United States General Accounting Office

GAO Testimony

Before the Subcommittee on Trade, Committee on Ways

and Means, House of Representatives

For Release on Delivery

Expected at

10:00 a.m. EST

Wednesday,

March 13, 1996

INTERNATIONAL TRADE

Implementation Issues

Concerning the World Trade

Organization

Statement of JayEtta Z. Hecker, Associate Director

International Relations and Trade Issues

National Security and International Affairs Division

G O A

years

1921 - 1996

GAO/T-NSIAD-96-122

International Trade: Implementation Issues

Concerning the World Trade Organization

Summary of

Statement by Jayetta

Z. Hecker, Associate

Director, International

Relations and Trade,

National Security and

International Affairs

Division

The United States generally achieved its negotiating objectives in the

Uruguay Round, which was completed in 1994 and encompassed the most

comprehensive multilateral trade agreements in history. The Uruguay

Round agreements are expected to open markets by reducing trade

barriers and strengthening multilateral disciplines on signatories’ unfair

trade practices. Further, for the first time, multilateral rules have been

established to cover such areas as intellectual property rights and trade in

services, while rules over such areas as agriculture and textiles and

clothing have been expanded. Lastly, the agreements created the new

World Trade Organization (WTO) and strengthened multilateral dispute

settlement procedures.

Despite the agreements’ positive achievements, some specific industries

and domestic interest groups are concerned that the agreements will

adversely affect some U.S. interests. For example, some sectors of the

economy, notably textiles and apparel, and their workers, may bear some

of the costs of economic adjustment. Further, not all of the effects of such

a wide-ranging agreement will become apparent in the near term.

Implementation of the Uruguay Round agreements is complex, and it will

take years before the results can be assessed. It is critical that the United

States monitor implementation of the agreements to ensure that the

signatories are honoring their commitments and thus that the agreements’

expected benefits are being realized. Our work evaluating previous

multilateral and bilateral agreements has shown that these agreements are

not always fully implemented.

Our recent work highlights some important Uruguay Round

implementation issues. For example, the WTO’s organizational structure

and the secretariat’s budget have grown from 1994 to 1996, to coincide

with the member countries’ new duties and responsibilities. However,

many WTO member countries have not yet provided all the information

about their laws and regulations that are required by the agreements. In

the agriculture area, while the new agreements require that food safety

measures be based on scientific principles, U.S. agricultural exporters

seem to be experiencing more problems with other countries’ measures,

and a number of disputes in this regard have been filed with WTO. Further,

while WTO has efforts underway to improve transparency provisions

regarding state trading enterprises, these provisions alone may not be

effective when applied to state-dominated economies, like China and

Russia, that are seeking to join WTO. Finally, there were 25 disputes

brought before WTO in 1995. The United States lost the first dispute

settlement case and is now appealing that decision.

Page 1 GAO/T-NSIAD-96-122
International Trade: Implementation Issues

Concerning the World Trade Organization

In the coming years, WTO members must grapple with such issues as

whether to push further liberalization in areas already agreed to and/or to

initiate negotiations of new issues. The WTO ministerial meeting later this

year could be an opportunity for Congress to weigh the benefit of having

U.S. negotiators give priority to full implementation of Uruguay Round

commitments, as opposed to advocating new talks on new topics.

Page 2 GAO/T-NSIAD-96-122
Mr. Chairman and Members of the Subcommittee:

I am pleased to have the opportunity to provide some preliminary

observations on the implementation of the Uruguay Round agreements,

and the operations of the new World Trade Organization (WTO). Based on

our past and ongoing work,1

 I will provide an overview of the

implementation of the agreements, then talk about some specific issues

that are of particular concern to U.S. decisionmakers, and finally discuss

future WTO endeavors.

Overview We believe that the United States generally achieved its negotiating

objectives in the Uruguay Round, and most studies we reviewed projected

net economic gains to the United States and the world economy.2

 The

General Agreement on Tariffs and Trade (GATT) Uruguay Round

agreements are the most comprehensive multilateral trade agreements in

history. For example, signatories (1) agreed to open markets by reducing

tariff and nontariff barriers; (2) strengthened multilateral disciplines on

unfair trade practices, specifically rules concerning government subsidies

and “dumping;” (3) established disciplines to cover new areas such as

intellectual property rights and trade in services; (4) expanded coverage of

GATT rules and procedures over areas such as agriculture and textiles and

clothing; and (5) created WTO, which replaced the preexisting GATT

organizational structure and strengthened dispute settlement procedures.

Despite expectations for overall economic gains, we noted in recent

reports that specific industry organizations and domestic interest groups

had concerns that the agreement would adversely affect some U.S.

interests. For example, some believe that they did not gain adequate

access to overseas markets or that they would lose protection provided by

U.S. trade laws. In addition, because some sectors of the U.S.

economy—notably textiles and apparel—and their workers will likely bear

the costs of economic adjustment, the existing patchwork of

reemployment assistance programs aimed at dislocated workers needs to

1

My statement today is based on some limited monitoring of general WTO implementation issues we

conducted last fall in Washington and Geneva. It is also based on our work for your Subcommittee and

other Members of Congress looking at several specific WTO-related issues regarding (1) agriculture,

(2) sanitary and phytosanitary (SPS) product standards for food safety, (3) state trading enterprises

(STEs), (4) textiles and clothing, and (5) financial services.

2

See The General Agreement on Tariffs and Trade: Uruguay Round Final Act Should Produce Overall

U.S. Economic Gains (GAO/GGD-94-83a & b, July 29, 1994), International Trade: Observations on the

Uruguay Round Agreement (GAO/T-GGD-94-98, Feb. 22, 1994), and General Agreement on Tariffs and

Trade: Agriculture Department’s Projected Benefits Are Subject to Some Uncertainty

(GAO/GGD/RCED-94-272, July 22, 1994).

Page 3 GAO/T-NSIAD-96-122
be improved.3

 Our work has indicated that it was difficult to predict

outcomes and not all the effects of such a wide-ranging agreement will

become apparent in the near term;4

 important issues will evolve over a

period of years during GATT implementation. We have identified provisions

to be monitored to assure that commitments are fulfilled and the expected

benefits of the agreements are realized. Moreover, our work on the GATT

Tokyo Round agreements, negotiated in the 1970s, and numerous bilateral

agreements has demonstrated that trade agreements are not always fully

implemented.

Implementation of the Uruguay Round agreements, which generally began

to go into force on January 1, 1995, is complex, and it will take years

before the results can be assessed.5

 Nevertheless, our work highlights the

following issues: (1) the WTO’s organizational structure and the

secretariat’s budget have grown from 1994 to 1996 to coincid with new

duties and responsibilities approved by the member countries; (2) faced

with over 200 requirements, many member nations have not yet provided

some of the notifications of laws or other information as called for in the

agreements; (3) this year provides the first opportunity to review whether

anticipated U.S. gains in agriculture will materialize, as countries begin to

report on meeting their initial commitments; (4) the new agreements

require that food safety measures be based on sound science, but U.S.

agricultural exporters seem to be encountering more problems with other

countries’ measures and a number of formal disputes have already been

filed with WTO; (5) while efforts are underway to improve transparency

provisions regarding state trading, these provisions alone may not be

effective when applied to state-dominated economies, like China and

Russia, seeking to join WTO; (6) while textile and apparel quotas will be

phased out over 10 years, the United States has continued to use its

authority to impose quotas during the phase-out period and will not lift

most apparel quotas until 2005; (7) despite the end of the Uruguay Round,

some areas, like services, are still subject to ongoing negotiations;

(8) there were 25 disputes brought before WTO in 1995 by various

countries, including some involving the United States. The United States

lost the first dispute settlement case regarding U.S. gasoline regulations

brought by Brazil and Venezuela and is now appealing that decision.

3

See Multiple Employment Training Programs: Major Overhaul Is Needed to Reduce Costs, Streamline

the Bureaucracy and Improve Results (GAO/T-HEHS-95-53, Jan. 10, 1995); and Trade Adjustment

Assistance Program Flawed (GAO/T-HEHS-94-4, Oct. 19, 1993).

4

See International Trade: Impact of the Uruguay Round Agreement on the Export Enhancement

Program (GAO/GGD-94-180BR, Aug. 5, 1995).

5

According to the WTO secretariat, the almost 500 pages of text comprise 19 agreements, 24 decisions,

8 understandings, and 3 declarations. There are also approximately 24,000 pages of specific market

access commitments.

Page 4 GAO/T-NSIAD-96-122
Organizational

Changes

The WTO was established to provide a common institutional framework for

multilateral trade agreements. Some observers have been concerned about

the creation of this new international organization and its scope and size.

The “new” WTO was based on a similar “provisional” GATT organizational

structure that had evolved over decades. The Uruguay Round agreements

created some new bodies; however, these new bodies address new areas

of coverage, for example, the Councils for Trade in Services and for

Trade-Related Aspects of Intellectual Property Rights. Other bodies, such

as the WTO Committee on Anti-Dumping Practices, were “reconstituted”

from those that already existed under the old GATT framework but that

were given new responsibilities by the Uruguay Round agreements and

had broader membership. The WTO secretariat, headed by its Director

General, facilitates the work of the members. The work of the bodies

organized under the WTO structure is still undertaken by representatives of

the approximately 119 member governments, rather than the secretariat.

Early meetings of some WTO committees were focused on establishing new

working procedures and work agendas necessary to implement the

Uruguay Round agreements.

In 1995, the WTO secretariat staff was composed of 445 permanent staff

with a budget of about $83 million. This represented a 18-percent staff

increase and about a 7-percent increase in the budget (correcting for

inflation) from 1994 when the Uruguay Round agreements were signed.

The members establish annual budgets and staff levels. The approved

secretariat’s 1996 budget represents a 10-percent rise over the 1995 level to

further support the organization’s wider scope and new responsibilities; it

also includes an additional 15-percent increase in permanent staff. WTO

officials in Geneva have told us that any additional increases in secretariat

staffing are unlikely to be approved by the members in the foreseeable

future.

The secretariat’s duties include helping members organize meetings,

gathering and disseminating information, and providing technical support

to developing countries. Economists, statisticians, and legal staff provide

analyses and advice to members. In the course of doing work over the last

year, member government and secretariat officials told us it was important

that the secretariat continue to not have a decision-making or enforcement

role. These roles were reserved for the members (collectively).

Page 5 GAO/T-NSIAD-96-122
Unfulfilled

Notification

Requirements

An important, but laborious, aspect of implementing the Uruguay Round

agreements centers on the many notification requirements placed upon

member governments. These notifications are aimed at increasing

transparency about members’ actions and laws and therefore encourage

accountability. Notifications take many forms. For example, one provision

requires countries to file copies of their national legislation and

regulations pertaining to antidumping measures. The information provided

allows members to monitor each others’ activities and, therefore, to

enforce the terms of the agreements. In 1995, some WTO committees began

reviewing the notifications they received from member governments.

The WTO Director General has noted some difficulties with members’

fulfilling their notification requirements. Some foreign government and

WTO secretariat officials told us in 1995 that the notification requirements

were placing a burden on them and that they had not foreseen the

magnitude of information they would be obligated to provide. The Director

General’s 1995 annual report estimated that the Uruguay Round

agreements specified over 200 notification requirements. It also noted that

many members were having problems understanding and fulfilling the

requirements within the deadlines. While the report said that the

developing countries faced particular problems, even the United States

has missed some deadlines on filing information on subsidies and customs

valuation laws. To address concerns about notifications, WTO members

formed a working party in February 1995 to simplify, standardize, and

consolidate the many notification obligations and procedures.

Implementation of

Agriculture

Commitments

One area of great economic importance to the United States during the

Uruguay Round negotiations was agriculture; therefore, monitoring other

countries’ implementation of their commitments is essential to securing

U.S. gains. Agricultural trade had traditionally received special treatment

under GATT. For example, member countries were allowed to maintain

certain measures in support of agricultural trade that were not permitted

for trade in manufactured goods. As a result, government support and

protection distorted international agricultural trade and became

increasingly expensive for taxpayers and consumers.

The United States sought a fair and more market-oriented agricultural

trading system, to be achieved through better rules and disciplines on

government policies regarding agriculture. The United States sought

disciplines in four major areas—market access, export subsidies, internal

support, and food safety measures—and was largely successful, as the

Page 6 GAO/T-NSIAD-96-122
Agreement on Agriculture and the Agreement on the Application of

Sanitary and Phytosanitary (SPS) Measures together contain disciplines in

all of these areas.

Member countries are required to report to the new WTO Committee on

Agriculture on their progress in implementing commitments on market

access, export subsidies, and internal support. The agriculture agreement

will be implemented over a 6-year period, and commitments are to be

achieved gradually. After each year, countries are required to submit data

to demonstrate how they are meeting their various commitments. The

agreement allows countries to designate their own starting point for

implementation during 1995, depending on domestic policies. In this

regard, the U.S. period began on January 1, 1995, while the European

Union (EU) period began on July 1, 1995. Therefore, in some cases, the first

opportunity to closely review the extent to which other countries are

meeting their agricultural commitments—and, thereby, whether

anticipated U.S. gains are materializing—should occur later this year.

Use of SPS Measures At the outset of the Uruguay Round, the United States recognized that

multilateral efforts to reduce traditional methods of protection and

support for agriculture, such as quotas, tariffs, and subsidies, could be

undermined if the use of food safety measures governing imports

remained undisciplined. To prevent food safety measures from being used

unjustifiably as nontariff trade barriers, the United States wanted

countries to agree that these measures should be based on sound science.

The SPS agreement recognizes that countries have a right to adopt

measures to protect human, animal, and plant life or health. However, it

requires, among other things, that such measures be based on scientific

principles, incorporate assessment of risk, and not act as disguised trade

restrictions.

Carefully monitoring how countries implement the SPS agreement is

essential to securing U.S. gains in agriculture. Since the end of the round,

U.S. agricultural exporters seem to be encountering growing numbers of

SPS-related problems. For example, South Korean practices for

determining product shelf-life adversely affected U.S. meat exports and

were the subject of recent consultations. As a result, Korea agreed to

modify its practices. Meanwhile, the United States and Canada have both

filed several other disputes that allege violations of the SPS agreement.

Page 7 GAO/T-NSIAD-96-122
Key implementation and monitoring issues regarding the SPS agreement

include examining (1) other countries’ SPS measures that affect U.S.

agricultural exports; (2) how the SPS agreement is being implemented;

(3) whether its provisions will help U.S. exporters overcome unjustified

SPS measures; and (4) how the administration is responding to problems

U.S. exporters face. We have ongoing work addressing all of these issues.

Growing Importance

of State Trading

Within WTO

Another issue that is currently important for agricultural trade but may

have great future importance beyond agriculture is the role of state trading

enterprises within WTO member countries. State trading enterprises (STE)

are generally considered to be governmental or nongovernmental

enterprises that are authorized to engage in trade and are owned,

sanctioned, or otherwise supported by the government. They may engage

in a variety of activities, including importing and exporting, and they exist

in several agricultural commodity sectors, including wheat, dairy, meat,

oilseeds, sugar, tobacco, and fruits.

GATT accepts STEs as legitimate participants in trade but recognizes they

can be operated so as to create serious obstacles to trade, especially those

with a monopoly on imports or exports. Therefore, STEs are generally

subject to GATT disciplines, including provisions that specifically address

STE activities and WTO member country obligations. For example, member

countries must indicate whether they have STEs, and if so, they must report

regularly about their STEs’ structure and activities. The goal of this

reporting requirement is to provide transparency over STE activities in

order to understand how they operate and what effect they may have on

trade. However, as we reported in August 1995, compliance with this

reporting requirement was poor from 1980 to 1994, and information about

STE activities was limited.6

Although state trading was not a major issue during the Uruguay Round,

the United States proposed clarifying the application of all GATT disciplines

to STEs and increasing the transparency of state trading practices. Progress

was made in meeting U.S. objectives, as the Uruguay Round (1) enhanced

GATT rules governing STEs, (2) addressed procedural weaknesses for

collecting information, and (3) established a working party to review the

type of information members report. Within this working party, the United

States is suggesting ways to make STE activities even more transparent. It

is too early to assess whether the changes made will improve compliance

6

See State Trading Enterprises: Compliance with the General Agreement on Tariffs and Trade

(GAO/GGD-95-208, Aug. 30, 1995).

Page 8 GAO/T-NSIAD-96-122
with the STE reporting requirements. By mid-February, only 34 WTO

members had met the requirement—or roughly 29 percent of all members.

Still, this response rate is higher than during the earlier years we reviewed.

We continue to examine this important issue and are presently reviewing

the operations of select STEs.

Looking toward the future, officials from the United States and other

countries told us in 1995 they were concerned about the sufficiency of

GATT rules regarding STEs because countries like China and Russia, where

the state has a significant economic role, are interested in joining WTO.

Some country officials observed that current rules focus on providing

transparency, but such provisions alone may not provide effective

disciplines. U.S. officials said that the subject of state trading has been

prominent during China’s WTO accession talks as WTO members attempt to

understand the government’s economic role and its ability to control trade.

The Agreement on

Textiles and Clothing

Textiles is one sector where the United States expected losses in jobs and

in domestic market share after the Uruguay Round, even though

consumers were expected to gain from lower prices and a greater

selection of goods. We are currently reviewing how the United States is

implementing the Uruguay Round Agreement on Textiles and Clothing,

which took effect in January 1995. The Committee for the Implementation

of Textile Agreements (CITA), an interagency committee, is charged with

implementing the agreement, which calls for a 10-year phase-out of textile

quotas. Because of the 10-year phase-out, the effects of the textiles

agreement will not be fully realized until 2005, after which textile and

apparel trade will be fully integrated into WTO and its disciplines. This

integration is to be accomplished by (1) completely eliminating quotas on

selected products in four stages and (2) increasing quota growth rates on

the remaining products at each of the first three stages. By 2005, all

bilateral quotas maintained under the agreement on all WTO member

countries are to be removed.

The agreement gives countries discretion in selecting which products to

remove from quotas at each stage. During the first stage (1995 through

1997), almost no products under quota were integrated into normal WTO

rules by the major importing countries. The United States is the only major

importing country to have published an integration list for all three stages;

other countries, such as the EU and Canada, have only published their

integration plan for the first phase. Under the U.S. integration schedule,

89 percent of all U.S. apparel products under quota in 1990 will not be

Page 9 GAO/T-NSIAD-96-122
integrated into normal WTO rules until 2005. CITA officials pointed out that

the Statement of Administrative Action accompanying the U.S. bill to

implement the Uruguay Round agreements provided that “integration of

the most sensitive products will be deferred until the end of the 10-year

period.”

During the phase-out period, the textiles agreement permits a country to

impose a quota only when it determines that imports of a particular textile

or apparel product are harming, or threatening to harm, its domestic

industry. The agreement further provides that the imposition of quotas will

be reviewed by a newly created Textiles Monitoring Body consisting of

representatives from 10 countries, including the United States.

The United States is the only WTO member country thus far to impose a

new quota under the agreement’s safeguard procedures. In 1995, the

United States requested consultations with other countries to impose

quotas on 28 different imports that CITA found were harming domestic

industry. The Textiles Monitoring Body has reviewed nine of the U.S.

determinations to impose quotas (where no agreement was reached with

the exporting country) and agreed with the U.S. determination in one case.

In three cases, it did not agree with the U.S. decision, and the United

States dropped the quotas. It could not reach consensus in the other five

cases it reviewed. In 15 of the remaining 19 decisions, the United States

either reached agreement with the exporting countries or dropped the

quotas. Four cases are still outstanding.

Ongoing Negotiations

and the Financial

Services Agreement

Another area that warrants tracking by policymakers is the General

Agreement on Trade in Services (GATS), an important new framework

agreement resulting from the Uruguay Round. Negotiations on financial,

telecommunications, and maritime service sectors and movement of

natural persons were unfinished at the end of the round and thus

postponed. Each negotiation was scheduled to be independent from the

other ongoing negotiations, but we found that they do in fact affect one

another.

In 1995, we completed a preliminary review of the WTO financial services

agreement, which was an unfinished area in services that reached a

conclusion. The agreement covers the banking, securities, and insurance

sectors, which are often subject to significant domestic regulation and

therefore create complex negotiations. In June 1995, the United States

made WTO commitments to not discriminate against foreign firms already

Page 10 GAO/T-NSIAD-96-122
providing financial services domestically. However, the United States took

a “most-favored-nation exemption,” that is, held back guaranteeing

complete market access and national treatment to foreign financial service

providers. (Doing so is allowed under the GATS agreement.) Specifically,

the U.S. commitment did not include guarantees about the future for new

foreign firms or already established firms wishing to expand services in

the U.S. market. Despite consistent U.S. warnings, the decision to take the

exemption surprised many other countries and made them concerned

about the overall U.S. commitment to WTO. The U.S. exemption in financial

services was taken because U.S. negotiators, in consultation with the

private sector, concluded that other countries’ offers to open their markets

to U.S. financial services firms, especially those of certain developing

countries, were insufficient to justify broader U.S. commitments (with no

most-favored-nation exemption).7

The effect of the U.S. exemption may go beyond the financial services

negotiations. According to various officials in Geneva, foreign

governments are wary of making their best offers in the

telecommunications service negotiations, for fear that the United States

would again take a significant exemption in these talks. Nevertheless,

three-quarters of the participating countries have made offers, and the

telecommunications talks are continuing toward the April 30 deadline.

However, U.S. and foreign government officials have expressed concern

regarding the quality of offers made and the fact that some key developing

countries have not yet submitted offers.

Despite the commitments that all parties made regarding market access

and equal treatment in the financial services sector, several U.S. private

sector officials told us that the agreement itself did little to create greater

access to foreign markets. Still, the benefit from such an agreement results

from governments making binding commitments (enforceable through the

dispute settlement process) that reduce uncertainty for business.

Monitoring foreign government implementation of commitments is

important to ensure that the United States will receive the expected

benefits. At the end of 1997, countries, including the United States, will

have an opportunity to modify or withdraw their commitments. Thus, the

final outcome and impact of the financial services agreement are still

uncertain.

7

However, the United States was generally satisfied with the offers made by the EU, Japan, and other

developed countries.

Page 11 GAO/T-NSIAD-96-122
Dispute Settlement

Implementation

According to the WTO Dispute Settlement Understanding, the dispute

settlement regime is important because it is a central element in providing

security and predictability to the multilateral trading system. Members can

seek the redress of a violation of obligations or other nullification or

impairment of benefits under the WTO agreements through the dispute

settlement regime. The objective of this mechanism is to secure a “positive

solution” to a dispute. This may be accomplished through bilateral

consultations even before a panel is formed to examine the dispute. The

vast majority of international trade transactions have not been the subject

of a WTO dispute. According to recent WTO figures, in 1994 the total value of

world merchandise exports was $4 trillion and commercial service exports

was $1 trillion. WTO reports that its membership covers about 90 percent of

world trade. However, 25 disputes have been brought before WTO between

January 1, 1995, and January 16, 1996.

As we previously reported, the former GATT dispute settlement regime was

considered cumbersome and time-consuming.8

 Under the old regime, GATT

member countries delayed dispute settlement procedures for months and,

sometimes, years. In 1985, we testified that the continued existence of

unresolved disputes challenged not only the principles of GATT but the

value of the system itself.9

 We further stated that the member countries’

lack of faith in the effectiveness of the old GATT dispute settlement

mechanism resulted in unilateral actions and bilateral understandings that

weakened the multilateral trading system.

The United States negotiated for a strengthened dispute settlement regime

during the Uruguay Round. In particular, the United States sought time

limits for each step in the dispute settlement process and elimination of

the ability to block the adoption of dispute settlement panel reports. The

new Dispute Settlement Understanding establishes time limits for each of

the four stages of a dispute: consultation, panel, appeal, and

implementation. Also, unless there is unanimous opposition in the WTO

Dispute Settlement Body, the panel or appellate report is adopted. Further,

the recommendations and rulings of the Dispute Settlement Body cannot

add to or diminish the rights and obligations provided in the WTO

agreements. Nor can they directly force countries to change their laws or

regulations. However, if countries choose not to implement the

8

See International Trade: Combating Unfair Foreign Trade Practices (GAO/NSIAD-87-100, Mar. 17,

1987) and The International Agreement on Government Procurement: An Assessment of Its

Commercial Value and U.S. Government Implementation (GAO/NSIAD-84-117, July 16, 1984).

9

See United States Participation in the Multilateral Trading System, statement by Allan I. Mendelowitz,

GAO, before the U.S. Senate, Subcommittee on International Economic Policy, Oceans and

Environment, Committee on Foreign Relations (Sept. 26, 1985).

Page 12 GAO/T-NSIAD-96-122
recommendations and rulings, the Dispute Settlement Body may authorize

trade retaliation.

As previously mentioned, there have been a total of 25 WTO disputes. Of

these, the United States was the complainant in six and the respondent in

four. In comparison, Japan was a respondent in four disputes and the EU in

eight.10 All the disputes have involved merchandise trade. The Agreements

on Technical Barriers to Trade and the Application of Sanitary and

Phytosanitary Measures have been the subject of approximately half the

disputes. In January 1996, the first panel report under the new WTO dispute

settlement regime was issued on the “Regulation on Fuels and Fuels

Additives - Standards for Reformulated and Conventional Gasoline.”

Venezuela and Brazil brought this dispute against the United States. The

panel report concluded that the Environmental Protection Agency’s

regulation was inconsistent with GATT. The United States has appealed this

decision.

Based on our previous work on dispute settlement under the

U.S.-Canadian Free Trade Agreement (CFTA),11 it may be difficult to

evaluate objectively the results of a dispute settlement process. It may

takes years before a sufficiently large body of cases exists to make any

statistical observations about the process. After nearly 5 years of trade

remedy dispute settlement cases under CFTA, there were not enough

completed cases for us to make statistical observations with great

confidence.12 Specifically, we were not able to come to conclusions about

the effect of panelists’ backgrounds, types of U.S. agency decisions

appealed, and patterns of panel decisionmaking.

Future WTO

Endeavors

WTO members must wrestle with three competing but interrelated

endeavors in the coming years. Implementation, accession of new member

countries, and bringing new issues to the table will all compete for

attention and resources. The first effort, which we have already discussed,

involves implementing the Uruguay Round agreements. It will take time

and resources to (1) completely build the WTO organization so that

members can address all its new roles and responsibilities; (2) make

members’ national laws, regulations, and policies consistent with new

10Japan was a complainant in one dispute and the EU in two.

11See U.S.-Canada Free Trade Agreement: Factors Contributing to Controversy in Appeals of Trade

Remedy Cases to Binational Panels (GAO/GGD-95-175BR, June 16, 1995).

12Between 1989 and September 1994, there were 15 completed cases that involved U.S. agency

determinations.

Page 13 GAO/T-NSIAD-96-122
commitments; (3) fulfill notification requirements and then analyze the

new information; and (4) resolve differences about the meaning of the

agreements and judge whether countries have fulfilled their commitments.

The importance of implementation was underscored by U.S. Trade

Representative and Department of Commerce announcements earlier this

year that they were both creating specific units to look at foreign

government compliance with trade agreements, including WTO.

The second effort is the accession of new countries to join WTO and to

undertake GATT obligations for the first time. The accession of new

members will present significant economic and political challenges over

the next few years. Even though, as mentioned earlier, WTO members

account for about 90 percent of world trade, there are many important

countries still outside the GATT structure. The 28 countries that applied for

WTO membership as of December 1995 included China, the Russian

Federation, Viet Nam, and countries in Eastern Europe. These countries

will be challenged in undertaking WTO obligations and fulfilling WTO

commitments as current WTO members are themselves challenged by the

additional responsibilities created by the Uruguay Round agreements.

Many of these countries are undergoing a transition from centrally

planned to market economies. The negotiations between current WTO

members and those hoping to join are very complex and sensitive since

they involve such fundamental issues as political philosophy.

The third effort is negotiating new areas. In December 1996, a WTO

ministerial meeting is to take place in Singapore. This is to be a forum for

reviewing implementation of the Uruguay Round agreements and for

negotiating new issues. Some foreign government and WTO officials told us

that they hope these regularly scheduled, more focused WTO ministerial

meetings will replace the series of multiyear, exhaustive negotiating

“rounds” of the past. However, other officials expressed doubt that much

progress could be made toward future trade liberalization without the

pressure created by having a number of important issues being negotiated

at one time. Nevertheless, any negotiations will require time and

resources.

Members are debating whether to (1) push further liberalization in areas

already agreed to, but not yet fully implemented; and/or (2) negotiate new

issues related to international trade. For example, future WTO work could

include examination of national investment and competition policy, labor

standards, immigration, and corruption and bribery. Some of these

negotiations in new areas could be quite controversial, based on the

Page 14 GAO/T-NSIAD-96-122
experience of including areas like agriculture and services in the Uruguay

Round negotiating agenda.

Issues relating to the Singapore ministerial are currently under debate.

This could be an opportunity for Congress to weigh the benefit of having

U.S. negotiators give priority to full implementation of Uruguay Round

commitments, as opposed to giving priority to advocating new talks on

new topics. The first priority seeks to consolidate accomplishments and

ensure that U.S. interests are secured; the latter priority seeks to use the

momentum of the Uruguay Round for further liberalizations.

Thank you, Mr. Chairman, this concludes my prepared remarks. I will be

happy to answer any questions you or the Subcommittee may have.

(711185) Page 15 GAO/T-NSIAD-96-122
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