From the August 1999 SURVEY OF CURRENT
BUSINESSPreliminary results from BEA's latest benchmark survey of foreign direct investment in the United States (FDIUS) indicate that the share of U.S. affiliates of foreign companies in U.S. gross product originating in private nonbank industries increased slightly in 1997, while their share in U.S. nonbank private employment fell slightly./1/
The U.S.-affiliate share of gross product was 6.3 percent, up slightly from 6.2 percent in 1996 and up considerably from 5.9 percent in 1995 (table 1 and chart 1). The 2 years of increases, which followed several years of mild fluctuation, partly reflected a renewed surge in new foreign direct investment in the United States after a falloff in the early 1990's./2/ In the wake of the investment surge in the late 1980's, the affiliate share of gross product had increased substantially, from 4.3 percent in 1986 to 5.9 percent in 1991.
Because U.S. affiliates tend to be relatively concentrated in less labor-intensive sectors of the economy (such as manufacturing), the share of U.S. affiliates in U.S. private nonbank employment—4.9 percent—in 1997 was less than their share in U.S. GDP. The affiliate share of employment was down slightly from 5.0 percent in 1996 and was considerably below the peak of 5.3 percent in 1991.
The benchmark survey results reported in this article are preliminary and cover only nonbank U.S. affiliates./3/ The final results, which will be released next year, will also cover bank affiliates. (For information, see the box "The 1997 Benchmark Survey" on the next page.)
In the 1997 benchmark survey, a new industry classification system that is based on the North American Industry Classification System (NAICS) was used to classify the data of the affiliates (see the box "New Industry Classifications" on page 24); in previous surveys, the data were classified by industry using a system based on the Standard Industrial Classification (SIC). The NAICS better reflects new and emerging industries, industries involved in the production of advanced technologies, and the growth and diversification of service industries.
In this article, the 1997 data on gross product and other key items by industry are presented on both the new NAICS-based classifications and the SIC-based classifications; the data for earlier years are presented on the SIC-based classifications, the only basis on which these data are available. The 1997 data on FDIUS operations are among the first data to be collected on a NAICS basis, so industry-level comparisons with other data on U.S.-business operations are necessarily limited (in some cases, special tabulations of the 1997 data on an SIC basis are presented to facilitate comparisons with other data that are available only on an SIC basis). In a related change, petroleum is no longer shown as a separate major industry in the tables; instead, the various petroleum-related activities are distributed among the major NAICS industry groups to which they belong.
The following are additional highlights of the survey results for 1997:
The rest of this article consists of two parts. The first part discusses trends and patterns in affiliate operations using the data items that are collected in both the benchmark and the annual surveys of FDIUS. The second part presents findings from the data items that are collected only in benchmark surveys.
In 1997, gross product (or value added) of U.S. affiliates increased 7 percent to $385 billion, following an increase of 11 percent in 1996 (table 2). In comparison, gross product originating in private nonbank industries in current dollars increased 6 percent in 1997 and in 1996. The increase in affiliate gross product in 1997 reflected both new investments—that is, outlays by foreign investors to acquire or establish U.S. businesses—and expansions in the operations of existing affiliates. The U.S.-affiliate share of total U.S. gross product originating in private industries increased to 6.3 percent, the highest share in the two decades for which annual data on affiliate operations have been collected.
Partly as a result of new foreign investment in U.S. businesses, the total assets of affiliates increased 13 percent, following a 12-percent increase. However, affiliate sales increased only 3 percent—the lowest rate of increase since 1991—mainly because of selloffs of large affiliates in wholesale trade (an industry characterized by large sales relative to assets or other measures of affiliate operations).
Reflecting the continued expansion of the U.S. economy, expenditures on new plant and equipment by affiliates increased 11 percent. (In comparison, private fixed nonresidential investment in the United States increased 9 percent in 1997.) The net income of affiliates increased 75 percent, continuing a sharp uptrend from the large net losses recorded in 1992.
Employment by affiliates increased only 1 percent, following a 3-percent increase. In comparison, total U.S. employment in private industries increased 3 percent in 1997; much of this increase was in service industries, where foreign direct investment activity is relatively sparse. U.S. employment in manufacturing, where foreign direct investment is relatively concentrated, decreased 1 percent. The share of private industry employment that was accounted for by U.S. affiliates dipped slightly from 5.0 percent in 1996 to 4.9 percent in 1997.
The slower growth in affiliate employment in 1997 was the result of a smaller increase in employment from new investments and a larger reduction in employment from sales and liquidations of affiliates: New investments increased affiliate employment by 307,900—compared with 373,200 in 1996—and sales and liquidations reduced employment by 313,800—compared with 286,300 (table 3). As in 1996, the increase in affiliate employment from expansions of existing operations exceeded the reduction in affiliate employment from cutbacks in operations.
U.S. exports of goods shipped by affiliates were unchanged in 1997, due to substantially reduced exports by large wholesale trade affiliates—particularly by affiliates specializing in the trade of agricultural commodities and by affiliates of Japanese general trading companies. The reduced exports by these Japanese-owned affiliates reflected weakened demand associated with the appreciation of the dollar against the Japanese yen (which made U.S. goods more expensive in Japan) and sluggish economic conditions in Japan. Foreign parents' selloffs of affiliates were a secondary factor that contributed to the reduction in exports in wholesale trade. The affiliate share of total U.S. exports of goods decreased from 23 percent in 1996 to 20 percent in 1997; the share accounted for by affiliate exports to their foreign parent groups decreased from 10 percent to 9 percent.
U.S. imports of goods shipped to affiliates decreased 3 percent, following a 7-percent increase in 1996. The decrease in 1997 was more than accounted for by a decrease in imports by wholesale trade affiliates; imports by manufacturing affiliates continued to increase. The affiliate share of total U.S. imports of goods decreased from 34 percent to 30 percent; the share accounted for by affiliate imports from their foreign parent groups decreased from 25 percent to 22 percent.
This section examines the relative magnitude of affiliate operations—measured by affiliate gross product—by industry of affiliate and by country of ultimate beneficial owner (UBO)./4/ The industry distribution of affiliate operations in 1997 is presented both in terms of the new industry classification system that is based on NAICS and in terms of the old SIC-based system. Comparisons with the industry distributions of affiliate operations in earlier years are made in terms of the SIC-based system.
Industry distribution in 1997.—By NAICS-based industry, affiliates in manufacturing accounted for about half of the gross product of all nonbank affiliates (table 4). Within manufacturing, the gross product of affiliates was largest in chemicals, followed by petroleum and coal products, machinery, and computers and electronic products.
Excluding manufacturing, the gross product of affiliates was largest in wholesale trade—which includes a number of large affiliates with substantial secondary operations in manufacturing—followed by information, finance (except depository institutions) and insurance, and retail trade. The affiliates in these four NAICS sectors together accounted for about one-third of the gross product of all nonbank affiliates.
Information is one of the new sectors in NAICS that does not have an approximate counterpart in the SIC. In 1997, more than half of the gross product of affiliates in this sector was accounted for by affiliates in broadcasting and telecommunications, an industry that is mainly classified in transportation and public utilities in the SIC. Most of the remaining gross product was accounted for by affiliates in publishing, an industry that is mainly classified in manufacturing in the SIC.
As in previous years, affiliates that were majority owned by foreign direct investors accounted for about 80 percent of the gross product of all nonbank affiliates. In manufacturing and in wholesale trade, the majority-owned-affiliate share was about 90 percent. In contrast, in information, the share was only 40 percent, reflecting restrictions on foreign ownership in broadcasting and telecommunications.
Under the old SIC-based system, affiliates in manufacturing accounted for 45 percent of the gross product of nonbank affiliates in 1997, a share somewhat lower than that under the new NAICS-based system (table 5). The difference in these shares is largely the net result of differences in the treatment of petroleum and coal products manufacturing (which is classified in manufacturing under the new NAICS-based system but in the special industry group "petroleum" under the old system) and publishing (which is classified in information under NAICS but in manufacturing under the SIC).
Within manufacturing, the gross product of affiliates in the SIC-based industry "motor vehicles and equipment" was substantially less than that of affiliates in the NAICS-based industry "motor vehicles, bodies and trailers, and parts." The larger gross product in the NAICS-based industry is mainly due to the inclusion of several parts-producing affiliates that are classified in other manufacturing industries—most notably in fabricated metal products, machinery, and electronics—in the SIC-based system.
In wholesale trade and in mining, the gross product of affiliates under the SIC-based system was substantially less than that of affiliates in the corresponding NAICS-based sectors. The difference reflected the separate classification of petroleum affiliates under the SIC-based system and their inclusion in wholesale trade or oil and gas extraction under the NAICS-based system.
In retail trade, the gross product of affiliates was larger on an SIC basis than on a NAICS basis due to the inclusion of restaurants, which under NAICS, are classified in accommodation and food services. The effect of this difference in classification was partly offset by the difference in the treatment of affiliates that specialize in retailing gasoline, which are included in retail trade under the NAICS-based system but are classified in petroleum under the SIC-based system.
Change in industry distribution.—On the SIC basis, the share of nonbank-affiliate gross product accounted for by manufacturing declined from 50 percent in 1992 to 45 percent in 1997 (table 5). The decline partly reflects the selloff of foreign ownership shares in some large U.S. manufacturing companies, particularly in chemicals. It also reflects recent expansions in foreign direct investment activity in other industries, such as finance, except depository institutions; insurance; and communication and public utilities.
The shares of affiliate gross product accounted for by affiliates in the finance and insurance industries increased substantially from 1992 to 1997, partly as a result of large increases in gross product in 1997. The gross product of affiliates in finance increased more than 50 percent and those in insurance, more than 40 percent; these increases reflected both acquisitions of new affiliates and expansions in the operations of existing affiliates.
Within manufacturing, the gross product of affiliates in stone, clay, and glass products and in transportation equipment increased more than 20 percent in 1997. The increase in stone, clay, and glass products was mainly due to new investment transactions and to intracompany reorganizations in which operations were transferred to these affiliates from affiliates in other industries. The increase in transportation equipment was mainly due to expanded production by existing affiliates in motor vehicles and equipment.
By country.—In 1997, as in 1992, more than 80 percent of the gross product of all nonbank affiliates was accounted for by affiliates with UBO's in seven major investing countries: Canada, France, Germany, the Netherlands, Switzerland, the United Kingdom, and Japan (table 6). In both years, the largest investing country was the United Kingdom, followed by Japan. In 1997, Germany was the third-largest investing country. In 1992, Canada was the third-largest investing country, but by 1997, its ranking had slipped to the fifth largest, partly as a result of Canadian disinvestment in several large minority-owned U.S. companies; the share of Canadian-owned affiliates' gross product accounted for by majority-owned affiliates increased from 66 percent in 1992 to 86 percent in 1997 (table 7).
Among the seven major investing countries, the gross product of Swiss-owned affiliates increased 24 percent in 1997, partly as a result of new investments. The gross product of affiliates with UBO's in the Netherlands increased 12 percent, reflecting increases in the value added of existing affiliates.
In 1997, U.S. affiliates of foreign companies accounted for 4.9 percent of total U.S. private-industry employment, down slightly from a 5.1-percent share in 1992 (table 1). The decrease in the affiliate share partly reflects the concentration of affiliate activity in manufacturing, an industry whose share of total U.S. employment has declined./5/
By industry.—Among the NAICS sectors, the affiliate share of employment in 1997 was largest in mining (15.0 percent), followed by manufacturing (12.3 percent) and information (7.8 percent) (table 8)./6/ Within manufacturing, the affiliate shares were largest in chemicals (34.0 percent), nonmetallic minerals (21.2 percent), and electrical equipment, appliances, and components (20.2 percent). Affiliates accounted for more than 10 percent of employment in 12 of the 21 subsectors in manufacturing.
Similar patterns in affiliate shares of employment were evident in the data by SIC division in 1996. The affiliate share was largest in mining, followed by manufacturing (table 9). Within manufacturing, the affiliate shares were largest in chemicals; tobacco products; stone, clay, and glass products; and electronic and other electric equipment.
In communications, the affiliate share of employment increased from less than 2 percent in 1992 to more than 8 percent in 1996, mainly as a result of foreign acquisitions of U.S. companies. Within manufacturing, the affiliate share of employment in motor vehicles and equipment increased substantially, from 11.0 in 1992 to 14.6 percent in 1996, largely as a result of expansions of operations by existing affiliates.
By State.—In 1997, the affiliate shares of private-industry employment were highest in Hawaii (11.4 percent), South Carolina (7.9 percent), and North Carolina (7.1 percent) (table 10). Hawaii also had the highest share in each year in 1992–96. In 1992–94, Delaware had the second-highest share, but the share dropped sharply in 1995 as a result of foreign disinvestments. South Carolina had the third-highest share in 1992–94 and the second highest in 1995–96.
In 1996, affiliates in Kentucky (20.0 percent) had the highest share of manufacturing employment, followed by South Carolina (18.1 percent) (table 11)./7/ In 1992, Delaware had the highest share, followed by West Virginia.
In 1997, the net income of affiliates—after-tax profits on a financial-accounting basis—increased $18.2 billion, to $42.5 billion, following an increase of $8.9 billion in 1996./8/ The increase in 1997 was mainly due to increased operating profits, as "profit-type return"—before-tax profits generated from current production on an economic-accounting basis—increased $14.8 billion, to $57.8 billion (table 12)./9/ Capital losses of $1.3 billion in 1996 shifted to capital gains of $2.7 billion, and U.S. income taxes paid by affiliates increased $1.3 billion, to $25.6 billion.
The large increases in net income and profit-type return in 1997 continue a pattern of strong growth since 1992. Some of this growth reflected the entry of affiliates into the direct investment universe, but most of it was attributable to the improved profitability of existing affiliates.
By SIC-based industry, affiliates' net income and profit-type return in most of the major industries increased substantially in 1997. In manufacturing, affiliates' net income increased $6.2 billion, or 76 percent, mainly because of a $4.9 billion increase in profit-type return. Within manufacturing, profit-type return increased $2.2 billion in transportation equipment, reflecting increased operating profits by affiliates in motor vehicle manufacturing. In wholesale trade, profit-type return increased $3.4 billion, mainly as a result of increased operating profits by affiliates in motor vehicle wholesale trade.
Affiliates' net income increased more than $3 billion in finance, except depository institutions, and in insurance, reflecting large increases in both operating profits and capital gains. In petroleum, net income and profit-type return each increased more than $1 billion, but the increases were smaller than in 1996. As a result of increases in operating profits, affiliates' net income in real estate and in services both turned positive for the first time in over a decade./10/
On a NAICS basis, affiliates' net income and profit-type return in 1997 were positive in most of the industries with substantial foreign direct investment activity (table 13). In finance (except depository institutions) and insurance, operating profits were particularly strong, accounting for more than 40 percent of gross product.
Return on assets.—The rate of return on assets of nonfinancial affiliates increased to 6.5 percent in 1997 from 6.0 percent in 1996 (table 14 and chart 2). In comparison, the rate of return for all U.S. nonfinancial corporations was unchanged at 8.0 percent./11/ Although the rate of return for affiliates has been lower than that for U.S. nonfinancial corporations for many years, the gap has been narrowing recently, and the gap in 1997 was the smallest since 1988.
The 1997 benchmark survey provides information on U.S.-affiliate research and development (R&D), employment, and trade in goods that is collected only in benchmark survey years. The data on R&D include expenditures on R&D performed by affiliates broken down by source of funding—that is, whether the R&D is performed for the affiliates themselves, for the Federal Government, or for others under contract. The data on affiliate employment include the number of employees covered by collective bargaining agreements. The data on U.S. trade in goods of affiliates include exports and imports by product and by country of destination or origin. They also include imports by intended use—that is, whether intended for further manufacture, for resale without further processing, or as additions to the affiliates' capital stock./12/
In 1997, expenditures on R&D performed by U.S. affiliates (both for themselves and for others) totaled $19 billion and accounted for about 12 percent of the R&D performed by all U.S. businesses (table 15). The amount of R&D performed by affiliates was slightly less than the amount of R&D funded by affiliates, which includes R&D performed for affiliates by others under contract and excludes R&D performed by affiliates for others./13/
Of the total R&D performed by affiliates, nearly all—93 percent—was financed by the affiliates themselves, less than 7 percent was financed by other private companies under contract, and less than 1 percent was financed by the Federal Government. In contrast, 15 percent of the R&D performed by all U.S. businesses was financed by the Federal Government. U.S. affiliates accounted for 14 percent of the privately funded R&D performed by all U.S. businesses, but they accounted for less than 1 percent of the federally funded R&D. The low affiliate share of federally funded R&D may reflect the fact that much of this research is military related and is therefore generally off limits to foreign-owned companies.
The ratio of R&D performed by affiliates to affiliate gross product was 5 percent, twice the ratio of R&D to gross product for all U.S. businesses. The higher ratio for affiliates reflects the tendency of U.S. affiliates to be large companies, which typically perform more R&D than small companies, and the tendency for affiliates to be more concentrated in research-intensive industries, such as chemicals.
By NAICS-based industry, more than one-half of the total expenditures on R&D performed by affiliates was accounted for by affiliates in two manufacturing industries: Chemicals and computers and electronic products (table 16). Within chemicals, affiliates in pharmaceuticals and medicines—one of the most research-intensive industries—accounted for more than one-fourth of affiliate R&D. In 1997, expenditures on R&D performed by these affiliates amounted to about 10 percent of affiliate sales and one-third of affiliate gross product. In comparison, for affiliates in all industries, the ratio of R&D to sales was 1 percent, and the ratio of R&D to gross product was 5 percent. Within computers and electronic products, the research intensity of affiliate operations was particularly high in communications equipment and in navigational, measuring, and other instruments.
In 1997, 15 percent of the employees of nonbank U.S. affiliates were covered by collective bargaining agreements (table 17). The union-represented share of affiliate employment varied considerably across industries: By NAICS-based industry at the sector level, the share ranged from 38 percent in transportation and warehousing to zero percent in finance (except depository institutions) and insurance. The union employment share in manufacturing was 17 percent. Within manufacturing, the share was highest in such basic industries as paper (43 percent) and primary metals (39 percent); the share was lowest in such research-intensive industries as chemicals (10 percent) and computers and electronic products (9 percent).
Overall, the union employment share for affiliates in 1997 (15 percent) was higher than that for all U.S. private wage and salary workers (11 percent) (table 18). The higher share for affiliates mainly reflects industry-mix effects; for example, on an SIC-division basis, services (an industry with relatively low unionization) accounted for nearly one-third of employment for all private wage and salary workers but for less than 12 percent of affiliate employment. On a disaggregated-industry basis, the union employment share for U.S. affiliates exceeded that for all private wage and salary workers in half of the industries for which comparable data are available. The difference is particularly marked in retail trade, where the affiliate union employment share was 23 percent, compared with 6 percent for all wage and salary workers. In this industry, the higher affiliate share can probably be attributed to the tendency for foreign direct investment to be concentrated in large-scale enterprises (such as large grocery store chains), which generally have higher rates of unionization than small businesses.
Both in the aggregate and within most SIC-based industries, the union-represented share of affiliate employment was substantially lower in 1997 than in 1992. For affiliates in all industries, the share dropped from 20 percent in 1992 to 15 percent in 1997. In comparison, the union employment share for all private wage and salary workers declined less rapidly, from 13 percent to 11 percent. The more rapid decline in union representation for affiliates may reflect a relative absence of constraints on foreign direct investors (compared with domestically owned U.S. businesses with existing union contracts) to set up new operations in areas with low union activity.
In manufacturing, the union employment share for affiliates declined from 25 percent to 17 percent, while the share for all workers declined from 21 percent to 17 percent. Declines in the affiliate shares were also relatively pronounced in mining, construction, and communication and public utilities.
U.S. affiliates have accounted for a substantial share of U.S. trade in goods since at least 1977, the first year for which annual data on affiliate operations are available: In most years, affiliates have accounted for 20–25 percent of exports and for 30–35 percent of imports./14/ In 1997, the share of U.S. exports of goods accounted for by affiliates was 20 percent, down from 23 percent in 1992. Most of this decrease occurred in 1997 and reflected reductions in exports by wholesale trade affiliates—particularly affiliates of Japanese general trading companies and foreign-owned wholesalers specializing in agricultural commodities. The affiliate share of U.S. imports of goods was 30 percent in 1997, down from 35 percent in 1992. As with exports, most of the decrease occurred in 1997; the level of affiliate imports decreased in 1997 as a result of decreased imports by wholesale trade affiliates—mainly Japanese- and Korean-owned affiliates specializing in electrical goods and in professional equipment and supplies.
By product.—In 1997, U.S. affiliates accounted for more than 40 percent of U.S. exports of food, beverages, and tobacco and for about half of U.S. exports of mineral fuels and lubricants (a product category that mainly consists of petroleum and products); both shares were somewhat lower in 1997 than in 1992 (table 19 and chart 3). U.S. affiliates continued to account for less than 20 percent of U.S. exports of machinery, of road vehicles and parts, and of other transport equipment; however, the share for road vehicles and parts—17 percent—was higher than in 1992, reflecting expanded affiliate operations in the motor vehicle industry.
Affiliate exports of food, beverages, and tobacco were mainly exports to the affiliates' foreign parent groups; most of these intrafirm exports were by Japanese-owned wholesale trade affiliates. Intrafirm exports also accounted for more than half of affiliate exports of telecommunications, sound equipment, and other electrical machinery.
Wholesale trade affiliates accounted for three-fourths of affiliate exports of food, beverages, and tobacco and for 80 percent of affiliate exports of crude materials (a commodity group that includes soybeans, oil seeds, wood, pulp, and metal ores) (table 20). Affiliates in manufacturing accounted for three-fourths of affiliate exports of chemicals and for more than 60 percent of affiliate exports of telecommunications, sound equipment, and other electrical machinery.
On the import side, U.S. affiliates in 1997 accounted for 55 percent of U.S. imports of road vehicles and parts, up from 49 percent in 1992, and for more than 40 percent of U.S. imports of chemicals and of telecommunications, sound equipment, and other electrical machinery (table 19 and chart 4). For all three product groups, about 80 percent of the affiliate imports were intrafirm imports from the affiliates' foreign parent groups. The affiliate imports of road vehicles and parts were mainly by wholesale trade affiliates of Japanese, German, and Swedish automobile firms. Wholesale trade affiliates also accounted for most of the affiliate imports of telecommunications, sound equipment, and other electrical machinery, and manufacturing affiliates accounted for most of the affiliate imports of chemicals.
Imports by intended use.—About two-thirds of the imports by U.S. affiliates in 1997 were goods for resale without further processing, assembly, or manufacture by the affiliates. For wholesale trade affiliates, the share of goods for resale without further manufacture was just under 90 percent.
Most of the remaining imports by affiliates were goods for further manufacture by the affiliates; as would be expected, these imports were mainly by manufacturing affiliates. About two-thirds of the imports by manufacturing affiliates were goods for further manufacture.
By country of destination or origin.—Among the 28 largest U.S. trading partners in 1997, the affiliate shares of U.S. exports of goods were highest for Japan (52 percent), Sweden (43 percent), and the Republic of Korea (30 percent) (table 21, column 8). For these three trading partners, most of the affiliate exports to the country were by affiliates with UBO's in the country; for Japan, more than 80 percent of all affiliate exports to Japan were by Japanese-owned affiliates (table 21, column 11). The affiliate exports to Japan and Korea were mainly by wholesale trade affiliates (including affiliates of the countries' large general trading companies); in contrast, the affiliate exports to Sweden were mainly by manufacturing affiliates.
The affiliate share of U.S. exports to Japan was substantially lower in 1997 than in 1992, partly due to reduced exports by wholesale trade affiliates of Japan's general trading companies. In contrast, the affiliate share of U.S. exports to Sweden was substantially higher than in 1992, reflecting expanded production and exports by Swedish-owned manufacturing affiliates.
On the import side, U.S. affiliates accounted for more than 50 percent of U.S. imports of goods from four countries: Japan (80 percent), Switzerland (61 percent), Germany (55 percent), and Sweden (54 percent) (table 21, column 8). Affiliate imports from these four countries were mainly by affiliates with UBO's in the countries (table 21, column 11). In addition, most of these imports were imports from the affiliates' foreign parent groups: The share of U.S. imports accounted for by intrafirm imports of U.S. affiliates was 70 percent for Japan and slightly more than 50 percent for Switzerland, Germany, and Sweden (table 21, column 10).
Most of the affiliate imports from Japan were by wholesale trade affiliates of Japanese manufacturing companies. These affiliates were initially set up to market the products of their parent companies, but many of them have since developed substantial secondary operations in manufacturing. Affiliate imports from Germany, Sweden, and Switzerland were also predominantly by affiliates of the investing country's manufacturing companies, which include both wholesale trade affiliates and manufacturing affiliates.
Consistent with the overall decline in the affiliate share of U.S. imports, the affiliate shares for Switzerland, Germany, and Sweden were lower in 1997 than in 1992. In contrast, the much higher affiliate share of U.S. imports from Japan in 1997 was unchanged from 1992.
Tables 21 through 25 follow.
Footnotes:
1. A U.S. affiliate is a U.S. business enterprise in which there is foreign direct investment—that is, in which a single foreign person owns or controls, directly or indirectly, 10 percent or more of the voting securities of an incorporated U.S. business enterprise or an equivalent interest in an unincorporated U.S. business enterprise. The term "U.S. affiliate" denotes that the affiliate is located in the United States; in this article, "affiliate" and "U.S. affiliate" are used interchangeably.
A "person" is any individual, corporation, branch, partnership, associated group, association, estate, trust, or other organization and any government (including any corporation, institution, or other entity or instrumentality of a government). A "foreign person" is a person who resides outside the 50 States, the District of Columbia, the Commonwealth of Puerto Rico, and all U.S. territories and possessions.
The financial and operating data of U.S. affiliates cover the entire operations of the U.S. affiliate, irrespective of the percentage of foreign ownership.
All data on the overall operations of nonbank U.S. affiliates are on a fiscal year basis. Thus, for 1997, an individual affiliate's fiscal year is its financial reporting year that ended in calender year 1997.
2. According to data from BEA's annual survey of new foreign investments, outlays by foreign direct investors to acquire or establish businesses in the United States increased from $15.3 billion in 1992 to $79.9 billion in 1996 and $69.7 billion in 1997 (the previous high was $72.7 million in 1988). Outlays by foreign direct investors surged to a record $201.0 billion in 1998, which suggests that the affiliate share of U.S. private-industry GDP will increase further when the figures for 1998 are available next year. See Mahnaz Fahim-Nader, "Foreign Direct Investment in the United States: New Investment in 1998," SURVEY OF CURRENT BUSINESS 79 (June 1999): 16–23.
3. The estimates for data items on the operations of nonbank affiliates in 1996 are revised; for most of the key data items, the revisions from the preliminary estimates resulted in changes of 3 to 6 percent in the totals.
4. The UBO is that person, proceeding up a U.S. affiliate's ownership chain, beginning with and including the foreign parent, that is not owned more than 50 percent by another person. The foreign parent is the first foreign person in the affiliate's ownership chain. Unlike the foreign parent, the UBO of an affiliate may be located in the United States. The UBO of each U.S. affiliate is identified to ascertain the person that ultimately owns or controls the U.S. affiliate and that therefore ultimately derives the benefits from ownership or control.
5. Manufacturing's share of U.S. private-industry employment (excluding depository institutions and private households) decreased from 20.2 percent in 1992 to 17.8 percent in 1997.
6. Employment data by industry of sales are used to estimate shares; this basis approximates the establishment-based disaggregation of the corresponding data for all U.S. businesses. See the box "Using Employment Data to Estimate Affiliate Shares of the U.S. Economy" on page 29.
7. Data on affiliate employment in manufacturing by State were collected in the 1997 benchmark survey for manufacturing on a NAICS basis. However, the affiliate shares of State manufacturing employment cannot be computed for 1997, because the industry-level data on all-U.S.-business employment by State are currently available only for industries on an SIC basis.
8. Net income of affiliates is that shown in the affiliates' income statements; it includes capital gains and losses, income from investments, and other nonoperating income.
9. Affiliates' profit-type return is calculated before the deduction of income taxes or depletion charges; it excludes capital gains and losses, income from investments, and other nonoperating income, and it includes an inventory valuation adjustment (IVA). Conceptually, profit-type return should also include a capital consumption adjustment (CCAdj), but estimates of CCAdj by industry are not available; estimates of profit-type return with both IVA and CCAdj are presented for nonfinancial U.S. affiliates in table 14. For a more detailed description of this measure and for a comparison of this measure and the corresponding measure used in the U.S. national income and product accounts, see Jeffrey H. Lowe, "Gross Product of U.S. Affiliates of Foreign Companies, 1977–87," SURVEY 70 (June 1990): 53.
10. In real estate, the net income of affiliates was negative every year in 1986–96; in services, net income was negative every year in 1981–96.
11. For both U.S. affiliates and all U.S. corporations, the rate of return is measured as profit-type return plus interest paid as a percentage of total assets. In the computation of these measures, both the return and the assets that generate the return are valued in prices of the current period.
12. Since 1993, data on imports intended for further manufacture by affiliates have also been collected in BEA's annual surveys of affiliate operations.
13. R&D funded by affiliates is the basis on which annual data on affiliate R&D expenditures were collected in BEA's previous surveys. Beginning with the 1998 annual survey, the basis will shift to R&D performed by affiliates, which is the basis on which National Science Foundation surveys collect information on R&D from U.S. businesses.
14. For a discussion of trends in U.S. affiliate trade in 1977–91, see William J. Zeile, "Merchandise Trade of U.S. Affiliates of Foreign Companies," SURVEY 73 (October 1993): 52–65.
