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Free trade agreements: Impact on US trade and implications for US trade policy

CRS Report for Congress
Congressional Research Service, The Library of Congress
Washington DC

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

Updated December 6, 2005

William H. Cooper
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division


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 since1989, which was expanded to include Mexico and became the North
American Free Trade Agreement (NAFTA) effective in January 1994.

The United States has been conducting negotiations with 33 Western
Hemispheric countries with a stated goal of forming a Free Trade Area of the
Americas (FTAA) by 2005 and with various Asian and Pacific-Rim countries to
achieve free trade and investment by 2020. U.S. interest in bilateral and regional free
trade arrangements has surged and the Bush Administration has accelerated the pace
of negotiations since the enactment of the Trade Promotion Authority in August
2002. On January 1, 2004, U.S. FTAs with Chile and Singapore entered into force.
In 2004, agreements with Australia and Morocco were signed and approved by the
Congress. The agreement with Australia entered into force on January 1, 2005. An
agreement with Bahrain was signed on September 14, 2004, for which the Congress
is considering implementing legislation (H.R. 4340 and S. 2027). An agreement with
Central American countries and one with the Dominican Republic were also signed
and combined into DR-CAFTA. The House and Senate passed implementing
legislation for DR-CAFTA on July 27 and 28, 2005, respectively, and President
Bush signed it into law on August 2, 2005 (P.L. 109-182). Negotiations are
underway with Thailand, Panama, with Andean countries, and with the members of
the South African Customs Union (SACU).

These efforts are of direct interest to Congress. United States participation in
free trade agreements can occur only with the concurrence of the Congress. In
addition, FTAs will affect the U.S. economy, with the impact varying across sectors.

FTAs are now a significant U.S. trade policy tool. Their rapid emergence raises
some important policy issues for the 109th Congress as it considers implementing
legislation and monitors negotiations as part of its oversight responsibilities: 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)? Experts differ sharply over these questions.
This report will be updated as events warrant.