oversight

Free Trade Area of the Americas: Negotiations Progress, but Successful Ministerial Hinges on Intensified U.S. Preparations

Published by the Government Accountability Office on 2003-04-11.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States General Accounting Office

GAO          Report to the Chairman, Committee on
             Finance, U.S. Senate, and to the
             Chairman, Committee on Ways and
             Means, House of Representatives

April 2003
             FREE TRADE AREA
             OF THE AMERICAS
             Negotiations Progress,
             but Successful
             Ministerial Hinges on
             Intensified U.S.
             Preparations




GAO-03-560
             a
                                               April 2003


                                               FREE TRADE AREA OF THE AMERICAS

                                               Negotiations Progress, but Successful
Highlights of GAO-03-560, a report to the
Chairmen, Senate Committee on Finance,         Ministerial Hinges on Intensified U.S.
and House Committee on Ways and
Means                                          Preparations


Establishing a 34-nation Free Trade            USTR, which is responsible for co-chairing the Free Trade Area of the
Area of the Americas agreement                 Americas negotiations and hosting the November 2003 ministerial meeting,
has been under negotiation since               faces challenges to its readiness to assume these responsibilities. During the
1998. This agreement would                     current negotiating phase, achieving improved market access for the 34
eliminate tariffs and create                   nations is paramount. It may be difficult, however, for participants to make
common trade and investment
rules for these nations. Most
                                               ambitious offers to lower tariffs and other trade barriers. Another challenge
recently, the United States, along             involves the resolution of issues such as subsidies for agriculture. The
with Brazil, assumed the leadership            resolution of this issue has been linked to ongoing negotiations at the World
of the negotiations. GAO was asked             Trade Organization, but these talks are bogged down. A further challenge is
to analyze (1) the challenges for the          ensuring the momentum and the political will of the United States and Brazil
current negotiating phase, which               to move the process forward to a timely completion by January 2005.
will include a ministerial meeting in
Miami, Florida, in November 2003;              As co-chair of the negotiations, USTR also faces risks to assuring its
and (2) the U.S.’s readiness to serve          readiness as host of the November ministerial. First, USTR has little
as co-chair of the negotiations and            experience in hosting a major ministerial meeting, and its staff remains small
host of the November 2003                      and is stretched thin. Second, plans for the meeting are at an early stage, and
ministerial.
                                               much remains to be done. Third, USTR is counting on funding that has not
                                               yet been secured. And finally, USTR is likely to encounter protestors at the
                                               November ministerial. Factoring security for the invited participants into the
The Office of the U.S. Trade                   logistical arrangements for the ministerial is a prime concern.
Representative (USTR) should
intensify preparations and regularly
evaluate whether current resources
                                               Free Trade Area of the Americas (FTAA) Time Frames and Milestones, 2002-2005
and plans are sufficient to carry out
the tasks and mitigate the risks
associated with its responsibilities
as co-chair of the negotiations and
host of the November ministerial.
These are related to USTR’s (1)
increased workload, (2) planning
for the ministerial, (3) funding
sources, and (4) security needs at
the ministerial.

USTR and the Department of State
generally agreed with GAO's
message but sought amplification
on certain issues.




www.gao.gov/cgi-bin/getrpt?GAO-03-560.

To view the full report, including the scope
and methodology, click on the link above.
For more information, contact Loren Yager at
(202) 512-4347, or YagerL@gao.gov.
Contents



Letter                                                                                                    1
                             Results in Brief                                                             2
                             Background                                                                   4
                             Progress Achieved in Certain Areas Before and After Quito, but
                               Extent and Pace of Movement on Substantive Issues a Concern to
                               Some Participants                                                          9
                             Key Challenges Exist for the Current Negotiating Phase                      19
                             Gaps in U.S. Preparations for Co-chairmanship and Hosting of Miami
                               Ministerial May Pose Risks                                                28
                             Conclusions                                                                 43
                             Recommendation for Executive Action                                         43
                             Agency Comments and Our Response                                            44
                             Scope and Methodology                                                       44


Appendixes
              Appendix I:    Comments from the Office of the U.S. Trade
                             Representative                                                              47
             Appendix II:    Comments from the Department of State                                       50
             Appendix III:   GAO Contacts and Staff Acknowledgments                                      52
                             GAO Contacts                                                                52
                             Staff Acknowledgments                                                       52


Related GAO Products                                                                                     53


Figures                      Figure 1: Organization of the FTAA Negotiations                              6
                             Figure 2: Political and Economic Events in South America,
                                       December 2001–April 2003                                           8
                             Figure 3: History of the FTAA Negotiations, 1994–2002                       10
                             Figure 4: Tariff Reduction Schedule under Different Base Tariff
                                       Scenarios, 2005–2015                                              13
                             Figure 5: FTAA Time Frames and Milestones, 2002–2005                        17
                             Figure 6: Relationship Between FTAA and WTO Agriculture
                                       Negotiations                                                      24
                             Figure 7: Keys to a Successful Ministerial                                  35




                             Page i                               GAO-03-560 Free Trade Area of the Americas
Contents




Abbreviations

ATPA         Andean Trade Preference Act
CAFTA        U.S.-Central American Free Trade Agreement
CAP          Common Agricultural Policy
CARICOM      Caribbean Community
EU           European Union
FTA          Free Trade Agreement
FTAA         Free Trade Area of the Americas
HCP          Hemispheric Cooperation Program
Mercosur     Common Market of the South
NAFTA        North American Free Trade Agreement
OMB          Office of Management and Budget
TNC          Trade Negotiations Committee
TPA          Trade Promotion Authority
USTR         Office of the U.S. Trade Representative
WTO          World Trade Organization

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Page ii                                       GAO-03-560 Free Trade Area of the Americas
A
United States General Accounting Office
Washington, D.C. 20548



                                    April 11, 2003                                                                                 Leter




                                    The Honorable Charles Grassley
                                    Chairman
                                    Committee on Finance
                                    United States Senate

                                    The Honorable William H. Thomas
                                    Chairman
                                    Committee on Ways and Means
                                    House of Representatives

                                    Negotiations toward establishing a Free Trade Area of the Americas
                                    agreement among the 34 democratic nations of the Western Hemisphere
                                    have formally been under way since 1998. Such an agreement would
                                    eliminate tariffs and create common trade and investment rules for these
                                    nations. If completed, the Free Trade Area of the Americas agreement
                                    would cover about 800 million people and about $13 trillion in production
                                    of goods and services. Work on this agreement is the most significant of
                                    ongoing regional trade negotiations for the United States, and the Bush
                                    administration has made establishing the Free Trade Area of the Americas
                                    one of its top trade priorities. Indeed, the United States assumed leadership
                                    of the process when it became co-chair, with Brazil, of the current and final
                                    phase of negotiations. This phase began in Quito, Ecuador, during the
                                    ministerial meeting on November 1, 2002, and will conclude with the
                                    completion of the agreement.

                                    Because of the significance of the Free Trade Area of the Americas
                                    initiative, you asked us to update our previous work for you on the current
                                    status of the negotiations. In this report, we analyze the (1) progress made
                                    in the negotiations on creating a Free Trade Area of the Americas and the
                                    outcome of the Quito ministerial meeting; 1 (2) key challenges for the
                                    current and final negotiating phase, which will include a ministerial in
                                    Miami, Florida, in November 2003; and (3) readiness of the United States to
                                    successfully perform as co-chair (with Brazil) of the Free Trade Area of the


                                    1
                                     The ministerial meeting, composed of the trade ministers of all the countries that are
                                    members of the proposed Free Trade Area of the Americas, is the highest decision-making
                                    body in the ongoing negotiations. Ministerial meetings are intended to evaluate the progress
                                    and overall status of the trade negotiations to date and to set the agenda for future work.
                                    The meetings result in a ministerial declaration setting forth agreed decisions and
                                    directions.




                                    Page 1                                         GAO-03-560 Free Trade Area of the Americas
                   Americas negotiations process and host of the November 2003 ministerial.
                   Our analysis is based on our past and ongoing work on the Free Trade Area
                   of the Americas negotiations process.2



Results in Brief   Progress on creating a Free Trade Area of the Americas had occurred in a
                   number of technical and procedural areas by the time of the November
                   2002 ministerial meeting in Quito, Ecuador. For example, participants had
                   defined the timetable for completing the negotiating process and drafted
                   versions of the agreement text. Participants also had set ground rules for
                   conducting negotiations on liberalizing access to their markets and dates
                   for exchanging offers on liberalizing market access. At the Quito
                   ministerial, participants reaffirmed their willingness to continue Free Trade
                   Area of the Americas negotiations while stressing the need for a balanced
                   outcome that provides benefits to all participants. The negotiators also
                   launched a Hemispheric Cooperation Program to help lesser-developed
                   countries participating in the Free Trade Area of the Americas talks obtain
                   the expertise and resources they need to negotiate, implement, and benefit
                   from the agreement. However, trade-offs did not begin, because negotiators
                   had made limited progress in resolving substantive differences in the
                   agreement’s text and developing concrete proposals to improve market
                   access.

                   Three key challenges are of primary concern during the current phase of
                   the negotiations. First, resolution of issues such as subsidies for
                   agriculture, which are important for most countries of the hemisphere,
                   have been linked to ongoing global negotiations at the World Trade
                   Organization.3 However, there is concern that global talks are bogged down
                   on issues such as agriculture subsidies and that this situation could cause
                   Free Trade Area of the Americas talks to slow down or deadlock. World
                   Trade Organization negotiators have already missed several interim


                   2
                    See U.S. General Accounting Office, Free Trade Area of the Americas: Negotiators Move
                   Toward Agreement That Will Have Benefits, Costs to U.S. Economy, GAO-01-1027
                   (Washington, D.C.: Sept. 7, 2001); U.S. General Accounting Office, Free Trade Area of the
                   Americas: April 2001 Meetings Set Stage for Hard Bargaining to Begin, GAO-01-706T
                   (Washington, D.C.: May 8, 2001); U.S. General Accounting Office, Free Trade Area of the
                   Americas: Negotiations at Key Juncture on Eve of April Meetings, GAO-01-552
                   (Washington, D.C.: Mar. 30, 2001).
                   3
                    The World Trade Organization, established in January 1995, consists of 146 members and
                   provides the institutional framework for the multilateral trading system.




                   Page 2                                        GAO-03-560 Free Trade Area of the Americas
deadlines, including one specifically related to agriculture. Second,
improved market access is the single most important goal for most Free
Trade Area of the Americas participants, and the quality of offers the 34
nations make will set the tone for ongoing negotiations. Offers to
significantly reduce trade barriers could provide momentum to the
negotiations, but it may be difficult for participants to make ambitious
offers. Third, ensuring the momentum and the political will of the United
States and Brazil, two of the key participants in the negotiations, to move
the process vigorously forward to a timely completion is a key challenge.

As co-chair of the negotiations, the United States faces several risks to its
readiness to ensure the successful conclusion of the final phase of Free
Trade Area of the Americas negotiations. First, the Office of the U.S. Trade
Representative, which handles the negotiations, has assumed the increased
responsibilities associated with chairing the Free Trade Area of the
Americas negotiations without a significant addition in staff. Second, the
co-chair arrangement with Brazil is a novel situation that could involve
additional time and effort for the U.S. Trade Representative. Third, certain
aspects of the current U.S. plans for hosting the Eighth Free Trade Area of
the Americas Trade Ministerial in Miami in November 2003 pose risks,
including acquiring expertise in hosting a ministerial, working on planning
the ministerial with the host city, arranging financing, and ensuring the
security of ministerial participants. Failure to mitigate similar risks
ultimately caused serious logistical and security problems at the last major
trade ministerial hosted by the United States, the 1999 Seattle World Trade
Organization ministerial.

In this report, we recommend that the U.S. Trade Representative intensify
preparations and promptly and regularly evaluate whether its current
resources and plans are sufficient to carry out the tasks and mitigate the
risks associated with co-chairing the Free Trade Area of the Americas
negotiations and hosting the November 2003 ministerial meeting.

In commenting on our draft report, the U.S. Trade Representative and the
Department of State agreed with our overall message. However, the U.S.
Trade Representative asked us to amplify on the steps it has taken to
address the challenges ahead for the Free Trade Area of the Americas
negotiations and upcoming November 2003 ministerial in Miami and
stressed that it believes plans for hosting the ministerial are at an
appropriate stage of development. The Department of State addressed the
issue of its assistance to the U.S. Trade Representative by saying that it is
trying to be as helpful as it can within the constraints of its resources. We



Page 3                                  GAO-03-560 Free Trade Area of the Americas
             have noted these positions in the report and added new information about
             several specific steps that the U.S. Trade Representative and State have
             taken to bolster U.S. readiness. Nevertheless, we maintain our basic
             findings and recommendation that U.S. preparations should be intensified
             and plans be kept under regular review.



Background   Building on a decade of expanding trade and investment ties and increasing
             economic integration in the region, the leaders of 34 countries in the
             Western Hemisphere pledged in December 1994 to form a Free Trade Area
             of the Americas (FTAA) no later than 2005. The agreement would
             progressively eliminate barriers to trade and investment. The FTAA
             involves a diverse set of countries,4 from some of the wealthiest (the United
             States and Canada) to some of the poorest (Haiti) and from some of the
             largest (Brazil) to some of the smallest in the world (St. Kitts and Nevis).
             The large disparities in size and economic development in the hemisphere
             mean that countries come to the negotiating table with different and
             sometimes widely divergent interests and goals. For example, the United
             States seeks broad improvements in trade rules and market access, while
             the smaller economies seek assurances that their economies will not be
             overwhelmed by larger ones. Many nations are participating in certain
             aspects of the negotiations as subregional groupings such as the Caribbean
             Community (CARICOM)5 and the Common Market of the South
             (Mercosur)6 to facilitate their participation in FTAA talks.

             Between December 1994 and the formal launch of negotiations on March
             1998, the FTAA negotiators agreed on several principles to guide them: (1)
             All decisions would be reached by consensus; (2) The final FTAA
             agreement would be consistent with the rules and practices of the World


             4
              The 34 countries participating in FTAA negotiations are Antigua and Barbuda, Argentina,
             the Bahamas, Barbados, Belize, Bolivia, Brazil, Canada, Colombia, Chile, Costa Rica,
             Dominica, the Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Guyana,
             Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, St. Kitts and Nevis,
             St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago, the United States,
             Uruguay, and Venezuela.
             5
              CARICOM is a regional bloc whose members are Antigua and Barbuda, the Bahamas,
             Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat (overseas
             territory of the United Kingdom), St. Kitts and Nevis, St. Lucia, St. Vincent and the
             Grenadines, Suriname, and Trinidad and Tobago.
             6
             Mercosur includes Argentina, Brazil, Paraguay, and Uruguay.




             Page 4                                         GAO-03-560 Free Trade Area of the Americas
Trade Organization (WTO); (3) The final agreement would be able to
coexist with other subregional free trade and customs union agreements7
such as Mercosur and the North American Free Trade Agreement
(NAFTA)8; (4) Special consideration would be given to differences in levels
of development and sizes of economies; and (5) An eventual FTAA
agreement will be implemented as a single undertaking. A single
undertaking implies that the FTAA is a package deal that must be accepted
in its entirety by each signatory country in order for the country to benefit
from the agreement’s provisions. It also means that “nothing is agreed until
everything is agreed,” meaning that concluding the agreement could
involve trade-offs across chapters of the proposed FTAA text agreement to
achieve the desired balance.

Additionally, the negotiators agreed to the overall structure, scope, and
organization of the negotiations, including establishing nine negotiating
groups on particular areas. (See fig. 1.) The nine negotiating groups are (1)
Market Access; (2) Agriculture; (3) Services; (4) Government Procurement;
(5) Investment; (6) Intellectual Property Rights (IPR); (7) Competition
Policy; (8) Dispute Settlement; and (9) Subsidies, Antidumping, and
Countervailing Duties.9 The completed FTAA agreement is to include trade
rules, which each of the nine designated negotiating groups is currently
working to establish; market-opening schedules; and a general text to cover
overarching and institutional issues.




7
 Free trade agreements generally eliminate tariff duties and other barriers on substantially
all trade between the member countries and may include other provisions covering subjects
such as investment and government procurement. Customs unions go beyond free trade
agreements by not only eliminating duties between partners but also by setting common
external tariffs applied to countries not party to the agreement.
8
NAFTA consists of Canada, Mexico, and the United States.
9
 A subsidy is generally considered to be a financial contribution provided by a government
that gives a benefit to a specific company, industry, or group of industries for the
production, manufacture, or distribution of goods or services. Antidumping duties are
imposed on “dumped imports” (i.e., imports sold at a price lower than normal value).
Countervailing duties are imposed on subsidized imports.




Page 5                                         GAO-03-560 Free Trade Area of the Americas
Figure 1: Organization of the FTAA Negotiations


                                                          Co-chair of the negotiations
                                                          (Brazil and the United States)




                                                         Ministers responsible for trade




   Tripartite Committeea                                  Trade Negotiations Committee
                                                              Vice-ministers of Trade                                     Technical Committee
                                                           (Brazil and the United States)                                 on Institutional Issues
                                                                                                                                  (Chile)
                                                        Guide negotiating groups and develop
 Administrative Secretariatb                             overall framework for the agreement


                                     Negotiating groups                                                                    Other FTAA entities


           Market access                   Investment                                Services                    Consultative Group on Smaller Economies
            (Colombia)                      (Panama)                          (Caribbean Community)                              (Ecuador)

       Progressively eliminate         Establish a fair and                         Progressively
         tariffs and nontariff          transparent legal                             liberalize
            trade barriers           framework to promote                         trade in services              Committee of Government Representatives
                                           investment                                                               on the Participation of Civil Society
                                                                                                                                  (Bolivia)

      Government procurement          Dispute settlement                      Subsidies, antidumping,
           (Costa Rica)                   (Canada)                             countervailing duties
                                                                                    (Argentina)
         Expand access to               Establish a fair,
      government procurement           transparent, and                     Enhance WTO compliance
             markets                   effective dispute                    and improve application of
                                    settlement mechanism                       trade remedy laws


               Agriculture         Intellectual property rights                  Competition policy
               (Uruguay)              (Dominican Republic)                           (Peru)

     Eliminate export subsidies;     Promote and ensure                       Ensure anticompetitive
      address tariffs and other     adequate and effective                      business practices
      trade-distorting practices    protection of intellectual                  do not undermine
         and SPSc measures               property rights                          FTAA benefits

Source: GAO.


                                                Notes:
                                                Current chairs of the various FTAA entities are in parentheses. The general objectives of each
                                                negotiating group and the Trade Negotiations Committee appear in italics.
                                                The venue for the negotiating group discussions is Puebla, Mexico.
                                                a
                                                The Tripartite Committee, which provides technical support to the negotiations, is comprised of the
                                                Organization of American States, the Inter-American Development Bank, and the United Nations
                                                Economic Commission for Latin America and the Caribbean.




                                                Page 6                                                   GAO-03-560 Free Trade Area of the Americas
b
 The Administrative Secretariat supports the FTAA ministers, the Trade Negotiations Committee,
negotiating groups, and other FTAA entities.
c
 SPS stands for sanitary and phytosanitary measures. These measures are taken to protect human,
animal, or plant life or health.


Until November 2002, the chairmanship of the entire negotiating process
rotated in approximately 18-month cycles, with the beginning and end of
each cycle marked by a ministerial meeting. Ecuador served as chair for
the most recent cycle of negotiations, which began in April 2001 and ended
with the November 1, 2002, FTAA ministerial in Quito, Ecuador. Brazil and
the United States assumed the co-chairmanship of the FTAA process at the
conclusion of the November meeting and are expected to remain in that
role until the FTAA negotiations conclude in January 2005. Handling the
negotiations as well as the co-chairs’ responsibility for the U.S. side is the
U.S. Trade Representative (USTR). In between ministerials, the FTAA
negotiations are overseen by the vice ministerial-level Trade Negotiations
Committee (TNC). The FTAA Administrative Secretariat, located in Puebla,
Mexico, is the entity responsible for providing logistical and administrative
support to the FTAA.

The Quito FTAA ministerial meeting took place during an uncertain
economic and political period for the region. Countering perceived threats
to U.S. security became a central focus of the Bush presidency in the wake
of the terrorist attacks of September 11, 2001. The U.S. economy had
already slowed by the time the terrorist attacks occurred and has
performed unevenly since then. As for Latin America, it faces poor
economic conditions and political instability (see fig. 2). Moreover, the
International Monetary Fund expected regional output to fall in 2002 by
0.6 percent, in part due to the economic crisis in Argentina. In addition,
several countries elected new leaders in 2002, and the leaders have placed
a priority on confronting domestic issues such as rising poverty. Finally,
political instability in countries such as Venezuela, and ongoing violence in
Colombia continued. This uncertainty has caused some hemispheric
leaders to question the economic and social impacts of market-oriented
reform. On the other hand, the need to increase exports has become even
more imperative to Latin American countries’ growth and development.




Page 7                                             GAO-03-560 Free Trade Area of the Americas
Figure 2: Political and Economic Events in South America, December 2001–April 2003




                                                                                                                                                           Argentina will elect a
          Argentine President                                                                                 Luiz Inacio Lula da Silva
                                                    Venezuelan President Hugo Chavez                                                                     new President to take
          Fernando de la Rua                                                                                  elected President of Brazil.
                                                  remains in office after attempted coup.                                                               office at the end of May.
          resigns.
                                                                                                                            Col. Lucio Gutierrez
                                                                                                                            elected President
                                                                                     Gonzalo Sanchez                        of Ecuador.
                  Eduardo Duhalde                              Alvaro Uribe                de Lozada
                  becomes President                            elected                      becomes                                       Ongoing protests
                  of Argentina.                                President                     President                                    by Venezuelans
                                                               of Colombia.                 of Bolivia.                                   call for the
                                                                                                                                          resignation
                                                                                                                                          of President
                                                                                                                                          Hugo Chavez.



    Dec         Jan                            April     May        June      July          Aug              Oct        Nov         Dec                                      April
    '01         '02                             '02      '02         '02       '02          '02              '02        '02         '02                                       '03




                  Argentina ends                                      Uruguay                                  The Brazilian currency
                  its peso's                                          allows                                   (the real) hits an all-time low.
                  decade-long                                         the peso
                  link to the dollar.                                 to float
                                                                      freely.
 Interim President Adolfo Rodríguez Saá                                          Withdrawals from Argentine depositors
 officially suspends payment on                                                  in Uruguayan banks force Uruguay to
 Argentina's international debt obligations.                                     temporarily suspend banking operations.




 Source: GAO.



                                                             Although the single most important goal for most FTAA participants is
                                                             improving market access to other nations’ markets, achieving substantial
                                                             liberalization will be difficult. Barriers to trade remain high: The tariffs of
                                                             many FTAA participants are generally twice as high as the average U.S.
                                                             tariff of 4.8 percent. Moreover, several indicators suggest trade within the
                                                             region is lower than it could be. Intraregional trade within several regional
                                                             subgroups remains relatively low (7.1 percent of total trade in CARICOM



                                                             Page 8                                                     GAO-03-560 Free Trade Area of the Americas
                       and 10 percent in the Andean Community10 versus 46.9 percent in NAFTA).
                       Certain nations, such as Brazil, export significantly less as a share of
                       national income than other nations with similar-sized economies
                       (13 percent versus 28 percent in Mexico). In addition, tariff revenue is an
                       important source of government income for many FTAA nations
                       (56 percent of total government revenue in the Bahamas and 43 percent in
                       the Dominican Republic, versus just 1 percent in the United States and
                       Canada).



Progress Achieved in   Before the Quito ministerial, FTAA participants had succeeded in laying a
                       technical foundation for an eventual FTAA agreement by making progress
Certain Areas Before   in defining the remaining negotiating timetable, consolidating the draft
and After Quito, but   text, and establishing the ground rules for liberalizing market access. (See
                       fig. 3.) At Quito, negotiators achieved a number of positive procedural and
Extent and Pace of     political outcomes, such as confirming the schedule for upcoming market
Movement on            access negotiations and other negotiating meetings; reaffirming the
Substantive Issues a   political willingness to go forward; and launching a program to help
                       developing nations negotiate, implement, and benefit from an FTAA.
Concern to Some        However, procedural progress on market access was not generally
Participants           matched by substantive agreement on text-related issues, and some key
                       deadlines were missed or only met by postponing or avoiding difficult
                       decisions.




                       10
                        The Andean Community is a subregional organization endowed with an international legal
                       status. The community consists of Bolivia, Colombia, Ecuador, Peru, and Venezuela. The
                       Andean Community is also a free trade area.




                       Page 9                                      GAO-03-560 Free Trade Area of the Americas
Figure 3: History of the FTAA Negotiations, 1994–2002

       1994              1995                1996                 1997              1998               1999                   2000              2001                  2002


                                                                                                                                                  Set ground rules for market
                      Develop structure, scope, and organization of negotiations     Prepare annotated outlines         Prepare draft text            access negotiations




        December 1994               March 1996                               Initiation of                                                 April 2001
     Summit of the Americas      Second ministerial                      trade negotiations                                             Sixth ministerial
         Miami, Florida         Cartagena, Colombia                                                                                  Buenos Aires, Argentina
                                                                           March-April 1998
                                                                                                                                         Third summit
                                                                           Fourth ministerial
                                                                                                                                      Quebec City, Canada
                                                                         San José, Costa Rica
                                                                            Second summit
                                                                            Santiago, Chile
                       June 1995                            May 1997                                     November 1999                                           November 2002
                    First ministerial                    Third ministerial                                Fifth ministerial                                    Seventh ministerial
                   Denver, Colorado                    Belo Horizonte, Brazil                            Toronto, Canada                                          Quito, Ecuador

Source: GAO.




Progress Made on Defining                                 Since the formal launch of FTAA negotiations in 1998, the 34 participating
Timetable and Text                                        countries have laid a technical foundation for concluding an FTAA
                                                          agreement by setting a final deadline for completing the FTAA as well as
                                                          establishing interim milestones to ensure steady progress toward that goal.
                                                          By November 1999, the nine negotiating groups had prepared annotated
                                                          outlines of chapters of an agreement. By April 2001, the negotiating groups
                                                          had produced a draft text containing proposed trade rules on diverse
                                                          subjects ranging from agriculture to competition policy. This draft was
                                                          435 pages long, and it contained a compilation and consolidation of
                                                          proposals for legal text received from FTAA participants. Participants
                                                          described its production as marking important progress, because the draft
                                                          laid the necessary groundwork and participants have agreed to use the
                                                          draft as the basis from which negotiations will proceed. In addition, in
                                                          publicly releasing the text, ministers responded to public calls for greater
                                                          transparency (openness) and sought to build public understanding of and
                                                          support for the FTAA.

                                                          In the 18 months leading to the Quito ministerial, the nine FTAA negotiating
                                                          groups made progress in consolidating the draft text. Decision-makers
                                                          clarified their policy choices by removing redundant language and
                                                          consolidating similar proposals. For example, they shortened the
                                                          intellectual property rights chapter from 106 pages to 53 pages. Moreover,
                                                          the Technical Committee on Institutional issues, a special drafting



                                                          Page 10                                                    GAO-03-560 Free Trade Area of the Americas
                             committee created by the TNC for that purpose, submitted a draft text on
                             general institutional issues. This draft text covers such topics as the
                             purposes, objectives, and principles of the FTAA agreement as a whole; the
                             scope and coverage of the FTAA’s obligations; and the institutional bodies
                             that will provide political, administrative, and technical oversight for an
                             FTAA. However, much of the text in the draft chapters remains within
                             “brackets,” denoting lack of agreement among participants. This lack of
                             substantive movement is a concern to some observers, given that only
                             20 months remain until the January 2005 deadline for concluding an FTAA.
                             Resolving these disagreements will require considerable work and hard
                             bargaining to turn the accumulation of proposals currently on the table into
                             a mutually agreed-upon, legally binding document. As we noted in our
                             March 2001 report, the sheer scope and complexity of the trade rules
                             contemplated will make this work difficult.11



Ground Rules for             A key goal of the Quito phase of FTAA negotiations was to set the ground
Liberalizing Market Access   rules (“modalities”) that would apply to negotiations on opening markets
                             among FTAA members. These negotiations will be conducted in five of the
Established
                             nine FTAA negotiating groups: Agriculture, Government Procurement,
                             Investment, Market Access, and Services. For example, FTAA nations
                             needed to establish the starting point from which reduction of tariffs would
                             begin (base tariff rates) and the time periods that would be used to
                             progressively eliminate tariffs (phaseout periods). In order to speed the
                             pace of liberalization, the United States sought to attain agreement to
                             negotiate tariffs downward from existing (that is, currently applied) rates,
                             rather than the higher rates that the WTO allows. Ministers set an April 1,
                             2002, deadline for the five groups negotiating market opening to finalize
                             recommendations on ground rules. Although most of those groups met this
                             deadline, several presented the TNC with multiple options for
                             consideration, rather than recommending one. For example, in the area of
                             tariffs, the market access group noted that several options for base tariff
                             rates had been proposed, including use of currently applied rates and use
                             of WTO bound rates. (Bound rates are legal limits on tariff rates, and WTO
                             members have agreed not to apply tariffs that exceed these rates. These
                             rates are generally higher than currently applied rates).




                             11
                                  See GAO-01-552.




                             Page 11                                GAO-03-560 Free Trade Area of the Americas
With so many options to choose from, attaining consensus on the ground
rules by the vice-ministerial-level TNC proved difficult. With a May 15, 2002,
deadline for launching negotiations on market access looming, an April
meeting of the Trade Negotiations Committee was unsuccessful in
finalizing agreement on ground rules. The meeting was reconvened on May
12-13, 2002, and resulted in issuance of some of the required decisions,
including the following on tariffs:

• All tariffs are subject to negotiation.

• Tariffs will be phased out over four time periods—immediate, no more
  than 5 years, no more than 10 years, and more than 10 years. Tariffs with
  shorter phaseouts will decline more rapidly, whereas tariffs placed in
  longer phaseout categories will be reduced at a slower pace.

• Tariff reductions will generally be linear. This means that tariffs will be
  lowered in equal amounts per year until they reach zero.

• The base tariff will be notified by October 15, 2002. (CARICOM was
  given until December 14, 2002).

Regarding nontariff issues, for services, the United States secured
agreement that FTAA market access offers should be based on current laws
and regulations and on international obligations or existing or improved
opportunities. This means that offers will start from the status quo in terms
of market access. For investment, the United States secured agreement
that only exceptions to liberalization would be negotiated (known as a
“negative” list approach).

However, the modalities package could not be finalized because of a
disagreement over base tariff rates. In particular, CARICOM members
argued that they could not agree to use current tariff rates as the base from
which liberalization would begin, citing their dependence on tariff
revenues and the vulnerability of their economies’ undiversified agriculture
sectors to imports. Because FTAA negotiations decisions require all
34 participating nations to agree, the effect of the CARICOM objection was
to defer a decision on base tariff rates.

After considerable efforts to cajole Caribbean nations into agreement, in
late August 2002 the TNC finally agreed that, as a rule, the base tariff would




Page 12                                 GAO-03-560 Free Trade Area of the Americas
be the current tariff rates.12 The implication of this decision is that the
actual lowering of most tariffs should begin immediately upon
implementation of an eventual FTAA, rather than being delayed, as
illustrated in figure 4. This is a significant change from the way tariff
negotiations are negotiated in the WTO and should result in meaningful
increases in market access as soon as the FTAA agreement is implemented.



Figure 4: Tariff Reduction Schedule under Different Base Tariff Scenarios, 2005–
2015
20 Tariff rate




15




10




     5




     0


         2005    2006      2007     2008     2009   2010      2011   2012    2013     2014     2015
         Year

                Applied rate of 10 percent
                Bound rate of 15 percent
Source: GAO.


Note: As the dotted line indicates, if tariffs were being phased out over 10 years for a product currently
subject to a 15-percent bound rate and a 10-percent applied rate, and the 15-percent bound rate were
used as the basis for phasing out that tariff under the FTAA, no tariff reduction would occur for the first
3 years after the agreement entered into force. The tariff rate also would be higher under the 15-
percent bound rate in years 4-10 than it would have been if a base rate of 10 percent had been used.




12
  Specifically, the TNC agreed that the base rate from which tariff liberalization will be
negotiated is the most-favored-nation applied rate as of October 15, 2002. Regional
subgroupings, such as Mercosur, that apply common external tariffs, were given until
December 14, 2002, to present their base tariffs and until April 15, 2003, to adjust these
tariffs; the base rate was set at the applied tariff rate as of January 1, 2004.




Page 13                                                    GAO-03-560 Free Trade Area of the Americas
                             However, CARICOM was granted an exception to using the current tariff
                             rates, which will allow it to use the higher WTO bound rate for a limited list
                             of mainly agricultural goods.



Some Progress Made on        In addition, during the months leading to the Quito ministerial, negotiators
Other Issues                 made some progress on other issues. Specifically, the negotiators agreed to
                             hold regional outreach seminars for private interests such as
                             environmental, consumer, and business. The first regional seminar for such
                             “civil society” groups was for North America and was held in Mexico.
                             (Other regional seminars for Mercosur and the Andean countries were
                             scheduled but have been postponed due to regional economic crises and
                             funding constraints, respectively.) Recognizing their responsibility to take
                             the needs of smaller economies into account during the negotiating
                             process, FTAA governments also adopted guidelines that direct
                             participants to assess their needs on a case-by-case basis. Also, the United
                             States began required consultation and advice procedures, including those
                             required by Trade Promotion Authority (TPA) legislation.13



Some Substantive Goals Not   Despite technical progress in consolidating the bracketed text and setting
Fully Realized               ground rules, the Quito phase of FTAA negotiations did not result in major
                             movement in terms of substantive trade-offs. Much of the text remains in
                             brackets, signifying lack of consensus. Negotiators made little real progress
                             in resolving the many substantive differences among FTAA participants
                             that we identified in our September 2001 report.14 In addition, although
                             FTAA ministers set a goal to begin market access negotiations on May 15,
                             2002, negotiations on specific market access commitment schedules did
                             not begin at all during the phase ending at Quito on November 1, 2002.15




                             13
                              Specifically, USTR solicited public input, requested advice from the U.S. International
                             Trade Commission, conducted a public hearing, notified Congress of objectives for an FTAA
                             agreement, and continued its environmental assessment of the FTAA.
                             14
                                  See GAO-01-1027.
                             15
                              Most countries were required to notify their base tariff rates by October 15, 2002, and did
                             so.




                             Page 14                                        GAO-03-560 Free Trade Area of the Americas
                         Instead, market access negotiations are now anticipated to begin in earnest
                         after the presentations of initial offers in early 2003.16

                         Finally, the ground rules that were established for negotiations on topics
                         such as services, investment, and government procurement leave
                         important questions unanswered. For example, the services negotiating
                         group had recommended that the TNC decide whether negotiations on
                         services would proceed from a top-down or negative-list approach
                         (whereby only exceptions to liberalization are negotiated) or, alternatively,
                         from a bottom-up or positive-list approach (whereby only specifically
                         negotiated items would actually be liberalized). However, the TNC decision
                         on modalities is silent on this matter. Subsequent guidance indicates that
                         FTAA nations can present offers in either manner. This lack of a uniform
                         approach is expected to complicate the process of preparing and
                         comparing offers and could thereby slow down future negotiations.



Some Positive Outcomes   Ministers achieved most of their goals at the Quito ministerial. For
Achieved at Quito        example, ministers agreed upon specific timetables and instructions for
                         FTAA negotiating bodies. Moreover, ministers reiterated their political
Ministerial              commitment to continue FTAA negotiations and took steps to address
                         concerns that civil society and smaller economies raised.

Procedural Basis Set     The Quito ministerial meeting settled certain procedural matters and set
                         goals and directions for the next 12 months of negotiations. Specifically,
                         the ministers

                         • set the schedule for negotiating group meetings for the first 2 months of
                           the negotiating cycle;

                         • agreed to hold future ministerial meetings in the fourth quarter of 2003
                           (in the United States) and in 2004 (Brazil);

                         • agreed that there will be at least three TNC meetings before the 2003
                           ministerial meeting;




                         16
                          The deadline for presenting initial offers was February 15, 2003. For a discussion on the
                         status of the presentation of offers, see Market Access Offers Important for Momentum, but
                         Substantial Liberalization Difficult section below.




                         Page 15                                       GAO-03-560 Free Trade Area of the Americas
• named a slate of chairs for negotiating group committees that is
  considered strong by U.S. negotiators; and

• provided other directions, such as requesting that the TNC develop a
  stocktaking report of overall progress made in the FTAA negotiations
  before the next ministerial meeting occurs.

On substantive matters, ministers set two key goals for the coming year.
First, they confirmed that market access bargaining will begin with the
putting forth of initial offers between December 15, 2002, and February 15,
2003. They also set deadlines for initial requests and revised market access
offers for June 15 and July 15, 2003, respectively. Second, negotiators were
charged with “achieving consensus on the greatest possible number of
issues” in the draft chapters containing the text of FTAA rules and
institutional provisions. They also have responsibility for producing a
revised version of the draft text chapters no later than 8 weeks before the
next ministerial meeting in late 2003. The overall timetable for FTAA
negotiations and key milestones for the current phase are depicted in
figure 5.




Page 16                                GAO-03-560 Free Trade Area of the Americas
Figure 5: FTAA Time Frames and Milestones, 2002–2005



  November 2002                                                                                                           January 2005
                                                                                                                         Deadline to conclude
                                                                                                                          FTAA negotiations
     Quito, Ecuador:
     Seventh FTAA                            November 2002–December 2005
       ministerial                                                                                                       December 2005
                                                                                                                            Entry into force
                                                                                                                               of FTAA




  February 2003        June 2003                  July 2003              September 2003            November 2003                     2004
      Deadline for      Deadline for      Initiate the process for the      Submit a new              Miami, Florida:                Brazil:
     submission of     submission of    presentation of revised offers     version of the                Eighth                      Ninth
      initial market    requests for    and subsequent negotiations      chapters to the TNC         FTAA ministerial          FTAA ministerial
      access offers    improvements             on improvements                                                             (Date to be determined)
                          to offers
                                             Deadline for stocktaking
                                              report on agriculture

                                        Submit to the TNC a revised
                                           version of the FTAA
                                                text chapters

Source: GAO.


                                        Note: The TNC refers to the Trade Negotiations Committee. The TNC guides the work of the
                                        negotiating groups and other committees and groups and decides on the overall architecture of the
                                        agreement and institutional issues. The TNC is also responsible for ensuring the full participation of all
                                        the countries in the FTAA process, and transparency (openness) in the negotiations, as well as
                                        overseeing the Administrative Secretariat and overseeing the identification and implementation of
                                        business facilitation measures.


Political Willingness to Go             As we stated in our May 2001 report,17 the ultimate success or failure of
Forward Restated                        efforts to establish the FTAA rests on meeting several long-term challenges,
                                        notably summoning the political will of participants to conclude a deal. On
                                        the political level, with the exception of Venezuela, at Quito all 34 FTAA
                                        nations restated their political will to move forward with an FTAA and to
                                        conclude it by January 2005.18 This political impetus was particularly
                                        noteworthy, given that it occurred at a time of economic uncertainty and


                                        17
                                             See GAO-01-706.
                                        18
                                         Venezuela reserved its position on the question of concluding FTAA negotiations by 2005,
                                        reiterating a reservation taken at the conclusion of the April 20-22, 2001, Summit of the
                                        Americas.




                                        Page 17                                                GAO-03-560 Free Trade Area of the Americas
heightened political tensions, and with a new Brazilian administration. The
Brazilian people elected this administration on October 27, 2002, 5 days
before the Quito ministerial. However, numerous ministerial participants
stressed the need for balanced progress and an equitable outcome. In
particular, numerous participants used the forum provided by the Quito
ministerial to say that the FTAA will go nowhere without meaningful
agricultural liberalization and disciplines (rules) on subsidies and other
practices that distort agricultural trade.

For its part, the United States made clear the importance it places on
expanded hemispheric trade as a means of fueling growth, creating jobs
and opportunity, and alleviating poverty. The USTR noted that it is already
moving toward that goal bilaterally with Chile and five Central American
nations as part of a U.S. strategy to foster competition in trade
liberalization. Furthermore, the USTR stated that the United States is also
prepared to move step by step toward hemispheric free trade if others turn
back or simply are not ready. At Quito, the USTR urged all participants to
consider how they can contribute to progress as FTAA negotiations enter a
particularly serious phase. The USTR also urged other ministers to foster
greater understanding and democratic debate on the FTAA.

Our March 2001 report identified securing greater public support as a key
issue for FTAA negotiators, and at Quito, FTAA ministers signaled greater
interest in doing so by taking several steps.19 To address concerns over
transparency and to provide the public with a clear view of the proposals
under discussion, the draft text of the FTAA agreement was publicly
released in all four FTAA languages (English, French, Portuguese, and
Spanish) immediately after the Quito ministerial’s conclusion. Moreover,
the opening and closing sessions of the Quito ministerial were open to the
public for the first time. Ministers also instructed the TNC to ensure a
substantial increase in the quality of information provided to the public as
negotiations progress and to identify and foster the use of best practices for
outreach and consultation with civil society.

In addition, participants attempted to intensify and make more interactive
ministers’ input from civil society. As host of the Quito meetings, Ecuador
supported cooperative efforts by two Ecuadorian environmental groups to
prepare constructive recommendations by organizing a 2-day forum.
Ecuador also hosted a meeting at which those and other civil society


19
     See GAO-01-552.




Page 18                                 GAO-03-560 Free Trade Area of the Americas
                          representatives could present their recommendations directly to ministers.
                          However, the breakdown in order at that meeting showed that civil
                          society’s involvement in the FTAA is still a “work in progress.” Identifying
                          civil society representatives and creating an atmosphere for constructive
                          input and meaningful dialogue between civil society and the FTAA
                          ministers are challenges the United States will face at the 2003 FTAA
                          ministerial in Miami.

Hemispheric Cooperation   In March 2001, we reported that the FTAA faced a challenge in dealing with
Program Launched          the varying resource capacity among participants.20 To deal with this
                          challenge, the Quito ministerial announced and launched a Hemispheric
                          Cooperation Program (HCP). This program will provide technical
                          assistance to smaller economies for negotiating, implementing, and
                          benefiting from an FTAA. It is intended to allay the concerns of the less-
                          developed FTAA economies over the impacts of trade liberalization.
                          Several trade experts see this move as an important confidence-building
                          measure for many FTAA participants. The purpose of the HCP is to create a
                          framework for planning, prioritizing, and funding technical assistance in a
                          more coordinated fashion. Countries such as Brazil have also expressed
                          interest in providing in-kind support on such topics as conducting trade
                          analysis. The next step is the development of national strategies to identify
                          and prioritize capacity-building needs. According to USTR, each of the
                          Central American countries engaged in bilateral negotiations with the
                          United States has already prepared national strategies for capacity
                          building.



Key Challenges Exist      Despite progress made at Quito, current negotiations for an FTAA face
                          three short-term challenges. First, there is a risk that lack of progress in
for the Current           negotiations at the WTO, particularly on agriculture, could cause a
Negotiating Phase         deadlock in FTAA talks. Second, an unambiguous demonstration of
                          participants’ good faith through making meaningful offers to liberalize
                          access to their markets is viewed by negotiators as critical to giving
                          momentum to all aspects of the FTAA talks. However, this element may be
                          difficult to achieve. Finally, there are concerns about the ability of the
                          United States and Brazil to muster the political commitment necessary to
                          see the FTAA process through to completion.



                          20
                               See GAO-01-552.




                          Page 19                                GAO-03-560 Free Trade Area of the Americas
Agriculture Progress          The treatment of subsidies and other support for agriculture is a critical
Depends on WTO                part of the FTAA trade agenda. A key issue is that of domestic support---
                              payments made to farmers that raise prices or guarantee income. Progress
                              on this issue depends on the WTO negotiations, but there is concern that
                              these talks are bogging down. Any delay at the WTO could make it difficult
                              to achieve progress in the FTAA and ultimately imperil its conclusion by
                              January 2005.

Agriculture Crucial to FTAA   Agriculture is an important issue to all FTAA participants. As a major
Negotiations                  component of income in some Latin American countries such as Dominica,
                              Guatemala, and Haiti, agriculture constituted approximately 17, 23, and
                              28 percent, respectively, of the gross domestic product in 2000. Other FTAA
                              participants such as Argentina, Brazil, and the United States are major
                              world producers of commodities such as coffee, oilseeds, sugar, soy, and
                              beef, making agriculture an important item in their national trade agenda as
                              well. Because of their interest in agriculture, many nations of the
                              hemisphere were strong proponents of the new round of global trade talks
                              launched in November 2001 that aim to achieve comprehensive agricultural
                              reform at the WTO.

                              Agriculture is also an important component of an overall FTAA package.
                              Several foreign officials with whom we spoke emphasized that the entire
                              FTAA negotiations rested on making progress in agriculture negotiations.
                              Furthermore, officials informed us that Latin American leaders do not want
                              their constituents to perceive them as giving ground on issues of
                              importance to the United States such as intellectual property rights and
                              services without obtaining key concessions on priority issues for their
                              countries, such as agriculture.

                              Among the agriculture issues on the FTAA trade agenda, domestic
                              support21 — and U.S. domestic agriculture support in particular— seems to
                              be a source of concern for many FTAA participants. In 1999, the United
                              States provided $16.9 billion of trade-distorting domestic support,

                              21
                               The WTO agriculture agreement classifies agricultural domestic support into three
                              categories identified by “boxes”: green (permitted), amber (trade-distorting subsidies that
                              must be reduced), and blue (production-limiting programs). For the WTO, most of the
                              domestic support measures considered to distort production and trade fall into the amber
                              box. Thirty WTO members, eight of whom are FTAA participants (Argentina, Brazil, Canada,
                              Colombia, Costa Rica, Mexico, the United States, and Venezuela), have commitments to
                              reduce their trade-distorting amber box supports. One proposal within the FTAA draft text
                              would eliminate some of these supports.




                              Page 20                                       GAO-03-560 Free Trade Area of the Americas
according to the most recent WTO member notifications. To put this in
context, Antigua, Barbados, the Bahamas, and Jamaica all had national
incomes (gross domestic products) of less than $8 billion in 1999.
Furthermore, other large FTAA countries such as Brazil, Canada, and
Mexico all spend considerably less in trade-distorting domestic support.
Finally, with the passage of the U.S. Farm Bill in 2002,22 which covers farm
spending until the end of 2007, U.S. domestic support for agriculture is
projected to increase.

Many FTAA participants believe that domestic agriculture support needs to
be placed under stricter rules to ameliorate the U.S. advantage.
Accordingly, certain countries are insisting that domestic agriculture
subsidies be addressed in both the FTAA and the WTO negotiations. The
current draft FTAA chapter on agriculture also includes a proposal to
require countries that provide trade-distorting domestic support to
eliminate it.

The United States, by contrast, argues that the WTO is the appropriate
forum to negotiate domestic support because, unlike tariffs, it is not
possible to reduce domestic support on solely a regional basis. The U.S.
rationale for relying on the outcome of WTO negotiations is that two
primary users of domestic support in agriculture, the European Union (EU)
and Japan, are not FTAA participants. Therefore, domestic support reform
must take place in a forum like the WTO, where the EU and Japan are
present, to avoid putting FTAA countries that subsidize farmers at a
disadvantage in world markets. With such WTO negotiations now ongoing,
the official U.S. position is that although all agricultural issues are still on
the table for the FTAA negotiations, the FTAA countries must not do
anything now that will prejudice their respective positions in these
important global talks with extra-hemispheric trading partners. Canada
also concurs with the U.S. position.

The Quito ministerial declaration highlights the link between FTAA and
WTO negotiations and underscores the importance of making progress in
all areas of the agriculture agenda. The Quito ministerial declaration also
recognized the divergent positions among FTAA participants in




22
     The Farm Security and Rural Investment Act of 2002 (P.L. 107-171, May 13, 2002).




Page 21                                           GAO-03-560 Free Trade Area of the Americas
                              agriculture.23 In the declaration, ministers accepted the U.S. positions that
                              (1) markets are global, (2) significant results in the WTO are necessary, and
                              (3) third-country practices24 that distort trade must be taken into account.
                              Ministers also recognized other countries’ positions that progress in FTAA
                              agricultural market access negotiations depends on progress on domestic
                              support, export subsidies, and other nontariff barriers.

                              However, the declaration also set a date to revisit overall progress in FTAA
                              agriculture negotiations. Specifically, to ensure balanced progress and a
                              timely conclusion of FTAA negotiations, ministers charged the FTAA
                              Negotiating Group on Agriculture with preparing a report on progress
                              achieved on all subjects on the FTAA’s agricultural negotiating agenda for
                              presentation before the TNC’s fourteenth meeting. This meeting is
                              scheduled for early July 2003.

Outcome of WTO Negotiations   The timing of the WTO negotiations represents a dilemma for FTAA
Uncertain                     negotiators because there is concern that WTO negotiations are behind
                              schedule. Although interim deadlines were set to keep WTO negotiations
                              on track, the December 2002 deadlines for agreeing on access to medicines
                              and special and differential treatment for developing countries were
                              missed. Moreover, a March 31, 2003, deadline to establish modalities, or the
                              rules and guidelines for the negotiations on agricultural liberalization, was
                              missed. The deadline was important, because participants were to have
                              submitted comprehensive draft commitments for agriculture at the fifth
                              WTO ministerial in Cancun, Mexico, in September 2003 based on the rules
                              and guidelines established in March. Additionally, we noted in a September
                              2002 report on the WTO25 that meeting the deadline for establishing


                              23
                                   Specifically, the Quito ministerial declaration states:

                              We recognize that, in a global market, we must have significant results in the negotiations on
                              agriculture, both in the FTAA and in the WTO. In this context, we must also take into
                              account the practices by third countries that distort world trade in agricultural products. We
                              also recognize that our respective evaluation by country or group of countries, of the results
                              in the market access negotiations in agriculture in the FTAA will depend on the progress we
                              can reach in other subjects that are part of the agriculture agenda.
                              24
                                Those practices by countries that are not FTAA signatories, yet distort intrahemispheric
                              trade. For example, if a good exported from Japan to Brazil with the benefit of export
                              subsidies caused U.S. exports to Brazil of the same good to decline, that transaction would
                              be a trade-distorting practice by a third party.
                              25
                                See U.S. General Accounting Office, World Trade Organization: Early Decisions Are Vital
                              to Progress in Ongoing Negotiations, GAO-02-879 (Washington, D.C.: Sept. 4, 2002).




                              Page 22                                              GAO-03-560 Free Trade Area of the Americas
agriculture modalities was a crucial indicator of the likelihood of success in
the overall negotiations. USTR officials have noted that they and other
countries’ delegations are currently working to minimize any negative
impact missing the modality establishment deadline has on the overall
negotiations.

A key factor hindering progress in the WTO agricultural negotiations is the
pace and extent of reform of the EU’s Common Agricultural Policy (CAP).26
Current arrangements of the CAP are set to expire at the end of 2006, and
the concern is that the European Commission27 will not have the flexibility
to establish modalities without significant reform of the CAP. The
Commission has recently unveiled a reform proposal for the European
Council to consider that calls for decoupling subsidies from production to
make them less trade distorting. However, opinions among EU members
over CAP reform are divided, with countries such as Great Britain
supporting ambitious reform and countries such as France vigorously
opposing substantive changes.

Because both the FTAA and WTO agreements are to be concluded as single
undertakings, failure to conclude agreement in January 2005, in any of the
areas of the WTO, could imperil the timely conclusion of an FTAA. In
addition, the failure of WTO negotiators to establish agricultural modalities
in March 2003 could have a large impact on the agricultural agenda
assessment that the FTAA Negotiating Group on Agriculture expects to
conduct in July 2003. At the FTAA Miami ministerial in November 2003,
countries of the hemisphere will have a chance to evaluate the progress in
agriculture made at the September 2003 WTO ministerial to determine if
sufficient progress has been achieved. If progress is insufficient, key FTAA
nations may be unwilling to move forward in other areas of the FTAA
agreement. U.S. officials report that they are working to avoid this
outcome. (See fig. 6 for an illustration of the linkage between the FTAA and
the WTO agriculture negotiations.)


26
 The CAP is a set of rules and regulations governing agricultural production in the EU. CAP
rules cover most aspects of agricultural activity, including support to farmers, production
methods, marketing, and controls over quantities of food that different agriculture sectors
can produce.
27
 The European Commission is the EU’s executive body. It is responsible for implementing
the European legislation (directives, regulations, decisions), budget, and programs adopted
by Parliament and the European Council. The Commission negotiates international
agreements on behalf of the EU and has the right to propose legislation to the European
Council and the Parliament, the primary decision-making bodies.




Page 23                                        GAO-03-560 Free Trade Area of the Americas
Figure 6: Relationship Between FTAA and WTO Agriculture Negotiations
FTAA deadlines

                              July 2003
                              Negotiating Group on Agriculture progress                             January 2005
                              report to Trade Negotiations Committee                                Negotiations to conclude

                                                  November 20-21, 2003
                                                  Eighth FTAA ministerial in Miami, Florida
                                                  Stocktaking on all issues including agriculture




                           2003                                                      2004                                      2005




                                         September 10-14, 2003
                                         Fifth WTO ministerial in Cancun, Mexico
                                         Draft commitments based on modalities established

               March 31, 2003                                                                       January 1, 2005
               Agriculture modality deadline                                                        Negotiations to conclude


WTO deadlines

Source: GAO.




Market Access Offers                                       Now that the ground rules for negotiating market access have been set, the
Important for Momentum,                                    current phase of FTAA negotiations will formally launch the exchange of
                                                           liberalizing offers and requests. Many view this give-and-take as the true
but Substantial                                            start of real negotiations. Initial offers, which negotiators presented in
Liberalization Difficult                                   February 2003, will set the tone for this phase, and maintaining or
                                                           increasing momentum is seen as critical to making progress.

                                                           Several hemispheric opinion leaders had expressed hope that the United
                                                           States would make a good faith gesture, by presenting a significant offer, to
                                                           give momentum to FTAA talks. The United States is the largest trading
                                                           partner for virtually all of the countries in the FTAA. Preparing the U.S.
                                                           offer involved developing tariff lists by the executive branch, in
                                                           consultation with Congress and the private sector.

                                                           The U.S. offer was announced on February 11, 2003. The USTR believes
                                                           that the U.S.’s initial market access offers are bold and provide a strong
                                                           incentive for other countries to be equally ambitious. According to the
                                                           USTR, about 65 percent of U.S. imports of consumer and industrial goods



                                                           Page 24                                   GAO-03-560 Free Trade Area of the Americas
from the hemisphere (not already covered by NAFTA) would be duty free
immediately under the U.S. offer. U.S. imports of textiles and apparel
would be duty free in 5 years, so long as other countries reciprocate. To
further encourage reciprocal liberalization, the United States offered
immediate elimination of tariffs on a reciprocal basis in key sectors such as
chemicals, paper, steel, and wood. Although certain agricultural products
such as sugar were placed in the longest phaseout category, the USTR
emphasized that these products remain on the table for negotiation.
Indeed, all U.S. tariff lines were included in the U.S. offer.

The U.S. market access offers differentiate among FTAA participants,
meaning that the United States would apply different rates of duty to
different FTAA partners during the transition to free trade. The bottom line
is that some FTAA nations would be allowed quicker phaseouts of U.S.
tariffs than others. The United States argues that this approach would
allow it to accord smaller economies better treatment, a goal agreed to in
principle by other FTAA nations, as well as provide greater leverage to
negotiate market-opening concessions in large, lucrative markets. Others,
notably Brazil, oppose this idea. Brazil’s concerns include the belief that
Brazil would be placed in a relatively worse bargaining position compared
with the United States under a strictly bilateral negotiating approach and
that, at the end of the day, it would suffer disadvantageous treatment of its
products with respect to other FTAA partners. Indeed, the initial U.S. offer
would provide CARICOM with immediate duty-free access for 91 percent of
its exports, versus 58 percent for Mercosur, the trading bloc that includes
Brazil. Others have expressed concerns about potential losses of regional
and subregional synergies in production, administrative complexity, and
lack of transparency. On the other hand, nations that currently benefit from
U.S. preference programs28 want to retain their preferential access to U.S.
markets and thus welcome differential treatment.

All of the 33 other FTAA countries also met the February 15, 2003, deadline
for submitting initial offers on industrial and agricultural market access. A
USTR official welcomed the universal completion of this first step as
important progress. However, he expressed hope that, with the U.S. offer
on the table, others would be more forthcoming in the months ahead. Many
FTAA countries made conservative initial market access offers. For
example, contrary to the U.S. offer, several placed sizeable shares of their


28
   These preference programs provide preferential duty-free entry into the United States for
certain products.




Page 25                                        GAO-03-560 Free Trade Area of the Americas
                                trade into the longest phaseout category or excluded some key items from
                                liberalization. In addition, Mercosur and CARICOM nations indicated that
                                they were not yet ready to present offers on government procurement and
                                services. Regarding investment, Mercosur members Uruguay and Paraguay
                                made offers, but Brazil and Argentina did not.

Questions of Commitment to      Critical to the successful completion of this phase of negotiations is a clear
FTAA by the United States and   political commitment to achieving an FTAA. During the course of our work
Brazil Remain                   on the FTAA, a number of participants have stressed that an FTAA
                                agreement could be successfully concluded if the key Western Hemisphere
                                leaders demonstrate that they have the political will to finalize the
                                agreement. However, some observers have concerns about how competing
                                priorities will affect key FTAA countries, notably the United States and
                                Brazil.

                                Interpretation of U.S. Actions Is Mixed

                                While the United States has taken some steps widely viewed in the
                                hemisphere as positive, other actions have been perceived as inconsistent
                                with FTAA goals. In our May 2001 report, we noted that President Bush said
                                at the April 2001 Summit of the Americas that he would seek to complete
                                three concrete steps by the end of 2001 to demonstrate the U.S.’s political
                                commitment to the FTAA: (1) secure Trade Promotion Authority, (2)
                                finalize a Free Trade Agreement with Chile, and (3) renew the Andean
                                Trade Preference Act (ATPA).29 All three things have now been
                                accomplished, although somewhat later than President Bush anticipated.

                                Other FTAA nations viewed the passage of TPA by the 107th Congress in
                                August 2002 as a very positive development. Under this authority, the
                                executive branch is required to consult regularly with Congress, and solicit
                                advice from advisory committees and the public, as trade agreements are
                                being negotiated. In return, Congress agrees not to amend legislation
                                implementing trade agreements, voting up or down on these agreements. In
                                addition, the law sets out parameters for negotiations dealing with such
                                issues as agriculture, antidumping, labor, the environment, and investment.
                                In some cases, the law places formal limits on the President’s flexibility to
                                negotiate. However, none of these issues, which were already sensitive


                                29
                                 The Andean Trade Preference Act (ATPA) is a program providing for the duty-free entry of
                                merchandise from designated beneficiary countries. ATPA was first enacted into law by the
                                United States on December 4, 1991.




                                Page 26                                      GAO-03-560 Free Trade Area of the Americas
domestically and are relevant to the FTAA, were taken off the table for
negotiation. In some cases, such as investment, the guidance TPA provided
has actually made it easier for the United States to negotiate, U.S. officials
report.

Since TPA was secured, the United States has pushed forward on
multilateral, regional, and bilateral fronts, including trade negotiations to
establish a U.S.-Central American Free Trade Agreement (CAFTA). In
December 2002, the United States announced the substantive conclusion of
free trade area agreements with Singapore and Chile as well. These
agreements contain important breakthroughs in such areas as intellectual
property rights and services. In addition, President Bush signed a
presidential proclamation restoring and expanding benefits under the
Andean Trade Preference Act.

While this renewed U.S. engagement in trade liberalization efforts is
generally seen as energizing FTAA talks, and is viewed by USTR as
complementary, there is some concern that such other considerations may
affect U.S. leadership within the FTAA. First, some FTAA nations have
complained about other U.S. trade actions taken in 2002, notably
imposition of restrictions on steel imports and passage of a new farm bill
(P. L. 107-171) that substantially increases subsidies to American farmers
through 2007. Second, some FTAA participants view the many bilateral
negotiations the United States has engaged in, both within and outside the
hemisphere, as indicative of a lack of U.S. commitment to the FTAA itself.

Brazil’s Commitment Unclear

FTAA participants are also looking to Brazil to affirm its political
commitment to FTAA negotiations. Even before Brazil’s recent presidential
election, concerns existed about Brazil’s commitment to the FTAA process.
Although Brazil has actively participated in the negotiations, observers say that
Brazil has appeared reticent to decisively embrace an FTAA. Brazilian officials
admit that Brazil has held back during the negotiations because they believe the
United States is not ready to negotiate on issues of greatest interest to Brazil, such
as high tariffs on key Brazilian exports and trade remedies. Moreover, according
to press reports, before his election as President of Brazil in October 2002, Luiz
Inacio Lula da Silva made this comment about the FTAA: “As it is being
proposed by the United States, the FTAA is not an integration proposal, it is
annexation politics, and our country won’t be enclosed.” Since being
elected, however, the new Brazilian administration has pledged to continue
to negotiate in good faith to conclude a mutually beneficial FTAA and has



Page 27                                     GAO-03-560 Free Trade Area of the Americas
                                promised to honor all commitments made. Nevertheless, perhaps because
                                of the newness of the administration, Brazilian participation in the FTAA
                                process has slowed down, and Brazil has announced that it needs
                                additional time to prepare market access offers on services, investment,
                                and government procurement.



Gaps in U.S.                    The United States faces several risks as it takes on the responsibility,
                                together with Brazil, of guiding the FTAA process forward to a successful
Preparations for Co-            conclusion. These risks include (1) handling an increased workload as co-
chairmanship and                chair with the pace of negotiations intensifying, and without a
                                commensurate increase in resources; (2) serving as co-chair with Brazil, a
Hosting of Miami                novel situation; and (3) hosting a November 2003 ministerial meeting for all
Ministerial May Pose            the trade ministers of the hemisphere and their delegations, which requires
Risks                           expertise, planning, funding, and security preparations.



Workload and Negotiating        As the USTR assumes the co-chairmanship of the FTAA negotiations, it
Pace to Increase, but           faces a heavy expansion of its workload. At the same time, its resources, in
                                particular the staff dedicated to the co-chairmanship, are not expected to
Resources Not
                                increase commensurately. Some past chairs have warned that this situation
Commensurate                    may lead to a slowdown in the FTAA process.

Workload and Negotiating Pace   A major challenge for the USTR as it assumes responsibility as co-chair of
to Increase                     the FTAA process will be handling the increased workload without an
                                increase in staff. Demands on USTR’s resources will be particularly high in
                                the fall of 2003, when USTR’s responsibilities as co-chair of the
                                negotiations and host of the ministerial will intensify. The co-chair’s formal
                                tasks are considerable. They include

                                • coordinating with Brazil on a daily basis;

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

                                • providing guidance to the negotiating groups and committees;

                                • co-chairing TNC meetings;

                                • co-chairing the TNC Subcommittee on Administration and Budget,
                                  including setting the calendar of meetings; and



                                Page 28                                 GAO-03-560 Free Trade Area of the Americas
                                • vice-chairing the Technical Committee on Institutional Issues.

                                In addition to the roles and responsibilities of the co-chair, another factor
                                placing additional demands on the USTR is the intensifying pace of the
                                negotiations during the final phase of negotiations. The goals for this final
                                phase are ambitious. In order to meet FTAA completion time frames,
                                participants aim to conclude negotiations in all nine trade negotiating
                                groups. However, initial market access offers are just starting. FTAA
                                participants must also agree on all issues currently under brackets in the
                                draft text. The U.S.’s goal is to have a largely clean text by the end of 2003.
                                To reach these goals, negotiations have been scheduled for practically
                                every day during the next 6 months.

                                Competing negotiating priorities, and their commensurate resource needs,
                                may also affect the USTR’s resources. Several U.S. negotiators told us that
                                what they primarily require to conclude an FTAA successfully is to be able
                                to focus on it with single-minded energy and determination. But other
                                negotiations are competing for their time and attention. For example, the
                                USTR has notified Congress of its intent to pursue Free Trade Agreements
                                (FTA) with Central America, Australia, the South African Customs Union,30
                                and Morocco and has started negotiations toward this end. Meanwhile, the
                                Doha Development Round of WTO negotiations involving 146 nations and a
                                similarly broad set of issues will officially be at the midpoint at the
                                September 2003 WTO ministerial. This ministerial is to be held in Cancun,
                                Mexico, only 2 months before the FTAA ministerial in Miami. Some of the
                                same USTR staff are involved in these concurrent negotiations. In addition,
                                negotiations with Chile and Singapore officially concluded at the end of
                                2002, but the agreements must still be finalized and undergo congressional
                                approval.

Resources May Not Be Adequate   In terms of resources, the U.S. team negotiating the FTAA—though
                                perceived as highly capable—is small and stretched thin. Other nations we
                                have contacted have had eight or more staff working to fulfill FTAA
                                chairmanship responsibilities. These staff handle such demands as drafting
                                negotiating schedules and documents and providing regular coordination
                                with other FTAA nations, negotiating groups, and the FTAA Administrative
                                Secretariat. According to a USTR official, Brazil currently has six staff
                                dedicated to the co-chair function and plans to hire an additional three in
                                early 2003. Ecuador had eight people working on substantive issues and

                                30
                                     A customs union including South Africa, Lesotho, Botswana, Namibia, and Swaziland.




                                Page 29                                         GAO-03-560 Free Trade Area of the Americas
additional people working on logistics. Canada had eight people, with
access to others for special projects. Like past chairs, USTR has dedicated
some staff specifically to the co-chair function, while other USTR staff
work on advancing the U.S. position in the negotiations. Presently, USTR
has two staff working full-time on the day-to-day FTAA co-chairmanship
tasks. Two other staff members currently devote some of their time to the
co-chair function. USTR has been given an additional slot for an FTAA
director and plans to fill it with a permanent staff member working full-
time on the co-chairmanship soon. In terms of support by other agencies,
the USTR presently is receiving little direct or indirect assistance in
fulfilling the U.S.’s co-chair responsibilities, although a Justice Department
detailee (person on loan to USTR) is one of the two part-time co-chair staff
and also helps with leading the U.S. delegation, and a Department of State
economic officer in Brazil has been made available to assist in coordinating
with Brazil on FTAA co-chairmanship issues. As well, the Department of
Commerce is temporarily staffing one of the two full-time co-chair USTR
positions.

With respect to overall personnel, USTR as a whole is relatively small—
having been set up to coordinate policy among and draw expertise from
executive branch agencies such as the Departments of State, Commerce,
Agriculture, and the Treasury. As past negotiations have become more
intense, other agencies have often provided staff on a nonreimbursable
“detail” (on loan) basis to augment USTR staff quickly. For example,
according to a USTR official, at the height of the Uruguay Round of WTO
negotiations, 45 staff from other agencies were detailed to USTR, versus
30 staff on detail now. These agencies have also given other support, such
as assigning staff to handle major aspects of USTR negotiations while
residing at their own agencies. USTR is hoping to resume the practice of
using such support and has begun seeking additional details from other
agencies. In mid-March, USTR announced that a senior Department of
State official will be loaned to the agency effective June 23, 2003, and will
advance U.S. positions in the negotiations as head of the U.S. delegation to
the FTAA’s TNC. Another State detailee is expected to be provided this
summer, to work full-time in the co-chair function. However, caps on their
funding and other concerns may make other agencies reluctant to detail
additional people to USTR on a nonreimbursable basis. These agencies also
need lead time to make arrangements and identify staff with the requisite
expertise.

In discussions with us, several past FTAA chairs have warned that the
consequence of U.S. failure to adequately staff the co-chairmanship could



Page 30                                 GAO-03-560 Free Trade Area of the Americas
                             be a slowdown of FTAA negotiations, which are, with the launch of market
                             access talks on February 15, 2003, reaching a critical juncture. Any
                             slowdown could make it difficult to achieve substantial results by the
                             November 2003 Miami ministerial.



Co-chairing with Brazil Is   Many officials and trade experts view the idea of the United States serving
Novel Situation              as co-chair with Brazil as a bold and useful way of providing the leadership
                             and commitment needed from two of the most important players at a
                             crucial time in the FTAA negotiations. At the same time, however, co-
                             chairing is expected to be more difficult than chairing by a single country.
                             All decisions, both mundane and substantive, will have to be agreed to by
                             both countries. The co-chairmanship arrangement is novel because up until
                             now, only individual countries have acted as chairman of the FTAA process.
                             Officials at USTR told us that the operating vision is that the co-
                             chairmanship will be a true partnership, with both countries making
                             decisions based on achieving consensus on every aspect of the process
                             throughout the 2 remaining years of negotiations. Such a true U.S.-Brazil
                             co-chairmanship may have certain advantages. For example, the fact that
                             Brazil and the United States will be guiding the process simultaneously as
                             co-chairs during the final phase of negotiations could facilitate consensus
                             building. If either the United States or Brazil had singly undertaken this
                             responsibility, some members might not have perceived their stewardship
                             as balanced.

                             Some FTAA participants told us, however, that co-chairing will be more
                             difficult than chairing by a single country. One foreign official speculated
                             that if all decisions require consensus, the co-chair structure would double
                             the work and the time necessary to reach decisions or perform tasks. A
                             USTR official confirmed this view and stated that even every letter has to
                             be signed by both countries. Former FTAA chairs told us that the two
                             countries have very different interests in the FTAA and, if such political
                             considerations play a role in decision-making, stalemates or further delays
                             could result. Another foreign official told us that differences in
                             governmental structures and bureaucratic systems in which the USTR and
                             Brazil’s foreign ministry operate may also create difficulties.

                             In addition to the operating difficulties, U.S. working relations with Brazil
                             are still uncertain. Brazil had been unwilling to discuss anything more than
                             the technicalities of the co-chairmanship until its new President took office
                             in January 2003. More recently, however, there have been several working
                             meetings in an effort to clarify Brazil’s views and solidify working relations.



                             Page 31                                 GAO-03-560 Free Trade Area of the Americas
                             Moreover, the U.S. and Brazil co-chairs have taken steps to provide active
                             leadership and coordination of the negotiating process by, for example,
                             meeting with the chairmen of each FTAA negotiating group well in advance
                             of the April TNC meeting to identify issues requiring decisions or guidance.

                             In meeting its responsibilities as co-chair for moving the process forward,
                             the United States will need to keep separate the interests of the
                             34 countries, or the process as a whole, from those of the United States as
                             negotiator. Brazil, for its part, will have three roles to keep in mind — its
                             own negotiating positions, those of Mercosur, and that of the FTAA.



Risks to Successfully        The United States will host the Eighth FTAA Trade Ministerial in Miami in
Hosting November 2003        November 2003, just 7 months from now, a considerable responsibility. This
                             ministerial is particularly significant because it occurs just a year before
Miami Ministerial Have Not
                             the slated conclusion of FTAA and WTO negotiations. The responsibilities
Been Fully Mitigated         of an FTAA host are numerous and include several elements critical for a
                             successful event. Preparations for the ministerial are at an early stage,
                             however, and, if left unfilled, gaps in the current U.S. plans for hosting the
                             ministerial pose risks to achieving a successful event. Risks that the USTR
                             has not yet fully mitigated include its inexperience in hosting a major
                             ministerial meeting, working with plans that have not been fully defined,
                             counting on funding that has not been secured, and arranging security for
                             numerous participants and protesters. Failure to address any of these risks
                             could undermine the success of the meeting. These same kinds of risks also
                             contributed to serious problems at the last major trade ministerial that the
                             United States hosted, the 1999 Seattle WTO ministerial. USTR and the
                             Miami organizers recognize that intense U.S. efforts will be necessary to fill
                             these gaps.

                             To evaluate USTR’s readiness to perform as host, we undertook a three-part
                             analysis. First, we obtained information about the formal responsibilities of
                             FTAA host countries from USTR. We also obtained official documents of
                             the FTAA and held conversations with past FTAA hosts, the results of
                             which are reported in the first section below. Second, we solicited advice
                             from persons with experience in planning and conducting such meetings,
                             including responsible officials of past FTAA host nations, former USTR
                             officials involved in planning the Seattle WTO ministerial, and officials at
                             the State Department’s Office of International Conference Planning and
                             Economics Bureau. These officials had been involved in planning past
                             trade ministerials hosted or attended by the United States, as well as other
                             international conferences. Through these interviews with “cognizant



                             Page 32                                 GAO-03-560 Free Trade Area of the Americas
                                     officials,” we identified factors critical for success as well as suggestions
                                     for steps USTR could take to adequately prepare for its responsibilities as
                                     host of the November FTAA ministerial. Third, we obtained information
                                     about the state of USTR preparations for the November FTAA ministerial
                                     through interviews with responsible officials and reviews of available
                                     documentation from USTR and Miami concerning timelines, plans,
                                     budgets, guidance, and organization. In addition, as it became clear that
                                     USTR was relying heavily on the Miami organizing group for fulfilling key
                                     requirements, we discussed the status of their efforts with both the
                                     executive director and the chairman of the board of that group, as well as
                                     with officials of Florida FTAA. This information on the actual status of U.S.
                                     FTAA ministerial plans follows our initial discussion of responsibilities and
                                     requirements for hosting the ministerial.

Responsibilities of the Host of an   Executing the many responsibilities of an FTAA ministerial host is critical,
FTAA Ministerial Are Numerous        given the importance of ministerial meetings in the negotiations. These
                                     meetings of trade ministers from the 34 FTAA member countries provide
                                     political guidance and impetus to the negotiating process. The November
                                     meeting in Miami is particularly important, because it is the last ministerial
                                     before the talks’ conclusion and will occur just 13 months before the
                                     January 2005 deadline set for FTAA nations to conclude the talks. At the
                                     Miami ministerial, the range of issues facing ministers may be complex,
                                     requiring political guidance from the ministers in order to move forward.
                                     Furthermore, because issues that are important to key FTAA participants,
                                     such as agriculture, are tied up in WTO talks, the extent of progress at the
                                     WTO ministerial in September 2003 may result in an overall reassessment
                                     of the FTAA’s scope and timeline.

                                     The host of an FTAA ministerial has numerous complex responsibilities.
                                     These responsibilities are detailed in a 29-page, single-spaced document
                                     that the FTAA Administrative Secretariat prepared. The host is generally
                                     responsible for providing facilities, transportation, and security for both
                                     the ministerial and the Trade Negotiations Committee meeting, a meeting
                                     of vice ministers that precedes the ministerial. In addition, a separate
                                     forum for the business community typically accompanies FTAA
                                     ministerials. Civil society groups also held a forum at the Quito ministerial.
                                     Each of these events involves hundreds of people, including many high-
                                     level officials requiring appropriate protocol and special security measures.
                                     Further, hosts are required to provide simultaneous translation during all of
                                     the negotiations and the other meetings, including immediate distribution
                                     of written documents to delegates.




                                     Page 33                                 GAO-03-560 Free Trade Area of the Americas
                              Coordination and security during all these activities is complex. For
                              example, the business community and civil society groups were given the
                              opportunity to provide input to the ministers at Quito. However, managing
                              the participation of the business community and civil society groups and
                              ensuring consideration of their views remain challenges. For example, at
                              the Quito ministerial, both the business community and civil society groups
                              prepared recommendations to be presented to the ministers. The structure
                              and length of the business community presentation, however, made it
                              difficult for ministers to take in all the input that the business community
                              had prepared. Nevertheless, compared with the business community’s
                              presentation, the civil society groups’ presentations were chaotic.
                              Protesters in the audience disrupted the presentation, and serious security
                              concerns arose, as many protesters were very vocal and, in one case,
                              threatened a presenter. In fact, the final presenter was unable to speak over
                              the noise, and the presentation ended with an unceremonious exit of the
                              ministers out a side door. A key goal of the Miami organizers is to make the
                              presentations at this November’s separate business and civil society forums
                              more targeted, timely, and orderly so they can be factored into ministerial
                              deliberations.

                              The task of the United States as host is especially complex, because it is
                              now standard practice to rely on host cities to supply most of the resources
                              associated with conducting international meetings held here, according to
                              a Department of State official. As a result, USTR must coordinate actively
                              with local officials and oversee host city preparations to ensure they are
                              satisfactory. It is also essential to begin planning early for the ministerial,
                              according to officials with experience in planning similar events.

Several Factors Critical to   Our discussions with cognizant officials suggest that hosts must have
Success; Certain Steps        several basic factors in place to fulfill the responsibilities outlined above
Recommended                   (see fig. 7). Particularly important is having (1) experienced staff capable of
                              bringing together all the different components including logistics,
                              budgeting, and procurement; (2) a plan that clearly sets forth roles,
                              responsibilities, and timelines; (3) access to funds to pay for expenses; and
                              (4) assurance of adequate security. This latter item must be paramount,
                              given the antiglobalization protests that have accompanied past FTAA and
                              other trade ministerials, and the heightened concerns over terrorism.




                              Page 34                                 GAO-03-560 Free Trade Area of the Americas
                                 Figure 7: Keys to a Successful Ministerial

                                                         Keys to a Successful Ministerial

                                                           Experienced and capable staff

                                                           A plan that clearly set forth roles,
                                                           responsibilities, and timelines

                                                           Access to adequate funds

                                                           Ample security for participants


                                 Source: GAO.




                                 The U.S. Department of State does not have written guidance on how to
                                 plan such events, according to a State official. However, in discussing the
                                 November FTAA meeting, cognizant officials with experience in planning
                                 similar meetings, including former USTR officials, have offered the
                                 following suggestions for hosting a successful event. Essential to such an
                                 event would be

                                 • consulting previous FTAA hosts in order to define requirements and
                                   responsibilities;

                                 • clearly defining the roles and responsibilities of the host city and the
                                   federal government, preferably through a memorandum of
                                   understanding;

                                 • creating a budget for the event;

                                 • assuring that adequate funding is available through monitoring of host
                                   city fund-raising and requesting agency appropriations if necessary; and

                                 • getting assistance from the Department of State, other federal agencies,
                                   and/or a management firm with experience in planning major events.

Gaps in USTR Preparations Pose   Successful U.S. execution of the November 2003 FTAA ministerial requires
Risks                            intense preparations to fill remaining gaps in current U.S. preparations in
                                 the areas of expertise, planning, funding, and security. While USTR has lead
                                 responsibility for the ministerial, USTR has little experience in planning



                                 Page 35                                      GAO-03-560 Free Trade Area of the Americas
trade ministerials, and it is receiving limited assistance from other agencies
with expertise in planning major international diplomatic events, due to
resource constraints. Funding has not been secured: As of March 27, a final
budget for the event does not exist, local fund-raising has just begun, and
no federal agencies have received funding for the FTAA ministerial meeting
in Miami. As well, security will be critical because the estimated number of
protesters ranges from 20,000 to 100,000 people. Although the USTR’s
current plans for hosting the ministerial address several of these
challenges, they do not fully mitigate the risks we identify.

USTR Lacks Experience, but Miami Organizers Have Track Record
as Host

USTR has never had sole responsibility for planning a major trade
ministerial hosted by the United States. The last trade ministerial that the
United States hosted was the Seattle WTO ministerial in 1999. There, USTR
received substantial assistance from Department of State officials with past
experience in planning major international meetings as well as from the
WTO’s Conference Services Department. Even so, financial and security
concerns not fully mitigated before the event caused serious logistical and
security problems and higher-than-expected costs. These problems
included bitter disagreements with the host city over roles and
responsibilities, jeopardizing key logistical arrangements such as
transportation and build-out of the convention center; costs that far
exceeded initial estimates; and security lapses that delayed sessions, put
delegates at risk of physical harm, and caused extensive property damage.

Furthermore, the agency has relatively little experience in this area.
Currently, USTR has four permanent staff working part-time on planning
the FTAA ministerial, with others at USTR assisting. One of these staff has
significant experience in logistics, security, and administration, and that
person has been put in charge of these areas for the Miami FTAA
ministerial. Although other USTR staff have been involved in arranging U.S.
participation in trade ministerials held abroad, hosting a trade ministerial is
much more complicated than arranging U.S. participation. The host is
responsible for all aspects of the meeting, not just its own delegation.

Furthermore, this gap in experience is not being overcome by receiving
assistance from other agencies with the necessary expertise, according to
USTR officials. The USTR has requested State’s assistance in planning the
Miami ministerial, and discussions on specific assistance State can provide
are ongoing. The State Department reports that it is trying to respond



Page 36                                 GAO-03-560 Free Trade Area of the Americas
positively to assistance requests where possible, given its own budgetary
constraints. One of the reasons for State’s reluctance to help is that its
budget for participation in international conferences has been cut. In fiscal
year 1995, State was receiving $6 million for participation in international
conferences. By fiscal year 1999, this appropriation had been discontinued,
with no commensurate increase to USTR’s budget for trade meetings. The
Department of State has suggested that USTR consider hiring a
management firm, but USTR has not budgeted for that expense and does
not believe that hiring an outside firm would provide cost benefits for the
agency.

With little assistance from State or elsewhere,31 and limited experience in
hosting major events, USTR plans to rely heavily on Miami’s expertise to
carry out the November 2003 meeting. Miami has considerable expertise in
hosting major events. The city has hosted numerous major sporting events
such as Super Bowls and Orange Bowls. Importantly, Miami hosted the
1994 Summit of the Americas, which involved 34 heads of state and started
the process of creating a Free Trade Area of the Americas. According to the
Miami organizing group, the summit was successful. The organizers of that
meeting used an arrangement similar to that of the upcoming Miami
ministerial, where a combination of private and public funds paid for the
summit and local organizers took the lead in making logistical
arrangements. The person responsible for planning the Summit of the
Americas is the same one who is leading the Miami organizing group for the
November FTAA ministerial. This individual also coordinated U.S.
participation in the April 2001 Summit of the Americas in Quebec City. He
is familiar with FTAA events by virtue of attendance at several of the FTAA
ministerials that have been held thus far as well as the associated Americas
Business Forums. He recently held a 2-day meeting in Miami with all seven
previous FTAA/Americas Business Forum hosts to obtain information and
advice, and these past hosts have also agreed to provide the Miami
organizers with ongoing advice. Moreover, Miami also has the necessary
infrastructure in place to host major events, according to the organizing
group. In addition to having experienced staff, Miami also served as the site
of FTAA negotiations from 1998 to 2001. However, this experience was not
entirely positive, and lessons learned from this experience have been


31
 The State Department has committed to providing one administrative officer for 2 weeks
prior to the conference and to provide an administrative officer to assist during the
ministerial meeting. It has also agreed to providing advice and guidance to USTR and to
share lessons learned from past experience.




Page 37                                      GAO-03-560 Free Trade Area of the Americas
                                 incorporated into the planning for the Miami ministerial, according to
                                 USTR.

                                 While Miami does have expertise, an official from the Miami organizers
                                 informed us that they would like a full-time staff person from the federal
                                 government to be detailed to Miami in a liaison capacity as soon as possible
                                 to work with the Miami organizers (as had been done for the Summit of the
                                 Americas). The liaison would, among other things, formalize the shared
                                 responsibility for the event and augment coordination between federal and
                                 local authorities. The desire for a locally based federal liaison was based on
                                 the assumption that the workload, and hence need for intense
                                 coordination, would increase as the ministerial drew closer.

Plans for Ministerial in Early   Both the federal government’s and Miami’s plans for hosting the November
Stages                           2003 ministerial are in early stages as of March 1, 2003. To get a sense of the
                                 general timeline to keep in mind when planning the November FTAA
                                 meeting in Miami, we interviewed cognizant officials who served as former
                                 hosts at FTAA ministerial meetings, officials at State, and former USTR
                                 officials. These officials indicated that planning for a November ministerial
                                 usually begins in January. Implementation of the plan should begin in
                                 March, with an acceleration of plans in October shortly before the
                                 ministerial. USTR officials responsible for planning the FTAA ministerial
                                 agreed on this general timeline, and, citing specific areas of progress,
                                 believe they are “on track” as of March 26, 2003.

                                 On the federal government side, USTR has obtained a guide that the FTAA
                                 Administrative Secretariat prepared for host countries detailing the basic
                                 logistical requirements of a ministerial. USTR is using this guide to plan the
                                 FTAA ministerial in Miami. USTR has also prepared a timeline for security,
                                 logistical, and administrative services for Miami to use in planning the
                                 event. A rough division of labor between the federal government and the
                                 host city appears to have been agreed upon, whereby the host city will take
                                 care of most logistical arrangements, and USTR staff will provide guidance
                                 and oversight of security, logistics, and administrative issues through
                                 regular contact with and visits to Miami. In addition, USTR plans to draft
                                 some guidance documents, such as the memorandums of understanding
                                 that will be signed between the host committee and the entities to be
                                 contracted with for services.

                                 On the host city side, Miami has formed a group to organize the ministerial
                                 and the Americas Business Forum. This group became operational in
                                 February 2003 and has hired an executive director for the FTAA ministerial



                                 Page 38                                 GAO-03-560 Free Trade Area of the Americas
planning effort. Several staff for the organization are now on board, and
more are expected. The executive director has put together a management
committee to organize the meeting. The Miami organizing group reports
that it has established an extensive support network of partners from both
the public and the private sectors and is already receiving in-kind staff
support from several municipalities. It plans to utilize contractors and
volunteers to supplement these resources as appropriate. The group has
also created a fund-raising committee specifically to raise funds for the
Miami ministerial, according to a Miami organizer.

Some of the specific tasks identified in the FTAA guidelines have been
accomplished, and more are in process. For example, in terms of
accommodations for delegates and meeting space, locations have been
selected and reserved, rates negotiated, and registration arrangements
established. Several transportation arrangements have been made,
although important details must still be ironed out.

Despite this progress, the USTR and Miami both agree that much remains
to be done between now and the November 2003 ministerial. Among other
things, a budget that clearly outlines funding sources and responsible
parties must be finalized; meeting space configured; a security plan
developed; and arrangements for providing credentials, translation,
administrative support, and other services made. For example,
requirements for telecommunications, computer, audiovisual, and related
equipment must be finalized and needed equipment and services obtained.
The FTAA Administrative Secretariat requires the United States to provide
it and delegates with details of the U.S. arrangements for the November
FTAA ministerial by late September 2003. Making all of the required
arrangements by then will require intense preparations on the part of both
the USTR and Miami officials, both agree. Executing the plan and updating
it as necessary will occupy officials between mid-September and November
2003.

Funding Has Not Been Secured, and Funding Responsibilities Are
Still Unclear

Serious risks are involved in the USTR’s plans to rely on the host city to
assume responsibility for the majority of the costs. Although some
requirements can be met through in-kind contributions, securing necessary
funds generally requires considerable lead time, and expenses that require
an outlay of funds are expected to be incurred within the next 2 months. No
federal agency has received funding for this event. The organizing group



Page 39                               GAO-03-560 Free Trade Area of the Americas
does not yet have a final budget and has just begun fund-raising, although
USTR and the Miami organizers anticipate that a budget will be finalized
and funding responsibilities will be clarified by mid-April.

Relying on the host city to pay the majority of the costs is a model the
United States has followed at past summits and trade ministerials where a
host committee, or an organizing group composed of local representatives
associated with the host city, paid for the majority of the costs. Miami
worked with this model when it hosted the 1994 Summit of the Americas.
Some experiences with host committees have been unsuccessful, however.
For example, at the 1999 Seattle WTO ministerial, decisions to rely on the
host committee and the committee’s ultimate failure to raise sufficient
funds caused problems at the meeting. In addition, costs kept escalating as
year-long planning efforts continued, ultimately reaching $24 million. This
amount is considerably higher than the December 1998 budget of
$9 million. Financial shortfalls resulted in part from inherent difficulties
that USTR encountered in having a private group fund the Seattle
ministerial. For example, the Seattle organizers were not permitted to sell
tickets to donors or recognize contributions (similar rules will apply for the
host committee in Miami). The Seattle host committee ultimately fell far
short of its fund-raising goals and only paid for one-fourth of associated
costs. The local, state, and federal governments paid the remainder, with
the local and state governments covering the bulk of these costs, or around
$17 million. To satisfy the federal government’s share, the USTR requested
a $1.3-million supplemental appropriation that was shared between USTR
and the State Department. The State Department paid an additional
$1.2 million, and the city of Seattle also received a $3.8-million partial
reimbursement from the federal government to help defray its substantial
costs; these costs were for security only. Thus, all told, the federal
government ended up paying $6.3 million for the Seattle WTO ministerial,
an event that is admittedly larger in scale than the FTAA ministerial.

No federal agency has yet received funding for the FTAA ministerial. The
USTR has only requested $200,000 for the FTAA ministerial, but this is in
the fiscal year 2004 budget year that begins October 1, 2003. At a minimum,
USTR will have to pay for the expenses of its staff participating in the
event, for setting up and staffing a fully equipped “control room”— an
office in which U.S. delegates can work—for basic translation services, and
for certain aspects of security. To minimize some expenses, USTR will
utilize computers and other equipment procured for the Cancun WTO
ministerial to set up control rooms at the Miami FTAA ministerial. USTR
has asked the Office of Management and Budget (OMB) to submit a request



Page 40                                 GAO-03-560 Free Trade Area of the Americas
for a $1.3-million supplemental appropriation for this WTO-related
procurement, but OMB has not yet approved this request.

Furthermore, USTR has no back-up plan in the event that its costs exceed
the amount it has requested or the host city does not meet its fund-raising
goals. For example, the USTR plans to ask other federal agencies
participating in the ministerial to pay for their own expenses. This
approach has been used in past ministerials, such as the Doha WTO
ministerial, with mixed success. At Doha, for example, USTR ultimately
absorbed nearly $1 million in costs after other agencies withdrew or failed
to provide pledged funding. In terms of the financial support expected from
Miami, USTR has sought to forestall any possible funding difficulties
through an agreement with the Miami organizers on a series of fund-raising
principles and periodic status reports from Miami on the amounts of money
raised. Miami will rely on its business community as well as on state and
local government contributions in kind and in cash to meet its fund-raising
goals. The four municipalities involved have drafted a memorandum of
understanding regarding their financial support of the meeting under which
they agree to provide in-kind and cash support according to a yet-to-be
specified formula.32 However, this agreement allows signatories to
withdraw from the arrangement if they determine that they can no longer
financially participate. As yet, the Miami organizing group has not finalized
its fund-raising goals or begun fund-raising in earnest. However, the USTR
and the Miami organizers have told us that the committee has a strategy for
raising needed contributions and will meet its fund-raising goals.

Another key risk facing USTR at the Miami meeting is unclear funding
responsibilities. USTR has stated that Miami will provide the vast majority
of funds for the ministerial. One Miami official said that in broad terms they
agree Miami will shoulder the majority of costs. However, the Miami
organizers believe the federal government will also assume some financial
responsibility for the ministerial because, in their view the ultimate host of
the ministerial is the federal government, not the Miami organizers. One
way to clarify these misunderstandings over responsibilities is through a
memorandum of understanding. Department of State officials involved in
the Seattle WTO ministerial and other major events emphasized the
importance of documenting financial responsibilities in order to avoid
disagreements over costs later on. However, USTR has decided not to sign


32
 The four municipalities involved are the city of Miami, the county of Miami-Dade, the city
of Coral Gables, and the city of Miami Beach.




Page 41                                        GAO-03-560 Free Trade Area of the Americas
a memorandum of understanding with the Miami host committee assigning
financial responsibilities. Instead, it plans to rely on Miami’s desire to be
the site of the permanent FTAA Administrative Secretariat as incentive
enough to raise the necessary funds and carry out the logistical and
security requirements for hosting the ministerial. The Miami organizers
also do not feel that a memorandum of understanding with the federal
government is necessary. Instead, both parties have agreed to use the
budget development process to identify funding sources and apportion
financial and logistical responsibilities. This breakdown has not been
prepared but is being worked on.

Security Is Critical

Another key risk the United States will face in Miami is ensuring the
security of participants, given the extensive security requirements of
previous trade ministerials and the protests encountered at these and other
events that have attracted opponents of globalization. At Genoa, Italy, for
example, a protestor was killed during antiglobalization protests. Also, at
the FTAA ministerial in Quito, a child was killed during the protests.
Estimates for the number of protesters expected at Miami range from
20,000 to 100,000 people, according to both the USTR and the Miami
organizers. USTR expects around 6,000 participants, compared to
9,000 participants and 50,000 protesters at the Seattle WTO ministerial. In a
February 2000 report on the November 1999 Seattle WTO ministerial,33 we
noted that protests interfered with the Seattle ministerial by causing delays
and disrupting the proceedings. Protesters also threatened and in some
cases assaulted delegates. Furthermore, protesters, police officers, and
bystanders were injured, and property was damaged. In Seattle, the city’s
decision to stop providing security was a factor in forcing the meeting to
close before its scheduled conclusion.

According to USTR officials, the need to link logistics and security is an
important lesson learned after the security problems experienced at the
Seattle ministerial and is a critical component of the planning for the Miami
event. At the Seattle ministerial, security costs accounted for
approximately half of the expenses incurred, in part because security had
not been factored into logistical arrangements from the beginning,
according to the USTR. USTR’s present goal is to have a security plan


33
 See U.S. General Accounting Office, World Trade Organization: Seattle Ministerial:
Outcomes and Lessons Learned, GAO-00-86 (Washington, D.C.: Feb. 10, 2000).




Page 42                                      GAO-03-560 Free Trade Area of the Americas
                     finalized by May 30, 2003. However, the plan will remain flexible thereafter
                     as it is updated to reflect the latest information. Security staffing for the
                     event will also need to be arranged. So far, the USTR reports that local
                     police will provide security at the event. According to the Miami organizers,
                     police security services will be provided in kind, using existing staff and
                     resources rather than relying on fund-raising to pay for security. Other
                     entities involved in providing security include the U.S. Coast Guard and the
                     Department of State’s Bureau of Diplomatic Security. If certain high-level
                     officials attend, the Secret Service and Homeland Security will need to be
                     involved. Further, the federal government will be responsible for providing
                     information security.



Conclusions          Negotiations toward achieving an FTAA face an important test in the
                     coming year. Despite 4 years of talks and an acceleration of progress by the
                     time of the November 2002 Quito ministerial, considerable work remains in
                     order to culminate an initiative that the region’s 34 democratically elected
                     leaders once embraced as key to integrating their economies; improving
                     growth and equity; and strengthening nascent democratic institutions. With
                     a January 2005 deadline for completion, the FTAA faces numerous
                     challenges in the current phase. These include making progress on key
                     issues such as agriculture and starting market access negotiations in
                     earnest. Ensuring that negotiations have sufficient political support from
                     key players such as the United States and Brazil also remains a challenge.
                     Our work suggests that the U.S.’s readiness to co-chair the negotiations and
                     host a major trade ministerial in Miami 7 months from now is not assured
                     because, to date, the plans and human and financial resources are not in
                     place to complete the required duties and to counter likely risks. Filling
                     these gaps is critical to success and will require intense preparations on the
                     part of USTR and Miami organizers between now and November.



Recommendation for   In order to successfully carry out the responsibilities involved in co-
                     chairing the Free Trade Area of the Americas negotiations and hosting the
Executive Action     November 2003 Miami ministerial, we recommend that the USTR intensify
                     U.S. preparations and promptly and regularly evaluate whether current
                     resources and plans are sufficient to carry out the tasks and mitigate the
                     risks associated with these two responsibilities. The risks we have
                     identified are (1) handling the increased workload associated with co-
                     chairing the negotiations and hosting the Miami ministerial with limited
                     staff at USTR, (2) resolving procedural and substantive issues through the



                     Page 43                                 GAO-03-560 Free Trade Area of the Americas
                      co-chairmanship, (3) acquiring sufficient expertise in planning major
                      events, (4) clarifying and further developing plans for the Miami
                      ministerial, (5) securing sufficient funding for the ministerial, and (6)
                      ensuring the security of participants at the ministerial. Several of these
                      resources and plans involve allowing significant lead time, which the USTR
                      should take into consideration.



Agency Comments and   We provided draft copies of this report to the Office of the U.S. Trade
                      Representative and the Department of State and received formal comments
Our Response          from both agencies (see apps. I and II). They also provided technical
                      comments, which we have incorporated in the report as appropriate.

                      USTR and State generally agreed with our overall message. USTR stressed
                      that it is committed to successfully concluding an FTAA by January 2005
                      and hosting the November 2003 ministerial and expressed belief that plans
                      for the ministerial are at an appropriate stage of development. USTR also
                      noted various steps it has recently taken to address the challenges ahead in
                      the FTAA negotiations and for ministerial preparations. Accordingly, we
                      have updated our report, citing specific progress that USTR has made in
                      this regard. For example, we noted that the USTR is working with Brazil to
                      provide more active leadership and coordination to the negotiating process
                      and that venues for the ministerial and associated events have now been
                      reserved. We also noted that the Miami organizing group has established an
                      extensive network of partners from the public and the private sectors to
                      provide support. Nevertheless, we maintain our basic findings and
                      recommendation.

                      The Department of State addressed the issue of assistance to USTR by
                      saying that it is trying to be as helpful as it can within the constraints of its
                      available resources. We have noted that in our report.

                      In addition to formal agency comments, the Miami host committee was
                      invited to provide comments on the report. It generally agreed with our
                      findings and provided several clarifications, which we incorporated.



Scope and             To conduct our analysis of the progress made in the negotiations on
                      creating a Free Trade Area of the Americas and the outcome of the Quito
Methodology           ministerial meeting, the key challenges for the current negotiating phase,
                      and the U.S. challenges associated with co-chairing the FTAA process and



                      Page 44                                  GAO-03-560 Free Trade Area of the Americas
hosting the November 2003 Miami ministerial meeting, we reviewed FTAA
and executive branch documents on the FTAA negotiations and the U.S.
preparations for roles as co-chair of the negotiations and host of the Miami
ministerial, and budget documents from USTR for 2002 and 2003. We also
reviewed academic and economic literature related to the negotiations. We
conducted interviews with U.S. negotiators and with foreign government
officials, including officials who have chaired the FTAA negotiations in the
past. We also held discussions with multilateral institutions that provide
technical assistance to the FTAA negotiations, including the Organization
of American States, the Inter-American Development Bank, and the
Economic Commission for Latin America and the Caribbean. We attended
public hearings on the FTAA and spoke with professional scholars and
other experts familiar with the negotiations. In November 2002, we traveled
to Quito, Ecuador, to attend the Americas Business Forum and a civil
society group meeting associated with the FTAA ministerial. This report is
also based on our past work on the FTAA negotiations in the Western
Hemisphere (see Related GAO Products).

We conducted our work from July 2002 through March 2003 in accordance
with generally accepted government auditing standards.


As agreed with your offices, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from the
report date. At that time, we will send copies of this report to interested
congressional committees, the U.S. Trade Representative, the Secretary of
State, the Administrator of the U.S. Agency for International Development,
the Secretary of the Treasury, the Secretary of Agriculture, and the
Secretary of Commerce. We also will make copies available to others upon
request. In addition, the report will be available at no charge on the GAO
Web site at http://www.gao.gov.




Page 45                                GAO-03-560 Free Trade Area of the Americas
If you or your staff have any questions about this report, please contact me
at (202) 512-4347. Additional GAO contacts and staff acknowledgments are
listed in appendix III.




Loren Yager
Director,
International Affairs and Trade




Page 46                                GAO-03-560 Free Trade Area of the Americas
Appendix I

Comments from the Office of the U.S. Trade                             Appendx
                                                                             ies




Representative                                                          Append
                                                                             x
                                                                             Ii




               Page 47        GAO-03-560 Free Trade Area of the Americas
Appendix I
Comments from the Office of the U.S. Trade
Representative




Page 48                                      GAO-03-560 Free Trade Area of the Americas
Appendix I
Comments from the Office of the U.S. Trade
Representative




Page 49                                      GAO-03-560 Free Trade Area of the Americas
Appendix II

Comments from the Department of State                                Appendx
                                                                           Ii




              Page 50       GAO-03-560 Free Trade Area of the Americas
Appendix II
Comments from the Department of State




Page 51                                 GAO-03-560 Free Trade Area of the Americas
Appendix III

GAO Contacts and Staff Acknowledgments                                                          Appendx
                                                                                                      iI




GAO Contacts      Kim Frankena (202) 512-8124
                  Venecia Rojas Kenah (202) 512-3433



Staff             In addition to the individuals named above, R. Gifford Howland, Rona
                  Mendelsohn, Kirstin Nelson, Jon Rose, and Marc Molino made key
Acknowledgments   contributions to this report.




                  Page 52                              GAO-03-560 Free Trade Area of the Americas
Related GAO Products


             Free Trade Area of the Americas: Negotiators Move Toward Agreement
             That Will Have Benefits, Costs to U.S. Economy. GAO-01-1027.
             Washington, D.C.: September 7, 2001.

             World Trade Organization: Early Decisions on Key Issues Vital to
             Progress in Ongoing Negotiations. GAO-02-879. Washington, D.C.:
             September 4, 2002.

             Free Trade Area of the Americas: April 2001 Meetings Set Stage for Hard
             Bargaining to Begin. GAO-01-706T. Washington, D.C.: May 8, 2001.

             Free Trade Area of the Americas: Negotiations at Key Juncture on Eve of
             April Meeting. GAO-01-552. Washington, D.C.: March 30, 2001.

             World Trade Organization: Progress in Agricultural Trade Negotiations
             May Be Slow. GAO/T-NSIAD-00-122. Washington, D.C.: March 7, 2000.

             World Trade Organization: Seattle Ministerial: Outcomes and Lessons
             Learned. GAO/T-NSIAD-00-86. Washington, D.C.: February 10, 2000.

             World Trade Organization: Seattle Ministerial: Outcomes and Lessons
             Learned. GAO/T-NSIAD-00-84. Washington, D.C.: February 8, 2000.

             Agricultural Trade: Changes Made to Market Access Program, but
             Questions Remain on Economic Impact. GAO/NSIAD-99-38. Washington,
             D.C.: April 5, 1999.




(320139)     Page 53                             GAO-03-560 Free Trade Area of the Americas
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