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Monday, October 29, 2012

U.S. International Trade: Trends and Forecasts



Brock R. Williams
Analyst in International Trade and Finance

J. Michael Donnelly
Information Research Specialist


The global financial crisis and the U.S. recession, during the 19 months from December 2007 through June 2009, caused the U.S. trade deficit to decrease, or lessen, from August 2008 through May 2009. Since then it has begun to increase again as recovery has commenced. The financial crisis caused U.S. imports to drop faster than U.S. exports, but that trend has reversed as U.S. demand for imports recovers. 

Exports of goods
of $1,497 billion in 2011 increased from 2010 by $209 billion or 16%, while imports of goods of $2,236 billion in 2011 increased by $302 billion, also 16%, over 2010. Though both exports and imports increased by 16%, this led to an increase in the overall merchandise trade deficit (i.e., the trade balance became more negative) for 2011 of $93 billion or 15% over 2010. Because imports are greater than exports, exports must increase at a greater percentage than imports to maintain the current trade balance.

In 2011, the trade deficit in goods reached $738 billion on a balance of payments (BoP) basis, still lower than the previous peak of $836 billion in 2006, but greater than the deficits in 2009 and 2010 of $506 billion and $645 billion. The 2011 U.S. deficit on merchandise trade (Census basis) with China was $295.4 billion, with the European Union (EU27) was $99.9 billion, with Canada was $34.5 billion, with Japan was $63.2 billion, and with Mexico was $64.5 billion. With the Asian Newly Industrialized Countries (Hong Kong, South Korea, Singapore, and Taiwan), the trade balance moved from a deficit of $5.5 billion in 2007 to surpluses increasing from $2.2 billion in 2008 to $15.4 billion in 2011.

Related to the goods trade balance is the balance on the current account, which includes merchandise and services trade plus investment income and unilateral transfers. The deficit on the current account grew in 2011 to $466 billion from $442 billion in 2010. This smaller increase in the current account deficit ($24 billion), as compared to the increase in the goods trade deficit ($93 billion), reflects an increase in the U.S. surplus in both services trade and investment income.

Trade deficits are a concern for Congress because they may generate trade friction and pressures for the government to do more to open foreign markets, to shield U.S. producers from foreign competition, or to assist U.S. industries to become more competitive. Overall U.S. trade deficits reflect excess spending (a shortage of savings) in the domestic economy and a reliance on capital imports to finance that shortfall. Capital inflows serve to offset the outflow of dollars used to pay for imports. Movements in the exchange rate help to balance trade. The rising trade deficit (when not matched by capital inflows) places downward pressure on the value of the dollar, which, in turn, helps to shrink the deficit by making U.S. exports cheaper and imports more expensive. However, interventions in foreign exchange markets by countries such as China and South Korea can keep the value of their currencies from rising too fast, thus keeping the dollar strong and imports cheaper.

Areas to watch in 2012 in international trade include the energy and transportation sectors. In energy, unconventional oil and gas production are increasing U.S. domestic supply, reducing imports, and increasing exports. In transportation, U.S. automakers appear to be exporting well to growth markets such as China. 

Note:
This report is current through U.S. Department of Commerce annual data revisions, published June 8, 2012, and Bureau of Economic Analysis revisions published June 14, 2012.



Date of Report: October 19, 2012
Number of Pages: 38
Order Number: RL33577
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Wednesday, October 24, 2012

The U.S. Export Control System and the President’s Reform Initiative



Ian F. Fergusson
Specialist in International Trade and Finance

Paul K. Kerr
Analyst in Nonproliferation


Congress may consider reforms of the U.S. export control system. The balance between national security and export competitiveness has made the subject of export controls controversial for decades. Through the Export Administration Act (EAA), the Arms Export Control Act (AECA), the International Emergency Economic Powers Act (IEEPA), and other authorities, the United States restricts the export of defense items or munitions; so-called “dual-use” goods and technology—items with both civilian and military applications; certain nuclear materials and technology; and items that would assist in the proliferation of nuclear, chemical, and biological weapons or the missile technology used to deliver them. U.S. export controls are also used to restrict exports to certain countries on which the United States imposes economic sanctions. At present, the EAA has expired and dual-use controls are maintained under IEEPA authorities.

The U.S. export control system is diffused among several different licensing and enforcement agencies. Exports of dual-use goods and technologies are licensed by the Department of Commerce, munitions are licensed by the Department of State, and restrictions on exports based on U.S. sanctions are administered by the U.S. Treasury. Enforcement of export controls is conducted by these agencies as well as by units of the Department of Homeland Security (DHS) and the Department of Justice (DOJ).

Aspects of the U.S. export control system have long been criticized by exporters, nonproliferation advocates, and other stakeholders as being too rigorous, insufficiently rigorous, cumbersome, obsolete, inefficient, or any combination of these descriptions. In August 2009, the Obama Administration launched a comprehensive review of the U.S. export control system. In April 2010, Defense Secretary Robert M. Gates proposed an outline of a new system based on four singularities:


  • a single export control licensing agency for both dual-use and munitions exports, 
  • a unified control list, 
  • a single enforcement coordination agency, and 
  • a single integrated information technology (IT) system. 

The creation of a single control list has been the Administration’s focus to date. Interim steps have also been taken to create a single IT system and to establish an export enforcement coordination center. No specific proposals have been made concerning the single licensing agency.

In contrast to the Administration’s approach, legislation has been introduced to reauthorize or rewrite the EAA in the 112th Congress. The Export Administration Renewal Act of 2011 (H.R. 2122, Ros-Lehtinen) would renew the currently expired Export Administration Act through 2015, update its penalty and enforcement provisions, and provide stricter foreign policy controls on countries designated as state sponsors of terrorism. A separate title would amend the Arms Export Control Act to permit generic parts and components for defense articles to be controlled differently than sensitive defense articles on the U.S. Munitions List. By contrast, the Technology Security Act of 2011 (H.R. 2004, Berman) would rewrite the dual-use export control statute by giving the President the authority to control exports for national security and foreign policy reasons and to create the mechanisms for doing so. Each bill would, if passed, have implications for the President’s reform efforts. In addition, the National Defense Authorization Act for FY2013 passed the House of Representatives on May 18, 2012, with provisions to permit the President to determine the export control jurisdiction of commercial communications satellites and with notification requirements on the transfer of certain items from munitions to dual-use controls.

In considering the future of the U.S. export control system, Congress may weigh the merits of a unified export control system—the end result of the President’s proposal—or the continuation of the present bifurcated system by reauthorizing the present EAA or writing new legislation. In doing so, Congress may debate the record of the present dual-use system maintained by emergency authority, the aims and effectiveness of the present non-proliferation control regimes, the maintenance of the defense industrial base, and the delicate balance between the maintenance of economic competitiveness and the preservation of national security.



Date of Report: October 18, 2012
Number of Pages: 36
Order Number: R41916
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Friday, October 19, 2012

Trade Adjustment Assistance Community College and Career Training Grants



Benjamin Collins
Analyst in Labor Policy

Trade Adjustment Assistance Community College and Career Training (TAACCCT) grants are competitive grants to institutions of higher education for the development and delivery of career training programs that can be completed in two years or less. The program targets and gives enrollment preference to workers who have been adversely affected by international trade, though non-trade-affected workers may also participate in TAACCCT-funded programs.

TAACCCT is administered by the Department of Labor (DOL). It was created by the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5) and is authorized under the Trade Act of 1974, as amended. The Health Care and Education Reconciliation Act of 2010 (HCERA, P.L. 111-152) provided $500 million per fiscal year in mandatory appropriations for TAACCCT for FY2011 through FY2014. During this time, funds equal to at least 0.5% of the total annual appropriation must be awarded to institutions in each state.

TAACCCT grants may be used to design, develop, and deliver career training programs. Allowable uses of funds include personnel as well as materials and other expenses related to content delivery. Under the most recent solicitation for grant applications (SGA), TAACCCT grants provide a 48-month period of performance. This period includes 36 months for the design, development, and delivery of a training program and 12 months for data gathering and evaluation.

Statute requires that grant applications include a description of the proposed project and how it will serve trade-affected workers. Statute further specifies that grants will be judged on the merit of the proposed project and the local employment prospects for individuals who would complete the proposed program. SGAs have expanded upon statutory criteria. In some cases, the SGAs have elaborated on statutory provisions, and in other cases they have introduced largely new requirements for grant applications.

The first SGA was issued in January 2011 and grantees were announced in September of that year. The second SGA was issued in February 2012. The second installment of awards was announced on September 19, 2012.



Date of Report: October 2, 2012
Number of Pages: 10
Order Number: R42661
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Wednesday, October 17, 2012

The Committee on Foreign Investment in the United States (CFIUS)



James K. Jackson
Specialist in International Trade and Finance

The Committee on Foreign Investment in the United States (CFIUS) is comprised of nine members, two ex officio members, and other members as appointed by the President representing major departments and agencies within the federal executive branch. While the group generally has operated in relative obscurity, the proposed acquisition of commercial operations at six U.S. ports by Dubai Ports World in 2006 placed the group’s operations under intense scrutiny by Members of Congress and the public. Prompted by this case, some Members of the 109th and 110th Congresses questioned the ability of Congress to exercise its oversight responsibilities given the general view that CFIUS’s operations lack transparency. Other Members revisited concerns about the linkage between national security and the role of foreign investment in the U.S. economy. Some Members of Congress and others argued that the nation’s security and economic concerns have changed since the September 11, 2001, terrorist attacks and that these concerns were not being reflected sufficiently in the Committee’s deliberations. In addition, anecdotal evidence seemed to indicate that the CFIUS process was not market neutral. Instead, a CFIUS investigation of an investment transaction may have been perceived by some firms and by some in the financial markets as a negative factor that added to uncertainty and may have spurred firms to engage in behavior that may not have been optimal for the economy as a whole. In the 112th Congress, some Members expressed their concerns to the Obama Administration over the national security implications of a proposed acquisition of a U.S. technology company by the Chinese-owned Huawei Technologies.

In the first session of the 110th Congress, the House and Senate adopted S. 1610, the Foreign Investment and National Security Act (FINSA) of 2007. On July 11, 2007, the measure was sent to President Bush, who signed it on July 26, 2007. It is designated as P.L. 110-49. On January 23, 2008, President Bush issued Executive Order 13456 implementing the law. The Executive Order also established some caveats that may affect the way in which the law is implemented. These caveats stipulate that the President will provide information that is required under the law as long as it is “consistent” with the President’s authority “to (i) conduct the foreign affairs of the United States; (ii) withhold information the disclosure of which could impair the foreign relations, the national security, the deliberative processes of the Executive, or the performance of the Executive’s constitutional duties; (iii) recommend for congressional consideration such measures as the President may judge necessary and expedient; and (iv) supervise the unitary executive branch.” Despite the relatively recent passage of the amendments, some Members of Congress and others have questioned the performance of CFIUS and the way the Committee reviews cases involving foreign governments, particularly with the emergence of direct investments through sovereign wealth funds (SWFs). The Obama Administration issued a statement on June 30, 2011, supporting an open investment policy, a commitment to treat all investors in a fair and equitable manner, and support for business investment from sources both home and abroad in the economy. On September 28, 2012, President Obama used the authority granted to him under FINSA to block a Chinese acquisition of a U.S. energy firm.



Date of Report: October 1, 2012
Number of Pages: 26
Order Number: RL33388
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The Exon-Florio National Security Test for Foreign Investment



James K. Jackson
Specialist in International Trade and Finance

The Exon-Florio provision grants the President the authority to block proposed or pending foreign acquisitions of “persons engaged in interstate commerce in the United States” that threaten to impair the national security. This provision came under intense scrutiny with the proposed acquisitions in 2006 of major operations in six major U.S. ports by Dubai Ports World and of Unocal by the China National Offshore Oil Corporation (CNOOC). The debate that followed reignited long-standing differences among Members of Congress and between Congress and the Administration over the role foreign acquisitions play in U.S. national security. The public debate underscored the differences between U.S. policy, which is to actively promote internationally the national treatment of foreign firms, and the concerns of some over the way this policy applies to companies that are owned by foreign governments that have unlimited access to the nation’s industrial base. Much of this debate focused on the activities of a relatively obscure committee, the Committee on Foreign Investment in the United States (CFIUS) and the Exon- Florio provision, which gives the President broad powers to block certain types of foreign investment.

In the first session of the 110th Congress, Representative Maloney introduced H.R. 556, the National Security Foreign Investment Reform and Strengthened Transparency Act of 2007, on January 18, 2007. The measure was approved by the House Financial Services Committee on February 13, 2007, with amendments, and was approved with amendments by the full House on February 28, 2007, by a vote of 423 to 0. On June 13, 2007, Senator Dodd introduced S. 1610, the Foreign Investment and National Security Act (FINSA) of 2007. On June 29, 2007, the Senate adopted S. 1610 in lieu of H.R. 556 by unanimous consent. On July 11, 2007, the House accepted the Senate’s version of H.R. 556 by a vote of 370-45 and sent the measure to the President, who signed it on July 26, 2007. It is designated as P.L. 110-49.

On January 23, 2008, President Bush issued Executive Order 13456 implementing the law. The Executive Order also establishes some caveats that may affect the way in which the law is implemented. These caveats stipulate that the President will provide information that is required under the law as long as it is “consistent” with the President’s (1) authority to conduct the foreign affairs of the United States; (2) authority to withhold information that would impair the foreign relations, the national security, the deliberative processes of the executive, or the performance of the executive’s constitutional duties; or (3) ability to supervise the unitary executive branch. Despite the recent changes to the Exon-Florio process, some Members continue to question the way in which the changes in the law are being interpreted by the Obama Administration and the way in which the law is being used to address cases involving foreign governments, particularly with the emergence of direct investments through sovereign wealth funds (SWFs). In the 112th Congress, some Members expressed their concerns to the Obama Administration over the national security implications of a proposed acquisition of U.S. technology company by the Chinese-owned Huawei Technologies. The Obama Administration issued a statement on June 30, 2011, supporting an open investment policy, a commitment to treat all investors in a fair and equitable manner, and support for business investment from sources both home and abroad in the economy. On September 28, 2012, President Obama used the authority granted to him under FINSA to block a Chinese acquisition of a U.S. energy firm.



Date of Report: October 1, 2012
Number of Pages: 27
Order Number: RL33312
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