International Trade:

U.S. and India Data on Offshoring Show Significant Differences

GAO-06-116: Published: Oct 27, 2005. Publicly Released: Oct 27, 2005.

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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.

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.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Secretary of Commerce should 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.

    Agency Affected: Department of Commerce

    Status: Closed - Implemented

    Comments: GAO reported in October 2005 (GAO-06-116) a gap between U.S. and Indian trade data in category of services associated with offshoring. The GAO report identified a number of factors contributing to the difference, and reported on the challenges the U.S. Bureau of Economic Analysis (BEA) experiences in identifying all U.S. services importers and obtaining quality survey data from importers. To improve the overall quality of services trade data, GAO recommended that the Secretary of Commerce direct BEA to expand its sources of information for identifying firms to survey and consider ways to improve its administration of surveys in order to collect needed information on services imports, particularly with regard to affiliated imports. In response to GAO's recommendations, BEA has undertaken a number of actions. First, BEA has made improvements to its mailing lists of firms to survey. To better identify potential respondents for its benchmark survey, BEA purchased a commercial mailing list of potential survey respondents and established an internal mailing list team to identify new services importers. Second, 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, BEA redesigned its surveys covering trade in services to consolidate coverage of affiliated and unaffiliated trade in services in the same survey. Beginning in the first quarter of 2007, BEA expanded and moved survey questions on affiliated trade in services from the quarterly survey of US direct investment abroad (BE-577) and the quarterly survey of foreign direct investment in the United States (BE-605) to the quarterly survey of selected services (BE-125) and the quarterly survey of financial services (BE-185), which had previously collected only inabilities trade data. Third, to help identify services importers, in 2007 BEA requested and received authorized access to company information from the Bureau to supplement BEA sample frames for its surveys of US direct investment abroad, foreign direct investment in the United States, and US international services transactions. In addition, following BEA request the Census Bureau added two questions to the 2006 Company Organization Survey (COS) requesting data from firms on services purchased from any foreign entities and whether the purchases exceeded a threshold amount. At BEA request, Census sent the COS survey to an additional 20,000 smaller firms to identify smaller services importers.

    Recommendation: The Secretary of Commerce should 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 Affected: Department of Commerce

    Status: Closed - Implemented

    Comments: GAO reported in October 2005 (GAO-06-116) a gap between U.S. and Indian trade data in category of services associated with offshoring. The GAO report identified a number of factors contributing to the difference, and reported on the challenges the U.S. Bureau of Economic Analysis (BEA) experiences in identifying all U.S. services importers and obtaining quality survey data from importers. To improve the overall quality of services trade data, GAO recommended that the Secretary of Commerce direct BEA to expand its sources of information for identifying firms to survey and consider ways to improve its administration of surveys in order to collect needed information on services imports, particularly with regard to affiliated imports. In response to GAO's recommendations, BEA has undertaken a number of actions. First, BEA has made improvements to its mailing lists of firms to survey. To better identify potential respondents for its benchmark survey, BEA purchased a commercial mailing list of potential survey respondents and established an internal mailing list team to identify new services importers. Second, 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, BEA redesigned its surveys covering trade in services to consolidate coverage of affiliated and unaffiliated trade in services in the same survey. Beginning in the first quarter of 2007, BEA expanded and moved survey questions on affiliated trade in services from the quarterly survey of US direct investment abroad (BE-577) and the quarterly survey of foreign direct investment in the United States (BE-605) to the quarterly survey of selected services (BE-125) and the quarterly survey of financial services (BE-185), which had previously collected only inabilities trade data. Third, to help identify services importers, in 2007 BEA requested and received authorized access to company information from the Bureau to supplement BEA sample frames for its surveys of US direct investment abroad, foreign direct investment in the United States, and US international services transactions. In addition, following BEA request the Census Bureau added two questions to the 2006 Company Organization Survey (COS) requesting data from firms on services purchased from any foreign entities and whether the purchases exceeded a threshold amount. At BEA request, Census sent the COS survey to an additional 20,000 smaller firms to identify smaller services importers.

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