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Thursday, March 31, 2011

WTO Dispute Settlement: Status of U.S. Compliance in Pending Cases


Jeanne J. Grimmett
Legislative Attorney

Although the United States has complied with adverse rulings in many past World Trade Organization (WTO) disputes, there are currently 11 cases in which rulings have not yet been implemented or the United States has taken action and the dispute has not been fully resolved. Under WTO dispute settlement rules, a WTO Member will generally be given a reasonable period of time to comply with an adverse WTO decision. While the Member is expected to remove the offending measure by the end of this period, compensation and temporary retaliation are available if the Member has not acted or taken sufficient action by this time. Either disputing party may request a compliance panel if there is disagreement over whether a Member has complied.

Remaining unsettled are long-standing disputes with the European Union (EU) regarding a music copyright statute (DS160) and a statutory trademark provision affecting property confiscated by Cuba (DS176), as well as a dispute with Japan over a provision of U.S. antidumping law (DS184). The Continued Dumping and Subsidy Offset Act of 2000 (“Byrd Amendment”), which was held WTO-inconsistent in January 2003 and repealed effective October 2005, remains the target of sanctions by complainants EU and Japan due to continued payments to U.S. firms authorized under the repeal legislation (P.L. 109-171) (DS217/DS234). Congress placed limits on funds that are available for these distributions in December 2010 (P.L. 111-291, § 822). In addition, the United States and Antigua have been consulting on the resolution of outstanding issues in Antigua’s challenge of U.S. online gambling restrictions (DS285). Compensation agreements entered into by the United States with various WTO Members in exchange for the withdrawal by the United States of its WTO gambling commitments, an action taken by the United States to resolve the case, will not enter into effect until issues with Antigua are resolved. Congress repealed a WTO-inconsistent cotton program at issue in Brazil’s 2002 complaint over U.S. cotton subsidies in P.L. 109-171, but other programs were also successfully challenged and the United States was later found not to have fully complied (DS267). The United States since made statutory and administrative changes affecting the export credit guarantee program faulted in the case. While Brazil obtained authorization from the WTO to retaliate in the case, the two countries entered into a preliminary agreement in April 2010 that forestalled the imposition of sanctions and signed a framework agreement in June 2010 aimed at permanently resolving the dispute. The latter includes Brazil’s pledge not to impose sanctions during the life of the agreement and contemplates possible legislative resolution of the dispute in the 2012 farm bill. Brazil had earlier announced that it was entitled to impose $829.3 million in annual retaliation, $591 million of which would consist of import surcharges on U.S. goods.

Five pending cases involve the U.S. practice of “zeroing,” under which the Department of Commerce (DOC), in calculating dumping margins in antidumping (AD) proceedings, disregards non-dumped sales. The U.S. practice was successfully challenged by the EU (DS294/DS350), Japan (DS322), Mexico (DS344), and South Korea (DS402), resulting in broad WTO prohibitions on U.S. use of the practice. The United States took administrative action to resolve one aspect of DS294 by abandoning zeroing in original AD investigations as of 2007. It has yet to fully comply, however, either in this case or in DS350, DS322, or DS344. While the EU and Japan requested the WTO to authorize sanctions, each agreed to suspend U.S.-requested arbitration of their proposals in 2010 on the understanding that the United States would resolve outstanding issues in a timely fashion. To this end, DOC in December 2010 proposed to eliminate the use of zeroing in later stages of U.S. AD proceedings. A compliance panel proceeding is currently under way in the dispute with Mexico (DS344). An adverse panel report was adopted in Korea’s challenge (DS402) on February 24, 2011.


Date of Report: March 11, 2011
Number of Pages: 83
Order Number: RL32014
Price: $29.95

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Wednesday, March 30, 2011

Japan’s 2011 Earthquake and Tsunami: Economic Effects and Implications for the United States


Dick K. Nanto, Coordinator
Specialist in Industry and Trade

William H. Cooper
Specialist in International Trade and Finance

J. Michael Donnelly
Information Research Specialist


The March 11, 2011, earthquake and tsunami that occurred in Japan followed by a nuclear crisis and shortage of electricity is having a large negative economic impact on the country but a lesser effect on world markets. Japan has lost considerable physical and human capital. Physical damage has been estimated to from $250 billion1 to as much as $309 billion,2 the latter figure being nearly four times as much as Hurricane Katrina ($81 billion) and roughly equivalent to the GDP of Greece and twice that of New Zealand. In excess of 27,000 persons in Japan are killed or missing, and more than 146,000 homes and other buildings have been totally or partially damaged.3 Analysts expect that over the next quarter or so, Japan’s economy will contract, but may expand because of rebuilding activity later in the year and into 2012. As the third largest economy in the world, Japan’s GDP at $5.5 trillion accounts for 8.7% of global GDP.

Congressional interest centers on humanitarian concerns, the impact on U.S. citizens and American companies in Japan, and the effects of the disaster on the exchange of both goods and services, and on Japanese and U.S. financial markets, interest rates, and the yen-dollar exchange rate.

The damage from the earthquake and tsunami is being compounded by the evacuations and uncertainty from the problems at the Fukushima nuclear reactors. Tokyo’s power supply is experiencing a shortfall of as much as a third of peak capacity, and the electrical grid is experiencing a current shortage of as much as a quarter of capacity. The earthquake also damaged plants and equipment far from its epicenter. Port facilities, sensitive electronic equipment, 2,035 roads and 56 bridges also were harmed. These were located in a wide area of the country that even reached Tokyo’s northern suburbs. The human toll also has been great with 10,102 persons killed, 17,053 missing, and another 2,777 injured (as of March 25, 2011). Higher radiation levels are being detected in Tokyo’s water supply and in leafy vegetables and milk from around the area of the Fukushima Daiichi Nuclear Plant. Depending on how long the nation’s electrical generating capacity is impaired, how long and how wide an area of evacuation because of radiation danger is continued, whether a widespread nuclear event occurs, and how quickly alternative sources can be found for critical electronic and automotive parts whose production has been curtailed, the negative economic effects could grow.

In recent decades, Japan’s growth rate has lagged behind that of the world, so it has not been a major contributor to global economic growth. The net impact of the disaster on global GDP, therefore, is expected to be relatively small (about 0.5 percentage points) with about half of that effect confined to Japan, itself.

As for U.S.-Japan economic relations, earthquake-related events in Japan are still unfolding; therefore, any economic impact assessments are at best preliminary. Nevertheless, it is likely that the impact of the earthquake and ensuing events on the bilateral economic relationship will be modest overall; however, the effects could be more profound in the near term and on specific sectors and firms for which trade and investment with Japan is particularly important.

Japan plays a major role in global supply chains both as a supplier of parts and as a producer of final products. In this age of just-in-time production processes, even a small disruption in the provision of a single component can wreak havoc on an entire product line. Japan’s production of automobiles, semiconductors, and electronics is likely to be affected the most, but companies in the United States that rely on Japan for critical components such as electronic parts and batteries or transmissions for electrical vehicles also will be affected. Tourist arrivals from Japan also are expected to fall.



Date of Report: March 25, 2011
Number of Pages: 15
Order Number: R41702
Price: $29.95

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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, 423 complaints have been filed under the DSU, approximately one-half resulting in panels. Nearly one-half of the 423 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 WTO 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 DSU obligations. 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.

Among 111
th Congress bills, H.R. 496 (Rangel) would have created an Office of the Congressional Trade Enforcer to investigate restrictive foreign trade practices in light of WTO obligations and call on the USTR to pursue WTO cases where alleged violations were found; S. 363 (Snowe) would have granted the U.S. Court of International Trade exclusive jurisdiction to review certain USTR determinations under Section 301 and would have amended various Section 301 authorities themselves; and S. 1466 (Stabenow) and S. 1982 (Brown) would have established 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: March 10, 2011
Number of Pages: 18
Order Number: RS20088
Price: $29.95

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Multilateral Development Banks: How the United States Makes and Implements Policy


Rebecca M. Nelson
Analyst in International Trade and Finance

Martin A. Weiss
Specialist in International Trade and Finance


This report analyzes how the United States makes policy towards the multilateral development banks (MDBs) and identifies ways by which Congress can shape U.S. policy and influence the activities of the banks themselves.

In 2011, Congress has been asked to consider proposed legislation that would authorize U.S. participation in capital increases for the MDBs. If Congress agrees that the United States should participate in these new capital increases, the United States will be asked to subscribe to capital stock worth about $56.9 billion over the next several years, of which about $2.2 billion would be “paid-in” by the United States over the next eight years. The capital increases would substantially expand the size of the MDBs—in several instances doubling or tripling their resources. The MDBs are planning to double or more their annual volume of lending and to substantially expand the scope of their operations. If the United States participates in the proposed capital increases, its financial commitment to the MDBs will grow. If it does not participate, its level of influence in these institutions will decline. The United States does not have enough voting power to block such increases from taking effect.

In 2009, the MDBs agreed to provide over $114 billion in assistance to developing countries. The United States is the largest or one of the largest members in each MDB and its financial commitments are substantial. However, because the MDBs finance most of their operations with money borrowed in world capital markets, the actual payments the United States and other member countries make to them are relatively small. In FY2009 and FY2010, payments to MDBs averaged about 5% (about $1.5 to $2 billion annually) of all U.S. foreign aid.

The executive branch and Congress share responsibility for U.S. policy towards the MDBs and each has primary control over a different part of the policy process. The Administration is responsible for negotiating with other countries and for managing day-to-day U.S. participation in the MDBs. Congress has ultimate authority over the level of U.S. financial commitments and the criteria that govern U.S. participation in these institutions. Congress has authorized the President to direct U.S. participation in the MDBs, and the President has delegated that authority to the Secretary of the Treasury. Other agencies also have reasons for being concerned about U.S. policy and the MDBs. The Administration created a new process, starting in 2009, to help coordinate interagency views on MDB issues.

Authorizing legislation is managed by the House Financial Services Committee and Senate Foreign Relations Committee. The House and Senate Appropriations Subcommittees on State, Foreign Operations, and Related Programs handle the appropriations. Since 1981, MDB legislation has become law through the regular legislative process only once. Usually it is enacted as a rider to other legislation. Congress exercises its influence over MDB policy through its control over authorizations and appropriations and through oversight. The authorizing committees have included in MDB authorizing legislation many directives which affect the goal and direction of U.S. policy. Congress has also used its control over the funding process—its “power of the purse”—to set priorities and encourage the Administration and MDBs to consider changes in their policies or procedures. Congress has used hearings and required reports to get information about U.S. policy and the MDBs onto the public record and to draw the Treasury Department’s attention to issues of pressing concern. Since the Administration knows it must come to Congress for future authorizations and MDB funding, the views expressed by Congress through hearings have often had an impact on the focus and direction of U.S. policy regarding particular concerns.



Date of Report: March 14, 2011
Number of Pages: 23
Order Number: R41537
Price: $29.95

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Monday, March 28, 2011

U.S. Trade Deficit and the Impact of Changing Oil Prices


James K. Jackson
Specialist in International Trade and Finance

Petroleum prices rose sharply in the first half of 2008, at one time reaching more than $140 per barrel of crude oil. After July 2008, however, petroleum prices and import volumes fell at a historically rapid pace; in January 2009, prices of crude oil fell below $40 per barrel. Since then, crude oil prices have more than doubled, while the average monthly volume of imports of energyrelated petroleum products has risen slightly, year over year, reflecting the positive, albeit slow, rate of growth in economic activity. In addition to the slight rise in the volume of crude oil imports, the rise in the cost of energy imports in 2010 added about $80 billion to the nation’s trade deficit in 2010 over that experienced in 2009. Turmoil in the Middle East caused petroleum prices to rise sharply in the first three months of 2011 and could add $100 billion to the U.S. trade deficit in 2011. The increase in energy import prices is pushing up the price of energy to consumers and could spur some elements of the public to pressure the 112th Congress to provide relief to households that are struggling to meet their current expenses. With oil prices rising to over $100 per barrel in early 2011, the International Energy Agency cautioned that the rising price of oil was becoming a threat to the global economic recovery. This report provides an estimate of the initial impact of the changing oil prices on the nation’s merchandise trade deficit.


Date of Report: March 14, 2011
Number of Pages: 10
Order Number: RS22204
Price: $29.95

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