Federal Real Property: Views on Real Property Reform Issues
(18-APR-02, GAO-02-622T).
The Federal Property Asset Management Reform Act of 2002, will
enhance federal real and personal property management and bring
the policies and business practices of federal agencies into
the 21st century. Available data show that the federal government
owns hundreds of thousands of properties worldwide, including
military installations, office buildings, laboratories,
courthouses, embassies, postal facilities, national parks,
forests, and other public lands, estimated to be worth billions
of dollars. Most of this government-owned real property is under
the custody and control of eight agencies--the Department of
Agriculture, Defense, Energy, the Interior, and Veterans Affairs;
General Services Administration; the Tennessee Valley Authority;
and the U.S. Postal Service. Federal property managers have a
large deferred maintenance backlog, obsolete and underutilized
properties, and changing facility needs due to rapid advances in
technology. It is important that real property-holding agencies
link their real property strategic plans to their missions and
related capital management and performance plans; ensure that
senior real property officers have the knowledge, skills, and
expertise needed to effectively perform their duties; are
accountable for the reliability, usefulness, and timeliness of
their data; and adopt an effective process to monitor and
evaluate any management tool authorized by the bill. It is
equally important that GSA provides written guidance to agencies
on the development of their business and asset management plans
and that Congress provide appropriate control and oversight of
intended and actual use of the funds retained from real property
transactions.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-02-622T
ACCNO: A03106
TITLE: Federal Real Property: Views on Real Property Reform
Issues
DATE: 04/18/2002
SUBJECT: Federal property management
Personal property
Real property
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GAO-02-622T
Before the Subcommittee on Oversight of Government Management, Restructuring
and the District of Columbia, Committee on Governmental Affairs, U. S.
Senate Testimony
United States General Accounting Office GAO
For Release on Delivery Expected at 10: 00 a. m. EDT Tuesday April 23, 2002
HUMAN CAPITAL
Major Human Capital Challenges at SEC and Key Trade Agencies
Statement of Richard J. Hillman Director, Financial Markets and Community
Investment, and
Loren Yager, Director, International Affairs and Trade GAO- 02- 662T
1
Mr. Chairman and Members of the Subcommittee: We appreciate the opportunity
to appear here today to discuss the human capital challenges facing the
agencies that play key roles in monitoring publicly traded companies and
enforcing our nation?s trade laws. As you are aware, GAO has been a leading
promoter of a more strategic approach to federal human capital issues. We
are particularly gratified to come before this subcommittee, as you have
been committed advocates of our efforts, sponsoring much of our work in this
area. The leadership provided by this subcommittee and the Senate Committee
on Governmental Affairs has been especially important in focusing attention
on the federal government?s human capital challenges.
Over the past 2 years, our work in the major management challenges and
program risks across the government has identified human capital as a
primary factor affecting current and future agency performance. In fact, in
January 2001, GAO designated strategic human capital management as a
governmentwide high- risk area. 1 As our 2001 High- Risk Series and
Performance and Accountability Series reports make clear, serious human
capital shortfalls are
eroding or threatening to erode the ability of many agencies to effectively
perform their missions. 2 We found that many agencies lack a consistent
strategic approach to marshaling, managing, and maintaining the human
capital needed to maximize performance and ensure accountability. Today we
will discuss the specific challenges faced by the Securities and Exchange
Commission (SEC), whose mission is to protect investors and the integrity of
securities markets, which includes overseeing public companies. We will also
discuss the Department of Commerce, the Office of the U. S. Trade
Representative (USTR), and the U. S. Department of Agriculture-- the key
agencies that monitor and enforce our nation?s trade agreements. Although
these agencies have diverse responsibilities, our statement today will
address the specific human capital challenges these agencies face.
Specifically, this statement provides information on (1) workload and
staffing challenges, (2) the effects of workload and staffing imbalances on
the agencies? ability to fulfill their missions, and (3) other factors that
affect the fulfillment of these agencies? respective missions. Our
observations about the challenges faced
by SEC and the key trade agencies are based on three reports issued between
2000 and 2002. 3 In addition, we updated our previous work through a series
of meetings with appropriate agency officials. This statement was completed
in accordance with generally accepted government auditing standards. In
summary, our work at these agencies has resulted in reports that address the
human capital challenges faced by SEC and the key trade agencies. In our
2002 report on SEC, we found that SEC faces a workload that is growing at a
rate much faster than staffing in an environment where 1 See U. S. General
Accounting Office, High- Risk Series: An Update, GAO- 01- 263 (Washington,
D. C.: Jan. 2001). 2 U. S. General Accounting Office, Performance and
Accountability Series- Major Management Challenges and Program Risks: A
Governmentwide Perspective, GAO- 01- 241 (Washington, D. C.: Jan. 2001). In
addition, see the accompanying 21 reports (numbered GAO- 01- 242 through
GAO- 01- 262) on specific agencies. 3 See U. S. General Accounting Office,
SEC Operations: Increased Workload Creates Challenges, GAO- 02- 302
(Washington D. C.: Mar. 5, 2002); International Trade: Strategy Needed to
Better Monitor and Enforce Trade Agreements, GAO/ NSIAD- 00- 76 (Washington,
D. C.: Mar. 14, 2000); and Securities and Exchange Commission: Human Capital
Challenges Require Management Attention, GAO- 01- 947 (Washington D. C.:
Sept. 17, 2001).
2
markets have become more complex, global, and technology- driven. We found
that workload and staffing imbalances have affected most aspects of SEC?s
regulatory and supervisory activities, from its inhouse technological
capabilities to its ability to take enforcement actions
against market participants. SEC also faces challenges beyond its resource
limitations. For example in our 2001 and 2002 reports on SEC, we discussed
the high staff turnover, which hampers its effectiveness and efficiency, and
a strategic planning process that has not included a strategic reevaluation
of programs and activities in light of current and emerging challenges.
We also found that the key agencies that monitor U. S. trade agreements
faced human capital challenges. As we reported in March 2000, since the
early 1980s, the United States has entered into several hundred trade
agreements, which has caused dramatic increases in the trade monitoring and
enforcement workloads at USTR, Commerce, and Agriculture. This workload has
continued to grow over the past 2 years as a result of such factors as the
launch of major multilateral, regional, and bilateral trade negotiations. In
our 2000 report, we found that these agencies? efforts to monitor and
enforce trade agreements were hampered because they lacked sufficient staff
with appropriate expertise, did not receive adequate support from other
agencies, and had difficulty obtaining comprehensive input from the private
sector. We found that since our report was issued, staffing for trade
compliance efforts has increased at all three agencies, but we believe it is
too early to predict the impact of these increases. Moreover, the agencies
face other human capital challenges, including problems with recruitment and
high turnover rates.
Human Capital Issues at SEC Threaten Its Ability to Fulfill Its Mission Over
the last decade, securities markets have experienced unprecedented growth
and change. Moreover, technology has fundamentally changed the way markets
operate and how investors access markets. These changes have made the
markets more complex. In addition, the markets have become more
international, and legislative changes have resulted in a regulatory
framework that requires increased coordination among financial regulators
and requires that SEC regulate a greater range of products and participants.
Moreover, the recent sudden collapse of Enron and other corporate failures
have stimulated an intense debate on the need for broad- based reform in
such areas as financial reporting and accounting standards, oversight of the
accounting profession, and corporate governance, all of which could have
significant repercussions on
SEC?s role and oversight challenges. At the same time, SEC has been faced
with an everincreasing workload and ongoing human capital challenges, most
notably high staff turnover and numerous vacancies.
SEC Faces Significant Workload and Staff Challenges As stated in our March
2002 report, we found that SEC?s ability to fulfill its mission has become
increasingly strained due in part to imbalances between workload and staff
resources. 4 As illustrated in figure 1, the larger, more active, and more
complex markets just discussed have 4 Staff resources are measured in terms
of full- time equivalent staff years.
3
resulted in an increased aggregate workload (e. g., filings, complaints,
inquiries, investigations, examinations, and inspections) for SEC. As the
dotted line indicates, SEC?s workload has continued to grow at a rapid rate
throughout the decade while staff resources, represented by the solid line,
have grown little. As a result, SEC has been challenged to keep up with its
increasing workload since about 1996. 5 Figure 1: Percent Change in SEC
Staff Years and Workload, 1991- 2000
Source: GAO analysis of SEC data. When we reviewed this workload on an
activity basis, we found that over the last decade staffing within the
various areas of SEC?s regulatory oversight grew between 9 and 166 percent,
while workload in those same areas grew from 60 to 264 percent. As figure 2
illustrates, these disparities exist across all key SEC activities, as the
increase in SEC?s workload has substantially outpaced the increases in SEC?s
staff. For example,
the number of corporate filings increased almost 60 percent, while related
review staff increased 29 percent; the number of complaints and inquiries
received increased by 100 percent, while the enforcement staff dedicated to
investigate complaints and other matters increased by only 16 percent;
5 All years are fiscal years unless otherwise noted.
4
the number of market and firm supervision actions increased 137 percent, but
the number of staff responsible for these activities increased 51 percent; 6
investment company filings increased 108 percent while staff increased 9
percent; and
total assets under management by investment companies (IC) and investment
advisers (IA) increased by about 264 percent, while the number of IC and IA
examination staff increased by 166 percent. Figure 2: Percent Change in
Workload and Staff Years for Selected SEC Activities, 1991- 2000
Source: GAO analysis of SEC data. SEC?s Ability to Fulfill Its Mission Has
Become Increasingly Strained In our work at SEC, we found that its ability
to fulfill its mission has become increasingly strained due in part to
imbalances between SEC?s workload (such as filing, complaints, inquiries,
investigations, examinations, and inspections) and staff resources (full-
time equivalent [FTE] staff years). Although industry officials complimented
SEC?s regulation of the industry given its staff size and budget, both SEC
and industry officials identified several challenges that SEC faces. First,
resource constraints have contributed to substantial delays in the
turnaround time for many SEC regulatory and oversight activities such as
approvals for rule filings and exemptive 6 Market and firm supervision
actions include: self- regulatory organization and SEC rule proposals;
interpretive
guidance and exemptive applications; analyses of proposed enforcement
actions, disclosure documents, and risk assessment reports; automated
trading system analyses and automation reviews of self- regulatory
organization systems; policy papers; Congressional, governmental, industry,
and public correspondence; and other reports and analyses of SEC?s Division
of Market Regulation.
5
applications. 7 According to industry officials, such delays have resulted
in forgone revenue and have hampered market innovation. Second, resource
constraints have contributed to bottlenecks in the examination and
inspection area as SEC?s workload has grown. As a result, certain
examinations and inspections take longer to complete. Third, limited
resources have forced SEC to be selective in its enforcement activities and
have lengthened the time required to complete certain enforcement
investigations. 8 Fourth, SEC staff have reviewed certain filings less
frequently and completely as workloads increased. Fifth, today?s technology-
driven markets have created ongoing budgetary and staff challenges. Finally,
SEC and industry officials said that SEC has been increasingly challenged in
addressing emerging issues, such as the ongoing internationalization of
securities markets and technology- driven innovations like alternative
trading systems 9 and exchange- traded funds. Although we address the
implications of all of these challenges in our 2002 report, today we will
focus our discussion on two critical aspects of SEC?s operations- its
reviews of corporate filings and enforcement activities.
Certain Financial Statement and Other Filings Are Subject to Less Frequent
Review by SEC Staff Like other aspects of SEC?s workload, the number of
corporate filings has grown at an unprecedented rate. For example, from 1991
to 2000, the number of corporate filings increased 60 percent. During this
same period, the percent of all corporate filings that received some type of
review by SEC decreased from about 21 percent to 8 percent. 10 We found that
SEC?s 2001 goal was to complete a full financial review of each issuer?s
annual filings in 1 of every 3 years- a review goal of about 30 to 35
percent of annual filings per year. According to SEC, this level of review
was expected to ?ensure that material issues are disclosed clearly and
completely and that possible fraudulent activities are addressed promptly.?
However, in 2001, SEC completed full or full financial reviews of only 16
percent of the annual reports filed or about half of its annual goal.
In November 2001, the Division of Corporation Finance announced that
staffing levels were expected to remain flat while filings were expected to
continue to increase in number and complexity. In this post- Enron
environment, SEC plans to reconsider how it will select filings for review
and how it will review the filings selected. Rather than conducting full
reviews of
fewer firms, SEC officials said SEC may limit its review to a specific
disclosure issue and 7 A company files an exemptive application when it
seeks an SEC decision to exempt a new activity from existing rules and laws.
8 The SEC chairman has recently announced an initiative called real- time
enforcement, which is intended to protect
investors by (1) obtaining emergency relief in federal court to stop illegal
conduct expeditiously; (2) filing enforcement actions more quickly, thereby
compelling disclosure of questionable conduct so that the public can make
informed investment decisions; (3) deterring future misconduct through
imposing swift and stiff sanctions on those who commit egregious frauds,
repeatedly abuse investor trust, or attempt to impede the SEC?s
investigatory processes. According to the SEC, insufficient resources may
inhibit the effectiveness of this initiative, which depends upon prompt
action by enforcement staff. 9 An alternative trading system is an entity
that performs the functions commonly performed by a stock exchange. 10 SEC?s
review of corporate filings may involve a full review, a full financial
review, or monitoring for specific disclosure items. A full review involves
an in- depth examination of the accounting, financial, and legal aspects of
an issuer?s filing. A full financial review involves an in- depth accounting
analysis of an issuer?s financial statements and management?s discussion and
analysis or business plan disclosure.
6
review more filings for that issue. For example, SEC may choose to focus on
off- balance sheet activities and work with the companies to improve
disclosure. However, SEC officials said that full reviews will not be
completely abandoned, but the revised approach should help SEC better
deploy limited staff resources and enable it to have a greater review
presence across all types of corporate filings in the future. Further, in
December 2001, in response to the disclosure and accounting problems of
Enron, SEC began to review the annual filings of the 500 largest U. S.
companies.
Workload Growth and Limited Staffing Raise Concerns about Enforcement In the
2002 report, we also reported that delays in closing cases and a growing
backlog of smaller investigations presented ongoing challenges for SEC. Over
the past decade, SEC?s Division of Enforcement staff devoted to
investigations increased 16 percent to about 482 staff years, while the
number of cases opened increased 65 percent to 558. Although increased staff
has allowed more work to be initiated, delays in completion of individual
cases persist. Moreover, the number of cases pending at the end of the year
increased 77 percent over this same time period. SEC officials said the
increase in the number of cases pending was due in part to high staff
turnover, which has resulted in old cases not being closed or ongoing cases
being delayed until other staff can take over. For example, SEC officials
reported that in 2000 alone,
over 58 experienced staff left the division. As this subcommittee
recognizes, enforcement activities are important for carrying out SEC?s
mandate to protect investors and deter fraud and abuse. Because SEC has
limited resources and cannot prosecute every case, SEC officials said they
must prioritize the cases they will pursue. According to SEC officials, SEC
generally prioritizes the cases in terms of (1) the message delivered to the
industry and public about the reach of SEC?s enforcement efforts, (2) the
amount
of investor harm done, (3) the deterrent value of the action, and (4) SEC?s
visibility in certain areas such as insider trading and financial fraud.
Except for the length of time taken to complete an investigation, most
industry officials said that SEC was effective in this area. Although SEC
data show that the average length of time to complete an investigation has
decreased, we did not perform a detailed review of the individual
investigations to determine whether this was an improvement or whether SEC
on average pursued less time- consuming matters for investigation.
SEC Faces Other Human Capital Challenges In addition to the staff and
workload imbalances, other factors also contribute to the challenges SEC
currently faces. SEC officials said that although additional resources could
help SEC do more, additional resources alone would not help SEC address its
high turnover, which continues to be a challenge for the agency. As we
discussed in our 2001 report on SEC?s human capital practices, about one-
third of SEC?s staff left the agency from 1998 to 2000. 11 By 2001, this
11 GAO- 01- 947.
7
number had increased to 40 percent. SEC?s turnover rate for attorneys,
accountants, and examiners averaged 15 percent in 2000, more than twice the
rate for comparable positions governmentwide. Although the rate had
decreased to 9 percent in 2001, turnover at SEC was still higher than the
rate governmentwide. Further, because of its high turnover and inability to
hire new staff quickly, about 250 positions remained unfilled in September
2001, which represents about 8.5 percent of SEC?s authorized positions.
Likewise, industry officials agreed that many of the challenges SEC faces
today are exacerbated by its high turnover rate, which results in more
inexperienced staff and slower, often less efficient, regulatory processes.
SEC and industry officials alike recognize that SEC will always have a
certain amount of turnover because staff can significantly increase their
salaries in the private sector, and some staff plan to stay at SEC for only
a limited period of time. Many officials said pay parity with other
financial regulators could enable SEC to attract and retain staff for a few
additional years. SEC estimates that a new employee generally takes about 2
years to become fully productive; in some divisions, junior staff were
staying 2 years on average. We found that from 1992 to 1999, the average
tenure of an examiner decreased from 2.9 to 1.9 years and the average tenure
for attorneys leaving SEC had decreased from 3.4 years to 2.5 years.
Moreover in 2000, 76 percent of SEC examiners had been with the agency less
than 3 years.
We explored the reasons for SEC?s high turnover among its professional ranks
and actions taken to address this problem in our 2001 human capital report.
12 To do this, we surveyed current and former SEC attorneys, accountants,
and examiners to determine why they had left or would consider leaving SEC.
Overwhelmingly, compensation was cited as the primary reason for leaving
SEC. However, respondents also identified other nonpay factors that had
affected or
would affect their decisions to leave, such as the lack of opportunities for
advancement, the amount of uncompensated overtime, and the quality of
administrative support. As illustrated in figure 3, these factors also had a
generally or very negative effect on morale. This graphic also illustrates
that 20 percent or more of current staff identified other aspects of work at
SEC that could negatively affect staff morale, including the quality of
communication, training, and
supervision; the appraisal process; and the organizational structure. Among
other things, in our 2001 report we recommended that the chairman SEC
identify ways to involve human capital leaders in decision making and
establish a practice that requires management to continually monitor and
refine SEC?s human capital approaches to ensure their ongoing effectiveness.
12 GAO- 01- 947.
8
Figure 3: Percentage of Staff Indicating Certain Aspects of Their Job Had a
Generally or Very Negative Effect on Morale Source: GAO survey of current
and former SEC attorneys, accountants, and examiners. Although SEC has taken
numerous actions to address its high turnover including use of special
pay rates and retention bonuses, its turnover rate remains higher than the
governmentwide rate. The compensation challenges that SEC faces are
indicative of the pay issues that some other agencies face as well, and
underscore the need to consider governmentwide pay reform that needs to make
a more direct link between pay and individual knowledge, skills, abilities,
and performance.
Aside from special pay rates for certain professional staff, SEC employees
are paid according to general government pay rates. However, on January 16,
2002, legislation was enacted that exempted SEC from federal pay
restrictions and provided it with the authority necessary to bring salaries
in line with those of other federal financial regulators, but to date SEC
has not received any additional appropriations to fund higher salaries. SEC
estimates that an additional $76 million is needed to provide pay parity for
the agency in 2003. For 2003, SEC also is seeking from its congressional
appropriators an additional 100 staff positions. It requested 30
accountants, lawyers, and other professionals in the Division of Corporation
Finance to enhance its capability to review periodic disclosure filings of
public companies. It requested 35 accountants and lawyers in the Division of
Enforcement to deal with an increasing workload of financial fraud and
reporting enforcement cases. It also requested 35 accountants, lawyers, and
other professionals in other divisions including the Office of the Chief
Accountant- to deal with
9
evolving needs and policy development. Without these requested increases for
pay parity and additional staff, SEC says that it will continue to be
restrained from retaining and attracting experienced staff and from fully
addressing the new regulatory challenges and growth of
workload that it faces. Although SEC?s workload and staffing imbalances have
challenged SEC?s ability to protect investors and maintain the integrity of
securities markets, SEC has generally managed the gap between workload and
staff by determining what basic, statutorily mandated duties it could
accomplish with existing resource levels. This approach, while practical,
has forced SEC?s activities to be largely reactive rather than proactive.
For instance, SEC has not put mechanisms in place to identify what it must
do to address emerging and evolving issues. Although SEC has a strategic
plan and has periodically adjusted staffing or program priorities to fulfill
basic obligations, SEC has not engaged in a much needed, systematic
reevaluation of its programs and
activities in light of current and emerging challenges. Given the regulatory
pressures facing SEC and its ongoing human capital challenges, it is clear
that SEC could benefit from some additional funding. However, a
comprehensive, agencywide planning effort, including planning for use of
technology to leverage available resources, could help SEC better determine
the optimum human capital and funding needed to fulfill its mission. On
March 20, 2002, SEC announced that it had undertaken a special study of the
agency?s operations and resources intended, in part, to implement a
recommendation in our report.
Commerce and Other Agencies that Oversee Trade Agreements Face Human Capital
Challenges
Trade?s influence on the U. S. economy has increased dramatically over the
past decade, with exports growing more than twice as fast as U. S. output
(figure 4). Most of the growing volume of U. S. exports is governed by the
terms of trade agreements. U. S. government efforts to monitor and enforce
these agreements involve at least 17 federal agencies, with three key
agencies, USTR and the Departments of Commerce and Agriculture, having
significant roles.
10
Figure 4: Growth of U. S. Exports as Compared to Overall U. S. Output, 1970-
2000
Source: GAO calculation based on IMF data. In March 2000, we reported that
the creation of a vast array of U. S. trade agreements since the early 1980s
had caused dramatic increases in the trade monitoring and enforcement
workloads at USTR, Commerce, and Agriculture. Further, we found that these
agencies? ability to monitor and enforce trade agreements was limited due to
a lack of sufficient staff with appropriate expertise, inadequate support
from other agencies, and difficulty obtaining comprehensive input
from the private sector. Since our report was issued, staffing for trade
compliance activities has increased at all three agencies, although the
impact of these increases is uncertain. Moreover, the agencies face other
human capital challenges, such as problems with recruitment and high
turnover rates.
Trade Agencies Face Workload and Staffing Challenges USTR?s, Commerce?s, and
Agriculture?s trade monitoring and enforcement workload has increased
substantially in the last few years. While the number of staff performing
these functions at the three agencies has also increased, their workload
continues to grow in volume and complexity. Therefore, human capital
challenges remain. Some important reasons for the growing workload include
the rising number of U. S. trade agreements, the increasing number of
countries that are party to these agreements, and the growing number of
active trade disputes involving the United States.
Agencies? Workload Is Increasing in Volume and Complexity In recent years,
the number of trade agreements has grown substantially. Since the early
1980s, the United States has entered into more than 400 trade- related
agreements. USTR negotiated
11
about 300 of these, over 70 percent of which entered into force after 1992.
According to USTR, the majority of these agreements have increased U. S.
exporters? access to foreign markets. Figure 5 depicts the growth in the
number of trade agreements that USTR negotiated since 1984.
Figure 5: Number of USTR- Negotiated Trade Agreements in Force, 1984- 2002
Source: USTR, 2001 Trade Policy Agenda and 2001 Annual Report. At the same
time, the number of nations that participate in key trade agreements has
grown, further expanding the federal monitoring and enforcement workload.
For example, when the Uruguay Round of multilateral trade negotiations was
launched in 1986, 90 countries were members of the General Agreement on
Tariffs and Trade, the organizational structure that preceded the World
Trade Organization (WTO). By the time that the WTO agreements were signed in
1994, the number of WTO members had expanded to 123. An additional 21
countries
have joined the WTO since then, including China. China?s WTO membership, in
particular, will increase the agencies? monitoring and enforcement workload
given that the terms of its accession are extremely complex, totaling about
1000 pages. Figure 6 depicts the growth in WTO membership since 1986.
12
Figure 6: World Trade Organization Membership, 1986- 2002
Sources: Data for 1986 and 1994 from GAO/ NSIAD- 00- 76. Data for 2002 from
WTO. Further, while these far- reaching agreements have substantially
increased U. S. trade agreement rights, they have also increased U. S. trade
agreement obligations to other nations. As a result, the agencies? dispute
settlement caseload has continued to grow. This situation has affected
USTR?s workload in particular because the agency is responsible for
advocating and defending U. S. trade agreement rights and obligations within
North American Free Trade Agreement (NAFTA) and WTO. The number of active
cases involving the United States has increased from
39 in 2000 to 46 in 2002 even as the number of resolved cases has grown.
Moreover, a growing focus of U. S. dispute settlement efforts is responding
to cases brought against the United States by other nations. More than half
of these cases have focused on U. S. use of trade remedy laws, particularly
U. S. actions taken against steel imports. USTR relies on support from
Commerce for these cases. According to Commerce officials, WTO dispute
settlement cases are especially time consuming because of the tight
deadlines and numerous filings required. Figure 7 depicts
the status of WTO dispute settlement cases involving the United States in
2000 and 2002.
13
Figure 7: WTO Dispute Settlement Cases Involving the United States, 2000 and
2002
Source: USTR data. U. S. Trade Agencies Have Recently Increased Staffing in
Key Areas, but Impact of Additions Is Uncertain Human resources are the
single most important asset of the agencies responsible for monitoring and
enforcing the growing volume of trade agreements. This work requires
country, industry, and functional expertise, and a mixture of economic,
technical, and legal analysis. In March
2000, we reported that the three key trade agencies? human capital
capabilities had not kept pace with their increased monitoring and
enforcement workload. Specifically, staff levels at the three key agencies
were flat or declining. Since our March 2000 report, USTR, the Foreign
Agricultural Service (FAS), and two of the
three divisions in Commerce?s International Trade Administration have
received significant increases in funding for staff to monitor and enforce
trade agreements. However, due to the recent nature of the increases, we
believe it is too early to determine fully whether these additions have been
effective in resolving the human capital issues that we cited in our report.
These increases involved the following groups:
In 2001, USTR received funding to add 25 new positions, which increased the
agency?s total FTE staff level to 203. All 25 positions have been filled.
Thirteen of the new positions were in the area of trade enforcement, 11 were
in negotiations, and one was administrative.
14
In 2001, Commerce?s ITA received increased funding for staff, but not all of
ITA?s divisions with monitoring and enforcement responsibilities have
actually added resources.
ITA?s Market Access and Compliance (MAC) Division- one of ITA?s two main
divisions with export- related trade agreement monitoring responsibilities-
was funded for an additional 35 positions. As of the end of 2001, MAC had
filled 31 of these authorized positions. MAC?s new positions filled in 2001
included nine staff to work specifically on China issues and four to work on
general issues involving compliance with trade agreement provisions.
ITA?s Trade Development (TD) Division, which has responsibility for
monitoring export- related trade agreements in sectors such as automobiles,
aerospace, and telecommunications, was funded for one additional position in
2001. However, the division?s actual staff levels declined from 380 to 363
that year. Staff levels at Commerce?s Office of Automotive Affairs have
remained flat at 16 full- time employees for the past 4 years.
ITA?s Import Administration Division hired 27 additional staff in 2001. This
division administers U. S. trade laws on antidumping and countervailing
duties and monitors enforcement of sector- specific agreements governing U.
S. imports. Most of the new positions were for enforcing subsidies
agreements and monitoring China?s and Japan?s compliance with trade
agreements.
The FAS, which handles most of Agriculture?s trade policy and promotion
responsibilities, was funded for a total of 18 new staff years in 2001 and
2002. This increase in staff was for activities related to monitoring
countries? technical trade barriers and foreign regulatory measures
regarding imports of products with a
biotechnology component. With increased staff levels in 2001, officials at
the three agencies generally believe they now have adequate capacity to
monitor and enforce trade agreements. However, we believe it is too early to
tell if the new staff will enable the agencies to fulfill their mission of
monitoring and enforcing trade agreements. One reason is that most of the
new staff have been on board for a year or less, so the impact of these new
additions is uncertain. Another reason it may be difficult
to judge the effectiveness of the staff increases is the continuing growth
in the agencies? workload, which could potentially cause a shift in
resources intended for trade compliance activities. According to USTR?s 2003
budget justification, never in history have so many countries participated
in global trade negotiations. 13 13 The WTO Ministerial Declaration that
launched new multilateral trade negotiations in 2002 sets an ambitious
timetable, with the negotiations scheduled for completion by 2005. At the
same time, USTR is pursuing another
major negotiating initiative, the Free Trade Area of the Americas (FTAA),
which would establish the largest free trade zone in the world. In addition
to these multilateral negotiations, the United States intends to complete
bilateral free trade agreements with Chile and Singapore this year. Further,
the United States is exploring a free trade agreement with five countries of
Central America.
15
To handle the expected increase in the negotiations workload, USTR is
requesting authority for six new negotiator positions. The MAC unit in ITA,
which will support USTR in all the negotiations, is requesting 33 new FTEs
in its 2003 budget, 21 of whom will provide support for WTO and FTAA
negotiations. Without additional resources for negotiations, agency
officials told us they may have to shift resources away from trade
compliance to meet the increased workload in conducting negotiations.
Past Workload Imbalances Hindered Trade Agencies? Ability to Fulfill Their
Missions Past staffing and workload imbalances hindered the three trade
agencies? abilities to fulfill their trade monitoring and enforcement
missions. As we reported in March 2000, agency officials stated that gaps in
staff expertise had hindered their efforts to analyze and respond to
compliance problems. In addition, officials at all three agencies said that
steady declines in staff resources had limited the level of support they
provide to each other. Finally, we also cited challenges at the three
agencies in coordinating their efforts with the private sector.
While trade agreements in the past focused primarily on tariffs, they now
address a broader range of trade issues, such as product standards and food
safety measures, making the task of monitoring and enforcing trade
agreements more challenging. Given these developments, agencies need staff
with the ability to perform a mixture of economic, technical, and legal
analysis. However, most of the agencies we examined in our 2000 report did
not have the capability to do all types of analysis themselves, and they
required input from other offices and agencies.
As we reported in March 2000, insufficient staff resources limited the
agencies? ability to provide each other the needed input and support. USTR,
in particular, requires support from other agencies, as it was created to
coordinate federal trade efforts; its staff was not intended to have
expertise on every area covered by trade agreements. USTR officials as well
as those at Commerce and Agriculture often stated that they had difficulty
obtaining needed analytical support from offices within their own agency or
from other agencies. 14 USTR and Agriculture
officials also reported that insufficient staff at other agencies limited
the extent to which these agencies had supported their monitoring and
enforcement efforts. Since our March 2000 report, however, USTR officials
noted that the level of support they receive from other agencies,
particularly Commerce, has improved as a result of increased staff levels.
In our 2000 report, we also found that the three agencies identified
challenges in coordinating with the private sector. We found that the
agencies were not always able to obtain comprehensive private sector input
and unified positions on pending trade issues. As a result, we recommended
that USTR assess whether existing mechanisms for obtaining private sector
input are adequate. USTR did undertake a self- assessment on one aspect of
this issue in 2000 that
14 Although USTR is the lead trade agency and was intended to coordinate
federal trade efforts, the multiple agencies responsible for monitoring and
helping USTR enforce trade agreements still independently estimate their
staffing and budget needs, and USTR has no input into their staffing or
budget requests. However, officials are making efforts at the operational
level within the agencies to coordinate on staffing needs. For example,
Commerce and State co- chair an Interagency Compliance Coordination
Committee that is focused on determining whether the trade- related agencies
have adequate staff with the right skills working on trade agreement
compliance issues at U. S. posts overseas and at headquarters in Washington,
D. C.
16
resulted in a January 19, 2001, report that recommended some improvements.
The current administration is now considering these and other
recommendations for improvement. At the request of the Senate Finance
Committee?s ranking minority member, we are currently studying whether the
statutorily mandated private sector advisory committee system that USTR
chairs adequately supports U. S. trade policy. Recruiting and Retention
Issues Present Other Challenges There are several other human capital
challenges facing the agencies that monitor and enforce
trade agreements. In particular, the need for specialized knowledge and
demand for individuals with experience in trade compliance and litigation
creates challenges in recruiting and retaining staff.
While staff levels for monitoring and enforcing trade agreements have
increased at the three key agencies, officials noted that the hiring process
has often been slow. For example, at USTR it took most of 2001 to hire the
25 new staff that the agency had been authorized at the beginning of the
year. Factors that contributed to the hiring delays included difficulties
attracting individuals with the requisite skills and experience. In
addition, the agency needed to hire specialists for many of the positions,
including economists, attorneys with litigation experience, and individuals
with industry and regional expertise. Because of its small size, USTR does
not have a formal recruitment program. The agency reports attracting
numerous applicants for each position. However, finding individuals with
specialized experience can be difficult. FAS officials also told us that in
some cases it took up to a year to hire staff because of difficulty finding
applicants with the needed technical skills. Commerce?s ITA has a formal
recruitment
program and did not experience difficulty attracting applicants. In
addition, in 2001 they began using OPM?s Outstanding Scholarship Program as
a recruitment tool. However, ITA officials noted that since September 11,
there have been significant delays in obtaining security clearances for
staff hired to fill trade compliance positions overseas, which in turn has
delayed bringing the staff on board.
Turnover at the three trade agencies has remained high, particularly at USTR
and Commerce. For example, while comparisons must be made with caution,
USTR?s attrition rate was almost 17 percent in 2001, more than triple the
government wide rate of 5.4 percent that year. Attrition has also been
relatively high at Commerce?s Import Administration Division, reaching 11
percent in 2001, or more than double the government wide rate.
Attrition at both USTR and Commerce?s Import Administration Division
historically has been high. Reasons include the intensity of work and the
long hours required to handle caseloads. In addition, as with the SEC, staff
often leave government as they receive lucrative offers from the
private sector due to their highly technical areas of expertise, such as
experience with trade litigation. USTR has devoted additional resources to
training and performance bonuses in an effort to improve retention. Because
persons leaving USTR for jobs in the private sector often receive offers
that are $50,000 to $100,000 higher than their government salary, USTR has
not pursued retention bonuses as a strategy for stemming attrition.
Commerce?s ITA has also taken a number of steps to increase retention,
including expanding their award and training programs and
17
conducting surveys on employee satisfaction. The agency is working to have
career ladders for non- supervisory personnel extend more routinely to the
GS- 14 level. For example, Import Administration Division officials worked
with ITA management to retain current staff through flexibility in using
promotions, such as upgrading certain specialized positions based on
increased duties and responsibilities. According to ITA?s deputy
undersecretary, the two biggest human capital challenges facing ITA are
turnover rates and succession planning. He noted that almost 60 percent of
ITA?s senior executive service will be eligible to retire by 2007.
Concluding Remarks
We will end as we began, serious human capital shortfalls are eroding the
capacity of many agencies, and threatening the ability of others, to
economically, efficiently, and effectively perform their missions. Many of
the challenges that we discussed today are not unique to SEC or the key
trade agencies but reflect governmentwide issues this subcommittee has been
grappling with for years. The federal government?s human capital weaknesses
did not emerge overnight and will not be quickly or easily addressed.
Committed, sustained inspired leadership and persistent attention on the
behalf of all interested parties will be essential if lasting changes are to
be made and the challenges we face successfully addressed. Although we are
seeing positive changes and developments overall, including some positive
steps at the agencies we discussed here today, there continues to be much
work to be done.
As the Comptroller General recently testified before this subcommittee, the
proposed Federal Human Capital Act of 2001 (S. 1603) represents an important
next step to helping agencies address their human capital management
challenges. 15 In that testimony, we also discussed our model of strategic
human capital management, released last month as an exposure draft to assist
in transforming the human capital cultures of federal agencies. These
important new developments have important implications for the agencies
discussed today. 16 Thank you again for your continuing attention to human
capital reform. The leadership shown
by this subcommittee, by holding this and related hearings and in its
oversight generally, has both helped to create and increase the needed
momentum for change and highlight the need for, and direction of, possible
solutions. We would be pleased to respond to any questions you or other
Members of the subcommittee may have.
15 U. S. General Accounting Office, Managing for Results: Building on the
Momentum for Strategic Human Capital Reform, GAO- 02- 528T (Washington, D.
C.: Mar. 18, 2002). 16 U. S. General Accounting Office, A Model of Strategic
Human Capital Management, Exposure Draft, GAO- 02373SP (Washington, D. C.:
Mar. 2002).
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Contacts and Acknowledgments
For further information regarding this testimony, please contact Orice M.
Williams, Financial Markets and Community Investment, at (202) 512- 5837
about SEC; and Kim Frankena or Elisabeth Sirois, International Affairs and
Trade, at (202) 512- 4128 about the key trade agencies. Individuals making
key contributions to this testimony include Shirley Brothwell, Jill M.
Johnson, Barbara Roesmann, and David Tarosky.
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