International Trade: Intensifying Free Trade Negotiating Agenda Calls for Better Allocation of Staff and Resources
Published: 2004-01-12T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Free trade agreements (FTA) involve trade liberalization between the United States and selected countries or regions and are also expected to provide economic and other benefits. GAO was asked to review how potential FTA partners are selected, in view of the increased number of FTAs and their growing importance to U.S. policy. Specifically, GAO (1) provided information about the factors influencing the selection of FTA partners, (2) analyzed the interagency process for selecting FTA partners, and (3) assessed how the executive branch makes decisions about the availability and allocation of resources to FTAs.
section_title: What GAO Found
paragraphs: The Trade Representative used 13 factors in selecting four potential FTA partners in 2002 (Australia; the Central American Free Trade Area, a subregional group of five Central American countries; the Southern Africa Customs Union of five countries; and Morocco). Subsequently, selected executive branch agencies decided to use six broad factors--country readiness, economic/commercial benefit, benefits to the broader trade liberalization strategy, compatibility with U.S. interests, congressional/private-sector support, and U.S. government resource constraints. These decisions are not mechanical, and the factors cited most often regarding the selected FTA partners primarily reflect U.S. trade strategy, foreign policy, and foreign economic development goals. The interagency process for selecting FTA partners now involves four interagency groups that use decision papers to assess potential FTA partners and make recommendations that eventually go to the president. This new process is more systematic and inclusive than the process previously used. The Office of the U.S. Trade Representative (USTR) reports that it routinely considers the Congress's views in making selections. Decisions about FTA partners are made with little systematic data or planning regarding trade-offs with other trade priorities, even though FTAs are resource intensive. USTR staff and travel funds are heavily committed to FTAs, and USTR relies on specialists at other agencies as well. As more FTAs are contemplated, existing mechanisms may prove inadequate to the task of aggressively pursuing a bilateral FTA agenda while remaining engaged in regional and multilateral forums.

section_title: Letter
paragraphs: Free trade agreements (FTA) have recently been the subject of much  attention as the United States undertakes negotiations with multiple  negotiating partners.  FTAs involve liberalization of trade between the  United States and selected countries or regions and are also expected to  provide economic and other benefits.  The passage of trade promotion  authority legislation in 2002 has positioned the United States to pursue  more FTAs, because this authority has streamlined the agreement approval  process through the U.S. Congress.  Because FTA negotiations call upon  many experts from the Office of the U.S. Trade Representative (USTR) and  other agencies, they are resource intensive.  The recent collapse of the  World Trade Organization (WTO) trade talks at a September 2003 meeting  in Cancun, Mexico, is expected to make FTAs a more important vehicle for  accomplishing U.S. trade goals.
As a result of this increase in the number of FTAs and their growing  importance to U.S. trade policy, you asked us to review how potential FTA  partners are selected.  More specifically, you asked us to (1) provide  information about the factors that influence the selection of FTA partners  and how these factors have been applied; (2) analyze the interagency  process for selecting FTA partners, including how USTR coordinates the  views of key trade agencies and consults with the Congress, and business  and public interest groups; and (3) assess how the administration makes  decisions regarding the availability and allocation of resources to FTAs and  other trade priorities, such as the regional Free Trade Area of the Americas  (FTAA) and multilateral talks at the WTO.
To meet these objectives, we reviewed documents from the key U.S.  agencies involved in the process of selecting FTA partners, including USTR,  and the departments of State, Commerce, Agriculture, and the Treasury.  In  addition, we interviewed key executive branch officials, including the U.S.  Trade Representative.  (App. I provides detailed information on our  objectives, scope, and methodology.)
subsections: section_title: Background
paragraphs: Under its constitutional authority to regulate commerce with foreign  nations, the Congress has enacted laws authorizing the President to enter  into trade agreements with other countries to reduce tariff and nontariff  barriers.  One major recent law to provide this authority is the Bipartisan  Trade Promotion Authority Act of 2002 (TPA).  The TPA legislation sets forth U.S. trade negotiating objectives that apply to negotiating FTAs.   However, the TPA legislation does not impose any specific criteria on the  President for choosing FTA partners, except that the President must take  into account the extent to which the negotiating partner has implemented  or has accelerated implementation of its WTO obligations.
Other trade legislation encourages pursuit of FTA negotiations.  For  example, in the 2000 African Growth and Opportunity Act, the Congress  declared that FTAs should be negotiated with interested sub-Saharan  African countries.  Furthermore, in the United States-Caribbean Basin  Trade Partnership Act, the Congress declared that it was the policy of the  United States to seek the participation of Caribbean Basin beneficiary  countries in the FTAA or another FTA, with the goal of achieving full  participation in any such agreement by 2005.
USTR, the President’s principal trade policy advisor and coordinator, has  the lead responsibility for the formulation and coordination of trade policy;  the negotiation of trade agreements, including FTAs; and the enforcement  of trade agreements.  Under the Trade Expansion Act of 1962, President  John F. Kennedy established an interagency trade policy organization to be  chaired by USTR to assist with these and other trade responsibilities.   Currently, this organization consists of three tiers of committees, which  from the lowest tier to the highest tier are the Trade Policy Staff Committee  (TPSC), the Trade Policy Review Group (TPRG), and the National Security  Council/National Economic Council (NSC/NEC).  Within this framework,  USTR coordinates with Commerce, Agriculture, State, and Treasury and  other U.S. agencies as issues needing their expertise arise.
The United States currently has five FTAs with six nations: Israel (1985),  Canada (1989), Mexico (1994), Jordan (2001), Singapore (2003), and Chile  (2003).  The United States has already begun negotiating four more  bilateral or subregional FTAs with Central America, the Southern Africa  Customs Union (SACU), Australia, and Morocco.  USTR has announced  that it plans to negotiate FTAs with the Dominican Republic; Bahrain;  Panama; and the Andean countries of Colombia, Peru, Ecuador, and  Bolivia.  In addition, in October 2003, the President announced the U.S.’s  intent to negotiate an FTA with Thailand.  Other countries are under  consideration as FTA partners.  For a general time line of U.S. FTAs since  1985, see figure 1.
section_title: Early FTA Selections Were Based Primarily on the Trade Representative’s Evaluation; New Interagency Process Uses Six Factors
paragraphs: The factors used since the 2002 selection of FTA negotiating partners have  evolved.  According to the Trade Representative and other U.S. officials,  the Trade Representative chose the first four FTA partners on the basis of  his own evaluation of factors and after he had consulted the President and  certain other high-level officials in several other agencies.  Subsequently,  the NSC coordinated the views of key trade agencies, which decided to use  six factors in a revised interagency process to recommend proposed FTA  partners to the President.
subsections: section_title: The Trade Representative Used 13 Factors for Early Selections
paragraphs: The Trade Representative told us that his early FTA proposals emerged  from his evaluation of 13 factors he developed over time—the same factors  that the Trade Representative and other USTR officials continue to use.   However, he cautioned that these factors “carry no coefficients”—that is,  they do not have relative weights.  The Trade Representative described the  factors in some detail, with examples.
Congressional guidance.  According to the Trade Representative, his  office consults with the Congress before and after FTA selection to  ensure support and eventual congressional approval.  USTR officials  also examine public support, including the ethnic components of such  support.
Business and agricultural interest.  The Trade Representative  considers the views of business and agriculture and evaluates both  current and future economic benefits of a potential FTA.
Special product sensitivities.  The Trade Representative assesses how  an FTA will adversely affect certain sectors and products, such as  textiles and sugar.
Serious political will of the prospective partner to undertake needed  trade reforms.  The Trade Representative considers the political will in  the foreign country to enact and implement trade reforms.  He also  assesses the country’s trade capabilities and the candidate’s track  record in meeting current trade obligations.
Willingness to implement other reforms.  The Trade Representative  stated that FTAs are a development tool that may help promote other  economic reforms.  The United States views these reforms as links to  market-oriented economic development and future growth.  Prospective  FTA partners are expected to show serious intention in this regard to  ensure that they understand (1) how important it is to make this  commitment to reform and (2) the extent of the obligations that a  comprehensive FTA with the United States involves.
Commitment to WTO and other trade agreements.  USTR considers a  potential FTA partner’s commitment to the trade disciplines in the WTO  and the commitments being discussed at the ongoing FTAA  negotiations.
Contribution to regional integration.  The United States has put in  place initiatives to advance U.S. goals on a regional basis and foster  regional economic integration.  The Trade Representative told us that  the Central American Free Trade Agreement (CAFTA)—Costa Rica, El  Salvador, Guatemala, Honduras, and Nicaragua—and Chile FTAs have  the potential to help integrate the whole region by helping to enact and  implement the FTAA.  Similarly, the SACU FTA may also help the  integration of these five African countries (South Africa, Botswana,  Lesotho, Namibia, and Swaziland).
Support of civil society groups.  The Trade Representative highlighted  the views of labor and environmental groups as important components  of FTA selections because these views affect prospects of congressional  passage.
Cooperation in security and foreign policy.  The Trade Representative  considers the extent to which potential partners are willing to support  U.S. security and foreign policy objectives.  For example, Jordan,  Morocco, and Bahrain support U.S. objectives in the Middle East, and  the CAFTA nations supported U.S. objectives in Iraq.
Need to counter FTAs that place U.S. commercial interests at a  disadvantage.  The Trade Representative is interested in negotiating  FTAs that will offer U.S. commercial interests opportunities on a par  with other countries that already have FTAs.  (See app. II for a list of  European Union and U.S. FTAs.)
Need to do FTAs in each of the world’s major regions.  The Trade  Representative prefers to negotiate FTAs in each of the major regions of  the world: Asia (Singapore, Australia, and Thailand); the Middle East  (Jordan, Morocco, and Bahrain); Africa (SACU); and the Americas  (CAFTA and the Dominican Republic).
Need to ensure a mix of developed and developing countries.  The  Trade Representative also seeks FTAs with both developed and  developing countries—for example, Australia and SACU.  Developing  countries are a key to trade growth because they account for a  significant share of the world’s population and represent an important  negotiating bloc in the WTO.
Demand on USTR resources.  The Trade Representative recognizes that  the resources needed for FTA negotiations are not unlimited.
section_title: Agencies Now Consider Six Factors
paragraphs: As a result of discussions among relevant agencies, six factors now guide  the discussions in selecting future FTA partners.
Country readiness. Country readiness involves the country’s political  will, trade capabilities, and rule of law systems.  U.S. agencies involved  in FTA partner selection discussions may interpret this factor somewhat  differently, since each agency filters the information though the lens of  its specific mission.  For example, USTR may review a prospective  candidate’s adherence to trade obligations and its leaders’ commitment  to negotiating all trade issues that currently comprise the  comprehensive FTAs that the United States seeks to negotiate.   However, Treasury may look at the candidate’s overall macroeconomic  stability and the strength of its financial and banking system.
Economic/Commercial benefit. According to U.S. officials, the  interagency group reviews the likely economic benefit to the United  States.  It assesses macroeconomic benefits (trade and investment  potential) and the likely effects on specific products and sectors.  (See  app. III for potential and existing FTA partners’ share of total U.S. trade.)
Benefits to the broader trade liberalization strategy. This factor relates  to the prospective FTA partner’s overall support for U.S. trade goals.   Other elements considered within this category are the potential FTA  partner’s willingness to resolve trade problems through its participation  in a Trade and Investment Framework Agreement with the United  States, success in meeting its WTO obligations, and support of key U.S.  positions in FTAA and WTO negotiations.
Compatibility with U.S. interests.  A potential FTA partner is examined  for its compatibility with broad U.S. interests, including its support for  U.S. foreign policy positions.  One USTR official stated that sometimes a  foreign leader’s visit can prompt serious discussions that lead to that  country’s consideration as a future FTA partner.  Likewise, the Trade  Representative’s foreign travels also are important in bringing attention  to a possible FTA with a particular country.  However, other  requirements, including but not limited to WTO membership and a Trade  and Investment Framework Agreement, must still be met.
Congressional/Private-sector support. Agencies also review the extent  to which a particular FTA selection has garnered support from the  Congress, business groups, and civil society.
U.S. government resource constraints. This factor focuses primarily on  constraints at USTR—what regional office is available to lead the  negotiation, what staff are available, and how the timing may affect  meeting postnegotiation TPA requirements.  Other agencies’ resources  also play a role in this discussion.
section_title: Selections Are Not Mechanical; Trade Strategy and Foreign Policy Considerations Predominate
paragraphs: In terms of how the six selection factors are applied, according to officials  that we interviewed, the broad factors guide the discussion, but they are  not hard-and-fast decision rules.  Moreover, administration decision  makers have not set thresholds for eligibility determinations.  Key officials  told us that USTR’s views are central but that the now-standard discussion  of the factors permits each participating executive agency to contribute its  perspective, thus potentially adding to issues that USTR needs to address  in the future negotiations.  For example, other agencies may be aware that  a prospective partner has engaged in money laundering or human rights  abuses or has been slow to resolve intellectual property disputes.
As illustrated below, the FTA selections made to date in 2002-03 primarily  reflect U.S. trade strategy, foreign policy, and foreign economic goals. (See  app. IV for more details on specific FTA partners.)  According to USTR, the  administration is working aggressively on its “competitive liberalization”  strategy, because it seeks to spur progress by creating a positive dynamic to  liberalize trade on multiple levels: bilaterally, regionally, and multilaterally.   USTR also reports that the U.S.’s willingness to pursue bilateral FTAs has  bolstered countries’ interest and encouraged them to make the changes  necessary to enter into FTA negotiations with the United States.
Australia. This FTA negotiation represents the greatest immediate  commercial benefit of any single ongoing FTA, with 1.2 percent of total  U.S. trade in 2002.  A U.S.-Australia FTA would add to the regional  distribution of FTAs for the United States and would strengthen U.S. ties  to a valued ally.  The increased U.S. access to Australia’s market would  likely increase trade in goods and services, enhance employment  opportunities, and encourage additional two-way investment.
Bahrain. Although Bahrain represents a small share of U.S. trade, an  FTA with this U.S. ally and moderate Muslim nation would support U.S.  security and political goals by fostering prosperity in the region.  As a  stepping-stone to an eventual Middle East Free Trade Area, Bahrain  could become the hub of a subregional block of countries with closer  trading relationships with the United States.  An FTA with Bahrain might  be completed relatively quickly due to Bahrain’s reform-minded outlook.
Central American Free Trade Agreement. The commercial benefit of an  FTA with five Central American countries would be 0.95 percent of total  U.S. trade.  In the United States-Caribbean Basin Trade Partnership Act,  the Congress declared that it was the policy of the United States to seek  the participation of Caribbean Basin beneficiary countries in the FTAA  or another FTA, with the goal of achieving full participation in any such  agreement by 2005.  CAFTA would provide regional balance among  FTAs and add to the momentum for the hemispherewide FTAA, a major  U.S. trade priority.  It would also help lock in and broaden reforms such  as anticorruption and government accountability measures, support  economic integration within the region, and enable the United States to  increase exports and gain U.S. access to more affordable goods.
Dominican Republic.  If the Dominican Republic is added to the overall  CAFTA region, it would bring the CAFTA trade from 0.95 percent to 1.32  percent of total U.S. trade in 2002, slightly more than that of Australia.   The Dominican Republic had strong support in the Congress for its  addition to the CAFTA negotiations, in part because excluding it from  CAFTA could lead to adverse economic consequences in the Dominican  Republic.  However, according to a key participant in the discussion, the  decision to add the Dominican Republic also included careful  consideration of U.S. concerns about its protection of intellectual  property rights and its status as one of the worst offenders on human  trafficking.
Morocco.  Although a U.S.-Morocco FTA would have minimal trade  benefit to the United States, one USTR official stated that this FTA  would further the administration’s goal of promoting openness,  tolerance, and economic growth across the volatile Middle East.   Morocco, a moderate Muslim country, also signaled its readiness to  enter into a comprehensive FTA by demonstrating its willingness to  liberalize its economy and make domestic reforms.
Southern Africa Customs Union.  Responding to congressional  guidance in the 2000 African Growth and Opportunity Act, USTR  inititated FTA negotiations with SACU in November 2002.  This FTA  contributes to the U.S.’s desire for regional balance among FTAs, creates  an opportunity for the United States to build trade capacity in the  region, and strengthens SACU’s role as a negotiating partner in other  trade forums, such as the WTO.  The commercial benefit of this FTA  represents 0.42 percent of total U.S. trade.
section_title: The Administration Has Enhanced Its Interagency Process for Assessing Potential FTA Partners
paragraphs: The selection of FTA partners has evolved from a limited high-level  consultation to a more systematic and deliberative process involving more  U.S. officials.  USTR keeps the Congress apprised of potential FTA partners  and routinely considers the Congress’s views in making selections.   Business and other nongovernmental groups have also provided their  views to USTR on potential FTA partners and FTA negotiations.
subsections: section_title: Initially, the Trade Representative Consulted with Counterparts
paragraphs: In February 2002, the Trade Representative made recommendations for  potential FTA partners to a cabinet-level interagency group under the  leadership of the NSC/NEC.  According to agency officials, this interagency  group informally assessed the proposed countries and offered a consensus  recommendation to the President, who named the four FTAs that are  currently under negotiation (Australia, CAFTA, Morocco, and SACU).  We  found no evidence that this group used decision papers on the potential  partners to guide its deliberations.  Nevertheless, some high-level U.S.  officials we interviewed confirmed that they provided USTR and other key  trade agencies with input at the time and were on board with the final  selections.  Other officials, however, expressed concern that the  discussions of the four FTAs had been ad hoc and that they had not been  able to provide important input.
Also, in February 2002, the cabinet-level interagency group directed their  deputies to make the process more systematic by formalizing the factors  that would be used for assessing future FTA partners.  The desire to have a  more systematic interagency process for assessing partners was largely  driven by the expected growth in the number of potential FTAs that would  follow the enactment of the trade promotion authority legislation.
section_title: Recently Enhanced Interagency Process Is More Deliberative and Inclusive
paragraphs: In May 2003, the NSC/NEC issued guidelines on assessing potential FTA  partners.  In addition to identifying the factors to be used, the guidelines  make the interagency process more inclusive by supporting the use of four  standing interagency groups for in-depth deliberations.  Each group in  turn is to use decision papers to assess potential FTA partners and make  recommendations for consideration at the next level, all the way up to the  President.  After the President selects an FTA partner, he is to notify the  Congress, through USTR, at least 90 days before he intends to start FTA  negotiations with the selected partner.  USTR consults with the  Congressional Oversight Group before sending its notification letter about  a prospective FTA negotiation to the Congress.
As shown in figure 2, the selection process is initiated by USTR and begins  with the assessments of potential FTA partners by the TPSC and the TPRG.
The TPSC is composed of senior officials from more than 19 U.S. agencies  and departments who bring specialized technical knowledge on trade  issues to the deliberations.  The TPRG is composed of under secretaries or  assistant secretaries and other senior officials from all of these U.S.  agencies and departments who contribute policy perspectives on trade to  the discussions.  Although USTR leads and coordinates interagency  discussions, other agencies are expected to play an important role in  developing pertinent information and discussing the pros and cons of  potential FTA partners.
The next level of the process consists of the Deputies Committee and the  Principals Committee, two interagency groups that the NSC/NEC lead and  coordinate.  The Deputies Committee is composed of the deputies from  all the cabinet agencies involved in trade.  The Principals Committee is  composed of the secretaries from all of these agencies, such as the Trade  Representative and the Secretaries of State and the Treasury.  Deputies and  Principals meet and use decision papers as needed to assess potential FTA  partners before forwarding their recommendations to the President.
USTR and other agencies used this new interagency process for the first  time in assessing the Dominican Republic as a potential FTA partner in mid- 2003.  Agency officials with whom we spoke expressed satisfaction that  this process enabled their agencies to contribute to the assessment of  potential FTA partners and strengthen the content of the decision papers.   Nevertheless, because the process is new, it remains to be seen how it will  continue to perform.
section_title: Congress and Private Sector Provide Input into the Process
paragraphs: Input from the Congress and the private sector is part of the process of  selecting potential FTA partners and negotiating FTAs, according to USTR  officials.  Although the President is not specifically required to consult with  the Congress before selecting potential FTA partners, USTR officials  nevertheless stated that they keep the Congress apprised of the FTA  partners under consideration through formal and informal means.   According to these officials, the views of the Congress are very important  to their agency and are seriously considered in FTA partner selections  because the Congress must ultimately approve all FTAs. USTR gave us an  extensive list of pertinent contacts between the agency and the Congress to  confirm these discussions.  As required by the TPA legislation, USTR has  notified and consulted with the Congress about FTA negotiations.  For  instance, USTR has provided written notice to the Congress at least 90 days  before initiating FTA negotiations since the passage of TPA.
Few Members of Congress have openly questioned choices of FTA partners  to date, and those Members that have raised questions still expressed  broad support for the “competitive liberalization strategy.”  Nevertheless,  certain Members of Congress have urged USTR to give greater priority to  economic and commercial conditions in selecting future FTA partners.
Also, business and nongovernmental groups have given USTR their views  on potential FTA partners and FTA negotiations.  In late 2002, for instance,  a major U.S. business group provided USTR with its views on potential FTA  partners and on the factors that USTR and other U.S. agencies involved in  trade should consider during the assessment of potential partners.  Also,  nongovernmental groups have provided input on FTA negotiations.   However, representatives of some of these groups indicated that they were  not sure whether USTR had seriously considered their comments.
section_title: Ambitious FTA Agenda Calls for Better Resource Management
paragraphs: Despite the administration’s ambitious and growing FTA agenda, USTR and  other agencies have made resource decisions without considering resource  trade-offs among FTAs and other trade priorities.  FTAs are resource  intensive, and USTR has taken some measures to cope with resource  constraints.  Nevertheless, the administration continues to consider new  FTAs.  Present strategies for managing staff and other resources mean that  newly announced FTA partners will have to wait to begin negotiations until  other ongoing negotiations are concluded.  Although resource constraints  are now one of the factors taken into account when USTR and other  agencies select FTA partners, these interagency discussions still leave gaps  because they are not based on robust data and do not specify resource  needs or commitments.
subsections: section_title: The Administration’s Active FTA Agenda Drives Resource Deployment
paragraphs: The administration’s ambitious trade agenda has driven its resource  decisions about FTAs and other trade priorities.  Since the enactment of  TPA in August 2002, the administration has stepped up its pursuit of  bilateral and subregional FTAs as part of its overall strategy of competitive  liberalization.  As shown in figure 3, the United States now has numerous,  simultaneous FTA negotiations under way, with ambitious target dates for  completion.  Although it took 2 years to negotiate two FTAs with relatively  advanced partners (Chile and Singapore), USTR currently has FTAs under  negotiation with four partners, three of which (Australia, Morocco, and  CAFTA) are slated to be completed within 1 year.  Negotiations for the  fourth partner (SACU) will be conducted through 2004, as will negotiations  for Bahrain.  In addition, USTR officials hope to complete negotiations with  the Dominican Republic in early 2004.
The administration’s decisions to pursue these FTAs have been made with  little formal consideration for potential resource trade-offs, even though  the WTO and FTAA negotiations are scheduled to finish by January 1, 2005.
As a result, USTR has had to deploy its resources in a reactive manner.   According to agency officials, the four FTAs currently being negotiated  were selected before any explicit resource decisions were made because  USTR officials assumed that resources would be identified afterward to  carry out these priority negotiations.  According to USTR, in these cases  the resources were “made to fit” the priorities.
section_title: FTAs Are Resource Intensive
paragraphs: FTA negotiations require intensive effort on the part of USTR and other  trade agencies such as Agriculture, Commerce, State, and Treasury.  For  example, our analysis of the U.S. negotiating team suggests that on average  each of the six FTAs under negotiation in 2003 involved 11 percent of  USTR’s 209 full-time staff.  In addition, USTR estimates prepared for us  show that the nonstaff costs of negotiating rounds in fiscal year 2003 were  $1.7 million, of which approximately 68 percent were travel costs (see table  1).  Moreover, FTA travel comprised 37 percent of USTR’s total travel costs  in fiscal year 2003, and USTR estimates that it will constitute 42 percent of  its total travel costs in fiscal year 2004.
Although USTR takes the lead for all negotiating groups except financial  services, it relies on other agencies, such as Agriculture, Commerce, State,  and Treasury, for analysis, expertise, and staff to support its negotiations.
For example, other trade agencies regularly provide staff on a  nonreimbursable “detail” (loan) basis to USTR. USTR currently has more  than 30 such detailees.  In addition, of the 134 U.S. officials present for the  first five rounds of the Australia FTA negotiations, 22 were from USTR and  the rest (112) came from other agencies.  In fact, table 2 shows that other  agencies comprised an average of 76 percent of all members of U.S. FTA  negotiating teams.
However, while table 2 conveys the wide range of officials who are part of  an FTA negotiating team, it does not capture “staff effort” to support the  team because none of the agencies involved routinely tracks staff time  devoted to FTA negotiations, and only one agency was able to produce  estimates for us.  According to USTR officials, nearly all USTR staff are  involved in each FTA before, during, or after negotiating sessions.  One  USDA official said its delegates to the negotiating team were just the tip of  the iceberg because many other people at Agriculture were involved in  providing complex analyses during the negotiations.  Commerce data  prepared for us (see table 3) show that a large number of staff support  FTAs, but their total staff hours translate into fewer full-time equivalents.
The conclusion of negotiations does not mean that the work is completed  on a given FTA.  Additional demands, such as legal checks and translation  activities, continue.  For example, USTR officials reported that  negotiations in the Americas have been slowed because of follow-up work  after the signing of the Chile FTA.  The increase in the number of FTAs is  also likely to result in higher implementation-related needs, such as  monitoring, enforcement, and dispute resolution.  Our prior work has  highlighted concerns about the increasing monitoring and enforcement  workload at trade agencies, and USTR estimates that every three  additional disputes require an additional legal specialist.
section_title: USTR Is Taking Measures to Cope with Resource Constraints
paragraphs: USTR’s approach to dealing with resource constraints is sequencing one set  of negotiations per region at a given time in order to leverage the expertise  of its negotiators.  As a result, as depicted in figure 4, USTR’s Office for the  Americas will not start negotiating with the Dominican Republic until after  the CAFTA negotiations have been completed.  Similarly, although  Bahrain was ready to begin negotiating immediately with the United States,  USTR’s Office of Europe and the Mediterranean will postpone those  negotiations until the completion of negotiations with Morocco.  USTR has  indicated that it will continue to schedule negotiations in each region after  the current set of FTAs is completed.  Thus, regional negotiators will  remain fully occupied, and the queue of countries waiting to negotiate with  the United States will likely grow.
In addition, USTR officials reported that they are using past agreements as  a template for the ongoing negotiations.  This strategy has progressed to  the point that USTR now believes it can save resources by having countries  accede to already negotiated FTAs.  This process, called “docking,” means  that negotiators will not have to spend time renegotiating every area.  For  example, USTR officials stated that the Dominican Republic will be  integrated into the U.S.-CAFTA FTA and that only market access issues  should require separate, detailed negotiations.  Although CAFTA will  require 1 year to complete, USTR expects that docking the Dominican  Republic onto the agreement will take considerably less time.  USTR is also  considering how to integrate separate FTAs as it works toward a U.S.- Middle East Free Trade Area.
USTR is taking other measures to save resources.  For example, USTR  officials noted that they regularly combine various missions in one trip  abroad and that they use extensive teleconferencing.  In addition, USTR  officials reported that they have cut costs by holding meetings in a central  location and conducting negotiations in English when possible to avoid  interpretation expenses.  USTR is also improving its system for tracking  TPA requirements for each FTA.  To facilitate interagency collaboration,  USTR developed a negotiations calendar listing the various bilateral,  regional, and multilateral negotiating rounds so that negotiators may better  identify competing demands.
Finally, concerns that the FTA agenda would continue to be busy led to  resource constraints’ inclusion as a factor used for FTA partner selection  during the interagency process.  This step represents an improvement over  the past situation, in which no formal discussion of resource constraints or  trade-offs preceded FTA partner selection even though USTR and other  trade agencies already faced human capital challenges.  As a result,  resource constraints are now a standard part of interagency FTA partner  selection discussions.  One official welcomed this development because it  has enabled assumptions regarding resource allocations to be made ahead  of time and for consideration to be given to how resources are currently  devoted to ongoing bilateral and regional efforts.
section_title: Present Resource Management Efforts Leave Gaps
paragraphs: Despite USTR’s efforts to better manage resource constraints, important  gaps remain.  For example, decisions about staffing and funds for FTA  negotiations lack formal data and systematic consideration of their likely  impact on other trade priorities.  Moreover, USTR is continuing to make  specific requests for resources from other agencies on a case-by-case basis,  after FTA partners are selected, making it difficult for these agencies to do  their own resource planning for FTAs.
subsections: section_title: Resource Decisions Are Made with Limited Data and Planning
paragraphs: USTR’s resource data are not sufficiently robust for resource planning, and  this limits USTR’s flexibility in meeting its resource needs.  When assigning  resources for the current set of FTAs, USTR officials did not have clear data  on hand regarding what was needed and what resources were available.   We reported in 2002 that valid and reliable data are critical to assessing an  agency’s workforce requirements and to heighten an agency’s ability to  manage risk by allowing managers to (1) spotlight areas for attention  before crises develop and (2) identify opportunities for enhancing agency  results.  In 2003, we also noted the importance of considering human  capital challenges by relying on valid and current data and reported that the  absence of such data can seriously undermine efforts to respond to current  and emerging challenges.  USTR has indicated that it is developing a new  system for tracking spending according to different trade priorities,  including FTAs, but this system is not yet operational.  In addition, although  staff time is a major resource devoted to FTAs, USTR officials informed us  that they have no plans to track the time staff spend working on FTAs.
The importance of systematic data and planning can be seen in the  constraint imposed by limited numbers of functional experts, who focus on  areas such as intellectual property rights, agriculture, and market access.   These experts are often needed to support multiple, concurrent  negotiations.  However, the offices in which these staff work at USTR  average only eight people each, so they often represent a limiting factor to  completing FTA negotiations.
USTR officials reported that they make many resource management  decisions informally on an ongoing basis, in addition to those decisions  based on advance planning that took into account the U.S.’s various trade  priorities.  For example, although regional assistant U.S. trade  representatives provide staff and travel estimates as part of the annual  budget cycle, they frequently bring specific resource requests to USTR  management throughout the year.  USTR officials, who must mediate  among these often competing priorities, told us that they looked at several  factors—for example, negotiating deadlines and the need for specific  expertise—to make these resource decisions.  If there were competing  demands for staffing for the Morocco and SACU negotiations, for example,  USTR management might consider that the need would be more pressing  for the Morocco negotiator because of that negotiation’s shorter deadline  for completion (e.g., the end of 2003 versus the end of 2004 for SACU).  If  USTR managers identify a lack of available staff to cover certain issues,  they then turn to other agencies to supplement their own staff.  This  informal, reactive approach may no longer be adequate to meet the needs  of increasing numbers of negotiations, particularly if the U.S.’s trade  strategy shifts to an emphasis on bilateral agreements in the wake of the  failed Cancun ministerial of the WTO.  Moreover, this approach also affects  resource management at other trade agencies.
section_title: USTR Makes Staffing Requests to Other Agencies on a Case-by- Case Basis
paragraphs: The revised interagency process has not made requesting and securing staff  from other agencies more systematic because participants do not address  specific staffing needs or  other cost estimates in detail in the formal  interagency meetings, such as the TPSC and the TPRG, that are used to  select FTA partners.  Instead, the discussion of resource constraints  focuses more on matters like timing for multiple FTAs in the same region,  such as Morocco and Bahrain.
Specific requests for and commitments of resources by other agencies still  occur after FTA partners are selected.  According to USTR, after an FTA  partner country is selected, the Trade Representative’s office asks the  assistant U.S. trade representatives for a listing of officials at USTR and  other agencies they propose to constitute the U.S. negotiating team.  On the  basis of these lists, USTR managers report that they talk to their respective  counterparts at other agencies regarding USTR’s needs.  These discussions  generally begin just before USTR notifies the Congress about the FTA and  are ongoing thereafter as negotiations get under way.  According to USTR,  the ad hoc nature of these requests is due in part to USTR’s varying needs  for different agencies’ involvement, depending on the topics being  negotiated and the changing requirements over time.
USTR’s reactive method for requesting staff from other agencies makes it  difficult for their own resource planning.  Commerce officials, for example,  noted that the department had much less notice about FTA staffing needs  than it did about the need for staff support during NAFTA negotiations.   Agencies report that they were generally able to comply with USTR’s  requests but noted that the requests sometimes strained their resources.  At  times it was necessary for agencies to make trade-offs, if the same person  was requested for concurrent negotiations, agency officials told us.   According to Treasury officials, they have had to “perform triage” on some  operations due to the heavy FTA workload.  Other agencies also noted the  burden of travel costs.  Although agencies continue to respond to USTR’s  informal method of requesting resources, it is unclear how well this system  will continue to function in light of the intensifying FTA agenda.
section_title: Conclusions
paragraphs: After selecting the first several FTA partners with limited interagency  consultation, the administration has adopted a more rigorous and inclusive  process to implement its FTA agenda.  This framework for interagency  discussions appears to be promoting fuller deliberations and wider  involvement in the FTA partner selections.  However, other management  challenges remain.  In particular, USTR and other agencies have reported  that FTA negotiations are already straining available resources.  Several  steps have since been taken to deal with resource constraints associated  with FTAs.  However, present mechanisms still leave important gaps  because they do not involve systematic data or interagency resource  planning.  As the United States sets its sights on more bilateral agreements,  especially in light of the breakdown of the September 2003 Cancun  negotiations, the importance of managing trade priorities at USTR and  other trade agencies becomes increasingly significant.  Managing  resources, especially across diverse agencies, is paramount in meeting the  competing demands of a complex and intensifying U.S. trade agenda.
section_title: Recommendation for Executive Action
paragraphs: In light of USTR’s limited resources and management systems to track  those resources, we recommend that the Office of the U.S. Trade  Representative work with other key trade agencies to develop more  systematic data and plans for allocating staff and resources across the full  U.S. trade agenda, including FTAs and other negotiating priorities.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the departments of State, Commerce,  Agriculture, and the Treasury.  State and Treasury did not provide  comments.  We received written comments on a draft of this report from  the U.S. Trade Representative (see app. V).  USTR, Commerce, and  Agriculture also provided technical comments, which we incorporated in  the report as appropriate.
In his response to our draft report, the Trade Representative emphasized  the administration’s competitive liberalization strategy and the role of FTAs  in the strategy.  He laid out the steps his office is taking to promote  liberalized trade and described what the administration is doing in several  regions throughout the world.  He referred to resource pressures when he  noted that his office is pressing forward with global, hemispheric, and five  subregional or bilateral FTA negotiations simultaneously; while at the same  time, USTR litigation activities have soared, with WTO disputes doubling  over the last 5 years.
The Trade Representative agreed with us that the intensifying trade agenda  requires continual management improvements at USTR and supporting  agencies, and he acknowledged that increased pressures demand “nothing  less than a transformation of USTR.”  However, he did not agree with our  recommendation that USTR and other key trade agencies develop more  systematic data and plans for allocating staff and resources across the full  trade agenda.  The Trade Representative wrote that our emphasis on a  better allocation of staff and resources reflects an inaccurate assessment of  how to allocate limited resources most effectively and efficiently.
According to the Trade Representative, the main cause of strain at USTR is  the amount of available resources, not their allocation.  The Trade  Representative maintained that USTR must be “agile, flexible and  adaptable—not bureaucratic.”  We believe that aligning goals and resources  promotes the flexibility needed to respond to evolving circumstances.  Our  recommendation focuses on setting priorities among the multilateral,  hemispheric, and FTA negotiations that take into account available staff.  It  also calls for coordinating those staff allocations with other agencies  whose resources USTR routinely calls upon during the course of  negotiations.  Resource management fundamentally involves taking a given  (and limited) amount of resources and deploying (allocating) it over  program objectives aligned with the agency’s overall priorities.  This  approach frees managers to focus on its core program, not on continually  reacting to the daily fluctuations of resource needs.
The resources that USTR requested in fiscal year 2004 appear to have been  justified based on its needs for completing the ongoing four FTAs  (Australia, Morocco, CAFTA, and SACU).  Since then, negotiations with the  Dominican Republic, Bahrain, Panama, and the Andean countries have  been announced.  This increasing workload with its related demand for  staff and travel can be better managed with (1) the collection of data to  help managers understand what resources are linked to accomplishing  agency objectives and (2) the use of these data in advance planning for  future resource allocation, which can help USTR managers coordinate with  other agencies whose own resources are affected by USTR negotiations.   The Trade Representative listed several steps that USTR has taken to  address its resource limitations.  Although we recognize and encourage the  steps that USTR has already taken to make improvements, we note that  many of these efforts are already recognized in this report and are not  sufficient to address our concerns for forward planning.
The Trade Representative pointed to the fact that we did not identify any  “misallocation of funds.”  Solid data would permit sound conclusions about  how federal funds are managed at USTR.  The limited information that  USTR and Commerce finally provided us had to be specially tabulated for  this report because it is not routinely tracked.  Our data show that FTAs  involved considerable resources at both USTR and other agencies.   Specifically, 37 percent of USTR travel funds were used for FTA-related  travel in 2003, and 11 percent of USTR’s staff were involved in each of the  six FTAs completed or negotiated FTAs in 2003.  These data also show that  other agencies account, on average, for more than three-fourths of the  members of U.S. FTA negotiating teams, which averaged 106 members.   Thus, USTR and other agencies commit significant resources on trade  initiatives that cover 8 percent of total U.S. trade.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date.  At that time, we will send copies to interested congressional  committees, the U.S. Trade Representative, the Secretary of Commerce, the  Secretary of the Treasury, the Secretary of State, and the Secretary of  Agriculture.  Copies will also be made available to others upon request.  In  addition, the report will be available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  on (202) 512-4128.  Other GAO contacts and staff acknowledgments are  listed in appendix VI.
section_title: Objectives, Scope, and Methodology
paragraphs: Senator Max Baucus, Ranking Minority Member of the Senate Finance  Committee, and Representative Calvin Dooley asked us to examine the  factors and process used to make decisions regarding the selection of free  trade agreement (FTA) negotiating partners and the allocation of  negotiating resources.  In response, we (1) provided information about the  factors that influence the selection of FTA partners and described how they  were developed; (2) analyzed the interagency process for selecting FTA  partners, including how the Office of the U.S. Trade Representative (USTR)  coordinates the views of key agencies and consults with the Congress and  business and nongovernmental groups; and (3) assessed how the executive  branch makes decisions regarding the availability and allocation of  resources to FTAs and other trade priorities, such as the regional talks of  the Free Trade Area of the Americas (FTAA) and the multilateral talks at  the World Trade Organization (WTO).
To provide information about the factors that influence the selection of  FTA partners and how they were developed, we reviewed pertinent  documentation from key U.S. agencies involved in assessing potential FTA  partners, such as USTR and the departments of State and Commerce.  For  example, we reviewed pertinent USTR documentation from 2000 to 2003  on FTAs, including public speeches, articles, and agency documentation on  FTA partners.  We also reviewed U.S. International Trade Commission  documents on FTAs and Congressional Research Service reports on U.S.  trade and FTAs.  In addition, we interviewed knowledgeable officials at the  key agencies involved in the process of assessing potential FTA partners.   For instance, we interviewed the U.S. Trade Representative, the Deputy  U.S. Trade Representative, and several assistant U.S. Trade  Representatives; the Director of the Office of International Economics at  the National Security Council (NSC); the Under Secretary for Economics,  Business, and Agricultural Affairs at the Department of State; the Assistant  Secretary for International Affairs at the Department of the Treasury; the  Under Secretary of Farm and Foreign Agricultural Services at the  Department of Agriculture; and the Under Secretary for International Trade  at the Department of Commerce.
To analyze the interagency process for selecting FTA partners, including  how USTR coordinates the views of key trade agencies and consults with  the Congress and business and nongovernmental groups, we reviewed  pertinent documentation from key U.S. agencies involved in the process of  selecting FTA partners.  For example, we reviewed USTR documentation  from 2000 to 2003 on FTAs, including public speeches, articles, agency  documents, records of contacts with the U.S. Congress, records of public  hearings, and papers on FTA partners prepared for the consideration of the  Trade Promotion Staff Committee and Trade Promotion Review Group.   Also, we interviewed officials at the key agencies involved in the process of  assessing potential FTA partners.  For example, we interviewed the U.S.  Trade Representative, the Deputy U.S. Trade Representative, and several  assistant U.S. Trade Representatives; the Director of the Office of  International Economics at the NSC; the Under Secretary for Economics,  Business, and Agricultural Affairs at the Department of State; the Assistant  Secretary for International Affairs at the Department of the Treasury; the  Under Secretary of Farm and Foreign Agricultural Services at the  Department of Agriculture; and the Under Secretary for International Trade  at the Department of Commerce.  In addition, we obtained information  from business and nongovernmental organizations, including the U.S.  Chamber of Commerce, the Washington Office on Latin America, Oxfam  America, Public Citizen, World Vision, and the Center for International  Environmental Law.
To assess how decisions are made regarding the availability and allocation  of resources to FTAs and other trade priorities, we reviewed pertinent  documentation from key U.S. agencies involved in assessing FTA partners,  such as USTR and State and Commerce.  For example, we reviewed USTR  documentation from 2000 to 2003 on FTAs, including papers on potential  FTA partners, lists of FTA negotiating teams, and budget and personnel- related data.  Because negotiating lists were not complete for four of the  negotiations, we asked USTR to provide summary numbers of the  participating agencies.  For the other two negotiations, we did our own  analysis of agency staffing based on the negotiating lists provided by USTR.   As noted in the text, these data merely identify the number of individuals  involved and do not necessarily reflect staff effort.  We determined that  USTR data were sufficiently reliable for purposes of our assessment, even  though, as our recommendation indicates, we determined that these data  are not sufficiently robust for agency decision making and should be  improved.  Moreover, we interviewed knowledgeable officials at the key  agencies involved in the process of assessing potential FTA partners.  For  instance, we interviewed the U.S. Trade Representative, the Deputy U.S.  Trade Representative, and several assistant U.S. Trade Representatives; the  Director of the Office of International Economics at the NSC; the Under  Secretary for Economics, Business, and Agricultural Affairs at the  Department of State; the Assistant Secretary for International Affairs at the  Department of the Treasury; the Under Secretary of Farm and Foreign  Agricultural Services at the Department of Agriculture; and the Under  Secretary for International Trade at the Department of Commerce.
Despite repeated requests to the NSC, we were unable to obtain key  documents from the February 2002 and May 2003 meetings that provided  guidance to the interagency efforts to formalize the criteria and enhance  the process for developing recommendations to the President for selecting  potential FTA partners.
We conducted our review from June to November 2003 in accordance with  generally accepted government auditing standards.
section_title: European Union and United States Free Trade Agreements, by Region
subsections: section_title: Future United States FTAs (under negotiation)
paragraphs: Future European Union  FTAs (under negotiation)
Misc.
U)
section_title: Future United States FTAs (under negotiation)
paragraphs: Future European Union FTAs (under negotiation)
Former Yugoslav Republic of Macedonia Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab  Emirates)
Common Market of the South (members: Argentina, Brazil, Paraguay, and Uruguay)
Overseas countries  and territories  (European Union)
section_title: U.S. Trade with Potential and Existing FTA Partners
paragraphs: The following table presents trade data that describe the percentage and  amount of total U.S. trade with current and potential FTA partners, as well  as with non-FTA countries.
Excluding the FTAA negotiation, the current FTA negotiating partners  (CAFTA, SACU, Morocco, Australia, the Dominican Republic, Bahrain,  Thailand, Panama, and the Andean countries) collectively account for  about 4.7 percent of total U.S. trade. Of these nine partners, Australia  contributes almost 1.2 percent, or about 25 percent of their combined  trade.  Chile and Singapore account for another 2.0 percent of U.S. trade. In  contrast, NAFTA brought together the U.S.’s top two trading partners  (Canada and Mexico), representing about 28 percent of total U.S. trade.   Completing the FTAA negotiations would bring an additional 3.0 percent of  total trade under FTA disciplines.
section_title: Selected U.S. Free Trade Agreement Partner Profiles
paragraphs: In this appendix, we describe the background, considerations in FTA  partner selection, milestones, features, concerns, and FTA partner  participation for six countries with which the United States has or intends  to have FTAs.  We also describe those components for two regional  entities—CAFTA and SACU.
subsections: section_title: U.S.-Australia FTA
subsections: section_title: Background
paragraphs: The United States and Australia are among the world’s most open  economies.  Both countries are prominent supporters of trade  liberalization and have maintained a stable commercial relationship, having  brought only a few dispute resolution cases against each other in the WTO.   In 2002, Australia accounted for more than $13 billion in U.S. exports.  Total  two-way trade between the United States and Australia was almost $20  billion in that year as well.  The United States and Australia have signed  two bilateral agreements—the settlement on leather products trade in 1996  and the understanding on automotive leather subsidies in 2000.  For several  years, Australian officials told U.S. policy makers about Australia’s interest  in an FTA with the United States.  The current Prime Minister also raised  this matter in meetings with President Bush.  Until recently, though, the  Bush administration had expressed interest but had not committed to begin  negotiations.  However, the FTA negotiations between the United States  and Australia are starting from a strong base, given the similarity of the  structure of their economies and the compatibility of their trade policies.
section_title: Considerations in FTA Partner Selection in FTA Partner Selection
paragraphs: USTR highlighted several reasons why Australia was selected as an FTA  partner in 2002.  First, two-way trade between the United States and  Australia grew significantly in the past decade.  In 2002, the United States  exported $13.1 billion to Australia, the 13th largest destination of U.S.  exports.  It also imported $6.5 billion from Australia, the 28th largest source  of U.S. imports.  Second, the increased U.S. access to Australia’s market  made possible by an FTA would further boost trade in both goods and  services, enhancing employment opportunities in both countries.  Third, an  FTA would encourage additional foreign investment between the United  States and Australia, adding to the many jobs that the significant  investment flows between the two countries currently support.  Fourth, an  FTA would result in greater business integration, especially in the  information technology sector, increasing efficiency and the  competitiveness of the U.S. industry.  Overall, U.S. manufacturers and  services providers support these FTA negotiations.  Finally, an FTA would  address barriers that U.S. exports to Australia face today, including  Australia’s use of sanitary and phytosanitary measures as a means of  restricting agricultural trade.
section_title: FTA Milestones
paragraphs: In November 2002, USTR notified the Congress that the United States  intended to enter into FTA negotiations with Australia in at least 90 days.   In February 2003, the United States and Australia started the first of six  planned negotiating rounds.  The United States and Australia had intended  to complete the negotiations by the end of 2003, but negotiations will  continue into 2004.
section_title: FTA Features
paragraphs: The WTO requires that an FTA, at a minimum, substantially eliminate tariffs  and other restrictions on mutually traded goods and services.  However, the  U.S.-Australia FTA is likely to be more comprehensive given the broad  negotiating objectives that the governments have announced will cover  agriculture, industry, and services issues.  The U.S.-Australia FTA will  negotiate 20 broad, trade-related issues, including market access for goods,  agriculture, textiles, rules of origin, customs administration, sanitary and  phytosanitary measures, technical barriers to trade, trade remedies,  services, investment, telecommunications, financial services, competition  policy, government procurement, electronic commerce, intellectual  property, labor, environment, transparency, and institutional arrangements  and dispute settlement.  USTR leads the U.S. delegation with other  delegation members, including the NSC; the departments of State,  Commerce, Agriculture, Labor, Justice and the Treasury; the  Environmental Protection Agency; and the Federal Trade Commission.
section_title: FTA Concerns
paragraphs: The United States and Australia have a firm trade relationship, and their  tariffs on most products are already very low.  Therefore, critical issues in  the FTA negotiations will be nontariff barriers and other issues.  According  to trade policy experts, agricultural issues will be the greatest challenge  during these negotiations.  For example, agriculture accounted for only 2.2  percent of U.S. exports to Australia but for 29.2 percent of U.S. imports  from Australia in 2002.  Some in the U.S. agricultural community oppose  the negotiations.  The most recent round of negotiations took place in  October 2003.  Each side has presented its own proposals and raised  concerns regarding agricultural issues.
Australia takes issue with U.S. tariff-rate quotas on dairy products, sugar,  beef, and many other products.  Australia announced that it would seek the  removal of these quotas during the FTA negotiations.  Government-run  commodity boards control Australian exports of wheat and rice.  Because  these boards restrict U.S. exports, the United States has targeted them for  removal during the FTA negotiations.  Separately, the United States has also  targeted specific Australian sanitary and phytosanitary measures because  they are highly restrictive and have adversely affected U.S. exports of  citrus, apples, pears, corn, stone fruit, chicken, and pork.  These bilateral  discussions are proceeding on a parallel track to resolve the sanitary and  phytosanitary issues between the United States and Australia.
Because all foreign investment in Australia is subject to government  screening and approval, the United States has noted Australia does not  conform to the principle of national treatment—that is, treating foreign  investors no less favorably than domestic investors.  As a result, the United  States will seek the elimination or reduction of these trade-distorting  investment measures.
Even after resolving these irritants, U.S. officials are concerned that, after  the implementation of this FTA, the United States may face many disputes  on agricultural matters and other issues with Australia, one of its closest  allies.
section_title: FTA Partner Participation in Other Trade Agreements
paragraphs: Australia is a WTO member and has had FTAs with New Zealand since 1966  and with Singapore since 2003.  Australia and the United States are  founding members of the Asian-Pacific Economic Cooperation (APEC)  forum, an organization of 21 countries that has established the goal of free  trade and investment in that region by 2020.
section_title: U.S.-Bahrain FTA
subsections: section_title: Background
paragraphs: Bahrain is an emerging regional financial center in the Persian Gulf region.   The United States has been holding talks on economic policy with the Gulf  Cooperation Council (GCC), of which Bahrain is a member, through the  U.S.-GCC Economic Dialogue.  In 2001, the United States and Bahrain  signed a bilateral investment treaty.  On June 18, 2002, the two countries  signed a Trade and Investment Framework Agreement, which enabled the  United States to increase its engagement with Bahrain on economic  reforms and on bilateral trade and investment issues.
section_title: Considerations in FTA Partner Selection
paragraphs: USTR emphasized several reasons for selecting Bahrain as an FTA partner.   First, an FTA with Bahrain would support U.S. security and political goals  by increasing prosperity and globalization in the region.  Second, the  executive branch views the U.S.-Bahrain FTA as a stepping-stone to an  eventual Middle East Free Trade Area (MEFTA).  Bahrain could become the  hub of a subregional block of countries that might develop closer and more  open trading relationships with the United States.  Third, Bahrain has been  an important U.S. ally in the region.  Fourth, USTR emphasized Bahrain’s  readiness to undertake an FTA with the United States, particularly in  comparison with other states in the Persian Gulf region.  U.S. officials  emphasized the commitment among the highest levels of the Bahraini  government to make strong economic and political reforms to facilitate  trade.  Bahrain made economic reforms in areas such as property rights  and copyright laws and is an emerging regional financial center.  The  country also made political reforms, such as strengthening its parliament.   According to USTR officials, an FTA could be completed relatively quickly  with Bahrain because of its small size and reform-minded outlook.  Finally,  USTR officials emphasized that an FTA with Bahrain would generate  opportunities for U.S. business.
section_title: FTA Milestones
paragraphs: In January 2003, the King of Bahrain raised the idea of an FTA in a meeting  with President Bush.  In May 2003, the USTR met with the Bahraini Crown  Prince and announced the executive branch’s plans for negotiating an FTA  with Bahrain.  On August 4, 2003, USTR notified the Congress of the  administration’s intent to initiate negotiations for an FTA with Bahrain.   The target date for beginning negotiations is January 2004.
section_title: FTA Features
paragraphs: The U.S.-Bahrain FTA is expected to be a key part of the U.S.-MEFTA that  the United States is supporting to address the related problems of terrorism  and poverty in the region.  According to the World Bank, unemployment in  the Middle East is estimated conservatively at around 15 percent, and the  labor force could expand by as much as 40 percent in the next 10 years.  In  addition, USTR notes that the region has extremely low rates of internal  trade.  The United States hopes that MEFTA could encourage economic  reforms that would spur investment and increase opportunities in the  region.  In Jordan, for example, which signed an FTA with the U.S. in 2001,  exports to the United States grew by 72 percent in 2002, and the United  States is now Jordan’s biggest trading partner.  USTR has outlined a step- by-step approach to building a MEFTA that takes into account the different  developmental and economic levels of the countries in the region.  These  steps include supporting the potential partner country’s membership in the  WTO; expanding the Generalized System of Preferences (GSP) Program to  increase U.S. trade with the Middle East; signing bilateral investment  treaties, trade and investment framework agreements, and ultimately FTAs;  and providing financial and technical assistance for trade capacity- building.  The President’s Middle East Partnership Initiative will help direct  more than $1 billion per year from U.S. government agencies to support  trade in the Middle East.
section_title: FTA Concerns
paragraphs: Despite Bahrain’s and the U.S.’s interest in establishing an FTA, the U.S.  government officials with whom we spoke described regional influences  that may serve as potential obstacles to countries in the Persian Gulf region  that would like to make progress on trade with the United States.
section_title: FTA Partner Participation in Other Trade Agreements
paragraphs: Bahrain is a member of the GCC customs union, which is still developing  its trade rules.  In 1989, the European Commission and the GCC signed a  Cooperative Agreement that contains a commitment from both sides to  enter into FTA negotiations.  The two entities are now actively pursuing  FTA talks.
section_title: U.S.-Chile FTA
subsections: section_title: Background
paragraphs: Preceding the U.S.-Chile FTA negotiations, which began in December 2000,  Chile undertook political and economic reforms.  These reforms positioned  the country to implement a comprehensive trade agreement.  Before the  negotiations, Chile deregulated and restructured its economy and opened  its trade ties to industrial countries.  For example, in 1994 Chile reacted  positively to the possibility of becoming a party to NAFTA but negotiations  ceased, due in part to the expiration of the U.S. President’s fast-track  negotiating authority.  However, the Congress did not grant the President  such authority for 8 years; with this delay, the accession of Chile to NAFTA  did not occur.  Despite this delay, the U.S.-Chile Joint Commission on Trade  and Investment was founded on the occasion of President Clinton’s visit to  Chile in 1998.  The commission established a work program to address a  variety of bilateral trade and investment issues and facilitated the exchange  of trade information.  Thus, both countries were prepared to negotiate a  comprehensive FTA when the negotiations began.
section_title: Considerations in FTA Partner Selection
paragraphs: A variety of factors may have contributed to the U.S.’s decision to initiate  an FTA with Chile.  First, U.S. exports faced a 6 percent Chilean tariff, while  exports from Chile’s existing FTA partners entered the Chilean market  duty-free.  Chile had therefore reduced its purchases of U.S. exports by  almost one-third from $4.38 billion in 1997 to $3.13 billion in 2001 in favor  of relatively cheaper goods from its FTA partners.  An FTA with Chile  provided the opportunity to reduce this tariff that had disadvantaged U.S.  exports.  USTR noted that the FTA would ensure that U.S. businesses and  investors received treatment equal to or better than Chile’s other FTA  partners.  Second, Chile adopted economic reforms, such as the  elimination of price controls and the privatization of state-owned  enterprises, that signaled that Chile was willing to implement a mutually  beneficial FTA by solidifying these reforms.  Finally, through FTA  negotiations, the United States hoped to build Chile’s support for important  issues in the FTAA negotiations.  For example, the U.S.-Chile FTA  negotiations better defined key negotiating issues in areas such as labor  and the environment and demonstrated to other countries participating in  the FTAA negotiations the U.S.’s interest in furthering trade liberalization.
section_title: FTA Milestones
paragraphs: On November 29, 2000, the Clinton administration announced its intention  to negotiate a comprehensive FTA with Chile.  Negotiations began on  December 6, after U.S. and Chilean officials agreed on the initial list of  topics to be discussed and the organization of negotiating groups.  During  the negotiations, and following the change in U.S. administration, the U.S.  and the Chilean presidents declared their intention on April 16, 2001, to  complete the agreement by the end of that year with meetings scheduled to  occur approximately once a month through the end of 2001.  However, due  to the complexities of some trade topics, the negotiations would require an  additional year and would include 14 negotiating rounds.  Following the  completion of these negotiating rounds, on December 11, 2002, USTR  announced that an agreement had been reached.  On June 6, 2003, USTR  and the Chilean Foreign Minister signed the agreement.  USTR then  submitted draft FTA implementing bills to the Congress on July 15, 2003.   The House of Representatives and the Senate passed the U.S.-Chile Free  Trade Implementation Act on July 24 and July 31, 2003, respectively.   President Bush signed the act on September 3, 2003.  USTR expects the  FTA to be implemented on or after January 1, 2004.
section_title: FTA Features
paragraphs: The FTA is comprehensive in its treatment of industrial and agricultural  products and, according to USTR, provides a template to demonstrate to  other FTA partners the U.S.’s high expectations with regard to the scope of  FTAs.  For example, the negotiations encompassed trade in all goods, with  approximately 85 percent of U.S.-Chilean trade in industrial and  commercial goods becoming duty-free upon the agreement’s  implementation.  In addition, 75 percent of trade in agricultural products  will become duty-free during the first 4 years following implementation.  The FTA will also increase each country’s market access to a wide range of  services.
section_title: FTA Concerns
paragraphs: Some Members of Congress and certain nongovernmental organizations  have expressed concern about the use of the U.S.-Chile FTA as a model for  negotiations with other FTA partners, particularly with regard to the  agreement’s provisions concerning labor standards and the temporary  entry of professionals.  For example, certain Members and labor interests  have argued that the FTA’s labor provisions may be adequate for countries,  such as Chile, that maintain stringent labor standards but such provisions  may not be as appropriate for other countries that have not maintained or  enforced strong labor laws.  In addition, certain Members have raised  concern with regard to the FTA’s provisions facilitating the entry of  professionals, stating that such provisions touch upon immigration laws  that are within the purview of the Congress and should not be amended  through trade agreements.
section_title: FTA Partner Participation in Other Trade Agreements
paragraphs: Successive Chilean governments have pursued trade liberalization  strategies and export-oriented development policies, resulting in FTAs with  Canada in 1997; Mexico in 1999; Central America and the European Union  in 2002; and South Korea in 2003.  In addition, Chile signed economic  complementation agreements with Argentina in 1992; Venezuela, Colombia,  and Bolivia in 1993; Ecuador in 1994; and Peru in 1998.  Chile has also  enacted an association agreement with the member countries of the  Southern Common Market in October 1996.  Finally, Chile joined the APEC  organization in 1992 to boost commercial ties to Asian markets and is  currently involved in negotiations for an FTAA in the western hemisphere.
section_title: U.S.-Dominican Republic FTA
subsections: section_title: Background
paragraphs: The Dominican Republic is the largest economy in the Caribbean Basin  region.  The trading relationship between the United States and the  Dominican Republic has been shaped by the Caribbean Basin Initiative,  which is a series of U.S. laws and programs beginning in 1983 that  established unilateral U.S. trade preferences for goods from the Dominican  Republic and 23 other countries in the region.  In October 2002, the two  countries held their first meeting under the U.S.-Dominican Republic Trade  and Investment Council to deepen trade relations.  When the United States  began pursuing an FTA with the five Central American countries in 2002,  the Dominican Republic expressed concern that it would suffer adverse  economic consequences if it were not also included in the agreement.   However, the United States did not support the request, in part because it  did not believe the Dominican Republic had exhibited sufficient  commitment to negotiate and implement a comprehensive FTA with high- levels of commitment.  In response, the Dominican government took steps  to address some problematic issues, and aligned themselves more with the  United States in multilateral trade forums.
section_title: Considerations in FTA Partner Selection
paragraphs: According to USTR officials, the Dominican Republic was the first FTA  partner that was selected under the new interagency process established in  May 2003.  USTR has emphasized several reasons for the selection of the  Dominican Republic as an FTA partner.  First, according to USTR, an FTA  with the Dominican Republic would help support the broader U.S. trade  strategy of competitive liberalization because the Dominican Republic  would continue to uphold U.S. positions in the WTO and FTAA  negotiations.  Second, the FTA could bring economic and commercial  benefits to the United States by increasing market access and creating  more jobs.  The Dominican Republic is the largest U.S. trading partner in  the Caribbean, and USTR has described the country as an economic engine  in the region.  The combined markets of the Dominican Republic and the  CAFTA countries would be larger than Brazil and would become the  second-largest U.S. trading partner in Latin America.  Third, the Dominican  Republic was selected because the FTA would support U.S. efforts to  strengthen democracy and the rule of law.  For example, the United States  plans to push for the inclusion of strong anticorruption and transparency  requirements in the agreement.  Fourth, the Congress has instructed the  executive branch through the Caribbean Basin Initiative to enter into  mutually advantageous FTAs with countries included in this initiative.   Fifth, there appears to be broad bipartisan support in the Congress for this  FTA.  Sixth, the Dominican Republic has made clear progress in terms of its  readiness to negotiate an FTA with the United States, according to USTR.   For example, the Dominican government familiarized itself with the U.S.- Chile FTA and improved its protections of intellectual property rights,  including satellite broadcasts and antipiracy provisions, in response to U.S.  concerns.  According to USTR, there is a clear willingness at the highest  levels of the Dominican government to meet U.S. requirements for FTA  partners.  Seventh, there is strong support for an FTA among U.S. industry  and agricultural exporters, including from such groups as the U.S. Chamber  of Commerce.
section_title: FTA Milestones
paragraphs: The Dominican President met with President Bush in July 2002 to request  an FTA with the United States.  In a joint statement issued at a March 2003  meeting of the U.S.-Dominican Republic Trade and Investment Council, the  United States acknowledged the steps that the Dominican Republic had  taken so far to improve its trade policy and stated its willingness to  consider adding the Dominican Republic to CAFTA.  On August 4, 2003,  following a meeting with the Congressional Oversight Group, the Trade  Representative formally notified the Congress of the executive branch’s  intent to initiate FTA negotiations with the Dominican Republic.  The target  date for starting negotiations is January 2004.  USTR hopes to conclude  negotiations in March 2004.
section_title: FTA Features
paragraphs: USTR plans to integrate the Dominican Republic into the FTA it is already  negotiating with five Central American countries.  Officials will propose  that the Dominican Republic accede to the framework of CAFTA as it is  being discussed, after which the talks will focus on market access issues.   USTR hopes to present the Congress with one agreement for CAFTA  countries and the Dominican Republic.
section_title: FTA Concerns
paragraphs: Given the short time frame, integrating the Dominican Republic may be  challenging.  In fall 2003, USTR is to consult with the Dominicans about the  Chile and Singapore FTAs to explore the extent of Dominican support in  adopting provisions similar to those in these agreements.
Other concerns involve the State Department’s identification of the  Dominican Republic as a country that does not fully comply with minimum  standards in the trafficking of persons.
section_title: FTA Partner Participation in Other Trade Agreements
paragraphs: The Dominican Republic has FTAs with the Caribbean Community  (CARICOM) and the Central American countries.
section_title: U.S.-Morocco FTA
subsections: section_title: Background
paragraphs: Morocco is a U.S. ally in the war against terrorism and a long-time  democratic partner in the Arab world.  The U.S.-Morocco Bilateral  Investment Treaty, signed in 1991, provided protections to U.S. investors in  Morocco.  In 1995, the United States signed a trade and investment  framework agreement with Morocco to promote freer trade, increased  investment, and stronger economic ties between the two countries.  Moreover, the 2001 “open skies” agreement between the United States and  Morocco supported increased air passenger and cargo links between the  two countries.  According to USTR, Moroccan supporters of an FTA with  the United States cited the benefits that Jordan attained after it signed an  FTA in 2001 as a reason for desiring a U.S.-Morocco FTA.
section_title: Considerations in FTA Partner Selection
paragraphs: USTR emphasized several reasons for selecting Morocco as an FTA partner.   First, USTR officials noted that a trade agreement with Morocco would  further the executive branch’s goal of promoting openness, tolerance, and  economic growth across the Muslim world.  Second, Morocco has been a  staunch ally in the war against terrorism.  Third, the agreement would  ensure stronger Moroccan support for U.S. positions in the WTO  negotiations.  Fourth, according to USTR, an FTA with the United States  would enable Morocco to strengthen its economic and political reforms,  such as its recent program to liberalize and privatize key sectors, and help  promote sustainable development and environmental protection.  The FTA  would emphasize transparency, which would help make Morocco’s  government institutions more accountable.  Fifth, the United States is  expected to benefit economically from an FTA with Morocco because the  agreement would eliminate tariffs and other unjustified barriers to trade  between the two countries.  Morocco currently taxes U.S. products at an  average of 20 percent, while the United States only poses a 4 percent tariff  on Moroccan products.  A U.S.-Morocco FTA would also help protect U.S.  investments in Morocco and level the playing field with the European  Union, with which Morocco has an association agreement.  Growth  prospects for U.S. products and services, such as energy and tourism, also  exist.  Finally, USTR officials noted that Moroccan negotiators were well  prepared to undertake FTA negotiations with the United States because  they had studied the U.S.-Jordan FTA.
section_title: FTA Milestones
paragraphs: On April 23, 2002, President Bush and the Moroccan King announced that  their two countries would seek an FTA.  USTR notified the Congress of its  intent to negotiate an FTA with Morocco on October 1, 2002.  On November  21, 2002, USTR convened a public hearing on the U.S.-Morocco FTA.   Negotiations started on January 21, 2003.  On July 22, 2003, four U.S.  legislators announced the creation of the Moroccan Caucus, whose  purpose is to support increased trade and stronger ties between the United  States and Morocco.  Because the target date for completing negotiations  of December 2003 was not met, negotiations will continue in 2004.
section_title: FTA Features
paragraphs: The executive branch views the U.S.-Morocco FTA as a key to underpinning  the President’s broader Middle East trade strategy.  The agreement builds  upon the FTAs with Jordan and Israel and might serve as a model for other  North African and Middle Eastern countries interested in increased trade.   U.S. executive branch officials hope that Morocco will become a hub for  subregional integration and in turn serve as one of several subregional  centers that could be built into a MEFTA.
The U.S. Agency for International Development will provide assistance for  trade capacity-building programs to help Morocco meet the obligations  involved in signing and implementing an FTA with the United States.  The  United States will also provide technical assistance in areas such as  agriculture sector reform, which are likely to be sensitive.  U.S. assistance  will also focus on civil society and business groups in order to strengthen  public input to the negotiating process and maximize the benefits of an FTA  for Morocco.  The U.S. Agency for International Development estimates  that these activities will cost between $40 million and $48 million over 5  years.
section_title: FTA Concerns
paragraphs: Morocco may face complex decisions in its agricultural sector, which  employs 40 percent of Morocco’s workforce.
section_title: FTA Partner Participation in Other Trade Agreements
paragraphs: Morocco signed the Euro-Mediterranean Association Agreement with the  European Union in 1996.  As part of the Barcelona Process, which  envisions a free trade zone stretching across Europe and in North Africa by  2010, Morocco has signed FTAs with several other North African countries.   According to USTR, agriculture was generally excluded from the  association agreement with the European Union, and U.S. exporters could  gain significant advantages under an FTA with Morocco.
section_title: U.S.-Singapore FTA
subsections: section_title: Background
paragraphs: Singapore has been a long-time proponent of trade liberalization.  However,  a U.S. trade official noted that the announcement of the intention to  negotiate a U.S.-Singapore FTA at the APEC conference in November 2000  was unexpected, but the selection was based on the Clinton  administration’s interest in completing an FTA with a relatively large  trading partner that maintained an open economy.  In addition, as  Singapore’s economy did not include many sectors sensitive to U.S.  producers, the Clinton administration hoped to conclude the FTA quickly,  while establishing a model for future FTAs.
section_title: Considerations in FTA Partner Selection
paragraphs: The negotiation of a U.S.-Singapore FTA in 2000 may have been motivated  by various factors.  First, an FTA with Singapore furthered the Clinton  administration’s emphasis on access to big emerging markets.  The year  negotiations began, Singapore was the 10th largest U.S. trading partner, and  the value of U.S.-Singapore trade had doubled since the early 1990s,  according to Commerce.  In addition, many U.S. corporations invest in  Singapore as a regional base for exports and production, thereby making  the United States the largest foreign investor in Singapore.  Second, an FTA  with Singapore is the first such agreement between the United States and  an Asian country, and this agreement offered an opportunity to strengthen  U.S. relations with a region experiencing economic integration and  expanding trade.  For example, as Singapore has undertaken efforts to  liberalize trade and attract multinational corporations, USTR noted that  this FTA may serve as a foundation for the Enterprise for ASEAN Initiative.   Third, both countries maintain mutual security interests, and since 1992 the  U.S. military has had access to facilities in Singapore, which facilitates  military deployments to strategic locations.  In addition, Singapore has  supported the U.S. military’s continued presence and opposes any ASEAN  defense arrangements that might withdraw U.S. armed forces from Asia.   Fourth, the Congress and the U.S. business community undertook efforts  to support an FTA with Singapore.  For example, before the negotiations,  legislation was introduced in the Congress that would have authorized the  President to enter into an FTA with Singapore and would have provided for  expedited congressional consideration of the agreement.  Business support  included a 1999 visit to Singapore by 22 U.S. business executives to discuss  with the Singaporean Prime Minister the possibility of establishing an FTA  and strengthening U.S.-Singapore ties.
section_title: FTA Milestones
paragraphs: President Clinton and the Prime Minister of Singapore announced an  agreement to negotiate an FTA during the APEC conference in November  2000.  Negotiations then began under the Clinton administration in  December 2000 and concluded under the Bush administration in November  2002.  Following 11 rounds, USTR announced on January 15, 2003, that  agreement had been reached; on January 30, 2003, the executive branch  notified the Congress of its intent to sign the FTA.  President Bush and the  Singaporean Prime Minister signed the agreement on May 6, 2003.  USTR  sent the draft FTA implementing legislation to the Congress in June 2003,  and the House and Senate passed the legislation on July 24 and July 31,  2003, respectively.  President Bush signed the FTA implementing legislation  on September 3, 2003.  January 1, 2004, is the scheduled date for the FTA’s  implementation.
section_title: FTA Features
paragraphs: Preceding the FTA negotiations, the United States and Singapore had  signed a Trade and Investment Framework Agreement, and 99 percent of  U.S. exports already entered Singapore duty-free.  In addition, both  countries have maintained relatively open investment regimes.  Thus, the  FTA is expected to have relatively little impact on U.S. exports, and the  elimination of nontariff barriers will provide the majority of benefits.
However, USTR has commented that the FTA serves as a model for future  FTAs due to its comprehensive scope and the inclusion of commitments  not covered in earlier FTAs.  For example, according to USTR officials, the  text of the U.S.-Singapore FTA has served as a template to demonstrate to  future FTA partners the comprehensive scope that the United States  expects in FTAs.
section_title: FTA Concerns
paragraphs: Certain Members of Congress and some labor and environmental groups  have expressed concern over (1) the possible impact of the U.S.-Singapore  FTA and (2) the use of the FTA as a template for other agreements.  Specific  concerns include the potential threat to U.S. producers in import- competing sectors, such as U.S. manufacturers of electronic equipment and  other machinery, and the possible negative environmental effects, such as  increased pollution from industrialization.  In addition, certain Members  have also expressed concern about some of the agreement’s provisions,  including those relating to the temporary entry of professionals, which they  say impinge on U.S. immigration law without congressional input, and the  agreement’s Integrated Sourcing Initiative, which some Members claimed  expands trade benefits under the U.S.-Singapore FTA to territories outside  of Singapore, although these territories have not assumed key obligations  that the Congress has insisted should be included in FTAs.
section_title: FTA Partner Participation in Other Trade Agreements
paragraphs: Singapore is party to many preferential trade agreements, with the majority  of these agreements only recently implemented.  For example, while  Singapore has been a member of the ASEAN Free Trade Area since 1992,  only since January 2001 has Singapore entered into an FTA with New  Zealand.  In addition, in January 2002, Singapore concluded an FTA with  Japan, which excludes agricultural products; effective January 2003,  Singapore implemented an FTA with the European Free Trade Association.   In February 2003, Singapore signed an FTA with Australia and has been  negotiating FTAs with Mexico and Canada since 2000 and 2001,  respectively.  In addition, a study group was established in November 2002  to explore a possible FTA between Singapore and South Korea.
section_title: Background
paragraphs: Since the late 1980s, the countries of Central America have been moving  from civil conflict toward peace and democracy.  The U.S.-Central  American trading relationship has been shaped by the Caribbean Basin  Initiative, which promotes economic growth in the region through a series  of unilateral U.S. trade preferences for 24 countries.  President Clinton  stressed the commitment of the United States to expanding trade between  the United States and Central America at a 1997 summit with leaders from  Central America and the Dominican Republic.  President Bush has  continued the push for increased free trade with Central America.
section_title: Considerations in FTA Partner Selection
paragraphs: USTR emphasized several reasons why the CAFTA countries (Costa Rica,  El Salvador, Guatemala, Honduras, and Nicaragua) were selected as FTA  partners.  First, CAFTA would help lock in and broaden the economic and  political reforms made in these countries throughout the 1990s.  For  example, elements of the FTA that require increased transparency could  help counter corruption and support government accountability in the  CAFTA countries.  Second, pursuing an FTA with the CAFTA countries  would complement U.S. goals in the FTAA and the WTO, particularly given  the support of CAFTA countries for U.S. negotiating positions.  The  agreement would also support the ongoing economic integration of the  region.  Third, an FTA would enable the United States to address market  access barriers in the CAFTA countries and thus promote U.S. exports to  the region and increase U.S. access to more affordable goods.  Under the  Caribbean Basin Initiative, U.S. tariffs on Central American goods are  already low, with 74 percent of CAFTA country imports entering the United  States duty-free in 2002.  An FTA would enable the United States and the  CAFTA countries to have reciprocal tariff levels and would remove the  requirement that Caribbean Basin Initiative preferences be reviewed every  year.  A fourth reason for the selection is country readiness.  The CAFTA  countries are familiar with U.S. approaches to trade because they have  concluded a NAFTA-like agreement with Mexico in 2000.  Fifth, the  Congress has instructed the executive branch through the Caribbean Basin  Initiative to enter into mutually advantageous FTAs with Central American  countries.  Finally, the U.S. business community is interested in the  potential gains they could see from CAFTA.  Some 40 percent of total goods  imported by Latin America come from the United States, thereby making  the region an important market for some U.S. sectors.
section_title: FTA Milestones
paragraphs: In September 2001, the Bush administration held talks on free trade with  the CAFTA countries.  In January 2002, Bush announced that the United  States would explore an FTA with these countries.  Starting in February  2002, USTR held seven workshops with the CAFTA countries to ensure  they would be able to develop and implement an FTA with the United  States.  In October 2002, following a meeting of the Congressional  Oversight Group, President Bush formally notified the Congress of his  intention to begin FTA negotiations with the CAFTA countries.  USTR  convened a public hearing on CAFTA in November 2002.  Working-level  negotiations started in January 2003 and concluded in December 2003,  without Costa Rica.  The United States hopes to sign the agreement— which could include a component with the Dominican Republic—by spring  2004.
section_title: FTA Features
paragraphs: There are five negotiating groups for the CAFTA negotiations.  The  decision to establish only five negotiating groups reflects the CAFTA  countries’ interest in consolidating the negotiations, given their limited  negotiating resources.  In addition to these five working groups, there is  also a nonnegotiating, multiagency effort responsible for trade capacity- building.  This capacity-building effort includes projects to increase citizen  access to trade negotiations, support the negotiating teams, strengthen  food safety inspection systems, and enhance the implementation of labor  laws.  As part of these efforts, each country identified its needs in a  National Trade Capacity Building Strategy.  Other agencies involved in  trade capacity-building include the U.S. Agency for International  Development and the Inter-American Development Bank.  The executive  branch made a $47 million budget request for U.S. capacity-building  assistance in the region in 2003.
section_title: FTA Concerns
paragraphs: Some civil society groups and Members of Congress are concerned that the  CAFTA agreement will not adequately address their labor and  environmental concerns in the CAFTA countries.  There is concern that  USTR may support language of the U.S.-Chile FTA, which calls for  countries to enforce their domestic labor laws.  Some civil society groups  and Members believe this approach is not appropriate for the CAFTA  countries because their labor laws are not as stringent as Chile’s laws.   Similarly, some civil society groups claim that the environmental  commitments stemming from the FTA may not build upon existing  programs or preclude investor lawsuits that could undermine  environmental laws.  Finally, there is concern that there has not been a  sufficient mechanism for public input.
Market access for agricultural goods and textiles is another potential area  of contention.  Two Members have expressed concern that the CAFTA  countries are reluctant to lower tariffs on U.S. agricultural products.  The  U.S. sugar industry and some U.S. textile and apparel producers have also  expressed concern about heightened competition from CAFTA suppliers.
section_title: FTA Partner Participation in Other Trade Agreements
paragraphs: The CAFTA countries are members of the Central American Common  Market.  In addition, these countries have negotiated more than 20 FTAs  with such countries as Mexico, Canada, and several South American  countries.
section_title: Background
paragraphs: The Southern African Customs Union, which is comprised of Botswana,  Lesotho, Namibia, South Africa, and Swaziland, accounted for almost one- half of the gross domestic product in sub-Saharan Africa and for $2.5 billion  in U.S. exports to the region in 2002.  Total two-way trade between the  United States and SACU was more than $7 billion that year.  South Africa  has the largest economy among the SACU countries and the United States  and South Africa have had a trade and investment framework agreement  since 1999.  The 2000 African Growth and Opportunity Act (AGOA)  declares that FTAs should be negotiated with sub-Saharan African  countries to serve as catalysts for trade and for U.S. private-sector  investment in the region.  As a result, by moving from one-way trade  preferences to a reciprocal FTA with SACU, the United States expects to  build on the success of AGOA and to deepen U.S. political and economic  ties to sub-Saharan Africa.  The United States also hopes to lend  momentum to U.S. development efforts in the region by encouraging  greater foreign direct investment and promoting regional integration and  economic growth.
section_title: Considerations in FTA Partner Selection
paragraphs: USTR noted several reasons why the SACU countries were selected as FTA  partners.  For instance, in pursuing an FTA with SACU, the executive  branch responded to Congress’s direction to negotiate FTAs with sub- Saharan countries, as expressed in AGOA.  USTR emphasized that the  SACU countries are ready, individually and collectively, to be free trade  partners.  An FTA with the SACU countries would strengthen growing  bilateral commercial ties between the United States and these countries  and address barriers in these countries to U.S. exports.  These barriers  include high tariffs on certain goods, overly restrictive product licensing  measures, inadequate protection of intellectual property rights, and  restrictions the SACU governments impose that make it difficult for U.S.  service firms to do business in these countries.  An FTA would offer an  opportunity to improve southern Africa’s commercial competitiveness and  to better position the region for success in the U.S market and the global  economy.   In addition, an FTA would help the SACU countries attract  much-needed new foreign direct investment because international  investors prefer access to a large and integrated market.  An FTA might also  level the playing field in areas where U.S. exporters are disadvantaged by  the European Union’s FTA with South Africa.  Finally, this FTA would  reinforce the economic reforms that have taken place in the SACU  countries and might encourage additional progress where needed.
section_title: FTA Milestones
paragraphs: In November 2002, USTR notified the Congress that the United States  intended to enter into FTA negotiations with SACU in at least 90 days.  The  United States and SACU intend to complete the negotiations by December  2004.
section_title: FTA Features
paragraphs: A U.S.-SACU FTA agreement is likely to be comprehensive because the  governments have announced broad negotiating objectives that cover  agriculture, industry, and services issues.  The United States is committed  to providing the technical assistance necessary for SACU countries to  assume the responsibilities of full partnership and to share in the benefits  of free trade.  The United States and SACU have established a special  cooperative group on trade capacity-building specifically for these  negotiations, with $2 million in initial funding from the U.S. Agency for  International Development.  This group is to meet regularly during the  negotiations to identify needs and swiftly direct technical assistance  resources to help SACU countries better prepare for and participate in  negotiations, implement agreed-upon commitments, and take advantage of  free trade.
section_title: FTA Concerns
paragraphs: Several groups representing U.S. retailers, food distributors, and metal  importers have supported the reduction of U.S. tariffs on SACU goods.   Groups representing service industries and recycled clothing have favored  removing tariff and nontariff barriers in the SACU market.  However, other  groups have opposed the additional opening of U.S. markets to SACU  goods.  Agriculture, steel, and the textile and apparel industries are  expected to monitor negotiations closely.
section_title: FTA Partner Participation in Other Trade Agreements
paragraphs: The SACU countries are members of the WTO.  South Africa has had an  FTA with the European Union since 2000.
section_title: Comments from the Office of the U.S. Trade Representative
paragraphs: The following are GAO’s comments on the U.S. Trade Representative’s  letter dated December 3, 2003.
subsections: section_title: GAO Comments
paragraphs: 1. As the Trade Representative states, if the 43 percent of U.S. trade that is  accounted for by the EU-25, Japan, Korea, and China is excluded, then  current and announced FTA negotiations account for 69 percent  (according to our calculation) of the remainder of total U.S. trade.   However, U.S. trade with existing FTA partners (Canada, Chile, Jordan,  Mexico, Israel, and Singapore) accounts for the majority of this.  The  trade data can be segmented in several ways, but the data show that  trade partners with which the U.S. has begun or has announced FTA  negotiations account for $178 billion in two-way trade with the United  States, or about 8 percent of the $2.3 trillion total U.S. trade.  2. We believe that given its admittedly limited available resources, USTR  needs to better manage its staffing and funds to implement its growing  and complex trade negotiating agenda.  As discussed in this report,  USTR’s main strategy for undertaking multiple FTA negotiations  appears to be working on one FTA per region at a time.  Assistant  USTRs in four regional offices lead FTA negotiations in each of four  regions.  With the announcement of three new FTA negotiations—the  Dominican Republic, the Andean countries, and Panama—in Latin  America alone, it is not clear how USTR will be able to meet its new  and ongoing negotiating demands in a timely fashion.  We have noted in  this report that one factor that constrains negotiations is a limited  number of regional and functional specialists.  To address these  challenges, USTR would do well to develop a resource strategy across  its entire negotiating agenda that is based on solid data and planning.  3. While we appreciate USTR’s efforts in pursuing intensive trade  negotiations in an often unpredictable international environment, this  situation makes it all the more important to make staffing and resource  decisions based on valid and reliable data and planning.  Relying on  informal, ad hoc decision making increases risk and reduces the chance  that the agency will accomplish its goals.  The human capital model that  we developed calls for organizations, regardless of size, to use solid  data to determine the current and future human capital required to  support their mission and goals.
4.
Just like other federal agencies, USTR is responsible for standard  accountability procedures to manage its program and federal funds.
Our recommendation calls for a result—not specific procedures or  output measures.  Since its own and other agencies’ expert staff are the  most substantial resources for FTA negotiations, improving upon the  present lack of systematic data would better position USTR and other  agencies to make decisions that involve staffing trade-offs among  competing priorities.  In addition, travel is an important resource  component and must be programmed in advance.  While we recognize  and encourage the steps that USTR has already taken to make  improvements, we note that these efforts are already recognized in this  report and are not sufficient to address our concerns for forward  planning.
section_title: GAO Contacts and Staff Acknowledgment
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to those named above, Martin De Alteriis, Francisco Enriquez,  Bradley Hunt, Rona Mendelsohn, Juan Tapia-Videla, Timothy Wedding, and  Eve Weisberg made major contributions to this report.
section_title: GAO’s Mission
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subsections: section_title: Order by Mail or Phone
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section_title: Public Affairs