International Trade and Finance: Key Policy Issues for the 112th Congress, 2nd Session

Raymond J. Ahearn, Coordinator
Specialist in International Trade and Finance

During the first session of the 112th Congress, Congress approved three long-stalled free trade agreements (FTAs) with South Korea, Colombia, and Panama. Passage of these FTAs was facilitated by agreement to consider legislation extending the Trade Adjustment Assistance (TAA) program that is designed to assist workers displaced by foreign trade. All four bills passed by wide margins. The TAA bill also renewed the General System of Preferences (GSP), a program that allows certain duty-free imports from eligible developing countries. In addition, Congress authorized full U.S. participation in general capital increases (GCIs) at the World Bank and four other regional development banks.

With these issues resolved, Congress may address other international trade and finance issues in the second session. In addition to monitoring implementation of the three FTAs passed in 2011, the most prominent issues include the ongoing Trans-Pacific Partnership (TPP) FTA negotiations, Russia’s accession to the WTO, the Doha Round stalemate and alternative WTO approaches to trade liberalization, China trade and currency developments, the Administration’s trade reorganization proposal, trade sanctions, customs reauthorization, export promotion, trade finance, and the impact that the Eurozone crisis could have on the U.S. economy.

• The Administration’s top trade liberalizing priority this year is the current nine country regional TPP FTA negotiations. If the negotiations move rapidly, the Administration could begin discussions with Congress on the extension of Trade Promotion Authority (TPA)—formerly fast-track negotiating authority.

• Russia is expected to become a member of the WTO early this year. In order for U.S. businesses to gain full commercial benefits from Russia’s accession, Congress may vote on according Russia permanent normal trade relations (PNTR) status.

• Congress can be expected to continue to press China for currency reforms, stronger intellectual property rights protection, and market access liberalization. Congress may also address issues raised by the Federal Circuit’s December 19, 2011, determination that the U.S. countervailing duty law (CVD), as currently written, does not apply to nonmarket economy (NME) countries, such as China and Vietnam.

• On January 13, 2012, President Obama asked Congress for authority to reorganize and consolidate the business-and trade-related functions of six federal entities into one department. Congress could react to the proposal in a number of ways.

• With the WTO Doha Round negotiations entering their 11th year, Congress may examine a range of new ideas on how to break the stalemate, as well as new trade liberalizing proposals that some members of the World Trade Organization (WTO) may undertake.

• Congress approved new trade sanctions on Iran in late 2011, and can be expected to consider additional sanctions on Iran, as well as North Korea and Syria, this year.

• Congress may also consider legislation to reauthorize U.S. Customs and Border Protection (CBP), examine limitations on funding for the Export-Import Bank, monitor the Administration’s National Export Initiative (NEI), and continue oversight hearings on the Eurozone crisis.


Date of Report: February 8, 2012
Number of Pages: 35
Order Number: R41553
Price: $29.95

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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

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, which includes the “freedom-of-emigration” requirements of the Jackson-Vanik amendment. The process for Russia’s accession has been completed. As a result, Members of the 112th Congress confront the issue of whether to grant Russia permanent normal trade relations (PNTR).


Date of Report: January 30, 2012
Number of Pages: 9
Order Number: RS21123
Price: $19.95

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Multilateral Development Banks: General Capital Increases

Martin A. Weiss
Specialist in International Trade and Finance

For the first time in the history of the institutions, each of the major Multilateral Development Banks (MDBs) are simultaneously seeking increases in their capital bases to fund the continued expansion of their development lending programs. The requests come after several years of increased lending by the banks. If the increases are fully funded, the resources of the World Bank, African Development Bank (AfDB), European Bank for Reconstruction and Development (EBRD), Asian Development Bank (AsDB), and Inter-American Development Bank (IDB) would increase by between 31% and 200%. Collectively, the requested capital increases are worth around $348 billion. U.S. authorization to participate in the GCIs was provided in the FY2011 and FY2012 budget measures. Key issues regarding U.S. participation in the GCIs include:

•      Comparative effectiveness of bilateral and multilateral aid. Compared to other advanced economies, the United States provides a smaller proportion of development assistance through multilateral organizations, such as the MDBs, than other countries. Is multilateral assistance more effective, and if so, should greater amounts of U.S. foreign aid be channeled through the MDBs by supporting the capital increases?

•       Scope of MDB activity. The MDBs have expanded the range of activities that they engage in to include issues such as climate change and food security. Members may wish to evaluate whether the benefits of MDB engagement on these issues outweigh potential costs. Some argue that a consequence of working through the MDBs is duplication of efforts across a range of multilateral institutions, which can be costly and inefficient. Others argue that this approach leverages resources and provides common approaches. 

•       Role of emerging economic powers. Many rapidly growing economies, including Brazil, China, and India, among others, borrow from the MDBs despite having access to international capital markets and substantial holdings of foreign exchange reserves. Supporting capital increases at the MDBs would allow higher rates of lending to these quickly growing economies. Members may assess whether the development-impact of increased MDB lending to credit-worthy countries outweighs any potential crowding-out effect. At the same time, these countries are increasing their shares and leadership roles in the institutions, with important implications for the United States.

•       U.S. bidding for MDB-funded projects. Firms located in large emerging economies are winning a larger share of MDB procurement projects. Are U.S. firms competing effectively for MDB projects? If not, since the general capital increases (GCIs) would increase the amount of MDB projects, are policy options available to better position U.S. firms to capture a larger share of MDB projects, creating additional jobs for U.S. workers?

•       Anti-corruption policies. The MDBs have different approaches to anticorruption measures. In procurement, for example, these range from international best practices to country-based approaches, which, some analysts argue, may increase the risk of monies being diverted for corrupt purposes. Congressional legislation on capital increases may be seen as a potential opportunity for seeking further reform.

Date of Report: January 27, 2012
Number of Pages: 17
Order Number: R41672
Price: $29.95

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U.S.-Mexico Economic Relations: Trends, Issues, and Implications

M. Angeles Villarreal
Specialist in International Trade and Finance

The bilateral economic and trade relationship with Mexico is of interest to U.S. policymakers because of Mexico’s proximity to the United States, the high level of bilateral trade, and the strong cultural and economic ties that connect the two countries. Also, it is of national interest for the United States to have a prosperous and democratic Mexico as a neighboring country. Mexico is the United States’ third-largest trading partner, while the United States is, by far, Mexico’s largest trading partner. Mexico ranks third as a source of U.S. imports, after China and Canada, and second, after Canada, as an export market for U.S. goods and services. The United States is the largest source of foreign direct investment (FDI) in Mexico. The 112th Congress will likely maintain an active interest in Mexico on issues related to cross-border trade between the two countries, the implementation of NAFTA trucking provisions, economic conditions in Mexico, migration, counternarcotics, and border issues.

The United States and Mexico have strong economic ties through the North American Free Trade Agreement (NAFTA), which has been in effect since 1994. Prior to NAFTA, Mexico had followed a strong protectionist policy for decades until it began to unilaterally liberalize its trade regime in the late 1980s. Not all trade-related job gains and losses since NAFTA can be entirely attributed to the agreement because of the numerous factors that affect trade, such as Mexico’s trade liberalization efforts, economic conditions, and currency fluctuations. NAFTA may have accelerated the ongoing trade and investment trends that were already taking place at the time. Most studies show that the net economic effects of NAFTA on both countries have been small but positive, though there have been adjustment costs to some sectors within both countries.

The trade issue of most concern to Members of Congress over the past several years involves NAFTA trucking provisions. Under NAFTA, Mexican commercial trucks were to have been given full access throughout the United States by 2000 but the United States did not implement these provisions due to alleged safety concerns. Mexico objected and a NAFTA dispute resolution panel supported Mexico’s position in 2001. In 2009, the Mexican government began imposing retaliatory tariffs on certain U.S. products with a value of $2.4 billion in exports to Mexico. On July 6, 2011, the United States and Mexico signed a Memorandum of Understanding to resolve the dispute and a new pilot program was announced by the Federal Motor Carrier Safety Administration. Mexico eliminated 50% of the retaliatory tariffs in July 2011 and the remaining 50% in October 2011

Also of interest to many policymakers is the economic disparity between the two countries and migration issues. The United States and Mexico have been involved in ongoing efforts to address economic prosperity and regulatory economic cooperation. In 2009, President Barack Obama met with Mexican President Felipe Calderón and Canadian Prime Minister Stephen Harper in Guadalajara Mexico to discuss issues of prosperity and security in North America. In May 2010, Mexican President Calderón made a state visit to the United States in which he emphasized the need for increased cooperation in North America to increase the competitiveness of the region. In a meeting hosted by President Obama, the two leaders reaffirmed their shared values and the need for focusing on economic growth. They vowed to enhance and reinforce efforts to create jobs, promote economic recovery and expansion, and encourage prosperity across all levels of society in both countries. President Obama underscored his commitment to comprehensive immigration reform in the United States while President Calderón stated that his administration was committed to creating more job and educational opportunities in Mexico.


Date of Report: January 25, 2012
Number of Pages: 30
Order Number: RL32934
Price: $29.95

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WTO Dispute Settlement: Status of U.S. Compliance in Pending Cases

Jeanne J. Grimmett
Legislative Attorney

Although the United States has complied with adverse rulings in many past World Trade Organization (WTO) disputes, there are currently 13 cases in which rulings have not yet been implemented or the United States has taken action and the dispute has not been fully resolved. Under WTO dispute settlement rules, a WTO Member will generally be given a reasonable period of time to comply with an adverse WTO decision. While the Member is expected to remove the offending measure by the end of this period, compensation and temporary retaliation are available if the Member has not acted or has not taken adequate remedial action by this time. Either disputing party may request a compliance panel if there is disagreement over whether a Member has complied in a case.

Nine unresolved cases involve trade remedies, including a long-standing dispute with Japan over a provision of U.S. antidumping (AD) law and another with various WTO Members over the Continued Dumping and Subsidy Offset Act of 2000. The Offset Act was repealed as of October 2005, but remains the target of sanctions by the European Union (EU) and Japan due to continued payments to U.S. firms authorized under the repealer (P.L. 109-171). Six of these cases involve “zeroing,” a practice under which the Department of Commerce (DOC), in calculating dumping margins in AD proceedings, disregards non-dumped sales. The practice was challenged by the EU (DS294/DS350), Japan (DS322), and Mexico (DS344), resulting in broad prohibitions on its use. The United States took administrative action to resolve one aspect of DS294 by abandoning zeroing in original AD investigations, but has yet to comply fully either in this case or in DS350, 322, or 344. While the EU (in DS294) and Japan requested the WTO to authorize sanctions, each agreed to suspend U.S.-requested arbitration of their sanctions proposals in 2010 on the understanding that the United States would resolve outstanding issues by September 7, 2011; the deadline has since been extended to February 6, 2012, for the EU, and to January 31, 2012, for Japan. In December 2010 DOC proposed to eliminate zeroing in later stages of AD proceedings, but has not finalized a new policy. A compliance panel requested by Mexico in DS344 plans to issue its report by March 2012. A compliance deadline of March 17, 2012, is set in Brazil’s challenge (DS382); a deadline of July 2, 2012, is in place in an antidumping dispute with Vietnam (DS404). In a case filed by China mainly involving countervailing duty issues (DS379), the United States and China in July 2011 agreed on a compliance period ending February 25, 2012.

The United States and Antigua have been consulting on outstanding issues in Antigua’s challenge of U.S. online gambling restrictions (DS285); compensation agreements that the United States entered into with various WTO Members in exchange for withdrawing its WTO gambling commitments, an action which the United States took to resolve the case, will not enter into effect until issues with Antigua are settled. P.L. 109-171 repealed a WTO-inconsistent cotton program at issue in Brazil’s complaint over U.S. cotton subsidies (DS267), but other programs were also successfully challenged and the United States was later found not to have fully complied. The United States has since made statutory and administrative changes affecting the export credit guarantee program faulted in the case. While Brazil has received WTO authorization to retaliate, the United States and Brazil signed a framework agreement in June 2010 aimed at permanently resolving the dispute. The agreement includes Brazil’s pledge not to impose sanctions during the life of the agreement and foresees possible legislative resolution of the dispute in the 2012 farm bill. Also unsettled are long-pending disputes with the European Union (EU) over a music copyright law (DS160) and a statutory trademark provision affecting property confiscated by Cuba (DS176).


Date of Report: January 25, 2012
Number of Pages: 100
Order Number: RL32014
Price: $29.95

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