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Tuesday, January 18, 2011

Free Trade Agreements: Impact on U.S. Trade and Implications for U.S. Trade Policy

William H. Cooper
Specialist in International Trade and Finance

Free trade areas (FTAs) are arrangements among two or more countries under which they agree to eliminate tariffs and nontariff barriers on trade in goods among themselves. However, each country maintains its own policies, including tariffs, on trade outside the region.

In the last few years, the United States has engaged or has proposed to engage in negotiations to establish bilateral and regional free trade arrangements with a number of trading partners. Such arrangements are not new in U.S. trade policy. The United States has had a free trade arrangement with Israel since 1985 and with Canada since 1989, which was expanded to include Mexico and became the North American Free Trade Agreement (NAFTA) effective in January 1994.

U.S. interest in bilateral and regional free trade arrangements surged, and the Bush Administration accelerated the pace of negotiations after the enactment of the Trade Promotion Authority in August 2002. U.S. participation in free trade agreements can occur only with the concurrence of the Congress. In addition, FTAs affect the U.S. economy, with the impact varying across sectors.

The 112
th Congress and the Obama Administration face the question of whether and when to act on three pending FTAs—with Colombia, Panama, and South Korea. Although the Bush Administration signed these agreements, it and the leaders of the 110th Congress could not reach agreement on proceeding to enact them. No action was taken during the 111th Congress either. In addition, the Trade Promotion Authority (TPA) expired on July 1, 2007, meaning that any new FTAs agreed to would not likely receive expedited legislative consideration, unless the authority is renewed. In December 2010, U.S. and South Korean officials agreed to some modifications in the U.S.-South Korea FTA, and the President is expected to send implementing legislation to Congress sometime in 2011. The Administration had not indicated a timeline for the other two agreements.

In the meantime, on November 14, 2009, President Obama committed to work with the current and prospective members the Trans-Pacific Strategic Economic Partnership Agreement (TPP). The TPP is a free trade agreement that includes nations on both sides of the Pacific. The TPP, which originally came into effect in 2006, currently includes Brunei, Chile, New Zealand, and Singapore. Besides the United States, Australia, Peru, and Vietnam have also expressed interest in joining.

FTAs could raise some important policy issues, if the 112
th Congress considers implementing legislation and as it monitors ongoing negotiations as part of its oversight responsibilities: Do FTAs serve or impede U.S. long-term national interests and trade policy objectives? Which type of an FTA arrangement meets U.S. national interests? What should U.S. criteria be in choosing FTA partners? Are FTAs a substitute for or a complement to U.S. commitments and interests in promoting a multilateral trading system via the World Trade Organization (WTO)? What effect will the expiration of TPA have on the future of FTAs as a trade policy strategy? .

Date of Report: January 6, 2011
Number of Pages: 18
Order Number: RL31356
Price: $29.95

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