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Tuesday, November 29, 2011

Europe’s Preferential Trade Agreements: Status, Content, and Implications


Raymond J. Ahearn
Specialist in International Trade and Finance

Preferential trade agreements (PTAs) comprise a variety of arrangements that favor member parties over nonmembers by extending tariff and other nontariff preferences. PTAs, particularly free trade agreements (FTAs), have proliferated in recent years. In the post-war period, the European Union (EU), which is a PTA itself, has developed the largest network of PTAs in the world. The main findings of this report are as follows.

          Historically, Europe’s PTAs have differed among its partners in terms of provisions and commitments and they have been characterized by relatively modest ambition in terms of market-opening. In comparison, the U.S. approach has been more standardized in terms of its provisions and more focused on achieving reciprocal market access. These differences in approaches, however, have significantly narrowed since the EU adopted its more commercially oriented Global Europe strategy in 2006. 
          EU PTAs cover nearly twice as much trade (exports) in percentage terms (70% versus 40%) and seven times as much in value terms ($3.4 trillion versus $0.52 trillion) than U.S. PTAs. These numbers can be used to support the argument that U.S. firms may face more discrimination and possibly reduced sales than EU firms. At the same time, the data may overstate the degree of discrimination because the amount of trade covered by PTAs is not the same as the amount of trade conducted on a preferential (duty-free) basis. 
          Concerns about trade discrimination have been a factor in U.S. and EU efforts to negotiate and implement separate but similar PTAs with five trading partners (Israel, Mexico, Morocco, Chile, and Jordan). Based on market share data analyzed, neither side appears to have gained a competitive advantage from having negotiated a PTA. This, however, does not mean that individual firms and workers have not benefitted or that exports have not risen at faster rates after the PTA became effective. 
          In the past, Europe’s PTA program has not been a major factor affecting U.S. FTA policy, which currently is in flux. However, Europe’s recently completed FTA with South Korea raises the concern that U.S. exports will be disadvantaged due to the duty-free price advantage European-based producers will gain in the Korean market. The United States has also negotiated an FTA with Korea, which awaits approval in Korea parliament (Congress approved the agreement in 2011). 
          Ongoing negotiations between the EU and Canada over a comprehensive FTA could also affect the U.S. FTA debate. If a robust agreement is reached, the EU and the United States would then both have FTAs with Canada and Mexico, making the absence of a FTA between the United States and EU all the more glaring after years of discussion. 

It is not clear where Europe’s PTA policy is headed. There are only a few remaining major developed countries that fall outside the EU’s network of PTAs, including the United States, China, Japan, Russia and Australia. While PTA negotiations with these countries could yield large economic benefits and provide a big impact (for good or ill) on the world trading system, some of these countries would likely demand liberalization of European agriculture and services, areas where there is widespread opposition in Europe.



Date of Report: November 1
5, 2011
Number of Pages:
41
Order Number: R4
1143
Price: $29.95

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Tuesday, November 22, 2011

Russia’s Accession to the WTO and Its Implications for the United States


William H. Cooper
Specialist in International Trade and Finance

In 1993, Russia formally applied for accession to the General Agreement on Tariffs and Trade (GATT). In 1995, its application was taken up by the World Trade Organization (WTO), the successor organization of the GATT. Russia is the largest economy not in the WTO. However, after a number of fits and starts during the 18-year process, Russia’s accession to the 153-member WTO will conclude when, as expected, the WTO members invite Russia to join the WTO during the December 15-17, 2011, Ministerial Conference.

The immediate policy issue for Congress will be whether to enact legislation authorizing the President to grant permanent normal trade relations (PNTR) status for Russia, a status that all WTO members are required to provide each other. Some Members of Congress have indicated that they view congressional consideration of PNTR legislation as the opportunity to ensure that the conditions on which Russia is invited to join the WTO address U.S. concerns.

In joining the WTO, Russia will have committed to bring its trade laws and practices into compliance with WTO rules and other market-opening measures. In doing so, it will take a major step in integrating its trading system with the rest of the world. Those commitments include:

         nondiscriminatory treatment of imports of goods and services; 
         reducing tariffs and binding tariff levels; 
         ensuring transparency when implementing trade measures; 
         limiting agriculture subsidies; enforcing intellectual property rights (IPR) of foreign holders of such rights; 
         forgoing the use of local content requirements and other investment measures that limit imports; and 
         opening government procurement contract opportunities to foreign firms. In joining the WTO, Russia will also commit to accepting WTO dispute settlement procedures.
In return, Russia will have a voice in shaping and implementing the international trade regime. It will be able to hold its WTO partners accountable for adhering to WTO rules in conducting their trade relations with Russia, making those trade relations more predictable and stable. In addition, Russian economic reformers anticipate that WTO membership will make Russia a more attractive location for foreign producers and investors to do business by locking in trade-liberalizing reforms, which could increase Russia’s economic growth.

Concerns among U.S. stakeholders regarding Russia’s WTO accession are not so much over whether Russia should be admitted into the WTO but rather whether the conditions for its accession are adequate to ensure that Russia fulfills its obligations and provides meaningful trade and investment opportunities for U.S. firms. U.S. IPR holders remain cautious that Russia will enforce its commitments on IPR protection. Russia is currently a relatively small U.S. trading partner. However, U.S. manufacturing, agriculture, and service providers view WTO accession as an opportunity to broaden the bilateral trading relationship. In Russia, agriculture interests and some manufacturers, such as auto producers, are concerned that WTO membership will expose them to foreign competition that will adversely affect their interests.



Date of Report: November 16, 2011
Number of Pages: 23
Order Number: R42085
Price: $29.95

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Monday, November 21, 2011

Trade Adjustment Assistance (TAA) for Workers


Benjamin Collins
Analyst in Labor Policy

Trade Adjustment Assistance for Workers (TAA) provides federal assistance to production and service workers who have been adversely affected by foreign trade. To be eligible for TAA, a group of workers must establish that they were separated from their employment either because their jobs moved outside the United States or because of an increase in directly competitive imports. Workers at firms that are suppliers or downstream producers to TAA-certified firms may also be eligible for TAA benefits.

After the Department of Labor verifies the role of foreign trade in the group’s job losses, workers can apply for individual benefits. The two largest TAA benefits are (1) training assistance and (2) Trade Readjustment Allowance (TRA), an income support for certified workers who have exhausted their unemployment compensation. Workers may collect TRA benefits as long as they remain enrolled in eligible training, up to 130 weeks.

Certified workers may also be eligible for other benefits. Workers who cannot obtain employment in their local commuting areas may be eligible for job search and relocation allowances. Workers age 50 or older are eligible to participate in Reemployment Trade Adjustment Assistance (RTAA), a wage insurance program for older workers who are TAA-certified. Both TRA- and RTAAeligible workers may be eligible for a Health Coverage Tax Credit (HCTC), which provides a refundable tax credit to offset 72.5% of qualified health insurance premiums.

This report provides background on the TAA and RTAA programs. After a brief legislative history, it discusses TAA eligibility and benefits as set by the Trade Adjustment Assistance Extension Act of 2011 (P.L. 112-40). It concludes by presenting data on past application activity and benefit usage.



Date of Report: November
7, 2011
Number of Pages:
21
Order Number: R4
2012
Price: $29.95

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Thursday, November 17, 2011

Generalized System of Preferences: Background and Renewal Debate

Vivian C. Jones
Specialist in International Trade and Finance

The U.S. Generalized System of Preferences (GSP) program provides non-reciprocal, duty-free tariff treatment to certain products imported from designated beneficiary developing countries (BDCs). The United States, the European Union, and other developed countries have implemented similar programs since the 1970s in order to promote economic growth in developing countries by stimulating their exports. The U.S. program was first authorized in Title V of the Trade Act of 1974, and was most recently extended until December July 31, 2013, in Section 1 of P.L. 112-40. The President signed the legislation enacting the GSP on October 21, 2011, and GSP trade benefits became effective 15 days after that date, or on November 5, 2011. The GSP program was also retroactively extended to eligible merchandise that entered the United States between the expiration date, December 31, 2010, and the date the GSP renewal entered into force. Therefore, importers of GSP-eligible products may seek reimbursement for tariffs paid during the laps of GSP coverage.

The GSP is one of several trade preference programs that provide non-reciprocal, duty-free access to goods from developing and least-developed beneficiary countries. Other U.S. trade preference programs include the African Growth and Opportunity Act (AGOA), the Andean Trade Preference Act (ATPA), and the Caribbean Basin Initiative (CBI).

The GSP program, as well as other trade preference programs, was established based on an economic theory that preferential tariff rates in developed country markets could promote exportdriven industry growth in developing countries. It was believed that this, in turn, would help to free beneficiaries from heavy dependence on trade in primary products, whose slow long-term growth and price instability contributed to chronic trade deficits. In 2010, the GSP provided preferential duty-free entry for about 3,400 products from 129 designated beneficiaries, and an additional 1,400 products from those beneficiaries designated as least-developed beneficiary developing countries.

In recent years, renewal of trade preferences programs in general, and of the GSP program in particular, has been somewhat controversial in Congress. Some members have expressed the view that some of the more advanced BDCs, such as Brazil and India, continue to receive benefits even while they actively contribute to the impasse in multilateral World Trade Organization (WTO) Doha Development Agenda (DDA) talks. Some members have also questioned whether more “advanced” developing countries should be receiving benefits under unilateral preference programs at all, and propose ending or limiting their benefits in favor of providing a greater share of benefits to least-developed countries (LDCs). Other members have proposed granting dutyfree, quota-free access (DFQF) to developing countries under the African Growth and Opportunity Act (who are also GSP beneficiaries), which could potentially also be extended to other GSP countries.

This report presents, first, a brief history, economic rationale, and legal background leading to the establishment of the GSP. A brief comparison of GSP programs worldwide, especially as they compare to the U.S. system, is also presented. Second, the report presents a discussion of U.S. implementation of the GSP, along with the present debate surrounding its renewal and legislative developments to date. Third, an analysis of the U.S. program’s effectiveness and the positions of various stakeholders is presented. Fourth, implications of the expiration of the U.S. program and possible options for Congress are discussed.



Date of Report: November
9, 2011
Number of Pages:
39
Order Number: RL3
3663
Price: $29.95

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