Download OVERVIEW: TRADE AGREEMENT NEGOTIATIONS

 OVERVIEW: TRADE AGREEMENT NEGOTIATIONS
TO PLIN E
More than 70 percent of the world’s purchasing power and
nearly 95 percent of its consumers are located outside the
United States. Businesses that export grow faster and are
8 percent less likely to declare bankruptcy than those that
do not, according to the Institute for International
Economics. Expanding exports can accelerate economic
growth and hiring: every $1 billion of exports supports
nearly 6,000 jobs.
Free trade agreements (FTAs) can open up new markets
to exports. FTAs reduce trade barriers while also
establishing common standards and protections for U.S.
interests and laws. The U.S. has 14 FTAs with 20 countries,
which accounted for over 45 percent of the country’s
exports last year. Currently, the Administration is
negotiating two broad trade agreements: the Transatlantic
Trade and Investment Partnership (T-TIP) with members of
the European Union and the Trans-Pacific Partnership
(TPP) with countries in the Asia-Pacific region. These two
agreements would cover 60 percent of American exports
and 84 percent of foreign direct investment (FDI), both
expanding some existing trade agreements and creating
opportunities for free trade with more countries.
REAUTHO RIZING TRA D E PRO M O TIO N A UTHO RITY
For successful negotiations, both trade agreements will likely require Congress to reauthorize the
President’s Trade Promotion Authority (TPA). TPA allows the President to enter into reciprocal
trade agreements and requires that legislation for implementing the agreement be considered on
a defined timeline without amendments. In return, the President must keep Congress informed
throughout the negotiations and abide by certain notification and consulting requirements. It
improves the Administration’s position in the negotiations by ensuring the agreed-upon terms will
be binding.
Congress first gave the President the authority to enter into trade agreements in the 1970s. TPA
was reauthorized throughout the 1980s, facilitating FTAs with Israel, Canada, and Mexico and
trade liberalization through the World Trade Organization. Congress again passed TPA
authorization in the Trade Act of 2002, allowing the negotiation of 11 agreements and
implementation of eight FTAs over the next five years, before it expired in July 2007. Congress
passed legislation to implement the remaining three FTAs (Columbia, Panama, and South Korea)
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in 2011. President Obama called for TPA to be reauthorized in July 2013 to facilitate the
negotiation of TPP and T-TIP. TRA D E PRO M O TIO N A UTHO RITY LEG ISLA TIO N
Both Senate Finance Committee Chairman Orrin Hatch (R-UT) and House Ways and Means
Chairman Paul Ryan (R-WI) have indicated that passing TPA legislation will be a top priority in the
new Congress. TPA legislation has not yet been proposed for the current Congress, but former
House Ways and Means Chairman Dave Camp (R-MI) and former Finance Committee Chairman
Max Baucus (D-MT) introduced the Bipartisan Congressional Trade Priorities Act of 2014 in the
previous session last January, which could serve as a model.
The legislation reauthorized TPA for four years, with an option for a three-year extension. The TPA
legislation expanded Congressional consultation requirements, both providing members of
Congress access to negotiating texts and allowing members to be designated as Congressional
advisors, automatically granting access to the negotiations. The bill incorporated provisions for
labor and the environment that reflect the most recent trade agreements, and elevated currency
issues to a principal negotiation objective. It established new negotiating objectives for intellectual
property rights, digital trade and cross-border data flows, state-controlled enterprises, and
localization barriers.
THE TRA N S-PACIFIC PARTNERSHIP
The Trans-Pacific Partnership (TPP) is trade agreement
currently being negotiated among 12 countries in the AsiaPacific region. The U.S. already has FTAs with six of the
participants—Australia, Canada, Chile, Mexico, Peru, and
Singapore—but does not have an FTA with Brunei, Japan,
New Zealand, Malaysia, or Vietnam. Together, TPP
countries form America’s largest good and services export
market. Approximately 44 percent of exported goods and
27 percent of exported services go to TPP countries in
2013.
President Obama announced American participation in TPP in November 2009. Participating
countries agreed to a framework in November 2011. The agreement is broad: negotiators are
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discussing 29 different chapters that will resolve issues such as market access, intellectual
property rights, labor standards, state-owned enterprises, and regulatory compatibility. TPP is
intended to be a “living agreement” that can accommodate both new trade issues and new
members. Allowing other countries, including China and India, to join in the future gives the
agreement the potential to expand in a region that produces nearly 60 percent of global GDP and
is home to 40 percent of the world’s population. Negotiations between the U.S. and Japan provide
specific challenges, but Japan’s inclusion is expected to significantly boost American exports and
economic growth. One study from the Institute of International Economics estimated that TPP
could increase exports by 4.4 percent. GDP would increase by $77 billion, or about 0.4 percent.
The agreement may also boost investment, as TPP participants account for nearly one-quarter of
the FDI in the U.S.
THE TRA N SA TLA N TIC TRADE AND INVESTM ENT PARTNERSHIP
In June 2013, the U.S. and the EU began negotiating a free trade agreement, the Transatlantic
Trade and Investment Partnership (T-TIP). If T-TIP is successful, the free trade agreement would
be the largest ever negotiated by the U.S. Together, the U.S. and the EU’s 28 member countries
the account for 30 percent of the world’s exports, 12 percent of its population, and nearly half of
its GDP.
T-TIP is intended to be a comprehensive FTA that will reduce trade barriers applied both at and
behind the border, similar to the TPP. While T-TIP will not be a “living arrangement” like TPP, it
may serve as a model for future multilateral trade deals.
Comparatively, cross-border investment is more
intensive between the EU and U.S. than trade, so
facilitating investment flows is an important part of
the agreement. Investments between the EU and
U.S. exceed $3.7 trillion, nearly six times the direct
investment of the NAFTA members and 2.5 times
that of the TPP partners. EU businesses accounted
for over 62 percent of the FDI into the U.S. in 2012,
while the U.S. accounted for approximately half the
FDI in the EU. The research firm Ecorys estimated
that these investment provisions could increase U.S.
GDP by 0.3 percent.
While tariffs are low at around 3 percent, the volume
of trade flows between the U.S. and the EU means that a tariff reduction could result in significant
gains for the businesses that export to the region. U.S. companies had $6.4 billion in tariffs applied
on their exports to the EU last year.
SM A LL BUSIN ESSES A N D TRA D E
Ninety-eight percent of all U.S. businesses that export are small businesses. Their work accounts
for nearly one-third of all U.S. exports, supporting over 4 million jobs. But over half of exporting
small businesses do so to only one country. Policies to expand international opportunities for small
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and medium-sized businesses are central to both T-TIP and TPP. This marks the first time a trade
agreement has included a chapter dedicated to small businesses.
Small businesses may particularly benefit from trade agreements because they do not have the
scale and resources that large companies do to manage the challenges associated with entering
new markets. Over 90 percent of small and medium-sized businesses operate from a single
location in the U.S., while just over 10 percent of large companies do. Furthermore, only 16 percent
of small businesses export through a foreign affiliate, which can reduce transaction costs,
compared to 38 percent of large companies. TPP and T-TIP aim to harmonize standards across
countries to reduce the cost disparity between companies that physically operate in other
countries and those with facilities only on American soil.
TRADE RESO URCES AND INTIATIVES
In his 2010 State of the Union address, President
U.S. Export Assistance Centers
Obama announced a goal to double U.S. exports Irvine, CA
Minneapolis, MN
by the end of 2014. To achieve that, the Los Angeles, CA
St. Louis, MO
President started the National Export Initiative San Francisco, CA
Charlotte, NC
(NEI) to promote exports from American Denver, CO
New York, NY
businesses through advocacy, export promotion, Miami, FL
Cleveland, OH
and financing. Last year, the Export-Import Bank Atlanta, GA
Philadelphia, PA
provided financing or guarantees for over 3,300 Chicago, IL
Dallas/Fort Worth, TX
exporting businesses. The Small Business New Orleans, LA
Arlington, VA
Administration (SBA) also provides export- Boston, MA
Seattle, WA
related loans. The SBA made nearly 1,600 export- Detroit, MI
related loans in 2013, with a value of $1.2 billion.
Export Assistance Centers located in 19 major metropolitan regions around the country bring
together officials from the Ex-Im Bank, SBA, and Department of Commerce to aid businesses that
export.
Exports reached an all-time high of $2.3 trillion in 2013. The Administration is now focused on a
new initiative, NEI/NEXT, that will use a customer-based approach to improve how the federal
government helps businesses that are trying to export.
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