# U.S. and Global Trade Agreements: Issues for Congress > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/crs%3AR45198 ## Record - **Collection:** Congressional research report - **Document type:** CRS Report - **Published:** May 17, 2018 - **Citation:** R45198 ## Text 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 Congressional Research Service U.S. and Global Trade Agreements: Issues for Congress 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. Congressional Research Service 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 Congressional Research Service U.S. and Global Trade Agreements: Issues for Congress 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 Congressional Research Service 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. Congressional Research Service 1 U.S. and Global Trade Agreements: Issues for Congress 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. Congressional Research Service 2 U.S. and Global Trade Agreements: Issues for Congress 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 Congressional Research Service 3 U.S. and Global Trade Agreements: Issues for Congress 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. Congressional Research Service 4 U.S. and Global Trade Agreements: Issues for Congress 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. Congressional Research Service 5 U.S. and Global Trade Agreements: Issues for Congress 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. Congressional Research Service 6 U.S. and Global Trade Agreements: Issues for Congress 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. Congressional Research Service 7 U.S. and Global Trade Agreements: Issues for Congress 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. Congressional Research Service 8 U.S. and Global Trade Agreements: Issues for Congress 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. Congressional Research Service 9 U.S. and Global Trade Agreements: Issues for Congress 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. Congressional Research Service 10 U.S. and Global Trade Agreements: Issues for Congress 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. Congressional Research Service 11 U.S. and Global Trade Agreements: Issues for Congress 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). Congressional Research Service 12 U.S. and Global Trade Agreements: Issues for Congress 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. Congressional Research Service 13 U.S. and Global Trade Agreements: Issues for Congress 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. Congressional Research Service 14 U.S. and Global Trade Agreements: Issues for Congress 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. Congressional Research Service 15 U.S. and Global Trade Agreements: Issues for Congress 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. Congressional Research Service 16 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. CRS-18 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. Congressional Research Service 19 U.S. and Global Trade Agreements: Issues for Congress 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. Congressional Research Service 20 U.S. and Global Trade Agreements: Issues for Congress    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. Congressional Research Service 21 U.S. and Global Trade Agreements: Issues for Congress    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. Congressional Research Service 22 U.S. and Global Trade Agreements: Issues for Congress 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. Congressional Research Service 23 U.S. and Global Trade Agreements: Issues for Congress  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. Congressional Research Service 24 U.S. and Global Trade Agreements: Issues for Congress  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. Congressional Research Service 25 U.S. and Global Trade Agreements: Issues for Congress    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. Congressional Research Service 26 U.S. and Global Trade Agreements: Issues for Congress    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. Congressional Research Service 27 U.S. and Global Trade Agreements: Issues for Congress 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. Congressional Research Service 28 U.S. and Global Trade Agreements: Issues for Congress $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. Congressional Research Service 29 U.S. and Global Trade Agreements: Issues for Congress 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. Congressional Research Service 30 U.S. and Global Trade Agreements: Issues for Congress 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 Congressional Research Service 24,601 Total 10,051 31 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% Congressional Research Service 32 U.S. and Global Trade Agreements: Issues for Congress 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 Congressional Research Service Aluminum & Processing $360 Motor Vehicles $43,607 Nonferrous & Processing $2,977 33 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 Worki [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/crs%3AR45198. Public record. Not legal advice.