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

12:00 p.m., EDT

Friday,

September 27, 1996

WORLD TRADE

ORGANIZATION

Status of Issues to Be

Considered at Singapore

Ministerial Meeting

Statement For The Record by 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-96-243

Statement for the Record by Jayetta Z.

Hecker, Associate Director International

Relations and Trade Issues National Security

and International Affairs Division

Mr. Chairman and Members of the Subcommittee:

I am pleased to have the opportunity to provide this statement for the

record for your hearing on September 11, 1996. Based on our past and

ongoing work, I have some observations about the implementation of the

Uruguay Round agreements and the operations of the World Trade

Organization (WTO) in the context of the upcoming Singapore ministerial

meeting. WTO is a multilateral organization that, among other things, serves

as a forum for international trade negotiations and oversees the

administration of the Uruguay Round agreements. After providing a brief

overview of some issues expected to be raised at Singapore, my statement

will discuss in more detail the status of (1) general implementation issues,

(2) issues related to WTO agreement on textiles and clothing,

(3) implementation of the agriculture agreements, (4) ongoing negotiations

involving trade in services and market access, (5) new issues that may be

taken up by the WTO in Singapore, and (6) new member accessions to the

WTO.

The first biannual WTO ministerial meeting will take place from

December 9 to 13, 1996, in Singapore. The meeting is a forum for reviewing

implementation of the Uruguay Round agreements and for discussing new

issues. The U.S. Trade Representative (USTR) believes that this meeting will

be an important test of the WTO’s credibility as a forum for continuous

consultation, negotiation, and liberalization. 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 opportunities for trade-offs created by having a

number of important issues under negotiation at one time.

Overview The Uruguay Round agreements generally went into force on January 1,

1995. Implementation of these agreements is complex, and it will take

years before the results can be fully assessed.1

 The ministerial level

meeting in Singapore provides WTO member countries the first opportunity

to “take stock” of how well they have implemented the Uruguay Round

agreements so far. The many committees and working groups that

constitute the organization will report to ministers through the WTO

General Council about their activities and plans. Members may also debate

1

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 1 GAO/T-NSIAD-96-243
Statement for the Record by Jayetta Z.

Hecker, Associate Director International

Relations and Trade Issues National

Security and International Affairs Division

how best to further expand trade liberalization. Our work highlights the

following issues that are expected to be topics at Singapore:

• In general, assessing the new and complex Uruguay Round agreements

will create a challenge for the ministers. Numerous WTO bodies were

formed to oversee implementation by the member governments. These

committees and working groups, together with a Secretariat that facilitates

the work of the members, experienced early difficulties with the

information generated by numerous notification requirements, in part

because of limitations in members’ reporting and in the unevenness of

information that was provided. WTO members have already invoked the

new process for settling disputes 53 times on a wide range of issues, with

the United States filing the most cases. The USTR has stated that it believes

the dispute settlement process is an effective tool to open other nations’

markets.

• Implementation of the WTO Agreement on Textiles and Clothing has been a

major area of contention between the exporting and importing countries,

and it is expected to be the subject of further debate at Singapore. Textile

exporting countries allege that the United States and other importing

countries have delayed lifting quotas and integrating textile trade into

normal WTO/General Agreement on Tariffs and Trade 1994 (GATT) rules.

The importing countries, in turn, have voiced concern about the lack of

access to exporting countries’ textile markets and the adequacy of

measures they have adopted to prevent quota circumvention.

• Since liberalizing agricultural trade was a key objective for the United

States during the Uruguay Round, monitoring the implementation of

commitments is essential to securing anticipated U.S. gains. In addition,

U.S. officials have indicated that they would like to begin preparations for

further agricultural reform negotiations starting in 1999. At Singapore,

three separate WTO committees are expected to provide reports on

progress in the reduction of agricultural subsidies; improvements in

market access; the use of measures to protect human, plant, and animal

health; and efforts to make state trading enterprise activities (STE) more

transparent (open). The United States has implementation concerns in

many of these areas and many reasonably expect a divergence of views

among trading partners.

• Whether the ongoing efforts to liberalize trade in the services sector will

be successful is not yet clear. Individual negotiations have been conducted

to progressively open trade and investment. Thus far, however, members

have been unable to reach final agreements covering the financial,

telecommunications, and maritime service sectors. Similarly, it is unclear

whether WTO members will reach agreement to improve market access in

Page 2 GAO/T-NSIAD-96-243
Statement for the Record by Jayetta Z.

Hecker, Associate Director International

Relations and Trade Issues National

Security and International Affairs Division

those sectors where USTR has negotiating authority because of some

countries’ expected opposition to further tariff reductions.

• At Singapore, proposals are expected for WTO members to begin work on

the next generation of trade issues. However, because these issues include

areas heretofore outside the scope of detailed trade

negotiations—environmental protection, investment rules, competition

policy, labor standards, and bribery and corruption—it is unlikely

members will reach consensus on the WTO’s role. Of these issues, only

environment is on the WTO agenda already, but members have not decided

how to reconcile environmental concerns with trade objectives. USTR

strongly supports discussing labor standards as part of the WTO agenda.

USTR may begin to address bribery and corruption issues indirectly as it

seeks to expand participation in the Agreement on Government

Procurement. However, many other members are just as strongly opposed

to including these two issues. On the other hand, the United States is not

yet prepared to agree to a negotiating program for competition policy and

would prefer discussions on investment policy to take place primarily in

the Organization for Economic Cooperation and Development (OECD).

General

Implementation

Issues

In earlier testimony2 we noted that it will take time and resources to

(1) completely build the WTO so that members can address all its new roles

and responsibilities; (2) make members’ national laws, regulations, and

policies consistent with new commitments; (3) fulfill notification

requirements and then analyze the new information; and (4) resolve

differences about the meaning of the agreements and judge whether

members have fulfilled their commitments. It is critical that USTR monitor

implementation of the agreements to ensure that other WTO members are

honoring their commitments and thus that the agreements’ expected

benefits are being realized. USTR and the Departments of Commerce and

Agriculture have created specific units to try to monitor foreign

government compliance with trade agreements, including those of the

Uruguay Round.

The New Organization In general, the ministers at Singapore will be reviewing the progress of the

WTO in fulfilling its mandate. Some observers have been concerned about

the creation of this 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

2

See International Trade: Implementation Issues Concerning the World Trade Organization

(GAO/T-NSIAD-96-122, Mar. 13, 1996).

Page 3 GAO/T-NSIAD-96-243
Statement for the Record by Jayetta Z.

Hecker, Associate Director International

Relations and Trade Issues National

Security and International Affairs Division

created some new bodies; however, these 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 Antidumping Practices, were “reconstituted”

from previous GATT committees but were given new responsibilities by the

Uruguay Round agreements and now have 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 123 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.

Notifications The ministers will be judging the progress of members in implementing

numerous agreements to date, based on information collected from 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 members to file copies of their

national legislation and regulations pertaining to antidumping measures.

WTO committees began reviewing the notifications they received from

member governments in 1995. The information provided allows members

to identify general problems with implementing the terms of the

agreements, as well as monitor each others’ specific activities and,

therefore, to enforce the agreements.

Limitations in members’ reporting may make it difficult for the ministers

to assess progress in some areas. The WTO Director General noted some

difficulties with members’ fulfilling their notification requirements in his

report in December 1995. Some foreign government and WTO Secretariat

officials told us in 1995 that the notification requirements had placed a

burden on them and that they had not foreseen the magnitude of

information they would be obligated to provide. The WTO Secretariat

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 developing countries reportedly faced particular

problems, even the United States missed some deadlines for filing

information on subsidies and customs valuation laws.

Page 4 GAO/T-NSIAD-96-243
Statement for the Record by Jayetta Z.

Hecker, Associate Director International

Relations and Trade Issues National

Security and International Affairs Division

To address concerns about notifications, WTO formed a working party in

February 1995 to simplify, standardize, and consolidate the many

notification obligations and procedures. This working party may make

recommendations for changes for the ministers to consider.

Dispute Settlement The WTO dispute settlement mechanism is intended to be a central element

in providing security and predictability to this multilateral trading system.

Through it, members have a system to resolve disputes that result from

violations of WTO obligations or impairment of benefits from WTO

agreements. The new dispute resolution mechanism incorporates several

objectives that were particularly important to the United States—time

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

country’s ability to block the adoption of resolutions from dispute

settlement panel reports. The new Dispute Settlement Understanding

established time limits for each of the four stages of a dispute:

consultation, panel review, appeal, and implementation. Also, unless there

is unanimous opposition in the WTO Dispute Settlement Body, the panel or

appellate report is to be adopted. Further, the recommendations and

rulings of the Dispute Settlement Body can neither add to or diminish the

rights and obligations provided in the Uruguay Round agreements nor

directly force members to change their laws or regulations. However, if

members choose not to implement the recommendations and rulings, the

Dispute Settlement Body may authorize trade retaliation.

From January 1, 1995, to August 30, 1996, formal WTO dispute settlement

procedures have been invoked in 53 instances. Most of the cases are still in

progress—35 are either in the consultation phase, under panel review, or

on appeal. Of the 18 closed cases, 16 have been settled or abandoned, and

2 have been closed after a final appeal.

The United States has availed itself of the dispute settlement mechanism

more than any other member. The United States has initiated 17 cases on a

variety of issues including patent protection in India, Portugal, and

Pakistan; meat import restrictions in South Korea and the European Union

(EU); and restrictions on the importation of magazines into Canada. There

are currently four pending cases against actions or measures taken by the

United States—two involve import restraints concerning textile and

apparel products, one relates to an antidumping investigation of tomatoes

from Mexico, and the other concerns the Cuban Liberty and Democratic

Solidarity Act of 1996.

Page 5 GAO/T-NSIAD-96-243
Statement for the Record by Jayetta Z.

Hecker, Associate Director International

Relations and Trade Issues National

Security and International Affairs Division

As of the end of August 1996, dispute settlement panels have reached

decisions involving five cases. The two closed cases, which were

combined into a single panel, involved a challenge by Venezuela and Brazil

to a U.S. Environmental Protection Agency regulation setting forth the

methods by which importers of gasoline were to determine characteristics

of gasoline imported and sold in the United States in 1990. The panel

found that the regulation was inconsistent with a GATT 1994 provision

concerning national treatment of imported products. On appeal, the

dispute settlement Appellate Body modified the panel’s report but upheld

the panel’s conclusion. The other three cases, also combined into one

panel, were brought by the United States, Canada, and the EU against

Japan’s liquor tax. The panel found the Japanese tax to be inconsistent

with GATT 1994, on national treatment grounds.3

 Japan has filed an appeal,

which is currently pending.

It is unclear to what extent the ministers at the WTO Singapore meeting will

analyze the implementation of the new dispute settlement process and

what criteria they would use to do so. USTR officials view this process as a

success, in part because complaints can be resolved even before a panel

hears the case. In addition, USTR has recently testified that the new

mechanism is proving to be a very effective market-opening tool. However,

it may be difficult to objectively evaluate the results of a dispute

settlement process. We observed in our previous work on 5 years of

dispute settlement under the U.S.-Canada Free Trade Agreement (CFTA)4

that it may take many years before a sufficiently large body of cases

accrues to permit statistically significant observations about the process.

In that report we focused on the possible effects of panelists’

backgrounds, the types of U.S. agency decisions appealed, and the

patterns of panel decision-making. We learned that any effort to evaluate

the functioning of the dispute settlement process presents significant

analytical challenges.

Implementation of the

Agreement on Textiles

and Clothing

Implementation of the Agreement on Textiles and Clothing is likely to be

the subject of debate at the Singapore ministerial meeting. In the Uruguay

Round negotiations, the United States and other developed countries

agreed to liberalize textile trade despite potential economic losses in

exchange for commitments from certain developing countries to, for

3

National treatment is the act of treating a foreign product or supplier no less favorably than domestic

products or suppliers.

4

See 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).

Page 6 GAO/T-NSIAD-96-243
Statement for the Record by Jayetta Z.

Hecker, Associate Director International

Relations and Trade Issues National

Security and International Affairs Division

example, increase market access in key sectors and improve protection of

intellectual property rights.5

Under the Uruguay Round Agreement on Textiles and Clothing, textile

quotas are to be phased out over a 10-year period beginning in

January 1995. 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

(practices). 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 members are to be removed.

During the first stage of product integration (1995 through 1997), virtually

no quotas were removed by the United States and other major importing

countries. The United States is the only major importing country to have

published a list of products to be removed from quota 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 and 67 percent

of textile and apparel products combined will not be integrated into

normal WTO rules until 2005. Importer and retailer representatives have

expressed concern about the delay in lifting the majority of textile and

apparel quotas until the end of the phase-out period. However, U.S.

officials have 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 safeguards provision of the textiles

agreement permits a country to impose a new quota only when it

determines that increased imports of a particular textile or apparel

product are seriously damaging, or present an actual threat of serious

damage to, its domestic industry. The agreement further provides that any

quotas imposed during the phase-out period be reviewed by a newly

created Textiles Monitoring Body (TMB) within WTO, which is to supervise

the textile agreement’s implementation. TMB consists of individuals from

10 countries, including the United States.

5

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

U.S. Economic Gains (GAO/GGD-94-83, July 29, 1994).

Page 7 GAO/T-NSIAD-96-243
Statement for the Record by Jayetta Z.

Hecker, Associate Director International

Relations and Trade Issues National

Security and International Affairs Division

The United States and Brazil are the only WTO members thus far to have

imposed new quotas on imports they found were harming their domestic

industries under the agreement’s safeguard procedures.6

 In 1995, the

United States issued 28 requests for consultations (or “calls”) to impose

quotas and has issued 2 calls thus far in 1996 to a total of 19 countries

(11 WTO members and 8 nonmembers).7

 Brazil has issued calls to four

countries to date.

As of August 1996, TMB had reviewed the imposition of seven quotas

(where no agreement was reached with the exporting country). All of

these quotas had been imposed by the United States. TMB found that the

threat of serious damage to domestic industry had been demonstrated in

one case. In three cases, TMB found that the threat of serious damage had

not been demonstrated, and the quotas were subsequently rescinded; in

three other cases, TMB could not reach consensus. TMB has not published

details about the reasons for its decisions. Three of the cases TMB reviewed

were subsequently brought before the Dispute Settlement Body by the

countries subject to the U.S. safeguard action. The United States rescinded

one action, and the other two cases are currently pending.

WTO members will review implementation of the textiles agreement at the

Singapore ministerial meeting. In July 1996, major exporting countries, led

by Pakistan, asked the WTO’s Committee on Trade in Goods to examine

10 items of concern to them regarding the agreement’s implementation,

including importing countries’ delays in lifting quotas, the number of

quotas imposed since the agreement took effect (with a clear concern

regarding the number of U.S. quotas), and the need to improve

transparency in TMB processes. Further, they asked the Committee to

identify and assess the elements necessary for “faithful implementation of

the agreement.” The United States and the EU oppose the exporting

countries’ request and have asked the Committee to review two different

issues—the ease of access to developing countries’ textiles markets and

the adequacy of measures adopted by these countries to prevent quota

circumvention. (The agreement states that all member countries are to

improve access to their textiles markets and to take measures to prevent

quota circumvention.) The Committee on Trade in Goods is scheduled to

6

We recently prepared a report reviewing how the United States is implementing the textiles

agreement that should be released shortly. See Textile Trade: Operations of the Committee for the

Implementation of Textile Agreements (GAO/NSIAD-96-186).

7

Six of the 28 calls had originally been made in 1994 and were unresolved; they were reissued in 1995

under the new textiles agreement.

Page 8 GAO/T-NSIAD-96-243
Statement for the Record by Jayetta Z.

Hecker, Associate Director International

Relations and Trade Issues National

Security and International Affairs Division

report on the textile agreement’s implementation to the WTO General

Council in early November.

Implementation of

Agricultural

Commitments

Liberalizing agricultural trade was a key U.S. objective during the Uruguay

Round. The United States anticipated that better rules and disciplines on

government policies in this area would foster a more market-oriented

trading system and improve the competitive position of the U.S.

agriculture sector. Therefore, monitoring other members’ implementation

of their Uruguay Round agricultural commitments is essential to securing

anticipated U.S. gains.

Several important issues are likely to be discussed at the ministerial

meeting, as the reports of two WTO committees and one WTO working party

focus on, or relate to, agricultural trade. First, the WTO Committee on

Agriculture will report on implementation of the agriculture agreement,

including any aspects needing additional attention or review. This

Committee’s report is expected to address two other issues: (1) a decision

to review the impact of the agreement on net food-importing countries and

(2) preparations necessary to resume the agreement’s required

negotiations in 1999. Second, the WTO Committee on Sanitary and

Phytosanitary (SPS) Measures will report on implementation of the SPS

agreement. Third, the WTO Working Party on State Trading Enterprises will

report on its efforts to better document and understand the role of STEs in

WTO.

Committee on Agriculture The Committee on Agriculture will address implementation of the

agriculture agreement, which requires WTO members to reduce levels of

support provided through export subsidies and domestic support and to

begin opening their markets by converting import quotas to tariffs and

reducing average tariff levels. The agreement provides a 6-year

implementation period, meaning reductions in support and increase in

market access are to be achieved gradually. To ensure members meet their

commitments, they are required to provide periodic notifications to the

Committee, which reviews progress toward implementation and provides

a forum for members to debate their concerns. Discussions of how the

agreement is being implemented in certain countries have already

occurred within the Committee and will be reported on at the ministerial

meeting. These include such issues as delays in starting the

implementation process, inappropriate administration of market access

commitments, and failure to meet export subsidy commitments. One

Page 9 GAO/T-NSIAD-96-243
Statement for the Record by Jayetta Z.

Hecker, Associate Director International

Relations and Trade Issues National

Security and International Affairs Division

implementation issue was discussed outside the Committee under the

dispute settlement process, when the United States requested

consultations with the EU to resolve its concerns about EU implementation

of market access commitments for grain imports.

In addition to implementation issues, the Committee’s report is expected

to address its responsibility for monitoring WTO members’ commitment to

review levels of food aid available to net food-importing countries. This

commitment recognized that least-developed and net food-importing

developing countries might experience negative effects from Uruguay

Round agricultural reform if it affected the availability of food supplies

from external sources at reasonable terms and conditions.8 WTO members

agreed to establish appropriate mechanisms to ensure that agricultural

reform does not have an adverse impact on the provision of sufficient

levels of food aid. The recent rise in global commodity prices and the

near-record lows in international grain reserves have increased the cost of

food imports for some countries. Some least-developed and net

food-importing countries have already indicated they are concerned about

the impact of agricultural reform on their countries, but U.S. officials do

not believe the limited reforms implemented so far are responsible for

shortages or price increases. Still, net food-importing countries expect

action to be taken within the Committee to review food aid levels and

establish a sufficient level of aid to meet legitimate needs. The Committee

is considering whether and how such a review should be conducted and

hopes to resolve this issue before the ministerial meeting. However, if

resolution is not achieved within the Committee, the issue is likely to be

discussed at the World Food Summit in November 1996 and again in

Singapore.

A third issue the Committee will likely address is the commitment that WTO

members have made to begin negotiations for continued agricultural

reform one year before the end of the implementation period (or in 1999).

The Cairns Group countries seek a specific work program to prepare for

the negotiations.9

 The EU, Japan, South Korea, and Switzerland are

reluctant to begin discussing the next round of negotiations roughly

2 years after agreeing to their original Uruguay Round commitments. U.S.

officials have indicated that, although their primary focus is on

8

See the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on

Least-Developed Countries and Net Food-Importing Developing Countries.

9

The Cairns Group consists of 14 countries that are exporters of agricultural products: Argentina,

Australia, Brazil, Canada, Chile, Colombia, Fiji, Hungary, Indonesia, Malaysia, New Zealand, the

Philippines, Thailand, and Uruguay.

Page 10 GAO/T-NSIAD-96-243
Statement for the Record by Jayetta Z.

Hecker, Associate Director International

Relations and Trade Issues National

Security and International Affairs Division

implementation of the agreement, preparing for negotiations to resume is

also important.

Committee on SPS

Measures

The second Committee report that will address agricultural issues is the

Committee on SPS Measures. The SPS agreement recognizes that members

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 and not act as disguised trade restrictions.

The United States was a key supporter of this agreement, recognizing that

the lack of sufficient disciplines on the use of SPS measures could

undermine the intent of the agriculture agreement if members were

allowed to replace tariffs and quotas with unscientific animal and plant

health or food safety measures. The United States has signalled its intent

to use WTO channels to challenge unscientific SPS measures. For example,

through WTO consultations in 1995, the United States persuaded South

Korea to modify its practice for determining product shelf-life, which was

adversely affecting U.S. meat and other exports. Also, in May 1996, the

United States requested a dispute settlement panel be convened to review

the EU’s long-standing ban on hormone-treated meat, which has

substantially blocked U.S. beef imports since 1989.

Working Party on STEs Finally, the Working Party on STEs will report on its efforts to better

understand STEs, an undertaking which is relevant not only to agricultural

trade but also to other sectors. In our work, we define STEs as

governmental or nongovernmental enterprises that are authorized to

engage in trade and are owned, sanctioned, or otherwise supported by the

government.10 For example, the Australian government has notified the

WTO that the Australian Wheat Board meets the criteria for being

considered an STE. While STEs are recognized in GATT as legitimate trading

entities, their activities are subject to GATT disciplines. In order to provide

some transparency over STE activities, members must report regularly

about their STEs’ structures and functions. However, as we noted in August

1995, compliance with this reporting requirement has been poor, and

information about STE activities has been limited.11 In our June 1996 report,

we developed a framework by which one could assess an export STE’s

10STEs were defined in the Uruguay Round as “governmental and nongovernmental enterprises,

including marketing boards, which have been granted exclusive or special rights or privileges,

including statutory or constitutional powers, in the exercise of which they influence through their

purchases or sales, the level or direction of imports or exports.”

11See State Trading Enterprises: Compliance with the General Agreement on Tariffs and Trade

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

Page 11 GAO/T-NSIAD-96-243
Statement for the Record by Jayetta Z.

Hecker, Associate Director International

Relations and Trade Issues National

Security and International Affairs Division

potential to distort trade.12 This framework helps clarify that being

sanctioned by the government does not necessarily mean that an STE is

distorting trade; rather, a key factor is the presence of direct or indirect

subsidies that can give an STE a greater potential to distort trade. We

reported that another factor in evaluating the trade-distorting effect of STEs

(or private commercial firms) is share of the world market.

The working party on STEs is developing an illustrative list of STE attributes

and practices in WTO and continues to study the questionnaire used to

collect information about them. The United States is working within the

forum to develop a modified questionnaire that would help make STE

activities more transparent. U.S. government and agricultural industry

officials hope to negotiate additional disciplines on STEs when agricultural

negotiations resume in 1999.

Ongoing Negotiations

in Services and

Market Access

Negotiations in several service sectors and on market access for certain

goods were left unfinished at the end of the Uruguay Round and may be

discussed by ministers at Singapore. USTR has pursued trade liberalization

and market access in these areas since the Uruguay Round, but in many

cases the outcome of these efforts remains uncertain. For example, within

the framework of the General Agreement on Trade in Services (GATS),

negotiations covering the financial, telecommunications, and maritime

service sectors have not yet resulted in final agreements. In addition, USTR

hopes to achieve further market access through new tariff reductions for a

variety of goods but has testified that considerably more work remains to

build “the necessary international consensus” for making such reductions.

The WTO financial services agreement covers the banking, securities, and

insurance sectors, which are often subject to significant domestic

regulation and therefore engender complex negotiations. In June 1995, the

United States made commitments to guarantee foreign financial

institutions currently operating in the United States the right to continue

to do so. However, the United States took a “most-favored-nation

exemption,” that is, held back making guarantees about otherwise

discriminating against foreign financial service providers. (Such

exemptions are allowed under GATS.) Specifically, the United States did not

guarantee nondiscriminatory treatment for new foreign firms to establish

businesses or already established foreign firms wishing to expand services

in the U.S. market. The U.S. exemption in financial services was taken

12See Canada, Australia, and New Zealand: Potential Ability of Agricultural State Trading Enterprises 

(GAO/NSIAD-96-94, June 24, 1996).

Page 12 GAO/T-NSIAD-96-243
Statement for the Record by Jayetta Z.

Hecker, Associate Director International

Relations and Trade Issues National

Security and International Affairs Division

because U.S. negotiators, in consultation with the private sector,

concluded that other members’ 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 or other limitations).13 At the end of 1997,

members, 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. USTR has testified that

negotiations for a financial services agreement are expected to resume in

the first half of 1997, and the ministers may discuss this at Singapore.

WTO members were also not able to reach agreement on a basic

telecommunications services agreement by the original deadline of

April 30, 1996, and negotiations were subsequently extended to a new

deadline of February 15, 1997. The United States has noted that while

some members made offers that matched that of the U.S. offer in terms of

openness, many others did not, thus the United States would not accept

the agreement. In addition, the United States has said that in order for the

extended negotiations to succeed, “more and better” offers must be made

by members, including both developed and developing nations.

Similarly, negotiations for a multilateral maritime services agreement were

unsuccessful and were suspended in June 1996 until the year 2000, when

negotiations for all services sectors will be reopened. When suspending

the negotiations, participating members agreed to refrain from applying

new measures that would affect trade in this area during this time. The

United States has said that other participating members to the negotiations

did not offer “to remove restrictions so as to approach current U.S.

openness in this area.” The United States did not submit an offer in

maritime services because USTR believed that other countries were not

serious about liberalization.

Efforts to improve market access in certain sectors through additional

tariff reductions are also unresolved. USTR is seeking an agreement

covering a variety of information technology products, such as multimedia

personal computers, supercomputers, and semiconductors, that will

reduce tariffs in this area to zero by the year 2000. However, USTR has

indicated that support from EU member states for such an agreement is

still uncertain. In addition, USTR plans to pursue further tariff reductions at

Singapore for several products, including wood products, white distilled

13However, the United States was generally satisfied with the offers made by the EU, Japan, and other

developed countries and has concluded some bilateral agreements that go beyond the GATS

commitments.

Page 13 GAO/T-NSIAD-96-243
Statement for the Record by Jayetta Z.

Hecker, Associate Director International

Relations and Trade Issues National

Security and International Affairs Division

spirits, nonferrous metals, oilseeds and oil products, and certain chemical

and pharmaceutical products, but expects opposition in some of these

areas from several major trading partners.

Emerging Issues Members are debating what work should be done by WTO on new issues

related to international trade at Singapore. As tariff and nontariff barriers

to trade are reduced, other areas (traditionally seen as domestic) have

drawn attention as potential international trade barriers. These include

(1) environmental protection, (2) investment rules, (3) competition policy,

(4) labor standards, and (5) bribery and corruption issues. Although these

are not traditionally discussed as trade policy topics, they reflect a broader

concept of what some WTO members believe are factors affecting market

access opportunities in a global economy. For example, some WTO

members believe that enforcing certain environmental and labor standards

can be a disguise for protectionist policies. Also, activities such as

price-fixing, market sharing, and noncompetitive procurement practices

can lead to market distortions and reduce access for foreign competitors.

The WTO has begun to address some of these issues, but no consensus has

been reached on the extent to which they should be dealt with in the WTO.

Some of these negotiations in new areas could be quite controversial,

based on the previous experience with including areas like agriculture and

services in the Uruguay Round negotiating agenda.

Trade and Environmental

Protection

Of the emerging issues, environment has developed the furthest within the

WTO. At Marrakesh in 1994, members decided to establish a Committee on

Trade and Environment. Trade and environment issues overlap because

some government measures to balance economic growth with

environmental concerns are perceived as protectionist and may conflict

with WTO obligations. At the same time, some trade policies may impede

the development of sound environmental policies. In the past, GATT dispute

panels have ruled against measures that conflicted with national treatment

principles or that appeared to apply to areas outside a country’s sovereign

jurisdiction. The United States believes that free trade and environmental

protection policies can be mutually supportive and plans to convey this

message at the Singapore ministerial meeting, in keeping with the 1992

United Nations Declaration in Rio de Janeiro.14

14The United Nations Conference on Environment and Development hosted the “Earth Summit” in

1992 in Rio de Janeiro, Brazil.

Page 14 GAO/T-NSIAD-96-243
Statement for the Record by Jayetta Z.

Hecker, Associate Director International

Relations and Trade Issues National

Security and International Affairs Division

The WTO Committee on Trade and Environment is to identify the

relationship between trade and environmental measures and make

appropriate recommendations within the context of open and equitable

trade. The Committee is expected to present a report at Singapore, but it is

unclear what the report will include because of the complex issues and

divergent views. Members generally agree that promoting free trade and

environmental protection is not inherently contradictory; however, they

have not agreed on specific ways to address these issues. Several items are

under discussion, including ecolabeling programs;15 the relationship

between multilateral environmental agreements and the WTO; and the

effect of environmental measures on market access, particularly in

relation to developing countries.

Ecolabeling programs have received a great deal of attention by the

Committee. Some members believe these programs act as trade barriers,

and members have not reached an agreement about whether or not

ecolabeling programs need greater transparency. USTR firmly believes that

all forms of ecolabeling are subject to the WTO’s Technical Barriers to

Trade (TBT) Agreement, which requires transparency and public

participation when applying product standards. Other members, however,

have expressed doubts about whether all ecolabeling programs are

covered by the TBT agreement. USTR anticipates the WTO Committee will

need to discuss this and other issues after Singapore.

Trade and Investment

Rules

Investment rules are another topic that could be discussed at Singapore.

International investment has grown with the globalization of the world

economy. Various multilateral and bilateral investment agreements exist

to help promote an open international investment environment, for

example the (North American Free Trade Agreement). Still, restrictions on

foreign investment impede international trade in goods and services

because investment and trade are interrelated. Therefore the Uruguay

Round agreements also addressed investment issues. For example, the

WTO’s Agreement on Trade-Related Investment Measures (TRIMS) and GATS

both have rules to facilitate market access. However, the United States

achieved only some of its Uruguay Round objectives for investment issues.

The TRIMS agreement is limited to a few selected measures that apply only

to trade in goods. GATS covers investment practices only in a limited sense,

through broad provisions concerning the ability to provide a service in a

foreign market through a commercial presence. Further, GATS covers only

15Ecolabeling programs, most of which are voluntary, allow businesses to obtain a label indicating a

product is environmentally friendly or safe (e.g., U.S. tuna cans with a “dolphin safe” label).

Page 15 GAO/T-NSIAD-96-243
Statement for the Record by Jayetta Z.

Hecker, Associate Director International

Relations and Trade Issues National

Security and International Affairs Division

specific service sectors, including business services and construction and

engineering services.

Countries are debating in which forums to pursue further liberalization in

investment. Therefore, any Singapore proposals to establish a work

program for WTO on investment issues will have to take into account

negotiations in other forums. Most notable is the OECD, whose members

are working to establish a Multilateral Agreement on Investment in 1997

that would be open to both OECD and non-OECD members. Nevertheless, the

EU and Canada favor discussing investment rules in the WTO because its

membership is larger than the OECD. There is a wide divergence of views

among other members; some lesser-developed members oppose

negotiations in the WTO, according to USTR. On the other hand, the United

States and other nations would like to continue focusing on the OECD

negotiations rather than negotiating in the WTO, believing that (1) the OECD

has the potential to achieve a higher standard of liberalization (that is, on a

par with NAFTA and U.S. bilateral investment treaties) than the WTO could

and (2) some WTO members are not ready for such an agreement. Still, the

United States supports creating a modest work program to educate WTO

members on these issues.

Trade and Competition

Policy

National competition or antitrust policies of other countries can affect

opportunities and benefits for U.S. exporters and consumers. For example,

price-fixing, market sharing, and other monopolistic business practices

have been recognized as potential trade barriers. By distorting market

competition, these practices can diminish market access opportunities,

consumer choices, and other intended benefits of liberalized trade.

Anticompetitive practices can also lead to trade disputes. For example, the

United States has initiated two WTO dispute settlement proceedings against

Japan in cases involving photographic films and paper and distribution

services.

The United States and its major trading partners have not reached a

consensus on how competition policy and the enforcement of antitrust

law should be handled within the WTO. One issue is whether any possible

work program should focus on the practices of private firms or on

government actions (or the lack thereof) that restrict competition, and/or

on both. The EU and Japan have recently proposed that competition be

added to the WTO program for future work at the Singapore ministerial

meeting. USTR believes more work and study must occur within the U.S.

government, including consultation with Congress and the private sector,

Page 16 GAO/T-NSIAD-96-243
Statement for the Record by Jayetta Z.

Hecker, Associate Director International

Relations and Trade Issues National

Security and International Affairs Division

before determining whether any sort of negotiating program in the WTO is

appropriate. USTR has emphasized that the United States will not accept

any initiative in the WTO that would threaten U.S. antitrust or antidumping

laws. The United States has participated in creating guidelines and in

undertaking studies of competition policy issues at the OECD, along with

Japan and EU member states.

Trade and Labor Standards WTO members are currently considering the role of labor standards in the

international trade regime. The desire to link international trade and labor

issues is not new, but labor issues have been the province of the

International Labor Organization (ILO), a specialized agency of the United

Nations created in 1919. ILO, whose purpose is to improve working

conditions and living standards for workers throughout the world,

provides a forum for consideration of various labor issues including the

establishment of core labor standards, which currently vary from country

to country.

At the conclusion of the Uruguay Round negotiations, several members,

most notably the United States and some members of the EU, proposed

that labor issues be formally brought into the world trading system.

However, other WTO member countries in both the developed and the

developing world have been concerned that mandated international labor

standards may either inhibit their economic development or act as

protectionist barriers to their exports. The United States, based on a

provision of the Uruguay Round Agreements Act, recommended that the

WTO establish a working party to examine the relationship between trade

and internationally recognized worker rights.16 The U.S. proposal does not

envision negotiations but seeks to begin discussions limited to how core

labor standards and trade can be mutually supportive in promoting growth

and development. Thus far, no consensus currently exists either on

bringing labor issues into the WTO, or on developing potential linkages

between the WTO and ILO, a possible first step.

Trade and Bribery and

Corruption

The United States has proposed indirectly addressing bribery and

corruption issues at Singapore by encouraging WTO members to enhance

16Congress provided guidance for U.S. negotiators in the act by specific reference to 1984 amendments

to the U.S. Generalized System of Preferences legislation. This legislation defined internationally

recognized worker rights to include (1) the right of association, (2) the right to organize and bargain

collectively, (3) a minimum age for the employment of children, (4) prohibition of forced labor, and

(5) acceptable conditions of work. See Public Law 98-573, sec. 503, Oct. 30, 1984, 19 U.S.C. sec. 2462

(a) (4).

Page 17 GAO/T-NSIAD-96-243
Statement for the Record by Jayetta Z.

Hecker, Associate Director International

Relations and Trade Issues National

Security and International Affairs Division

transparency in government procurement. Bribery and corruption increase

the cost and risk of conducting business in foreign countries. The

difference in the way that U.S. and foreign laws treat these activities can

also reduce U.S. companies’ access to foreign markets. For example, U.S.

legislation passed in 1977 prohibits U.S. companies from engaging in

bribery of foreign public officials.17 In contrast, some other countries do

not have criminal penalties for engaging in the bribery of foreign public

officials, and in some countries businesses are allowed to take tax

deductions for bribery expenses. Other multilateral organizations have

already taken steps to address bribery and corruption, with U.S.

encouragement. For example, OECD members have agreed to criminalize

the acceptance and payment of bribes. Members of the Organization of

American States have entered into a treaty that would make this conduct

criminal. The OECD has also recommended that member countries

eliminate tax deductions for the payment of bribes. The Association of

Southeast Asian Nations foreign ministers in a recent forum on the WTO

agenda rejected the U.S. proposal to include corruption and other “social

clauses” that they did not consider trade related.

The United States is promoting efforts to reduce bribery by foreign

companies and government officials by encouraging WTO members to sign

the Agreement on Government Procurement. To date, only 22

industrialized countries, including the United States, have done so; and

none of the least developed countries are signatories. The provisions of

the new agreement, which went into effect in 20 countries on January 1,

1996, promote transparency in government procurement procedures and

require that countries not discriminate against foreign or foreign-owned

suppliers or otherwise allow practices that would preclude competitive

procurement.

Accession of New

Members

The accession of new members to the WTO is an important part of the WTO’s

work agenda and an issue of great interest to the United States. Although

existing WTO members account for about 90 percent of world trade,

important U.S. trading partners, including China, Taiwan, Saudi Arabia,

and Russia, are not WTO members. Nonmember states or separate customs

territories may apply for admission to the WTO. A working party composed

of WTO members negotiates with the applicant concerning its domestic

laws and obligations to join the WTO, a process that can require

considerable time. For example, China’s and Bulgaria’s requests for

accession date from 1986. Separately, applicants may undertake bilateral

17See Foreign Corrupt Practices Act of 1977, Public Law 95-213, Dec. 19, 1977, 15 U.S.C. sec. 78dd-2.

Page 18 GAO/T-NSIAD-96-243
Statement for the Record by Jayetta Z.

Hecker, Associate Director International

Relations and Trade Issues National

Security and International Affairs Division

negotiations with individual WTO members over tariff and market access

commitments. After these negotiations are concluded, the working party

submits a Protocol of Accession and a report to the Ministerial Conference

for approval. Accession is approved by a two-thirds majority vote of WTO

members.

The United States expects the Singapore ministerial meeting to address

the broad range of accession applications—rather than single out any

particular application for attention. USTR reports there are 31 countries

whose applications for accession have been accepted; active negotiations

are under way on about 20 of them. Four nations have completed

accession negotiations since the WTO entered into force.18

The United States supports accession of countries capable of and willing

to (1) undertake WTO obligations and (2) provide commercially viable

market access commitments for goods and services to the WTO. The United

States also uses the negotiations to address outstanding bilateral trade

issues covered by the WTO. For example, USTR reports that Taiwan19 has

made significant concessions in its bilateral negotiations with the United

States over market access, services, and government procurement.

Nevertheless, significant issues remain outstanding.

The accession of China to the WTO is an issue of intense U.S. interest.

China gained observer status to the GATT in 1982 and requested accession

to the GATT in 1986. The United States and other nations have insisted that

China’s accession be approved on the basis of China’s willingness to make

commercially viable commitments that provide greatly expanded market

access and ensure compliance with WTO obligations. U.S.-China bilateral

negotiations are ongoing, and a WTO working party meeting on China’s

accession is scheduled for October 1996.

This concludes my statement for the record. Thank you for permitting me

to provide you with this information.

(711225)

18These are Ecuador, which was admitted as a member in January 1996; Mongolia, which has not yet

been admitted but whose accession was approved in June; and Bulgaria and Panama, whose accession

packages were completed in July.

19This WTO accession application is formally identified as either “Chinese Taipei” or “The Customs

Territory of Taiwan, Penghu, Kinmen, and Matsu.”

Page 19 GAO/T-NSIAD-96-243
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