Ian F. Fergusson
Specialist in International Trade and Finance
Paul K. Kerr
Analyst in Nonproliferation
The 112th 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 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. 2006, 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.
Date of Report: July 14, 2011
Number of Pages: 32
Order Number: R41916
Price: $29.95
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Shayerah Ilias
Analyst in International Trade and Finance
The Overseas Private Investment Corporation (OPIC), which was established in 1969 and began operations in 1971, is an independent U.S. government agency that provides political risk insurance, project finance, and other services to support U.S. investment in over 150 developing countries and emerging economies. OPIC’s programs are intended to promote U.S. private investment, by mitigating risks, such as political risks (including currency inconvertibility, expropriation, political violence, and terrorism), for U.S. firms making qualified investments overseas. OPIC’s governing legislation is the Foreign Assistance Act of 1961 (P.L. 87-195) as amended. The agency’s authority will expire at the end of FY2011 unless extended by Congress.
OPIC’s activities are guided by U.S. foreign policy and development objectives. OPIC operates in over 150 countries around the world and across a range of economic sectors. Its regional priorities are the Broader Middle East, Sub-Saharan Africa, and South Asia, and its sectoral priorities are clean and renewable energy; critical natural resources (such as agriculture, water, and food security); and “impact investing” projects. U.S. investors that utilize OPIC services vary from large to small, but OPIC has placed special emphasis on encouraging U.S. small businesses to invest overseas. In FY2010, OPIC provided $2.4 billion in new market-based financing and political risk insurance to U.S. businesses. Since its inception, OPIC has funded, guaranteed, or insured over $180 billion in investments. Congress does not approve individual OPIC transactions. However, it places statutory requirements on OPIC’s activities, such as those related to economic and environmental impacts of projects.
While OPIC’s budget is fully self-sustaining from its own revenues, Congress annually provides OPIC with the authority to cover its administrative expenses and credit subsidy funding from its offsetting collections, which include user fees and interest from U.S. Treasury securities. For FY2011, Congress provided $52.31 million for OPIC’s administrative expenses and authorized a transfer of $18.115 million from OPIC’s noncredit account to conduct its credit and administrative programs (P.L. 112-10). President Obama’s budget proposal for FY2012 requested $57.89 million for OPIC’s administrative expenses and a transfer of $31 million from OPIC’s noncredit account to conduct it programs.
The 112th Congress may consider legislation to extend OPIC’s authority. In doing so, Congress may examine the policy debate related to OPIC’s mission, the length of time for which to extend the agency’s authority, the statutory restrictions and limitations on its support for investments, and the agency’s organizational structure.
Date of Report: July 5, 2011
Number of Pages: 15
Order Number: 98-567
Price: $29.95
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M. Angeles Villarreal
Specialist in International Trade and Finance
The proposed U.S.-Colombia Trade Promotion Agreement, also called the U.S.-Colombia Free Trade Agreement (CFTA), was signed by the United States and Colombia on November 22, 2006. The agreement must be approved by the U.S. Congress before it can enter into force. The Colombian Congress approved the agreement in June 2007 and again in October 2007, after it was modified to include new provisions on labor and the environment. If approved by the U.S. Congress, the agreement would immediately eliminate duties on 80% of U.S. exports of consumer and industrial products to Colombia. Most remaining tariffs would be eliminated within 10 years of implementation. About 90% of U.S. imports from Colombia enter the United States duty-free under trade preference programs or through normal trade relations, while U.S. exports to Colombia face duties of 20% or more.
The 112th Congress may be considering implementing legislation for the proposed CFTA. In a press release on June 28, 2011, United States Trade Representative (USTR) Ron Kirk welcomed the scheduling by the Senate Finance Committee of informal or “mock” markups for three separate draft implementing bills for pending FTAs with Colombia, Panama, and South Korea. USTR Kirk also welcomed the Senate Finance Committee’s inclusion of a renewal of the Andean Trade Preference Act (ATPA) and the Generalized System of Preferences (GSP) in the draft implementing legislation for the U.S.-Colombia FTA. The draft legislation includes a retroactive extension of ATPA and GSP until July 31, 2013. However, House Ways and Means Committee Chairman Dave Camp has stated that he did not agree with this legislative process and that the method of moving these items would be for the House leadership to determine.
The congressional debate surrounding the agreement has mostly centered on violence, labor, and human rights issues in Colombia. Numerous Members of Congress oppose the agreement because of concerns about violence against union members and other terrorist activity in Colombia. However, other Members of Congress support the CFTA and take issue with these charges, stating that Colombia has made progress in recent years to curb the violence in the country. They also contend that the agreement would open the Colombian market for U.S. exporters. Other policymakers argue that Colombia is a crucial ally of the United States in Latin America and that if the trade agreement is not passed, it may lead to further violence in the region. For Colombia, a free trade agreement with the United States is part of its overall economic development strategy.
President Barack Obama has expressed the importance of strengthening U.S. trade relations with Colombia. On April 6, 2011, the Obama Administration announced an agreement between the United States and Colombia to address the concerns related to labor rights and violence in Colombia. The agreed upon “Action Plan Related to Labor Rights” includes a number of specific and concrete steps that the Colombian government agreed upon to address issues related to violence against union members, impunity, and worker rights. The Obama Administration’s announcement states that the successful implementation of key elements of the plan will be a precondition for the agreement to enter into force.
The United States is Colombia’s leading trade partner. Colombia accounts for a very small percentage of U.S. trade (0.9% in 2010), ranking 20th among U.S. export markets and 25th as a source of U.S. imports. Economic studies on the impact of a U.S.-Colombia free trade agreement (FTA) have found that, upon full implementation of an agreement, the impact on the United States would be positive but very small due to the small size of the Colombian economy when compared to that of the United States (about 1.9%).
Date of Report: June 29, 2011
Number of Pages: 38
Order Number: RL34470
Price: $29.95
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James K. Jackson
Specialist in International Trade and Finance
Petroleum prices have risen sharply since September 2010, 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 is beginning to affect the rate of growth in the economy. While the price of oil has increased sharply, the volume of oil imports, or the amount of oil imported, has actually increased slightly. This resistance by market demand to changes in prices reflect the unique nature of the demand for oil and an increase in economic activity that has occurred since the worst part of the economic recession in 2009. Turmoil in the Middle East has been an important factor causing petroleum prices to rise sharply in the first four months of 2011, which could add as much as $100 billion to the 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: June 15, 2011
Number of Pages: 10
Order Number: RS22204
Price: $29.95
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Randy Schnepf
Specialist in Agricultural Policy
The so-called “Brazil cotton case” is a long-running World Trade Organization (WTO) dispute settlement case (DS267) initiated by Brazil—a major cotton export competitor—in 2002 against specific provisions of the U.S. cotton program. In September 2004, a WTO dispute settlement panel found that certain U.S. agricultural support payments and guarantees—including (1) payments to cotton producers under the marketing loan and counter-cyclical programs, and (2) export credit guarantees under the GSM-102 program—were inconsistent with WTO commitments. In 2005, the United States made several changes to both its cotton and GSM-102 programs in an attempt to bring them into compliance with WTO recommendations. However, Brazil argued that the U.S. response was inadequate. A WTO compliance panel ruled in favor of Brazil’s non-compliance charge against the United States in December 2007, and the ruling was upheld on appeal in June 2008.
In August 2009, a WTO arbitration panel—assigned to determine the appropriate level of retaliation—announced that Brazil’s trade countermeasures against U.S. goods and services could include two components: (1) a fixed amount of $147.3 million in response to U.S. cotton program payments, and (2) a variable amount based on U.S. GSM-102 program spending. In response to Brazil’s argument that insufficient trade in goods occurred between the two countries, the arbitrators also ruled that Brazil would be entitled to cross-retaliation if the overall retaliation amount exceeded a formula-based variable annual threshold. Cross-retaliation involves countermeasures in sectors outside of the trade in goods, most notably in the area of U.S. copyrights and patents. Based on the arbitrators’ formulas, using 2008 data, Brazil announced in December 2009 that it would impose trade retaliation starting on April 6, 2010, against up to $829.3 million in U.S. goods, including $268.3 million in eligible cross-retaliatory countermeasures.
The threat of sanctions led to intense negotiations between Brazil and the United States to find a mutual agreement and avoid the trade retaliation. In April 2010, the two parties reached a preliminary memorandum of understanding (MOU) spelling out certain actions which, if undertaken by the United States, would lead to suspension of Brazil’s threatened retaliation.
On June 17, 2010, U.S. and Brazilian trade negotiators concluded the Framework for a Mutually Agreed Solution to the Cotton Dispute in the WTO (WT/DS267). The framework agreement— which lays out a number of “steps and discussions”—represents a path forward toward the ultimate goal of reaching a negotiated solution to the dispute, while avoiding WTO-sanctioned trade retaliation by Brazil against U.S. goods and services. As a result, Brazil has suspended trade retaliation pending U.S. compliance with the framework agreement measures. Key aspects of the framework agreement include (1) payment by the United States of a $147.3 million annual fund to a newly created “Brazilian Cotton Institute” to provide technical assistance and capacitybuilding for Brazil’s cotton sector, (2) quarterly discussions on potential limits of trade-distorting U.S. cotton subsidies (recognizing that actual changes will not occur prior to the 2012 farm bill), and (3) near-term modifications to the operation of the GSM-102 program coupled with a semiannual review of whether U.S. GSM-102 program implementation satisfies certain performance benchmarks. A further U.S. commitment, made under the April MOU, includes modification of the animal disease status of the Brazilian state of Santa Catarina to allow products such as pork and live swine exports into the United States. These U.S. commitments are intended to delay any trade retaliation until after the 2012 farm bill, when potential changes to U.S. domestic cotton subsidies will be evaluated.
Date of Report: June 21, 2011
Number of Pages: 45
Order Number: RL32571
Price: $29.95
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