oversight

Agricultural Exports: U.S. Needs a More Integrated Approach to Address Sanitary/Phytosanitary Issues

Published by the Government Accountability Office on 1997-12-11.

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

                  United States General Accounting Office

GAO               Report to Congressional Requesters




December 1997
                  AGRICULTURAL
                  EXPORTS
                  U.S. Needs a More
                  Integrated Approach to
                  Address Sanitary/
                  Phytosanitary Issues




GAO/NSIAD-98-32
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      National Security and
      International Affairs Division

      B-277551

      December 11, 1997

      The Honorable Thomas A. Daschle
      Minority Leader
      United States Senate

      The Honorable Tom Harkin
      Ranking Minority Member
      Committee on Agriculture, Nutrition, and Forestry
      United States Senate

      The Honorable Patrick J. Leahy
      Ranking Minority Member
      Subcommittee on Research, Nutrition and
        General Legislation
      Committee on Agriculture, Nutrition, and Forestry
      United States Senate

      The economic health of the U.S. agricultural sector depends increasingly
      on its ability to export products to foreign markets. However, certain
      foreign sanitary and phytosanitary (SPS) measures may prohibit U.S.
      agricultural products from entering foreign markets and constrain the
      growth of U.S. agricultural exports. SPS measures are designed to protect
      human, animal, or plant life or health. For example, a government might
      require imported plant products to be inspected or treated to prevent the
      introduction of new pests into the country. Subject to certain conditions,
      SPS measures are allowed under international trade rules, but the U.S.
      Trade Representative (USTR) and the U.S. Department of Agriculture (USDA)
      believe that some foreign SPS measures may in reality be disguised barriers
      to trade. You expressed concern about U.S. government efforts to address
      foreign SPS measures that may unfairly restrict U.S. agricultural exports.

      New rules regarding the appropriate use of SPS measures in relation to
      trade, established under the World Trade Organization (WTO)1 in 1995 and
      the North American Free Trade Agreement (NAFTA)2 in 1994, present new

      1
       WTO was established on January 1, 1995, as a result of the Uruguay Round of the General Agreement
      on Tariffs and Trade (GATT), which began in 1986 and ended in 1994. WTO facilitates the
      implementation, administration, and operation of multiple agreements that govern trade among its
      member countries. As of September 6, 1997, WTO had 132 member countries.
      2
       NAFTA is a multilateral trade agreement that contains obligations to govern trade among Canada,
      Mexico, and the United States. Negotiations began in June 1991, and the agreement was signed in
      December 1992. This agreement was supplemented in 1993 by negotiations of side agreements on
      labor, the environment, and the use of temporary import controls for emergency purposes, called
      “safeguards.” NAFTA entered into force on January 1, 1994.



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                 challenges to the U.S. government. First, determining whether foreign SPS
                 measures comply with WTO or NAFTA rules requires input from U.S. trade
                 agencies as well as U.S. regulatory agencies with technical and scientific
                 expertise on food-related issues. These regulatory agencies were set up to
                 achieve domestic objectives but now are increasingly expected to be
                 involved in addressing international trade issues. Moreover, U.S. efforts to
                 address foreign SPS measures must take into account U.S. regulatory
                 efforts to ensure the health and safety of domestically produced and
                 imported food and agricultural products. (See Related GAO Products for
                 reports dealing with agricultural trade and food safety issues.)

                 In response to your request, this report provides information and analysis
                 on (1) the extent to which foreign SPS measures may unfairly restrict U.S.
                 agricultural exports and (2) the federal structure and approach for
                 addressing such measures. As you requested, this report does not address
                 U.S. efforts to ensure domestic food safety or other countries’ concerns
                 about U.S. SPS measures.3


                 Sanitary and phytosanitary measures encompass many complex technical
Background       and scientific issues.4 Typically applied to both domestically produced and
                 imported goods, SPS measures may be designed to protect

             •   human or animal life or health from food-borne risks,
             •   humans from animal- and plant-carried diseases,
             •   plants and animals from pests or diseases, and
             •   the territory of a country from the spread of a pest or disease.

                 To minimize or avoid exposure to risk, SPS measures may address how
                 goods are produced, processed, stored, and/or transported. They may
                 require exporters to certify that their products meet importing-country
                 requirements and may require imported products to be inspected or
                 treated before entering the country. If a government believes that certain
                 products present a high risk that cannot be reduced through
                 risk-mitigation techniques, it may impose SPS measures to ban product



                 3
                  Several GAO reports address U.S. efforts to ensure domestic food safety, including Agricultural
                 Inspection: Improvements Needed to Minimize Threat of Foreign Pests and Diseases
                 (GAO/RCED-97-102, May 5, 1997) and Food Safety: New Initiatives Would Fundamentally Alter the
                 Existing System (GAO/RCED-96-81, Mar. 27, 1996).
                 4
                  Sanitary measures pertain to human and animal health and safety. Phytosanitary measures pertain to
                 protecting plants from pests and diseases.



                 Page 2                                                   GAO/NSIAD-98-32 Agricultural Exports
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entry altogether.5 Although SPS measures may result in trade restrictions,
governments generally recognize that some of these restrictions are
necessary and appropriate in order to protect human, animal, and plant
life and health. However, governments may disagree about whether
certain SPS measures are necessary and appropriate.

SPS measures are not a new issue in global agricultural trade. The United
States has long-standing concerns that some SPS measures, such as
European Union (EU)6 measures on meat imports, Chinese measures on
wheat imports, and Japanese measures on apple and tomato imports, are
unnecessary and have unfairly restricted U.S. agricultural exports. At the
same time, other countries have concerns about U.S. SPS measures that
restrict agricultural products entering the United States.

Because of its concerns, the United States played a lead role during
negotiations to establish the WTO and NAFTA; these negotiations developed
rules and principles to help minimize the adverse impact of SPS measures
on trade.7 The WTO Agreement on the Application of Sanitary and
Phytosanitary Measures (SPS agreement) and NAFTA’s chapter 7 on
Agriculture and Sanitary and Phytosanitary Measures recognize that
countries have a right to maintain SPS measures that protect the health and
safety of their population and agricultural sector and to determine
acceptable levels of risk. However, these agreements stipulate that the
application of SPS measures and determination of risk levels should not be
arbitrary or constitute disguised restrictions to trade. Therefore, they
require SPS measures to be based on scientific principles, including an
assessment of relevant risks. (These two agreements are similar, but not
identical. App. I contains more information about the WTO SPS agreement.)

In addition to these rules and principles, the WTO and NAFTA also provided
dispute settlement procedures to help resolve disagreements between
countries about their SPS measures. These procedures include
consultations (discussions) and review by a dispute settlement panel.


5
 Such techniques include inspection or treatment in the exporting country or at the point of entry to
the importing country, post-entry treatment or detention in quarantine facilities, or restrictions on the
use or distribution of a commodity.
6
 EU member countries include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom.
7
 The ministerial declaration that launched GATT’s Uruguay Round in 1986 stated that “negotiations
shall aim to achieve greater liberalization of trade in agriculture and bring all measures affecting
import access and export competition under strengthened and more operationally effective GATT
rules and disciplines by,” among other things, “minimizing the adverse effects that sanitary and
phytosanitary regulations and barriers can have on trade in agriculture.”



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Before invoking dispute settlement procedures, countries generally try to
resolve their disagreements through more informal means.

Although the SPS agreement and NAFTA have established certain standards
for the application of SPS measures, disagreements between countries
about these measures often involve complex issues not specifically
addressed by the texts of the agreements. First, the agreements require
measures to be based on scientific principles, but scientific research on
certain topics may not exist or existing research may be inconclusive. For
example, the lack of sufficient research on certain poultry diseases affects
U.S. exports of poultry meat to Australia.8 Second, the SPS agreement and
NAFTA require measures to be based on an assessment of risk, but
governments may have different risk tolerances or may disagree about
how to ensure certain minimal levels of risk. Such a disagreement exists
between the United States and China concerning wheat imports.9 Finally,
because of domestic pressures or larger outstanding trade or political
issues, governments may be unwilling or unable to change their SPS
measures. An EU ban in place since the mid-1980s that prohibits importing
meat treated with growth-promoting hormones10 appears to be linked, in
part, to such issues.11

Moreover, in attempting to resolve such concerns, the U.S. government
may not fully understand a foreign government’s reasons for establishing a
measure and therefore may have difficulty determining what strategy will
be most effective to resolve the issue or assessing whether its efforts are
having any impact. If additional research is required, such research can be


8
 According to USDA officials, the United States needs to determine whether research exists or conduct
new research to attempt to refute Australian concerns that avian influenza, a disease that affects
poultry, can be transmitted through poultry meat. Because of these concerns, the United States has
been unable to export poultry meat to Australia.
9
 China has a stated ban on U.S. wheat exports that contain the tilletia controversa kuhn (TCK) fungus,
arguing that for food security reasons it cannot be exposed to any risk that might reduce its wheat
production. The U.S. government has argued, based on research about the fungus, that China does not
have the right climatic conditions for the fungus to become established and, therefore, U.S. wheat
exports that are found to contain the fungus do not present a risk to China. China is not a WTO
member, but has applied to join. See page 11 and appendix III for more details.
10
  Until November 1, 1993, the EU was known as the European Community. The hormone ban was
established under the European Community by the European Commission, which was the executive
branch of the European Community and continues to exist under the EU. For ease of reference, we
refer to the hormone ban throughout this report as an EU measure.
11
 According to a January 1996 press report, even though scientific evidence demonstrated that the use
of growth-promoting hormones in livestock did not present a human health risk, EU agriculture
ministers were opposed to lifting the ban because of strong consumer opposition to hormone use. See
“U.S. Plans to Launch WTO Challenge of EU Hormone Ban Today,” Inside U.S. Trade (Jan. 26, 1996).
See page 11 and appendix III for more details.



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time consuming to complete. Finally, the government must work closely
with industry officials to determine whether they are willing to perform
any risk-mitigation techniques that the foreign government may request. In
some cases, although the government may not believe such techniques are
necessary, industry officials may be willing to perform risk mitigation in
order to gain access to a new market. Because of such issues, addressing
and seeking resolution to foreign SPS measures can be a long and complex
process that requires substantial negotiation between the United States
and foreign governments.

The United States has had long-standing concerns about several foreign
SPS measures that the new WTO rules on SPS measures have helped resolve.
For example, on June 30, 1997, a WTO dispute settlement panel requested
by the United States found that the EU hormone ban does not conform
with a number of provisions in the WTO SPS agreement. While this
represents a significant achievement for the United States, the matter is
not yet resolved because the EU has filed an appeal regarding the decision.
Examples of other key SPS issues that were resolved in 1997 include a
Japanese ban on U.S. tomato imports, EU acceptance of most U.S. meat
inspection procedures, long-standing Chinese bans on U.S. grape and
sweet cherry imports, Chilean measures on wheat and several types of
fruit, and Mexican measures on sweet cherry imports.12 Examples of
prominent measures that were resolved in 1996 and 1995, respectively,
include Russian measures on poultry imports and Korean shelf-life
standards. However, in spite of these successes, many other SPS measures
remain unresolved, and new problems involving SPS measures continually
surface.

Federal efforts to resolve issues related to foreign SPS measures coincide
with new expectations that the management of federal programs will
increasingly focus on results. Specifically, the Government Performance
and Results Act of 1993 (the Results Act) seeks to improve federal
program management by requiring federal agencies to set goals for
program performance and to measure the results of their efforts.13 The
Results Act envisions that when multiple federal agencies share
responsibility for addressing cross-cutting issues, as is true for SPS
measures, programs should be closely coordinated to ensure that goals are
consistent, and, as appropriate, mutually reinforcing.


12
 As discussed in footnote 9, China is not a WTO member but has applied to join and would be
expected to comply with WTO provisions on SPS measures upon being granted membership.
13
  P.L. 103-62 (Aug. 3, 1993).



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                   Despite growing concern that certain foreign sanitary or phytosanitary
Results in Brief   measures may be inconsistent with World Trade Organization provisions
                   and may unfairly impede the flow of agricultural trade, the U.S.
                   government is not well positioned to address this issue. Agricultural trade
                   associations and key government officials have identified such measures
                   as an increasingly important issue in agricultural trade. However, the U.S.
                   Trade Representative and the U.S. Department of Agriculture have had
                   difficulty defining the nature and scope of the problem that foreign
                   sanitary and phytosanitary measures present for U.S. exports, partly
                   because of the complex nature of the issue but for other reasons as well.
                   For example, they lack complete information on the number of measures
                   that affect U.S. exports, they are unsure how many measures that have
                   been identified may be inconsistent with World Trade Organization
                   provisions, and they do not have reliable estimates of the impact such
                   measures have had on exports. The best available data indicated that, in
                   June 1996, U.S. agricultural exports faced several hundred measures in
                   63 countries whose impact on the value of trade was potentially extensive.
                   These data, as well as the experiences of U.S. government and industry
                   officials and our review of six foreign measures, indicate that foreign
                   sanitary and phytosanitary measures affect the exports of a broad range of
                   commodities, result in a variety of trade effects, and may create additional
                   costs for the U.S. industry and government.

                   The U.S. government approach for addressing foreign sanitary and
                   phytosanitary measures has been evolving in the 2 years since World
                   Trade Organization provisions on such measures took effect. However, the
                   current approach exhibits certain weaknesses. The federal structure for
                   addressing foreign sanitary and phytosanitary measures is complex. At
                   least 12 federal trade, regulatory, and research entities have some
                   responsibility for addressing such measures, but no one entity is directing
                   and coordinating overall federal efforts. Some entities’ roles and
                   responsibilities regarding sanitary and phytosanitary measures are not
                   clearly defined, and these entities have had difficulty coordinating their
                   activities. Federal entities lack comprehensive data on which sanitary and
                   phytosanitary measures are being addressed or what progress has been
                   made to address them. They have not developed a process to jointly
                   evaluate measures and determine which ones the government should
                   address, and in what order. Once the government decides to challenge a
                   measure, multiple entities with conflicting viewpoints have made it
                   difficult to develop a unified approach to address measures and decide
                   which cases should be referred to the World Trade Organization (or, in
                   cases involving Canada or Mexico, possibly initiated under the North



                   Page 6                                      GAO/NSIAD-98-32 Agricultural Exports
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                            American Free Trade Agreement) for dispute resolution. Finally,
                            coordinated goals, objectives, and performance measurements related to
                            federal efforts to address sanitary and phytosanitary measures do not yet
                            exist.


                            Agricultural trade associations and government agencies responsible for
Foreign SPS Measures        promoting agricultural trade regard foreign SPS measures as an important
Are Regarded as an          trade issue. Private sector and government officials are concerned that
Important Trade             such measures may be used inappropriately to restrict the growth of U.S.
                            agricultural exports. While the government does not know the full scope
Issue, but the Problem      of the problem, available data indicate that foreign SPS measures affect a
Is Not Clearly Defined      broad range of U.S. processed product, meat, poultry, fruit, vegetable, and
                            grain exports. Such measures have disrupted ongoing trade or prevented
                            U.S. products from entering new markets.


Agricultural Industry and   Many agricultural trade association and U.S. government officials have
U.S. Government Have        identified foreign SPS measures as a prominent trade issue. Some U.S. and
Identified Foreign SPS      industry officials attributed this prominence to an increase in the number
                            of SPS measures that appear to affect U.S. exports, while others attributed
Measures as a Prominent     it to increased visibility of such measures following recent trade
Agricultural Trade Issue    agreements. The WTO and NAFTA addressed certain types of policies that
                            have traditionally restricted trade in agricultural products, such as high
                            tariffs and quotas.14 However, several industry and government officials
                            expressed concern that other countries may be increasing their use of SPS
                            measures as a way to compensate for these required reductions in tariffs
                            and quotas and to continue protecting their markets from imports.

                            We discussed SPS issues with representatives from 19 agricultural trade
                            associations that represent commodities such as meat, poultry, fruits,
                            vegetables, and wheat. Most of the associations regarded foreign SPS
                            measures as an important and growing issue for U.S. agricultural exports,
                            and several representatives told us they consider such measures to be
                            their association’s primary trade concern. These officials provided
                            examples of foreign SPS measures that they believe are inconsistent with
                            WTO provisions and have disrupted their exports to certain markets or


                            14
                             The WTO Agreement on Agriculture required member countries to convert nontariff barriers (such as
                            quotas and import licenses) to tariffs, reduce the level of tariffs and subsidies, and offer new market
                            access opportunities. These requirements are discussed in The General Agreement on Tariffs and
                            Trade: Uruguay Round Final Act Should Produce Overall U.S. Economic Gains (GAO/GGD-94-83a and
                            83b, July 29, 1994). NAFTA required the gradual removal of tariffs on agricultural products. See North
                            American Free Trade Agreement: Assessment of Major Issues (GAO/GGD-93-137a and 137b,
                            Sept. 9, 1993).



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                           caused them to decrease, created additional costs for their producers, or
                           prevented their exports from entering new markets.

                           Some U.S. government agencies have also become concerned about the
                           potentially negative impact of foreign SPS measures on U.S. exports. USTR
                           and the Secretary of Agriculture have both identified foreign SPS measures
                           that they believe are inconsistent with WTO rules as key barriers to exports
                           of U.S. agricultural products.15 Several USDA officials estimated that the
                           number of complaints and the percentage of time they or their staff spend
                           addressing them have increased substantially over the last few years. For
                           example, the Special Assistant for International Trade to the Secretary of
                           Agriculture told us that while he is supposed to handle all agricultural
                           trade issues, his agenda has been dominated by the proliferation of SPS
                           issues. USTR and the Secretary of Agriculture have established the removal
                           of such barriers as a primary objective of their trade agenda to increase
                           U.S. agricultural exports. Total agricultural exports were just over
                           $60 billion in 1996.


Defining the Problem Has   Although USTR and USDA are concerned about foreign SPS measures, they
Been Difficult             have been unable to precisely define the problem that such measures
                           present for U.S. exports, for several reasons. First, USTR and USDA do not
                           know the number of foreign measures that currently affect U.S. exports, in
                           part because the number changes frequently as new complaints surface
                           and old complaints are resolved. Nevertheless, USTR and USDA have both
                           developed information that indicates that foreign SPS measures that have
                           an actual or apparent adverse affect on U.S. exports exist in many
                           countries and apply to a broad range of U.S. agricultural commodities.

                           USTR’s 1996 annual report on foreign trade barriers contained information
                           about SPS measures in 26 of the 46 countries or regions it reviewed.16 In
                           early 1996, USDA attempted to develop a more comprehensive definition of
                           the problem. It surveyed (1) Foreign Agricultural Service (FAS) attachés
                           posted overseas that collectively covered 132 countries that accounted for
                           98 percent of the 1996 U.S. export market for agricultural, forestry, and
                           fisheries products; and (2) representatives of agricultural producer groups.
                           It asked the FAS attachés and producer groups to identify foreign technical
                           barriers to trade that, among other things, appeared to violate one or more

                           15
                              Statement by Dan Glickman, Secretary of Agriculture, before the House of Representatives,
                           Committee on Agriculture (Mar. 18, 1997). Statement of Ambassador Charlene Barshefsky, before the
                           Senate Finance Committee (Jan. 29, 1997).
                           16
                             1996 National Trade Estimate Report on Foreign Trade Barriers, USTR (Washington, D.C.: 1996).



                           Page 8                                                   GAO/NSIAD-98-32 Agricultural Exports
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provisions of recent trade agreements.17 As of June 1996, USDA had
developed a list of 315 technical barriers to agricultural trade in
63 countries, over 90 percent of which were SPS measures.18 One USDA
official observed that measures were frequently identified in countries that
were among the top importers of U.S. agricultural products in 1996.

While the USTR and USDA data provide some sense of the problem, they do
not accurately measure its size. The USDA survey is the best available
definition of the problem; it represents a “snapshot” of foreign SPS
measures that had been identified as of June 1996 and, therefore, does not
reflect information about measures that have been resolved or measures
that have emerged after that time. An FAS official told us that, in mid-1997,
responsible USDA agencies began to update the survey data on a quarterly
basis by adding newly identified measures and deleting resolved measures.
USDA officials said that, despite its limitations, the survey has helped them
better understand the nature and extent of foreign SPS measures.

The second reason that USTR and USDA have had difficulty defining the size
of the problem that foreign SPS measures present is because they do not
know, of the measures they have identified, how many may be
inconsistent with WTO provisions regarding SPS measures. For example,
USDA officials said some of the SPS measures identified in the 1996 survey
could be legitimate, appropriate measures that the United States should
not contest. USTR and USDA officials said that considerable scientific
research, testing, and exchange of information is often necessary before
the United States can make conclusive determinations about whether or
not a foreign measure complies with the WTO SPS agreement. These
officials said this process generally takes considerable time.

Third, USTR and USDA do not know how the SPS measures they have
identified impact the value of trade, in part because such estimates are
inherently difficult to develop. USDA unofficially estimated that the
315 measures identified in the 1996 survey threatened, constrained, or
blocked almost $5 billion of U.S. agricultural exports at the time the
survey was conducted. However, some USDA officials told us they question

17
  The measures had to meet three criteria. First, they had to be recently proposed or currently
enforced by foreign government officials. Second, they had to decrease or potentially decrease U.S.
exports. Third, they had to appear to be in violation of one or more disciplines of the new trade
agreements (for example, the WTO and NAFTA), although the determination of actual violation of any
given measure would require substantial additional investigation.
18
  Several USDA agencies participated in developing the survey and analyzing its results. Therefore, we
refer to the survey as a USDA effort, although a published report that discusses the survey and its
results states that it does not reflect the official USDA position. See Overview of Foreign Technical
Barriers to U.S. Agricultural Exports, Economic Research Service Staff Paper, Commercial Agriculture
Division, Economic Research Service (Washington, D.C.: USDA, Mar. 1997).


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                         the accuracy of the estimate for several reasons. For example, USDA
                         officials said it is difficult to predict whether an SPS measure would affect
                         all exports of a given commodity or only selected exports of the
                         commodity. Also, in cases where a U.S. commodity does not yet have
                         access to a market, estimates of the market’s potential size were based on
                         U.S. exports to a similar market, which may not be accurate. USDA officials
                         also told us the estimates were not derived from empirical trade models
                         and therefore should be regarded only as an order-of-magnitude indication
                         of the significance of foreign SPS measures to U.S. exports.

                         Without better data, particularly regarding the number of measures that
                         affect U.S. exports and more reliable estimates of their impact on trade,
                         USTR and USDA are unable to determine the size of the problem or whether
                         the problem is growing. They are also unable to evaluate how their efforts
                         have affected the size of the problem and the value of trade.


Foreign SPS Measures     Foreign SPS measures appear to affect a wide range of agricultural
Appear to Have a Broad   products, involve various health and safety issues, and result in multiple
and Diverse Effect on    trade effects or additional costs. According to USDA and industry officials,
                         the foreign SPS measures they have identified affect numerous
Trade                    commodities, including processed products, grains, oilseeds, animal
                         products, fruits, vegetables, cotton, seeds, nuts, fish, and forestry
                         products. A large portion of the foreign SPS measures identified involve
                         plant health issues, while others involve food safety or animal health
                         issues.

                         According to U.S. government and industry officials, the way in which
                         foreign SPS measures affect U.S. exports also varies. These measures have
                         threatened or constrained trade to existing markets or prevented U.S.
                         exports from entering new markets. Some measures constrain trade by
                         requiring products to be treated or inspected before entering markets,
                         which may damage the quality and marketability of certain perishable
                         products. Some commodities, such as fruits and vegetables, appear to face
                         a large number of measures while others, such as wheat, appear to face a
                         limited number of measures. USDA and industry officials have estimated
                         that some measures affect several hundred million dollars of trade, while
                         other measures affect $1 million or less.

                         We reviewed six foreign SPS measures that have affected or continue to
                         affect U.S. agricultural exports. These measures impacted various
                         commodities, involved various issues, and were estimated to have a range



                         Page 10                                     GAO/NSIAD-98-32 Agricultural Exports
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    of impacts on the value of trade (additional information about these
    measures and federal efforts to address them are contained in app. III). Of
    these six measures, one was determined to be inconsistent with WTO
    provisions regarding SPS measures by a WTO dispute settlement panel (the
    EU ban on growth-promoting hormones). USDA officials told us that four
    others may also be inconsistent with these provisions and stated their
    belief that the measures lacked a scientific basis.19

•   Since 1974, China has banned wheat shipped from U.S. states in the Pacific
    Northwest, an area where the TCK fungus is known to occur.20 China has
    continued to import wheat shipped from other U.S. ports, but if it detects
    TCK in these shipments, China requires the price to be discounted and, on a
    few occasions, has refused to accept such shipments. The impact of the
    ban on U.S. wheat exports has not been quantified.
•   In anticipation of the 1989 implementation of the EU ban on
    growth-promoting hormones in livestock production, U.S. beef and veal
    exports to the EU dropped about 93 percent in 1 year, from about
    $117 million in 1988 to about $9 million in 1989, and have recovered little
    since then (see fig. 1). In June 1997, a WTO dispute settlement panel found
    the measure to be inconsistent with the SPS agreement. The EU has
    appealed this decision.




    19
     The four measures include those of China, Japan, Korea, and Russia that we reviewed. Although
    China and Russia are not WTO members, both have applied to join WTO and would be required to
    comply with its SPS provisions upon becoming members. Therefore the United States cites WTO
    provisions in its negotiations on SPS issues with China and Russia.
    20
      According to USDA’s Agricultural Research Service, the TCK fungus reduces plant height.



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Figure 1: U.S. Beef and Veal Exports to the EU, Calendar Years 1985-95

Dollars in millions
140


120


100


 80


 60


 40


 20


  0
  1985        1986     1987       1988        1989        1990        1991         1992        1993         1994       1995


                               Fresh/chilled/frozen      Prepared/preserved        Edible organ meat



                                             Note: Edible organ meat includes only products destined for human consumption.

                                             Source: USDA.




                                         •   Since as early as 1983, Japan blocked U.S. tomato exports over concerns
                                             that U.S. tomatoes might carry tobacco blue mold (TBM). After USDA
                                             conducted 4 years of research to demonstrate that tomatoes were not a
                                             host for TBM, Japan lifted the ban on 25 varieties of tomatoes in April 1997.
                                             An industry association estimates U.S. tomato exports to Japan could
                                             reach $50 million annually.
                                         •   In 1994, a sudden and unexpected change in Korean shelf-life standards
                                             blocked the entry of more than $1 million worth of perishable U.S. sausage
                                             products that had already arrived in Korean ports. According to USTR, had
                                             these and other Korean shelf-life measures not been revised following WTO




                                             Page 12                                                  GAO/NSIAD-98-32 Agricultural Exports
                      B-277551




                      consultations, they could have affected as much as $1 billion in annual
                      U.S. exports by 1999.
                  •   Since 1992, Mexico has required U.S. peach and nectarine exports to be
                      treated and inspected before entering Mexico to protect that country from
                      the Oriental fruit moth, a pest that is known to occur in the United States.
                      USDA officials said the quantity of U.S. peach and nectarine exports to
                      Mexico, measured in terms of metric tons, dropped by about 40 percent
                      from 1991 to 1996.
                  •   In 1996, Russia imposed a brief ban on U.S. poultry exports because of
                      concerns about food safety and poultry disease issues. The ban was in
                      effect for about 1 week before the United States and Russia resolved the
                      issue. The ban did not actually cause U.S. exports to drop, but it appeared
                      to threaten the poultry industry’s largest export market, worth over
                      $900 million in 1996.

                      SPS measures can result in a variety of costs to the agricultural industry
                      and to the government. In addition to the costs associated with a partial or
                      complete loss of sales, industry officials told us that addressing apparently
                      unfair SPS measures or reaching agreement with foreign officials to enable
                      U.S. exports to begin or continue may result in other costs. In several of
                      the six cases we reviewed, industry groups or private companies incurred
                      additional costs for research, treatment, or inspection. For example, when
                      Russian officials said they wanted to inspect the nearly 300 U.S. poultry
                      processing facilities that export poultry to Russia, these processing
                      facilities paid for Russian officials’ travel expenses. Several of the six
                      cases also resulted in additional costs to the U.S. government for such
                      things as research, official travel, or translator services.


                      WTO  rules regarding SPS measures have been in place for less than 2 years,
Evolving U.S.         and the U.S. approach for addressing SPS measures that restrict U.S.
Approach for          exports is evolving. However, the current approach is not integrated or
Addressing SPS        systematic and exhibits several weaknesses. The approach is based on a
                      complex structure of multiple trade and regulatory entities, but no one
Measures Is Not       entity leads overall federal efforts. In addition, some entities’ roles and
Integrated or         responsibilities are unclear, and their efforts have not been adequately
                      coordinated. The process by which measures are addressed lacks
Systematic            comprehensive data and guidance for making key decisions, including
                      what measures the United States should address and what steps it should
                      take to address them. Moreover, although federal agencies are increasingly
                      expected to set goals for program performance and coordinate efforts
                      related to cross-cutting programs, as envisioned by the Results Act, the



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                                federal government lacks coordinated goals, objectives, and performance
                                measurements for addressing foreign SPS measures.


Federal Structure Is            The federal structure for addressing foreign SPS measures is complex. At
Complex and Lacks               least 12 federal entities have some responsibility for identifying and
Integration                     evaluating SPS measures and attempting to resolve bilateral disagreements
                                about measures that appear to be inconsistent with the WTO. No single
                                entity directs and coordinates the entire scope of federal efforts, and the
                                roles and responsibilities of some entities are not clearly defined. Entities’
                                work loads related to addressing SPS measures vary, as do the resources
                                each entity has allocated to this activity. Concerns exist about insufficient
                                resource allocations in some entities. Concerns also exist that the complex
                                structure contributes to a lack of integration and coordination among
                                responsible entities.

Multiple Federal Entities Are   Of the multiple entities involved in addressing foreign SPS measures, USTR
Involved                        has the broadest responsibility. USTR has statutory responsibility for
                                developing and coordinating the implementation of U.S. international
                                trade policy, monitoring the implementation of trade agreements reached
                                with foreign governments, and enforcing U.S. rights under those
                                agreements.21 It is also responsible for issuing and coordinating policy
                                guidance to Departments and agencies on WTO-related matters.22

                                Eight USDA entities have collective responsibility for addressing issues
                                related to foreign SPS measures. In addition, the Special Assistant for
                                International Trade to the Secretary of Agriculture has been given a
                                prominent role in addressing SPS measures and coordinating USDA’s efforts
                                in this area. As USDA’s trade agency, FAS carries out USDA’s statutory
                                responsibility for identifying foreign SPS measures that adversely impact
                                U.S. exports and providing relevant information about them to USTR.23 In
                                addition, FAS participates in negotiations to address such measures and is
                                expected to coordinate its efforts with other USDA agencies and work
                                closely with USTR. USDA has several regulatory24 entities, including the
                                Animal and Plant Health Inspection Service; Food Safety and Inspection

                                21
                                  Trade Act of 1974, as amended, 19 U.S.C. 2411-2420.
                                22
                                  Trade Act of 1974, as amended, 19 U.S.C. 2171(c)(1)(D).
                                23
                                  Agricultural Trade Act of 1978, as amended, 7 U.S.C. 5674(c).
                                24
                                  For ease of reference, we refer to USDA’s Agricultural Marketing Service; Animal and Plant Health
                                Inspection Service; Food Safety and Inspection Service; and Grain Inspection, Packers and Stockyards
                                Administration as regulatory entities, even though the scope of each entity’s regulatory authority
                                differs.



                                Page 14                                                     GAO/NSIAD-98-32 Agricultural Exports
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Service; and Grain Inspection, Packers and Stockyards Administration,
that have domestic food-related responsibilities and, therefore, are
responsible for participating in negotiations to address the technical
aspects of foreign SPS measures and evaluating how U.S. trade positions
may affect U.S. SPS measures. In addition, USDA’s Agricultural Marketing
Service plays a limited technical role because it addresses certain product
quality issues which, while not considered SPS issues, are nonetheless
related.25 In addition, scientific and economic research is performed
primarily by USDA’s Agricultural Research Service and Economic Research
Service. Finally, legal counsel and assistance is provided by USDA’s Office
of the General Counsel.

In addition to USTR and USDA, other federal entities help address SPS
measures. Federal regulatory authorities with domestic food-related
responsibilities have the needed technical expertise for addressing foreign
SPS measures and evaluating how U.S. trade positions affect U.S. SPS
measures; these include the Department of Health and Human Service’s
Food and Drug Administration (FDA) and the Environmental Protection
Agency (EPA). The Department of State is responsible for facilitating
communication with foreign government officials; it also participates in
certain bilateral negotiations on SPS issues and contributes to the overall
U.S. government policy-making process on SPS issues. Industry groups also
play a major role in helping the U.S. government identify foreign SPS
measures that affect their actual or potential exports, supporting research
on technical issues and advising on strategies to address SPS measures.

Overlapping or closely related areas of responsibility among these federal
entities can make it difficult to determine which agency should lead
federal efforts to address certain SPS measures. For example, USTR and FAS
both perform SPS-related activities and have responsibility for monitoring
and addressing agricultural trade issues. Overlap also exists within FAS,
where some divisions address trade from a commodity perspective and
others address trade from a geographic perspective. Food-related
responsibilities among the regulatory entities are closely related (see
table 1).




25
 For all products (including agricultural and industrial products), technical regulations and standards
imposed by a country, such as those related to product characteristics or related processes and
production methods, are subject to the provisions of the WTO Agreement on Technical Barriers to
Trade.



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Table 1: Primary Food-related
Responsibilities of Selected U.S.                      Primary food-related
Regulatory Entities                 U.S. entity        responsibility                           Products covered
                                    USDA
                                      AMS              Certifies the quality of a broad  Wide range of products except
                                                       range of products through grading grains and seafood (primarily
                                                       and inspection services.          quality)
                                                       Regulates the marketing of
                                                       products under federal marketing
                                                       orders.a
                                      APHIS            Protects U.S. animal and plant           Live animals, some animal
                                                       resources from pests and                 products, and all plant products
                                                       diseases.
                                      FSIS             Ensures that the U.S. supply of          Meat, poultry, and some egg
                                                       meat, poultry, and some egg              products
                                                       products is safe and wholesome.
                                      GIPSA            Grades the quality of grain              Grains (quality and some diseases)
                                                       products.
                                    FDA                Regulates food safety and labeling       All food (except meat, poultry, and
                                                       (except meat, poultry, and some          some egg products), animal feed,
                                                       egg products), use of animal             pet food, animal drugs, food and
                                                       drugs including setting and              color additives, food labeling
                                                       enforcing limits for animal drug
                                                       residues in food, and animal feed
                                                       and pet food.
                                    EPA                Regulates the use of pesticides in       Any products affected by
                                                       the United States. Establishes           pesticides (FDA and FSIS enforce
                                                       tolerance levels for pesticide           EPA pesticide tolerances)
                                                       residues in or on food.
                                    Legend

                                    AMS = Agricultural Marketing Service.
                                    APHIS = Animal and Plant Health Inspection Service.
                                    FSIS = Food Safety and Inspection Service.
                                    GIPSA = Grain Inspection, Packers and Stockyards Administration.
                                    a
                                     Marketing orders authorize the Secretary of Agriculture to regulate the marketing of fruits,
                                    vegetables, specialty crops, and milk. Depending on the commodity, marketing orders may
                                    address product size, grade, quality, maturity, quantity, distribution, packaging, or producer
                                    prices. Industry members enter the programs voluntarily and choose to have federal oversight of
                                    certain aspects of their operations.



                                    Because of their areas of responsibility, several federal entities may be
                                    involved in addressing a foreign SPS measure. For example, the EU ban on
                                    growth-promoting hormones has been addressed by USTR, USDA (FAS and
                                    the Food Safety and Inspection Service), and FDA. The ban involved
                                    technical issues, some of which were under FDA’s jurisdiction (the use of
                                    drugs in animals) and others of which were under the Food Safety and
                                    Inspection Service’s jurisdiction (the sale of meat from animals). As



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                                discussed later, we found that in certain instances the involvement of
                                multiple entities has caused coordination and communication problems.
                                However, officials from the various trade and regulatory entities stated
                                that the participation of multiple entities is not inherently problematic
                                because each entity brings its own expertise to an issue.

No Entity Directs All Federal   No single federal entity is currently directing and coordinating the entire
Efforts                         scope of federal efforts undertaken to address SPS measures. During our
                                review, several U.S. government and industry officials expressed concerns
                                that the federal structure for addressing SPS measures lacked clear
                                leadership and caused various undesirable effects, including independent
                                and separate agendas among responsible entities, difficulty making
                                decisions and tracking federal efforts, and uncoordinated activities. The
                                Secretary of Agriculture’s Special Assistant for International Trade was
                                particularly concerned about the difficulty overcoming organizational
                                boundaries among USDA agencies. Several industry representatives said the
                                federal structure made it difficult to know which federal entity should be
                                contacted to report a given problem, how the information the industry
                                provided would be shared among federal entities, or what actions federal
                                entities would take in response to the problem.

                                Certain mechanisms exist at USTR and USDA through which portions of the
                                federal response are directed and coordinated. However, none of the
                                mechanisms is comprehensive enough to include all responsible federal
                                entities and manage all federal efforts to address SPS measures. As a result,
                                substantial coordination among these mechanisms and responsible federal
                                entities is still necessary.

                                One coordination mechanism is led by USTR. USTR created the position of
                                Director for SPS Affairs within its Office of WTO and Multilateral Affairs in
                                the fall of 1996 to work closely with other federal entities responsible for
                                addressing SPS measures. At that time, the Director for SPS Affairs began to
                                more actively use the mechanism established for formal interagency trade
                                policy coordination—the Trade Policy Staff Committee (TPSC)—to
                                establish the U.S. position and approach for addressing certain foreign SPS
                                measures.26 However, TPSC discussions have focused primarily on
                                determining which individual SPS measures the U.S. government should

                                26
                                  The TPSC is one of two subcabinet interagency trade policy coordination groups that USTR leads
                                and administers. The TPSC is a staff level group, while the Trade Policy Review Group is comprised of
                                deputy or undersecretaries. Membership includes the Departments of Commerce, Agriculture, State,
                                the Treasury, Labor, Justice, Defense, the Interior, Transportation, Energy, and Health and Human
                                Services; EPA; the Office of Management and Budget; the Council of Economic Advisers; the
                                International Development Cooperation Agency; the National Economic Council; and the National
                                Security Council.



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                               raise for discussion in meetings of the WTO SPS committee. Neither USTR,
                               because of its limited resources, nor the TPSC addresses all SPS measures
                               that concern the U.S. government.

                               A second coordination mechanism was recently implemented at USDA.
                               Although the bulk of federal efforts to address foreign SPS measures occurs
                               at USDA, neither any of the eight USDA agencies nor the Secretary of
                               Agriculture’s Special Assistant for International Trade has responsibility
                               for directing and prioritizing overall USDA efforts to address SPS measures
                               or allocating resources. We discussed this situation several times with the
                               Special Assistant during the course of our review. In October 1997, the
                               Secretary of Agriculture announced the formation of a Working Group on
                               Agricultural Trade Policy to address SPS and other trade issues. The
                               working group, which will be led by the Special Assistant and comprised
                               of the heads of several USDA agencies, is to coordinate USDA efforts on
                               agricultural trade issues and provide direction regarding the allocation of
                               resources and establishment of priorities. However, because the group’s
                               primary purpose is to improve coordination within USDA on trade issues,
                               participation is to be limited to USDA agencies. The group is to serve as
                               USDA’s point of reference for coordination on trade policy issues with other
                               federal agencies.

                               A group of industry associations representing various commodities has
                               suggested that the federal structure and approach for addressing SPS
                               measures could be improved with the creation of a single office that would
                               be responsible for receiving complaints about SPS measures, coordinating
                               U.S. government activities to address the measure, and communicating
                               with the industry.

Some Roles and                 Absent overall leadership of federal efforts, some federal entities’ specific
Responsibilities Not Clearly   roles in addressing individual measures as well as their overall
Defined                        responsibility for addressing trade issues have not been clearly defined.
                               Although USTR is statutorily responsible for coordinating U.S. trade policy,
                               USTR and USDA officials told us that initial federal efforts to address SPS
                               measures are often handled by another federal entity, such as FAS or one of
                               the regulatory entities. However, it may be difficult to determine which of
                               these entities should lead initial federal efforts to address an individual SPS
                               measure because their areas of responsibility overlap or are closely
                               related. In discussing federal efforts to address individual SPS measures
                               with responsible officials, we sometimes found examples of a lack of
                               clarity about which entity was considered to be leading federal efforts or
                               disagreement about which entity should be leading federal efforts. For



                               Page 18                                      GAO/NSIAD-98-32 Agricultural Exports
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example, it was not clear whether USTR or USDA was leading federal efforts
to address the Chinese ban on U.S. wheat imports found to contain TCK,
and there were differences of opinion about whether the U.S. strategy
should focus on technical issues or trade policy.

USTR, FAS, the Animal and Plant Health Inspection Service, and the Food
Safety and Inspection Service have all had leadership roles in addressing
certain SPS measures and have all supported each other’s leadership in
addressing other measures. FDA and EPA officials told us they have
generally not led federal efforts to address individual SPS measures but
have instead supported such efforts by providing important technical
expertise. (As discussed in app. II, FDA has a lead role in other SPS-related
activities that were not the focus of this report.) The Agricultural Research
Service, the Economic Research Service, and State have also played
primarily support roles.

In addition to the lack of clarity about leadership roles to address
individual SPS measures, several U.S. and industry officials expressed
concern about various entities’ overall responsibility for, and commitment
to, addressing trade issues. For example, several industry officials
expressed concern that USTR has not taken a sufficiently active role in
addressing foreign SPS measures. While USTR is the only federal entity that
can initiate WTO dispute settlement cases, some industry officials said USTR
has appeared reluctant to do so regarding certain SPS measures. USTR
officials said they will pursue dispute settlement in all SPS cases that have
merit, but said that dispute settlement may not be the only way to resolve
a problem. They also said industry groups are sometimes uncomfortable
elevating their complaints to such a formal level. Some industry officials
also said USTR has appeared reluctant to play a role during bilateral
negotiations on certain SPS measures, prior to seeking dispute settlement
within the WTO or NAFTA. USTR officials said their role tends to become more
active on a bilateral basis when USDA agencies believe they have done all
they can to address a case. USTR officials noted they had been heavily
involved in several bilateral negotiations on SPS measures.

Several government and industry officials also expressed concern that
regulatory and research entities’ roles and responsibilities for addressing
foreign SPS measures have not been clearly defined. As discussed
previously, regulatory and research entities were created to achieve
domestic objectives related to ensuring food safety and protecting U.S.
agricultural resources but are increasingly expected to help facilitate
trade. However, officials from USTR and FAS and several industry officials



Page 19                                     GAO/NSIAD-98-32 Agricultural Exports
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                               expressed concern that some regulatory entities do not regard their role in
                               addressing foreign SPS measures as an agency priority. On the other hand,
                               several regulatory officials expressed concern that their role in the trade
                               area has expanded but their resources, which must still be allocated to
                               their primary food-related missions, have not changed. Therefore, they
                               said, increasing their trade facilitation activities would probably require
                               resources to be reprogrammed.

                               Many officials from trade, regulatory, and research agencies, and industry
                               representatives agreed that the participation of regulatory and research
                               entities in this area is necessary because these entities have technical and
                               scientific expertise that trade agencies lack. Beyond their technical
                               expertise, certain USDA entities have a mandated trade role because they
                               are responsible for certifying that exports of products they regulate are
                               healthy and safe.27

Workloads and Resources Vary   Because the SPS-related roles and responsibilities of federal entities vary,
                               their workloads and the resources they have allocated to addressing SPS
                               measures also vary. Some entities have substantial responsibility regarding
                               SPS measures, while others’ responsibility is more limited. Some entities,
                               accordingly, have increased the staff allocated to this issue. However, the
                               resource allocations of certain entities remained a concern among
                               government and industry officials.

                               In USTR, SPS responsibilities are handled primarily by the Director for SPS
                               Affairs, staff from the Offices of Agricultural Affairs and General Counsel
                               and, as needed, various regional trade specialists. USTR officials
                               acknowledged that its responsibilities for addressing SPS measures are
                               broad, but its resources for doing so are limited. The Director for SPS
                               Affairs, who is currently detailed to USTR from State, estimated that USTR
                               allocates three to four full-time staff year equivalents to addressing SPS
                               issues; other staff are assigned as needed. As a result, USTR officials said
                               they rely on USDA agencies to help them identify SPS measures, perform
                               technical and scientific assessments of the measures, initiate discussions
                               with foreign government officials about measures, and keep USTR informed
                               of their progress. In addition, several USTR and USDA officials said USTR’s
                               small legal staff has been overwhelmed by the growing workload


                               27
                                The Animal and Plant Health Inspection Service certifies that plant products are free of pests and
                               diseases and that live animals are free of disease. In 1995, it issued 274,000 export certificates for plant
                               products and an estimated 25,000 export certificates for live animals. The Food Safety and Inspection
                               Service certifies that meat, poultry, and egg product exports are safe and wholesome. It could not
                               provide data on the number of certificates issued, but responsible officials estimated the figure at over
                               200,000 each year.



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associated with initiating and following dispute settlement cases on behalf
of multiple trade sectors. USTR officials said the number of dispute
settlement cases involving agricultural products, in particular, has grown
since the WTO was created, and the litigation of such cases is extremely
resource intensive.28 (As discussed in app. I, a WTO official also expressed
concern about the growing number of dispute settlement cases.)

Within USDA, although the Secretary’s Special Assistant has a central role in
coordinating USDA efforts to address SPS measures, he does not control any
budget or staff resources. FAS, which has broad daily responsibility for
addressing SPS measures, has increased its staff resources over the last few
years to respond to this problem (see fig. 2). In 1990, it established the
Office of Food Safety and Technical Services to better address SPS issues
affecting U.S. exports. In 1997, the office was renamed the Food Safety
and Technical Services Division.




28
  From 1986 through 1992, the United States requested 12 GATT panels be formed to review issues
involving agricultural products (including fish and processed products). Most of these were requested
between 1986 and 1988. Between the WTO’s creation on January 1, 1995, and August 30, 1997, the
United States had engaged in WTO consultations or had dispute settlement panels be established
12 times for issues involving agricultural products (including fish or processed products).



Page 21                                                   GAO/NSIAD-98-32 Agricultural Exports
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Figure 2: FAS Full-time Staff Years for
Addressing Foreign SPS Measures,
Fiscal Years 1994-97                      Number of full-time staff years
                                          60


                                          50


                                          40


                                          30


                                          20


                                          10


                                           0
                                                      1994               1995               1996                1997

                                          Note: Includes staff in FAS’ Food Safety and Technical Services Division, commodity divisions,
                                          and overseas posts.

                                          Source: USDA.




                                          Among regulatory entities, workloads for addressing SPS measures vary
                                          according to their food-related responsibilities and technical expertise.
                                          USDA officials told us that technical assistance is required most often from
                                          the Animal and Plant Health Inspection Service, the Food Safety and
                                          Inspection Service, and FDA. Because of varying workloads, as well as the
                                          continued lack of clarity about regulatory entities’ growing trade role,
                                          these entities have allocated different levels of resources to address SPS
                                          measures. For example, officials from the Animal and Plant Health
                                          Inspection Service told us that their agency’s mission has been expanded
                                          to include trade facilitation of both imports and exports and they have
                                          allocated additional staff and budget resources to addressing foreign SPS




                                          Page 22                                                  GAO/NSIAD-98-32 Agricultural Exports
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                                      measures.29 Officials from the Food Safety and Inspection Service told us
                                      that while trade facilitation is important, it is not their primary mission,
                                      and they have not allocated additional resources to this activity. Figure 3
                                      shows the full-time staff years that the Animal and Plant Health Inspection
                                      Service and the Food Safety and Inspection Service told us they devoted to
                                      negotiating with foreign government officials about SPS measures from
                                      1994 to 1997.


Figure 3: Selected USDA Regulatory
Entities’ Full-time Staff Years for
Addressing Foreign SPS Measures,      Number of full-time staff years
Fiscal Years 1994-97                  50

                                                                                                              42
                                      40                                                 38
                                                 36                  37


                                      30


                                      20


                                      10
                                                         3                    3                    3                   3
                                       0
                                                  1994                 1995                 1996                1997

                                                                              APHIS     FSIS

                                      Legend

                                      APHIS = Animal and Plant Health Inspection Service
                                      FSIS = Food Safety and Inspection Service

                                      Source: USDA.




                                      FDA and EPA officials told us they do not have a mandate or any resources
                                      to assist agricultural exports, although they have made resources available
                                      when USDA or USTR requested their assistance. FDA officials said the

                                      29
                                       For example, in 1992, the Animal and Plant Health Inspection Service established a Trade Support
                                      Team to ensure internal coordination on technical trade issues and facilitate the agency’s relationship
                                      with other USDA and non-USDA entities. In 1995, it established a Phytosanitary Issues Management
                                      Team to better manage the agency’s trade responsibilities for plant products.



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                           resources required for regulatory entities to address foreign SPS measures
                           and defend U.S. SPS measures have not been adequately evaluated and are
                           likely to be substantial.

Concerns Expressed About   Several industry and government officials expressed concern that
Uncoordinated Activities   insufficient coordination among federal entities hinders the effectiveness
                           of federal efforts to address SPS measures. Responsible federal officials
                           said inadequate coordination led to a lack of knowledge among
                           responsible entities about which measures each was working on, what
                           activities were planned or had been performed, or the status of each
                           other’s efforts. We found inadequate coordination could be attributed to
                           several factors, including lack of overall leadership, shifting and
                           sometimes unclear roles, and separate management structures. For
                           example, seven of the eight USDA entities report to their own
                           administrators and to one of four undersecretaries or assistant secretaries,
                           who make independent decisions about their agencies’ priorities and how
                           to allocate their agencies’ budget and staff resources.30

                           Inadequate coordination among multiple federal entities is not a new
                           problem. For example, in our past work on the U.S. system for ensuring
                           food safety, which is comprised of multiple federal entities, we concluded
                           that agency self-interest and differing regulatory approaches hindered
                           adequate coordination.31 Moreover, we noted that efforts to improve
                           coordination have traditionally fallen short because federal entities
                           continued to operate under different statutes and appropriation acts. Many
                           of the entities we examined in our past work also have responsibility for
                           addressing the technical aspects of foreign SPS measures.

                           In a March 1997 review of NAFTA implementation, USDA’s Office of the
                           Inspector General also concluded that departmental guidance is needed to
                           improve coordination among USDA trade and regulatory entities on trade
                           issues, particularly regarding the development of unified negotiating
                           strategies.32 The Inspector General also found that the lack of such


                           30
                            FAS reports to the Undersecretary for Farm and Foreign Agricultural Services. The Agricultural
                           Marketing Service; the Animal and Plant Health Inspection Service; and the Grain Inspection, Packers
                           and Stockyards Administration report to the Assistant Secretary for Marketing and Regulatory
                           Programs. The Food Safety and Inspection Service reports to the Undersecretary for Food Safety. The
                           Agricultural Research Service and the Economic Research Service report to the Undersecretary for
                           Research, Education, and Economics.
                           31
                            See Food Safety and Quality: Uniform, Risk-based Inspection System Needed to Ensure Safe Food
                           Supply (GAO/RCED-92-152, June 26, 1992) and GAO/RCED-96-81, Mar. 27, 1996.
                           32
                              See Implementation of Agricultural Provisions of NAFTA, Office of the Inspector General, USDA
                           (Washington, D.C.: USDA, Mar. 1997).



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                          coordination had hampered USDA’s progress in negotiating with Mexico
                          about SPS measures and related issues that blocked access for certain U.S.
                          agricultural products.

                          To address coordination problems within USDA, two interagency groups
                          were created in 1995 at the staff and management levels. The staff level
                          group is headed by FAS’ Food Safety and Technical Services Division; it
                          includes staff from all responsible USDA entities and coordinates informally
                          with non-USDA entities. It meets weekly to discuss new developments and
                          the status of ongoing efforts. The management level group, called the “SPS
                          Action Team,” was headed by the Secretary of Agriculture’s Special
                          Assistant and included high-level staff from all responsible USDA entities.
                          The action team met intermittently to coordinate overall USDA efforts
                          regarding certain SPS measures based on information provided by the staff
                          level group. According to the Special Assistant, the action team is being
                          replaced by the Working Group on Agricultural Trade Policy. He said the
                          emphasis of the two groups differs—the action team focused on
                          coordinating USDA efforts to address certain measures, while the working
                          group is to have a broader management focus by addressing overall
                          coordination, resource allocation, and prioritization of efforts.


Federal Approach Is Not   The federal approach for addressing SPS measures encompasses many
Systematic and Lacks      activities, including negotiating with trading partners about individual
Guidance to Make Key      measures; performing scientific research; working with international
                          bodies such as the WTO, NAFTA, and certain international standard-setting
Decisions                 organizations;33 and managing the overall federal work load. In this report,
                          we focus on federal efforts to systematically identify, evaluate, prioritize,
                          and address SPS measures that appear inconsistent with WTO provisions
                          and to manage the associated work load.

                          Federal entities seek to address foreign SPS measures through bilateral
                          discussions and within multilateral forums; both approaches may focus on
                          technical issues or international trade rules. Based on our review of
                          federal efforts to resolve six SPS measures, we found that the specific

                          33
                            Key organizations include the Codex Alimentarius Commission, the International Office of
                          Epizootics, and the International Plant Protection Convention. The Codex Alimentarius Commission
                          was established in 1962 by the United Nations Food and Agriculture Organization and the World
                          Health Organization to facilitate fair trade in food, protect the health of consumers, and promote the
                          creation of international food standards. It has examined pesticides, food additives and contaminants,
                          and veterinary drugs related to a broad range of agricultural products. The International Office of
                          Epizootics was established in 1924 to facilitate international trade in animals and animal products by
                          addressing health issues to avoid the spread of animal diseases. The International Plant Protection
                          Convention was established in 1951 to facilitate the development of international phytosanitary
                          standards.



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                              federal efforts undertaken to address each measure differed from case to
                              case. We also found that entities with food-related technical expertise
                              typically lead bilateral discussions on technical issues, in which they
                              assess the necessity of foreign measures and provide data or conduct
                              research to demonstrate the health or safety of U.S. products or the
                              process by which they are produced. Trade entities typically lead bilateral
                              discussions that focus on international trade rules, in which they discuss a
                              foreign measure’s compliance with WTO rules regarding SPS measures. In a
                              few instances, the government has turned to the multilateral arenas of the
                              WTO or NAFTA and invoked dispute settlement procedures to resolve certain
                              issues. USTR is responsible for leading U.S. efforts in multilateral trade
                              arenas. (App. II contains more information about the federal approach for
                              addressing SPS measures and related activities.)

No Process to Develop         The U.S. government lacks centralized, up-to-date information to track its
Centralized Information and   efforts to address foreign SPS measures, such as the number of foreign SPS
Evaluate Measures             measures that affect U.S. exports, which of these measures federal entities
                              are addressing, what steps have been taken to address each measure,
                              which measures have been resolved, and how any resolved cases have
                              affected U.S. exports. The federal structure contributes to this problem
                              because information about SPS measures is collected and tracked
                              separately by trade and regulatory entities. For example, several USDA
                              entities have developed their own electronic data bases or management
                              systems for identifying SPS measures and tracking the status of their efforts
                              to address them. However, even though these systems may include some
                              of the same issues, they are not linked and cannot be accessed by other
                              USDA staff. Moreover, whether entities had such systems or not, most were
                              unable to tell us what measures they were working on at any given time.

                              Some centralized information has been developed, but it is of limited use.
                              In 1996, the Animal and Plant Health Inspection Service developed a
                              system to track the status of its efforts to address trade issues, many of
                              which are SPS measures. The system, in which the Animal and Plant Health
                              Inspection Service plans to store certain other entities’ trade issues, can be
                              accessed outside of the agency by authorized USDA staff. So far the system
                              only contains information about a limited number of issues tracked by the
                              Animal and Plant Health Inspection Service and the Agricultural Marketing
                              Service. Officials from the Food Safety and Inspection Service and the
                              Grain Inspection, Packers and Stockyards Administration told us they plan
                              to add their trade issues to the system, but FAS officials said they do not
                              plan to do so. According to several USDA officials, progress on developing
                              this system has been slowed by concern among the participating entities



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                          B-277551




                          about storing what they view as internal agency information on a system
                          that can be accessed by other USDA agencies or the public. The other
                          centralized information is contained in the 1996 USDA survey. FAS has begun
                          to update the survey on a quarterly basis to add new issues and remove
                          resolved issues. It is not clear whether the Animal and Plant Health
                          Inspection Service system and FAS efforts related to the USDA survey are
                          duplicative.

                          In addition to lacking centralized information about SPS measures and their
                          efforts to address them, the U.S. government does not have a regular
                          process by which entities jointly evaluate complaints about foreign SPS
                          measures to determine which measures the U.S. government should
                          address. Trade entities evaluate foreign SPS measures for their compliance
                          with WTO provisions, while regulatory entities evaluate foreign SPS
                          measures for their technical or scientific basis. However, we found that
                          differences of opinion regarding the consistency of certain foreign SPS
                          measures to relevant WTO provisions or their technical legitimacy may
                          exist among federal entities or between federal entities and the affected
                          industry. The lack of a regular process that ensures that entities with both
                          trade and technical expertise collectively evaluate foreign SPS measures
                          creates the potential that limited government resources may be allocated
                          to addressing measures some federal entities do not regard as
                          problematic.

No Process to Determine   Responsible federal entities receive more complaints about foreign SPS
Priorities                measures than they are able to work on, but the U.S. government does not
                          have a systematic process to prioritize its efforts. We found that
                          responsible federal entities have had different views about which SPS
                          measures should be addressed and in what order. Some entities have
                          made their own decisions about which measures they would address,
                          which sometimes conflicted with the decisions of other entities. Officials
                          from both trade and regulatory entities provided examples of instances in
                          which they had requested help from another entity to address one of their
                          issues, but the other entity did not respond in a timely way or did not
                          appear to place as much importance on the issue. Some USDA officials
                          expressed concern that industry pressure has played a larger role in
                          determining what USDA addresses than has objective analysis of individual
                          measures and their impact on trade.

                          During most of our review, federal entities lacked objective criteria to help
                          them decide which foreign SPS measures should be addressed and
                          prioritize their efforts. In February 1997, USTR developed provisional



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                           criteria to help TPSC members determine which of a small subset of
                           measures should be raised for discussion in WTO SPS committee meetings.
                           The criteria included the following factors: (1) domestic producers
                           requested government assistance to address the measure; (2) the measure
                           appears to be inconsistent with the WTO SPS agreement or other WTO
                           provisions or involves the non-use or improper use of international
                           standards, guidelines, and recommendations; (3) bilateral technical
                           discussions or WTO consultations have taken place but have not achieved
                           progress toward resolution; and (4) agencies agree that addressing the
                           measure in the WTO SPS committee will promote resolution of the issue and
                           will not damage other U.S. bilateral interests. In an August 1997 meeting,
                           USTR officials identified other factors that are not among the list of
                           provisional criteria. For example, they told us the TPSC considers whether
                           sufficient scientific evidence exists to refute the measure and whether U.S.
                           efforts to address the measure will undermine U.S. regulatory interests.

                           USDA  officials told us the Department does not have formal criteria for
                           determining which foreign SPS measures responsible agencies should
                           address or establishing priorities, but FAS officials identified unofficial
                           criteria they believe are useful. These included the estimated impact of the
                           measure on U.S. exports, an assessment of the industry’s interest in
                           resolving the measure, and the availability of conclusive scientific
                           evidence (or whether additional research must be conducted and, if so,
                           whether the research can be funded and the amount of time required for
                           its completion).

                           The Secretary’s Special Assistant told us the Working Group on
                           Agricultural Trade Policy will establish official criteria to help evaluate SPS
                           measures and determine USDA priorities and resource allocation. The
                           Special Assistant said it is possible USTR’s and USDA’s criteria will differ, but
                           said this is appropriate because USDA’s efforts are focused on evaluating
                           hundreds of measures to determine which ones USDA should address and
                           in what order while USTR’s efforts are focused on evaluating a smaller
                           subset of measures to determine which ones the United States should
                           raise to the more formal WTO level.

No Guidance to Determine   No guidance exists to help federal entities overcome differences of
Unified Approach           opinion and develop a unified approach for addressing individual SPS
                           measures. In determining how to deal with any individual SPS measure,
                           several key decisions must be made regarding the U.S. position about a
                           measure, the substance and timing of U.S. communication with the foreign
                           government, the data the U.S. government will supply or the research it



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will undertake, the agreements or solutions that are acceptable, and the
appropriateness of invoking dispute settlement procedures. Several U.S.
officials also said the U.S. position about a foreign measure must avoid
undermining U.S. regulatory interests.

As our review of federal efforts to address six foreign SPS measures shows,
various combinations of federal entities and actions may be employed to
address such measures. However, federal entities have had difficulty
agreeing about what specific actions should be taken in individual cases
and what resolutions are acceptable. Federal entities have also had
different opinions about whether the approach being followed is effective
or needs to be changed.

In its NAFTA implementation report, the USDA Inspector General found that
USDA entities did not always develop a strategy before meeting with
officials of other NAFTA governments to discuss trade issues.34 It reported
concerns that USDA’s objectives for such meetings were not clear. The
Inspector General found that differing perspectives among trade and
regulatory authorities about the correct approach may have hampered
strategy formulation. It also found that USDA trade and regulatory entities
differed in their viewpoint about whether bilateral issues should be
discussed at meetings of the NAFTA SPS committee—FAS considered this to
be a key function of the committee, whereas regulatory entities were
reluctant to discuss issues in the committee until they had thoroughly
pursued bilateral negotiations. The Inspector General concluded that
departmental guidance is needed to overcome these differences of opinion
about approach and ensure that coordinated strategies are developed.

Like the Inspector General, we found that trade and regulatory authorities,
as well as industry representatives, sometimes had different opinions
about the appropriateness of a foreign measure or the country’s reason for
establishing it. Therefore, they were likely to disagree about the best
negotiating approach to resolve the issue. In such instances, government
and industry officials often expressed concern that the lack of agreement
hampered effective decision-making and progress. We found differences of
opinion (such as among government entities, among industry officials, and
between the government and industry) throughout the six SPS measures
we reviewed. In these cases, and others that we discussed with federal and
industry officials, we found that trade authorities and industry officials
were more likely to characterize a foreign measure as an unfair trade
barrier and favor moving quickly to trade policy discussions with foreign

34
  See Implementation of Agricultural Provisions of NAFTA.



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trade authorities. Meanwhile, regulatory authorities were more likely to
emphasize the technical complexity of the issue and favor thorough
technical discussions with foreign regulatory authorities.

We found that conflicting perspectives between trade and regulatory
authorities were not unusual. For example, some trade authorities and
industry officials expressed frustration that regulatory authorities seemed
to lack a sense of urgency regarding trade matters and were willing to
engage in technical discussions for many months and years. They
expressed concerns that regulatory authorities lacked negotiating
expertise, which sometimes precluded them from obtaining the most
advantageous result for the U.S. industry. Some regulatory authorities
expressed frustration that trade authorities and industry officials did not
seem to understand that deliberate and lengthy technical and scientific
processes were often necessary to adequately and properly address
foreign regulatory authorities’ stated concerns about U.S. products. They
stated that, as regulatory authorities, they respected foreign authorities’
efforts to ensure adequate protection for human, animal, and plant life and
health.

Several U.S. government and industry officials observed that in certain
limited circumstances, such as when a foreign SPS measure has threatened
a large amount of U.S. exports, responsible federal entities have
responded quickly and cohesively. These officials suggested that such
cases were unique because high-level officials from a single entity
assumed responsibility for directing federal efforts and assigning roles to
trade and regulatory authorities.

In response to internal concerns about USDA’s efforts, several of the
responsible USDA agencies began to meet on a monthly basis in
October 1996 to discuss SPS issues affecting U.S. trade, facilitate the
exchange of information between the agencies, coordinate joint action to
resolve issues, identify medium- and long-term priorities, and improve
team building. However, we were unable to determine whether the
meetings have achieved their stated purposes because, although we
requested thorough documentation of the meetings and their results, USDA
could only provide a limited number of meeting minutes. Based on the
minutes we did review, the meetings appeared to be focused more on the
exchange of information about current efforts than on developing
priorities and strategies for addressing SPS measures.




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Need for Invoking Dispute        In addition to differences of opinion about the best approach to address a
Settlement Is Debated            foreign SPS measure, federal entities have debated whether and when WTO
                                 or NAFTA dispute settlement procedures should be invoked to resolve
                                 problems over certain SPS measures. This debate occurs at several levels.
                                 Within USDA, responsible entities have had difficulty agreeing that they
                                 have done all they can to resolve an SPS issue and that dispute settlement
                                 is probably the appropriate next step. This may stem from underlying
                                 disagreements about whether current efforts are working or different
                                 opinions about whether scientific evidence against a particular measure is
                                 strong. When USTR and USDA determine that a more formal process should
                                 be considered to address a measure, such as the WTO SPS committee or WTO
                                 consultations or dispute settlement, the debate expands to include
                                 relevant members of the TPSC. USTR officials said the TPSC discusses the
                                 issue according to the provisional criteria USTR established, but said
                                 substantial debate among TPSC members still occurs.

                                 The debate about whether to refer SPS cases to the WTO for dispute
                                 settlement occurs not only among federal entities but between federal
                                 entities and the private sector, as shown by several of the SPS cases we
                                 reviewed. Dispute settlement procedures were invoked regarding Korean
                                 shelf-life standards and the EU ban on hormones and were considered as a
                                 possible approach regarding the Japanese ban on tomatoes. In several of
                                 these cases, we found evidence of debate among federal entities about
                                 whether dispute settlement was the appropriate course of action. In
                                 several cases, industry officials told us they were disappointed that the
                                 government was slow to decide about moving to dispute settlement. For
                                 example, some industry officials told us they expected USTR to invoke
                                 dispute settlement procedures in the EU hormone case immediately
                                 following the WTO’s implementation in January 1995. Filing this case was
                                 delayed until May 1996, however, in part because of indications during
                                 1995 that the EU might revise the measure. Similarly, some industry
                                 officials told us they intended to insist that USTR invoke dispute settlement
                                 procedures in the Japanese case if it was not resolved by early 1996. While
                                 dispute settlement was considered and the possibility may have been
                                 mentioned to Japanese officials, it was not pursued. This case was
                                 ultimately resolved over a year later, in April 1997. In the Korean shelf-life
                                 case, USTR engaged in WTO consultations within 6 months of the WTO’s
                                 implementation, and the case was resolved.

Coordinated Goals, Objectives,   Responsible federal entities have not developed coordinated goals,
and Performance                  objectives, and performance measurements for programs designed to
Measurements Lacking             address SPS measures. In response to the Results Act, USTR and USDA



                                 Page 31                                      GAO/NSIAD-98-32 Agricultural Exports
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prepared strategic plans to outline their agencies’ overall goals and
objectives as required by the act.35 These plans identified foreign SPS
measures as a key issue that the United States faces in its goal to expand
agricultural exports and contained broad goals for addressing SPS
measures.36 The plans also recognized the need to coordinate with other
responsible entities in addressing SPS measures. More specific and
better-coordinated goals, objectives, and performance measurements,
however, are critical to forming the integrated approach for addressing SPS
measures that our work has shown is needed.

The principles underlying the Results Act provide guidance that the
multiple responsible agencies can use to develop coordinated goals,
objectives, and performance measurements and to improve the
management of individual agency and overall federal efforts related to SPS
measures. For example, the act focuses on clarifying missions, setting
program goals, and measuring performance toward achieving those goals.
In addition, the act’s focus on results implies that federal programs
contributing to the same or similar results, often referred to as
“cross-cutting programs,” should be closely coordinated to ensure that
goals are consistent and, as appropriate, program efforts are mutually
reinforcing. This means that federal agencies are to look beyond their
organizational boundaries and coordinate with other agencies to ensure
their efforts are aligned.

In our work examining implementation of the Results Act, we identified
several critical issues that need to be addressed if the act is to succeed in
improving management of federal agencies. Among these is the need to
improve the management of cross-cutting program efforts by ensuring that
those programs are appropriately coordinated.37 The recognition in USTR’s
and USDA’s strategic plans of the need to coordinate with other agencies in
addressing SPS issues is an essential first step for developing a more

35
  The Results Act required agencies to submit strategic plans to Congress by September 30, 1997. The
plans, which were to cover a period of at least 5 years forward from the fiscal year in which they were
submitted, were to contain (1) mission statements, (2) long-term general goals and objectives,
(3) strategies that agencies would use to achieve their goals and objectives, and (4) any key external
factors that could affect the achievement of these goals. Agencies were to consult with Congress and
solicit the views of other stakeholders in the development of their plans. Additional guidance from the
Office of Management and Budget directed agencies to consult with each other about their plans’
treatment of cross-cutting functions (see “Office of Management and Budget Circular A-11,” part 2,
sec. 200.15).
36
 For our overall analysis of a draft of USTR’s strategic plan, see The Results Act: Observations on
USTR’s September 1996 Draft Strategic Plan (GAO/NSIAD-97-199R, July 18, 1997). For our overall
analysis of several drafts of USDA’s strategic plan, see Results Act: Observations on USDA’s Draft
Strategic Plan (GAO/T-RCED-98-17, Oct. 1, 1997).
37
 Managing for Results: Building on Agencies’ Strategic Plans to Improve Federal Management
(GAO/T-GGD/AIMD-98-29, Oct. 30, 1997).


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              integrated approach. The difficult challenge that lies ahead is for the
              multiple agencies with responsibility for addressing SPS issues to
              undertake substantive coordination to ensure that their responsibilities
              are effectively managed and their agency goals and objectives are
              complementary.

              The next phase of implementation of the Results Act requires agencies to
              develop annual performance plans that are linked to their strategic plans.
              These plans are to contain annual performance goals, performance
              measurements to gauge progress toward achieving the goals, and the
              resources agencies will need to meet their goals. The development of
              annual plans may provide the multiple federal agencies with SPS-related
              responsibilities the next opportunity to develop coordinated goals,
              objectives, and performance measurements for addressing SPS issues.


              Agricultural industry and U.S. government officials increasingly regard
Conclusions   foreign SPS measures that are or appear to be inconsistent with WTO
              provisions as important issues that must be addressed in order to protect
              U.S. trade interests. Although the WTO and NAFTA established rules to
              govern the use of SPS measures in trade, the process of determining
              whether measures comply with the agreements and developing strategies
              to address potentially unfair measures is a complex undertaking. In light
              of the U.S. process that involves multiple federal entities with varying
              responsibilities for addressing foreign SPS measures, we believe a more
              organized, integrated, strategic approach with unified and clearly defined
              objectives would be beneficial.

              The Results Act offers a useful framework to help federal entities with SPS
              responsibilities not only to manage their own efforts but also to work
              together to address foreign SPS measures. By clarifying their respective
              SPS-related missions, USTR, USDA, and other responsible entities could begin
              to overcome structural weaknesses that stem from the participation of
              multiple agencies with unclear roles and overlapping or closely related
              areas of responsibility. By following the act’s guidance to set program
              goals and measure their performance toward these goals, USTR, USDA, and
              the other federal entities could address problems related to inadequate
              data about SPS measures and the lack of a process to evaluate measures,
              prioritize federal efforts, and agree on unified approaches. Finally, by
              undertaking more substantive coordination on this cross-cutting issue, the
              various agencies could begin to ensure their individual efforts are
              complementary and not unnecessarily duplicative.



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                     We recommend that the U.S. Trade Representative and the Secretary of
Recommendations      Agriculture, in consultation with the Commissioner of Food and Drugs, the
                     Administrator of EPA, and the Secretary of State—or their
                     designees—should work together to develop coordinated goals,
                     objectives, and performance measurements for addressing foreign SPS
                     measures that appear to be inconsistent with the WTO SPS agreement. The
                     Government Performance and Results Act and implementing guidance
                     provide a framework for federal agencies to consult on such cross-cutting
                     programs.

                     Further, given USDA’s substantial role in identifying and addressing SPS
                     measures, the Secretary of Agriculture should (1) develop centralized,
                     aggregated data on the number of SPS measures that have been identified,
                     which ones are being addressed, and which ones have been resolved; and
                     (2) establish a more systematic process by which USDA entities evaluate
                     complaints they receive about SPS measures, determine which ones they
                     should address, prioritize their efforts, develop unified approaches, and
                     determine when to recommend consideration of dispute settlement
                     procedures to USTR. This process should be developed and implemented in
                     consultation with the U.S. Trade Representative, the Commissioner of
                     Food and Drugs, the Administrator of EPA, and the Secretary of State, or
                     their designees.


                     We received comments on a draft of this report from USTR, USDA, FDA, and
Agency Comments      State (see apps. V-VIII); EPA indicated it did not have any comments on the
and Our Evaluation   report. The agencies provided a range of views and identified several key
                     issues that the report should address. For example, USDA and State said the
                     report provided an accurate, comprehensive review of the federal process
                     to address foreign SPS measures. However, USTR and USDA said the report
                     should reflect recent initiatives they have adopted regarding these issues.
                     To address this concern, we updated the report to include information
                     about the TPSC process USTR leads and the formation of a USDA Working
                     Group on Agricultural Trade Policy, among other things.

                     While USTR did not offer any comments concerning our recommendations,
                     USDA, FDA, and State did. All three agreed with the thrust of the
                     recommendations. However, FDA and State suggested that the first
                     recommendation should ensure that USTR and USDA consult with other
                     agencies in setting goals, objectives, and performance measurements for
                     addressing SPS measures. In response, we revised the first
                     recommendation to emphasize the need for these agencies to work



                     Page 34                                    GAO/NSIAD-98-32 Agricultural Exports
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together to develop coordinated goals, objectives, and performance
measurements for addressing SPS measures.

USTR and FDA also suggested that the report should address the need for
balance between export interests and domestic health and food safety
interests and the important role regulatory agencies play in ensuring that
U.S. trade positions do not undermine U.S. regulation. We agree with their
comments and added information in the report to recognize the
importance of domestic concerns for federal efforts to address foreign SPS
measures.

The following individual comments were also made:

USTR  said our report exaggerated the usefulness of tracking lists in drawing
definitive conclusions about the WTO-legality of SPS measures and their
impact on trade. It said that considerable resources have been devoted to
such a project, but the results have been of limited use in assessing or
managing these issues. We disagree. As we note in the report, USDA
officials said that in spite of certain weaknesses, the data they developed
on foreign SPS measures improved their understanding of the problem.
Thus, we continue to believe that the U.S. government’s data collection
and tracking efforts related to foreign SPS measures could be improved.
Without better data, executive branch agencies do not know the size of the
problem and therefore cannot reasonably assure that they have properly
prioritized their efforts or determined the level of resources needed.
Moreover, they cannot assess the effectiveness of their efforts to address
the problem.

FDA  said that it sees the roles of the various regulatory agencies involved in
resolving SPS disputes as complementary rather than overlapping. In
response, we changed our description of regulatory agencies’
responsibilities from “overlapping” to “closely related.” However, we
noted that we had found evidence of coordination problems among the
regulatory agencies in our past work on the U.S. system for ensuring
domestic food safety. FDA also said that the report should recognize that
the process outlined in the WTO SPS agreement for determining that other
countries’ SPS-related systems are equivalent can be done on a unilateral as
well as a mutual basis. We modified our description of this process to
reflect FDA’s input.

USTR, USDA, and FDA also suggested a number of technical revisions to our
draft. In addition, we received technical comments from the WTO



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              Secretariat. We have incorporated these suggestions in the report where
              appropriate.


              To address the extent of foreign SPS measures and their impact on U.S.
Scope and     exports, we reviewed USDA, private sector, and academic analyses of the
Methodology   history and impact of technical barriers to trade, including SPS measures.
              We discussed these issues with knowledgeable government, private sector,
              and academic officials. We also examined the impact of six foreign SPS
              measures that we reviewed in detail.

              To address the federal structure and approach for addressing foreign SPS
              measures, we developed information on the U.S. trade and regulatory
              structures for agricultural products, including entities’ missions, staff
              levels, and budgetary resources related to SPS issues. We developed
              information on U.S. government actions taken to address six foreign SPS
              measures that have blocked or continue to block U.S. exports. We also
              discussed U.S. government efforts with trade and regulatory officials that
              have been active in addressing questionable foreign SPS measures and
              reviewed internal USDA assessments of U.S. efforts to address questionable
              foreign SPS measures. Finally, we discussed the U.S. government’s
              effectiveness with agricultural trade associations.

              More information about our scope and methodology is contained in
              appendix IV. We conducted our work at USDA, USTR, FDA, EPA, and State.
              Our work at USDA covered the Office of the Secretary; the Agricultural
              Marketing Service; the Animal and Plant Health Inspection Service; the
              Agricultural Research Service; the Economic Research Service; FAS; the
              Food Safety and Inspection Service; the Grain Inspection, Packers and
              Stockyards Administration; and the Office of the General Counsel.

              We performed our review from January 1996 to October 1997 in
              accordance with generally accepted government auditing standards.


              As agreed with you, we plan no further distribution of this report until
              30 days after its issue date, unless you publicly announce its contents
              earlier. At that time, we will send copies to appropriate congressional
              Committees, the U.S. Trade Representative, the Secretary of Agriculture,
              the Commissioner of Food and Drugs, the Administrator of EPA, and the
              Secretary of State. Copies will be made available to others upon request.




              Page 36                                    GAO/NSIAD-98-32 Agricultural Exports
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This review was done under the direction of JayEtta Z. Hecker, Associate
Director. If you or your staff have any questions concerning this report,
please contact Ms. Hecker at (202) 512-8984. Major contributors to this
report are listed in appendix IX.




Benjamin F. Nelson
Director, International Relations
  and Trade Issues




Page 37                                    GAO/NSIAD-98-32 Agricultural Exports
Contents



Letter                                                                                                 1


Appendix I                                                                                            42
                          Relevant Provisions of the Agreement                                        42
Trade Agreement Is in     Dispute Settlement                                                          44
Force, but Impact of      Administrative Aspects                                                      45
                          Initial Impact and Need for Further Interpretation                          46
Provisions Varies
Appendix II                                                                                           47
                          U.S. Approach for Addressing SPS Measures                                   47
U.S. Approach,            Other SPS-related Activities                                                49
Related Activities, and   USDA Staff and Budget Resources                                             50
Resources for
Addressing Foreign
SPS Measures
Appendix III                                                                                          53
                          Wheat to China                                                              54
Federal Efforts to        Tomatoes to Japan                                                           57
Address Six Foreign       Beef to the EU                                                              58
                          Peaches and Nectarines to Mexico                                            60
SPS Measures              Certain Meat Products to Korea                                              62
                          Poultry to Russia                                                           64

Appendix IV                                                                                           67

Objectives, Scope,
and Methodology
Appendix V                                                                                            70

Comments From the
U.S. Trade
Representative




                          Page 38                                    GAO/NSIAD-98-32 Agricultural Exports
                        Contents




Appendix VI                                                                                         74

Comments From the
Department of
Agriculture
Appendix VII                                                                                        78

Comments From the
Food and Drug
Administration
Appendix VIII                                                                                       83

Comments From the
Department of State
Appendix IX                                                                                         86

Major Contributors to
This Report
Related GAO Products                                                                                88


Tables                  Table 1: Primary Food-related Responsibilities of Selected U.S.             16
                          Regulatory Entities
                        Table II.1: USDA Entities’ SPS Functions and Full-time Staff                51
                          Years Allocated to All Export-related SPS Issues, Fiscal Years
                          1994-97
                        Table II.2: APHIS, FAS, and FSIS Full-time Staff Years Allocated            51
                          to Technical or Trade Negotiations, Fiscal Years 1994-97
                        Table II.3: USDA Entities’ Budget Resources for Export-related              52
                          SPS Issues, Fiscal Years 1994-97

Figures                 Figure 1: U.S. Beef and Veal Exports to the EU, Calendar Years              12
                          1985-95
                        Figure 2: FAS Full-time Staff Years for Addressing Foreign SPS              22
                          Measures, Fiscal Years 1994-97




                        Page 39                                    GAO/NSIAD-98-32 Agricultural Exports
Contents




Figure 3: Selected USDA Regulatory Entities’ Full-time Staff               23
  Years for Addressing Foreign SPS Measures, Fiscal Years 1994-97
Figure I.1: Summary of Selected Provisions of SPS Agreement                44
Figure II.1: Three Phases of Federal Efforts to Address Individual         48
  SPS Measures
Figure III.1: China Wheat Imports, Calendar Years 1982-92                  55
Figure III.2: U.S. Poultry and Poultry Product Exports to Russia,          64
  Calendar Years 1993-96




Abbreviations

AMS        Agricultural Marketing Service
APAC       Agricultural Policy Advisory Committee
APHIS      Animal and Plant Health Inspection Service
ARS        Agricultural Research Service
ATAC       Agricultural Technical Advisory Committee
EPA        Environmental Protection Agency
ERS        Economic Research Service
EU         European Union
FAS        Foreign Agricultural Service
FDA        Food and Drug Administration
FSIS       Food Safety and Inspection Service
GATT       General Agreement on Tariffs and Trade
GIPSA      Grain Inspection, Packers and Stockyards Administration
NAFTA      North American Free Trade Agreement
MAFF       Ministry of Agriculture, Forestry and Fisheries (Japan)
OFM        Oriental fruit moth
TBM        tobacco blue mold
TCK        tilletia controversa kuhn
TPSC       Trade Policy Staff Committee
SPS        sanitary and phytosanitary
USDA       U.S. Department of Agriculture
USTR       U.S. Trade Representative
WTO        World Trade Organization


Page 40                                   GAO/NSIAD-98-32 Agricultural Exports
Page 41   GAO/NSIAD-98-32 Agricultural Exports
Appendix I

Trade Agreement Is in Force, but Impact of
Provisions Varies

                         The World Trade Organization (WTO) Agreement on the Application of
                         Sanitary and Phytosanitary Measures (SPS agreement) represents the first
                         time that comprehensive multilateral rules were enacted specifically to
                         cover the use of sanitary and phytosanitary (SPS) measures in agricultural
                         trade.1 The agreement became effective on January 1, 1995. U.S. and WTO
                         officials said some of the provisions have had an immediate impact on
                         trade, such as those that enable members to challenge SPS measures in
                         dispute settlement. These officials said other provisions, such as those
                         encouraging broader harmonization of SPS measures, require work to be
                         done by WTO members before they are likely to have a substantial impact
                         on trade.


                         The WTO agreement established members’ rights and obligations regarding
Relevant Provisions of   SPS measures in relation to trade. WTO member countries have the right to
the Agreement            maintain SPS measures that protect the health and safety of their
                         population and agricultural sector and to determine acceptable levels of
                         risk. However, members should not apply SPS measures or determine risk
                         levels in a way that is arbitrary or constitutes a disguised restriction to
                         trade. Therefore, the agreement requires SPS measures to be based on
                         scientific principles, including an assessment of relevant risks.2

                         In addition to these criteria, the agreement encourages progress toward
                         achieving three objectives: (1) broad harmonization of SPS measures
                         through greater use of international standards, (2) recognition among
                         members that their SPS measures may differ but still be considered
                         “equivalent” provided they achieve the same level of protection, and



                         1
                          Under the General Agreement on Tariffs and Trade (GATT), which governed international trade from
                         1947 to 1995, members were permitted to adopt measures necessary to protect human, animal, or plant
                         life or health, provided that such measures were not applied in an arbitrary or unjustifiably
                         discriminatory manner and did not constitute disguised restrictions on international trade. In GATT’s
                         Tokyo Round (1973-79), at least 36 GATT members agreed to additional rules to govern the use of
                         standards, including most SPS standards (the Agreement on Technical Barriers to Trade). However,
                         members were given great discretion to deviate from international standards when applying SPS
                         measures and were not required to cite scientific evidence or judgment in the dispute settlement
                         process. Chapter 7 of the North American Free Trade Agreement (NAFTA) also contains provisions
                         regarding the use of SPS measures in agricultural trade among its members.
                         2
                          In assessing risks, members are directed to take various factors into account, including available
                         scientific evidence; relevant processes and production methods; relevant inspection, sampling, and
                         testing methods; prevalence of specific diseases or pests; existence of pest- or disease-free areas;
                         relevant ecological and environmental conditions; and quarantine or other treatment. In addition, in
                         assessing the risks to animal and plant life or health, members shall take into account as relevant
                         economic factors the potential damage in terms of loss of production or sales in the event of the entry,
                         establishment, or spread of a pest or disease; the costs of control or eradication in the territory of the
                         importing country; and the relative cost-effectiveness of alternative approaches to limiting risk.



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Appendix I
Trade Agreement Is in Force, but Impact of
Provisions Varies




(3) adaptation of SPS measures to recognize pest- and disease-free regions.3
 Provisions that address harmonization encourage members to participate
in international organizations that establish SPS standards, particularly the
Codex Alimentarius Commission, the International Office of Epizootics,
and the International Plant Protection Convention. Figure I.1 summarizes
selected provisions of the agreement.




3
 Annex A(6) of the SPS agreement defines a pest- or disease-free area as “an area, whether all of a
country, part of a country, or all or parts of several countries, as identified by the competent
authorities, in which a specific pest or disease does not occur.” According to U.S. Department of
Agriculture (USDA) officials, SPS measures typically do not recognize that imports from part of a
country may be safe even if imports from the entire country are not.



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                                         Appendix I
                                         Trade Agreement Is in Force, but Impact of
                                         Provisions Varies




Figure I.1: Summary of Selected Provisions of SPS Agreement


        Measures shall be based on scientific principles, not maintained without sufficient scientific
        evidence, and applied only to the extent necessary to protect human, animal, or plant life
        or health. (Article 2.2)

        In cases where scientific evidence is insufficient, provisional measures may be
        adopted on the basis of available information from relevant international
        organizations and other members. (Article 5.7)

        Measures shall not arbitrarily or unjustifiably discriminate between countries where identical
        or similar conditions prevail, including between a member country's own territory and that
        of other countries, and shall not constitute a disguised restriction on trade. (Article 2.3)

        Measures shall be based on assessment of risk, taking into account relevant
                              a
        scientific, technical, ecological, environmental, and, with regard to animal or plant life,
        economic factors. (Article 5)

        Measures shall be based on existing international standards, guidelines, and
        recommendations, except that measures that achieve a higher level of protection than
        international standards may be maintained if there is scientific justification or if a country
        otherwise determines the measure to be appropriate in accordance with the agreement's
        risk assessment provisions. (Article 3)

        Members shall recognize the equivalency of measures that differ from their own but are
        demonstrated to offer the same level of protection. (Article 4.1)

        Measures shall recognize the concept that regions within one or several countries may be
        free of, or have a low prevalence of, pets and diseases. (Article 6)



                                         a
                                          Technical factors include relevant processes and production methods and relevant inspection,
                                         sampling, and testing methods.




                                         Disputes arising under the SPS agreement are subject to the WTO dispute
Dispute Settlement                       settlement mechanism, which provides for consultations and review by a



                                         Page 44                                                 GAO/NSIAD-98-32 Agricultural Exports
                 Appendix I
                 Trade Agreement Is in Force, but Impact of
                 Provisions Varies




                 WTO dispute settlement panel. The agreement authorizes such panels to
                 seek expert advice on scientific or technical issues. As anticipated,
                 member countries have begun to use these mechanisms to resolve
                 disputes about SPS measures. For example, on behalf of the United States,
                 the U.S. Trade Representative (USTR) has invoked WTO dispute settlement
                 procedures regarding five SPS measures or groups of measures since the
                 agreement became effective.4 Two of these cases have had positive
                 outcomes for the United States, while the other cases have not been
                 resolved yet.5 A WTO official said that, while increased use of the dispute
                 settlement process was anticipated, the growing number of cases has
                 strained the WTO Secretariat’s limited resources. USDA and USTR officials
                 said that countries generally prefer to resolve issues informally, but the
                 dispute settlement mechanism is an important tool for cases where
                 informal resolution cannot be achieved.


                 For administrative purposes, the SPS agreement established an SPS
Administrative   committee, comprised of member countries, that is responsible for
Aspects          overseeing implementation of the agreement and facilitating consultations
                 among members on specific SPS measures.6 For example, as part of its
                 responsibility, the WTO committee is expected to develop guidelines on risk
                 management and monitor progress toward harmonization of SPS standards.
                 USDA officials said they are particularly interested in using the committee
                 as a way to raise their concerns about specific SPS measures and have done
                 so in several WTO committee meetings.7

                 Another administrative provision requires member countries to publish
                 information about their SPS measures and notify other members before
                 implementing any new measures or modifications that are not based on
                 international standards. The purpose of advance notification is to allow

                 4
                  The SPS measures the United States has challenged in the WTO include the European Union (EU)
                 measures affecting meat and meat products, Korean shelf-life requirements for meat and bottled water,
                 Korean testing and inspection requirements for agricultural imports, Japanese measures on fruit and
                 vegetable imports, and an Australian ban on salmon imports. The United States also initiated technical
                 consultations once under NAFTA, requesting a review of Mexican measures banning U.S. sweet
                 cherries.
                 5
                  On July 20, 1995, the United States and Korea notified the WTO that they had reached agreement
                 about modifications to Korea’s shelf-life requirements. On June 30, 1997, a WTO dispute settlement
                 panel found the EU hormone ban was inconsistent with WTO provisions; the EU filed an appeal
                 regarding this decision on September 24, 1997. Following the NAFTA consultations, USDA announced
                 on February 20, 1997, that Mexico would begin importing U.S. sweet cherries in accordance with a
                 work plan agreed to by both sides.
                 6
                  NAFTA also established an SPS committee for the members to discuss their responsibilities under the
                 agreement and to consult on implementation issues.
                 7
                  The United States has also discussed specific SPS measures in NAFTA SPS committee meetings.


                 Page 45                                                   GAO/NSIAD-98-32 Agricultural Exports
                     Appendix I
                     Trade Agreement Is in Force, but Impact of
                     Provisions Varies




                     member countries time to adapt their products or processes to the new
                     requirement and to comment on the measure.8


                     According to U.S. and WTO officials, some of the SPS agreement’s provisions
Initial Impact and   have had an immediate impact, while the impact of other provisions
Need for Further     remains to be seen. These officials said members currently appear to be
Interpretation       more focused on provisions that enable them to resolve disputes over SPS
                     measures, such as the requirements that SPS measures be based on
                     scientific evidence and risk assessment, than on provisions that encourage
                     harmonization and the recognition of equivalent systems and pest- or
                     disease-free regions. USDA and WTO officials said that while the latter
                     provisions could help minimize trade disputes, the practices they
                     encourage are not currently widespread. Moreover, many years of bilateral
                     or multilateral discussion may be needed before SPS measures are broadly
                     harmonized or equivalent systems and pest- or disease-free regions are
                     broadly recognized, therefore progress in these areas is likely to be slow.
                     One example supports that viewpoint—the United States and the EU
                     negotiated for 3 years before reaching a partial agreement about the
                     equivalence of their respective inspection systems for animal products.9

                     U.S. and WTO officials also said that the interpretation of certain provisions
                     will be clarified through the dispute settlement process. For example, a
                     USDA official said members may have different interpretations regarding
                     whether a country’s right to determine an acceptable level of risk is
                     stronger than its obligation to base risk assessment on scientific evidence.
                     A WTO official characterized the SPS agreement as a framework agreement
                     that articulates certain rules and objectives but does not specify how they
                     should be achieved. In such cases, it is up to the members to decide how
                     the provisions should be interpreted.




                     8
                      According to USDA, between January 1, 1995, and April 30, 1997, information on 530 SPS measures in
                     46 of 131 members had been reported to the WTO. A USDA official said no SPS measures are actually
                     reported in accordance with NAFTA because Canada, Mexico, and the United States provide
                     information to the WTO instead.
                     9
                      The U.S.-EU discussions covered meat, poultry, seafood, dairy, egg, and pet food products, among
                     others. The two countries were unable to reach agreement about the equivalence of their poultry
                     production and inspection systems.



                     Page 46                                                   GAO/NSIAD-98-32 Agricultural Exports
Appendix II

U.S. Approach, Related Activities, and
Resources for Addressing Foreign SPS
Measures
                    U.S. efforts to address individual SPS measures are an important
                    component of overall activities related to SPS issues. The U.S. government
                    addresses individual measures through technical- and trade-based
                    approaches. In addition, federal entities perform other activities that are
                    related to SPS issues, such as certifying that U.S. exports are healthy and
                    safe and participating in international organizations that set SPS-related
                    standards. Within USDA, the staff and budget resources allocated to all SPS
                    activities have generally increased since 1994. Approximately one-quarter
                    of USDA’s SPS-related staff resources have been allocated to addressing
                    foreign SPS measures in technical or trade negotiations, the main focus of
                    this report, while about three-quarters of its SPS-related staff resources
                    have been allocated to other activities.


                    USDA officials told us the U.S. approach for addressing foreign SPS
U.S. Approach for   measures varies depending on the measure, because each case has unique
Addressing SPS      aspects. Based on our review of federal efforts to address six SPS measures
Measures            and our discussions with responsible U.S. officials, we found that
                    individual approaches have similar elements. We developed a framework
                    comprised of three phases to help explain how federal entities have
                    addressed SPS measures (see fig. II.1).




                    Page 47                                     GAO/NSIAD-98-32 Agricultural Exports
                                          Appendix II
                                          U.S. Approach, Related Activities, and
                                          Resources for Addressing Foreign SPS
                                          Measures




Figure II.1: Three Phases of Federal Efforts to Address Individual SPS Measures

   Phase 1: Identification                    Phase 2: Technical Information                  Phase 3: Trade Policy Negotiations
                                              Exchange and Research                           and Dispute Settlement

   The U.S. government or industry                                                            U.S. trade authorities lead bilateral
                                              U.S. regulatory authorities lead
   identifies a foreign SPS measure           bilateral discussions with the
                                                                                              discussions with the foreign
   that blocks U.S. exports.                  foreign government to exchange                  government to argue that the
                                              technical information and determine             foreign measure is inconsistent
                                              whether changes to the U.S. product             with the WTO SPS agreement
                                                                                                        a
                                              or the foreign measure will enable              or NAFTA.
                                              trade to occur.
                                                                                              U.S. government may request
                                              U.S. government may provide
                                                                                              formal WTO or NAFTA consultation
                                              technical data or conduct research
                                              to demonstrate the health or safety             or review by a dispute settlement
                                              of the U.S. product.                            panel.

                                              U.S. producers and exporters may
                                              be required to conform to foreign
                                              standards or to perform risk-mitigation
                                              techniques.




                                          a
                                           The SPS agreement and NAFTA are only binding on WTO and NAFTA members, respectively.
                                          However, several U.S. trading partners that are not WTO members, including China and Russia,
                                          have applied to join the WTO and would be expected to comply with the SPS agreement if they
                                          become members.


                                          During the first phase (identification), the U.S. government attempts to
                                          learn more about an identified SPS measure and determine whether the
                                          measure is a minor problem that can be fixed quickly or a more serious
                                          problem that will take some time to resolve.1 During the second phase
                                          (technical exchange), regulatory entities usually lead U.S. government
                                          efforts, but trade entities may play a supporting role. This phase can last
                                          several months or years, depending on how often the two sides meet and
                                          what actions they agree to take.

                                          During the third phase (trade negotiations), trade entities usually lead U.S.
                                          government efforts, but regulatory entities may play a supporting role.
                                          Trade negotiations are often viewed as “elevating” the U.S. approach to a
                                          higher political level and sometimes become necessary when the U.S.
                                          government concludes the foreign government is not responding to
                                          technical arguments. In a few cases where neither technical exchange nor


                                          1
                                           According to USDA officials, minor problems can occur if the export certificates accompanying U.S.
                                          exports are incorrect. These types of problems usually affect certain shipments of a product rather
                                          than all exports of a product and can generally be fixed quickly by providing corrected paperwork.



                                          Page 48                                                   GAO/NSIAD-98-32 Agricultural Exports
                    Appendix II
                    U.S. Approach, Related Activities, and
                    Resources for Addressing Foreign SPS
                    Measures




                    trade negotiations have achieved resolution, the U.S. government has
                    decided to request formal WTO or NAFTA consultations or review by a
                    dispute settlement panel.

                    Based on our review of six measures and our discussions with responsible
                    federal officials, federal efforts to address individual SPS measures may
                    include primarily technical exchanges, primarily trade negotiations, or a
                    combination of the two. In addition, it appears that SPS measures may be
                    resolved at any point during the three phases we identify and some
                    disagreements are resolved more quickly than others depending on the
                    circumstances.


                    Our review focused on U.S. government efforts to address foreign SPS
Other SPS-related   measures, but federal entities perform other activities related to SPS issues
Activities          that are designed to facilitate existing trade or generally enhance global
                    dialogue about SPS measures and their relation to trade. For example, the
                    overall U.S. system for ensuring food safety and protecting animals and
                    plants from pests or diseases facilitates exports by providing safe, healthy
                    products. U.S. regulatory entities, such as the Food and Drug
                    Administration (FDA) and USDA’s Food Safety and Inspection Service (FSIS)
                    and Animal and Plant Health Inspection Service (APHIS) are the lead
                    agencies in this process. In addition, APHIS and FSIS routinely certify the
                    health and safety of U.S. exports to facilitate their entry into foreign
                    markets. Sometimes, as a result of technical exchanges or trade
                    negotiations, these agencies certify that U.S. products conform to specific
                    requirements agreed to by the United States and the foreign government.

                    U.S. trade and regulatory officials participate in several international trade
                    organizations or agreements that have developed or continue to develop
                    trade rules regarding SPS measures. These include the WTO, NAFTA, and a
                    preparatory working group on SPS measures for negotiations on a Free
                    Trade Area of the Americas. U.S. regulatory officials represent the United
                    States in several international and regional organizations, including the
                    Codex Alimentarius Commission, the International Office of Epizootics,
                    and the International Plant Protection Convention, that facilitate
                    discussion of technical issues with a view toward developing international
                    SPS standards. Finally, under the auspices of the WTO, U.S. government
                    officials have participated in training seminars to help developing country
                    officials understand their WTO SPS obligations.




                    Page 49                                      GAO/NSIAD-98-32 Agricultural Exports
                   Appendix II
                   U.S. Approach, Related Activities, and
                   Resources for Addressing Foreign SPS
                   Measures




                   Because most federal efforts related to SPS issues are initiated or managed
USDA Staff and     by USDA, we asked the Secretary of Agriculture’s Special Assistant for
Budget Resources   International Trade to provide information about USDA entities’ staff and
                   budget resources devoted to export-related SPS issues from 1994 to 1997.
                   In some cases, the entities were able to provide full-time staff years that
                   are devoted to these issues; in other cases, entities had to estimate the
                   full-time equivalent because their staff work on other issues as well. We
                   also identified four functional categories that summarize the various USDA
                   activities and asked the entities to indicate which functional categories
                   cover most of their activities. These categories are (1) negotiations,
                   (2) export certification, (3) technical work, and (4) participation in
                   international organizations.

                   In responding to our request, the Secretary’s Special Assistant observed
                   that the majority of USDA’s export-related SPS staff years are allocated to
                   activities that facilitate exports such as the issuance and review of export
                   certificates. These activities take place solely within regulatory entities.
                   Table II.1 shows the actual or estimated full-time staff years that USDA
                   entities allocated to all SPS activities from fiscal years 1994 to 1997 and the
                   functional categories each entity covers. The Special Assistant also
                   observed that staff years devoted to the topic of this report, technical or
                   trade negotiations with other countries, and the establishment of related
                   policies accounted for less than one-fourth of the export-related SPS staff
                   years allocated in 1997. Table II.2 shows the staff years that APHIS, the
                   Foreign Agricultural Service (FAS), and FSIS reported they allocated to
                   technical or trade negotiations from fiscal years 1994 to 1997. Table II.3
                   shows the estimated budget resources these entities allocated to all
                   SPS-related activities during the same period.




                   Page 50                                       GAO/NSIAD-98-32 Agricultural Exports
                                            Appendix II
                                            U.S. Approach, Related Activities, and
                                            Resources for Addressing Foreign SPS
                                            Measures




Table II.1: USDA Entities’ SPS Functions and Full-time Staff Years Allocated to All Export-related SPS Issues, Fiscal Years
1994-97
                                           FY ’94              FY ’95               FY ’96              FY ’97          % change
Entity          Functions             staff years         staff years          staff years         staff years    FY ’94 to FY ’97
APHIS           EC, IO, N, T                175.0                   190.0                    200.0                  209.0                   + 19%
FAS             IO, N                        23.0                    44.0                     49.0                    49.0                 + 113
FSIS            EC, IO, N, T                 55.0                    60.0                     70.0                    82.0                  + 49
GIPSA           EC, N, T                       5.0                     5.0                     5.1                     5.1                   +2
ARS             N, T                         32.0                    32.0                     32.0                    32.0                     0
OSEC            Guidance                           0                       0                   0.5                     0.5                   n/a
Total                                         290                     331                    356.6                  377.6                   + 30%
                                            Legend

                                            ARS = Agricultural Research Service
                                            OSEC = Office of the Secretary (of Agriculture)
                                            EC = Issuance and review of export certificates
                                            GIPSA = Grain Inspection, Packers and Stockyards Administration
                                            IO = Participation in international trade and SPS standard-setting organizations, including
                                            establishing related USDA or agency export policies
                                            N = Bilateral negotiation with trading partners about SPS measures with the goal of export
                                            facilitation. Can include establishing related USDA or agency export policies
                                            N/A = not applicable
                                            T = Performance of technical work, including risk assessments, research, and other technical
                                            support

                                            Source: USDA.



Table II.2: APHIS, FAS, and FSIS
Full-time Staff Years Allocated to                               FY ’94             FY ’95         FY ’96           FY ’97             % change
Technical or Trade Negotiations, Fiscal     Entity          staff years        staff years    staff years      staff years       FY ’94 to FY ’97
Years 1994-97                               APHIS                     36               37               38                42                + 17%
                                            FAS                       23               44               49                49               + 113
                                            FSIS                       3                 3                3                  3                 0
                                            Note: We attribute all FAS staff years to trade negotiations because this is FAS’ primary
                                            SPS-related function.

                                            Source: USDA.




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                                             Appendix II
                                             U.S. Approach, Related Activities, and
                                             Resources for Addressing Foreign SPS
                                             Measures




Table II.3: USDA Entities’ Budget Resources for Export-related SPS Issues, Fiscal Years 1994-97
Dollars in thousands
                                    FY ’94                 FY ’95                 FY ’96                  FY ’97           % change
Entity                   budget resources       budget resources       budget resources        budget resources      FY ’94 to FY ’97
APHIS                              $11,068                   $12,450              $13,182               $15,741                 + 42%
FAS                                  1,449                     2,860                   3,283              3,381                + 133
FSIS                                 3,507                     3,561                   4,036              4,274                 + 22
GIPSA                                  168                      174                     187                 192                 + 14
ARS                                  9,962                    10,062                  10,164             10,266                  +3
OSEC                                     0                        0                      61                  62                   n/a
Total                              $26,154                   $29,107              $30,913               $33,916                 + 30%
                                             Source: USDA.




                                             Page 52                                             GAO/NSIAD-98-32 Agricultural Exports
Appendix III

Federal Efforts to Address Six Foreign SPS
Measures

               To enhance our understanding of the U.S. government structure and
               approach for addressing foreign SPS measures, we developed information
               on six cases where another country’s SPS measure(s) have blocked or
               continue to block U.S. agricultural exports to that country. The six cases
               involved various commodities and countries, including U.S. wheat exports
               to China, potential U.S. tomato exports to Japan, U.S. beef and veal
               exports to the EU, U.S. peach and necterine exports to Mexico, certain U.S.
               meat product exports to Korea, and U.S. poultry exports to Russia.
               Information about how we selected these cases and developed
               information about them is contained in appendix IV.

               Of the six measures we examined, three have been long-standing, two of
               which have been resolved (although in one of these cases renewed U.S.
               exports are not assured). The oldest measure is the Chinese “zero
               tolerance” for wheat imports found to contain tilletia controversa kuhn
               (TCK), a common smut fungus. The Chinese ban was established in 1973
               and began to affect U.S. wheat exports from the Pacific Northwest in 1974.
               The second measure is the Japanese ban on the importation of U.S.
               tomatoes because of concern that such tomatoes could be a host for
               tobacco blue mold (TBM). That ban was lifted for 25 varieties of tomatoes
               on April 25, 1997. The third measure is the EU ban on the use of
               growth-promoting hormones in livestock, which was implemented in 1989.
               On June 30, 1997, a WTO dispute settlement panel found the ban to be
               inconsistent with the SPS agreement. However, the EU filed an appeal
               regarding this decision on September 24, 1997.

               The three other SPS measures we examined are more recent, and all three
               have been resolved. The first measure is Mexican preshipment
               requirements, dating back to 1991, for U.S. peaches and nectarines. The
               second measure is a 1994 Korean requirement limiting the shelf-life on
               certain frozen meat products to 30 days. The third measure is the Russian
               ban on U.S. poultry in 1996 due to concerns about food safety and poultry
               disease issues.

               Five of these six measures resulted in disruption of an ongoing U.S. export
               market. In one case, there was a brief but total ban on U.S. exports
               (poultry to Russia); while in two cases, there was a partial ban on U.S.
               exports (beef to the EU and wheat to China). In the other two cases,
               foreign requirements caused U.S. exports to drop significantly (certain
               meat products to Korea and peaches and nectarines to Mexico). The sixth
               measure did not disrupt an ongoing market but, rather, resulted in the
               exclusion of U.S. exports from a market (tomatoes to Japan).



               Page 53                                    GAO/NSIAD-98-32 Agricultural Exports
                 Appendix III
                 Federal Efforts to Address Six Foreign SPS
                 Measures




                 The Chinese “zero tolerance” for TCK was established in 1973, just 1 year
Wheat to China   following the resumption of diplomatic relations between the United
                 States and China. According to the Agricultural Research Service (ARS), the
                 disease caused by TCK reduces plant height by up to 50 percent, replaces
                 kernels of grain with useless spores in the seed head, and gives wheat a
                 fishy odor. Since 1974, China has banned wheat shipped from the states of
                 the Pacific Northwest, an area where TCK is known to occur, but has
                 continued to import wheat shipped from other U.S. ports. However, in the
                 summer of 1996, China rejected several shipments of U.S. wheat, shipped
                 from Gulf ports, that Chinese officials said were found to contain TCK.

                 The impact of the Chinese ban on U.S. wheat exports is difficult to
                 determine. U.S. exports of wheat to China have fluctuated significantly
                 during the more than 20 years that the United States has exported wheat
                 to China. Figure III.1 shows China’s wheat imports from 1982 to 1992.
                 According to a USDA official, it is not clear that overall U.S. wheat exports
                 to China have decreased as a result of the Chinese ban. Even if the ban
                 were not in place, it is not clear that China would have bought more wheat
                 from the United States and less wheat from other wheat exporters, such as
                 Canada. USDA’s Economic Research Service (ERS) concluded in
                 December 1993 that CEROILS, the Chinese state trading agency that
                 purchases all China’s wheat imports, relies on pricing more than on other
                 factors when making wheat purchase decisions.




                 Page 54                                      GAO/NSIAD-98-32 Agricultural Exports
                                          Appendix III
                                          Federal Efforts to Address Six Foreign SPS
                                          Measures




Figure III.1: China Wheat Imports, Calendar Years 1982-92

In millions of tons
16


14


12


10


 8


 6


 4


 2


 0
 1982        1983      1984        1985       1986          1987       1988          1989   1990       1991       1992

                                            United States      All other countries




                                          Source: USDA.




                                          The Chinese ban on wheat with TCK is the longest-standing SPS measure
                                          that we examined. There have been intermittent discussions between the
                                          United States and China during the last 24 years, including joint research
                                          efforts, but the positions of the two countries have remained substantially
                                          unchanged.

                                          The Chinese government states that it is very concerned with food security
                                          and cannot risk having TCK become established in China. For this reason,
                                          China maintains its official “zero” tolerance of TCK. In practice, however,
                                          China has accepted some level of risk. For example, during 1988, China




                                          Page 55                                           GAO/NSIAD-98-32 Agricultural Exports
Appendix III
Federal Efforts to Address Six Foreign SPS
Measures




accepted wheat from the Pacific Northwest on an experimental basis but
stopped this practice because it continued to detect TCK in these
shipments. China also reported finding TCK in U.S. wheat shipped from a
Gulf port in 1989; USDA retested this shipment but did not find TCK. In the
late 1980s, China established a schedule in its contracts with U.S.
exporters to discount the price of wheat when TCK is found. (One wheat
exporter told us that in 1995, it had shipped 2 million tons of wheat to
China on over 40 vessels and had only one $3 claim on one vessel.)

The U.S. government has stated that there is minimal risk of TCK becoming
established in China from imported wheat because climatic conditions in
China are not conducive to allowing TCK spores to germinate. According to
a Grain Inspection, Packers and Stockyards Administration (GIPSA) official,
although data indicate that China has been importing wheat with some low
levels of TCK for years, China continues to state that TCK does not exist in
that country. Furthermore, U.S. officials said that one or two other
countries have voiced some concern about TCK, but China is the only
country that prohibits the import of wheat with TCK. In short, the U.S.
position is that China’s zero-tolerance for TCK is not based on sound
science. The U.S. position is that China can safely accept some minimal
level of exposure to TCK and not risk damage to its wheat production.

Several USDA agencies have been involved in attempts to resolve the TCK
issue with China over the last 20 years. Agencies that have had major roles
at various times have included APHIS, FAS, the Federal Grain Inspection
Service (which later was combined with another agency to become GIPSA),
ARS, and the Agricultural Marketing Service (AMS). The Office of the
Secretary of Agriculture has also been involved, and special task forces
have been established over the years.

Discussions between U.S. and Chinese officials remained at a technical
level for many years. A prominent issue the two sides discussed during the
early 1990s was how to correctly distinguish TCK spores from those of
other diseases that did not concern China so that U.S. wheat shipments
were not detained or rejected inappropriately. ARS and AMS played
important roles in conducting joint research with Chinese scientists to
develop a common spore-identification methodology. The two sides have
also discussed options that would allow U.S. wheat to enter China freely at
southern ports that are physically distant from China’s main
wheat-production regions. In 1993, the Chinese offered to allow U.S. wheat
to enter at Hainan Island, but the United States considered this option




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                    unacceptable because grain processing facilities on the island were
                    inadequate.

                    More recently, the issue has been discussed primarily at a trade level.
                    Since 1986, China has been seeking to join the WTO and, at various times,
                    some U.S. officials have stated that the TCK issue will have to be resolved
                    before the United States can support China’s bid for membership. The
                    United States and China signed a memorandum of understanding in 1992,
                    according to which China promised that all SPS standards and testing
                    requirements would be based on sound science and administered in a
                    manner that does not impede trade or create barriers to imported
                    products. The U.S. position is that China must honor that agreement in
                    order to gain access to the WTO. Although Chinese officials have
                    continuously identified the TCK issue as a technical problem, a GIPSA
                    official said that U.S. efforts to resolve the issue through technical
                    exchanges have not produced results and expressed the opinion that the
                    issue can only be resolved through a political solution.


                    For at least 14 years, Japan has blocked the import of U.S. tomatoes
Tomatoes to Japan   because of concerns that such products were a host for TBM. According to
                    U.S. officials, Japan based this concern on citations in scientific literature
                    published in 1933 and 1989 that identified tomatoes as a possible host for
                    TBM. On April 25, 1997, USDA announced that Japan had lifted its ban and
                    would allow the importation of 25 varieties of U.S. tomatoes. According to
                    the announcement, U.S. industry estimated that the size of the Japanese
                    market for U.S. tomatoes could reach approximately $50 million annually.

                    The U.S. position was that TBM does not infest tomatoes. According to
                    APHIS officials, although TBM is present in the United States, there have
                    been no incidents of TBM reported in California, where tomato growers
                    were interested in exporting to Japan.1 Negotiations between the two
                    countries since 1983 were primarily technical in nature, with APHIS taking
                    the lead for the United States. FAS’ role was more limited and involved
                    prompting movement on the case with Japanese officials. In addition, ARS
                    co-sponsored a study with industry groups to test whether tomatoes could
                    be inoculated with TBM. USTR was consulted regarding the prospects for
                    taking the case to the WTO. The U.S. Ambassador to Japan brought the case
                    up to the Japanese agriculture minister.



                    1
                     Tomato growers in Florida and other states subsequently expressed an interest in exporting to Japan.



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                 APHIS began discussing the TBM issue as early as 1983 during annual
                 bilateral meetings with Japan’s Ministry of Agriculture, Forestry and
                 Fisheries (MAFF). Although APHIS presented available research that
                 suggested tomatoes were not a host for TBM, Japanese officials remained
                 unconvinced. During 1991, Japan suggested the United States should
                 conduct additional research to demonstrate that tomato plants could not
                 be infected with TBM, even when inoculated with the fungus.

                 In response, APHIS submitted a research proposal that MAFF accepted. ARS
                 conducted the research funded jointly by APHIS and the tomato industry.
                 The results of this research, which conclusively supported the U.S.
                 position, were provided to MAFF in 1995. However, through 1996, Japanese
                 authorities repeatedly asked the U.S. government for additional data and
                 scientific research. The Japanese also asked the U.S. side to correct the
                 USDA Agricultural Handbook (an American Phytopathological Society
                 publication), which made a reference to TBM on tomatoes.

                 In June 1996, APHIS asked the FAS Administrator to meet with Japanese
                 officials and explain that the United States was prepared to bring the case
                 before the WTO if there were further delays by the Japanese. Later that
                 year, MAFF indicated its intention to remove the ban. However, according
                 to Japanese regulations, Japanese authorities had first to obtain comments
                 from and hold public hearings involving Japanese producer groups before
                 making a final decision on whether to lift the ban. Japan initially delayed
                 implementation because of resistance among Japanese tomato growers
                 but finally lifted the ban for 25 varieties of tomatoes in April 1997.

                 Both U.S. industry and government sources have complained about the
                 slow pace of progress in the negotiations. One industry spokesman said
                 that while the Japanese appeared to stall and drag out the negotiations,
                 APHIS’ practice of waiting for formal annual bilateral meetings to raise
                 outstanding concerns did not facilitate rapid progress either.


                 On January 1, 1989, implementation of an EU ban on the use of
Beef to the EU   growth-promoting hormones in livestock and on imports of meat from
                 animals so treated caused U.S. beef and veal exports to drop from about
                 $120 million in 1988 to less than $10 million in 1989. The ban applied to all
                 meat but primarily affected U.S. exports of edible organ meats, the export
                 value of which dropped from $85 million in 1988 to $0.5 million in 1989.
                 U.S. sales of edible organ meat to the EU remain limited, at only $1 million
                 in 1995.



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The U.S. position on the hormone ban is that the measure is inconsistent
with the WTO SPS agreement because, among other things, it is not
supported with scientific evidence or risk assessment, it is not necessary
for the protection of human health, and it ignores relevant international
standards.2 Further, the United States argued that the measure is designed
to protect domestic producers from competition. The U.S. complaint
about the EU ban was an important test of the SPS agreement on
strengthened rules and procedures for dealing with food safety and health
measures that restrain trade and of the WTO’s dispute settlement process.

Concerns in Europe about hormone use and its impact on human health
began in 1980 when a health scandal in Italy had raised suspicions about
school lunches containing veal that may have contained hormone
residues. An EU Council Directive of July 1981 prohibited the use of
hormones, except for therapeutic purposes. The EU set up a scientific
working group (the Lamming Committee) to determine whether the use of
five specific hormones (three natural and two synthetic) as growth
promotants posed any health risk.3 The Lamming Committee concluded
that the three natural hormones would not present any harmful effects to
the health of the consumer. In June 1984, the EU proposed allowing the use
of the three natural hormones.

In October 1985, however, the European Parliament adopted a resolution
claiming that scientific information about the five hormonal substances
was “far from complete.” It endorsed a ban on the two synthetic hormones
and rejected the proposed authorization of the three natural hormones,
with a continued exception for therapeutic purposes. In December 1985,
an EU Council Directive banned the use of natural hormones except for
therapeutic purposes, the use of synthetic hormones, and the importation
of meat from animals to which any hormones had been administered. The
directive was to take effect on January 1, 1988, but was delayed 1 year.

Much of the negotiations between the United States and the EU concerning
the hormone ban have been conducted by trade officials and have been
very formal. In September 1986, the United States challenged the EU
hormone ban under the GATT Agreement on Technical Barriers to Trade

2
 In 1995, the Codex Alimentarius Commission adopted standards on five of the hormones banned by
the EU. Codex determined that three natural hormones (estradiol, progesterone, and testosterone) are
unlikely to pose a human health hazard. Codex also established usage standards for two synthetic
hormones (trenbolone and zeranol) that would protect human health. The EU’s measure is stricter
than Codex standards.
3
 The three natural hormones the Lamming Committee studied were estradiol, progesterone, and
testosterone. The two synthetic hormones studied were trenbolone and zeranol.



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                       and in 1987 requested that the matter be referred to a group of technical
                       experts. The EU blocked formation of the technical group, and the dispute
                       went unresolved. USTR subsequently developed a retaliation list of EU
                       commodities on which there would be sanctions but suspended
                       application of the list for a year until the scheduled implementation of the
                       EU ban. In January 1989, however, the EU directive went into effect, and the
                       United States reacted by applying the retaliation list that had been
                       suspended.

                       During the 1990s, both sides looked to the Uruguay Round negotiations on
                       SPS measures to provide some new basis for deciding the issue. After the
                       SPS agreement was implemented in 1995, USTR and USDA again tried to
                       resolve this issue. During 1995, USDA officials met several times with EU
                       officials but were unable to obtain resolution. In late 1995, the EU held its
                       Scientific Conference on Growth Promotion in Meat Production. The
                       conference concluded there was no evidence of health risk from the five
                       hormones approved for use in the United States. However, following the
                       conference, the EU reaffirmed its commitment to maintaining the ban.

                       In January 1996, the United States requested WTO consultations with the
                       EU. Consultations were on held March 27, 1996, but failed to resolve the
                       dispute. The United States requested that the WTO Dispute Settlement Body
                       establish a panel to review the case, which was done on May 20, 1996. The
                       U.S. complaint addressed the three natural hormones, the two synthetic
                       hormones, and a sixth hormone.4 FDA had a major role in developing the
                       technical aspects of the U.S. complaint. On June 30, 1997, the panel found
                       the EU ban to be inconsistent with the SPS agreement. The EU filed an
                       appeal regarding this decision on September 24, 1997.


                       In 1991, the Mexican government established a ban on imports of several
Peaches and            types of fresh fruit, including U.S. peaches and nectarines, because of their
Nectarines to Mexico   susceptibility to being attacked by the Oriental fruit moth (OFM). At the
                       same time, Mexico identified several other pests of concern related to U.S.
                       peach and nectarine imports. Before 1991, U.S. peach and nectarine
                       exports to Mexico were not subject to any restrictions. Since 1992, U.S.
                       peaches and nectarines have been exported to Mexico in accordance with
                       the requirements of a work plan agreed to by U.S. and Mexican
                       government officials. For example, the work plan requires U.S. peaches
                       and nectarines to be treated and inspected before shipment. USDA officials

                       4
                        The hormones addressed by the U.S. complaint were estradiol, progesterone, testosterone,
                       trenbolone, zeranol, and melengestrol acetate.



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said the quantity of U.S. peaches and necatrines exported to Mexico,
measured in metric tons, dropped by almost 40 percent between 1991 and
1996. In addition, industry officials told us that the cost associated with
treating the fruit for OFM is high.

In 1991, the plant health agency of Mexico’s department of agriculture told
APHIS officials that the agency believed phytosanitary requirements needed
to be established for fresh fruit imports from the United States in order to
protect Mexico from exposure to certain pest risks, including OFM.
Mexican officials asserted that OFM is not found in Mexico.

APHIS officials told us they consider the Mexican concern about OFM and
the associated treatment requirements to be legitimate. FAS officials said
they agreed with APHIS’ position. However, industry officials said they
question a basic premise of the Mexican phytosanitary measure, namely,
that OFM does not exist in Mexico.5 Furthermore, the officials said they
believe that the treatment and inspection measures that are required to
allow peaches and nectarines to enter Mexico are excessive.

APHIS was the primary U.S. agency involved in the Mexican case, and it
assumed the lead in technical negotiations with its Mexican counterpart.
ARS provided substantial technical support to APHIS. FAS officials also had a
supporting role in the resolution of the case. In addition to U.S.
government entities, the California Department of Food and Agriculture
played a fairly large role in developing the annual work plans.

Technical negotiations between APHIS and Mexican plant health authorities
began in late 1991. First APHIS convinced the Mexicans to reduce the
number of pests that concerned them from eight to three. Between 1992
and 1995, the two sides developed annual work plans that would allow
U.S. peaches and nectarines to be exported to Mexico. (Such work plans
exist for certain Mexican products being exported to the United States.)
The work plan requires the fruit to be fumigated with methyl bromide
before shipment. In 1993, the work plan was modified at the request of the
Mexican government to require that the U.S. industry pay for Mexican
inspectors to be stationed in the United States to monitor the fumigation
process. (APHIS inspectors are similarly stationed in Mexico.) Shipments
are to be accompanied by an APHIS-issued phytosanitary certificate
attesting that all requirements have been met. In 1995, a permanent work
plan was adopted, although there have been slight modifications to the

5
 Industry officials cited a British report that showed OFM was found in Mexico. However, APHIS
officials told us they had examined the report and its supporting material and found the conclusion
about OFM’s existence in Mexico to be erroneous.



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                        work plan since then. For example, in 1997, APHIS persuaded Mexico to
                        accept an alternative treatment method to methyl bromide for 10 percent
                        of the peaches and nectarines being exported to Mexico.6

                        Although U.S. industry was pleased with the U.S. government response to
                        the Mexican requirements when they first went into effect, the Mexican
                        case is perhaps the best example of one where there has been strong
                        disagreement between U.S. government and industry officials about the
                        legitimacy of a foreign SPS measure.


                        In February 1994, Korea began to enforce a 30-day shelf-life requirement
Certain Meat Products   on cooked frozen meat products, specifically sausages exported to Korea.
to Korea                The permitted shelf life had been 90 days for the 4 years before 1994.
                        According to U.S. officials, by limiting the shelf life of these products to
                        30 days, Korean authorities effectively denied U.S. products access to the
                        Korean market, since it took at least 35 days for shipments to reach Korea
                        and roughly 30 days for the sausages to clear port. Following WTO
                        consultations in 1995, Korea agreed to accept the
                        manufacturer-determined shelf life by July 1, 1996. Imports of sausages
                        from the United States to Korea in 1993 totaled $7.4 million. In 1994, such
                        imports had dropped to $4 million, a decrease of 45 percent.

                        According to U.S. officials we interviewed and documents we reviewed,
                        there were two major elements in the Korean position regarding the need
                        to establish the 30-day shelf-life requirement. First, Korean experts
                        maintained that cooked sausages were susceptible to infection by
                        microorganisms when the condition of the sausages fluctuated between
                        frozen and unfrozen states, as was often the case for frozen food
                        distributed in Korea. Second, since there was no international standard on
                        the shelf life of cooked frozen sausages, Korean authorities surveyed the
                        practices of major advanced countries. Korean authorities argued that
                        while a number of those countries allowed manufacturers to determine
                        the shelf life of their products, it would be premature for Korea to do the
                        same, given the level of development of its food manufacturing industry.

                        The U.S. government position was that Korea’s 30-day shelf-life
                        requirement was unscientific. U.S. authorities argued that scientific and


                        6
                         Methyl bromide is a highly effective fumigant that is widely used in agricultural production to control
                        a broad spectrum of pests. It has been identified by scientists as an ozone-depleting substance. In 1993,
                        EPA issued regulations to phase out the production and importation of methyl bromide in the United
                        States. See Pesticides: The Phaseout of Methyl Bromide in the United States (GAO/RCED-96-16,
                        Dec. 15, 1995).



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regulatory data supported a shelf life of about 1 year for cooked frozen
sausages. U.S. officials also argued that allowing manufacturers to set
their own shelf life is a well-established practice around the world.

USTR  and FAS had major roles in resolving this case. FSIS and FDA provided
technical support to USTR and FAS. The U.S. Ambassador to Korea and FAS
and USTR officials met with Korean health authorities soon after the case
came to the attention of the U.S. government in March 1994. Over the next
few months, USTR, USDA, and embassy officials communicated their
disappointment about Korea’s decision to Korean health and foreign
affairs authorities.

In November 1994, a U.S. industry group filed a petition about the Korean
measure with USTR under section 301 of the Trade Act of 1974
(19 U.S.C. 2411). In January 1995, following discussions about the section
301 case, the Korean government reversed itself on shelf-life requirements
for certain meat products. However, Korea’s proposal was unsatisfactory
to the United States because a system for manufacturer-determined shelf
life for these products would not take effect until 1998.

Under the auspices of the WTO, in May 1995, USTR requested consultations
with Korea on the shelf-life requirements. The consultations addressed
shelf-life requirements not only for chilled and frozen meat products but
also for a number of other products. According to USTR, damage estimates
due to multiple Korean shelf-life requirements ranged from $240 million in
1994 to as much as $1 billion annually by 1999.

The consultations led to an agreement, on July 20, 1995, whereby Korean
authorities agreed to phase out their government-mandated shelf-life
system and accept the manufacturer-determined shelf-life for imported
products. The new system became effective for all dried, packaged,
canned, or bottled products on October 1, 1995, and for chilled,
vacuum-packed pork and beef and all frozen food on July 1, 1996.
According to a WTO official, the system for other products was to be
phased in over time. After the agreement was announced, USTR and FAS
officials said they monitored Korea’s implementation to ensure it adhered
to the agreement. These officials said Korea’s initial notification to the WTO
of its new measures in July 1995 did not appear to be consistent with the
agreement reached, but a subsequent notification in September 1996
seemed to comply with the agreement.




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                                         In 1996, the Russian poultry ban threatened a U.S. market that had been
Poultry to Russia                        growing dramatically since the collapse of the Soviet Union, from about
                                         $84 million in 1993 to about $608 million in 1995 (see fig. III.2). Russia has
                                         become the largest single market for U.S. poultry exports—U.S. poultry
                                         exports to Russia represented about 26 percent of total U.S. poultry
                                         exports in 1995. Poultry exports have also become the largest single U.S.
                                         export to Russia. Because the ban was in effect for only about a week
                                         before the United States and Russia reached an agreement, and because
                                         U.S. poultry exports to Russia had increased somewhat during January
                                         and February of 1996 in anticipation of the ban’s taking effect, total U.S.
                                         poultry exports to Russia actually increased during 1996. Nonetheless, the
                                         potential loss from a long-term ban was quite substantial.


Figure III.2: U.S. Poultry and Poultry
Product Exports to Russia, Calendar
Years 1993-96                            In millions of dollars
                                         1,000



                                           800



                                           600



                                           400



                                           200



                                              0
                                                           1993                   1994                    1995                   1996

                                         Source: USDA, Foreign Agricultural Trade Statistics of the United States, various issues.




                                         The case had its origins in a shipment of “off-condition” chicken received
                                         by a Russian importer in June 1995. In November 1995, Russian veterinary




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health officials stated they had concerns about the U.S. system for
ensuring the safety of U.S. poultry exports and demanded that all U.S.
processing and cold storage facilities involved in the export of chicken to
Russia be inspected by Russian veterinarians.

After consulting with industry officials, USDA officials agreed to the
Russian inspection of U.S. facilities, even though an inspection of such
magnitude was unusual. Shortly before the arrival of the Russian
veterinarians in January 1996, Russia provided standards by which the U.S.
facilities were to be judged. USDA and industry officials said the standards
were very strict and were not similar to the existing U.S. poultry
processing system. After inspecting about 50 of the more than 300 plants
that were to be reviewed, a top Russian health official announced in
February 1996 that none of the U.S. facilities had met Russian standards.

Following this announcement, U.S. (APHIS, FSIS, and FAS) and Russian
officials engaged in technical negotiations to attempt to resolve the
problem. The negotiations addressed food safety and animal disease issues
and lasted for several weeks. The U.S. position was that the U.S. system
produces a safe and wholesome product and the Russian import
requirements were unreasonable. U.S. officials argued that processing and
inspection systems could differ but still offer the same degree of
protection. On February 16, 1996, Russian officials announced that a ban
on U.S. poultry imports would go into effect within 30 days unless Russian
concerns were addressed. U.S. officials who participated in the talks said
it became clear to them that technical negotiations were not going to
resolve the problem.

Following indications by Russian officials that they would ban U.S. poultry
imports, the Office of the Vice President became involved, and USTR took
the lead in the negotiations. The Russian ban was announced on March 16,
1996. Negotiations between the United States and Russia followed, and a
resolution was announced about 1 week later, on March 25, 1996. The two
sides reached agreement, among other things, on an updated export
certificate and a framework for periodic inspections of U.S. poultry
processing and cold storage facilities. According to U.S. officials, in this
case, the Office of the Vice President had a unique channel to work
through—a committee set up between the Vice President and the Russian
Prime Minister that held semiannual meetings to discuss bilateral issues.

U.S. industry, which was willing to make certain concessions to protect its
market, was heavily involved in developing the U.S. negotiating position.



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U.S. industry has noted, however, that the ban could perhaps have been
avoided had higher level and/or appropriate U.S. officials been involved
earlier in the negotiations. Some U.S. officials also expressed concern that
allowing Russian veterinarians to come to the United States with the
purpose of inspecting all the processing plants that exported poultry to
Russia may have set an expensive precedent for both the federal
government and the agricultural industry.




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Objectives, Scope, and Methodology


                  The objectives of our work were to provide Congress with information and
                  analysis on (1) the extent to which foreign SPS measures may unfairly
                  restrict U.S. agricultural exports and (2) the federal structure and
                  approach for addressing such measures. Our work does not address other
                  countries’ concerns about U.S. SPS measures or federal efforts to ensure
                  the safety of domestically produced and imported food.

                  To address the extent of foreign SPS measures and their impact on U.S.
                  agricultural exports, we

              •   reviewed USDA and academic literature that addressed (1) the history of
                  technical barriers to agricultural trade, including SPS measures; and (2) the
                  impact of certain SPS measures on trade;
              •   discussed the extent and impact of SPS measures with (1) appropriate
                  trade and regulatory officials at USDA, USTR, FDA, the Environmental
                  Protection Agency (EPA), and the Department of State; (2) representatives
                  of agricultural trade associations for beef, fruits, pork, poultry, seeds,
                  vegetables, wheat, and other commodities; (3) officials from the National
                  Association of State Departments of Agriculture and selected state
                  departments of agriculture; and (4) academic experts at the University of
                  California;
              •   reviewed USDA and private sector analyses of how other countries’ SPS
                  measures impact U.S. exports;
              •   attended the 1996 and 1997 USDA Agricultural Outlook Conferences, as well
                  as the National Association of State Departments of Agriculture’s 1996
                  Legislative Conference, where the primary issues facing U.S. agricultural
                  exports were discussed; and
              •   reviewed selected official records of meetings from 1991 to 1996 of USDA’s
                  Agricultural Policy Advisory Committee (APAC) and multiple Agricultural
                  Technical Advisory Committees (ATAC) for various commodity groupings
                  to track changes in the level of concern expressed about the impact of
                  foreign SPS measures.

                  To describe and analyze the federal structure and approach for addressing
                  foreign SPS measures, we

              •   reviewed studies of the U.S. trade structure for agricultural products and
                  the U.S. regulatory structure for food safety and animal and plant health to
                  determine which entities were responsible for this issue;
              •   reviewed responsible entities’ relevant statutory authorities, mission
                  statements, organizational charts, budgets, and staff levels, particularly
                  related to addressing foreign SPS measures;



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    Objectives, Scope, and Methodology




•   interviewed relevant officials in USDA’s Office of the Secretary; at eight
    USDA agencies; USTR; FDA; EPA; and State to discuss their Department’s or
    agency’s role in addressing foreign SPS measures, activities their
    Department or agency has undertaken to address specific foreign
    measures, their working relationships with other responsible entities, the
    extent to which responsible entities have coordinated their efforts, and
    how key decisions were made in individual cases;
•   attended or reviewed documentation of USDA interagency meetings held to
    coordinate and share information about the status of efforts to address
    foreign SPS measures;
•   reviewed structural and procedural limitations of the current approach as
    well as possible changes that could address certain problems with
    high-level USDA officials and agency staff, including the Special Assistant
    for International Trade to the Secretary of Agriculture and the FAS
    Administrator;
•   reviewed nonpublic agency documents that identified specific problems
    and suggested possible solutions, including a report by the USDA Office of
    Inspector General that examined USDA’s response to NAFTA implementation;
•   reviewed documentation of several USDA agencies’ computer data bases
    that are used to track and manage SPS-related activities;
•   attended APAC and ATAC meetings where concerns about the U.S.
    government approach to address SPS measures were discussed with USDA
    and USTR officials;
•   interviewed and obtained documentation from representatives of
    agricultural trade associations that have requested U.S. government
    assistance to address SPS measures to assess their experiences, what
    problems they encountered, and how satisfied they were with U.S.
    government efforts; and
•   reviewed agricultural trade association documents that identified specific
    problems in the current structure and approach and suggested possible
    solutions.

    To further support this objective, we developed information on U.S.
    government actions to address six foreign SPS measure(s) that have
    threatened, constrained, or blocked or continue to block U.S. agricultural
    exports. To select the six measures, we examined a variety of factors and
    attempted to develop a group of measures that would allow us to address
    a range of issues, including (1) commodities affected, (2) countries
    establishing the measures, (3) duration of the measures (from a few
    months to many years), (4) impact of the measures on trade (from
    relatively small to relatively large), (5) status of U.S. efforts to resolve the
    case (from resolved to unresolved), (6) coverage by multilateral rules



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    (involving WTO members, NAFTA members, and nonmembers of either
    agreement), and (7) the extent of participation of responsible U.S.
    government entities in addressing the measure.

    The measures we examined included

•   a Chinese stated “zero tolerance” on wheat infected with the TCK fungus, a
    measure in effect since 1973 that has primarily affected certain
    northwestern U.S. states where the fungus is known to occur;
•   a Japanese ban (encountered as early as 1983) on imports of U.S. tomatoes
    because of Japanese government concerns that tomatoes carried TBM;
•   a 1989 EU ban on imports of hormone-treated meat that blocks U.S. beef
    and veal exports;
•   1991 measures adopted in Mexico to establish multiple preshipment
    requirements for imports of fresh U.S. peaches and nectarines;
•   a 1994 change to a Republic of Korea shelf-life standard that adversely
    affected U.S. meat product exports; and
•   a brief 1996 Russian ban on U.S. poultry exports due to Russian
    dissatisfaction with U.S. inspection processes and disease certifications.

    For each measure, we developed a chronology of U.S. government and
    industry actions taken to address the measure, from the time the U.S.
    government first learned about the measure until the measure was
    resolved, or if unresolved, to the present time. To do so, we conducted
    interviews with agency officials who had been involved in addressing the
    measure; obtained any documents these officials could provide to
    demonstrate their or their entity’s actions, including chronologies, trip
    reports, memos, meeting minutes, press releases, and the text of any
    agreements reached with the foreign government; and reviewed reporting
    cables between State (headquarters) and embassy officials located abroad
    during 1994-96 that discussed these cases, including information about
    meetings with foreign officials and their results. We also met with
    agricultural trade association officials who had been involved in these
    cases to discuss what actions they had taken and ascertain their opinions
    of U.S. efforts.




    Page 69                                   GAO/NSIAD-98-32 Agricultural Exports
Appendix V

Comments From the U.S. Trade
Representative

Note: GAO comments
supplementing those in the
report text appear at the
end of this appendix.




See comment 1.




                             Page 70   GAO/NSIAD-98-32 Agricultural Exports
                 Appendix V
                 Comments From the U.S. Trade
                 Representative




See comment 2.




                 Page 71                        GAO/NSIAD-98-32 Agricultural Exports
                 Appendix V
                 Comments From the U.S. Trade
                 Representative




See comment 3.




                 Page 72                        GAO/NSIAD-98-32 Agricultural Exports
               Appendix V
               Comments From the U.S. Trade
               Representative




               The following are GAO’s comments on the U.S. Trade Representative ’s
               memorandum dated September 9, 1997.


               1. We updated our discussion of USTR’s Government Performance and
GAO Comments   Results Act (Results Act) strategic plan based on the final version that had
               not been completed when the draft report was sent to USTR for comment.
               We also added information about organizational developments at USTR and
               the interagency Trade Policy Staff Committee (TPSC) that USTR leads.
               Information throughout the report is based on discussions held with USTR
               and USDA officials continuously through October 1997 and documents
               gathered from both agencies. However, we continue to believe that our
               assessment of the overall U.S. approach and the need for coordinated
               goals, objectives, and performance measurements is accurate. First, the
               TPSC process is not a substitute for coordinated management of overall
               federal efforts. While this process is an important component of the
               federal approach, it is focused on obtaining interagency consensus on a
               limited number of SPS issues that the United States may raise for
               discussion in the WTO SPS committee and possibly refer to dispute
               settlement. According to USTR and USDA officials, the number of issues
               addressed in the TPSC process is a small subset of the hundreds that USDA
               entities address, which accounts for the report’s focus on USDA’s
               SPS-related activities. Second, we found only broad goals related to SPS
               measures in USTR’s Results Act plan, rather than the “specific negotiating
               goals” that USTR said it contained. In our view, these broad goals are not
               sufficient to ensure the more integrated approach for addressing SPS
               measures that we believe is necessary.

               2. We added information about the important role the regulatory agencies
               play not only in addressing foreign SPS measures but also in ensuring that
               U.S. trade policy does not undermine U.S. regulatory interests. However,
               the focus of this report is, as requested, on the facilitation of U.S.
               agricultural exports.

               3. We discussed our response to this issue in the section of the letter
               entitled “Agency Comments and Our Evaluation.” See page 35.




               Page 73                                     GAO/NSIAD-98-32 Agricultural Exports
Appendix VI

Comments From the Department of
Agriculture

Note: GAO comments
supplementing those in the
report text appear at the
end of this appendix.




                             Page 74   GAO/NSIAD-98-32 Agricultural Exports
                 Appendix VI
                 Comments From the Department of
                 Agriculture




See comment 1.




                 Page 75                           GAO/NSIAD-98-32 Agricultural Exports
                 Appendix VI
                 Comments From the Department of
                 Agriculture




See comment 2.




See comment 3.


See comment 4.




                 Page 76                           GAO/NSIAD-98-32 Agricultural Exports
               Appendix VI
               Comments From the Department of
               Agriculture




               The following are GAO’s comments on the Department of Agriculture’s
               letter dated September 11, 1997.


               1. The report identifies several SPS measures that have been resolved or
GAO Comments   regarding which the U.S. government has made progress, including five of
               our six case studies, and discusses how federal entities have used the
               provisions of the WTO SPS agreement in their negotiations to address SPS
               measures. However, we continue to believe that federal entities cannot
               measure the degree of their success because they lack adequate data on
               the size and potential impact of the problem, the status of their efforts to
               address the problem, and the effect of their efforts on U.S. exports.
               Moreover, we believe that federal efforts to address SPS measures are
               hampered by the structural and procedural weaknesses we identify.

               2. We clarified that our assessment of the U.S. approach applied to the
               entire scope of federal efforts, not just to measures that might be referred
               to the WTO. As noted in our response to USTR’s comments (app. V,
               comment 1), we updated our discussion of recent organizational initiatives
               but continue to believe our overall assessment of the federal approach is
               accurate.

               3. We understand that informal mechanisms may be a valuable and integral
               part of any system. However, our review demonstrates that, in the absence
               of high-level, unified management, the ad hoc and informal nature of
               USDA’s efforts to address SPS measures has caused coordination,
               communication, and prioritization problems. USDA notes in its comment
               letter that increased written guidance is needed to document its informal
               processes. We encourage USDA to focus this guidance on how federal
               entities can best use such processes.

               4. We added information about monthly strategy meetings held to discuss
               SPS issues and the planned formation of the Working Group on Agricultural
               Trade Policy. Based on information USDA officials provided, the working
               group appears to be an appropriate step toward improving USDA’s
               management of Departmentwide efforts to address SPS measures, provided
               the plan is implemented and maintained and the working group’s
               effectiveness is periodically evaluated.




               Page 77                                     GAO/NSIAD-98-32 Agricultural Exports
Appendix VII

Comments From the Food and Drug
Administration

Note: GAO comments
supplementing those in the
report text appear at the
end of this appendix.




                             Page 78   GAO/NSIAD-98-32 Agricultural Exports
                 Appendix VII
                 Comments From the Food and Drug
                 Administration




See comment 1.




                 Page 79                           GAO/NSIAD-98-32 Agricultural Exports
                 Appendix VII
                 Comments From the Food and Drug
                 Administration




See comment 2.




See comment 3.




                 Page 80                           GAO/NSIAD-98-32 Agricultural Exports
                 Appendix VII
                 Comments From the Food and Drug
                 Administration




See comment 4.




                 Page 81                           GAO/NSIAD-98-32 Agricultural Exports
               Appendix VII
               Comments From the Food and Drug
               Administration




               The following are GAO’s comments on the FDA’s letter dated August 22,
               1997.


               1. We added information to the report to more completely reflect the role
GAO Comments   that regulatory agencies play, not only in providing technical expertise to
               help evaluate foreign SPS measures, but also in developing and evaluating
               U.S. trade positions to ensure they do not undermine U.S. regulatory
               interests. We also added information to indicate that the potential impact
               on U.S. regulatory interests is one of several factors that are considered
               when determining which foreign SPS measures the United States will raise
               for discussion in the WTO SPS committee.

               2. We discussed our response to this issue in the section of the letter
               entitled “Agency Comments and Our Evaluation.” See page 35.

               3. We discussed our response to this issue in the section of the letter
               entitled “Agency Comments and Our Evaluation.” See page 35.

               4. We modified the recommendation to suggest that USTR and USDA consult
               with FDA, EPA, and State in the development of coordinated goals,
               objectives, and performance measurements for addressing SPS measures.




               Page 82                                     GAO/NSIAD-98-32 Agricultural Exports
Appendix VIII

Comments From the Department of State


Note: GAO comments
supplementing those in the
report text appear at the
end of this appendix.




See comment 1.




                             Page 83   GAO/NSIAD-98-32 Agricultural Exports
Appendix VIII
Comments From the Department of State




Page 84                                 GAO/NSIAD-98-32 Agricultural Exports
                Appendix VIII
                Comments From the Department of State




                The following is GAO’s comment on the Department of State’s letter dated
                August 20, 1997.


                1. We modified the recommendation to suggest that USTR and USDA consult
GAO’s Comment   with FDA, EPA, and State in the development of coordinated goals,
                objectives, and performance measurements for addressing SPS measures.
                Although we recognize that State has played an important role in
                addressing foreign SPS measures, it does not have the same degree of
                responsibility for identifying, evaluating, and conducting negotiations on
                these issues that USTR and USDA have.




                Page 85                                    GAO/NSIAD-98-32 Agricultural Exports
Appendix IX

Major Contributors to This Report


                        Phillip J. Thomas
National Security and   Shirley A. Brothwell
International Affairs   Kimberly M. Gianopoulos
Division, Washington,   Stanton J. Rothouse
                        Michael J. Avenick
D.C.                    Rona Mendelsohn


                        Daniel E. Coates
Office of the Chief
Economist,
Washington, D.C.
                        Herbert I. Dunn
Office of the General
Counsel, Washington,
D.C.
                        Juan Gobel
Los Angeles Regional    Patricia Cázares
Office




                        Page 86                   GAO/NSIAD-98-32 Agricultural Exports
Appendix IX
Major Contributors to This Report




Page 87                             GAO/NSIAD-98-32 Agricultural Exports
Related GAO Products


              U.S. Agricultural Exports: Strong Growth Likely But U.S. Export
              Assistance Programs’ Contribution Uncertain (GAO/NSIAD-97-260, Sept. 30.
              1997).

              Agricultural Inspection: Improvements Needed to Minimize Threat of
              Foreign Pests and Diseases (GAO/RCED-97-102, May 5, 1997).

              Food-Related Services: Opportunities Exist to Recover Costs by Charging
              Beneficiaries (GAO/RCED-97-57, Mar. 20, 1997).

              World Trade Organization: Status of Issues to Be Considered at Singapore
              Ministerial Meeting (GAO/T-NSIAD-96-243, Sept. 27, 1996).

              Agricultural Research: Information on Research System and USDA’s Priority
              Setting (GAO/RCED-96-92, Mar. 28, 1996).

              Food Safety: New Initiatives Would Fundamentally Alter the Existing
              System (GAO/RCED-96-81, Mar. 27, 1996).

              International Trade: Implementation Issues Concerning the World Trade
              Organization (GAO/T-NSIAD-96-122, Mar. 13, 1996).

              Pesticides: The Phaseout of Methyl Bromide in the United States
              (GAO/RCED-96-16, Dec. 15, 1995).

              International Trade: Canada’s Restrictions on Certain Salmon Imports
              (GAO/GGD-95-117, Apr. 20, 1995).

              U.S.-Canadian Food Safety: Opportunities for Sharing Information and
              Coordinating Inspections (GAO/RCED-95-45, Nov. 22, 1994).

              U.S.-Chilean Trade: Pesticide Standards and Concerns Regarding Chilean
              Sanitary Rules (GAO/GGD-94-198, Sept. 28, 1994).

              The General Agreement on Tariffs and Trade: Uruguay Round Final Act
              Should Produce Overall U.S. Economic Gains (GAO/GGD-94-83a and b,
              July 29, 1994).

              North American Free Trade Agreement: Assessment of Major Issues
              (GAO/GGD-93-137a and b, Sept. 9, 1993).




(711176)      Page 88                                    GAO/NSIAD-98-32 Agricultural Exports
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