Category: Press Releases and Statements

IRS International Tax Gap Series Fact Sheet on Foreign Housing Exclusion or Deduction

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IRS International Tax Gap Series Fact Sheet on Foreign Housing Exclusion or Deduction
Foreign Housing Exclusion or Deduction
International Tax Gap Series

January 2009

If you are a United States citizen or a resident alien, you are taxed on your worldwide income, whether you live inside or outside of the United States. However, if you live and work abroad, you may be able to exclude all or part of your foreign earnings and, in addition, may qualify to exclude or deduct a foreign housing cost amount.

The May 2008 Foreign Earned Income Exclusion article, in this series of International Tax Gap articles, highlights the general rules for qualifying and claiming the exclusion of foreign earned salary, wages, or other compensation received for personal services. This article highlights the general rules associated with claiming the foreign housing cost exclusion or deduction.

A qualified individual with foreign earned income and foreign housing expenses may elect to exclude or deduct a foreign housing cost amount. The election to exclude or deduct a foreign housing cost amount applies only if the qualified individual files a U.S. Federal income tax return that reports foreign earned income.

General Rule

  • To qualify for the foreign housing exclusion or deduction, you must:
  • Be a U.S. citizen or resident alien (for federal tax purposes),
  • Have foreign earned income (income received for working in a foreign country),
  • Have a tax home in a foreign country,
  • Meet either the bona fide residence test or the physical presence test, and
  • Have paid (or incurred) foreign housing expenses.

Foreign Housing Cost Amount

The housing cost amount is the total of your foreign housing expenses for the year minus a base housing amount.

The base housing amount is 16 percent of the maximum foreign earned income exclusion for the tax year, computed on a daily basis for the number of days in the qualifying period that fall within the tax year. For example, the maximum amount a qualified individual can exclude as foreign earned income for 2008 is $87,600 ($91,400 for 2009). Thus, the base amount for 2008 is $14,016 (16 percent of $87,600), or $38.30 per day.

Foreign Housing Expenses

Housing expenses include reasonable expenses paid or incurred in the taxable year for housing in a foreign country for you, your spouse and your dependents. Only the housing expenses actually incurred or paid for the part of the year that you qualify for the foreign earned income exclusion are considered.

Eligible housing expenses include rent, the fair rental value of housing provided in kind by your employer, utilities (other than telephone charges), real and personal property insurance, rental of furniture and accessories, repairs, and residential parking.

Reasonable housing expenses do not include expenses that are lavish or extravagant under the circumstances, deductible interest or taxes, the cost of buying property, principle payments on a mortgage, the cost of domestic labor (maids, gardeners, etc.), purchased furniture or accessories, or improvements and other expenses that increase the value or appreciably prolong the life of property. You also cannot include in housing expenses the value of meals or lodging that you exclude from gross income (under the rules for the exclusion of meals and lodging), or that you deduct as moving expenses.

Foreign Housing Expense Limitation

The amount of foreign housing expenses eligible to be considered in calculating the housing cost amount is limited.

Beginning with tax year 2006, the amount of foreign housing expenses in excess of the base amount that can be taken into account in computing the foreign housing cost amount is limited to a maximum foreign housing expense limitation. The maximum limitation on foreign housing expenses is 30 percent of the maximum foreign earned income exclusion for the corresponding year, computed on a daily basis. For 2008, 30 percent of the maximum foreign earned income exclusion is $26,280, or $71.80 per day.

However, the maximum foreign housing expense limit will vary depending on the location of your foreign tax home. Since 2006, the maximum limitations for certain high-cost localities are listed in official notices issued by the IRS. For 2008, the maximum limitations on qualified housing expenses incurred in over 275 high-cost foreign locations are included in Notice 2008-107.

Additionally, foreign housing expenses may not exceed your total foreign earned income for the taxable year.

Foreign Housing Exclusion Amount and Limits

The foreign housing exclusion applies only to amounts considered paid for with employer-provided amounts. Employer-provided amounts include any amounts paid to you or paid or incurred on your behalf by your employer that are taxable foreign earned income to you for the year, such as wages, salary, reimbursement for housing expenses, payments by your employer as part of a tax equalization plan, and the fair rental value of company-owned housing furnished to you (unless that value is excluded from income under the exclusions of meals and lodging rules).

Since the foreign housing cost amount exclusion is in addition to the foreign earned income exclusion, if you choose to exclude a foreign housing cost amount, you must figure the foreign housing exclusion before you figure the foreign earned income exclusion. The foreign housing exclusion is limited to the lesser of the foreign housing costs paid for with employer-provided amounts or your foreign earned income. Also, if you choose the foreign housing exclusion, you cannot claim less than the full amount of the housing exclusion to which you are entitled.

Foreign Housing Deduction Amount and Limits

The foreign housing deduction applies only to amounts paid for with self-employment earnings. If you do not have self-employment income, you cannot take the foreign housing deduction. If you are both an employee and a self-employed individual during the year, you can deduct part of your housing amount and exclude part of it, subject to the following limitation.

Your foreign housing deduction cannot be more than your foreign earned income less the total of your foreign earned income exclusion plus your housing exclusion.

Although the foreign housing exclusion and/or the deduction will reduce your regular income tax, they will not reduce your self-employment tax

How to Claim the Foreign Housing Exclusion or Deduction

Since the foreign housing exclusion and deduction is voluntary, qualified individuals must choose to claim the exclusion or deduction. The foreign housing exclusion and deduction are claimed and figured using Form 2555, Foreign Earned Income, which must be attached to Form 1040, U.S. Individual Income Tax Return. Form 2555-EZ cannot be used to claim the foreign housing exclusion or deduction.

References and Links
Foreign Earned Income Exclusion article
Foreign Housing Expense Limitations
Form 2555, Foreign Earned Income (pdf)
Notice 2008-107, Determination of Housing Cost Amounts Eligible for Exclusion or Deduction for 2008
Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad

Return to: The International Tax Gap Series

 

National Foreign Trade Council Applauds U.S.-Oman FTA Entry Into Force

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Washington DC – The National Foreign Trade Council (NFTC) congratulated the United States and the Government of Oman for working together to achieve the January 1, 2009 implementation of the U.S.-Oman Free Trade Agreement (FTA). NFTC Vice President for Regional Trade Initiatives Chuck Dittrich released the following statement:

We applaud U.S. Trade Representative Susan Schwab and Omani Minister of Commerce and Industry Maqbool Bin Ali Bin Sultan for their commitment to working together for more than two years to implement such a well-crafted agreement.

Upon its entry into force, the FTA will provide opportunities for the expansion of U.S. business, products and services into a new and growing market, and will afford the people of Oman enhanced economic opportunity.

Oman is a key ally and the agreement helps to strengthen both U.S. economic and diplomatic ties in the region.

About the NFTC

The National Foreign Trade Council (www.nftc.org) is a leading business organization advocating an open, rules-based global trading system. Founded in 1914 by a broad-based group of American companies, the NFTC now serves hundreds of member companies through its offices in Washington and New York.
 

WTO Forecast for 2009

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WTO Forecast for 2009

 Please note that the following is our forecast, not our preferred outcome!

Officials at the World Trade Organization (WTO) are planning an active agenda for 2009, which is likely to include broadening the scope of Doha Round negotiations and efforts to make the organization relevant beyond the Round.

President-elect Barack Obama is likely to face a new push to conclude the Doha Round at the next meeting of the G-20 ministers, which will be hosted by British Prime Minister Gordon Brown beginning April 2.  We expect that, much like the recent G-20 meeting in November, the next session will spur new calls at the ministerial level for concluding talks.  However, such calls are unlikely to have much of an impact on trade negotiators, particularly in advance of elections in India this spring.  (Doha is also likely to be on the agenda of the World Economic Forum in January, though President-elect Obama is not expected to attend.)  Rather we expect more attention at the next G-20 to focus on the “trade pledge” – the commitment by participants not to take new protectionist actions, which is already being ignored by a number of countries.

WTO Director-General Pascal Lamy intends to broaden the negotiations next year instead of focusing only on a framework for agriculture and non-agricultural market access (NAMA).  It has become clear that the strategy of focusing on the agriculture portfolio and then expecting that NAMA negotiations would proceed more easily has not been successful.  Lamy is expected to engage senior officials on NAMA and services in a more serious and strategic way next year and will also begin to address other issues, like rules and nontariff barriers, simultaneously.

Given comments from some developing countries in recent weeks, we believe that there will be pressure for Lamy to flesh out proposals on sectoral negotiations — perhaps seeking to exchange some flexibility on tariff elimination within certain sectors for commitments by developing countries that they will participate as part of a comprehensive package.  Recent comments from Lamy also suggest that negotiators may seek to move forward separately on issues where there is substantial agreement – such as trade facilitation – if a comprehensive agreement cannot be reached soon. 

There are also efforts underway in Geneva to give life to the WTO beyond the Doha Round.  Next year, for instance, the WTO will monitor members’ trade actions in light of the economic crisis.  This work will likely reveal a serious deterioration in the trading environment.  Highlighting these trends could help generate momentum at the G-20 to do something about it.

Lamy has also indicated that he will facilitate broader discussions of issues outside the Doha mandate.  Climate change is likely to at the top of the agenda, particularly as a post-Kyoto agreement under the United Nations framework becomes clearer in the second half of the year.  This could provide an opportunity for the Obama Administration to introduce new items to the post-Doha work program at the WTO, including climate change and workers rights.

A WTO ministerial is likely in 2009, though the focus may not be exclusively on the Doha Round.  Officials in Geneva are considering a broader discussion, which is likely to include climate change as well as topics related to the future of the organization such as institutional reform and a two-track approach to trade liberalization.  (Lamy said recently that, “this need not be the big jamboree we have seen in the past, but rather a venue where Members take a strategic look at the future and steps to advance the goals of the organisation.”)

A Doha Round deal is unlikely in the first half of the year, though countries like the UK, Australia and Brazil will continue to use the global economic crisis as a way of generating momentum for further negotiations.  In the wake of elections in India, and as the Obama administration ramps up its international economics operations, some sort of an agreement within the Doha framework is possible towards the end of the year, either on a comprehensive package or – more likely – on pieces of a deal that could move separately.

NFTC would like to acknowledge the advice of John Weekes, a Senior Policy Advisor to Sidley Austin LLP and a former Canadian Ambassador to the WTO, in the preparation of this forecast.

Forecast for U.S.-Russian Trade Relations in 2009 (Revised and Updated Version)

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Forecast for U.S.-Russian Trade Relations in 2009 (Revised and Updated Version)

Increasing Russian assertiveness, including in foreign commercial relations, will provide the context of U.S. commercial and trade policy relations with Russia in 2009. This is reflected in Russian treatment of international energy companies and of intellectual property rights (despite recent progress in some areas) and restrictions on foreign financial services. Trade policy with Russia in 2009 will continue to be largely focused on Russia’s WTO accession negotiations.
 
The initiative on U.S. trade policy with Russia will lie with the Executive, although foreign policy sanctions proposals in Congress are possible in the event of renewed tensions. The U.S. bilateral agreement on Russian WTO accession was signed in November, 2006. At the conclusion of the accession process, the Congress will need to act on permanent normal trade relations for Russia in order for the U.S. to gain full benefits from its WTO accession. Negotiations for a Bilateral Investment Treaty remain incomplete. The “123 Agreement” on civil nuclear cooperation was withdrawn from congressional consideration following the Georgia invasion but can be taken up in the 111th Congress. The U.S.-Russia Energy Working Group continues to discuss collaboration on energy efficiency initiatives, clean coal technologies and fuel cell initiatives.

Russian accession to the WTO remains a U.S. policy priority, but Russian commitment to the process has been strongly linked to other perceived interests and has therefore been variable. Recently deflating commodity prices appear to have had a salutary effect on at least their rhetorical level of commitment. Accession talks had slowed in July of 2008 even before the invasion of Georgia and, although the invasion did not elicit punitive measures from the Congress, it did further slow down accession talks. Then in August Prime Minister Putin disparaged WTO membership and threatened to abandon commitments Russia had made during 15 years of accession talks, including bilaterals with the U.S. on leasing of aircraft, telecom equipment and phytosanitary measures. Russia’s top negotiator quickly reaffirmed their commitment to WTO accession on the prescient grounds that the financial crisis might grow into a commodity crisis and by November President Medvedev was urging quick accession.

U.S. exports of meat and poultry (Russia recently reduced their quota for chicken imports from the U.S., but raised the pork quota), treatment of state owned enterprises, IPR protection, and Russian treatment for foreign investment, especially in the energy and automotive sectors, will continue to be areas of potential dispute. On the positive side, the U.S. could support Russian entry into the OECD and, of course, in time grant PNTR, if not outright repeal of Jackson-Vanik.

Cuba Forecast for 2009

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Initially, we expect President-elect Obama to do exactly what he said he would do during the campaign — loosen or lift restrictions on the ability of Cuban Americans to travel to Cuba and to send money to family members. We also expect that Obama will initiate additional diplomatic contacts within already-established bilateral channels, for example on migration, narcotics and military issues.

While Cuba is unlikely to be a top priority for the incoming administration, these changes could occur fairly quickly given that these were promises that Obama made during the campaign. Latin America experts, including individuals close the Obama campaign, suggest that any other changes for example restoring the people-to-people contacts and travel exchanges that existed during the Clinton administration would be put off until later. The success or failure of initial diplomatic contacts could help determine how quickly the administration decides to act on broader initiatives.

Congress is unlikely to alter Cuba sanctions in any significant way next year, at least not without a clear signal from the President. Speaker Pelosi and Senator Reid are aware of divisions in the caucus on Cuba policy and Senator Reid appears to have little appetite for a dramatic policy change. (This prediction could change were certain changes to occur in Cuba.) That said, Members of Congress will likely introduce multiple bills to end the embargo, end the travel ban, and facilitate trade by allowing direct banking and removing Bush administration restrictions on payments for agricultural goods. Of those efforts, Congress could move early to reverse the cash in advance rule governing U.S. exports to Cuba. NFTC/USA*Engage staff are participating in meetings of the Cuba legislative working groups and plan to set up meetings next year with relevant hill staff.

Update on recent NFTC efforts

Over the past several months, NFTC and USA*Engage have been working to encourage the next administration to take a new approach to U.S. Cuba policy. Earlier this month, NFTC and USA*Engage spearheaded a business community letter to President-elect Obama, which was signed by ten other associations including the American Farm Bureau Federation, Business Roundtable, and U.S. Chamber of Commerce. The letter called for the eventual end to all sanctions as well as the immediate removal of travel restrictions on American citizens and the temporary suspension of certain trade restrictions to allow American companies to help Cuba rebuild from the recent hurricanes.

Also this month, NFTC Vice President Jake Colvin released a paper, The Case for a New Cuba Policy, in which he suggests that changing Cuba policy could have broader foreign policy, national security and domestic political benefits. Drawing on the advice of former Treasury Department officials, he also highlights the broad discretion that the Executive Branch retains to change the restrictions on travel and trade.

Largely as a result of these efforts, NFTC has enjoyed good press coverage on Cuba policy in recent weeks, including in the Christian Science Monitor, Los Angeles Times (twice), Miami Herald (twice), U.S. News and World Report, CQ, Reuters and Inter-Press Service.

Export Control Forecast

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Export Control Forecast

Export control issues are rarely on a new Administration’s front burner, and this time will not be an exception.  Although there are a number of issues looming, progress on them will probably wait for the arrival and confirmation of relevant officials at Commerce and State, and those are rarely in the first tier of appointees.  At State, look for Bob Einhorn, who was Assistant Secretary in the Clinton Administration, to play an important role in nonproliferation policy, which is where the export control function is housed.  Bob’s main focus is nonproliferation, and export controls will likely be viewed as more of a management issue to be assigned to someone else.  Career officials there have made some progress in the past two years in improving efficiency and responsiveness, and a good outcome would be if they are simply permitted to continue their progress.

There are no rumors yet for BIS positions, but look for people who understand the business position and global supply chains but are not directly connected with affected companies. 

On issues, much of NFTC’s short term effort is devoted to making sure that outgoing officials don’t do anything to make the situation worse.  The major pending issue, on which we are hoping the clock will run out, is a final regulation on deemed exports.   The report of the Deemed Export Advisory Committee aroused a great deal of opposition in the private sector.  In essence, it proposed a trade off – a narrower range of items/technologies for which a deemed export license would be required and a broader security review of individuals.  There is widespread skepticism that the former will ever occur, and the latter is tantamount to security clearance vetting for a potentially large number of people.  There is no guarantee that the incoming Administration will take a better approach, but it is hard to imagine it will be worse.

Another relatively new problem is efforts by the Justice Department to inject itself into the licensing process and obtain a “seat at the table.”  This would essentially be giving law enforcement officials a policy role, which is precisely what has led to our visa policy problems in the current Administration.  Once again, we’re hoping time runs out on this idea, and the new people won’t be interested in it.

Other pending issues include finishing the intra-company transfer license regulation, which has been roundly panned by business so far, and yet another attempt to create a process for resolving commodity jurisdiction disputes, also the subject of interagency battles, to the surprise of no one.

If these issues are not finished by January 20, it will probably be some time before they are taken up and worked out in the new administration.

Legislatively, we do not see rapid movement, despite the growing realization in Congress that the EAA is badly out of date.  Even so, the same problem of sharp ideological differences that has prevented action on bills over the past twenty years persists, and we do not see enthusiasm on the part of committee leaders for moving aggressively in this area.  The House Foreign Affairs Committee will give priority to the State Department authorization and the Foreign Assistance authorization.  Cong. Sherman and Manzullo will probably try to move their bill again, but they will first need to have a dialogue with the new administration about it and then will need to persuade Chairman Berman that it is relatively benign.

On the Senate side, there does not appear to be great enthusiasm for moving an EAA bill, except that the 2008 Iran sanctions bill, which contained Sen. Dodd’s title on shipments to countries of diversion concern, did not pass at the end of the 110th Congress, which could prompt him to try to move that title on its own or in conjunction with another Iran package.  (We expect the Committee to consult closely with the incoming administration before acting on Iran sanctions.)  The business community reaction to that title – not the rest of the bill – was fairly benign, in large part due to the bill’s careful drafting.  The danger, of course, is not so much in the text but what might be added to it along the way.  Many of the senators who so vigorously opposed EAA reform in the past, like Senators Helms, Thurmond, and Thompson, are no longer there, which may marginally increase the chances of something happening, but a number of strong and articulate opponents, like Senators Kyl and McCain, remain to guarantee that any bill’s path would not be smooth in the Senate.

One issue for the business community will be whether it wants to develop draft legislation to hold in reserve in case either the Obama Administration or Congress decides to move this year.  That will be a topic of further discussion amongst our members.

Trade Policy Forecast

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The dynamic between the Administration and Congress will obviously completely change after January 20th with a unified government and we should be careful not to predict future action based on behavior of the recent past.

The Democratic caucus in the House is very diverse and Speaker Pelosi has been tough but pragmatic about how far to push them on trade in the past year. That coupled with elections and the incredible lack of trust between Congress and the Bush Administration all combined to give us the time out on trade that we’ve experienced in 2008.

What we’re likely to see in the first six months of 2009 is an internal discussion between the Administration and those in Congress, including trade skeptics and those that are anti-trade. Skepticism is not anti-trade or protectionist and that is an important distinction to keep in mind, with the pure anti-trade wing of the Democratic caucus still in a relatively small minority. There is likely to be a review of existing trade agreements to develop enforcement or compliance agenda for what is already in place. This will include a thorough review of NAFTA, to begin a more comprehensive discussion with NAFTA partners on what might be accomplished without reopening the agreement. There is also likely to be a review of the model FTA with an eye toward revising aspects of it, especially labor and environment provisions.

While a multilateral trade agenda is more easily pursued by a Democratic Administration and Congress than bilateral FTA’s, trade preference programs are also traditionally not as controversial.

The primary trade preference programs such as the Generalized System of Preferences (GSP) and the Andean trade preferences are up for renewal again this year as the can was kicked down the road on any significant reform in this current session of Congress (AGOA however has been renewed until 2015). Rep. Jim McDermott of Washington will likely again introduce his preference reform legislation (New Partnership for Development Act), originally introduced in the Fall of 2007 with Rep. Phil English. The piece has a strong capacity building component to it and that aspect will possibly get more attention than trying to increase labor commitments as eligibility criteria. Because the preference programs as a whole are geared to poverty reduction, there may be more room for compromise on labor than with any bilateral agreements. Mr. McDermott’s staff has also been diligent in seeking out a wide range of views and finding bipartisan common ground. GSP however is likely to face an uphill battle with Senate Finance ranking Republican Senator Charles Grassley as he seeks to significantly reduce the benefits of middle income countries such as Brazil and India.

A promising departure from the traditional U.S. bilateral FTA formula is the recent work of USTR on joining the framework of discussions for the existing P-4 agreement signed by Chile, New Zealand, Brunei and Singapore. Those countries have signed an agreement but are still negotiating the investment and financial services chapters. The U.S. joined ongoing negotiations for those chapters, and in September, announced that the four nations have opened the broader agreement for U.S. to enter negotiation on what has been renamed the Trans-Pacific Strategic Economic Partnership Agreement or TPP. All chapters of the original P-4 text may now be on the table for review and subsequently, Peru and Australia have announced they will also join the first round of negotiations in March, with the possibility that Vietnam will also participate in some capacity.

This regional architecture, different in formula from either the purely regional efforts such as the ill fated Free Trade Agreement of the Americas or the hub and spoke series of bilaterals that form the Dominican Republic-Central America Free Trade Agreement, could well signal a new way forward for this Administration to engage in the negotiation of high standard meaningful trade liberalization while working through the baggage of opposition that exists with the three FTA’s still in the pipeline of Congressional approval: Colombia, Panama and Korea.

I unfortunately do not see new bilateral negotiations beginning in the next year. While the Administration and Congress work through the disposition of the existing three bilaterals and develop a way forward on the Doha Round the focus I believe will be to re-engineer the rules by which we engage bilaterally. The pace of that discussion may be influenced to a large degree by the success or lack of it in the Doha Round. However, when we decide to re-engage on FTA’s, there will be, I believe closer consultation with Congress on choosing the partners, with the focus on countries with the greatest commercial significance and the best potential for expanding trade and job creation in the U.S.

A question more than a prediction will be whether or not this Administration, responding to pressure that the rest of the world is racking up bilateral trade agreements while the U.S. is stalled, begins to respond by either challenging some of those agreements because they omit large sectors and do not meet the WTO criteria of “substantially all trade” or begins to consider doing the same, looking at opportunities to negotiate sectoral or less than comprehensive agreements.

Legislatively, the trade agenda will become much more a component of a broader worker focused competitiveness agenda, and the first step will likely be the completion of a new Trade Adjustment Assistance bill, building on the work that went on this summer, led by Senate Finance Chairman Baucus and working with the bill the House already passed, to provide an overhaul of Trade Adjustment Assistance.  The program’s continued funding was included in the current Continuing Resolution, which expires in March, 2009, and it is likely to be resolved before that expiration date.

Of the three FTA’s in the pipeline, Panama may be the first to be acted on by Congress, hopefully in the first six months. Colombia will likely be reintroduced and passed this year after some additional commitment or measurable milestone on labor union violence is negotiated with the new Administration. Korea is less easily predicted given the current state of the U.S. auto industry. Assuming the rescue plans gel, the new Administration is likely to put forward some proposal on autos to the Koreans, perhaps modeled on earlier suggestions by Rep. Sander Levin, which will effectively put the ball back in the Koreans’ court. The risk is that the most commercially significant and valuable of all the recent FTA’s may be the least likely to come to fruition in 2009 without strong and steady pressure on both the Administration and Congress to act.

There is an argument that the economic crisis and other longstanding issues such as healthcare reform will leave little time or energy to focus on trade. I do not see this as a valid concern with the Administration and USTR, but does have validity when looking at resources and the calendar for the trade committees of jurisdictions, since they will be heavily involved in healthcare and tax policy issues. While there is reason for optimism that a completely Democratic government will develop a positive trade agenda, much more engagement by the business community on all fronts, with tangible and workable ideas is needed now more than ever.

 

NFTC Featured in Congressional Quarterly Article on Trade Policy

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The December 8 edition of CQ Weekly contained a cover story on international trade policy that featured the National Foreign Trade Council, and I thought you might be interested in taking a look at it.  It provides a clear and incisive description of what is going on in trade, how the Washington policy community is reacting and how that might change as a new administration takes office.  The NFTC has been and will continue to be a key part of that, and it’s nice to see that recognized periodically.  Below is an excerpt from the article followed by a link to all of it.  Questions or comments?  Give me a call (202-887-0278) or email (breinsch@nftc.org).  
 

Drawing a Fine Line on Trade
CQ Weekly
Joseph J. Schatz
December 8, 2008

On the wall of his office at the National Foreign Trade Council (NFTC), Bill Reinsch displays an old newspaper clipping with an improbable headline: “Free Trade Called Threat to Day Care.”

The article, which Reinsch has next to a map of the world, is a relic of the 1980s, when he was a Senate staffer helping to negotiate a trade pact with Canada, the precursor to the North American Free Trade Agreement. Some Canadians feared that lowering trade barriers with their richer, stronger neighbor would restrict their government’s ability to provide social benefits to workers.

Back then trade was viewed, and discussed, in relatively simple, stark terms. Opponents used whatever ammunition they could find to criticize it, usually pointing to the threat of lost domestic jobs or the erosion of national sovereignty — or even to such seemingly unrelated matters as day care.

Those who favored expanded commerce between countries — such as the NFTC, which was founded by U.S. companies in 1914 — generally prevailed by arguing basic economic principles that date to Adam Smith. The result has been a decades-long stretch of expanding markets and increasing globalization. Now, though, the trade debate is suddenly a lot more complicated….The need for a calibrated message is especially clear to Reinsch, the president of the NFTC since 2001, who says he is concerned that organized labor and other opponents of U.S. trade policy have succeeded in “putting pro-trade people on the defensive.”

 

http://www.cqpolitics.com/wmspage.cfm?docID=weeklyreport-000002994051

 

Changing Dynamics of China Trade Debate

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Changing Dynamics of China Trade Debate

The adversarial relationship between Congress and the Executive over commercial policy toward China should be less acrimonious in 2009 with Congress initially deferring to the new Administration. While the recession could increase popular pressure for trade restrictive measures, it may reduce the bilateral trade deficit which could diminish protectionist pressure with respect to China. President-elect Obama will decide whether to continue the Strategic Economic Dialogue and, if so, whether Treasury continues to lead. The BIT negotiations to which the SED gave rise will in any event continue and will likely lead to a weaker agreement than the U.S. business community would like to see.

The 110th Congress saw nearly 100 China-related bills introduced. Most of these were trade restrictive covering a range of issues: treatment of China as a non-market economy, IPR protection, food and product safety, the trade deficit, safeguards to address import surges, the use of countervailing duties, currency manipulation, Tibet and Taiwan, of which only five became law. Revaluation of the RMB and a smaller trade deficit along with a new Administration of the same party may well diminish congressional appetite for restrictive legislation. One area in which Congress could act is to define currency manipulation more clearly by amending the 1988 law which mandates Treasury’s bi-annual exchange rate reports, although if the Obama Administration determines that China has manipulated its currency in its first report, it would lessen the likelihood of Congressional action.

If the Congress does let the Executive Branch take the lead, much will depend on how assertive the new Administration decides to be. One early indicator will be how Treasury treats Chinese currency in its annual exchange rate report to be released in April.  Other indicators will be USTR’s willingness to use WTO dispute resolution and rulings on the likely increase in filings of countervailing duty cases claiming that currency manipulation constitutes a subsidy. Likewise there may be an increase in “421 cases” filed on the basis that surges in Chinese imports caused material injury, especially coming from the textile industry.

One positive outcome of the December SED meetings was a “Ten Year Framework for Energy and Environment Cooperation” that creates seven “EcoPartnerships” between local governments, universities and NGO’s in the two countries. While the Obama Administration may take a stronger position on CVD’s and 421’s, it will also be likely to build on these SED initiatives.