From the July 2000 SURVEY OF CURRENT BUSINESS: Direct Investment Positions for 1999

Country and Industry Detail

By Sylvia E. Bargas

IN 1999, the historical-cost position of foreign direct investment in the United States (FDIUS) grew 24 percent, while that of U.S. direct investment abroad (USDIA) grew 12 percent. The difference between the two growth rates was the largest since 1988.

This article presents the country and industry detail underlying the two positions. The estimates are prepared on a historical-cost basis, which is not adjusted for inflation. Because most investments reflect price levels of earlier periods, the estimates on this valuation basis understate the current values of the positions. Current-cost and market-value estimates of the positions are also prepared, but only at an aggregate level. The revised estimates of the positions for 1998 and preliminary estimates for 1999 are shown on all three valuation bases in table 1.⁽¹⁾

The strong growth in both positions reflected a global boom in merger and acquisition activity, favorable economic conditions in the United States, Europe, and Canada, and improved economic conditions in the Asia and Pacific area. The favorable conditions enhanced the profit potential of direct investments and boosted the earnings of affiliates and their parents. Strong earnings by affiliates and high rates of reinvestment led to high levels of reinvested earnings. Strong earnings by parents provided a source of funds for new investments and reduced the parents' need to draw funds from their affiliates.

The much larger increase in the position of FDIUS than in that of USDIA primarily reflected the strength of the U.S. economy. Propelled by technological innovation and strong gains in productivity, the U.S. economy has been growing rapidly in recent years, enhancing the attractiveness of potential investments in the United States. Change has been especially dramatic in the communications industry, which accounted for much of the growth in the FDIUS position in 1999. Acquisition activity for FDIUS was heavily tilted towards the communications and related industries and included some unusually large transactions. Acquisitions of communications-related firms played a less prominent role in the increase in the USDIA position. In addition, some large foreign affiliates were sold off in 1999, which dampened the growth of the USDIA position.

The composition of capital flows underlying the changes in the two positions differed. As in most previous years, the largest component of capital outflows for USDIA was reinvested earnings, which tend to be used mainly to finance the ongoing operations of foreign affiliates. The largest component of capital inflows for FDIUS continued to be equity capital, which consists of funds used to acquire and establish new U.S. affiliates and of capital contributions to existing U.S. affiliates. To some extent, this difference in composition reflects the greater average maturity of foreign affiliates relative to U.S. affiliates and the relatively greater role of acquisitions in recent growth in FDIUS. Many foreign affiliates of U.S. companies were acquired or established decades ago and can now be sustained largely through the retention of their own earnings. In contrast, U.S. affiliates of foreign companies tend to be of more recent vintage and to rely more heavily on contributions of equity capital from their foreign parents to build their operations. The less prominent role of reinvested earnings in FDIUS also reflects relatively lower profitability for U.S. affiliates than for foreign affiliates.⁽²⁾

Key Terms The key terms used in this article are described in this box. For a more detailed discussion of these terms and the methodologies used to prepare the estimates, see Foreign Direct Investment in the United States: 1992 Benchmark Survey, Final Results (Washington, DC: U.S. Government Printing Office, 1995) and U.S. Direct Investment Abroad: 1994 Benchmark Survey, Final Results (Washington, DC: U.S. Government Printing Office, 1998). The methodologies are also available at BEA's Web site at www.bea.doc.gov . Direct investment. Investment in which a resident of one country obtains a lasting interest in, and a degree of influence over the management of, a business enterprise in another country. In the United States, the criterion used to distinguish direct investment from other types of investment is ownership of at least 10 percent of the voting securities of an incorporated business enterprise or the equivalent interest in an unincorporated business enterprise. U.S. direct investment abroad (USDIA). The ownership or control, directly or indirectly, by one U.S. resident of 10 percent or more of the voting securities of an incorporated foreign business enterprise or the equivalent interest in an unincorporated foreign business enterprise. Foreign direct investment in the United States (FDIUS). The ownership or control, directly or indirectly, by one foreign resident of 10 percent or more of the voting securities of an incorporated U.S. business enterprise or the equivalent interest in an unincorporated U.S. business enterprise. Foreign affiliate. A foreign business enterprise in which a single U.S. investor (that is, a U.S. parent) owns at least 10 percent of the voting securities, or the equivalent. U.S. affiliate. A U.S. business enterprise in which a single foreign investor (that is, a foreign parent) owns at least 10 percent of the voting securities, or the equivalent. Ultimate beneficial owner (UBO). That person (in the broad legal sense, including a company), proceeding up the affiliate's ownership chain beginning with the foreign parent, that is not owned more than 50 percent by another person. The UBO ultimately owns or controls the affiliate and derives the benefits associated with ownership or control. Unlike the foreign parent, the UBO of a U.S. affiliate may be located in the United States. Foreign parent group. Consists of (1) the foreign parent, (2) any foreign person, proceeding up the foreign parent's ownership chain, that owns more than 50 percent of the person below it, up to and including the UBO, and (3) any foreign person, proceeding down the ownership chain(s) of each of these members, that is owned more than 50 percent by the person above it. (For FDIUS, the term "parent" in the definitions below refers to both the foreign parent and other members of the foreign parent group.) Direct investment capital flows. Funds that parent companies provide to their affiliates net of funds that affiliates provide to their parents. For USDIA, capital flows also include the funds that U.S. direct investors pay to unaffiliated foreign parties when affiliates are acquired and the funds that U.S. investors receive from them when affiliates are sold. Similarly, FDIUS capital flows include the funds that foreign direct investors pay to unaffiliated U.S. residents when affiliates are acquired and the funds that foreign investors receive from them when affiliates are sold. FDIUS capital flows also include debt and equity transactions between U.S. affiliates and other members of their foreign parent groups. Direct investment capital flows consist of equity capital, intercompany debt, and reinvested earnings. Equity capital flows are the net of equity capital increases and decreases. Equity capital increases consist of payments made by parents to third parties for the purchase of capital stock when they acquire an existing business, as well as funds that parents provide to their affiliates that increase their ownership interest in the affiliates. Equity capital decreases are funds parents receive when they reduce their equity interest in existing affiliates. Intercompany debt flows result from changes in net outstanding loans and trade accounts between parents and their affiliates; they include loans by parents to affiliates and loans by affiliates to parents. Reinvested earnings are the parents' claim on the undistributed after-tax earnings of the affiliates. Direct investment position. The value of direct investors' equity in, and net outstanding loans to, their affiliates. The position may be viewed as the parents' contributions to the total assets of their affiliates or as the financing provided in the form of equity (including reinvested earnings) or debt by parents to their affiliates. Financing obtained from other sources, such as local or foreign third-party borrowing, is excluded. BEA provides estimates of the positions for USDIA and for FDIUS that are valued on three bases--historical cost, current cost, and market value. At historical cost, the positions are valued according to the values carried on the books of affiliates; thus, most investments reflect price levels of earlier time periods. At current cost, the portion of the position representing parents' shares of their affiliates' tangible assets (property, plant, and equipment and inventories) is revalued from historical cost to replacement cost. At market value, the owners' equity portion of the position is revalued to current market value using indexes of stock prices. Valuation adjustments to the historical-cost position. Adjustments to account for the differences between changes in the historical-cost position, which are measured at book value, and direct investment capital flows, which are measured at transaction value. (Unlike the positions on a current-cost and market-value basis, the historical-cost position is not adjusted to account for changes in the replacement cost of the tangible assets of affiliates or in the market value of parent companies' equity in affiliates.) Valuation adjustments to the historical-cost position consist of currency translation and "other" adjustments. Currency-translation adjustments are made to account for changes in the exchange rates that are used to translate affiliates' foreign-currency-denominated assets and liabilities into U.S. dollars. The precise effects of currency fluctuations on these adjustments depend on the value and currency composition of affiliates' assets and liabilities. Depreciation of foreign currencies against the dollar usually results in negative translation adjustments because it tends to lower the dollar value of foreign-currency-denominated net assets. Similarly, appreciation of foreign currencies usually results in positive adjustments because it tends to raise the dollar value of foreign-currency-denominated net assets. "Other" adjustments are made to account for differences between the proceeds from the sale or liquidation of affiliates and their book values, for differences between the purchase prices of affiliates and their book values, for writeoffs resulting from uncompensated expropriations of affiliates, for changes in industry of affiliate or country of foreign parent, and for capital gains and losses (other than currency translation adjustments). These capital gains and losses represent the revaluation of the assets of ongoing affiliates for reasons other than exchange-rate changes, such as the sale of assets (other than inventory) for an amount different from their book value.

U.S. Direct Investment Abroad

The position of USDIA valued at historical cost-- the book value of U.S. direct investors' equity in, and net outstanding loans to, their foreign affiliates--was $1,132.6 billion at the end of 1999 (table 2 and chart 1). The largest positions remained those in the United Kingdom ($213.1 billion, or 19 percent of the total), Canada ($111.7 billion, or 10 percent), and the Netherlands ($106.4 billion, or 9 percent) (table 3.2 and chart 2).

The USDIA position increased $118.6 billion, or 12 percent, in 1999, less than the 16-percent increase in 1998 but in line with the 12-percent average increase in the preceding 3 years. The growth in the position reflected reinvested earnings and the global boom in mergers and acquisitions.

Acquisition activity by U.S. direct investors was below the unusually high level of 1998, but it remained strong. Rising equity markets and the continued expansion of the U.S. economy increased the wealth of U.S. investors, enhancing their ability to fund acquisitions. Additionally, the appreciation of the U.S. dollar against several European currencies made acquisitions in these countries less expensive for U.S. investors in dollar terms. Relatively favorable economic conditions in the United Kingdom and Canada (where a substantial portion of the acquisition activity took place) increased the attractiveness of direct investments in these countries.

Several large acquisitions in retail trade, in automobile and automobile parts manufacturing, and in telecommunications resulted from industry-specific factors. Acquisitions in retail trade reflected a mature retail market in the United States and attractive opportunities to capture market share overseas through, for example, distribution efficiencies and price competition. The acquisitions in automobile manufacturing, some of which were made through holding companies in finance (except depository institutions), insurance, and real estate ("FIRE"), were part of a wave of consolidations in the global automobile industry.⁽³⁾  U.S. investors also made acquisitions in automobile parts (in transportation equipment manufacturing), where pressure from carmakers to cut prices has squeezed profit margins and led to consolidations. In telecommunications, rapidly changing industry dynamics--brought about by new technologies and deregulation--and a desire to achieve economies of scale led to acquisitions of foreign communications companies.

Among the foreign affiliates that were sold to foreign firms in 1999, the largest were in tobacco products and in communications.

The following table shows the change in position in 1999 by the type of capital flow and valuation adjustment:

Capital outflows for USDIA were $138.5 billion in 1999. By account, the largest share of the outflows--41 percent--was accounted for by reinvested earnings. Net equity capital outflows accounted for 38 percent of outflows. Intercompany debt accounted for the remainder.

Reinvested earnings, at $57.3 billion, were up 61 percent from 1998. The sharp rise resulted primarily from an increase in the share of earnings that were reinvested (rather than distributed to owners) from 40 percent to 56 percent. The increase in reinvested earnings also reflected a 13-percent rise in the overall earnings of foreign affiliates. More than half of the rise in affiliate earnings was accounted for by affiliates in the Asia and Pacific area--particularly in Japan and Hong Kong; the rest was mostly accounted for by affiliates in Canada. The large increase by affiliates in the Asia and Pacific area reflected improved economic conditions after the financial crisis of 1997-98 and the substantial appreciation of several Asian currencies, particularly the Japanese yen, against the U.S. dollar, which raised the value of the affiliates' earnings in dollar terms. The increase by affiliates in Canada reflected economic growth both in Canada and in the United States--Canada's largest export market. Despite recent growth in the number of affiliates in Europe, the earnings of European affiliates were flat in 1999, partly as a result of the appreciation of the U.S. dollar against the currencies of several major European countries--particularly those participating in the European Monetary Union (EMU).

Equity capital outflows, at $52.1 billion, were down 29 percent from the record level in 1998, reflecting fewer large acquisitions and some large selloffs. Acquisitions by U.S. parents and equity investments in existing foreign affiliates resulted in equity capital increases of $80.7 billion. (The increases mostly reflected the acquisitions discussed earlier.) These increases were partly offset by decreases in equity capital (which are recorded as U.S. capital inflows) of $28.6 billion, which resulted from selloffs of a number of foreign affiliates and--to a lesser extent--from the return of invested capital from existing foreign affiliates to their U.S. parents.

Acknowledgments The data for the U.S. direct investment position abroad were drawn from BEA's quarterly survey of transactions between U.S. parent companies and their foreign affiliates. The survey was conducted under the supervision of Mark W. New, assisted by Howard S. Chenkin, Jennifer C. Chilzer, Laura A. Downey, Javier J. Hodge, Marie K. Laddomada, Sherry Lee, Leila C. Morrison, and Dwayne Torney. Computer programming for data estimation and tabulation was provided by Marie Colosimo. The data for the foreign direct investment position in the United States were drawn from BEA's quarterly survey of transactions between U.S. affiliates of foreign companies and their foreign parents. The survey was conducted under the supervision of Gregory G. Fouch, assisted by Peter J. Fox, Michelle L. Granson, Tracy K. Leigh, Watthana Lim, Beverly E. Palmer, Christine L. Perrone, and Linden L. Webber. Computer programming for data estimation and tabulation was provided by Karen E. Poffel, assisted by Neeta B. Kapoor and Fritz H. Mayhew.

Intercompany debt outflows increased 16 percent, primarily reflecting debt repayment by parents to their foreign affiliates. The largest outflows were to Japan, the United Kingdom, Switzerland, and Singapore.

The capital outflows were partly offset by a $19.9 billion downward adjustment to the value of the position: nearly two-thirds of the adjustment was accounted for by negative currency-translation adjustments that resulted from the U.S. dollar's appreciation against several foreign currencies--particularly those of the EMU participants. In addition, acquisitions made for more than book value required downward adjustments to reconcile the purchase prices, which are reflected in capital outflows (and would otherwise determine the measured change in position), with the book values used in computing the historical-cost position. (See valuation adjustments in the box "Key Terms.")

Changes by country

Major changes in the position by area and by country are shown in the following table:

The position in Europe increased 10 percent and accounted for nearly half of the increase worldwide. Part of the increase for Europe was accounted for by holding companies. Holding companies are classified in FIRE, but their operating affiliates may be in other industries; additionally, the operating affiliates may be located in countries other than those of the holding companies.⁽⁴⁾  Thus, the increases accounted for by holding companies reflected strong earnings and reinvested earnings by existing operating affiliates in several industries and countries and capital outflows to the holding companies that were used to finance acquisitions of new operating affiliates.

Within Europe, the United Kingdom had the largest increase, followed by the Netherlands and Switzerland. Most of the increase in the United Kingdom was in the form of equity capital and reflected acquisitions. U.S. parent companies are attracted to the United Kingdom because of its large, prosperous market and because of the similarity of its business culture, legal framework, and language to that of the United States; in addition, the United Kingdom is often used as an entry point for investing elsewhere in Europe. The largest acquisitions were in retail trade (in "other industries") and automobile parts (in transportation equipment manufacturing).

In the Netherlands, most of the increase in the position was accounted for by reinvested earnings, which were the highest of all countries. Reinvested earnings were concentrated among holding companies (in FIRE), reflecting the earnings of operating affiliates, many of them outside the Netherlands. The increase resulting from reinvested earnings was partly offset by a shift to equity capital inflows that resulted from selloffs.

The position in Switzerland increased 28 percent, reflecting reinvested earnings in FIRE and intercompany lending in wholesale trade.

The position in Asia and Pacific increased 20 percent. Japan and Singapore accounted for most of the increase. The position in Japan increased 34 percent, reflecting U.S. parent lending to affiliates in FIRE, acquisitions of affiliates in communications and wholesale trade, and positive currency translation adjustments. The position in Singapore also increased 34 percent, reflecting lending to affiliates in FIRE, repayment of debt to affiliates in industrial machinery, and the reinvested earnings of affiliates in electronic equipment.

The position in Latin America and Other Western Hemsiphere increased 11 percent. Panama, Mexico, and Bermuda accounted for most of the increase. In Panama, the increase largely reflected capital gains (which are recorded as valuation adjustments) in FIRE. The increase in Bermuda-- also concentrated in FIRE--reflected reinvested earnings and capital contributions to existing affiliates. In Mexico, the increase mostly reflected the reinvested earnings of affiliates in several industries.

The position in Canada increased 10 percent. The increase reflected acquisitions of telecommunications companies and petroleum firms and the reinvested earnings of affiliates in several industries.

Foreign Direct Investment in the United States

The position of FDIUS valued at historical cost-- the book value of foreign direct investors' equity in, and net outstanding loans to, their U.S. affiliates--was $986.7 billion at the end of 1999 (table 2 and chart 1). The largest positions remained those of the United Kingdom ($183.1 billion, or 19 percent of the total), Japan ($148.9 billion, or 15 percent), the Netherlands ($130.7 billion, or 13 percent), and Germany ($111.1 billion, or 11 percent) (table 4.2 and chart 3).

The FDIUS position increased $192.9 billion, or 24 percent, in 1999, the fastest rate of increase since 1981 and well above the 15-percent rate in 1998. The growth in the position reflected the global boom in merger and acquisition activity, which also affected the growth in the USDIA position. However, the growth in the FDIUS position was particularly large because of several general and industry-specific factors. Propelled by technological innovation and strong gains in productivity, the U.S. economy continued to grow rapidly; real GDP increased more than 4 percent for the third consecutive year. The strong economy enhanced the attractiveness of potential investments in the United States, partly because it led to improved earnings of U.S. businesses. Favorable business conditions in most major investor countries increased the funds available to foreign investors to acquire new U.S. affiliates and to contribute additional capital to their existing U.S. affiliates. Capital flows from British parents were especially large and were mostly used for acquisitions.

Total acquisition activity for FDIUS reached a record level in 1999.⁽⁵⁾  Many acquisitions reflected industry-specific factors, the most important of which was the rapidly changing dynamics of the communications industry. The desire to gain access to advanced communications-related technologies and to the large and growing U.S. market for communications services led foreign communications firms to acquire U.S. firms that are involved in a range of communications-related activities, including telecommunications services (in "other industries") and manufacturing of fiber optic, Internet, and other communications equipment (in machinery manufacturing).⁽⁶⁾

Foreign investors also acquired several U.S. depository institutions and insurance firms and several firms that provide products and services related to water purification. The acquisitions of depository institutions and insurance firms reflected the strong demand for financial services in the United States and the need to remain competitive in an industry that is becoming increasingly dominated by large institutions. The acquisitions of water purification-related companies (in "other industries") were prompted by a recent increase in Federal water quality standards, which is expected to lead to large expenditures in infrastructure replacement by municipal water suppliers.

In 1999, as in 1998, several of the largest acquisitions were through exchanges of stock; the shareholders of the U.S. firms exchanged their stock for stock in the foreign firms. These self-financing transactions resulted in large, but almost entirely offsetting, financial flows in the U.S. international transactions accounts: The large inflows on direct investment that resulted from the foreign investors' acquisition of stock of the U.S. companies were offset by the outflows on foreign securities that resulted from the U.S. stockholders receiving the stock of the foreign firms.⁽⁷⁾

The following table shows the change in the FDIUS position in 1999 by type of capital flow and valuation adjustment:

Capital inflows for FDIUS were a record $271.2 billion in 1999 (the previous record was $181.8 billion in 1998). Most--78 percent--of the inflows were net inflows of equity capital ($212.1 billion). The rest were intercompany debt inflows ($40.2 billion) and reinvested earnings ($18.8 billion).

Equity capital inflows--the net of equity capital increases and equity capital decreases--reached a record $212.1 billion, 40 percent higher than the previous record of $151.7 billion in 1998. Equity capital increases--at $235.3 billion--reflected the acquisitions of U.S. businesses by foreigners and additional equity contributions to existing U.S. affiliates. These increases were partly offset by equity capital decreases of $23.1 billion, which reflected selloffs of affiliates by, and returns of capital to, foreign direct investors (transactions that are recorded as U.S. capital outflows).

Intercompany debt inflows were a record $40.2 billion, up from $30.7 billion. More than a third of the inflows were from parents in Luxembourg and were used to finance acquisitions in manufacturing.

Reflecting a sizable dropoff in distributions and a 58-percent increase in earnings, reinvested earnings shifted $19.5 billion to a record positive reinvested earnings of $18.8 billion.⁽⁸⁾  The share of earnings that were reinvested was 53 percent. Earnings rose $13.1 billion; almost all of the rise was accounted for by affiliates in "other manufacturing," petroleum, and wholesale trade. The increases in "other manufacturing" and in petroleum partly reflected the earnings of U.S. companies that were acquired by foreign investors in late 1998 (and thus did not significantly affect affiliate earnings until 1999). In wholesale trade, the increase primarily reflected growth in the earnings of Japanese-owned affiliates. Losses--and thus negative reinvested earnings--occurred in "other industries" and finance.

The capital inflows were partly offset by a substantial downward adjustment--$78.2 billion--to the value of the position; the adjustment was primarily related to acquisitions. As is usually the case, the acquired firms were purchased by foreign direct investors for more than their book values: In 1999, transaction values were boosted by high valuations in the communications-related sectors of the U.S. equity markets and by substantial premiums, in relation to preacquisition market prices, that foreign investors paid for many of the acquired firms. The downward adjustment reconciled the transaction values of the acquisitions, which are reflected in capital inflows (and would otherwise determine the measured change in position), with the smaller book values that are recorded in the historical-cost position.

Changes by country

Most--82 percent--of the $192.9 billion increase in the FDIUS position in 1999 was accounted for by affiliates with parents in Europe. Within Europe, the largest dollar increase was in the position of parents in the United Kingdom, followed by the positions of parents in the Netherlands, Luxembourg, France, and Germany. After Europe, the largest increases were by parents in Latin America and Other Western Hemisphere, in Asia and Pacific, and in Canada. The increase in position by parents in Latin America and Other Western Hemisphere was concentrated in Bermuda and in U.K. Islands, Caribbean. The increase in position by parents in Asia and Pacific was more than accounted for by Japan. Major changes in the positions by area and by country are shown in the following table:

The position of parents in the United Kingdom increased 28 percent. A substantial portion of the increase was accounted for by one very large transaction--the acquisition of a wireless communications company by a British firm in the same industry; partly reflecting this acquisition, the United Kingdom's position in "other industries" more than doubled.⁽⁹⁾  Partly due to acquisitions of communications equipment firms, the United Kingdom's position in machinery manufacturing more than tripled. Substantial reinvested earnings of affiliates in petroleum, which partly reflected increased profits resulting from higher oil prices, also raised the position of the United Kingdom.

The position of parents in the Netherlands increased 32 percent; the increase mostly reflected acquisitions of insurance companies and of depository institutions. The position of Luxembourg parents more than doubled, reflecting acquisitions in manufacturing by existing affiliates ultimately owned by investors in other countries.⁽¹⁰⁾  The acquisitions were financed through loans to the U.S. affiliates as well as through equity capital.

The position of French parents increased 34 percent, primarily reflecting acquisitions of companies that provide products or services related to water purification. The position of German parents increased 18 percent; the increase reflected acquisitions of depository institutions, communi-cations firms, and air freight companies. Germany's position was also boosted by reinvested earnings in manufacturing.

The position of parents in Bermuda more than tripled, and that of parents in the U.K. Islands, Caribbean increased 54 percent. Both increases reflected acquisitions by firms ultimately owned by investors in other countries. These acquisitions included telecommunications and Internet services firms and property and casualty insurance companies.

The position of parents in Japan increased 11 percent. The increase primarily reflected lending to affiliates and valuation adjustments; Japanese investments in new U.S. affiliates remained well below their peak levels of the late 1980's. By industry, the largest increase was in wholesale trade.

The position of Canadian parents increased 8 percent. By industry, increases in "other manufacturing," finance, and insurance were partly offset by decreases in food.

Tables 3.1, 3.2, and 4.1, 4.2 follow.

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1. The current-cost and market-value estimates are discussed in "The International Investment Position of the United States in 1999" in this issue.
2. For a discussion of the profitability of U.S. affiliates, see Raymond J. Mataloni, Jr., "An Examination of the Low Rates of Return of Foreign-Owned U.S. Companies," Survey of Current Business 80 (March 2000): 55-73.
3. The acquisitions made by holding companies were financed by capital outflows from the U.S. parents to the holding companies.
4. Transactions between U.S. parents and their foreign affiliates that enter the U.S. international transactions accounts and the related positions are classified according to the countries and industries of the affiliates with which the U.S. parents had direct transactions--in this case, those of the holding companies. However, when the direct transaction is with a holding company, the transaction may create indirect claims on, or liabilities to, affiliates in other countries and industries, or provide a channel for income to flow from the indirectly held affiliate to the parent. In contrast, the financial and operating data on foreign affiliates (for example, total assets, sales, and employment) are classified by the country of location and industry of operation of each affiliate. For the most recent financial and operating data for U.S. parents and their foreign affiliates, see "U.S. Multinational Companies: Operations in 1998" in this issue.
5. See Ned G. Howenstine and Rosaria Troia, "Foreign Direct Investment in the United States: New Investment in 1999," Survey 80 (June 2000): 55-63. According to the preliminary data from BEA's survey of new foreign direct investments, total outlays to acquire or establish U.S. businesses, including those financed by capital inflows from foreign parents, were up 31 percent to $282.9 billion in 1999 after tripling in 1998. These data cover only transactions involving U.S. businesses newly acquired or established by foreign direct investors and include financing other than that from the foreign parent, such as local borrowing by existing U.S. affiliates. In contrast, the changes in the FDIUS position reflect transactions of both new and existing U.S. affiliates with their foreign parents or other members of the foreign parent group and valuation adjustments, and exclude financing not provided by the foreign parent group.
6. These industry classifications are based on the 1987 Standard Industrial Classification (SIC). In the article on new foreign direct investments, the data on acquisitions and establishments by foreign investors in 1999 are presented using new classifications derived from the 1997 North American Industry Classification System (NAICS); under the NAICS-based classifications, many of the communications-related investments are included in the sector "Information." (See Howenstine and Troia, "New Investment in 1999.") In coming years, BEA will begin publishing the FDIUS and USDIA position and related capital-flow and income data on a NAICS basis.
7. The outflows were recorded as foreign securities transactions rather than as U.S. direct investment abroad because the exchanges of stock did not result in any single U.S. investor owning as much as 10 percent of the shares of the foreign firms.
8. Reinvested earnings were negative in 1998, because the affiliates' distributions to their foreign parents exceeded their current earnings.
9. The International Investment and Trade in Services Survey Act prohibits BEA from disclosing information from its direct investment surveys in a manner that allows the data supplied by an individual respondent to be identified. The act also provides that with the written consent of the respondent, information supplied by the respondent may be disclosed.
10. BEA also prepares data on the FDIUS position by country of ultimate beneficial owner; the data are included in the detailed tables on FDIUS that are usually published in the September Survey.