Order Code RL32829
CRS Report for Congress
Received through the CRS Web
Trade Issues in the 109th Congress:
Policy Challenges and Opportunities
Updated July 29, 2005
William H. Cooper
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress
Trade Issues: Policy Challenges and Opportunities
Facing the 109th Congress
Summary
The 108th Congress completed a full trade agenda with the passage of legislation
on a broad spectrum of issues. The 109th Congress is expected to face a trade agenda
that will be at least as extensive, covering a wide range of issues, from extension of
presidential trade promotion (fast track) authority to consideration of more free trade
agreements and oversight of the World Trade Organization (WTO) trade
negotiations. In some respects these issues are distinct, each with its own policy and
economic implications. In other respects the issues are interrelated. They have
emerged from common sets of domestic political, foreign policy, and economic
factors and affect or are affected by the concerns of Members of Congress, of other
policymakers and of many interest groups. These issues and how policymakers deal
with them will define overall U.S. trade policy.
Several have already come before the 109th Congress. The Bush Administration
requested and received a two-year extension of its trade promotion authority. The
Congress also debated U.S. participation in the WTO as it considered but did not
pass a congressional resolution to withdraw from the WTO. In addition, the
Administration sent and the Congress passed legislation to implement a free trade
agreement with five Central American countries plus the Dominican Republic, the
DR-CAFTA. The 109th Congress may also consider legislation to implement a free
trade agreement with Bahrain and debate legislation and issues regarding trade
preferences for developing countries and the effectiveness of U.S. trade remedy
statutes.
Each issue or set of trade issues bears its own implications as Members of
Congress weigh the merits and disadvantages. In most cases, the 109th Congress will
be considering and debating each issue separately. However, the trade issues as a
whole have implications for a wider debate on U.S. trade policy. As the 109th
Congress addresses these issues, its decisions will have implications for key
questions that help define U.S. trade policy in the long-term.
This report will generally cover the trade issues as they unfold. However, it will
not track legislation per se. The report will be updated as events warrant.
Contents
Placing Trade Issues In Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Economic Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Political Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Trade Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Extension of Trade Promotion Authority (TPA) . . . . . . . . . . . . . . . . . . . . . . 6
The World Trade Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
U.S. Participation in the WTO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Doha Development Agenda Negotiations . . . . . . . . . . . . . . . . . . . 8
U.S. Compliance with WTO Decisions: The Byrd Amendment . . . . . 8
Bilateral and Regional Trade Negotiations and Agreements . . . . . . . . . . . . . 9
Issues Pertaining to U.S. Imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
The Elimination of Textile and Apparel Quotas . . . . . . . . . . . . . . . . . 10
Permanent Normal Trade Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Tariff Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Trade Remedy Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Outsourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Bilateral Economic Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
The European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
The Wider Trade Debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Free Trade or Protectionism? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
The Rise of Developing Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Labor, Environment, and Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Shaping the International Trade System . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
The Role of the United States in International Trade . . . . . . . . . . . . . . . . . 20
List of Tables
Table 1. U.S. Trade in Goods and Services, 1995-2004 . . . . . . . . . . . . . . . . . . . . 2
Table 2. U.S. Trade with Major Partners, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . 14
Trade Issues in the 109th Congress: Policy
Challenges and Opportunities
The 108th Congress completed a very full trade agenda with the passage of
legislation:
! to implement U.S. free trade agreements (FTAs) with Australia,
Chile, Singapore, and Morocco;
! to broaden the tariff preferences for sub-Saharan African countries
under the African Growth and Opportunities Act (AGOA);
! to comply with two adverse World Trade Organization (WTO)
determinations by repealing the Extraterritorial Income (ETI) tax
exclusion benefit for exporters and by repealing the 1916
Antidumping Act;
! to authorize the President to grant Armenia and Laos permanent
normal trade relations (PNTR) status;
! to reauthorize the Overseas Private Investment Corporation (OPIC);
and
! to provide temporary removal of tariffs on certain products.1
The 109th Congress is expected to face a trade agenda that will be at least as
extensive, covering a wide range of issues, from extension of presidential trade
promotion (fast track) authority to consideration of more free trade agreements and
oversight of the WTO trade negotiations in the Doha Development Agenda (DDA)
round. In some respects these issues are distinct, each with its own policy and
economic implications. In other respects the issues are interrelated. They have
emerged from common sets of domestic political and economic factors and are
driven by the concerns of Members of Congress, of other policymakers and of many
interest groups. These issues and how policymakers deal with them all help to define
U.S. trade policy.
This report discusses the spectrum of trade issues that the 109th Congress will
likely confront and analyzes how these issues are interrelated. It discusses the
political, economic, and other factors that help to determine how trade policy is
shaped and implemented. This report will generally follow the trade issues as they
unfold and will be updated accordingly. However, it will not track legislation per se.
1 For more information, see CRS Report RL32698, Trade Legislation in the 108th Congress,
by Raymond J. Ahearn.
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Placing Trade Issues In Context
U.S. trade policy is driven by economic factors, such as domestic economic
conditions, growing trade deficits, the importance of trade to the U.S. economy, and
the geographical distribution of U.S. exports and imports, among other factors. It is
also influenced by political factors, such as the role and concerns of Congress in trade
policy, the role and agenda of the President, and the different perspectives that the
two branches bring to the trade debate. These factors may not directly relate to the
trade issue(s) at hand, but they often help to shape the climate in which they emerge
and are debated by the Congress.
Economic Factors
Domestic economic conditions often influence the political agenda for trade
policy. For example, trade policy generates attention when the economy is
experiencing slow economic growth or in recession that leads to escalating
unemployment. Take for example, the structural adjustments that the steel industry
has been experiencing which led to presidential measures to restrict steel imports in
2002.2
Rapidly growing U.S. trade deficits have been among the most prominent
economic factors affecting trade policy. As economists assert, trade deficits are
themselves not the results of trade policy but are the products of broader economic
conditions. Nevertheless, large trade deficits, in many cases, have caused the
Congress to given priority to trade on its agenda. Table 1 below shows U.S. trade
in goods and services from 1995-2004.
Table 1. U.S. Trade in Goods and Services, 1995-2004
(Billions of Dollars)
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
Year
Year
Exports
Imports Balances
Exports
Imports Balances
1995
793.7
888.8
-95.1
2000
1,070.1
1,445.4
-375.4
1996
850.9
953.7
-102.9
2001
1,006.7
1,369.3
-362.7
1997
933.9
1,040.9
-107.0
2002
975.9
1,397.7
-421.7
1998
932.9
1,095.7
-163.2
2003
1,020.5
1,517.0
-496.5
1999
965.5
1,226.7
-261.2
2004
1,146.1
1,763.9
-617.7
Source: U.S. Department of Commerce. International Trade Administration
2 See CRS Report RL31748, The American Steel Industry: A Changing Profile, by Stephen
Cooney.
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In 2004, the U.S. trade deficit hit a record $617.7 billion, a 24.4% increase over
the previous record of $496.5 billion in 2003. During the 10-year (1995-2004)
period, the U.S. trade deficit increased around 550%, from $95.1 billion to $617.7
billion. Most economists attribute the deficits, especially the broader current account
deficits, to macroeconomic factors, including relative real economic growth rates of
the United states and its major trading partners, real exchange rates, and savings and
investment balances in the United States and other countries.3 Trade policy and trade
policy tools have little effect on trade balances, especially in the long run. But trade
deficits, by definition, translate into more U.S. firms and workers being hit by import
competition thereby increasing the pressure for protection.
Related to U.S. trade deficits is the value of the U.S. dollar in terms of other
major currencies. Over time, the U.S. dollar has fluctuated in value. Recently, the
dollar has been depreciating against the euro, the yen, the British pound, and the
other major currencies. Among other reasons for the trend could be a decline in
foreign demand for U.S. assets. In the short run, a depreciating currency acerbates
the trade deficit, but in the longer run, it should reduce the deficit as the lower value
of the dollar translates into cheaper prices for U.S. exports and higher prices for U.S.
imports.4 It can also translate into trade issues, as U.S. firms compete with imports
from countries with fixed exchange rates (such as China) that do not reflect market
forces and may underprice their products in the U.S. markets. While consumers
benefit from lower import prices, import-sensitive manufacturers must make
adjustments to match the competition. These adjustments might include reducing
costs by using labor-saving technology and/or moving some production offshore.
Along with the growing U.S. trade deficits and the value of the U.S. dollar, the
increasing importance of foreign trade in the U.S. economy plays a role in setting
the congressional trade agenda. Openness to trade creates more “winners” and
“losers” from trade, thus, increasing the potential salience of the trade issues. In
1960, the ratio of exports plus imports of goods and services to U.S. gross domestic
product (GDP), as measure of openness, was 9.5%. By 2004, the ratio increased to
25.1%.5 As the United States has become more integrated with the rest of the world
economy, a larger range of economic activities is affected by trade and raises policy
issues. For example, advances in telecommunications technology now allow some
services to be imported or “outsourced” from India and other countries creating
competition for some U.S. domestic providers. However, these same advances also
lower costs to consumers of those services. Should policymakers be concerned with
shifts of manufacturing and service providers overseas?
The geographical distribution of U.S. trade has shifted. In particular, the role
of advanced developed countries has declined while the role of less developed
3 See CRS Report RL31032, The U.S. Trade Deficit: Causes, Consequences, and Cures, by
Craig K. Elwell.
4 See CRS Report RL31985, Weak Dollar, Strong Dollar: Causes and Consequences, by
Craig K. Elwell.
5 CRS calculations based on data in Office of the President. Council of Economic Advisers.
Economic Report of the President 2005. February 2005. p. 208-209.
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countries has expanded. In 1990, 63.9% of U.S. exports went to the industrialized
countries while 35.1% went to developing countries. By 2003, the share of U.S.
exports accounted for by industrialized countries had decreased to 55.0% and that of
developing countries had increased to 45.0%. Similarly, in 1990 58.8% of U.S.
imports came from industrialized countries and 40.9% from developing countries.
In 2003, only 48.0% of imports came from industrialized and 52.0% from developing
countries.6 The rise of the newly industrializing economies of East Asia (Hong Kong,
Singapore, South Korea, Taiwan) and the emergence of Mexico as a significant U.S.
trading partner account for part of this surge; however, much of the increase in
developing countries’ share of U.S. trade derives from China. Between 1990-2003,
China’s share of U.S. imports grew from 3.1% to 12.1% and its share of U.S. exports
rose from 1.2% to 3.9% during that period. Shifts in trade have coincided with rising
concerns about the U.S. ability to compete with countries with low-wages and low
living standards.
The relative share of the United States in world trade has declined over the
years. U.S. exports accounted for 15.7% of world exports in 1960 and 9.7% in 2003.
The decline can be attributed to, among other things, the emergence in the
international trading system of developing countries, for example China, as they have
opened up their economy to the rest of the world. It can also be attributed to the
emergence of the former communist states in Central and Eastern Europe and the
former Soviet Union as they have shed their autarkic central-plan systems.7 Thus, the
United States is forced to compete with more countries in order to promote its
national interests in the international trading system.
Political Factors
Congressional concerns and responsibilities in U.S. trade and trade policy are
extensive. The Constitution assigns chief trade responsibility to the Congress.
Article I, Section 8, states in part that the Congress shall have the authority “to lay
and collect taxes, duties, imposts and excises... [and] regulate commerce with foreign
nations, and among the several states...” For most of U.S. history this responsibility
largely meant setting tariffs on imports into the United States.
With the enactment of the Reciprocal Trade Agreements Act (RTAA) of 1934,
the Congress delegated for limited periods of time the authority to the President to
negotiate trade agreements to reduce tariffs reciprocally. It also delegated to the
President the authority to reduce tariffs by proclamation within certain parameters.
The RTAA was a congressional and executive branch reaction to the growing
political burden on the Congress from tariff administration, to the political reality that
it was easier for Congress to raise tariffs than lower tariffs given the political
6 The calculations are from the International Monetary Fund. Direction of Trade Statistics.
1993 and 2004 Yearbooks. The figures for 1990 do not add up to 100% because the IMF
placed trade with communist countries of Central and Eastern Europe, Cuba, and the former
Soviet Union in a third category. Those countries were placed under “Developing
countries” for the 2003 figures.
7 CRS calculations based on data in IMF. Direction of Trade Statistics. Various issues.
CRS-5
imperative of constituent interests, and to the largely adverse economic results of the
Smoot-Hawley Tariff Act of 1930.8
Over time, trade negotiations have become more complex as trade negotiations
have moved beyond tariffs to nontariff barriers and even to investment, labor,
environment, and other issues. They have moved from the bilateral frameworks
under the original RTAA to the multilateral negotiations under the General
Agreement on Tariffs and Trade (GATT) and its successor organization, the World
Trade Organization (WTO). In 1974, the trade negotiating authority was granted in
the form of expedited (or fast-track) congressional consideration (limited debate and
no amendments) of implementing legislation for proposed agreements.
While delegating trade negotiating authority to the President, the Congress
maintains much control over trade policy. It does so by placing time limits on the
authority, thus requiring the President to return to Congress to request its renewal.
The Congress establishes negotiating objectives that must be adhered to in any
agreement for it to receive expedited (fast-track) treatment in Congress. The
Congress requires that the executive branch notify the Congress when it intends to
enter trade agreement negotiations and when it intends to sign trade agreements. It
also requires the executive branch to consult the Congress during the negotiations.
The Congress most recently granted the authority in 2002 and it expires on July 1,
2005, with an option of a two-year extension. Whether that authority should be
extended for the additional two years is an issue for the 109th Congress.
An overall concern of Members of Congress is that the President is mindful of
Congress’s constitutional authority over trade. In addition, Members want to make
sure the Administration consults the Congress as its pursues negotiations in the
bilateral and multilateral fora and conducts other aspects of U.S. trade policy.
Members are also concerned that U.S. trade policy not unduly harm their
constituents. Some want to make sure that the United States will preserve its ability
to protect U.S. industries from dumped imports and other unfair foreign trade
practices and that the United States holds its trade partners accountable for adhering
trade agreement obligations.
Each presidential administration conducts trade policy based on its own
priorities and strategy. During the Bush Administration’s first term, the United
States pursued an activist trade agenda. It took the lead with the European Union
(EU) and other trade powers in launching a new round of multilateral negotiations
in the WTO; pursued negotiations with individual countries and groups of trade
partners to establish bilateral and regional free trade agreements (FTAs); and used
other initiatives to forge closer economic ties that could lead to free trade agreements.
The Bush Administration’s priorities in its second term appear to include completing
FTA negotiations; launching new negotiations with other trading partners; and
completing of Doha Development Agenda (DDA) round of negotiations in the
WTO.
8 For more discussion, see Nestler, I.M. American Trade Politics: System Under Stress.
Institute for International Economics and the Twentieth Century Fund. 1986. P. 9-36.
CRS-6
In order for U.S. trade policy to be implemented successfully, the legislative and
executive branches must work in tandem. As with many policy issues, conflicts on
trade matters may arise between some Members of Congress and the Administration
because of positions taken by their respective political parties. I n a d d i t i o n ,
however, the Congress and the President bring different institutional perspectives
that can place the two branches in conflict over trade matters regardless of their
party affiliation. In general, Members of Congress are most concerned for the
interests of their respective constituencies — workers, firms, agriculture, and
industries — and the impact of trade on them. The President, as national leader,
must weigh the positions of various groups against other national objectives (such
as national security and foreign policy) in making trade policy.
Trade Issues
The 109th Congess has already faced some, and will likely confront more, trade
issues requiring consideration and debate. How Congress addresses these issues
could have long-term implications for U.S. trade policy.
Extension of Trade Promotion Authority (TPA)
Under the Bipartisan Trade Promotion Authority Act of 2002 of the Trade Act
of 2002 (Title XXI of P.L.107-210), the presidential authority to negotiate trade
agreements that receive expedited (fast track) congressional consideration would
have expired on June 30, 2005, unless the President submitted a request for a two-
year extension by April 1, 2005, along with a justification for its extension. The TPA
extension was also conditioned on neither House of Congress adopting an extension
disapproval resolution by July 1, 2005. The resolution had to be reported out of the
House Ways and Means Committee and the House Rules Committee to receive floor
consideration in the House or by the Senate Finance Committee in order to receive
floor consideration in the Senate.
The President submitted his request for the extension of TPA on March 30,
2005. S. Res.100, a resolution of disapproval, was introduced on April 6, 2005, and
referred to the Senate Finance Committee. The Senate Finance Committee had not
reported out the resolution by July 1, 2005, and no disapproval resolution was
introduced in the House. Therefore, the two-year extension of TPA went has gone
into effect.9
TPA extension allows the Bush Administration to continue to negotiate for the
United States in the DDA round and continue to negotiate FTAs knowing that the
agreements would receive expedited congressional consideration — limited debate
and no amendments.
9 For more details, see CRS Report RS22102, Trade Promotion Authority: Possible Vote
on Two-Year Extension, by Lenore Sek.
CRS-7
The World Trade Organization
Since its founding in 1995, the WTO has embodied the international trade
system. It provides the basic set of principles and rules by which its 148 members
conduct trade among themselves and also provides a mechanism for those members
to settle disputes over adherence to the rules. The WTO is evolving: The
membership is now negotiating expansion and revision of its rules in the Doha
Development Agenda (DDA) round, and countries are negotiating their entry into the
WTO as new members. For some Members of Congress and for some interest
groups, the WTO is controversial. They view the organization’s rules as impinging
on U.S. sovereignty, especially when WTO trading partners are able to challenge
U.S. trade remedy laws for being contrary to WTO rules and principles. On the
other hand, others assert that the WTO provides stability and predictability to the
international trading system by ensuring that member countries’ trade regimes meet
basic standards. The 109th Congress has the opportunity to weigh in on the WTO in
several areas.
U.S. Participation in the WTO. Section 125 of the Uruguay Round
Agreements Act of 1994 (P.L. 103-465) approved the agreement to establish the
WTO. It also provides that beginning in 2000, and every five years thereafter,
Congress will have the opportunity to withdraw the original congressional approval
of the WTO agreement and thus terminate U.S. participation in the WTO. The
withdrawal of approval is conditioned on the enactment of a privileged joint
congressional resolution. The joint resolution must be introduced within 90
legislative days of the President’s mandatory submission of a report on the effects of
WTO participation on the United States. Section 125 lays out legislative procedures
and deadlines for consideration of the joint resolution.
In 2000, a joint resolution was introduced and overwhelmingly defeated in the
House. A companion resolution was not introduced in the Senate. Passage of a joint
resolution is not expected in 2005. However, Members might use debate time on a
proposed resolution to focus on U.S. trade policy and the merits or problems of U.S.
participation in the WTO, especially WTO dispute panel decisions that have gone
against the United States. 10
The Administration submitted its report on WTO participation on March 1,
2005.11 A joint resolution (H.J.Res. 27 (Paul-TX)), was introduced on March 2,
2005. On May 26, 2005, the House Ways and Means Committee reported out the
resolution unfavorably, and the full House defeated the resolution (338-86) on June
10 For more details on the legislative procedures, see CRS Report RL32700, Seeking
Withdrawal of Congressional Approval of the WTO Agreement: Background, Legislative
Procedure, and Practical Consequences, by Vladimir N. Pregelj
11 United States Trade Representative. 2005 Trade Policy Agenda and 2004 Annual Report.
March 1, 2005.
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9, 2005. During the floor debate on the resolution Members debated the costs and
benefits of U.S. participation in the WTO and U.S. trade policy in general.12
The Doha Development Agenda Negotiations. In November 2001, the
United States and the other more than 140 members of the WTO launched what has
become known as the Doha Development Agenda (DDA) round of negotiations. The
Ministerial Declaration mandating the new round states the negotiations were to end
by January 1, 2005. The failure early on to reach agreement on some basic ground
rules, such as the modalities for negotiations on agriculture, made the deadline
unreachable. The negotiations are likely to continue until at least 2006.
Although the Congress has no direct involvement in the negotiations, legislation
establishing TPA requires the executive branch to consult continually with the
Congress during trade negotiations. The Congress could also conduct oversight
hearings on the progress of the negotiations. The DDA covers a broad range of issues
including market access for nonagricultural goods, market access and subsidies for
agricultural products, services trade, and intellectual property rights. Issues that have
been of particular interest to Members include agricultural subsidies, trade remedy
laws (such as antidumping laws), intellectual property rights protection, and foreign
investment.
If and when agreements are completed in the WTO, implementing legislation
would have to be submitted to the Congress and would be subject to congressional
approval. Under the trade promotion authority, the Congress would consider the
implementing legislation for the agreements on an expedited basis.
U.S. Compliance with WTO Decisions: The Byrd Amendment. The
WTO has ruled against the United States in several cases brought against U.S. trade
actions, most of which pertain to U.S. trade remedy laws. In some cases, the WTO
has determined that U.S. implementation of its trade remedy laws does not comply
with WTO rules. In such cases, compliance would require a change in administrative
regulation or practice. However, in some other cases, the determination was that the
U.S. law itself violated U.S. WTO obligations and would require an act of Congress
for the United States to come into compliance.
One such case is the so-called Byrd Amendment. In 2001, 11 WTO members
filed a complaint against the Continued Dumping and Subsidy Offset Act (CDSOA)
of 2000 (Title X of P.L. 106-387), sometimes called the Byrd Amendment after its
original sponsor, Senator Robert Byrd (WV). The law requires the Treasury
Department to distribute revenues, collected from antidumping (AD) and
countervailing duty (CVD) orders, to firms that had been successful petitioners in
the AD and CVD cases. On September 2, 2002, a WTO dispute settlement panel
ruled in favor of the complaining parties on three of the five claims against the
CDSOA. The Appellate Body upheld the findings of the dispute panel that the
CDSOA violates WTO rules. On June 13, 2003, a WTO arbitrator determined that
12 For more details on the congressional debate on this issue, see CRS Report RL32918,
World Trade Organization (WTO): Issues in the Debate on U.S. Participation, by Ian
Fergusson and Lenore Sek.
CRS-9
the United States had until December 27, 2003 to comply with the ruling.
Legislation to repeal the law or otherwise comply with the WTO decision was
introduced but not acted on in the 108th Congress.
In January 2004, eight of the original complaining parties requested WTO
authorization to retaliate against the United States for not complying with the ruling.
On August 31, 2004, the WTO ruled that the eight countries can retaliate.13 To date
only Canada and the European Union (EU) have applied sanctions, but the others are
reserving their right to do so. The law has considerable support within the Congress,
but support also exists for its repeal because failure to act could result on punitive
sanctions on a variety of U.S. exports.
Bilateral and Regional Trade Negotiations and Agreements
The 109th Congress will likely be asked by the Administration to consider
several new bilateral and regional free trade agreements (FTAs). Any FTA would
be subject to congressional passage of implementing legislation. Furthermore, under
the law granting trade promotion authority, the executive branch must consult with
the Congress as trade agreement negotiations proceed. Members of Congress will
likely monitor negotiations, mindful of the potential economic impact of FTAs may
have on their constituents and the United States as a whole.
By overwhelming, bipartisan majorities, the 108th Congress passed
implementing legislation for FTAs with Australia, Chile, Morocco, and Singapore.
In so doing, the Congress implicitly affirmed support of the Bush Administration’s
policy of promoting trade liberalization through bilateral and regional FTAs as well
as through multilateral agreements. It has also supported the Administration’s
strategy to use trade as a foreign policy tool to shore up alliances with countries that
have supported the United States in the war on terrorism and the war in Iraq.
The Bush Administration completed negotiations with five members of the
Central American Common Market (Costa Rica, El Salvador, Guatemala, Honduras,
and Nicaragua) and with the Dominican Republic to form the Dominican Republic-
Central American-United States Free Trade Agreement (DR-CAFTA). The DR-
CAFTA has been controversial. Some Members and interest groups questioned the
adequacy of labor rights and environmental protection provisions. Sugar producers
and some other groups oppose the concessions the United states has made in opening
U.S. agricultural markets. On June 23, 2005, the Administration sent legislation to
the Congress to implement DR-CAFTA. The Senate approved the legislation on
June 30, 2005, and the House passed the legislation on July 27-28, 2005.14 It awaits
the President’s signature.
13 International Trade Reporter, Sept. 9, 2004, p. 1478.
14 For more information on the DR-CAFTA debate, see CRS Report RL31870, The
Dominican Republic-Central America-United States Free Trade Agreement by Jeff
Hornbeck. For more information on the FTAA negotiations, see CRS Report RS20864, A
Free Trade Area of the Americas: Major Policy Issues and Status of Negotiations, by Jeff
Hornbeck.
CRS-10
The United States is conducting FTA negotiations with Panama, Thailand,
Andean countries, and the members of the Southern African Customs Union
(SACU). It recently launched FTA negotiations with the United Arab Emirates
(UAE) and Oman, and may enter into FTA negotiations with other countries during
the next two years. The United States continues to participate in negotiations to
establish a Free Trade Area of the Americas (FTAA), although those discussions
have faltered.15
Debates over implementing legislation on completed FTAs and oversight of
negotiations on new FTAs in the 109th Congress will likely generate critical policy
questions. For example, some Members of Congress have questioned the criteria that
the Bush Administration uses to choose FTA partner countries. They have argued
that many of the recently completed FTAs are with countries whose relatively small
economies do not offer significant commercial opportunities to U.S. exporters and
investors. The Bush Administration has argued that these FTAs are stepping stones
in building regional free trade areas that will offer greater opportunities to the United
States while encouraging economic growth and development in those regions. The
Administration also contends that FTAs assist the United States in defending its
foreign policy and national security interests by strengthening ties with countries that
have cooperated with the United States on the war on terrorism and the war in Iraq.
Trade negotiations also raise concerns about the potential impact of pending
agreements on the U.S. economy as a whole and on specific sectors, particularly
import-sensitive sectors such as some agricultural products and textiles. Economists
have argued that FTAs can create new trade, a positive contribution to the economy,
but can also divert trade from more efficient to less efficient producers by giving
preferential treatment to the imports of the latter, a negative contribution to the world
economic welfare. Members of Congress must weigh the political and economic
gains of achieving increased access to foreign markets in exchange for greater foreign
access to U.S. markets.
Issues Pertaining to U.S. Imports
The 109th Congress will probably confront a spate of issues that relate to access
of imports to U.S. markets. In some cases, the issues pertain to potential surges of
imports of some products. In others, they pertain to tariff preferences the United
States grants to certain developing countries.
The Elimination of Textile and Apparel Quotas. Under the WTO
Agreement on Textiles and Clothing (ATC), member countries phased out quotas on
imports of wearing apparel and textiles from other WTO member countries over a
ten-year period with all the quotas eliminated on January 1, 2005. The ATC was the
successor to the multilateral Multi-Fiber Agreement (MFA) under which developed
country signatories to the General Agreement on Tariffs and Trade (GATT) could
impose quotas on textile and apparel products via bilateral agreements with the
15 For more details about the wide range of U.S. negotiations, see CRS Issue Brief
IB10123, Trade Negotiations During the 109th Congress, by Ian F. Fergusson and Lenore
M. Sek.
CRS-11
exporting country and could impose safeguard measures if surges in textile and
apparel imports caused or threatened to cause injury to the domestic industry.
By eliminating the quotas, WTO members are treating trade in textile and
apparel products the same as trade in other manufactured goods. The elimination of
the quotas is expected to have some impact on the U.S. domestic textile and wearing
apparel producers who employ more 760,000 workers.16 The United States could
impose safeguard measures, if imports of textile and apparel products surge and
threaten or cause serious injury to domestic producers. However, under WTO rules
those measures would be temporary, requiring domestic producers to eventually
adjust to the increased foreign competition. Imports from China and India are
already increasing and may overwhelm producers from other, smaller developing
countries who cannot match their much larger competitors.
The 109th Congress may face the issue of whether to: press the Administration
to take action to protect domestic producers and workers, to take action itself by self-
initiating investigations under section 201 of the Trade Act of 1974 against surges
in imports that cause or threaten to cause serious injury to a domestic industry; and/or
to provide adjustment assistance to textile and apparel firms and workers.
Permanent Normal Trade Status. A number of former communist and
some nominally communist states remain subject to the so-called Jackson-Vanik
amendment of the Trade Act of 1974, as amended. Therefore, their normal trade
status (NTR, also called most-favored nation (MFN)) status depends on fulfilling the
conditions of the amendment. A number of countries, including Russia and
Ukraine, that were part of the former Soviet Union, and other communist states, such
a Vietnam, are in this situation. For these countries to attain permanent normal trade
status (PNTR) requires legislation removing them from the Jackson-Vanik
requirements. (Although they currently receive NTR status, it is subject to
congressional disapproval.)
All of these countries have conditional NTR under Jackson-Vanik (tariffs on
their exports to the United States are lower than would be the case if they did not
have it); therefore, not having PNTR has had no immediate, practical impact on their
trade with the United States. However, all three countries are seeking accession to
the World Trade Organization (WTO). Under WTO rules, the United States would
have to grant them unconditional MFN (or PNTR) upon their accession for the
United States to benefit from the concessions that those countries would make to
enter the WTO and have WTO rules apply to their trade with the United States.
The debate on whether to grant these countries PNTR will possibly include
political, foreign policy, as well as foreign trade matters. For example, issues may
arise over Russian President Putin’s moves to centralize political power in the
Kremlin by eliminating direct elections for regional governors and by putting
16 For more information on the impact of trade on the textile and apparel industry, see CRS
Report RL31723, Textile and Apparel Trade Issues, by Bernard Gelb. For more information
on possible trade actions, see CRS Report RL32168, Safeguards on Textiles and Apparel
Imports from China, by Vivian C. Jones.
CRS-12
political pressure on the domestic press and over his policies toward Chechnya. The
U.S. business community could raise concerns about the business climate in Russia
in the wake of the arrest of Yukos Oil chairman Mikhail Khodorkovsky and the
forced sale of Yukos assets. Concerns might also be raised regarding commitments
in Ukraine and Vietnam towards economic reforms such as protection of intellectual
property rights.17
Tariff Preferences. The United States grants unilateral trade preferences to
groups of developing countries to encourage economic development by extending
duty free treatment to their exports of eligible products to the United States. The
most geographically comprehensive program, the Generalized System of Preferences
(GSP), is due to expire on December 31, 2006. The more geographically targeted
Andean Trade Preferences Act (ATPA) also expires on that date. Legislation to
reauthorize these programs may be introduced during the 109th Congress, and
Congress might consider issues regarding the duration of the authorization,
conditions of country and product eligibility, and the impact of these programs on the
U.S. economy. The 109th Congress might also monitor the implementation of other
trade preference programs such as the Caribbean Basin Initiative (CBI) and the
African Growth and Opportunity Act (AGOA) that provide more favorable
preferences to those regions than is the case under GSP. Some Members have
proposed extending additional trade preferences to other poor developing countries,
for example, Haiti and the countries that were hit by the tsunami in December 2004.
Trade Remedy Laws. U.S. trade remedy laws are designed to alleviate the
adverse impact on U.S. industries from some imports. Countervailing duty (CVD)
statutes are to alleviate the impact of imports that benefit by foreign government
subsidies. Antidumping duty (AD) laws counter the effects of imports that are
dumped (sold at less than fair value). The escape clause (also called “Section 201”
for the provision of the Trade Act of 1974) authorizes measures to restrict imports
that are sold fairly but at such rapid rates as to cause or threaten to cause serious
injury to domestic producers of like products.
There are also U.S. trade remedy laws (such as section 301 of the Trade Act of
1974) designed to address foreign barriers to U.S. exports and provisions to deal with
the lack of foreign protection of IPR (special 301). Some Members of Congress have
questioned the effectiveness of these laws and/or the executive branch’s effectiveness
in implementing the laws. They have proposed changes that would strengthen the
protection of domestic producers.18 Other have proposed that U.S. CVD laws apply
to non-market economies, such as China.
Major U.S. trading partners have challenged (in some cases successfully) the
legality of U.S. trade remedy laws in the WTO. For example, the Byrd amendment
(discussed under the WTO issues) and the U.S. 1916 Antidumping Act (which was
17 For more information on these issues, see CRS Report RS21123, Permanent Normal
Trade Relations (PNTR) Status for Russia and U.S.-Russian Economic Ties and CRS Issue
Brief IB98033, The Vietnam-U.S. Normalization Process, by Mark E. Manyin.
18 For more information, see CRS Report RL32371, Trade Remedies: A Primer, by Vivian
C. Jones.
CRS-13
been repealed by the 108th Congress) were challenged successfully. They have also
challenged how the United States has implemented its trade remedy laws, arguing
that the procedures the United States uses to make determinations in AD and CVD
cases do not conform to rules under WTO agreements. Many U.S. trading partners
are seeking tighter rules on trade remedy laws in the Doha Development Agenda
round negotiations in the WTO.
U.S. trade remedy laws could be the subject of oversight hearings and also
legislation. Congress will probably closely monitor trade agreements that include
changes in U.S. trade remedy laws.
Outsourcing. For many years, U.S. multi-national firms have dis-aggregated
their production processes to allow them to take advantage of labor costs and other
attributes in foreign countries. At first they would import some parts to be assembled
as final products in the United States. This was followed by investment in whole
production facilities abroad for re-export back to the United States or to third
markets. Recent reports indicate that U.S. multi-nationals are subcontracting or
“outsourcing” the actual design of computer hardware, software, and other
electronics products to offshore firms.19 This trend may raise important policy issues
for the 109th Congress as Members consider the impact on constituent firms and
workers and well as the impact on the U.S. economy as a whole.20
Bilateral Economic Relationships
Five individual and regional trading partners dominate U.S. foreign trade and
therefore have a significant impact on U.S. trade policy and the trade agendas of the
Congress and the President: the European Union, Canada, Mexico, China and Japan.
Together these trading partners accounted for close to 70% of U.S. merchandise trade
in 2004.
19 See for example, Outsourcing. Business Week. March 21, 2005.
20 See CRS Report RS21883, Insourcing and Outsourcing of Jobs in the U.S. Economy:
An Overview of the Evidence Based on Foreign Investment Data, by James K. Jackson.
CRS-14
Table 2. U.S. Trade with Major Partners, 2004
(Billions of Dollars)
Trade
U.S. Exports
U.S. Imports
Total Trade
Balances
World
817.9
1,469.7
2,287.6
-651.7
European Union
172.6
282.6
455.2
-110.0
Canada
189.1
255.9
445.0
-66.8
Mexico
110.8
155.8
266.6
-45.1
China
34.7
155.8
190.5
-162.0
Japan
54.4
129.6
184.0
-75.2
Source: U.S. Department of Commerce data
In most cases, billions of dollars of trade flows between each partner without
incident. In addition, the United States works closely with these trading partners in
the WTO and other multilateral institutions. Occasionally, however, trade disputes
arise. Because of the size and importance of the relationships, these disputes raise
concerns with the Congress and are often the subject of oversight hearings, if not
legislation. Such will likely be the case during the 109th Congress.
The European Union. The economic relationship between the United States
and the European Union (EU) is the largest in the world — and growing. The
modern U.S.-European economic relationship has evolved since World War II,
broadening as the six-member European Community expanded into the present 25-
member European Union. The ties have also become more complex and
interdependent, covering a growing number and type of trade and financial activities.
In 2004, $455.2 billion flowed between the United States and the EU in
merchandise trade. The EU as a unit is the largest merchandise trading partner of
the United States. In 2004, the EU accounted for $172.6 billion of total U.S. exports
(or 21.1%) and for $282.6 billion of total U.S. imports (or 19.2%) for a U.S. trade
deficit of $110.0 billion.
U.S.-EU disputes have become increasingly complex. The issues in question
are no longer just border trade issues (tariffs and other customs regulations) but also
differences over competition policy and government regulations, disputes that
impinge on the sovereign right of nations to run their economies in their national
interests.
Several issues in the relationship are simmering and could erupt into full blown
disputes in the next two years. The European Union is a party to the case in the
WTO over the failure of the United States to comply with the adverse WTO ruling
on the Byrd amendment. Whether the EU decides to retaliate may depend on whether
CRS-15
the U.S. Congress acts to repeal the Byrd amendment or takes other action to comply
with the WTO decision.
Another perennial issue has been over alleged government subsidies for Boeing
and Airbus Industrie by their home governments. The United States had threatened
to take the EU to the WTO over what it claims are WTO-illegal subsidies by the EU
governments of a new large commercial airliner by Airbus Industrie. The EU
counterclaims that the U.S. company Boeing, the only other producer of large
commercial airliners, is subsidized by the U.S. government through defense and
space contracts and through other assistance. The two sides have agreed to work out
their differences in bilateral discussions, but if the discussions fail, the dispute could
be taken to the WTO. Other issues may erupt as well. 21
Canada. Canada is the largest single-country U.S. trading partner. It is the
largest market for U.S. exports and largest source of U.S. imports. The two countries
are also closely tied by stocks of foreign direct investment in each other’s economies,
with many industries and sectors interlinked across the border. The tight relationship
was institutionalized on January 1, 1989, when the U.S.-Canada FTA went to effect.
The FTA was superceded when NAFTA entered into force on January 1, 1994.
Agricultural trade is among the most potent disputes in U.S.-Canada trade given
the importance of the sector to both economies and has drawn a great deal of
congressional attention. Two issues in particular are long-running and very divisive.
The first pertains to the shipment of Canadian cattle into the United States. In
2003, the United States banned all Canadian beef imports because of the discovery
of a case “mad cow” disease. Subsequently, the Bush Administration allowed some
types of beef products to be imported but has still maintained tight restrictions on
most beef imports, including live cattle. U.S. and Canadian agriculture officials had
been discussing ways to establish procedures to reopen the U.S. border to live
Canadian beef. (Trade in processed or packaged beef has already resumed.) On
January 5, 2005, the U.S. Department of Agriculture issued a rule to go into effect
on March 7, 2005 that would permit additional beef imports from Canada including
live cattle younger than 30 months. U.S. cattlemen oppose the rule, and the Ranchers
Cattlemen Action Legal Fund brought a case which led to a ruling by the a U.S.
District Court judge suspending the implementation of the rule. In addition, on
March 3, 2005 the Senate passed a joint resolution to block the implementation of the
rule.22 However, U.S. meat-packers have supported the rule and seek its
implementation.
A second issue concerns imports of softwood lumber from Canada. U.S. lumber
producers claim that low stumpage fees that provincial governments charge for
lumber harvested from public lands and other practices constitute illegal government
21 For more information on U.S.-EU economic relations, see CRS Issue Brief IB10087, U.S.-
European Trade Relations: Issues and Policy Challenges.
22 For more information on the U.S.-Canada beef importing issue see CRS Report RL32627,
Bovine Spongiform Encephalopathy (“Mad Cow Disease”) and Canadian Beef Imports, by
Geoffrey S. Becker and Curtis W. Copeland.
CRS-16
subsidies to the Canadian lumber industry. After a five-year 1996 U.S.-Canadian
lumber agreement that imposed tariffs on Canadian softwood lumber expired, the
U.S. lumber industry filed a series of countervailing duty and antidumping cases
alleging the threat of material injury. The Department of Commerce and the U.S.
International Trade Commission determined that injury and/or threats of injury
existed from dumping and subsidies. Canada has challenged the actions in the
NAFTA dispute settlement mechanism and the dispute settlement mechanism in the
WTO. Canada is awaiting a WTO panel decision on obtaining compensation from
the United States on measures the WTO determined to be illegal.23
Mexico. Mexico is the second largest single-country export market for U.S.
exports (having surpassed Japan) and the third largest source of U.S. imports. In
2004, the United States incurred a trade deficit of $45.1 billion with Mexico.
Bilateral trade had increased rapidly even before the North American Free Trade
Agreement (NAFTA) went into effect on January 1, 1994. Several disputes have
disturbed what on the whole has been a harmonious trade relationship. On January
1, 2002, the Mexican government imposed a 20% tax on soft drinks made with high-
fructose syrup. The U.S. exports high-fructose corn syrup and soft drinks that
contain such syrup. The United States claims that the tax violates Mexico’s
obligations in the WTO, and a dispute resolution panel requested by the United States
is expected to render a decision in 2005. The WTO is also expected to render
decisions on antidumping orders issued by Mexico on imports of U.S. long grain rice
and beef.
Another long-standing issue concerns the right of Mexican trucks to transport
goods throughout the United States. Under NAFTA, Mexican trucks were to obtain
that right in 2000, but the Clinton Administration suspended that concession to
Mexico alleging safety problems with Mexican trucks. Mexico has been pressing the
United States for full compliance with this provision.24
China. China’s relationship with the United States is probably the most
dynamic and contentious. Its merchandise trade with the United has soared. Total
U.S.-China trade has increased from $5.0 billion in 1980 to $231.0 billion in 2004.
The U.S. trade deficit of $162.0 billion with China in 2004 is the largest U.S.
bilateral trade deficit, far exceeding the second largest with Japan at $75.2 billion
deficit with Japan.
The huge trade deficit has generated concerns about the effects of rapidly
growing imports on U.S. import-sensitive industries and workers. Some interest
groups representing labor and certain industries, for example, have focused on
China’s exchange rate regime that pegs the yuan to the U.S. dollar. U.S. critics of
China’s policy charge that China deliberately undervalues the yuan/dollar exchange
rate to underprice its exports and place them at a unfair competitive advantage over
U.S. producers. Eleven bills were introduced in the 108th Congress to press the
23 For more information on the U.S.-Canada softwood lumber trade issue, see CRS Issue
Brief IB10081, Lumber Imports from Canada: Issues and Events.
24 For more information on U.S.-Mexican relations, see CRS Report RL32724, Mexico-U.S.
Relations: Issues for the 109th Congress, by K. Larry Storrs.
CRS-17
President to take action against China alleging currency manipulation, and legislation
has already been introduced in the 109th Congress. U.S. policymakers and affected
industries have also raised concerns about the effectiveness of China’s intellectual
property rights (IPR) protection, the anticipated surge in imports of textiles and
wearing apparel, along with other issues.25
Japan. Japan and the United States are the world’s two largest national
economic powers. Together they account for over 40% of world gross domestic
product, for a significant portion of international trade in goods and services, and for
a major portion of international investment. This economic clout makes the United
States and Japan powerful actors in the world economy. Economic conditions in the
United States and Japan have a significant impact on the rest of the world.
Furthermore, the U.S.-Japan bilateral economic relationship can influence economic
conditions in other countries.
The U.S.-Japan economic relationship is very strong and mutually
advantageous. The two economies are highly integrated via trade in goods and
services — they are large markets for each other’s exports and important sources of
imports. More importantly, Japan and the United States are closely connected via
capital flows. Japan is the largest foreign source of financing of the U.S. national
debt. It will likely remain so for the foreseeable future, as U.S. national debt mounts
and the stock of U.S. domestic savings remains insufficient to finance it. Japan is
also a significant source of foreign private portfolio and direct investment in the
United States, and the United States is the origin of much of the foreign investment
in Japan.
The United States has consistently run merchandise trade deficits with Japan.
After declining in 2003, the deficit rose to $75.2 billion in 2004, still below the
record $81.6 billion reached in 2000. In the 1980s and the 1990s, the U.S.-Japan
economic relationship was often a source of sharp friction due to widespread
Japanese trade barriers and the growing competition posed by Japanese industries (in
autos, for example). The tone has softened considerably, due in part perhaps, to the
increased reliance the two countries have placed on resolving disputes through the
WTO; to the long periods of Japanese economic stagnation that shifted U.S. concerns
from market access for U.S. exports to encouraging the Japanese government to take
steps to reignite its economy; to the relative decline of Japanese exports to the United
States; and to both countries placing greater significance on security matters in the
wake of the September 11, 2001 events and the apparent nuclear threat posed by
North Korea.
Nevertheless, bilateral trade disputes do arise. Japan is a party to the complaint
against the United States in the WTO regarding the Byrd Amendment. The WTO has
authorized retaliation, but the decision on whether to retaliate and to what degree
within WTO authorized parameters will be up to Japan. Drawing more attention is
the Japanese government ban on imports of U.S. beef. Japan imposed the ban in
December 2003 due to concerns over a case of bovine spongiform encephalopathy
25 For more information on U.S.-China trade issues, see CRS Issue Brief IB91121, China-
U.S. Trade Issues, by Wayne M. Morrison.
CRS-18
(BSE), also know as “mad cow disease,” in Washington State. The two countries
reached an agreement in October 2004 on procedures to restart shipment of beef to
Japan from cattle younger than 30 months but Japan claims that the new procedures
still need to be adopted by its regulatory authorities. No date has been set to restart
shipments, but the delays have caused concerns among Members of Congress and
U.S. beef producers.26
The Wider Trade Debate
The range of trade issues that the 109th Congress will likely face is very broad
and diverse. Each issue or set of issues bears its own implications as Members of
Congress weigh the merits and disadvantages. In most cases, the 109th Congress will
be considering and debating each issue separately. However, the cumulative effect
of each debate may have wider implications for U.S. trade policy. As the 109th
Congress addresses these issues, its decisions may define U.S. trade policy in the
long term.
Free Trade or Protectionism?
The history of U.S. trade policy since the 1930s is one of a movement toward
trade liberalization — lowering of tariffs and other trade barriers — and working in
concert with other major trading powers to create multilateral rules to promote freer
trade. At the same time, U.S. trade policymakers have taken measures to restrict
trade by crafting laws that make it easier for domestic U.S. industries to obtain relief
from dumped and subsidized imports and from surges in fairly-traded imports.
While this debate over the direction of U.S. trade policy is sometimes framed as “free
trade or protectionism,” the terms of the debate are more subtle — more open trade
or more restricted trade. The outcome of the trade issues before the 109th Congress
will influence in which direction U.S. trade policy proceeds.
The Rise of Developing Countries
Developing countries have emerged as significant players in U.S. trade and
world trade. This trend presents the United States with challenges. For example,
how should the United States respond to the increasing competition from less
expensive labor in the developing countries? Should labor rights be included in trade
agreements? These questions cut across the debates on each of the U.S. FTAs with
developing countries, the Doha Development Agenda negotiations in the WTO,
discussions and congressional proposals on trade remedy laws, the issue of
“outsourcing,” and the anticipated surge in textile and wearing apparel imports,
among other issues. A broader question that might be considered is whether on
balance the United States will consider trade with developing countries as a “race to
the bottom” or as a “win-win” proposition for both sides.
26 For more information on U.S.-Japan economic ties, see CRS Report RL32649, U.S.-Japan
Economic relations: Significance, Prospects, and Policy.
CRS-19
Labor, Environment, and Trade
The issues of workers rights and environmental protection, become significant
points of debate in congressional consideration of many trade matters. More
precisely, the question is to what extent should workers rights, environmental
protection, and other concerns be part of trade agreements or other trade policy
initiatives. The Congress included workers rights and environmental policy as
principal negotiating objectives in the legislation granting trade promotion authority.
Some Members of Congress have argued that trade agreements should ensure that
trade partners’ treatment of workers rights meet internationally accepted core labor
standards or otherwise face trade sanctions. Others contend that trade agreements
should only ensure that countries adequately enforce their own trade laws. A similar
division of thought exists regarding trade agreements and environmental protection.
This underlying debate will likely emerge in congressional consideration of DR-
CAFTA and other trade agreements involving developing country trading partners.
It may also arise if and when Congress considers renewal of the President’s trade
promotion authority and reviews U.S. participation in the WTO. The outcome of
these debates might determine in which direction U.S. trade policy is moving on
these issues.
Shaping the International Trade System
The trade issues that the 109th Congress will probably face and how the
Congress deals with them could have an impact on the international trading system.
The international system is becoming larger and more complex. Lying at the
foundation of the system is the WTO. Over the years, the rules the WTO (and its
predecessor the GATT) administers have expanded from tariffs to such nontariff
barriers as government procurement practices, sanitary and phytosanitary measures,
and IPR protection. An objective of the Doha Development Agenda is to broaden the
rules coverage even more. The 107th Congress helped set the agenda for the DDA
round and U.S. negotiating positions during the round when it granted the President
trade promotion authority and established negotiating objectives. The 109th Congress
through oversight and the Administration’s mandatory consultations can continue to
influence the agenda.
The WTO is also expanding its membership. As of February 2005, the WTO
has 148 members with 30 more countries at various stages of attaining membership
or accession. Congress does not vote on whether a country can join the WTO.
Through oversight it can influence the U.S. position on negotiating a country’s entry.
The Congress could have a more direct impact when it considers PNTR for those
countries, such as Russia, Ukraine, and Vietnam, whose NTR status is still
conditioned under the Jackson-Vanik amendment.
Along with the WTO, the international trading system is populated by a web of
regional and bilateral free trade areas based on FTAs. In some cases, these areas are
interlinked, while in others, they are distinct. FTAs have become a significant and
expanding part of the international trading system.
CRS-20
International trade observers and policymakers are divided on whether the two
tracks of the international trading system — the multilateral (the WTO) and
bilateral/regional (FTAs) — are mutually reinforcing or in conflict. The Bush
Administration firmly bases its trade policy strategy on the two prongs being
reinforcing. Former USTR Zoellick has argued that the FTAs he negotiated are
“cutting edge agreements [that] carry an importance beyond the size of newly opened
markets, because they set high, enforceable standards in newer areas of importance
to America — such as services, intellectual property, transparency and anti-
corruption and e-commerce.”27
On the other hand, others contend that FTAs undermine the WTO and its
principles because they promote discriminatory treatment in trade by limiting
preferential treatment to the participants in the FTA. Some critics have also asserted
that bilateral and regional FTAs create a conglomeration of tariff-reduction schedules
and rules of origin that are in conflict with one another and create confusion in the
trading system undermining trade efficiency.28
In between these two groups are policymakers and observers who assert that
FTAs and the WTO are not necessarily incompatible, but oppose the emphasis that
bilateral and regional FTAs have been given by the Bush Administration. They argue
that the Administration needs to devote the limited available staff and other resources
to WTO negotiations where, they claim, it can promote U.S. trade policy goals more
effectively.29
The Role of the United States in International Trade
The outcome of the congressional debate on many of the trade issues could
influence the perception among trading partners of the United States as a leader in
international trade. Some observers have suggested, for example, that the margin of
the vote on the decision on a possible joint congressional resolution on U.S.
participation in the WTO would be a measure of the U.S. affirmation as a leader in
the WTO and its commitment to trade liberalization. Some have also suggested that
U.S. decisions on whether to comply with the WTO decision on the Byrd amendment
and other possible adverse decisions will send signals regarding the U.S.
commitment to the international trading system and to the rules it helped create.
27 Zoellick, Robert B. Remember Seattle: Mixed Signals are Bad for Trade. The Wall
Street Journal. October 5, 2004.
28 Se for example, Sutherland, Peter. (Chairman) The Future of the WTO: Addressing
Institutional Challenges in the New Millennium. Report by the Consultative Board to the
Director-General Supachai Panitchpadi. Geneva. 2004. p. 19-27.
29 See for example, Cardin Pushes Administration to Focus on WTO Talks Instead of
FTAs. Inside U.S. Trade. March 11, 2005.