International Trade: U.S. and India Data on Offshoring Show Significant Differences
Published: 2005-10-27T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Trade in business, professional, and technical (BPT) services associated with offshoring needs to be accurately tracked, but a gap exists between U.S. and Indian data. The extent of and reasons for this gap are important to understand in order to address questions about the magnitude of offshoring and to analyze its future development. Under the authority of the Comptroller General of the United States, and as part of a body of GAO work on the issue of offshoring of services, this report (1) describes the extent of the gap between U.S. and Indian data, (2) identifies factors that contribute to the difference between the two countries' data, and (3) examines the challenges the United States has faced in collecting services trade data. GAO has addressed this report to the congressional committees of jurisdiction.
section_title: What GAO Found
paragraphs: The gap between U.S. and Indian data on trade in BPT services is significant. For example, data show that for 2003, the United States reported $420 million in unaffiliated imports of BPT services from India, while India reported approximately $8.7 billion in exports of affiliated and unaffiliated BPT services to the United States. At least five definitional and methodological factors contribute to the difference between U.S. and Indian data on BPT services. First, India and the United States follow different practices in accounting for the earnings of temporary Indian workers residing in the United States. Second, India defines certain services, such as software embedded on computer hardware, differently than the United States. Third, India and the United States follow different practices for counting sales by India to U.S.-owned firms located outside of the United States. The United States follows International Monetary Fund standards for each of these factors. Fourth, BEA does not report country-specific data for particular types of services due to concerns about the quality of responses it receives from firms when they allocate their affiliated imports to detailed types of services. As a result, U.S. data on BPT services include only unaffiliated imports from India, while Indian data include both affiliated and unaffiliated exports. Fifth, other differences, such as identifying all services importers, may also contribute to the data gap. The U.S. Bureau of Economic Analysis (BEA) has experienced challenges in identifying all U.S. services importers and obtaining quality survey data from importers. To test BEA's survey coverage, GAO provided BEA with lists of firms identified from public sources as likely importers of BPT services from India. The results of this test showed that some services importers were not included in BEA's mailing lists. However, BEA has taken action to address these challenges, including collaborating with other federal agencies, such as the U.S. Census Bureau and the Internal Revenue Service, to better identify firms to survey. However, data-sharing restrictions hamper BEA's efforts.

section_title: Letter
paragraphs: The offshoring of services from the United States to overseas locations has  grown recently and is the subject of debate over its extent and  consequences for the United States. We reported in September 2004 that  one category of services trade—business, professional, and technical  (BPT) services—is most often associated with services offshoring. We also  noted that imports from India—a major source of services offshoring— were rising, but that a gap exists between U.S. and Indian trade data on  these services. The extent of and reasons for this gap are important to  understand in order to address questions about the magnitude of offshoring  and to analyze its future development.
In response to widespread congressional interest, we have prepared this  report under the authority of the Comptroller General of the United States.  We examine in this report several issues related to the gap between U.S.  and Indian trade data on BPT services. Specifically:  What is the extent of the gap between U.S. and Indian data on trade in  BPT services?
What factors explain the difference between U.S. data on imports of  BPT services and India’s data on exports of those same services?
What challenges has the United States faced in collecting services data?
To address these questions, we compared U.S. and Indian services trade  data, reviewed official methodologies, and interviewed U.S. and Indian  government officials from relevant agencies, including the Department of  Commerce’s U.S. Bureau of Economic Analysis (BEA) and the Reserve  Bank of India (RBI). In order to examine the coverage of BEA surveys for  collecting services data, we supplied BEA with a list of companies we  collected to compare with its mailing lists. We identified these companies  through publicly available sources, including public media, company filings  with the Securities and Exchange Commission, annual reports of  companies, the list of National Association of Software and Service  Companies (NASSCOM) members, and lists of companies compiled by  information technology interest groups. Our lists of firms are not  necessarily representative of all U.S. firms importing from India, and we do  not generalize our results. We also met with representatives and reviewed  documents from members of NASSCOM, which assists in collecting India’s  services data. We interviewed a range of U.S. and Indian businesses that  supply these data to the United States and India and reviewed relevant  literature on the reliability of U.S. statistics. NASSCOM did not provide us  with their methodology for ensuring the reliability of their data. However,  RBI recently released a public report outlining a new methodology to  collect services exports data separately from NASSCOM, and in  accordance with balance of payments (BOP) requirements of the  International Monetary Fund (IMF). As a U.S. government agency, we do  not have review authority over these data. Therefore, we were not able to  independently assess the quality and consistency of these data. However,  for the purposes of this report, we found both U.S. and Indian data to be  sufficiently reliable for reporting the difference between the official U.S.  and Indian trade data in BPT services. We conducted our analysis in  accordance with generally accepted government auditing standards from  March 2005 through September 2005. A detailed description of our scope  and methodology appears in appendix I. This report is one of a series of  reports that we plan to issue on offshoring.
subsections: section_title: Background
paragraphs: As we reported in September 2004, improvements in information  technology, decreasing data transmission costs, and expanded  infrastructure in developing countries have facilitated services offshoring.  Offshoring is reflected in services import data because when a company  replaces work done domestically with work done overseas, such as in India  or China, the services are now being imported from overseas. For example,  when a U.S.-based company pays for a service (such as computer and data  processing services in India), the payment is recorded as a services import  (from India in this example). BEA reports data on trade in services that are  frequently associated with offshoring.
BEA’s trade in services data consist of cross-border transactions between  U.S. and foreign residents and comprise five broad categories of services.  One of these five categories of services is “other private services,” which  includes key sectors associated with offshoring under the subcategory of  BPT services. In 2003, BPT services accounted for $40.8 billion or 48  percent of U.S. imports of “other private services,” which totaled $85.8  billion. (See fig. 1.)
U.S. data on BPT services differentiate between affiliated and unaffiliated  trade. Affiliated trade occurs between U.S. parent firms and their foreign  affiliates and between foreign parent firms and their affiliates in the United  States; while unaffiliated trade occurs between U.S. entities and foreigners  that do not own, nor are owned by, the U.S. entity. In 2003, total U.S.  imports of affiliated BPT services accounted for approximately $29.9  billion, or about 73 percent of all U.S. imports of these services. BEA does  not disaggregate affiliated trade by country, in particular types of services,  due to its concerns about the accuracy and completeness of data firms’  report. Total U.S. imports of unaffiliated BPT services amounted to  approximately $11.0 billion in 2003, or about 27 percent of the total  unaffiliated U.S. imports of BPT services. According to U.S. data, the  growth of U.S. trade in BPT services has been rapid. For example, from  1994 to 2003, total unaffiliated U.S. imports of these services more than  doubled. In addition, U.S. exports of unaffiliated BPT services almost  doubled during the same period.
To report data on trade in BPT services, BEA conducts mandatory  quarterly, annual, and 5-year benchmark surveys of firms in the United  States. In administering its services surveys, BEA seeks to collect  information from the entire universe of firms with transactions in BPT  services above certain threshold levels for the period covered by each  survey. The mailing lists for the surveys include firms in the United States  that have previously filed a survey and other firms that BEA believes may  have had transactions in the services covered by the survey. The mailing  lists of firms receiving surveys are derived, in part, from U.S. government  sources, industry associations, business directories, and various  periodicals. Firms receiving the surveys are required to report transactions  above a certain threshold value, which BEA believes, in theory, captures  virtually the entire universe of transactions in the services covered by its  surveys. Those firms with transactions falling below the threshold value  are exempt from reporting data by type of service, but they are asked to  voluntarily provide estimates of the aggregate value of their transactions  for all services covered by the survey.
The trade data that BEA produces help government officials, business  decision makers, researchers, and the American public to follow and  understand the performance of the U.S. economy. For example, analysts  and policy makers use U.S. trade data to assess the impact of international  trade on the U.S. balance of payments and the overall economy. In addition,  U.S. trade data are used by trade policy officials to negotiate international  trade agreements.
section_title: A Significant Gap Exists between U.S. and Indian Trade-in- Services Data
paragraphs: U.S. data show a significantly smaller volume of trade in BPT services  between India and the United States than Indian data show. BEA data on  U.S. imports of unaffiliated BPT services from India indicate that U.S. firms  import only a small fraction of the total that India reported in exports of  similar services to the United States. In addition, this gap has grown  between 2002 and 2003. This gap does not exist just for U.S. and Indian  data. A similar gap also exists between other developed countries’ import  data and Indian export data.
BEA data show a rapid increase in U.S. imports of unaffiliated BPT services  from India. For 2002, the total unaffiliated U.S. imports of BPT services  from India totaled approximately $240 million. For 2003, the total  unaffiliated U.S. imports of BPT services from India increased to about  $420 million. India reports exports to the United States of similar services  of about $6.5 billion for 2002 and $8.7 billion for 2003. Thus, the value of  the gap between U.S. and Indian data in 2002 was approximately $6.2  billion and, in 2003, was about $8.3 billion, an increase of about one-third.  (See fig. 2.)
RBI, which is India’s central bank, is responsible for reporting official  Indian data on trade in services. However, RBI data on trade in services  incorporate the data collected by India’s primary information technology  association—the National Association of Software and Service Companies  (NASSCOM). To improve the completeness of the data NASSCOM provides  to RBI, NASSCOM includes data on the software services exports it  receives from an Indian government program, the Software Technology  Parks of India (STPI). While RBI does not provide country-specific data on  India’s exports of services to the United States, NASSCOM’s data do  provide a country-specific breakdown. Thus, the data cited above for India  come from NASSCOM. According to a recent RBI report, a technical group  recommended in 2003 that RBI compile data on software and information  technology exports through quarterly surveys, and through a  comprehensive survey to be conducted every 3 years. The first of these  studies was released in September 2005, as our report was being finalized,  and provides data on Indian exports of computer services for 2002. The  2005 RBI report showed that India reported approximately $4.3 billion in  computer services exports to the United States and Canada for 2002 (2003  data have not yet been provided). Although RBI’s report did not provide  an estimate of the U.S. share of these exports, on the basis of NASSCOM’s  estimate that 80 to 85 percent of exports to North America were destined  for the United States in 2002, we estimate that India exported  approximately $3.5 billion in computer services to the United States.
section_title: Five Factors Contribute to the Difference between U.S. and Indian Trade in Services Data
paragraphs: Those examining trends in offshoring often compare U.S. and Indian data  series; however, there are at least five factors that make this comparison  difficult and affect the difference between U.S. and Indian data. These  factors relate to (1) the treatment of services provided by foreign  temporary workers in the United States; (2) the definition of some services,  such as computer programs embedded in goods and certain information  technology-enabled services; (3) the treatment of transactions between  firms in India and the overseas offices of U.S. firms; (4) the reporting of  country-specific data on trade in affiliated services; and (5) the sources of  data and other methodological differences in the collection of services  trade data.
subsections: section_title: India’s Treatment of Earnings of Foreign Temporary Workers Providing Services in the United States Contribute to the Difference in U.S. and Indian Trade Data
paragraphs: According to U.S. and Indian officials, U.S. and Indian data differ in their  treatment of salaries paid to certain temporary foreign workers providing  services to clients in the United States. U.S. data do not include such  salaries as cross-border trade in services. The United States only includes  the salaries paid to temporary foreign workers who have been in the United  States less than 1 year and are not on the payrolls of firms in the United  States. However, Indian data do include, as Indian exports, the value of  services provided by Indian workers employed in the United States for  more than 1 year, according to Indian officials. The U.S. approach accords  with the international standards of IMF. According to BEA and  international standards, cross-border trade in services occurs between  residents of a country and nonresidents, or “foreigners,” and residency of a  temporary foreign worker employed abroad is based, in part, on the  worker’s length of stay in the country. Therefore, according to these  standards, if a temporary foreign worker stays or intends to stay in the  United States for 1 year or more, that worker is considered a U.S. resident,  and the value of the work performed is not included in U.S. import data.
The treatment of services provided by temporary foreign workers in the  United States is likely a significant factor contributing to the difference  between U.S. and Indian data, according to Indian officials. Some Indian  officials estimated that in past years, approximately 40 percent of India’s  exports to the United States of services corresponding to BPT services  were delivered by temporary Indian workers in the United States. For  example, for 2002, RBI found that approximately 47 percent of India’s  global exports of computer services occurred through the on-site delivery  of services by temporary Indian workers.
section_title: India Defines Services Differently Than Does the United States
paragraphs: U.S. and Indian data differ, in part, due to differences in how both countries  count services trade. India counts as trade in services certain transactions  in software that are classified as trade in goods in U.S. data. For example,  Indian data on trade in services include software embedded on computer  hardware, which the United States classifies as trade in goods. Consistent  with internationally recommended standards, the United States does not  separate the value of embedded software that is physically shipped to or  from the United States from the overall value of the media or computer in which it is installed. Thus, the value of such software is not recorded as  trade in services but is included in the value of the physical media and  hardware–-which are counted as trade in goods in U.S. data. We were not  able to determine the extent to which this factor contributes to the  difference in U.S. and Indian data because we found no estimates of the  proportion of embedded software in Indian data on services exports to the  United States. Indian officials stated that the difference in the treatment of  embedded software likely does not significantly contribute to the  difference in data because India exports a relatively low value of embedded  software. For example, according to Indian officials, the portion of India’s  global services exports delivered through physical media and hardware  accounts for 10 to 15 percent of the total value of India-reported exports of  services corresponding to BPT services.
U.S. and Indian data also differ in how they define services in their  respective data series. Unlike BEA, RBI and NASSCOM do not report data  under the category of BPT services. RBI officials stated that it reports trade  data on services similar to BPT services under the category of Software  Services. RBI does not report a breakdown of its data on software services  into subcategories of services. According to a NASSCOM official,  NASSCOM classifies its trade data on services that most closely  correspond to BPT services under Information Technology and  Information Technology-Enabled Services (IT-ITES). The subcategories of  services under this classification do not directly correspond to the  subcategories of BPT services, but are similar. For example, under its IT- ITES classification, NASSCOM reports data on IT Services and Software,  while BPT services include computer and data processing, and database  and other information services. However, NASSCOM includes data on  certain information technology-enabled services, such as certain financial  services, that are not included in BEA’s definition of BPT services, but are  recorded separately. Although these categories roughly compare, a  reconciliation of these subcategories has not yet been done. Thus, we were  not able to determine the extent to which these definitional differences  contribute to the difference between U.S. and Indian data.
section_title: India Counts Sales to Overseas Offices of U.S. Firms as Exports to the United States
paragraphs: The treatment of services involving the overseas offices of U.S. firms by  BEA and India is another factor explaining some of the difference between  U.S. and Indian data. Unlike the United States, India counts the sales of  services from firms in India to U.S.-owned firms outside the United States  as exports to the United States. U.S. data do not count such sales as U.S.  imports of services from India, because BEA considers the overseas offices  of U.S. firms to be residents of the countries where they are located rather  than residents of the country of the firm’s owners. The U.S. approach is  consistent with international standards.
U.S. and Indian officials could not provide us an estimate of the extent to  which the treatment of transactions involving the overseas offices of U.S.- owned firms contribute to the difference in U.S. and Indian data. However,  one high-level Indian official stated that it is likely a significant factor.
section_title: U.S. and Indian Data Differ in the Reporting of Affiliated Trade in Services
paragraphs: The reporting of affiliated trade in services differ in U.S. and Indian data.  BEA reports country-specific data only for unaffiliated U.S. imports of BPT  services, while Indian data include both affiliated and unaffiliated trade in  services but do not separate the two. BEA reports detailed data only for  unaffiliated trade because it has concerns about the accuracy and  completeness of the data that firms report about affiliated trade in BPT  services by country. For example, multinational firms with global offices  may find it difficult to establish where, between whom, and what type of  services have been transacted; and report these data along national lines to  a statistical agency. BEA does collect data on overall affiliated services  trade, but it reports only the total value across all countries due to its  concerns about the reliability of how companies are allocating these totals  to specific countries. In addition, due to concerns over the reporting  burden on U.S. companies, BEA collects less detailed data on affiliated  transactions than on unaffiliated transactions.
U.S. data on overall affiliated trade across all countries show that a  significant majority of total U.S. imports of BPT services take the form of  trade between parents and affiliates. For example, for 2003, approximately  three-quarters of all U.S. imports of BPT services—about $29.9 billion— represented trade within multinational firms. If U.S.-Indian trade in these  services reflects this overall share of trade through affiliates, then  unreported affiliated trade with India may be much larger than the  unaffiliated trade that is reported. Therefore, the lack of reported data on  affiliated imports of BPT services contributes to the difference in data.
section_title: Other Data Collection and Methodological Differences May Contribute to the Difference between U.S. and Indian Data
paragraphs: There are differences in the sources of data the United States and India use  to collect data on trade in services, which may contribute to overcounting  or undercounting of services trade. While both BEA and NASSCOM  prepare estimates of cross-border trade in services by surveying qualifying  firms, U.S. and Indian data differ in the universe of such firms covered by  their survey methodologies.
The universe of firms in India exporting services is relatively easily  identified because these firms have an incentive to report data on their  exports of services and tend to be concentrated in certain industries. For  example, firms exporting software services are required to report export  data to the government of India’s STPI program. STPI requires firms to  report these data in order to comply with India’s foreign exchange controls  and to qualify for certain tax incentives and infrastructure benefits. To  improve the completeness of its own survey data from its member firms,  NASSCOM incorporates information on other exporters collected under  the STPI program prior to providing these data to RBI. In addition, services  exporting firms tend to be concentrated in certain industries. For instance,  according to Indian officials, NASSCOM surveys its member firms in India  to collect the annual dollar value of these firms’ exports. The member firms  that NASSCOM surveys number approximately 900 and, according to a  NASSCOM official, these firms contribute a large share of India’s total  exports of these services. In addition, RBI has begun its own  comprehensive survey of companies, which according to RBI, covered all  of the identified companies engaged in software and IT services exports  activities. RBI identified these companies on the basis of lists provided by  NASSCOM, STPI, and the Electronics and Computer Software Export  Promotion Council (ESC).
In contrast to how India identifies firms exporting services, BEA does not  have an easily available list of services importers. Instead, it must identify  firms from public sources. BEA acknowledges that its survey methodology  may contribute to the undercounting of U.S. imports of services due, in  part, to the difficulty it faces in identifying the universe of services  importers. The firms in the United States that BEA surveys to estimate U.S.  imports are in many different industries and number in the thousands.  Thus, BEA notes that it is difficult to establish and maintain a  comprehensive mailing list for all U.S. firms importing services from  foreign sources, particularly if the group of firms that import services  changes substantially from year to year. In addition, maintaining accurate  coverage using surveys is particularly difficult when there is rapid growth  in the activity, as is the case with BPT services imports from India. Under  BEA regulations, BEA exempts smaller importers from reporting their  imports. Instead, it estimates these imports on the basis of a sample. If the  value of smaller transactions is higher than BEA assumes in its estimation  procedures, then imports of services would be understated. BEA,  therefore, may undercount the total value of U.S. imports of services.
The data collection entities–-BEA and NASSCOM–-also differ significantly  in mission and scope. BEA is the U.S. agency charged with collecting,  analyzing, and reporting official statistics on a broad range of U.S. imports  and exports of services. BEA is regarded as a leading statistical  organization, and it provides both statistical concepts and best practices to  other countries and statistical organizations worldwide. NASSCOM is not a  government statistical agency. It is a private trade association that  represents the interests of the software and services industry in India, and  data collection is but one element of a broader mission that focuses on  representing that industry. Recently, RBI has recognized a need to  reexamine the current methodology on the collection of software exports  data, and is utilizing a methodology to collect services data in accordance  with IMF standards. As a U.S. government agency, we were not able to  fully review India’s methodologies, but we did further examine in the next  section of this report the challenges BEA faces in collecting services  statistics.
section_title: BEA Encounters Challenges in Surveying All U.S. Importers of Business, Professional, and Technical Services
paragraphs: BEA faces challenges in collecting services import data, including  identifying the full universe of services importers. To test its survey  coverage, we provided BEA with lists of firms that we identified from  public sources as likely importing BPT services from India. Although the  BEA mailing lists included most of the firms we identified, they did not  include all of these firms. In addition, BEA may be undercounting imports  because it is challenging to identify all of the applicable surveys to send to  firms. BEA also has not always received quality survey responses from  firms. BEA has taken action to improve survey coverage and responses  through outreach to survey respondents and by attempting to collaborate  with other federal agencies, but it has not been able to access data that  could assist in identifying the universe of firms importing services.
subsections: section_title: BEA Has Challenges in Tracking Services Offshoring Trends
paragraphs: Services offshoring presents its own challenges for statistical agencies. As  previously discussed, identifying services importers becomes difficult if the  group of firms and individuals importing services changes over time, or if  there is a rapid increase in services imports. In the case of BPT services,  both the United States and India have reported a rapid increase of exports  to the United States and BEA may be undercounting U.S. firms importing  such services from India due to this growth. (See fig. 3.) BEA  acknowledges that it is able to identify a higher proportion of U.S.  exporters than U.S. importers. This is because exporters tend to be large  firms providing one particular type of service and are concentrated in  certain industries, while importers vary in size and industry affiliation.  Thus, BEA officials expressed concern that they are not able to identify and  survey small firms that import BPT services infrequently, and are  potentially undercounting U.S. trade in these services.
section_title: Test of Firms Importing from India Confirms Challenges to Collecting Services Data
paragraphs: To test for potential undercounting of U.S. imports, we provided BEA with  lists of firms that we identified through publicly available sources as likely  to be importing BPT services from India. BEA then (1) reviewed its  mailing lists of firms that were sent surveys to verify that it had previously  identified and surveyed these firms and (2) verified whether the firms we  identified reported imports from India. Table 1 shows the following:   BEA had included in its mailing lists 87 of the 104 firms we identified as  likely importing BPT services from India; thus, BEA did not send  surveys to 17 of these firms. After further analysis, BEA added 13 of  these firms to its mailing lists and has sent them surveys, thus improving  the universe of services importers.
Of the 66 affiliated firms that received surveys, 48 firms received the  quarterly survey for affiliated imports; thus, BEA did not send 18  affiliated firms this quarterly survey, although they received other  surveys.
Of the 21 unaffiliated firms that received surveys, 6 received the  quarterly survey for unaffiliated imports; thus, BEA did not send 15  unaffiliated firms this quarterly survey, although they received other  surveys.
BEA may miss some BPT services imports because it is difficult to identify  the total number of surveys that apply to all of the services transactions for  which each firm was qualified. On the basis of the review of our lists, it  appears that some of the firms that BEA identified in at least one of its  comprehensive mailing lists were not on the mailing lists for other surveys  that we expected. These firms likely had transactions covered by surveys  other than the one they received. For example, several companies we  identified as having an affiliate office in India did not receive one of the  surveys for affiliated transactions, although these firms received a survey  for unaffiliated transactions.
With respect to BEA’s effort to verify whether firms that we identified  actually reported imports from India, of the 51 firms responding to the  quarterly surveys, 15 firms indicated imports from India. Thus, 15 of the 104  firms we identified on the basis of public-source data as likely importing  BPT services from India, reported those imports to BEA. High-level BEA  officials indicated that it is possible that companies are not reporting  country information because they fall below the survey exemption levels  and, thus, were not required to provide such detailed data to BEA. BEA  requests firms falling below survey exemption levels to voluntarily report  aggregate transactions for all countries combined, without a country- specific breakdown.
While these results cannot be generalized, they confirm the challenges of  collecting services import data. However, they do not provide an indication  of the magnitude or extent of these challenges. In addition, our lists of  firms were based on a review of multiple sources of publicly available  information. Without directly surveying each firm, however, it is not  possible to confirm that they actually purchased BPT services from India.
BEA is addressing concerns related to the identification of U.S. importers,  the undercounting of services, and the administration of its surveys. For  example, BEA contracted with a private firm to undertake an external  review of its data sources and methods of identifying these services  importers. The review will examine the extent of undercounting in both  affiliated and unaffiliated services transactions, including the possible  sources of undercounting, and any additional methods or sources of  information that will improve survey coverage. The goals of this effort  include identifying the extent of qualified firms that are not currently on the  survey mailing lists, and to improve the estimates of international  transactions. BEA expects the results of this review early in fiscal year  2006. BEA also has made efforts to ensure that firms receive the surveys for  which they are qualified. BEA routinely sends surveys to firms that may be  exempt from reporting in order to make a determination that they are still  exempt. In addition, firms having transactions in services not covered in  the surveys they receive are required to request additional surveys from  BEA.
section_title: BEA Has Not Received Quality Responses on Affiliated Trade by Country
paragraphs: In order to report data on trade in services, BEA needs to receive accurate  and complete survey responses. However, BEA notes that the information  it receives from firms on their affiliated imports of particular types of  services has not proved sufficiently reliable to support the release of  country-level estimates. As previously discussed, BEA is able to report  overall affiliated trade for specific countries, but it is not able to report BPT  trade for specific countries. This is because BEA has concerns over the  quality of responses it receives from firms when they allocate affiliated  imports to detailed types of services. Global firms may have difficulty  accurately attributing services exported to the United States when their  operations are spread across multiple countries. In addition, a high-level  BEA official said that firms may not fully report all of their affiliated  transactions for which they should report. This official noted that these  reporting difficulties may reflect business record-keeping practices, which  are intended to meet financial reporting requirements, rather than  government surveys.
In order to address these challenges, BEA is taking action to improve the  quality of survey responses and to overcome the difficulty of reporting  detailed data on affiliated imports of services. For example, an examination  of BEA’s data on affiliated transactions is a component of BEA’s contract  with a private firm that is conducting an external review of BEA’s data  sources and methods of identifying services importers. In addition, BEA  has requested Census to conduct an external review of its survey forms and  instructions, and to make recommendations that would improve clarity and  promote accurate reporting. BEA is also performing its own review of its  surveys to determine the clarity of survey instructions and is providing  training to survey recipients on how to complete the surveys accurately. In  addition, to improve the quality of its data on affiliated services imports,  including affiliated imports of BPT services, BEA is considering collecting  data on both affiliated and unaffiliated transactions on the same survey  form. BEA is also considering expanding the types of affiliated BPT  services for which it requests data to match the detailed data it collects on  unaffiliated imports of BPT services.
section_title: BEA Has Difficulty in Gaining Access to Other Federal Agency Data
paragraphs: BEA is currently negotiating access to data from other federal agencies to  expand its existing sources of data and to improve its survey coverage, but  BEA has been unable to access this data from other federal agencies.  According to BEA officials, other federal agencies, such as Census, possess  data that could assist BEA in preparing its estimates of trade in services,  including information on firms in the United States that could be importing  services. For example, Census surveys firms to collect data of firms’  business expenses, which include the purchase of BPT services. These  surveys may be useful to identify importers because large purchasers of  services may also be importing these services. The survey data that Census  currently collects are not directly useful for BEA because the data on  business expenses do not separate domestic from international expenses  and do not distinguish between affiliated and unaffiliated transactions.  However, BEA would get name and addresses of potential services  importers. In addition, BEA could potentially request that Census add  questions to one or more of the surveys that Census administers in order to  identify services importers.
However, BEA currently faces legal restrictions in gaining access to data  utilized by Census. Although federal laws allow such data sharing between  Census and BEA, BEA is generally restricted from gaining access to federal  tax information that Census obtains from the Internal Revenue Service.  According to BEA officials, BEA is negotiating with Census and the  Internal Revenue Service to gain access to sources of data to improve its  mailing lists.
section_title: Conclusions
paragraphs: The large difference between U.S. and Indian data on BPT sources makes  the analysis of the extent of offshoring more difficult. Some of this  difference in data can be attributed to varying definitions of BPT services,  but some also appears to be due to incomplete U.S. data. BEA has been  seeking various ways to improve the overall quality of U.S. services trade  data, but our test of whether they had identified BPT service importers  indicated that they were not identifying all U.S. importers of services.  Given the importance of this category of data in understanding the extent  of offshoring of services, a subject of continuing public and congressional  concern, we believe that additional efforts to strengthen the quality of U.S.  services data are merited.
section_title: Recommendations
paragraphs: We are recommending that the Secretary of Commerce direct BEA to  systematically expand its sources of information for identifying firms to  survey. BEA should consider ways to improve its identification of the  appropriate survey forms to send to firms and the information requested  about services imports, particularly with regard to affiliated imports. We  also recommend that the Secretary direct BEA to pursue additional  company information from previous Census surveys and consider  requesting Census to add questions to future surveys to help identify  services importers.
section_title: Agency Comments and Additional Information Provided by the Reserve Bank of India
paragraphs: The Department of Commerce provided written comments on the draft  report, which are reproduced in appendix II. Commerce concurred with  our recommendation that BEA should strive to improve its coverage of  services imports. In particular, Commerce agreed that BEA should pursue  additional company information from Census. Commerce also provided  technical comments, which we incorporated into the report as appropriate.
Following the receipt of agency comments from Commerce, RBI publicly  released a report outlining a new methodology to compile services export  data in accordance with IMF standards. Although RBI’s new survey  methodology conforms more closely to IMF standards for defining  international transactions in services, differences between U.S. and Indian  data remain due to a variety of factors we discuss in this report. For  example, the RBI report acknowledges that Indian data include not only  exports of computer-related services but also exports of ITES. Since the  primary objective of RBI’s survey was to collect data on software exports in  conformity with IMF’s definition of computer services, RBI’s survey data  exclude data from companies exclusively exporting ITES, and include only  data on computer services. However, RBI’s report does not indicate that  RBI’s survey methodology addresses other factors contributing to the  difference between U.S. and Indian data. For example, it appears that RBI’s  survey data include the earnings of foreign temporary workers employed  abroad without taking into account their length of stay or intention to  remain abroad. RBI estimated this on-site work to account for  approximately 47 percent of India’s total worldwide exports, although  some portion of this total may include services provided by temporary  Indian workers employed abroad for over 1 year. In addition, RBI’s report  does not indicate that sales of embedded software are excluded from RBI’s  survey data.
We are providing copies of this report to interested congressional  committees and the Secretary of Commerce. Copies will be available to  others upon request. In addition, the report will be available at no charge  on the GAO Web site at www.gao.gov.
If you or your staff have any questions about this report, please contact Mr.  Yager on (202) 512-4128. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this report.  Other GAO contacts and staff acknowledgments are listed in appendix III.
section_title: Scope and Methodology
paragraphs: This report discusses (1) the extent of the difference between U.S. and  Indian data on trade in business, professional, and technical (BPT)  services, (2) the factors that explain the difference between U.S. data on  imports of BPT services and India’s data on exports of those same services,  and (3) the challenges that the United States has faced in collecting  services data.
To obtain information on the extent of the difference between U.S. and  Indian services trade data, we analyzed and compared U.S. and Indian data  and interviewed U.S. and Indian government officials from the relevant  agencies, including the U.S. Bureau of Economic Analysis (BEA), and the  Reserve Bank of India (RBI). RBI relies on a trade association, the National  Association of Service and Software Companies (NASSCOM), to collect  data on these services. Although we reviewed NASSCOM's survey form and  discussed with a NASSCOM official the collection of their statistics,  NASSCOM did not provide us with their methodology for ensuring the  reliability of their data. Therefore, we were not able to independently  assess the quality and consistency of their data. However, for the purposes  of this report, we found these data to be sufficiently reliable for reporting  the difference in the official U.S. and Indian trade data in BPT services.
To determine the factors that explain the difference in U.S. and Indian trade  data, we reviewed official methodologies, interviewed relevant officials,  and conducted a search of available literature. We reviewed documentation  and technical notes from BEA and RBI to determine the U.S. and Indian  methodologies for collecting and reporting trade in services data and to  assess the limitations and reliability of various data series. We discussed  these topics with BEA officials. In addition, we traveled to India to  interview RBI officials and NASSCOM representatives and to obtain  documentation on the collection and limitations of Indian data. We also  interviewed a range of U.S. and Indian businesses in India that supply trade  data to the United States and India to determine how they report data. We  performed a literature search and obtained information from the Brookings  Institution, the Institute for International Economics, and the Organization  for Economic Co-operation and Development (OECD). To determine the  international standards for collecting and reporting trade-in-services data,  we reviewed relevant documentation from international organizations,  including the International Monetary Fund and the United Nations.
In September 2005, as our report was being finalized, RBI released a report  entitled “Computer Services Exports from India: 2002-03,” which  discusses the methodology and results of a comprehensive survey that RBI  conducted to collect data on India’s “computer services” exports for 2002 in  conformity with the International Monetary Fund’s Balance of Payments  Manual, 5th edition (1993). The RBI report provides information about  RBI’s survey methodology, including the number and types of companies  surveyed and the information sought through the survey. In addition, the  report outlines recommendations for RBI to collect data on software and  information technology exports through representative quarterly surveys  and a comprehensive survey every 3 years. We incorporated this additional  information from the RBI report where appropriate.
To examine the coverage of BEA’s surveys for collecting trade-in-services  data, we supplied BEA with lists of U.S.-based companies we identified as  likely importers of services from India to compare with its mailing lists. We  developed two lists. The first list included the names and addresses of  companies in the United States with affiliate offices in India that are likely  importing BPT services from India through affiliates. The second list  included the names and addresses of companies that are likely purchasers  of services through unaffiliated parties in India. We identified these  companies through publicly available sources, including public media,  company filings with the Securities and Exchange Commission, annual  reports of companies, the list of NASSCOM member companies, and lists of  companies compiled by information technology interest groups. Our lists  of firms are not necessarily representative of all U.S. firms importing from  India, and we do not generalize our results.
We asked BEA to compare these lists with the following mailing lists for  affiliated and unaffiliated surveys to identify how many companies it was  surveying: We requested that BEA provide us with the number of companies from  both lists that BEA was able to identify and not identify on its  corresponding mailing lists. For companies that received a survey, we  asked BEA to identify the number of these companies that responded to  the survey and provided information on purchases from India. For  companies that were not on any mailing list, BEA was asked to identify (1)  whether the firms were excluded from its mailing list because they were  assumed to be below exemption levels for the particular survey, (2)  whether the firms are on BEA’s current mailing list for the particular  survey, and (3) whether the firms are listed on other BEA mailing lists. We  discussed the results of this review with BEA officials.
To assess the challenges the United States has faced in collecting and  reporting data on trade in services, we reviewed relevant BEA  documentation and interviewed BEA officials. We reviewed BEA  documentation to determine BEA’s data limitations and to assess the  challenges BEA faces in collecting and reporting U.S. data on trade in  services. To determine the challenges of expanding BEA’s survey coverage  through interagency data sharing we interviewed officials at BEA and the  U.S. Census Bureau (Census), and we reviewed Census documentation. We  also interviewed BEA officials to discuss these identified challenges and to  determine the plans and actions BEA has taken to improve the quality of  U.S. data. Finally, we interviewed Internal Revenue Service (IRS) officials  to gain an understanding of IRS policy on restricting access to federal tax  information that the IRS provides to Census.
We performed our work from March 2005 through September 2005 in  accordance with generally accepted government auditing standards.
section_title: Comments from the Department of Commerce
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the person named above, Virginia Hughes, Bradley Hunt,  Ernie Jackson, Sona Kalapura, Judith Knepper, Robert Parker, Cheryl  Peterson, and Tim Wedding made major contributions to this report.