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

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

GAO-04-233

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

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 [email protected].

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

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

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

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separately.

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

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

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

GAO Comments 1.

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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