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Monday, January 30, 2012

U.S.-EU Trade and Economic Relations: Key Policy Issues for the 112th Congress


Raymond J. Ahearn
Specialist in International Trade and Finance

The 112th Congress, in both its legislative and oversight roles, confronts numerous issues that affect the trade and economic relationship between the United States and the European Union (EU). As U.S.-EU commercial interactions drive significant job creation on both sides of the Atlantic, Congress is monitoring ongoing efforts to deepen transatlantic ties that are already large, dynamic, and mutually beneficial.

U.S. and European private stakeholders, concerned about slow growth, job creation, and increased competition from emerging economies, have urged Brussels and Washington to strengthen transatlantic trade and economic ties by reducing or eliminating remaining trade barriers and by cooperating more closely in addressing global economic challenges. A number of studies produced over the past several years have called for new bilateral trade, investment, and other economic arrangements to maximize economic opportunities available to stakeholders on both sides of the Atlantic.

At the November 28, 2011, EU-U.S. Summit meeting, leaders from both sides directed the Transatlantic Economic Council (TEC) to establish a High Level Working Group on Jobs and Growth. The Working Group, which will be led by U.S. Trade Representative Ron Kirk and EU Trade Commissioner Karel de Gucht, was tasked with assessing options for strengthening the U.S.-EU trade and investment relationship, especially those that have the highest potential to support jobs and growth. The findings and recommendations of the Group are due by the end of 2012. The Working Group will provide an interim update to Leaders in June 2012.

There are many options the Working Group could explore for greater liberalization of the transatlantic economic relationship. They range from a comprehensive and traditional free trade agreement to parallel but separate negotiations in areas such as elimination of tariffs on trade in goods, liberalization of services trade and foreign investment restrictions, and reduction of regulatory barriers. A select group of these issues, including enhanced bilateral cooperation on global issues, is discussed in this report.

Despite generally low tariff levels on both sides, some in the U.S. and EU business communities support negotiating the elimination of all remaining tariffs imposed on U.S.-EU trade through a bilateral negotiation. Support for a zero-tariff agreement is based on a combination of factors, including the agreement’s ability to generate economic benefits for both sides and the leverage such an agreement could create for pressuring emerging economies to make more concessions in the Doha Round of multilateral trade negotiations. Consideration of enhanced regulatory cooperation and one or more bilateral agreements addressing investment and services trade issues are also being touted by the business community.

Greater collaboration and alignment of U.S. and EU approaches towards addressing global economic challenges, such as completing the Doha Round, dealing with China’s trade barriers, and reducing global imbalances, remain a work in progress. Given shared interests in opening emerging markets further to industrial goods and services, business interests have urged U.S. and EU negotiators to work more closely together to press other countries for more concessions. EU negotiators in the past have remained reluctant to move in this direction perhaps out of concern that greater ambition would require further EU concessions on agriculture.



Date of Report: January 18, 2012
Number of Pages: 19
Order Number: R41652
Price: $29.95

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The Future of the Eurozone and U.S. Interests

Raymond J. Ahearn, Coordinator
Specialist in International Trade and Finance

James K. Jackson
Specialist in International Trade and Finance

Derek E. Mix
Analyst in European Affairs

Rebecca M. Nelson
Analyst in International Trade and Finance


Seventeen of the European Union’s 27 member states share an economic and monetary union (EMU) with the euro as a single currency. Based on a gross domestic product (GDP) and global trade and investment shares comparable to those of the United States, these countries (collectively referred to as the Eurozone) are a major player in the world economy and can affect U.S. economic and political interests in significant ways. Given its economic and political heft, the evolution and future direction of the Eurozone is of major interest to Congress, particularly committees with oversight responsibilities for U.S. international economic and foreign policies.

Uncertainty about the future of the Eurozone began in early 2010 as a result of the onset of a sovereign debt crisis in Greece. Subsequently, concerns spread that Ireland, Portugal, Spain, and Italy also lacked sustainable fiscal positions. Fearing possible defaults, markets began demanding substantially higher interest rates for their bonds. The debt problems of these countries, while varying from case to case, now constitute a serious risk to the European banking system, the viability of the euro, and the European integration process. Anemic growth in the Eurozone with a mild recession forecast for 2012 is compounding the debt and banking problems. Standard & Poor’s downgrade of the credit ratings of France, Italy, and seven other European countries on January 13, 2012, served as an additional reminder that the crisis is far from over.

One important cause of the crisis stems from flaws in the architecture of the currency union, including the fact that the EMU provides for a common central bank (the European Central Bank or ECB), and thus a common monetary policy, but leaves fiscal policy up to the member countries. Weak enforcement of fiscal discipline, over time, facilitated rising public debts in some of the countries. Locked into the euro, individual members cannot inflate their way out of large public debt or devalue their currency to make their exports more competitive.

In response, European leaders and institutions have combined measures to ease the debt crisis with financial assistance packages for Greece, Ireland, and Portugal. The most highly indebted Eurozone members have been forced to cut government spending and programs and to raise taxes to improve their fiscal positions. A financial assistance facility, the European Financial Stability Facility, has been created to help stabilize the crisis. The ECB has made large purchases of these countries’ public debt in order to calm markets, and in December 2011 provided a huge infusion of credit into the banking system. But many observers are now calling for more fundamental solutions, such as the issuance of Eurobonds, along with other institutional reforms that could provide a stronger fiscal foundation to the monetary union.

The reforms, if implemented, could strengthen the foundation of the Eurozone and bolster confidence in the euro. At the same time, a number of factors could weaken or perhaps even undermine the sustainability of the Eurozone. Public support in fiscally sound Eurozone countries, such as Germany, Finland, and the Netherlands, for resource transfers to highly indebted countries is weak. If the Eurozone survives largely in its current form or strengthens, the impact on U.S. interests is likely to be minimal. However, if Greece or any other Eurozone member were to default on its debt, it could lead to another wave of credit freeze-ups and instability in the European banking sector that weakens a slow growing U.S. economy. Longer term, if the Eurozone were to break up in a way that undermines the functioning of Europe’s single market, or resurrects national divisions, the impact on U.S. economic and political interests could be deeper and more damaging.



Date of Report: January 17, 2012
Number of Pages:
32
Order Number: R41
411
Price: $29.95

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Tuesday, January 24, 2012

U.S. Trade and Investment in the Middle East and North Africa: Overview and Issues for Congress


Rebecca M. Nelson
Analyst in International Trade and Finance

Mary Jane Bolle
Specialist in International Trade and Finance

Shayerah Ilias
Analyst in International Trade and Finance


In order to support democratic political transitions and stability in the Middle East and North Africa (MENA), policymakers in Congress and elsewhere are discussing potentially using U.S. trade and investment to bolster long-term economic growth in the region. For example, President Obama has called for the creation of a “Trade and Investment Partnership Initiative” in the MENA region, and some Members of Congress have called for deeper economic ties with Arab countries undergoing profound change. This report analyzes policy approaches that the Congress might consider concerning U.S.-MENA trade and investment. 

MENA Economies 


Economic performance in the MENA region as a whole lags behind other regions in the world in terms of GDP per capita (living standards), employment, and economic diversification, despite the fact that several MENA countries are major producers of oil and natural gas. Substantial diversity also exists among economies within the region. 

Integration in the Global Economy 


The MENA region’s lack of integration in the global economy is frequently cited as an obstacle to overall economic development in the region. MENA’s trade with the world is concentrated in a small number of products (oil exports and imports of manufactured goods) and among a small number of trading partners (particularly the European Union). Tariffs also remain high in some MENA countries. With regard to the United States, the MENA region accounts for less than 5% of U.S. total trade and 1% of U.S. foreign direct investment (FDI) outflows. U.S. businesses face a number of non-tariff barriers, such as lack of transparency, bureaucratic red tape, corruption, weak rule of law, and differences in business cultures. The United States has free trade agreements (FTAs) with five MENA countries: Bahrain, Israel, Jordan, Morocco, and Oman. 

Policy Approaches and Challenges 


Congress and other policymakers might consider a number of approaches regarding U.S. trade and investment in the MENA region, including: 

         maintaining the status quo until the impact of the political changes in MENA countries is clear; 
         creating a U.S. trade preference program that grants preferential market access in the United States to exports from MENA countries; 
         increasing assistance from U.S. federal export agencies to the region; 
         negotiating new trade and/or investment agreements with countries in the region that do not already have them. Egypt and Tunisia have been mentioned by some U.S. policymakers as the most likely candidates for FTAs; and 
         providing technical assistance to countries working towards World Trade Organization (WTO) membership. 
The link between increased economic openness and democracy is debated. Some analysts maintain that new trade and investment agreements develop better governance and institutions and support sound economic growth. Other analysts argue that the empirical record between economic openness and democracy is weak. Additionally, some observers question whether the protestors in different Arab countries favor more economic liberalization, which they sometimes associate with inequality.

If a policy agenda to promote increased U.S. trade and investment with the MENA region is pursued, Congress will face a host of questions. A few examples include: 

         Should the U.S. government promote expanded trade and investment in the nearterm in order to support democratic transitions, or should it wait until the political situation stabilizes in various countries? Does waiting risk losing commercial opportunities for U.S. businesses in MENA to other countries? Does acting early risk supporting governments whose compatibility with U.S. interests remains ambiguous? 
         To what extent should the United States balance, on one hand, pursuing a regional approach of increased trade and investment, while, on the other hand, tailoring policies to the specific needs of individual countries in the region? 
         To what extent should the United States cooperate with the European Union or others on trade and investment in the MENA region? 
Are existing U.S. trade and investment agreements with MENA countries benefitting the region, and achieving the intended objectives? What lessons can be learned from past U.S. efforts to promote trade and investment?

Date of Report: January 20, 2012
Number of Pages:
41
Order Number: R421
53
Price: $29.95

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Friday, January 20, 2012

U.S.-Colombia Free Trade Agreement: Labor Issues


Mary Jane Bolle
Specialist in International Trade and Finance

This report examines three labor issues and arguments related to the U.S.-Colombia Free Trade Agreement (CFTA), signed on October 21, 2011 (P.L. 112-42): violence against trade unionists; impunity (accountability for or punishment of the perpetrators); and worker rights protections for Colombians. For general issues relating to the CFTA, see CRS Report RL34470, The U.S.- Colombia Free Trade Agreement: Background and Issues, by M. Angeles Villarreal. For background on Colombia and its political situation and context for the agreement, see CRS Report RL32250, Colombia: Issues for Congress, by June S. Beittel.

Opponents of the U.S.-Colombia free trade agreement (CFTA) argued against it on three points: (1) the high rate of violence against trade unionists in Colombia; (2) the lack of adequate punishment for the perpetrators of that violence; and (3) weak Colombian enforcement of International Labor Organization (ILO) core labor standards and Colombia’s labor laws.

Proponents of the agreement argued primarily for the Colombia FTA on the basis of economic and national security benefits. Accordingly, they argued, the CFTA would support increased exports, expand economic growth, create jobs, and open up investment opportunities for the United States. They also argued that it would reinforce the rule of law, spread values of capitalism in Colombia, and anchor hemispheric stability.

Proponents specifically responded to labor complaints of the opponents, that (1) violence against trade unionists has declined dramatically since former President Álvaro Uribe took office in 2002; (2) substantial progress is being made on the impunity issue as the government has undertaken great efforts to find perpetrators and bring them to justice; and (3) the Colombian government is taking steps to improve conditions for workers. The most recent steps are outlined in the “Colombian Action Plan Related to Labor Rights,” released and jointly endorsed by President Obama and Colombian President Juan Manual Santos, on April 7, 2011.

The Colombia FTA, along with FTAs for Panama and South Korea, are the second set of FTAs (after Peru) to have some labor enforcement “teeth.” Labor provisions including the four basic ILO core labor principles are enforceable through the same dispute settlement procedures as for all other provisions (i.e., primarily those for commercial interests.) Opponents argued that under CFTA, only the concepts of core labor principles, and not the details of the ILO conventions behind them, would be enforceable.

Proponents pointed to recent Colombian progress in protecting workers on many fronts. They argued that approval of the FTA and the economic growth in Colombia that would result is the best way to protect Colombia’s trade unionists. They also argued that not passing the agreement would not resolve Colombia’s labor issues. In addition, they argued, the United States could lose jobs through trade diversion as Colombia continues to enter into regional trade agreements with other countries.

Opponents argued that delaying approval of the CFTA further would give Colombia more time to keep improving protections for its workers. In fact, proponents point out, this has occurred in the five years between 2011 when Congress approved the implementing legislation, and 2006, when the agreement was first signed.



Date of Report: January
4, 2012
Number of Pages:
17
Order Number: R
L34759
Price: $29.95

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International Trade: Rules of Origin


Vivian C. Jones
Specialist in International Trade and Finance

Michael F. Martin
Analyst in Asian Trade and Finance


Determining the country of origin of a product is important for properly assessing tariffs, enforcing trade remedies (such as antidumping and countervailing duties) or quantitative restrictions (tariff quotas), and statistical purposes. Other commercial trade policies are also linked with origin determinations, such as country of origin labeling and government procurement regulations.

Rules of origin (ROO) can be very simple, noncontroversial tools of international trade as long as all of the parts of a product are manufactured and assembled primarily in one country. However, when a finished product’s component parts originate in many countries—as is often the case in today’s global trading environment—determining origin can be a very complex, sometimes subjective, and time-consuming process.

U.S. Customs and Border Protection (CBP) is the agency responsible for determining country of origin using various ROO schemes. Non-preferential rules of origin are used to determine the origin of goods imported from countries with which the United States has most-favored-nation (MFN) status. Preferential rules are used to determine the eligibility of imported goods from certain U.S. free trade agreement (FTA) partners and certain developing country beneficiaries to receive duty-free or reduced tariff benefits under bilateral or regional FTAs and trade preference programs. Preferential rules of origin are generally specific to each FTA, or preference, meaning that they vary from agreement to agreement and preference to preference.

CBP has periodically proposed implementing a more uniform system of ROO as an alternative to the “substantial transformation” rule that is currently in place. CBP’s last proposal was on July 25, 2008, when it suggested that a system known as the North American Free Trade Agreement (NAFTA) rules system “has proven to be more objective and transparent and provide greater predictability in determining the country of origin of imported merchandise than the system of case-by-case adjudication they would replace.” The NAFTA scheme that would be applied hasd already been used for several years to determine the origin of imports under the NAFTA, and for most textile and apparel imports (about 40% of U.S. imports). The CBP proposed to apply the NAFTA rules to all country of origin determinations made by CBP, unless otherwise specified (e.g., unless the import enters under a preferential ROO scheme already in place). The proposed rule changes received so many responses from the public that the deadline for public comment was extended twice, until December 1, 2008. Such changes in rules of origin requirements are often opposed by some importers due to costs involved in transitioning to new rules, or because they believe that certain products they import might be at a disadvantage under a new ROO methodology. According to CBP officials, CBP decided not to implement the proposed rule.

This report deals with ROO in three parts. First, we describe in more detail the reasons that country of origin rules are important and briefly describe U.S. laws and methods that provide direction in making these determinations. Second, we discuss briefly some of the more controversial issues involving rules of origin, including the apparently subjective nature of some CBP origin determinations, and the effects of the global manufacturing process on ROO. Third, we conclude with some alternatives and options that Congress could consider that might assist in simplifying the process.



Date of Report: January
5, 2012
Number of Pages:
22
Order Number: R
L34524
Price: $29.95

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