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Tuesday, February 28, 2012

U.S.-Japan Economic Relations: Significance, Prospects, and Policy Options


William H. Cooper
Specialist in International Trade and Finance

Japan and the United States are the two largest economic powers. Together they account for over 30% of world domestic product, for a significant portion of international trade in goods and services, and for a major portion of international investment. This economic clout makes the United States and Japan potentially powerful actors in the world economy. Economic conditions in the United States and Japan have a significant impact on the rest of the world. Furthermore, the U.S.-Japan bilateral economic relationship can influence economic conditions in other countries.

The U.S.-Japan economic relationship is very strong and mutually advantageous. The two economies are highly integrated via trade in goods and services—they are large markets for each other’s exports and important sources of imports. More importantly, Japan and the United States are closely connected via capital flows. Japan is a major foreign source of financing of the U.S. national debt and will likely remain so for the foreseeable future, as the mounting U.S. debt needs to be financed and the stock of U.S. domestic savings remains insufficient to meet the demand. Japan is also a significant source of foreign private portfolio and direct investment in the United States, and the United States is the origin of much of the foreign investment in Japan.

The relative significance of Japan and the United States as each other’s economic partner has diminished with the rise of China as an economic power. For example, China has overtaken Japan and is the largest source of foreign financing of the U.S. national debt. In addition, U.S. economic ties with Canada, Mexico, and China have deepened, further eroding the direct relevance of Japan. Nevertheless, analyses of trade and other economic data suggest that the bilateral relationship remains important, and policy leaders of both countries face the challenge of how to manage it.

During the last decade policy leaders seem to have made a deliberate effort to drastically reduce the friction that prevailed in the economic relationship. On the one hand, this calmer environment has stabilized the bilateral relationship and permitted the two countries to focus their attention on other issues of mutual interest, such as national security. On the other hand, as some have argued, the friendlier environment masks serious problems that require more attention, such as continuing Japanese failure to resolve long-standing market access barriers to U.S. exports. Failure to resolve any of these outstanding issues could cause heightened friction between the two countries.

More generally, other issues regarding U.S.-Japan economic relations may emerge on the agenda of the 112th Congress. U.S. and Japanese leaders have several options on how to manage their relationship, including stronger reliance on the World Trade Organization; special bilateral negotiating frameworks and agreements; or a free trade agreement. On November 11, 2011, Prime Minister Noda announced at a press conference that he decided, after many consultations with potentially affected parties, that “[Japan would] enter into consultations toward participating in the TPP negotiations with the countries concerned on the occasion of the [November 12-13, 2011] APEC Economic Leaders meeting in Honolulu, Hawaii....” Japan’s participation in the TPP will likely be the focal point of U.S.-Japan economic discussion for the foreseeable future.



Date of Report: February 14, 2012
Number of Pages: 22
Order Number: RL32649
Price: $29.95

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Monday, February 27, 2012

Globalization, Worker Insecurity, and Policy Approaches


Raymond J. Ahearn
Specialist in International Trade and Finance

Today’s global economy, or what many call globalization, has a growing impact on the economic futures of American companies, workers, and families. Increasing integration with the world economy makes the U.S. and other economies more productive. For most Americans, this has translated into absolute increases in living standards and real disposable incomes. However, while the U.S. economy as a whole benefits from globalization, it is not always a win-win situation for all Americans. Rising trade with low-wage developing countries not only increases concerns of job loss, but it also leads U.S. workers to fear that employers will lower their wages and benefits in order to compete. Globalization facilitated by the information technology revolution expands international trade in a wider range of services, but also subjects an increasing number of U.S. white collar jobs to outsourcing and international competition. Also, globalization may benefit some groups more than others, leading some to wonder whether the global economy is structured to help the few or the many.

The current wave of globalization is supported by three broad trends. The first is technology, which has sharply reduced the cost of communication and transportation that previously divided markets. The second is a dramatic increase in the world supply of labor engaged in international trade. The third is government policies that have reduced barriers to trade and investment. Whether these trends are creating new vulnerabilities for workers is the subject of increasing research and debate.

Some of the vulnerabilities for workers are underlined by changing employment patterns caused by increased foreign competition, weak wage growth, and rising income inequality. These trends, in turn, have become a source of economic insecurity for many Americans and may be weakening public support for U.S. engagement with the world economy.

To bolster public support for an open world economy, the conventional wisdom is that the legitimate concerns of those who are losing in the contemporary economic environment need to be addressed. To what extent the losers should be compensated and how is a matter of considerable congressional and public debate. Because the relationship between globalization and worker insecurity is complicated and uncertain, a number of different approaches may be considered if the goal is to bolster public support for U.S. trade policies, globalization, and an open world economy. Policies involving adjustment assistance, education, tax, and trade are most commonly proposed.

There appears to be a range of views on the merits of each of these policy approaches and the extent to which they can be designed and implemented in a way that would reduce worker insecurity without undermining the benefits of globalization. In the view of many economists, policies that inhibit the dynamism of labor and capital markets or erect barriers to international trade and investment would not be helpful because technology and trade are critical sources of overall economic growth and increase U.S. living standards. At the same time, identifying the most effective policy approach is made difficult by the variety of factors – trade with developing countries, increases in foreign investment flows, trade and financial liberalization, immigration, and skill-based technological change – that may be generating job and income trends that are increasing worker insecurity.



Date of Report: February 1
7, 2012
Number of Pages:
16
Order Number: RL3
4091
Price: $29.95

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Friday, February 24, 2012

Multilateral Development Banks: U.S. Contributions FY2000-FY2013


Rebecca M. Nelson
Analyst in International Trade and Finance

This report shows in tabular form how much the Administration requested and how much Congress appropriated for U.S. payments to the multilateral development banks (MDBs) since 2000. It also provides a brief description of the MDBs and the ways they fund their operations. It will be updated periodically as annual appropriation figures are known. The title of this report will also change annually, as new yearly appropriation figures are added.

For FY2013, the Administration has requested funds for several of the non-concessional lending facilities at the MDBs. Several of the MDBs are in the process of increasing the size of their nonconcessional lending facilities, a process frequently called a “general capital increase” (GCI). GCIs are relatively unusual, particularly for so many institutions at the same time. Contributions to the GCIs are expected to be spread out over a five- to eight-year period, depending on the institution. For most of the institutions, the funds appropriated in FY2012 were the first annual payment. The Administration’s budget request for FY2013 includes the next annual installments for the GCIs. In FY2013, the Administration has also requested funds for several MDB concessional lending facilities and more targeted MDB funds, such as those dedicated to environmental issues.

For further information about the MDBs, the GCIs, and relevant U.S. policy process, see: 

          CRS Report R41170, Multilateral Development Banks: Overview and Issues for Congress, by Rebecca M. Nelson; 
          CRS Report R41672, Multilateral Development Banks: General Capital Increases, by Martin A. Weiss; and 
          CRS Report R41537, Multilateral Development Banks: How the United States Makes and Implements Policy, by Rebecca M. Nelson and Martin A. Weiss.

Date of Report: February 14, 2012
Number of Pages: 1
2
Order Number: RS2
0792
Price: $29.95

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Thursday, February 23, 2012

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; after a number of fits and starts during the 18-year process, the 153-members of the WTO, on December 16, 2011, invited Russia to join the WTO during the Ministerial Conference in Geneva. The State Duma, the Russian parliament, must approve the conditions for accession by July 23, 2012, to complete the accession process. Russia would formally become a member 30 days later.

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: January 30, 2012
Number of Pages: 22
Order Number: R42085
Price: $29.95

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Wednesday, February 22, 2012

Reauthorization of the Export-Import Bank: Issues and Policy Options for Congress


Shayerah Ilias
Analyst in International Trade and Finance

The Export-Import Bank (Ex-Im Bank, EXIM Bank, or the Bank), a self-sustaining agency, is the official U.S. export credit agency (ECA). It operates under a renewable charter, the Export-Import Bank Act of 1945, as amended. Ex-Im Bank’s most recent reauthorization (P.L. 109-438) was in 2006, when Congress extended the Bank’s authority through September 30, 2011. Since then, Congress has extended Ex-Im Bank’s authority through appropriations vehicles. The FY2012 Consolidated Appropriations Act (P.L. 112-74) extended Ex-Im Bank’s authority through May 31, 2012.

Potential issues for the 112th Congress as it examines reauthorization of Ex-Im Bank include the following:

The economic rationale for the Bank, including the role of the federal government in export promotion and finance;

Specific Bank policies, such as those relating to content, shipping, economic and environmental impact analysis, and tied aid, including how these policies balance U.S. export and other policy interests;

Statutory requirements directing Ex-Im Bank to support certain types of exports, such as exports of small businesses and “green” technology, including the tension that such requirements can create between desiring to support specific economic sectors and allowing Ex-Im Bank flexibility to fulfill its mission to support U.S. exports and jobs; and

International developments that may affect the Bank’s work, such as the growing role of emerging economies’ ECAs and the sufficiency of the Organization for Economic Cooperation and Development (OECD) Arrangement on Officially Supported Export Credits to “level the playing field” for U.S. exporters.

Potential options for Congress include, but are not limited to, the following areas:

Structure of the Bank. Congress could maintain Ex-Im Bank as an independent agency, reorganize or privatize the functions of the Bank, or terminate the Bank.

Length of reauthorization. Congress could extend the Bank’s authority for a few years at a time (as in previous reauthorizations), for a longer period of time, or permanently reauthorize the Bank.

Bank’s policies. Congress could maintain the status quo, or revise the Bank’s policies, such as those related to the requirements and limitations on Ex-Im Bank’s credit and insurance activities.

International ECA context. Congress could seek to enhance international regulation of official export credit activity through the OECD or other mechanisms, or enhance Ex-Im Bank’s understanding of international export credit activity and trends.

In the 112th Congress, the House and Senate have introduced bills, H.R. 2072 and S. 1547 respectively, to reauthorize Ex-Im Bank through FY2015, among other provisions.



Date of Report: January 31, 2012
Number of Pages: 30
Order Number: R41829
Price: $29.95

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