oversight

Human Capital: Significant Challenges Confront U.S. Trade Agencies

Published by the Government Accountability Office on 2003-12-09.

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

                              United States General Accounting Office

GAO                           Testimony
                              Before the Subcommittee on Oversight of
                              Government Management, the Federal
                              Workforce and the District of Columbia,
                              U.S. Senate
For Release on Delivery
Expected at 10:00 a.m., EST
Tuesday, December 9, 2003     HUMAN CAPITAL
                              Significant Challenges
                              Confront U.S. Trade
                              Agencies
                              Statement of Loren Yager, Director
                              International Affairs and Trade




GAO-04-301T
                                                December 9, 2003


                                                HUMAN CAPITAL

                                                Significant Challenges Confront U.S.
Highlights of GAO-04-301T, a testimony
before the Subcommittee on Oversight, of
                                                Trade Agencies
Government Management, the Federal
Workforce and the District of Columbia,
U.S. Senate




Recent developments in global                   The importance of international trade to the U.S. economy has grown in the
trade have created human capital                last decade, as have the responsibilities of federal agencies involved in
challenges for U.S. trade agencies.             implementing international trade functions. For example, the September 11,
At least 17 federal agencies, with              2001, terrorist attacks have heightened the need for increased focus on
the Office of the U.S. Trade                    security within the global trade environment. In response, the Bureau of
Representative (USTR) as the lead,
negotiate, monitor, or enforce trade
                                                Customs and Border Protection has implemented new programs to improve
agreements and laws. These                      the security of the global supply chain. These new programs require greater
agencies’ strategies for effectively            attention to human capital strategies to ensure that they achieve their goals
aligning their current and emerging             of facilitating trade while preventing terrorist acts.
needs in handling international                 In addition, the administration has continued to pursue multilateral
trade functions and their human
capital resources are critical to
                                                negotiations within the World Trade Organization and with the Free Trade
improving agency performance.                   Area of the Americas countries as well as a series of new, bilateral and
                                                subregional trade negotiations. The increase in the number of initiatives has
GAO was asked to summarize its                  strained available human capital, leading to a USTR request for additional
recent studies to illustrate                    staff.
important human capital
challenges arising from current
                                                Finally, the shifting global trade environment has complicated efforts to
trade developments as U.S. trade                monitor and enforce trade agreements. For example, the United States has
agencies strive to negotiate,                   become the most frequent defendant in World Trade Organization trade
monitor, and enforce existing trade             dispute proceedings. Furthermore, as the U.S. economy has shifted toward
agreements and laws. For this                   services and high-tech industries, the industry advisory committees that
testimony, GAO discussed the                    provide trade advice to the U.S. government have required structural
challenges that USTR, the                       realignment to reflect these changes. Also, China’s growing influence in
Commerce Department, and the                    international trade has resulted in new challenges to its trading partners.
Bureau of Customs and Border                    These changing global forces require U.S. trade agencies to continuously
Protection are facing in light of               ensure that their human capital strategies closely link to the nation’s
three recent developments in                    strategic trade functions.
international trade: (1) the
increased importance of security,               Recent Trade Developments Create Human Capital Challenges in Performing Trade
(2) the ambitious U.S. negotiating              Functions
agenda, and (3) the shifting global
trade environment.




www.gao.gov/cgi-bin/getrpt?GAO-04-301T.

To view the full product, 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 implications of recent trade
developments on the human capital strategies of major U.S. trade agencies
that negotiate, monitor, and enforce trade agreements and laws.
International trade is an increasingly important part of the U.S. and world
economy: In 2001, world exports represented about one quarter of the
world’s gross domestic product (GDP), partly as a result of the succession
of trade agreements that have reduced trade barriers. However, this
dynamic trade environment and the growing number of trade agreements
have also resulted in a significant burden on U.S. trade agencies—and
their human capital—as they strive to monitor and enforce existing trade
agreements and laws while simultaneously negotiating a number of new
agreements.

As we have reported in numerous studies and testimonies before this
Subcommittee and other congressional Committees, effective alignment
between the current and emerging needs and U.S. federal agencies’ human
capital strategies is critical to improved agency performance. For this
testimony, you asked us to summarize some of our recent studies to
illustrate important human capital challenges confronting trade agencies
that have arisen from recent trade developments. Specifically, today I will
focus on the human capital challenges that trade agencies face in light of
three recent trade developments:

•   the increased importance of security,

•   the ambitious negotiating agenda of the United States at the current
    time, and

•   the shifting global trade environment.

While numerous agencies have trade responsibilities, we are focusing
today on the Office of the U.S. Trade Representative (USTR) and the U.S.
Department of Commerce because of their key roles and responsibilities
for implementing trade functions, that is, negotiating, monitoring, and
enforcing trade agreements and laws. In addition, we also discuss the
Department of Homeland Security’s Bureau of Customs and Border
Protection (CBP), because it has primary responsibility for ensuring the
security of trade in the post-9/11 environment. In performing this work, we
have drawn on a number of our recent reports, some of which directly
addressed human capital issues, and have also interviewed officials from
relevant trade agencies.


Page 1                                      GAO-04-301T Human Capital Challenges
          The terrorist attacks of September 11, 2001, have heightened the need for
Summary   increased security within the global trade environment. Combating
          terrorism became the number one priority for CBP and has significant
          implications for its human capital strategies and trade functions. Our
          recent work indicates that it is too soon to tell how the increased
          importance of security will affect the implementation of CBP’s trade-
          related activities over the long run; however, some short-term shifts in
          human capital from trade to nontrade functions have occurred. Also as
          part of its focus on terrorism, CBP has implemented new programs to
          screen high-risk containers for weapons of mass destruction at overseas
          ports and to improve security in the private sector’s global supply chain.
          Our recent work in this area found a need to link human capital strategies
          with the goals of facilitating trade and combating terrorism to establish
          accountability and ensure effective performance.

          In recent years, the United States has been pursuing a broad trade policy
          agenda whose cumulative impact has tested the limits of the government’s
          negotiating capacity. The administration has continued an ambitious
          negotiating agenda relating to the ongoing World Trade Organization
          (WTO)1 and Free Trade Area of the Americas (FTAA) multilateral
          negotiations, plus a series of new, bilateral and subregional trade
          negotiations following the passage of the Trade Act of 2002.2 Our work in
          this area shows that pursuing such a broad negotiating agenda has
          strained available resources, leading to requests for additional staff in
          recent years.

          Finally, the shifting global trade environment complicates efforts to
          monitor and enforce existing agreements, placing a substantial burden on
          the human capital resources of U.S. trade agencies. Based on our recent
          work, the United States has become the most frequent defendant in WTO
          trade dispute resolution proceedings. In addition, as the U.S. economy has
          shifted toward services and high-technology industries, our recent work
          shows that the industry committee structure that provides advice to U.S.
          trade agencies has required realignment to reflect these changes. Finally, a
          new set of challenges has also evolved in response to China’s growing



          1
           The WTO is a multilateral organization, established in January 1995, that administers rules
          of international trade and provides a forum for conducting trade negotiations among its 146
          members as well as a dispute settlement system for resolving trade disputes among its
          members.
          2
          Pub. L. No. 107-210, 116 Stat. 933, 993-1022.



          Page 2                                            GAO-04-301T Human Capital Challenges
             influence in international trade. Our work shows that these forces have
             stretched the human capital resources of U.S. trade agencies. Although the
             government has taken steps to address some of these challenges, these
             and other changes in the global trade environment require that the trade
             agencies constantly monitor and update their human capital strategies to
             ensure that they are closely linked to the strategic goals of the agencies.


             U.S. exports as a share of U.S. gross domestic product have grown
Background   significantly, increasing from less than 6 percent in 1970 to a peak of more
             than 11 percent in 1997, as shown in figure 1. The rise in U.S. imports was
             even greater, increasing from about 5 percent in 1970 to nearly 15 percent
             of GDP in 2000, according to Commerce Department statistics. Although
             the share of U.S. exports and imports has declined from those peak levels,
             they still represent a substantial part of our GDP—at 9.3 percent, and 13.3
             percent, respectively, in 2002. The U.S.’s principal trading partners include
             Canada, Mexico, Japan, and China.

             Figure 1: U.S. Exports and Imports as a Share of GDP, 1970-2002




             At least 17 federal agencies, led by USTR, are involved in developing and
             implementing U.S. trade policy. USTR’s role includes developing and
             coordinating U.S. international trade policy and leading or directing
             negotiations with other countries on trade matters. It also has primary
             statutory responsibility for monitoring and enforcing U.S. trade
             agreements. The Department of Commerce has a relatively broad role with
             respect to trade agreement activities, with three units in the International
             Trade Administration performing the key trade functions: The Import
             Administration helps enforce U.S. trade laws; Market Access and
             Compliance is responsible for ensuring that other nations live up to their


             Page 3                                      GAO-04-301T Human Capital Challenges
trade agreements; and Trade Development focuses on advocacy for U.S.
companies, export promotion services, support for trade negotiations, and
market analysis. Trade functions at the CBP are primarily directed toward
enforcing U.S. import and export laws and facilitating legitimate trade as
well as collecting duties, fees, and other assessments (more than $23
billion in fiscal year 2002). Other agencies also play important roles, such
as the departments of Agriculture and State, which have relatively broad
roles with respect to trade agreement activities. The departments of the
Treasury and Labor have more specialized roles, such as advising on
financial services or labor and workers’ rights issues. Federal trade policy
development and monitoring and enforcement efforts are coordinated
through an interagency mechanism comprising several management- and
staff-level committees and subcommittees.

The number of authorized full-time staff at USTR, Commerce’s Import
Administration, and Commerce’s Market Access and Compliance division
has increased in recent years (see fig. 2). However, actual staff levels are
still in the process of catching up with authorized levels in Commerce and
USTR offices. USTR has requested additional staff resources for 2004.




Page 4                                   GAO-04-301T Human Capital Challenges
Figure 2: Authorized and Actual Full-time Equivalent (FTE) Staff Years at USTR and Commerce’s Key Trade Offices, 1995-
2004




                                        Note: The authorized level shown for 2004 is based on the administration’s budget request for fiscal
                                        year 2004.




                                        Page 5                                                 GAO-04-301T Human Capital Challenges
                       As of January 23, 2003, the CBP had 3,269 positions dedicated to
                       performing trade-specific functions: 2,263 specialists, auditors, and
                       attorneys and 1,006 associated positions3 carry out trade activities such as
                       auditing trade compliance; processing entry documents; collecting duties,
                       taxes, and fees; assessing and collecting fines and penalites for
                       noncompliance; and advising on tariff classification issues. CBP is
                       expected to maintain these staff levels, as the Homeland Security Act of
                       2002 stipulates that the Secretary of Homeland Security may not reduce
                       the staffing levels attributable to such functions on or after the effective
                       date of the act.4 In addition, more than 18,000 CBP inspectors perform
                       trade and nontrade functions depending on the nature of their assignment.
                       For example, inspectors may screen and inspect cargo for illegal
                       transshipment of textiles, counterfeit cigarettes, illegal drugs, and other
                       contraband; and enforce compliance with U.S. trade and immigration laws.


                       After September 11, 2001, combating terrorism became the priority
The Increased          mission for the U.S. Customs Service and remained so when the Customs
Importance of          Service was transferred to the Department of Homeland Security and
                       incorporated into CBP. While it is too soon to tell how the increased
Security Has           importance of security will affect the implementation of CBP’s trade-
Significant            related activities in the long run, some short-term shifts in human capital
                       from trade to nontrade functions have occurred. As part of its focus on
Implications for       terrorism, CBP has implemented new programs to screen high-risk
Human Capital          containers for weapons of mass destruction at overseas ports and to
Strategies and Trade   improve security in the private sector’s global supply chain. CBP has made
                       progress in getting these programs up and running but has not devised
Functions              systematic human capital plans to meet long-term staffing needs for both
                       programs. The increased importance of security requires human capital
                       strategies that link with the goals of combating terrorism and facilitating
                       trade to establish accountability and ensure effective performance.




                       3
                        Associated positions support the specialists, auditors, and attorneys and include positions
                       such CBP managers, paralegals, account managers, and clerical staff dedicated to trade
                       activities.
                       4
                        Section 412(b)(2) of the Homeland Security Act, Public Law 107-296, 116 stat. 2180, states
                       that the Secretary of Homeland Security may not reduce the staff levels attributable to
                       functions performed by the following personnel and their associated support staff: import
                       specialists, entry specialists, drawback specialists, national import specialists, fines and
                       penalties specialists, attorneys of the Office of Regulations and Rulings, Customs auditors,
                       international trade specialists, and financial systems specialists.



                       Page 6                                            GAO-04-301T Human Capital Challenges
Combating Terrorism      The historical mission of the U.S. Customs Service has been to collect
Becomes a Priority,      customs revenues and ensure compliance with trade laws, but this mission
Shifting Human Capital   has shifted over time. For example, in the 1970s Customs expanded its
                         functions to include the interdiction of narcotics entering the United
from Trade Activities    States. Since September 11, 2001, combating terrorism has become
                         Customs’ priority mission, culminating in the creation of CBP on March 1,
                         2003. On that date, the U.S. Customs Service was transferred from the
                         Department of the Treasury to the Department of Homeland Security as
                         part of the Homeland Security Act of 2002.5 Figure 3 illustrates the range of
                         trade and nontrade activities that CBP performs.

                         Figure 3: Range of CBP Activities




                         While two of the nine key mission-related offices within CBP6 are primarily
                         dedicated to trade, most offices and most of CBP’s more than 40,000



                         5
                          CBP was formed through the merger of most of the U.S. Customs Service and immigration
                         inspectors and the U.S. Border Patrol of the former Immigration and Naturalization Service
                         and the agricultural border inspectors of the U.S. Department of Agriculture. While most of
                         Customs transferred to CBP, its Office of Investigations did not. Instead, the more than
                         5,000 Customs investigators and staff were transferred to the Bureau of Immigration and
                         Customs Enforcement within the Department of Homeland Security.
                         6
                         The Office of Strategic Trade and the Office of Regulations and Rulings are the two offices
                         within CBP that are primarily dedicated to trade.



                         Page 7                                           GAO-04-301T Human Capital Challenges
employees perform a range of activities that support both trade and
nontrade goals. Moreover, about a fifth of the 3,269 CBP positions
dedicated to performing trade activities are located in the trade-specific
offices, but most are located in offices that support both goals. Within this
kind of organization, activities performed by persons in the offices that
support both goals could shift from trade to nontrade activities when
security threat levels are higher without actually seeing a reduction in the
number of staff dedicated to trade. Moreover, the activities of the 18,000
plus CBP inspectors who perform trade and nontrade functions could shift
to focus on combating terrorism when security concerns are heightened.

Several examples illustrate the types of shifts from trade to security
activities that have occurred.

•   After September 11, 2001, CBP temporarily detailed approximately 380
    inspectors to international airports around the country to strengthen
    security measures—reducing the number of inspectors available to
    work on trade activities.

•   During the first 2 quarters of fiscal year 2002, CBP audits on export
    compliance were not conducted so that 150 inspectors could be
    temporarily redeployed to land ports along the northern border to
    strengthen security measures.

•   During fiscal year 2002, the Compliance Measurement program, which
    determines compliance with U.S. trade laws, regulations, and
    agreements, was temporarily discontinued for 11 months because
    import specialists and inspectors were redirected to border security
    activities. Due to the limited compliance sampling, CBP was unable to
    calculate an overall trade compliance rate for fiscal year 2002.
    Moreover, compliance measurement helps ensure the quality of trade
    data, and unreliable trade data increase the risk that critical threats will
    not be identified.

•   In fiscal year 2003, 3 of 14 scheduled textile production verifications
    were canceled when the national security alert level increased, so that
    the verification teams could remain at their ports and field offices to
    focus on security-related activities. The textile production verification
    teams, comprised of CBP import specialists and special agents,
    examine the production facilities in nations where there is potential for
    illegal transshipment of textiles.

While the Homeland Security Act stipulates that the Secretary of the
Department of Homeland Security may not reduce the staffing levels


Page 8                                     GAO-04-301T Human Capital Challenges
                        attributable to specific trade-related activities, our examination found that
                        measuring inputs such as the number of staff assigned to trade-related
                        positions does not adequately capture possible shifts away from trade
                        activities—as the number of people assigned to trade-related positions
                        may remain the same, but the focus of their work may shift to nontrade
                        duties. In addition, those positions that were not included in the
                        legislation, such as inspectors, but conduct trade and nontrade activities,
                        may increasingly shift their focus away from trade and concentrate on
                        homeland security activities. Measuring changes in CBP’s outputs and
                        outcomes will be important in assessing how the increased emphasis on
                        combating terrorism and Customs’ transfer to the Department of
                        Homeland Security have affected trade activities and whether human
                        capital strategies need to be readjusted accordingly.


New CBP Antiterrorism   Responding to heightened concern about national security since 9/11, CBP
Programs Paid Little    assumed the lead role in improving ocean container security and reducing
Attention to Human      the vulnerabilities associated with the overseas supply chain. In November
                        2001, CBP initiated the Customs-Trade Partnership Against Terrorism
Capital Planning        program, where companies agree to voluntarily improve the security of
                        their supply chains in return for reducing the likelihood that their
                        containers will be inspected for weapons of mass destruction. In January
                        2002, CBP also initiated the Container Security Initiative whereby CBP
                        officials are placed at strategic foreign seaports to screen cargo manifest
                        data for ocean containers to identify those that may hold weapons of mass
                        destruction. We reported in July 20037 that CBP had not taken adequate
                        steps to incorporate human capital planning, develop performance
                        measures, or plan strategically- - factors crucial to the programs’ long-term
                        success and accountability.

                        Initially, 10 officials were assigned to roll out the Customs-Trade
                        Partnership Against Terrorism. Under the program, companies enter into
                        partnership agreements with CBP and agree to self-assess their supply
                        chain security practices and document it in a security profile. These 10
                        officials provide guidance to companies on how to prepare their security
                        profiles as well as review the completed security profiles and prepare
                        feedback letters. As of May 2003, more than 3,300 agreements had been



                        7
                         U.S. General Accounting Office, Container Security: Expansion of Key Customs
                        Programs Will Require Greater Attention to Critical Success Factors, GAO-03-770
                        (Washington, D.C.: July 25, 2003).



                        Page 9                                         GAO-04-301T Human Capital Challenges
signed, 1,837 security profiles reviewed, and 1,105 feedback letters
prepared. However, early on CBP realized that it did not have a cadre of
staff with the skills necessary to conduct site visits to observe supply
chain practices and make substantive recommendations for improving
security. In October 2002, CBP began the process of developing a new
position, called “supply chain specialists,” to review company security
profiles, visit companies to validate information contained in the security
profiles, and develop action plans that identify supply chain vulnerabilities
and the corrective steps companies need to take. CBP was authorized to
hire more than 150 supply chain specialists and expected to hire 40 supply
chain specialists in fiscal year 2003. As of October 2003, CBP has visited
more than 130 companies to verify their supply chain security practices.
While CBP officials acknowledged the importance of human capital
planning, they said they had not been able to devote resources to
developing a human capital plan that outlines how the program will
increase its staff 15-fold and implement program elements that require
specialized training.

The Container Security Initiative seeks to deploy 120-150 inspectors,
intelligence research analysts, and agents to 30 overseas ports by the end
of fiscal year 2004. CBP eventually plans to expand to 40 to 45 ports.
Deploying four-to-five person CSI teams to foreign ports will be a
complex, multiyear task. CBP seeks candidates with specialized skills
needed to review cargo manifest data and identify suspicious containers
for inspection as well as diplomatic and language skills to interact with
their foreign counterparts. While CBP officials told us that they did not
experience significant difficulties in finding qualified staff to fill their
short-term human capital needs from among the pool of existing CBP
employees, CBP had only 12 ports up and running under the Container
Security Initiative at that time (May 2003). In addition, the teams were on
120-day temporary duty assignments; however, CBP plans to create 2- to 3-
year assignments to replace the 120-day temporary duty assignments. In
spite of the potential challenges CBP could face, CSI officials had not
devised a systematic human capital plan.

To help ensure that the Container Security Initiative and the Customs-
Trade Partnership Against Terrorism achieve their objectives as they
transition from smaller start-up programs to larger programs with an
increasingly greater share of the Department of Homeland Security’s
budget, we recommended in July 2003 that CBP develop human capital
plans that clearly describe how these programs will recruit, train, and
retain staff to meet their growing demands as they expand to other
countries and implement new program elements. Human capital plans are

Page 10                                   GAO-04-301T Human Capital Challenges
                         particularly important given the unique operating environments and
                         personnel requirements of the two programs. According to CBP officials,
                         the professional and personal relationships that supply chain specialists
                         and the Container Security Initiative teams build with their clients over
                         time will be critical to the long-term success of both programs. For
                         example, the success of the Customs-Trade Partnership Against Terrorism
                         will depend, in large part, on the supply chain specialists’ ability to
                         persuade companies to voluntarily adopt their recommendations.
                         Similarly, a key benefit of the Container Security Initiative is the ability of
                         CBP officials to work with foreign counterparts to obtain sensitive
                         information that enhances their targeting of high-risk containers at foreign
                         ports. If CBP fails to establish these good working relationships, the added
                         value of screening manifest data at foreign ports could be called into
                         question.


                         In recent years, the United States has been pursuing a broad trade policy
Ambitious Set of         agenda whose cumulative impact has tested the limits of the government’s
Ongoing Negotiations     negotiating capacity. This agenda includes undertaking significant
                         negotiating efforts in multilateral, regional, and bilateral arenas. The
Creates Demands for      administration has characterized this effort as a strategy of “competitive
Additional Staff         liberalization.” First, the United States is actively involved in the
                         challenging WTO round of negotiations launched in Doha, Qatar, in 2001.
                         Second, the United States is also a co-chair in ongoing negotiations to
                         create a Free Trade Area of the Americas. Finally, with the passage of
                         trade promotion authority in 2002,8 the United States has also launched a
                         series of bilateral and subregional free trade agreement negotiations. The
                         increase in the number of these negotiations at the same time that major
                         global and regional trade initiatives are under way has strained available
                         resources.


WTO Negotiations Had     The United States is committed to completing a new round of WTO
Ambitious Schedule for   negotiations. In November 2001, the WTO, with strong backing from the
September 2003 Cancun    United States, launched a new set of multilateral negotiations at its
                         ministerial conference in Doha. As we reported in September 2002, the
Ministerial              ministerial conference laid out an ambitious agenda for a broad set of new
                         multilateral trade negotiations as described in the Doha Ministerial




                         8
                         Pub. L. No. 107-210, 116 Stat. 933, 993-1022.



                         Page 11                                         GAO-04-301T Human Capital Challenges
                           Declaration.9 The Doha mandate calls for the continuation of negotiations
                           to liberalize trade in agriculture and services. In addition, it provides for
                           new talks on market access for nonagricultural products and negotiations
                           on trade and the environment, trade-related aspects of intellectual
                           property rights, and a number of other issues. The breadth of the
                           negotiations means that USTR will need to call on staff from a number of
                           trade agencies to assist USTR throughout the process. USTR has also
                           asked for additional staff to address the increased workload.

                           Despite recent problems, WTO negotiations are likely to continue to
                           command staff attention. Doha Round WTO negotiations are currently on
                           hold following a breakdown at the September 2003 Ministerial Meeting in
                           Cancun, Mexico, throwing the 2005 deadline for completion of the
                           negotiations in doubt. After the ministerial, WTO officials initially canceled
                           all special negotiating sessions and later called for a senior officials’
                           meeting by December 15, 2003. Despite these developments, however,
                           USTR officials do not anticipate any decrease in staff workload on WTO
                           issues because of the breadth of their ongoing WTO responsibilities and
                           their efforts to restart the negotiations.


Major U.S. Role in Final   We reported in April 200310 that, as the co-chairman, with Brazil, of the
Phase of FTAA Talks        FTAA negotiations, USTR has faced a heavy expansion of its workload.
Expands USTR’s             Demands on USTR resources increased significantly in fall 2003, when
                           USTR’s responsibilities as co-chair of the negotiations and host of the
Negotiations Workload      ministerial intensified due to preparations for the November 2003 Miami
                           FTAA ministerial. The co-chair’s formal tasks 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; and




                           9
                            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).
                           10
                            U.S. General Accounting Office, Free Trade Area of the Americas: Negotiations Progress,
                           but Successful Ministerial Hinges on Intensified U.S. Preparations, GAO-03-560
                           (Washington, D.C.: Apr. 11, 2003).



                           Page 12                                         GAO-04-301T Human Capital Challenges
                            •   co-chairing key FTAA committees.

                            In terms of resources, the U.S. team negotiating the FTAA—though
                            perceived as highly capable—is small and stretched thin. 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.
                            In addition, USTR made arrangements with other agencies for temporary
                            assistance. For example, Commerce provided a detailee who worked full
                            time in Miami beginning in July, and State provided both foreign service
                            officers and conference specialists to help host and conduct the
                            ministerial.


U.S. Pursuing               Bilateral negotiations are also applying pressure to trade agencies’ human
Simultaneous Negotiations   capital resources. In addition to the WTO and the FTAA negotiations,
on Numerous FTAs            USTR has notified Congress of its intent to pursue free trade agreements
                            (FTA) with a number of countries and has started negotiations toward this
                            end. The passage of trade promotion authority in 2002 gave U.S.
                            negotiators the opportunity to pursue trade agreements with other
                            countries under a streamlined approval process in Congress. The
                            administration sees FTAs—some with a single country (i.e., bilateral) and
                            others with groups of countries (i.e., subregional)—as opportunities to
                            promote the broader U.S. trade agenda by serving as models and breaking
                            new negotiating ground.

                            The United States is now negotiating four FTAs and intends to pursue
                            others soon. In late 2002, it began negotiating the Central American Free
                            Trade Agreement with Costa Rica, El Salvador, Guatemala, Honduras, and
                            Nicaragua; the Southern Africa Customs Union Free Trade Agreement
                            with South Africa, Botswana, Lesotho, Namibia, and Swaziland; and FTAs
                            with Morocco and Australia. In mid-2003, the administration also
                            announced that it plans to negotiate FTAs with the Dominican Republic
                            and Bahrain and in mid-November announced plans for an FTA with
                            Panama. Thailand and Sri Lanka are also being considered as FTA
                            partners. With the breakdown of WTO negotiations, the U.S. Trade
                            Representative has stated that the administration will focus on FTAs with
                            willing partners to continue making progress in trade liberalization.

                            USTR officials acknowledge that human capital impacts are associated
                            with conducting these FTAs. Each agreement involves a variety of
                            different subjects, and negotiations on most of these agreements are
                            complex. In particular, staffing constraints affect the timing of new
                            negotiations, because staff with regional responsibilities are limited by the


                            Page 13                                   GAO-04-301T Human Capital Challenges
                         extent to which they can support additional negotiations. In addition,
                         completed FTAs will require additional work to monitor compliance with
                         the terms of the agreement.

                         Pursuing an ambitious set of negotiations on an international, regional,
                         and bilateral basis is having a cumulative impact on the human capital
                         capacity of agencies that conduct trade negotiations. Since USTR’s staff
                         size of 199 is relatively small—having been set up to coordinate policy
                         among and draw expertise from executive branch agencies—it relies on
                         the departments of State, Commerce, Agriculture, the Treasury, and others
                         to provide assistance and additional issue area expertise. However, USTR
                         officials told us that their staff are already responsible for supporting
                         multiple negotiations. Although these officials stated that USTR has taken
                         steps to work more efficiently with other agencies, they have nevertheless
                         requested additional resources, as shown in figure 2, in order to face the
                         anticipated negotiations workload. For example, a recent USTR budget
                         request noted that current staff would not be able to handle the
                         combination of WTO, FTAA, and FTA responsibilities required in the areas
                         of services and investment.


                         Shifting global forces have complicated trade agreement monitoring and
Shifting Global Forces   enforcement efforts, thus posing human capital challenges for U.S. trade
Complicate               agencies. For example, we recently reported that the United States has
                         become the most frequent defendant in WTO trade dispute resolution
Monitoring and           proceedings, particularly in the trade remedy area. As a result, U.S.
Enforcement Efforts      agencies have had to devote substantial staff resources to handle these
                         cases, and USTR has requested additional staff to address the upward
and Place Substantial    trend in dispute settlement cases. We also reported that the U.S. economy
Demands on Human         has shifted toward services and high-technology industries, while the
Capital Resources        industry committee structure that provides advice to U.S. trade agencies
                         has been heavily weighted toward the agriculture and manufacturing
                         sectors. Changing the committee structure to reflect the current economy
                         and keeping its membership current has required U.S. trade agencies to
                         devote staff resources to this effort. Finally, we reported that China’s rapid
                         expansion in the world economy presents U.S. trade agencies with
                         significant human capital challenges as they strive to monitor and enforce
                         compliance with trade agreements with China. Although the U.S.
                         government has taken steps to address some of these new challenges,
                         questions remain about the alignment of human capital with the rapidly
                         growing set of responsibilities we discussed in our reports. These three
                         examples demonstrate the kinds of shifts that occur in the trade arena and
                         indicate the impacts that these changes can have on human capital. In

                         Page 14                                   GAO-04-301T Human Capital Challenges
                            each of these cases, the shifting global forces require the United States to
                            respond, and an effective response requires a clear link between the trade
                            agencies’ human capital strategies and the goals of the agencies in that
                            changing environment.


United States Is Most       Shifting global forces in the trade arena can be seen in recent trends in the
Frequent Defendant in       WTO, the principal organization that regulates international trade, as
WTO Dispute Settlement      members act to monitor and enforce trade agreements. For example, the
                            United States has become by far the most frequent defendant in WTO
Activity, Requiring         dispute settlement cases.11 Many WTO disputes in recent years have
Substantial Human Capital   concerned its members’ use of trade remedy measures whereby members
Resources                   impose duties or import restrictions after determining that a domestic
                            industry has been injured or threatened with injury by imports.12 As shown
                            in figure 4, the United States was a defendant in 30 of the 64 trade remedy
                            cases brought from 1995 through 2002, with more than half of those cases
                            filed since January 2000.13 The next most frequent defendants were
                            Argentina, which had six cases, and the European Union, a defendant in
                            five cases. On the other hand, the United States was less active than other
                            WTO members in filing trade remedy cases. As figure 4 shows, the
                            European Union was the most frequent complainant in the 64 trade
                            remedy cases, and six WTO members filed more complaints than the
                            United States did between 1995 and 2002.




                            11
                             The dispute settlement system applies to disputes between members arising under the
                            WTO agreements. See U.S. General Accounting Office, World Trade Organization:
                            Standard of Review and Impact of Trade Remedy Rulings, GAO-03-824 (Washington, D.C.:
                            Sept. 24, 2002).
                            12
                              Of 198 cases filed in the WTO from 1995 through 2002, about one-third (64 cases)
                            pertained to members challenging other members’ trade remedies—antidumping or
                            countervailing duties or safeguard measures. The remaining two-thirds of the cases
                            pertained to nontrade remedy issues such as application of sanitary and phytosanitary
                            measures, intellectual property rights, textiles and clothing, and trade-related investment
                            measures. The 198 cases originated from 276 separate requests for consultations or
                            filings—the first of four phases in the dispute settlement process. We combined multiple
                            requests for consultation regarding the same measure or law into a single case.
                            13
                             The United States was a defendant in 26 of the 108 nontrade remedy cases brought from
                            1995 through 2002.



                            Page 15                                            GAO-04-301T Human Capital Challenges
Figure 4: Most Frequent Complainants and Defendants in WTO Trade Remedy Cases, 1995-2002




                                      U.S. officials stated that some WTO trade remedy rulings have been
                                      extremely difficult to implement. For instance, some rulings have placed a
                                      greater burden on domestic agencies to establish a clearer link between
                                      increased imports and serious injury to domestic industry. As a result,
                                      officials said they would now have to expend more resources in
                                      conducting such investigations. In addition, U.S. officials said that the
                                      rulings have required U.S. agencies to provide more detailed explanations
                                      of their analyses and procedures for applying several methodologies used
                                      in trade remedy investigations.

                                      As a result of the increased WTO dispute settlement activity, U.S. trade
                                      agencies have had to devote substantial staff resources to handle these
                                      cases. According to Commerce officials, about one-half of the Import
                                      Administration’s 36 attorneys are significantly engaged in handling WTO
                                      litigation. They said Commerce has sufficient staff to handle the current
                                      workload unless the number of dispute settlement cases increases.
                                      According to USTR, the number of WTO cases its lawyers have handled
                                      has increased dramatically—from 11 in 1995, to 53 in 1997, to 69 in 1999,


                                      Page 16                                   GAO-04-301T Human Capital Challenges
                            and to 91 in 2002. USTR expects this trend will continue, both because
                            more and more WTO members are making active use of the dispute
                            settlement system but also because there are more WTO members.
                            Although the number of USTR General Counsel staff attorneys has roughly
                            doubled since 1995 (with 13 new positions added in fiscal year 2001), the
                            lawyers that were added are more than fully occupied with the current
                            workload, USTR said. As a result, USTR has requested another monitoring
                            and enforcement attorney for fiscal year 2004 to handle the increasing
                            dispute settlement work.

                            WTO trade remedy rulings and the broader set of proceedings within the
                            WTO are an important component of the international set of obligations
                            and agreements to which the United States is a party. Our review found
                            that the United States has become a focus of complaints in trade remedy
                            cases, and U.S. agencies stated that some of the rulings on these cases
                            have important implications for the future, including potential workforce
                            implications. This situation requires trade agencies to maintain human
                            capital strategies that anticipate and respond quickly to any changes.
                            Doing so would allow them to allocate staff accordingly to keep the trade
                            functions current and relevant.


Changing Structure of the   The changing structure of the U.S. economy has required a strategic
U.S. Economy Requires       realignment of some trade functions. For example, the trade policy
Trade Agencies to Modify    advisory committee system14 performs an important function through
                            which private sector committee members are able to provide input to
the Industry Advisory       trade agencies to help them negotiate, monitor, and enforce trade
Committee System            agreements; however, our September 2002 report15 found that the structure
                            and composition of the trade advisory committee system had not been
                            fully updated to reflect changes in the U.S. economy and U.S. trade policy.



                            14
                             Under section 135 of the Trade Act of 1974, 19 U.S.C. § 2155, the President is required to
                            seek information and advice from the private sector on (1) negotiating objectives and
                            bargaining positions before entering into a trade agreement, (2) the operation of trade
                            agreements, and (3) other matters regarding the administration of U.S. trade policy. A
                            system of trade advisory committees was established in the 1970s to serve this purpose. In
                            2002, the system comprised about 735 advisers spread across 34 committees. The advisory
                            committees are administered by USTR, which assumes a leadership role, along with several
                            other departments, especially Commerce.
                            15
                             U.S. General Accounting Office, International Trade: Advisory Committee System
                            Should Be Updated to Better Serve U.S. Policy Needs, GAO-02-876 (Washington, D.C.: Sept.
                            24, 2002).



                            Page 17                                          GAO-04-301T Human Capital Challenges
Although the U.S. economy had shifted toward services and high-
technology industries since the 1970s, their representation on the trade
advisory committees had not kept pace with their growing importance to
U.S. output and trade. For example, certain manufacturing sectors, such as
electronics, had fewer members than their sizable trade would have
indicated. In other cases, U.S. negotiators reported that some key issues in
negotiations, such as investment, were not adequately covered within the
trade advisory committee system. In addition, committee rosters were
only about 50 percent of their authorized levels, and some large companies
did not participate, limiting the availability of advice for negotiators from
certain committees.

Our 2002 report also found that the resources USTR and the other trade
agencies devoted to managing the trade advisory committee system did
not match the tasks that needed to be accomplished to keep the system
running reliably and well. For example, USTR officials told us that the
current staffing levels in its responsible office—three positions with
multiple responsibilities—did not allow them time to proactively manage
committee operations. The head of the office said that simply restarting all
the lapsed committees and keeping the rest of the system operating were
occupying much of the time she could devote to the system. Commerce,
which co-administers many of the trade advisory committees, faced
similar challenges. As discussed in our September 2002 report, Commerce
officials said they had to focus their limited staff—an office of three
persons—on rechartering the committees and appointment processes,
which did not allow them to meet their responsibilities to attend all the
committee meetings.

We recommended that USTR work with Commerce and several other
agencies to update the trade advisory system to make it more relevant to
the U.S. economy and trade policy needs as well as to better match agency
resources to the tasks associated with managing the system. According to
recent information that agencies provided, their staff have planned and, in
some cases, already taken a number of actions in response to our 2002
recommendations that they expect will increase efficiencies and reduce
the workload. For example, Commerce and USTR have developed a plan
for restructuring the industry advisory committees that officials believe
better reflects the U.S. economy. Under the plan, some new committees
are to be established, while the overall number of committees is to be
reduced. The latter action is expected to reduce the administrative
workload for Commerce’s staff, enabling them to focus more on
substantive matters. The plan also calls for quarterly plenary meetings that
will be open to all trade advisors. According to Commerce officials,

Page 18                                   GAO-04-301T Human Capital Challenges
bringing all advisors together at the same time will facilitate a higher level
of representation of U.S. trade negotiators at the meetings and that, as a
result, trade advisors will be better informed about ongoing negotiations.
In turn, the officials said, trade advisors should be better prepared to
deliberate on issues of interest to them and thus better able to provide
advice to U.S. trade negotiators.16

In addition, the agencies revised their process for clearing proposed new
members, thus reducing the amount of time it takes for clearance.
Moreover, a secure Web site has been established that allows members to
review the texts of draft trade negotiating documents. In addition, the
Assistant U.S. Trade Representative for Public Liaison now holds a
monthly teleconference with the chairmen of all committees. During this
call, USTR provides feedback to committees on previously raised areas of
concern or recommendations, discusses USTR’s long-term negotiating
calendar to highlight upcoming issues, and is open to discussion of general
issues or concerns. According to Commerce and USTR officials, they have
taken these actions without increasing the size of their authorized staffs.
However, it was noted that Commerce staff, who did much of the
implementing work on this issue, sometimes put in long hours in
completing their tasks. In addition, in the case of Commerce, a position
that had been vacant was filled, thus increasing the actual number of staff.

While administering the trade advisory committee system is only one of
many functions that trade agencies perform, the system does provide an
important forum for candid discussion of trade negotiating topics with a
wide range of private sector experts. Our review found that the system has
not realized its potential, however, and that lack of administrative support
was one of the reasons for this situation. While the agencies have taken
actions to improve the trade advisory committee structure and its
management, these kinds of improvements illustrate how U.S. trade
agencies need to utilize human capital strategies that anticipate and
respond to shifts in global market forces. Such an effort would allow the
agencies to allocate staff accordingly to keep trade functions current and
relevant.




16
 On November 25, 2003, USTR and the Department of Commerce announced that the plan
has been approved and the agencies expect to implement it by March 2004.



Page 19                                      GAO-04-301T Human Capital Challenges
Growing Importance of        China’s rapid expansion in the world economy presents U.S. trade
China Creates Range of       agencies with significant human capital challenges as they strive to
Human Capital Challenges     monitor and enforce compliance with trade agreements. In 2002, China
                             was the United State’s fourth largest trading partner. The rapid growth of
for Trade Agencies           China’s exports to the United States and the continuing role of the
                             government in China’s economy create a significant challenge for U.S.
                             agencies and the Congress to ensure that U.S. businesses are treated fairly.
                             Since China’s entry into the WTO on December 11, 2001, U.S. agencies
                             have taken significant actions to monitor and enforce an extensive and
                             complex set of WTO commitments. Among these actions are increasing
                             staff resources, establishing an interagency group to focus on China trade
                             issues, and considering organizational changes to better concentrate
                             analytical staff resources. However, early experiences with monitoring
                             China’s compliance with numerous and complex commitments and with
                             WTO and U.S. government mechanisms for enforcing commitments
                             illustrate just how difficult and resource intensive—particularly in terms
                             of human capital—this task will be.


Size and Scope of China’s    U.S. trade with China has been characterized by a rapidly growing deficit,
Impact on U.S. Markets Are   with a significant impact on a number of industries in the United States. As
Considerable                 figure 5 shows, U.S. imports from China have grown rapidly since 1989,
                             while U.S. exports to China have also expanded, but at a much slower rate.
                             The growing trade deficit has been addressed at several congressional
                             hearings and may require greater attention from Commerce, USTR, and
                             other trade agencies.




                             Page 20                                  GAO-04-301T Human Capital Challenges
                             Figure 5: U.S. Exports, Imports, and Balance of Merchandise Trade with China,
                             1989-2002




                             In 2002, imports from China totaled nearly $125 billion, accounting for
                             nearly 11 percent of total U.S. imports and making China the third largest
                             supplier of U.S. imports, after Canada and Mexico, respectively. The top
                             five U.S. imports from China are shown in table 2 (see the app.). China
                             was the seventh largest market for U.S. exports in 2002, and U.S. exports
                             totaled about $21 billion or 3.2 percent of total U.S. exports to the world
                             (see table 3 in the appendix).


Continuing Role of Chinese   China has made important progress during the past 25 years in opening its
Government in the Economy    market to foreign goods and services as well as foreign investment,
Creates Challenges for       according to a USTR report.17 Economic and financial reforms have
Monitoring and Enforcement   introduced market forces into China, and privileges accorded state-owned



                             17
                              USTR, 2003 National Trade Estimate Report on Foreign Trade Barriers (Washington,
                             D.C.: Mar. 31, 2003).



                             Page 21                                      GAO-04-301T Human Capital Challenges
firms are gradually being removed. However, the transition from a state-
controlled economy to a market-driven one is far from complete.
According to USTR, reforms have been particularly difficult in sectors that
traditionally relied upon substantial state subsidies as the central
government continues to protect noncompetitive or emerging sectors of
the economy from foreign competition. Moreover, USTR said, provincial
and lower-level governments have strongly resisted reforms that would
eliminate sheltered markets for local enterprises or reduce jobs and
revenues in their jurisdictions, inhibiting the central government’s ability
to implement trade reforms.18 During 2003, the Commerce Department
held more than 20 roundtable discussions with U.S. manufacturers, both
large and small, across the United States and heard similar complaints.
According to Commerce’s under secretary for the International Trade
Administration, no foreign country raised more attention as a source of
concern than China. Manufacturers complained about rampant piracy of
intellectual property, forced transfer of technology from firms launching
joint ventures in China, a broad range of trade barriers, and capital
markets that are largely insulated from free-market pressures.19

Another issue concerns the Chinese government’s decade-long practice of
pegging the Chinese yuan to the dollar as a means, according to Chinese
officials, of fostering economic stability, the absence of which could hurt
its export industries and political stability. In order to maintain this fixed
exchange rate, the government has had to intervene in the foreign
exchange market and, according to Treasury officials, recently intervened



18
  In 2002, we surveyed the views of U.S. companies with business activities in China about
prospects for China implementing its WTO commitments. Seventy percent or more of the
responding companies identified rule of law-related commitments to be the most difficult
for China to implement. These included (1) consistent application of laws, regulations, and
practices; (2) intellectual property rights; (3) enforcement of contracts and
judgments/settlement of disputes in the Chinese court system; (4) equal treatment between
Chinese and foreign entities; and (5) transparency of laws, regulations, and practices. See
U.S. General Accounting Office, World Trade Organization: Selected U.S. Company Views
About China’s Membership, GAO-02-1056 (Washington, D.C.: Sept: 22, 2002).
19
  In mid-October 2003, the U.S.-China Security and Economic Review Commission
concluded that China was supporting its manufacturers through a range of national
industrial policies, such as, for example, tax relief, preferential loans from state banks, and
requirements for foreign investors to provide foreign technology transfers. The commission
recommended that USTR and Commerce identify whether any of China’s industrial policies
are inconsistent with its WTO obligations and engage with the Chinese government to
mitigate those that are significantly impacting U.S. market access. (The commission,
created on October 30, 2000, consists of 12 members who were appointed on the basis of
recommendations made by the leadership of the House and Senate.)



Page 22                                            GAO-04-301T Human Capital Challenges
                               very heavily to prevent the yuan from appreciating against the dollar.
                               Considerable debate has occurred among experts and observers about
                               whether China’s intervention to maintain a lower-valued yuan is having a
                               negative effect on U.S. manufacturers. This issue has been the subject of
                               numerous congressional hearings with administration witnesses and was
                               also a topic of discussion between Presidents Bush and Hu Jintao at the
                               October 2003 Asia Pacific Economic Cooperation Economic Leaders’
                               Meeting and during the Secretary of the Treasury’s September 2003 trip to
                               China. Also in September, the Group of Seven20 finance ministers issued a
                               statement favoring more flexibility in exchange rates for large economies.
                               In an October 30, 2003, report to the Congress, the Treasury Department
                               concluded that no major trading partner of the United States was
                               manipulating the rate of exchange between its currency and the U.S. dollar
                               for the purposes of preventing effective balance of payments adjustments
                               or gaining unfair competitive advantage in international trade. However,
                               the report also found that China’s fixed exchange rate was not appropriate
                               for a major economy like China and should be changed. According to the
                               Treasury, the Chinese government has indicated it will move to a flexible
                               exchange rate regime but believes taking immediate action would harm its
                               banking system and overall economy.

                               The growing importance of the Chinese economy for the United States has
                               been a particular focus of attention from U.S. officials due to the
                               implications for U.S. firms and for compliance with trade agreements.
                               However, these issues require increasing attention from U.S. agency
                               personnel. Moreover, as in the case of the debate surrounding the Chinese
                               currency, these issues require appropriate expertise from U.S. trade and
                               economic agencies, and a resolution of these matters may ultimately
                               require a significant investment of time from these officials.


China’s Accession to the WTO   As we reported in October 2002,21 China’s WTO commitments span eight
Strains Agencies’ Monitoring   broad areas and require both general pledges and specific actions. We
Resources                      identified nearly 700 individual commitments on how China is expected to
                               reform its trade regime, as well as commitments that liberalize market
                               access for more than 7,000 goods and nine broad service sectors in


                               20
                                Seven leading industrialized countries of the world, including Canada, England, France,
                               Germany, Italy, Japan, and the United States.
                               21
                                U.S. General Accounting Office, World Trade Organization: Analysis of China’s
                               Commitments to Other Members, GAO-03-461 (Washington, D.C.: Oct. 3, 2002).



                               Page 23                                          GAO-04-301T Human Capital Challenges
                                 industries important to the United States, such as automobiles and
                                 information technology. Owing to the breadth and complexity of China’s
                                 commitments, China’s accession to the WTO has led to increased
                                 monitoring and enforcement responsibilities for the U.S. government.

                                 An illustration of the human capital difficulties involved in monitoring and
                                 enforcing China’s commitments relates to U.S. government efforts to
                                 establish an interagency group—the China WTO Compliance
                                 Subcommittee—whose mandate is to monitor China and the extent to
                                 which it is complying with its WTO commitments. Almost 40 officials,
                                 representing 14 departments and executive offices, participate in this
                                 subcommittee. The subcommittee was very active in 2002, meeting 11
                                 times. In these meetings, officials evaluated and prioritized current
                                 monitoring activities, reviewed the steps that China has taken to
                                 implement its commitments, and decided on appropriate responses. Also,
                                 the subcommittee held a public hearing on September 18, 2002, and USTR
                                 issued its first annual report to Congress on China’s WTO compliance on
                                 December 11, 2002, as required by law.

                                 Still, it took some time for the subcommittee to get up to full speed. For
                                 example, the various participants had to work out their respective roles
                                 and responsibilities. USTR officials sought to delineate tasks related to
                                 carrying out their monitoring action plan in China; Washington, D.C.; and
                                 Geneva (the WTO’s headquarters), including expectations for information
                                 gathering, reporting, and setting initial priorities. Finally, USTR officials
                                 undertook several activities at the beginning of the year to educate
                                 themselves on China’s WTO obligations. This was important, because
                                 monitoring these obligations entailed new or expanded responsibilities for
                                 officials in the field, and many of the Washington-based officials were
                                 relatively new to their current jobs. For example, many of the USTR
                                 officials who had actively participated in the U.S. negotiations with China
                                 that resulted in those obligations changed jobs and/or left the government
                                 soon after China became a WTO member in 2001.

U.S. Agencies Have Added Staff   USTR, Commerce, and other agencies have requested and received
and Are Considering Further      additional resources to carry out the added responsibilities arising from
Organizational Changes           China’s accession to the WTO. For example, full-time equivalent staff in
                                 key units that are involved in China monitoring and enforcement activities
                                 across four key agencies increased from about 28 to 53 from fiscal year
                                 2000 to 2002, based on agency officials’ estimates (see table 1).




                                 Page 24                                   GAO-04-301T Human Capital Challenges
              Table 1: Agency Staffing Estimates for Key Offices Involved in China WTO
              Compliance Efforts, Fiscal Years 2000-02

               Agency                                                                               2000               2001              2002
               USTR                                                                                       3                 3                    5
               Department of Commerce
                Market Access and Compliance                                                              7               19                22
                Import Administration                                                                  1.7               3.3               6.7
               Department of Agriculture                                                               7.5               7.5              10.5
               Department of State                                                                   8.25              8.25               8.75
               Total                                                                                 27.5              41.1                 53
              Source: U.S. General Accounting Office, World Trade Organization: First-Year U.S. Efforts to Monitor China’s Compliance, GAO-03-
              461 (Washington, D.C.: Mar. 31, 2003).


              Commerce had the largest overall increase in staff devoted to China WTO
              compliance during this period. Specifically, staffing levels in Commerce’s
              Market Access and Compliance division increased from 7 to 22 between
              fiscal years 2000 and 2002. Additionally, Commerce’s Import
              Administration, which takes the lead on monitoring China’s commitments
              concerning subsidies and unfair trade practices, also significantly
              increased staff dedicated to China compliance activities during the same
              time period. Commerce has also increased the number of staff involved in
              the agency’s compliance efforts on the ground in China by creating a
              Trade Facilitation Office within the U.S. embassy in Beijing. In addition,
              the Department of Agriculture has increased the number of overseas staff
              involved in the agency’s China WTO compliance activities.

              A Commerce official told us that the Import Administration is thinking of
              combining all of its China work under one deputy assistant secretary (the
              current practice is to distribute the work among three deputy assistant
              secretaries). Doing so might enhance the office’s expertise and provide a
              better basis for assessing whether additional China expertise is needed.


              As we have reported in numerous studies and testimonies before this
Conclusions   Subcommittee and others, effective alignment between federal agencies’
              human capital approaches and their current and emerging strategic and
              programmatic goals is critical to the ability of agencies to economically,
              efficiently, and effectively perform their missions. The importance of such
              a close alignment is demonstrated in the area of the U.S. government’s
              trade activities, where heightened security concerns, an ambitious trade
              negotiating agenda, and an array of global economic forces all have
              implications for sound human capital management.

              Page 25                                                                GAO-04-301T Human Capital Challenges
                  Our testimony has cited illustrations in these three areas based on our
                  recent work for Congress. In some areas, failure to sufficiently plan the
                  human capital approach, such as the CBP programs to secure the global
                  supply chain, show that the success of the programs is not assured in the
                  absence of human capital planning. In other cases, such as the U.S.’s
                  ambitious trade negotiating agenda, human capital resources may be a
                  constraint on the ability of the trade agencies to carry out their
                  negotiations at the multilateral, regional, bilateral, and subregional level.
                  Finally, the array of shifting global forces described in some of our recent
                  studies also demonstrates the implications for U.S. trade agency activities
                  and, in many cases, the agencies’ human capital activities. For example, in
                  the case of the rapid growth of China in the world economy and its WTO
                  accession agreement, the demand for specialized expertise and focus on
                  issues related to China’s economy have led to growth in personnel and
                  efforts to reorganize to meet these new monitoring and compliance
                  challenges.

                  As your Subcommittee has stressed in its guidance and hearings regarding
                  other parts of the federal government, agencies must constantly reevaluate
                  their human capital strategies to adapt and even anticipate major shifts in
                  their environment. We believe that a number of studies we have performed
                  for Congress in recent months are good illustrations—and further
                  evidence—of the validity of that approach.


                  Mr. Chairman and members of the Subcommittee, this concludes my
                  prepared statement. I will be pleased to answer any questions you or other
                  members of the Subcommittee may have at this time.


                  For further contacts regarding this testimony, please call Loren Yager at
Contacts and      (202) 512-4347 or Christine Broderick (415) 904-2240. Individuals making
Acknowledgments   key contributions to this testimony included Adam Cowles, Etana Finkler,
                  Kim Frankena, Wayne Ferris, Rona Mendelsohn, Anthony Moran, and
                  Richard Seldin.




                  Page 26                                   GAO-04-301T Human Capital Challenges
Appendix: U.S. Imports from and Exports to
China, 1989-2002

                                               This appendix provides information on U.S. imports from and exports to
                                               China during the past 14 years. Table 2 provides data on the top five U.S.
                                               imports from China between 1989 and 2002. Together, imports of these
                                               five commodities accounted for about 59 percent of total imports from
                                               China in 2002, according to the Department of Commerce.

Table 2: Top Five U.S. Imports from China, 1989-2002 (Dollars in millions)

                Miscellaneous                               Telecommunication                                         Electrical
 Year       manufactured items            Office machines          equipment                    Footwear             machinery           Total
 1989                           $2,529                $70                   $1,032                   $720                  $535       $11,859
 1990                             3,236               117                    1,142                   1,475                   652       15,120
 1991                             4,094               290                    1,466                   2,532                   876       18,855
 1992                             5,932               543                    1,752                   3,396                 1,331       25,514
 1993                             7,151               932                    2,279                   4,505                 1,723       31,425
 1994                             8,690             1,583                    3,715                   5,254                 2,252       38,572
 1995                           10,319              2,879                    4,215                   5,817                 3,094       45,370
 1996                           11,867              3,562                    4,438                   6,367                 3,874       51,209
 1997                           14,155              5,019                    5,126                   7,354                 4,877       61,996
 1998                           15,872              6,329                    6,405                   8,016                 5,707       70,815
 1999                           17,291              8,239                    7,382                   8,438                 7,022       81,522
 2000                           19,445             10,980                    9,812                   9,206                 9,037       99,581
 2001                           19,782             10,762                   10,062                   9,767                 9,048      102,069
 2002                           23,495             15,230                   14,145                 10,242                10,217       124,796
Source: Department of Commerce data.


                                               Note: Miscellaneous manufactured articles include toys and games. Telecommunication equipment
                                               includes sound recording and reproducing equipment such as telephone answering machines, radios,
                                               tape recorders and players, televisions, VCRs, and so forth.




                                               Page 27                                             GAO-04-301T Human Capital Challenges
                                            Table 3 provides figures on the top five U.S. exports to China between
                                            1989 and 2002. Together, these five commodities accounted for about 42
                                            percent of total U.S. exports to China in 2002.

Table 3: Top Five U.S. Exports to China, 1989-2002 (Dollars in millions)

                          Transport       Electrical           General industrial                  Specialized
 Year                    equipment       machinery                   machinery                      machinery Office machines              Total
 1989                             $540         $138                            $268                        $359                  $147    $5,775
 1990                              754          133                             176                          322                  133      4,776
 1991                            1,084          132                             222                          370                  148      6,238
 1992                            2,051          207                             275                          423                  161      7,339
 1993                            2,252          247                             427                          669                  213      8,619
 1994                            1,929          285                             515                          670                  233      9,178
 1995                            1,187          408                             712                          675                  306    11,613
 1996                            1,718          553                             764                          685                  254    11,801
 1997                            2,127          684                             756                          765                  324    12,533
 1998                            3,604          931                             663                          519                  830    13,908
 1999                            2,325        1,252                             675                          478                  697    12,585
 2000                            1,695        1,502                             812                          744                1,154    15,335
 2001                            2,452        1,842                           1,051                          773                1,208    17,959
 2002                            3,382        2,185                           1,105                        1,102                  913    20,553
Source: Department of Commerce data.

                                            Note: Transport equipment is primarily aircraft and parts. Office machines are mainly computers.




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                                            Page 28                                                GAO-04-301T Human Capital Challenges
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