Order Code RL33944
CRS Report for Congress
Received through the CRS Web
Trade Primer: Qs and As on Trade Concepts,
Performance, and Policy
March 27, 2007
Raymond J. Ahearn, Coordinator, Mary Jane Bolle,
William H. Cooper, J. F. Hornbeck, James K. Jackson,
Vivian C. Jones, Dick K. Nanto, and Angeles Villarreal
Foreign Affairs, Defense, and Trade Division
Craig K. Elwell
Government and Finance Division
Jeanne J. Grimmett
American Law Division
Congressional Research Service ˜ The Library of Congress

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Trade Primer: Qs and As on Trade Concepts,
Performance, and Policy
Summary
The 110th Congress has a full legislative and oversight agenda on international
trade. The agenda may include considering legislation to implement a number of free
trade agreements, possible renewal of trade promotion authority (TPA), as well as
oversight of U.S. trade relations with China. This report provides information and
context for many of these topics. It is intended to be read primarily by Members and
staff who may be new to trade issues.
This report is divided into four sections in a question-and-answer format: trade
concepts, U.S. trade performance, formulation of U.S. trade policy, and trade and
investment issues. Additional suggested readings are provided in an appendix.
The first section, on trade concepts, deals with why countries trade, the
consequences of trade expansion, and the relationship between globalization and
trade. Key questions address the benefits of specialization in production and trade,
efforts by governments to influence a country’s comparative advantage, how trade
expansion can be costly and disruptive to workers in particular industries and skill
categories, and some unique characteristics of trade between developed countries.
The second section, on trade performance, focuses on the U.S. trade deficit and
its impact on industries. Several questions address the causes of trade deficits, the
role of foreign trade barriers, and how the trade deficit can be reduced. In terms of
business impacts, the questions focus on which U.S. industries appear to be the most
and least competitive, and on the relative size of the manufacturing sector.
The third section deals with the roles played by the Executive Branch, Congress,
the private sector, and the Judiciary in the formulation of U.S. trade policy.
Information on how trade policy functions are organized in Congress and the
Executive Branch, as well as the respective roles of individual Members and the
President, is provided. The formal and informal roles of the private sector and the
involvement of the Judiciary are also covered.
The fourth section, on U.S. trade and investment policy, asks questions related
to trade negotiations and agreements and to imports, exports, and investments. The
justification, types, and consequences of trade liberalization agreements, along with
the role of the World Trade Organization, are treated in this section. The costs and
benefits of imports, exports, and investments are also discussed, including how the
government deals with disruption and injury to workers and companies caused by
imports and its efforts to both restrict and promote exports. The motivations and
consequences of foreign direct investment flows are also discussed. This report will
not be updated.

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Contents
Trade Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Trade Expansion and Globalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
U.S. Trade Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
U.S. Trade Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Sectoral Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Formulation of U.S. Trade Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Role of Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Role of the Executive Branch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Role of the Private Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Role of the Judiciary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
U.S. Trade and Investment Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Trade Negotiations and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Import Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Export Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Investment Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Additional Readings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
CRS Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Other Readings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
List of Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Trade Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
U.S. Trade Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Formulation of U.S. Trade Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
U.S. Trade and Investment Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
List of Figures
Figure 1. Employees on Nonagricultural Payrolls by Major Industry,
1960-2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
List of Tables
Table 1. U.S. Exports, Imports, and Merchandise Trade Balances 2002-2006 . . . 7
Table 2. Top U.S. Trading Partners Ranked by Total Merchandise Trade
in 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Table 3. U.S. Industries with the Largest Trade Surpluses and Deficits
in 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Table 4. Recent Peaks and Current Employment for Industries With
Heavy Import Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

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Trade Primer: Qs and As on Trade
Concepts, Performance, and Policy
Trade Concepts1
Trade Expansion and Globalization
1. Why do countries trade?
Economic theory indicates that trade occurs because it is mutually enriching. It
has a positive economic effect like that caused by technological change, whereby
economic efficiency is increased, allowing greater output from the same amount of
scarce productive resources. By allowing each participant to specialize in producing
what it is more efficient at and trading for what it is less efficient at, trade can
increase economic well-being above what would be possible without trade. There is
a broad consensus among economists that trade expansion has a favorable effect on
overall economic well-being, but the gains will not necessarily be distributed
equitably. Moreover, although most economists hold that the benefits to the overall
economy exceed the costs incurred by workers who lose their jobs, some economists
argue that the benefits are often overestimated and the costs are often underestimated.
2. What is comparative advantage?
The idea of comparative advantage was developed by David Ricardo early in
the 19th century and its insight remains relevant today. Ricardo argued that
specialization and trade are mutually beneficial even if a country finds it is more
efficient at producing everything than its trading partners. If one country produces a
given good at a lower resource cost than another country, it has an absolute
advantage in its production. (The other country, of course, has an absolute
disadvantage in its production.) If all productive resources were highly mobile
between countries, absolute advantage would be the criterion governing what a
country produces and the pattern of any trade between countries. But Ricardo
demonstrated that because resources, particularly labor and the skills and knowledge
it embodies, are highly immobile, a comparison of a good’s absolute cost of
production in each country is not relevant for determining whether specialization and
trade should occur. Rather, the critical comparison within each country is the
opportunity cost of producing any good — how much output of good Y must be
forgone to produce one more unit of good X. If the opportunity costs of producing
X and Y are different in each economy, then each country has a comparative
advantage in the production of one of the goods. In this circumstance, Ricardo
predicts that each country can realize gains from trade by specializing in producing
1 This section was prepared by Craig K. Elwell, Specialist in Macroeconomics, Government
and Finance Division, CRS.

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CRS-2
what it does relatively well and in which it has a comparative advantage and trading
for what it does relatively less well and in which it has a comparative disadvantage.
3. What determines comparative advantage?
Most often, differences in comparative advantage between countries occur
because of differences in the relative abundance of the factors of production: land,
labor, physical capital (plant and equipment), human capital (skills and knowledge
including entrepreneurial talent), and technology. Standard economic theory predicts
that comparative advantage will be in activities that make intensive use of the
country’s relatively abundant factor(s) of production. For example, the United States
has a relative abundance of high-skilled labor and a relative scarcity of low-skilled
labor. Therefore, the United States’ comparative advantage will be in goods produced
using high-skilled labor intensively such as aircraft and comparative disadvantage
will be in goods produced using low-skilled labor intensively such as apparel. In
addition to differences in factor endowments, differences in productive technology
among countries create differences in relative efficiency and may be a basis for
comparative advantage. Nevertheless, some high skilled services jobs, such as
computer programming and graphic design, can today be easily done in a country
such as India because of the revolution in telecommunications.
4. Can governments shape or distort comparative advantage?
Government actions to influence comparative advantage can be grouped in two
broad categories: policies that indirectly nurture comparative advantage, most often
by compensating for some form of market failure, but not targeted at any specific
industry or activity; and policies that aim to directly create and nurture comparative
advantage in particular industries. Indirect influence on comparative advantage can
emanate from government policies that eliminate corruption, enforce property rights,
remove unnecessary impediments to market transactions, assure macroeconomic
stability, build transport and communication infrastructure, support mass education,
and assist technological advance. Policies that try to exert a direct influence on
comparative advantage may include infant industry policies, industrial policies, or
strategic trade policies. They all have the essential goal of identifying and nurturing
particular industries that are thought to have extra-ordinary economic potential. In
this view, realizing that potential requires initial government support, including
protection from foreign competition. The efficacy of direct government efforts to
shape comparative advantage is likely to vary significantly according to stages of
economic development. China and India, for example, have used industrial policies
to restructure their economies and enable them better to take advantage of world
markets.

5. What is the terms of trade?
A nation’s terms of trade — the ratio of an index of export prices to an index of
import prices — is a measure of the export cost of acquiring desired imports.
Increases and decreases in its terms of trade indicate whether a nation’s gains from
trade are rising or falling. A sustained improvement in the terms of trade expands
what our income will buy on the world market and can make a significant
contribution to the long-term growth of economic welfare. Similarly, a falling terms

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of trade raises the export cost of acquiring imports, which reduces real income and
the domestic living standard. Although trade is considered a process of mutual
benefit, each trading partner’s share of those benefits can change over time, and
movement of the terms of trade is an indicator of that changing share.
6. What are the costs of trade expansion?
Like technological change and other market forces, international trade creates
wealth by inducing a reallocation of the economy’s scarce resources (capital and
labor) into relatively more efficient exporting industries that have a comparative
advantage and away from less efficient activities that have a comparative
disadvantage. This reallocation of economic resources is often characterized as a
process of “creative destruction,” generating a net economic gain to the overall
economy, but also being disruptive and costly to workers in adversely affected
industries that compete with imports. Many of these displaced workers bear
significant adjustment costs and many may find work only at a lower wage. Although
economic analysis almost always indicates that the economy-wide gains from trade
exceed the costs, the perennially tough policy issue is how or whether to secure those
gains for the wider community while dealing equitably with those who are hurt by
the process. Economists generally argue that facilitating the adjustment and
compensating for the losses of those harmed by market forces, including trade, is
economically less costly than policies to protect workers and industries from the
negative impacts of trade. While it is debatable how well existing worker assistance
policies have worked, funding is also a longstanding issue. The Peterson Institute for
International Economics, for example, estimates the lifetime costs of worker
displacement to be roughly $50 billion year, but calculates that the United States
spends about $2 billion per year to address the costs connected to displacement.
7. Does trade destroy jobs?
Trade creates and destroys jobs in the economy just as other market forces do.
Economy-wide, trade creates jobs in industries that have a growing comparative
advantage and destroys jobs in industries that have a growing comparative
disadvantage. In the process, the economy’s composition of employment changes, but
there may not be a net loss of jobs due to trade. Consider that over the course of the
last economic expansion, from 1992 to 2000, U.S. imports increased nearly 240%,
but total employment grew by 22 million jobs and the unemployment rate fell from
7.5% to 4.0% (the lowest unemployment rate in more than 30 years.).
8. Does trade reduce the wages of U.S. workers?
International trade can have strong effects, good and bad, on the wages of
American workers. Concurrent with the large expansion of trade over the past 25
years, real wages (i.e., inflation adjusted wages) of American workers grew more
slowly than in the earlier post-war period, and inequality of wages between the
skilled and less skilled worker rose sharply. Trade based on comparative advantage
tends to increase the return to the abundant factors of production — capital and high-
skilled workers in the United States — and decrease the return to the less-abundant

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CRS-4
factor — low-skilled labor in the United States.2 Therefore, it is reasonable to expect
that, other factors constant, the large increase in trade over this period, particularly
increased trade with economies with vast supplies of low-skilled labor, could harm
the wages of low-skilled U.S. workers. However, other economic factors such as
technological change and the shifting structure of production among emerging
economies may have mitigated the potential adverse effect of trade on wages. While
there may be no strong evidence that expanding trade has depressed the average
wages of U.S. workers, some evidence suggests that increased trade may have caused
10% to 20% of the increase in wage inequality.3 Many observers believe the larger
share of increased inequality of U.S. wages was likely caused by advancing
technology’s tendency to pull up the wages of high-skilled workers and increased
immigration’s tendency to push down the wages of low-skilled workers.
9. What is intra-industry trade?
A sizable portion of world trade sees countries exporting and importing to each
other goods from the same industry. This phenomenon is called intra-industry trade.
This type of trade is particularly characteristic of the large flows of products between
advanced economies, which have very similar resource endowments. This suggests
that there is another basis for trade than comparative advantage behind intra-industry
trade: the exploitation of economies of scale. Economies of scale exist when a
production process is more efficient (i.e. has lower unit cost) the larger the scale at
which it takes place. This scale economy becomes a basis for trade because while the
United States and Germany, for example, could be equally proficient at producing
any of a wide array of goods such as automobiles and pharmaceuticals that
consumers want, neither has the productive capacity to produce the full range of
goods at the optimal scale. Therefore, a pattern of specialization tends to occur with
countries producing and trading some sub-set of these goods at the optimal scale.
10. Why is intra-industry trade important?
A significant attribute of intra-industry trade is that it tends not to generate the
strong effects on the distribution of income that can occur with trade based on
comparative advantage. This attribute may explain why the large trade expansion
that took place in the 1950-1980 period was less politically contentious than has been
true for trade expansion since 1980. The earlier period was dominated by rising trade
between advanced economies with similar endowments of productive resources and
similar levels of technology. Therefore, trade at that time was largely an expansion
of intra-industry trade that had no relatively abundant factor of production to exploit.
As a consequence, it had little adverse affect on the return to the factors of
production, including the wages of U.S. workers. In contrast, a much larger portion
2 Only 10% of the U.S. labor force has less than a secondary level of education as compared
to over 60% below this level in China’s labor force. See U.S. Department of Labor, Bureau
of Labor Statistics, Current Population Survey, 2006 and Barro, Robert and Jong-Wha Lee,
“International Data on Educational Attainment,” NBER Working Papers 7911, September
2000.
3 For a survey of this evidence see Douglas Irwin, Free Trade Under Fire, Princeton
University Press, 2002, pp. 90-97.

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CRS-5
of the trade expansion since 1980 has been with less-developed economies with their
relative abundance of low-skilled and priced labor — a likely source of downward
pressure on wages in the developed economies.
11. What is globalization?
Globalization has come to represent many things, but economic globalization
refers specifically to the increasing integration of national economies into a world
wide trading system. Globalization involves trade in goods and services, and trade
in assets (i.e. currency, stocks, bonds, and real property), as well as the transfer of
technology, and the international flows (migration) of labor. Since 1950, world trade
in merchandise has consistently grown faster then world production. In the recent
period of 1990-2005 world trade in merchandise grew at about 6.0% per year as
compared to about 2.0% for world output.4 As a result, world exports as a percent of
world GDP rose from about 12% to about 32%. In the United States global
integration has advanced quickly, with imports as a share of GDP rising from about
10% in the 1950s to about 17% today. More recent but far more dramatic has been
the growth of international trade in assets. In the 1990s gross capital flows leaped by
300% as compared to a 63% advance of trade in goods. The rising economic
integration of the world economy has been facilitated by two types of events: the
myriad of technical advances in transport and communication that have reduced the
natural barriers of time and space that separate national economies; and national and
multi-national policy actions that have steadily lowered various man-made barriers
(i.e. tariffs, quotas, subsidies, and capital controls) to international exchange.
12. What is the global supply chain and how does it relate to globalization?
A supply chain is the interrelated organizations, resources, and processes that
create and deliver a product to the final consumer. A global supply chain organized
mostly by multinational corporations (MNCs) means that products that were once
produced in one country may now be produced by assembling components fabricated
in several countries. This supply chain has meant that as much as 30% of the recent
growth of world trade has been through trade in intermediate products. Not only does
such geographically fragmented production raise the level of trade associated with
a particular final product, it also tends to raise the level of trade with both developing
countries and developed countries. This growth of the global supply chain has been
facilitated by technological advances that have increased the speed and lowered the
cost of international transport and, perhaps most importantly, accelerated the
international flow of information that allows MNCs to coordinate geographically
fragmented production with relative ease. In addition, government action has
achieved a substantial reduction of various man-made trade barriers and promoted
movement toward a market based economy.
13. How does globalization affect job security?
A greater degree of international economic integration can add to disruptive
forces in the marketplace, including concerns that an estimated 30 to 40 million high-
4 See International Monetary Fund, World Economic Outlook, June 2006.

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wage and high-skilled U.S. service sector jobs may now be vulnerable to
“outsourcing” over time. Although this increased integration is unlikely to have a
negative effect on overall employment rate or the average worker wage, greater
volatility of worker incomes and employment is a possible effect. While the precise
causes remain unclear, some evidence for the United States indicates a steady rise in
wage and employment volatility since the 1980s.5 In response to this rise, some argue
that because increased volatility raises the economic risk attached to employment and
earnings, the “social safety net” that protects workers from periodic market
disruptions should be expanded commensurately.
U.S. Trade Performance6
U.S. Trade Deficit
14. What is meant by the trade deficit?
The U.S. trade deficit is the difference between the value of U.S. exports and
U.S. imports. The deficit on trade in goods (merchandise) that reached a record $836
billion in 2006 is what the media generally calls the trade deficit. The United States,
however, usually runs a surplus in trade in services with the world. By adding net
exports of services to the calculation, the trade deficit on goods and services was
$764 billion in 2006. Adding in net transfers of investment income and remittances
by individuals to foreign countries gives the broader measure of the trade deficit that
is called the current account. In 2006, the current account deficit was $857 billion.
15. Why are different numbers reported for the trade deficit?
The data on imports and exports are reported in two ways that give similar but
different numbers. When goods or services pass through U.S. borders, the Customs
Service compiles the figures from shipping manifests and other documents and
reports it to the U.S. Census Bureau. The Bureau then produces data on imports and
exports and calculates the trade deficit on a Census basis. The detail in these data
allows the import and export flows to be broken out into trade by countries, sectors,
and major ports. The Census data are then adjusted to a balance-of-payments basis
by accounting for military sales, adding private gift parcels, including foreign official
gold sales from U.S. private dealers, and making other refinements. The following
table shows U.S. trade data on both a Census and balance-of-payments basis.
5 See Dani Roderik, Has Globalization Gone too Far? Institute for International Economics,
1997.
6 This section was prepared by Dick K. Nanto, Specialist in Industry and Trade, Foreign
Affairs. Defense, and Trade Division.

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Table 1. U.S. Exports, Imports, and Merchandise Trade
Balances 2002-2006
(billions of U.S. dollars)
Census Basis
Balance-of-payments Basis
Year
Exports Imports
Balance
Exports Imports
Balance
2002
693.5
1,163.6
-470.1
681.8
1,164.7
-482.9
2003
724.8
1,257.1
-532.3
713.1
1,260.7
-547.6
2004
818.8
1,469.7
-650.9
807.5
1,472.9
-665.4
2005
906.0
1,673.5
-767.5
894.6
1,677.4
-782.8
2006
1,037.3
1,855.4
-818.1
1,023.7
1,859.8
-836.1
Source: U.S. Department of Commerce, Bureau of Economic Analysis, U.S. International
Transactions Accounts Data.
16. What are the causes of the record trade deficits?
The fundamental cause of the U.S. trade deficit is excess spending by U.S.
consumers, business, and government. In essence, Americans consume more than
they produce. This allows other countries to sell more to the United States than they
buy from the United States. Economists characterize this as a lack of savings by U.S.
consumers, business, and government. Households buy much on credit; businesses
invest much with borrowed funds; and the government runs budget deficits. As long
as foreigners (both governments and private entities) are willing to loan the United
States the funds to finance the lack of savings in the U.S. economy, the trade deficit
can continue. The United States, however, accumulates more and more debt.
17. What role do foreign trade barriers play in causing trade deficits?
Trade barriers tend to affect bilateral trade in specific products and with
particular countries, but they do not necessarily affect the size of the overall U.S.
trade deficit. For example, trade with Burma or North Korea is non-existent or small
because of U.S.-imposed export barriers. Foreign countries also impose barriers to
imports and limit foreign access to their markets by a variety of measures. Some
barriers are overt, such as high tariffs or import quotas. Others are less visible, such
as income tax audits by tax authorities of persons buying foreign automobiles or
controls over foreign exchange that prevent citizens wishing to purchase imports
from obtaining the foreign currency necessary. If, for example, a government
requires exporters to sell their dollars to the government at a fixed exchange rate, and
that government invests the dollars in U.S. securities rather than allowing businesses
and consumers to use the dollars to buy American exports, then this combination of
government intervention in currency markets plus exchange controls can increase the
size of the U.S. trade deficit.
Foreign trade barriers also can affect the profitability of U.S. exporters and
thereby influence the size of the overall U.S. trade deficit. If U.S. exporters are able
to sell more to a country that has lowered its trade barriers, the exporting companies

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can increase their profits, hire more American workers, and possibly increase the
overall U.S. saving rate. This can occur only if the economy is operating at less than
full employment.

18. How does the trade deficit affect the exchange value of the dollar?
Without sufficient inflows of capital, a trade deficit causes other parts of the
economy to adjust, particularly the country’s exchange rate — for the United States,
this is the value of the dollar relative to that of the Chinese yuan, Japanese yen,
Canadian dollar, British pound, or European euro. The way the adjustment
mechanism works is that the excess of U.S. imports causes a surplus of U.S. dollars
to flow abroad. If these dollars are then converted to other national currencies, their
excess supply tends to lower their price (exchange rate) relative to other currencies,
and the value of the dollar depreciates. This causes imports to be more expensive for
American consumers and U.S. exports to be cheaper for foreign buyers. This process
gradually causes U.S. imports to decrease and exports to increase and for the trade
deficit to be diminished.
The dollar, however, may not be exchanged for foreign currencies because of
its special status in global financial markets and because the U.S. economy is viewed
both as a safe haven for storing wealth and as an attractive destination for
investments. In some countries, the dollar is used as a medium of exchange, and in
most countries it is used as a reserve currency by central banks. Foreign governments
can intervene to keep the value of their currency from appreciating relative to the
dollar by buying excess dollars and sending them back to the United States by buying
Treasury securities or other U.S. assets. This is what China has been doing. In
Japan’s case, the government has not intervened since the spring of 2004 to keep the
value of the yen low, but private Japanese investors are causing the same result by
investing their savings overseas where interest rates are higher (financiers also are
borrowing in Japan and lending the funds abroad).7 The surplus of dollars, therefore,
may not cause the dollar to depreciate and for the trade deficit to decrease.
19. How is the trade deficit financed?
The U.S. trade deficit is financed by borrowing from abroad. This takes the form
of net financial inflows into the United States. In 2006, U.S. net financial inflows
amounted to $719 billion. Foreigners acquired $1,765 billion in assets in the United
States, while Americans acquired $1,046 in assets abroad. Foreigners purchased an
additional $29 billion in Treasury securities and $621 billion in other securities,
while increasing their deposits at U.S. banks by $441 billion and acquiring $13
billion in U.S. currency. Foreigners also invested $184 billion in their companies
located in the United States.
7 See Nakamae, Tadashi. Weak Yen Conundrum. The International Economy, Winter 2007,
pp. 42-45.

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20. Is the trade deficit a problem for the U.S. economy?
The U.S. trade deficit is a dual problem for the economy. In the long term, it
generates debt that must be repaid by future generations. Meanwhile, the current
generation must pay interest on that debt. Whether the current borrowing to finance
imports is worthwhile for Americans depends on whether those funds are used for
investment that raises future standards of living or whether they are used for current
consumption. If American consumers, business, and government are borrowing to
finance new technology, equipment, or other productivity enhancing products, the
deficit can pay off in the long term. If the borrowing is to finance consumer
purchases of clothes, household electronics, or luxury items, it pushes the repayment
of funds for current consumption on to future generations without investments to
raise their ability to finance those repayments.
In the short term, the trade deficit could lead to a large and sudden fall in the
value of the dollar and financial turmoil both in the United States and abroad. The
current account deficit now exceeds 6% of GDP and is placing downward pressure
on the dollar. If foreign investors stop offsetting the deficit by buying dollar-
denominated assets, U.S. interest rates would have to rise to attract more foreign
investment. Rising interest rates can cause havoc in financial markets and also may
raise inflationary pressures. Global financial markets are now so closely intertwined
that turmoil in one market can quickly spread to other markets in the world.
21. How long can the United States keep running trade deficits?
U.S. deficits in trade can continue for as long as foreign investors are willing to
buy and hold U.S. assets, particularly government securities and other financial
assets.8 Their willingness depends on a complicated array of factors including the
perception of the United States as a safe haven for capital, relative rates of return on
investments, interest rates on U.S. financial assets, actions by foreign central banks,
and the savings and investment decisions of businesses, governments, and
households. The policy levers that influence these factors that affect the trade deficit
are held by the Federal Reserve (interest rates) as well as both Congress and the
Administration (government budget deficits and trade policy), and their counterpart
institutions abroad.
22. How can the trade deficit be reduced?
In reducing the U.S. trade deficit, the policy tool kit includes direct measures
(trade policy) that are aimed at imports, exports, and the exchange rate, and indirect
measures (monetary and fiscal policies) aimed at U.S. interest rates, saving rates,
budget deficits, and capital flows. Monetary and fiscal policy, however, usually
address conditions in the U.S. macroeconomy and generally consider the trade deficit
only as a secondary target. It is ironic that the most effective method of reducing the
8 See Mann, Catherine L. Is the U.S. Trade Deficit Sustainable? Washington, Institute for
International Economics, 1999. 224 p. See also: CRS Report RL33274, Financing the U.S.
Trade Deficit, by James K. Jackson. CRS Report RL31032, The U.S. Trade Deficit: Causes,
Consequences, and Cures, by Craig K. Elwell.

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CRS-10
trade deficit is through monetary and fiscal policy, yet monetary and fiscal policy is
rarely determined by the trade deficit.
23. What is the role for trade policy in reducing the trade deficit?
Trade policy consists of the strategies, goals, and initiatives by governments to
change the laws, regulations, and agreements that provide the framework for
international trade and to take action to remedy distortions in the movement of goods,
services, and capital flows across national borders. U.S. trade policy operates along
three paths: (1) in opening markets abroad for U.S. exporters, (2) in protecting U.S.
industries from imports that are unfairly traded (sold at prices lower than those in the
exporting country) or from import surges that cause, or threaten to cause, substantial
harm, and (3) trying to ensure that exchange rates are not manipulated by other
nations to hinder the process by which trade is brought into balance or to gain
competitive advantage.
Currently, U.S. trade policy to open markets abroad is conducted at three levels:
through bilateral negotiations and trade/investment agreements, through establishing
free-trade agreements, and through multilateral negotiations under the WTO. Trade
policy plays a proactive role in leveling the playing ground for U.S. business, a
remedial role in correcting distortions in trade caused by foreign government
intervention, and a reactive role in addressing specific problems raised by U.S.
businesses. The specifics of U.S. trade policy are discussed in the section on U.S.
Trade and Investment Policy below.
Trade policy aims at reducing the U.S. trade deficit by increasing U.S. exports
or decreasing U.S. imports. U.S. trade policy, however, operates under multiple
constraints. Trade policy, for example, can affect specific trade flows but the overall
trade deficit tends to be determined by macroeconomic conditions (savings and
investment flows). The U.S. government, moreover, faces legal obligations, political
resistance, and other constraints on policy aimed at decreasing imports or increasing
exports. Free market principles and U.S. law, for example, preclude the government
from moving against big box retailers that sell low-cost imports from China. U.S.
obligations under the World Trade Organization preclude arbitrary increases in
import tariffs or large direct subsidies for U.S. exporters, and only under special
circumstances, usually related to national security or severe offenses to international
humanitarian values (e.g., genocide) does the United States block trade with a
specific country (e.g., Cuba or Burma).
24. Who are the leading U.S. trade partners?
As shown in the following table, in 2006, Canada was America’s largest
merchandise trading partner, but China passed Mexico to take second place in the
ranking. Fourth was Japan, then Germany, and the United Kingdom.

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CRS-11
Table 2. Top U.S. Trading Partners Ranked by Total
Merchandise Trade in 2006
(Millions of U.S. Dollars)
Rank
Country
Total Trade
Balance
Exports
Imports
1 Canada
533,997
-72,835
230,581
303,416
2 China
342,997
-232,549
55,224
287,773
3 Mexico
332,426
-64,092
134,167
198,259
4 Japan
207,740
-88,442
59,649
148,091
5 Germany
130,392
-47,753
41,319
89,073
6 UK
98,830
-8,044
45,393
53,437
7 South Korea
78,285
-13,374
32,455
45,830
8 France
61,366
-12,931
24,217
37,149
9 Taiwan
61,238
-15,191
23,023
38,215
10 Malaysia
49,082
-23,982
12,550
36,532
11 Venezuela
46,177
-28,153
9,012
37,165
12 Brazil
45,617
-7,161
19,228
26,389
13 Italy
45,219
-20,086
12,567
32,652
14 Saudi Arabia
39,497
-23,881
7,808
31,689
15 Ireland
37,155
-20,125
8,515
28,640
16 India
31,917
-11,735
10,091
21,826
17 Thailand
30,624
-14,319
8,152
22,472
18 Nigeria
30,147
-25,686
2,231
27,916
19 Russia
24,500
-15,066
4,717
19,783
20 Sweden
17,967
-9,714
4,126
13,841
21 Algeria
16,594
-14,391
1,102
15,492
22 Indonesia
16,482
-10,326
3,078
13,404
23 Chile
16,350
-2,770
6,790
9,560
24 Colombia
15,973
-2,557
6,708
9,265
Source: Data from U.S. Department of Commerce.
Note: Total trade = imports + exports. Data are on a Census basis. Imports are on a Customs basis.
Sectoral Issues
25. Which industries appear to be the most competitive as measured by the size
of their trade surpluses? Which are the least competitive as measured by their
trade deficits?
The international competitive advantage of specific industries can be measured
in a number of ways — one of which is their trade balances. Other measures include
profitability, value added, productivity, employment, and technological change. The
table below shows the balance of trade for U.S. industries (as defined by 2-digit
Harmonized System tariff classifications). By this measure, the industries with the
largest surpluses, in 2006, include aircraft and spacecraft, cereals, optical and medical
instruments; plastic, chemical products, grains/seed/fruit, cotton/yarn/fabric, animal
feed, and wood pulp. These U.S. industries can be considered the most competitive
in international trade. The table also shows those industrial sectors with the largest
deficits in trade. These include mineral fuel and oil, motor vehicles, electrical

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CRS-12
machinery, machinery, woven and knit apparel, furniture and bedding, toys and
sports equipment and footwear.
Despite the large trade deficit by the mineral fuel and oil sector, the major oil
companies remain quite competitive. They are multinational firms who, themselves,
do much of the importing of crude oil for their refineries often from their own
sources of oil. The deficit in trade in electrical machinery, moreover, may reflect
more the global supply chain of multinational producers who may be located in the
United States and have competitive products but manufacture their machinery
abroad.
Table 3. U.S. Industries with the Largest Trade Surpluses and
Deficits in 2006
(Million U.S. Dollars)
Largest Trade Surpluses
Largest Trade Deficits
Description
2006 Description
2006
1 Aircraft, Spacecraft
49,161.4 Mineral Fuel, Oil, etc
-298,638.1
2 Cereals
12,392.6 Vehicles, Not Railway
-122,675.9
3 Optics, Medical Instruments
11,376.8 Electrical Machinery
-83,322.0
4 Plastic
8,351.1 Machinery
-61,912.8
5 Misc. Chemical Products
8,058.8 Woven Apparel
-36,130.1
6 Misc Grain, Seed, Fruit
7,976.0 Knit Apparel
-33,018.8
7 Cotton+yarn, Fabric
4,944.3 Furniture and Bedding
-32,229.6
8 Food Waste; Animal Feed
3,276.2 Toys and Sports Equipment
-20,362.7
9 Woodpulp, Etc.
2,679.6 Other Special Import
-20,194.1
Provisions
10 Tanning, Dye, Paint, Putty
2,462.3 Footwear
-18,332.2
11 Ores, Slag, Ash
2,107.6 Pharmaceutical Products
-17,112.9
12 Meat
2,098.7 Wood
-16,384.8
13 Hides and Skins
2,018.5 Iron and Steel
-16,255.9
14 Soap, wax, etc; Dental Prep
1,888.9 Iron/steel Products
-14,936.6
15 Miscellaneous Food
1,592.2 Beverages
-13,491.0
16 Tobacco
1,194.7 Precious Stones, Metals
-12,497.8
17 Ships and Boats
1,144.9 Organic Chemicals
-10,036.6
18 Arms and Ammunition
1,122.2 Special Other
-9,062.1
19 Railway; Traffic Sign eq
969.7 Aluminum
-8,878.2
20 Photographic/Cinematography
866.7 Misc Textile Articles
-8,694.2
21 Knit, Crocheted Fabrics
671.6 Leather Art Saddlery; Bags
-8,339.2
22 Book, Newspaper; Manuscript
636.4 Rubber
-7,929.3
23 Other Base Metals, etc.
526.0 Copper and Articles Thereof
-7,641.6
24 Edible Fruit and Nuts
516.3 Fish and Seafood
-6,354.4
25 Wadding, Felt, Twine, Rope
484.7 Paper, Paperboard
-5,572.2
Source: CRS. Underlying data from U.S. Department of Commerce. Data are on a Census Basis.

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CRS-13
26. Is the U.S. manufacturing sector shrinking?
Imports are often blamed for what is perceived as the shrinking of the U.S.
manufacturing sector. Media reports of factories being closed, workers laid off, and
the plethora of labels on merchandise that indicate the product was made in China,
Italy, or any of a number of foreign countries reinforce that perception. Employment
in U.S. manufacturing has declined moderately over the past 46 years. In 1960, 15.4
million persons were employed in manufacturing. That number peaked at 19.4
million in 1979 and has declined to 14.2 million in 2006.9 (See Figure 1 below.)
Since total U.S. employment has risen, however, manufacturing employment as a
share of total nonfarm employment has dropped from 29% in 1960 to 10% in 2006.
Most of the new jobs are being created by the service sector. In 1960, 35.1
million persons worked in service-producing industries. By 2006, employment in
services had more than tripled to 113 million persons.
Figure 1. Employees on Nonagricultural Payrolls by Major Industry,
1960-2006
Million Persons
140
120
Natural Resources/Mining
100
Construction
80
Manufacturing
60
40
Services
20
0
1960
65
70
75
80
85
90
95
2000
2006
Year
Source: U.S. Department of Labor. Based on reports from employing establishments.
Even with reduced employment, production by the manufacturing sector as a
whole continues to rise, although production in some sectors has been stagnant or
declining. What appears to be happening depends on the industry, but studies of de-
industrialization generally conclude that it is being caused primarily by developments
9 These data are based on reports from employing establishments and do not include
proprietors, self-employed persons, unpaid family workers, private household workers, and
those employed in agriculture.

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CRS-14
internal to the economy and not by trade. These include technological change, the
shift in consumer demand from manufactured products toward services as incomes
rise, and the declining relative price of manufactured items. Import competition has
played a role in certain industries. One study concludes that import competition has
contributed less than one-fifth to the relative decline of manufacturing in the
advanced economies and has had little effect on the overall volume of manufacturing
output in those countries.10
27. Which industries are losing the most jobs?
The industries that are incurring large deficits in their balance of trade are under
heavy competition from imports and have been reducing employment. Table 3
shows certain of those industries with the recent peaks in their employment and their
employment in 2007. The peak dates range from 1991 to 2004, while the declines
since then range from 299.8% for the apparel industry to 165.0% for textile mills, and
to 7.5% for furniture and related products.
Table 4. Recent Peaks and Current Employment for Industries
With Heavy Import Competition
(Thousand Persons)
Recent
Peak
2007
Industry
Change
Peak
Employment
Employment
Motor Vehicles and Parts
Feb. 2000
1,330.3
1,015.7
-23.6%
Electrical Equipment and
Jul. 2000
595.8
436.6
-26.7%
Appliances
Computer and Electronic
Jan. 2001
1,872.2
1,394.0
-25.5%
Products
Machinery
Mar. 1998
1,522.9
1,212.8
-20.4%
Textile Mills
Feb. 1995
480.9
181.5
-62.3%
Textile Product Mills
May 2004
179.9
157.1
-12.7%
Apparel
Dec. 1991
917.6
229.5
-75.0%
Furniture and Related
Apr. 2004
575.3
535.3
-7.0%
Products
Plastics and Rubber
Feb. 2000
959.9
794.0
-17.3%
Products
Source: U.S. Bureau of Labor Statistics. Most Recent Industry-specific Peak and Through
Employment and Change. Accessed March 6, 2007.
10 Brady, David and Ryan Denniston, “Economic Globalization, Industrialization and
Deindustrialization in Affluent Democracies,” Social Forces, 85 no. 1 (Sep 2006): pp.
297-310, 312, 315-316, 318, 320-327.

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CRS-15
Formulation of U.S. Trade Policy
Role of Congress11
28. What role does Congress play in the making of trade policy?
The role of Congress in formulating international economic policy and
regulating international trade is based on express powers set out in Article 1, section
8 of the U.S. Constitution, “to lay and collect taxes, duties, imposts and excises” and
“to regulate commerce with foreign nations, and among the several states,” as well
as the general provision to “make all laws which shall be necessary and proper” to
carry out these specific authorities. Congress exercises this power in many ways,
among the most important being the enactment of tariff schedules and trade remedy
laws, and the approval and implementation of reciprocal trade agreements.
29. What committees take the lead in exercising congressional authority over
trade?
Because of the revenue implications inherent in most trade agreements and
policy changes, the House Ways and Means Committee and Senate Finance
Committee have responsibility for trade matters. Each Committee has a
subcommittee dedicated exclusively to trade issues. Other committees may have a
role should trade agreements, policies, and other trade issues include matters under
their jurisdiction.
30. What explicit ways does Congress make trade policy?
U.S. trade policy is founded on statutory authorities, as passed by Congress.
These include laws authorizing trade programs and governing trade policy generally
in areas such as: tariffs, non-tariff barriers, trade remedies, import and export
policies, political and economic security, and trade policy functions of the Federal
Government. Congress also sets trade negotiating objectives in law, requires formal
consultation from and opportunity to advise on trade negotiations with the Executive
Branch (in part through the Congressional Oversight Committee — COG), and
conducts oversight hearings on trade programs and agreements to assess their
conformity to U.S. law and congressional intent.
31. How can individual Members affect trade policy decisions?
Individual Members affect trade policy first as voting representatives who
determine collectively the statutes governing trade matters. They may also exercise
influence as sitting Members on relevant committees, in testimony before those
committees, whether as a Member of it or not, and in exercising informal influence
over other Members through the exercise of the political authority and power
invested in them by the electorate.
11 Prepared by J. F. Hornbeck, Specialist in International Trade and Finance, Foreign
Affairs, Defense, and Trade Division; and Jeanne J. Grimmett, Legislative Attorney,
American Law Division.

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CRS-16
32. What is meant by fast track or Trade Promotion Authority (TPA)?
TPA (formerly fast track) refers to a statutory mechanism under which Congress
authorizes the President to enter into reciprocal trade agreements governing tariff and
non-tariff barriers, and allows their implementing bills to be considered under
expedited (fast track) legislative procedures, provided the President observes certain
statutory obligations in negotiating trade agreements, including notifying and
consulting Congress. The purpose of TPA is to preserve the constitutional role of
Congress with respect to consideration of implementing legislation for trade
agreements that require changes in domestic law, while also bolstering the
negotiating credibility of the Executive Branch by assuring the trade implementing
bill will receive expedited and unamended consideration.
Role of the Executive Branch12
33. Who is in charge?
The President directs overall trade policy in the Executive Branch and performs
specific trade functions granted him in statute. The principal adviser to the President
on trade matters is the United States Trade Representative (USTR). A cabinet-level
appointment, the USTR has primary responsibility for developing and coordinating
the implementation of U.S. trade policy (19 U.S. C. 2171).
34. Why was the USTR created?
Congress created the USTR in 1962 (originally as the Office of the Special
Representative for Trade Negotiations) to heighten the profile of trade and provide
better balance between competing domestic and international interests in the
formulation and implementation of U.S. trade policy and negotiations, which were
previously managed by the U.S. Department of State.
35. How are trade decisions made?
The USTR has primary responsibility for trade policy decisions within the
executive branch; however, they often involve areas of responsibility that fall under
other cabinet-level departments, at times requiring a multi-department process. To
implement this process, Congress established the Trade Policy Committee, chaired
by the USTR and consisting of the Secretaries of Commerce, State, Treasury,
Agriculture, Labor, and other department heads as the USTR deems appropriate. The
USTR subsequently established two sub-cabinet groups — the Trade Policy Review
Group (TPRG) and the Trade Policy Staff Committee (TPSC). The Executive
Branch also solicits advice from a three-tiered congressionally-established trade
advisory committee system that consists of private sector and non-Federal
government representatives.
12 Prepared by J. F. Hornbeck, Specialist in International Trade and Finance, Foreign
Affairs, Defense, and Trade Division, and Jeanne J. Grimmett, Legislative Attorney,
American Law Division.

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CRS-17
36. What are the functions of the Executive Branch in U.S. trade?
The Executive Branch executes trade policy in a variety of ways. It negotiates,
implements, and monitors trade agreements, and has responsibility for customs
enforcement, collection of duties, implementation of trading remedy laws, budget
proposals for trade programs and agencies, export and import policies, and
agricultural trade, among others.
37. When does the President get involved in trade decisions?
The President is responsible for influencing the direction of trade legislation,
signing trade legislation into law, and making other specific decisions on U.S. trade
policies and programs where he deems the national interest or political environment
requires his direct participation. This can take place in many areas of trade policy,
such as requesting TPA/fast track authority, initiating critical trade remedy cases,
meeting or communicating with foreign Heads of State or Government, and other
areas subject to or requiring high political visibility.

Role of the Private Sector13
38. What is the formal role of the private sector?
The formal role of the private sector in the formulation of U.S. trade policy is
embodied in a three-tiered committee system that the Congress has provided in
section 135 of the Trade Act of 1974, as amended. These committees advise the
President on negotiations, agreements and other matters of trade policy. At the top
of the system is the 45-member Advisory Committee for Trade Policy and
Negotiations (ACTPN) consisting of presidentially-appointed representatives from
local and state governments and representatives from the broad range of U.S.
industries and labor. The USTR administers the ACTPN in cooperation with the
Departments of Agriculture, Commerce, Labor, and other relevant departments. At
the second tier are industry-specific policy advisory committees, each one consisting
of representatives of a specific U.S. industry who provide advice on their specific
industry. The third tier consists of sector-specific representatives who provide
technical advice. The USTR and the relevant department Secretary appoint members
of the sector-specific committees in the latter two tiers.
39. What is the informal role that the private sector plays in the formulation of
U.S. trade policy?
The private sector helps shape U.S. trade policy in a number of informal ways.
For example, representatives from industry and non-government organizations may
be invited to testify or ask to testify before congressional committees on trade
matters. Private sector representatives are also invited or request to testify before the
United States International Trade Commission (USITC), the U.S. Department of
Commerce, or other government bodies to provide assessments of the potential
13 Prepared by William H. Cooper, Specialist in International Trade and Finance, Foreign
Affairs, Defense, and Trade Division.

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CRS-18
impact of pending trade actions, such as an antidumping or countervailing duty
orders, on their industries and sectors. Private sector organizations also lobby
Congress and the Executive Branch to forward their interests in U.S. trade policy
actions and agreements.
40. Why are trade decisions so heavily lobbied?
Trade is becoming a larger and increasingly integral part of the U.S. economy.
Virtually all kinds of agricultural and manufactured goods are tradeable — they can
be exported and imported. In addition, a growing number of services — once
considered non-tradeable because of their intangibility — can be bought and sold
across borders because of technology advancements, such as the internet. As a result,
how U.S. trade policy is shaped and implemented can affect a broad spectrum of
people in the United States. For some industries, firms, and workers, congressional
decisions to support a particular free trade agreement or Department of Commerce
rulings on antidumping cases, subsidies, and other cases could affect both
employment and growth. Those decisions could also influence product choices of
U.S. consumers. Consequently, groups representing the multinational national
corporations, small businesses, farmers, workers, consumers, and other segments of
the economy strive to make sure that their clients’ views on trade policy decisions are
represented.
Role of the Judiciary14
41. How do federal courts get involved in trade?
Legal challenges may be brought in federal court by importers, exporters,
domestic manufacturers and producers, and other parties affected by governmental
actions and decisions concerning trade. Cases may involve, for example, customs
classification decisions, agency determinations in antidumping and countervailing
duty (CVD) proceedings, presidential decisions to (or not to) restrict imports under
trade remedy statutes, or the constitutionality of state economic sanctions. The
federal government may also initiate legal proceedings against individuals and firms
to enforce customs laws or statutory restrictions on particular imports and exports.
Some trade statutes may preclude judicial review. For example, most preliminary
determinations in antidumping and CVD proceedings and governmental actions
involving the implementation of WTO and free trade area agreements may not be
challenged in federal court.15 While most federal cases involving trade laws are
heard in the U.S. Court of International Trade (see below), cases may also be filed
in other federal courts depending on the cause of action or proceeding involved.
Court decisions may significantly affect U.S. trade policy when they examine
whether an agency has properly interpreted its statutory mandate, determine whether
an agency has acted outside the scope of its statutory authority, decide how much
deference should be granted the Executive Branch under a particular statute, or rule
on whether a trade statute violates the U.S. constitution.
14 Prepared by Jeanne J. Grimmett, Legislative Attorney, American Law Division.
15 For further information, see CRS Report RS22154, WTO Decisions and Their Effect in
U.S. Law, by Jeanne J. Grimmett.

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CRS-19
42. What is the U.S. Court of International Trade?
The U.S. Court of International Trade (USCIT) is an Article III federal court
located in New York City with exclusive jurisdiction over a number of trade-related
matters, including customs decisions, antidumping and countervailing duty
determinations, import embargoes imposed for reasons other than health and safety,
and the recovery of customs duties and penalties. Formerly known as the Customs
Court, the USCIT was renamed in the Customs Court Act of 1980, which also
significantly enlarged its jurisdiction. The court consists of nine judges, no more
than five of whom may be from the same political party. Judges are appointed by the
President with the consent of the Senate. USCIT decisions are appealable to the U.S.
Court of Appeals for the Federal Circuit and to the U.S. Supreme Court. Statutory
provisions related to the USCIT may be found at 28 U.S.C. §§ 251-258
(establishment) and 28 U.S.C. §§ 1581-1585 (jurisdiction).
U.S. Trade and Investment Policy Issues
Trade Negotiations and Agreements16
43. Why does the United States negotiate trade liberalizing agreements?
The United States negotiates trade liberalizing agreements for economic and
commercial reasons, including:
! to encourage foreign trade partners to reduce or eliminate
tariffs and non-tariff barriers and, in so doing, increase market
access for U.S. exporters;
! to gain an advantage for U.S. exporters over foreign
competitors in a third-country market;
! to increase access to lower cost imports that help to control
inflation and offer domestic consumers a wider choice of
products; and
! to encourage trading partners, especially developing countries,
to rationalize their trade regimes, and thereby improve the
efficiency of their economies.
The United States has also negotiates trade liberalizing agreements for
political/national security reasons, including:
! to strengthen established alliances;
! to forge new strategic relationships; and
16 This section was prepared by William H. Cooper, Specialist in International Trade and
Finance, Foreign Affairs, Defense, and Trade Division.

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CRS-20
! to establish a presence in a geographic region.
44. What are the various types of trade liberalizing agreements?
In general, reciprocal trade agreements can be categorized by the number of
countries involved: bilateral agreements, such as free trade agreements (FTAs), are
between two countries; regional agreements, such as, the North American Free
Trade Agreement (NAFTA), involve three or more countries in a geographic region;
and multilateral agreements, such as those negotiated in the World Trade
Organization (WTO), involve many countries from virtually all regions.
45. Who benefits from trade liberalizing agreements? Who loses?
Economic theory suggests and empirical studies have generally concluded that
economies as a whole benefit when trade barriers are removed because economic
resources (land, labor, and capital) are employed more efficiently. However,
economic theory and studies also point out that the benefits of trade liberalization are
not distributed evenly within an economy and not even among economies. Some
industries, firms, and workers “lose” if they cannot adjust to the increased foreign
competition resulting from the trade agreement or if particular provisions of the trade
agreement disadvantages their interests. Other industries, firms, and workers “win”
if they can take advantage of new market opening opportunities presented by the
trade agreement or if particular provisions of the trade agreement favors or promotes
their interests.
46. What is the WTO?
The World Trade Organization (WTO) is a 150-member body that establishes
through negotiations and implements the multilateral system of rules on trade in
goods and services and on other trade-related matters and adjudicates disputes under
the rules. A fundamental principle of the WTO is non-discrimination in trade among
the members. The WTO was established in January 1995 as a part of the agreements
reached by the signatories to the General Agreement on Tariffs and Trade (GATT)
at the end of the Uruguay Round negotiations. The WTO’s primary purpose is to
administer the roughly 60 agreements and separate commitments made by its
members as part of the GATT (for trade in goods), the General Agreement on Trade
in Services (GATS — for trade in services), and the agreement on trade-related
aspects of intellectual property rights (TRIPS).
47. How are disputes resolved under WTO agreements?
If a WTO Member believes that another Member has adopted a law, regulation,
or practice that violates a WTO agreement, the Member may initiate dispute
settlement proceedings under the WTO Dispute Settlement Understanding. The
process begins with consultations and, if these fail to resolve the dispute, the Member
may request that the WTO establish a dispute panel. A panel report may be appealed
to the WTO Appellate Body by either disputing party. If the defending Member is
found to have violated a WTO obligation, the Member will be expected to remove
the challenged measure. If this is not done by the end of the established compliance

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period, the prevailing Member may request authorization from the WTO to take
temporary retaliatory action. In most cases, retaliation consists of tariff increases on
selected products from the defending Member. To date, over 350 complaints have
been filed since the WTO agreements entered into force, with the majority of
disputes resolved through consultations and negotiations rather than the panel
process.
WTO decisions do not have direct effect in U.S. law. Thus, in the event a U.S.
statute is found to violate a WTO obligation, the dispute findings may not be
implemented except through legislative action. Where an administrative action is
successfully challenged, the United States Trade Representative (USTR) decides
what, if any, compliance action will be taken. If sufficient statutory authority exists
to amend or modify a regulation or practice or to issue a new determination in a
challenged administrative proceeding, the USTR may direct the agency involved to
make the change, provided that certain statutory procedures for such actions are
followed.17
48. What is the Doha Round?
Since the GATT was signed in 1947, its signatories (member countries) have
revised and expanded the trade rules in various rounds of negotiations. The Doha
Development Agenda (DDA)is the ninth round and the first under the WTO. It is
named after the city where it was launched in November 2001 — Doha, Qatar. The
WTO members included “development” in the title to reflect their intention to
emphasize issues of importance to developing countries. The negotiations have
primarily focused on three areas — agriculture, non-agricultural goods, and services,
although members have conducted negotiations in other areas as well, such as rules.
As of this writing, negotiators have not been able to reach agreements and conclude
the round.

49. What are free trade agreements (FTAs)?
At a minimum, FTAs are agreements between/among two or more countries
under which they agree to eliminate tariffs and non-tariff barriers on trade in goods
and services among them, but each country maintains its own trade policies and
regulations, including tariffs, on trade outside the FTA. FTA partner countries may
also agree to reduce barriers or otherwise establish rules of behavior in other
economic activities — investment, intellectual property rights (IPR), labor rights and
environmental protection.
50. How do FTAs that the United States has negotiated generally differ from
those negotiated among other countries?
The FTAs that the United States negotiates are often more comprehensive than
those that are negotiated among other countries, particularly developing countries.
The standard U.S. FTA model includes not only the elimination of tariffs on trade in
17 Uruguay Round Agreements Act, P.L. 103-465, §§ 123(g), 129, 19 U.S.C. §§ 3535(g),
3538.

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goods among the FTA partners, but also reduction of barriers on trade in services,
rules on foreign investment, requirements for intellectual property rights protection,
and provisions on labor rights and environment protection. These rules may not
necessarily guarantee “free trade,” but may condition or influence the terms of
competition in specific markets.
51. What are Trade and Investment Framework Agreements (TIFAs)?
A TIFA is an agreement between the United States and another country (for
example Afghanistan) or group of countries (for example, ASEAN) to consult on
issues of mutual interest in order to promote trade and investment among the
participants. Most U.S. TIFAs are with developing countries. The United States and
its TIFA partner(s) agree to establish a joint ministerial-level council as the overall
mechanism for consultation with the possibility of establishing issue-oriented
working groups. A TIFA is a non-binding agreement and does not involve changes
in U.S. law; therefore, TIFAs do not require congressional approval. In some cases,
TIFAs have led to FTA negotiations.
Import Issues18
52. Why do countries import goods and services from other countries?
Some goods that are imported into the United States, such as bananas or crude
oil, cannot be produced at home or produced in sufficient quantities to satisfy
domestic demand. Many other goods and services are imported because they can be
produced less expensively or more efficiently by other countries.
53. What are other benefits of imports?
Consumers can benefit through access to a wider variety of goods at lower costs.
Producers can benefit through access to lower priced components or inputs that can
be utilized in the production process. Longer term, imports can also provide
pressures for companies to reduce costs through innovation and research and
development, thereby serving as a spur to economic growth.
54. What are the costs of imports?
By providing increased competition to companies producing similar or
competing products, imports can contribute to job losses and business failures. If
these job losses and company failures are concentrated in a region, imports can also
be a cause of considerable economic distress in a community.
18 This section was prepared by Vivian C. Jones and Mary Jane Bolle, Specialists in
International Trade and Finance, Foreign Affairs, Defense, and Trade Division.

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55. How does the government deal with disruption and injury to producers and
workers?
The government tries to help producers and workers who are adversely affected
by trade though application of various trade remedy laws. These laws include
responses to unfair trade practices and to increased levels of injurious imports, as
well as the Trade Adjustment Assistance program.
56. What are the main trade remedy laws?
Two primary trade remedy laws aimed at unfair trade practices are the
antidumping (AD) and countervailing duty (CVD) laws. Other trade remedy laws
include Section 201 (see below), Section 301 (focuses on violations of trade
agreements or other foreign practices that are unjustifiable and restrict U.S.
commerce), and Section 337 (focuses on unfair practices in import trade such as
patent and copyright infringement).
57. What is the purpose of the countervailing duty law?
The purpose of the CVD law is to offset any unfair competitive advantage that
foreign manufacturers or exporters might enjoy over U.S. producers as a result of
receiving a subsidy. As defined by the WTO, a subsidy is a financial contribution,
such as a loan, grant, or tax credit, provided by a government or other public entity
that confers a benefit on manufacturers or exporters of a product. Countervailing
duties, if imposed, are designed to equal the net amount of the foreign subsidy and
are levied upon importation of the subsidized goods into the United States.
58. What is the purpose of the antidumping law?
Dumping generally refers to a situation where goods are sold in one export
market at prices lower than the prices at which comparable goods are sold in the
home market of the exporter, or in its other export markets. It is thought that
companies dump products to gain market share or to deter competition. U.S. law
provides for the assessment and collection of antidumping duties when an
administrative determination is made that foreign goods are being dumped or sold at
less than fair value in the United States and that such imports are materially injuring
a U.S. industry.
59. What is the import relief (safeguards) law?
U.S. trade law (chapters 1 and 2 of the Trade Act of 1974, as amended)
provides the President with the authority to provide domestic industry with temporary
import relief, which could include tariffs and quotas, if it is found to be seriously
injured from surges of imports that do not necessarily involve unfairly traded
products. This provision is based on the recognition that liberalization of trade
barriers could cause individual sectors of the U.S. economy economic adjustment
problems, and that domestic industries should provide a period of relief to allow
them to adjust to changed competitive conditions. The U.S. International Trade
Commission investigates and recommends on import relief cases, and the President
takes final action.

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CRS-24
60. What is the Trade Adjustment Assistance Program?
The first trade adjustment assistance program was adopted as part of the Trade
Expansion Act of 1962. In proposing the program, the Kennedy Administration
argued that “those injured by trade competition should not be required to bear the full
brunt of the impact. Rather, the burden of economic adjustment should be borne in
part by the federal government ... [because] there is an obligation to render assistance
to those who suffer as a result of national trade policy.”19
The current trade adjustment assistance program has three parts: Part A for
workers, Part B for firms, and Part C for farmers. Under Part A, certified workers
may be eligible for remedial education, wage reimbursement, job search and
relocation allowances, and tax credits for health insurance costs. Under Part B, firms
may be eligible for technical assistance to help them develop strategies to remain
competitive in the changing international economy. Under Part C, farmers impacted
by competing imports may be eligible for cash benefits.20
61. What are the arguments for and against extending Trade Adjustment
Assistance (TAA) to all dislocated workers?
Some observers have suggested extending TAA to all dislocated workers —
roughly defined as workers who lose their job involuntarily, for reasons not related
to job performance.21 Supporters point to an inequity in eligibility among trade-
related job losers: Many who lose their jobs directly or indirectly to trade are not
eligible for benefits under the current TAA program. These include (1) virtually all
service sector job losers; (2) certain manufacturing sector job losers, depending on
the country to which the job is outsourced, whether the United States has a trade
agreement with it, and whether or not imports of “like”or “directly competitive”
articles are expected to increase; (3) some job losers in “upstream” supply operations
and “downstream” user operations; (4) those who lose their jobs to a decline in U.S.
exports; and (5) those who lose their jobs to automation designed to increase exports
or improve competitiveness against imports. Supporters also argue for an expanded
and simplified program of eligibility in order to eliminate the difficulties of
administering a program with such a complex set of eligibility criteria.

Opponents question why trade-related job losses should be treated any
differently than non-trade related job losses; some oppose any adjustment programs
“because they imply that there is something wrong with the operation of the free
market.” The National Association of Manufacturers reportedly has warned,
“Business enterprises and their employees are continuously affected for better or for
worse by all sorts of events beyond their control.... All experience warns that
19 Trade Adjustment Assistance: The More We Change the More It Stays the Same, by
Howard Rosen, in C. Fred Bergsten and the World Economy, edited by Michael Mussa,
Peterson Institute for International Economics, December 2006, pp. 79-113.
20 See Trade Act of 2002, P.L. 107-210, August 6, 2002, Division A: Trade Adjustment
Assistance.
21 Rosen, op. cit., p. 101, footnote 32.

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CRS-25
programs of this type inevitably expand and proliferate.”22 Others my be concerned
with definitions, administering such a complex program, and its fiscal impact.
Export Issues23
62. What are the benefits of exports?
From the perspective of individual companies, export markets provide
opportunities to expand production runs and reduce costs. Companies may also be
able to sell goods and services at higher prices than they can obtain at home. From
the perspective of individual workers, jobs in export-oriented industries often provide
higher than average wages.
63. What are some costs of exporting?
From an economic perspective that views higher levels of consumption as being
the goal of economic activity, countries export goods and services in order to earn the
foreign currency with which they can buy imports. Exports, according to this view,
are foregone production that could have been consumed domestically.
64. What factors most determine U.S. export levels?
Economists maintain that the overall level of U.S. exports is determined
primarily by the same macroeconomic conditions that generate the U.S. trade deficit.
These include the level of savings and investment, the foreign exchange rate, and
willingness of foreigners to invest in U.S. assets. U.S. exports also depend on
economic growth rates in major markets. The higher the rate of economic growth in
Asia (particularly Japan and China), Europe (particularly Germany, the U.K., and
France), Canada, and Latin America, the more people in those markets are likely to
buy U.S. exports, other things being equal.
65. What factors determine the exporting success of specific sectors?
The level of American exports in specific sectors depends both on the overall
level of exports and on an interplay of factors such as the relative competitiveness of
the American industry, trade barriers abroad, and sometimes the degree of U.S.
export promotion. The higher the overall level of exports, the more individual
sectors are likely to sell abroad, but given the impact of macroeconomic factors,
export surges by a particular sector often are offset by a decline in exports by other
sectors. In a world of floating exchange rates, a large export surge will cause
foreigners to buy more dollars to pay for those exports. This raises the demand for
dollars and increases its price relative to other currencies. Since the United States
does not intervene in currency markets to fix its exchange rate, the higher value of
the dollar makes U.S. exports more expensive and may reduce their sales.
22 Rosen, op. cit., p. 80-81.
23 Prepared by Angeles Villarreal, Analyst in International Trade and Finance and Dick K.
Nanto, Specialist in Industry and Trade, Foreign Affairs, Defense, and Trade Division.

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CRS-26
66. How does the U.S. government promote exports?
For many years, the U.S. government has promoted exports by providing credit,
finance, and insurance programs that are administered by the Export-Import Bank,
the Department of Agriculture, and the Overseas Private Investment Corporation. In
addition, the Department of Commerce through the Foreign Commercial Service in
the International Trade Administration of the Department of Commerce acts to
promote U.S. exports of goods and services, particularly by small and medium-sized
companies. Nearly every country promotes its exports as well.
67. What does the U.S. government do to restrict exports?
Congress has authorized the President to control the export of various items for
national security, foreign policy, and economic reasons. Separate programs and
statutes for controlling different types of exports exist for nuclear materials and
technology, defense articles and services, and dual-use goods and technology. Under
each program, licenses of various types are required before an export can be
undertaken. The Departments of Commerce, State, and Defense administer these
programs.
Investment Issues24
68. What are the main kinds of capital flows?
Generally, the two main kinds of capital flows are foreign direct investments
and foreign portfolio investments. Foreign direct investments involve the acquisition
of real assets such as real estate, a manufacturing plant, or controlling interest in an
ongoing enterprise by a person or entity from another country. Foreign portfolio
investments involve purchase of foreign equities or bonds, loans to foreign residents,
or the opening of foreign bank accounts. Direct investments involve a long-term
commitment and usually have direct employment stimulation advantages for the host
country while portfolio investments are extremely liquid and can be withdrawn often
times at the click of a computer mouse. In addition, there are official capital flows
generated by governments for various purposes such as humanitarian assistance and
other foreign aid.
69. Which is larger — trade or capital flows?
It depends. Recent data indicate that from 1985 to 2005, global trade in goods
and services, as measured by exports, doubled from $6 trillion a year to $12 trillion
a year. During the same twenty-year period, capital flows, as measured in the balance
of payments accounts (direct, portfolio, and other official investments), more than
quadrupled from $1.1 trillion a year to $5.2 trillion a year. But during this time
period, there also has been an explosion in growth in other types of capital flows,
known as foreign exchange and over-the-counter derivatives markets. These markets
facilitate trade in foreign exchange and other types of assets. While the capital flows
24 Prepared by James K. Jackson, Specialist in International Trade and Finance, Foreign
Affairs, Defense, and Trade Division.

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CRS-27
associated with these markets do not directly relate to transactions in the balance of
payments, they do affect the international exchange value of the dollar, which in turn
affects the prices of goods and services and the cost of securities. A survey in 2004
by the world’s leading central banks indicated that the daily trading of foreign
currencies totals more than $1.9 trillion.
70. Why do companies invest abroad?
For the most part, firms invest abroad to increase their profits. Economists and
other experts generally conclude, however, that a broad range of factors influence a
firm’s decision to invest abroad. The major determinants of foreign direct
investment are the presence of ownership-specific competitive advantages in a
transnational corporation, the presence of locational advantages such as resource
endowments or low-cost labor in a host country, and the presence of superior
commercial benefits in an intra-firm relationship as opposed to an arm’s-length
relationship between investor and host country. Multinational firms apparently are
motivated by more than a single factor, and likely invest abroad not only to gain
access to a low-cost resource but to improve their efficiency or to improve their
market share.
71. Why has foreign investment increased so dramatically in recent decades?
From 1990 to 2005, the stock, or the cumulative amount, of foreign direct
investment in the world grew from $1.8 trillion to $10.7 trillion, or by nearly 600
percent. This rapid growth arises from a number of factors. One of the most
important factors has been a change in public policies toward foreign direct
investment among most countries. Foreign direct investment has come to be viewed
favorably not only by the economically advanced countries, but also by developing
economies, which now often compete to bring in much-needed capital, technology,
and technical expertise. Currently, about three-fourths of all direct investment is
placed among the highly developed economies where consumer tastes and workers
wages are comparable.
72. What are some of the benefits of direct foreign investment?
Generally, economists argue in favor of unimpeded international flows of
capital, such as direct investment, because they estimate that such flows positively
affect both the domestic (home) and foreign (host) economies. For the home country,
direct investment benefits the individual firms that invest abroad, because they are
better able to exploit their existing competitive advantages and to acquire additional
skills and advantages. Direct investment also seems to be associated with a
strengthened competitive position, a higher level of skills of the employees, and
higher incomes of firms that invest abroad. Host countries benefit from inward direct
investment because the investment adds permanently to the capital stock and often
to the skill set of the nation. Direct investment also brings technological advances,
since firms that invest abroad generally possess advanced technology, processes, and
other advantages. Such investment also boosts capital formation and contributes to
a growth in a competitive business environment and productivity. In addition, direct
investment contributes to international trade and integration into the global trading
community, since most firms that invest abroad are established multinational firms.

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CRS-28
73. What are some of the costs of direct foreign investment?
Concerned observers argue that U.S. direct investment abroad supplants U.S.
exports, thereby reducing employment and wages in the U.S. economy. While it
appears unlikely that the overall U.S. employment level is affected by direct
investment flows, jobs in particular companies and sectors can be eliminated when
a company decides to produce similar products abroad. For example, if a U.S. auto
company closed an assembly line in the United States and opened one in Mexico
assembling the same product line, U.S. auto assembly jobs are lost. Similarly, while
inward flows of foreign direct investment tend to create new jobs, there sometimes
is concern that the new foreign owners may not serve as stable and dependable
community partners as the previous nationally-based ownership.
74. What are BITs?
Bilateral investment treaties (BITs) are agreements between two countries for
the reciprocal encouragement, promotion and protection of investments in each
other’s territories. Most treaties contain basic provisions that cover the following
areas: scope and definition of investment, admission and establishment, national
treatment, most-favored-nation treatment, fair and equitable treatment, compensation
in the event of expropriation or damage to the investment, guarantees of free transfers
of funds, and dispute settlement mechanisms, both state-state and investor-state. U.S.
BITs have to be ratified by the Senate.
75. What is CFIUS?
The Committee on Foreign Investment in the United States (CFIUS) is an
interagency committee that serves the President in overseeing the national security
implications of foreign investment in the economy. CFIUS was established by an
Executive Order of President Ford in 1975 with broad responsibilities and few
specific powers. Legislation currently pending in Congress could affect the role and
membership of CFIUS.
Additional Readings
CRS Reports
CRS Report RS20088, Dispute Settlement in the World Trade Organization: An
Overview, by Jeanne J. Grimmett.
CRS Report RS21554, Free Trade Agreements and the WTO Exceptions, by Jeanne
J. Grimmett and Todd B. Tatelman.
CRS Report RS21763, WTO Dispute Settlement: Stages and Pending U.S. Activity
Before the Dispute Settlement Body, by Todd B. Tatelman and Cynthia M. Brougher.
CRS Report RS22154, WTO Decisions and Their Effect in U.S. Law, by Jeanne J.
Grimmett.

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CRS-29
CRS Report 97-896, Why Certain Trade Agreements Are Approved as
Congressional-Executive Agreements Rather Than as Treaties, by Jeanne J.
Grimmett.
CRS Report RL31032, The U.S. Trade Deficit: Causes, Consequences, and Cures,
by Craig K. Elwell.
CRS Report RL31356, Free Trade Agreements: Impact on U.S. Trade and
Implications for U.S. Trade Policy, by William H. Cooper.
CRS Report RL32371, Trade Remedies: A Primer, by Vivian C. Jones.
CRS Report RL32461, Outsourcing and Insourcing Jobs in the U.S. Economy:
Evidence Based on Foreign Investment Data, by James K. Jackson.
CRS Report RL32964, The United States as a Net Debtor Nation: Overview of the
International Investment Position, by James K. Jackson.
CRS Report RL33144, WTO Doha Round: The Agriculture Negotiations, by Charles
E. Hanrahan and Randy Schnepf.
CRS Report RL33274, Financing the U.S. Trade Deficit, by James K. Jackson.
CRS Report RL33743, Trade Promotion Authority: Issues, Options, and Prospects
for Renewal, by J. F. Hornbeck and William H. Cooper.
CRS Report RL33388, The Committee on Foreign Investment in the United States
(CFIUS), by James K. Jackson.
CRS Report RL33463, Trade Negotiations During the 110th Congress, by Ian F.
Fergusson.
CRS Report RL33553, Agricultural Export and Food Aid Programs, by Charles E.
Hanrahan.
CRS Report RL33577, U.S. International Trade: Trends and Forecasts, by Dick K.
Nanto.
CRS Report 98-928, The World Trade Organization: Background and Issues, by Ian
F. Fergusson.
Other Readings
Burtless, Gary, Robert Z. Lawrence, and Robert Litan, Globaphobia, (Washington,
DC: The Brookings Institution, 1998).
Destler, I. M., American Trade Politics, Institute for International Economics,
Washington, DC, 2005.
The Economist, “Globalization and Its Critics,” September 27, 2001.

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CRS-30
Friedman, Thomas, The Lexus and the Olive Tree (London: Harper Collins, 2000).
Mankiw, N. Gregory, Principles of Economics (New York: Dryden Press, 1997).
Mann, Catherine L., Is the U.S. Trade Deficit Sustainable? Institute for International
Economics, Washington, DC, 1999.
Office of the United States Trade Representative, 2007 Trade Policy Agenda and
2006 Annual Report (March 2007), at [http://www.ustr.gov/Document_Library/
Reports_Publications/2007 /2007_Trade_Policy_Agenda/Section_Index.html].
Office of the United States Trade Representative, 2006 National Trade Estimate
Report on Foreign Trade Barriers (March 2006), at [http://www.ustr.gov/Document_
Library/Reports_Publications/2006/2006_NTE_Report/Section_Index.html].
Stiglitz, Joseph, Globalization and Its Discontents, Yale University Press, 2003.
U.S. Congress. House Ways and Means Committee. Overview and Compilation of
U.S. Trade Statutes, Parts I and II, June 2005
U.S. International Trade Commission, The Year in Trade 2005; Operation of the
Trade Agreements Program (Pub. 3875, Aug. 2006), at [http://hotdocs.usitc.gov/
docs/pubs/ year_in_trade/pub3875.pdf].
Wolf, Martin, Why Globalization Works, (New Haven: Yale University Press, 2004).
World Trade Organization, Dictionary of Trade Policy Terms (Cambridge, UK:
Cambridge University Press, 2003).
List of Questions
Trade Concepts
1. Why do countries trade?
2. What is comparative advantage?
3. What determines comparative advantage?
4. Can governments shape or distort comparative advantage?
5. What is the terms of trade?
6. What are the costs of trade expansion?
7. Does trade destroy jobs?
8. Does trade reduce the wages of U.S. workers?
9. What is intra-industry trade?
10. Why is intra-industry trade important?
11. What is globalization?
12. What is the global supply chain and how does it relate to globalization?
13. How does globalization affect job security?

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CRS-31
U.S. Trade Performance
14. What is meant by the trade deficit?
15. Why are different numbers reported for the trade deficit?
16. What are the causes of the record trade deficits?
17. What role do foreign trade barriers play in causing trade deficits?
18. How does the trade deficit affect the exchange value of the dollar?
19. How is the trade deficit financed?
20. Is the trade deficit a problem for the U.S. economy?
21. How long can the United States keep running trade deficits?
22. How can the trade deficit be reduced?
23. What is the role for trade policy in reducing the trade deficit?
24. Who are the leading U.S. trade partners?
25. Which industries appear to be the most competitive as measured by the size of
their trade surpluses? Which are the least competitive as measured by their
trade deficits?
26. Is the U.S. manufacturing sector shrinking?
27. Which industries are losing the most jobs?
Formulation of U.S. Trade Policy
28. What role does Congress play in the making of trade policy?
29. What committees take the lead in exercising congressional authority over trade?
30. What explicit ways does Congress make trade policy?
31. How can individual Members affect trade policy decisions?
32. What is meant by fast track or Trade Promotion Authority (TPA)?
33. Who is in charge?
34. Why was the USTR created?
35. How are trade decisions made?
36. What are the functions of the Executive Branch in U.S. trade?
37. When does the President get involved in trade decisions?
38. What is the formal role of the private sector?
39. What is the informal role that the private sector plays in the formulation of U.S.
trade policy?
40. Why are trade decisions so heavily lobbied?
41. How do federal courts get involved in trade?
42. What is the U.S. Court of International Trade?
U.S. Trade and Investment Policy Issues
43. Why does the United States negotiate trade liberalizing agreements?
44. What are the various types of trade liberalizing agreements?
45. Who benefits from trade liberalizing agreements? Who loses?
46. What is the WTO?
47. How are disputes resolved under WTO agreements?
48. What is the Doha Round?
49. What are free trade agreements (FTAs)?
50. How do FTAs that the United States has negotiated generally differ from those
negotiated among other countries?

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CRS-32
51. What are Trade and Investment Framework Agreements (TIFAs)?
52. Why do countries import goods and services from other countries?
53. What are other benefits of imports?
54. What are the costs of imports?
55. How does the government deal with disruption and injury to producers and
workers?
56. What are the main trade remedy laws?
57. What is the purpose of the countervailing duty law?
58. What is the purpose of the antidumping law?
59. What is the import relief (safeguards) law?
60. What is the Trade Adjustment Assistance Program?
61. What are the arguments for and against extending Trade Adjustment Assistance
(TAA) to all dislocated workers?
62. What are the benefits of exports?
63. What are some costs of exporting?
64. What factors most determine U.S. export levels?
65. What factors determine the exporting success of specific sectors?
66. How does the U.S. government promote exports?
67. What does the U.S. government do to restrict exports?
68. What are the main kinds of capital flows?
69. Which is larger — trade or capital flows?
70. Why do companies invest abroad?
71. Why has foreign investment increased so dramatically in recent decades?
72. What are some of the benefits of direct foreign investment?
73. What are some of the costs of direct foreign investment?
74. What are BITs?
75. What is CFIUS?

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