US Government Trade Policy

Three Branches of Government

1.The Executive Branch

2.Legislative Branch – The Congress

3.Judiciary Branch - The courts and the regulatory process

Introduction

• Trade policy process is set by U.S. Constitutional framework with “Checks and balances” between President, Congress and others

• Many “players”, including dozens of agencies in Executive and legislative branches, numerous independent agencies and hundreds of private and public advocacy (i.e, lobbying) and trade groups.

ExecutiveOffice of the President

Authority to negotiate international economics agreements derived from statute law and ultimately from the Constitution.

President’s political advisors monitor overall progress/problems, often with eye to next election

Need to coordinate policy development within administration and with Congress and to ensure it adheres to US law

The Executive Branch

• The White House (i.e., Exec Office of the President)

• State Department

• Commerce Department

• Treasury Department

• Defense Department

• International Trade Commission

DOD

State

ITC

Agriculture

Commerce

USTRUSTRUSTR

OMB

White House

Treasury

Fed

CIA Congress

The ProcessIntellectual framework vs. political pressures

• Policy objectives vs economic analysis

• Politics vs policy objectives

• Politics vs economic analysis

• President’s political advisors typically monitor overall progress/problems with eye to next election

• Need to coordinate policy development

Legislative Branch

• Ongoing tension between the Executive branch's authority to negotiate and enter into agreement with other nations, and . . .

• . . . .the Legislative branch's ability to provide meaningful “advice and consent” to agreements that would be binding under international law on the United States.

Legislative Branch

• Any treaty, including any trade agreement, must be approved by the Congress, i.e., the Senate

• Treaties and other similar international agreements need the “Advice and Consent” of the Senate; or Senate needs to “advise and consent”. Need two-third majority

• Congress agreed to “Fast Track” provision in 1974

The Executive Office of the President

• United States Trade Representative (1962)

• Council of Economic Advisors (1946)

• National Economic Council (1993 - by Executive Order)

• Office of Management and Budget (1970)

• ~ National Security Council (1947)

US Trade Representative

• Established in 1962 (as Special TR)• Reports directly to the President and NEC• Chief trade negotiator and Cabinet rank• Responsible for collecting views of Cabinet and

private sector through TPRG and TPSC• Recommends to President a strategy to achieve

objectives, e.g. in Congress• Develops US policy for trade and FDI• Undertakes Section 301 Investigations

State Department

• Represents the views of foreign countries and other non-economic foreign policy concerns

• Points out linkages between trade issues and foreign policy issues

• Tends to be in favor of freer trade

• Prefers multilateral (WTO) approach to trade blocs approach

Commerce Department

• Represents the views of business/producer interests

• Monitors volume of imports/exports

• Administers most trade laws

• Export licensing: nuclear-related, chemical weapons concerns

Commerce Department Actions

• Companies can petition Commerce to investigate:

• Anti-Dumping claims

• Countervailing duties claims

Key Commerce Bureaus

• International Trade Administration– Foreign Commercial Service– Market Access & Compliance– Trade Development– Import Administration (dumping

investigations, quotas, etc.)

Treasury Department

• Historically, a strong advocate of freer trade• Directly responsible only for financial services

issues (banking, insurance) and collection of customs duties (i.e., revenue)

• Chairs CFIUS (1975)• Influence depends upon the views and

strength of the Secretary of Treasury• Key area - Office of the Assistant Secretary

for International Affairs

Defense Department

• Concerns:– To restrict technology transfer abroad– Foreign acquisition of certain U.S.

companies (Hi tech, telecomm)– CoCom 1947-1994–Wassenaar Arrangement - 40 member

states (1996) re terrorist access and states of concern, etc

• Seeks to ensure that defense industries are not too dependent upon critical foreign supplies

International Trade Commission

• Six members appointed by the President, confirmed by the U.S. Senate– No more than three members from any

political party; nine year terms– Determines if industries are being injured

by dumping, foreign subsidies, import surges, patent infringements– Recommends tariffs to the President– Outside Commerce Department to reflect

consumer interests, etc.

USG Trade Actions

• Typically there are three types of claims that can be investigated by USG under US law:

• 1) Section 301 of the 1974 US Trade Act allows wide-ranging investigations – not popular with trading partners Exporter oriented

• 2) Dumping and

• 3) Countervailing Duty violations. Laws under the Tariff Act of 1930 allow investigations of foreign government or companies trade practices. Allowed under the WTO. Importer oriented

Section 301 Actions“Section 301 of the Trade Act of 1974 . . . is the principal statutory authority under which the United States may impose trade sanctions against foreign countries that maintain acts, policies and practices that violate, or deny U.S. rights or benefits under, trade agreements, or are unjustifiable, unreasonable or discriminatory and burden or restrict U.S. Commerce.”

- Oriented toward helping US exporters

Source: http://www.osec.doc.gov/ogc/occic/301.html

301 Actions and the USTR

Companies may petition USTR to undertake investigations

USTR may self-initiate investigations using Section 301

• USTR uses resources of other agencies in USG through inter-agency process

• Negotiates with other nations over remedies and penalties -- often result in settlements

• USTR may reject claims of trade violations

Section 301 Actions

USTR can withdraw tariff concessions or impose new tariffs if the foreign country is determined in violation of the law

Designed to assist US exporters rather than US domestic industry

Many trading partners complain about Section 301 cases as violating WTO because of its bilateral nature

USTR 301 Actions (cont)

• In 2007 USTR (along with Treasury) rejected the third petition in five years that China's currency was being used to harm US trade interests.

– “We do not believe that this Section 301 petition is likely to be the most productive way to secure Chinese movement towards currency flexibility. Rather, the Administration continues to believe that firm engagement with China, in concert with international institutions and other countries, offers the best chance of success. We therefore decline to accept this petition.”http://www.ustr.gov/Document_Library/Press_Releases/2007/June/Administration_Declines_Section_301_Petition_on_Chinas_Currency_Policies.html

• Always subject to change by any administration

Super 301 Actions

• The 1988 Omnibus Trade and Competitiveness Act added a clause requiring USTR to investigate certain major trading partners of the US• Japan, eg. - MOSS talks

Section 303 – Countervailing Duties

Dates back to end of 19th Century, then part of 1930 Trade Act

Allows for retaliatory action against imported products enjoying foreign government subsidies which cause or threaten to cause material injury to import competing US firms

Commerce Dept's ITA determines subsidy margin

ITC determines injury, which triggers CVD equal to subsidy

Section 731 - Antidumping

Dates from 1921 and 1930 Trade Act Requirements:

1) Sale of a foreign good in US must occur at “less than fair value”

2) Sales must result in material injury to the domestic import-competing firms

ITA determines value of “less than fair value”

Injury determination made by ITC

Section 201- Escape Clause

Part of the Trade Act of 1974 – dates from pre-WW II

Designed to protect against foreign imports that cause – or threaten to cause – “serious injury” to US import-competing industry

Any US group may petition ITC If determined, ITC may recommend tariff,

quota, or trade adjustment assistance

Section 337 – Unfair Trade Practices and IPR

Applied against imported products that infringe on US patents and trademarks.

ITC investigates these cases Since 1988, no longer required to show injury USTR also directed to identify countries that

do not protect US IPR

Recent ITC Cases

• Steel wire garment hangers (China.)

• Aluminum plate (South Africa)

• Ceramic insulators (Japan)

• Laminated woven sacks (China)

• Lightweight thermal paper (China, Korea, and Germany)

• Steel pipes (China)

• Tire (China)

Investment Issues: CFIUS “Committee on Foreign Investment in the U.S”

• Cabinet-level committee, chaired by Treasury Secretary. Reviews proposed foreign investment transactions in U.S. with respect to:

– Impact on domestic production needed for projected national defense requirements;

– Control of domestic industries and commercial activity by foreign citizens as it affects national security;

– Potential effects on the sales of military equipment or technology to a country that supports terrorism or proliferates missile technology or chemical and biological weapons;

– Potential effects of the transaction on U.S. technological leadership in areas affecting U.S. national security.

U.S. Trade Policy PressuresExecutive Branch

President

Commerce State Treasury Defense

US Trade Representative

International Trade Commission

Has “dumping” occurred?

Are U.S. industries being hurt?

Political advisors

U.S. Trade Policyand the Congress

• Legislation introduced by members, then referred to committees:

– Senate: Commerce and Finance Committees

– House: Ways and Means Committee

Who wants to be on these committees?

U.S. Trade Policy and the Congress

• Significance:

– Elected officials from districts with close international trade ties seek committee membership

• Examples:

– Iowa and Kansas– New York

The Legislative Process

1. Legislation introduced into House or Senate2. Referred to Committee3. Referred to sub-Committee4. If Committee approves revised

legislation,forwarded to all members5. Leaders schedule debate, rules for

amendments and vote6. If approved, and other chamber has already

approved, differences between versions are negotiated by joint “conference committee”

The Legislative Process

7. Final votes in each house; if approved goes to President for signature

8. If President vetoes, Congress can over-ride by 2/3 majority vote in each house

• Congress first agrees to have only “yes” or “no” vote in 1974

• No amendments requiring re-negotiation with other countries

• Earlier TPA authority lapsed in 1995 (Clinton problems? NAFTA?)

Trade Promotion Authority(“Fast Track”)

Trade Promotion Authority

• TPA authority passed in August 2002

• Passage required substantial political trade-offs, eg, temporary steel, import tariffs, health insurance for laid-off workers, etc.

• Margin in house was 3 votes

• Extended in 2005; expired end-2007

• Has Expired: currently no Fast Track authority

Trade Promotion Authority Examples of Use

• Bush Administration used this authority to negotiate and achieve passage of FTAs with:– Chile and Singapore (2003)– Australia and Morocco (2004)– CAFTA (Central America and Dominican Republic

(2005)

• Pending: US Congress and Adminstration agreed in 2011 to proceed on agreements with Colombia, Panama and South Korea. Agreements with Peru, Oman are pending

Other Congressional Tools to Influence Trade Policy

• Senate control over appointments of the President, e.g. US Trade Representative, International Trade Commission, IMF, World Bank

• Power over the budget of all government agencies, including the President’s office

• Congressional hearings to review performance of agencies

• Participation in USTR-led negotiations

Pressures on Legislators

Producers

Consumers -

importers

Nongovernmental

organizations

President

Campaign contributors

The Courts

Laws of Congress can be overturned by the Federal courts if:

• Judges find laws to be in violation of the Constitution

• In violation of international agreements approved by the Congress

• Special court for customs/trade law

The Regulatory Process

• After legislation, administrative agencies must write rules of procedure and rules of evidence to implement it, e.g. dumping law implementation

• Every important decision is open to public comment

• Example: USTR requested comments on how to approach each item on the Doha agenda

The Regulatory Process

• All evidence considered by the authorities is available for inspection by the public, except company secret financial, sales data, etc

• Nearly all recent information is available on the internet:

• Example: http://www.trade.gov/ia/ for dumping case evidence

Case Study: “African Growth and Opportunity Act (AGOA)

• Bill passed in 2000 designed to help poorer African countries get access to U.S. market for apparel exports and similar items

• Signed into law by President Bush• “Trade, not aid”• Groups in favor?– Clothing stores– Consumer groups

Case Study (cont): AGOA

Groups opposed

– Apparel manufacturers– Textile manufactures–Workers' unions in the apparel industry– Politicians with many textile plants and

apparel workers in their districts

AGOA (cont.)

• Groups in favor, with conditions– Human rights, anti-child labor groups

Case Study (cont.): AGOA

• Outcome: more duty-free imports, e.g. footwear, luggage, and apparel, permitted

• African countries eligible if “making progress towards rule of law, political pluralism, free trade, protection of workers' rights and elimination of child labor

• Apparel imports are largely duty free – if made with U.S. fabric, yarn, and thread

Case Study (cont.): AGOA

• As many as 40 African countries were “certified” as eligible (Eritrea and Central African Republic were removed in 2003)

• Substantial investment in sub-Saharan textile/apparel industry from Taiwan, Hong Kong, China

• Apparel imports from $748 million in 2000 to $1.3 billion in 2007 (21 countries)

• Good example of “trade, not aid”• Impact of removal of textile/apparel quotas on

Chinese exports ?

Summary I

• Overall U.S. trade policy is not controlled by any one group or part of the U.S. government

• It is the result of a political process that encourages compromises between competing factions, e.g. unions, producers, importers and purchasers (consumers and businesses)

Summary II

• Any person or company interested in trade issues can make their voice heard at different places within:

• The Executive branch (different departments and White House

• The Congress (House and Senate)

• The administrative (independent) agencies