Report to Congressional Requesters

United States General Accounting Office 

GAO 

May 2003 TOBACCO EXPORTS 

USDA’s Foreign 

Agricultural Service 

Lacks Specific 

Guidance for 

Congressional 

Restrictions on 

Promoting Tobacco 

GAO-03-618 
Commerce, State, and USTR have issued timely guidance implementing the 

tobacco-related restrictions specified in their annual appropriations act. 

However, USDA’s Foreign Agricultural Service (FAS) has not issued 

guidance specific to its appropriations act. Instead, since 1998, FAS has 

relied on the tobacco-related guidance in a periodic cable sent to the 

overseas staffs of USDA, State, Commerce, and USTR. This guidance does 

not address whether certain FAS activities, such as providing tobaccorelated information reports and assisting in trade negotiations on tobaccorelated issues, are consistent with USDA’s 1994 restrictions. GAO did not 

seek to determine whether ongoing FAS activities are prohibited by the 

appropriations restrictions. 

The agencies have discontinued some tobacco-related activities and 

continued others. For instance, Commerce overseas staff ceased providing 

market research information to tobacco exporters, but staffs of Commerce 

and State still provide routine business assistance to exporters. FAS ended 

the tobacco component of USDA’s Export Credit Guarantee Program, 

Foreign Market Development Program, and Market Access Program. 

However, FAS has continued, as part of its commodity-reporting program, to 

gather and disseminate tobacco-related information that identifies foreign 

production and consumption rates, import trends, and changes in foreign 

regulations. Our analysis showed that some of FAS’s reports provided 

insights into market niches for tobacco exporters. 

To monitor compliance with the restrictions, senior FAS and Foreign 

Commercial Service officers at overseas posts review their staffs’ tobaccorelated activities. Overseas staffs refer to headquarters U.S. firms’ requests 

for assistance that could violate the restrictions contained in the periodic 

guidance. 

Since 1994, the Agriculture 

Appropriations Act has prohibited 

the funding of tobacco export 

programs and restricted the U.S. 

Department of Agriculture’s 

(USDA) tobacco-related activities. 

Since 1998, the Commerce, Justice, 

and State Appropriations Act has 

placed similar restrictions on the 

Departments of Commerce and 

State and the Office of the U.S. 

Trade Representative (USTR), 

although it has not prohibited them 

from addressing foreign 

discriminatory trade practices. 

Congressional requesters asked 

GAO to (1) assess the agencies’ 

guidance on the restrictions to 

their overseas personnel, (2) 

describe how the agencies’ 

activities changed in response to 

the restrictions, and (3) identify the 

mechanisms that the agencies use 

to monitor compliance. 

To ensure that FAS fully addresses 

congressional restrictions on the 

promotion of tobacco or tobaccorelated products, we recommend 

that the Secretary of Agriculture 

(1) develop guidance that reflects 

FAS’s specific restrictions and (2) 

review FAS’s tobacco-related 

activities to determine whether 

they are consistent with the 

restrictions. In response to our 

draft, FAS stated it will issue 

guidance but does not believe that 

the restrictions cover the collection 

and dissemination of tobacco 

related information. 

www.gao.gov/cgi-bin/getrpt?GAO-03-618.

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact David Gootnick 

at (202) 512-3149 or gootnickd@gao.gov. 

Highlights of GAO-03-618, a report to 

congressional requesters 

May 2003

TOBACCO EXPORTS 

USDA’s Foreign Agricultural Service 

Lacks Specific Guidance for 

Congressional Restrictions on Promoting 

Tobacco
Page i GAO-03-618 Tobacco Exports 

Letter 1

Results in Brief 2

Background 4

Commerce, State, and USTR Provided Guidance on Tobacco 

Restrictions, but FAS Did Not 5

Agencies Have Stopped Some Activities and Continued Others 7

Agencies Rely on Staff to Monitor Compliance with Restrictions on 

Promoting Tobacco 13

Conclusions 13

Recommendations 13

Agency Comments and Our Evaluation 14

Appendix I Scope and Methodology 17 

Appendix II Excerpts from 2001 and 2002 Foreign Agricultural 

Service Tobacco Attaché Reports 18 

Appendix III Comments from the U.S. Department of Agriculture 20 

Figures 

Figure 1: FAS Tobacco-Related Programs and Activities 9

Figure 2: Subscribers to FAS Worldwide Tobacco Reports 10

Contents 
Page ii GAO-03-618 Tobacco Exports 

Abbreviations 

FAS Foreign Agricultural Service 

FCS Foreign Commercial Service 

HHS Department of Health and Human Services 

USDA U.S. Department of Agriculture 

USTR Office of the U.S. Trade Representative 

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Page 1 GAO-03-618 Tobacco Exports 

May 30, 2003 

The Honorable Richard J. Durbin 

Ranking Minority Member 

Subcommittee on Oversight of Government Management, 

the Federal Workforce, and the District of Columbia 

Committee on Governmental Affairs 

United States Senate 

The Honorable Henry A. Waxman 

Ranking Minority Member 

Committee on Government Reform 

House of Representatives 

The Honorable Lloyd Doggett 

House of Representatives 

Since fiscal year 1994, the annual Agriculture Appropriations Act has 

prohibited the U.S. Department of Agriculture’s (USDA) Foreign 

Agricultural Service (FAS) from using appropriated funds to promote the 

sale or export of tobacco or tobacco products. Additionally, since fiscal 

year 1998, the Commerce, Justice,1

 and State Appropriations Act similarly 

has prohibited those agencies, including the Office of the U.S. Trade 

Representative (USTR), from using appropriated funds to promote the sale 

or export of tobacco or tobacco products and from seeking the removal of 

nondiscriminatory foreign restrictions on the marketing of tobacco. While 

both appropriations acts prohibit agencies from helping U.S. firms market 

tobacco products overseas, they differ in that the 1998 Act allows the 

Departments of Commerce and State and USTR to address potentially 

discriminatory trade practices faced by U.S. tobacco firms. 

As you requested, this report (1) assesses the tobacco-related policy 

guidance on restrictions issued to overseas personnel by USDA, 

Commerce, State, and USTR; (2) describes how the agencies’ past and 

present activities changed in response to the legislative restrictions on the 

 1

Although the Department of Justice is included in the legislated appropriations and is also 

subject to the tobacco-related restrictions, we did not examine its activities because it does 

not promote U.S. exports. 

United States General Accounting Office

Washington, DC 20548 
Page 2 GAO-03-618 Tobacco Exports 

marketing of tobacco and tobacco products; and (3) identifies how the 

agencies monitor compliance with restrictions on promoting tobacco. 

In conducting this review, we reviewed agency documents, performed 

legal analyses, and conducted interviews with responsible agency officials. 

We analyzed tobacco-related publications, including all FAS tobacco 

commodity reports for 2001 and 2002. We did not seek to determine 

whether ongoing agency activities are, or are not, prohibited under the 

appropriations restrictions. (See app. I for further details of our scope and 

methodology.) 

Commerce, State, and USTR have issued timely guidance implementing 

tobacco-related restrictions in their annual appropriations act, but the 

USDA’s FAS has not. Since fiscal year 1998, USDA, Commerce, State, and 

USTR have issued guidance to diplomatic posts as a periodic cable that 

implements the restrictions in the agencies’ appropriations. Between 1993 

and 1997, FAS issued no guidance implementing its tobacco-related 

restrictions. Since 1998, FAS has relied on the periodic cables to provide 

policy guidance to its overseas personnel. However, this guidance—

developed through an ongoing interagency process that includes FAS—

does not provide specific direction to FAS staff. For example, it does not 

specify whether certain FAS activities, such as providing tobacco-related 

information reports on foreign market conditions and assisting in trade 

negotiations on tobacco-related issues, are consistent with its 

appropriations act’s restrictions. 

In response to the legislative restrictions, the agencies discontinued some 

tobacco-related activities and continued others. Commerce overseas staff 

ceased providing market research information to potential U.S. tobacco 

exporters. Consistent with the 1998 cable guidance, the staffs of both 

Commerce and State still provide routine business assistance to exporters 

needing security, customs, or regulatory information. In fiscal year 1994, 

FAS ended the tobacco component of USDA’s major export programs—

specifically, the Export Credit Guarantee Program, the Foreign Market 

Development Program, and the Market Access Program.2

 FAS has 

continued, as part of its commodity-reporting program, to gather and 

disseminate tobacco-related information that identifies foreign production 

and consumption rates, import trends, and changes in foreign regulations 

 2

Formerly the Market Promotion Program. 

Results in Brief 
Page 3 GAO-03-618 Tobacco Exports 

that may assist tobacco exporters. Additionally, FAS, like other U.S. 

agencies, has provided USTR negotiators with information on foreign tariff 

rates, U.S. market shares, and trade concessions’ potential impact on 

exports. 

To monitor implementation of the legislated restrictions, Commerce, 

State, and FAS rely on their overseas staffs to identify U.S. firms’ requests 

for tobacco-related assistance not covered in the periodic guidance. 

Overseas staff are instructed to refer such requests to headquarters for 

review, and headquarters staff make case-by-case determinations on the 

permissibility of each request. Overseas staff have asked, for instance, 

whether they can help U.S. tobacco firms address different types of 

potentially unfair trade practices and whether to list tobacco as an export 

prospect in publicly available country commercial guides that highlight 

export opportunities. 

We are recommending that the Secretary of Agriculture (1) develop 

guidance to implement the legislative restrictions on promoting the sale or 

export of tobacco or tobacco products that fully reflects FAS programs 

and activities and (2) review FAS’s ongoing activities to determine 

whether they are consistent with those restrictions. 

In commenting on a draft of this report (see app. III), USDA disagreed with 

our finding that the guidance of the State cable does not fully implement 

FAS’s tobacco-related prohibitions, but USDA noted that, in response to 

our recommendation, it will prepare separate guidance for FAS staff 

overseas and will cite any needed clarifications. USDA also disagreed with 

our recommendation that FAS assess its tobacco-related activities—

specifically, the collection and dissemination of information on tobacco—

to clarify whether these activities are consistent with FAS’s legislative 

restrictions on the promotion of tobacco exports. USDA stated that it does 

not consider these activities to be within the scope of its restrictions. 

However, USDA has not provided us with any documentation in support of 

this position. Because FAS’s mission is largely promotional, we maintain 

our recommendation that FAS review its ongoing activities and determine 

whether they are consistent with its restrictions. Commerce, State, and 

USTR did not comment on the draft report. 
Page 4 GAO-03-618 Tobacco Exports 

In general, the overseas staffs of USDA, Commerce, and State help 

facilitate a broad range of U.S. exports. Specifically, USDA’s FAS and 

Commerce work to improve export opportunities for U.S. products in 

foreign markets.3 Their activities include developing export opportunities 

for U.S. businesses, participating in trade agreement negotiations and 

countering foreign discriminatory trade practices, and collecting and 

analyzing statistics and market information. Each agency produces 

information reports on foreign market conditions. For example, FAS staff 

provide monthly reports on various commodities and annual reports on 

foreign markets, and Commerce overseas staff prepare country 

commercial guides that identify targeted industry sectors for U.S. exports 

and discuss the country’s political, regulatory, and economic climate. State 

overseas staff’s trade responsibilities include facilitating trade 

negotiations, providing economic analysis, and providing commercial 

assistance in countries where Commerce has no presence. These agencies 

are part of an interagency process established under the Trade Expansion 

Act of 1962, which provides for an interagency structure and process that 

consults and advises USTR on trade policy and negotiations. 

In the early 1990s, these agencies, as well as the Departments of Health 

and Human Services (HHS) and the Treasury, were also members of an 

interagency group, called the Trade Policy Staff Committee Task Force on 

Tobacco Exports, that examined the dichotomy between tobacco-related 

health concerns and the economic benefit of tobacco exports.4

 Charged 

with assessing U.S. tobacco policy in light of trade and health concerns, 

the group outlined the agencies’ tobacco-related responsibilities.5

 Those 

responsibilities included collecting and analyzing production, trade, and 

consumption data on tobacco and related products; addressing unfair 

regulations inconsistent with international trade agreements; combating 

discriminatory trade practices; and supporting foreign government health 

policies. 

 3

In 2001, USDA had 244 staff in 73 overseas offices, and Commerce had 1,245 staff in 157 

overseas offices. USDA has responsibility for marketing nonmanufactured agricultural 

products, while Commerce has responsibility for marketing manufactured agricultural and 

other products. In 2002, State had 6,103 staff located in 259 overseas offices. 

4

U.S. General Accounting Office, Trade and Health Issues: Dichotomy Between U.S. 

Tobacco Export Policy and Antismoking Initiatives, GAO/NSIAD-90-190 (Washington, 

D.C.: May 15, 1990). 

5

Members of the interagency group included representatives from the National Economic 

Council, State, Commerce, USDA, HHS, Treasury, and USTR. 

Background 
Page 5 GAO-03-618 Tobacco Exports 

In August 1992, Congress passed the Agricultural Appropriations Act for 

fiscal year 1993, prohibiting the use of appropriated funds to pay the 

salaries of personnel who carry out USDA’s Market Promotion Program 

with respect to tobacco. In October 1993, Congress broadened the 

tobacco-related prohibition, as part of the fiscal year 1994 appropriation 

act, to include FAS in the prohibitions. Specifically, since fiscal year 1994 

Congress has prohibited FAS from using appropriated funds to promote 

the sale or export of tobacco or tobacco products. 

In November 1997, Congress passed the fiscal year 1998 Commerce, 

Justice, and State Appropriations Act, prohibiting agencies funded by the 

act, including USTR, from using appropriated funds to promote the sale or 

export of tobacco or tobacco products. This act also prohibited the use of 

appropriated funds to reduce or remove nondiscriminatory foreign 

country restrictions on the marketing of tobacco or tobacco products. The 

act allows the use of funds to address foreign-country, tobacco-marketing 

restrictions that discriminate against U.S. products. Subsequent 

appropriations acts have retained these prohibitions. 

Guidance implementing the fiscal year 1998 restrictions on Commerce, 

State, and USTR’s promotion of tobacco and tobacco-related products was 

first issued in February 1998; about 3 months after the restrictions went 

into effect. The guidance, issued in a State cable to overseas posts, 

identified prohibited and permitted activities. By contrast, from 1994 

through 1997, FAS did not provide any written guidance to its overseas 

staff regarding the restrictions on its tobacco-related activities. Since fiscal 

year 1998, according to FAS officials, the agency has participated in 

developing the guidance contained in the periodic State cables. 

The cabled guidance, first issued in February 1998, implements the 

tobacco restrictions contained in the fiscal year 1998 Commerce, State, 

and Justice Appropriations Act. This guidance prohibits the agencies from 

• promoting the sale or export of tobacco or tobacco-related products and 

assisting with the efforts of U.S. firms or individuals that do, 

• participating in trade events or receptions sponsored by tobacco interests, 

and 

• challenging host country laws and regulations directed toward reducing 

the negative impact of tobacco. 

Commerce, State, and 

USTR Provided 

Guidance on Tobacco 

Restrictions, but FAS 

Did Not 

Commerce, State, and 

USTR Issued Guidance on 

Their Tobacco Restrictions 
Page 6 GAO-03-618 Tobacco Exports 

The guidance also clarifies the activities that overseas staff may engage in, 

specifically permitting these agencies to provide 

• routine business facilitation services to all U.S. citizens or firms, such as 

providing information on foreign country conditions, policies, laws, and 

regulations; 

• assistance in resolving business problems, such as customs or port 

clearances; and 

• assistance in resolving potentially discriminatory trade restrictions. 

Since February 1998, State has periodically updated and reissued this 

guidance to overseas staffs of State, Commerce, and USDA. The February 

1999 cable reiterated the same guidance and encouraged overseas staff to 

refer to headquarters any issues not covered by the guidance. This cable 

also encouraged overseas posts to report on their actions supporting 

foreign-country, tobacco-control efforts. The February 2000 cable again 

encouraged posts to assist in foreign tobacco-control efforts and provided 

suggestions for doing so. The cable specifically recommended that posts 

help foreign governments to 

• identify and promote tobacco-control programs; 

• find funding for tobacco prevention and control projects, including from 

U.S. sources; 

• report on the country’s tobacco-control projects and progress; and 

• track, and report on, tobacco-control legislation. 

FAS did not develop guidance implementing the statutory restrictions, 

effective in fiscal year 1994, that specifically prohibit it from using 

appropriated funds to promote the sale or export of tobacco or tobaccorelated products. FAS did cease funding certain tobacco-related activities 

in 1994. However, FAS officials could not cite or produce any internal 

policy or guidance implementing their restrictions, nor could they explain 

what guidance they relied on from 1994 through 1997. 

FAS officials stated that since fiscal year 1998, when the restrictions on 

State, Commerce, and USTR activities became effective, FAS has relied on 

the February 1998 and subsequent State cables containing guidance to 

FAS Has Not Issued 

Guidance Implementing Its 

Tobacco Restrictions 
Page 7 GAO-03-618 Tobacco Exports 

overseas posts as a means to inform its overseas staff of the tobaccorelated restrictions. All of the FAS officials we interviewed were aware of 

this guidance. For example, FAS staff at headquarters and overseas were 

aware that they were prohibited from promoting tobacco and its products, 

and the overseas staff members we communicated with were aware that 

participation in trade events promoting tobacco and attendance at tobacco 

company-sponsored functions was prohibited. 

Although FAS participated in drafting the original 1998 State-issued 

guidance cables, the cables do not specifically address what FAS activities 

are prohibited under the USDA appropriations act restrictions. In 

particular, the cables do not address FAS’s continuing activities related to 

(1) collecting and disseminating information on foreign tobacco markets 

or (2) participating in negotiations on tobacco-related trade agreements. 

USDA, Commerce, State, and USTR have altered their activities in 

response to the legislated tobacco restrictions by discontinuing the 

tobacco-related component of export programs and stopping direct 

assistance to tobacco exporters, but the agencies have continued certain 

other activities related to information gathering and dissemination and 

trade negotiations. For example, the agencies routinely collect and publish 

information on foreign countries’ commercial environment, which may 

include information related to tobacco. Such information might be useful 

to U.S. tobacco exporters. These agencies also provide information useful 

to USTR when it negotiates trade agreements or addresses discriminatory 

trade barriers. 

Commerce’s Foreign Commercial Service (FCS) staff have ceased 

assistance to potential tobacco exporters but continue to provide basic 

assistance to all potential exporters. FCS representatives told us that FCS 

staff no longer (1) provide market information on tobacco in FCS’s 

country commercial guides; (2) facilitate meetings with foreign tobacco 

buyers; (3) set up trade shows for tobacco products; or (4) provide 

customized fee-based research that identifies key competitors, the price of 

comparable products, customary distribution and promotion practices, or 

possible business partners. However, FCS identified a few instances in 

which its overseas staff inadvertently assisted tobacco exporters. In 2001, 

for example, FCS staff prepared research reports on Pakistan’s tobacco 

market for a U.S. tobacco firm—an activity clearly prohibited in the 

guidance provided to overseas posts. FCS reminded its staff of these 

prohibitions in 2002 by resending the 2000 cable to its posts. FCS policy is 

Agencies Have 

Stopped Some 

Activities and 

Continued Others 

Commerce Stopped 

Providing Market Research 

Information 
Page 8 GAO-03-618 Tobacco Exports 

to limit assistance to tobacco firms to the same routine business 

facilitation services provided to any U.S. firm, such as briefing them on the 

security, political, and commercial situation in a country and helping them 

resolve customs or tax issues. Commerce staff, in conjunction with other 

agency staff here and abroad, also helps resolve potential discriminatory 

trade practices. 

Commerce, State, and other federal agencies assist USTR by providing 

trade information on foreign markets, commodities, or barriers to trade, 

and they work together to assist exporters faced with potential 

discriminatory trade practices. In 2001, for example, representatives from 

USTR, State, Commerce, and the Centers for Disease Control and 

Prevention negotiated with the Republic of Korea to reduce proposed 

import tariffs on tobacco that would have violated an existing market 

access agreement between the United States and Korea. In another 

instance, U.S. agencies worked together to address Thailand’s proposed 

cigarette ingredient disclosure requirement—a potential infringement of 

the intellectual property rights of U.S. cigarette brands. U.S. agencies 

assist exporters in other ways, such as working with foreign governments 

to address cigarette counterfeiting, as U.S. agencies did in Pakistan in 

1998. 

USTR is responsible for developing and coordinating trade policy, 

negotiating trade agreements, and addressing unfair trade practices. USTR 

relies on an interagency structure, established in the Trade Expansion Act 

of 1962,6

 to provide information on foreign trade policies, regulations, and 

practices. Since 1998, the Commerce, Justice, and State Appropriations 

Act has specifically allowed the use of appropriated funds to address 

foreign-country, tobacco-marketing restrictions that discriminate against 

U.S. products. This allowance is reflected in the implementing guidance 

contained in the periodic State cable. 

Beginning in fiscal year 1994, when the tobacco restrictions contained in 

USDA’s appropriations went into effect, FAS ceased funding the tobacco 

component of USDA’s export programs (see fig. 1). The tobacco 

component of USDA’s Export Credit Guarantee Program had provided 

U.S. tobacco exporters with guaranteed credit to facilitate U.S. tobacco 

 6

Public Law 100-418. 

Commerce, State, and 

USTR Provide Trade 

Agreement-Related 

Support 

FAS Discontinued Some 

Tobacco Programs 
Page 9 GAO-03-618 Tobacco Exports 

exports and had provided subsidy payments that allowed the tobacco 

exporters to compete in world markets against the subsidized exports of 

other countries. USDA also stopped funding the tobacco component of the 

Foreign Market Development Program, which was designed to encourage 

commercial exports through federal subsidies for advertising, trade 

servicing, and technical assistance. The tobacco component of the Market 

Access Program (formerly the Market Promotion Program) ended in fiscal 

year 1993. This program funded the promotional activities of U.S. tobacco 

producers, exporters, private companies, and trade organizations. 

Figure 1: FAS Tobacco-Related Programs and Activities 

a

Now the Market Access Program. 

FAS continues to produce tobacco-related reports that can be useful to 

tobacco exporters. Historically, FAS has reported on foreign-country 

tobacco imports and provided production, pricing, and consumption data, 

as it routinely does for other commodities. Currently, FAS continues to put 

monthly tobacco trade statistics on its Internet Web site, and it publishes 

printed copies of its quarterly report Tobacco: Worldwide Markets and 

FAS Continues to Report 

on Foreign Tobacco 

Markets 
Page 10 GAO-03-618 Tobacco Exports 

Trade. (FAS officials said that they would stop publishing the report at the 

end of 2003 but that the information would continue to be available on 

their Web site.) FAS also makes available on the Internet annual 

commodity reports on tobacco, referred to as “attaché reports.”7 These 

reports contain numerous data tables and some evaluative information on 

major foreign consumers and producers of tobacco products. 

We examined the subscription lists for FAS’s quarterly reports and found 

that the majority of subscribers are tobacco industry-related organizations 

such as U.S. and foreign tobacco firms and tobacco-related organizations 

such as investment banks, trade associations, and tobacco control 

organizations (see fig. 2). 

Figure 2: Subscribers to FAS Worldwide Tobacco Reports 

 7

FAS attaché reports are issued on numerous commodities. 
Page 11 GAO-03-618 Tobacco Exports 

We also analyzed the content of all FAS annual attaché reports covering 

tobacco during 2001 and 2002 and found that they provide information on 

foreign market conditions that may be useful to tobacco exporters. The 62 

annual reports from 2001 and 20028 that we analyzed commonly contained 

discussions on marketing, consumption and production, trade issues, and 

policies. (See app. II for detailed information on the nature of these 

reports.) General FAS guidance on commodity reporting encourages posts 

to view the countries as markets for U.S. exports and competitors to U.S. 

products, and the attaché reports identified import and export trends. 

Each report narrative was supplemented with an average of 14 tables, 

including estimates on projected production and consumption of leaf 

tobacco and cigarettes. Additionally, some reports contained information 

on health and safety policies, market share, advertising regulations, and 

brand or tobacco preference. The following excerpts from selected reports 

illustrate the kind of information that might be useful to U.S. tobacco 

exporters. 

• Malaysia, 2002: “Younger Malaysians prefer to smoke American-blended 

cigarettes. With about half of the population below age 25, the demand for 

these cigarettes should continue to climb. The local market share for 

American-blend cigarettes has expanded from 38 percent in 1998 to 45 

percent in 2001.” 

• Italy, 2002: “Prospects for U.S. tobacco into the Italian market...are 

unfavorable, in view of both the continued reduction of domestic brand 

cigarettes sold on the Italian market, and stronger competition from other 

suppliers, such as Brazil and Zimbabwe.” 

• Dominican Republic, 2002: “The Dominican Republic continues to be one 

of the most important trading partners with the United States in 

tobacco.... U.S. exports to the Dominican Republic surpassed US$85 

 8

Attaché reports for 2002 cover Argentina, Brazil, Bulgaria, China, Croatia, Dominican 

Republic, Egypt, France, Germany, Greece, Guatemala, Hong Kong, Hungary, India, 

Indonesia, Italy, Japan, Korea, Malaysia, Mexico, the Netherlands, Pakistan, the Philippines, 

Poland, the Russian Federation, Spain, South Africa, Taiwan, Thailand, Turkey, and the 

United Kingdom. The European Union annual report was not included. 

Attaché reports for 2001 cover Argentina, Austria, Brazil, Bulgaria, China, Egypt, France, 

Germany, Guatemala, Hong Kong, Hungary, India, Indonesia, Italy, Japan, Korea, Malaysia, 

Mexico, Moldova, the Netherlands, Pakistan, the Philippines, Poland, the Russian 

Federation, South Africa, Spain, Taiwan, Thailand, Turkey, the United Kingdom, and 

Zimbabwe. 
Page 12 GAO-03-618 Tobacco Exports 

million in CY 2001, positioning the Dominican Republic among the top five 

largest importers of U.S. tobacco.” 

Moreover, an analysis of report narratives in combination with 

information contained in the data tables might provide insight into market 

niches for potential exporters. For example, from the narratives and tables 

of the FAS 2002 report on Taiwan, we learned that (1) domestic 

unmanufactured tobacco production had declined because of privatization 

of the country’s tobacco monopoly, and the remaining production will 

incorporate U.S. leaf tobacco; (2) competitors’ imports of unmanufactured 

tobacco were projected to decrease; (3) Taiwanese consumers considered 

U.S. tobacco desirable; and (4) small, steady increases in total tobacco 

consumption were forecast. Taken together, this information identifies an 

opportunity for U.S. tobacco exporters of unmanufactured leaf. The report 

itself claims that in Taiwan there are “opportunities and challenges for 

U.S. tobacco and tobacco product exports.”9

The 2001 report from the Netherlands is another example in which 

combined reported information gives U.S. tobacco exporters insight into 

the Dutch market.10 The tobacco report indicates (1) increased domestic 

production of cigarettes, (2) a Dutch preference for U.S. flue-cured 

unmanufactured tobacco, and (3) the importance of competitive pricing 

for U.S. exports to be able to compete with imports from Brazil and 

Zimbabwe. Additionally, information on the European Union’s lower tar 

and nicotine requirements provides the exporter with useful information. 

FAS supports USTR and State regarding trade policy and trade agreement 

issues. FAS staff participate in the interagency process that supports trade 

negotiations and addresses discriminatory trade practices, providing data 

and analysis on a variety of commodities, including tobacco. The Secretary 

of Agriculture, under the Food, Agriculture, Conservation, and Trade Act 

of 1990,11 has authority to “provide technical services to the USTR on 

matters pertaining to agricultural trade and with respect to international 

negotiations on issues related to agricultural trade.” FAS, for example, has 

 9

Foreign Agricultural Service, Taiwan Tobacco and Products, number TW2020, June 3, 

2002. 

10Foreign Agricultural Service, The Netherlands Tobacco and Products, number NL1055, 

August 10, 2001. 

11Public Law 101-624. 

FAS Continues to Provide 

Tobacco-Related 

Information to USTR 
Page 13 GAO-03-618 Tobacco Exports 

supported USTR’s efforts to foster free trade agreements with Australia, 

Chile, Jordan, Morocco, and Singapore by providing tobacco-related data 

and information on production, supply and demand, and tariff-rate quotas. 

Senior FAS and FCS officers at overseas posts oversee their staffs’ 

tobacco-related activities. Overseas staff are aware that they are to refer to 

these officers any requests for assistance or other activities that could 

violate the restrictions outlined in the periodic guidance they receive. 

When clarification of a requested activity is required, these officers, as 

outlined in the periodic State cables, seek headquarters-level approval 

before assisting U.S. tobacco firms. Headquarters staff make case-by-case 

determinations on the permissibility of each request. Agencies do not 

systematically collect information on requests made for assistance by 

tobacco exporters; therefore, information on the exact number of requests 

was unavailable. However, overseas staff have, for example, asked 

whether they should discuss proposed tariff increases on imported 

cigarettes with foreign governments, whether it would be appropriate to 

hold embassy meetings with tobacco firms, and whether to include 

tobacco as a good export prospect in Commerce’s Country Commercial 

Guide for Russia. To each of these requests, headquarters staff said no. 

Since 1998, USDA, Commerce, State, and USTR have participated in an 

interagency process that has developed and periodically updated guidance 

to their overseas staff, outlining restrictions on the promotion of tobacco 

and tobacco-related products. However, this guidance appears to 

implement only the restrictions of the Commerce, State, and USTR 

appropriations and does not provide specific direction to FAS staff 

regarding restrictions on its tobacco-related programs and activities. FAS 

discontinued funding the tobacco components of its major export 

programs in 1994. However, FAS has not assessed whether its activities 

regarding the collection and dissemination of information—information 

that is used by tobacco producers and exporters of tobacco products—are 

consistent with FAS’s statutory restrictions on the promotion of tobacco 

or tobacco products. 

To ensure that the Foreign Agricultural Service has fully addressed its 

restriction on the promotion of tobacco or tobacco-related products, we 

recommend that the Secretary of Agriculture (1) develop guidance to 

implement the legislative restrictions on promoting the sale or export of 

tobacco or tobacco-related products that fully reflects FAS programs and 

Agencies Rely on Staff 

to Monitor 

Compliance with 

Restrictions on 

Promoting Tobacco 

Conclusions 

Recommendations 
Page 14 GAO-03-618 Tobacco Exports 

activities. We also recommend that the Secretary (2) review all ongoing 

activities that pertain to tobacco or tobacco-related products—

specifically, the collection and dissemination of information on tobacco—

to determine whether these activities are consistent with the Department 

of Agriculture’s restrictions in its appropriations. 

We provided a draft copy of this report to USDA, Commerce, State, and 

USTR. We received written comments from USDA. Commerce, State, and 

USTR did not comment on the draft report. 

USDA disagreed with our conclusion that the State cable, formulated to 

implement the restrictions that apply to Commerce, State, and USTR and 

adopted by FAS, provides insufficient guidance to FAS staff. Specifically, 

FAS claims that the Commerce, Justice and State Appropriations Act 

restricts agency action to a greater degree than the USDA amendment 

covering FAS because it adds an additional restriction on trade 

negotiations not found in the USDA amendment. By following this 

guidance, FAS states, it is therefore implementing its restrictions and 

voluntarily adopting additional limitations. 

We disagree. The tobacco-related restrictions contained in FAS’s annual 

appropriation act and the restrictions contained in Commerce, State, and 

USTR’s appropriation act are essentially the same and only differ in one 

respect. The restriction in the Commerce, State, and USTR appropriation 

act prohibits those agencies from seeking the reduction or removal of 

foreign-country restrictions on the marketing of tobacco, but allows those 

agencies to address, in limited circumstances, foreign-country restrictions 

on the marketing of tobacco that potentially discriminate against U.S. 

products. Because FAS programs and activities differ from those of the 

other agencies and its overall mission is largely promotional,12 we continue 

to recommend that FAS develop guidance that fully reflects its own 

activities. 

FAS also disagreed with our recommendation that it review its tobaccorelated activities—specifically, the collection and dissemination of market 

intelligence regarding tobacco—to determine whether these activities are 

in keeping with USDA’s tobacco restrictions. FAS states that it does not 

consider market intelligence reporting (the collection and dissemination 

of information on tobacco) to be within the scope of their amendment’s 

 127 U.S.C. §1761-1768. 

Agency Comments 

and Our Evaluation 
Page 15 GAO-03-618 Tobacco Exports 

restrictions. It states that the legislative history does not address this 

activity and that an interagency task force considered it to be outside the 

amendment’s scope. During the course of our review, we asked FAS for, 

but did not receive, documentation that supports their contention that 

such reporting falls outside the scope of the restrictions. 

In recommending the need for such a review of current tobacco-related 

activities, we note that FAS’s overall mission is to promote the export of 

U.S. agricultural products—and one of the primary responsibilities of the 

FAS officers overseas is market development.13 The attaché reports we 

examined identify (1) changes in domestic production or consumption 

that could affect tobacco leaf or cigarette sales; (2) foreign competitors, 

characterizing the competitiveness of their products; and (3) potential 

market impediments, such as regulations or duties. Some reports also 

make suggestions on commodity pricing that could increase U.S. firms’ 

sales over foreign competitors’ and help U.S. firms market their tobacco 

and tobacco products overseas. USDA does not permit FAS officers 

overseas to discuss or provide this type of information with potential 

exporters. We would expect FAS to assess its market intelligence reports 

by the same standards. 

In addition, FAS stated that the USDA amendment is a limitation on the 

use of FAS’s Salaries and Expenses appropriations, and not, as 

represented in our draft report, “a general restriction on the Department of 

Agriculture’s tobacco-related activities.” Nowhere in our report do we 

state that the USDA amendment constitutes such a general restriction. In 

this report’s highlight sheet, we do summarize that “Since 1994, the 

Agriculture Appropriations Act has prohibited the funding of tobacco 

export programs and restricted the Department of Agriculture’s tobaccorelated activities.” We believe this latter statement accurately summarizes 

the amendments provisions as reflected in the statement made throughout 

this report that the USDA amendment prohibits FAS, which is responsible 

for USDA’s agricultural export promotion programs and activities, from 

using appropriated funds to promote the sale or export of tobacco or 

tobacco-related products. 

FAS also stated that a review of the USDA amendment’s legislative history 

demonstrates that tobacco interests’ participation in “FAS sponsored trade 

shows and other promotional activities” were the type of activities that 

 137 U.S.C. §5693. 
Page 16 GAO-03-618 Tobacco Exports 

were encompassed by the prohibition. We do not contest FAS’s 

interpretation of the of the legislation. As FAS correctly points out in its 

comments, we did not seek to determine whether ongoing agency 

activities are, or are not, prohibited. However, FAS assertions regarding 

the types of activities demonstrated by the legislative history to be 

encompassed by the prohibition beg the question of what FAS means by 

“...promotional activities.” This underscores our point regarding the need 

for FAS-specific guidance for implementing the prohibition. 

As you requested, unless you publicly announce its contents earlier, we 

plan no further distribution of this report until 30 days from its issue date. 

At that time, we will send copies of this report to the appropriate 

congressional committees. Copies of this report will also be sent to the 

Secretary of Agriculture, the Secretary of Commerce, the Secretary of 

State, and the U.S. Trade Representative. Copies will also be made 

available to others on request. In addition, the report will be available at 

no additional charge on the GAO Web site at http://www.gao.gov. 

If you or your staff have any questions regarding this report, please call me 

at (202) 512-3149. Key contributors to this assignment were Virginia 

Hughes, Patricia Martin, Ella Mann, Ernie E. Jackson, Reid Lowe, and 

Daniel Gage. 

David Gootnick 

Director, International Affairs and Trade 
Appendix I: Scope and Methodology 

Page 17 GAO-03-618 Tobacco Exports 

To assess the tobacco-related policy guidance on tobacco restrictions 

issued to overseas personnel by the Departments of Agriculture (USDA), 

Commerce, and State and the Office of the U.S. Trade Representative 

(USTR), we obtained and analyzed copies of the legislation governing the 

agencies’ tobacco-related restrictions. We also analyzed, when available, 

State cables containing guidance implementing the restrictions contained 

in the laws, as well as reports and E-mails detailing the development or 

provision of guidance to the overseas staffs of these agencies. We 

discussed the process for establishing the evolution and implementation of 

the guidance with cognizant officials of these agencies. However, we 

found few officials remained at the agencies from the time of the 

legislation. Although the Department of Justice is included in the legislated 

appropriations and is also subject to the tobacco-related restrictions, we 

did not examine its activities because it does not promote U.S. exports. 

To determine how USDA, Commerce, State, and USTR adjusted their 

activities in response to their legislative restrictions on the marketing of 

tobacco and tobacco products, we identified these agencies’ past tobacco 

export promotion programs and current activities related to tobacco. 

However, we did not seek to determine whether the agencies’ ongoing 

activities are prohibited. We obtained funding histories for USDA’s 

tobacco programs and discussed the nature of the programs and activities 

with agencies’ officials here and abroad, obtaining documentation when 

available. We communicated with USDA’s Foreign Agricultural Service 

(FAS) and Commerce’s Foreign Commercial Service (FCS) staffs in 

Croatia, Italy, Turkey, and the Philippines. We also obtained information 

on trade agreements and discussed the interagency process used to 

develop trade policy and negotiating positions. In addition, we contacted 

officials of antitobacco organizations, such as the American Cancer 

Society and Campaign for Tobacco Free Kids, and asked them to identify 

federal tobacco export promotion programs. 

We conducted our review from October 2002 to March 2003 in accordance 

with generally accepted government auditing standards. 

Appendix I: Scope and Methodology 
Appendix II: Excerpts from 2001 and 2002 

Foreign Agricultural Service Tobacco Attaché 

Reports 

Page 18 GAO-03-618 Tobacco Exports 

Appendix II: Excerpts from 2001 and 2002 

Foreign Agricultural Service Tobacco Attaché 

Reports 
Appendix II: Excerpts from 2001 and 2002 

Foreign Agricultural Service Tobacco Attaché 

Reports 

Page 19 GAO-03-618 Tobacco Exports 
Appendix III: Comments from the U.S. 

Department of Agriculture 

Page 20 GAO-03-618 Tobacco Exports 

Appendix III: Comments from the U.S. 

Department of Agriculture 
Appendix III: Comments from the U.S. 

Department of Agriculture 

Page 21 GAO-03-618 Tobacco Exports 
Appendix III: Comments from the U.S. 

Department of Agriculture 

Page 22 GAO-03-618 Tobacco Exports (320155) 
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