Part 12 - Trade policies and trade preferences Flashcards
Four different types of players might influence trade policy in a given country
- Executive branch
- Legislative branch
- Private sector
- Public interest
Who is the highest U.S. authority on international trade issues?
The U.S Congress which represents the legislative branch
The U.S. Congress:
- It represents the Legislative branch in the United States and has the power “[t]o regulate commerce with foreign nations” (see U.S. Constitution Art. 1, Section 8, Para. 3).
- It is the highest U.S. authority on international trade issues.
Why the US Congress plays an important role?
- U.S Congress is the highest authority in the US for international trade issues - because of the historical background of “no taxation without representation”
- Since trade barriers (in particular tariffs) are one means to collect revenues, the U.S. Congress plays an important role.
Can the US Congress delegate power to other players?
U.S. Congress can temporarily delegate trade power to the Executive, i.e., the Executive may start and conduct trade negotiations and sign trade agreements but ratification of trade agreements are still held by the U.S Congress and without its approval a new trade agreement cannot get into force.
Trade Promotion Authority (US)
(so-called Fast-Track) plays an important role in this context: The U.S. Congress may only approve or reject a trade agreement in its entirety. – that means that if a congressman would not be satisfied with a specific part of the agreement he cannot ask to change only that part, he can only approve or not the overall agreement.
− Underlying logic: Trade negotiations are very complex and compromises in one area are likely connected to compromises in other areas.
− One modified issues might endanger whole deal.
− Foreign governments would anticipate this problem, being more reluctant to start negotiations with the United States in the first place.
− Fast-Track has not always been in legal force, but historically only from 1975-1994, 2002-2007 and since 2015.
The U.S. Executive branch:
- Obviously, the head of the U.S. Executive branch is the President of the United States (POTUS).
- The (outgoing) 45th President of the United States: Donald J. Trump.
- For the rest of the U.S. Executive branch, we focus on the Office of the U.S. Trade Representative (USTR), the most important agency for U.S. trade policy.
- The (outgoing) head of this agency is the U.S. Trade Representative, Ambassador Robert Lighthizer.
U.S. Trade Representative (USTR)
It is the most important agency for U.S. trade policy
The USTR has about 200 employees and is responsible for trade negotiations, dealing with trade disputes and interactions with international organizations, the Executive, the Legislative, the Private Sector and the Public interest.
Plays a role of a mediator many times.
The Private Sector (US):
- There are various interest groups that engage in lobbying activities intended to pursuade the Legislative, the Executive or both of taking or abstaining from certain trade policy decisions.
- There are more than 11,000 registered lobbying groups in the United States (2015).
- Estimation of total U.S. lobbying expenses: USD 9 billion.
The Public Interest (US):
- Fourth and final group represents mainly non-profit organizations like think tanks (e.g., the Brookings Institution, the Cato Institute), labor organizations, non-governmental organizations (aiming at human rights or the environment) and international organizations.
- Note that more organized groups are usually able to exert a stronger influence on decision makers.
- Remember that consumers are seldom politically organized due to the collective action problem. While it is in the interest of all consumers to press for lower trade barriers due to lower prices in the domestic market, it is not in any individual consumer’s interest to do so.
Interaction of Players in U.S. Trade Policy:
Executive > presidente > OTMP - DoC - USTR > Other Departments - Independent Agencies
Legislative > congress < public interest - private sector
Most important player for trading in the US nowadays:
According to Lima-Campos and Gaviria (2018), the Executive has been the most influential player since 2017, a role that used to be played by the Private Sector.
• The Executive > Private Sector> the Legislative > Public Interest.
• But note that the U.S. Congress has the last say, especially if the proposal relates to changes in tariffs or the ratification of a trade agreement.
U.S President vs U.S Congress - trade negotiations
U.S. President can unilaterally stop trade negotiations (see for instance TPP or TTIP), but the POTUS cannot ratify a trade agreement. This means that no new trade agreement can come into force without consent of U.S. Congress.
RTAs examples
- USMCA, formerly NAFTA (Canada, Mexico and United States).
* CAFTA-DR (Costa Rica, DominicanRepublic, El Salvador, Guatemala, Honduras, Nicaragua and the United States).
Main changes relative to NAFTA:
− Treaty clause ensures that U.S. needs to be informed about any potential trade negotiations with China and that U.S. can leave USMCA within 6 months in case of a RTA between Mexico or Canada with China.
− Further rules aim at ensuring higher car production in the United States.
− US farmers get more access to the Canadian dairy market.
− Deal subject to review every six years and a sunset clause after 16 years, i.e., deal expires automatically after 16 years, if no new agreement is met.
− Investor-State Dispute Settlement (ISDS) provision substantially weakened.
sunset clause NAFTA:
implies that if the deal is not prolonged (new agreement) the deal automatically expires.
The Trans-Pacific Partnership (TPP)
was signed by Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the U. S. in Feb. 2016 but Trump decided to withdraw in 2017 because Trump thought that U.S bargain power would be higher when negotiating based on a bilateral agreement instead of an agreement that involves many other countries.
The remaining nations signed a similar agreement called Comprehensive and Progressive Agreement for Trans-Pacific Partnership(CPTPP or TPP 11), which is in force since 2018, making it the third largest RTA by GDP (after USMCA and EU).
The EU’s trade policy system - the European Commission:
It represents the Executive branch of the European Union, is independent of its 27 EU-member countries and
− Holds monopoly on drafting legislative proposals and widespread executive powers (e.g., competition law).
− Is the guardian of the EU treaties.
− Manages the EU-budget.
− Represents the EU and its members in trade negotiations.
The European Commission is
the coordinator of the trade policy formulation and the only authorized negotiator in international trade on behalf of EU-member countries (after authorization by the Council).
EU Treaties foresee international trade negotiations as confidential, which has been heavily criticized during TTIP-negotiations due to a lack of transparency.
The Legislative branch (EU):
It consists in the EU of the European Parliament and the Council of Ministers, who both approve or reject legislation.
− The Treaty of Lisbon (2007/2009) has increased the power of the European Parliament during trade negotiations.
− The European Parliament and the Council of Ministers must jointly agree on regulations relevant for EU’s trade policy.
− The Council of Ministers needs to adopt any trade agreement by qualified majority, i.e., representing at least 55% of EU-member countries and 65% of EU’s population.
− The European Parliament has to give its consent on a “take it or leave it” basis.
mixed agreements:
trade agreements between the EU and a third country that also deal with regulatory and investment issues, have to be ratified by all EU-member state parliaments.
Private sector (EU):
Prominent individuals, local groups and local associations influence state associations which, in turn, haven an impact on the decisions of national and supranational associations (which do not exist in the U.S.).
The Public Interest:
Similar to the U.S., it is composed of all non-profit organizations.
Who is the most influential player in the EU?
According to Lima-Campos and Gaviria (2018), in the EU, the Executive is the most influential player in the EU, since only the European Commission can propose rules and regulations on trade and is responsible for trade negotiations.
• The Executive > Legislative > Private Sector = Public Interest.
