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

• BEA’s 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

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

In line with international standards

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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

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 yearStock variables end of reference year

Calendar year in principle If only fiscal or accounting year is available, disclose this.

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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

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Geographical Attribution:Inward investment

COMPILING COUNTRY

Operations of foreign-owned

affiliate

Majority ownership

Foreigninvestor

(immediate)

Operations attributed to the country of

Majority ownership

Statistics on inward FATS

ForeignInvestor

(ultimate)

Described

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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 ow

nership

Directly held foreign affiliate

Majority ownership

Resident investor

Described

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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 1970’s / early 1980’s

• 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 (Cont’d): 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 (Cont’d)

• Link to Census Bureau establishment-level data every 5 yearsAdvantages:– Greatly increased industry detail (still not product-based,

but gives more precise clues to products produced and sold)

– No added reporting burdenLimitations:– 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?