of the software that they sell in the

U.S. market from their overseas affiliates; many

develop some of their software overseas, and

they may also produce multiple copies of software developed in the United States in offshore

facilities, According to the direct investment

surveys of the Commerce Department, hardware firms have been most active in importing

software from affiliates; sales to the United

Table 48.–Type of Foreign Presence for U.S. Software Firms, 1984

(as percentage of all U.S. software firms operating in each country)

Company-owned Agents’ or distributors’ Other

subsidiaries offices organizational forms

West Germany . . . . . . . . . . . 550/0 47 ”/0 30/0

Benelux . . . . . . . . . . . . . . . . . 50 50 4

Canada . . . . . . . . . . . . . . . . . 46 39 15

United Kingdom . . . . . . . . . . 43 51 8

France . . . . . . . . . . . . . . . . . . 41 61 5

New Zealand. . . . . . . . . . . . . 35 65 4

Australia . . . . . . . . . . . . . . . . 24 63 NA

Japan. . . . . . . . . . . . . . . . . . . 23 80 4

Italy . . . . . . . . . . . . . . . . . . . . 16 84 3

South Africa . . . . . . . . . . . . . 12 85 4

NA = not available

NOTE’ Country totals may exceed 100°/0 due to multlple presence of firms

SOURCE “International Software Survey, ” Assoclatlon of Data Processing Sewice Organizations, July 1984
91

Table 49.—Foreign Revenues in Computer Software (billions of dollars)

1982 1983 1984

Foreign revenues of U.S. firms:

Direct exports (excluding turnkey systems) . $1.4 $2.2

Direct exports (turnkey systems) . . . . . . . . . . . 0.2-0.3 0.3-0.4

Affiliate salesa . . . . . . . . . . . . . . . . . . . . . . . . . 3.0-4.1 3.2-4.4

Software firms . . . . . . . . . . . . . . . . . . . . . . . . 0.2-0.8 0.2-0.8

Hardware firms, . . . . . . . . . . . . . . . . . . . . 2.8-3.3 3.0-3.6

$4.6-5.8 $5.7-7.0

U.S. revenues of foreign firms:

Direct imports . . . . . . . . . . . . . . . . . . . . . . . . . . $0.0-1.7 $0.0-2.2

Affiliate sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0-0.2 0.0-0.2

$0.0-1.9 $0.0-2.4

$2.4

0.4-0.5

3.4-4.7

0.2-0.8

3.2-3.9

$6.2-7.6

$0.0-2.7

NA

NA = not available

aAfffllate sales for other computer servtce ftrms were Included with data Processing industry totals

NOTE Totals may not add due to rounding

SOURCE Off Ice of Technology Assessment

States by overseas software affiliates were less

than $100 million in both 1982 and 1983.

Balance of Payments in Computer Software

Based on the estimates in table 49, it seems

clear that the United States ran a surplus in the

software account that may have approached

$3 billion in 1984,

Geographic Distribution of Foreign Activity

Europe has been by far the largest market for

U.S. software exports. Only the United States,

Japan, and Western Europe have large installed

bases of computer hardware at this time, with

the Japanese market hard to penetrate. While

BEA’s FDI surveys do not provide data on software itself, results for Computer and Data Processing Service affiliates, which include software

affiliates, suggest the likely patterns: Europe,

74 percent of all affiliate sales; Canada, 10 percent; other, 16 percent. Because of IBM’s large

market share, Commerce cannot reveal information on sales by region for affiliates of hardware companies.

TELECOMMUNICATIONS

In most countries, telecommunications services—notably, telephone networks—fall into the

public sector. While a few other countries have

begun to follow the U.S. lead by deregulating

some aspects of access to public switched

telecommunications networks and/or public

data networks, in most cases control remains

with government-run “postal, telephone, and

telegraph” (PTT) authorities, Value-added networks that include provision of telecommunications services (e. g., TYMNET) have been included under “Information Services” rather

than in this section. In general, however, the

telecommunications infrastructure can carry

both voice and data communications; the latter, of course, have been growing rapidly in recent years, forcing changes in regulatory regimes as well as in network equipment,

Domestic Industry

Domestic telecommunications revenues have

by now grown well beyond $100 billion; the

Commerce Department’s estimated 1984 revenues for the traditional telephone and telegraph

carriers alone comes to $98.5 billion (table 50).

Of the 1984 total, domestic revenues represented $95.7 billion and international revenues

$2.8 billion. The Commerce Department figure

for international revenues includes payments

to U.S. carriers by American customers on outgoing international calls, as well as access payments by foreign carriers on incoming calls.

According to the definitions adopted by OTA

in this report, the former are purely domestic

transactions, even though the communication

is international in nature, because both buyer
92

Table 50.—U.S. Telecommunication Industry

Revenues by Market Segment

1984 revenues

(billions of dollars)

Traditional common carriers:

Domestic service . . . . . . . . . . . . . . . . $95.7

International service . . . . . . . . . . . . . 2.8

Long-distance carriers . . . . . . . . . . . . . 2.6

Radio common carriers . . . . . . . . . . . . . 0.7

Value-added carriers . . . . . . . . . . . . . . . 0.2

Other operating carriers . . . . . . . . . . . . 0.1

Domestic satellite companies . . . . . . . 0.6

Interconnect services . . . . . . . . . . . . . . 0.6

$103.2

NOTE’ Total does not add due to rounding

SOURCE 1985 U S Industrial Outlook (Washington, DC: U.S Department of Commerce, January 1985), pp 31.3,4.

and seller are U.S. residents. Thus the figures

presented below for foreign revenues and balance of payments impact differ from those presented as “international revenues” by the Department of Commerce.

International revenues have been growing

rapidly; the Commerce Department has predicted that domestic revenues will increase by

6.8 percent in 1986, while international revenues will increase by 12.5 percent. Domestically, new and growing segments of the market such as mobile radio phone services,

packet-switched data communications, specialized long-distance carriers and domestic satellite companies accounted for about $4.7 billion of revenues in 1984–table 50.

U.S. telecommunications service firms employed some 986,000 Americans in 1984.

Measuring Foreign Activity in

Telecommunications Services

International telecommunications services

over the public network are provided jointly

by carriers in the originating and receiving

countries, with the carrier in the originating

country paying an access fee to the receiving

carrier. Thus, the fee paid by the customer to

a U.S. carrier on a voice or message transmission out of the United States actually involves

two transactions. The first is domestic, between

U.S. customer and U.S. carrier. It can be

thought of as the fee for carrying the message

to the border. The second transaction can be

viewed as taking place between the U.S. customer and the foreign carrier in the country

where the message terminates, with the U.S.

carrier acting as intermediary. The U.S. carrier remits a portion of the fee charged the customer as an access charge paid to the foreign

carrier. When the transmission passes through

intermediate countries, as many do, the billings

reflect this. In 1983, then, U.S. telephone carriers collected $2.3 billion from U.S. overseas

callers, of which they retained about $600 million and passed on $1.7 billion in access payments to foreign carriers. Similarly, foreign carriers remitted $0.9 billion to the United States

for access on incoming calls.

Particularly where PTTs continue to control

the infrastructure, tariffs for telecommunications services may not reflect the prices that

market transactions would set. For example,

subsidized service for residential customers has

been common in many parts of the world. Furthermore, no standard method exists for assigning value to services provided through the private networks that some large multinational

companies have established; such transactions

are only partially covered in the revenue estimates below. The balance of payments figures

compiled by the Department of Commerce and

utilized in OTA’s estimates include payments

to INTELSAT for leased satellite channels, but

there are no data on services provided over privately owned and operated networks.

Structure and Nature of Industry Practices

Internationally

As noted above, outgoing voice and data communications over the public network require

payments for access by the U.S. carrier. Likewise, incoming transmissions generate receipts

from foreign carriers. Table 51 summarizes

Federal Communications Commission data for

1983, the most recent year available.
93

Table 51 .—U.S. International Telephone and Telegraph Communications, 1983a

Number U.S. revenues Foreign payouts

(millions) (millions of dollars) (millions of dollars)

Communications originating in the United States:

Telephone. . . . . . . . . . . . . . . 219.9 $ 608.6 $1,730.5

Telegraph (message) . . . . . . 4.9 16.0 38.3

Telegraph (telex) . . . . . . . . . 69.6 183.2 196.2

294.4 $ 807.8 $1,965.0

Communications terminating in the United States:

Telephone. . . . . . . . . . . . . . . 178.8 $ 930.6

Telegraph (message) 3.4 10.4

Telegraph (telex) . . . . . . . . . 64.8 202.3

247.0 $1,143.3

aExcludes telegraph private line revenues and telephone and telegraph transited Communications (communications neither

originatlng nor terminating tn the United States)

SOURCE Stat/st/cs of CornrnunICafiOm Common Carriers Year Ended December 1983 (Washington. DC Federal Communl.

cations Commlsslon. no date), pp 27, 167, 170

Foreign Revenues in

Telecommunications Services

The direct export and import data in table

52 represent access receipts and payments on

international calls, as well as U.S. payments

to INTELSAT for leasing of satellite channels.

As the table indicates, direct exports of telecommunications services and sales of the foreign

affiliates of U.S. firms were roughly comparable in magnitude in 1982 and 1983, the most

recent years for which data are available.

Balance of Payments in

Telecommunications Services

Based on OTA’s estimates, table 52, the United

States ran an estimated deficit in telecommunications services of $0.8 to $1.1 billion annually

between 1982 and 1984, excluding any balance

of payments impacts of communications over

private networks. With rates varying greatly in

different countries, balance of payments figures

depend heavily on tariff structures and access

charges as well as on the volume of traffic.

Differentials for inbound and outbound calls

have started to diminish as foreign PTTs have

begun to reduce their charges in the wake of

U.S. deregulation.

Geographic Distribution of Foreign Revenues

Table 53 summarizes the revenues of U.S. carriers on incoming voice and message communications by region for 1983, the most recent year

for which such information is available, with

payments data in table 54. In dollar terms, incoming transmissions from Europe accounted

for 43 percent of telephone revenues and 31

percent of telex revenues, but only 35 percent

of total payments on outgoing voice transmissions and 25 percent for message transmissions,

Comparing the two tables shows that the United

States has been in a deficit position with all reTable 52.—Foreign Revenues in Telecommunications

Services (billions of dollars)

1982 1983 1984

Foreign revenues of U.S. firms:

Direct exports . . . . . . . . . . . . . . $1.1 $1.3 $1.3

Affiliate sales . . . . . . . . . . . . . . 1.2 1.3 NA

Majority-owned . . . . . . . . . . . 0.2 NA NA

Minority-owned . . . . . . . . . . . 1,0 NA NA

$2.3 $2.6

U.S. revenues of foreign firms:

Direct imports . . . . . . . . . . . . . . $1.9 $2.0 $2.4

Affiliate sales . . . . . . . . . . . . . . 0.2 0.0-0.6 NA

$2.1 $2.0-2.6

NA = not available

SOURCE Office of Technology Assessment
94

gions on international telephone transmissions,

a result of both the higher volume of outgoing

calls and higher per-call payouts. A similar defTable 53.—U.S. Revenues for International Voice

and Message Communications Terminating in

the United States, 1983 (millions of dollars)

Telegraph

Telephone Message Telex

Europe . . . . . . . . . . . . $395.5

Africa . . . . . . . . . . . . . 44.4

Middle East . . . . . . . . 89.4

West Indies . . . . . . . . 95.4

Central America . . . . 27.5

South America . . . . . 85.0

Asia/Pacific . . . . . . . . 187.7

$4. 2

0.6

0.4

0.4

0.2

0.9

3.0

$930.6 $10.4

$61.2

10.7

17.1

5.5

5.6

29.5

71.0

$202.3

NOTES: Totals do not add because of data adjustments unspecified in original

source. AsiaJPacific figures include Hawaii/mainland communications

SOURCE” Sfatlstics of Communications Common Carriers Year Ended Decem.

ber 1983 (Washington, DC Federal Communications Commission, no

date), pp. 24.27, 164-170

icit holds with all regions except Europe for

telegraph transmissions.

Table 54.—U.S. Payments to Foreign Carriers on

International Voice and Message Transmissions

Originating in the United States, 1983

(millions of dollars)

TRANSPORTATION

The international transportation accounts—

primarily charges for moving people and goods

between nations—also include support services

such as warehousing and port charges, By

value, air passenger travel and ocean freight

shipping greatly exceed other modes of international transportation. Among the remnants

of the cruise fleet, no more than an occasional

ship still flies a U.S. flag. Air freight has been

growing steadily, however—most of it moving

in the same planes that carry people. A few

firms—Flying Tigers, for one—specialize in international air freight, but the passenger airlines, which already have the necessary foreign

presence, take most of the business. For an indication of the scope for combining passenger

and freight operations, note that a Boeing 747

with a full load of passengers has as much residual freight capacity as a 707 devoted entirely

to cargo. Not only is land transport—e,g., by

car, truck, train, or pipeline between the United

States and Canada or Mexico—small in value

terms, but it is conceptually difficult to capture

as a trade flow.

Telegraph

Telephone Message Telex

Europe . . . . . . . . . . . . $ 595.9 $9. 3 $48.4

Africa . . . . . . . . . . . . . 51.8 1.7 10.6

Middle East . . . . . . . . 157.5 0.6 17.1

West Indies . . . . . . . . 180.2 2.3 6.2

Central America . . . . 67.6 1.3 6.3

South America . . . . . 208.9 3.7 29.4

North America. . . . . . 57.5 0.1 2.8

Asia/Pacific . . . . . . . . 404.7 13.9 74.5

$1.730.5 $38.3 $196.2

NOTE Totals do not add because of data adjustments unspecified in original

source AsidPacific figures include Hawaii North America figures include

Alaska.

SOURCE Sfafistics of Commun/catfons Common Carriers Year Ended December 1983 (Washington, DC’ Federal Communications Commission, no

date), pp 24.27, 164-170

Domestic Industry

Table 55 summarizes total operating revenues

for selected segments of the U.S. transportation services industry. Figure 30 gives the breakTable 55.—U.S. Transportation Services Revenues

(billions of dollars)

1982 1983 1984

Railroads ... ... ... ... ... ... $ 27.5 $ 26.7 $ 29.5

Water transport . . . . . . . . . . . . . 15.0 15.9 NA

Trucking . . . . . . . . . . . . . . . . . . . 177.7 188.5 208.3

Airlines . . . . . . . . . . . . . . . . . . . . 36.4 39.0 43.8

Pipelines . . . . . . . . . . . . . . . . . . 63.7 61.9 NA

Public warehousing . . . . . . . . . 3.0 NA NA

Arrangement of passenger

transportation . . . . . . . . . . . . 4.2 NA NA

$327.5

NA = not available

SOURCES Railroads, trucking: 1986 /rrdustr~a/ Out/oo/r (Washington, DC U S.

Department of Commerce, January 1986), pp 55-4, 55-8; Water trans.

port, pipelines; National Transportation Stat/sfics (Washington, DC

U S Department of Transportation, Research and Special Programs

Administration, June 1985), pp 34,40-41, Airtines: Air Trarrspofi 1985:

The Annual Report of the US Scheduled Airline /rrdustry (Washington, DC A!r Transport Association of Amertca, no date); and Public

warehousing, arrangement of paasenger transportation: 1982 Census

of Serwce /ndustries: Misce//aneous Subjects (Washington, DC U S.

Department of Commerce, Bureau of the Census, December 1985),

p 145, 152
Figure 30.— U.S. Transportation

(billions of dollars)

Receipts, 1982

Water transport Other

$150 (4.6%) $72(2..2%)

$36 .4

$2

Airl!

( 1 1

$63

SOURCES Railroads, trucking— 1986 U S lndustr~al Outlook (Washington, DC

Department of Commerce, International Trade Adm!nlstration, Janu.

ary 1986), pp 55-4, 5543 Water transport, pipelines — iVa~fo~al Trans.

portaf~on Statmt~cs (Washington, DC Department of Transportation,

Research and Special Programs Admlnlstrat{on, June 1985). PP 34,

4041, Airlines–A~r Transport 1985 The Annual Report of the U S

Schedu/ed A/r//ne Industry (Washington, DC Alr Transport Assoc!atton of America, no date), Public warehousing, arrangement of pas.

senger transportation — 1982 Census of Serv/ce Indus fr~es Mwce/.

/aneous Subjects (Washington DC Department of Commerce Bureau

of the Census December 1985), pp 145, 152

down by market segment for 1982, the most recent year for which data covering all modes

are available. In both table and figure, water

and air transport include international as well

as domestic revenues of U.S. carriers.

Measuring Foreign Activity in

Transportation Services

By convention, the nationality of the passenger, and the nationality of the importer in the

case of freight, define whether international

transportation counts as import, export, or domestic transaction for a particular nation. The

fare payment of an American flying to Europe

on a U.S. carrier represents a domestic transaction, even though the travel is international.

A similar flight on a European carrier counts

as a U.S. import of transportation services. Likewise, when a U.S. flag carrier brings imported

goods to the United States, the shipping charges

represent a domestic transaction. Transportation imports occur, not only when foreign carriers transport U.S. passengers or U.S. imported

95

goods, but when U.S. carriers pay for foreign

port services. Transportation exports occur

when U.S. carriers transport foreign passengers or U.S. exported goods, and when foreign

carriers purchase U.S. port services,

Structure and Nature of Industry Practices

Internationally

A wide range of trade barriers restrict international passenger and freight transportation.

Both air and ocean travel are governed by a

maze of national laws and intergovernmental

agreements, some imposed by national governments primarily for domestic purposes, others

with no other purpose than the restriction of

trade,

Air travel and tourism depend on one another

in obvious ways: air passenger transportation,

notwithstanding the discount fares pioneered

by carriers like Laker, remains costly. When

fares go down, tourism goes up. Low-cost routes

can bolster tourism revenues. Cheap fares to

London engender cheap fares to the continent.

Because the United States is an affluent nation,

and traditionally a large net importer of tourism (and business travel), the U.S. balance of

payments normally shows a substantial deficit on air passenger travel.

American companies compete in international transportation markets through ownership of foreign firms, as well as direct trade.

1, Waterborne Transport.—Many countries

have protected their merchant shipping fleets

from foreign competition through “cabotage

laws,” exemplified by the Jones Act in the

United States, with its national defense rationale.15 While preserving some markets for

U.S. carriers, the Jones Act not only forces

U.S. companies shipping in coastal waterways to pay higher rates than the market

would set, it places similar burdens on busi15 Ssection 27 of the Merchant Marine AC t of ] 92(), kn o~~’ n as

the Jones Act, requires that all domestic shipping (i. e., from one

U.S. port to another] mo~re by U.S.-flag k’essels, built in the United

States and crewed b} Americans. See An Assessment of ,41aritime Trfide and Technologjr (Washington, DC: Office of Te{:h -

nolo~y Assessment, October 1983), pp. 163-168, and also ap[).

H, which summarizes the cargo policies of other nations.
nesses in Alaska, Hawaii, and Puerto Rico.

Although the disparity between U.S.-flag

rates and those of foreign-flag ships has declined over the past few years, the cost

differentials remain substantial. For example, lumber shipped from Oregon to the East

Coast on U.S.-flag vessels becomes significantly more expensive than Canadian lumber shipped from Vancouver under a foreign

flag.

Shipping companies must maintain a foreign presence wherever they expect to compete, but in most countries an agency will

serve as well as an affiliate. American firms

often participate in international maritime

markets through ownership or control of flagof-convenience or other foreign shipping

operations. The 155 shipping affiliates of

American companies had total revenues of

$2.4 billion in 1983, while 33 foreign-owned

shipping concerns in the United States had

sales of only $0.9 billion. Plainly, the U. S.-

controlled share of the international shipping

market is considerably greater than indicated

by U.S.-flag shipping.

2. Air Transport.—Until recently, negotiated

bilateral agreements covered almost all international air travel. By controlling fare

structures and the exchange of routes, governments sought to shield their country’s

airlines—many of them nationalized—from

competition. Although employees of the U.S.

Government, and many foreign governments, must still use domestic airlines on international routes, flights between the United

States and Europe have been largely deregulated, Intra-European routes remain wellprotected, while competition on routes from

the United States to the Far East remains

notably less intense than for trans-Atlantic

flights.

As in ocean shipping, many U.S. air carriers have invested in overseas affiliates. In

1982, nine U.S. air transport firms, with a

combined share of the American market exceeding 50 percent, controlled a total of 71

foreign affiliates (including affiliates in other

industries).

Whether or not they have affiliates, passenger airlines that fly internationally gen3,

erally maintain a foreign presence to supplement the local travel agents in the countries

they serve. Most operate their own marketing and booking offices in major cities to provide information, sell tickets, service travel

agents, and undertake advertising and promotional campaigns. Air carriers must also

maintain facilities at foreign airports for handling passenger traffic, baggage and freight,

and for cleaning and maintaining planes. In

some cases, they purchase these services

from a local company, typically a domestic

airline, but most major carriers prefer to use

their own personnel to maintain service

levels. Many of these employees will be hired

locally, with some on assignment from the

home country; salaries for the latter come

under the port expenditures category.

Land-Based Transport.—The inland freight

balance between the United States and Canada was near zero in 1984, with receipts of

slightly over $1 billion in each direction. Data

on the balance with Mexico are not available,

but total receipts in each direction came to

less than $1 billion. U.S. FDI holdings in foreign rail operations are negligible, while U.S.

rail operations under foreign ownership had

total receipts of $0.7 billion in 1983, less than

3 percent of the market.

Foreign Revenues in Transportation Services

Table 56 summarizes foreign revenues of U.S.

transport carriers and U.S. revenues of foreign

carriers. As table 56 indicates, direct exports

made up somewhat more than half of foreign

revenues. Direct exports were more important

for the U.S. revenues of foreign firms, constituting about 80 percent of the total.

Balance of Payments in

Transportation Services

As the estimates in table 56 show, the U.S.

deficit in passenger and freight transportation

services has been growing, reaching about $4.3

billion in 1984, well above the previous 2 years’

figures. The deficit in the freight transport account grew from $2.4 billion in 1982 to $5,2

billion in 1984; the passenger transport account
97

Table 56. —Foreign Revenues in Transportation

Services (billions of dollars)

1982

Foreign revenues of U.S. firms:

Direct exports:

Freight a . . . . . . . . . . . . . $ 5.1

Passenger . . . . ... . 3,2

Port services ., ., . 7.8

Other .....,.. 0. 6

Subtotal . . . . . . . . 16.7

Affiliate salesb ................ 13.5

$30.2

U.S. revenues of foreign firms:

Direct imports:

Freight a ., . . . . . . . $ 7,5

Passenger ., ., ... 4.8

Port services . . ... . . 4.7

Other. . . . ., . . . 0.7

Subtotal . . . . . . . . . . . . 17.7

Affiliate sales . . . . . . . 4.8

$22.5 — NA not available

NOTE Totals may not add due to rounding

aExclude5 u S IMexlco Inland freight

1983

$ 5.5

3.0

8.0

0.6

17,1

10.9

$28.1

$ 8,2

5.5

4.6

0,8

19.1

5.1

$24.2

1984

$ 5.6

3.0

9.3

0.6

18.5

NA

$10.8

6.5

4.7

0.8

22,8

NA

blncludes transportation service sales of nontransportatlon affiliates

SOURCE Office of Technology Assessment

deficit increased from $1.6 billion to $3,5 billion over the same period. These were offset

to some extent by an increase in the port services surplus, from $3.1 billion to $4.6 billion,

over 1982 to 1984.

Table 57.—Geographic Distribution of U.S.

Direct Trade in Transportation Services, 1984

(billions of dollars)

Net

Receipts Payments receipts

Japan . . . . . . . . . . . . $2.8 $2.7 $ 0.1

Canada . . . . . . . . . . . . 2.6 2,3 0.4

Western Europe . . . . 5.4 9.7 –4,3

ANZSA a . . . . . . . . . . . 0.7 0.7 —

Latin America . . . . . . 2.2 2,4 –0.2

Africa/Asia . . . . . . . . . 3.8 3.6 0.2

Other/unallocated . . . 1.1 1.4 –0.3

$18.5 $22.8 $–4.3 —

aAustralia, New Zealand, and South Africa

NOTE Totals may not add due to rounding

SOURCE C L Bach, ‘U S International Transact Ions Fourth Quarter and Year

1984, ” Survey of Current Business March 1985, pp 29-58

Figure 31.– Net U.S. International Transportation Transactions, 1984

Western Europe

$-43~

Other/unallocated

Latin America

$–0.3

i

$–0,2

Australia/New Zealand/South Africa $0.0

Japan

b

$0.1

Africa/Asia $0.2

, Canada $0.4

i

L I I I I

b

1

– 5 – 4 – 3 – 2 – 1 o 1

Net payments (minus sign) or receipts

(bill Ions of dollars)

SOURCE C L Bach, “U S International Transact Ion, Fourth Quarter and Year 1984, ’ survey of Current Business, March 1985, pp 29-35
98

Figure 32.— U.S. Revenues of Foreign Transportation

Firms, 1983

10

9

8 “

7 “

6 -

5 -

4 -

3 -

2 -

1 -

n

u

Western Canada Japan Other

Europe

Geographic

Table 57

Distribution of International Activity

summarizes the geographic distribution of direct imports and exports of transportation services for 1984, with figure 31 showing net exports by region. The magnitude of

the total transport deficit in 1984 almost exactly

equaled the $4,3 billion deficit with Western

Europe; the United States ran a rough balance

with the rest of the world.

Figure 32 gives the distribution of revenues

for foreign affiliates in the United States during 1983, the most recent year available. Comparison with the direct import figures, also

given in the chart, shows that imports constituted the bulk of the U.S. revenues of Japanese, Canadian, and European firms. Firms in

these countries, combined, accounted for

roughly two-thirds of direct imports and 84 percent of affiliate sales in the U.S. market.

Direct imports Sales of U.S.

aff i I iates

SOURCES Direct sales—C L Bach, “U S International Transactions, Fourth

Quarter and Year 1983, ” Survey of Currenf Bus/ness, March 1984, PP

38436 Affiliate salea—Foreign Direct )rrvestrnenf In the Unlfed Sfafes

Operatforrs of U S Affiliates ot Foreign CornPan(es, l+el~rrtinary 1983

Estfrrrates (Washington, DC” Department of Commerce. Bureau of

Economic Analys!s, December 1985).

TRAVEL

Trade in travel services takes place when

Americans spend money while visiting another

country, or when foreigners come here. Expenditures for transportation between the countries go into that account, but travel by tourists

within a country becomes an item in the travel

service category, along with food, lodging, and

any goods purchased. Rather than representing a single service, travel-related expenditures

encompass a broad range of items; the account

registers spending by business travelers, students, and those seeking health care, as well

as vacationers. Because the category is restricted to direct expenditures of travelers,

sales of travel-related services by U.S. affiliates

abroad are not included here, but under the specific service (e. g., franchised hotels and car

rental agencies).

Domestic Industry

The U.S. Travel Data Center estimates domestic expenditures for travel-related services at

$230 billion for 1984, including both foreign

travelers in the United States and spending by

U.S. residents traveling domestically. The corresponding figures for 1982 and 1983 were $198

billion and $21o billion, respectively.

Related employment has been estimated at

4,7 million for 1982, The U.S. Travel and Tourism Administration estimated in 1983 that
99

313,000 American jobs depended on the expenditures of foreign visitors to the United

States.

Measuring Foreign Activity in Travel Services

Sample surveys of travelers entering and leaving the United States form the basis for estimates of imports and exports of travel and

tourism expenditures. In 1983, USTTA began

conducting in-flight surveys of air travelers,

with questions on purpose of trip, destination,

average expenditures, and other related information; these surveys are far more comprehensive in coverage than the BEA surveys distributed by the Customs Service (ch. 3). The

primary limitation of the USTTA surveys,

which cover only air travel, is that they provide little useful information on travel between

the United States and Canada or Mexico.

Structure and Nature of Industry Practices

Internationally

On a yearly basis, U.S. residents traveling

abroad typically outnumber foreign residents

coming to the United States. As a result, the

United States typically runs a deficit in the

travel portion of the current account. This is

true even though average per-trip expenditures

for foreign visitors to the United States in recent years have exceeded those of U.S. travelers

abroad—primarily an exchange rate phenomenon, given the decline in average dollar-denominated expenditures of U.S. travelers overseas

from 1983 to 1984. As this suggests, international tourism expenditures, and especially the

trade balance figures, depend sensitively on

inflation-adjusted rates of exchange, as well as

on income levels and air fares. Recent economic

troubles in Mexico illustrate the point: in 1981

and 1982, Mexicans spent more than $3 billion

annually in the United States, but in 1983 and

1984 the totals fell below $2 billion. In contrast,

U.S. travelers to nonborder regions of Mexico

spent $1.6 billion in 1984, compared with just

over $1 billion for the preceding year, These

shifts resulted primarily from falling real incomes and high levels of inflation in Mexico,

making travel in the United States much more

expensive for Mexicans; meanwhile, travel to

Mexico became relatively cheaper for Americans.

Figure 33 summarizes the findings of USTTA

in-flight surveys by purpose of trip. The results

suggest that foreign travel to the United States

is somewhat more likely to be for business purposes, with the greater portion of U.S. travel

abroad for pleasure. Of course, many trips have

multiple purposes—e. g., combined business

and pleasure—thus it is difficult to categorize

expenditures by purpose of trip.

Figure 34 illustrates how foreign visitors to

the United States spend their money, on the

average. While there are no comparable data

for U.S. travelers abroad, the allocation is probably not greatly different.

Balance of Payments in Travel Services

Table 58 summarizes the estimated impact

of travel services. The United States ran a surplus of about $2 billion in the travel account

in 1982, only to see that replaced by deficits

of $1.7 billion in 1983 and $2.7 billion in 1984—a

further indication of the sensitivity of tourism

expenditures to factors such as exchange rates.

As the dollar rose—and air fares dropped—the

number of Americans traveling abroad rose

from 8.5 million in 1982 to over 12 million in

1984. U.S. expenditures overseas increased by

$2 billion, while the expenditures of overseas

travelers to the United States fell by an estimated $1.3 billion. The average expenditures

of foreign visitors apparently changed little, but

the number declined from 8.8 million to 7.5 million, The size of the travel deficit would have

been even greater had not the average per trip

expenditures of U.S. travelers overseas declined

significantly. Over the 1982-84 period, the U.S.

deficit on passenger fares likewise grew from

$1.6 billion to $3.5 billion.

Geographic Distribution of Foreign Revenues

Table 59 shows travel-related receipts and

payments for 1984 by region. Europe has accounted for the largest share of both receipts

and payments. As figure 35 indicates, in 1984

the United States ran a travel surplus of over

$800 million with the Far East (principally Ja-
100

Figure 33.–lnternational Travel by Purpose of Trip, 1984

350/0

Business

9%

Attend convention

Vacation/holiday

59%

1

I

| 4%

1

90/0

90/0

o 10 20 30 40 50 60

Percent of travelers surveyed

Foreign travelers to the United States

NOTE. Totals exceed 100 percent due to incidence of multipurpose trips

U.S. travelers abroad

SOURCES: U.S. travelere ovemeas—’’lFlightht Survey of International Air Travelers: Profile of U.S. Residents Traveling to Overseas Destinations January-December 1984, ” Department of Commerce, U.S. Travel and Tourism Administration, no date; Foraign travelem to U. S.—’’In-Flight Survey of International Air Travelers: Profile of Overseas Visitors to the USA January-December 1984, ” Department of Commerce, U.S. Travel

and Tourism Administration, no date.
Figure 34. —U.S. Expenditures

Visitors, 1984

Other

60/0

of Foreign

~ Lodgin g

k 260/ o

Ent

Food and 22

an

rch

“)0

—

d

Iases

21 “10

SOURCE “ln.FllghtSurvey of international Air Travelers. Profde of Overseas VIsItors to the U S A Janua~-December 1984, ” Department of Commerce,

U S Travel and Tourism Admlnlstratlon no date

Europe

Mex!co

Canada

Far East

Caribbean

South America

Oceania

Middle East

Central America

Africa

$

101

pan), about $7OO million with Canada, and a

smaller surplus with South and Central America (excluding Mexico). The deficits with Mexico ($1.7 billion) and the Caribbean ($I.6 billion) exceeded those with Europe (nearly $1.4

billion).

Table 58.—Balance of Payments in Travel Services

(billions of dollars)

1982 1983 1984

U.S. receipts for travel services ., . $15.7

Travelers from overseas. . . . . . 10.0

Travelers from Canada . . . . . . 2,6

Travelers from Mexico . . . . . . . . . . 3.1

U.S. payments for travel services .. .$13,7

U.S. travelers overseas. . . 8.4

U.S. travelers to Canada . . . . . . . 1.9

U.S. travelers to Mexico . . . . . . . . 3.3

NOTE Totals may not add due to rounding

SOURCE Office of Technology Assessment

Figure 35. —U.S. Travel Surplus or Deficit by Region, 1984

$-1.41

1,7

$ 1.6 I

$14,1

9.0

3,2

2.0

$15.8

10.1

2,2

3.6

$13,7

8.7

3.1

1.9

$16.4

10.4

2.4

3.6 —

$0

– 2 – 1.5 –1 –0.5 o 0.5 1

Billions of dollars

SOURCES Computed from data (n “in. Flight Survey of International Alr Travelers Profile of Overseas Vis!tors to the U.S A January December 1984, ” Department of

Commerce U S Travel and Tourism Administration, no date, “ln.Flight Survey of International Alr Travelers Profile of U S Residents Traveling to Overseas

Destinations January December 1984, ” Department of Commerce, U S Travel and Tourism Adm!n!stratlon, no date and J E Bolyard ‘International Travel

and Passenger Fares, 1984. ” Survey of Current Business May 1985, pp 14.17
102

Table 59.–U.S. Travel Receipts and Payments by Region, 1984

Receipts Payments

Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.77, 27.3%

Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.7 13.6

Far East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.5 12.5

Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.8 22.8

South America . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.0 5.9

Caribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7 8.9

Oceania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 3.0

Middle East.... . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 3.0

Central America . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 1.8

Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 1.2

100.O% 100.O%

NOTE” Totals may not add due to rounding

SOURCES Computed from data In “ln.FlightSurveyof international Air Travelers Profde of Overseas Vlsitorsto theUS A

January-December 19&l,’’ US. Department of Commerce, Travel and Tourism Administration, no date; “ln.Flight

Survey of international Alr TravelersProfileof U.S Residents Traveling to Overseas Destinations JanuaryDecember

1984,’’U.S Department ofCommerce,Travel and Tourism Admlnmtration, nodate, andJ E Bolyard, ”lnternational

Travel and Passenger Fares, 1984,’’ Surveyof Current Bus/ness, May 1985, pp 14-17

MISCELLANEOUS SERVICES

Here OTA includes direct trade and affiliate

sales in several services not covered elsewhere,

along with items which BEA has traditionally

included in the services account, although they

do not strictly represent trade in (nonfactor)

services. The totals in table 60 for direct exports

of miscellaneous services include BEA estimates for the following: affiliated and unaffiliated fees (excluding royalties and license

fees included under “Licensing”); expenditures

in the United States by foreign governments

Table 60.—Foreign Revenues in Miscellaneous

Services (billions of dollars)

1982 1983 1984

Foreign revenues of U. S.:

Direct exports . . . . . . $ 4.7

Affiliate sales . . . . . 5.5

$10.2

U.S. revenues of foreigners:

Direct imports . . .

Affiliate sales . . . 2.8-3.5

$4.6-5.3

$ 5.3 $5.7

6.0 NA

$11.3

$ 1.9 $2.1

3.2— NA

$ 5.1

NA = Not avatlable.

SOURCE Off Ice of Technology Assessment

and international organizations; receipts from

Canadian affiliate trade unions; miscellaneous

commissions; wages of U.S. residents abroad;

spending by temporary resident aliens; and

other private miscellaneous services. The direct import totals include comparable items,

with minor exceptions.16 For affiliate sales, the

figures in table 60 include: agricultural services; metal mining services; R&D and testing

laboratories; lodging; and employment agencies and temporary help supply services.

The miscellaneous category does not include

estimates for a number of services on which

little or no information exists—most notably entertainment services and training services.

These have not been included in OTA’s estimates in this report; the overall impact of these

omissions on the balance of payments should

be small.

Iespecifica]ly, the import tota]s include fees (other than royalties and license fees); payments to Canadian affiliate trade unions; wages of temporar~’ resident aliens: expenditures of U.S.

residents ahroad; and other p ri~rate miscellaneous services.

U . S . GOVERNMENT PRINTING OFFICE : 1986 0 - 62-638 : QL 3