Free Trade Agreements: Impact on U.S. Trade and Implications for U.S. Trade Policy

Abstract

Free trade areas (FTAs) are arrangements among two or more countries under which they agree to eliminate tariffs and nontariff barriers on trade in goods among themselves. However, each country maintains its own policies, including tariffs, on trade outside the region. In the last few years, the United States has engaged or has proposed to engage in negotiations to establish bilateral and regional free trade arrangements with a number of trading partners. Such arrangements are not new in U.S. trade policy. The United States has had a free trade arrangement with Israel since 1985 and with Canada since 1989, which was expanded to include Mexico and became the North American Free Trade Agreement (NAFTA) effective in January 1994. U.S. interest in bilateral and regional free trade arrangements surged, and the Bush Administration accelerated the pace of negotiations after the enactment of the Trade Promotion Authority in August 2002. U.S. participation in free trade agreements can occur only with the concurrence of Congress. In addition, FTAs affect the U.S. economy, with the impact varying across sectors. The 112th Congress and the Obama Administration faced the question of whether and when to act on three FTAs pending from the Bush Administration—with Colombia, Panama, and South Korea. Although the Bush Administration signed these agreements, it and the leaders of the 110th Congress could not reach agreement on proceeding to enact them. No action was taken during the 111th Congress either. After discussion with congressional leaders and negotiations with the governments of Colombia, Panama, and South Korea to assuage congressional concerns regarding treatment of union officials (Colombia), taxation regimes (Panama), and trade in autos (South Korea), President Obama submitted draft implementing legislation to Congress on October 3, 2011. The 112th Congress approved each of the bills in successive votes on October 12, along with legislation to renew an aspect of the Trade Adjustment Assistance (TAA) program. President Obama signed the bills into law on October 21, 2011. In the meantime, on November 14, 2009, President Obama committed to work with the current and prospective partners in the negotiations to form a Trans-Pacific Partnership (TPP) Agreement. The TPP is a free trade agreement that includes nations on both sides of the Pacific. The TPP negotiations emerged from an FTA that included Brunei, Chile, New Zealand, and Singapore and that entered into force in 2006. Besides the United States, Australia, Canada, Japan, Malaysia, Mexico, Peru, and Vietnam have joined the negotiations. Furthermore, the United States has been negotiating with the 28-member European Union to form the Transatlantic Trade and Investment Partnership (TTIP). FTAs raise some important policy issues: Do FTAs serve or impede U.S. long-term national interests and trade policy objectives? Which type of an FTA arrangement meets U.S. national interests? What should U.S. criteria be in choosing FTA partners? Are FTAs a substitute for or a complement to U.S. commitments and interests in promoting a multilateral trading system via the World Trade Organization (WTO)? What effect will the expiration of TPA have on the future of FTAs as a trade policy strategy? FTAs as a trade policy strategy?