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ECONOMIC NEWS

U.S. TRADE DEFICIT UP SHARPLY IN JANUARY AS ECONOMY IMPROVES

The U.S. trade deficit went up 15.4 percent in January reflecting the relative strength of the U.S. economy and foreign exchange value of the U.S. dollar. In a March 19 report by the U.S. Department of Commerce, the January deficit amounted to a seasonally adjusted $28.52 billion, comprising a goods deficit of $34.08 billion and a services surplus of $5.56 billion. U.S. exports went down slightly in January for the second month in a row. U.S. manufacturers have been pressing the Bush administration to pursue policy pushing down the value of the dollar, arguing that the present value makes U.S. products too expensive. January U.S. exports were at their lowest level to a number of markets in years: recession-plagued Japan, eight years; the European Union, 2-1/2 years, and both Asia and Central America, five years. U.S. imports went up 3.6 percent in January. The value of oil imports increased 12 percent, reflecting both higher volume and prices; the average price for a barrel of crude oil climbed from $15.51 in December to $16.31 in January.

FEDERAL RESERVE GROUP LEAVES INTEREST RATES UNCHANGED

The Federal Open Market Committee (FOMC) announced in a statement released after its meeting that its members voted 10-0 to keep the benchmark federal funds rate, the rate on overnight loans among banks, at 1.75 percent, a 40-year low. At the same time, the FOMC departed from its earlier bias reflecting concern about the economy to a more neutral stance. Available data indicate that the U.S. economy is expanding at a "significant pace" although the strengthening of final demand in the coming months is still uncertain. "For the foreseeable future, against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are balanced with respect to the prospects for both goals," the FOMC said.

TREASURY’S O'NEILL URGES PAYMENT OF U.S. ARREARS TO BANKS

The U.S. Treasury is seeking money for FY2003 that would fully fund current U.S. commitments to the multilateral development banks (MDBs), pay MDB arrears and increase spending for technical assistance to countries in transition. In prepared remarks to the Senate Appropriation Subcommittee on Foreign Operations this week, Treasury Secretary Paul O'Neill said the United States also is proposing an 18-percent increase in funding for the International Development Association (IDA) over three years beginning in fiscal year 2003. That amount -- $850 million in FY03, $950 million in FY04 and $10.5 billion in FY05 -- would be contingent on IDA's achieving measurable results in health, education and private sector development. IDA is the World Bank's lending affiliate. Treasury is seeking $14.5 billion for its international programs, reflecting the department's focus on private sector development, transparency and rule of law in countries receiving MDB assistance.

ADMINISTRATION OPTS FOR SHORT DELAY IN COLLECTING STEEL DUTIES

The Bush Administration will defer the collection of duties for steel products subject to its Section 201 safeguard action that are imported between March 20 and April 4, a period during which the United States will engage in consultations with its trading partners. The U.S. has held open the possibility that it could change the steel duties announced on March 5 by President Bush as a result of these consultations, which is why it opted for a short-term delay in collecting the duties. Steel entering the U.S. market between March 20 and April 4 will be subject to estimated duties, but the final paperwork for these imports will not be completed until a decision on final duties has been made. Starting April 5, the United States will collect duties for products subject to the safeguard under regular procedures. The Bush Administration took the step of suspending duty collection pending consultations with trading partners to guard against charges in the World Trade Organization that it violated the Safeguard Agreement. The Treasury Secretary will issue formal regulations stipulating when the estimated duties will have to be paid for the products that entered the U.S. market between March 20 and April 4.

CONGRESS CLEARS BILL EXTENDING EX-IM BANK AUTHORITY ONE MONTH

The House of Representatives has given final passage to a bill temporarily extending authorization for the Export-Import Bank of the United States (Ex-Im Bank) to continue operating for another month. The bill passed in the House by voice vote on March 19 will extend Ex-Im's existing authority to April 30; the Senate passed the same bill March 14. The bill will give Congress time to complete long-term legislation. Existing temporary authority is scheduled to expire March 31; Congress had passed that bill just before the previous four-year authorization expired September 30, 2001.

USTR ZOELLICK REITERATES TRADE NEGOTIATING AUTHORITY PUSH

U.S. Trade Representative Robert Zoellick is pressing Congress again to pass trade promotion authority (TPA), otherwise known as fast track, for President Bush to negotiate trade agreements in the World Trade Organization (WTO) and elsewhere. In the 2001 Annual Report and 2002 Trade Agenda released March 19, Zoellick pledged to use TPA to open markets multilaterally, regionally and bilaterally in a way that promotes higher environmental and labor standards in foreign countries. U.S. goals for the WTO round approved by trade ministers in Doha, Qatar, in November include involving the poorest countries to assure that they get the benefits of freer trade. According to Zoellick, the United States will work to advance Russian accession to the WTO as well.

ZOELLICK BLASTS EU POSITION IN STEEL FIGHT, PROVISIONAL SAFEGUARD

U.S. Trade Representative Robert Zoellick this week accused the European Union of overreacting to the U.S. steel safeguard and questioned the EU's plans for a provisional safeguard to guard against a surge in steel imports that cannot enter the U.S. market. Zoellick believes that the EU, at a minimum, should wait and see if there is any trade diversion before protecting its own market. He also expressed hope that the EU would listen to the advice from the top official of the largest EU steel company, who, Zoellick said has called for a calmer approach to the U.S. safeguard. Concurrently, Zoellick conceded that EU Trade Commissioner Pascal Lamy has tried to keep the steel fight from spilling over into a larger dispute over tax subsidies extended under the Foreign Sales Corporation.