International Trade and Finance: Key Policy
Issues for the 112th Congress
Raymond J. Ahearn, Coordinator
Specialist in International Trade and Finance
December 30, 2010
Congressional Research Service
7-5700
www.crs.gov
R41553
CRS Report for Congress
P
repared for Members and Committees of Congress
International Trade and Finance: Key Policy Issues for the 112th Congress
Summary
The 112th Congress faces a full agenda of international trade and finance issues. Early in 2011, the
Obama Administration is expected to ask Congress to approve a free trade agreement (FTA) with
South Korea and possibly FTAs with Colombia and Panama. The Administration is seeking to
conclude the much larger ten year-old World Trade Organization’s (WTO) Doha Round of
multilateral trade negotiations, which, if completed, would also require congressional approval.
The Administration is also negotiating a Trans-Pacific Partnership (TPP) Agreement, a regional
FTA that currently includes nine countries on both sides of the Pacific.
A U.S.-South Korea Free Trade Agreement (KORUS FTA) was first negotiated by President
George W. Bush’s Administration and signed on June 30, 2007. The Obama Administration did
not submit it for approval in the 111th Congress due to opposition from U.S. automakers and beef
producers. In early December 2010, U.S. trade negotiators won further concessions on autos
from the South Korean government, which may allow President Obama to decide to submit the
agreement to Congress in 2011. Any vote on this proposed agreement would take place under
Trade Promotion Authority (TPA), which allows implementing bills for trade agreements to be
considered under expedited legislative procedures—limited debate, no amendments, and an up or
down vote. While the proposed KORUS FTA is covered by TPA, which expired on July 1, 2007,
many experts argue that TPA would have to be renewed if the United States is to be a credible
negotiator at the WTO Doha Round and the TPP discussions.
Any trade debate in the 112th Congress will likely revolve around the perceived effects of trade
and FTAs on U.S. stakeholders. Proponents are likely to argue that the FTAs will improve access
to foreign markets, increase trade, and create jobs. Critics are likely to assert that the agreements
favor corporations over workers, and place downward pressure on wages and labor standards.
In addition to trade agreements and negotiations, U.S. export and import policies will play an
important role on the congressional trade agenda. On the export side, the 112th Congress may
consider the effectiveness of promoting exports through President Obama’s National Export
Initiative (NEI), a strategy for doubling U.S. exports by 2015, to help generate new jobs. At the
same time, Congress may choose to continue its efforts to review the Administration’s proposal to
revamp the U.S. export control system that is intended to keep sensitive security-related items
from being sold to selective countries. On the import side, Congress may conduct oversight and/
or consider legislation on a number of issues dealing with trade remedies, trade preferences,
border security and trade facilitation, and miscellaneous tariffs.
As in the 111th Congress, many bills are expected to be introduced in the 112th Congress to
address concerns over China’s economic policies and boost U.S. exports to China. Legislation
encouraging the Administration to take stronger action against China’s alleged currency
misalignment passed the House by a large bipartisan margin (348-79), but was not acted on in the
Senate. These bills and others may be reintroduced in 2011.
On the finance side, requests to increase contributions to the International Monetary Fund (IMF)
and several multilateral development banks, including the World Bank, are likely to enter into
discussions of the 112th Congress. Congress may also monitor Europe’s sovereign debt crisis,
particularly the budget support the IMF is providing and the related $173 billion exposure of U.S.
banks to four heavily indebted European countries—Greece, Ireland, Portugal, and Spain.
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International Trade and Finance: Key Policy Issues for the 112th Congress
Contents
Introduction ................................................................................................................................ 1
The Role of Congress in International Trade and Finance ............................................................ 3
Policy Issues for Congress .......................................................................................................... 4
Trade Agreements and Negotiations ...................................................................................... 4
U.S.-South Korea Free Trade Agreement ......................................................................... 4
U.S.-Columbia Free Trade Agreement ............................................................................. 5
U.S.-Panama Free Trade Agreement ................................................................................ 5
The WTO and WTO Doha Round ................................................................................... 6
Trans-Pacific Partnership ................................................................................................ 6
China .................................................................................................................................... 7
Major Trade Issues .......................................................................................................... 7
Challenges for the 112th Congress.................................................................................... 8
Export Promotion and Financing ........................................................................................... 9
National Export Initiative................................................................................................ 9
Reauthorization of the Export-Import (Ex-Im) Bank and Overseas Private
Investment Corporation (OPIC).................................................................................. 10
Export Controls and Sanctions ............................................................................................ 11
The President’s Export Control Initiative....................................................................... 11
Economic Sanctions ...................................................................................................... 12
Import Policies.................................................................................................................... 12
Trade Remedies ............................................................................................................ 13
Trade Preferences.......................................................................................................... 13
Border Security and Trade Facilitation .......................................................................... 14
“Buy American”............................................................................................................ 15
Miscellaneous Tariff Bill (MTB) ................................................................................... 15
NAFTA Trucking .......................................................................................................... 15
Trade Adjustment Assistance......................................................................................... 16
International Financial Institutions ...................................................................................... 16
International Monetary Fund ......................................................................................... 17
Multilateral Development Banks ................................................................................... 18
Outlook..................................................................................................................................... 18
Relevant CRS Reports............................................................................................................... 20
Trade Agreements and Negotiations .................................................................................... 20
China .................................................................................................................................. 21
Export Promotion and Financing ......................................................................................... 21
Export Controls and Sanctions ............................................................................................ 21
Import Policies.................................................................................................................... 22
International Financial Institutions and International Finance .............................................. 23
Contacts
Author Contact Information ...................................................................................................... 24
Congressional Research Service
International Trade and Finance: Key Policy Issues for the 112th Congress
Introduction
The 112th Congress, in both its legislative and oversight capacities, faces numerous international
trade and finance issues. Many of the major issues identified and briefly summarized in this
report are ones that Congress confronted in the 111th Congress. Others may emerge for the first
time in 2011. All the issues discussed are of importance to Congress because of their growing
impact on the health of the U.S. economy, success of many businesses, and the standard of living
of most Americans. A list of CRS reports covering each of the issues in more detail is provided at
the end of the report.
These trade and finance issues tend to be complex, and policy deliberation is often made more
challenging by developments in the global economy. First, the world is recovering unevenly from
the 2008 global financial crisis, with many developed countries experiencing weak growth
compared to large emerging economies. Second, developing country influence is growing, as
witnessed by changing trade and investment patterns, as well as the ascendance of the Group of
20 major economies (G-20) as a major forum for international policy deliberations. Third,
economic tensions emanating from large international imbalances have not eased with the new-
found growth of emerging economies.
While the U.S. economy has stabilized and is experiencing strong productivity gains following its
worst recession in eight decades, it continues to struggle with weak growth, high unemployment,
and a large federal debt. These domestic imbalances are connected to international ones,
including the large trade deficit, rising holdings of U.S. debt by foreign countries, and downward
pressure on the dollar. The United States has long consumed more than it has produced, giving
rise to the trade deficit, which is financed by capital inflows. The counterpart is large saving
balances, trade surpluses, and capital outflows in countries such as China and Germany.
The call for “global rebalancing” implies a reversal of these trends, which would require national
and foreign responses. For the United States, this may involve a decrease in spending (domestic
demand) and increase in net exports (reduction in trade deficit). Implicit in this mix is the
possible need eventually to reduce the fiscal deficit, a major source of U.S. dissaving. For trade
surplus countries, it implies the opposite—an increase in domestic demand and decrease in net
exports (reduction in trade surplus). Rebalancing may also entail changes in exchange rates,
particularly the depreciation of the dollar against major trade partner currencies.
On the trade side, President Obama is promoting the goal of doubling U.S. exports in five years
as one solution to the challenge of generating faster economic growth and more new jobs. The
rationale is based on the view that the American consumer is likely to spend more frugally in the
years ahead and that the federal government faces unsustainable budget deficits. With an
estimated 95% of the world’s consumers living outside U.S. borders, exports may serve as a
critical force for the growth of the U.S. economy in the future. Nevertheless, meeting this goal is
a difficult task because the strategy is linked to changes in U.S. domestic and international
economic policies, vibrant global economic growth, a competitive (weaker) dollar, and
supporting policies from abroad.
Foreign country policies, however, may not align easily with U.S. priorities. The European
Union, for example, is wrestling with its own financial crisis and Japan is mired in persistently
slow growth. Large emerging economies, whose recent strong growth represents growing markets
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for U.S. goods, may also be turning to less expansionist macroeconomic policies, fearful of
overheating fueled in part from large capital inflows. So despite U.S. policies directed at trade
promotion and encouraging macroeconomic changes abroad, U.S. economic recovery will also
still depend on domestic demand, despite the call for increased saving and investment.
On the finance side, government-driven currency misalignments and the specter of “currency
wars” point to the other side of the global imbalances problem. Global leaders are discussing the
need for more coordinated and equitable exchange rate policies, if not a broader rethinking of the
international monetary system. Attention has turned also to the relevance of the International
Monetary Fund (IMF) and other multilateral economic institutions in this process, including
reevaluating their role, structure, and governance in addressing exchange rate and other policies.
A current concern is the threat of competitive devaluations that inflame trade tensions, prevent the
rebalancing of the global economy, and undermine the stability of the global economy. China is
not alone in this behavior, but receives the most attention because of its closed capital account
and $884 billion of U.S. Treasury security holdings.
U.S. international economic policy must also contend with “globalization,” or the increasing
integration of markets and supply chain networks brought about by advances in technology,
communications, and transportation, as well as lower barriers to trade. Globalization has spurred
tremendous growth in trade, particularly of intermediate goods, which now account for over 60%
of the world’s commercial exchange. It has also contributed to rising incomes. In the United
States, jobs are supported by U.S. exports to foreign affiliates, U.S. production abroad, as well as
foreign firms operating in the United States. These complex production arrangements further
complicate the trade and employment debate, and raise other questions such as what constitutes
an “American-made” product. At the same time, global economic integration has also exposed
U.S. firms and workers to increased competition. Due to the larger volume of imports of goods
and services, U.S. firms are sometimes forced to make costly adjustments. In some cases, these
adjustments have been in the form of layoffs and shifts to production abroad.
In short, U.S. costs and benefits linked to an increasingly interconnected global economy may run
in many directions. The discussion no longer simply pits trade liberalization against
protectionism. The debate involves domestic and foreign economic policy, the responses of
foreign states, and stability of the international economy. For the United States, an overarching
goal is to maintain its high standard of living by remaining innovative, productive, and
internationally competitive, while safeguarding those stakeholders who otherwise may be left
behind in a fast-changing global economy, suggesting a strong supporting role for complementary
domestic policies.
Congress is in a unique position to address these issues, particularly given its constitutional
mandate for legislating and overseeing international trade and financial policy, as discussed
below. In addition to the broader congressional oversight of the economic and political context of
the current U.S. participation in the global economy, this report highlights major international
trade and finance issues Congress may address this year and next.
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The Role of Congress in International Trade and
Finance1
The U.S. Constitution assigns express authority over foreign trade to Congress. Article I, section
8, gives Congress the power to “regulate commerce with foreign nations ...” and to “... lay and
collect taxes, duties, imposts, and excises.” For roughly the first 150 years of the United States,
the Congress exercised its authority over foreign trade by setting tariff rates on all imported
products. Congressional trade debates in the 19th century often pitted Members from northern
manufacturing regions, who benefitted from high tariffs, against those from largely southern raw
material exporting regions, who advocated for low tariffs.
A major shift in U.S. trade policy occurred after Congress passed the highly protective “Smoot-
Hawley” Tariff Act of 1930, which, by raising U.S. tariffs rates to an all-time high level, led U.S.
trading partners to respond in kind. In the process, world trade declined rapidly, exacerbating the
impact of the Great Depression. Since the passage of this tariff act, Congress has delegated much
of its trade authority to the executive branch. First, Congress enacted the Reciprocal Trade
Agreements Act of 1934, which authorized the President to negotiate reciprocal agreements that
reduced tariffs within congressionally preapproved levels, and to implement the new tariffs by
proclamation without additional legislation. This authority was subject to periodic congressional
renewal. Second, Congress enacted the landmark Trade Act of 1974, which required
congressional approval for trade agreements that involved changes in U.S. law, including
multilateral trade agreements and bilateral and regional free trade agreements. This change
responded to the growing role of non-tariff barriers, such as government regulations, in trade and
trade agreement negotiations, and has been amended many times since 1974.
In the Trade Act of 1974, Congress also enacted so-called “fast track” trade authority (now called
trade promotion authority—TPA), which allows implementing bills for trade agreements to be
considered under expedited legislative procedures—limited debate, no amendments, and an up or
down vote—provided the President observes certain statutory obligations in negotiating trade
agreements, including pursuing certain trade negotiating objectives and notifying and consulting
with 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. TPA is
subject to renewal and the latest authority expired on July 1, 2007. Three pending free trade
agreements—with Colombia, Panama and South Korea—were negotiated under TPA .
The 112th Congress may consider renewal of TPA. Because of TPA’s special provisions governing
trade implementing bills, its renewal is widely considered necessary to approve and implement
new FTAs. TPA is not, however, a prerequisite for initiating or concluding trade agreement
negotiations, and positions differ in Congress as to when there may be need for new legislation.
Many experts argue that TPA would have to be renewed if the United States is to be a credible
negotiator in concluding the Doha Round and in advancing the Trans-Pacific Partnership regional
free trade negotiations.
Congress also exercises trade policy authority through the enactment of laws authorizing trade
programs and governing trade policy generally. These include such areas as: tariffs; non-tariff
1 Written by William H. Cooper, Specialist in International Trade and Finance, 707-7749.
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barriers; trade remedies; import and export policies; political and economic security; and the trade
policy functions of the Federal Government. In addition, Congress conducts oversight of the
implementation of trade policies.
Congress has an important role in international finance as well. It has the ultimate authority over
the level of U.S. financial commitments to the multilateral development banks (MDBs), including
the World Bank, and to the International Monetary Fund (IMF). The 112th Congress may consider
funding levels for the MDBs. Congress also has oversight responsibilities over these institutions,
as well as the Federal Reserve and the Treasury Department, whose activities affect international
capital flows.
Policy Issues for Congress
Trade Agreements and Negotiations2
Among the trade issues for the 112th Congress are three proposed, comprehensive bilateral free
trade agreements (FTAs), the stalled WTO Doha Round, and negotiations for an Asian-Pacific
regional free trade agreement. During the George W. Bush Administration, the United States
negotiated and, upon congressional approval, implemented eight FTAs with 13 countries. The
Bush Administration also concluded negotiations on three additional FTAs with Colombia,
Panama, and South Korea, but these agreements have not been implemented. The multilateral
WTO Doha Round continues into its 10th year in Geneva, with significant differences remaining
between and among developed and developing countries. The Bush Administration also began,
and the Obama Administration has continued, negotiations with the countries of the Trans-Pacific
Partnership (TPP)—now nine countries—to create an Asia-Pacific regional free trade agreement.
U.S.-South Korea Free Trade Agreement3
The proposed U.S.-South Korean Free Trade Agreement (KORUS FTA), signed on June 30,
2007, would be the second largest FTA in terms of trade coverage (next to the North American
Free Trade Agreement, NAFTA) in which the United States participates; however, concerns of
some Members of Congress over South Korea’s treatment of imports of U.S. autos and beef
prevented President Bush and President Obama from submitting implementing legislation to
Congress. In early December 2010, U.S. trade negotiators won further concessions on autos from
the South Korean government, allowing President Obama to decide to submit legislation to
implement the agreement early in the 112th Congress. On the beef issue, the two sides agreed to
“continued dialogue and consultation.” As a result of the changes negotiated, all three Detroit-
based auto manufacturers support the agreement, as does the United Auto Workers (UAW) and
most of the U.S. business community. It is still opposed by the AFL-CIO and some other unions.
Under the KORUS FTA, most U.S.-South Korean trade in consumer and industrial products
would become duty-free within three years after the agreement enters into force, and virtually all
remaining tariffs would be lifted within 10 years. The two countries agreed to substantially
2 Written by M. Angeles Villarreal, Specialist in International Trade and Finance, 707-0321.
3 Written by William H. Cooper, Specialist in International Trade and Finance, 707-7749.
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liberalize trade in services and agriculture. For the latter, South Korea immediately would grant
duty-free status to almost two-thirds of U.S. agricultural exports. Economic studies estimate that
U.S. exports of goods and services would likely increase by $9.7 billion to $10.9 billion, and U.S.
imports by $6.9 billion if the KORUS FTA is fully implemented.
U.S. supporters generally view passage of the KORUS FTA as important to secure new trade and
investment opportunities in the South Korean market. Some opponents claim that the KORUS
FTA does not go far enough to preserve U.S. jobs. Others assert that FTA provisions impinge on
U.S. sovereignty. Some observers have suggested that the outcome of the KORUS FTA could
have implications for the U.S.-South Korean alliance as a whole, as well as on U.S. Asia policy
and U.S. trade policy, particularly in light of an FTA signed in October 2010 between South
Korea and the European Union.
U.S.-Columbia Free Trade Agreement4
The proposed U.S.-Colombia Trade Promotion Agreement, often called the U.S.-Colombia Free
Trade Agreement, was signed on November 22, 2006. Approximately 80% of U.S. commercial
and industrial exports to Colombia would immediately achieve duty-free status upon
implementation of the agreement, and the remaining tariffs on these goods would be phased out
over the next 10 years. Tariffs on agricultural products, considered the most sensitive issue in the
negotiations, would be phased out over periods of up to 19 years. Almost 90% of products from
Colombia currently enter the U.S. market duty-free under U.S. trade preference programs or
through normal trade relations, while most U.S. exports to Colombia face duties of up to 20%.
Economic studies project that, upon full implementation, the agreement’s impact on the United
States would be very small, though positive, because trade with Colombia accounts for less than
one percent of total U.S. trade. Congressional debate on the agreement has mostly focused on the
alleged violence against labor union leaders in Colombia. Because implementing legislation for
the U.S.-Colombia FTA was submitted in the 110th Congress, the agreement would not
necessarily be eligible for TPA or “fast-track” consideration in the 112th Congress. Implementing
legislation, however, could still be reintroduced in the 112th Congress under the general rules of
both houses, and could be considered in the House under a TPA-like procedure pursuant to a
special rule reported by the Committee on Rules and approved by the House.
U.S.-Panama Free Trade Agreement5
The proposed U.S.-Panama Free Trade Agreement was signed on June 28, 2007. Approximately
88% of U.S. commercial and industrial exports would become duty-free upon implementation,
and the remaining tariffs on these goods would be phased out over a ten-year period. In
agricultural goods, over 60% of U.S. exports to Panama also would achieve immediate duty-free
status, with remaining tariffs to be phased out over a 17-year period. The circumstances framing
the proposed U.S.-Panama FTA differ considerably from the two proposed agreements noted
above. Panama trades relatively little with the United States, even by Latin American standards,
and, therefore, the FTA would not have a major effect on the U.S. economy. However, there are
two remaining congressional concerns specific to the proposed U.S.-Panama FTA. The first
pertains to a Panamanian labor statute regarding the number of workers required to form a union.
4 Written by M. Angeles Villarreal, Specialist in International Trade and Finance, 707-0321.
5 Written by J.F. Hornbeck, Specialist in International Trade and Finance, 707-7782.
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The second relates to questions raised over Panama's status as a "tax haven" and Panama’s
historical refusal to enter into a tax information exchange treaty with the United States.
The WTO and WTO Doha Round6
The World Trade Organization (WTO) is an international organization that administers the trade
rules and agreements negotiated by 153 participating parties, and serves as a forum for dispute
settlement and trade negotiations. The United States was a major force behind the creation of the
WTO in 1993 and the establishment of new rules and trade liberalization that occurred as a result
of the Uruguay Round of multilateral trade negotiations (1986-1994). The WTO succeeded the
General Agreement on Tariffs and Trade (GATT), first established in 1947.
The WTO Doha Round of multilateral trade negotiations, begun in November 2001, has entered
its 10th year of negotiation. The negotiations have been characterized by persistent differences
among the United States, the European Union, and developing countries on major issues, such as
agriculture, industrial tariffs and non-tariff barriers, services, and trade remedies. Partly as a result
of being labeled a development round to entice developing countries to participate in the first
place, developing countries (including emerging economic powerhouses such as China, Brazil,
and India) have sought the reduction of agriculture tariffs and subsidies among developed
countries, non-reciprocal market access for manufacturing sectors, and protection for their
services industries. Developed countries have sought increased access to developing countries’
industrial and services sectors while attempting to retain some measure of protection for their
agricultural sectors. Given the differences, there is frustration over the ability of WTO member
states to reach a comprehensive trade agreement.
Disputes arising under existing WTO agreements are heard under the WTO Dispute Settlement
Understanding (DSU), which significantly strengthened the earlier General Agreement on Tariffs
and Trade (GATT) dispute settlement mechanism. The new system has been widely used since its
inception, with the United States an active participant as a complainant, defendant, and third
party. How U.S. interests fare under the DSU may become the subject of oversight hearings in
112th Congress.
While Congress does not vote on WTO accession agreements, Congress has the authority to
approve permanent normal trade relations (PNTR) status for some countries, such as Russia, that
are in the process of acceding to the WTO. In the case of Russia, for example, it could do so by
repealing the application of the Jackson-Vanik Amendment to the Trade Act of 1974. Granting
PNTR would fulfill the WTO requirement that its members grant to one another unconditional
most-favored-nation treatment (MFN), called PNTR in the United States. During the 112th
Congress, Members may face the issue of whether to extend PNTR to Russia or to other countries
acceding to the WTO.
Trans-Pacific Partnership7
The Trans-Pacific Partnership (TPP) is an evolving regional FTA which may become a vehicle to
create a wider Asian-Pacific free trade area, as well as a U.S. policy response to the rapidly
6 Written by Ian F. Fergusson, Specialist in International Trade and Finance, 707-4997.
7 Written by Ian F. Fergusson, Specialist in International Trade and Finance, 707-4997.
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increasing economic and strategic linkages among Asian states. The TPP was originally an FTA
among Singapore, New Zealand, Chile, and Brunei; however, the United States, Australia, Peru,
and Vietnam joined the negotiations in the fall of 2008. President Obama endorsed the
negotiations in November 2009, and three rounds of negotiations were held in 2010, with
Malaysia joining as a full partner during the third round. In addition, interest has been expressed
by Canada, Japan, and South Korea in joining this emerging trade grouping.
The goal of the TPP is to create a high-level, comprehensive FTA covering goods, services,
agriculture, investment, intellectual property rights, government procurement, competition, labor,
environmental, and disciplines on non-tariff barriers, to which other nations can accede. The
partners are also discussing new issues such as supply chain management, regulatory coherence,
and the participation of small and medium-sized enterprises to create what the Obama
Administration calls a “21st century trade agreement.” Should TPP negotiations conclude in the
near future, the 112th Congress may consider legislation to approve and implement the agreement.
China8
U.S.-Chinese economic ties have deepened extensively over the past three decades. China is the
United States’ second largest trading partner, its largest source of imports, and its third largest
export market.9 Since embarking on economic reforms in 1979, China has been one of the
world’s fastest growing economies. Total U.S.-China trade rose from $2 billion in 1979 to an
estimated $452 billion in 2010. China is also a major part of the global supply chain for U.S.
companies as a source of their production of consumer products or parts that are used as inputs
for manufactured products in the United States. China’s large-scale purchases of U.S. Treasury
securities have helped the federal government finance its budget deficits, thus helping to keep
U.S. real interest rates relatively low.10 Low-cost imports from China benefit U.S. consumers and
help control inflation. Over the past decade or so, China has been the fastest growing U.S. export
market. Yet, the United States faces a number of important trade-related issues in its relationship
with China.
Major Trade Issues
China’s accession to the WTO in 2001 was an important step in China’s transition toward a
market-based economic system and a more open trade regime. However, commercial ties have
become strained in recent years over China’s growing use of distortive economic and trade
policies that many deem a violation of its WTO commitments and/or may be harmful to U.S.
economic interests. Some Members contend that, given the high rate of U.S. unemployment,
unfair Chinese trade policies can no longer be tolerated. Some of the policies of greatest concern
to Congress have included China’s undervalued currency, its poor record on protecting U.S.
intellectual property rights (IPR), and its growing use of industrial policies to promote and protect
domestic industries.
Since 1994, the Chinese government has maintained a policy of intervening in currency markets
to limit or halt the appreciation of its currency, the renminbi (RMB), against the U.S. dollar.
8 Written by Wayne M. Morrison, Specialist in Asian Trade and Finance, 707-7767.
9 These rankings are for 2009, and are expected to remain the same in 2010.
10 China is the largest foreign holder of U.S. Treasury securities, at $907 billion as of October 2010.
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Critics charge that this policy has made Chinese exports to the United States significantly cheaper
and U.S. exports to China more expensive than would occur under free market conditions. They
claim that this practice is the main cause of the large annual U.S. trade deficits with China and the
extensive loss of U.S. manufacturing jobs in recent years. In addition, some economists claim that
China’s currency policy induces other countries to intervene in currency markets in an effort to
hold down the value of their currencies against the dollar in order to enable their firms to remain
competitive vis-à-vis Chinese firms. This has raised concerns that such actions may result in
competitive devaluations, which may worsen economic imbalances and lead to greater trade
protectionism. In a move clearly directed at China, on September 29, 2010, the House approved
an amendment in the nature of a substitute to H.R. 2378, which would have treated certain
fundamentally undervalued currencies as an actionable subsidy under U.S. countervailing duties
laws dealing with government-subsidized exports. No Senate action was taken.
On the other hand, some economists have argued that a stronger RMB would not affect the
overall U.S. trade deficit as U.S. consumers would likely shift from imports from China to
imports from other low-wage suppliers, for example, Vietnam. In addition, they argue that a
stronger RMB would not affect U.S. jobs because most of the products the United States imports
from China have not been produced in the United States in many years.
Lack of effective and consistent protection and enforcement in China of U.S. IPR have been cited
by U.S. firms as one of the most significant problems they face in doing business in China.
Although China has significantly improved its IPR protection regime over the past few years,
U.S. industry officials complain that piracy rates in China remain very high. Business software
piracy in China alone is estimated to have cost U.S. firms $3.4 billion in lost trade in 2009.
Numerous policies have been implemented by China to promote the development of industries
deemed critical for future economic growth. The Chinese government recently announced that
one of its central goals is to change the country from a major manufacturing center to a major
global source of innovation within 15 years. To that end, China has subsidized several priority
industries (e.g., aerospace, renewable energy, computer science, and life sciences). In addition, it
has implemented discriminatory trade and investment policies to assist Chinese firms, such as
limiting competition from foreign firms or inducing foreign firms to set up operations in China
and share their technology with Chinese partners in exchange for access to China’s huge market.
Several U.S. companies have complained about a number of recent Chinese government circulars
that would establish an “Indigenous Innovation Product Accreditation” system for public
procurement projects, estimated to be worth $85 billion annually. U.S. firms charge the policy is
“protectionist” because it would require that Chinese public procurement projects provide
preference to suppliers who have been accredited by the government as having developed their
intellectual property in China.
Challenges for the 112th Congress
Opinions differ as to the most effective way of dealing with China on major economic issues.
Some support a policy of engagement with China using various forums, such as the U.S.-China
Strategic and Economic Dialogue (which holds government discussions on major issues at the
cabinet level). Others support a somewhat mixed policy of using engagement when possible,
coupled with a more aggressive use of WTO dispute settlement procedures to address China’s
unfair trade policies. Still others, who see China as a growing threat to the U.S. economy and the
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global trading system, advocate a policy of trying to contain China’s economic power and using
punitive measures when needed to force China to “play by the rules.”
How the United States responds to China’s economic rise and how it deals with China on major
bilateral trade disputes are likely to be closely monitored by the 112th Congress. Some Members
may press the Administration to boost efforts to induce China to abide by its WTO commitments,
including by bringing more trade dispute resolution cases against China in the WTO. They may
also introduce new bills that seek to address China’s currency policy, trade restrictions, and lack
of effective IPR protection.
Export Promotion and Financing11
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 (Ex-Im Bank), the
Department of Agriculture, and the Overseas Private Investment Corporation (OPIC). In
addition, the Department of Commerce, through the International Trade Administration, promotes
U.S. exports of goods and services, particularly by small and medium-sized companies. This
issue has been elevated with the Obama Administration’s introduction of the National Export
Initiative (NEI) in the 2010 State of the Union Address.
The 112th Congress may consider issues such as the effectiveness of promoting exports through
the NEI or alternate approaches; the role in the NEI of federal agencies involved in export
promotion; coordination of federal export promotion efforts, the adequacy of federal resources for
export assistance, and the reauthorization of Ex-Im Bank and OPIC. The heightened focus on
export promotion by the Administration could be an opportunity for Congress to clarify national
export promotion goals and policies.
National Export Initiative
The NEI, announced by President Obama in the 2010 State of the Union address and formalized
by Executive Order 13534, is a strategy for doubling U.S. exports over the next five years, to help
generate two million new U.S. jobs. The NEI is designed to improve coordination and funding of
federal export promotion activities; provide greater U.S. export financing; enhance government
advocacy on behalf of U.S. exporters; and negotiate new trade agreements and enforce existing
trade agreements more robustly. The NEI also focuses on facilitating exports by U.S. small
businesses and promoting “green” exports. In addition, the NEI established an Export Promotion
Cabinet, which includes Secretaries or Directors of key federal agencies involved in export
promotion and is to coordinate with the existing Trade Promotion Coordinating Committee
(TPCC) on implementing the NEI.12
Members of Congress enjoy no consensus over the effectiveness of the NEI in facilitating U.S.
exports. Some policymakers welcome its high-level focus on export promotion, while others
contend that the NEI amounts to bureaucratic reorganization and fails to address shortcomings in
11 Written by Shayerah Ilias, Analyst in International Trade and Finance, 707-9253.
12 Report to the President on the National Export Initiative: The Export Promotion Cabinet’s Plan for Doubling U.S.
Exports in Five Years, Washington, D.C., September 2010. The inter-agency TPPC was established by executive order
in 1993 to coordinate the export promotion and export financing activities of the executive branch.
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federal efforts. Some contend that the NEI’s focus on direct forms of export assistance will have
marginal effects on export levels. They encourage the administration to focus more on broader
trade and macroeconomic policy issues—such as securing congressional approval of pending
U.S. free trade agreements, reducing foreign trade barriers, addressing foreign currency
intervention issues, and working to rebalance the global economy—which they consider to be
more effective mechanisms for boosting exports.
Reauthorization of the Export-Import (Ex-Im) Bank and Overseas Private
Investment Corporation (OPIC)
Ex-Im Bank and OPIC are among the core federal agencies involved in export promotion. Ex-Im
Bank provides direct loans, guarantees, and insurance to help finance U.S. exports, when the
private sector is unable or unwilling to do so, with the goal of contributing to U.S. employment.
OPIC, based on U.S. foreign policy objectives, provides political risk insurance and finance to
support U.S. investment in developing countries, which may contribute to U.S. exports and
employment. Both agencies are self-sustaining; they use offsetting collections, generated from
fees charged for their services and other sources, to fund their activities. However, Congress, as
part of its legislative responsibilities, approves an annual appropriation that sets an upper limit on
each of the agencies’ administrative and program expenses.
The 112th Congress may consider legislation to renew the authorities of Ex-Im Bank and OPIC,
which expire on September 30, 2011.13 Congressional review may take place in the context of the
agencies’ role in the NEI and concerns about the size and scope of the federal government.
Reauthorization may raise several issues for Congress, including:
• Advocates of federal export promotion activities, such as those of Ex-Im Bank
and OPIC, argue that such efforts address market failures and help to offset
foreign governments’ export promotion efforts. 14 Others hold that government
involvement in export promotion distorts market conditions by displacing private
sector activity and encouraging commercially unviable activities.
• Ex-Im Bank and OPIC assert that their self-sustaining programs support U.S.
exports and jobs without burdening U.S. taxpayers. Others contend that, because
their transactions are backed by the full faith and credit of the U.S. government,
the agencies place a potential risk on taxpayers if they suffer losses.
• Congress requires Ex-Im Bank and OPIC’s programs and transactions to meet
criteria in areas such as U.S. and host country economic impacts, U.S. small
business interests, environmental issues, and foreign policy. While supporters
may defend the importance of striking a balance among multiple U.S. policy
goals, certain industry groups argue that such requirements constrain U.S. export
levels; limit U.S. competitiveness vis-à-vis the official credit agencies of foreign
13 The Export-Import Bank Reauthorization Act of 2006 (P.L. 109-438), enacted on December 20, 2006, reauthorized
Ex-Im Bank’s authority through September 30, 2011. The most recent long-term, stand-alone reauthorization of OPIC
was through the Overseas Private Investment Corporation Amendments Act of 2003 (P.L. 108-158), which
reauthorized OPIC through November 1, 2007. Since then, OPIC’s authority has been extended through annual
appropriations vehicles for varying periods of up to a year.
14 Market failures such as imperfect information and barriers to entry may constrain U.S. exporters in international
markets.
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countries, such as China, which place fewer restrictions on their export programs;
and, blur the missions of the agencies.
In the 111th Congress, legislation to extend OPIC’s reauthorization was introduced in the Senate
(S. 705) and in the House (H.R. 5975). Similar legislation to extend Ex-Im Bank beyond its
current authorization was not introduced in the 111th Congress.
Export Controls and Sanctions15
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. At the same time, Congress also legislates country-specific sanctions that restrict aid,
trade, and other transactions to address U.S. concerns about proliferation, regional stability, and
human rights. In the 112th Congress, these controls and sanctions may raise difficult issues of how
to balance U.S. foreign policy and national security objectives against U.S. commercial and
economic interests.
The President’s Export Control Initiative16
During the 111th Congress, the Obama Administration announced the launch of a comprehensive
review of the U.S. export control system. In the current system, responsibility for controlling
exports is divided among the Commerce, State, and Treasury Departments based on the nature of
the product (munitions or dual-use goods) and basis for control, with enforcement shared among
these agencies as well as the Departments of Justice and Homeland Security. Defense Secretary
Robert M. Gates announced key elements of the Administration's agenda for reform in a speech
on April 20, 2010, with additional elaborations in subsequent months. Secretary Gates proposed a
4-pronged approach that would create a single export control licensing agency for both dual-use
and munitions exports, adopt a unified control list, create a single integrated information
technology system, which would include a single database of sanctioned and denied parties, and
establish a single enforcement coordination agency.
The Administration's blueprint envisions that these changes would be implemented in three
phases with the final tier requiring legislative action. To date, efforts have been undertaken to
harmonize the Commerce Control List (CCL) which focuses on dual-use items, with the U.S.
Munitions List (USML) and to establish a tiered control structure that would allow items to
“cascade” from tier-to-tier as technology evolves. An Export Enforcement Coordination Center,
which was created by Executive Order on November 9, 2010, is to be housed and funded by the
Department of Homeland Security to synchronize enforcement efforts. Beginning in January
2011, the Commerce Department is to post a consolidated denied party list from all U.S. federal
agencies.
15 Written by Raymond J. Ahearn, Specialist in International Trade and Finance, 707-7629.
16 Written by Ian F. Fergusson, Specialist in International Trade and Finance, 707-4997.
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In the 112th Congress, Members may scrutinize this effort through oversight and may need to
approve certain changes proposed by the Administration. Congressional notification would be
required if items are moved from the munitions list to the dual-use list. Unilateral controls on
certain items may also be examined, especially if they result from congressionally-mandated
sanctions. In addition, changes in agency structure may require legislation and may be proposed
in the 112th Congress. The creation and placement of the proposed licensing agency, either within
an existing Department such as Commerce, State, Defense, or Homeland Security, or as an
independent entity, also has not been determined; each choice would claim proponents and
detractors. Conversely, Congress may consider a rewrite or reauthorization of the currently-
expired Export Administration Act, thus renewing the statutory basis of the current system.
Economic Sanctions17
Policymakers continue to rely on economic sanctions as a valuable asset in the national security
and foreign policy toolbox. Defined as coercive economic measures taken against a target to
bring about a change in policies, economic sanctions typically include measures such as trade
embargoes; restrictions on particular exports or imports; denial of foreign assistance, loans, and
investments; or control of foreign assets and economic transactions that involve U.S. citizens or
businesses. The United States currently maintains robust sanctions regimes against foreign
governments it has identified as supporters of acts of international terrorism (Iran, Cuba, and
Syria), nuclear arms proliferators (Iran, North Korea, Syria), or egregious violators of
international human rights standards (Burma, Cuba, Iran, North Korea). If the 112th Congress
takes up even a fraction of the proposals introduced in the 111th Congress involving economic
sanctions, the President and the Departments of State, Commerce, and Treasury—those agencies
that implement and administer the bulk of sanctions regimes—may find the role of Congress in
determining the use of sanctions also robust.
The 111th Congress completed and enacted the Comprehensive Iran Sanctions, Accountability,
and Divestment Act of 2010, but some Members have expressed concern that the Executive
Branch is not taking full advantage of flexibility the Act provides in its implementation. The
112th Congress may revisit this legislation. Some unfinished initiatives of the 111th Congress that
focused on particular countries—Belarus, Brazil, Burma, Cuba, Eritrea, Guinea, Haiti, Pakistan,
Saudi Arabia, the United Arab Emirates, Venezuela, Vietnam—might be rejuvenated, given recent
events, disclosure of new information in leaked diplomatic documents, and the shift in political
power, particularly in the House of Representatives. The 111th Congress expressed broader
concerns, too, in the conduct of U.S. foreign policy—identifying supporters of terrorists,
proliferation, regional stability, human rights—that may be further pursued in the 112th Congress
through the proposed increased use of economic sanctions.
Import Policies18
U.S. policies affecting imports tend to be shaped by a mixture of economic principles, political
considerations, and foreign policy interests. The case for maintaining a relatively open market for
the purchase of goods and services rests on the view that it yields substantial economic benefits
(lower prices, more consumer choice, and increased competition). Decisions to deviate from that
17 Written by Dianne E. Rennack, Specialist in Foreign Policy Legislation, 707-7608.
18 Written by Raymond J. Ahearn, Specialist in International Trade and Finance, 707-7629.
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rationale are also sanctioned by international trade rules that provide specific groups that are
injured by certain kinds of both “fair” and “unfair” competition with recourse to petition the
government for temporary protection. Additionally, efforts to forge closer economic and political
ties with specific regions and countries may also lead to more open or less restrictive policies vis-
à-vis the extension of preferential access to the U.S. market.
Congressional actions in the 112th Congress may reflect the interaction of these basic forces in
the following six categories: (1) trade remedies; (2) trade preferences; (3) border security and
trade facilitation; (4) miscellaneous tariff bills; (5) NAFTA trucking provisions; and (6) trade
adjustment assistance.
Trade Remedies19
The United States and its trading partners use laws known as trade remedies to mitigate the injury
(or threat thereof) of various trade practices to domestic industries and workers. The three most
frequently applied U.S. trade remedies are antidumping (AD, provides relief from injurious
imports sold at less than fair market value), countervailing duty (CVD, provides temporary relief
from injurious imports subsidized by a foreign government or public entity), and safeguards
(provides relief from import surges of fairly traded goods). These laws are enforced primarily
through the administrative procedures of two U.S. government agencies: the Department of
Commerce (DOC) and the International Trade Commission (ITC). In AD and CVD cases, the
remedy is an additional duty assessed to offset the calculated amount of dumping or subsidy. In
safeguard cases that are determined by the President, an import quota or a tariff may be assessed.
One issue that may emerge in the 112th Congress relates to the DOC methodology of disregarding
non-dumped sales when calculating the amount of antidumping duties (“zeroing”). This practice
has been the subject of several WTO disputes, and Congress may consider legislation aimed at
bringing the U.S. practice in line with WTO panel rulings. This is controversial for some in
Congress who support its continued use. Another policy issue relates to the under-collection of
AD and CV duties, which continues to be a priority trade issue (PTI) for U.S. Customs and
Border Protection (CBP). Legislation could be reintroduced in the 112th Congress seeking to
prevent importers from circumventing these duties. Third, in the 2010 Consolidated
Appropriations Act (P.L. 111-117), Congress directed the DOC to conduct an analysis of
prospective versus retrospective duty collections. This report, completed in November 2010,
could lead to legislative proposals to revise duty collection methods. Fourth, legislative proposals
seeking to direct administrative officials to treat currency misalignment, under certain
circumstances, as a subsidy under U.S. countervailing duty law, may be reintroduced in the 112th
Congress.
Trade Preferences20
Since 1974, Congress has created five trade preference programs designed to foster economic
growth, reform, and development in poorer countries. These preferences are the Generalized
System of Preferences (GSP, applies to all eligible developing countries); the Andean Trade
Preference Act (APTA); the Caribbean Basin Economic Recovery Act (CBERA); the Caribbean
19 Written by Vivian C. Jones, Specialist in International Trade and Finance, 707-7823.
20 Written by Vivian C. Jones, Specialist in International Trade and Finance, 707-7823.
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Trade Partnership Act (CBTPA); the African Growth and Opportunity Act (AGOA); and the
Haitian Opportunity through Partnership Encouragement (HOPE) Act. These programs give
temporary, non-reciprocal, duty-free U.S. market access to select exports of eligible countries.
Congress authorizes and conducts regular oversight of these programs, and has revised them
through legislation, and may continue to do so in the 112th Congress.
The 111th Congress approved extensions of the GSP and ATPA programs until December 31,
2010, and of the CBTPA through September 2020. In the aftermath of the Haitian earthquake,
Congress also provided more flexible and generous tariff preferences for Haiti and extended the
preferences through September 2020.
On December 15, 2010, the House approved H.R. 6517, the Omnibus Trade Act of 2010, which
sought to extend the GSP and ATPA programs through June 30, 2012. On December 22, 2010,
the Senate passed an amended version of H.R. 6517 by unanimous consent that included a six-
week extension of ATPA through February 12, 2011, but did not renew GSP. The amended
version of H.R. 6517 was passed by the House without objection on the same date.21 Longer-term
renewal of these programs may continue to be a legislative issue for the 112th Congress. In
addition, Congress may consider legislative action on a broader revision of preference programs
based on oversight hearings held in both the House and the Senate during the previous two
Congresses.
Border Security and Trade Facilitation22
Trade facilitation aims to improve the efficiency of international trade by harmonizing and
streamlining customs procedures, such as duplicative documentation requirements, customs
processing delays, and non-transparent or unequally enforced importation rules and requirements.
Efforts to streamline these procedures as part of the WTO Doha Round is supported by many
WTO members; however, differences exist on the scope and level of increased obligations
reforms should involve. If a trade facilitation agreement is reached as part of the Doha
negotiations, the 112th Congress could consider additional trade facilitation obligations as part of
an overall WTO package.
In its oversight role, another issue for the 112th Congress may be the U.S. Customs and Border
Protection’s (CBP) effort to enhance cargo security while expediting the processing of products
and transportation at U.S. ports of entry. The Implementing Recommendations of the 9/11
Commission Act of 2007 as passed by Congress (P.L. 110-53) included a statutory mandate to
scan all U.S. maritime cargo with non-intrusive inspection equipment at overseas ports of loading
by July 2012.23 In a House report (H.Rept. 111-157 on H.R. 2892),appropriators recently
recognized, however, that this goal is not feasible, “and even if it were, would come at an
unacceptably high cost monetarily and in the displacement of other efforts.” To ensure the
security of water-borne cargo, CBP employs a multi-layered risk-based strategy including the
Secure Freight Initiative (SFI), which prescreens and identifies suspicious cargo, and the
Container Security Initiative (CSI), a partnership with foreign authorities to physically examine
21 Signed by the President on December 29, 2010.
22 Written by Vivian C. Jones, Specialist in International Trade and Finance, 707-7823.
23 P.L. 110-53, sec. 1701. This mandate may be postponed for a certain port or ports in two-year increments by the
Secretary of Homeland Security if certain conditions are met.
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high-risk cargo while still at foreign ports. The Customs-Trade Partnership Against Terrorism (C-
TPAT) is a partnership between importers and CBP that further ensures supply chain security.
“Buy American”24
In the 111th Congress, so-called “Buy American provisions” were inserted into several pieces of
legislation, most notably the economic stimulus package, officially known as the American
Recovery and Reinvestment Act (ARRA) (P.L. 111-5), which required that iron, steel, and
manufactured goods used in the construction of public works projects funded by the Act be made
in the United States. This provision was widely criticized by U.S. trading partners, based on the
fear that the Act, if not inconsistent with U.S. international trade obligations under the plurilateral
WTO Government Procurement Agreement (GPA), might encourage a cycle of “buy national”
measures by other nations. Some industries, particularly those firms that comprise part of an
integrated supply chain, were reportedly hard-hit by the Buy American provisions. Bilateral
negotiations resulted in an agreement, signed in February 2010, to allow selective Canadian
participation in the U.S. stimulus projects in return for Canadian provincial participation in the
GPA, which would open certain local procurement opportunities in Canada to U.S. bidders. In
addition, legislation was introduced in the 111th Congress to amend the definition of U.S.
products, to remove certain exemptions and waivers from the Act’s application, and to add certain
bid calculations and criteria. Similar legislation may be considered during the 112th Congress.
Some Members may also seek to reconcile the desire to insure that tax dollars are used to boost
domestic employment through Buy American provisions with the aspirations of U.S. companies
to seek greater access to significant government procurement opportunities abroad through
expansion of the GPA to other countries, including China.
Miscellaneous Tariff Bill (MTB)25
Importers often request suspension of tariffs on chemicals, raw materials, or other non-
domestically-made components used as inputs in the manufacturing process. The rationale for
these requests is that they help domestic producers of manufactured goods reduce costs, thus
making their products more competitive, and subsequently passing on savings to the consumer.
The most recent MTB, the United States Manufacturing Enhancement Act of 2010 (P.L. 111-227),
was enacted on August 11, 2010.
In the 111th Congress, the House approved H.R. 6517 to provide duty-free access to an additional
290 products. The Senate-passed amendment to H.R. 6517 (subsequently passed by the House)
did not contain the duty suspension measures. Legislation may emerge in the 112th Congress to
pass these and other duty suspension measures, as well as on possible procedural changes in the
vetting process in order to facilitate their consideration.
NAFTA Trucking26
Under the North American Free Trade Agreement (NAFTA), which has been in effect since
January 1994, the United States agreed to give Mexican commercial trucks full access throughout
24 Written by Ian F. Fergusson, Specialist in International Trade and Finance, 707-4997.
25 Written by Vivian C. Jones, Specialist in International Trade and Finance, 707-7823.
26 Written by M. Angeles Villarreal, Specialist in International Trade and Finance, 707-0321.
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the United States by 2000. The United States did not implement these provisions, however, due to
concerns about the safety of Mexican commercial trucks. Mexico filed a dispute and, in 2001, a
NAFTA dispute resolution panel supported Mexico’s position. The two countries cooperated on
resolving the issue through the implementation of a pilot trucking program that temporarily
allowed a limited number of Mexican trucks into the United States. However, the 111th Congress
terminated the program and, in 2009, the Mexican government began imposing retaliatory tariffs
on 90 U.S. products with a value of $2.4 billion in exports to Mexico.
The 112th Congress may consider legislation to implement the NAFTA trucking provisions.
Numerous Members of Congress continue to oppose the implementation of the trucking
provisions because they are concerned about the safety of Mexican trucks in the United States,
while others support a resolution to the issue. They argue that Mexico’s retaliatory tariffs are
hurting local U.S. industries and affecting U.S. jobs, especially in the agricultural sectors. They
also argue that the United States is in violation of NAFTA by not implementing these provisions
and that Mexican trucks are required to meet U.S. safety standards.
Trade Adjustment Assistance27
Economists generally acknowledge that trade liberalization enhances the economic welfare of all
trading partners, but with stiffer global competition, certain firms and workers may face difficult
adjustment problems. Since1974, Congress has responded to these adjustment costs by
authorizing trade adjustment assistance (TAA) programs. These programs currently assist trade-
impacted workers, firms, farmers, and communities. Debate in the 111th Congress over TAA
reauthorization led to a February 5, 2009 bipartisan agreement to expand and extend existing
programs for workers (including service sector workers), firms, and farmers, and to add a fourth
program for communities. The agreement became part of the American Recovery and
Reinvestment Act of 2009 (P.L. 111-5).
Current TAA program authorizations were in place until December 31, 2010. The House-
approved version of H.R. 6517 sought to extend TAA programs until July 1, 2012. The Senate-
passed amendment in the nature of a substitute to H.R. 6517 (subsequently passed by the House
without objection) extended TAA programs for an additional six weeks, through February 12,
2011.28 The 112th Congress may consider a longer-term TAA extension.
International Financial Institutions29
The International Financial Institutions (IFIs) include the International Monetary Fund (IMF),
whose main task is ensuring international monetary and financial stability, and several
multilateral development banks (MDBs), including the World Bank and four regional
development banks—the African Development Bank, the Asian Development Bank, the European
Bank for Reconstruction and Development, and the Inter-American Development Bank. The
United States is a member and major contributor to these institutions.
27 Written by Vivian C. Jones, Specialist in International Trade and Finance, 707-7823.
28 Signed by the President on December 29, 2010.
29 Written by Martin A. Weiss, Specialist in International Trade and Finance, 707-5407
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These institutions have been at the forefront of the global response to the recent worldwide
economic crisis, dramatically increasing their lending during 2008 and 2009 to help developing
countries absorb the impact of reduced economic growth and its impacts on trade and financial
flows. As lending increased, the IMF and the MDBs sought new donor resources, and world
leaders committed to ensure sufficient resources for the MDBs to support their macroeconomic
stability and development mandates, and maintain their capacity to support G-20 priorities,
including food security, fragile states, climate change, and private-sector-led sector growth.
Requests to increase U.S. contributions to the IFIs may dominate discussions about these
institutions during the 112th Congress. While the Executive Branch manages the day-to-day U.S.
relationship at the IMF and the MDBs, Congress decides the overall terms of U.S. involvement
by setting the level of U.S. contributions, and through legislation, it may direct how the U.S. shall
vote on policies and projects.
International Monetary Fund
During the 111th Congress, attention centered on increasing IMF resources in light of elevated
levels of IMF lending since the onset of the global economic crisis in 2008. Amid growing
concern about the sustainability of fiscal deficits in several Eurozone economies, the ability of the
IMF to respond capably to sovereign debt crises may continue during the 112th Congress. Two
countries, Ireland and Greece, are currently receiving IMF-budget support, and some analysts
expect additional countries to seek funding in 2011.
On November 11-12, 2010, IMF member states agreed on a package of reforms, the core of
which is a doubling of IMF quota to about $755 billion. In addition, the reforms call for a
significant shift of voting power to dynamic emerging market economies. If the reforms are
implemented, the 10 largest members of the IMF would consist of the United States, Japan, the
four largest European economies (France, Germany, Italy, and the United Kingdom), Brazil,
China, India, and Russia.
The quota increase may come via a repositioning of existing IMF resources, namely the New
Arrangements to Borrow (NAB), a multilateral borrowing arrangement intended to temporarily
supplement available quota resources and borrowing that was recently increased. Following a
year of negotiations on the design and operations of the expanded NAB, the IMF Executive
Board adopted a proposal on April 12, 2010, by which the NAB would be expanded to about
$550 billion, with the addition of 13 new participating countries. The U.S. commitment to the
expanded NAB is $100 billion. To meet the U.S. $100 billion commitment to the expanded NAB,
as well as an $8 billion increase in the U.S. quota at the IMF, Congress appropriated $5 billion in
the Supplemental Appropriations Act, 2009 (P.L. 111-32).
As part of the new quota increase to be completed by September 2012, member countries’
commitments to the NAB are expected to be proportionally reduced to fund the increase in their
quota. Analysts expect that for the United States to participate in the quota increase, Congress
would have to authorize a shift of about $65 billion from the funds appropriated for increased
U.S. IMF participation in the 2009 Supplemental to the new quota arrangement.
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Multilateral Development Banks
Following several years of elevated lending, the Obama Administration and other governments
agreed over the past two years to substantial general capital increases (GCIs) at the MDBs.
Collectively, these capital increases are worth over $338 billion. The 112th Congress may decide
to authorize full U.S. participation in the GCIs, which would bring the total U.S. share of new
subscribed capital to $56.88 billion. Of this amount, $217.3 billion would need to be appropriated
for U.S. paid-in capital. The Administration has requested that contributions to the Asian
Development Bank GCI be included in the FY2011 budget. It is expected that requests for the
remaining institutions will be included in the FY2012 budget.
Many view U.S. participation in MDB capital increases as important, since the United States is
the largest shareholder among the MDBs, and U.S. funding commitments often spur additional
contributions from other member countries. The present situation, with all of the MDBs
requesting capital increases for their main windows, is a potential opportunity for the
administration and Congress to evaluate U.S. participation in the institutions, debate whether the
MDBs are using their existing capital effectively, and decide whether to participate in any or all
of the capital increases and, if so, whether to seek additional reforms. Critics of increased MDB
funding question MDB effectiveness and the need for additional funding given the increased
availability of other sources of financing for development.
The Obama Administration has expressed support for capital increases at the MDBs, but
cautioned that any such increase should be tied to policy reforms. The administration’s broad
MDB reform objectives are to improve transparency, accountability, and governance; better align
management performance and incentives with improved development outcomes; and more clearly
delineate the division of labor between the World Bank and the regional development banks.
U.S. participation in an MDB GCI requires both congressional authorization and appropriations.
The Obama Administration has requested that contributions to the AsDB GCI be included in the
FY2011 budget, since it was approved prior to the submission of the FY 2011 request. On June
30, 2010 the House State-Foreign Operations Appropriations Subcommittee marked up and
approved, by voice vote, a draft FY2011 funding bill that provided no funding for the AsDB GCI.
On July 27, the Senate Appropriations Committee marked up and approved a FY2011 State-
Foreign Operations funding bill, S. 3676, that would fully fund the Administration’s request,
recommending $106.57 million for paid-in capital and $2.56 billion for callable capital (1/5 of the
total GCI request). It is expected that requests for the remaining institutions will be included in
the FY2012 budget.
Outlook30
Congress may face a vote on the proposed KORUS FTA in 2011. The outcome of such a vote
could have important effects on the broader engagement of the Obama Administration and
Congress on international trade and finance issues, including the following:
• implementing legislation for the proposed Colombia and Panama FTAs;
30 Written by Raymond J. Ahearn, Specialist in International Trade and Finance, 707-7629.
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• efforts to bring the Doha Round to a close;
• U.S. leadership in the Trans-Pacific Partnership negotiations;
• congressional consideration of the renewal of Trade Promotion Authority; and
• monitoring of Europe’s sovereign debt crisis.
Any trade debate in the 112th Congress on the KORUS FTA and other trade agreements would
likely revolve around the perceived economic effects of the agreement(s) on U.S. industries and
jobs, and the role that trade agreements (bilateral, regional, and multilateral) and other policies
may play in making the U.S. economy more competitive in an increasingly integrated global
economy. With U.S. companies invested around the globe and production specialized across
national borders, assessments of the net costs and benefits of these agreements have become more
complicated. The fact that many of these agreements contain provisions that reach into domestic
policies such as labor, environmental, regulatory, and intellectual property rights also makes
simple characterization of these agreements (such as “free trade versus fair trade”) difficult and
perhaps misleading.
Proponents are likely to argue that trade agreements will improve access to foreign markets and
increase exports and, thus, are job-creating and growth enhancing. The fact that U.S. trade
partners in recent years have negotiated and implemented far more FTAs than the United States
may also factor into the debate, as well as the notion that many of the U.S. trade agreements
solidify U.S. leadership and influence in key regions of the world. Some critics are likely to assert
that the agreements favor corporations over workers, weaken import-sensitive U.S.
manufacturing industries, place downward pressure on wages and labor standards, outsource jobs,
and undermine U.S. sovereignty.
The outlook for congressional action on trade and finance issues could also be affected by
domestic and foreign economic conditions. Domestically, receptivity to trade liberalizing
agreements tends to be greater when the economy is expanding and unemployment is decreasing.
The U.S. economy continues to struggle with slow growth and high unemployment, which may
make it difficult to enact such measures.
Internationally, the climate for trade legislation could be enhanced by vibrant economic growth,
particularly among emerging economies, a competitive (weaker) dollar, and supporting policies
from trade surplus countries (China and Germany in particular) that promote an increase in their
domestic demand in those economies and a decrease in their net exports. One of the underlying
causes of the 2008 global recession was the presence of highly skewed trade imbalances.
Therefore, policies that correct the imbalances (e.g., more consumption in surplus countries and
higher savings in the United States—the largest deficit country) and provide more balanced
growth are seen by many as important for both global economic recovery and an avoidance of an
outbreak of protectionism.
In sum, as U.S. interaction with the world economy increasingly influences congressional
deliberations on international trade and finance issues, congressional actions, in turn, may play an
important role in affecting the growth of the U.S. economy and the creation of new jobs.
Decisions of the 112th Congress on international trade and finance issues may also have important
consequences for the country’s role in the world economy and in global political dynamics more
generally.
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International Trade and Finance: Key Policy Issues for the 112th Congress
Relevant CRS Reports
Trade Agreements and Negotiations
CRS Report RL34330, The Proposed U.S.-South Korea Free Trade Agreement (KORUS FTA):
Provisions and Implications, coordinated by William H. Cooper
CRS Report RL34470, The Proposed U.S.-Colombia Free Trade Agreement, by M. Angeles
Villarreal
CRS Report RL34759, Proposed U.S.-Colombia Free Trade Agreement: Labor Issues, by Mary
Jane Bolle
CRS Report RL32540, The Proposed U.S.-Panama Free Trade Agreement, by J. F. Hornbeck
CRS Report R40622, Agriculture in Pending U.S. Free Trade Agreements with Colombia,
Panama, and South Korea, by Remy Jurenas
CRS Report R41534, The EU-South Korea Free Trade Agreement and Its Implications for the
United States, by William H. Cooper et al.
CRS Report R41389, Pending U.S. and EU Free Trade Agreements with South Korea: Possible
Implications for Automobile and Other Manufacturing Industries , by Michaela D. Platzer
CRS Report RL31356, Free Trade Agreements: Impact on U.S. Trade and Implications for U.S.
Trade Policy, by William H. Cooper
CRS Report RL33743, Trade Promotion Authority (TPA) and the Role of Congress in Trade
Policy, by J. F. Hornbeck and William H. Cooper
CRS Report RS21004, Trade Promotion Authority and Fast-Track Negotiating Authority for
Trade Agreements: Major Votes, by Carolyn C. Smith
CRS Report 97-896, Why Certain Trade Agreements Are Approved as Congressional-Executive
Agreements Rather Than as Treaties, by Jeanne J. Grimmett
CRS Report RL32060, World Trade Organization Negotiations: The Doha Development Agenda,
by Ian F. Fergusson
CRS Report RL33634, The World Trade Organization: The Non-Agricultural Market Access
(NAMA) Negotiations, by Ian F. Fergusson
CRS Report RL33085, Trade in Services: The Doha Development Agenda Negotiations and U.S.
Goals, by William H. Cooper
CRS Report RS22927, WTO Doha Round: Implications for U.S. Agriculture, by Randy Schnepf
and Charles E. Hanrahan
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International Trade and Finance: Key Policy Issues for the 112th Congress
CRS Report RS20088, Dispute Settlement in the World Trade Organization (WTO): An Overview,
by Jeanne J. Grimmett
CRS Report R40502, The Trans-Pacific Partnership Agreement, by Ian F. Fergusson and Bruce
Vaughn
CRS Report RL33943, Increasing the Social Security Payroll Tax Base: Options and Effects on
Tax Burdens, by Thomas L. Hungerford
China
CRS Report RL33536, China-U.S. Trade Issues, by Wayne M. Morrison
CRS Report RS21625, China’s Currency: An Analysis of the Economic Issues, by Wayne M.
Morrison and Marc Labonte
CRS Report RS22658, Currency Manipulation: The IMF and WTO, by Jonathan E. Sanford
CRS Report RL34314, China’s Holdings of U.S. Securities: Implications for the U.S. Economy,
by Wayne M. Morrison and Marc Labonte
CRS Report R41421, China’s Steel Industry and Its Impact on the United States: Issues for
Congress, by Rachel Tang
CRS Report R40844, Chinese Tire Imports: Section 421 Safeguards and the World Trade
Organization (WTO), by Jeanne J. Grimmett
CRS Report R41287, China and the United States—A Comparison of Green Energy Programs
and Policies, by Richard J. Campbell
Export Promotion and Financing
CRS Report R41495, U.S. Government Agencies Involved in Export Promotion: Overview and
Issues for Congress, coordinated by Shayerah Ilias
CRS Report R41202, Agricultural Export Programs: Background and Issues, by Melissa D. Ho
and Charles E. Hanrahan
CRS Report 98-568, Export-Import Bank: Background and Legislative Issues, by Shayerah Ilias
CRS Report 98-567, The Overseas Private Investment Corporation: Background and Legislative
Issues, by Shayerah Ilias
Export Controls and Sanctions
CRS Report RL31832, The Export Administration Act: Evolution, Provisions, and Debate, by Ian
F. Fergusson
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International Trade and Finance: Key Policy Issues for the 112th Congress
CRS Report R41438, North Korea: Legislative Basis for U.S. Economic Sanctions, by Dianne E.
Rennack
CRS Report RL33948, State and Local Economic Sanctions: Constitutional Issues, by Jeanne J.
Grimmett
CRS Report RS20871, Iran Sanctions, by Kenneth Katzman
CRS Report RL31502, Nuclear, Biological, Chemical, and Missile Proliferation Sanctions:
Selected Current Law, by Dianne E. Rennack
CRS Report RL33487, Syria: Issues for the 112th Congress and Background on U.S. Sanctions,
by Jeremy M. Sharp
Import Policies
CRS Report RL32371, Trade Remedies: A Primer, by Vivian C. Jones
CRS Report RL33350, Child Welfare: The Court Improvement Program, by Emilie Stoltzfus
CRS Report R41429, Trade Preferences: Economic Issues and Policy Options, coordinated by
Vivian C. Jones
CRS Report RL33663, Generalized System of Preferences: Background and Renewal Debate, by
Vivian C. Jones
CRS Report RL31772, U.S. Trade and Investment Relationship with Sub-Saharan Africa: The
African Growth and Opportunity Act , by Vivian C. Jones
CRS Report RL33951, U.S. Trade Policy and the Caribbean: From Trade Preferences to Free
Trade Agreements, by J. F. Hornbeck
CRS Report RL34687, The Haitian Economy and the HOPE Act, by J. F. Hornbeck
CRS Report RS22548, ATPA Renewal: Background and Issues, by M. Angeles Villarreal
CRS Report 97-765, The Buy American Act: Requiring Government Procurements to Come from
Domestic Sources, by John R. Luckey
CRS Report RL33867, Tariff Modifications: Miscellaneous Tariff Bills, by Vivian C. Jones
CRS Report RL31738, North American Free Trade Agreement (NAFTA) Implementation: The
Future of Commercial Trucking Across the Mexican Border, by John Frittelli
CRS Report RS22718, Trade Adjustment Assistance for Workers (TAA) and Reemployment Trade
Adjustment Assistance (RTAA), by John J. Topoleski
CRS Report RS20210, Trade Adjustment Assistance for Firms: Economic, Program, and Policy
Issues, by J. F. Hornbeck
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International Trade and Finance: Key Policy Issues for the 112th Congress
CRS Report R40206, Trade Adjustment Assistance for Farmers, by Remy Jurenas
CRS Report R40863, Trade Adjustment Assistance for Communities: The Law and Its
Implementation, by Eugene Boyd
International Financial Institutions and International Finance
CRS Report R41170, Multilateral Development Banks: Overview and Issues for Congress, by
Rebecca M. Nelson
CRS Report R41167, Greece’s Debt Crisis: Overview, Policy Responses, and Implications,
coordinated by Rebecca M. Nelson
CRS Report R40578, The Global Financial Crisis: Increasing IMF Resources and the Role of
Congress, by Jonathan E. Sanford and Martin A. Weiss
CRS Report RS20792, Multilateral Development Banks: U.S. Contributions FY1998-FY2011, by
Jonathan E. Sanford
CRS Report R41239, Frequently Asked Questions about IMF Involvement in the Eurozone Debt
Crisis, coordinated by Rebecca M. Nelson
CRS Report R40977, The G-20 and International Economic Cooperation: Background and
Implications for Congress, by Rebecca M. Nelson
CRS Report R41411, The Future of the Eurozone and U.S. Interests, coordinated by Raymond J.
Ahearn
CRS Report RL33984, Foreign Direct Investment: Current Issues, by James K. Jackson
CRS Report RL32462, Foreign Investment in U.S. Securities, by James K. Jackson
CRS Report RL32461, Outsourcing and Insourcing Jobs in the U.S. Economy: Evidence Based
on Foreign Investment Data, by James K. Jackson
CRS Report RL32749, U.S. Taxation of Overseas Investment and Income: Background and
Issues, by Donald J. Marples
CRS Report RS21951, Financing the U.S. Trade Deficit: Role of Foreign Governments, by Marc
Labonte
CRS Report RL31032, The U.S. Trade Deficit: Causes, Consequences, and Policy Options, by
Craig K. Elwell
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International Trade and Finance: Key Policy Issues for the 112th Congress
Author Contact Information
Raymond J. Ahearn, Coordinator
Martin A. Weiss
Specialist in International Trade and Finance
Specialist in International Trade and Finance
rahearn@crs.loc.gov, 7-7629
mweiss@crs.loc.gov, 7-5407
William H. Cooper
Shayerah Ilias
Specialist in International Trade and Finance
Analyst in International Trade and Finance
wcooper@crs.loc.gov, 7-7749
silias@crs.loc.gov, 7-9253
J. F. Hornbeck
M. Angeles Villarreal
Specialist in International Trade and Finance
Specialist in International Trade and Finance
jhornbeck@crs.loc.gov, 7-7782
avillarreal@crs.loc.gov, 7-0321
Vivian C. Jones
Wayne M. Morrison
Specialist in International Trade and Finance
Specialist in Asian Trade and Finance
vcjones@crs.loc.gov, 7-7823
wmorrison@crs.loc.gov, 7-7767
Ian F. Fergusson
Specialist in International Trade and Finance
ifergusson@crs.loc.gov, 7-4997
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