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Monday, March 29, 2010

Mexico-U.S. Relations: Issues for Congress

Clare Ribando Seelke
Specialist in Latin American Affairs


The United States and Mexico have a close and complex bilateral relationship, with extensive economic linkages as neighbors and partners under the North American Free Trade Agreement (NAFTA). Bilateral relations are characterized by strong commercial and cultural ties and cooperation on a range of bilateral and international issues. In recent years, security issues have dominated the bilateral agenda, as the United States has supported Mexican President Felipe Calderón's campaign against drug trafficking organizations (DTOs) and organized crime. 

In the second half of his six-year term, President Calderón of the conservative National Action Party (PAN) is focused on dealing with two major challenges: restarting the Mexican economy, which contracted by 7% in 2009 (largely as a result of the U.S. recession), and combating DTOs. In addition, Calderón submitted a wide-ranging political reform proposal to the Mexican Congress in December 2009, which, if enacted, would introduce run-off presidential elections, permit legislators to run for re-election, and reduce the size of the Congress. As the 2012 presidential elections approach, the Congress, which is now dominated by the Institutional Revolutionary Party (PRI), could be reluctant to give President Calderón any major legislative victories or to take up difficult issues such as reforming the declining oil sector. 

In recent years, U.S.-Mexican relations have grown stronger as the two countries have worked together to combat drug trafficking and secure their shared border. President Obama met with President Calderón in Mexico on April 16-17, 2009, to discuss counterdrug cooperation, immigration reform, and climate change. The leaders met again in August 2009 alongside Canadian Prime Minister Stephen Harper at the North American Leaders Summit in Guadalajara to discuss how to coordinate their responses to the global economic crisis, climate change, and security issues. They pointed to North America's successful response to the H1N1 "swine flu" outbreak as a model for future collaboration. One challenge for Mexico-U.S. relations has been how to resolve an ongoing dispute involving the implementation of NAFTA trucking provisions. 

The 111th Congress has maintained an active interest in Mexico with counternarcotics, border, and trade issues dominating the agenda. To date, Congress has appropriated some $1.3 billion in assistance for Mexico under the Mérida Initiative, an anti-crime and counterdrug package first funded in FY2008. Congress is likely to maintain a keen interest in how implementation of the Mérida Initiative and related domestic initiatives to improve border security are proceeding, particularly as it considers the President's FY2011 budget request. The Obama Administration's budget request includes $346.6 million in assistance for Mexico, including $310 million in assistance accounts that have funded the Mérida Initiative. Congress may also be interested in how the Obama Administration moves to resolve the current trucking dispute with Mexico now that P.L. 111-117 would permit the resumption of a U.S.-funded pilot program for Mexican trucks. Congress may also consider proposals for comprehensive immigration reform. 

For more information, see CRS Report R40135,
Mérida Initiative for Mexico and Central America: Funding and Policy Issues; CRS Report R40582,
Mexico's Drug-Related Violence , by June S. Beittel; CRS Report R41075,
Southwest Border Violence: Issues in Identifying and Measuring Spillover Violence; CRS Report RL32934, U.S.-Mexico Economic Relations: Trends, Issues, and Implications; and CRS Report RL31738, North American Free Trade Agreement (NAFTA) Implementation: The Future of Commercial Trucking Across the Mexican Border.


 

Date of Report: March 17, 2010
Number of Pages: 36
Order Number: RL32724
Price: $29.95

Document available electronically as a pdf file or in paper form.
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Brazil’s WTO Case Against the U.S. Cotton Program

Randy Schnepf
Specialist in Agricultural Policy

On December 21, 2009, Brazil announced that it was authorized by the WTO to impose trade retaliation against up to $829.3 million in U.S. goods in 2010 (based on 2008 data) in a longrunning dispute over U.S. cotton subsidies. Brazil stated that it could retaliate with duties of up to 100% on goods of U.S. origin, and with cross-retaliation (i.e., retaliatory countermeasures in sectors outside of the trade in goods, most notably in the area of U.S. copyrights and patents). On March 10, 2010, Brazil released a list of 102 goods of U.S. origin valued at $591 million that will be subject to import tariffs within 30 days unless a last-minute agreement is reached. On March 15, Brazil released a preliminary list of U.S. patents and intellectual property rights it could restrict, barring a joint settlement. 

This trade dispute had its origins in 2002, when Brazil—a major cotton export competitor— expressed its growing concerns about U.S. cotton subsidies by initiating a World Trade Organization (WTO) dispute settlement case (DS267) against specific provisions of the U.S. cotton program. On September 8, 2004, a WTO dispute settlement panel ruled against the United States on several key issues. This ruling was appealed by the United States, and on March 3, 2005, a WTO Appellate Body upheld the panel's ruling and provided specific deadlines for removal or modification of the offending U.S. subsidies. 

Key findings included (1) U.S. domestic cotton subsidies exceeded WTO commitments of the 1992 benchmark year, thereby losing the protection afforded by the "Peace Clause," which had previously shielded them from substantive challenges; (2) the two major types of direct payments made under U.S. farm programs—production flexibility contract payments of the 1996 farm act and the direct payments of the 2002 farm act—do not qualify for WTO exemptions from reduction commitments as fully decoupled income support and should therefore count against the "Peace Clause" limits; (3) Step 2 program payments are prohibited subsidies; (4) U.S. export credit guarantees are effectively export subsidies, making them subject to previously notified export subsidy commitments; and (5) U.S. domestic support measures that are "contingent on market prices" have resulted in excess cotton production and exports that, in turn, caused low international prices and resulted in adverse effects (i.e., "serious prejudice") to Brazil. 

Shortly after the March 2005 ruling, the United States made several changes to its cotton programs in an attempt to bring them into compliance with the WTO recommendations. However, Brazil argued that the U.S. response was inadequate, and requested the establishment of a WTO compliance panel in August 2006 to review whether the United States had fully complied with the previous rulings. The compliance panel ruled against the United States in December 2007, and the ruling was upheld on appeal in June 2008. 

On August 25, 2008, Brazil requested that the arbitration on its retaliation proposal of nearly $3 billion (which had been suspended pending the compliance panel review) be resumed. Nearly a year later, on August 31, 2009, the WTO arbitration panel released its decision, generally finding in favor of Brazil's retaliation requests but at levels substantially reduced from those requested by Brazil (as described above). However, in a key decision, the panel ruled that Brazil would be entitled to cross-retaliation if the overall retaliation amount exceeds a formula-based variable annual threshold. If the threshold is surpassed, then Brazil would be entitled to cross-retaliation in the amount in excess of the threshold.


Date of Report: March 17, 2010
Number of Pages: 39
Order Number: RL32571
Price: $29.95

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Thursday, March 25, 2010

The Haitian Economy and the HOPE Act

J. F. Hornbeck
Specialist in International Trade and Finance


In December 2006, the 109th Congress passed the Haitian Hemispheric Opportunity through Partnership Encouragement Act of 2006 (HOPE I), which included special trade rules that give preferential access to U.S. imports of Haitian apparel. These rules were intended to promote investment in the apparel industry as one element of a broader economic growth and development plan. HOPE I allowed for the duty-free treatment of select apparel imports from Haiti made from less expensive third-country inputs (e.g., non-regional yarns, fabrics, and components), provided Haiti met rules of origin and eligibility criteria that required making progress on worker rights, poverty reduction, and anti-corruption measures. Early assessments of the effectiveness of HOPE I, however, were disappointing. The 110th Congress responded by amending HOPE I in the Hemispheric Opportunity through Partnership Encouragement Act of 2008 (HOPE II). HOPE II extends the preferences for 10 years, expands coverage of duty-free treatment to more apparel products, particularly knit articles, and simplifies the rules, making them easier to use. Early evidence suggests that apparel production and exports are responding to these changes. 

HOPE II also amended the eligibility requirements by requiring Haiti to create a new independent Labor Ombudsman's Office and establish the Technical Assistance Improvement and Compliance Needs Assessment and Remediation (TAICNAR) Program. The TAICNAR program provides for the United Nations International Labor Organization (ILO) to operate a firm-level inspection and monitoring program to help Haitian apparel factories comply with meeting core labor standards, Haitian labor laws, and occupational health and safety rules. It would apply to those firms that agree to register for the program as a prerequisite for utilizing the tariff preferences. The TAICNAR program is also designed to help Haiti develop its own capacity to monitor compliance of apparel producers in meeting core labor standards. 

The earthquake that rocked Haiti on January 12, 2010, caused considerable damage to the apparel sector, although much has been done to get capacity back to at least 80% of pre-earthquake levels. Early estimates of rebuilding costs for the industry begin at $25 million to refurbish damaged buildings, replace machinery, and train new employees. The apparel world moves quickly, and the greatest fear is that U.S. buyers will abandon Haiti for other production sites just as the apparel industry was making strides in redevelopment. Although buyers are reportedly willing to stay with Haiti factories, the sentiment could shift quickly if production is unable to return to levels adequate to meet orders. The U.S. Congress could respond by amending the tariff preferences and rules of origin in HOPE II to provide additional incentives for investors to operate in Haiti. First, the 55% value-added rule could be lowered, presumably allowing more firms to take advantage of the preference. Second, there is a capped (70 million square meter equivalents—SMEs) provision for both knit and woven articles that allows duty-free treatment for apparel made from third-country inputs with no value-added requirement. The rule is attractive for many apparel producers of varying size and capabilities in Haiti and the caps could be increased, exclusions reduced, or either eliminated. Third, Congress could reduce the 3-for-1 earned import allowance rule to a 2-for-1 or 1-for-1 rule. Other options might include a more comprehensive extension of tariff preferences to other manufactured goods or a broader elimination of tariffs across the board. The tradeoff would be the possible reduction in the use of U.S.-made yarns and fabrics in Haiti apparel production. Although Haiti is not a large producer by worldwide standards, U.S. firms may wish to minimize any possible negative effects on their industry.



Date of Report: March 16, 2010
Number of Pages: 28
Order Number: RL34687
Price: $29.95

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El Salvador: Political, Economic, and Social Conditions and U.S. Relations


Clare Ribando Seelke
Specialist in Latin American Affairs

Throughout the last few decades, the United States has maintained a strong interest in El Salvador, a small Central American country with a population of 7.2 million. During the 1980s, El Salvador was the largest recipient of U.S. aid in Latin America as its government struggled against the Farabundo Marti National Liberation Front (FMLN) insurgency during a 12-year civil war. A peace accord negotiated in 1992 brought the war to an end and formally assimilated the FMLN into the political process as a political party. After the peace accords were signed, U.S. involvement shifted toward helping the government rebuild democracy and implement marketfriendly economic reforms.

Mauricio Funes of the FMLN was inaugurated to a five-year presidential term in June 2009. Funes won a close election in March 2009, marking the first FMLN presidential victory and the first transfer in political power between parties since the end of El Salvador's civil war. Funes' victory followed strong showings by the FMLN in the January 2009 municipal and legislative elections, in which the party won a plurality of the seats in the National Assembly and the largest share of the municipal vote.

Nine months into his term, President Funes has high approval ratings, but faces a number of political, economic, and social challenges. The National Assembly is fragmented, which means that Funes has to form coalitions with other parties in order to advance his legislative agenda. The U.S. recession has negatively impacted El Salvador's economy, increasing the country's already widespread poverty. The country's economic situation worsened considerably after Tropical Storm Ida hit in early November 2009. The storm caused 190 deaths, left 14,000 people homeless, and wrought millions of dollars in damage. In addition to these political and economic challenges, El Salvador's violent crime rates remain among the highest in the world and will need to be addressed.

Maintaining close ties with the United States has been a primary foreign policy goal of successive National Republican Alliance (ARENA) governments, and will likely be a key focus for the Funes government as well. Although some Members of Congress expressed reservations about working with an FMLN administration, relations between El Salvador and the United States have remained friendly. After a March 8, 2010, meeting with President Funes at the White House, President Obama said that he was "very favorably impressed by the steps that [Funes is taking] to try to break down political divisions within the country ... focusing on prosperity at every level of Salvadorian society." Both leaders pledged to work together to expand trade, foster development, and combat organized crime.

For more information, see CRS Report R40135, Mérida Initiative for Mexico and Central America: Funding and Policy Issues, (
http://pennyhill.com/index.php?lastcat=80&catname=The+Americas&viewdoc=R40135) by Clare Ribando Seelke and CRS Report RL34112, Gangs in Central America, (http://pennyhill.com/index.php?lastcat=80&catname=The+Americas&viewdoc=RL34112 .) by Clare Ribando Seelke.


Date of Report: March 17, 2010
Number of Pages: 12
Order Number: RS21655
Price: $29.95

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Wednesday, March 24, 2010

Political Status of Puerto Rico: Options for Congress

Keith Bea
Specialist in American National Government

R. Sam Garrett
Analyst in American National Government

The United States acquired the islands of Puerto Rico in 1898 after the Spanish-American War. In 1950, Congress enacted legislation (P.L. 81-600) authorizing Puerto Rico to hold a constitutional convention and in 1952, the people of Puerto Rico ratified a constitution establishing a republican form of government for the islands. After being approved by Congress and the President in July 1952 and thus given force under federal law (P.L. 82-447), the new constitution went into effect on July 25, 1952. 

Puerto Rico is subject to congressional jurisdiction under the Territorial Clause of the U.S. Constitution. Over the past century, Congress passed legislation governing Puerto Rico's relationship with the United States. For example, residents of Puerto Rico hold U.S. citizenship, serve in the military, are subject to federal laws, and are represented in the House of Representatives by a Resident Commissioner elected to a four-year term. Although residents participate in the presidential nominating process, they do not vote in the general election. Puerto Ricans pay federal tax on income derived from sources in the United States, but they pay no federal tax on income earned in Puerto Rico. In the 111th Congress, the Resident Commissioner may vote in legislative committees and in the Committee of the Whole. 

Elements of the U.S.-Puerto Rico relationship have been and continue to be matters of debate. Some contend that the current political status of Puerto Rico, perhaps with enhancements, remains a viable option. Others argue that commonwealth status is or should be only a temporary fix to be resolved in favor of other solutions considered permanent, non-colonial, and nonterritorial. Some contend that if independence is achieved, the close relationship with the United States could be continued through compact negotiations with the federal government. One element apparently shared by all discussants is that the people of Puerto Rico seek to attain full, democratic representation, notably through voting rights on national legislation to which they are subject. 

Three bills regarding Puerto Rico's political status were introduced during the 110th Congress. H.R. 900 would have authorized a plebiscite in which Puerto Ricans would have voted on continuing the status quo or proceeding toward non-territorial status. H.R. 1230 would have authorized a constitutional convention and referendum in Puerto Rico to consider status options. The House Natural Resources Committee held a hearing on those two bills in October 2007. At that time, the Committee ordered reported favorably an amended version of H.R. 900, which combined elements of the two House bills. (The written report, H.Rept. 110-597, was issued in April 2008.) Finally, on August 2, 2007, Senator Salazar introduced S. 1936 which proposed another approach: a single plebiscite in which voters would choose between the status quo, independence, free association, or statehood. The status issue was not the subject of additional legislative action during the 110th Congress. 

In the 111th Congress, H.R. 2499 (Pierluisi) would authorize a two-stage plebiscite in Puerto Rico to reconsider the status issue. H.R. 2499 is similar to H.R. 900 as introduced in the 110th Congress. The 111th Congress legislation, however, would frame the plebiscite questions somewhat differently than proposed during the 110th Congress. On October 8, 2009, the House Committee on Natural Resources reported out H.R. 2499 and the bill was placed on the Union Calendar.


Date of Report: March 16, 2010
Number of Pages: 54
Order Number: RL32933
Price: $29.95

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Thursday, March 18, 2010

Brazil-U.S. Relations

Peter J. Meyer
Analyst in Latin American Affairs


On January 1, 2007, Luis Inácio Lula da Silva, of the leftist Workers' Party (PT), was inaugurated to a second four-year term as President of Brazil. Lula was re-elected in the second round of voting with fairly broad popular support. His immediate tasks were to boost Brazil's lagging economic growth and address the issues of crime, violence, and poverty. Despite President Lula's significant personal popularity, occasional corruption scandals and inter-party rivalries within his governing coalition have made it difficult to advance his agenda through Brazil's fractured legislature. Lula's top priority for 2010 is legislative approval of a new regulatory framework that will increase the state's role in the exploitation of Brazil's considerable offshore oil reserves. A presidential election to choose Lula's successor is scheduled to be held in October 2010. 

President Lula has benefitted from a strong economy throughout most of his second term. The global financial crisis, however, slowed Brazil's economic growth and threatened to erase some of the social gains made in recent years. President Lula implemented a number of countercyclical policies to boost the economy and protect those most exposed to the effects of the economic downturn. These actions appear to have been reasonably successful, as the Brazilian economy was one of the first to recover from the global crisis and analysts now expect Brazil to experience significant growth in 2010. 

During the first Lula term, Brazil's relations with the United States were generally positive despite the fact that President Lula prioritized strengthening relations with neighboring countries and expanding ties with nontraditional partners, including India and China. Brazil-U.S. cooperation has increased during President Lula's second term, particularly on energy issues. Two presidential visits in March 2007 culminated in the signing of the Memorandum of Understanding (MOU) Between the United States and Brazil to Advance Cooperation on Biofuels; the agreement was expanded in November 2008. President Obama has made strengthening U.S.-Brazilian relations an important part of his policy toward Latin America. Although several differences between the countries have emerged in recent months, Brazil-U.S. relations remain friendly. 

Members of Congress demonstrated considerable interest in Brazil during the first session of the 111th Congress. Members expressed particular concern over an international custody case involving Brazil. Both houses passed resolutions (H.Res. 125 and S.Res. 37) calling on Brazil to comply with the requirements of the Convention on the Civil Aspects of International Child Abduction, and another measure (H.R. 2702, C. Smith) was introduced in the House, which would suspend the Generalized System of Preferences for Brazil until the country meets its Convention obligations. Several other initiatives relating to Brazil also were introduced in the first session of the 111th Congress: S.Res. 74 (Lugar) would recognize the importance of the U.S.- Brazil partnership and call on the U.S. Treasury Secretary to pursue negotiations concerning a bilateral tax treaty; S. 587 (Lugar) would provide $6 million to expand U.S.-Brazil biofuels cooperation in FY2010; and S. 2044 (Menendez) would provide for re-liquidation of entries relating to certain Brazilian orange juice imports. 

This report analyzes Brazil's political, economic, and social conditions, and how those conditions affect its role in the region and its relationship with the United States. 
.


Date of Report: March 5, 2010
Number of Pages: 32
Order Number: RL33456
Price: $29.95

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Wednesday, March 17, 2010

Puerto Rican Statehood: Effects on House Apportionment

Royce Crocker
Specialist in American National Government

For years, the people of the Commonwealth of Puerto Rico have been involved in discussions relating to changing the political status of Puerto Rico from a commonwealth of the United States to either the 51st state or an independent nation, or maintaining the status quo as a commonwealth. 

In the 111th Congress, H.R. 2499, introduced by Representative Pedro Pierluisi, would establish procedures to determine Puerto Rico's political status. It would authorize a two-stage plebiscite in Puerto Rico to reconsider the status issue. H.R. 2499 is similar to H.R. 900 as introduced in the 110th Congress. A possible outcome of this process is Puerto Rican statehood. 

Proposals to change Puerto Rico's governmental relationship with the United States from a commonwealth to some other model raise many political, social, and economic issues. This report focuses exclusively on what impact adding a new state that is more populous than 24 of the existing 50 states would have on representation in the House of Representatives. 

Statehood for Puerto Rico would likely cause Congress to explore whether the current limit of 435 seats in the House of Representatives should be changed. If Puerto Rico had been a state when the 2000 census was taken, it would have been entitled to six Representatives based on its 2000 census population of 3.8 million residents. Based on current estimates of almost 4 million residents, Puerto Rico would still be entitled to six Representatives if it were to become a state today. 

If the House were faced with the addition of six new Representatives, it could accommodate them either by expanding the size of the House or adhering to the current 435-seat statutory limit, which would reduce the number of Representatives in other states.


Date of Report: March 11, 2010
Number of Pages: 13
Order Number: R41113
Price: $29.95

Document available electronically as a pdf file or in paper form.
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The Haitian Economy and the HOPE Act

J. F. Hornbeck
Specialist in International Trade and Finance

In December 2006, the 109th Congress passed the Haitian Hemispheric Opportunity through Partnership Encouragement Act of 2006 (HOPE I), which included special trade rules that give preferential access to U.S. imports of Haitian apparel. These rules were intended to promote investment in the apparel industry as one element of a broader economic growth and development plan. HOPE I allowed for the duty-free treatment of select apparel imports from Haiti made from less expensive third-country inputs (e.g., non-regional yarns, fabrics, and components), provided Haiti met rules of origin and eligibility criteria that required making progress on worker rights, poverty reduction, and anti-corruption measures. Early assessments of the effectiveness of HOPE I, however, were disappointing. The 110th Congress responded by amending HOPE I in the Hemispheric Opportunity through Partnership Encouragement Act of 2008 (HOPE II). HOPE II extends the preferences for 10 years, expands coverage of duty-free treatment to more apparel products, particularly knit articles, and simplifies the rules, making them easier to use. 

HOPE II also amended the eligibility requirements by requiring Haiti to create a new independent Labor Ombudsman's Office and establish the Technical Assistance Improvement and Compliance Needs Assessment and Remediation (TAICNAR) Program. The TAICNAR program provides for the United Nations International Labor Organization (ILO) to operate a firm-level inspection and monitoring program to help Haitian apparel factories comply with meeting core labor standards, Haitian labor laws, and occupational health and safety rules. It would apply to those firms that agree to register for the program as a prerequisite for utilizing the tariff preferences. The TAICNAR program also will assist Haiti in developing its own capacity to monitor compliance of apparel producers with labor standards. 

The earthquake that rocked Haiti on January 12, 2010, caused considerable damage to the apparel sector, although much has been done to get capacity back to at least 80% of pre-earthquake levels. Early estimates of rebuilding costs for the industry begin at $25 million to refurbish damaged buildings, replace machinery, and train new employees. The apparel world moves quickly, and the greatest fear is that U.S. buyers will abandon Haiti for other production sites just as the apparel industry was making strides in redevelopment. Although buyers are reportedly willing to stay with Haiti factories, the sentiment could shift quickly if production is unable to return to levels adequate to meet orders. 

The U.S. Congress could respond by amending the tariff preferences and rules of origin in HOPE II to provide additional incentives for investors to operate in Haiti. First, the 55% value-added rule could be lowered, presumably allowing more firms to take advantage of the preference. Second, there is a capped (70 million square meter equivalents—SMEs) provision for both knit and woven articles that allows duty-free treatment for apparel made from third-country inputs with no value-added requirement. The rule is attractive for many apparel producers of varying size and capabilities in Haiti and the caps could be increased, exclusions reduced, or either eliminated. Third, Congress could reduce the 3-for-1 earned import allowance rule to a 2-for-1 or 1-for-1 rule. Other options might include a more comprehensive extension of tariff preferences to other manufactured goods or a broader elimination of tariffs across the board. The tradeoff would be the possible reduction in the use of U.S.-made yarns and fabrics in Haiti apparel production. Although Haiti is not a large producer by worldwide standards, U.S. firms may wish to minimize any possible negative effects on their industry. 
.


Date of Report: March 5, 2010
Number of Pages: 28
Order Number: RL34678
Price: $29.95

Document available electronically as a pdf file or in paper form.
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Chile Earthquake: U.S. and International Response

June S. Beittel
Analyst in Latin American Affairs

Rhoda Margesson
Specialist in International Humanitarian Policy


On February 27, 2010, an earthquake of magnitude 8.8 struck off the coast of central Chile. Centered 70 miles northeast of Chile's second-largest city, Concepción, at a depth of 22 miles, the earthquake was the second largest ever recorded in Chile and the fifth largest recorded worldwide since 1900. Over 100 aftershocks of magnitude 5.0 or greater were recorded following the initial earthquake. The earthquake and subsequent tsunami, which struck Chile's coast roughly 20 minutes after the earthquake and moved 2,000 feet onto shore in some places, devastated parts of the country. Although there are reports of varying casualty numbers, according to Chile's Ministry of the Interior, the official death toll is 507 (497 bodies have been identified; 10 remain unidentified). The numbers of missing persons are not yet known. Approximately 200,000 homes have been badly damaged or destroyed. Estimates suggest as many as 2 million people may have been affected by the earthquake, an unknown number of whom were injured or displaced. 

The Chilean government, through the Chilean National Emergency Office, is leading the relief operation and coordinating assistance. Despite offers of assistance, thus far the international humanitarian relief operation has been limited pending further requests for assistance from the government. In addition, there are more than 16,000 Chilean military personnel providing humanitarian relief and maintaining public order. At least two elements of the Chilean government's initial response have been criticized in Chile. The first is that the coastal and island communities did not receive timely warning about the tsunami waves that caused so many of the reported casualties. The second Chilean government response that has been widely questioned was the speed with which the Chilean military was deployed to quell looting and violence in the disaster zone. While critics point to weaknesses in the initial response, later assessments by disaster managers gave the Chilean government's response higher marks. Many credited the government of President Michelle Bachelet with success given the scope of the disaster and some labeled the government's response a model. The Chilean government's response to the earthquake has been complicated by the fact that President Bachelet left office on March 11, 2010, and has been succeeded by Sebastián Piñera, the leader of a center-right coalition that won the country's recent presidential election. President Bachelet held meetings with President-elect Piñera in order to ease the transition. 

On February 27, 2010, President Barack Obama announced that the U.S. government would assist with earthquake rescue and recovery efforts, pending a request from the Chilean Government. On February 28, 2010, U.S. Ambassador to Chile Paul E. Simons issued a disaster declaration, and through the U.S. Agency for International Development (USAID) Office of Foreign Disaster Assistance (OFDA), authorized $50,000 for the initial implementation of an emergency response program. OFDA deployed a 16-member USAID Disaster Assistance Response Team. As of March 10, 2010, USAID/OFDA reports that it has provided $10.7 million for emergency response activities in Chile. The U.S. Department of Defense is also providing limited assistance. Policy issues of potential interest include levels of U.S. assistance to Chile, burdensharing and donor fatigue, tsunamis and early warning systems, and managing risk through building codes. Related legislation includes S.Res. 431, H.Res. 1144, H.R. 4783.

For more background on Chile, see CRS Report R40126,
Chile: Political and Economic Conditions and U.S. Relations.


 



Date of Report: March 11, 2010
Number of Pages: 30
Order Number: R41112
Price: $29.95

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Friday, March 12, 2010

Chile: Political and Economic Conditions and U.S. Relations

Peter J. Meyer
Analyst in Latin American Affairs

Following a violent coup against democratically elected Marxist President Salvador Allende in 1973, Chile experienced 17 years of military rule under General Augusto Pinochet before reestablishing democratic rule in 1990. A center-left coalition of parties known as the Concertación has governed Chile over the two decades since the end of the dictatorship. In addition to addressing human rights violations from the Pinochet era, the coalition has enacted a number of constitutional changes designed to strengthen civilian democracy. Chile has made significant economic progress under the Concertación's free market economic policies and moderate social programs, which have produced notable economic growth and considerable reductions in poverty. 

Current President Michelle Bachelet enjoys widespread popular support despite having faced a number of challenges since taking office in 2006. Throughout her term, Bachelet has been confronted by student demonstrations against the education system, increased militancy by indigenous groups, and opposition in the legislature. The global financial crisis is President Bachelet's latest challenge, though the government's timely decision to save recent fiscal surpluses has allowed Chile to pursue counter-cyclical policies and minimize the effects of the economic downturn. 

On January 17, 2010, Sebastián Piñera of the center-right Alianza coalition was elected president in a second-round runoff vote, defeating former President Eduardo Frei (1994-2000) of the Concertación. Piñera's election was the first for the Chilean right since 1958, and will bring an end to 20 years of Concertación governance. Throughout his campaign, Piñera pledged to largely maintain Chile's social safety net while implementing policies designed to boost the country's economic growth. He will need to work with the Concertación to enact his policy agenda, however, as his coalition will not enjoy absolute majorities in either house of Congress. Piñera is scheduled to take office on March 11, 2010. 

Chile has enjoyed close relations with the United States since its transition back to democracy. Both countries have emphasized similar priorities in the region, designed to strengthen democracy, improve human rights, and advance free trade. Chile and the United States have also maintained strong commercial ties, which have become more extensive since a bilateral free trade agreement between them entered into force in 2004. Additionally, U.S. officials have expressed appreciation for Chile's leadership and moderating influence in a region increasingly characterized by political unrest and anti-American populism. 

This report provides a brief historical background of Chile, examines recent political and economic developments, and addresses issues in U.S.-Chilean relations. 
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Date of Report: March 2, 2010
Number of Pages: 21
Order Number: R40126
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Monday, March 1, 2010

Brazil’s WTO Case Against the U.S. Cotton Program

Randy Schnepf
Specialist in Agricultural Policy

On December 21, 2009, Brazil announced that it was authorized by the WTO to impose trade retaliation against up to $829.3 million in U.S. goods in 2010 in a long-running dispute over U.S. cotton subsidies. On February 10, 2010, Brazil stated that it may levy duties of up to 100% on a preliminary list of 222 goods of U.S. origin valued at $561 million, then apply the remaining value of $268.3 million in cross-retaliation (i.e., retaliatory countermeasures in sectors outside of the trade in goods, most notably in the area of U.S. copyrights and patents). Brazil has not yet finalized its decision to actually impose retaliatory measures; however, Brazil has said that it would announce a final list of potential retaliatory products on March 1, 2010. 

Case DS267 has its origins in 2002. In that year, U.S. cotton exports had expanded to account for nearly 39% of world trade—making the United States the world's largest cotton exporter. U.S. cotton subsidies averaged $3.8 billion per year during the 1999 to 2002 period. In late 2002, Brazil—a major cotton export competitor—expressed its growing concerns about U.S. cotton subsidies by initiating a WTO dispute settlement case (DS267) against specific provisions of the U.S. cotton program. On September 8, 2004, a WTO dispute settlement panel ruled against the United States on several key issues. This ruling was appealed by the United States, and on March 3, 2005, a WTO Appellate Body upheld the panel's ruling and provided specific deadlines for removal or modification of the offending U.S. subsidies. 

Key findings included (1) U.S. domestic cotton subsidies exceeded WTO commitments of the 1992 benchmark year, thereby losing the protection afforded by the "Peace Clause," which had previously shielded them from substantive challenges; (2) the two major types of direct payments made under U.S. farm programs—production flexibility contract payments of the 1996 farm act and the direct payments of the 2002 farm act—do not qualify for WTO exemptions from reduction commitments as fully decoupled income support and should therefore count against the "Peace Clause" limits; (3) Step 2 program payments are prohibited subsidies; (4) U.S. export credit guarantees are effectively export subsidies, making them subject to previously notified export subsidy commitments; and (5) U.S. domestic support measures that are "contingent on market prices" have resulted in excess cotton production and exports that, in turn, caused low international prices and resulted in adverse effects (i.e., "serious prejudice") to Brazil. 

Brazil argued for the authority to impose countermeasures against the United States valued at nearly $3 billion. The United States requested arbitration of Brazil's retaliation proposal. The WTO Dispute Settlement Body referred the matter to arbitration in July 2005; however, Brazil and the United States mutually agreed to suspend the arbitration. Since the March 2005 ruling, the United States has made several changes to its cotton programs to bring them into compliance with the WTO recommendations. However, Brazil argued that the U.S. response has been both slow and inadequate, and requested the establishment of a WTO compliance panel in August 2006 to review whether the United States had fully complied with the previous rulings. The compliance panel ruled against the United States in December 2007, and the ruling was upheld on appeal in June 2008. Shortly thereafter, on August 25, 2008, Brazil requested that the arbitrations on its retaliation proposals be resumed. Nearly a year later, on August 31, 2009, the WTO arbitration panel released its decision, generally finding in favor of Brazil's retaliation requests but at levels substantially reduced from those requested by Brazil. However, in a key decision, the panel ruled that Brazil would be entitled to cross-retaliation if the overall retaliation amount exceeds a formula-based variable annual threshold. If the threshold is surpassed, then Brazil would be entitled to cross-retaliation in the amount in excess of the threshold.


Date of Report: February 17, 2010
Number of Pages: 34
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The Proposed U.S.-Panama Free Trade Agreement

J. F. Hornbeck
Specialist in International Trade and Finance


On June 28, 2007, after two and a half years of negotiation, the United States and Panama signed a reciprocal free trade agreement (FTA). Negotiations were formally concluded on December 16, 2006, with an understanding that further changes to labor, environment, and intellectual property rights (IPR) chapters would be made pursuant to future detailed congressional input. These changes were agreed to in late June 2007, in time for the FTA to be considered under Trade Promotion Authority (TPA) legislation before it expired on July 1, 2007. TPA allows Congress to consider trade implementing bills under expedited procedures. Panama's legislature approved the FTA 58 to 4 on July 11, 2007. The 110th Congress did not take up the agreement, and so far there is little indication that the 111th Congress is ready to act on the FTA. 

The proposed U.S.-Panama FTA is a comprehensive agreement. Some 88% of U.S. commercial and industrial exports would become duty-free upon implementation, with remaining tariffs phased out over a ten-year period. Over 60% of U.S. farms exports to Panama also would achieve immediate duty-free status, with tariffs and tariff rate quotas (TRQs) on select farm products to be phased out by year 17 of the agreement. Panama and the United States signed a separate bilateral agreement on sanitary and phytosanitary (SPS) issues that would recognize U.S. food safety inspection as equivalent to Panamanian standards, which will expedite entry of U.S. meat and poultry exports. The FTA also consummates understandings on telecommunications, services trade, government procurement, investment, and intellectual property rights. 

The circumstances framing the proposed U.S.-Panama FTA differ considerably from those of two others that have yet to be considered by Congress. The deep concerns that Congress has expressed over Colombia's violence have not been an issue in the Panama FTA debate, which is framed more by the positive image of a longstanding strategic bilateral relationship based on Panama's canal. Nor does Panama compare well with the continuing debate over the proposed FTA with South Korea, which as a major U.S. trading partner, can affect key industries such as automobile and beef production. To the contrary, Panama trades little with the United States, even by Latin American standards, and so the FTA cannot have a major effect on the U.S. economy. 

The final text of the proposed U.S.-Panama FTA incorporates specific amendments on key issues at the behest of congressional leadership. The most significant were adoption of enforceable labor standards, compulsory adherence to select multilateral environmental agreements (MEAs), and an easing of restrictions on developing country access to generic drugs. In these cases, the proposed U.S.-Panama FTA goes beyond provisions in existing bilateral FTAs and multilateral trade rules, including those contemplated in the Doha Round.Two other concerns still linger. The first pertains to a Panamanian labor statute, which some Members of Congress would like to see amended so that the minimum number of workers required to start a union would be reduced from 40 to 20, per ILO guidelines. The second relates to questions raised over Panama's status as a "tax haven" and its refusal to enter into a tax information exchange treaty. Currently, the government of Panama is working closely with the USTR to find a mutually acceptable solution to both these issues. The time frame for completing this process is unclear and may depend in part on whether the Obama Administration and Congress signal that they are prepared to move ahead with implementing legislation. For more on Panama, see CRS Report RL30981, Panama: Political and Economic Conditions and U.S. Relations, by Mark P. Sullivan. 
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Date of Report: February 22, 2010
Number of Pages: 33
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Argentina’s Defaulted Sovereign Debt: Dealing with the “Holdouts”

J. F. Hornbeck 
Specialist in International Trade and Finance


In December 2001, following an extended period of economic and political instability, Argentina suffered a severe financial crisis, leading to the largest default on sovereign debt in history. It was widely recognized that Argentina faced an untenable debt situation that was in need of restructuring. In 2005, after prolonged, contentious, and unsuccessful attempts to find a mutually acceptable solution with its creditors, Argentina abandoned the negotiation process and made a one-time unilateral offer on terms highly unfavorable to the creditors. Although 76% of creditors accepted the offer, a diverse group of "holdouts" opted instead for litigation in hopes of achieving a better settlement in the future. Although Argentina succeeded in reducing much of its sovereign debt, its unorthodox methods have left it ostracized from international credit markets for nearly a decade and triggered legislative action and sanctions in the United States. 

Argentina still owes private creditors $20 billion in defaulted debt and $10 billion in past-due interest, as well as $6.2 billion to Paris Club countries. Of the disputed privately held debt, U.S. investors hold approximately $3 billion. The more activist investor groups have lobbied Congress to pressure Argentina to reopen debt negotiations. Some Members of Congress have introduced punitive legislation in both the 110th and 111th Congress, but to date it has not received any legislative action. Nearly five years after the original debt workout, however, a confluence of circumstances has persuaded Argentina to restructure the holdout debt, particularly the need to secure long-term public financing. 

On December 16, 2009, Argentina filed a registration statement and prospectus to issue $15 billion in bonds, the proceeds of which will be used to finance an exchange of defaulted debt. The terms of exchange were not included and are not expected until March 2010 at the earliest. Some analyses speculate that the structure of the new exchange will be similar to the one offered in 2005, which would entail a discount of 65% from the face value of the bonds, with past due interest capitalized and financed separately. Given that Argentine law prohibits the new exchange from offering better terms than the 2005 offer, and that bondholders who participated in that exchange benefitted from additional payments based on Argentina's strong economic growth, it appears likely that the new offer will be the less favorable of the two. 

For Argentina, a successful restructuring requires a sufficiently large participation rate for the courts to set aside existing judgments and attachment orders. This action would allow Argentina renewed access to the international credit markets. Historically, sovereign debt workouts with at least a 90% participation rate have achieved this goal. Since holdouts compose 24% of the original bondholders, a 60% participation rate of this group would allow for the total participation rate to reach the 90% threshold. If the exchange succeeds, Argentina will have completed a sovereign debt restructuring with the deepest write-off of principal in history. The original bondholders were severely hurt by this deal, but so was Argentina by the crisis. It appears that nothing can be done for the original investors who have traded their bonds. If there is a legacy to the Argentine case, it may be in the changes to bond contracts that seek to improve outcomes for creditors. One option is collective action clauses (CACs) in bonds, which require all creditors to bargain collectively, with a compulsory majority decision applicable to all bondholders. This provision may allow for more coordinated creditor responses, which could increase their bargaining leverage, allow for more equitable treatment of all bondholders, and lead to a far quicker resolution to any future sovereign default. 
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Date of Report: February 17, 2010
Number of Pages: 15
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Venezuela: Issues in the 111th Congress

Mark P. Sullivan
Specialist in Latin American Affairs


Under the populist rule of President Hugo Chávez, first elected in 1998 and reelected to a six-year term in December 2006, Venezuela has undergone enormous political changes, with a new constitution and unicameral legislature, and a new name for the country, the Bolivarian Republic of Venezuela. U.S. officials and human rights organizations have expressed concerns about the deterioration of democratic institutions and threats to freedom of expression under President Chávez, who has survived several attempts to remove him from power. The government benefitted from the rise in world oil prices, which sparked an economic boom and allowed Chávez to increase expenditures on social programs associated with his populist agenda. These programs have helped reduce poverty levels significantly. 

After he was reelected, Chávez announced new measures to move the country toward socialism, but his May 2007 closure of a popular Venezuelan television station (RCTV) that was critical of the government sparked protests, and his proposed constitutional amendment package was defeated in a December 2007 national referendum. State and local elections held in November 2008 were a mixed picture of support for the government, with the opposition winning several key contests. In February 2009, Venezuelans approved a controversial constitutional referendum that abolished term limits and allows Chávez to run for re-election in 2012. Since 2009, the government has increased efforts to suppress the political opposition, including elected officials. In January 2010, the government shut down broadcast of the cable station RCTV-Internacional, prompting domestic protests and international concern about freedom of expression. 

The United States traditionally has had close relations with Venezuela, the fourth major supplier of foreign oil to the United States, but there has been friction with the Chávez government. U.S. officials have expressed concerns about human rights, Venezuela's military arms purchases, its relations with Cuba and Iran, and its efforts to export its brand of populism to other Latin American countries. Declining cooperation on anti-drug and anti-terrorism efforts has also been a concern. In September 2008, bilateral relations worsened when President Chávez expelled the U.S. Ambassador to Venezuela, and the United States responded in kind. Under the Obama Administration, Venezuela and the United States reached an agreement for the return of respective ambassadors in July 2009. While some observers are hopeful that the return of ambassadors will mark an improvement in relations, others emphasize continued U.S. concerns about the Venezuelan government's treatment of the news media and political opposition and about interference in the affairs of other countries in the region. 

In the 111th Congress, House-passed H.R. 2410 includes a provision noting the close relationship between Iran and Venezuela, and requiring a report on the actions of Iran and Hezbollah in the Western Hemisphere, and House-passed H.R. 2194 would amend the Iran Sanctions Act to make gasoline sales to Iran subject to U.S. sanctions. The Senate approved an amendment (S.Amdt. 1536) to the National Defense Authorization Act for FY2010, S. 1390/H.R. 2647, that would have required a report on Venezuelan military and intelligence activities, but the measure was not included in the enacted legislation. Among other initiatives: H.R. 375 would, among its provisions, place restrictions on nuclear cooperation with countries assisting the nuclear programs of Venezuela; H.Res. 174 and H.Con.Res. 124 would express concern about anti-Semitism in Venezuela; and H.Res. 872 would call for the designation of Venezuela as a state sponsor of terrorism. For more information, see CRS Report RS21049, Latin America: Terrorism Issues.



Date of Report: February 8, 2010
Number of Pages: 45
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Costa Rica: Background and U.S. Relations

Peter J. Meyer
Analyst in Latin American Affairs


Costa Rica is a politically stable Central American nation with a relatively well-developed economy. Former president (1986-1990) and Nobel-laureate Oscar Arias of the historically center-left National Liberation Party was elected President in 2006. Throughout his term, Arias has advanced so-called "third-way" policies, embracing his party's traditional support for social welfare programs while rejecting state-led development in favor of market-oriented economic policies. Considerable economic growth and social protection programs have provided Costa Rica's citizens with a relatively high standard of living, however, conditions have deteriorated recently as a result of the global financial crisis and U.S. recession. Although Costa Rica's economy contracted and poverty increased in 2009, analysts believe President Arias' ambitious fiscal stimulus and social protection plan and improving global economic conditions should aid recovery in 2010. 

On February 7, 2010, former Vice President Laura Chinchilla (2006-2008) of the ruling National Liberation Party was elected president, easily defeating her competitors. Chinchilla, who is closely tied to President Arias and the centrist faction of her party, will be Costa Rica's first female president. Throughout the campaign, Chinchilla pledged to maintain the Arias Administration's economic and social welfare policies while improving public security. She will need to form cross-party alliances to implement her policy agenda, however, as her party will lack a majority in Costa Rica's unicameral National Assembly. Chinchilla and the new legislature are scheduled to take office in May 2010. 

Successive Costa Rican administrations have sought to address extensive deforestation and environmental degradation that resulted from decades of logging and agricultural expansion. The country's strong conservation system and innovative policies have done much to restore Costa Rica's environment and ecotourism has provided a significant source of economic growth. Costa Rica's efforts also have led many observers to recognize it as a world leader in environmental protection and have enabled the country to play an outsized role in the formulation of global environmental policies. Nonetheless, some maintain that a number of environmental problems in Costa Rica remain unaddressed. 

The United States and Costa Rica have long enjoyed close relations as a result of the countries' shared commitments to strengthening democracy, improving human rights, and advancing free trade. The countries have also maintained strong commercial ties, which are likely to become even more extensive as a result of President Arias' efforts to secure ratification and implementation of CAFTA-DR. On April 28, 2009, the House of Representatives passed H.Res. 76 (Burton), which mourns the loss of life in Costa Rica and Guatemala that resulted from natural disasters that occurred in January 2009. The resolution also expresses the senses of the House, that the U.S. government should continue providing technical assistance relating to disaster preparedness to Central American governments. 

This report examines recent political and economic developments in Costa Rica as well as issues in U.S.-Costa Rica relations. For additional information, see CRS Report RL31870, The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), by J. F. Hornbeck and CRS Report R40135, Mérida Initiative for Mexico and Central America: Funding and Policy Issues, by Clare Ribando Seelke. 
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Date of Report: February 22, 2010
Number of Pages: 15
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