U.S. and Global Trade Agreements: Issues for Congress
Congressional research reportMay 17, 2018
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U.S. and Global Trade Agreements: Issues for
Congress
Brock R. Williams
Analyst in International Trade and Finance
Updated May 17, 2018
Congressional Research Service
7-....
www.crs.gov
R45198
U.S. and Global Trade Agreements: Issues for Congress
Summary
Congress plays a prominent role in shaping, debating, and approving legislation to implement
trade agreements, and over the past three decades, bilateral and regional trade agreements (RTAs,
or free trade agreements (FTAs) in the U.S. context) have become a primary source of new
international trade liberalization commitments. The United States has historically pursued FTAs
to open markets for U.S. goods, services, and agriculture, and establish trade rules and disciplines
to enhance overall domestic and global economic growth. They are actively debated and can be
contentious due to concerns over the potential employment effects of greater import competition,
among other reasons.
RTAs are reciprocal preferential arrangements among two or more parties. Their content has
evolved significantly, partly as a result of change in the international economy where new trade
barriers have been erected and/or where RTAs may provide a testing ground for new trade rules
for potential future multilateral agreement. The United States historically has aimed for
comprehensive coverage in eliminating barriers to trade and addressing all sectors in its FTAs. In
addition to the reduction and elimination of tariffs and more traditional nontariff trade barriers,
U.S. FTAs also cover services trade, enhance intellectual property rights (IPR), provide
investment protections, and include enforceable labor and environmental commitments. Some
countries pursue more limited agreements—only half of RTAs worldwide cover services and they
rarely include labor and environmental provisions.
Congressional interest in U.S. and global RTAs stems from their potential economic and foreign
policy implications, implementation issues, and Congress’ role in establishing U.S. trade policy
(Article I, Section 8 of the Constitution grants Congress authority to regulate foreign commerce).
In its 2015 grant of Trade Promotion Authority (TPA), Congress set specific negotiating
objectives for U.S. trade agreements that must be advanced in order for Congress to provide
expedited consideration to the implementing legislation needed to bring new agreements into
force. TPA is scheduled to be in effect through July 2021, unless Congress, before July 1, 2018,
enacts an extension disapproval resolution regarding the Administration’s recently submitted
extension request.
Since 1990, the number of RTAs in force globally has grown six-fold from fewer than 50 to
nearly 300. All 164 members of the World Trade Organization (WTO) are now party to at least
one RTA; as of 2014 each member had on average 11 RTA partners. The United States began
negotiating FTAs in the 1980s, and as of 2018, is party to 14 such agreements involving 20
trading partners. The multilateral trading system, meanwhile, has not produced a broad set of new
trade liberalization agreements (excluding more limited scope agreements, such as the Trade
Facilitation Agreement) since the Uruguay Round, which also established the WTO in 1995.
In the current environment of stalled multilateral negotiations, RTAs provide an alternative venue
to pursue trade liberalization and establish new rules on emerging issues. RTAs are, however,
inherently discriminatory given their limited membership (i.e., they provide preferential treatment
to some countries and not others), leading to debate over their global economic effect and
whether they serve to facilitate future multilateral agreements or lead to the creation of competing
trade blocs. U.S. exporters benefit from the preferential aspects of FTAs when they gain better
access to FTA partner markets than their foreign competitors, but may be similarly harmed when
third parties negotiate agreements that do not include the United States.
To date there are no RTAs in force between the world’s largest economies (China, Japan,
European Union (EU), and the United States). This could change in the near future as these and
other major U.S. trading partners are involved in several pending RTAs, including an ongoing
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negotiation between 16 Asian nations that involves both China and Japan, and two recently
concluded but not yet ratified and implemented RTAs: the EU-Japan agreement (one of twelve
pending EU RTAs) and the Comprehensive and Progressive Agreement for Trans-Pacific
Partnership (CPTPP).
In some ways, the United States has pulled back from its recent FTA policy. Under the Obama
Administration, the United States pursued two major regional FTA negotiations, the Trans-Pacific
Partnership (TPP) including Japan and 10 other Asia-Pacific nations, and the Transatlantic Trade
and Investment Partnership (T-TIP) with the European Union. These FTAs would have nearly
doubled the share of U.S. trade occurring with FTA partners. The Trump Administration,
however, has criticized existing FTAs, withdrawn the United States from the concluded but not
enacted TPP, placed the T-TIP negotiations on hold, and initiated renegotiation or modification of
the largest U.S. FTAs with Canada, Mexico, and South Korea. The Administration has also stated
its intent to negotiate future FTAs on a bilateral rather than multi-party basis.
As other countries move forward with new RTA negotiations that cover a significant share of
world trade, a number of issues arise that may be of interest to Congress, including how these
agreements will affect U.S. economic and strategic interests, their impact on U.S. leadership in
trade liberalization efforts and establishing new trade rules, and the appropriate U.S. response.
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U.S. and Global Trade Agreements: Issues for Congress
Contents
Introduction ..................................................................................................................................... 1
Overview ......................................................................................................................................... 2
Relationship to WTO ....................................................................................................................... 7
WTO Rules on RTAs................................................................................................................. 7
Debate over RTAs and Multilateral System .............................................................................. 8
Economic Effects ................................................................................................................ 9
Influence on the Multilateral System ................................................................................. 11
U.S. Free Trade Agreements (FTAs) ............................................................................................. 13
Evolution of U.S. FTA Negotiations, Objectives, and Strategies............................................ 13
Trump Administration FTA Policy and Recent Developments ......................................... 19
Content of U.S. FTAs .............................................................................................................. 20
Trade Trends under U.S. FTAs ................................................................................................ 27
U.S. Trade Shares with FTA Partners ............................................................................... 28
Bilateral Trade Balances with FTA Partners ..................................................................... 28
Top Goods and Services Trade with FTA Partners ........................................................... 30
Utilization Rates of U.S. FTAs (U.S. Imports) ................................................................. 33
Global RTAs .................................................................................................................................. 34
Global Growth in RTAs........................................................................................................... 35
Rise of Mega-Regional Negotiations ................................................................................ 37
Comparison of Provisions ....................................................................................................... 38
Extent of Tariff Liberalization .......................................................................................... 39
Strength and Scope of Commitments................................................................................ 40
Differing Approaches ........................................................................................................ 42
Potential for Discriminatory Treatment Affecting U.S. Trade ................................................ 46
Major U.S. Trade Partners’ RTAs ............................................................................................ 47
European Union ................................................................................................................ 50
China ................................................................................................................................. 51
Canada .............................................................................................................................. 52
Mexico .............................................................................................................................. 53
Japan ................................................................................................................................. 54
South Korea ...................................................................................................................... 55
United States ..................................................................................................................... 56
Issues for Congress ........................................................................................................................ 57
Figures
Figure 1. RTAs and Average Tariff Rates ........................................................................................ 2
Figure 2. Trade Promotion Authority (TPA) and U.S. Trade Agreements..................................... 17
Figure 3. Shares of U.S. Total Trade with WTO and FTA Partners............................................... 28
Figure 4. U.S. Trade Balances with FTA Partners ......................................................................... 29
Figure 5. U.S. Total Goods and Services Trade Balance with FTA Partners ................................. 30
Figure 6. RTAs by Region ............................................................................................................. 36
Figure 7. RTAs of United States and Top 20 U.S. Trade Partners ................................................. 37
Figure 8. Tariff Lines Not Eliminated in RTAs for Top 20 U.S. Trade Partners ........................... 40
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Figure 9. Breakdown of Global Services RTAs by Type ............................................................... 41
Figure 10. Shares of Trade Agreements by Level of IP Content, Select Trade Partners ............... 42
Tables
Table 1. U.S. Goods Trade with Top FTA Partners ....................................................................... 31
Table 2. U.S. Services Trade with Top FTA Partners .................................................................... 32
Table 3. U.S. Imports from FTA Partners Receiving Preferential Tariff Treatment ...................... 33
Table 4. Selected Comparative Data on U.S. Exports to Major Trade Partners with RTAs
that exclude the United States .................................................................................................... 46
Table 5. European Union RTAs ..................................................................................................... 50
Table 6. China’s RTAs ................................................................................................................... 51
Table 7. Canada’s RTAs ................................................................................................................ 52
Table 8. Mexico’s RTAs ................................................................................................................ 53
Table 9. Japan’s RTAs ................................................................................................................... 54
Table 10. South Korea’s RTAs ...................................................................................................... 55
Table 11. U.S. FTAs ...................................................................................................................... 56
Appendixes
Appendix A. CRS Materials on Existing and Proposed U.S. FTAs .............................................. 61
Appendix B. RTA Country Groupings .......................................................................................... 62
Contacts
Author Contact Information .......................................................................................................... 63
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U.S. and Global Trade Agreements: Issues for Congress
Introduction
Congress plays a central role in the negotiation, approval and implementation of U.S. trade
agreements, reflecting its constitutional authority over foreign commerce.1 Congress shapes the
Administration’s trade agreement negotiations through enacting statutory U.S. trade negotiating
objectives, ongoing consultations and oversight, and ratification of concluded agreements through
implementing legislation. It also oversees trade agreement implementation and the enforcement
of commitments.2 U.S. trade agreements can affect many facets of U.S. economic activity,
including the cost and availability of goods and services in the United States, the competitiveness
of U.S. firms both domestically and abroad, employment opportunities for U.S. workers, as well
as broader U.S. strategic interests. The Trump Administration has altered U.S. trade agreement
policy by withdrawing from the then-pending Trans-Pacific Partnership (TPP), starting
renegotiations or modification of two existing free trade agreements (FTAs), and stating a
preference for bilateral FTAs. It also has put forth a more skeptical approach toward multilateral
trade agreements under the World Trade Organization (WTO), and has viewed bilateral trade
imbalances as a measure of trade agreement success or failure. As Congress works with the
Trump Administration in establishing and implementing U.S. trade policy, it may have interest in
more closely examining the implications of the type and content of U.S. trade agreements and
those pursued by major U.S. trading partners that exclude the United States.
Key questions to consider may include
how other countries’ trade agreements may affect U.S. economic and strategic
interests and negotiating priorities;
the influence of bilateral and regional agreements on broader international
commercial norms and their impact on the multilateral trading system;
the role of the United States in international trade agreement negotiations;
whether the United States should pursue new trade agreement negotiations and if
so how to prioritize potential partners; and
the costs and benefits of bilateral versus multi-party or regional negotiating
approaches.
To help inform this debate, this report analyzes bilateral and regional trade agreements, including
a discussion of the relation between these types of agreements and broader multilateral
negotiations. It also provides information on existing U.S. FTAs and their evolution over time. As
other countries’ trade agreement policies and negotiations may affect the costs and benefits of
various U.S. approaches, it also looks at non-U.S. regional trade agreements (RTAs), and the
specific RTA regimes of the top six U.S. trading partners: the European Union, China, Canada,
Mexico, Japan, and South Korea.3 The report concludes with a discussion of potential issues for
Congress by addressing key policy questions.
1 U.S. Const. art. I, §8, cl. 3.
2 For an overview on the roles of Congress and the Administration in trade agreement negotiations, see CRS In Focus
IF10038, Trade Promotion Authority (TPA), by Ian F. Fergusson.
3 This report reserves the term FTA to refer to U.S. trade agreements, and uses RTA to discuss non-U.S. trade
agreements. In a policy context the terms are often used interchangeably, but significant differences exist between some
U.S. and non-U.S. trade agreements. For more discussion on terminology see “Types of Trade Agreements” text box
below.
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Overview
In the United States and internationally, trade agreements have changed considerably over the
past 70 years, both in the types of agreements negotiated and their content. Those decades saw the
creation, prevalence, and then relative stagnation of the multilateral trading system as the primary
venue for the negotiated removal of barriers to international trade. Bilateral and now large
regional (so-called mega-regional) trade liberalization agreements have become increasingly
prominent, especially in the last two decades.4 Meanwhile, tariff barriers have fallen considerably
in the United States and globally as a result of multilateral, bilateral/regional, and unilateral
liberalization (Figure 1). As tariffs have become less economically significant, trade agreements
have increasingly expanded their content coverage, with more recent agreements including
provisions on issues such as worker rights and environmental protections, investment
commitments, and enhanced standards for intellectual property rights.
Figure 1. RTAs and Average Tariff Rates
Source: RTA data from the WTO. Tariff data from World Bank World Development Indicators.
Notes: Tariffs are simple average applied most-favored nation (MFN) (i.e., tariffs applied on imports from WTO
members). Bound rates can be significantly higher than applied rates for some countries. Data are not available
for all countries for all years. Missing data were imputed by taking the average of the closest observations.
Against this backdrop of evolving and increasingly complex trade agreement negotiations and a
growing number of RTAs worldwide, the Trump Administration has raised doubts about the
economic benefits of recent U.S. FTAs and has taken steps to alter the current and future U.S.
FTA landscape. This includes the U.S. withdrawal from the signed but not ratified 12-party TransPacific Partnership (TPP), renegotiation of existing FTAs, including with a stated intent to place a
major focus on trade imbalances, and a stated preference to negotiate future agreements
bilaterally, rather than on a multi-party or regional basis. Congress will likely play a critical role
in shaping future U.S. trade agreements since it must pass implementing legislation to bring FTAs
into force. In order to receive expedited legislative consideration, such trade agreements must
advance the U.S. trade negotiating objectives Congress established in its 2015 grant of Trade
Promotion Authority (TPA), which is scheduled to remain in effect until July 1, 2021 unless
4 This report uses regional trade agreement (RTA) to refer to agreements outside the multilateral system or World
Trade Organization (WTO), including both bilateral and regional trade areas. Distinction will be made between
bilateral and multi-party agreements where relevant.
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Congress enacts, by July 1, 2018, an extension disapproval resolution regarding the
Administration’s recently submitted extension request.
Types of Trade Agreements
There are many different types of international trade agreements. It is useful to distinguish among three major
categories for the discussion that follows. Multilateral trade agreements refer to the General Agreement on
Tariffs and Trade (GATT), and the subsequent World Trade Organization (WTO) agreements to which164
countries are now party. These agreements generally establish the foundation of the international trading system.
This report focuses specifically on a second category of agreement, bilateral and regional trade agreements
(RTAs), defined as reciprocal preferential arrangements outside the multilateral system and among two or more
parties. This definition of RTAs encompasses both preferential trade areas in which two or more countries reduce
or eliminate tariffs on trade among one another but maintain independent external tariff regimes, as well as customs
unions, which go further and include the coordination of a common external tariff. In U.S. trade policy, RTAs are
typically referred to as free trade agreements (FTA), and for clarity this report reserves the use of FTA strictly to
discuss U.S. bilateral and regional agreements. In some cases, RTAs build upon existing multilateral commitments,
for example by further reducing tariffs among the parties. They may establish new commitments not covered in the
WTO, such as U.S. FTA provisions on investment protections and labor rights. Plurilateral agreements,
typically refer to a third category of agreement that has elements of both RTAs and multilateral agreements. Like
RTAs, only a subset of WTO members participate in plurilateral agreements, but participating members may
extend the benefits negotiated in the agreement to all WTO members. For example, the 17 participants of the
Environmental Goods Agreement negotiations have agreed that they will extend negotiated tariff reductions on
environmental goods to all WTO members. The United States is currently involved in all three types of trade
agreements as seen here.
Since the passage of the 1934 Reciprocal Trade Agreements Act, U.S. trade policy, and
particularly trade agreement negotiations, have focused largely on reducing international barriers
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to trade on a reciprocal basis.5 In the immediate aftermath of World War II (WWII), policymakers
in the United States and Europe, in particular, aimed to reverse past policies of the late 1920s and
1930s, when countries raised tariffs against one another, thereby exacerbating and prolonging the
Great Depression and contributing to the economic and financial dislocation that many believe
led to the outbreak of the war. These countries, motivated by a desire to prevent a future
escalation in tariff barriers and to use trade liberalization to promote economic growth, peace and
stability, created the General Agreement on Tariffs and Trade (GATT) in 1947, establishing the
foundation of the modern multilateral trading system.6
In 1995, as part of the Uruguay Round negotiations, the GATT became part of the World Trade
Organization (WTO), alongside major agreements covering services, intellectual property rights,
agriculture and binding dispute settlement for the first time. Since the creation of the GATT, the
United States, as the world’s largest economy, has been a key driver of multilateral trade
agreement negotiations, including in expanding the depth and scope of commitments. For many
reasons, since the conclusion of the Uruguay Round, it has been increasingly difficult to conclude
another major round of multilateral trade liberalization negotiations, such that since that time new
trade rules have been established largely in RTAs.
In the 1980s, the United States began negotiating FTAs, the first of which entered into force with
Israel in 1985. Bilateral negotiations on tariffs were part of U.S. trade policy long before the
advent of the multilateral system, but U.S. FTAs are more extensive than earlier bilateral
agreements, including the near complete elimination of tariffs among the parties, and a broad
range of commitments beyond tariffs. While new provisions have been added over time, the
general outlines of a U.S. FTA have remained largely consistent since the North American Free
Trade Agreement (NAFTA) entered into force in 1994. Non-U.S. RTAs vary considerably in
terms of the scope and depth of commitments. There is extensive debate over the effect of these
agreements on trade negotiations at the broader multilateral level, with some evidence that they
have both spurred and impeded multilateral efforts toward liberalization. The number of bilateral
and regional agreements, including U.S. FTAs, has grown significantly in number since the
conclusion of the Uruguay Round, the last major multilateral agreement, in 1994.
While the overarching goal of U.S. trade negotiations in the postwar period has focused on trade
liberalization and its broad economic welfare gains, concerns over the effects of import
competition on certain domestic U.S. industries and workers have always been present to varying
degrees and have influenced policy decisions. In addition to transition periods for removing
certain barriers in specific trade agreements, the United States and other countries have special
safeguard mechanisms to address harmful import surges and enable adjustment to trade
competition. Other trade policy tools are also in place to provide remedies from injury resulting
from unfair trade practices such as dumping and subsidies.
In several instances, action on trade agreement implementation has been accompanied by new or
enhanced trade adjustment programs to help workers and firms adversely affected by more open
markets adjust to greater trade competition through training and income support. For example, the
Trade Expansion Act of 1962, which authorized tariff reductions of up to 50%, also created the
first iteration of the Trade Adjustment Assistance (TAA) program that provides compensation and
5 In the context of recent trade agreements, reciprocal negotiations may involve concessions in different categories of
interest. For example, significant tariff concessions may be offered by one party in exchange for stronger commitments
on trade rules such as intellectual property.
6 Richard Baldwin, "The World Trade Organization and the Future of Multilateralism," Journal of Economic
Perspectives, vol. 30, no. 1 (Winter 2016), p. 97.
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assistance to workers and firms negatively affected by trade.7 The Trade Act of 1974, which
authorized the Administration to negotiate reductions in both tariff and nontariff barriers and
created the modern TPA, also expanded TAA and provided new authorities under Section 301
allowing the President to take action to address foreign trade barriers.8
The evolution of U.S. trade agreements has been informed by ongoing debate among some
Members of Congress and affected stakeholders, whose varied interests include market access
abroad, domestic import competition, and access to lower-cost and a greater variety of goods,
services, and agriculture. The 115th Congress will likely continue to debate many aspects of U.S.
trade agreement policy as it engages with the Trump Administration regarding possible
modifications to existing U.S. FTAs, including NAFTA and the U.S.-South Korea (KORUS)
FTA, and potential new trade negotiations.
7 U.S. International Trade Commission, "U.S. Trade Policy since 1934," in The Economic Effects of Significant U.S.
Import Restraints, publication 4094, August 2009, pp. 73-75.
8 Ibid, p. 75.
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Evolution of U.S.Trade Agreement Negotiations
(1947-1967)
Multilateral system (GATT) founded and 5 subsequent tariff-focused
negotiating rounds held.
(1973-1979)
GATT Tokyo Round addressed nontariff barriers (NTBs) in multilateral
setting but most nontariff agreements (antidumping, subsidies and
countervailing duties, technical barriers to trade, and government
procurement) are adopted by limited countries (plurilateral). Most, except
government procurement, were eventually adopted multilaterally.
(1985-1994)
Uruguay Round established current multilateral system (WTO).
U.S. implemented first FTAs (Israel, Canada, and NAFTA).
Major expansion of U.S. international trade commitments ensued at
both multilateral and FTA level (tariffs, nontariff barriers, services, agriculture,
intellectual property rights (IPR), and dispute settlement).
(2001-2012)
Doha Round negotiations initiated and ongoing.
U.S. implemented 12 FTAs broadening geographic coverage (e.g., Asia,
Latin America, and Middle East) and scope of commitments, which include
deeper liberalization and “WTO plus” provisions on issues such as labor,
environment, and IPR. U.S. joins regional TPP negotiations.
(2013-2016)
Doha Round stalemate led to limited agreement on trade facilitation and
shift in focus to sectoral plurilateral negotiations, including outside the WTO
(Trade in Services Agreement).
U.S. pursued mega-regional negotiations (TPP-concluded, not ratified, TTIP-launched), with emphasis on expanding commitments and addressing new
issues such as digital trade and state-owned enterprises (SOEs).
(2017-)
Path forward for multilateral Doha Round negotiation unclear.
U.S. initiates review and revision of FTAs (TPP withdrawal, T-TIP paused,
NAFTA renegotiation, and KORUS modification talks), emphasizes new
bilateral negotiations, continues to pursue commitments on new issues (e.g.,
digital and SOEs), and contemplates changes to existing rules (e.g., investment
dispute-settlement and rules of origin).
Source: Information from USTR and WTO. Timeline graphic created by CRS.
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Relationship to WTO
The relationship between regional trade agreements (RTAs) and the broader multilateral system
(i.e., the WTO) is complex. While permitted by WTO rules, RTAs are technically a violation of a
fundamental principle of the WTO, the most-favored nation (MFN) concept. MFN requires WTO
adherents to treat all other members uniformly in their trade policies. RTAs, however, are
explicitly discriminatory, committing participants to treat trade partners inside the agreement
differently than those outside, except for certain provisions that may be applied on an MFN basis.
The WTO agreements allow an exception for RTAs on the theory that such agreements, subject to
certain rules, may further WTO goals of increasing trade and economic openness and could
eventually facilitate a multilateral agreement. There is considerable debate, however, over how
these agreements affect multilateral negotiations, with some historical examples suggesting they
can both incentivize as well as impede multilateral action. In addition to affecting the pace of
multilateral negotiations, RTAs may also influence their outcomes, including the type and level of
commitments negotiated multilaterally. They may serve as incubators for new trade policies, or
potentially create different standards that could complicate the international commercial
environment. These concerns are particularly heightened today given the proliferation of RTAs
and the rise of mega-regionals.
WTO Rules on RTAs
The WTO Agreements provide three different exceptions for RTAs. Article XXIV of the GATT
allows for both free trade areas and customs unions (free trade areas with a common external
tariff).9 Similar language in Article V of the General Agreement on Trade in Services (GATS)
allows for economic integration agreements outside the WTO relating to services trade.10
Recognizing that such agreements can lead to negative effects on other WTO members and the
multilateral system as a whole, these provisions require that RTAs be notified to the other
members, cover “substantially all trade,” and do not effectively raise barriers on imports from
third parties.11 The WTO agreements also set out special provisions relating to developing
countries. Paragraph 2(c) of the “enabling clause,” which deals with special and differential
treatment for developing countries,12 allows RTAs among developing countries with the “mutual
reduction or elimination of tariffs.”13 In addition, the RTA provisions in the GATS also clarify that
services agreements that include a developing country can have greater flexibility regarding the
extent of their sector coverage.
9 WTO, “General Agreement on Tariffs and Trade (GATT),” available at https://www.wto.org/english/docs_e/legal_e/
gatt47.
10 WTO, “General Agreement on Trade in Services (GATS),” available at https://www.wto.org/english/docs_e/legal_e/
26-gats_01_e.htm#articleV.
11 An understanding on RTAs was incorporated in the WTO legal texts as part of the 1994 Uruguay Round agreements,
emphasizing these additional criteria in light of RTAs increasing significance in the global trading system. WTO,
“Understanding on the Interpretation of Article XXIV of the General Agreement on Tariffs and Trade 1994,” available
at https://www.wto.org/english/docs_e/legal_e/10-24_e.htm.
12 The WTO does not have specific criteria for what constitutes a developing country. Countries are permitted to selfdeclare their developing country status. WTO, “Who are the developing countries in the WTO,” available at
https://www.wto.org/english/tratop_e/devel_e/d1who_e.htm.
13 WTO, “Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries,”
available at https://www.wto.org/english/docs_e/legal_e/enabling1979_e.htm.
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There are questions over the degree to which RTAs adhere to these criteria, particularly regarding
notification and coverage. Estimates suggest roughly 100 RTAs are in force but not notified to the
WTO.14 In addition, there is considerable variation in the scope and extent of liberalization in
existing RTAs.
The WTO itself has had difficulty in assessing RTAs against these metrics. One issue is ambiguity
in the requirements (e.g., how does one define “substantially all trade”?). Another challenge is the
transparency and notification process. If WTO members are not made aware of ongoing trade
agreement negotiations, or only after they are already in effect, it is difficult to weigh in on their
design. The WTO Doha Round of multilateral negotiations, which began in 2001, potentially was
to address some of these issues and revisit the WTO RTA review process. As those negotiations
remain stalled, reviews currently take place under a provisional 2006 transparency initiative.15 As
part of that initiative, the WTO Secretariat makes a factual presentation on the contents of new
agreements and their provisions after they have been notified.16
Individual WTO members have the option to use the institution’s dispute settlement proceedings
to address perceived violations of WTO rules on the requirements of RTAs.17 While some
members, including the United States,18 have raised concerns that some RTAs do not adhere to
WTO rules, including that they cover substantially all trade, such concerns have rarely been taken
to a formal dispute settlement proceeding.19 Some trade scholars argue that the rationale behind
this lack of formal objection stems from the proliferation of RTAs among nearly all members, and
hence a desire to keep one’s own RTAs from excessive scrutiny.20 Even among U.S. FTAs, which
include near complete tariff elimination, there are some provisions that could violate WTO RTA
rules. For example, the signed but not implemented TPP agreement included a 30-year tariff
phase-out period for U.S. light truck tariffs. WTO rules technically require that the
implementation of RTAs take no longer than 10 years except in exceptional circumstances.21
Debate over RTAs and Multilateral System
Since the modern multilateral trading system was first established in 1947, there has been
ongoing debate over the effects of RTAs on the system and its members. This debate intensified
as agreements proliferated, particularly after the United States began pursuing its own FTAs in
14 Rohini Acharya, “Regional Trade Agreements: Recent Developments,” in Regional Trade Agreements and the
Multilateral Trading System, ed. Rohini Acharya (2016), p. 5.
15 For more details on this process, see https://www.wto.org/english/tratop_e/region_e/trans_mecha_e.htm.
16 These reports provide useful information on the contents of notified RTAs. They can be found via the “factual
presentations” link at https://www.wto.org/english/tratop_e/region_e/region_e.htm.
17 Bernard M. Hoekman and Michel M. Kostecki, “Preferential Trade Agreements,” in The Political Economy of the
World Trading System, 3rd ed. (2009), p. 490.
18 Congress has stated its concerns regarding the coverage of RTAs in statute. For example, the Trade Preferences
Extension Act of 2015, P.L. 114-27, directs the Administration that “if other countries seek to negotiate trade
agreements that do not cover substantially all trade, continue to object in all appropriate forums.”
19 The issue of RTA compliance with GATT rules arose in three dispute-settlement panels before the WTO was
established, but none of the three cases resulted in an adopted (i.e., binding) panel report. Since the creation of the
WTO, at least two dispute-settlement cases have arisen due to adverse effects from the establishment of an RTA, and
addressed the question of RTA compliance. For more information, see Petros C. Mavroidis, “If I Don't Do It,
Somebody Else Will (or Won't),” Journal of World Trade, vol. 40, no. 1 (February 2006), pp. 205-207.
20 Petros C. Mavroidis, “If I Don't Do It, Somebody Else Will (or Won't),” Journal of World Trade, vol. 40, no. 1
(February 2006), p. 212.
21 The ten-year implementation rule is part of the 1994 “understanding” on RTAs, see footnote 11.
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the 1980s. Some key aspects of this debate are the economic effects of RTAs on countries within
and outside these agreements, the prospects for liberalization under either type of agreement, and
how RTAs influence the multilateral system. In recent years, the rise of “mega-regional” RTA
negotiations, such as the Regional Comprehensive Economic Partnership (RCEP) and TPP, or
agreements involving multiple countries of considerable economic significance, has added
another layer of complexity to this question. On one hand, as these agreements encompass a large
number of trading partners they provide opportunities to consolidate existing agreements under
one uniform framework; on the other hand, they could potentially cover such a significant share
of world trade as to render questions over the WTO’s primacy as the trade liberalization and rulemaking forum for international commerce.22
Economic Effects
Multilateral and RTA trade liberalization can have different economic outcomes. Generally, the
economic benefits of trade liberalization result from the removal of tariff and nontariff barriers
(i.e., policies that distort underlying price signals in international commerce), which allows
countries to specialize in the production of goods and services in which they have a relative
comparative advantage. Economic theory posits that this shift in production should allocate
resources most efficiently within and among countries, resulting in lower prices that benefit
consumers, and therefore nondiscriminatory trade liberalization (i.e., multilateral tariff
reductions) should generally lead to an unambiguous increase in global aggregate welfare.23
The economic effects of trade liberalization under RTAs are less clear, due to their discriminatory
nature. Countries inside the agreement face one set of tariff and nontariff barriers, while those
outside face another. Therefore the lowering of trade barriers among RTA partners, could lead
both to trade creation whereby higher cost domestic production is replaced by imports from a
lower cost RTA partner (an efficiency gain), as well as trade diversion whereby imports from a
low-cost producer outside the agreement are replaced by imports from a higher cost producer
inside the agreement (an efficiency loss).24 This possibility for trade diversion is what
distinguishes RTAs from multilateral agreements in economic analysis. These trade diversion
effects can negatively affect economic welfare of countries both inside and outside the RTA. In
practice, it is typically countries outside the RTA that are expected to face negative trade
diversion effects. For example, economic modeling of the potential effects of TPP, estimated
welfare gains for the 12 countries participating in the agreement, but slight losses for China,
India, and Thailand due to trade diverting from these countries to TPP members.25
22 World Economic Forum, Mega-regional Trade Agreements, July 2014, p. 8, http://www3.weforum.org/docs/GAC/
2014/WEF_GAC_TradeFDI_MegaRegionalTradeAgreements_Report_2014.pdf.
23 Under certain circumstances a positive tariff may be optimal when looking solely at the welfare of the domestic
economy, but the relatively limited scenarios under which this might occur and the political difficulty of setting
economically optimal tariffs generally leads most economists to support trade liberalization efforts. For a discussion of
the economic merits of trade liberalization policies, see Chapters 8 and 9 of Paul R. Krugman and Maurice Obstfeld,
International Economics: Theory and Policy, 6th ed. 2003.
24 This question of trade creation versus trade diversion in RTAs was first explored in the 1950s by economist Jacob
Viner and has remained relevant in the economic analysis of RTAs since. Jacob Viner, The Customs Union Issue,
Carnegie Endowment for International Peace, 1950.
25 Peter A. Petri and Michael G. Plummer, The Economic Effects of the Trans-Pacific Partnership: New Estimates,
Peterson Institute for International Economics, WP 16-2, January 2016, p. 20,
https://piie.com/system/files/documents/wp16-2_0.pdf.
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Trade Diversion vs.Trade Creation
Consider a three-country world of apparel trade between Brazil, Vietnam, and the United States (see table
below). Suppose production costs for t-shirts are $3 in Vietnam, $4 in Brazil, and $5 in the United States.
(A) If the United States imposes a 100% tariff on t-shirts, costs for U.S. retailers would initially be $6 on
imports from Vietnam, $8 on imports from Brazil, or $5 for U.S.-made shirts. The United States would import no
t-shirts.
(B) Now, suppose a multilateral agreement reduces U.S. tariffs on all partners by 50%. Costs for U.S.
retailers are now $4.50 on t-shirts from Vietnam, $6 on t-shirts from Brazil, and $5 for U.S.-made shirts. After the
tariff reduction, U.S. buyers would shift to imports from Vietnam. This agreement would be trade creating since
the United States would now import t-shirts from a lower cost producer, resulting in a more efficient allocation of
production.
(C) Now further suppose the United States and Brazil form an RTA that eliminates remaining
tariffs, but only between each other. Costs for U.S. retailers would still be $4.50 for Vietnamese t-shirts and
$5 for U.S. shirts, but now Brazilian shirts would cost only $4. This agreement would be trade diverting since the
United States would now import t-shirts from Brazil, despite lower cost production in Vietnam, resulting in an
overall global loss of economic efficiency relative to a scenario in which imports from all nations faced the same
duty rate.
Production
Cost/Shirt
(A)
U.S. price with
100% import tariff
(B)
U.S. price after multilateral
50% tariff reduction
(C)
U.S. price after bilateral
tariff elimination with Brazil
U.S.
$5
$5
$5
$5
Brazil
$4
$8
$6
$4
Vietnam
$3
$6
$4.50
$4.50
No
trade
Trade creation,
imports shift to low cost
producer (Vietnam)
Trade diversion,
imports shift to higher cost
producer (Brazil)
Result of tariff regime
Whether such RTAs are welfare enhancing then depends on the relative degree of trade diversion
and creation resulting from an agreement. Empirical studies vary on their estimates of trade
diversion and the significance of this problem, and such studies are inherently challenging
exercises given the difficulty in parsing out the other factors simultaneously influencing trade
flows.26 Concerns over the trade diverting aspects of RTAs, however, may be waning, in large
part because tariffs have fallen dramatically worldwide through a combination of multilateral,
bilateral/regional, and unilateral actions. According to one international economist, “the specter
that regional trading agreements would inefficiently divert trade never really appeared.”27
However, more recent research highlights that trade agreements may have a strong effect on trade
flows even when applied tariffs are already low because they lower uncertainty over fluctuations
in trade barriers, including by lowering bound tariff rates to applied levels.28 Therefore, while
most economists acknowledge the potential benefits of RTAs, many also urge continued
26 For a review of the academic literature on empirical estimates of trade creation and diversion, see Caroline Freund
and Emanuel Ornelas, “Regional Trade Agreements,” Annual Review of Economics, vol. 2 (2010), pp. 143-144.
27 Richard Baldwin, “The World Trade Organization and the Future of Multilateralism,” Journal of Economic
Perspectives, vol. 30, no. 1 (Winter 2016), p. 112.
28 Bound tariffs refer to the maximum tariff allowed under an existing trade agreement, while applied tariffs refer to the
tariff rate currently applied to imports. For the many countries that have unilaterally lowered their applied tariffs in
recent decades (i.e., with no accompanying changes to their multilateral commitments), their applied tariff rates are
below their bound rates and therefore could be raised without incurring any retaliatory action at the WTO.
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evaluation regarding their effects on economic welfare,29 and some remain very skeptical of their
overall benefit.30
The trade creation and diversion debate has largely focused on tariff commitments. Nontariff
commitments, however, are increasingly important components of RTAs, especially U.S. FTAs
(see “Content of U.S. FTAs” for discussion of FTA commitments). Such commitments often
involve domestic regulatory changes, and therefore may be less discriminatory against non-RTA
parties than in the case of tariffs—in other words, non-RTA parties can also benefit from a
country’s lowering of nontariff barriers, often called “spillover” effects.31 It is often difficult, if
not impossible, to apply nontariff commitments on a country-by-country basis. Moreover, the
WTO exemptions regarding RTAs do not apply to all commitments, such as the Agreement on
Trade-Related Aspects of Intellectual Property (TRIPS). Therefore, IPR commitments in RTAs
are not allowed to discriminate against other WTO members.32
Influence on the Multilateral System
Perhaps more consequential in today’s trading environment than the debate over the issue of trade
creation and trade diversion resulting from RTAs is the dynamic question of how RTAs influence
the pace and scope of negotiations at the multilateral level.
Again, the evidence is inconclusive.33 The two types of agreements have worked simultaneously,
and at times RTAs may have spurred action at the multilateral level.34 For example, some trade
scholars argue that the formation and then expansion of the European Union led the United States
and Japan to push for the Kennedy Round of multilateral trade negotiations in the 1960s in order
to minimize export disadvantages in European markets as a result of the expanded customs
union.35 Similarly, NAFTA, which eliminated most tariff barriers between the United States,
Canada, and Mexico and was passed by Congress in 1993, may have spurred action on the
Uruguay Round agreements, which were signed the following year.36 Some, however, question
whether the more recent surge in the number of RTAs has removed incentives for members of the
WTO to pursue multilateral negotiations, or has simply drawn needed energy and resources away
from the multilateral process.37 Economists have also found empirical evidence, specifically in
29 Nuno Limao, “Preferential Trade Agreements,” in Handbook of Commercial Policy, ed. Kyle Bagwell and Robert
W. Staiger, vol. 1B (2016), p. 357.
30 Jagdish Baghwati is a leading critic of RTAs, arguing “the proponents of PTAs [preferential trade agreements] are
too complacent about the phenomenon of trade diversion.” Jagdish Bhagwati, Termites in the Trading System (Oxford
University Press, 2008), p. 52.
31 For an analysis of the multilateralization of nontariff regional trade agreement commitments, see Richard Baldwin,
Simon Evenett, and Patrick Low, “Beyond Tariffs: Multilateralizing Non-Tariff RTA Commitments,” in
Multilateralizing Regionalism: Challenges for the Global Trading System, ed. Richard Baldwin and Patrick Low
(Cambridge University Press, 2009).
32 Rohini Acharya, “Regional Trade Agreements: Recent Developments,” in Regional Trade Agreements and the
Multilateral Trading System, ed. Rohini Acharya (2016), p. 14.
33 For a review of the academic literature on the effects of regional agreements on multilateralism, see Caroline Freund
and Emanuel Ornelas, “Regional Trade Agreements,” Annual Review of Economics, vol. 2 (2010), pp. 152-155.
34 Richard Baldwin, “The World Trade Organization and the Future of Multilateralism,” Journal of Economic
Perspectives, vol. 30, no. 1 (Winter 2016), p. 100.
35 Ibid, p. 102.
36 Hoekman and Kostecki, op. cit., p. 499.
37 Richard Baldwin, “The World Trade Organization and the Future of Multilateralism,” Journal of Economic
Perspectives, vol. 30, no. 1 (Winter 2016), p. 107.
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the case of U.S. multilateral tariff offers, that existing RTAs lessen members’ willingness to lower
tariffs via multilateral negotiations.38
Yet, few experts argue that RTAs alone are the cause of the stagnation in successful multilateral
negotiations since 1995. Some economists suggest the global trading system’s difficulties are a
result of its own success, as the major reduction of tariff and certain nontariff barriers over the
past seven decades has hampered incentives for new agreements. Other possible explanations for
the more challenging multilateral environment today include the greater number of participants,
the growing role of developing countries in world trade and the fact that their priorities
sometimes differ from those of developed countries, and the increasingly complex nature of
nontariff issues and inherent challenges of measuring compliance.39
As new RTAs increasingly include commitments on various nontariff barriers and trade issues not
currently addressed at the WTO, there are growing questions over how these new provisions may
eventually affect multilateral rules. There are historical cases, such as NAFTA and its
commitments on intellectual property rights (IPR) and dispute settlement for example, in which
commitments similar to those found in RTAs quickly made their way into the multilateral system.
There are also concerns, however, over the potential for a two-tiered system to emerge, one based
on older multilateral rules, and another based on more modern commitments found in RTAs.40
Another concern is how different RTAs may craft their rules, and to the extent they diverge
whether this would create impediments for international commerce, or at least limit the benefits
of liberalization.41 On the other hand, some see RTAs as a trial space to explore different options
for updating international trade rules, such as new commitments on digital trade.
In the view of two authoritative figures on international trade issues:
Preferential trade agreements represent a challenge and an opportunity for the multilateral
trading system. The opportunity is to use them as experimental laboratories for cooperation
on issues that have not (yet) been addressed multilaterally, especially issues where the
outcome is applied on a MFN basis. The challenge is to control the discrimination that is
inherent in any PTA [preferential trade agreement].42
There may also be a first-mover advantage in establishing RTAs. Economic theorists have created
models that show a domino effect of RTAs, whereby countries are induced to join based in part
on the potential for lost competitiveness from staying outside the agreement (also referred to as
competitive liberalization).43 In practice, this may have been the motivation behind the expanding
list of countries interested in the U.S.-led TPP negotiations during the Obama Administration.
Japan, for example, announced its intent to participate in TPP shortly after the United States and
South Korea implemented their bilateral FTA. Japan and South Korea compete in the U.S. market
38 The study finds that U.S. multilateral tariff reductions in the Uruguay Round were lower on products traded
intensively with existing preferential partners such as the NAFTA countries. Nuno Limao, “Preferential Trade
Agreements as Stumbling Blocks for Multilateral Trade Liberalization: Evidence for the United States,” American
Economic Review, vol. 96, no. 3 (June 2006).
39
For more information, see CRS In Focus IF10002, The World Trade Organization, by Ian F. Fergusson and Rachel
F. Fefer.
40 Richard Baldwin, “The World Trade Organization and the Future of Multilateralism,” Journal of Economic
Perspectives, vol. 30, no. 1 (Winter 2016), p. 112.
41Jagdish Bhagwati, Termites in the Trading System: How the Preferential Agreements Undermine Free Trade (Oxford
University Press, 2008), p. 61.
42 Hoekman and Kostecki, op. cit., p. 509.
43 For a recent examination of this potential effect, see Richard Baldwin and Dany Jaimovich, “Are Free Trade
Agreements Contagious?,” Journal of International Economics, vol. 88, no. 1 (September 2012).
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on a range of products, including motor vehicles, both countries’ top export to the United States.
China also expressed “interest” in the TPP to U.S. officials.
This dynamic could have significant implications in terms of establishing new trade rules, giving
original members of trade pacts outsized influence, especially in the current landscape of megaregional negotiations. Indeed, influencing global trading rules was a major stated goal of the
Obama Administration in its pursuit of the TPP.44 Concerns over competitiveness in export
markets may also be important in providing political cover to economic reformers within
countries debating participation in trade liberalizing agreements and facing opposition from
domestic interests that expect increased import competition.
U.S. Free Trade Agreements (FTAs)45
The United States has been a major advocate of trade liberalization through multilateral
agreements, but since the late 1980s has simultaneously pursued FTAs for numerous economic,
political, and strategic reasons. Through both bilateral and multi-party negotiations the United
States has negotiated, signed, and implemented 14 FTAs with 20 different countries.46
Implementing legislation for the first U.S. FTA, the agreement with Israel, was signed in June
1985, while the most recent FTAs passed by Congress—agreements with Colombia, Panama, and
South Korea—were signed into law in October 2011. During that time, U.S. FTAs have evolved
with certain commitments clarified and expanded, new issues added, and some commitments
dropped. These agreements have generally built upon one another, often seeking higher standards
beyond WTO provisions, and have a number of common elements. This section provides a brief
history of U.S. FTA negotiations and discussion of Trump Administration FTA policies to date, an
examination of the typical components of U.S. FTAs, and analysis of trade trends under U.S.
trade agreements.
Evolution of U.S. FTA Negotiations, Objectives, and Strategies
From the creation of the GATT in 1947 until the 1980s, U.S. efforts toward trade liberalization
focused primarily on agreements in the multilateral setting, with the United States and other
countries strongly eschewing discriminatory bilateral arrangements.47 The U.S. focus on the
multilateral system during this time in part reflected a reaction to the tit-for-tat trade
discrimination that occurred in the 1930s and a desire to establish mechanisms to avoid such
actions in the future. Judged by the metric of global tariff rates, the multilateral system was
successful as successive rounds of multilateral negotiations achieved a significant reduction in
average tariffs (above 30% reduction in weighted average in some rounds).48 However, nontariff
barriers became increasingly problematic both due to their growing relative significance as tariffs
44 For more information, see CRS Report R44361, The Trans-Pacific Partnership (TPP): Strategic Implications,
coordinated by Ben Dolven and Brock R. Williams.
45 See Appendix A for a listing of CRS products on U.S. FTAs.
46 The U.S. has technically negotiated, signed, and implemented 15 agreements, if one includes the U.S.-Canada FTA,
which was later subsumed by the North American Free Trade Agreement (NAFTA).
47 Arvind Panagariya, “The Regionalism Debate: An Overview,” World Economy, June 1, 1999, p. 480.
48 U.S. International Trade Commission, “U.S. Trade Policy since 1934,” in The Economic Effects of Significant U.S.
Import Restraints, publication 4094, August 2009, p. 69.
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fell, and due to their increased use as an alternative mechanism to restrict imports in sensitive
areas.49
Congress attempted to address this concern over the growth in nontariff barriers, as well as
general concerns over less than reciprocal U.S. access to foreign markets, in the Trade Act of
1974 (P.L. 93-618). Some in Congress also raised concerns at that time over the discriminatory
effects of preferential agreements, specifically the expansion of the European Community.50 In
response, Congress encouraged the executive branch to engage in new international negotiations
covering a wider range of topics and approaches, including commitments on nontariff barriers.
Specifically, Congress created a new negotiating authority for the executive branch, today known
as Trade Promotion Authority (TPA), ensuring expedited legislative consideration for trade
agreements and specifically mandating negotiation on nontariff issues (Section 102).51 At the
same time, Congress clarified that this authority applied not only to multilateral negotiations (the
primary venue for engagement at the time), but also to bilateral agreements, and encouraged the
Administration to undertake such a negotiation with Canada (Sections 105 & 612).
It would take roughly another decade before the first U.S. FTA negotiations began under the
Reagan Administration. Since that time, every U.S. President has initiated or concluded at least
one U.S. FTA. Presidents Clinton, George W. Bush, and Obama, each also worked with Congress
to implement FTAs concluded by their immediate predecessor.
Reagan Administration. The first U.S. FTA negotiations, under the Reagan Administration, took
place under two subsequent grants of TPA in the Trade Agreements Act of 1979 (P.L. 96-39) and
Trade and Tariff Act of 1984 (P.L. 98-573) (Figure 2).52 Scholars assert that the rationale for the
U.S.-Israel FTA, concluded and passed by Congress in 1985 (P.L. 99-47), was largely based on
foreign policy dynamics.53 Meanwhile, the second agreement, with Canada, at the time the largest
U.S. trading partner, was primarily done for commercial reasons. Some argue the United States
may have also sought the agreement with Canada to generate interest in a new multilateral round
of negotiations.54 The U.S.-Canada FTA negotiations began in May 1986 and the multilateral
Uruguay Round negotiations got underway the following September. The U.S.-Canada FTA was
concluded and implementing legislation was passed by Congress in 1988 (P.L. 100-449).
George H.W. Bush Administration. The next significant step in U.S. FTA negotiations occurred
simultaneously with the ongoing multilateral Uruguay Round negotiations under a TPA grant in
the Omnibus Trade and Competitiveness Act of 1988 (P.L. 100-418). In 1991, three years after
the U.S.-Canada FTA was concluded, the United States began trilateral negotiations with Canada
and Mexico on the North American Free Trade Agreement (NAFTA). NAFTA was signed in 1992
in the last days of the George H.W. Bush Administration, but not considered by Congress at the
time due to concerns in part over a lack of labor and environmental provisions.
49 Ibid, p. 70.
50 U.S. Congress, Senate Committee on Finance, Trade Reform Act of 1974, 93rd Cong., November 26, 1974, 93-1298
(Washington: GPO, 1974), p. 5.
51 For more information on Trade Promotion Authority, see CRS Report RL33743, Trade Promotion Authority (TPA)
and the Role of Congress in Trade Policy, by Ian F. Fergusson.
52 The Trade Agreements Act of 1979 extended the TPA negotiating authority relating to nontariff measures through
1988, while the Trade and Tariff Act of 1984 modified the TPA authority to include both nontariff and tariff measures,
and included specific provisions relating to the notification requirements for the U.S.-Israel FTA.
53 Howard Rosen, “Free Trade Agreements as Foreign Policy Tools: The U.S.-Israel and U.S.-Jordan FTAs,” in Free
Trade Agreements, ed. Jeffrey J. Schott (Institute for International Economics, 2004), p. 51.
54 Raymond Vernon, Debora L. Spar, and Glenn Tobin, Iron Triangles and Revolving Doors (Praeger, 1991), p. 26.
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Clinton Administration. The Clinton Administration began its FTA efforts negotiating additional
labor and environmental side agreements to NAFTA to address congressional concerns. Congress
passed NAFTA at the end of 1993 (P.L. 103-182).55 The Uruguay Round negotiations, ongoing
since 1986, were concluded and signed shortly after NAFTA under a special extension of the
1988 TPA grant, which had by then expired, and were subsequently passed by Congress in 1994
(P.L. 103-465). At the end of his Administration, President Clinton also negotiated and signed an
FTA with Jordan. The agreement is the only U.S. FTA not signed or implemented by Congress
under TPA procedures, as Congress did not pass new TPA legislation during the Clinton
presidency. Before leaving office, President Clinton also initiated FTA negotiations with Chile
and Singapore.
George W. Bush Administration. President George W. Bush greatly expanded the number and
regional coverage of U.S. FTA negotiations. In addition to finalizing and implementing the three
agreements begun at the end of the Clinton Administration, President Bush initiated and
concluded negotiations on nine additional FTAs. The Bush Administration pursued these
agreements simultaneously with and viewed them as complementary to the multilateral Doha
Development Agenda, which was launched in 2001. After passing implementing legislation for
the Jordan FTA (P.L. 107-43), Congress established a new set of trade negotiating objectives and
provided the Bush Administration with a new grant of TPA in the Trade Act of 2002 (P.L. 107210). The eight agreements passed by Congress during the Bush Administration under the 2002
TPA include
Three agreements with relatively small U.S. trading partners in the Middle East
and North Africa (MENA) region, which were motivated by strong foreign policy
objectives: Morocco (P.L. 108-302), Bahrain (P.L. 109-169), and Oman (P.L.
109-283);
The first two U.S. FTAs with trading partners in Asia, including Singapore (P.L.
108-78) and Australia (P.L. 108-286); and
Three agreements with Latin American trading partners, including a bilateral
agreement with Chile (P.L. 108-77), the U.S.-Dominican Republic-Central
America FTA (CAFTA-DR, P.L. 109-53), which is a multi-party agreement with
Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican
Republic, and a bilateral agreement with Peru (P.L. 110-138).
President Bush also concluded and signed three trade agreements—with Colombia, Panama, and
South Korea—which were not considered by Congress during his Administration. He formally
entered the United States into the Trans-Pacific Partnership (TPP) negotiations, though no
negotiating rounds were held during his presidency.
Obama Administration. The Obama Administration addressed congressional concerns regarding
the three pending George W. Bush Administration FTAs including on auto56 and labor57 issues,
55 When NAFTA went into effect in 1994 it subsumed the prior U.S.-Canada FTA.
56 Commitments on autos were of concern in the KORUS FTA. In response, the Obama Administration negotiated side
letters with South Korea that effectively modified the auto tariff reductions and safeguard provisions among other
commitments in the agreement. The text of the side letters can be found on the USTR website at: https://ustr.gov/tradeagreements/free-trade-agreements/korus-fta/legal-texts-reflecting-december-3-2010-agreement.
57 Labor issues were of particular concern in the U.S.-Colombia FTA. To resolve the issue, the two countries agreed to
a labor action plan requiring various reforms, prior to the agreement’s entry into force, in Colombia to improve worker
rights including establishing a new Labor Ministry and reforming the criminal code. The text of the Labor Action Plan
can be found on the USTR website at:
https://ustr.gov/sites/default/files/uploads/agreements/morocco/pdfs/Colombian%20Action%20Plan%20Related%20to
%20Labor%20Rights.pdf.
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paving the way for their entry into force. Congress ultimately passed the agreements with
Colombia (P.L. 112-42), Panama (P.L. 112-43), and South Korea (P.L. 112-41) under expedited
legislative procedures in October 2011. Although the 2002 TPA grant had expired in 2007, the
three agreements had been signed and notified to Congress while TPA was in effect and therefore
were still eligible for consideration under the TPA procedures. The Obama Administration also
pursued two major multi-party FTA negotiations, which, if implemented, would have nearly
doubled the share of U.S. trade occurring with FTA partners.
The TPP negotiations included three of the four largest U.S. trading partners (Canada, Japan, and
Mexico) and eight other countries in the Asia-Pacific region. In order to provide for potential
expedited legislative consideration of TPP and to set updated trade negotiating objectives,
Congress passed a new grant of TPA in 2015 (P.L. 114-26) as the TPP talks were nearing
conclusion. The 12 TPP participants signed an agreement in February 2016, but President Obama
never submitted implementing legislation to Congress due to ongoing consultations with
Congress on key provisions and uncertain congressional support.
The Obama Administration also initiated negotiations with the European Union (EU), collectively
the largest U.S. trade and investment partner, on a potential Transatlantic Trade and Investment
Partnership (T-TIP). The T-TIP negotiations remained ongoing at the end of the Obama
presidency. With the multilateral Doha Round negotiations still stalled, the Obama Administration
viewed both TPP and T-TIP as an opportunity to establish new regional trading rules with
economically significant trading partners on emerging issues like state-owned enterprises and
digital trade.
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Figure 2.Trade Promotion Authority (TPA) and U.S.Trade Agreements
CRS-17
Source: CRS with data from U.S. trade promotion authority and trade agreement legislation.
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U.S. and Global Trade Agreements: Issues for Congress
Trump Administration FTA Policy and Recent Developments
President Trump took office after running a campaign that was highly critical of U.S. trade
agreements, arguing that they negatively affected U.S. workers and industries. During his tenure
in office, the President has continued to express dissatisfaction with U.S. trade agreements,
referring to the KORUS FTA, for example, as “a disaster for the United States.”58 Much of the
President’s concern with U.S. FTAs relates to the U.S. trade deficit, which he asserts stems from
bad trade deals and “unfair trading practices” of U.S. FTA partners. In order to investigate this
relationship, the Administration undertook examinations of U.S. bilateral trade deficits and the
outcomes of existing U.S. FTAs focused on potential violations of commitments or negative
effects. To date those studies have not been made public, but may inform U.S. negotiations
moving forward.59
The President has also taken issue with U.S. participation in multi-party FTA negotiations,
arguing that bilateral negotiations create more leverage for the United States, given the much
greater size of the U.S. economy relative to most potential FTA partners. Many trade policy
experts have argued conversely, noting particular benefits from a multi-party approach. They
suggest that, especially in the context of TPP, the multiparty approach made concessions by other
countries more politically feasible, in part, by lessening the appearance of submitting solely to
U.S. interests, and have highlighted the benefit of such an approach in establishing more uniform
regional trade rules and disciplines.60
To date, the President has taken a number of steps to alter U.S. FTA policy. The first, in January
2017, was the withdrawal of the United States as a signatory to the TPP.61 After withdrawing from
TPP, the Trump Administration set out to revisit commitments in existing U.S. FTAs. This has
included initiating a renegotiation of NAFTA and bilateral talks toward modifications to the
KORUS FTA. Despite questioning the value of the TPA process, the President has followed TPA
procedures with regard to the NAFTA renegotiation.62 Therefore, changes to NAFTA requiring
congressional action could receive expedited legislative consideration if the agreement is signed
while TPA is in effect. The President has not followed TPA procedures, however, with respect to
the KORUS FTA talks. In March 2018, the Administration announced an agreement in principle
on modifications to KORUS.63 The limited commitments, including tariff schedule modifications
58 White House, “Remarks by President Trump on His Trip to Asia,” November 15, 2017, press release, available at
https://www.whitehouse.gov/briefings-statements/remarks-president-trump-trip-asia/.
59 Stakeholder comments collected as part of these studies are available. For comments regarding the report on trade
agreement violations, see https://www.regulations.gov/docket?D=USTR-2017-0010. For comments regarding the
report on trade deficits, see https://www.regulations.gov/docket?D=ITA-2017-0003.
60 For example, see Wendy Cutler, “TPP, Multi-Party Deals, Best Match for Complex Global Economy,” The Hill,
January 6, 2017.
61 White House, “Presidential Memorandum Regarding Withdrawal of the United States from the Trans-Pacific
Partnership Negotiations and Agreement,” January 23, 2017, available at https://www.whitehouse.gov/presidentialactions/presidential-memorandum-regarding-withdrawal-united-states-trans-pacific-partnership-negotiationsagreement/.
62 “Like we want to start to negotiate with Mexico immediately...you have to notify Congress, and after you notify
Congress, you have to get certified, and then you can’t speak to them for 100 days. The whole thing is ridiculous.”
White House, “Remarks by President Trump on Buy American, Hire American Executive Order,” April 18, 2017,
available at https://www.whitehouse.gov/briefings-statements/remarks-president-trump-buy-american-hire-americanexecutive-order/.
63 USTR, “New U.S. Trade Policy and National Security Outcomes with the Republic of Korea,” fact sheet, available at
https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2018/march/new-us-trade-policy-and-national.
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and South Korean regulatory changes will likely not require implementing legislation in order to
become effective, since the legislation implementing the original KORUS agreement gives the
Administration authority to make tariff modifications on U.S. imports from South Korea.
In many areas, including digital trade and state-owned enterprises, the Trump Administration’s
negotiating objectives for the NAFTA modernization talks are similar to U.S. positions in the TPP
negotiations under President Obama, which included NAFTA partners Canada and Mexico.64 In
other areas, such as proposed modifications to rules of origin, investor-state dispute settlement,
government procurement, and a “sunset provision” that would reportedly require a renewal of the
agreement every five years, the Trump Administration’s proposals differ considerably from prior
U.S. policy.65
Despite a critical view of existing agreements, the Trump Administration has also expressed
interest in negotiating new bilateral FTAs, including with the United Kingdom and TPP countries
like Japan. To date no TPP country has formally endorsed a new FTA negotiation with the United
States, which may, in part, reflect wariness toward the contentious nature of the ongoing NAFTA
talks. The President has repeatedly stated his willingness to unilaterally withdrawal the United
States from NAFTA should current talks not reach a satisfactory conclusion.
Content of U.S. FTAs66
U.S. FTAs have evolved in the scope and depth of their commitments since the 1980s. Despite
the variation in each U.S. FTA, there has been a general trend toward more comprehensive and
enforceable commitments. The first bilateral U.S. FTA, with Israel, is only 14 pages in length and
focused primarily on the elimination of tariffs. Other provisions, such as services and intellectual
property rights, are included in the text but with few explicit commitments.67 Since that time, U.S.
FTAs have expanded to include enforceable and extensive provisions on a range of trade-related
issues. Key observations regarding the content of existing U.S. FTAs include
NAFTA represented a major step in establishing the current nature of U.S. FTAs
and even multilateral commitments, serving in many ways, as a template for
future agreements;
A limited number of provisions included in NAFTA and early FTAs have been
restricted or eliminated in later U.S. FTAs. These include NAFTA’s Chapter 19
commitments, which allow for review of trade remedy cases, a provision not
incorporated in any other U.S. FTA. Commitments affecting visa issuance for
64 USTR, Summary of Objectives for the NAFTA Renegotiation, July 17, 2017, available at
https://ustr.gov/sites/default/files/files/Press/Releases/NAFTAObjectives.pdf.
65 “In His Own Words: Lighthizer Lets Loose on Business, Hill Opposition to ISDS, Sunset Clause,” World Trade
Online, October 19, 2017.
66 The information in this section is drawn from the texts of U.S. FTAs available on the USTR website at
https://ustr.gov/trade-agreements/free-trade-agreements, as well as USITC report 4614, Economic Impact of Trade
Agreements Implemented under Trade Authorities Procedures, 2016 Report.
67 The agreement does include commitments to go beyond multilateral government procurement agreements by
lowering the threshold of covered procurement. Neither the WTO nor the current Government Procurement Agreement
(GPA) existed in 1985 when the U.S.-Israel FTA was negotiated. At the time, multilateral government procurement
commitments were based on the Tokyo Round Code on Government Procurement, which entered into force in 1981.
Like the modern GPA, the agreement was plurilateral so not all GATT (now WTO) members participated. The United
States and Israel, both members of the GPA, agreed in their FTA to lower the threshold for commitments from 150,000
SDR (approximately $154,000 in 1985) to $50,000.
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temporary entry of business persons, are only included in NAFTA and bilateral
FTAs with Chile and Singapore;68
Significant changes in U.S. FTA provisions since NAFTA, particularly the
agreements with Colombia, Peru, and South Korea, include modifications to
commitments on labor and environment, e-commerce, services, and intellectual
property rights. These stem in part from updated negotiating objectives in the
2002 grant of TPA as well as the 2007 agreement between the George W. Bush
Administration and congressional leadership known as the “May 10th
Agreement,” which further clarified U.S. trade negotiating objectives;69
The Jordan FTA was negotiated and ratified without TPA procedures in effect in
2001, and generally has less extensive commitments than NAFTA (e.g., the FTA
contains no commitments on investment); and
The multilateral Uruguay Round Agreements entered into force in 1995, one year
after NAFTA became effective, and included commitments on issues also
included in NAFTA, such as services trade, intellectual property rights
protections, agriculture and dispute settlement. U.S. FTAs after 1995 reinforce
and build upon these multilateral commitments.
In terms of the specific commitments included in existing U.S. FTAs, there is variation among the
14 agreements, particularly in the precise language included in the texts. However, NAFTA and
later FTAs have certain common elements, including core rules such as nondiscriminatory and
national treatment among the parties (i.e., treating the goods, services, and investment of another
party the same as domestic sources), and transparency in the regulatory process. Major elements
(beginning with tariffs and then in alphabetical order) in U.S. FTAs include
Tariffs and Market Access. U.S. FTAs generally eliminate most tariffs on
manufactured goods and most tariffs and quotas on agriculture products among
the parties immediately. Tariffs and quotas on more import sensitive items are
usually phased out over time, generally within a few years, but ranging up to 20
years.70 Some tariffs or quotas remain in place indefinitely on the most import
sensitive agricultural products.71 U.S. FTAs also include nontariff market access
provisions covering issues such as import and export restrictions, import
licensing, and export taxes. U.S. FTAs implemented after the Jordan FTA also
ban import duties on remanufactured goods traded between the parties.72
68 NAFTA and its U.S. implementing legislation (P.L. 103-182) created a special category (TN) of professional worker
visa which now has no annual limit (amending an earlier program under the U.S.-Canada FTA). The U.S.-Chile and
U.S. Singapore FTAs and their U.S. implementing legislation (P.L. 108-77 and P.L. 108-78) secured a portion of the
65,000 annual U.S. H1-B1 visas available to temporary business workers—1,400 and 5,400 are allotted to temporary
entrants from Chile and Singapore, respectively.
69 USTR, “Bipartisan Trade Deal,” May 2007, available at
https://ustr.gov/sites/default/files/uploads/factsheets/2007/asset_upload_file127_11319.pdf.
70 The CAFTA-DR included a 20-year phase-out of U.S. import tariffs on certain dairy products. The agreement in
principle on modifications to the 2012 KORUS FTA, announced in March 2018, is to include an extension of the
phase-out of the U.S. light truck tariff to 2041. Once implemented this extended phase-out would become the longest in
any existing U.S. FTA.
71 For a listing of tariff-rate quotas in U.S. FTAs, see USITC report 4614, Economic Impact of Trade Agreements
Implemented under Trade Authorities Procedures, 2016 Report, pp. 293-294.
72 This commitment essentially requires trade partners to treat remanufactured goods, which are refurbished to a likenew condition, distinctly from used goods. The United States exported nearly $12 billion of remanufactured goods in
2011 according to the U.S. International Trade Commission. USITC, Remanufactured Goods, Investigation No. 332525, October 2012, https://www.usitc.gov/publications/332/pub4356.pdf.
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Competition Policy, Monopolies, and State Enterprises. First established in
NAFTA and included in U.S. FTAs with Australia, Chile, Colombia, Peru,
Singapore, and South Korea, these provisions commit the parties to maintain or
establish laws that prohibit anticompetitive business behavior, though certain
aspects are often not subject to dispute settlement procedures. The later
agreements expanded the commitments to require nondiscriminatory treatment in
the application of anti-competition laws with respect to entities of the other party
and to specify transparency and administrative requirements.
These chapters also address concerns over competition with monopolies
requiring that they act in accordance with commercial considerations and in a
nondiscriminatory manner in purchase and sale decisions. They also prohibit
monopolies from engaging in anticompetitive behavior including through crosssubsidization. More limited commitments on the activities of state-owned
enterprises (SOEs) are also included, requiring nondiscriminatory treatment in
the sale of goods and services. The U.S. Singapore FTA includes the most
extensive language on SOEs, requiring, for example, nondiscriminatory
treatment in the purchase and sale of goods and services.
Customs and Trade Facilitation. NAFTA established rules on customs
procedures and administration, including what may be required of an importer to
claim preferential treatment and prove origin under the agreement as well as what
is expected of customs agencies in responding to requests for advance rulings on
potential imports. Later U.S. FTAs expanded those commitments to include
broader trade facilitation provisions related to: the release of goods, in some
cases with target maximum timeframes; automation, including electronic
systems; expedited customs procedures for express delivery shipments; and
publication of customs laws, regulations, and procedures. U.S. FTAs with
Colombia, Oman, Panama, Peru, and South Korea also establish a minimum de
minimis threshold (generally $200) on the value of imports, below which
expedited customs procedures apply and taxes and duties are generally not
applicable. The de minimis threshold in the United States is currently $800.73 All
14 U.S. FTAs were implemented prior to the 2013 conclusion of the multilateral
WTO Trade Facilitation Agreement (TFA), which entered into force in February
2017 and includes related provisions.74
Cross-Border and Financial Services.75 NAFTA includes the three core
services commitments of national treatment, most-favored nation treatment, and
prohibition of local presence requirements to access markets. It applies these
commitments to all services on a negative list basis, excluding only those
services explicitly exempted in the schedules of nonconforming measures. The
negative list feature has become a hallmark objective of U.S. services
negotiations, and is included in all subsequent U.S. FTAs, except the U.S.-Jordan
FTA. The NAFTA financial services chapter also establishes transparency
73 CBP, “DeMinimis Value Increases to $800,” press release, March 11, 2016, available at
https://www.cbp.gov/newsroom/national-media-release/de-minimis-value-increases-800.
74 For more information, see CRS Report R44777, WTO Trade Facilitation Agreement, by Rachel F. Fefer and Vivian
C. Jones.
75 For more information, see CRS Report R43291, U.S. Trade in Services: Trends and Policy Issues, by Rachel F.
Fefer.
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commitments in the regulatory process, including time limits for responses to
administrative requests. It also requires that opportunities to supply newly
approved financial services in any party’s market are accessible to the firms of all
parties, and includes a requirement that companies be able to transfer
“information in electronic form” in and out of each party’s territory (Article
1407).76
In addition to the three core commitments listed above, U.S. FTAs subsequent to
NAFTA also include market access provisions in both cross-border and financial
services chapters, which prohibit restrictions on the number of service providers,
value of service transactions, and types of legal entities allowed to supply
services. They also set out additional transparency and regulatory requirements.
Dispute Settlement.77 U.S. FTAs include provisions for a dispute settlement
mechanism, which may be used to resolve disputes regarding each party’s
adherence to agreement obligations. These enforcement commitments require the
parties to attempt to resolve disputes through consultation before pursuing the
formal dispute settlement process. If resolution of the dispute cannot be achieved
through consultation, a panel, typically consisting of three arbiters, may be
convened to adjudicate. U.S. FTA dispute settlement cases, excluding disputes
under NAFTA’s Chapter 19 provisions, are rare, as most issues are resolved
through consultation, or adjudicated at the WTO if multilateral obligations are
also relevant to the dispute. To date only four cases have been resolved through a
U.S. FTA dispute settlement panel, three under NAFTA and one under CAFTADR (Guatemala).
E-commerce.78 U.S. FTA commitments in e-commerce chapters have expanded
considerably in their scope and enforceability since they were first included in
the U.S.-Jordan FTA (NAFTA does not contain an e-commerce chapter). The
main provisions include language to: (1) prohibit customs duties on electronically
transmitted products, (2) disallow discriminatory treatment of digital products on
the basis of their origin; and (3) subject digitally delivered services to the
relevant provisions of the investment, cross-border services, and financial
services chapters. The KORUS FTA represents the most expansive e-commerce
chapter, including provisions on electronic authentication and electronic
signatures and committing the parties to endeavor to limit barriers to data flows
across borders. A strengthened version of the latter provision was a key
component of the TPP’s digital trade provisions.
Government Procurement. U.S. FTAs include commitments to provide certain
levels of access to and nondiscriminatory and national treatment in the pursuit of
FTA parties’ government procurement markets. The extent of new access granted
by the FTA depends on whether or not the U.S. FTA partner is already a member
of the plurilateral WTO Government Procurement Agreement (GPA). For U.S.
FTA partners that are GPA members, FTA commitments may expand on GPA
commitments by, for example, setting a lower monetary threshold for covered
76 A similar provision is included in the KORUS FTA, see KORUS Annex 13-B, Section B.
77 For more information, see CRS In Focus IF10645, Dispute Settlement in U.S. Trade Agreements, by Ian F.
Fergusson.
78 For more information, see CRS Report R44565, Digital Trade and U.S. Trade Policy, coordinated by Rachel F.
Fefer.
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procurement. U.S. states may include their procurement in U.S. FTA
commitments, but the number of states choosing to do so has fallen considerably
over time, from 37 state participants in the U.S.-Chile FTA to 10 in the KORUS
FTA. Among the 20 U.S. FTA partner countries, Canada, Israel, Singapore, and
South Korea are currently members of the GPA.
Intellectual Property Rights (IPR).79 NAFTA’s commitments on intellectual
property rights represented a major step in the evolution of international trade
agreements. Negotiated at the same time as the Uruguay Round agreements, they
share much in common with the multilateral Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPS). NAFTA includes protections for
copyrights (life of the author plus 50 years), patents (20 years) including
exclusivity periods for test data (5 years for pharmaceuticals), trade secrets,
trademarks, and geographical indications, as well as specific requirements on the
enforcement of these provisions.
The negotiating objectives in the 2002 TPA established a new iteration of U.S.
FTA commitments on IPR, specifically calling for provisions that “reflect a
standard of protection similar to that found in United States law.”80 Thus the
FTAs negotiated under that grant of TPA include strengthened provisions such as
longer copyright protection (life of the author plus 70 years), mandate patent
term extensions for unreasonable delays in the approval process, and include
patent linkage provisions, which seek to ensure that marketing approvals for
generic versions of patented products fully respect existing patent protections.
These later agreements also include new provisions related to IPR in the digital
environment such as internet service provider liability and safe harbor provisions.
They also specify domain name dispute resolution commitments.
Due to concerns over the appropriate balance between strong IPR commitments
and providing adequate access to medicines in developing countries, the “May
10th Agreement” included certain modifications to U.S. FTA IPR commitments
related to patents for pharmaceutical products. As a result, the U.S. FTAs with
Colombia, Panama, and Peru make optional the patent term extension and patent
linkage provisions and put limitations on the five-year data exclusivity period for
pharmaceutical patents.
Investment.81 Excluding agreements with Bahrain, Israel, and Jordan, U.S. FTAs
include a chapter with commitments to reduce restrictions on investment and
ensure investor protections, a key area in which U.S. FTAs extend beyond
multilateral commitments, which consist only of limited provisions in the
Agreement on Trade-Related Investment Measures (TRIMs). Core commitments
beginning with NAFTA include: (1) nondiscriminatory treatment relative to both
domestic and other foreign parties; (2) minimum standard of treatment (MST),
including “fair and equitable treatment and full protection and security”; (3)
79 For more information, see CRS Report RL34292, Intellectual Property Rights and International Trade, by Shayerah
Ilias Akhtar and Ian F. Fergusson, and CRS In Focus IF10033, Intellectual Property Rights (IPR) and International
Trade, by Shayerah Ilias Akhtar and Ian F. Fergusson.
80 P.L. 107-210, Section 2102(b)(4).
81 For more information, see CRS Report R43052, U.S. International Investment Agreements: Issues for Congress, by
Shayerah Ilias Akhtar and Martin A. Weiss, and CRS In Focus IF10052, U.S. International Investment Agreements
(IIAs), by Martin A. Weiss and Shayerah Ilias Akhtar.
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requirements for compensation in the case of direct or indirect expropriation; (4)
restrictions on performance requirements that would condition investment access;
(5) provisions for expeditious transfer of funds; (6) denial of benefits to investors
with limited commercial activity in the FTA region; and (7) an investor-state
dispute settlement (ISDS) mechanism that allows private investors to take host
governments to binding arbitration regarding potential violations of the FTA
investment provisions.82 Among the 11 U.S. FTAs with investment chapters, only
the U.S.-Australia agreement does not include an ISDS mechanism.
Labor and Environment.83 NAFTA also represented a major step forward in
U.S. FTA provisions on labor and environmental protections. Although the
original text of the agreement did not include labor and environment
commitments, the United States, Canada and Mexico later negotiated legally
binding side agreements on labor and the environment that were included in
NAFTA implementing legislation. These agreements require the parties to
effectively enforce their labor and environmental laws, and ensure these laws
provide for “high labor standards” and “high levels of environmental protection.”
The agreements include separate enforcement mechanisms with limited monetary
penalties applicable to select provisions.
Beginning with the Jordan FTA, U.S. FTAs have included specific labor and
environmental commitments in the main FTA text. The strength of these
commitments has evolved from those first contained in the NAFTA side
agreements. The “May 10th Agreement” in particular represented a significant
progression in U.S. FTA labor and environmental commitments. U.S. FTAs have
advanced to not only require that parties enforce their own labor and
environmental laws, but also that parties shall adopt and maintain laws
guaranteeing specific internationally recognized worker rights84 and fulfilling
obligations under certain multilateral environmental agreements.85 U.S. labor and
environmental chapters in the most recent FTAs are also enforceable under the
regular FTA dispute settlement procedures, and therefore subject to the same
82 Due to concerns raised over whether ISDS procedures provide foreign investors greater rights in the United States
than domestic investors and in accordance with the “May 10th Agreement,” preamble language is included in each of
the four FTAs implemented after May 2007 (Peru, Colombia, Panama, South Korea) that clarifies “foreign investors
are not hereby accorded greater substantive rights with respect to investment protections than domestic investors under
domestic law where, as in the United States, protections of investor rights under domestic law equal or exceed those set
forth in this Agreement.”
83 For more information, see CRS In Focus IF10166, Environmental Provisions in Free Trade Agreements (FTAs), by
Richard K. Lattanzio and Ian F. Fergusson, and CRS In Focus IF10046, Worker Rights Provisions in Free Trade
Agreements (FTAs), by Cathleen D. Cimino-Isaacs and M. Angeles Villarreal.
84 The specific worker rights are those included in the International Labor Organization (ILO) Declaration on
Fundamental Principles and Rights at Work and its Follow-up (1998): freedom of association, effective recognition of
the right to collective bargaining, elimination of all forms of compulsory or force labor, effective abolition of child
labor and prohibition of worst forms of child labor, and elimination of discrimination in respect of employment and
occupation.
85 The seven multilateral environmental agreements include: the Convention on International Trade in Endangered
Species of Wild Fauna and Flora, the Montreal Protocol on Substances that Deplete the Ozone Layer, the Protocol of
1978 Relating to the International Convention for the Prevention of Pollution from Ships, the Convention on Wetlands
of International Importance Especially as Waterfowl Habitat, the Convention on the Conservation of Antarctic Marine
Living Resources, the International Convention for the Regulation of Whaling, and the Convention for the
Establishment of an Inter-American Tropical Tuna Commission.
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potential penalties.86 In practice, there have been few disputes under U.S. FTAs
in these areas; the United States has brought one labor case to dispute settlement
involving Guatemala under CAFTA-DR.
Rules of Origin.87 These provisions set criteria to determine if a product is
considered to have originated within a party or trading bloc of the FTA and
therefore if it is eligible for preferential duty treatment under the agreement. U.S.
FTAs vary in their origin requirements in a number of ways including the specific
content requirements by product, as well as in the methodologies used to
determine origin. For example, under NAFTA 62.5% of an automobile’s value
must originate within the NAFTA region to qualify for NAFTA benefits. By
contrast in the KORUS FTA, the regional value content requirement for autos is
35%.
Safeguards.88 Beginning with the U.S.-Israel FTA, U.S. FTAs have included
provisions allowing for temporary reinstatement of tariffs to protect against
serious injury to domestic industries from specific imports. These commitments
generally also reaffirm rights and obligations under the multilateral Safeguards
Agreement, and discuss the ability to exclude FTA partners from global
safeguard cases. The strongest language on this provision is included in NAFTA,
which requires that parties shall exclude imports from other FTA parties in any
global safeguard case unless they account for a substantial share of imports or are
causing particular harm. Most U.S. FTAs also include commitments reaffirming
each party’s rights and obligations under the multilateral antidumping and
countervailing duty agreements.
Sanitary and Phytosanitary Standards (SPS).89 SPS commitments in U.S.
FTAs address trade-related measures countries take to protect the health and
safety of human, plant, and animal life, which can have a major impact on
agricultural trade. NAFTA and the multilateral SPS agreement were negotiated
simultaneously and contain similar enforceable provisions designed to ensure
SPS measures are transparent, nondiscriminatory, not intended as a disguised
restriction on trade, applied to the extent necessary to achieve the appropriate
level of protection, adapted to varying regional conditions, and based on
scientific analysis and risk assessments. After the SPS agreement entered into
force in 1995, subsequent U.S. FTA commitments on SPS issues largely reinforce
the multilateral SPS agreement and are not themselves subject to FTA disputesettlement mechanisms. U.S. FTAs also generally establish a committee tasked
with consultation and cooperation on SPS issues. Certain agriculture industries
report that these committees have been instrumental in removing SPS barriers to
U.S. exports.90
86 See for example, Chapters 19 and 20 of the KORUS FTA, available at https://ustr.gov/trade-agreements/free-trade-
agreements/korus-fta/final-text.
87 For more information, see CRS Report RL34524, International Trade: Rules of Origin, by Vivian C. Jones.
88 For more information, see CRS Report RL32371, Trade Remedies: A Primer, by Vivian C. Jones, and CRS In Focus
IF10786, Trade Remedies: Section 201 of the Trade Act of 1974, by Vivian C. Jones.
89 For more information, see CRS Report R43450, Sanitary and Phytosanitary (SPS) and Related Non-Tariff Barriers
to Agricultural Trade, by Renée Johnson.
90 USITC report 4614, Economic Impact of Trade Agreements Implemented under Trade Authorities Procedures, 2016
Report, p. 158.
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Technical Barriers to Trade (TBT). TBT, like SPS issues, relate to regulations
or standards set by governments to protect various domestic interests from harm.
They were first covered in NAFTA, followed by multilateral commitments in the
Uruguay Round Agreements. These commitments seek to ensure TBT measures
are transparent, nondiscriminatory, based on science and risk assessments, distort
trade as little as possible, and require the use of international standards as the
basis of domestic standards where they exist. Later U.S. FTAs build on and
affirm rights and obligations under the TBT Agreement and are generally
enforceable under dispute-settlement procedures. Some U.S. FTAs also establish
industry-specific TBT commitments. For example, the KORUS FTA includes a
section specifically on motor vehicle standards and technical regulations (Article
9.7).91
Telecommunications. NAFTA and subsequent U.S. FTAs (except the U.S.Jordan FTA) include commitments related to access, transparency, and
competition in the telecommunications sector. Specifically, these commitments
require that all parties have access to any public telecommunications network on
reasonable and nondiscriminatory terms. U.S. FTAs starting with Chile and
Singapore also require number portability, independent regulatory bodies, and
timely, transparent, and nondiscriminatory allocation of scarce resources like
frequencies, among other provisions. These U.S. FTA commitments build on
multilateral commitments including a telecommunications annex to the GATS
and a 1996 telecommunications reference paper which some governments have
made part of their GATS commitments.92
Transparency and Good Governance. Transparency commitments are included
in many NAFTA chapters, but the U.S. FTAs with Chile and Singapore were the
first to include stand-alone transparency chapters, which became the norm for
subsequent U.S. FTAs. These commitments require parties to publish any
relevant laws, regulations, procedures, or administrative rulings in advance and
allow stakeholders an opportunity to comment. They also include notification,
and review and appeal provisions for administrative actions. Later U.S. FTAs
also include provisions related to anti-corruption, including a requirement to
establish laws that make corruption affecting international trade and investment a
criminal offense.
Trade Trends under U.S. FTAs93
This section provides an overview of U.S. trade patterns under U.S. FTAs. Specifically, it
examines the share of U.S. trade covered by FTAs, bilateral trade balances, top products traded
with each U.S. FTA partner, and the utilization rates of U.S. FTAs. Services trade data are not yet
available for 2017, so most of the discussion focuses on 2016 trade flows. Sections that only
cover goods trade use data from 2017.
91 KORUS text is available at
https://ustr.gov/sites/default/files/uploads/agreements/fta/korus/asset_upload_file604_12708.pdf.
92 For more information, see https://www.wto.org/english/tratop_e/serv_e/telecom_e/telecom_e.htm.
93 U.S. trade statistics sourced from the U.S. Census Bureau (goods), the U.S. Bureau of Economic Analysis (goods and
services), and the U.S. International Trade Commission (U.S. preferential imports). Unless otherwise noted analysis is
from CRS based on U.S. trade data.
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U.S. Trade Shares with FTA Partners
U.S. FTAs have been a significant component of U.S. trade policy, have been influential in
establishing new rules for the global trading system, and are a major focus of the current U.S.
trade debate. Less than half of U.S. trade, however, takes place with FTA partners while virtually
all trade takes place with members of the multilateral trading system. In 2016, 99% of all U.S.
trade took place with WTO members (Figure 3), while 39% of U.S. exports and 32% of imports
were with U.S. FTA partners (all U.S. FTA partners are also WTO members). NAFTA alone
accounts for the majority of U.S. trade with FTA partners (68% of FTA exports and 73% of FTA
imports) so the remaining 13 U.S. FTAs comprise a relatively small share of U.S. trade. This
number, of course, could grow depending on future U.S. FTA negotiations. For example, the
mega-regional agreements pursued by the Obama Administration, including TPP and T-TIP,
would have expanded the share of U.S. trade covered by FTAs to roughly 65%. In examining
these trade flows it is important to note that not all trade with FTA partners makes use of the FTA
benefits (see “Utilization Rates of U.S. FTAs”), and that FTA benefits are only one of several
factors that affect trade flows.
Figure 3. Shares of U.S.Total Trade with WTO and FTA Partners
Source: Trade data from U.S. Census Bureau and U.S. Bureau of Economic Analysis. Figure created by CRS.
Notes: Includes goods and services trade. Services trade data not available for non-WTO members.
Bilateral Trade Balances with FTA Partners
A focus of the Trump Administration and some Members of Congress has been on bilateral trade
balances (the difference between exports and imports) with U.S. trading partners in general, and
specifically U.S. FTA partners.94 They argue that a bilateral trade deficit is an indicator of
unfairness in a trade relationship, and therefore see an increasing trade deficit after an FTA goes
into effect as a negative outcome. Most economists assert that trade balances are driven largely by
macroeconomic factors, including exchange rates and aggregate savings and investment
patterns.95 In 2016, taking each agreement separately, the United States ran a surplus in goods
trade with nine of its 14 FTAs. However, the United States had an overall goods trade deficit of
94 For more information on U.S. trade with FTA partners, see CRS Report R44044, U.S. Trade with Free Trade
Agreement (FTA) Partners, by James K. Jackson.
95 For more information on trade deficits, see CRS In Focus IF10619, The U.S. Trade Deficit: An Overview, by James
K. Jackson.
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$72.6 billion with all FTA countries combined due to deficits with the largest FTA partners
(Figure 4). In services trade, the United States ran a surplus with 10 of its 14 FTAs, including the
largest FTA partners, resulting in an overall bilateral services trade surplus with FTA partners of
$68.9 billion. Combining goods and services trade, overall U.S. trade with FTA partners was
relatively balanced in 2016: the total U.S. trade deficit with FTA partners was $15.8 billion in
2016 (Figure 5) out of more than $1.7 trillion in total trade with FTA partners.96 In 2016, total
U.S. goods and services trade with FTA partners accounted for nearly 35% of U.S. trade with the
world, but less than 3% of the overall $504.8 billion U.S. trade deficit.
Figure 4. U.S. Trade Balances with FTA Partners
Source: Data from U.S. Census Bureau and U.S. Bureau of Economic Analysis. Figure created by CRS.
Notes: CAFTA-DR includes Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican
Republic. Goods data reported on a Census basis.
96 Total U.S. trade figures (combined goods and services) are based on balance of payments basis data where available.
See note to Figure 5.
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Figure 5. U.S. Total Goods and Services Trade Balance with FTA Partners
Source: Data from U.S. Census Bureau and U.S. Bureau of Economic Analysis (BEA). Figure created by CRS.
Notes: Figure includes data on goods and services trade. BEA reports overall U.S. trade balance figures using
goods trade data on a balance of payments (BOP) basis to align with concepts in the broader national accounts,
but BOP basis data are not available for smaller U.S. FTA partners. Due to this lack of data availability, goods
data in the figure above are on a Census basis for the smallest FTA partners including the 6 members of CAFTADR, Bahrain, Jordan, Morocco, Oman, Panama, and Peru.
Top Goods and Services Trade with FTA Partners
As highlighted above, U.S. trade with FTA partners is heavily concentrated among the largest
FTAs. In 2016, U.S. trade with Canada, Mexico, South Korea, the CAFTA-DR countries,
Singapore, and Australia accounted for more than 90% of U.S. trade with FTA partners. Table 1
and Table 2 show the types of goods (2017 data) and services (2016 data, latest available) traded
with these largest FTA partners. A few observations stand out. Supply chain linkages and U.S.
specialization in different stages of the production process are evident by top U.S. exports and
imports in similar product categories with the same countries. Three examples include: (1) U.S.
motor vehicle and parts trade with Canada and Mexico; (2) U.S. computer equipment trade with
Mexico; and (3) U.S. exports of fibers, yarns, and threads to CAFTA-DR countries and imports of
finished apparel products. In addition, several countries show a comparative advantage in certain
industries. For example, U.S. aircraft and parts are among the top U.S. exports to South Korea,
Singapore, and Australia, highlighting U.S. specialization in high-tech products. Meanwhile,
more than 20% of U.S. goods imports from Australia and South Korea are in meat products and
motor vehicles, respectively.
U.S. services trade with top FTA partners is concentrated in a few key categories (partly reflecting
more aggregated services classifications), and these top categories are consistent across U.S. FTA
partners. Travel is by far the top U.S. services import and export, accounting for more than onethird of U.S. services trade with FTA partners. This category includes all types of travel, including
tourism and travel for business and educational purposes. The costs incurred by a South Korean
student studying at a U.S. university, for example, are considered a U.S. travel service export. The
other major U.S. export categories are business services and charges for the use of intellectual
property. Nearly 80% of U.S. imports from CAFTA-DR countries and more than 65% of U.S.
imports from Mexico are in travel services, highlighting these countries appeal as a U.S. tourist
destination. More than half of all U.S. services imports from South Korea, meanwhile, are of
transport services, reflecting South Korea’s specialization in the shipping industry.
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Table 1. U.S. Goods Trade with Top FTA Partners
(2017, millions of U.S. dollars, sorted by export value)
FTA
Partner
All FTA
Partners
Canada
Mexico
South
Korea
CAFTADR
Singapore
Australia
Export Product
Export
Value
Total
720,450
Petroleum & Coal
Products
51,617
Motor Vehicle Parts
Shar
e
Import Product
Import
Value
Total
797,036
7%
Motor Vehicles
117,938
15%
44,050
6%
Oil & Gas
75,850
10%
Motor Vehicles
37,020
5%
Motor Vehicle Parts
66,147
8%
Total
282,472
Motor Vehicles
27,878
10%
Oil & Gas
59,173
20%
Motor Vehicle Parts
21,603
8%
Motor Vehicles
44,634
15%
Petroleum & Coal
Products
9,515
3%
Motor Vehicle Parts
13,223
4%
Total
Total
Share
299,975
Total
242,989
314,045
Petroleum & Coal
Products
21,348
9%
Motor Vehicles
57,440
18%
Motor Vehicle Parts
19,809
8%
Motor Vehicle Parts
45,542
15%
Computer
Equipment
15,731
6%
Computer Equipment
20,216
6%
Total
48,277
Total
71,164
Industrial Machinery
6,036
13%
Motor Vehicles
15,732
22%
Aerospace & Parts
3,634
8%
Communications
Equipment
6,363
9%
Semiconductors,
Electronic
Components
3,589
7%
Semiconductors,
Electronic Components
6,302
9%
Total
30,719
Total
23,641
Petroleum /Coal
Products
6,788
22%
Apparel
7,478
32%
Fibers, Yarns, &
Threads
1,450
5%
Fruits & Tree Nuts
3,381
14%
Oilseeds & Grains
1,241
4%
Medical Equipment &
Supplies
2,375
10%
Total
29,753
Total
19,397
Aerospace & Parts
4,770
16%
Pharmaceuticals and
Medicine
4,061
21%
Petroleum & Coal
Products
2,341
8%
Aerospace and Parts
1,981
10%
Semiconductors,
Electronic
Components
2,076
7%
Basic Chemicals
1,397
7%
Total
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24,601
Total
10,051
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U.S. and Global Trade Agreements: Issues for Congress
FTA
Partner
Export Product
Export
Value
Shar
e
Import Product
Import
Value
Share
Aerospace & Parts
2,566
10%
Meat Products
2,178
22%
Motor Vehicles
1,878
8%
Pharmaceuticals &
Medicine
706
7%
Ag & Construction
Machinery
1,657
7%
Nonferrous (excl.
Aluminum) & Processing
592
6%
Source: Data from U.S. Census Bureau.
Notes: Categories are 4-digit North American Industrial Classification System (NAICS) commodities. Excludes
NAICS 9200/9300 (used merchandise), 9800 (exports returned), and 9900 (other special classification).
Table 2. U.S. Services Trade with Top FTA Partners
(2016, millions of U.S. dollars, sorted by export value)
FTA
Partner
All FTA
Partners
Canada
Mexico
South
Korea
Australia
Singapor
e
Export Product
Export
Value
Total
176,073
Travel
62,362
Other Business
Import Product
Import
Value
Total
107,215
35%
Travel
41,108
38%
28,382
16%
Transport
21,299
20%
IPR Charges
25,565
15%
Other Business
20,751
19%
Total
53,957
Total
29,950
Travel
15,936
30%
Travel
7,856
26%
Other Business
9,789
18%
Other Business
7,398
25%
IPR Charges
7,977
15%
Transport
5,356
18%
Total
32,045
Travel
17,459
Transport
IPR Charges
Shar
e
Share
Total
24,569
54%
Travel
16,152
66%
3,886
12%
Transport
3,077
13%
3,748
12%
Other Business
2,848
12%
Total
21,055
Total
10,974
Travel
8,492
40%
Transport
5,704
52%
IPR Charges
5,848
28%
Travel
1,230
11%
Transport
2,348
11%
Other Business
1,106
10%
Total
7,274
Total
21,977
Travel
7,937
36%
Other Business
1,867
26%
Financial
3,448
16%
Travel
1,831
25%
Other Business
2,657
12%
Transport
1,032
14%
Total
7,258
Total
16,940
Other Business
8,621
51%
Other Business
3,109
43%
IPR Charges
2,844
17%
Transport
1,213
17%
Maintenance and
Repair
1,203
7%
Financial
900
12%
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FTA
Partner
CAFTADR
Export Product
Export
Value
Total
8,213
Travel
4,045
Transport
Other Business
Shar
e
Import Product
Import
Value
Total
10,422
49%
Travel
8,109
78%
2,303
28%
Other Business
744
7%
426
5%
Telecommunications,
computer, and
information services
741
7%
Share
Source: Data from U.S. Bureau of Economic Analysis.
Notes: Other business category includes professional services such as accounting, consulting, and architecture.
Utilization Rates of U.S. FTAs (U.S. Imports)
While the numbers above show the total value of U.S. trade with FTA partners, not all trade with
FTA partners makes use of the preferential FTA tariff treatment. Combined, roughly half of U.S.
goods imports by value from FTA partners entered the United States under preferential FTA duty
rates in 2017 (Table 3). This may be caused by a number of factors including challenges in
meeting the requirements of the agreement, such as rules of origin, or a lack of knowledge of the
FTA benefits. It may also merely reflect the fact that existing applied U.S. MFN tariffs are zero or
low enough that compliance with the FTA is more costly than the resulting tariff benefit. For
example, more than one-third of all U.S. tariff lines have a zero import tariff or no associated
duty. Therefore, entering these products under the FTA would have no specific benefit to an
importer. These FTA usage rates highlight the importance of evaluating how specific FTA
provisions, such as rules of origin, impact the cost-effectiveness of utilizing the agreement. The
usage rates also signify the value of nontariff provisions, for example, rules on customs activities,
intellectual property rights, and labor and environmental protections, given that these
commitments have the potential to impact trading relationships regardless of the relevant tariffs.
Preferential tariff treatment under U.S. FTAs is relatively more important to some U.S. FTA
partners than others and is concentrated in certain product groups. For example, less than 10% of
U.S. imports from Singapore make use of the preferential tariff rates under the FTA while 88% of
U.S imports from Jordan receive preferential tariff treatment. For seven U.S. FTA partners,
apparel, a product with relatively high average MFN tariffs, is the top U.S. import receiving
preferential treatment, including for five of the six members of CAFTA-DR. In terms of value,
however, motor vehicles is the largest U.S. import receiving preferential treatment under an FTA,
accounting for 30% of all such U.S. imports. It is the top import receiving preferential treatment
from the three largest U.S. FTA partners: Canada, Mexico, and South Korea.
Table 3. U.S. Imports from FTA Partners Receiving Preferential Tariff Treatment
(2017, millions of U.S. dollars, sorted by FTA partner)
U.S. FTA
Partner
Share of U.S.
imports entering
under the FTA
Total value of U.S.
imports entering
under the FTA
Top import product
entering under
the FTA
Value of top import
product entering
under the FTA
Australia
38%
$3,914
Meat Products
$1,894
Bahrain
58%
$581
Canada
43%
$129,875
Chile
56%
$5,940
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Aluminum & Processing
$360
Motor Vehicles
$43,607
Nonferrous & Processing
$2,977
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U.S. and Global Trade Agreements: Issues for Congress
U.S. FTA
Partner
Share of U.S.
imports entering
under the FTA
Total value of U.S.
imports entering
under the FTA
Colombia
37%
$5,010
Oil and Gas
Costa Rica
33%
$1,493
Fruits & Tree Nuts
Dominican
Republic
60%
El Salvador
84%
$2,074
Apparel
$1,571
Guatemala
49%
$1,956
Apparel
$1,055
Honduras
72%
$3,311
Apparel
$2,156
Israel
12%
$2,693
Plastics
$538
Jordan
88%
$1,485
Apparel
$1,345
Mexico
58%
$182,763
Motor Vehicles
$57,541
Morocco
16%
$201
Nicaragua
63%
Oman
$2,810
Top import product
entering under
the FTA
Value of top import
product entering
under the FTA
Apparel
$2,862
$536
$697
Fruits and Tree Nuts
$72
$2,053
Apparel
$988
68%
$708
Plastics
$235
Panama
13%
$56
Sugar/Confectionary
$24
Peru
46%
$3,310
Apparel
$585
Singapore
9%
$1,806
Petroleum & Coal
Products
$655
South Korea
47%
$33,015
Motor Vehicles
$15,581
Source: Analysis by CRS. Trade and tariff preference data from the USITC trade dataweb.
Notes: Import values based on U.S. imports for consumption.
Global RTAs
During the past two decades regional trade agreements (RTAs) have become, arguably, the
dominant force in international trade negotiations, increasing in number and expanding in scope.
Since 1990, the number of RTAs in force and notified to the WTO has increased seven-fold, while
metrics on the average depth of provisions (i.e., the number of legally enforceable commitments)
have doubled over the same period.97 All of the United States’ major trading partners participate
in multiple RTAs. As of May 2018, there were 287 such agreements in force and notified to the
WTO of which the United States is party to 14 (involving 20 countries).
Agreements that do not involve the United States have the potential to affect U.S. stakeholders
and broader U.S. trade policy goals through a number of channels. For example, lower tariffs
among RTA partners can place U.S. exporters at a competitive disadvantage in accessing foreign
markets relative to members of the RTA. Other countries’ participation in RTAs could also
enhance their ability to attract investment relative to the United States, as potential investors
benefit from both the preferential access to foreign markets, as well as the ability to potentially
source imports at lower cost from other RTA partners. In addition to these direct economic
effects, RTAs not involving the United States, may affect U.S. leadership and influence in setting
97 Claudia Hofman, Alberto Osnago, and Michele Ruta, Horizontal Depth, A New Database on the Content of
Preferential Trade Agreements, World Bank Group, Policy Research Working Paper 7981, February 2017.
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global trading rules, depending on the degree to which such agreements differ from U.S. FTAs
and the extent to which they establish precedents for future trade agreements.
Data Sources on Regional Trade Agreements
There are a number of sources available for more information and research on global RTAs. The WTO, given its
requirement that members make notification of new agreements, houses the most authoritative and
comprehensive database. WTO publications provide further analysis of these agreements and their provisions,
including factual reports compiled by the WTO Committee on Regional Trade Agreements, which is responsible
for examining RTAs against WTO requirements. In addition, the 2016 WTO book, “Regional Trade Agreements
and the Multilateral Trading System,” provides one of the most in-depth studies of agreements notified to the
WTO, comparing agreements across a range of provisions.
Research departments at several multilateral development banks have also created databases on RTAs and their
provisions. The World Bank has created a database of RTAs, including those not notified to the WTO. World
Bank researchers have also created a dataset mapping out the provisions and legal enforceability of notified RTAs
as of 2015. The Asian Development Bank’s (ADB) Asia Regional Integration Center includes a database of RTAs
that involve at least one ADB member, with links to the texts of the agreements and related news and research.
Finally, the Inter-American Development Bank (IDB) together with the International Center for Trade and
Sustainable Development (ICTSD) has launched a similar database covering RTAs around the world, also with
links to additional related resources and research.
WTO Database: http://rtais.wto.org/UI/PublicMaintainRTAHome.aspx
World Bank Database: https://wits.worldbank.org/gptad/trade_database.html
World Bank Dataset on Horizontal Depth: https://data.worldbank.org/data-catalog/deep-trade-agreements
ADB Database: https://aric.adb.org/fta
IDB/ICTSD Database, RTA Exchange: https://rtaexchange.org
Global Growth in RTAs98
RTAs long predate the formation of the multilateral trading system in 1947, and before that time
they were the primary mechanism for pursuing tariff liberalization. However, as part of the major
restructuring of international economic policy that took place after World War II, the locus of
trade negotiations shifted to the multilateral forum under the GATT for the next several decades.
In the early postwar years, RTAs continued to be negotiated and co-existed with the multilateral
system, but most of these agreements were among European countries and associated with the
region’s ongoing drive toward economic integration.99 Beginning in the 1980’s, and some argue
as a result of challenges in addressing trade issues at the multilateral level, RTA negotiations
started to become an increasing focus of trade policy beyond Europe, including, most
significantly, in the United States.100
The conclusion of the 1994 Uruguay Round negotiations highlighted forward momentum of both
RTAs and the multilateral trading system. The Uruguay Round, which established the WTO and
introduced multilateral commitments on a range of issues including IPR, trade in services, and
agriculture, came into effect amidst the continued proliferation of RTAs. The agreements of the
Uruguay Round incorporated a number of provisions first established in RTAs, such as NAFTA,
98 Unless otherwise noted, the global set of regional trade agreements considered are those that have been notified to
the WTO.
99 WTO, World Trade Report 2011: The WTO and Preferential Trade Agreements, 2011, p. 52.
100 At the time the United States was having difficulty convincing the other members of the GATT, particularly the
European Community, to pursue a new multilateral agreement. Arvind Panagariya, “The Regionalism Debate: An
Overview,” World Economy, June 1, 1999, p. 481.
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and may have been motivated in part to lessen the potential discriminatory effects of RTAs.
During the 1990s RTAs spread further throughout the globe with the emergence of several
significant regional agreements including in North America (NAFTA), South America
(Mercosur), Asia (ASEAN FTA), and Africa (COMESA).101
In the last two decades, RTAs have become the main tool for reform for most of the participants
in the global trading system.102 While the WTO Doha Round of negotiations has continued for 16
years, the United States and the European Union have negotiated bilateral and regional
agreements around the globe. During the same time, major Latin American economies, such as
Mexico and Chile, and East Asian economies including China, Japan, and South Korea began
pursuing RTAs, including such agreements as a major component of their domestic economic
strategies to enhance growth and attract investment. Today East Asia is home to the second largest
concentration of RTAs behind Europe (Figure 6).
Figure 6. RTAs by Region
Source: Data from Acharya 2016, p. 7. Figure created by CRS.
With the implementation of the Mongolia-Japan RTA in June 2016, every WTO member is now a
participant in at least one RTA. As of December 2014, the average number of RTA partners per
WTO member was 11.103 The European Union continues to lead in the pursuit and formation of
RTAs with a total of 59 partners (Figure 7). All of the top 20 U.S. trading partners, however, have
been active participants in RTAs. As of 2014, members of this group had on average 20 RTA
partners, with leading members, in addition to the EU, including Switzerland (35 RTA partners),
Chile (27), China (23), and Singapore (26). The United States has its own FTAs with 8 of these
top trade partners.
101 See Appendix B for RTA country groupings.
102 Nuno Limao, “Preferential Trade Agreements,” in Handbook of Commercial Policy, ed. Kyle Bagwell and Robert
W. Staiger, vol. 1B (2016), p. 289.
103 Jo-Ann Crawford, “Market Access Provisions on Trade in Goods in Regional Trade Agreements,” in Regional
Trade Agreements and the Multilateral System, ed. Rohini Acharya (2016), p. 25.
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Figure 7. RTAs of United States and Top 20 U.S.Trade Partners
Source: Data from Regional Trade Agreements and the Multilateral System, 2016. Figure created by CRS.
Trade agreements have proliferated among and between both developed and developing
countries. According to a 2011 study, which included roughly 100 RTAs not notified to the WTO,
in the late 1970’s, 60% of all RTAs were between developed and developing countries, with only
20% among developing countries only.104 Since that time, however, agreements among
developing countries have increased markedly, with these agreements now accounting for more
than two-thirds of global RTAs. Trade agreements between developed and developing countries
have shrunk to roughly one-quarter of global RTAs, but have still grown at a quicker rate than
trade agreements among only developed countries, which now account for less than 10% of
global RTAs. This trend in RTA negotiations reemphasizes the growing significance of
developing countries in international economic activity and policymaking over the past two
decades.
Rise of Mega-Regional Negotiations
In recent years, another shift has occurred in which many of the largest trading nations in the
world have embarked on mega-regional negotiations (RTAs with broad and economically
significant membership). Despite the proliferation of RTAs in recent decades, as recently as 2008,
less than half of world trade took place between RTA partners, because many of the world’s
largest economies and trade partners (e.g., United States, European Union, China, and Japan) do
not have agreements in effect with one another.105 If implemented, new mega-regional agreements
currently being pursued between these countries would greatly expand the share of world trade
covered by RTAs. On one hand, the economic significance of these agreements may cause
renewed concerns over their potential discriminatory effects and their impact on the development
and coordination of global trading rules. On the other hand, they may provide an opportunity to
104 WTO, World Trade Report 2011: The WTO and Preferential Trade Agreements, 2011, pp. 55-56.
105 In 2008 the share of trade between RTA partners was 35%, excluding intra-EU trade, or 51% including intra-EU
trade. Ibid, p. 64.
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consolidate multiple existing bilateral RTAs into a smaller number of agreements, simplifying the
global commercial environment.106
Under the Trump Administration, the United States has eschewed these large negotiations in favor
of bilateral agreements. However, other countries continue to pursue mega-regional pacts such as
the recently concluded but not yet ratified and implemented Comprehensive and Progressive
Agreement for Trans-Pacific Partnership (CPTPP) agreement without the United States, making it
likely that mega-regional agreements will remain a significant component of the global trading
system for the foreseeable future. The U.S. position on these negotiations could also change,
particularly if U.S. stakeholders incur significant negative economic effects as a result of not
participating.
Economically significant trade agreements currently under negotiation or awaiting
implementation include (see “Major U.S. Trade Partners’ RTAs” for more)
EU-Japan RTA, which includes two of the five largest U.S. trading partners;
CPTPP, which includes all TPP countries except the United States;
Expansion of the Pacific Alliance (current members Chile, Colombia, Mexico,
and Peru are negotiating with Australia, Canada, New Zealand, and Singapore);
Regional Comprehensive Economic Partnership (RCEP), which includes several
of the world’s largest economies, such as China, Japan, India, and South Korea;
and
Tripartite Agreement and Continental Free Trade Area, 27- and 55-member RTA
negotiations, respectively, encompassing all major African economies.
Comparison of Provisions
Trade agreements have grown not only in number over the past decades, but also in the depth and
scope of their commitments. At the same time, considerable differences exist between and among
agreements from the extent of their tariff coverage to the scope and enforceability of the nontariff
commitments. For example, while every U.S. FTA (except the first with Israel) includes
enforceable commitments on services trade, only roughly half of all RTAs notified to the WTO
cover services. While RTAs may deepen existing multilateral commitments by further reducing
tariffs or providing additional access to services markets, they may also go beyond WTO rules
and establish new provisions. With the long delay in achieving new multilateral commitments,
these RTAs have become the incubators for new rules in the global trading system.
From the U.S. perspective, this heterogeneity in RTAs raises at least two questions: (1) are these
agreements adhering to the WTO criteria on RTAs and creating an environment conducive to
future multilateral negotiations, and (2) are these agreements creating new rules that differ in type
from U.S. RTAs and how could those new rules affect U.S. interests?
106 Rohini Acharya, “Regional Trade Agreements: Recent Developments,” in Regional Trade Agreements and the
Multilateral Trading System, ed. Rohini Acharya (2016), p. 9.
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Extent of Tariff Liberalization107
Tariffs, the most traditional aspect of trade agreements, remain at the core of RTA negotiations
and can be a contentious issue.108 RTAs notified to the WTO under Article XXIV of the GATT are
required to cover substantially all trade, and tariff concessions are to be implemented within ten
years.109 According to the sample in the 2016 WTO study, most RTAs cover at least 80% of tariff
lines (on average 90.6%) and liberalize more than 80% of trade.110 However, a number of
agreements fall below the 80% tariff line threshold, and more commonly, include heavily traded
products among the protected tariff lines, therefore liberalizing significantly less than 80% of
trade. Agricultural products are by far the most likely products to be excluded from RTAs. In the
sample, on average, 93.4% of tariffs are eliminated on nonagricultural products, while only
72.1% of agricultural tariff lines are completely liberalized. Textile and apparel products were the
other categories most likely to be excluded. Regarding the length of implementation, 40% of the
RTAs studied required the completion of tariff phase-outs within 5 years, 63% within 10 years,
and over 90% within 20 years.
U.S. FTAs have among the highest overall rates of tariff liberalization. The study included eight
U.S. FTAs with eight partners, providing a sample covering more than half of all U.S. FTAs. On
average across the agreements, the United States eliminated nearly all tariffs, removing industrial
goods tariffs entirely by the end of the implementation period with only a small number of tariffs
remaining on the most sensitive agricultural products (0.3% of total tariff lines, or 1.8% of total
agricultural tariff lines).
An examination of the RTAs of the top 20 U.S. trading partners, again using data on RTAs from
2007-2014, reveals considerable heterogeneity (Figure 8). Australia, Hong Kong, and Singapore
each completely liberalized their tariffs in the agreements included in the sample—the only
countries with higher liberalization rates than the United States among top U.S. trade partners.111
Meanwhile India is an obvious outlier for its very low overall rates of liberalization, eliminating
duties on less than 50% of tariff lines. Vietnam, Malaysia, and Thailand stand out among
developing countries for their relatively extensive elimination of tariffs, particularly in
agricultural products, with less than 10% of agriculture tariff lines remaining protected in their
RTAs included in the sample. Several U.S. FTA partners among this group retain tariff barriers on
a significant share of tariff lines in their RTAs, on average, despite the fact that their FTAs with
the United States eliminate nearly all tariffs, even in agricultural products. For example, among
the RTAs in this study, South Korea on average retained tariffs on 6.5% of tariff lines, while in its
107 This section based on the market access chapter in Acharya 2016. Jo-Ann Crawford, “Market Access Provisions on
Trade in Goods in Regional Trade Agreements,” in Regional Trade Agreements and the Multilateral System, ed. Rohini
Acharya (2016), pp. 21-57.
108 Tariff schedules are classified by Harmonized Schedule (HS) codes in which additional digits allow for more
precise commodity classifications and therefore fewer digits signify a greater degree of aggregation among products.
Tariff schedules are consistent across countries up to the six-digit level HS code, which includes about 5,000
commodities. Many countries, including the United States, assess tariffs at the eight-, ten-, or even twelve-digit level,
leading to inconsistencies at the tariff-line level between countries. For this reason, Acharya 2016, and most
international tariff analysis, aggregates tariff schedules to the uniform six-digit level for comparisons.
109 See section “WTO Rules on RTAs” for more discussion of this issue. Agreements among developing countries may
also notify under the enabling clause, which maintains less stringent criteria, but the majority of FTAs in the study are
notified under Article XXIV, with only 5 of the 61 RTAs among developing countries notifying under the enabling
clause. The 10-year time frame may be exceeded in exceptional circumstances.
110 RTAs included in the tariff analysis are those notified to the WTO between 2007 and 2014, and subject to the
WTO’s RTA transparency mechanism.
111 Singapore and Hong Kong have virtually eliminated tariffs on an MFN basis, so their high RTA liberalization rates
are less noteworthy.
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FTA with the United States it retained tariffs on less than 1% of tariff lines. Similarly, Mexico
retained tariffs on more than 30% of its agricultural tariff lines on average across its RTAs, but
eliminated such tariffs entirely in NAFTA. Although the sample size is limited, it may be
indicative of U.S. ability to extract concessions and set the general parameters for its FTA
negotiations, given that comprehensive tariff coverage has been a long-standing priority of U.S.
negotiators.
Figure 8. Tariff Lines Not Eliminated in RTAs for Top 20 U.S.Trade Partners
Source: Jo-Ann Crawford, "Market Access Provisions on Trade in Goods in Regional Trade Agreements," in
Regional Trade Agreements and the Multilateral System, ed. Rohini Acharya (2016), Tables 1.2, 1.3, and 1.4.
Notes: RTAs included in the tariff analysis are those notified to the WTO between 2007 and 2014, and subject
to the WTO’s RTA transparency mechanism. Brazil, Israel, Saudi Arabia, and the United Arab Emirates are also
among the top 20 U.S. trade partners, but no RTA data for these countries was included in the sample.
Strength and Scope of Commitments
Similar to the variation in the extent of tariff coverage, the growth in the number of global RTAs
has also been accompanied by diversity in the depth and scope of various nontariff provisions.
Agreements may make certain commitments unenforceable (i.e., not subject to a disputesettlement mechanism), they may include less extensive commitments on particular issues, or
they may exclude issues entirely. In general, U.S. FTAs cover a broader range of issues than most
global RTAs. For example, roughly one-half of RTAs notified to the WTO between 2000 and
2014 include core U.S. FTA commitments such as services (55%), investment (54%), IPR
commitments beyond TRIPS (46%), and government procurement (46%), while less than onethird include provisions on the environment (31%), e-commerce (22%), or labor (22%).112 Below,
two specific areas are examined in more detail, commitments on services and intellectual property
rights, with a comparison of U.S. and global RTA commitments.
112 Rohini Acharya, “Regional Trade Agreements: Recent Developments,” in Regional Trade Agreements and the
Multilateral Trading System, ed. Rohini Acharya (2016), p. 11.
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Services.113 Considering agreements notified to the WTO through December 2014, roughly half
of the agreements contain provisions on trade in services (122 of 258). In terms of the structure of
the commitments, the negative versus positive list approach is one of the key characteristics
differentiating services agreements. A negative list covers all sectors except those explicitly
excluded, and is generally considered more liberalizing than a positive list, which covers only
those sectors explicitly included. NAFTA was the first U.S. FTA to include extensive
commitments on services trade. NAFTA’s negative list approach, which the United States
continues to champion in bilateral, regional, and multilateral negotiating fora has become the
model for a family of global RTAs. While the negative/positive list approach provides some
indication of an agreement’s coverage, the exclusions and specific commitments determine the
level of liberalization achieved. For example, two-thirds of the EU agreements included in the
study exclude audio-visual services, an area of comparative advantage and major services export
interest of the United States.
Of the 122 services agreements analyzed by the WTO study, 54 followed a NAFTA-style
negative list approach (Figure 9). The positive list approach of the GATS, meanwhile, is used in
48 RTAs, primarily those among developing countries or between developed and developing
countries. Regional differences are apparent as well with countries in the Americas favoring the
NAFTA approach while those in Asia make greater use of the GATS positive list approach.
Overall, while the structure of RTA services commitments vary, the authors of the WTO study
assert that the agreements do not differ to an extent that would hinder future multilateralization.
The largest concern the authors raise is that such agreements will likely continue to exclude leastdeveloped countries that lack the institutional capacity to engage in such negotiations.
Figure 9. Breakdown of Global Services RTAs by Type
Source: Information from Pierre Latrille, “Services Rules in Regional Trade Agreements: How Diverse or
Creative are they Compared to the Multilateral Rules?,” in Regional Trade Agreements and the Multilateral Trading
System, ed. Rohini Acharya (2016), p. 430. Figure created by CRS.
Intellectual Property Rights (IPR).114 In a 2016 WTO study examining the 245 RTAs notified
to the WTO and in force between 1995 and December 2014, the authors determined that 174 have
113 This section is based on the services chapter in Acharya 2016. Pierre Latrille, “Services Rules in Regional Trade
Agreements: How Diverse or Creative are they Compared to the Multilateral Rules?,” in Regional Trade Agreements
and the Multilateral Trading System, ed. Rohini Acharya (2016), pp. 421-493.
114 This section is based on the intellectual property rights chapter in Acharya 2016. Raymundo Valdès and Maegan
McCann, “Intellectual Property Provisions in Regional Trade Agreements: Revision and Update,” in Regional Trade
Agreements and the Multilateral Trading System, ed. Rohini Acharya (2016), pp. 497-607.
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some type of IP provisions, 116 referenced specific types of IPR, and 94 included pharmaceutical
provisions. The United States stands out in the extent and consistency of its IPR coverage in
FTAs (Figure 10). Other countries with a comparative advantage in IP-intensive products, such
as Japan and the EU, have negotiated RTAs with strong and extensive coverage of IPR issues, but
they differ considerably in the consistency of their approach. Essentially all U.S. FTAs include
high levels of IP protections, while more than 50% of the EU and Japanese agreements contained
moderate, negligible, or no IP content.115 The European Free Trade Association (EFTA) countries
(Iceland, Liechtenstein, Norway, and Switzerland) have the largest share of RTAs with high levels
of IPR commitments after the United States. Developing countries have also been active
participants in RTAs with IPR commitments; all but five of the 174 RTA agreements with IPR
commitments include at least one developing country. Mexico, for example, has nearly the same
share of RTAs with high and moderate IP content as the EU and Japan.
Figure 10. Shares of Trade Agreements by Level of IP Content, Select Trade Partners
Source: Information from Raymundo Valdès and Maegan McCann, “Intellectual Property Provisions in Regional
Trade Agreements: Revision and Update,” in Regional Trade Agreements and the Multilateral Trading System, ed.
Rohini Acharya (2016), pp. 497-607. Figure created by CRS.
Differing Approaches
Commitments in RTAs also vary in the approach they take to addressing specific issues. Four
different areas in which U.S. and EU approaches to RTA commitments have differed are
discussed below. The United States and EU are both leaders in global trade negotiations in part
due to the economic significance of the trading relationships encompassed by their agreements.
The EU already has the world’s largest RTA network, and has 12 pending or ongoing RTA
negotiations, including with major U.S. trading partners like Japan. One implication is that a
growing and significant share of world trade could be subject to EU RTA rules (Table 5). These
negotiations also have the potential to set precedents for future agreements. In sum, differing
approaches between the United States and the European Union may be consequential for U.S.
115 The classification methodology for the level of IP content was unique to this specific study. The authors identify 32
different potential IP provisions within three categories (general, specific, and pharmaceutical) and then assign a score
to each RTA depending on how many of the 32 potential provisions it contains. In creating the score, the authors used
asymmetric weights placing greater emphasis on general and specific provisions than those related to pharmaceuticals:
60% for general, 30% for specific, and 10% for pharmaceutical.
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stakeholders and future trade negotiating objectives in trade agreements. Better coordination in
regulatory approaches to minimize impediments to trade was a primary goal of the now stalled TTIP negotiations.116
Digital Trade/Data Privacy. 117 Rules on digital trade have been a priority area in recent RTA
agreements, given the significant increase in internet-based commercial activity that began in
the1990s and the absence of multilateral trade rules on this issue.118 At the same time, growing
concerns over data privacy and national security have led to increased public debate on digital
trade issues, including the regulation of data storage and transfer, and emphasized the need for
digital trade commitments that balance goals of facilitating commercial activity with legitimate
public policy concerns. The United States and the EU have generally addressed digital trade
differently in their trade agreements. The EU views privacy as a fundamental right and not a
subject of trade agreements. Regardless of their location, U.S. firms that handle personal data of
EU citizens will be subject to the EU General Data Protection Regulation (GDPR), effective May
25, 2018. Given the EU position, it has focused on regulatory dialogue in its RTAs while U.S.
FTAs, particularly the negotiated but not implemented TPP,119 have included explicit enforceable
language ensuring companies’ ability to transfer data across borders, and prohibiting data
localization requirements (e.g., requiring servers to be located in-country). TPP also called for
participants to have online consumer protection and anti-spam laws in place and a legal
framework on privacy.120 The EU’s recently concluded but not yet implemented FTA with Japan,
a country that has taken a similar approach to the United States on digital trade issues, omitted an
explicit commitment on data flows, and instead included a provision to re-evaluate the issue
within three years.121 Press reports suggest that the EU may be moving toward more explicit
language on data flows and localization requirements in its future RTAs.122
Geographical Indications (GIs). GIs denote distinct products based on their production origin,
typically food and beverage products (e.g., Idaho potatoes), and are a form of intellectual property
protected by both the United States and the EU, domestically and in their trade agreements.123
The United States and the EU, however, have different legal regimes for the protection of GIs (the
United States generally protects GIs through its trademark registration system, while the EU uses
116 For more information, see CRS In Focus IF10120, Transatlantic Trade and Investment Partnership (T-TIP), by
Shayerah Ilias Akhtar and Vivian C. Jones.
117 For more information, see CRS Report R44565, Digital Trade and U.S. Trade Policy, coordinated by Rachel F.
Fefer, CRS In Focus IF10770, Digital Trade, by Rachel F. Fefer, and CRS In Focus IF10748, European Union Digital
Single Market, by Rachel F. Fefer and Shayerah Ilias Akhtar.
118 At the WTO’s latest ministerial in December 2017, a group of over 70 members, including the United States,
announced a plurilateral effort, agreeing to “initiate exploratory work on negotiations on electronic commerce issues in
the WTO.” “Joint Statement on Electronic Commerce,” December 13, 2017,
https://ustr.gov/sites/default/files/files/Press/Releases/Joint%20Statement%20on%20Electronic%20Commerce.pdf.
119 See for example, Articles 14.11 and 14.13 of TPP Chapter 14. https://ustr.gov/sites/default/files/TPP-Final-TextElectronic-Commerce.pdf.
120 Mark Wu, Digital Trade-Related Provisions in Regional Trade Agreements: Existing Models and Lessons for the
Multilateral System, RTA Exchange, November 2017, p. 28,
http://rtaexchange.org/pdf/Digital%20Trade%20Related%20Provisions%20in%20RTA_%20WU.pdf.
121 See Article 12, Japan-EU EPA/FTA,
http://trade.ec.europa.eu/doclib/docs/2017/december/tradoc_156436.F%20EU_JPN_FTA_Electronic_Commerce_4_17
1205_Limited.pdf.
122 “EU Moves to Remove Barriers to Data Flows in Trade Deals,” Reuters, February 9, 2018.
123 For more information on geographical indications, see CRS In Focus IF10188, Geographical Indications (GIs) in
U.S. Agricultural Trade, by Renée Johnson and CRS Report R44556, Geographical Indications (GIs) in U.S. Food and
Agricultural Trade, by Renée Johnson.
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a system of quality schemes to protect GIs) and differing views on the appropriate scope of GI
protection and what qualifies a particular name as a GI.124 U.S. industry is divided over the issue.
Certain groups, particularly dairy producers, argue that EU GI protections extend to what are
essentially common or generic food names (e.g., feta cheese), restricting the ability of U.S.
exporters to sell products under those names and thereby conferring an advantage to EU
producers.125 Other U.S. producers, including some in the U.S. wine industry and members of the
American Origin Products Association, are currently seeking a more extensive system of GI
protections in the United States akin to the EU approach.126 Through its trade agreements the EU
has secured restrictions on the marketing of registered GIs with major U.S. trade partners
including Canada and South Korea. The recently concluded EU-Japan agreement also includes
the protection of more than 200 GIs, and the EU is currently negotiating with Mexico regarding
an update to their existing RTA, including expanded GI coverage.127 The USTR has noted
concerns with the EU’s approach to GIs in its annual report on international trade barriers.128
Investment Dispute Settlement. In its most recent trade agreements with Canada and Vietnam,
the EU has adopted a new investment court model for the adjudication of investment disputes,
and is advocating for a new multilateral system based on its model.129 This system differs from
the traditional investor-state dispute settlement (ISDS) mechanism included in existing U.S.
FTAs, U.S bilateral investment treaties, and older EU trade and investment agreements; both
systems, however, allow private investors to directly bring claims against host governments for
alleged violations of investment commitments.130 The EU’s investment court system seeks to
address some perceived shortcomings of ISDS, particularly its ad hoc nature and lack of an
appeals process, by establishing a permanent and appellate tribunal with appointed judges.131
Although ISDS remains the subject of intense public debate in the United States, some in the U.S.
business community strongly argue for its inclusion in U.S. FTAs, favoring the ISDS approach
over the new EU system, arguing that the investment court proposal essentially weakens investor
protections relative to traditional ISDS.132 The U.S. government position on ISDS may be
evolving under the Trump Administration. USTR Ambassador Lighthizer raised concerns over
124 Information on U.S. protection of GIs is available at
https://www.uspto.gov/sites/default/files/web/offices/dcom/olia/globalip/pdf/gi_system.pdf.
125 Letter from American Farm Bureau Federation et al. to President Trump, October 3, 2017,
http://www.nmpf.org/files/files/Letter%20to%20President%20Trump%20on%20GIs_FINAL.pdf.
126 For more information on GIs and the wine industry, see CRS Report R43658, The U.S. Wine Industry and Selected
Trade Issues with the European Union, by Renée Johnson. For more on the American Origin Products Association, see
http://www.aop-us.org/aopa-policy-agenda.html.
127 European Commission, “EU-Japan EPA—The Agreement in Principle,” July 6, 2017,
http://trade.ec.europa.eu/doclib/docs/2017/july/tradoc_155693.doc.pdf.
128 USTR, 2017 National Trade Estimate Report on Foreign Trade Barriers, March 2017, p. 163.
129 European Commission, “A Multilateral Investment Court,” September 2017,
http://trade.ec.europa.eu/doclib/docs/2017/september/tradoc_156042.pdf.
130 ISDS is included in all U.S. FTAs with investment provisions except the agreement with Australia. For more on
ISDS, see CRS In Focus IF10052, U.S. International Investment Agreements (IIAs), by Martin A. Weiss and Shayerah
Ilias Akhtar.
131 European Commission, “CETA: Eu and Canada Agree on New Approach on Investment in Trade Agreement,”
press release, February 26, 2016, http://europa.eu/rapid/press-release_IP-16-399_en.htm.
132 AmCham EU, AmCham EU Response to EU Proposal for Investment Protection and Court System for T-TIP,
February 26, 2016,
http://www.amchameu.eu/system/files/position_papers/amcham_eu_response_to_eu_proposal_for_investment_protecti
on_and_court_system_for_ttip_-_26.02.2016.pdf.
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ISDS and potential infringement on U.S. sovereignty in his nomination hearing,133 and the United
States, under Ambassador Lighthizer’s direction, has proposed significant changes to the NAFTA
ISDS system as part of the ongoing NAFTA renegotiation.134
Standards and Nontariff Barriers. Differences in approach to standards between the United
States and the European Union can affect U.S. exports to the EU as well as third country markets.
Both the United States and the EU have included commitments on recognition of standards in
their trade agreements, such as in chapters on technical barriers to trade (TBT), with other
countries. On one hand, these commitments may improve the transparency of the standardssetting process or encourage mutual recognition of standards based on outcomes, to the benefit of
both EU and U.S. exporters. However, they may also encourage third country markets to adopt
EU or U.S. standards, effectively favoring EU or U.S. producers, respectively. For example, the
agreement between South Korea and the EU (KOREU) includes language on motor vehicle safety
standards that encourages South Korea to use United Nations Economic Commission for Europe
(UNECE) regulations as its benchmark when developing new standards.135 Those standards, used
throughout Europe, differ from U.S. safety regulations.136 If South Korean standards were aligned
with EU standards, U.S. automakers would have to revise their vehicles to meet them, a costly
undertaking that could lead to fewer U.S. exports. U.S. motor vehicle industry representatives
have argued that the EU’s push to get other countries to adopt EU standards is a major challenge
for the industry, and they are advocating that Mexico and Canada agree in current NAFTA
negotiations to adopt U.S. vehicle safety standards.137
The EU and the United States also have different approaches to certain agriculture and food
safety standards, including sanitary and phytosanitary (SPS) commitments.138 The U.S.-EU High
Level Working Group on Jobs and Growth produced a report to inform the T-TIP negotiations
calling for SPS (and TBT) commitments that build on the disciplines already established in the
WTO, as a number of U.S.-EU trade-disputes over SPS issues remain unresolved.139 These
include issues such as the EU’s reluctance to adopt certain biotechnology as well as its
restrictions on various meat processing techniques. These differences may in part stem from the
EU’s use of a precautionary principle to guide its regulatory process, which some argue is a
generally more risk-averse approach than the “risk-based” assessments favored by the United
States.140
133 U.S. Congress, Senate Committee on Finance, Robert Lighthizer Nomination Hearing, 115th Cong., 1st sess., March
14, 2017.
134 “In His Own Words: Lighthizer Lets Loose on Business, Hill Opposition to ISDS, Sunset Clause,” World Trade
Online, October 19, 2017.
135 See Annex 2-C of the KOREU agreement text.
136 For more information, see CRS Report R43399, U.S. and EU Motor Vehicle Standards: Issues for Transatlantic
Trade Negotiations, by Bill Canis and Richard K. Lattanzio.
137 “Automakers Look to Leverage NAFTA Rewrite in Standards Battle with EU,” Inside U.S. Trade, May 26, 2017.
138 For more information, see CRS Report R43450, Sanitary and Phytosanitary (SPS) and Related Non-Tariff Barriers
to Agricultural Trade, by Renée Johnson.
139 The High Level Working Group report is available at
http://trade.ec.europa.eu/doclib/docs/2013/february/tradoc_150519.pdf.
140 For information on the precautionary principle in relation to EU trade agreements, see European Commission, “An
Introduction to the EU-Japan Economic Partnership: Precautionary Principle,” July 2017,
http://trade.ec.europa.eu/doclib/docs/2017/july/tradoc_155718.pdf.
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Potential for Discriminatory Treatment Affecting U.S. Trade
A major concern for many U.S. policymakers and stakeholders relating to the proliferation of
global RTAs is how agreements not involving the United States may affect U.S. commercial
interests. In particular, U.S. industries that rely heavily on exports and typically face relatively
higher tariffs in foreign markets, such as agriculture, have expressed concern that a price
disadvantage due to discriminatory preferential tariff treatment will reduce sales relative to
foreign competitors. U.S. industries that rely on imported components may also face
disadvantages with foreign competitors that face lower tariffs on similar imported components.
The magnitude of these disadvantages depends on several factors: the specific products at issue;
the existing tariff rates and degree of tariff elimination in the new RTAs; and the size of the
economies participating and their existing trade relations with the United States. Overall average
MFN tariff rates have fallen significantly worldwide in the past several decades limiting the
potential for discrimination through preferential RTAs. However, tariff peaks remain in certain
industries, such as agriculture, textiles and apparel, and in some countries, motor vehicles, and
average tariffs are relatively higher in some countries, especially developing countries.
Table 4 below provides examples of U.S. exports to major foreign markets that do not have an
existing FTA with the United States but are in the process of negotiating or implementing a trade
agreement with other major U.S. trade partners. In particular, it looks at the Comprehensive and
Progressive Agreement for Trans-Pacific Partnership (CPTPP, a revised TPP without the United
States), and the European Union’s agreements with Japan and Vietnam. The examples were
chosen based on the size of the existing tariff, export potential from the United States, and
potential for competition from another member of the RTA. For example, U.S. motor vehicle
exports to the European Union totaled more than $10 billion in 2017 while facing up to a 10%
tariff. In 2017, Japan exported $11.4 billion in motor vehicles to the EU, and if the EU-Japan FTA
enters into force, Japanese motor vehicle exports would face no tariff by year seven. Similarly,
U.S. cosmetic and perfume exports to Vietnam t
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