The 1997 data on sales of services by U.S. affiliates of foreign companies are based on new industry classifications derived from the 1997 North American Industry Classification System (NAICS); the data for prior years are based on classifications derived from the 1987 Standard Industrial Classification (SIC)./1/ The industry disaggregation shown for the 1997 data on sales of services by U.S. affiliates reflects the NAICS-based classifications and a new treatment of petroleum-related activities; these activities are now distributed among the NAICS-based industry groups to which they belong rather than consolidated in the major industry "petroleum." The use of the NAICS-based classifications—which provide greater industry detail than was previously available—required a redefinition of sales of services by U.S. affiliates. This redefinition has created a discontinuity in this series between the estimates for 1997 and the estimates for earlier years; it also has reduced the comparability between this series and the series on sales of services by foreign affiliates, for which data are still collected using SIC-based classifications./2/

The NAICS is the new industry classification system of the United States, Canada, and Mexico; in the United States, it supplants the 1987 SIC system. Among other improvements, NAICS better reflects new and emerging industries, industries involved in the production of advanced technologies, and the growth and diversification of services industries. The International Survey Industry (ISI) classifications that are based on the NAICS were first used in the 1997 benchmark survey of foreign direct investment in the United States, which collected the data on sales of services by U.S. affiliates of foreign companies./3/

The NAICS-based classifications also group industries that use similar processes to produce services. For example, the new NAICS sector "Information" groups industries that primarily create and disseminate intellectual property subject to copyright. This sector combines activities that produce information with the activities that provide the means for distributing it (other than through traditional trade distribution channels) (see table 10.2). In the 1987 SIC, activities in the "Information" sector are classified in a number of different industries; for example, publishing is classified in manufacturing; broadcasting, in communications; software production, in computer services; and film production, in amusement services. The new NAICS sectors "Professional, Scientific and Technical Services" and "Health Care and Social Assistance" cover activities that had previously been included in the "Services" division of the 1987 SIC./4/

As a result of using the NAICS-based classifications, sales of services by U.S. affiliates of foreign companies have been redefined. In the 1997 benchmark survey, respondents were instructed to report as sales of services all sales that were associated with any of a specified group of NAICS-based industries; previously, they reported all sales associated with any of a specified group of SIC-based industries (see the note to table C).

The redefinition raises the measure of sales of services by U.S. affiliates of foreign companies. For the most part, sales that are included under the NAICS-based definition of sales of services are also included under the SIC-based definition and vice versa. However, some sales that are included in services under the NAICS-based definition—particularly those characteristic of publishers of newspapers, periodicals, books, and records and those characteristic of restaurants—are included in sales of goods under the SIC-based definition. The NAICS-based definition also excludes some sales that the SIC-based definition includes, particularly those characteristic of land subdividers, of firms that reproduce software and video, and of dental laboratories. Neither the sales that are newly included in sales of services nor those that have been reclassified to sales of goods can be precisely measured with the data reported in the 1997 benchmark survey. However, those data—including information reported by affiliates on the distribution of their sales by industry of sales—indicate that there is a net movement of sales into services under the redefinition. As a result, sales of services account for a larger share—and sales of goods, for a smaller share—of total sales by U.S. affiliates under the NAICS-based definitions.

The NAICS-based definitions of "sales of goods" and "sales of services" are closer to the general concepts of "goods" and "services" than the SIC-based definitions. For example, restaurants are included in retail trade in the SIC, so sales by restaurants are treated as sales of goods; under the NAICS-based classification, restaurants are included in the service industry "accommodation and food services," and their sales are treated as sales of services. The new treatment better reflects the importance of meal preparation, table service, and the provision of facilities for on-site consumption—services that differentiate restaurants from grocery stores and other establishments that provide unprepared food to retail customers (the sales of such establishments are treated as sales of goods).

Footnotes:

1. See Office of Management and Budget, North American Industry Classification System: United States, 1997 (Washington, DC, 1998), and Office of Management of Budget, Standard Industrial Classification Manual, 1987 (Washington, DC: U.S. Government Printing Office, 1987). Information on NAICS can be accessed on the Internet at <www.census.gov/epcd/www/naics.html>.

2. The data on sales by foreign affiliates will be collected using NAICS-based classifications and definitions, beginning with the data for 1999. These data will be published in preliminary form in 2001.

3. Additional information on the new NAICS-based ISI classifications is provided in the box on industry classifications in the article on foreign direct investment in the United States in the August 1999 SURVEY and in the Guide to Industry and Foreign Trade Classifications for International Surveys, which can be accessed on BEA's Web site at <www.bea.doc.gov/bea/surveys.htm>.

4. For additional information on the differences between the NAICS and the SIC classifications, see NAICS: United States, 1997 and Bureau of the Census, 1997 Economic Census, Core Business Statistics Series, Advance Report (Washington, DC, March 1999), which can be accessed at <www.census.gov/epcd/www/econ97.html>. A concordance between the NAICS-based ISI codes and the SIC-based ISI codes can be accessed at <www.bea.doc.gov/bea/surveys.htm>.