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Tuesday, August 30, 2011

Dispute Settlement Under the U.S.-Peru Trade Promotion Agreement: An Overview


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 PTPA Parties, and (2) investor-State, applicable to claims by an investor of one State Party against other State Party for breach of a PTPA investment obligation. A Party in a State-State dispute found to have violated a PTPA obligation is generally expected to remove the complained-of measure; remedies for non-compliance include compensation and the suspension of PTPA concessions or obligations (e.g., imposition of a tariff surcharge on the defending Party’s products), with the defending Party having the option 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 in the case. An investor-State tribunal may only make monetary awards and thus may not direct a PTPA Party to withdraw or modify the offending measure. If the defending State Party does not comply, the investor may seek to enforce the award 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, no disputes have been initiated under the PTPA State-State dispute settlement chapter. On July 19, 2011, however, the U.S. Department of Labor agreed to review a petition filed by a Peruvian labor union alleging that Peru had failed to effectively recognize collective bargaining rights in violation of the PTPA labor chapter. The fact-finding review could possibly lead to a State-State dispute proceeding if the United States considers that Peru has acted inconsistently with the agreement and efforts to settle the dispute through consultations are unsuccessful. To establish a PTPA violation, the United States must demonstrate that Peru has failed to adopt or maintain a law, regulation, or practice in a manner that affects trade or investment between the Parties. In addition, one case has been brought under the PTPA investor-State dispute settlement mechanism. In April 2011, a U.S. firm filed an arbitral claim alleging that Peru had violated its PTPA investment obligations in its treatment of a metallurgical smeltering and refining operation run by the claimant’s affiliate in Peru.



Date of Report: August 12, 2011
Number of Pages: 17
Order Number: RS22752
Price: $29.95

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Tuesday, August 23, 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 caused by trade liberalization. Although most economists agree that there are substantial national gains from trade, supporters 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. Often controversial, it is still strongly debated some 50 years later on equity, efficiency, and budgetary grounds. Despite disagreement, TAA still appears to be important for forging a compromise on national trade policy.

Nonetheless, the legislative 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. When isolated from its main policy rationale, as was the case at times during the budget-cutting 1980s, TAA sometimes struggled to achieve short-term extensions and maintain funding levels when faced with strong political opposition. TAA was most recently expanded in the American Recovery and Reinvestment Act (ARRA) of 2009, although the higher funding levels and program enhancements expired in February 2011, leaving TAA programs to operate at pre-ARRA levels until 2012, when all TAA program authorizations are scheduled to expire.

The 112th Congress is considering legislative action to extend TAA. Congressional views of TAA reauthorization range from repeal to support for the higher ARRA program and funding levels. Supporters see TAA as vital to addressing the costs of freer trade; opponents view it as costly and ineffective. This issue has become part of the debate on passage of implementing legislation for the proposed FTAs with Colombia, Panama, and South Korea. As Congress seeks to resolve this debate, two issues dominate the discussion: (1) reauthorization of TAA programs; and (2) procedural issues on how to enact TAA legislation.

At present, a bipartisan compromise is being considered on TAA that would allow for extension through December 31, 2013 of many, but not all, of the enhanced programs and funding levels contained in the ARRA. The language incorporated in the KORUS FTA draft implementing bill provides a preliminary view of this compromise. Procedural issues are still under discussion. As a first cut, the two Houses of Congress debated whether to attach TAA to the KORUS FTA draft implementing bill. The Senate Finance Committee completed a “mock markup” of the KORUS FTA draft implementing bill on July 7, 2011 that included TAA. The House, in a simultaneous mock markup, approved a draft bill without it.

Including TAA as part of a trade agreement implementing bill has presented two issues. First, rules governing the treatment of FTA implementing bills under TPA require that they contain only provisions changing laws or providing new statutory authority that are “necessary or appropriate” to implementing the agreement, raising the question for some as to whether TAA provisions meet this standard. Ultimately, the language is subject to congressional interpretation. Second, because TAA and the three FTAs are controversial issues, Members also have differing viewpoints on each of the four possible bills. Many, therefore, would like the chance to vote separately on each of them. Congress is now considering the possibility of taking up TAA in a separate bill. This option has presented a sequencing issue, with congressional leaders still debating the order in which the various bills might be taken up to ensure that all are considered simultaneously. A final determination has not been announced.


Date of Report: August 11, 2011
Number of Pages: 17
Order Number: R41922
Price: $29.95

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Monday, August 22, 2011

China-U.S. Trade Issues


Wayne M. Morrison
Specialist in Asian Trade and Finance

U.S.-China economic ties have expanded substantially over the past three decades. Total U.S.- China trade rose from $2 billion in 1979 to $457 billion in 2010. China is currently the secondlargest U.S. trading partner, its third-largest export market, and its biggest source of imports. Because U.S. imports from China have risen much more rapidly than U.S. exports to China, the U.S. merchandise trade deficit has surged, rising from $10 billion in 1990 to $273 billion in 2010.

The rapid pace of economic integration between China and the United States, while benefiting both sides overall, has made the trade relationship increasingly complex. On the one hand, China’s large population and booming economy have made it a large and growing market for U.S. exporters. Over the past decade, China has been the fastest-growing market for U.S. exports. U.S. imports of low-cost goods from China greatly benefit U.S. consumers by increasing their purchasing power. U.S. firms that use China as the final point of assembly for their products, or use Chinese-made inputs for production in the United States, are able to lower costs and become more globally competitive. China’s purchases of U.S. Treasury securities (which stood at nearly $1.2 trillion at the end of 2010) help keep U.S. interest rates relatively low. On the other hand, many analysts argue that growing economic ties with China have exposed U.S. manufacturing firms to greater, and what is often perceived to be “unfair” competition from low-cost Chinese firms. They argue that this has induced many U.S. production facilities to relocate to China, resulting in the loss of thousands of U.S. manufacturing jobs. Some policymakers have also raised concerns that China’s large holdings of U.S. government debt may give it leverage over the United States.

China’s incomplete transition to a free market economy and its use of distortive economic policies have contributed to growing trade friction with the United States over a number of issues, including China’s refusal to allow its currency to appreciate to market levels, its mixed record on implementing its World Trade Organization (WTO) obligations, its relatively poor record on protecting intellectual property rights (IPR), and its extensive use of industrial policies and discriminatory government procurement policies to subsidize and protect domestic Chinese firms at the expense of foreign companies. The United States initiated three WTO trade dispute resolutions against China in 2010, dealing with such issues as China’s use of subsidies to promote its wind power industries, its use of trade remedy laws to protect domestic industries, and restrictions on electronic payment services. Some Members of Congress have argued that, given the slow rate of U.S. economic growth and the high rate of unemployment, China’s distortive trade policies can no longer be tolerated and have called for tougher action to be taken against China to induce it to eliminate policies that are deemed damaging to U.S. economic interests. These trade frictions may intensify in the future as China attempts to implement policies to increase the output of more advanced products.

Opinions differ as to the most effective way of dealing with China on major economic issues. Some support a policy of engagement with China using various forums, such as the U.S.-China Strategic and Economic Dialogue (S&ED). Others support a somewhat mixed policy of using engagement when possible, coupled with a more aggressive use of WTO dispute settlement procedures to address China’s unfair trade policies. Still others, who see China as a growing threat to the U.S. economy and the global trading system, advocate a policy of trying to contain China’s economic power and using punitive measures when needed to force China to “play by the rules.” This report provides an overview of U.S.-China trade relations. It describes the trends in commercial ties, identifies major trade issues, and lists major legislation in the 112th Congress.



Date of Report: August 10, 2011
Number of Pages: 40
Order Number: RL33536
Price: $29.95

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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


If implemented, the proposed U.S.-South Korea Free Trade Agreement (KORUS FTA), signed on June 30, 2007, would be the second-largest U.S. FTA (next to NAFTA). South Korea is the seventh-largest trading partner of the United States, and the United States is South Korea’s thirdlargest trading partner. 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.

Implementing legislation for the KORUS FTA is eligible for expedited congressional consideration (no amendments, limited debate) under the trade promotion authority (TPA). Under TPA, the President has the discretion on when to submit the implementing legislation to Congress. President Bush did not submit the legislation because of differences with the Democratic leadership over treatment of autos and beef, among other issues. On December 3, 2010, after a series of arduous negotiations and missed deadlines, President Obama and President Lee announced that they had reached an agreement on addressing the outstanding issues related to the KORUS FTA. As a result, U.S. and South Korean negotiators agreed, in the form of an exchange of letters and agreed minutes, to modifications to the commitments made in the 2007 agreement These modifications include changes in phase-out periods for tariffs on autos, a new safeguard provision on autos, and concessions by South Korea on allowing a larger number of U.S. cars into South Korea under U.S. safety standards than was the case under the original KORUS FTA provisions Though the issue of full U.S. beef access was not resolved because of its political sensitivity in South Korea, the Obama Administration plans to request consultations on this matter as soon as the KORUS FTA goes into effect.

On July 7, 2011, the House Ways and Means Committee and the Senate Finance Committee held simultaneous “mock mark-up” sessions on preliminary draft implementing bills for the KORUS FTA, as well as for the FTAs with Colombia and Panama. The process is preliminary to the President submitting the actual draft implementing bills under the expedited procedures provided for under TPA. They are also advisory in that the President is not obligated to accept any “amendments” that the committees have submitted. In the case of the KORUS FTA, the two committees considered different draft bills. The Senate Finance Committee considered and approved a draft that included renewal of a trade adjustment assistance (TAA) program, while the Ways and Means Committee considered and approved a draft that included only the KORUS FTA. President Obama said he would not formally submit FTA implementing legislation until there was an agreement from Congress to renew TAA.

A broad swath of the U.S. business community supports the KORUS FTA . With the modifications in the commitments reached in December, this group also includes the three Detroit-based auto manufacturers and the United Auto Workers (UAW) union. It still faces opposition from some labor unions and other groups, including Public Citizen. Many 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 to break down South Korean trade barriers or that the agreement will encourage U.S. companies to move their production offshore at the expense of U.S. workers. 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 Korea-European FTA that went into effect on July 1, 2011.



Date of Report: August 9, 2011
Number of Pages: 59
Order Number: RL34330
Price: $29.95

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Tuesday, August 16, 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 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. 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, however, the legislative fortunes of TAA reauthorization 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. 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 maintain funding levels and even shortterm extensions. TAA was most recently expanded in the American Recovery and Reinvestment Act of 2009, although the higher funding levels and program enhancements expired in February 2011, leaving TAA programs to operate at pre-ARRA levels until 2012, when programs expire.

TAA program authorizations are set to expire in less than a year and the 112
th Congress is considering legislative action to extend them. This issue has become part of the debate on passage of implementing legislation for the proposed free trade agreements (FTAs) with Colombia, Panama, and South Korea. TAA took center stage when its proponents argued that its reauthorization should be considered along with the implementing bills. As Congress seeks to resolve the debate, two issues dominate the discussion. First, Members disagree on the utility and need to continue funding TAA programs. Supporters see it as vital to addressing the adverse effects of freer trade; opponents view it as costly and question its effectiveness. Nonetheless, there appears to be a bipartisan understanding coalescing on the extension of TAA.

Second, procedural issues over how to move the TAA and FTA implementing bills are still under discussion. Including TAA as part of a trade agreement implementing bill, as was originally proposed, has proven to be problematic for at least two reasons. First, given the strict rules governing the treatment of FTA implementing bills under TPA, some Members have raised questions over the appropriateness of adding TAA provisions. Second, both TAA and the FTAs are controversial, and many Members would like the chance to vote separately on the two issues. Congress is now considering the possibility of taking up TAA in a separate bill. This option has presented a sequencing problem, with congressional leaders still debating the order in which the various bills might be considered.

Historically, TAA has been reauthorized separately from trade agreement implementing bills. On occasion, attempts have been made to include TAA provisions as amendments to draft implementing bills during “mock markups,” but generally they have not been reported out of committee. The situation is perhaps different in the 112
th Congress. Many of the expanded portions of TAA have expired, and supporters see the implementing bill as perhaps the best opportunity to reauthorize TAA in the near future given some resistance to TAA by a Congress intently focused on deficit reduction.


Date of Report: August 1, 2011
Number of Pages: 17
Order Number: R41922
Price: $29.95

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