basis of geographic location with measures that center on the ownership of firms.<sup>14</sup> The concept of ‘Foreign Affiliates Trade in Services’ (FATS) was created by statisticians in the late 1990s in a new Manual on Statistics of International Trade in Services. The aim of the Manual is to lay out agreed methodologies for defining and collecting data on transactions in services while ensuring consistency with existing international statistical standards (Karsenty, 2000). Sales of services by affiliates of foreign-owned firms are not regarded as trade in the national accounts or balance of payments – giving rise to the need to collect such data separately. Progress on collecting such statistics has been made (Whichard, 2000), but the extent of available data remains limited. The best FATS data are collected by the US. They suggest that mode 3 is the most important channel for US firms to sell services to foreigners. In 2003, sales of services by US foreign affiliates ($477 billion) were some 50 percent higher than total cross border services exports as registered in the balance of payments ($292 billion) (Figure 2). The global stock of FDI stood at some $10 trillion in 2004, of which about 60 percent was in services.<sup>15</sup> If extrapolated to global trade flows, the US data suggest that total FATS could be on the order of some $2 trillion.<sup>16</sup>

**Figure 2. US exports of services and sales of services by US foreign affiliates**

<!-- Start of picture text --> U.S. cross border service exports vs. sales by<br>foreign affiliates, 1986-2003 (US$ bn)<br>600<br>500<br>400<br>300<br>200<br>100<br>0<br>Cross-border export receipts<br>Sales to foreign persons by foreign affiliates of US companies<br>1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003<br><!-- End of picture text --> _Source:_ US Department of Commerce, Bureau of Economic Analysis.

13 Other empirical papers in this vein include Erramilli and Rao (1993), Buch and Lipponer (2004), and Kolstad and Villanger (2004). UNCTAD (2004) is a recent survey of services FDI. Sauvant and Zimny (1987) is an early paper stressing the importance of FDI as a mode of supplying services in a foreign market.

14 Baldwin and Kimura (1998) attempt to measure transactions on the basis of ownership, as opposed to the location of factors of production, in order to better capture the close relationship between firms’ cross-border trading activities and the sales and purchasing activities of their foreign affiliates. They propose supplementary accounting formats that classify cross-border and foreign affiliate activities on an ownership basis. One format combines net cross-border sales by Americans to foreigners, net sales by foreign affiliates of U.S. firms to foreigners, and net sales of U.S. firms to U.S. affiliates of foreign firms to yield a figure that indicates net sales by Americans to foreigners. Another accounting format measures the value-added embodied in cross-border and foreign affiliate activities on an ownership basis.

> 15 Up from only 25% in 1970.  See http://www.unctad.org/Templates/Page.asp?intItemID=1923&lang=1.  Mody (2004) is a recent discussion of the impacts of the expansion in global FDI flows and stocks.

16 The stock of outward FDI by the US in 2003 was some $1.8 trillion, of which $1.3 trillion was in services (UNCTAD 2005). Given FATS of $477 billion in 2003, this gives a sales/stock ratio of 0.35. Assuming some $6 trillion global FDI in services, this generates a FATS estimate of $2.1 trillion.

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