United States General Accounting Office

GAO Report to Congressional Committees

November 1996 FOREIGN AFFAIRS

Perspectives on

Foreign Affairs

Programs and

Structures

G O A

years

1921 - 1996

GAO/NSIAD-97-6

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-270292 

November 8, 1996

The Honorable Jesse Helms

Chairman 

The Honorable Claiborne Pell

Ranking Minority Member

Committee on Foreign Relations

United States Senate

The Honorable Benjamin A. Gilman

Chairman

The Honorable Lee H. Hamilton

Ranking Minority Member

Committee on International Relations

House of Representatives

This report summarizes the views presented at our 1996 conference on

foreign affairs issues. The conference was designed to ensure that our

work is directed to the full range and complexity of U.S. foreign affairs

activities to better assist the Congress in adjusting U.S. foreign affairs

functions and structures to post-Cold War realities. We conducted this

conference under our basic legislative authority, and we are addressing

this report to you because of the committee’s interest in these matters.

Topics covered in the conference included

• the changed environment for foreign policy,

• the influence and impact of U.S. programs,

• the role of multilateral institutions,

• the world trade interests of the United States, and

• the structure of the U.S. foreign affairs apparatus.

Summaries of conference discussions are provided in appendixes I

through IV. Conference participants included present and former

government officials and private sector public policy experts representing

a broad range of interests. (See app. VI.)

A central theme that emerged from the 2 days of deliberation and debate

was that the needed rethinking of U.S. foreign policy objectives,

requirements, and structures has not taken place at the highest levels of

the foreign policy agencies. Conference participants expressed a variety of

views on the role and requirements for U.S. leadership in this transitional

Page 1 GAO/NSIAD-97-6 Foreign Affairs
B-270292 

post-Cold War period, and they highlighted the complexity of assessing the

effectiveness of U.S. policies and programs. They agreed that U.S.

international economic activities need to be more clearly recognized as a

new reality of international engagement that merits higher priority in the

definition of U.S. national interest. In addition, participants also noted that

in this new era of constrained federal budgets, increased effort needs to be

directed at improving management efficiency and program effectiveness.

The continued absence of a broader consensus on foreign policy

objectives, however, raises the risk that the U.S. government may not have

appropriate resource allocations, reflecting articulated priorities, or the

structure to deal with many post-Cold War issues.

The various themes and issues raised by our conference participants

suggest that executive branch and congressional attention should focus on

the following topics.

Clarifying and Balancing

U.S. Interests

A reassessment of U.S. interests is a fundamental prerequisite to

undertaking any major restructuring of the foreign affairs agencies.

Policymakers need to define U.S. interests more clearly and to specify how

they are to be achieved. With the end of the bipolar era, issues such as

humanitarian crises, terrorist threats, environmental degradation, and

trade and economic interests have assumed greater weight in foreign

policy decisions.

Determining What Policy

Instruments Work

Objective assessments of the effectiveness of U.S. foreign policy programs

in serving U.S. interests continue to be needed. These programs include

development assistance, humanitarian assistance, public diplomacy,

technology transfer, and export assistance.

Assessing U.S.

Participation in

Multilateral Organizations

Policymakers need to be kept informed on the activities, operations,

budgets, and management reform efforts of these numerous international

organizations in order to assess how well U.S. interests are being carried

out.

Scrutinizing the Pace of

Management Reforms

The foreign affairs agencies have been slow to rethink and modernize their

management systems, and close scrutiny of their efforts to reduce the

budgetary costs of their operations is warranted.

Page 2 GAO/NSIAD-97-6 Foreign Affairs
B-270292 

Measuring Possible

Productivity Gains From

Technological Advances

New technologies can reshape and perhaps radically transform the

traditional roles of the Department of State and its overseas posts. For

example, with so much information available almost instantaneously from

worldwide sources, the traditional reporting functions of foreign service

officers need to be rethought.

Coordinating and

Integrating U.S. Overseas

Policies and Programs

With so many U.S. agencies now conducting programs and posting staff

overseas, the U.S. ambassador may no longer be able to ensure that these

various U.S. activities are coordinated and focused on the highest

priorities in U.S. bilateral relationships. Policymakers need to understand

how various U.S. agencies are in practice operating overseas and whether

coordination mechanisms need to be strengthened.

Our Recent and

Ongoing Work

We have recently completed or have under way work related to some of

the issues raised at the conference. We recently issued reports on options

for the State Department1

 and for the U.S. Information Agency (USIA)2 to

adjust their operations to reflect new political and budget realities. We

pointed out that the State Department has done relatively little to reform

and that it needs to fundamentally rethink the way it does business. We

outlined several options that State could pursue to address possible

budget constraints, including decreasing support costs, reducing overseas

presence, and limiting the Department’s involvement in some government

functions. With respect to USIA, we found that the agency had taken

significant reform actions, but we pointed out that some of its programs

no longer appear to have the importance they had when they were

designed decades ago.

We also recently reported on the extent to which the World Bank serves

U.S. interests and the status of its reform efforts.3

We are currently developing reports on U.S. participation in different

international organizations, focusing on the extent to which U.S. interests

are served, and the extent of progress in implementing management

reforms. These reports will be available for the new Congress.

1

See State Department: Options for Addressing Possible Budget Reductions (GAO/NSIAD-96-124,

Aug. 29, 1996).

2

See U.S. Information Agency: Options for Possible Budget Reductions (GAO/NSIAD-96-124, Sept. 23,

1996).

3

See World Bank: U.S. Interests Supported but Progress on Reforms Needed (GAO/NSIAD-96-212, Sept.

30, 1996).

Page 3 GAO/NSIAD-97-6 Foreign Affairs
B-270292 

We are sending copies of this report to the heads of key agencies,

including the Secretary of State, the Administrator of the U.S. Agency for

International Development, and the Director of the U.S. Information

Agency, and to other congressional committees. We will make copies

available to others on request.

This report reflects the views of the participants, which are not necessarily

those of our office. This report was prepared under the direction of

Benjamin F. Nelson, Director, International Relations and Trade Issues,

who may be reached on (202) 512-4128.

Henry L. Hinton, Jr.

Assistant Comptroller General

Page 4 GAO/NSIAD-97-6 Foreign Affairs
Page 5 GAO/NSIAD-97-6 Foreign Affairs
Contents

Letter 1

Appendix I 

A New Foreign Policy

Environment

8

Changed Context for U.S. Foreign Policy 8

Difficulties in Clarifying Specific U.S. Objectives 9

Appendix II 

Impact and Influence

of U.S. International

Programs

10

Modernizing the Conduct of Diplomacy 10

Foreign Aid’s Value in Serving U.S. Interests 11

Varying Attention to Management Reforms 12

Appendix III 

Serving U.S. Interests

Through Multilateral

Institutions

14

Weaknesses More Apparent With End of Cold War 14

Serving U.S. Interests 15

Difficulties in Achieving Management Reforms 16

Appendix IV 

Serving U.S. Interests

in World Trade

19

Participating in a Growing Global Economy 19

Heightened Concern About Impact on Workers and the

Environment

20

The U.S. Government’s Role in Export Promotion and Finance 21

Addressing the Trade Deficit With Asia 22

Appendix V 

Rethinking the U.S.

Foreign Affairs

Structure

24

Difficulties in Focusing U.S. Foreign Policy Objectives 24

Consolidating Foreign Affairs Agencies 24

Increased Need for Policy Coordination and Integration Overseas 25

Appendix VI 

List of Conference

Participants

27

Moderators 29

Page 6 GAO/NSIAD-97-6 Foreign Affairs
Contents

Abbreviations

APEC Asia-Pacific Economic Cooperation forum

DOD Department of Defense

EXIM Export-Import Bank of the United States

FSO foreign service officers

FSU former Soviet Union

GATT General Agreement and Tariffs and Trade

GDP gross domestic product

IAEA International Atomic Energy Agency

IMF International Monetary Fund

NAFTA North American Free Trade Agency

OECD Organization for Economic Community Development

USIA U.S. Information Agency

USAID U.S. Agency for International Development

USTR U.S. Trade Representative

WTO World Trade Organization

Page 7 GAO/NSIAD-97-6 Foreign Affairs
Appendix I 

A New Foreign Policy Environment

To establish a framework for the 2 days of discussions, the conference

began with a discussion of the current context for U.S. foreign policy and

the difficulties of defining specific objectives and strategy in the post-Cold

War world.

Changed Context for

U.S. Foreign Policy

Conference participants recognized that the dissolution of the Soviet

Union has posed a new set of challenges for the United States and the

international community. Not only are numerous new republics now

struggling to reform their political and economic systems, but also the end

of the restraints imposed by the bipolar system has enabled

long-simmering disputes elsewhere in the world to erupt into armed

conflicts or humanitarian crises. In addition, the dimension and nature of

the threat from weapons of mass destruction have changed dramatically,

with concerns now focusing on the capabilities and actions of “rogue”

states. Moreover, issues such as the expansion of organized crime

internationally, mass refugee migrations, environmental degradation, and

the growing incidence of terrorism have come to be recognized as further

threats to U.S. interests.

In addition, the absence of bipolar conflict has also meant that

(1) traditional U.S. allies are freer to disagree among themselves and

(2) issues in bilateral relationships that might have been suppressed as

secondary to security issues may now come to the fore. It was noted that

allied disagreements over how to respond to developing crises in the

former Yugoslavia would have been suppressed for the sake of anti-Soviet

solidarity during the Cold War. It was also noted that trade frictions with

Japan and human rights disputes with China have recently assumed higher

priority and visibility in bilateral relationships. When the United States

resumed a relationship with China in the 1970s, for example, China’s

human rights record was far worse than it is now but was overlooked so

that the United States could align with China against the Soviet Union.

For U.S. policymakers and the American public, the Cold War with the

Soviet Union had been an all-encompassing one, in the sense that it was

global in scope, it was ideological as well as political and military, and it

involved a commitment on the part of the American people to the primacy

of security issues. The end of the Cold War brought public expectations

for some sort of “peace dividend” arising from the decreased demands of

foreign policy. The stable consensus that had previously existed on the

primacy of security issues has disappeared, and other, domestic issues

have captured public attention. Although the American people are affected

Page 8 GAO/NSIAD-97-6 Foreign Affairs
Appendix I 

A New Foreign Policy Environment

by humanitarian crises, they may not now be willing to support the type of

long-term, relatively expensive intervention efforts that are probably

required to address the causes of conflict in various areas of the world. It

was noted that some interventions, such as in Haiti and in Bosnia, have

had time limits imposed that may make it unlikely that the underlying

problems will ever be solved.

Difficulties in

Clarifying Specific

U.S. Objectives

With the world in a period of transition, the full implications of the end of

the Cold War are still unclear. Participants recognized that policy planning

in these circumstances is difficult and that policy-making has occurred

largely on an ad hoc basis, in reaction to humanitarian crises and

unexpected ethnic conflicts.

While traditional U.S. foreign policy goals of peace, prosperity, and

democracy are still considered valid, further definition of how they are to

be achieved is difficult. Questions remain about what policy instruments

work, how much to pay for them, and what kind of effort the country is

willing to make in the world.

Several participants noted that arms control issues, particularly relating to

the proliferation of weapons of mass destruction, have come to be

recognized as highest priority issues. But a more specific definition of U.S.

interests in some regions of the world has yet to be agreed upon.

Page 9 GAO/NSIAD-97-6 Foreign Affairs
Appendix II 

Impact and Influence of U.S. International

Programs

Two conference panels addressed broad issues relating to the

management of U.S. diplomacy in the post-Cold War era and the

continuing relevance, effectiveness, and impact of foreign aid programs.

They covered the need for foreign aid to serve U.S. interests, the

integration of modern technology into traditional diplomatic efforts, and

the possibilities for streamlining agency management.

Modernizing the

Conduct of Diplomacy

Participants generally recognized the need for government to be open to

new methods of conducting foreign affairs and organizing agency

activities. Yet they also were aware that the uncertainties of this post-Cold

War transition period have made planning and priority-setting difficult. At

high levels within the U.S. government, diplomacy has often been reactive

and ad hoc. The State Department’s top management has not taken the

time to focus on whether and what systemic changes may be needed in the

day-to-day conduct of diplomacy, according to the participants.

Participants suggested that advances in information and

telecommunications technologies may have significant implications, for

example, regarding the reporting functions of State’s foreign service

officers (FSO). The public availability of so much more information now

calls into question the need for extensive embassy staff reporting back to

Washington. The present cable writing and review process may be too

cumbersome, given the widespread use of electronic mail and the

possibilities of the Defense Messaging System for transmitting classified

communications. And the need for face-to-face diplomatic meetings might

be reduced by using other communication methods, such as

videoconferencing.

The question arose as to whether U.S. embassy operations in some areas

of the world could be centralized in regional offices serving various

countries. U.S. diplomatic services are already provided on a regional

basis for some Caribbean island republics, and assessments would need to

be made of the requirements for diplomatic services in other areas being

considered for regional representation.

Participants also recognized the changing structure of U.S. representation

overseas, in the sense that the growth in the U.S. diplomatic presence has

been in personnel assigned from other agencies, such as Justice,

Transportation, and the Treasury. In countries where this has happened,

the U.S. Ambassador and State Department personnel have had to play a

coordinating role to maintain policy consistency and a supportive role in

Page 10 GAO/NSIAD-97-6 Foreign Affairs
Appendix II 

Impact and Influence of U.S. International

Programs

providing administrative services to this growing, non-State presence.

Such embassies have come to be referred to as “platforms” for U.S.

government representation. While several participants were willing to

reassess the types of skills and training FSOs would need in the future, they

also noted the advantages of the broad knowledge and experience of FSOs

and the need to be able to integrate the wide range of issues and personnel

from various agencies. The Ambassador is expected to know about agency

activities being conducted within the country, but this has not always been

the case. As one participant noted, it has not been within the Secretary of

State’s power to direct or control the activities of other Cabinet agencies,

and it has been an illusion that an ambassador in the field had a

coordinating power that the Secretary of State has not had. The autonomy

of other agencies has increased in the past few years in part as a result of

these agencies’ communications capabilities; no longer do overseas

messages have to go through State or intelligence agencies’

communications channels and, thus, no longer does the Ambassador have

exclusive control of information.

Foreign Aid’s Value in

Serving U.S. Interests

Participants acknowledged that foreign aid has primarily served U.S.

political purposes over the last several decades and that often there has

been little demonstration that aid programs have effectively served

economic development goals.

Participants disagreed on the extent to which foreign aid has been

effective in contributing to economic development. One participant cited

South Africa, South Korea, Taiwan, and Thailand as countries where

foreign aid played a significant role in spurring development, whereas

another noted that development occurred only after these countries

enacted economic reforms, having realized that aid would end. One

participant cited Egypt as a case where large amounts of aid have had

negligible effect. Another participant, however, pointed out that there has

been significant fertility reduction in a short period of time, even in rural

Egypt; that agricultural production is increasing significantly; and that

Egypt’s new economic team is initiating a process of privatization.

With respect to the future direction of U.S. aid programs, it was proposed

that the principal purposes of foreign aid should be to consolidate ongoing

transitions to democracy in Eastern Europe and the former Soviet Union

(FSU), to strengthen regional peace in the Middle East, and to address

cross-border issues—such as drugs, health threats, illegal immigration,

and environmental degradation—through cooperative international

Page 11 GAO/NSIAD-97-6 Foreign Affairs
Appendix II 

Impact and Influence of U.S. International

Programs

efforts. With respect to the Middle East, it was noted that there is a

growing disjuncture between the existing aid package focused

overwhelmingly on Israel and Egypt and the needs of an expanded peace

process and that consolidating the Middle East peace will involve a

longer-term, bilateral financial commitment to a broadened range of

recipient countries.

It was also noted that for the more dynamic countries—in particular,

Indonesia, Malaysia, Chile, Argentina, and Brazil—private sector trade and

capital flows are occurring to support development. It was generally

agreed that U.S. aid should be directed to the poorer countries with little

access to private capital markets and that aid programs should be

streamlined to focus on a narrow range of activities having high

development impact.

One participant cited a recent study indicating a strong correlation

between the level of economic freedom in a country and the level of

economic growth, and other participants generally agreed that the United

States should emphasize the transition to free, open, and growing

economies as a priority goal of the U.S. development assistance program.

It was noted that a country such as Mozambique, which is currently highly

dependent on donor aid, would likely benefit from private sector foreign

investments if it instituted economic reforms to open up its economy.

Overall, participants agreed that U.S. budget constraints will mean U.S.

bilateral aid programs will have to be more focused and more results

oriented.

Varying Attention to

Management Reforms

Participants agreed that reassessments of U.S. foreign policy programs

should include efforts to streamline agency management. They cited the

U.S. Information Agency (USIA) as the agency having done the most to

rethink and reform its management processes, the U.S. Agency for

International Development (USAID) as having taken some initiatives, and

the State Department as having stalled earlier management reform

initiatives.

One participant highlighted the USIA’s continuing mission in the post-Cold

War world, citing the numerous initiatives different U.S. agencies have

taken and the need to explain these to the foreign public at the same time

as U.S. diplomats are pressing these with foreign governments. This

participant noted that less than 37 percent of the USIA’s work in the field

Page 12 GAO/NSIAD-97-6 Foreign Affairs
Appendix II 

Impact and Influence of U.S. International

Programs

now is directly linked to the State Department. She said that explaining

U.S. economic and trade policy positions has taken on a higher percentage

of the USIA’s work, particularly for the U.S. Trade Representative (USTR) on

trade issues and for the Treasury on the introduction overseas of the new

U.S. currency. In addition, it was noted that USIA had initiated and achieved

reforms in such areas as streamlining personnel and cutting publications

and exhibits.

Participants noted that the State Department began a Strategic

Management Initiative over a year ago, but that progress stalled—partly as

a result of disagreements with the Congress over the extent of

streamlining needed and partly because State resisted setting funding

priorities among its functions. One participant stressed the importance of

considering diplomacy as America’s first line of defense and of

understanding the State Department’s relatively small budget compared

with that for the Department of Defense (DOD). He suggested that the

Congress and the executive branch try to find a process that unifies rather

than divides the foreign policy community. Participants generally agreed

that the State Department’s management of technology improvements has

been inadequate, due to the lack of top-level attention, the expected high

costs of such improvements, and the possible threat these innovations

might represent to State’s traditional way of doing business. Overall,

participants observed that the State Department’s top management has

tended to be intensely occupied by ad hoc crises and has not provided the

guidance for rethinking State’s mission, functions, and organizational

needs.

Page 13 GAO/NSIAD-97-6 Foreign Affairs
Appendix III 

Serving U.S. Interests Through Multilateral

Institutions

The objective of this panel was to assess how U.S. interests are served

through U.S. participation in multilateral institutions such as the United

Nations and the international development banks. Among the topics

discussed were weaknesses in the United Nations and the promotion of

U.S. interests through programs of the World Bank, the International

Monetary Fund (IMF), and the regional development banks.

Weaknesses More

Apparent With End of

Cold War

Participants in this panel agreed that the post-Cold War era has brought

greater interest in examining the relevance, achievements, and operations

of international organizations.

With respect to the United Nations, it was noted that wasteful habits had

developed during the 40 years of the Cold War and that curing these is

inherently difficult for an organization of 185 members representing

different cultures and forms of government.

Participants discussed the need for the United Nations to clarify and focus

its mission on (1) maintaining peace and security; (2) mobilizing and

coordinating humanitarian relief; (3) establishing norms both in technical

fields and in broader areas such as human rights, and health, environment,

and labor standards; and (4) supporting international development and

growth by providing results-oriented advice and encouraging technical

cooperation. U.N. efforts in handling transnational health and refugee

problems and in monitoring weapons proliferation were cited as especially

noteworthy.

Due to U.N. management difficulties, it was noted that the United States

needs to reduce its expectations for the United Nations, recognizing it

principally as a forum for debate and for airing international grievances.

According to this view, efforts should continue to reduce the U.N. budget

and bureaucracy and to assess specifically how the United Nations serves

U.S. interests.

With respect to the international development banks, particularly the

World Bank, participants generally agreed that not enough attention has

been given to the implementation stage of major projects or to the

development of the private sectors within recipient countries.

One participant questioned whether there had been any linkage between

foreign aid and development. He noted that, for these institutions to serve

U.S. interests, especially trade interests, they need to contribute to

Page 14 GAO/NSIAD-97-6 Foreign Affairs
Appendix III 

Serving U.S. Interests Through Multilateral

Institutions

countries’ development; yet little direct evidence has been presented that

shows a causal link, not just a correlation, between aid programs and

development. He noted that the World Bank for most of its history had

financed programs that supported money-losing, state-owned enterprises

and that did not encourage free market economic reforms. He noted that

in the mid-1980s, the World Bank became heavily involved in structural

adjustment lending to developing country governments, but that the

pressure to lend money, in part created by the incentive structure within

the World Bank, outweighed strict insistence on the implementation of

free market economic reforms. This participant stated that the role of the

multilateral banks should principally be to provide technical assistance

and economic advice rather than to lend money.

Another participant pointed out the banks’ role in serving as a critical

catalyst for economic development. He noted that, in countries where the

political will exists to achieve economic reform, bank resources can

provide the inducement to stay the course during difficult times. With the

disintegration of the Soviet economy, developing countries have become

more receptive to free market economic reforms. In his view, withdrawing

from this possible catalytic role by reducing bank funding would be to

miss an historic opportunity.

Serving U.S. Interests Participants generally agreed that U.S. involvement in multilateral

institutions should be assessed based on how these institutions serve U.S.

interests. Not all participants could agree, however, on how extensive U.S.

interests are in specific geographic regions.

The U.N. nonproliferation and humanitarian activities were cited by most

participants as highly valuable in serving U.S. global interests. The U.N.

Special Commission on Iraq and the International Atomic Energy Agency

(IAEA) have clearly served U.S. interests in discouraging the spread of

weapons of mass destruction. The U.N. role in leading humanitarian relief

operations has also served U.S. interests in addressing the disruptions

caused by natural disasters and political upheavals. And specialized

agencies have played important roles in controlling the spread of diseases

and setting international technical standards (for example, in fields such

as aviation, telecommunications, and shipping).

U.N. peacekeeping operations were cited as generally serving U.S.

interests. During the Persian Gulf War in particular, the United Nations

provided the legitimacy needed for gathering international political,

Page 15 GAO/NSIAD-97-6 Foreign Affairs
Appendix III 

Serving U.S. Interests Through Multilateral

Institutions

financial, and military support. In other instances, it was noted, the United

Nations can be most valuable when opposing parties sincerely want peace,

as distinguished from situations when U.N. forces would be imposing

peace on unwilling parties.

It was noted that the United Nations has helped maintain sanctions against

countries supporting terrorism such as Iraq and Libya, has established war

crimes tribunals such as the ones set up to prosecute war crimes in

Rwanda and the former Yugoslavia, and has served as a forum for

denouncing Cuba’s shoot-down of civilian aircraft. In addition, the United

Nations has helped nations like South Africa, Namibia, El Salvador,

Cambodia, Mozambique, and Haiti in their transitions from conflict to

democracy.

With respect to the multilateral development banks—including the World

Bank, the IMF, and the regional development banks—it was noted that U.S.

interests are served through these banks if U.S. trade is promoted as a

result of increased development. But a question arose, however, as to

whether development progress could be linked to foreign aid programs.

It was noted that U.S. interests are served through the multilateral

development banks by the banks’ recent emphasis on the importance of

the private sector as the engine of growth and expansion in an economy. It

was noted that a fundamental change in outlook had taken place within

some of these banks, which are now serving to support countries’ efforts

to cut tariffs, to privatize, and to develop market infrastructure such as

banking and securities regulatory structures. In this way, U.S. participation

in multilateral development banks may enable the United States to help

shape future economic relationships in Asia and Latin America, for

example. The banks’ efforts to build an economy in the Gaza Strip and the

West Bank and to help with the reconstruction in Bosnia were also cited

as ways U.S. interests are also served.

Difficulties in

Achieving

Management Reforms

The discussions reflected the frustrations U.S. officials have had in

pursuing management reforms within the multilateral institutions over the

past several years. Part of the difficulty has been the inherent problems of

running such a varied organization as the United Nations.

However, one participant cited some reforms that have already been

initiated: the establishment of a U.N. Under Secretary General for Internal

Oversight Services to crack down on fraud and waste, the appointment of

Page 16 GAO/NSIAD-97-6 Foreign Affairs
Appendix III 

Serving U.S. Interests Through Multilateral

Institutions

an Under Secretary General for Administration and Management who is an

American with corporate accounting expertise, the creation of a new

efficiency board and high-level reform group, and the adoption of a

no-growth budget expected to result in a 10-percent reduction of the

Secretariat’s staffing level. The United States has also proposed a series of

steps regarding reform of U.N. economic and social institutions, additional

management improvements, continued reform of the peacekeeping

apparatus, and revision of the U.N. Security Council.

This participant noted the difficulties of pressing these changes at the

same time as the United States has become seriously delinquent in paying

its accumulated debts. He noted that U.S. debts, rather than reform

proposals, tend to become the agenda of discussion and that some

members are now questioning whether the United States would pay its

debts even if desired reforms were undertaken. He stated that the

executive branch will be asking the Congress to approve a 5-year plan to

pay arrears to the United Nations and that actual payment of these funds

would occur as the United Nations implements reforms, keeps its budget

down, and continues to cut unnecessary staff. In addition, the United

States will be asking U.N. members to reduce the U.S. assessment from

25 percent to 20 percent for the regular budget.

Another participant, however, questioned whether any of these attempts at

reform would have taken place if the United States had not withheld

payments.

A question arose concerning whether the United States needs to be a

member of so many international organizations. Participants agreed that

the U.S. decision this past year to drop out of the U.N. Industrial

Development Organization was appropriate, since the agency had failed to

find a clear mission. But one participant noted that the United States

cannot opt out of individual programs within larger organizations. Within

the Food and Agriculture Organization or the World Health Organization,

for example, there may be wasteful programs, but overall the United

States finds these organizations to be essential.

With respect to management of the multilateral development banks, one

participant noted the need for closer oversight of the implementation

stages of development projects and for following through on the

conditions—usually related to the promotion of economic reforms—that

the IMF attaches to its loans. Another participant noted that the United

States is over $1 billion behind in payments to the concessional windows

Page 17 GAO/NSIAD-97-6 Foreign Affairs
Appendix III 

Serving U.S. Interests Through Multilateral

Institutions

of these banks and that the poorest countries may end up having to

borrow on hard terms, thus possibly becoming even more indebted later

on.

Finally, it was noted that the United States has received very little support

from other industrial country democracies in promoting reforms in these

multilateral institutions or in achieving results from their activities. It was

suggested that the United States focus more on gaining such international

support for needed reforms in these institutions.

Page 18 GAO/NSIAD-97-6 Foreign Affairs
Appendix IV 

Serving U.S. Interests in World Trade

We held two panels addressing issues regarding U.S. interests in world

trade and U.S. government export promotion and finance programs. The

panels considered questions relating to increased U.S. participation in the

global economy, concerns over the labor and environmental implications

of such participation, the need for U.S. government export promotion and

finance programs, and the U.S. trade deficit with Asian nations.

Participating in a

Growing Global

Economy

Participants in these panels agreed that the United States has become

increasingly linked to the world economy and needs to continue to pursue

the economic opportunities that global economic growth offers.

Several participants noted the extent to which U.S. exports contribute to

the U.S. economy. In the 1990s, overall export growth has accounted for

one-third of the increase in U.S. gross domestic product (GDP). Total

exports over the last 5 years have accounted for about 10 to 12 percent of

total GDP. In the agriculture sector, exports have become relatively more

important, with agricultural exports accounting for about 25 percent of

agricultural GDP and expected to grow to about 30 percent by the year

2000. The United States remains the world’s leading exporter, benefiting

from rapidly rising global demand for U.S. farm products, information and

telecommunications technology, and aircraft.

Over the past several years, however, the U.S.’ preeminent role in the

world economy has been challenged by the emergence of strong new

competition, particularly from countries in Europe and Asia. The strongest

markets for U.S. products are also changing, with certain rapidly growing

developing countries now serving as the focus of U.S. trade competitors’

attention.

In addition, U.S. foreign policy objectives are now seen to be served by

U.S. economic “engagement” with other countries. Developing U.S. trade

and investment linkages with Eastern Europe and the former Soviet

republics can be a way to support the economic and political reforms

taking place in these countries. And debate continues on how to construct

economic relationships with China in a way that would demonstrate the

benefits of observing internationally agreed-upon rules and practices.

Page 19 GAO/NSIAD-97-6 Foreign Affairs
Appendix IV 

Serving U.S. Interests in World Trade

Heightened Concern

About Impact on

Workers and the

Environment

Participants generally recognized that the U.S. public has become anxious

about economic dislocations and related job insecurities. However, they

disagreed on the extent to which these problems could be attributed to

recent international trade agreements or to increased levels of U.S. trade

and investment flows overseas.

One participant said that worker and environmental concerns have not

adequately been addressed in recent international agreements. According

to this participant, U.S. international economic policies have been

primarily business centered—emphasizing the protection of business

profits and property and tending to encourage businesses to move

operations around the globe in search of lowest cost labor or most lax

enforcement of environmental or labor regulations. Multilateral

agreements have included very few rules regarding the treatment of

workers and the environment. For example, the North American Free

Trade Agreement (NAFTA) and the World Trade Organization (WTO)

agreement did not initially address labor or environment issues. While

there are now labor and environmental side agreements to NAFTA and a

WTO working group on labor rights issues, the side agreements are not

binding to the same degree as NAFTA and in effect have proved

unenforceable. For example, in a case brought under the labor side

agreement, it was found that the Mexican government had failed to

enforce its own laws regarding workers’ rights to organize a union.

However, no penalties or remedies were assessed; only a ministerial

consultation took place.

This participant also noted that economists have found that the increased

volume of trade has contributed to greater wage inequality in the United

States since 1980. Jobs lost due to increased imports have tended to

involve lower wage and lower skilled workers, while jobs gained from

expanded exports have brought benefits for higher skilled workers and the

owners of capital. Although the gains to winners are presumed to be

greater than the losses to losers, this participant noted that the “losers” are

the bottom 70 percent of the U.S. population, while the “winners” are the

fairly small elite at the top of the business community. Lower skilled

workers losing jobs because of imports or because their factory is moved

overseas often cannot find higher skilled jobs and end up having to take,

on average, a 10-percent pay cut.

Other participants noted that economic dislocations taking place now in

the United States are due largely to rapid technological changes occurring

in the U.S. workplace. They also said that trade and investment flows

Page 20 GAO/NSIAD-97-6 Foreign Affairs
Appendix IV 

Serving U.S. Interests in World Trade

affecting U.S. jobs and foreign labor were already occurring well before

NAFTA was signed and that improving the U.S.-Mexican economic

relationship will have longer-range economic benefits for the United

States. Further, the more open world trading system promoted through the

General Agreement on Tariffs and Trade (GATT) and now the WTO has in

fact tended to improve labor standards in such countries as Taiwan,

Singapore, and Hong Kong. A consensus does not yet exist on how to link

trade and labor issues; one participant noted that some developing

countries would not welcome certain international labor standards such as

a global minimum wage.

The U.S.

Government’s Role in

Export Promotion and

Finance

Participants shared the view that the international marketplace is not

perfectly open; that competitor governments assist their nation’s firms in

winning sales; and that the U.S. government, therefore, has a legitimate

role in assisting U.S. exporters to counter and discourage unfair foreign

trade practices. The U.S. policy objective, however, should remain that of

reducing and eventually terminating such government support.

One participant noted that U.S. government export support is particularly

important now that so many new markets are being formed—especially in

rapidly developing countries—and new market shares among competitors

are being created. In these markets, competitor country governments are

helping their companies succeed in the crucial early days of establishing

initial market shares.

This participant noted that U.S. government policy is to finance only those

projects that would not take place in the absence of export financing.

Determining which projects are in this sense “additional” is not easy,

however, and the Export-Import (EXIM) Bank of the United States makes

such judgments on a case-by-case basis.

Overall progress has been made toward privatization around the world, it

was noted, and this should favor moves toward more open markets and

eventually a reduction in EXIM’s subsidy levels for U.S. exporters.

U.S. export promotion programs are viewed as necessary, because

imperfections in the way the marketplace provides information and access

tend to skew opportunities toward larger, multinational firms. Small and

medium-sized U.S. businesses are left at a comparative disadvantage,

especially in rapidly changing new markets, and these are the types of

firms to which U.S. export assistance needs to be directed. Also, U.S.

Page 21 GAO/NSIAD-97-6 Foreign Affairs
Appendix IV 

Serving U.S. Interests in World Trade

agricultural firms still face a number of allowable foreign government

subsidies and trade-distorting practices, and U.S. government export

support is directed at countering these activities.

It was noted that the United States continues to lag behind its major

competitors in terms of money and staff dedicated to export promotion.

For example, the United Kingdom spent over eight times as much, relative

to GDP, as the United States did on export promotion programs in 1994.

And France has 10 times the U.S. export promotion staff, relative to GDP.

U.S. firms have also had to compete in export markets with foreign firms

supported by high-level government advocacy efforts. The Commerce

Department tracked 200 projects over an 8-year period and found that U.S.

firms lost about 45 percent of those export contracts at least partly as a

result of foreign government interventions favoring their national firms.

Addressing the Trade

Deficit With Asia

The Asian countries have developed into major growth centers, becoming

both export competitors and important markets for U.S. goods and

services. The U.S. overall trade deficit with Asia was a matter of concern

to some participants, although it was recognized that U.S. trade deficits

stem from broader economic factors such as domestic savings,

investment, and consumption levels.

One participant emphasized the importance of aggressive marketing by

U.S. companies to enter Asian countries’ markets and develop local

contacts and alliances. This would include recognizing and countering

subsidized third-party competition from Europe and elsewhere. Another

participant noted the importance of redeploying the Department of

Agriculture’s export promotion efforts from mature markets, such as

Europe, to the expanding markets, particularly in Pacific Rim countries.

He also agreed with our emphasis on the continuing need to focus on

long-term strategic planning in targeting export promotion activities.

With respect to China, it was noted that bringing China under the rules of

the international trading system, the WTO, would give U.S. exporters better

access to China’s growing internal market and would discourage Chinese

trade practices that violate international rules. One participant said that

the terms for permitting China’s entry into the WTO need to commit China

to the process of free market economic reform and to prevent China from

using its traditional tools of state planning, such as quotas, administrative

guidance, and import substitution, to exclude U.S. exports.

Page 22 GAO/NSIAD-97-6 Foreign Affairs
Appendix IV 

Serving U.S. Interests in World Trade

One participant stated that imposing unilateral export sanctions is not

helpful in improving the U.S.-Asia relationship, because other countries

have indicated they will not adhere to these. In his view, trade relations

should be delinked from nontrade issues. In addition, it was noted that

China has the potential to become a competitor to the United States in

exporting some agricultural products to Asian markets.

Enforcing existing U.S. trade laws and agreements with Asian nations is

also important in ensuring that fair trading relationships are maintained

with Asia. One participant noted that there is nothing in the WTO agreement

that precludes the effective use of section 301 of the U.S. Trade Act of

1974.1

 In his view, aggressive implementation of section 301 has been and

continues to be a means for the United States to stand up to foreign trade

barriers, with foreign governments remaining free to respond in kind when

section 301 sanctions are imposed.

Participants noted that other types of trade issues with Asian nations can

be handled in multilateral forums such as the Organization for Economic

Cooperation and Development (OECD) and the Asia-Pacific Economic

Cooperation forum (APEC). Japan’s “keiretsu” business cartels, for

example, have posed a major barrier to U.S. exports. And while such

cartels are not covered directly under existing international agreements,

the OECD has served as a forum for addressing the issue of countries’

varying competition practices. Also, APEC, as a regional grouping, holds

promise as a means of further opening markets.

1

Section 301 of the Trade Act of 1974, as amended (19 U.S.C. 2411) serves as the U.S. government’s

principal mechanism for addressing unfair foreign trade practices.

Page 23 GAO/NSIAD-97-6 Foreign Affairs
Appendix V 

Rethinking the U.S. Foreign Affairs

Structure

Our final panel sought to examine whether and how U.S. foreign policy

agencies may need to be restructured to adjust to the post-Cold War

environment. Suggested revisions included possibilities for consolidating

some of these agencies and for emphasizing coordination of their

activities.

Difficulties in

Focusing U.S. Foreign

Policy Objectives

As noted in appendix I, U.S. foreign policy agencies now have had to

handle, on an ad hoc basis, a new variety of international events and

crises. Policymakers have been struggling to define U.S. interests in this

environment so as to guide decision-making on whether and how the

United States should become “selectively engaged.” The broader vision of

enlarging the community of democratic, free market countries is widely

shared, but debate continues on the specifics of individual actions the

United States is prepared to take in support of these broader goals.

The overall foreign policy consensus that existed within the United States

during the Cold War has weakened at the same time the U.S. domestic

consensus has strengthened for reducing the budget deficit. Pressures to

lower the deficit have resulted in streamlining and downsizing efforts

across most federal agencies. Yet in this transitional post-Cold War period,

foreign policy agencies have had difficulty focusing foreign policy

objectives and defining requirements in order to establish budget

priorities.

Conference participants acknowledged that all these factors have led to

frictions between the Congress and the executive branch regarding foreign

policy budgeting. Participants agreed, however, that efforts should

continue to rethink the purposes and requirements of U.S. foreign policy

programs and agencies in order to separate core activities from peripheral

ones.

Consolidating Foreign

Affairs Agencies

Several participants noted that proposals to consolidate certain foreign

affairs agencies sparked serious and valuable rethinking of agency

missions. But some also felt that the pressure to consolidate for budgetary

reasons obscured understanding of the functional differences among these

agencies and the original rationale in creating separate institutions. One

participant noted that USAID was originally kept out of the State

Department because aid programs and development required a long-term

perspective, whereas State Department activities tended to require much

shorter-term responses. For example, USAID has been called upon to handle

Page 24 GAO/NSIAD-97-6 Foreign Affairs
Appendix V 

Rethinking the U.S. Foreign Affairs

Structure

humanitarian crises and natural disasters in areas that may not have

related directly to State’s foreign policy priorities, and some USAID projects

can take 10 to 20 years to show clear results.

Some participants emphasized that the purposes of U.S. foreign policy and

programs need to be assessed and better understood before agency

restructuring can take place. U.S. policymakers need first examine what

the United States really wants to achieve in the world and then decide on

the appropriate structure.

One participant noted that efforts have been made in the past to

restructure the government’s trade functions to focus government

programs and to respond to the increased importance of international

trade in overall U.S. foreign policy. But these efforts made little progress,

in part, because the Congress’ committee and appropriations structure

governing trade would also have to be significantly changed. Debate on

this issue continues, however, because other countries, such as Japan and

France, have governments more focused on supporting national

commercial policies.

Increased Need for

Policy Coordination

and Integration

Overseas

Conference participants agreed that technological advances, in addition to

facilitating day-to-day diplomacy through electronic mail or

videoconferencing, have also complicated diplomacy in this era of broader

U.S. agency representation overseas. Because communications no longer

always go through the Ambassador in the form of cables, personnel from

various agencies can communicate with Washington officials outside

formal State Department channels.

So many U.S. government activities now are carried out by non-State

personnel overseas that it can be difficult for the U.S. Ambassador even to

be aware of each agency’s activities. Most participants agreed that the

State Department FSOs should not seek to be closely involved in other

agencies’ specific programs but that they should play an important role in

coordinating and integrating the diverse efforts of other agencies overseas.

It was noted that greater emphasis is being given, at both the Washington

and embassy levels, to improving planning and coordination. Some

embassies are attempting to model new ways of working together in order

to bring a more integrated and strategic approach to U.S. activities

overseas. USIA, for example, has been stressing “forward engagement” to

facilitate government relationships by establishing bases of understanding

Page 25 GAO/NSIAD-97-6 Foreign Affairs
Appendix V 

Rethinking the U.S. Foreign Affairs

Structure

among the local publics and opinion leaders within countries before crises

emerge. Greater policy integration could occur, also, if the State

Department itself gained a greater appreciation of the work USIA and other

agencies do.

Policy integration, it was noted, need not mean overriding the distinct

voices of foreign affairs agencies. One participant pointed out the

advantages of having more than one government voice with respect to

certain foreign policies; for example, when the State Department may need

to maintain a relationship with a country following inadvisable economic

policies, USAID can be the one to refuse a foreign aid program based on the

country’s not being a good development partner.

Page 26 GAO/NSIAD-97-6 Foreign Affairs
Appendix VI 

List of Conference Participants

Gordon Adams

Associate Director, National Security and International Affairs

Office of Management and Budget

Doug Bandow

Senior Fellow

CATO Institute

Kenneth Brody

Former President and Chairman

U.S. Export Import Bank

Larry E. Byrne

Assistant Administrator for Management

U.S. Agency for International Development

Lynn E. Davis

Under Secretary of State for Arms Control and International

 Security Affairs

U.S. Department of State

J. Michael Farren

Vice President

Xerox Corporation

Laurie J. Fitz-Pegado

Director-General, U.S. and Foreign Commercial Service

U.S. Department of Commerce

David Gordon

Deputy Director

Overseas Development Council

Martha C. Harris

Deputy Assistant Secretary of State for Politico-Military Affairs

U.S. Department of State

Tex Harris

President

American Foreign Service Association

Page 27 GAO/NSIAD-97-6 Foreign Affairs
Appendix VI 

List of Conference Participants

John Howard

U.S. Chamber of Commerce

Penn Kemble

Deputy Director

U.S. Information Agency

Thea Lee

Economic Policy Institute

Michael Mandelbaum

School of Advanced International Studies

Johns Hopkins University

Warren Maruyama

Sidley and Austin

Allan I. Mendelowitz

Executive Vice President

U.S. Export Import Bank

Richard Moose

Under Secretary for Management

U.S. Department of State

Donna M. Oglesby

Counselor

U.S. Information Agency

Anthony E. E. Quainton

Director General of the Foreign Service

U.S. Department of State

Charles Schmitz

President

Global Access Institute

August Schumacher, Jr.

Administrator, Foreign Agricultural Service

U.S. Department of Agriculture

Page 28 GAO/NSIAD-97-6 Foreign Affairs
Appendix VI 

List of Conference Participants

Jeffrey R. Shafer

Assistant Secretary, International Affairs

U.S. Department of the Treasury

Thomas P. Sheehy

Jay Kingham Fellow in International Regulatory Affairs

Heritage Foundation

Sally Shelton

Assistant Administrator, Bureau for Global Programs,

 Field Support, and Research

U.S. Agency for International Development

Joan E. Spero

Under Secretary of State for Economic and Agricultural Affairs

U.S. Department of State

George F. Ward

Acting Assistant Secretary, International Organization Affairs

U.S. Department of State

Moderators Frank C. Conahan

Former Assistant Comptroller General

National Security and International Affairs Division

U.S. General Accounting Office

Benjamin F. Nelson

Director, International Relations and Trade Issues

National Security and International Affairs Division

U.S. General Accounting Office

(711151) Page 29 GAO/NSIAD-97-6 Foreign Affairs
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