Chapter 6: RECIPROCAL TRADE AGREEMENTS

Reciprocal Trade Agreement Objectives and Authorities

Authority for the President to enter into reciprocal trade agreements with foreign governments consists primarily of general authorities under section 1102 of the Omnibus Trade and Competitiveness Act of 1988 to enter into multilateral or bilateral trade agreements to reduce or eliminate tariff or nontariff barriers and other trade-distorting measures. Section 1102 replaces similar authorities under section 102 of the Trade Act of 1974 2 that expired on January 3, 1988. Except for the authority to proclaim modifications in U.S. tariffs under multilateral agreements, trade agreements entered into under section 1102 are subject to Congressional approval of implementing legislation under special expedited, socalled "fast track" procedures. The basic purpose of the section 1102 authorities is to provide the means to achieve U.S. negotiating objectives set forth under section 1101 of the 1988 Act and to enable U.S. participation in the Uruguay Round of multilateral trade negotiations under the auspices of the General Agreement on Tariffs and Trade (GATT) launched in September, 1986.

4

In addition, there are special trade agreement authorities that apply in limited circumstances or to deal with specific situations: (1) trade agreements entered into under section 123 of the Trade Act of 1974, as amended by the 1988 Act, to grant new concessions as compensation for import relief actions or any judicial or administrative tariff reclassification; (2) withdrawal, suspension, or modification of trade agreement obligations under section 125 of the Trade Act of 1974; (3) trade agreements entered into under section 128 of the Trade Act of 1974,5 as added by section 308 of the Trade and Tariff Act of 1984, concerning tariff treatment of certain semiconductor items; (4) agreements with major state trading regimes acceding to the GATT; (5) trade agreements and remedies under sections 1371-1382 of the Omnibus Trade and Competitiveness Act of 19886 to obtain more open foreign market access in telecommunications trade; and (6) bilateral trade agreements with certain Communist countries providing for nondiscriminatory (most-favored-nation) treatment under certain conditions.

'Public Law 100-418, approved August 23, 1988, 19 U.S.C. 2902.

2 Public Law 93-618, approved January 3, 1975, 19 U.S.C. 2112.

3 Public Law 93-618, 19 U.S.C. 2133.

* Public Law 93-618, 19 U.S.C. 2135.

" Public Law 98-573, section 308, approved October 30, 1984.

Public Law 100-418, 19 U.S.C. 3101.

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TRADE NEGOTIATING OBJECTIVES

Section 1101 of the Omnibus Trade and Competitiveness Act of 1988 sets forth overall and principal trade negotiating objectives of the United States. Any multilateral or bilateral trade agreement entered into under the authorities of section 1102 of the 1988 Act must make progress in meeting the applicable objectives described in section 1101.

The overall U.S. trade negotiating objectives are to obtain(1) more open, equitable, and reciprocal market access;

(2) the reduction or elimination of barriers and other tradedistorting policies and practices; and

(3) a more effective system of international trading disciplines and procedures.

The principal U.S. trade negotiating objectives include

(1) more effective and expeditious dispute settlement;

(2) improvement of the GATT and multilateral trade negotiation agreements, including improved operation and expanded coverage and country participation;

(3) broader application of the principle of transparency;

(4) assumption of equivalent obligations and provision of reciprocal benefits by developing countries;

(5) rules to address large and persistent global current account imbalances of countries;

(6) mechanisms to assure greater trade and monetary coordination;

(7) more open and fair conditions of trade in agricultural commodities;

(8) improvement of rules and enforcement to discipline unfair trade practices;

(9) reduction or elimination of barriers and agreed rules for trade in services;

(10) adequate laws and standards and effective enforcement of intellectual property rights;

(11) reduction or elimination of barriers and agreed rules on foreign direct investment;

(12) improved and expanded rules and procedures on safeguard measures;

(13) reduction or elimination of specific tariff and nontariff trade barriers;

(14) provisions concerning the relationship between worker rights and international trade;

(15) elimination or reduction of barriers to U.S. access to foreign high technology; and

(16) revision of GATT rules on the treatment of border tax adjustments.

In addition, section 1124 of the 1988 Act requires the Secretary of the Treasury to take action to initiate bilateral currency negotiations on an expedited basis with a foreign party to trade agreement negotiations if the Secretary advises the President during the course of those negotiations that the country satisfies the criteria

7 Public Law 100-418, 19 U.S.C. 2901.

Public Law 100-418, 22 U.S.C. 5304 note.

under section 3004(b) of the 1988 Act relating to exchange rate manipulation.

GENERAL TARIFF AUTHORITY

Since enactment of the Reciprocal Trade Agreements Act of 1934 the Congress periodically has delegated authority to the President to negotiate and to proclaim reductions in tariffs under reciprocal trade agreements, subject to specific conditions and limitations, without requiring further Congressional action. The most recent grant of such authority is contained in section 1102(a) of the Omnibus Trade and Competitiveness Act of 1988.

Section 1102(a) grants the President authority to enter into multilateral tariff agreements with foreign countries until June 1, 1993, and to proclaim reductions in U.S. rates of duty required or appropriate to carry out such agreements, subject to the following limitations:

-Reductions of existing U.S. duties cannot exceed 50 percent of existing rates of duty, except that duties of 5 percent ad valorem or below may be reduced to zero. -Staging authority requires that duty reductions on any article cannot exceed 3 percent ad valorem per year, or one-tenth of the total reduction, whichever is greater, except that staging is not required if the U.S. International Trade Commission determines there is no U.S. production of the article.

-Under rounding authority, annual duty reductions may exceed the limits by the lesser of the difference between the limit and the next lower whole number or one-half of one percent ad valorem in order to simplify computations.

There is no authority to proclaim increases in any rate of duty. Any duty reductions negotiated in a trade agreement that exceed 50 percent of an existing duty higher than 5 percent ad valorem or any tariff increases would have to be approved by the Congress under the special "fast track" legislative procedures that apply to nontariff agreements.

MULTILATERAL TRADE AGREEMENT AUTHORITY

Trade negotiations prior to the Tokyo Round concentrated primarily on reducing or eliminating tariffs. Relatively little effort and progress was made to reduce nontariff barriers or other tradedistorting measures such as subsidies. Section 102 of the Trade Act of 1974 resulted from considerable concern about the growing importance and proliferation of such practices to the detriment of U.S. export trade and the need to develop new or more adequate international trading rules and mechanisms for their discipline. The purpose of section 102 was (1) to make clear the importance of reducing, eliminating, or harmonizing nontariff barriers and other trade-distorting measures through a Congressional policy mandate and specific authority for the President to negotiate and enter into reciprocal nontariff barrier trade agreements as the major focus of the Tokyo Round of GATT multilateral trade negotiations; (2) to expedite and reduce the uncertainties of the legislative process for approval and implementation of such trade agreements, thereby encouraging and facilitating negotiations with foreign govern

ments; and (3) to increase and formalize the role of the Congress during the negotiating process and in the development of implementing legislation. The authority applied to U.S. foreign direct investment as well as to trade in both goods and services.

Section 102 of the Trade Act of 1974 authorized the President to enter into reciprocal trade agreements for 5 years, until January 3, 1980, subject to Congressional consultation requirements and approval of the agreements in implementing legislation considered under special expedited "fast track" procedures. Section 102 authority was used successfully to approve the agreements negotiated in the Tokyo Round and to make the changes in U.S. laws necessary for their domestic implementation under the Trade Agreements Act of 1979. That law extended the section 102 authority for an additional 8 years, until January 3, 1988, to enable the President to negotiate improvements or adjustments in existing agreements and to negotiate and enter into new agreements on nontariff measures not dealt with in the Tokyo Round.

Section 102 authority was replaced by similar authority under section 1102(b) of the Omnibus Trade and Competitiveness Act of 1988. A trade agreement may be entered into under this authority only if it makes progress in meeting the applicable objectives set forth in section 1101 of the 1988 Act.

Section 1102(b) authorizes the President to enter into trade agreements with foreign countries providing for the reduction or elimination of any nontariff barriers or other distortions to trade, or for the prohibition of or limitations on the imposition of such barriers or distortions, before June 1, 1993, subject to implementation under the special "fast track" Congressional approval procedures. The President has to provide the Congress at least 90 calendar days advance notice, i.e., no later than March 2, 1993, of his intention to enter into a trade agreement no later than May 31.

BILATERAL TRADE AGREEMENT AUTHORITY

Section 1102(c) of the Omnibus Trade and Competitiveness Act of 1988 authorizes the President to enter into bilateral tariff and nontariff agreements with foreign countries, subject to the same Congressional consultation requirements and special "fast track” procedures for approval of implementing legislation as apply to multilateral agreements. The authority to enter into bilateral trade agreements applies until June 1, 1993, and is subject to the same minimum 90-day advance notice requirement as applies to the multilateral authority.

The agreement may provide for the elimination or reduction of any U.S. duty or for the elimination or reduction of nontariff barriers or other trade distorting measures. No trade benefit under the agreement can be extended to a third country. The authority is similar to that which was used for the bilateral free trade agreements between the United States and Israel and the United States and Canada.

Three requirements must be met prior to the negotiation of a bilateral agreement:

1. The foreign country must request the negotiation of a bilateral trade agreement;

2. The agreement must make progress in meeting applicable U.S. trade negotiating objectives; and

3. The President must provide written notice of the negotiations to the House Committee on Ways and Means and the Senate Committee on Finance and consult with these committees regarding the negotiation of an agreement. The negotiations may proceed unless either Committee disapproves the negotiations within 60 legislative days prior to the 90 calendar day advance notice required of entry into an agreement. These multilateral and bilateral trade agreement authorities, which were originally due to expire as of June 1, 1991, were extended for an additional two years under procedures provided under section 1103(b) of the 1988 Act. On March 1, 1991, President Bush submitted a report to the Congress requesting extension of the "fast track" trade agreement authorities as essential in particular for (1) completing the Uruguay Round of GATT multilateral trade negotiations, (2) proposed negotiations of a North American Free Trade Agreement (NAFTA) with Mexico and Canada, and (3) pursuit of free trade agreements with Latin American countries under the Enterprise for the Americas Initiative announced by the President on June 27, 1990.9 In a subsequent letter on May 1, 1991, the President made commitments to the Congress in response to concerns raised about the proposed NAFTA negotiations. Neither House of Congress disapproved extension of the trade agreement authority for an additional two-year period prior to the June 1, 1991 expiration date for disapproval. The 1988 Act does not provide for any additional extensions of the trade agreement authorities.

On August 12, 1992, the President announced the completion of negotiations of a comprehensive NAFTA. On September 18, President Bush officially notified the Congress of his intention to enter into the agreement, accompanied by the reports of 38 private sector advisory committees on the draft Agreement as required by section 135 of the Trade Act of 1974, as amended. This notice was followed on October 7 by the initialing of the draft legal text by the trade ministers of the three participating countries in San Antonio, Texas. The Agreement was signed on December 17, the expiration date of the 90-day calendar minimum notice period.

LIMITATIONS ON IMPLEMENTATION

Reciprocal competitive opportunities

Section 1105(b) of the Omnibus Trade and Competitiveness Act of 1988 10 requires the President to determine before June 1, 1993 (the final expiration date of trade agreement authority) whether any major industrial country has failed to make trade agreement concessions which provide competitive opportunities for the United States substantially equivalent to such concessions provided by the United States. If the determination is affirmative with respect to any country, the President must recommend to the Congress legis

"The Extension of Fast Track Procedures", Message from the President of the United States, House Document 102-51, March 4, 1991. 19 Public Law 100-418, 19 U.S.C. 2904.