International Trade: Implementation Issues Concerning the World Trade
Organization (Testimony, 03/13/96, GAO/T-NSIAD-96-122).

GAO discussed the implementation of the General Agreement on Tariffs and
Trade's Uruguay Round agreements and the operation of the World Trade
Organization (WTO). GAO noted that: (1) the U.S. has generally achieved
its negotiating objectives in the Uruguay Round; (2) the agreements are
expected to open markets by reducing trade barriers and unfair trade
practices; (3) some U.S. industries and domestic interests are concerned
that the agreements will have adverse effects; (4) implementation of the
agreements is complex and its effects will not be known for many years;
(5) the United States needs to monitor the agreements' implementation to
ensure that member countries honor their commitments and the expected
benefits are realized; (6) the WTO organizational structure and the
secretariat's budget have grown in relation to its expanded
responsibilities; (7) several import and export issues involving the
service, textile, and agriculture industries continue to be disputed and
are awaiting settlement; (8) many member countries have not met their
notification requirements so that other member countries can monitor and
enforce agreement terms; and (9) WTO members need to address how to
allocate its resources, how to assimilate new countries into WTO, and
whether to pursue liberalization in areas already agreed upon or
initiate negotiations on new topics.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-NSIAD-96-122
     TITLE:  International Trade: Implementation Issues Concerning the 
             World Trade Organization
      DATE:  03/13/96
   SUBJECT:  Foreign trade agreements
             International trade
             International economic relations
             Foreign trade policies
             Tariffs
             International trade restriction
             International trade regulation
             Economic analysis
             International organizations
             Restrictive trade practices

             
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Cover
================================================================ COVER


Before the Subcommittee on Trade, Committee on Ways
and Means, House of Representatives

For Release on Delivery
Expected at
10:00 a.m.  EST
Wednesday,
March 13, 1996

INTERNATIONAL TRADE -
IMPLEMENTATION ISSUES CONCERNING
THE WORLD TRADE ORGANIZATION

Statement of JayEtta Z.  Hecker, Associate Director
International Relations and Trade Issues
National Security and International Affairs Division

GAO/T-NSIAD-96-122

GAO/NSIAD-96-122T


(711185)


Abbreviations
=============================================================== ABBREV

  WTO - x
  GATT - x
  SPS - x
  STE - x
  CITA - x
  GATS - x
  CFTA - x
  EU - x

INTERNATIONAL TRADE: 
IMPLEMENTATION ISSUES CONCERNING
THE WORLD TRADE ORGANIZATION
============================================================ Chapter 0


   SUMMARY OF STATEMENT BY JAYETTA
   Z.  HECKER, ASSOCIATE DIRECTOR,
   INTERNATIONAL RELATIONS AND
   TRADE, NATIONAL SECURITY AND
   INTERNATIONAL AFFAIRS DIVISION
---------------------------------------------------------- Chapter 0:1

The United States generally achieved its negotiating objectives in
the Uruguay Round, which was completed in 1994 and encompassed the
most comprehensive multilateral trade agreements in history.  The
Uruguay Round agreements are expected to open markets by reducing
trade barriers and strengthening multilateral disciplines on
signatories' unfair trade practices.  Further, for the first time,
multilateral rules have been established to cover such areas as
intellectual property rights and trade in services, while rules over
such areas as agriculture and textiles and clothing have been
expanded.  Lastly, the agreements created the new World Trade
Organization (WTO) and strengthened multilateral dispute settlement
procedures. 

Despite the agreements' positive achievements, some specific
industries and domestic interest groups are concerned that the
agreements will adversely affect some U.S.  interests.  For example,
some sectors of the economy, notably textiles and apparel, and their
workers, may bear some of the costs of economic adjustment.  Further,
not all of the effects of such a wide-ranging agreement will become
apparent in the near term.  Implementation of the Uruguay Round
agreements is complex, and it will take years before the results can
be assessed.  It is critical that the United States monitor
implementation of the agreements to ensure that the signatories are
honoring their commitments and thus that the agreements' expected
benefits are being realized.  Our work evaluating previous
multilateral and bilateral agreements has shown that these agreements
are not always fully implemented. 

Our recent work highlights some important Uruguay Round
implementation issues.  For example, the WTO's organizational
structure and the secretariat's budget have grown from 1994 to 1996,
to coincide with the member countries' new duties and
responsibilities.  However, many WTO member countries have not yet
provided all the information about their laws and regulations that
are required by the agreements.  In the agriculture area, while the
new agreements require that food safety measures be based on
scientific principles, U.S.  agricultural exporters seem to be
experiencing more problems with other countries' measures, and a
number of disputes in this regard have been filed with WTO.  Further,
while WTO has efforts underway to improve transparency provisions
regarding state trading enterprises, these provisions alone may not
be effective when applied to state-dominated economies, like China
and Russia, that are seeking to join WTO.  Finally, there were 25
disputes brought before WTO in 1995.  The United States lost the
first dispute settlement case and is now appealing that decision. 

In the coming years, WTO members must grapple with such issues as
whether to push further liberalization in areas already agreed to
and/or to initiate negotiations of new issues.  The WTO ministerial
meeting later this year could be an opportunity for Congress to weigh
the benefit of having U.S.  negotiators give priority to full
implementation of Uruguay Round commitments, as opposed to advocating
new talks on new topics. 


============================================================ Chapter 1

Mr.  Chairman and Members of the Subcommittee: 

I am pleased to have the opportunity to provide some preliminary
observations on the implementation of the Uruguay Round agreements,
and the operations of the new World Trade Organization (WTO).  Based
on our past and ongoing work,\1 I will provide an overview of the
implementation of the agreements, then talk about some specific
issues that are of particular concern to U.S.  decisionmakers, and
finally discuss future WTO endeavors. 


--------------------
\1 My statement today is based on some limited monitoring of general
WTO implementation issues we conducted last fall in Washington and
Geneva.  It is also based on our work for your Subcommittee and other
Members of Congress looking at several specific WTO-related issues
regarding (1) agriculture, (2) sanitary and phytosanitary (SPS)
product standards for food safety, (3) state trading enterprises
(STEs), (4) textiles and clothing, and (5) financial services. 


   OVERVIEW
---------------------------------------------------------- Chapter 1:1

We believe that the United States generally achieved its negotiating
objectives in the Uruguay Round, and most studies we reviewed
projected net economic gains to the United States and the world
economy.\2 The General Agreement on Tariffs and Trade (GATT) Uruguay
Round agreements are the most comprehensive multilateral trade
agreements in history.  For example, signatories (1) agreed to open
markets by reducing tariff and nontariff barriers; (2) strengthened
multilateral disciplines on unfair trade practices, specifically
rules concerning government subsidies and "dumping;" (3) established
disciplines to cover new areas such as intellectual property rights
and trade in services; (4) expanded coverage of GATT rules and
procedures over areas such as agriculture and textiles and clothing;
and (5) created WTO, which replaced the preexisting GATT
organizational structure and strengthened dispute settlement
procedures. 

Despite expectations for overall economic gains, we noted in recent
reports that specific industry organizations and domestic interest
groups had concerns that the agreement would adversely affect some
U.S.  interests.  For example, some believe that they did not gain
adequate access to overseas markets or that they would lose
protection provided by U.S.  trade laws.  In addition, because some
sectors of the U.S.  economy--notably textiles and apparel--and their
workers will likely bear the costs of economic adjustment, the
existing patchwork of reemployment assistance programs aimed at
dislocated workers needs to be improved.\3 Our work has indicated
that it was difficult to predict outcomes and not all the effects of
such a wide-ranging agreement will become apparent in the near
term;\4 important issues will evolve over a period of years during
GATT implementation.  We have identified provisions to be monitored
to assure that commitments are fulfilled and the expected benefits of
the agreements are realized.  Moreover, our work on the GATT Tokyo
Round agreements, negotiated in the 1970s, and numerous bilateral
agreements has demonstrated that trade agreements are not always
fully implemented. 

Implementation of the Uruguay Round agreements, which generally began
to go into force on January 1, 1995, is complex, and it will take
years before the results can be assessed.\5

Nevertheless, our work highlights the following issues:  (1) the
WTO's organizational structure and the secretariat's budget have
grown from 1994 to 1996 to coincid with new duties and
responsibilities approved by the member countries; (2) faced with
over 200 requirements, many member nations have not yet provided some
of the notifications of laws or other information as called for in
the agreements; (3) this year provides the first opportunity to
review whether anticipated U.S.  gains in agriculture will
materialize, as countries begin to report on meeting their initial
commitments; (4) the new agreements require that food safety measures
be based on sound science, but U.S.  agricultural exporters seem to
be encountering more problems with other countries' measures and a
number of formal disputes have already been filed with WTO; (5) while
efforts are underway to improve transparency provisions regarding
state trading, these provisions alone may not be effective when
applied to state-dominated economies, like China and Russia, seeking
to join WTO; (6) while textile and apparel quotas will be phased out
over 10 years, the United States has continued to use its authority
to impose quotas during the phase-out period and will not lift most
apparel quotas until 2005; (7) despite the end of the Uruguay Round,
some areas, like services, are still subject to ongoing negotiations;
(8) there were 25 disputes brought before WTO in 1995 by various
countries, including some involving the United States.  The United
States lost the first dispute settlement case regarding U.S. 
gasoline regulations brought by Brazil and Venezuela and is now
appealing that decision. 


--------------------
\2 See The General Agreement on Tariffs and Trade:  Uruguay Round
Final Act Should Produce Overall U.S.  Economic Gains (GAO/GGD-94-83a
& b, July 29, 1994), International Trade:  Observations on the
Uruguay Round Agreement (GAO/T-GGD-94-98, Feb.  22, 1994), and
General Agreement on Tariffs and Trade:  Agriculture Department's
Projected Benefits Are Subject to Some Uncertainty
(GAO/GGD/RCED-94-272, July 22, 1994). 

\3 See Multiple Employment Training Programs:  Major Overhaul Is
Needed to Reduce Costs, Streamline the Bureaucracy and Improve
Results (GAO/T-HEHS-95-53, Jan.  10, 1995); and Trade Adjustment
Assistance Program Flawed (GAO/T-HEHS-94-4, Oct.  19, 1993). 

\4 See International Trade:  Impact of the Uruguay Round Agreement on
the Export Enhancement Program (GAO/GGD-94-180BR, Aug.  5, 1995). 

\5 According to the WTO secretariat, the almost 500 pages of text
comprise 19 agreements, 24 decisions, 8 understandings, and 3
declarations.  There are also approximately 24,000 pages of specific
market access commitments. 


   ORGANIZATIONAL CHANGES
---------------------------------------------------------- Chapter 1:2

The WTO was established to provide a common institutional framework
for multilateral trade agreements.  Some observers have been
concerned about the creation of this new international organization
and its scope and size.  The "new" WTO was based on a similar
"provisional" GATT organizational structure that had evolved over
decades.  The Uruguay Round agreements created some new bodies;
however, these new bodies address new areas of coverage, for example,
the Councils for Trade in Services and for Trade-Related Aspects of
Intellectual Property Rights.  Other bodies, such as the WTO
Committee on Anti-Dumping Practices, were "reconstituted" from those
that already existed under the old GATT framework but that were given
new responsibilities by the Uruguay Round agreements and had broader
membership.  The WTO secretariat, headed by its Director General,
facilitates the work of the members.  The work of the bodies
organized under the WTO structure is still undertaken by
representatives of the approximately 119 member governments, rather
than the secretariat.  Early meetings of some WTO committees were
focused on establishing new working procedures and work agendas
necessary to implement the Uruguay Round agreements. 

In 1995, the WTO secretariat staff was composed of 445 permanent
staff with a budget of about $83 million.  This represented a
18-percent staff increase and about a 7-percent increase in the
budget (correcting for inflation) from 1994 when the Uruguay Round
agreements were signed.  The members establish annual budgets and
staff levels.  The approved secretariat's 1996 budget represents a
10-percent rise over the 1995 level to further support the
organization's wider scope and new responsibilities; it also includes
an additional 15-percent increase in permanent staff.  WTO officials
in Geneva have told us that any additional increases in secretariat
staffing are unlikely to be approved by the members in the
foreseeable future. 

The secretariat's duties include helping members organize meetings,
gathering and disseminating information, and providing technical
support to developing countries.  Economists, statisticians, and
legal staff provide analyses and advice to members.  In the course of
doing work over the last year, member government and secretariat
officials told us it was important that the secretariat continue to
not have a decision-making or enforcement role.  These roles were
reserved for the members (collectively). 


   UNFULFILLED NOTIFICATION
   REQUIREMENTS
---------------------------------------------------------- Chapter 1:3

An important, but laborious, aspect of implementing the Uruguay Round
agreements centers on the many notification requirements placed upon
member governments.  These notifications are aimed at increasing
transparency about members' actions and laws and therefore encourage
accountability.  Notifications take many forms.  For example, one
provision requires countries to file copies of their national
legislation and regulations pertaining to antidumping measures.  The
information provided allows members to monitor each others'
activities and, therefore, to enforce the terms of the agreements. 
In 1995, some WTO committees began reviewing the notifications they
received from member governments. 

The WTO Director General has noted some difficulties with members'
fulfilling their notification requirements.  Some foreign government
and WTO secretariat officials told us in 1995 that the notification
requirements were placing a burden on them and that they had not
foreseen the magnitude of information they would be obligated to
provide.  The Director General's 1995 annual report estimated that
the Uruguay Round agreements specified over 200 notification
requirements.  It also noted that many members were having problems
understanding and fulfilling the requirements within the deadlines. 
While the report said that the developing countries faced particular
problems, even the United States has missed some deadlines on filing
information on subsidies and customs valuation laws.  To address
concerns about notifications, WTO members formed a working party in
February 1995 to simplify, standardize, and consolidate the many
notification obligations and procedures. 


   IMPLEMENTATION OF AGRICULTURE
   COMMITMENTS
---------------------------------------------------------- Chapter 1:4

One area of great economic importance to the United States during the
Uruguay Round negotiations was agriculture; therefore, monitoring
other countries' implementation of their commitments is essential to
securing U.S.  gains.  Agricultural trade had traditionally received
special treatment under GATT.  For example, member countries were
allowed to maintain certain measures in support of agricultural trade
that were not permitted for trade in manufactured goods.  As a
result, government support and protection distorted international
agricultural trade and became increasingly expensive for taxpayers
and consumers. 

The United States sought a fair and more market-oriented agricultural
trading system, to be achieved through better rules and disciplines
on government policies regarding agriculture.  The United States
sought disciplines in four major areas--market access, export
subsidies, internal support, and food safety measures--and was
largely successful, as the Agreement on Agriculture and the Agreement
on the Application of Sanitary and Phytosanitary (SPS) Measures
together contain disciplines in all of these areas. 

Member countries are required to report to the new WTO Committee on
Agriculture on their progress in implementing commitments on market
access, export subsidies, and internal support.  The agriculture
agreement will be implemented over a 6-year period, and commitments
are to be achieved gradually.  After each year, countries are
required to submit data to demonstrate how they are meeting their
various commitments.  The agreement allows countries to designate
their own starting point for implementation during 1995, depending on
domestic policies.  In this regard, the U.S.  period began on January
1, 1995, while the European Union (EU) period began on July 1, 1995. 
Therefore, in some cases, the first opportunity to closely review the
extent to which other countries are meeting their agricultural
commitments--and, thereby, whether anticipated U.S.  gains are
materializing--should occur later this year. 


   USE OF SPS MEASURES
---------------------------------------------------------- Chapter 1:5

At the outset of the Uruguay Round, the United States recognized that
multilateral efforts to reduce traditional methods of protection and
support for agriculture, such as quotas, tariffs, and subsidies,
could be undermined if the use of food safety measures governing
imports remained undisciplined.  To prevent food safety measures from
being used unjustifiably as nontariff trade barriers, the United
States wanted countries to agree that these measures should be based
on sound science.  The SPS agreement recognizes that countries have a
right to adopt measures to protect human, animal, and plant life or
health.  However, it requires, among other things, that such measures
be based on scientific principles, incorporate assessment of risk,
and not act as disguised trade restrictions. 

Carefully monitoring how countries implement the SPS agreement is
essential to securing U.S.  gains in agriculture.  Since the end of
the round, U.S.  agricultural exporters seem to be encountering
growing numbers of SPS-related problems.  For example, South Korean
practices for determining product shelf-life adversely affected U.S. 
meat exports and were the subject of recent consultations.  As a
result, Korea agreed to modify its practices.  Meanwhile, the United
States and Canada have both filed several other disputes that allege
violations of the SPS agreement. 

Key implementation and monitoring issues regarding the SPS agreement
include examining (1) other countries' SPS measures that affect U.S. 
agricultural exports; (2) how the SPS agreement is being implemented;
(3) whether its provisions will help U.S.  exporters overcome
unjustified SPS measures; and (4) how the administration is
responding to problems U.S.  exporters face.  We have ongoing work
addressing all of these issues. 


   GROWING IMPORTANCE OF STATE
   TRADING WITHIN WTO
---------------------------------------------------------- Chapter 1:6

Another issue that is currently important for agricultural trade but
may have great future importance beyond agriculture is the role of
state trading enterprises within WTO member countries.  State trading
enterprises (STE) are generally considered to be governmental or
nongovernmental enterprises that are authorized to engage in trade
and are owned, sanctioned, or otherwise supported by the government. 
They may engage in a variety of activities, including importing and
exporting, and they exist in several agricultural commodity sectors,
including wheat, dairy, meat, oilseeds, sugar, tobacco, and fruits. 

GATT accepts STEs as legitimate participants in trade but recognizes
they can be operated so as to create serious obstacles to trade,
especially those with a monopoly on imports or exports.  Therefore,
STEs are generally subject to GATT disciplines, including provisions
that specifically address STE activities and WTO member country
obligations.  For example, member countries must indicate whether
they have STEs, and if so, they must report regularly about their
STEs' structure and activities.  The goal of this reporting
requirement is to provide transparency over STE activities in order
to understand how they operate and what effect they may have on
trade.  However, as we reported in August 1995, compliance with this
reporting requirement was poor from 1980 to 1994, and information
about STE activities was limited.\6

Although state trading was not a major issue during the Uruguay
Round, the United States proposed clarifying the application of all
GATT disciplines to STEs and increasing the transparency of state
trading practices.  Progress was made in meeting U.S.  objectives, as
the Uruguay Round (1) enhanced GATT rules governing STEs, (2)
addressed procedural weaknesses for collecting information, and (3)
established a working party to review the type of information members
report.  Within this working party, the United States is suggesting
ways to make STE activities even more transparent.  It is too early
to assess whether the changes made will improve compliance with the
STE reporting requirements.  By mid-February, only 34 WTO members had
met the requirement--or roughly 29 percent of all members.  Still,
this response rate is higher than during the earlier years we
reviewed.  We continue to examine this important issue and are
presently reviewing the operations of select STEs. 

Looking toward the future, officials from the United States and other
countries told us in 1995 they were concerned about the sufficiency
of GATT rules regarding STEs because countries like China and Russia,
where the state has a significant economic role, are interested in
joining WTO.  Some country officials observed that current rules
focus on providing transparency, but such provisions alone may not
provide effective disciplines.  U.S.  officials said that the subject
of state trading has been prominent during China's WTO accession
talks as WTO members attempt to understand the government's economic
role and its ability to control trade. 


--------------------
\6 See State Trading Enterprises:  Compliance with the General
Agreement on Tariffs and Trade (GAO/GGD-95-208, Aug.  30, 1995). 


   THE AGREEMENT ON TEXTILES AND
   CLOTHING
---------------------------------------------------------- Chapter 1:7

Textiles is one sector where the United States expected losses in
jobs and in domestic market share after the Uruguay Round, even
though consumers were expected to gain from lower prices and a
greater selection of goods.  We are currently reviewing how the
United States is implementing the Uruguay Round Agreement on Textiles
and Clothing, which took effect in January 1995.  The Committee for
the Implementation of Textile Agreements (CITA), an interagency
committee, is charged with implementing the agreement, which calls
for a 10-year phase-out of textile quotas.  Because of the 10-year
phase-out, the effects of the textiles agreement will not be fully
realized until 2005, after which textile and apparel trade will be
fully integrated into WTO and its disciplines.  This integration is
to be accomplished by (1) completely eliminating quotas on selected
products in four stages and (2) increasing quota growth rates on the
remaining products at each of the first three stages.  By 2005, all
bilateral quotas maintained under the agreement on all WTO member
countries are to be removed. 

The agreement gives countries discretion in selecting which products
to remove from quotas at each stage.  During the first stage (1995
through 1997), almost no products under quota were integrated into
normal WTO rules by the major importing countries.  The United States
is the only major importing country to have published an integration
list for all three stages; other countries, such as the EU and
Canada, have only published their integration plan for the first
phase.  Under the U.S.  integration schedule, 89 percent of all U.S. 
apparel products under quota in 1990 will not be integrated into
normal WTO rules until 2005.  CITA officials pointed out that the
Statement of Administrative Action accompanying the U.S.  bill to
implement the Uruguay Round agreements provided that "integration of
the most sensitive products will be deferred until the end of the
10-year period."

During the phase-out period, the textiles agreement permits a country
to impose a quota only when it determines that imports of a
particular textile or apparel product are harming, or threatening to
harm, its domestic industry.  The agreement further provides that the
imposition of quotas will be reviewed by a newly created Textiles
Monitoring Body consisting of representatives from 10 countries,
including the United States. 

The United States is the only WTO member country thus far to impose a
new quota under the agreement's safeguard procedures.  In 1995, the
United States requested consultations with other countries to impose
quotas on 28 different imports that CITA found were harming domestic
industry.  The Textiles Monitoring Body has reviewed nine of the U.S. 
determinations to impose quotas (where no agreement was reached with
the exporting country) and agreed with the U.S.  determination in one
case.  In three cases, it did not agree with the U.S.  decision, and
the United States dropped the quotas.  It could not reach consensus
in the other five cases it reviewed.  In 15 of the remaining 19
decisions, the United States either reached agreement with the
exporting countries or dropped the quotas.  Four cases are still
outstanding. 


   ONGOING NEGOTIATIONS AND THE
   FINANCIAL SERVICES AGREEMENT
---------------------------------------------------------- Chapter 1:8

Another area that warrants tracking by policymakers is the General
Agreement on Trade in Services (GATS), an important new framework
agreement resulting from the Uruguay Round.  Negotiations on
financial, telecommunications, and maritime service sectors and
movement of natural persons were unfinished at the end of the round
and thus postponed.  Each negotiation was scheduled to be independent
from the other ongoing negotiations, but we found that they do in
fact affect one another. 

In 1995, we completed a preliminary review of the WTO financial
services agreement, which was an unfinished area in services that
reached a conclusion.  The agreement covers the banking, securities,
and insurance sectors, which are often subject to significant
domestic regulation and therefore create complex negotiations.  In
June 1995, the United States made WTO commitments to not discriminate
against foreign firms already providing financial services
domestically.  However, the United States took a "most-favored-nation
exemption," that is, held back guaranteeing complete market access
and national treatment to foreign financial service providers. 
(Doing so is allowed under the GATS agreement.) Specifically, the
U.S.  commitment did not include guarantees about the future for new
foreign firms or already established firms wishing to expand services
in the U.S.  market.  Despite consistent U.S.  warnings, the decision
to take the exemption surprised many other countries and made them
concerned about the overall U.S.  commitment to WTO.  The U.S. 
exemption in financial services was taken because U.S.  negotiators,
in consultation with the private sector, concluded that other
countries' offers to open their markets to U.S.  financial services
firms, especially those of certain developing countries, were
insufficient to justify broader U.S.  commitments (with no
most-favored-nation exemption).\7

The effect of the U.S.  exemption may go beyond the financial
services negotiations.  According to various officials in Geneva,
foreign governments are wary of making their best offers in the
telecommunications service negotiations, for fear that the United
States would again take a significant exemption in these talks. 
Nevertheless, three-quarters of the participating countries have made
offers, and the telecommunications talks are continuing toward the
April 30 deadline.  However, U.S.  and foreign government officials
have expressed concern regarding the quality of offers made and the
fact that some key developing countries have not yet submitted
offers. 

Despite the commitments that all parties made regarding market access
and equal treatment in the financial services sector, several U.S. 
private sector officials told us that the agreement itself did little
to create greater access to foreign markets.  Still, the benefit from
such an agreement results from governments making binding commitments
(enforceable through the dispute settlement process) that reduce
uncertainty for business.  Monitoring foreign government
implementation of commitments is important to ensure that the United
States will receive the expected benefits.  At the end of 1997,
countries, including the United States, will have an opportunity to
modify or withdraw their commitments.  Thus, the final outcome and
impact of the financial services agreement are still uncertain. 


--------------------
\7 However, the United States was generally satisfied with the offers
made by the EU, Japan, and other developed countries. 


   DISPUTE SETTLEMENT
   IMPLEMENTATION
---------------------------------------------------------- Chapter 1:9

According to the WTO Dispute Settlement Understanding, the dispute
settlement regime is important because it is a central element in
providing security and predictability to the multilateral trading
system.  Members can seek the redress of a violation of obligations
or other nullification or impairment of benefits under the WTO
agreements through the dispute settlement regime.  The objective of
this mechanism is to secure a "positive solution" to a dispute.  This
may be accomplished through bilateral consultations even before a
panel is formed to examine the dispute.  The vast majority of
international trade transactions have not been the subject of a WTO
dispute.  According to recent WTO figures, in 1994 the total value of
world merchandise exports was $4 trillion and commercial service
exports was $1 trillion.  WTO reports that its membership covers
about 90 percent of world trade.  However, 25 disputes have been
brought before WTO between January 1, 1995, and January 16, 1996. 

As we previously reported, the former GATT dispute settlement regime
was considered cumbersome and time-consuming.\8 Under the old regime,
GATT member countries delayed dispute settlement procedures for
months and, sometimes, years.  In 1985, we testified that the
continued existence of unresolved disputes challenged not only the
principles of GATT but the value of the system itself.\9 We further
stated that the member countries' lack of faith in the effectiveness
of the old GATT dispute settlement mechanism resulted in unilateral
actions and bilateral understandings that weakened the multilateral
trading system. 

The United States negotiated for a strengthened dispute settlement
regime during the Uruguay Round.  In particular, the United States
sought time limits for each step in the dispute settlement process
and elimination of the ability to block the adoption of dispute
settlement panel reports.  The new Dispute Settlement Understanding
establishes time limits for each of the four stages of a dispute: 
consultation, panel, appeal, and implementation.  Also, unless there
is unanimous opposition in the WTO Dispute Settlement Body, the panel
or appellate report is adopted.  Further, the recommendations and
rulings of the Dispute Settlement Body cannot add to or diminish the
rights and obligations provided in the WTO agreements.  Nor can they
directly force countries to change their laws or regulations. 
However, if countries choose not to implement the recommendations and
rulings, the Dispute Settlement Body may authorize trade retaliation. 

As previously mentioned, there have been a total of 25 WTO disputes. 
Of these, the United States was the complainant in six and the
respondent in four.  In comparison, Japan was a respondent in four
disputes and the EU in eight.\10 All the disputes have involved
merchandise trade.  The Agreements on Technical Barriers to Trade and
the Application of Sanitary and Phytosanitary Measures have been the
subject of approximately half the disputes.  In January 1996, the
first panel report under the new WTO dispute settlement regime was
issued on the "Regulation on Fuels and Fuels Additives - Standards
for Reformulated and Conventional Gasoline." Venezuela and Brazil
brought this dispute against the United States.  The panel report
concluded that the Environmental Protection Agency's regulation was
inconsistent with GATT.  The United States has appealed this
decision. 

Based on our previous work on dispute settlement under the
U.S.-Canadian Free Trade Agreement (CFTA),\11 it may be difficult to
evaluate objectively the results of a dispute settlement process.  It
may takes years before a sufficiently large body of cases exists to
make any statistical observations about the process.  After nearly 5
years of trade remedy dispute settlement cases under CFTA, there were
not enough completed cases for us to make statistical observations
with great confidence.\12 Specifically, we were not able to come to
conclusions about the effect of panelists' backgrounds, types of U.S. 
agency decisions appealed, and patterns of panel decisionmaking. 


--------------------
\8 See International Trade:  Combating Unfair Foreign Trade Practices
(GAO/NSIAD-87-100, Mar.  17, 1987) and The International Agreement on
Government Procurement:  An Assessment of Its Commercial Value and
U.S.  Government Implementation (GAO/NSIAD-84-117, July 16, 1984). 

\9 See United States Participation in the Multilateral Trading
System, statement by Allan I.  Mendelowitz, GAO, before the U.S. 
Senate, Subcommittee on International Economic Policy, Oceans and
Environment, Committee on Foreign Relations (Sept.  26, 1985). 

\10 Japan was a complainant in one dispute and the EU in two. 

\11 See U.S.-Canada Free Trade Agreement:  Factors Contributing to
Controversy in Appeals of Trade Remedy Cases to Binational Panels
(GAO/GGD-95-175BR, June 16, 1995). 

\12 Between 1989 and September 1994, there were 15 completed cases
that involved U.S.  agency determinations. 


   FUTURE WTO ENDEAVORS
--------------------------------------------------------- Chapter 1:10

WTO members must wrestle with three competing but interrelated
endeavors in the coming years.  Implementation, accession of new
member countries, and bringing new issues to the table will all
compete for attention and resources.  The first effort, which we have
already discussed, involves implementing the Uruguay Round
agreements.  It will take time and resources to (1) completely build
the WTO organization so that members can address all its new roles
and responsibilities; (2) make members' national laws, regulations,
and policies consistent with new commitments; (3) fulfill
notification requirements and then analyze the new information; and
(4) resolve differences about the meaning of the agreements and judge
whether countries have fulfilled their commitments.  The importance
of implementation was underscored by U.S.  Trade Representative and
Department of Commerce announcements earlier this year that they were
both creating specific units to look at foreign government compliance
with trade agreements, including WTO. 

The second effort is the accession of new countries to join WTO and
to undertake GATT obligations for the first time.  The accession of
new members will present significant economic and political
challenges over the next few years.  Even though, as mentioned
earlier, WTO members account for about 90 percent of world trade,
there are many important countries still outside the GATT structure. 
The 28 countries that applied for WTO membership as of December 1995
included China, the Russian Federation, Viet Nam, and countries in
Eastern Europe.  These countries will be challenged in undertaking
WTO obligations and fulfilling WTO commitments as current WTO members
are themselves challenged by the additional responsibilities created
by the Uruguay Round agreements.  Many of these countries are
undergoing a transition from centrally planned to market economies. 
The negotiations between current WTO members and those hoping to join
are very complex and sensitive since they involve such fundamental
issues as political philosophy. 

The third effort is negotiating new areas.  In December 1996, a WTO
ministerial meeting is to take place in Singapore.  This is to be a
forum for reviewing implementation of the Uruguay Round agreements
and for negotiating new issues.  Some foreign government and WTO
officials told us that they hope these regularly scheduled, more
focused WTO ministerial meetings will replace the series of
multiyear, exhaustive negotiating "rounds" of the past.  However,
other officials expressed doubt that much progress could be made
toward future trade liberalization without the pressure created by
having a number of important issues being negotiated at one time. 
Nevertheless, any negotiations will require time and resources. 

Members are debating whether to (1) push further liberalization in
areas already agreed to, but not yet fully implemented; and/or (2)
negotiate new issues related to international trade.  For example,
future WTO work could include examination of national investment and
competition policy, labor standards, immigration, and corruption and
bribery.  Some of these negotiations in new areas could be quite
controversial, based on the experience of including areas like
agriculture and services in the Uruguay Round negotiating agenda. 

Issues relating to the Singapore ministerial are currently under
debate.  This could be an opportunity for Congress to weigh the
benefit of having U.S.  negotiators give priority to full
implementation of Uruguay Round commitments, as opposed to giving
priority to advocating new talks on new topics.  The first priority
seeks to consolidate accomplishments and ensure that U.S.  interests
are secured; the latter priority seeks to use the momentum of the
Uruguay Round for further liberalizations. 

Thank you, Mr.  Chairman, this concludes my prepared remarks.  I will
be happy to answer any questions you or the Subcommittee may have. 


*** End of document. ***