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Tuesday, November 23, 2010

U.S.-Mexico Economic Relations: Trends, Issues, and Implications


M. Angeles Villarreal
Specialist in International Trade and Finance

The bilateral economic and trade relationship with Mexico is of interest to U.S. policymakers because of Mexico’s proximity to the United States and because of the strong cultural and economic ties that connect the two countries. Also, it is of national interest for the United States to have a prosperous and democratic Mexico as a neighboring country. Mexico is the United States’ third-largest trading partner, while the United States is, by far, Mexico’s largest trading partner. Mexico ranks third as a source of U.S. imports, after China and Canada, and second, after Canada, as an export market for U.S. goods and services. The United States is the largest source of foreign direct investment (FDI) in Mexico. The 111th Congress has maintained an active interest in Mexico on issues related to economic conditions, trade issues, counternarcotics, migration, and border issues.

The United States and Mexico have strong economic ties through the North American Free Trade Agreement (NAFTA), which has been in effect since 1994. Prior to NAFTA, Mexico had followed a strong protectionist policy for decades until it began to unilaterally liberalize its trade regime in the late 1980s. Not all trade-related job gains and losses since NAFTA can be entirely attributed to the agreement because of the numerous factors that affect trade, such as Mexico’s trade liberalization efforts, economic conditions, and currency fluctuations. NAFTA may have accelerated the ongoing trade and investment trends that were already taking place at the time. Most studies show that the net economic effects of NAFTA on both countries have been small but positive, though there have been adjustment costs to some sectors within both countries.

The current trade issue of most concern to Members of Congress involves NAFTA trucking provisions. Under NAFTA, Mexican commercial trucks were to have been given full access throughout the United States by 2000 but the United States did not implement these provisions due to alleged safety concerns. Mexico objected and a NAFTA dispute resolution panel supported Mexico’s position in 2001. In 2009, the Mexican government began imposing retaliatory tariffs on certain U.S. products with a value of $2.4 billion in exports to Mexico. 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 having strong negative effects on 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.

Also of interest to many policymakers are the economic disparity between the two countries and migration issues. The United States and Mexico have been involved in ongoing efforts to address economic prosperity and regulatory economic cooperation. During the 2009 North American Leaders Summit in Guadalajara, Mexico, President Barack Obama met with Mexican President Felipe Calderón and Canadian Prime Minister Stephen Harper to discuss issues of prosperity and security in North America. In May 2010, Mexican President Calderón made a state visit to the United States in which he emphasized the need for increased cooperation in North America to increase the competitiveness of the region. In a meeting hosted by President Obama, the two leaders reaffirmed their shared values and the need for focusing on economic growth. They vowed to enhance and reinforce efforts to create jobs, promote economic recovery and expansion, and encourage prosperity across all levels of society in both countries. President Obama underscored his commitment to comprehensive immigration reform in the United States while President Calderón stated that his administration was committed to creating more job and educational opportunities in Mexico.



Date of Report: November 9, 2010
Number of Pages: 30
Order Number: RL32934
Price: $29.95

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Monday, November 22, 2010

Dispute Settlement in the World Trade Organization (WTO): An Overview

Jeanne J. Grimmett
Legislative Attorney

The World Trade Organization (WTO) Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) provides a means for WTO Members to resolve disputes arising under WTO agreements. WTO Members must first attempt to settle their dispute through consultations, but if these fail the Member initiating the dispute may request that a panel examine and report on its complaint. The DSU provides for Appellate Body (AB) review of panel reports, panels to determine if a defending Member has complied with an adverse WTO decision by the established deadline in a case, and possible retaliation if the defending Member has failed to do so. Automatic establishment of panels, adoption of panel and appellate reports, and authorization of a Member’s request to retaliate, along with deadlines and improved multilateral oversight of compliance, are aimed at producing a more expeditious and effective system than had existed under the General Agreement on Tariffs and Trade (GATT). To date, 418 complaints have been filed under the DSU, approximately one-half resulting in panels. Nearly one-half of the 418 complaints involve the United States as a complainant or defendant. The Office of the United States Trade Representative (USTR) represents the United States in WTO disputes.

Use of the DSU has revealed procedural gaps, particularly in the compliance phase of a dispute. These include a failure to coordinate DSU procedures for requesting retaliation with procedures for requesting a compliance panel and the absence of a specific procedure aimed at the removal of trade sanctions in the event the defending Member believes it has fulfilled its WTO obligations in a case. To overcome these gaps, disputing Members have entered into bilateral agreements permitting retaliation and compliance panel procedures to advance in sequence and have initiated new dispute proceedings seeking the removal of retaliatory measures believed to have outlived their legal foundation. Expressing dissatisfaction with WTO dispute settlement results involving U.S. trade remedies, Congress, in the Trade Act of 2002, directed the executive branch to address dispute settlement in WTO negotiations. WTO Members have been negotiating DSU revisions in the currently stalled Doha Development Round.

Section 301 of the Trade Act of 1974 provides a mechanism for the USTR, either by petition of an “interested party” or on its own accord, to address restrictive foreign trade practices through the initiation of a WTO dispute and authorizes the USTR to take retaliatory action in the event the defending Member has not complied with the resulting WTO decision. While the European Union challenged Section 301 in the WTO on the ground that it requires the USTR to act unilaterally in WTO-related disputes in violation of DSU requirements, the United States was ultimately found to be in compliance with its obligations to act consistently with the multilateral DSU system. Where a U.S. law or regulation is at issue in a WTO case, the WTO’s adoption of a panel and, if appealed, AB report finding that the U.S. measure violates a WTO agreement does not give the WTO decision direct legal effect in this country. Thus, federal law is not affected until Congress or the executive branch, as the case may be, takes action to remove the offending measure.

H.R. 496 (Rangel) would, among other things, create an Office of the Congressional Trade Enforcer that would investigate restrictive foreign trade practices in light of WTO obligations and call on the USTR to pursue WTO cases where alleged violations are found. S. 363 (Snowe) would grant the U.S. Court of International Trade exclusive jurisdiction to review de novo certain USTR determinations under Section 301 of the Trade Act of 1974 and would amend various Section 301 authorities themselves. S. 1466 (Stabenow) and S. 1982 (Brown) would establish mechanisms under the Trade Act of 1974 to require the USTR to identify particularly harmful foreign trade practices and, where appropriate, to initiate WTO cases to remedy these practices.



Date of Report: November 2, 2010
Number of Pages: 18
Order Number: RS20088
Price: $29.95

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U.S. Government Agencies Involved in Export Promotion: Overview and Issues for Congress

Shayerah Ilias, Coordinator
Analyst in International Trade and Finance

Charles E. Hanrahan
Senior Specialist in Agricultural Policy

M. Angeles Villarreal
Specialist in International Trade and Finance


This report provides an overview of the federal government agencies that participate in U.S. export promotion efforts and the issues that they raise for Congress. The recent global economic downturn has renewed congressional debate over the role of the federal government in promoting exports. This debate has been heightened with the Obama Administration’s introduction of the National Export Initiative (NEI) in the 2010 State of the Union Address. Some Members of Congress have placed greater priority on understanding the coordination, budgets, and functions of federal agencies involved in export promotion. Such an understanding may increase congressional oversight of export promotion policy and related legislative activity.

In 1992, Congress attempted to enhance coordination of U.S. export promotion policy by creating the Trade Promotion Coordinating Committee (TPCC), an interagency task force chaired by the Department of Commerce. The TPCC releases the National Export Strategy (NES), an annual report that serves as an effort to guide federal export promotion policy, goals, and activity.

Executive Order 13534, issued in March 2010, formalized the NEI and established the Export Promotion Cabinet, a higher level coordinating body that is to work with the TPCC to make the NEI operational.

Approximately 20 federal government agencies are involved in supporting U.S. exports directly or indirectly. The TPCC has identified nine of these agencies currently as having budgets for programs or activities directly related to export promotion. They are the Department of Agriculture (USDA), Department of Commerce, Export-Import Bank (Ex-Im Bank), Overseas Private Investment Corporation (OPIC), Small Business Administration (SBA), Department of State, Trade and Development Agency (TDA), Office of the U.S. Trade Representative (USTR), and Department of the Treasury. The USDA has the largest level of export promotion funding, followed by Commerce. Some agencies charge fees for their services.

Federal government agencies perform a wide variety of functions that contribute to export promotion, including providing information, counseling, and export assistance services; funding feasibility studies; financing and insuring U.S. trade; conducting government-to-government advocacy; and negotiating new trade agreements and enforcing existing ones.

The export promotion activities of federal government agencies raise a number of issues for Congress. Among the most prominent are the following:
  • the economic arguments for and against the involvement of the U.S. government in promoting exports in the context of issues such as market failures and foreign governments’ support for their national exports;
  • the effectiveness of interagency export promotion coordination through the TPCC and the newly created Export Promotion Cabinet;
  • the level of U.S. government spending on export promotion, its adequacy, and efficiency of use; and 
  • the extent to which the export promotion activities conducted by federal government agencies may be similar or overlapping.

Date of Report: November 19, 2010
Number of Pages: 25
Order Number: R41495
Price: $29.95

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Thursday, November 18, 2010

The Proposed U.S.-South Korea Free Trade Agreement (KORUS FTA): Provisions and Implications


William H. Cooper, Coordinator
Specialist in International Trade and Finance

Mark E. Manyin
Specialist in Asian Affairs

Remy Jurenas
Specialist in Agricultural Policy

Michaela D. Platzer
Specialist in Industrial Organization and Business


On June 30, 2007, U.S. and South Korean trade officials signed the proposed U.S.-South Korean Free Trade Agreement (KORUS FTA) for their respective countries. If approved, the KORUS FTA would be the second largest FTA that South Korea has signed to date, after the agreement with the European Union (EU). It would be the second largest (next to North American Free Trade Agreement, NAFTA) in which the United States participates. South Korea is the seventhlargest trading partner of the United States and the United States is South Korea’s third largest trading partner. Various studies conclude that the agreement would increase bilateral trade and investment flows. The final text of the proposed KORUS FTA covers a wide range of trade and investment issues and, therefore, could have substantial economic implications for both the United States and South Korea. The agreement will not enter into force unless Congress approves implementation legislation. The negotiations were conducted under the trade promotion authority (TPA), also called fast-track trade authority, that the Congress granted the President under the Bipartisan Trade Promotion Act of 2002 (P.L. 107-210). The authority allows the President to enter into trade agreements that receive expedited congressional consideration (no amendments and limited debate).

On June 26, 2010, President Obama announced that he would direct U.S. Trade Representative Robert Kirk to work with the South Korean trade minister to resolve outstanding issues on the KORUS FTA by the time he and South Korean President Lee Myung-Bak meet again in Seoul for the November 2010 G-20 meeting. The President said that he intends “in the few months” after the November meeting to present Congress with the implementing legislation for the agreement. In follow-up briefings, Administration officials indicated that the discussions would focus on South Korean measures related to market access for U.S. autos and beef. It was the first time the Administration had assigned a timeframe for dealing with the KORUS FTA. President Lee responded that he and President Obama would talk about “the specific ways to move this [FTA] forward.” President Obama announced this step at a time of overall tightening U.S.-South Korean relations in the face of new security threats from North Korea. However, on November 11, after months of discussions, the two sides failed to reach agreement in Seoul on the auto and beef issues. The two presidents said that they have instructed their negotiating teams to continue work “in the coming days and weeks” at resolving the outstanding issues.

In South Korea, however, the politics of the KORUS FTA likely will make it difficult for the government of President Lee to appear to accede to new U.S. demands. This is particularly due to memories of events in 2008, when Lee reached an agreement with the United States to lift South Korea’s partial ban on U.S. beef imports, triggering massive anti-government protests that forced the two governments to renegotiate the beef agreement. The South Korean National Assembly has yet to vote on the KORUS FTA, and is debating whether or not to do so before the U.S. Congress acts. It is expected that the Assembly would pass the agreement, at least in its current version.

While a broad swath of the U.S. business community supports the agreement, the KORUS FTA faces opposition from some groups, including some auto and steel manufacturers and labor unions. Some U.S. supporters view passage of the KORUS FTA as important to secure new opportunities in the South Korean market, while opponents claim that the KORUS FTA does not go far enough. Other observers have suggested 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 completed in October 2009 between South Korea and the European Union.



Date of Report: November 12, 2010
Number of Pages: 54
Order Number: RL34330
Price: $29.95

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Friday, November 12, 2010

The Trans-Pacific Partnership Agreement

Ian F. Fergusson
Specialist in International Trade and Finance

Bruce Vaughn
Specialist in Asian Affairs


The economic and strategic architectures of Asia are evolving. One part of this evolving architecture is the Trans-Pacific Partnership Agreement (TPP), a free trade agreement that includes nations on both sides of the Pacific. The existing TPP, which originally came into effect in 2006, consists of Brunei, Chile, New Zealand, and Singapore. The United States, Australia, Peru, and Vietnam have committed themselves to joining and expanding this group. The third round of discussions among the eight countries took place in Brunei, during the week of October 4, 2010. The third round saw the formal inclusion of Malaysia in the negotiations.

Other architectures, such as the Association of South East Asian Nations (ASEAN), Asia-Pacific Economic Cooperation (APEC) forum, and the East Asia Summit (EAS) have both economic and strategic aspects. They can be grouped into two categories: (1) groupings that are Asia-centric in approach or origins and exclude the United States, and (2) those that are Trans-Pacific in nature and that include, or would include, the United States and other Western Hemispheric nations. The TPP is one vehicle that could be used to shape the U.S. agenda with the region. The United States, by signaling its intention to join the EAS and by working to elevate its relationship with ASEAN to a more strategic level, appears to be shaping regional architectures in a way that will be more inclusive and trans-Pacific in nature.

Asia is viewed as of vital importance to U.S. trade and security interests. According to the U.S. Trade Representative, the Asia-Pacific region is a key driver of global economic growth and accounts for nearly 60% of global GDP and roughly 50% of international trade. Since 1990, Asia- Pacific goods trade has increased 300% while there has been a 400% increase in global investment in the region. The United States has pursued its regional trade interests both bilaterally and through multilateral groupings such as APEC, which has linked the Western Hemisphere with Asia. There appears to be a correlation between increasing intra-regional economic activity and increasing intra-regional political and diplomatic cooperation. Many observers view the more recent intra-Asian Association of Southeast Asian States (ASEAN) plus three—China, Japan, South Korea—and the ASEAN plus six (also known as the East Asia Summit)—China, Japan, South Korea, India, Australia, New Zealand—groups as having attracted more interest within the region in recent years. China’s rapidly expanding economy and Japan’s developed economy have made them attractive trading partners to many Asian nations. Until recently, many regional states also viewed the United States as having been distracted by events in Iraq and Afghanistan. This had led some to increasingly look to China and Japan as key partners. China may be shifting to a more assertive posture in the region, which may affect relations in the region. Secretary of State Clinton attended the East Asia Summit in Hanoi in October 2010 and President Obama stated he plans to attend the 2011 East Asia Summit in Jakarta.

U.S. participation in the TPP involves the negotiation of FTAs with New Zealand, Brunei, Malaysia, and potentially, Vietnam. The United States currently has FTAs in force with Chile, Singapore, Australia, and Peru. Bilateral negotiations with New Zealand may focus on agricultural goods such as beef and dairy products. The possible inclusion of Vietnam has proven controversial from the standpoint of certain U.S. industry groups, such as textiles and apparel, as well as those concerned with labor, human rights and intellectual property issues. The involvement of Vietnam could add a higher level of difficulty, yet is illustrative of the challenges associated with developing a truly Asia-Pacific-wide trade grouping. All the potential parties may face complex negotiations in integrating the myriad FTAs that already exist between some TPP parties
.


Date of Report: November 1, 2010
Number of Pages: 20
Order Number: R40502
Price: $29.95

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