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Friday, September 28, 2012

The Tobacco Control Act’s Ban of Clove Cigarettes and the WTO: A Detailed Analysis



Jane M. Smith
Legislative Attorney

In 2009, Congress passed the Family Smoking Prevention and Tobacco Control Act (Tobacco Control Act), which banned the sale of all flavored cigarettes, except menthol cigarettes, in Section 907(a)(1)(A). Indonesia, a major producer of clove cigarettes, challenged the Tobacco Control Act’s ban on non-menthol flavored cigarettes before a World Trade Organization (WTO) panel, claiming, among other things, that it violated Articles 2.1 and 2.2 of the Agreement on Technical Barriers to Trade (TBT Agreement). Article 2.1 requires WTO members to ensure that domestic regulations setting forth product characteristics treat like imported products no less favorably than like domestic products. Article 2.2 requires that such regulations be no more trade restrictive than necessary to fulfill a legitimate objective. The panel hearing the dispute agreed with Indonesia on Article 2.1 but found for the United States on Article 2.2. The United States appealed the panel’s finding on Article 2.1.

On April 4, 2012, the Appellate Body issued a decision. Although the Appellate Body disagreed with certain legal standards applied by the panel, it ultimately upheld the panel’s conclusion that menthol cigarettes and clove cigarettes are like products and that the Tobacco Control Act’s ban of non-menthol flavored cigarettes treats imported clove cigarettes less favorably than domestic menthol cigarettes. The Appellate Body stated that this case involved de facto discrimination and drew on jurisprudence developed under Article III:4 of the General Agreement on Tariffs and Trade 1994 (GATT 1994), which is similar to Article 2.1 of the TBT Agreement, to hold that “likeness in Article 2.1 [] is based on the competitive relationship between and among products.” The Appellate Body accepted that domestic regulations may legitimately distinguish between products to serve a public health interest. However, it found that the differential treatment of menthol and clove cigarettes in the Tobacco Control Act did not stem from a legitimate regulatory distinction. The Appellate Body, therefore, found that Section 907(a)(1)(A) violated Article 2.1 of the TBT Agreement.

The panel found that Section 907(a)(10)(A), in providing a period of three months before the ban took effect, violated Article 2.12 of the TBT Agreement, which requires a “reasonable interval” between publication of the law and its effective date. The United States appealed. The Appellate Body rejected Indonesia’s argument that paragraph 5.2 of the Doha Ministerial Decision on Implementation-Related Issues and Concerns, which interpreted “reasonable interval” within Article 2.12 to mean “a period of not less than six months,” was a legally binding interpretation of Article 2.12 under Article IX:2 of the Agreement Establishing the World Trade Organization (WTO Agreement). However, the Appellate Body found that paragraph 5.2 was a “subsequent agreement” under Article 31(3) of the Vienna Convention on the Law of Treaties. The Appellate Body stated that under Article 2.12 the complaining Member must establish a prima facie case by demonstrating that the technical regulation provides an interval between publication and effective date of less than six months; then the burden shifts to the responding Member to demonstrate that the interval provided is reasonable.

In response to the Appellate Body’s decision, the United States has suggested that it will likely maintain the ban on clove cigarettes while fulfilling its obligations under the WTO Agreement. It appears the United States has not yet settled on how it will accomplish this. The United States and Indonesia agreed that the United States would comply with the Appellate Body decision by July 24, 2013.



Date of Report: September 17, 2012
Number of Pages: 24
Order Number: R42733
Price: $29.95

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Monday, September 17, 2012

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 June 29, 2012, President Obama determined that Gibraltar, and the Turks and Caicos Islands had become “high income” countries, and terminated their designation as beneficiary developing countries for purposes of the GSP. The President also designated Senegal as a least-developed beneficiary developing country under the GSP. On March 26, 2012, The President 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.” Also in the March 26 proclamation, the President designated the Republic of South Sudan as a least-developed beneficiary developing country under the GSP.

The GSP is one of several U.S. trade preference programs that provide unilateral duty-free access to the U.S. market for certain goods from eligible 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 provides duty-free entry for 3,511 products (based on 8-digit U.S. Harmonized Tariff Schedule tariff lines) from 128 designated countries and territories, and duty-free status to an additional 1,464 products from 43 GSP beneficiaries that are additionally designated as leastdeveloped 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 receive 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: September 5, 2012
Number of Pages: 42
Order Number: RL33663
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Thursday, September 13, 2012

The Trans-Pacific Partnership Negotiations and Issues for Congress



Ian F. Fergusson, Coordinator
Specialist in International Trade and Finance

William H. Cooper
Specialist in International Trade and Finance

Remy Jurenas
Specialist in Agricultural Policy

Brock R. Williams
Analyst in International Trade and Finance


The Trans-Pacific Partnership (TPP) is a proposed regional free trade agreement (FTA) being negotiated among the United States, Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. U.S. negotiators and others describe and envision the TPP as a “comprehensive and high-standard” FTA, presumably because they hope it will liberalize trade in nearly all goods and services and include commitments beyond those currently established in the World Trade Organization (WTO). The broad outline of an agreement was announced on the sidelines of the Asia-Pacific Economic Cooperation (APEC) ministerial in November 2011 in Honolulu, Hawaii. If implemented, the TPP potentially could eliminate tariff and non-tariff barriers to trade and investment among the parties and could serve as a template for a future trade pact among APEC members and potentially other countries. Congress has a direct interest in the negotiations, both through influencing U.S. negotiating positions with the executive branch, and by passing legislation to implement any resulting agreement.

In Hawaii, the leaders of Canada, Japan, and Mexico also announced that they would seek consultations with partner countries with a view towards joining the negotiations. Canada and Mexico subsequently were invited to join the negotiations in June 2012. Japan and the TPP partners are conducting bilateral consultations on its possible entrance as well.

The TPP originally grew out of an FTA among Brunei, Chile, New Zealand, and Singapore, which came into force in 2008. Thirteen rounds of negotiations have occurred since the beginning of formal talks in 2010. In addition to negotiations on new trade rules among all the parties, the talks include U.S. market access negotiations—seeking removal of quotas and tariffs on traded products—with New Zealand, Brunei, Malaysia, and Vietnam as well as market access negotiations among other parties. The United States has FTAs in force with Chile, Singapore, Australia, Peru, and with North American Free Trade Agreement (NAFTA) partners Canada and Mexico, although these agreements may be reopened and new disciplines may be negotiated in the course of the talks covering issues beyond those in the existing FTAs.

The TPP serves several strategic goals in U.S. trade policy. First, it is the leading trade policy initiative of the Obama Administration, and is a manifestation of the Administration’s “pivot” to Asia. It provides both a new set of trade negotiations following the conclusion of the bilateral FTAs with Columbia, Panama, and South Korea and an alternative venue to the stalled Doha Development Round of multilateral trade negotiations under the WTO. If concluded, it may serve to shape the economic architecture of the Asia-Pacific region by harmonizing existing agreements with U.S. FTA partners, attracting new participants, and establishing regional rules on new policy issues facing the global economy—possibly providing impetus to future multilateral liberalization under the WTO.

The eleven countries which make up the TPP negotiating partners include advanced industrialized, middle income, and developing economies. While new market access opportunities exist among the participants with which the United States presently does not have FTAs, the greater value of the agreement to the United States may be setting a trade policy template covering issues it deems important and which can be adopted throughout the Asia- Pacific region, and possibly beyond.

Twenty-six chapters in the agreement are under discussion. Aside from market access negotiations in goods, services, and agriculture, negotiations are being conducted on intellectual 
property rights, services, government procurement, investment, rules of origin, competition, labor, and environmental standards and other disciplines. In many cases, the rules being negotiated are more rigorous than comparable rules found in the WTO’s Uruguay Round Agreement. Some topics, such as state-owned enterprises, regulatory coherence, and supply chain competitiveness break new ground in FTA negotiations.

As the negotiations proceed, a number of issues important to Congress are emerging. One is whether the United States can balance its vision of creating a “comprehensive and high standard” agreement with a large and expanding group of countries, while not insisting on terms that other countries will reject. Related to this may be what concessions the United States is willing to make to achieve a “comprehensive and high-standard” agreement overall. Another issue is how Congress will consider a TPP FTA, if concluded. The present negotiations are not being conducted under the auspices of formal trade promotion authority (TPA)—the latest TPA expired on July 1, 2007—although the Administration informally is following the procedures of the former TPA. If TPP implementing legislation is brought to Congress, TPA may need to be considered if the legislation is not to be subject to potentially debilitating amendments or rejection. Finally, Congress may seek to weigh in on the addition of new members to the negotiations, before or after the negotiations conclude..



Date of Report: September 5, 2012
Number of Pages: 55
Order Number: R42694
Price: $29.95


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Wednesday, September 12, 2012

The Eurozone Crisis: Overview and Issues for Congress



Rebecca M. Nelson, Coordinator
Analyst in International Trade and Finance

Paul Belkin
Analyst in European Affairs

Derek E. Mix
Analyst in European Affairs

Martin A. Weiss
Specialist in International Trade and Finance


Crisis Overview 

What started as a debt crisis in Greece in late 2009 has evolved into a broader economic and political crisis in the Eurozone and European Union (EU). The Eurozone faces four major, and related, economic challenges: (1) high debt levels and public deficits in some Eurozone countries; (2) weaknesses in the European banking system; (3) economic recession and high unemployment in some Eurozone countries; and (4) persistent trade imbalances within the Eurozone.

Additionally, the Eurozone is facing a political crisis. Disagreements among key policymakers over the appropriate crisis response and a slow, complex EU policy-making process are seen as having exacerbated anxiety in markets. Governments in several European countries have fallen as a direct or indirect result of the crisis. 

Recent Developments & Outlook 


Market pressure against several Eurozone countries has increased in the second quarter of 2012. The crisis response has focused on preventing contagion of the crisis from Greece, Ireland, and Portugal, three relatively small economies, to Italy and Spain, the third- and fourth-largest economies in the Eurozone. However, European authorities announced a major bank recapitalization plan for Spanish banks in June 2012, and there is speculation about whether Spain’s government will also require financial assistance. Amid increasing market pressures, European leaders announced a new set of crisis response measures at an EU summit on June 28- 29, 2012, and in August the president of the European Central Bank (ECB) stated that the ECB would do “whatever it takes” to save the euro. However, pressures continue to build in Greece, with the Greek prime minister appealing to German and French leaders for more time to implement budget cuts and economic reforms. Some economists are forecasting that Greece could require additional aid to avoid defaulting on its debt.

Despite unprecedented policy response measures by European leaders and institutions, many of the fundamental challenges in the Eurozone remain, including lack of economic growth, high unemployment, and internal trade imbalances. The recent market pressure has raised questions about the Eurozone’s future. More economists and policymakers are openly questioning whether Greece will remain in the currency union, and asking what other countries may follow if Greece exits. Others are optimistic that ultimately European leaders and institutions will do whatever is necessary to keep the Eurozone intact, and that the EU could emerge from the crisis stronger and more integrated. 

Issues for Congress

Impact on the U.S. Economy:
The United States has strong economic ties to Europe, and many analysts view the Eurozone crisis as the biggest potential threat to the U.S. economic recovery. U.S. Treasury officials have emphasized that U.S. exposure to the Eurozone countries under the most market pressure is small but that U.S. exposure to Europe as a whole is significant. Recently, the euro has fallen against the dollar; a weaker euro against the U.S. dollar could cause the U.S. trade deficit with the EU to widen. Uncertainty in the Eurozone is creating a “flight to safety,” causing U.S. Treasury yields to fall, and volatility in the U.S. stock market.



IMF Involvement:
In response to the crisis, some countries have pledged additional funds to the International Monetary Fund (IMF). The United States has not pledged any new funds to the IMF as part of this initiative. Members of Congress may want to consider how to guarantee that the IMF has the resources it needs to ensure stability in the international economy while also exercising oversight over the exposure of the IMF to the Eurozone. 

U.S.-European Cooperation:
The United States looks to Europe for partnership in addressing a wide range of global challenges. Some analysts and policymakers have expressed concern that the crisis could keep much of the EU’s focus turned inward and exacerbate a long-standing downward trend in European defense spending.



Date of Report: August 29, 2012
Number of Pages: 26
Order Number: R42377
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