Human Capital: Significant Challenges Confront U.S. Trade	 
Agencies (09-DEC-03, GAO-04-301T).				 
                                                                 
Recent developments in global trade have created human capital	 
challenges for U.S. trade agencies. At least 17 federal agencies,
with the Office of the U.S. Trade Representative (USTR) as the	 
lead, negotiate, monitor, or enforce trade agreements and laws.  
These agencies' strategies for effectively aligning their current
and emerging needs in handling international trade functions and 
their human capital resources are critical to improving agency	 
performance. GAO was asked to summarize its recent studies to	 
illustrate important human capital challenges arising from	 
current trade developments as U.S. trade agencies strive to	 
negotiate, monitor, and enforce existing trade agreements and	 
laws. For this testimony, GAO discussed the challenges that USTR,
the Commerce Department, and the Bureau of Customs and Border	 
Protection are facing in light of three recent developments in	 
international trade: (1) the increased importance of security,	 
(2) the ambitious U.S. negotiating agenda, and (3) the shifting  
global trade environment.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-301T					        
    ACCNO:   A08982						        
  TITLE:     Human Capital: Significant Challenges Confront U.S. Trade
Agencies							 
     DATE:   12/09/2003 
  SUBJECT:   Counterterrorism					 
	     Foreign trade agreements				 
	     Human resources utilization			 
	     International organizations			 
	     International trade				 
	     National preparedness				 
	     Personnel management				 
	     Strategic planning 				 
	     Human capital					 
	     Trade negotiations 				 

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GAO-04-301T

United States General Accounting Office

GAO Testimony

Before the Subcommittee on Oversight of Government Management, the Federal
Workforce and the District of Columbia, U.S. Senate

For Release on Delivery

Expected at 10:00 a.m., EST HUMAN CAPITAL

Tuesday, December 9, 2003

              Significant Challenges Confront U.S. Trade Agencies

Statement of Loren Yager, Director International Affairs and Trade

GAO-04-301T

Highlights of GAO-04-301T, a testimony before the Subcommittee on
Oversight, of Government Management, the Federal Workforce and the
District of Columbia, U.S. Senate

Recent developments in global trade have created human capital challenges
for U.S. trade agencies. At least 17 federal agencies, with the Office of
the U.S. Trade Representative (USTR) as the lead, negotiate, monitor, or
enforce trade agreements and laws. These agencies' strategies for
effectively aligning their current and emerging needs in handling
international trade functions and their human capital resources are
critical to improving agency performance.

GAO was asked to summarize its recent studies to illustrate important
human capital challenges arising from current trade developments as U.S.
trade agencies strive to negotiate, monitor, and enforce existing trade
agreements and laws. For this testimony, GAO discussed the challenges that
USTR, the Commerce Department, and the Bureau of Customs and Border
Protection are facing in light of three recent developments in
international trade: (1) the increased importance of security, (2) the
ambitious U.S. negotiating agenda, and (3) the shifting global trade
environment.

www.gao.gov/cgi-bin/getrpt?GAO-04-301T.

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].

December 9, 2003

HUMAN CAPITAL

Significant Challenges Confront U.S. Trade Agencies

The importance of international trade to the U.S. economy has grown in the
last decade, as have the responsibilities of federal agencies involved in
implementing international trade functions. For example, the September 11,
2001, terrorist attacks have heightened the need for increased focus on
security within the global trade environment. In response, the Bureau of
Customs and Border Protection has implemented new programs to improve the
security of the global supply chain. These new programs require greater
attention to human capital strategies to ensure that they achieve their
goals of facilitating trade while preventing terrorist acts.

In addition, the administration has continued to pursue multilateral
negotiations within the World Trade Organization and with the Free Trade
Area of the Americas countries as well as a series of new, bilateral and
subregional trade negotiations. The increase in the number of initiatives
has strained available human capital, leading to a USTR request for
additional staff.

Finally, the shifting global trade environment has complicated efforts to
monitor and enforce trade agreements. For example, the United States has
become the most frequent defendant in World Trade Organization trade
dispute proceedings. Furthermore, as the U.S. economy has shifted toward
services and high-tech industries, the industry advisory committees that
provide trade advice to the U.S. government have required structural
realignment to reflect these changes. Also, China's growing influence in
international trade has resulted in new challenges to its trading
partners. These changing global forces require U.S. trade agencies to
continuously ensure that their human capital strategies closely link to
the nation's strategic trade functions.

Recent Trade Developments Create Human Capital Challenges in Performing
Trade Functions

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss the implications of recent trade
developments on the human capital strategies of major U.S. trade agencies
that negotiate, monitor, and enforce trade agreements and laws.
International trade is an increasingly important part of the U.S. and
world economy: In 2001, world exports represented about one quarter of the
world's gross domestic product (GDP), partly as a result of the succession
of trade agreements that have reduced trade barriers. However, this
dynamic trade environment and the growing number of trade agreements have
also resulted in a significant burden on U.S. trade agencies-and their
human capital-as they strive to monitor and enforce existing trade
agreements and laws while simultaneously negotiating a number of new
agreements.

As we have reported in numerous studies and testimonies before this
Subcommittee and other congressional Committees, effective alignment
between the current and emerging needs and U.S. federal agencies' human
capital strategies is critical to improved agency performance. For this
testimony, you asked us to summarize some of our recent studies to
illustrate important human capital challenges confronting trade agencies
that have arisen from recent trade developments. Specifically, today I
will focus on the human capital challenges that trade agencies face in
light of three recent trade developments:

o  the increased importance of security,

o  	the ambitious negotiating agenda of the United States at the current
time, and

o  the shifting global trade environment.

While numerous agencies have trade responsibilities, we are focusing today
on the Office of the U.S. Trade Representative (USTR) and the U.S.
Department of Commerce because of their key roles and responsibilities for
implementing trade functions, that is, negotiating, monitoring, and
enforcing trade agreements and laws. In addition, we also discuss the
Department of Homeland Security's Bureau of Customs and Border Protection
(CBP), because it has primary responsibility for ensuring the security of
trade in the post-9/11 environment. In performing this work, we have drawn
on a number of our recent reports, some of which directly addressed human
capital issues, and have also interviewed officials from relevant trade
agencies.

  Summary

The terrorist attacks of September 11, 2001, have heightened the need for
increased security within the global trade environment. Combating
terrorism became the number one priority for CBP and has significant
implications for its human capital strategies and trade functions. Our
recent work indicates that it is too soon to tell how the increased
importance of security will affect the implementation of CBP's
traderelated activities over the long run; however, some short-term shifts
in human capital from trade to nontrade functions have occurred. Also as
part of its focus on terrorism, CBP has implemented new programs to screen
high-risk containers for weapons of mass destruction at overseas ports and
to improve security in the private sector's global supply chain. Our
recent work in this area found a need to link human capital strategies
with the goals of facilitating trade and combating terrorism to establish
accountability and ensure effective performance.

In recent years, the United States has been pursuing a broad trade policy
agenda whose cumulative impact has tested the limits of the government's
negotiating capacity. The administration has continued an ambitious
negotiating agenda relating to the ongoing World Trade Organization (WTO)1
and Free Trade Area of the Americas (FTAA) multilateral negotiations, plus
a series of new, bilateral and subregional trade negotiations following
the passage of the Trade Act of 2002.2 Our work in this area shows that
pursuing such a broad negotiating agenda has strained available resources,
leading to requests for additional staff in recent years.

Finally, the shifting global trade environment complicates efforts to
monitor and enforce existing agreements, placing a substantial burden on
the human capital resources of U.S. trade agencies. Based on our recent
work, the United States has become the most frequent defendant in WTO
trade dispute resolution proceedings. In addition, as the U.S. economy has
shifted toward services and high-technology industries, our recent work
shows that the industry committee structure that provides advice to U.S.
trade agencies has required realignment to reflect these changes. Finally,
a new set of challenges has also evolved in response to China's growing

1The WTO is a multilateral organization, established in January 1995, that
administers rules of international trade and provides a forum for
conducting trade negotiations among its 146 members as well as a dispute
settlement system for resolving trade disputes among its members.

2Pub. L. No. 107-210, 116 Stat. 933, 993-1022.

influence in international trade. Our work shows that these forces have
stretched the human capital resources of U.S. trade agencies. Although the
government has taken steps to address some of these challenges, these and
other changes in the global trade environment require that the trade
agencies constantly monitor and update their human capital strategies to
ensure that they are closely linked to the strategic goals of the
agencies.

Background 	U.S. exports as a share of U.S. gross domestic product have
grown significantly, increasing from less than 6 percent in 1970 to a peak
of more than 11 percent in 1997, as shown in figure 1. The rise in U.S.
imports was even greater, increasing from about 5 percent in 1970 to
nearly 15 percent of GDP in 2000, according to Commerce Department
statistics. Although the share of U.S. exports and imports has declined
from those peak levels, they still represent a substantial part of our
GDP-at 9.3 percent, and 13.3 percent, respectively, in 2002. The U.S.'s
principal trading partners include Canada, Mexico, Japan, and China.

Figure 1: U.S. Exports and Imports as a Share of GDP, 1970-2002

At least 17 federal agencies, led by USTR, are involved in developing and
implementing U.S. trade policy. USTR's role includes developing and
coordinating U.S. international trade policy and leading or directing
negotiations with other countries on trade matters. It also has primary
statutory responsibility for monitoring and enforcing U.S. trade
agreements. The Department of Commerce has a relatively broad role with
respect to trade agreement activities, with three units in the
International Trade Administration performing the key trade functions: The
Import Administration helps enforce U.S. trade laws; Market Access and
Compliance is responsible for ensuring that other nations live up to their

trade agreements; and Trade Development focuses on advocacy for U.S.
companies, export promotion services, support for trade negotiations, and
market analysis. Trade functions at the CBP are primarily directed toward
enforcing U.S. import and export laws and facilitating legitimate trade as
well as collecting duties, fees, and other assessments (more than $23
billion in fiscal year 2002). Other agencies also play important roles,
such as the departments of Agriculture and State, which have relatively
broad roles with respect to trade agreement activities. The departments of
the Treasury and Labor have more specialized roles, such as advising on
financial services or labor and workers' rights issues. Federal trade
policy development and monitoring and enforcement efforts are coordinated
through an interagency mechanism comprising several management- and
staff-level committees and subcommittees.

The number of authorized full-time staff at USTR, Commerce's Import
Administration, and Commerce's Market Access and Compliance division has
increased in recent years (see fig. 2). However, actual staff levels are
still in the process of catching up with authorized levels in Commerce and
USTR offices. USTR has requested additional staff resources for 2004.

Figure 2: Authorized and Actual Full-time Equivalent (FTE) Staff Years at
USTR and Commerce's Key Trade Offices, 1995
2004

Note: The authorized level shown for 2004 is based on the administration's
budget request for fiscal year 2004.

  The Increased Importance of Security Has Significant Implications for Human
  Capital Strategies and Trade Functions

As of January 23, 2003, the CBP had 3,269 positions dedicated to
performing trade-specific functions: 2,263 specialists, auditors, and
attorneys and 1,006 associated positions3 carry out trade activities such
as auditing trade compliance; processing entry documents; collecting
duties, taxes, and fees; assessing and collecting fines and penalites for
noncompliance; and advising on tariff classification issues. CBP is
expected to maintain these staff levels, as the Homeland Security Act of
2002 stipulates that the Secretary of Homeland Security may not reduce the
staffing levels attributable to such functions on or after the effective
date of the act.4 In addition, more than 18,000 CBP inspectors perform
trade and nontrade functions depending on the nature of their assignment.
For example, inspectors may screen and inspect cargo for illegal
transshipment of textiles, counterfeit cigarettes, illegal drugs, and
other contraband; and enforce compliance with U.S. trade and immigration
laws.

After September 11, 2001, combating terrorism became the priority mission
for the U.S. Customs Service and remained so when the Customs Service was
transferred to the Department of Homeland Security and incorporated into
CBP. While it is too soon to tell how the increased importance of security
will affect the implementation of CBP's traderelated activities in the
long run, some short-term shifts in human capital from trade to nontrade
functions have occurred. As part of its focus on terrorism, CBP has
implemented new programs to screen high-risk containers for weapons of
mass destruction at overseas ports and to improve security in the private
sector's global supply chain. CBP has made progress in getting these
programs up and running but has not devised systematic human capital plans
to meet long-term staffing needs for both programs. The increased
importance of security requires human capital strategies that link with
the goals of combating terrorism and facilitating trade to establish
accountability and ensure effective performance.

3Associated positions support the specialists, auditors, and attorneys and
include positions such CBP managers, paralegals, account managers, and
clerical staff dedicated to trade activities.

4Section 412(b)(2) of the Homeland Security Act, Public Law 107-296, 116
stat. 2180, states that the Secretary of Homeland Security may not reduce
the staff levels attributable to functions performed by the following
personnel and their associated support staff: import specialists, entry
specialists, drawback specialists, national import specialists, fines and
penalties specialists, attorneys of the Office of Regulations and Rulings,
Customs auditors, international trade specialists, and financial systems
specialists.

Combating Terrorism Becomes a Priority, Shifting Human Capital from Trade
Activities

The historical mission of the U.S. Customs Service has been to collect
customs revenues and ensure compliance with trade laws, but this mission
has shifted over time. For example, in the 1970s Customs expanded its
functions to include the interdiction of narcotics entering the United
States. Since September 11, 2001, combating terrorism has become Customs'
priority mission, culminating in the creation of CBP on March 1, 2003. On
that date, the U.S. Customs Service was transferred from the Department of
the Treasury to the Department of Homeland Security as part of the
Homeland Security Act of 2002.5 Figure 3 illustrates the range of trade
and nontrade activities that CBP performs.

Figure 3: Range of CBP Activities

While two of the nine key mission-related offices within CBP6 are
primarily dedicated to trade, most offices and most of CBP's more than
40,000

5CBP was formed through the merger of most of the U.S. Customs Service and
immigration inspectors and the U.S. Border Patrol of the former
Immigration and Naturalization Service and the agricultural border
inspectors of the U.S. Department of Agriculture. While most of Customs
transferred to CBP, its Office of Investigations did not. Instead, the
more than 5,000 Customs investigators and staff were transferred to the
Bureau of Immigration and Customs Enforcement within the Department of
Homeland Security.

6The Office of Strategic Trade and the Office of Regulations and Rulings
are the two offices within CBP that are primarily dedicated to trade.

employees perform a range of activities that support both trade and
nontrade goals. Moreover, about a fifth of the 3,269 CBP positions
dedicated to performing trade activities are located in the trade-specific
offices, but most are located in offices that support both goals. Within
this kind of organization, activities performed by persons in the offices
that support both goals could shift from trade to nontrade activities when
security threat levels are higher without actually seeing a reduction in
the number of staff dedicated to trade. Moreover, the activities of the
18,000 plus CBP inspectors who perform trade and nontrade functions could
shift to focus on combating terrorism when security concerns are
heightened.

Several examples illustrate the types of shifts from trade to security
activities that have occurred.

o  	After September 11, 2001, CBP temporarily detailed approximately 380
inspectors to international airports around the country to strengthen
security measures-reducing the number of inspectors available to work on
trade activities.

o  	During the first 2 quarters of fiscal year 2002, CBP audits on export
compliance were not conducted so that 150 inspectors could be temporarily
redeployed to land ports along the northern border to strengthen security
measures.

o  	During fiscal year 2002, the Compliance Measurement program, which
determines compliance with U.S. trade laws, regulations, and agreements,
was temporarily discontinued for 11 months because import specialists and
inspectors were redirected to border security activities. Due to the
limited compliance sampling, CBP was unable to calculate an overall trade
compliance rate for fiscal year 2002. Moreover, compliance measurement
helps ensure the quality of trade data, and unreliable trade data increase
the risk that critical threats will not be identified.

o  	In fiscal year 2003, 3 of 14 scheduled textile production
verifications were canceled when the national security alert level
increased, so that the verification teams could remain at their ports and
field offices to focus on security-related activities. The textile
production verification teams, comprised of CBP import specialists and
special agents, examine the production facilities in nations where there
is potential for illegal transshipment of textiles.

While the Homeland Security Act stipulates that the Secretary of the
Department of Homeland Security may not reduce the staffing levels

attributable to specific trade-related activities, our examination found
that measuring inputs such as the number of staff assigned to
trade-related positions does not adequately capture possible shifts away
from trade activities-as the number of people assigned to trade-related
positions may remain the same, but the focus of their work may shift to
nontrade duties. In addition, those positions that were not included in
the legislation, such as inspectors, but conduct trade and nontrade
activities, may increasingly shift their focus away from trade and
concentrate on homeland security activities. Measuring changes in CBP's
outputs and outcomes will be important in assessing how the increased
emphasis on combating terrorism and Customs' transfer to the Department of
Homeland Security have affected trade activities and whether human capital
strategies need to be readjusted accordingly.

New CBP Antiterrorism Programs Paid Little Attention to Human Capital
Planning

Responding to heightened concern about national security since 9/11, CBP
assumed the lead role in improving ocean container security and reducing
the vulnerabilities associated with the overseas supply chain. In November
2001, CBP initiated the Customs-Trade Partnership Against Terrorism
program, where companies agree to voluntarily improve the security of
their supply chains in return for reducing the likelihood that their
containers will be inspected for weapons of mass destruction. In January
2002, CBP also initiated the Container Security Initiative whereby CBP
officials are placed at strategic foreign seaports to screen cargo
manifest data for ocean containers to identify those that may hold weapons
of mass destruction. We reported in July 20037 that CBP had not taken
adequate steps to incorporate human capital planning, develop performance
measures, or plan strategically-- factors crucial to the programs'
long-term success and accountability.

Initially, 10 officials were assigned to roll out the Customs-Trade
Partnership Against Terrorism. Under the program, companies enter into
partnership agreements with CBP and agree to self-assess their supply
chain security practices and document it in a security profile. These 10
officials provide guidance to companies on how to prepare their security
profiles as well as review the completed security profiles and prepare
feedback letters. As of May 2003, more than 3,300 agreements had been

7U.S. General Accounting Office, Container Security: Expansion of Key
Customs Programs Will Require Greater Attention to Critical Success
Factors, GAO-03-770 (Washington, D.C.: July 25, 2003).

signed, 1,837 security profiles reviewed, and 1,105 feedback letters
prepared. However, early on CBP realized that it did not have a cadre of
staff with the skills necessary to conduct site visits to observe supply
chain practices and make substantive recommendations for improving
security. In October 2002, CBP began the process of developing a new
position, called "supply chain specialists," to review company security
profiles, visit companies to validate information contained in the
security profiles, and develop action plans that identify supply chain
vulnerabilities and the corrective steps companies need to take. CBP was
authorized to hire more than 150 supply chain specialists and expected to
hire 40 supply chain specialists in fiscal year 2003. As of October 2003,
CBP has visited more than 130 companies to verify their supply chain
security practices. While CBP officials acknowledged the importance of
human capital planning, they said they had not been able to devote
resources to developing a human capital plan that outlines how the program
will increase its staff 15-fold and implement program elements that
require specialized training.

The Container Security Initiative seeks to deploy 120-150 inspectors,
intelligence research analysts, and agents to 30 overseas ports by the end
of fiscal year 2004. CBP eventually plans to expand to 40 to 45 ports.
Deploying four-to-five person CSI teams to foreign ports will be a
complex, multiyear task. CBP seeks candidates with specialized skills
needed to review cargo manifest data and identify suspicious containers
for inspection as well as diplomatic and language skills to interact with
their foreign counterparts. While CBP officials told us that they did not
experience significant difficulties in finding qualified staff to fill
their short-term human capital needs from among the pool of existing CBP
employees, CBP had only 12 ports up and running under the Container
Security Initiative at that time (May 2003). In addition, the teams were
on 120-day temporary duty assignments; however, CBP plans to create 2-to
3year assignments to replace the 120-day temporary duty assignments. In
spite of the potential challenges CBP could face, CSI officials had not
devised a systematic human capital plan.

To help ensure that the Container Security Initiative and the
Customs-Trade Partnership Against Terrorism achieve their objectives as
they transition from smaller start-up programs to larger programs with an
increasingly greater share of the Department of Homeland Security's
budget, we recommended in July 2003 that CBP develop human capital plans
that clearly describe how these programs will recruit, train, and retain
staff to meet their growing demands as they expand to other countries and
implement new program elements. Human capital plans are

particularly important given the unique operating environments and
personnel requirements of the two programs. According to CBP officials,
the professional and personal relationships that supply chain specialists
and the Container Security Initiative teams build with their clients over
time will be critical to the long-term success of both programs. For
example, the success of the Customs-Trade Partnership Against Terrorism
will depend, in large part, on the supply chain specialists' ability to
persuade companies to voluntarily adopt their recommendations. Similarly,
a key benefit of the Container Security Initiative is the ability of CBP
officials to work with foreign counterparts to obtain sensitive
information that enhances their targeting of high-risk containers at
foreign ports. If CBP fails to establish these good working relationships,
the added value of screening manifest data at foreign ports could be
called into question.

In recent years, the United States has been pursuing a broad trade policy
agenda whose cumulative impact has tested the limits of the government's
negotiating capacity. This agenda includes undertaking significant
negotiating efforts in multilateral, regional, and bilateral arenas. The
administration has characterized this effort as a strategy of "competitive
liberalization." First, the United States is actively involved in the
challenging WTO round of negotiations launched in Doha, Qatar, in 2001.
Second, the United States is also a co-chair in ongoing negotiations to
create a Free Trade Area of the Americas. Finally, with the passage of
trade promotion authority in 2002,8 the United States has also launched a
series of bilateral and subregional free trade agreement negotiations. The
increase in the number of these negotiations at the same time that major
global and regional trade initiatives are under way has strained available
resources.

  Ambitious Set of Ongoing Negotiations Creates Demands for Additional Staff

WTO Negotiations Had The United States is committed to completing a new
round of WTO Ambitious Schedule for negotiations. In November 2001, the
WTO, with strong backing from the September 2003 Cancun United States,
launched a new set of multilateral negotiations at its Ministerial
ministerial conference in Doha. As we reported in September 2002, the

ministerial conference laid out an ambitious agenda for a broad set of new

multilateral trade negotiations as described in the Doha Ministerial

8Pub. L. No. 107-210, 116 Stat. 933, 993-1022.

Declaration.9 The Doha mandate calls for the continuation of negotiations
to liberalize trade in agriculture and services. In addition, it provides
for new talks on market access for nonagricultural products and
negotiations on trade and the environment, trade-related aspects of
intellectual property rights, and a number of other issues. The breadth of
the negotiations means that USTR will need to call on staff from a number
of trade agencies to assist USTR throughout the process. USTR has also
asked for additional staff to address the increased workload.

Despite recent problems, WTO negotiations are likely to continue to
command staff attention. Doha Round WTO negotiations are currently on hold
following a breakdown at the September 2003 Ministerial Meeting in Cancun,
Mexico, throwing the 2005 deadline for completion of the negotiations in
doubt. After the ministerial, WTO officials initially canceled all special
negotiating sessions and later called for a senior officials' meeting by
December 15, 2003. Despite these developments, however, USTR officials do
not anticipate any decrease in staff workload on WTO issues because of the
breadth of their ongoing WTO responsibilities and their efforts to restart
the negotiations.

Major U.S. Role in Final Phase of FTAA Talks Expands USTR's Negotiations
Workload

We reported in April 200310 that, as the co-chairman, with Brazil, of the
FTAA negotiations, USTR has faced a heavy expansion of its workload.
Demands on USTR resources increased significantly in fall 2003, when
USTR's responsibilities as co-chair of the negotiations and host of the
ministerial intensified due to preparations for the November 2003 Miami
FTAA ministerial. The co-chair's formal tasks include

o  coordinating with Brazil on a daily basis;

o  	providing guidance and management coordination to the FTAA
Administrative Secretariat;

o  providing guidance to the negotiating groups and committees; and

9U.S. General Accounting Office, World Trade Organization: Early Decisions
Are Vital to Progress in Ongoing Negotiations, GAO-02-879 (Washington,
D.C.: Sept. 4, 2002).

10U.S. General Accounting Office, Free Trade Area of the Americas:
Negotiations Progress, but Successful Ministerial Hinges on Intensified
U.S. Preparations, GAO-03-560 (Washington, D.C.: Apr. 11, 2003).

o  co-chairing key FTAA committees.

In terms of resources, the U.S. team negotiating the FTAA-though perceived
as highly capable-is small and stretched thin. Like past chairs, USTR has
dedicated some staff specifically to the co-chair function, while other
USTR staff work on advancing the U.S. position in the negotiations. In
addition, USTR made arrangements with other agencies for temporary
assistance. For example, Commerce provided a detailee who worked full time
in Miami beginning in July, and State provided both foreign service
officers and conference specialists to help host and conduct the
ministerial.

U.S. Pursuing Simultaneous Negotiations on Numerous FTAs

Bilateral negotiations are also applying pressure to trade agencies' human
capital resources. In addition to the WTO and the FTAA negotiations, USTR
has notified Congress of its intent to pursue free trade agreements (FTA)
with a number of countries and has started negotiations toward this end.
The passage of trade promotion authority in 2002 gave U.S. negotiators the
opportunity to pursue trade agreements with other countries under a
streamlined approval process in Congress. The administration sees
FTAs-some with a single country (i.e., bilateral) and others with groups
of countries (i.e., subregional)-as opportunities to promote the broader
U.S. trade agenda by serving as models and breaking new negotiating
ground.

The United States is now negotiating four FTAs and intends to pursue
others soon. In late 2002, it began negotiating the Central American Free
Trade Agreement with Costa Rica, El Salvador, Guatemala, Honduras, and
Nicaragua; the Southern Africa Customs Union Free Trade Agreement with
South Africa, Botswana, Lesotho, Namibia, and Swaziland; and FTAs with
Morocco and Australia. In mid-2003, the administration also announced that
it plans to negotiate FTAs with the Dominican Republic and Bahrain and in
mid-November announced plans for an FTA with Panama. Thailand and Sri
Lanka are also being considered as FTA partners. With the breakdown of WTO
negotiations, the U.S. Trade Representative has stated that the
administration will focus on FTAs with willing partners to continue making
progress in trade liberalization.

USTR officials acknowledge that human capital impacts are associated with
conducting these FTAs. Each agreement involves a variety of different
subjects, and negotiations on most of these agreements are complex. In
particular, staffing constraints affect the timing of new negotiations,
because staff with regional responsibilities are limited by the

  Shifting Global Forces Complicate Monitoring and Enforcement Efforts and Place
  Substantial Demands on Human Capital Resources

extent to which they can support additional negotiations. In addition,
completed FTAs will require additional work to monitor compliance with the
terms of the agreement.

Pursuing an ambitious set of negotiations on an international, regional,
and bilateral basis is having a cumulative impact on the human capital
capacity of agencies that conduct trade negotiations. Since USTR's staff
size of 199 is relatively small-having been set up to coordinate policy
among and draw expertise from executive branch agencies-it relies on the
departments of State, Commerce, Agriculture, the Treasury, and others to
provide assistance and additional issue area expertise. However, USTR
officials told us that their staff are already responsible for supporting
multiple negotiations. Although these officials stated that USTR has taken
steps to work more efficiently with other agencies, they have nevertheless
requested additional resources, as shown in figure 2, in order to face the
anticipated negotiations workload. For example, a recent USTR budget
request noted that current staff would not be able to handle the
combination of WTO, FTAA, and FTA responsibilities required in the areas
of services and investment.

Shifting global forces have complicated trade agreement monitoring and
enforcement efforts, thus posing human capital challenges for U.S. trade
agencies. For example, we recently reported that the United States has
become the most frequent defendant in WTO trade dispute resolution
proceedings, particularly in the trade remedy area. As a result, U.S.
agencies have had to devote substantial staff resources to handle these
cases, and USTR has requested additional staff to address the upward trend
in dispute settlement cases. We also reported that the U.S. economy has
shifted toward services and high-technology industries, while the industry
committee structure that provides advice to U.S. trade agencies has been
heavily weighted toward the agriculture and manufacturing sectors.
Changing the committee structure to reflect the current economy and
keeping its membership current has required U.S. trade agencies to devote
staff resources to this effort. Finally, we reported that China's rapid
expansion in the world economy presents U.S. trade agencies with
significant human capital challenges as they strive to monitor and enforce
compliance with trade agreements with China. Although the U.S. government
has taken steps to address some of these new challenges, questions remain
about the alignment of human capital with the rapidly growing set of
responsibilities we discussed in our reports. These three examples
demonstrate the kinds of shifts that occur in the trade arena and indicate
the impacts that these changes can have on human capital. In

each of these cases, the shifting global forces require the United States
to respond, and an effective response requires a clear link between the
trade agencies' human capital strategies and the goals of the agencies in
that changing environment.

United States Is Most Frequent Defendant in WTO Dispute Settlement
Activity, Requiring Substantial Human Capital Resources

Shifting global forces in the trade arena can be seen in recent trends in
the WTO, the principal organization that regulates international trade, as
members act to monitor and enforce trade agreements. For example, the
United States has become by far the most frequent defendant in WTO dispute
settlement cases.11 Many WTO disputes in recent years have concerned its
members' use of trade remedy measures whereby members impose duties or
import restrictions after determining that a domestic industry has been
injured or threatened with injury by imports.12 As shown in figure 4, the
United States was a defendant in 30 of the 64 trade remedy cases brought
from 1995 through 2002, with more than half of those cases filed since
January 2000.13 The next most frequent defendants were Argentina, which
had six cases, and the European Union, a defendant in five cases. On the
other hand, the United States was less active than other WTO members in
filing trade remedy cases. As figure 4 shows, the European Union was the
most frequent complainant in the 64 trade remedy cases, and six WTO
members filed more complaints than the United States did between 1995 and
2002.

11The dispute settlement system applies to disputes between members
arising under the WTO agreements. See U.S. General Accounting Office,
World Trade Organization: Standard of Review and Impact of Trade Remedy
Rulings, GAO-03-824 (Washington, D.C.: Sept. 24, 2002).

12Of 198 cases filed in the WTO from 1995 through 2002, about one-third
(64 cases) pertained to members challenging other members' trade
remedies-antidumping or countervailing duties or safeguard measures. The
remaining two-thirds of the cases pertained to nontrade remedy issues such
as application of sanitary and phytosanitary measures, intellectual
property rights, textiles and clothing, and trade-related investment
measures. The 198 cases originated from 276 separate requests for
consultations or filings-the first of four phases in the dispute
settlement process. We combined multiple requests for consultation
regarding the same measure or law into a single case.

13The United States was a defendant in 26 of the 108 nontrade remedy cases
brought from 1995 through 2002.

Figure 4: Most Frequent Complainants and Defendants in WTO Trade Remedy
Cases, 1995-2002

U.S. officials stated that some WTO trade remedy rulings have been
extremely difficult to implement. For instance, some rulings have placed a
greater burden on domestic agencies to establish a clearer link between
increased imports and serious injury to domestic industry. As a result,
officials said they would now have to expend more resources in conducting
such investigations. In addition, U.S. officials said that the rulings
have required U.S. agencies to provide more detailed explanations of their
analyses and procedures for applying several methodologies used in trade
remedy investigations.

As a result of the increased WTO dispute settlement activity, U.S. trade
agencies have had to devote substantial staff resources to handle these
cases. According to Commerce officials, about one-half of the Import
Administration's 36 attorneys are significantly engaged in handling WTO
litigation. They said Commerce has sufficient staff to handle the current
workload unless the number of dispute settlement cases increases.
According to USTR, the number of WTO cases its lawyers have handled has
increased dramatically-from 11 in 1995, to 53 in 1997, to 69 in 1999,

and to 91 in 2002. USTR expects this trend will continue, both because
more and more WTO members are making active use of the dispute settlement
system but also because there are more WTO members. Although the number of
USTR General Counsel staff attorneys has roughly doubled since 1995 (with
13 new positions added in fiscal year 2001), the lawyers that were added
are more than fully occupied with the current workload, USTR said. As a
result, USTR has requested another monitoring and enforcement attorney for
fiscal year 2004 to handle the increasing dispute settlement work.

WTO trade remedy rulings and the broader set of proceedings within the WTO
are an important component of the international set of obligations and
agreements to which the United States is a party. Our review found that
the United States has become a focus of complaints in trade remedy cases,
and U.S. agencies stated that some of the rulings on these cases have
important implications for the future, including potential workforce
implications. This situation requires trade agencies to maintain human
capital strategies that anticipate and respond quickly to any changes.
Doing so would allow them to allocate staff accordingly to keep the trade
functions current and relevant.

Changing Structure of the U.S. Economy Requires Trade Agencies to Modify
the Industry Advisory Committee System

The changing structure of the U.S. economy has required a strategic
realignment of some trade functions. For example, the trade policy
advisory committee system14 performs an important function through which
private sector committee members are able to provide input to trade
agencies to help them negotiate, monitor, and enforce trade agreements;
however, our September 2002 report15 found that the structure and
composition of the trade advisory committee system had not been fully
updated to reflect changes in the U.S. economy and U.S. trade policy.

14Under section 135 of the Trade Act of 1974, 19 U.S.C. S: 2155, the
President is required to seek information and advice from the private
sector on (1) negotiating objectives and bargaining positions before
entering into a trade agreement, (2) the operation of trade agreements,
and (3) other matters regarding the administration of U.S. trade policy. A
system of trade advisory committees was established in the 1970s to serve
this purpose. In 2002, the system comprised about 735 advisers spread
across 34 committees. The advisory committees are administered by USTR,
which assumes a leadership role, along with several other departments,
especially Commerce.

15U.S. General Accounting Office, International Trade: Advisory Committee
System Should Be Updated to Better Serve U.S. Policy Needs, GAO-02-876
(Washington, D.C.: Sept. 24, 2002).

Although the U.S. economy had shifted toward services and hightechnology
industries since the 1970s, their representation on the trade advisory
committees had not kept pace with their growing importance to U.S. output
and trade. For example, certain manufacturing sectors, such as
electronics, had fewer members than their sizable trade would have
indicated. In other cases, U.S. negotiators reported that some key issues
in negotiations, such as investment, were not adequately covered within
the trade advisory committee system. In addition, committee rosters were
only about 50 percent of their authorized levels, and some large companies
did not participate, limiting the availability of advice for negotiators
from certain committees.

Our 2002 report also found that the resources USTR and the other trade
agencies devoted to managing the trade advisory committee system did not
match the tasks that needed to be accomplished to keep the system running
reliably and well. For example, USTR officials told us that the current
staffing levels in its responsible office-three positions with multiple
responsibilities-did not allow them time to proactively manage committee
operations. The head of the office said that simply restarting all the
lapsed committees and keeping the rest of the system operating were
occupying much of the time she could devote to the system. Commerce, which
co-administers many of the trade advisory committees, faced similar
challenges. As discussed in our September 2002 report, Commerce officials
said they had to focus their limited staff-an office of three persons-on
rechartering the committees and appointment processes, which did not allow
them to meet their responsibilities to attend all the committee meetings.

We recommended that USTR work with Commerce and several other agencies to
update the trade advisory system to make it more relevant to the U.S.
economy and trade policy needs as well as to better match agency resources
to the tasks associated with managing the system. According to recent
information that agencies provided, their staff have planned and, in some
cases, already taken a number of actions in response to our 2002
recommendations that they expect will increase efficiencies and reduce the
workload. For example, Commerce and USTR have developed a plan for
restructuring the industry advisory committees that officials believe
better reflects the U.S. economy. Under the plan, some new committees are
to be established, while the overall number of committees is to be
reduced. The latter action is expected to reduce the administrative
workload for Commerce's staff, enabling them to focus more on substantive
matters. The plan also calls for quarterly plenary meetings that will be
open to all trade advisors. According to Commerce officials,

bringing all advisors together at the same time will facilitate a higher
level of representation of U.S. trade negotiators at the meetings and
that, as a result, trade advisors will be better informed about ongoing
negotiations. In turn, the officials said, trade advisors should be better
prepared to deliberate on issues of interest to them and thus better able
to provide advice to U.S. trade negotiators.16

In addition, the agencies revised their process for clearing proposed new
members, thus reducing the amount of time it takes for clearance.
Moreover, a secure Web site has been established that allows members to
review the texts of draft trade negotiating documents. In addition, the
Assistant U.S. Trade Representative for Public Liaison now holds a monthly
teleconference with the chairmen of all committees. During this call, USTR
provides feedback to committees on previously raised areas of concern or
recommendations, discusses USTR's long-term negotiating calendar to
highlight upcoming issues, and is open to discussion of general issues or
concerns. According to Commerce and USTR officials, they have taken these
actions without increasing the size of their authorized staffs. However,
it was noted that Commerce staff, who did much of the implementing work on
this issue, sometimes put in long hours in completing their tasks. In
addition, in the case of Commerce, a position that had been vacant was
filled, thus increasing the actual number of staff.

While administering the trade advisory committee system is only one of
many functions that trade agencies perform, the system does provide an
important forum for candid discussion of trade negotiating topics with a
wide range of private sector experts. Our review found that the system has
not realized its potential, however, and that lack of administrative
support was one of the reasons for this situation. While the agencies have
taken actions to improve the trade advisory committee structure and its
management, these kinds of improvements illustrate how U.S. trade agencies
need to utilize human capital strategies that anticipate and respond to
shifts in global market forces. Such an effort would allow the agencies to
allocate staff accordingly to keep trade functions current and relevant.

16On November 25, 2003, USTR and the Department of Commerce announced that
the plan has been approved and the agencies expect to implement it by
March 2004.

Growing Importance of China Creates Range of Human Capital Challenges for
Trade Agencies

China's rapid expansion in the world economy presents U.S. trade agencies
with significant human capital challenges as they strive to monitor and
enforce compliance with trade agreements. In 2002, China was the United
State's fourth largest trading partner. The rapid growth of China's
exports to the United States and the continuing role of the government in
China's economy create a significant challenge for U.S. agencies and the
Congress to ensure that U.S. businesses are treated fairly. Since China's
entry into the WTO on December 11, 2001, U.S. agencies have taken
significant actions to monitor and enforce an extensive and complex set of
WTO commitments. Among these actions are increasing staff resources,
establishing an interagency group to focus on China trade issues, and
considering organizational changes to better concentrate analytical staff
resources. However, early experiences with monitoring China's compliance
with numerous and complex commitments and with WTO and U.S. government
mechanisms for enforcing commitments illustrate just how difficult and
resource intensive-particularly in terms of human capital-this task will
be.

Size and Scope of China's U.S. trade with China has been characterized by
a rapidly growing deficit, Impact on U.S. Markets Are with a significant
impact on a number of industries in the United States. As Considerable
figure 5 shows, U.S. imports from China have grown rapidly since 1989,

while U.S. exports to China have also expanded, but at a much slower rate.
The growing trade deficit has been addressed at several congressional
hearings and may require greater attention from Commerce, USTR, and other
trade agencies.

Figure 5: U.S. Exports, Imports, and Balance of Merchandise Trade with
China, 1989-2002

In 2002, imports from China totaled nearly $125 billion, accounting for
nearly 11 percent of total U.S. imports and making China the third largest
supplier of U.S. imports, after Canada and Mexico, respectively. The top
five U.S. imports from China are shown in table 2 (see the app.). China
was the seventh largest market for U.S. exports in 2002, and U.S. exports
totaled about $21 billion or 3.2 percent of total U.S. exports to the
world (see table 3 in the appendix).

Continuing Role of Chinese Government in the Economy Creates Challenges
for Monitoring and Enforcement

China has made important progress during the past 25 years in opening its
market to foreign goods and services as well as foreign investment,
according to a USTR report.17 Economic and financial reforms have
introduced market forces into China, and privileges accorded state-owned

17USTR, 2003 National Trade Estimate Report on Foreign Trade Barriers
(Washington, D.C.: Mar. 31, 2003).

firms are gradually being removed. However, the transition from a
statecontrolled economy to a market-driven one is far from complete.
According to USTR, reforms have been particularly difficult in sectors
that traditionally relied upon substantial state subsidies as the central
government continues to protect noncompetitive or emerging sectors of the
economy from foreign competition. Moreover, USTR said, provincial and
lower-level governments have strongly resisted reforms that would
eliminate sheltered markets for local enterprises or reduce jobs and
revenues in their jurisdictions, inhibiting the central government's
ability to implement trade reforms.18 During 2003, the Commerce Department
held more than 20 roundtable discussions with U.S. manufacturers, both
large and small, across the United States and heard similar complaints.
According to Commerce's under secretary for the International Trade
Administration, no foreign country raised more attention as a source of
concern than China. Manufacturers complained about rampant piracy of
intellectual property, forced transfer of technology from firms launching
joint ventures in China, a broad range of trade barriers, and capital
markets that are largely insulated from free-market pressures.19

Another issue concerns the Chinese government's decade-long practice of
pegging the Chinese yuan to the dollar as a means, according to Chinese
officials, of fostering economic stability, the absence of which could
hurt its export industries and political stability. In order to maintain
this fixed exchange rate, the government has had to intervene in the
foreign exchange market and, according to Treasury officials, recently
intervened

18In 2002, we surveyed the views of U.S. companies with business
activities in China about prospects for China implementing its WTO
commitments. Seventy percent or more of the responding companies
identified rule of law-related commitments to be the most difficult for
China to implement. These included (1) consistent application of laws,
regulations, and practices; (2) intellectual property rights; (3)
enforcement of contracts and judgments/settlement of disputes in the
Chinese court system; (4) equal treatment between Chinese and foreign
entities; and (5) transparency of laws, regulations, and practices. See
U.S. General Accounting Office, World Trade Organization: Selected U.S.
Company Views About China's Membership, GAO-02-1056 (Washington, D.C.:
Sept: 22, 2002).

19In mid-October 2003, the U.S.-China Security and Economic Review
Commission concluded that China was supporting its manufacturers through a
range of national industrial policies, such as, for example, tax relief,
preferential loans from state banks, and requirements for foreign
investors to provide foreign technology transfers. The commission
recommended that USTR and Commerce identify whether any of China's
industrial policies are inconsistent with its WTO obligations and engage
with the Chinese government to mitigate those that are significantly
impacting U.S. market access. (The commission, created on October 30,
2000, consists of 12 members who were appointed on the basis of
recommendations made by the leadership of the House and Senate.)

very heavily to prevent the yuan from appreciating against the dollar.
Considerable debate has occurred among experts and observers about whether
China's intervention to maintain a lower-valued yuan is having a negative
effect on U.S. manufacturers. This issue has been the subject of numerous
congressional hearings with administration witnesses and was also a topic
of discussion between Presidents Bush and Hu Jintao at the October 2003
Asia Pacific Economic Cooperation Economic Leaders' Meeting and during the
Secretary of the Treasury's September 2003 trip to China. Also in
September, the Group of Seven20 finance ministers issued a statement
favoring more flexibility in exchange rates for large economies. In an
October 30, 2003, report to the Congress, the Treasury Department
concluded that no major trading partner of the United States was
manipulating the rate of exchange between its currency and the U.S. dollar
for the purposes of preventing effective balance of payments adjustments
or gaining unfair competitive advantage in international trade. However,
the report also found that China's fixed exchange rate was not appropriate
for a major economy like China and should be changed. According to the
Treasury, the Chinese government has indicated it will move to a flexible
exchange rate regime but believes taking immediate action would harm its
banking system and overall economy.

The growing importance of the Chinese economy for the United States has
been a particular focus of attention from U.S. officials due to the
implications for U.S. firms and for compliance with trade agreements.
However, these issues require increasing attention from U.S. agency
personnel. Moreover, as in the case of the debate surrounding the Chinese
currency, these issues require appropriate expertise from U.S. trade and
economic agencies, and a resolution of these matters may ultimately
require a significant investment of time from these officials.

China's Accession to the WTO Strains Agencies' Monitoring Resources

As we reported in October 2002,21 China's WTO commitments span eight broad
areas and require both general pledges and specific actions. We identified
nearly 700 individual commitments on how China is expected to reform its
trade regime, as well as commitments that liberalize market access for
more than 7,000 goods and nine broad service sectors in

20Seven leading industrialized countries of the world, including Canada,
England, France, Germany, Italy, Japan, and the United States.

21U.S. General Accounting Office, World Trade Organization: Analysis of
China's Commitments to Other Members, GAO-03-461 (Washington, D.C.: Oct.
3, 2002).

industries important to the United States, such as automobiles and
information technology. Owing to the breadth and complexity of China's
commitments, China's accession to the WTO has led to increased monitoring
and enforcement responsibilities for the U.S. government.

An illustration of the human capital difficulties involved in monitoring
and enforcing China's commitments relates to U.S. government efforts to
establish an interagency group-the China WTO Compliance Subcommittee-whose
mandate is to monitor China and the extent to which it is complying with
its WTO commitments. Almost 40 officials, representing 14 departments and
executive offices, participate in this subcommittee. The subcommittee was
very active in 2002, meeting 11 times. In these meetings, officials
evaluated and prioritized current monitoring activities, reviewed the
steps that China has taken to implement its commitments, and decided on
appropriate responses. Also, the subcommittee held a public hearing on
September 18, 2002, and USTR issued its first annual report to Congress on
China's WTO compliance on December 11, 2002, as required by law.

Still, it took some time for the subcommittee to get up to full speed. For
example, the various participants had to work out their respective roles
and responsibilities. USTR officials sought to delineate tasks related to
carrying out their monitoring action plan in China; Washington, D.C.; and
Geneva (the WTO's headquarters), including expectations for information
gathering, reporting, and setting initial priorities. Finally, USTR
officials undertook several activities at the beginning of the year to
educate themselves on China's WTO obligations. This was important, because
monitoring these obligations entailed new or expanded responsibilities for
officials in the field, and many of the Washington-based officials were
relatively new to their current jobs. For example, many of the USTR
officials who had actively participated in the U.S. negotiations with
China that resulted in those obligations changed jobs and/or left the
government soon after China became a WTO member in 2001.

U.S. Agencies Have Added Staff USTR, Commerce, and other agencies have
requested and received and Are Considering Further additional resources to
carry out the added responsibilities arising from Organizational Changes
China's accession to the WTO. For example, full-time equivalent staff in

key units that are involved in China monitoring and enforcement activities
across four key agencies increased from about 28 to 53 from fiscal year
2000 to 2002, based on agency officials' estimates (see table 1).

Table 1: Agency Staffing Estimates for Key Offices Involved in China WTO
Compliance Efforts, Fiscal Years 2000-02

                             Agency 2000 2001 2002

USTR 3 3

                             Department of Commerce

                Market Access and Compliance          7     19     
                       Import Administration        1.7    3.3     
                   Department of Agriculture        7.5    7.5           10.5 
                         Department of State       8.25    8.25          8.75 
                                       Total       27.5    41.1    

Source: U.S. General Accounting Office, World Trade Organization:
First-Year U.S. Efforts to Monitor China's Compliance, GAO-03461
(Washington, D.C.: Mar. 31, 2003).

Commerce had the largest overall increase in staff devoted to China WTO
compliance during this period. Specifically, staffing levels in Commerce's
Market Access and Compliance division increased from 7 to 22 between
fiscal years 2000 and 2002. Additionally, Commerce's Import
Administration, which takes the lead on monitoring China's commitments
concerning subsidies and unfair trade practices, also significantly
increased staff dedicated to China compliance activities during the same
time period. Commerce has also increased the number of staff involved in
the agency's compliance efforts on the ground in China by creating a Trade
Facilitation Office within the U.S. embassy in Beijing. In addition, the
Department of Agriculture has increased the number of overseas staff
involved in the agency's China WTO compliance activities.

A Commerce official told us that the Import Administration is thinking of
combining all of its China work under one deputy assistant secretary (the
current practice is to distribute the work among three deputy assistant
secretaries). Doing so might enhance the office's expertise and provide a
better basis for assessing whether additional China expertise is needed.

As we have reported in numerous studies and testimonies before this
Subcommittee and others, effective alignment between federal agencies'
human capital approaches and their current and emerging strategic and
programmatic goals is critical to the ability of agencies to economically,
efficiently, and effectively perform their missions. The importance of
such a close alignment is demonstrated in the area of the U.S.
government's trade activities, where heightened security concerns, an
ambitious trade negotiating agenda, and an array of global economic forces
all have implications for sound human capital management.

  Conclusions

Our testimony has cited illustrations in these three areas based on our
recent work for Congress. In some areas, failure to sufficiently plan the
human capital approach, such as the CBP programs to secure the global
supply chain, show that the success of the programs is not assured in the
absence of human capital planning. In other cases, such as the U.S.'s
ambitious trade negotiating agenda, human capital resources may be a
constraint on the ability of the trade agencies to carry out their
negotiations at the multilateral, regional, bilateral, and subregional
level. Finally, the array of shifting global forces described in some of
our recent studies also demonstrates the implications for U.S. trade
agency activities and, in many cases, the agencies' human capital
activities. For example, in the case of the rapid growth of China in the
world economy and its WTO accession agreement, the demand for specialized
expertise and focus on issues related to China's economy have led to
growth in personnel and efforts to reorganize to meet these new monitoring
and compliance challenges.

As your Subcommittee has stressed in its guidance and hearings regarding
other parts of the federal government, agencies must constantly reevaluate
their human capital strategies to adapt and even anticipate major shifts
in their environment. We believe that a number of studies we have
performed for Congress in recent months are good illustrations-and further
evidence-of the validity of that approach.

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

Contacts and 	For further contacts regarding this testimony, please call
Loren Yager at (202) 512-4347 or Christine Broderick (415) 904-2240.
Individuals making

Acknowledgments 	key contributions to this testimony included Adam Cowles,
Etana Finkler, Kim Frankena, Wayne Ferris, Rona Mendelsohn, Anthony Moran,
and Richard Seldin.

Appendix: U.S. Imports from and Exports to China, 1989-2002

This appendix provides information on U.S. imports from and exports to
China during the past 14 years. Table 2 provides data on the top five U.S.
imports from China between 1989 and 2002. Together, imports of these five
commodities accounted for about 59 percent of total imports from China in
2002, according to the Department of Commerce.

Table 2: Top Five U.S. Imports from China, 1989-2002 (Dollars in millions)

         Miscellaneous          Telecommunication          Electrical 
Year  manufactured    Office     equipment     Footwear machinery    Total 
            items      machines                                       
1989         $2,529      $70            $1,032     $720       $535 $11,859 
1990          3,236      117             1,142    1,475        652  15,120 
1991          4,094      290             1,466    2,532        876  18,855 
1992          5,932      543             1,752    3,396      1,331  25,514 
1993          7,151      932             2,279    4,505      1,723  31,425 
1994          8,690    1,583             3,715    5,254      2,252  38,572 
1995         10,319    2,879             4,215    5,817      3,094  45,370 
1996         11,867    3,562             4,438    6,367      3,874  51,209 
1997         14,155    5,019             5,126    7,354      4,877  61,996 
1998         15,872    6,329             6,405    8,016      5,707  70,815 
1999         17,291    8,239             7,382    8,438      7,022  81,522 
2000         19,445   10,980             9,812    9,206      9,037  99,581 
2001         19,782   10,762            10,062    9,767      9,048 102,069 
2002         23,495   15,230            14,145  10,242      10,217 124,796 

Source: Department of Commerce data.

Note: Miscellaneous manufactured articles include toys and games.
Telecommunication equipment includes sound recording and reproducing
equipment such as telephone answering machines, radios, tape recorders and
players, televisions, VCRs, and so forth.

Table 3 provides figures on the top five U.S. exports to China between
1989 and 2002. Together, these five commodities accounted for about 42
percent of total U.S. exports to China in 2002.

    Table 3: Top Five U.S. Exports to China, 1989-2002 (Dollars in millions)

        Transport Electrical General industrial      Specialized       
Year equipment machinery      machinery            machinery Office  Total 
                                                              machines 
1989      $540       $138               $268              $359 $147 $5,775 
1990       754        133                176                322 133  4,776 
1991     1,084        132                222                370 148  6,238 
1992     2,051        207                275                423 161  7,339 
1993     2,252        247                427                669 213  8,619 
1994     1,929        285                515                670 233  9,178 
1995     1,187        408                712                675 306 11,613 
1996     1,718        553                764                685 254 11,801 
1997     2,127        684                756                765 324 12,533 
1998     3,604        931                663                519 830 13,908 
1999     2,325      1,252                675                478 697 12,585 
2000     1,695      1,502                812              744 1,154 15,335 
2001     2,452      1,842              1,051              773 1,208 17,959 
2002     3,382      2,185              1,105              1,102 913 20,553 

Source: Department of Commerce data.

Note: Transport equipment is primarily aircraft and parts. Office machines
are mainly computers.

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Federal Programs Automated answering system: (800) 424-5454 or (202)
512-7470

Jeff Nelligan, Managing Director, [email protected] (202) 512-4800

Public Affairs 	U.S. General Accounting Office, 441 G Street NW, Room 7149
Washington, D.C. 20548
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