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Friday, May 31, 2013

U.S.-Chinese Motor Vehicle Trade: Overview and Issues

Bill Canis 
Specialist in Industrial Organization and Business 

Wayne M. Morrison 

Specialist in Asian Trade and Finance

The U.S. auto industry employs nearly 800,000 workers and is a major employer in certain parts of the country. International competition is fierce, with many automakers and thousands of parts makers vying for market share. Because of the industry’s importance to the U.S. economy, the rapid rise of China’s auto assembly and auto parts industries in recent years has raised concerns among some Members of Congress.

In 2009, China overtook the United States to become both the world’s largest producer of and market for motor vehicles. In 2012, assemblers in China sold 19 million vehicles, and forecasts project more than 30 million vehicles will be sold there in 2020. China’s increasing importance in this industry presents a unique set of opportunities and challenges for the United States. On the one hand, China is in some respects a relatively open market; it was the fourth-largest export market for U.S. autos and auto parts in 2012 at $7.3 billion ($5.7 billion for autos and $1.6 billion for auto parts), and has welcomed foreign direct investment by U.S.-based auto and auto parts manufacturers. Every year since 2010, General Motors has sold more cars in China (through exports and its joint ventures there) than in the United States.

On the other hand, China maintains a number of trade and investment barriers that affect trade flows in autos and auto parts. Foreign automakers can produce autos in China only through 50/50 joint ventures with Chinese partners. In addition, U.S. and other foreign auto firms have reportedly faced pressures relating to transfer of technology, export performance, and domestic content requirements. Although the United States imports few vehicles from China, China has become the fourth-largest source of U.S. auto parts imports, with shipments of $14.5 billion in 2012.

The Chinese government has made the development of its auto and auto parts industries, including “new energy vehicles,” a major economic priority, and has implemented a number of industrial policies to promote and protect Chinese auto firms with the long-term goal of making them globally competitive. As a result, auto and auto parts trade has become a source of conflict between the United States and China, most recently in 2012, when the Obama Administration asked the World Trade Organization (WTO) to consider whether alleged Chinese subsidies of auto and auto parts manufacturers violate international rules.

China’s demand for motor vehicles is likely to continue growing rapidly because its population of 1.3 billion is just beginning to have the financial resources to purchase automobiles. For the United States, this will mean many new opportunities and challenges. Unlike some other markets, such as Korea, China’s large internal demand may well shape the industry for many years, with exporting a secondary interest. China’s rising investments in U.S. parts makers such as Nexteer and B456 Systems may help develop a U.S. technology lead in fuel-efficient, low-emission vehicles. But the prevalence of state and municipal ownership of many Chinese auto and auto parts companies may also cause friction. Many in Congress have called on the Obama Administration to take a tougher stand against China’s industrial policies that may favor Chinese automakers over foreign automakers.

Date of Report: May 13, 2013
Number of Pages: 26
Order Number: R43071
Price: $29.95

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Japan’s Possible Entry Into the Trans-Pacific Partnership and Its Implications

William H. Cooper
Specialist in International Trade and Finance

Mark E. Manyin
Specialist in Asian Affairs

On March 15, 2013, Prime Minister Abe announced that Japan would formally seek to participate in the negotiations to establish the Trans-Pacific Partnership (TPP). Japan’s membership in the TPP with the United States would constitute a de facto U.S.-Japan FTA. On April 12, 2013, the United States announced its support for Japan’s participation in the TPP. The announcement comes after a series of discussions on conditions for U.S. support and outstanding bilateral issues. As a result of the discussions the two sides agreed on measures to address these issues during and in parallel with the main TPP negotiations. On April 20, the 11 TPP countries formally invited Japan to participate in the negotiations. On April 24, Acting USTR Demetrios Marantis notified Congress of the United States to begin negotiations with Japan as part of the TPP thus beginning a 90-calendar-day consultation period with Congress. Japan wants to be able to participate in the negotiations beginning with an anticipated round in July.

The TPP would be a free trade agreement (FTA) among at least the current 11 participants— Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. The United States and its TPP partners envision the agreement as “a comprehensive, next-generation regional agreement that liberalizes trade and investment and addresses new and traditional trade issues and 21
st century challenges.”

Congress has a direct and oversight role in the issue of U.S. participation in the TPP. It must approve implementing legislation, if the TPP is to apply to the United States. Some Members of Congress have already weighed in on whether Japan should be allowed to participate in the TPP and under what conditions. More may do so as the process proceeds.

The TPP is the leading U.S. trade policy initiative of the Obama Administration and a core component of Administration efforts to “rebalance” U.S. foreign policy priorities toward the Asia- Pacific region by playing a more active role in shaping the region’s rules and norms. As the second-largest economy in Asia, the third-largest economy in the world, and a key link in global supply/production chains, Japan’s participation would be pivotal to enhancing the credibility and viability of the TPP as a regional free trade arrangement.

A large segment of the U.S. business community has expressed support for Japanese participation in the TPP, if Japan can resolve long-standing issues on access to its markets for U.S. goods and services. However, the Detroit-based U.S. auto industry and the UAW union have expressed strong opposition to Japan participating in the TPP negotiations.

The TPP issue presents both risks and opportunities for the United States and Japan. On the one hand, if successful, it could reinvigorate an economic relationship that has remained steady but stagnant, by forcing the two countries to address long-standing, difficult issues, and allowing them to raise their relationship to a higher level. On the other hand, failure to do so could indicate that the underlying problems are too fundamental to overcome and could set back the relationship. It could signify the failure of the United States and/or Japan to deal with domestic opposition to a more open trade relationship.

In moving to enter the TPP talks, Prime Minister Abe has had to confront influential domestic interests that argued against the move. Among the most vocal have been Japanese farmers, especially rice farmers, and their representatives. In his March 15 statement, Prime Minister Abe acknowledged these domestic sensitivities, but also insisted that Japan needed to take advantage of “this last window of opportunity” to enter the negotiations, if it is to grow economically. Other Japanese business interests, including manufacturers, strongly support the TPP.

Date of Report: May 16, 2013
Number of Pages: 23
Order Number: R42676
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Tuesday, May 28, 2013

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. Since June 2012, oil prices have hovered around $95 per barrel. As the price of oil rose, the volume of oil imports, or the amount of oil imported, decreased slightly from the comparable period in 2011. In general, market demand for oil remains highly resistant to changes in oil prices and reflects the unique nature of the demand for energy-related imports. In addition, sustained demand for crude 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 that caused petroleum prices to rise sharply in early 2011 and in 2012. Although prices for imported crude 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. On average, energy import prices in 2012 were slightly higher than they were in 2011, pushing up the price of energy to consumers. During the same period, the total amount of petroleum products imported by the United States in 2012 fell below that imported in 2011, reducing the overall cost of imported energy to the economy and the overall trade deficit. Oil futures markets in April 2013 indicated that oil traders expected prices to trend downward from the average per barrel price of $95 recorded in December 2012 to around $90 per barrel by the fall of 2013. At times, some elements of the public pressured 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 balance.

Date of Report: May 9, 2013
Number of Pages: 13
Order Number: RS22204
Price: $29.95

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Thursday, May 23, 2013

U.S. Customs and Border Protection: Trade Facilitation, Enforcement, and Security

Vivian C. Jones
Specialist in International Trade and Finance

Marc R. Rosenblum
Specialist in Immigration Policy

International trade is a critical component of the U.S. economy, with U.S. merchandise imports and exports amounting to $2.2 trillion and $1.5 trillion in 2011, respectively. The efficient flow of legally traded goods in and out of the United States is thus a vital element of the country’s economic security.

U.S. Customs and Border Protection (CBP), within the Department of Homeland Security (DHS), is the primary agency charged with ensuring the smooth flow of trade through U.S. ports of entry (POEs). CBP’s policies with regard to U.S. imports are designed to (1) facilitate the smooth flow of imported cargo through U.S. ports of entry; (2) enforce trade and customs laws designed to protect U.S. consumers and business and to collect customs revenue; and (3) enforce import security laws designed to prevent weapons of mass destruction, illegal drugs, and other contraband from entering the United States—a complex and difficult mission. Congress has a direct role in organizing, authorizing, and defining CBP’s international trade functions, as well as appropriating funding for and conducting oversight of its programs. In the 113
th Congress, S. 662, the Trade Facilitation and Trade Enforcement Reauthorization Act of 2013, seeks to reauthorize CBP’s trade functions. Two bills were introduced at the end of the 112th Congress also seeking to reauthorize CBP’s trade functions. These bills were H.R. 6642 and H.R. 6656.

Laws currently authorizing the trade facilitation and enforcement functions of CBP (as outlined in the Customs Modernization and Informed Compliance Act, Title VI of P.L. 103-182) emphasize a balanced relationship between CBP and the trade community based on the principles of “shared responsibility,” “reasonable care,” and “informed compliance.” Since the 9/11 terrorist attacks of 2001, Congress has placed greater emphasis on import security and CBP’s role in preventing terrorist attacks at the border. Legislation addressing customs procedures and import security includes the Homeland Security Act of 2002 (P.L. 107-296), the Security and Accountability for Every (SAFE) Port Act of 2006 (P.L. 109-347), and the Implementing Recommendations of the 9/11 Commission Act of 2007 (P.L. 110-53).

CBP’s current import strategy emphasizes a risk management approach that segments importers into higher and lower risk pools and focuses trade enforcement and import security procedures on higher-risk imports, while expediting lower-risk flows. CBP’s “multi-layered approach” means that security screening and enforcement occur at multiple points in the import process, beginning before goods are loaded in foreign ports (pre-entry) and continuing long after the time goods have been admitted into the United States (post-entry).

How effectively CBP has performed its import policy mission is a matter of some debate. Some participants in CBP’s “trusted trader” programs argue that the concessions CBP provides at the border do not adequately justify the effort and expense participants undergo to certify their supply chains with CBP. Questions have also been raised about CBP’s management of trade facilitation, especially the “customs modernization” process through which the Automated Commercial System (ACS) trade data management system is being phased out in favor of the newer Automated Commercial Environment (ACE). Some critics also assert that CBP has not adequately fulfilled its trade enforcement role, especially its duties for preventing illegal transshipments, protecting U.S. intellectual property rights, and collecting duties. Still others criticize CBP’s performance of its security functions, especially because it does not yet physically scan 100% of maritime cargo as mandated by the SAFE Port Act of 2006, as amended.

Date of Report: April 3, 2013
Number of Pages: 45
Order Number: R43014
Price: $29.95

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Wednesday, May 22, 2013

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

The 113th 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—as well as some military items, 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. Administrative enforcement of export controls is conducted by these agencies, while criminal enforcement is carried out by the Department of Commerce, units of the Department of Homeland Security (DHS) and by the Department of Justice (DOJ).

Aspects of the U.S. export control system have long been criticized by exporters, nonproliferation advocates, allies, 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 dual-use, munitions exports, and Treasury-administered embargoes. 
  • a unified control list, 
  • a single primary enforcement coordination agency, and 
  • a single integrated information technology (IT) system. 

The rationalization of the two control lists 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, although elements of a future single system such as the consolidated screening list and harmonization of certain licensing policies have been achieved.

In contrast to the Administration’s approach, legislation was introduced to reauthorize or rewrite the EAA in the 112
th Congress. The Export Administration Renewal Act of 2011 (H.R. 2122, Ros- Lehtinen) would have renewed the currently expired Export Administration Act through 2015, updated its penalty and enforcement provisions, and provided stricter foreign policy controls on countries designated as state sponsors of terrorism. A separate title would have amended 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 have rewritten the dual-use export control statute by giving the President the authority to control exports for national security and foreign policy reasons, require the current system to address homeland security concerns, 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 (P.L. 112-239), signed by the President on January 2, 2013, contains a provision to repeal 1998 legislation that placed commercial communications satellites (CCS) under munitions export licensing jurisdiction and to permit the President to determine the export control jurisdiction of CCS.

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: May 7, 2013
Number of Pages: 37
Order Number: R41916
Price: $29.95

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