James K. Jackson
Specialist in International Trade and Finance
The U.S. economy has grown increasingly interconnected with other economies around the world, a phenomenon often referred to as globalization. As U.S. businesses expand globally, however, various groups across the social and economic spectrum have expressed their concerns over the economic, social, and political impact of this activity. Over the past 20 years, multinational corporations and nations have adopted voluntary, legally enforceable, and industryspecific codes of conduct to address many of these concerns. For instance, the 2008-2009 financial crisis spurred Congress and governments in Europe to increase regulation of financial firms, and the European Union has adopted directives to govern executive pay and bonuses. Congress will continue to play a pivotal role in addressing the large number of issues regarding internationally applied corporate codes of conduct that remain to be negotiated.
Date of Report: February 14, 2011
Number of Pages: 9
Order Number: RS20803
Price: $19.95
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J. F. Hornbeck
Specialist in International Trade and Finance
Economists generally acknowledge that trade liberalization enhances the economic welfare of all trade partners, but with stiffer global competition, many firms and workers also face difficult adjustment problems. Congress has responded to these adjustment costs by authorizing four trade adjustment assistance (TAA) programs to assist trade-impacted workers, firms, farmers, and communities. This report discusses the TAA program for firms (TAAF). The TAAF program provides technical assistance to trade-affected firms to help them develop strategies and make other adjustments to remain competitive in the changing international economy. The 111th Congress authorized the program through February 12, 2012, and it continues to operate at FY2010 levels of $15.8 million under a continuing resolution (see CRS Report RL30343, Continuing Resolutions: Latest Action and Brief Overview of Recent Practices, by Sandy Streeter.)
Congress first authorized TAA in Title III of the Trade Expansion Act of 1962 (P.L. 87-794), including a new firm and industry assistance program, which is administered by the Economic Development Administration (EDA) of the U.S. Department of Commerce. It provides technical assistance to help trade-impacted firms make strategic adjustments, which may allow them to remain competitive in a global economy. Originally firm TAA also included loans and loan guarantees, but Congress eliminated all direct financial assistance in 1986 because of federal budgetary cutbacks and concern over the program’s high default rates and limited effectiveness.
Debate early in the 111th Congress over TAA reauthorization led to a February 5, 2009, bipartisan agreement to expand and extend existing programs for 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—the Stimulus Bill). Congress changed the TAA for Firms program in a number of important ways. It expanded eligibility for trade adjustment assistance to include services firms, authorized an extension of the program through December 31, 2010, increased annual authorized funding levels from $16 million to $50 million, provided greater flexibility for a firm to demonstrate eligibility for assistance, established new oversight and evaluation criteria, created a new position of Director of Adjustment Assistance for Firms, and required submission to Congress of a detailed annual report on the TAAF program.
Authorization of the TAA programs was set to expire on January 1, 2011. The Omnibus Trade Act of 2010 (H.R. 6517), which the House and Senate passed on December 22, 2010, extended the TAAF program through February 12, 2012. However, because of expiring language in the act, those expanded provisions covering eligibility for services firms and other matters passed in the ARRA all expired on February 12, 2011, although the program continues to be authorized and operate at FY2010 levels of $15.8 million under the continuing resolution.
On February 8, 2011, S. 308, the Trade Extenders Act of 2011 was introduced in the Senate. This bill would authorize the TAA for Firms program to operate through June 30, 2013. It would also authorize appropriations of $50 million for FY2011 and $37.5 million for the nine months ending June 30, 2012. Because the TAA for Firms program awards grants to the eleven regional Trade Adjustment Assistance Centers (TAACs) on July 1 of the fiscal year, S. 308 would allow grants for FY2011 to be funded at the $50 million level, if Congress fully appropriates that amount, and a nine-month pro rated share ($37.5 million) would be available for FY2012. Funds would be awarded for the grant fiscal year July 1, 2012 through June 30, 2013.
Date of Report: February 14, 2011
Number of Pages: 11
Order Number: RS20210
Price: $29.95
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Jeanne J. Grimmett
Legislative Attorney
Article I:1 of the General Agreement on Tariffs and Trade 1994 (GATT 1994) requires World Trade Organization (WTO) Members to grant most-favored-nation (MFN) treatment “immediately and unconditionally” to the like products of other Members with respect to tariffs and other trade-related measures. Programs such as the Generalized System of Preferences (GSP), under which developed countries grant preferential tariff rates to developing country goods, are facially inconsistent with this obligation because they accord goods of some countries more favorable tariff treatment than that accorded to like goods of other WTO Members. Because such programs have been viewed as trade-expanding, however, parties to the GATT provided a legal basis for one-way tariff preferences in a 1979 decision known as the Enabling Clause. The Enabling Clause was formally incorporated into the GATT 1994 upon the entry into force of the GATT Uruguay Round agreements on January 1, 1995. In 2004, the WTO Appellate Body ruled that the Clause allows developed countries to offer differing treatment to developing countries in a GSP program, but only if identical treatment is available to all similarly situated beneficiaries.
In addition to GSP programs, some WTO Members may also grant preferences to products of particular groups of countries that are more generous than GSP benefits. In such cases, Members have generally obtained time-limited WTO waivers of GATT Article I:l and, if needed, other GATT obligations. The United States holds temporary WTO waivers for tariff preferences granted to the former Trust Territory of the Pacific Islands and for three regional preference schemes: (1) the Caribbean Basin Economic Recovery Act (CBERA), as amended; (2) the Andean Trade Preference Act (ATPA), as amended, and (3) the African Growth and Opportunity Act (AGOA). Congress has made the CBERA program permanent and has authorized through September 30, 2020, the expanded tariff benefits contained in the Caribbean Basin Trade Partnership Act and subsequent legislation particular to Haiti. The AGOA program is authorized through September 30, 2015. While the U.S. GSP program expired on December 31, 2010, Congress extended the Andean preference program through February 12, 2011.
In the 111th Congress, H.R. 1318 (Van Hollen) would have extended duty-free treatment for certain textile and apparel products and other goods from designated Reconstruction Opportunity Zones (ROZs) in Afghanistan and Pakistan until September 30, 2024, conditioning continued benefits on governmental compliance with various labor requirements. S. 496 (Cantwell) would have authorized the same through September 30, 2023, without added labor conditions. The House legislation was added to H.R. 1886, the Pakistan Enduring Assistance and Cooperation Enhancement Act of 2009, which passed the House June 11, 2009. H.R. 1886 was later appended to H.R. 2410, the Foreign Relations Authorization Act, FYs 2010 and 2011, which passed the House June 10, 2009. Assistance to Pakistan was later enacted into law without ROZ provisions.
Other 111th Congress trade preference legislation included H.R. 1837 (Engel) and S. 780 (Bill Nelson), which would have made Paraguay eligible for the ATPA program; H.R. 2702 (C. Smith), which would have limited GSP benefits for Brazil; H.R. 3039 (McDermott), which would have provided preferential tariff treatment to certain apparel from the Philippines; H.R. 4101 (McDermott), which would have expanded preferential trade benefits for least-developed countries (LDCs) and authorized the GSP program through December 31, 2019; S. 1141 (Feinstein), which would have granted duty-free treatment to textiles and apparel from 14 LDCs; and S. 1665 (Lugar), which would have made Paraguay and Uruguay eligible for ATPA benefits, expanded certain textile-related benefits under the program, and extended the program through December 31, 2012. No action was taken on any of these bills.
Date of Report: January 21, 2011
Number of Pages: 11
Order Number: RS22183
Price: $29.95
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Jeanne J. Grimmett
Legislative Attorney
The U.S.-Peru Trade Promotion Agreement (PTPA) follows current U.S. free trade agreement (FTA) practice in containing two types of formal dispute settlement: (1) State-State, applicable to disputes between the Parties to the PTPA, and (2) investor-State, applicable to claims by an investor of one State Party against the other State Party for breach of a PTPA investment obligation. A defending Party in a State-State dispute found to be in violation of a PTPA obligation is generally expected to remove the complained-of measure; remedies for noncompliance include compensation and the suspension of PTPA concessions or obligations (e.g., the imposition of a tariff surcharge on the defending Party’s products), with the defending Party having the alternative of paying a fine to the prevailing Party or, in some cases, into a fund that may be used to assist the defending Party in complying with its obligations in the case. An investor-State tribunal may only make monetary awards to the claimant and thus may not direct a PTPA Party to withdraw or modify a violative measure. If the defending State Party does not comply with an award, the investor may seek to enforce it under one of the international conventions for the recognition and enforcement of arbitral awards to which the United States and Peru are party. State-State dispute settlement may also be initiated against the non-complying Party.
The PTPA State-State dispute settlement mechanism differs from earlier U.S. FTAs in that it applies to all obligations contained in the labor and environmental chapters of the PTPA instead of only domestic labor or environmental law enforcement obligations. In addition, in the event a Party is found to be in breach of one of these obligations and has not complied in the dispute, the prevailing Party may impose trade sanctions instead of, as under earlier agreements, being limited to requesting that a fine be imposed on the non-complying Party with the funds to be expended for labor or environmental initiatives in that Party’s territory. The changes stem from a bipartisan agreement on trade policy between Congress and the Administration finalized on May 10, 2007 (May 10 agreement), setting out various provisions to be added to completed or substantially completed FTAs pending at the time. Among the aims of the agreement was to expand and further integrate labor and environmental obligations into the U.S. free trade agreement structure. The same approach to labor and environmental disputes is found in FTAs entered into with Colombia, Korea, and Panama, each of which continue to await congressional approval.
Implementing legislation approving the PTPA and providing legislative authorities needed to carry it out was signed into law on December 14, 2007 (P.L. 110-138). The agreement entered into force on February 1, 2009. A protocol of amendment revising the PTPA to incorporate provisions involving labor, the environment, intellectual property, port services, and investment, as set out in the May 10 agreement, entered into force on the same day.
To date, there have not been any disputes brought under the PTPA State-State dispute settlement mechanism. In general, resort to panels under FTA State-State dispute settlement has been uncommon, and thus there has been relatively little experience with the operation of this mechanism over a range of agreements and issues. FTA Investor-State disputes have occurred more frequently. A notice of intent to initiate an arbitration was submitted by a U.S. firm under the PTPA in late December 2010. Claims have also been brought under the North American Free Trade Agreement (NAFTA) against each of the three agreement Parties. Four claims have been filed by U.S. investors under the Dominican Republic – Central America – United States Free Trade Agreement (DR–CAFTA), one against the Dominican Republic, two against El Salvador, and one against Guatemala.
Date of Report: January 28, 2011
Number of Pages: 15
Order Number: RS22752
Price: $29.95
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J. F. Hornbeck
Specialist in International Trade and Finance
Trade is one of the more enduring issues in contemporary U.S.-Latin America relations. Latin America is far from the largest U.S. regional trade partner, but historically is the fastest growing one. Between 1998 and 2009, total U.S. merchandise trade (exports plus imports) with Latin America grew by 82% compared to 72% for Asia (driven largely by China), 51% for the European Union, 221% for Africa, and 64% for the world. Mexico composed 11.7% of total U.S. merchandise trade in 2009 and is the largest Latin American trade partner. It accounted for 58% of the region’s trade with the United States, the result of a long history of economic integration between the two countries. By contrast, the rest of Latin America together makes up only 8.3% of U.S. trade, half of which is trade with Brazil, Colombia, and Venezuela.
Latin American countries have made noted progress in trade liberalization, reducing tariffs significantly and entering into their own regional agreements. This development presented an opportunity for the United States, which has supported deeper regional integration because it has been widely viewed as beneficial for both economic and foreign policy reasons. The United States has implemented comprehensive bilateral or plurilateral reciprocal trade agreements with most of its important trade partners in Latin America. These include the North American Free Trade Agreement (NAFTA), the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), and bilateral FTAs with Chile and Peru. FTAs with Panama and Colombia have been signed but not implemented, pending congressional action.
Some of the largest economies in South America, however, are not part of U.S. FTAs and have resisted a region-wide agreement, the Free Trade Areas of the Americas (FTAA), in part because it represented an extension of the same trade model used by the United States in bilateral agreements. Many countries south of the Caribbean Basin have been reluctant to enter into such a deal because it does not meet their primary negotiation objectives. Brazil, Argentina, and Venezuela are less compelled to capitulate to U.S. demands because they are far less dependent on the U.S. economy than countries in the Caribbean Basin, do not rely on U.S. regional unilateral preferential arrangements (e.g., the Caribbean Basin Initiative or Andean Trade Preference Act), and would have to redefine their subregional trade pacts.
The result in the Western Hemisphere has been an expansive system of disparate bilateral and plurilateral agreements, which are widely understood to be a second best solution for reaping the benefits of trade liberalization. Alternatives to a new round of currently unpopular FTAs are being debated. It has been suggested, for example, that FTAs be revised, enhancing controversial environment, labor, and other chapters. The response in Latin, however, has been tepid. Another option is to move incrementally toward harmonization or convergence of the many trade arrangements in the Western Hemisphere by adopting administrative solutions where possible. One example is to expand rules of origin and cumulation provisions.
With respect to FTA implementation, another critical issue is the provision of trade capacity building and other technical assistance to address supply-side constraints in areas such as port and customs operations modernization, infrastructure investment, technology enhancement, and development of common standards in general. These are often major constraints to the more fluid movement of goods in Latin American countries. It is uncertain what the next step in Western Hemisphere economic integration may be, and these alternatives may be difficult to implement and monitor. But at the margin, they could provide benefits in light of the apparent hiatus in moving ahead with either a multilateral or hemispheric trade accord.
Date of Report: February 8, 2011
Number of Pages: 13
Order Number: 98-840
Price: $29.95
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