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U.S. Multinational Companies: U.S. Merchandise Trade, Worldwide Sales, and Technology-Related Activities in 1977 U.S. DEPARTMENT OF COMMERCE Malcolm Baldrige, Secretary Robert G. Dederick, Under Secretary for Economic Affairs BUREAU OF ECONOMIC ANALYSIS George Jaszi, Director Allan H. Young, Deputy Director August 1983 Introduction The three articles in this publication analyze U.S. merchandise trade associated with, worldwide sales by, and technology-related activities of, U.S. multinational companies (MNC's) in 1977. The articles are based on data obtained in BEA's 1977 benchmark survey of U.S. direct investment abroad.!/ They complete a series of articles, published by BEA over the past 2 years, that present the major results of the benchmark survey. Together, the articles in the series provide a broad view of the operations, both domestic and foreign, of U.S. MNC's in 1977. They should promote a better understanding among Government, business, labor, academic researchers, and the general public of the role MNC's play in U.S. and foreign economies. U.S. direct investment abroad exists when one U.S. person (U.S. parent) has a direct or indirect ownership interest of 10 percent or more in a foreign business enterprise (foreign affiliate). A U.S. MNC is a U.S. company that has direct investment abroad; each MNC consists of a U.S. parent and all of its foreign affiliates combined. The 1977 benchmark survey was a census, and, in terms of value, its coverage of the direct investment universe was virtually complete.2/ It was the first benchmark survey of U.S. direct investment abroad conducted under authority of the International Investment Survey Act of 1976. The act requires that such surveys be conducted at least once every 5 years. Each article in this publication is limited in coverage to nonbank MNC's, i.e., to nonbank U.S. parents of nonbank foreign affiliates, and their nonbank foreign affiliates. In the benchmark survey, little financial and operating data were collected for bank parents and affiliates, because they already had to report most of the information needed for policymaking purposes to other U.S. Government agencies. r. Detailed data and the methodology of the benchmark survey were published in U.S. Department of Commerce, Bureau of Economic Analysis, U.S. Direct Investment Abroad, 1977 (Washington, D.C.: U.S. GPO, April l9»i). A limited numoer or copies are available from the Office of the Chief, International Investment Division (BE-50), Bureau of Economic Analysis, U.S. Department of Commerce, Washington, D.C. 20230. The postpaid price is $10.00 within the United States; postage extra outside the United States. 2. To ease the reporting burden on companies, very small affiliates—those whose total assets, sales, and net income were each less than $500,000—were exempted from the survey. Reports covering 3,540 U.S. parents and their 24,666 foreign affiliates were received; 11,123 foreign affiliates were exempted. Although the exempt affiliates accounted for 31 percent of the number of all affiliates, they accounted for only 1 percent of the total assets, and less than 1 percent of the sales and net income, of all affiliates. ili Nonbank parents of nonbank affiliates accounted for 97 percent of both the number and employment, but for only 73 percent of the total assets, of all U.S. parents. Their nonbank affiliates accounted for 96 percent of the number and 98 percent of the employment, but for only 59 percent of the total assets, of all foreign affiliates. The total assets of nonbanks, on average, tend to be lower than those of banks, because the assets of the latter usually reflect substantial financial claims arising from the banks1 lending activities (their liabilities also tend 1 to be high because of their sizable borrowing activities and customers deposits). For simplicity, in the articles and accompanying tables in this publication, the term "U.S. MNC's" refers only to nonbank MNC's, "U.S. parents" refers to nonbank parents of nonbank affiliates, and "foreign affiliates" refers to nonbank affiliates of nonbank parents. Portions of each article are further limited in coverage to the larger majority-owned foreign affiliates (MOFA's) and their U.S. parents. This limitation is necessary because, in the benchmark survey, the most detailed financial and operating data were collected only for the larger MOFA's, i.e., for affiliates that were owned more than 50 percent, directly or indirectly, by all U.S. parents combined and that had assets, sales, or net income over $3 million in 1977. MOFA's, so defined, accounted for 50 percent of the number, 72 percent of the total assets, and 75 percent of the employment of all nonbank affiliates of nonbank parents. The other articles in the series on the 1977 benchmark survey data have appeared in various issues of the Survey of Current Business, BEA's monthly journal. The other articles are! International Investment Division, "1977 Benchmark Survey of U.S. Direct Investment Abroad," Survey 61 (April 1981): 29-37, which gave a brief description of the survey and highlights of the data; Betty L. Barker, "A Profile of U.S. Multinational Companies in 1977," Survey 61 (October 1981): 38-57, which discussed industry characteristics of MNC's, their size, the location of their operations, the U.S. parent's percentage of ownership in their foreign affiliates, and the form of organization of parents and affiliates; Obie G. Whichard, "Employment and Employee Compensation of U.S. Multinational Companies in 1977," Survey 62 (February 1982): 3749, 60; and Ned 6. Howenstine. "Growth of U.S. Multinational Companies, 1966-77," Survey 62 (April 19&2): 34-46, and "Gross Product of U.S. Multinational Companies, 1977," Survey 63 (February 1983): 24-29. The three articles in this publication examine several additional aspects of U.S. MNC's. The first article analyzes U.S. merchandise trade—exports and imports—associated with the MNC's. It covers trade between U.S. parents and their foreign affiliates, between these affiliates and other U.S. persons, and between U.S. parents and unaffiliated foreigners. To the extent data are available, the article disaggregates MNC trade by industry of U.S. parent or affiliate, by product, by country of destination or origin, and by intended use. The second article analyzes worldwide MNC sales—of both merchandise and services—disaggregated by area of origin (the location of the MNC seller), by area of destination (the location of the purchaser), by industry of U.S. parent, and by affiliation between seller and customer. iv The third article discusses research and development (R&D) activities of U.S. MNC's, as measured by their R&D expenditures and the number of R&D scientists and engineers they employed. It also discusses royalty and license fee transactions between U.S. parents and their foreign affiliates and between these members of the MNC and other U.S. or foreign persons. By BETTY L. BARKER U.S. Merchandise Trade Associated With U.S. Multinational Companies U.S. multinational companies (MNC's) accounted for very large shares of total U.S. merchandise exports and imports—84 percent and 58 percent, respectively—in 1977. These and other data from the 1977 benchmark survey indicate the nature and magnitude of MNC-associated trade. They also should shed light on the question of the impact of U.S. direct investment abroad on U.S. trade. As noted in the Introduction to this publication, the article covers only nonbank MNC's. However, trade of bank MNC's was probably insignificant. MNC-associated U.S. trade consists of (1) trade between U.S. parents and their foreign affiliates, (2) trade between these same foreign affiliates and other (unaffiliated) U.S. persons, and (3) trade between U.S. parents and unaffiliated foreigners. Total U.S. trade of foreign affiliates is equal to (1) plus (2); total U.S. trade of parents is equal to (1) plus (3). Note that total U.S. trade of affiliates and total U.S. trade of parents are not mutually exclusive, because both contain (1), trade between parents and their affiliates. Following an overview of MNC-associated U.S. trade, MNC-associated exports and imports are analyzed in two separate sections. In each, the amount of detail varies, depending upon the availability of data. In the benchmark survey, significantly more detail was obtained for exports than for imports. Also, more detail was obtained for U.S. trade with majority-owned foreign affiliates (MOFA's) than for U.S. trade with other foreign affiliates or for trade of U.S. parents with unaffiliated foreigners. 1/ Thus, the section on exports discusses (1) total MNC-associated U.S. exports, by country of destination and by industry of U.S. parent, (2) U.S. exports associated with MOFA's and their U.S. parents, by product, (3) U.S. exports to MOFA's only, by product and intended use crossclassified by country of destination and by industry 9f affiliate, and (4) growth, from 1966 to 1977, of U.S. exports associated with MOFA's and U.S. parents for which comparable data were available from the 1966 and 1977 benchmark surveys. The section on imports discusses (1) total MNC-associated U.S. imports, by industry of U.S. parent, and (2) U.S. imports from MOFA's only, by product crossclassified by country of origin and by industry of affiliate. Where possible, the article compares MNC-associated U.S. trade with total U.S. trade. The MNC trade data were defined in the benchmark survey to be as comparable as possible with all-U.S. trade data compiled by the Census Bureau. In practice, however, the two data sets are not strictly comparable. The technical note discusses the differences between the MNC and all-U.S. data. 1. MOFA's are defined as affiliates that were owned more than 50 percent by all U.S. parents combined and that had assets, sales, or net income over $3 million. NOTE.--Arnold Gilbert and Richard Mauery were responsible for computer generation of tables for this article. Overview In 1977, MNC-associated U.S. exports were $101.8 billion, 84 percent of total U.S. exports; MNC-associated U.S. imports were $86.8 billion, 58 percent of total U.S. imports (table 1). U.S. MNC's accounted for significantly larger shares of U.S. trade than of domestic business activity. For example, their share of all-U.S. business employment was only 35 percent. 2/ Their trade shares may have been larger because, compared with other U.S. firms, MNC's were more heavily concentrated in goods-producing industries. Thus, on average, they tended to have larger exports and imports of goods than other U.S. firms. Even within given industries, however, MNC's probably accounted for larger shares of trade than of domestic business activity—one indication of their greater international orientation compared with other firms. The very large share of U.S. exports accounted for by the MNC's probably reflected the fact that the MNC's were among the largest and most technologically advanced U.S. firms. They may have had a competitive edge over other U.S. firms in exporting because they could take greater advantage of economies of scale, produce technically superior or more sophisticated products, or more readily adapt their products to the needs and tastes of foreign customers. The extent to which the existence of their foreign affiliates contributed to the export performance of U.S. MNC's is unclear. On the one hand, the affiliates may have offered advantages, such as firsthand knowledge of foreign markets, direct contacts with foreign customers, closer control over worldwide distribution via their use as sales outlets for the MNC's, and provision of local after-sales servicing for exported goods. Also, affiliates' purchases of goods from U.S. parents for use or for further manufacture abroad may have boosted the parents' exports relative to those of other U.S. firms. On the other hand, affiliate production may have displaced U.S. exports, particularly from U.S. parents, by supplying foreign markets from abroad rather than from the United States. Such displacement would have occurred only if affiliate production was at the expense of U.S. exports; it would not have occurred if U.S. exports had been constrained instead by, for example, foreign tariffs or quotas, erosion of U.S. firms' foreign market shares because of the emergence of rival firms, or prohibitively high transport costs. The data in this article cannot by themselves provide estimates of the net effect of direct inyestment on the export performance of U.S. MNC's; they cannot answer the question of whether, in the absence of direct investment, these companies' exports would have been larger or smaller than they actually were. They indicate only the magnitude of MNC-associated exports, given present levels of such investment. 3/ T. See Whichard, "Employment and Employee Compensation," p. 39. 3. For a review of the literature on, and further discussion of, the impact of U.S. direct investment abroad on U.S. trade, see C. Fred. Bergsten, Thomas Horst, and Theodore H. Moran, American Multinationals and American Interests (Washington, D.C.: The Brookings Institution, 1978), chapter 3. Table 1.--Total U.S. Trade and U.S. Trade Associated With U.S. MNC's, 1977 __ __ exports imports Balance Millions of dollars Total U.S. trade 1/ 121,293 86,759 15,087 19,447 U.S. trade not associated with U.S. MNCfs-- -29,097 101,846 U.S. trade associated with U.S. MNC's 150,390 65,631 -44,184 Percent of total U.S. trade Total U.S. trade-- - U.S. trade associated with U.S. MNC's * HXU) lOO TOO - 84.0 57.7 n.m. U.S. trade not associated with U.S. MNC's-- 16.0 42.3 n.m. MNC Multinational company, n.m. Not meaningful. 1. Census basis, valued f.a.s. at the port of exportation, after adjustment to include shipments between the Virgin Islands and foreign countries. (In 1977, exports from the Virgin Islands to foreign countries were $81 million; imports to the Virgin Islands from foreign countries were $2,705 million.) Exports include reexports and military grant shipments. Imports include goods for immediate consumption as well as goods entering into Customs bonded warehouses. NOTE.--In this table, data for U.S. MNC's are only for nonbank MNC's. Although large, the MNC share of total U.S. imports was considerably smaller than their share of total U.S. exports. Their import share would have been even smaller were it not for the large share—probably over fourfifths--of total U.S. petroleum imports accounted for by the MNC's. The smaller MNC import share may have partly reflected the significant portion of total U.S. imports that normally is imported by independent wholesalers and retailers rather than by U.S. MNC's. In fact, U.S. parents that require imported goods in their production processes often purchase the goods domestically from independent wholesalers instead of importing the goods directly from foreigners. Such domestic purchases of imported goods are excluded from U.S. parents1 imports, which, by definition, 1 consist only of goods imported directly by the parents. Thus, U.S. parents imports probably understate their total purchases of imported goods. 4/ A sizable share of U.S. imports is also typically imported by the U.S. affiliates of foreign MNC's. In 1977, these affiliates accounted for $41.4 billion (28 percent) of U.S. imports. In contrast, they accounted for only $24.0 billion (20 percent) of U.S. exports. 5/ If trade of foreign MNC's with unaffiliated U.S. persons (for which data are not available) could have been included as well, the difference between the U.S. import and export shares associated with foreign MNC's might have been even larger. Many foreign MNC's, particularly those in wholesale trade, have actively and aggressively sought unaffiliated U.S. customers for their countries' goods. 4. Similarly, U.S. parents' exports tend to understate the total value of the parents' goods that are sold abroad, because goods produced by the parents may be purchased and exported by other U.S. firms; however, because U.S. parents usually sell their goods directly to foreign customers, the understatement for exports was probably much less than that for imports. 5. These data are from BEA's annual sample survey of foreign direct investment in the United States, and were published in Ned G. Howenstine, "Selected Data on the Operations of U.S. Affiliates of Foreign Companies, 1978 and 1979," Survey 61 (May 1981): 35-52. It should be noted that, if U.S. exports and imports of the U.S. affiliates of foreign MNC's, as reported in the 1977 annual survey, are added, respectively, to U.S. exports and imports associated with U.S. MNC's, as reported in the 1977 benchmark survey, the resulting total for exports would exceed 100 percent of all U.S. exports and that for imports would be 85 percent of all U.S. imports. Both shares are overstated because of duplication in the data reported in the two surveys. To the extent U.S. affiliates of foreign MNC's, in turn, had affiliates abroad, they would have been considered U.S. parents of those foreign affiliates in the 1977 benchmark survey, and their U.S. exports and imports would have been reported in that survey as well as in the 1977 annual survey. A match between companies reported in both surveys indicated that the overlap for exports and imports was roughly $10 billion each. In addition, trade between unrelated U.S. affiliates of foreign MNC's and foreign affiliates of U.S. MNC's would have been counted in both surveys; the amount of this type of duplication is unknown. MNC-associated U.S. exports exceeded imports by $15.1 billion. This large MNC trade surplus is in sharp contrast to the $29.1 billion deficit for all-U.S. trade in 1977. As noted earlier, the question of whether the better-than-average trade performance of the MNC's was the result of these companies1 direct investments abroad or of other factors is beyond the scope of this article. MNC-Associated U.S. Exports Of total MNC-associated U.S. exports of $101.8 billion, $32.4 billion (32 percent) were shipped to foreign affiliates by U.S. parents, $8.4 billion (8 percent) were shipped to foreign affiliates by unaffiliated U.S. persons, and $61.1 billion (60 percent) were shipped to unaffiliated foreigners by U.S. parents (table 2). Total exports to affiliates, the sum of the first two components, were $40.8 billion, of which about four-fifths were by U.S. parents and one-fifth by unaffiliated U.S. persons. Total exports by U.S. parents, the sum of the first and third components, were $93.5 billion, of which about two-thirds were to unaffiliated foreigners and one-third to foreign affiliates. By country of destination Of total MNC-associated U.S. exports, at least 65 percent were to developed countries and at least 31 percent to developing countries. 6/ Most of the remainder consisted of low-value shipments that did not have to be allocated by area in the benchmark survey. 7/ Exports to "international11-i.e., to affiliates that had operations spanning more than one country and that were engaged in petroleum shipping, other water transportation, petroleum trading, or the operation of oil and gas drilling equipment that was moved from country to country during the year—were negligible. 6. The country of destination of U.S. exports to an affiliate is defined to be the same as the affiliate's country of location. Although some of the goods shipped to an affiliate eventually may be resold and shipped to other countries, the amount is believed to be small. For U.S. parents, the country of destination of exports to unaffiliated foreigners is defined as the country where the parent knew, at the time of exportation, the goods were to be consumed, further processed, or manufactured. If the parent did not know the ultimate destination, the shipment was credited to the last country to which the parent knew the merchandise would be shipped in the same form as when exported. 7. In disaggregating exports to unaffiliated foreigners, a U.S. parent was permitted to sum all exports to countries to which its exports were less than $100,000 and report the sum as a single item; thus, in countries or areas shown separately in table 2, exports by U.S. parents to unaffiliated foreigners are understated by the amount of these unallocated exports. Table 2. — U.S. Trade Associated *l i1 h U . S . M N C ' s / 1 9 7 7 / by Country of D e s t i n a t i o n or O r i g i n [ M i l l i o n s of d o l l a r s ^ MNC-assoclated Shipped Shipped t o a f f i l i a t e s J.S. rents By unaffiliated U.S. imports by afi 1 liates To U . S . parents ii a ted foreigners by U . S . nt s To u n a f filsated U.S. S h i p p e d by Total Total unaffiexports imports liated s h i p p e d by s h i p p e d to foreigners U.S. U.S. to U . S . parents parents + col. 5) (1) (2) (4) (3) (5) (6) All c ount r l e s 101/846 iiO,7&7 32/397 8/390 61,059 Developed countries 66/392 32/522 26,350 6,472 Candda 23/138 17/303 12/887 Europe 31/145 12/335 10/547 22/590 2/481 431 3/U72 4/685 239 2/269 71 4/434 4/939 10/313 1 /595 89 1/5 56 1 / 9 32 172 789 68 1 /426 2/686 d/556 196 404 432 86,759 <8> (9) (10) 45,234 93/456 O t h e r E ur Austr l a Greece Nor P o r t u g a l ... Spain Sweden Switzerland Ot her Japan 32/639 8/887 33,871 22/089 15/912 6/176 4,415 5/835 15/641 11/212 4/429 18/723 1,788 18,811 5/097 3/649 1/448 29/358 8/974 1/494 87 1/407 1/762 1 55 533 66 1,362 2,358 1,338 100 2 149 170 17 207 2 364 328 12/277 886 342 1/516 2/753 68 4/328 (D) 32 3/294 (D) 33 (D) 831 (D) 130 68 161 1 /441 1/034 (D) 2 39 68 (0) 19 1 34 826 21/252 2/380 428 2/923 4/515 223 2/062 69 4/039 4,611 2/022 85 57 1 23 (D) 601 238 7 90 ( D) 54 1,573 64 56 (D) (D) 336 (D) 719 (D) 45 449 1 1 (D) (D) 265 (D) 71 6/533 111 347 309 (0) 1/235 536 477 (D) 2/754 32 308 3 (D) 355 13 1 (D) (D) 93 (D) 86 3 (D) 414 5 (D) (D) (D) (D) (D) 222 0 (D) 8/106 194 402 (D) 413 1/571 (D) 1/196 398 2/799 8/647 Belyium Denmark France . 6e rma ny Ireland Italy .. Luxembou N e t h e r la 41/525 1/836 774 1/267 402 2/838 ........... 1/215 1,1 56 7/432 1/162 897 265 8/58S 155 (D) (D) (D) 34 (D) (D) (D) 3 /252 2 ,019 262 971 (D) (D) 30 /079 1/479 3 2/978 2/253 (D) 899 125 1 49 68 195 2/267 769 18 (D) (D) 11 (D) 59,920 1/669 1 /2 04 94 371 1/459 1/040 37 332 210 163 7 39 1/793 979 175 639 189 (D) 2 (D) 31/964 8/142 6/257 1/685 23/822 19/400 13/005 4/730 3/578 1/151 8/276 5/834 4/928 906 7/858 662 2/233 361 671 358 350 2/B91 312 2/732 2 00 797 58 204 58 93 1 /240 82 2/084 176 671 37 162 47 44 9J6 41 648 24 126 21 42 11 48 335 41 5/125 483 1/436 303 467 299 257 1/651 230 1 /011 13 415 1 (D) (D) (D) (D) (D) 831 10 315 1 (D) (D) (D) (0) (D) 180 3 101 0 (D) (*) (D) (D) (D) 7/209 658 2/106 340 629 346 301 2,557 271 Panam Other 3/345 291 7S0 1 /309 132 188 1/398 88 1 24 211 44 64 1/736 159 593 1/211 807 (D) (D) 939 612 (D) (D) 272 194 (D) (D) 3/798 2/834 247 717 369 82 19 39 53 177 1 84 40 17 25 30 73 185 42 1 15 23 104 662 29 32 80 204 318 3/612 1/191 22 (D) (D) 514 3/158 Netherlands Antille T r i n i d a d and Tooajo Ot her 1/332 1 1 1 50 1 19 257 494 454 (D) 5 82 (D) (D) 847 69 49 105 234 391 A u s t r a l i a / New Z e a l a n d / Austrjlia \ew Z e a l a n d South Africa Developing countri Lat l n A.ne n ca .. South America Aryen 11na .. 3razi I Chi le C o l o m b i a ... Ecuador P e r u ....... V e n e z u e l a .. Other aid Soutn 3/462 2/183 269 1/010 (D) 17 (D) (D) (D) <D) (D) (*) (D) 2/851 1/620 629 (D) (D) 1/231 (D) 554 (D) Other Afri S a h a ran fcaypt L i Dya Ot her Suo-Saha Liberl INIi yer l Other 3/U28 1/676 649 228 798 1/353 80 606 668 418 124 32 47 45 2 94 (D) 89 (D) 240 68 11 (D) (D) 173 13 37 123 178 56 20 (D) (D) 122 (D) 52 (D) 2/610 1/552 617 182 753 1/058 (D) 516 (D) 4/723 1/862 (D) 1/749 (D) 2/861 (D) 2/336 (D) (D) (D) (D) (D) (D) (D) (D) (D) (D) (D) (0) (D) (0) N i a d l e Ea Israel SPEC . . 8/398 1/146 6/775 2/659 4/116 473 1 /1 13 (D) 990 1 41 849 (D) 862 (D) 789 90 699 (D) 250 (D) 201 51 150 (D) 7/285 (D) 5/785 2/518 3/267 (D) 2/915 (D) 2/848 2/369 478 ( D) 2,843 (D) (D) (D) (D) (D) (D) (D) (D) (D) (D) 8/148 1/108 6/574 2/608 3/966 466 7/532 619 561 71 9 465 663 771 1/539 1/396 367 434 1/882 3 60 25 137 242 177 3 86 160 181 82 35 1/576 338 21 40 217 237 355 1 18 1 55 72 24 306 21 97 25 40 32 42 27 10 11 5/650 259 538 582 223 386 385 1/379 1/214 285 399 5/928 1/917 (D) 1/865 (D) 1 91 735 (D) 535 (D) 10 5/515 1/710 (D) (D) (D) 180 733 (D) 477 (D) S 41 4 207 1 (D) 1 11 2 (D) 56 (D) 2 7,227 598 559 622 440 623 739 1,497 1/369 357 423 123 3/366 123 0 33 0 0 3/366 36 0 (D) (D) 90 3/366 Other Other . Other Asia and P a c i f i c India I ndonesla Ma lay si a ... Ph i 11 pp l nes Singapore South K o r e a Taiwan Thailand . . . Other Internatlonal Unallocated .. 90 0 2 9/221 4 0 0 7/978 1/244 MNC Multinational company. D Suppressed to avoid disclosure of data of individual companies. * Less than $500,000 ( + ). 1. U.S. imports shipped by unaffiliated foreiqners to U.S. parents were not disaaqreqated by country in the 1977 benchmark survey; thus, data in column 10, and hence, in columns 6 and 12, are available only for all countries combined. 2. Consists of U.S. parents' exports to unaffiliated foreiqners in all countries to which the parents' exports were less than $100,000. NOTE.--In this table, data for U.S. MNC's are only for nonbank fiNC's; data for U.S. parents are only for nonbank parents of nonbank affiliates; and data for affiliates are only for nonbank affiliates of nonbank parents. 6 74 + c o l , 10) U ill) (11) 77,672 MNC-associated U.S. exports to Canada accounted for 23 percent of the MNC global total; at $23.1 billion, they were larger than those to any other single country. Over two-fifths of these exports were shipped, largely by U.S. parents, to affiliates in the transportation equipment industry. Exports to these affiliates have been boosted since 1965 by the U.S.-Canadian automotive agreement, which, by reducing tariffs, stimulated automotive trade in both directions across the U.S.-Canadian border. Also boosting U.S. exports to Canada were Canada's physical proximity, which resulted in relatively low transportation costs, and similarity of consumer tastes, which lessened the need for U.S. companies to produce special products for the Canadian market. Among the remaining developed countries, Europe accounted for 31 percent, Japan for 8 percent, and Australia, New Zealand, and South Africa for 3 percent, of total MNC-associated U.S. exports. Within Europe, exports to the United Kingdom, Germany, and the Netherlands were particularly large. Among developing countries, Latin America accounted for 13 percent, the Middle East for 8 percent, "other Asia and Pacific11 for 7 percent, and "other Africa" for 3 percent, of total MNC-associated U.S. exports. Within Latin America, exports to Mexico, Venezuela, and Brazil were largest. MNC's accounted for a large share of total U.S. exports to most countries (table 3). Their share of U.S. exports to developed countries was 86 percent. Among developed countries, their share of exports to Canada was 90 percent; to Europe, 83 percent; to Japan, 82 percent; and to Australia, New Zealand, and South Africa, 91 percent. The MNC share of U.S. exports to developing countries--74 percent—was somewhat smaller than that to developed countries. 8/ Among the developing countries, the MNC share of exports to Latin America was 72 percent; to the Middle East, 84 percent; and to "other Africa" and "other Asia and Pacific," 69 percent each. The shares of total MNC-associated exports that were shipped to foreign affiliates and, thus, the shares that were shipped to unaffiliated foreigners varied considerably among destinations. Nearly one-half of the MNCassociated exports destined for developed countries were to affiliates, compared with only one-fourth of those destined for developing countries. Among developed countries, the share of exports going to affiliates was particularly large--75 percent--for Canada. 8. It probably would have been closer to the developed-country share if the unallocated exports by U.S. parents to unaffiliated foreigners could have been distributed by country. However, even under the unrealistic assumption that all unallocated exports were to developing countries, the MNC share of total U.S. exports to those countries would still have been below that for exports to developed countries--81 percent compared with 86 percent. Table 3.—Total U.S. Exports and U.S. Exports Associated With U.S. MNC's, 1977, by Country of Destination T o t a l M N C U.S. associated exports 1/ exports Millions of dollars (2T MN(> associated exports as a percentage of total U.S. exports (3) countries countries Canada Europe 101,846 84.0 77,562 66,392 85.6 23,138 90.0 37,437 Developed 121,293 25,773 All 31,145 27,113 3,137 Belgium Denmark France 22,590 3/ 2 552 534 431 3,502 5,984 3,072 4,685 378 Net Um 2,269 4,404 4,939 10,323 8,556 245 538 544 558 196 404 432 438 1,960 1,093 1,749 1,836 421 e r lands . . e d Kingdon 239 2,801 3/ 4,828 5,949 402 83.2 83.3 3/ 81.4 ~ 80.7 87.7 78.3 63.2 81.0 «3 83.0 3 217 Australia, New Australia i la Ne South Latin 3,462 2,183 269 America South Africa 1,010 43,405 31,964 73.6 13,005 72.3 9,284 and 90.8 92.7 66.8 95.6 17,978 countries A m e r i ca South 82.1 3,815 2,355 774 1,267 1,057 Zealand, Africa Developing 2,808 8,647 403 Swit Turk Othe 82.9 80.0 75.1 79.4 78.5 93.7 70.8 72.4 95.5 87.3 10,538 Other Europ Austria . Creec e Norway Portugal Spain Sweden .. 7,858 84.6 93.3 89.6 69.4 85.8 63.5 70.0 91.2 59.4 731 682 Brazil Chi le C o l o m b i a ... E c u a d o r .... Peru Venez uela Other 2,491 2,233 525 312 2 snt r al A-ne n c a Mexico Panama Other 6,687 4,832 4,116 3,045 346 1,509 291 780 2,006 1,032 224 87 306 306 361 671 358 350 3,171 2,891 3,028 1,676 982 314 Other Africa S a h a r a n ... E g y p t ... L i bya 1,083 111 50 119 257 494 4,406 2,305 Bahamas Bermuda N e t h e rlands Anti lies T r i n i d a d and T o b a g o Ot h e r 649 228 798 1,009 2,101 Other . .. Sub-Saharan Liberia . Nigeria . Other 1,353 1,052 80 606 668 10,039 1,447 7,695 2,731 4,964 8,398 1,146 6,775 2,659 4,116 91 958 Kiddle East Israel . . . OPEC Iran . . . Other .. Dt h e r O t h e r A s i 3 and Hong K o n j India Indonesia Malaysia PhlIippin»s Singapore 520 782 564 500 897 Pacific 478 10,982 1,292 7,532 619 561 719 465 663 771 779 762 561 876 61.6 63.0 84.1 51.7 51.5 49.6 57.5 38.9 84.0 45.6 68.7 72.7 66.1 72.6 79.1 64.4 87.9 63.3 63 5 83.7 79.2 88.0 97.4 82.9 53.3 68.6 47.9 72.0 94.4 82.9 75.7 65.8 64.9 77.6 72.1 50.3 Other . . I n t e r n a t i o n a l 2/ . Unallocated . . . . . 1,172 2,370 1,798 1,539 1,396 509 863 367 434 329 6/ 3,366 ... 7/ 14,020 Taiwan Thai land 12,018 85.7 123 M C Multinational company. N 1. See footnote 1, table 1. 2. Includes U.S. exports to a f f i l i a t e s that had operations spanning more than one country and that were engaged in petroleum shipping, other water transportation, petroleum trading or o i l and gas d r i l l i n g . The precise destination of these exports was not obtained in the 1977 benchmark survey. 3. In the all-U.S. export data, Belgium and Luxembourg are shown together; thus, to be comparable, exports to Luxembourg are included with those to Belgium in the M C data in this N table as well. 4. Includes Lichtenstein, which is in "other" "other Europe" in the M C data. N 5. Includes exports of commodities to countries to which total shipments of the commodities averaged less than $5,000 per month. 6. See footnote 2, table 2. 7. Not calculated because of differences in definition of "unallocated" between the M C and N all-U.S. data. NOTE.—In this table, data for U.S. MNC's are only for nonbank MNC's. One reason for the larger affiliate share in developed countries was the much greater use of affiliates in those countries as distribution channels for finished products exported by U.S. parents. In particular, manufacturing affiliates served to a greater extent in developed than in developing countries as sales outlets for their U.S. parents1 exports, in addition to engaging in their own manufacturing activities. Also, fewer affiliates in developed than in developing countries were subject to performance requirements, imposed by host governments, that limited imports as a condition for the affiliates1 operating in those countries. 9/ Exports by U.S. parents were very large shares, and exports by unaffiliated U.S. persons very small shares, of total MNC-associated exports to nearly every destination. For most countries, the parents1 share exceeded 90 percent. A major exception was Canada, where the parents1 share was 81 percent. A large portion of the exports to Canada by unaffiliated U.S. persons was automotive parts and supplies for further processing and assembly by Canadian affiliates in motor vehicle manufacturing. By industry of U.S. parent In this section, MNC-associated U.S. exports are disaggregated by industry of U.S. parent. The parent's industry, rather than the industry of the MNC as a whole, is used because an industry code based on the worldwide consolidated activities of the MNC was not available from the 1977 benchmark survey. In a majority of cases, however, the industries of the parent and MNC were probably the same. 10/ A U.S. parent's industry is not always indicative of the type of products being exported. Parents that are highly diversified may produce and export products outside the single, major industry in which they are classified. In addition, MNC-associated U.S. exports include goods produced by others, but purchased and exported by U.S. parents, as well as goods shipped by unaffiliated U.S. persons directly to affiliates. In either case, the goods may not be products of the U.S. parent's industry of classification. In examining the composition of the exports themselves, a breakdown by product is preferable to one by industry of U.S. parent; however, such a breakdown is not available for total MNC-associated U.S. exports. That portion of the total for which a product breakdown is available will be discussed in the next section. By industry of U.S. parent, manufacturing accounted for a very large share—72 percent—of total MNC-associated exports (table 4 ) . Most of the remainder was accounted for by trade (19 percent)—mainly wholesale—and petroleum (5 percent). Finance (except banking), insurance, and real estate 9. In the 1977 benchmark survey, 582 a f f i l i a t e s indicated that they were subject to such import limitations; of these, about two-thirds were in developing countries. 10. See Barker, "A P r o f i l e , " p. 4 1 . Table 4 . — U.S. Trade Associated With U.S. MNC's* [Millions 1977* of by Industry of U.S. Parent dollars] Total iaports parents filiated U.S. foreigners by U . S . col. (2) CD All Minng . . . MetaI m i n i n g Iron 40*787 784 55 . . 32 3 CD) Petroleum Other without wholesale trade 752 52 0 700 310 CD) CD) CO) 0 CD) 3*076 38*372 (0) CO) CD) CD) 399 CD) CD) CD) (0) (0) 0 0 0 0 0 0 goods 0 0 CD) CD) CD) CD) col. 8 c o l . 10) C11) C10) 8*887 CO) CD) CD) CD) CD) 45*234 CD) CD) CO) CO) 0 CD) CD) CO) CO) CO) C*) CD) 191 CO) CD) CO) 0 CD) 20*770 4*829 34*442 CD) CD) CD) CO) 3 CO) 12*568 CD) 1 CD) 3 0 2*315 2*315 0 0 CD) 0 466 CO) CD) CO) CO) 0 CO) CO) CO) CO) 30*508 CO) 1 2*837 CO) 3*841 17*602 13*672 2 1 1 CD) CD) 1 CD) 14*884 CO) 39*194 34*428 20*988 17*148 503 (0) (D) 2*155 989 120 1*046 2*254 257 257 1*740 599 CD) 145 CD) CD) CO) 125 335 9*934 products and t o i l e t 32*639 603 (0) (D) (D) 4*841 1*462 751 562 610 1*104 4 98 135 226 4*148 2*467 1*063 309 (D) (0) 692 411 41 189 (D) (C) 5*063 3*641 358 253 427 384 3*094 1*311 377 CD) CD) 120 1*248 640 160 1*011 452 154 CD) CO) 47 1*823 cleaners* CD) CD) CD) CD) CD) CD) 32*823 CD) 1 4*442 (0) C9) C8) 41*525 1*106 2 82 3*261 1*271 168 and a l l i e d 38 6 322 298 (D) (D) C7) C6) CD) CO) 73*228 Srain mill Beverages . Other Chemicals 86*759 (0) CD) (D) (0) 40 Manufacturing Soap/ (0) (0) CD) CO) CD) . . . 61*059 2*151 CD) CD) CO) 4*042 extraction (0) (D) (*) C5) 8*390 CD) CD) 29 5*227 Refining 32*397 CD) <*) C*) 729 O i l and gas f i e l d services P e t r o l e u m and c o a l p r o d u c t s . (4) (3) 101*346 industr 5) CO) 3*930 CO) CO) 237 188 CO) CO) CO) 17*939 CD) CO CD) CD) CD) CO) 30*587 1*656 CD) 112 CD) 2*758 CD) CO) CD) CD) 237 CD) 1*846 671 217 CO) CO) 73 9*212 6*108 1*421 562 CO) CD) 2*857 1*123 370 CD) CO) 119 48 metal products 1*433 913 226 686 520 1*014 569 116 451 445 418 344 109 235 75 3*201 2*144 1*087 1*057 1*058 3*744 2*688 1*321 1*368 1*056 12*809 919 rtonferrous Fabricated 4*634 3*056 1*313 1*743 1*577 5*631 (0) 5*226 (0) 405 7 7*178 CD) 3*315 628 CO) 2*428 592 557 772 507 1*769 1*137 406 731 631 1*509 CO) 297 CD) 365 1*238 874 260 615 363 531 263 147 116 268 1*975 1*551 914 4*215 2*712 1*205 637 424 1*508 1*503 3*213 2*425 1 *174 1*251 787 1*299 CD) 190 CD) 280 210 CD) 107 CD) 85 918 CD) 260 CD) 141 12*434 912 4*328 3*309 3*855 2*218 CO) 4 50 CD) 422 E l s c t r i c and e l e c t r o n i c Household appliances 167 1*357 7*748 635 1*798 1*444 3*870 3*420 CO) CD) 925 1*309 21*019 13*280 7*739 CO) CD) 1*138 155 CD) CD) CD) 86 392 415 10*100 CO) 657 1*064 1*445 294 958 153 348 398 3*124 CO) 4*165 CD) CD) 381 507 350 556 10*016 8*311 6*197 2*114 1*704 18*020 17*773 3*050 14*722 248 11*265 8*989 6*570 2*420 2*276 CO) 341 CO) CO) 16 7 220 78 125 CO) CO) 2 1 *414 56 676 499 CO) CO) 184 1*167 CO) 143 688 441 246 CO) 2*681 (0) 8*159 675 3*084 2 39 787 940 1*117 2*672 199 738 921 814 412 40 49 19 303 5*076 436 1*060 523 3*056 3*587 111 1*130 950 1*396 2*229 CD) CD) 892 CD) 2*062 CO) 569 867 CO) CO) 10*544 9*967 577 2*547 2*306 241 10*474 3*313 7*161 13*436 11*959 1*477 10*161 9*423 738 CO) CD) 399 CD) CD) 339 3*275 2*536 4*348 260 338 112 839 154 4 70 67 119 168 4*054 (0) 198 85 575 136 339 6*046 888 459 979 870 158 569 97 250 296 1*084 397 3*473 53 180 430 CD) 337 CD) CD) CO) 266 333 143 2*412 294 415 236 2*041 5*885 347 595 666 1*318 492 733 49 52 352 725 558 1*721 CD) 2*111 211 794 (0) 140 27 265 18 81 11 21 65 70 1*752 463 machines 2*891 CD) 3*195 607 and c o m p u t i n g 3*518 3*959 13*091 Office Other 84 209 104 18*932 18*535 3*166 15*370 397 2*534 2*221 275 1*9 46 313 1*622 1*458 160 1*298 164 912 762 115 647 153 16*398 16*315 2*891 13,424 84 11 *691 9*402 6*711 2*691 2*288 1*675 1*091 514 578 584 1*249 678 372 306 571 1*856 (0) (0) CD) 90 706 1*139 (0) (D) 4 87 706 (0) (0) (0) (*) (D) 716 CO) CD) CO) 625 78 CD) CD) 164 94 CO) CD) CO) CO) CO) CO) 1*!J19 56 950 613 (0) (0) 230 897 7 516 279 (D) 492 6 242 165 (D) (0) 79 405 1 274 114 (D) (0) 16 922 49 434 334 CD) CO) 104 1*334 CD) 621 CD) 37 CD) CD) CD) CD) 7*979 Other m a n u f a c t u r i n g . . . . . . . . . . . Tobacco m a n u f a c t u r e s T e x t i l e p r o d u c t s and a p p a r e l Glass products Othe Trade Wholesale trade Holding Individu Other Industrie Agriculture* Construct ion 10*394 1*148 797 1*092 1*710 312 1*038 163 369 818 (0) 95 !< >> 98 102 (D) 3 12 775 504 271 237 M C Multinational company. N D Suppressed to avoid disclosure of data of individual companies. * Less than $500,000 (+). NOTE.--In this table, data for U.S. MNC's are only for nonbank MNC's; data for U.S. parents are only for nonbank parents of nonbank a f f i l i a t e s ; and data for a f f i l i a t e s are only for nonbank a f f i l i a t e s of nonbank parents. 10 CD) 144 CD) 195 CD) 12 12 201 250 122 285 CO) 142 CD) CO) CO) 65 83 21 426 413 272 13 739 CD) CO) CO) CO) CO) 94 454 CD) CD) CD) CD) CO) 40 167 1 CO) CO) 712 0 CO) CD) CD) CO) CD) CO) 287 642 537 and "other industries11 each accounted for only 2 percent of the MNC total, largely because MNC's in these industries were engaged primarily in performing services, rather than in producing goods. The share in mining was less than 1 percent. This small share mainly reflected the small size of U.S. mineral exports generally. With the major exception of coal, minerals in crude form are not usually exported because their high waste content makes transport uneconomical. Y\J Of total MNC-associated exports in manufacturing, nearly one-third were in transportation equipment—21 percent in motor vehicles and equipment and 11 percent in "other11 transportation equipment; 17 percent were in nonelectrical machinery, 14 percent in chemicals, and 11 percent in electric and electronic equipment. Among industries, as among areas, the shares of total MNC-associated exports that were shipped to affiliates, rather than to unaffiliated foreigners, varied considerably. In manufacturing and petroleum, exports to affiliates were 46 and 41 percent, respectively, of total MNC-associated exports. In trade, they were 13 percent; this relatively low share may have reflected the practice by wholesale trade parents of distributing goods— largely bulk shipments of agricultural products and raw materials— directly to unaffiliated foreign customers rather than through their foreign affiliates. Within manufacturing, affiliates1 shares were particularly large— roughly two-thirds or more—in drugs; soap, cleaners, and toilet goods; office and computing machines; electronic components and accessories; motor vehicles and equipment; and instruments and related products. In these industries, affiliates1 operations may have been more highly integrated with those of their U.S. parents, so that above-average shares of their parents1 exports were channeled to or through them, either for resale or for further manufacture abroad. Also, in several industries—such as electronic components and instruments—exports to affiliates may have been stimulated by U.S. tariff provisions that permitted import duties on items sent abroad for processing, and then returned to the United States, to be paid only on the value added abroad rather than on the full value of the imported goods. As noted earlier, exports to Canadian affiliates of MNC's manufacturing motor vehicles and parts were stimulated by the U.S.-Canadian automotive agreement. In most industries, as in most areas, exports by U.S. parents were very large shares (and exports by unaffiliated U.S. persons very small shares) of total MNC-associated exports. The parents1 shares generally exceeded 90 percent. I T . A l s o , in the 1977 benchmark survey, parents engaged in smelting or refining, in addition to mineral exploration and extraction, were classified in manufacturing, if—as was often the case—their sales of smelted or refined 1 products exceeded their sales of crude minerals. In such cases, the parents exports of crude, as well as smelted or refined, minerals would have been shown in manufacturing instead of in mining. 11 By product A product breakdown is available for $93.2 billion, or 92 percent, of total MNC-associated exports (table 5), These data cover U.S. exports associated with MOFA's and their parents only. \2J Such exports accounted for very large shares of total MNC-associated exports to nearly all major areas of destination and in most major industries of U.S. parent. By area, the lowest share was in Japan (86 percent), where majority-ownership by foreigners was often restricted. By industry of U.S. parent, the lowest shares were in finance (except banking), insurance, and real estate (roughly two-thirds) and in primary and fabricated metal manufacturing (over four-fifths). Based on the Standard International Trade Classification (SITC) system, more than one-fourth of U.S. exports associated with MOFA's and their parents consisted of machinery, both electrical and nonelectrical (table 6).13/ Road motor vehicles and food,H beverages, and tobacco each accounted for 14 percent and "other manufactures ~which includes leather, rubber, wood, and paper products; textiles; nonmetallic mineral manufactures; and miscellaneous manufactured articles—accounted for 12 percent. Chemicals and inedible crude materials, except fuels, accounted for 9 percent each, "other transportation equipment" for 7 percent, metal manufactures for 5 percent, and mineral fuels for 3 percent. Exports of road motor vehicles and other transportation equipment are probably significantly overstated (and exports of other products, particularly machinery, understated) because survey reporters had difficulty classifying parts and accessories for such equipment. The SITC requires that parts—such as tires and tubes, engines, and electrical parts for engines—that are shipped separately, and certain accessories not attached to the vehicle chassis, be excluded from road motor vehicles and parts and "other transportation equipment," and included in other SITC categories (e.g., tires and tubes in "other manufactures," engines and engine parts in machinery, etc.). Reporters, however, often erroneously included all such parts and accessories in road motor vehicles and parts or "other transportation equipment." In table 6, U.S. exports associated with MOFA's and their parents, by product, are crossclassified by industry of U.S. parent. In most goodsproducing industries, the exports tended to be products either of the industries in which the U.S. parents were classified or of closely related 12. Total U.S. exports associated with MOFA's and their parents, as previously published in U.S. Direct Investment Abroad, 1977, were $96.9 billion. However, one part of the total—exports by the parents of MOFA's to their minority-owned foreign affiliates—is not available by product. Such exports were relatively small—$3.7 billion, or 4 percent of the total; therefore, their omission here probably has little effect on the analysis. 13. See United Nations, Statistical Office, Standard International Trade Classification, Revised (United Nations Statistical Papers, Series M, NO. J 4 ) , lybl 12 Table 5.—U.S. Exports Associated With MOFA's and Their U.S. Parents for Which a Product Breakdown Is Available Compared With Total MNC-Associated U.S. Exports, 1977, by Area of Destination and Industry of U.S. Parent (Millions of dollars or percent) Total MNCassociated exports Exports associated with MOFA's and their U.S. parents for which a product breakdown is available 1/ Column (2) as a percentage of column (1) (1) (2) (3) 101,846 93,232 91.5 Developed countries Canada Europe European Communities (9) Other Europe Japan Australia, New Zealand, and South Africa 66,392 23,138 31,145 22,590 8,556 8,647 61,035 21,709 28,719 20,860 7,858 7,441 91.9 93.8 92.2 92.3 91.8 86.1 3,462 3,166 91.4 Developing countries Latin America Other Afr ica Middle East Other Asia and Pacific 31,964 13,005 3,028 8,398 7,532 28,996 11,665 2,854 7,656 6,822 90.7 89.7 94.2 91.2 90.6 123 115 3,366 3,086 93.5 91.7 All areas, all industries By area of destination: International Unallocated By industry of U.S. parent; Mining Petroleum Manufacturing Food and kindred products Chemicals and allied products Primary and fabricated metals Machinery, except electrical Electric and electronic equipmentTransportation equipment Other manufactur ing Trade Finance (except banking), insurance, and real estate Other industries 784 (D) 5,227 73,228 3,261 9,904 4,634 12,809 8,159 23,566 10,894 18,932 4,802 67,807 2,908 9,237 3,889 11,866 7,458 22,593 9,856 17,083 1,856 1,819 1,619 (0) (0) 91.9 92.6 89.2 93.3 83.9 92.6 91.4 95.9 90.5 90.2 (D) 89.0 MOFA Majority-owned foreign affiliate. MNC Multinational company. D Suppressed to avoid disclosure of data of individual companies. 1. Excludes $3.7 billion of U.S. exports to minority-owned foreign affiliates of the U.S. parents of MOFA's. See footnote 12 in text for further discussion. NOTE.—In this table, data for U.S. MNC's are only for nonbank MNC's; data for U.S. parents are only for nonbank parents of nonbank affiliates; and data for affiliates are only for nonbank affiliates of nonbank parents. MOFA's are defined as affiliates that were owned more than 50 percent by all U.S. parents combined and that had assets, sales, or net income over $3 million in 1977. 13 CMi U i o n s elated rials fuels (3) 13/114 Mining ........ Metal mining (0) (D) (0) 78 0 0 41 0 699 (0) (D) (D) Int Petroleui Other .. wholesale trade Manufacturi Food and kindred products ... Srain mill and bakery produ and gas 3 0 0 0 3 3 0 0 0 0 3/703 2/222 (0) 113 (D) 163 (D) 313 806 (D) 1/925 1 1 0 (D) 1/453 CD) (0) (D) 1 1/360 1 1 (*) (D) (0) 0 0 (D) 1 CD) 0) D) D) D) 435 0 0) (D) O 6/889 21/657 154 (D) 4 (0) 70 10 (D) (D) 5/859 3/967 1/103 (0) (D) 331 666 534 CD) 17 0 (0) 231 208 (D) (0) 23 627 388 168 220 239 2/521 2/908 (D) 161 (D) (D) 39 1 4/ 802 (0) 322 (D) 3/671 (0) (0) 166 (D) 35 68 0 0 0 (0) (D) 0 (D) (D) 0 3/889 2/639 (D) (0) 1/250 (0) CO 0 (0) 1/384 712 (0) (D) Agricult Other .. 0 (D) 9/237 (no r e f i n i n g ) 0 (D) 0 67,307 Petroleum ........ O i l and gas e x t r Crude p e t r o l e u O i I and gas f i (7) 13/433 (0) (D) (0) 217 142 (D) 13 (D) Other manufacturing ... Tobacco manufactures Rubber p liscella Trade Wholesale 22/593 15/139 7/454 9/856 (0) 670 1/027 1/543 2 54 990 136 336 418 2/861 (D /076 /054 1 0 0 0 2 0 0 (•) Nondurable goods 21 0 (0) (*) Insurance ........ Real estate ...... Holding companies 5/280 5/279 372 4/908 1 Ser 1/619 50 857 540 250 290 171 (D) (D) 56 0 (D) (D) (D) (*) (D) (*) <*) (D) (*) CO (D) (0) (0) (0) 146 (D) CD) 88 CD) CO 0 0 1/206 750 192 CD) 0 CD) CD) CD) CO C D) 3 0 1 CD) CO (0) 3 17 (0) 20 127 74 CD) CO 300 0 CD) 470 CO) 271 CO) 181 677 CD) 217 CD) 166 12 3 1 5/684 478 1/570 940 2/696 62 5 5 (0) (0) 136 CD) 1 13 (D) 822 CD) 72 279 CD) 10 0 2 4 4 3/610 1/867 1/743 (0) 12/297 (D) 5/489 709 4/780 303 76 227 366 112 254 (0) CD) 415 3 10 (D) (D) 3 128 (0) 2 (0) (D) 5 857 6 54 5 47 7 83 7 (D) (D) 560 60 (D) 140 0 CO CO CO CD) CO CO CO 417 417 189 228 0 (0) 1 1 39 0 5 (D) 4 (D) (0) 0 (*) 0 CD) 0 0 (0) 1 CD) CD) 4 CD) & CD) (D) 2 19 78 5/522 CD) 500 346 1/186 230 405 CD) 264 171 1 /991 335 501 468 415 53 33 (0) (D) (D) (*) 25 25 24 1 0 427 409 408 1 13 979 873 355 518 107 442 (D) CD) (*) 26 3 (0) 0 CD) CO (*) 0 (0) (D) (D) 2 394 (D) 42 (0) (D) CD) 5 2 0 (D) (*) 0 3 62 0 3 CO CD) CD) CD) 69 CD) CO) CD) CO (0) (D) (0) 11 5 1 18 CD) 1 (*) CD) CD) CD) u 0 0 2 1 (D) M F Majority-owned foreign a f f i l i a t e . 0A 0 Suppressed to avoid disclosure of data of individual companies. * Less than $500,000 (+). 1. Excludes $3.7 billion of U.S. exports to minority-owned foreign affiliates of the U.S. parents of MOFA's. See footnote 12 in text for further discussion. NOTE. — In this table, data for U.S. parents are only for nonbank parents of nonbank affiliates and data for affiliates are only for nonbank affiliates of nonbank parents. MOFA's are defined as affiliates that were owned more than 50 percent by all U.S. parents combined and that had assets, sales, or net income over $3 million in 1977. 14 9/032 CD) (0) 103 0 () * 0 CO 3/316 CD) (0) 17 0 0 0 1 412 0 371 1 39 0 5 0 19 5 CD) O/504 0 4 4 0 0 0 CO 13/303 9 5 2 3 3 3 0 0 1 0 360 CD) 1 CD) CD) (0) 0 CO CO) CD) 10/143 (D) 3/321 2/932 (D) (0) (0) (D) (0) (0) (D) (0) (D) (0) (D) (0) (D) (D) Other i dus tr t Agri ci Consti (*) (D) (D) (0) 9/343 (0) (0) 8/928 (D) trade 1/214 1 (D) (D) (D) (0) 92 1 5 43 (D) CD) CD) CD) CD) CD) 291 190 118 72 101 85 3 10 4 6 D) (0) CO CO 0 0 1/903 1*332 71 7 614 571 CD) (*) Transportation equipment 19 1 0 1 18 18 0 0 CD) 0 CO 120 CD) 21 CD) CD) 5 (D) CO 352 CO CO 155 34 27 7 121 (D) 0 0 0 CO 5 0 5 0 0 0 0 0 0 (*) 2 U 0 0 0 2 106 (D) (D) (0) (D) CD) 3/525 1/271 (D) CD) CO (D) Electr Other (O (*) (0) (D) (0) 179 (D) (0) (D) 11/010 (D) CO) CO CD) 11/866 (0) Office and computing mac hi Other 6 2 0 2 0 4 C10) 4/337 CO (6) 24/086 (0) (0) (0) (D) (D) (0) C1 1 ) C9) 6/693 (8) 5) 8/745 8/233 (•) of dol l a r s 0 1 1 CO CD) t, 4 7 1 CD) CD) CO CO CD) 3 CO 26 26 CD) CD) 1 2 1 0 0 1 CD) CD) CD) CO 6 18 19 277 0 167 CD) CD) CD) CD) CD) CD) 226 CD) 6 CD) 79 CD) 62 0 CD) (D) CD) CO (D) CD) CD) CO 7 CO CO 14 C J 1 CD) CO) CO (D) industries. This tendency mainly reflected the large shares of exports in these industries that were shipped by U.S. parents and the large shares of the parents1 exports that were their own products. In mining, over four-fifths of the U.S. exports associated with MOFA's and their parents were mineral fuels, mainly coal; the remaining exports were largely inedible crude materials, except fuels. In petroleum, 40 percent of the exports were mineral fuels and 28 percent were chemicals; a large share of the latter was probably petrochemicals. Among manufacturing industries, 85 percent of the exports in nonelectrical machinery, 81 percent of those in motor vehicles, and 76 percent of those in both foods and electric and electronic equipment were products of the parents1 industries of classification. In "other transportation equipment" and chemicals, the shares of exports that were products of these same industries were 64 and 63 percent, respectively; in the former, most of the remaining exports were machinery, and, in the latter, most were "other manufactures" and inedible crude materials, except fuels. In "other manufacturing," 56 percent of the exports were "other manufactures" and, in primary and fabricated metals, 49 percent were metal products. The former share may have been somewhat understated because "other manufacturing" includes several industries whose major products are not classified in "other manufactures"—for example, in the SITC, tobacco products are in food, beverages, and tobacco, lumber is in inedible crude materials, except fuels, and plastic materials are in chemicals. In non-goods-producing industries--trade; finance (except banking), insurance, and real estate; transportation, communication, and public utilities; and services—the products shipped were, by definition, from industries other than those of the U.S. parents. In trade, most of the exports were food, beverages, and tobacco or inedible crude materials, except fuels. These products tended to be marketed abroad by trade MNC's, rather than by the producers of the goods themselves. (Trade MNC's handled large shares of total exports associated with MOFA's and their parents in both product categories--71 and 64 percent, respectively.) In finance (except banking), insurance, and real estate, exports were scattered among several product categories; however, nearly 40 percent were machinery. A few highly diversified companies classified in this industry, but with significant operations in machinery, accounted for most of the machinery exports. Machinery exports were also a large share—over 40 percent—of exports in transportation, communication, and public utilities. In construction, which is generally considered a goods-producing industry, but which has a significant services component, the final products normally do not cross national borders. The exports in this industry were, therefore, mainly products of industries that supply goods used in construction activities. They consisted largely of machinery, "other manufactures," and metal products. U.S. exports associated with MOFA's and their parents for which a product breakdown is available accounted for 77 percent of all U.S. exports (table 7). (As noted earlier, total MNC-associated exports accounted for 84 15 Table 7.--Total U.S. Exports and U.S. Exports Associated With MDFA's and Their U.S. Parents for M u c h a Product Breakdown Is Available, 1977, by Product Total U.S. exports y Exports associated with MDFA's and their parents for which a product breakdown is available 2/ Exports associated with MDFA's and their parents for which a product breakdown is available as a percentage of total U.S. exports Millions oidollars (I) (2) (3) Total 121,293 93,232 76.9 79.3 13,114 Food, beverages, and tobacco 16,536 63.7 8,233 Inedible crude materials, except fuels 12,926 76.9 3,230 Mineral fuels, lubricants, and related materials.. 4,200 79.6 8,745 73.0 Chemicals 10,992 24,086 112.8 3/ 3/ Machinery 32,975 3/ 99.2 Road motor vehicles and parts 11,908 II 13,433 6,693 82.1 Other transportation equipnnent 6,747 4,337 78.4 Metal manufactures 5,285 11,010 6.2 Other manufactures 14,042 352 Other 5,682 MDFA Majority-owned foreign affiliate. 1. See footnote 1, table 1. 2. Excludes $3.7 billion of U.S. exports to minority-owned foreign affiliates of the U.S. parents of MZFA's. See footnote 12 in text for further discussion. 3. For MZFA's, and their U.S. parents, exports of road motor vehicles and parts and of "other transportation equipment" are probably significantly overstated because of inclusion by reporters of certain parts and accessories for transportation equipment in these categories rather than in the appropriate other SITC category. See text for further discussion. NJTE.--In this table, data for U.S. parents are only for nonbank parents of nonbank affiliates and data for affiliates are only for nonbank affiliates of nonbank parents. MDFA's are defined as affiliates that were owned more than 50 percent by all U.S. parents combined and that had assets, sales, or net income over $3 million in 1977. 16 percent of all U.S. exports; thus, about 7 percent of all U.S. exports were associated with MNC's, but cannot be compared with all U.S. exports by product.) In most product categories, the MNC's accounted for between 64 and 82 percent of the U.S. totals. There were, however, a few major exceptions. MNC shares of U.S. exports of road motor vehicles and of other transportation equipment were extraordinarily high—over 100 percent and 99 percent, respectively. These high shares partly reflected the previously mentioned misclassification of parts and accessories by reporters. They also may have reflected underreporting in the all-U.S. trade data, particularly with regard to overland shipments to Canada. The very low MNC share of total U.S. exports of "other11 products (6 percent) probably reflected the large portion of these products that were of a type not normally produced, handled, or sold by U.S. MNC's—such as nonmonetary gold, which is shipped mainly by independent gold dealers; arms or other military equipment, a large share of which is shipped by U.S. Government military agencies; live animals; and commodities donated for relief or charity by individuals or private agencies. U.S. exports shipped to MOFA's As previously mentioned, more detail was obtained in survey for U.S. exports to MOFA's than for those to other or to unaffiliated foreigners. In particular, exports to available by product and intended use, crossclassified by destination and by industry of affiliate. the 1977 benchmark foreign affiliates MOFA's are country of U.S. exports shipped to M0FA!s were $35.8 billion—35 percent of total MNC-associated exports (table 8). Compared with the total, they were more heavily concentrated, by product, in road motor vehicles and parts and machinery; by area, they were more heavily concentrated in developed countries, particularly Canada. In all product categories except one—mineral fuels—over 70 percent of the exports to MOFA's were to developed countries. For mineral fuels, only 49 percent were to developed countries. In every product category, including mineral fuels, exports to Canada far exceeded those to any other single country. Canadian MOFA's accounted for a particularly large share—85 percent—of total exports of road motor vehicles and parts. By industry of affiliate, 70 percent of exports to MOFA's were to MOFA's in manufacturing and 23 percent were to MOFA's in trade. Within manufacturing, transportation equipment accounted for a particularly large share of the total. "Other manufacturing," electric and electronic equipment, nonelectrical machinery, and chemicals accounted for most of the remainder. In most manufacturing industries, exports to MOFA's were generally products of the affiliates' own industries. Ninety percent of the exports to MOFA's in transportation equipment were road motor vehicles and parts or other transportation equipment; 86 percent of those to MOFA's in nonelectrical machinery and 82 percent of those to MOFA's in electric and electronic equipment were machinery exports. In chemicals and food, the 17 Table 8.--U.S. Exports Shipped toM O F A ' s / 1 9 7 7 , Area of Destination CMillions Total - (1) All areas, all U> (5) Macninery Road motor vehicles and oarts by Product Other Metal transpor- manutation factures equipment (6) (7) 3b,313 ?,324 1/299 574 3/798 10/497 10/794 £9,210 2/085 1/13'* 281 2/844 8/004 9/754 220 16,201 10/866 468 1/541 314 7 82 130 120 7 92 1/591 3/110 3,927 9/184 381 119 80 9,250 industries <3> of Affiliate Df d o l l a r s ] Food, Inedible Mineral Chemicals oeverages, crude fuels/ and materials/ lubricants/ tobacco except and related fueIs materials (?) and Industry (8) (9) 1/408 645 93 1/334 3/375 325 80 134 11 133 16 27 (D) 257 222 0 264 1/215 Other manufactures (10) Other (11™ 4/957 92 877 3/935 76 433 393 1/615 2/024 37 27 266 1/699 26 127 9 325 72 By area of d e s t i n a t i o n : Developed c o u n t r i e s Cnada Europe - European Communities Other Japan (9) F.urooe Australia/ 1/615 7 09 New Z e a l a n d / a n d S o u t h A f r i c a . • • • • • • . . . . • • • • Developing countries L a t i n America Other A f r i c a M i d d l e EdSt other Asia ind P a c i f i c International •••• •• -- 1,434 6,489 3,700 3 ?4 937 1,52b 115 551 319 (*) 1 (*) 65 21 (0) 2 39 (o) 21 43 225 12 238 146 36 6 50 (O 165 114 12 3 35 (*) (D) (0) (D) 9 54 6 70 14 32 2 38 (•> 2,460 1,098 87 455 823 33 1/041 994 10 23 13 <•> 42 15 2 9 15 2 338 116 50 105 67 1 (D) 439 58 292 (0) (0) 16 9 3 1 2 (*) (D) 3 834 621 17 ( *) 0 0 0 185 1,463 1 23 14 881 231 210 166 3 7 3 260 370 0 (0) (0) 428 92 (*) 32 39 3 1 1 16 27 (*) (0) 29 176 2/739 35 2,375 38 17 75 20 179 832 (0) (0) 66 565 6/068 37 75 139 2/606 1,897 966 348 3/508 5 286 6 22 10/607 1 (*) 55 14 (D) 10/530 (D) 131 0 28 93 52 12 648 56 (o) ( • ) B industry of affiliate: y Mining Petroleum Manufacturing Food and k i n d r e d p r o d u c t s •••••••• C h e u i c a l s and a l l i e d p r o d u c t s • Primary and f a b r i c a t e d metals •••• M a c h i n e r y / except e l e c t r i c a l E l e c t r i c and e l e c t r o n i c e q u i a m e n t • • . . • • • • • • . • • • • • • • • • • • T r a n s p o r t a t i o n equipment Other manufacturing • Trade F i n a n c e ( e x c e p t b a n k i n g ) , i n s u r a n c e / and r e a l e s t a t e . . . . . Other i n d u s t r i e s * 194 1#639 25,145 974 3/007 845 3/036 2,316 11/305 3,161 8,133 20 682 M F Majority-owned foreign a f f i l i a t e . OA * Less than $500,000 ( + ) . D Suppressed to avoid disclosure of data of individual companies. NOTE.--In this table, data for a f f i l i a t e s are only for nonbank a f f i l i a t e s of nonbank parents. MOFA's are defined as a f f i l i a t e s that were owned more than 50 percent by a l l U.S. parents combined and that had assets, sales, or net income over $3 million in 1977. 9 5 155 (*) (*) (0) 28 (D) 107 (D) 66 <*) 28 18 137 738 11 28 318 168 41 104 67 199 (*) 122 20 284 2/961 29 244 81 197 272 (0) (0) 1,525 (D) (D) (0) 6 69 9 15 (0) 2 5 (0) 19 12 0 (0) corresponding percentages were 79 and 64 percent, respectively. In metals, in contrast, only 38 percent of the exports were metal manufactures; a large portion of the remainder was inedible crude materials, except fuels, and machinery. Over 40 percent of all exports to MOFA's in trade were machinery, 19 percent were "other manufactures,11 and 18 percent were food, beverages and tobacco. Less than 15 percent of exports to MOFA's in mining and about onefourth of those to MOFA's in petroleum were products of their own industries. Large shares of the remaining exports in both industries were machinery. By intended use, 57 percent of total exports to MOFA's were for resale without further manufacture, 4 percent were capital equipment or other goods charged to fixed assets, and 38 percent were for "other" uses—mainly for further processing or assembly by affiliates (table 9). The small share for capital equipment reflected the fact that MOFA's obtained most of their capital equipment from local and other non-U.S. sources; U.S. exports of such equipment were less than 7 percent of total plant and equipment expenditures by MOFA's in 1977. Exports for resale without further manufacture, most of which were from U.S. parents, were probably nearly all distributed by the MOFA's to unaffiliated foreign customers. In addition, the U.S. parents of MOFA's exported $57.4 billion of goods directly to unaffiliated foreigners. Thus, U.S. exports that reached unaffiliated foreigners without further manufacture by MOFA's could have been as much as $77.9 billion, more than four-fifths of total U.S. exports associated with MOFA's and their parents. Over one-fourth of these exports were channeled through MOFA's. Exports for resale were a significantly larger share of total exports to MOFA's in developed countries than in developing countries. As noted earlier, MOFA's in developed countries served to a greater extent than those in developing countries as distributors of their U.S. parents' exports. By industry of affiliate, exports for resale accounted for almost one-half of total U.S. exports to MOFA's in manufacturing. Within manufacturing, they were a particularly large share (64 percent) of exports to MOFA's in transportation equipment. These exports were primarily shipments of road motor vehicles and parts from U.S. parents to MOFA's in Canada. In trade, nearly all--92 percent—of the exports to MOFA's were for resale. Capital equipment and goods for "other" uses were both larger shares of total U.S. exports to MOFA's in developing than in developed countries. MOFA's in developing countries may have had more difficulty obtaining such goods locally or from other non-U.S. sources. Capital equipment exports were particularly large shares of total exports to MOFA's in the Middle East and "other Africa." By industry of affiliate, capital equipment was 39 percent of total exports to MOFA's in mining, 30 percent to MOFA's in petroleum, and less than 3 percent to MOFA's in manufacturing. The much larger shares in mining and petroleum partly reflected the greater capital intensiveness of these industries; also, a larger proportion of the MOFA's in these industries were located in developing countries, where the required capital equipment may not have been available locally. Within manufacturing, the share of 19 Table 9 . - - U . S . E x p o r t s Shipped to MOFA's, 1 9 7 7 / Area oy Whom S h i p p e d and I n t e n d e d Use [Millions Shipped Total by all U.S. persons Other (4) Affiliate Ot her Total dollars] Total by U . S . Capital equ ipment 1/ Shi pped by parents without further manufac ture (7) (8) (9) 1,201 18*496 9/577 6,539 17/827 10/021 6/567 5/381 1/186 503 7 37 (D) 1/595 73 418 (D) (D) 10/556 5/817 3/979 3/603 376 (D) (D) (D) 1/810 181 211 (D) (D) 23/975 12/566 9/468 8/056 1,412 688 1/254 5,212 2/908 213 801 1/289 87 625 257 249 207 42 (D) (D) 573 199 56 282 35 3 16/240 9/190 5,897 4,825 1,071 483 670 (D) 1,307 48 395 (D) (D) 7,110 3,119 3,322 3,023 299 (D) (D) (D) 1/402 109 124 (D) 5,235 3,636 1,398 1 ,194 11 709 12/103 161 1/132 213 1/168 697 7/593 1/137 7/513 13 115 108 432 12/365 783 1/834 599 1,590 1,566 4,115 1,879 378 6 484 38 1/358 20/510 454 2,655 632 2/813 1,986 9,483 2,490 7,023 13 333 8 397 527 9 26 17 263 39 65 109 227 (> * 42 (D) 640 1 1,232 118 1,134 178 1/106 622 7,131 1,054 6,438 9 (D) (D) 321 8,701 327 1,526 437 1 /442 1/325 2,318 1,327 308 4 156 282 4,634 520 351 213 227 330 2,322 671 1,110 8 349 20^464 29/210 16/201 10/866 9/250 1/615 709 1/434 6/489 3/700 324 937 1/528 115 827 364 320 266 54 <D> (D) 74 0 294 73 309 64 10 194 Mining Petroleum 1/639 ^ a n u f a c t u r i ng • ..,......•.....••....••.•••.•...•.•.•...•.•••• 25/145 FoDd a n d k i n d r e d p r o d u c t s ................................. 974 C h e n i c a l s and a l l i e d p r o d u c t s ............................ 3/007 Primary and fabricated metals ••«...•...••...•«..«•.*.*•.« 845 M a c h i n e r y / e x c e p t e l e c t r i c a l ............................. 3/036 E l e c t r i c a n d e l e c t r o n i c e q u i p m e n t ................^ ....... 2 / 3 1 6 T r a n s p o r t a t i o n e q u i p m e n t •.....•......•.•..••••.....•••••. 11/805 Other 3/161 Trade 8,133 F i n a n c e ( e x c e p t b a n k i n g ) / i n s u r a n c e / a n d r e a l e s t a t e ....... 20 O t h e r i n d u s t r i e s ........................................... 682 75 498 676 30 41 33 279 53 93 144 242 for resale without f urther manufac ture 376 Other (12) {in (10) 29/275 1/577 unaffi liated U . S . persons Capital equipment 1/ 13/773 35/813 industries of (6) (2) all and I n d u s t r y (5) (1) areas/ Destination Shipped For resale wi thout further manufacture (3) Capital e q u i pment 1/ All of of 1,967 4,196 1,588 3,446 2,698 By area of destination: Developed c o u n t r i e s . . . . . . . . . • . . . . . . . . . . . . . . • . . • . . . * . . • . • • . • Canada ................................. Europe . . . . « • • • • • • • • . • • . . . • • . . . . . • . • . • • • • • • . • • • • . • • • • • • • • • E u r o p e a n C o m m u n i t i e s <9> . . . • • . • . . . . . • • • . . . « . • • • • . . . • • • • Other Europe . . • . . . • • • • • • • . • . • • . . • • • • • • . . • • . • • • • • • . . . • • • Japan A u s t r a l i a / New Zealand/ and South Africa ................. Developing countries • Latin Ame Other Afr Middle Ea Other Asi and Pacific I Internation 203 22 180 1,277 791 11 1 136 238 28 201 107 71 59 ^2 <*> 22 167 95 ^7 27 29 7 831 6 70 556 114 20 67 379 289 22 22 47 0 656 580 76 2 90 730 408 72 87 163 20 By industry of affiliate: 2 83 MOFA Majority-owned foreiqn affiliate. * Less than $500,000 (+). D Suppressed to avoid disclosure of data of individual companies. 1. Capital equipment and other goods charged to fixed assets. NOTE.--In this table, data for affiliates are only for nonbank affiliates of nonbank parents. MOFA's are defined as affiliates that were owned more than 50 percent by all U.S. parents combined and that had assets, sales, or net income over $3 million in 1977. 67 102 149 21 15 16 16 14 33 35 15 1 41 (D) 69 821 44 28 35 63 75 4 92 84 1/025 4 (0) (D) 111 3,665 456 308 162 148 241 1,797 553 70 2 (D) total exports accounted for by capital equipment was largest—9 percent—for MOFA's in nonelectrical machinery. The equipment, which was shipped mainly to MOFA's manufacturing computers, consisted largely of computers for lease or rental to others. Exports for "other11 uses accounted for 56 percent of total exports to MOFA's in mining, 49 percent to MOFA's in manufacturing, and 26 percent to MOFA's in petroleum. Growth from 1966 to 1977 This section discusses growth of exports associated with MOFA's and their parents from 1966 to 1977. The 1966 data are from the 1966 benchmark survey of U.S. direct investment abroad. 14/ They differ somewhat in concept, coverage, and methodology from the 1977 data; therefore, data for both years have been adjusted to improve comparability. The net effect of the adjustments was quite small—1966 exports were adjusted downward about 2 percent and 1977 exports were revised upward about 1 percent. 15/ Growth rates were calculated by country of destination and by industry of U.S. parent; they could not be calculated by product because a product breakdown of the 1966 data is not available. U.S. exports associated with MOFA's and their parents grew at a compound annual rate of 16.2 percent, from $18.8 billion in 1966 to $97.9 billion in 1977 (table 10). During the same period, total U.S. exports grew at a significantly slower rate—13.4 percent—from $30.4 billion to $121.3 billion. Ij)/ Consequently, the share of total U.S. exports that were associated with MOFA's and their parents rose from 62 percent to 81 percent. 14. See U.S. Department of Commerce, Bureau of Economic Analysis, U.S. Direct Investment Abroad, 1966, Final Data (Washington, D.C.: U.S. GPO, n.d.), tables E-l through E-16. 15. The adjustment for 1977 was applied to $96.9 billion of total exports associated with MOFA's and their U.S. parents, as published in U.S. Direct Investment Abroad, 1977. This total differs from the one that appears in tables 5-7, which disaggregate U.S. exports associated with MOFA's and their parents by product. The difference occurs because this total includes, but the one in tables 5-7 excludes, $3.7 billion of U.S. exports to minorityowned foreign affiliates of the U.S. parents of MOFA's for which no product breakdown is available. In the adjusted data for both years, MOFA's are defined as affiliates owned more than 50 percent by a single U.S. parent, regardless of the size of each affiliate's assets, sales, or net income. (In previously published data for 1977 and in the rest of this article, they are defined as affiliates that were owned more than 50 percent by all U.S. parents combined and that had assets, sales, or net income over $3 million.) The adjusted data exclude data for parents and affiliates in finance, except banking, and in insurance, because 1966 export data were not collected for them. 16. Growth rates for a period that are calculated from i n i t i a l - and terminal-year data may differ from an average calculated from data for each year in the period i f the i n i t i a l - or terminal-year values have been affected by circumstances atypical of the period as a whole. For the 11-year period covered here, however, the i n i t i a l - or terminal-year values of U.S. exports associated with MOFA's and their parents, or of total U.S. exports, would have had to differ by about 10 percent from those cited in order to change the growth rates by 1 percentage point. 21 Table 1 0 . — G r o w t h in U.S. Exports Associated With HOFA's and Their U.S. Parents, After Adjustments to Improve Comparability, 1966-77, Area of Destination and Industry of U.S. Parent by Transactor 1/ Compound annual rate of growth Total exports associated with MOFA's and their U.S. parents, as adjusted Shipped to MOFA's " By U.S. parents By unaffiliated U.S. persons Shipped to other foreigners by U.S. parents 2/ Shipped Total exports associated with MOFA's and their U.S. parents, as adjusted to MOFA's By U.S. parents By unaffiliated U.S. persons Shipped to other foreigners by U.S. parents 2/ Total exports associated with MOFA's and their U.S. parents, as adjusted Shipped Total to MOFA's By U.S. parents By unaffiliated U.S. persons Shipped to other foreigners by U.S. parents 2/ Millions of dollars All areas, all industries 18,814 7,459 6,144 1,315 11,355 97,907 37,008 30,434 6,575 60,899 11,867 4,334 5,609 4,398 1,211 1,169 5,846 3,250 2,038 1,797 4,923 2,590 1,819 1,601 6,021 1,084 3,571 2,602 217 180 334 24,815 12,836 9,908 8,429 1,479 5,286 3,655 1,429 1,217 241 191 367 5,257 2,801 1,586 1,097 150 89 251 27 33,799 5,733 18,961 12,500 6,461 7,227 1,879 23,801 8,371 2,563 7,158 5,709 16.6 16.0 16.6 15.8 18.9 19.1 14.7 17.4 14.4 17.2 29.3 15.8 16.1 15.9 16.9 16.5 19.4 13.3 13.8 14.1 12.2 507 482 63,900 22,223 30,298 22,146 8,152 7,980 3,398 30,593 12,275 2,896 8,093 7,328 30,100 16,490 11,337 9,646 1,691 754 923 660 219 196 24 11 33 390 180 81 42 88 2 118 1 ... ... -15.2 11.2 16.1 By area of destination; Developed countries Canada Europe European Communities (9) Other Europe Japan Australia, New Zealand, and South Africa Developing countries Latin America Other Africa Middle East Other Asia and Pacific International 3/ 1,467 1,690 1,196 917 69 47 163 25 970 978 387 3,670 1,704 358 393 1,216 1,663 753 731 1,520 6,791 3,904 1,341 5,530 3,117 332 935 221 803 1,619 1,388 117 89 212 23 179 1,261 787 111 132 231 28 7.5 23.9 18.5 15.9 15.7 16.7 16.3 19.1 13.6 13.5 15.0 11.8 11.2 29.5 21.5 — 17.2 16.9 18.6 18.1 22.0 6.9 16.7 11.3 14.4 2.9 11.0 9.2 — 17.0 16.4 16.4 15.4 18.8 20.0 15.5 18.5 15.6 19.6 30.2 15.1 By industry of U.S. parent: Mining Petroleum Manufacturing Food and kindred products Chemicals and allied products Primary and fabricated metals Machinery, except electrical Electric and electronic equipment Transportation equipment Other manufacturing Trade Finance (except banking), insurance, and real estate 4/ Other industries 324 996 116 549 84 364 14,420 6,158 5,210 777 327 893 384 195 789 274 1,235 1,132 460 417 1,974 1,601 887 384 45 207 2,045 1,278 2,796 1,473 3,907 2,144 2,699 51 324 801 334 32 185 948 131 104 110 102 42 372 86 50 15 138 31 69 208 447 757 19 (D) 1,759 31,779 1,457 26,802 1,561 1,013 1,933 1,258 2,315 5,130 71,825 3,050 9,692 4,294 12,666 8,135 23,357 10,631 17,999 5 117 1,719 8,262 450 1,152 894 477 738 8.0 16.1 15.7 13.3 15.2 11.7 14.7 16.8 17.7 15.7 18.8 22.7 16.4 922 544 4,427 1,122 5,223 2,909 12,715 4,460 2,215 3,931 4,873 2,517 10,223 3,797 1,499 2,492 663 716 3,371 40,046 2,128 5,265 3,173 7,442 5,226 10,642 6,171 15,783 467 769 (D) 429 (D) 339 10 950 MOFA Majority-owned foreign affiliate. D Suppressed to avoid disclosure of data of individual companies. 1. See text for discussion of adjustments made to the 1966 and 1977 data to improve comparability. In the adjusted data for both years, MOFA's are defined as affiliates owned more than 50 percent by a single U.S. parent, regardless of the size of each affiliate's assets, sales, or net income. 2. Consists of U.S. exports shipped to minority-owned affiliates and to unaffiliated foreigners by the U.S. parents of MOFA's. 3. Growth rates are not shown because the 1977 definition of "International" differed from that for 1966. (See footnote 17 in text for discussion.) 4. In order to improve its comparability with 1966, the 1977 data were adjusted to exclude U.S. parents and affiliates in insurance and in finance, except banking. This adjustment significantly affected the finance (except banking) , insurance, and real estate industry because, when classified by industry of U.S. parent, all parents and most affiliates in insurance or in finance, except banking, were in this major industry group. (D) 302 917 4,976 378 497 204 351 392 (D) 13.5 16.1 (D) 4.6 16.3 10.1 15.3 12.2 20.2 15.4 15.2 14.8 12.2 15.3 16.1 16.8 15.6 19.1 9.9 9.8 15.7 10.2 14.0 18.3 18.5 15.8 17.3 15.7 11.6 14.2 17.8 18.4 15.2 14.6 23.7 12.7 (D) (D) 6.0 10.9 15.6 21.0 5.8 11.9 22.4 18.9 20.4 27.5 Exports shipped to unaffiliated foreigners by the U.S. parents of MOFA's grew at a 16.5 percent rate. Exports shipped to MOFA's, both by U.S. parents and by other U.S. persons, grew at a 15.7 percent rate. Exports associated with MOFA's and their parents that were destined for developing countries grew at a slightly faster rate than those destined for developed countries—17.4 percent compared with 16.6 percent. Y7J In the developing countries the growth rate was highest—29.3 percent—for the Middle East, where members of the Organization of Petroleum Exporting Countries (OPEC) used sizable portions of their growing oil revenues to purchase U.S. goods. The growth rate was lowest—at 14.4 percent—in Latin America. The low rate partly reflected policies in several countries that limited the import content of production by foreign-owned firms or encouraged foreign 11 investment in import-competing industries. In "other Asia and Pacific, where the growth rate was 15.8 percent, very rapid growth of U.S. exports to some countries—particularly Singapore, Indonesia, South Korea, Taiwan, and Malaysia, whose economies were expanding rapidly—was partly offset by slower growth in exports to other countries. Among the developed countries, growth rates ranged from 14.7 percent for Australia, New Zealand, and South Africa to 19.1 percent for Japan. The relatively high rate for Japan probably reflected the rapid growth of the Japanese economy, which is highly dependent on imported raw materials, and the gradual relaxation of Japanese import restrictions and foreign investment controls. Growth rates for Canada and Europe were 16.0 and 16.6 percent, respectively. The growth in exports to Canada was probably concentrated in transportation equipment. Within Europe, the growth rate for the European Communities (9) was significantly slower than that for "other Europe"—15.8 percent compared with 18.9 percent. The gradual elimination of internal tariffs and imposition of common external tariffs by the EC(9) encouraged U.S. companies to produce in, rather than export to, member countries. Also, relatively slow economic growth in the United Kingdom may have dampened U.S. exports to that country and, thus, to the EC(9) as a whole. W By industry of U.S. parent, the growth rate of U.S. exports associated with MOFA's and their parents was 18.8 percent in trade, 16.1 percent in petroleum, and 15.7 percent in manufacturing. In trade, growth was concentrated in wholesale trade of farm product raw materials and electrical IT. Growth rates tor "international" were not calculated because the definition of the "international" category differed in the 1966 and 1977 benchmark surveys. As noted earlier, in the 1977 survey, "international" consisted of affiliates that had operations spanning more than one country and that were engaged in petroleum shipping, other water transportation, petroleum trading, or the operation of oil and gas drilling equipment that was moved from country to country during the year. In the 1966 survey, "international" was defined more broadly to include, in addition, affiliates in finance, nonpetroleum trading, insurance, and construction that were engaged in activities in more than one country. No adjustments could be made for these definitional differences. 18. For these comparisons, 1966 as well as 1977 data are for the EC(9), even though the United Kingdom, Denmark, and Ireland did not become members of the Communities until 1973. 23 goods. Within manufacturing, growth was highest in transportation equipment—probably in response to the U.S.-Canadian automotive agreement— and in electrical machinery. MNC-Associated U.S. Imports Of total MNC-associated U.S. imports of $86.8 billion, imports shipped by foreign affiliates to U.S. parents were $32.6 billion (38 percent), imports shipped by foreign affiliates to unaffiliated U.S. persons were $8.9 billion (10 percent), and imports shipped by unaffiliated foreigners to U.S. parents were $45.2 billion (52 percent) (table 2 ) . Total imports shipped by affiliates, the sum of the first two components, were $41.5 billion, of which nearly four-fifths were to U.S. parents and just over one-fifth were to unaffiliated U.S. persons. Total imports shipped to U.S. parents, the sum of the first and third components, were $77.9 billion, of which 58 percent were from unaffiliated foreigners and 42 percent from foreign affiliates. As noted earlier, significantly less detail was obtained in the 1977 benchmark survey for imports than for exports. Specifically, imports shipped to U.S. parents by unaffiliated foreigners were not obtained by country of origin or by product. Because such imports accounted for more than one-half of total MNC-associated U.S. imports, generalizations about total MNCassociated imports, and comparisons of such imports with all U.S. imports by country of origin or by product are not appropriate. Also, the growth of MNC-associated U.S. imports from 1966 to 1977 cannot be calculated because no import data were obtained in the 1966 benchmark survey. 19/ As a result of these limitations, this section will cover only total MNU^associated imports disaggregated by industry of U.S. parent and U.S. imports shipped by MOFA's disaggregated by product and crossclassified by country of origin and industry of affiliate. 19. A very rough estimate of U.S. imports associated with MOFA's and their parents in 1966 was given in a previous article on MNC trade. (See table 21 in Betty L. Barker, "U.S. Foreign Trade Associated with U.S. Multinational Companies," Survey 52 (December 1972): 20-28.) The estimate was made using preliminary data on MOFA sales to the United States, as reported in the 1966 benchmark survey, together with a universe estimate of 1966 U.S. parent imports from unaffiliated foreigners, based on data for a very small sample of MNC's from a special 1970 survey conducted by BEA. (Note that MOFA sales to the United States differ from U.S. imports from MOFA's. The sales data include both goods and services that were charged to U.S. customers by MOFA's; the import data include only goods and only to the extent they were physically shipped to U.S. customers by the MOFA's, regardless of to or by whom they were charged.) Using the same procedure as in the previous article, but with revised data on 1966 MOFA sales to the United States, a rough estimate of 1966 U.S. imports associated with MOFA's and their parents of $12,489 million is obtained. In 1977, U.S. imports associated with MOFA's and their parents were $82,363 million, 95 percent of total MNC-associated U.S. imports. Ignoring comparability problems, the approximate compound annual growth rate of these imports from 1966 to 1977 was 18.7 percent. During the same period, total U.S. imports grew from $25,618 million to $150,390 million, or at a 17.5 percent annual rate. 24 By industry of U.S. parent By industry of U.S. parent, petroleum accounted for 44 percent and manufacturing for 40 percent of total MNC-associated U.S. imports (table 4 ) . Trade accounted for 13 percent, "other industries11 for 2 percent, and mining and finance (except banking), insurance, and real estate for less than 1 percent each. In general, a U.S. parent's industry is probably not a good indicator of the types of products being imported. Manufacturing parents, for example, may import raw materials and supplies that are products of nonmanufacturing industries, or parts and capital equipment that are products of manufacturing industries other than the one in which they are classified. In petroleum, however, most of the MNC-associated imports were probably crude petroleum, petroleum products, or natural gas. The large share of total MNC-associated imports accounted for by MNC's with petroleum parents primarily reflected the heavy U.S. dependence on foreign petroleum. In 1977, this dependence was exacerbated by strong U.S. economic expansion, an exceptionally cold winter, a drought in the West that led to a significant loss of hydroelectric power, and substantial private stockpiling of oil in anticipation of OPEC price increases. Of total MNC-associated imports in manufacturing, the transportation equipment industry accounted for the largest share--39 percent. This large share probably reflected the stimulus that the U.S.-Canadian automotive agreement provided to U.S. imports, as well as exports, of road motor vehicles and parts. Primary and fabricated metals accounted for 11 percent, electric and electronic equipment for 10 percent, and chemicals and allied products for 9 percent, of the imports in manufacturing. The shares of total MNC-associated imports that were shipped by foreign affiliates varied significantly by industry. They ranged from 14 percent in trade to roughly 80 percent in finance (except banking), insurance, and real estate. The shares in manufacturing and petroleum were 61 and 46 percent, respectively. Within manufacturing, imports shipped by affiliates were a particularly large share (76 percent) of MNC-associated imports in transportation equipment. In most industries, imports shipped to U.S. parents were wery large shares, and imports shipped to other U.S. persons very small shares, of total MNC-associated U.S. imports. The major exceptions were in industries—such as coal mining, paper, lumber, and glass—in which affiliates were engaged primarily in production of raw materials or other inputs that were often shipped directly to unaffiliated U.S. customers. U.S. imports shipped by MOFA's U.S. imports shipped by MOFA's were $38.0 billion in 1977 (table 11). They accounted for 44 percent of total MNC-associated U.S. imports. 25 Table 11.—U.S. Imports Shipped by MOFA's* 1977* [Millions Total (1) All areas* all industries . . - 38/000 Foods Inedible beverages/ crude and materials* tobacco except fueIs (2) (3) 998 Area of of O r i g i n and I n d u s t r y of Chemicals Machinery Road m o t o r vehicles and p a r t s (4) (5) (6) C7) 16*734 by P r o d u c t dollars! Mineral fuels* lubricants* and r e l a t e d mater i a I s 1*877 Affiliate 854 Other transportation equipment (8) 5*122 8*376 8*224 7*689 (D) 510 <D) 0 <0) 152 152 0 0 0 0 Metal manufactures (9) 272 949 <D> 241 lt» <0> 0 0 (*) (D) 5 0 0 (0) 0 625 374 235 205 30 <0> (0) 324 <D> (0) 0 (D) 0 0 0 268 0 0 (D) 3 (D) 250 (*) 4 0 <*) (D) (D) 656 (+) (D) 428 70 14 ( D) 122 (D) 0 (*> Other lanufactures Other (10) (11) <D> (0) By area of o r i g i n : Developed c o u n t r i e s Canada Europe . E u r o p e a n Communities ( 9 ) Other Europe Jaoan A u s t r a l i a * New Z e a l a n d * and S o u t h A f r i c a Developing countries . L a t i n America * Otner A f r i c a Middle East , . Other Asia and P a c i f i c . International . . . . . . . . . . . . . . . . . . By i n d u s t r y o f . 19*557 14*305 4*736 4*063 673 362 153 18*409 5*240 4*618 2*872 5*680 34 553 189 362 176 187 (*) 2 44 5 356 2 2 85 0 1*337 1*170 97 (0) (0) (0) (D> (D) 209 CD) <0) 183 (0) (0) 1*244 1*802 (0) (0) <0> (0) 13*671 3*410 4*407 2*848 3*006 (D) 602 322 268 259 9 9 3 253 (D) 0 0 (D) 0 2*952 1*597 998 963 35 (0) <D> 2*170 486 (D) <D) 1*677 0 1*145 16*795 17*656 513 637 998 1*200 2*548 9*172 2*588 1*706 (D) (D) 0 0 484 448 (D) (*) 0 2 0 (D) 284 0 231 810 19 556 <D) (D) 47 <*) (*) 0 (D) 402 0 90 (D) 16*663 27 0 (D) <D> 2 1 (*) 1 (D) <*) 0 (D) 2 (D) 4*521 (*) 2 48 1*087 2*346 1*004 33 522 0 (D) 6 2 (D) 2 (0) (D) (*) (D) ( O 0 0 <D> 0 affiliate: Mining Petroleum Manufacturing Food a n d k i n d r e d p r o d u c t s • • • • • • • • • • • • • . • • • • • • • • • • • • • • • • Chemicals and a l l i e d p r o d j c t s . . . . . . . . . . . . . . . . . . . . . . . . . . Primary and fabricated metals . . . . . . . . . . . . . . . . . . . . . . . . . . Machinery* except e l e c t r i c a l • . . • . • • • . . . . . • • « « « • • • • . « . . • E l e c t r i c and e l e c t r o n i c equipment . . . . . . . . . . . . . . . . . . . . . . . . T r a n s p o r t a t i o n equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other manufacturing •. • . . . . . . • . • • * . . • • • Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - , . . . . Finance (except banking)* insurance* and real estate • • • • « Other i n d u s t r i e s 73 568 1 463 (0) 1 (D) 1 89 (D) 0 <*) M F O A Majority-owned foreign a f f i l i a t e . D Suppressed to avoid disclosure of data of individual companies. * Less than $500,000 ( + ) . NOTE.--In this table, data for a f f i l i a t e s are only for nonbank a f f i l i a t e s of nonbank parents. MOFA's are defined as a f f i l i a t e s that were owned more than 50 percent by a l l U.S. parents combined and that had assets, sales, or net income over $3 million in 1977. 1*953 1*477 430 343 87 42 3 792 155 ID) <0> 623 <D) 0 0 (D> 0 (D) 431 5 <*) 7*869 (D) (D) 0 0 3 (D) <D) 1 10 (0) 32 174 <D) 1*940 211 (0) (D) 0 (*) (D) (0) <*) (*) <*) 1 1 1 2 (*) 1 By product, 44 percent of the imports shipped by MOFA's were mineral fuels, 22 percent were road motor vehicles and parts, 13 percent were machinery, and 5 percent were inedible crude materials, except fuels. Imports of other products were relatively small. As with exports, imports of road motor vehicles and parts were probably overstated, and imports of other goods understated, because of reporters1 incorrect classification of transportation equipment parts and accessories. Imports from developed countries accounted for 51 percent, and those from developing countries for 49 percent, of total U.S. imports shipped by MOFA's. 20/ Among developed countries, Canada accounted for 38 percent and Europe for 12 percent of the global MOFA total. Among developing countries, "other Asia and Pacific" accounted for 15 percent, Latin America for 14 percent, "other Africa" for 12 percent, and the Middle East for 8 percent of the total. Imports from MOFA's in developed countries exceeded those from MOFA's in developing countries in all product categories except mineral fuels and "other." For mineral fuels, more than four-fifths of the imports, probably mainly crude petroleum, were from developing countries--54 percent from members of OPEC alone. Imports of "other" products, which were very small in value, were mainly from "other Asia and Pacific." Also, for all products except mineral fuels and "other," U.S. imports from MOFA's in Canada were larger than those from MOFA's in any other single country. Imports from Canadian MOFA's were particularly large shares of imports of road motor vehicles and parts (92 percent), "other transportation equipment" (89 percent), and inedible crude materials, except fuels (62 percent). By industry of affiliate, 46 percent of total imports shipped by MOFA's were from MOFA's in manufacturing and 44 percent were from MOFA's in petroleum. More than one-half of the imports in manufacturing were from MOFA's in transportation equipment. In goods-producing industries, large shares of the U.S. imports shipped by MOFA's were products of the affiliates1 own industries of classification. Virtually all of the imports shipped by petroleum MQFA's were of mineral fuels, and 71 percent of those shipped by mining MOFA's were of inedible crude materials, except fuels (probably mostly minerals). Within manufacturing, the shares of imports that were products of the MOFA's own industries were highest in electric and electronic equipment and in nonelectrical machinery—over 90 percent in each. Corresponding shares were 87 percent in food and kindred products, 86 percent in transportation equipment, 75 percent in "other manufacturing," and 73 percent in chemicals. In primary and fabricated metals, in contrast, only 43 percent of the imports shipped by MOFA's were of metal manufactures; the remainder was mostly road motor vehicles and parts. Some of the latter may actually have been metal parts and accessories for road motor vehicles, which should have been classified as metal manufactures instead. 20. In all cases, the country of location of a MOFA was considered to be the country of origin of the U.S. imports shipped by it. 27 In non-goods-producing industries, imports shipped by MOFA's in trade were mainly machinery; inedible crude materials, except fuels; food, beverages, and tobacco; and "other manufactures." In services—which is part of "other industries" and which was the only other non-goods-producing industry with imports of any size—nearly all imports were of "other manufactures." Technical Note U.S. trade is defined by the Census Bureau as the physical movement of goods between the customs area of the United States and the customs area of a foreign country. The all-U.S. trade data in this article are as compiled by Census, except that they have been adjusted to include shipments between the Virgin Islands and foreign countries. (The 1977 Census data excluded these shipments, but the MNC data included them.) All-U.S. exports and imports are valued f.a.s. at the U.S. or foreign port of exportation; thus, they include all costs incurred up to the point of loading the goods aboard the export carrier at the port of exportation, including the selling price at the interior point of shipment (or cost if not sold), packaging costs, and inland freight and insurance. All-U.S. exports include reexports and military grant shipments; all-U.S. imports include goods for immediate consumption as well as goods entering into U.S. Customs bonded warehouses. The MNC data were defined to be as comparable as possible with the allU.S. trade data. In practice, however, the MNC and all-U.S. trade data are not strictly comparable because they came from two different sources. The MNC data were based on company records, whereas the all-U.S. trade data were compiled by the Census Bureau from shippers1 declarations filed with U.S. Customs on each transaction. Although the MNC data, like the all-U.S. data, were required to be reported on a "shipped basis"—i.e., on the basis of when, where, and to (or by) whom the goods were physically shipped—most reporters maintained their books, and probably, in many cases, reported to BEA, on a "charged basis"— i.e., on the basis of when, where, and to (or by) whom the goods were billed or charged. Data on the two bases can differ significantly. For example, if a U.S. parent buys goods from an affiliate in country A and sells them to an affiliate in country B, but the goods are shipped directly from country A to country B, a U.S. import or export would not be recorded on the shipped basis, because the goods never physically entered or left the United States; however, on the charged basis, both a U.S. import (to show the purchase charged to the U.S. parent from country A) and a U.S. export (to show the sale charged by the U.S. parent to country B) would be recorded. The MNC data may also contain duplication. For example, if one U.S. parent exported goods to an affiliate of another U.S. parent, the goods would be counted twice in total MNC-associated U.S. exports—once as goods shipped by U.S. parents to unaffiliated foreigners and once as goods shipped to 28 affiliates by U.S. persons other than their U.S. parents. This duplication would cause the MNC data to be overstated relative to the all-U.S. data. The amount of any such overstatement is unknown, but believed to be small. The MNC and all-U.S. trade data may also differ because the timing, valuation, origin or destination, shipper, or product involved in a given transaction may have been recorded differently on company records than on the Customs export and import documents. Other comparability problems are noted in the text, including the misclassification of certain parts and accessories for transportation equipment in the MNC data disaggregated by product, and the use of the "unallocated11 category in the data on MNC-associated U.S. exports disaggregated by country of destination. 29 By L.A. LUPO Worldwide Sales by U.S. Multinational Companies This article analyzes sales by U.S. nonbank multinational companies (MNC's) in 1977, by area of origin and destination, by industry of U.S. parent, and by affiliation between seller and customer. As noted in the Introduction to this by nonbank U.S. MNC's are covered; thus, nonbank MNC's, and MNC sales—defined as their foreign affiliates—refers only to collection of articles, only sales the term "MNC's11 refers only to the sum of sales by U.S. parents and sales by nonbank MNC's. Total MNC sales could be disaggregated by area of origin (the location of the seller) because the location of each seller, that"is, of each parent and foreign affiliate, was reported in the 1977 benchmark survey. In contrast, as explained below, only sales by U.S. nonpetroleum parents and by majorityowned foreign affiliates (MOFA's) could be disaggregated by area of destination (the location of the customer). For sales disaggregated by industry, unless noted otherwise, the industry used for MNC's, parents, and affiliates was that of the parent. 1/ The first section of the article discusses total MNC sales by industry and by area of origin. The second section discusses the destination of sales by U.S. nonpetroleum parents of MOFA's, and by all MOFA's. Sales are distributed into local sales (those where the customer is located in the same country as the seller) and nonlocal sales (those where the customer is located in a different country from the seller). In the third section, sales by U.S. nonpetroleum parents of MOFA's and by all MOFA's are distributed according to whether or not these sellers and their customers were affiliated—that is, were members of the same MNC. The technical notes discuss (1) the use of U.S. parents' export shipments as an estimate of their nonlocal sales, which were not reported in the 1977 benchmark survey, (2) the effect on the sales data of the consolidation rules applied in the 1977 benchmark survey, (3) the relationship between sales data in this article and BEA's earlier published data on sales by MNC's, and (4) the extent to which the distribution of affiliate sales by industry of affiliate differs from that by industry of U.S. parent. 1. In the 1977 benchmark survey, each parent and each affiliate was classified in the one industry in which its sales were largest; the U.S. MNC as a whole was not classified by industry because the data needed to assign an industry code based on the worldwide activities of the MNC's were not secured. In most cases, however, the MNC-wide industry code would have been the same as the parent's because each U.S. parent normally accounted for a much larger share of total sales by an MNC than did its foreign affiliates, and most affiliates were classified in the same industry as their U.S. parent (see the technical notes). 30 Highlights In 1977, U.S. MNC's had worldwide sales of $2,060 billion; $1,412 billion were by U.S. parents and $648 billion were by foreign affiliates. Of the $1,412 billion of sales by parents, more than two-thirds were by parents in goods-producing industries—mainly manufacturing and petroleum; the remainder were mainly in trade, insurance, and communication and public utilities. Although fewer than 1 in 2,000 U.S. businesses were parents, the parents accounted for more than 35 percent of sales by all U.S. businesses, and nearly 62 percent of sales by U.S. businesses in goods-producing industries. Sales by affiliates were concentrated more heavily in goods-producing industries than were sales by their U.S. parents, mainly because petroleum accounted for a much larger share of the affiliates1 than of the parents1 total sales. Of the $648 billion of sales by affiliates, 15 percent originated in Canada, 35 percent in the European Communities (9), 8 percent each in "other Europe" and Japan, 11 percent in Latin America, and 17 percent in developing areas other than Latin America. Worldwide sales by U.S. nonpetroleum parents of MOFA's, and by all MOFA's, can be distributed both by destination and origin. Worldwide sales by the parents were $1,106 billion. By destination, only 8 percent were to foreigners; the remaining 92 percent were local. In contrast, of worldwide sales of $507 billion by all MOFA's, 62 percent were local, 19 percent were to the United States, and nearly 20 percent were to third countries (that is, to countries other than the United States or the country of the MOFA). Both for U.S. nonpetroleum parents and MOFA's, the bulk of worldwide sales were to unaffiliated customers. Sales by U.S. nonpetroleum parents to unaffiliated customers were 97 percent of their worldwide sales; the share was high because most of their sales were local (i.e., were sold in the United States), and all of their local sales were, by definition, to unaffiliated customers (see footnote 8). In contrast, the share of their nonlocal sales that were to unaffiliated customers was only 67 percent. 31 Sales by all MOFA's to unaffiliated customers were about two-thirds of their worldwide sales. In most areas and industries, over 90 percent of their local sales, but markedly lower shares of their nonlocal sales, were to unaffiliated customers. Sales by Industry and by Origin By MNC's as a whole In 1977, worldwide sales by U.S. MNC's totaled $2,060 billion. Of this amount, $1,412 billion (69 percent) were by U.S. parents and $648 billion (31 percent) were by their foreign affiliates. When each MNC was classified by industry of U.S. parent, nearly threefourths of sales were in goods-producing industries—mainly manufacturing and petroleum. Most of the remainder was in trade, insurance, and communication and public utilities (table 1 ) . 2/ MNC's in manufacturing had sales of $1,037 billion, about one-half of worldwide sales by all U.S. MNC's. Within manufacturing, sales were largest, at $241 billion, in transportation equipment; although most of these sales were by automobile manufacturers, sales by U.S. aircraft companies also were substantial. MNC's in petroleum had sales of $475 billion. Most of these sales were by a few large integrated companies engaged in all stages of the petroleum industry—extraction, refining, and marketing. MNC's that specialized in only one aspect of the industry, such as petroleum trade, tanker or pipeline operations, or refining without extraction, together had sales of only $66 billion. MNC's in trade had sales of $229 billion; these sales were split about equally between retail and wholesale trade. In finance (except banking), insurance, and real estate, sales were $145 billion; they mainly consisted of gross operating revenues of MNC's in insurance. In "other" industries— mainly transportation, communication, and public utilities—sales were $168 billion; in mining, they were less than $7 billion. T.In this article, goods-producing industries cover mining (table 1, line 2), petroleum (line 8), manufacturing (line 18), agriculture, forestry, and fishing (line 71), and construction (line 72). Oil and gas field services and petroleum trade are considered part of the petroleum industry as shown on line 8, even though they are not "goods-producing" industries; because they constituted less than 3 percent of the petroleum total, however, their inclusion has little effect on the analysis. Non-goods-producingindustries cover trade (line 59), finance (except banking), insurance, and real estate (line 64), transportation, communication, and public utilities (line 73), and services (line 76). 32 Table 1.—Sales by U.S. MNC's, 1977, by Industry of U.S. Parent Percent distribution by industry Millions of dollars Total Line 1 2 3 4 5 6 7 By U.S. parents By foreign affiliates Total By U.S. parents By foreign affiliates 2,060,262 All industries Mining Metal mining Iron — Copper, lead, zinc, gold, and silver Bauxite, other ores, and services Coal and other nonmetallic minerals 1,412,293 647,969 100.0 100.0 6,866 2,672 (D) 1,850 (D) 4,194 4,986 1,467 (D) (D) 4 3,519 1,880 1,205 (D) (D) (D) 675 .3 .1 .4 .1 (D) (D) (D) (D) (D) .2 .2 474,635 8,547 6,140 2,407 411,457 409,123 (D) (D) 42,252 12,379 221,757 6,131 4,144 1,987 181,568 179,389 252,878 2,416 1,996 420 229,889 229,734 23.0 .4 .3 .1 20.0 19.9 15.7 .4 .3 .1 12.9 12.7 (D) (D) (D) (D) (D) (D) (D) (D) 22,321 11,736 19,930 642 2.1 .6 1.6 .8 1,037,157 110,762 19,132 12,958 78,672 145,821 80,203 27,464 23,729 4,066 10,360 119,639 82,575 52,897 29,678 37,064 126,403 9,178 27,025 47,859 42,342 87,103 11,928 20,442 9,176 45,557 240,716 181,105 59,611 206,713 14,559 30,054 20,493 31,496 16,071 25,256 4,122 8,868 13,912 28,832 13,049 739,460 83,422 14,497 9,679 59,245 96,474 53,985 16,423 14,790 3,303 7,974 94,563 66,152 46,902 19,250 28,411 80,174 6,559 18,211 23,950 31,455 62,631 8,436 16,723 6,247 31,225 165,681 115,877 49,804 156,516 10,845 25,342 18,218 22,570 13,734 16,401 3,251 6,053 10,409 19,087 10,607 297,697 27,340 4,635 3,279 19,426 49,347 26,218 11,042 8,939 762 2,386 25,076 16,423 5,996 10,428 8,652 46,228 2,619 8,814 23,909 10,887 24,472 3,493 3,719 2,929 14,332 75,035 65,228 9,807 50,198 3,715 4,712 2,276 8,927 2,337 8,854 872 2,815 3,503 9,745 2,442 50.3 5.4 .9 .6 3.8 7.1 3.9 1.3 1.2 .2 .5 5.8 4.0 2.6 1.4 1.8 6.1 .5 1.3 2.3 2.1 4.2 .6 1.0 .5 2.2 11.7 8.8 2.9 10.0 .7 1.5 1.0 1.5 .8 1.2 .2 .4 .7 1.4 .6 52.4 5.9 1.0 .7 4.2 6.8 3.8 1.2 1.1 .2 .6 6.7 4.7 3.3 .7 2.0 5.6 .5 1.3 1.7 2.2 4.4 .6 1.2 .4 2.2 11.7 8.2 3.5 .8 1.8 1.3 1.6 1.0 1.2 .2 .4 .7 1.4 .8 45.9 4.2 .7 .5 3.0 7.6 4.1 1.7 1.4 .1 .4 3.9 2.5 .9 1.6 1.3 7.1 .4 1.4 3.7 1.7 3.8 .5 .6 .5 2.2 11.6 10.1 1.5 7.8 .6 .7 .4 1.4 .4 1.4 .1 .4 .5 1.5 .4 228,750 108,215 37,516 70,699 120,536 183,706 77,683 29,252 48,431 106,023 45,044 30,532 8,264 22,268 14,513 11.1 5.3 1.8 3.4 5.9 13.0 5.5 2.1 3.4 7.5 7.0 4.7 1.3 3.4 2.2 8.5 .6 7.7 (*) 3.9 .3 2.4 (*) .5 .7 — .1 8 9 10 11 12 13 14 15 16 17 Petroleum — — Oil and gas extraction Crude petroleum (no refining) and gas Oil and gas field services Petroleum and coal products — Integrated refining and extraction Refining without extraction — Petroleum and coal products, nee Petroleum wholesale trade Other — - 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 Manufacturing Food and kindred products — — — Grain mill and bakery products Beverages — Other — — Chemicals and allied products — Industrial chemicals and synthetics -Drugs — Soap, cleaners, and toilet goods Agricultural chemicals Other — Primary and fabricated metals --— Primary metal industries -Ferrous Nonferrous — Fabricated metal products Machinery, except electric — Farm and garden machinery and equipment Construction and related machinery Office and computing machines Other — Electric and electronic equipment Household appliances -Radio, television, and communication equipment Electronic components and accessories — Other Transportation equipment Motor vehicles and equipment Other Other manufacturing Tobacco manufactures --Textile products and apparel Lumber, wood, furniture, and fixtures Paper and allied products Printing and publishing Rubber products -M'-c*llaneous plastics products a.uss products S.one, clay, cement, and concrete Instruments and related products Other — — 59 60 61 62 63 Trade — Wholesale trade Durable goods Nondurable goods Retail trade - 64 65 66 67 68 69 Finance (except banking), insurance and real estate Finance, except banking Insurance Real estate — Holding companies Individuals, estates, and trusts 1/ 144,650 11,178 123,446 587 5,118 4,321 119,596 9,051 108,088 517 1,940 0 25,054 2,127 15,358 70 3,178 4,321 7.0 .5 6.0 (*) .2 .2 0 70 71 72 73 74 75 76 Other — — Agriculture, forestry, and fishing Construction — Transportation, communication, and public utilities Transportation --Communication and public utilities Services — - 168,204 (D) (D) 108,710 39,217 69,493 29,752 142,789 1,533 17,165 100,314 35,202 65,112 23,777 25,416 8.2 10.1 (D) (D) (D) (D) 8,396 4,015 4,381 5,974 5.3 1.9 3.4 1.4 — - -- — - — - — - - - 11.1 .1 .1 1.2 7.1 2.5 4.6 1.7 MNC Multinational company. D Suppressed to avoid disclosure of data of individual companies. * Less than 0.05 percent. 1. Consists of U.S. parents that are individuals, estates, and trusts. Data for such U.S. parents appear as zero because those parents were not required to report financial and operating data in the 1977 benchmark survey. Foreign affiliates were not classified in this category; however, when data for affiliates are classified by industry of U.S. parent, the data for the affiliates of such parents are shown against this category. NOTE.—In this table, data for U.S. MNC's are only for nonbank MNC's; data for U.S. parents are only for nonbank parents of nonbank affiliates; and data for affiliates are only for nonbank affiliates of nonbank parents. 33 39.0 .4 .3 (*) 35.5 35.5 (D (D. 3.1 .1 3.9 (D) (D) 1.3 .6 .7 .9 By U.S. parents Of the $1,412 billion of sales by U.S. parents, more than two-thirds were by parents classified in goods-producing industries—mainly manufacturing (52 percent of the total) and petroleum (16 percent). Sales by parents classified in the other goods-producing industries (mining, agriculture, forestry and fishing and construction) together were less than 2 percent of the total. The main non-goods-producing industry was trade, which accounted for 13 percent of total sales by the parents. The finance (except banking), insurance, and real estate and the transportation, communication, and public utilities industries each accounted for less than 8 percent, and services for less than 2 percent, of the total. Table 2 compares sales by U.S. parents with sales by all U.S. businesses, by industry and by size of sales per company. The all-U.S.-business data are from the Bureau of the Census1 1977 Enterprise Statistics, and differ in industry scope (coverage) from the U.S. parent data. 3/ After adjustment for these differences, $1,180 billion (84 percent) of sales by parents were in industries that were also within the scope of the 1977 Enterprise Statistics (lines 11 and 12). Although fewer than 1 in 2,000 of U.S. businesses were parents of foreign affiliates, the parents accounted for more than one-third of the sales by all in-scope U.S. businesses. The industry distribution of the U.S. parents1 sales differed markedly from that for all U.S. businesses. 4/ For parents, manufacturing, petroleum, and mining together accounted for over 80 percent of sales, with 3 . F o r the all-U.S.-business data, see U.S. Department of Commerce, Bureau of the Census, 1977 Enterprise Statistics (Washington, D.C.: U.S. GPO, 1981). The industry scope of the U.S. parent data as reported to BEA was greater than that of all U.S. businesses as shown in the 1977 Enterprise Statistics. Differences in scope were resolved essentially by eliminating from the comparisons in table 2 the parents that were within the scope of BEA, but were out-of-scope of the 1-977 Enterprise Statistics. Lines 11-13 of table 2 give a reconciliation of the parent data in table 2 to the BEA total for parents given in table 1, and the footnotes to table 2 describe the main items in the reconciliation. 4. Some of the differences between the BEA and the Census industry distributions reflected differences in statistical practices. In the 1977 Enterprise Statistics, each U.S. business was a consolidation of domestic enterprises under "common ownership or control." In contrast, in the BEA data, each U.S. parent was essentially a consolidation of the owning U.S. business and all of its majority-owned domestic (U.S.) subsidiaries (see the technical notes). Control of a company could be conferred by less than majority ownership positions; therefore, the Census consolidation rule may have been more inclusive than the BEA rule. Another source of difference between BEA and Census industry distributions arose because BEA assigned an industry code based on sales, but Census assigned one based mainly on payroll data. The impact of these differences in statistical practices upon the industry distribution of the data is not known. 34 Table 2.—Sales by U.S. Parents Compared With Sales by All U.S. Businesses, 1977 Number of companies U.S. All inparents scope U.S. businesses 1/ Millions of dollars Sales by U.S. parents Sales by all inscope U.S. businesses V Percent distribution Millions of dollars per company Sales by Sales by all inU.S. parents scope U.S. businesses ]_/ Sales by Sales by U.S. all inparents scope U.S. businesses Line 1 All industries covered in the 1977 benchmark survey and in 1977 Enterprise Statistics 1/ 2,700 5,589,802 1,179,625 3,324,550 100.0 100.0 436.9 29 8,875 148 198,595 1,841 295,060 375 1,885,749 307 3,201,523 4,986 210,530 739,460 183,706 40,942 37,565 263,805 1,275,174 1,332,093 415,914 .4 17.9 62.7 15.6 3.5 1.1 7.9 38.4 40.1 12.5 172.0 1,422.5 401.7 489.9 133.3 4.3 1.4 4.4 .7 .1 665 1,060 393 1,293 371 2,186 1,271 5,585,263 1,065,763 63,402 26,580 23,879 1,293,663 199,864 150,132 1,680,891 90.3 5.4 2.2 2.0 38.9 6.0 4.5 50.5 1,602.7 161.4 71.7 18.8 1,220.7 154.6 68.7 .3 3,425 n.a. 1,412,293 n.a. n.a. n.a. 412.4 n.a. 2,700 n.a. 1,179,625 n.a. 436.9 n.a. n.a. 232,669 n.a. 321.0 n.a. By industry: 2 3 4 5 6 Mining Petroleum 2/ Manufacturing Trade Other 3/ - — By sales size class, millions of dollars: 7 8 9 10 $250 and over $100-249.9 $50-99.9 Less than $50 —- - Addenda: Reconciliation of U.S. parent data: 11 U.S. parent total from 1977 benchmark survey 12 U.S. parents in industries covered in 1977 Enterprise Statistics 13 U.S. parents not in industries covered in 1977 Enterprise Statistics 4/ - 725 n.a. n.a. n.a. Not applicable. 1. The "scope11—coverage by industry--of U.S. parents, as reported in the 1977 benchmark survey, was broader than that for all U.S. businesses, as shown in the 1977 Enterprise Statistics. The industry groups given in lines 2-6 include only those industries that are in scope of both BEA's 1977 benchmark survey and the 1977 Enterprise Statistics. Data for direct investment industries that are out of scope of the 1977 Enterprise Statistics are shown in line 13 (see footnotiTT 2. Petroleum excludes petroleum tanker operations; pipeline transmission, including natural gas; petroleum storage for hire; and lessors of gasoline service stations and sites. These categories, which are part of the direct investment petroleum industry, are out of scope of the 1977 Enterprise Statistics. Several parents, accounting for $11,227 million in sales in 1977, were excluded. 3. "Other" consists of construction and services that are in-scope of the 1977 Enterprise Statistics. 4. Parents not within the scope of the 1977 Enterprise Statistics consist of the U.S. petroleum parents cited in footnote 2 plus those classified in agriculture, forestry, and fishing; finance (except banking), insurance, and real estate; and transportation, communication, and public utilities. See text for further discussion of comparability of sales between the benchmark survey and 1977 Enterprise Statistics. NOTE.— In this table, data for U.S. parents are only for nonbank parents of nonbank affiliates. 35 manufacturing the major industry; trade and "other" industries together accounted for less than 20 percent of the total. In contrast, for all U.S. businesses (which include the parents), trade accounted for the largest share~40 percent; manufacturing, petroleum, and mining together accounted for less than one-half of the total. Sales per company were far higher for parents than for all U.S. businesses, both in total and in each industry shown. In terms of number, parents accounted for nearly two-thirds of the U.S. businesses with sales of $250 million or more (the largest size class in table 2), but a negligible proportion of those with sales of less than $50 million (the smallest size class). In terms of sales, parents accounted for most of the sales in the largest, but a negligible proportion of sales in the smallest, size class. In the largest size class, most U.S. businesses in goods-producing industries, but relatively few of those in other industries, were also U.S. parents. U.S. parents were predominant in the largest size classes for several reasons. First, investments abroad often involved significant commitments of capital and management, both of which could be mobilized more readily by large than by small businesses. Second, a U.S. business that already had a major share of the U.S. market may have needed access to foreign markets in order to obtain further sales growth or economies of scale in production. In contrast, many medium- and small-scale U.S. businesses may have needed to use most of their resources domestically, in order to remain competitive in U.S. markets. Moreover, many small businesses were in trade or services and therefore mainly served local markets. By foreign affiliates When sales by foreign affiliates were classified by industry of U.S. parent, the sales were chiefly in goods-producing industries. Of the $648 billion of sales, manufacturing accounted for 46 percent, petroleum (including petroleum trade) for 39 percent, and other goods-producing industries for only 2 percent of the total (table 1, column 6 ) . The main non-goods-producing industry, trade, accounted for 7 percent of total sales by affiliates. The finance (except banking), insurance, and real estate industry accounted for less than 4 percent, and the transportation, communication, and public utilities and the services industries each accounted for roughly 1 percent, of the total. The share of petroleum was markedly higher, and the shares of non-goodsproducing industries markedly lower, in sales by foreign affiliates than in sales by U.S. parents (table 1, columns 5 and 6). The share of petroleum was higher for affiliates, partly because they supply a large portion of the petroleum needed by both the U.S. and foreign customers of the petroleum MNC's. Also, the affiliate sales data are more likely to contain duplication than are the parent sales data: crude petroleum may be sold by an extractive affiliate to a refining affiliate, which may resell refined petroleum products to an unaffiliated customer; each of the sellers is a foreign affiliate of a U.S. petroleum parent and, therefore, sales by each are 36 correctly included in affiliate sales. In contrast, as explained in the technical notes, domestic sales by U.S. parents were reported on a consolidated basis; thus, only a petroleum parent's sales to unaffiliated customers would be counted in the parent's domestic sales. Further, for petroleum that was both produced and consumed locally, the U.S. Government held prices below world market levels. This policy, since dropped, tended to reduce the dollar volume of sales by U.S. petroleum parents, and, thus, the U.S. petroleum parents1 share of total sales by U.S. parents. The relatively low shares of sales by foreign affiliates in non-goodsproducing industries—in particular, retail trade, insurance, and transportation, communication, and public utilities--reflected a tendency for the markets served by these industries to be fragmented by country-to-country differences in commercial practices, regulatory framework, and language. Overcoming these differences can be expensive and can inhibit investment; in some countries, formal and informal restrictions on foreign investment particularly affected these industries. In table 3, affiliate sales by major industry of U.S. parent are classified by area of origin (the seller's country of location). Affiliates in developed countries accounted for 69 percent of total sales by the affiliates, those in developing countries for 28 percent, and those in "international", which mainly were engaged in international petroleum transportation, for 2 percent. Among developed countries, Canada and the European Communities (EC (9)), accounted for 15 and 35 percent, respectively, "other Europe" and Japan for about 8 percent each, and Australia, New Zealand, and South Africa for 4 percent, of worldwide sales by affiliates. Among developing countries, Latin America accounted for 11 percent, and other developing areas ("other Africa," the Middle East, and "other Asia and Pacific") for 1/ percent, of the worldwide affiliate total. In both developed and developing countries, most of the sales originated in a few countries. Ranked according to size of affiliate sales originating in each, the top five developed countries were Canada, the United Kingdom, Germany, Japan, and France (table 3, line 81). Together, they accounted for sales of $307 billion, more than two-thirds of the developed country total. More than one-half of the sales were by affiliates of U.S. manufacturing parents. Except in Japan, transportation equipment was the largest manufacturing industry. In Japan, the largest manufacturing industry was electric and electronic equipment; this mainly reflected sales by a very large Japanese affiliate in which a U.S. parent held a minority ownership position. Affiliates of U.S. petroleum parents accounted for roughly one-fourth of affiliate sales originating in the five countries. In Japan, these affiliates accounted for nearly one-half of sales by all affiliates, a much higher proportion than in any of the other four countries; sales were especially large because these affiliates were the major importers of petroleum into Japan. In oil and gas extraction, affiliate sales originating in Canada and in the United Kingdom (mainly the North Sea area) were particularly large; in refining and distribution, affiliate sales originating in each of the five countries were a significant part of the total. 37 Table 3.—MNC Sales, 1977, Area of Origin by Industry of U.S. Parent Percent distribution by industry Millions of dollars Total All areas 2,060,262 474,635 2 Sales by U.S. parents 3 Sales by foreign a f f i l i a t e s I1§ 1,412,293 647,969 221,757 252,878 449,015 Manufacturing Petroleum Trade Other TFide"—Dti 126,108 Petroleum Manufacturing 228,750 319,721 ~23T0~ ~50A~ 739,460 297,697 183,706 45,044 267,371 52,350 15.7 39.0 52.4 45.9 246,715 39,474 36,717 28.1 9,895 13,859 17.4 TEl 55.0 54,661 I 1,037,157 I57T 13.0 7.0 19.0 8.1 57.6 10.4 14.6 Located in: 4 Developed areas 5 Canada 94,876 16,462 6 Europe 276,275 8.2 80,403 148,516 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 European Communities (9) Belgium Denmark France Germany Ireland Italy Luxembourg Netherlands United Kingdom Other Europe Austria Greece Norway Portugal Spain Sweden Switzerland Turkey Other 225,909 16,998 3,452 34,747 60,435 2,009 15,899 696 27,008 64,666 50,366 3,180 1,498 3,945 803 12,202 4,921 21,373 1,079 1,364 19,910 29.1 53.8 9.9 7.2 15,987 1,256 27 1,710 2,487 28 794 17 2,652 7,017 16,020 1,436 177 (D) 4,604 (D) 1,243 5 1,084 5,327 30.1 24.4 55.8 (D) 33.1 (D) 27.5 15.0 47.1 26.5 55.8 59.8 38.3 68.6 55.2 72.6 59.7 81.8 39.1 54.4 7.1 7.4 .8 4.9 7.1 8.5 5.1 41 . 14 . 7.6 5.0 2.4 9.8 10.9 7.8 .8 4.0 8.2 22,581 1,599 475 1,298 524 7,100 2,891 7,690 342 662 67,968 4,147 1,926 (D) 19,971 (D) 4,374 105 12,718 17,157 12,436 (D) 898 1,852 (D) 3,586 1,493 2,491 (D) (D) 27,446 125,935 10,159 1,323 23,846 33,373 1,458 9,488 569 10,554 35,165 11,459 (D) (D) 16 (D) 801 53 10,265 (D) 210 3,891 (D) (D) 780 48 716 484 926 (D) (D) 24.7 (D) 60.0 46.9 (D) 29.4 30.3 11.7 (D) (D) 44.8 50.3 31.7 32.9 65.2 58.2 58.8 36.0 31.7 48.5 22.8 7.7 (D) (D) (D) (D) (D) (D) .4 19.8 (D) 5.9 5.9 9.8 4.3 6.6 11 . 48.0 (D) 15.4 (D) (D) 27 Japan 51,895 24,176 26,080 848 790 46.6 50.3 1.6 1.5 28 29 30 31 Australia, New Zealand, and South Africa Australia New Zealand South Africa 25,970 18,125 1,393 6,453 5,067 (D) (D) 1,748 17,459 12,893 845 1,286 1,157 16 2,158 (D) (D) 871 19.5 (D) (D) 27.1 67.2 71.1 60.7 57.7 5.0 6.4 1.1 1.8 8.3 183,219 113,033 14,363 61.7 27.5 20.9 12.4 22.6 67.1 67.4 67.3 51.7 54.8 40.5 75.8 75.2 53.3 3,721 33 Developing areas Latin America 73,287 113 50,431 32 5,393 6,689 25,377 36,978 23,702 2,748 13,019 4,243 2,032 2,201 597 892 1,053 34 35 36 37 38 39 40 41 42 South America Argentina Brazil Chile Colombia Ecuador Peru Venezuela Other 35,331 4,075 19,340 610 2,410 629 1,021 6,436 810 7,397 505 4,376 (D) 643 (D) 148 1,041 198 43 44 45 46 Central America Mexico Panama Other 15,083 10,833 1,681 2,569 1,969 510 736 724 10,641 8,772 47 48 49 50 51 52 Other Western Hemisphere Bahamas Bermuda Netherlands Antilles Trinidad and Tobago Other 22,873 2,425 14,414 2,160 1,395 2,478 16,010 1,953 10,384 1,775 1,229 670 2,636 225 315 (D) 71 1,322 174 (D) 271 (D) 26.7 255 774 45 14.5 16.2 24.4 4,839 431 728 1,141 244 582 275 92 1,442 55 200 (D) 357 (D) (D) (D) 1,067 1,407 13.1 840 41 186 711 177 519 43.8 28.2 1,145 78 950 27 14 76 3,081 149 2,499 83 60 290 4.7 70.0 80.5 72.0 82.2 88.1 27.0 53 54 55 56 57 58 59 60 61 Other Africa Saharan Egypt Libya Other Sub-Saharan Liberia Nigeria Other 16,662 6,758 839 5,068 850 9,904 268 4,808 4,828 13,010 5,897 665 4,931 301 7,114 25 4,227 2,861 2,124 87 372 31 113 228 (D) 1 (D) (D) (D) 62 63 64 65 66 67 Middle East Israel OPEC Iran Other Other 66,607 995 63,660 11,675 51,984 1,952 60,238 (D) 58,614 (D) (D) (D) 2,131 774 745 350 (D) (D) 68 69 70 71 72 73 74 75 76 77 78 Other Asia and Pacific Hong Kong India Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Other 26,664 5,301 2,287 5,605 1.245 3,080 2,554 3,511 1,304 1,070 707 14,408 2,784 821 4,240 521 9,197 1,816 1,385 455 931 283 612 (D) 877 2,807 (D) (D) 425 1,300 1,492 52 210 24 76 169 87 15,734 13,737 551 177 75,204 63,614 6,808 269 306,617 (D) 173,125 21,956 (D) (D) (D) (D) (D) (D) (D) (D) 79 International Addenda: 80 OPEC (D) (D) 13.5 1,752 192 269 1,291 263 1,519 590 890 459 197 1,441 (D) 143 (D) (D) (D) 78.1 87.3 79.2 97.3 35.4 71.8 12.7 6.6 58.2 1 (D J (D) 2,128 (D) (D) (D) 8.7 17.0 (D) 5.6 (D) (D) ( D ( D .2 6.0 .1 6.2 (D) (D) () * (D) (D) (D) 3.5 5.3 8.0 7.9 3.2 26.4 2.4 6.6 1.4 18.0 (D) (D) (D) 60.2 1,270 87.3 3.5 4,514 84.6 34.5 34.3 60.6 (D) 0 9.1 (D) (D) 3.9 4.3 11.7 .5 160 39 (D) 6.2 (D) . 1 (D) 49.2 42.2 58.4 16.8 68.3 42.9 27.8 905 60 13.5 17.3 5.5 3.7 2.2 54.0 52.5 35.9 75.7 41.9 (D) 34.3 79.9 419 10.5 20.2 12.8 26.7 (D) (D) (D) (D) 5.0 3.2 6.6 1.3 1.0 3.1 4.0 9.4 (D) 4.4 5.6 11.5 10.1 87.9 59.3 92.1 5.4 3.1 (D) 51 90.4 11.6 11.2 9.3 6.6 (D) (D) (D) (D) 7.2 (D) (D) 0 3,456 6.2 5.5 5.5 7.1 7.8 2.4 7.2 (D) (D) 4,105 4.6 70.6 81.0 43.3 44.4 26.8 17.7 71.5 132 59 72 5.8 14.7 8.1 (D) . 1 4.1 6.8 1.0 2.2 (D) (D) (D (D 19.1 (D) 5.4 (D) 16.2 4.8 (D) 6.3 (D) 11 . ( D ( D ( D 1.1 8.1 12.9 8.2 6.0 Sum of top 5 countries, ranked by amount of sales by affiliates located in each country: 81 Developed countries—Canada, United Kingdom, Germany, Japan, and France 82 Developing countries—Saudi Arabia, Brazil, Bermuda, Iran, and Mexico MNC Multinational company. OPEC Organization of Petroleum Exporting Countries: consists of Algeria, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, Venezuela, and the United Arab Emirates. D Suppressed to avoid disclosure of data of individual companies. * Less than 0.05 percent. NOTE.—In this table, data for U.S. MNC's are only for nonbank MNC's; data for U.S. parents are only for nonbank parents of nonbank affiliates and data for affiliates are only for nonbank affiliates of nonbank parents. 38 56.5 (D) 7.2 (D) (D) (D) Affiliates of U.S. parents in trade and in "other" industries together accounted for less than one-fifth of affiliate sales originating in the five countries. Sales were particularly large in Canada and the United Kingdom, and particularly small in Japan, where commercial practices and policies may have inhibited foreign investment, especially in these industries. The top five developing countries were Saudi Arabia, Brazil, Bermuda, Iran, and Mexico. Together, they accounted for well over one-half of total affiliate sales originating in developing countries. Sales originating in each country except Saudi Arabia are shown separately in table 3. Sales for Saudi Arabia separately, and, hence, the sum of sales for the five countries combined, are not shown in order to avoid disclosure of data for individual companies (one affiliate accounted for most of the sales originating in Saudi Arabia). Sales originating in Saudi Arabia, however, accounted for a very large share of the $52 billion of sales in "other" Middle East OPEC (line 66); these sales, of course, were almost entirely by affiliates of U.S. petroleum parents. Affiliates of petroleum parents accounted for well over 60 percent of affiliate sales originating in the five developing countries. (In contrast, in the top five developed countries, petroleum accounted for about one-fourth of the total.) In both Saudi Arabia and Iran, which are members of OPEC, the share of petroleum exceeded 90 percent. In Bermuda, petroleum accounted for 72 percent of the total; this large share reflected sizable sales by affiliates of petroleum parents that were engaged in financial activities on behalf of their U.S. parents. (In Bermuda, the largest industries after petroleum were trade, and finance and insurance (included in "other"); Bermuda is one of the several countries that, for various business reasons, including tax minimization, were favored by U.S. parents as locations for their captive trade, finance, and insurance affiliates.) In Brazil, the share of petroleum was 23 percent, and, in Mexico, it was less than 5 percent, respectively, of affiliate sales originating in each country. The share of affiliate sales in Mexico was particularly low because most petroleum activity there is reserved to a government-owned company. Affiliates of U.S. manufacturing parents accounted for roughly 20 percent of total affiliate sales originating in the five countries. In Brazil and Mexico, the shares of manufacturing were 67 and 81 percent, respectively, and in each of the other three countries, less than 7 percent. In both Brazil and Mexico, the largest manufacturing industry was chemicals, with transportation equipment almost as large. Except in Bermuda, the share of affiliate sales in the remaining industries (trade and "other") was less than 10 percent of the total. In Bermuda, affiliates of parents in the finance (except banking), insurance, and real estate industry (part of "other") accounted for 17 percent of affiliate sales originating there. Sales by Destination As noted previously, all MNC sales could not be distributed by destination, because the benchmark survey obtained sales by destination only 39 for MOFA's, but not for minority-owned foreign affiliates or for U.S. parents. For U.S. nonpetroleum parents, however, sales by destination could be derived. This section first discusses the effect on the data of excluding minority-owned affiliates, and explains the derivation of sales by destination for U.S. nonpetroleum parents of MOFA's. For those parents and for all MOFA's, it then analyzes sales to the United States and to major foreign destinations. The data Exclusion of minority-owned foreign affiliates.--Table 4 shows that, after excluding minority-owned affiliates, and, for consistency, parents that had only minority-owned affiliates, from the MNC's, the remaining affiliates (the MOFA's) and their parents accounted for well over three-fourths of total MNC sales in each major industry group, and in each major area of origin except Japan. In Japan, coverage was only 26 percent, reflecting barriers there to majority foreign ownership of Japanese businesses. Derivation of sales by destination for U.S. nonpetroleum parents.-Because data on nonlocal sales by U.S. parents were not available from the benchmark survey, data on the parents1 merchandise export shipments (which were available) were used as a rough approximation of their nonlocal sales. The U.S. parents1 local sales then were estimated by subtracting their export shipments from their total sales. The resulting estimates by destination of U.S. parents1 nonlocal sales are rough. Parents1 exports cover physical shipments of goods across the U.S. customs frontier, irrespective of to whom the goods were charged. Parents1 nonlocal sales, in contrast, cover all sales of goods and services charged to foreign countries, irrespective of whether the goods were actually shipped from the United States to, or the services were actually performed in, those countries. This method of estimating the destination of U.S. parents1 sales was used in each industry except petroleum. The destination of sales by U.S. petroleum parents could not 1 estimated by this method, because the evidence be indicated that these parents nonlocal sales generally were much larger than their export shipments. Their nonlocal sales were often resales of petroleum previously purchased from foreign sources. In many cases, the petroleum was shipped directly from a foreign supplier to a foreign purchaser, but was charged (sold) by the foreign supplier to the U.S. parent rather than to the foreign purchaser directly; the parent, in turn, billed the foreign purchaser. (This was particularly likely if the foreign supplier or the foreign purchaser, or both, were affiliated with the parent.) The sale by the parent to a foreigner would have been recorded in the benchmark survey as 40 Table 4.—Comparison of Sales by U.S. MNC's With Sales by U.S. Parents of MOFA's and Their MOFA's, 1977, by Industry of U.S. Parent and by Area of Origin U.S. MNC's Line (1) 1 Total sales 2 By U.S. parents--3 By foreign affiliates 4 5 6 7 8 9 10 11 12 13 14 By industry of U.S. parent: Petroleum Manufacturing Trade Other By area of origin: United States Canada Europe Japan Australia, New Zealand, and South Africa Latin America Other - Millions of dollars Other U.S. U.S. parents parents, and all Column 2 of MOFA's and minority-owned as a percentage their MOFA's foreiqn affiliates of column 1 (2) (3) (4) 2,060,262 1,412,293 647,969 1 ,832,565 1 ,325,546 507,019 227,700 86,747 140,950 88.9 93.9 78.2 474,635 1,037,157 228,750 319,721 421,754 930,209 190,795 289,805 52,881 106,948 37,955 29,916 88.9 89.7 83.4 90.6 1,412,293 94,876 276,275 51,895 1,325,546 84,659 220,213 13,232 86,747 10,217 56,062 38,663 93.9 89.2 79.7 25.5 25,970 73,287 125,667 20,233 58,208 110,475 5,737 15,079 15,192 77.9 79.4 87.9 MNC Multinational company. MOFA Majority-owned foreign affiliate. NOTE.--In this table, data for U.S. MNC's are only for nonbank MNC's; data for U.S. parents are only for nonbank parents of nonbank affiliates; and data for affiliates are only for nonbank affiliates of nonbank parents. MOFA's are defined as affiliates that were owned more than 50 percent by all U.S. parents combined and that had assets, sales, or net income over $3 million in 1977. 41 part of total sales by the parent; however, no export to or from the United States would have been recorded, because the petroleum did not cross the U.S. customs frontier—it was not actually shipped to or from the United States. 5/ Sales by U.S. petroleum parents were $220 billion. When these sales were excluded from total parent sales, sales by the remaining (nonpetroleum) U.S. parents were $1,106 billion. Sales by all MOFA's (whether of petroleum or of nonpetroleum parents) were $507 billion. Thus, sales by those two subsets— which are analyzed in this and subsequent sections of the article—together covered $1,613 billion, or 88 percent, of sales by all U.S. parents of MOFA's and their MOFA's. Industry and destination of sales by U.S. nonpetroleum parents Local sales (sales to U.S. customers) accounted for 92 percent of nonpetroleum parents1 total sales of $1,106 billion (table 6 ) . In each major nonpetroleum industry, the bulk of sales—about 90 percent in manufacturing and in trade, and nearly 99 percent in "other11 industries—were local. The larger share in "other" reflected the inclusion of large service-type subindustries—mainly insurance, communication, public utilities, and services. Most sales in these subindustries probably were local because they often depended on proximity to customers 1 familiarity with local customs and and opportunities. Also, because parents local sales were calculated as the difference between the parents1 total sales and their exports of merchandise, all parent sales of services were forced into local sales. Nonlocal sales by U.S. nonpetroleum parents were $84 billion. Of the total, sales to Canada were $18 billion, nearly all in manufacturing (tables 7A and 7B). Within manufacturing, sales in transportation equipment—mainly automotive—were by far the largest (table 7B, line 62, column 4 ) . (These sales—mostly to Canadian MOFA's of U.S. automotive parents—were approximately offset by sales by the Canadian MOFA's to the United States. The fact that these automotive sales to Canada were approximately equal to those from Canada is attributed to the operation of the 1965 U.S.-Canadian automotive agreement, which encouraged expansion of automotive trade in both directions.) Sales to Europe were $27 billion, larger than those to any of the other major foreign areas (table 7A, line 17, column 5 ) . Within Europe, sales to 5. The dollar amounts involved in transactions in which U.S. parents sold petroleum to foreigners, but did not ship the petroleum from the United States, apparently were large. Partial data by area of destination provided informally by some large petroleum parents during a prepublication review of the benchmark survey results showed that they charged $57 billion of sales to foreigners; in contrast, export shipments reported by all petroleum parents were less than $5 billion. Thus, at a minimum, there were $53 billion of parent sales to foreigners that did not result in parent export shipments of petroleum (table 5 ) . Because of their partial coverage, the data on petroleum parents1 sales probably seriously understated actual nonlocal sales by all petroleum parents. 42 Table 5.—Partial Estimates of Nonlocal Sales and U.S. Export Shipments by U.S. Petroleum Parents, 1977 (Millions of dollars) Total Reported U.S. export shipments of U.S. petroleum parents (1) Line 1 2 3 4 5 Known nonlocal sales by U.S. petroleum parents that were not shipped from the United States All areas Canada Europe Other Not distributed by area — (2) (3) 57,506 1,466 21,920 26,625 7,495 52,710 1,040 20,659 23,516 7,495 4,796 426 1,261 3,109 — None. NOTE.—Data in column 3 are from the benchmark survey. They were known not to overlap with the data on nonlocal sales by U.S. petroleum parents shown in column 2. The latter were obtained informally from some, but not all, U.S. petroleum parents during the prepublication review of the benchmark survey data. Because of their partial coverage, these data underestimate U.S. parent sales abroad to some unknown extent. 43 Table 6.—Total, Local, and Nonlocal Sales by U.S. Parents of MOFA's and Their MOFA's, 1977 Millions of dollars U. and S. foreign destinations Total A 1 2 3 4 Sales by U.S. parents 1 / Nonpetroleum, total Manufacturing Trade Other 5 Sales by MOFA's 6 7 8 9 10 11 12 13 14 15 16 ilL JL3L Local and nonlocal sales Local sales Nonlocal sales To To United other States areas Total Sales to United States J1L J5JL J2L By industry of parent: Nonpatroleum, total Manufacturing Trade Other Petroleum - 3,067 n.a. 93,574 100,138 18.5 81.5 22,726 19,680 1,470 1,576 70,848 70,770 52,701 12,006 6,062 29,368 7.5 8.5 4.4 4.1 35.0 By area of location of MOFA: Canada Europe Japan Australia, New Zealand, and South Africa Latin America Other 14,659 7,791 (D) 3,599 66,820 (D) 11,092 59,230 n.a. 1,021,560 632,993 140,691 n.a. 84,430 64,811 16,552 247,876 3,067 247,876 3,067 n.a. n.a. n.a. n.a. n.a. 507,019 93,574 413,445 313,307 193,496 22,726 19,680 1,470 1,576 70,848 282,095 212,725 32,083 37,287 131,351 84,659 220,213 13,231 14,659 70,000 7,791 212,422 (D) (D) 20,233 58,208 110,475 (D) 11,092 59,230 (D) 47,117 51,244 211,325 160,024 20,076 31,225 101,982 93,496 72,381 13,476 7,638 100,216 66,402 18,258 145,603 74,611 12,274 957 17,780 '2,453 36,786 21,421 34,463 76,012 Q2L n.a. 92.4 90.7 89.5 98.8 n.a. n.a. 84,430 64,811 16,552 304,821 232,405 33,552 38,863 202,198 Local sales n.a. 7.6 9.3 10.5 1.2 n.a. .n.a. 1,021,560 632,993 140,691 219,556 - Sales to other areas Local and nonlocal sales n.a, 92.4 90.7 89.5 98.8 n.a. 1,325,546 1,105,990 697,804 157,243 250,943 - Petroleum 1 / B - Sales to other! areas JLU Line Sales to United States Percent distributions U.S. and foreign destinations n.a. Nonlocal sales To To United other areas Total States (11) 61.8 n.a. 7.6 9.3 10.5 1.2 n.a. 38.2 n.a. 18.5 92.5 91.5 95.6 95.9 65.0 69.3 68.9 59.8 80.3 50.4 30.7 31.1 40.2 19.7 49.6 7.4 8.5 4.4 4.1 35.0 17.3 3.5 (D) 82.7 96.5 (D) 78.4 66.1 92.8 21.6 33.9 7.2 17.3 3.5 (D) (D) (D) 10,329 19.1 16,782 53.6 (D) 80.9 46.4 87.9 63.2 31.2 12.1 36.8 68.8 (D) 19.1 53.6 n.a. 84,430 64,811 16,552 (D) MOFA Majority-owned foreign affiliate. n.a. Not available. iD Suppressed to avoid disclosure of data of individual companies. — None, by definition. See text for explanation. 1. A distribution by area of destination of sales by U.S. petroleum parents is not available. NOTE.--In this table, data for U.S. parents are only for nonbank parents of nonbank affiliates and data for affiliates are only for nonbank affiliates of nonbank parents. MOFA's are defined as affiliates that were owned more than 50 percent by all U.S. parents combined and that had assets, sales, or net income over $3 million in 1977. (12) n.a. n.a. 7.6 9.3 10.5 1.2 n.a. 19.8 23.2 22.7 35.8 15.6 14.5 4.3 30.3 (D) (D) 17.7 15.2 Table 7A.— Sales by U.S. Parents of MOFA's and by their MOFA's, 1977, Selected Industry of U.S. Parent and Area of Origin by Area of Destmatic •I Canada lands Line <1> <2> <3> (4) (5) <6) (7) (8) Kingdom (9) (10) Europe (11) South Africa (12) (13) area: (14) (15) All industries: Located in: 70 6 11 56/680 12 13,232 2,178 54,503 162 12,860 38 47,794 139 (D) (D) (0) 28 71 763 65 United Japan and Kingdom , 605 161,885 22,073 36,133 9,919 11,696 39,687 79 67 131 747 54 120 235 44 (0) 347 (0) 2,097 D) 87 372 1,801 1,616 0) 28,095 60 1 2 , 2 7 4 117 1,514 1,271 989 395 3,663 17,994 145 237 (0) (D) 144,114 332 270 7,866 730 1,501 456 (0) 1,258 (0) 3,549 . . . . Soutl 38,217 36,094 Italy . Netherl United 157,243 Located 1 4 0 , in: Canada . . . . Europe . . . . 7,395 1,389 Japan and 6,762 356 (D) 3 1,305 '803 493 South Afr 1,183 989 (D) (D) (D> (0) (0) (D) 52 (0) 858 3,833 (0 ) (D) (0) (0) 3 (D) <D) <D) 12,743 3,938 Italy 12,597 3,727 (0) 616 3,271 1 37 20 (D) 2,996 16 (D ) (D) (0) (D) (D> (D) (0> 3,000 6,436 11,843 4,148 5,374 Japan and South i M F Majority-owned foreign a f f i l i a t e . OA n.a. Not available. See text for explanation. * Less than $500,000 ( + ) . " Suppressed to avoid disclosure of data of Individual companies. NOTE.—In this table, data for U.S. parents are only for nonbank parents of nonbank a f f i l i a t e s and data for a f f i l i a t e s are only for nonbank a f f i l i a t e s of nonbank parents. MOFA's are defined as a f f i l i a t e s that were owned more than 50 percent by a l l U.S. 3 parents combined and that had assets, sales, or net Income over $3 million In 1977. 69 ( 0 ) (0) (D) (0) (D) (*) (D) (0) 1 (0) 2 11 (D) (D> 13 (D) (D) (D) D) r>) D) D) D) n> Table 7B.—Sales by U.S. Parents of HOFA's and by Their MOFA's, 1977, Selected Manufacturing Industry of U.S. Parent and Area of Origir by Area Of Destination ( M i l l i o n s of dollars) Foreign Total Canada Europe New Zeal a n d , and South <1> <2) 1,945 2/159 776 1,223 3,254 2,005 Germany Italy . . Netherla United K Other Eu (3) (4) (5) (6) (8) <9> (10) (11) (12) (13) (14) developing areas (15) 1,827 12 192 2,398 768 1,130 1,218 (7) America 1,977 64 6 646 1,337 5,691 23 5,523 2,124 40 27 1,160 1,829 55 3,860 154 103 239 339 1,145 28 1,766 96 1,823 2,095 Located in: 5,871 169 5,703 (D) 5,297 411 73 228 571 70 97 6,771 10 (*) 2,627 (*) (D) 2,477 943 (D) (*) 1,663 1,748 (*) 1,003 1,360 74 5 Other japan . 5,137 945 335 335 3,732 3,718 710 630 Italy Netherlands . . United Kingdoi Other Europe 615 5,777 595 1,623 230 715 1,604 1*310 670 1,666 277 1,534 Ja pan . . . . . . A u s t r a l i a , I lew Zealand, and South , Other develi ipmg areas , 179,995 141,747 38,248 Other manufactui By U.S. paren By MOFA's . . . 9,290 20,245 3,061 4,059 1,262 1,700 5/036 5,128 France Italy — Z I I I I I I — ZIII Netherlands United Kingdo Other Europe 44,810 9,566 35,244 23,294 3,831 19,463 1,682 4,939 4,976 1 35,186 132,181 3,004 375 18,787 2,896 3,918 1,193 1,513 4,631 4,636 4,422 2,927 2,172 153 1,500 1,314 4,326 215 3,169 1,456 1,232 535 and South A f r i c a , L a t i n America , Other d e v e l o p i n g areas 105 1,822 4,361 1,996 (D) (D) (D) (D) MOFA Majority-owned foreign affiliate. n.a. Not available. See text for explanation. * Less than $500,000 (+). D Suppressed to avoid disclosure of data of individual companies. NOTE.—In this table, data for U.S. parents are only for nonbank parents of nonbank affiliates and data for affiliates are only for nonbank affiliates of nonbank parents. MOFA's are defined as affiliates that were owned more than 50 percent by all U.S. parents combined and that had assets, sales, or net income over $3 million In 1977. 46 (D) 17 (D) 92 162 11 6,867 (0) 74 Germany, the United Kingdom, and the Netherlands were particularly large. In most major European countries, the bulk of the sales were by U.S. manufacturing parents; however, in the Netherlands and Switzerland (part of "other Europe"), trade parents accounted for a sizable part of the total; sales by parents in other nonpetroleum industries were small. Sales to Japan were $7 billion; manufacturing and trade parents each accounted for nearly one-half. Sales to Australia, New Zealand, and South Africa were $3 billion, and were mostly by manufacturing parents. Sales to Latin America were $10 billion, and were mostly by manufacturing parents; trade parents accounted for most of the remainder. Within Latin America, the destinations with the largest sales—more than $2 billion each—were Mexico, Venezuela, and Brazil. Sales to "other developing" areas were nearly $19 billion: manufacturing parents accounted for about three-fourths, and trade parents for most of the remainder. Within the "other developing" areas, roughly one-half of the sales were to members of OPEC; most of the remainder were unclassified by area of destination, but were included in this article in "other developing" areas (these were low-value export shipments for which destination data were not obtained in the benchmark survey in order to reduce the reporting burden). 6/ Industry and destination of sales by MOFA's Of the $507 billion of sales by all MOFA's, $202 billion were by MOFA's of U.S. petroleum parents and $305 billion were by MOFA's of nonpetroleum— mainly manufacturing—parents (tables 6 and 7A). In petroleum, the distribution between local and nonlocal sales differed sharply from that in nonpetroleum industries. In petroleum, one-half of sales were local, roughly one-fourth were to the United States, and one-fourth to third countries (countries other than the United States or that of the seller). In contrast, in nonpetroleum industries, 69 percent of sales were local, 7 percent were to the United States, and 23 percent were to third countries. In each of the nonpetroleum industries, nonlocal sales were a much higher proportion of total sales by MOFA's than by their U.S. parents. The higher proportion for MOFA's may have reflected several factors. First, MOFA's may need to produce for external markets, in order to attain more efficient scales of operation than would have been possible by producing mainly for their local markets. In contrast, many parents could attain efficient scales of operation by producing mainly for the U.S. market. Second, a major part of MOFA's nonlocal sales were by affiliates located in Europe, particularly in the EC(9). Preferential trade arrangements among the EC(9) member countries encouraged sales among the members. This contributed to a relatively high ratio of nonlocal to total sales by European MOFA's. Third, 6. These low-value shipments are discussed separately in Betty L. Barker, U.S. Merchandise Trade Associated with U.S. Multinational Companies, in this collection of articles. 47 to obtain approval to operate in certain countries, some foreign affiliates agreed to sell part of their output abroad; also, in certain countries, some affiliates were offered incentives, such as increased availability of foreign exchange, to purchase imported parts and supplies, if they would meet export goals. Sales by Canadian MOFA's were $85 billion. The destinations of about three-fourths of the sales were local. Most of the remainder were to U.S. customers; sales to Europe were only 2 percent, and sales to other destinations were even smaller. By industry of U.S. parent, sales by MOFA's of U.S. manufacturing parents were more than one-half of the total; within manufacturing, sales in transportation equipment were particularly large, chiefly because of the previously noted U.S.-Canadian automotive agreement. Petroleum accounted for about 16 percent of the sales, which were primarily local; most of the remainder were to the United States. Sales by MOFA's located in Europe were $220 billion. The destinations of nearly two-thirds of their sales were local. More than one-third were nonlocal, and were mostly to other European countries. 7/ The main destinations of sales outside Europe were the OPEC members in "other developing" areas, which accounted for less than 5 percent, and the United States and Latin America, each of which accounted for roughly 2 percent, of the total. By industry of U.S. parent, manufacturing accounted for nearly threefifths of total sales by European MOFA's; these sales were chiefly local. Petroleum accounted for nearly one-fourth of the sales (table 7A, lines 5 and 80); rpost of these sales were local, partly because major refining and distribution affiliates were located in Europe specifically to serve European markets. Also, some of the crude petroleum and natural gas produced in Europe, especially in the North Sea area, was sold to European customers. Sales to the United States were relatively small and, for the most part, consisted of petroleum that was subsequently resold to foreign customers by U.S. petroleum parents. (In such cases, the European MOFA's usually would not actually ship the petroleum to the United States, but instead would ship it directly to foreign customers of the U.S. parents.) Sales in trade and "other," which were much smaller than the sales in petroleum, were also chiefly to European destinations. Sales by MOFA's located in Japan and Australia, New Zealand, and South Africa were, respectively, $13 and $20 billion; in each area, the bulk of the sales were local. By industry of U.S. parent, roughly three-fifths of sales 7. Because local sales covered only the sales where seller and customer were in the same country (as opposed to the same area or region), local sales in Europe would have included, for example, sales by a French MOFA to a French customer, but would have excluded sales by a French MOFA to a German customer. 48 by Japanese MOFA's were in petroleum, and three-fifths of sales by MQFA's in Australia, New Zealand, and South Africa were in manufacturing. Sales by Latin American MOFA's were $58 billion, of which nearly twothirds were local and one-fifth to U.S. customers. Sales to European customers and to nonlocal customers in Latin America each were less than 8 percent of the total. By industry of U.S. parent, nearly one-half of total sales by Latin American MOFA's were in manufacturing; these sales were chiefly local. Petroleum accounted for 40 percent of the total; of these sales, 60 percent were nonlocal. (In contrast, sales by European and Canadian MOFA's of petroleum parents were chiefly local.) The nonlocal sales in petroleum were primarily to parents, by MOFA's in Bermuda and the other Caribbean islands, for resale to foreign customers (most of the petroleum was shipped directly to the foreign customers rather than to the United States). The local sales in petroleum were mainly by MOFA's in South America—chiefly Brazil. Sales by MOFA's located in "other developing" areas were $110 billion; more than two-thirds were nonlocal. These nonlocal sales were mainly to the United States and, to a lesser extent, to third countries in "other developing" areas. Most of the nonlocal sales originated in the African and Middle Eastern members of OPEC. By industry of U.S. parent, petroleum accounted for 85 percent of the sales originating in "other developing" areas. More than one-half of these sales were to U.S. parents; as was the case with sales by European MOFA's to their U.S. petroleum parents, most of the petroleum from "other developing" areas was not actually shipped to parents, but instead was shipped directly to the parents' foreign customers. Manufacturing and "other" accounted for 8 and 5 percent, and trade for less than 1 percent, of the total. Sales by Affiliation Between Seller and Customer This section distributes sales by U.S. nonpetroleum parents of MOFA's, and by all MOFA's, (the same subset just discussed by area of destination) into sales to affiliated and to unaffiliated customers. Affiliated customers are those that are members of the same MNC as the seller; all other customers are unaffiliated. To affiliated customers By'U.S. nonpetroleum parents.—Sales by U.S. nonpetroleum parents to affiliated customers were only $28 billion, or 3 percent, of their sales to all customers. All of these sales were to their own MOFA's because, by 49 definition, a U.S. parent has no sales to affiliated U.S. (domestic) customers. 8/ The sales to MOFA's were roughly one-third of the parents1 total sales to foreign customers (table 8 ) . About one-third of the sales to MOFA's were by U.S. auto manufacturers to their Canadian MOFA's; very few sales to other foreign areas were to affiliated customers. By MOFA's.—Sales by MOFA's to affiliated customers—either their U.S. parents or other foreign affiliates of the parents—were $168 billion, about one-third of their total sales. 9/ The share of total sales to affiliated customers varied considerably by industry and area of destination. In petroleum, more than one-half of sales were to affiliated customers; this large share reflected the high degree of vertical integration in the operations of the petroleum MNC's, from crude oil production through refining, marketing, and distribution. By destination, a relatively small portion of their local sales, but most of their nonlocal sales, were to affiliated customers. Most of their sales to the United States were to parents, and most of their other nonlocal sales were to other affiliates. The large shares of MOFA sales that were to affiliated customers, both in the U.S. and third countries, primarily reflected an industrywide practice of channeling petroleum sales from MOFA's in petroleum-exporting areas through the parents, or through refining or distribution affiliates, to final customers in petroleum-importing areas. In nonpetroleum, about one-fifth of the $305 billion of sales by MOFA's were to affiliated customers. By destination, nearly all of the U.S. sales by MOFA's were to their own parents, and more than two-fifths of their sales to third countries were to other affiliates. (In contrast, most of their local sales were to unaffiliated customers.) Some of the nonlocal sales to affiliated customers probably reflected use of the customers' knowledge of local conditions and established marketing arrangements to penetrate markets in those areas. Also, they reflected specialization of production among members of an MNC in different countries. Thus, a German affiliate may produce some components and a British affiliate other components of a product; the components may be exported to yet a third country for assembly into a finished product. Such specialization tends to result in larger production runs, and more efficient operations, in each affiliate than otherwise would be possible. 8. In conformance with U.S. generally accepted accounting principles, each U.S. parent was asked to consolidate fully its domestic (U.S.) operations in reporting in the benchmark survey; the full consolidation was to include all domestic subsidiaries in which the parent had, directly or indirectly, a majority-ownership interest. Such consolidation eliminated sales among the domestic companies that were part of the consolidated parent. Domestic enterprises that were minority-owned by a parent were treated in the benchmark survey as unaffiliated. A parent, therefore, by definition, had no affiliated U.S. customers. 9. Sales to minority-owned foreign affiliates were included in MOFA sales to affiliated customers, but, for consistency with the treatment of sales to affiliated customers by U.S. parents, they should have been excluded. Unfortunately, sales by MOFA's to minority-owned foreign affiliates could not be separated in the benchmark data from their sales to other affiliates. Because these sales were small, their inclusion in sales to affiliated customers probably had little effect on the distribution of the data by affiliation. 50 Table 8.--Sales by Affiliation of Customer and by Industry of U.S. Parent, 1977 (Millions of dollars) U.S. and foreign destinations Total Line (1) Local and nonlocal sales Local sales Total (4) (5) Sales to United States (2) Sales to other areas (3) n.a. 1,021,560 1 2 3 4 5 Sales by U.S. parents Nonpetroleum, total To a f f i l i a t e d customers--To unaffiliated customersPetroleum 1,325,546 1,105,990 27,846 1,078,144 219,556 n.a. 1,021,560 1,021,560 n.a. n.a. 84,430 27,846 56,584 n.a. 6 7 8 Sales by MOFA's, total To affiliated customers--To unaffiliated customers- 507,019 168,023 338,995 93,574 84,155 9,419 9 10 11 Nonpetroleum, total To affiliated customers--To unaffiliated customers- 304,821 58,333 246,487 12 13 14 Petroleum, total To affiliated customers--To unaffiliated customers- 202,198 109,690 92,508 Nonlocal sales To other To United areas States (7) (6) n.a. 1,021,560 n.a. n.a. 84,430 27,846 56,584 n.a. n.a. n.a. 84,430 27,846 56,584 n.a. 413,445 83,869 329,576 313,307 34,115 279,192 193,712 133,909 59,803 93,574 84,155 9,419 100,138 49,754 50,384 22,726 18,048 4,678 282,095 40,285 241,809 211,325 9,733 201,592 93,496 48,601 44,895 22,726 18,048 4,678 70,770 30,553 40,217 70,848 66,107 4,741 131,351 43,584 87,767 101,982 24,382 77,600 100,216 85,308 14,908 70,848 66,107 4,741 29,368 19,201 10,167 MOFA Majority-owned foreign affiliate. n.a. Not available. See text for explanation. — None, by definition. See text for explanation. NOTE.--In this table, data for U.S. parents are only for nonbank parents of nonbank affiliates and data for affiliates are only for nonbank affiliates of nonbank parents. MOFA's are defined as affiliates that were owned more than 50 percent by all U.S. parents combined and that had assets, sales, or net income over $3 million in 1977. To unaffiliated customers Sales to unaffiliated customers accounted for the bulk of total sales, both by U.S. nonpetroleum parents of MOFA's, and by all MOFA's. They are, therefore, only summarized here because most of the points already made about total sales also apply to sales to unaffiliated customers. In some individual areas and industries, however, differences between sales to unaffiliated customers and total sales were substantial. To show these differences, table 9A gives sales to unaffiliated customers in the same detail by area and by industry as did table 7A for total sales; table 9B gives, for each area-industry cell, the sales figure in table 9A as a percentage of the comparable total sales figure in table 7A. By U.S. nonpetroleum parents.—Sales by U.S. nonpetroleum parents to all unaffiliated U.S. and foreign customers were $1,078 billion, 97 percent of total sales by the parents. The share was high because almost all of the parents1 total sales were local and, as noted earlier, all of their local sales were, by definition, to unaffiliated customers. In contrast, the share of the parents1 nonlocal sales that was to unaffiliated customers was considerably smaller—67 percent. 1 Sales to unaffiliated customers were especially large shares of parents sales to Japan and "other" areas, and especially small shares of their sales to Canada and the United Kingdom. By MOFA's.—Sales by MOFA's to all unaffiliated U.S. and foreign customers were $339 billion, 67 percent of their total sales. For most of the areas and industries shown in tables 9A and B, well over 90 percent of total local sales were to unaffiliated customers. 10/ In general, the shares of their nonlocal sales that were to unaffiliated customers were markedly smaller. This was particularly true, by area, of sales to the United States and, by industry, of sales by affiliates of petroleum parents. Technical Notes Estimation of U.S. parents' nonlocal sales In this article, U.S. nonpetroleum parents' export shipments were used as an estimate of their nonlocal sales; however, export shipments differed in concept, and could differ in amount, from sales. Exports were physical shipments of goods to foreign countries, irrespective of to whom the goods were charged. In contrast, nonlocal sales were all sales of both goods and services charged on the parent's books to foreign customers, irrespective of whether the goods were actually shipped from the United States or of where the services actually were performed. W. For individual countries, local sales are given in the line and column intersections in table 9A (the "diagonal" of the table). For example, for Canada, local sales were $64 billion (table 9A, column 4, line 4 ) . 52 Table 9A.—Sales to UnaffiHated Customers by U.S. Parents of MOFA's and by their MOFA's, 1977, Selected Industry of U.S. Parent and Area of Origin by Area of Destination (Millions of dollars) Total Canada Europe Japan lands (7) All (8) Kingdom land/ and South Africa Europe loping areas (9) (10) (11) (12) (13) (U> (15) 39/482 29/592 industries; Total . . 9/419 By MOFA's 529,576 64/106 161/870 22/915 38/911 13/600 9/934 36/983 39/528 16/672 17/855 168/317 22/294 356 3 156/550 21/514 22/251 20/074 38/041 13/068 337 181 9/454 36/060 37/677 (0) 12 (0) 25 12/005 10/300 37/768 37/437 124 340 265 1/023 107 848 510 1/580 11/370 261 223 768 7/406 298 1/295 319 34/282 1/102 315 1/126 2/190 31/669 42 118 (0) 57 157 (0) 32 (0) (0) (0) 22 11,826 Located i 170/205 22/345 38/388 12/505 10/881 76 38 30 44/282 1/008 11/980 20 11/960 18/745 Othe Japan 12/466 10/8S1 41/120 43/274 129 18/616 1/005 25/928 By U.S. parents 8y MOFA's Located Canada 20 21 22 23 57/354 127/954 16/745 27,824 8/700 8/453 606 (D) 73 293,393 56,584 241/309 57/371 5/378 51/994 137/564 17/693 119/970 (D) 127,348 (D) 27,751 (0) (0) (0) 51,579 (D) 3 18/490 (D) (D> 30/564 2/566 27/999 11/007 1/402 9/60S 10/096 2/732 7/364 30/719 2/104 28/615 36/788 (0) (D) 13/997 6/755 7/243 15/608 1/841 13/767 (D) 309 21 326 28/006 123 164 63 (0) (0) (0) 1/570 251 549 (0) (0) (D) (0) 25 (0) 1/D75 116/326 (0) 406 115 335 24/266 103 174 254 7/688 (0) 457 (0) 41J (0) 2/438 (0) 38 (0) (0) 326 2/025 16 1,324/631 1/026/238 17 1/078/144 1,021,560 18 246/437 4/678 466 ,,325 642 37/198 7/601 29/597 36/555 17/311 19,239 (0) 7/827 (0) (D) (0) (0) (D) (0) (0) (0) (D) 22 4/583 (D) 662 33 11 10/251 8/289 13/101 30/453 23/735 155 140 100 383 255 27 45 139 134 348 249 335 276 1/722 1/676 706 92 217 4/733 10/832 33 29 36 23/245 5 234 169 5/050 (D) 30/019 11/712 (0) (0) (0) (0) (D) (D) 853/287 216/888 39/593 101/718 15/267 23/316 3,290 36/100 95/804 14/152 21/962 7/135 34/532 166 825 89/346 13/521 21/358 6/771 5/938 24/108 22/511 12 124 (0) 37 6 / 1 4 422/573 26/129 10/673 35 36 37 38 38/804 96/036 14,178 21,999 7,144 5,944 2/704 2 32 22,582 13/777 12/350 275 101 21/284 272 19/387 89 7/337 156 16? 6/283 4/997 80 225 117 57 105 21/747 20/388 4/124 12,184 24,502 5/593 111 265 85 12,073 24,237 5/508 203 21/400 567 1/185 222 775 1/358 17/293 8 30 19 3 35 261 662 199 (0) 110 233 4/939 510 47 5,985 1/071 94 7 2,173 France (D) Italy 1,829 Un Other Eu (D) (0) (0) (0) 0 <D) (•) (0) 263 903 2,150 (0) 1,759 801 (0) (D) 109 (0) 1/930 (D) (0) 2 69 4 (0) (0) 2 39 (0) (D) (D) (D) (0) (0) 2,523 (0) 830 (D) 2 (*) (0) (D) Japan . . . . (0) (0) 0 (0) 2,393 (0) (*) (0) 3 (D) (D) (0) 994 (0) and South (0) 3th By U.S. parents 62 250/310 11/462 13/845 1,620 3,651 (D) 681 ,836 793 247/876 11,043 13,770 (0) (0) (D) (0) (D) 3/421 10,393 ) 12 /227 ) 3 ,462 (0) 590 (D) 59 2 470 6 (0) 336 ) (0) (0) (D) (D) > 1 ) ) ) ) ) ) 1 ) > 0 (D) (0> 3/085 (0) (D) 2/949 (0) 574 ) 3 ,035 (0) (0) 70 3,059 (D) 17 3 (0) 19 (D) (0) (0) (0) (0) (0) (D) (0) (D) (0) (0) (0) (D) (D) (D) (0) (D) 326 (0) (0) (0) (0) (0) (0) (0) (0) (0) 2,862 (0) 12 36 (*) (D) (0) 11 9 (0) (•) (0) 332 (0) 12 15 (0) (D> (0) (0) 1 ,263 (•) 4 (*) 2/399 3 Total . . . . By U.S. parents 12/504 42/251 5/600 10/564 3/804 2/428 9,131 7,247 (D) (D) (D) (0) 40 , 9 6 9 (D) 10 , 5 6 1 (0) (0) (0) (*) 2 82 (0) 3 12,018 3 (0) 59 40/224 (D) 10/557 3/765 2/406 8/370 (D) (D) (0) 116 25 (D) 65 3/682 3 (0) 5 2/081 (0) (0) 7/784 (0) (0) (0) 7,247 0 0 0 0 0 4/029 (0) (D) 1 (*) (0) (0) 4,029 (D) (D) (0) (D) (0) MOFA Majority-owned foreign a f f i l i a t e . n.a. Not available. See text f o r explanation. * Less than $500,000 ( + ) . 0 Suppressed to avoid disclosure of data of individual companies. NOTE.—In this t a b l e , data for U.S. parents are only for nonbank parents of nonbank a f f i l i a t e s and data for a f f i l i a t e s are only for nonbank a f f i l i a t e s of nonbank parents. MOFA's are defined as a f f i l i a t e s that were owned more than 50 percent by a l l U.S. parents combined and that had assets, sales, or net income over $3 m i l l i o n in 1977. 5 129 (0) (0) (0) 3,991 15 (0) Table 9B.-Sales to Unaffiliated Customers as a Percentage of Total Sales by U.S. Parents of MOFA's and by Their MOFA's, 1977, Selected Industry of U.S. Parent and Area of Origin by Area of Destination (Millions of dollars) Total Line *U (1) <2> (3) Canada (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) industries: Total .. 88.9 63.7 11 .2 2.2 11 78. 1 46.3 88.4 (D) (D) (D) (D) 12 90. 5 5.4 36.9 96.3 11.9 19.5 28.8 13 14 15 92. 6 72. 6 23. 5 30.0 15.9 3.4 94.0 36.0 46.6 59.8 17.3 13.2 83.0 61.9 27.9 93.9 97.5 80.9 98.3 100.0 20.6 81.4 67.0 85.7 79.1 30.1 95.0 77.9 65.6 83.1 81.1 79.0 75.9 76.9 87.7 (D) 16.2 9.6 (0) 80.5 76.9 (0) 88.9 95.9 (0) 7.4 12.8 (0) 80.7 77.0 79.3 (D) 78.9 92.6 26.1 34.6 Italy . . . . . . Netherlands Other Japan . 90.8 69.1 51.3 71.7 (0) 76.2 49.8 99.3 43.0 39.1 90.4 53.5 32.2 51 .4 9.8 88.1 66.4 36.0 87.5 82.5 (D) 94.9 35.9 (0) 85.5 91.3 40.1 81.7 49.4 47.2 80.7 61.2 83.1 93.5 87.6 38.8 78.6 72.4 79.6 74.9 73.6 75.4 81.1 52.0 84.6 74.7 (0) (D) 89.9 91 . 2 88.8 85. 6 60. 4 90. 6 87.4 73.5 91.9 89.3 92.0 87.0 (D) (D) 27.9 97.7 76.2 24.1 30.7 (0) 85.2 (D) (0) (D) (D) 40.4 (D) (0) 62.2 (D) (D) (0) 39. 9 3 8 . i, (D ) 42. 68.5 75.2 55.6 42.5 87.6 78.4 (D) 94.3 (D) 90.7 (D) 36.9 94.0 12.4 19.5 (D) 56.5 87.4 94.9 97.3 86.4 81.4 Njnpet roleuw: Total By U.S. pare By MOFA's . . located Canada France Germany Italy . 83.4 21.7 97.1 38.1 (0) 85.2 31.9 (D) 13.3 23.1 26.1 (D) 44.7 82.5 93.5 (D) ng, (0) (D) 48.1 54.7 69.6 57.7 (D) (D) (D) (0) 74. 6 21. 9 6 .9 85 . 8 78.1 82.3 73.6 74.7 74.3 77.7 76.2 68.8 78.3 70.5 86. 3 83. 9 86 . 7 87 . 2 20.1 96.7 16.2 8.6 38.8 32.9 20.1 41 . 9 35.0 35.0 21.3 56.6 74.8 52.7 88.2 86.2 84.3 total 35.4 36.1 (0) 37.6 By MOFA's Located i 4.4 67.0 79.2 75.1 Netherlands United Kingd Other Europe 34.3 81.2 66.0 11 .4 10.7 90.2 (D) 79.1 55.3 100.0 (D) 100.0 94.7 4.5 99.3 100.0 92.3 91.3 (D) 94.8 96.1 91.7 91.3 6.8 99.6 98.7 19.8 57.8 (0) 99.6 91.8 (D) 100.0 100.0 (0) 83.8 (0) (D) (D) (D) (0) (D) 73.2 (D) (0) 99.8 (D) (D) 59.9 87.6 37.4 (D) 93.1 44.2 100.0 (0) (D) 96.1 69.2 95.9 96.2 99.8 (D) (0) 93.5 94 . 4 80.0 (0) 42 . 9 (D) (0) 5.7 0 (0) 0 98.5 99.7 99.7 100.0 71 (0) 92.0 (D) 91.6 56.2 85.6 (D) 91.3 99.2 94.2 52.1 90.1 78.4 91.7 83.4 84.? 90.1 90.8 98.0 92^0 97^ 42.2 (0) 21.6 97.8 (D) 87.0 94.0 (D) (0) 86.4 84.7 99.1 0 (D) (D) 72 89.1 91 . 9 66.7 99.4 (0) 30.1 92.2 54.1 93.9 70.3 94.3 Othe 91.5 79.3 .4 75.4 (0) Other, By U.S. pi (0) 4.7 (D) 92.1 97.9 J apan 100.0 100.0 100.0 (0) 97.9 100.0 99.2 (D) (0) (0) Petroleum: By U.S. pa By MOFA's 87.0 69.3 66.4 61.7 (0) 89.9 86.2 77.1 31.2 (D) 75.5 95.4 (0) 94.3 78.2 100.0 89.3 100.0 87.5 100.0 (D) (D) 71.2 88.9 69.7 99. 5 (D 100.0 97.2 (D) 19.9 70.8 50.3 99.7 (D) 89.2 91.7 (D) 13.0 (0) 95.6 (0) 90.6 (D) 62.4 62.1 92.4 54.0 83.7 98.2 45.1 (D) (D) (D) 42. (D (D) (0) (D) 88.5 97.2 71.0 54.4 68. U 86 74. 7 61 .4 (D) 75.8 99.9 (0) 63.1 (0) 35.0 56.0 21.3 48.1 5.3 44.5 40.7 (D) 75.1 (0) (D (D 99.8 93.9 (D) 52.9 11.7 66.3 7.6 93.5 (D) . . . . . . . . . . . . . . . . . <0) (D) 31 .6 100.0 97.2 98.6 97.1 100.0 99.8 94.0 99.8 90 Europe 90.9 89.7 82 83 Other 66.8 79 15.1 (D) (D) 4.1 22.6 33.3 18.4 (D) (D) 8.0 (0) 30.4 80.7 45.0 85.9 41.2 31.3 MOFA Majority-owned foreign affiliate, n.a. Not available. See text for explanation. D Suppressed to avoid disclosure of data of individual companies. NOTE.—In this table, data for U.S. parents are only for nonbank parents of nonbank affiliates and data for affiliates are only for nonbank affiliates of nonbank parents. MOFA's are defined as affiliates that were owned more than 50 percent by all U.S. arents combined and that had assets, sales, or net income over $3 million in 1977. 5 4 Although comparison of data on the two bases is not available for parents, it is for MOFA's (table 10). The MOFA data show that, for manufacturing and trade, percent differences between the two bases were small, but for petroleum and "other11, they were quite large; whether or not a similar relationship holds for parent data is not known. Consolidation rules applied in the benchmark survey The benchmark survey defined a U.S. parent as a fully consolidated U.S. domestic business enterprise. If incorporated, it consisted of (1) the U.S. parent corporation not owned more than 50 percent by another U.S. corporation, and (2) in each ownership chain under that parent corporation, any U.S. corporation more than 50 percent owned by the U.S. corporation above it in the ownership chain. All other U.S. corporations and all foreign business enterprises were excluded from the consolidation. In the reported sales of the consolidated U.S. parent, sales among the U.S. business enterprises included in the consolidation were eliminated, so that a parent's sales to U.S. persons consisted of its sales to U.S. business enterprises in which it had a minority ownership interest, plus its sales to U.S. persons in which it had no ownership interest. Both types of sales were considered sales to unaffiliated U.S. customers. Sales by a U.S. parent to foreigners consisted of its sales to foreign affiliates and to all other foreigners. Each foreign affiliate had to be reported on an unconsolidated basis, unless the recordkeeping system of the affiliate made this extremely difficult. In that case, foreign business enterprises could be reported on a consolidated basis if they were in the same country and industry, or were Integral parts of the same business enterprise. Relationship of sales data in this article to BEA's earlier published MNC sales data A previous article, "Worldwide Sales by U.S. Multinational Companies," published in the January 1973 Survey, presented sales for MOFA's and their parents for a sample of 298 U.S. MNC's; those data are not comparable with the data in the current article, which cover the direct investment universe. Also, an annual time series of universe estimates of sales by MOFA's covering years prior to 1977 was published in various past issues of the Survey. The universe estimates, obtained by expanding annual sample data to universe levels based on data from prior benchmark surveys, may not be fully comparable with data in the current article for 1977 because of the improved methodology applied in the 1977 benchmark (see the Methodology to U.S. Direct Investment Abroad, 1977, cited in the Introduction to this 55 Table 10.—Comparison of Export Shipments With Sales to the United States by MOFA's, 1977, by Industry of U.S. Parent (Millions of dollars or percent) Total Petroleum Manufac- Trade turing Other 93,573 70,848 19,680 1,470 1,575 38,000 16,552 18,816 1,493 1,138 55,573 54,296 864 -23 436 59.4 76.6 4.4 -1.6 27.7 Line 1 Sales to United States by MOFA's 2 Export shipments to United States by MOFA's 3 Difference: sales less export shipments 4 Percent difference (line 3 • line 1) — MOFA Majority-owned foreign affiliate. NOTE.—In this table, data are only for nonbank affiliates of nonbank parents. MOFA's are defined as affiliates that were owned more than 50 percent by all U.S. parents combined and that had assets, sales, or net income over $3 million in 1977. 56 collection of articles), and because some of the changes in the benchmark survey sales universe were not reflected in the annual sample for years prior to 1977. Affiliates1 sales by industry of affiliate and by industry of U.S. parent In this article, each parent, that is, the code largest. In effect, this classified by industry of MNC was assigned the industry code of the U.S. of the industry in which the parent's sales were meant that sales by the affiliates were also the parent. Table 11 compares the distribution of sales by affiliates (including minority owned) by industry of parent (lines) with that by industry of affiliate (columns). The intersection of a line and a column for the same industry gives sales by affiliates that were in the same industry as their parents. In general, most sales were by affiliates that were in the same industry as their parents. For example, in petroleum, sales by all affiliates of petroleum parents were $253 billion (line 3, column 1); of this total, $232 billion were supplied by petroleum affiliates of petroleum parents (line 3, column 3 ) . Only $20 billion were supplied by affiliates that were not themselves classified in petroleum. A comparison of the distribution of sales by industry of seller with that by type of product or service rendered is not given. The two distributions would differ because parents and affiliates often are diversified and have product or service lines outside their own major industries of classification. 57 Table 11.—Sales by Foreign Affiliates, 1977, Industry of Parent by Industry of Affiliate (Millions of dollars) Industry of affiliate Total Mining Petroleum Total Food and kindred products Chemicals and allied products Primary and fabricated metals Machinery, except electrical Electric and electronic equipment Transportation equipment Other Trade Finance (except banking), insurance, and real estate (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) Manufacturing Industry of parent Line All industries 2 3 4 5 6 7 8 9 10 11 12 13 Mining Petroleum Manufacturing Food and kindred products Chemicals and allied products Primary and fabricated metals Machinery, except electrical Electric and electronic equipment Transportation equipment Other Trade Finance (except banking), insurance, and real estate 647,969 1,880 252,878 297,697 27,340 49,347 25,076 46,228 24,472 75,035 50,198 45,044 25,054 25,416 9,611 1,634 (D) 5,945 0 327 4,228 (D) (D) (D) 89 (D) 1,142 (D) 237,346 246,325 25,604 43,326 71 20 0 0 231,573 2,269 6,876 222,426 22,503 39,347 16,601 29,765 13,043 61,908 39,259 4,074 (D) 5,956 36,777 (D) 906 447 221 (D) 268 290 153 106 3,175 9,620 3,310 20,035 (D) 2 150 32,099 (D) 484 151 335 2,151 378 17,798 53 1,145 13,609 1,250 305 635 802 547 835 (D) (D) 326 22,520 20,735 1,448 (D) 0 0 (D) 299 (D) 870 32,680 584 265 (D) (D) 1,232 D Suppressed to avoid disclosure of data of individual companies. NOTE.—Data cover nonbank minority- and majority-owned foreign affiliates and reconcile to affiliate sales data given in table 1. 33,046 69 290 661 24,498 764 4,251 1,566 160 Other (14) 57,788 44,200 102,997 14,746 36,945 0 0 (D) (D) 328 93 (D) (D) 41,847 586 2,265 (D) (D) (D) 617 34,874 601 25 2,605 57,864 3,574 8,176 2,516 14,636 9,281 10,616 9,065 39,293 (D) 1,070 2,558 116 237 163 119 108 1,487 329 625 (D) (D) 6,635 (D) 354 1,120 (D) 1,080 (D) 1,166 (D) (D) 241 815 554 2,234 978 22,326 15,012 56,372 (D) (D) (D) (D) 548 383 1,354 10,554 225 761 159 144 5,214 (D) (D) 54,681 9,939 2,014 (D) 17,388 By WILLIAM K. CHUNG Technology-Related Activities of U.S. Multinational Companies This article presents and analyzes two types of data on technologyrelated activities of U.S. multinational companies (MNC's) from the 1977 benchmark survey: (1) data on research and development (R&D), specifically R&D expenditures and R&D scientists and engineers, and (2) data on royalties and license fees. The first part of this article discusses R&D, including the industry distribution of U.S. parents1 R&D, U.S. parents1 R&D compared with the R&D of all U.S. businesses, the country and industry distribution of foreign affiliates1 R&D, and the intensity of, and growth from 1966 to 1977 in, R&D expenditures by U.S. parents and their foreign affiliates. The second part will examine royalty and license fee transactions between U.S. parents and their foreign affiliates, between U.S parents and other foreigners, and between foreign affiliates and other U.S. and foreign persons. The article will cover only nonbank MNC's. Also, the data for affiliates will cover only majority-owned foreign affiliates (MOFA's), and those for parents will cover only the parents of MOFA's. 1/ The coverage lost due to these data limitations is small. Bank parents and affiliates usually do not have significant technology-related activities, and MOFA's and their parents accounted for most of the technology-related activities of all nonbank MNC's. For example, MOFA's accounted for nine-tenths of the royalties and license fees of all nonbank affiliates of nonbank U.S. parents, and nonbank U.S. parents of nonbank MOFA's accounted for 98 percent of the R&D expenditures and 97 percent of the R&D scientists and engineers of all nonbank U.S. parents of nonbank affiliates. Highlights o Worldwide, U.S. MNC's spent $20.7 billion for R&D and employed 470,000 R&D scientists and engineers. o U.S. parents spent $18.6 billion, or nine-tenths of the MNC total. Most of the spending was in manufacturing, particularly in transportation equipment, nonelectrical machinery, and chemicals. Compared with the R&D performed by all U.S. businesses, U.S. parents accounted for a dominant share of the total. 1. MOFA's are defined as affiliates that were owned more than 50 percent by all U.S. parents combined and that had assets, sales, or net income over $3 million. NOTE.--Richard Mauery did the computer programming for the tables in this article. 59 R&D expenditures by MOFA's were $2.1 billion, or one-tenth of the MNC total. MOFA's in developed countries accounted for 93 percent and those in developing countries for about 7 percent. By industry of affiliate, most MOFA spending was in manufacturing. In all industries combined, the R&D intensity ratio for U.S. parents was 14, i.e., parents spent $14 on R&D per each $1,000 of sales. The R&D intensity ratio for MOFA's was 4—considerably below that for their U.S. parents. The lower ratio for MOFA's probably reflected the centralization of R&D activities in U.S. parents and the dependence of MOFA's on their parents for technology. From 1966 to 1977, R&D expenditures by MNC's grew at an average annual compound rate of 7.9 percent. The growth rate for MOFA's— 12.3 percent—was higher than that for U.S. parents—7.5 percent. Net receipts of royalties and license fees of U.S. parents from all foreign persons were $2.8 billion. Of the total, more than twothirds were from MOFA's. MOFA's had net payments of royalties and license fees of $2.0 billion. Transactions with U.S. persons, particularly parents, more than accounted for the total. R&D Activities of U.S. MNC's R&D consists of basic research for the advancement of scientific knowledge, applied research for the discovery of know-how that may have commercial application, and development of methods for translating the findings of basic and applied research into products or processes. R&D expenditures include all costs incurred by a company in conducting R&D for its own account, plus the cost of R&D conducted by others on behalf of the company, less the cost of R&D conducted for others by the company. R&D scientists and engineers are employees who have a collegelevel knowledge of science, engineering, or mathematics and who spend a majority of their working hours engaged in R&D work. Employment is defined as the average number of full-time and part-time employees on the payroll during the year. In 1977, R&D expenditures by U.S. MNC's worldwide were $20.7 billion, about 1 percent of total MNC sales (table 1). U.S. parents accounted for 90 percent, and their MOFA's for 10 percent, of the expenditures. By industry of U.S. parent, about nine-tenths of the spending was in manufacturing, and the remainder largely in petroleum, "other industries,11 and finance (except banking), insurance, and real estate. 2/ In trade and mining, expenditures were negligible. Within 2. MNC data are classified by industry of U.S. parent, because an MNC-wide industry code was not obtained in the benchmark survey. However, in most cases, the U.S. parent's industry was probably also the MNC-wide industry, because U.S. parents normally accounted for a large share of total MNC operations, and a majority of MOFA's were classified in the same industries as their parents. 60 Table 1.—Selected Data on R&D Activities of U.S. MNC's, U.S. Parents, and MOFA's, 1977, by Industry of U.S. Parent R&D expenditures (Millions of dollars) Al 1 industries Mining Petroleum Manufacturing Food and kindred products Chemicals and allied products Primary and fabricated metals Machinery, except electrical Electric and electronic equipment Transportation equipment Other manufacturing Trade Finance (except banking), insurance, and real estate Other industries (Number of employees) MOFA's R&D expenditures R&D scientists and engineers 469,707 406,662 63,045 10 13 (D) (D) 104 22 15 21,083 2,801 12 12 381,737 11,401 66,043 14,501 73,672 50,235 110,521 55,364 331,929 8,682 55,213 13,443 63,199 46,251 97,809 47,332 49,808 2,719 10,830 1,058 10,473 3,984 12,712 8,032 9 14 12 4 5 3 10 11 13 24 16 7 14 8 12 15 2,810 2,349 461 5,639 MOFA's MNC's 20,670 18,595 2,075 23 18 5 1,092 964 128 23,884 18,296 447 3,240 751 3,539 2,275 5,580 2,462 16,731 384 2,861 719 3,350 2,198 5,018 2,200 1,565 63 379 32 189 77 562 262 137 128 (D) (D) 162 (D) (D) 592 (D) (D) R&DResearch and development. MNC Multinational company. MOFA Majority-owned foreign affiliate. D Suppressed to avoid disclosure of data of individual companies. U.S. parents U.S. parents MNC's MOFA's as a percent of MNC's R&D scientists and engineers (D) 16 (D) 60 59 (0) 18 4 manufacturing, expenditures were high in transportation equipment, both electrical and nonelectrical machinery, chemicals, and "other manufacturing," and low in metals and in food. R&D scientists and engineers employed by U.S. MNC's worldwide totaled 470,000, less than 2 percent of total MNC employment. The distribution of R&D scientists and engineers between U.S. parents and MOFA's and among industries was similar to that of R&D expenditures. Thus, although both R&D expenditures and employment are shown in table 1 and subsequent tables, discussion will focus mainly on expenditures to avoid repetition. R&D of U.S. parents, by industry R&D expenditures by U.S. parents totaled $18.6 billion. As with MNC's worldwide, 90 percent of the spending by U.S. parents was in manufacturing. About 5 percent was in petroleum, 3 percent in "other industries," and less than 1 percent each in finance (except banking), insurance, and real estate and in trade. In mining, spending was insignificant. Within manufacturing, three industries—transportation equipment, nonelectrical machinery, and chemicals—accounted for more than twothirds of the total, and five industries—the above three, plus electrical machinery and "other manufacturing"—accounted for more than nine-tenths. Food and metals accounted for only about 2 and 4 percent, respectively. Spending in transportation equipment was $5.0 billion, or 30 percent, of the manufacturing total. About two-thirds was by U.S. parents manufacturing automotive products and most of the remainder was in aerospace. The spending in the automotive industry was probably mainly for body design and for development of fuel-efficient engines, pollution abatement equipment, and vehicle safety devices. It was partly in response to the shift in consumers1 preferences toward smaller cars in the wake of soaring petroleum prices. Spending in nonelectrical machinery was $3.4 billion. Nearly twothirds was by U.S. parents manufacturing office and computing equipment. The high spending reflected the rapid technological progress in this industry and strong competition that U.S. parents faced both in the United States and abroad. In chemicals, $2.9 billion was spent on R&D. The spending was concentrated in industrial chemicals—especially in the fast-growing petrochemical and plastic products industries—and in drugs—probably largely for development of new products. In electrical machinery and in "other manufacturing," $2.2 billion was spent. More than four-fifths of the spending in electrical machinery was accounted for by U.S. parents manufacturing radio, television, and communication equipment; in electronic components and 62 accessories, spending was relatively small. Nearly one-half of the spending in "other manufacturing11 was accounted for by U.S. parents manufacturing instruments and related products, particularly photographic equipment and scientific instruments; spending was also sizable in paper and in rubber products. R&D of U.S. parents and all U.S. businesses compared Table 2 shows R&D expenditures and the number of R&D scientists and engineers employed by all U.S. businesses and by U.S. parents. The data for all U.S. businesses are from the National Science Foundation (NSF). 3/ They differ significantly from the BEA data for U.S. parents in definition, industry coverage, and survey methodology. (See the technical notes for a discussion of these differences.) Consequently, the U.S. parent data exceeded the all-U.S. business data in several industries for R&D expenditures, and in total and most industries for the number of R&D scientists and engineers employed. However, these differences do not negate the primary conclusion of a comparison of the two data sets—i.e., that U.S. parent companies accounted for the bulk of both the R&D expenditures and R&D scientists and engineers employed by all U.S. companies. U.S. parents accounted for 96 percent of the $19.4 billion of R&D expenditures by all U.S. businesses. Within manufacturing, parents1 shares were particularly large in transportation equipment, nonelectrical machinery, and chemicals. In no industry within manufacturing was the parents1 share below 90 percent. The data on R&D expenditures for all U.S. businesses and for U.S. parents discussed thus far cover only those expenditures that were company-funded. In addition to company-funded R&D expenditures, BEA's benchmark survey also collected data on federally funded R&D expenditures by U.S. parents. Such data are compared with NSF data for all U.S. businesses in table 3. Federally funded R&D expenditures by all U.S. companies were $10.5 billion in 1977; U.S. parents accounted for three-fourths--$7.9 billion—of the total. Parent shares varied among industries. They were relatively high in primary and fabricated metals and in nonelectrical machinery, and low in chemicals and in transportation equipment. It is not surprising that U.S. parent companies dominated R&D activity in the United States. U.S parents are among the largest and most technologically advanced companies in the United States. Exploitation of technological advantages has enabled them to expand their markets, often by investing abroad. Also, because of their size, U.S. parents, to a greater extent than other U.S. firms, can derive the benefits of economies of scale in their R&D activities. 3. See footnote to table 2 for data sources. 63 Table 2.--R&D Expenditures and R&D Scientists and Engineers of All U.S. Businesses and U.S. Parents, 1977, by Industry R&D R&D expenditures J/ scientists and engineers (Millions of dollars) (Thousands of employees) All U.S, U.S. All U.S. U.S. businesses parents businesses parents Al 1 industries 19,407 18,595 393 407 2/ 371 Manufacturing 18,059 2/ 17,100 369 2,956 2,861 47 55 Chemicals and allied products 856 719 15 13 Primary and fabricated metals 3,391 3,350 57 63 Machinery, except electrical 3,238 2/ 2,567 85 2/ 86 4,520 5,018 108 98 Electric and electronic equipment 3,098 2,584 56 56 Transportation equipment 36 1,348 25 1,495 Other manufacturing 842 964 10 21 Nonmanufacturi ng 506 531 15 15 Petroleum extracting and refining Other 3/ R&D Research and development. 1. The definition of R&D expenditures by all U.S. businesses differs from that by U.S. parents. See the technical notes for discussion. 2. These numbers differ from those in other tables due to the reelassification by industry of two U.S. parents in order to improve comparability of BEA and NSF data. 3. Data for both all-U.S. businesses and U.S. parents include mining; trade (including petroleum wholesale trade, retail trade, etc.); finance, insurance, and real estate; and "all other industries." Within finance, banking is included in the data for all U.S. businesses, but excluded from those for U.S. parents; within "other industries," the data for all U.S. businesses exclude, but those for U.S. parents include, "agricultural production," and "motion pictures." Source: Data on R&D expenditures for all U.S. businesses were obtained from National Science Foundation, Research and Development in Industry, 1978: Detailed Statistical Tables (NSF 80-307), p. 14, except that data for "transportation equipment" were from the 1977 issue of the same publication (NSF 79-313), p. 12, because data for this industry were incomplete in the 1978 issue. 64 Table 3.--Federally Funded R&D Expenditures by All U.S. Businesses and U.S. Parents, 1977, by Industry (Millions of dollars) All U.S. businesses All industries U.S. parents 10,521 7,938 Manufacturing 10,030 Chemicals and allied products 300 Primary and fabricated metals 70 Machinery, except electrical 576 Electrical and electronic equipment... 2,699 Transportation equipment 5,977 Other manufacturing 408 JJ 7,501 66 163 1,083 \J 1,302 4,679 208 Nonmanuf acturing Petroleum extracting and refining Other 491 76 415 437 53 384 R&D Research and development. 1. These numbers differ from those published in U.S. Direct Investment Abroad, 1977 due to the reclassification by industry of two U.S. parents in order to improve comparability of BEA and NSF data. Source: Same as in table 2, except that data are from p. 17, instead of p. 14. 65 R&D of MOFA's, by industry and area Worldwide, MOFA's spent $2.1 billion on R&D and employed 63,000 R&D scientists and engineers. In table 1, these R&D data are disaggregated by industry of U.S. parent. In tables 4 and 5, they are disaggregated by each MOFA's own industry. By industry of U.S. parent, 75 percent of MOFA spending was in manufacturing, 12 percent in finance (except banking), insurance, and real estate, 6 percent each in petroleum and "other industries,11 and less than 1 percent each in trade and mining. By industry of affiliate, 86 percent of the spending was in manufacturing, 5 percent in petroleum, 4 percent each in trade and "other industries," and less than 1 percent each in mining and in finance (except banking), insurance, and real estate. The distributions of MOFA spending on the two bases differ significantly. Spending by trade MOFA's was ten times as large as that by MOFA's of trade parents. Nearly all of the difference was accounted for by trade MOFA's of manufacturing parents, which served as distributors of goods produced by their parents and other foreign affiliates of their parents. Spending by mining MOFA's was three times as large as that of MOFA's of mining parents, because a large share of U.S. direct investment in mining was by parents not classified in that industry. Spending by manufacturing MOFA's was slightly larger than that by MOFA's of manufacturing parents. Manufacturing MOFA's of parents in finance (except banking), insurance, and real estate accounted for most of the difference. In contrast, spending by petroleum MOFA's was smaller than that by MOFA's of petroleum parents, mainly because petroleum parents had a number of MOFA's in chemicals with large expenditures. Also, spending by MOFA's in finance (except banking), insurance, and real estate was much smaller than spending by MOFA's whose parents were classified in this industry; as noted above, parents in this industry had several manufacturing MOFA's with sizable expenditures. 4/ By area, 92 percent of R&D expenditures by MOFA's were in developed countries and about 7 percent were in developing countries. The small share in the latter may have partly reflected the limited technical absorptive capacity of these countries, due to the generally low levels of education among the population, low rates of capital formation, and the limited size of these countries' markets. Within developed countries, R&D expenditures were highly concentrated. Expenditures by MOFA's in 4 countries—Germany, the United Kingdom, France, and Canada—accounted for almost three-fourths of the total, and that in 10 countries—the above 4, plus Australia, Belgium, Italy, the Netherlands, Switzerland, and Japan—accounted for nearly all—94 percent. Within developing countries, expenditures were also concentrated in a few areas, primarily Brazil, Mexico, and "other Asia and Pacific." 4. One such parent was a large conglomerate that was classified in insurance but engaged in a wide range of other activities, both in the United States and abroad, including telecommunications, engineering services, and consumer products. 66 Table 4.--R&D Expenditures of MOFA's, 1977, Country by Industry of Affiliate (Millions of dollars) Manufacturing _Trade All industries Mining Petroleum Total Food and kindred products Chemicals Primary and and allied fabricated products metals Machinery, except electrical Electric and T r a n s p o r t a t i o n O t h e r electronic equipment manufacturing equipment Finance (except banking), insurance and real estate Other industries 2,075 16 109 1,785 66 346 42 169 307 624 231 91 73 1,916 15 93 1,652 60 321 39 158 283 583 207 86 69 Canada 255 5 44 191 12 45 14 12 24 47 36 9 6 Europe 1,515 1 48 1,337 42 247 24 141 248 473 161 66 62 1,395 92 4 291 462 11 85 3 55 393 0 0 0 0 0 0 0 0 0 0 44 3 () * 41 () * 0 1 18 1,253 72 3 258 430 11 74 3 50 352 233 30 () * 43 43 1 28 1 21 65 24 1 () * 2 11 () * () * 0 2 7 127 (D) 0 24 31 (D) 13 (*) 11 40 211 (D) 1 (D) 86 (*) 19 (*) 4 44 4 84 1 15 () * 14 37 27 1 17 () * 1 6 Al1 countries Developed countries European Communities (9) Belgium Denmark France Germany Ireland Italy Luxembourg Nether!ands United Kingdom (D) (D) 0 (D) 5 13 2 2 0 5 14 Developing countries () 1 (D) (D) 8 2 6 51 (D) (D) (*) (*) 0 0 0 0 0 0 0 (*) 59 14 0 (D) (D) o (D) 0 2 (D) 1 0 111 9 1 98 5 12 1 4 6 63 7 1 (D) 132 6 25 2 11 24 40 24 4 1 4 100 5 21 2 40 19 3 2 1 1 () * 1 0 1 2 80 13 54 14 20 19 1 () * 3 () * 16 3 10 2 5 5 () * 0 2 0 () * 2 1 () * () * (D) Latin America 111 South America Argentina Brazil Other Central America Mexico Other Other Western Hemisphere 85 16 55 14 23 19 4 3 () * 0 0 () * () * 0 () * () * () * 1 2 1 () * () * () * 4 0 Middle East 5 0 () * 4 31 0 (D) 27 1 4 0 (D) 0 0 0 0 () * 10 1 2 (*) (D) , 10 R&D Research and development. M F Majority-owned foreign a f f i l i a t e . OA * Less than $500,000 (+). D Suppressed to avoid disclosure of data of individual companies. 0 () * () * 18 0 () * 0 (*) 0 1 0 () * (*) 1 1 1 0 2 (*) 5 () * 1 0 0 0 0 () * (*) (D) (D) 0 , International () * 3 26 0 (D) (D) (D) 0 0 0 0 Other Africa 0 131 (D) 0 3 0 1 131 40 4 1 12 14 0 (D) 0 2 (D) 36 Australia, New Zealand, and South Africa Addendum: OPEC (D) (D) 119 Other Europe Japan Other Asia and Pacific (D) (*) () * () * (*) (*) 0 (*) Table 5.--R&D Scientists and Engineers of MOFA's, 1977, Country by Industry of Affiliate (Number of employees) Manufacturing All industries Mining Petroleum _Trade T o t a l F o o d a n d C h e m i c a l s P r i m a r y a n d M a c h i n e r y , E l e c t r i c andTransportation and allied fabricated except electronic equipment kindred products metals electrical equipment product Other manufacturing Finance (except banking), insurance and real estate Other industries 63,045 248 2 747 55,550 2,435 10,255 1,291 10,298 10,986 11,814 8,471 2,372 69 2,059 54,998 109 2,032 49,069 1,994 8,631 1,201 9,840 9,887 10,492 7,024 2,221 (D) (D) Canada 5,848 66 686 4,877 369 1,107 241 724 874 727 835 115 (D) (D) Europe 44,263 (D) 1,275 39,853 1,473 6,662 931 8,550 8,716 7,848 5,673 1,765 (D) (D) 41,292 1,900 (D) 6,336 9,758 183 2,567 (D) 1,797 18,403 (D) 1,169 (D) 0 (D) (D) (D) (D) 0 57 474 37,469 1,676 152 5,189 9,208 (D) 2,285 (D) 1,632 16,955 1,387 (D) (D 115 281 (D) 37 0 101 774 6,368 458 893 19 8,068 93 0 1,389 2,078 7,873 (D) (D) 1,360 (D) (D) (D) (D) 153 260 0 43 0 85 (D) (D) 0 0 0 0 0 0 0 0 (D) 2,971 (D) All countries Developed countries European Communities (9) Bel gi urn Denmark France Germany Ireland Italy Luxembourg Netherlands United Kingdom ».. : Other Europe Japan 3,427 0 1,460 Australia, New Zealand, and South Africa. 0 0 0 0 0 0 0 0 (D) Developing countries (D) 139 (D) 3,465 979 2,011 475 1,627 1,331 296 134 D) D) D) D D) Other Africa 242 D) Mi ddle East 114 Other Asia and Pacific (D) International 0 D) D) 0 (D) Addendum: OPEC 861 D) 0 D) R&D Research and development. M F Majority-owned foreign a f f i l i a t e . OA D Suppressed t o avoid disclosure of data of individual companies. (D) 731 (D) 469 2,901 85 280 (D) 23 (D) 88 356 361 (D) 721 3,407 306 2,067 19 505 (D) 41 3,978 3,511 (D) 193 (D) 884 1,363 (D) (D) (D) (D) 2,028 482 843 (D) (D) (D) (D) 0 1,634 2,227 0 (D) 0 (D) 106 2,384 86 294 38 (D) 405 (D) (D) 1,207 (D) 458 (D) (D) 173 0 159 151 (D) (D) 3,132 (D) 404 (D) (D) 124 1,917 357 190 0 (D) 90 0 (D) (D) 0 (D) 0 23 194 72 59 (D) 6,481 441 1,624 458 1,099 1,322 1,447 151 (D) (D) 105 4,621 330 1,272 (D) 446 240 (D) 933 113 (D) (D) (D) (D) (D) (D) (D) (D) 3,198 810 1,946 442 1,390 1,299 91 33 205 60 120 25 (D) 106 (D) (D) 808 239 457 112 (D) 411 12 0 8 4 (D) 75 0 0 0 (D) (D) 30 0 0 0 0 0 0 0 0 (D) (D) (D) (D) (D) 744 (D) (D) 204 (D) 156 (D) (D) (D) 69 (D) 158 (D) (D) (D) (D) 407 40 367 0 39 39 0 0 (D) (D) South America Argentina Brazil Other Central America Mexico Other Other Western Hemisphere 776 912 (D) 89 64 5,226 Latin America (D) (D) 0 0 (D) 0 0 (D) (D) 82 0 0 0 0 0 0 0 (D) (D) 38 (D) (D) 0 0 0 0 184 (D) 0 20 17 1,620 (D) 0 12 (D) 0 0 0 0 339 14 58 0 0 90 (D) (D) 491 (D) 872 359 420 93 (D) (D) 0 (D) 65 0 493 150 (D) (D) (D) (D) (D) 0 (D) 0 (D) 8 195 (D) 171 (D) R&D intensity of U.S. parents and MOFA's The R&D intensity of parents or MOFA's in an industry can be measured as the amount of R&D expenditures per $1,000 of sales or the number of R&D scientists and engineers per 1,000 employees in that industry (table 6). (Unless otherwise specified, parent expenditures hereafter refer only to company-funded, not federally funded, expenditures; no affiliate expenditures were federally funded.) In all industries combined, the intensity ratio for U.S. parents based on expenditures was 14, i.e., out of e\fery $1,000 of sales, U.S. parents spent $14 on R&D. Among the six major industries, manufacturing was the most R&D intensive, with a ratio of 24. In contrast, the ratios were only about 4 or 5 in "other industries," petroleum, and mining, and about 1 in finance (except banking), insurance, and real estate and in trade. Within manufacturing, ratios were between 30 and 44 in four industries; in two industries, they were 8 or lower and, in one, the ratio was 16. Nonelectrical machinery, with a ratio of 44, was the most R&D intensive, primarily because of the very heavy investment in R&D by U.S. parents manufacturing office and computing equipment. In electric and electronic equipment, the ratio was 38. The ratios for U.S. parents manufacturing electronic components and radio, television, and communication equipment were especially high. In transportation equipment and chemicals, ratios were 31 and 30, respectively. The high ratio in the former was attributable mostly to U.S. parents manufacturing aerospace equipment, and, in the latter, to those manufacturing drugs. Within "other manufacturing," the ratio for U.S. parents manufacturing instruments and related products was particularly high. MOFA's were, overall, much less R&D intensive than their U.S. parents. In all industries combined, MOFA's spent $4 on R&D per every $1,000 of sales. Among the six major industries, the ratio for MOFA's was relatively high in manufacturing—-9. It was 3 in each of "other industries" and mining and about 1 in each of trade, petroleum, and finance (except banking), insurance, and real estate. Within manufacturing, MOFA's were relatively R&D intensive in electric and electronic equipment (17), transportation equipment (13), and chemicals (11), and less intensive in food and kindred products (3), primary and fabricated metals (4), nonelectrical machinery (6), and "other manufacturing" (7). In all industries combined, U.S. parents employed 23 R&D scientists and engineers out of every 1,000 employees, compared with 12 for MOFA's. The industry distribution of the employment ratios was similar to that of the expenditure ratios for both parents and MOFA's, except in petroleum. In petroleum, the expenditure ratios for both parents and MOFA's were relatively low compared with their employment ratios. The expenditure ratios were lower, perhaps due to the overstatement of 69 Table 6.--R&D Expenditures per $1,000 of Sales and Number of R&D Scientists and Engineers per 1,000 Employees of U.S. Parents and MOFA's, 1977, by Industry of U.S. Parent/Affiliate R&D expenditures Sales Millions of dollars All industries Mining 18,595 18 1,325,546 4,631 U.S. Parents R&D R&D expenditures scientists Total per $1,000 and employment of sales engineers Number of employees 14 4 406,662 (D) 17,509,800 60,225 Number of R&D scientists R&D Sales and engineers expenditures per 1,000 employees Millions of dollars 23 (D) 2,075 MOFA's R&D R&D Total expenditures scientists employment and per $1,000 engineers of sales Number of employees 507,019 4 63,045 5,368,826 16 5,086 3 248 79,241 3 198,624 1 2,747 287,826 10 1,785 66 346 42 169 307 624 231 194,200 21,756 32,396 11,560 28,406 18,655 48,686 32,741 9 3 11 4 6 17 13 7 55,550 2,435 10,255 1,291 10,298 10,986 11,814 8,471 3,773,325 377,306 464,437 228,964 523,234 628,779 740,480 810,125 15 7 22 6 20 18 16 11 964 219,556 4 21,083 865,470 16,731 384 2,861 719 3,350 2,198 5,018 2,200 697,804 78,230 94,168 87,266 76,751 57,227 162,414 141,747 24 5 30 8 44 38 31 16 331,929 8,682 55,213 13,443 63,199 46,251 97,809 47,332 11,009,671 968,273 1,181,468 1,355,755 1,480,613 1,168,578 2,225,839 2,629,145 30 9 47 10 43 40 44 18 Trade 128 157,243 1 2,349 2,173,252 91 77,362 1 2,372 637,515 Finance (except banking), insurance, and real estate Other industries 162 592 114,492 131,819 1 5 5,630 (D) 817,692 1 10,002 (*) 69 62,560 73 21,745 3 2,059 528,359 Petroleum R&D Research and development. M F Majority-owned foreign a f f i l i a t e . OA D Suppressed to avoid disclosure of data of individual companies. * Less than 0.5. 2,583,490 (D) 12 109 24 Manufacturing Food and kindred products Chemicals and allied products Primary and fabricated metals Machinery, except electrical Electric and electronic equipment Transportation equipment Other manufacturing Number of R&D scientists and engineers per 1,000 employees petroleum sales that results from sales among members of the same MNC being counted more than once; as noted in the Lupo article, sales among members of the same MNC often occur in petroleum. Thus, for this industry, the employment ratio is perhaps a better measure of R&D intensity than the expenditure ratio. The much lower R&D intensity for MOFA's than for their U.S. parents and the small share of total R&D expenditures by MNC's that was accounted for by MOFA's reflected their apparent dependence on parents for technology. This dependence was attributable to several factors. First, R&D facilities tended to be concentrated in U.S. parents, because supplies of scientific and technical talents were more readily available in the United States than in many areas abroad. Also, because more than two-thirds of total sales by MNC's worldwide were by U.S. parents, and because most of the parents1 sales were to U.S. customers, a very large share of the worldwide R&D activities of MNC's was located in the United States to serve U.S. markets more efficiently. Furthermore, U.S. parents can minimize R&D costs of the MNC as a whole if they assume the major burden of investment in R&D. MOFA's may benefit from the technology but spend only a fraction of what their parents spend on R&D because use of technology by an affiliate abroad will involve only small additional cost. Growth in R&D expenditures Table 7 presents data on growth of R&D expenditures by MNC's for 1966-77, by industry of U.S. parent. Growth in expenditures by U.S. parents and MOFA's is separately discussed. 1966 data are from BEA's 1966 benchmark survey of U.S. direct investment abroad. 5/ The definition of a MOFA differs in the 1966 and 1977 surveys. To improve comparability, the 1966 data have been adjusted to be as consistent as possible with the 1977 data. Details of the adjustments are presented in the technical notes. R&D expenditures by MNC's increased from $8.9 billion in 1966 to $20.7 billion in 1977, or at a compound annual rate of 7.9 percent. In contrast, the growth rate of MNC total assets was 11.1 percent. Apparently, MNC spending on R&D has failed to keep pace with the growth of total assets in 1966-77. 6/ 5. See U.S. Department of Commerce. Bureau of Economic Analysis, U.S. Direct Investment Abroad, 1966, Final Data (Washington, D.C.: U.S. G.P.O., n.d.). 6. See Howenstine, "Growth," p. 35. Note that the data coverage of affiliate assets differs from that of affiliate R&D expenditures. For assets, affiliates are defined to include "allied affiliates"—those in which U.S. parents had equity ownership of 25 percent or more; for R&D expenditures, they are defined to include only MOFA's. The effect of this difference in coverage is not likely to be large, because the total assets of "allied affiliates" that were not MOFA's accounted for less than 10 percent of total affiliate assets in 1977. 71 Table 7.—Growth in R&D Expenditures by U.S. MNC's, U.S. Parents, and MOFA's, 1966-77, by Industry of U.S. Parent (Millions of dollars, or percent) MNC's 1966 1/ (1) All industries Mining Petroleum Manufacturing Food and kindred products Chemicals and allied products Primary and fabricated metals Machinery, except electrical Electric and electronic equipment Transportation equipment Other manufacturing Trade Finance (except banking), insurance, and real estate Other industries 1977 (2) Compound annual rate of growth (3) U.S. parents Compound annual rate 1966 1/ 1977 of growth (4) (5) (6) MOFA's 1966 1/ ~ ~ (7) 1977 (8) Compound annual rate of growth (9) 8,941 20,670 7.9 8,361 18,595 7.5 580 2,075 12.3 22 23 0.4 21 18 -1.7 1 5 14.6 474 1,092 7.9 441 964 7.4 33 128 13.1 8,110 153 1,357 326 795 1,927 2,674 878 18,296 447 3,240 751 3,539 2,275 5,580 2,462 7.7 10.2 8.2 7.8 14.5 1.5 6.9 9.8 7,573 136 1,254 311 740 1,811 2,537 784 16,731 384 2,861 719 3,350 2,198 5,018 2,200 7.5 9.8 7.8 7.9 14.7 1.8 6.4 9.8 537 17 103 15 55 116 137 94 1,565 63 379 32 189 77 562 262 10.2 12.5 12.6 7.2 11.9 -3.7 13.7 9.8 11 137 26.0 10 128 26.0 20.4 5 (D) (D) 4 162 41.5 (D) (D) 319 (D) (D) 312 592 6.0 (D) (D) R&D Research and development. MNC Multinational company. MOFA Majority-owned foreign affiliate. D Suppressed to avoid disclosure of data of individual companies. 1. Data for 1966 were adjusted to improve comparability with data for 1977; therefore, they differ from previously published data. See the technical notes for details of the adjustments. R&D expenditures by U.S. parents grew from $8.4 billion to $18.6 billion, or at a 7.5-percent rate. About nine-tenths of the growth was in manufacturing. R&D expenditures by U.S. manufacturing parents, which more than doubled, grew at a 7.5-percent rate. Within manufacturing, growth was widespread. By far the fastest growth--14.7 percent—was in nonelectrical machinery. The growth was largely accounted for by U.S. parents manufacturing office and computing equipment, whose expenditures increased more than sixfold over the period. Expenditures grew at a 9.8-percent rate in both food and "other manufacturing." Nearly onehalf of the growth in the latter was accounted for by U.S. parents manufacturing instruments, particularly photographic equipment and scientific instruments. Also strong was the growth in both paper and rubber products. R&D expenditures in primary and fabricated metals grew at a 7.9percent rate. The growth was largely in primary metals. In chemicals, expenditures grew at a 7.8-percent rate. The growth was accounted for mainly by U.S. parents manufacturing drugs and industrial chemicals. In drugs, spending more than tripled over the period. In transportation equipment, the growth rate was 6.4 percent. Much of the growth was in spending by U.S. parents manufacturing automotive products. In aerospace equipment, where federally funded R&D spending was large, company-funded spending grew relatively slowly. The slowest growth--!.8 percent a year--was in electrical machinery. Spending actually declined in radio, television, and communication equipment, because a few large companies classified in this industry group in 1966 were in other industries in 1977. Among industries other than manufacturing, growth was unusually strong in finance (except banking), insurance, and real estate and trade. Growth in each industry was from a small 1966 base. Also, a number of companies in these industries were either new in 1977 or were classified in these industries in 1977, but not in 1966. R&D expenditures by U.S. petroleum parents grew at a 7.4-percent rate, to $1.0 billion. In contrast, R&D expenditures by mining parents, which were small in both 1966 and 1977, declined at a 1.7-percent rate. The decline was attributable mainly to several large companies that were classified in this industry in 1966, but in primary metals manufacturing in 1977. R&D expenditures by MOFA's, at $2.1 billion, grew faster than those of their U.S. parents—12.3 percent as compared with 7.5 percent—over 73 1966-77. The faster growth for MOFA's was attributable to several factors. First, during the period, inflation rates were higher abroad than in the United States. Second, when the expenditures for 1966 and 1977 were translated from foreign currencies into U.S. dollars, a given unit of foreign currency could be translated into more dollars after the 1971 depreciation of the dollar than before. Third, the 1966 bases for the MOFA data in many industries were small. By industry of U.S. parent, more than two-thirds of the growth in R&D expenditures by MOFA's was in manufacturing. 7/ The remainder was mostly in finance (except banking), insurance, and real estate, "other industries," and petroleum. In trade and mining, growth was rapid, but spending remained small in 1977. R&D expenditures by MOFA's of of 10.2 percent per annum, to $1.6 than four-tenths of the growth was of the remainder was in chemicals, manufacturing." manufacturing parents grew at a rate billion. Among industries, more in transportation equipment and most nonelectrical machinery, and "other In transportation equipment, MOFA spending increased at a 13.7percent rate. This rapid growth was mostly attributable to MOFA's in France, Germany, and the United Kingdom whose U.S. parents were in automotive manufacturing. Spending by MOFA's in Canada, Australia, and Latin America also grew rapidly. In chemicals, MOFA's increased their R&D expenditures at a 12.6percent rate. More than one-third of the growth was in drugs, largely in several EC(9) countries, Canada, and Japan. R&D expenditures in food grew at a 12.5-percent rate from a small base in 1966. In nonelectrical machinery, the growth rate was 11.9 percent. About one-half was accounted for by MOFA's in the EC(9) and "other Asia and Pacific" whose parents manufactured office and computing equipment. In "other manufacturing," expenditures grew at a 9.8-percent rate. The growth, which was mostly in instruments and rubber products, was largely accounted for by MOFA's in Europe and Canada. In metals, MOFA expenditures increased at a 7.2-percent rate, from a small base in 1966. Expenditures in electrical machinery declined at a 3.7-percent rate, partly because a number of affiliates whose U.S. parents were classified in this industry in 1966 were in other industries in 1977, as noted earlier. Outside manufacturing, R&D expenditures in petroleum grew at a 13.1-percent rate, from a small 1966 base. MOFA's in Canada and EC(9) largely accounted for the growth. Growth in finance (except banking), insurance, and real estate and "other industries" was unusually rapid. 7. Affiliate data in this table are classified by industry of U.S. parent in order to be consistent with the classification of the MNC and parent data in the table. 74 This rapid growth was partly due to a number of affiliates whose parents were classified in these industries in 1977 but not in 1966, as noted above. Royalties and License Fees Royalties and license fees are fees, arising from licensing agreements, that are received by licensors in return for providing licensees with access to a particular technology. The technology transferred may include trademarks, copyrights, patents, know-how (e.g., designs, formulas, industrial processes, and other unpatented private technology), or any combination of the above. Royalties and license fees are frequently viewed as a measure of technology transfer because they arise from licensing agreements, which facilitate such transfers; however, for the following reasons, they are, at best, an imperfect measure. First, royalties and license fees do not include all compensation that can arise from licensing agreements. Other compensation may take forms such as cross-licensing, buy-back agreements in which goods produced by licensees are receivea by licensors at a discount, or sale of material inputs to licensees by licensors. Second, technology can also be transferred through means other than licensing agreements, such as the sale of turnkey plants, joint ventures, product inspection, etc., all of which do not give rise to royalties and license fees. 8/ Despite these shortcomings, data on royalties and license fees are useful because they constitute one of the few statistical series available on this subject. Matrix of flows The 1977 benchmark survey collected most of the data needed to construct a matrix of royalties and license fees of U.S. parents and MOFA's with all transactors. 9/ As shown in table 8, data are available for transactions between U.S. parents and all affiliated and unaffiliated foreign persons, and between MOFA's and all affiliated and unaffiliated U.S. and foreign persons. No data are available for one component—transactions between U.S. parents and other U.S. persons. 8. For discussion of other limitations, see Mary Frances Teplin, "U.S. International Transactions in Royalties and Fees: Their Relationship to the Transfer of Technology,11 Survey 53 (December 1973): 14-18. 9. Data on royalties and license fees presented in this article are just one of several components of the account, "fees and royalties with affiliated foreigners," in the U.S. international transactions accounts. The relationship between this component and the account is discussed in the technical notes. 75 Table 8. ~ Net Receipts, Receipts, and Payments of Royalties and License Fees by MOFA's and Their U.S. Parents, 1977, by Transactor (Millions of dollars; (-) indicates net payments) Net receipts Line 1 2 3 4 5 6 7 8 9 10 11 12 13 14 U.S. parents1 receipts/payments From or to other U.S. persons From or to foreign persons From or to foreign affiliates MOFA's Other affiliates 2/ From or to unaffiliated foreign persons MOFAs' receipts/payments From or to U.S. persons U.S. parents (net=line 5 with opposite sign) Other U.S. persons From or to forei gn persons Foreign affiliates, including MINOFA's Unaffi1i ated forei gn persons Receipts Payments n.a. n.a. -V 2,808 2,157 1,914 243 1/ 651 n.a. n.a. 3,110 2,208 1,962 246 902 n.a. n.a. 1/ 302 51 48 3 1/ 251 -2,033 -2,045 -1,914 -130 12 -45 56 548 64 48 16 484 189 295 2,582 2,108 1,962 146 473 234 239 MOFA Majority-owned foreign affiliate. MINOFA Minority-owned foreign affiliate, n.a. Not available. 1. These numbers are different from those published in U.S. Direct Investment Abroad, 1977 and the U.S. international transactions accounts due to correction of an error in originally reported data. 2. U.S. parents of MOFA's may also have minority-owned foreign affiliates. Net receipts (receipts minus payments) of royalties and license fees by U.S. parents from all foreign persons were $2.8 billion in 1977. They consisted of receipts of $3.1 billion less payments of $0.3 billion. More than two-thirds of the receipts were from foreign affiliates, mostly MOFA's, and less than one-third were from unaffiliated foreigners. The payments were mostly to unaffiliated foreign persons; payments to foreign affiliates were very small. These data indicate that, overall, U.S. parents were net exporters of technology under licensing agreements, and that they tended to favor affiliated over unaffiliated foreigners in licensing. The tendency to favor affiliates probably reflected the parents1 desires to maintain control over use of the technology. Control was more assured if agreements were with affiliated 1 foreigners than with unaffiliated foreigners, because the parents relationship with their affiliates was generally longer and closer. Thus, with affiliates, parents1 control over the technology often endured beyond the expiration of the licensing agreement, while with unaffiliated foreigners, it was usually limited to the life of the agreement. In contrast to their U.S. parents, MOFA's had net payments of royalties and license fees (shown as negative net receipts in table 8 and subsequent tables) of $2.0 billion worldwide. Net payments to U.S. persons more than accounted for the total; there were small net receipts from all foreign persons. Of the net payments to U.S. persons, nearly all, $1.9 billion, were to U.S. parents; net payments to other U.S. persons were only $0.1 billion. In transactions with foreign persons, small net receipts by MOFA's from unaffiliated foreigners were nearly offset by small net payments to other foreign affiliates of their U.S. parents. Royalties and license fees of U.S. parents, by industry In table 9, U.S. parents1 net receipts of royalties and license fees from foreigners are classified by industry of parent and crossclassified by transactor. Of the six major industries, manufacturing accounted for nearly all—92 percent--of net receipts by U.S. parents from foreigners. "Other industries" accounted for 4 percent and petroleum for 2 percent. Within manufacturing, net receipts by U.S. parents were highly concentrated. U.S. parents in nonelectrical machinery accounted for nearly one-half of the total. U.S. parents in this industry, "other manufacturing," and chemicals combined accounted for more than threefourths. In nonelectrical machinery, net receipts by U.S. parents were mostly from MOFA's, and a large share of the receipts from MOFA's were by U.S. parents manufacturing office and computing equipment. In "other manufacturing," about three-fourths of net receipts by U.S. parents were from MOFA's, mainly by U.S. parents manufacturing instruments, paper and 77 Table 9. ~ U.S. Parents' Net Receipts of Royalties and License Fees From Foreign Persons, 1977, Industry of U.S. Parent by Transactor (Millions of dollars; (-) indicates net payments) Net receipts from all From foreign a f f i l i a t e s foreigners (1) All industries Mining Petroleum Manufacturing Food and kindred products Chemi cal s and al 1 i ed products Primary and fabricated metals Machinery, except electrical Electric and electronic equipment... Transportation equipment Other manufacturing Trade Finance (except banking), insurance, and real estate Other industries Total (2) (3) 1/ 2,808 2,157 4 70 2,581 101 378 91 1,151 280 153 426 From MOFA's Recei pts From u n a f f i l i a t e d foreigners From other a f f i l i a t e s Receipts Payments Receipts Payments (9) (10) (11) i/651 902 1/251 4 () * 62 25 Payments Net receipts (4) (5) (6) (7) 1,914 1,962 48 243 246 3 (*) (*) (*) 0 (*) (*) 0 4 32 16 16 0 17 17 0 37 1,821 78 311 24 967 (D) 34 (D) 1,866 78 319 24 971 121 35 318 45 (*) 8 (*) 4 (D) 202 (D) 39 8 69 (D) 17 36 205 (D) 39 8 71 (D) 17 36 3 0 (D) (D) 2 (*) 0 1 () * 558 (D) 29 60 114 138 102 (D) 2,023 (D) 350 31 1,036 142 51 (D) Net receipts 17 13 (D) (D) 11 126 8 81 (D) (D) (D) (D) (D) (D) (D) (D) (D) (D) (8) r-s receipts 111 33 144 65 121 150 113 146 214 (D) 115 4 7 11 11 (D) 4 6 2 () * 3 3 () * () * 45 55 10 MOFA Majority-owned foreign affiliate. * Less than $500,000 (+). 0 Suppressed to avoid disclosure of data of individual companies. 1. These numbers are different from those published in U.S. Direct Investment Abroad, 1977 and the U.S. international transactions accounts due to correction of an error in originally reported data. Net allied products, and textiles and apparel. In chemicals, nearly twothirds of net receipts by U.S. parents were from MOFA's by U.S. parents manufacturing industrial chemicals and soap, cleaners, and toilet goods. In drugs, large receipts by U.S. parents from MOFA's were partly offset by payments by U.S. parents to unaffiliated foreigners. Royalties and license fees of U.S. parents, by country Parent data on royalty and license fee transactions with foreign affiliates, by country of affiliate, are shown in table 10. Transactions with unaffiliated foreign persons are excluded, because such data were not available by country in the benchmark survey. Of the $2.2 billion net receipts by U.S. parents from foreign affiliates, more than nine-tenths were from affiliates in developed countries and 7 percent from those in developing countries. The small share from developing countries reflected the smaller amount of technology embodied in goods and services in these markets and a smaller share of the operations of U.S. MNC's in these countries. Net receipts from developed countries were highly concentrated. Five countries—Germany, France, the United Kingdom, Canada, and Japan— accounted for more than two-thirds of the total, with shares ranging from 17 percent for Germany to 11 percent for Japan. In each country, except Japan, net receipts from MOFA's accounted for most of the receipts. In contrast, a large share—about two-fifths—of net receipts from Japan were from minority-owned foreign affiliates (MINOFA's). A large number of Japanese affiliates were minority owned because, until the early 1970's, the Japanese Government restricted equity participation in Japanese firms by foreigners to less than a majority share. JTO/ Most of the net receipts from developing countries were from a few countries in Latin America and "other Asia and Pacific," where economic growth was rapid. Royalties and license fees of MOFA's, by industry and country By industry of affiliate, MOFA's in manufacturing accounted for 87 percent of the net payments of royalties and license fees by MOFA's worldwide (table 11). Particularly large were net payments in nonelectrical machinery, chemicals, and "other manufacturing." By area, nearly nine-tenths of the total was payments by MOFA's in developed countries. As shown in column 3 of table 11, most of the net payments arose from transactions with U.S. parents, which were discussed in the last section. This section will focus on transactions with U.S. persons other than U.S. parents and with all foreign persons. Net payments to "other U.S. persons" were $0.1 billion. They consisted mostly of payments; receipts were small. The payments were largely by MOFA's in manufacturing and trade in the EC(9) and Canada. 10. See Barker, "A Profile," p. 53. 79 Table 10.--U.S. Parents1 Net Receipts of Royalties and License Fees From Foreign Affiliates, 1977, Country of Affiliate by Transactor (Millions of dollars) Total From MOFA's Net receipts (2) (1) Receipts From other affiliates Payments Net receipts Receipts Payments (3) (47 (5) (6) (7) All countries 2,157 1,914 1,962 48 243 246 3 Developed countries 1,999 1,790 1,835 45 209 212 3 Canada 266 258 (D) (D) 8 8 Europe 1,419 1,328 1,347 18 90 91 1,253 102 21 281 338 10 124 2 107 269 1,178 1,191 94 19 244 333 9 13 () * 75 9 2 38 75 166 150 226 126 European Communities (9) Belgium Denmark France Germany Ireland Italy Luxembourg Netherlands United Kingdom Other Europe Japan 94 19 242 331 9 116 2 104 261 2 106 266 0 1 2 0 1 0 2 5 7 1 7 () * 3 8 9 2 38 7 1 7 (*) 3 8 156 6 16 16 (D) 99 102 117 (D) () * 1 () * 0 0 0 (*) (*) (*) 0 0 (*) (*) 2 Australia, New Zealand, and South 78 11 11 (*) 127 3 34 34 (*) 75 17 7 4 6 78 (D) (D) (D) (D) 24 9 (*) 1 8 (D) 12 1 24 9 (*) (D) (D) (D) 3 (*) (*) (*) 0 3 1 2 0 (D) (D) (*) (*) 0 0 (*) (*) (*) (*) (*) 3 4 (*) (*) (*) 0 7 0 3 3 0 38 38 (*) 7 7 0 0 0 0 0 0 0 (0) Latin America South America Argentina Brazil Other Central America Mexico Other Other Western Hemi sphere 1 7 Developing countries 78 124 Africa (D) 0 (D) (0) 0 89 158 99 25 7 5 14 68 (D) (D) 6 Other Africa 10 Other Asia and Pacific 6 1 8 (D) 12 1 4 Middle East (0) 17 7 4 45 International Addendum: OPEC 0 17 MOFA Majority-owned foreign affiliate. * Less than $500,000(+), D Suppressed to avoid disclosure of data of individual companies. 80 Table 11.—Net Receipts of Royalties and License Fees by MOFA's from U.S. and Foreign Persons, 1977, Industry and Country of Affiliate by Transactor (Millions of dollars; (-) indicates net payments) From all U.S. persons i other U.S. persons From U.S. NetReceipts parents Payments receipts Net receipts from all persons —ur Total 2,033 Total From all foreign persons From other foreign affiliates From unaffiliated foreigners" g Rit Receipts Payments Rel Receipts Payments receipts receipts irr -2,045 1TTT iizr T2~ —56- "295" TT3T -1,514 -131 () * (D) 0 (*) -18 -17 17 (D) 2 (D) -94 -92 94 -112 -7 -74 -4 8 8 -9 -35 By industry: Mining 19 Petroleum Manufacturing Food and kindred products Chemicals and allied products Primary and fabricated metals Machinery, except electrical Electric and electronic equipment Transportation equipment Other manufacturing Trade -112 -18 -1,770 -73 -352 -44 -816 -118 -28 -339 -296 1,658 -66 -279 -40 -823 -125 -19 -305 -1,590 -61 -273 -38 -817 -119 -18 -265 -67 -5 -6 -3 -7 -6 -1 -39 13 () * () * (*) 80 5 11 3 7 13 1 40 -312 -263 -49 () * 49 3 () * () * -106 -3 -76 -3 10 -8 -11 -16 83 9 18 1 (D) 16 6 (D) 18 52 189 12 94 4 (D) 24 16 (D) -6 -5 3 (*) 15 2 -19 73 1 23 1 7 22 8 10 -2 28 79 6 21 1 10 7 6 29 Finance (except banking), insurance, and 2 () * () * () * 23 22 22 () * 1 (D) () * (D) 196 24 30 6 173 (D) (D) (D) (D) 1,903 -1,790 -113 16 129 84 -41 175 215 125 265 140 -288 real estate -258 -30 1 32 -21 -9 9 18 -12 30 42 1,400 -1,328 -71 14 85 98 -11 163 175 109 193 85 1,246 -90 -19 -258 -347 -10 -121 -4 -107 -290 -1,178 -94 -19 -242 -331 -9 -116 -2 -104 -261 -68 3 (*) -15 -16 -1 -4 -3 -4 -29 14 5 0 (D) (D) 0 1 0 0 (*) 82 1 (*) (D) (D) 5 3 4 29 34 2 (*) -10 -13 -3 8 1 23 26 -65 -6 (*) -22 -36 -2 -6 1 (D) (D) 81 4 1 9 8 0 3 1 (D) (D) 146 10 1 30 44 2 9 0 27 21 99 8 (*) 12 23 -1 14 (*) (D) (D) 168 9 (*) 25 49 0 21 (*) (D) (D) 69 1 (*) 13 26 1 7 (*) -154 -150 -4 () * 4 63 54 83 29 10 25 15 -127 -126 () * () * () * 11 -6 1 8 17 20 3 -89 -78 -11 () * 11 -3 -15 1 16 12 22 10 -142 -124 -18 () * 18 -71 -3 14 17 -68 30 98 -87 -75 -11 () * 11 7 -3 8 10 10 30 20 -19 -7 -6 -6 -17 -7 -4 -6 -2 (*) -2 (*) ft ft ft 2 (*) 10 -2 8 5 -4 -1 -1 -2 2 (*) 1 6 1 2 3 14 -1 9 7 19 Sol 5 1 (D) (D) (D) 2 -2 3 5 1 5 4 2 1 (D) (D) 10 (D) (D) (D) (D) (*) 25 -59 Other industries 138 (D) By area: Developed countries Canada Europe European Communities (9) Belgium Denmark France Germany Ireland Italy Luxembourg Nether 1 ands United Kingdom Other Europe Japan Australia, New Zealand, and South Africa Developing countries Latin America 1,819 -309 -1,302 -1,211 -89 -20 -268 -360 -13 -112 -3 -84 -264 -91 -116 -92 -213 -79 South America Argentina Brazil Other Central America Mexico Other -8 -9 2 -2 -55 -37 -18 (D) -33 (D) (D) (D) (D) Other Western Hemisphere -15 (D) (D) Other Africa -5 -5 -6 (D) (D) -3 (*) 6 (D) (D) -3 , 3 (D) () * 0 () * (D) () * (D) -1 0 1 () * (D) () * () * () * () * (D) () * () * (D) (D) -7 -7 () * 0 () * Other Asia and Pacific (D) -43 -38 -5 () * 5 0 () * 0 -2 0 Addendum: OPEC -2 () * -85 (D) MOFA Majority-owned foreign affiliate. * Less than $500,000 (+). D Suppressed to avoid disclosure of data of individual companies. (D) (D) 0 0 Middle East International (D) 20 3 4 1 -3 2 6 () * (D) 1 -1 0 2 (D) -3 1 0 1 1 () * 1 0 (D) 1 4 (D) (D) (D) Transactions between MOFA's and all other foreign persons were nearly in balance, as net receipts of $0.2 billion by MOFA's in "other industries" were nearly offset by net payments of $0.1 billion each by MOFA's in manufacturing and petroleum. In "other industries," the net receipts were largely from unaffiliated foreigners to MOFA's located in Europe and Canada. U / A sizable share of the net payments by MOFA's in manufacturing were by chemical MOFA's located in Europe. The net payments in petroleum were largely to unaffiliated foreigners by MOFA's in the Middle East. Technical Notes BEA and NSF data on R&D activities The U.S. parent data used in this article were obtained from BEA's 1977 benchmark survey, or census, of U.S. direct investment abroad. The data for all U.S. businesses were universe estimates derived from an NSF sample survey. Both surveys used the business enterprise as the reporting unit, and both covered calendar year 1977. The two surveys, however, differed in several important respects. Company-funded R&D expenditures were defined differently in the two surveys. In accordance with Financial Accounting Standards Board Statement No. 2, "Accounting for R&D Costs," the BEA data for U.S. parents were defined on the basis of for whom the R&D was performed. They included the cost of R&D performed by U.S. parents for their own account and the cost of R&D performed for U.S. parents by others on contract, but excluded the cost of R&D performed by U.S. parents for others on contract. In contrast, the NSF data for all U.S. companies were defined on the basis of who performed the R&D. They included the cost of R&D performed by the companies for their own account and for others on contract, but excluded the cost of R&D performed for the companies by others on contract. For example, if a U.S. company contracted out R&D to its foreign affiliates, such expenditures would have been included in BEA's parent data but excluded in NSF's data for all U.S. businesses. The number of R&D scientists and engineers employed was also defined differently in the two surveys. In the BEA survey, it was defined as the average number of full-time and part-time R&D employees for the year; in the NSF survey, it was defined as the number of fulltime R&D employees, plus the full-time equivalent of part-time R&D employees, on the payroll in January of the year. Partly because parttime employees were each counted as a whole employee in the BEA data, but were converted to a full-time equivalent basis in the NSF data, the BEA data for U.S. parents were higher than the NSF data for all U.S. companies in total and in most industries shown in table 2. 11. Net receipts of royalties and license fees by MOFA's in "other industries" included a substantial amount of fees for leasing film and television tapes. If such fees had instead been excluded from this account, transactions of MOFA's with unaffiliated foreigners would have shifted from net receipts to net payments. 82 Industry coverage also differed in the two surveys. As noted in table 2, footnote 3, both surveys covered most major industries. However, within finance, banking was excluded in the BEA data, but included in the NSF data. In addition, within "other industries,11 the BEA data included, but the NSF data excluded, agricultural production and motion pictures. It should be noted that unlike company-funded R&D expenditures, federally funded R&D expenditures were defined similarly in both the BEA and NSF surveys. They included the cost of R&D performed by companies on contract or subcontract with the Federal Government, but excluded the cost of R&D subcontracted to others. Because the BEA data on federally funded R&D expenditures were defined on the basis of who performed the R&D, but the BEA data on company-funded expenditures were defined on the basis of for whom the R&D was performed, the two expenditure categories for U.S. parents are not additive. Adjustments to 1966 data to improve comparability with 1977 data Data collected in BEA's 1966 benchmark survey of U.S. direct investment abroad are not strictly comparable with the 1977 benchmark survey data because of changes in concept and definitions between the two surveys. To improve comparability, the 1966 data were adjusted to be as consistent as possible with the 1977 data. In the 1966 survey, MOFA's were defined to include foreign affiliates in which U.S. parents had equity ownership of 50 percent or more. However, in the 1977 survey, the definition was revised tp include foreign affiliates in which U.S. parents1 equity ownership exceeded 50 percent. Thus, as shown in table A, data for foreign affiliates owned exactly 50 percent were removed from the 1966 total. Table A.—Adjustments to 1966 Data to Improve Comparability With 1977 Data on R&D Expenditures by MOFA's and Their U.S. Parents (Millions of dollars) U.S. parents of MOFA's Published 1966 totalLess: Data for affiliates owned exactly 50 percent Less: Data for U.S parents that did not have at least one M O F A — Plus: Data for affiliates owned more than 50 percent solely by virtue of combined ownership by more than one U.S. parent Equals: Adjusted total R&D Research and development. MOFA Majority-owned foreign affiliate. 83 MOFA's 8,386 0 12 25 0 0 3 8,361 580 Further, the parent data for 1977 included only U.S. parents that had at least one MOFA; in contrast, the 1966 data included, in addition, parents that had only MINOFA's and no MOFA's. Therefore, data for parents that had only MINOFA's were subtracted from the 1966 parent data. Finally, in 1977, MOFA's were defined as affiliates owned more than 50 percent by all U.S. parents combined. In 1966, in contrast, a single-owner criterion was used in defining a MOFA for purposes of reporting data on R&D expenditures. Thus, the 1966 data for affiliates were adjusted to include data for MOFA's owned more than 50 percent solely by virtue of combined ownership by more than one U.S. parent. The net effects of these adjustments were small—previously published 1966 data on R&D expenditures were adjusted downward by less than one-half of 1 percent for U.S. parents and by about 2 percent for MOFA's. Relationship between royalties and license fees and total fees and royalties Royalties and license fees from foreign affiliates to U.S. parents, which are discussed in this article, constitute just one component of "fees and royalties from affiliated foreigners," which appears in the U.S. international transactions accounts. In addition to this component, total fees and royalties also include: (1) rentals for the use of tangible property, (2) film and television tape rentals, and (3) service charges, which are fees for services rendered—including management, professional, and technical services—and allocated expenses. Amounts for the total and for each component are shown in table B for 1977. Table B.—Fees and Royalties From Affiliated Foreigners, 1977, Total and by Component (Millions of dollars) Net receipts by U.S. persons Total Royalties and license fees Rentals for use of tangible property Film and television tape rentals Service charges Amount 3^553 2,173 -221 300 1,631 84