This is the accessible text file for GAO report number GAO-05-150 
entitled 'Foreign Assistance: U.S. Trade Capacity Building Extensive, 
but Its Effectiveness Has Yet to Be Evaluated' which was released on 
February 11, 2005.

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov.

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately.

Report to Congressional Requesters:

February 2005:

Foreign Assistance:

U.S. Trade Capacity Building Extensive, but Its Effectiveness Has Yet 
to Be Evaluated:

GAO-05-150:

GAO Highlights:

Highlights of GAO-05-150, a report to congressional requesters: 

Why GAO Did This Study:

Many developing countries have expressed concern about their inability 
to take advantage of global trading opportunities. The United States 
considers this ability a key factor in reducing poverty, achieving 
economic growth, raising income levels, and promoting stability. U.S. 
trade capacity building assistance is designed to address these 
concerns. GAO (1) identified the nature and extent of U.S. trade 
capacity building; (2) described how agencies implement such 
assistance, including coordination; and (3) assessed whether agencies 
evaluate its effectiveness. 

What GAO Found:

U.S. trade capacity building is primarily a collection of existing 
trade and development activities placed under the umbrella of trade 
capacity building. The U.S. government initiated an annual 
governmentwide survey in 2001 to identify U.S. trade capacity building 
efforts, which it defined as assistance meant to help countries become 
aware of and accede to the World Trade Organization (WTO); implement 
WTO agreements; and build the physical, human, and institutional 
capacity to benefit from trade. U.S. agencies self-reported that they 
had provided almost $2.9 billion in trade capacity building assistance 
to over 100 countries from fiscal years 2001 through 2004. The Agency 
for International Development (USAID) reported providing about 71 
percent of the trade capacity building funding. Agencies are 
coordinating their assistance through the trade capacity building 
interagency group formed in 2002 to help countries negotiate and 
implement U.S. free trade agreements.

Most of the U.S. agencies we reviewed are not systematically measuring 
the results of their trade capacity building assistance or evaluating 
its effectiveness. Although some agencies have set program goals for 
building trade capacity, they have not generally developed performance 
indicators, compiled data, or analyzed the results in terms of building 
trade capacity. USAID’s March 2003 strategy for building trade capacity 
includes a limited number of performance indicators. USAID officials 
have stated that developing such indicators is difficult but have begun 
work independently and with other international donors toward that end. 
Without a strategy for evaluating the effectiveness of its trade 
capacity building assistance, the United States cannot identify what 
works and what does not work to ensure the reasonable use of resources 
for these efforts.

Funding for U.S. Trade Capacity Building Assistance, by Category, 
Fiscal Years 2001–2004: 

[See PDF for image]

[End of figure]

What GAO Recommends:

GAO recommends that the Administrator of USAID and the U.S. Trade 
Representative (USTR), as co-chairs of the trade capacity building 
working group, in consultation with other agencies that fund and 
implement trade capacity building assistance, should develop a strategy 
to systematically monitor and measure results and evaluate the 
effectiveness of this assistance. The Administrator of USAID should 
direct the agency to set milestones for completing its efforts to 
develop indicators for results measurement and periodic evaluations. 
USAID agreed with both recommendations. USTR re-iterated trade capacity 
building and interagency coordination’s role in linking trade and 
development. Treasury highlighted cooperation with USAID on such 
assistance.

www.gao.gov/cgi-bin/getrpt?GAO-05-150.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Yvonne D. Jones at (202) 
512-2717 or jonesy@gao.gov.

[End of section]

Contents:

Letter: 

Results in Brief: 

Background: 

U.S. Trade Capacity Building Is Existing Activities Labeled as Trade 
Capacity Building, Distributed Worldwide, and Primarily through USAID: 

Agencies Implement Assistance Based on Broad Criteria and Are Beginning 
to Incorporate Trade Capacity Building into Their Approach to 
Assistance: 

Most Agencies Are Not Systematically Monitoring, Measuring, or 
Evaluating Their Assistance in Terms of Building Trade Capacity: 

Conclusion: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes:

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: U.S. Government Trade Capacity Building Database: 

Appendix III: Total U.S. Funding for Trade Capacity Building, by Region 
and Country, Fiscal Years 2001-2004: 

Appendix IV: The Linkages between Trade and Development: 

Appendix V: Comments from the U.S. Agency for International 
Development:

GAO Comments: 

Appendix VI: Comments from the Office of the U.S. Trade Representative: 

Appendix VII: Comments from the Department of the Treasury: 

Appendix VIII: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Staff Acknowledgments: 

Tables:

Table 1: U.S. Government Trade Capacity Building Categories and Their 
Definitions: 

Table 2: Total Trade Capacity Building Funding for U.S. Government 
Agencies, Fiscal Years 2001-2004: 

Table 3: USAID 2003 Trade Capacity Building Strategy: 

Figures Figures:

Figure 1: Funding for U.S. Government Trade Capacity Building 
Assistance, by Category, Fiscal Years 2001-2004: 

Figure 2: Trade Facilitation--Business Services and Training: 

Figure 3: Trade Facilitation--Export Promotion: 

Figure 4: Trade Facilitation--Customs Operation and Administration: 

Figure 5: Agriculture Development--Exporting Fruits and Vegetables: 

Figure 6: Physical Infrastructure--Telecommunications: 

Figure 7: U.S. Trade Capacity Building Funding by Region, Fiscal Years 
2001-2004: 

Figure 8: Total Trade Capacity Building Funding by Region and Category, 
Fiscal Years 2001-2004 (millions of dollars): 

Figure 9: U.S. Government Agency Distribution of Trade Capacity 
Building, Fiscal Years 2001-2004: 

Abbreviations: 

CAFTA: Central American Free Trade Agreement:

GPRA: Government Performance and Results Act of 1993:

OECD: Organization for Economic Cooperation and Development:

USAID: U.S. Agency for International Development:

USDA: U.S. Department of Agriculture:

USTDA: U.S. Trade and Development Agency:

USTR: Office of the U.S. Trade Representative:

WTO: World Trade Organization:

Letter February 11, 2005:

The Honorable Christopher Shays: 
Chairman: 
Subcommittee on National Security, Emerging Threats, and International 
Relations: Committee on Government Reform: 
House of Representatives:

The Honorable Michael Turner: 
House of Representatives:

Many developing countries have expressed concern about their inability 
to take advantage of global trading opportunities because they lack the 
capacity to participate in international trade. In 2001, the least-
developed countries called for technical assistance to strengthen their 
institutions and trade-related infrastructure,[Footnote 1] and the 
World Trade Organization Doha Ministerial Declaration stated that 
technical cooperation and capacity building were important and should 
be used to help countries benefit from the multilateral trading system. 
The United States considers the ability to participate in and benefit 
from the global trading system key factors in reducing poverty, 
achieving economic growth, raising income levels, and promoting 
stability. In 2002, the President's Trade Policy Agenda[Footnote 2] 
pledged the United States would provide tools and training to countries 
needing help to benefit from the global trading system. As a result, 
U.S. government agencies have provided trade capacity building 
assistance through a variety of programs to help these countries.

In response to your request for information about U.S. trade capacity 
building assistance, this report (1) identifies the nature and extent 
of U.S. trade capacity building assistance; (2) describes how agencies 
implement such assistance, including coordination; and (3) assesses 
whether agencies evaluate its effectiveness.

To address these objectives, we reviewed relevant agency documents and 
analyzed available data on trade capacity building. We assessed the 
U.S. Government Trade Capacity Building database, which reflects annual 
governmentwide surveys initiated in 2001 about U.S. trade capacity 
building activities and is administered by the U.S. Agency for 
International Development (USAID). We determined that the required data 
elements in the database are sufficiently reliable for the purposes of 
this review.[Footnote 3] We focused our review on the six U.S. agencies 
funding and implementing 96 percent of the trade capacity building 
assistance, concentrating primarily on USAID, because it provided the 
bulk of the funding, as well as the Office of the U.S. Trade 
Representative (USTR).[Footnote 4] We conducted fieldwork in El 
Salvador, Ghana, and Egypt, choosing these countries because they were 
among the 20 countries receiving the most trade capacity building 
funding, and they represented different regions and income levels (low 
and middle income). In those countries, we reviewed USAID mission 
strategy documents, contracts, and cooperative agreements with the host 
governments. We also interviewed mission officials, contractors, and 
host country government officials and visited several trade capacity 
building projects. In addition, we reviewed relevant U.S. congressional 
documents and legislation. Appendix I contains a full description of 
our objectives, scope, and methodology. Appendix II elaborates on how 
USAID created its trade capacity building database. Appendix III 
provides further details on U.S. funding for trade capacity building 
assistance. In addition, we have included information on the 
relationship between trade and economic development in appendix IV.

We performed our work from September 2003 to November 2004 in 
accordance with generally accepted government auditing standards.

Results in Brief:

U.S. trade capacity building is primarily a collection of existing 
trade and development activities placed under one umbrella. The U.S. 
government initiated a survey in 2001 to capture qualitatively and 
quantitatively the nature and extent of existing trade-related capacity 
building activities. It defined trade capacity building as assistance 
meant to help countries become aware of and accede to the World Trade 
Organization (WTO); implement its agreements; and build the physical, 
human, and institutional capacity to benefit more broadly from a rules-
based trading system. Specific categories included trade facilitation, 
such as customs modernization and export promotion; human resources and 
labor standards, such as workforce development and protecting worker 
rights; agricultural development, such as promoting agribusiness; 
financial sector development, such as monetary and fiscal policy 
reforms; and infrastructure development, such as increasing the number 
of telephone lines. U.S. trade capacity building is not a discrete area 
with its own budget. However, 18 U.S. agencies self-reported that they 
had obligated almost $2.9 billion for trade capacity building 
activities in over 100 countries from fiscal years 2001 through 2004. 
Overall, the assistance was distributed worldwide, although the focus 
differed somewhat from region to region. USAID reported providing about 
71 percent of trade capacity building assistance funding.

Agencies have traditionally implemented trade and development 
assistance based on broad criteria such as national security, foreign 
policy, and country needs, and some agencies have begun to incorporate 
trade capacity building into how they approach such assistance. For 
instance, the Departments of Agriculture and State, USAID, and the U.S. 
Trade and Development Agency (USTDA) are considering trade capacity 
building in their assistance planning, while USAID is training its 
staff on trade capacity building concepts, designing trade capacity 
building funding instruments, and starting to identify trade capacity 
building activities for budgeting purposes. In addition, several 
agencies are focusing some assistance on countries participating in 
trade preference programs and trade agreements with the United States. 
Agencies are also framing their assistance in terms of building trade 
capacity through their coordination via the USTR-and USAID-led trade 
capacity building interagency group formed to facilitate countries' 
participation in free trade agreement negotiations with the United 
States. In addition, USTR led special trade capacity building working 
groups dedicated to specific trade negotiations. For example, El 
Salvador government officials stated that working group efforts have 
helped donors better coordinate assistance related to the Central 
American Free Trade Agreement (CAFTA).

The six agencies we reviewed are not systematically monitoring or 
measuring the results of their trade capacity building activities or 
evaluating its effectiveness in terms of building trade capacity. While 
some agencies have set program goals for building trade capacity, they 
have not generally developed performance indicators,[Footnote 5] 
compiled performance data, or analyzed the results in terms of building 
trade capacity. As the primary provider, USAID presented goals for 
building trade capacity in its March 2003 trade capacity building 
strategy and included a limited number of performance indicators to 
monitor results and measure performance against those goals as called 
for under standard government practices.[Footnote 6] USAID officials 
have stated that developing trade capacity building performance 
indicators is difficult, including, for instance, measuring results for 
activities that focus broadly on economic development whose benefits 
are harder to quantify. However, USAID is working on its own, and in 
collaboration with other donors, to develop a common framework for 
results monitoring and assessing trade capacity building efforts. 
Agencies have also not conducted program evaluations, a formal 
assessment of the effects of a program or policy, of their trade 
capacity building efforts. Without a strategy for systematically 
monitoring and measuring results and evaluating the effectiveness of 
trade capacity building efforts, the United States cannot ensure the 
reasonable use of resources for such assistance or credibly demonstrate 
its usefulness as a U.S. trade and development policy.

To provide more objective information on the progress of U.S. trade 
capacity building efforts and allow the United States to assess their 
effectiveness, we make the following two recommendations:

* The Administrator, USAID, and the U.S. Trade Representative, as co-
chairs of the trade capacity building interagency group, in 
consultation with other agencies that fund and implement trade capacity 
building assistance, should develop a cost effective strategy to 
systematically monitor and measure program results and to evaluate the 
effectiveness of U.S. trade capacity building assistance.

* The Administrator, USAID, should direct the agency to set milestones 
for completing its efforts to develop trade capacity building 
performance indicators to be used by (1) its field missions to monitor 
and measure the results of their trade capacity building efforts and 
(2) its relevant agency bureaus to conduct periodic program 
evaluations. USAID should share its findings with other agencies that 
fund and implement trade capacity building assistance.

We provided a draft report to the Office of the U.S. Trade 
Representative, the U.S. Agency for International Development, the 
Departments of Agriculture, Labor, State, and Treasury, and the U.S. 
Trade and Development Agency. We received technical comments from the 
Office of the U.S. Trade Representative, the U.S. Agency for 
International Development, the Departments of Labor and State, and the 
U.S. Trade and Development Agency. The Department of Agriculture 
provided no comments. We received written comments from the U.S. Agency 
for International Development, the Office of the U.S. Trade 
Representative, and the Department of the Treasury, which are reprinted 
in appendixes V through VII. The U.S. Agency for International 
Development agreed with our two recommendations. USAID emphasized the 
large number of agencies involved, the diversity of trade capacity 
building programs, the cost-effectiveness of different approaches, and 
the importance of taking into account the unique needs of each USAID 
country mission. The Office of the U.S. Trade Representative reiterated 
the important role of trade capacity building in linking trade and 
development and of interagency coordination in connecting trade 
capacity building to trade negotiations. The Department of the Treasury 
believed that the report provided a good example of cooperation and 
mutual support between the Department's Office of Technical Assistance 
and USAID in providing trade capacity building, and emphasized that its 
role in helping countries to institute financial reform contributed to 
building trade capacity.

Background:

Developing countries expressed reservations about undertaking further 
trade liberalization at the 1999 Seattle WTO ministerial conference, as 
they were still experiencing economic difficulties despite previous 
market reforms. In response to developing country concerns, the 2001 
WTO Doha Ministerial Declaration said that technical assistance should 
be designed to assist developing, least-developed, and low-income 
countries to meet their WTO obligations and draw on the benefits of an 
open, rules-based multilateral trading system. To implement the 
declaration, in December 2001, the WTO created the Doha Development 
Agenda Global Trust Fund to help developing countries build capacity 
and establish a reliable basis for funding WTO-related technical 
assistance (to which the United States has contributed $3 million, to 
date). In addition, in November 2002, the WTO and the Organization for 
Economic Cooperation and Development (OECD) created a database to 
provide comprehensive information on bilateral donor and multilateral/
regional agency support for trade capacity building.

The Congress included trade capacity building in the African Growth and 
Opportunity Act of 2000[Footnote 7] to help eligible countries meet the 
act's requirements. The act provides that sustained economic growth in 
sub-Saharan Africa depends in large measure on the development of a 
receptive environment for trade and investment. The act instructs the 
U.S. Customs Service to provide technical assistance to beneficiary 
countries in developing and implementing visa systems for textile 
transshipment and for antitransshipment enforcement.[Footnote 8] In 
addition, the Congress, in the Bipartisan Trade Promotion Authority Act 
of 2002,[Footnote 9] declared that among the principal negotiating 
objectives of the United States are to strengthen the capacity of the 
U.S. trading partners to promote respect for core labor standards and 
to protect the environment. That act calls for the President to seek to 
establish consultative mechanisms with parties to trade agreements to 
promote respect for core labor standards and compliance with 
International Labor Organization conventions on child labor, to develop 
and implement standards for the protection of the environment and human 
health, based on sound science. It provides for the President to direct 
the Secretary of Labor to provide technical assistance to countries 
wishing to establish trade agreements on its labor laws, if 
needed.[Footnote 10]

In providing funding for trade capacity building in the foreign 
operations appropriations for fiscal years 2003 and 2004, the House 
appropriators called trade capacity building a critical element of 
development assistance because it can "be leveraged to generate 
economic growth, reduce poverty, [and] promote rule of law…."[Footnote 
11] The Congress earmarked funds appropriated in fiscal years 2003 and 
2004 for trade capacity building. Specifically, the Congress provided 
that not less than $452 million in fiscal year 2003 should be made 
available for trade capacity building. Out of this amount, $159 million 
and $2.5 million were earmarked for USAID and USTDA, respectively.
[Footnote 12] Similarly, in fiscal year 2004, the Congress provided 
that not less than $503 million should be made available for trade 
capacity building with $190 million earmarked specifically for USAID.
[Footnote 13] The appropriations for each of those fiscal years also 
provided for funding from accounts managed by other agencies, including 
the Departments of State and Treasury, although amounts were not 
specified for the individual accounts.[Footnote 14]

U.S. Trade Capacity Building Is Existing Activities Labeled as Trade 
Capacity Building, Distributed Worldwide, and Primarily through USAID:

U.S. trade capacity building is primarily a collection of existing 
activities placed under the umbrella of trade capacity building by a 
U.S. government survey. Initiated in 2001, this survey was to capture, 
qualitatively and quantitatively, U.S. agencies' existing activities 
promoting trade-related capacity building in transitioning 
economies[Footnote 15] and developing countries. The survey defined 
trade capacity building and asked agencies to place their assistance 
into a range of categories and estimate funding obligated for each 
category. U.S. trade capacity building is not a discrete area with its 
own budget. However, 18 agencies have self-reported that they obligated 
almost $2.9 billion for trade capacity building activities in over 100 
countries from fiscal years 2001 through 2004. Overall, the assistance 
was distributed worldwide, although the focus differed somewhat from 
region to region. USAID reported providing 71 percent of the trade 
capacity building assistance.

United States Categorizes a Range of Assistance as Trade Capacity 
Building:

The U.S. government survey administered by USAID defined trade capacity 
building as activities meant to help countries become aware of and 
accede to the WTO; implement WTO agreements; and build the physical, 
human, and institutional capacity to benefit more broadly from a rules-
based trading system.[Footnote 16] The survey asked agencies to place 
their assistance into several categories, including WTO awareness, WTO 
agreements, trade facilitation, human resources and labor standards, 
physical and economic infrastructure, agriculture development, 
environmental sector trade and standards, financial sector development, 
competition policy and foreign investment incentives, and services 
trade development (table 1 provides further information about these 
categories).

Table 1: U.S. Government Trade Capacity Building Categories and Their 
Definitions:

Categories: WTO awareness and accession; 
Definitions: To provide a basic understanding of the WTO agreements. To 
help accession candidates identify changes to laws, regulations, 
policies, and procedures necessary to complete negotiations on the 
terms of WTO membership.

Categories: WTO agreements; 
Definitions: To support countries' efforts toward compliance and 
implementation, including institution building, so developing and 
transition countries may reap the benefits of membership.

Categories: Trade Facilitation: Business services and training; 
Definitions: To improve associations and networks in the business 
sector, as well as to enhance the skills of business people engaged in 
trade.

Categories: Trade Facilitation: Export promotion; 
Definitions: To increase market opportunities for developing country 
producers.

Categories: Trade Facilitation: Customs operation and administration; 
Definitions: To help countries modernize and improve their customs 
offices.

Categories: Trade Facilitation: E-commerce development and information 
technologies; 
Definitions: To help countries acquire and use information technology 
to promote trade by creating business networks and disseminating market 
information.

Categories: Trade Facilitation: Regional trade agreement capacity 
building; 
Definitions: To increase the ability of regional trade agreements and 
individual countries to facilitate trade and help potential regional 
trade agreement members.

Categories: Trade Facilitation: Other trade facilitation; 
Definitions: To facilitate the flow of trade in other ways.

Categories: Human resources and labor standards; 
Definitions: To support labor standards, worker rights, trade unions, 
workforce development, business education, and the social aspects of 
trade.

Categories: Physical infrastructure development; 
Definitions: To establish trade-related telecommunications, transport, 
ports, airports, power, water, and industrial zones.

Categories: Agriculture development; 
Definitions: To support trade- related aspects of agriculture and 
agribusiness, excluding WTO agreements.

Categories: Environmental sector trade and standards; 
Definitions: To establish environmental standards or to promote 
environmental technology.

Categories: Governance, transparency, and interagency coordination; 
Definitions: To support legal and institutional reforms to improve 
governance and make policies more transparent and to help government 
agencies function more effectively in the trade policy arena.

Categories: Financial sector development; 
Definitions: To support reforms in the financial sector, monetary and 
fiscal policy, exchange rates, commodity markets, and capital markets.

Categories: Competition policy and foreign investment incentives; 
Definitions: To help design and implement antitrust laws, as well as 
laws and regulations related to investment and investor protections.

Categories: Services trade development: Tourism sector development; 
Definitions: To help countries expand their international tourism 
sectors, including eco- tourism.

Categories: Services trade development: Other services development; 
Definitions: To help countries develop trade in services in sectors 
other than tourism, including financial services, energy, 
transportation, and education. 

Sources: USTR and USAID.

[End of table]

Agencies estimated their obligated funding for each category from 2001 
through 2004. The largest obligations were for trade facilitation at 27 
percent, followed by human resources and labor standards at 16 percent, 
agriculture development at 12 percent, financial sector development at 
11 percent, and physical infrastructure development at 8 percent. The 
governance, transparency, and interagency coordination category and the 
WTO-related category each received an estimated 6 percent of this 
assistance (see fig. 1).

Figure 1: Funding for U.S. Government Trade Capacity Building 
Assistance, by Category, Fiscal Years 2001-2004:

[See PDF for image]

Note: Other trade capacity building categories included environmental 
sector trade and standards, competition policy and foreign investment 
incentives, and services trade development including tourism.

[End of figure]

Trade Facilitation:

According to the database, a significant portion of U.S. funding for 
trade capacity building assistance, or 27 percent, supported trade 
facilitation activities such as business services and training, export 
promotion, customs operation and administration, and E-commerce 
development and information technologies. For instance, to facilitate 
trade in El Salvador and Ghana, USAID financed matching grants to 
artisans and small-to-medium-sized firms for business services 
training, product design, and packaging. U.S. assistance helped several 
artisans and firms develop ways to increase their capacity to market 
and export their products by improving product design and packaging and 
arranging trade fair visits to the United States and Europe (see figs. 
2 and 3).

Figure 2: Trade Facilitation--Business Services and Training:

[See PDF for image]

[End of figure]

Figure 3: Trade Facilitation--Export Promotion:

[See PDF for image] 

[End of figure] 

In another example of trade facilitation, U.S. Customs and Border 
Protection officials trained Ghana's Customs, Excise, and Preventive 
Service officials in procedures to comply with the African Growth and 
Opportunity Act textile visa enforcement system to prevent illegal 
transshipment and use of counterfeit documents relating to the 
importation of apparel products into the United States (see fig. 4).

Figure 4: Trade Facilitation--Customs Operation and Administration:

[See PDF for image] 

[End of figure] 

Human Resources and Labor Standards:

The U.S. Department of Labor funds a number of programs to strengthen 
labor systems and improve occupational safety and health. For instance, 
a project in Central America seeks to improve labor law compliance, 
while another project in Central America aims to reduce the incidence 
of workplace injuries. In Ghana, USAID provided technical assistance to 
a government committee drafting new labor legislation and focused on 
increasing worker collective bargaining by encouraging workers to work 
with members of the nonprofit and philanthropic sectors.

Agriculture Development:

For agriculture development, assistance is used to extend the benefits 
of trade to rural sectors and support trade-related aspects of 
agribusiness. In Ghana and El Salvador, U.S. assistance is supporting 
Salvadoran and Ghanaian food producers' efforts to meet sanitary and 
phytosanitary standards through training.[Footnote 17] In El Salvador, 
U.S. assistance helped small-to-medium-sized farmers export fruits and 
vegetables (see fig. 5). U.S. Department of Agriculture officials also 
helped African nations meet export requirements under the African 
Growth and Opportunity Act by sponsoring training on quality control, 
risk analysis, and food safety.

Figure 5: Agriculture Development--Exporting Fruits and Vegetables:

[See PDF for image] 

[End of figure] 

Financial Sector Development:

Under the category of financial sector development, U.S. assistance 
supports reforms in banking and securities markets and implementation 
of laws and regulations that promote trade-related investment to 
provide an enabling environment for international trade. For instance, 
several U.S. Treasury officials have worked to reform Ghana's banking 
and tax systems. Specifically, these U.S. officials have helped the 
government of Ghana to restructure the funding relationship between the 
Ministry of Finance and the Central Bank, improve tax collection 
procedures, and strengthen the financial sector.

Physical Infrastructure Development:

U.S. assistance for physical infrastructure development helps establish 
trade-related telecommunications, transport, ports, airports, power, 
water, and industrial zones. For instance, according to USAID, U.S. 
assistance to improve the telecommunications sector helps Egypt's 
ability to increase trade and investment (see fig. 6). U.S. 
telecommunications infrastructure projects have led to the installation 
of hundreds of thousands of telephone lines, serving more than 4 
million Egyptians. Joint U.S.-Egyptian investments in the sector have 
supported the institutional strengthening of Egypt Telecom and the 
improvement and expansion of telecommunications networks throughout 
Egypt. Under a current telecommunications project, a state-of-the-art 
network operations center is being constructed, and several initiatives 
to strengthen the telecommunications infrastructure system are being 
carried out.

Figure 6: Physical Infrastructure--Telecommunications:

[See PDF for image] 

[End of figure] 

WTO-Related:

U.S. trade capacity building supports an array of activities to help 
developing countries participate fully in the WTO and the global 
trading system generally and to implement their current and future 
trade commitments. For example, U.S. assistance helped create a WTO 
unit within the Egyptian Ministry of Foreign Trade to enable the 
ministry to participate in international trade negotiations and 
implement trade agreements. Moreover, this assistance provided training 
to unit officials on trade policy formulation and equipment to allow 
these officials to develop statistics and databases related to trade.

Governance, Transparency, and Interagency Coordination:

This assistance supports institutional reform to improve governance and 
make policies more transparent. It also helps different ministries 
function more effectively in the trade policy arena. For example, in 
Ghana, U.S. assistance has supported workshops for the government, the 
private sector, and civil society to discuss and develop Ghana's trade 
policy.

U.S. Trade Capacity Building Distributed Globally:

The United States supports trade capacity building assistance globally, 
covering six regions including Asia, Central and Eastern Europe, the 
former Soviet Republics, Latin America and the Caribbean, the Middle 
East and North Africa, and sub-Saharan Africa. The Middle East and 
North Africa received the most funding, or 24 percent (see fig. 7).

Figure 7: U.S. Trade Capacity Building Funding by Region, Fiscal Years 
2001-2004:

[See PDF for image] 

[End of figure] 

Funding per category of trade capacity building varied by region (see 
fig. 8). Overall, the trade facilitation category dominated with about 
a third of the funding in each region except for sub-Saharan Africa 
(about 27 percent) and Asia (about 17 percent). In Asia, the human 
resources and labor standards category received the most trade capacity 
building funding. In the former Soviet Republics, assistance for 
financial sector development received 20 percent of the funding.

Figure 8: Total Trade Capacity Building Funding by Region and Category, 
Fiscal Years 2001-2004 (millions of dollars):

[See PDF for image] 

Note: Numbers and percentages are rounded. Thus, the percentage columns 
may not total to 100 percent.

[End of figure] 

USAID Provides the Bulk of Trade Capacity Building:

USAID provides most of the funding for trade capacity building 
assistance, with $423 million (71 percent), $477 million (75 percent), 
$554 million (73 percent), and $611 million (68 percent) in each of 
fiscal years 2001, 2002, 2003, and 2004, respectively (see fig. 9).

Figure 9: U.S. Government Agency Distribution of Trade Capacity 
Building, Fiscal Years 2001-2004:

[See PDF for image] 

[End of figure] 

Other key funding agencies, in decreasing order of funding during the 
4-year period, were the U.S. Departments of Labor and State at 
approximately 15 percent and 4 percent, respectively, and the Overseas 
Private Investment Corporation and USTDA, both with about 2 percent. 
The other main providers of trade capacity building over the past 4 
years include the U.S. Departments of Agriculture, Energy, and the 
Treasury (see table 2).

Table 2: Total Trade Capacity Building Funding for U.S. Government 
Agencies, Fiscal Years 2001-2004:

Dollars in millions.

U.S. government agency: USAID; 
Total TCB funding, FY 2001-2004: $2,064; 
Percentage total funding, FY 2001-2004: 71.2%. 

U.S. government agency: Department of Labor; 
Total TCB funding, FY 2001-2004: $424; 
Percentage total funding, FY 2001-2004: 14.6%. 

U.S. government agency: Department of State; 
Total TCB funding, FY 2001-2004: $128; 
Percentage total funding, FY 2001-2004: 4.4%. 

U.S. government agency: Overseas Private Investment Corporation; 
Total TCB funding, FY 2001-2004: $69; 
Percentage total funding, FY 2001-2004: 2.4%. 

U.S. government agency: USTDA; 
Total TCB funding, FY 2001-2004: $64; 
Percentage total funding, FY 2001-2004: 2.2%. 

U.S. government agency: Department of Energy; 
Dollars in millions: Total TCB funding, FY 2001-2004: $37; 
Percentage total funding, FY 2001-2004: 1.3%. 

U.S. government agency: Export-Import Bank; 
Dollars in millions: Total TCB funding, FY 2001-2004: $31; 
Percentage total funding, FY 2001-2004: 1.1%. 

U.S. government agency: Department of the Treasury; 
Total TCB funding, FY 2001-2004: $29; 
Percentage total funding, FY 2001-2004: 1.0%. 

U.S. government agency: Department of Agriculture; 
Total TCB funding, FY 2001-2004: $26; 
Percentage total funding, FY 2001-2004: 0.9%. 

Source: GAO analysis of U.S. Government Trade Capacity Building 
database, fiscal years 2001-2004.

Note: Percentages do not add up to 100 percent because agencies 
providing lesser funding are not included.

[End of table]

Agencies Implement Assistance Based on Broad Criteria and Are Beginning 
to Incorporate Trade Capacity Building into Their Approach to 
Assistance:

Agencies have traditionally implemented trade and development 
assistance based on broad criteria such as national security and 
foreign policy considerations. Some agencies are beginning to 
incorporate trade capacity building into their approach to trade and 
development assistance. For instance, the Departments of State and 
Agriculture, USAID, and USTDA are taking into account trade capacity 
building in their planning. USAID is training its staff on trade 
capacity building concepts, designing funding instruments for trade 
capacity building, and starting to identify trade capacity building 
activities for budgeting purposes. Several agencies are focusing 
assistance on countries participating in trade preference programs and 
trade agreements with the United States. Agencies are also recasting 
some of their assistance to focus on trade capacity building through 
coordination via the trade capacity building interagency group formed 
in June 2002 to facilitate countries' participation in free trade 
agreement negotiations with the United States.

Agencies Implement Trade and Development Assistance Based on Broad 
Criteria:

U.S. agencies are providing assistance to recipients based on broad 
criteria. Agency officials cited national security and foreign policy 
considerations, which are often driven by the Department of State, 
regional factors, and the countries' expressed needs, as important 
factors in determining how to match assistance to recipients.

Following are examples of how some agencies have applied broad criteria 
in choosing recipients and types of trade and development activities:

* National security: Agency officials cited the prevention of terrorism 
as driving assistance to certain areas. For example, the Department of 
State asked the U.S. Department of Agriculture (USDA) to provide 
assistance for rural development in Afghanistan. In addition, USTDA 
officials stated that national security has gained prominence in their 
work since September 11, 2001, particularly in the area of air and sea 
transportation.

* Foreign policy: Agency officials said foreign policy was an important 
factor in directing assistance to certain countries. For example, USDA 
is helping Colombia develop alternative crops to reduce illicit drug 
production. In addition, USTDA considers foreign policy when it 
responds to requests from U.S. ambassadors and other Department of 
State officials.

* Regional considerations: Agency officials sometimes tailor their 
assistance to particular regions. For example, USTDA officials said 
that they try to create geographic balance in their portfolio and work 
with regional clusters when it makes sense to share information among 
nearby countries, such as working with India and Pakistan on a 
telecommunications conference. In addition, USAID officials stated that 
they have worked on regional economic growth in Central America, for 
example, by taking stock of each government's capabilities through 
diagnostic tools.

* Country needs: Agency officials said that countries' expressed needs 
are an important factor (in conjunction with other factors) in 
selecting trade capacity building activities and recipients. USDA 
officials stated that they have used responses from a WTO questionnaire 
to develop a benchmark for developing country needs regarding plant, 
animal, and human health requirements. USTDA officials said that they 
have specialized in translating country needs into projects by 
conducting feasibility studies and arranging for the appropriate 
technical assistance. Department of Labor officials considered country 
needs by working directly with labor ministries. For example, Labor 
officials said that they respond to requests from Central American 
countries for help in identifying inspection systems, expediting 
dispute resolution outside the courts, and informing the public about 
Central American countries' labor laws. Finally, according to USAID 
officials, their agency's strength lies in having resident country 
missions, which allow staff to gain insight into countries' motivations 
and needs regarding trade. Generally, USAID field missions have the 
lead in devising program-planning requirements for USAID assistance.

Some Agencies Are Beginning to Incorporate Trade Capacity Building into 
Their Approach to Assistance:

Some agencies, USAID in particular, are beginning to focus on trade 
capacity building in managing their assistance. For instance, the 
Department of State, USAID, USDA, and USTDA are incorporating trade 
capacity building into their planning. USAID is training its staff on 
trade capacity building concepts, designing trade capacity building-
specific funding instruments, and beginning to identify trade capacity 
building activities for budgeting purposes. Several agencies have also 
provided assistance to support trade agreements and trade preference 
programs.

USAID and USDA have incorporated trade capacity building in their 
fiscal year 2005 congressional budget justifications. For example, 
USAID included as a key initiative for fiscal year 2005 trade capacity 
building in support of WTO and bilateral U.S. government trade 
objectives. In addition, in their joint strategic plan for fiscal years 
2004 through 2009, the Department of State and USAID stated that they 
"will strengthen the capacity of developing and transitional economies 
to participate in, and benefit from, trade by enhancing their ability 
to respond positively to global opportunities…." USAID also called 
trade capacity building a key result of its economic growth strategic 
goal in its fiscal year 2003 annual performance and accountability 
report. USDA included a strategic objective to "support international 
economic development and trade capacity building" under its strategic 
goal of enhancing economic opportunities for agricultural producers. 
Furthermore, USTDA included a performance goal in its 2004 performance 
plan to provide capacity building activities to support USTR in trade 
negotiations.[Footnote 18]

In addition, both USAID and USDA have issued formal strategies for 
providing trade capacity building.[Footnote 19] USAID's 2003 strategy, 
Building Trade Capacity in the Developing World, emphasizes that while 
ongoing activities address a variety of trade capacity building needs, 
USAID will focus new activities on helping countries participate in and 
implement trade agreements and take advantage of trade opportunities. 
Ways to increase trade opportunities include strengthening economic 
policies; removing trade barriers; and building well-functioning 
economic, political, and legal institutions. USDA's strategy targets 
its trade capacity building initiatives on promoting science and rules-
based regulatory frameworks for agricultural trade and supporting 
improved understanding of agricultural biotechnology and expanded trade 
in safe food products developed by biotechnology.

USAID is training its headquarters and field staff on trade issues, 
including the WTO framework and principles, the current multilateral 
negotiating agenda, and trade capacity building best practices. USAID 
has also conducted seminars for its economic officers in the field 
missions on its approach to trade capacity building.

USAID is also using specialized contract mechanisms to fund trade 
capacity building assistance quickly. For instance, its "trade capacity 
building support mechanisms" provide quick funding (new requests for 
technical assistance can be addressed "in as little as" 3 weeks) to 
help USAID missions help countries assess their trade constraints and 
prioritize their trade-related technical assistance needs. The project 
also provides short-term technical assistance to assist missions in 
designing, implementing, monitoring, and evaluating trade-related 
technical assistance, such as technical training for trade officials 
and trade workshops for public and private sector leaders. USAID 
reports that these assessments have focused on integrating trade into 
poverty reduction strategies and negotiating and implementing free 
trade agreements.

USAID officials are beginning to attribute, or identify, funding for 
trade capacity building activities for budgeting purposes. For example, 
in budgeting for each of their strategic objectives, USAID is 
identifying amounts to be attributed to activities that are considered 
trade capacity building. The purpose is to ensure that funding reflects 
the priorities of the agency and the Congress. However, one USAID 
official said that this was particularly difficult for trade capacity 
building because it was relevant to multiple strategic objectives, and 
funding was programmed in more than one office.

Several agencies considered supporting countries participating in trade 
preference programs and trade agreements with the United States to be 
an increasingly important factor driving their trade and development 
assistance. For instance, a USDA official stated that there has been a 
change in thinking regarding the role of the Foreign Agricultural 
Service in developing countries. Traditionally, the mission of the 
Foreign Agricultural Service has been to promote U.S. agricultural 
exports. Officials said that the African Growth and Opportunity Act of 
2000 has made the Service more aware of the limitations that developing 
countries have in exporting their agricultural products and that 
helping them to do so will "win friends" in multilateral trade 
negotiations. For instance, the Foreign Agricultural Service worked 
with the Animal and Plant Health Inspection Service to help the act's 
recipients set up animal and plant inspection systems for exporting 
their products. The Department of Labor has provided trade capacity 
building assistance to improve countries' enforcement of their labor 
laws, in response to requests from USTR consistent with authority in 
the Bipartisan Trade Promotion Authority Act of 2002. For example, it 
has allocated funds to strengthen the capacity of labor ministries in 
Central American countries to enforce their national labor laws. A 
USAID official said that USAID's work to help Central American 
countries has become more market-oriented, and improved social and 
economic conditions have laid the foundation for negotiating and 
implementing CAFTA.

Trade Capacity Building Interagency Group Coordinates Assistance on 
Free Trade Agreement Negotiations:

Another new trade capacity building initiative was the formation, 
shortly after the November 2001 Doha ministerial, of the trade capacity 
building interagency group dedicated to coordinating trade capacity 
building in support of free trade agreements, which USTR co-chairs with 
USAID.[Footnote 20] The Assistant U.S. Trade Representative for Trade 
Capacity Building said that U.S. success at the negotiating table 
depends upon the meshing of trade and aid. In fact, the trade capacity 
building interagency group has spun off special working groups to 
facilitate specific trade negotiations such as CAFTA, bilateral 
agreements with Morocco and the Dominican Republic, and the free trade 
agreement negotiations with the Andean region. The CAFTA working group 
met in tandem with CAFTA negotiating groups to help CAFTA countries 
develop national strategies for implementing the agreement. These trade 
agreement-specific working groups are led by USTR.

The Trade Capacity Building Interagency Group:

Agency officials told us that they meet as frequently as once a month 
to coordinate trade capacity building at the policy level and that the 
meetings are informal and have no written guidelines or minutes. A USTR 
official said that the U.S. Trade Representative places primary 
importance on coordinating trade and development policy and that this 
has been critical to the successful negotiation of free trade 
agreements with Morocco, Central America, and Chile. According to one 
interagency group participant, USTR informs the group about progress in 
ongoing free trade agreement negotiations and any trade capacity 
building needs emerging from the negotiations. Agency attendees then 
exchange information about their trade capacity building activities to 
determine whether any might meet negotiating countries' needs. Although 
USTR might suggest possible trade capacity building initiatives, 
specific trade capacity building projects do not typically emerge from 
the meetings but are worked out later. One official said that USTR 
likes to go into negotiations with information on what trade capacity 
building assistance agencies are already providing countries. The 
meetings are mostly informational, ensuring that all U.S. agencies 
"speak with one voice" on trade capacity building, according to this 
official. Another official said that USTR's role was to persuade the 
other agencies to provide funding for trade capacity building to 
support the free trade agreements and that the agencies then provide 
what they can.

The Working Group Dedicated to CAFTA:

A CAFTA-dedicated trade capacity building working group met in tandem 
with the six CAFTA negotiating groups[Footnote 21] during each of the 
nine rounds of CAFTA negotiations. Each CAFTA country prepared a 
national strategy to define and prioritize its trade capacity building 
needs. U.S. agencies, five international institutions,[Footnote 22] 
corporations, and nongovernmental organizations were to provide trade 
capacity building assistance. According to a USAID official, the CAFTA 
trade capacity building working group had no direct role in the 
negotiations and did not influence the outcome of the negotiations. 
Rather, it strove to ensure that countries were made aware of the trade 
capacity building assistance available or already provided to them. The 
trade capacity building assistance that emerged from the CAFTA trade 
capacity building working group included both reorienting existing 
activities and creating new ones. For example, USAID funds in Honduras 
were redirected to establish a trade unit in one of the Honduran 
ministries, helping it determine staffing needs and providing some 
office equipment. An example of a new initiative coming out of the 
working group was a commercial law diagnostic tool and a new regional 
program to help countries meet the customs reforms called for in a 
CAFTA chapter.

According to participants, the CAFTA country national strategies and 
the process for creating them were important tools for prioritizing and 
focusing CAFTA countries' trade capacity building needs. One USAID 
official explained that, at first, CAFTA countries created "wish lists" 
that were somewhat unrealistic, asking for projects beyond the scope of 
donor resources. An official in the USAID mission to El Salvador stated 
that the mission and other donors have worked with the El Salvador 
Ministry of Economics to develop trade capacity building project 
profiles, a common template to prioritize trade capacity building 
needs. Ultimately, the profiles reflected the needs and priorities of 
both sides. The National Action Plan for Trade Capacity Building issued 
in July 2003 by the government of El Salvador emerged in part from this 
exercise. The plan lays out what trade capacity building is needed to 
help El Salvador prepare for, participate in, and implement CAFTA and 
transition to free trade. According to USAID officials, the Ministry of 
Economics used the plan in its strategic planning. One USAID official 
stated that the national plans are meant to be flexible as needs change 
but should impose discipline on donors and recipients to stay within 
agreed-upon priorities. Government of El Salvador officials stated that 
the CAFTA trade capacity building process helped donors to better 
coordinate their assistance and will encourage the enforcement of 
environmental laws.

Benefits of Interagency Group and Working Groups Cited by Participants:

A USDA official said that the trade capacity building interagency group 
meetings have given agencies insight into U.S. views on free trade 
agreements and have sometimes alerted USDA to agriculture policy issues 
about which it was unaware. A USTDA official stated that the 
interagency meetings have improved coordination among agencies and 
helped USTDA focus on trade capacity building activities with the most 
value to recipients and donors. They also said that USTR and other 
agencies have become more aware of what each is doing to provide trade 
capacity building. In addition, the meetings have helped agency 
officials form relationships and contacts to better provide trade 
capacity building.

U.S. agency officials in Washington had positive comments about the 
CAFTA trade capacity building coordination process. One USDA official 
called the process an agile mechanism to provide assistance quickly and 
pull the right people together to provide it. A USTDA official said 
that the process had helped negotiators "sell" CAFTA to CAFTA countries 
because countries are getting concrete help on specific projects such 
as port modernization that have tangible benefits. An official from the 
Department of State called it a rapid response mechanism. Officials 
from the Departments of Labor and the Treasury and USAID stated that 
the system allowed donors to identify country needs and avoid 
duplication. For example, USAID was able to plan its customs work 
appropriately when the Inter-American Development Bank informed the 
CAFTA trade capacity building working group that it was providing a 
regional customs program.

Most Agencies Are Not Systematically Monitoring, Measuring, or 
Evaluating Their Assistance in Terms of Building Trade Capacity:

For the most part, the six agencies we reviewed are neither 
systematically monitoring nor measuring program performance against 
program goals in terms of building trade capacity, neither are they 
evaluating the effectiveness of their trade capacity building 
activities. While some of the agencies we reviewed have set program 
goals for building trade capacity, generally, most have neither 
developed performance indicators related to trade capacity building, 
nor have they compiled performance data and analyzed the results in 
terms of building trade capacity. USAID presented goals for building 
trade capacity in its March 2003 strategy, Building Trade Capacity in 
the Developing World, with a limited number of performance indicators 
to monitor or measure results and measure performance against those 
goals. USDA's trade capacity building strategy does not include 
performance indicators. Although USAID officials have called developing 
trade capacity building performance indicators difficult, they are 
working toward that end independently and with other donors.

Among the six agencies we reviewed, only USAID and USDA have strategies 
for trade capacity building other than what is contained in strategic 
plans and annual performance plans. As shown in table 3, USAID's 2003 
strategy lays out goals with a limited number of trade capacity 
building performance indicators to measure performance against goals. 
USDA's trade capacity building strategy, which focuses on promoting a 
rules-based regulatory framework for agricultural trade and on 
supporting better understanding of agricultural biotechnology, 
contains no performance indicators.[Footnote 23] A performance 
indicator is a specific value or characteristic to measure output or 
outcome. An "output measure" records the actual level of activity or 
whether the effort was realized and can assess how well a program is 
being carried out. An "outcome measure" assesses the actual results, 
effects, or impact of an activity compared with its intended purpose.

Table 3: USAID 2003 Trade Capacity Building Strategy:

USAID trade capacity building strategy: Participation in trade 
negotiations; 

Trade capacity building goal: Support WTO accessions; 
Trade capacity building performance indicator: New WTO accessions. 

Trade capacity building goal: Help negotiators analyze benefits of 
trade; 
Trade capacity building performance indicator: None. 

Trade capacity building goal: Train negotiators on procedures; 
Trade capacity building performance indicator: None. 

USAID trade capacity building strategy: Trade agreement implementation; 

Trade capacity building goal: Help countries implement WTO 
requirements; 
Trade capacity building performance indicator: Number WTO obligations 
implemented. 

Trade capacity building goal: Help countries satisfy trade preference 
requirement; 
Trade capacity building performance indicator: None. 

USAID trade capacity building strategy: Economic responsiveness for 
trade; 

Trade capacity building goal: Improve quality of trade; 
Trade capacity building performance indicator: Increased exports of 
processed commodities[A]. 

Trade capacity building goal: Improve quality of investment; 
Trade capacity building performance indicator: Foreign direct 
investment flows. 

Trade capacity building goal: Improve customs administration; 
Trade capacity building performance indicator: Customs clearance times. 

Trade capacity building goal: Increase competition in service sector; 
Trade capacity building performance indicator: None. 

Trade capacity building goal: Strengthen commercial law; 
Trade capacity building performance indicator: None. 

Trade capacity building goal: Develop financial sector; 
Trade capacity building performance indicator: None. 

Trade capacity building goal: Strengthen competition and antitrust; 
Trade capacity building performance indicator: None. 

Trade capacity building goal: Develop business services; 
Trade capacity building performance indicator: None. 

Trade capacity building goal: Improve agricultural capacity; 
Trade capacity building performance indicator: None. 

Trade capacity building goal: Remove barriers to small and medium 
enterprises; 
Trade capacity building performance indicator: None. 

Source: GAO analysis of USAID's 2003 strategy, Building Trade Capacity 
in the Developing World.

[End of table]

[A] In some sectors, developing country producers are not processing 
their raw commodities and thus do not benefit from the value-added 
portion of production. The value-added is the amount by which the value 
of an article is increased at each stage of its production, exclusive 
of initial costs.

USAID has acknowledged the difficulty of developing a set of trade 
capacity building performance indicators for missions to use in their 
performance monitoring plans. A USAID official stated that the agency 
had not, to date, developed a set of trade capacity building indicators 
because most of the agency's trade capacity building activities focus 
broadly on economic development, whose benefits are difficult to 
quantify. Although currently many missions use increased exports as an 
indicator, one USAID official pointed out that exports can increase for 
reasons unrelated to trade capacity building. The USAID official also 
said that coming up with indicators is sometimes less of a problem than 
collecting the data, which can be hard to come by in many developing 
countries. For instance, USAID contractors may have to rely on a 
country's private sector to obtain data on value-added products since 
the local government would not collect such data. On a small project, 
with individual firms, this would be feasible, but it would be costly 
for a whole sector, the official said. Furthermore, another USAID 
official stated that USAID has struggled to help missions understand 
the distinction between economic development projects and trade 
capacity building projects. For instance, the official said that, 
although USAID had undertaken many agricultural projects in the past, 
many project activities were not linked to markets and trade. One USDA 
official said, however, that he considered the development of new 
institutions, laws, and regulations to be good performance indicators 
for trade capacity building efforts.

Despite the challenges of monitoring and measuring the results of trade 
capacity building assistance, USAID is working on its own and through 
the international community to develop trade capacity building 
performance indicators for missions to use in their performance 
monitoring plans. USAID has contracted for a consultant's study and 
expects to have a draft report on trade capacity building indicators in 
the near future. Furthermore, USAID is not alone in dealing with the 
difficulties of evaluating trade capacity building efforts, as other 
countries face the same issues. USAID has been collaborating with other 
country donors through the OECD's Development Assistance Committee to 
develop a common framework for results monitoring and assessment of 
trade capacity building efforts. To date, the OECD committee members 
have discussed a flexible "tool kit" of trade capacity building 
indicators, in recognition that the wide range of trade capacity 
building projects would argue against using the same indicators for all 
trade capacity building activities.

Based on our interviews, U.S. agencies have not specifically conducted 
program evaluations to assess the effectiveness of their trade capacity 
building efforts. Program evaluation is an assessment of the effects of 
a program or policy that can measure unintended results, both good and 
bad, and can be used to validate or find error in a program's basic 
purposes and premises. GPRA called for agencies to improve 
congressional decision making by providing more objective information 
on the relative effectiveness and efficiency of their programs and 
spending.[Footnote 24]

According to agency officials with whom we spoke, some agencies have 
evaluated their activities but not in relation to trade capacity 
building. For instance, Department of Labor officials stated that Labor 
evaluates its projects against project-specific objectives that are not 
trade capacity building objectives. USTDA officials stated that they 
have a set of measures for the development effectiveness of each of 
their activities. USTDA officials stated further that, while they have 
recently developed a system for evaluating the development impact of 
their activities over the next 6 years, the system is not meant to 
measure trade capacity per se. USTDA officials do believe, however, 
that their development impact measures will in most cases ultimately 
serve as a good proxy for measuring trade capacity building impact. 
Examples of effectiveness in the USTDA system would include the 
percentage of activities that lead to the adoption of market-oriented 
reforms or result in the transfer of advanced technology to increase 
productivity. Finally, USTDA officials emphasized that few of their 
trade capacity building activities are mature enough to be evaluated. 
The Department of State evaluates the effectiveness of its 
International Visitor Leadership Program[Footnote 25] with general 
anecdotal feedback from participants. One USDA official said that the 
agency has not done any assessments specifically of the effectiveness 
of its trade capacity building efforts, but that USDA did do program 
evaluations. For example, one USDA evaluation concluded that a 
refrigeration project resulted in improved refrigeration management and 
a reduction in perishable losses of one company of 60 percent.

USAID reported in May 2004 that it has conducted fewer program 
evaluations overall since instituting its performance measurement 
system under GPRA, replacing them with annual reports "that measure 
progress toward specific goals on a country by country basis" rather 
than evaluating the effectiveness of the program as a whole. In 
addition, one USAID official said that USAID moved away from using 
formal evaluations about 10 years ago because of lack of personnel. In 
October 2004, USAID issued the report, USAID Trade Capacity Building 
Programs: Issues and Findings, which examined issues related to USAID's 
trade capacity building assistance programs.[Footnote 26] The report 
concluded that USAID should collect and analyze more trade capacity 
building data to monitor results and use those results to conduct 
program evaluations. It also said that USAID should conduct more and 
better evaluations of its trade capacity building projects to know what 
approaches work best and under what conditions.

While several of the agencies we reviewed emphasized trade capacity 
building in their strategic plans or annual performance plans, and two 
agencies have produced trade capacity building specific strategies, the 
lack of performance data linked to trade capacity building limits their 
ability to monitor and measure current results. In addition, without 
evaluations identifying what trade capacity building activities are 
effective, the agencies will have difficulty determining whether their 
efforts are achieving their overall trade capacity building goals. 
Finally, as we discuss in appendix IV, greater openness to 
international trade can have a variety of effects, both positive and 
negative, on different aspects of developing countries' domestic 
economies. Therefore, evaluating the effectiveness of trade capacity 
building efforts is important to identify those that build trade 
capacity and those that do not and to determine if any negative effects 
should be mitigated.

Conclusion:

The executive branch and the Congress have elevated trade capacity 
building as a crucial tool for U.S. trade and development policy. This 
warrants a comprehensive, coordinated approach to its delivery, based 
on solid evidence of its effectiveness in generating economic 
development and growth through trade. The challenge is that the 
estimated $2.9 billion in U.S. trade capacity building assistance 
covers multiple categories of assistance across numerous types of trade 
and development programs that have many goals and are implemented by 
multiple agencies. The cross-cutting nature of this assistance argues 
for a coordinated approach to its implementation. The trade capacity 
building interagency group has demonstrated that a coordinated approach 
is possible under the right circumstances by bringing agencies together 
to deliver relevant, focused, and timely technical assistance to 
countries participating in free trade agreements. The cross-cutting 
nature of trade capacity building also makes it difficult to evaluate. 
While agencies track the results of individual activities, they do not 
consistently do so in terms of building trade capacity, in part, due to 
the relative newness of the concept and the lack of a common framework 
for evaluation. USAID is working independently and in conjunction with 
other country donors to develop a common set of indicators to monitor 
and measure performance and to assess trade capacity building 
effectiveness. Without evaluating the effectiveness of its trade 
capacity building assistance, the United States cannot ensure the 
reasonable use of resources devoted to such assistance, determine 
whether the assistance is helping countries participate in and benefit 
from trade, and credibly demonstrate that trade capacity building is a 
useful U.S. trade and development policy.

Recommendations for Executive Action:

To provide more objective information on the progress of U.S. trade 
capacity building efforts and allow the United States to assess their 
effectiveness, we make the following two recommendations:

* The Administrator, U.S. Agency for International Development, and the 
U.S. Trade Representative, as co-chairs of the trade capacity building 
interagency group, in consultation with other agencies that fund and 
implement trade capacity building assistance, should develop a cost-
effective strategy to systematically monitor and measure program 
results and to evaluate the effectiveness of U.S. trade capacity 
building assistance.

* The Administrator, U.S. Agency for International Development, should 
direct the agency to set milestones for completing its efforts to 
develop trade capacity building performance indicators to be used by 
(1) its field missions to monitor and measure the results of their 
trade capacity building efforts and (2) its relevant agency bureaus to 
conduct periodic program evaluations. The U.S. Agency for International 
Development should share its findings with other agencies that fund and 
implement trade capacity building assistance.

Agency Comments and Our Evaluation:

We provided a draft report to the Office of the U.S. Trade 
Representative, the U.S. Agency for International Development, the 
Departments of Agriculture, Labor, State, and the Treasury, and the 
U.S. Trade and Development Agency. We received technical comments from 
the Office of the U.S. Trade Representative, the U.S. Agency for 
International Development, the Departments of Labor and State, and the 
U.S. Trade and Development Agency. The Department of Agriculture 
provided no comments. We received written comments from the U.S. Agency 
for International Development, the Office of the U.S. Trade 
Representative, and the Department of the Treasury, which are reprinted 
in appendixes V through VII.

The U.S. Agency for International Development agreed with our two 
recommendations. Regarding our first recommendation, USAID emphasized 
the importance of considering the large number of agencies involved, 
the diversity of trade capacity building programs, and the cost-
effectiveness of different approaches to monitoring and evaluating 
trade capacity building activities. In addition, USAID believed that 
developing a monitoring and evaluation system should be done 
selectively, starting with programs with the clearest links to building 
trade capacity. Regarding our second recommendation, USAID noted that 
the Administrator had directed the agency to reinstate its overall 
project evaluation efforts, and that USAID had several ongoing efforts 
to support the recommendation. USAID noted, however, that standard 
indicators designed to report on agencywide trade capacity building 
program performance will not be sufficient to monitor the effectiveness 
of all aspects of every trade capacity building project. USAID country 
missions will need to continue to develop specialized indicators that 
are tailored to local goals, opportunities, constraints, and needs.

The Office of the U.S. Trade Representative reiterated the important 
role of trade capacity building in linking trade and development by 
providing developing countries with the tools to maximize trade 
opportunities offered by multilateral and bilateral trade agreements 
and trade preference programs. In addition, USTR believed that the 
discussion in the report about interagency coordination demonstrated 
the importance of linking trade capacity building needs with the needs 
generated by trade negotiations.

The Department of the Treasury complimented our assessment, stating 
that the report provided a good example of cooperation and mutual 
support between the Department's Office of Technical Assistance and 
USAID in providing trade capacity building. Treasury also emphasized 
that its role in helping countries to institute financial reforms 
contributed to building trade capacity.

We will send copies of this report to appropriate congressional 
committees and to the U.S. Trade Representative; the Administrator, 
USAID; the Secretaries of the Departments of Agriculture, Labor, State, 
and the Treasury; and the Director, U.S. Trade and Development Agency. 
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 
[Hyperlink, http://www.gao.gov].

If you or your staff have any questions concerning this report, please 
contact me at (202) 512-2717 or at [Hyperlink, jonesy@gao.gov]. Another 
GAO contact and staff acknowledgments are listed in appendix V.

Signed by: 

Yvonne D. Jones: 
Acting Director, International Affairs and Trade:

[End of section]

Appendixes:

Appendix I: Objectives, Scope, and Methodology:

The Chairman and Vice Chairman of the House Subcommittee on National 
Security, Emerging Threats, and International Relations, Committee on 
Government Reform, asked us to provide information about U.S. trade 
capacity building assistance. This report (1) identifies the nature and 
extent of U.S. trade capacity building; (2) describes how agencies 
implement such assistance, including coordination; and (3) assesses 
whether agencies evaluate its effectiveness. To address these 
objectives, we reviewed agency information on trade capacity building 
programs. We visited overseas missions in Egypt, El Salvador, and 
Ghana; we chose these countries because they were among the 20 
countries receiving the most trade capacity building funding, and they 
represented different regions and income levels (low and middle 
income). We initially interviewed officials from 12 U.S. agencies 
responsible for trade capacity building activities. We then narrowed 
this down to the six agencies that funded and implemented 96 percent of 
trade capacity building assistance. These agencies were the Departments 
of Agriculture, Labor, State, and the Treasury, the U.S. Agency for 
International Development (USAID), and the U.S. Trade and Development 
Agency. We also interviewed officials from the Office of the U.S. Trade 
Representative, an agency with a coordination role. We concentrated our 
review on USAID as it provided the bulk of the funding.

To describe the nature and extent of trade capacity building, we 
reviewed documents from the World Trade Organization regarding the Doha 
ministerial conference in 2001 and subsequent international work on the 
Doha Development Agenda. We also reviewed documents from the 
Organization for Economic Cooperation and Development and the United 
Nations Conference on Trade and Development. To determine the U.S. 
definition of trade capacity building, we examined congressional 
documents providing guidance on funding and implementation, as well as 
relevant U.S. legislation, and relevant agency documents. We also 
examined the guidance and definitions specified in the U.S. government 
trade capacity building survey administered by USAID. We surveyed 
economic literature on the relationships among trade, economic growth, 
and development in developing countries. We examined U.S. government 
reports on trade capacity building assistance, annual agency reports, 
and agency trade capacity building planning and project documents. 
Because USAID--as the primary funder of trade capacity building--
administers foreign aid through a decentralized organizational 
structure, we visited USAID missions in Egypt, El Salvador, and Ghana 
to observe a range of trade capacity building activities. At the 
missions overseas, we examined program documents and interviewed USAID 
officials to understand the types of trade capacity building programs 
the missions manage. In addition, in conjunction with our work at the 
missions, we held meetings with other key U.S. government officials, 
USAID contractors, host government ministry officials, and various 
trade capacity building recipients. We analyzed data from the U.S. 
Government Trade Capacity Building database to identify the major 
funding categories, agencies, and recipients of trade capacity building 
assistance. To assess the reliability of the U.S. Trade Capacity 
Building database, we reviewed the survey instruments used to collect 
the data, examining country activity sheets and survey forms, and 
performed our own data reliability tests. We also interviewed the USAID 
contractor that manages the data collection and analyzed the steps the 
contractor took to ensure data reliability. For example, we asked the 
contractor how the survey data were collected, what quality checks were 
performed, and what other internal controls were in place. In 
Washington, D.C., we asked U.S. officials at the Departments of 
Agriculture and Labor and the U.S. Trade and Development Agency a 
standard set of data reliability questions. In El Salvador and Ghana, 
we conducted data reliability interviews with officials at the USAID 
missions. We determined that the data in the database were sufficiently 
reliable for the purposes of identifying the major categories of trade 
capacity building funding, the agencies funding the trade capacity 
building programs, and the regions and countries receiving trade 
capacity building funding.

To examine how agencies implement trade capacity building assistance, 
we examined agency documents on trade capacity building activities, 
strategic plans, and other relevant documents. We asked agency 
officials about factors affecting agency decisions concerning the type 
of assistance provided, the countries selected as recipients, and the 
amount of funding. We focused our interviews on officials at USAID, the 
U.S. Trade and Development Agency, and the Departments of Agriculture, 
Labor, State, and the Treasury at this stage because these agencies 
reported implementing and funding 96 percent of the trade capacity 
building assistance in fiscal years 2001 to 2003 (we obtained 2004 data 
at the end of the review). To assess how U.S. agencies coordinate the 
allocation of trade capacity building assistance, we reviewed published 
reports on trade capacity building activities, agency strategies, and 
program documents. In Egypt, El Salvador, and Ghana, we interviewed 
U.S. officials responsible for implementing trade capacity building 
activities, as well as host government officials in Egypt, El Salvador, 
and Ghana. We observed one meeting of the interagency group on trade 
capacity building.

To assess whether agencies evaluate the effectiveness of their trade 
capacity building efforts, we analyzed U.S. agency project documents, 
annual reports, performance and accountability reports, and reports on 
trade capacity building. Using interview responses and analyses of the 
reports and documents related to trade capacity building, we examined 
these agency efforts against the Government Performance and Results Act 
of 1993 criteria for performance monitoring and program evaluation. We 
also examined performance and monitoring principles used by 
multilateral donors and international organizations that we identified 
by reviewing a GAO analysis of relevant U.S. legislation and 
Organization for Economic Cooperation and Development documents.

We conducted our work between September 2003 and November 2004 in 
accordance with generally accepted government auditing standards.

[End of section]

Appendix II: U.S. Government Trade Capacity Building Database:

The U.S. government has conducted an annual survey of U.S. agencies' 
trade capacity building assistance efforts since 2001. The survey 
collects funding data for an entire agency or U.S. Agency for 
International Development (USAID) mission in the given fiscal year.

U.S. agency officials complete the survey by providing financial 
information on funds obligated for various projects and activities in a 
given year. Actual expenditures of funds for these activities may not 
occur until a year or two after the survey. For example, the fiscal 
year 2002 database accounts for obligations in fiscal year 2002. 
However, activities may not occur and thus may not be expended until 
fiscal year 2003, or 2004, or even later.

To answer the survey, an agency official typically goes through all of 
the agency's projects for a given fiscal year and reviews the survey 
guidance, including the trade capacity building categories (see table 1 
for complete list of categories), to determine which projects are 
related to trade capacity building. The officials then assign a 
percentage amount of the total funded project to a trade capacity 
building category. An "other" category is provided for activities that 
do not fit the given trade capacity building categories in the survey. 
In addition, activities in the database are often not discrete projects 
but parts of larger programs. For instance, the USAID/Egypt mission has 
a $200 million Commodity Import Program, but only $50 million of the 
project is counted as trade capacity building and included in the 
database.

The database, created by a USAID contractor from the surveys, is 
available online at [Hyperlink, http://qesdb.cdie.org/tcb/index.html]. 
It provides information by type of activity, by recipient country, and 
by U.S. government agency. Agencies are grouped in three ways: those 
that fund, those that implement, and those that both fund and implement 
trade capacity building activities. The database provides financial 
information for the period of fiscal years 1999-2004.

According to the survey administrator, the technical team reviewed 
completed survey forms, checking for accuracy and consistency in the 
reporting and allocation of funding to various trade capacity building 
categories. In addition, the survey administrator told us that, 
whenever a report was ambiguous or incomplete, the technical team 
worked with the reporting U.S. government agency, department, or field 
mission to amend the data.

[End of section]

Appendix III: Total U.S. Funding for Trade Capacity Building, by Region 
and Country, Fiscal Years 2001-2004:

Sub-Saharan Africa. 

Ghana: $29,927,888. 

Uganda: $27,743,099. 

Mali: $27,607,881. 

Mozambique: $25,213,673. 

Nigeria: $23,939,886. 

Tanzania: $15,430,805. 

South Africa: $13,692,349. 

Zambia: $13,393,999. 

Kenya: $12,972,366. 

Malawi: $11,792,899. 

Madagascar: $11,529,257. 

Rwanda: $9,231,315. 

Guinea: $7,064,200. 

Senegal: $6,459,699. 

Djibouti: $4,055,393. 

Ethiopia: $3,856,120. 

Namibia: $3,769,406. 

Burkina Faso: $3,235,739. 

Cape Verde: $2,691,582. 

Togo: $2,382,931. 

Angola: $2,329,613. 

Benin: $2,135,007. 

Niger: $2,018,243. 

Sudan: $1,510,000. 

Chad: $1,268,075. 

Botswana: $1,241,214. 

Cameroon: $943,671. 

Zimbabwe: $917,183. 

Sao Tome and Principe: $842,000. 

Sierra Leone: $680,744. 

Guinea-Bissau: $456,451. 

Somalia: $341,763. 

Eritrea: $286,065. 

Democratic Republic of the Congo: $230,744. 

Mauritius: $221,881. 

Gabon: $204,000. 

Cote d'Ivoire: $143,243. 

Liberia: $135,007. 

Equatorial Guinea: $60,243. 

Swaziland: $51,673. 

Republic of the Congo: $42,000. 

Seychelles: $29,673. 

Lesotho: $29,671. 

Burundi: $18,243. 

Comoros: $18,243. 

The Middle East and North Africa. 

Egypt: $368,681,820. 

Jordan: $89,044,521. 

West Bank/Gaza: $53,887,443. 

Morocco: $31,246,244. 

Iraq: $30,937,093. 

Algeria: $20,522,312. 

Lebanon: $7,617,685. 

Tunisia: $2,585,799. 

Yemen: $1,629,800. 

Asia: 

Philippines: $83,151,774. 

Afghanistan: $74,164,544. 

India: $52,112,068. 

Indonesia: $42,814,171. 

Vietnam: $27,907,332. 

East Timor: $17,811,672. 

Cambodia: $13,084,108. 

China: $11,950,869. 

Bangladesh: $11,143,378. 

Sri Lanka: $10,921,899. 

Thailand: $10,882,524. 

Pakistan: $10,805,050. 

Mongolia: $7,671,651. 

Nepal: $7,306,111. 

Malaysia: $1,275,940. 

South Korea: $107,570. 

Central and Eastern Europe: 

Croatia: $52,611,706. 

Serbia and Montenegro: $40,927,481. 

Romania: $29,847,580. 

Kosovo: $22,085,000. 

Macedonia: $18,050,785. 

Turkey: $13,557,051. 

Bulgaria: $9,618,365. 

Albania: $8,337,351. 

Bosnia and Herzegovina: $5,043,617. 

Poland: $3,251,685. 

Hungary: $823,031. 

Czech Republic: $794,000. 

Lithuania: $182,964. 

Latin America and the Caribbean: 

Colombia: $57,130,219. 

El Salvador: $50,897,447. 

Peru: $32,772,265. 

Honduras: $30,999,529. 

Bolivia: $29,982,491. 

Nicaragua: $28,665,994. 

Mexico: $26,445,300. 

Haiti: $24,827,060. 

Brazil: $24,653,613. 

Ecuador: $20,523,601. 

Dominican Republic: $17,886,126. 

Jamaica: $16,550,835. 

Guatemala: $9,030,579. 

Paraguay: $4,359,903. 

Guyana: $4,212,111. 

Panama: $4,095,311. 

Chile: $2,074,119. 

Costa Rica: $927,996. 

Argentina: $533,840. 

Venezuela: $195,160. 

St. Kitts and Nevis: $124,000. 

Belize: $60,000. 

Uruguay: $57,920. 

Barbados: $7,690. 

Bahamas: $6,300. 

Trinidad and Tobago: $6,300. 

Dominica: $6,290. 

St. Lucia: $6,290. 

St. Vincent and the Grenadines: $6,290. 

Former Soviet Republics: 

Russia: $71,551,713. 

Kazakhstan: $44,751,387. 

Georgia: $43,502,461. 

Ukraine: $39,040,826. 

Armenia: $36,422,648. 

Kyrgyzstan: $25,857,573. 

Azerbaijan: $17,965,498. 

Uzbekistan: $11,997,984. 

Tajikistan: $6,882,771. 

Moldova: $2,499,569. 

Turkmenistan: $1,512,500. 

Source: GAO analysis of U.S. Government Trade Capacity Building 
database.

[End of table]

[End of section]

Appendix IV: The Linkages between Trade and Development:

Assistance to developing countries for trade capacity building is based 
on the premise that international trade can positively benefit a 
country's overall growth and development. Economists postulate that 
these potential benefits come as trade increases competition and 
specialization, provides greater access to technology for domestic 
producers, expands export markets and earnings, and fosters new foreign 
investment and institutional reforms. However, economists have also 
argued that international trade can create significant challenges for 
developing countries, such as greater instability due to volatile 
export markets, increased reliance on international debt to finance 
trade deficits, and exacerbated income inequality and unemployment. 
Following the rapid growth of certain East Asian countries, and more 
recently China, the role of international trade in fostering growth and 
development has become more widely accepted. Some empirical studies 
have confirmed a positive relationship between trade liberalization and 
growth; however, others question the robustness of these results and 
stress that greater openness does not uniformly lead to development.

International Trade May Benefit Growth and Development through a 
Variety of Channels:

Economic theory predicts a variety of ways in which international trade 
can positively affect a country's growth and development.[Footnote 27] 
First, greater openness to imports from other countries increases 
competition in the country's domestic market. This can lead to greater 
efficiency as less competitive producers are driven out of the market. 
In addition, resources will shift to more competitive producers and 
industries enabling them to expand.[Footnote 28] Second, these 
expanding domestic producers may now be able to export their products 
to a worldwide market, rather than sell them only in the local economy. 
With a larger market, some producers also may benefit from economies of 
scale in production; that is, they are able to reduce their costs per 
unit of output by producing on a larger scale. Third, overall 
productivity in the economy can increase due to greater competition and 
specialization. Competition increases the number of efficient producers 
and reduces the number of less efficient producers. Fourth, imports 
also may provide access to machinery and equipment that the domestic 
economy does not produce but are needed so domestic firms can expand. 
These imports may embody technology and innovations that the domestic 
economy lacks but which help improve labor productivity and benefit 
industries that use them.

Increased openness to trade may also create incentives for foreign 
direct investment and institutional reforms, both of which may 
facilitate growth. For example, a more liberal trading regime that 
reduces costs on both imported manufacturing inputs and exported final 
products may create incentives for foreign producers to invest in new 
production in the domestic market since the cost of foreign-produced 
components used domestically is lower and producers can export more 
competitively.[Footnote 29] Lower tariffs mean the domestic industry 
can import components used in their final products more cheaply, while 
lower export taxes enable the final products to be sold at a lower 
price internationally. Increased foreign investment expands developing 
countries' stock of capital, technology, and managerial expertise, 
which may expand production directly through new subsidiaries and have 
positive spillover effects on other companies and industries in the 
economy. Trade liberalization also may positively affect institutional 
development and reform. For example, some economists argue that greater 
competition from imports may encourage institutional reforms and reduce 
corruption by reducing the monopoly power of domestic interests that 
benefited from the protected market. At the same time, export 
industries that are expanding to take advantage of opportunities in the 
world market have an incentive to lobby for further reforms that 
increase the competitiveness of the domestic economy.

Greater Dependence on Trade May Also Create Significant Challenges for 
Developing Countries:

Economists have also pointed to a variety of significant challenges 
that international trade raises for developing countries. For example, 
many developing countries have significant exports of primary products, 
such as agriculture and raw materials. Dependence on these types of 
exports, particularly for countries that generate their export earnings 
from a few products (such as coffee, cocoa, or bananas), creates large 
economic fluctuations since primary product prices tend to be 
relatively unstable. In addition, many developing country exporters 
also have faced deterioration in their terms of trade, as the prices of 
their export products fell relative to the prices they paid for their 
imports. This can create a situation in which trade barrier reductions 
in the domestic market increase demand for imports and displace 
domestic production, but export sectors do not expand to capture these 
resources because prices in world markets are declining. Consequently, 
the gap between export earnings and import payments may lead developing 
countries to maintain current account deficits. This means that more 
foreign currency for imports is paid for imports than received from 
selling exports. To acquire foreign currency to cover this deficit, 
countries need an inflow of foreign financial assistance, either 
through private investment or public assistance (such as loans and 
aid). Persistent current account deficits were partly responsible for 
the accumulation of debt among developing countries in the 1980s and 
1990s.

Some economists point out that, although trade may benefit a country's 
growth and overall wealth, distributional problems such as wage 
inequality, unemployment, and poverty may accompany this growth and be 
contrary to a country's development goals. For example, trade 
liberalization may worsen a country's income distribution and reduce 
the wages of low-skilled workers if it encourages (as a result of 
increased foreign competition) the adoption of technologies that favor 
more skilled workers. In addition, the economic changes induced by 
greater competition may affect workers, industries, and communities 
disproportionately.

Greater Acceptance of Important Role for International Trade in 
Development:

The potentially positive role of international trade on economic growth 
and development is not a new concept. Eighteenth-century economists 
such as Adam Smith and David Ricardo argued for the benefits of 
international trade for economic growth. In the twentieth century, the 
rise of trade barriers among the major trading nations and the 
resulting decline of international trade has been cited as one of the 
reasons for the depth and duration of the worldwide recession in the 
1930s.[Footnote 30] Following World War II, the reduction of trade 
barriers among trade partners was seen as an important component of the 
world economic system. The General Agreement on Tariffs and Trade was 
inaugurated in 1947 and then followed by successive rounds of 
negotiations, which resulted in the formation of the World Trade 
Organization in 1995. Similarly, the United Nations Conference on Trade 
and Development was formed in 1964 because of a general understanding 
that trade and development were interrelated.

Despite these developments, economists and developing countries from 
the 1950s through the 1970s held divergent views about the best 
policies for growth and development. These views involved engaging the 
world market versus sheltering certain industries from competition 
until they were better able to compete. Ultimately, the divergent 
experiences of developing countries over this period led to a broader 
acceptance of the role of openness to international trade in fostering 
economic growth and development. Many countries, such as Argentina, El 
Salvador, Ghana, and Nigeria, pursued an inwardly focused development 
strategy known as import substitution. This strategy focused on 
restrictive trade policies that sought to protect certain domestic 
industries in order to foster a diverse industrial base.[Footnote 31] 
On the other hand, certain East Asian economies, including Hong Kong, 
Korea, Singapore, and Taiwan, pursued a more outwardly focused 
development strategy known as export promotion, which sought to 
encourage industrial development by tapping into larger export markets 
rather than relying on protected domestic markets.[Footnote 32] 
Although the debate between these two broad approaches has swung back 
and forth, export promotion, and trade liberalization in general, was 
more broadly accepted by the 1980s as the dominant development 
strategy. This was due in large part to the rapid growth of the East 
Asian economies, as well as China more recently, and the relatively 
stagnant growth of many countries that pursued more restrictive 
policies. Openness to trade, sound fiscal and monetary policy, security 
of property rights, and privatization were key policy prescriptions in 
what became known as the "Washington Consensus." This consensus 
generally characterized the advice of the World Bank and International 
Monetary Fund (both based in Washington, D.C.) to developing 
countries.[Footnote 33]

As a result, since the 1980s, a variety of countries have liberalized 
their trade regimes by reducing trade barriers through unilateral, 
bilateral, regional, and multilateral trade negotiations. The range of 
policies that affect the trade openness of particular countries makes 
it difficult to measure levels of openness over time and across 
countries. However, a wide variety of evidence shows that developing 
countries have liberalized their trade regimes extensively over the 
past two decades. For example, average tariffs of developing countries 
have fallen from around 36 percent in the early 1980s to around 16 
percent currently, based on World Bank and International Monetary Fund 
statistics. However, the trend to greater openness varied among regions 
and countries, with Latin America tending to move the most rapidly and 
comprehensively, while South Asian countries made little progress until 
the 1990s. For Ghana and Egypt--countries we visited in our work--
average tariffs were similar in the early 1980s at 43 percent and 47 
percent, respectively. However, Ghana reduced its average tariff much 
more rapidly than Egypt, so that currently Ghana's average tariff is 
about half that of Egypt (16 percent compared to 30 percent).

Some Empirical Studies Confirm a Positive Relationship between Trade 
and Growth, but Critics Raise Caution:

A large economics literature exists on the relationship between trade 
and growth. Many studies have attempted to empirically measure (and 
confirm) the relationship between a country's level of openness to 
trade and per capita income, or the relationship between changes in 
trade flows and changes in gross domestic product (growth). For 
example, regularly cited research by economists David Dollar, Aart 
Kraay, Jeffrey Sachs, Andrew Warner, Dan Ben-David, and Sebastian 
Edwards generally finds an important relationship between changes in 
trade flows or liberalization and growth rates across countries.
[Footnote 34] The studies construct measures of openness to trade and 
econometrically estimate the relationship to growth, controlling for 
causality (e.g., growth may also spur increased trade) and other 
factors that affect growth. Similarly, research over the past 15 years 
by economists Robert Hall, Charles Jones, Andrew Rose, Jeffrey Frankel, 
and others have found that large differences across countries in the 
level or the growth rate of real GDP per capita may be systematically 
related to the level (or degree) of openness of those countries.
[Footnote 35] However, these studies have also found that institutional 
quality, such as the effectiveness of government, is also an important 
factor affecting growth and difficult to separate from the effects of 
openness.

Although there is a general acceptance that trade can play an important 
role in economic development, some economists have criticized the 
methodologies used to study the relationship between openness and 
growth. For example, Francisco Rodriguez and Dani Rodrik argue that 
methodological problems in this literature leave the results open to 
diverse interpretations.[Footnote 36] They find little convincing 
evidence that changes in trade policy (i.e., reductions in government-
imposed trade barriers) are significantly associated with economic 
growth. One challenge that affects the robustness of studies trying to 
estimate the impact of trade liberalization on economic growth is 
constructing reliable and reasonable measures of "openness." The few 
measures that are relatively widely available, such as tariff rates, do 
not fully capture the wide range of policies that governments may put 
into place to affect trade. Data are not readily available on barriers 
other than tariffs (e.g., nontariff barriers such as quotas) for many 
developing countries. Furthermore, for those countries for which some 
data are available, generally only information on whether or not 
nontariff barriers are in force is available, rather than precise 
information on their relative restrictiveness or actual effect on 
trade.

In addition, less is known about the relationship between trade 
capacity building and other factors affecting economic growth and 
development (such as institutions and human capital). Although 
increased trade appears to be potentially beneficial to growth and 
development, countries that have liberalized over time have had mixed 
experiences. As mentioned above, institutional factors also appear 
important, as do geographical factors (proximity to trade partners), in 
the extent to which countries benefit from greater connectedness to the 
world economy. Countries in sub-Saharan Africa have remained relatively 
less developed and marginalized compared to developing countries 
elsewhere, despite undergoing some degree of trade liberalization. 
Trade liberalization alone does not appear to be a sufficient criterion 
for development but is one of several important factors. Also, the 
speed at which the global economy evolves may initially benefit a 
developing country but later pose difficulties as labor tries to adjust 
to new conditions. For example, the removal of textile and apparel 
trade restrictions on January 1, 2005, by developed economies such as 
the United States and European Union will allow China and other large 
clothing producers to compete against other developing countries for 
their market share previously protected by the quotas.[Footnote 37] 
Some economies may have difficulties adjusting to rapid changes in 
their export markets after having built up significant industries under 
the quota system.

[End of section]

Appendix V: Comments from the U.S. Agency for International 
Development:

U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT:

JAN 18 2005:

Yvonne Jones: 
Acting Director: 
International Affairs and Trade: 
U.S. General Accounting Office: 
441 G Street, N.W.: 
Washington, D.C. 20548:

Dear Ms. Jones:

I am pleased to provide the U.S. Agency for International Development's 
(USAID) formal response on the draft GAO report entitled Foreign 
Assistance: U.S. Trade Capacity Building Extensive, but Its 
Effectiveness Has Yet to Be Evaluated (GAO-05-150).

We have reviewed the draft report and appreciate the time and effort of 
your team. There are, however, several points raised in the report 
concerning USAID's progress on which we have provided comments in the 
enclosed document.

Thank you for the opportunity to respond to the GAO draft report and 
for the courtesies extended by your staff in the conduct of this 
review.

Sincerely, 

Signed by: 

Steven Wisecarver:

Acting Assistant Administrator: 
Bureau for Management:

Enclosure: a/s:

USAID Comments on GAO Draft Report Entitled: FOREIGN ASSISTANCE: U.S. 
Trade Capacity Building Extensive, but Its Effectiveness Has Yet to be 
Evaluated (January, 28, 2005):

This report calls attention to an important element of the President's 
strategy, set out in the September 2002 National Security Strategy of 
the United States, to "ignite a new era of global economic growth 
through free markets and free trade." As the report notes, U.S. Trade 
Capacity Building (TCB) also responds to developing countries' own 
aspirations to take full advantage of the opportunities created by 
participation in the rules-based global trading system.

The report provides a timely review of the progress we have made in 
this area to date. I am pleased that the GAO finds the data collected 
by USAID in the Administration's annual surveys of TCB efforts to be 
sufficiently reliable for the purpose of the review. I also appreciate 
the GAO's recognition of the benefits of close coordination among the 
many involved U.S. agencies through the inter-agency working group.

The United States commitment to TCB is well substantiated by the 
statistics cited in the draft report. Between Fiscal Year 2001 and 
Fiscal Year 2004, U.S. funding for TCB assistance increased by over 
50%. This has been one of my own top priorities at USAID, which 
accounted for over 70% of all TCB projects funded during this period. I 
am pleased that the Congress has provided strong and consistent support 
for these efforts.

I would like to clarify one point relating to the draft report's 
general characterization of U.S. TCB efforts. The draft report states 
in several places that those efforts are a "collection of existing 
trade and development activities, placed under one umbrella." In recent 
years, however, we have designed and implemented a wide variety of 
significant new TCB assistance activities and tools. For example, in 
response to the U.S.-Morocco Free Trade Area, USAID developed new 
methods for providing training on the complex issues relating to trade 
in services. In response to the Central American Free Trade Area 
(CAFTA), we provided "quick response" assistance to help the Central 
American countries improve civil society outreach and consultative 
procedures on trade policy issues. In support of Mozambique's efforts 
under the Integrated Framework for Trade-Related Assistance to Least 
Developed Countries, USAID was the first bilateral donor to provide 
assistance for a "Diagnostic Trade Integration Study" that integrates 
trade into a country's national poverty reduction strategy. There are 
many other examples.

Further, many of USAID's field programs have been significantly 
modified to focus more specifically on trade capacity building, taking 
advantage of U.S. bilateral and multilateral trade initiatives and many 
developing country governments' increasing commitment to trade-led 
development strategies. This is reflected, for example, in USAID's new 
Agriculture Strategy, with its strong focus on the contribution that 
trade can make to rural development. It is important to note that a 
coordinated TCB strategy, which focuses a broad range of assistance 
activities on the central goal of improving a country's participation 
in the global trading system, is much greater than the sum of its 
parts. I am convinced that this strategy continues to significantly 
improve the overall effectiveness and impact of U.S. assistance efforts 
in many developing countries.

USAID is committed to working closely with the other U.S. agencies that 
implement TCB assistance, as well as with the Office of the U.S. Trade 
Representative and the U.S. trade policy community, to maximize the 
benefits of these trade and development synergies. As the report 
recognizes, the various inter-agency coordination mechanisms this 
Administration has established in support of the Doha Development 
agenda, the Central America Free Trade Area, and other trade 
initiatives have made invaluable contributions to this work.

We appreciate and fully support the GAO's recommendation, on page 47 of 
the draft report, that USAID "set milestones for completing its efforts 
to develop trade capacity building performance indicators ... and share 
its findings with other agencies that fund and implement trade capacity 
building assistance." A number of ongoing USAID efforts will contribute 
to this objective. Most notably, Administrator Natsios has directed the 
Bureau for Policy and Program Coordination (PPC) to re-energize USAID's 
overall project evaluation capacity and efforts. As part of that 
effort, PPC is now working with USAID field missions and other bureaus 
to develop a standard set of program components and corresponding 
indicators that will be used to report on and guide all our assistance 
projects worldwide, including in the area of trade capacity building.

Administrator Natsios has instructed PPC to develop standard program 
performance indicators for this and USAID's other program components by 
June 2005, for sharing with our field missions, so that by September 
30, 2005, they will be ready for inclusion in our Annual Report. It is 
important to note that these standard indicators, designed to report on 
Agency-level TCB program performance, will not, by themselves, provide 
a sufficiently detailed basis for monitoring the effectiveness and 
impact of all aspects of every individual TCB project in the field. 
Different levels of development and region-and country-specific 
variations in other circumstances will continue to require that USAID 
missions also develop specialized indicators that are carefully 
tailored to local goals, opportunities, constraints, and needs.

The development of both global and local TCB indicators will build on a 
number of sector-specific "best practice" evaluations and reports 
produced by the Bureau for Economic Growth Agriculture and Trade 
(EGAT), including:

"Improving Trade Policy Coordination and Dialogue in Developing 
Countries: A Resource Guide"

"Poverty Reduction and Agricultural Trade in Sub-Saharan Africa: 
Recommendations for USAID Interventions"

"Trade Capacity Building in the Services Sector: A Resource Guide" 
"Customs-Related Technical Assistance for Trade Capacity Building: A 
Resource Guide"

"Enterprise Growth Initiatives: Strategic Directions and Options"

Our development of indicators will also build, as the GAO's draft 
report notes, on a detailed EGAT study of TCB performance indicators by 
a contractor with extensive experience in implementing these projects 
around the world. The contractor is currently evaluating dozens of 
indicators previously developed by USAID, the World Bank, the OECD, the 
World Economic Forum, UNCTAD, and other international donors and 
centers of technical expertise on the subject. This analysis will be 
completed in the first quarter of 2005. We expect it to make an 
important contribution both to the development of the standard TCB 
indicators that are to be completed by June 2005, and to the more 
detailed indicators that our field missions will continue to develop 
for individual project monitoring plans.

We fully support the objective of the GAO's other recommendation - 
improved impact monitoring of all U.S. TCB efforts. It will be 
important to pursue that objective taking into careful account the 
large number of agencies involved, the diversity of TCB programs, and 
the cost-effectiveness of different monitoring approaches. We believe a 
starting point can be the USAID's work (see second GAO recommendation) 
which will cover more than 70% of the total U.S. TCB portfolio. Impact 
monitoring of other programs will need to be approached selectively, 
focusing on programs with the clearest links to trade capacity and for 
which monitoring can be undertaken at a reasonable cost.

Given the technical nature of this work, we also believe it would be 
more appropriate for this recommendation to be directed to the agencies 
as a whole, rather than to senior officials. These considerations 
suggest amending the draft recommendation as follows:

The U.S. Agency for International Development and the Office of the 
U.S. Trade Representative, as co-chairs of the trade capacity building 
interagency working group, in consultation with other agencies that 
fund and implement trade capacity building assistance, should develop a 
cost-effective strategy to monitor and measure program results and 
evaluate the effectiveness of U.S. trade capacity building assistance.

In recent years, the United States has provided strong leadership in 
strengthening the international commitment to trade capacity building 
and in developing the technical skills, tools and resources to making 
that commitment effective. The results have been impressive and 
widespread. USAID welcomes GAO's support for these efforts. 

The following are GAO's comments on the U.S. Agency for International 
Development's letter dated January 18, 2005.

GAO Comments:

1. We have made changes in the report language to recognize that, while 
many U.S. trade capacity building efforts are existing activities, some 
trade capacity building activities are new.

2. To ensure accountability, it is GAO policy to address 
recommendations to agency officials, rather than to the agency as a 
whole. However, we have added the term "cost-effective" to the 
recommendation as suggested in the letter.

[End of section]

Appendix VI: Comments from the Office of the U.S. Trade Representative:

EXECUTIVE OFFICE OF THE PRESIDENT: 
DEPUTY UNITED STATES TRADE REPRESENTATIVE: 
WASHINGTON, D.C. 20508:

JAN 10 2005:

Ms. Yvonne D. Jones: 
Acting Director: 
International Affairs and Trade: 
Government Accountability Office: 
441 G Street, NW:
Washington, DC 20548:

Dear Ms. Jones:

Thank you for giving our agency the opportunity to comment on your very 
important report on Trade Capacity Building (TCB). As your report 
notes, TCB is a critical part of the U.S. Government's strategy of 
enabling developing countries to negotiate and implement market-opening 
and reform-oriented trade agreements. Good trade agreements can drive 
positive internal reforms that (a) challenge the frequently protected 
and failed domestic status quo with a breath of competition from 
abroad; and (b) result in better use of current developing country 
resources and movement onto a path of more rapid economic growth.

The evidence for this proposition is clear. For example, World Bank 
research shows income per capita in globalizing developing countries 
grew more than 3 times faster than in non-globalizers in the 1990s. 
Absolute poverty rates for globalizers have also fallen sharply over 
the last 20 years. The World Bank also finds that trade barrier 
elimination in conjunction with related development policies would 
accelerate the decline in the number of people in poverty in 2015 by an 
additional 300 million --more than the whole population of the United 
States. Thus, developing countries that generate growth through trade 
will be less dependent on official aid over time.

TCB is of particular importance to the current U.S. Trade 
Representative, Ambassador Robert B. Zoellick, who recognizes the 
importance of linking trade and development by providing developing 
countries with the tools to maximize trade opportunities provided by 
multilateral bilateral trade agreements and preference programs. In 
response to the increase of developing countries as WTO members and new 
FTA partners, Ambassador Zoellick established USTR's Office for Trade 
Capacity Building in April 2002. The mission of this office has been to 
work with the U.S. Agency for International Development, other U.S. 
agencies, international institutions, non-government organizations and 
private sector representatives to better coordinate TCB efforts to 
maximize their effect.

I appreciate your recognition that our emphasis on the critical linkage 
between better interagency coordination and more effective TCB has been 
a factor in changing the culture within the USG with regard to TCB. 
While U.S. development agencies had provided hundreds of millions of 
dollars of technical assistance relating to trade in the past, this 
assistance ran the risk of not being coordinated with TCB needs 
generated by trade negotiations. We have encouraged development 
agencies like USAID to be more cognizant of trade and trade agreements 
in their programs.

We have helped establish a brand new interagency process to facilitate 
this cooperation. USTR and USAID now co-chair the TCB Interagency 
Group, comprised of over 10 agencies that meet monthly to coordinate on 
overall TCB --free trade negotiations, WTO issues, the Integrated 
Framework, preference programs, etc. This group has been valuable in 
making sure that assistance not only substantively supports various 
trade objectives, but does so in a timely fashion.

Another innovation has been the creation of TCB Working/Cooperative 
Groups in free trade negotiations that operate in parallel to the 
negotiating groups. These groups are comprised of the United States --
with USTR leading the interagency team --and its free trade partners. 
They discuss assistance at each round of negotiations, such as in our 
Andean and SACU negotiations. These groups also invite the 
participation of non-governmental organizations, representatives from 
the private sector, and international institutions such as the Inter-
American Development Bank and the World Bank. Our efforts have 
attracted the participation of organizations as diverse as Humane 
Society International and the Business Coalition for Capacity Building.

We have asked our partners to develop an assessment --a "national 
strategy"--that defines their TCB needs. The national strategy provides 
U.S. agencies and other donors with a guide to target their programs 
while disciplining the developing country as it prioritizes its needs 
and coordinates internally amongst its own agencies.

We believe that these innovations are a major reason why funding for 
TCB continues to exist in a time of major budget pressure on U.S. 
foreign assistance. The new structures we have in place provide 
Congress with a tangible mechanism to support. Further, the interagency 
process has sensitized agencies to what TCB is, which makes them more 
aware of how their ongoing programs relate and how their future 
programs can be designed to be supportive of trade agreements. This is 
probably a reason why agencies have conducted more TCB activities in 
the last couple of years according to the USG survey administered by 
USAID.

I thank you for giving us the opportunity to comment on your report. I 
commend you for a job well done. USTR will continue to be committed to 
improving the quality of TCB and building on our successes to date.

Sincerely,

Signed by: 

Ambassador Josette Sheeran Shiner: 

[End of section]

Appendix VII: Comments from the Department of the Treasury:

DEPARTMENT OF THE TREASURY: 
WASHINGTON, D.C.

ASSISTANT SECRETARY:

January 3, 2005:

Dear Mr. Friberg,

Thank you for the letter sent from Ms. Yvonne Jones, Acting Director 
from the Government Accountability Office (GAO), to Secretary Snow on 
December 13, and for the opportunity to review and comment on the draft 
GAO report entitled "Foreign Assistance: U.S. Trade Capacity Building 
Extensive, but Its Effectiveness Has Yet to be Evaluated".

Treasury Department staff from the Office of Technical Assistance (OTA) 
appreciated the opportunity to meet you and your staff in recent weeks 
as you prepared this report. These discussions improved our 
understanding of the objectives the GAO had in writing this report. The 
discussions also provided assurances to us that the portions of the 
draft report were accurate concerning financial resources coming from 
OTA and contributing to trade capacity building.

I wish to compliment you and your staff for preparing this assessment 
of funding devoted to trade capacity building as defined by the World 
Trade Organization. While the total amount of funding from OTA and 
identified as contributing to trade capacity building is relatively 
small in comparison to total funding from all USG agencies, Treasury 
appreciates the favorable recognition given us in the draft report. We 
particularly appreciate your reporting of the favorable comments made 
by officials from the U.S. Agency for International Development 
concerning contributions made by OTA's financial advisors in Ghana. I 
believe these comments demonstrate the cooperation and mutual support 
our two agencies have achieved in recent years as we work side by side 
in supporting reform in key countries around the world.

Treasury's technical assistance program is now active in more than 
fifty countries in support of financial reform. As reforms are 
implemented with a strong and enduring commitment from political 
leaders, a clear, albeit at times indirect, contribution is also made 
to trade capacity building. Treasury is proud to play a role in this 
effort.

If you have additional questions on which Treasury might be helpful, 
please feel free to call or contact James H. Fall, III, Deputy 
Assistant Secretary for Technical Assistance Policy. His telephone 
number is: 202-622-0667 and e-mail address is: 
james.fall do.treas.gov.

Sincerely,

Signed by: 

Randal K. Quarles

Assistant Secretary for International Affairs:

Mr. Emil Friberg: 
Assistant Director: 
International Affairs and Trade:
U.S. Government Accountability Office: 
441 G Street, NW:
Washington, DC 20548: 

E-mail: friberg@gao.gov: 

[End of section]

Appendix VIII: GAO Contact and Staff Acknowledgments:

GAO Contact: 

Emil Friberg (202) 512-8990:

Staff Acknowledgments:

In addition to the individual named above, Nina Pfeiffer, Rhonda 
Horried, Ann Baker, and Tim Wedding made key contributions to this 
report. Martin De Alteriis, Lynn Cothern, Etana Finkler, Curtis L. 
Groves, and Ernie Jackson also provided assistance.

(320200):

FOOTNOTES

[1] Least-developed countries, 50 countries designated as such by the 
United Nations, expressed this concern in a declaration made at a July 
2001 trade ministers' meeting in Zanzibar. 

[2] The Trade Policy Agenda and Annual Report of the President of the 
United States on the Trade Agreements Program are submitted to the 
Congress pursuant to Section 163 of the Trade Act of 1974, as amended 
(19 U.S.C. 2213).

[3] The survey was only administered annually in fiscal years 2001 
through 2004 but contains data for fiscal years 1999 through 2004. 
Based on the survey administrator's data collection efforts for fiscal 
years 1999 and 2000 data, GAO determined that the data for these two 
years were not sufficiently reliable for our purposes. For instance, 
when data were collected in 2001 for fiscal years 1999 and 2000, the 
survey respondents had to provide data for the previous two years, as 
well as the current year, and it is possible that they did not provide 
complete data on the previous years due to the burden imposed on them 
or a lack of records. The fact that the numbers for those first two 
years are smaller than for the last four would be consistent with that 
possibility. See appendix I for a detailed explanation. For the 
database, see www.qesdb.cdie.org/tcb/index.html. 

[4] The six agencies funding and implementing 96 percent of trade 
capacity building assistance included the Departments of Agriculture, 
Labor, State, and the Treasury; the U.S. Trade and Development Agency; 
and USAID.

[5] For the purposes of this review, performance measures and 
indicators are equivalent terms.

[6] The Government Performance and Results Act of 1993 (GPRA) requires 
that federal agencies set goals and report annually on program 
performance.

[7] Title I, Pub. L. No. 106-200. 

[8] See Pub. L. No. 106-200, Section 113.

[9] Title XXI of the Trade Act of 2002, Pub. L. No. 107-210, Section 
2102.

[10] Pub. L. No. 107-210, Section 2102 (c) (7).

[11] See H. Rpt. No. 108-222, 108TH Cong., 1ST Sess. 22 (2003). See 
also, H. Rpt. No. 107-663, 107TH Cong., 2ND Sess. 21 (2002).

[12] See Div. E of Pub. L. No. 108-7, Titles I and II.

[13] See Div. D of Pub. L. No. 108-199, Title II. 

[14] The appropriations cover accounts overseen by the Departments of 
State and Treasury, USAID, and USTDA. The accounts include "Trade and 
Development Agency," "Development Assistance," "Transition 
Initiatives," "Economic Support Fund," "International Affairs 
Technical Assistance," and "International Organizations and Programs." 
In addition, the foreign operations appropriations bill for fiscal year 
2005 provides that not less than $507 million should be made available 
for these same accounts for trade capacity building. 

[15] Transitioning economies, such as the former Soviet Union, are 
those that are converting from economies built on state ownership, 
central planning, and bureaucratic control into ones relying on private 
ownership, market relationships, and individual choices. 

[16] The U.S. approach to trade capacity building is similar to that of 
the WTO and the OECD, except that the joint WTO/OECD database created 
to monitor bilateral donor and multilateral/regional agency support for 
trade capacity building excludes activities to enhance the 
infrastructure necessary for trade, such as transport, storage, 
communications, and energy. The United States, on the other hand, 
includes in its database physical and economic infrastructure, such as 
trade-related telecommunications, transport, ports, airports, power, 
water, and industrial zones. 

[17] The WTO Agreement on Sanitary and Phytosanitary Measures sets out 
rules on how governments should apply food safety and animal and plant 
health measures to ensure that their consumers are being supplied with 
food that is safe to eat. 

[18] GPRA requires executive agencies to complete strategic plans in 
which they define their missions, establish results-oriented goals, and 
identify the strategies they will need to achieve those goals. The act 
also requires that executive agencies prepare annual performance plans 
that articulate goals for the upcoming fiscal year that are aligned 
with their long-term strategic goals. 

[19] The other agencies we reviewed did not have trade capacity 
building-specific strategies.

[20] USTR also created the Office for Trade Capacity Building in April 
2002 to coordinate trade capacity building efforts associated with 
trade negotiations, now headed by the Assistant U.S. Trade 
Representative for Trade Capacity Building. 

[21] The six CAFTA negotiating groups covered market access, investment 
and services, labor, environment, institutional provisions such as 
dispute settlement, and government procurement.

[22] The five international institutions included the Inter-American 
Development Bank, the Central American Bank for Economic Integration, 
the Economic Commission for Latin America and the Caribbean, the 
Organization of American States, and the World Bank.

[23] GPRA requires executive agencies to include results-oriented goals 
linked to indicators that the agency will use to measure performance 
against the results-oriented goals. 

[24] GAO has reported that GPRA recognizes and encourages both 
performance measurement and program evaluation. Performance 
Measurement and Evaluation: Definitions and Relationships, GAO/GGD-98-
26 (Washington, D.C.: April 1, 1997). In addition, the OECD has stated 
that performance measurement and program evaluation complement each 
other and allow for examination of results and impact. The DAC 
Guidelines: Strengthening Trade Capacity for Development (Paris: OECD, 
2001), 63-64.

[25] The Department of State's International Visitor Leadership Program 
annually brings foreign nationals to the United States to meet and 
confer with their professional counterparts and learn about the United 
States. The visitors are current or potential leaders in government, 
politics, the media, education, labor relations, the arts, business, 
and other fields. 

[26] The analytical research for this report is contained in the 
following published USAID documents: An Evaluation of Trade Capacity 
Building: Overview; USAID Support for WTO/FTA Accession and 
Implementation; USAID Behind-the-Border Trade Capacity Building; and 
Regional Trade Agreements: A Tool for Development? 

[27] For additional discussion of the relationship between trade and 
development, see, for example, Handbook of Development Economics, vol. 
II, H. Chenery and T. N. Srinivasan, eds. (New York, NY: Elsevier 
Science Publishers, 1989) and vol. III, J. Behrman and T. N. 
Srinivasan, eds. (New York, NY: Elsevier Science Publishers, 1995); 
Michael Todaro and Stephen Smith, Economic Development, 8th ed. 
(Boston, MA: Addison-Wesley, 2003); and Gerald Meier and James Rauch, 
Leading Issues in Economic Development, 7th ed. (New York, NY: Oxford 
University, 2000). 

[28] However, as changes occur in the domestic economy due to increased 
import competition, some individuals, companies, and industries may 
face greater costs than benefits. For example, even if the overall 
economy grows from trade liberalization, industries facing greater 
competition from imports may contract, leaving workers unemployed. For 
some of these workers, gaining employment in industries that are 
expanding may be difficult even over a long period of adjustment (see 
discussion in next section for challenges that may arise from trade 
liberalization).

[29] However, economics literature also points out that high trade 
barriers may encourage foreign investment because businesses cannot 
access a country's consumers if they do not have a local presence. This 
type of investment is designed to replicate the company's operations in 
other countries and depends on the size of the developing country's 
market (smaller markets may not attract such investment).

[30] See, for example, Charles Kindleberger, The World in Depression, 
1929-39 (Berkeley: University of California Press, 1973), 291-308.

[31] Import substitution as a development policy tool does involve 
international trade--both through the initial importation of capital 
goods for industrialization, as well as the eventual exportation of 
industries once they are able to compete in world markets.

[32] Some have pointed to these countries' industrial policies and 
selective use of trade restrictions, particularly those that provided 
support for certain industries, as key components of their development 
strategies. Also, others have pointed out that if all developing 
countries pursue export promotion strategies with similar products, 
then the world prices of these products will fall, affecting the terms 
of trade and limiting the effectiveness of this development strategy.

[33] The effectiveness of strategies connected to the Washington 
Consensus has been debated. See for example, Joseph Stiglitz, 
Globalization and Its Discontents (New York, NY: W. W. Norton & 
Company, 2002) and Jagdish Bagwhati, In Defense of Globalization (New 
York, NY: Oxford University Press, 2004).

[34] For example, see David Dollar and Aart Kraay, "Trade, Growth, and 
Poverty," World Bank Working Paper (Washington, D.C.: World Bank, June 
2001); David Dollar, "Outward-Oriented Developing Economies Really Do 
Grow More Rapidly: Evidence from 95 LDCs, 1976-85," Economic 
Development and Cultural Change, vol. 40, no. 3 (1992); Jeffrey Sachs 
and Andrew Warner, "Economic Reform and the Process of Global 
Integration," Brookings Papers on Economic Activity, vol. 1995, no. 1; 
Dan Ben-David, "Equalizing Exchange: Trade Liberalization and Income 
Convergence," Quarterly Journal of Economics, vol. 108, no. 3 (1993); 
and Sebastian Edwards, "Openness, Productivity and Growth: What Do We 
Really Know?" Economic Journal, vol. 108, no. 447 (1998).

[35] For a review of this literature as well as a discussion of some of 
its criticisms, see Andrew Berg and Anne Krueger, "Trade, Growth, and 
Poverty: A Selective Survey," IMF Working Paper WP/03/30 (Washington, 
D.C.: International Monetary Fund, February 2003).

[36] See Francisco Rodriguez and Dani Rodrik, "Trade Policy and 
Economic Growth: A Skeptic's Guide to the Cross-National Evidence," in 
NBER Macroeconomic Annual, Ben S. Bernanke and Kenneth Rogoff, eds. 
(Cambridge, MA: MIT Press, 2000).

[37] Under the World Trade Organization's Agreement on Textile and 
Clothing, quotas on textile and apparel products were allowed to remain 
in place until 2005. The agreement committed countries to remove quotas 
between 1995 and 2005 in four steps. The final step on January 1, 2005, 
removed all remaining quotas. The United States provided relatively 
generous quota access to Mexico and certain countries in the Caribbean 
Basin and Africa. 

GAO's Mission:

The Government Accountability Office, the investigative arm of 
Congress, exists to support Congress in meeting its constitutional 
responsibilities and to help improve the performance and accountability 
of the federal government for the American people. GAO examines the use 
of public funds; evaluates federal programs and policies; and provides 
analyses, recommendations, and other assistance to help Congress make 
informed oversight, policy, and funding decisions. GAO's commitment to 
good government is reflected in its core values of accountability, 
integrity, and reliability.

Obtaining Copies of GAO Reports and Testimony:

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through the Internet. GAO's Web site ( www.gao.gov ) contains 
abstracts and full-text files of current reports and testimony and an 
expanding archive of older products. The Web site features a search 
engine to help you locate documents using key words and phrases. You 
can print these documents in their entirety, including charts and other 
graphics.

Each day, GAO issues a list of newly released reports, testimony, and 
correspondence. GAO posts this list, known as "Today's Reports," on its 
Web site daily. The list contains links to the full-text document 
files. To have GAO e-mail this list to you every afternoon, go to 
www.gao.gov and select "Subscribe to e-mail alerts" under the "Order 
GAO Products" heading.

Order by Mail or Phone:

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to:

U.S. Government Accountability Office

441 G Street NW, Room LM

Washington, D.C. 20548:

To order by Phone:



Voice: (202) 512-6000:

TDD: (202) 512-2537:

Fax: (202) 512-6061:

To Report Fraud, Waste, and Abuse in Federal Programs:

Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

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

Public Affairs:

Jeff Nelligan, managing director,

NelliganJ@gao.gov

(202) 512-4800

U.S. Government Accountability Office,

441 G Street NW, Room 7149

Washington, D.C. 20548: