Free Trade Area of the Americas: United States Faces Challenges as Co-Chair of Final Negotiating Phase and Host of November 2003 Ministerial

Published by the Government Accountability Office on 2003-05-13.

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

                          United States General Accounting Office

GAO                       Testimony
                          Before the Subcommittee on International
                          Trade, Committee on Finance, U.S. Senate

For Release on Delivery
Expected at 2 p.m., EDT
Tuesday, May 13, 2003     FREE TRADE AREA OF
                          THE AMERICAS
                          United States Faces
                          Challenges as Co-Chair of
                          Final Negotiating Phase and
                          Host of November 2003
                          Statement of Loren Yager, Director
                          International Affairs and Trade

                                                May 13, 2003

                                                FREE TRADE AREA OF THE AMERICAS

                                                United States Faces Challenges as Co-
Highlights of GAO-03-700T, a testimony
before the Subcommittee on International
Trade, U.S. Senate Committee on Finance
                                                Chair of Final Negotiating Phase and Host
                                                of November 2003 Ministerial

 Since 1998, the 34 democratic                  The United States faces several challenges as co-chair of the final phase of
 nations of the Western Hemisphere              Free Trade Area of the Americas negotiations. First, USTR, which is
 have been negotiating a Free Trade             responsible for co-chairing these negotiations and hosting the November
 Area of the Americas agreement to              2003 ministerial, has not added appreciably to its staff, despite the sharply
 eliminate tariffs and create                   increased workload. Second, the goals of this phase—such as achieving
 common trade and investment
 rules for these nations. The United
                                                improved market access for the 34 nations—are ambitious and will require
 States will co-chair, with Brazil, the         serious, substantive trade-offs. Finally, the negotiations are proceeding on
 final phase of the negotiations, due           the same timeline as several other complex trade negotiations involving the
 to conclude in January 2005. GAO               United States. In fact, the resolution of a key issue, agricultural subsidies,
 was asked to (1) review challenges             has been linked to ongoing negotiations in the World Trade Organization.
 that the United States faces as co-            Currently, these negotiations are bogged down.
 chair of the final negotiating phase
 and (2) discuss risks that the                 Moreover, important risks are already apparent in current U.S. plans for
 United States may encounter, as                hosting the November 2003 Miami ministerial meeting. Gaps exist in several
 host, in Miami, of the November                key areas important to successfully hosting a major trade ministerial. For
 2003 ministerial meeting.                      example, USTR has limited experience in planning and providing logistics
                                                for such a meeting. Furthermore, USTR is getting little support from other
                                                federal agencies. In addition, no federal agency has yet received any funding
 The Office of the U.S. Trade                   for the November event, which is projected to cost $10 million. Finally,
 Representative (USTR) should                   USTR is likely to encounter protestors at the November ministerial. Failure
 intensify U.S. preparations and                to link security, funding, and logistics at a prior ministerial caused serious
 regularly evaluate whether                     problems for the organizers of that event.
 resources and plans are sufficient
 to carry out the tasks and mitigate
                                                Contrasting Events Surround 2002 Quito Ministerial Meeting
 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

                                                Members of Americas Business Forum meet inside during 2002 Quito
                                                Ministerial (left) as police secure outside area against anti-FTAA demonstrators.
                                                Source: GAO (left photo) and Centro de Medios Independientes de Ecuador. Used with permission.


 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.
          Mr. Chairman and Members of the Subcommittee:

          I am pleased to be here today to discuss the readiness of the United States
          to successfully perform as co-chair (with Brazil) of the Free Trade Area of
          the Americas negotiations process and host of the November 2003
          ministerial meeting. As you know, work on the Free Trade Area of the
          Americas, or FTAA, agreement is one of the most significant ongoing trade
          negotiations for the United States. In fact, the Bush administration has
          made establishing the FTAA one of its top trade priorities. Negotiations
          toward establishing this 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. The final phase of FTAA negotiations
          began last November and is scheduled to conclude with the completion of
          the agreement in January 2005. Today, I will first review the challenges
          that the United States faces, as co-chair of this final phase of FTAA
          negotiations. Second, I will discuss the risks that the United States may
          encounter as host of the November ministerial in Miami.

          My testimony is based on our recently published report on this subject.1 It
          is also based on our past and ongoing work on the FTAA negotiations

          The United States faces several challenges as co-chair of the final phase of
Summary   the FTAA negotiations. First, the Office of the U.S. Trade Representative
          (USTR), which handles the negotiations, has not added appreciably to its
          staff, despite the sharply increased workload and responsibilities
          associated with co-chairing the FTAA negotiations. Second, the goals of
          this negotiating phase are ambitious and may be difficult to achieve. For
          example, FTAA negotiations on market access commitments—considered
          the “heart” of an agreement—will require serious trade-offs among the

           See U.S. General Accounting Office, Negotiations Progress, but Successful Ministerial
          Hinges on Intensified U.S. Preparations, GAO-03-560 (Washington, D.C.: Apr. 11, 2003).
           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); and 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).

          Page 1                                     GAO-03-700T Free Trade Area of the Americas
participating nations. In addition, finalizing the FTAA agreement will
require the 34 participating nations to bridge wide, substantive differences
on topics such as investment and intellectual property. Finally, FTAA
negotiations are taking place at the same time as several other complex
trade negotiations that often involve the same issues and staff. Indeed, the
resolution of key issues for the hemisphere, such as agricultural subsidies,
has been linked to negotiations in the World Trade Organization (WTO)
that are presently bogged down.

Although current U.S. plans for hosting the FTAA Trade Ministerial in
Miami in November 20 and 21, 2003, are at an early stage, important risks
are already apparent. Officials with prior experience in hosting ministerial
meetings told us that certain key elements must be in place soon to
successfully host a major trade ministerial, notably experienced staff, a
clear plan, sufficient funding, and adequate security. However, our
examination of agency records and other documents reveals that current
U.S. plans leave gaps in several of these areas. For example, USTR has
sole responsibility for all facets of planning and logistics, a complex task.
However, USTR has limited institutional experience in this area and is
getting little support from other federal agencies, such as the Department
of State. In addition, although current estimates are that the FTAA
ministerial will cost $10 million, no federal agency has yet received any
funding for this event, and the local organizers are just beginning fund-
raising efforts. Failure to mitigate similar risks caused serious logistical
and security problems at the last major trade ministerial hosted by the
United States, the 1999 Seattle WTO ministerial. 3

In our report, we recommend that USTR intensify preparations and
regularly evaluate whether its resources and plans are sufficient to
successfully carry out the tasks and mitigate the risks associated with co-
chairing the FTAA negotiations and hosting the November 2003 ministerial

In commenting on our report, USTR and the Department of State agreed
with our overall message. However, USTR stressed that it believes plans
for hosting the ministerial are currently at an appropriate stage of

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

Page 2                                  GAO-03-700T Free Trade Area of the Americas
                           The United States has long been a key player in the FTAA negotiations.
Background                 Now, in addition to participating as a major negotiating country charged
                           with advancing its own position with the FTAA negotiations, the United
                           States has assumed responsibility in two other areas. First, this past
                           November, the United States became co-chairman (with Brazil) of the
                           negotiations. In this capacity, the United States has assumed responsibility
                           for leading the FTAA process as a whole forward to its conclusion.
                           Second, in conjunction with this role, the United States will serve as host
                           of a hemispheric trade ministerial in November of this year. As such, it is
                           responsible for providing facilities and making logistical and security
                           arrangements for that meeting.

                           The United States faces three key challenges as it takes on the
Co-chairmanship            responsibility, together with Brazil, of co-chair of the negotiations charged
Poses Challenges for       with guiding the FTAA process forward to a successful conclusion by
                           January 2005: (1) handling a substantial increase in its workload, (2)
United States              managing the intensified negotiating pace and substantively difficult trade-
                           offs associated with concluding an FTAA agreement, and (3)
                           simultaneously juggling the FTAA and several other complex trade

Workload and Negotiating
Pace to Increase, but
Resources Not

Workload to Increase       The first key challenge for the USTR as co-chair of the FTAA process will
                           be handling the increased workload as negotiations intensify, without an
                           appreciable increase in staff. The co-chair’s responsibilities are
                           considerable. They include providing leadership to the negotiating process
                           and regular guidance to the 10 negotiating groups and special committees
                           charged with developing the FTAA rules, specific market access
                           commitments, and institutional arrangements that will together comprise
                           an FTAA agreement. The United States must also coordinate with Brazil,
                           the other co-chair, on a daily basis.

                           Despite general recognition that co-chairing will involve more work for the
                           United States than chairing on its own, USTR only has about half as many
                           staff devoted to co-chairing the FTAA negotiations as previous chairs have
                           had. Presently, USTR has two staff working full-time on the day-to-day

                           Page 3                              GAO-03-700T Free Trade Area of the Americas
                                   FTAA co-chairmanship tasks. Two other staff devote some of their time to
                                   the co-chair function and some to advancing U.S. positions in the FTAA
                                   negotiations. Brazil currently has five staff handling the co-chair function
                                   and plans to add a sixth. Ecuador, which chaired the negotiations from
                                   April 2001 to October 2002, had eight people working on substantive
                                   issues and additional people working on logistics. Canada, which chaired
                                   the negotiations from March 1998 to November 1999, had eight people,
                                   with access to others for special projects. To mitigate this situation, USTR
                                   is seeking to bolster its resources quickly by borrowing staff from other
                                   agencies. Although it has recently had limited success,4 funding caps and
                                   other concerns may make agencies reluctant to detail more people to
                                   USTR without receiving reimbursement.

                                   Several past FTAA chairs have told us that the consequence of a U.S.
                                   failure to adequately staff the co-chairmanship could be a slowdown of
                                   FTAA negotiations. These negotiations have reached a critical juncture
                                   with the launch of market access talks on February 15, 2003. Any
                                   slowdown could make it even more difficult to achieve substantial results
                                   by the November 2003 Miami ministerial.

FTAA Negotiations                  A second key challenge facing USTR is the intensifying pace of the FTAA
Intensifying, as Are Substantive   negotiations. To conclude a final agreement by January 2005, much
Demands                            remains to be done. In fact, various FTAA negotiating group meetings have
                                   been scheduled for practically every day for the coming 6 months. As our
                                   report explains, although considerable technical groundwork has been laid
                                   since FTAA negotiations were formally launched in 1998, up to now, FTAA
                                   negotiations did not involve serious, substantive trade-offs. 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
                                   agreement. The overall timetable for FTAA negotiations and key
                                   milestones for the current phase are depicted in figure 1.

                                    In mid-March, USTR announced that a senior Department of State official will be loaned to
                                   the agency effective June 23, 2003, to head the U.S. delegation to the FTAA’s vice
                                   ministerial level Trade Negotiations Committee. The official has been ambassador to the
                                   Republic of Azerbaijan since October 2000. Prior to being nominated to serve in Azerbaijan,
                                   he was principal deputy to the ambassador-at-large and special advisor to the Secretary of
                                   State for the New and Independent States of the former Soviet Union (1997-2000), where he
                                   had direct responsibility for U.S. relations with Ukraine, Central Asia, and the Caucasus.
                                   (This addition basically means that the senior USTR person presently responsible for this
                                   role will no longer have to split her time among the Chile Free Trade Area (FTA), Central
                                   American FTA, and FTAA negotiations, as well as the North American Free Trade Area
                                   (NAFTA) and other duties.) Another Department of State detailee is expected this summer.

                                   Page 4                                     GAO-03-700T Free Trade Area of the Americas
Figure 1: 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.

                                       Five of the nine FTAA negotiating groups—agriculture, market access,
                                       services, government procurement, and investment—finally began work
                                       negotiating concrete market access commitments, or schedules to
                                       liberalize trade, in mid-February 2003. These negotiations are considered
                                       very important, because they will determine how much trade and
                                       investment will actually be liberalized and how rapidly trade barriers will
                                       be removed. Even though all 34 FTAA countries met the deadline for
                                       submitting initial offers on industrial and agricultural market access, many
                                       of these offers were conservative. For example, in contrast to the U.S.
                                       offer, several nations placed sizeable shares of their trade into the longest
                                       phaseout category (more than 10 years) or excluded some key items from
                                       liberalization. In addition, some nations have not yet made offers on
                                       investment, services, and government procurement. Ultimately, achieving
                                       substantial liberalization will be difficult, because the tariffs of many
                                       FTAA participants are high, and tariffs are an important source of
                                       government revenue for many FTAA nations.

                                       Page 5                                             GAO-03-700T Free Trade Area of the Americas
                           FTAA participants must also agree on the final legal text or rules on such
                           complex topics as intellectual property rights and competition policy. To
                           give you an idea of the magnitude of this task, the draft FTAA agreement
                           made public last November was nearly 400 pages long. Moreover, most of
                           the text was in brackets, which signified disagreement among the 34
                           participating nations. Bridging these disagreements may be difficult, given
                           the number and diversity of nations participating. Several FTAA
                           participants, including the United States, are among the wealthiest nations
                           in the world. But some FTAA participants, such as Haiti, are among the
                           poorest, and others are small or isolated in geographic terms.

                           To deal with the problem of differences in the 34 participants’ wealth and
                           size, the November 2002 Quito ministerial launched a Hemispheric
                           Cooperation Program. This program is considered vital to building a
                           necessary consensus among the FTAA participants. The program’s goal is
                           to identify critical priorities and help marshal funds that would bolster the
                           capacity of the lesser-developed nations to negotiate, implement, and
                           benefit from an FTAA. Participants’ interests within the FTAA negotiations
                           differ, even among the largest countries. According to reports, although
                           the U.S.’s work with Brazil is going smoothly, Brazil’s commitment to the
                           FTAA and to its deadlines remains unclear. Recently, for example, Brazil’s
                           Foreign Minister stated that the FTAA completion deadline of 2005 is too

                           Indeed, FTAA negotiators have set ambitious goals for the coming months.
                           By June 15, 2003, the five groups negotiating market access will exchange
                           requests for revised offers. All ten negotiating groups are working to
                           provide vice ministers with a revised text at their next meeting on July 7,
                           2003 (in El Salvador). The goal is to have a rather advanced agreement by
                           this November’s FTAA ministerial in Miami.

Other Trade Negotiations   A third challenge facing the United States as co-chair is that other major
Occurring Concurrently     negotiations are occurring concurrently with the FTAA. For example, the
                           U.S. Trade Representative has notified Congress of his intent to pursue
                           free trade agreements with (1) five nations of Central America, (2)
                           Australia, (3) the South African Customs Union,5 and (4) Morocco, and
                           USTR 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

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

                           Page 6                                   GAO-03-700T Free Trade Area of the Americas
                        September 2003 WTO ministerial. Some of the same USTR staff are
                        involved in these concurrent negotiations. Moreover, several issues of
                        importance to U.S. trade partners in the hemisphere, notably agriculture
                        subsidies and trade injury remedies, are linked to ongoing negotiations at
                        the WTO. The U.S. position is that the WTO is the appropriate forum to
                        deal with domestic agriculture subsidies, but many other FTAA
                        participants maintain that domestic agriculture support needs to be
                        addressed in both the FTAA and the WTO. The November 2002 Quito
                        ministerial declaration notes the importance of progress in both the WTO
                        and FTAA agriculture negotiations. 6 However, WTO negotiators missed a
                        March 31, 2003, deadline to establish modalities, or the rules and
                        guidelines for agricultural liberalization, as well as other deadlines in other
                        areas under negotiation. We noted in a September 2002 report that
                        meeting this deadline was a crucial indicator of the likelihood of success
                        in the overall negotiations.7 Lack of progress in these WTO negotiations
                        has caused concern about prospects for progress in FTAA negotiations.

                        The United States will host the Eighth FTAA Trade Ministerial in Miami in
Gaps in U.S.            November 2003, just 6 months from now. This ministerial is particularly
Preparations for        significant, because it will occur just over a year before the slated
                        conclusion of FTAA and WTO negotiations. As host, the United States has
Hosting November        numerous responsibilities, but U.S. planning for the ministerial is at an
2003 Ministerial Pose   early stage. Given the lead times involved, however, intense efforts are
                        needed to fill the remaining gaps in the areas of expertise, planning,
Risks                   funding, and security.

                        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.
                         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 7                                       GAO-03-700T Free Trade Area of the Americas
Responsibilities of the                      The host of an FTAA ministerial is generally responsible for providing
Host of an FTAA                              facilities, transportation, and security for both the ministerial and the
Ministerial Are Numerous,                    Trade Negotiations Committee meeting, a gathering of vice ministers that
                                             precedes the ministerial. In addition, separate forums for the business
Important                                    community and civil society typically accompany FTAA ministerials. Each
                                             of these events involves hundreds of people, including many high-level
                                             officials requiring appropriate protocol and special security measures. The
                                             task of the United States as host is especially complex, because USTR
                                             must coordinate actively with local officials and oversee host city
                                             preparations to ensure they are satisfactory. Successfully executing the
                                             many responsibilities of an FTAA ministerial host is critical, given the
                                             importance of ministerial meetings in the negotiations.

Several Factors Critical to                  Our discussions with cognizant officials suggest that hosts must have
Success                                      several basic elements in place to fulfill the responsibilities outlined above
                                             (see fig. 2). Particularly important is having (1) staff experienced in
                                             bringing together all the different components including logistics,
                                             budgeting, and procurement; (2) a plan that clearly sets forth
                                             responsibilities and timelines for putting in place necessary logistical
                                             arrangements; (3) access to funds to pay for expenses; and (4) assurance
                                             of adequate security.

Figure 2: Keys to a Successful Ministerial

                                      Keys to a Successful Ministerial

                                        Experienced and capable staff

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

                                        Access to adequate funds

                                        Ample security for participants

Source: GAO.

USTR Lacks Experience                        USTR has sole responsibility for organizing the FTAA ministerial. As an
Hosting; Miami Has Track                     agency, it has relatively little institutional experience in this area, however,
Record but Wants Support                     and it is receiving limited assistance from other agencies with expertise.

                                             Page 8                                  GAO-03-700T Free Trade Area of the Americas
                                 Until late April USTR had four permanent staff working part-time on
                                 planning the FTAA ministerial, only one of these staff has significant
                                 experience in logistics, security, and administration. USTR had received
                                 substantial help in planning the last major trade ministerial it hosted, the
                                 1999 Seattle WTO ministerial, including assistance from several
                                 Department of State officials with previous international conference
                                 planning experience.8 The Department of State is not providing similar
                                 support for the November 2003 FTAA ministerial, however, largely due to
                                 budgetary constraints. In fiscal year 1995, the Department of State was
                                 receiving $6 million to fund and support U.S. participation in international
                                 conferences. By fiscal year 1999, this appropriation had been
                                 discontinued, with no commensurate increase to USTR’s budget for trade

                                 As a result, USTR plans to rely heavily on Miami’s expertise to carry out
                                 the November 2003 meeting. Miami hosted the 1994 Summit of the
                                 Americas that launched the FTAA initiative, and the city has hosted other
                                 major events. However, the Miami organizers (committees and individuals
                                 representing both private and public sectors in South Florida, including
                                 the jurisdictions of the city of Miami, the county of Miami-Dade, the city of
                                 Coral Gables, and the city of Miami Beach), informed us that they would
                                 like more support from the federal government. In particular, on the
                                 premise that the workload and need for coordination will increase as the
                                 ministerial draws closer, they would like a full-time federal staff person to
                                 be detailed from the Department of State to Miami in a liaison capacity as
                                 soon as possible. (This had been done for the 1994 Summit of the
                                 Americas, also in Miami.)

Plans for Ministerial in Early   Both the federal government’s and Miami’s plans for hosting the November
Stages; Intense Preparations     2003 ministerial are in early stages. Some of the specific tasks identified in
Required                         FTAA guidelines have been accomplished, and more are in process. For
                                 example, accommodations for delegates and meeting space have been
                                 selected. However, 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

                                  Although some records are available, including timelines and task lists, the Department of
                                 State does not have written guidelines on how to plan such an event, and no formal, written
                                 “lessons learned” were prepared after the Seattle WTO ministerial.
                                  In fiscal year 2000, the Department of State received a separate appropriations for the
                                 Seattle ministerial.

                                 Page 9                                      GAO-03-700T Free Trade Area of the Americas
                                parties must be finalized; meeting space configured; a security plan
                                developed; and arrangements for providing credentials, translation,
                                administrative support, and other services made. The FTAA Administrative
                                Secretariat requires the United States to provide both the Secretariat and
                                the 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.

Funding Has Not Been Secured,   Among other things, funding for the FTAA ministerial has not been
and Funding Responsibilities    secured. As of early May, a budget for the event had not been finalized,
Are Still Unclear               local fund-raising had just begun, and no federal agencies had received
                                funding for the FTAA ministerial meeting. Current estimates are that the
                                ministerial will cost $10 million. Although some funding requirements can
                                be met through in-kind contributions, expenses that require an outlay of
                                funds are expected to total about $3 million and will be incurred within the
                                next 2 months. Such expenses include making deposits for hotels and
                                transportation and paying the firms supporting the FTAA Web site and
                                preparing delegate credentials.

                                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. For
                                example, this model was used for a ministerial meeting of the International
                                Telecommunications Union held in 1998 in Minneapolis, Minnesota. 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.10 This
                                amount is considerably higher than the December 1998 budget of $9
                                million. Moreover, it is nearly as large as USTR’s entire fiscal year 2001
                                budget, which was $29 million.

                                No federal agency has yet received funding for the FTAA ministerial. The
                                USTR has only requested $200,000 for the FTAA ministerial, or 2 percent
                                of the currently projected cost, but this is in the President’s fiscal year

                                 Security expenses accounted for more than half of the total cost, amounting to $14

                                Page 10                                    GAO-03-700T Free Trade Area of the Americas
                       2004 budget request for the 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 office in which
                       U.S. delegates can work, for basic translation services, and for certain
                       aspects of security. To reduce costs, USTR had planned to use computers
                       and other equipment procured for the September 2003 Cancun WTO
                       ministerial for the Miami FTAA ministerial. To date, however, USTR has
                       not been given approval by the Office of Management and Budget to
                       submit a request for a $1.3 million supplemental appropriation that would
                       fund this procurement.

                       USTR has stated that Miami will provide the vast majority of funds for the
                       ministerial. USTR plans to rely on Miami’s desire to be the site of the
                       permanent FTAA Administrative Secretariat as incentive to raise the
                       necessary funds. However, the Miami organizers believe the federal
                       government will also assume some financial responsibility because, in
                       their view, the ultimate host of the ministerial is the federal government.
                       Both parties have agreed to use the budget development process to
                       identify funding sources and apportion financial and logistical
                       responsibilities. However, this breakdown is still being discussed.

                       USTR has sought to forestall any possible funding difficulties through
                       signing an agreement with the Miami organizers for them to provide a
                       statement of fund-raising principles and periodic status reports. So far, the
                       four Miami municipalities involved have drafted a memorandum of
                       understanding regarding their financial support of the meeting. Under the
                       memorandum, they agreed to provide in-kind and cash support according
                       to a yet-to-be specified formula.11 This agreement allows signatories to
                       withdraw, however, if they determine that they can no longer financially

Security Is Critical   Another key risk the United States will face in Miami is ensuring the
                       security of participants. Previous trade ministerials have involved
                       extensive security requirements, in part because these events have
                       attracted protestors opposing globalization. USTR expects around 6,000
                       participants at the Miami ministerial. The number of protesters expected,
                       however, ranges between 20,000 and 100,000, according to both USTR and
                       the Miami organizers, compared to 9,000 participants and 50,000 protesters

                        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 11                                    GAO-03-700T Free Trade Area of the Americas
              at the Seattle WTO ministerial. In a February 2000 report,12 we noted that
              protestors interfered with the Seattle WTO ministerial by causing delays
              and disrupting proceedings. Protestors also threatened and, in some cases,
              assaulted delegates. Local reports indicated that 92 protestors and
              bystanders and 56 police officers were injured, and that downtown Seattle
              businesses suffered $3 million in property damage. At the FTAA
              ministerial in Quito, Ecuador, protestors were also present, and a
              breakdown in order at a meeting between trade ministers and civil society
              groups raised security concerns.

              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 more
              than half of the expenses incurred, in part because security had not been
              factored into logistical arrangements from the beginning. USTR’s goal is to
              have a security plan finalized by May 30, 2003.

              In summary, Mr. Chairman, despite 4 years of talks, considerable work
Conclusions   remains in order to culminate an initiative that the hemisphere’s 34
              democratically elected leaders once embraced as key to integrating their
              economies, improving growth and equity, and strengthening democracy.
              With a January 2005 deadline for completion, our work suggests that the
              United States faces challenges as co-chair of the final phase of FTAA
              negotiations and as host of a major trade ministerial in Miami just over 6
              months from now. Filling gaps in human and financial resources is critical
              to success and will require intense preparations on the part of both USTR
              and the Miami organizers between now and November. As a result, in our
              report, we recommend that USTR intensify U.S. preparations and regularly
              evaluate whether resources and plans are sufficient.

              Mr. Chairman and Members of the Subcommittee, this concludes my
              prepared statement. I will be pleased to answer any questions you may

               See GAO/T-NSIAD-00-86.

              Page 12                            GAO-03-700T Free Trade Area of the Americas
                     For future information on this testimony, please call Loren Yager or Kim
Contacts and Staff   Frankena at (202) 512-8124. Individuals making key contributions to this
Acknowledgments      testimony included Venecia Rojas Kenah, R. Gifford Howland, Rona
                     Mendelsohn, Kirstin Nelson, Jon Rose, and Marc Molino.

                     Page 13                            GAO-03-700T Free Trade Area of the Americas
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