Rising Economic Powers and U.S. Trade Policy

Congressional research reportDec 3, 2012

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Rising Economic Powers and U.S. Trade

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December 3, 2012

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R42864

CRS Report for Congress

Prepared for Members and Committees of Congress

Rising Economic Powers and U.S. Trade Policy

Summary

A handful of developing countries are becoming major players in the global economy due, in part,

to their large populations, rising trade flows, and rapidly growing economies. These evolving

economies are likely to be of increasing interest to the 113th Congress. Led by China, these rising

economic powers (REPs) include Brazil, India, Indonesia, Mexico, Russia, and Turkey. Based on

purchasing power parity estimates, China, India, Brazil, and Russia are now among the 10 largest

economies in the world and Mexico (#11), Indonesia (#15), and Turkey (#16) are not far behind.

With large economies and rising shares of world trade flows, the REPs have greater involvement

in World Trade Organization (WTO) negotiations and dispute settlement cases, have protested

with greater frequency U.S. economic and trade policies, and are more able and willing to deflect

or reject U.S. trade and market access demands.

Although they have made great economic strides, any of these REPs could stumble if they do not

take steps to improve their business climates by undertaking a range of trade, regulatory, and

structural reforms. At the same time, other large developing countries that have enormous

economic potential, such as Egypt, Iran, Nigeria, and Vietnam, could rise if they successfully

address underlying political and economic challenges.

U.S. exports to the REPs and other developing countries have become an increasingly important

source of growth for the U.S. economy. If the United States is to maximize its export potential

and boost its living standards, U.S. exporters and investors may need to have better access to the

REP markets. Trade and investment barriers remain considerably higher in most of the REPs than

in the United States and other advanced countries. Efforts have stalled in these countries to reduce

their barriers further, and several REPs have reactivated industrial policies or found ways to take

advantage of gaps in the world trade rules to promote home companies at the expense of foreign

companies.

The United States’ ability to persuade these emerging economic powers to embrace the principles

of free and fair trade is constrained by growing differences over the role of the state in economic

activity. The more interventionist practices and philosophies of REP governments coincide with a

desire to maintain “policy space” to promote development of their economies via policies that

often appear to violate the letter or spirit of WTO rules and obligations. Persuading the REPs that

a strengthened multilateral trading system is squarely in their national economic interests and a

way to move their domestic economic reforms forward remains a challenge.

As global power and prosperity is reconfigured, U.S. trade policymakers face a number of

overlapping and complex issues relating to the role of future trade liberalizing negotiations, U.S.

leverage in influencing REP economic reforms, and the management of the global trading system.

Given the checkered history of the Doha Round, future progress on trade liberalization within the

WTO may require new approaches. Principles that have guided multilateral trade negotiations in

the past, such as unconditional most-favored-nation (MFN) and special and differential treatment

(S&D), may need to be reexamined. Similarly, if the United States wishes to negotiate free trade

agreements (FTAs) with large and more significant trading partners, it may need to consider

deviations from its standard FTA template. At the same time, ongoing Trans-Pacific Partnership

(TPP) negotiations and a potential comprehensive U.S. FTA with the European Union (EU) could

serve as incentives for the REPs to view multilateral or bilateral negotiations more favorably.

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In an era in which global trade leadership is shifting and uncertain, the WTO’s dispute settlement

understanding (DSU) has become a key forum for managing trade relations. The DSU, despite

weaknesses, is a way to engage the REPs directly about their responsibilities for upholding a

system of multilateral trade rules.

The 113th Congress may review U.S. trade relations with the REPs, particularly if President

Obama should ask for a renewal of Trade Promotion Authority (TPA) in 2013. Some observers

maintain that U.S. trade leadership is bolstered when the President has TPA and a mandate from

Congress to negotiate new trade agreements. In trying to tie the REPs with their very different

state-led economic models into the more market-oriented WTO system, U.S. trade negotiators

may need considerable resources, incentives, flexibility, and leverage.

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Contents

Introduction...................................................................................................................................... 1

Key Observations............................................................................................................................. 4

The Rising Economic Powers.................................................................................................... 4

U.S. Trade Interests and the REPs ............................................................................................. 6

U.S. Trade Policy Response ...................................................................................................... 7

Who Are the Rising Economic Powers? .......................................................................................... 9

Defining Characteristics ............................................................................................................ 9

Reform Challenges .................................................................................................................. 14

China ................................................................................................................................. 16

India................................................................................................................................... 16

Brazil ................................................................................................................................. 17

Mexico............................................................................................................................... 17

Turkey ............................................................................................................................... 18

Russia ................................................................................................................................ 18

Indonesia ........................................................................................................................... 19

U.S. Trade Interests and the REPs ................................................................................................. 19

REP Markets and U.S. Prosperity ........................................................................................... 20

REP Trade Barriers .................................................................................................................. 22

Tariffs ................................................................................................................................ 23

Services Barriers ............................................................................................................... 24

Government Procurement ................................................................................................. 25

Intellectual Property Protection ......................................................................................... 26

Foreign Investment Restrictions........................................................................................ 27

State-Owned or State-Controlled Enterprises (SOEs) ....................................................... 28

Export Restrictions on Raw Materials............................................................................... 29

REP Interventionist Practices .................................................................................................. 29

REPs as “Responsible Stakeholders” ...................................................................................... 32

China’s Key Role .............................................................................................................. 33

U.S. Trade Policy Response........................................................................................................... 34

Trade Policy Goals and the REPs ............................................................................................ 35

Trade Negotiating Initiatives ................................................................................................... 36

Multilateral Negotiations................................................................................................... 37

Plurilateral Agreements ..................................................................................................... 38

Strengthening the WTO Dispute Settlement Understanding ............................................. 39

Bilateral and Regional FTA Negotiations and Other Bilateral Initiatives ......................... 40

U.S. Unilateral Initiatives to Encourage REP Reforms ..................................................... 42

Congressional Role.................................................................................................................. 44

Figures

Figure 1. Rising Economic Powers.................................................................................................. 2

Figure 2. Shift in Shares of Global GDP ......................................................................................... 5

Figure 3. REP’s Shares of U.S. Trade .............................................................................................. 6

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Figure 4. REP and U.S. GDP in 2010 and 2050 ............................................................................ 10

Figure 5. Total REP-7 Population and GDP, 2011 ......................................................................... 13

Figure 6. Trade as a Percentage of U.S. GDP ................................................................................ 20

Figure 7. Goods Tariffs and Services Tariff Equivalents ............................................................... 25

Figure 8. FDI Restrictiveness Index by Country, 2010.................................................................. 28

Tables

Table 1. Projections of the Largest Economies in the World, 2050 ............................................... 10

Table 2. Purchasing Power Parity GDP Estimates, 2011 and 2020 ............................................... 11

Table 3. REP Share of Global Exports........................................................................................... 12

Table 4. Economic Indicators of the REPs .................................................................................... 13

Table 5. REP Business Climates .................................................................................................... 15

Table 6. Tariff Profiles of the U.S. and the REPs .......................................................................... 23

Table 7. Tariff Equivalents of Service Barriers .............................................................................. 24

Table 8. Selective REP Procurement Policies................................................................................ 26

Table C-1. Economic Indicators of Selected “Long Shot” Countries ............................................ 50

Table C-2. Economic Indicators of Selected Emerging Markets ................................................... 52

Appendixes

Appendix A. Previous Efforts at Identifying a Group of Rising Developing Countries................ 46

Appendix B. Methodology for Economic Projections ................................................................... 48

Appendix C. Alternative REP Groupings ...................................................................................... 50

Contacts

Author Contact Information........................................................................................................... 53

Acknowledgments ......................................................................................................................... 53

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Introduction

For much of the post-World War II era, developing countries were relatively minor players in the

world economy. Accounting for 80% of the world’s population but less than 20% of the world’s

output two decades ago, developing countries throughout Africa, Asia, Latin America, and the

Middle East were often dismissively referred to as the Third World. At the time, these countries

generally exported raw materials, and few ever expected them to be able to export sophisticated

manufactured goods to the industrialized world or to become significant world importers.1

Developing country economic prospects began to change in the 1980s with the spectacular

success of four Asian countries—Hong Kong, South Korea, Taiwan, and Singapore. Dubbed the

“Asian tigers,” these countries adopted export-led growth strategies that helped boost annual per

capita incomes by between 5% and 6% over the entire decade. This success, which also involved

the use of industrial policies to develop their manufacturing sectors, helped shift the focus of

other developing countries from production for domestic and regional markets to production for

world markets.

This reorientation in thinking accelerated dramatically in the early 1990s with the advance of

globalization. Bolstered by the fall of communism, the beginnings of the information technology

(IT) revolution, sharply declining transportation costs, the freer movement of capital and

technology from developed to developing countries, and economic reforms, economic growth in

developing countries began to take off, reaching practically every region of the world and

encompassing dozens of developing countries.2

China led the way with average annual real gross domestic product (GDP) growth increases of

nearly 10% from 1979 to 2011. Its share in global GDP increased from 1.5% in 1990 to 9.5% in

2010. Growth in a handful of developing countries with very large populations, such as India,

Brazil, Indonesia, Turkey, and Mexico, was also stronger than it had been in previous periods for

various reasons. These other developing countries increased their share of global GDP from 15%

to 22% over the same period, enabling developing countries as a group with now 83% of the

world’s population (5.1 billion people) to expand their share of global output to almost 33%

today.3 During this same period, the size of the global economy more than doubled, increasing

from $28 trillion in 1990 to $68 trillion in 2010.4

Projections abound that a handful of developing countries will continue to gain shares of global

output vis-à-vis the advanced countries, and in the process change the face of the global economy.

A World Bank study projects that by 2030, developing countries will contribute about 50% of

Ian M.D. Little, Economic Development: Theory, Policy, and International Relations, 1982.

CRS Report RL34091, Globalization, Worker Insecurity, and Policy Approaches, by (name redacted).

World Bank and Development Centre of the State Council, P.R.C., China 2030: Building a Modern, Harmonious, and

Creative High-Income Society, World Bank, Washington, D.C., 2012, p. 399 [hereafter cited as World Bank: China

2030].

A previous CRS report (CRS Report R41969, Rising Economic Powers and the Global Economy: Trends and Issues

for Congress, by (name redacted)) describes how a small group of fast-growing and highly populated developing

countries are gaining larger shares of global GDP, trade and investment, and posing varied challenges for U.S.

economic interests.

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Rising Economic Powers and U.S. Trade Policy

global output (with China contributing 20%) and two-thirds of global economic growth (with

China contributing 25%).5

Figure 1. Rising Economic Powers

Source: Analysis by CRS. Data from World Bank Development Indicators and U.S. International Trade

Commission.

World Bank: China 2030, p. 6.

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Long-term projections, however, can be far off the mark. Some of these countries may falter as

aging populations, rising labor costs, corruption, environmental challenges, failure to innovate or

reform more deeply, or infrastructure deficiencies limit them from growing as rapidly as

predicted, while other developing countries currently not on anyone’s radar screen could turn

their economic and political fortunes around.

Nevertheless, there is widespread consensus that in addition to China, many of these other larger

populous developing countries will continue to experience faster economic growth than the

advanced economies, as they have over the past decade, thus continuing the shift of relative

economic wealth to a handful of developing countries. Reasons for this assessment include both a

continuing large potential for “catch-up” gains in output and productivity that these developing

countries possess, combined with continuing slow growth in advanced economies due to

deleveraging and the impact of high debt burdens.6

Despite likely gains in economic power, the living standards (as measured by per capita income

levels) of the rising powers are likely to remain well below the levels in advanced countries due

to their huge populations and still high poverty rates. But still “developing” countries are

becoming significant forces in the world economy for the first time in hundreds of years, creating

uncertainties regarding their role in the global economy.

These rising countries present the United States with both opportunities and challenges. On the

opportunity side, rising imports from these economies offer U.S. consumers an expanding choice

of products at lower prices, raising real incomes and contributing towards higher standards of

living. Many of the imports are also intermediate goods used in the production of U.S.-produced

goods, lowering costs and, thereby, helping to maintain the competitiveness of U.S. firms in the

global economy. As their economies grow, the REPs are also providing U.S. exporters and

investors with robust new markets—their successful growth strategies are expected to create

billions of new “middle-class” consumers and unleash billions of dollars in infrastructure

spending over the next few decades for which U.S. exporters of goods and services can compete.

At the same time, many U.S.-based firms and workers are competing now with an expanded pool

of lower-wage labor, much of it located in the REPs. Such competition can nudge U.S.-based

firms to reduce costs by adopting labor-saving technology, to move production overseas, or to

shut operations that may no longer be competitive. Even firms and workers in high-end service

sectors are feeling the pressure of competition from these countries.7

U.S. relations with the REPs, thus, are affecting U.S. economic welfare in fundamental ways.

From the perspective of U.S. trade policy, efforts to reduce the trade and investment barriers of

the REPs that are impeding U.S. producers and workers from maximizing the benefits of

participation in the global economy are likely to be a high priority. But the views and practices of

the REPs regarding the role of the state in economic activity, which may differ sharply from U.S.

perspectives and actions, make the elimination of trade barriers and the negotiation of new world

Assuming that workers in developed countries are already highly productive, for reasons ranging from more advanced

technology to better infrastructure and health care, workers in developing countries have a lot more scope for “catching

up” to them if they can fulfill their potential.

CRS Report R41145, The Future of U.S. Trade Policy: An Analysis of Issues and Options for the 112th Congress, by

(name redacted).

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trade rules more difficult. For their part, the REPs are also protesting U.S. policies on trade

remedies, high tariffs on apparel and other import-sensitive items, pricing of medicines,

agricultural subsidies and quotas, the temporary entry of foreign workers, and monetary

expansion (so-called quantitative easing). In addition, they are making their concerns heard in

international institutions, particularly the WTO.

How the REPs evolve may also affect the nature and integrity of the world trading system. U.S.

trade policy officials have generally assumed that as the REPs gain weight in the international

trading system, they will become more responsible stakeholders by sharing not only the benefits

but the costs of system maintenance and by embracing the principles of free and fair trade with

limited government intervention. As China and other developing economies with heavy state

involvement in guiding economic activity evolve, it is not certain that they are going to accept

this place in the liberal international economic order that the United States and Britain jointly

constructed in the aftermath of World War II.

The rise of China and other developing countries has also coincided with a weakening of the

WTO-centered multilateral trade order. Bilateral and regional preferential trade agreements have

proliferated and WTO-sponsored multilateral trade liberalization negotiations have stalled. In this

environment, questions arise over how the world trade order will be kept and how new rules will

be established.8

These profound changes in the global economy raise a number of questions that the 113th

Congress may wish to consider in its oversight of U.S. trade policy. First, what kinds of trade

negotiations can best be utilized to open up REP markets in a way that provides for more

balanced and mutually beneficial relationships? Second, in what ways can the United States best

influence the REPs to adopt more market-oriented trade and economic policies or reduce barriers

to U.S. exports and investment? Third, how can the United States best influence China and the

other REPs to become responsible stakeholders in the world trading system?

This report is organized into four parts. Part one summarizes the key observations of the report.

Part two discusses the key characteristics of the REPs and their reform challenges. Part three

analyzes the relationship between U.S. trade interests and the REPs. Part four considers a range of

U.S. trade policy responses to challenges raised by the REPs, including the role of Congress.

Key Observations

The key observations of the report are summarized below. More detailed analysis and information

is provided in the main body of the report.

The Rising Economic Powers

•

Countries: A handful of developing countries with large populations and

growing economies are becoming major players in the global economy. These

rising economic powers (REPs) are led by China, but also include Brazil, India,

Robert Skidelsky, “The Future of Globalization in the Light of the Economic Collapse of 2008,” IISS Geo-Economic

and Strategy Seminar, March 25, 2012, p.3.

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Indonesia, Mexico, Russia, and Turkey. There are also a number of populous

developing countries such as Egypt, Iran, Nigeria, and Vietnam that have

enormous economic potential, but must overcome fundamental political and

economic obstacles if they are to achieve their economic potential.

•

Characteristics: Comprising 48% of

Figure 2. Shift in Shares of Global GDP

the world’s population, these seven

countries have accounted for the bulk

of a shift in global GDP to developing

countries, going from 16% in 1990 to

33% in 2010 (see Figure 2). Based

on purchasing power parity estimates,

China, India, Russia, and Brazil are

now among the 10 largest economies

in the world and Mexico (#11),

Indonesia (#15), and Turkey (#16) are

not far behind. With large economies

and rising shares of world trade

flows, the REPs (particularly China,

Brazil, and India) have greater

Source: Analysis by CRS. Data from World Bank

involvement in WTO negotiations

World Development Indicators.

and dispute settlement cases, have

protested with greater frequency U.S. economic and trade policies, and are more

able and willing to deflect or reject U.S. trade and market access demands.

•

Reform Challenges: Continued high growth requires ongoing reforms to address

economic challenges, which constantly change as countries hit different income

levels. Any of the REPs could stumble if they do not take steps to improve their

business climates by undertaking a range of trade, regulatory, and structural

reforms. Government corruption, poor infrastructure, weak governance,

inadequate intellectual property protection, and inability to innovate are some of

the reform challenges these countries share. All these reforms tend to be

politically sensitive because they are opposed by vested interests.

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U.S. Trade Interests and the REPs

•

U.S. Exports and Imports:

The REPs are becoming much

more important U.S. trading

partners (see Figure 3). They

accounted for 47% of U.S.

exports in 2011, up from 20% in

2000. Their share of U.S.

imports has risen from 23% in

2000 to 36% in 2011. If the

REPs continue to grow rapidly

and open their economies

further to trade, these trends

could accelerate in the future.

•

REP Trade Barriers: If the

United States is to maximize its

export potential and boost its

Source: Analysis by CRS. Data from U.S. International

living standards, exporters and

Trade Commission.

investors will need to have

better access to REP markets. REP trade and regulatory barriers on multiple

fronts—tariffs and non-tariff barriers, and restrictions on services and

investment—remain considerably higher than in the United States and most other

advanced countries. Many of these barriers are denying U.S. producers and

workers the extension of comparative advantage, particularly in the areas of

services, foreign investment, intellectual property, and government procurement,

not only in REP markets, but also in third country markets. A number of these

barriers are inadequately covered or difficult to enforce under current WTO rules.

•

REP Interventionist Policies: The ability of the United States to persuade the

REPs to embrace the principles of free and fair trade is constrained by growing

differences over the role that the state should play in economic activity. While the

rules-based GATT/WTO trading system favors commercial outcomes to be

determined by market forces, most REP governments play a much larger role in

their economies than does the U.S. government. As the 2008 global financial

crisis may have weakened the case for free market approaches, some of these

countries may now feel more willing to entertain market-distorting practices and

take advantage of gaps in the rules.

•

REPs as “Responsible Stakeholders”:9 As the REPs have benefitted greatly

from participation in the global economy, many observers hoped that over time

they would assume greater responsibility for the maintenance of the trading

system. But decisions by Brazil, China, and India not to make concessions that

could have facilitated the conclusion of the Doha Round of multilateral trade

negotiations reflected policy calculations driven primarily by national interests

and challenges. How to persuade these countries that a strengthened multilateral

Figure 3. REP’s Shares of U.S.Trade

Robert Zoellick introduced the notion of China as a “responsible stakeholder” in the international community in a

September 1, 2005 speech delivered before the National Committee on U.S.-China Relations. Zoellick at the time was

serving as Under Secretary of State.

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trading system is squarely in their national economic interests and a way to move

domestic economic reforms forward remains a challenge. China, the largest

exporter of manufactured goods and the second-largest economy in the world, is

the REP looked to the most for providing leadership of the global trading system,

but India and Brazil are not far behind.

U.S. Trade Policy Response

•

Changing Context for U.S. Trade Policy: With the REPs accounting for a

rising share of global GDP and trade, U.S. trade policymakers face very different

conditions than those that prevailed in the second half of the last century. Support

for multilateralism is weaker, bilateral and regional preferential agreements have

proliferated, and priorities for trade liberalization and economic reforms are

evolving as complex, new policy issues come to the fore. In this environment,

questions arise over how the world trade order will be kept, how new rules will

be established, and how the United States can best respond to the opportunities

and challenges posed by the rise of the REPs.

•

Trade Policy Goals and the REPs: Trade expansion promotes higher U.S. living

standards, but all companies and workers do not gain equally. Today’s more open

global economy, which has intensified competition for low-skilled workers and

pressures for automation, may be responsible for a number of contemporary

economic concerns, such as job insecurity and income stagnation. These trends

feed into growing public pressures for greater reciprocity in U.S. trade relations

with the REPs, and raise questions concerning the role of trade negotiations and

export promotion in achieving U.S. trade policy goals.

•

Trade Policy Strategy towards the REPs. The REPs still depend on access to

advanced country markets and they may not easily ignore requests for reciprocal

negotiations. Nor are the REPs likely to ignore the potential discriminatory

effects of preferential trade agreements negotiated by the United States with other

large and significant trading partners. In negotiating with the REPs, U.S. trade

policymakers may wish to consider putting U.S. trade barriers on the table.

•

Multilateral Negotiations: Given that the REPs did not use their growing

influence to insure a successful conclusion of the Doha Round, further progress

on trade liberalization within the WTO may require alternatives to existing

multilateral processes and practices. Principles that have guided multilateral trade

negotiations in the past, such as unconditional most-favored-nation (MFN) and

special and differential (S&D) treatment, may need to be reexamined. Currently,

47 advanced and advanced developing countries are exploring a potential

plurilateral agreement on services under the WTO umbrella (where some but not

all WTO members are members), and other plurilaterals on foreign investment

and state-owned enterprises have been proposed. Such agreements could help

end simplistic distinctions between developed and developing countries which

many of the REPs have tried to perpetuate.

•

Strengthening WTO Dispute Settlement: In an era in which both global

economic power and trade leadership are in transition, the WTO’s dispute

settlement understanding (DSU) has become a linchpin for maintaining global

economic order. For the United States and other advanced countries, the DSU is a

way to engage the REPs directly about their responsibilities for upholding a

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system of multilateral trade rules. For the REPs, the DSU provides a way to

challenge advanced countries’ market access barriers and measures that some

deem to be protectionist, such as extensive use of trade remedy laws. The DSU,

however, does have weaknesses (e.g., cases can take three years to complete and

remedies are not retrospective) which U.S. trade policymakers could try to

address.

•

Bilateral and Regional FTA Negotiations and Other Bilateral Initiatives:

Increasingly, U.S. trade policy (as well as the trade policies of the other major

trading countries) is becoming dominated by bilateral and regional negotiations

to establish free trade agreements (FTAs). These agreements offer opportunities

between pairs or groups of countries to reduce trade barriers and construct new

rules in an effort to forge more integrated economies. U.S. FTAs since NAFTA

went into effect in 1994 have been concluded with relatively small trading

partners (South Korea excluded). These have been comprehensive in scope and

have comprised high standards. For a number of reasons, the United States has

not concluded FTAs with large and more significant trade partners, such as

China, India, or Brazil, that could offer greater economic advantages. If the

United States wishes to move in this direction, deviations from its standard FTA

template may need to be considered. At the same time, ongoing Trans-Pacific

Partnership (TPP) negotiations and a potential comprehensive U.S. FTA with the

European Union (EU) could serve as incentives for the REPs to view higher

standard multilateral or bilateral negotiations more favorably. In addition, other

bilateral initiatives, such as cabinet-level working groups and trade and

investment framework agreements, are or could be additional approaches used to

elevate U.S. government attention and resources devoted to these key countries.

•

Unilateral Initiatives to Encourage REP Reforms: U.S. unilateral initiatives

traditionally took the form of threats to restrict a trading partner’s access to the

large U.S. market in order to influence trade barrier reductions. In today’s more

interdependent and rules-based world economy, unilateral initiatives take the

form more of “carrots” or incentives than “sticks” or sanctions. Possible

unilateral initiatives include measures that strengthen the U.S. economy so that it

sets an example for the rest of the world, as well as U.S. proposals that resonate

with the REPs’ evaluation of their own economic self-interest.

•

Congressional Role: Congress plays a large role in the development and

administration of U.S. trade policy. The 113th Congress may consider a number

of questions relating to the future direction of U.S. trade relations with the REPs,

particularly if President Obama should ask for a renewal of Trade Promotion

Authority (TPA) in 2013. Some observers maintain that U.S. trade leadership is

bolstered when the President has TPA and a mandate from Congress to negotiate

new agreements. In trying to induce the REPs with their very different state-led

economic models into strengthening the market-oriented WTO system, U.S. trade

negotiators may need considerable resources, flexibility, and leverage to engage

them more successfully.

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Who Are the Rising Economic Powers?

Predictions abound that a small group of the over 140 countries now classified by the World Bank

as “developing” will be the growth engine of the global economy and will continue to gain global

output vis-à-vis the advanced countries. Outside of the largest developing countries, such as

China, India, and Brazil, there has been less consensus on which countries to flag for special

consideration.

Past attempts to identify the rising economic powers from the developing world have adopted

many different monikers—emerging markets, Big Emerging Markets, BRICs, Near-BRICs, Next11, and Pivotal Powers—often driven by different objectives, such as generating interest in new

investment opportunities. (See Appendix A for a summary of these past efforts.) This report

focuses on countries that are not only up and coming, located throughout the world, and

providing expanding markets, but are also playing an increasingly large role in determining the

shape of the global trading system.

Most predictions mapping out the rise of specific developing countries use a simple methodology

that incorporates data on labor force and capital stock growth combined with more subjective

evaluations on how individual governments will cope with a range of political and economic

challenges. To the extent that the underlying political and institutional dimensions are given more

weight, projections regarding the rise of any one country are probably going to be less firm than

the fact that the greatest potential for high rates of economic growth (and a continuing shift of

economic power) rests with a small group of developing countries (see Appendix B for more

detail on the methodology behind the economic projections).

There are large differences among the universe of rising developing countries, giving scope for

varied groupings and categories. The likely uneven rise of developing countries is an important

consideration for prioritizing U.S. trade interests and concerns. While this report focuses

primarily on seven large, populous rising economic powers—China, Brazil, India, Indonesia,

Mexico, Russia, and Turkey—some of these countries’ economic prospects could easily decline if

fundamental challenges are not addressed. Simultaneously, a number of large developing

countries, such as Egypt, Iran, Nigeria, and Vietnam, could emerge as global economic forces

over time if their geopolitical conditions are dramatically altered and economic deficiencies

addressed. These long-shot or turnaround economies have the size to exert influence if they break

out of their economic doldrums and political constraints. In addition, nearly a dozen or so fastgrowing developing countries, such as Colombia, Poland, and Malaysia, are providing rapidly

growing commercial opportunities for U.S. traders, consumers, and investors, although these

countries may not have the size to become forces in the global economy. (See Appendix C for a

discussion of these two alternative country groupings.)

Defining Characteristics

There are significant differences among the seven countries dubbed as rising economic powers

(REPs) in this report. These include political systems, per capita income levels, approaches to

economic development, and trade patterns. Perhaps most importantly, China and Russia tend to

be authoritarian states, while Brazil, India, Indonesia, Mexico, and Turkey are committed to

democratic institutions. Furthermore, of these latter five states, Mexico is a bit different given its

strong economic links with the United States through NAFTA and its close proximity to the

United States. But the one characteristic they all share is a large economy in absolute terms.

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As shown in Table 1, all seven are currently ranked among the top 21 largest economies in the

world in 2010 based on GDP calculations in nominal dollars—with China #3, India #8, Brazil #9,

Mexico #13, Russia #17, Turkey #18, and Indonesia #21. Projecting out 40 years to 2050 (see

Figure 4), one recent study predicts that all the REPs will rise in the rankings with China

overtaking the United States as the largest economy in the world. Turkey is projected to gain the

most in rankings (6 spots), followed closely by India, Mexico, and Indonesia (5 spots each).

Figure 4. REP and U.S. GDP in 2010 and 2050

(in constant 2000 U.S. dollars)

Source: HSBC Global Research, “The World in 2050: Quantifying the Shift in the Global Economy,” January 2011.

Table 1. Projections of the Largest Economies in the World, 2050

2010 Rankings

2050 Projections

Rank Change 2010-2050

1. United States

1. China

2. Japan

2. United States

-1

3. China

3. India

4. Germany

4. Japan

-2

5. United Kingdom

5. Germany

-1

6. France

6. United Kingdom

-1

7. Italy

7. Brazil

8. India

8. Mexico

9. Brazil

9. France

-3

10. Canada

11. South Korea

11. Italy

-4

12. Spain

12. Turkey

13. Mexico

13. South Korea

-2

14. Australia

14. Spain

-2

15. Netherlands

15. Russia

16. Argentina

16. Indonesia

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2010 Rankings

2050 Projections

Rank Change 2010-2050

17. Russia

17. Australia

-3

18. Turkey

18. Argentina

-2

19. Sweden

19. Egypt

+10

20. Switzerland

20. Malaysia

+10

21. Indonesia

21. Saudi Arabia

Source: HSBC Global Research, “The World in 2050: Quantifying the Shift in the Global Economy,” January

2011.

Notes: GDP calculations based on constant 2000 U.S. dollars. Unlike nominal GDP, real GDP can account for

changes in the price level. Also note that Egypt and Malaysia were not ranked in top 30 in 2010.

Comparisons of national wealth are also frequently made on the basis of purchasing power parity

(PPP).10 Measuring national wealth in PPP terms tends to increase the GDP of developing

countries by taking into account that many non-tradable goods such as haircuts, meals, medical

care, and housing tend to cost less in developing countries. One PPP GDP ranking (see Table 2),

estimates that China, India, Russia, and Brazil were among the 10 largest economies in the world

in 2011 and projects that by 2020, China will have the largest economy in the world and India the

second largest, with the Russian (#6), Brazilian, (#7), and Mexican economies (#8) also among

the top 10.11

Table 2. Purchasing Power Parity GDP Estimates, 2011 and 2020

($billions)

Rank-2011

Country

PPP GDP

(2011)

Rank-2020

United States

15.10

China

25.21

China

11.45

United States

22.22

India

4.51

India

9.87

Japan

4.49

Japan

5.74

Germany

3.23

Germany

4.32

Russia

2.38

Russia

3.97

U.K.

2.32

Brazil

3.83

Brazil

2.30

Mexico

3.15

France

2.28

U.K.

3.04

10.

Italy

1.96

10.

France

3.04

11.

Mexico

1.95

11.

South Korea

2.44

South Korea

1.50

12.

Italy

2.41

Country

PPP GDP

(2020)

PPP estimates take into account the amount of adjustment needed in an exchange rate between countries in order for

the exchange rate to be equal to each country’s purchasing power. In other words, the exchange rate adjusts so that

identical goods in two countries have the same price when expressed in the same currency.

The December 2012 U.S. National Intelligence Council (NIC) Global Trends: 2030 report projects that China’s GDP

will surpass the U.S. GDP by 2030.

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Rising Economic Powers and U.S. Trade Policy

Rank-2011

Country

PPP GDP

(2011)

Rank-2020

PPP GDP

(2020)

Country

13.

Spain

1.49

13.

Indonesia

2.28

14.

Canada

1.43

14.

Canada

2.10

15.

Indonesia

1.12

15.

Spain

1.89

16.

Turkey

1.07

16.

Turkey

1.87

17.

Iran

0.98

17.

Taiwan

1.51

18.

Taiwan

0.94

18.

Australia

1.48

19.

Australia

0.93

19.

Iran

1.32

Source: Economist Intelligence Unit estimates.

Aggregate GDP—the size of a country’s economy (whether measured in constant dollars or

calculated based on PPP)—captures the potential impact of a country on the international trading

system and its ability to resist unilateral pressure from another country. A country with a large

economy tends to have important trading relationships with more countries (i.e., global trading

relationships) and is increasingly part of global supply chains involving multinational companies.

As shown in Table 3, the seven REPs that are the primary focus of this report have gained

dramatic shares of world exports, rising from 7% in 1990 to 20.6% in 2011. By 2016, the REPs

are projected to account for nearly 25% of global exports.

Table 3. REP Share of Global Exports

(in percent)

Country

1990

1995

2000

2006

2011

2016 (est.)

Brazil

0.92

0.91

0.86

1.15

1.40

China

1.82

2.90

3.89

8.08

10.70

13.10

India

0.53

0.62

0.70

1.06

1.70

2.10

Indonesia

0.75

0.89

0.97

0.84

1.10

1.30

Mexico

1.20

1.50

2.60

2.09

2.00

2.20

Russia

1.43

1.62

1.61

2.52

2.90

2.60

Turkey

0.38

0.42

0.44

0.72

0.80

Total REP 7

7.04

8.91

11.06

16.46

20.60

23.50

Source: Economist Intelligence Unit trade data base.

With large economies and trade flows, these countries have greater involvement in WTO

negotiations and dispute settlement processes, as well as greater autonomy in applying the rules

and obligations of the WTO system domestically. The REPs have also protested with greater

frequency U.S. policies and practices that they deem are detrimental to their own national

economic interests. In the aftermath of the 2008 financial crisis, REP leaders have criticized U.S.

economic policies and reliance on free market orthodoxy more vociferously. While their protests

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Rising Economic Powers and U.S. Trade Policy

and criticisms have not been followed by changes in U.S. trade or economic policies, the REPs

arguably have become more able to deflect U.S. trade and market access demands.12

Large populations and growing economies are Figure 5.Total REP-7 Population and GDP,

the driving force in positioning the REPs

2011

higher in the global GDP rankings. As shown

in Figure 5, the seven REPs in 2011

accounted for 48% of the world’s population

(3.34 billion out of 6.97 billion people) and

23% of the world’s GDP ($16.4 trillion out of

$69.9 trillion). The fact that China has the

world’s largest population, India the second

largest, and Brazil the fifth largest has helped

make these three the second-, third-, and

Source: Analysis by CRS. Data from the World Bank

eighth-largest economies in the world

World Development Indicators.

(according to PPP calculations), respectively.

At the same time, per capita incomes of the REPs in 2011 (see Table 4) were approximately onefifth the per capita income levels in the high income countries of the Organization for Economic

Cooperation and Development (OECD) ($8,144 versus $38,667), indicating that reaching the

much higher OECD living standards with their large populations may be a stretch in the near

term.13

Table 4. Economic Indicators of the REPs

Population

GDP per

capita (current

US $ in 2011)

(millions)

Average Real

Annual GDP

Growth (20032008)

Average Real

Annual GDP

Growth (20092011)

Brazil

196.6

3.7

3.3

12,953

China

1,334.1

11.3

9.6

5,429

India

1,241.5

8.0

8.2

1,488

Indonesia

242.3

5.6

5.8

3,494

Mexico

114,.8

3.0

1.1

10,064

Russian

Federation

141.9

7.1

0.2

13,089

Turkey

73.6

5.9

4.3

10,498

REP total

3,345.1

6.4

4.6

8,144

World/High

Income OECD

6,973.7

2.1

0.2

38,667

2011

Country

Gregory Shaffer and Charles Sutton, “The Rise of Middle-Income Countries in the International Trading System,”

Legal Studies Research Paper Series No. 12-51, University of Minnesota Law School, pp. 5, 9.

The OECD is an international organization based in Paris designed to promote policies that will improve the

economic and social well-being of people around the world. Its 34 members include the world’s most advanced

countries, but also two REPs, Mexico and Turkey.

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Population

(millions)

Average Real

Annual GDP

Growth (20032008)

Average Real

Annual GDP

Growth (20092011)

310.5

2.3

0.3

2011

Country

United States

GDP per

capita (current

US $ in 2011)

48,447

Source: World Bank data found at http://databank.worldbank.org/ddp/home.do?Step=12&id=4&CNO=2.

Notes: In the World/High Income OECD category, population and GDP data are for the World and average

growth rates and GDP per capita data are for High Income OECD countries.

With the exception of Mexico from 2003 to 2008 and Russia from 2008 to 2011, the REPs have

been growing faster than the advanced high income OECD countries by a considerable margin. In

the aggregate, they grew three times faster than the high income OECD countries from 2003 to

2008 (6.4% compared to 2.1%) and 23 times faster from 2009 to 2011 (4.6% compared to 0.2%).

If these growth rates persist, the REPs will continue to gain in the GDP rankings in the years

ahead.

Reform Challenges

Robust capital inflows and ballooning exports to the United States boosted REP growth rates

during the 2003-2008 period. Ruchir Sharma, author of Breakout Nations, argues that this was a

golden period that is unlikely to be repeated, while some other analysts are much more optimistic

that some developing countries, particularly China, India, and Brazil, can continue to grow at the

historically rapid rates of the last decade and remain growth engines of the global economy.14

The case for slower growth is based on two major factors. The first is that advanced countries,

hamstrung by high consumer and government debt, likely will be growing at much lower rates in

the foreseeable future. The International Monetary Fund (IMF), for example, projects that in 2013

advanced countries will grow at only one-third the rate of emerging markets and developing

countries (2% versus 6%).15 If growth slows in advanced countries, they could buy less from the

developing world, much of which is highly dependent on exports for its growth.

A second factor is that the richer a country becomes, the harder it is to grow rapidly. In the case of

middle-income countries, World Bank research determined that only 13 of the 101 countries

deemed middle income (currently defined as any country with a gross national income per capita

between $1,006 and $12,275) in 1960 had advanced to high income by 2011. To make this

transition up the value-chain, governments can no longer simply borrow technology or add more

capital and labor, but must find ways to foster private sector development and innovation.16

Economic history, thus, suggests that there is nothing inevitable in the continued rise of any of the

REPs or any other developing country. Every individual developing country may have great

economic potential, but there is no easy path for continued high growth. Continued high growth

World Bank, China 2030, pp. 16-17; and Jim O’Neil, The Growth Map: Economic Opportunity in the BRICs and

Beyond, Portfolio/Penguin, 2011.

IMF World Economic Outlook, April 2012.

World Bank, China 2030, p.13.

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Rising Economic Powers and U.S. Trade Policy

requires ongoing efforts and reforms to address economic challenges, which constantly change as

countries hit different income levels.17

The magnitude of the reform

challenges for the REPs is captured

by World Bank estimates of a

country’s openness or receptivity to

business operations. As shown in

Table 5, the REPs’ rates are quite

low, with the business climates of

Russia, Brazil, Indonesia, and India

comparable to countries such as

Bangladesh (#122), Uganda (#123),

and Swaziland (#124). The United

States’ business environment was

rated the fourth-best in the world.

Table 5. REP Business Climates

Economy

World

Ranking

Mexico

Turkey

China

Russia

120

Brazil

126

Indonesia

129

India

132

United States

To improve their business climates

and reinvigorate their economies, the

Source: World Bank, Ease of Doing Business Index, 2011. This

index ranks economies from 1 to 185. A high ranking (a low

REPs could undertake a range of

numerical rank) means that the regulatory environment is

trade, regulatory, and structural

conducive to the operation of a business.

reforms. By reducing tariffs, quotas,

and foreign investment restrictions, the REPs could open their economies at the border to more

international competition. Trade-related reforms encompassing services regulation, regulation of

food-safety and technical standards, intellectual property protection, public procurement, customs

administration, and competition rules could also increase competition. Structural reforms to

address corruption, labor and product market restrictions, and other regulatory barriers could also

help free the economies of the REPs from government intervention. Overall, the resulting

intensified competition could help improve worker productivity, economic growth, and living

standards.

All these reforms tend to be politically sensitive because they affect government-business

relations, as well as entrenched political and vested business interests. A political determination to

overcome special interests that stand to be disadvantaged by the reforms, thus, may be important

for most of these reforms to be initiated and implemented. A country’s economic future in this

sense depends substantially on its politics. In situations where there is growing political will to

initiate domestic reforms, the scope for international negotiations and solutions could increase

substantially.18

While the reforms are primarily a matter of unilateral action, some trade specialists believe that

action in one country can create a situation where REP governments would want to emulate

reforms of the others to stay competitive.19 Key reforms that each country may need to consider

vary and are highlighted below.

Japan’s rapid growth in the 1980s and continuing struggles since the 1990s illustrates that advanced countries are not

immune from reform challenges either. For the United States, getting a handle on federal debt and budget deficits is

considered by many economists a priority for bolstering long-term growth potential.

Razeen Salley, “Trade Policy in the BRICS,” p.16.

Razeen Sally, “The Crisis and the Global Economy: A Shifting World Order? ECIPE No. 3/2011, p.29.

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China

Averaging a phenomenal 9% growth rate over the past three decades, China has been one of the

world’s fastest-growing economies. But today it faces formidable challenges in continuing on this

path. Its main reform challenge may be to make the economy more consumption and less

investment driven.20 To rebalance the economy, China will need to undertake various

competition-enhancing reforms, ranging from public sector and financial sector reforms to secure

private property rights, deregulation of internal trade, market pricing for internal inputs, and

better provision of health, education, pensions, and social security. A number of other measures

could be taken to bolster the private sector at the expense of China’s still large state-owned or

state-controlled companies. These could include limits on industrial policy activism, better

enforcement of intellectual property rights, and accelerated services liberalization.21 Rebalancing

will likely encounter resistance from powerful vested interests as they may challenge the heart of

the Communist party’s grip on power. Not only party members, but vested interests in the stateowned companies, military, banks, and family clans would likely resist the reforms in order to

preserve their positions of power and wealth.22 Other key risks to achieving stable long-term

economic growth include pervasive corruption, environmental degradation, and an aging

population.

India

A number of economists have projected that India will approach China’s rapid growth rates over a

sustained period of time and become the third-largest economy in the world in a few decades. But

these growth projections could easily be derailed by endemic obstacles associated with bloated

government, corruption, overregulation, grinding poverty, and poor infrastructure. By most

accounts, corruption and overregulation are rampant, stifling the environment for most

businesses. The Heritage Foundation’s 2011 Index of Economic Freedom ranks India 124th out of

179 countries based on its restrictive trade policies, heavy government involvement in the

banking and finance sectors, rigorous investment caps, demanding regulatory structures, and a

high level of corruption.23 A massive blackout that affected more than 650 million people in late

July 2012, the largest in world history, was a stark reminder that India’s inefficient and poorly

managed power sector could easily undermine its long-term economic ambitions.24 With the

economy slowing, to an estimated 5%-6% rate of growth in 2012, down from over 8% in 2011,

concerns are rising that a regime of heavy government regulation is responsible for economic

slowdown (a return to the “license Raj ” days between 1947 and 1990).25 It is still uncertain

whether Prime Minister Manmohan Singh, who championed the economic reforms of the 1990s,

will be able to overcome the opposition in his own party and among his coalition partners to a

strong reform agenda.26

Guy de Jonquieres, “China’s Challenge,” ECIPE Policy Brief, 01/2012, p.3.

Razeen Salley, “Trade Policy in the BRICS,” p. 7.

George Magnus, “Will Asia Shape or Shake the World Economy? ECIPE Policy Brief, No. 05/2012, p. 5.

CRS Report RL33529, India: Domestic Issues, Strategic Dynamics, and U.S. Relations , coordinated by (name re

dacted).

Simon Denyer and Rama Lakshmi, “Power Fails in Half of India,” Washington Post, August 1, 2012.

Tyler Cowen, “Never Mind Europe, Worry about India,” New York Times, May 6, 2012.

Pratap Bhanu Mehta, “How India Stumbled,” Foreign Affairs, July/August, 2012.

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Brazil

Brazil’s solid performance during the 2008-2009 financial crisis and its early recovery, including

strong 7.5% growth in 2010, and a large cushion of foreign exchange reserves (approximately

$350 billion), has contributed to its growing global influence and role. But its economic growth

fell in 2011 to 2.7%, and growth in 2012 is projected to be 1.5%-2%. If Brazil is to become a

world economic power, the country may need to pursue reforms in areas including infrastructure

and taxes. Brazil’s housing, transportation, telecommunications, and power grids all need major

investments and improvement. The World Economic Forum ranks Brazil’s quality of

infrastructure 104th out of 142 countries surveyed, behind China (69th), India (86th), and Russia

(100th).27 Brazil’s tax burden has escalated from 22% in 1998 to 36% of GDP today.28 The heavy

burden increases the cost of doing business in a variety of ways, including very high electricity

prices for industrial users—which are almost doubled by some 28 different taxes.29 Burdensome

regulations in opening and closing businesses, archaic labor laws, corruption, and bureaucratic

red tape also contribute to Brazil’s business environment. Brazil’s President Dilma Rouseff has

acted to reduce taxes and bring private firms into upgrading roads and ports, but other reforms

may also be needed to help reignite growth.30

Mexico

Mexico’s per capita income is about $10,000, the third highest among the REPs, but its economy

grew on average by only 2% per year from 2000 to 2010. Once the richest country in Latin

America, in recent years Mexico has been surpassed by its largest regional rivals—Brazil and

Chile—due to persistently sluggish growth. More robust growth rates over the past few years

(4.5% in 2010, 3.9% in 2011, and a projected 4.0% in 2012) have reignited foreign investor

interest in Mexico. Nevertheless, a number of factors still could constrain Mexico from growing

at a faster pace in the years ahead. These include a continuing large state presence in some

economic sectors, an inadequate education system, a rigid labor market, high income inequality,

and mismanagement of its dwindling oil wealth. Competition is also weak in many sectors in

Mexico, hurting efficiency, productivity, and consumer well-being.31 The country’s top 10

business families control the majority of the concentrated sectors. With low growth and high

inequality, Mexico’s new President Enrique Pena Nieto could consider a number of structural

reforms to strengthen the economy’s growth potential and move the country out of its middleincome status. These include investing in infrastructure and education, breaking up monopolies,

re-writing labor laws to make it easier to hire and fire, and opening more sectors to foreign

investment—changes the Mexican Institute for Competitiveness has said could add 2.5

percentage points to Mexico’s growth rate.32

The Economist, “Investing in Brazil’s Infrastructure,” August 11, 2012.

The Economist, “The Brazil Backlash.”

The Economist, “Economic Policy in Brazil,” September 15, 2012.

Financial Times, “We Want a Middle-Class Brazil,” October 3, 2012.

According to a joint OECD-Mexican government study, the average Mexican household spends an estimated onethird of its budget on products that are produced in monopolistic or oligopolistic markets.

The Economist, “The Man to Beat: Mexico’s Presidential Election,” March 31, 2012.

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Rising Economic Powers and U.S. Trade Policy

Turkey

Turkey’s economy averaged 6% growth from 2003 to 2008—one of the highest sustained rates of

growth in the world. Growth dropped to 1.1% in 2008 and declined by 4.7% in 2009, but

rebounded to over 9% in 2010 and to over 8% in 2011. While GDP growth is projected to be only

around 2.9% for 2012, it will still be one of the strongest rates of growth throughout Europe.33

Steady economic growth requires the government to finance a large current account deficit. While

in the past Turkey’s trade deficit has been financed mostly by long-term loans and foreign direct

investment, short-term inflows have funded a rising proportion of the funding gap since 2010. An

important priority for Turkey, thus, is to attract more equity and foreign direct investment inflows,

which generally are accompanied by skill and technology transfers, and fewer short-term loans

and portfolio inflows, which are more prone to sudden reversal.34 To attract more investment,

Turkey may need to consider liberalizing its foreign investment regime. Stringent labor

regulations, a somewhat unpredictable regulatory environment, and intellectual property

violations may be additional concerns for foreign investors. The World Bank has urged sweeping

reforms to address high severance packages, limitations of temporary work, and high social

security costs.35

Russia

Before the 2009 financial crisis, Russia’s economy was growing at around 7% from 2003 to 2008.

The growth, which was fueled by rising demand for its oil, gas, and commodities, helped raise the

Russian standard of living substantially. With oil prices dropping by 75% from mid-2008 to early

2009, the economy grew by a meager two-tenths of one percent from 2009 to 2010.36 While the

economy has recovered and is projected to grow between 3.5% and 4% over the next few years, it

is unlikely to reach a potential estimated annual growth rate of 5.5%-6% in the years ahead.37 In

addition to its significant dependence on the production and export of oil and other natural

resources, Russia has other persistent flaws in the economy that are limiting its recovery and

long-term growth prospects. These include (1) a population, particularly working-age population,

that is declining (some project that it could drop to 80 million-90 million by 2050);38 (2) it has

few companies that make internationally competitive goods; (3) its economy is not very

diversified; (4) its business environment remains difficult and controlled by insider deals; and (5)

its economy has an increasing public welfare burden on its public finance.39 The economy has

also been plagued by low domestic and foreign investment, high rates of crime and corruption,

lack of independent judicial protection of property rights, and capital flight.40 While Russian

President Vladimir Putin began his third term in 2012 pledging to modernize the Russian

IHS Global Insight, “Turkey,” July 12, 2012.

OECD Economic Surveys: Turkey, July 2012.

IHS Global Insight, “Turkey,” July 11, 2012.

Russian Banks and Brokers Report, “Is Russia’s Economy Heading down a Cul-de-Sac,” November 30, 2011.

IHS Global Insight, “Russia,” August 30, 2012, and Sergey Aleksashenko, “Russia’s Economic Agenda to 2020,”

International Affairs 88: 2012, p. 33.

Over the next 20 years Russia may lose 15- 20% of its labor force, resulting in serious labor shortages and

considerable lost output [cited in Sergey Alekashenko, “Russia’s Economic Agenda to 2020, p. 39].

One estimate holds that over half of all Russians now depend on the state for a living, 40% as recipients of social

benefits and 12% as government employees. Cited in Ruchir Sharma, Breakout Nations, p. 88.

CRS Report RL33407, Russian Political, Economic, and Security Issues and U.S. Interests, coordinated by (nam

e redacted).

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economy, proposed reforms to limit bureaucratic interference in the economy and a new wave of

privatizations were scaled back or deferred.41 However, Russia’s entry into the WTO in 2012 and

projections of the disappearance of its oil-fueled trade surpluses could pressure the government to

pursue fundamental reforms in order to attract foreign investment.42

Indonesia

Since Indonesia was transformed from a tightly controlled authoritarian state in the late 1990s to

an open, moderate, and multi-religious democracy, it has grown at an average of more than 5%

per year. This year it is expected to grow by over 6%, a full 1% faster than the rest of South East

Asia. With a current GDP at $900 billion, Indonesia’s economy could easily top $1 billion by

2013.43 If Indonesia is able to meet its target of 7%-8% GDP growth by 2014, it must address

numerous reform challenges.44 By most accounts Indonesia’s ports are overstretched, its electrical

grid is suboptimal, and its road networks are very poor. The World Economic Forum in 2011

ranked Indonesia 82 out of 142 economies in the quality of its infrastructure—just ahead of India

(86). These inadequacies add to manufacturing costs and widen regional disparities in prices for

basic commodities. Endemic and pervasive corruption also adds to Indonesia’s high cost

economy. High-quality education is lacking for training a young labor force in the skills it needs

for the country to move up the value chain. Even with skilled labor in short supply, Indonesia still

maintains rigid labor regulations that make starting a business, enforcing contracts, and hiring

labor quite difficult.45 Legislation has been introduced to address some of these shortcomings in

Indonesia’s business environment, but these measures face an uncertain future due to conflicting

views on reform within the governing coalition.46

U.S. Trade Interests and the REPs

The evolution of the economies of the REPs impacts U.S. exports, jobs, and economic growth in

important ways. If the United States is to maximize its export potential and boost its living

standards, exporters and investors will need to have fair and balanced access to the REP markets.

REP trade barriers, however, are extensive compared to market access and “ease of doing

business” obstacles found in most advanced countries. The ability of the United States to

persuade these countries to reduce their barriers arguably is constrained by growing differences

over the role that the state should play in economic activity—differences that were exacerbated

by the 2008 financial crisis. The more interventionist practices of the REP governments coincide

with a desire to maintain “policy space” to promote economic development via policies that often

appear to violate the letter or spirit of WTO rules and obligations.

IBS Global Insight, “Russia,” August 30, 2012.

The Economist, “Russia’s Economy and the World Trade Organization,” July 14, 2012; Charles Clover, “Russia

Faces End of Petrodollar Surplus,” and CRS Report R42085, Russia’s Accession to the WTO and Its Implications for

the United States, by (name redacted).

Karen Brooks, “Is Indonesia Bound for the BRICs?” Foreign Affairs, November-December 2011, v.90, issue 6, pp.

109-118.

U.S. Department of State, Background Note: Turkey, 2012.

Vikram Nehru, “Indonesian Manufacturing Needs a Shot in the Arm,” Carnegie Endowment, June 26, 2012.

The Economic Intelligence Unit, Country Report: Indonesia, August 2012.

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With the imperative for the United States to export more, it may be a critical time to persuade

these rising countries to adhere more closely to the free market norms and obligations of the

WTO system, as well as to consider negotiations that could address many of the barriers not

currently covered by WTO disciplines. A major concern is that if this is not done soon, these

countries may use their growing economic power to maintain one-sided advantages over time.

Reaching robust agreements on the rules of the game between different centers of power which

do not share the same values, however, remains a formidable undertaking.

REP Markets and U.S. Prosperity

The United States is the world’s largest

Figure 6.Trade as a Percentage of U.S.

trading and investing country and depends

GDP

increasingly on the world economy to spur

economic growth and generate high-wage

jobs. Over the past four decades (see Figure

6), U.S. trade in goods and services has

accounted for an increasing share of the value

of GDP, rising from 13% in 1970 to 29% in

2010. Trade over the past 40 years has also

grown more rapidly than the U.S. economy,

rising at an average rate of 5.9% per year in

real terms compared to an average GDP real

Source: Analysis by CRS. Data from Bureau of

growth rate of 2.8%. Over a more recent

Economic Analysis.

period (3rd quarter of 2009 to the 3rd quarter of

2011), exports alone contributed 1.2 percentage points to the 2.4% annual increase in U.S. real

GDP growth.47

Many economists argue that exports will be increasingly important to U.S. economic growth in

the years ahead. One important reason is that 95% of the world’s population and 80% of the

world’s purchasing power is outside U.S. borders. Another important reason is the high levels of

U.S. public and private debt which will constrain government and consumer spending as the two

historically primary engines of U.S. economic growth.48 With ongoing pressures to reduce

government spending and consumer debt, exports could become an increasingly important source

of growth for the U.S. economy.49

Traditionally, manufactured goods and agricultural products have accounted for the bulk of U.S.

exports. Recent research indicates that there is much underutilized potential in the export of

business services.50 The fact that over the past two decades nearly all job growth in the U.S.

Office of the United States Trade Representative, 2012 Trade Policy Agenda and 2011 Annual Report, Annex 1

[hereafter cited as USTR, 2012 Trade Policy Agenda].

As GDP is a function of government spending (G), consumption (C), investment (I), and net export (exportsimports), constraints on rising levels of G and C will require increases in either I or net exports for GDP increases to

occur.

Tyler Cowen, “What Export-Oriented America Means,” The American Interest, May/June 2012. At the same time,

U.S. household debt, as measured by debt payments to disposable income, has declined from 14.05 in the 3rd quarter of

2007 to 10.69 in the 2nd quarter 2012. A continuing reduction of this ratio could position U.S. consumers for more

spending in the future.

J. Bradford Jensen, Global Trade in Services, Peterson Institute for International Economics, Washington, D.C.,

2011.

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Rising Economic Powers and U.S. Trade Policy

economy has been in non-tradable sectors, particularly in health care and public sector

employment, is a compelling reason why U.S. employment growth will require much stronger

performance in the tradable sectors, particularly services.51

For most of the post-World War II period, the bulk of U.S. trade ties have been with the advanced

countries of Western Europe (Germany, the United Kingdom, and France), Canada, and Japan.

Over the most recent decade, those ties, shifting increasingly to developing countries, grew twice

to three times faster than the United States and other advanced countries.52 Since 2000, U.S.

goods exports to developing countries grew almost three times as fast as U.S. goods exports to

industrial countries, 135% compared to 54%. Due to this long-term higher growth difference, the

share of U.S. goods exports to developing countries grew from 45% in 2000 to 55% in 2011.53

The seven REPs alone accounted for 47% of U.S. exports in 2011, up from 20% in 2000.54

Developing countries, led by the REPs, have also become a much more important supplier of

U.S. imports. Since 2000, the share of U.S. goods imports from developing countries has grown

almost four times faster (130% compared to 36%) than imports from advanced countries. As a

result, the U.S. share of imports from developing countries increased from 49% in 2000 to 61% in

2011.55 The REPs accounted for 36% of U.S. imports in 2011, up from 23% in 2000. Some

portion of this increase, however, is accounted for by U.S. multinationals, such as Apple and Dell,

which design their products in the United States and assemble them abroad.56

U.S. foreign investment ties with the REPs have not experienced the same shift. The stock of U.S.

foreign direct investments in Brazil, China, India, Indonesia, Mexico, and Turkey (Russia is not

included for lack of data) is low and declining slightly. These six REPs in 1995 accounted for

almost 8% of U.S. direct investment stocks abroad, but less than 6% in 2010. By contrast,

Europe’s share of total U.S. direct investment stocks abroad has increased from 49% in 1995 to

55% in 2010.57 Further liberalization of REP FDI restrictions, combined with weakening growth

prospects for Europe, could commence a gradual reversal of this trend.

The share of U.S. trade accounted for by the REPs, however, is likely to grow in the future if their

economies continue on their current trajectories. Their successful growth strategies are expected

to create billions of new “middle-class” consumers and unleash billions of dollars in

infrastructure spending that will be contested by exporters and investors across the world.

Michael Spence and Sandile Hlatshwayo, “The Evolving Structure of the American Economy and the Employment

Challenge, Council on Foreign Relations, 2011.

CRS calculations based on Bureau of Economic Analysis data on U.S. Direct Investment Position Abroad on a

Historical-Cost Basis.

USTR, Trade Policy Agenda, Annex 1.

CRS calculations based on World Trade Atlas data.

UTSTR, 2012 Trade Policy Agenda, Annex 1.

The proliferation of global supply chains has made it increasingly difficult to interpret the implications of U.S. trade

data. Such data may show where products are being imported from, but they often fail to reflect how the value-added is

distributed across countries. Chinese data indicate, for example, that over 50% of its exports are generated by foreigninvested firms in China. Thus, in many instances, U.S. imports from China are really imports from many countries. For

elaboration, see CRS Report RL33536, China-U.S. Trade Issues, by (name redacted).

CRS calculations based on Bureau of Economic Analysis data on U.S. Direct Investment Position Abroad on a

Historical Cost Basis.

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Rising Economic Powers and U.S. Trade Policy

Estimates of the Growing “Middle-Class” in the REPs

Many different estimates have been made on the number of people in developing countries whose incomes are rising

above a certain threshold, putting them in a position to demand and purchase non-essential goods or services such as

cars, computers, meals at restaurants, or education. The estimates typically have been based on a range of incomebased measures, per capita income thresholds, and household surveys. Based on a definition of the middle class as

falling between $10 a day to $100 a day per capita, a Brookings Institution study estimated the “middle-class” in

emerging markets will expand from less than 1.8 billion people today to about 5 billion in 2030. But based on the

number of cars in circulation as a proxy to estimate the number of people in developing countries who belong to the

“middle class,” a Carnegie Endowment study estimated that 530 million people now living in the REP countries can be

considered “middle-class.”

The Obama Administration’s National Export Initiative (NEI) is a response to many of these

trends. Launched in 2010, the NEI is an effort to double U.S. exports by 2014 and to create 2

million jobs. If the United States is to meet this objective, U.S. exporters, service providers, and

investors will need to have greater non-discriminatory market access to the big developing

country economies now and in the years ahead.58

REP Trade Barriers

Many of the REPs implemented significant trade and foreign direct investment liberalization in

the 1980s and 1990s. China, India, and Brazil, in particular, reduced their barriers to trade and

investment markedly. Applied tariffs and other “at the border” barriers were simplified and

reduced. Many non-tariff barriers affecting quotas, licensing, and foreign direct investment were

also liberalized. These fundamental reforms for the most part were undertaken unilaterally or

independently by national governments, but they were also reinforced and locked in by

commitments made in the multilateral trade negotiations of the 1980s (the Tokyo Round) and the

1990s (the Uruguay Round), as well as by the proliferation of free trade agreements such as

NAFTA. By helping to integrate the REPs into the global economy, the reforms were powerful

factors for producing growing shares of world trade and investment, which in turn promoted more

rapid growth and poverty reduction during the last decade of the 20th century.

Despite the reforms of the 1980s and 1990s, levels of protection on multiple fronts—tariffs, nontariff barriers, and restrictions on services and investment — remain considerably higher in the

REPs than in the United States and other advanced countries. The economic impact of REP

barriers on the U.S. economy is difficult to quantify, but it is clear that they limit U.S.

opportunities in many markets.

U.S. companies and workers face an array of obstacles in trying to do business in REP markets.

The list of barriers and selected country examples covers tariffs, services, government

procurement, foreign investment, intellectual property rights, operation of state-owned or statecontrolled companies, and export restrictions on raw materials. Technical regulations and

standards also affect market access by requiring the adjustment of products and production

facilities to comply with different requirements. Many of these barriers may deny U.S. producers

and workers the extension of comparative advantage, particularly in the areas of services, foreign

investment, intellectual property, and government procurement. Many of the measures are also

inadequately covered or difficult to enforce under current WTO rules. Moreover, some of the

CRS Report R41929, Boosting U.S. Exports: Selected Issues for Congress, by Shayerah Ilias et al.

Congressional Research Service

Rising Economic Powers and U.S. Trade Policy

barriers and practices interact to create formidable shields of REP home markets together with

supports for strengthening home or national companies.

Tariffs

Tariffs are taxes imposed on goods at the border and the easiest kinds of barriers to measure. The

average tariffs imposed by the REPs on goods entering the country are two to four times higher

than the U.S. average tariff of 3.5%. As shown in Table 6, Indonesia has the lowest simple

average applied tariff (6.8%) among the REPs, and Brazil the highest (13.7%). But the

differences are more stark in terms of bound tariffs, where the REPs’ rates range from

approximately three times higher (China at 10%) to 14 times higher (India at 48.7%). The

discrepancy between the applied and bound tariff rates of the REPs has been a long-standing

concern, particularly because at any time the REPs may raise their tariffs higher without violating

WTO obligations.59 Brazil, for example, recently did just that, increasing import duties to 25% on

some 100 products.60

Table 6. Tariff Profiles of the U.S. and the REPs

Simple

Average

Final

Bound

(Total)

Simple

Average

Final

Bound

(Ag)

Simple

Average

Final

Bound

(Non-ag)

Simple

Average

MFN

Applied

(Total)

Simple

Average

MFN

Applied

(Ag)

Simple

Average

MFN

Applied

(Non-ag)

United

States

3.5

4.8

3.3

3.5

4.9

3.3

Brazil

31.4

35.4

30.7

13.7

10.3

14.2

China

10.0

15.7

9.2

9.6

15.6

8.7

India

48.7

113.1

34.6

13.0

31.8

10.1

Indonesia

37.1

47.1

35.5

6.8

8.4

6.6

Mexico

36.1

44.2

34.9

9.0

21.5

7.1

Russian

Federation

n/a

9.5

13.5

8.9

Turkey

28.5

60.7

17.0

9.9

43.4

4.8

Country

Source: WTO Tariff Profiles databank.

Notes: Due to NAFTA, the United States faces zero tariffs in exporting to Mexico. Simple average MFN applied

rates are for 2010 and trade weighted averages calculated for 2009.

Binding is a form of concession under WTO rules in which a party agrees to bind its maximum tariff levels for a

product by placing that tariff level on record. These “bound” rates become part of a WTO member’s schedule of

concessions. In practice, many WTO members do not apply their bound rates, but apply much lower rates. These are

called “applied” tariffs. In theory, a WTO member that is not applying its bound tariff rates can cut bound rates without

providing any new real market access. Conversely, a WTO member can also at any time raise applied tariff rates to the

bound level without having to pay any compensation to its trading partners.

Jennifer Hillman, “Global Swing States and the Trade Order,” German Marshall Fund, Global Swing States

Working Paper 2012, p.5.

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Rising Economic Powers and U.S. Trade Policy

Services Barriers

Some economists believe that reducing

barriers to U.S. exports of services is

critical to the U.S. economy and should

receive priority attention.61 The United

States has a comparative advantage in

exporting business services

(information, banking, insurance, legal,

scientific, managerial, express delivery,

and e-commerce). Comprising 14% of

U.S. employment, jobs in business

services tend to be high-wage and highskilled. But the international sales

activities of business services lag

manufactured exports by an estimated

margin of 4:1. This export

underperformance is due substantially to

barriers to services trade which tend to

be quite high in REP markets.62

Table 7. Tariff Equivalents of Service Barriers

Country

Current Tariff

Equivalent

Brazil

55.54

China

67.93

India

68.06

Indonesia

67.93

Mexico

44.32

Russia

51.26

Turkey

43.89

United States

6.03

Source: Gary Clyde Hufbauer and J. Bradford Jensen,

Framework for the International Services Agreement, Policy

Brief 12-10, April 2012, p. 17.

REP services barriers include marketentry barriers (outright bans and quotas) that prevent entry into the market, national treatment

barriers that discriminate between domestic and foreign service providers (discriminatory

government procurement policies), and regulatory barriers that apply to all providers but create

additional hurdles for U.S. suppliers. According to Peterson Institute estimates, as shown in Table

7, the REP service barriers range from 7 (in the case of Mexico) to 11 times (in the case of India)

more onerous than U.S. service barriers. And as shown in Figure 7, services tariff equivalents of

the REPs tend to be much larger than their agricultural and non-agricultural tariffs.

The market access commitments of the WTO General Agreement on Trade in Services (GATS),

concluded in 1994, are modest, and the United States has attempted to expand on them in the

FTAs it has negotiated. In addition, the United States is pushing broader services provisions in the

ongoing Trans-Pacific Partnership negotiations, and trying to build support for a plurilateral

international services agreement among willing WTO partners.63

Michael Spence and Sandile Hlatshwayo, “The Evolving Structure of the American Economy and the Employment

Challenge,” Council on Foreign Relations, 2011.

J. Bradford Jensen, Global Trade in Services, pp. 137-153.

CRS Report R42344, Trans-Pacific Partnership (TPP) Countries: Comparative Trade and Economic Analysis, by

(name redacted).

Congressional Research Service

Rising Economic Powers and U.S. Trade Policy

Figure 7. Goods Tariffs and Services Tariff Equivalents

Source: WTO Tariff Profiles databank. Gary Clyde Hufbauer and J. Bradford Jensen, Framework for the

International Services Agreement, Policy Brief 12-10, April 2012, p. 17.

Government Procurement

Increases in REP spending on infrastructure projects over the next two decades are expected to be

worth trillions of dollars. This spending could lead to a substantial increase in demand for U.S.

capital goods, construction, engineering, and financial services if REP barriers, particularly

discriminatory government procurement policies, are modified. This is because much of the

spending on infrastructure is likely to be financed, controlled, and regulated by governments and

those governments are likely to face strong domestic pressures to favor domestic firms in granting

contracts.

Securing equal treatment in government procurement, thus, should be a major priority for the

United States. The Government Procurement Agreement (GPA) has provided the main legal

framework at the WTO level since 1996 for opening up government procurement markets of key

trading partners to international competition. The GPA does this by guaranteeing that some public

spending decisions are made on a non-discriminatory, transparent, and competitive basis for the

WTO members that have signed the agreement. But it is an agreement which comprises only a

handful of mostly advanced countries and offers limited coverage of services. None of the REPs

are signatories to the GPA, although China has been negotiating to join the GPA for many years.

Countries that want to join the GPA have to submit offers which must be agreed by all GPA

members.

REP procurement markets remain significantly closed, incomplete, and non-transparent. As

illustrated in Table 8, the bulk of purchases often is not determined by cost or technical factors,

but by domestic policy goals such as promoting domestic manufacturing, or the development of

home technologies (to say nothing of promoting non-economic interests.)

Congressional Research Service

Rising Economic Powers and U.S. Trade Policy

Table 8. Selective REP Procurement Policies

County

State Law/Policy

Details of Law/Policy

Rationale

China

2002 Government

Procurement Law

As re-drafted, regulations

require over 50% local

value added for bidding

purposes.

The Government

Procurement Law is seen

as a tool to help promote

local industry.

Brazil

Procurement Decree

12.349/2010

The Decree establishes a

25% margin of preference

for manufactured goods

and national services in

compliance with Brazilian

technical standards.

The procurement law is

part of an overall new

policy to promote

Brazilian industry.

India

Government Procurement

Guidelines

Guidelines issued in

February 2012 require a

percentage of all electronic

products be reserved for

domestic manufacturing.

The guidelines are

designed to preserve the

security of India’s

information technology

sector and promote Indian

manufacturing.

Indonesia

Presidential Decree

54/2010

Article 98 provides

preferences to goods and

services with a minimum

of 25% local content (even

where bid is 15% higher in

price).

The policy appears to

boost Indonesian

manufacturing by imposing

local content requirements

that discriminate against

foreign companies.

Mexico

Government Procurement

Rules

Public tenders covering a

range of goods and

services are restricted by a

minimum national content

of 65% for 2012.

Aim is to boost domestic

manufacturing through

procurement policies.

Source: Data from Information Technology and Industry Council.

Intellectual Property Protection

U.S. high tech companies and workers are among the most innovative in the world. According to

a U.S. Chamber of Commerce study, an estimated 19 million Americans are employed in

intellectual property-intensive industries such as information technologies, business software,

entertainment, pharmaceuticals, and video games. Intellectual property rights (IPR) protection

and enforcement of patents, copyrights, and trademarks are considered an essential facilitator of

innovation and creativity, which are vital to strengthen the U.S. economy through creation of

economic opportunities and high-paying jobs for Americans. Although difficult to quantify, it is

estimated that IPR infringement results in billions of dollars of losses to U.S. stakeholders.64

One example of these losses is provided by an annual survey of piracy rates of computer software

undertaken by the Business Software Alliance. According to this survey, the REPs have some of

the highest piracy rates of computer software in the world, while the United States and Europe

have some of the lowest rates. For 2011, the survey pegged Indonesia’s piracy rate at 86%,

China’s at 77%, Russia’s at 63%, India’s at 63%, Turkey’s at 62%, Mexico’s at 57%, and Brazil’s

USTR, 2012 Trade Policy Agenda, p.9.

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Rising Economic Powers and U.S. Trade Policy

at 53%. By contrast, the European Union’s piracy rate was estimated to be 33% and the U.S. rate

at 19%. A piracy rate of 86% means that for every $100 dollars of legitimate software sold, an

additional $86 worth of unlicensed software also made its way into the market.65 Significant

piracy also exists in the film, music, publishing, and Internet spheres.

The United States has sought increased IPR protection in its FTAs that go beyond the level of

protection provided in the WTO Trade Related Aspects of Intellectual Property (TRIPS)

Agreement. Some of these efforts to enhance intellectual property protection have made

considerable progress among U.S. free trade agreement (FTA) partners, but serious problems

remain among the REPs. A study done by the U.S. International Trade Commission estimates

those losses to U.S. industry from intellectual property infringements in China alone totaled

roughly $48 billion in 2009. To crack down on piracy and counterfeiting, the U.S. government

has brought two IPR-related cases against China in the WTO, and placed China, as well as India,

Indonesia, and Russia, on a USTR Priority Watch List in an effort to secure greater and fairer

access of intellectual property-intensive products exported to REP markets. Many of these

countries have made significant strides to improve their IPR laws, but enforcement remains a

significant concern.66

Foreign Investment Restrictions

Foreign direct investment (FDI), both inward and outward, is of substantial importance to the

U.S. economy.67 It is a force for spurring U.S. productivity, increasing investments in technology,

and raising living standards. Strong investment protections and other policies help support U.S.

foreign investment abroad and foreign investment in the United States.68

Overall, restrictions on FDI are low in most advanced economies, but high among developing

countries. According to an OECD study (see Figure 8), among the REPs, China, Russia,

Indonesia, Mexico, and India are among the most inhospitable countries in the world toward

FDI.69 Turkey and Brazil are much more open, with Brazil’s restrictions being comparable to the

level of U.S. restrictions and Turkey being much more open than either Brazil or the United

States. The OECD index is based on four measures: foreign equity restrictions, screening and

prior approval requirements, rules for key personnel, and other restrictions on the operations of

foreign enterprises.70

Business Software Alliance, 2011 Piracy Study, found at http://www.BSA.org.

CRS Report RL34292, Intellectual Property Rights and International Trade, by Shayerah Ilias and (name redacted).

Foreign direct investment is the acquisition of real assets such as real estate, a manufacturing plant, or a controlling

interest in an ongoing enterprise by a foreign national. More than 50% of U.S. outward foreign direct investment is in

advanced countries. Companies invest overseas for a variety of reasons, including new markets, higher returns and

lower production costs.

CRS Report RS21118, U.S. Direct Investment Abroad: Trends and Current Issues, by (name redacted).

Perhaps paradoxically, China was the second largest recipient of global FDI (after the United States) in 2011.

Blanka Kalinova, Angel Palerm and Stephen Thomson, “OECD’s FDI Restrictiveness Index: 2010 Update,” OECD

Working Papers on International Investment, No. 2010/3, OECD Investment Division,

http://www.oecd.org/daf/investment/workingpapers

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Rising Economic Powers and U.S. Trade Policy

Figure 8. FDI Restrictiveness Index by Country, 2010

Source: OECD Working Papers on International Investment, No. 2010/3, p.18.

There are no comprehensive multilateral investment rules and disciplines governing foreign

investment, despite past attempts in the WTO and OECD. Consequently, cross-border investment

rules can be freely negotiated in bilateral agreements between countries. The United States has

utilized FTAs and Bilateral Investment Treaties (BITs) to provide core protections that help

promote and protect U.S. investments.

The United States started BIT negotiations with China and India in 2008, and these negotiations

are ongoing. There is also interest in negotiating BITs with some of the other REPs, particularly

Russia, Brazil, and Indonesia. There may be more momentum for negotiating additional BITs in

light of the Obama Administration’s recently completed review of U.S. model BIT provisions.71

State-Owned or State-Controlled Enterprises (SOEs)

State-owned or state-controlled enterprises (SOEs) play an important role in most of the REPs.

Some 117 state-owned and public companies from Brazil, Russia, India, and China appear on

Forbes list of the world’s largest companies. The list includes national champions such as

Mexico’s Pemex, a state-owned oil company, and Brazil’s Vale, a huge mining company. In

addition, more than half of India’s 40 largest companies and most of China’s largest banks are

SOEs. Some 140 SOEs dominate key sectors of Indonesia’s economy, including oil,

telecommunications, and shipping.72

SOEs enjoy numerous competitive advantages over private companies, including direct subsidies

such as low interest-rate loans, and discounted land, electricity, and fuel. Indirect subsidies can

include bidding on state contracts which are often pre-disposed in their favor. As a result of these

subsidies and being able to sustain financial losses, SOEs are in a position to win market share

from private companies that operate largely in accordance with commercial and market

principles.73

CRS Report RL33978, The U.S. Bilateral Investment Treaty Program: An Overview, by (name redacted) and

Shayerah Ilias.

Oxford Analytica, “Reforms to Continue as SOE Divestment Slows,” March 24, 2011.

The Economist, “The Visible Hand,” Special Report on State Capitalism, January 21, 2012.

Congressional Research Service

Rising Economic Powers and U.S. Trade Policy

There are few international agreements or rules that might be used to discipline SOEs. The GATT

requires state enterprises to operate in a manner “solely in accordance with commercial

considerations.” Yet this provision has been interpreted loosely and SOEs continue to use any and

all special privileges granted to them by their governments.74

In light of weak international or multilateral obligations, the United States has addressed the

potential unfair competition element of SOEs, in part, through FTAs. U.S. FTAs with Australia,

Chile, Colombia, Peru, and South Korea, for example, contain national treatment, nondiscrimination, and transparency provisions, while upholding the prerogative of countries to

establish and maintain SOEs. Stronger disciplines are being proposed in the TPP negotiations to

ensure that the SOEs operate on a commercial basis. If stronger rules can be agreed to in these

negotiations with countries such as Vietnam and Malaysia, it is hoped that they could eventually

serve as a template for negotiations with the REPs, and perhaps more broadly for the WTO.75

Export Restrictions on Raw Materials

The growth in global demand and upward price pressure driven by the rapid industrialization of

the REPs has sparked concerns with regard to the sound functioning of global markets for raw

materials. For the production and export of many high-tech and “greener” products, many U.S

industries are dependent on imports of specific raw materials. Of the REPs, China, Brazil, Russia,

and India all impose restrictions on export of raw materials. The restrictions increase the prices

for U.S. industries that use raw material inputs, thus potentially jeopardizing the competitiveness

of selected U.S. industries, and ultimately consumers. At the same time, the restrictions hold

down prices for firms in the countries that impose the restrictions.

Country examples include China’s restrictions on rare earth metals, Brazil’s restrictions on raw

hides and skins, India’s restrictions on cotton exports, Indonesia’s restrictions on 14 key

minerals—including nickel, copper, and gold—and Russia’s high export duties on wood, ferrous,

and non-ferrous scrap. Tackling these kinds of restrictions is challenging because they are not

fully ruled out by WTO disciplines. While quantitative restrictions (notably export quotas and

export licenses) are subject to General Agreement on Tariffs and Trade (GATT) rules, export

taxes are generally not covered by multilateral disciplines (except when provisions were

specifically negotiated in WTO accession protocols as is the case for China and Russia for a

number of raw materials).76

REP Interventionist Practices

The United States played a large role in the creation of the open market, rules-based GATT/WTO

trading system. The system provides a set of non-discriminatory rules, a framework for

cooperation, and processes for negotiating trade agreements and resolving disputes. In addition,

Stephen S. Kho and Sean Heather, “Checkers or Chess? Facing State Capitalism – Part II, Law 360, Portfolio Media,

2011.

CRS Report R42344, Trans-Pacific Partnership (TPP) Countries: Comparative Trade and Economic Analysis, by

(name redacted).

For additional information on China’s rare earth controversy, see CRS Report R42510, China’s Rare Earth Industry

and Export Regime: Economic and Trade Implications for the United States, by (name redacted) and Rachel Tang.

Congressional Research Service

Rising Economic Powers and U.S. Trade Policy

the system seeks to limit the role of governments in economic activity by allowing commercial

outcomes to be determined by market forces and genuine competition.

While there are competing views within the United States today about the proper role that

governments or the state should play in promoting and regulating economic activity, many

analysts consider the United States to be one of the most open, market-oriented or capitalist

economies in the world.77 The REPs have considerably more state involvement in their

economies, as well as very different ideas about how government, business, and labor should

cooperate. Moreover, they pose clear-cut philosophical and practical challenges to the belief that

the market and the private sector, not the state, must be the primary engine of economic

expansion.78

These interventionist challenges may have gained traction as a result of the 2008 global financial

crisis, as some spokesmen from rising economic powers argued that the financial crisis was

caused by excesses in U.S. financial markets and inadequate regulation. In the process, some

governments questioned in stark terms the notion that free markets are always efficient and that

governments should get out of the way.79 Others reactivated industrial policies, granted industryspecific subsidies that distort trade, conditioned foreign investment approvals on the use of

domestically produced components, or otherwise imposed selective protectionist measures to

promote home companies at the expense of foreign companies.80

Most of the REPs tend to invite just enough market forces into their economies to create some

competition, while also retaining control over key industries. In seeking to promote investment,

the key factor in generating growth, REP governments have utilized variable arrangements of

state control and open markets. Characterized by Ian Bremmer as state capitalism, REP leaders

also use government ownership, intervention, and influence over the economy as a way to protect

and promote their own home companies at the expense of foreign firms.81 The contours of their

economic systems vary from country to country, but all share a proclivity for government

interventions that impact commercial outcomes.

•

China may be the most successful country practicing a version of state

capitalism. In 2008, just as the Western financial crisis was beginning, Chinese

Premier Wen Jiabao articulated his view of state capitalism: “The complete

formulation of our economic policy is to give full play to the basic role of market

forces in allocating resources under the macroeconomic guidance and regulation

of government. We have one important piece of experience of the past thirty

years, that is to ensure that both the visible hand and the invisible hand are given

full play in regulating market forces.” As a practical matter, this model defies

easy description. On the one hand, China is still nominally communist, with fiveyear plans and a sometimes heavy-handed involvement or control of a dozen or

According to the Heritage Foundation’s Index of Economic Freedom, which tracks one broad measure of market

openness, the United States ranked 10th in 2012.

German Marshall Fund, “The Case for Renewing Transatlantic Capitalism,” Edited by Pawlel Swieboda and Bruce

Stokes, 2012, p. 7.

David Rothkopf, Power, Inc.: The Epic Rivalry Between Big Business and Big Government and the Reckoning that

Lies Ahead, Farrar, Strauss, and Girous, 2012, p. 345.

USTR Trade Estimates Report, 2012.

Ian Bremmer, The End of the Free Market: Who Wins the War Between Corporations and Governments? Wiley,

201, p.23.

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so of the most important and strategic sectors. On the other hand, the state sector

is shrinking and the conventional wisdom is that China will not keep growing at

sustainable levels unless it becomes less state-directed.82

•

Russia practices a highly interventionist form of state capitalism. The Kremlin

relies on both direct government control and intervention in key sectors and

control of politically connected businessmen to further both the interests of the

state and those who run it. The country’s vast oil and gas reserves are used as a

key tool to promote financial and political independence and promote Russia as a

great power abroad.83 At the same time, the Russian model also allows many

large segments of the domestic economy to remain relatively open for private

(including foreign) investment. Consumer driven sectors like retail, construction,

real estate, and wireless telecommunications are mostly free of direct political

interference. In some sectors, political officials have found that consumer

demand is best fueled by free markets.84

•

Brazil’s economy is market based, although significant state involvement

continues to shape economic activity through industrial policies and ownership of

major enterprises. The government is also the primary source of capital and longterm local currency financing and often attempts to influence some of the largest

private companies, known as national champions, to invest domestically in

strategic sectors such as natural resources and telecommunications. In Brazil it

can be said that there is very little controversy over the government playing a

large role as an investor, provider of social welfare, and driver of economic

growth.85

•

India combines a state-dominated economic model of an earlier era and one

driven by private enterprise. India still uses five-year economic plans that are

created, implemented, and monitored by a state planning commission. State

involvement in politically sensitive sectors such as food, fuel, fertilizer,

electricity, and water remains high. The Indian government continues to play an

active role in the management of business activities.86

The governments of Mexico, Indonesia, and Turkey also play a much larger role in their

economies than does the U.S. government, influencing market outcomes, promoting state

objectives, and advancing national power. In the process, these countries arguably may be more

willing to entertain market-distorting practices and take advantage of gaps in the rules.

WTO rules constrain many of the policy options pursued by the REPs to promote and favor the

development of home-grown technologically advanced industries. In resisting compliance with

the letter or spirit of their WTO obligations, many REP leaders argue that developing countries

Pieter Bottelier, “China’s Economy Is Slowly Becoming More Normal,” Carnegie International Economic Bulletin,

July 26, 2012.

David Rothkopf, Power, Inc., pp. 353-356.

Ibid. p.109.

Council on Foreign Relations, Independent Task Force No. 66, Global Brazil and U.S.-Brazil Relations, 2011, p. 9.

David Rothkopf, Power, Inc., p. 355.

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should have the flexibility to use the same array of interventionist policy strategies that advanced

countries once employed to facilitate their own economic growth.87

REPs as “Responsible Stakeholders”

The changing configuration of global economic power has coincided with a shift in the leadership

of the global economy. Arguably, U.S. and European leadership, which was largely credited with

creating the architecture of the post-war trading system—including the GATT and its successor

organization, the WTO—has declined. Whether the decline is due to inclination or capability, the

WTO has struggled to adapt to new voices and centers of influence. In the process, there is

growing uncertainty about the future of the WTO and the direction of the world trading system. In

particular, there is concern that a leadership vacuum could lead to economic and political conflict

in the years ahead if the WTO system is not strengthened.88

Many observers assumed that because the REPs have benefitted enormously from participation in

the existing global trading system, they would over time become responsible stakeholders

(sharing not only the benefits of the global trading system but the responsibility of system

maintenance) as they gain weight and power in the global economy. Some assumed that as

responsible stakeholders the REPs would pursue a path of greater openness and actively promote

and embrace the principles of free and fair trade with limited government intervention. As

responsible stakeholders, it was also expected that they would work to break the stalemate in the

Doha Round and not to stand aside and let it fail.

These expectations have not yet been realized. Some observers believe that the REPs, led by

China, India, and Brazil, have preferred the status quo to co-leadership of the global trading

system, protection of their domestic markets to market openings, and manipulation of current

rules to designing new rules. Other REPs, such as Indonesia and Turkey, which could play a

constructive supporting role have also been either obstructionist or defensive in the Doha

Round.89

While many of the leaders of the REPs argue that they do show trade leadership by defending

what they perceive as their national interests, others disagree and point to factors that may be

inhibiting the REPs from exercising leadership. For example, while each of the REPs has a large

GDP, they are all relatively poor in terms of GDP per capita. This perhaps creates a gap between

the world’s expectations about their ability to shoulder important roles and responsibilities in

global governance and their perceptions of their own capabilities to do so.90 The REPs also face

formidable challenges at home, including weak national institutions and governance by elites

prone to corruption, which may curb any appetite for global leadership and keep their leaders

focused on domestic issues.91

Ha-Joon Chang, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, 2008; and Dani

Rodrick, The Globalization Paradox: Democracy and the Future of the Global Economy, 2011.

Robert Skidelsky, “The Future of Globalization in the Light of the Economic Collapse of 2008,” p.13.

Razeen Salley, The Crisis and the Global Economy,” pp. 28-29.

George Magnus, Will Asia Shape or Shake the World? ECIPE, 5/2012, p.2.

Razeen Salley, “The Crisis in the Global Economy,” p.28.

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One hope for REP leadership rested in the rise of the G-20 as the primary forum for addressing

global economic issues. Created in 2008 in response to the global crisis, the G-20 was credited

with facilitating an effective response by the rising powers in keeping the world economy afloat.

China and India, in particular, both adopted large spending programs to keep their own economies

from declining, which, in turn, had some positive effects on the world economy. But the G-20 has

become less effective since the crisis, and cooperation remains elusive. Collective pledges, such

as on concluding the WTO Doha Round, have not been implemented. Soft cooperation may be

the best that can be hoped for as deep-seated differences among G-20 members on underlying

economic policies prevent hard coordination on rebalancing the global economy and

implementing policies to prevent a future crisis.92

As the REPs focus on dealing with internal challenges to economic growth, greater enthusiasm

and a stronger commitment to the principles of WTO membership could be helpful as they

attempt to overcome vested interests and protectionist pressures at home. A multilateral trading

system based on mutual obligations and concessions has historically helped governments deal

with their domestic political challenges to economic reforms.

China’s Key Role

With the largest population and the second-largest economy in the world, China is the REP

looked to the most for shouldering global responsibilities and in delivering global public goods.

Which direction China will take is uncertain, but it is sure to have a big impact on the other

REPs.93 A number of factors may push China either towards or away from accepting more

leadership responsibilities.

On the one hand, China has a huge stake and self-interest in maintaining an open multilateral

trading system. Its rise to prosperity has depended on an open world trading system to generate

growth and demand. Assuming it becomes the largest trading country (both goods and services)

and largest economy in the world in the decades ahead, its need for stable rules, open markets for

its exports, and access to raw materials and intermediate inputs that are not produced

domestically will only grow. China’s large state-owned companies also want opportunities to

invest abroad. These stakes in an open world trading system ought to provide an incentive for

China to provide more active leadership in strengthening the rules of the trading system,

especially if it is threatened by protectionism. Moreover, its regime’s claim to legitimacy hinges

on the country’s continuing welfare and prosperity.94

China’s movement toward responsible stakeholder status could also be bolstered by internal

forces pushing Chinese authorities to reduce control over the economy. The World Bank, for

instance, recently concluded that China will not keep growing at sustainable levels and will not

CRS Report R40977, The G-20 and International Economic Cooperation: Background and Implications for

Congress, by (name redacted).

It also can be argued that, with the possible exception of Russia, the approach the other REPs adopt on becoming

“responsible stakeholders” may be more fluid and open than China’s. If so, the other REPs, particularly Brazil, India,

Indonesia, and Turkey, may be as influential as China in affecting the future of the world trading system. For

elaboration of this view, see Daniel M. Kliman and Richard Fontaine: “Global Swing States: Brazil, India, Indonesia,

Turkey and the Future of International Order, German Marshall Fund of the United States and Center for New

American Security, November 2012, and Jennifer Hillman, “Global Swing States and the Trade Order,” German

Marshall Fund of the United States, Global Swing States Working Paper 2012.

Guy de Jonquiere, “China’s Challenges,” ECIPE Policy Brief, No. 01/2012, p. 8.

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avoid the trap that most middle-income economies fall into unless its economy becomes less

state-directed. SOEs still account for a significant amount of Chinese industrial production and

put a heavy strain on China’s economy. Government support of unprofitable SOEs, half of which

reportedly lose money, diverts resources from potentially more efficient and profitable

enterprises. Accordingly, a less directed economy or an economy in which the private sector and

markets gain the upper hand would be consistent with movement towards responsible stakeholder

status—a China that is more integrated into the rules and norms of the global trading system.95

On the other hand, China’s leaders may believe that they can achieve the country’s international

economic objectives, particularly access to natural resources, through diplomacy, foreign aid, and

preferential trade agreements with other countries. Moreover, China’s leaders have for three

decades defied the predictions of critics that central planning cannot work efficiently. China’s

continued growth, despite a recent slowing, has led some in China to conclude that China’s state

dominance in key industrial and service sectors should and will continue. The challenge is that

genuine integration into the global economic order would demand significant modifications to the

Chinese political economy and how China is ruled. Such modifications could change the

dynamics of how the country is run or even weaken the relevance of the Communist Party. While

its leaders may recognize that they (via the state) misallocate capital on a massive scale, they may

do so in large part to keep a hold on power. Under this view, it is hard to see China taking on a

global trade leadership role given that most incentives will be in promoting the power interests of

the Party elites.96

While it is uncertain which path China will take, any change is likely to be incremental and

gradual. Reflecting Deng Xiaoping’s much quoted injunction “to stand firmly, hide our

capabilities, bide our time, never try to take the lead” in international affairs, China’s use of

power in the past has been cautious.

U.S. Trade Policy Response

Major shifts in the structure of the world economy have taken place. The REPs now account for

significant shares of global GDP and trade. As a result, they also have increased their economic

influence and bargaining leverage. This reconfigured global economy coincides with very

different conditions than those that prevailed in the second half of the last century.97 Most notably,

the traditional structure of postwar multilateralism has weakened; bilateral and regional

preferential trade agreements have proliferated; and priorities for trade liberalization and

economic reforms are in flux during a period of heightened economic uncertainty. In this

environment, questions arise over how the world trade order will be kept, how new rules can be

established to discipline foreign trade-distorting practices, and how the United States can best

respond to the challenges and opportunities posed by the REPs.98

World Bank, China 2030, pp.18, 61.

John Lee, “China’s Economy a Party Plan,” Australian Financial Review, January 5, 2012.

In 1948, when the General Agreement on Tariffs and Trade was created, U.S. GDP accounted for 65% of total GDP

of the 23 GATT members. By 2011, U.S. GDP accounted for about 22% of the total GDP of the now 157 members of

the WTO. CRS calculations based on IMF data in current dollars.

Robert Skidelsky, ”The Future of Globalisation in Light of the Economic Collapse of 2008,” p.3.

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Any response could begin by reconsidering overall U.S. trade policy goals, as well as specific

objectives vis-a-vis the REPs. To promote those objectives, policymakers have a full range of

multilateral, regional, bilateral, and unilateral trade initiatives to consider. How the Obama

Administration and 113th Congress prioritize and shape these trade initiatives will fundamentally

determine the course of U.S. trade leadership in the years ahead.

Trade Policy Goals and the REPs

The overriding goal of post-World War II trade policy under successive administrations has been

to promote the highest possible standard of living for U.S. residents. To this end, there is a broad

consensus among policymakers and economists that by removing a country’s tariffs and non-tariff

barriers to allow greater specialization in production and trade, the ensuing expansion of trade

will have a favorable impact on overall economic well-being.99

Most economists, however, also agree that while a nation’s general welfare may increase, freer

trade does not necessarily distribute those production and consumption benefits equally. While

firms and industries that are competitive may gain by increasing exports or by expanding their

operations overseas, some segments of the economy that are unable to survive increased

competition could lose through worker layoffs and plant closures. In addition, there are growing

concerns that today’s more open global economy, which allows millions of low-wage workers

around the world to compete with American labor, and digital machines to replace many forms of

human labor, is responsible for a number of contemporary economic concerns. These concerns

include income stagnation for the majority of American workers and increased job insecurity,

particularly among lower-skilled workers.100

Given this dilemma, few economists call for halting trade liberalization efforts or technological

advances (i.e., globalization). But they do recognize that trade policy alone cannot address many

of the challenges U.S. companies and workers face in an increasingly global economy. These

experts generally argue that U.S. policy must address those displaced by trade by providing them

with better education and training necessary to compete in a globalized economy. Such policies,

they argue, are necessary not only to improve U.S. living standards, but also to limit, if not

reverse, the decline in popular support for foreign trade.101

In addition to recognizing the domestic aspects of the labor market challenges, U.S. trade

policymakers are also subject to growing public pressures for greater reciprocity in U.S. trade

relations with the REPs. Polling data reflect an American public that is increasingly skeptical of

the benefits of globalization in general and free trade agreements in particular. More concern

about the U.S. ability to compete for trade and investment is directed at the REPs than with

advanced trading partners such as Japan or the European Union.102 These attitudes stem both from

concerns of U.S. stakeholders about jobs, import competition, and wage stagnation and from the

CRS Report R41145, The Future of U.S. Trade Policy: An Analysis of Issues and Options for the 112th Congress, by

(name redacted).

100

David Leonhard, “Standard of Living Is in the Shadows as Election Issue,” New York Times, October 23, 2012.

101

CRS Report R41145, The Future of U.S. Trade Policy: An Analysis of Issues and Options for the 112th Congress,

by (name redacted).

102

Edward Gresser, “Trade and the 2010 Elections,” Remarks to the Washington International Trade Association,

November 10, 2010.

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tendency of the REPs to keep their markets relatively more closed than the U.S. economy to

promote home companies and industries.103

How the United States can best persuade the REPs to make trade liberalization a higher priority

or take more responsibility for supporting the world trading system remains uncertain. On the one

hand, it may help U.S. policymakers to have better information on and understanding of the

factors driving REP policies, particularly how their trade policies are influenced by domestic

growth and development priorities. In many cases, REP trade policy concerns and obligations

tend to be subordinated to powerful elites and domestic concerns. Yet, the REPs still depend on

access to the U.S. and other advanced country markets, and, thus, cannot easily ignore requests

for reciprocity or threats of market closure. Nor are the REPs likely to ignore the discriminatory

effects of preferential agreements negotiated by the United States with large and significant

trading partners.

On the other hand, in choosing to engage the REPs, U.S. policymakers may also need to

reconsider long-standing positions on trade agreements. Some of these positions relate to

multilateral trade agreements and others to the template or formula the United States has used in

negotiating bilateral and regional agreements. To better match their rising economic importance,

policymakers may also wish to consider the resources and level of attention the U.S. government

devotes to these countries. In addition, U.S. policymakers may also consider negotiating

reductions of U.S. trade barriers about which the REPs often complain. These alleged U.S.

barriers include agricultural subsidies, trade remedy laws, Buy-American policies, foreign

investment restrictions, and work visas, among others. Under these circumstances, reciprocal

bargaining and negotiations may still be possible to maximize economic welfare and avoid trade

conflict.104

Trade Negotiating Initiatives

There is little disagreement that the rapid growth of the REPs presents an opportunity for gains in

exports of U.S. manufactured goods, services, and agriculture, as well as opportunities for the

expansion of U.S. investments abroad. A range of trade negotiating approaches may be employed

to open up REP markets in a way that provides for more reciprocal and mutually beneficial

economic relationships. These approaches are multilateral and plurilateral negotiations under the

WTO, including possible reforms of the WTO dispute settlement mechanism, bilateral and

regional negotiations to establish free trade agreements (FTAs), and unilateral actions that may

either threaten or entice the REPs to open their markets to U.S. exports, or to end otherwise

objectionable commercial policies.

103

CRS Report, CRS Report RL34091, Globalization, Worker Insecurity, and Policy Approaches, by (name redac

ted).

104

Both the GATT and the WTO were designed to help governments promote trade through an exchange of

concessions. When Country A agreed to lower a trade barrier, Country B would follow. Economists often say that such

reciprocal bargaining is bad economics because unilateral reductions in trade barriers enhance a country’s welfare. But

many observers maintain that such bargaining is good politics because it helps leaders in both countries deal with

vested interests who favor protection over trade liberalization.

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Multilateral Negotiations

Multilateral negotiations were the predominant trade liberalizing vehicle in the 1960s and 1970s,

at a time when the economies of the United States, France, Germany, and the United Kingdom

accounted for the predominant share of global GDP. This is not the case today, as demonstrated

by the inability to conclude the WTO Doha Round of multilateral trade negotiations, which were

launched in 2001.105

The Doha negotiations have been stymied by persistent differences between the United States and

Europe, on the one hand, and the largest rising economic powers, on the other hand. The United

States and Europe, for the most part, have shared similar interests in encouraging the big

emerging economies, such as China, India, and Brazil, to open their import markets further for

services and manufactured goods, while retaining some measure of protection for their own

agricultural sectors. Developing countries sought the reduction of U.S. and European agricultural

tariffs and subsidies, non-reciprocal market access for manufacturing sectors, and protection for

their services sectors. In the past they might have taken any deal offered by the West because they

were not obligated to make any significant concessions, today, countries like India and Brazil

now hold out for the deal of their choice. This resolve may have been bolstered by a view by

some that they made greater commitments in the 1990s Uruguay Round of multilateral

negotiations than the advanced countries.106 Moreover, the rising powers may believe that they do

not have much to gain by giving up protection of their markets for goods and services because

U.S. and European markets are already quite open.107 Concurrently, the United States, European

Union, and Japan, beset by slow growth and high unemployment, were simply not willing to

accept what appeared to be small and unbalanced concessions, especially by advanced developing

countries, to salvage a trade round.

According to former U.S. Trade Representative Susan Schwab, countries such as China, Brazil,

India, and South Africa have hidden behind the WTO’s long-standing practice of allowing

“developing countries” to undertake significantly fewer obligations than developed countries.108

Ms. Schwab argued that these countries shielded themselves from making market-opening

concessions by seeking maximum flexibility for developing countries. Another diplomat

described this process as “the elephants hiding behind the mice.” Under this perspective, the fact

that these rising and heavily populated economic powers, for the most part, will have low per

capita incomes for many decades raises serious concerns that they will continue to resist

105

Technically dubbed the Doha Development Agenda, the round was supposed to end in 2005, but that deadline and

four others have been missed.

106

J. Michael Finger and Julio J. Nogues, “The Unbalanced Uruguay Outcome: The New Areas in Future WTO

Negotiations,” 25 the World Economy, 321, 333, 2003.

107

According to USTR, under a 2008 draft agreement, China would be allowed to exempt up to 420 industrial products

from tariff cuts, India would offer no new market access for 97% of its total tariff lines covering industrial products,

and Brazil would be shielded from increasing market access on nearly half of its industrial products. Nor did any of

these countries offer to provide any significant liberalization of their services sectors. See remarks by Ambassador

Miriam Sapiro at the European Policy Centre, February 10, 2011, found at http://ustr.gov.

108

The concept known as “special and differential treatment” had its origins in the 1960s Kennedy Round of

multilateral trade negotiations. Part IV of that agreement provided that developed countries did not expect reciprocity

for tariff reductions or the elimination of other barriers by developing countries. In 1971, GATT members granted a

waiver that permitted them to abrogate the most-favored-nation (MFN) obligation in providing developing countries

with non-reciprocal tariff preferences under the General System of Preferences. The waiver became a permanent

component of the GATT system in 1979 and has not been changed since.

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supporting the open trading system from which they have accrued substantial economic

benefits.109

The biggest REPs also worked together as a bloc to alter the negotiating dynamics of the Doha

Round. In response to a U.S.-EU proposal on agriculture, Brazil and India helped create a

negotiating group at the 2003 WTO Ministerial meeting held in Cancun. The proposal

encompassed Brazil’s and India’s respective agricultural liberalization and development goals and

received backing from China, but did little to advance the negotiations.110

From the perspective of the REPs, the United States and other advanced countries are as much to

blame for the Doha stalemate as they are. Officials from these countries maintain that advanced

countries have wanted them to make one-sided concessions because they have been unwilling to

reduce their own trade and regulatory barriers, especially in agriculture.

Few observers now believe that, given the history of the round, a large and meaningful agreement

is likely to be forthcoming in the near future. For a robust agreement to come to fruition, the

United States, the European Union, and China, the largest trading countries in the world, would

likely need to put additional significant offers on the table. Absent movement in this direction,

some observers maintain that consideration should be given to “harvesting” already achieved

gains or concessions. These could include agreements or offers on trade facilitation and the phase

out of farm export subsidies, among others.111

Plurilateral Agreements

Given that the REPs exercised their growing influence to prevent a successful conclusion, as well

as to alter the dynamics of the Doha Round, further progress on trade liberalization within the

WTO may require alternatives to existing multilateral processes and practices. It has long been

suggested that principles that have guided multilateral trade negotiations in the past, such as

unconditional most-favored-nation (MFN) and special and differential (S&D) treatment, may

need to be reexamined.112

The unconditional MFN principle, for example, served as a foundation stone of the original

GATT (1947). Unconditional MFN thwarts discrimination between alternative foreign suppliers

and thereby promotes both economic efficiency and harmonious relations between states.

Whatever its virtues, unconditional MFN creates an open door for “free riders” and an exit path

from reciprocity, especially when concessions among a few countries are extended without cost to

all WTO members, as they were for much of the history of the GATT and WTO. If “free riders”

are developing countries that account for a relatively small amount of international trade, it may

109

Susan Schwab, “After Doha: Why the Negotiations are Doomed and What We Should Do about It,” Foreign

Affairs, May/June, 2011.

110

Amrita Narlikar and Diana Tussie, “The G20 at the Cancun Ministerial: Developing Countries and their Evolving

Coalitions in the WTO, 27 World Economy, 2004, p.947.

111

Gary Clyde Hufbauer and Jeffrey J. Schott, “Will the World Trade Organization Enjoy a Bright Future? Peterson

Institute for International Economics, Policy Brief, May 2012.

112

In addition to the “developing country” lesser obligation practice, the Doha Round has also operated according to a

“single undertaking requirement.” This means that all countries must agree to the whole package of commitments for

any agreement to be finalized. As presently formulated, this requirement provides individual countries with

considerable leeway to block forward movement.

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not be a big problem for the trading system.113 This was a situation long tolerated in the GATT

system. But the prospect of “free riders” the size of Brazil, India, or China arguably presents a

more formidable challenge for the functioning of most multilateral agreements.114

Plurilateral agreements may offer one way to get around the unconditional MFN and “free rider”

problem. Similar to the codes adopted in the Tokyo Round multilateral trade negotiations in the

early 1970s, such agreements apply to a number of WTO members, but not all members. By

incorporating a conditional MFN clause, plurilateral agreements aim to prevent countries from

gaining benefits without undertaking obligations. More positively, the conditional MFN

framework is designed to create incentives for reluctant trading partners to join in preferential

schemes over time.

A group of 47 countries is now negotiating an international services agreement. Only Mexico and

Turkey among the REPs have joined the discussions. Services negotiations are as important to the

United States as they are difficult. Given a strong U.S. comparative advantage in areas such as

publishing, software, communications, finance, accounting, and engineering, liberalization of

services trade offers potentially large economic benefits. But because services sectors are highly

regulated, both at the national and sub-national level, they tend to be politically difficult.115

According to one analyst, plurilateral agreements could “end the simplistic distinctions between

developed and developing countries and allow members from both groups to adopt rules that met

their interests.”116 Other plurilateral agreements could be proposed to address issues such as

foreign investment restrictions, currency undervaluation, and disciplines on state-owned

enterprises.117

China, India, Russia, and Brazil have generally opposed the negotiation of plurilateral agreements

within the WTO on the grounds that they would sacrifice the understanding of a “single

undertaking” for the Doha Round. This principle, which requires agreement on all provisions

being negotiated or no agreement at all, greatly strengthens their negotiating leverage.118

Strengthening the WTO Dispute Settlement Understanding

Whether future multilateral negotiations will occur or how they might evolve remains uncertain

given that the advanced countries and the REPs are currently at loggerheads over the revision of

113

Free riding under one definition occurs when a country lets other countries pay for a good or a service, or lets them

do the work when the country cannot be excluded from consumption of the good or benefitting from the concession. In

the context of multilateral trade liberalizing negotiations, “free riding” may be more of a political issue than an

economic issue if one assumes that liberalization benefits the reformer the most.

114

Gary Clyde Hufbauer and Jeffrey J. Schott, “Will the World Trade Organization Enjoy a Bright Future?” Peterson

Institute for International Economics, May 2012, p.2.

115

Gary Clyde Hufbauer, J. Bradford Jensen, and Sherry Stephenson, “Framework for the International Services

Agreement, Peterson Institute for International Economics, April 2012, p. 2.

116

Robert Z. Lawrence, “How Can Trade Policy Help America Compete? Peterson Institute for International

Economics, Policy Brief, October 2012.

117

Gary Clyde Hufbauer and Jeffrey J. Schott, “Will the World Trade Organization Enjoy a Bright Future?” Peterson

Institute for International Economics, May 2012.

118

Ibid. p. 15.

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existing rules or the creation of new rules. Within this context, the WTO dispute settlement

mechanism (DSU) has become the linchpin for maintaining global economic order.119

Both the REPs and advanced countries (United States and European Union) have tended to be the

largest users of the DSU both as complainants and defendants. Of the 896 disputes that have been

handled in the DSU from 1995 to 2011, the United States has been a party to 24% of the cases,

the REPs (excluding Russia) 18%, and the European Union 17%.120 By definition the largest

economies have large volumes of trade (imports and exports) and greater exposure to complaints

about domestic policies or market access barriers.

On one level, the system has been quite successful in diffusing conflicts, resolving differences,

and obtaining compliance with rulings. Many disputes are even resolved in consultations before a

panel is formed. Most countries that “lose” cases bring their laws or practices into conformity

with their WTO obligations, rather than paying damages or permitting retaliation.121 On another

level, the DSU provides the REPs with considerable leeway to violate the letter and spirit of

WTO obligations due to the facts that cases can take up to three years to complete and remedies

are not retrospective. Under these circumstances, by the time a case is resolved, the market has

been drastically altered and the aggrieved company may have has lost market share forever.122

Despite shortcomings, the WTO's DSU is likely to remain a key tool for managing trade relations

in the years ahead. For the United States and other advanced countries, the DSU is a way to

engage the REPs directly about their responsibilities for upholding a system of multilateral trade

rules. For the REPs, the DSU provides a way to challenge advanced countries’ market access

barriers and protectionist threats. Combined with rising levels of economic integration that deter

countries from taking actions that would damage each other, the DSU, thus, can provide a key

forum for managing trade relations during an era in which both global economic power and

leadership are in transition and uncertain.123

Bilateral and Regional FTA Negotiations and Other Bilateral Initiatives

Increasingly, U.S. trade policy (as well as the trade policies of the other major trading countries)

is becoming dominated by bilateral and regional negotiations to establish FTAs.124 These

agreements offer opportunities between pairs or groups of countries to reduce trade barriers and

construct new rules in an effort to generate economic growth through trade expansion.

U.S. FTAs have typically removed almost all tariff and border barriers to trade, liberalized

services trade, bolstered intellectual property protection, opened up government procurement

119

Gregory Shaffer and Charles Sutton, “The Rise of Middle-Income Countries in the International Trading System,”

p. 26.

120

World Trade Organization Annual Report, 2012, pp. 86-87.

121

Bruce Wilson, “Compliance by WTO Members with Adverse WTO Dispute Settlement Rulings: The Record to

Date, Journal of International Economic Law, 10:2 397, 2007.

122

Gregory Shaffer and Charles Sutton, “The Rise of Middle-Income Countries in the International Trading System,”

p. 26.

123

Guy de Jonquieres, “The Multilateralism Conundrum: International Economic Relations in the Post-hegemonic

Era,” p. 6.

124

As of January 15, 2012, 515 bilateral and regional trade agreements have been notified to the WTO, 319 of which

are currently in force.

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markets, liberalized foreign investment restrictions, and provided for the enforcement of core

worker rights, among other provisions. FTAs may be particularly advantageous when they can

address trade barriers not adequately covered by WTO rules (e.g., intellectual property rights,

state-owned enterprises, export restrictions, trade facilitation, discriminatory regulatory practices,

services, foreign investment, effects of trade on small-and-medium-sized businesses, and the

effects of FTAs on global supply chains) or include obligations that go beyond current rules.

Since the North American Free Trade Agreement (NAFTA) went into effect in 1994, the United

States has concluded 12 FTAs with 17 countries, including the regional Dominican RepublicCentral American Free Trade Agreement (DR-CAFTA).125 These agreements have been

comprehensive in scope and have comprised high standards. They have not only eliminated tariffs

on goods and agricultural products but also covered intellectual property, direct investment,

government procurement, service sector trade, and regulatory, labor, and environmental issues.126

Since NAFTA, U.S. FTAs have been concluded with relatively small trading partners (South

Korea excluded). Post-NAFTA U.S. FTA partners, including South Korea, account for less than

9% of total U.S. trade.127 For a number of reasons, the United States has not negotiated FTAs with

large and more significant trading partners, such as China, India, and Brazil.128

One reason may be that these countries have not been prepared or have shown little interest in

negotiating an FTA with the United States. Brazil, for example, wants openings for its agricultural

exports and India wants greater labor mobility and new opportunities for its service providers, but

neither country may be willing to liberalize in other areas of interest to the United States. Nor

would they likely accept inclusion of labor and environmental provisions that are now part of the

U.S. FTA template. In this changed world, the United States may need to consider deviating from

its FTA template, as well as putting remaining U.S. trade barriers, particularly agriculture, on the

negotiating table, if it is to secure the strategic and economic advantages of agreements with these

larger countries.129

At the same time, the Obama Administration has made considerable progress on negotiating the

complex free trade agreement known as the Trans-Pacific Partnership (TPP). Currently, the

United States is negotiating this regional trade agreement with Australia, Brunei, Canada, Chile,

Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. U.S. negotiators envision the

proposed TPP as a “comprehensive and high-standard” FTA that will liberalize trade in nearly all

goods and services and include commitments beyond current WTO obligations. For example, the

negotiation aims to improve the environment for the operation of regional supply chains and

establish disciplines on issues such as the role of state-owned or state-controlled enterprises, and

foreign investment that could serve as a model for future negotiations. A successful conclusion to

125

These countries include Australia, Bahrain, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador,

Guatemala, Honduras, Jordan, Morocco, Nicaragua, Oman, Panama, Peru, and South Korea. In addition, the United

States has an FTA with Israel which went into effect in 1985.

126

U.S. trade negotiators often refer to the FTA template utilized as being the “gold standard.”

127

Based on U.S. Census Bureau trade data, South Korea accounted for 2.7% of total U.S. trade and the remaining U.S.

FTA partners (excluding Israel, Canada, and Mexico) accounted for 6.1% of total U.S. trade in 2011.

128

In the early 1990s, the United States proposed the creation of the Free Trade Area of the Americas (FTAA) as a way

of linking NAFTA with the other FTAs in the region. Brazil was not receptive to the proposal, and as a result it failed

to gain acceptance.

129

Robert Z. Lawrence, “How Can Trade Policy Help America Compete,” Peterson Institute for International

Economics, October 2012.

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these negotiations could encourage China and other non-participating countries to offer similar

rules and opportunities, especially if it also attracts additional countries to join.130

The inclusion of Vietnam and Malaysia in the TPP negotiations, two countries that are direct

competitors with China for foreign direct investment, could possibly influence China. If these two

countries were to agree to high standards and comprehensive WTO-plus provisions that allowed

more competition in product and labor markets, and gave liberalized restrictions on foreign

investment in return for greater access to the U.S. market, China may feel greater pressure to

liberalize its economy over time or join the negotiations out of fear that foreign investment could

be diverted.131

The possible negotiation of a comprehensive U.S. FTA with the European Union (EU) could also

have strong competitive liberalizing effects. According to press reports, negotiations on such an

agreement may be launched in 2013. Given that the U.S.-EU economic relationship is the largest

in the world, a successful negotiation could establish de facto international standards in a range of

sectors through the convergence of regulatory processes or through the mutual recognition of

each side’s standards. Combined with other possible preferences built into the agreement, a U.S.EU FTA could serve as a strong incentive for the major non-parties to the agreement to view

multilateral negotiations more favorably.132

Beyond bilateral and regional trade negotiations, U.S. policymakers have an array of trade and

diplomatic tools available to expand engagement with the REPs in an effort to influence their

support for an open and non-discriminatory, rules-based trading system. On the trade side, these

tools include Trade and Investment Framework Agreements (TIFAs) and other high-level joint

commissions and dialogues that serve as a forum for government leaders at all levels to meet and

discuss issues of mutual interest with the objective of improving cooperation and expanding trade

and investment. On the diplomatic side, approaches could include increased official exchanges

and expanded investments in education and language training.133 In addition, export promotion

measures, particularly export finance, could be reinforced to make sure U.S. exporters and

investors are not disadvantaged by similar efforts from third country competitors.

U.S. Unilateral Initiatives to Encourage REP Reforms

U.S. unilateral initiatives traditionally have taken the form of threats to restrict a trade partner’s

access to the large U.S. market in order to induce the partner to open its market to U.S. exports

and investment or to cease other practices that burden U.S. commerce. While the United States

employed this approach of imposing unilateral sanctions primarily in the 1980s and early 1990s

against Japan, this tool is largely unavailable today. This is because in the WTO Uruguay Round

Agreements, which were concluded in 1994 and greatly expanded the scope of multilateral trade

rules, the United States and other countries largely agreed to end unilateral trade action in favor of

a WTO dispute resolution system based on binding rulings on violations of WTO world trade

obligations. The proliferation of global production chains also makes it more difficult today to

130

CRS Report R42344, Trans-Pacific Partnership (TPP) Countries: Comparative Trade and Economic Analysis, by

(name redacted).

131

Howard Schneider, “U.S., Asian Nations in Trade Talks without China,” Washington Post, September 21, 2012.

132

CRS Report R41652, U.S.-EU Trade and Economic Relations: Key Policy Issues for the 112th Congress, by

(name redacted).

133

Daniel M. Kliman and Richard Fontaine, “Global Swing States,” p.32.

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impose a measure of economic hardship on a trading partner without adversely affecting one’s

own economic interests.

In today’s more interdependent world economy, unilateral initiatives take the form more of

“carrots” or incentives than “sticks.” Possible unilateral initiatives include measures that

strengthen the U.S. economy so that the United States sets an example for the rest of the world, as

well as U.S. proposals that resonate with the REPs’ own evaluations of their economic selfinterest.

Reinvigorating the U.S. economy to achieve more rapid long-term growth could be the most

important unilateral initiative with a favorable impact on REP reform initiatives.134 With the

financial and housing markets being repaired and new strengths being found in exports and shale

gas, some observers believe that the United States could be just one budget agreement away from

strengthening those long-term economic fundamentals needed to preserve a preeminent global

economic position.135 If this were to come to fruition, the U.S. economic model based on free

markets and democracy could regain much of its appeal to the rest of the world.136

A stronger U.S. economy spurred primarily by market forces, in turn, could weaken REP

justifications and defense of a more muscular role for the state, as well as provide a competitive

dynamic and example for others to liberalize their own markets as well.137 Moreover, Brazil,

Russia, India, and China, operating in the context of their BRIC grouping, tend to be united more

by a shared desire to raise their political profile on the global stage than any other shared

interests.138 They also want to modernize their own economies according to their own economic

policies, and not ones dictated by the United States or any other country. Thus, in the long run,

whether the U.S. market-based version of capitalism or more state-centered forms of capitalism

prevail could be determined by economic performance. Momentum could rest with the model that

produces faster growth, combats inequality more effectively, and protects citizens better against

the volatility of the modern marketplace.139

Given that both a full restoration of U.S. economic vitality and robust unilateral reforms by the

REPs are unlikely in the near term, the United States most likely will continue efforts to open

REP markets via negotiations. While U.S. negotiating priorities are likely to be for rules in which

the private sector or shareholder-owned companies are the primary economic actors, the REPs are

likely to insist on language that will preserve more discretion for government action. The

question of the appropriate role of government has contributed to many trade disputes in the past

and is unlikely to be resolved permanently by any future trade negotiation.140

134

The Economist, “America’s Economy Is Once Again Reinventing Itself,” July 14, 2012.

Robert Zoellick, “American Exceptionalism: Time for New Thinking on Economic and Security”, Institute of

Strategic Studies, London, July 25, 2012.

136

U.S. Department of State, “Economic Statecraft,” Remarks of Hillary Clinton, October 14, 2011, and Charles A.

Kupchan, No One’s World: The West, The Rising Rest, and the Coming Global Turn, Oxford University Press, 2012.

137

There are many strategies other than reliance on free market forces that are advocated for competing against the

REPs. For one dubbed “strategic capitalism, “which advocates greater U.S. government intervention and guidance of

markets, see Richard D’Aveni, “It’s Time for U.S. Business to Talk Tough, Act Tough,” Washington Post, October 14,

2012.

138

Many observers maintain that the BRICs have few common issues that unite them except opposition to U.S.

economic and military supremacy.

139

David Rothkopf, Power, Inc., p.26.

140

Council on Foreign Relations, “U.S. Trade and Investment Policy,” p. 47.

135

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U.S. trade negotiators have had much experience in negotiating disciplines on foreign

government-directed or -supported practices that provide de facto discrimination against foreign

firms. For example, in the case of Japan in the 1980s and 1990s, U.S. negotiators spent

considerable time targeting Japanese government-directed measures that protected its market

from U.S. competitive exports of products such as auto parts, medical devices, semiconductors,

and beef. Preferential government treatment in sectors such as insurance, banking, and express

delivery similarly limited opportunities for U.S. firms and workers in Japan.141

Some analysts maintain that U.S. trade negotiators made the greatest progress with Japan when

their pressure, voices, and concerns worked to reinforce domestic pressures for change. In the

context of future negotiations with the REPs, the natural allies for such appeals could be the

growing numbers of middle-class consumers who are the beneficiaries of a non-discriminatory

rules-based trading system, as well as the growing numbers of exporters and investors. Such

appeals can be strengthened by reaching out to the European Union and other advanced countries

to urge a more rapid opening and liberalization of REP markets. Under this view, the REPs are

most likely to remove trade barriers and otherwise undertake economic reforms that open their

economies to greater competition when they see these measures to be in their own economic

interest rather than under the threat of sanctions or other demands.142

Congressional Role

Based on express powers provided in the U.S. Constitution (Article 1, Section 8), Congress plays

a large role in formulating U.S. trade policy. Congress exercises its responsibility to “regulate

commerce with foreign nations” in many ways. These include a major role in setting U.S. trade

negotiating objectives and priorities, approval of trade agreements, and general oversight of trade

relations.

The 113th Congress may consider a number of questions relating to the future direction of U.S.

trade policy, particularly if President Obama should ask for a renewal of Trade Promotion

Authority (TPA) in 2013. Under TPA (formerly called “fast-track authority”), the President agrees

to negotiate trade agreements in line with objectives established by Congress. In return, Congress

agrees to consider legislation implementing trade agreements meeting those objectives under

expedited legislative procedures (no amendments, strict time limits on debate, and an up-or-down

vote).143

Congress has renewed TPA several times, but the last grant of authority expired in 2007. Any

request from President Obama to renew TPA could be driven by an effort to open new trade

negotiations, such as a U.S-EU FTA, or to complete the Trans-Pacific Partnership (TPP), for

which negotiations are in progress.

Should Congress decide to consider reauthorizing TPA, a range of trade policy questions affecting

U.S. trade relations with the REPs could also be examined. These include what kinds of new

initiatives can best engage the REPs, open their markets further to U.S. exports and investments,

141

CRS Report RL32649, U.S.-Japan Economic Relations: Significance, Prospects, and Policy Options, by (name redac

ted).

142

CRS Report 95-714, Japan’s Response to U.S. Trade Pressures: End of an Era? by (name redacted).

143

CRS Report RL33743, Trade Promotion Authority (TPA) and the Role of Congress in Trade Policy, by (name

redacted) and (name redacted).

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and revitalize the WTO. Whether U.S. trade policy should elevate the attention and resources the

REPs receive is another important question that could be addressed, along with questions relating

to the adequacy of U.S. export promotion and commercial advocacy efforts.

Most observers maintain that U.S. trade leadership is bolstered when the President has TPA and a

mandate from Congress to negotiate new agreements. In trying to induce the REPs with their very

different state-led economic models into maintaining and strengthening the market-oriented WTO

system, U.S. trade negotiators may need considerable resources, flexibility, and leverage to be

successful.

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Appendix A. Previous Efforts at Identifying a

Group of Rising Developing Countries

Over the past two decades numerous efforts have sought to identify which developing countries

will change the face of the global economy.144 In what was one of the earliest attempts at

identifying a group of countries that would be increasingly important to U.S. interests, the Clinton

Administration in the early 1990s undertook what was called a Big Emerging Markets Initiative

(BEM). China, India, and Brazil, three countries with huge populations and land mass, impressive

economic progress, and large political ambitions, led the list of 10 countries chosen for the BEM

Initiative. The “Big Ten” list also included Mexico and Argentina in Latin America, South Africa

in Africa, Poland and Turkey in Europe, and South Korea in Asia. Countries were selected not

only on the basis of their probable commercial importance to the United States in the decades

ahead, but also due to broad foreign policy concerns bearing on security, human rights, and

environmental issues. The BEM initiative acknowledged that U.S. policy towards these countries

ought to have a stronger commercial dimension and advocated cultivating ties with these

countries in broader and more systemic ways.145

The World Bank’s 1997 Global Economic Prospects Report was another early attempt to identify

a group of rising developing countries. Dubbed the “Big 5,” this report projected that Brazil,

Russia, India, China, and Indonesia would increase their influence on world patterns of resource

allocation, production, and trade by 2020.

In a 2001 report that examined the relationship between the world’s leading advanced countries

and the world’s leading emerging market economies, Goldman Sachs researchers argued that

Brazil, Russia, India, and China—four populous and fast-growing countries that they dubbed the

BRICs—would propel global growth in the decades ahead and that their weight in the world

economy would grow markedly, overtaking the six largest Western economies in 40 years.146

In 2005, Goldman Sachs designated a next group of developing countries that arguably would

have the capacity to play a much larger role in the global economy. This group was dubbed the

“Next Eleven,” or N-11 for short, and included Bangladesh, Egypt, Indonesia, Iran, Mexico,

Nigeria, Pakistan, the Philippines, South Korea, Turkey, and Vietnam.147

The so-called CIVETS group of countries—Colombia, Indonesia, Vietnam, Egypt, Turkey, and

South Africa—was touted by the Economist Intelligence Unit (EIU) in 2009 as the next

generation of “tiger” economies (even though they are named after a shy feline mammal). The

144

Most previous efforts have labeled the rising developing countries as emerging markets. This report uses the term

“rising economic powers” to more clearly signify that many of these countries have already emerged as either global or

regional economic powers.

145

Jeffrey E. Garten, the Big Ten, Basic Books, 1997.

146

Jim O’Neil, “Building Better Global Economic BRICs,” Goldman Sachs Global Economics Paper No. 66,

November 2001. Between 2001 and 2011 the aggregate GDP of the BRICS nearly quadrupled, rising from around $3

trillion to between $11 and $12 trillion, at a time when the world economy was doubling in size. The rapid growth

accounted for one-third of world growth over a decade and their combined

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