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

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

• Michael Mann
• U.S. Bureau of Economic Analysis

Presented to the UNSD Subgroup on MODE 4 Paris,
France September 16, 2004
These slides draw heavily on a presentation by
BEA's Obie Whichard for the IMF Institute's
Course on Balance of Payments Statistics, March
2004. The slides on the treatment of FATS in
the Manual of Statistics on International Trade
in Services were, in turn, adapted from materials
prepared by the WTO.
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Outline for Presentation

• FATS treatment in MSITS
• FATS data collection The U.S. experience
• FATS statistics and Mode 4
• BEAs methods for estimating remittances

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What are FATS statistics?

• Conceptually Information relevant to services
  delivered through foreign affiliates
• Practically A range of indicators pertaining to
  the activities of foreign affiliates
• With a particular focus on services

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Principles Underpinning FATS Statistics
In line with international standards

• SNA 1993 (National Accounts)
• BPM5 (BOP)
• OECD Benchmark Definition of FDI

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Firms Covered in FATS

• Ownership criteria
• Majority-owned foreign affiliates (a single
  foreign investor owns more than 50 of their
  ordinary shares or voting power)
• Types of producers
• Affiliates producing goods, services
• Statistical Units
• Enterprises vs Establishments

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Time of Recording FATS Variables
Recording when the activity (production,
employment, etc.) occurs rather than when the
related payment is made
Accrual basis
Period of recording
Flow variables reference year Stock
variables end of reference year
Calendar year in principle
Reference year
If only fiscal or accounting year is available,
disclose this.
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Economic Variables for FATS
Most are drawn from SNA 93

• Sales (turnover) and/or output
• Employment
• Value added
• Exports and imports of goods
• and services
• Number of enterprises

Basic FATS variables (minimum recommended by
MSITS)

• Assets
• Compensation of employees
• Net worth
• Net operating surplus
• Gross fixed capital formation
• Taxes on income
• Research and development expenditures

Additional FATS variables
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Geographical Attribution Inward investment
Foreign investor (immediate)
COMPILING COUNTRY
Majority ownership
Operations of foreign-owned affiliate
Majority ownership
Foreign Investor (ultimate)
Described
Statistics on inward FATS
Operations attributed to the country of
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Geographical Attribution - Outward
Investment Treatment of Indirectly Held
Affiliates
Directly held foreign affiliate
COMPILING COUNTRY
Majority ownership
Majority ownership
Indirectly held foreign affiliate
Statistics on outward FATS
Described
Operations attributed to the country of
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Compilation Issues

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

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United States Experience

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

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U.S. Experience (Contd) Collection methods

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

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U.S. Collection methods (Contd)

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

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Types of data collected

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

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Adaptation to Services Needs

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

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FATS coverage of Mode 4

• Services supplied through
• intra-corporate transferees
• other foreign individuals working on a
  non-permanent basis for foreign affiliates

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Measuring Services Delivered by non-Permanent
Workers in Foreign Affiliates

• Compensation
• Collected from FATS statistics
• Workers remittances (not collected from FATS)
  will understate compensation and would cover all
  migrant workers

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Data collection challenges

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

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Data collection challenges (continued)

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

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

• Workers remittances
• Migrants transfers
• Compensation of employees

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How Does the U.S. Estimate the Components of
Remittances (continued)

• Workers remittances
• - basic model of workers average per capita
  income propensity to remit
• - the model considers several demographic
  characteristics including family status, age,
  length of U.S. residency, and country of origin

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How Does the U.S. Estimate the Components of
Remittances (continued)

• Migrants transfers
• For Canada - partner country data
• Basic model for countries other than Canada
• Immigrants transfers - of immigrants
  average per capita income wealth-to-income
  ratio
• Emigrants transfers - of emmigrants
  median net worth

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How Does the U.S. Estimate the Components of
Remittances (continued)

• Best to estimate remittances as compensation less
  expenditures
• Compensation of employees
• U.S. Receipts
• Partner country data from Germany, the UK, and
  Canada. Estimates for other countries are based
  on data from the IRS (the U.S. tax collection
  authority)
• U.S. Payments
• Foreign professionals - IRS data
• Seasonal and border workers of workers
  average compensation

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Questions?