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entitled 'Free Trade Area of the Americas: Negotiations Progress, but
Successful Ministerial Hinges on Intensified U.S. Preparations' which
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Report to the Chairman, Committee on Finance, U.S. Senate, and to the
Chairman, Committee on Ways and Means, House of Representatives:
April 2003:
Free Trade Area of the Americas:
Negotiations Progress, but Successful Ministerial Hinges on Intensified
U.S. Preparations:
GAO-03-560:
GAO Highlights:
Highlights of GAO-03-560, a report to the Chairmen, Senate Committee on
Finance, and House Committee on Ways and Means
why GAO Did This Study:
Establishing a 34-nation Free Trade Area of the Americas agreement has
been under negotiation since 1998. This agreement would eliminate
tariffs and create common trade and investment rules for these nations.
Most recently, the United States, along with Brazil, assumed the
leadership of the negotiations. GAO was asked to analyze (1) the
challenges for the current negotiating phase, which will include a
ministerial meeting in Miami, Florida, in November 2003; and (2) the
U.S.’s readiness to serve as co-chair of the negotiations and host of
the November 2003 ministerial.
What GAO Found:
USTR, which is responsible for co-chairing the Free Trade Area of the
Americas negotiations and hosting the November 2003 ministerial
meeting, faces challenges to its readiness to assume these
responsibilities. During the current negotiating phase, achieving
improved market access for the 34 nations is paramount. It may be
difficult, however, for participants to make ambitious offers to lower
tariffs and other trade barriers. Another challenge involves the
resolution of issues such as subsidies for agriculture. The resolution
of this issue has been linked to ongoing negotiations at the World
Trade Organization, but these talks are bogged down. A further
challenge is ensuring the momentum and the political will of the United
States and Brazil to move the process forward to a timely completion by
January 2005.
As co-chair of the negotiations, USTR also faces risks to assuring its
readiness as host of the November ministerial. First, USTR has little
experience in hosting a major ministerial meeting, and its staff
remains small and is stretched thin. Second, plans for the meeting are
at an early stage, and much remains to be done. Third, USTR is counting
on funding that has not yet been secured. And finally, USTR is likely
to encounter protestors at the November ministerial. Factoring security
for the invited participants into the logistical arrangements for the
ministerial is a prime concern.
What GAO Recommends:
The Office of the U.S. Trade Representative (USTR) should intensify
preparations and regularly evaluate whether current resources and plans
are sufficient to carry out the tasks and mitigate the risks associated
with its responsibilities as co-chair of the negotiations and host of
the November ministerial. These are related to USTR’s (1) increased
workload, (2) planning for the ministerial, (3) funding sources, and
(4) security needs at the ministerial.
USTR and the Department of State generally agreed with GAO's message
but sought amplification on certain issues.
www.gao.gov/cgi-bin/getrpt?GAO-03-560.
To view the full report, including the scope
and methodology, click on the link above.
For more information, contact Loren Yager at (202) 512-4347, or
YagerL@gao.gov.
[End of section]
Letter:
Results in Brief:
Background:
Progress Achieved in Certain Areas Before and After Quito, but Extent
and Pace of Movement on Substantive Issues a Concern to Some
Participants:
Key Challenges Exist for the Current Negotiating Phase:
Gaps in U.S. Preparations for Co-chairmanship and Hosting of Miami
Ministerial May Pose Risks:
Conclusions:
Recommendation for Executive Action:
Agency Comments and Our Response:
Scope and Methodology:
Appendixes:
Appendix I: Comments from the Office of the U.S. Trade
Representative:
Appendix II: Comments from the Department of State:
Appendix III: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Staff Acknowledgments:
Related GAO Products:
Figures:
Figure 1: Organization of the FTAA Negotiations:
Figure 2: Political and Economic Events in South America, December 2001-
April 2003:
Figure 3: History of the FTAA Negotiations, 1994-2002:
Figure 4: Tariff Reduction Schedule under Different Base Tariff
Scenarios, 2005-2015:
Figure 5: FTAA Time Frames and Milestones, 2002-2005:
Figure 6: Relationship Between FTAA and WTO Agriculture Negotiations:
Figure 7: Keys to a Successful Ministerial:
Abbreviations:
ATPA: Andean Trade Preference Act:
CAFTA: U.S.-Central American Free Trade Agreement:
CAP: Common Agricultural Policy:
CARICOM: Caribbean Community:
EU: European Union:
FTA: Free Trade Agreement:
FTAA: Free Trade Area of the Americas:
HCP: Hemispheric Cooperation Program:
Mercosur: Common Market of the South:
NAFTA: North American Free Trade Agreement:
OMB: Office of Management and Budget:
TNC: Trade Negotiations Committee:
TPA: Trade Promotion Authority:
USTR: Office of the U.S. Trade Representative:
WTO: World Trade Organization:
Letter April 11, 2003:
The Honorable Charles Grassley
Chairman
Committee on Finance
United States Senate:
The Honorable William H. Thomas
Chairman
Committee on Ways and Means
House of Representatives:
Negotiations toward establishing a Free Trade Area of the Americas
agreement among the 34 democratic nations of the Western Hemisphere
have formally been under way since 1998. Such an agreement would
eliminate tariffs and create common trade and investment rules for
these nations. If completed, the Free Trade Area of the Americas
agreement would cover about 800 million people and about $13 trillion
in production of goods and services. Work on this agreement is the most
significant of ongoing regional trade negotiations for the United
States, and the Bush administration has made establishing the Free
Trade Area of the Americas one of its top trade priorities. Indeed, the
United States assumed leadership of the process when it became co-
chair, with Brazil, of the current and final phase of negotiations.
This phase began in Quito, Ecuador, during the ministerial meeting on
November 1, 2002, and will conclude with the completion of the
agreement.
Because of the significance of the Free Trade Area of the Americas
initiative, you asked us to update our previous work for you on the
current status of the negotiations. In this report, we analyze the (1)
progress made in the negotiations on creating a Free Trade Area of the
Americas and the outcome of the Quito ministerial meeting;[Footnote 1]
(2) key challenges for the current and final negotiating phase, which
will include a ministerial in Miami, Florida, in November 2003; and (3)
readiness of the United States to successfully perform as co-chair
(with Brazil) of the Free Trade Area of the Americas negotiations
process and host of the November 2003 ministerial. Our analysis is
based on our past and ongoing work on the Free Trade Area of the
Americas negotiations process.[Footnote 2]
Results in Brief:
Progress on creating a Free Trade Area of the Americas had occurred in
a number of technical and procedural areas by the time of the November
2002 ministerial meeting in Quito, Ecuador. For example, participants
had defined the timetable for completing the negotiating process and
drafted versions of the agreement text. Participants also had set
ground rules for conducting negotiations on liberalizing access to
their markets and dates for exchanging offers on liberalizing market
access. At the Quito ministerial, participants reaffirmed their
willingness to continue Free Trade Area of the Americas negotiations
while stressing the need for a balanced outcome that provides benefits
to all participants. The negotiators also launched a Hemispheric
Cooperation Program to help lesser-developed countries participating in
the Free Trade Area of the Americas talks obtain the expertise and
resources they need to negotiate, implement, and benefit from the
agreement. However, trade-offs did not begin, because negotiators had
made limited progress in resolving substantive differences in the
agreement's text and developing concrete proposals to improve market
access.
Three key challenges are of primary concern during the current phase of
the negotiations. First, resolution of issues such as subsidies for
agriculture, which are important for most countries of the hemisphere,
have been linked to ongoing global negotiations at the World Trade
Organization.[Footnote 3] However, there is concern that global talks
are bogged down on issues such as agriculture subsidies and that this
situation could cause Free Trade Area of the Americas talks to slow
down or deadlock. World Trade Organization negotiators have already
missed several interim deadlines, including one specifically related to
agriculture. Second, improved market access is the single most
important goal for most Free Trade Area of the Americas participants,
and the quality of offers the 34 nations make will set the tone for
ongoing negotiations. Offers to significantly reduce trade barriers
could provide momentum to the negotiations, but it may be difficult for
participants to make ambitious offers. Third, ensuring the momentum and
the political will of the United States and Brazil, two of the key
participants in the negotiations, to move the process vigorously
forward to a timely completion is a key challenge.
As co-chair of the negotiations, the United States faces several risks
to its readiness to ensure the successful conclusion of the final phase
of Free Trade Area of the Americas negotiations. First, the Office of
the U.S. Trade Representative, which handles the negotiations, has
assumed the increased responsibilities associated with chairing the
Free Trade Area of the Americas negotiations without a significant
addition in staff. Second, the co-chair arrangement with Brazil is a
novel situation that could involve additional time and effort for the
U.S. Trade Representative. Third, certain aspects of the current U.S.
plans for hosting the Eighth Free Trade Area of the Americas Trade
Ministerial in Miami in November 2003 pose risks, including acquiring
expertise in hosting a ministerial, working on planning the ministerial
with the host city, arranging financing, and ensuring the security of
ministerial participants. Failure to mitigate similar risks ultimately
caused serious logistical and security problems at the last major trade
ministerial hosted by the United States, the 1999 Seattle World Trade
Organization ministerial.
In this report, we recommend that the U.S. Trade Representative
intensify preparations and promptly and regularly evaluate whether its
current resources and plans are sufficient to carry out the tasks and
mitigate the risks associated with co-chairing the Free Trade Area of
the Americas negotiations and hosting the November 2003 ministerial
meeting.
In commenting on our draft report, the U.S. Trade Representative and
the Department of State agreed with our overall message. However, the
U.S. Trade Representative asked us to amplify on the steps it has taken
to address the challenges ahead for the Free Trade Area of the Americas
negotiations and upcoming November 2003 ministerial in Miami and
stressed that it believes plans for hosting the ministerial are at an
appropriate stage of development. The Department of State addressed the
issue of its assistance to the U.S. Trade Representative by saying that
it is trying to be as helpful as it can within the constraints of its
resources. We have noted these positions in the report and added new
information about several specific steps that the U.S. Trade
Representative and State have taken to bolster U.S. readiness.
Nevertheless, we maintain our basic findings and recommendation that
U.S. preparations should be intensified and plans be kept under regular
review.
Background:
Building on a decade of expanding trade and investment ties and
increasing economic integration in the region, the leaders of 34
countries in the Western Hemisphere pledged in December 1994 to form a
Free Trade Area of the Americas (FTAA) no later than 2005. The
agreement would progressively eliminate barriers to trade and
investment. The FTAA involves a diverse set of countries,[Footnote 4]
from some of the wealthiest (the United States and Canada) to some of
the poorest (Haiti) and from some of the largest (Brazil) to some of
the smallest in the world (St. Kitts and Nevis). The large disparities
in size and economic development in the hemisphere mean that countries
come to the negotiating table with different and sometimes widely
divergent interests and goals. For example, the United States seeks
broad improvements in trade rules and market access, while the smaller
economies seek assurances that their economies will not be overwhelmed
by larger ones. Many nations are participating in certain aspects of
the negotiations as subregional groupings such as the Caribbean
Community (CARICOM)[Footnote 5] and the Common Market of the South
(Mercosur)[Footnote 6] to facilitate their participation in FTAA talks.
Between December 1994 and the formal launch of negotiations on March
1998, the FTAA negotiators agreed on several principles to guide them:
(1) All decisions would be reached by consensus; (2) The final FTAA
agreement would be consistent with the rules and practices of the World
Trade Organization (WTO); (3) The final agreement would be able to
coexist with other subregional free trade and customs union
agreements[Footnote 7] such as Mercosur and the North American Free
Trade Agreement (NAFTA)[Footnote 8]; (4) Special consideration would be
given to differences in levels of development and sizes of economies;
and (5) An eventual FTAA agreement will be implemented as a single
undertaking. A single undertaking implies that the FTAA is a package
deal that must be accepted in its entirety by each signatory country in
order for the country to benefit from the agreement's provisions. It
also means that "nothing is agreed until everything is agreed," meaning
that concluding the agreement could involve trade-offs across chapters
of the proposed FTAA text agreement to achieve the desired balance.
Additionally, the negotiators agreed to the overall structure, scope,
and organization of the negotiations, including establishing nine
negotiating groups on particular areas. (See fig. 1.) The nine
negotiating groups are (1) Market Access; (2) Agriculture; (3)
Services; (4) Government Procurement; (5) Investment; (6) Intellectual
Property Rights (IPR); (7) Competition Policy; (8) Dispute Settlement;
and (9) Subsidies, Antidumping, and Countervailing Duties.[Footnote 9]
The completed FTAA agreement is to include trade rules, which each of
the nine designated negotiating groups is currently working to
establish; market-opening schedules; and a general text to cover
overarching and institutional issues.
Figure 1: Organization of the FTAA Negotiations:
[See PDF for image]
Notes:
Current chairs of the various FTAA entities are in parentheses. The
general objectives of each negotiating group and the Trade Negotiations
Committee appear in italics.
The venue for the negotiating group discussions is Puebla, Mexico.
[A] The Tripartite Committee, which provides technical support to the
negotiations, is comprised of the Organization of American States, the
Inter-American Development Bank, and the United Nations Economic
Commission for Latin America and the Caribbean.
[B] The Administrative Secretariat supports the FTAA ministers, the
Trade Negotiations Committee, negotiating groups, and other FTAA
entities.
[C] SPS stands for sanitary and phytosanitary measures. These measures
are taken to protect human, animal, or plant life or health.
[End of figure]
Until November 2002, the chairmanship of the entire negotiating process
rotated in approximately 18-month cycles, with the beginning and end of
each cycle marked by a ministerial meeting. Ecuador served as chair for
the most recent cycle of negotiations, which began in April 2001 and
ended with the November 1, 2002, FTAA ministerial in Quito, Ecuador.
Brazil and the United States assumed the co-chairmanship of the FTAA
process at the conclusion of the November meeting and are expected to
remain in that role until the FTAA negotiations conclude in January
2005. Handling the negotiations as well as the co-chairs'
responsibility for the U.S. side is the U.S. Trade Representative
(USTR). In between ministerials, the FTAA negotiations are overseen by
the vice ministerial-level Trade Negotiations Committee (TNC). The FTAA
Administrative Secretariat, located in Puebla, Mexico, is the entity
responsible for providing logistical and administrative support to the
FTAA.
The Quito FTAA ministerial meeting took place during an uncertain
economic and political period for the region. Countering perceived
threats to U.S. security became a central focus of the Bush presidency
in the wake of the terrorist attacks of September 11, 2001. The U.S.
economy had already slowed by the time the terrorist attacks occurred
and has performed unevenly since then. As for Latin America, it faces
poor economic conditions and political instability (see fig. 2).
Moreover, the International Monetary Fund expected regional output to
fall in 2002 by
0.6 percent, in part due to the economic crisis in Argentina. In
addition, several countries elected new leaders in 2002, and the
leaders have placed a priority on confronting domestic issues such as
rising poverty. Finally, political instability in countries such as
Venezuela, and ongoing violence in Colombia continued. This uncertainty
has caused some hemispheric leaders to question the economic and social
impacts of market-oriented reform. On the other hand, the need to
increase exports has become even more imperative to Latin American
countries' growth and development.
Figure 2: Political and Economic Events in South America, December
2001-April 2003:
[See PDF for image]
[End of figure]
Although the single most important goal for most FTAA participants is
improving market access to other nations' markets, achieving
substantial liberalization will be difficult. Barriers to trade remain
high: The tariffs of many FTAA participants are generally twice as high
as the average U.S. tariff of 4.8 percent. Moreover, several indicators
suggest trade within the region is lower than it could be.
Intraregional trade within several regional subgroups remains
relatively low (7.1 percent of total trade in CARICOM and 10 percent in
the Andean Community[Footnote 10] versus 46.9 percent in NAFTA).
Certain nations, such as Brazil, export significantly less as a share
of national income than other nations with similar-sized economies
(13 percent versus 28 percent in Mexico). In addition, tariff revenue
is an important source of government income for many FTAA nations
(56 percent of total government revenue in the Bahamas and 43 percent
in the Dominican Republic, versus just 1 percent in the United States
and Canada).
Progress Achieved in Certain Areas Before and After Quito, but Extent
and Pace of Movement on Substantive Issues a Concern to Some
Participants:
Before the Quito ministerial, FTAA participants had succeeded in laying
a technical foundation for an eventual FTAA agreement by making
progress in defining the remaining negotiating timetable, consolidating
the draft text, and establishing the ground rules for liberalizing
market access. (See fig. 3.) At Quito, negotiators achieved a number of
positive procedural and political outcomes, such as confirming the
schedule for upcoming market access negotiations and other negotiating
meetings; reaffirming the political willingness to go forward; and
launching a program to help developing nations negotiate, implement,
and benefit from an FTAA. However, procedural progress on market access
was not generally matched by substantive agreement on text-related
issues, and some key deadlines were missed or only met by postponing or
avoiding difficult decisions.
Figure 3: History of the FTAA Negotiations, 1994-2002:
[See PDF for image]
[End of figure]
Progress Made on Defining Timetable and Text:
Since the formal launch of FTAA negotiations in 1998, the 34
participating countries have laid a technical foundation for concluding
an FTAA agreement by setting a final deadline for completing the FTAA
as well as establishing interim milestones to ensure steady progress
toward that goal. By November 1999, the nine negotiating groups had
prepared annotated outlines of chapters of an agreement. By April 2001,
the negotiating groups had produced a draft text containing proposed
trade rules on diverse subjects ranging from agriculture to competition
policy. This draft was
435 pages long, and it contained a compilation and consolidation of
proposals for legal text received from FTAA participants. Participants
described its production as marking important progress, because the
draft laid the necessary groundwork and participants have agreed to use
the draft as the basis from which negotiations will proceed. In
addition, in publicly releasing the text, ministers responded to public
calls for greater transparency (openness) and sought to build public
understanding of and support for the FTAA.
In the 18 months leading to the Quito ministerial, the nine FTAA
negotiating groups made progress in consolidating the draft text.
Decision-makers clarified their policy choices by removing redundant
language and consolidating similar proposals. For example, they
shortened the intellectual property rights chapter from 106 pages to 53
pages. Moreover, the Technical Committee on Institutional issues, a
special drafting committee created by the TNC for that purpose,
submitted a draft text on general institutional issues. This draft text
covers such topics as the purposes, objectives, and principles of the
FTAA agreement as a whole; the scope and coverage of the FTAA's
obligations; and the institutional bodies that will provide political,
administrative, and technical oversight for an FTAA. However, much of
the text in the draft chapters remains within "brackets," denoting lack
of agreement among participants. This lack of substantive movement is a
concern to some observers, given that only
20 months remain until the January 2005 deadline for concluding an
FTAA. Resolving these disagreements will require considerable work and
hard bargaining to turn the accumulation of proposals currently on the
table into a mutually agreed-upon, legally binding document. As we
noted in our March 2001 report, the sheer scope and complexity of the
trade rules contemplated will make this work difficult.[Footnote 11]
Ground Rules for Liberalizing Market Access Established:
A key goal of the Quito phase of FTAA negotiations was to set the
ground rules ("modalities") that would apply to negotiations on opening
markets among FTAA members. These negotiations will be conducted in
five of the nine FTAA negotiating groups: Agriculture, Government
Procurement, Investment, Market Access, and Services. For example, FTAA
nations needed to establish the starting point from which reduction of
tariffs would begin (base tariff rates) and the time periods that would
be used to progressively eliminate tariffs (phaseout periods). In order
to speed the pace of liberalization, the United States sought to attain
agreement to negotiate tariffs downward from existing (that is,
currently applied) rates, rather than the higher rates that the WTO
allows. Ministers set an April 1, 2002, deadline for the five groups
negotiating market opening to finalize recommendations on ground rules.
Although most of those groups met this deadline, several presented the
TNC with multiple options for consideration, rather than recommending
one. For example, in the area of tariffs, the market access group noted
that several options for base tariff rates had been proposed, including
use of currently applied rates and use of WTO bound rates. (Bound rates
are legal limits on tariff rates, and WTO members have agreed not to
apply tariffs that exceed these rates. These rates are generally higher
than currently applied rates).
With so many options to choose from, attaining consensus on the ground
rules by the vice-ministerial-level TNC proved difficult. With a May
15, 2002, deadline for launching negotiations on market access looming,
an April meeting of the Trade Negotiations Committee was unsuccessful
in finalizing agreement on ground rules. The meeting was reconvened on
May 12-13, 2002, and resulted in issuance of some of the required
decisions, including the following on tariffs:
* All tariffs are subject to negotiation.
* Tariffs will be phased out over four time periods--immediate, no more
than 5 years, no more than 10 years, and more than 10 years. Tariffs
with shorter phaseouts will decline more rapidly, whereas tariffs
placed in longer phaseout categories will be reduced at a slower pace.
* Tariff reductions will generally be linear. This means that tariffs
will be lowered in equal amounts per year until they reach zero.
* The base tariff will be notified by October 15, 2002. (CARICOM was
given until December 14, 2002).
Regarding nontariff issues, for services, the United States secured
agreement that FTAA market access offers should be based on current
laws and regulations and on international obligations or existing or
improved opportunities. This means that offers will start from the
status quo in terms of market access. For investment, the United States
secured agreement that only exceptions to liberalization would be
negotiated (known as a "negative" list approach).
However, the modalities package could not be finalized because of a
disagreement over base tariff rates. In particular, CARICOM members
argued that they could not agree to use current tariff rates as the
base from which liberalization would begin, citing their dependence on
tariff revenues and the vulnerability of their economies' undiversified
agriculture sectors to imports. Because FTAA negotiations decisions
require all
34 participating nations to agree, the effect of the CARICOM objection
was to defer a decision on base tariff rates.
After considerable efforts to cajole Caribbean nations into agreement,
in late August 2002 the TNC finally agreed that, as a rule, the base
tariff would:
be the current tariff rates.[Footnote 12] The implication of this
decision is that the actual lowering of most tariffs should begin
immediately upon implementation of an eventual FTAA, rather than being
delayed, as illustrated in figure 4. This is a significant change from
the way tariff negotiations are negotiated in the WTO and should result
in meaningful increases in market access as soon as the FTAA agreement
is implemented.
Figure 4: Tariff Reduction Schedule under Different Base Tariff
Scenarios, 2005-2015:
[See PDF for image]
Note: As the dotted line indicates, if tariffs were being phased out
over 10 years for a product currently subject to a 15-percent bound
rate and a 10-percent applied rate, and the 15-percent bound rate were
used as the basis for phasing out that tariff under the FTAA, no tariff
reduction would occur for the first 3 years after the agreement entered
into force. The tariff rate also would be higher under the 15-percent
bound rate in years 4-10 than it would have been if a base rate of 10
percent had been used.
[End of figure]
However, CARICOM was granted an exception to using the current tariff
rates, which will allow it to use the higher WTO bound rate for a
limited list of mainly agricultural goods.
Some Progress Made on Other Issues:
In addition, during the months leading to the Quito ministerial,
negotiators made some progress on other issues. Specifically, the
negotiators agreed to hold regional outreach seminars for private
interests such as environmental, consumer, and business. The first
regional seminar for such "civil society" groups was for North America
and was held in Mexico. (Other regional seminars for Mercosur and the
Andean countries were scheduled but have been postponed due to regional
economic crises and funding constraints, respectively.) Recognizing
their responsibility to take the needs of smaller economies into
account during the negotiating process, FTAA governments also adopted
guidelines that direct participants to assess their needs on a case-by-
case basis. Also, the United States began required consultation and
advice procedures, including those required by Trade Promotion
Authority (TPA) legislation.[Footnote 13]
Some Substantive Goals Not Fully Realized:
Despite technical progress in consolidating the bracketed text and
setting ground rules, the Quito phase of FTAA negotiations did not
result in major movement in terms of substantive trade-offs. Much of
the text remains in brackets, signifying lack of consensus. Negotiators
made little real progress in resolving the many substantive differences
among FTAA participants that we identified in our September 2001
report.[Footnote 14] In addition, although FTAA ministers set a goal to
begin market access negotiations on May 15, 2002, negotiations on
specific market access commitment schedules did not begin at all during
the phase ending at Quito on November 1, 2002.[Footnote 15]
Instead, market access negotiations are now anticipated to begin in
earnest after the presentations of initial offers in early
2003.[Footnote 16]
Finally, the ground rules that were established for negotiations on
topics such as services, investment, and government procurement leave
important questions unanswered. For example, the services negotiating
group had recommended that the TNC decide whether negotiations on
services would proceed from a top-down or negative-list approach
(whereby only exceptions to liberalization are negotiated) or,
alternatively, from a bottom-up or positive-list approach (whereby only
specifically negotiated items would actually be liberalized). However,
the TNC decision on modalities is silent on this matter. Subsequent
guidance indicates that FTAA nations can present offers in either
manner. This lack of a uniform approach is expected to complicate the
process of preparing and comparing offers and could thereby slow down
future negotiations.
Some Positive Outcomes Achieved at Quito Ministerial:
Ministers achieved most of their goals at the Quito ministerial. For
example, ministers agreed upon specific timetables and instructions for
FTAA negotiating bodies. Moreover, ministers reiterated their political
commitment to continue FTAA negotiations and took steps to address
concerns that civil society and smaller economies raised.
Procedural Basis Set:
The Quito ministerial meeting settled certain procedural matters and
set goals and directions for the next 12 months of negotiations.
Specifically, the ministers:
* set the schedule for negotiating group meetings for the first 2
months of the negotiating cycle;
* agreed to hold future ministerial meetings in the fourth quarter of
2003 (in the United States) and in 2004 (Brazil);
* agreed that there will be at least three TNC meetings before the 2003
ministerial meeting;
* named a slate of chairs for negotiating group committees that is
considered strong by U.S. negotiators; and:
* provided other directions, such as requesting that the TNC develop a
stocktaking report of overall progress made in the FTAA negotiations
before the next ministerial meeting occurs.
On substantive matters, ministers set two key goals for the coming
year. First, they confirmed that market access bargaining will begin
with the putting forth of initial offers between December 15, 2002, and
February 15, 2003. They also set deadlines for initial requests and
revised market access offers for June 15 and July 15, 2003,
respectively. Second, negotiators were charged with "achieving
consensus on the greatest possible number of issues" in the draft
chapters containing the text of FTAA rules and institutional
provisions. They also have responsibility for producing a revised
version of the draft text chapters no later than 8 weeks before the
next ministerial meeting in late 2003. The overall timetable for FTAA
negotiations and key milestones for the current phase are depicted in
figure 5.
Figure 5: FTAA Time Frames and Milestones, 2002-2005:
[See PDF for image]
Note: The TNC refers to the Trade Negotiations Committee. The TNC
guides the work of the negotiating groups and other committees and
groups and decides on the overall architecture of the agreement and
institutional issues. The TNC is also responsible for ensuring the full
participation of all the countries in the FTAA process, and
transparency (openness) in the negotiations, as well as overseeing the
Administrative Secretariat and overseeing the identification and
implementation of business facilitation measures.
[End of figure]
Political Willingness to Go Forward Restated:
As we stated in our May 2001 report,[Footnote 17] the ultimate success
or failure of efforts to establish the FTAA rests on meeting several
long-term challenges, notably summoning the political will of
participants to conclude a deal. On the political level, with the
exception of Venezuela, at Quito all 34 FTAA nations restated their
political will to move forward with an FTAA and to conclude it by
January 2005.[Footnote 18] This political impetus was particularly
noteworthy, given that it occurred at a time of economic uncertainty
and heightened political tensions, and with a new Brazilian
administration. The Brazilian people elected this administration on
October 27, 2002, 5 days before the Quito ministerial. However,
numerous ministerial participants stressed the need for balanced
progress and an equitable outcome. In particular, numerous participants
used the forum provided by the Quito ministerial to say that the FTAA
will go nowhere without meaningful agricultural liberalization and
disciplines (rules) on subsidies and other practices that distort
agricultural trade.
For its part, the United States made clear the importance it places on
expanded hemispheric trade as a means of fueling growth, creating jobs
and opportunity, and alleviating poverty. The USTR noted that it is
already moving toward that goal bilaterally with Chile and five Central
American nations as part of a U.S. strategy to foster competition in
trade liberalization. Furthermore, the USTR stated that the United
States is also prepared to move step by step toward hemispheric free
trade if others turn back or simply are not ready. At Quito, the USTR
urged all participants to consider how they can contribute to progress
as FTAA negotiations enter a particularly serious phase. The USTR also
urged other ministers to foster greater understanding and democratic
debate on the FTAA.
Our March 2001 report identified securing greater public support as a
key issue for FTAA negotiators, and at Quito, FTAA ministers signaled
greater interest in doing so by taking several steps.[Footnote 19] To
address concerns over transparency and to provide the public with a
clear view of the proposals under discussion, the draft text of the
FTAA agreement was publicly released in all four FTAA languages
(English, French, Portuguese, and Spanish) immediately after the Quito
ministerial's conclusion. Moreover, the opening and closing sessions of
the Quito ministerial were open to the public for the first time.
Ministers also instructed the TNC to ensure a substantial increase in
the quality of information provided to the public as negotiations
progress and to identify and foster the use of best practices for
outreach and consultation with civil society.
In addition, participants attempted to intensify and make more
interactive ministers' input from civil society. As host of the Quito
meetings, Ecuador supported cooperative efforts by two Ecuadorian
environmental groups to prepare constructive recommendations by
organizing a 2-day forum. Ecuador also hosted a meeting at which those
and other civil society representatives could present their
recommendations directly to ministers. However, the breakdown in order
at that meeting showed that civil society's involvement in the FTAA is
still a "work in progress." Identifying civil society representatives
and creating an atmosphere for constructive input and meaningful
dialogue between civil society and the FTAA ministers are challenges
the United States will face at the 2003 FTAA ministerial in Miami.
Hemispheric Cooperation Program Launched:
In March 2001, we reported that the FTAA faced a challenge in dealing
with the varying resource capacity among participants.[Footnote 20] To
deal with this challenge, the Quito ministerial announced and launched
a Hemispheric Cooperation Program (HCP). This program will provide
technical assistance to smaller economies for negotiating,
implementing, and benefiting from an FTAA. It is intended to allay the
concerns of the less-developed FTAA economies over the impacts of trade
liberalization. Several trade experts see this move as an important
confidence-building measure for many FTAA participants. The purpose of
the HCP is to create a framework for planning, prioritizing, and
funding technical assistance in a more coordinated fashion. Countries
such as Brazil have also expressed interest in providing in-kind
support on such topics as conducting trade analysis. The next step is
the development of national strategies to identify and prioritize
capacity-building needs. According to USTR, each of the Central
American countries engaged in bilateral negotiations with the United
States has already prepared national strategies for capacity building.
Key Challenges Exist for the Current Negotiating Phase:
Despite progress made at Quito, current negotiations for an FTAA face
three short-term challenges. First, there is a risk that lack of
progress in negotiations at the WTO, particularly on agriculture, could
cause a deadlock in FTAA talks. Second, an unambiguous demonstration of
participants' good faith through making meaningful offers to liberalize
access to their markets is viewed by negotiators as critical to giving
momentum to all aspects of the FTAA talks. However, this element may be
difficult to achieve. Finally, there are concerns about the ability of
the United States and Brazil to muster the political commitment
necessary to see the FTAA process through to completion.
Agriculture Progress Depends on WTO:
The treatment of subsidies and other support for agriculture is a
critical part of the FTAA trade agenda. A key issue is that of domestic
support---payments made to farmers that raise prices or guarantee
income. Progress on this issue depends on the WTO negotiations, but
there is concern that these talks are bogging down. Any delay at the
WTO could make it difficult to achieve progress in the FTAA and
ultimately imperil its conclusion by January 2005.
Agriculture Crucial to FTAA Negotiations:
Agriculture is an important issue to all FTAA participants. As a major
component of income in some Latin American countries such as Dominica,
Guatemala, and Haiti, agriculture constituted approximately 17, 23, and
28 percent, respectively, of the gross domestic product in 2000. Other
FTAA participants such as Argentina, Brazil, and the United States are
major world producers of commodities such as coffee, oilseeds, sugar,
soy, and beef, making agriculture an important item in their national
trade agenda as well. Because of their interest in agriculture, many
nations of the hemisphere were strong proponents of the new round of
global trade talks launched in November 2001 that aim to achieve
comprehensive agricultural reform at the WTO.
Agriculture is also an important component of an overall FTAA package.
Several foreign officials with whom we spoke emphasized that the entire
FTAA negotiations rested on making progress in agriculture
negotiations. Furthermore, officials informed us that Latin American
leaders do not want their constituents to perceive them as giving
ground on issues of importance to the United States such as
intellectual property rights and services without obtaining key
concessions on priority issues for their countries, such as
agriculture.
Among the agriculture issues on the FTAA trade agenda, domestic
support[Footnote 21] --and U.S. domestic agriculture support in
particular--seems to be a source of concern for many FTAA participants.
In 1999, the United States provided $16.9 billion of trade-distorting
domestic support, according to the most recent WTO member
notifications. To put this in context, Antigua, Barbados, the Bahamas,
and Jamaica all had national incomes (gross domestic products) of less
than $8 billion in 1999. Furthermore, other large FTAA countries such
as Brazil, Canada, and Mexico all spend considerably less in trade-
distorting domestic support. Finally, with the passage of the U.S. Farm
Bill in 2002,[Footnote 22] which covers farm spending until the end of
2007, U.S. domestic support for agriculture is projected to increase.
Many FTAA participants believe that domestic agriculture support needs
to be placed under stricter rules to ameliorate the U.S. advantage.
Accordingly, certain countries are insisting that domestic agriculture
subsidies be addressed in both the FTAA and the WTO negotiations. The
current draft FTAA chapter on agriculture also includes a proposal to
require countries that provide trade-distorting domestic support to
eliminate it.
The United States, by contrast, argues that the WTO is the appropriate
forum to negotiate domestic support because, unlike tariffs, it is not
possible to reduce domestic support on solely a regional basis. The
U.S. rationale for relying on the outcome of WTO negotiations is that
two primary users of domestic support in agriculture, the European
Union (EU) and Japan, are not FTAA participants. Therefore, domestic
support reform must take place in a forum like the WTO, where the EU
and Japan are present, to avoid putting FTAA countries that subsidize
farmers at a disadvantage in world markets. With such WTO negotiations
now ongoing, the official U.S. position is that although all
agricultural issues are still on the table for the FTAA negotiations,
the FTAA countries must not do anything now that will prejudice their
respective positions in these important global talks with extra-
hemispheric trading partners. Canada also concurs with the U.S.
position.
The Quito ministerial declaration highlights the link between FTAA and
WTO negotiations and underscores the importance of making progress in
all areas of the agriculture agenda. The Quito ministerial declaration
also recognized the divergent positions among FTAA participants in
agriculture.[Footnote 23] In the declaration, ministers accepted the
U.S. positions that (1) markets are global, (2) significant results in
the WTO are necessary, and (3) third-country practices[Footnote 24]
that distort trade must be taken into account. Ministers also
recognized other countries' positions that progress in FTAA
agricultural market access negotiations depends on progress on domestic
support, export subsidies, and other nontariff barriers.
However, the declaration also set a date to revisit overall progress in
FTAA agriculture negotiations. Specifically, to ensure balanced
progress and a timely conclusion of FTAA negotiations, ministers
charged the FTAA Negotiating Group on Agriculture with preparing a
report on progress achieved on all subjects on the FTAA's agricultural
negotiating agenda for presentation before the TNC's fourteenth
meeting. This meeting is scheduled for early July 2003.
Outcome of WTO Negotiations Uncertain:
The timing of the WTO negotiations represents a dilemma for FTAA
negotiators because there is concern that WTO negotiations are behind
schedule. Although interim deadlines were set to keep WTO negotiations
on track, the December 2002 deadlines for agreeing on access to
medicines and special and differential treatment for developing
countries were missed. Moreover, a March 31, 2003, deadline to
establish modalities, or the rules and guidelines for the negotiations
on agricultural liberalization, was missed. The deadline was important,
because participants were to have submitted comprehensive draft
commitments for agriculture at the fifth WTO ministerial in Cancun,
Mexico, in September 2003 based on the rules and guidelines established
in March. Additionally, we noted in a September 2002 report on the
WTO[Footnote 25] that meeting the deadline for establishing agriculture
modalities was a crucial indicator of the likelihood of success in the
overall negotiations. USTR officials have noted that they and other
countries' delegations are currently working to minimize any negative
impact missing the modality establishment deadline has on the overall
negotiations.
A key factor hindering progress in the WTO agricultural negotiations is
the pace and extent of reform of the EU's Common Agricultural Policy
(CAP).[Footnote 26] Current arrangements of the CAP are set to expire
at the end of 2006, and the concern is that the European
Commission[Footnote 27] will not have the flexibility to establish
modalities without significant reform of the CAP. The Commission has
recently unveiled a reform proposal for the European Council to
consider that calls for decoupling subsidies from production to make
them less trade distorting. However, opinions among EU members over CAP
reform are divided, with countries such as Great Britain supporting
ambitious reform and countries such as France vigorously opposing
substantive changes.
Because both the FTAA and WTO agreements are to be concluded as single
undertakings, failure to conclude agreement in January 2005, in any of
the areas of the WTO, could imperil the timely conclusion of an FTAA.
In addition, the failure of WTO negotiators to establish agricultural
modalities in March 2003 could have a large impact on the agricultural
agenda assessment that the FTAA Negotiating Group on Agriculture
expects to conduct in July 2003. At the FTAA Miami ministerial in
November 2003, countries of the hemisphere will have a chance to
evaluate the progress in agriculture made at the September 2003 WTO
ministerial to determine if sufficient progress has been achieved. If
progress is insufficient, key FTAA nations may be unwilling to move
forward in other areas of the FTAA agreement. U.S. officials report
that they are working to avoid this outcome. (See fig. 6 for an
illustration of the linkage between the FTAA and the WTO agriculture
negotiations.):
Figure 6: Relationship Between FTAA and WTO Agriculture Negotiations:
[See PDF for image]
[End of figure]
Market Access Offers Important for Momentum, but Substantial
Liberalization Difficult:
Now that the ground rules for negotiating market access have been set,
the current phase of FTAA negotiations will formally launch the
exchange of liberalizing offers and requests. Many view this give-and-
take as the true start of real negotiations. Initial offers, which
negotiators presented in February 2003, will set the tone for this
phase, and maintaining or increasing momentum is seen as critical to
making progress.
Several hemispheric opinion leaders had expressed hope that the United
States would make a good faith gesture, by presenting a significant
offer, to give momentum to FTAA talks. The United States is the largest
trading partner for virtually all of the countries in the FTAA.
Preparing the U.S. offer involved developing tariff lists by the
executive branch, in consultation with Congress and the private sector.
The U.S. offer was announced on February 11, 2003. The USTR believes
that the U.S.'s initial market access offers are bold and provide a
strong incentive for other countries to be equally ambitious. According
to the USTR, about 65 percent of U.S. imports of consumer and
industrial goods from the hemisphere (not already covered by NAFTA)
would be duty free immediately under the U.S. offer. U.S. imports of
textiles and apparel would be duty free in 5 years, so long as other
countries reciprocate. To further encourage reciprocal liberalization,
the United States offered immediate elimination of tariffs on a
reciprocal basis in key sectors such as chemicals, paper, steel, and
wood. Although certain agricultural products such as sugar were placed
in the longest phaseout category, the USTR emphasized that these
products remain on the table for negotiation. Indeed, all U.S. tariff
lines were included in the U.S. offer.
The U.S. market access offers differentiate among FTAA participants,
meaning that the United States would apply different rates of duty to
different FTAA partners during the transition to free trade. The bottom
line is that some FTAA nations would be allowed quicker phaseouts of
U.S. tariffs than others. The United States argues that this approach
would allow it to accord smaller economies better treatment, a goal
agreed to in principle by other FTAA nations, as well as provide
greater leverage to negotiate market-opening concessions in large,
lucrative markets. Others, notably Brazil, oppose this idea. Brazil's
concerns include the belief that Brazil would be placed in a relatively
worse bargaining position compared with the United States under a
strictly bilateral negotiating approach and that, at the end of the
day, it would suffer disadvantageous treatment of its products with
respect to other FTAA partners. Indeed, the initial U.S. offer would
provide CARICOM with immediate duty-free access for 91 percent of its
exports, versus 58 percent for Mercosur, the trading bloc that includes
Brazil. Others have expressed concerns about potential losses of
regional and subregional synergies in production, administrative
complexity, and lack of transparency. On the other hand, nations that
currently benefit from U.S. preference programs[Footnote 28] want to
retain their preferential access to U.S. markets and thus welcome
differential treatment.
All of the 33 other FTAA countries also met the February 15, 2003,
deadline for submitting initial offers on industrial and agricultural
market access. A USTR official welcomed the universal completion of
this first step as important progress. However, he expressed hope that,
with the U.S. offer on the table, others would be more forthcoming in
the months ahead. Many FTAA countries made conservative initial market
access offers. For example, contrary to the U.S. offer, several placed
sizeable shares of their trade into the longest phaseout category or
excluded some key items from liberalization. In addition, Mercosur and
CARICOM nations indicated that they were not yet ready to present
offers on government procurement and services. Regarding investment,
Mercosur members Uruguay and Paraguay made offers, but Brazil and
Argentina did not.
Questions of Commitment to FTAA by the United States and Brazil Remain:
Critical to the successful completion of this phase of negotiations is
a clear political commitment to achieving an FTAA. During the course of
our work on the FTAA, a number of participants have stressed that an
FTAA agreement could be successfully concluded if the key Western
Hemisphere leaders demonstrate that they have the political will to
finalize the agreement. However, some observers have concerns about how
competing priorities will affect key FTAA countries, notably the United
States and Brazil.
Interpretation of U.S. Actions Is Mixed:
While the United States has taken some steps widely viewed in the
hemisphere as positive, other actions have been perceived as
inconsistent with FTAA goals. In our May 2001 report, we noted that
President Bush said at the April 2001 Summit of the Americas that he
would seek to complete three concrete steps by the end of 2001 to
demonstrate the U.S.'s political commitment to the FTAA: (1) secure
Trade Promotion Authority, (2) finalize a Free Trade Agreement with
Chile, and (3) renew the Andean Trade Preference Act (ATPA).[Footnote
29] All three things have now been accomplished, although somewhat
later than President Bush anticipated.
Other FTAA nations viewed the passage of TPA by the 107TH Congress in
August 2002 as a very positive development. Under this authority, the
executive branch is required to consult regularly with Congress, and
solicit advice from advisory committees and the public, as trade
agreements are being negotiated. In return, Congress agrees not to
amend legislation implementing trade agreements, voting up or down on
these agreements. In addition, the law sets out parameters for
negotiations dealing with such issues as agriculture, antidumping,
labor, the environment, and investment. In some cases, the law places
formal limits on the President's flexibility to negotiate. However,
none of these issues, which were already sensitive domestically and are
relevant to the FTAA, were taken off the table for negotiation. In some
cases, such as investment, the guidance TPA provided has actually made
it easier for the United States to negotiate, U.S. officials report.
Since TPA was secured, the United States has pushed forward on
multilateral, regional, and bilateral fronts, including trade
negotiations to establish a U.S.-Central American Free Trade Agreement
(CAFTA). In December 2002, the United States announced the substantive
conclusion of free trade area agreements with Singapore and Chile as
well. These agreements contain important breakthroughs in such areas as
intellectual property rights and services. In addition, President Bush
signed a presidential proclamation restoring and expanding benefits
under the Andean Trade Preference Act.
While this renewed U.S. engagement in trade liberalization efforts is
generally seen as energizing FTAA talks, and is viewed by USTR as
complementary, there is some concern that such other considerations may
affect U.S. leadership within the FTAA. First, some FTAA nations have
complained about other U.S. trade actions taken in 2002, notably
imposition of restrictions on steel imports and passage of a new farm
bill (P. L. 107-171) that substantially increases subsidies to American
farmers through 2007. Second, some FTAA participants view the many
bilateral negotiations the United States has engaged in, both within
and outside the hemisphere, as indicative of a lack of U.S. commitment
to the FTAA itself.
Brazil's Commitment Unclear:
FTAA participants are also looking to Brazil to affirm its political
commitment to FTAA negotiations. Even before Brazil's recent
presidential election, concerns existed about Brazil's commitment to
the FTAA process. Although Brazil has actively participated in the
negotiations, observers say that Brazil has appeared reticent to
decisively embrace an FTAA. Brazilian officials admit that Brazil has
held back during the negotiations because they believe the United
States is not ready to negotiate on issues of greatest interest to
Brazil, such as high tariffs on key Brazilian exports and trade
remedies. Moreover, according to press reports, before his election as
President of Brazil in October 2002, Luiz Inacio Lula da Silva made
this comment about the FTAA: "As it is being proposed by the United
States, the FTAA is not an integration proposal, it is annexation
politics, and our country won't be enclosed." Since being elected,
however, the new Brazilian administration has pledged to continue to
negotiate in good faith to conclude a mutually beneficial FTAA and has
promised to honor all commitments made. Nevertheless, perhaps because
of the newness of the administration, Brazilian participation in the
FTAA process has slowed down, and Brazil has announced that it needs
additional time to prepare market access offers on services,
investment, and government procurement.
Gaps in U.S. Preparations for Co-chairmanship and Hosting of Miami
Ministerial May Pose Risks:
The United States faces several risks as it takes on the
responsibility, together with Brazil, of guiding the FTAA process
forward to a successful conclusion. These risks include (1) handling an
increased workload as co-chair with the pace of negotiations
intensifying, and without a commensurate increase in resources; (2)
serving as co-chair with Brazil, a novel situation; and (3) hosting a
November 2003 ministerial meeting for all the trade ministers of the
hemisphere and their delegations, which requires expertise, planning,
funding, and security preparations.
Workload and Negotiating Pace to Increase, but Resources Not
Commensurate:
As the USTR assumes the co-chairmanship of the FTAA negotiations, it
faces a heavy expansion of its workload. At the same time, its
resources, in particular the staff dedicated to the co-chairmanship,
are not expected to increase commensurately. Some past chairs have
warned that this situation may lead to a slowdown in the FTAA process.
Workload and Negotiating Pace to Increase:
A major challenge for the USTR as it assumes responsibility as co-chair
of the FTAA process will be handling the increased workload without an
increase in staff. Demands on USTR's resources will be particularly
high in the fall of 2003, when USTR's responsibilities as co-chair of
the negotiations and host of the ministerial will intensify. The co-
chair's formal tasks are considerable. They include:
* coordinating with Brazil on a daily basis;
* providing guidance and management coordination to the FTAA
Administrative Secretariat;
* providing guidance to the negotiating groups and committees;
* co-chairing TNC meetings;
* co-chairing the TNC Subcommittee on Administration and Budget,
including setting the calendar of meetings; and:
* vice-chairing the Technical Committee on Institutional Issues.
In addition to the roles and responsibilities of the co-chair, another
factor placing additional demands on the USTR is the intensifying pace
of the negotiations during the final phase of negotiations. The goals
for this final phase are ambitious. In order to meet FTAA completion
time frames, participants aim to conclude negotiations in all nine
trade negotiating groups. However, initial market access offers are
just starting. FTAA participants must also agree on all issues
currently under brackets in the draft text. The U.S.'s goal is to have
a largely clean text by the end of 2003. To reach these goals,
negotiations have been scheduled for practically every day during the
next 6 months.
Competing negotiating priorities, and their commensurate resource
needs, may also affect the USTR's resources. Several U.S. negotiators
told us that what they primarily require to conclude an FTAA
successfully is to be able to focus on it with single-minded energy and
determination. But other negotiations are competing for their time and
attention. For example, the USTR has notified Congress of its intent to
pursue Free Trade Agreements (FTA) with Central America, Australia, the
South African Customs Union,[Footnote 30] and Morocco and has started
negotiations toward this end. Meanwhile, the Doha Development Round of
WTO negotiations involving 146 nations and a similarly broad set of
issues will officially be at the midpoint at the September 2003 WTO
ministerial. This ministerial is to be held in Cancun, Mexico, only 2
months before the FTAA ministerial in Miami. Some of the same USTR
staff are involved in these concurrent negotiations. In addition,
negotiations with Chile and Singapore officially concluded at the end
of 2002, but the agreements must still be finalized and undergo
congressional approval.
Resources May Not Be Adequate:
In terms of resources, the U.S. team negotiating the FTAA--though
perceived as highly capable--is small and stretched thin. Other nations
we have contacted have had eight or more staff working to fulfill FTAA
chairmanship responsibilities. These staff handle such demands as
drafting negotiating schedules and documents and providing regular
coordination with other FTAA nations, negotiating groups, and the FTAA
Administrative Secretariat. According to a USTR official, Brazil
currently has six staff dedicated to the co-chair function and plans to
hire an additional three in early 2003. Ecuador had eight people
working on substantive issues and additional people working on
logistics. Canada had eight people, with access to others for special
projects. 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. Presently, USTR has two staff
working full-time on the day-to-day FTAA co-chairmanship tasks. Two
other staff members currently devote some of their time to the co-chair
function. USTR has been given an additional slot for an FTAA director
and plans to fill it with a permanent staff member working full-time on
the co-chairmanship soon. In terms of support by other agencies, the
USTR presently is receiving little direct or indirect assistance in
fulfilling the U.S.'s co-chair responsibilities, although a Justice
Department detailee (person on loan to USTR) is one of the two part-
time co-chair staff and also helps with leading the U.S. delegation,
and a Department of State economic officer in Brazil has been made
available to assist in coordinating with Brazil on FTAA co-chairmanship
issues. As well, the Department of Commerce is temporarily staffing one
of the two full-time co-chair USTR positions.
With respect to overall personnel, USTR as a whole is relatively small-
-having been set up to coordinate policy among and draw expertise from
executive branch agencies such as the Departments of State, Commerce,
Agriculture, and the Treasury. As past negotiations have become more
intense, other agencies have often provided staff on a nonreimbursable
"detail" (on loan) basis to augment USTR staff quickly. For example,
according to a USTR official, at the height of the Uruguay Round of WTO
negotiations, 45 staff from other agencies were detailed to USTR,
versus
30 staff on detail now. These agencies have also given other support,
such as assigning staff to handle major aspects of USTR negotiations
while residing at their own agencies. USTR is hoping to resume the
practice of using such support and has begun seeking additional details
from other agencies. In mid-March, USTR announced that a senior
Department of State official will be loaned to the agency effective
June 23, 2003, and will advance U.S. positions in the negotiations as
head of the U.S. delegation to the FTAA's TNC. Another State detailee
is expected to be provided this summer, to work full-time in the co-
chair function. However, caps on their funding and other concerns may
make other agencies reluctant to detail additional people to USTR on a
nonreimbursable basis. These agencies also need lead time to make
arrangements and identify staff with the requisite expertise.
In discussions with us, several past FTAA chairs have warned that the
consequence of U.S. failure to adequately staff the co-chairmanship
could be a slowdown of FTAA negotiations, which are, with the launch of
market access talks on February 15, 2003, reaching a critical juncture.
Any slowdown could make it difficult to achieve substantial results by
the November 2003 Miami ministerial.
Co-chairing with Brazil Is Novel Situation:
Many officials and trade experts view the idea of the United States
serving as co-chair with Brazil as a bold and useful way of providing
the leadership and commitment needed from two of the most important
players at a crucial time in the FTAA negotiations. At the same time,
however, co-chairing is expected to be more difficult than chairing by
a single country. All decisions, both mundane and substantive, will
have to be agreed to by both countries. The co-chairmanship arrangement
is novel because up until now, only individual countries have acted as
chairman of the FTAA process. Officials at USTR told us that the
operating vision is that the co-chairmanship will be a true
partnership, with both countries making decisions based on achieving
consensus on every aspect of the process throughout the 2 remaining
years of negotiations. Such a true U.S.-Brazil co-chairmanship may have
certain advantages. For example, the fact that Brazil and the United
States will be guiding the process simultaneously as co-chairs during
the final phase of negotiations could facilitate consensus building. If
either the United States or Brazil had singly undertaken this
responsibility, some members might not have perceived their stewardship
as balanced.
Some FTAA participants told us, however, that co-chairing will be more
difficult than chairing by a single country. One foreign official
speculated that if all decisions require consensus, the co-chair
structure would double the work and the time necessary to reach
decisions or perform tasks. A USTR official confirmed this view and
stated that even every letter has to be signed by both countries.
Former FTAA chairs told us that the two countries have very different
interests in the FTAA and, if such political considerations play a role
in decision-making, stalemates or further delays could result. Another
foreign official told us that differences in governmental structures
and bureaucratic systems in which the USTR and Brazil's foreign
ministry operate may also create difficulties.
In addition to the operating difficulties, U.S. working relations with
Brazil are still uncertain. Brazil had been unwilling to discuss
anything more than the technicalities of the co-chairmanship until its
new President took office in January 2003. More recently, however,
there have been several working meetings in an effort to clarify
Brazil's views and solidify working relations. Moreover, the U.S. and
Brazil co-chairs have taken steps to provide active leadership and
coordination of the negotiating process by, for example, meeting with
the chairmen of each FTAA negotiating group well in advance of the
April TNC meeting to identify issues requiring decisions or guidance.
In meeting its responsibilities as co-chair for moving the process
forward, the United States will need to keep separate the interests of
the
34 countries, or the process as a whole, from those of the United
States as negotiator. Brazil, for its part, will have three roles to
keep in mind --its own negotiating positions, those of Mercosur, and
that of the FTAA.
Risks to Successfully Hosting November 2003 Miami Ministerial Have Not
Been Fully Mitigated:
The United States will host the Eighth FTAA Trade Ministerial in Miami
in November 2003, just 7 months from now, a considerable
responsibility. This ministerial is particularly significant because it
occurs just a year before the slated conclusion of FTAA and WTO
negotiations. The responsibilities of an FTAA host are numerous and
include several elements critical for a successful event. Preparations
for the ministerial are at an early stage, however, and, if left
unfilled, gaps in the current U.S. plans for hosting the ministerial
pose risks to achieving a successful event. Risks that the USTR has not
yet fully mitigated include its inexperience in hosting a major
ministerial meeting, working with plans that have not been fully
defined, counting on funding that has not been secured, and arranging
security for numerous participants and protesters. Failure to address
any of these risks could undermine the success of the meeting. These
same kinds of risks also contributed to serious problems at the last
major trade ministerial that the United States hosted, the 1999 Seattle
WTO ministerial. USTR and the Miami organizers recognize that intense
U.S. efforts will be necessary to fill these gaps.
To evaluate USTR's readiness to perform as host, we undertook a three-
part analysis. First, we obtained information about the formal
responsibilities of FTAA host countries from USTR. We also obtained
official documents of the FTAA and held conversations with past FTAA
hosts, the results of which are reported in the first section below.
Second, we solicited advice from persons with experience in planning
and conducting such meetings, including responsible officials of past
FTAA host nations, former USTR officials involved in planning the
Seattle WTO ministerial, and officials at the State Department's Office
of International Conference Planning and Economics Bureau. These
officials had been involved in planning past trade ministerials hosted
or attended by the United States, as well as other international
conferences. Through these interviews with "cognizant officials," we
identified factors critical for success as well as suggestions for
steps USTR could take to adequately prepare for its responsibilities as
host of the November FTAA ministerial. Third, we obtained information
about the state of USTR preparations for the November FTAA ministerial
through interviews with responsible officials and reviews of available
documentation from USTR and Miami concerning timelines, plans, budgets,
guidance, and organization. In addition, as it became clear that USTR
was relying heavily on the Miami organizing group for fulfilling key
requirements, we discussed the status of their efforts with both the
executive director and the chairman of the board of that group, as well
as with officials of Florida FTAA. This information on the actual
status of U.S. FTAA ministerial plans follows our initial discussion of
responsibilities and requirements for hosting the ministerial.
Responsibilities of the Host of an FTAA Ministerial Are Numerous:
Executing the many responsibilities of an FTAA ministerial host is
critical, given the importance of ministerial meetings in the
negotiations. These meetings of trade ministers from the 34 FTAA member
countries provide political guidance and impetus to the negotiating
process. The November meeting in Miami is particularly important,
because it is the last ministerial before the talks' conclusion and
will occur just 13 months before the January 2005 deadline set for FTAA
nations to conclude the talks. At the Miami ministerial, the range of
issues facing ministers may be complex, requiring political guidance
from the ministers in order to move forward. Furthermore, because
issues that are important to key FTAA participants, such as
agriculture, are tied up in WTO talks, the extent of progress at the
WTO ministerial in September 2003 may result in an overall reassessment
of the FTAA's scope and timeline.
The host of an FTAA ministerial has numerous complex responsibilities.
These responsibilities are detailed in a 29-page, single-spaced
document that the FTAA Administrative Secretariat prepared. The host is
generally responsible for providing facilities, transportation, and
security for both the ministerial and the Trade Negotiations Committee
meeting, a meeting of vice ministers that precedes the ministerial. In
addition, a separate forum for the business community typically
accompanies FTAA ministerials. Civil society groups also held a forum
at the Quito ministerial. Each of these events involves hundreds of
people, including many high-level officials requiring appropriate
protocol and special security measures. Further, hosts are required to
provide simultaneous translation during all of the negotiations and the
other meetings, including immediate distribution of written documents
to delegates.
Coordination and security during all these activities is complex. For
example, the business community and civil society groups were given the
opportunity to provide input to the ministers at Quito. However,
managing the participation of the business community and civil society
groups and ensuring consideration of their views remain challenges. For
example, at the Quito ministerial, both the business community and
civil society groups prepared recommendations to be presented to the
ministers. The structure and length of the business community
presentation, however, made it difficult for ministers to take in all
the input that the business community had prepared. Nevertheless,
compared with the business community's presentation, the civil society
groups' presentations were chaotic. Protesters in the audience
disrupted the presentation, and serious security concerns arose, as
many protesters were very vocal and, in one case, threatened a
presenter. In fact, the final presenter was unable to speak over the
noise, and the presentation ended with an unceremonious exit of the
ministers out a side door. A key goal of the Miami organizers is to
make the presentations at this November's separate business and civil
society forums more targeted, timely, and orderly so they can be
factored into ministerial deliberations.
The task of the United States as host is especially complex, because it
is now standard practice to rely on host cities to supply most of the
resources associated with conducting international meetings held here,
according to a Department of State official. As a result, USTR must
coordinate actively with local officials and oversee host city
preparations to ensure they are satisfactory. It is also essential to
begin planning early for the ministerial, according to officials with
experience in planning similar events.
Several Factors Critical to Success; Certain Steps Recommended:
Our discussions with cognizant officials suggest that hosts must have
several basic factors in place to fulfill the responsibilities outlined
above (see fig. 7). Particularly important is having (1) experienced
staff capable of bringing together all the different components
including logistics, budgeting, and procurement; (2) a plan that
clearly sets forth roles, responsibilities, and timelines; (3) access
to funds to pay for expenses; and (4) assurance of adequate security.
This latter item must be paramount, given the antiglobalization
protests that have accompanied past FTAA and other trade ministerials,
and the heightened concerns over terrorism.
Figure 7: Keys to a Successful Ministerial:
[See PDF for image]
[End of figure]
The U.S. Department of State does not have written guidance on how to
plan such events, according to a State official. However, in discussing
the November FTAA meeting, cognizant officials with experience in
planning similar meetings, including former USTR officials, have
offered the following suggestions for hosting a successful event.
Essential to such an event would be:
* consulting previous FTAA hosts in order to define requirements and
responsibilities;
* clearly defining the roles and responsibilities of the host city and
the federal government, preferably through a memorandum of
understanding;
* creating a budget for the event;
* assuring that adequate funding is available through monitoring of
host city fund-raising and requesting agency appropriations if
necessary; and:
* getting assistance from the Department of State, other federal
agencies, and/or a management firm with experience in planning major
events.
Gaps in USTR Preparations Pose Risks:
Successful U.S. execution of the November 2003 FTAA ministerial
requires intense preparations to fill remaining gaps in current U.S.
preparations in the areas of expertise, planning, funding, and
security. While USTR has lead responsibility for the ministerial, USTR
has little experience in planning trade ministerials, and it is
receiving limited assistance from other agencies with expertise in
planning major international diplomatic events, due to resource
constraints. Funding has not been secured: As of March 27, a final
budget for the event does not exist, local fund-raising has just begun,
and no federal agencies have received funding for the FTAA ministerial
meeting in Miami. As well, security will be critical because the
estimated number of protesters ranges from 20,000 to 100,000 people.
Although the USTR's current plans for hosting the ministerial address
several of these challenges, they do not fully mitigate the risks we
identify.
USTR Lacks Experience, but Miami Organizers Have Track Record as Host:
USTR has never had sole responsibility for planning a major trade
ministerial hosted by the United States. The last trade ministerial
that the United States hosted was the Seattle WTO ministerial in 1999.
There, USTR received substantial assistance from Department of State
officials with past experience in planning major international meetings
as well as from the WTO's Conference Services Department. Even so,
financial and security concerns not fully mitigated before the event
caused serious logistical and security problems and higher-than-
expected costs. These problems included bitter disagreements with the
host city over roles and responsibilities, jeopardizing key logistical
arrangements such as transportation and build-out of the convention
center; costs that far exceeded initial estimates; and security lapses
that delayed sessions, put delegates at risk of physical harm, and
caused extensive property damage.
Furthermore, the agency has relatively little experience in this area.
Currently, USTR has four permanent staff working part-time on planning
the FTAA ministerial, with others at USTR assisting. One of these staff
has significant experience in logistics, security, and administration,
and that person has been put in charge of these areas for the Miami
FTAA ministerial. Although other USTR staff have been involved in
arranging U.S. participation in trade ministerials held abroad, hosting
a trade ministerial is much more complicated than arranging U.S.
participation. The host is responsible for all aspects of the meeting,
not just its own delegation.
Furthermore, this gap in experience is not being overcome by receiving
assistance from other agencies with the necessary expertise, according
to USTR officials. The USTR has requested State's assistance in
planning the Miami ministerial, and discussions on specific assistance
State can provide are ongoing. The State Department reports that it is
trying to respond positively to assistance requests where possible,
given its own budgetary constraints. One of the reasons for State's
reluctance to help is that its budget for participation in
international conferences has been cut. In fiscal year 1995, State was
receiving $6 million for participation in international conferences. By
fiscal year 1999, this appropriation had been discontinued, with no
commensurate increase to USTR's budget for trade meetings. The
Department of State has suggested that USTR consider hiring a
management firm, but USTR has not budgeted for that expense and does
not believe that hiring an outside firm would provide cost benefits for
the agency.
With little assistance from State or elsewhere,[Footnote 31] and
limited experience in hosting major events, USTR plans to rely heavily
on Miami's expertise to carry out the November 2003 meeting. Miami has
considerable expertise in hosting major events. The city has hosted
numerous major sporting events such as Super Bowls and Orange Bowls.
Importantly, Miami hosted the 1994 Summit of the Americas, which
involved 34 heads of state and started the process of creating a Free
Trade Area of the Americas. According to the Miami organizing group,
the summit was successful. The organizers of that meeting used an
arrangement similar to that of the upcoming Miami ministerial, where a
combination of private and public funds paid for the summit and local
organizers took the lead in making logistical arrangements. The person
responsible for planning the Summit of the Americas is the same one who
is leading the Miami organizing group for the November FTAA
ministerial. This individual also coordinated U.S. participation in the
April 2001 Summit of the Americas in Quebec City. He is familiar with
FTAA events by virtue of attendance at several of the FTAA ministerials
that have been held thus far as well as the associated Americas
Business Forums. He recently held a 2-day meeting in Miami with all
seven previous FTAA/Americas Business Forum hosts to obtain information
and advice, and these past hosts have also agreed to provide the Miami
organizers with ongoing advice. Moreover, Miami also has the necessary
infrastructure in place to host major events, according to the
organizing group. In addition to having experienced staff, Miami also
served as the site of FTAA negotiations from 1998 to 2001. However,
this experience was not entirely positive, and lessons learned from
this experience have been incorporated into the planning for the Miami
ministerial, according to USTR.
While Miami does have expertise, an official from the Miami organizers
informed us that they would like a full-time staff person from the
federal government to be detailed to Miami in a liaison capacity as
soon as possible to work with the Miami organizers (as had been done
for the Summit of the Americas). The liaison would, among other things,
formalize the shared responsibility for the event and augment
coordination between federal and local authorities. The desire for a
locally based federal liaison was based on the assumption that the
workload, and hence need for intense coordination, would increase as
the ministerial drew closer.
Plans for Ministerial in Early Stages:
Both the federal government's and Miami's plans for hosting the
November 2003 ministerial are in early stages as of March 1, 2003. To
get a sense of the general timeline to keep in mind when planning the
November FTAA meeting in Miami, we interviewed cognizant officials who
served as former hosts at FTAA ministerial meetings, officials at
State, and former USTR officials. These officials indicated that
planning for a November ministerial usually begins in January.
Implementation of the plan should begin in March, with an acceleration
of plans in October shortly before the ministerial. USTR officials
responsible for planning the FTAA ministerial agreed on this general
timeline, and, citing specific areas of progress, believe they are "on
track" as of March 26, 2003.
On the federal government side, USTR has obtained a guide that the FTAA
Administrative Secretariat prepared for host countries detailing the
basic logistical requirements of a ministerial. USTR is using this
guide to plan the FTAA ministerial in Miami. USTR has also prepared a
timeline for security, logistical, and administrative services for
Miami to use in planning the event. A rough division of labor between
the federal government and the host city appears to have been agreed
upon, whereby the host city will take care of most logistical
arrangements, and USTR staff will provide guidance and oversight of
security, logistics, and administrative issues through regular contact
with and visits to Miami. In addition, USTR plans to draft some
guidance documents, such as the memorandums of understanding that will
be signed between the host committee and the entities to be contracted
with for services.
On the host city side, Miami has formed a group to organize the
ministerial and the Americas Business Forum. This group became
operational in February 2003 and has hired an executive director for
the FTAA ministerial planning effort. Several staff for the
organization are now on board, and more are expected. The executive
director has put together a management committee to organize the
meeting. The Miami organizing group reports that it has established an
extensive support network of partners from both the public and the
private sectors and is already receiving in-kind staff support from
several municipalities. It plans to utilize contractors and volunteers
to supplement these resources as appropriate. The group has also
created a fund-raising committee specifically to raise funds for the
Miami ministerial, according to a Miami organizer.
Some of the specific tasks identified in the FTAA guidelines have been
accomplished, and more are in process. For example, in terms of
accommodations for delegates and meeting space, locations have been
selected and reserved, rates negotiated, and registration arrangements
established. Several transportation arrangements have been made,
although important details must still be ironed out.
Despite this progress, the USTR and Miami both agree that much remains
to be done between now and the November 2003 ministerial. Among other
things, a budget that clearly outlines funding sources and responsible
parties must be finalized; meeting space configured; a security plan
developed; and arrangements for providing credentials, translation,
administrative support, and other services made. For example,
requirements for telecommunications, computer, audiovisual, and
related equipment must be finalized and needed equipment and services
obtained. The FTAA Administrative Secretariat requires the United
States to provide it and delegates with details of the U.S.
arrangements for the November FTAA ministerial by late September 2003.
Making all of the required arrangements by then will require intense
preparations on the part of both the USTR and Miami officials, both
agree. Executing the plan and updating it as necessary will occupy
officials between mid-September and November 2003.
Funding Has Not Been Secured, and Funding Responsibilities Are Still
Unclear:
Serious risks are involved in the USTR's plans to rely on the host city
to assume responsibility for the majority of the costs. Although some
requirements can be met through in-kind contributions, securing
necessary funds generally requires considerable lead time, and expenses
that require an outlay of funds are expected to be incurred within the
next 2 months. No federal agency has received funding for this event.
The organizing group does not yet have a final budget and has just
begun fund-raising, although USTR and the Miami organizers anticipate
that a budget will be finalized and funding responsibilities will be
clarified by mid-April.
Relying on the host city to pay the majority of the costs is a model
the United States has followed at past summits and trade ministerials
where a host committee, or an organizing group composed of local
representatives associated with the host city, paid for the majority of
the costs. Miami worked with this model when it hosted the 1994 Summit
of the Americas. Some experiences with host committees have been
unsuccessful, however. For example, at the 1999 Seattle WTO
ministerial, decisions to rely on the host committee and the
committee's ultimate failure to raise sufficient funds caused problems
at the meeting. In addition, costs kept escalating as year-long
planning efforts continued, ultimately reaching $24 million. This
amount is considerably higher than the December 1998 budget of
$9 million. Financial shortfalls resulted in part from inherent
difficulties that USTR encountered in having a private group fund the
Seattle ministerial. For example, the Seattle organizers were not
permitted to sell tickets to donors or recognize contributions (similar
rules will apply for the host committee in Miami). The Seattle host
committee ultimately fell far short of its fund-raising goals and only
paid for one-fourth of associated costs. The local, state, and federal
governments paid the remainder, with the local and state governments
covering the bulk of these costs, or around $17 million. To satisfy the
federal government's share, the USTR requested a $1.3-million
supplemental appropriation that was shared between USTR and the State
Department. The State Department paid an additional
$1.2 million, and the city of Seattle also received a $3.8-million
partial reimbursement from the federal government to help defray its
substantial costs; these costs were for security only. Thus, all told,
the federal government ended up paying $6.3 million for the Seattle WTO
ministerial, an event that is admittedly larger in scale than the FTAA
ministerial.
No federal agency has yet received funding for the FTAA ministerial.
The USTR has only requested $200,000 for the FTAA ministerial, but this
is in the fiscal year 2004 budget year that begins October 1, 2003. At
a minimum, USTR will have to pay for the expenses of its staff
participating in the event, for setting up and staffing a fully
equipped "control room"--an office in which U.S. delegates can work--
for basic translation services, and for certain aspects of security. To
minimize some expenses, USTR will utilize computers and other equipment
procured for the Cancun WTO ministerial to set up control rooms at the
Miami FTAA ministerial. USTR has asked the Office of Management and
Budget (OMB) to submit a request for a $1.3-million supplemental
appropriation for this WTO-related procurement, but OMB has not yet
approved this request.
Furthermore, USTR has no back-up plan in the event that its costs
exceed the amount it has requested or the host city does not meet its
fund-raising goals. For example, the USTR plans to ask other federal
agencies participating in the ministerial to pay for their own
expenses. This approach has been used in past ministerials, such as the
Doha WTO ministerial, with mixed success. At Doha, for example, USTR
ultimately absorbed nearly $1 million in costs after other agencies
withdrew or failed to provide pledged funding. In terms of the
financial support expected from Miami, USTR has sought to forestall any
possible funding difficulties through an agreement with the Miami
organizers on a series of fund-raising principles and periodic status
reports from Miami on the amounts of money raised. Miami will rely on
its business community as well as on state and local government
contributions in kind and in cash to meet its fund-raising goals. The
four municipalities involved have drafted a memorandum of understanding
regarding their financial support of the meeting under which they agree
to provide in-kind and cash support according to a yet-to-be specified
formula.[Footnote 32] However, this agreement allows signatories to
withdraw from the arrangement if they determine that they can no longer
financially participate. As yet, the Miami organizing group has not
finalized its fund-raising goals or begun fund-raising in earnest.
However, the USTR and the Miami organizers have told us that the
committee has a strategy for raising needed contributions and will meet
its fund-raising goals.
Another key risk facing USTR at the Miami meeting is unclear funding
responsibilities. USTR has stated that Miami will provide the vast
majority of funds for the ministerial. One Miami official said that in
broad terms they agree Miami will shoulder the majority of costs.
However, the Miami organizers believe the federal government will also
assume some financial responsibility for the ministerial because, in
their view the ultimate host of the ministerial is the federal
government, not the Miami organizers. One way to clarify these
misunderstandings over responsibilities is through a memorandum of
understanding. Department of State officials involved in the Seattle
WTO ministerial and other major events emphasized the importance of
documenting financial responsibilities in order to avoid disagreements
over costs later on. However, USTR has decided not to sign a memorandum
of understanding with the Miami host committee assigning financial
responsibilities. Instead, it plans to rely on Miami's desire to be the
site of the permanent FTAA Administrative Secretariat as incentive
enough to raise the necessary funds and carry out the logistical and
security requirements for hosting the ministerial. The Miami organizers
also do not feel that a memorandum of understanding with the federal
government is necessary. Instead, both parties have agreed to use the
budget development process to identify funding sources and apportion
financial and logistical responsibilities. This breakdown has not been
prepared but is being worked on.
Security Is Critical:
Another key risk the United States will face in Miami is ensuring the
security of participants, given the extensive security requirements of
previous trade ministerials and the protests encountered at these and
other events that have attracted opponents of globalization. At Genoa,
Italy, for example, a protestor was killed during antiglobalization
protests. Also, at the FTAA ministerial in Quito, a child was killed
during the protests. Estimates for the number of protesters expected at
Miami range from 20,000 to 100,000 people, according to both the USTR
and the Miami organizers. USTR expects around 6,000 participants,
compared to
9,000 participants and 50,000 protesters at the Seattle WTO
ministerial. In a February 2000 report on the November 1999 Seattle WTO
ministerial,[Footnote 33] we noted that protests interfered with the
Seattle ministerial by causing delays and disrupting the proceedings.
Protesters also threatened and in some cases assaulted delegates.
Furthermore, protesters, police officers, and bystanders were injured,
and property was damaged. In Seattle, the city's decision to stop
providing security was a factor in forcing the meeting to close before
its scheduled conclusion.
According to USTR officials, the need to link logistics and security is
an important lesson learned after the security problems experienced at
the Seattle ministerial and is a critical component of the planning for
the Miami event. At the Seattle ministerial, security costs accounted
for approximately half of the expenses incurred, in part because
security had not been factored into logistical arrangements from the
beginning, according to the USTR. USTR's present goal is to have a
security plan finalized by May 30, 2003. However, the plan will remain
flexible thereafter as it is updated to reflect the latest information.
Security staffing for the event will also need to be arranged. So far,
the USTR reports that local police will provide security at the event.
According to the Miami organizers, police security services will be
provided in kind, using existing staff and resources rather than
relying on fund-raising to pay for security. Other entities involved in
providing security include the U.S. Coast Guard and the Department of
State's Bureau of Diplomatic Security. If certain high-level officials
attend, the Secret Service and Homeland Security will need to be
involved. Further, the federal government will be responsible for
providing information security.
Conclusions:
Negotiations toward achieving an FTAA face an important test in the
coming year. Despite 4 years of talks and an acceleration of progress
by the time of the November 2002 Quito ministerial, considerable work
remains in order to culminate an initiative that the region's 34
democratically elected leaders once embraced as key to integrating
their economies; improving growth and equity; and strengthening nascent
democratic institutions. With a January 2005 deadline for completion,
the FTAA faces numerous challenges in the current phase. These include
making progress on key issues such as agriculture and starting market
access negotiations in earnest. Ensuring that negotiations have
sufficient political support from key players such as the United States
and Brazil also remains a challenge. Our work suggests that the U.S.'s
readiness to co-chair the negotiations and host a major trade
ministerial in Miami 7 months from now is not assured because, to date,
the plans and human and financial resources are not in place to
complete the required duties and to counter likely risks. Filling these
gaps is critical to success and will require intense preparations on
the part of USTR and Miami organizers between now and November.
Recommendation for Executive Action:
In order to successfully carry out the responsibilities involved in co-
chairing the Free Trade Area of the Americas negotiations and hosting
the November 2003 Miami ministerial, we recommend that the USTR
intensify U.S. preparations and promptly and regularly evaluate whether
current resources and plans are sufficient to carry out the tasks and
mitigate the risks associated with these two responsibilities. The
risks we have identified are (1) handling the increased workload
associated with co-chairing the negotiations and hosting the Miami
ministerial with limited staff at USTR, (2) resolving procedural and
substantive issues through the co-chairmanship, (3) acquiring
sufficient expertise in planning major events, (4) clarifying and
further developing plans for the Miami ministerial, (5) securing
sufficient funding for the ministerial, and (6) ensuring the security
of participants at the ministerial. Several of these resources and
plans involve allowing significant lead time, which the USTR should
take into consideration.
Agency Comments and Our Response:
We provided draft copies of this report to the Office of the U.S. Trade
Representative and the Department of State and received formal comments
from both agencies (see apps. I and II). They also provided technical
comments, which we have incorporated in the report as appropriate.
USTR and State generally agreed with our overall message. USTR stressed
that it is committed to successfully concluding an FTAA by January 2005
and hosting the November 2003 ministerial and expressed belief that
plans for the ministerial are at an appropriate stage of development.
USTR also noted various steps it has recently taken to address the
challenges ahead in the FTAA negotiations and for ministerial
preparations. Accordingly, we have updated our report, citing specific
progress that USTR has made in this regard. For example, we noted that
the USTR is working with Brazil to provide more active leadership and
coordination to the negotiating process and that venues for the
ministerial and associated events have now been reserved. We also noted
that the Miami organizing group has established an extensive network of
partners from the public and the private sectors to provide support.
Nevertheless, we maintain our basic findings and recommendation.
The Department of State addressed the issue of assistance to USTR by
saying that it is trying to be as helpful as it can within the
constraints of its available resources. We have noted that in our
report.
In addition to formal agency comments, the Miami host committee was
invited to provide comments on the report. It generally agreed with our
findings and provided several clarifications, which we incorporated.
Scope and Methodology:
To conduct our analysis of the progress made in the negotiations on
creating a Free Trade Area of the Americas and the outcome of the Quito
ministerial meeting, the key challenges for the current negotiating
phase, and the U.S. challenges associated with co-chairing the FTAA
process and hosting the November 2003 Miami ministerial meeting, we
reviewed FTAA and executive branch documents on the FTAA negotiations
and the U.S. preparations for roles as co-chair of the negotiations and
host of the Miami ministerial, and budget documents from USTR for 2002
and 2003. We also reviewed academic and economic literature related to
the negotiations. We conducted interviews with U.S. negotiators and
with foreign government officials, including officials who have chaired
the FTAA negotiations in the past. We also held discussions with
multilateral institutions that provide technical assistance to the FTAA
negotiations, including the Organization of American States, the Inter-
American Development Bank, and the Economic Commission for Latin
America and the Caribbean. We attended public hearings on the FTAA and
spoke with professional scholars and other experts familiar with the
negotiations. In November 2002, we traveled to Quito, Ecuador, to
attend the Americas Business Forum and a civil society group meeting
associated with the FTAA ministerial. This report is also based on our
past work on the FTAA negotiations in the Western Hemisphere (see
Related GAO Products).
We conducted our work from July 2002 through March 2003 in accordance
with generally accepted government auditing standards.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies of this report
to interested congressional committees, the U.S. Trade Representative,
the Secretary of State, the Administrator of the U.S. Agency for
International Development, the Secretary of the Treasury, the Secretary
of Agriculture, and the Secretary of Commerce. We also will make copies
available to others upon request. In addition, the report will be
available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please
contact me at (202) 512-4347. Additional GAO contacts and staff
acknowledgments are listed in appendix III.
Loren Yager
Director,
International Affairs and Trade:
Signed by Loren Yager:
[End of section]
Appendixes:
Appendix I: Comments from the Office of the U.S. Trade Representative:
EXECUTIVE OFFICE OF THE PRESIDENT DEPUTY UNITED STATES TRADE
REPRESENTATIVE WASHINGTON, D.C. 20508:
April 1, 2003:
Susan Westin:
Managing Director, International Affairs and Trade U.S. General
Accounting Office:
Washington, D.C. 20548:
Dear Ms. Westin:
Thank you for providing the Office of the United States Trade
Representative (USTR) with the opportunity to review a draft of your
report to the Chairs of the Committee on Finance, U.S. Senate, and the
Committee on Ways and Means, U.S. House of Representatives, on the
status of the negotiation of the Free Trade Area of the Americas (FTAA)
Agreement and the planning for the upcoming Trade Ministerial in Miami
in November. The successful completion of the FTAA is a high priority
for the Bush Administration, and a successful Ministerial in Miami will
help us to achieve that goal.
Your report is wide-ranging and provides useful information regarding
the status of the negotiations, the preparations for the Ministerial in
Miami, and the challenges ahead with respect to each. Your report also
contains important information regarding the steps that USTR is taking
to address those challenges. It is in this latter area in which I
believe that the snapshot provided by your report would benefit from
further amplification.
The negotiation of the FTAA Agreement is progressing along a path that
can get us to a successful agreement by January 2005. There are many
challenges, but the participants, under the leadership of the current
Co-Chairs, the United States and Brazil, continue to make significant
progress in the negotiations. The continued commitment to the FTAA of
the nations in the hemisphere is evidenced in many ways, including by
the agreement of the countries to begin tariff reductions from current
applied rates rather than much higher WTO-bound rates; by the tabling
by all countries of tariff offers in a timely fashion; and by the
adoption of the Hemispheric Cooperation Program in order to enable
countries at lower levels of development and with smaller economies to
fully participate in the FTAA and its benefits. As Co-Chairs, the
United States and Brazil understand the great responsibility they share
at this important stage, a recognition that is reflected in the way in
which we are working together to ensure that the negotiations are a
success. Among other things, we are providing more active leadership to
the negotiating process and fostering greater coordination than did
previous Chairs.
In recognition of the importance of our various relationships with
Brazil, including as Co-Chairs of the FTAA process, Ambassador Zoellick
has reached out to Brazil to cement our working relationship. He met
with President-elect Lula and his team in Washington before his
inauguration. Ambassador Zoellick then traveled to Brazil to attend the
inauguration and have further meetings with his new counterparts. In
addition,
Ambassador Zoellick is planning meetings with his Brazilian
counterparts in the coming months to focus on FTAA preparations.
Preparations for hosting the ministerial are also well underway with
the support of a strong partnership between USTR and State and local
governments in Florida. Governor Bush has publicly stated his
commitment to a successful Ministerial and his intention to remain
personally involved in order to ensure that the Ministerial is
successful. Ambassador Zoellick recently met with the Governor to
highlight the preparations and the schedules for the Ministerial and to
draw attention to important topics that will need to be resolved in the
coming months. With the help of Governor Bush, a strong team has been
established to lead the efforts for organizing the Ministerial. The
organizing groups efforts are being led by Ambassador Charles Cobb,
former U.S. Ambassador to Iceland, and Ambassador Luis Lauredo, who is
serving as the Executive Director of the organizing group. Ambassador
Lauredo is the former U.S. Ambassador to the Organization of American
States, previously served as U.S. Coordinator for the Presidential
Summit of the Americas in Quebec City in April 2001 and as Executive
Director of the first Summit of the Americas, held in Miami in December
1994.
The Miami organizing group has established an extensive support network
of partners from both the public and the private sector. The organizing
group, and its partners, have extensive experience in organizing large
events. We have great confidence in their experience and dedication and
in our ability to work with them in preparing for a successful
Ministerial. Our confidence in this partnership has been confirmed by
the progress to date, including the selection of the site for the
Ministerial and the identification and reservation of hotel rooms and
meeting space, and the identification of resources for transportation,
security, information technology support, and administrative services.
We are also encouraged by the enthusiasm of the Miami community for the
FTAA Ministerial. Miami has long been considered the gateway to the
Americas, and they see hosting the ministerial as an opportunity to
showcase both the State of Florida and why Miami is the ideal location
for the home of the FTAA permanent Secretariat. Positive and deliberate
steps have been taken by USTR staff and the Miami organizers to develop
effective and comprehensive plans to address all aspects of preparation
for the ministerial. USTR planning for the complex logistical and
security preparations necessary for a successful ministerial reflects
an unprecedented level of coordination and cooperation from the federal
government, private sector, and State and local governments. In
addition, fund-raising by the Miami organizing group has been
developing since January 2003. There has been good progress in both the
establishment of an effective fund raising network, and the
identification of in-kind support and services from State and local
governments. For example, security for the Ministerial and associated
events will, in large part, be covered by in-kind donations from State
and local governments. Drawing upon significant expertise within USTR
and the Miami organizers, plans for the ministerial are at an
appropriate stage of development given the current time line.
USTR is committed to ensuring that the Miami Ministerial is a success
and that the negotiation of the FTAA is completed by January of 2005.
Your report is a valuable tool to assist in achieving those goals. We
appreciate the time and attention of your auditors, and are grateful to
have had the opportunity to provide input during the final drafting of
this report.
Sincerely,
Peter F. Allgeier:
Signed by Peter F. Allgeier:
[End of section]
Appendix II: Comments from the Department of State:
United States Department of State Washington, D. C. 20520:
Dear Ms. Westin:
We appreciate the opportunity to review your draft report, "FREE TRADE
OF THE AMERICAS: Negotiations Progress, but the United States Needs to
Bolster Preparations for November 2003 Ministerial," GAO-03-560, GAO
Job Code 320139.
The enclosed Department of State comments are provided for
incorporation with this letter as an appendix to the final report.
If you have any questions concerning this response, please contact
Robert Manogue, Bureau of Economic and
Business Affairs, Office of Bilateral Trade Affairs at (202) 647-1997.
Sincerely,
Christopher B. Burnham
Assistant Secretary for Resource Management and
Chief Financial Officer:
Signed by Christopher B. Burnham:
Enclosure:
As stated.
cc: GAO/IAT - Kim Frankena State/OIG - Luther Atkins State/EB - E.
Wayne:
State/H - Paul Kelly:
Ms. Susan S. Westin, Managing Director, International Affairs and
Trade, U.S. General Accounting Office.
Department of State Comments on GAO Draft Report FREE TRADE AREA OF THE
AMERICAS: Negotiations Progress, but United States Needs to Bolster
Preparations for November 2003 Ministerial, (GAO-GAO-03-560, GAO Code
320139):
The State Department has been actively participating in the FTAA since
its inception. Working with other agencies, under the USTR's able
leadership, the Department has been making positive contributions in a
number of areas. Senior Department officials have instructed staff to
do as much as possible, bearing in mind the Department's resource
constraints, to support USTR and the Administration's ambitious trade
agenda. State is working with USTR on a regular basis to try and
determine where State assistance is possible. Given that State has not
been provided any additional funds for the Miami Ministerial, any
assistance will have to come from existing resources.
Responding to an USTR request, State's Office of International
Conferences has offered to provide its advice and guidance to USTR
staff planning the Ministerial and share lessons learned from other
international meetings.
It has also agreed to fund the Department's share of control room costs
during the Ministerial (Standard operating procedure is for State to
fund its participation in terms of travel and per diem.) State will
also provide an administrative officer to assist during the
Ministerial.
State will consider additional requests from USTR on a case-by-case
basis as received. For example, following an additional request from
USTR, State expects to provide administrative officer support for the
two weeks before the Ministerial. It is also considering how it can
provide additional officers to help with foreign delegations during the
Ministerial.
[End of section]
Appendix III: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Kim Frankena (202) 512-8124
Venecia Rojas Kenah (202) 512-3433:
Staff Acknowledgments:
In addition to the individuals named above, R. Gifford Howland, Rona
Mendelsohn, Kirstin Nelson, Jon Rose, and Marc Molino made key
contributions to this report.
[End of section]
Related GAO Products:
[End of section]
Free Trade Area of the Americas: Negotiators Move Toward Agreement That
Will Have Benefits, Costs to U.S. Economy. GAO-01-1027. Washington,
D.C.: September 7, 2001.
World Trade Organization: Early Decisions on Key Issues Vital to
Progress in Ongoing Negotiations. GAO-02-879. Washington, D.C.:
September 4, 2002.
Free Trade Area of the Americas: April 2001 Meetings Set Stage for Hard
Bargaining to Begin. GAO-01-706T. Washington, D.C.: May 8, 2001.
Free Trade Area of the Americas: Negotiations at Key Juncture on Eve of
April Meeting. GAO-01-552. Washington, D.C.: March 30, 2001.
World Trade Organization: Progress in Agricultural Trade Negotiations
May Be Slow. GAO/T-NSIAD-00-122. Washington, D.C.: March 7, 2000.
World Trade Organization: Seattle Ministerial: Outcomes and Lessons
Learned. GAO/T-NSIAD-00-86. Washington, D.C.: February 10, 2000.
World Trade Organization: Seattle Ministerial: Outcomes and Lessons
Learned. GAO/T-NSIAD-00-84. Washington, D.C.: February 8, 2000.
Agricultural Trade: Changes Made to Market Access Program, but
Questions Remain on Economic Impact. GAO/NSIAD-99-38. Washington, D.C.:
April 5, 1999.
:
(320139):
FOOTNOTES
[1] The ministerial meeting, composed of the trade ministers of all the
countries that are members of the proposed Free Trade Area of the
Americas, is the highest decision-making body in the ongoing
negotiations. Ministerial meetings are intended to evaluate the
progress and overall status of the trade negotiations to date and to
set the agenda for future work. The meetings result in a ministerial
declaration setting forth agreed decisions and directions.
[2] See U.S. General Accounting Office, Free Trade Area of the
Americas: Negotiators Move Toward Agreement That Will Have Benefits,
Costs to U.S. Economy, GAO-01-1027 (Washington, D.C.: Sept. 7, 2001);
U.S. General Accounting Office, Free Trade Area of the Americas: April
2001 Meetings Set Stage for Hard Bargaining to Begin, GAO-01-706T
(Washington, D.C.: May 8, 2001); U.S. General Accounting Office, Free
Trade Area of the Americas: Negotiations at Key Juncture on Eve of
April Meetings, GAO-01-552 (Washington, D.C.: Mar. 30, 2001).
[3] The World Trade Organization, established in January 1995, consists
of 146 members and provides the institutional framework for the
multilateral trading system.
[4] The 34 countries participating in FTAA negotiations are Antigua and
Barbuda, Argentina, the Bahamas, Barbados, Belize, Bolivia, Brazil,
Canada, Colombia, Chile, Costa Rica, Dominica, the Dominican Republic,
Ecuador, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras,
Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, St. Kitts and
Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad
and Tobago, the United States, Uruguay, and Venezuela.
[5] CARICOM is a regional bloc whose members are Antigua and Barbuda,
the Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti,
Jamaica, Montserrat (overseas territory of the United Kingdom), St.
Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname,
and Trinidad and Tobago.
[6] Mercosur includes Argentina, Brazil, Paraguay, and Uruguay.
[7] Free trade agreements generally eliminate tariff duties and other
barriers on substantially all trade between the member countries and
may include other provisions covering subjects such as investment and
government procurement. Customs unions go beyond free trade agreements
by not only eliminating duties between partners but also by setting
common external tariffs applied to countries not party to the
agreement.
[8] NAFTA consists of Canada, Mexico, and the United States.
[9] A subsidy is generally considered to be a financial contribution
provided by a government that gives a benefit to a specific company,
industry, or group of industries for the production, manufacture, or
distribution of goods or services. Antidumping duties are imposed on
"dumped imports" (i.e., imports sold at a price lower than normal
value). Countervailing duties are imposed on subsidized imports.
[10] The Andean Community is a subregional organization endowed with an
international legal status. The community consists of Bolivia,
Colombia, Ecuador, Peru, and Venezuela. The Andean Community is also a
free trade area.
[11] See GAO-01-552.
[12] Specifically, the TNC agreed that the base rate from which tariff
liberalization will be negotiated is the most-favored-nation applied
rate as of October 15, 2002. Regional subgroupings, such as Mercosur,
that apply common external tariffs, were given until December 14, 2002,
to present their base tariffs and until April 15, 2003, to adjust these
tariffs; the base rate was set at the applied tariff rate as of January
1, 2004.
[13] Specifically, USTR solicited public input, requested advice from
the U.S. International Trade Commission, conducted a public hearing,
notified Congress of objectives for an FTAA agreement, and continued
its environmental assessment of the FTAA.
[14] See GAO-01-1027.
[15] Most countries were required to notify their base tariff rates by
October 15, 2002, and did so.
[16] The deadline for presenting initial offers was February 15, 2003.
For a discussion on the status of the presentation of offers, see
Market Access Offers Important for Momentum, but Substantial
Liberalization Difficult section below.
[17] See GAO-01-706.
[18] Venezuela reserved its position on the question of concluding FTAA
negotiations by 2005, reiterating a reservation taken at the conclusion
of the April 20-22, 2001, Summit of the Americas.
[19] See GAO-01-552.
[20] See GAO-01-552.
[21] The WTO agriculture agreement classifies agricultural domestic
support into three categories identified by "boxes": green (permitted),
amber (trade-distorting subsidies that must be reduced), and blue
(production-limiting programs). For the WTO, most of the domestic
support measures considered to distort production and trade fall into
the amber box. Thirty WTO members, eight of whom are FTAA participants
(Argentina, Brazil, Canada, Colombia, Costa Rica, Mexico, the United
States, and Venezuela), have commitments to reduce their trade-
distorting amber box supports. One proposal within the FTAA draft text
would eliminate some of these supports.
[22] The Farm Security and Rural Investment Act of 2002 (P.L. 107-171,
May 13, 2002).
[23] Specifically, the Quito ministerial declaration states:
We recognize that, in a global market, we must have significant results
in the negotiations on agriculture, both in the FTAA and in the WTO. In
this context, we must also take into account the practices by third
countries that distort world trade in agricultural products. We also
recognize that our respective evaluation by country or group of
countries, of the results in the market access negotiations in
agriculture in the FTAA will depend on the progress we can reach in
other subjects that are part of the agriculture agenda.
[24] Those practices by countries that are not FTAA signatories, yet
distort intrahemispheric trade. For example, if a good exported from
Japan to Brazil with the benefit of export subsidies caused U.S.
exports to Brazil of the same good to decline, that transaction would
be a trade-distorting practice by a third party.
[25] See U.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).
[26] The CAP is a set of rules and regulations governing agricultural
production in the EU. CAP rules cover most aspects of agricultural
activity, including support to farmers, production methods, marketing,
and controls over quantities of food that different agriculture sectors
can produce.
[27] The European Commission is the EU's executive body. It is
responsible for implementing the European legislation (directives,
regulations, decisions), budget, and programs adopted by Parliament and
the European Council. The Commission negotiates international
agreements on behalf of the EU and has the right to propose legislation
to the European Council and the Parliament, the primary decision-making
bodies.
[28] These preference programs provide preferential duty-free entry
into the United States for certain products.
[29] The Andean Trade Preference Act (ATPA) is a program providing for
the duty-free entry of merchandise from designated beneficiary
countries. ATPA was first enacted into law by the United States on
December 4, 1991.
[30] A customs union including South Africa, Lesotho, Botswana,
Namibia, and Swaziland.
[31] The State Department has committed to providing one administrative
officer for 2 weeks prior to the conference and to provide an
administrative officer to assist during the ministerial meeting. It has
also agreed to providing advice and guidance to USTR and to share
lessons learned from past experience.
[32] The four municipalities involved are the city of Miami, the county
of Miami-Dade, the city of Coral Gables, and the city of Miami Beach.
[33] See U.S. General Accounting Office, World Trade Organization:
Seattle Ministerial: Outcomes and Lessons Learned, GAO-00-86
(Washington, D.C.: Feb. 10, 2000).
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