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Bush Administration study also says concluding WTO negotiations is a ''top priority''

WASHINGTON, DC - 02/23/05 - Although the US trade deficit with China keeps getting bigger, US exports to China are actually increasing at a faster rate than US imports from China, according to a new report released by the Bush Administration.

A section on trade from the "2005 Economic Report of the President," which was released late last week, says that from January to November 2004 US exports to China were up 28% as compared to the previous year while imports were up 22%.

"But this export growth is occurring from a much smaller base," the report says, "and so the bilateral trade deficit has grown."

The report's analysis of trade data asserts that the gain in imports from China reflects in part a slide in imports from elsewhere around the Pacific Rim as companies in the other countries shift their final assembly operations to China.

"This helps to demonstrate why bilateral trade deficits have little economic significance and why they are not a useful measure of the benefits of a trading relationship," the report says.

The report reiterates the US position pressing China to move its currency, which is now pegged to the US dollar, to a flexible, market-based exchange rate.

On a related issue, the report says that concluding the ongoing round of negotiations at the World Trade Organization (WTO) is a top priority of President Bush for his second term. Those negotiations languished for years until a US diplomatic initiative led to a breakthrough agreement in July 2004 on a framework for resuming the negotiations.

The report previews two issues approaching for Congress that could influence the WTO negotiations.  

First, Congress could consider denying an extension of the president's Trade Promotion Authority (TPA) - also known as "fast track" - from mid-2005 through mid-2007 as President Bush is expected to request.  Republican trade leaders in Congress have indicated they would try to prevent such consideration from advancing beyond the committee stage.

Under TPA, Congress restricts itself only to approve or reject a negotiated trade agreement, within strict time limits and without amendments.

If TPA is not renewed, it will likely be difficult - if not impossible - to achieve the kind of comprehensive benefits the Administration has already negotiated in its free trade agreements to date," the report says. "At stake are the substantial gains that would come from a successful conclusion to the Doha talks. These gains would accrue both to the United States and to all participants in the global trading system."

Second, Congressional opponents of the WTO have an opportunity, available only once every five years by law, to vote on withdrawing US membership in the organization.

Even if Congress were to pass a withdrawal resolution, however, the House of Representatives and Senate would have to override a likely veto by Bush with a two-thirds vote.

The report also reviews the Administration's major initiative to protect US patents, copyrights and other intellectual property rights called STOP! (Strategy Targeting Organized Piracy!).

The Administration launched STOP! last year to protect intellectual property rights calling it "the most comprehensive initiative ever advanced to combat trade in pirated and counterfeit goods."

According to the report, "such efforts are particularly important to the United States, which is a major producer of innovative goods" with recordings, films, books, and software "are among the most successful US exports."

Property rights "in general are vital to the functioning of a market economy. The enforcement of intellectual property rights ensures that creators of innovative products capture the returns to their efforts," it says. "This enforcement is vital as well to provide incentives to encourage future innovation. Empirical studies have shown that improvements in a nation's intellectual property protection can lead to increased trade."

These studies, the report concludes, "found the effect to be particularly strong in goods that were easy to imitate, providing evidence that theft of intellectual property displaces legitimate imports," adding that one of the studies found that strengthened patent protection in large developing countries could increase their imports by almost 10%.

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