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Thursday, July 28, 2011

Trade Adjustment Assistance (TAA) and Its Role in U.S. Trade Policy


J. F. Hornbeck
Specialist in International Trade and Finance

Laine Elise Rover
Research Associate


Congress created Trade Adjustment Assistance (TAA) in the Trade Expansion Act of 1962 to help workers and firms adjust to economic dislocation that may be caused by trade liberalization. Although most economists agree that there are substantial national gains from trade, backers of TAA argue that the government has an obligation to help those hurt by policy-driven trade opening. In addition, as an alternative to policies that might otherwise restrict imports, it can provide assistance, while supporting freer trade and diminishing prospects for potentially costly tension (retaliation) among trade partners. Often controversial, it is still strongly debated some 50 years later, on equity, efficiency, and budgetary grounds, but may still serve a pragmatic legislative function. For those Members concerned with the negative effects of trade, it can provide a countervailing response to help maintain what is often slim majority support of highly contested trade legislation. For these reasons, it has been central to U.S. trade policy for the past half century.

Over time, the fortunes of TAA reauthorization have ebbed and flowed based in part on legislative context. When TAA remained a cornerstone of major trade legislation, as it was in 1962, 1974, and 2002, it received long reauthorizations and increased programmatic and funding support from Congress. When TAA was passed as part of budget reconciliation bills, distancing it from its main trade policy rationale, as in the 1980s, it struggled at times to achieve even shortterm extensions and maintain funding levels. (See Table A-1 for list of TAA reauthorizations.)

In the American Recovery and Reinvestment Act of 2009, Congress reauthorized TAA through December 31, 2010, and revamped the program to include eligibility for service workers and firms, a new communities program, an increase in the Health Care Tax Credit (HCTC) for dislocated workers, and additional funding for all programs. As TAA was about to expire again at the close of 2010, Congress extended it through February 12, 2012, as part of the Omnibus Trade Act of 2011. Higher authorization levels and expanded provisions of the ARRA, however, were only extended through February 12, 2011. TAA became part of the current trade debate when the 112
th Congress and the Obama Administration began to consider the three pending free trade agreements (FTAs) with South Korea, Panama, and Colombia along with TAA extension. Two issues dominate the immediate discussion. First, Members disagree on the need to continue funding TAA programs. Second, they dispute whether to include TAA as part of an implementing bill for the proposed U.S.-South Korea (KORUS) FTA.

Opponents of TAA consider it a costly and ineffective response to dislocation from imports, and so would like to see it debated and voted on as a separate bill. Supporters of TAA and especially the extended ARRA benefits (now lapsed) see the implementing bill as perhaps the best, if not only opportunity, to reauthorize TAA in the near future, given resistance in a Congress intently focused on deficit reduction. Those supporting TAA and not the KORUS FTA might also prefer to see separate votes on the two issues.

Because there is disagreement over TAA, even to the point of perhaps imperiling congressional action of FTA implementing bills, the situation again points to the centrality of TAA in the longterm national trade policy debate. Key policy questions include determining if: (1) the United States still has an ongoing obligation to help stakeholders hurt by imports; (2) TAA can be an effective approach to meeting this goal; (3) a TAA budget compromise can be found; (4) TAA can still help form a consensus on trade policy, and if so; (5) how the budgetary costs of TAA
programs  compare to the potential opportunity costs of possibly adopting more protectionist policies in the absence of TAA.


For details on the TAA programs for workers, firms, communities, and farmers, see other CRS reports.



Date of Report: July 20, 2011
Number of Pages: 20
Order Number: R41922
Price: $29.95

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Wednesday, July 27, 2011

Chinese Tire Imports: Section 421 Safeguards and the World Trade Organization (WTO)


Jeanne J. Grimmett
Legislative Attorney

On April 20, 2009, the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union filed a petition with the U.S. International Trade Commission (ITC) requesting an investigation under Section 421 of the Trade Act of 1974, 19 U.S.C. §2451, a trade remedy statute addressing import surges from China, to examine whether Chinese passenger vehicle and light truck tires were causing market disruption to U.S. tire producers. Market disruption will be found to occur under Section 421 whenever imports of a Chinese product that is “like or directly competitive with” a domestic product “are increasing rapidly ... so as to be a significant cause of material injury, or threat of material injury, to the domestic industry.” The ITC initiated the investigation (TA-421-7) on April 24, 2009.

As a result of its investigation, the ITC in June 2009 voted 4-2 that imports of the subject tires were causing domestic market disruption and recommended that the President impose an additional duty on these items for three years at an annually declining rate. The ITC also recommended expedited consideration of trade adjustment assistance (TAA) applications filed by affected firms or workers. On September 11, 2009, President Obama proclaimed increased tariffs on Chinese tires for three years effective September 26, 2009, albeit at lower rates than those recommended by the ITC. The tariff increase is 35% ad valorem in the first year, 30% in the second year, and 25% in the third year. The President also directed the Secretaries of Labor and Commerce to expedite TAA applications and to provide other available economic assistance to affected workers, firms, and communities. While the President was authorized to review the tariffs after six months and to modify, reduce, or terminate them, he did not take any of these actions. Six petitions had been filed under Section 421 in the past, with the ITC finding market disruption in four out of six of its investigations. President Bush decided not to provide import relief in these earlier cases.

Section 421 was enacted as one element of an October 2000 statute that also permitted the President to grant most-favored-nation (MFN) tariff treatment to Chinese products upon China’s accession to the World Trade Organization (WTO). Section 421 authorizes the President to impose safeguards—that is, temporary measures such as import surcharges or quotas—on Chinese goods if domestic market disruption is found. The statute implements a China-specific safeguard mechanism in China’s WTO Accession Protocol that may be utilized by WTO members through December 2013. The provision is separate from Article XIX of the General Agreement on Tariffs and Trade (GATT) 1994 and the WTO Agreement on Safeguards, which allow WTO members to respond to injurious import surges but on a stricter basis than under the Protocol. A major difference is that the Protocol permits a safeguard to be applied only to Chinese products while the Safeguards Agreement requires that any safeguard be applied to a product regardless of its source.

China filed a WTO complaint against the United States in September 2009, claiming that the Section 421 tariffs violate U.S. GATT obligations to accord Chinese tires MFN tariff treatment and not to exceed negotiated tariff rates, that the United States imposed tariffs under the Protocol safeguard mechanism without first attempting to justify them under GATT and WTO safeguard provisions, and that Section 421 and its application in this case violate U.S. obligations under the Protocol. In a report issued December 13, 2010, the WTO panel rejected all of China’s claims. China appealed the report on May 24, 2010, arguing that the panel misinterpreted and misapplied certain standards in the Protocol as they relate to the ITC determination. The Appellate Body is expected to issue its report in late July or August 2011.



Date of Report: July 12, 2011
Number of Pages: 33
Order Number: R40884
Price: $29.95

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Tuesday, July 26, 2011

Proposed U.S.-Colombia Free Trade Agreement: Background and Issues


M. Angeles Villarreal
Specialist in International Trade and Finance

The proposed U.S.-Colombia Trade Promotion Agreement, also called the U.S.-Colombia Free Trade Agreement (CFTA), was signed by the United States and Colombia on November 22, 2006. The agreement must be approved by the U.S. Congress before it can enter into force. The Colombian Congress approved the agreement in June 2007 and again in October 2007, after it was modified to include new provisions from the May 10, 2007 bipartisan understanding between congressional leadership and President George W. Bush. If approved by the U.S. Congress, the agreement would immediately eliminate duties on 80% of U.S. exports of consumer and industrial products to Colombia. Most remaining tariffs would be eliminated within 10 years of implementation.

The 112
th Congress may consider implementing legislation for the proposed CFTA. President Barack Obama has emphasized the importance of strengthening U.S. trade relations with Colombia, Panama, and South Korea. In a press release on June 28, 2011, United States Trade Representative (USTR) Ron Kirk announced that he welcomed the scheduling of informal or “mock” markups of the draft implementing legislation for the three pending trade agreements and stated that any movement on the implementing legislation for the agreements must be accompanied by a renewal of Trade Adjustment Assistance (TAA). On July 7, 2011, the House Ways and Means Committee and the Senate Finance Committee approved draft implementing bills for the pending FTA’s with Colombia, Panama, and South Korea during the informal or “mock” markup process. The draft legislation for the pending U.S.-Colombia FTA includes a retroactive extension of ATPA and GSP until July 31, 2013.

The congressional debate surrounding the agreement has mostly centered on violence, labor, and human rights issues in Colombia. Numerous Members of Congress oppose the agreement because of concerns about violence against union members and other terrorist activity in Colombia. However, other Members of Congress support the CFTA and take issue with these charges, stating that Colombia has made progress in recent years to curb the violence in the country. They also contend that the agreement would open the Colombian market for U.S. exporters. For Colombia, a free trade agreement with the United States is part of its overall economic development strategy.

On April 6, 2011, the Obama Administration announced an agreement between the United States and Colombia to address the concerns related to labor rights and violence in Colombia. The agreed upon “Action Plan Related to Labor Rights” includes specific and concrete steps, with specific timelines, that the Colombian government agreed upon to address issues related to violence against union members, impunity, and worker rights. The Colombian government submitted numerous documents to the United States in time to meet the April 22, 2011, and June 15, 2011, target dates listed in the Action Plan. The USTR reviewed the documents and stated that Colombia had met the requirements that were slated for completion by these dates.

The United States is Colombia’s leading trade partner. Colombia accounts for a very small percentage of U.S. trade (0.9% in 2010), ranking 20
th among U.S. export markets and 25th as a source of U.S. imports. Economic studies on the impact of a U.S.-Colombia free trade agreement (FTA) have found that, upon full implementation of an agreement, the impact on the United States would be positive but very small due to the small size of the Colombian economy when compared to that of the United States (about 1.9%).


Date of Report: July 8, 2011
Number of Pages: 42
Order Number: RL34470
Price: $29.95

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To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.

Trade Adjustment Assistance (TAA) and Its Role in U.S. Trade Policy


J. F. Hornbeck
Specialist in International Trade and Finance

Laine Elise Rover
Research Associate


Congress created Trade Adjustment Assistance (TAA) in the Trade Expansion Act of 1962 to help workers and firms adjust to economic dislocation that may be caused by trade liberalization. Although most economist agree that there are substantial national gains from trade, backers of TAA argue that the government has an obligation to help those hurt by policy-driven trade opening. In addition, as an alternative to policies that might otherwise restrict imports, it can provide assistance, while supporting freer trade and diminishing prospects for potentially costly tension (retaliation) among trade partners. Often controversial, it is still strongly debated some 50 years later, on equity, efficiency, and budgetary grounds, but may still serve a pragmatic legislative function. For those Members concerned with the negative effects of trade, it can provide a countervailing response to help maintain what is often slim majority support of highly contested trade legislation. For these reasons, it has been central to U.S. trade policy for the past half century.

Over time, the fortunes of TAA have ebbed and flowed. When TAA remained a cornerstone of major trade legislation as it was in 1962, 1974, and 2002, it received long reauthorizations and increased programmatic and funding support from Congress. TAA was also expanded during times of economic downturn, as for example, in the American Recovery and Reinvestment Act (ARRA) of 2009, which added eligibility for services workers and firms. When distanced from its main policy rationale, as seen during the budget-cutting 1980s, it fared much worse, struggling at times to achieve short-term extensions with diminished resources from Congress.

TAA became part of the current trade debate when the 112
th Congress and the Obama Administration began to consider the three pending free trade agreements (FTAs) with South Korea, Panama, and Colombia along with TAA extension. Two issues dominate the immediate discussion. First, Members disagree on the need to continue funding TAA programs. Second, they dispute whether to include TAA as part of an implementing bill for the proposed U.S.-South Korea (KORUS) FTA. Opponents of TAA consider it a costly and ineffective response to dislocation from imports, and so would like to see it debated and voted on as a separate bill. Supporters of TAA and especially the extended ARRA benefits (now lapsed) see the implementing bill as perhaps the best, if not only opportunity, to reauthorize TAA in the near future, given resistance in a Congress intently focused on deficit reduction. Those supporting TAA and not the KORUS FTA might also prefer to see separate votes on the two issues.

Because there is disagreement over TAA, even to the point of perhaps imperiling congressional action of FTA implementing bills, the situation again points to the centrality of TAA in the longterm national trade policy debate. Key policy questions include determining if: (1) the United States still has an ongoing obligation to help stakeholders hurt by imports; (2) TAA can be an effective approach to meeting this goal; (3) a TAA budget compromise can be found; (4) TAA can still help form a consensus on trade policy, and if so; (5) how the budgetary costs of TAA programs compare to the potential opportunity costs of possibly adopting more protectionist policies in the absence of TAA.

For details on the TAA programs for workers, firms, communities, and farmers, see other CRS reports.



Date of Report: July 19, 2011
Number of Pages: 19
Order Number: R41922
Price: $29.95

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Document available via e-mail as a pdf file or in paper form.
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Tuesday, July 19, 2011

The Proposed U.S.-Panama Free Trade Agreement


J. F. Hornbeck
Specialist in International Trade and Finance

On June 28, 2007, the United States and Panama signed a reciprocal free trade agreement (FTA). Negotiations were formally concluded on December 16, 2006, with an understanding that further changes to labor, environment, investment, and intellectual property rights (IPR) chapters would be made pursuant to future detailed congressional input. These changes were agreed to in late June 2007, in time for the FTA to be considered under Trade Promotion Authority (TPA) legislation before it expired on July 1, 2007. TPA allows Congress to consider trade implementing bills under expedited procedures. Panama’s legislature approved the FTA 58 to 4 on July 11, 2007. Neither the 110th nor the 111th Congress took up the agreement.

The proposed U.S.-Panama FTA is a comprehensive agreement. Some 88% of U.S. commercial and industrial exports would become duty-free upon implementation, with remaining tariffs phased out over a 10-year period. Over 50% of U.S. farm exports to Panama also would achieve immediate duty-free status, with tariffs and tariff rate quotas (TRQs) on select farm products to be phased out by year 17 of the agreement (year 20 for rice). Panama and the United States signed a separate bilateral agreement on sanitary and phytosanitary (SPS) issues that would recognize U.S. food safety inspection as equivalent to Panamanian standards, which will expedite entry of U.S. meat and poultry exports. The FTA also consummates understandings on telecommunications, services trade, government procurement, investment, and intellectual property rights.

The circumstances framing the proposed U.S.-Panama FTA differ considerably from those of two other signed FTAs that are being considered by the 112
th Congress. The concerns that Congress has expressed over Colombia’s violence have not been an issue in the Panama FTA debate, which is framed more by the positive image of a long-standing strategic bilateral relationship based on Panama’s canal. Nor does Panama compare well with the continuing debate over the proposed FTA with South Korea, which as a major U.S. trading partner, can affect key industries such as automobile and beef production. To the contrary, Panama trades little with the United States, even by Latin American standards, and most exports already enter the United States duty free, so the FTA cannot have a major effect on the U.S. economy as a whole.

The final text of the proposed U.S.-Panama FTA incorporates changes based on the bipartisan agreement of May 10, 2007 crafted by the Bush Administration and leadership in the 110
th Congress. These include adoption of enforceable labor standards, compulsory membership in multilateral environmental agreements, and an easing of restrictions on developing country access to generic drugs, provisions that go beyond those in existing bilateral FTAs and multilateral trade rules. Concerns raised in Congress on labor and tax transparency issues have also been addressed by Panama in statute and by ratification of a Tax Information and Exchange Agreement (TIEA) with the United States. The TIEA provides greater tax transparency in support of curbing illicit financial transactions associated with money laundering activities. Panama has also been removed from the OECD “Gray List” of countries that have agree to, but not yet adopted an international tax transparency standard. Both the House and the Senate have held “mock markups” on a draft implementing bill, but introduction of the final bill awaits congressional agreement on how to address demands for consideration of trade adjustment assistance (TAA) legislation as well.

For more on Panama, see CRS Report RL30981, Panama: Political and Economic Conditions and U.S. Relations, by Mark P. Sullivan.



Date of Report: July 14, 2011
Number of Pages: 35
Order Number: RL32540
Price: $29.95

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