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 The slides on the treatment of FATS in the Manual of Statistics on International Trade in Services were, in turn, adapted from materials prepared by the WTO.

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

3 What are FATS statistics? Conceptually: Information relevant to services delivered through foreign affiliates Practically: A range of indicators pertaining to the activities of foreign affiliates –With a particular focus on services

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

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

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

7 Economic Variables for FATS 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) Additional FATS variables Assets Compensation of employees Net worth Net operating surplus Gross fixed capital formation Taxes on income Research and development expenditures Most are drawn from SNA 93

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

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

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

11 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

12 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

13 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

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

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

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

17 Measuring Services Delivered by non- Permanent Workers in Foreign Affiliates Compensation –Collected from FATS statistics – Workers remittances (not collected from FATS): will understate compensation and would cover all migrant workers

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

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

20 How Does the U.S. Estimate the Components of Remittances? Workers remittances Migrants transfers Compensation of employees

21 How Does the U.S. Estimate the Components of Remittances (continued) Workers remittances - basic model: # of workers * average per capita income * propensity to remit - the model considers several demographic characteristics including family status, age, length of U.S. residency, and country of origin

22 How Does the U.S. Estimate the Components of Remittances (continued) Migrants transfers –For Canada - partner country data –Basic model for countries other than Canada: Immigrants transfers - # of immigrants * average per capita income * wealth-to-income ratio Emigrants transfers - # of emmigrants * median net worth

23 How Does the U.S. Estimate the Components of Remittances (continued) Best to estimate remittances as compensation less expenditures Compensation of employees –U.S. Receipts: Partner country data from Germany, the UK, and Canada. Estimates for other countries are based on data from the IRS (the U.S. tax collection authority) –U.S. Payments: Foreign professionals - IRS data Seasonal and border workers: # of workers * average compensation

24 Questions?