Free Trade Agreements: Impact on U.S. Trade and Implications for U.S. Trade Policy

William H. Cooper
Specialist in International Trade and Finance

Free trade areas (FTAs) are arrangements among two or more countries under which they agree to eliminate tariffs and nontariff barriers on trade in goods among themselves. However, each country maintains its own policies, including tariffs, on trade outside the region.

In the last few years, the United States has engaged or has proposed to engage in negotiations to establish bilateral and regional free trade arrangements with a number of trading partners. Such arrangements are not new in U.S. trade policy. The United States has had a free trade arrangement with Israel since 1985 and with Canada since 1989, which was expanded to include Mexico and became the North American Free Trade Agreement (NAFTA) effective in January 1994.

U.S. interest in bilateral and regional free trade arrangements surged, and the Bush Administration accelerated the pace of negotiations after the enactment of the Trade Promotion Authority in August 2002. U.S. participation in free trade agreements can occur only with the concurrence of Congress. In addition, FTAs affect the U.S. economy, with the impact varying across sectors.

The 112th Congress and the Obama Administration faced the question of whether and when to act on three FTAs pending from the Bush Administration—with Colombia, Panama, and South Korea. Although the Bush Administration signed these agreements, it and the leaders of the 110th Congress could not reach agreement on proceeding to enact them. No action was taken during the 111th Congress either.

After discussion with congressional leaders and negotiations with the governments of Colombia, Panama, and South Korea to assuage congressional concerns regarding treatment of union officials (Colombia), taxation regimes (Panama), and trade in autos (South Korea), President Obama submitted draft implementing legislation to Congress on October 3, 2011. The 112th Congress approved each of the bills in successive votes on October 12, along with legislation to renew an aspect of the Trade Adjustment Assistance (TAA) program. President Obama signed the bills into law on October 21, 2011.

In the meantime, on November 14, 2009, President Obama committed to work with the current and prospective members of the Trans-Pacific Strategic Economic Partnership Agreement (TPP). The TPP is a free trade agreement that includes nations on both sides of the Pacific. The TPP, which originally came into effect in 2006, currently includes Brunei, Chile, New Zealand, and Singapore. Besides the United States, Australia, Peru, and Vietnam have joined the negotiations. In addition, Canada, Japan, and Mexico have expressed interest in joining.

FTAs raise some important policy issues: Do FTAs serve or impede U.S. long-term national interests and trade policy objectives? Which type of an FTA arrangement meets U.S. national interests? What should U.S. criteria be in choosing FTA partners? Are FTAs a substitute for or a complement to U.S. commitments and interests in promoting a multilateral trading system via the World Trade Organization (WTO)? What effect will the expiration of TPA have on the future of FTAs as a trade policy strategy?


Date of Report: June 18, 2012
Number of Pages: 19
Order Number: RL31356
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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 January 2012 and April 2012, at times reaching more than $109 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 and the first half of 2012. While the price of oil was rising, the volume of oil imports, or the amount of oil imported, decreased slightly from the comparable period in the previous year. In general, market demand for oil remains highly resistant to changes in oil prices and reflects the unique nature of the demand for oil. In addition, sustained demand for oil in the face of higher prices reflected 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 early 2011 and in 2012. Although prices for imported oil fluctuated somewhat throughout 2011, they averaged 30% higher than in 2010 and added about $100 billion to the total U.S. trade deficit in 2011. Oil futures markets in June indicated that oil prices were expected to fluctuate around the $83 per barrel recorded in June 2012, in part because oil producers agreed in mid-June to maintain the then-current production levels to stabilize market prices. The increase in energy import prices in 2011 pushed up the price of energy to consumers. In such cases, some elements of the public tend to pressure Congress to provide relief to households that are struggling to meet their current expenses. This report provides an estimate of the initial impact of the changing oil prices on the nation’s merchandise trade deficit.


Date of Report: June 18, 2012
Number of Pages: 10
Order Number: RS22204
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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 then-153-members of the WTO, on December 16, 2011, invited Russia to join the WTO during the Ministerial Conference in Geneva. 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 parliament is expected to take up the measure beginning on July 4.

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. On June 12, 2012, Sen. Max Baucus introduced a bill (S. 3285) with bipartisan co-sponsorship, the authorize PNTR for Russia.

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: June 15, 2012
Number of Pages: 23
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U.S.-Taiwan Relationship: Overview of Policy Issues

Shirley A. Kan
Specialist in Asian Security Affairs

Wayne M. Morrison
Specialist in Asian Trade and Finance

The purpose and scope of this CRS Report is to provide a succinct overview with analysis of the issues in the U.S.-Taiwan relationship. This report will be updated as warranted. Taiwan formally calls itself the sovereign Republic of China (ROC), tracing its political lineage to the ROC set up after the revolution in 1911 in China. The ROC government retreated to Taipei in 1949. The United States recognized the ROC until the end of 1978 and has maintained a non-diplomatic relationship with Taiwan after recognition of the People’s Republic of China (PRC) in Beijing in 1979. The State Department claims an “unofficial” U.S. relationship with Taiwan, despite official contacts that include arms sales. The Taiwan Relations Act (TRA) of 1979, P.L. 96-8, has governed policy in the absence of a diplomatic relationship or a defense treaty. Other key statements that guide policy are the three U.S.-PRC Joint Communiques of 1972, 1979, and 1982; as well as the “Six Assurances” of 1982. (See also CRS Report RL30341, China/Taiwan: Evolution of the “One China” Policy—Key Statements from Washington, Beijing, and Taipei.)

For decades, Taiwan has been of significant security, economic, and political interest to the United States. In 2011, Taiwan was the 10th-largest U.S. trading partner and the 6th-largest market for U.S. agricultural exports. Taiwan is a major innovator of information technology (IT) products. Ties or tension across the Taiwan Strait affect international security (with potential U.S. intervention), the U.S.-Taiwan relationship, and U.S.-PRC cooperation. While the United States does not diplomatically recognize Taiwan, it is a significant autonomous actor in the world. Today, 23 countries including the Vatican have diplomatic relations with Taiwan as the ROC. Taiwan’s 23 million people enjoy self-governance with free elections. After Taiwan’s presidential election in 2008, the United States congratulated Taiwan as a “beacon of democracy.” Taiwan’s democracy has allowed its people a greater say in their status, given competing party politics about Taiwan’s national political identity and priorities. Taiwan held presidential and legislative elections on January 14, 2012. Kuomintang (KMT) President Ma Ying-jeou won re-election against the candidate from the Democratic Progressive Party (DPP).

Since Taiwan and the PRC resumed their quasi-official dialogue in 2008 under President Ma and cross-strait tension decreased, some have stressed concerns about steps seen as needed to be taken by the United States and by Taiwan to strengthen their relationship. Another approach has viewed closer cross-strait engagement as allowing U.S. attention to shift to expand cooperation with a rising China, which opposes U.S. arms sales and other dealings with Taiwan. In any case, Washington and Taipei have put more efforts into their respective relations with Beijing, while contending that they have pursued a positive, parallel U.S.-Taiwan relationship.

Taiwan’s President Ma Ying-jeou has sought U.S. support for his policies, including U.S. arms sales and Taiwan’s inclusion in the U.S. Visa Waiver Program (VWP). Taiwan also has asked for an extradition treaty. Another U.S. policy issue has concerned whether to resume Cabinet-level visits. The United States and Taiwan have sought to resume trade talks under the Trade and Investment Framework Agreement (TIFA), but there have been U.S. concerns about Taiwan’s restrictions on U.S. beef. Taiwan seeks support for participation in international organizations.

Legislation in the 112th Congress include H.Con.Res. 39, H.Con.Res. 77, H.Con.Res. 122, H.R. 2583, H.R. 2918, H.R. 2992, H.R. 4310, H.R. 5902, S. 1539, S. 1545, and S.Con.Res. 17. Other congressional actions have focused on arms sales to Taiwan, particularly the issue of whether to sell F-16C/D fighters. (See CRS Report RL30957, Taiwan: Major U.S. Arms Sales Since 1990.)


Date of Report: June 15, 2012
Number of Pages: 27
Order Number: R41952
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The Jackson-Vanik Amendment and Candidate Countries for WTO Accession: Issues for Congress

William H. Cooper
Specialist in International Trade and Finance

Unconditional most-favored-nation (MFN) status, or in U.S. statutory parlance, normal trade relations (NTR) status, is a fundamental principle of the World Trade Organization (WTO). Under this principle, WTO members are required unconditionally to treat imports of goods and services from any WTO member no less favorably than they treat the imports of like goods and services from any other WTO member country. Under Title IV of the Trade Act of 1974, as amended, most communist or nonmarket-economy countries were denied MFN status unless they fulfilled freedom of emigration conditions as contained in Section 402, the so-called Jackson-Vanik amendment, or were granted a presidential waiver of the conditions, subject to congressional disapproval. The statute still applies to many of these countries, even though most have replaced their communist governments. The majority of these countries have joined the WTO or are candidates for accession. Several countries are close to completing the accession process, and Congress could soon face the issue of what to do about their NTR status to ensure that the United States benefits from those accession agreements. During the 112th Congress, Members face the issue of whether to extend PNTR to. On June 12, 2012, Sen. Max Baucus introduced a bill (S. 3285) with bipartisan co-sponsorship to authorize PNTR for Russia.


Date of Report: June 15, 2012
Number of Pages: 8
Order Number: RS22398
Price: $19.95

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Permanent Normal Trade Relations (PNTR) Status for Russia and U.S.-Russian Economic Ties

William H. Cooper
Specialist in International Trade and Finance

U.S.-Russian trade is governed by Title IV of the Trade Act of 1974, which conditions Russia’s normal trade relations (NTR) status, including the “freedom-of-emigration” requirements of the Jackson-Vanik amendment. On December 16, 2011, the 153 members of the World Trade Organization (WTO) invited Russia to join the organization, after Russia completed an 18-year accession process. The WTO requires each member to accord newly acceding members “immediate and unconditional” most-favored-nation (MFN) status which is called NTR in U.S. law. Russia is expected to formally join the WTO sometime in the summer after its parliament has approved the accession package which is expected to occur sometime in early July. In order to comply with the WTO rule, the United States would have to change Russia’s status from conditional NTR to unconditional or permanent NTR (PNTR).

The change in Russia’s trade status will require legislation to lift the restrictions of Title IV of the Trade Act of 1974 as they apply to Russia and authorize the President to grant Russia PNTR. On June 12, 2012, Senator Max Baucus, Chairman of the Senate Finance Committee, introduced legislation (S. 3285) to remove the application of Title IV to trade with Russia. Therefore, Members of the 112th Congress confront the issue of whether to authorize PNTR for Russia. Some Members of Congress want to link congressional consideration of PNTR for Russia with S. 1039 and H.R. 4405—the Sergei Magnitsky Rule of Law Accountability Act of 2012.


Date of Report: June 15, 2012
Number of Pages: 9
Order Number: RS21123
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International Monetary Fund: Background and Issues for Congress

Martin A. Weiss
Specialist in International Trade and Finance

The International Monetary Fund (IMF), conceived at the Bretton Woods conference in July 1944, is the multilateral organization focused on the international monetary system. Created in 1946 with 46 members, it has grown to include 188 countries. The IMF has six purposes that are outlined in Article I of the IMF Articles of Agreement: promoting international monetary cooperation; expanding the balanced growth of international trade; facilitating exchange rate stability; eliminating restrictions on the international flow of capital; ensuring confidence by making the general resources of the Fund temporarily available to members; and adjusting balance-of-payments imbalances in an orderly manner.

Congressional interest in IMF activities has increased since the onset of the financial crisis in 2008. IMF lending has surged in recent years, particularly in light of large recent loans to Greece, Ireland, and Portugal. In 2009, major economies agreed to substantially increase the IMF’s resources and to move forward on several major reforms at the institution. These include increasing the voting share of emerging economies; revamping the IMF’s lending toolkit to introduce greater flexibility and create new facilities for low-income countries, and creating a road map for resolving the fast-growing economic imbalances in the global economy between surplus and deficit countries. In late 2010, IMF members agreed to a doubling of IMF quotas, which would require congressional authorization and appropriations.

The United States was instrumental in creating the IMF and is its largest financial contributor, providing 17.72% of total IMF resources. Since voting shares are based on financial contributions, the large U.S. voting share provides the United States veto power over major decisions at the IMF. Both the IMF and its sister organization, the World Bank, are headquartered in Washington, DC.

At the Bretton Woods conference, the IMF was tasked with coordinating the system of fixed exchange rates to help the international economy recover from two world wars and the instability in the interwar period caused by competitive devaluations and protectionist trade policies. From 1946 until 1973, the IMF managed the “par value adjustable peg” system. The U.S. dollar was fixed to gold at $35 per ounce, and all other member countries’ currencies were fixed to the dollar at different rates. This system of fixed rates ended in 1973 when the United States removed itself from the gold standard.

The IMF has evolved significantly as an institution since it was created. Floating exchange rates and more open capital markets in the 1990s created a new role for the IMF—the resolution of frequent and volatile international financial crises. The Asian financial crisis of 1997-1998 and subsequent crises in Russia and Latin America revealed many weaknesses of the world monetary system, which have only become more apparent in the wake of the 2008-2009 global financial crisis and the more recent sovereign debt crises in Europe.

This report evaluates the purpose, membership, financing, and focus of the IMF’s activities. It also discusses the role of Congress in shaping U.S. policy at the IMF and concludes by addressing key issues, both legislative and oversight-related, that Congress may wish to consider, including

• the role of the IMF as a lender of last resort; 
• the adequacy of IMF resources; and 
• the effectiveness of IMF surveillance.

Date of Report: June 12, 2012
Number of Pages: 29
Order Number: R42019
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