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Tuesday, April 24, 2012

The G-20 and International Economic Cooperation: Background and Implications for Congress


Rebecca M. Nelson
Analyst in International Trade and Finance

The G-20 is an international forum for discussing and coordinating economic policies among major advanced and emerging economies. Congress may want to exercise oversight over the Administration’s participation in the G-20 process, including the policy commitments that Administration is making in the G-20 and the policies it is encouraging other G-20 countries to pursue. 

Background 


The G-20 rose to prominence during the global financial crisis of 2008-2009, when it played an arguably influential role in coordinating international responses to the crisis. The G-20 is now considered the “premier” forum for international economic coordination, a position previously held by a smaller group of advanced economies (the Group of 7, or G-7, which includes Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States).

G-20 leaders have annual meetings (“summits”), and meetings among lower-level officials occur more frequently. Meetings primarily focus on international economic and financial issues, although related topics are also discussed, including development, food security, and the environment, among others. Previous summits have, for example, focused on financial regulatory reform, global imbalances, funding for the International Monetary Fund (IMF), voting power of emerging economies in international financial institutions, and fossil fuel subsidies. 

The 2012 Summit 


The next G-20 summit is scheduled to be held in Los Cabos, Mexico in June 2012, and will be the first hosted by a Latin American government. The Mexican government has indicated that the summit will focus on the following. 

  • Economic stabilization and structural reforms as foundations for growth and employment. 
  • Strengthening the financial system and fostering financial inclusion to promote economic growth. 
  • Improving the international financial architecture in an interconnected world. 
  • Enhancing food security and addressing commodity price volatility. 
  • Promoting sustainable development, green growth, and the fight against climate change. 

Effectiveness of the G-20 


Some analysts say that while the G-20 was instrumental in coordinating the response to the global financial crisis of 2008-2009, its effectiveness has diminished as the urgency of the crisis has waned. They argue that the G-20 has failed to provide adequate international leadership in key policy areas, including responses to the Eurozone crisis and forging a conclusion to the World Trade Organization (WTO) Doha Round of multilateral trade negotiations. They also maintain that the G-20 as a group is too heterogeneous to achieve real coordination and its agenda is too ambitious. Others argue that the G-20 serves as an important institution in the international economy. They argue that the G-20 is a critical forum for discussing major policy initiatives
across major countries and encouraging greater cooperation, even if agreement on policies is not always reached. They also argue that it serves as a useful institution as a steering committee for other international organizations, such as the IMF, and that having the G-20 policy-making infrastructure in place is important for timely international responses to future crises.


Date of Report: April 12, 2012
Number of Pages: 17
Order Number: R40977Price: $29.95

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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 July 31, 2013, in Section 1 of P.L. 112-40. The President signed the legislation extending 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 that the GSP renewal entered into force. Therefore, importers of GSP-eligible products may seek reimbursement for tariffs paid during the lapse of GSP coverage.

On March 26, 2012, President Obama suspended GSP benefits for Argentina because “it has not acted in good faith in enforcing arbitral awards in favor of United States citizens or a corporation, partnership, or association that is 50 percent or more beneficially owned by United States citizens.” In the same proclamation, the President also designated the Republic of South Sudan as a least-developed beneficiary developing country under the GSP.

The GSP is one of several trade preference programs that provide similar trade benefits 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 export-driven 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 reportedly expressed the view that some of the more “advanced” BDCs, such as Brazil and India, should not be receiving benefits under unilateral preference programs, 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 duty-free, quota-free access (DFQF) to developing countries under the African Growth and Opportunity Act (who are also GSP beneficiaries), or to all least-developed countries.

This report presents, first, a brief history, economic rationale, and legal background leading to the establishment of the GSP. 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: April
9, 2012
Number of Pages:
41
Order Number: R
L33663
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Friday, April 20, 2012

U.S. Trade Deficit and the Impact of Changing Oil Prices


James K. Jackson
Specialist in International Trade and Finance

Petroleum prices rose sharply between September 2010 and June 2011, at times reaching more than $112 per barrel of crude oil. Although this is still below the $140 per barrel price reached in 2008, the rising cost of energy was one factor that helped to dampen the rate of growth in the economy during the second half of 2011. While the price of oil was rising, the volume of oil imports, or the amount of oil imported, decreased slightly. Overall resistance by market demand to changes in oil prices reflects the unique nature of the demand for oil and an increase in economic activity that occurred following the worst part of the economic recession in 2009. Turmoil in the Middle East was an important factor causing petroleum prices to rise sharply in the first four months of 2011. Although prices for imported oil fluctuated somewhat throughout the year, they averaged 30% higher than in 2010 and added about $100 billion to the total U.S. trade deficit in 2011. The increase in energy import prices is pushing up the price of energy to consumers and could spur some elements of the public to pressure the 112th Congress to provide relief to households that are struggling to meet their current expenses. With oil prices rising to over $100 per barrel in early 2011, the International Energy Agency cautioned that the rising price of oil was becoming a threat to the global economic recovery. This report provides an estimate of the initial impact of the changing oil prices on the nation’s merchandise trade deficit.


Date of Report: April 13, 2012
Number of Pages: 11
Order Number: RS22204
Price: $29.95

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Tuesday, April 17, 2012

Export-Import Bank: Background and Legislative Issues


Shayerah Ilias
Analyst in International Trade and Finance

The Export-Import Bank of the United States (Ex-Im Bank, EXIM Bank, or the Bank), an independent federal government agency, is the official export credit agency (ECA) of the United States. It helps finance U.S. exports of manufactured goods and services, with the objective of contributing to the employment of U.S. workers, primarily in circumstances when alternative financing is not available. The Ex-Im Bank also may assist U.S. exporters to meet foreign, officially sponsored, export credit competition. Its main programs are direct loans, loan guarantees, working capital guarantees, and export credit insurance. Ex-Im Bank transactions are backed by the full faith and credit of the U.S. government. The Ex-Im Bank is a participant in President Obama’s National Export Initiative (NEI), a plan to double exports by 2015 to support 2 million U.S. jobs.

The Bank operates under a renewable charter, the Export-Import Bank Act of 1945, as amended, and has been reauthorized through May 31, 2012 (P.L. 112-74). The charter requires that all of the Bank’s financing have a reasonable assurance of repayment and directs the Bank to supplement, and to not compete with, private capital.

In light of the international financial crisis, demand for Ex-Im Bank services has grown in recent years. In FY2011, the Bank approved more than 3,700 transactions of credit and insurance support, totaling about $33 billion—the highest level of authorizations in the history of the Bank. The Ex-Im Bank estimated that its credit and insurance activities supported about $41 billion in U.S. exports of goods and services, and were associated with 290,000 U.S. jobs, in FY2011.

The Ex-Im Bank has been “self-sustaining” for appropriations purposes since FY2008. It uses offsetting collections to cover its administrative expenses and program operations. Congress sets an upper limit on the level of the Bank’s financial activities as part of the annual appropriations process. For FY2012, Congress appropriated $4 million for the Ex-Im Bank’s Office of Inspector General (OIG), and authorized a limit of $58 million on the total amount that the Ex-Im Bank can spend on its credit and insurance programs and a limit of $89.9 million for the Bank’s administrative expenses (P.L. 112-74). For FY2013, the President requested an appropriation of $4.4 million for the OIG, a limit of $38 million on the Bank’s program activities, and a limit of $103.9 million for the Bank’s administrative expenses. Since 1990, the Ex-Im Bank has retuned to the U.S. Treasury $4.9 billion more than it received in appropriations.

The Organization for Economic Cooperation and Development (OECD) “Arrangement on Export Credits” sets forth export credit terms and conditions, including restrictions on tied aid, for the activities of the Ex-Im Bank and the ECAs of foreign countries that are OECD members. Other OECD agreements set forth sector-specific rules, guidelines on environmental procedures, and other terms and conditions.

The 112th Congress has introduced legislation to renew the Ex-Im Bank’s authority (H.R. 2072, S. 1547, S.Amdt. 1836, and H.R. 4302). Members of Congress may examine issues related to the Ex-Im Bank that center on the economic rationale for the Bank; the impact of the Bank on the federal budget and U.S. taxpayers; the Bank’s support for specific types of business or industries; the current balance between the Bank’s advancement of U.S. commercial interests and other U.S. policy goals; the competitive position of the Bank compared to foreign ECAs; and the Bank’s organizational structure.



Date of Report: April 3, 2012
Number of Pages: 27
Order Number: R42474
Price: $29.95

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Monday, April 16, 2012

Tariff Modifications: Miscellaneous Tariff Bills


Vivian C. Jones
Specialist in International Trade and Finance

Importers often request that Members of Congress introduce bills seeking to suspend or reduce tariffs on certain imports on their behalf. The vast majority of these commodities are chemicals, raw materials, or other components used as inputs in the manufacturing process. The rationale for these requests, in general, is that they help domestic producers of the downstream goods reduce costs, thus making their products more competitive. In turn, these cost reductions can be passed on to the consumer.

In recent congressional practice, the House Ways and Means and Senate Finance Committees, the committees of jurisdiction over tariffs, have combined individual duty suspension bills and other technical trade provisions into larger pieces of legislation known as miscellaneous tariff bills (MTBs). Before inclusion in an MTB, the individual legislative proposals introduced by Members are reviewed by the trade subcommittee staff in each committee, the U.S. International Trade Commission (USITC), and several executive branch agencies to ensure that they are noncontroversial (generally, that no domestic producer objects) and relatively revenue-neutral (revenue loss of no more than $500,000 per item).

In the 111th Congress, the United States Manufacturing Enhancement Act of 2010 (P.L. 111-227) was signed by the President on August 11, 2010. As enacted, the law temporarily suspended or reduced for three years (through December 31, 2012) duties on over 600 products, many of which renewed duty suspensions or reductions that were already in place. On December 15, 2010, H.R. 6517, a bill that, in part, sought further duty suspensions on approximately 290 products, passed in the House. On December 22, 2010, however, the Senate passed an amendment in the nature of a substitute of H.R. 6517 that did not contain the duty suspension measures. The House passed the amended version of the bill on the same date (P.L. 111-344).

Legislation could emerge in the second session of the 112th Congress proposing duty suspensions. On March 30, 2012, Chairman Camp and Ranking Member Levin of the House Ways and Means Committee, and Chairman Brady and Ranking Member McDermott of the Trade Subcommittee announced the beginning of the MTB process in the House, and invited Members to submit duty suspension bills by April 30, 2012. Senate Finance Committee Chairman Baucus also announced on March 30 that duty suspension bills are due in the Senate on the same date. Since the duty suspensions enacted in P.L. 111-227 expire on December 30, 2012, an MTB could include renewal of some or all of the provisions included in that bill, as well as the original duty suspensions included in H.R. 6517 in the 111th Congress that were not enacted. However, some in Congress assert that duty suspensions, also referred to in legislation as “limited tariff benefits,” are similar to earmarks—and should, therefore, be subject to the non-binding moratorium on earmarks supported by House and Senate Republicans last year.

This report, first, briefly presents a discussion of the MTB legislation debated in the past few Congresses. Second, the reviews of individual duty suspension bills by House Ways and Means and Senate Finance committee staff, the U.S. International Trade Commission (USITC), and other relevant agencies are discussed. Third, the report presents some pros and cons for MTB passage. Fourth, Table 1 at the end of the report illustrates MTB legislation considered in Congress from the 97th Congress (1983) to the present.



Date of Report: April 2, 2012
Number of Pages: 15
Order Number: RL33867
Price: $29.95

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Tuesday, April 10, 2012

Selecting the World Bank President


Martin A. Weiss
Specialist in International Trade and Finance

On March 23, 2012, President Obama nominated Dartmouth College President Jim Yong Kim as the U.S. nominee to succeed Robert Zoellick as World Bank president. Since its founding after World War II, the presidency of the World Bank has been held by a citizen of the United States, the Bank’s largest shareholder. The current Bank President, Robert Zoellick, nominated by President George W. Bush in May 2007, will step down at the conclusion of his five-year term in June 2012. Dr. Kim is competing against two other candidates for the position: Jose Antonio Ocampo, a Colombian national and professor at Columbia University; and Ngozi Okonjo-Iweala, a Nigerian national and finance minister of Nigeria.

According to an informal agreement among their member countries, the U.S. nominee is chosen as the World Bank President and a European candidate (typically French or German) is appointed as Managing Director of the International Monetary Fund (IMF). This convention has come under increasing strain over the past two decades. As the economies of developing countries become more integrated into the global economy, the distribution of voting power is being challenged. A second line of criticism is directed directly at the method employed to select World Bank (and IMF) leadership. Any process, critics argue, that elects the World Bank president based on nationality and not merit undermines the legitimacy and effectiveness of the institution. Proposals for a more open, transparent, and merit-based leadership selection process have been made consistently in the past, and at times have been incorporated in communiqu├ęs of various leaders summits, but have yet to change the outcome at either of the institutions.

The formal requirements for the selection of the World Bank President is that the Executive Directors appoint, by at least a 50% majority, an individual who is neither a member of the Board of Governors or Board of Executive Directors. There are no requirements on how individuals are selected, on what criteria, or by what process they are vetted. Moreover, although the Executive Directors may select its Managing Director by a simple majority vote, they historically aim to reach agreement by consensus. With these factors combined, the convention guaranteeing European leadership at the IMF and American leadership at the World Bank has remained in place.

The three candidates are to have individual interviews with the World Bank’s Executive Board of Directors. It is expected that a decision on the World Bank President will be reached prior to the 2012 spring IMF/World Bank meetings.



Date of Report:
March 28, 2012
Number of Pages:
11
Order Number: R424
63
Price: $29.95

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Document available via e-mail as a pdf file or in paper form.
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