International Trade
U.S. and India Data on Offshoring Show Significant Differences Gao ID: GAO-06-116 October 27, 2005Trade in business, professional, and technical (BPT) services associated with offshoring needs to be accurately tracked, but a gap exists between U.S. and Indian data. The extent of and reasons for this gap are important to understand in order to address questions about the magnitude of offshoring and to analyze its future development. Under the authority of the Comptroller General of the United States, and as part of a body of GAO work on the issue of offshoring of services, this report (1) describes the extent of the gap between U.S. and Indian data, (2) identifies factors that contribute to the difference between the two countries' data, and (3) examines the challenges the United States has faced in collecting services trade data. GAO has addressed this report to the congressional committees of jurisdiction.
The gap between U.S. and Indian data on trade in BPT services is significant. For example, data show that for 2003, the United States reported $420 million in unaffiliated imports of BPT services from India, while India reported approximately $8.7 billion in exports of affiliated and unaffiliated BPT services to the United States. At least five definitional and methodological factors contribute to the difference between U.S. and Indian data on BPT services. First, India and the United States follow different practices in accounting for the earnings of temporary Indian workers residing in the United States. Second, India defines certain services, such as software embedded on computer hardware, differently than the United States. Third, India and the United States follow different practices for counting sales by India to U.S.-owned firms located outside of the United States. The United States follows International Monetary Fund standards for each of these factors. Fourth, BEA does not report country-specific data for particular types of services due to concerns about the quality of responses it receives from firms when they allocate their affiliated imports to detailed types of services. As a result, U.S. data on BPT services include only unaffiliated imports from India, while Indian data include both affiliated and unaffiliated exports. Fifth, other differences, such as identifying all services importers, may also contribute to the data gap. The U.S. Bureau of Economic Analysis (BEA) has experienced challenges in identifying all U.S. services importers and obtaining quality survey data from importers. To test BEA's survey coverage, GAO provided BEA with lists of firms identified from public sources as likely importers of BPT services from India. The results of this test showed that some services importers were not included in BEA's mailing lists. However, BEA has taken action to address these challenges, including collaborating with other federal agencies, such as the U.S. Census Bureau and the Internal Revenue Service, to better identify firms to survey. However, data-sharing restrictions hamper BEA's efforts.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-06-116, International Trade: U.S. and India Data on Offshoring Show Significant Differences
This is the accessible text file for GAO report number GAO-06-116
entitled 'International Trade: U.S. and India Data on Offshoring Show
Significant Differences' which was released on October 27, 2005.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Report to Congressional Committees:
October 2005:
International Trade:
U.S. and India Data on Offshoring Show Significant Differences:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-116]:
GAO Highlights:
Highlights of GAO-06-116, a report to congressional committees:
Why GAO Did This Study:
Trade in business, professional, and technical (BPT) services
associated with offshoring needs to be accurately tracked, but a gap
exists between U.S. and Indian data. The extent of and reasons for this
gap are important to understand in order to address questions about the
magnitude of offshoring and to analyze its future development. Under
the authority of the Comptroller General of the United States, and as
part of a body of GAO work on the issue of offshoring of services, this
report (1) describes the extent of the gap between U.S. and Indian
data, (2) identifies factors that contribute to the difference between
the two countries‘ data, and (3) examines the challenges the United
States has faced in collecting services trade data. GAO has addressed
this report to the congressional committees of jurisdiction.
What GAO Found:
The gap between U.S. and Indian data on trade in BPT services is
significant. For example, data show that for 2003, the United States
reported $420 million in unaffiliated imports of BPT services from
India, while India reported approximately $8.7 billion in exports of
affiliated and unaffiliated BPT services to the United States.
At least five definitional and methodological factors contribute to the
difference between U.S. and Indian data on BPT services. First, India
and the United States follow different practices in accounting for the
earnings of temporary Indian workers residing in the United States.
Second, India defines certain services, such as software embedded on
computer hardware, differently than the United States. Third, India and
the United States follow different practices for counting sales by
India to U.S.-owned firms located outside of the United States. The
United States follows International Monetary Fund standards for each of
these factors. Fourth, BEA does not report country-specific data for
particular types of services due to concerns about the quality of
responses it receives from firms when they allocate their affiliated
imports to detailed types of services. As a result, U.S. data on BPT
services include only unaffiliated imports from India, while Indian
data include both affiliated and unaffiliated exports. Fifth, other
differences, such as identifying all services importers, may also
contribute to the data gap.
The U.S. Bureau of Economic Analysis (BEA) has experienced challenges
in identifying all U.S. services importers and obtaining quality survey
data from importers. To test BEA‘s survey coverage, GAO provided BEA
with lists of firms identified from public sources as likely importers
of BPT services from India. The results of this test showed that some
services importers were not included in BEA‘s mailing lists. However,
BEA has taken action to address these challenges, including
collaborating with other federal agencies, such as the U.S. Census
Bureau and the Internal Revenue Service, to better identify firms to
survey. However, data-sharing restrictions hamper BEA‘s efforts.
U.S. and Indian Data on Trade in BPT Services, 2002 and 2003:
[See PDF for image]
[End of figure]
What GAO Recommends:
To improve the overall quality of services trade data, GAO recommends
that the Secretary of Commerce direct BEA to improve its coverage of
importers and its administration of surveys in order to collect needed
information on services imports. BEA should also pursue additional
company information from the Census Bureau. The Department of Commerce
reviewed a draft copy of this report and concurred with GAO‘s
recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-06-116.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Loren Yager at (202) 512-
4128 or yagerl@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
A Significant Gap Exists between U.S. and Indian Trade-in-Services
Data:
Five Factors Contribute to the Difference between U.S. and Indian Trade
in Services Data:
BEA Encounters Challenges in Surveying All U.S. Importers of Business,
Professional, and Technical Services:
Conclusions:
Recommendations:
Agency Comments and Additional Information Provided by the Reserve Bank
of India:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Department of Commerce:
Appendix III: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Selected Firms Importing BPT Services from India Compared with
BEA Mailing Lists:
Table 2: List of BEA Surveys:
Figures:
Figure 1: Total U.S. Imports of Both Private Services and Other Private
Services, 2003:
Figure 2: Comparison of U.S.-Reported and India-Reported Data on Trade
in Selected Services between the United States and India, 2002 and
2003:
Figure 3: India-Reported Total Worldwide Exports of Information
Technology and Software Services, 1999 to 2003:
Abbreviations:
BEA: U.S. Bureau of Economic Analysis:
BOP: balance of payments:
BPT: business, professional, and technical:
ESC: Electronics and Computer Software Export Promotion Council:
IMF: International Monetary Fund:
IRS: Internal Revenue Service:
IT-ITES: Information Technology and Information Technology-Enabled
Services:
NASSCOM: National Association of Software and Service Companies:
OECD: Organization for Economic Co-operation and Development:
RBI: Reserve Bank of India:
STPI: Software Technology Parks of India:
Letter October 27, 2005:
Congressional Committees:
The offshoring of services from the United States to overseas locations
has grown recently and is the subject of debate over its extent and
consequences for the United States. We reported in September 2004 that
one category of services trade--business, professional, and technical
(BPT) services--is most often associated with services
offshoring.[Footnote 1] We also noted that imports from India--a major
source of services offshoring--were rising, but that a gap exists
between U.S. and Indian trade data on these services. The extent of and
reasons for this gap are important to understand in order to address
questions about the magnitude of offshoring and to analyze its future
development.
In response to widespread congressional interest, we have prepared this
report under the authority of the Comptroller General of the United
States. We examine in this report several issues related to the gap
between U.S. and Indian trade data on BPT services. Specifically:
* What is the extent of the gap between U.S. and Indian data on trade
in BPT services?
* What factors explain the difference between U.S. data on imports of
BPT services and India's data on exports of those same services?
* What challenges has the United States faced in collecting services
data?
To address these questions, we compared U.S. and Indian services trade
data, reviewed official methodologies, and interviewed U.S. and Indian
government officials from relevant agencies, including the Department
of Commerce's U.S. Bureau of Economic Analysis (BEA) and the Reserve
Bank of India (RBI). In order to examine the coverage of BEA surveys
for collecting services data, we supplied BEA with a list of companies
we collected to compare with its mailing lists. We identified these
companies through publicly available sources, including public media,
company filings with the Securities and Exchange Commission, annual
reports of companies, the list of National Association of Software and
Service Companies (NASSCOM) members, and lists of companies compiled by
information technology interest groups. Our lists of firms are not
necessarily representative of all U.S. firms importing from India, and
we do not generalize our results. We also met with representatives and
reviewed documents from members of NASSCOM, which assists in collecting
India's services data. We interviewed a range of U.S. and Indian
businesses that supply these data to the United States and India and
reviewed relevant literature on the reliability of U.S. statistics.
NASSCOM did not provide us with their methodology for ensuring the
reliability of their data. However, RBI recently released a public
report outlining a new methodology to collect services exports data
separately from NASSCOM, and in accordance with balance of payments
(BOP) requirements of the International Monetary Fund (IMF).[Footnote
2] As a U.S. government agency, we do not have review authority over
these data. Therefore, we were not able to independently assess the
quality and consistency of these data. However, for the purposes of
this report, we found both U.S. and Indian data to be sufficiently
reliable for reporting the difference between the official U.S. and
Indian trade data in BPT services. We conducted our analysis in
accordance with generally accepted government auditing standards from
March 2005 through September 2005. A detailed description of our scope
and methodology appears in appendix I. This report is one of a series
of reports that we plan to issue on offshoring.
Results in Brief:
A significant gap exists between U.S. and Indian data on trade in BPT
services. U.S. data indicate that U.S. firms import a small fraction of
what India reports as exports to the United States in this category,
and this trade--as well as the difference in these data--is growing.
For 2002, the United States reported $240 million in unaffiliated
imports of BPT services from India, while India reported about $6.5
billion in affiliated and unaffiliated exports in similar services
categories.[Footnote 3] For 2003, the United States reported $420
million in unaffiliated imports of BPT services from India, while India
reported approximately $8.7 billion in affiliated and unaffiliated
exports of similar services to the United States. Thus, the gap in data
has increased by about one-third from 2002 to 2003.
At least five definitional and methodological factors contribute to the
difference between U.S. and Indian data on BPT services. First, India
counts the earnings of temporary Indian workers residing in the United
States as exports to the United States. However, the United States only
includes temporary foreign workers who have been in the United States
less than 1 year and who are not on the payrolls of firms in the United
States. Indian officials estimate that this factor may account for 40
to 50 percent of the difference between U.S. and Indian data. Second,
India defines services more broadly than does the United States. For
example, Indian data on trade in services include packaged software and
software embedded on computer hardware, which the United States
classifies as trade in goods. An Indian official estimated that this
factor accounts for approximately 10 to 15 percent of Indian exports.
In addition, India includes in its data certain information technology-
enabled services, such as some financial services, that are not
included in BEA's definition of BPT services. Third, India treats sales
to U.S.-owned firms located outside of the United States as exports to
the United States, but the United States does not count these as
imports. For each of these three definitional factors, the United
States follows IMF standards.[Footnote 4] Fourth, for trade between
U.S. firms and their foreign affiliates, BEA does not report BPT data
by country due to its concerns about the quality of responses it
receives from firms when they allocate their affiliated imports to
detailed types of services. Therefore, U.S. import data on BPT services
from India are available for unaffiliated parties only, while Indian
data include both affiliated and unaffiliated trade but do not separate
them. Finally, there may be other collection or methodological
differences between the United States and India that contribute to the
overcounting or undercounting of services trade.
BEA faces challenges in identifying the full range of U.S. services
importers and in collecting quality services data. We provided BEA with
lists of firms that public sources indicated are likely importers of
services from India, and asked BEA to match these lists against its
mailing lists. We found that BEA survey data did not include some of
these firms. Although most of these firms were on BEA's mailing list,
some were not; therefore, they were not surveyed. BEA stated it had
previously eliminated many of these firms because they did not have
reportable transactions or were below survey exemption levels.
Subsequently, BEA conducted further research on the firms that it did
not identify and added several of these firms to its mailing lists. In
addition, it appears that BEA should have sent multiple surveys to some
of our identified firms for different types of services imports, thus
potentially undercounting imports. However, BEA has taken several
actions over time to improve survey data and coverage, such as outreach
to survey recipients, initiating external reviews of its programs, and
collaborating with other federal agencies, but challenges still remain.
For example, the U.S. Census Bureau (Census) maintains a large database
of U.S. companies with names and addresses that BEA could use to
identify additional importers of services. However, data-sharing
limitations exist, and BEA is negotiating with Census and the Internal
Revenue Service regarding BEA's accessing Census data to expand its
mailing lists for surveys.
We are recommending that the Secretary of Commerce direct BEA to
systematically expand its sources of information for identifying firms
to survey. BEA should consider ways to improve both its identification
of the appropriate survey forms to send to firms and the information it
requests about services imports, particularly regarding affiliated
imports. We also recommend that BEA continue to pursue additional
company information from previous Census surveys and consider
requesting Census to add questions to future surveys to help identify
services importers.
We provided a draft copy of this report to the Department of Commerce
for its review and comment. Commerce generally agreed with the
recommendations in our report. In addition, while this report was being
finalized, we received additional information from the Reserve Bank of
India and incorporated this information in the report where
appropriate.
Background:
As we reported in September 2004, improvements in information
technology, decreasing data transmission costs, and expanded
infrastructure in developing countries have facilitated services
offshoring. Offshoring is reflected in services import data because
when a company replaces work done domestically with work done overseas,
such as in India or China, the services are now being imported from
overseas. For example, when a U.S.-based company pays for a service
(such as computer and data processing services in India), the payment
is recorded as a services import (from India in this example). BEA
reports data on trade in services that are frequently associated with
offshoring.
BEA's trade in services data consist of cross-border transactions
between U.S. and foreign residents and comprise five broad categories
of services. One of these five categories of services is "other private
services," which includes key sectors associated with offshoring under
the subcategory of BPT services.[Footnote 5] In 2003, BPT services
accounted for $40.8 billion or 48 percent of U.S. imports of "other
private services," which totaled $85.8 billion.[Footnote 6] (See fig.
1.)
Figure 1: Total U.S. Imports of Both Private Services and Other Private
Services, 2003:
[See PDF for image]
[End of figure]
U.S. data on BPT services differentiate between affiliated and
unaffiliated trade. Affiliated trade occurs between U.S. parent firms
and their foreign affiliates and between foreign parent firms and their
affiliates in the United States; while unaffiliated trade occurs
between U.S. entities and foreigners that do not own, nor are owned by,
the U.S. entity. In 2003, total U.S. imports of affiliated BPT services
accounted for approximately $29.9 billion, or about 73 percent of all
U.S. imports of these services. BEA does not disaggregate affiliated
trade by country, in particular types of services, due to its concerns
about the accuracy and completeness of data firms' report. Total U.S.
imports of unaffiliated BPT services amounted to approximately $11.0
billion in 2003, or about 27 percent of the total unaffiliated U.S.
imports of BPT services.[Footnote 7] According to U.S. data, the growth
of U.S. trade in BPT services has been rapid. For example, from 1994 to
2003, total unaffiliated U.S. imports of these services more than
doubled. In addition, U.S. exports of unaffiliated BPT services almost
doubled during the same period.
To report data on trade in BPT services, BEA conducts mandatory
quarterly, annual, and 5-year benchmark surveys of firms in the United
States. In administering its services surveys, BEA seeks to collect
information from the entire universe of firms with transactions in BPT
services above certain threshold levels for the period covered by each
survey. The mailing lists for the surveys include firms in the United
States that have previously filed a survey and other firms that BEA
believes may have had transactions in the services covered by the
survey. The mailing lists of firms receiving surveys are derived, in
part, from U.S. government sources, industry associations, business
directories, and various periodicals. Firms receiving the surveys are
required to report transactions above a certain threshold value, which
BEA believes, in theory, captures virtually the entire universe of
transactions in the services covered by its surveys. Those firms with
transactions falling below the threshold value are exempt from
reporting data by type of service, but they are asked to voluntarily
provide estimates of the aggregate value of their transactions for all
services covered by the survey.
The trade data that BEA produces help government officials, business
decision makers, researchers, and the American public to follow and
understand the performance of the U.S. economy. For example, analysts
and policy makers use U.S. trade data to assess the impact of
international trade on the U.S. balance of payments and the overall
economy. In addition, U.S. trade data are used by trade policy
officials to negotiate international trade agreements.
A Significant Gap Exists between U.S. and Indian Trade-in-Services
Data:
U.S. data show a significantly smaller volume of trade in BPT services
between India and the United States than Indian data show. BEA data on
U.S. imports of unaffiliated BPT services from India indicate that U.S.
firms import only a small fraction of the total that India reported in
exports of similar services to the United States. In addition, this gap
has grown between 2002 and 2003. This gap does not exist just for U.S.
and Indian data. A similar gap also exists between other developed
countries' import data and Indian export data.[Footnote 8]
BEA data show a rapid increase in U.S. imports of unaffiliated BPT
services from India. For 2002, the total unaffiliated U.S. imports of
BPT services from India totaled approximately $240 million. For 2003,
the total unaffiliated U.S. imports of BPT services from India
increased to about $420 million.[Footnote 9] India reports exports to
the United States of similar services of about $6.5 billion for 2002
and $8.7 billion for 2003.[Footnote 10] Thus, the value of the gap
between U.S. and Indian data in 2002 was approximately $6.2 billion
and, in 2003, was about $8.3 billion, an increase of about one-
third.[Footnote 11] (See fig. 2.)
RBI, which is India's central bank, is responsible for reporting
official Indian data on trade in services. However, RBI data on trade
in services incorporate the data collected by India's primary
information technology association--the National Association of
Software and Service Companies (NASSCOM). To improve the completeness
of the data NASSCOM provides to RBI, NASSCOM includes data on the
software services exports it receives from an Indian government
program, the Software Technology Parks of India (STPI). While RBI does
not provide country-specific data on India's exports of services to the
United States, NASSCOM's data do provide a country-specific breakdown.
Thus, the data cited above for India come from NASSCOM. According to a
recent RBI report, a technical group recommended in 2003 that RBI
compile data on software and information technology exports through
quarterly surveys, and through a comprehensive survey to be conducted
every 3 years. The first of these studies was released in September
2005, as our report was being finalized, and provides data on Indian
exports of computer services for 2002.[Footnote 12] The 2005 RBI report
showed that India reported approximately $4.3 billion in computer
services exports to the United States and Canada for 2002 (2003 data
have not yet been provided).[Footnote 13] Although RBI's report did not
provide an estimate of the U.S. share of these exports, on the basis of
NASSCOM's estimate that 80 to 85 percent of exports to North America
were destined for the United States in 2002, we estimate that India
exported approximately $3.5 billion in computer services to the United
States.
Figure 2: Comparison of U.S.-Reported and India-Reported Data on Trade
in Selected Services between the United States and India, 2002 and
2003:
[See PDF for image]
Note: Although BEA data were collected on the basis of a respondent's
fiscal year, they approximate a calendar year basis. However, NASSCOM
reports data for India's fiscal year (April 1 to March 31).
[End of figure]
Five Factors Contribute to the Difference between U.S. and Indian Trade
in Services Data:
Those examining trends in offshoring often compare U.S. and Indian data
series; however, there are at least five factors that make this
comparison difficult and affect the difference between U.S. and Indian
data. These factors relate to (1) the treatment of services provided by
foreign temporary workers in the United States; (2) the definition of
some services, such as computer programs embedded in goods and certain
information technology-enabled services; (3) the treatment of
transactions between firms in India and the overseas offices of U.S.
firms; (4) the reporting of country-specific data on trade in
affiliated services; and (5) the sources of data and other
methodological differences in the collection of services trade data.
India's Treatment of Earnings of Foreign Temporary Workers Providing
Services in the United States Contribute to the Difference in U.S. and
Indian Trade Data:
According to U.S. and Indian officials, U.S. and Indian data differ in
their treatment of salaries paid to certain temporary foreign workers
providing services to clients in the United States. U.S. data do not
include such salaries as cross-border trade in services. The United
States only includes the salaries paid to temporary foreign workers who
have been in the United States less than 1 year and are not on the
payrolls of firms in the United States. However, Indian data do
include, as Indian exports, the value of services provided by Indian
workers employed in the United States for more than 1 year, according
to Indian officials. The U.S. approach accords with the international
standards of IMF. According to BEA and international standards, cross-
border trade in services occurs between residents of a country and
nonresidents, or "foreigners," and residency of a temporary foreign
worker employed abroad is based, in part, on the worker's length of
stay in the country. Therefore, according to these standards, if a
temporary foreign worker stays or intends to stay in the United States
for 1 year or more, that worker is considered a U.S. resident, and the
value of the work performed is not included in U.S. import data.
The treatment of services provided by temporary foreign workers in the
United States is likely a significant factor contributing to the
difference between U.S. and Indian data, according to Indian officials.
Some Indian officials estimated that in past years, approximately 40
percent of India's exports to the United States of services
corresponding to BPT services were delivered by temporary Indian
workers in the United States. For example, for 2002, RBI found that
approximately 47 percent of India's global exports of computer services
occurred through the on-site delivery of services by temporary Indian
workers.
India Defines Services Differently Than Does the United States:
U.S. and Indian data differ, in part, due to differences in how both
countries count services trade. India counts as trade in services
certain transactions in software that are classified as trade in goods
in U.S. data. For example, Indian data on trade in services include
software embedded on computer hardware, which the United States
classifies as trade in goods. Consistent with internationally
recommended standards, the United States does not separate the value of
embedded software that is physically shipped to or from the United
States from the overall value of the media or computer in which it is
installed.[Footnote 14] Thus, the value of such software is not
recorded as trade in services but is included in the value of the
physical media and hardware--which are counted as trade in goods in
U.S. data. We were not able to determine the extent to which this
factor contributes to the difference in U.S. and Indian data because we
found no estimates of the proportion of embedded software in Indian
data on services exports to the United States. Indian officials stated
that the difference in the treatment of embedded software likely does
not significantly contribute to the difference in data because India
exports a relatively low value of embedded software. For example,
according to Indian officials, the portion of India's global services
exports delivered through physical media and hardware accounts for 10
to 15 percent of the total value of India-reported exports of services
corresponding to BPT services.
U.S. and Indian data also differ in how they define services in their
respective data series. Unlike BEA, RBI and NASSCOM do not report data
under the category of BPT services. RBI officials stated that it
reports trade data on services similar to BPT services under the
category of Software Services. RBI does not report a breakdown of its
data on software services into subcategories of services. According to
a NASSCOM official, NASSCOM classifies its trade data on services that
most closely correspond to BPT services under Information Technology
and Information Technology-Enabled Services (IT-ITES). The
subcategories of services under this classification do not directly
correspond to the subcategories of BPT services, but are similar. For
example, under its IT-ITES classification, NASSCOM reports data on IT
Services and Software, while BPT services include computer and data
processing, and database and other information services. However,
NASSCOM includes data on certain information technology-enabled
services, such as certain financial services, that are not included in
BEA's definition of BPT services, but are recorded separately. Although
these categories roughly compare, a reconciliation of these
subcategories has not yet been done. Thus, we were not able to
determine the extent to which these definitional differences contribute
to the difference between U.S. and Indian data.
India Counts Sales to Overseas Offices of U.S. Firms as Exports to the
United States:
The treatment of services involving the overseas offices of U.S. firms
by BEA and India is another factor explaining some of the difference
between U.S. and Indian data. Unlike the United States, India counts
the sales of services from firms in India to U.S.-owned firms outside
the United States as exports to the United States. U.S. data do not
count such sales as U.S. imports of services from India, because BEA
considers the overseas offices of U.S. firms to be residents of the
countries where they are located rather than residents of the country
of the firm's owners. The U.S. approach is consistent with
international standards.
U.S. and Indian officials could not provide us an estimate of the
extent to which the treatment of transactions involving the overseas
offices of U.S.-owned firms contribute to the difference in U.S. and
Indian data. However, one high-level Indian official stated that it is
likely a significant factor.
U.S. and Indian Data Differ in the Reporting of Affiliated Trade in
Services:
The reporting of affiliated trade in services differ in U.S. and Indian
data. BEA reports country-specific data only for unaffiliated U.S.
imports of BPT services, while Indian data include both affiliated and
unaffiliated trade in services but do not separate the two. BEA reports
detailed data only for unaffiliated trade because it has concerns about
the accuracy and completeness of the data that firms report about
affiliated trade in BPT services by country. For example, multinational
firms with global offices may find it difficult to establish where,
between whom, and what type of services have been transacted; and
report these data along national lines to a statistical agency. BEA
does collect data on overall affiliated services trade, but it reports
only the total value across all countries due to its concerns about the
reliability of how companies are allocating these totals to specific
countries. In addition, due to concerns over the reporting burden on
U.S. companies, BEA collects less detailed data on affiliated
transactions than on unaffiliated transactions.
U.S. data on overall affiliated trade across all countries show that a
significant majority of total U.S. imports of BPT services take the
form of trade between parents and affiliates. For example, for 2003,
approximately three-quarters of all U.S. imports of BPT services--about
$29.9 billion--represented trade within multinational firms. If U.S.-
Indian trade in these services reflects this overall share of trade
through affiliates, then unreported affiliated trade with India may be
much larger than the unaffiliated trade that is reported. Therefore,
the lack of reported data on affiliated imports of BPT services
contributes to the difference in data.
Other Data Collection and Methodological Differences May Contribute to
the Difference between U.S. and Indian Data:
There are differences in the sources of data the United States and
India use to collect data on trade in services, which may contribute to
overcounting or undercounting of services trade. While both BEA and
NASSCOM prepare estimates of cross-border trade in services by
surveying qualifying firms, U.S. and Indian data differ in the universe
of such firms covered by their survey methodologies.
The universe of firms in India exporting services is relatively easily
identified because these firms have an incentive to report data on
their exports of services and tend to be concentrated in certain
industries. For example, firms exporting software services are required
to report export data to the government of India's STPI program. STPI
requires firms to report these data in order to comply with India's
foreign exchange controls and to qualify for certain tax incentives and
infrastructure benefits. To improve the completeness of its own survey
data from its member firms, NASSCOM incorporates information on other
exporters collected under the STPI program prior to providing these
data to RBI. In addition, services exporting firms tend to be
concentrated in certain industries. For instance, according to Indian
officials, NASSCOM surveys its member firms in India to collect the
annual dollar value of these firms' exports. The member firms that
NASSCOM surveys number approximately 900 and, according to a NASSCOM
official, these firms contribute a large share of India's total exports
of these services. In addition, RBI has begun its own comprehensive
survey of companies, which according to RBI, covered all of the
identified companies engaged in software and IT services exports
activities. RBI identified these companies on the basis of lists
provided by NASSCOM, STPI, and the Electronics and Computer Software
Export Promotion Council (ESC).
In contrast to how India identifies firms exporting services, BEA does
not have an easily available list of services importers. Instead, it
must identify firms from public sources. BEA acknowledges that its
survey methodology may contribute to the undercounting of U.S. imports
of services due, in part, to the difficulty it faces in identifying the
universe of services importers. The firms in the United States that BEA
surveys to estimate U.S. imports are in many different industries and
number in the thousands. Thus, BEA notes that it is difficult to
establish and maintain a comprehensive mailing list for all U.S. firms
importing services from foreign sources, particularly if the group of
firms that import services changes substantially from year to year. In
addition, maintaining accurate coverage using surveys is particularly
difficult when there is rapid growth in the activity, as is the case
with BPT services imports from India. Under BEA regulations, BEA
exempts smaller importers from reporting their imports.[Footnote 15]
Instead, it estimates these imports on the basis of a sample. If the
value of smaller transactions is higher than BEA assumes in its
estimation procedures, then imports of services would be understated.
BEA, therefore, may undercount the total value of U.S. imports of
services.
The data collection entities--BEA and NASSCOM--also differ
significantly in mission and scope. BEA is the U.S. agency charged with
collecting, analyzing, and reporting official statistics on a broad
range of U.S. imports and exports of services. BEA is regarded as a
leading statistical organization, and it provides both statistical
concepts and best practices to other countries and statistical
organizations worldwide. NASSCOM is not a government statistical
agency. It is a private trade association that represents the interests
of the software and services industry in India, and data collection is
but one element of a broader mission that focuses on representing that
industry. Recently, RBI has recognized a need to reexamine the current
methodology on the collection of software exports data, and is
utilizing a methodology to collect services data in accordance with IMF
standards.[Footnote 16] As a U.S. government agency, we were not able
to fully review India's methodologies, but we did further examine in
the next section of this report the challenges BEA faces in collecting
services statistics.
BEA Encounters Challenges in Surveying All U.S. Importers of Business,
Professional, and Technical Services:
BEA faces challenges in collecting services import data, including
identifying the full universe of services importers. To test its survey
coverage, we provided BEA with lists of firms that we identified from
public sources as likely importing BPT services from India. Although
the BEA mailing lists included most of the firms we identified, they
did not include all of these firms. In addition, BEA may be
undercounting imports because it is challenging to identify all of the
applicable surveys to send to firms. BEA also has not always received
quality survey responses from firms. BEA has taken action to improve
survey coverage and responses through outreach to survey respondents
and by attempting to collaborate with other federal agencies, but it
has not been able to access data that could assist in identifying the
universe of firms importing services.
BEA Has Challenges in Tracking Services Offshoring Trends:
Services offshoring presents its own challenges for statistical
agencies. As previously discussed, identifying services importers
becomes difficult if the group of firms and individuals importing
services changes over time, or if there is a rapid increase in services
imports. In the case of BPT services, both the United States and India
have reported a rapid increase of exports to the United States and BEA
may be undercounting U.S. firms importing such services from India due
to this growth. (See fig. 3.) BEA acknowledges that it is able to
identify a higher proportion of U.S. exporters than U.S. importers.
This is because exporters tend to be large firms providing one
particular type of service and are concentrated in certain industries,
while importers vary in size and industry affiliation. Thus, BEA
officials expressed concern that they are not able to identify and
survey small firms that import BPT services infrequently, and are
potentially undercounting U.S. trade in these services.
Figure 3: India-Reported Total Worldwide Exports of Information
Technology and Software Services, 1999 to 2003:
[See PDF for image]
[End of figure]
Test of Firms Importing from India Confirms Challenges to Collecting
Services Data:
To test for potential undercounting of U.S. imports, we provided BEA
with lists of firms that we identified through publicly available
sources as likely to be importing BPT services from India.[Footnote 17]
BEA then (1) reviewed its mailing lists of firms that were sent surveys
to verify that it had previously identified and surveyed these firms
and (2) verified whether the firms we identified reported imports from
India. Table 1 shows the following:
* BEA had included in its mailing lists 87 of the 104 firms we
identified as likely importing BPT services from India; thus, BEA did
not send surveys to 17 of these firms. After further analysis, BEA
added 13 of these firms to its mailing lists and has sent them surveys,
thus improving the universe of services importers.
* Of the 66 affiliated firms that received surveys, 48 firms received
the quarterly survey for affiliated imports; thus, BEA did not send 18
affiliated firms this quarterly survey, although they received other
surveys.
* Of the 21 unaffiliated firms that received surveys, 6 received the
quarterly survey for unaffiliated imports; thus, BEA did not send 15
unaffiliated firms this quarterly survey, although they received other
surveys.
BEA may miss some BPT services imports because it is difficult to
identify the total number of surveys that apply to all of the services
transactions for which each firm was qualified.[Footnote 18] On the
basis of the review of our lists, it appears that some of the firms
that BEA identified in at least one of its comprehensive mailing lists
were not on the mailing lists for other surveys that we expected. These
firms likely had transactions covered by surveys other than the one
they received. For example, several companies we identified as having
an affiliate office in India did not receive one of the surveys for
affiliated transactions, although these firms received a survey for
unaffiliated transactions.
With respect to BEA's effort to verify whether firms that we identified
actually reported imports from India, of the 51 firms responding to the
quarterly surveys, 15 firms indicated imports from India. Thus, 15 of
the 104 firms we identified on the basis of public-source data as
likely importing BPT services from India, reported those imports to
BEA. High-level BEA officials indicated that it is possible that
companies are not reporting country information because they fall below
the survey exemption levels and, thus, were not required to provide
such detailed data to BEA. BEA requests firms falling below survey
exemption levels to voluntarily report aggregate transactions for all
countries combined, without a country-specific breakdown.
Table 1: Selected Firms Importing BPT Services from India Compared with
BEA Mailing Lists:
Firms: Affiliated;
GAO-identified firms: 81;
Firms on any BEA mailing list: 66;
Firms receiving appropriate[A] survey: 48;
Firms responding to appropriate surveys: 46;
Responding firms indicating imports from India: 12.
Firms: Unaffiliated;
GAO-identified firms: 23;
Firms on any BEA mailing list: 21;
Firms receiving appropriate[A] survey: 6;
Firms responding to appropriate surveys: 5;
Responding firms indicating imports from India: 3.
Firms: Total;
GAO-identified firms: 104;
Firms on any BEA mailing list: 87;
Firms receiving appropriate[A] survey: 54;
Firms responding to appropriate surveys: 51;
Responding firms indicating imports from India: 15.
Source: GAO analysis of BEA data.
Note: The publicly available sources utilized to identify these firms
included data covering the period from 2001 to 2005.
[A] Appropriate surveys refer to those surveys that we believe firms
should have received on the basis of publicly available information
about their investments and imports.
[End of table]
While these results cannot be generalized, they confirm the challenges
of collecting services import data. However, they do not provide an
indication of the magnitude or extent of these challenges. In addition,
our lists of firms were based on a review of multiple sources of
publicly available information. Without directly surveying each firm,
however, it is not possible to confirm that they actually purchased BPT
services from India.
BEA is addressing concerns related to the identification of U.S.
importers, the undercounting of services, and the administration of its
surveys. For example, BEA contracted with a private firm to undertake
an external review of its data sources and methods of identifying these
services importers. The review will examine the extent of undercounting
in both affiliated and unaffiliated services transactions, including
the possible sources of undercounting, and any additional methods or
sources of information that will improve survey coverage. The goals of
this effort include identifying the extent of qualified firms that are
not currently on the survey mailing lists, and to improve the estimates
of international transactions. BEA expects the results of this review
early in fiscal year 2006. BEA also has made efforts to ensure that
firms receive the surveys for which they are qualified. BEA routinely
sends surveys to firms that may be exempt from reporting in order to
make a determination that they are still exempt. In addition, firms
having transactions in services not covered in the surveys they receive
are required to request additional surveys from BEA.
BEA Has Not Received Quality Responses on Affiliated Trade by Country:
In order to report data on trade in services, BEA needs to receive
accurate and complete survey responses. However, BEA notes that the
information it receives from firms on their affiliated imports of
particular types of services has not proved sufficiently reliable to
support the release of country-level estimates. As previously
discussed, BEA is able to report overall affiliated trade for specific
countries, but it is not able to report BPT trade for specific
countries. This is because BEA has concerns over the quality of
responses it receives from firms when they allocate affiliated imports
to detailed types of services. Global firms may have difficulty
accurately attributing services exported to the United States when
their operations are spread across multiple countries. In addition, a
high-level BEA official said that firms may not fully report all of
their affiliated transactions for which they should report. This
official noted that these reporting difficulties may reflect business
record-keeping practices, which are intended to meet financial
reporting requirements, rather than government surveys.
In order to address these challenges, BEA is taking action to improve
the quality of survey responses and to overcome the difficulty of
reporting detailed data on affiliated imports of services. For example,
an examination of BEA's data on affiliated transactions is a component
of BEA's contract with a private firm that is conducting an external
review of BEA's data sources and methods of identifying services
importers. In addition, BEA has requested Census to conduct an external
review of its survey forms and instructions, and to make
recommendations that would improve clarity and promote accurate
reporting. BEA is also performing its own review of its surveys to
determine the clarity of survey instructions and is providing training
to survey recipients on how to complete the surveys accurately. In
addition, to improve the quality of its data on affiliated services
imports, including affiliated imports of BPT services, BEA is
considering collecting data on both affiliated and unaffiliated
transactions on the same survey form. BEA is also considering expanding
the types of affiliated BPT services for which it requests data to
match the detailed data it collects on unaffiliated imports of BPT
services.
BEA Has Difficulty in Gaining Access to Other Federal Agency Data:
BEA is currently negotiating access to data from other federal agencies
to expand its existing sources of data and to improve its survey
coverage, but BEA has been unable to access this data from other
federal agencies. According to BEA officials, other federal agencies,
such as Census, possess data that could assist BEA in preparing its
estimates of trade in services, including information on firms in the
United States that could be importing services. For example, Census
surveys firms to collect data of firms' business expenses, which
include the purchase of BPT services. These surveys may be useful to
identify importers because large purchasers of services may also be
importing these services. The survey data that Census currently
collects are not directly useful for BEA because the data on business
expenses do not separate domestic from international expenses and do
not distinguish between affiliated and unaffiliated transactions.
However, BEA would get name and addresses of potential services
importers. In addition, BEA could potentially request that Census add
questions to one or more of the surveys that Census administers in
order to identify services importers.
However, BEA currently faces legal restrictions in gaining access to
data utilized by Census. Although federal laws allow such data sharing
between Census and BEA, BEA is generally restricted from gaining access
to federal tax information that Census obtains from the Internal
Revenue Service. According to BEA officials, BEA is negotiating with
Census and the Internal Revenue Service to gain access to sources of
data to improve its mailing lists.
Conclusions:
The large difference between U.S. and Indian data on BPT sources makes
the analysis of the extent of offshoring more difficult. Some of this
difference in data can be attributed to varying definitions of BPT
services, but some also appears to be due to incomplete U.S. data. BEA
has been seeking various ways to improve the overall quality of U.S.
services trade data, but our test of whether they had identified BPT
service importers indicated that they were not identifying all U.S.
importers of services. Given the importance of this category of data in
understanding the extent of offshoring of services, a subject of
continuing public and congressional concern, we believe that additional
efforts to strengthen the quality of U.S. services data are merited.
Recommendations:
We are recommending that the Secretary of Commerce direct BEA to
systematically expand its sources of information for identifying firms
to survey. BEA should consider ways to improve its identification of
the appropriate survey forms to send to firms and the information
requested about services imports, particularly with regard to
affiliated imports. We also recommend that the Secretary direct BEA to
pursue additional company information from previous Census surveys and
consider requesting Census to add questions to future surveys to help
identify services importers.
Agency Comments and Additional Information Provided by the Reserve Bank
of India:
The Department of Commerce provided written comments on the draft
report, which are reproduced in appendix II. Commerce concurred with
our recommendation that BEA should strive to improve its coverage of
services imports. In particular, Commerce agreed that BEA should pursue
additional company information from Census. Commerce also provided
technical comments, which we incorporated into the report as
appropriate.
Following the receipt of agency comments from Commerce, RBI publicly
released a report outlining a new methodology to compile services
export data in accordance with IMF standards. Although RBI's new survey
methodology conforms more closely to IMF standards for defining
international transactions in services, differences between U.S. and
Indian data remain due to a variety of factors we discuss in this
report. For example, the RBI report acknowledges that Indian data
include not only exports of computer-related services but also exports
of ITES. Since the primary objective of RBI's survey was to collect
data on software exports in conformity with IMF's definition of
computer services, RBI's survey data exclude data from companies
exclusively exporting ITES, and include only data on computer services.
However, RBI's report does not indicate that RBI's survey methodology
addresses other factors contributing to the difference between U.S. and
Indian data. For example, it appears that RBI's survey data include the
earnings of foreign temporary workers employed abroad without taking
into account their length of stay or intention to remain abroad. RBI
estimated this on-site work to account for approximately 47 percent of
India's total worldwide exports, although some portion of this total
may include services provided by temporary Indian workers employed
abroad for over 1 year. In addition, RBI's report does not indicate
that sales of embedded software are excluded from RBI's survey data.
We are providing copies of this report to interested congressional
committees and the Secretary of Commerce. Copies will be available to
others upon request. In addition, the report will be available at no
charge on the GAO Web site at [Hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report, please
contact Mr. Yager on (202) 512-4128. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this report. Other GAO contacts and staff acknowledgments are
listed in appendix III.
Signed by:
Loren Yager:
Director, International Affairs and Trade:
List of Committees:
The Honorable Charles Grassley:
Chairman:
The Honorable Max Baucus:
Ranking Member:
Committee on Finance:
United States Senate:
The Honorable Susan Collins:
Chairman:
The Honorable Joseph Lieberman:
Ranking Minority Member:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable Bill Thomas:
Chairman:
The Honorable Charles Rangel:
Ranking Minority Member:
Committee on Ways and Means:
House of Representatives:
The Honorable Tom Davis:
Chairman:
The Honorable Henry A. Waxman:
Ranking Minority Member:
Committee on Government Reform:
House of Representatives:
[End of section]
Appendixes:
Appendix I: Scope and Methodology:
This report discusses (1) the extent of the difference between U.S. and
Indian data on trade in business, professional, and technical (BPT)
services, (2) the factors that explain the difference between U.S. data
on imports of BPT services and India's data on exports of those same
services, and (3) the challenges that the United States has faced in
collecting services data.
To obtain information on the extent of the difference between U.S. and
Indian services trade data, we analyzed and compared U.S. and Indian
data and interviewed U.S. and Indian government officials from the
relevant agencies, including the U.S. Bureau of Economic Analysis
(BEA), and the Reserve Bank of India (RBI). RBI relies on a trade
association, the National Association of Service and Software Companies
(NASSCOM), to collect data on these services. Although we reviewed
NASSCOM's survey form and discussed with a NASSCOM official the
collection of their statistics, NASSCOM did not provide us with their
methodology for ensuring the reliability of their data. Therefore, we
were not able to independently assess the quality and consistency of
their data. However, for the purposes of this report, we found these
data to be sufficiently reliable for reporting the difference in the
official U.S. and Indian trade data in BPT services.
To determine the factors that explain the difference in U.S. and Indian
trade data, we reviewed official methodologies, interviewed relevant
officials, and conducted a search of available literature. We reviewed
documentation and technical notes from BEA and RBI to determine the
U.S. and Indian methodologies for collecting and reporting trade in
services data and to assess the limitations and reliability of various
data series. We discussed these topics with BEA officials. In addition,
we traveled to India to interview RBI officials and NASSCOM
representatives and to obtain documentation on the collection and
limitations of Indian data. We also interviewed a range of U.S. and
Indian businesses in India that supply trade data to the United States
and India to determine how they report data. We performed a literature
search and obtained information from the Brookings Institution, the
Institute for International Economics, and the Organization for
Economic Co-operation and Development (OECD). To determine the
international standards for collecting and reporting trade-in-services
data, we reviewed relevant documentation from international
organizations, including the International Monetary Fund and the United
Nations.
In September 2005, as our report was being finalized, RBI released a
report entitled "Computer Services Exports from India: 2002-03," which
discusses the methodology and results of a comprehensive survey that
RBI conducted to collect data on India's "computer services" exports
for 2002 in conformity with the International Monetary Fund's Balance
of Payments Manual, 5TH edition (1993). The RBI report provides
information about RBI's survey methodology, including the number and
types of companies surveyed and the information sought through the
survey. In addition, the report outlines recommendations for RBI to
collect data on software and information technology exports through
representative quarterly surveys and a comprehensive survey every 3
years. We incorporated this additional information from the RBI report
where appropriate.
To examine the coverage of BEA's surveys for collecting trade-in-
services data, we supplied BEA with lists of U.S.-based companies we
identified as likely importers of services from India to compare with
its mailing lists. We developed two lists. The first list included the
names and addresses of companies in the United States with affiliate
offices in India that are likely importing BPT services from India
through affiliates. The second list included the names and addresses of
companies that are likely purchasers of services through unaffiliated
parties in India. We identified these companies through publicly
available sources, including public media, company filings with the
Securities and Exchange Commission, annual reports of companies, the
list of NASSCOM member companies, and lists of companies compiled by
information technology interest groups. Our lists of firms are not
necessarily representative of all U.S. firms importing from India, and
we do not generalize our results.
We asked BEA to compare these lists with the following mailing lists
for affiliated and unaffiliated surveys to identify how many companies
it was surveying:
Table 2: List of BEA Surveys:
Mailing list: Affiliated Business, Professional, and Technical
Services;
BEA survey: BE-577.
Mailing list: Affiliated Computer and Information Services;
BEA survey: BE-577.
Mailing list: Unaffiliated Business, Professional, and Technical
Services;
BEA survey: BE-25, BE-22.
Mailing list: Unaffiliated Computer and Information Services;
BEA survey: BE-25.
Source: GAO presentation of BEA data.
[End of table]
We requested that BEA provide us with the number of companies from both
lists that BEA was able to identify and not identify on its
corresponding mailing lists. For companies that received a survey, we
asked BEA to identify the number of these companies that responded to
the survey and provided information on purchases from India. For
companies that were not on any mailing list, BEA was asked to identify
(1) whether the firms were excluded from its mailing list because they
were assumed to be below exemption levels for the particular survey,
(2) whether the firms are on BEA's current mailing list for the
particular survey, and (3) whether the firms are listed on other BEA
mailing lists. We discussed the results of this review with BEA
officials.
To assess the challenges the United States has faced in collecting and
reporting data on trade in services, we reviewed relevant BEA
documentation and interviewed BEA officials. We reviewed BEA
documentation to determine BEA's data limitations and to assess the
challenges BEA faces in collecting and reporting U.S. data on trade in
services. To determine the challenges of expanding BEA's survey
coverage through interagency data sharing we interviewed officials at
BEA and the U.S. Census Bureau (Census), and we reviewed Census
documentation. We also interviewed BEA officials to discuss these
identified challenges and to determine the plans and actions BEA has
taken to improve the quality of U.S. data. Finally, we interviewed
Internal Revenue Service (IRS) officials to gain an understanding of
IRS policy on restricting access to federal tax information that the
IRS provides to Census.
We performed our work from March 2005 through September 2005 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Comments from the Department of Commerce:
THE DEPUTY SECRETARY OF COMMERCE:
Washington, D.C. 20230:
September 21, 2005:
Mr. Loren Yager, Director:
International Affairs and Trade:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Yager:
The U.S. Department of Commerce appreciates the opportunity to comment
on the U.S. Government Accountability Office draft report, U.S. and
India Data on Offshoring Show Significant Differences (GAO 05-976). 1
enclose the Department's comments on this report.
Signed by:
David A. Sampson:
Enclosure:
U.S. Department of Commerce Comments on the U.S. Government
Accountability Office Draft Report Entitled:
"U.S. and India Data on Offshoring Show Significant Differences":
GAO 05-976:
We support GAO's recommendation that the Bureau of Economic Analysis
(BEA) should strive to improve its coverage of services imports and, in
particular, that BEA work to obtain additional company information from
the Census Bureau. As GAO is aware, before this GAO study began, BEA
had initiatives underway that would help accomplish these objectives.
We appreciate your confirmation that these initiatives are worthwhile.
As your report notes, there are large differences between U.S. and
Indian data on trade in services, and only a small percentage of
India's reported exports of services are matched in the mirror
statistics of Organization of Economic Cooperation and Development
importing countries. The Indian statistics are not consistent with
balance of payments reporting standards issued by the International
Monetary Fund and followed by the United States and most other
countries. India's inclusion of transactions that, under international
definitions, should be excluded from services exports to the United
States seem to account for much - perhaps even a substantial majority -
of the difference between the Indian and U.S. estimates.
Nonetheless, we agree that some portion of the differences between the
U.S. and Indian estimates may reflect under-reporting on BEA's surveys.
However, when BEA contacted the companies that GAO identified from
public sources as likely having imports from India, BEA did not
identify any company with substantial imports of services that were not
already being reported to BEA. We do agree, though, that BEA's mailing
lists should be improved. We appreciate that your report identifies
initiatives that BEA has underway to improve its estimates, including
an external review of its statistical procedures for estimating
unreported transactions, an external review of the clarity of its
surveys and instructions, and increased outreach to survey respondents.
BEA also has been negotiating with the Census Bureau and the Internal
Revenue Service to obtain access to the Census Bureau's database of
U.S. companies, which may enable BEA to identify additional importers
of services.
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Loren Yager, (202) 512-4128:
Staff Acknowledgments:
In addition to the person named above, Virginia Hughes, Bradley Hunt,
Ernie Jackson, Sona Kalapura, Judith Knepper, Robert Parker, Cheryl
Peterson, and Tim Wedding made major contributions to this report.
(320325):
FOOTNOTES
[1] GAO, International Trade: Current Government Data Provide Limited
Insight into Offshoring of Services, GAO-04-932 (Washington, D.C.:
Sept. 22, 2004).
[2] Reserve Bank of India, Balance of Payments Statistics Division,
Department of Statistical Analysis and Computer Services, Computer
Services Exports From India: 2002-03 (Mumbai: September 2005). The full
report may be accessed at
http://www.rbi.org.in/scripts/BS_ViewBulletin.aspx.
[3] Affiliated trade occurs between U.S. parent firms and their foreign
affiliates and between foreign-owned firms in the United States and
their foreign parent companies; while unaffiliated trade occurs between
U.S. entities and foreigners that do not own, nor are owned by, the
U.S. entity. BEA does not report bilateral affiliated BPT services data
(see discussion in the next section of this report).
[4] The recently released RBI report documents India's efforts to
compile export data in conformity with definitions given in IMF's
Balance of Payments Manual, 5TH edition (1993) and the Manual on
Statistics of International Trade in Services (2002).
[5] Selected BPT services that are relevant to offshoring include such
subcategories as accounting, auditing, and bookkeeping; architectural,
engineering, and other technical; computer and data processing;
database and other information; legal; management, consulting, and
public relations; and research, development, and testing. Other
categories, such as financial services, may also involve offshoring.
[6] Preliminary services trade data for 2004 are available, but
primarily at an aggregate level. Since data at a country and detailed
service level are not available for affiliated BPT services, we discuss
2003 data. For 2004, U.S. imports of total private services amounted to
about $263.1 billion, and U.S. imports of other private services
totaled about $95.7 billion.
[7] For 2004, total U.S. imports of unaffiliated BPT services increased
to $12.5 billion.
[8] Organization for Economic Co-operation and Development, Information
Technology Outlook 2004 (Paris: 2004).
[9] BEA data on U.S. imports from India of selected BPT services show a
similar trend. For example, of the total unaffiliated U.S. imports of
BPT services from India, BEA reported $186 million for 2002 and $372
million for 2003 in unaffiliated U.S. imports of selected BPT services
that are particularly relevant to offshoring. These selected BPT
services include computer and information services; research,
development, and testing services; and management consulting and public
relations services.
[10] India's data reported here include the category of IT and IT-
enabled services (ITES). BEA's definition of BPT services is not
identical to this Indian category, although they roughly compare. We
discuss this difference further in the next section of this report.
Furthermore, RBI recently provided new data and definitions on computer
services exports, which exclude exports of ITES services.
[11] However, U.S. data on BPT imports as a share of Indian data on
exports of BPT services, narrowed over this time period. In 2002, U.S.
data on BPT imports were about 3.7 percent of Indian data on BPT
exports. In 2003, U.S. data on BPT imports increased to about 4.8
percent of Indian data on BPT exports.
[12] Computer services as defined by IMF's Balance of Payments Manual
include the following: databases, such as development, storage, and
online time series; data processing, including tabulation, provision of
processing services on a time-share or specific basis, and management
of the facilities of others on a continuing basis; hardware
consultancy; software implementation; and maintenance and repair of
computer and peripheral equipment.
[13] RBI's report did not provide us with a U.S. dollar value of
services exports; therefore, we converted the values provided using the
rupee/dollar exchange rate published by IMF for 2002.
[14] IMF, Balance of Payments Manual, 5th edition (Washington, D.C.:
1993); and United Nations, European Commission, IMF, Organization for
Economic Co-operation and Development, United Nations Conference on
Trade and Development, and World Trade Organization, Manual on
Statistics of International Trade in Services, (Geneva; Luxembourg; New
York; Paris; and Washington, D.C.: 2002).
[15] Under 15 C.F.R. § 801, U.S. persons and intermediaries are
required to report annual transactions with unaffiliated foreigners for
transactions of over $1 million in any one kind of service. Respondents
whose transactions fall below this level must report the total level of
transactions in all services. Under 15 C.F.R. § 806, for transactions
with affiliated foreigners, quarterly and annual reporting are required
only for affiliates whose total assets, sales, or net income exceed $30
million. For majority-owned foreign affiliates, detailed foreign direct
investment reporting is required if assets, sales, or net income is
greater than $100 million.
[16] Upon the recommendation of India's National Statistical
Commission, RBI developed a technical group consisting of members of
the Ministry of Commerce, NASSCOM, STPI, the State Bank of India, and a
few major software companies to recommend better ways to collect data
on software and IT exports.
[17] The sources utilized were publicly available and included the
following: media articles covering the period from 2002 to 2005;
information technology association lists compiled using 2001 to 2005
data; and Securities and Exchange Commission filings and annual reports
using 2004 data.
[18] BEA uses separate surveys to collect data on affiliated and
unaffiliated trade in services. To collect data on unaffiliated trade
in BPT services, BEA uses quarterly, annual and 5-year benchmark
surveys of selected services transactions with unaffiliated foreign
persons (BE-25, BE-22, BE-20). BEA collects data on affiliated trade in
BPT services using BEA's surveys of direct transactions of U.S.
Reporter with Foreign affiliate (BE-577), and 5-year benchmark surveys
of U.S. direct investment abroad (BE-10). Affiliated trade-in-services
data are also collected through the benchmark (BE-12) and quarterly (BE-
605) surveys of foreign direct investment. A firm's operations may span
several of these categories; thus, BEA sends some firms multiple
surveys.
GAO's Mission:
The Government Accountability Office, the investigative arm of
Congress, exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability
of the federal government for the American people. GAO examines the use
of public funds; evaluates federal programs and policies; and provides
analyses, recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO's commitment to
good government is reflected in its core values of accountability,
integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through the Internet. GAO's Web site ( www.gao.gov ) contains
abstracts and full-text files of current reports and testimony and an
expanding archive of older products. The Web site features a search
engine to help you locate documents using key words and phrases. You
can print these documents in their entirety, including charts and other
graphics.
Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as "Today's Reports," on its
Web site daily. The list contains links to the full-text document
files. To have GAO e-mail this list to you every afternoon, go to
www.gao.gov and select "Subscribe to e-mail alerts" under the "Order
GAO Products" heading.
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. Government Accountability Office
441 G Street NW, Room LM
Washington, D.C. 20548:
To order by Phone:
Voice: (202) 512-6000:
TDD: (202) 512-2537:
Fax: (202) 512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm
E-mail: fraudnet@gao.gov
Automated answering system: (800) 424-5454 or (202) 512-7470:
Public Affairs:
Jeff Nelligan, managing director,
NelliganJ@gao.gov
(202) 512-4800
U.S. Government Accountability Office,
441 G Street NW, Room 7149
Washington, D.C. 20548:
