Trade Issues in the 109th Congress: Policy Challenges and Opportunities

CRS Report for Congress
Trade Issues in the 109 Congress:
Policy Challenges and Opportunities
Updated February 22, 2006
William H. Cooper
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division

Congressional Research Service ˜ The Library of Congress

Trade Issues: Policy Challenges and Opportunities
Facing the 109th Congress (Second Session)
The second session of the 109th Congress is expected to face an extensive trade
agenda consisting of a wide range of issues. In some respects these issues are
distinct, each with its own policy and economic implications. In other respects the
issues are interrelated. They have emerged from common sets of domestic political,
foreign policy, and economic factors and affect or are affected by the concerns of
Members of Congress, of other policymakers and of many interest groups. These
issues and how policymakers deal with them will define overall U.S. trade policy.
During the first session, the 109th Congress dealt with a number of critical trade
issues. The Bush Administration requested and received a two-year extension of its
trade promotion authority. The Congress also debated U.S. participation in the
World Trade Organization (WTO) as it considered, but did not pass, a congressional
resolution to withdraw from the WTO. In addition, the Administration sent and the
Congress passed legislation to implement a free trade agreement with five Central
American countries plus the Dominican Republic, the DR-CAFTA, and passed
implementing legislation for a free trade agreement with Bahrain. Furthermore, the
109th Congress repealed two trade programs that had been declared illegal by the
WTO. During the second session, the 109th Congress may be called on to debate
more free trade agreements, trade relations with China, and tariff preferences for
developing countries, among other issues. The Congress might also continue to
monitor the Doha Development Agenda negotiations proceeding in the WTO.
Each issue or set of trade issues bears its own implications as Members of
Congress weigh the merits and disadvantages. In most cases, the 109th Congress will
be considering and debating each issue separately. However, the trade issues as a
whole have implications for a wider debate on U.S. trade policy. As the 109th
Congress addresses these issues, its decisions will have implications for key
questions that help define U.S. trade policy in the long-term.
This report will generally cover the trade issues as they unfold. However, it will
not track legislation per se. The report will be updated as events warrant.

Placing Trade Issues In Context.......................................2
Economic Factors..............................................2
Political Factors...............................................4
Trade Issues......................................................6
Trade Promotion Authority (TPA).................................6
The World Trade Organization...................................7
The Doha Development Agenda Negotiations...................7
U.S. Compliance with WTO Decisions.........................8
Bilateral and Regional Trade Negotiations and Agreements.............9
Trade Enforcement/Trade Organization...........................10
Issues Pertaining to U.S. Imports.................................10
Permanent Normal Trade Status.............................10
Tariff Preferences.........................................11
Trade Remedy Laws......................................12
Outsourcing .............................................12
Export Controls/Foreign Policy Sanctions..........................13
Bilateral Economic Relationships................................14
The European Union......................................14
Canada .................................................15
Mexico .................................................17
China ..................................................17
Japan ..................................................18
The Wider Trade Debate...........................................19
Free Trade or Protectionism?....................................19
The Rise of Developing Countries................................19
Labor, Environment, and Trade..................................19
Shaping the International Trade System ...........................20
List of Tables
Table 1. U.S. Trade in Goods and Services, 1996-2005....................3
Table 2. U.S. Trade in Goods with Major Partners, 2005..................14

Trade Issues in the 109 Congress (Second
Session): Policy Challenges and
The 109th Congress during its first session acted on several major trade issues:
!the Congress passed implementing legislation for the highly
controversial Dominican Republic-Central America Free Trade
Agreement (CAFTA) and implementing legislation for the U.S.-
Bahrain FTA, both of which President Bush signed into law;
!it passed legislation to comport with two World Trade Organization
rulings: repeal the so-called Byrd Amendment that redistributed
revenues from antidumping and countervailing duty orders to
eligible domestic companies, and eliminate the U.S. cotton subsidies
!the Congress acceded to President Bush’s request that his Trade
Promotion Authority (TPA) be extended to July 1, 2007; and
!the Congress did not pass a resolution that would call for the
withdrawal of the United States from the World Trade Organization
(WTO), thus agreeing to U.S. participation, at least for another five
Other congressional actions during the first session may help shape the trade
agenda during the second session. For example, the Senate passed legislation to
grant Ukraine permanent normal trade relations (PNTR) status and the Senate also
passed legislation amending customs regulations in order to suspend new shipper
bonding privileges for three years. The House passed the United States Trade Rights
Enforcement Act that would, among other things, allow U.S. producers to bring
countervailing duty (CVD) actions against “non-market economies,” such as China.
The second session of the 109th Congress is expected to face a range of other
trade issues, some which may require consideration of legislation; others involve
congressional oversight responsibilities. These matters include bills to implement
new FTAs and oversight of the round of negotiations in the WTO. In some respects
these issues are distinct, each with its own policy and economic implications. But
they are also interrelated. They have emerged from common sets of domestic
political and economic factors and are driven by the concerns of Members of
Congress, of other policymakers, and of many interest groups. These issues and how
policymakers deal with them all help to define U.S. trade policy.

This report discusses the spectrum of trade issues that the 109th Congress will
likely confront in the second session and analyzes how these issues are interrelated.
It discusses the political, economic, and other factors that help to determine how
trade policy is debated and implemented. This report will generally follow the trade
issues as they unfold and will be updated accordingly. However, it will not track
legislation per se. Readers are advised to refer to other CRS products cited
throughout the report for more information on the specific issues and related
Placing Trade Issues In Context
A number of economic factors influence U.S. trade policy: domestic economic
conditions; growing trade deficits; the impact of trade (exports and imports) on
various states, regions, and industries; the importance of trade to the U.S. economy;
and the geographical distribution of U.S. exports and imports; among other factors.
It is also influenced by political factors, such as the role and concerns of Congress in
trade policy, the role and agenda of the President, and the different perspectives that
the two branches bring to the trade debate and foreign policy considerations. These
factors influence the climate in which the issues emerge and are debated by the
Economic Factors
Domestic economic conditions can influence the trade policy agenda. Poor
economic growth or recession that is coupled with escalating unemployment often
causes policymakers to direct their attention to trade. For example, the structural
adjustments that the steel industry had been experiencing led to presidential measures1
to restrict steel imports in 2002.
Rapidly growing U.S. trade deficits also generate interest in foreign trade and
reassessments of trade policies. Economists assert that trade deficits are themselves
not the results of trade policy but are the products of broader economic conditions.
Nevertheless, large trade deficits have caused the Congress, in many cases, to give
priority to trade on its agenda especially when U.S. trade deficits with one or more
trading partners are increasing rapidly. Large deficits are often perceived as an
indication that the trade relationship is unbalanced or unfair. Table 1 below shows
U.S. trade in goods and services from 1996-2005.

1 See CRS Report RL31748, The American Steel Industry: A Changing Profile, by Stephen

Table 1. U.S. Trade in Goods and Services, 1996-2005
(Billions of Dollars)
Year U.S.Exports U.S.ImportsU.S.BalancesYear U.S.Exports U.S.ImportsU.S.Balances
1996 850.9 953.7 -102.9 2001 1,006.7 1,369.3 -362.7
1997 933.9 1,040.9 -107.0 2002 975.9 1,397.7 -421.7
1998 932.9 1,095.7 -163.2 2003 1,020.5 1,517.0 -496.5
1999 965.5 1,226.7 -261.2 2004 1,151.4 1,769.0 -617.6
2000 1,070.1 1,445.4 -375.4 2005 1,271.1 1,996.9 -725.8
Source: U.S. Department of Commerce. Bureau of the Census.
In 2005, the U.S. trade deficit in goods and services hit a record $725.8 billion,
a 17.5% increase over the previous record of $617.6 billion in 2004. During the 10-
year (1996-2005) period, the U.S. trade deficit increased over 600%, from $102.9
billion to $725.8 billion. Most economists attribute the deficits, especially the
broader current account deficits, to macroeconomic factors, including relative real
economic growth rates of the United States and its major trading partners, real
exchange rates, and savings and investment balances in the United States and other2
countries. Trade policy and trade policy tools have little effect on trade balances,
especially in the long run. However, they affect the composition of trade. But trade
deficits, by definition, translate into more U.S. firms and workers being hit by import
competition thereby increasing the pressure for protection.
Related to U.S. trade deficits is the value of the U.S. dollar in terms of other
major currencies. Over time, the U.S. dollar has fluctuated in value. Recently, the
dollar has been appreciating against major currencies despite record-breaking U.S.
current account deficits.3 A stronger dollar makes U.S. domestic goods more
expensive compared to imports exacerbating U.S. trade imbalances. While
consumers benefit from lower import prices, import-sensitive manufacturers must
make adjustments to match the competition. These adjustments might include using
labor-saving technology and/or moving some production offshore and may lead to
protectionist trade policy actions.
Along with the growing U.S. trade deficits and the value of the U.S. dollar, the
increasing importance of foreign trade in the U.S. economy plays a role in setting
the congressional trade agenda. It creates more “winners” and “losers” from trade,
thus, increasing the potential salience of the trade issues. In 1960, the ratio of exports
plus imports of goods and services to U.S. gross domestic product (GDP), a measure

2 See CRS Report RL31032, The U.S. Trade Deficit: Causes, Consequences, and Cures, by
Craig K. Elwell.
3 St. Louis Federal Reserve Bank. International Economic Trends. February 2006. p. 1.

of openness, was 9.5%. By 2005, the ratio increased to 26.6%.4 As the United States
has become more integrated with the rest of the world economy, a larger range of
economic activities is affected by trade and raises policy issues. For example,
advances in telecommunications technology now allow some services to be imported
or “outsourced” from India and other countries creating competition for some U.S.
domestic providers. However, these same advances also lower costs to consumers
of those services.
The geographical distribution of U.S. trade has shifted. In particular, the role
of advanced developed countries has declined while the role of less developed
countries has expanded. In 1990, 63.9% of U.S. exports went to the industrialized
countries while 35.1% went to developing countries. By 2005, the share of U.S.
exports accounted for by developing countries had increased to 47.0%. Similarly, in
1990 58.8% of U.S. imports came from industrialized countries and 40.9% from
developing countries. In 2005, 54.9% of U.S. imports came from developing
countries.5 The rise of the newly industrializing economies of East Asia (Hong
Kong, Singapore, South Korea, Taiwan) and the emergence of Mexico as a
significant U.S. trading partner account for part of this surge; however, much of the
increase in developing countries’ share of U.S. trade derives from China. Between
1990-2005, China’s share of U.S. imports grew from 3.1% to 14.6% and its share of
U.S. exports rose from 1.2% to 4.7%. Shifts in trade patterns have coincided with
rising concerns about the ability of U.S. workers to compete with countries with low
wages and the impact of globalization on U.S. employment, wages, and living
The relative share of the United States in world trade has declined over the
years. U.S. exports accounted for 15.7% of world exports in 1960 (when Japan and
Europe were still recovering from the devastation of World War II) and 9.0% in
2004. The decline can be attributed to, among other things, the emergence in the
international trading system China and other developing countries, as they have
opened up their economies to the rest of the world. It can also be attributed to the
emergence market economies in the former communist states in Central and Eastern
Europe and the former Soviet Union.6
Political Factors
Congressional concerns and responsibilities in U.S. trade and trade policy are
extensive. The Constitution assigns trade responsibility to the Congress. Article I,
Section 8, states in part that the Congress shall have the authority “to lay and collect
taxes, duties, imposts and excises... [and] regulate commerce with foreign nations,
and among the several states...” For most of U.S. history this responsibility largely
meant setting tariffs on imports into the United States.

4 CRS calculations based on data in Office of the President. Council of Economic Advisers.
Economic Report of the President 2005. February 2006. p. 280-281.
5 Calculations based on data collected by U.S. Department of Commerce, Bureau of the
6 CRS calculations based on data in IMF. Direction of Trade Statistics. Various issues.

With the enactment of the Reciprocal Trade Agreements Act (RTAA) of 1934,
the Congress delegated for limited periods of time the authority to the President to
negotiate trade agreements to reduce tariffs reciprocally. It also delegated to the
President the authority to reduce tariffs by proclamation within certain parameters.
The RTAA was a congressional and executive branch reaction to the growing
political burden on the Congress from tariff administration, to the political reality that
it was easier for Congress to raise tariffs than lower tariffs given the political
imperative of constituent interests, and to the largely adverse economic results of the
Smoot-Hawley Tariff Act of 1930.7
Over time, trade negotiations have become more complex as trade negotiations
have moved beyond tariffs to nontariff trade barriers, investment, labor, environment,
and other issues. They have moved from the bilateral frameworks under the original
RTAA to the multilateral negotiations under the General Agreement on Tariffs and
Trade (GATT) and its successor organization, the World Trade Organization
(WTO). In 1974, the trade negotiating authority was granted in the form of expedited
(or fast-track) congressional consideration (limited debate and no amendments) of
implementing legislation for proposed agreements.
While delegating negotiating authority to the President, the Congress maintains
much control over trade policy. It does so by placing time limits on the authority,
thus requiring the President to return to Congress to request its renewal. The
Congress establishes negotiating objectives that must be adhered to in any agreement
eligible to receive expedited (fast-track) treatment. The Congress requires that the
executive branch notify the Congress when it intends to enter trade agreement
negotiations and when it intends to sign trade agreements. It also requires the
executive branch to consult the Congress during the negotiations. The Congress
most recently granted the authority in 2002, initially until July 1, 2005, but was
extended until July 1, 2007, as provided by law, upon the President’s request and
after the Congress did not pass a resolution disapproving the request.
An overall concern of Members of Congress is that the President remains
mindful of Congress’s constitutional authority over trade. In addition, Members want
to make sure the Administration consults the Congress as its pursues negotiations in
the bilateral and multilateral fora and conducts other aspects of U.S. trade policy.
Members are also concerned that U.S. trade policy not unduly harm their
constituents. Some want to make sure that the United States will preserve its ability
to protect U.S. industries from dumped imports and other unfair foreign trade
practices and that foreign countries allow U.S. exports to compete fairly. Members
also want to ensure the United States holds its trade partners accountable for adhering
to trade agreement obligations.
Each presidential administration conducts trade policy based on its own
priorities and strategy. During the Bush Administration’s first term, the United
States pursued an activist trade agenda. It took the lead with the European Union
(EU) and other trade powers in launching a new round of multilateral negotiations

7 For more discussion, see Destler, I.M. American Trade Politics: System Under Stress.
Institute for International Economics and the Twentieth Century Fund. 1986. P. 9-36.

in the WTO; pursued negotiations with individual countries and groups of trade
partners to establish bilateral and regional free trade agreements (FTAs); and used
other initiatives to forge closer economic ties that could lead to free trade agreements.
The Bush Administration’s priorities in its second term appear to include completing
FTA negotiations; launching negotiations with other trading partners; completing of
Doha Development Agenda (DDA) round of negotiations in the WTO; and ensuring
U.S. trade partners’ compliance with their obligations under bilateral and multilateral
In order for U.S. trade policy to be implemented successfully, the legislative and
executive branches must work in tandem. As with many policy issues, conflicts on
trade matters may arise between some Members of Congress and the Administration
because of positions taken by their respective political parties. However, the
Congress and the President bring different institutional perspectives that can place
the two branches in conflict over trade matters regardless of their party affiliation.
In general, Members of Congress are most concerned for the interests of their
respective constituencies — workers, firms, agriculture, and industries — and the
impact of trade on them. The President, as national leader, must weigh the positions
of various groups against other national objectives (such as national security and
foreign policy concerns and broad economic gains) in making trade policy.
Trade Issues
The 109th Congess has already faced some trade issues, and will likely confront
more, requiring consideration and debate during the second session. How Congress
addresses these issues could have long-term implications for U.S. trade policy.
Trade Promotion Authority (TPA)
The President’s trade promotion authority (TPA), that is, the authority to
negotiate trade agreements that receive expedited (set deadlines, limited debate, and
no amendments) congressional consideration, will expire on July 1, 2007. The
expiration date has become a virtual deadline for U.S. negotiations on multilateral,
regional, and bilateral trade agreements that require congressional approval. The
deadline constrains the presidential and congressional trade agendas, especially
regarding trade negotiations. The TPA statute stipulates that agreements entered into
by July 1, 2007, would be eligible for expedited congressional consideration if all
other conditions under the authority are met. However, the statute also requires that
the President notify the Congress of his intention of entering into (signing) an
agreement at least 90 calendar days prior to doing so. Therefore, any U.S. agreement
would have to be concluded by April 2, 2007, in order to meet the TPA criteria.
While the Congress could choose to renew the authority briefly, as was done in 1993
to cover the completion of the Uruguay Round agreements, it is by no means certain
that the 110th Congress would choose to do so. Also, congressional debate on the
issue would likely be divisive, if the debate over the original extension of TPA in

2002 is an indicator.

The World Trade Organization
Since its founding in 1995, the WTO has embodied the international trade
system. It provides the basic set of principles and rules by which its 149 members
conduct trade among themselves and also provides a mechanism for those members
to settle disputes over adherence to the rules. The WTO is evolving: The
membership is now negotiating expansion and revision of its rules in the Doha
Development Agenda (DDA) round, and countries are negotiating their entry into the
WTO as new members. For some Members of Congress and for some interest
groups, the WTO is controversial. They view the organization’s rules as impinging
on U.S. sovereignty, especially when WTO trading partners are able to challenge
U.S. trade remedy laws for being contrary to WTO rules and principles. On the
other hand, others assert that the WTO provides stability and predictability to the
international trading system by ensuring that member countries’ trade regimes meet
basic standards and by providing a forum to encourage other countries to remove
trade barriers.
During its first session, the 109th Congress had the opportunity to weigh in on
the issue of U.S. participation in the WTO as it does every five years under U.S. law.
The Congress did not pass a resolution that would have called for the withdrawal of
the United States from the World Trade Organization (WTO), thus agreeing to U.S.
participation, at least for another five years.8
The Doha Development Agenda Negotiations. In November 2001, the
United States and the other members of the WTO launched what has become known
as the Doha Development Agenda (DDA) round of negotiations. The failure early on
to reach agreement on some basic ground rules, such as the modalities for
negotiations on agriculture, made the end of 2005 deadline unachievable. The
negotiations have continued with an emphasis on agriculture, non-agriculture market
access (NAMA), and services. Trade ministers from the 149 members met in
December 2005 in Hong Kong for the biannual ministerial meeting and recommitted
their countries to completing the round of negotiations by the end of 2006, keeping
in mind the April 2007 deadline on trade promotion authority (TPA) within which9
the Bush Administration is operating.
Although the Congress has no direct involvement in the negotiations, legislation
establishing the trade promotion authority (TPA) requires the executive branch to
consult continually with the Congress during trade negotiations. The Congress could
also conduct oversight hearings on the progress of the negotiations. The DDA covers
a broad range of issues that have been of particular interest to Members, including
agricultural subsidies and market access; trade remedy laws (such as antidumping
laws); and intellectual property rights protection.

8 For more information, see CRS Report RL32700, Seeking Withdrawal of the
Congressional Approval of the WTO Agreement: Background, Legislative Proposals, and
Practical Consequences.
9 For more information on the DDA negotiations, see CRS Report RL32060, World Trade
Organization Negotiations: The Doha Development Agenda, by Ian Fergusson.

If and when agreements are completed in the WTO, implementing legislation
would have to be submitted to the Congress and would be subject to congressional
approval. Under the trade promotion authority, the Congress would consider the
implementing legislation for the agreements on an expedited basis.
U.S. Compliance with WTO Decisions. The WTO has ruled against the
United States in several cases brought to the Dispute Settlement Body (DSB) against
U.S. trade actions, most of which involve U.S. trade remedy laws. In some cases, the
WTO has determined that U.S. implementation of its trade remedy laws does not
comply with WTO rules. In some cases, compliance requires just a change in
administrative regulation or practice. In some other cases, the determination was that
the U.S. law itself violated U.S. WTO obligations and requires an act of Congress
for the United States to come into compliance. Compliance with WTO rulings has
generated debate, especially when the program in question has broad congressional
support. On the one hand, the program may benefit critical constituencies and be
politically popular. On the other hand, failure to comply subjects the U.S. to possible
WTO-authorized sanctions and might encourage noncompliance by trading partners
in cases where they lose.
The 109th Congress passed legislation that addressed two outstanding adverse
decisions against the United States. In the first, the Congress repealed the so-called
Byrd Amendment,the Continued Dumping and Subsidy Offset Act (CDSOA) of
2000 (Title X of P.L. 106-387). The law requires the Treasury Department to
distribute revenues, collected from antidumping (AD) and countervailing duty (CVD)
orders, to firms that had been successful petitioners in the AD and CVD cases. In
2002, the WTO had ruled against the United States in a challenge brought by 11
WTO members. Of the 11, the EU, Canada, and Japan eventually imposed tariff
sanctions, authorized by the WTO, against selected U.S. exports because the United
States had failed to repeal the law by an established deadline. After much
congressional debate, a provision to repeal the Byrd amendment was included in the
conference report accompanying S. 1932, the Deficit Reduction Act of 2002. It
passed the House on December 19, 2005, and the Senate on December 21, 2005.
(Because the House version did not include some language (language unrelated to the
repeal), the House had to vote again on the Senate version, which it did on February
2, 2006.) However, under the provision the operation of the Byrd Amendment
program continues until September 30, 2007. The EU, while acknowledging the
repeal, has raised concerns about the delay of its effect. It is not clear whether U.S.
trading partners will continue sanctions against U.S. exports.10
The same conference report also included the elimination of the U.S. “Step 2”
cotton subsidies programs that the WTO had ruled illegal in a March 2005 Appellate
Body ruling. The ruling came as the result of a case filed by Brazil. It is not clear at11

this point whether the congressional action addresses all aspects of the WTO ruling.
10 For more information, see CRS Report RL33045, The Continued Subsidy and Dumping
Offset Act (“The Byrd Amendment”), by Vivian Jones.
11 For more information see, CRS Report RS22187, U.S. Agricultural Response to WTO
Decision on Cotton Decision, by Randy Schnepf.

Bilateral and Regional Trade Negotiations and Agreements
Following the consideration and approval by 109th Congress of two free trade
agreements — the DR-CAFTA and the U.S.-Bahrain FTA — during the first session,
the Bush Administration will likely ask for consideration of several new bilateral and
regional free trade agreements during the second session. Any FTA would be subject
to congressional passage of implementing legislation. Furthermore, under the law
granting trade promotion authority, the executive branch must consult with the
Congress as trade agreement negotiations proceed. Members of Congress will likely
monitor negotiations, mindful of the potential economic impact FTAs may have on
their constituents and the United States as a whole.
The congressional debate on DR-CAFTA was highly contentious with
differences falling along party lines principally over the degree to which the
agreement protects labor rights in the DR-CAFTA partner countries. The Senate
passed it 54-45 and the House passed the implementing bill 217-215 on June 30, and
July 28, 2005, respectively. President Bush signed the legislation into law (P.L. 109-

53) on August 2, 2005.12

Legislation implementing the U.S.-Bahrain FTA was far less contentious and
passed easily, in the House (327-95) on December 7, 2005, and in the Senate
(unanimous consent) on December 13, 2005. President Bush signed the bill into law
on January 11, 2006 (P.L. 109-169). The FTA with Bahrain is part of a larger Bush
Administration initiative to create a Middle East Free Trade Area (MEFTA) by 2013.
The United States had already concluded an FTA with Morocco that entered into
force on January 1, 2006. The United States and Oman signed an FTA on January
19, 2006, and the President is expected to send implementing legislation to Congress
sometime in 2006. Negotiations with the United Arab Emirates (UAE) continue.13
On January 6, 2006, President Bush announced to Congress his intention to sign
an FTA with Peru. The negotiations with Peru had been part of negotiations with
Ecuador, Colombia, and Bolivia on a regional U.S.-Andean FTA, but the
negotiations with Colombia and Ecuador have bogged down, and Bolivia’s continued
participation is in doubt, following recent presidential elections.14 The United States
is conducting FTA negotiations with Panama, Thailand, and the members of the
Southern African Customs Union (SACU). In addition, the United States and South
Korea announced on February 2, 2006, their intention to begin FTA negotiations.
Debates over implementing legislation on completed FTAs and oversight of
negotiations on new FTAs in the 109th Congress will likely generate critical policy

12 For more information on the DR-CAFTA, see CRS Report RL31870, The Dominican
Republic-Central America-United States Free Trade Agreement (CAFTA-DR), by J.F.
13 For more information on the MEFTA, see CRS Report RL32638,The Middle East Free
Trade Area: A Progress Report, by Mary Jane Bolle.
14 For more information, see CRS Report RL32770, Andean-U.S. Free Trade Agreement,
by M. Angeles Villarreal.

questions. For example, some Members of Congress have questioned the criteria that
the Bush Administration uses to choose FTA partner countries. They have argued
that many of the recently completed FTAs are with countries with relatively small
economies that do not offer significant new commercial opportunities to U.S.
exporters and investors. The Bush Administration has countered that these FTAs are
stepping stones in building regional free trade areas that will offer greater
opportunities to the United States while encouraging economic growth and
development in those regions. The Administration also contends that FTAs assist the
United States in defending its foreign policy and national security interests by
strengthening ties with countries that have cooperated with the United States on the
war on terrorism and the wars in Afghanistan and Iraq.
Trade negotiations also raise concerns about the potential impact of pending
agreements on the U.S. economy as a whole and on specific sectors, particularly
import-sensitive sectors such as some agricultural products and textiles. Economists
have argued that FTAs can create new trade, boosting economic efficiency — a
positive contribution to the economy, but they can also divert trade from more
efficient to less efficient producers by giving preferential treatment to the imports of
the latter, a negative contribution to the world economic welfare. Members of
Congress must weigh the political and economic gains of achieving increased access
to foreign markets in exchange for greater foreign access to U.S. markets.
Trade Enforcement/Trade Organization
During the first session and continuing into the second session of the 109th
Congress, Members have expressed great concern regarding the lack of compliance
by U.S. trading partners with bilateral agreements with the United States and
multilateral agreements in the WTO. While much of this concern derives from trade
problems with China, they are also fed by longstanding issues with other major
trading partners including Canada, Japan, and the EU. On July 27, 2005, the House
passed H.R. 3283, the “United States Trade Rights Enforcement Act,” largely a
China-focused bill (discussed further in the section on U.S.-China economic
relations). Other bills have been introduced that would, among other things, augment
U.S. government trade enforcement responsibilities and capabilities. Congressional
leadership on trade policy in both political parties have indicated that trade
enforcement will be a priority for the remainder of the 109th Congress.
Issues Pertaining to U.S. Imports
The 109th Congress will probably confront a spate of issues that relate to access
of imports to U.S. markets. The issues pertain to treatment of imports from current
and former communist countries and to tariff preferences the United States grants to
certain developing countries.
Permanent Normal Trade Status. A number of former communist and
some nominally communist states remain subject to the so-called Jackson-Vanik
amendment of the Trade Act of 1974, as amended. The amendment requires that the
normal trade status (NTR, also called most-favored nation (MFN) status) of these
countries depends on fulfilling specified freedom of emigration conditions and

therefore must be renewed annually. A number of countries, including Russia,
Kazakhstan, and Ukraine, that were part of the former Soviet Union, and other
communist states, such a Vietnam, are in this situation. Legislation must be enacted
for these countries to attain permanent normal trade status (PNTR).
All of these countries have conditional NTR under Jackson-Vanik (tariffs on
their exports to the United States are lower than would be the case if they did not
have it); therefore, not having PNTR has had no immediate, practical impact on their
trade with the United States. However, all four countries, as well as others, are
seeking accession to the World Trade Organization (WTO). Under WTO rules, the
United States would have to grant them unconditional MFN (or PNTR) upon their
accession. If it does not, then the United States would have to invoke the WTO
provision of “non-applicability,” that is, it would declare that the WTO rules and
other obligations would not apply in its trade relations with the other country.
Therefore, the United States would not benefit from their accession to the WTO.
The debate on whether to grant these countries PNTR will possibly include
political, foreign policy, as well as foreign trade matters. For example, issues may
arise over Russian President Putin’s moves to centralize political power in the
Kremlin by eliminating direct elections for regional governors and by putting
political pressure on the domestic press and over his policies toward Chechnya. The
U.S. business community could raise concerns about the business climate in Russia
in the wake of the arrest of Yukos Oil chairman Mikhail Khodorkovsky and the
forced sale of Yukos assets. Concerns might also be raised regarding commitments
in Ukraine and Vietnam towards economic reforms such as protection of intellectual
property rights.15
Tariff Preferences. The United States grants unilateral trade preferences to
groups of developing countries to encourage economic development by extending
duty free treatment to their exports of eligible products to the United States. The
most geographically comprehensive program, the Generalized System of Preferences
(GSP), is due to expire on December 31, 2006.16 The more geographically targeted
Andean Trade Preferences Act (ATPA) also expires on that date. Legislation to
reauthorize these programs may be introduced during the 109th Congress, and
Congress might consider issues regarding the duration of the authorization,
conditions of country and product eligibility, and the impact of these programs on theth
U.S. economy. The 109 Congress might also monitor the implementation of other
trade preference programs such as the Caribbean Basin Initiative (CBI) and the
African Growth and Opportunity Act (AGOA) that provide more favorable

15 For more information on these issues, see CRS Report RS21123, Permanent Normal
Trade Relations (PNTR) Status for Russia and U.S.-Russian Economic Ties and CRS Issue
Brief IB98033, The Vietnam-U.S. Normalization Process, by Mark E. Manyin.
16 For more information on GSP see, CRS Report 97-389,Generalized System of
Preferences, by William H. Cooper.

preferences to those regions than is the case under GSP.17 Some Members have
proposed extending additional trade preferences to other poor developing countries.
Trade Remedy Laws. U.S. trade remedy laws are designed to alleviate the
adverse impact on U.S. industries from some imports. Countervailing duty (CVD)
statutes are used to alleviate the impact of imports that benefit by foreign government
subsidies. Antidumping duty (AD) laws attempt to counter the effects of imports that
are dumped (sold at less than fair value). The escape clause (also called “Section
201” for the provision of the Trade Act of 1974) authorizes measures to restrict
imports that are sold fairly but at such rapid rates as to cause or threaten to cause
serious injury to domestic producers of like products.
There are also U.S. trade remedy laws (such as section 301 of the Trade Act of
1974) designed to address foreign barriers to U.S. exports and provisions to deal with
the lack of foreign protection of IPR (special 301). Some Members of Congress have
questioned the effectiveness of these laws and/or the executive branch’s effectiveness
in implementing the laws. They have proposed changes that would strengthen the
protection of domestic producers.18 Others have proposed that U.S. CVD laws be
amended to apply to non-market economies, such as China.
Major U.S. trading partners have challenged (in some cases successfully) the
legality of U.S. trade remedy laws in the WTO. For example, the Byrd amendment
(discussed under the WTO issues) and the U.S. 1916 Antidumping Act (which was
been repealed by the 108th Congress) were challenged successfully. They have also
challenged how the United States has implemented its trade remedy laws, arguing
that the procedures the United States uses to make determinations in AD and CVD
cases do not conform to rules under WTO agreements. Many U.S. trading partners
have claimed that U.S. trade remedy laws are protectionist and are seeking tighter
rules on the use of trade remedy laws in the Doha Development Agenda round
negotiations in the WTO; however, many in the Congress have expressed opposition
to trade agreements that would weaken U.S. trade remedy laws.
U.S. trade remedy laws could be the subject of oversight hearings and also
legislation. Congress will probably closely monitor trade agreements that include
changes in U.S. trade remedy laws.
Outsourcing. For many years, U.S. multi-national firms have dis-aggregated
their production processes to allow them to take advantage of lower labor costs and
other attributes in foreign countries. At first they would import some parts to be
assembled as final products in the United States. This was followed by investment
in whole production facilities abroad for re-export back to the United States or to
third markets. Recent reports indicate that U.S. multi-nationals are subcontracting
or “outsourcing” the actual design of computer hardware, software, and other

17 For more information on AGOA, see CRS Report RL31772, U.S. Trade and Investment
Relationship with Sub-Saharan Africa: The African Growth and Opportunity Act and
Beyond., by Danielle L. Langton.
18 For more information, see CRS Report RL32371, Trade Remedies: A Primer, by Vivian
C. Jones.

electronics products to offshore firms.19 This trend may raise important policy issues
for the 109th Congress as Members consider the impact on constituent firms and
workers and well as the impact on the U.S. economy as a whole.20 For example,
should the U.S. government support programs to keep jobs in the United States by
discouraging outsourcing by U.S. firms?
Export Controls/Foreign Policy Sanctions
Under the Export Administration Act (EAA), the Congress has delegated to the
President the authority to control U.S. exports of so-called dual-use goods and
technologies, for example high-speed computers, that can be used for both military
and civilian purposes. Among other things, the authority permits the President to
establish a licensing mechanism to ensure that dual-use goods and technologies are
not exported to recipients who would use them to threaten U.S. national security.
The authority also allows restriction on exports that are in short supply.
The last EAA reauthorization expired in August 2001. The export control
regime has been maintained under the International Emergency Economic Powers
Act (IEEPA), which permits the President to control economic activities in response
to a declared emergency. The Congress might consider legislation to reauthorize the
EAA. In the past, the debate of export control authority has centered around how
restrictive U.S. controls should be. Many in the business community, especially
those who export high technology goods and services, while understanding the need
for controls, have argued that controls that are unnecessarily restrictive impeded their
ability to compete with foreign firms in third markets, particularly when those firms
do not face the same limits. Others argue, on the other hand, export controls should
be sufficiently effective to ensure that dual-use technology and goods not get into the
hands of those who wish harm to the United States.21
The 108th Congress passed and the President signed the Burmese Freedom and
Democracy Act (P.L.108-61) that imposed a series of sanctions against economic ties
with the military regime in Burma (Myanmar). The act contains a provision
(Section 3 (a) (1)) that imposes a ban on imports products made in Burma until the
government takes steps to promote democracy and human rights. The import ban
was to be in effect for one year from the time of enactment (July 28, 2003) and
renewable annually for up to three years from the date of enactment. The import ban
has been renewed by Congress for each of the three years. However, Congress would
have to take action to amend the provision to permit the import ban to continue
beyond July 28, 2006.

19 See for example, Outsourcing. Business Week. March 21, 2005.
20 See CRS Report RS21883, Insourcing and Outsourcing of Jobs in the U.S. Economy:
An Overview of the Evidence Based on Foreign Investment Data, by James K. Jackson.
21 For more information on export controls, see CRS Report RL31832, The Export
Administration Act: Evolution, Provisions, and Debate, by Ian F. Fergusson.

Bilateral Economic Relationships
Five individual and regional trading partners dominate U.S. foreign trade and
therefore have a significant impact on U.S. trade policy and the trade agendas of the
Congress and the President: the European Union, Canada, Mexico, China and Japan.
Together these trading partners accounted for close to 70% of U.S. merchandise trade
in 2006.
Table 2. U.S. Trade in Goods with Major Partners, 2005
(Billions of Dollars)
U.S. ExportsU.S. ImportsTotal TradeTradeBalances
World 904.3 1,671.1 2,575.4 -766.8
European Union186.3308.8495.1-122.4
Canada 211.3 287.9 499.2 -76.5
Mexico 120.0 170.2 290.2 -50.1
China 41.8 243.5 285.3 -201.6
J a pan 55.4 138.1 139.5 -82.7
Source: U.S. Department of Commerce data
In most cases, billions of dollars of trade flows between each partner without
incident. In addition, the United States works closely with these trading partners in
the WTO and other multilateral institutions. However, trade disputes arise. Because
of the size and importance of the relationships, these disputes raise concerns with the
Congress and are often the subject of oversight hearings, if not legislation. Such has
already been the case during the 109th Congress.
The European Union. The economic relationship between the United States
and the European Union (EU) is the largest in the world. The modern U.S.-European
economic relationship has evolved since World War II, broadening as the six-
member European Community expanded into the present 25-member European
Union. The ties have also become more complex and interdependent, covering a
growing number and type of trade and financial activities.
In 2005, $495.1 billion flowed between the United States and the EU in
merchandise trade. The EU as a unit is the largest merchandise trading partner of
the United States. In 2005, the EU accounted for $186.3 billion of total U.S. exports
(or 20.6%) and for $282.6 billion of total U.S. imports (or 18.5%) for a U.S. trade
deficit of $122.4 billion.
U.S.-EU disputes have become increasingly complex. The issues in question
are no longer just border trade issues (tariffs and other customs regulations) but also

differences over competition policy and government regulations, disputes that
impinge on the sovereign right of nations to run their economies in their national
Several issues in the relationship are simmering and could erupt into full blown
disputes in the next two years. The European Union is a party to the case in the
WTO over the failure of the United States to comply with the adverse WTO ruling
on the Byrd amendment. The EU will have to decide whether the U.S. Congress’s
repeal the Byrd amendment (discussed earlier) is adequate or to maintain tariff
sanctions on U.S. exports.
Another perennial issue has been over alleged government subsidies for Boeing
and Airbus Industrie by their home governments. The United States had threatened
to take the EU to the WTO over what it claims are WTO-illegal subsidies by the EU
governments of a new large commercial airliner by Airbus Industrie. The EU
counterclaims that the U.S. company Boeing, the only other producer of large
commercial airliners, is subsidized by the U.S. government through defense and
space contracts and through other assistance. Having failed to work out their
differences in bilateral discussions, the two parties independently filed complaints
with the WTO in March 2005. The WTO created two panels, one to study U.S.
charges of illegal subsidies to Airbus, and the second to study EU charges against
Boeing. The cases are to be argued this year, but final decisions are not expected
until sometime in 2007.
Another issue, thought to have been resolved, has re-emerged. In October 2004,
the Congress repealed the Foreign Sales Corporation (FSC)-Extraterritorial Income
(ETI), a program that provided an export tax subsidy for certain firms. The repeal
was in response to a WTO ruling that the program conflicted with WTO rules on
subsidies. Before the repeal, the EU had imposed tariff sanctions on selected U.S.
exports because the United States had failed to repeal the program before a set
deadline but lifted the sanctions after the Congress passed the repeal. Subsequently,
the EU challenged certain provisions of the new law that allowed for a phase-out of
the subsidies, and the WTO upheld the challenge. The United States filed an appeal,
and on February 13, 2006, the WTO Appellate Body ruled against the United
States.22 The EU has threatened to reimpose the tariff-sanctions.23
On February 7, 2006, the WTO Dispute Settlement Body issued a preliminary
decision that ruled in favor of the United States and other countries that challenged
the EU ban on imports of bio-engineered food products. A final decision is expected
later in the year.
Canada. Canada is the largest single-country U.S. trading partner. It is the
largest market for U.S. exports and largest source of U.S. imports. The two countries
are also closely tied by stocks of foreign direct investment in each other’s economies,
with many industries and sectors interlinked across the border. The tight relationship

22 For more information on U.S.-EU economic relations, see CRS Issue Brief IB10087, U.S.-
European Trade Relations: Issues and Policy Challenges.
23 National Journal’s Congress DailyPM. February 13, 2006.

was institutionalized on January 1, 1989, when the U.S.-Canada FTA went to effect.
The FTA was superceded when NAFTA entered into force on January 1, 1994.
Agricultural trade is among the most potent disputes in U.S.-Canada trade given
the importance of the sector to both economies and has drawn a great deal of
congressional attention. Two issues in particular are long-running and very divisive.
The first pertains to the shipment of Canadian cattle into the United States. In
2003, the United States banned all Canadian beef imports because of the discovery
of a case of “mad cow” disease. Subsequently, the Bush Administration allowed
some types of beef products to be imported but has still maintained tight restrictions
on most beef imports, including live cattle. U.S. and Canadian agriculture officials
had been discussing ways to establish procedures to reopen the U.S. border to live
Canadian beef. (Trade in processed or packaged beef has already resumed.) On
January 5, 2005, the U.S. Department of Agriculture issued a rule to go into effect
on March 7, 2005 that would permit additional beef imports from Canada including
live cattle younger than 30 months. U.S. cattlemen opposed the rule, and the
Ranchers Cattlemen Action Legal Fund brought a case which led to a ruling by the
a U.S. District Court judge suspending the implementation of the rule. In addition,
on March 3, 2005 the Senate passed a joint resolution to block the implementation
of the rule.24 However, U.S. meat-packers supported the rule and sought its
implementation. On July 18, 2005, the United States began to import live cattle from
A second issue concerns imports of softwood lumber from Canada. U.S. lumber
producers claim that low stumpage fees that provincial governments charge for
lumber harvested from public lands and other practices constitute illegal government
subsidies to the Canadian lumber industry. After a five-year U.S.-Canadian lumber
agreement that imposed tariffs on Canadian softwood lumber expired in 2001, the
U.S. lumber industry filed a series of countervailing duty and antidumping cases
alleging the threat of material injury. The Department of Commerce and the U.S.
International Trade Commission determined that injury and/or threats of injury
existed from dumping and subsidies. Canada has challenged the actions in the
NAFTA dispute settlement mechanism and the dispute settlement mechanism in the
WTO. Canada is awaiting a WTO panel decision on obtaining compensation from
the United States on measures the WTO determined to be illegal.25 Canada has
prevailed in NAFTA dispute settlement proceedings, upholding Canadian claims that
U.S. actions violate U.S. laws. However, the United States has prevailed in WTO
proceedings, with a Dispute Settlement Body ruling that U.S. actions are congruent
with WTO rules.

24 For more information on the U.S.-Canada beef importing issue see CRS Report RL32627,
Bovine Spongiform Encephalopathy (“Mad Cow Disease”) and Canadian Beef Imports, by
Geoffrey S. Becker and Curtis W. Copeland.
25 For more information on the U.S.-Canada softwood lumber trade issue, see CRS Issue
Brief IB10081, Lumber Imports from Canada: Issues and Events. For more information
on U.S.-Canada economic relations, see CRS Report RL33087, United States-Canada Trade
and Economic Relationship: Prospects and Challenges, by Ian F. Fergusson.

Mexico. Mexico is the second largest single-country export market for U.S.
exports (having surpassed Japan) and the third largest source of U.S. imports. In

2005, the United States incurred a trade deficit of $50.1 billion with Mexico.

Bilateral trade had increased rapidly even before the North American Free Trade
Agreement (NAFTA) went into effect on January 1, 1994. Several disputes have
disturbed what on the whole has been a harmonious trade relationship. On January

1, 2002, the Mexican Congress enacted a 20% tax on soft drinks made with high-

fructose syrup. The U.S. exports high-fructose corn syrup and soft drinks that
contain such syrup. The tax was in retaliation over a disagreement on how much
Mexican sugar should be allowed to enter the United States under NAFTA. The
United States claims that the tax violates Mexico’s obligations in the WTO. A
dispute resolution panel requested by the United States determined that the tax
violated WTO rules, and Mexico has appealed the decision in 2005.
Another long-standing issue concerns the right of Mexican trucks to transport
goods throughout the United States. Under NAFTA, Mexican trucks were to obtain
that right in 2000, but the Clinton Administration suspended that concession to
Mexico alleging safety problems with Mexican trucks. Mexico has been pressing the
United States for full compliance with this provision. In June 2004, the U.S.
Supreme Court ruled that Mexican trucks could operate in the United States. The26
two countries are now engaged in negotiations to resolve safety concerns.
China. China’s relationship with the United States is the most dynamic and
contentious at this time. Bilateral trade has soared. Total U.S.-China trade has
increased from $5.0 billion in 1980 to $285.3 billion in 2005. The U.S. trade deficit
of $201.6 billion with China in 2005 is the largest U.S. bilateral trade deficit, far
exceeding the second largest with Japan at $82.5 billion deficit with Japan. China
is the second largest source of U.S. imports and the 11th largest export market. China
has become the second largest (next to Japan) foreign holder of a U.S. Treasury
securities, thus helping to finance the increasing U.S. national debt.
On November 10, 2005, the United States and China came to an agreement that
restricts China’s exports of wearing apparel and textiles to the United States. The
agreement was in response to surges in U.S. imports of textile and apparel after the
multilateral quotas on these products expired on January 1, 2005. The agreement was
also in lieu U.S. unilateral safeguard actions on these products from China which
threatened more extensive restrictions.27
The huge trade deficit has generated concerns about the effects of rapidly
growing imports on U.S. import-sensitive industries and workers. Some interest
groups representing labor and certain industries, for example, have focused on
China’s exchange rate regime that pegs the yuan to a basket of currencies including
U.S. dollar. U.S. critics of China’s policy charge that China deliberately undervalues
the yuan/dollar exchange rate to underprice its exports and place them at a unfair

26 For more information on U.S.-Mexico economic ties, see CRS Report RL32934, U.S.-
Mexico Economic Relations: Trends, Issues, and Implications, by M. Angeles Villarreal.
27 For more information, see CRS Report RL32168, Safeguards on Textile and Apparel
Imports from China, by Vivian Jones.

competitive advantage over U.S. producers. U.S. policymakers and affected
industries have also raised concerns about the effectiveness of China’s intellectual
property rights (IPR) protection, along with other issues.
On July 27, 2005, the House passed (255-168) H.R. 3283 (English) that targets
China’s unfair trade practices by allowing U.S. countervailing duty orders to be
applied to imports from non-market economies (including China), and increase
monitoring China’s compliance with WTO obligations and its commitments to the
United States on intellectual property rights (IPR) protection, among other things.
A companion bill, S. 1421 (Collins), was introduced in the Senate. A number of bills
have been introduced that would target China’s exchange rate policies. For example,
the Senate is expected to vote during the second session of the 109th Congress on S.

295 (Schumer) that would impose 27.5% tariff surcharges on imports from China,

if China does not revalue its currency to market levels. On November 16, 2005, the
Senate had agreed, per unanimous consent, to consider the bill no later than March

31, 2006.28

Japan.The U.S.-Japan economic relationship is very strong and mutually
advantageous. The two economies are highly integrated via trade in goods and
services — they are large markets for each other’s exports and important sources of
imports. More importantly, Japan and the United States are closely connected via
capital flows. Japan is the largest foreign source of financing of the U.S. national
debt. It will likely remain so for the foreseeable future, as U.S. national debt mounts
and the stock of U.S. domestic savings remains insufficient to finance it. Japan is
also a significant source of foreign private portfolio and direct investment in the
United States, and the United States is the origin of much of the foreign investment
in Japan.
The United States has consistently run merchandise trade deficits with Japan.
After declining in 2003, the deficit has been rising, reaching $82.5 billion in 2005,
the largest U.S. trade deficit with Japan. In 2005, the U.S. exports to Japan amounted
to $55.4 billion and U.S. imports amounted to $138.1 billion.
In the 1980s and the 1990s, the U.S.-Japan economic relationship was often a
source of sharp friction due to widespread Japanese trade barriers and the growing
competition posed by Japanese industries (in autos, for example). The tone has
softened considerably. Nevertheless, bilateral trade disputes do arise. Japan is a
party to the complaint against the United States in the WTO regarding the Byrd
Amendment, and Japan imposed tariff sanctions against selected U.S. exports. Japan
first imposed the ban on imports of U.S. beef in December 2003 due to concerns over
a case of bovine spongiform encephalopathy (BSE), also know as “mad cow
disease,” in Washington State. Japan lifted the ban on imports of beef from cattle

20 months or younger on December 12, 2005, but reimposed it on January 20, 2006,

when Japanese meat inspectors discovered prohibited spinal bone material in a
shipment. Some Members of Congress raised concerns over the Japanese original

28 For more information on U.S.-China trade issues, see CRS Issue Brief IB91121, China-
U.S. Trade Issues, by Wayne M. Morrison.

ban and the reimposed ban, even proposing legislation to retaliate against Japanese
imports if the ban were not lifted. 29
The Wider Trade Debate
The range of trade issues that the 109th Congress will likely face is very broad
and diverse. Each issue or set of issues bears its own implications as Members of
Congress weigh the merits and disadvantages. In most cases, the 109th Congress will
be considering and debating each issue separately. However, the cumulative effect
of each debate may have wider implications for U.S. trade policy. As the 109th
Congress addresses these issues, its decisions may define U.S. trade policy in the
long term.
Free Trade or Protectionism?
The history of U.S. trade policy since the 1930s is one of a movement toward
trade liberalization — lowering of tariffs and other trade barriers — and working in
concert with other major trading powers to create multilateral rules to promote freer
trade. At the same time, U.S. trade policymakers have taken measures to restrict
trade by crafting laws that make it easier for domestic U.S. industries to obtain relief
from dumped and subsidized imports and from surges in fairly-traded imports.
While this debate over the direction of U.S. trade policy is sometimes framed as “free
trade or protectionism,” the terms of the debate are more subtle — more open trade
or more restricted trade. The outcome of the trade issues before the 109th Congress
will influence in which direction U.S. trade policy proceeds.
The Rise of Developing Countries
Developing countries have emerged as significant players in U.S. trade and
world trade as a result of globalization. This trend presents the United States with
challenges. For example, how should the United States respond to the increasing
competition from less expensive labor in the developing countries? Should labor
rights be included in trade agreements? These questions cut across the debates on
each of the U.S. FTAs with developing countries, the Doha Development Agenda
negotiations in the WTO, discussions and congressional proposals on trade remedy
laws, the issue of “outsourcing,” and the anticipated surge in textile and wearing
apparel imports, among other issues. A broader question that might be considered
is whether on balance the United States will consider trade with developing countries
as a “race to the bottom” or as a “win-win” proposition for both sides.
Labor, Environment, and Trade
The issues of workers rights and environmental protection, become significant
points of debate in congressional consideration of many trade matters. More

29 For more information on U.S.-Japan economic ties, see CRS Report RL32649, U.S.-Japan
Economic relations: Significance, Prospects, and Policy.

precisely, the question is to what extent should workers rights, environmental
protection, and other concerns be part of trade agreements or other trade policy
initiatives. The Congress included workers rights and environmental policy as
principal negotiating objectives in the legislation granting trade promotion authority.
Some Members of Congress have argued that trade agreements should ensure that
trade partners’ treatment of workers rights meet internationally accepted core labor
standards or otherwise face trade sanctions. Others contend that trade agreements
should only ensure that countries adequately enforce their own trade laws. A similar
division of thought exists regarding trade agreements and environmental protection.
This underlying debate will likely emerge in congressional consideration of DR-
CAFTA and other trade agreements involving developing country trading partners.
It may also arise if and when Congress considers renewal of the President’s trade
promotion authority and reviews U.S. participation in the WTO. The outcome of
these debates might determine in which direction U.S. trade policy is moving on
these issues.
Shaping the International Trade System
The trade issues that the 109th Congress faces and how the Congress deals with
them could have an impact on the international trading system. The international
system is becoming larger and more complex. Lying at the foundation of the system
is the WTO. Over the years, the rules the WTO (and its predecessor the GATT)
administers have expanded from tariffs to such nontariff barriers as government
procurement practices, sanitary and phytosanitary measures, and IPR protection. An
objective of the Doha Development Agenda is to broaden the rules coverage even
more. The 107th Congress helped set the agenda for the DDA round and U.S.
negotiating positions during the round when it granted the President trade promotion
authority and established negotiating objectives. The 109th Congress through
oversight and the Administration’s mandatory consultations can continue to influence
the agenda.
The WTO is also expanding its membership. As of February 2006, the WTO
has 149 members with 29 more countries at various stages of attaining membership
or accession. Congress does not vote on whether a country can join the WTO.
Through oversight it can influence the U.S. position on negotiating a country’s entry.
The Congress could have a more direct impact when it considers PNTR for those
countries, such as Russia, Ukraine, and Vietnam, whose NTR status is still
conditioned under the Jackson-Vanik amendment.
Along with the WTO, the international trading system is populated by a web of
regional and bilateral free trade areas based on FTAs. In some cases, these areas are
interlinked, while in others, they are distinct. FTAs have become a significant and
expanding part of the international trading system.
International trade observers and policymakers are divided on whether the two
tracks of the international trading system — the multilateral (the WTO) and
bilateral/regional (FTAs) — are mutually reinforcing or in conflict. The Bush
Administration firmly bases its trade policy strategy on the two prongs being
reinforcing. Former USTR Zoellick has argued that the FTAs he negotiated are

“cutting edge agreements [that] carry an importance beyond the size of newly opened
markets, because they set high, enforceable standards in newer areas of importance
to America — such as services, intellectual property, transparency and anti-
corruption and e-commerce.”30
On the other hand, others contend that FTAs undermine the WTO and its
principles because they promote discriminatory treatment in trade by limiting
preferential treatment to the participants in the FTA. Some critics have also asserted
that bilateral and regional FTAs create a conglomeration of tariff-reduction schedules
and rules of origin that are in conflict with one another and create confusion in the
trading system undermining trade efficiency.31
In between these two groups are policymakers and observers who assert that
FTAs and the WTO are not necessarily incompatible, but oppose the emphasis that
bilateral and regional FTAs have been given by the Bush Administration. They argue
that the Administration needs to devote the limited available staff and other resources
to WTO negotiations where, they claim, it can promote U.S. trade policy goals more

30 Zoellick, Robert B. Remember Seattle: Mixed Signals are Bad for Trade. The Wall
Street Journal. October 5, 2004.
31 Se for example, Sutherland, Peter. (Chairman) The Future of the WTO: Addressing
Institutional Challenges in the New Millennium. Report by the Consultative Board to the
Director-General Supachai Panitchpadi. Geneva. 2004. p. 19-27.
32 See for example, Cardin Pushes Administration to Focus on WTO Talks Instead of
FTAs. Inside U.S. Trade. March 11, 2005.