From the perspective of U.S. trade policy, efforts to reduce the trade and investment barriers of the REPs that are impeding U.S. producers and workers from maximizing the benefits of participation in the global economy are likely to be a high priority. Bilateral and regional preferential trade agreements have proliferated and WTO-sponsored multilateral trade liberalization negotiations have stalled. The Rising Economic Powers

		U.S. Trade Interests and the REPs

U.S. Exports and Imports: The REPs are becoming much more important U.S. trading partners (see Figure 3 ). REP Trade Barriers: If the United States is to maximize its export potential and boost its living standards, exporters and investors will need to have better access to REP markets. REP Interventionist Policies: The ability of the United States to persuade the REPs to embrace the principles of free and fair trade is constrained by growing differences over the role that the state should play in economic activity. As the 2008 global financial crisis may have weakened the case for free market approaches, some of these countries may now feel more willing to entertain market-distorting practices and take advantage of gaps in the rules .REPs as "Responsible Stakeholders" : As the REPs have benefitted greatly from participation in the global economy, many observers hoped that over time they would assume greater responsibility for the maintenance of the trading system. How to persuade these countries that a strengthened multilateral trading system is squarely in their national economic interests and a way to move domestic economic reforms forward remains a challenge. Strengthening WTO Dispute Settlement: In an era in which both global economic power and trade leadership are in transition, the WTO's dispute settlement understanding (DSU) has become a linchpin for maintaining global economic order. If the United States wishes to move in this direction, deviations from its standard FTA template may need to be considered. At the same time, ongoing Trans-Pacific Partnership (TPP) negotiations and a potential comprehensive U.S. FTA with the European Union (EU) could serve as incentives for the REPs to view higher standard multilateral or bilateral negotiations more favorably. The 113 th Congress may consider a number of questions relating to the future direction of U.S. trade relations with the REPs , particularly if President Obama should ask for a renewal of Trade Promotion Authority (TPA) in 2013. Some observers maintain that U.S. trade leadership is bolstered when the President has TPA and a mandate from Congress to negotiate new agreements. While this report focuses primarily on seven large, populous rising economic powers—China, Brazil, India, Indonesia, Mexico, Russia, and Turkey—some of these countries' economic prospects could easily decline if fundamental challenges are not addressed. With large economies and trade flows, these countries have greater involvement in WTO negotiations and dispute settlement processes, as well as greater autonomy in applying the rules and obligations of the WTO system domestically. While their protests and criticisms have not been followed by changes in U.S. trade or economic policies, the REPs arguably have become more able to deflect U.S. trade and market access demands. To improve their business climates and reinvigorate their economies, the REPs could undertake a range of trade, regulatory, and structural reforms. The more interventionist practices of the REP governments coincide with a desire to maintain "policy space" to promote economic development via policies that often appear to violate the letter or spirit of WTO rules and obligations. With ongoing pressures to reduce government spending and consumer debt, exports could become an increasingly important source of growth for the U.S. economy. It has long been suggested that principles that have guided multilateral trade negotiations in the past, such as unconditional most-favored-nation (MFN) and special and differential (S&D) treatment, may need to be reexamined. For the United States and other advanced countries, the DSU is a way to engage the REPs directly about their responsibilities for upholding a system of multilateral trade rules. For a number of reasons, the United States has not negotiated FTAs with large and more significant trading partners, such as China, India, and Brazil. In trying to induce the REPs with their very different state-led economic models into maintaining and strengthening the market-oriented WTO system, U.S. trade negotiators may need considerable resources, flexibility, and leverage to be successful. These potential "turnaround" or "long-shot" countries include Bangladesh, Egypt, Iran, Nigeria, Pakistan, Philippines, and Vietnam.
A handful of developing countries are becoming major players in the global economy due, in part, to their large populations, rising trade flows, and rapidly growing economies. These evolving economies are likely to be of increasing interest to the 113th Congress. Led by China, these rising economic powers (REPs) include Brazil, India, Indonesia, Mexico, Russia, and Turkey. Based on purchasing power parity estimates, China, India, Brazil, and Russia are now among the 10 largest economies in the world and Mexico (#11), Indonesia (#15), and Turkey (#16) are not far behind. With large economies and rising shares of world trade flows, the REPs have greater involvement in World Trade Organization (WTO) negotiations and dispute settlement cases, have protested with greater frequency U.S. economic and trade policies, and are more able and willing to deflect or reject U.S. trade and market access demands.
Although they have made great economic strides, any of these REPs could stumble if they do not take steps to improve their business climates by undertaking a range of trade, regulatory, and structural reforms. At the same time, other large developing countries that have enormous economic potential, such as Egypt, Iran, Nigeria, and Vietnam, could rise if they successfully address underlying political and economic challenges.
U.S. exports to the REPs and other developing countries have become an increasingly important source of growth for the U.S. economy. If the United States is to maximize its export potential and boost its living standards, U.S. exporters and investors may need to have better access to the REP markets. Trade and investment barriers remain considerably higher in most of the REPs than in the United States and other advanced countries. Efforts have stalled in these countries to reduce their barriers further, and several REPs have reactivated industrial policies or found ways to take advantage of gaps in the world trade rules to promote home companies at the expense of foreign companies.
The United States' ability to persuade these emerging economic powers to embrace the principles of free and fair trade is constrained by growing differences over the role of the state in economic activity. The more interventionist practices and philosophies of REP governments coincide with a desire to maintain "policy space" to promote development of their economies via policies that often appear to violate the letter or spirit of WTO rules and obligations. Persuading the REPs that a strengthened multilateral trading system is squarely in their national economic interests and a way to move their domestic economic reforms forward remains a challenge.
As global power and prosperity is reconfigured, U.S. trade policymakers face a number of overlapping and complex issues relating to the role of future trade liberalizing negotiations, U.S. leverage in influencing REP economic reforms, and the management of the global trading system. Given the checkered history of the Doha Round, future progress on trade liberalization within the WTO may require new approaches. Principles that have guided multilateral trade negotiations in the past, such as unconditional most-favored-nation (MFN) and special and differential treatment (S&D), may need to be reexamined. Similarly, if the United States wishes to negotiate free trade agreements (FTAs) with large and more significant trading partners, it may need to consider deviations from its standard FTA template. At the same time, ongoing Trans-Pacific Partnership (TPP) negotiations and a potential comprehensive U.S. FTA with the European Union (EU) could serve as incentives for the REPs to view multilateral or bilateral negotiations more favorably.
In an era in which global trade leadership is shifting and uncertain, the WTO's dispute settlement understanding (DSU) has become a key forum for managing trade relations. The DSU, despite weaknesses, is a way to engage the REPs directly about their responsibilities for upholding a system of multilateral trade rules.
The 113th Congress may review U.S. trade relations with the REPs, particularly if President Obama should ask for a renewal of Trade Promotion Authority (TPA) in 2013. Some observers maintain that U.S. trade leadership is bolstered when the President has TPA and a mandate from Congress to negotiate new trade agreements. In trying to tie the REPs with their very different state-led economic models into the more market-oriented WTO system, U.S. trade negotiators may need considerable resources, incentives, flexibility, and leverage.