    International Trade: Intensifying Free Trade Negotiating Agenda
    Calls for Better Allocation of Staff and Resources (12-JAN-04,
    GAO-04-233).

    Free trade agreements (FTA) involve trade liberalization between
    the United States and selected countries or regions and are also
    expected to provide economic and other benefits. GAO was asked to
    review how potential FTA partners are selected, in view of the
    increased number of FTAs and their growing importance to U.S.
    policy. Specifically, GAO (1) provided information about the
    factors influencing the selection of FTA partners, (2) analyzed
    the interagency process for selecting FTA partners, and (3)
    assessed how the executive branch makes decisions about the
    availability and allocation of resources to FTAs.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-04-233
        ACCNO:   A09083
      TITLE:     International Trade: Intensifying Free Trade Negotiating
    Agenda Calls for Better Allocation of Staff and Resources
         DATE:   01/12/2004
      SUBJECT:   Decision making
    	     Evaluation criteria
    	     Evaluation methods
    	     Foreign policies
    	     Foreign trade agreements
    	     Interagency relations
    	     International trade
    	     Australia
    	     Central American Free-Trade Area
    	     Morocco
    	     Southern Africa Customs Union

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    GAO-04-233

    United States General Accounting Office

    GAO

                           Report to Congressional Requesters

    January 2004

    INTERNATIONAL TRADE

    Intensifying Free Trade Negotiating Agenda Calls for Better Allocation of Staff
                                     and Resources

                                           a

    GAO-04-233

    Highlights of GAO-04-233, a report to congressional requesters

    Free trade agreements (FTA) involve trade liberalization between the
    United States and selected countries or regions and are also expected to
    provide economic and other benefits. GAO was asked to review how potential
    FTA partners are selected, in view of the increased number of FTAs and
    their growing importance to U.S. policy. Specifically, GAO (1) provided
    information about the factors influencing the selection of FTA partners,
    (2) analyzed the interagency process for selecting FTA partners, and (3)
    assessed how the executive branch makes decisions about the availability
    and allocation of resources to FTAs.

    GAO recommends that USTR work with other key trade agencies to develop
    more systematic data and plans for allocating staff and resources across
    the full U.S. trade agenda, including FTAs and other negotiating
    priorities.

    The Trade Representative agreed that the intensifying trade negotiation
    agenda requires management improvements, but he disagreed with our
    specific recommendation. He attributes the main cause of strain at USTR to
    the amount of resources. We believe that better data and plans will
    promote the flexibility needed to respond to USTR's demanding
    multilateral, hemispheric, and bilateral FTA negotiations.

    www.gao.gov/cgi-bin/getrpt?GAO-04-233.

    To view the full product, including the scope and methodology, click on
    the link above. For more information, contact Loren Yager at (202)
    512-4347 or yagerl@gao.gov.

    January 2004

    INTERNATIONAL TRADE

    Intensifying Free Trade Negotiating Agenda Calls for Better Allocation of Staff
    and Resources

    The Trade Representative used 13 factors in selecting four potential FTA
    partners in 2002 (Australia; the Central American Free Trade Area, a
    subregional group of five Central American countries; the Southern Africa
    Customs Union of five countries; and Morocco). Subsequently, selected
    executive branch agencies decided to use six broad factors-country
    readiness, economic/commercial benefit, benefits to the broader trade
    liberalization strategy, compatibility with U.S. interests,
    congressional/private-sector support, and U.S. government resource
    constraints. These decisions are not mechanical, and the factors cited
    most often regarding the selected FTA partners primarily reflect U.S.
    trade strategy, foreign policy, and foreign economic development goals.

    The interagency process for selecting FTA partners now involves four
    interagency groups that use decision papers to assess potential FTA
    partners and make recommendations that eventually go to the president.
    This new process is more systematic and inclusive than the process
    previously used. The Office of the U.S. Trade Representative (USTR)
    reports that it routinely considers the Congress's views in making
    selections.

    Decisions about FTA partners are made with little systematic data or
    planning regarding trade-offs with other trade priorities, even though
    FTAs are resource intensive. USTR staff and travel funds are heavily
    committed to FTAs, and USTR relies on specialists at other agencies as
    well. As more FTAs are contemplated, existing mechanisms may prove
    inadequate to the task of aggressively pursuing a bilateral FTA agenda
    while remaining engaged in regional and multilateral forums.

    USTR Sequences FTAs in Four Regions to Negotiate Ambitious FTA Agenda

    Country not yet decided Sources: GAO and MapArt.

    Note: Actual ending dates may differ from those shown in the figure.

    Contents

      Letter

    Results in Brief
    Background
    Early FTA Selections Were Based Primarily on the Trade

    Representative's Evaluation; New Interagency Process Uses Six Factors The
    Administration Has Enhanced Its Interagency Process for

    Assessing Potential FTA Partners Ambitious FTA Agenda Calls for Better
    Resource Management Conclusions Recommendation for Executive Action Agency
    Comments and Our Evaluation

    1 2 3

    7

    12 16 27 27 28

    Appendixes

    Appendix I: Appendix II:

    Appendix III: Appendix IV:

    Appendix V:

    Appendix VI: Objectives, Scope, and Methodology

    European Union and United States Free Trade Agreements, by Region

    U.S. Trade with Potential and Existing FTA Partners

    Selected U.S. Free Trade Agreement Partner Profiles

    U.S.-Australia FTA
    U.S.-Bahrain FTA
    U.S.-Chile FTA
    U.S.-Dominican Republic FTA
    U.S.-Morocco FTA
    U.S.-Singapore FTA
    U.S.-CAFTA FTA
    U.S.-SACU FTA

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

    GAO Comments

    GAO Contacts and Staff Acknowledgment

    GAO Contacts
    Staff Acknowledgments

    31

    34

    35

    37 37 40 42 44 47 49 52 54

    57 64

    66 66 66

    Tables Table 1:	Fiscal Year 2003 USTR Nonstaff Costs for Negotiating FTAs
    19

    Contents

    Table 2:	Estimated Agency Staff on U.S. Negotiating Teams for Completed
    Rounds of FTA Negotiations, as of October 2003 20

    Table 3: International Trade Administration Free Trade Agreement Resource
    Allocation, Fiscal Year 2003 21 Table 4: U.S. Trade with Potential and
    Existing FTA Partners, 2002 35

    Figures Figure 1: Figure 2:    FTA Time Line, 1985-2003 Interagency      6
                                      Process for FTA Partner Selection and
                                          Notification to the Congress         15
                         Figure 3:     Selected Milestones for U.S. Trade
                                                    Agreement
                                              Negotiations, 2000-05            18
                         Figure 4:   USTR Sequences FTAs in Four Regions to
                                                    Negotiate
                                              Ambitious FTA Agenda             23

    Contents

    Abbreviations

    AGOA African Growth and Opportunity Act
    APEC Asia-Pacific Economic Cooperation
    ASEAN Association of Southeast Asian Nations
    CAFTA Central American Free Trade Agreement
    CARICOM Caribbean Community
    FTA Free Trade Agreement
    FTAA Free Trade Area of the Americas
    GCC Gulf Cooperation Council
    GSP Generalized System of Preferences
    MEFTA Middle East Free Trade Area
    NAFTA North American Free Trade Agreement
    NEC National Economic Council
    NSC National Security Council
    SACU Southern African Customs Union
    TPA Trade Promotion Authority
    TPRG Trade Policy Review Group
    TPSC Trade Policy Staff Committee
    USTR Office of the U.S. Trade Representative
    WTO World Trade Organization

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    A

    United States General Accounting Office Washington, D.C. 20548

    January 12, 2004

    The Honorable Max Baucus
    Ranking Minority Member, Committee on Finance
    United States Senate

    The Honorable Calvin Dooley
    House of Representatives

    Free trade agreements (FTA) have recently been the subject of much
    attention as the United States undertakes negotiations with multiple
    negotiating partners. FTAs involve liberalization of trade between the
    United States and selected countries or regions and are also expected to
    provide economic and other benefits. The passage of trade promotion
    authority legislation in 2002 has positioned the United States to pursue
    more FTAs, because this authority has streamlined the agreement approval
    process through the U.S. Congress. Because FTA negotiations call upon
    many experts from the Office of the U.S. Trade Representative (USTR) and
    other agencies, they are resource intensive. The recent collapse of the
    World Trade Organization (WTO) trade talks at a September 2003 meeting
    in Cancun, Mexico, is expected to make FTAs a more important vehicle for
    accomplishing U.S. trade goals.

    As a result of this increase in the number of FTAs and their growing
    importance to U.S. trade policy, you asked us to review how potential FTA
    partners are selected. More specifically, you asked us to (1) provide
    information about the factors that influence the selection of FTA partners
    and how these factors have been applied; (2) analyze the interagency
    process for selecting FTA partners, including how USTR coordinates the
    views of key trade agencies and consults with the Congress, and business
    and public interest groups; and (3) assess how the administration makes
    decisions regarding the availability and allocation of resources to FTAs
    and
    other trade priorities, such as the regional Free Trade Area of the
    Americas
    (FTAA) and multilateral talks at the WTO.

    To meet these objectives, we reviewed documents from the key U.S.
    agencies involved in the process of selecting FTA partners, including
    USTR,
    and the departments of State, Commerce, Agriculture, and the Treasury. In
    addition, we interviewed key executive branch officials, including the
    U.S.
    Trade Representative. (App. I provides detailed information on our
    objectives, scope, and methodology.)

    Results in Brief	Various factors influence FTA partner selections. Four
    FTA partners were selected in 2002, primarily on the basis of the Trade
    Representative's own evaluation of 13 factors related to U.S. political,
    economic, and trade strategy goals. After the four selections in 2002, the
    key trade agencies decided to use six broad factors to guide their future
    discussions on potential FTA partners. These factors are (1) country
    readiness, (2) economic and commercial benefits, (3) benefits to the
    broader trade liberalization strategy, (4) compatibility with U.S.
    interests, (5) congressional and private-sector support, and (6) U.S.
    government resource constraints. Senior trade officials with whom we spoke
    stressed that FTA partner decisions are not mechanical and take into
    consideration the President's goal of making significant progress in
    liberalizing global trade within and across geographic regions. The
    factors cited most often regarding the FTA partners that were selected to
    date primarily reflect U.S. strategic, foreign policy, and foreign
    economic development goals.

    The interagency process for selecting FTA partners has become more
    systematic since 2002 and routinely considers input from the Congress and
    the private sector. Up through 2002, only a cabinet-level group, composed
    of the Trade Representative and some counterparts in key trade agencies,
    assessed potential FTA partners. Some high-level agency officials told us
    that they provided input to these deliberations, but others said the
    process had been ad hoc and exclusive. Subsequently, in May 2003, the
    National Security Council advanced guidelines to improve the process of
    assessing potential partners by, among other things, expanding the number
    of interagency groups involved in the assessments. Agencies used this new
    process for assessing the Dominican Republic as a potential FTA partner.
    U.S. officials with whom we spoke expressed satisfaction with the new
    process because it allows wider interagency participation and uses
    decision papers to guide deliberations. USTR officials said that they keep
    the Congress apprised of the countries under consideration as FTA
    partners, and that they regularly receive input from the Congress and from
    business and nongovernmental groups on potential FTA partners as part of
    the process.

    The administration's overall trade liberalization strategy has driven
    decisions about deploying resources to advance the U.S.'s ambitious FTA
    negotiating agenda. However, decisions to pursue FTAs have been made with
    little systematic planning regarding trade-offs with other trade
    priorities, even though FTAs are resource intensive. USTR staff and travel
    funds are heavily committed to FTAs. For example, FTA-related travel

    accounted for 37 percent of USTR's travel budget in fiscal year 2003. USTR
    also relies on specialists at other agencies to assist with negotiations
    and analysis. USTR is taking steps, such as sequencing negotiations, to
    address these constraints. Because of concerns over the resources required
    to accomplish the growing FTA negotiating agenda, the consideration of
    resource constraints has now been included as one of the factors used for
    selecting FTA partners. However, decisions to pursue FTAs still come
    without systematic data or planning for the actual resources that USTR or
    other agencies require. As more FTAs are contemplated in the wake of the
    failed Cancun WTO talks, existing mechanisms may prove inadequate to the
    task of aggressively pursuing a bilateral FTA agenda while remaining
    engaged in regional and multilateral forums.

    In this report, we are recommending that USTR work with other key trade
    agencies to develop more systematic data and plans for allocating staff
    and resources across the full U.S. trade agenda, including FTAs and other
    negotiating priorities.

    Background	Under its constitutional authority to regulate commerce with
    foreign nations, the Congress has enacted laws authorizing the President
    to enter into trade agreements with other countries to reduce tariff and
    nontariff barriers.1 One major recent law to provide this authority is the
    Bipartisan Trade Promotion Authority Act of 2002 (TPA).2 The TPA
    legislation sets

    1Nontariff barriers are those that are not related to tariff levels but
    nevertheless impose obstacles to trade. Examples include quantitative
    restrictions (quotas) on imports and requirements that importers obtain
    licenses to import certain products.

    2Pub. L. No. 107-210, S:S: 2101-13, 116 Stat. 993-1022. This act was part
    of larger legislation entitled the Trade Act of 2002, 116 Stat. 933. The
    trade promotion authority continues through June 1, 2005, or June 1, 2007,
    if extended by the President without disapproval of the Congress.

    forth U.S. trade negotiating objectives that apply to negotiating FTAs.3
    However, the TPA legislation does not impose any specific criteria on the
    President for choosing FTA partners, except that the President must take
    into account the extent to which the negotiating partner has implemented
    or has accelerated implementation of its WTO obligations.4

    Other trade legislation encourages pursuit of FTA negotiations. For
    example, in the 2000 African Growth and Opportunity Act,5 the Congress
    declared that FTAs should be negotiated with interested sub-Saharan
    African countries. Furthermore, in the United States-Caribbean Basin Trade
    Partnership Act, the Congress declared that it was the policy of the
    United States to seek the participation of Caribbean Basin beneficiary
    countries in the FTAA or another FTA, with the goal of achieving full
    participation in any such agreement by 2005.6

    USTR, the President's principal trade policy advisor and coordinator, has
    the lead responsibility for the formulation and coordination of trade
    policy; the negotiation of trade agreements, including FTAs; and the
    enforcement of trade agreements. Under the Trade Expansion Act of 1962,
    President John F. Kennedy established an interagency trade policy
    organization to be chaired by USTR to assist with these and other trade
    responsibilities.7 Currently, this organization consists of three tiers of
    committees, which from the lowest tier to the highest tier are the Trade
    Policy Staff Committee

    3The overall objectives set forth in TPA include obtaining greater market
    access and reducing or eliminating trade barriers; enhancing economic
    growth, raising living standards, and promoting full employment in the
    United States; ensuring that trade and environmental policies are mutually
    supportive; and promoting respect for worker rights. The principal
    objectives include expanding competitive market opportunities for U.S.
    exports, including agricultural products; reducing or eliminating barriers
    to international trade in services and foreign investment; enhancing
    intellectual property rights protection; obtaining wider and broader
    application of transparency; seeking provisions in trade agreements
    providing for effective dispute resolution; and preserving the ability of
    the United States to rigorously enforce its trade laws. Pub. L. No.
    107-210, S: 2102, 116 Stat. 994-1001.

    4Id. S: 2102(e), 116 Stat. 1004.

    5Pub. L. No. 106-200, 114 Stat. 251-75.

    6Id. S:S: 202(b) and 213, 114 Stat. 276, 288. This legislation also
    required the President to take necessary steps to convene a meeting with
    the trade ministers of these countries to establish a schedule of meetings
    on the likely timing for initiating negotiations for entering into FTAs
    with the United States.

    7See 19 U.S.C. S: 1872.

    (TPSC), the Trade Policy Review Group (TPRG), and the National Security
    Council/National Economic Council (NSC/NEC). Within this framework, USTR
    coordinates with Commerce, Agriculture, State, and Treasury and other U.S.
    agencies as issues needing their expertise arise.

    The United States currently has five FTAs with six nations: Israel (1985),
    Canada (1989), Mexico (1994),8 Jordan (2001), Singapore (2003), and Chile
    (2003). The United States has already begun negotiating four more
    bilateral or subregional FTAs with Central America, the Southern Africa
    Customs Union (SACU), Australia, and Morocco. USTR has announced that it
    plans to negotiate FTAs with the Dominican Republic; Bahrain; Panama; and
    the Andean countries of Colombia, Peru, Ecuador, and Bolivia. In addition,
    in October 2003, the President announced the U.S.'s intent to negotiate an
    FTA with Thailand. Other countries are under consideration as FTA
    partners. For a general time line of U.S. FTAs since 1985, see figure 1.

    8The U.S.-Canada FTA was suspended in 1994 and superseded by the North
    American Free Trade Agreement.

    Figure 1: FTA Time Line, 1985-2003

    1980s 1990s 2000s

    4/85: 1/89: 1/94: 4/98: 11/03: U.S. - Israel U.S. - Canada NAFTA FTAA USTR
    notifies FTA FTA negotiations Congress

    begin about Andean

    countries and Panama negotiations 8/03: USTR notifies Congress about
    Dominican Republic and Bahrain negotiations

    7/03: U.S. -Chile FTA and U.S. -Singapore FTA (congressional approval)
    5/03: NSC issues interagency guidelines

    11/02: USTR notifies Congress about Australia and SACU negotiations

    10/02: USTR notifies Congress about CAFTA and Morocco negotiations 8/02:
    Congress passes TPA

                                12/01: U.S. - Jordan FTA

    CAFTA Central American Free Trade Agreement

    FTA Free Trade Agreement

    FTAA Free Trade Area of the Americas

    NAFTA North American Free Trade Agreement

    NSC National Security Council

    SACU Southern African Customs Union

    TPA Trade Promotion Authority

    USTR Office of the U.S. Trade Representative Source: GAO.

    Early FTA Selections Were Based Primarily on the Trade Representative's
    Evaluation; New Interagency Process Uses Six Factors

    The factors used since the 2002 selection of FTA negotiating partners have
    evolved. According to the Trade Representative and other U.S. officials,
    the Trade Representative chose the first four FTA partners on the basis of
    his own evaluation of factors and after he had consulted the President and
    certain other high-level officials in several other agencies.
    Subsequently, the NSC coordinated the views of key trade agencies, which
    decided to use six factors in a revised interagency process to recommend
    proposed FTA partners to the President.

    The Trade Representative Used 13 Factors for Early Selections

    The Trade Representative told us that his early FTA proposals emerged from
    his evaluation of 13 factors he developed over time-the same factors that
    the Trade Representative and other USTR officials continue to use.
    However, he cautioned that these factors "carry no coefficients"-that is,
    they do not have relative weights. The Trade Representative described the
    factors in some detail, with examples.

    o 	Congressional guidance. According to the Trade Representative, his
    office consults with the Congress before and after FTA selection to ensure
    support and eventual congressional approval. USTR officials also examine
    public support, including the ethnic components of such support.

    o 	Business and agricultural interest. The Trade Representative considers
    the views of business and agriculture and evaluates both current and
    future economic benefits of a potential FTA.

    o 	Special product sensitivities. The Trade Representative assesses how an
    FTA will adversely affect certain sectors and products, such as textiles
    and sugar.

    o 	Serious political will of the prospective partner to undertake needed
    trade reforms. The Trade Representative considers the political will in
    the foreign country to enact and implement trade reforms. He also assesses
    the country's trade capabilities and the candidate's track record in
    meeting current trade obligations.

    o 	Willingness to implement other reforms. The Trade Representative stated
    that FTAs are a development tool that may help promote other

    economic reforms. The United States views these reforms as links to
    market-oriented economic development and future growth. Prospective FTA
    partners are expected to show serious intention in this regard to ensure
    that they understand (1) how important it is to make this commitment to
    reform and (2) the extent of the obligations that a comprehensive FTA with
    the United States involves.

    o 	Commitment to WTO and other trade agreements. USTR considers a
    potential FTA partner's commitment to the trade disciplines in the WTO and
    the commitments being discussed at the ongoing FTAA negotiations.

    o 	Contribution to regional integration. The United States has put in
    place initiatives to advance U.S. goals on a regional basis and foster
    regional economic integration. The Trade Representative told us that the
    Central American Free Trade Agreement (CAFTA)-Costa Rica, El Salvador,
    Guatemala, Honduras, and Nicaragua-and Chile FTAs have the potential to
    help integrate the whole region by helping to enact and implement the
    FTAA. Similarly, the SACU FTA may also help the integration of these five
    African countries (South Africa, Botswana, Lesotho, Namibia, and
    Swaziland).

    o 	Support of civil society groups. The Trade Representative highlighted
    the views of labor and environmental groups as important components of FTA
    selections because these views affect prospects of congressional passage.

    o 	Cooperation in security and foreign policy. The Trade Representative
    considers the extent to which potential partners are willing to support
    U.S. security and foreign policy objectives. For example, Jordan, Morocco,
    and Bahrain support U.S. objectives in the Middle East, and the CAFTA
    nations supported U.S. objectives in Iraq.

    o 	Need to counter FTAs that place U.S. commercial interests at a
    disadvantage. The Trade Representative is interested in negotiating FTAs
    that will offer U.S. commercial interests opportunities on a par with
    other countries that already have FTAs. (See app. II for a list of
    European Union and U.S. FTAs.)

    o 	Need to do FTAs in each of the world's major regions. The Trade
    Representative prefers to negotiate FTAs in each of the major regions of
    the world: Asia (Singapore, Australia, and Thailand); the Middle East

    (Jordan, Morocco, and Bahrain); Africa (SACU); and the Americas (CAFTA and
    the Dominican Republic).

    o 	Need to ensure a mix of developed and developing countries. The Trade
    Representative also seeks FTAs with both developed and developing
    countries-for example, Australia and SACU. Developing countries are a key
    to trade growth because they account for a significant share of the
    world's population and represent an important negotiating bloc in the
    WTO.9

    o  	Demand on USTR resources. The Trade Representative recognizes that the
    resources needed for FTA negotiations are not unlimited.

    Agencies Now Consider Six Factors

    As a result of discussions among relevant agencies, six factors now guide
    the discussions in selecting future FTA partners.

    o 	Country readiness. Country readiness involves the country's political
    will, trade capabilities, and rule of law systems.10 U.S. agencies
    involved in FTA partner selection discussions may interpret this factor
    somewhat differently, since each agency filters the information though the
    lens of its specific mission. For example, USTR may review a prospective
    candidate's adherence to trade obligations and its leaders' commitment to
    negotiating all trade issues that currently comprise the comprehensive
    FTAs that the United States seeks to negotiate. However, Treasury may look
    at the candidate's overall macroeconomic stability and the strength of its
    financial and banking system.

    o 	Economic/Commercial benefit. According to U.S. officials, the
    interagency group reviews the likely economic benefit to the United
    States. It assesses macroeconomic benefits (trade and investment
    potential) and the likely effects on specific products and sectors. (See
    app. III for potential and existing FTA partners' share of total U.S.
    trade.)

    9The World Bank classifies 105 WTO members, or approximately 73 percent,
    as developing countries.

    10According to the U.S. Agency for International Development, the rule of
    law embodies the basic principles of equal treatment of all people before
    the law and is founded on a predictable and transparent legal system with
    fair and effective judicial and law enforcement institutions to protect
    citizens against the arbitrary use of state authority and lawless acts.

    o 	Benefits to the broader trade liberalization strategy. This factor
    relates to the prospective FTA partner's overall support for U.S. trade
    goals. Other elements considered within this category are the potential
    FTA partner's willingness to resolve trade problems through its
    participation in a Trade and Investment Framework Agreement with the
    United States, success in meeting its WTO obligations, and support of key
    U.S. positions in FTAA and WTO negotiations.

    o 	Compatibility with U.S. interests. A potential FTA partner is examined
    for its compatibility with broad U.S. interests, including its support for
    U.S. foreign policy positions. One USTR official stated that sometimes a
    foreign leader's visit can prompt serious discussions that lead to that
    country's consideration as a future FTA partner. Likewise, the Trade
    Representative's foreign travels also are important in bringing attention
    to a possible FTA with a particular country. However, other requirements,
    including but not limited to WTO membership and a Trade and Investment
    Framework Agreement, must still be met.

    o 	Congressional/Private-sector support. Agencies also review the extent
    to which a particular FTA selection has garnered support from the
    Congress, business groups, and civil society.

    o 	U.S. government resource constraints. This factor focuses primarily on
    constraints at USTR-what regional office is available to lead the
    negotiation, what staff are available, and how the timing may affect
    meeting postnegotiation TPA requirements. Other agencies' resources also
    play a role in this discussion.

    Selections Are Not Mechanical; Trade Strategy and Foreign Policy
    Considerations Predominate

    In terms of how the six selection factors are applied, according to
    officials that we interviewed, the broad factors guide the discussion, but
    they are not hard-and-fast decision rules. Moreover, administration
    decision makers have not set thresholds for eligibility determinations.
    Key officials told us that USTR's views are central but that the
    now-standard discussion of the factors permits each participating
    executive agency to contribute its perspective, thus potentially adding to
    issues that USTR needs to address in the future negotiations. For example,
    other agencies may be aware that a prospective partner has engaged in
    money laundering or human rights abuses or has been slow to resolve
    intellectual property disputes.

    As illustrated below, the FTA selections made to date in 2002-03 primarily
    reflect U.S. trade strategy, foreign policy, and foreign economic goals.
    (See

    app. IV for more details on specific FTA partners.) According to USTR, the
    administration is working aggressively on its "competitive liberalization"
    strategy, because it seeks to spur progress by creating a positive dynamic
    to liberalize trade on multiple levels: bilaterally, regionally, and
    multilaterally. USTR also reports that the U.S.'s willingness to pursue
    bilateral FTAs has bolstered countries' interest and encouraged them to
    make the changes necessary to enter into FTA negotiations with the United
    States.

    o 	Australia. This FTA negotiation represents the greatest immediate
    commercial benefit of any single ongoing FTA, with 1.2 percent of total
    U.S. trade in 2002. A U.S.-Australia FTA would add to the regional
    distribution of FTAs for the United States and would strengthen U.S. ties
    to a valued ally. The increased U.S. access to Australia's market would
    likely increase trade in goods and services, enhance employment
    opportunities, and encourage additional two-way investment.

    o 	Bahrain. Although Bahrain represents a small share of U.S. trade, an
    FTA with this U.S. ally and moderate Muslim nation would support U.S.
    security and political goals by fostering prosperity in the region. As a
    stepping-stone to an eventual Middle East Free Trade Area, Bahrain could
    become the hub of a subregional block of countries with closer trading
    relationships with the United States. An FTA with Bahrain might be
    completed relatively quickly due to Bahrain's reform-minded outlook.

    o 	Central American Free Trade Agreement. The commercial benefit of an FTA
    with five Central American countries would be 0.95 percent of total U.S.
    trade. In the United States-Caribbean Basin Trade Partnership Act, the
    Congress declared that it was the policy of the United States to seek the
    participation of Caribbean Basin beneficiary countries in the FTAA or
    another FTA, with the goal of achieving full participation in any such
    agreement by 2005.11 CAFTA would provide regional balance among FTAs and
    add to the momentum for the hemispherewide FTAA, a major U.S. trade
    priority. It would also help lock in and broaden reforms such as
    anticorruption and government accountability measures, support economic
    integration within the region, and enable the United States to increase
    exports and gain U.S. access to more affordable goods.

    11Pub. L. No. 106-200, S:S: 202(b), 213, 114 Stat. 276, 288. This
    legislation also required the President to take necessary steps to convene
    a meeting with the trade ministers of these countries to establish a
    schedule of meetings on the likely timing for initiating negotiations for
    entering into FTAs with the United States.

    o 	Dominican Republic. If the Dominican Republic is added to the overall
    CAFTA region, it would bring the CAFTA trade from 0.95 percent to 1.32
    percent of total U.S. trade in 2002, slightly more than that of Australia.
    The Dominican Republic had strong support in the Congress for its addition
    to the CAFTA negotiations, in part because excluding it from CAFTA could
    lead to adverse economic consequences in the Dominican Republic. However,
    according to a key participant in the discussion, the decision to add the
    Dominican Republic also included careful consideration of U.S. concerns
    about its protection of intellectual property rights and its status as one
    of the worst offenders on human trafficking.

    o 	Morocco. Although a U.S.-Morocco FTA would have minimal trade benefit
    to the United States, one USTR official stated that this FTA would further
    the administration's goal of promoting openness, tolerance, and economic
    growth across the volatile Middle East. Morocco, a moderate Muslim
    country, also signaled its readiness to enter into a comprehensive FTA by
    demonstrating its willingness to liberalize its economy and make domestic
    reforms.

    o 	Southern Africa Customs Union.12 Responding to congressional guidance
    in the 2000 African Growth and Opportunity Act, USTR inititated FTA
    negotiations with SACU in November 2002. This FTA contributes to the
    U.S.'s desire for regional balance among FTAs, creates an opportunity for
    the United States to build trade capacity in the region, and strengthens
    SACU's role as a negotiating partner in other trade forums, such as the
    WTO. The commercial benefit of this FTA represents 0.42 percent of total
    U.S. trade.

    The Administration Has Enhanced Its Interagency Process for Assessing
    Potential FTA Partners

    The selection of FTA partners has evolved from a limited high-level
    consultation to a more systematic and deliberative process involving more
    U.S. officials. USTR keeps the Congress apprised of potential FTA partners
    and routinely considers the Congress's views in making selections.
    Business and other nongovernmental groups have also provided their views
    to USTR on potential FTA partners and FTA negotiations.

    12According to the WTO, a customs union is organized to permit the free
    exchange of goods among its members and has a common external tariff.

    Initially, the Trade Representative Consulted with Counterparts

    In February 2002, the Trade Representative made recommendations for
    potential FTA partners to a cabinet-level interagency group under the
    leadership of the NSC/NEC. According to agency officials, this interagency
    group informally assessed the proposed countries and offered a consensus
    recommendation to the President, who named the four FTAs that are
    currently under negotiation (Australia, CAFTA, Morocco, and SACU). We
    found no evidence that this group used decision papers on the potential
    partners to guide its deliberations. Nevertheless, some high-level U.S.
    officials we interviewed confirmed that they provided USTR and other key
    trade agencies with input at the time and were on board with the final
    selections. Other officials, however, expressed concern that the
    discussions of the four FTAs had been ad hoc and that they had not been
    able to provide important input.

    Also, in February 2002, the cabinet-level interagency group directed their
    deputies to make the process more systematic by formalizing the factors
    that would be used for assessing future FTA partners. The desire to have a
    more systematic interagency process for assessing partners was largely
    driven by the expected growth in the number of potential FTAs that would
    follow the enactment of the trade promotion authority legislation.

    Recently Enhanced Interagency Process Is More Deliberative and Inclusive

    In May 2003, the NSC/NEC issued guidelines on assessing potential FTA
    partners. In addition to identifying the factors to be used, the
    guidelines make the interagency process more inclusive by supporting the
    use of four standing interagency groups for in-depth deliberations.13 Each
    group in turn is to use decision papers to assess potential FTA partners
    and make recommendations for consideration at the next level, all the way
    up to the President. After the President selects an FTA partner, he is to
    notify the Congress, through USTR, at least 90 days before he intends to
    start FTA negotiations with the selected partner. USTR consults with the
    Congressional Oversight Group before sending its notification letter about
    a prospective FTA negotiation to the Congress.

    As shown in figure 2, the selection process is initiated by USTR and
    begins with the assessments of potential FTA partners by the TPSC and the
    TPRG.

    13In 1962, as noted in our Background section, the President established
    these groups under USTR and the NSC/NEC, respectively, for developing
    trade policy. Early during the present administration, these groups were
    not used for assessing FTA partners. Instead, they were only used during
    FTA negotiations, after partners had been selected.

    The TPSC is composed of senior officials from more than 19 U.S. agencies
    and departments who bring specialized technical knowledge on trade issues
    to the deliberations. The TPRG is composed of under secretaries or
    assistant secretaries and other senior officials from all of these U.S.
    agencies and departments who contribute policy perspectives on trade to
    the discussions. Although USTR leads and coordinates interagency
    discussions, other agencies are expected to play an important role in
    developing pertinent information and discussing the pros and cons of
    potential FTA partners.

    The next level of the process consists of the Deputies Committee and the
    Principals Committee, two interagency groups that the NSC/NEC lead and
    coordinate.14 The Deputies Committee is composed of the deputies from all
    the cabinet agencies involved in trade. The Principals Committee is
    composed of the secretaries from all of these agencies, such as the Trade
    Representative and the Secretaries of State and the Treasury. Deputies and
    Principals meet and use decision papers as needed to assess potential FTA
    partners before forwarding their recommendations to the President.

    14Not all of the 19 agencies that participate in the TPSC and the TPRG are
    cabinet-level agencies, for example, the U.S. International Trade
    Commission and the U.S. Agency for International Development.

    Figure 2: Interagency Process for FTA Partner Selection and Notification
    to the Congress

    NSC/NEC National Security Council/National Economic Council
    TPRG Trade Policy Review Group
    TPSC Trade Policy Staff Committee
    USTR Office of the U.S. Trade Representative

    Source: GAO analysis of USTR data.

    USTR and other agencies used this new interagency process for the first
    time in assessing the Dominican Republic as a potential FTA partner in
    mid2003. Agency officials with whom we spoke expressed satisfaction that
    this process enabled their agencies to contribute to the assessment of
    potential FTA partners and strengthen the content of the decision papers.
    Nevertheless, because the process is new, it remains to be seen how it
    will continue to perform.

    Congress and Private Sector Provide Input into the Process

    Input from the Congress and the private sector is part of the process of
    selecting potential FTA partners and negotiating FTAs, according to USTR
    officials. Although the President is not specifically required to consult
    with the Congress before selecting potential FTA partners, USTR officials
    nevertheless stated that they keep the Congress apprised of the FTA
    partners under consideration through formal and informal means. According
    to these officials, the views of the Congress are very important to their
    agency and are seriously considered in FTA partner selections because the
    Congress must ultimately approve all FTAs. USTR gave us an extensive list
    of pertinent contacts between the agency and the Congress to confirm these
    discussions. As required by the TPA legislation, USTR has notified and
    consulted with the Congress about FTA negotiations. For instance, USTR has
    provided written notice to the Congress at least 90 days before initiating
    FTA negotiations since the passage of TPA.

    Few Members of Congress have openly questioned choices of FTA partners to
    date, and those Members that have raised questions still expressed broad
    support for the "competitive liberalization strategy." Nevertheless,
    certain Members of Congress have urged USTR to give greater priority to
    economic and commercial conditions in selecting future FTA partners.

    Also, business and nongovernmental groups have given USTR their views on
    potential FTA partners and FTA negotiations. In late 2002, for instance, a
    major U.S. business group provided USTR with its views on potential FTA
    partners and on the factors that USTR and other U.S. agencies involved in
    trade should consider during the assessment of potential partners. Also,
    nongovernmental groups have provided input on FTA negotiations. However,
    representatives of some of these groups indicated that they were not sure
    whether USTR had seriously considered their comments.

    Ambitious FTA Agenda Calls for Better Resource Management

    Despite the administration's ambitious and growing FTA agenda, USTR and
    other agencies have made resource decisions without considering resource
    trade-offs among FTAs and other trade priorities. FTAs are resource
    intensive, and USTR has taken some measures to cope with resource
    constraints. Nevertheless, the administration continues to consider new
    FTAs. Present strategies for managing staff and other resources mean that
    newly announced FTA partners will have to wait to begin negotiations until
    other ongoing negotiations are concluded. Although resource constraints
    are now one of the factors taken into account when USTR and other agencies
    select FTA partners, these interagency discussions still leave gaps

    because they are not based on robust data and do not specify resource
    needs or commitments.

    The Administration's Active FTA Agenda Drives Resource Deployment

    The administration's ambitious trade agenda has driven its resource
    decisions about FTAs and other trade priorities. Since the enactment of
    TPA in August 2002, the administration has stepped up its pursuit of
    bilateral and subregional FTAs as part of its overall strategy of
    competitive liberalization. As shown in figure 3, the United States now
    has numerous, simultaneous FTA negotiations under way, with ambitious
    target dates for completion. Although it took 2 years to negotiate two
    FTAs with relatively advanced partners (Chile and Singapore), USTR
    currently has FTAs under negotiation with four partners, three of which
    (Australia, Morocco, and CAFTA) are slated to be completed within 1 year.
    Negotiations for the fourth partner (SACU) will be conducted through 2004,
    as will negotiations for Bahrain. In addition, USTR officials hope to
    complete negotiations with the Dominican Republic in early 2004.

      Figure 3: Selected Milestones for U.S. Trade Agreement Negotiations, 2000-05

    of Trade Promotion Authority

    Source: GAO.

    Target date to start negotiations
    Target date to complete negotiations
    Implementation
    Period of FTA development

    CAFTA Central American Free Trade Agreement
    FTA Free Trade Agreement
    FTAA Free Trade Area of the Americas
    SACU Southern African Customs Union
    WTO World Trade Organization

    Note: USTR has not specified ending dates for the Bahrain or Dominican
    Republic negotiations or for the implementation of the potential CAFTA
    agreement.

    The administration's decisions to pursue these FTAs have been made with
    little formal consideration for potential resource trade-offs, even though
    the WTO and FTAA negotiations are scheduled to finish by January 1, 2005.

    As a result, USTR has had to deploy its resources in a reactive manner.
    According to agency officials, the four FTAs currently being negotiated
    were selected before any explicit resource decisions were made because
    USTR officials assumed that resources would be identified afterward to
    carry out these priority negotiations. According to USTR, in these cases
    the resources were "made to fit" the priorities.

    FTAs Are Resource Intensive

    FTA negotiations require intensive effort on the part of USTR and other
    trade agencies such as Agriculture, Commerce, State, and Treasury. For
    example, our analysis of the U.S. negotiating team suggests that on
    average each of the six FTAs under negotiation in 2003 involved 11 percent
    of USTR's 209 full-time staff. In addition, USTR estimates prepared for us
    show that the nonstaff costs of negotiating rounds in fiscal year 2003
    were $1.7 million, of which approximately 68 percent were travel costs
    (see table 1). Moreover, FTA travel comprised 37 percent of USTR's total
    travel costs in fiscal year 2003, and USTR estimates that it will
    constitute 42 percent of its total travel costs in fiscal year 2004.

           Table 1: Fiscal Year 2003 USTR Nonstaff Costs for Negotiating FTAs

                                  Dollars in thousands

                         Interpretation/       Video-        Representation
         FTA    Employee     Translation conferencing Fiscal          costs  Total
                  travel                               dataa                  cost
        Chile       $104            $151          $15     $4             $9   $283
      Singapore      162               0            4      5              1
        CAFTA        258              80            0      3              0
    Morocco       137             198            2      0              2
      Australia      246               0           10      9              1
        SACU         214               0            0     28              1
    Middle         63               1            3     23              1
        East
        Total     $1,184            $430          $34    $72            $15 $1,735

    Source: USTR.

    Note: Costs do not include staff time for working on negotiations.

    aCost refers to logistical support provided by the State Department when
    USTR officials travel to countries.

    Although USTR takes the lead for all negotiating groups except financial
    services, it relies on other agencies, such as Agriculture, Commerce,
    State, and Treasury, for analysis, expertise, and staff to support its
    negotiations.

    For example, other trade agencies regularly provide staff on a
    nonreimbursable "detail" (loan) basis to USTR. USTR currently has more
    than 30 such detailees. In addition, of the 134 U.S. officials present for
    the first five rounds of the Australia FTA negotiations, 22 were from USTR
    and the rest (112) came from other agencies. In fact, table 2 shows that
    other agencies comprised an average of 76 percent of all members of U.S.
    FTA negotiating teams.

     Table 2: Estimated Agency Staff on U.S. Negotiating Teams for Completed Rounds
                        of FTA Negotiations, as of October 2003

                   Number of                      Number and
                                             percentage of staff
                  negotiating
    Free Trade rounds (as                                            Total for
                                                                              all
    Agreement   of 10/03)   USTR Commerce Agriculture Treasury Other  agencies
                                             State
    Australia            5    22       20              8 16 23    45
                              (16%)    (15%)     (6%) (12%) (17%) (34%)    (100%)
         CAFTA              7    20       10               7 3 12    23
                              (27%)    (13%)      (9%) (4%) (16%) (31%)    (100%)
         Chile             14    25       16               5 8 10    48
                              (22%)    (14%)       (4%) (7%) (9%) (43%)    (100%)
        Morocco             5    21       19               7 8 19    56
                              (16%)    (15%)      (5%) (6%) (15%) (43%)    (100%)
          SACU              3    22        6                2 2 6     9
                              (47%)    (13%)      (4%) (4%) (13%) (19%)    (100%)
    Singapore           11    26       23              1 16 22    50
                              (19%)    (17%)     (1%) (12%) (16%) (36%)    (100%)

                           Source: GAO analysis of USTR data.

    Notes:

    Morocco and SACU numbers were based on GAO analysis of the USTR
    negotiating lists. SACU numbers were based on lists from two negotiating
    rounds.

    Percentages are rounded to the nearest percent.

    However, while table 2 conveys the wide range of officials who are part of
    an FTA negotiating team, it does not capture "staff effort" to support the
    team because none of the agencies involved routinely tracks staff time
    devoted to FTA negotiations, and only one agency was able to produce
    estimates for us. According to USTR officials, nearly all USTR staff are
    involved in each FTA before, during, or after negotiating sessions. One
    USDA official said its delegates to the negotiating team were just the tip
    of the iceberg because many other people at Agriculture were involved in
    providing complex analyses during the negotiations. Commerce data

    prepared for us (see table 3) show that a large number of staff support
    FTAs, but their total staff hours translate into fewer full-time
    equivalents.

    Table 3: International Trade Administration Free Trade Agreement Resource
                              Allocation, Fiscal Year 2003

    FTAs in progress FTAs signed

                                           Dominican
                 Australia Bahrain   CAFTA Republic  Morocco  SACU     Chile Singapore
    Total number
         of
    staff            71      21      76        22      61   55         91
      involved
    Total number
         of
     full-time
    equivalents       4.16    0.53    7.24       0.6    3.53  4.42      8.51
    Total fiscal
        year
    2003 travel
    expenditures  $43,074       $0 $88,046        $0 $17,626 $48,515 $38,118   $32,737

    Source: Commerce.

    Note: The Chile and Singapore FTAs are complete; therefore, travel
    expenditures and staff time were higher in previous years.

    The conclusion of negotiations does not mean that the work is completed on
    a given FTA. Additional demands, such as legal checks and translation
    activities, continue. For example, USTR officials reported that
    negotiations in the Americas have been slowed because of follow-up work
    after the signing of the Chile FTA. The increase in the number of FTAs is
    also likely to result in higher implementation-related needs, such as
    monitoring, enforcement, and dispute resolution. Our prior work has
    highlighted concerns about the increasing monitoring and enforcement
    workload at trade agencies,15 and USTR estimates that every three
    additional disputes require an additional legal specialist.

    15See U.S. General Accounting Office, International Trade: Strategy Needed
    to Better Monitor and Enforce Trade Agreements, NSIAD-00-76 (Washington,
    D.C.: Mar. 14, 2000).

    USTR Is Taking Measures to Cope with Resource Constraints

    USTR's approach to dealing with resource constraints is sequencing one set
    of negotiations per region at a given time in order to leverage the
    expertise of its negotiators. As a result, as depicted in figure 4, USTR's
    Office for the Americas will not start negotiating with the Dominican
    Republic until after the CAFTA negotiations have been completed.16
    Similarly, although Bahrain was ready to begin negotiating immediately
    with the United States, USTR's Office of Europe and the Mediterranean will
    postpone those negotiations until the completion of negotiations with
    Morocco. USTR has indicated that it will continue to schedule negotiations
    in each region after the current set of FTAs is completed. Thus, regional
    negotiators will remain fully occupied, and the queue of countries waiting
    to negotiate with the United States will likely grow.

    16This office is also working on the resource-intensive FTAA.

    Figure 4: USTR Sequences FTAs in Four Regions to Negotiate Ambitious FTA Agenda

    Country not yet decided

    CAFTA Central American Free Trade Agreement
    FTA Free Trade Agreement
    FTAA Free Trade Area of the Americas
    SACU Southern African Customs Union
    USTR Office of the U.S. Trade Representative

                                Sources: GAO and MapArt.

    Note: Actual ending dates may differ from those shown in the figure.

    In addition, USTR officials reported that they are using past agreements
    as a template for the ongoing negotiations.17 This strategy has progressed
    to the point that USTR now believes it can save resources by having
    countries accede to already negotiated FTAs. This process, called
    "docking," means that negotiators will not have to spend time
    renegotiating every area. For example, USTR officials stated that the
    Dominican Republic will be integrated into the U.S.-CAFTA FTA and that
    only market access issues should require separate, detailed negotiations.
    Although CAFTA will require 1 year to complete, USTR expects that docking
    the Dominican Republic onto the agreement will take considerably less
    time. USTR is also considering how to integrate separate FTAs as it works
    toward a U.S.-Middle East Free Trade Area.

    USTR is taking other measures to save resources. For example, USTR
    officials noted that they regularly combine various missions in one trip
    abroad and that they use extensive teleconferencing. In addition, USTR
    officials reported that they have cut costs by holding meetings in a
    central location18 and conducting negotiations in English when possible to
    avoid interpretation expenses. USTR is also improving its system for
    tracking TPA requirements for each FTA. To facilitate interagency
    collaboration, USTR developed a negotiations calendar listing the various
    bilateral, regional, and multilateral negotiating rounds so that
    negotiators may better identify competing demands.

    Finally, concerns that the FTA agenda would continue to be busy led to
    resource constraints' inclusion as a factor used for FTA partner selection
    during the interagency process. This step represents an improvement over
    the past situation, in which no formal discussion of resource constraints
    or trade-offs preceded FTA partner selection even though USTR and other
    trade agencies already faced human capital challenges.19 As a result,
    resource constraints are now a standard part of interagency FTA partner
    selection discussions. One official welcomed this development because it
    has enabled assumptions regarding resource allocations to be made ahead

    17For example, according to USTR officials, much of the CAFTA text is
    similar to the Chile FTA.

    18Several of the meetings for the Singapore negotiations were in London,
    for example, and two of the negotiating rounds for the Australia FTA were
    held in Hawaii.

    19See GAO/NSIAD-00-76.

    of time and for consideration to be given to how resources are currently
    devoted to ongoing bilateral and regional efforts.

    Present Resource Management Efforts Leave Gaps

    Resource Decisions Are Made with Limited Data and Planning

    Despite USTR's efforts to better manage resource constraints, important
    gaps remain. For example, decisions about staffing and funds for FTA
    negotiations lack formal data and systematic consideration of their likely
    impact on other trade priorities. Moreover, USTR is continuing to make
    specific requests for resources from other agencies on a case-by-case
    basis, after FTA partners are selected, making it difficult for these
    agencies to do their own resource planning for FTAs.

    USTR's resource data are not sufficiently robust for resource planning,
    and this limits USTR's flexibility in meeting its resource needs. When
    assigning resources for the current set of FTAs, USTR officials did not
    have clear data on hand regarding what was needed and what resources were
    available. We reported in 2002 that valid and reliable data are critical
    to assessing an agency's workforce requirements and to heighten an
    agency's ability to manage risk by allowing managers to (1) spotlight
    areas for attention before crises develop and (2) identify opportunities
    for enhancing agency results.20 In 2003, we also noted the importance of
    considering human capital challenges by relying on valid and current data
    and reported that the absence of such data can seriously undermine efforts
    to respond to current and emerging challenges.21 USTR has indicated that
    it is developing a new system for tracking spending according to different
    trade priorities, including FTAs, but this system is not yet operational.
    In addition, although staff time is a major resource devoted to FTAs, USTR
    officials informed us that they have no plans to track the time staff
    spend working on FTAs.

    The importance of systematic data and planning can be seen in the
    constraint imposed by limited numbers of functional experts, who focus on
    areas such as intellectual property rights, agriculture, and market
    access. These experts are often needed to support multiple, concurrent
    negotiations. However, the offices in which these staff work at USTR

    20See U.S. General Accounting Office, A Model of Strategic Human Capital
    Management, GAO-02-373SP (Washington, D.C.: March 2002).

    21See U.S. General Accounting Office, High Risk Series - Strategic Human
    Capital Management, GAO-03-120 (Washington, D.C.: January 2003).

    USTR Makes Staffing Requests to Other Agencies on a Case-by-Case Basis

    average only eight people each, so they often represent a limiting factor
    to completing FTA negotiations.

    USTR officials reported that they make many resource management decisions
    informally on an ongoing basis, in addition to those decisions based on
    advance planning that took into account the U.S.'s various trade
    priorities. For example, although regional assistant U.S. trade
    representatives provide staff and travel estimates as part of the annual
    budget cycle, they frequently bring specific resource requests to USTR
    management throughout the year. USTR officials, who must mediate among
    these often competing priorities, told us that they looked at several
    factors-for example, negotiating deadlines and the need for specific
    expertise-to make these resource decisions. If there were competing
    demands for staffing for the Morocco and SACU negotiations, for example,
    USTR management might consider that the need would be more pressing for
    the Morocco negotiator because of that negotiation's shorter deadline for
    completion (e.g., the end of 2003 versus the end of 2004 for SACU). If
    USTR managers identify a lack of available staff to cover certain issues,
    they then turn to other agencies to supplement their own staff. This
    informal, reactive approach may no longer be adequate to meet the needs of
    increasing numbers of negotiations, particularly if the U.S.'s trade
    strategy shifts to an emphasis on bilateral agreements in the wake of the
    failed Cancun ministerial of the WTO. Moreover, this approach also affects
    resource management at other trade agencies.

    The revised interagency process has not made requesting and securing staff
    from other agencies more systematic because participants do not address
    specific staffing needs or other cost estimates in detail in the formal
    interagency meetings, such as the TPSC and the TPRG, that are used to
    select FTA partners. Instead, the discussion of resource constraints
    focuses more on matters like timing for multiple FTAs in the same region,
    such as Morocco and Bahrain.

    Specific requests for and commitments of resources by other agencies still
    occur after FTA partners are selected. According to USTR, after an FTA
    partner country is selected, the Trade Representative's office asks the
    assistant U.S. trade representatives for a listing of officials at USTR
    and other agencies they propose to constitute the U.S. negotiating team.
    On the basis of these lists, USTR managers report that they talk to their
    respective counterparts at other agencies regarding USTR's needs. These
    discussions generally begin just before USTR notifies the Congress about
    the FTA and are ongoing thereafter as negotiations get under way.
    According to USTR,

    the ad hoc nature of these requests is due in part to USTR's varying needs
    for different agencies' involvement, depending on the topics being
    negotiated and the changing requirements over time.

    USTR's reactive method for requesting staff from other agencies makes it
    difficult for their own resource planning. Commerce officials, for
    example, noted that the department had much less notice about FTA staffing
    needs than it did about the need for staff support during NAFTA
    negotiations. Agencies report that they were generally able to comply with
    USTR's requests but noted that the requests sometimes strained their
    resources. At times it was necessary for agencies to make trade-offs, if
    the same person was requested for concurrent negotiations, agency
    officials told us. According to Treasury officials, they have had to
    "perform triage" on some operations due to the heavy FTA workload. Other
    agencies also noted the burden of travel costs. Although agencies continue
    to respond to USTR's informal method of requesting resources, it is
    unclear how well this system will continue to function in light of the
    intensifying FTA agenda.

    Conclusions	After selecting the first several FTA partners with limited
    interagency consultation, the administration has adopted a more rigorous
    and inclusive process to implement its FTA agenda. This framework for
    interagency discussions appears to be promoting fuller deliberations and
    wider involvement in the FTA partner selections. However, other management
    challenges remain. In particular, USTR and other agencies have reported
    that FTA negotiations are already straining available resources. Several
    steps have since been taken to deal with resource constraints associated
    with FTAs. However, present mechanisms still leave important gaps because
    they do not involve systematic data or interagency resource planning. As
    the United States sets its sights on more bilateral agreements, especially
    in light of the breakdown of the September 2003 Cancun negotiations, the
    importance of managing trade priorities at USTR and other trade agencies
    becomes increasingly significant. Managing resources, especially across
    diverse agencies, is paramount in meeting the competing demands of a
    complex and intensifying U.S. trade agenda.

    Recommendation for 	In light of USTR's limited resources and management
    systems to track those resources, we recommend that the Office of the U.S.
    Trade

    Executive Action Representative work with other key trade agencies to
    develop more

    systematic data and plans for allocating staff and resources across the
    full U.S. trade agenda, including FTAs and other negotiating priorities.

    Agency Comments and Our Evaluation

    We provided a draft of this report to the departments of State, Commerce,
    Agriculture, and the Treasury. State and Treasury did not provide
    comments. We received written comments on a draft of this report from the
    U.S. Trade Representative (see app. V). USTR, Commerce, and Agriculture
    also provided technical comments, which we incorporated in the report as
    appropriate.

    In his response to our draft report, the Trade Representative emphasized
    the administration's competitive liberalization strategy and the role of
    FTAs in the strategy. He laid out the steps his office is taking to
    promote liberalized trade and described what the administration is doing
    in several regions throughout the world. He referred to resource pressures
    when he noted that his office is pressing forward with global,
    hemispheric, and five subregional or bilateral FTA negotiations
    simultaneously; while at the same time, USTR litigation activities have
    soared, with WTO disputes doubling over the last 5 years.

    The Trade Representative agreed with us that the intensifying trade agenda
    requires continual management improvements at USTR and supporting
    agencies, and he acknowledged that increased pressures demand "nothing
    less than a transformation of USTR." However, he did not agree with our
    recommendation that USTR and other key trade agencies develop more
    systematic data and plans for allocating staff and resources across the
    full trade agenda. The Trade Representative wrote that our emphasis on a
    better allocation of staff and resources reflects an inaccurate assessment
    of how to allocate limited resources most effectively and efficiently.

    According to the Trade Representative, the main cause of strain at USTR is
    the amount of available resources, not their allocation. The Trade
    Representative maintained that USTR must be "agile, flexible and
    adaptable-not bureaucratic." We believe that aligning goals and resources
    promotes the flexibility needed to respond to evolving circumstances. Our
    recommendation focuses on setting priorities among the multilateral,
    hemispheric, and FTA negotiations that take into account available staff.
    It also calls for coordinating those staff allocations with other agencies
    whose resources USTR routinely calls upon during the course of
    negotiations. Resource management fundamentally involves taking a given
    (and limited) amount of resources and deploying (allocating) it over

    program objectives aligned with the agency's overall priorities. This
    approach frees managers to focus on its core program, not on continually
    reacting to the daily fluctuations of resource needs.

    The resources that USTR requested in fiscal year 2004 appear to have been
    justified based on its needs for completing the ongoing four FTAs
    (Australia, Morocco, CAFTA, and SACU). Since then, negotiations with the
    Dominican Republic, Bahrain, Panama, and the Andean countries have been
    announced. This increasing workload with its related demand for staff and
    travel can be better managed with (1) the collection of data to help
    managers understand what resources are linked to accomplishing agency
    objectives and (2) the use of these data in advance planning for future
    resource allocation, which can help USTR managers coordinate with other
    agencies whose own resources are affected by USTR negotiations. The Trade
    Representative listed several steps that USTR has taken to address its
    resource limitations. Although we recognize and encourage the steps that
    USTR has already taken to make improvements, we note that many of these
    efforts are already recognized in this report and are not sufficient to
    address our concerns for forward planning.

    The Trade Representative pointed to the fact that we did not identify any
    "misallocation of funds." Solid data would permit sound conclusions about
    how federal funds are managed at USTR. The limited information that USTR
    and Commerce finally provided us had to be specially tabulated for this
    report because it is not routinely tracked. Our data show that FTAs
    involved considerable resources at both USTR and other agencies.
    Specifically, 37 percent of USTR travel funds were used for FTA-related
    travel in 2003, and 11 percent of USTR's staff were involved in each of
    the six FTAs completed or negotiated FTAs in 2003. These data also show
    that other agencies account, on average, for more than three-fourths of
    the members of U.S. FTA negotiating teams, which averaged 106 members.
    Thus, USTR and other agencies commit significant resources on trade
    initiatives that cover 8 percent of total U.S. trade.

    As agreed with your offices, unless you publicly announce the contents of
    this report earlier, we plan no further distribution until 30 days from
    the report date. At that time, we will send copies to interested
    congressional committees, the U.S. Trade Representative, the Secretary of
    Commerce, the Secretary of the Treasury, the Secretary of State, and the
    Secretary of Agriculture. Copies will also be made available to others
    upon request. In

    addition, the report will be available at no charge on the GAO Web site at
    http://www.gao.gov.

    If you or your staff have any questions about this report, please contact
    me
    on (202) 512-4128. Other GAO contacts and staff acknowledgments are
    listed in appendix VI.

    Loren Yager
    Director, International Affairs and Trade

    Appendix I

                           Objectives, Scope, and Methodology

    Senator Max Baucus, Ranking Minority Member of the Senate Finance
    Committee, and Representative Calvin Dooley asked us to examine the
    factors and process used to make decisions regarding the selection of free
    trade agreement (FTA) negotiating partners and the allocation of
    negotiating resources. In response, we (1) provided information about the
    factors that influence the selection of FTA partners and described how
    they were developed; (2) analyzed the interagency process for selecting
    FTA partners, including how the Office of the U.S. Trade Representative
    (USTR) coordinates the views of key agencies and consults with the
    Congress and business and nongovernmental groups; and (3) assessed how the
    executive branch makes decisions regarding the availability and allocation
    of resources to FTAs and other trade priorities, such as the regional
    talks of the Free Trade Area of the Americas (FTAA) and the multilateral
    talks at the World Trade Organization (WTO).

    To provide information about the factors that influence the selection of
    FTA partners and how they were developed, we reviewed pertinent
    documentation from key U.S. agencies involved in assessing potential FTA
    partners, such as USTR and the departments of State and Commerce. For
    example, we reviewed pertinent USTR documentation from 2000 to 2003 on
    FTAs, including public speeches, articles, and agency documentation on FTA
    partners. We also reviewed U.S. International Trade Commission documents
    on FTAs and Congressional Research Service reports on U.S. trade and FTAs.
    In addition, we interviewed knowledgeable officials at the key agencies
    involved in the process of assessing potential FTA partners. For instance,
    we interviewed the U.S. Trade Representative, the Deputy U.S. Trade
    Representative, and several assistant U.S. Trade Representatives; the
    Director of the Office of International Economics at the National Security
    Council (NSC); the Under Secretary for Economics, Business, and
    Agricultural Affairs at the Department of State; the Assistant Secretary
    for International Affairs at the Department of the Treasury; the Under
    Secretary of Farm and Foreign Agricultural Services at the Department of
    Agriculture; and the Under Secretary for International Trade at the
    Department of Commerce.

    To analyze the interagency process for selecting FTA partners, including
    how USTR coordinates the views of key trade agencies and consults with the
    Congress and business and nongovernmental groups, we reviewed pertinent
    documentation from key U.S. agencies involved in the process of selecting
    FTA partners. For example, we reviewed USTR documentation from 2000 to
    2003 on FTAs, including public speeches, articles, agency documents,
    records of contacts with the U.S. Congress, records of public

    Appendix I
    Objectives, Scope, and Methodology

    hearings, and papers on FTA partners prepared for the consideration of the
    Trade Promotion Staff Committee and Trade Promotion Review Group. Also, we
    interviewed officials at the key agencies involved in the process of
    assessing potential FTA partners. For example, we interviewed the U.S.
    Trade Representative, the Deputy U.S. Trade Representative, and several
    assistant U.S. Trade Representatives; the Director of the Office of
    International Economics at the NSC; the Under Secretary for Economics,
    Business, and Agricultural Affairs at the Department of State; the
    Assistant Secretary for International Affairs at the Department of the
    Treasury; the Under Secretary of Farm and Foreign Agricultural Services at
    the Department of Agriculture; and the Under Secretary for International
    Trade at the Department of Commerce. In addition, we obtained information
    from business and nongovernmental organizations, including the U.S.
    Chamber of Commerce, the Washington Office on Latin America, Oxfam
    America, Public Citizen, World Vision, and the Center for International
    Environmental Law.

    To assess how decisions are made regarding the availability and allocation
    of resources to FTAs and other trade priorities, we reviewed pertinent
    documentation from key U.S. agencies involved in assessing FTA partners,
    such as USTR and State and Commerce. For example, we reviewed USTR
    documentation from 2000 to 2003 on FTAs, including papers on potential FTA
    partners, lists of FTA negotiating teams, and budget and personnelrelated
    data. Because negotiating lists were not complete for four of the
    negotiations, we asked USTR to provide summary numbers of the
    participating agencies. For the other two negotiations, we did our own
    analysis of agency staffing based on the negotiating lists provided by
    USTR. As noted in the text, these data merely identify the number of
    individuals involved and do not necessarily reflect staff effort. We
    determined that USTR data were sufficiently reliable for purposes of our
    assessment, even though, as our recommendation indicates, we determined
    that these data are not sufficiently robust for agency decision making and
    should be improved. Moreover, we interviewed knowledgeable officials at
    the key agencies involved in the process of assessing potential FTA
    partners. For instance, we interviewed the U.S. Trade Representative, the
    Deputy U.S. Trade Representative, and several assistant U.S. Trade
    Representatives; the Director of the Office of International Economics at
    the NSC; the Under Secretary for Economics, Business, and Agricultural
    Affairs at the Department of State; the Assistant Secretary for
    International Affairs at the Department of the Treasury; the Under
    Secretary of Farm and Foreign Agricultural Services at the Department of
    Agriculture; and the Under Secretary for International Trade at the
    Department of Commerce.

    Appendix I
    Objectives, Scope, and Methodology

    Despite repeated requests to the NSC, we were unable to obtain key
    documents from the February 2002 and May 2003 meetings that provided
    guidance to the interagency efforts to formalize the criteria and enhance
    the process for developing recommendations to the President for selecting
    potential FTA partners.

    We conducted our review from June to November 2003 in accordance with
    generally accepted government auditing standards.

    Appendix II

    European Union and United States Free Trade Agreements, by Region

    Current FTA partner Future FTA partner

    FTA Free Trade Agreement

    FYROM Former Yugoslav Republic of Macedonia

    GCC 	Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia,
    and the United Arab Emirates)

    MERCOSUR Common Market of the South (members: Argentina, Brazil, Paraguay,
    and Uruguay)

    Overseas countries Greenland, New Caledonia, French Polynesia, French
    Southern and Antarctic Territories,

    and territories Wallis and Futuna Islands, Mayotte, Saint Pierre and
    Miquelon, Aruba, Netherlands Antilles,

    (European Union)	Anguilla, Cayman Islands, Falkland Islands, South Georgia
    and South Sandwich Islands, Montserrat, Pitcairn, Saint Helena, Ascension
    Island, Tristan da Cunha, Turks and Caicos Islands, British Antarctic
    Territory, British Indian Ocean Territory, and the British Virgin Islands

    Source: GAO.

    Appendix III

    U.S. Trade with Potential and Existing FTA Partners

    The following table presents trade data that describe the percentage and
    amount of total U.S. trade with current and potential FTA partners, as
    well as with non-FTA countries.

           Table 4: U.S. Trade with Potential and Existing FTA Partners, 2002

    Dollars in millions

    Percentage Total trade Total exports Total imports U.S. trading partners
    of total trade (exports+imports) (goods+services) (goods+services)

                                 Potential FTA partners

                         Page 35 GAO-04-233 International Trade
    FTAA          Trade                                                                                                                                                                                  Central                                                                                                                                                                                                                                                                                                Southern
    (excluding     Agreement                                                                                                                                                                               American                                       Costa                           El                                                                                                                      Dominican                                                    Remaining                           African                                                                                              South
    the North       (NAFTA)  5.25 $119,135 $53,119 $66,017 Andean 0.71 16,075 6,464 9,611 Bolivia 0.02 342 182  Colombia 0.38 8,727 3,345 5,382 Ecuador 0.16 3,612 1,496 2,116 Peru 0.15 3,394 1,441 1,953   Free        (CAFTA) 0.94 21,269 9,423 11,846 Rica  0.27 6,038 2,891 3,146 Salvador 0.16 3,583 1,608 1,976 Guatemala 0.21 4,761 1,976 2,785 Honduras 0.26 5,786 2,524 3,262 Nicaragua 0.05 1,101 423  Republic  0.36 8,276 4,109 4,167 Panama 0.07 1,594 1,299 295   FTAA    3.17 71,921 31,825 40,097 Customs  0.41 9,215 3,674 5,541 Botswana 0.00 61 32 30 Lesotho 0.01 323 2 321 Namibia 0.00 111 54 57 Africa 0.38 8,594 3,576 5,018 Swaziland 0.01 126 11 114 Australia 1.18 26,830 17,496 9,334 Bahrain 0.04 803 407 395 Morocco 0.04 970 560 410 Thailand 0.94 21,221 5,615 15,606
     American         and                                                                                                                                                                                    Trade                                                                                                                                                                                                                                                                                                  Union
    Free         Chile)                                                                                                                                                                                 Agreement                                                                                                                                                                                                                                                                                                (SACU)                                                                                                                                                                                                                                                                             Subtotal 7.85 $178,174 $80,872 $97,302

            Appendix III U.S. Trade with Potential and Existing FTA Partners

                             (Continued From Previous Page)

    Dollars in millions

    Percentage Total trade Total exports Total imports U.S. trading partners
    of total trade (exports+imports) (goods+services) (goods+services)

                                 Existing FTA partners

                     NAFTA                28.33   $642,934   $268,815    $374,119
                    Canada                17.44    395,769    166,837     228,932
                    Mexico                10.89    247,165    101,978     145,187
                     Chile                0.34      7,777      3,499        4,278
                    Israel                0.95     21,587      7,567       14,020
                    Jordan                0.04       809           397
                   Singapore              1.62     36,670     20,484       16,186
                   Subtotal               31.28   $709,777   $300,762    $409,015
         Trade with non-FTA countries     60.87  $1,381,187  $527,460    $853,728
    Total U.S. Trade (all countries)  100.00  $2,269,138  $909,094  $1,360,045
               Source: Commerce.

    Notes:

    Imports are imports for consumption at customs value; and exports are
    domestic exports at freealongside-value. Detailed 2002 services data by
    country are available only for Argentina, Australia, Brazil, Canada,
    Chile, Israel, Mexico, Venezuela, Singapore, South Africa, and Thailand.

    "Remaining FTAA countries" are Antigua and Barbuda, Argentina, the
    Bahamas, Barbados, Belize, Brazil, Dominica, Grenada, Guyana, Haiti,
    Jamaica, Paraguay, St. Kitts and Nevis, St. Lucia, St. Vincent and the
    Grenadines, Suriname, Trinidad and Tobago, Uruguay, and Venezuela.

    Excluding the FTAA negotiation, the current FTA negotiating partners
    (CAFTA, SACU, Morocco, Australia, the Dominican Republic, Bahrain,
    Thailand, Panama, and the Andean countries) collectively account for about
    4.7 percent of total U.S. trade. Of these nine partners, Australia
    contributes almost 1.2 percent, or about 25 percent of their combined
    trade. Chile and Singapore account for another 2.0 percent of U.S. trade.
    In contrast, NAFTA brought together the U.S.'s top two trading partners
    (Canada and Mexico), representing about 28 percent of total U.S. trade.
    Completing the FTAA negotiations would bring an additional 3.0 percent of
    total trade under FTA disciplines.

    Appendix IV

    Selected U.S. Free Trade Agreement Partner Profiles

    In this appendix, we describe the background, considerations in FTA
    partner selection, milestones, features, concerns, and FTA partner
    participation for six countries with which the United States has or
    intends to have FTAs. We also describe those components for two regional
    entities-CAFTA and SACU.

                                   U.S.-Australia FTA

    Background	The United States and Australia are among the world's most open
    economies. Both countries are prominent supporters of trade liberalization
    and have maintained a stable commercial relationship, having brought only
    a few dispute resolution cases against each other in the WTO. In 2002,
    Australia accounted for more than $13 billion in U.S. exports. Total
    two-way trade between the United States and Australia was almost $20
    billion in that year as well. The United States and Australia have signed
    two bilateral agreements-the settlement on leather products trade in 1996
    and the understanding on automotive leather subsidies in 2000. For several
    years, Australian officials told U.S. policy makers about Australia's
    interest in an FTA with the United States. The current Prime Minister also
    raised this matter in meetings with President Bush. Until recently,
    though, the Bush administration had expressed interest but had not
    committed to begin negotiations. However, the FTA negotiations between the
    United States and Australia are starting from a strong base, given the
    similarity of the structure of their economies and the compatibility of
    their trade policies.

    Considerations in FTA Partner Selection

    USTR highlighted several reasons why Australia was selected as an FTA
    partner in 2002. First, two-way trade between the United States and
    Australia grew significantly in the past decade. In 2002, the United
    States exported $13.1 billion to Australia, the 13th largest destination
    of U.S. exports. It also imported $6.5 billion from Australia, the 28th
    largest source of U.S. imports. Second, the increased U.S. access to
    Australia's market made possible by an FTA would further boost trade in
    both goods and services, enhancing employment opportunities in both
    countries. Third, an FTA would encourage additional foreign investment
    between the United States and Australia, adding to the many jobs that the
    significant investment flows between the two countries currently support.
    Fourth, an FTA would result in greater business integration, especially in
    the information technology sector, increasing efficiency and the

                                      Appendix IV
                       Selected U.S. Free Trade Agreement Partner
                                        Profiles

    competitiveness of the U.S. industry. Overall, U.S. manufacturers and
    services providers support these FTA negotiations. Finally, an FTA would
    address barriers that U.S. exports to Australia face today, including
    Australia's use of sanitary and phytosanitary measures as a means of
    restricting agricultural trade.

    FTA Milestones	In November 2002, USTR notified the Congress that the
    United States intended to enter into FTA negotiations with Australia in at
    least 90 days. In February 2003, the United States and Australia started
    the first of six planned negotiating rounds. The United States and
    Australia had intended to complete the negotiations by the end of 2003,
    but negotiations will continue into 2004.

    FTA Features	The WTO requires that an FTA, at a minimum, substantially
    eliminate tariffs and other restrictions on mutually traded goods and
    services. However, the U.S.-Australia FTA is likely to be more
    comprehensive given the broad negotiating objectives that the governments
    have announced will cover agriculture, industry, and services issues. The
    U.S.-Australia FTA will negotiate 20 broad, trade-related issues,
    including market access for goods, agriculture, textiles, rules of origin,
    customs administration, sanitary and phytosanitary measures, technical
    barriers to trade, trade remedies, services, investment,
    telecommunications, financial services, competition policy, government
    procurement, electronic commerce, intellectual property, labor,
    environment, transparency, and institutional arrangements and dispute
    settlement. USTR leads the U.S. delegation with other delegation members,
    including the NSC; the departments of State, Commerce, Agriculture, Labor,
    Justice and the Treasury; the Environmental Protection Agency; and the
    Federal Trade Commission.

    FTA Concerns	The United States and Australia have a firm trade
    relationship, and their tariffs on most products are already very low.
    Therefore, critical issues in the FTA negotiations will be nontariff
    barriers and other issues. According to trade policy experts, agricultural
    issues will be the greatest challenge during these negotiations. For
    example, agriculture accounted for only 2.2 percent of U.S. exports to
    Australia but for 29.2 percent of U.S. imports from Australia in 2002.
    Some in the U.S. agricultural community oppose the negotiations. The most
    recent round of negotiations took place in

                                      Appendix IV
                       Selected U.S. Free Trade Agreement Partner
                                        Profiles

    October 2003. Each side has presented its own proposals and raised
    concerns regarding agricultural issues.

    Australia takes issue with U.S. tariff-rate quotas on dairy products,
    sugar, beef, and many other products. Australia announced that it would
    seek the removal of these quotas during the FTA negotiations.
    Government-run commodity boards control Australian exports of wheat and
    rice. Because these boards restrict U.S. exports, the United States has
    targeted them for removal during the FTA negotiations. Separately, the
    United States has also targeted specific Australian sanitary and
    phytosanitary measures because they are highly restrictive and have
    adversely affected U.S. exports of citrus, apples, pears, corn, stone
    fruit, chicken, and pork. These bilateral discussions are proceeding on a
    parallel track to resolve the sanitary and phytosanitary issues between
    the United States and Australia.

    Because all foreign investment in Australia is subject to government
    screening and approval, the United States has noted Australia does not
    conform to the principle of national treatment-that is, treating foreign
    investors no less favorably than domestic investors. As a result, the
    United States will seek the elimination or reduction of these
    trade-distorting investment measures.

    Even after resolving these irritants, U.S. officials are concerned that,
    after the implementation of this FTA, the United States may face many
    disputes on agricultural matters and other issues with Australia, one of
    its closest allies.

    FTA Partner Participation in Australia is a WTO member and has had FTAs
    with New Zealand since 1966

    Other Trade Agreements	and with Singapore since 2003. Australia and the
    United States are founding members of the Asian-Pacific Economic
    Cooperation (APEC) forum, an organization of 21 countries that has
    established the goal of free trade and investment in that region by 2020.

                                      Appendix IV
                       Selected U.S. Free Trade Agreement Partner
                                        Profiles

                                    U.S.-Bahrain FTA

    Background	Bahrain is an emerging regional financial center in the Persian
    Gulf region. The United States has been holding talks on economic policy
    with the Gulf Cooperation Council (GCC), of which Bahrain is a member,
    through the U.S.-GCC Economic Dialogue. In 2001, the United States and
    Bahrain signed a bilateral investment treaty. On June 18, 2002, the two
    countries signed a Trade and Investment Framework Agreement, which enabled
    the United States to increase its engagement with Bahrain on economic
    reforms and on bilateral trade and investment issues.

    Considerations in FTA Partner Selection

    USTR emphasized several reasons for selecting Bahrain as an FTA partner.
    First, an FTA with Bahrain would support U.S. security and political goals
    by increasing prosperity and globalization in the region. Second, the
    executive branch views the U.S.-Bahrain FTA as a stepping-stone to an
    eventual Middle East Free Trade Area (MEFTA). Bahrain could become the hub
    of a subregional block of countries that might develop closer and more
    open trading relationships with the United States. Third, Bahrain has been
    an important U.S. ally in the region. Fourth, USTR emphasized Bahrain's
    readiness to undertake an FTA with the United States, particularly in
    comparison with other states in the Persian Gulf region. U.S. officials
    emphasized the commitment among the highest levels of the Bahraini
    government to make strong economic and political reforms to facilitate
    trade. Bahrain made economic reforms in areas such as property rights and
    copyright laws and is an emerging regional financial center. The country
    also made political reforms, such as strengthening its parliament.
    According to USTR officials, an FTA could be completed relatively quickly
    with Bahrain because of its small size and reform-minded outlook. Finally,
    USTR officials emphasized that an FTA with Bahrain would generate
    opportunities for U.S. business.

    FTA Milestones	In January 2003, the King of Bahrain raised the idea of an
    FTA in a meeting with President Bush. In May 2003, the USTR met with the
    Bahraini Crown Prince and announced the executive branch's plans for
    negotiating an FTA with Bahrain. On August 4, 2003, USTR notified the
    Congress of the administration's intent to initiate negotiations for an
    FTA with Bahrain. The target date for beginning negotiations is January
    2004.

                                      Appendix IV
                       Selected U.S. Free Trade Agreement Partner
                                        Profiles

    FTA Features	The U.S.-Bahrain FTA is expected to be a key part of the
    U.S.-MEFTA that the United States is supporting to address the related
    problems of terrorism and poverty in the region. According to the World
    Bank, unemployment in the Middle East is estimated conservatively at
    around 15 percent, and the labor force could expand by as much as 40
    percent in the next 10 years. In addition, USTR notes that the region has
    extremely low rates of internal trade. The United States hopes that MEFTA
    could encourage economic reforms that would spur investment and increase
    opportunities in the region. In Jordan, for example, which signed an FTA
    with the U.S. in 2001, exports to the United States grew by 72 percent in
    2002, and the United States is now Jordan's biggest trading partner. USTR
    has outlined a stepby-step approach to building a MEFTA that takes into
    account the different developmental and economic levels of the countries
    in the region. These steps include supporting the potential partner
    country's membership in the WTO; expanding the Generalized System of
    Preferences (GSP) Program1 to increase U.S. trade with the Middle East;
    signing bilateral investment treaties, trade and investment framework
    agreements, and ultimately FTAs; and providing financial and technical
    assistance for trade capacitybuilding. The President's Middle East
    Partnership Initiative will help direct more than $1 billion per year from
    U.S. government agencies to support trade in the Middle East.

    FTA Concerns	Despite Bahrain's and the U.S.'s interest in establishing an
    FTA, the U.S. government officials with whom we spoke described regional
    influences that may serve as potential obstacles to countries in the
    Persian Gulf region that would like to make progress on trade with the
    United States.

    FTA Partner Participation in Bahrain is a member of the GCC customs union,
    which is still developing

    Other Trade Agreements	its trade rules. In 1989, the European Commission
    and the GCC signed a Cooperative Agreement that contains a commitment from
    both sides to enter into FTA negotiations. The two entities are now
    actively pursuing FTA talks.

    1The GSP program is a unilateral program that extends duty-free entry of
    certain imports from developing countries.

                                      Appendix IV
                       Selected U.S. Free Trade Agreement Partner
                                        Profiles

                                     U.S.-Chile FTA

    Background	Preceding the U.S.-Chile FTA negotiations, which began in
    December 2000, Chile undertook political and economic reforms. These
    reforms positioned the country to implement a comprehensive trade
    agreement. Before the negotiations, Chile deregulated and restructured its
    economy and opened its trade ties to industrial countries. For example, in
    1994 Chile reacted positively to the possibility of becoming a party to
    NAFTA but negotiations ceased, due in part to the expiration of the U.S.
    President's fast-track negotiating authority.2 However, the Congress did
    not grant the President such authority for 8 years; with this delay, the
    accession of Chile to NAFTA did not occur. Despite this delay, the
    U.S.-Chile Joint Commission on Trade and Investment was founded on the
    occasion of President Clinton's visit to Chile in 1998. The commission
    established a work program to address a variety of bilateral trade and
    investment issues and facilitated the exchange of trade information. Thus,
    both countries were prepared to negotiate a comprehensive FTA when the
    negotiations began.

    Considerations in FTA Partner Selection

    A variety of factors may have contributed to the U.S.'s decision to
    initiate an FTA with Chile. First, U.S. exports faced a 6 percent Chilean
    tariff, while exports from Chile's existing FTA partners entered the
    Chilean market duty-free. Chile had therefore reduced its purchases of
    U.S. exports by almost one-third from $4.38 billion in 1997 to $3.13
    billion in 2001 in favor of relatively cheaper goods from its FTA
    partners. An FTA with Chile provided the opportunity to reduce this tariff
    that had disadvantaged U.S. exports. USTR noted that the FTA would ensure
    that U.S. businesses and investors received treatment equal to or better
    than Chile's other FTA partners. Second, Chile adopted economic reforms,
    such as the elimination of price controls and the privatization of
    state-owned enterprises, that signaled that Chile was willing to implement
    a mutually beneficial FTA by solidifying these reforms. Finally, through
    FTA negotiations, the United States hoped to build Chile's support for
    important issues in the FTAA negotiations. For example, the U.S.-Chile FTA

    2Although the Congress granted the President the authority to negotiate
    trade agreements with expedited implementation procedures, known as Fast
    Track, almost continuously since 1974, this authority lapsed in 1994.
    Similar authority was reauthorized under the Trade Act of 2002.

                                      Appendix IV
                       Selected U.S. Free Trade Agreement Partner
                                        Profiles

    negotiations better defined key negotiating issues in areas such as labor
    and the environment and demonstrated to other countries participating in
    the FTAA negotiations the U.S.'s interest in furthering trade
    liberalization.

    FTA Milestones	On November 29, 2000, the Clinton administration announced
    its intention to negotiate a comprehensive FTA with Chile. Negotiations
    began on December 6, after U.S. and Chilean officials agreed on the
    initial list of topics to be discussed and the organization of negotiating
    groups. During the negotiations, and following the change in U.S.
    administration, the U.S. and the Chilean presidents declared their
    intention on April 16, 2001, to complete the agreement by the end of that
    year with meetings scheduled to occur approximately once a month through
    the end of 2001. However, due to the complexities of some trade topics,
    the negotiations would require an additional year and would include 14
    negotiating rounds. Following the completion of these negotiating rounds,
    on December 11, 2002, USTR announced that an agreement had been reached.
    On June 6, 2003, USTR and the Chilean Foreign Minister signed the
    agreement. USTR then submitted draft FTA implementing bills to the
    Congress on July 15, 2003. The House of Representatives and the Senate
    passed the U.S.-Chile Free Trade Implementation Act on July 24 and July
    31, 2003, respectively. President Bush signed the act on September 3,
    2003. USTR expects the FTA to be implemented on or after January 1, 2004.

    FTA Features	The FTA is comprehensive in its treatment of industrial and
    agricultural products and, according to USTR, provides a template to
    demonstrate to other FTA partners the U.S.'s high expectations with regard
    to the scope of FTAs. For example, the negotiations encompassed trade in
    all goods, with approximately 85 percent of U.S.-Chilean trade in
    industrial and commercial goods becoming duty-free upon the agreement's
    implementation. In addition, 75 percent of trade in agricultural products
    will become duty-free during the first 4 years following implementation.
    The FTA will also increase each country's market access to a wide range of
    services.

    FTA Concerns	Some Members of Congress and certain nongovernmental
    organizations have expressed concern about the use of the U.S.-Chile FTA
    as a model for negotiations with other FTA partners, particularly with
    regard to the agreement's provisions concerning labor standards and the
    temporary

                                      Appendix IV
                       Selected U.S. Free Trade Agreement Partner
                                        Profiles

    entry of professionals. For example, certain Members and labor interests
    have argued that the FTA's labor provisions may be adequate for countries,
    such as Chile, that maintain stringent labor standards but such provisions
    may not be as appropriate for other countries that have not maintained or
    enforced strong labor laws. In addition, certain Members have raised
    concern with regard to the FTA's provisions facilitating the entry of
    professionals, stating that such provisions touch upon immigration laws
    that are within the purview of the Congress and should not be amended
    through trade agreements.

    FTA Partner Participation in Other Trade Agreements

    Successive Chilean governments have pursued trade liberalization
    strategies and export-oriented development policies, resulting in FTAs
    with Canada in 1997; Mexico in 1999; Central America and the European
    Union in 2002; and South Korea in 2003. In addition, Chile signed economic
    complementation agreements with Argentina in 1992; Venezuela, Colombia,
    and Bolivia in 1993; Ecuador in 1994; and Peru in 1998. Chile has also
    enacted an association agreement with the member countries of the Southern
    Common Market in October 1996. Finally, Chile joined the APEC organization
    in 1992 to boost commercial ties to Asian markets and is currently
    involved in negotiations for an FTAA in the western hemisphere.

    U.S.-Dominican Republic FTA

    Background	The Dominican Republic is the largest economy in the Caribbean
    Basin region. The trading relationship between the United States and the
    Dominican Republic has been shaped by the Caribbean Basin Initiative,
    which is a series of U.S. laws and programs beginning in 1983 that
    established unilateral U.S. trade preferences for goods from the Dominican
    Republic and 23 other countries in the region. In October 2002, the two
    countries held their first meeting under the U.S.-Dominican Republic Trade
    and Investment Council to deepen trade relations. When the United States
    began pursuing an FTA with the five Central American countries in 2002,
    the Dominican Republic expressed concern that it would suffer adverse
    economic consequences if it were not also included in the agreement.
    However, the United States did not support the request, in part because it
    did not believe the Dominican Republic had exhibited sufficient

                                      Appendix IV
                       Selected U.S. Free Trade Agreement Partner
                                        Profiles

    commitment to negotiate and implement a comprehensive FTA with highlevels
    of commitment. In response, the Dominican government took steps to address
    some problematic issues, and aligned themselves more with the United
    States in multilateral trade forums.

    Considerations in FTA Partner Selection

    According to USTR officials, the Dominican Republic was the first FTA
    partner that was selected under the new interagency process established in
    May 2003. USTR has emphasized several reasons for the selection of the
    Dominican Republic as an FTA partner. First, according to USTR, an FTA
    with the Dominican Republic would help support the broader U.S. trade
    strategy of competitive liberalization because the Dominican Republic
    would continue to uphold U.S. positions in the WTO and FTAA negotiations.
    Second, the FTA could bring economic and commercial benefits to the United
    States by increasing market access and creating more jobs. The Dominican
    Republic is the largest U.S. trading partner in the Caribbean, and USTR
    has described the country as an economic engine in the region. The
    combined markets of the Dominican Republic and the CAFTA countries would
    be larger than Brazil and would become the second-largest U.S. trading
    partner in Latin America. Third, the Dominican Republic was selected
    because the FTA would support U.S. efforts to strengthen democracy and the
    rule of law. For example, the United States plans to push for the
    inclusion of strong anticorruption and transparency requirements in the
    agreement. Fourth, the Congress has instructed the executive branch
    through the Caribbean Basin Initiative to enter into mutually advantageous
    FTAs with countries included in this initiative.3 Fifth, there appears to
    be broad bipartisan support in the Congress for this FTA. Sixth, the
    Dominican Republic has made clear progress in terms of its readiness to
    negotiate an FTA with the United States, according to USTR. For example,
    the Dominican government familiarized itself with the U.S.-Chile FTA and
    improved its protections of intellectual property rights, including
    satellite broadcasts and antipiracy provisions, in response to U.S.
    concerns. According to USTR, there is a clear willingness at the highest
    levels of the Dominican government to meet U.S. requirements for FTA

    3The Caribbean Basin Initiative collectively refers to the Caribbean Basin
    Economic Recovery Act of 1983, the Caribbean Basin Economic Recovery
    Expansion Act of 1990, and the U.S.-Caribbean Basin Trade Partnership Act
    of 2000. The countries include Antigua, Aruba, the Bahamas, Barbados,
    Belize, British Virgin Islands, Costa Rica, Dominica, the Dominican
    Republic, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras,
    Jamaica, Montserrat, Netherlands Antilles, Nicaragua, Panama, St. Kitts
    and Nevis, St. Lucia, St. Vincent and the Grenadines, and Trinidad and
    Tobago.

                                      Appendix IV
                       Selected U.S. Free Trade Agreement Partner
                                        Profiles

    partners. Seventh, there is strong support for an FTA among U.S. industry
    and agricultural exporters, including from such groups as the U.S. Chamber
    of Commerce.

    FTA Milestones	The Dominican President met with President Bush in July
    2002 to request an FTA with the United States. In a joint statement issued
    at a March 2003 meeting of the U.S.-Dominican Republic Trade and
    Investment Council, the United States acknowledged the steps that the
    Dominican Republic had taken so far to improve its trade policy and stated
    its willingness to consider adding the Dominican Republic to CAFTA. On
    August 4, 2003, following a meeting with the Congressional Oversight
    Group, the Trade Representative formally notified the Congress of the
    executive branch's intent to initiate FTA negotiations with the Dominican
    Republic. The target date for starting negotiations is January 2004. USTR
    hopes to conclude negotiations in March 2004.

    FTA Features	USTR plans to integrate the Dominican Republic into the FTA
    it is already negotiating with five Central American countries. Officials
    will propose that the Dominican Republic accede to the framework of CAFTA
    as it is being discussed, after which the talks will focus on market
    access issues. USTR hopes to present the Congress with one agreement for
    CAFTA countries and the Dominican Republic.

    FTA Concerns	Given the short time frame, integrating the Dominican
    Republic may be challenging. In fall 2003, USTR is to consult with the
    Dominicans about the Chile and Singapore FTAs to explore the extent of
    Dominican support in adopting provisions similar to those in these
    agreements.

    Other concerns involve the State Department's identification of the
    Dominican Republic as a country that does not fully comply with minimum
    standards in the trafficking of persons.

                                      Appendix IV
                       Selected U.S. Free Trade Agreement Partner
                                        Profiles

    FTA Partner Participation in The Dominican Republic has FTAs with the
    Caribbean Community Other Trade Agreements (CARICOM)4 and the Central
    American countries.

                                    U.S.-Morocco FTA

    Background	Morocco is a U.S. ally in the war against terrorism and a
    long-time democratic partner in the Arab world. The U.S.-Morocco Bilateral
    Investment Treaty, signed in 1991, provided protections to U.S. investors
    in Morocco. In 1995, the United States signed a trade and investment
    framework agreement with Morocco to promote freer trade, increased
    investment, and stronger economic ties between the two countries.
    Moreover, the 2001 "open skies" agreement between the United States and
    Morocco supported increased air passenger and cargo links between the two
    countries. According to USTR, Moroccan supporters of an FTA with the
    United States cited the benefits that Jordan attained after it signed an
    FTA in 2001 as a reason for desiring a U.S.-Morocco FTA.

    Considerations in FTA Partner Selection

    USTR emphasized several reasons for selecting Morocco as an FTA partner.
    First, USTR officials noted that a trade agreement with Morocco would
    further the executive branch's goal of promoting openness, tolerance, and
    economic growth across the Muslim world. Second, Morocco has been a
    staunch ally in the war against terrorism. Third, the agreement would
    ensure stronger Moroccan support for U.S. positions in the WTO
    negotiations. Fourth, according to USTR, an FTA with the United States
    would enable Morocco to strengthen its economic and political reforms,
    such as its recent program to liberalize and privatize key sectors, and
    help promote sustainable development and environmental protection. The FTA
    would emphasize transparency, which would help make Morocco's government
    institutions more accountable. Fifth, the United States is expected to
    benefit economically from an FTA with Morocco because the agreement would
    eliminate tariffs and other unjustified barriers to trade between the two
    countries. Morocco currently taxes U.S. products at an

    4CARICOM members include Antigua and Barbuda, the Bahamas, Barbados,
    Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Kitts
    and Nevis, St. Lucia, St. Vincent and the Grenadines, Surinam, and
    Trinidad and Tobago.

                                      Appendix IV
                       Selected U.S. Free Trade Agreement Partner
                                        Profiles

    average of 20 percent, while the United States only poses a 4 percent
    tariff on Moroccan products. A U.S.-Morocco FTA would also help protect
    U.S. investments in Morocco and level the playing field with the European
    Union, with which Morocco has an association agreement. Growth prospects
    for U.S. products and services, such as energy and tourism, also exist.
    Finally, USTR officials noted that Moroccan negotiators were well prepared
    to undertake FTA negotiations with the United States because they had
    studied the U.S.-Jordan FTA.

    FTA Milestones	On April 23, 2002, President Bush and the Moroccan King
    announced that their two countries would seek an FTA. USTR notified the
    Congress of its intent to negotiate an FTA with Morocco on October 1,
    2002. On November 21, 2002, USTR convened a public hearing on the
    U.S.-Morocco FTA. Negotiations started on January 21, 2003. On July 22,
    2003, four U.S. legislators announced the creation of the Moroccan Caucus,
    whose purpose is to support increased trade and stronger ties between the
    United States and Morocco. Because the target date for completing
    negotiations of December 2003 was not met, negotiations will continue in
    2004.

    FTA Features	The executive branch views the U.S.-Morocco FTA as a key to
    underpinning the President's broader Middle East trade strategy. The
    agreement builds upon the FTAs with Jordan and Israel and might serve as a
    model for other North African and Middle Eastern countries interested in
    increased trade. U.S. executive branch officials hope that Morocco will
    become a hub for subregional integration and in turn serve as one of
    several subregional centers that could be built into a MEFTA.

    The U.S. Agency for International Development will provide assistance for
    trade capacity-building programs to help Morocco meet the obligations
    involved in signing and implementing an FTA with the United States. The
    United States will also provide technical assistance in areas such as
    agriculture sector reform, which are likely to be sensitive. U.S.
    assistance will also focus on civil society and business groups in order
    to strengthen public input to the negotiating process and maximize the
    benefits of an FTA for Morocco. The U.S. Agency for International
    Development estimates that these activities will cost between $40 million
    and $48 million over 5 years.

                                      Appendix IV
                       Selected U.S. Free Trade Agreement Partner
                                        Profiles

    FTA Concerns	Morocco may face complex decisions in its agricultural
    sector, which employs 40 percent of Morocco's workforce.

    FTA Partner Participation in Morocco signed the Euro-Mediterranean
    Association Agreement with the

    Other Trade Agreements	European Union in 1996. As part of the Barcelona
    Process, which envisions a free trade zone stretching across Europe and in
    North Africa by 2010, Morocco has signed FTAs with several other North
    African countries. According to USTR, agriculture was generally excluded
    from the association agreement with the European Union, and U.S. exporters
    could gain significant advantages under an FTA with Morocco.

                                   U.S.-Singapore FTA

    Background	Singapore has been a long-time proponent of trade
    liberalization. However, a U.S. trade official noted that the announcement
    of the intention to negotiate a U.S.-Singapore FTA at the APEC conference
    in November 2000 was unexpected, but the selection was based on the
    Clinton administration's interest in completing an FTA with a relatively
    large trading partner that maintained an open economy. In addition, as
    Singapore's economy did not include many sectors sensitive to U.S.
    producers, the Clinton administration hoped to conclude the FTA quickly,
    while establishing a model for future FTAs.

    Considerations in FTA Partner Selection

    The negotiation of a U.S.-Singapore FTA in 2000 may have been motivated by
    various factors. First, an FTA with Singapore furthered the Clinton
    administration's emphasis on access to big emerging markets. The year
    negotiations began, Singapore was the 10th largest U.S. trading partner,
    and the value of U.S.-Singapore trade had doubled since the early 1990s,
    according to Commerce. In addition, many U.S. corporations invest in
    Singapore as a regional base for exports and production, thereby making
    the United States the largest foreign investor in Singapore. Second, an
    FTA with Singapore is the first such agreement between the United States
    and an Asian country, and this agreement offered an opportunity to
    strengthen U.S. relations with a region experiencing economic integration
    and expanding trade. For example, as Singapore has undertaken efforts to
    liberalize trade and attract multinational corporations, USTR noted that

                                      Appendix IV
                       Selected U.S. Free Trade Agreement Partner
                                        Profiles

    this FTA may serve as a foundation for the Enterprise for ASEAN
    Initiative.5 Third, both countries maintain mutual security interests, and
    since 1992 the U.S. military has had access to facilities in Singapore,
    which facilitates military deployments to strategic locations. In
    addition, Singapore has supported the U.S. military's continued presence
    and opposes any ASEAN defense arrangements that might withdraw U.S. armed
    forces from Asia. Fourth, the Congress and the U.S. business community
    undertook efforts to support an FTA with Singapore. For example, before
    the negotiations, legislation was introduced in the Congress that would
    have authorized the President to enter into an FTA with Singapore and
    would have provided for expedited congressional consideration of the
    agreement. Business support included a 1999 visit to Singapore by 22 U.S.
    business executives to discuss with the Singaporean Prime Minister the
    possibility of establishing an FTA and strengthening U.S.-Singapore ties.

    FTA Milestones	President Clinton and the Prime Minister of Singapore
    announced an agreement to negotiate an FTA during the APEC conference in
    November 2000. Negotiations then began under the Clinton administration in
    December 2000 and concluded under the Bush administration in November
    2002. Following 11 rounds, USTR announced on January 15, 2003, that
    agreement had been reached; on January 30, 2003, the executive branch
    notified the Congress of its intent to sign the FTA. President Bush and
    the Singaporean Prime Minister signed the agreement on May 6, 2003. USTR
    sent the draft FTA implementing legislation to the Congress in June 2003,
    and the House and Senate passed the legislation on July 24 and July 31,
    2003, respectively. President Bush signed the FTA implementing legislation
    on September 3, 2003. January 1, 2004, is the scheduled date for the FTA's
    implementation.

    FTA Features 	Preceding the FTA negotiations, the United States and
    Singapore had signed a Trade and Investment Framework Agreement, and 99
    percent of U.S. exports already entered Singapore duty-free. In addition,
    both countries have maintained relatively open investment regimes. Thus,
    the FTA is expected to have relatively little impact on U.S. exports, and
    the elimination of nontariff barriers will provide the majority of
    benefits.

    5In October 2002, President Bush announced the Enterprise for ASEAN
    Initiative, which is a new trade initiative to establish a network of
    bilateral FTAs with those ASEAN member countries that are committed to
    enacting economic reforms and maintaining openness.

                                      Appendix IV
                       Selected U.S. Free Trade Agreement Partner
                                        Profiles

    However, USTR has commented that the FTA serves as a model for future FTAs
    due to its comprehensive scope and the inclusion of commitments not
    covered in earlier FTAs. For example, according to USTR officials, the
    text of the U.S.-Singapore FTA has served as a template to demonstrate to
    future FTA partners the comprehensive scope that the United States expects
    in FTAs.

    FTA Concerns	Certain Members of Congress and some labor and environmental
    groups have expressed concern over (1) the possible impact of the
    U.S.-Singapore FTA and (2) the use of the FTA as a template for other
    agreements. Specific concerns include the potential threat to U.S.
    producers in importcompeting sectors, such as U.S. manufacturers of
    electronic equipment and other machinery, and the possible negative
    environmental effects, such as increased pollution from industrialization.
    In addition, certain Members have also expressed concern about some of the
    agreement's provisions, including those relating to the temporary entry of
    professionals, which they say impinge on U.S. immigration law without
    congressional input, and the agreement's Integrated Sourcing Initiative,
    which some Members claimed expands trade benefits under the U.S.-Singapore
    FTA to territories outside of Singapore, although these territories have
    not assumed key obligations that the Congress has insisted should be
    included in FTAs.6

    FTA Partner Participation in Other Trade Agreements

    Singapore is party to many preferential trade agreements, with the
    majority of these agreements only recently implemented. For example, while
    Singapore has been a member of the ASEAN Free Trade Area since 1992, only
    since January 2001 has Singapore entered into an FTA with New Zealand. In
    addition, in January 2002, Singapore concluded an FTA with Japan, which
    excludes agricultural products; effective January 2003, Singapore
    implemented an FTA with the European Free Trade Association. In February
    2003, Singapore signed an FTA with Australia and has been negotiating FTAs
    with Mexico and Canada since 2000 and 2001,

    6For a limited number of information technology products and medical
    devices that already are duty-free in the United States and Singapore, the
    Integrated Sourcing Initiative eliminates the requirement that these
    products meet specific "rules of origin" when shipped between the United
    States and Singapore. This customs procedure is streamlined and the burden
    on the importer is reduced, with respect to completing certification
    paperwork or paying merchandise processing fees.

                                      Appendix IV
                       Selected U.S. Free Trade Agreement Partner
                                        Profiles

    respectively. In addition, a study group was established in November 2002
    to explore a possible FTA between Singapore and South Korea.

                                     U.S.-CAFTA FTA

    Background	Since the late 1980s, the countries of Central America have
    been moving from civil conflict toward peace and democracy. The
    U.S.-Central American trading relationship has been shaped by the
    Caribbean Basin Initiative, which promotes economic growth in the region
    through a series of unilateral U.S. trade preferences for 24 countries.
    President Clinton stressed the commitment of the United States to
    expanding trade between the United States and Central America at a 1997
    summit with leaders from Central America and the Dominican Republic.
    President Bush has continued the push for increased free trade with
    Central America.

    Considerations in FTA Partner Selection

    USTR emphasized several reasons why the CAFTA countries (Costa Rica, El
    Salvador, Guatemala, Honduras, and Nicaragua) were selected as FTA
    partners. First, CAFTA would help lock in and broaden the economic and
    political reforms made in these countries throughout the 1990s. For
    example, elements of the FTA that require increased transparency could
    help counter corruption and support government accountability in the CAFTA
    countries. Second, pursuing an FTA with the CAFTA countries would
    complement U.S. goals in the FTAA and the WTO, particularly given the
    support of CAFTA countries for U.S. negotiating positions. The agreement
    would also support the ongoing economic integration of the region. Third,
    an FTA would enable the United States to address market access barriers in
    the CAFTA countries and thus promote U.S. exports to the region and
    increase U.S. access to more affordable goods. Under the Caribbean Basin
    Initiative, U.S. tariffs on Central American goods are already low, with
    74 percent of CAFTA country imports entering the United States duty-free
    in 2002. An FTA would enable the United States and the CAFTA countries to
    have reciprocal tariff levels and would remove the requirement that
    Caribbean Basin Initiative preferences be reviewed every year. A fourth
    reason for the selection is country readiness. The CAFTA countries are
    familiar with U.S. approaches to trade because they have concluded a
    NAFTA-like agreement with Mexico in 2000. Fifth, the Congress has
    instructed the executive branch through the Caribbean Basin Initiative to
    enter into mutually advantageous FTAs with Central American

                                      Appendix IV
                       Selected U.S. Free Trade Agreement Partner
                                        Profiles

    countries. Finally, the U.S. business community is interested in the
    potential gains they could see from CAFTA. Some 40 percent of total goods
    imported by Latin America come from the United States, thereby making the
    region an important market for some U.S. sectors.

    FTA Milestones	In September 2001, the Bush administration held talks on
    free trade with the CAFTA countries. In January 2002, Bush announced that
    the United States would explore an FTA with these countries. Starting in
    February 2002, USTR held seven workshops with the CAFTA countries to
    ensure they would be able to develop and implement an FTA with the United
    States. In October 2002, following a meeting of the Congressional
    Oversight Group, President Bush formally notified the Congress of his
    intention to begin FTA negotiations with the CAFTA countries. USTR
    convened a public hearing on CAFTA in November 2002. Working-level
    negotiations started in January 2003 and concluded in December 2003,
    without Costa Rica. The United States hopes to sign the agreement- which
    could include a component with the Dominican Republic-by spring 2004.

    FTA Features	There are five negotiating groups7 for the CAFTA
    negotiations. The decision to establish only five negotiating groups
    reflects the CAFTA countries' interest in consolidating the negotiations,
    given their limited negotiating resources. In addition to these five
    working groups, there is also a nonnegotiating, multiagency effort
    responsible for trade capacitybuilding. This capacity-building effort
    includes projects to increase citizen access to trade negotiations,
    support the negotiating teams, strengthen food safety inspection systems,
    and enhance the implementation of labor laws. As part of these efforts,
    each country identified its needs in a National Trade Capacity Building
    Strategy. Other agencies involved in trade capacity-building include the
    U.S. Agency for International Development and the Inter-American
    Development Bank. The executive branch made a $47 million budget request
    for U.S. capacity-building assistance in the region in 2003.

    7The negotiating groups cover (1) market access, (2) investment and
    services, (3) government procurement and intellectual property, (4) labor
    and environment, and (5) institutional issues.

                                      Appendix IV
                       Selected U.S. Free Trade Agreement Partner
                                        Profiles

    FTA Concerns	Some civil society groups and Members of Congress are
    concerned that the CAFTA agreement will not adequately address their labor
    and environmental concerns in the CAFTA countries. There is concern that
    USTR may support language of the U.S.-Chile FTA, which calls for countries
    to enforce their domestic labor laws. Some civil society groups and
    Members believe this approach is not appropriate for the CAFTA countries
    because their labor laws are not as stringent as Chile's laws. Similarly,
    some civil society groups claim that the environmental commitments
    stemming from the FTA may not build upon existing programs or preclude
    investor lawsuits that could undermine environmental laws. Finally, there
    is concern that there has not been a sufficient mechanism for public
    input.

    Market access for agricultural goods and textiles is another potential
    area of contention. Two Members have expressed concern that the CAFTA
    countries are reluctant to lower tariffs on U.S. agricultural products.
    The U.S. sugar industry and some U.S. textile and apparel producers have
    also expressed concern about heightened competition from CAFTA suppliers.

    FTA Partner Participation in The CAFTA countries are members of the
    Central American Common

    Other Trade Agreements	Market. In addition, these countries have
    negotiated more than 20 FTAs with such countries as Mexico, Canada, and
    several South American countries.

                                     U.S.-SACU FTA

    Background	The Southern African Customs Union, which is comprised of
    Botswana, Lesotho, Namibia, South Africa, and Swaziland, accounted for
    almost onehalf of the gross domestic product in sub-Saharan Africa and for
    $2.5 billion in U.S. exports to the region in 2002. Total two-way trade
    between the United States and SACU was more than $7 billion that year.
    South Africa has the largest economy among the SACU countries and the
    United States and South Africa have had a trade and investment framework
    agreement since 1999. The 2000 African Growth and Opportunity Act (AGOA)8

    8Pub. L. No. 106-200, S: 116, 114 Stat. 266-67.

                                      Appendix IV
                       Selected U.S. Free Trade Agreement Partner
                                        Profiles

    declares that FTAs should be negotiated with sub-Saharan African countries
    to serve as catalysts for trade and for U.S. private-sector investment in
    the region. As a result, by moving from one-way trade preferences to a
    reciprocal FTA with SACU, the United States expects to build on the
    success of AGOA and to deepen U.S. political and economic ties to
    sub-Saharan Africa. The United States also hopes to lend momentum to U.S.
    development efforts in the region by encouraging greater foreign direct
    investment and promoting regional integration and economic growth.

    Considerations in FTA Partner Selection

    USTR noted several reasons why the SACU countries were selected as FTA
    partners. For instance, in pursuing an FTA with SACU, the executive branch
    responded to Congress's direction to negotiate FTAs with sub-Saharan
    countries, as expressed in AGOA. USTR emphasized that the SACU countries
    are ready, individually and collectively, to be free trade partners. An
    FTA with the SACU countries would strengthen growing bilateral commercial
    ties between the United States and these countries and address barriers in
    these countries to U.S. exports. These barriers include high tariffs on
    certain goods, overly restrictive product licensing measures, inadequate
    protection of intellectual property rights, and restrictions the SACU
    governments impose that make it difficult for U.S. service firms to do
    business in these countries. An FTA would offer an opportunity to improve
    southern Africa's commercial competitiveness and to better position the
    region for success in the U.S market and the global economy. In addition,
    an FTA would help the SACU countries attract much-needed new foreign
    direct investment because international investors prefer access to a large
    and integrated market. An FTA might also level the playing field in areas
    where U.S. exporters are disadvantaged by the European Union's FTA with
    South Africa. Finally, this FTA would reinforce the economic reforms that
    have taken place in the SACU countries and might encourage additional
    progress where needed.

    FTA Milestones	In November 2002, USTR notified the Congress that the
    United States intended to enter into FTA negotiations with SACU in at
    least 90 days. The United States and SACU intend to complete the
    negotiations by December 2004.

                                      Appendix IV
                       Selected U.S. Free Trade Agreement Partner
                                        Profiles

    FTA Features	A U.S.-SACU FTA agreement is likely to be comprehensive
    because the governments have announced broad negotiating objectives that
    cover agriculture, industry, and services issues. The United States is
    committed to providing the technical assistance necessary for SACU
    countries to assume the responsibilities of full partnership and to share
    in the benefits of free trade. The United States and SACU have established
    a special cooperative group on trade capacity-building specifically for
    these negotiations, with $2 million in initial funding from the U.S.
    Agency for International Development. This group is to meet regularly
    during the negotiations to identify needs and swiftly direct technical
    assistance resources to help SACU countries better prepare for and
    participate in negotiations, implement agreed-upon commitments, and take
    advantage of free trade.

    FTA Concerns	Several groups representing U.S. retailers, food
    distributors, and metal importers have supported the reduction of U.S.
    tariffs on SACU goods. Groups representing service industries and recycled
    clothing have favored removing tariff and nontariff barriers in the SACU
    market. However, other groups have opposed the additional opening of U.S.
    markets to SACU goods. Agriculture, steel, and the textile and apparel
    industries are expected to monitor negotiations closely.

    FTA Partner Participation in The SACU countries are members of the WTO.
    South Africa has had an Other Trade Agreements FTA with the European Union
    since 2000.

    Appendix V

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

    Note: GAO comments supplementing those in the report text appear at the
    end of this appendix.

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

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

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

                                     See comment 1.

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

                                     See comment 2.

                                     See comment 3.

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

                                     See comment 4.

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

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

    The following are GAO's comments on the U.S. Trade Representative's letter
    dated December 3, 2003.

    GAO Comments 1.

    2.

    3.

    4.

    As the Trade Representative states, if the 43 percent of U.S. trade that
    is accounted for by the EU-25, Japan, Korea, and China is excluded, then
    current and announced FTA negotiations account for 69 percent (according
    to our calculation) of the remainder of total U.S. trade. However, U.S.
    trade with existing FTA partners (Canada, Chile, Jordan, Mexico, Israel,
    and Singapore) accounts for the majority of this. The trade data can be
    segmented in several ways, but the data show that trade partners with
    which the U.S. has begun or has announced FTA negotiations account for
    $178 billion in two-way trade with the United States, or about 8 percent
    of the $2.3 trillion total U.S. trade.

    We believe that given its admittedly limited available resources, USTR
    needs to better manage its staffing and funds to implement its growing and
    complex trade negotiating agenda. As discussed in this report, USTR's main
    strategy for undertaking multiple FTA negotiations appears to be working
    on one FTA per region at a time. Assistant USTRs in four regional offices
    lead FTA negotiations in each of four regions. With the announcement of
    three new FTA negotiations-the Dominican Republic, the Andean countries,
    and Panama-in Latin America alone, it is not clear how USTR will be able
    to meet its new and ongoing negotiating demands in a timely fashion. We
    have noted in this report that one factor that constrains negotiations is
    a limited number of regional and functional specialists. To address these
    challenges, USTR would do well to develop a resource strategy across its
    entire negotiating agenda that is based on solid data and planning.

    While we appreciate USTR's efforts in pursuing intensive trade
    negotiations in an often unpredictable international environment, this
    situation makes it all the more important to make staffing and resource
    decisions based on valid and reliable data and planning. Relying on
    informal, ad hoc decision making increases risk and reduces the chance
    that the agency will accomplish its goals. The human capital model that we
    developed calls for organizations, regardless of size, to use solid data
    to determine the current and future human capital required to support
    their mission and goals.

    Just like other federal agencies, USTR is responsible for standard
    accountability procedures to manage its program and federal funds.

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

    Our recommendation calls for a result-not specific procedures or output
    measures. Since its own and other agencies' expert staff are the most
    substantial resources for FTA negotiations, improving upon the present
    lack of systematic data would better position USTR and other agencies to
    make decisions that involve staffing trade-offs among competing
    priorities. In addition, travel is an important resource component and
    must be programmed in advance. While we recognize and encourage the steps
    that USTR has already taken to make improvements, we note that these
    efforts are already recognized in this report and are not sufficient to
    address our concerns for forward planning.

    Appendix VI

                         GAO Contacts and Staff Acknowledgment

    GAO Contacts	Kim Frankena, (202) 512-8124 Judy Knepper, (202) 512-8554

    Staff 	In addition to those named above, Martin De Alteriis, Francisco
    Enriquez, Bradley Hunt, Rona Mendelsohn, Juan Tapia-Videla, Timothy
    Wedding, and

    Acknowledgments Eve Weisberg made major contributions to this report.

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