International Trade:

Four Free Trade Agreements GAO Reviewed Have Resulted in Commercial Benefits, but Challenges on Labor and Environment Remain

GAO-09-439: Published: Jul 10, 2009. Publicly Released: Aug 10, 2009.

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Since 2001, Congress has approved free trade agreements (FTA) with 14 countries. Most were negotiated under Trade Promotion Authority (TPA), which aims to lower trade barriers while strengthening the capacity of trading partners to promote respect for workers' rights and to protect the environment. The Office of the United States Trade Representative (USTR) is responsible for overseeing implementation of the FTAs, and the Departments of Labor (Labor) and State (State) have responsibilities for implementing and managing FTA cooperation projects. GAO was asked to assess progress through FTAs in (1) advancing U.S. economic and commercial interests, (2) strengthening labor laws and enforcement in partner nations, and (3) strengthening partners' capacity to improve and enforce their environmental laws. GAO focused on Jordan, Chile, Singapore, and Morocco, chosen because of their economic, social, and geographic diversity and relatively older FTAs. GAO analyzed relevant trade laws and trends, met with U.S. agencies and foreign government officials, conducted fieldwork in the four countries, and solicited input from the private sector.

The four selected FTAs have largely accomplished the U.S. objectives of achieving better access to markets and strengthening trade rules, and have resulted in increased trade, as summarized in the table. While varying in details, the FTAs have all eliminated import taxes, lowered obstacles to U.S. services such as banking, increased protection of U.S. intellectual property rights abroad, and strengthened rules to ensure government fairness and transparency. Overall merchandise trade between the United States and partner countries has substantially grown, with increases ranging from 42 percent to 259 percent. Services trade, foreign direct investment, and U.S. affiliate sales in the largest partners also rose. FTA negotiations spurred some labor reforms in each of the selected partners, according to U.S. and partner officials, but progress has been uneven and U.S. engagement minimal. An example cited was Morocco's enactment of a long-stalled overhaul of its labor code. However, partners reported that enforcement of labor laws continues to be a challenge, and some significant labor abuses have emerged. In the FTAs we examined, Labor provided minimal oversight and did not use information it had on partner weaknesses to establish remedial plans or work with partners on improvement. The selected partners have improved their environmental laws and made other progress, such as establishment of an environmental ministry and a 400-strong environmental law enforcement force in Jordan, according to U.S. and foreign officials. However, partner officials report that enforcement remains a challenge, and U.S. assistance has been limited. Elements needed for assuring partner progress remain absent. Notably, USTR's lack of compliance plans and sporadic monitoring, State's lax management of environmental projects, and U.S. agencies' inaction to translate environmental commitments into reliable funding all limited efforts to promote progress.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In response to our recommendation, State reported in July 2010 that it had recently developed a more structured approach to manage and monitor the implementation of environmental projects. Specifically, OES implemented a spreadsheet-based tracking system to monitor implementation of the Environmental Cooperation Mechanism (ECM) Work Programs and Plans of Action. Through this system, they track for each activity in the work plan, the amount of funding (if any), the funding source, the primary implementer, the primary U.S. Government agencies involved, relevant FTA-partner country agencies, and progress on implementation. OES reported that this tracking system complements other ongoing processes for ensuring robust implementation of ECMs, including negotiating comprehensive Work Programs with FTA countries and conducting extensive oversight of OES-funded grantees or technical agency partners. In December 2010, GAO followed up with State on the implementation of the spreadsheet tracking system and determined that the OES effort has led to a more standardized and systematic approach to track progress, in response to the GAO recommendation. Also in response to our recommendation that State work with other agencies to develop this structured approach, in December 2010, OES reported that interagency cooperation on providing information about the results that they are achieving with their environmental projects has improved. OES holds interagency meetings every few months and works very closely with other agencies.

    Recommendation: The Secretary of State should direct the Oceans and International Environmental and Scientific Affairs Bureau (OES) to work with other agencies to develop a more structured approach to manage and monitor the implementation of environmental cooperation mechanisms and projects. This should enable State to more readily track progress and include information such as number and nature of activities, source and amount of funding, and, to the extent practical, performance indicators and benchmarks to measure appropriately the progress made in accomplishing or otherwise furthering the goals and objectives of such programs, projects, and activities and public reporting of that progress.

    Agency Affected: Department of State

  2. Status: Closed - Implemented

    Comments: DOL agreed with GAO's recommendation, and DOL's Bureau of International Labor Affairs (ILAB) has taken several steps to become more proactive in fulfilling its Free Trade Agreement (FTA) implementation and cooperation responsibilities. To improve contact with FTA partners, ILAB created a supervisory position to oversee ongoing communication and engagement by ILAB staff with partners' ministries of labor. DOL has continued to initiate regular contact with FTA partners' ministries of labor. For example, in April 2012, DOL and the Oman Ministry of Manpower met to reaffirm their commitments under the U.S.-Oman Free Trade Agreement and agreed to hold more regular meetings to review progress on implementation. In addition, ILAB sent staff in September 2011 to Honduras to meet with key stakeholders as part of its monitoring of labor law implementation. ILAB also sent staff to Peru in March 2012 to meet with key stakeholders and the Ministry of Labor to track the status of various labor issues. DOL also reported that ILAB and USTR have proactively engaged their current FTA partners and new TPP partners in the context of the Trans-Pacific Partnership (TPP) trade negotiations. To develop priorities and plans for cooperation and assistance, ILAB undertook strategic planning for its activities (feeding into DOL's FY 2011-16 Strategic Plan) that considered key labor-related opportunities and challenges for each FTA partner. To help improve monitoring of country performance on labor issues, ILAB developed performance measures in FY 2010. In FY 2011, it collected its first year of data, established baselines for FTA partners and other countries, and set targets for FY 2012 and FY 2013. As of mid-July and through the third quarter of FY 2012, Labor is on track for meeting at least 3 of their fiscal 2012 targets. To support these activities, DOL requested and received additional funding and staff for ILAB in FY 2010 specifically to improve its ability to monitor labor issues in FTA countries, strengthen the enforcement of trade agreements, develop cooperative activities with FTA partners, and research facts relating to labor situations and public submissions claiming labor violations under FTAs and other trade programs. DOL has continued to request additional funds to monitor labor issues and enforce labor provisions in FTA agreements in FY 2012 and FY 2013. In addition, the Office of the U.S. Trade Representative (USTR) stated that the U.S. interagency group (of which DOL is a member) that is involved in overseeing the labor provisions of FTAs has increased its monitoring and enforcement efforts in response to GAO's report. For example, U.S. posts in FTA partners were requested to and provided baseline scene-setter assessments and action recommendations to inform strategic planning. They also stated that the interagency group has continued to meet to develop a working list of priorities and to discuss next steps for engagement with FTA partners on labor issues that will become a basis for making U.S. resource decisions in the future. DOL said it has concentrated its efforts on cooperation and technical assistance in high-priority countries. For example, it accompanied an interagency mission to Panama in May 2012 to help ensure that promised labor reforms will be implemented before the FTA is implemented.

    Recommendation: The Secretary of Labor should direct the Bureau of International Labor Affairs (ILAB), in consultation with other agencies as appropriate, to reinvigorate its implementation and cooperation responsibilities under the FTAs by initiating regular contact with all FTA partners' ministries of labor to review implementation of FTA labor provisions and to develop ongoing priorities and plans for technical cooperation on labor matters, as guided by the labor cooperation annexes and the partners' common interests and needs. The Department of Labor should consider, identify, and if necessary request appropriate resources such as new funding to undertake such contact and cooperation, including by coordinating with other agencies that can facilitate or assist these efforts.

    Agency Affected: Department of Labor

  3. Status: Closed - Implemented

    Comments: GAO has regularly engaged with USTR and other appropriate agencies in the 4 years after the report was issued and seen steady progress in implementing this recommendation. In ongoing discussions about actions taken to address the report's recommendations, USTR officials described a number of steps they have taken that focused on heightened monitoring, implementation, and enforcement. For example, the officials told us that the regularly scheduled bilateral meetings between the United States and its FTA partners, which review FTA implementation generally, now routinely include discussion of both labor and environmental issues. As a result, in 2009 and 2010, USTR held meetings to oversee implementation of the agreements' labor provisions with some partner countries for the first time. With respect to the environment, in 2009, USTR formed a subcommittee of the Trade Policy Staff Committee to focus on monitoring of implementation and compliance under the FTA environment chapters. With respect to labor, USTR obtained input from relevant embassies that helped establish a baseline assessment of FTA partner nations' labor rights and the status of compliance with FTA labor chapters. USTR officials told us in May 2011 that the interagency group had developed a working list of priorities for engagement with FTA partners on labor issues that will become a basis for making U.S. resource decisions in the future. In a correspondence from August 2012, Labor also noted that in context of the ongoing Trans-Pacific Partnership (TPP) trade negotiations, Labor and USTR have intensively engaged current FTA partners as well as proactively engaged with new TPP partners. This has involved monitoring and assessing their current labor laws and practices, as well as engaging with them directly on how our existing agreements have worked in practice. USTR and State officials reported that the increased U.S. emphasis on implementing the labor and environment provisions of the FTAs has resulted in greater openness by some partner governments to holding consultations with the private and nongovernmental sectors on these topics. They also described particular efforts in Bahrain, Peru and Jordan. To address the part of the recommendation that USTR report on compliance with and progress under the FTAs' labor and environmental provisions, we note that USTR's 2009, 2010 and 2011 Annual reports contained summaries of activities and plans with regard to labor and environment matters.

    Recommendation: To reflect the evolving U.S. experience with FTAs and better ensure progress in achieving stated U.S. objectives related to labor and the environment, USTR, should, in cooperation with other agencies, as appropriate, prepare updated plans to implement, enforce, monitor, and report on compliance with and progress under the FTAs' labor and environmental provisions. To facilitate oversight and input, these plans should reflect ongoing trade developments, be provided to Congress, and summarized in USTR's annual trade agreements report.

    Agency Affected: Executive Office of the President: Office of the U.S. Trade Representative

  4. Status: Closed - Implemented

    Comments: In a December 2010 interview to discuss State's actions to respond to the recommendation, OES officials indicated that they had provided a briefing to staff of the House Ways and Means Committee in the summer of 2010 and also held a general OES briefing for other Congressional staff. They also briefed staff of the Senate Foreign Relations Committee, and planned future briefings. A State official said that USTR's Congressional Affairs office was continuing to reach out to interested Congressional representatives. OES officials said they are also using public venues to provide information about environmental progress through FTAs. For example, a meeting of the United States-Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) Environmental Affairs Council on January 27, 2011, included a session with the public to discuss the environmental achievements resulting from cooperation under the FTA.

    Recommendation: The Secretary of State should direct OES to use this information to publicly report to Congress on cooperative activities and projects with FTA partners and their outcomes, as well as their role in furthering U.S. trade policy goals and FTA and FTA-related cooperation objectives.

    Agency Affected: Department of State

 

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