U.S. international services consist of services provided by and to the United States in international markets through all four modes of supply of services: (1) cross-border supply, (2) consumption abroad, (3) commercial presence, and (4) presence of natural persons.1 International services statistics include detailed annual information on trade in services, which is trade in the conventional sense, and on services supplied through the channel of direct investment by affiliates of multinational enterprises.
U.S. trade in services covers services between residents and nonresidents delivered through three of the four modes of supply: cross-border supply, consumption abroad, and the presence of natural persons. These transactions are recorded as U.S. exports and U.S. imports in the international transactions accounts (ITAs), also called the balance of payments accounts.
Trade in services includes nine categories: maintenance and repair services n.i.e.; transport; travel (for all purposes including education); insurance services; financial services; charges for the use of intellectual property n.i.e.; telecommunications, computer, and information services; other business services; and government goods and services n.i.e. For more information on the definitions of the major trade in services categories, see Part III of “U.S. International Economic Accounts: Concepts and Methods.”
The trade statistics cover both affiliated and unaffiliated transactions between U.S. residents and foreign residents. Affiliated transactions consist of intrafirm trade within multinational enterprises—trade between U.S. parent companies and their foreign affiliates and trade between U.S. affiliates and their foreign parent groups. Unaffiliated transactions are with foreigners that neither own, nor are owned by, the U.S. party to the transaction.
Services supplied through affiliates includes the commercial presence mode of supply and refers to services supplied by majority-owned affiliates of multinational enterprises (MNEs) through the channel of direct investment.2 The statistics cover transactions between majority-owned foreign affiliates (MOFAs) of U.S. enterprises and foreign residents, both in the local economy and in other foreign markets, and transactions between majority-owned U.S. affiliates (MOUSAs) of foreign enterprises and U.S. residents. Because of the importance of proximity to customers in the delivery of services, many MNEs serve foreign markets partly or wholly through their affiliates located in, or close to, the markets they serve.
For affiliates in industries other than wholesale and retail trade, insurance, and banking, services supplied through affiliates are the sales of services reported by multinational enterprises. For wholesale and retail trade, insurance, and banking, adjustments are made to reported sales of services to better capture the value of services supplied. More specifically, these adjustments add 1) wholesalers and retailers distributive services, 2) insurers premium supplements, and 3) banks' implicitly-charged services; they subtract a proxy measure of insurers' expected losses.3
Sales of services are defined as sales of intangible outputs; therefore, they generally exclude the sales by establishments in manufacturing, mining (except support activities), agriculture, forestry, fishing, and hunting (except support activities), and construction, which typically produce and sell tangible goods. However, affiliates in any industry can be providers of services because the classification of an affiliate reflects the affiliate’s primary industry of sales and affiliates classified in industries that typically produce goods may have secondary activities in services industries. In cases where a sale consists of both tangible and intangible output that cannot be unbundled, sales are classified based on whichever accounts for the majority of the value.
Differences in coverage and classification make it difficult to precisely compare trade in services with services supplied through affiliates. An example of a difference in coverage is the inclusion of distributive services (wholesale and retail trade services) in services supplied through affiliates but not in the services trade statistics. The distributive services associated with importing and exporting goods is included, but not separately identifiable, in the value of trade in goods. The differences in classification arise because the statistics on trade in services are collected and published by type of service, but those on services supplied through affiliates are collected and published by the affiliate’s primary industry.
Despite the difficulties in comparing statistics on U.S. trade in services with statistics on services supplied through affiliates, the large difference in value between the two indicates that the services supplies through affiliates is the larger channel of delivery of services in international markets (chart 1 and chart 2).
1 For additional information on the modes of supply for services, see Part IV of "U.S. International Economic Accounts: Concepts and Methods."
2 BEA’s statistics on services supplied through affiliates cover a broader range of transactions than those included in the General Agreement on Trade in Services (GATS) definition of commercial presence for foreign affiliates of U.S. MNEs. The GATS definition includes services supplied by foreign affiliates to local economies, but does not include services supplied to other foreign economies.
3 For more detailed information about the computation of services supplied for affiliates in wholesale and retail trade and insurance, see “Revisions and Improvements” in Jennifer Koncz and Anne Flatness, Survey of Current Business 88 (October 2008): 33. For more information about the computation for affiliates in banking, see“Revisions and Improvements” in Jennifer Koncz-Bruner and Anne Flatness, Survey of Current Business 89 (October 2009): 37.