Trade Enforcement: Information on U.S. Agencies' Monitoring and Enforcement Resources for International Trade Agreements
Released: 2017-04-13T00:00:00

Letter

Background

International Trade Agreements with the United States

The United States is a party to a variety of international trade agreements, including WTO agreements, FTAs, bilateral investment treaties, and trade and investment framework agreements. The WTO, which currently has 164 members, including the United States, provides a forum for enforcing U.S. rights under various WTO agreements. WTO members commit to a number of agreements covering goods, services, intellectual property rights, and a dispute settlement process. Members participate in more than 20 WTO committees to oversee implementation of these agreements. For example, committees exist for agreements on market access, agriculture, sanitary and phytosanitary measures, technical barriers to trade (TBT), financial services, and protection of intellectual property rights. U.S. agency staff participate in multiple WTO committee meetings throughout the year to track member countries’ policies and practices and seek their compliance with obligations under these agreements.

The United States is also a party to 14 FTAs involving 20 partner countries—Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, Singapore, and South Korea (see table 1).

FTAs phase out barriers to trade in goods with particular countries or groups of countries and contain rules designed to improve access to foreign markets for U.S. services, investment, and intellectual property rights as well as rules of origin and dispute settlement. Most of these agreements also include chapters that address workers’ rights and the environment and provide cooperation mechanisms through which the United States provides trade capacity-building assistance to help partner countries meet their obligations under these agreements.

In addition, the United States has bilateral investment treaties in force with 40 countries. According to USTR, such treaties provide binding legal rules regarding one country’s treatment of investors and investments from another country to help promote economic reforms, improve investment climates, and attract new investment. According to State, one of the basic aims of the U.S. bilateral investment treaty program is to encourage the adoption of policies that treat private investment in a nondiscriminatory way. Moreover, State explains that these treaties limit the conditions in which performance requirements, such as local content requirements, may be imposed. According to State, these treaties also include a dispute settlement mechanism giving investors the right to submit an investment dispute to international arbitration.

The United States is also a party to 52 bilateral and regional trade and investment framework agreements that, according to USTR, provide strategic frameworks and principles for dialogue on trade and investment issues. These agreements all serve as a forum for the United States and other governments to meet and discuss issues of mutual interest with the objective of improving cooperation and enhancing opportunities for trade and investment, according to USTR. The United States and partner countries consult on a wide range of issues related to trade and investment. Topics for consultation and possible further cooperation include market access issues, labor, the environment, protection and enforcement of intellectual property rights, and, in appropriate cases, capacity-building, according to USTR.

Monitoring and Enforcement of Trade Agreements

We have previously reported that U.S. government efforts to monitor and enforce trade agreements pursue three broad goals: ensuring foreign compliance, providing credible deterrence, and inspiring confidence that trade agreements benefit U.S. citizens as intended. “Monitoring” refers to activities agencies undertake to identify instances where foreign laws, regulations, and practices may be inconsistent with trade agreement provisions. “Enforcement” refers to actions agencies take to secure foreign compliance with trade agreements, which can include initiating dispute settlement procedures that certain trade agreements provide.

According to USTR, the majority of efforts to resolve trade disputes and ensure compliance with trade agreements occur outside of the context of formal dispute settlement procedures. These efforts include analysis of trading partners’ policies and procedures, formal and informal plurilateral and bilateral engagement, participation in WTO and FTA committees and other plurilateral or bilateral fora, public outreach, and trade capacity- building. If these efforts fail to achieve the desired outcomes, the United States relies on dispute settlement procedures, according to USTR. In March 2017, USTR reported that the United States has filed 110 complaints at the WTO since its inception in 1994 and had successfully concluded 81 of them by settling 34 disputes favorably and prevailing in 47 others through litigation before WTO panels and the Appellate Body. USTR has lead responsibility for litigating disputes but relies on support and expertise from other federal agencies.

U.S. Agencies Involved in Enforcement and Monitoring of Trade Agreements

USTR, which is part of the Executive Office of the President, and several other U.S. government agencies have responsibility for monitoring and enforcing trade agreements. These agencies are USDA, Commerce, DHS, DOL, and State. Table 2 shows key monitoring and enforcement roles and responsibilities of offices or bureaus within these agencies.

Trade Enforcement Trust Fund Established by Congress

The Trade Facilitation and Trade Enforcement Act of 2015 established a “Trade Enforcement Trust Fund” from which USTR or other federal agencies can receive funding to monitor and enforce WTO agreements and FTAs and also to support trade capacity-building assistance to help partner countries meet their FTA obligations and commitments. These funds may not be used or transferred to other agencies unless authority is provided in an appropriations act; however, as of April 2017, Congress has not passed an appropriations act with the necessary authority. USTR officials stated that they have not taken any action regarding the use of the Trust Fund, given the absence of such an authority in an appropriations act.

Information Is Not Available to Definitively Determine Resources Expended for Monitoring and Enforcing Trade Agreements

Eleven offices or bureaus within six U.S. federal agencies told us that they had staff that worked on monitoring and enforcement of trade agreements in fiscal year 2016. They also identified the range of activities this work involved (see table 3).

Although agencies were able to describe the types of activities their staff undertook to monitor and enforce trade agreements in fiscal year 2016, they did not have key information needed to definitively determine the resources expended on such activities. With the exception of Commerce’s National Institute of Standards and Technology (NIST), all the agencies we queried indicated that some of their staff responsible for monitoring and enforcement of trade agreements also had other responsibilities. However, none of the agencies routinely tracks staff time at a level of detail that distinguishes time specifically dedicated to trade agreement monitoring and enforcement from time spent on these other responsibilities.

While agencies were unable to definitively determine the resources they used for monitoring and enforcement, they nevertheless provided estimates of the number of FTEs they believe were involved in such activities. They did so based on approaches such as reviewing staff portfolios or work records, obtaining staff input, and applying professional judgment after discussions among managers in response to our request for this information. The agencies estimated the funding levels associated with these FTEs by calculating the average salaries and benefits of the staff time used for these efforts. Table 4 shows the agencies’ estimates of FTEs and the associated salary and benefit costs for efforts to monitor and enforce trade agreements in fiscal year 2016. The estimates suggest that in fiscal year 2016, 11 agency offices and bureaus dedicated over 700 FTEs and over $100 million to monitoring and enforcing trade agreements.

However, these totals and the underlying estimates do not fully include all costs related to trade monitoring and enforcement and, for some agencies, may not represent all staff who were involved in such activities. With respect to costs, some agencies could not accurately estimate administrative overhead costs. Consequently, we were unable to capture administrative overhead costs consistently across agencies and could not include those costs as part of the funding estimates.

With respect to staff, many of the agencies responsible for monitoring and enforcing trade agreements rely on overseas staff, in addition to headquarters staff, to support these efforts. These overseas staff also work on other issues besides trade agreement monitoring and enforcement. Some, but not all, agencies were able to estimate the share of time their overseas staff spent on trade agreement monitoring and enforcement. For example, the International Trade Administration (ITA), which is part of Commerce, told us that its Foreign Commercial Service (FCS) contributes significant staff time to monitoring and enforcement of trade agreements, which complements the work of ITA’s headquarters staff. According to ITA’s estimate, FCS has 970 officers and locally employed staff, based overseas, who spent an average of 13 percent of their time on monitoring and enforcement activities in fiscal year 2016. Similarly, the Foreign Agricultural Service (FAS), which is part of USDA, estimated that 285 of its overseas workforce of 456 FAS officers and locally employed staff spent a share of their time on monitoring and enforcement efforts in fiscal year 2016.

In contrast, State officials said that, although they relied on State’s workforce of overseas Foreign Service officers to carry out monitoring and enforcement efforts in fiscal year 2016, they had no method to estimate the share of time these officers spent on these efforts. State officials told us that State has over 600 economic officer positions at overseas posts throughout the world that may include trade monitoring and enforcement among their responsibilities. The role of these officers varies widely, depending on the unique circumstances of the post. For instance, posts without the presence of FAS or FCS officers may rely more heavily on State Foreign Service officers. State officials also noted that the department has labor officers and environment, science, technology, and health officers based overseas who may participate in monitoring and enforcing partner countries’ implementation of labor and environment chapters of FTAs.

USAID, State, and DOL Provided Trade Capacity-Building Assistance to FTA Partner Countries

Trade Capacity-Building Project Funding Spanned Multiple Agencies and Years

USAID, State, and DOL had 80 trade capacity-building assistance projects active in fiscal year 2016 that supported FTA partner countries’ compliance with their FTA obligations. The total funding for these projects was about $256 million. USAID, DOL, and State obligated about $122 million, $95 million, and $14 million, respectively. In addition, State and USAID jointly funded one environmental project totaling about $25 million (see fig. 1).

Total funding amounts for the 80 projects ranged from $64,000 to almost $35 million per project. For example, State dedicated $64,000 to a trade capacity-building project, operating during 5 fiscal years, related to environmental obligations under the United States–Chile Free Trade Agreement. USAID obligated almost $35 million to an environmental project, operating during 6 fiscal years, which included trade capacity- building aspects of the United States–Peru Trade Promotion Agreement. Trade capacity-building projects active in fiscal year 2016 supported activities in 14 countries that were parties to the following 9 of the 14 U.S. FTAs: Trade Agreement (CAFTA-DR)

United States – Chile Free Trade Agreement

United States – Colombia Trade Promotion Agreement

Agreement between the United States of America and the Hashemite Kingdom of Jordan on the Establishment of a Free Trade Area

United States – Morocco Free Trade Agreement

North American Free Trade Agreement (NAFTA) (Mexico only)

Agreement between the Government of the United States of America and the Government of the Sultanate of Oman on the Establishment of Free Trade Area

Panama Free Trade Agreement

United States – Peru Trade Promotion Agreement The most active trade capacity-building projects during fiscal year 2016— 34 active projects— occurred in CAFTA-DR countries, while the fewest— 3 active projects—occurred in Mexico. Some trade capacity-building projects involved multiple FTA partner countries. For example, a DOL project involved countries from the CAFTA-DR, NAFTA, Jordan, and Morocco FTAs.

Most Capacity-Building Projects for FTA Partner Countries Addressed Labor and Environmental Commitments

Of the trade capacity-building projects active in fiscal year 2016, the majority—both in terms of the number of projects and the amount of funding—focused on labor and environmental issues. Forty-one (51 percent) and 32 (40 percent) of the 80 trade capacity-building projects were related to labor or the environment, respectively. DOL and State oversaw the most labor and environmental trade capacity-building projects, respectively. Specifically, DOL oversaw 24 labor-related trade capacity-building projects, while State oversaw 35 environmentally related projects. Labor and environmental trade capacity-building projects also received about 80 percent of the total funding for projects active in fiscal year 2016. Figure 2 shows the breakdown of trade capacity-building projects and funding by project objective.

Labor and environmental projects covered a wide range of issues within FTA partner countries. For example, State oversaw environmental projects related to combating illegal logging in CAFTA-DR countries and improving fisheries management in Chile. DOL oversaw labor projects related to ending child labor in Jordan, Colombia, Morocco, Peru, Panama, and CAFTA-DR countries as well as promoting international labor standards in Colombia.

According to agency officials, some of the trade capacity-building projects included goals to assist FTA partner countries in meeting their FTA obligations in addition to other goals. Some of these projects also included countries with which the United States does not have an FTA. For example, a DOL project on child labor issues had 45 participating countries, of which 5 were FTA partner countries. According to USAID officials, all of USAID’s trade capacity-building projects that were active in fiscal year 2016 included goals to help FTA partner countries meet their FTA obligations; however, all projects also included broader goals not related to FTA obligations. For example, USAID’s active project “Implementing Anti-Monopoly Policies” in Mexico had a total funding of about $615,000 but was part of a larger USAID-funded capacity-building project in Mexico that received about $22.3 million in total project funding. According to DOL officials, all DOL projects in FTA partner countries contributed to helping FTA partner countries meet their FTA labor obligations. State officials noted that State’s labor projects only included goals related to FTA labor obligations.

Agency Comments

We provided a draft of this report to USDA, Commerce, DHS, DOL, State, USAID, and USTR for their review. None of these agencies provided formal comments. USDA, Commerce, DOL, and USTR provided technical comments, which we incorporated as appropriate.

We are sending copies of this report to interested congressional committees; the Secretaries of Agriculture, Commerce, Homeland Security, Labor, and State; the U.S. Trade Representative; and the USAID Administrator. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-8612 or gianopoulosk@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II.

Appendix I: Scope and Methodology

To determine which agencies may have committed resources for monitoring and enforcing trade agreements in fiscal year 2016, we reviewed agencies’ budget reports, strategic plans, and annual reports and interviewed relevant agency officials. In total, we determined that 11 offices or bureaus within the Office of the U.S. Trade Representative (USTR) and the Departments of Agriculture (USDA), Commerce (Commerce), Homeland Security (DHS), Labor (DOL), and State (State) had committed resources to monitor and enforce trade agreements. To solicit these agencies’ estimates of staff resources and funding and to identify the types of monitoring and enforcement activities involved, we developed a data collection instrument that we sent to the agencies. We first pretested the instrument with USTR, the International Trade Administration (ITA) in Commerce, and the Foreign Agricultural Service (FAS) in USDA. We refined our data collection instrument based on discussions with officials at these agencies and then circulated it for completion to all the relevant agencies we had identified. Some agencies provided separate responses from multiple units with responsibility for monitoring and enforcement, which we then summed up. For example, we received separate responses from three units within FAS and three units within ITA and provided the sum of those responses for each agency.

Because none of the relevant agencies routinely tracks staff resources and funding specifically for monitoring and enforcement of trade agreements, these agencies had to develop estimates of their fiscal year 2016 full-time equivalents (FTE) and funding used for these activities in response to our request for information. As many agency staff responsible for monitoring and enforcement of trade agreements also had other responsibilities, agencies had to estimate the portion of staff time spent on monitoring and enforcement to develop their FTE estimates. Officials reported a range of approaches to estimating staff time, including referring to data in staff surveys, reviewing staff portfolios and work descriptions, and holding discussions with managers. Moreover, limitations in the available data also required agencies to rely on their professional judgment to estimate the average amount of time that their staff spent on monitoring and enforcement. For example, ITA estimated that its Foreign Commercial Service, based overseas, devoted about 13 percent of its time to activities related to monitoring and enforcing trade agreements, whereas State told us that it could not confidently estimate the share of time its Foreign Service officers spent on activities related to monitoring and enforcing trade agreements within their portfolios. Consequently, FTE and funding estimates for State offices only include headquarters staff.

While other agencies generally had to estimate the portion of time their staff spent on monitoring and enforcement, U.S. Customs and Border Protection (CBP) and U.S. Immigration and Customs Enforcement (ICE) based their FTE estimates on accounting code charges for specific activities during fiscal year 2016 to monitor and enforce trade agreements. CBP based its FTE estimate mainly on time spent conducting verifications of free trade agreement (FTA) claims by importers and overseas inspections of textile factories to validate production capacities in connection with FTA rules. ICE’s FTE estimate was based on the number of investigative hours attributed to FTA fraud investigations.

Agencies’ estimates of funding associated with their FTE estimates generally reflected the average annual salaries and benefits of the staff involved. Some of the agencies could not accurately estimate administrative overhead costs associated with monitoring and enforcement of trade agreements; therefore, we were unable to include administrative overhead costs consistently across agencies and are not including those costs as part of the funding estimates.

To assess the reliability of agencies’ FTE and funding estimates for monitoring and enforcement of trade agreements, we included questions in our data collection instrument about their methodologies for developing their estimates, the agency officials they consulted, and the strengths and weaknesses of their estimates. In addition, based on our review of the agencies’ responses to our data collection instrument, we asked follow-up questions to the agencies as needed. A key limitation was the lack of data systems that record staff time on these activities and the reliance on self- reporting or judgments of unit managers to estimate the share of time staff spent on monitoring and enforcement activities. In addition, USTR officials noted that time spent on monitoring and enforcement was likely to vary widely from year to year depending on demands created by other responsibilities such as trade negotiations or urgent trade disputes. Nevertheless, based on our analysis of the agencies’ responses, we determined that these estimates could be used to provide a broad indication of the FTEs and staff costs in fiscal year 2016 across agencies, but that they could not be reliably used to make precise comparisons.

To identify U.S. trade capacity-building assistance projects to help partner countries meet their obligations under FTAs, we collected available information on relevant trade capacity-building projects that were active in 2016. State, DOL, and the U.S. Agency for International Development (USAID) were the three agencies that provided funding for active projects in fiscal year 2016. We identified the recipient FTA partner countries and subject matter focus of the projects, such as assistance with meeting labor or environment obligations, and calculated total funding for projects within FTA partner countries. We did not assess the implementation or effectiveness of these projects. State provided data on obligated funding that was directly tied to assisting FTA partner countries in meeting their FTA obligations. DOL provided data on obligated funding that contributed to helping FTA partner countries meet their FTA labor obligations. USAID provided data on obligated or planned funding amounts for projects in FTA partner countries but could not isolate amounts specifically related to FTA implementation from broader capacity-building goals, according to USAID officials.

To assess the reliability of data on trade capacity-building projects, we compared information provided by these agencies with source databases, discussed discrepancies with agency officials, and reviewed agencies’ procedures for assessing the completeness and accuracy of the project data collection and storage. We determined that the data we obtained were sufficiently reliable for the purposes of our review.

We conducted this performance audit from May 2016 to April 2017 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix II: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgements

In addition to the individual named above, Joyee Dasgupta (Assistant Director), Howard Cott (Analyst-in-Charge), Lynn Cothern, Martin de Alteriis, Neil Doherty, Grace Lui, and Ian P. Moloney made significant contributions to this report.