Free Trade Area of the Americas: Negotiations Progress, but	 
Successful Ministerial Hinges on Intensified U.S. Preparations	 
(11-APR-03, GAO-03-560).					 
                                                                 
Establishing a 34-nation Free Trade Area of the Americas	 
agreement has been under negotiation since 1998. This agreement  
would eliminate tariffs and create common trade and investment	 
rules for these nations. Most recently, the United States, along 
with Brazil, assumed the leadership of the negotiations. GAO was 
asked to analyze (1) the challenges for the current negotiating  
phase, which will include a ministerial meeting in Miami,	 
Florida, in November 2003; and (2) the U.S.'s readiness to serve 
as co-chair of the negotiations and host of the November 2003	 
ministerial.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-560 					        
    ACCNO:   A06613						        
  TITLE:     Free Trade Area of the Americas: Negotiations Progress,  
but Successful Ministerial Hinges on Intensified U.S.		 
Preparations							 
     DATE:   04/11/2003 
  SUBJECT:   International agreements				 
	     International cooperation				 
	     International relations				 
	     International trade regulation			 
	     Tariffs						 
	     Trade agreements					 
	     Trade policies					 
	     Free Trade Area of the Americas			 
	     Agreement						 
                                                                 
	     North American Free Trade Agreement		 

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GAO-03-560

                                       A

Report to the Chairman, Committee on Finance, U. S. Senate, and to the
Chairman, Committee on Ways and Means, House of Representatives

April 2003 FREE TRADE AREA OF THE AMERICAS Negotiations Progress, but
Successful Ministerial Hinges on Intensified U. S. Preparations

GAO- 03- 560

Letter 1 Results in Brief 2 Background 4 Progress Achieved in Certain
Areas Before and After Quito, but

Extent and Pace of Movement on Substantive Issues a Concern to Some
Participants 9 Key Challenges Exist for the Current Negotiating Phase 19
Gaps in U. S. Preparations for Co- chairmanship and Hosting of Miami

Ministerial May Pose Risks 28 Conclusions 43 Recommendation for Executive
Action 43 Agency Comments and Our Response 44 Scope and Methodology 44

Appendixes

Appendix I: Comments from the Office of the U. S. Trade Representative 47

Appendix II: Comments from the Department of State 50

Appendix III: GAO Contacts and Staff Acknowledgments 52 GAO Contacts 52
Staff Acknowledgments 52

Related GAO Products 53 Figures Figure 1: Organization of the FTAA
Negotiations 6

Figure 2: Political and Economic Events in South America, December 2001*
April 2003 8 Figure 3: History of the FTAA Negotiations, 1994* 2002 10
Figure 4: Tariff Reduction Schedule under Different Base Tariff

Scenarios, 2005* 2015 13 Figure 5: FTAA Time Frames and Milestones, 2002*
2005 17 Figure 6: Relationship Between FTAA and WTO Agriculture

Negotiations 24 Figure 7: Keys to a Successful Ministerial 35

Abbreviations

ATPA Andean Trade Preference Act CAFTA U. S.- Central American Free Trade
Agreement CAP Common Agricultural Policy CARICOM Caribbean Community EU
European Union FTA Free Trade Agreement FTAA Free Trade Area of the
Americas HCP Hemispheric Cooperation Program Mercosur Common Market of the
South NAFTA North American Free Trade Agreement OMB Office of Management
and Budget TNC Trade Negotiations Committee TPA Trade Promotion Authority
USTR Office of the U. S. Trade Representative WTO World Trade Organization

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protection in the United States. It may be reproduced and distributed in
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materials separately from GAO*s product.

Letter

April 11, 2003 The Honorable Charles Grassley Chairman Committee on
Finance United States Senate

The Honorable William H. Thomas Chairman Committee on Ways and Means House
of Representatives

Negotiations toward establishing a Free Trade Area of the Americas
agreement among the 34 democratic nations of the Western Hemisphere have
formally been under way since 1998. Such an agreement would eliminate
tariffs and create common trade and investment rules for these nations. If
completed, the Free Trade Area of the Americas agreement would cover about
800 million people and about $13 trillion in production of goods and
services. Work on this agreement is the most significant of

ongoing regional trade negotiations for the United States, and the Bush
administration has made establishing the Free Trade Area of the Americas
one of its top trade priorities. Indeed, the United States assumed
leadership of the process when it became co- chair, with Brazil, of the
current and final phase of negotiations. This phase began in Quito,
Ecuador, during the ministerial meeting on November 1, 2002, and will
conclude with the completion of the agreement.

Because of the significance of the Free Trade Area of the Americas
initiative, you asked us to update our previous work for you on the
current status of the negotiations. In this report, we analyze the (1)
progress made in the negotiations on creating a Free Trade Area of the
Americas and the outcome of the Quito ministerial meeting; 1 (2) key
challenges for the current and final negotiating phase, which will include
a ministerial in

Miami, Florida, in November 2003; and (3) readiness of the United States
to successfully perform as co- chair (with Brazil) of the Free Trade Area
of the

1 The ministerial meeting, composed of the trade ministers of all the
countries that are members of the proposed Free Trade Area of the
Americas, is the highest decision- making body in the ongoing
negotiations. Ministerial meetings are intended to evaluate the progress
and overall status of the trade negotiations to date and to set the agenda
for future work. The meetings result in a ministerial declaration setting
forth agreed decisions and directions.

Americas negotiations process and host of the November 2003 ministerial.
Our analysis is based on our past and ongoing work on the Free Trade Area
of the Americas negotiations process. 2 Results in Brief Progress on
creating a Free Trade Area of the Americas had occurred in a

number of technical and procedural areas by the time of the November 2002
ministerial meeting in Quito, Ecuador. For example, participants had
defined the timetable for completing the negotiating process and drafted
versions of the agreement text. Participants also had set ground rules for

conducting negotiations on liberalizing access to their markets and dates
for exchanging offers on liberalizing market access. At the Quito
ministerial, participants reaffirmed their willingness to continue Free
Trade Area of the Americas negotiations while stressing the need for a
balanced outcome that provides benefits to all participants. The
negotiators also launched a Hemispheric Cooperation Program to help
lesser- developed countries participating in the Free Trade Area of the
Americas talks obtain the expertise and resources they need to negotiate,
implement, and benefit from the agreement. However, trade- offs did not
begin, because negotiators had made limited progress in resolving
substantive differences in the agreement*s text and developing concrete
proposals to improve market access.

Three key challenges are of primary concern during the current phase of
the negotiations. First, resolution of issues such as subsidies for
agriculture, which are important for most countries of the hemisphere,
have been linked to ongoing global negotiations at the World Trade
Organization. 3 However, there is concern that global talks are bogged
down on issues such as agriculture subsidies and that this situation could
cause Free Trade Area of the Americas talks to slow down or deadlock.
World Trade Organization negotiators have already missed several interim

2 See U. S. General Accounting Office, Free Trade Area of the Americas:
Negotiators Move Toward Agreement That Will Have Benefits, Costs to U. S.
Economy, GAO- 01- 1027 (Washington, D. C.: Sept. 7, 2001); U. S. General
Accounting Office, Free Trade Area of the

Americas: April 2001 Meetings Set Stage for Hard Bargaining to Begin, GAO-
01- 706T (Washington, D. C.: May 8, 2001); U. S. General Accounting
Office, Free Trade Area of the Americas: Negotiations at Key Juncture on
Eve of April Meetings, GAO- 01- 552 (Washington, D. C.: Mar. 30, 2001). 3
The World Trade Organization, established in January 1995, consists of 146
members and provides the institutional framework for the multilateral
trading system.

deadlines, including one specifically related to agriculture. Second,
improved market access is the single most important goal for most Free
Trade Area of the Americas participants, and the quality of offers the 34
nations make will set the tone for ongoing negotiations. Offers to
significantly reduce trade barriers could provide momentum to the
negotiations, but it may be difficult for participants to make ambitious
offers. Third, ensuring the momentum and the political will of the United
States and Brazil, two of the key participants in the negotiations, to
move the process vigorously forward to a timely completion is a key
challenge.

As co- chair of the negotiations, the United States faces several risks to
its readiness to ensure the successful conclusion of the final phase of
Free Trade Area of the Americas negotiations. First, the Office of the U.
S. Trade Representative, which handles the negotiations, has assumed the
increased responsibilities associated with chairing the Free Trade Area of
the Americas negotiations without a significant addition in staff. Second,
the co- chair arrangement with Brazil is a novel situation that could
involve additional time and effort for the U. S. Trade Representative.
Third, certain aspects of the current U. S. plans for hosting the Eighth
Free Trade Area of the Americas Trade Ministerial in Miami in November
2003 pose risks, including acquiring expertise in hosting a ministerial,
working on planning

the ministerial with the host city, arranging financing, and ensuring the
security of ministerial participants. Failure to mitigate similar risks
ultimately caused serious logistical and security problems at the last
major trade ministerial hosted by the United States, the 1999 Seattle
World Trade Organization ministerial.

In this report, we recommend that the U. S. Trade Representative intensify
preparations and promptly and regularly evaluate whether its current
resources and plans are sufficient to carry out the tasks and mitigate the
risks associated with co- chairing the Free Trade Area of the Americas
negotiations and hosting the November 2003 ministerial meeting.

In commenting on our draft report, the U. S. Trade Representative and the
Department of State agreed with our overall message. However, the U. S.
Trade Representative asked us to amplify on the steps it has taken to
address the challenges ahead for the Free Trade Area of the Americas
negotiations and upcoming November 2003 ministerial in Miami and stressed
that it believes plans for hosting the ministerial are at an appropriate
stage of development. The Department of State addressed the issue of its
assistance to the U. S. Trade Representative by saying that it is trying
to be as helpful as it can within the constraints of its resources. We

have noted these positions in the report and added new information about
several specific steps that the U. S. Trade Representative and State have
taken to bolster U. S. readiness. Nevertheless, we maintain our basic

findings and recommendation that U. S. preparations should be intensified
and plans be kept under regular review.

Background Building on a decade of expanding trade and investment ties and
increasing economic integration in the region, the leaders of 34 countries
in the Western Hemisphere pledged in December 1994 to form a Free Trade
Area of the Americas (FTAA) no later than 2005. The agreement would
progressively eliminate barriers to trade and investment. The FTAA
involves a diverse set of countries, 4 from some of the wealthiest (the
United States and Canada) to some of the poorest (Haiti) and from some of
the largest (Brazil) to some of the smallest in the world (St. Kitts and
Nevis). The large disparities in size and economic development in the
hemisphere mean that countries come to the negotiating table with
different and sometimes widely divergent interests and goals. For example,
the United States seeks broad improvements in trade rules and market
access, while the smaller economies seek assurances that their economies
will not be overwhelmed by larger ones. Many nations are participating in
certain aspects of the negotiations as subregional groupings such as the
Caribbean Community (CARICOM) 5 and the Common Market of the South
(Mercosur) 6 to facilitate their participation in FTAA talks.

Between December 1994 and the formal launch of negotiations on March 1998,
the FTAA negotiators agreed on several principles to guide them: (1) All
decisions would be reached by consensus; (2) The final FTAA agreement
would be consistent with the rules and practices of the World

4 The 34 countries participating in FTAA negotiations are Antigua and
Barbuda, Argentina, the Bahamas, Barbados, Belize, Bolivia, Brazil,
Canada, Colombia, Chile, Costa Rica, Dominica, the Dominican Republic,
Ecuador, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras,
Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, St. Kitts and Nevis,
St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago,
the United States,

Uruguay, and Venezuela. 5 CARICOM is a regional bloc whose members are
Antigua and Barbuda, the Bahamas, Barbados, Belize, Dominica, Grenada,
Guyana, Haiti, Jamaica, Montserrat (overseas territory of the United
Kingdom), St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines,
Suriname, and Trinidad and Tobago.

6 Mercosur includes Argentina, Brazil, Paraguay, and Uruguay.

Trade Organization (WTO); (3) The final agreement would be able to coexist
with other subregional free trade and customs union agreements 7 such as
Mercosur and the North American Free Trade Agreement

(NAFTA) 8 ; (4) Special consideration would be given to differences in
levels of development and sizes of economies; and (5) An eventual FTAA
agreement will be implemented as a single undertaking. A single
undertaking implies that the FTAA is a package deal that must be accepted

in its entirety by each signatory country in order for the country to
benefit from the agreement*s provisions. It also means that *nothing is
agreed until everything is agreed,* meaning that concluding the agreement
could involve trade- offs across chapters of the proposed FTAA text
agreement to achieve the desired balance.

Additionally, the negotiators agreed to the overall structure, scope, and
organization of the negotiations, including establishing nine negotiating
groups on particular areas. (See fig. 1.) The nine negotiating groups are
(1) Market Access; (2) Agriculture; (3) Services; (4) Government
Procurement; (5) Investment; (6) Intellectual Property Rights (IPR); (7)
Competition Policy; (8) Dispute Settlement; and (9) Subsidies,
Antidumping, and Countervailing Duties. 9 The completed FTAA agreement is
to include trade rules, which each of the nine designated negotiating
groups is currently working to establish; market- opening schedules; and a
general text to cover overarching and institutional issues.

7 Free trade agreements generally eliminate tariff duties and other
barriers on substantially all trade between the member countries and may
include other provisions covering subjects such as investment and
government procurement. Customs unions go beyond free trade agreements by
not only eliminating duties between partners but also by setting common
external tariffs applied to countries not party to the agreement.

8 NAFTA consists of Canada, Mexico, and the United States. 9 A subsidy is
generally considered to be a financial contribution provided by a
government that gives a benefit to a specific company, industry, or group
of industries for the production, manufacture, or distribution of goods or
services. Antidumping duties are imposed on *dumped imports* (i. e.,
imports sold at a price lower than normal value). Countervailing duties
are imposed on subsidized imports.

Figure 1: Organization of the FTAA Negotiations Co- chair of the
negotiations

(Brazil and the United States)

Ministers responsible for trade

Tripartite Committee a

Trade Negotiations Committee

Vice- ministers of Trade Technical Committee

(Brazil and the United States) on Institutional Issues

(Chile) b

Guide negotiating groups and develop

Administrative Secretariat overall framework for the agreement

Negotiating groups Other FTAA entities

Market access Investment

Services Consultative Group on Smaller Economies

(Colombia) (Panama)

(Caribbean Community) (Ecuador)

Progressively eliminate Establish a fair and

Progressively tariffs and nontariff

transparent legal liberalize trade barriers

framework to promote trade in services

Committee of Government Representatives

investment

on the Participation of Civil Society (Bolivia)

Government procurement Dispute settlement

Subsidies, antidumping, (Costa Rica)

(Canada) countervailing duties

(Argentina)

Expand access to Establish a fair,

government procurement transparent, and

Enhance WTO compliance markets

effective dispute and improve application of

settlement mechanism trade remedy laws

Agriculture Intellectual property rights

Competition policy (Uruguay)

(Dominican Republic) (Peru)

Eliminate export subsidies; Promote and ensure

Ensure anticompetitive address tariffs and other

adequate and effective business practices

trade- distorting practices protection of intellectual

do not undermine and SPS c measures

property rights FTAA benefits

Source: GAO. Notes: Current chairs of the various FTAA entities are in
parentheses. The general objectives of each negotiating group and the
Trade Negotiations Committee appear in italics.

The venue for the negotiating group discussions is Puebla, Mexico. a The
Tripartite Committee, which provides technical support to the
negotiations, is comprised of the

Organization of American States, the Inter- American Development Bank, and
the United Nations Economic Commission for Latin America and the
Caribbean.

b The Administrative Secretariat supports the FTAA ministers, the Trade
Negotiations Committee, negotiating groups, and other FTAA entities. c SPS
stands for sanitary and phytosanitary measures. These measures are taken
to protect human, animal, or plant life or health.

Until November 2002, the chairmanship of the entire negotiating process
rotated in approximately 18- month cycles, with the beginning and end of
each cycle marked by a ministerial meeting. Ecuador served as chair for
the most recent cycle of negotiations, which began in April 2001 and ended
with the November 1, 2002, FTAA ministerial in Quito, Ecuador. Brazil and
the United States assumed the co- chairmanship of the FTAA process at the
conclusion of the November meeting and are expected to remain in that role
until the FTAA negotiations conclude in January 2005. Handling the
negotiations as well as the co- chairs* responsibility for the U. S. side
is the U. S. Trade Representative (USTR). In between ministerials, the
FTAA negotiations are overseen by the vice ministerial- level Trade
Negotiations Committee (TNC). The FTAA Administrative Secretariat, located
in Puebla, Mexico, is the entity responsible for providing logistical and
administrative support to the FTAA.

The Quito FTAA ministerial meeting took place during an uncertain economic
and political period for the region. Countering perceived threats to U. S.
security became a central focus of the Bush presidency in the wake of the
terrorist attacks of September 11, 2001. The U. S. economy had

already slowed by the time the terrorist attacks occurred and has
performed unevenly since then. As for Latin America, it faces poor
economic conditions and political instability (see fig. 2). Moreover, the
International Monetary Fund expected regional output to fall in 2002 by
0.6 percent, in part due to the economic crisis in Argentina. In addition,
several countries elected new leaders in 2002, and the leaders have placed
a priority on confronting domestic issues such as rising poverty. Finally,
political instability in countries such as Venezuela, and ongoing violence
in Colombia continued. This uncertainty has caused some hemispheric
leaders to question the economic and social impacts of market- oriented
reform. On the other hand, the need to increase exports has become even
more imperative to Latin American countries* growth and development.

Figure 2: Political and Economic Events in South America, December 2001*
April 2003

Argentine President Argentina will elect a

Venezuelan President Hugo Chavez Luiz Inacio Lula da Silva

new President to take Fernando de la Rua

remains in office after attempted coup. elected President of Brazil.

office at the end of May. resigns. Col. Lucio Gutierrez

elected President Gonzalo Sanchez

of Ecuador. Eduardo Duhalde

Alvaro Uribe de Lozada

becomes President elected

becomes Ongoing protests

of Argentina. President President

by Venezuelans of Colombia.

of Bolivia. call for the

resignation of President Hugo Chavez.

Dec Jan

April May

June July

Aug Oct

Nov Dec

April '01 '02 '02 '02 '02 '02 '02 '02 '02 '02 '03

Argentina ends Uruguay

The Brazilian currency its peso's

allows (the real) hits an all- time low.

decade- long the peso

link to the dollar. to float

freely. Interim President Adolfo Rodriguez Saa

Withdrawals from Argentine depositors officially suspends payment on

in Uruguayan banks force Uruguay to Argentina's international debt
obligations.

temporarily suspend banking operations. Source: GAO.

Although the single most important goal for most FTAA participants is
improving market access to other nations* markets, achieving substantial
liberalization will be difficult. Barriers to trade remain high: The
tariffs of many FTAA participants are generally twice as high as the
average U. S. tariff of 4.8 percent. Moreover, several indicators suggest
trade within the region is lower than it could be. Intraregional trade
within several regional subgroups remains relatively low (7.1 percent of
total trade in CARICOM

and 10 percent in the Andean Community 10 versus 46.9 percent in NAFTA).
Certain nations, such as Brazil, export significantly less as a share of
national income than other nations with similar- sized economies (13
percent versus 28 percent in Mexico). In addition, tariff revenue is an
important source of government income for many FTAA nations (56 percent of
total government revenue in the Bahamas and 43 percent in the Dominican
Republic, versus just 1 percent in the United States and Canada).

Progress Achieved in Before the Quito ministerial, FTAA participants had
succeeded in laying a

Certain Areas Before technical foundation for an eventual FTAA agreement
by making progress

in defining the remaining negotiating timetable, consolidating the draft
and After Quito, but

text, and establishing the ground rules for liberalizing market access.
(See Extent and Pace of

fig. 3.) At Quito, negotiators achieved a number of positive procedural
and Movement on

political outcomes, such as confirming the schedule for upcoming market
access negotiations and other negotiating meetings; reaffirming the

Substantive Issues a political willingness to go forward; and launching a
program to help

Concern to Some developing nations negotiate, implement, and benefit from
an FTAA.

However, procedural progress on market access was not generally
Participants

matched by substantive agreement on text- related issues, and some key
deadlines were missed or only met by postponing or avoiding difficult
decisions.

10 The Andean Community is a subregional organization endowed with an
international legal status. The community consists of Bolivia, Colombia,
Ecuador, Peru, and Venezuela. The Andean Community is also a free trade
area.

Figure 3: History of the FTAA Negotiations, 1994* 2002 1994 1995 1996 1997
1998 1999 2000 2001 2002

Set ground rules for market Develop structure, scope, and organization of
negotiations Prepare annotated outlines Prepare draft text

access negotiations

December 1994 March 1996

Initiation of

April 2001 Summit of the Americas

Second ministerial

trade negotiations

Sixth ministerial Miami, Florida

Cartagena, Colombia March- April 1998

Buenos Aires, Argentina Fourth ministerial

Third summit San Jose, Costa Rica

Quebec City, Canada Second summit Santiago, Chile June 1995

May 1997 November 1999

November 2002 First ministerial

Third ministerial Fifth ministerial

Seventh ministerial Denver, Colorado

Belo Horizonte, Brazil Toronto, Canada

Quito, Ecuador Source: GAO.

Progress Made on Defining Since the formal launch of FTAA negotiations in
1998, the 34 participating Timetable and Text

countries have laid a technical foundation for concluding an FTAA
agreement by setting a final deadline for completing the FTAA as well as
establishing interim milestones to ensure steady progress toward that
goal.

By November 1999, the nine negotiating groups had prepared annotated
outlines of chapters of an agreement. By April 2001, the negotiating
groups had produced a draft text containing proposed trade rules on
diverse subjects ranging from agriculture to competition policy. This
draft was 435 pages long, and it contained a compilation and consolidation
of proposals for legal text received from FTAA participants. Participants
described its production as marking important progress, because the draft
laid the necessary groundwork and participants have agreed to use the
draft as the basis from which negotiations will proceed. In addition, in
publicly releasing the text, ministers responded to public calls for
greater

transparency (openness) and sought to build public understanding of and
support for the FTAA. In the 18 months leading to the Quito ministerial,
the nine FTAA negotiating groups made progress in consolidating the draft
text. Decision- makers clarified their policy choices by removing
redundant language and consolidating similar proposals. For example, they
shortened the intellectual property rights chapter from 106 pages to 53
pages. Moreover, the Technical Committee on Institutional issues, a
special drafting

committee created by the TNC for that purpose, submitted a draft text on
general institutional issues. This draft text covers such topics as the
purposes, objectives, and principles of the FTAA agreement as a whole; the

scope and coverage of the FTAA*s obligations; and the institutional bodies
that will provide political, administrative, and technical oversight for
an FTAA. However, much of the text in the draft chapters remains within
*brackets,* denoting lack of agreement among participants. This lack of
substantive movement is a concern to some observers, given that only 20
months remain until the January 2005 deadline for concluding an FTAA.
Resolving these disagreements will require considerable work and hard
bargaining to turn the accumulation of proposals currently on the table
into a mutually agreed- upon, legally binding document. As we noted in our

March 2001 report, the sheer scope and complexity of the trade rules
contemplated will make this work difficult. 11

Ground Rules for A key goal of the Quito phase of FTAA negotiations was to
set the ground

Liberalizing Market Access rules (* modalities*) that would apply to
negotiations on opening markets

Established among FTAA members. These negotiations will be conducted in
five of the

nine FTAA negotiating groups: Agriculture, Government Procurement,
Investment, Market Access, and Services. For example, FTAA nations needed
to establish the starting point from which reduction of tariffs would
begin (base tariff rates) and the time periods that would be used to
progressively eliminate tariffs (phaseout periods). In order to speed the

pace of liberalization, the United States sought to attain agreement to
negotiate tariffs downward from existing (that is, currently applied)
rates, rather than the higher rates that the WTO allows. Ministers set an
April 1, 2002, deadline for the five groups negotiating market opening to
finalize recommendations on ground rules. Although most of those groups
met this deadline, several presented the TNC with multiple options for

consideration, rather than recommending one. For example, in the area of
tariffs, the market access group noted that several options for base
tariff rates had been proposed, including use of currently applied rates
and use

of WTO bound rates. (Bound rates are legal limits on tariff rates, and WTO
members have agreed not to apply tariffs that exceed these rates. These
rates are generally higher than currently applied rates).

11 See GAO- 01- 552.

With so many options to choose from, attaining consensus on the ground
rules by the vice- ministerial- level TNC proved difficult. With a May 15,
2002, deadline for launching negotiations on market access looming, an
April meeting of the Trade Negotiations Committee was unsuccessful in
finalizing agreement on ground rules. The meeting was reconvened on May
12- 13, 2002, and resulted in issuance of some of the required decisions,
including the following on tariffs:

 All tariffs are subject to negotiation.  Tariffs will be phased out
over four time periods* immediate, no more

than 5 years, no more than 10 years, and more than 10 years. Tariffs with
shorter phaseouts will decline more rapidly, whereas tariffs placed in
longer phaseout categories will be reduced at a slower pace.

 Tariff reductions will generally be linear. This means that tariffs will
be lowered in equal amounts per year until they reach zero.

 The base tariff will be notified by October 15, 2002. (CARICOM was given
until December 14, 2002).

Regarding nontariff issues, for services, the United States secured
agreement that FTAA market access offers should be based on current laws
and regulations and on international obligations or existing or improved
opportunities. This means that offers will start from the status quo in
terms of market access. For investment, the United States secured
agreement that only exceptions to liberalization would be negotiated
(known as a *negative* list approach).

However, the modalities package could not be finalized because of a
disagreement over base tariff rates. In particular, CARICOM members argued
that they could not agree to use current tariff rates as the base from
which liberalization would begin, citing their dependence on tariff
revenues and the vulnerability of their economies* undiversified
agriculture sectors to imports. Because FTAA negotiations decisions
require all 34 participating nations to agree, the effect of the CARICOM
objection was to defer a decision on base tariff rates.

After considerable efforts to cajole Caribbean nations into agreement, in
late August 2002 the TNC finally agreed that, as a rule, the base tariff
would

be the current tariff rates. 12 The implication of this decision is that
the actual lowering of most tariffs should begin immediately upon
implementation of an eventual FTAA, rather than being delayed, as
illustrated in figure 4. This is a significant change from the way tariff
negotiations are negotiated in the WTO and should result in meaningful
increases in market access as soon as the FTAA agreement is implemented.

Figure 4: Tariff Reduction Schedule under Different Base Tariff Scenarios,
2005* 2015

20 Tariff rate

15 10

5 0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Year

Applied rate of 10 percent Bound rate of 15 percent

Source: GAO. Note: As the dotted line indicates, if tariffs were being
phased out over 10 years for a product currently subject to a 15- percent
bound rate and a 10- percent applied rate, and the 15- percent bound rate
were used as the basis for phasing out that tariff under the FTAA, no
tariff reduction would occur for the first 3 years after the agreement
entered into force. The tariff rate also would be higher under the
15percent bound rate in years 4- 10 than it would have been if a base rate
of 10 percent had been used.

12 Specifically, the TNC agreed that the base rate from which tariff
liberalization will be negotiated is the most- favored- nation applied
rate as of October 15, 2002. Regional subgroupings, such as Mercosur, that
apply common external tariffs, were given until December 14, 2002, to
present their base tariffs and until April 15, 2003, to adjust these
tariffs; the base rate was set at the applied tariff rate as of January 1,
2004.

However, CARICOM was granted an exception to using the current tariff
rates, which will allow it to use the higher WTO bound rate for a limited
list of mainly agricultural goods.

Some Progress Made on In addition, during the months leading to the Quito
ministerial, negotiators

Other Issues made some progress on other issues. Specifically, the
negotiators agreed to

hold regional outreach seminars for private interests such as
environmental, consumer, and business. The first regional seminar for such
*civil society* groups was for North America and was held in Mexico.
(Other regional seminars for Mercosur and the Andean countries were
scheduled but have been postponed due to regional economic crises and
funding constraints, respectively.) Recognizing their responsibility to
take the needs of smaller economies into account during the negotiating
process, FTAA governments also adopted guidelines that direct participants
to assess their needs on a case- by- case basis. Also, the United States
began required consultation and advice procedures, including those
required by Trade Promotion Authority (TPA) legislation. 13 Some
Substantive Goals Not

Despite technical progress in consolidating the bracketed text and setting
Fully Realized ground rules, the Quito phase of FTAA negotiations did not
result in major movement in terms of substantive trade- offs. Much of the
text remains in brackets, signifying lack of consensus. Negotiators made
little real progress in resolving the many substantive differences among
FTAA participants that we identified in our September 2001 report. 14 In
addition, although

FTAA ministers set a goal to begin market access negotiations on May 15,
2002, negotiations on specific market access commitment schedules did not
begin at all during the phase ending at Quito on November 1, 2002. 15 13
Specifically, USTR solicited public input, requested advice from the U. S.
International

Trade Commission, conducted a public hearing, notified Congress of
objectives for an FTAA agreement, and continued its environmental
assessment of the FTAA. 14 See GAO- 01- 1027. 15 Most countries were
required to notify their base tariff rates by October 15, 2002, and did
so.

Instead, market access negotiations are now anticipated to begin in
earnest after the presentations of initial offers in early 2003. 16

Finally, the ground rules that were established for negotiations on topics
such as services, investment, and government procurement leave important
questions unanswered. For example, the services negotiating group had
recommended that the TNC decide whether negotiations on services would
proceed from a top- down or negative- list approach

(whereby only exceptions to liberalization are negotiated) or,
alternatively, from a bottom- up or positive- list approach (whereby only
specifically negotiated items would actually be liberalized). However, the
TNC decision on modalities is silent on this matter. Subsequent guidance
indicates that FTAA nations can present offers in either manner. This lack
of a uniform approach is expected to complicate the process of preparing
and comparing offers and could thereby slow down future negotiations.

Some Positive Outcomes Ministers achieved most of their goals at the Quito
ministerial. For

Achieved at Quito example, ministers agreed upon specific timetables and
instructions for

Ministerial FTAA negotiating bodies. Moreover, ministers reiterated their
political

commitment to continue FTAA negotiations and took steps to address
concerns that civil society and smaller economies raised.

Procedural Basis Set The Quito ministerial meeting settled certain
procedural matters and set goals and directions for the next 12 months of
negotiations. Specifically, the ministers

 set the schedule for negotiating group meetings for the first 2 months
of the negotiating cycle;

 agreed to hold future ministerial meetings in the fourth quarter of 2003
(in the United States) and in 2004 (Brazil);

 agreed that there will be at least three TNC meetings before the 2003
ministerial meeting;

16 The deadline for presenting initial offers was February 15, 2003. For a
discussion on the status of the presentation of offers, see Market Access
Offers Important for Momentum, but Substantial Liberalization Difficult
section below.

 named a slate of chairs for negotiating group committees that is
considered strong by U. S. negotiators; and

 provided other directions, such as requesting that the TNC develop a
stocktaking report of overall progress made in the FTAA negotiations
before the next ministerial meeting occurs.

On substantive matters, ministers set two key goals for the coming year.
First, they confirmed that market access bargaining will begin with the
putting forth of initial offers between December 15, 2002, and February
15, 2003. They also set deadlines for initial requests and revised market
access offers for June 15 and July 15, 2003, respectively. Second,
negotiators were charged with *achieving consensus on the greatest
possible number of issues* in the draft chapters containing the text of
FTAA rules and

institutional provisions. They also have responsibility for producing a
revised version of the draft text chapters no later than 8 weeks before
the next ministerial meeting in late 2003. The overall timetable for FTAA
negotiations and key milestones for the current phase are depicted in
figure 5.

Figure 5: FTAA Time Frames and Milestones, 2002* 2005 November 2002

January 2005

Deadline to conclude Quito, Ecuador:

FTAA negotiations Seventh FTAA

November 2002* December 2005 December 2005

ministerial Entry into force

of FTAA

February 2003 June 2003

July 2003 September 2003

November 2003 2004

Deadline for Deadline for

Initiate the process for the Submit a new

Miami, Florida: Brazil: submission of

submission of presentation of revised offers

version of the Eighth

Ninth initial market

requests for and subsequent negotiations

chapters to the TNC FTAA ministerial

FTAA ministerial access offers

improvements on improvements

(Date to be determined) to offers

Deadline for stocktaking report on agriculture

Submit to the TNC a revised version of the FTAA

text chapters Source: GAO.

Note: The TNC refers to the Trade Negotiations Committee. The TNC guides
the work of the negotiating groups and other committees and groups and
decides on the overall architecture of the agreement and institutional
issues. The TNC is also responsible for ensuring the full participation of
all the countries in the FTAA process, and transparency (openness) in the
negotiations, as well as overseeing the Administrative Secretariat and
overseeing the identification and implementation of business facilitation
measures.

Political Willingness to Go As we stated in our May 2001 report, 17 the
ultimate success or failure of

Forward Restated efforts to establish the FTAA rests on meeting several
long- term challenges,

notably summoning the political will of participants to conclude a deal.
On the political level, with the exception of Venezuela, at Quito all 34
FTAA nations restated their political will to move forward with an FTAA
and to conclude it by January 2005. 18 This political impetus was
particularly noteworthy, given that it occurred at a time of economic
uncertainty and

17 See GAO- 01- 706. 18 Venezuela reserved its position on the question of
concluding FTAA negotiations by 2005, reiterating a reservation taken at
the conclusion of the April 20- 22, 2001, Summit of the Americas.

heightened political tensions, and with a new Brazilian administration.
The Brazilian people elected this administration on October 27, 2002, 5
days before the Quito ministerial. However, numerous ministerial
participants stressed the need for balanced progress and an equitable
outcome. In particular, numerous participants used the forum provided by
the Quito ministerial to say that the FTAA will go nowhere without
meaningful agricultural liberalization and disciplines (rules) on
subsidies and other practices that distort agricultural trade.

For its part, the United States made clear the importance it places on
expanded hemispheric trade as a means of fueling growth, creating jobs and
opportunity, and alleviating poverty. The USTR noted that it is already
moving toward that goal bilaterally with Chile and five Central American

nations as part of a U. S. strategy to foster competition in trade
liberalization. Furthermore, the USTR stated that the United States is
also prepared to move step by step toward hemispheric free trade if others
turn

back or simply are not ready. At Quito, the USTR urged all participants to
consider how they can contribute to progress as FTAA negotiations enter a
particularly serious phase. The USTR also urged other ministers to foster
greater understanding and democratic debate on the FTAA.

Our March 2001 report identified securing greater public support as a key
issue for FTAA negotiators, and at Quito, FTAA ministers signaled greater
interest in doing so by taking several steps. 19 To address concerns over
transparency and to provide the public with a clear view of the proposals
under discussion, the draft text of the FTAA agreement was publicly
released in all four FTAA languages (English, French, Portuguese, and
Spanish) immediately after the Quito ministerial*s conclusion. Moreover,
the opening and closing sessions of the Quito ministerial were open to the
public for the first time. Ministers also instructed the TNC to ensure a
substantial increase in the quality of information provided to the public
as negotiations progress and to identify and foster the use of best
practices for outreach and consultation with civil society.

In addition, participants attempted to intensify and make more interactive
ministers* input from civil society. As host of the Quito meetings,
Ecuador supported cooperative efforts by two Ecuadorian environmental
groups to prepare constructive recommendations by organizing a 2- day
forum. Ecuador also hosted a meeting at which those and other civil
society

19 See GAO- 01- 552.

representatives could present their recommendations directly to ministers.
However, the breakdown in order at that meeting showed that civil
society*s involvement in the FTAA is still a *work in progress.*
Identifying civil society representatives and creating an atmosphere for
constructive input and meaningful dialogue between civil society and the
FTAA

ministers are challenges the United States will face at the 2003 FTAA
ministerial in Miami.

Hemispheric Cooperation In March 2001, we reported that the FTAA faced a
challenge in dealing with

Program Launched the varying resource capacity among participants. 20 To
deal with this

challenge, the Quito ministerial announced and launched a Hemispheric
Cooperation Program (HCP). This program will provide technical assistance
to smaller economies for negotiating, implementing, and benefiting from an
FTAA. It is intended to allay the concerns of the lessdeveloped FTAA
economies over the impacts of trade liberalization. Several trade experts
see this move as an important confidence- building measure for many FTAA
participants. The purpose of the HCP is to create a framework for
planning, prioritizing, and funding technical assistance in a

more coordinated fashion. Countries such as Brazil have also expressed
interest in providing in- kind support on such topics as conducting trade
analysis. The next step is the development of national strategies to
identify and prioritize capacity- building needs. According to USTR, each
of the Central American countries engaged in bilateral negotiations with
the United States has already prepared national strategies for capacity
building.

Key Challenges Exist Despite progress made at Quito, current negotiations
for an FTAA face

for the Current three short- term challenges. First, there is a risk that
lack of progress in

negotiations at the WTO, particularly on agriculture, could cause a
Negotiating Phase

deadlock in FTAA talks. Second, an unambiguous demonstration of
participants* good faith through making meaningful offers to liberalize
access to their markets is viewed by negotiators as critical to giving
momentum to all aspects of the FTAA talks. However, this element may be
difficult to achieve. Finally, there are concerns about the ability of the

United States and Brazil to muster the political commitment necessary to
see the FTAA process through to completion.

20 See GAO- 01- 552.

Agriculture Progress The treatment of subsidies and other support for
agriculture is a critical

Depends on WTO part of the FTAA trade agenda. A key issue is that of
domestic support--

payments made to farmers that raise prices or guarantee income. Progress
on this issue depends on the WTO negotiations, but there is concern that
these talks are bogging down. Any delay at the WTO could make it difficult
to achieve progress in the FTAA and ultimately imperil its conclusion by
January 2005.

Agriculture Crucial to FTAA Agriculture is an important issue to all FTAA
participants. As a major

Negotiations component of income in some Latin American countries such as
Dominica, Guatemala, and Haiti, agriculture constituted approximately 17,
23, and

28 percent, respectively, of the gross domestic product in 2000. Other
FTAA participants such as Argentina, Brazil, and the United States are
major world producers of commodities such as coffee, oilseeds, sugar, soy,
and beef, making agriculture an important item in their national trade
agenda as well. Because of their interest in agriculture, many nations of
the

hemisphere were strong proponents of the new round of global trade talks
launched in November 2001 that aim to achieve comprehensive agricultural
reform at the WTO.

Agriculture is also an important component of an overall FTAA package.
Several foreign officials with whom we spoke emphasized that the entire
FTAA negotiations rested on making progress in agriculture negotiations.
Furthermore, officials informed us that Latin American leaders do not want
their constituents to perceive them as giving ground on issues of
importance to the United States such as intellectual property rights and
services without obtaining key concessions on priority issues for their
countries, such as agriculture.

Among the agriculture issues on the FTAA trade agenda, domestic support 21
* and U. S. domestic agriculture support in particular* seems to be a
source of concern for many FTAA participants. In 1999, the United States
provided $16.9 billion of trade- distorting domestic support,

21 The WTO agriculture agreement classifies agricultural domestic support
into three categories identified by *boxes*: green (permitted), amber
(trade- distorting subsidies that must be reduced), and blue (production-
limiting programs). For the WTO, most of the domestic support measures
considered to distort production and trade fall into the amber box. Thirty
WTO members, eight of whom are FTAA participants (Argentina, Brazil,
Canada, Colombia, Costa Rica, Mexico, the United States, and Venezuela),
have commitments to reduce their trade- distorting amber box supports. One
proposal within the FTAA draft text would eliminate some of these
supports.

according to the most recent WTO member notifications. To put this in
context, Antigua, Barbados, the Bahamas, and Jamaica all had national
incomes (gross domestic products) of less than $8 billion in 1999.
Furthermore, other large FTAA countries such as Brazil, Canada, and Mexico
all spend considerably less in trade- distorting domestic support.
Finally, with the passage of the U. S. Farm Bill in 2002, 22 which covers
farm spending until the end of 2007, U. S. domestic support for
agriculture is

projected to increase. Many FTAA participants believe that domestic
agriculture support needs to be placed under stricter rules to ameliorate
the U. S. advantage. Accordingly, certain countries are insisting that
domestic agriculture subsidies be addressed in both the FTAA and the WTO
negotiations. The current draft FTAA chapter on agriculture also includes
a proposal to require countries that provide trade- distorting domestic
support to eliminate it.

The United States, by contrast, argues that the WTO is the appropriate
forum to negotiate domestic support because, unlike tariffs, it is not
possible to reduce domestic support on solely a regional basis. The U. S.
rationale for relying on the outcome of WTO negotiations is that two

primary users of domestic support in agriculture, the European Union (EU)
and Japan, are not FTAA participants. Therefore, domestic support reform
must take place in a forum like the WTO, where the EU and Japan are
present, to avoid putting FTAA countries that subsidize farmers at a
disadvantage in world markets. With such WTO negotiations now ongoing, the
official U. S. position is that although all agricultural issues are still
on the table for the FTAA negotiations, the FTAA countries must not do

anything now that will prejudice their respective positions in these
important global talks with extra- hemispheric trading partners. Canada
also concurs with the U. S. position.

The Quito ministerial declaration highlights the link between FTAA and WTO
negotiations and underscores the importance of making progress in all
areas of the agriculture agenda. The Quito ministerial declaration also

recognized the divergent positions among FTAA participants in 22 The Farm
Security and Rural Investment Act of 2002 (P. L. 107- 171, May 13, 2002).

agriculture. 23 In the declaration, ministers accepted the U. S. positions
that (1) markets are global, (2) significant results in the WTO are
necessary, and (3) third- country practices 24 that distort trade must be
taken into account. Ministers also recognized other countries* positions
that progress in FTAA agricultural market access negotiations depends on
progress on domestic support, export subsidies, and other nontariff
barriers.

However, the declaration also set a date to revisit overall progress in
FTAA agriculture negotiations. Specifically, to ensure balanced progress
and a timely conclusion of FTAA negotiations, ministers charged the FTAA
Negotiating Group on Agriculture with preparing a report on progress
achieved on all subjects on the FTAA*s agricultural negotiating agenda for
presentation before the TNC*s fourteenth meeting. This meeting is
scheduled for early July 2003.

Outcome of WTO Negotiations The timing of the WTO negotiations represents
a dilemma for FTAA

Uncertain negotiators because there is concern that WTO negotiations are
behind schedule. Although interim deadlines were set to keep WTO
negotiations

on track, the December 2002 deadlines for agreeing on access to medicines
and special and differential treatment for developing countries were
missed. Moreover, a March 31, 2003, deadline to establish modalities, or
the rules and guidelines for the negotiations on agricultural
liberalization, was missed. The deadline was important, because
participants were to have submitted comprehensive draft commitments for
agriculture at the fifth WTO ministerial in Cancun, Mexico, in September
2003 based on the rules and guidelines established in March. Additionally,
we noted in a September 2002 report on the WTO 25 that meeting the
deadline for establishing

23 Specifically, the Quito ministerial declaration states: We recognize
that, in a global market, we must have significant results in the
negotiations on agriculture, both in the FTAA and in the WTO. In this
context, we must also take into account the practices by third countries
that distort world trade in agricultural products. We also recognize that
our respective evaluation by country or group of countries, of the results

in the market access negotiations in agriculture in the FTAA will depend
on the progress we can reach in other subjects that are part of the
agriculture agenda.

24 Those practices by countries that are not FTAA signatories, yet distort
intrahemispheric trade. For example, if a good exported from Japan to
Brazil with the benefit of export subsidies caused U. S. exports to Brazil
of the same good to decline, that transaction would be a trade- distorting
practice by a third party. 25 See U. S. General Accounting Office, World
Trade Organization: Early Decisions Are Vital to Progress in Ongoing
Negotiations, GAO- 02- 879 (Washington, D. C.: Sept. 4, 2002).

agriculture modalities was a crucial indicator of the likelihood of
success in the overall negotiations. USTR officials have noted that they
and other countries* delegations are currently working to minimize any
negative impact missing the modality establishment deadline has on the
overall negotiations.

A key factor hindering progress in the WTO agricultural negotiations is
the pace and extent of reform of the EU*s Common Agricultural Policy
(CAP). 26 Current arrangements of the CAP are set to expire at the end of
2006, and the concern is that the European Commission 27 will not have the
flexibility

to establish modalities without significant reform of the CAP. The
Commission has recently unveiled a reform proposal for the European
Council to consider that calls for decoupling subsidies from production to
make them less trade distorting. However, opinions among EU members over
CAP reform are divided, with countries such as Great Britain supporting
ambitious reform and countries such as France vigorously opposing
substantive changes.

Because both the FTAA and WTO agreements are to be concluded as single
undertakings, failure to conclude agreement in January 2005, in any of the
areas of the WTO, could imperil the timely conclusion of an FTAA. In
addition, the failure of WTO negotiators to establish agricultural
modalities in March 2003 could have a large impact on the agricultural
agenda assessment that the FTAA Negotiating Group on Agriculture expects
to

conduct in July 2003. At the FTAA Miami ministerial in November 2003,
countries of the hemisphere will have a chance to evaluate the progress in
agriculture made at the September 2003 WTO ministerial to determine if
sufficient progress has been achieved. If progress is insufficient, key
FTAA nations may be unwilling to move forward in other areas of the FTAA
agreement. U. S. officials report that they are working to avoid this
outcome. (See fig. 6 for an illustration of the linkage between the FTAA
and the WTO agriculture negotiations.) 26 The CAP is a set of rules and
regulations governing agricultural production in the EU. CAP

rules cover most aspects of agricultural activity, including support to
farmers, production methods, marketing, and controls over quantities of
food that different agriculture sectors can produce. 27 The European
Commission is the EU*s executive body. It is responsible for implementing
the European legislation (directives, regulations, decisions), budget, and
programs adopted by Parliament and the European Council. The Commission
negotiates international agreements on behalf of the EU and has the right
to propose legislation to the European Council and the Parliament, the
primary decision- making bodies.

Figure 6: Relationship Between FTAA and WTO Agriculture Negotiations FTAA
deadlines

July 2003 Negotiating Group on Agriculture progress

January 2005 report to Trade Negotiations Committee

Negotiations to conclude November 20- 21, 2003 Eighth FTAA ministerial in
Miami, Florida Stocktaking on all issues including agriculture

2003 2004 2005 September 10- 14, 2003 Fifth WTO ministerial in Cancun,
Mexico Draft commitments based on modalities established

March 31, 2003 January 1, 2005

Agriculture modality deadline Negotiations to conclude

WTO deadlines

Source: GAO.

Market Access Offers Now that the ground rules for negotiating market
access have been set, the Important for Momentum,

current phase of FTAA negotiations will formally launch the exchange of
but Substantial liberalizing offers and requests. Many view this give-
and- take as the true Liberalization Difficult

start of real negotiations. Initial offers, which negotiators presented in
February 2003, will set the tone for this phase, and maintaining or
increasing momentum is seen as critical to making progress.

Several hemispheric opinion leaders had expressed hope that the United
States would make a good faith gesture, by presenting a significant offer,
to give momentum to FTAA talks. The United States is the largest trading
partner for virtually all of the countries in the FTAA. Preparing the U.
S. offer involved developing tariff lists by the executive branch, in

consultation with Congress and the private sector. The U. S. offer was
announced on February 11, 2003. The USTR believes that the U. S. *s
initial market access offers are bold and provide a strong incentive for
other countries to be equally ambitious. According to the USTR, about 65
percent of U. S. imports of consumer and industrial goods

from the hemisphere (not already covered by NAFTA) would be duty free
immediately under the U. S. offer. U. S. imports of textiles and apparel
would be duty free in 5 years, so long as other countries reciprocate. To
further encourage reciprocal liberalization, the United States offered

immediate elimination of tariffs on a reciprocal basis in key sectors such
as chemicals, paper, steel, and wood. Although certain agricultural
products such as sugar were placed in the longest phaseout category, the
USTR emphasized that these products remain on the table for negotiation.
Indeed, all U. S. tariff lines were included in the U. S. offer.

The U. S. market access offers differentiate among FTAA participants,
meaning that the United States would apply different rates of duty to
different FTAA partners during the transition to free trade. The bottom
line is that some FTAA nations would be allowed quicker phaseouts of U. S.
tariffs than others. The United States argues that this approach would

allow it to accord smaller economies better treatment, a goal agreed to in
principle by other FTAA nations, as well as provide greater leverage to
negotiate market- opening concessions in large, lucrative markets. Others,
notably Brazil, oppose this idea. Brazil*s concerns include the belief
that Brazil would be placed in a relatively worse bargaining position
compared with the United States under a strictly bilateral negotiating
approach and

that, at the end of the day, it would suffer disadvantageous treatment of
its products with respect to other FTAA partners. Indeed, the initial U.
S. offer would provide CARICOM with immediate duty- free access for 91
percent of its exports, versus 58 percent for Mercosur, the trading bloc
that includes Brazil. Others have expressed concerns about potential
losses of regional and subregional synergies in production, administrative
complexity, and

lack of transparency. On the other hand, nations that currently benefit
from U. S. preference programs 28 want to retain their preferential access
to U. S. markets and thus welcome differential treatment.

All of the 33 other FTAA countries also met the February 15, 2003,
deadline for submitting initial offers on industrial and agricultural
market access. A USTR official welcomed the universal completion of this
first step as important progress. However, he expressed hope that, with
the U. S. offer on the table, others would be more forthcoming in the
months ahead. Many FTAA countries made conservative initial market access
offers. For example, contrary to the U. S. offer, several placed sizeable
shares of their

28 These preference programs provide preferential duty- free entry into
the United States for certain products.

trade into the longest phaseout category or excluded some key items from
liberalization. In addition, Mercosur and CARICOM nations indicated that
they were not yet ready to present offers on government procurement and
services. Regarding investment, Mercosur members Uruguay and Paraguay made
offers, but Brazil and Argentina did not.

Questions of Commitment to Critical to the successful completion of this
phase of negotiations is a clear

FTAA by the United States and political commitment to achieving an FTAA.
During the course of our work

Brazil Remain on the FTAA, a number of participants have stressed that an
FTAA

agreement could be successfully concluded if the key Western Hemisphere
leaders demonstrate that they have the political will to finalize the
agreement. However, some observers have concerns about how competing
priorities will affect key FTAA countries, notably the United States and
Brazil.

Interpretation of U. S. Actions Is Mixed

While the United States has taken some steps widely viewed in the
hemisphere as positive, other actions have been perceived as inconsistent
with FTAA goals. In our May 2001 report, we noted that President Bush said
at the April 2001 Summit of the Americas that he would seek to complete
three concrete steps by the end of 2001 to demonstrate the U. S. *s
political commitment to the FTAA: (1) secure Trade Promotion Authority,
(2) finalize a Free Trade Agreement with Chile, and (3) renew the Andean
Trade Preference Act (ATPA). 29 All three things have now been

accomplished, although somewhat later than President Bush anticipated.
Other FTAA nations viewed the passage of TPA by the 107 th Congress in
August 2002 as a very positive development. Under this authority, the
executive branch is required to consult regularly with Congress, and
solicit advice from advisory committees and the public, as trade
agreements are being negotiated. In return, Congress agrees not to amend
legislation implementing trade agreements, voting up or down on these
agreements. In

addition, the law sets out parameters for negotiations dealing with such
issues as agriculture, antidumping, labor, the environment, and
investment. In some cases, the law places formal limits on the President*s
flexibility to negotiate. However, none of these issues, which were
already sensitive

29 The Andean Trade Preference Act (ATPA) is a program providing for the
duty- free entry of merchandise from designated beneficiary countries.
ATPA was first enacted into law by the United States on December 4, 1991.

domestically and are relevant to the FTAA, were taken off the table for
negotiation. In some cases, such as investment, the guidance TPA provided
has actually made it easier for the United States to negotiate, U. S.
officials

report. Since TPA was secured, the United States has pushed forward on
multilateral, regional, and bilateral fronts, including trade negotiations
to establish a U. S.- Central American Free Trade Agreement (CAFTA). In
December 2002, the United States announced the substantive conclusion of
free trade area agreements with Singapore and Chile as well. These
agreements contain important breakthroughs in such areas as intellectual

property rights and services. In addition, President Bush signed a
presidential proclamation restoring and expanding benefits under the
Andean Trade Preference Act.

While this renewed U. S. engagement in trade liberalization efforts is
generally seen as energizing FTAA talks, and is viewed by USTR as
complementary, there is some concern that such other considerations may
affect U. S. leadership within the FTAA. First, some FTAA nations have
complained about other U. S. trade actions taken in 2002, notably
imposition of restrictions on steel imports and passage of a new farm bill
(P. L. 107- 171) that substantially increases subsidies to American
farmers through 2007. Second, some FTAA participants view the many
bilateral negotiations the United States has engaged in, both within and
outside the hemisphere, as indicative of a lack of U. S. commitment to the
FTAA itself.

Brazil*s Commitment Unclear

FTAA participants are also looking to Brazil to affirm its political
commitment to FTAA negotiations. Even before Brazil*s recent presidential
election, concerns existed about Brazil*s commitment to the FTAA process.
Although Brazil has actively participated in the negotiations, observers
say that Brazil has appeared reticent to decisively embrace an FTAA.
Brazilian officials admit that Brazil has held back during the
negotiations because they believe the

United States is not ready to negotiate on issues of greatest interest to
Brazil, such as high tariffs on key Brazilian exports and trade remedies.
Moreover, according to press reports, before his election as President of
Brazil in October 2002, Luiz Inacio Lula da Silva made this comment about
the FTAA: *As it is being proposed by the United States, the FTAA is not
an integration proposal, it is annexation politics, and our country won*t
be enclosed.* Since being elected, however, the new Brazilian
administration has pledged to continue to negotiate in good faith to
conclude a mutually beneficial FTAA and has

promised to honor all commitments made. Nevertheless, perhaps because of
the newness of the administration, Brazilian participation in the FTAA
process has slowed down, and Brazil has announced that it needs additional
time to prepare market access offers on services, investment, and
government procurement.

Gaps in U. S. The United States faces several risks as it takes on the
responsibility,

Preparations for Cochairmanship together with Brazil, of guiding the FTAA
process forward to a successful

conclusion. These risks include (1) handling an increased workload as
cochair and

with the pace of negotiations intensifying, and without a Hosting of Miami

commensurate increase in resources; (2) serving as co- chair with Brazil,
a Ministerial May Pose

novel situation; and (3) hosting a November 2003 ministerial meeting for
all the trade ministers of the hemisphere and their delegations, which
requires

Risks expertise, planning, funding, and security preparations.

Workload and Negotiating As the USTR assumes the co- chairmanship of the
FTAA negotiations, it

Pace to Increase, but faces a heavy expansion of its workload. At the same
time, its resources, in

Resources Not particular the staff dedicated to the co- chairmanship, are
not expected to

Commensurate increase commensurately. Some past chairs have warned that
this situation

may lead to a slowdown in the FTAA process. Workload and Negotiating Pace

A major challenge for the USTR as it assumes responsibility as co- chair
of to Increase

the FTAA process will be handling the increased workload without an
increase in staff. Demands on USTR*s resources will be particularly high
in the fall of 2003, when USTR*s responsibilities as co- chair of the
negotiations and host of the ministerial will intensify. The co- chair*s
formal tasks are considerable. They include

 coordinating with Brazil on a daily basis;  providing guidance and
management coordination to the FTAA

Administrative Secretariat;  providing guidance to the negotiating groups
and committees;  co- chairing TNC meetings;  co- chairing the TNC
Subcommittee on Administration and Budget, including setting the calendar
of meetings; and

 vice- chairing the Technical Committee on Institutional Issues. In
addition to the roles and responsibilities of the co- chair, another
factor placing additional demands on the USTR is the intensifying pace of
the negotiations during the final phase of negotiations. The goals for
this final phase are ambitious. In order to meet FTAA completion time
frames, participants aim to conclude negotiations in all nine trade
negotiating groups. However, initial market access offers are just
starting. FTAA participants must also agree on all issues currently under
brackets in the draft text. The U. S. *s goal is to have a largely clean
text by the end of 2003. To reach these goals, negotiations have been
scheduled for practically every day during the next 6 months.

Competing negotiating priorities, and their commensurate resource needs,
may also affect the USTR*s resources. Several U. S. negotiators told us
that what they primarily require to conclude an FTAA successfully is to be
able to focus on it with single- minded energy and determination. But
other

negotiations are competing for their time and attention. For example, the
USTR has notified Congress of its intent to pursue Free Trade Agreements
(FTA) with Central America, Australia, the South African Customs Union, 30
and Morocco and has started negotiations toward this end. Meanwhile, the

Doha Development Round of WTO negotiations involving 146 nations and a
similarly broad set of issues will officially be at the midpoint at the
September 2003 WTO ministerial. This ministerial is to be held in Cancun,
Mexico, only 2 months before the FTAA ministerial in Miami. Some of the
same USTR staff are involved in these concurrent negotiations. In
addition, negotiations with Chile and Singapore officially concluded at
the end of 2002, but the agreements must still be finalized and undergo
congressional approval.

Resources May Not Be Adequate In terms of resources, the U. S. team
negotiating the FTAA* though perceived as highly capable* is small and
stretched thin. Other nations we have contacted have had eight or more
staff working to fulfill FTAA chairmanship responsibilities. These staff
handle such demands as drafting negotiating schedules and documents and
providing regular coordination with other FTAA nations, negotiating
groups, and the FTAA Administrative

Secretariat. According to a USTR official, Brazil currently has six staff
dedicated to the co- chair function and plans to hire an additional three
in early 2003. Ecuador had eight people working on substantive issues and

30 A customs union including South Africa, Lesotho, Botswana, Namibia, and
Swaziland.

additional people working on logistics. Canada had eight people, with
access to others for special projects. Like past chairs, USTR has
dedicated some staff specifically to the co- chair function, while other
USTR staff work on advancing the U. S. position in the negotiations.
Presently, USTR has two staff working full- time on the day- to- day FTAA
co- chairmanship tasks. Two other staff members currently devote some of
their time to the co- chair function. USTR has been given an additional
slot for an FTAA director and plans to fill it with a permanent staff
member working fulltime on the co- chairmanship soon. In terms of support
by other agencies, the USTR presently is receiving little direct or
indirect assistance in fulfilling the U. S. *s co- chair responsibilities,
although a Justice Department detailee (person on loan to USTR) is one of
the two part- time co- chair staff and also helps with leading the U. S.
delegation, and a Department of State economic officer in Brazil has been
made available to assist in coordinating with Brazil on FTAA co-
chairmanship issues. As well, the Department of Commerce is temporarily
staffing one of the two full- time co- chair USTR positions.

With respect to overall personnel, USTR as a whole is relatively small*
having been set up to coordinate policy among and draw expertise from
executive branch agencies such as the Departments of State, Commerce,

Agriculture, and the Treasury. As past negotiations have become more
intense, other agencies have often provided staff on a nonreimbursable
*detail* (on loan) basis to augment USTR staff quickly. For example,
according to a USTR official, at the height of the Uruguay Round of WTO
negotiations, 45 staff from other agencies were detailed to USTR, versus
30 staff on detail now. These agencies have also given other support, such
as assigning staff to handle major aspects of USTR negotiations while
residing at their own agencies. USTR is hoping to resume the practice of
using such support and has begun seeking additional details from other
agencies. In mid- March, USTR announced that a senior Department of State
official will be loaned to the agency effective June 23, 2003, and will
advance U. S. positions in the negotiations as head of the U. S.
delegation to the FTAA*s TNC. Another State detailee is expected to be
provided this summer, to work full- time in the co- chair function.
However, caps on their

funding and other concerns may make other agencies reluctant to detail
additional people to USTR on a nonreimbursable basis. These agencies also
need lead time to make arrangements and identify staff with the requisite
expertise.

In discussions with us, several past FTAA chairs have warned that the
consequence of U. S. failure to adequately staff the co- chairmanship
could

be a slowdown of FTAA negotiations, which are, with the launch of market
access talks on February 15, 2003, reaching a critical juncture. Any
slowdown could make it difficult to achieve substantial results by the
November 2003 Miami ministerial.

Co- chairing with Brazil Is Many officials and trade experts view the idea
of the United States serving

Novel Situation as co- chair with Brazil as a bold and useful way of
providing the leadership

and commitment needed from two of the most important players at a crucial
time in the FTAA negotiations. At the same time, however, cochairing is
expected to be more difficult than chairing by a single country. All
decisions, both mundane and substantive, will have to be agreed to by both
countries. The co- chairmanship arrangement is novel because up until

now, only individual countries have acted as chairman of the FTAA process.
Officials at USTR told us that the operating vision is that the
cochairmanship will be a true partnership, with both countries making
decisions based on achieving consensus on every aspect of the process
throughout the 2 remaining years of negotiations. Such a true U. S.-
Brazil co- chairmanship may have certain advantages. For example, the fact
that

Brazil and the United States will be guiding the process simultaneously as
co- chairs during the final phase of negotiations could facilitate
consensus building. If either the United States or Brazil had singly
undertaken this responsibility, some members might not have perceived
their stewardship

as balanced. Some FTAA participants told us, however, that co- chairing
will be more difficult than chairing by a single country. One foreign
official speculated that if all decisions require consensus, the co- chair
structure would double the work and the time necessary to reach decisions
or perform tasks. A USTR official confirmed this view and stated that even
every letter has to be signed by both countries. Former FTAA chairs told
us that the two countries have very different interests in the FTAA and,
if such political considerations play a role in decision- making,
stalemates or further delays could result. Another foreign official told
us that differences in governmental structures and bureaucratic systems in
which the USTR and Brazil*s foreign ministry operate may also create
difficulties.

In addition to the operating difficulties, U. S. working relations with
Brazil are still uncertain. Brazil had been unwilling to discuss anything
more than the technicalities of the co- chairmanship until its new
President took office in January 2003. More recently, however, there have
been several working meetings in an effort to clarify Brazil*s views and
solidify working relations.

Moreover, the U. S. and Brazil co- chairs have taken steps to provide
active leadership and coordination of the negotiating process by, for
example, meeting with the chairmen of each FTAA negotiating group well in
advance of the April TNC meeting to identify issues requiring decisions or
guidance.

In meeting its responsibilities as co- chair for moving the process
forward, the United States will need to keep separate the interests of the
34 countries, or the process as a whole, from those of the United States
as negotiator. Brazil, for its part, will have three roles to keep in mind
* its

own negotiating positions, those of Mercosur, and that of the FTAA. Risks
to Successfully

The United States will host the Eighth FTAA Trade Ministerial in Miami in
Hosting November 2003

November 2003, just 7 months from now, a considerable responsibility. This
Miami Ministerial Have Not

ministerial is particularly significant because it occurs just a year
before Been Fully Mitigated

the slated conclusion of FTAA and WTO negotiations. The responsibilities
of an FTAA host are numerous and include several elements critical for a
successful event. Preparations for the ministerial are at an early stage,
however, and, if left unfilled, gaps in the current U. S. plans for
hosting the

ministerial pose risks to achieving a successful event. Risks that the
USTR has not yet fully mitigated include its inexperience in hosting a
major ministerial meeting, working with plans that have not been fully
defined, counting on funding that has not been secured, and arranging
security for numerous participants and protesters. Failure to address any
of these risks could undermine the success of the meeting. These same
kinds of risks also contributed to serious problems at the last major
trade ministerial that the United States hosted, the 1999 Seattle WTO
ministerial. USTR and the Miami organizers recognize that intense U. S.
efforts will be necessary to fill these gaps.

To evaluate USTR*s readiness to perform as host, we undertook a three-
part analysis. First, we obtained information about the formal
responsibilities of FTAA host countries from USTR. We also obtained
official documents of the FTAA and held conversations with past FTAA
hosts, the results of

which are reported in the first section below. Second, we solicited advice
from persons with experience in planning and conducting such meetings,
including responsible officials of past FTAA host nations, former USTR
officials involved in planning the Seattle WTO ministerial, and officials
at the State Department*s Office of International Conference Planning and
Economics Bureau. These officials had been involved in planning past trade
ministerials hosted or attended by the United States, as well as other
international conferences. Through these interviews with *cognizant

officials,* we identified factors critical for success as well as
suggestions for steps USTR could take to adequately prepare for its
responsibilities as host of the November FTAA ministerial. Third, we
obtained information about the state of USTR preparations for the November
FTAA ministerial

through interviews with responsible officials and reviews of available
documentation from USTR and Miami concerning timelines, plans, budgets,
guidance, and organization. In addition, as it became clear that

USTR was relying heavily on the Miami organizing group for fulfilling key
requirements, we discussed the status of their efforts with both the
executive director and the chairman of the board of that group, as well as
with officials of Florida FTAA. This information on the actual status of
U. S. FTAA ministerial plans follows our initial discussion of
responsibilities and requirements for hosting the ministerial.

Responsibilities of the Host of an Executing the many responsibilities of
an FTAA ministerial host is critical,

FTAA Ministerial Are Numerous given the importance of ministerial meetings
in the negotiations. These meetings of trade ministers from the 34 FTAA
member countries provide

political guidance and impetus to the negotiating process. The November
meeting in Miami is particularly important, because it is the last
ministerial before the talks* conclusion and will occur just 13 months
before the January 2005 deadline set for FTAA nations to conclude the
talks. At the Miami ministerial, the range of issues facing ministers may
be complex, requiring political guidance from the ministers in order to
move forward.

Furthermore, because issues that are important to key FTAA participants,
such as agriculture, are tied up in WTO talks, the extent of progress at
the WTO ministerial in September 2003 may result in an overall
reassessment of the FTAA*s scope and timeline.

The host of an FTAA ministerial has numerous complex responsibilities.
These responsibilities are detailed in a 29- page, single- spaced document
that the FTAA Administrative Secretariat prepared. The host is generally
responsible for providing facilities, transportation, and security for
both the ministerial and the Trade Negotiations Committee meeting, a
meeting of vice ministers that precedes the ministerial. In addition, a
separate forum for the business community typically accompanies FTAA
ministerials. Civil society groups also held a forum at the Quito
ministerial. Each of these events involves hundreds of people, including
many highlevel

officials requiring appropriate protocol and special security measures.
Further, hosts are required to provide simultaneous translation during all
of the negotiations and the other meetings, including immediate
distribution of written documents to delegates.

Coordination and security during all these activities is complex. For
example, the business community and civil society groups were given the
opportunity to provide input to the ministers at Quito. However, managing
the participation of the business community and civil society groups and

ensuring consideration of their views remain challenges. For example, at
the Quito ministerial, both the business community and civil society
groups prepared recommendations to be presented to the ministers. The
structure and length of the business community presentation, however, made
it difficult for ministers to take in all the input that the business
community had prepared. Nevertheless, compared with the business
community*s presentation, the civil society groups* presentations were
chaotic. Protesters in the audience disrupted the presentation, and
serious security

concerns arose, as many protesters were very vocal and, in one case,
threatened a presenter. In fact, the final presenter was unable to speak
over the noise, and the presentation ended with an unceremonious exit of
the

ministers out a side door. A key goal of the Miami organizers is to make
the presentations at this November*s separate business and civil society
forums more targeted, timely, and orderly so they can be factored into
ministerial

deliberations. The task of the United States as host is especially
complex, because it is now standard practice to rely on host cities to
supply most of the resources associated with conducting international
meetings held here, according to a Department of State official. As a
result, USTR must coordinate actively with local officials and oversee
host city preparations to ensure they are satisfactory. It is also
essential to begin planning early for the ministerial, according to
officials with experience in planning similar events.

Several Factors Critical to Our discussions with cognizant officials
suggest that hosts must have

Success; Certain Steps several basic factors in place to fulfill the
responsibilities outlined above

Recommended (see fig. 7). Particularly important is having (1) experienced
staff capable of

bringing together all the different components including logistics,
budgeting, and procurement; (2) a plan that clearly sets forth roles,
responsibilities, and timelines; (3) access to funds to pay for expenses;
and (4) assurance of adequate security. This latter item must be
paramount, given the antiglobalization protests that have accompanied past
FTAA and other trade ministerials, and the heightened concerns over
terrorism.

Figure 7: Keys to a Successful Ministerial Keys to a Successful
Ministerial

Experienced and capable staff A plan that clearly set forth roles,
responsibilities, and timelines

Access to adequate funds Ample security for participants

Source: GAO.

The U. S. Department of State does not have written guidance on how to
plan such events, according to a State official. However, in discussing
the November FTAA meeting, cognizant officials with experience in planning
similar meetings, including former USTR officials, have offered the
following suggestions for hosting a successful event. Essential to such an
event would be

 consulting previous FTAA hosts in order to define requirements and
responsibilities;  clearly defining the roles and responsibilities of the
host city and the federal government, preferably through a memorandum of
understanding;

 creating a budget for the event;  assuring that adequate funding is
available through monitoring of host

city fund- raising and requesting agency appropriations if necessary; and
 getting assistance from the Department of State, other federal agencies,

and/ or a management firm with experience in planning major events. Gaps
in USTR Preparations Pose

Successful U. S. execution of the November 2003 FTAA ministerial requires
Risks

intense preparations to fill remaining gaps in current U. S. preparations
in the areas of expertise, planning, funding, and security. While USTR has
lead responsibility for the ministerial, USTR has little experience in
planning

trade ministerials, and it is receiving limited assistance from other
agencies with expertise in planning major international diplomatic events,
due to resource constraints. Funding has not been secured: As of March 27,
a final budget for the event does not exist, local fund- raising has just
begun, and no federal agencies have received funding for the FTAA
ministerial meeting

in Miami. As well, security will be critical because the estimated number
of protesters ranges from 20,000 to 100,000 people. Although the USTR*s
current plans for hosting the ministerial address several of these

challenges, they do not fully mitigate the risks we identify.

USTR Lacks Experience, but Miami Organizers Have Track Record as Host

USTR has never had sole responsibility for planning a major trade
ministerial hosted by the United States. The last trade ministerial that
the United States hosted was the Seattle WTO ministerial in 1999. There,
USTR received substantial assistance from Department of State officials
with past experience in planning major international meetings as well as
from the WTO*s Conference Services Department. Even so, financial and
security concerns not fully mitigated before the event caused serious
logistical and security problems and higher- than- expected costs. These
problems included bitter disagreements with the host city over roles and
responsibilities, jeopardizing key logistical arrangements such as
transportation and build- out of the convention center; costs that far
exceeded initial estimates; and security lapses that delayed sessions, put
delegates at risk of physical harm, and caused extensive property damage.

Furthermore, the agency has relatively little experience in this area.
Currently, USTR has four permanent staff working part- time on planning
the FTAA ministerial, with others at USTR assisting. One of these staff
has significant experience in logistics, security, and administration, and
that person has been put in charge of these areas for the Miami FTAA
ministerial. Although other USTR staff have been involved in arranging U.
S. participation in trade ministerials held abroad, hosting a trade
ministerial is

much more complicated than arranging U. S. participation. The host is
responsible for all aspects of the meeting, not just its own delegation.

Furthermore, this gap in experience is not being overcome by receiving
assistance from other agencies with the necessary expertise, according to
USTR officials. The USTR has requested State*s assistance in planning the

Miami ministerial, and discussions on specific assistance State can
provide are ongoing. The State Department reports that it is trying to
respond

positively to assistance requests where possible, given its own budgetary
constraints. One of the reasons for State*s reluctance to help is that its
budget for participation in international conferences has been cut. In
fiscal year 1995, State was receiving $6 million for participation in
international

conferences. By fiscal year 1999, this appropriation had been
discontinued, with no commensurate increase to USTR*s budget for trade
meetings. The Department of State has suggested that USTR consider hiring
a management firm, but USTR has not budgeted for that expense and does not
believe that hiring an outside firm would provide cost benefits for the
agency.

With little assistance from State or elsewhere, 31 and limited experience
in hosting major events, USTR plans to rely heavily on Miami*s expertise
to carry out the November 2003 meeting. Miami has considerable expertise
in hosting major events. The city has hosted numerous major sporting
events such as Super Bowls and Orange Bowls. Importantly, Miami hosted the
1994 Summit of the Americas, which involved 34 heads of state and started
the process of creating a Free Trade Area of the Americas. According to
the Miami organizing group, the summit was successful. The organizers of
that meeting used an arrangement similar to that of the upcoming Miami
ministerial, where a combination of private and public funds paid for the
summit and local organizers took the lead in making logistical
arrangements. The person responsible for planning the Summit of the
Americas is the same one who is leading the Miami organizing group for the
November FTAA ministerial. This individual also coordinated U. S.
participation in the April 2001 Summit of the Americas in Quebec City. He
is familiar with FTAA events by virtue of attendance at several of the
FTAA ministerials that have been held thus far as well as the associated
Americas Business Forums. He recently held a 2- day meeting in Miami with
all seven previous FTAA/ Americas Business Forum hosts to obtain
information and

advice, and these past hosts have also agreed to provide the Miami
organizers with ongoing advice. Moreover, Miami also has the necessary
infrastructure in place to host major events, according to the organizing
group. In addition to having experienced staff, Miami also served as the
site of FTAA negotiations from 1998 to 2001. However, this experience was
not entirely positive, and lessons learned from this experience have been

31 The State Department has committed to providing one administrative
officer for 2 weeks prior to the conference and to provide an
administrative officer to assist during the ministerial meeting. It has
also agreed to providing advice and guidance to USTR and to share lessons
learned from past experience.

incorporated into the planning for the Miami ministerial, according to
USTR.

While Miami does have expertise, an official from the Miami organizers
informed us that they would like a full- time staff person from the
federal government to be detailed to Miami in a liaison capacity as soon
as possible to work with the Miami organizers (as had been done for the
Summit of the Americas). The liaison would, among other things, formalize
the shared responsibility for the event and augment coordination between
federal and local authorities. The desire for a locally based federal
liaison was based on the assumption that the workload, and hence need for
intense coordination, would increase as the ministerial drew closer.

Plans for Ministerial in Early Both the federal government*s and Miami*s
plans for hosting the November

Stages 2003 ministerial are in early stages as of March 1, 2003. To get a
sense of the general timeline to keep in mind when planning the November
FTAA

meeting in Miami, we interviewed cognizant officials who served as former
hosts at FTAA ministerial meetings, officials at State, and former USTR
officials. These officials indicated that planning for a November
ministerial usually begins in January. Implementation of the plan should
begin in March, with an acceleration of plans in October shortly before
the ministerial. USTR officials responsible for planning the FTAA
ministerial agreed on this general timeline, and, citing specific areas of
progress, believe they are *on track* as of March 26, 2003.

On the federal government side, USTR has obtained a guide that the FTAA
Administrative Secretariat prepared for host countries detailing the basic
logistical requirements of a ministerial. USTR is using this guide to plan
the FTAA ministerial in Miami. USTR has also prepared a timeline for
security, logistical, and administrative services for Miami to use in
planning the event. A rough division of labor between the federal
government and the host city appears to have been agreed upon, whereby the
host city will take care of most logistical arrangements, and USTR staff
will provide guidance and oversight of security, logistics, and
administrative issues through regular contact with and visits to Miami. In
addition, USTR plans to draft some guidance documents, such as the
memorandums of understanding that will be signed between the host
committee and the entities to be contracted with for services.

On the host city side, Miami has formed a group to organize the
ministerial and the Americas Business Forum. This group became operational
in February 2003 and has hired an executive director for the FTAA
ministerial

planning effort. Several staff for the organization are now on board, and
more are expected. The executive director has put together a management
committee to organize the meeting. The Miami organizing group reports that
it has established an extensive support network of partners from both the
public and the private sectors and is already receiving in- kind staff
support from several municipalities. It plans to utilize contractors and
volunteers to supplement these resources as appropriate. The group has
also created a fund- raising committee specifically to raise funds for the
Miami ministerial, according to a Miami organizer.

Some of the specific tasks identified in the FTAA guidelines have been
accomplished, and more are in process. For example, in terms of
accommodations for delegates and meeting space, locations have been
selected and reserved, rates negotiated, and registration arrangements
established. Several transportation arrangements have been made, although
important details must still be ironed out.

Despite this progress, the USTR and Miami both agree that much remains to
be done between now and the November 2003 ministerial. Among other things,
a budget that clearly outlines funding sources and responsible parties
must be finalized; meeting space configured; a security plan developed;
and arrangements for providing credentials, translation,

administrative support, and other services made. For example, requirements
for telecommunications, computer, audiovisual, and related equipment must
be finalized and needed equipment and services obtained. The FTAA
Administrative Secretariat requires the United States to provide

it and delegates with details of the U. S. arrangements for the November
FTAA ministerial by late September 2003. Making all of the required
arrangements by then will require intense preparations on the part of both
the USTR and Miami officials, both agree. Executing the plan and updating
it as necessary will occupy officials between mid- September and November
2003.

Funding Has Not Been Secured, and Funding Responsibilities Are Still
Unclear

Serious risks are involved in the USTR*s plans to rely on the host city to
assume responsibility for the majority of the costs. Although some
requirements can be met through in- kind contributions, securing necessary
funds generally requires considerable lead time, and expenses that require
an outlay of funds are expected to be incurred within the next 2 months.
No federal agency has received funding for this event. The organizing
group

does not yet have a final budget and has just begun fund- raising,
although USTR and the Miami organizers anticipate that a budget will be
finalized and funding responsibilities will be clarified by mid- April.
Relying on the host city to pay the majority of the costs is a model the
United States has followed at past summits and trade ministerials where a

host committee, or an organizing group composed of local representatives
associated with the host city, paid for the majority of the costs. Miami
worked with this model when it hosted the 1994 Summit of the Americas.
Some experiences with host committees have been unsuccessful, however.

For example, at the 1999 Seattle WTO ministerial, decisions to rely on the
host committee and the committee*s ultimate failure to raise sufficient
funds caused problems at the meeting. In addition, costs kept escalating
as year- long planning efforts continued, ultimately reaching $24 million.
This amount is considerably higher than the December 1998 budget of $9
million. Financial shortfalls resulted in part from inherent difficulties

that USTR encountered in having a private group fund the Seattle
ministerial. For example, the Seattle organizers were not permitted to
sell tickets to donors or recognize contributions (similar rules will
apply for the host committee in Miami). The Seattle host committee
ultimately fell far short of its fund- raising goals and only paid for
one- fourth of associated costs. The local, state, and federal governments
paid the remainder, with

the local and state governments covering the bulk of these costs, or
around $17 million. To satisfy the federal government*s share, the USTR
requested a $1.3- million supplemental appropriation that was shared
between USTR and the State Department. The State Department paid an
additional $1.2 million, and the city of Seattle also received a $3.8-
million partial reimbursement from the federal government to help defray
its substantial costs; these costs were for security only. Thus, all told,
the federal government ended up paying $6.3 million for the Seattle WTO
ministerial, an event that is admittedly larger in scale than the FTAA
ministerial.

No federal agency has yet received funding for the FTAA ministerial. The
USTR has only requested $200,000 for the FTAA ministerial, but this is in
the fiscal year 2004 budget year that begins October 1, 2003. At a
minimum,

USTR will have to pay for the expenses of its staff participating in the
event, for setting up and staffing a fully equipped *control room** an
office in which U. S. delegates can work* for basic translation services,
and for certain aspects of security. To minimize some expenses, USTR will
utilize computers and other equipment procured for the Cancun WTO
ministerial to set up control rooms at the Miami FTAA ministerial. USTR
has asked the Office of Management and Budget (OMB) to submit a request

for a $1.3- million supplemental appropriation for this WTO- related
procurement, but OMB has not yet approved this request.

Furthermore, USTR has no back- up plan in the event that its costs exceed
the amount it has requested or the host city does not meet its fund-
raising goals. For example, the USTR plans to ask other federal agencies
participating in the ministerial to pay for their own expenses. This
approach has been used in past ministerials, such as the Doha WTO
ministerial, with mixed success. At Doha, for example, USTR ultimately
absorbed nearly $1 million in costs after other agencies withdrew or
failed to provide pledged funding. In terms of the financial support
expected from Miami, USTR has sought to forestall any possible funding
difficulties

through an agreement with the Miami organizers on a series of fund-
raising principles and periodic status reports from Miami on the amounts
of money raised. Miami will rely on its business community as well as on
state and local government contributions in kind and in cash to meet its
fund- raising goals. The four municipalities involved have drafted a
memorandum of understanding regarding their financial support of the
meeting under which they agree to provide in- kind and cash support
according to a yet- to- be specified formula. 32 However, this agreement
allows signatories to withdraw from the arrangement if they determine that
they can no longer financially participate. As yet, the Miami organizing
group has not finalized its fund- raising goals or begun fund- raising in
earnest. However, the USTR and the Miami organizers have told us that the
committee has a strategy for raising needed contributions and will meet
its fund- raising goals.

Another key risk facing USTR at the Miami meeting is unclear funding
responsibilities. USTR has stated that Miami will provide the vast
majority of funds for the ministerial. One Miami official said that in
broad terms they agree Miami will shoulder the majority of costs. However,
the Miami organizers believe the federal government will also assume some
financial responsibility for the ministerial because, in their view the
ultimate host of the ministerial is the federal government, not the Miami
organizers. One way to clarify these misunderstandings over
responsibilities is through a memorandum of understanding. Department of
State officials involved in the Seattle WTO ministerial and other major
events emphasized the

importance of documenting financial responsibilities in order to avoid
disagreements over costs later on. However, USTR has decided not to sign

32 The four municipalities involved are the city of Miami, the county of
Miami- Dade, the city of Coral Gables, and the city of Miami Beach.

a memorandum of understanding with the Miami host committee assigning
financial responsibilities. Instead, it plans to rely on Miami*s desire to
be the site of the permanent FTAA Administrative Secretariat as incentive
enough to raise the necessary funds and carry out the logistical and
security requirements for hosting the ministerial. The Miami organizers
also do not feel that a memorandum of understanding with the federal

government is necessary. Instead, both parties have agreed to use the
budget development process to identify funding sources and apportion
financial and logistical responsibilities. This breakdown has not been
prepared but is being worked on. Security Is Critical

Another key risk the United States will face in Miami is ensuring the
security of participants, given the extensive security requirements of
previous trade ministerials and the protests encountered at these and
other

events that have attracted opponents of globalization. At Genoa, Italy,
for example, a protestor was killed during antiglobalization protests.
Also, at the FTAA ministerial in Quito, a child was killed during the
protests. Estimates for the number of protesters expected at Miami range
from

20, 000 to 100,000 people, according to both the USTR and the Miami
organizers. USTR expects around 6,000 participants, compared to 9,000
participants and 50,000 protesters at the Seattle WTO ministerial. In a
February 2000 report on the November 1999 Seattle WTO ministerial, 33 we
noted that protests interfered with the Seattle ministerial by causing
delays and disrupting the proceedings. Protesters also threatened and in
some cases assaulted delegates. Furthermore, protesters, police officers,
and

bystanders were injured, and property was damaged. In Seattle, the city*s
decision to stop providing security was a factor in forcing the meeting to
close before its scheduled conclusion. According to USTR officials, the
need to link logistics and security is an important lesson learned after
the security problems experienced at the Seattle ministerial and is a
critical component of the planning for the Miami event. At the Seattle
ministerial, security costs accounted for

approximately half of the expenses incurred, in part because security had
not been factored into logistical arrangements from the beginning,
according to the USTR. USTR*s present goal is to have a security plan 33
See U. S. General Accounting Office, World Trade Organization: Seattle
Ministerial:

Outcomes and Lessons Learned, GAO- 00- 86 (Washington, D. C.: Feb. 10,
2000).

finalized by May 30, 2003. However, the plan will remain flexible
thereafter as it is updated to reflect the latest information. Security
staffing for the event will also need to be arranged. So far, the USTR
reports that local police will provide security at the event. According to
the Miami organizers, police security services will be provided in kind,
using existing staff and resources rather than relying on fund- raising to
pay for security. Other entities involved in providing security include
the U. S. Coast Guard and the Department of State*s Bureau of Diplomatic
Security. If certain high- level officials attend, the Secret Service and
Homeland Security will need to be involved. Further, the federal
government will be responsible for providing information security.

Conclusions Negotiations toward achieving an FTAA face an important test
in the coming year. Despite 4 years of talks and an acceleration of
progress by the time of the November 2002 Quito ministerial, considerable
work remains in

order to culminate an initiative that the region*s 34 democratically
elected leaders once embraced as key to integrating their economies;
improving growth and equity; and strengthening nascent democratic
institutions. With a January 2005 deadline for completion, the FTAA faces
numerous challenges in the current phase. These include making progress on
key issues such as agriculture and starting market access negotiations in
earnest. Ensuring that negotiations have sufficient political support from
key players such as the United States and Brazil also remains a challenge.
Our work suggests that the U. S. *s readiness to co- chair the
negotiations and

host a major trade ministerial in Miami 7 months from now is not assured
because, to date, the plans and human and financial resources are not in
place to complete the required duties and to counter likely risks. Filling

these gaps is critical to success and will require intense preparations on
the part of USTR and Miami organizers between now and November.

Recommendation for In order to successfully carry out the responsibilities
involved in cochairing

Executive Action the Free Trade Area of the Americas negotiations and
hosting the

November 2003 Miami ministerial, we recommend that the USTR intensify U.
S. preparations and promptly and regularly evaluate whether current
resources and plans are sufficient to carry out the tasks and mitigate the
risks associated with these two responsibilities. The risks we have
identified are (1) handling the increased workload associated with
cochairing the negotiations and hosting the Miami ministerial with limited
staff at USTR, (2) resolving procedural and substantive issues through the

co- chairmanship, (3) acquiring sufficient expertise in planning major
events, (4) clarifying and further developing plans for the Miami
ministerial, (5) securing sufficient funding for the ministerial, and (6)
ensuring the security of participants at the ministerial. Several of these
resources and plans involve allowing significant lead time, which the USTR

should take into consideration. Agency Comments and

We provided draft copies of this report to the Office of the U. S. Trade
Our Response

Representative and the Department of State and received formal comments
from both agencies (see apps. I and II). They also provided technical
comments, which we have incorporated in the report as appropriate.

USTR and State generally agreed with our overall message. USTR stressed
that it is committed to successfully concluding an FTAA by January 2005
and hosting the November 2003 ministerial and expressed belief that plans
for the ministerial are at an appropriate stage of development. USTR also
noted various steps it has recently taken to address the challenges ahead
in the FTAA negotiations and for ministerial preparations. Accordingly, we
have updated our report, citing specific progress that USTR has made in
this regard. For example, we noted that the USTR is working with Brazil to
provide more active leadership and coordination to the negotiating process
and that venues for the ministerial and associated events have now been
reserved. We also noted that the Miami organizing group has established an
extensive network of partners from the public and the private sectors to

provide support. Nevertheless, we maintain our basic findings and
recommendation.

The Department of State addressed the issue of assistance to USTR by
saying that it is trying to be as helpful as it can within the constraints
of its available resources. We have noted that in our report.

In addition to formal agency comments, the Miami host committee was
invited to provide comments on the report. It generally agreed with our
findings and provided several clarifications, which we incorporated.

Scope and To conduct our analysis of the progress made in the negotiations
on

Methodology creating a Free Trade Area of the Americas and the outcome of
the Quito

ministerial meeting, the key challenges for the current negotiating phase,
and the U. S. challenges associated with co- chairing the FTAA process and

hosting the November 2003 Miami ministerial meeting, we reviewed FTAA and
executive branch documents on the FTAA negotiations and the U. S.
preparations for roles as co- chair of the negotiations and host of the
Miami ministerial, and budget documents from USTR for 2002 and 2003. We
also reviewed academic and economic literature related to the
negotiations. We conducted interviews with U. S. negotiators and with
foreign government

officials, including officials who have chaired the FTAA negotiations in
the past. We also held discussions with multilateral institutions that
provide technical assistance to the FTAA negotiations, including the
Organization of American States, the Inter- American Development Bank, and
the

Economic Commission for Latin America and the Caribbean. We attended
public hearings on the FTAA and spoke with professional scholars and other
experts familiar with the negotiations. In November 2002, we traveled

to Quito, Ecuador, to attend the Americas Business Forum and a civil
society group meeting associated with the FTAA ministerial. This report is
also based on our past work on the FTAA negotiations in the Western
Hemisphere (see Related GAO Products).

We conducted our work from July 2002 through March 2003 in accordance with
generally accepted government auditing standards.

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 of this report to
interested congressional committees, the U. S. Trade Representative, the
Secretary of State, the Administrator of the U. S. Agency for
International Development, the Secretary of the Treasury, the Secretary of
Agriculture, and the Secretary of Commerce. We also will make copies
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 at (202) 512- 4347. Additional GAO contacts and staff acknowledgments
are listed in appendix III. Loren Yager Director, International Affairs
and Trade

Appendi xes Comments from the Office of the U. S. Trade

Appendi x I Representative

Appendi x II Comments from the Department of State

Appendi x III

GAO Contacts and Staff Acknowledgments GAO Contacts Kim Frankena (202)
512- 8124 Venecia Rojas Kenah (202) 512- 3433 Staff

In addition to the individuals named above, R. Gifford Howland, Rona
Acknowledgments

Mendelsohn, Kirstin Nelson, Jon Rose, and Marc Molino made key
contributions to this report.

Related GAO Products

Free Trade Area of the Americas: Negotiators Move Toward Agreement That
Will Have Benefits, Costs to U. S. Economy. GAO- 01- 1027. Washington, D.
C.: September 7, 2001.

World Trade Organization: Early Decisions on Key Issues Vital to Progress
in Ongoing Negotiations. GAO- 02- 879. Washington, D. C.: September 4,
2002.

Free Trade Area of the Americas: April 2001 Meetings Set Stage for Hard
Bargaining to Begin. GAO- 01- 706T. Washington, D. C.: May 8, 2001.

Free Trade Area of the Americas: Negotiations at Key Juncture on Eve of
April Meeting. GAO- 01- 552. Washington, D. C.: March 30, 2001.

World Trade Organization: Progress in Agricultural Trade Negotiations May
Be Slow. GAO/ T- NSIAD- 00- 122. Washington, D. C.: March 7, 2000.

World Trade Organization: Seattle Ministerial: Outcomes and Lessons
Learned. GAO/ T- NSIAD- 00- 86. Washington, D. C.: February 10, 2000.

World Trade Organization: Seattle Ministerial: Outcomes and Lessons
Learned. GAO/ T- NSIAD- 00- 84. Washington, D. C.: February 8, 2000.

Agricultural Trade: Changes Made to Market Access Program, but Questions
Remain on Economic Impact. GAO/ NSIAD- 99- 38. Washington, D. C.: April 5,
1999.

(320139)

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a

GAO United States General Accounting Office

USTR, which is responsible for co- chairing the Free Trade Area of the
Americas negotiations and hosting the November 2003 ministerial meeting,
faces challenges to its readiness to assume these responsibilities. During
the current negotiating phase, achieving improved market access for the 34
nations is paramount. It may be difficult, however, for participants to
make ambitious offers to lower tariffs and other trade barriers. Another
challenge involves the resolution of issues such as subsidies for
agriculture. The resolution of this issue has been linked to ongoing
negotiations at the World

Trade Organization, but these talks are bogged down. A further challenge
is ensuring the momentum and the political will of the United States and
Brazil to move the process forward to a timely completion by January 2005.
As co- chair of the negotiations, USTR also faces risks to assuring its
readiness as host of the November ministerial. First, USTR has little
experience in hosting a major ministerial meeting, and its staff remains
small and is stretched thin. Second, plans for the meeting are at an early
stage, and much remains to be done. Third, USTR is counting on funding
that has not yet been secured. And finally, USTR is likely to encounter
protestors at the November ministerial. Factoring security for the invited
participants into the logistical arrangements for the ministerial is a
prime concern. Free Trade Area of the Americas (FTAA) Time Frames and
Milestones, 2002- 2005

Establishing a 34- nation Free Trade Area of the Americas agreement has
been under negotiation since 1998. This agreement would eliminate tariffs
and create common trade and investment rules for these nations. Most

recently, the United States, along with Brazil, assumed the leadership of
the negotiations. GAO was asked

to analyze (1) the challenges for the current negotiating phase, which
will include a ministerial meeting in Miami, Florida, in November 2003;
and (2) the U. S. *s readiness to serve as co- chair of the negotiations
and

host of the November 2003 ministerial.

The Office of the U. S. Trade Representative (USTR) should intensify
preparations and regularly evaluate whether current resources and plans
are sufficient to carry out the tasks and mitigate the risks

associated with its responsibilities as co- chair of the negotiations and
host of the November ministerial. These are related to USTR*s (1)
increased workload, (2) planning for the ministerial, (3) funding

sources, and (4) security needs at the ministerial. USTR and the
Department of State generally agreed with GAO's message but sought
amplification on certain issues.

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 560. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact Loren Yager at (202) 512- 4347, or YagerL@ gao. gov.
Highlights of GAO- 03- 560, a report to the

Chairmen, Senate Committee on Finance, and House Committee on Ways and
Means

April 2003

FREE TRADE AREA OF THE AMERICAS

Negotiations Progress, but Successful Ministerial Hinges on Intensified U.
S. Preparations

Page i GAO- 03- 560 Free Trade Area of the Americas

Contents

Contents

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Appendix I

Appendix I Comments from the Office of the U. S. Trade Representative

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Appendix I Comments from the Office of the U. S. Trade Representative

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Appendix II

Appendix II Comments from the Department of State

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Appendix III

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