"An important policy tool that can assist Congress in assessing the value and the impact of trade agreements is represented by sophisticated models of the economy that are capable of simulating changes in economic conditions. These models are particularly helpful in estimating the effects of trade liberalization in such sectors as agriculture and manufacturing where the barriers to trade are identifiable and subject to some quantifiable estimation. Barriers to trade in services, however, are proving to be more difficult to identify and, therefore, to quantify in an economic model. All of the models incorporate various assumptions that are necessary in order for the models to generate results. Invariably, these assumptions determine to some extent the results that are generated and limit their usefulness. In addition, the models are highly sensitive to the assumptions that are used to establish the parameters of the model and they are hampered by a serious lack of comprehensive data in the services sector. Nevertheless, the models provide some insight into the magnitude of the economic effects that may occur across economic sectors as a result of trade liberalization. These insights are especially helpful in identifying sectors expected to experience the greatest adjustment costs and, therefore, where opposition to trade agreements is likely to occur. This report examines the major features of economic models being used to estimate the effects of trade agreements. It assesses the strengths and weaknesses of the models as an aid in helping Congress evaluate the economic impact of trade agreements on the U.S. economy. In addition, this report identifies and assesses some of the assumptions used in the economic models and how these assumptions affect the data generated by the models. Finally, this report evaluates the implications for Congress of various options it may consider as it assesses trade agreements."
CRS Report for Congress, RL31932
U.S. Department of State: http://www.state.gov/