Tobacco Exports
USDA's Foreign Agriculture Service Lacks Specific Guidance for Congressional Restrictions on Promoting Tobacco Gao ID: GAO-03-618 May 30, 2003Since 1994, the Agriculture Appropriations Act has prohibited the funding of tobacco export programs and restricted the U.S. Department of Agriculture's (USDA) tobacco-related activities. Since 1998, the Commerce, Justice, and State Appropriations Act has placed similar restrictions on the Departments of Commerce and State and the Office of the U.S. Trade Representative (USTR), although it has not prohibited them from addressing foreign discriminatory trade practices. Congressional requesters asked GAO to (1) assess the agencies' guidance on the restrictions to their overseas personnel, (2) describe how the agencies' activities changed in response to the restrictions, and (3) identify the mechanisms that the agencies use to monitor compliance.
Commerce, State, and USTR have issued timely guidance implementing the tobacco-related restrictions specified in their annual appropriations act. However, USDA's Foreign Agricultural Service (FAS) has not issued guidance specific to its appropriations act. Instead, since 1998, FAS has relied on the tobacco-related guidance in a periodic cable sent to the overseas staffs of USDA, State, Commerce, and USTR. This guidance does not address whether certain FAS activities, such as providing tobacco-related information reports and assisting in trade negotiations on tobacco-related issues, are consistent with USDA's 1994 restrictions. GAO did not seek to determine whether ongoing FAS activities are prohibited by the appropriations restrictions. The agencies have discontinued some tobacco-related activities and continued others. For instance, Commerce overseas staff ceased providing market research information to tobacco exporters, but staffs of Commerce and State still provide routine business assistance to exporters. FAS ended the tobacco component of USDA's Export Credit Guarantee Program, Foreign Market Development Program, and Market Access Program. However, FAS has continued, as part of its commodity-reporting program, to gather and disseminate tobacco-related information that identifies foreign production and consumption rates, import trends, and changes in foreign regulations. Our analysis showed that some of FAS's reports provided insights into market niches for tobacco exporters. To monitor compliance with the restrictions, senior FAS and Foreign Commercial Service officers at overseas posts review their staffs' tobacco-related activities. Overseas staffs refer to headquarters U.S. firms' requests for assistance that could violate the restrictions contained in the periodic guidance.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-03-618, Tobacco Exports: USDA's Foreign Agriculture Service Lacks Specific Guidance for Congressional Restrictions on Promoting Tobacco
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Specific Guidance for Congressional Restrictions on Promoting Tobacco'
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Report to Congressional Requesters:
United States General Accounting Office:
GAO:
May 2003:
Tobacco Exports:
USDA's Foreign Agricultural Service Lacks Specific Guidance for
Congressional Restrictions on Promoting Tobacco:
GAO-03-618:
GAO Highlights:
Highlights of GAO-03-618, a report to congressional requesters
Why GAO Did This Study:
Since 1994, the Agriculture Appropriations Act has prohibited the
funding of tobacco export programs and restricted the U.S. Department
of Agriculture‘s (USDA) tobacco-related activities. Since 1998, the
Commerce, Justice, and State Appropriations Act has placed similar
restrictions on the Departments of Commerce and State and the Office
of the U.S. Trade Representative (USTR), although it has not
prohibited them from addressing foreign discriminatory trade
practices. Congressional requesters asked GAO to (1) assess the
agencies‘ guidance on the restrictions to their overseas personnel,
(2) describe how the agencies‘ activities changed in response to the
restrictions, and (3) identify the mechanisms that the agencies use to
monitor compliance.
What GAO Found:
Commerce, State, and USTR have issued timely guidance implementing the
tobacco-related restrictions specified in their annual appropriations
act. However, USDA‘s Foreign Agricultural Service (FAS) has not issued
guidance specific to its appropriations act. Instead, since 1998, FAS
has relied on the tobacco-related guidance in a periodic cable sent to
the overseas staffs of USDA, State, Commerce, and USTR. This guidance
does not address whether certain FAS activities, such as providing
tobacco-related information reports and assisting in trade
negotiations on tobacco-related issues, are consistent with USDA‘s
1994 restrictions. GAO did not seek to determine whether ongoing FAS
activities are prohibited by the appropriations restrictions.
The agencies have discontinued some tobacco-related activities and
continued others. For instance, Commerce overseas staff ceased
providing market research information to tobacco exporters, but staffs
of Commerce and State still provide routine business assistance to
exporters. FAS ended the tobacco component of USDA‘s Export Credit
Guarantee Program, Foreign Market Development Program, and Market
Access Program. However, FAS has continued, as part of its commodity-
reporting program, to gather and disseminate tobacco-related
information that identifies foreign production and consumption rates,
import trends, and changes in foreign regulations. Our analysis showed
that some of FAS‘s reports provided insights into market niches for
tobacco exporters.
To monitor compliance with the restrictions, senior FAS and Foreign
Commercial Service officers at overseas posts review their staffs‘
tobacco-related activities. Overseas staffs refer to headquarters U.S.
firms‘ requests for assistance that could violate the restrictions
contained in the periodic guidance.
What GAO Recommends:
To ensure that FAS fully addresses congressional restrictions on the
promotion of tobacco or tobacco-related products, we recommend that
the Secretary of Agriculture (1) develop guidance that reflects FAS‘s
specific restrictions and (2) review FAS‘s tobacco-related activities
to determine whether they are consistent with the restrictions. In
response to our draft, FAS stated it will issue guidance but does not
believe that the restrictions cover the collection and dissemination
of tobacco related information.
www.gao.gov/cgi-bin/getrpt?GAO-03-618.
To view the full report, including the scope and methodology, click on
the link above. For more information, contact David Gootnick at (202)
512-3149 or gootnickd@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Commerce, State, and USTR Provided Guidance on Tobacco Restrictions,
but FAS Did Not:
Agencies Have Stopped Some Activities and Continued Others:
Agencies Rely on Staff to Monitor Compliance with Restrictions on
Promoting Tobacco:
Conclusions:
Recommendations:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Excerpts from 2001 and 2002 Foreign Agricultural Service
Tobacco Attaché Reports:
Appendix III: Comments from the U.S. Department of Agriculture:
Figures:
Figure 1: FAS Tobacco-Related Programs and Activities:
Figure 2: Subscribers to FAS Worldwide Tobacco Reports:
Abbreviations:
FAS: Foreign Agricultural Service
FCS: Foreign Commercial Service
HHS: Department of Health and Human Services
USDA: U.S. Department of Agriculture
USTR: Office of the U.S. Trade Representative:
United States General Accounting Office:
Washington, DC 20548:
May 30, 2003:
The Honorable Richard J. Durbin
Ranking Minority Member
Subcommittee on Oversight of Government Management, the Federal
Workforce, and the District of Columbia
Committee on Governmental Affairs
United States Senate:
The Honorable Henry A. Waxman
Ranking Minority Member
Committee on Government Reform
House of Representatives:
The Honorable Lloyd Doggett
House of Representatives:
Since fiscal year 1994, the annual Agriculture Appropriations Act has
prohibited the U.S. Department of Agriculture's (USDA) Foreign
Agricultural Service (FAS) from using appropriated funds to promote the
sale or export of tobacco or tobacco products. Additionally, since
fiscal year 1998, the Commerce, Justice,[Footnote 1] and State
Appropriations Act similarly has prohibited those agencies, including
the Office of the U.S. Trade Representative (USTR), from using
appropriated funds to promote the sale or export of tobacco or tobacco
products and from seeking the removal of nondiscriminatory foreign
restrictions on the marketing of tobacco. While both appropriations
acts prohibit agencies from helping U.S. firms market tobacco products
overseas, they differ in that the 1998 Act allows the Departments of
Commerce and State and USTR to address potentially discriminatory trade
practices faced by U.S. tobacco firms.
As you requested, this report (1) assesses the tobacco-related policy
guidance on restrictions issued to overseas personnel by USDA,
Commerce, State, and USTR; (2) describes how the agencies' past and
present activities changed in response to the legislative restrictions
on the marketing of tobacco and tobacco products; and (3) identifies
how the agencies monitor compliance with restrictions on promoting
tobacco.
In conducting this review, we reviewed agency documents, performed
legal analyses, and conducted interviews with responsible agency
officials. We analyzed tobacco-related publications, including all FAS
tobacco commodity reports for 2001 and 2002. We did not seek to
determine whether ongoing agency activities are, or are not, prohibited
under the appropriations restrictions. (See app. I for further details
of our scope and methodology.):
Results in Brief:
Commerce, State, and USTR have issued timely guidance implementing
tobacco-related restrictions in their annual appropriations act, but
the USDA's FAS has not. Since fiscal year 1998, USDA, Commerce, State,
and USTR have issued guidance to diplomatic posts as a periodic cable
that implements the restrictions in the agencies' appropriations.
Between 1993 and 1997, FAS issued no guidance implementing its tobacco-
related restrictions. Since 1998, FAS has relied on the periodic cables
to provide policy guidance to its overseas personnel. However, this
guidance--developed through an ongoing interagency process that
includes FAS--does not provide specific direction to FAS staff. For
example, it does not specify whether certain FAS activities, such as
providing tobacco-related information reports on foreign market
conditions and assisting in trade negotiations on tobacco-related
issues, are consistent with its appropriations act's restrictions.
In response to the legislative restrictions, the agencies discontinued
some tobacco-related activities and continued others. Commerce overseas
staff ceased providing market research information to potential U.S.
tobacco exporters. Consistent with the 1998 cable guidance, the staffs
of both Commerce and State still provide routine business assistance to
exporters needing security, customs, or regulatory information. In
fiscal year 1994, FAS ended the tobacco component of USDA's major
export programs--specifically, the Export Credit Guarantee Program, the
Foreign Market Development Program, and the Market Access
Program.[Footnote 2] FAS has continued, as part of its commodity-
reporting program, to gather and disseminate tobacco-related
information that identifies foreign production and consumption rates,
import trends, and changes in foreign regulations that may assist
tobacco exporters. Additionally, FAS, like other U.S. agencies, has
provided USTR negotiators with information on foreign tariff rates,
U.S. market shares, and trade concessions' potential impact on exports.
To monitor implementation of the legislated restrictions, Commerce,
State, and FAS rely on their overseas staffs to identify U.S. firms'
requests for tobacco-related assistance not covered in the periodic
guidance. Overseas staff are instructed to refer such requests to
headquarters for review, and headquarters staff make case-by-case
determinations on the permissibility of each request. Overseas staff
have asked, for instance, whether they can help U.S. tobacco firms
address different types of potentially unfair trade practices and
whether to list tobacco as an export prospect in publicly available
country commercial guides that highlight export opportunities.
We are recommending that the Secretary of Agriculture (1) develop
guidance to implement the legislative restrictions on promoting the
sale or export of tobacco or tobacco products that fully reflects FAS
programs and activities and (2) review FAS's ongoing activities to
determine whether they are consistent with those restrictions.
In commenting on a draft of this report (see app. III), USDA disagreed
with our finding that the guidance of the State cable does not fully
implement FAS's tobacco-related prohibitions, but USDA noted that, in
response to our recommendation, it will prepare separate guidance for
FAS staff overseas and will cite any needed clarifications. USDA also
disagreed with our recommendation that FAS assess its tobacco-related
activities--specifically, the collection and dissemination of
information on tobacco--to clarify whether these activities are
consistent with FAS's legislative restrictions on the promotion of
tobacco exports. USDA stated that it does not consider these activities
to be within the scope of its restrictions. However, USDA has not
provided us with any documentation in support of this position. Because
FAS's mission is largely promotional, we maintain our recommendation
that FAS review its ongoing activities and determine whether they are
consistent with its restrictions. Commerce, State, and USTR did not
comment on the draft report.
Background:
In general, the overseas staffs of USDA, Commerce, and State help
facilitate a broad range of U.S. exports. Specifically, USDA's FAS and
Commerce work to improve export opportunities for U.S. products in
foreign markets.[Footnote 3] Their activities include developing export
opportunities for U.S. businesses, participating in trade agreement
negotiations and countering foreign discriminatory trade practices, and
collecting and analyzing statistics and market information. Each agency
produces information reports on foreign market conditions. For example,
FAS staff provide monthly reports on various commodities and annual
reports on foreign markets, and Commerce overseas staff prepare country
commercial guides that identify targeted industry sectors for U.S.
exports and discuss the country's political, regulatory, and economic
climate. State overseas staff's trade responsibilities include
facilitating trade negotiations, providing economic analysis, and
providing commercial assistance in countries where Commerce has no
presence. These agencies are part of an interagency process established
under the Trade Expansion Act of 1962, which provides for an
interagency structure and process that consults and advises USTR on
trade policy and negotiations.
In the early 1990s, these agencies, as well as the Departments of
Health and Human Services (HHS) and the Treasury, were also members of
an interagency group, called the Trade Policy Staff Committee Task
Force on Tobacco Exports, that examined the dichotomy between tobacco-
related health concerns and the economic benefit of tobacco
exports.[Footnote 4] Charged with assessing U.S. tobacco policy in
light of trade and health concerns, the group outlined the agencies'
tobacco-related responsibilities.[Footnote 5] Those responsibilities
included collecting and analyzing production, trade, and consumption
data on tobacco and related products; addressing unfair regulations
inconsistent with international trade agreements; combating
discriminatory trade practices; and supporting foreign government
health policies.
In August 1992, Congress passed the Agricultural Appropriations Act for
fiscal year 1993, prohibiting the use of appropriated funds to pay the
salaries of personnel who carry out USDA's Market Promotion Program
with respect to tobacco. In October 1993, Congress broadened the
tobacco-related prohibition, as part of the fiscal year 1994
appropriation act, to include FAS in the prohibitions. Specifically,
since fiscal year 1994 Congress has prohibited FAS from using
appropriated funds to promote the sale or export of tobacco or tobacco
products.
In November 1997, Congress passed the fiscal year 1998 Commerce,
Justice, and State Appropriations Act, prohibiting agencies funded by
the act, including USTR, from using appropriated funds to promote the
sale or export of tobacco or tobacco products. This act also prohibited
the use of appropriated funds to reduce or remove nondiscriminatory
foreign country restrictions on the marketing of tobacco or tobacco
products. The act allows the use of funds to address foreign-country,
tobacco-marketing restrictions that discriminate against U.S.
products. Subsequent appropriations acts have retained these
prohibitions.
Commerce, State, and USTR Provided Guidance on Tobacco Restrictions,
but FAS Did Not:
Guidance implementing the fiscal year 1998 restrictions on Commerce,
State, and USTR's promotion of tobacco and tobacco-related products was
first issued in February 1998; about 3 months after the restrictions
went into effect. The guidance, issued in a State cable to overseas
posts, identified prohibited and permitted activities. By contrast,
from 1994 through 1997, FAS did not provide any written guidance to its
overseas staff regarding the restrictions on its tobacco-related
activities. Since fiscal year 1998, according to FAS officials, the
agency has participated in developing the guidance contained in the
periodic State cables.
Commerce, State, and USTR Issued Guidance on Their Tobacco
Restrictions:
The cabled guidance, first issued in February 1998, implements the
tobacco restrictions contained in the fiscal year 1998 Commerce, State,
and Justice Appropriations Act. This guidance prohibits the agencies
from:
* promoting the sale or export of tobacco or tobacco-related products
and assisting with the efforts of U.S. firms or individuals that do,
* participating in trade events or receptions sponsored by tobacco
interests, and:
* challenging host country laws and regulations directed toward
reducing the negative impact of tobacco.
The guidance also clarifies the activities that overseas staff may
engage in, specifically permitting these agencies to provide:
* routine business facilitation services to all U.S. citizens or firms,
such as providing information on foreign country conditions, policies,
laws, and regulations;
* assistance in resolving business problems, such as customs or port
clearances; and:
* assistance in resolving potentially discriminatory trade
restrictions.
Since February 1998, State has periodically updated and reissued this
guidance to overseas staffs of State, Commerce, and USDA. The February
1999 cable reiterated the same guidance and encouraged overseas staff
to refer to headquarters any issues not covered by the guidance. This
cable also encouraged overseas posts to report on their actions
supporting foreign-country, tobacco-control efforts. The February 2000
cable again encouraged posts to assist in foreign tobacco-control
efforts and provided suggestions for doing so. The cable specifically
recommended that posts help foreign governments to:
* identify and promote tobacco-control programs;
* find funding for tobacco prevention and control projects, including
from U.S. sources;
* report on the country's tobacco-control projects and progress; and:
* track, and report on, tobacco-control legislation.
FAS Has Not Issued Guidance Implementing Its Tobacco Restrictions:
FAS did not develop guidance implementing the statutory restrictions,
effective in fiscal year 1994, that specifically prohibit it from using
appropriated funds to promote the sale or export of tobacco or tobacco-
related products. FAS did cease funding certain tobacco-related
activities in 1994. However, FAS officials could not cite or produce
any internal policy or guidance implementing their restrictions, nor
could they explain what guidance they relied on from 1994 through 1997.
FAS officials stated that since fiscal year 1998, when the restrictions
on State, Commerce, and USTR activities became effective, FAS has
relied on the February 1998 and subsequent State cables containing
guidance to overseas posts as a means to inform its overseas staff of
the tobacco-related restrictions. All of the FAS officials we
interviewed were aware of this guidance. For example, FAS staff at
headquarters and overseas were aware that they were prohibited from
promoting tobacco and its products, and the overseas staff members we
communicated with were aware that participation in trade events
promoting tobacco and attendance at tobacco company-sponsored functions
was prohibited.
Although FAS participated in drafting the original 1998 State-issued
guidance cables, the cables do not specifically address what FAS
activities are prohibited under the USDA appropriations act
restrictions. In particular, the cables do not address FAS's continuing
activities related to (1) collecting and disseminating information on
foreign tobacco markets or (2) participating in negotiations on
tobacco-related trade agreements.
Agencies Have Stopped Some Activities and Continued Others:
USDA, Commerce, State, and USTR have altered their activities in
response to the legislated tobacco restrictions by discontinuing the
tobacco-related component of export programs and stopping direct
assistance to tobacco exporters, but the agencies have continued
certain other activities related to information gathering and
dissemination and trade negotiations. For example, the agencies
routinely collect and publish information on foreign countries'
commercial environment, which may include information related to
tobacco. Such information might be useful to U.S. tobacco exporters.
These agencies also provide information useful to USTR when it
negotiates trade agreements or addresses discriminatory trade barriers.
Commerce Stopped Providing Market Research Information:
Commerce's Foreign Commercial Service (FCS) staff have ceased
assistance to potential tobacco exporters but continue to provide basic
assistance to all potential exporters. FCS representatives told us that
FCS staff no longer (1) provide market information on tobacco in FCS's
country commercial guides; (2) facilitate meetings with foreign tobacco
buyers; (3) set up trade shows for tobacco products; or (4) provide
customized fee-based research that identifies key competitors, the
price of comparable products, customary distribution and promotion
practices, or possible business partners. However, FCS identified a few
instances in which its overseas staff inadvertently assisted tobacco
exporters. In 2001, for example, FCS staff prepared research reports on
Pakistan's tobacco market for a U.S. tobacco firm--an activity clearly
prohibited in the guidance provided to overseas posts. FCS reminded its
staff of these prohibitions in 2002 by resending the 2000 cable to its
posts. FCS policy is to limit assistance to tobacco firms to the same
routine business facilitation services provided to any U.S. firm, such
as briefing them on the security, political, and commercial situation
in a country and helping them resolve customs or tax issues. Commerce
staff, in conjunction with other agency staff here and abroad, also
helps resolve potential discriminatory trade practices.
Commerce, State, and USTR Provide Trade Agreement-Related Support:
Commerce, State, and other federal agencies assist USTR by providing
trade information on foreign markets, commodities, or barriers to
trade, and they work together to assist exporters faced with potential
discriminatory trade practices. In 2001, for example, representatives
from USTR, State, Commerce, and the Centers for Disease Control and
Prevention negotiated with the Republic of Korea to reduce proposed
import tariffs on tobacco that would have violated an existing market
access agreement between the United States and Korea. In another
instance, U.S. agencies worked together to address Thailand's proposed
cigarette ingredient disclosure requirement--a potential infringement
of the intellectual property rights of U.S. cigarette brands. U.S.
agencies assist exporters in other ways, such as working with foreign
governments to address cigarette counterfeiting, as U.S. agencies did
in Pakistan in 1998.
USTR is responsible for developing and coordinating trade policy,
negotiating trade agreements, and addressing unfair trade practices.
USTR relies on an interagency structure, established in the Trade
Expansion Act of 1962,[Footnote 6] to provide information on foreign
trade policies, regulations, and practices. Since 1998, the Commerce,
Justice, and State Appropriations Act has specifically allowed the use
of appropriated funds to address foreign-country, tobacco-marketing
restrictions that discriminate against U.S. products. This allowance is
reflected in the implementing guidance contained in the periodic State
cable.
FAS Discontinued Some Tobacco Programs:
Beginning in fiscal year 1994, when the tobacco restrictions contained
in USDA's appropriations went into effect, FAS ceased funding the
tobacco component of USDA's export programs (see fig. 1). The tobacco
component of USDA's Export Credit Guarantee Program had provided U.S.
tobacco exporters with guaranteed credit to facilitate U.S. tobacco
exports and had provided subsidy payments that allowed the tobacco
exporters to compete in world markets against the subsidized exports of
other countries. USDA also stopped funding the tobacco component of the
Foreign Market Development Program, which was designed to encourage
commercial exports through federal subsidies for advertising, trade
servicing, and technical assistance. The tobacco component of the
Market Access Program (formerly the Market Promotion Program) ended in
fiscal year 1993. This program funded the promotional activities of
U.S. tobacco producers, exporters, private companies, and trade
organizations.
Figure 1: FAS Tobacco-Related Programs and Activities:
[See PDF for image]
[A] Now the Market Access Program.
[End of figure]
FAS Continues to Report on Foreign Tobacco Markets:
FAS continues to produce tobacco-related reports that can be useful to
tobacco exporters. Historically, FAS has reported on foreign-country
tobacco imports and provided production, pricing, and consumption data,
as it routinely does for other commodities. Currently, FAS continues to
put monthly tobacco trade statistics on its Internet Web site, and it
publishes printed copies of its quarterly report Tobacco: Worldwide
Markets and Trade. (FAS officials said that they would stop publishing
the report at the end of 2003 but that the information would continue
to be available on their Web site.) FAS also makes available on the
Internet annual commodity reports on tobacco, referred to as "attaché
reports."[Footnote 7] These reports contain numerous data tables and
some evaluative information on major foreign consumers and producers of
tobacco products.
We examined the subscription lists for FAS's quarterly reports and
found that the majority of subscribers are tobacco industry-related
organizations such as U.S. and foreign tobacco firms and tobacco-
related organizations such as investment banks, trade associations, and
tobacco control organizations (see fig. 2).
Figure 2: Subscribers to FAS Worldwide Tobacco Reports:
[See PDF for image]
[End of figure]
We also analyzed the content of all FAS annual attaché reports covering
tobacco during 2001 and 2002 and found that they provide information on
foreign market conditions that may be useful to tobacco exporters. The
62 annual reports from 2001 and 2002[Footnote 8] that we analyzed
commonly contained discussions on marketing, consumption and
production, trade issues, and policies. (See app. II for detailed
information on the nature of these reports.) General FAS guidance on
commodity reporting encourages posts to view the countries as markets
for U.S. exports and competitors to U.S. products, and the attaché
reports identified import and export trends. Each report narrative was
supplemented with an average of 14 tables, including estimates on
projected production and consumption of leaf tobacco and cigarettes.
Additionally, some reports contained information on health and safety
policies, market share, advertising regulations, and brand or tobacco
preference. The following excerpts from selected reports illustrate the
kind of information that might be useful to U.S. tobacco exporters.
* Malaysia, 2002: "Younger Malaysians prefer to smoke American-blended
cigarettes. With about half of the population below age 25, the demand
for these cigarettes should continue to climb. The local market share
for American-blend cigarettes has expanded from 38 percent in 1998 to
45 percent in 2001.":
* Italy, 2002: "Prospects for U.S. tobacco into the Italian market—are
unfavorable, in view of both the continued reduction of domestic brand
cigarettes sold on the Italian market, and stronger competition from
other suppliers, such as Brazil and Zimbabwe.":
* Dominican Republic, 2002: "The Dominican Republic continues to be one
of the most important trading partners with the United States in
tobacco—. U.S. exports to the Dominican Republic surpassed US$85
million in CY 2001, positioning the Dominican Republic among the top
five largest importers of U.S. tobacco.":
Moreover, an analysis of report narratives in combination with
information contained in the data tables might provide insight into
market niches for potential exporters. For example, from the narratives
and tables of the FAS 2002 report on Taiwan, we learned that (1)
domestic unmanufactured tobacco production had declined because of
privatization of the country's tobacco monopoly, and the remaining
production will incorporate U.S. leaf tobacco; (2) competitors' imports
of unmanufactured tobacco were projected to decrease; (3) Taiwanese
consumers considered U.S. tobacco desirable; and (4) small, steady
increases in total tobacco consumption were forecast. Taken together,
this information identifies an opportunity for U.S. tobacco exporters
of unmanufactured leaf. The report itself claims that in Taiwan there
are "opportunities and challenges for U.S. tobacco and tobacco product
exports."[Footnote 9]
The 2001 report from the Netherlands is another example in which
combined reported information gives U.S. tobacco exporters insight into
the Dutch market.[Footnote 10] The tobacco report indicates (1)
increased domestic production of cigarettes, (2) a Dutch preference for
U.S. flue-cured unmanufactured tobacco, and (3) the importance of
competitive pricing for U.S. exports to be able to compete with imports
from Brazil and Zimbabwe. Additionally, information on the European
Union's lower tar and nicotine requirements provides the exporter with
useful information.
FAS Continues to Provide Tobacco-Related Information to USTR:
FAS supports USTR and State regarding trade policy and trade agreement
issues. FAS staff participate in the interagency process that supports
trade negotiations and addresses discriminatory trade practices,
providing data and analysis on a variety of commodities, including
tobacco. The Secretary of Agriculture, under the Food, Agriculture,
Conservation, and Trade Act of 1990,[Footnote 11] has authority to
"provide technical services to the USTR on matters pertaining to
agricultural trade and with respect to international negotiations on
issues related to agricultural trade." FAS, for example, has supported
USTR's efforts to foster free trade agreements with Australia, Chile,
Jordan, Morocco, and Singapore by providing tobacco-related data and
information on production, supply and demand, and tariff-rate quotas.
Agencies Rely on Staff to Monitor Compliance with Restrictions on
Promoting Tobacco:
Senior FAS and FCS officers at overseas posts oversee their staffs'
tobacco-related activities. Overseas staff are aware that they are to
refer to these officers any requests for assistance or other activities
that could violate the restrictions outlined in the periodic guidance
they receive. When clarification of a requested activity is required,
these officers, as outlined in the periodic State cables, seek
headquarters-level approval before assisting U.S. tobacco firms.
Headquarters staff make case-by-case determinations on the
permissibility of each request. Agencies do not systematically collect
information on requests made for assistance by tobacco exporters;
therefore, information on the exact number of requests was unavailable.
However, overseas staff have, for example, asked whether they should
discuss proposed tariff increases on imported cigarettes with foreign
governments, whether it would be appropriate to hold embassy meetings
with tobacco firms, and whether to include tobacco as a good export
prospect in Commerce's Country Commercial Guide for Russia. To each of
these requests, headquarters staff said no.
Conclusions:
Since 1998, USDA, Commerce, State, and USTR have participated in an
interagency process that has developed and periodically updated
guidance to their overseas staff, outlining restrictions on the
promotion of tobacco and tobacco-related products. However, this
guidance appears to implement only the restrictions of the Commerce,
State, and USTR appropriations and does not provide specific direction
to FAS staff regarding restrictions on its tobacco-related programs and
activities. FAS discontinued funding the tobacco components of its
major export programs in 1994. However, FAS has not assessed whether
its activities regarding the collection and dissemination of
information--information that is used by tobacco producers and
exporters of tobacco products--are consistent with FAS's statutory
restrictions on the promotion of tobacco or tobacco products.
Recommendations:
To ensure that the Foreign Agricultural Service has fully addressed its
restriction on the promotion of tobacco or tobacco-related products, we
recommend that the Secretary of Agriculture (1) develop guidance to
implement the legislative restrictions on promoting the sale or export
of tobacco or tobacco-related products that fully reflects FAS programs
and activities. We also recommend that the Secretary (2) review all
ongoing activities that pertain to tobacco or tobacco-related products-
-specifically, the collection and dissemination of information on
tobacco--to determine whether these activities are consistent with the
Department of Agriculture's restrictions in its appropriations.
Agency Comments and Our Evaluation:
We provided a draft copy of this report to USDA, Commerce, State, and
USTR. We received written comments from USDA. Commerce, State, and USTR
did not comment on the draft report.
USDA disagreed with our conclusion that the State cable, formulated to
implement the restrictions that apply to Commerce, State, and USTR and
adopted by FAS, provides insufficient guidance to FAS staff.
Specifically, FAS claims that the Commerce, Justice and State
Appropriations Act restricts agency action to a greater degree than the
USDA amendment covering FAS because it adds an additional restriction
on trade negotiations not found in the USDA amendment. By following
this guidance, FAS states, it is therefore implementing its
restrictions and voluntarily adopting additional limitations.
We disagree. The tobacco-related restrictions contained in FAS's annual
appropriation act and the restrictions contained in Commerce, State,
and USTR's appropriation act are essentially the same and only differ
in one respect. The restriction in the Commerce, State, and USTR
appropriation act prohibits those agencies from seeking the reduction
or removal of foreign-country restrictions on the marketing of tobacco,
but allows those agencies to address, in limited circumstances,
foreign-country restrictions on the marketing of tobacco that
potentially discriminate against U.S. products. Because FAS programs
and activities differ from those of the other agencies and its overall
mission is largely promotional,[Footnote 12] we continue to recommend
that FAS develop guidance that fully reflects its own activities.
FAS also disagreed with our recommendation that it review its tobacco-
related activities--specifically, the collection and dissemination of
market intelligence regarding tobacco--to determine whether these
activities are in keeping with USDA's tobacco restrictions. FAS states
that it does not consider market intelligence reporting (the collection
and dissemination of information on tobacco) to be within the scope of
their amendment's restrictions. It states that the legislative history
does not address this activity and that an interagency task force
considered it to be outside the amendment's scope. During the course of
our review, we asked FAS for, but did not receive, documentation that
supports their contention that such reporting falls outside the scope
of the restrictions.
In recommending the need for such a review of current tobacco-related
activities, we note that FAS's overall mission is to promote the export
of U.S. agricultural products--and one of the primary responsibilities
of the FAS officers overseas is market development.[Footnote 13] The
attaché reports we examined identify (1) changes in domestic production
or consumption that could affect tobacco leaf or cigarette sales; (2)
foreign competitors, characterizing the competitiveness of their
products; and (3) potential market impediments, such as regulations or
duties. Some reports also make suggestions on commodity pricing that
could increase U.S. firms' sales over foreign competitors' and help
U.S. firms market their tobacco and tobacco products overseas. USDA
does not permit FAS officers overseas to discuss or provide this type
of information with potential exporters. We would expect FAS to assess
its market intelligence reports by the same standards.
In addition, FAS stated that the USDA amendment is a limitation on the
use of FAS's Salaries and Expenses appropriations, and not, as
represented in our draft report, "a general restriction on the
Department of Agriculture's tobacco-related activities." Nowhere in our
report do we state that the USDA amendment constitutes such a general
restriction. In this report's highlight sheet, we do summarize that
"Since 1994, the Agriculture Appropriations Act has prohibited the
funding of tobacco export programs and restricted the Department of
Agriculture's tobacco-related activities." We believe this latter
statement accurately summarizes the amendments provisions as reflected
in the statement made throughout this report that the USDA amendment
prohibits FAS, which is responsible for USDA's agricultural export
promotion programs and activities, from using appropriated funds to
promote the sale or export of tobacco or tobacco-related products.
FAS also stated that a review of the USDA amendment's legislative
history demonstrates that tobacco interests' participation in "FAS
sponsored trade shows and other promotional activities" were the type
of activities that were encompassed by the prohibition. We do not
contest FAS's interpretation of the of the legislation. As FAS
correctly points out in its comments, we did not seek to determine
whether ongoing agency activities are, or are not, prohibited. However,
FAS assertions regarding the types of activities demonstrated by the
legislative history to be encompassed by the prohibition beg the
question of what FAS means by "—promotional activities." This
underscores our point regarding the need for FAS-specific guidance for
implementing the prohibition.
As you requested, unless you publicly announce its contents earlier, we
plan no further distribution of this report until 30 days from its
issue date. At that time, we will send copies of this report to the
appropriate congressional committees. Copies of this report will also
be sent to the Secretary of Agriculture, the Secretary of Commerce, the
Secretary of State, and the U.S. Trade Representative. Copies will also
be made available to others on request. In addition, the report will be
available at no additional charge on the GAO Web site at http://
www.gao.gov.
If you or your staff have any questions regarding this report, please
call me at (202) 512-3149. Key contributors to this assignment were
Virginia Hughes, Patricia Martin, Ella Mann, Ernie E. Jackson, Reid
Lowe, and Daniel Gage.
David Gootnick
Director, International Affairs and Trade:
Signed by David Gootnick:
[End of section]
Appendix I: Scope and Methodology:
To assess the tobacco-related policy guidance on tobacco restrictions
issued to overseas personnel by the Departments of Agriculture (USDA),
Commerce, and State and the Office of the U.S. Trade Representative
(USTR), we obtained and analyzed copies of the legislation governing
the agencies' tobacco-related restrictions. We also analyzed, when
available, State cables containing guidance implementing the
restrictions contained in the laws, as well as reports and E-mails
detailing the development or provision of guidance to the overseas
staffs of these agencies. We discussed the process for establishing the
evolution and implementation of the guidance with cognizant officials
of these agencies. However, we found few officials remained at the
agencies from the time of the legislation. Although the Department of
Justice is included in the legislated appropriations and is also
subject to the tobacco-related restrictions, we did not examine its
activities because it does not promote U.S. exports.
To determine how USDA, Commerce, State, and USTR adjusted their
activities in response to their legislative restrictions on the
marketing of tobacco and tobacco products, we identified these
agencies' past tobacco export promotion programs and current activities
related to tobacco. However, we did not seek to determine whether the
agencies' ongoing activities are prohibited. We obtained funding
histories for USDA's tobacco programs and discussed the nature of the
programs and activities with agencies' officials here and abroad,
obtaining documentation when available. We communicated with USDA's
Foreign Agricultural Service (FAS) and Commerce's Foreign Commercial
Service (FCS) staffs in Croatia, Italy, Turkey, and the Philippines. We
also obtained information on trade agreements and discussed the
interagency process used to develop trade policy and negotiating
positions. In addition, we contacted officials of antitobacco
organizations, such as the American Cancer Society and Campaign for
Tobacco Free Kids, and asked them to identify federal tobacco export
promotion programs.
We conducted our review from October 2002 to March 2003 in accordance
with generally accepted government auditing standards.
[End of section]
Appendix II: Excerpts from 2001 and 2002 Foreign Agricultural Service
Tobacco Attaché Reports:
[End of section]
Appendix III: Comments from the U.S. Department of Agriculture:
United States Department of Agriculture
Foreign Agricultural Service:
Washington, D.C. 20250
MAY 14 2003:
Mr. David B. Gootnick:
Director, International Relations and Trade U.S. General Accounting
Office:
441 G Street, N.W. Washington, D.C. 20548:
Dear Mr. Gootnick:
Thank you for the opportunity to respond to the General Accounting
Office's (GAO) draft report #03-618 entitled "USDA's Foreign
Agricultural Service Has Not Fully Addressed Congressional Restrictions
on Promoting Tobacco.":
While we welcome the opportunity to review the Foreign Agricultural
Service's (FAS) compliance with the annual restrictions on promoting
the sale and export of tobacco, we find that the report does not
present a balanced or accurate representation of FAS' responsibilities
and actions in this area. It is important to note that during the exit
interview, the GAO auditors stated that there were "no clear instances
where FAS was clearly in violation of the amendment." In addition, the
report states, "we (GAO) did not seek to determine whether ongoing
agency activities are, or are not prohibited." The report concluded
only that FAS should (1) develop guidelines that reflect FAS's specific
restrictions, and (2) review tobacco-related activities to determine
whether they are consistent with the restrictions. However, the report
implies that FAS has been remiss in carrying out its responsibilities.
The facts of the matter are these:
The Durbin amendment is a limitation on the use of FAS' Salaries and
Expenses appropriation. It is not generally a restriction on "the
Department of Agriculture's tobacco-related activities" as represented
in the report. As such, it prohibits the use of these funds "to promote
the sale or export of tobacco or tobacco products." In response to
this, as well as other applicable legislation, as the report notes, FAS
ended funding for the MPP and FMD promotion programs for tobacco, and
terminated the GSM credit programs for tobacco. In addition, FAS
precludes tobacco interests' participation in FAS sponsored trade shows
and any other promotional activities. These activities are within the
scope of the prohibitions in the Durbin amendment because they would
promote the sale or export of tobacco. We suggest that a review of the
legislative history of this provision demonstrates that it was these
types of activities that were encompassed by the prohibition.
Nevertheless, FAS did not stop there. It went further than legally
required by adopting the strictures of the State Department cables,
which implemented the Doggett
amendment. The Trade Policy Staff Committee (TPSC) established the Task
Force on Tobacco Exports in December 1993, before the passage of the
Durbin amendment. USTR and HHS chaired the Task Force. The Task Force
reviewed U.S. activities and policy in light of trade considerations;
economic and health concerns; and current laws, regulations and
international agreements. With the enactment of the Doggett amendment,
the interagency task force drafted, in the form of an initial State
Department cable, guidance encompassing a full range of governmental
activities. USDA/FAS was a full and active member in the task force.
FAS relies on this cable because it is comprehensive and because it
applies to all diplomatic and consular posts, which includes FAS
Counselors and Attaches.
The report language leaves the impression that the State Department
cable is insufficient in providing guidance to FAS staff. We strongly
disagree with this conclusion. Although that cable does not
specifically cite the Durbin amendment, its contents cover and ensure
compliance by FAS with both the Durbin and Doggett amendments. This is
apparent for two reasons. First, contrary to the interpretation in the
GAO report, the Doggett amendment is more restrictive on agency action
than the Durbin amendment. The Doggett amendment, which addresses State
Department, Justice and related agencies, contains a prohibition on
promoting the sale or export of tobacco that is identical to the Durbin
amendment but then adds an additional restriction on trade negotiations
that is not found in the Durbin amendment. By following the guidance of
the State cable, FAS is, therefore, implementing the Durbin amendment
and voluntarily adopting additional limitations. Secondly, we point out
that the State cable clearly addresses the prohibition on promoting the
sale or export of tobacco that is part of both the Durbin and Doggett
amendments. See, for example, paragraphs 3 and 4 of State 27439.
The GAO report is also critical of FAS for not specifically identifying
FAS activities that are prohibited under the FAS appropriations
restriction. As stated above, we have ceased funding for tobacco in all
our export promotion programs. It would be impossible to speculate on
the varied types of miscellaneous post contacts with U.S. and foreign
business interests that might arise. Therefore, we believe it is better
to rely upon the broad admonishments in the State cables and to also
provide clear instructions to overseas personnel to contact Washington
if there are any questions concerning implementation of the
restrictions.
The GAO report leaves the impression that market intelligence reporting
is prohibited even though in the introduction to the report GAO states,
"we (GAO) did not seek to determine whether ongoing agency activities
are, or are not prohibited." Market intelligence reporting was not
directly addressed by either amendment. The legislative history does
not address this activity. An interagency task force considered it to
be outside of the scope of both of the amendments. FAS does not
consider it to be within the scope of either amendment. The Report
states, "tobacco-related reports can be
useful to tobacco exporters." Market intelligence reporting is outside
the scope of the legislation precisely because it is not promotion.
These reports are used by numerous entities to perform in some cases
Congressionally mandated activities. The data generated by these
reports is used for many purposes and by many organizations including
the World Health Organization, various parts of the United Nations, the
Pan American Health Organization, the Centers for Disease Control, USDA
domestic program agencies, universities, banking institutions,
publishing businesses and the tobacco industry. The fact that the
tobacco industry probably pays especially close attention to and
possibly makes use of reports by the Food and Drug Administration (FDA)
does not mean that the data reported by the FDA is promoting tobacco
and tobacco products. Similarly, the mere fact of the tobacco
industry's interest in FAS market intelligence reports does not mean
that the USDA is using resources to promote the industry's products.
With the elimination of promotion programs, FAS also ended reporting on
these programs from overseas posts.
Recommendations contained in the report:
With respect to the first GAO recommendation, although FAS has provided
guidance to its overseas personnel through the State cables, we will
prepare a separate FAS cable, repeat the substance of the State cables,
cite the Durbin amendment and provide any needed clarifications. FAS
will address the cable directly to FAS staff to ensure that it receives
due attention.
With respect to the second recommendation, FAS has and will continue to
review tobacco related activities to ensure that they remain consistent
with legislative restrictions and will direct overseas staff, through
the FAS cable, to request from Washington directions when a situation
is not clear. The report notes that this is already happening.
Sincerely,
A. Ellen Terpstra:
Administrator:
Signed by A. Ellen Terpstra:
FOOTNOTES
[1] Although the Department of Justice is included in the legislated
appropriations and is also subject to the tobacco-related restrictions,
we did not examine its activities because it does not promote U.S.
exports.
[2] Formerly the Market Promotion Program.
[3] In 2001, USDA had 244 staff in 73 overseas offices, and Commerce
had 1,245 staff in 157 overseas offices. USDA has responsibility for
marketing nonmanufactured agricultural products, while Commerce has
responsibility for marketing manufactured agricultural and other
products. In 2002, State had 6,103 staff located in 259 overseas
offices.
[4] U.S. General Accounting Office, Trade and Health Issues: Dichotomy
Between U.S. Tobacco Export Policy and Antismoking Initiatives, GAO/
NSIAD-90-190 (Washington, D.C.: May 15, 1990).
[5] Members of the interagency group included representatives from the
National Economic Council, State, Commerce, USDA, HHS, Treasury, and
USTR.
[6] Public Law 100-418.
[7] FAS attaché reports are issued on numerous commodities.
[8] Attaché reports for 2002 cover Argentina, Brazil, Bulgaria, China,
Croatia, Dominican Republic, Egypt, France, Germany, Greece, Guatemala,
Hong Kong, Hungary, India, Indonesia, Italy, Japan, Korea, Malaysia,
Mexico, the Netherlands, Pakistan, the Philippines, Poland, the Russian
Federation, Spain, South Africa, Taiwan, Thailand, Turkey, and the
United Kingdom. The European Union annual report was not included.
Attaché reports for 2001 cover Argentina, Austria, Brazil, Bulgaria,
China, Egypt, France, Germany, Guatemala, Hong Kong, Hungary, India,
Indonesia, Italy, Japan, Korea, Malaysia, Mexico, Moldova, the
Netherlands, Pakistan, the Philippines, Poland, the Russian Federation,
South Africa, Spain, Taiwan, Thailand, Turkey, the United Kingdom, and
Zimbabwe.
[9] Foreign Agricultural Service, Taiwan Tobacco and Products, number
TW2020, June 3, 2002.
[10] Foreign Agricultural Service, The Netherlands Tobacco and
Products, number NL1055, August 10, 2001.
[11] Public Law 101-624.
[12] 7 U.S.C. §1761-1768.
[13] 7 U.S.C. §5693.
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