Free Trade Area of the Americas: United States Faces Challenges  
as Co-Chair of Final Negotiating Phase and Host of November 2003 
Ministerial (13-MAY-03, GAO-03-700T).				 
                                                                 
Since 1998, the 34 democratic nations of the Western Hemisphere  
have been negotiating a Free Trade Area of the Americas agreement
to eliminate tariffs and create common trade and investment rules
for these nations. The United States will co-chair, with Brazil, 
the final phase of the negotiations, due to conclude in January  
2005. GAO was asked to (1) review challenges that the United	 
States faces as co-chair of the final negotiating phase and (2)  
discuss risks that the United States may encounter, as host, in  
Miami, of the November 2003 ministerial meeting.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-700T					        
    ACCNO:   A06891						        
  TITLE:     Free Trade Area of the Americas: United States Faces     
Challenges as Co-Chair of Final Negotiating Phase and Host of	 
November 2003 Ministerial					 
     DATE:   05/13/2003 
  SUBJECT:   Foreign trade agreements				 
	     Foreign trade policies				 
	     International agreements				 
	     International trade				 
	     International trade regulation			 
	     Free Trade Area of the Americas			 
	     Agreement						 
                                                                 

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GAO-03-700T

Testimony Before the Subcommittee on International Trade, Committee on
Finance, U. S. Senate

United States General Accounting Office

GAO For Release on Delivery Expected at 2 p. m., EDT Tuesday, May 13, 2003
FREE TRADE AREA OF

THE AMERICAS United States Faces Challenges as Co- Chair of Final
Negotiating Phase and Host of November 2003 Ministerial

Statement of Loren Yager, Director International Affairs and Trade

GAO- 03- 700T

The United States faces several challenges as co- chair of the final phase
of Free Trade Area of the Americas negotiations. First, USTR, which is
responsible for co- chairing these negotiations and hosting the November
2003 ministerial, has not added appreciably to its staff, despite the
sharply increased workload. Second, the goals of this phase* such as
achieving improved market access for the 34 nations* are ambitious and
will require

serious, substantive trade- offs. Finally, the negotiations are proceeding
on the same timeline as several other complex trade negotiations involving
the United States. In fact, the resolution of a key issue, agricultural
subsidies,

has been linked to ongoing negotiations in the World Trade Organization.
Currently, these negotiations are bogged down.

Moreover, important risks are already apparent in current U. S. plans for
hosting the November 2003 Miami ministerial meeting. Gaps exist in several
key areas important to successfully hosting a major trade ministerial. For
example, USTR has limited experience in planning and providing logistics
for such a meeting. Furthermore, USTR is getting little support from other
federal agencies. In addition, no federal agency has yet received any
funding for the November event, which is projected to cost $10 million.
Finally, USTR is likely to encounter protestors at the November
ministerial. Failure to link security, funding, and logistics at a prior
ministerial caused serious problems for the organizers of that event.

Contrasting Events Surround 2002 Quito Ministerial Meeting

Members of Americas Business Forum meet inside during 2002 Quito
Ministerial (left) as police secure outside area against anti- FTAA
demonstrators.

Source: GAO (left photo) and Centro de Medios Independientes de Ecuador.
Used with permission. Since 1998, the 34 democratic nations of the Western
Hemisphere have been negotiating a Free Trade Area of the Americas
agreement to

eliminate tariffs and create common trade and investment rules for these
nations. The United States will co- chair, with Brazil, the final phase of
the negotiations, due to conclude in January 2005. GAO

was asked to (1) review challenges that the United States faces as cochair
of the final negotiating phase and (2) discuss risks that the United
States may encounter, as host, in Miami, of the November 2003 ministerial
meeting.

The Office of the U. S. Trade Representative (USTR) should intensify U. S.
preparations and regularly evaluate whether

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.

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 700T. 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- 700T, a testimony

before the Subcommittee on International Trade, U. S. Senate Committee on
Finance

May 13, 2003

FREE TRADE AREA OF THE AMERICAS

United States Faces Challenges as CoChair of Final Negotiating Phase and
Host of November 2003 Ministerial

Page 1 GAO- 03- 700T Free Trade Area of the Americas

Mr. Chairman and Members of the Subcommittee: I am pleased to be here
today to discuss the readiness of the United States to successfully
perform as co- chair (with Brazil) of the Free Trade Area of the Americas
negotiations process and host of the November 2003 ministerial meeting. As
you know, work on the Free Trade Area of the Americas, or FTAA, agreement
is one of the most significant ongoing trade negotiations for the United
States. In fact, the Bush administration has made establishing the FTAA
one of its top trade priorities. Negotiations toward establishing this
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.
The final phase of FTAA negotiations began last November and is scheduled
to conclude with the completion of the agreement in January 2005. Today, I
will first review the challenges that the United States faces, as co-
chair of this final phase of FTAA negotiations. Second, I will discuss the
risks that the United States may encounter as host of the November
ministerial in Miami.

My testimony is based on our recently published report on this subject. 1
It is also based on our past and ongoing work on the FTAA negotiations
process. 2 The United States faces several challenges as co- chair of the
final phase of the FTAA negotiations. First, the Office of the U. S. Trade
Representative

(USTR), which handles the negotiations, has not added appreciably to its
staff, despite the sharply increased workload and responsibilities
associated with co- chairing the FTAA negotiations. Second, the goals of
this negotiating phase are ambitious and may be difficult to achieve. For
example, FTAA negotiations on market access commitments* considered the
*heart* of an agreement* will require serious trade- offs among the

1 See U. S. General Accounting Office, Negotiations Progress, but
Successful Ministerial Hinges on Intensified U. S. Preparations, GAO- 03-
560 (Washington, D. C.: Apr. 11, 2003). 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); and
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). Summary

Page 2 GAO- 03- 700T Free Trade Area of the Americas

participating nations. In addition, finalizing the FTAA agreement will
require the 34 participating nations to bridge wide, substantive
differences on topics such as investment and intellectual property.
Finally, FTAA negotiations are taking place at the same time as several
other complex trade negotiations that often involve the same issues and
staff. Indeed, the resolution of key issues for the hemisphere, such as
agricultural subsidies,

has been linked to negotiations in the World Trade Organization (WTO) that
are presently bogged down.

Although current U. S. plans for hosting the FTAA Trade Ministerial in
Miami in November 20 and 21, 2003, are at an early stage, important risks
are already apparent. Officials with prior experience in hosting
ministerial meetings told us that certain key elements must be in place
soon to successfully host a major trade ministerial, notably experienced
staff, a clear plan, sufficient funding, and adequate security. However,
our examination of agency records and other documents reveals that current
U. S. plans leave gaps in several of these areas. For example, USTR has
sole responsibility for all facets of planning and logistics, a complex
task. However, USTR has limited institutional experience in this area and
is getting little support from other federal agencies, such as the
Department of State. In addition, although current estimates are that the
FTAA ministerial will cost $10 million, no federal agency has yet received
any funding for this event, and the local organizers are just beginning
fundraising efforts. Failure to mitigate similar risks caused serious
logistical and security problems at the last major trade ministerial
hosted by the United States, the 1999 Seattle WTO ministerial. 3 In our
report, we recommend that USTR intensify preparations and

regularly evaluate whether its resources and plans are sufficient to
successfully carry out the tasks and mitigate the risks associated with
cochairing the FTAA negotiations and hosting the November 2003 ministerial
meeting.

In commenting on our report, USTR and the Department of State agreed with
our overall message. However, USTR stressed that it believes plans for
hosting the ministerial are currently at an appropriate stage of
development.

3 See U. S. General Accounting Office, World Trade Organization: Seattle
Ministerial: Outcomes and Lessons Learned, GAO/ T- NSIAD- 00- 86
(Washington, D. C.: Feb 10, 2000).

Page 3 GAO- 03- 700T Free Trade Area of the Americas

The United States has long been a key player in the FTAA negotiations.
Now, in addition to participating as a major negotiating country charged
with advancing its own position with the FTAA negotiations, the United

States has assumed responsibility in two other areas. First, this past
November, the United States became co- chairman (with Brazil) of the
negotiations. In this capacity, the United States has assumed
responsibility for leading the FTAA process as a whole forward to its
conclusion. Second, in conjunction with this role, the United States will
serve as host of a hemispheric trade ministerial in November of this year.
As such, it is responsible for providing facilities and making logistical
and security arrangements for that meeting.

The United States faces three key challenges as it takes on the
responsibility, together with Brazil, of co- chair of the negotiations
charged with guiding the FTAA process forward to a successful conclusion
by January 2005: (1) handling a substantial increase in its workload, (2)
managing the intensified negotiating pace and substantively difficult
tradeoffs associated with concluding an FTAA agreement, and (3)
simultaneously juggling the FTAA and several other complex trade
negotiations.

The first key challenge for the USTR as co- chair of the FTAA process will
be handling the increased workload as negotiations intensify, without an
appreciable increase in staff. The co- chair*s responsibilities are
considerable. They include providing leadership to the negotiating process
and regular guidance to the 10 negotiating groups and special committees
charged with developing the FTAA rules, specific market access
commitments, and institutional arrangements that will together comprise an
FTAA agreement. The United States must also coordinate with Brazil, the
other co- chair, on a daily basis.

Despite general recognition that co- chairing will involve more work for
the United States than chairing on its own, USTR only has about half as
many staff devoted to co- chairing the FTAA negotiations as previous
chairs have had. Presently, USTR has two staff working full- time on the
day- to- day Background

Co- chairmanship Poses Challenges for United States

Workload and Negotiating Pace to Increase, but Resources Not Commensurate

Workload to Increase

Page 4 GAO- 03- 700T Free Trade Area of the Americas

FTAA co- chairmanship tasks. Two other staff devote some of their time to
the co- chair function and some to advancing U. S. positions in the FTAA
negotiations. Brazil currently has five staff handling the co- chair
function and plans to add a sixth. Ecuador, which chaired the negotiations
from

April 2001 to October 2002, had eight people working on substantive issues
and additional people working on logistics. Canada, which chaired the
negotiations from March 1998 to November 1999, had eight people,

with access to others for special projects. To mitigate this situation,
USTR is seeking to bolster its resources quickly by borrowing staff from
other agencies. Although it has recently had limited success, 4 funding
caps and other concerns may make agencies reluctant to detail more people
to USTR without receiving reimbursement.

Several past FTAA chairs have told us that the consequence of a U. S.
failure to adequately staff the co- chairmanship could be a slowdown of
FTAA negotiations. These negotiations have reached a critical juncture
with the launch of market access talks on February 15, 2003. Any slowdown
could make it even more difficult to achieve substantial results by the
November 2003 Miami ministerial.

A second key challenge facing USTR is the intensifying pace of the FTAA
negotiations. To conclude a final agreement by January 2005, much remains
to be done. In fact, various FTAA negotiating group meetings have been
scheduled for practically every day for the coming 6 months. As our report
explains, although considerable technical groundwork has been laid since
FTAA negotiations were formally launched in 1998, up to now, FTAA
negotiations did not involve serious, substantive trade- offs. 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
agreement. The overall timetable for FTAA negotiations and key milestones
for the current phase are depicted in figure 1.

4 In mid- March, USTR announced that a senior Department of State official
will be loaned to the agency effective June 23, 2003, to head the U. S.
delegation to the FTAA*s vice ministerial level Trade Negotiations
Committee. The official has been ambassador to the Republic of Azerbaijan
since October 2000. Prior to being nominated to serve in Azerbaijan,

he was principal deputy to the ambassador- at- large and special advisor
to the Secretary of State for the New and Independent States of the former
Soviet Union (1997- 2000), where he had direct responsibility for U. S.
relations with Ukraine, Central Asia, and the Caucasus. (This addition
basically means that the senior USTR person presently responsible for this
role will no longer have to split her time among the Chile Free Trade Area
(FTA), Central American FTA, and FTAA negotiations, as well as the North
American Free Trade Area (NAFTA) and other duties.) Another Department of
State detailee is expected this summer. FTAA Negotiations Intensifying, as
Are Substantive

Demands

Page 5 GAO- 03- 700T Free Trade Area of the Americas

Figure 1: FTAA Time Frames and Milestones, 2002* 2005

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.

Five of the nine FTAA negotiating groups* agriculture, market access,
services, government procurement, and investment* finally began work
negotiating concrete market access commitments, or schedules to liberalize
trade, in mid- February 2003. These negotiations are considered very
important, because they will determine how much trade and investment will
actually be liberalized and how rapidly trade barriers will be removed.
Even though all 34 FTAA countries met the deadline for submitting initial
offers on industrial and agricultural market access, many of these offers
were conservative. For example, in contrast to the U. S.

offer, several nations placed sizeable shares of their trade into the
longest phaseout category (more than 10 years) or excluded some key items
from liberalization. In addition, some nations have not yet made offers on
investment, services, and government procurement. Ultimately, achieving
substantial liberalization will be difficult, because the tariffs of many
FTAA participants are high, and tariffs are an important source of
government revenue for many FTAA nations.

November 2002

Quito, Ecuador: Seventh FTAA

ministerial

November 2002* December 2005 January 2005

Deadline to conclude FTAA negotiations

December 2005

Entry into force of FTAA

February 2003

Deadline for submission of

initial market access offers

June 2003

Deadline for submission of

requests for improvements

to offers

September 2003

Submit a new version of the chapters to the TNC

November 2003

Miami, Florida: Eighth FTAA ministerial

2004

Brazil: Ninth FTAA ministerial (Date to be determined)

Source: GAO.

July 2003

Initiate the process for the presentation of revised offers and subsequent
negotiations

on improvements Deadline for stocktaking

report on agriculture Submit to the TNC a revised

version of the FTAA text chapters

Page 6 GAO- 03- 700T Free Trade Area of the Americas

FTAA participants must also agree on the final legal text or rules on such
complex topics as intellectual property rights and competition policy. To
give you an idea of the magnitude of this task, the draft FTAA agreement
made public last November was nearly 400 pages long. Moreover, most of the
text was in brackets, which signified disagreement among the 34
participating nations. Bridging these disagreements may be difficult,
given

the number and diversity of nations participating. Several FTAA
participants, including the United States, are among the wealthiest
nations in the world. But some FTAA participants, such as Haiti, are among
the poorest, and others are small or isolated in geographic terms.

To deal with the problem of differences in the 34 participants* wealth and
size, the November 2002 Quito ministerial launched a Hemispheric
Cooperation Program. This program is considered vital to building a
necessary consensus among the FTAA participants. The program*s goal is to
identify critical priorities and help marshal funds that would bolster the

capacity of the lesser- developed nations to negotiate, implement, and
benefit from an FTAA. Participants* interests within the FTAA negotiations
differ, even among the largest countries. According to reports, although
the U. S. *s work with Brazil is going smoothly, Brazil*s commitment to
the FTAA and to its deadlines remains unclear. Recently, for example,
Brazil*s Foreign Minister stated that the FTAA completion deadline of 2005
is too ambitious.

Indeed, FTAA negotiators have set ambitious goals for the coming months.
By June 15, 2003, the five groups negotiating market access will exchange
requests for revised offers. All ten negotiating groups are working to
provide vice ministers with a revised text at their next meeting on July
7, 2003 (in El Salvador). The goal is to have a rather advanced agreement
by this November*s FTAA ministerial in Miami.

A third challenge facing the United States as co- chair is that other
major negotiations are occurring concurrently with the FTAA. For example,
the U. S. Trade Representative has notified Congress of his intent to
pursue free trade agreements with (1) five nations of Central America, (2)
Australia, (3) the South African Customs Union, 5 and (4) Morocco, and
USTR 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

5 A customs union including South Africa, Lesotho, Botswana, Namibia, and
Swaziland. Other Trade Negotiations

Occurring Concurrently

Page 7 GAO- 03- 700T Free Trade Area of the Americas

September 2003 WTO ministerial. Some of the same USTR staff are involved
in these concurrent negotiations. Moreover, several issues of importance
to U. S. trade partners in the hemisphere, notably agriculture subsidies
and trade injury remedies, are linked to ongoing negotiations at the WTO.
The U. S. position is that the WTO is the appropriate forum to deal with
domestic agriculture subsidies, but many other FTAA participants maintain
that domestic agriculture support needs to be addressed in both the FTAA
and the WTO. The November 2002 Quito ministerial declaration notes the
importance of progress in both the WTO and FTAA agriculture negotiations.
6 However, WTO negotiators missed a March 31, 2003, deadline to establish
modalities, or the rules and guidelines for agricultural liberalization,
as well as other deadlines in other areas under negotiation. We noted in a
September 2002 report that meeting this deadline was a crucial indicator
of the likelihood of success in the overall negotiations. 7 Lack of
progress in these WTO negotiations has caused concern about prospects for
progress in FTAA negotiations.

The United States will host the Eighth FTAA Trade Ministerial in Miami in
November 2003, just 6 months from now. This ministerial is particularly
significant, because it will occur just over a year before the slated
conclusion of FTAA and WTO negotiations. As host, the United States has
numerous responsibilities, but U. S. planning for the ministerial is at an
early stage. Given the lead times involved, however, intense efforts are
needed to fill the remaining gaps in the areas of expertise, planning,
funding, and security.

6 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. 7 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). Gaps in U. S.

Preparations for Hosting November 2003 Ministerial Pose Risks

Page 8 GAO- 03- 700T Free Trade Area of the Americas

The host of an FTAA ministerial is generally responsible for providing
facilities, transportation, and security for both the ministerial and the
Trade Negotiations Committee meeting, a gathering of vice ministers that
precedes the ministerial. In addition, separate forums for the business
community and civil society typically accompany FTAA ministerials. Each of
these events involves hundreds of people, including many high- level
officials requiring appropriate protocol and special security measures.
The task of the United States as host is especially complex, because USTR
must coordinate actively with local officials and oversee host city
preparations to ensure they are satisfactory. Successfully executing the
many responsibilities of an FTAA ministerial host is critical, given the

importance of ministerial meetings in the negotiations. Our discussions
with cognizant officials suggest that hosts must have several basic
elements in place to fulfill the responsibilities outlined above (see fig.
2). Particularly important is having (1) staff experienced in bringing
together all the different components including logistics, budgeting, and
procurement; (2) a plan that clearly sets forth responsibilities and
timelines for putting in place necessary logistical arrangements; (3)
access to funds to pay for expenses; and (4) assurance of adequate
security.

Figure 2: Keys to a Successful Ministerial

USTR has sole responsibility for organizing the FTAA ministerial. As an
agency, it has relatively little institutional experience in this area,
however, and it is receiving limited assistance from other agencies with
expertise. Responsibilities of the

Host of an FTAA Ministerial Are Numerous, Important

Several Factors Critical to Success

USTR Lacks Experience Hosting; Miami Has Track Record but Wants Support

Keys to a Successful Ministerial Experienced and capable staff A plan that
clearly sets forth roles, responsibilities, and timelines Access to
adequate funds Ample security for participants

Source: GAO.

Page 9 GAO- 03- 700T Free Trade Area of the Americas

Until late April USTR had four permanent staff working part- time on
planning the FTAA ministerial, only one of these staff has significant
experience in logistics, security, and administration. USTR had received
substantial help in planning the last major trade ministerial it hosted,
the 1999 Seattle WTO ministerial, including assistance from several
Department of State officials with previous international conference
planning experience. 8 The Department of State is not providing similar
support for the November 2003 FTAA ministerial, however, largely due to
budgetary constraints. In fiscal year 1995, the Department of State was
receiving $6 million to fund and support U. S. participation in
international conferences. By fiscal year 1999, this appropriation had
been

discontinued, with no commensurate increase to USTR*s budget for trade
meetings. 9 As a result, USTR plans to rely heavily on Miami*s expertise
to carry out

the November 2003 meeting. Miami hosted the 1994 Summit of the Americas
that launched the FTAA initiative, and the city has hosted other major
events. However, the Miami organizers (committees and individuals
representing both private and public sectors in South Florida, including

the jurisdictions of the city of Miami, the county of Miami- Dade, the
city of Coral Gables, and the city of Miami Beach), informed us that they
would like more support from the federal government. In particular, on the
premise that the workload and need for coordination will increase as the
ministerial draws closer, they would like a full- time federal staff
person to be detailed from the Department of State to Miami in a liaison
capacity as soon as possible. (This had been done for the 1994 Summit of
the Americas, also in Miami.)

Both the federal government*s and Miami*s plans for hosting the November
2003 ministerial are in early stages. Some of the specific tasks
identified in FTAA guidelines have been accomplished, and more are in
process. For

example, accommodations for delegates and meeting space have been
selected. However, 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

8 Although some records are available, including timelines and task lists,
the Department of State does not have written guidelines on how to plan
such an event, and no formal, written *lessons learned* were prepared
after the Seattle WTO ministerial. 9 In fiscal year 2000, the Department
of State received a separate appropriations for the Seattle ministerial.
Plans for Ministerial in Early

Stages; Intense Preparations Required

Page 10 GAO- 03- 700T Free Trade Area of the Americas

parties must be finalized; meeting space configured; a security plan
developed; and arrangements for providing credentials, translation,
administrative support, and other services made. The FTAA Administrative
Secretariat requires the United States to provide both the Secretariat and
the 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.

Among other things, funding for the FTAA ministerial has not been secured.
As of early May, a budget for the event had not been finalized, local
fund- raising had just begun, and no federal agencies had received funding
for the FTAA ministerial meeting. Current estimates are that the

ministerial will cost $10 million. Although some funding requirements can
be met through in- kind contributions, expenses that require an outlay of
funds are expected to total about $3 million and will be incurred within
the next 2 months. Such expenses include making deposits for hotels and
transportation and paying the firms supporting the FTAA Web site and
preparing delegate credentials.

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. For
example, this model was used for a ministerial meeting of the
International Telecommunications Union held in 1998 in Minneapolis,
Minnesota. 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 yearlong planning efforts continued, ultimately reaching $24
million. 10 This amount is considerably higher than the December 1998
budget of $9 million. Moreover, it is nearly as large as USTR*s entire
fiscal year 2001 budget, which was $29 million.

No federal agency has yet received funding for the FTAA ministerial. The
USTR has only requested $200,000 for the FTAA ministerial, or 2 percent of
the currently projected cost, but this is in the President*s fiscal year

10 Security expenses accounted for more than half of the total cost,
amounting to $14 million. Funding Has Not Been Secured, and Funding
Responsibilities

Are Still Unclear

Page 11 GAO- 03- 700T Free Trade Area of the Americas

2004 budget request for the 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 office in which
U. S. delegates can work, for basic translation services, and for certain
aspects of security. To reduce costs, USTR had planned to use computers
and other equipment procured for the September 2003 Cancun WTO ministerial
for the Miami FTAA ministerial. To date, however, USTR has not been given
approval by the Office of Management and Budget to submit a request for a
$1.3 million supplemental appropriation that would fund this procurement.

USTR has stated that Miami will provide the vast majority of funds for the
ministerial. USTR plans to rely on Miami*s desire to be the site of the
permanent FTAA Administrative Secretariat as incentive to raise the
necessary funds. However, the Miami organizers believe the federal
government will also assume some financial responsibility because, in
their view, the ultimate host of the ministerial is the federal
government. Both parties have agreed to use the budget development process
to

identify funding sources and apportion financial and logistical
responsibilities. However, this breakdown is still being discussed.

USTR has sought to forestall any possible funding difficulties through
signing an agreement with the Miami organizers for them to provide a
statement of fund- raising principles and periodic status reports. So far,
the four Miami municipalities involved have drafted a memorandum of
understanding regarding their financial support of the meeting. Under the
memorandum, they agreed to provide in- kind and cash support according to
a yet- to- be specified formula. 11 This agreement allows signatories to
withdraw, however, if they determine that they can no longer financially
participate.

Another key risk the United States will face in Miami is ensuring the
security of participants. Previous trade ministerials have involved
extensive security requirements, in part because these events have
attracted protestors opposing globalization. USTR expects around 6,000
participants at the Miami ministerial. The number of protesters expected,
however, ranges between 20,000 and 100,000, according to both USTR and the
Miami organizers, compared to 9,000 participants and 50, 000 protesters

11 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.
Security Is Critical

Page 12 GAO- 03- 700T Free Trade Area of the Americas

at the Seattle WTO ministerial. In a February 2000 report, 12 we noted
that protestors interfered with the Seattle WTO ministerial by causing
delays and disrupting proceedings. Protestors also threatened and, in some
cases,

assaulted delegates. Local reports indicated that 92 protestors and
bystanders and 56 police officers were injured, and that downtown Seattle
businesses suffered $3 million in property damage. At the FTAA ministerial
in Quito, Ecuador, protestors were also present, and a breakdown in order
at a meeting between trade ministers and civil society groups raised
security concerns.

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 more
than half of the expenses incurred, in part because security had not been
factored into logistical arrangements from the beginning. USTR*s goal is
to have a security plan finalized by May 30, 2003.

In summary, Mr. Chairman, despite 4 years of talks, considerable work
remains in order to culminate an initiative that the hemisphere*s 34
democratically elected leaders once embraced as key to integrating their
economies, improving growth and equity, and strengthening democracy. With
a January 2005 deadline for completion, our work suggests that the United
States faces challenges as co- chair of the final phase of FTAA
negotiations and as host of a major trade ministerial in Miami just over 6
months from now. Filling gaps in human and financial resources is critical
to success and will require intense preparations on the part of both USTR
and the Miami organizers between now and November. As a result, in our
report, we recommend that USTR intensify U. S. preparations and regularly
evaluate whether resources and plans are sufficient.

Mr. Chairman and Members of the Subcommittee, this concludes my prepared
statement. I will be pleased to answer any questions you may have.

12 See GAO/ T- NSIAD- 00- 86. Conclusions

Page 13 GAO- 03- 700T Free Trade Area of the Americas

For future information on this testimony, please call Loren Yager or Kim
Frankena at (202) 512- 8124. Individuals making key contributions to this
testimony included Venecia Rojas Kenah, R. Gifford Howland, Rona
Mendelsohn, Kirstin Nelson, Jon Rose, and Marc Molino. Contacts and Staff

Acknowledgments

(320181)

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