International Trade
Four Free Trade Agreements GAO Reviewed Have Resulted in Commercial Benefits, but Challenges on Labor and Environment Remain Gao ID: GAO-09-439 July 10, 2009Since 2001, Congress has approved free trade agreements (FTA) with 14 countries. Most were negotiated under Trade Promotion Authority (TPA), which aims to lower trade barriers while strengthening the capacity of trading partners to promote respect for workers' rights and to protect the environment. The Office of the United States Trade Representative (USTR) is responsible for overseeing implementation of the FTAs, and the Departments of Labor (Labor) and State (State) have responsibilities for implementing and managing FTA cooperation projects. GAO was asked to assess progress through FTAs in (1) advancing U.S. economic and commercial interests, (2) strengthening labor laws and enforcement in partner nations, and (3) strengthening partners' capacity to improve and enforce their environmental laws. GAO focused on Jordan, Chile, Singapore, and Morocco, chosen because of their economic, social, and geographic diversity and relatively older FTAs. GAO analyzed relevant trade laws and trends, met with U.S. agencies and foreign government officials, conducted fieldwork in the four countries, and solicited input from the private sector.
The four selected FTAs have largely accomplished the U.S. objectives of achieving better access to markets and strengthening trade rules, and have resulted in increased trade, as summarized in the table. While varying in details, the FTAs have all eliminated import taxes, lowered obstacles to U.S. services such as banking, increased protection of U.S. intellectual property rights abroad, and strengthened rules to ensure government fairness and transparency. Overall merchandise trade between the United States and partner countries has substantially grown, with increases ranging from 42 percent to 259 percent. Services trade, foreign direct investment, and U.S. affiliate sales in the largest partners also rose. FTA negotiations spurred some labor reforms in each of the selected partners, according to U.S. and partner officials, but progress has been uneven and U.S. engagement minimal. An example cited was Morocco's enactment of a long-stalled overhaul of its labor code. However, partners reported that enforcement of labor laws continues to be a challenge, and some significant labor abuses have emerged. In the FTAs we examined, Labor provided minimal oversight and did not use information it had on partner weaknesses to establish remedial plans or work with partners on improvement. The selected partners have improved their environmental laws and made other progress, such as establishment of an environmental ministry and a 400-strong environmental law enforcement force in Jordan, according to U.S. and foreign officials. However, partner officials report that enforcement remains a challenge, and U.S. assistance has been limited. Elements needed for assuring partner progress remain absent. Notably, USTR's lack of compliance plans and sporadic monitoring, State's lax management of environmental projects, and U.S. agencies' inaction to translate environmental commitments into reliable funding all limited efforts to promote progress.
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-09-439, International Trade: Four Free Trade Agreements GAO Reviewed Have Resulted in Commercial Benefits, but Challenges on Labor and Environment Remain
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Report to the Chairman, Committee on Finance, U.S. Senate:
United States Government Accountability Office:
GAO:
July 2009:
International Trade:
Four Free Trade Agreements GAO Reviewed Have Resulted in Commercial
Benefits, but Challenges on Labor and Environment Remain:
GAO-09-439:
GAO Highlights:
Highlights of GAO-09-439, a report to the Chairman, Committee on
Finance, U.S. Senate.
Why GAO Did This Study:
Since 2001, Congress has approved free trade agreements (FTA) with 14
countries. Most were negotiated under Trade Promotion Authority (TPA),
which aims to lower trade barriers while strengthening the capacity of
trading partners to promote respect for workers‘ rights and to protect
the environment. The Office of the United States Trade Representative
(USTR) is responsible for overseeing implementation of the FTAs, and
the Departments of Labor (Labor) and State (State) have
responsibilities for implementing and managing FTA cooperation
projects. GAO was asked to assess progress through FTAs in (1)
advancing U.S. economic and commercial interests, (2) strengthening
labor laws and enforcement in partner nations, and (3) strengthening
partners‘ capacity to improve and enforce their environmental laws. GAO
focused on Jordan, Chile, Singapore, and Morocco, chosen because of
their economic, social, and geographic diversity and relatively older
FTAs. GAO analyzed relevant trade laws and trends, met with U.S.
agencies and foreign government officials, conducted fieldwork in the
four countries, and solicited input from the private sector.
What GAO Found:
The four selected FTAs have largely accomplished the U.S. objectives of
achieving better access to markets and strengthening trade rules, and
have resulted in increased trade, as summarized in the table. While
varying in details, the FTAs have all eliminated import taxes, lowered
obstacles to U.S. services such as banking, increased protection of
U.S. intellectual property rights abroad, and strengthened rules to
ensure government fairness and transparency. Overall merchandise trade
between the United States and partner countries has substantially
grown, with increases ranging from 42 percent to 259 percent. Services
trade, foreign direct investment, and U.S. affiliate sales in the
largest partners also rose.
FTA negotiations spurred some labor reforms in each of the selected
partners, according to U.S. and partner officials, but progress has
been uneven and U.S. engagement minimal. An example cited was Morocco‘s
enactment of a long-stalled overhaul of its labor code. However,
partners reported that enforcement of labor laws continues to be a
challenge, and some significant labor abuses have emerged. In the FTAs
we examined, Labor provided minimal oversight and did not use
information it had on partner weaknesses to establish remedial plans or
work with partners on improvement.
The selected partners have improved their environmental laws and made
other progress, such as establishment of an environmental ministry and
a 400-strong environmental law enforcement force in Jordan, according
to U.S. and foreign officials. However, partner officials report that
enforcement remains a challenge, and U.S. assistance has been limited.
Elements needed for assuring partner progress remain absent. Notably,
USTR‘s lack of compliance plans and sporadic monitoring, State‘s lax
management of environmental projects, and U.S. agencies‘ inaction to
translate environmental commitments into reliable funding all limited
efforts to promote progress.
Table: FTA Commercial, Labor, and Environment Results, and U.S.
Agencies‘ Oversight:
Partner country results as reported to GAO: Jordan;
Commercial: U.S. and partner gains evident;
Labor: Some progress after serious problems;
Environment: Considerable progress.
Partner country results as reported to GAO: Singapore;
Commercial: U.S. and partner gains evident;
Labor: Progress;
Environment: Progress.
Partner country results as reported to GAO: Chile;
Commercial: U.S. and partner gains evident;
Labor: Some problems persist despite progress;
Environment: Problems persist despite progress.
Partner country results as reported to GAO: Morocco;
Commercial: U.S. and some partner gains evident;
Labor: Problems persist despite progress;
Environment: Problems persist despite progress.
Oversight status: U.S. agencies‘ oversight;
Commercial: Generally adequate;
Labor: Lack cooperation plans, sufficient funding, oversight;
Environment: Lack monitoring plans, sufficient funding.
Source: GAO.
[End of table]
What GAO Recommends:
GAO recommends that agencies update plans for implementing and
overseeing FTAs to make the FTAs more effective in producing results.
Agencies intend to do so but saw important progress.
View [hyperlink, http://www.gao.gov/products/GAO-09-439] or key
components. For more information, contact Loren Yager at (202) 512-4347
or yagerl@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
FTA Results Vary among Partner Countries, but Reveal Positive Economic
and Commercial Outcomes Consistent with TPA Goals:
FTAs Contribute to Labor Improvements in Partners, but U.S. Follow-up
on FTA Labor Commitments Has Been Minimal:
FTA Partners Have Improved Environmental Laws, but the Lack of
Systematic U.S. Monitoring and Other Factors Impede Assessment of Their
Impact:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Commercial/Economic Results of the Jordan FTA:
Appendix III: Commercial/Economic Results of the Singapore FTA:
Appendix IV: Commercial/Economic Results of the Chile FTA:
Appendix V: Commercial/Economic Results of the Morocco FTA:
Appendix VI: Average Annual Growth Rates of Bilateral Trade with FTA
Partner Countries Compared with Overall U.S. Trade:
Appendix VII: Comments from the Department of Labor:
Appendix VIII: Comments from the Department of State:
Appendix IX: Comments from the Office of the United States Trade
Representative:
Appendix X: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Amount of Two-Way Trade, Percent Increase in Two-Way Trade,
and Percentage Increase in U.S. Exports and Imports, from Year Prior to
FTAs to 2008:
Table 2: U.S. Exports to Jordan: Top 25 Categories by Value, Pre-and
Post-FTA Average Annual Growth Rates, and Change in Growth Rates
between Periods:
Table 3: U.S. Imports from Jordan: Top 25 Categories by Value, Pre-and
Post-FTA Average Annual Growth Rates, and Change in Growth Rates
between Periods:
Table 4: U.S. Exports to Singapore: Top 25 Categories by Value, Pre-and
Post-FTA Average Annual Growth Rates, and Change in Growth Rates
between Periods:
Table 5: U.S. Imports from Singapore: Top 25 Categories by Value, Pre-
and Post-FTA Average Annual Growth Rates, and Change in Growth Rates
between Periods:
Table 6: U.S. Exports to Chile: Top 25 Categories by Value, Pre-and
Post-FTA Average Annual Growth Rates, and Change in Growth Rates
between Periods:
Table 7: U.S. Imports from Chile: Top 25 Categories by Value, Pre-and
Post-FTA Average Annual Growth Rates, and Change in Growth Rates
between Periods:
Table 8: U.S. Exports to Morocco: Top 25 Categories by Value, Pre-and
Post-FTA Average Annual Growth Rates, and Change in Growth Rates
between Periods:
Table 9: U.S. Imports from Morocco: Top 25 Categories by Value, Pre-and
Post-FTA Average Annual Growth Rates, and Change in Growth Rates
between Periods:
Table 10: Average Annual Growth Rates of Bilateral Trade with Partner
Countries Pre-and Post-FTA and U.S. Growth in Trade with the World for
Similar Time Periods:
Figures:
Figure 1: U.S. Bilateral Trade with Jordan, 1998-2008:
Figure 2: U.S. Bilateral Trade with Morocco, 1998-2008:
Figure 3: U.S. Bilateral Trade with Chile, 1998-2008:
Figure 4: U.S. Bilateral Trade with Singapore, 1998-2008:
Figure 5: Market Share of the Top Five Exporting Countries to Jordan,
1999-2007:
Figure 6: Market Share of the Top Five Exporting Countries to
Singapore, 1999-2008:
Figure 7: Market Share of the Top Five Exporting Countries to Chile,
1998 to 2008:
Figure 8: Market Share of the Top Five Exporting Countries to Morocco,
1999 -2007:
Abbreviations:
AFBF: American Farm Bureau Federation:
AmCham: American Chamber of Commerce:
APHIS: Animal and Plant Health Inspection Service:
ASEAN: Association of Southeast Asian Nations:
AVA: Agri-Food and Veterinary Authority:
BEA: Bureau of Economic Analysis:
CAFTA-DR: Central America-Dominican Republic Free Trade Agreement:
CITES: Convention on International Trade in Endangered Species of Wild
Fauna and Flora:
CLDP: Commercial Loan Development Program:
CONAMA: National Commission for Environmental Cooperation:
DRL: Democracy, Human Rights, and Labor Bureau:
EAC: Environmental Affairs Council:
EPA: Environmental Protection Agency:
EU: European Union:
FDI: foreign direct investment:
FTA: free trade agreement:
GDP: gross domestic product:
GNI: gross national income:
GSP: Generalized System of Preferences:
ILAB: Bureau of International Labor Affairs:
ILO: International Labor Organization:
IMF: International Monetary Fund:
IPR: intellectual property rights:
ITC: International Trade Commission:
ITUC: International Trade Union Confederation:
MAT: marine, aviation and transport insurance:
MEFTA: Middle East Free Trade Agreement:
MFN: Most-Favored Nation:
MNC: multinational corporation:
MOFA: majority-owned foreign affiliate:
NAFTA: North American Free Trade Agreement:
NGO: nongovernmental organization:
OECD: Organisation for Economic Co-operation and Development:
OES: Oceans and International Environmental and Scientific Affairs
Bureau:
OMB: Office of Management and Budget:
PhRMA: Pharmaceutical Research and Manufacturers of America:
PPP: purchasing power parity:
QIZ: Qualifying Industrial Zone:
SPS: sanitary and phytosanitary:
TEPAC: Trade and Environment Policy Advisory Committee:
TPA: Trade Promotion Authority:
UN: United Nations:
UNCTAD: United Nations Conference on Trade and Development:
USAID: U.S. Agency for International Development:
USDA: Department of Agriculture:
USTR: Office of the United States Trade Representative:
WTO: World Trade Organization:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
July 10, 2009:
The Honorable Max Baucus:
Chairman:
Committee on Finance:
United States Senate:
Dear Mr. Chairman:
Free trade agreements (FTA) have been a major feature of recent U.S.
trade policy. Their growth was spurred by Congress' 2002 renewal of
presidential Trade Promotion Authority (TPA),[Footnote 1] which had the
goal of promoting U.S. and foreign economic growth and lowering
barriers to (liberalizing) trade through FTAs with specific partners,
while strengthening protection of workers' rights and the environment.
Beginning in 2001, Congress approved FTAs with 14 countries, and all of
these are now in effect, including 4 with the countries highlighted in
this report--Jordan, Singapore, Chile, and Morocco.
The current Congress faces several FTA-related questions hinging in
part on confidence that trade agreements do indeed benefit U.S.
citizens and that TPA's goals, as set forth in Sections 2102(a) (b) and
(c) of that statute, and official expectations created by the President
under Sections 2105 (a), are being achieved. Bills to strengthen
monitoring and enforcement of FTAs and other trade agreements to better
assure effective implementation have been introduced. President Obama
may decide to seek congressional approval of the FTAs with Colombia,
Panama, and Korea that President Bush finalized. Congress may also need
to decide whether to provide the President a new grant of trade
agreement negotiating authority, which lapsed in July 2007. Certain
members of Congress have said a "time out" on FTAs is in order,
questioning whether existing agreements are having the positive
commercial, labor, and environmental effects that were claimed, and
some suggest more rigorous conditions should be considered for future
agreements. Others are anxious to press on with trade accords, saying
they offer American workers benefits and level the playing field at a
time of economic uncertainty.
The Office of the United States Trade Representative (USTR) is
responsible for overseeing implementation of the FTAs as part of its
overall responsibilities for monitoring and enforcing trade agreements.
The Departments of Labor (Labor) and State (State) have key
responsibilities for ongoing cooperation with FTA partners on labor and
the environment.
To inform these debates and address the concerns that have been raised
as to whether the FTAs are achieving Congress' objectives and meeting
expectations established by Congress and the President for U.S.
agencies, you asked us to provide an assessment of the progress that
has been made through FTAs in (1) advancing U.S. economic and
commercial interests, (2) strengthening labor laws and enforcement in
partner nations, and (3) strengthening partners' capacity to improve
and enforce their environmental laws. This work builds on GAO's past
reports on monitoring and enforcement of trade agreements, factors
influencing FTA partner selection, and the overall commercial
significance of FTAs pursued under TPA and the effectiveness of TPA-
related mechanisms calling for active and meaningful consultations with
Congress and the private sector on trade negotiations.[Footnote 2]
To address these objectives and associated U.S. agency responsibilities
and performance in a concrete manner, we have focused on pre-versus
post-FTA progress related to four FTAs enacted since 2001 with Jordan,
Chile, Singapore, and Morocco. These four nations are economically,
socially, and geographically diverse, and their FTAs are among those in
force longest. We analyzed the text (agreements and associated annexes)
of the U.S.-Jordan, U.S.-Chile, U.S.-Singapore, and U.S.-Morocco FTAs;
related but separate agreements between the United States and each of
the four countries on environmental cooperation;[Footnote 3] and
reports or subsequent officially agreed proclamations or plans by the
United States and these FTA partners associated with the FTAs and
cooperative mechanisms, such as work plans or plans of action; TPA and
other relevant laws, regulations, executive orders, Federal Register
notices, and congressional guidance; and reports submitted to Congress
in response to TPA requirements, including those submitted in
conjunction with FTA implementing legislation. From testimonial
evidence from officials and experts and from secondary sources, we
identified and reported on partner laws that were passed or changed in
connection with or after each FTA's entry into force, and relied on
characterizations of those changes, the partner's enforcement, and
remaining challenges from officials and experts. Thus, the information
on foreign law in this report does not reflect our independent legal
analysis. We used official U.S. and partner data to analyze trends in
U.S., international, and national trade and investment data with
selected partners; and reviewed pertinent academic literature and
authoritative reports. We met with U.S. agencies and foreign government
officials and conducted fieldwork in the four selected FTA partner
nations, and solicited input on experience with FTAs from members of
the private sector and intergovernmental advisory committees that are
charged with advising USTR, the President, and Congress on trade
policy. We also interviewed selected experts, as well as several
umbrella organizations of business, labor, and environmental groups.
The fieldwork to partner nations included interviews with in-country
U.S. and foreign government officials, business groups such as chambers
of commerce and industry, officials of international organizations such
as the International Labor Organization (ILO), economists, and trade
union and environmental groups. Finally, where possible missed
opportunities for progress or material gaps in agency documentation and
internal controls became evident in the course of GAO's efforts to
establish and evaluate FTA-related progress, consistent with generally
accepted government auditing standards, we also report on these
deficiencies.
Key limitations of our work are that the findings are largely limited
to the partners, private sector representatives, time period, and
information reviewed. While we considered data on trends after FTA
implementation and opinions on FTA-induced effects, we did not seek to
quantitatively isolate FTA-induced effects. We did not independently
assess partners' laws. Although we gathered information through
December 2008, the data and foreign interviews do not generally capture
the full impact of the deterioration in trade that ensued as a result
of the global financial crisis and economic downturn occurring during
2008-2009. Moreover, while our overall goal is to shed light on whether
FTAs are living up to their official goals, this report was not
designed to assess legal compliance by the United States or its
partners with FTAs or other requirements. We conducted this performance
audit from April 2008 to June 2009, in accordance with generally
accepted government auditing standards. Those standards require that we
plan and perform the audit to obtain sufficient, appropriate evidence
to provide a reasonable basis for our findings and conclusions based on
our audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit
objectives. For a fuller description of our objectives, scope, and
methodology, see appendix I.
Results in Brief:
The four selected FTAs have largely accomplished U.S. commercial
objectives. While varying in some details, these FTAs have all
eliminated import taxes (tariffs) on goods, lowered obstacles to
services such as banking, increased protection of U.S. intellectual
property rights (IPR) abroad, and strengthened rules to ensure fairness
and transparency in government regulation and procurement. Overall
merchandise trade between the United States and partner countries has
substantially increased, generally exceeding what was experienced prior
to FTA implementation. Since FTA implementation, two-way trade with the
partners has shown actual increases ranging from 42 percent to 259
percent. Moreover, growth in U.S. exports of many leading agricultural
goods--such as grains, corn, and almonds--and manufactured goods has
accelerated, resulting in U.S. suppliers securing a larger share of
partner country purchases from abroad. Agriculture and machinery in
particular have seen widespread increases and improvements in U.S.
market share. In two partner countries, Singapore and Chile, trade in
services increased, as did the stock of foreign direct investment and
the sales of foreign affiliates of U.S.-based companies.
Representatives of a broad range of U.S. industries generally expressed
satisfaction with FTA results. For example, industry representatives in
the agricultural sector reported that they have seen benefits in a
variety of products. In the services and IPR-related industries, gains
in sales, market share, or legal treatment due to the agreements were
reported by U.S. express delivery, financial services, information
services, telecommunications services, and pharmaceutical firms.
However, disappointments (such as with Chile's IPR implementation) and
potential import disruptions were also noted in several sectors in the
United States (such as fruits and vegetables and cotton), prompting
calls for U.S. agencies to continue to work with partner governments to
pursue further improvements.
During and after the FTA negotiations, all of the four countries we
reviewed enacted improvements to their labor laws. For example,
according to a Labor report on Morocco's labor rights, Morocco enacted
a long-stalled overhaul of its labor code, bringing it into closer
alignment with international norms and TPA goals. Nevertheless,
significant labor abuses were confirmed by Jordan's government in its
export garment industry several years after FTA implementation, related
to poor enforcement of labor laws and an ongoing failure to provide
full labor rights for migrant workers; Jordan has since begun to
correct these problems. Other FTA partner countries also reported
enforcement challenges in key export sectors. U.S. labor rights
reviews, conducted before the FTAs were implemented, provided
information on some of these problems, but U.S. agencies did not
translate them into remedial plans or work with partners on labor
improvements. Labor's appropriations for technical cooperation on labor
issues (excluding those related to the elimination of child labor) were
mostly eliminated just as the FTAs with Chile and Singapore entered
into effect in 2004. Consequently, U.S. assistance to strengthen
country capacity to enforce labor laws has since been ad hoc and very
limited. In addition, U.S. agencies have provided minimal oversight and
engagement on labor commitments under the FTAs, despite expressed
interest by or known problems in some partner countries.
The selected trade partners have made several improvements to
environmental laws since their FTAs were signed, according to U.S. and
partner government officials. Although most changes were not made in
direct response to requirements in the FTA, partner officials stressed
that having environmental obligations in FTAs had brought attention to
environmental protection and heightened the urgency of taking action.
Nevertheless, officials in most of the selected trade partner countries
reported that enforcement of environmental laws remains a challenge,
and that some environmental concerns--such as the impact of apparel
production on Jordan's water and pollution from salmon farming and
other resource-intensive exports in Chile--have grown. Our fieldwork
revealed examples of environmental progress, such as establishment of
an environmental ministry and a 400-strong environmental law
enforcement force in Jordan, partly due to U.S. assistance. However,
some experts said that without more U.S. resources, commitment, and
oversight, environmental provisions in FTAs and the accompanying
cooperation agreements will do little to help strengthen environmental
protections in partner countries. USTR's sporadic monitoring of partner
implementation of FTA environmental provisions, State's lack of a
systematic means to monitor FTA environmental projects, and U.S.
agencies' collective failure to translate FTA environmental commitments
into reliable funding have also undercut efforts to promote partner
progress in strengthening environmental capacity. For example, in
Chile, expected U.S. follow-up to the initial pilot projects did not
occur and, in Morocco, just 8 of the 24 planned cooperative activities
were completed.
To build and improve upon the mixed record of FTA progress in these
areas, GAO recommends that agencies review and update their plans for
implementing and overseeing FTAs with a view to making the plans more
effective in producing expected results such as labor and environmental
progress.
USTR, State, and Labor indicated that they intend to improve monitoring
and enforcement of FTAs. However, State urged GAO to give partner
governments and U.S. agencies more credit for post-FTA improvements in
partners' structural and institutional capacity to protect the
environment and labor rights. State and USTR also took issue with the
basis and balance for some of GAO's findings and provided technical
corrections. GAO made several adjustments in response, but continues to
believe more a robust approach to FTA implementation is needed to
address the remaining challenges three of the four partners' face in
assuring labor and environmental protection.
Background:
FTAs Are a Major Component of Recent U.S. Trade Policy:
Expanding trade by lowering tariffs and other less tangible barriers to
trade offers Americans potential benefits such as enhanced efficiency,
lower prices, and greater choice. But such trade liberalization can
involve costs and has often proved controversial. Export growth was one
of the few bright spots in U.S. economic performance in 2008, and the
importance of trade to the U.S. economy has grown markedly over the
past decade. Yet, polls show growing U.S. public skepticism of trade's
benefit amidst concerns over manufacturing job losses and rising income
inequality.
FTAs--which phase out barriers to trade in goods with particular
countries or groups of countries and contain rules designed to improve
access for U.S. services, investment, and IPR--have been a major
component of U.S. trade policy in recent years. After an 8-year gap
that began shortly after the North American Free Trade Agreement
(NAFTA) entered into effect in 1994, TPA for the President was restored
by the Trade Act of 2002 and extended through July 1, 2007.[Footnote 4]
FTAs were aggressively pursued as part of a three-pronged U.S. strategy
to liberalize trade and level the playing field abroad for U.S.
producers and workers: multilaterally at the World Trade Organization
(WTO), regionally, and bilaterally. President Clinton began the
endeavor shortly before leaving office in early 2001, finishing
negotiations with Jordan and announcing the start of negotiations with
Singapore and Chile. President Bush finalized these and other accords
and secured their passage by Congress. Meanwhile, global negotiations
at the WTO have been slow and regional negotiations such as toward a
Free Trade Area of the Americas have foundered. FTAs are thus one of
the major results of U.S. trade liberalization efforts over the past
decade, along with negotiating WTO accessions by China, Vietnam, and
others.
Numerous FTAs Containing Labor and Environmental Provisions Are Now in
Effect:
FTAs with 14 countries have entered into effect since 2001,[Footnote 5]
bringing the total number of countries with FTAs in effect to 17. Three
more await a decision by President Obama on whether to seek
congressional action on legislation approving and implementing these
FTAs.[Footnote 6] While most are individually small, collectively they
account for a significant share of U.S. trade and foreign direct
investment--31 percent in 2008 and 25 percent in 2007, respectively.
Controversy over labor and the environment was a major factor in
Congress' allowing the President's TPA negotiating authority (sometimes
called "fast track" authority) to lapse during the 1994-2002 period.
The inclusion of worker protection language had been a part of
congressional trade policy goals for decades. But passage in 1993 of
NAFTA and its accompanying agreements on labor and the environment did
not assuage critics concerned that competition with developing Mexico
would result in a "race to the bottom" for U.S. workers and producers.
Passed in August 2002, TPA represents the deal struck by Congress to
balance U.S. commercial interests with other U.S. goals and values,
such as protecting the environment and workers.
FTAs Selected for This Report Reflect Diverse Range of U.S. FTA
Partners:
The countries with which FTAs have been concluded vary considerably. In
a November 2007 report,[Footnote 7] we noted that the FTA partners were
selected by the President and USTR for a variety of geopolitical and
commercial reasons and represent a diverse mix. Some partners, such as
Australia, are both high income and highly developed, according to
widely reported indicators such as the United Nations' Human
Development Index. However, many of the agreements are with developing
nations with much lower income and human development levels. FTA
partner governments' records of economic and political freedom also
range widely. Many were chosen in part due to their embrace of market-
oriented reform and willingness to lead regionally and globally on key
U.S. interests such as fostering peace, countering terrorism, and
liberalizing trade. Indeed, several already had or have since concluded
FTAs with key U.S. competitors such as the European Union (EU), Canada,
or Japan.
The four partners on which we chose to focus--Jordan, Singapore, Chile,
and Morocco--were selected after considering variables such as
development status and dates for entry into force, and reflect a cross
section of the larger group's country characteristics and the regional
dispersion of U.S. FTAs across Asia, Latin America, and the Middle
East. Yet each has unique characteristics, including the following:
* Singapore, a diverse city-state and trading hub with a highly
developed economy where trade in services plays a very significant
role, is the United States' twelfth largest export market, with a
positive U.S. trade balance in 2008.
* Chile, is a resource-rich, middle-income economy with a transparent
and liberal trade and investment regime that has made impressive
inroads in reducing poverty. Chile represents our twenty-fourth largest
export market in 2008 and has a strong complementary trading
relationship with the United States, notably in agriculture.
* Morocco, a lower middle income developing country that represented
only about 0.1 percent of U.S. exports in 2008, has typically been a
closer trading partner with the EU due to cultural, language,
transportation, and social ties, especially to France.
* Jordan, a resource-poor small developing country with which the
United States now has a trade deficit, acceded to the WTO in 2000, and
was the first Arab country associated with the Middle East peace
process to sign an FTA with the United States. This FTA is less
comprehensive in scope than post-TPA agreements.
Such country differences, as well as the length of time FTAs have been
in force, likely affect FTA results. Jordan's FTA has been in effect
longest (since December 2001). Chile and Singapore's FTAs entered into
effect on January 1, 2004. Morocco's FTA has been in effect since
January 1, 2006.
FTA Provisions Vary but Reflect TPA Commercial, Environmental, and
Labor Goals:
TPA sets a series of economic/commercial, environmental, and labor
negotiating objectives, as well as procedures for action of legislation
approving and implementing trade agreements. These range in specificity
from broad to highly detailed. The objectives provide guidelines the
administration is to consider in negotiating FTAs and have generally
been reflected in the FTAs we reviewed. They also provide perspective
for evaluating how progress through FTAs compares with established
congressional expectations for the FTAs and the U.S. agencies that
administer them.
Generally, TPA's commercial objectives call for lowering barriers to
U.S. exports, securing a more level playing field abroad for U.S.
exporters, and strengthening trade rules through actions such as by
improving protection abroad of U.S. intellectual property rights and
investment. The Jordan FTA predates TPA. Though just 19 pages long, it
eliminates tariffs on most goods, liberalizes services, and strengthens
IPR. It was also the first agreement to include labor and environmental
provisions in the body of the FTA; these provisions were a partial
basis for TPA and subsequent FTAs. The FTAs negotiated since then
generally reflect TPA guidance and tend to follow a similar format. For
example, in the 200-plus page body of the Singapore FTA, 16 chapters
address trade, investment, and other commercial issues; 3 chapters
cover general transparency, administration, and dispute settlement; and
1 chapter each addresses labor and the environment. Following the
economic and commercial goals of TPA since 2002, FTAs contain similar
elements of market liberalization, including eliminating barriers on
trade in goods and services, opening trade to agricultural products,
protecting investments, strengthening IPR and enforcement, and
increasing regulatory and administrative transparency, in many cases
immediately. They also provide for rules of origin and dispute
settlement. The labor and environment provisions of the FTAs generally
are less prescriptive and more aspirational than some of the commercial
provisions.[Footnote 8] Notably, nearly all of the more extensive
commercial commitments are subject to dispute settlement and possible
trade measures for failure to comply, versus one commitment in the post-
TPA FTAs' environment and labor chapters--that a party shall not fail
to effectively enforce its labor/environmental laws, through a
sustained or recurring course of action or inaction, in a manner
affecting trade between the parties. To address the rest of the
commitments in the environment and labor chapters, TPA calls for and
the FTAs establish consultative or diplomatic means to strengthen
partners' capacity to respect labor rights and protect the environment
over time.
Consistent with TPA priorities and FTA requirements, cooperation
mechanisms were developed with each partner on labor and environmental
matters. Among other things, these were to exchange information,
establish priorities, develop specific activities or projects, and
generally promote implementation of goals agreed in discussions under
the mechanism on labor and the environment. The form of these
mechanisms varies. For example, after all four FTAs were concluded,
separate agreements on environmental cooperation were reached with
these FTA partners.[Footnote 9] However, for Chile, Singapore, and
Morocco, the environmental cooperative agreements state that the
realization of cooperation activities is contingent on the availability
of necessary resources.
The President must submit reports explaining how the FTAs make progress
toward TPA objectives when he submits FTAs to Congress for approval. In
each instance, the President attested that the FTAs advanced TPA's U.S.
commercial objectives and helped assure labor and environment
protection. For example, in a June 2005 report he explained that each
FTA negotiated under TPA includes labor and environmental chapters with
obligations aimed at ensuring that FTA partners meet the labor and
environmental objectives of TPA. He further stated that mechanisms for
ongoing labor and environmental cooperation were negotiated and that
all of these FTAs call for cooperative projects to support
environmental protection. The formal advisory committees on trade
policy and negotiation generally concurred with this assessment, with
some caveats or objections. Notably, the Labor Advisory Committee
consistently raised concerns that the labor chapters in post-TPA FTAs
did not meet TPA objectives, in part due to their limited
enforceability, and several concerns were raised by certain
environmental, industry, and intergovernmental advisors. TPA does not
generally require subsequent reports,[Footnote 10] although a one-time
report was required as a condition of the extension of TPA through June
2007 requested by the President. USTR nonetheless has an ongoing
requirement to provide reports to the President and Congress on the
operation of trade agreements.
Several U.S. Agencies Are Responsible for FTA Implementation and
Monitoring:
Several U.S. agencies play key roles in FTA implementation and
monitoring. The United States Trade Representative is the President's
principal adviser and spokesperson on trade and has lead responsibility
for negotiating trade agreements, including FTAs, as well as developing
and coordinating U.S. trade policy and issuing policy guidance related
to international trade functions. It is responsible to the President
and Congress for the administration of trade agreements.[Footnote 11]
USTR coordinates the administration's monitoring of foreign government
compliance with trade agreements and pursues enforcement actions with
the aim of ensuring that these agreements yield the maximum benefits
for Americans and create a fair, open, and predictable trading
environment. According to USTR, this includes asserting U.S. rights,
vigorously monitoring and enforcing bilateral agreements, providing
technical assistance to trading partners, and promoting U.S. interests
under FTAs, including labor and environmental interests.
In earlier reports on USTR's monitoring and enforcement efforts, GAO
noted that experts and officials agree U.S. government monitoring and
enforcement efforts should attain three broad goals: ensuring foreign
compliance, providing credible deterrence, and inspiring confidence.
Specifically, they agreed that vigorous U.S. efforts are necessary to
ensure foreign partners fulfill trade agreement obligations and that
U.S. firms fully realize the improvements in market access these
agreements offer. Credible deterrent efforts improve the likelihood
foreign partners will fully implement their commitments. A reliable,
well-functioning monitoring and enforcement effort helps sustain
congressional and public confidence in the President's trade strategy
and fosters support for continued trade liberalization. Indeed, as the
USTR General Counsel testified before the Senate Committee on Finance,
"Without enforcement, a trade agreement is just a piece of
paper."[Footnote 12] Though he went on to assure the committee that
USTR is "committed to using every tool in the U.S. trade arsenal to
ensure a level playing field for American workers, farmers, and
entrepreneurs," our past GAO reports found both signs of, and room for,
improvement in U.S. monitoring and enforcement efforts. We further
identified several key steps in monitoring and enforcing trade
agreements, notably (1) identifying problems, (2) setting priorities,
(3) gathering and analyzing information, (4) developing responses, and
(5) taking enforcement action.[Footnote 13] While the agencies' goal is
to identify important trade agreement compliance problems (rather than
monitor all aspects of every agreement), both reactive and proactive
efforts are used. The trade principles at stake are often considered
equally or more important than the amount of trade involved.
USTR is designated as the principal contact point under each FTA
agreement. Among other things, USTR plans and conducts meetings, with
partners, of general FTA oversight mechanisms. USTR is also the contact
point for FTA environmental provisions. Many of the specific functions
and requirements established in TPA were delegated by the President to
USTR. One specific requirement to provide a report to Congress on plans
for implementing and enforcing FTAs was delegated to USTR and then
redelegated to the Director of the Office of Management and Budget.
[Footnote 14] Among other things, these plans were to identify the
resources necessary to implement the accords.
Other agencies, notably the Departments of Commerce (Commerce), Labor,
and State, play important roles in FTA oversight and implementation,
including the following:
* Commerce is responsible for monitoring compliance with economic and
commercial aspects of the agreements. Commerce's Market Access and
Compliance unit, for example, prepared the prevote reports analyzing
how FTAs advance U.S. commercial objectives and has detailed matrixes
of FTA commercial requirements and the status of implementation. It
also issues intermittent analysis of trade trends with FTA partners.
Commerce's Foreign Commercial Service advocates on behalf of U.S.
business and works with other parts of the agency and foreign
counterparts to assist firms facing FTA implementation difficulties and
promote U.S. exports abroad.
* Labor has the lead on FTA labor matters, except in the case of
Jordan. Labor's Bureau of International Labor Affairs (ILAB) is
designated as the point of contact for implementation of the labor
provisions of all but the Jordan FTA, as well as for the labor
cooperation mechanisms.[Footnote 15] Prior to implementation, Labor's
responsibilities include preparing reports (in consultation with USTR
and State) on FTA partners' labor rights protections, the potential
employment impact of agreements on U.S. workers, and FTA partners'
child labor laws. After FTAs enter into force, Labor's responsibilities
as contact point include receiving, reviewing, and acting upon any
concerns raised about partner compliance with FTA labor obligations and
assisting partners seeking to strengthen their capacity to promote
respect for core labor standards. Under TPA Labor has an ongoing
responsibility for planning, developing, and pursuing cooperation with
partners on labor matters. Labor does not have an in-country presence
overseas, instead relying on periodic staff travel, as well as outreach
and reporting by State personnel.
* Several bureaus at State play roles in FTAs. State's Democracy, Human
Rights, and Labor Bureau (DRL) coordinates State's in-country labor
officers, who carry out regular monitoring and reporting and day-to-day
interaction with foreign governments on labor matters. With USTR and
Labor, DRL is a member of the interagency team that negotiates the
labor chapters of FTAs, contributes critical input to the research and
analysis of labor reports produced by Labor, as required under TPA, and
provides technical assistance funding to strengthen some countries'
labor capacity. State's Oceans and International Environmental and
Scientific Affairs Bureau (OES) has the responsibility to lead on
international environmental and scientific agreements generally and on
ongoing cooperative mechanisms, as well as overseeing and facilitating
U.S. efforts with FTA partners to strengthen environmental capacity. It
is supported by agencies with line environmental responsibilities, such
as the Environmental Protection Agency (EPA) and the Department of
Interior, as well as the U.S. Agency for International Development
(USAID), which execute and sometimes fund capacity-building projects.
State's Economics Bureau and regional desks and economics officers are
also involved in the commercial aspects of FTAs.
FTA Results Vary among Partner Countries, but Reveal Positive Economic
and Commercial Outcomes Consistent with TPA Goals:
Merchandise Trade between the United States and FTA Partner Countries
Increased:
U.S. merchandise (goods) trade with the four FTA partners increased
substantially following the FTAs' entry into force. Total two-way
trade, U.S. exports, and partner country exports for the four selected
FTAs all rose. Annual average rates of merchandise trade growth
increased substantially for the United States and three of the four FTA
partner countries in the period since the FTAs came into force,
compared with rates for a similar period prior to the agreements. We
also observed higher annual average rates of growth for top product
categories for both U.S. exports and partner country imports. In some
cases, these also translated into U.S. gains in its share of partner
country markets relative to the share of other competitors. (More
detailed commercial/economic results for the four FTAs are examined in
appendices II through V.)
In the four FTAs we reviewed, consistent with the TPA objectives, a
large percentage of goods became duty-free immediately. For example, in
the Morocco FTA, duties on more than 95 percent of all consumer and
industrial products were eliminated immediately. In the Chile FTA, the
agreement allowed for immediate duty-free market access into Chile for
about 85 percent of all U.S. consumer and industrial goods, with about
75 percent of all agricultural products entering duty-free. The
remaining goods represent sensitive products of which barriers were
removed using staged or scheduled tariff elimination categories over a
period of years. The Jordan FTA, although in force before TPA, is like
its post-TPA counterparts we are examining and is consistent with the
TPA goals of liberalizing and expanding trade.[Footnote 16]
Prior to the agreements, U.S. trade barriers were lower on average
compared with FTA partner countries. For example, prior to the Jordan
FTA, the United States had a mean unweighted tariff rate of 6 percent,
while Jordan had a mean unweighted tariff rate of 16 percent.[Footnote
17] Many partner country imports already entered the United States duty
free, including over 90 percent of imports from Singapore and 70
percent of imports from Chile,[Footnote 18] in part because the United
States had granted them benefits under one-way preferential trade
programs such as the U.S. Generalized System of Preferences (GSP).
Overall Trade Increased with Four FTA Partner Countries:
Total two-way trade (U.S. imports plus U.S. exports), U.S. exports, and
U.S. imports each increased substantially after implementation of the
four FTA agreements we examined.[Footnote 19] As shown in table 1,
growth in two-way trade since implementation ranged from 42 percent for
the Singapore FTA (from 2003 to 2008) to 259 percent for the Jordan FTA
(from 2001 to 2008). Increases in U.S. exports ranged from 72 percent
for Singapore to 365 percent for Chile since implementation. U.S.
import increases ranged from 10 percent for Singapore to 397 percent
for Jordan. These post-FTA increases do not isolate the effects of the
FTAs from other trade factors and are based on the total changes in
actual trade volumes subsequent to implementation. As a result, they
are not directly analogous to the statutorily required studies prepared
by the International Trade Commission (ITC) prior to their
implementation, which predicted generally positive but small effects on
the U.S. economy and trade overall from these FTAs. [Footnote 20] The
ITC models did seek to isolate the effects of the FTAs on trade, but
they could neither measure certain difficult to quantify factors, such
as nontariff barriers, nor estimate the effects of certain ex post
factors such as the beneficial impacts of new products being traded due
to the agreements. [Footnote 21]
Table 1: Amount of Two-Way Trade, Percent Increase in Two-Way Trade,
and Percentage Increase in U.S. Exports and Imports, from Year Prior to
FTAs to 2008 (Dollars in millions):
Partner country and year prior to FTA implementation: Jordan (2001);
Two-way trade: Year prior to FTA: $568;
Two-way trade: 2008: $2,043;
Increase in two-way trade: 259%;
Increase in U.S. exports: 167%;
Increase in U.S. imports: 397%.
Partner country and year prior to FTA implementation: Morocco (2005);
Two-way trade: Year prior to FTA: $988;
Two-way trade: 2008: $2,387;
Increase in two-way trade: 141%;
Increase in U.S. exports: 190%;
Increase in U.S. imports: 87%.
Partner country and year prior to FTA implementation: Chile (2003);
Two-way trade: Year prior to FTA: $6,422;
Two-way trade: 2008: $19,549;
Increase in two-way trade: 204%;
Increase in U.S. exports: 365%;
Increase in U.S. imports: 106%.
Partner country and year prior to FTA implementation: Singapore (2003);
Two-way trade: Year prior to FTA: $29,181;
Two-way trade: 2008: $41,374;
Increase in two-way trade: 42%;
Increase in U.S. exports: 72%;
Increase in U.S. imports: 10%.
Sources: GAO analysis using data from Commerce and ITC.
Note: Changes in two-way trade are measured from the dates just prior
to implementation of the agreement to 2008. For Jordan, since
implementation was in December 2001, we measured growth in two-way
trade from 2001 to 2008.
[End of table]
Moreover, across partner countries, we found that post-FTA average
annual growth rates for U.S. exports were all higher than pre-FTA
annual average growth rates and, in some instances, average growth went
from negative to positive.[Footnote 22] For example, the post-FTA
average annual U.S. export growth rate for Chile was 32.6 percent,
compared with the pre-FTA growth rate, which was -9.1 percent. For U.S.
imports, we found that average annual growth rates were higher or less
negative in three out of the four partner countries in the post-FTA
period, with Jordan having a higher rate of pre-FTA growth. (For a more
detailed explanation of this analysis, see appendix VI.)
Figure 1 shows the dramatic increase in U.S. imports since 2000 from
Jordan, as well as the increase in U.S. exports. Of the four FTAs, U.S.
imports from Jordan have experienced the largest increase, from $229
million in 2001 to over $1.139 billion in 2008, while U.S. exports
increased from $339 million prior to the FTA to about $904 million in
2008. Between 2002 and 2008, an average of 87 percent of U.S. imports
from Jordan were textiles and apparel, with much of these imports
originating from the preexisting U.S. Qualifying Industrial Zone (QIZ)
program, although exports under the FTA are increasing.[Footnote 23]
The EU remains the dominant overall foreign supplier in Jordan's
market, and the U.S. market share has decreased somewhat since the FTA.
Figure 1: U.S. Bilateral Trade with Jordan, 1998-2008 (Dollars in
millions):
[Refer to PDF for image: multiple line graph]
Year: 1998;
U.S. exports: $351;
U.S. imports: $16.
Year: 1999;
U.S. exports: $270;
U.S. imports: $31.
Year: 2000;
U.S. exports: $306;
U.S. imports: $73.
Year: 2001 (U.S.-Jordan FTA signed);
U.S. exports: $339;
U.S. imports: $229.
Year: 2002;
U.S. exports: $397;
U.S. imports: $412.
Year: 2003;
U.S. exports: $479;
U.S. imports: $673.
Year: 2004;
U.S. exports: $531;
U.S. imports: $1093.
Year: 2005;
U.S. exports: $607;
U.S. imports: $1267.
Year: 2006;
U.S. exports: $623;
U.S. imports: $1421.
Year: 2007;
U.S. exports: $832;
U.S. imports: $1333.
Year: 2008;
U.S. exports: $904;
U.S. imports: $1139.
Sources: GAO analysis using data from Commerce and ITC.
[End of figure]
As figure 2 shows, from 2005 through 2008, U.S. exports to Morocco grew
190 percent, from $519 million to over $1.5 billion, while imports from
Morocco grew by 87 percent, from $470 million to about $880 million.
The EU still has the largest overall share in this market, at 63
percent in 2008. The U.S. market share increased marginally since
before the FTA went into force, from 3 percent in 2005 to 5 percent in
2008. However, in several important agricultural products/sectors, such
as cereals and soybean oil cake, the U.S. increased market share grew
substantially during this period. In addition to the effects of the
FTA, several factors led to higher U.S. gains in the value of exports
to Morocco during this period compared with Moroccan exports to the
United States. These factors included the drought in Morocco in 2007,
which caused its government to lift tariff-rate quotas on its own,
higher worldwide commodity prices, and an exchange rate favorable to
the United States.
Figure 2: U.S. Bilateral Trade with Morocco, 1998-2008 (Dollars in
millions):
[Refer to PDF for image: multiple line graph]
Year: 1998;
U.S. exports: $549;
U.S. imports: $352.
Year: 1999;
U.S. exports: $571;
U.S. imports: $414.
Year: 2000;
U.S. exports: $522
U.S. imports: $456.
Year: 2001;
U.S. exports: $283;
U.S. imports: $452.
Year: 2002;
U.S. exports: $560;
U.S. imports: $410.
Year: 2003;
U.S. exports: $463;
U.S. imports: $396.
Year: 2004;
U.S. exports: $516;
U.S. imports: $545.
Year: 2005 (U.S.-Morocco FTA signed);
U.S. exports: $519;
U.S. imports: $470.
Year: 2006;
U.S. exports: $869;
U.S. imports: $546.
Year: 2007;
U.S. exports: $1334;
U.S. imports: $626.
Year: 2008;
U.S. exports: $1506;
U.S. imports: $880.
Sources: GAO analysis using data from Commerce and ITC.
[End of figure]
Figure 3 shows that both U.S. exports and imports from Chile increased
following the Chile FTA. Specifically, total U.S. exports to Chile
increased by 365 percent, from $2.4 billion to $11.4 billion from 2003
to 2008, and Chile's exports to the United States rose from $4 billion
to $8.2 billion, or by 106 percent. U.S. agricultural exports increased
tenfold and U.S. exports to Chile of intermediate or capital goods
exports rose markedly. After the agreement came into force, the United
States steadily regained its overall market share in the Chilean market
that it had lost prior to the FTA. Other trading partners had secured
FTAs there first, notably countries in the Mercosur regional trade
agreement, as well as Canada and the EU.[Footnote 24] In 2008, the U.S.
share of Chile's market finally reached the pre-FTA levels that it had
in 2001. U.S. imports from Chile dropped somewhat in 2007 and 2008, due
to increased exports of copper to China, with which Chile signed an FTA
that entered into force in 2006, as well as the global economic
downturn in 2008. While Chilean officials noted that they were looking
to see increases in manufacturing goods exports following the FTA, most
Chilean exports to the United States have consisted of natural resource
exports such as those from mining, fisheries, and agriculture.
Figure 3: U.S. Bilateral Trade with Chile, 1998-2008 (Dollars in
millions):
[Refer to PDF for image: multiple line graph]
Year: 1998;
U.S. exports: $3.7;
U.S. imports: $2.3.
Year: 1999;
U.S. exports: $2.9;
U.S. imports: $2.8.
Year: 2000;
U.S. exports: $3.2;
U.S. imports: $3.3.
Year: 2001;
U.S. exports: $2.8;
U.S. imports: $3.3.
Year: 2002;
U.S. exports: $2.3;
U.S. imports: $3.6.
Year: 2003 (U.S.-Chile FTA signed);
U.S. exports: $2.4;
U.S. imports: $4.0.
Year: 2004;
U.S. exports: $3.2;
U.S. imports: $5.0.
Year: 2005;
U.S. exports: $4.7;
U.S. imports: $6.7.
Year: 2006;
U.S. exports: $6.2;
U.S. imports: $9.6.
Year: 2007;
U.S. exports: $7.6;
U.S. imports: $9.0.
Year: 2008;
U.S. exports: $11.4;
U.S. imports: $8.2.
Sources: GAO analysis using data from Commerce and ITC.
[End of figure]
Figure 4 displays bilateral trade with Singapore before and after the
FTA. Since the FTA, U.S. exports to Singapore have grown by 72 percent,
from $14.9 billion in 2003 to $25.7 billion in 2008, while imports from
Singapore have grown by 10 percent, from $14.3 billion to $15.7
billion. Although total U.S. market share in Singapore has declined
slightly, from 13 to 12 percent from 2003 to 2008, the United States
has remained a major competitor despite several other trade agreements
by Singapore with key trading partners, such as China, Malaysia, and
Japan. The top valued, higher growth U.S. exports to Singapore in 2008
included electrical machinery such as semiconductors and related
devices, as well as other industrial machinery, such as excavating,
paving, and construction machinery. While total U.S. imports from
Singapore have grown overall since 2003, they have faced intensified
competition from Asian suppliers such as China and India. Moreover, in
2008, the global financial downturn especially impacted U.S. imports
from Singapore, which is highly dependent on exports of finished goods.
Figure 4: U.S. Bilateral Trade with Singapore, 1998-2008 (Dollars in
millions):
[Refer to PDF for image: multiple line graph]
Year: 1998;
U.S. exports: $14.2;
U.S. imports: $18.2.
Year: 1999;
U.S. exports: $14.8;
U.S. imports: $18.1.
Year: 2000;
U.S. exports: $16.0;
U.S. imports: $19.1.
Year: 2001;
U.S. exports: $15.8;
U.S. imports: $14.9.
Year: 2002;
U.S. exports: $14.7;
U.S. imports: $14.1.
Year: 2003 (U.S.-Singapore FTA signed);
U.S. exports: $14.9;
U.S. imports: $14.3.
Year: 2004;
U.S. exports: $17.8;
U.S. imports: $14.8.
Year: 2005;
U.S. exports: $18.7;
U.S. imports: $15.1.
Year: 2006;
U.S. exports: $21.9;
U.S. imports: $17.6.
Year: 2007;
U.S. exports: $23.6;
U.S. imports: $19.1.
Year: 2008;
U.S. exports: $25.7;
U.S. imports: $15.7.
Sources: GAO analysis using data from Commerce and ITC.
[End of figure]
Majority of Leading Product Categories Experienced Increased Growth
Rates:
To examine how the United States and partner countries benefited from
the FTAs at the product category/sector level, we analyzed (1) the pre-
and post-FTA growth rates at the product category level for trade with
each partner, (2) market share data for trade among countries in the
FTA markets, and (3) product/sector data obtained from our partner-
country visits where available. We found that for trade with the four
selected FTA partner countries, from 60 to 100 percent of the top 25
U.S. export product categories by value experienced increased rates of
annual average growth after the FTAs were in force.[Footnote 25]
Specifically, average annual growth rates increased in the post-FTA
time period for 100 percent of the top 25 export categories to Chile,
92 percent of the top export categories to Singapore, 64 percent of
these categories to Jordan, and 60 percent to Morocco. For U.S. import
categories, two out of the four selected FTA partner countries, Chile
and Singapore, experienced increased rates of growth for a majority of
their product categories after the agreements came into force.[Footnote
26] (For a more detailed examination of these product categories, see
apps. II through V.) Moreover, several broader sectors of the U.S.
economy, including agriculture and manufacturing, made substantial
gains in market share versus other suppliers following implementation
of the FTAs.
Among sectors, we found that U.S. agricultural exports, such as wheat,
corn, rice, edible fruits and nuts, and dairy products, grew
substantially post-FTA in several partner countries, with U.S. market
share gaining against major trading partners. For example, U.S. exports
to Chile of agricultural, horticultural products, and livestock, grew
tenfold, from $25 million in 2004 to $256 million in 2007. The United
States' share of Chile's total agricultural imports rose significantly,
from 6 percent in 2004 to 26 percent in 2007. In the dairy sector for
instance, the U.S. Dairy Export Council explained that, because of
reductions in tariffs and adjustments to their inspection system for
dairy products under the Chilean FTA, U.S. exports had increased by
tenfold. In the Jordanian corn market, U.S. market share grew from just
3 percent in 2001 to 77 percent in 2007 after the 5 percent tariff on
grains being removed by the FTA. There were also increases in U.S sales
of almonds to Jordan, from $3 million to almost $12 million in 2007,
after duties were lowered.
Numerous U.S. manufacturing sectors--such as construction equipment to
Morocco, automobiles to Jordan and Chile, and machinery, gas turbines,
and optical/medical equipment to Singapore--also showed significant
gains in U.S. exports to FTA partners and increases in U.S. market
share. For example, U.S. exports of machinery increased from about $4.8
billion in 2003 to over $9 billion in 2007 following the FTA with
Singapore in 2004. Sales of gas turbines to Singapore increased
threefold, from about $650 million before the FTA came into force, to
almost $1.8 billion in 2007. The elimination of Chile's luxury tax on
imported cars, along with tariff reductions, also spurred greater U.S.
automobile exports.
In some instances, reduced trade barriers led to circular flows of
trade that benefited both parties of an agreement. We were told by the
American Forest and Paper Association that increased amounts of kraft
liner that go into the production of corrugated boxes were exported to
Chile to accommodate increases in Chilean agricultural exports to the
United States, both of which received reductions in duties after the
Chile FTA. According to U.S. and Singapore officials we spoke with, the
greater IPR protection and enforcement resulting from the FTA were
factors encouraging more investment by U.S. pharmaceutical firms in
Singapore. These firms import pharmaceutical manufacturing equipment
and drug components for the manufacture of pharmaceuticals that are
exported in bulk back to the United States, where they are then
marketed to the United States and the world.
Trade in Services Increases:
Singapore:
For the FTAs we studied, Singapore has the highest level of bilateral
services trade, with the United States exporting over $7 billion, and
importing almost $4 billion, for a services trade surplus of over $3
billion in 2007. U.S. service exports to Singapore grew 24 percent from
the average level of the pre-FTA 3-year period 2001-2003 to 2007,
while, U.S. service imports from Singapore grew by 90 percent. For both
exports and imports, substantial gains have taken place in the broad
category "other private services," within which the subcategory
"business, professional and technical services" has shown very high
growth. These exports to Singapore grew over 800 percent, and imports
to the United States grew over 1,200 percent. The "royalties and
license fees" category also had a sizable increase. Some of the export
growth of these categories is likely associated with the improved
market access and IPR environment resulting from the FTA.
Chile:
Services trade with Chile during the period since FTA implementation
has also shown substantial growth. In 2007, U.S. services exports to
Chile were $1.76 billion, and U.S. imports were $868 million, for a
trade surplus of $888 million. U.S. exports to Chile grew 47 percent
compared with the pre-FTA period, while imports grew just 19 percent.
Exports in the "other private services" category grew 100 percent, and
"business, professional and technical services" grew by 168 percent.
Also, royalties and licensure fees" grew 140 percent.
Jordan and Morocco:
For Jordan and Morocco, the Bureau of Economic Analysis (BEA) does not
provide separate data on services trade, and this hampers our ability
to assess the U.S. role in these countries. United Nations' data do
show, however, that both of these countries have experienced
substantial growth in their worldwide services trade. Since 2001,
Jordan has experienced growth of 96 percent in its service exports, to
a level of $2.9 billion in 2007. For the same period, Jordan's imports
of services grew 78 percent, to a level of $3.1 billion. As for
Morocco, since 2001, service exports grew over 230 percent, to a level
of $13.4 billion. Morocco's service imports grew 181 percent, to a
level of almost $6 billion. While the United States no doubt shared in
some of this overall services trade growth by Jordan and Morocco, we
cannot assess U.S. performance.
As the data on services trade show, worldwide growth during the 2000s
and the periods of FTA implementation mean that the overall U.S. share
of worldwide services trade has experienced a declining trend. Yet, the
United States experienced substantial services trade growth in both
Singapore and Chile. Moreover, strong growth was apparent in service
sector categories that are associated with provisions of the FTAs.
Foreign Direct Investment and Affiliate Sales Increase:
Singapore:
The data on foreign direct investment (FDI) suggest that the post-FTA
period has seen bilateral growth with Singapore and greater economic
integration between the partners. In 2007, the U.S. stock of FDI in
Singapore (outward FDI) reached over $82 billion. This is 73 percent
higher than that during 2001-2003, prior to the FTA. Singapore's share
of overall U.S. FDI has remained stable at about 3 percent.[Footnote
27]
The level of FDI in the United States by Singapore firms (inward FDI)
has also grown. In 2007, inward FDI from Singapore had grown over 370
percent compared with 2003, the year prior to FTA implementation.
Singapore government data suggest that its FDI in the United States is
concentrated in financial services and manufacturing.
An indicator of greater economic integration is the growth in sales by
majority-owned foreign affiliates (MOFA) of U.S. multinational
corporations (MNC). These sales can be viewed as a complement to FDI in
so far as the investment in foreign affiliates leads to greater access
to the domestic market. In fact, sales by foreign affiliates can exceed
the amount of cross-border trade in goods and services. BEA data show
that, in 2006, U.S. MOFAs in Singapore had sales of $193 billion.
Compared with the 3-year period prior to the FTA (2001-2003), total
U.S. affiliate sales grew over 117 percent.[Footnote 28]
Chile:
The Chile FTA sought to consolidate Chile as a secure location for
foreign investment and improve the IPR environment, according to
Commerce. The United States was already one of the major foreign
investors in Chile prior to the FTA, even though FDI in Chile has
generally been less than 1 percent of total U.S. FDI. BEA data show
that in 2007 the U.S. stock of FDI in Chile totaled $12.6 billion. This
level represents growth of 33 percent compared with the average level
of the 3-year period prior to the FTA, 2001-03. While no one sector
strongly dominates as a target for U.S. FDI in Chile, the financial
sectors and manufacturing garner substantial shares, with chemicals
playing a strong role within the manufacturing sector. The stock of FDI
by Chilean entities in the United States is small and has not shown
much growth in the post-FTA period.
Sales by MOFAs of U.S. multinationals in Chile totaled about $14.8
billion in 2006, based on preliminary BEA data. Compared with the 3-
year average prior to the FTA, total U.S. affiliate sales in Chile grew
72 percent, with sales of goods growing faster than sales of services.
Jordan and Morocco[Footnote 29]
U.S. FDI in Jordan and Morocco also grew following FTA implementation,
but by less than FDI from other nations. Recent BEA data show that U.S.
FDI in Jordan was $119 million in 2007, up from $39 million in 2006.
U.S. FDI in Morocco was $238 million in 2007, a substantial increase
over the $130 million level attained in 2006, the first year of the
Morocco FTA. However, this 2007 level is still lower than the stock of
U.S. FDI in the period 2001-2003.
Both Jordan and Morocco experienced even stronger growth in total
inward FDI from the world during the 2000s, according to data from the
United Nations Conference on Trade and Development (UNCTAD). In Jordan,
inward FDI holdings more than tripled from $4 billion in 2002 to over
$14.5 billion in 2007.[Footnote 30] In Morocco, between 2000 and 2007,
worldwide inward FDI grew at an annual rate of over 50 percent,
attaining a level of $32.5 billion in 2007. Comparing these figures
with the U.S. totals from BEA gives some indication that the United
States has yet to play a significant role in FDI in these countries.
U.S. Industry and In-Country Officials Expressed General Satisfaction
with FTA Results, While Indicating Several Outstanding Concerns:
Information we obtained from a cross section of agriculture,
manufacturing, services, and IP-related industry representatives on
committees that advise the U.S. government generally suggest that, to
date, FTAs have provided direct and indirect commercial benefits to
U.S. businesses across a range of sectors. While acknowledging that
other industry and macroeconomic factors are also at work, most
business groups that we contacted reported FTAs had played a role in
these favorable trade and investment trends. Among the more significant
beneficial provisions of the FTAs identified by the private sector were
tariff cuts, strengthened IPR, and improved regulatory frameworks as
follows:
* Agricultural interests that advise the U.S. government were generally
enthusiastic about their experience with FTAs, reporting improved
market access in a variety of product areas, such as processed food,
dairy, grains, almonds, tree fruits, and, to a certain extent, meat.
Sectors that are highly protected, such as sugar, reported that these
FTAs would not affect them since all of these countries are net sugar
importers. Other product areas, such as certain U.S. beef and chicken
meat products, still face certain nontariff barriers to trade and do
not have full access to these FTA markets.
* Manufacturing FTA-related gains were reported by industries such as
U.S. construction equipment, industrial equipment, and electrical
machinery, while some others, such as textiles and apparel, and the
chemicals industry, reported mixed to no impact. For instance, the
Industrial Equipment Manufacturers, an association representing 800
manufacturers of industrial equipment used in the construction,
agriculture, mining, forestry, and utility sectors, report that their
members have seen sharp increases in exports to Chile, Singapore, and
Morocco after the FTAs went into effect. Officials of the chemicals
industry, on the other hand, reported that while FTAs had some impact
on increases in exports, they believed that this was more due to
overall growth in demand and other factors.
* Many services trade and intellectual property-related industries
reported gains due to FTA market-opening provisions in services,
improved investor protections, strengthened IPR, procurement
liberalization, and regulatory transparency. These industries included
express delivery, financial services, pharmaceuticals, business
software, and information services.
In addition, evidence we gathered on fieldwork in partner countries,
including the views of the United States and partner country officials
and a range of market participants, reveals a generally positive view
of the impact and results of the FTAs.
Continued Focus on Outstanding Trade Concerns Urged by Private Sector,
United States, and Partner Country Officials:
Despite the overall positive tenor of views about the FTAs' commercial
results, some outstanding concerns remain among U.S. private sector
groups, as well as among U.S. and partner governments. As a result,
continued efforts to resolve outstanding issues were urged,
specifically the following:
* In a few U.S. industries, concerns were expressed about actual or
potential displacement (cotton, fruit, and vegetable producers). Others
said that the FTAs haven't achieved their full potential and may
involve some costs due to varying rules of origin and cumbersome
paperwork (for example, businesses in the express delivery sector said
they benefit from innovative market access and treatment provisions,
but they find FTA-related paperwork and packing requirements can
counter their strengths in global supply chain support and "hub and
spoke" redistribution systems).
* From a U.S. government perspective, IPR-related issues in Chile have
not been adequately addressed and have since been elevated by USTR to
the Special 301 Priority Watch list in 2006 and 2007.[Footnote 31] U.S.
officials and the private sector remain frustrated by Chile's slow and
incomplete implementation of its FTA IPR obligations, particularly
since this was billed as being a major benefit of the FTA for the
United States. The United States and Chile have previously conducted a
review of Chile's implementation of several of its IPR obligations
under the FTA and plan continued engagement on these issues in 2009.
* In Chile, some concern and disappointment was expressed by officials
with the level of trade in services and U.S. investment since the FTA
was implemented. In addition, Chilean officials said that Chile's FTAs
with other partners (such as Mexico) were more flexible and contain
cumulation provisions that allow inputs from other countries.[Footnote
32]
* Regarding Jordan, a representative of U.S. fabric producers suggested
FTAs as a whole have been quite helpful and important to the industry's
survival by creating export markets for U.S. fabric. However, he also
expressed concern that imports from Jordan and other suppliers with
preferential access to the United States without requirements to use
U.S. fabric were undermining apparel producers under NAFTA and the
Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) that
do use U.S. inputs and, in turn, their producers. While in Jordan,
complaints from officials included that, especially in agriculture,
Jordanian products could not meet U.S. regulatory standards and that
U.S. customs paperwork and regulations were complex. Broader concerns
were also expressed by Jordanian officials about the level of trade in
services and investment from the United States after the FTA.
* U.S. officials we met with in Morocco and Moroccan officials shared a
concern that Morocco had undertaken liberalization and seen sharp
increases in imports from the United States but had yet to see much in
terms of gains in sales to the United States. Meetings with Moroccan
government representatives revealed their general dissatisfaction with
their trade results so far, which they believed did not reflect "the
objectives and potential of the FTA." They listed several factors that
they felt contributed to this situation including: (1) discrepancies
between Moroccan and U.S. trade statistics; (2) problems relating to
the inability to meet U.S. regulatory standards, in particular sanitary
and phytosanitary standards; (3) specific difficulties of Moroccan
exporters pertaining to U.S. Customs; and (4) long phaseout periods of
U.S. tariffs on some Moroccan products.[Footnote 33]
* Ongoing U.S. concerns in Singapore pertain to frustration with some
opaque or cumbersome regulatory practices that are undermining U.S.
firms' access to Singapore's telecommunications and domestic
pharmaceutical procurement markets. In addition, some animal, plant, or
human-health related bans or restrictions remain, posing hurdles for
U.S. exporters of some meat and other agricultural products. Despite a
very positive view of the FTA by Singaporean officials, there were
calls from some exporters for more flexible rules of origin, such as in
the case of optical disc producers who cannot meet the value-added
requirement. Some disappointment was expressed with the results of the
congressionally modified "integrated sourcing initiative"[Footnote 34]
compared with the expectations during FTA negotiations. Also, concern
was expressed about the ease of obtaining visas for Singaporean
business persons in some countries, including the United States.
While GAO did not do a comprehensive examination of agency efforts in
this area, it appeared that active monitoring and ongoing engagement
were already under way in most of these areas. For example, U.S.
officials were able to give a detailed scorecard of Chile's IPR
implementation efforts, as well as provide a timeline documenting
extensive bilateral contacts. Similarly, in Singapore, U.S. officials
were able to provide extensive information regarding IPR developments
and services market access concerns. Nevertheless, USTR, Commerce, and
Department of Agriculture (USDA) officials told us that evaluation of
FTAs in terms of trade results is infrequent and done on an ad hoc
basis. For example, agencies produced a one-time report required for
TPA in 2005 and Commerce produced charts on particular FTAs in 2008.
FTAs Contribute to Labor Improvements in Partners, but U.S. Follow-up
on FTA Labor Commitments Has Been Minimal:
FTAs Spurred Some Labor Law Reforms, but Most Partners Face Enforcement
Challenges:
Jordan, Chile, Singapore, and Morocco have all made efforts to meet
their commitment in the FTAs to strive to ensure that their domestic
labor laws provide for agreed labor standards consistent with the
internationally recognized labor rights and strive to make
improvements. (See boxed text, which describes some of the most
important labor commitments in the FTAs.) U.S. and partner officials
said the FTA negotiations stimulated labor law reforms and improvements
in enforcement of the laws in all four partner countries, either during
the FTA negotiations or later. However, Jordan, Chile, and Morocco all
have documented difficulties ensuring respect for core labor rights and
face enforcement challenges. U.S. agencies missed opportunities to
promote partner capacity because they have provided little sustained
engagement or assistance.
Table: TPA and FTA Provisions Related to Labor:
TPA Goals:
TPA's overall negotiating objectives on labor include promoting respect
for workers' rights and the rights of children consistent with core
labor standards of the ILO, as defined in TPA. Principal negotiating
objectives include strengthening the capacity of U.S. trading partners
to promote respect for core labor standards. The President is directed
to seek to establish consultative mechanisms among parties to trade
agreements to strengthen the capacity of U.S. trading partners to
promote respect for core labor standards as enumerated in TPA.
FTA Commitments:
All of the primary provisions of the pre-TPA Jordan FTA labor article
are echoed in the Chile, Singapore, and Morocco FTAs. In each of the
agreements, the parties commit to:
* not fail to effectively enforce their own labor laws, through a
sustained or recurring course of action or inaction, in a manner
affecting trade between the parties;
* strive to ensure that their domestic labor laws provide for labor
standards consistent with the internationally recognized labor rights
set forth in the labor article, while recognizing the right of each
party to establish its own domestic labor standards, and strive to
improve those standards;
* strive to ensure that they do not waive or derogate from, or offer to
waive or derogate from, domestic labor laws as encouragement for trade
with the other party; and;
* strive to ensure that the labor principles and internationally
recognized labor rights set forth in the labor article are recognized
and protected by domestic law.
The Singapore, Chile, and Morocco FTAs also contain provisions on labor
consultations, commitments to labor cooperation in order to advance
common labor commitments, public awareness, and domestic procedural
guarantees. For example, parties are required to ensure that their
proceedings for the enforcement of their labor laws are fair,
equitable, and transparent.
Internationally Recognized Labor Rights:
The internationally recognized labor rights defined in TPA and the FTAs
are:
* the right of association;
* the right to organize and bargain collectively;
* a prohibition on the use of any form of forced or compulsory labor;
* a minimum age for employment of children, and;
* acceptable conditions of work with respect to minimum wages, hours of
work, and occupational safety and health.
[A] Consistent with TPA guidance, prohibition and elimination of the
worst forms of child labor is also included in the Singapore, Chile,
and Morocco FTAs but not the Jordan FTA. The Singapore and Chile FTAs
also refer to "labor protections for children and young people,"
including the elements specified here.
[End of table]
The following sections describe progress and challenges in labor law
reforms and enforcement in each partner country.
Jordan:
Jordan has made some improvements to its labor laws and enforcement in
recent years, according to USTR and Labor officials, but ongoing
weaknesses in its labor protections contributed to abuses of workers
that occurred in factories in the U.S.-designated QIZs. Despite U.S.
awareness of such weaknesses going into the agreement, little was done
by the United States or Jordan to address them between 2002 and mid-
2006, the first 5 years of the FTA. Jordan's actions since then are
generally seen as serious responses intended to correct labor abuses
and have resulted in recognized improvements. Although some labor
problems persist in the QIZs, the U.S. government recently decided to
widen Jordan's duty-free access to the U.S. apparel market.
A former U.S. official involved in the labor negotiations for the
Jordan FTA told us that, during the negotiations, Jordan's labor laws
had been found wanting in some respects, but the United States did not
require changes as part of the FTA. State's human rights reports have
for years noted limitations in Jordan's labor protections, which were
particularly weak for foreign workers and workers in the informal
sector. According to USTR, Jordan's labor laws were amended by Jordan
in 2008 to cover some previously excluded workers, including
agricultural workers.
Until 2006, the International Trade Union Confederation's Annual Survey
of Violations of Trade Union Rights routinely noted that Jordan's labor
inspection service was ineffective and labor laws were not always
enforced. In addition, State's human rights reports have noted a lack
of government training for labor inspectors on the country's child
labor laws and the inspectors' failure to enforce these laws over the
past decade. However, they also described the government's efforts
during this period to establish a new child labor unit in the Ministry
of Labor and to oversee recruitment and employment of certain foreign
workers.
A serious failure in both Jordan's laws and its enforcement--which
Jordan, with the help of U.S. agencies, independently verified and has
now taken some steps to address--was publicized in a May 2006 report by
the National Labor Committee, a U.S. labor advocacy organization. It
described widespread abuses of foreign workers in garment factories
operating in Jordan's QIZs, whose duty-free exports to the United
States have grown dramatically under the FTA. The majority of workers
in Jordan's QIZs are not Jordanian; they are brought to Jordan under
contract from several east and southeast Asian nations. While many of
the investors are from China, Taiwan, India, and Pakistan, some U.S.
brands and stores source goods for export from Jordan. The National
Labor Committee report detailed problems such as workers' passports
being confiscated by factory managers, regular work shifts of 12 to 20
hours and occasional shifts of 48 or more hours, withholding of wages
for up to 6 months, nonpayment of full wages with overtime, threats and
incidents of deportation, overcrowded and unsanitary living quarters
provided by employers, and incidents of physical and sexual abuse.
According to U.S. officials, the government of Jordan reacted
immediately to the 2006 public report. Jordan initiated its own
investigation and requested U.S. funding for an independent assessment
of working conditions in the QIZs, conducted by a contractor
specializing in labor compliance monitoring, which confirmed numerous
violations of Jordan's labor laws and international labor standards.
[Footnote 35] The assessment found some problems were pervasive in the
QIZ factories, while others were limited to a few cases or a few
factories. According to the assessment, the widespread violations of
Jordanian laws included non-voluntary and routine overtime of 2 or more
hours daily and incorrect wage payments including pay below the minimum
wage.
Jordan's Ministry of Labor took steps to improve workers' conditions
and compliance with labor laws, with assistance from USAID and other
donors, including closing some factories, transferring workers to
factories with better working conditions, developing a voluntary code
of conduct for factories, creating a hotline for complaints from
migrant workers, hiring new inspectors, and instituting new training
programs for labor inspectors. Jordan agreed with the ILO to start a
"Decent Work" program to create quality jobs and reduce unemployment
nationally, as well as a "Better Work" program to implement a
monitoring system in the garment sector, combined with needs
assessment, remediation, and training at the enterprise level. However,
the National Labor Committee has reported recurrences of some problems
in the QIZs over the past 2 years, and a Ministry of Labor report
indicates that at least one case was so egregious that it closed the
factory. The ministry said it also accelerated an ongoing effort to
revise the national labor law through a process involving the
government, employers, and workers. U.S. officials, trade union
officials, and others told us that a comprehensive reform package was
developed in late 2006, but the ministry delayed in submitting it to
parliament until June 2008. According to U.S. officials, Parliament
enacted a set of labor reforms but did not enact some elements of the
proposed revisions, including providing legal rights to foreign workers
to organize and join unions, despite the government's repeated
assurances to U.S. officials over a period of years that this
particular reform would be made "soon."
Chile:
According to Chilean officials, Chile has continued to strengthen its
labor laws since its FTA went into effect in 2004, but they also told
us about ongoing difficulties with ensuring respect for labor rights by
employers and with its enforcement regime. Chile began a process of
labor reform in the 1990s that has continued up to and since passage of
the 2004 FTA. As a result, its labor enforcement regime is considered
among the best in Latin America, according to ILO officials. According
to the FTA labor rights report for Chile submitted to Congress, reform
legislation that was enacted in 2001 significantly improved workers'
rights to organize. It also reduced the official work week from 48 to
45 hours, tightened overtime pay regulations, and improved safety
standards, among other changes. In addition, according to Ministry of
Labor officials, a 2007 law established a legal responsibility for
employers to protect the health and safety of subcontracted workers,
guarantee their pay, and clarify their contracting status.[Footnote 36]
However, comments from individuals in the Chilean government and
nongovernmental organizations during GAO's fieldwork indicated this
reform was seen as fixing some problems but creating others. Both
ministry and trade union officials noted some continuing problems with
workers' rights, including inequality in pay for subcontractors and
legal limitations on workers' ability to organize and bargain
collectively across enterprises.
The State Department's 2007 Report on Human Rights Practices indicates
that Chile's Ministry of Labor effectively enforced its laws and
regulations on minimum wages, work hours, and safety and health
standards and devoted considerable resources to oversight of child
labor policies. Chilean labor ministry officials we met said
enforcement has improved since the FTA went into effect, but Chile
still faces some of the same challenges in enforcement that existed at
the time the FTA entered into effect. They said the ministry has
increased the number of labor inspectors, raised inspectors' salaries,
and introduced unannounced inspection visits. In addition, they said
labor court procedures have been modified to address labor disputes in
a more timely way. Spurred by its FTA commitments to the United States,
Chile's Ministry of Labor proactively undertook a self-study, with
initial cooperation from the private sector, of two of Chile's leading
export sectors, salmon and forestry products. It identified some labor
rights problems with the aim of convincing companies that improving
labor practices would be good for business. Chilean labor ministry
officials also acknowledged that enforcement is weaker than they would
like. Fines for violations remain low, and labor inspectors' pay is
still among the lowest for government inspectors in Chile.
When asked about post-FTA developments and effects, labor groups we met
in Chile generally agreed with the government's assessment that there
had been some progress but continued to be problems with Chile's labor
laws and enforcement. They added that workers' jobs, pay, benefits, and
protections in Chile, particularly in manufacturing, had been under
pressure as a result of near-continual import liberalization by Chile
most recently through conclusion of an FTA with China. While the U.S-
Chile FTA was not seen as the sole or even primary cause of these
downward pressures on Chilean working conditions, the FTA also was not
seen as a powerful or well-used tool for betterment.
Singapore:
Singapore generally had strong protections for workers going into the
FTA and has since improved them. As a high-income economy, Singapore
provides good working conditions and a broad range of social benefits
for most of its workers, and U.S. officials involved in the
negotiations said changes in Singapore's labor laws were not needed to
conclude the FTA. The International Trade Union Confederation (ITUC)
reports that there are some restrictions on unions in Singapore's labor
laws, but many of the restrictions are not applied in practice. U.S.
FTA negotiators were initially concerned by Singapore's lack of a
minimum wage law, but these concerns were allayed by an understanding
of Singapore's unique system for determining wage increases through the
annual recommendations of a National Wages Council that is composed of
government, trade union, and employer representatives. U.S. embassy
officials said Singapore has made changes in its laws to improve worker
protections since the FTA took force. The embassy officials stated
that, for example, a workplace safety and health act was enacted to
provide safety protections to a broader range of workers.
State's 2008 human rights report indicates that Singapore's Ministry of
Manpower effectively enforced its laws and regulations on working
conditions, safety and health standards, and child labor.
Morocco:
Morocco has strengthened its labor laws in connection with the FTA, but
its enforcement is often poor, and child labor and suppression of
strikes remain problems, according to U.S. government reports and
officials. USTR and Labor officials indicated that Morocco achieved
significant labor reforms and progress in employer-worker relations
with reform legislation that took effect in 2004. Although these
reforms had been under discussion for over 20 years, U.S. officials
said the FTA negotiations provided an external push that was helpful in
gaining agreement among workers, employers, and the government on
outstanding issues. Moroccan government officials told us that the
number of labor disputes has decreased 50 percent since 2004, and trade
union officials agreed that the environment for labor dialogue has
improved as a result of the new labor code. In 2004, Morocco's
legislature also passed reforms to the family code and the penal code,
which strengthened labor protections and other rights for women and
children, according to State's human rights reports. Despite the
progress, trade union officials and labor experts told us that labor
protections should be further expanded to cover workers in Morocco's
large informal economy.
State's human rights reports note that enforcement of all of these laws
has often been poor, particularly within Morocco's informal work
sector, due partly to limited government resources. For example, in
April 2008, approximately 55 deaths caused by a mattress factory fire
in Casablanca reportedly occurred after inspections had identified
safety violations that were not corrected. During our fieldwork, an ILO
official also told us that Moroccan labor inspectors are reluctant to
cite employers for labor violations because an inspector was sentenced
to prison for issuing a citation several years ago. The Morocco FTA
labor rights report states that Morocco has experienced repeated
incidents of violent repression of worker strikes, and a 2007
confederation report indicated at least one of these involved a U.S.-
affiliated export manufacturer. Furthermore, according to State's human
rights, Labor's child labor, and Human Rights Watch reports, Morocco
has a relatively high rate of child labor, especially in rural areas.
Moroccan labor experts have attributed this to poverty, poor quality
education and poor access to education (particularly for girls), broken
families, and wide social acceptance of child labor. The Moroccan
government has ongoing programs aimed at eliminating child labor
through education for child workers and other efforts, which have been
developed with support from the ILO and Labor.
U.S. Agencies Did Not Develop Labor Cooperation Plans and Had Limited
Resources to Strengthen Partner Capacity:
In addition to their responsibilities described in the boxed text,
pursuant to TPA reporting requirements, U.S. agencies created fairly
comprehensive baseline assessments of these FTA partners' labor rights
regimes. TPA does not require that U.S. agencies use the assessments to
systematically plan or set priorities with partners, and U.S. agencies
did not do so. However, because U.S. agencies were disengaged and
provided little assistance to partners, agencies may have missed
opportunities to cooperate with partners in promoting capacity.
Table: U.S. Agency Responsibilities for FTA Labor Matters:
Labor is responsible for overseeing FTA labor commitments and
cooperation and is the lead on all but the Jordan FTA, in coordination
with State and USTR. In Federal Register notices for the Singapore,
Chile, and Morocco FTAs, Labor's ILAB was designated as the point of
contact for implementation of the labor provisions for the FTAs, as
well as for the labor cooperation mechanisms established by the annexes
to these FTAs. Under the labor cooperation mechanisms, the parties have
broad authority to undertake cooperative activities on any labor
matter, and the responsible agencies shall cooperate to establish
priorities for cooperative activities. The Federal Register notices
also outline ILAB's responsibilities in relation to the FTAs, which
include implementing trade-related labor policy, coordinating
international technical cooperation in support of the labor provisions
in FTAs, and receiving, determining whether to accept for review, and
reviewing submissions on another party's compliance with commitments
and obligations arising under a labor chapter. ILAB is required to
consult with State and USTR on these activities.
[End of table]
Reports Required by TPA Provided a Comprehensive Baseline on Labor
Rights:
Before congressional review of a final trade agreement, TPA required
U.S. agencies to prepare and submit to Congress a "meaningful labor
rights report" for each partner country and a report describing the
country's laws governing exploitative child labor.[Footnote 37] USTR
and Labor officials told us that, in general, at the start of
discussions about each possible FTA, they consult with partner
government officials, clarify U.S. FTA labor requirements for them, and
seek information about the labor situation in the country. As the
negotiations continue, they conduct an analysis of the country's labor
laws and practices and visit the country to meet with government,
union, and private sector officials. If labor concerns are serious,
U.S. negotiators may request legislative changes to remedy them. Labor
officials said they also work with partner government officials at this
stage to identify weaknesses and needs for technical assistance
concerning labor rights and enforcement, as required by TPA.[Footnote
38] The information gathered contributes to the labor rights report
prepared for Congress and also informs the negotiations and decisions
about cooperation and assistance.
The TPA labor rights reports we reviewed for these FTA partners
provided detailed descriptive information on and insight into the labor
rights situation in these countries. They described each country's
legal framework, the administration of labor law, labor institutions,
and the labor justice system, as they pertained to the core labor
standards defined in U.S trade legislation. Although the reports did
not attempt to evaluate the severity of labor problems, our comparison
of them indicated that they portrayed more significant labor problems
in Morocco, limited problems in Chile, and very few in Singapore. The
reports did not include any analysis of the potential effects of
expanded trade on the situation for workers in export sectors.
Because the Jordan FTA negotiations occurred before TPA was enacted,
neither a meaningful labor rights report nor a report on laws governing
exploitative child labor was required or prepared for Congress. Our
document review indicated, however, that in response to a USTR request,
in 2004, Labor identified various labor rights weaknesses, including
the facts that the estimated 125,000 registered foreign workers in
Jordan lacked the right to organize, bargain collectively, or join
unions and that the recently increased minimum wage was set at poverty
levels.
U.S. Agencies Did Not Establish a Process to Prioritize and Plan
Cooperative Activities:
The post-TPA FTAs establish labor cooperation mechanisms and explicitly
recognize that bilateral cooperation provides enhanced opportunities to
improve labor standards and advance common commitments. USTR and ILAB
officials told us that when the four FTAs GAO focused on were
negotiated, they foresaw greater cooperation between experts at Labor
and partner countries' labor ministries than has occurred. U.S.
agencies have not utilized the bilateral cooperation process laid out
in the FTA annexes to set joint priorities and plans for cooperative
activities with these FTA partners. Information from the labor rights
reports identified partners' weaknesses, and Labor did use this
information to develop its initial interactions with these partners.
Labor and the agencies it must consult with concerning cooperation
activities did not use the information as a basis for assessing and
prioritizing needs and planning cooperative efforts with partner
countries beyond these initial projects. However, as discussed below,
Labor's direct funding for technical cooperation projects was
essentially eliminated at the time the FTAs we examined began entering
into force.
In contrast to the arrangements for environmental cooperation described
later in this report, there is no process between the United States and
its trade partners for developing work plans for labor cooperation that
establish objectives and activities over a period of time. In the FTA
labor cooperation annexes, the parties committed to establish
priorities for cooperation and develop specific activities in line with
the priorities. However, the annexes do not set a time frame in which
these actions are to be completed. In practice, no cooperation
priorities or multiproject work plans have been developed with any of
these FTA partners, apart from plans for individual projects described
below.
Labor Cooperation Efforts Have Been Limited and Driven by Type of
Funding Available:
The text of each of the three FTAs negotiated under TPA anticipates
cooperation between the United States and its trade partner on labor
matters. Each of these FTAs creates a labor cooperation mechanism and
the respective associated annexes state that parties shall cooperate
and the parties recognize that cooperation provides enhanced
opportunities to improve labor standards and advance common commitments
including the ILO Declaration. To promote these goals, in the Chile,
Singapore, and Morocco FTAs, the "Cooperative Activities" and
"Implementation of Cooperative Activities" provisions of the labor
cooperation mechanism annexes identify areas of cooperation and types
of cooperative activities that could be undertaken by the United States
and the partner country, but does not require that these enumerated
activities be undertaken.[Footnote 39] The annexes identify activities
such as exchanging information, organizing joint conferences, and
undertaking joint research projects, on topics such as fundamental
labor rights and their effective application, labor relations, and
working conditions. None of these FTAs' labor provisions and associated
annexes specifies a time frame for completion of the activities. The
Jordan FTA does not have a labor cooperation mechanism annex, but it
provides an opportunity for labor cooperation by requiring that the
Joint Committee established to implement the FTA consider any
opportunity for cooperation identified by any of the parties to the
agreement. In addition, the "Economic Cooperation and Technical
Assistance" article in the Jordan FTA (which is not focused on labor)
states that "in view of Jordan's developing status, and the size of its
economy and resources, the United States shall strive to furnish Jordan
with economic technical assistance, as appropriate."
However, none of the FTAs contains a specific commitment of financial
assistance. Instead, Labor's ILAB programs for non-FTA-related
technical assistance have been the initial or primary source of funding
for technical assistance projects on labor issues for these FTAs. ILAB
technical assistance has typically supported improvements in labor law
enforcement and labor relations, as well as programs to prevent and
withdraw children from exploitative child labor. In addition, USAID has
been a primary source for funding in Jordan recently, and State's
Middle East Partnership Initiative provided funds for Morocco.
U.S. assistance to help partners build labor capacity was limited to
partners or issues with preexisting program resources and was less than
initially foreseen due to funding cuts. ILAB officials told us their
budget for general bilateral and multilateral technical assistance that
could be used for FTA partner countries was greatly reduced in 2004
(from $37 million to $2.5 million) and has been eliminated in every
year since 2005. As a result, ILAB has not had a direct source of
funding available to dedicate to new technical assistance for FTA
partners, except for child labor projects. For some FTAs, ILAB has
identified funding from other U.S. agencies to support labor
assistance, including a large amount from USAID in Jordan and a very
small amount from State in Morocco. Although cooperation could involve
less costly technical or information exchanges, as well as assistance
projects, ILAB officials said they do not have much funding for travel
to meet with or provide in-house technical assistance to labor ministry
officials. In addition, they said other Labor agencies that have
technical expertise they would like to draw on, such as the
Occupational Health and Safety Administration, are limited by their
domestic missions in their ability to pay for sending staff overseas.
ILAB officials said they are trying to explore less costly ways of
participating in international meetings, such as through
videoconferences. However, in response to an invitation by Chile to
participate in a labor forum it organized in 2008, the officials told
us ILAB did not have funds for travel. While not able to make
alternative arrangements to participate, they provided materials and
preparation so that a U.S. embassy employee could attend instead.
Following are descriptions of U.S. labor assistance that has been
provided to each partner country and how it relates to labor
enforcement capacity weaknesses cited in the FTA labor rights (or other
U.S. government) reports and expectations for cooperation stemming from
the existence of the labor cooperation annexes.
Jordan:
U.S. support for capacity building to counter Jordan's weaknesses in
labor law enforcement, including those noted in State's human rights
reports, was originally provided through two ILAB-funded projects
implemented by the ILO. Total funding for these projects, both
initiated in 2002, was about $2.4 million. One project was designed to
form a committee of workers, employers, and government officials for
ongoing "social dialogue" on national labor issues; develop a proposal
for labor law reforms; support collective bargaining; and strengthen
the labor inspectorate. The other project supported development of a
national program to eliminate child labor. In 2008, ILAB committed an
additional $4 million to a 4-year child labor/education project. After
labor rights and enforcement problems in the QIZs became publicly known
in 2006, USAID, which has a large assistance program in Jordan,
committed $4.186 million to address these problems. This has included
$442,000 for an assessment of labor problems in the QIZs in 2006,
$1.044 million for advisory services for the Ministry of Labor and its
labor inspectorate since 2007, and $2.7 million in 2008 to support the
launch of a 5-year "Better Work Jordan" program, designed by the ILO
and the International Finance Corporation and co-funded by Jordan's
Ministry of Labor, to improve labor standards and overall
competitiveness in the export garment industry. According to documents
we reviewed, the U.S. embassy and USAID did not commit the bulk of this
assistance until they were asked to do so by USTR in mid-2007, more
than a year after the problems were publicly reported and at least 3
years after the U.S. government itself was apparently aware of them.
State explained that the ILO first proposed the Better Work Jordan
program to donors in November 2006 and then made two project scoping
visits, but was reluctant to move forward until certain labor law
reforms had been made by Jordan. The ILO formally requested USAID
funding for the program in March/April 2007, and the grant for the
program was signed in February 2008.
Chile:
One largely unsuccessful U.S. assistance project with Chile was started
near the time of the FTA's entry into force. The FTA labor rights
report for Chile described a functioning labor enforcement system that,
nevertheless, had overburdened labor courts and some enforcement
weaknesses. Chile had graduated from USAID assistance by this time and
did not have a significant child labor problem, which limited the
available sources of U.S. funding for capacity building. In response to
the interests of Chilean labor officials, ILAB provided $1.4 million
for a project to improve labor law compliance. The project was
initiated in 2003 and focused on training labor inspectors and
improving the efficiency of labor courts. However, according to the
midterm project evaluation, the project was overly ambitious, given its
resources, and faced a number of obstacles. A final evaluation was not
available, but ILAB officials told us project funding and activities
were subsequently reduced in 2005 due to budget cuts in their
international technical assistance.
According to State and ILAB officials, lack of funding has consistently
stymied efforts to provide Chile FTA-related technical assistance and
cooperation. Chilean labor officials told us they were eager to have
technical exchanges with the United States on labor issues--similar to
exchanges Chile has had with other FTA partners, such as Canada and the
EU--but have had few opportunities to do so. In addition, little
technical cooperation or assistance has been directed toward some of
the nonmandatory elements listed in the labor cooperation annex that
are unique to this FTA, such as promoting the collection of comparable
labor data and addressing labor issues related to small and medium
enterprises. The annex also provides for periodic labor cooperation
reviews at the request of either party, but neither party has requested
such reviews.
ILAB officials described a few recent cooperative efforts with Chile,
including an information request from Chile concerning innovative job
training programs and meetings between U.S. and Chilean labor officials
at multilateral labor meetings. A joint U.S.-Chilean proposal to send
Chilean labor inspectors to the United States to learn about labor
hotlines was recently selected for funding from the Organization of
American States. The embassy is also organizing a series of digital
video conferences; the first one took place in May 2009.
Singapore:
No U.S. activity or assistance on labor has been provided since the FTA
went into effect, according to ILAB officials. Singapore has high labor
standards and relatively few labor problems, as indicated in the FTA
labor rights report. U.S. officials told us that because Singapore's
labor laws and enforcement systems were good, they did not see a need
for extensive cooperation and, furthermore, Singapore had not requested
it. No U.S. financial assistance for labor activities has been
provided. Despite the provisions in the labor cooperation annex and the
expectations of negotiators in both countries, neither U.S. nor
Singapore government officials were aware of any technical cooperation
activities concerning labor since the FTA was implemented. However,
Singaporean officials told us they were cooperating on labor issues
with other trade partners, such as the Trans-Pacific Strategic Economic
Partnership that also includes Chile, New Zealand, and Brunei
Darussalam.
Morocco:
About $11 million in U.S. assistance has been provided to help Morocco
bolster enforcement and stem child labor abuses. The FTA labor rights
report noted that Morocco had numerous labor enforcement weaknesses,
including a lack of resources and training for labor inspectors and
pervasive child labor violations. Although the labor cooperation annex
for the Morocco FTA is largely similar to the others we examined, one
of its unique elements is a focus on promoting compliance with the ILO
convention concerning the worst forms of child labor. In response to
these concerns, the United States has provided a relatively large
amount of labor assistance to Morocco, with most of the funding focused
on child labor prevention and elimination. ILAB provided $8.351 million
for three child labor projects and $3.072 million for one project to
strengthen labor relations and capacity to implement and enforce its
new labor laws,[Footnote 40] in response to a request from the Ministry
of Labor. Three of the projects started in 2003, during the FTA
negotiations, while the fourth, a child labor project, started in 2007.
Minimal U.S. Oversight and Dialogue on Labor Issues May Have Resulted
in Missed Problems and Opportunities:
A reliable, well-functioning monitoring and enforcement effort helps
sustain congressional and public confidence in the President's trade
strategy and fosters support for continued trade liberalization. The
key steps we have identified in monitoring and enforcing trade
agreements include identifying problems, setting priorities, gathering
and analyzing information, developing responses, and taking enforcement
action. However, according to officials at ILAB, State, and USTR, U.S.
agencies are not required to proactively monitor and report on FTA
partners' labor commitments after the agreements enter into force. FTAs
rely on passive monitoring structures, through which outside parties
can raise concerns that the U.S. government can or must react to. U.S.
agencies may have missed labor problems and overlooked opportunities in
these partners because they did not use the structures established by
the FTAs as a vehicle for ongoing engagement on labor matters. Agencies
cited a lack of funding and the staff levels necessary for increased
labor cooperation. The FTAs provide a framework for bilateral oversight
and dialogue on FTA commitments, including labor. However, bilateral
mechanisms for dialogue on labor issues between the FTA trade partners
have largely been inactive, and labor-related discussions have been
minimal. In addition, U.S. agencies have not actively monitored FTA
partners' compliance with labor commitments, and U.S. interaction with
partners on labor issues after the FTAs entered force has been very
limited in most cases--except in Jordan, where external parties pushed
labor problems into the spotlight. U.S. and Jordanian officials did not
seriously address Jordan's migrant labor rights violations until those
problems were taken up in the international news media, and U.S.
officials have missed other opportunities to work constructively with
FTA partner countries on labor issues of common interest.
For some of these FTAs, labor issues have rarely or never been
discussed in the FTA's Joint Committee, which is the main forum for
bilateral dialogue on FTA implementation for each FTA, or in one of its
subcommittees.[Footnote 41] However, the provisions of the FTAs
reviewed do not prescribe the agenda or discussion points for meetings
of the Joint Committee. The Joint Committee, which is required to meet
annually,[Footnote 42] is chaired by cabinet-level trade officials from
both countries. Its duties include supervising implementation of the
agreement and reviewing the trade relationship between the parties;
therefore, it may address a broad range of issues. USTR has the U.S.
lead in organizing such meetings. Under three of the FTAs we reviewed,
the committee is required or allowed to establish a labor affairs
subcommittee or similar entity.[Footnote 43] Under the Chile FTA, the
Labor Affairs Council was required to meet within the first year after
the FTA's entry into force and thereafter as it considered necessary.
The council met once in December 2004 and has not met again. Under the
Singapore and Morocco FTAs, the Joint Committees have not exercised
their prerogative to convene labor affairs subcommittees, and our
review of available Joint Committee meeting agendas and summaries
indicated that labor issues have not been discussed in Joint Committee
meetings for these FTAs.[Footnote 44] The Jordan FTA did not call for a
labor affairs subcommittee, but the two partners established a labor
affairs working group in 2006. Labor issues were discussed by the Joint
Committee in 2004, 2006, and 2008, according to a USTR official, and
our file review showed gaps in U.S. engagement before 2006, despite
Jordan's labor abuses.
ILAB has not used its role as the lead agency and designated point of
contact on labor issues and cooperation for the Singapore, Morocco, and
Chile FTAs to proactively monitor partners' progress or problems or to
promote cooperative efforts. Labor and State have not updated ongoing
reports to ensure substantive coverage of partners' conformity with FTA
labor commitments, and the number and expertise of in-country U.S.
labor officers has fallen. (However, as stated previously, according to
officials at ILAB, State, and USTR, U.S. agencies are not required to
proactively monitor and report on FTA partners' labor commitments after
the agreements enter into force.)
Labor made progress in developing its mechanism for reviewing FTA-
related labor concerns, but this mechanism is not available for Jordan
because USTR handles labor concerns under that FTA. A process for
public submissions concerning FTA labor provisions is built into the
functioning of the FTAs that were enacted under TPA, and this provides
a venue for nongovernmental organizations and others to raise
complaints about labor violations in FTA countries. In December 2006,
ILAB revised and clarified its procedures for receiving and reviewing
public submissions, including those related to an FTA partner's labor
commitments. It also established that Labor could self-initiate a
review of any matter related to the labor provisions. The new
procedures identified the type of information a submission should
include, the timeline for ILAB review, and the criteria ILAB uses in
deciding how to handle the submission; however, ILAB retains discretion
about whether to accept a submission for further review. Ultimately,
Labor has the authority to recommend whether the U.S. government should
seek formal consultations with the FTA partner government, request a
bilateral labor committee be convened to review the matter, or pursue
other dispute resolution measures.
To date, ILAB officials have received only one public submission for
any of the FTAs negotiated under TPA--a 2008 complaint about labor
problems under CAFTA-DR.[Footnote 45] A 2006 complaint about Jordan was
filed with USTR because Labor is not the lead for that agreement. While
it was not formally considered for investigation, USTR pledged to
continue to engage senior Jordanian officials, the private sector, the
ILO, labor unions, and other interested groups in order to help improve
working conditions in Jordan and stated, "We will keep open all options
available under the FTA should the issues not be adequately addressed."
According to USTR, the United States has not pursued formal
consultations or dispute resolution on a labor matter--or any other
matter--under the FTAs we reviewed.
Assessing partner progress enables agencies to take key steps in
monitoring, such as identifying problems, setting priorities, and
gathering and analyzing information. Regarding the FTAs we examined,
the provisions of TPA and/or the FTAs do not require that U.S. agencies
actively use existing reports on labor issues to assess partners'
compliance with FTA labor commitments or update the content or approach
of the reports to enable them to be used to assess progress over time,
and U.S. agencies have not done so. Although proactive monitoring of
FTA labor commitments does not routinely occur, State and Labor do
regularly monitor and report on certain labor issues overseas, as part
of other duties. However, agency officials told us no effort has been
made to modify the pertinent reports to include information or
assessments concerning FTA compliance or progress on FTA commitments.
State and Labor compile country-specific information that is published
in three annual reports--State's country reports on human rights,
State's report on trafficking in persons, and Labor's Findings on the
Worst Forms of Child Labor. State's human rights reports contain a
section on workers' rights, organized with reference to the list of
internationally recognized workers' rights contained in U.S. trade
legislation. State's trafficking in persons report sometimes reports on
FTA-related labor issues, such as concerns that QIZ violations in
Jordan involved human trafficking. Labor's report provides information
on the child labor aspect of workers' rights for all countries that are
beneficiaries of U.S. trade preference programs, including FTA partners
that were formerly preference program beneficiaries. These annual
reports--particularly the human rights reports--include some detailed
information related to the internationally recognized labor rights
referred to in U.S. trade legislation and FTAs, but none of them
contains information or analysis focused on whether a country is
meeting its FTA commitments. For example, they do not indicate whether
a country has weakened or reduced the protections in its labor laws in
order to encourage trade or investment, or whether a country promotes
public awareness of its labor laws--commitments made in the FTA labor
chapters. Moreover, we were told the reports are not necessarily
comparable from year-to-year, making them unreliable for use in gauging
whether partners are making forward progress. Finally, while Labor
periodically updates its comprehensive Foreign Labor Trends report
series, no reports on these FTA partners have been issued since the
FTAs went into effect.
State and, to a lesser extent, Labor have staff assigned to monitor
labor issues overseas. (This staffing is not addressed by TPA or FTA
provisions.) State and Labor officials and advocacy group
representatives told us that the number and expertise of State labor
officers charged with such monitoring has declined since the mid-1990s.
Some officials pointed out that this decline in personnel responsible
for labor reporting occurred despite the fact that the United States
has now entered into FTAs containing labor obligations with more than a
dozen nations. Although State told us that efforts are made to ensure
labor issues are adequately covered when a country has an FTA, most
embassy labor officers are economic or political officers who take on
the added duty of reporting on labor issues. Only 45 are currently
"designated" labor officers who were selected for the post and received
specialized training, according to State officials. They said that in
the mid-1990s the number of designated labor officers was higher--
reaching a peak of 60--when there was an exchange program that allowed
Labor employees to serve in these positions. Labor advocacy group
representatives also told us that the quality of training for labor
officers has generally declined in recent years, and only basic
information about labor rights is presented. Among the four FTA
countries we reviewed, only Morocco has a designated labor officer.
Following are our observations on how U.S. officials have engaged with
these four countries concerning FTA labor issues.
Jordan:
U.S. engagement with Jordan on labor has episodically intensified and
waned. According to a former State official involved in the FTA
negotiations, the labor rights abuses faced by migrant workers in
Jordan's QIZs were not anticipated by U.S. officials during the
negotiations, although the deficiencies in Jordan's labor laws with
respect to foreign workers' rights were known. In our review of USTR
and State files concerning labor issues in Jordan, certain U.S.
officials were aware of potential labor problems in the QIZs as early
as 2001 and, in 2004, interagency discussions reflected serious
concerns. However, these records indicated there were no further
discussions of the problems for almost 2 years, until shortly before
the National Labor Committee's report was issued in mid-2006.
Throughout the rest of 2006, intensive interagency and bilateral
activity occurred as U.S. and Jordanian officials sought to document
and address the problems. According to an ILAB official, an ad hoc
interagency team met regularly during this period to focus on Jordan's
labor issues. USTR and State officials told us high-level exchanges
occurred, and USTR eventually recommended that USAID provide funding to
support the ILO's Better Work project in Jordan. After public reports
about QIZ abuses again surfaced in September 2008, USTR told us more
focused interagency and bilateral discussions about Jordan's labor
progress would be resumed in 2009.
U.S. agency responsibilities under the Jordan FTA are less clear than
under the later FTAs. No agency is designated responsible, leaving USTR
as lead. In subsequent FTAs, Labor is designated as having lead
responsibility for labor matters. ILAB's procedures for public
submissions on labor issues concerning the FTAs negotiated under TPA,
which are public (described above), also do not pertain to the Jordan
FTA.
Chile:
While the labor chapter of the FTA only requires that members of the
Labor Affairs Council[Footnote 46] (representatives of the parties)
meet within the first year after the date of entry into force of the
FTA, Chilean government officials were disappointed at the minimal
level of cooperation and dialogue with the United States on labor
issues after the FTA took effect. The officials said they had expected
more cooperation and dialogue. Labor Ministry officials told us their
government had taken the FTA labor provisions seriously and had funded
a study of labor compliance issues under the FTA in two key export
industries--forestry and salmon fisheries. The ministry had hoped to
use the FTA as leverage to promote better labor standards and practices
in those industries.[Footnote 47] The study found that the growing use
of subcontractors in these multinational industries created labor
rights problems, including high accident rates and antiunion practices.
They said that, when the study was initiated in 2005, firms were
concerned about complying with commitments in the FTA labor chapter;
however, by the time the study ended, their interest had dissipated
because they discerned U.S. agencies were not monitoring or enforcing
the FTA labor provisions. U.S. agencies told GAO that Chile did not
approach embassy or other U.S. officials with the results of the study,
nor did they ask for assistance in these areas. Labor and USTR
officials we spoke with were not aware of this study and had not
discussed these issues with Chilean officials.
Chilean officials also told us they were frustrated at not being able
to schedule high-level meetings with U.S. labor officials. Under the
labor chapter of the FTA, after the first meeting, it is up to the
Labor Affairs Council to determine, by mutual consent, if and when it
will meet. Relatively few high-level meetings have taken place between
U.S. and Chilean labor officials, and ILAB officials acknowledged
problems on both sides in scheduling meetings between Chilean officials
and the U.S. Secretary of Labor. ILAB and USTR officials acknowledged
the low level of cooperation and dialogue relative to the original
expectations.
Singapore:
In Singapore, government officials said they had had no discussions
with U.S. officials about labor issues since the FTA negotiations took
place. Joint Committee[Footnote 48] meeting agendas that we reviewed
did not cover labor topics, and U.S. and Singaporean officials told us
the subcommittee on labor affairs had never been convened, as meetings
are not required.
Morocco:
Although the Moroccan government has had fairly extensive cooperation
and interaction with Labor through several technical assistance
projects, U.S. and Moroccan officials told us the subcommittee on labor
affairs had never been convened. Meetings are not required, and Labor
has not sought to convene one. Moroccan Ministry of Labor officials
with whom we met were not aware that such a body could be formed.
U.S. Efforts to Monitor FTA Labor Compliance Have Been Limited:
How a country implements and enforces its labor laws is as critical to
improving labor conditions as having labor laws that incorporate
international labor standards, according to U.S. officials, labor
experts, advocates with whom we spoke. They said many countries have
passed good labor laws and ratified numerous ILO conventions, but fewer
countries are willing or able to enforce their laws adequately.
Nevertheless, most of these experts believed that including labor
provisions in the FTAs is valuable because it can result in
improvements in a partner country's labor laws. During the period of
FTA negotiations, several of the experts and U.S. officials said, is
when the United States has the greatest leverage to influence reforms
in the partner country--as we observed in Morocco.
As mentioned earlier, key steps in monitoring and enforcing trade
agreements include identifying problems, setting priorities, developing
responses, and taking enforcement action. With respect to the labor
obligations in these FTAs, the responsible U.S. agencies have made
little or no effort, or a belated effort, to identify labor compliance
concerns after FTA enactment, and engagement with these partners on
labor issues has been a low priority most of the time. In Jordan, the
U.S. agencies responded quickly to problems, once they were revealed
publicly, but the overall U.S. response has been reactive rather than
proactive. Agencies have had some success, through diplomatic efforts
and assistance, in encouraging Jordan to improve its labor conditions
and standards, but at a cost of diminished public confidence in
agencies' decisions, to date, not to take formal enforcement action
with any FTA partners. While admittedly lacking in funding to assist
partners, agencies also have not taken full advantage of the
information and expertise available to set priorities and pursue
partner improvements.
FTA Partners Have Improved Environmental Laws, but the Lack of
Systematic U.S. Monitoring and Other Factors Impede Assessment of Their
Impact:
FTA Partners Have Made Several Changes to Environmental Laws, but
Despite Some Progress, Enforcement Remains a Challenge for Most:
As described in the boxed text, the FTAs include provisions in which
partner countries commit to strive to improve the level of
environmental protection under their laws, and our work revealed that
Jordan, Chile, Singapore, and Morocco have taken steps consistent with
their commitments in the respective FTAs to strive to improve the level
of environmental protection under their laws. While we did not conduct
a comprehensive review of all the changes made in environmental laws in
the four countries, we were told that, in all of them, laws to provide
additional protections to the environment have been passed since the
FTAs were negotiated. While government officials in all four countries
said the changes made to their laws were not in direct response to the
commitments made under the FTAs, but rather in response to internally
recognized environmental issues, they said the fact that international
commitments were made to provide improved environmental protection was
taken into consideration in passing the laws.
Table: TPA and FTA Provisions Related to the Environment:
TPA Goals:
TPA's overall negotiating objectives on environment include: to assure
that trade and environmental policies are mutually supportive and to
protect and preserve the environment and enhance the international
means of doing so, while optimizing the use of the world's resources.
Principal trade objectives include strengthening the capacity of U.S.
trading partners to protect the environment through the promotion of
sustainable development. The President is directed to seek to establish
consultative mechanisms among parties to trade agreements to strengthen
the capacity of U.S. trading partners to develop and implement
standards for the protection of the environment and human health based
on sound science.
FTA Commitments:
In each of these agreements, the parties commit to:
* not fail to effectively enforce their environmental laws, through a
sustained or recurring course of action or inaction, in a manner
affecting trade between the parties;
* ensure (or strive to ensure, in the case of Jordan) that their laws
provide for high levels of environmental protection, and strive to
continue to improve these laws while recognizing the right of each
party to establish its own levels of domestic environmental protection
and to adopt or modify accordingly its environmental laws;
* strive to ensure that they do not waive or otherwise derogate from,
or offer to waive or otherwise derogate from, domestic environmental
laws in a manner that weakens or reduces the protections afforded in
those laws as an encouragement for trade or investment with the other
party (except for the Jordan FTA, in which parties strive to ensure
that they will not waive or otherwise derogate from, or offer to waive
or derogate from environmental laws to encourage trade with the other
party).
The post-TPA Chile, Singapore, and Morocco FTAs contain provisions on
environmental cooperation, opportunities for public participation, and
environmental consultations, among others, that are absent from the
Jordan FTA.
FTA-Related Environmental Cooperation Commitments:
After all four of these FTAs were concluded, the partners reached
separate agreements on environmental cooperation.
[End of table]
Some of the partners have demonstrated significant progress in
improving the environment since the FTAs were signed. For example,
Singapore reports that, since 2002, air quality has surpassed the
"good" range under the pollutant standards indexed, recycling rates
improved from 45 percent in 2002 to 49 percent in 2005, and penalties
for illegal trafficking of endangered species increased from $5,000
and/or a 1-year jail term to $50,000 and/or a 2-year term.
Nevertheless, three of the four FTA partners reported ongoing
challenges to enforcing environmental laws. In each of these four
agreements, each party commits to not "fail to effectively enforce its
environmental laws through a sustained or recurring course of action or
inaction, in a manner affecting trade between the Parties." As will be
discussed later in this section, it is difficult to assess the level of
partner's compliance with this commitment because of lack of U.S.
monitoring and the absence of a reliable baseline. However, officials
at the Ministry of the Environment in Jordan, Chile's National
Commission for Environmental Cooperation (CONAMA), and the Ministry of
Energy, Mines, Water, and Environment in Morocco said the
implementation of environmental laws in their respective countries
continues to be a challenge. Some of the challenges described were
common across these partners, such as weaknesses in their government
institutions in implementing environmental laws and regulations.
Singaporean officials at the Ministry of the Environment, on the other
hand, said Singapore has historically had a strong environmental legal
system and enforcement of these laws has been strict, even before the
FTA was signed; environmental nongovernmental organizations that we
spoke with agreed that this was the case.
Examples of laws passed and enforcement challenges are discussed in the
following sections:
Jordan:
According to an EPA report, in Jordan, the Environmental Protection Law
of 2003 created the Ministry of the Environment, which is responsible
for environmental protection and is the central body for all
environmental protection matters in Jordan. In addition, Jordan
established the Royal Rangers (formerly known as the Environmental
Rangers) to enforce environmental laws and regulations in the areas of
pollution and natural resources.
However, Jordan still faces enforcement challenges, according to the
partner officials we interviewed. Officials at the Ministry of
Environment said the ministry has only been established for about 5
years and is still working to build its capacity to enforce
environmental laws. Among the challenges Jordan faces in implementing
environmental laws is that it has only 25 inspectors in the country,
who are responsible for agricultural, construction, and industrial
sectors throughout the 34,400 square miles of national territory.
Another challenge that the ministry is working to correct is the
limited experience and training of judges in adjudicating environmental
cases. Ministry officials said that judges often adjudicate
environmental cases under laws that are less strict in guarding the
environment, such as agricultural laws. In response, the government of
Jordan has trained some judges in cooperation with U.S. agencies.
Chile:
U.S. and Chilean officials told us that Chile also made some
improvements in its environmental laws. According to CONAMA officials,
in March 2007, a law was passed to create the position of the Minister
of the Environment, which initiates the process of elevating CONAMA to
a ministry status with new enforcement authorities. Additionally, it
has made progress encouraging public participation in environmental
decision-making.
The pre-FTA USTR environmental review reported that environmental
concerns in Chile relate to major natural resource and extractive
industries that are central to Chile's economy, including mining,
fishing, forestry, and agriculture and environmental law enforcement.
The environment chapter of the FTA does not prescribe the work plan for
the Joint Commission on Cooperation[Footnote 49] and the Commission's
biannual work plans do not include any of these natural resource
sectors as areas of priority for cooperation. The areas of cooperation
do include, however, strengthening effective implementation and
enforcement of environmental practices and technologies, promoting
sustainable development and management of environmental resources,
including wild fauna and flora and protected wild areas, and
facilitating civil society participation in the environmental decision-
making process. Of the eight projects outlined in the Environmental
Cooperation Annex of the environment chapter of the FTA, two relate to
issues in Chile's major export industries, reducing mining pollution
and improving agricultural practices. On mining, the United States
committed to assist Chile in reducing contamination and pollution
resulting from past mining practices by working together to identify
sources of pollution and explore cost-effective remediation methods. In
agriculture, the parties agreed to adapt and implement a training
program for Chilean farmers and other workers to promote appropriate
handling of chemical pesticides and fertilizers, and promote
sustainable agricultural practices to help reduce pollution from
agricultural practices. Under the Environmental Cooperation Annex, the
parties recognized that the funding, scope, and duration of the eight
projects would be undertaken in accordance with the parties' personnel
and financial resources. However, after initial implementation
workshops and information sessions, little has been done in these
areas.
One of the major problems in implementing environmental laws reported
to us in Chile is that CONAMA does not have enforcement authority.
According to a CONAMA official, the committee must coordinate with 13
ministries to address environmental issues. CONAMA officials expected
that the creation of a Ministry of Environment will resolve many of
these challenges.
Singapore:
Singapore continues to strengthen its environmental laws. According to
officials at the Ministry of Environment and a nongovernmental
organization (NGO) following changes to environmental law, in January
2006, the Singapore Endangered Species (Import and Export) Act was
amended. This is Singapore's national legislation that gives effect to
the Convention on International Trade in Endangered Species of Wild
Fauna and Flora (CITES) to control import and export of endangered
species in Singapore. The reform implemented more severe penalties for
violations and was deemed a positive step by environmental
spokespersons of two environmental NGOs we met with there. Moreover,
the NGO spokespersons said U.S. encouragement appears to have played
some role in its passage.
The USTR review reported that most environmental issues of concern
relate to Singapore's role as a significant transit center for
environmentally sensitive trade: wildlife and wildlife products,
including endangered species; ozone depleting substances; timber and
wood products; and live fish for consumption and aquarium. Based on the
areas of possible cooperation listed in the U.S.-Singapore memorandum
of intent on environmental cooperation, the biannual plan of action set
three main goals: (1) further improving capacity to implement and
enforce environmental law, including further enhancing efforts of
countries in the region to combat illegal trade in environmentally
sensitive goods (e.g., wildlife, ozone-depleting substances, and forest
products) through bilateral and regional cooperative activities; (2)
encouraging the bilateral and regional use of innovative and climate
friendly environmental technology and pollution management techniques;
(3) participating in regional initiatives on environmentally
sustainable cities and sustainable management and trade in sustainable
managed resources, such as fisheries and forests. The plan of action
also states that implementation of project ideas described therein is
subject to the availability of funds. According to U.S. embassy staff
in Singapore, with the exception of two workshops and other informative
activities, most of the projects on the work plan have not
materialized. Efforts and communication on these and other issues
continue.
Morocco:
Morocco passed environmental laws in anticipation of the FTA, and
additional reforms were passed after the agreement was enacted.
According to documentation provided by the U.S. embassy in Morocco, in
January 2003, the Moroccan parliament approved three important
environmental laws: a general framework law on environmental
protection, a law requiring environmental impact assessments, and an
air pollution law. Also, a bill concerning waste management and
disposal practices was published and implemented in December 2006.
According to an embassy report, there are also a number of additional
laws just passed or under development within the Ministry of
Environment, including laws concerning management of coastal zones.
Even though some of these changes in Morocco were initiated before the
FTA was enacted, they are largely perceived by the United States as a
reflection of the commitment made to improve environmental protection
in the FTA.
Officials from the Ministry of Environment said inconsistency on how
environmental laws are enforced creates several challenges. They
explained that enforcement of laws is left to the local and regional
governments and that, at the national level, jurisdiction for
environmental laws lies across several agencies or law enforcement
entities. The officials said that there is no consistency on how local
governments or law enforcement agencies implement the laws.
FTA Environmental Provisions and Associated U.S. Processes Lack Some
Elements that Would Facilitate U.S. Agency Monitoring, Oversight, and
Measurement of Progress:
Monitoring and oversight of the environmental provisions and
cooperation mechanisms by U.S. agencies is complicated by the lack of
certain elements in these four FTAs. U.S. government officials, FTA
partner government officials, and other experts we interviewed agreed
that the environmental provisions in the four FTAs are general and
broad in nature. The general principles of these agreements include the
commitment that partners must ensure, or strive to ensure, that their
laws provide high levels of environmental protection and strive to
improve those levels. The Chile, Singapore, and Morocco agreements
contain cooperation provisions that reflect the TPA goals of
strengthening partner's capacity to protect the environment and
partners agree to cooperate to do so. NGO representatives and an
academic we interviewed said the inclusion of the environmental
provisions and cooperation mechanisms has had little direct impact in
providing higher levels of environmental protection, strengthening the
capacity of trading partners to protect the environment, or addressing
environmental problems targeted in cooperation mechanisms. Some foreign
government officials agreed, but most FTA partner government officials
told us they understood the nature and principles of the environmental
provisions and cooperation agreements and did not expect that the
United States would resolve their environmental problems.
U.S. government officials responsible for the implementation of the
agreements and cooperation mechanisms indicated that the absence of
several elements in the four selected FTAs or associated U.S. processes
(some of which are included in more recent trade agreements, such as
CAFTA-DR or the Peru Trade Promotion Agreement) affects their approach
to monitoring and overseeing partners' progress under FTA environmental
provisions and cooperation agreements. Moreover, in GAO's experience,
the lack of these elements in these FTAs impedes assessing what impact
environmental steps (whether taken by partners alone or through
cooperation projects) have had in assuring FTA and FTA commitments and
goals are met and identifying areas for improvement.
Some of the elements mentioned include the following:
* An internationally recognized baseline for assessment does not exist.
In each of these agreements, partners commit to ensure, or strive to
ensure, that their laws provide for high levels of environmental
protection and strive to improve those levels.[Footnote 50] However,
unlike with labor provisions in which commitments are made to "strive
to ensure" that the labor principles and internationally recognized
labor rights as enumerated in the respective FTAs are recognized in
domestic legislation, no similar agreed international benchmarks were
set or identified for FTA partners' environmental laws in these four
FTAs.[Footnote 51]
* An environmental assessment that serves as a base and road map to
evaluate the impact of cooperation in trade partner countries does not
exist. TPA requires an environmental review of future trade and
investment agreements consistent with Executive Order 13141. Under
Executive Order 13141, "the focus of environmental reviews will be
impacts in the United States." However, Executive Order 13141 also
states that "as appropriate and prudent, reviews may also examine
global and transboundary impacts." USTR environmental reviews provide
limited information on trade partner environmental conditions and, as a
result, cannot serve as a base from which to measure or monitor
partners' environmental progress. Even though USTR conducted an
environmental review of these four agreements, as required,[Footnote
52] the reviews focused on the environmental impacts that the FTAs
would have on the United States and, as appropriate, focused on global
and transboundary impacts.[Footnote 53] As a result, U.S. agencies did
not conduct an assessment of the adequacy and effectiveness of
partners' environmental laws and enforcement and are not required to do
so under the TPA. Although not required, some relevant information is
gathered by USTR and experts within environmental agencies. USTR and
State officials told us the environmental reviews do include
information on trade-related environmental concerns that is directly
relevant to and has helped guide U.S. cooperation with our FTA
partners. However, the environmental reviews we examined for these FTAs
do not provide in-depth or comprehensive descriptions of the myriad
environmental challenges faced by FTA partners. For example, whereas
the final environmental review for the Chile FTA acknowledges receiving
public comments of concern related to mining, fishing, forestry, and
agriculture, there is little discussion of what these were specifically
and the conditions and extent of environmental issues in these
industries.
* Funding for project implementation and oversight was not allocated by
Congress for these agreements, as in the case of CAFTA-DR. State's OES
officials explained that part of the funding allocated for
environmental projects in CAFTA-DR has been used to contract with the
Organization of American States to monitor and evaluate environmental
projects. State indicated that since a similar source of funding is
absent from these four agreements, such oversight has not occurred.
Officials of USTR and State's OES explained that the FTA provisions and
cooperation mechanisms are directional and "aspirational" commitments.
As a result, several of these U.S. officials told us that they seek to
do no harm and possibly do some good. They explained that the
environmental challenges facing FTA partners are enormous and that they
are often systemic, long-term, and evolving in nature. In all four
countries, a number of the environmental problems identified during the
FTA negotiations remain a concern and, according to NGOs, in some
cases, have intensified since the agreement was enacted. For example,
in Chile, aquaculture was identified as an environmental area of
concern during the negotiations, and in the summer of 2008, NGOs and
the media brought attention to increased contamination from increased
salmon farming for export. In Jordan, one of the main environmental
concerns during the negotiations was shortage of water, as the country
is considered the fourth most dry in the world. NGOs expressed concern
that an industry that has grown the most since the FTA was enacted is
the manufacturing of certain garments, such as blue jeans, which is
very water-intensive and further depletes the much-needed resource.
Nevertheless, U.S. officials pointed to visible signs of improvement in
certain FTA partners and said that they perceive FTA related
environmental cooperation as having a positive impact. They stressed it
is important to consider that some of the partners are coming from
situation with nascent environmental regimes and limited experience in
seeking public input to having more laws, institutions, and outreach
efforts. While there have been limited resources in most cases,
cooperation activities have forged relationships, provided expertise
and underwritten projects that have been helpful. For example, in
Chile, the U.S. EPA provided technical and financial support to design
a proposal to create a Pollutant Release and Transfer Register for
potentially hazardous chemicals.
Agencies Did Not Create Systematic Mechanisms for Monitoring and
Management:
A reliable, well-functioning monitoring and enforcement effort helps
sustain congressional and public confidence in the President's trade
strategy and fosters support for continued trade liberalization. In
addition to the absence of certain elements in the FTAs, we found that
U.S. agencies responsible for the implementation of the environmental
provisions and cooperation mechanisms lacked key steps in monitoring
and enforcing trade agreements (1) identifying problems, (2) setting
priorities, (3) gathering and analyzing information, (4) developing
responses, and (5) taking enforcement action. USTR is the agency
responsible for overseeing the overall implementation of FTAs, and
State's OES is responsible for negotiating the environmental side
agreements under the FTAs and implementing cooperative environmental
projects. We found that USTR does not proactively monitor the
implementation of environmental provisions and that OES lacks a
structure to manage and monitor implementation of environmental
projects. As summarized in the boxed text on FTA commitments above, all
four FTAs contain commitments by parties to strive to ensure or to
ensure that their domestic environmental laws provide for high levels
of environmental protection. Furthermore, the parties committed to not
fail to effectively enforce its laws through a sustained or recurring
course of action or inaction, in a manner affecting trade between the
parties. Moreover, reports by the Trade and Environment Policy Advisory
Committee (TEPAC, the official advisory committee to USTR on trade and
environmental policy) for the Chile, Singapore, and Morocco FTAs
suggest a need for ongoing monitoring. The reports indicate the
majority of TEPAC members believe that, while trade agreements can
create opportunities to enhance environmental protection by increasing
wealth and creating political will in favor of such protection, trade
can create and amplify adverse environmental externalities that require
enhanced regulatory oversight. This was one reason the TEPAC Chairman
emphasized to us the importance of a commitment by U.S. agencies to
monitor partner's implementation of the FTA core commitments.
USTR indicated that they have yearly meetings with FTA partners and
that, unlike labor, implementation of the FTA's environment chapter is
regularly on the agenda of those meetings. In addition, where an FTA
establishes an Environmental Cooperation Committee or Environmental
Affairs Council, the council meets annually to review implementation of
the chapter. These meetings are led by State, but USTR is part of the
meetings and often reports on implementation matters, as do officials
from trade partner governments. Finally, USTR told us that they
sometimes obtain input about environmental concerns in FTA partners
through official environmental advisors or environmental NGOs. However,
we did not see further evidence that proactive monitoring of the
environmental commitments occurs through this process. For example,
only a handful of reporting cables on environment were produced in
response to our document requests. Moreover, in the context of
providing their perspective on progress, USTR officials told us absent
baselines and better information and analytic tools, it does not know
how it realistically could assess if FTA partner countries are
complying with general commitments to maintain strong protections or
are implementing their own laws, as agreed upon in the FTAs. [Footnote
54]
Table: U.S. Agency Responsibilities on FTA Environmental Commitments:
USTR has responsibility for the implementation of the FTAs and is the
designated contact point for FTA environmental provisions. State leads
the negotiation and implementation of FTA environmental cooperation
mechanisms, which usually take the form of environmental cooperation
agreements or memoranda of understanding or joint statements on the
environment. State is also responsible for overseeing ongoing
cooperation with FTA partners, notably developing work plans and
conducting periodic meetings to discuss progress. Under TPA, the
Secretary of State, in consultation with USTR and other relevant
agencies, is responsible for seeking to establish consultative
mechanisms among parties to trade agreements to strengthen the capacity
of U.S. trading partners to develop and implement standards for the
protection of the environment and human health based on sound science.
More generally, by statute, State has primary responsibility for
coordination and oversight of all major U.S. science and technology
agreements with foreign nations, including those on the environment.
Other agencies are encouraged to support State in this function, "where
consistent with the foreign policy of the United States, to lend
appropriate support to initiatives, resolutions, and programs designed
to maximize international cooperation in anticipating and preventing a
decline in the quality of mankind's world environment."
[A] These agreements are: United States-Jordan Joint Statement on
Environmental Technical Cooperation, The Agreement Between the
Government of the United States of America and the Government of the
Republic of Chile on Environmental Cooperation, Memorandum of Intent
between the Republic of Singapore and the United States of America on
Cooperation in Environmental Matters, and United States-Morocco Joint
Statement on Environmental Cooperation.
[End of table]
TPA requires that, when the President submits a trade agreement to
Congress, the President must concurrently submit a plan for
implementing and enforcing the agreement.[Footnote 55] The plan must
include agency staffing requirements that contain a description of
additional personnel required by federal agencies responsible for
monitoring and implementing the trade agreement, including USTR and
other agencies as may be necessary.[Footnote 56] Under the plans
submitted by the Office of Management and Budget (OMB) to implement and
enforce the FTAs with Chile, Singapore, and Morocco, additional
personnel to monitor and implement these trade agreements was not
requested.
While State has worked with partners to identify priorities, develop
detailed work plans, and pursue project funding and implementation by
U.S. agencies, OES does not have mechanisms in place that allow it to
assess the effectiveness or efficiency of these projects, provide
reliable and complete financial reporting, or assure compliance with
applicable commitments, laws, and regulations. OES staff said that
Environmental Cooperation Commission meetings and other activities are
organized on an ad hoc basis, with no formal mechanism. Furthermore,
there is no formal mechanism to monitor or evaluate the projects or to
track funding. For example, while OES was able to provide information
on several environmental projects implemented in Jordan, Chile,
Singapore, and Morocco, the information was compiled at our request,
and a comprehensive list was not provided. OES did not have information
on funding for the projects or a clear understanding of the activities
implemented by partner agencies. For instance, in many cases, OES was
not able to provide documentation on description of activities, the
agency implementing and funding the projects, number of participants in
projects, outcomes, or other steps taken. Often this information lay
with the implementing agency or was not collected at all. Evaluations
or impact assessments are not conducted for many of these projects;
therefore, it is not possible to know with assurance whether they have
improved the capacity of FTA partners to protect the environment.
Nevertheless, in some cooperation mechanisms and subsequent work plans,
such as the recently concluded one with Jordan, parties agreed to
strive to identify performance indicators and benchmarks to measure
appropriately the progress made in accomplishing or otherwise
furthering the goals and objectives of such programs, projects, and
activities and to facilitate public reporting of that progress.
U.S. Agencies Did Not Effectively Translate Environmental Commitments
into Priorities for U.S. Funding:
The FTAs that we reviewed do not require and agencies did not seek new
funding to implement FTA environmental cooperation commitments.
Moreover, little funding has been made available through existing
sources.[Footnote 57] OES negotiated environmental cooperation
agreements in all four of these agreements, which included the
implementation of cooperation projects and, with the exception of
Jordan, contained the parties' agreement that the cooperative
activities would be subject to the availability of funds; however, OES
was not required to and did not make systematic requests for funding
through the appropriations process for their implementation.
Furthermore, as the agency responsible for preparing the President's
plan for implementation and enforcement of the agreements negotiated
under TPA, OMB was not required[Footnote 58] and did not identify
resources needed to implement environmental cooperation projects made
in the Chile, Singapore, and Morocco environmental cooperation
agreements. OMB did not take advantage of the opportunity to inform
Congress of the funding needed to adequately implement environmental
cooperation agreements associated with these FTAs. The U.S.-Chile
environmental cooperation agreement, the U.S.-Singapore Memorandum of
Intent on Environment Cooperation, and the U.S.-Morocco Statement of
Environmental Cooperation state that all cooperative activities agreed
upon in the respective documents are subject to the availability of
funds and to the applicable laws and regulations in their respective
country.
USTR officials said that, while there is no commitment under the
agreements that the United States should provide funding for
environmental projects, that is the underlying expectation of several
FTA partners and of some in the United States. USTR officials said that
this can create complications, since funding is not always available.
For example, in Morocco, government officials said it was their
understanding that funding would be provided by U.S. agencies to
implement activities. In Chile and Jordan, even though specific funding
was not allocated to implement any of the projects or activities under
the environmental cooperation mechanisms, almost all of the funding for
these projects has been provided by U.S. agencies, out of their regular
budgets.
Instead of asking Congress to appropriate funds for the implementation
of environmental cooperation projects, State's OES has attempted to
obtain funding through an interagency coordination process. OES works
with other U.S. government agencies such as the EPA, the USAID, and the
Departments of Interior, Agriculture, Commerce, Justice, and Health and
Human Services, among others. The agencies discuss cooperation projects
and attempt to cover some of the projects with funds under their
regular budgets. In 2004, USTR, in coordination with State undertook a
review of FTA negotiating experience. During this review the agencies
agreed that these cooperation mechanisms should serve two primary
purposes: strengthen existing capacity building efforts on
environmental matters and identify new priorities while marshaling new
resources for these expanded efforts. A high priority was to improve
interagency coordination on funding for these mechanisms, particularly
given high expectations that their implementation would lead to
increased funding for environmental capacity building. USTR requested
that all other relevant agencies, particularly USAID, coordinate
closely with State in the implementation of these cooperation
mechanisms. Despite this joint USTR-State effort to encourage agencies
to coordinate, in the fall of 2008, OES officials described its process
for coordinating with agencies on funding as a labor-intensive,
frustrating one of "shaking the trees." In practice, they said it has
been very difficult to obtain adequate resources to implement all of
the projects outlined under the commitments made under the
environmental cooperation agreements and associated work plans.
Meanwhile, officials at key environmental agencies suggested that State
could do more to involve them in FTA work.
Environmental Projects Essential to Meet FTA Environmental Objectives:
Lack of funding is seen by many experts as the greatest challenge to
implementing cooperation projects and in turn to achieving the general
principles on environment under the FTAs.
In the environmental cooperation agreements, the parties agreed that
the activities outlined therein are subject to the availability of
funds. Overall, in Jordan and Chile, activities for most projects
outlined in the work plans have been implemented, while in Singapore
and Morocco only a few activities have been completed from those agreed
upon. Jordan has received some funding for environmental projects from
USAID, but Chile, Singapore, and Morocco have received very little
assistance. The largest aid recipient, Jordan, was both satisfied with
the assistance U.S. agencies provided and able to point to concrete
results. U.S. and Chilean officials agreed cooperative activities had
been of some benefit, but some believe that the limited amount of
funding narrowed the impact of environmental projects. In part, the
extent of assistance provided by U.S. agencies is influenced by the
level of development in the country. For example, Singapore is a
developed country with little need for assistance. On the other hand,
Morocco is a developing country and has identified the need for
assistance. A brief overview follows:
Jordan:
In Jordan, USAID assistance has contributed to the implementation of
multiple environmental areas listed under the United States-Jordan
Joint Statement on Environmental Cooperation. USAID officials in Jordan
explained that USAID has had a presence in the country for over 50
years and that environmental issues have been a part of its portfolio
since before the FTA was passed. Jordan is one of the largest
recipients of USAID assistance, receiving an annual average of $250
million since 1996. They explained that the areas of cooperation under
the U.S.-Jordan Joint Statement on Environmental Technical Cooperation
are areas that USAID already covered; therefore, they have been able to
work to address most of the issues in these cooperation mechanisms.
Even though USAID does not plan its projects based on the commitments
under the joint statement, they said the agreement provided a platform
for additional cooperation on the environment in Jordan. Overall, USAID
has earmarked or spent over $30 million for environmental projects in
Jordan since 2004. Among other things, USAID said they have helped
Jordan establish a Ministry of Environment, create a 400-person strong
Environmental Police Department, known as the Rangers, enact an
environmental law and by-laws, improve biodiversity conservation, and
take initial steps to improve wastewater treatment and disposal in
light of the significant impact of export-related apparel production on
Jordan's scarce water resources. In addition, EPA reported a $600,000
allocation for 2008-2009 for environmental projects. State indicated
that EPA has hosted a study tour of the United States for Jordanian
environmental officials and is now training the Rangers to conduct
investigations of environmental crimes. Interior is also working with
key partners to strengthen Jordan's ability to meet its CITES
obligations.[Footnote 59]
Chile:
In Chile, multiple environmental projects have been implemented, but
lack of funding has limited their impact, and major environmental
problems have not been addressed. The Chile FTA is the only one that
includes environmental projects in the associated annex to the text of
the environmental chapter and that established an Environmental Affairs
Council (EAC). There are eight projects outlined in the environmental
cooperation annex, and activities have been implemented in each of
these areas. Several relate to issues in Chile's major export
industries, namely those related to reducing mining pollution and
improving agricultural practices. However, according to EPA officials,
the projects' impact has been limited by the lack of funding to
continue the cooperation. They explained that the eight projects were
expected to work as a "launching pad" for additional projects and
cooperation. These projects consisted mostly of high level information
exchange and workshops and guidance for pilot projects, and little was
done after these initial steps were taken. The EAC's Joint Commission
for Environmental Cooperation has developed two biannual work plans for
2005-2006 and 2007-2008. These contain five areas of priorities, and
OES provided summaries of activities implemented in each of these areas
for the 2005-2006 work plan. OES estimates that $1.165 million has been
provided to fund these projects.
Singapore:
In Singapore, environmental assistance under the FTA has been limited
because Singapore has a strong environmental record according to
government officials, and little need for assistance. However, the
United States and Singapore signed a memorandum of intent to cooperate
on environmental matters, under which two biannual work plans were
developed for 2005-2007 and 2008-2010. U.S. officials did not assess
the cost of these activities, as they were done as part of normal
bilateral cooperation. According to State's officials, the two
countries have conducted three workshops and a study tour since the FTA
was signed. Included have been a binational workshop in Singapore to
train regional port inspectors and customs authorities to identify
ramin wood, a training workshop on wildlife trade regulation, a
workshop on terrain decontamination sponsored by EPA, and consultations
by the Singapore Agri-Food and Veterinary Authority, with the U.S. Fish
and Wildlife Service and various other U.S. agencies to exchange
information on law enforcement methods and CITES implementation
practices and systems.
Morocco:
Environmental cooperation under the Morocco FTA did not meet the
expectations of the government of Morocco because few projects have
been funded. While there was no commitment to fund environmental
projects by the United States, Moroccan government officials said that
their expectation was that projects would be financed by U.S.
government agencies. Moroccan government officials from the Ministry of
Foreign Affairs said that the level of cooperation on environmental
projects under the U.S.-Morocco Joint Statement of Environmental
Cooperation has not been satisfactory. Moroccan government officials
said that, out of the 24 projects in the work plan, only 8 have been
implemented. They said that the projects consisted mostly of workshops
and training sessions that were informative but have had limited impact
in achieving the objectives in the work plan.
Officials at State, however, assessed collaboration with Morocco on
environmental issues differently. They pointed out that in addition to
EPA's involvement in the delivery of 8 trainings, various other U.S.
agencies including USAID, The Department of the Interior, the U.S.
Trade and Development Agency, and The National Oceanic and Atmospheric
Administration's (NAOAA) National Ocean Service had all engaged with
Morocco in efforts to help it preserve and protect the environment
since the 2006 entry-into-force of the FTA.
Nevertheless, officials at State said that environmental assistance to
Morocco amounted to only $350,000 funded from the Middle East
Partnership Initiative program, which is administered by EPA, and about
$50,000 from Interior. While USAID has a presence in Morocco, unlike
Jordan, they have not chosen to fund environmental projects developed
under the FTA. USAID officials explained that in Morocco there is a
great need to help small-and medium-sized businesses become better
prepared to export; therefore, much of agency funding related to the
FTA has been used for that purpose.
Conclusions:
Success in achieving U.S. goals among the four FTAs we examined has
been mixed. For the most part, commercial results have been very
positive, as expansion of trade in goods and services since the
agreements took effect rose sharply since the period immediately prior
to the agreements. Total two-way trade, U.S. exports, and partner
country exports for the four selected FTAs all rose, ranging from 42
percent for the FTA with Singapore to 259 percent for the FTA with
Jordan. We also observed higher annual average rates of growth for top
product categories in the period directly following each FTA for both
U.S. exports and partner country imports than in a similar period prior
to the agreements. In addition, and consistent with TPA objectives, a
large percentage of goods became duty-free immediately after FTA
implementation. This was a significant gain for the United States, as
prior to FTA implementation, partner countries had enjoyed practically
duty-free access to the United States, while U.S. exports faced high
tariffs that in some cases were as high as 70 and 90 percent. Overall,
increases in U.S. exports ranged from 72 percent (for Singapore) to 365
percent (for Chile) since implementation. In two partner countries,
Singapore and Chile, trade in services increased as did the stocks of
FDI and the sales of foreign affiliates of U.S.-based companies.
Representatives of a broad range of U.S. industries generally expressed
satisfaction with FTA results.
Some important progress on strengthening partners' laws and
institutions on labor the environment has also been attained as a
result of these FTAs. Our review showed that each of the four partners
had taken steps consistent with their commitments in FTAs to "strive to
improve their laws" and enforcement thereof. Moreover, some helpful
progress appears to be been achieved as a result or with the assistance
of FTA-related cooperative projects. Nevertheless, the President
delegated to USTR and USTR redelegated to OMB the responsibility to
submit a plan to implement and enforce the agreements. Given the broad
nature of the labor and environmental obligations, significant and
sometimes worsening systemic deficiencies in certain partner nations,
and limited U.S. resources, a plan that clearly indicated the executive
branch's analytic approach and likely priorities would have been
especially useful. In practice, the oversight USTR and other agencies
put in place--whether in response to statutory requirements or at
agencies' discretion--has been ad hoc and lacks key elements critical
to long-term success. For example, U.S. agencies have yet to update and
bolster their original 2 page plans for implementing and monitoring
these agreements, despite acknowledging that present approaches,
baseline information, staff levels and expertise, and financial
resources do not enable them to assure meaningful or lasting results.
Agencies did not seek requisite funding until 2009, and in several
cases funding was eliminated. Regarding the labor agreements, the
United States and partner countries lost opportunities to pursue issues
of interest as mechanisms created in the FTAs for cooperation were not
utilized by Labor. Finally, the agreements established a number of
environmental cooperation mechanisms and projects, yet key elements
such as State's ability to marshal funding and leverage other agencies'
expertise, gather information on the actual activities by implementing
agencies, or provide oversight of these projects' effectiveness, cost,
and compliance were lacking. Little information was available to
Congress and other stakeholders regarding these cooperative activities
and the extent to which they improve partner capacity or otherwise
advance FTA objectives. As a result, a more robust U.S. approach is
needed to assure Congress that FTA partners' can provide and enforce
strong protections.
Recommendations for Executive Action:
To reflect the evolving U.S. experience with FTAs and better ensure
progress in achieving stated U.S. objectives related to labor and the
environment, we recommend that USTR, in cooperation with other
agencies, as appropriate, prepare updated plans to implement, enforce,
monitor, and report on compliance with and progress under the FTAs'
labor and environmental provisions. To facilitate oversight and input,
these plans should reflect ongoing trade developments, be provided to
Congress, and summarized in USTR's annual trade agreements report.
We recommend that the Secretary of Labor direct ILAB, in consultation
with other agencies as appropriate, take the following action:
* Reinvigorate its implementation and cooperation responsibilities
under the FTAs by initiating regular contact with all FTA partners'
ministries of labor to review implementation of FTA labor provisions
and to develop ongoing priorities and plans for technical cooperation
on labor matters, as guided by the labor cooperation annexes and the
partners' common interests and needs. The Department of Labor should
consider, identify, and if necessary request appropriate resources such
as new funding to undertake such contact and cooperation, including by
coordinating with other agencies that can facilitate or assist these
efforts.
We recommend that the Secretary of State take the following two
actions:
* Direct OES to work with other agencies to develop a more structured
approach to manage and monitor the implementation of environmental
cooperation mechanisms and projects. This should enable State to more
readily track progress and include information such as number and
nature of activities, source and amount of funding, and, to the extent
practical, performance indicators and benchmarks to measure
appropriately the progress made in accomplishing or otherwise
furthering the goals and objectives of such programs, projects, and
activities and public reporting of that progress.
* Direct OES to use this information to publicly report to Congress on
cooperative activities and projects with FTA partners and their
outcomes, as well as their role in furthering U.S. trade policy goals
and FTA and FTA-related cooperation objectives.
Agency Comments and Our Evaluation:
The three agencies to which GAO directed recommendations said they
planned to pursue them. Labor concurred with our report and its
recommendation, indicating that the lack of priority given to assuring
that workers share in the benefits of trade was a source of concern it
intended to redress. State and USTR indicated that they would improve
monitoring and enforcement of the labor and environmental aspects of
FTAs, but sought greater precision in GAO's recommendation that
agencies revisit and strengthen implementation plans for FTA-related
labor and environmental cooperation. Nevertheless, State and USTR took
issue with the basis and balance of some of our findings. GAO has made
some adjustments in response, but continues to believe more robust
plans are needed to assure progress in meeting the important challenges
to labor and environmental protection that remain.
State said GAO had not given partner governments and U.S. agencies
sufficient credit for the progress made through the FTAs in improving
structural and institutional capacity to protect the environment and
labor rights. State highlighted several examples of partner progress as
particularly meaningful achievements. Nevertheless, State acknowledged
that it has been severely hampered in undertaking FTA-related labor and
environmental cooperation work with partner governments by a lack of
human and financial resources. GAO recognizes that some important
progress in strengthening partner capacity to protect workers and the
environment has been achieved through FTAs. We recognize FTAs have
resulted in or supported some important progress in these areas,
notably in Jordan, the country whose FTA has been in effect longest and
with the most sizeable U.S. foreign assistance. We reviewed and revised
the report to ensure this progress is captured.
However, GAO believes more progress was likely possible and remains
desirable, given rapid growth in two-way trade and partners'
acknowledged difficulties in enforcement. As GAO already notes in this
report, the few human and financial resources available for FTA
cooperation limited progress toward meeting agreed cooperation plans.
Yet GAO also shows U.S. agencies did not utilize the opportunity that
existed in TPA or in ensuing budgets to make the case that more
resources were necessary to assure progress. Our work also showed
agencies may not be taking full advantage of the resources already
expended. Specifically, the report notes that U.S. agencies missed
opportunities to use the general FTA or specific FTA mechanisms they
created on labor to engage with FTA partners and encourage improvement.
GAO also shows agencies did not optimize their current monitoring
efforts, such as by updating ongoing reports on human rights to address
partners' compliance with FTA commitments.
USTR said that in some instances GAO had portrayed an inaccurate and
potentially misleading picture of U.S. agency responsibilities,
partners' actions, and outstanding challenges. In response, GAO made
several technical corrections and ensured the criteria we used were
cited. In the revisions we made, we also sought to make clearer
distinctions between requirements for U.S. agencies under TPA, FTA
chapters, and associated cooperation mechanism agreements, versus more
general expectations for U.S. agencies based on USTR's overall
responsibilities for the operation of the U.S. trade agreements
program, leading and guiding U.S. trade policy, and monitoring and
enforcing trade agreements. We acknowledge that evaluation of the
progress attained was based, in part, on interviews with responsible
foreign and U.S. government officials and selected private sector
interests and experts. USTR also indicated that GAO should have given
more prominence to the FTA commitment that an FTA partner not fail to
enforce its environmental and labor laws through a sustained or
recurring course of action or inaction, in a manner affecting trade
between the parties (USTR's underlining for emphasis retained). GAO
already distinguishes between this binding FTA obligation and other,
more "aspirational" commitments, such as to strive to strengthen
environmental laws. Weaknesses in laws and enforcement we report
involve key and rapidly-growing sectors of trade, such as apparel from
Jordan, and forestry and fishery products from Chile. GAO was struck by
U.S. agencies' inattention or inaction on abuses in QIZs during a time
when Jordan's apparel exports to the U.S. rose from $43 million to
$1.253 billion.
However, we believe that by definition all of the FTA commitments on
labor and the environment are trade-related, because they are contained
in a trade agreement, and thus appropriate for inclusion within the
scope of our review of progress attained as result or since the entry
into force of these FTAs. Moreover, some FTA commitments and FTA
cooperative goals are broad or generally applicable, rather than being
limited to traded sectors. Nevertheless, we did review the report to
remove any inappropriate references to non-traded sectors.
Labor, USTR, State, and EPA also provided several technical comments,
which we incorporated or addressed as appropriate. For example, State
termed our statement that agencies did not commit the bulk of funding
for the Better Work Jordan project until more than a year after
problems in the QIZs were publicly exposed as an "unfortunate
oversimplification," and provided details on the steps that were
undertaken in the intervening year. GAO included this new information.
However, GAO believes the time State shows was required for diagnosing,
designing, and delivering cooperative assistance to such FTA partners
only underlines the importance of U.S. agencies having up-to-date plans
and more reliable oversight, evaluation, and reporting mechanisms.
As agreed with your office, unless you publicly announce the content of
this report earlier, we plan no further distribution until 30 days from
the report date. At that time, we will send copies to the U.S. Trade
Representative; and the Secretaries of Commerce, Labor, and State, as
well as the Administrator of EPA, and other interested parties. The
report also will be available at no extra charge on the GAO Web site at
[hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-4347 or yagerl@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs can be found on
the last page of this report. GAO staff who made major contributions to
this report are listed in appendix X.
Sincerely yours,
Signed by:
Loren Yager:
Director, International Affairs and Trade:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
In this report, we assess the progress that has been made through free
trade agreements (FTA) in (1) advancing U.S. economic and commercial
interests, (2) strengthening labor laws and enforcement in partner
nations, and (3) strengthening partners' capacity to strengthen and
enforce their environmental laws. We focused on pre-FTA versus post-FTA
progress. For the purposes of this report, we chose to concentrate on
four FTA partners so that we could examine the unique set of
circumstances for each country with some specificity. The four partners
on which we chose to focus--Jordan, Singapore, Chile, and Morocco--
represent a cross section of FTA partners' country characteristics,
have FTAs in force the longest, and the represent regional dispersion
of U.S. FTAs across Asia, Latin America, and the Middle East. In
addition, we examined U.S. agency responsibilities and performance
associated with the FTAs.
In gathering information for all the above objectives, we engaged in
three types of activities: (1) obtaining information and analysis from
legal and secondary literature sources, (2) obtaining information and
perspectives of U.S. government and private sector officials and
experts, (3) obtaining information through partner country visits. In
addition, for the analysis of the commercial and economic results of
the FTAs, we gathered and analyzed data on international and bilateral
trade and investment. We conducted this performance audit work from
April 2008 to June 2009 in accordance with generally accepted
government auditing standards.
We obtained, reviewed, and analyzed documents from a variety of sources
including the four FTAs and their associated annexes, Trade Promotion
Authority (TPA) and other relevant laws, regulations, orders, Federal
Register notices, and congressional guidance setting forth requirements
or expectations for U.S. agencies related to the FTAs, the operation of
the U.S. trade agreements program, and international environmental
cooperation. We also reviewed reports submitted to Congress in response
to TPA requirements, including those submitted in conjunction with FTA
implementing legislation, such as Presidential statements on how the
FTAs advance U.S. commercial interests, and applicable TPA goals and
Statements of Administrative Action. We also reviewed pertinent
academic literature and authoritative reports from government and
private sector sources. The information on foreign law in this report
does not reflect our independent legal analysis, but it is based on
interviews and secondary sources. This report was not designed to
assess legal compliance by the United States or its partners with FTAs
or other requirements.
We also interviewed U.S. officials responsible for international trade
policy at the Office of the Office of the U.S. Trade Representative
(USTR); the Departments of State, Commerce, and Labor; the
Environmental Protection Agency, as well as officials of the Department
of Homeland Security--Bureau of Customs and Border Protection. We also
obtained comment and perspective from a range of subject matter experts
and economists.
To assess the extent of progress in each area, we analyzed available
data and documents on post-FTA developments and testimonial
characterizations of progress in the post-FTA period compared to what
was known or reported about the pre-FTA period. We also compared the
progress to official expectations, including officially agreed
expectations as set forth in the FTAs and FTA cooperative agreements
and associated action or work plans, official reports about FTA
effects, U.S. TPA objectives, and the expectations of cognizant
officials in the United States and partner governments. Where
perspectives on progress differ, the various views and their basis are
reported. Finally, where material gaps in agency documentation and
internal controls became evident in the course of GAO's efforts to
establish and evaluate FTA-related progress, consistent with generally
accepted government auditing standards, we report on these
deficiencies. Key limitations of our work are that the findings are
largely limited to the partners, private sector representatives, time
period, and information reviewed. While we considered data on trends
after FTA implementation and opinions on FTA-induced effects, we did
not seek to quantitatively isolate FTA-induced effects. Although we
gathered information through December 2008, the data and foreign
interviews do not generally capture the full impact of the
deterioration in trade that ensued as a result of the global financial
crisis and economic downturn occurring during 2008-2009.
During the 1-week trips to each of the four trade partner countries we
focused on, we included meetings with in-country U.S. officials,
foreign government officials responsible for specific areas of the FTA
and its implementation, umbrella groups of business groups, such as
chambers of commerce and industry, officials of international
organizations such as the ILO, as well as trade union and environmental
groups, academics, and other subject matter experts.
Given the complex interactions of the trade agreements themselves and
data requirements, we did not empirically isolate the exact effects of
the trade agreements themselves on exports or imports. Instead, we used
a more indirect, but indicative method to examine the commercial/
economic effects of the selected FTAs. As a first approximation, we
used trade data for the United States and the selected FTA countries to
examine the trends in trade, at the country level and at a more
disaggregate, sectoral level, both before and after implementation of
the Agreements. As a complement to the data analyses on the commercial
impacts, we also gathered anecdotal evidence (views) about the four
selected FTAs effects through the fieldwork described above, from U.S.
and partner officials, and from private sector groups.
We solicited views from stakeholders including various members of the
U.S. Trade Advisory Committee System[Footnote 60] and obtained
responses from about 30 associations and representatives in response.
Notably, we heard from the Chairman of the Advisory Committee on Trade
Policy and Negotiations (ACTPN) and several ACTPN members, the chairman
and several members of the Intergovernmental Policy Advisory Committee
(IGPAC), the chairman and several liaisons of the Trade and Environment
Policy Advisory Committee (TEPAC), several liaisons to the Labor
Advisory Committee, and a variety of members of the agriculture and
industry committees, many on behalf of trade associations.
Specifically, executive branch agencies arranged for GAO to send a
letter to all members of the system seeking concrete evidence from the
U.S. private sector about their experiences to date with the FTAs that
have entered into force since 2001. Topics explored included:
* FTAs in force of most significance to your sector:
* Trade and investment changes and causes; role of FTAs vs. other
factors:
* Nature of FTA Effects on Industry or Product Sector:
* Examples of FTA Effects on Industry or Product Sector:
* Satisfaction with FTA Economic/Commercial Results to Date:
* Areas for Improvement:
Upon receiving responses from a cross-section of members, GAO initiated
contact and conducted interviews with certain industry groups or firms
(e.g., the American Chemistry Council, and AdvaMed and the National
Council of Textile Organizations) in situations where trade had
expanded and we had not received a response or where we had been told
of specific benefits (e.g., Lucas Films) or concerns (e.g., regarding
public health and access to medicines). We acknowledge that this input
may not be comprehensive or reflective of the U.S. economy as a whole.
GAO did not independently verify the views and information provided.
To examine the commercial and economic results of the four selected
FTAs, our analysis focused on data for three broad trade-related
elements: merchandise trade, trade in services, and foreign direct
investment. Within these elements, we also focused on determining
results and trends in bilateral trade for key industry sectors. We
analyzed data for the time period before the FTA was implemented and
compared results with the period after FTA implementation.
For merchandise trade, we used data from the U.S. International Trade
Commission's (ITC) Interactive Tariff and Trade Database from 1994 to
2008 in order to calculate two-way trade, bilateral trade, and overall
and product category level growth rates between the United States and
our trade partners.[Footnote 61] Using this data, we first calculated
the total growth in exports and imports from the year just prior to the
implementation of each FTA up to 2008. To calculate average yearly
growth rates overall and for product categories, we also calculated the
annual average rate of growth in U.S. exports and imports with each
partner country for several years prior to and after the implementation
of the FTAs to ascertain the differences between the periods. For
Jordan, we selected the pre-and post-FTA periods, from 1996 to 2001,
and from 2002 to 2008, respectively.[Footnote 62] For Chile and
Singapore, we selected the 5-year pre-FTA period from 1999 to 2003 and
the 5-year post-FTA period from 2004 to 2008. For Morocco, we selected
the 2003 to 2005 pre-FTA period and 2006 to 2008 post-FTA period.
Second, for the product category analysis, we obtained end use data at
the 5-digit aggregation from the ITC's Interactive Tariff and Trade
Dataweb. We selected the top 25 U.S. exports and imports by value with
each partner country to ascertain that these categories were of
significance in the country's total trade.[Footnote 63] Third, we
adjusted these series for inflation using the Gross Domestic Product's
Implicit Price Deflator from the Bureau of Economic Analysis (BEA).
Fourth, for our product category data analysis, we calculated average
annual growth rates for each partner-country series by fitting a
logarithmic trend line through the inflation-adjusted data for each pre-
and post-FTA period. We did not use the average of annual growth rates
for the category data because the averages can be skewed by occasional
large changes in trade. Fifth, we then subtracted the pre-FTA average
annual growth rate from the post-FTA growth rate and sorted these
differences in descending order for each product category.[Footnote 64]
For our overall growth rate analysis by country, we took the annual
average growth rates for total U.S. domestic imports for consumption
and total U.S. domestic exports with each selected FTA country using
U.S. ITC Interactive Tariff and Trade Dataweb data and compared these
growth rates with U.S. growth rates of trade for similar time periods
with the world (see appendix VI). For our market share analysis by
country, we used data from the Global Trade Atlas and World Trade Atlas
as well as the International Monetary Fund's Direction of Trade
statistics to determine how market share changed for the United States
and top exporters in partner-country markets.
For trade in services and foreign direct investment (FDI), we relied
mostly on data from the BEA, which publishes data on these elements in
the Survey of Current Business and on its Web site.[Footnote 65] We
also reviewed data on services, published by the United Nations
(UN),[Footnote 66] and FDI, published by the United Nations Conference
on Trade and Development, mainly to gain insight into worldwide and
partner country trends. We also obtained and reviewed data from partner
countries.
For trade in services, we analyzed bilateral imports and exports from
the partner countries and reviewed data for service sector categories.
Data on services trade by country were not available for Jordan and
Morocco and, in a few cases, complete data by service industry sector
were not available due to limitations on the disclosure of proprietary
information. For foreign direct investment, we focused on the stock of
foreign direct investment for partner countries, which represents the
book value of holdings. We also examined data by sector where
available, and some of this data were also limited for disclosure
purposes. In examining the pre-and post-FTA results, we generally
compared the most recent available data (usually 2007) with the average
of the 3-year period prior to the implementation of the respective FTA.
In keeping with the methodology employed in prior work,[Footnote 67]
FDI stocks and services data are reported in nominal dollars.
For each of the data sets we used for U.S. and partner-country trade
and investment, we assessed their relative strengths and limitations
through interviews with cognizant parties, reviews of the available
documentation, and performing basic logic checks and found them
sufficiently reliable for the purposes of this report. We did not
assess the reliability of data that we obtained directly from partner
countries, as these data are used only to provide supplementary
background and context for our analysis.
To document and assess labor progress under FTAs, we examined FTA
provisions in the labor chapters and their annexes for the FTAs with
Jordan, Chile, Singapore, and Morocco. These FTAs include both "best
effort" commitments, as well as commitments subject to dispute
settlement procedures that could lead to the imposition of trade
measures. For example, the FTA partners commit to "strive to ensure"
that their domestic laws provide for labor standards consistent with
internationally recognized labor rights set forth in their respective
labor chapters[Footnote 68] are recognized and protected by domestic
law (a "best effort" or aspirational commitment) as well as to "not
fail to effectively enforce its labor laws, through a sustained or
recurring course of action or inaction, in a manner affecting trade
between the parties" (a commitment subject to dispute settlement
procedures). GAO considered all the FTA labor provisions to be trade-
related commitments, even though only some of them specifically mention
trade and others are more general in nature.
We looked for evidence that partners were making efforts to meet these
FTA obligations, such as passing or amending laws or taking steps to
improve enforcement of laws. Principal sources of information included
U.S. government reports submitted in connection with TPA and the FTAs
and U.S. government reports on human rights, child labor, and human
trafficking, which are not specifically designed to assess compliance
with the FTAs but do include analysis on the extent to which partners
provide the five internationally recognized labor rights that are cited
in U.S. FTAs. In addition, GAO obtained information and analysis on
labor law from U.S. embassies, partner governments, and international
organizations such as the International Labor Organization (ILO), the
Organization for Economic Cooperation and Development, and the
International Trade Union Confederation. We relied on these sources for
the description of legal changes and ongoing challenges and did not
independently assess them.
GAO also sought perspectives on the extent of labor progress during
fieldwork to the FTA partners, where we typically met with U.S. embassy
labor officers, partner government labor officials, local labor union
representatives, and international organizations such as the ILO.
Regarding labor cooperation, we asked U.S. and partner government
officials for documentation and oral reports about bilateral contacts,
joint planning and prioritization, and cooperative work on labor
matters after the FTAs' entry into force. Where the partner government
reported that they had had no contact or were disappointed with the
level of engagement, we report this information but also sought and
report reaction from U.S. agencies. Although we did not learn of any
overall joint plans for labor cooperation, we sought information from
U.S. government agencies and FTA partners about any cooperative
activities or capacity building projects on labor conducted with the
partners since the FTAs' entry into force. We compiled this information
and analyzed how it compared to U.S. descriptions of labor rights
weaknesses in the partner, such as the U.S. government's pre-FTA
reports on labor rights. GAO considers these efforts to represent labor
progress even if they did not occur because of the FTA. GAO also
consulted with selected experts and interest groups in the United
States, notably several academics or experts who had written about
efforts to tie labor standards to trade programs or agreements, members
and liaisons of the Labor Advisory Committee (an official advisory body
to USTR and Labor on trade agreements), representatives of the AFL-CIO
and Unite Here, the Solidarity Center, the International Labor Rights
Forum, and the National Labor Committee, the nongovernmental
organization that exposed problems in Jordan's QIZs.
To assess U.S. agency performance on labor matters, we analyzed agency
responsibilities based on TPA, the FTAs, U.S. trade laws, associated
Executive Orders and Federal Register notices, and other agency
guidelines. We also compared what happened after FTA implementation
with what appeared to be officially expected or enabled in the FTAs
(i.e., FTAs negotiated after TPA created a labor cooperation
mechanism), and with key steps for monitoring and enforcement of trade
agreements, which GAO has established in prior reports.
To document and assess environmental progress under FTAs, we examined
FTA provisions, as well as those in environmental cooperation
agreements and mechanisms. We also analyzed associated U.S.-FTA partner
agreed documents, such as plans of action and work plans, and press
releases and other reports on joint meetings and workshops. We relied
on secondary sources that identified changes in environmental laws and
enforcement capacity made by partner governments and sought
authoritative summaries of these. We did not conduct an independent
analysis of these laws, but relied instead on solicited views and
analyses of these changes from partner government and U.S. agency
officials, as well as selected academics and other experts and
environmental groups. We requested documentation and other information
from U.S. agencies on each partner country's environmental regimes,
trade-related environmental challenges and how they had changed since
the FTA's entry into effect, and trade-related cooperative activities,
those done both in connection with agreed work plans and in connection
with U.S. foreign assistance or environmental cooperation generally. We
solicited views on the extent of progress associated with the FTA, FTA
cooperative mechanisms and cooperative projects, and other activities,
including foreign and U.S. officials' satisfaction with and assessments
of the results to date of their impact. To establish and assess U.S.
agency roles, responsibilities, and management of FTA-related
functions, we relied on FTAs and FTA cooperative agreements, TPA, other
laws, executive orders, and associated notices or reports, and informal
oral or written agency descriptions by USTR and the Department of
State. We compiled data and other information about cooperative
projects and compared what was done relative to agreed plans or
expectations. We also solicited assessments of significance from U.S.
and partner government officials, as well as selected experts such as
international environmental officials and experts at the United Nations
Environment Programme and the North American Agreement on Environmental
Cooperation, George Washington University Law School, and TEPAC members
in their individual capacity.
[End of section]
Appendix II: Commercial/Economic Results of the Jordan FTA:
The Jordan FTA entered into force on December 17, 2001. Jordan is a
lower-middle income country, and was the first Arab country to sign an
FTA with the United States. Following the implementation of the Jordan
FTA and the designation of Qualifying Industrial Zones (QIZ) and
Jordan's accession to the World Trade Organization (WTO) in 2000,
Jordanian merchandise goods and services exports increased markedly.
Moreover, the FTA and other previous investment agreements between
Jordan and the United States provided a framework for greater
investment activity in Jordan.
Jordan's Economy and International Trade:
Jordan's gross domestic product (GDP) in 2008 was estimated at $30.8
billion (purchasing power parity, PPP) and per capita GDP is estimated
at $5,000 (PPP). Jordan's official unemployment rate for 2008 was
estimated to be 12.9 percent, although unofficial estimates range up to
30 percent. While about 86.3 percent of Jordan's GDP is from the
services sector, such as tourism, 3.6 percent is from agriculture, and
about 10.1 percent is from other industries including apparel and
clothing, phosphate mining, fertilizers, and pharmaceuticals.
The World Bank's 2009 Doing Business report shows that Jordan ranked
101 out of 181 countries in the overall ranking of ease of doing
business. The American Chamber of Commerce (AmCham) in Jordan noted
that, according to the World Economic Forum's Global Competitiveness
Report for 2007-2008, businesses in Jordan face challenges due to tax
regulations, inefficient government bureaucracy, and tax rates. At the
same time, the 2009 Doing Business in the Arab World report shows that
it has improved in certain areas in terms of regulatory reform, notably
in regard to starting a business and trading across borders.
In addition to its signing the FTA with the United States and its
acceding to the WTO in 2000, Jordan is becoming increasingly open to
international trade, having signed several other bilateral and regional
trade agreements. These include the Greater Arab Free Trade Area, the
Jordan-European Union (EU) Association Agreement, the Jordan-European
Free Trade Agreement, the Jordan-Singapore Agreement, and the Agadir
Agreement. QIZs are created by their designation as such by the United
States under authority established by the United States-Israel Free
Trade Area Implementation Act.[Footnote 69] The QIZ program provides
duty-free, quota-free access to the U.S. market for certain goods
imported directly from or wholly created in areas designated by the
Jordanian and Israeli authorities and approved by the U.S. government.
[Footnote 70] Currently, there are 13 QIZs in Jordan with over 50
factories that produce mainly apparel.
Jordan is one of the U.S.'s smaller trading partners, ranked 84th
overall in 2008. In that year, Jordan had an overall trade deficit with
the rest of the world of about $9.1 billion, with total exports of $6.5
billion and total imports of $15.7 billion. Jordan's major export
destination in 2007 was the United States, with 22 percent of exports,
with other export partners consisting of Iraq, India, the United Arab
Emirates, Saudi Arabia, and Syria. Similarly, Jordan's major import
partners that year were from the EU (25 percent), Saudi Arabia (21
percent), China (9.8 percent), the United States (4.7 percent), and
Egypt (4.4 percent). While Jordan has proximity and cultural ties with
Europe and the Middle East, it is adept at doing business in English,
which is its second language after its official language, Arabic.
Export commodities include apparel; fertilizers; potash, phosphates,
pharmaceutical products, and vegetables; imports consist of crude oil,
machinery, transport equipment, iron, and cereals.
Key Market Access and Other Commercial and Regulatory Issues:
The U.S.-Jordan FTA was aimed at supporting the economic reform efforts
of a key regional partner for U.S. efforts in the Middle East peace
process. The agreement provided for significant and extensive
liberalization across a wide spectrum of trade issues, such as in
eliminating all tariffs on industrial and agricultural goods within 10
years, and in areas related to trade in services and foreign
investment.
Prior to the FTA, the United States had a mean unweighted tariff rate
of 6 percent, while Jordan had a mean unweighted tariff rate of 16
percent.[Footnote 71] The agreement provides for a scheduled
elimination of import tariffs: a 10-year transitional period over which
nearly all trade barriers in goods and services will be phased out
using staged tariff elimination categories. Under these categories,
initial tariffs of less than 5 percent would be phased out in 2 years,
those between 5 and 10 percent eliminated in 4 years, those between 10
and 20 percent eliminated within 5 years, and those above 20 percent
eliminated within 10 years. There are some exceptions to these
categories on both sides due to tariff elimination pursuant to WTO
commitments, those covered by the Generalized System of Preferences,
and some goods that are sensitive for both parties. By 2005, almost 96
percent of all tariff elimination was implemented from the U.S. side,
and over 60 percent of tariffs were eliminated from the Jordanian side.
For U.S. imports, the remaining 4 percent of goods include apparel,
footwear, and agricultural products. Tobacco and tobacco products are
excluded from the agreement, while alcoholic beverages are subject to
tariff reduction arrangements. One study estimates that, in 2006, after
6 years of the agreement, the United States' average unweighted tariff
rate for Jordan's exports was 0.2 percent. By 2010, goods will be
virtually duty free in almost all consumer and industrial products
between the two countries.
Because a number of Jordanian goods are subject to tariff-rate quotas
when exported to the U.S. market, such as certain dairy products,
sugar, and chocolate products, the United States will provide
increasingly larger quantities of these goods over the 10-year period.
At the end of 10 years, the quota will be eliminated altogether.
Jordan has provided for similar liberalization in the services sector
to encourage greater U.S. investment in sectors such as finance,
business and engineering, tourism, telecommunications, and distribution
services. The agreement also includes provisions to enhance protection
of intellectual property rights, particularly in relation to
trademarks, patents, unfair competition, and trade secrets. In
addition, it includes provisions on electronic commerce that seek to
avoid imposing customs duties on electronic transmissions.
Observed Results of the FTA in Merchandise Trade, Services, and FDI:
Merchandise Trade:
Since the FTA was implemented, the trade balance for the United States
went from a trade surplus of $110 million in 2001 to a trade deficit of
$234 million in 2008. Two-way trade between the two countries went from
$568 million in 2001 to $2 billion in 2008, a 259 percent increase in
total trade. While U.S. exports increased by 167 percent from 2001 to
2008, total imports from Jordan after the agreement shot up by 397
percent.
In 2008, the highest U.S. export end use categories by value were
passenger cars, new and used; parts and special category; rice and
other food grains; parts, special category; other oilseeds and food
oils; and aluminum and alumina. Top valued U.S. import categories from
Jordan in 2008 included apparel and household goods-cotton; apparel and
household goods-other textiles; jewelry; apparel and household goods-
wool; sporting and camping apparel; and medicinal, dental, and
pharmaceutical preparations.
Overall U.S. market share in the Jordanian market since implementation
of the FTA has decreased somewhat and, because of their proximity and
trade agreements, the EU was the principal exporter into this market in
2007 (see figure 5). Overall, in 2007 the United States had a market
share of about 5 percent in Jordan, while the EU had a market share of
24 percent. Also, the second largest exporter to this market, Saudi
Arabia, had a market share of about 21 percent in 2007. China has
doubled its market share, going from 5 percent in 2001 to 10 percent in
2007. However, U.S. market share has increased in several important
products/sectors, such as in agriculture products of corn, wheat, rice,
and edible fruits and nuts, as well as manufactured goods such as
automobiles. For example, the U.S. market share of Jordan's corn
imports grew from 3 percent in 2001, when a 5 percent import tariff on
feed grains was removed, to 77 percent in 2007.
Figure 5: Market Share of the Top Five Exporting Countries to Jordan,
1999-2007:
[Refer to PDF for image: multiple line graph]
Year: 1999;
Percentage of market share, EU: 31.8%;
Percentage of market share, Saudi Arabia: 4.08%;
Percentage of market share, China: 3.19%;
Percentage of market share, Egypt: 1.11%;
Percentage of market share, United States: 9.89%.
Year: 2000;
Percentage of market share, EU: 34.27%;
Percentage of market share, Saudi Arabia: 3.54%;
Percentage of market share, China: 4.19%;
Percentage of market share, Egypt: 1.03%;
Percentage of market share, United States: 10.73%.
Year: 2001 U.S.-Jordan FTA signed);
Percentage of market share, EU: 29.62%;
Percentage of market share, Saudi Arabia: 3.29%;
Percentage of market share, China: 5%;
Percentage of market share, Egypt: 1.09%;
Percentage of market share, United States: 8.32%.
Year: 2002;
Percentage of market share, EU: 27.55%;
Percentage of market share, Saudi Arabia: 2.65%;
Percentage of market share, China: 6.13%;
Percentage of market share, Egypt: 1.4%;
Percentage of market share, United States: 7.22%.
Year: 2003;
Percentage of market share, EU: 22.92%;
Percentage of market share, Saudi Arabia: 9.71%;
Percentage of market share, China: 6.81%;
Percentage of market share, Egypt: 1.77%;
Percentage of market share, United States: 5.84%.
Year: 2004;
Percentage of market share, EU: 20.04%;
Percentage of market share, Saudi Arabia: 16.87%;
Percentage of market share, China: 7.18%;
Percentage of market share, Egypt: 3.16%;
Percentage of market share, United States: 5.76%.
Year: 2005;
Percentage of market share, EU: 23.78%;
Percentage of market share, Saudi Arabia: 23.26%;
Percentage of market share, China: 9.08%;
Percentage of market share, Egypt: 3.45%;
Percentage of market share, United States: 5.51%;
Year: 2006;
Percentage of market share, EU: 22.46%;
Percentage of market share, Saudi Arabia: 24.64%;
Percentage of market share, China: 10.19%;
Percentage of market share, Egypt: 4.1%;
Percentage of market share, United States: 4.66%.
Year: 2007;
Percentage of market share, EU: 23.8%;
Percentage of market share, Saudi Arabia: 20.67%;
Percentage of market share, China: 9.5%;
Percentage of market share, Egypt: 4.29%;
Percentage of market share, United States: 4.57%.
Source: GAO analysis using data from the International Monetary Fund‘s
(IMF) Direction of Trade (DOT).
[End of figure]
Across product categories, we also calculated the differences between
pre-and post-FTA average annual growth rates for the top 25 U.S.
exports and imports in value with Jordan. Tables 2 and 3 display the
top 25 end use categories for U.S. export and import categories for
Jordan including their description ranked by growth rate, their dollar
value, their rank by dollar value, their pre-FTA and post-FTA average
annual growth rates, and change in growth between the two periods.
About 64 percent or 16 out of the top 25 leading U.S. export product
categories saw higher post-FTA export growth over the pre-FTA period
(see table 2). For the top 25 U.S. imports from Jordan, table 3 shows
that 40 percent had a higher rate of growth after the FTA was
implemented (for a more detailed discussion of the methodology of this
analysis, see appendix I).
Table 2: U.S. Exports to Jordan: Top 25 Categories by Value, Pre-and
Post-FTA Average Annual Growth Rates, and Change in Growth Rates
between Periods (Dollars in thousands):
End use category description-top 25 categories ranked by largest
percentage change in growth rate:
End use category description: Parts; special category goods, not
elsewhere classified;
Dollar value 2008: $41,582;
Rank by value 2008: 3;
Pre-FTA growth rate 1996-2001: -54%;
Post-FTA growth rate 2002-2008: 53%;
Change in growth rates: 107%.
End use category description: Aluminum and alumina;
Dollar value 2008: $20,602;
Rank by value 2008: 6;
Pre-FTA growth rate 1996-2001: -18%;
Post-FTA growth rate 2002-2008: 88%;
Change in growth rates: 105%.
End use category description: Rice and other food grains;
Dollar value 2008: $58,367;
Rank by value 2008: 2;
Pre-FTA growth rate 1996-2001: -36%;
Post-FTA growth rate 2002-2008: 55%;
Change in growth rates: 9%2.
End use category description: Passenger cars, new and used;
Dollar value 2008: $215,262;
Rank by value 2008: 1;
Pre-FTA growth rate 1996-2001: -16%;
Post-FTA growth rate 2002-2008: 70%;
Change in growth rates: 86%.
End use category description: Materials handling equipment;
Dollar value 2008: $18,453;
Rank by value 2008: 9;
Pre-FTA growth rate 1996-2001: -38%;
Post-FTA growth rate 2002-2008: 41%;
Change in growth rates: 80%.
End use category description: Laboratory testing and control
instruments;
Dollar value 2008: $9,597;
Rank by value 2008: 21;
Pre-FTA growth rate 1996-2001: -10%;
Post-FTA growth rate 2002-2008: 42%;
Change in growth rates: 52%.
End use category description: Excavating, paving, and construction
machinery;
Dollar value 2008: $18,624;
Rank by value 2008: 8;
Pre-FTA growth rate 1996-2001: -24%;
Post-FTA growth rate 2002-2008: 27%;
Change in growth rates: 51%.
End use category description: Miscellaneous domestic exports and
special transactions;
Dollar value 2008: $27,387;
Rank by value 2008: 4;
Pre-FTA growth rate 1996-2001: -28%;
Post-FTA growth rate 2002-2008: 19%;
Change in growth rates: 47%.
End use category description: Meat, poultry, and other edible animals;
Dollar value 2008: $12,911;
Rank by value 2008: 17;
Pre-FTA growth rate 1996-2001: -17%;
Post-FTA growth rate 2002-2008: 24%;
Change in growth rates: 41%.
End use category description: Other industrial machinery;
Dollar value 2008: $15,216;
Rank by value 2008: 16;
Pre-FTA growth rate 1996-2001: -7%;
Post-FTA growth rate 2002-2008: 12%;
Change in growth rates: 20%.
End use category description: Minimum value shipments;
Dollar value 2008: $16,575;
Rank by value 2008: 12;
Pre-FTA growth rate 1996-2001: -5%;
Post-FTA growth rate 2002-2008: 11%;
Change in growth rates: 17%.
End use category description: Paper base stocks-pulpwood and woodpulp;
Dollar value 2008: $15,801;
Rank by value 2008: 14;
Pre-FTA growth rate 1996-2001: 4%;
Post-FTA growth rate 2002-2008: 13%;
Change in growth rates: 9%.
End use category description: Other-manufactured and unmanufactured;
Dollar value 2008: $9,001;
Rank by value 2008: 23;
Pre-FTA growth rate 1996-2001: 3%;
Post-FTA growth rate 2002-2008: 10%;
Change in growth rates: 7%.
End use category description: Electric apparatus and parts, not
elsewhere classified;
Dollar value 2008: $9,044;
Rank by value 2008: 22;
Pre-FTA growth rate 1996-2001: -7%;
Post-FTA growth rate 2002-2008: -1%;
Change in growth rates: 6%.
End use category description: Medicinal, dental, and pharmaceutical
preparations, including vitamins;
Dollar value 2008: $20,075;
Rank by value 2008: 7;
Pre-FTA growth rate 1996-2001: 16%;
Post-FTA growth rate 2002-2008: 22%;
Change in growth rates: 6%.
End use category description: Other oilseeds and food oils;
Dollar value 2008: $22,332;
Rank by value 2008: 5;
Pre-FTA growth rate 1996-2001: -11%;
Post-FTA growth rate 2002-2008: -9%;
Change in growth rates: 3%.
End use category description: Household and kitchen appliances;
Dollar value 2008: $8,984;
Rank by value 2008: 24;
Pre-FTA growth rate 1996-2001: 9%;
Post-FTA growth rate 2002-2008: 9%;
Change in growth rates: 0.
End use category description: Other foods (lard, soft beverages,
spices, etc.);
Dollar value 2008: $10,326;
Rank by value 2008: 18;
Pre-FTA growth rate 1996-2001: 12%;
Post-FTA growth rate 2002-2008: %;
Change in growth rates: -6%.
End use category description: Other scientific, hospital, and medical
equipment;
Dollar value 2008: $15,633;
Rank by value 2008: 15;
Pre-FTA growth rate 1996-2001: 2%;
Post-FTA growth rate 2002-2008: -6%;
Change in growth rates: -7%.
End use category description: Measuring, testing, and control
instruments;
Dollar value 2008: $8,593;
Rank by value 2008: 25;
Pre-FTA growth rate 1996-2001: 30%;
Post-FTA growth rate 2002-2008: 19%;
Change in growth rates: -11%.
End use category description: Tanks, artillery, missiles, rockets,
guns, and ammunition;
Dollar value 2008: $18,369;
Rank by value 2008: 10;
Pre-FTA growth rate 1996-2001: 5%;
Post-FTA growth rate 2002-2008: -12%;
Change in growth rates: -16%.
End use category description: Telecommunications equipment;
Dollar value 2008: $17,863;
Rank by value 2008: 11;
Pre-FTA growth rate 1996-2001: 11%;
Post-FTA growth rate 2002-2008: -7%;
Change in growth rates: -17%.
End use category description: Parts for civilian aircraft;
Dollar value 2008: $16,113;
Rank by value 2008: 13;
Pre-FTA growth rate 1996-2001: 15%;
Post-FTA growth rate 2002-2008: -8%;
Change in growth rates: -23%.
End use category description: Industrial organic chemicals;
Dollar value 2008: $9,973;
Rank by value 2008: 20;
Pre-FTA growth rate 1996-2001: 28%;
Post-FTA growth rate 2002-2008: 4%;
Change in growth rates: -24%.
End use category description: Nuts and preparations;
Dollar value 2008: $10,225;
Rank by value 2008: 19;
Pre-FTA growth rate 1996-2001: 42%;
Post-FTA growth rate 2002-2008: 18%;
Change in growth rates: -24%.
Sources: GAO analysis using end use data from the U.S. Department of
Commerce (Commerce) and ITC.
[End of table]
Table 3: U.S. Imports from Jordan: Top 25 Categories by Value, Pre-and
Post-FTA Average Annual Growth Rates, and Change in Growth Rates
between Periods (Dollars in thousands):
End use category description-top 25 categories ranked by largest
percentage change in growth rate:
End use category description: Industrial inorganic chemicals;
Dollar value 2008: $3,516;
Rank by value 2007: 9;
Pre-FTA growth rate 1996-2001: -7%;
Post-FTA growth rate 2002-2008: 227%;
Change in growth rates: 234%.
End use category description: Bauxite and aluminum;
Dollar value 2008: $1,311;
Rank by value 2007: 18;
Pre-FTA growth rate 1996-2001: -27%;
Post-FTA growth rate 2002-2008: 103%;
Change in growth rates: 130%.
End use category description: Furniture, household items, baskets;
Dollar value 2008: $567;
Rank by value 2007: 25;
Pre-FTA growth rate 1996-2001: 14%;
Post-FTA growth rate 2002-2008: 88%;
Change in growth rates: 74%.
End use category description: Finished textile industrial supplies
(labels, braids, buttons, etc.);
Dollar value 2008: $1,407;
Rank by value 2007: 16;
Pre-FTA growth rate 1996-2001: -30%;
Post-FTA growth rate 2002-2008: 35%;
Change in growth rates: 65%.
End use category description: Machine tools, metal working, molding,
and rolling mill machinery;
Dollar value 2008: $617;
Rank by value 2007: 24;
Pre-FTA growth rate 1996-2001: 17%;
Post-FTA growth rate 2002-2008: 73%;
Change in growth rates: 57%.
End use category description: U.S. goods returned and reimports;
Dollar value 2008: $48,915;
Rank by value 2007: 4;
Pre-FTA growth rate 1996-2001: -6%;
Post-FTA growth rate 2002-2008: 38%;
Change in growth rates: 44%.
End use category description: Other industrial machinery;
Dollar value 2008: $1,504;
Rank by value 2007: 14;
Pre-FTA growth rate 1996-2001: -30%;
Post-FTA growth rate 2002-2008: 8%;
Change in growth rates: 39%.
End use category description: Other (boxes, belting, glass, abrasives,
etc.);
Dollar value 2008: $2,885;
Rank by value 2007: 11;
Pre-FTA growth rate 1996-2001: 12%;
Post-FTA growth rate 2002-2008: 29%;
Change in growth rates: 17%.
End use category description: Vegetables and preparations;
Dollar value 2008: $1,551;
Rank by value 2007: 13;
Pre-FTA growth rate 1996-2001: 54%;
Post-FTA growth rate 2002-2008: 70%;
Change in growth rates: 16%.
End use category description: Other precious metals;
Dollar value 2008: $1,379;
Rank by value 2007: 17;
Pre-FTA growth rate 1996-2001: 32%;
Post-FTA growth rate 2002-2008: 37%;
Change in growth rates: 6%.
End use category description: Jewelry (watches, rings, etc.);
Dollar value 2008: $73,704;
Rank by value 2007: 3;
Pre-FTA growth rate 1996-2001: 33%;
Post-FTA growth rate 2002-2008: 26%;
Change in growth rates: -7%.
End use category description: Other (soft beverages, processed coffee,
etc.);
Dollar value 2008: $1,297;
Rank by value 2007: 19;
Pre-FTA growth rate 1996-2001: 20%;
Post-FTA growth rate 2002-2008: 12%;
Change in growth rates: -8%.
End use category description: Stone, sand, cement, and lime;
Dollar value 2008: $1,196;
Rank by value 2007: 21;
Pre-FTA growth rate 1996-2001: 32%;
Post-FTA growth rate 2002-2008: 23%;
Change in growth rates: -10%.
End use category description: Minimum value shipments;
Dollar value 2008: $3,170;
Rank by value 2007: 10;
Pre-FTA growth rate 1996-2001: 33%;
Post-FTA growth rate 2002-2008: 23%;
Change in growth rates: -10%.
End use category description: Household and kitchen appliances;
Dollar value 2008: $5,681;
Rank by value 2007: 8;
Pre-FTA growth rate 1996-2001: 48%;
Post-FTA growth rate 2002-2008: 36%;
Change in growth rates: -12%.
End use category description: Books, magazines, and other printed
matter;
Dollar value 2008: $1,968;
Rank by value 2007: 12;
Pre-FTA growth rate 1996-2001: 51%;
Post-FTA growth rate 2002-2008: 14%;
Change in growth rates: -37%.
End use category description: Other products (notions, writing and art
supplies, tobacco products, etc.);
Dollar value 2008: $1,467;
Rank by value 2007: 15;
Pre-FTA growth rate 1996-2001: 78%;
Post-FTA growth rate 2002-2008: 31%;
Change in growth rates: -47%.
End use category description: Sporting and camping apparel, footwear,
and gear;
Dollar value 2008: $6,284;
Rank by value 2007: 6;
Pre-FTA growth rate 1996-2001: 71%;
Post-FTA growth rate 2002-2008: 6%;
Change in growth rates: -64%.
End use category description: Apparel and household goods-cotton;
Dollar value 2008: $525,907;
Rank by value 2007: 1;
Pre-FTA growth rate 1996-2001: 74%;
Post-FTA growth rate 2002-2008: 9%;
Change in growth rates: -65%.
End use category description: Medicinal, dental, and pharmaceutical
preparations, including vitamins;
Dollar value 2008: $6,046;
Rank by value 2007: 7;
Pre-FTA growth rate 1996-2001: 101%;
Post-FTA growth rate 2002-2008: 31%;
Change in growth rates: -69%.
End use category description: Toiletries and cosmetics;
Dollar value 2008: $670;
Rank by value 2007: 23;
Pre-FTA growth rate 1996-2001: 68%;
Post-FTA growth rate 2002-2008: -8%;
Change in growth rates: -76%.
End use category description: Apparel and household goods-other
textiles;
Dollar value 2008: $412,280;
Rank by value 2007: 2;
Pre-FTA growth rate 1996-2001: 106%;
Post-FTA growth rate 2002-2008: 25%;
Change in growth rates: -81%.
End use category description: Apparel and household goods-wool;
Dollar value 2008: $28,015;
Rank by value 2007: 5;
Pre-FTA growth rate 1996-2001: 90%;
Post-FTA growth rate 2002-2008: 7%;
Change in growth rates: -83%.
End use category description: Artwork, antiques, stamps, and other
collectibles;
Dollar value 2008: $1,200;
Rank by value 2007: 20;
Pre-FTA growth rate 1996-2001: 102%;
Post-FTA growth rate 2002-2008: 11%;
Change in growth rates: -91%.
End use category description: Other parts and accessories;
Dollar value 2008: $727;
Rank by value 2007: 22;
Pre-FTA growth rate 1996-2001: 165%;
Post-FTA growth rate 2002-2008: 2%;
Change in growth rates: -162%.
Sources: GAO analysis using end use data from Commerce and ITC.
[End of table]
In contrast with the Chile and Singapore FTAs, the Jordan FTA's entry
into force did not coincide with an increase in growth rates in most of
its leading product categories. However, this finding is very sensitive
to our use of 2002 as the start of the post-FTA period. (The FTA
entered into effect in December 2001.) In fact, if this year (2001) is
placed in the post-FTA period, a majority of the product categories, or
60 percent, have a higher average annual growth in this period. The
findings are also driven by the textiles and apparel category, which
dominates the leading U.S. import categories from Jordan and averaged
about 87 percent of total imports from 2002 to 2008. Apparel
experienced extremely high annual average rates of growth with the
advent of the QIZ program in 1996. Nevertheless, the year-to-year value
of Jordanian exports in the apparel categories after the FTA was in the
hundreds of millions of dollars, compared with the pre-FTA period when
the yearly value was in the tens of millions of dollars.[Footnote 72]
Trade in Services:
Commerce notes that the Jordan FTA opened up trade in services, giving
American service providers opportunities in Jordan's financial,
education, audio-visual, courier and other services. Unfortunately,
data on U.S. bilateral trade in services with Jordan are not available
from BEA, and other data are limited, but the UN does provide
sufficient data to gain some picture of Jordan's services trade with
the world by service sector category.
For 2007, the UN estimates that total (world) service exports by Jordan
reached a level of $2.9 billion in current dollars. This represents
growth of 96 percent compared with the 2001 level. An industry
breakdown, based on 2006 data, shows that 66 percent of service exports
were in the travel sector and 21 percent were in the transport sector.
The remaining 13 percent of service exports were in "other services,"
and within the "other services" category, "other business services" was
the dominant category."
The UN estimates that, in 2007, Jordan's service imports (world)
totaled almost $3.1 billion. This level represents growth of over 78
percent between 2001 and 2007. An industry breakdown, based on 2006
data, shows that almost 55 percent of service imports were in the
transport sector, and 23 percent were in the travel sector. The
remaining 22 percent of service imports were in "other services,"
notably, insurance, "other business services," and government services.
[Footnote 73]
FDI:
The United States has a bilateral investment treaty with Jordan and, as
a result, the U.S.-Jordan FTA did not include an investment chapter.
The available data from BEA for U.S. FDI with Jordan is rather sparse,
while some aggregate data is available from the United Nations
Conference on Trade and Development (UNCTAD). [Footnote 74]
The most recent BEA figures show that, as of 2007, U.S. outward FDI in
Jordan was only $119 million. This figure is up from $39 million in
2006. The 2007 level of FDI represents a minuscule share of total U.S.
outward FDI (at 0.004 percent). Data for most other years are
suppressed to prevent disclosure of individual company information. As
a result, it is not possible to review pre-and post-FTA results using
BEA data. Regarding inward investment in the U.S. by Jordanian
entities, BEA data is mostly suppressed for disclosure purposes. The
last entry is for 2001 (the last year before the FTA) and totaled only
$9 million.
Some UNCTAD FDI data is available for Jordan, which helps put U.S. FDI
in perspective. Total inward FDI from all countries (including the
United States) reached $14.5 billion in 2007--a substantial sum. Inward
FDI has been growing steadily since the mid-1990s, and from 2002 to
2007 grew from about $4 billion to over $14.5 billion, or more than
tripling. This period has coincided with the FTA being in force.
However, comparing the level of inward FDI from the UNCTAD data to the
level of U.S. FDI from the BEA data suggests that U.S. FDI has not
played a substantial role in the growth of FDI in Jordan.
U.S. and Jordanian Perspectives on Issues Relating to the FTA:
AmCham in Jordan noted that they have seen increased levels of imports
coming from the United States, and it believed there would be more
exports from the United States in the future, especially with the
weaker dollar. At the present, many businesses pay no customs duty on
various products such as in the automotive or spare parts industries,
so they believe that there are some really big advantages since the
FTA. According to an AmCham official, Jordanian importers are flocking
to the United States and with the FTA, they will witness greater
imports. The U.S. textiles and apparel sector noted that the Jordan FTA
was one of the most important FTAs to their industry, although their
views were divided on the issue. The apparel manufacturers and
importers were more in favor of the Jordan FTA, since they favored the
Jordanian FTA's less burdensome rules of origin, while the textile
manufacturers explained that the increased imports cause them
production, jobs, and exports.
From a Jordanian perspective, some officials and business people have
expressed concerns including: (1) difficulty in meeting export
standards, especially SPS standards for agricultural products and only
one Animal and Plant Health Inspection Service person in Middle East
and North Africa; (2) complex customs procedures; (3) lack of knowledge
on technical labeling issues that affect exports; (4) a firm's need for
an agent, especially in the food sector, in the United States; (5) a
tendency to believe that the FTA is only for large firms to export
under; and (6) a lack of knowledge of logistics in the United States
and of handling and transportation fees.
As far as IPR, the majority of Jordanian pharmaceutical businesses
manufacture generic medicines, and there are concerns that the IPR
provisions of the FTA are hurting the generic industry. One
pharmaceutical business person in Jordan, whose company specializes
primarily in generic medicines, noted some frustration that there were
issues with IPR related to data exclusivity that dealt with a lack of
transparency in rights and obligations. According to a 2007 study by
Oxfam on Jordan's pharmaceutical industry, because of the "TRIPS plus"
provisions of the WTO and the Jordan FTA, many Jordanian pharmaceutical
firm's generic medicines are precluded from the market through an
acceptance procedure called "data exclusivity." Through data
exclusivity, drug regulatory agencies are prevented for a period of 5
years from using the clinical trial data developed by the originator
company to establish the safety and efficacy of the medicine for market
approval of a generic drug that had already been shown to be equivalent
to the original one. These delays, according to Oxfam, impede or
prevent generic competition and can lead to higher prices than would
otherwise be the case.[Footnote 75] In contrast, the U.S.
pharmaceutical industry, represented by the Pharmaceutical Research and
Manufacturers of America (PhRMA), noted that Jordan is using FTA-
related enhancements in IPR to help them attract investment in
pharmaceutical production.[Footnote 76], [Footnote 77]
There are some USAID commercial/economic programs that led up to and
currently support the FTA. For example, the Tijara Initiative, funded
by USAID, is a private-public sector partnership to strengthen two-way
trade between Jordan and the United States, promote inward investment,
raise public awareness about the U.S.-Jordan FTA and communicate
opportunities, and enhance public-private cooperation to create a
business environment conducive to trade. Also, an initiative called
Tatweer, an economic development project funded by USAID and managed by
the Jordan Business Development Center, has conducted workshops for
small and medium-sized businesses on how to export under the FTA.
[End of section]
Appendix III: Commercial/Economic Results of the Singapore FTA:
The Singapore FTA, which entered into force on January 1, 2004,
represented an agreement with an already well-established U.S. trading
partner and an economically advanced nation. While it is a
geographically small island city-state, Singapore is a high-income
country that is one of the most open and competitive in the world in
terms of international trade and foreign investment. The FTA appears to
have helped increase bilateral merchandise trade, as well as improved
the market access for services and the climate for foreign direct
investment. Enhanced intellectual property rights protections also
appear to have had a positive impact on commerce and investment and are
providing a model for other agreements.
Singapore's Economy and International Trade:
Openness to trade has long been a hallmark of Singapore's economy.
Recently, total trade in goods and services has accounted for about
four times the GDP. Singapore has historically maintained very few
trade barriers, and according to World Trade Indicators the country
ranks first in the world in trade openness, ease of doing business, and
trade facilitation. At the same time, as a small nation, Singapore is
subject to external market fluctuations and, as a result, strives to
maintain its competitiveness by implementing policies that develop and
diversify its economy. Since recovering from recession in the early
2000s, Singapore has shown strong GDP growth through 2008. Its per
capita gross national income (GNI) places it on a par with other high-
income countries; on a purchasing power basis, its rank is equivalent
to that of the United States. It has maintained strong economic
fundamentals and prudent macroeconomic policies that have kept
unemployment and inflation low, although current worldwide economic
conditions are presenting challenges. In addition to the FTA with the
United States, Singapore has been aggressive in signing FTAs with a
number of countries including the Association of Southeast Asian
Nations (ASEAN), New Zealand, Japan, Europe, Australia, India, and most
recently, China.
The United States has been an important bilateral partner for
Singapore. While regional partners have come to encompass a greater
share of trade, as of 2005, the United States was still Singapore's
second largest export market, and the United States remains Singapore's
second ranked source of imports, behind Malaysia and just ahead of
China. In 2008, Singapore was the United States' 12th largest export
market and the 27th largest importer to the United States.
Key Market Access and Other Commercial and Regulatory Issues:
As Singapore[Footnote 78] was already an open economy for U.S. products
(99 percent duty-free), the FTA removed the few remaining tariffs on
U.S. exports--on products such as alcoholic beverages. Meanwhile, the
United States agreed to remove tariffs on most (about 92 percent)
Singapore goods. The remaining U.S. tariffs are to be phased out over 3-
10 years. A provision extending preferences to a limited amount of
textile and apparel imports made without U.S. or Singapore yarn, for a
limited time, was also included.
With trade in goods already open, a key focus of the Singapore FTA was
providing greater access in the market for services and an even more
favorable investment climate. Substantial access was provided across a
wide spectrum of services, using a "negative list" approach,[Footnote
79] and this process was to be facilitated by commitments on
nondiscriminatory treatment and regulatory transparency. Market access
commitments in services span a range of sectors. Some of the more
significant service sectors benefiting from the FTA include the
following:
* banking, with lifting the ban on new banking licenses, expansion of
locations, and access to ATM networks;
* insurance, with the ability to establish a market presence, offer
marine, aviation and transport insurance (MAT), and expand the
provision of insurance services in many lines;
* securities and related financial services, with the ability to
establish a market presence and offer expanded pension and portfolio
management services;
* express delivery services;
* professional services in a number of areas; and:
* telecommunications, with the ability to compete on nondiscriminatory
basis in access to networks and providing services, along with improved
regulatory transparency.
According to USTR, the FTA contained cutting-edge provisions on
electronic commerce. The parties agreed not to discriminate on digital
products delivered electronically (via Internet) and not to charge
customs duties on such products. These commitments apply as well to
services, such as financial services, provided electronically.
With the United States already a large investor in Singapore, the FTA
has provisions to improve the investment climate and provide further
protections. The agreement assures legal protections for all forms of
investment in Singapore, and national treatment, except for those
sectors specifically exempted via a "negative list" approach. Also, a
transparent dispute settlement process is provided.
In submitting the agreement to Congress, the President noted that the
FTA provided for a very high level of IPR protection including state-
of-the-art protections for trademarks and digital copyrights, as well
as expanded protection of patents and proprietary information. The
agreement also provides for strong enforcement and tough penalties,
including the establishment of actual damages for violations.
The FTA contains a number of provisions in other areas such as
competition policy, government procurement, customs procedures,
regulatory transparency, visas for professionals, labor and
environmental provisions, and dispute settlement. These provisions are
noteworthy in part due to the relatively large role played by the state
and state-linked corporations in Singapore.
Observed Results of the FTA in Merchandise Trade, Services, and Foreign
Direct Investment:
While many factors affect the commercial and economic results in the
post-FTA period (2004-2008), observed results show greater overall
trade and investment, and growth in trade in a number of sectors
following the implementation of the FTA.
Merchandise Trade:
Overall two-way trade (import plus exports) between the United States
and Singapore was $41.4 billion in 2008, an increase of 42 percent over
2003, the year prior to FTA implementation. U.S. trade with Singapore
prior to the FTA was in deficit or close balance, but after the FTA,
U.S. exports to Singapore grew more than U.S. imports, leading to a
positive net trade balance.
The U.S. trade surplus with Singapore increased about five times during
the first year of FTA implementation, reaching $3 billion in 2004, $3.6
billion in 2005, $4.2 billion in 2006, 4.5 billion in 2007, and $9.9
billion in 2008. The level of U.S. exports increased to $25.7 billion
in 2008, an increase 9 percent over 2007, and a 72 percent increase
over 2003. U.S. imports from Singapore grew to a level of $15.7 billion
in 2008, an increase of 10 percent over 2003, but a decrease of almost
18 percent since 2007. This dramatic decline in Singapore's trade
reflects the global financial downturn and the substantial role of
trade in Singapore's economy.
As figure 6 shows, the U.S. share of total world exports to Singapore
has declined since 1999, from 17 to 12 percent, as the trend has
continued into the post-FTA period. However, this trend has also
characterized some of Singapore's other major trading partners, such as
Malaysia and Japan. China's exports to Singapore, however, have grown
since 1999, from 5 to 12 percent in 2007, dropping to 11 percent in
2008.
Figure 6: Market Share of the Top Five Exporting Countries to
Singapore, 1999-2008:
[Refer to PDF for image: multiple line graph]
Year: 1999;
Percentage of market share, China: 5.1%;
Percentage of market share, EU: 13.4%;
Percentage of market share, Malaysia: 15.6%;
Percentage of market share, Japan: 16.6%;
Percentage of market share, United States: 17.0%.
Year: 2000;
Percentage of market share, China: 5.3%;
Percentage of market share, EU: 120.%;
Percentage of market share, Malaysia: 17.0%;
Percentage of market share, Japan: 17.2%;
Percentage of market share, United States: 14.9%.
Year: 2001;
Percentage of market share, China: 6.2%;
Percentage of market share, EU: 12.3%;
Percentage of market share, Malaysia: 17.3%;
Percentage of market share, Japan: 13.9%;
Percentage of market share, United States: 16.4%;
Year: 2002;
Percentage of market share, China: 7.6%;
Percentage of market share, EU: 12.5%;
Percentage of market share, Malaysia: 18.2%;
Percentage of market share, Japan: 12.5%;
Percentage of market share, United States: 14.2%.
Year: 2003U.S.-Singapore FTA signed);
Percentage of market share, China: 8.1%;
Percentage of market share, EU: 12.4%;
Percentage of market share, Malaysia: 15.8%;
Percentage of market share, Japan: 11.3%;
Percentage of market share, United States: 13.1%.
Year: 2004;
Percentage of market share, China: 9.3%;
Percentage of market share, EU: 12.8%;
Percentage of market share, Malaysia: 14.4%;
Percentage of market share, Japan: 11.0%;
Percentage of market share, United States: 11.8%.
Year: 2005;
Percentage of market share, China: 10.3%;
Percentage of market share, EU: 11.6%;
Percentage of market share, Malaysia: 13.7%;
Percentage of market share, Japan: 9.6%;
Percentage of market share, United States: 11.6%.
Year: 2006;
Percentage of market share, China: 11.4%;
Percentage of market share, EU: 11.4%;
Percentage of market share, Malaysia: 13.1%;
Percentage of market share, Japan: 8.3%;
Percentage of market share, United States: 12.5%.
Year: 2007;
Percentage of market share, China: 12.1%;
Percentage of market share, EU: 12.4%;
Percentage of market share, Malaysia: 13.1%;
Percentage of market share, Japan: 8.2%;
Percentage of market share, United States: 12.3%.
Year: 2008;
Percentage of market share, China: 10.5%;
Percentage of market share, EU: 12.3%;
Percentage of market share, Malaysia: 11.9%;
Percentage of market share, Japan: 8.1%;
Percentage of market share, United States: 11.7%.
Sources: GAO analysis using data from the World Trade Atlas, Global
Trade Information Service (GTIS), in cooperation with the Economic
Research Service, U.S. Department of Agriculture (USDA).
[End of figure]
Despite the overall decline in share of exports going into Singapore,
the United States remains a strong presence, despite several other
major trade agreements by Singapore with key trading partners, such as
China, Malaysia, and Japan.
By value for 2008, the top U.S. exports to Singapore were
semiconductors and related devices; fuel oil; civilian aircraft; other
industrial machinery; and drilling and oil field equipment. Top valued
U.S. imports from Singapore in 2008 included computer accessories;
medicinal, dental, and pharmaceutical preparations; semiconductors and
related devices; industrial organic chemicals; and other scientific,
medical, and hospital equipment.
Across product categories, we also calculated the differences between
pre-and post-FTA average annual growth rates for the top 25 U.S.
exports and imports in value with Singapore. Tables 4 and 5 display the
top 25 end use categories for U.S. export and import categories with
Singapore: their description ranked by growth rate, their dollar value,
their rank by dollar value, their pre-FTA growth rate, post-FTA growth
rate, and change in growth between the two periods. As table 4 shows,
we found that 23 out of the top 25 export categories by value, or 92
percent, had grown faster after the FTA came into force. For U.S.
imports from Singapore, table 5 shows that 64 percent of the top
product categories experienced higher annual average growth after the
FTA came into force (for a more detailed discussion of the methodology
of this analysis, see appendix I).
Table 4: U.S. Exports to Singapore: Top 25 Categories by Value, Pre-and
Post-FTA Average Annual Growth Rates, and Change in Growth Rates
between Periods (Dollars in thousands):
End use category description-top 25 categories ranked by largest
percentage change in growth rate:
End use category description: Drilling and oil field equipment includes
rigs and platforms;
Dollar value: 2008: $1,448,294;
Rank by value 2008: 5;
Pre-FTA growth Rate 1999-2003: 7%;
Post-FTA growth rate 2004-2008: 37%;
Change in growth rates: 30%.
End use category description: Generators, transformers, and
accessories;
Dollar value: 2008: $305,038;
Rank by value 2008: 20;
Pre-FTA growth Rate 1999-2003: -4%;
Post-FTA growth rate 2004-2008: 21%;
Change in growth rates: 25%.
End use category description: Fuel oil;
Dollar value: 2008: $1,986,344;
Rank by value 2008: 2;
Pre-FTA growth Rate 1999-2003: 15%;
Post-FTA growth rate 2004-2008: 35%;
Change in growth rates: 20%.
End use category description: Semiconductors and related devices;
Dollar value: 2008: $2,434,835;
Rank by value 2008: 1;
Pre-FTA growth Rate 1999-2003: -17%;
Post-FTA growth rate 2004-2008: 3%;
Change in growth rates: 20%.
End use category description: Industrial engines, pumps, compressors,
and generators;
Dollar value: 2008: $623,417;
Rank by value 2008: 14;
Pre-FTA growth Rate 1999-2003: 1%;
Post-FTA growth rate 2004-2008: 19%;
Change in growth rates: 18%.
End use category description: Industrial organic chemicals;
Dollar value: 2008: $887,873;
Rank by value 2008: 9;
Pre-FTA growth Rate 1999-2003: -2%;
Post-FTA growth rate 2004-2008: 14%;
Change in growth rates: 16%.
End use category description: Other industrial machinery;
Dollar value: 2008: $1,590,274;
Rank by value 2008: 4;
Pre-FTA growth Rate 1999-2003: -10%;
Post-FTA growth rate 2004-2008: 6%;
Change in growth rates: 16%.
End use category description: Excavating, paving and construction
machinery;
Dollar value: 2008: $267,728;
Rank by value 2008: 22;
Pre-FTA growth Rate 1999-2003: -4%;
Post-FTA growth rate 2004-2008: 11%;
Change in growth rates: 15%.
End use category description: Laboratory testing and control
instruments;
Dollar value: 2008: $248,713;
Rank by value 2008: 24;
Pre-FTA growth Rate 1999-2003: 5%;
Post-FTA growth rate 2004-2008: 20%;
Change in growth rates: 15%.
End use category description: Plastic materials;
Dollar value: 2008: $822,127;
Rank by value 2008: 10;
Pre-FTA growth Rate 1999-2003: -1%;
Post-FTA growth rate 2004-2008: 14%;
Change in growth rates: 14%.
End use category description: Minimum value shipments;
Dollar value: 2008: $672,591;
Rank by value 2008: 12;
Pre-FTA growth Rate 1999-2003: -5%;
Post-FTA growth rate 2004-2008: 8%;
Change in growth rates: 14%.
End use category description: Other-manufactured and unmanufactured;
Dollar value: 2008: $430,149;
Rank by value 2008: 18;
Pre-FTA growth Rate 1999-2003: -3%;
Post-FTA growth rate 2004-2008: 9%;
Change in growth rates: 12%.
End use category description: Parts for civilian aircraft;
Dollar value: 2008: $987,122;
Rank by value 2008: 8;
Pre-FTA growth Rate 1999-2003: 1%;
Post-FTA growth rate 2004-2008: 11%;
Change in growth rates: 10%.
End use category description: Other chemicals (coloring agents,
photographic chemicals, printing inks, paint);
Dollar value: 2008: $656,976;
Rank by value 2008: 13;
Pre-FTA growth Rate 1999-2003: 1%;
Post-FTA growth rate 2004-2008: 11%;
Change in growth rates: 10%.
End use category description: Materials handling equipment;
Dollar value: 2008: $252,546;
Rank by value 2008: 23;
Pre-FTA growth Rate 1999-2003: -3%;
Post-FTA growth rate 2004-2008: 7%;
Change in growth rates: 10%.
End use category description: Electric apparatus and parts, n.e.c.;
Dollar value: 2008: $619,950;
Rank by value 2008: 15;
Pre-FTA growth Rate 1999-2003: -10%;
Post-FTA growth rate 2004-2008: -4%;
Change in growth rates: 5%.
End use category description: Finished metal shapes and advanced metal
mfgrs, incl. advanced steel;
Dollar value: 2008: $275,503;
Rank by value 2008: 21;
Pre-FTA growth Rate 1999-2003: 11%;
Post-FTA growth rate 2004-2008: 16%;
Change in growth rates: 5%.
End use category description: Measuring, testing, and control
instruments;
Dollar value: 2008: $801,269;
Rank by value 2008: 11;
Pre-FTA growth Rate 1999-2003: -5%;
Post-FTA growth rate 2004-2008: -1%;
Change in growth rates: 4%.
End use category description: Miscellaneous domestic exports and
special transactions;
Dollar value: 2008: $215,543;
Rank by value 2008: 25;
Pre-FTA growth Rate 1999-2003: 4%;
Post-FTA growth rate 2004-2008: 8%;
Change in growth rates: 4%.
End use category description: Other scientific, hospital and medical
equipment;
Dollar value: 2008: $361,593;
Rank by value 2008: 19;
Pre-FTA growth Rate 1999-2003: -1%;
Post-FTA growth rate 2004-2008: 3%;
Change in growth rates: 4%.
End use category description: Telecommunications equipment;
Dollar value: 2008: $570,442;
Rank by value 2008: 17;
Pre-FTA growth Rate 1999-2003: -2%;
Post-FTA growth rate 2004-2008: 1%;
Change in growth rates: 4%.
End use category description: Engines for civilian aircraft;
Dollar value: 2008: $1,398,740;
Rank by value 2008: 6;
Pre-FTA growth Rate 1999-2003: 7%;
Post-FTA growth rate 2004-2008: 8%;
Change in growth rates: 1%.
End use category description: Computer accessories, peripherals and
parts;
Dollar value: 2008: $1,052,448;
Rank by value 2008: 7;
Pre-FTA growth Rate 1999-2003: -8%;
Post-FTA growth rate 2004-2008: -8%;
Change in growth rates: 0%.
End use category description: Other petroleum products;
Dollar value: 2008: $595,732;
Rank by value 2008: 16;
Pre-FTA growth Rate 1999-2003: 11%;
Post-FTA growth rate 2004-2008: 9%;
Change in growth rates: -3%.
End use category description: Civilian aircraft, complete-all types;
Dollar value: 2008: $1,916,489;
Rank by value 2008: 3;
Pre-FTA growth Rate 1999-2003: 34%;
Post-FTA growth rate 2004-2008: 6%;
Change in growth rates: -28%.
Sources: GAO analysis using end use data from Commerce and ITC.
[End of table]
Table 5: U.S. Imports from Singapore: Top 25 Categories by Value, Pre-
and Post-FTA Average Annual Growth Rates, and Change in Growth Rates
between Periods (Dollars in thousands):
End use category description-top 25 categories ranked by largest
percentage change in growth rate:
End use category description: Woodworking, glass working, and plastic
and rubber molding machinery;
Dollar value 2008: $139,798;
Rank by value 2007: 16;
Pre-FTA growth rate 1999-2003: -18%;
Post-FTA growth rate 2004-2008: 111%;
Change in growth rates: 129%.
End use category description: Industrial organic chemicals;
Dollar value 2008: $1,017,728;
Rank by value 2007: 5;
Pre-FTA growth rate 1999-2003: 12%;
Post-FTA growth rate 2004-2008: 105%;
Change in growth rates: 93%.
End use category description: Other chemicals (coloring agents,
photographic chemicals, printing inks, paint);
Dollar value 2008: $73,873;
Rank by value 2007: 25;
Pre-FTA growth rate 1999-2003: -13%;
Post-FTA growth rate 2004-2008: 68%;
Change in growth rates: 81%.
End use category description: Other parts and accessories;
Dollar value 2008: $240,198;
Rank by value 2007: 11;
Pre-FTA growth rate 1999-2003: -14%;
Post-FTA growth rate 2004-2008: 27%;
Change in growth rates: 41%.
End use category description: Computers;
Dollar value 2008: $160,647;
Rank by value 2007: 15;
Pre-FTA growth rate 1999-2003: -33%;
Post-FTA growth rate 2004-2008: -11%;
Change in growth rates: 22%.
End use category description: Household and kitchen appliances;
Dollar value 2008: $111,544;
Rank by value 2007: 20;
Pre-FTA growth rate 1999-2003: -9%;
Post-FTA growth rate 2004-2008: 12%;
Change in growth rates: 21%.
End use category description: Photo and service industry machinery and
trade tools;
Dollar value 2008: $281,030;
Rank by value 2007: 10;
Pre-FTA growth rate 1999-2003: -6%;
Post-FTA growth rate 2004-2008: 15%;
Change in growth rates: 21%.
End use category description: Laboratory testing and control
instruments;
Dollar value 2008: $122,878;
Rank by value 2007: 19;
Pre-FTA growth rate 1999-2003: 10%;
Post-FTA growth rate 2004-2008: 29%;
Change in growth rates: 19%.
End use category description: Semiconductors and related devices;
Dollar value 2008: $1,361,468;
Rank by value 2007: 3;
Pre-FTA growth rate 1999-2003: -19%;
Post-FTA growth rate 2004-2008: -2%;
Change in growth rates: 17%.
End use category description: Telecommunications equipment;
Dollar value 2008: $544,550;
Rank by value 2007: 7;
Pre-FTA growth rate 1999-2003: 1%;
Post-FTA growth rate 2004-2008: 13%;
Change in growth rates: 12%.
End use category description: Parts for civilian aircraft;
Dollar value 2008: $110,859;
Rank by value 2007: 21;
Pre-FTA growth rate 1999-2003: 1%;
Post-FTA growth rate 2004-2008: 12%;
Change in growth rates: 11%.
End use category description: U.S. goods returned, and reimports;
Dollar value 2008: $1,342,962;
Rank by value 2007: 4;
Pre-FTA growth rate 1999-2003: -5%;
Post-FTA growth rate 2004-2008: 5%;
Change in growth rates: 10%.
End use category description: Electric apparatus and parts;
Dollar value 2008: $323,875;
Rank by value 2007: 9;
Pre-FTA growth rate 1999-2003: -8%;
Post-FTA growth rate 2004-2008: 1%;
Change in growth rates: 9%.
End use category description: Minimum value shipments;
Dollar value 2008: $96,407;
Rank by value 2007: 23;
Pre-FTA growth rate 1999-2003: -8%;
Post-FTA growth rate 2004-2008: 0;
Change in growth rates: 8%.
End use category description: Engines for civilian aircraft;
Dollar value 2008: $229,404;
Rank by value 2007: 12;
Pre-FTA growth rate 1999-2003: 25%;
Post-FTA growth rate 2004-2008: 28%;
Change in growth rates: 4v.
End use category description: Other scientific, medical and hospital
equipment;
Dollar value 2008: $574,365;
Rank by value 2007: 6;
Pre-FTA growth rate 1999-2003: 5%;
Post-FTA growth rate 2004-2008: 7%;
Change in growth rates: 3%.
End use category description: Computer accessories, peripherals and
parts;
Dollar value 2008: $4,276,149;
Rank by value 2007: 1;
Pre-FTA growth rate 1999-2003: -12%;
Post-FTA growth rate 2004-2008: -12%;
Change in growth rates: 0.
End use category description: Other (clocks, portable typewriters,
other household goods);
Dollar value 2008: $526,541;
Rank by value 2007: 8;
Pre-FTA growth rate 1999-2003: 8%;
Post-FTA growth rate 2004-2008: 7%;
Change in growth rates: -1%.
End use category description: Books, magazines, and other printed
matter;
Dollar value 2008: $132,821;
Rank by value 2007: 18;
Pre-FTA growth rate 1999-2003: -1%;
Post-FTA growth rate 2004-2008: -3%;
Change in growth rates: -2%.
End use category description: Measuring, testing, and control
instruments;
Dollar value 2008: $183,510;
Rank by value 2007: 13;
Pre-FTA growth rate 1999-2003: 1%;
Post-FTA growth rate 2004-2008: -5%;
Change in growth rates: -6%.
End use category description: Radios, phonographs, tape decks, and
other stereo equipment and parts;
Dollar value 2008: $101,451;
Rank by value 2007: 22;
Pre-FTA growth rate 1999-2003: -9%;
Post-FTA growth rate 2004-2008: -16%;
Change in growth rates: -7%.
End use category description: Other industrial machinery;
Dollar value 2008: $137,826;
Rank by value 2007: 17;
Pre-FTA growth rate 1999-2003: 5%;
Post-FTA growth rate 2004-2008: -3%;
Change in growth rates: -8%.
End use category description: Other (boxes, belting, glass, abrasives,
etc.);
Dollar value 2008: $90,738;
Rank by value 2007: 24;
Pre-FTA growth rate 1999-2003: 12%;
Post-FTA growth rate 2004-2008: 0;
Change in growth rates: -12%.
End use category description: Medicinal, dental and pharmaceutical
preparations, including vitamins;
Dollar value 2008: $2,391,790;
Rank by value 2007: 2;
Pre-FTA growth rate 1999-2003: 27%;
Post-FTA growth rate 2004-2008: 15%;
Change in growth rates: -12%.
End use category description: Plastic materials;
Dollar value 2008: $178,816;
Rank by value 2007: 14;
Pre-FTA growth rate 1999-2003: 51%;
Post-FTA growth rate 2004-2008: 9%;
Change in growth rates: -43%.
Sources: GAO analysis using end use data from Commerce and IYC.
[End of table]
Factors other than the FTA were important in trade between the United
States and Singapore during this period including other bilateral and
regional trade, for instance the fact that Singapore is a market
platform for many countries, competition by other Asian suppliers in
the U.S. market, and growth, among other market dynamics. For example,
Singapore is part of many Asian regional trade agreements such as the
ASEAN Free Trade Area, which could affect the level of trade with other
more distant trading partners such as the United States.[Footnote 80]
Also however, the United States and Singapore have similar degrees of
openness prior to the U.S.-Singapore FTA, which could suggest an even
greater amount of trade between the countries following the agreement.
Trade in Services:
The United States traditionally has maintained a positive trade balance
in services, both overall and with Singapore specifically. Furthermore,
the United States has experienced strong growth in its overall services
trade since 2004, a period that happens to coincide with the
implementation of the Singapore FTA. To assess the growth of services
trade overall, and in the context of the FTA, we took an average of the
levels in 2001 through 2003, the 3 years prior to the FTA, and compared
it with 2007 levels. The total (all countries) U.S. exports of services
are almost 71 percent higher, and U.S. imports of services have grown
61 percent. The overall U.S. trade surplus in services in 2007 was
nearly $139 billion.
U.S. exports of services to Singapore have grown in the post-FTA period
and were about 24 percent higher in 2007 compared with the pre-FTA
period (2001-03). This represents a decline, however, in the share of
total U.S. exports going to Singapore, as overall U.S. service export
growth has been more rapid than that with Singapore. However, most
major service sectors (categories) of exports to Singapore have shown
strong growth in the post-FTA period. In particular, the "other private
services" category has almost quadrupled, and within this group,
"business, professional and technical services" is up over 800 percent.
Royalties and license fees had exhibited strong growth through 2006,
although 2007 has shown a decline from the 2006 level.
U.S. imports of services from Singapore, in contrast with exports, have
grown significantly in the post-FTA period, up 90 percent in 2007
compared with the pre-FTA period level. This represents an increase in
Singapore's share of all U.S. service imports, although its share in
2007 was still a modest 1.1 percent. All the major categories of
services imports from Singapore have grown; in particular, "other
private services" are up almost 800 percent and, within that category,
"business, professional and technical services" are over 12 times
higher in the post-FTA period. The "royalties and licensure fees"
category was almost 140 percent higher.
FDI:
Overall, total (all countries) U.S. FDI (both outward and inward) has
shown strong growth in the period since 2004. Total outward U.S. FDI
stocks reached a level of almost $2.8 trillion in 2007. Comparing this
2007 level with the average of the 3-year period 2001-2003 shows that
U.S. outward FDI was 73 percent higher. As for FDI in the United States
(inward), in 2007, it reached a level of almost $2.1 trillion.
Comparing 2007 to the average of the 2001-2003 period, FDI in the
United States is 54 percent higher.
In 2007, the U.S. stock of FDI in Singapore (outward) reached a level
of over $82 billion. Compared with the period prior to the FTA (2001-
2003), this level is 73 percent higher. Since this growth rate
corresponds to that of overall U.S. FDI, it implies that Singapore's
share of U.S. FDI has remained stable at about 3 percent of total. U.S.
FDI in Singapore is concentrated in financial services and
manufacturing. Recently released data from BEA show that, in 2007, over
62 percent of the total U.S. stock of FDI in Singapore was in holding
companies.[Footnote 81] This figure may reflect the role of Singapore
as a base for investment, not only in Singapore, but throughout the
region. Including banking and finance with the holding company figure,
the total financial sector-related U.S. FDI constitutes about 70
percent of the U.S. total in Singapore. About 17 percent of U.S. FDI in
Singapore is in the manufacturing sector. Breaking down the
manufacturing U.S. FDI category, the computer and electronics category
constitutes 60 percent of total manufacturing FDI; transportation
equipment, chemicals, and machinery each constitute about 10 percent of
total FDI.
While Singapore's share of foreign investment in the United States
(inward FDI) was less than 0.5 percent in 2007, the level of FDI in the
United States by Singaporean firms has grown over 370 percent since
2003 (the year before the FTA was implemented). While BEA sector data
do not provide a complete breakdown (disclosure limited), Singapore
government data suggest that their FDI in the United States is
concentrated in financial and insurance services, and also in
manufacturing.
A useful indicator of greater economic integration is the growth in
sales by majority-owned foreign affiliates (MOFA) of U.S. multinational
corporations (MNC). These sales can be viewed as a complement to FDI in
so far as the investment in foreign affiliates leads to greater access
to the domestic market. In fact, sales by foreign affiliates can exceed
the amount of cross-border trade in goods and services. Data for sales
by U.S. MOFAs in Singapore in 2006 totaled over $193 billion, of which
$182 billion was in goods and over $9.3 billion was in services.
Compared with the 3-year average prior to the FTA (2001-2003), total
U.S. affiliate sales grew 117 percent, with sales of goods growing 123
percent, and services, growing 48 percent.
U.S. and Singaporean Perspectives on FTA Results:
Overall, U.S. and Singaporean officials, market participants, and
experts are very positive about the trade and commercial results of the
Singapore FTA. Singaporean trade officials cited export increases
associated with lowering of U.S. tariffs, and U.S. government officials
and private sector market participants have noted the sizable U.S.
export increases to Singapore.
Officials of both governments also noted substantial market openings in
services trade and foreign direct investment resulting from the FTA.
For example, a significant market opening has taken place in the
financial services area, where Citibank has been able to substantially
expand its operations by building a retail banking network. In
addition, U.S. mutual fund and securities firms have expanded their
asset management services in the Singapore market. In the FDI area,
some increases in investment in manufacturing have occurred, but
notable effects have been associated with a more favorable investment
climate and enhancements in intellectual property rights (IPR)
protection. These changes, in particular in IPR, appear to have had an
impact across the board in merchandise trade, services and FDI. For
example, the expanded IPR protection has been a factor for Lucas Films
in making an investment in Singapore, where they are doing
postproduction film work and conducting business development
activities. Microsoft established a new software development center in
Singapore. The pharmaceutical industry is also an excellent example of
the interaction of a number of factors. IPR protection makes direct
investment in Singapore more attractive for U.S. pharmaceutical firms.
The incentives to invest are further enhanced by the efforts of the
Singapore government and private sector to develop Singapore as a
pharmaceutical manufacturing hub. As pharmaceutical firms develop their
manufacturing capabilities in Singapore, this leads to increased
exports (machinery and materials) from the United States with
subsequent export activity (finished products) from Singapore, much of
it back to the U.S. market. The professional services market may
benefit as well from these activities.
[End of section]
Appendix IV: Commercial/Economic Results of the Chile FTA:
The Chile FTA entered into force on January 1, 2004. Chile, a small
upper-middle income country with an open economy and liberal trading
regime, has rapidly increased trade with the United States and the
world. The Chile FTA appears to have increased trade between the two
countries, strengthened the regulatory framework for services and
investment, and provided a template for other trade agreements between
Chile and other countries.
Chile's Economy and International Trade:
Chile's economy has had dramatic growth in GDP over the last two
decades with reductions in poverty while its government has taken steps
to stabilize its macroeconomy, perform structural reforms, and increase
competitiveness. For 2008, Chile's GDP was estimated at $245 billion
(PPP) and GDP per capita at $14,900 (PPP) with a growth rate at 4
percent supported primarily by copper and other export earnings. Copper
earnings have typically been about 10 percent of Chile's total income.
More recently however, with the global economic downturn, copper prices
have fallen from highs of $4 per pound in 2008 to $1.50 per pound in
early 2009, with the value of Chilean copper exports down 66 percent in
March 2009 compared with a year earlier. Since copper prices have been
volatile over the years, the government has established a
countercyclical macroeconomic policy accumulating surpluses in a
sovereign wealth fund in years of higher copper prices, and only
allowing deficit spending in years of lower copper prices. Also,
according to the Organization for Economic Co-operation and Development
(OECD), years of sustained growth has caused the poverty rate to
decline precipitously from 38.6 percent of the population in 1990 to
13.7 percent in 2006.[Footnote 82] At the same time, while there was
some improvement between 2003 and 2006, Chile's level of income
inequality has remained relatively high by Latin American and
international standards.[Footnote 83]
Chile's principal export destinations in 2007 included China, the
United States, and Japan, and its principal import partners included
the United States, China, and Brazil. Overall, in 2008 Chile was the
United States' 24th largest export market, up from 35th in 2003. In
addition to the United States, Chile has signed FTAs with numerous
countries, including the Mercosur countries, Canada, Mexico, Central
America, the EU, South Korea, the European Free Trade Association
countries, China, Singapore, New Zealand, Brunei, India, Panama, Peru,
Columbia, and Japan. In the world market, Chile's exports include
copper, fruit, fish products, pulp and paper, chemicals, and wine; its
imports include petroleum, chemicals, electrical and telecommunication
equipment, industrial machinery, vehicles, and natural gas. In
agricultural products, because of opposite growing seasons, trade
between the United States and Chile is complementary. The World Bank's
2009 Doing Business report ranked Chile 40th out of 181 economies in
its global overall rank of "ease of doing business."
Key Market Access and Other Commercial and Regulatory Issues:
The U.S.-Chile FTA is aimed at improving market access to one of South
America's most important economies and "leveling the playing field" for
U.S. products. Chile had already entered FTAs with Canada, Mexico, and
the EU, leaving many U.S. products at a disadvantage in the Chilean
market because of existing tariffs.
Prior to the FTA, Chile had remained a small trading partner with the
United States over a long period. The United States was subject to a
uniform 6 percent average most favored nation applied tariff rate,
along with certain nontariff barriers on agricultural products.
Nevertheless, Chile faced varying levels of tariffs on the U.S. side,
although some products entered duty-free. The Chile FTA eliminates
tariffs through five product-specific staging categories over a
transition period that extends up to 12 years, from 2004 to 2016. For
the United States, the agreement allows for 85 percent of all consumer
and industrial goods to be duty-free immediately, with about 75 percent
of all agricultural products duty-free within 4 years, and the rest
eligible for duty-free status over time. For Chile, it allows for
market access for 95 percent of all consumer and industrial goods
immediately with 1.2 percent falling into the 12-year period. Access to
each country's market was immediate for certain products such as pork,
some fruits and vegetables, and tree nuts while tariffs to beef,
poultry, and some processed vegetables are eliminated in schedules over
4 to 12 years.
In addition to reducing and eliminating tariffs, the agreement also
contains provisions aimed at establishing a better, more transparent
climate to foster trade and investment. The agreement restricts the
application of nontariff barriers, provides broadened coverage for U.S.
service providers, improves access to the Chilean government
procurement market, and provides for easier entry and exit of business
persons. For example, the FTA addresses certain nontariff barriers
through the recognition of U.S. food standards, the recognition of the
U.S. meat inspection system, and the elimination of "price bands" for
wheat and other agricultural imports, a system Chile has used to
maintain prices of certain grain and vegetable oil products. Other
commitments on merchandise goods in the FTA include an elimination of
the luxury tax on automobiles over 4 years, as well as provisions for
customs administration procedures. The agreement also uses a "negative
list" approach to trade in services opening access to service markets
such as financial services, telecommunications, insurance, and express
delivery services. According to the 2003 Bush administration, the
agreement also establishes a more secure, predictable legal framework
for U.S. investors in Chile, including dispute settlement procedures.
Moreover, the legal framework was to include higher standards and
enforcement of intellectual property protections, building on the
standards set in the WTO Agreement on Trade-Related Aspects of
Intellectual Property Rights. It recognized the evolution and
development of digital products and included provisions for their
protection that were a breakthrough for the South American region.
Observed Results of the FTA in Merchandise Trade, Services, and FDI:
Merchandise Trade:
After implementation of the FTA, total U.S. exports to Chile increased
by 365 percent, from $2.4 billion to $11.4 billion from 2003 to 2008.
During the same time period, Chile's imports from the United States
rose from $4 billion to $8.2 billion, or by 106 percent. Two-way trade
between the countries increased from $6.4 billion in 2003 to $19.5
billion in 2008 or by 204 percent between 2003 and 2008. The balance of
trade showed a somewhat widening trade deficit for the United States
from 1999 to 2007, which then turned into a trade surplus of $3.2
billion in 2008.
During the period after the agreement came into force, the United
States regained its overall market share in the Chilean market that it
had lost before the agreement. Figure 7 shows that following the FTA,
the United States regained market share that it had lost to Argentina
in that market prior to 2004.[Footnote 84] U.S. market share, which had
been at 24 percent in 1998, had fallen to 15 percent in 2003. After the
FTA, the United States regained its market share, which rose to 19
percent in 2008.
Figure 7: Market Share of the Top Five Exporting Countries to Chile,
1998 to 2008:
[Refer to PDF for image: multiple line graph]
Year: 1998;
China: 4.4%;
Brazil: 6.5%;
Argentina: 10.9%;
South Korea: 3.1%;
United States: 23.8%.
Year: 1999;
China: 4.7%;
Brazil: 6.9%;
Argentina: 14.2%;
South Korea: 2.8%;
United States: 21.8%.
Year: 2000;
China: 5.7%;
Brazil: 8.0%;
Argentina: 17.1%;
South Korea: 3.2%;
United States: 20.1%.
Year: 2001;
China: 6.3%;
Brazil: 9.3%;
Argentina: 18.7%;
United States: 18.2%;
Year: 2002;
China: 7.2%;
Brazil: 10.3%;
Argentina: 19.4%;
South Korea: 2.8%;
United States: 16.6%;
Year: 2003 (U.S.-Chile FTA signed);
China: 7.3%;
Brazil: 11.8%;
Argentina: 21.3%;
South Korea: 3.0%;
United States: 14.5%.
Year: 2004;
China: 8.3%;
Brazil: 12.4%;
Argentina: 18.5%;
South Korea: 3.1%;
United States: 15.1%.
Year: 2005;
China: 8.5%;
Brazil: 12.7%;
Argentina: 16.1%;
South Korea: 3.6%;
United States: 15.8%.
Year: 2006;
China: 10.0%;
Brazil: 12.2%;
Argentina: 13.0%;
South Korea: 4.7%;
United States: 16.0%;
Year: 2007;
China: 11.4%;
Brazil: 10.5%;
Argentina: 10.1%;
South Korea: 7.2%;
United States: 17.0%.
Year: 2008;
China: 12.0%;
Brazil: 9.3%;
Argentina: 8.9%;
South Korea: 5.6%;
United States: 19.4%.
Sources: GAO analysis using data from the World Trade Atlas, GTIS, in
cooperation with the Economic Research Service, U.S. Department of
Agriculture (USDA).
[End of figure]
For U.S. exports to Chile, the highest end use categories by value for
2008 were fuel oil, other petroleum products, civilian aircraft,
materials handling equipment, and excavating, paving, and construction
machinery. Looking at broader sectors, after the FTA came into force,
Chile's official trade statistics show that U.S. agricultural exports
to Chile, including agricultural commodities, horticultural products,
and livestock grew tenfold, from $25 million in 2004 to $256 million in
2007, representing growth from 6 percent to 26 percent during this
period.[Footnote 85] Top valued U.S. import categories from Chile
included copper, fruits and preparations, fish and shellfish,
nonmonetary gold, and steelmaking and ferroalloying materials.
Across product categories, we also calculated the differences between
pre-and post-FTA average annual growth rates for the top 25 U.S.
exports and imports in value with Chile. Tables 6 and 7 display the top
25 end use categories for U.S. export and import categories with Chile:
their description ranked by growth rate, their dollar value, their rank
by dollar value, their average annual pre-FTA and post-FTA growth
rates, and change in growth between the two periods. Table 6 shows that
post-FTA growth rates were higher than pre-FTA growth rates for all, or
100 percent of the top 25 U.S. export categories to Chile, while table
7 shows that of the top 25 U.S. import categories from Chile, 52
percent were higher in the post-FTA than the pre-FTA period (for a more
detailed discussion of the methodology of this analysis, see appendix
I).
Table 6: U.S. Exports to Chile: Top 25 Categories by Value, Pre-and
Post-FTA Average Annual Growth Rates, and Change in Growth Rates
between Periods (Dollars in thousands):
End use category description-top 25 categories ranked by largest
percentage change in growth rate:
End use category description: Civilian aircraft, complete-all types;
Dollar value: 2008: $630,343;
Rank by value 2008: 3;
Pre-FTA growth rate 1999-2003: -56%;
Post-FTA growth rate 2004-2008: 99%;
Change in growth rates: 155%.
End use category description: Wheat;
Dollar value: 2008: $132,056;
Rank by value 2008: 19;
Pre-FTA growth rate 1999-2003: 6%;
Post-FTA growth rate 2004-2008: 128%;
Change in growth rates: 122%.
End use category description: Fuel oil;
Dollar value: 2008: $2,844,925;
Rank by value 2008: 1;
Pre-FTA growth rate 1999-2003: -12%;
Post-FTA growth rate 2004-2008: 103%;
Change in growth rates: 115%.
End use category description: Corn;
Dollar value: 2008: $107,652;
Rank by value 2008: 24;
Pre-FTA growth rate 1999-2003: -20%;
Post-FTA growth rate 2004-2008: 57%;
Change in growth rates: 77%.
End use category description: Generators, transformers, and
accessories;
Dollar value: 2008: $128,546;
Rank by value 2008: 20;
Pre-FTA growth rate 1999-2003: -25%;
Post-FTA growth rate 2004-2008: 31%;
Change in growth rates: 56%.
End use category description: Passenger cars, new and used;
Dollar value: 2008: $261,197;
Rank by value 2008: 8;
Pre-FTA growth rate 1999-2003: 3%;
Post-FTA growth rate 2004-2008: 56%;
Change in growth rates: 53%.
End use category description: Telecommunications equipment;
Dollar value: 2008: $203,520;
Rank by value 2008: 11;
Pre-FTA growth rate 1999-2003: -19%;
Post-FTA growth rate 2004-2008: 20%;
Change in growth rates: 40%.
End use category description: Minimum value shipments;
Dollar value: 2008: $434,783;
Rank by value 2008: 6;
Pre-FTA growth rate 1999-2003: -8%;
Post-FTA growth rate 2004-2008: 30%;
Change in growth rates: 38%.
End use category description: Materials handling equipment;
Dollar value: 2008: $539,980;
Rank by value 2008: 4;
Pre-FTA growth rate 1999-2003: 1%;
Post-FTA growth rate 2004-2008: 37%;
Change in growth rates: 36%.
End use category description: Plastic materials;
Dollar value: 2008: $366,887;
Rank by value 2008: 7;
Pre-FTA growth rate 1999-2003: -2%;
Post-FTA growth rate 2004-2008: 34%;
Change in growth rates: 36%.
End use category description: Newsprint and other paper products;
Dollar value: 2008: $109,192;
Rank by value 2008: 22;
Pre-FTA growth rate 1999-2003: -10%;
Post-FTA growth rate 2004-2008: 26%;
Change in growth rates: 35%.
End use category description: Industrial inorganic chemicals;
Dollar value: 2008: $192,547;
Rank by value 2008: 13;
Pre-FTA growth rate 1999-2003: 1%;
Post-FTA growth rate 2004-2008: 31%;
Change in growth rates: 30%.
End use category description: Industrial organic chemicals;
Dollar value: 2008: $250,710;
Rank by value 2008: 9;
Pre-FTA growth rate 1999-2003: 0%;
Post-FTA growth rate 2004-2008: 30%;
Change in growth rates: 30%.
End use category description: Excavating, paving, and construction
machinery;
Dollar value: 2008: $525,030;
Rank by value 2008: 5;
Pre-FTA growth rate 1999-2003: -8%;
Post-FTA growth rate 2004-2008: 19%;
Change in growth rates: 26%.
End use category description: Other petroleum products;
Dollar value: 2008: $724,890;
Rank by value 2008: 2;
Pre-FTA growth rate 1999-2003: 1%;
Post-FTA growth rate 2004-2008: 27%;
Change in growth rates: 26%.
End use category description: Photo and service industry machinery and
trade tools;
Dollar value: 2008: $105,856;
Rank by value 2008: 25;
Pre-FTA growth rate 1999-2003: 2%;
Post-FTA growth rate 2004-2008: 27%;
Change in growth rates: 25%.
End use category description: Computers;
Dollar value: 2008: $139,838;
Rank by value 2008: 18;
Pre-FTA growth rate 1999-2003: -4%;
Post-FTA growth rate 2004-2008: 21%;
Change in growth rates: 25%.
End use category description: Fertilizers, pesticides, and
insecticides;
Dollar value: 2008: $230,725;
Rank by value 2008: 10;
Pre-FTA growth rate 1999-2003: 5%;
Post-FTA growth rate 2004-2008: 29%;
Change in growth rates: 24%.
End use category description: Other chemicals (coloring agents,
photographic chemicals, printing inks, paint);
Dollar value: 2008: $189,247;
Rank by value 2008: 14;
Pre-FTA growth rate 1999-2003: -3%;
Post-FTA growth rate 2004-2008: 18%;
Change in growth rates: 21%.
End use category description: Trucks, buses, and special purpose
vehicles;
Dollar value: 2008: $184,155;
Rank by value 2008: 15;
Pre-FTA growth rate 1999-2003: 1%;
Post-FTA growth rate 2004-2008: 21%;
Change in growth rates: 21%.
End use category description: Other parts and accessories;
Dollar value: 2008: $126,254;
Rank by value 2008: 21;
Pre-FTA growth rate 1999-2003: 1%;
Post-FTA growth rate 2004-2008: 21%;
Change in growth rates: 20%.
End use category description: Other-manufactured and unmanufactured;
Dollar value: 2008: $107,675;
Rank by value 2008: 23;
Pre-FTA growth rate 1999-2003: -8%;
Post-FTA growth rate 2004-2008: 8%;
Change in growth rates: 17%.
End use category description: Industrial engines, pumps, compressors,
and generators;
Dollar value: 2008: $170,035;
Rank by value 2008: 16;
Pre-FTA growth rate 1999-2003: -2%;
Post-FTA growth rate 2004-2008: 12%;
Change in growth rates: 14%.
End use category description: Computer accessories, peripherals, and
parts;
Dollar value: 2008: $158,089;
Rank by value 2008: 17;
Pre-FTA growth rate 1999-2003: -14%;
Post-FTA growth rate 2004-2008: -1%;
Change in growth rates: 13%.
End use category description: Other industrial machinery;
Dollar value: 2008: $198,889;
Rank by value 2008: 12;
Pre-FTA growth rate 1999-2003: 0%;
Post-FTA growth rate 2004-2008: 12%;
Change in growth rates: 12%.
Source: GAO analysis using end use data from Commerce and ITC.
[End of table]
Table 7: U.S. Imports from Chile: Top 25 Categories by Value, Pre-and
Post-FTA Average Annual Growth Rates, and Change in Growth Rates
between Periods (Dollars in thousands):
End use category description-top 25 categories ranked by largest
percentage change in growth rate:
End use category description: Other precious metals;
Dollar value 2008: $162,079;
Rank by value 2008: 11;
Pre-FTA growth rate 1999-2003: -31%;
Post-FTA growth rate 2004-2008: 78%;
Change in growth rates: 110%.
End use category description: Pulpwood and woodpulp;
Dollar value 2008: $30,461;
Rank by value 2008: 23;
Pre-FTA growth rate 1999-2003: -29%;
Post-FTA growth rate 2004-2008: 22%;
Change in growth rates: 52%.
End use category description: Finished metal shapes and advanced
manufactures, except steel;
Dollar value 2008: $66,091;
Rank by value 2008: 15;
Pre-FTA growth rate 1999-2003: -9%;
Post-FTA growth rate 2004-2008: 32%;
Change in growth rates: 41%.
End use category description: Miscellaneous nonferrous metals (cobalt,
mercury, antimony, etc.);
Dollar value 2008: $55,896;
Rank by value 2008: 16;
Pre-FTA growth rate 1999-2003: 5%;
Post-FTA growth rate 2004-2008: 36%;
Change in growth rates: 30%.
End use category description: Nonmonetary gold;
Dollar value 2008: $379,228;
Rank by value 2008: 4;
Pre-FTA growth rate 1999-2003: -5%;
Post-FTA growth rate 2004-2008: 25%;
Change in growth rates: 30%.
End use category description: U.S. goods returned, and reimports;
Dollar value 2008: $92,066;
Rank by value 2008: 13;
Pre-FTA growth rate 1999-2003: -8%;
Post-FTA growth rate 2004-2008: 21%;
Change in growth rates: 28%.
End use category description: Copper;
Dollar value 2008: $2,695,147;
Rank by value 2008: 1;
Pre-FTA growth rate 1999-2003: 6%;
Post-FTA growth rate 2004-2008: 26%;
Change in growth rates: 21%.
End use category description: Industrial inorganic chemicals;
Dollar value 2008: $277,213;
Rank by value 2008: 7;
Pre-FTA growth rate 1999-2003: -2%;
Post-FTA growth rate 2004-2008: 19%;
Change in growth rates: 20%.
End use category description: Vegetables and preparations;
Dollar value 2008: $40,978;
Rank by value 2008: 18;
Pre-FTA growth rate 1999-2003: -13%;
Post-FTA growth rate 2004-2008: 7%;
Change in growth rates: 20%.
End use category description: Farming materials, including farm animals
and animals for breeding;
Dollar value 2008: $174,353;
Rank by value 2008: 10;
Pre-FTA growth rate 1999-2003: 0;
Post-FTA growth rate 2004-2008: 14%;
Change in growth rates: 14%.
End use category description: Other (tobacco, waxes, nonfood oils,
fatty acids, natural materials used in the preparation of medicines,
dyes, and perfumes);
Dollar value 2008: $27,717;
Rank by value 2008: 25;
Pre-FTA growth rate 1999-2003: -2v;
Post-FTA growth rate 2004-2008: 11%;
Change in growth rates: 13%.
End use category description: Minimum value shipments;
Dollar value 2008: $34,644;
Rank by value 2008: 22;
Pre-FTA growth rate 1999-2003: 4%;
Post-FTA growth rate 2004-2008: 14%;
Change in growth rates: 10%.
End use category description: Wine and related products;
Dollar value 2008: $223,817;
Rank by value 2008: 8;
Pre-FTA growth rate 1999-2003: 2%;
Post-FTA growth rate 2004-2008: 8%;
Change in growth rates: 6%.
End use category description: Other (soft beverages, processed coffee,
etc.);
Dollar value 2008: $30,202;
Rank by value 2008: 24;
Pre-FTA growth rate 1999-2003: 36%;
Post-FTA growth rate 2004-2008: 35%;
Change in growth rates: -1%.
End use category description: Fruits and preparations, including frozen
juices;
Dollar value 2008: $1,493,268;
Rank by value 2008: 2;
Pre-FTA growth rate 1999-2003: 8%;
Post-FTA growth rate 2004-2008: 7%;
Change in growth rates: -1%.
End use category description: Fish and shellfish;
Dollar value 2008: $985,523;
Rank by value 2008: 3;
Pre-FTA growth rate 1999-2003: 10%;
Post-FTA growth rate 2004-2008: 8%;
Change in growth rates: -2%.
End use category description: Other (boxes, belting, glass, abrasives,
etc.);
Dollar value 2008: $35,297;
Rank by value 2008: 21;
Pre-FTA growth rate 1999-2003: 4%;
Post-FTA growth rate 2004-2008: 2%;
Change in growth rates: -2%.
End use category description: Fertilizers, pesticides, and
insecticides;
Dollar value 2008: $37,940;
Rank by value 2008: 19;
Pre-FTA growth rate 1999-2003: -1%;
Post-FTA growth rate 2004-2008: -4%;
Change in growth rates: -3%.
End use category description: Other nonagricultural foods and food
additives;
Dollar value 2008: $70,490;
Rank by value 2008: 14;
Pre-FTA growth rate 1999-2003: 11%;
Post-FTA growth rate 2004-2008: 7%;
Change in growth rates: -4%.
End use category description: Steelmaking and ferroalloying materials-
unmanufactured;
Dollar value 2008: $305,604;
Rank by value 2008: 6;
Pre-FTA growth rate 1999-2003: 25%;
Post-FTA growth rate 2004-2008: 18%;
Change in growth rates: -7%.
End use category description: Lumber and wood in the rough;
Dollar value 2008: $191,926;
Rank by value 2008: 9;
Pre-FTA growth rate 1999-2003: 3%;
Post-FTA growth rate 2004-2008: -12%;
Change in growth rates: -15%.
End use category description: Automotive tires and tubes;
Dollar value 2008: $37,064;
Rank by value 2008: 20;
Pre-FTA growth rate 1999-2003: 4%;
Post-FTA growth rate 2004-2008: -11%;
Change in growth rates: -16%.
End use category description: Other-finished (shingles, molding,
wallboard, etc.);
Dollar value 2008: $361,415;
Rank by value 2008: 5;
Pre-FTA growth rate 1999-2003: 9%;
Post-FTA growth rate 2004-2008: -13%;
Change in growth rates: -21%.
End use category description: Plywood and veneers;
Dollar value 2008: $104,289;
Rank by value 2008: 12;
Pre-FTA growth rate 1999-2003: 29%;
Post-FTA growth rate 2004-2008: 7%;
Change in growth rates: -22%.
End use category description: Industrial organic chemicals;
Dollar value 2008: $41,470;
Rank by value 2008: 17;
Pre-FTA growth rate 1999-2003: 20%;
Post-FTA growth rate 2004-2008: -18%;
Change in growth rates: -38%.
Sources: GAO analysis using end use data from Commerce and ITC.
[End of table]
Factors other than the FTA were important in trade between the United
States and Chile during this period including high commodity prices,
exchange rates, other bilateral and regional trade and growth, among
other dynamics of the market. For example, U.S. grain prices, as well
as Chilean copper prices, reached record levels in 2008, which affected
the value of imports and exports. However, the dramatic decline in both
grain and copper prices in the later half of 2008, has also affected
export earnings for both countries. Also, while in Chile, we were told
that the lower value of the U.S. dollar relative to the Chilean peso
made Chilean exports to the United States more expensive and U.S.
imports relatively inexpensive. One Chilean academic noted that, with
the low value of the U.S. dollar, the retail industry and construction
in Chile have been thriving, partly due to cheaper U.S. imports.
Trade in Services:
Commerce notes that the Chile FTA provided new market access for
service industries, including groundbreaking transparency rules to
ensure that service regulators operate fairly. Some of the key sectors
expected to benefit from the agreement are computer and related
services, telecommunications services, financial services, construction
and engineering, express delivery, professional services (e.g.,
architects, engineers, accountants, legal services), and distribution
services (e.g., wholesaling, retailing, franchising).
Recently revised data from the BEA show that U.S. services exports to
Chile in 2007 were about $1.76 billion, less than one-tenth of 1
percent of the total. Comparing the 2007 figure with the 3-year average
prior to the FTA, 2001-2003, exports to Chile were about 47 percent
higher. This represents substantial growth and, given the very strong
growth of overall U.S. services exports, it represents only a slight
decline in the share of the U.S. total going to Chile. Of U.S. services
exports to Chile, "other private services" represents the largest
category at about 44 percent in 2007. The next largest services sector
category is "travel" at about 25 percent with "other transportation"
representing almost 16 percent. Comparing 2007 with the 3-year average
prior to the FTA, the "other private services" category has grown over
100 percent, and the subcategory "business, professional and technical
services," which constitutes over one-half of the "other private
services" category, has grown about 168 percent. This strong growth
seems consistent with the improved market access provided in the FTA.
Financial services also are garnering a sizable share of "other private
services" U.S. exports. In addition, the "royalties and licensure fees"
category has grown over 140 percent, with computer and information
services representing a sizable share of this category.
We can infer whether the U.S. share of the Chilean services market has
risen or fallen by looking at UN services data. These data show that
total Chilean services imports from all partners totaled $9.95 billion
in 2007. Comparing this figure with the 3-year average prior to the FTA
(2001-2003), we find that Chilean service imports grew 89 percent. If
we compare this figure with BEA data on U.S. exports to Chile, we see
that U.S. exports grew only 47 percent. So, given the sizable Chilean
growth in worldwide service imports, we can infer that the U.S. share
of Chilean imports has likely fallen in the post-FTA period.
Nonetheless, the services market openings provided by the FTA seem to
have shown some positive results.
U.S. services imports from Chile in 2007 were only about $868 million,
which is a very small percentage of overall U.S. service imports.
Comparing the 2007 figure with the pre-FTA 3-year average, 2001-2003,
service imports from Chile were about 19 percent higher. This modest
increase, given the strong growth in U.S. services imports overall,
suggests that services imports from Chile have declined as a share of
the U.S. total. Travel, "other transportation," and "other private
services" represent 32 percent, 24 percent, and 29 percent,
respectively, of total U.S. service imports from Chile. "Other private
services" has increased about 162 percent in the post-FTA period, and
the largest sectors are education services and business services and
professional and technical services, the latter of which has grown
almost 700 percent in the post-FTA period.
FDI:
The Chile FTA has helped to consolidate Chile's status as a secure
location for foreign investment, according to Commerce. All forms of
investment are covered by the FTA, including direct ownership of
companies, real estate, intellectual property rights, government
concessions and debt instruments. The IPR provisions of the FTA build
on existing international standards, with emphasis on new and emerging
technologies. The FTA includes state-of-the-art protection for
trademarks and copyrights, expands protections for patents and
undisclosed information, and calls for strong enforcement mechanisms.
In 2007, BEA data showed that the U.S. stock of outward FDI in Chile
totaled $12.6 billion. This level represents less than 1 percent (0.45)
of total U.S. outward FDI. Since 1998, Chile's share of U.S. outward
FDI has been under 1 percent of total and has shown a slow secular
decline since before the FTA. Despite this secular decline, there has
been growth in U.S. FDI since the FTA. A comparison of the 2007 level
of FDI with the 3-year average prior to the FTA shows that U.S. FDI in
Chile has increased 33 percent. This is based on growth of 20 percent
in 2004 and 11 percent in 2007, while growth in 2005 and 2006 was 3
percent and 2 percent, respectively. Chilean government data show that
historically, the United States and Spain have been the major foreign
investors in Chile. However, more recent data (2007) show that Canada,
the United States, and Colombia are now the largest foreign investors.
U.S. FDI in Chile is distributed across several sectors, with no one
sector strongly dominating U.S. FDI. The breakdown is as follows:
finance and insurance (22 percent); manufacturing (17 percent); other
industries (16.5 percent); mining (11.5 percent); depository
institutions (11.5 percent); wholesale trade (7 percent); and holding
companies (7 percent). A breakdown of the manufacturing category (17
percent of total) excludes some categories for disclosure purposes, but
available data show that chemicals comprise about 31 percent of U.S.
FDI in manufacturing.
As for FDI by Chilean firms into the United States in 2007, the BEA
reports a negative $430 million inward FDI.[Footnote 86] Inward FDI had
shown some growth in 2005 and 2006, reaching a positive $288 million in
2006.
Data for sales by MOFAs of U.S. MNCs in Chile totaled about $14.8
billion in 2006, based on preliminary BEA data. Of this total, two-
thirds (67 percent) is sales of goods. Compared with the 3-year average
prior to the FTA, total U.S. affiliate sales in Chile grew 72 percent,
with sales of goods growing faster than sales of services. This
suggests that U.S. MNCs are integrating well into the Chilean domestic
market.
U.S. and Chilean Perspectives on FTA Results:
Overall, Chilean officials and experts that we spoke with were very
positive about the trade and commercial results of the FTA. One
official, who was one of the major negotiators of the agreement, said
that he thought the FTA provided an improved regulatory framework
through which trade and investment can occur. The FTA was important on
the cooperation side, in making changes in domestic legislation and
diffusing this information to small-and-medium-sized enterprises and
poorer regions in Chile. He explained that exports and imports between
the United States and Chile had been increasing very fast, and trade
with China and the EU also have increased. But the trade with China
could be about 95 percent explained by copper and cellulosic goods.
However, trade with the United States is much more diversified, and
this is very important because it creates more employment within Chile.
In agriculture, a representative of Chilean fruit and vegetable
exporters provided examples of diversification of exports into new
areas such as clementines, cranberries, and avocadoes. Also, according
to AmCham in Chile, American firms have been particularly successful in
exporting mining equipment and heavy machinery, as well as
technological products such as computers. Here Chile's 6 percent tariff
was not trivial and the fact that the United States' main competitors
in the EU already had duty-free access meant they had been gaining
market share at U.S. expense; since the FTA, U.S. firms have won most
of this back.
From a U.S. perspective, however, there is disappointment in Chile's
implementing its IPR obligations in the FTA. In 2007, Chile was moved
from the WTO's Watch List to the Priority Watch List because of
inadequate protection in IPR.[Footnote 87] While noting concerns, there
is some agreement by Chilean officials that they were actually making
"a bit of progress" in these areas. Specifically, they cited recent
progress in protecting copyrights, especially in the area of computer
software. However, they acknowledged the IPR issues surrounding the
presence of Chile's large generic pharmaceutical industry. All in all,
they felt that with more knowledge, more direction, and better
infrastructure within Chile for determining clear-cut authority, they
will move in the right direction toward strengthening IPR protection.
However, U.S. officials and others believe that while Chile is working
on this issue, they still have not gone far enough and are not fully
committed to meeting the IPR provisions provided in the FTA. For
example, representatives of AmCham in Chile noted that this was proving
to be a problem for many U.S. businesses in that they were not only
losing opportunities and sales, but also losing time and money in
bringing law suits against firms that infringed upon their patent
rights.
From the Chilean side, several important issues remain outstanding. For
instance, several officials that we spoke with hadn't seen any
improvement with trade on the services side, and moreover there was a
general dissatisfaction with the level of U.S. investment in Chile
since the FTA came into force. Some officials in Chile blamed this on
the fact that the United States and Chile have not agreed on a
bilateral tax treaty.[Footnote 88] Others say that there are other
reasons for this, including geography, the small size of their market,
and that the fact that the United States is concentrating on other
markets, in particular China and the "new" Europe.
[End of section]
Appendix V: Commercial/Economic Results of the Morocco FTA:
The Morocco FTA entered into force on January 1, 2006, and was the
second agreement, after Jordan, signed by the United States with an
Arab country. Morocco, a lower-middle-income country in Northwest
Africa, has experienced a gradual improvement in living standards and
increased per capita income in recent years, through sound
macroeconomic policies and sustained structural reforms. Three years
after implementation of the FTA with the United States there have been
increases in trade and investment for both partners, as well as
strengthened regulatory and IPR laws.
Morocco's Economy and International Trade:
Morocco had a GDP estimated at $137.3 billion (Purchasing Power Parity,
PPP) in 2008 ($75 billion in 2007) with a GDP per capita income
estimated at $4,000 (PPP). While mining, textiles, tourism, and
construction are important sectors in Morocco's economy, the
agricultural sector is also significant, accounting for about 15-20
percent of total GDP and about 40-45 percent of the total workforce.
However, the country is highly vulnerable to dry weather events. It
suffered a severe drought in 2007, causing an 18 percent drop in
agricultural production--real GDP growth fell significantly from 7.8
percent in 2006 to 2.7 percent in 2007. Morocco's unemployment rate was
estimated at about 10 percent in 2008.
While certain business and trade indicators reveal Morocco is making
reforms and moving forward, others show some competitive challenges
remain. The World Bank's 2009 Doing Business report shows that Morocco
has made progress in improving administrative procedures and has
introduced major reforms, such as credit verification and reducing the
tax rate from 35 to 30 percent, but it still remains relatively lower
ranked in indicators such as the labor code, collateral law, and
commercial courts functioning. In addition, using revealed comparative
advantage indicators, the International Monetary Fund (IMF)
demonstrated some competitiveness challenges in the Moroccan goods
market, although it has gained market share in the services sector.
Specifically, this analysis suggested losses in comparative advantage
in sectors such as clothing and fresh food and some increases in
processed foods, leather products, and electronic goods. According to
their analysis, some new emerging sectors included basic manufacturing
and transportation equipment. A comprehensive trade indicator, the
Trade Performance Index, revealed that, among other regional economies
that export to the EU market, Morocco ranks at best third among similar
exporters in fresh and processed food trade in that market.
In external trade, Morocco's overall trade deficit with the rest of the
world was estimated at about $18.3 billion or close to 13 percent of
GDP in 2008. In addition to joining the WTO in 1995, and entering into
the FTA with the United States, it has entered into several bilateral
and regional trade and economic agreements with other Middle East and
North African countries, as well as European countries. These include
an Association Agreement with the EU (2000), an FTA with Turkey (2006),
and the Agadir Agreement between Morocco, Tunisia, Egypt, and Jordan
(2006). Morocco's merchandise trade is mainly focused on the EU, with
France the largest trading partner. Morocco has proximity, cultural,
and language ties with Europe, and with France in particular, which
makes it a natural trading partner. In 2008, Morocco was the 80th
largest trading partner with the United States.
Key Market Access and Other Regulatory Issues:
The U.S.-Morocco FTA aimed to create a preferential regime across a
negotiated range of goods and services and included commitments
covering other trade-related matters. The agreement would phase out
tariffs on certain goods over periods of up to 18 years, but it would
neither cover every aspect of bilateral trade nor all goods under any
tariff category. Some tariff benefits would be limited during a
transition period. The aim of the FTA was to strengthen the bilateral
partnership, raise living standards in both countries, improve the
business climate and competitiveness of firms, provide predictable
rules, and build on the commitments to the WTO. Also, the U.S.-Morocco
FTA was part of an overall effort by the United States to create a
Middle East Free Trade Agreement (MEFTA).
Prior to the FTA, the United States was subject to an average tariff on
all industrial goods exported to Morocco of 28 percent, with duties on
certain products as high as 50 percent. There were also numerous
nontariff barriers that restricted trade. After the FTA, many key U.S.
export sectors became duty free immediately and others would gain
access within 9 years benefiting industries such as information
technology, machinery, construction equipment, and chemicals.
Originating textile and apparel goods receive preferential duty
treatment according to a 10-year tariff reduction schedule.
For most agricultural goods, duty-free access was immediate over a
period of years, although some remain exposed to tariffs. All tariffs
on U.S. agricultural products are phased out within 15 years. Tariffs
on feed grains, soybeans and soybean products, and nuts and processed
food products were cut significantly or removed immediately. Because of
the size, sensitivity, and importance of the wheat sector to Morocco, a
complex arrangement of tariff-rate quotas was negotiated for durum and
common wheat. Some U.S. agricultural commodities have long phase-out
periods or are subject to indefinite border protection in the agreement
including wheat, beef, and chicken leg quarters and wings. Similarly,
some Moroccan agricultural exports to the United States would face long
tariff phase-out periods including dairy products, preserved tomato
products, and dried onions. Notably, the FTA includes a supplier
preference clause that guarantees the United States the best market
access afforded any other subsequent supplier should Morocco negotiate
future trade agreements.
The FTA includes intellectual property protections and led Morocco to
strengthen its own IPR laws. Specifically, it includes antipiracy
provisions and the right for authorities to seize counterfeit and
pirated goods. Test data and trade secrets for the purpose of product
approval are protected against unfair commercial use for 5 years for
pharmaceuticals and 10 years for agricultural chemicals.
The FTA contains investment provisions that protect all forms of
investment such as enterprises, debt, concessions, contracts, and
intellectual property.
Observed Results of the FTA in Merchandise Trade, Services, and FDI:
Merchandise Trade:
Unlike the period prior to the FTA, in 2006, 2007, and 2008, the United
States held a trade surplus with Morocco. Although much of this
increase can be attributed to an increase in Moroccan agricultural
imports due to the drought and high commodity prices, our growth
analysis shows that other U.S. product categories, such as plastic
materials, excavating, paving, and construction machinery, and
industrial organic chemicals also have benefited since the FTA was
implemented.
The United States had a merchandise goods trade surplus with Morocco of
$626 million in 2008. Since 2005, the year before the FTA was
implemented, total U.S. exports to Morocco increased by 190 percent,
and imports from Morocco grew by 87 percent. Also, from 2007 to 2008,
U.S. exports to Morocco grew by 13 percent, while Moroccan exports to
the U.S. were 41 percent higher. Two-way trade, the sum of exports to
and imports from Morocco, has more than doubled from about $988 million
in 2005 to $2.39 billion in 2008.
Overall, U.S. market share in the Moroccan market since implementation
of FTA has increased marginally, but overall trade in this market is
still dominated by EU trade (see figure 8). While the EU had a 63
percent market share in 2007, the U.S. market share was only about 5
percent, with China's market share at 8 percent in the Moroccan market.
However, U.S. market share has increased in several important
products/sectors, mostly in agriculture products. In cereals, for
instance, in 2007, the U.S. market share in the Moroccan market was
about 30 percent, up from 14 percent prior to the FTA. This was
compared with the EU in this market of about 41 percent in 2007,
although they accounted for about 42 percent prior to the agreement.
Figure 8: Market Share of the Top Five Exporting Countries to Morocco,
1999-2007:
[Refer to PDF for image: multiple line graph]
Year: 1999;
Percentage of market share, China: 2.8%;
Percentage of market share, EU: 80%;
Percentage of market share, Saudi Arabia: 3.4%;
Percentage of market share, Iran: 0;
Percentage of market share, United States: 5.9%.
Year: 2000;
Percentage of market share, China: 2.4%;
Percentage of market share, EU: 61.4%;
Percentage of market share, Saudi Arabia: 5.2%;
Percentage of market share, Iran: 3.2%;
Percentage of market share, United States: 5.8%.
Year: 2001;
Percentage of market share, China: 2.6%;
Percentage of market share, EU: 60.5%;
Percentage of market share, Saudi Arabia: 5.0%;
Percentage of market share, Iran: 2.7%;
Percentage of market share, United States: 3.9%.
Year: 2002;
Percentage of market share, China: 2.9%;
Percentage of market share, EU: 58.0%;
Percentage of market share, Saudi Arabia: 5.9%;
Percentage of market share, Iran: 2.5%;
Percentage of market share, United States: 4.3%.
Year: 2003;
Percentage of market share, China: 3.6%;
Percentage of market share, EU: 62.6%;
Percentage of market share, Saudi Arabia: 5.3%;
Percentage of market share, Iran: 0.3%;
Percentage of market share, United States: 4.2%.
Year: 2004;
Percentage of market share, China: 4.3%;
Percentage of market share, EU: 58.3%;
Percentage of market share, Saudi Arabia: 5.6%;
Percentage of market share, Iran: 1.6%;
Percentage of market share, United States: 4.3%.
Year: 2005;
Percentage of market share, China: 4.7%;
Percentage of market share, EU: 47.1%;
Percentage of market share, Saudi Arabia: 6.1%;
Percentage of market share, Iran: 2.5%;
Percentage of market share, United States: 3.0%.
Year: 2006;
Percentage of market share, China: 7.7%;
Percentage of market share, EU: 63.6%;
Percentage of market share, Saudi Arabia: 7.7%;
Percentage of market share, Iran: 3.1%;
Percentage of market share, United States: 4.3%.
Year: 2007;
Percentage of market share, China: 8.1%;
Percentage of market share, EU: 62.9%;
Percentage of market share, Saudi Arabia: 7.1%;
Percentage of market share, Iran: 2.9%;
Percentage of market share, United States: 5.0%.
Source: GAO analysis using data from IMF‘s DOT.
[End of figure]
By product category, for U.S. exports to Morocco, the highest-valued
end use categories for 2008 were civilian aircraft, coal and related
fuels, oilseeds and food oils, corn, and dairy products and eggs. Top
valued U.S. import categories from Morocco included sulfur and
nonmetallic minerals, semiconductors and related devices, fertilizers,
pesticides, and insecticides, vegetables and preparations, and cotton
apparel and household goods.
Across product categories, we also calculated the differences between
pre-and post-FTA average annual growth rates for the top 25 U.S.
exports and imports in value with Morocco. Tables 8 and 9 display the
top 25 end use categories for U.S. export and import categories with
Morocco including their description ranked by growth rate, their dollar
value, their rank by dollar value, their average annual pre-FTA and
post-FTA growth rates, and change in growth between the two periods.
For the 25 largest U.S. export categories to Morocco, 60 percent had
higher post-FTA annual average growth rates than pre-FTA growth rates
(see table 8). As table 9 shows, post-FTA growth rates were higher in
40 percent of the largest 25 categories of U.S. imports from Morocco
over pre-FTA growth rates (for a more detailed discussion of the
methodology of this analysis, see appendix I).
Table 8: U.S. Exports to Morocco: Top 25 Categories by Value, Pre-and
Post-FTA Average Annual Growth Rates, and Change in Growth Rates
between Periods (Dollars in thousands):
End use category description-top 25 categories ranked by largest
percentage change in growth rate:
End use category description: Steelmaking and ferro-alloying materials;
Dollar value 2008: $18,700;
Rank by value 2008: 16;
Pre-FTA growth rate 2002-2005: -85%;
Post-FTA growth rate 2006-2008: 13,575%;
Change in growth rates: 13,660%.
End use category description: Iron and steel mill products;
Dollar value 2008: $27,223;
Rank by value 2008: 13;
Pre-FTA growth rate 2002-2005: -86%;
Post-FTA growth rate 2006-2008: 546%;
Change in growth rates: 632%.
End use category description: Dairy products and eggs;
Dollar value 2008: $77,774;
Rank by value 2008: 5;
Pre-FTA growth rate 2002-2005: 9%;
Post-FTA growth rate 2006-2008: 320%;
Change in growth rates: 311%.
End use category description: Other coal and related fuels;
Dollar value 2008: $146,836;
Rank by value 2008: 2;
Pre-FTA growth rate 2002-2005: -32%;
Post-FTA growth rate 2006-2008: 235%;
Change in growth rates: 267%.
End use category description: Industrial organic chemicals;
Dollar value 2008: $15,197;
Rank by value 2008: 20;
Pre-FTA growth rate 2002-2005: -35%;
Post-FTA growth rate 2006-2008: 213%;
Change in growth rates: 247%.
End use category description: Other oilseeds and food oils;
Dollar value 2008: $122,598;
Rank by value 2008: 3;
Pre-FTA growth rate 2002-2005: -92%;
Post-FTA growth rate 2006-2008: 153%;
Change in growth rates: 245%.
End use category description: Wheat; Dollar value 2008: 59,886;
Rank by value 2008: $7;
Pre-FTA growth rate 2002-2005: -74v;
Post-FTA growth rate 2006-2008: 26%;
Change in growth rates: 100%.
End use category description: Other chemicals (coloring agents,
photographic chemicals, printing inks, paint);
Dollar value 2008: $17,981;
Rank by value 2008: 19;
Pre-FTA growth rate 2002-2005: 16%;
Post-FTA growth rate 2006-2008: 101%;
Change in growth rates: 86%.
End use category description: Other petroleum products;
Dollar value 2008: $66,911;
Rank by value 2008: 6;
Pre-FTA growth rate 2002-2005: 6%;
Post-FTA growth rate 2006-2008: 80%;
Change in growth rates: 74%.
End use category description: Plastic materials;
Dollar value 2008: $58,912;
Rank by value 2008: 8;
Pre-FTA growth rate 2002-2005: -43%;
Post-FTA growth rate 2006-2008: 12%;
Change in growth rates: 55%.
End use category description: Excavating, paving, and construction
machinery;
Dollar value 2008: $26,497;
Rank by value 2008: 14;
Pre-FTA growth rate 2002-2005: -5%;
Post-FTA growth rate 2006-2008: 36%;
Change in growth rates: 41%.
End use category description: Industrial engines, pumps, compressors,
and generators;
Dollar value 2008: $31,558;
Rank by value 2008: 12;
Pre-FTA growth rate 2002-2005: 59%;
Post-FTA growth rate 2006-2008: 98%;
Change in growth rates: 38%.
End use category description: Other industrial machinery;
Dollar value 2008: $13,053;
Rank by value 2008: 24;
Pre-FTA growth rate 2002-2005: -16%;
Post-FTA growth rate 2006-2008: 6%;
Change in growth rates: 22%.
End use category description: Telecommunications equipment;
Dollar value 2008: $18,875;
Rank by value 2008: 15;
Pre-FTA growth rate 2002-2005: 0;
Post-FTA growth rate 2006-2008: 4%;
Change in growth rates: 4%.
End use category description: Miscellaneous domestic exports and
special transactions;
Dollar value 2008: $13,977;
Rank by value 2008: 21;
Pre-FTA growth rate 2002-2005: -2%;
Post-FTA growth rate 2006-2008: 1%;
Change in growth rates: 4%.
End use category description: Newsprint and other paper products;
Dollar value 2008: $18,426;
Rank by value 2008: 17;
Pre-FTA growth rate 2002-2005: 12%;
Post-FTA growth rate 2006-2008: 9%;
Change in growth rates: -3%.
End use category description: Civilian aircraft, complete-all types;
Dollar value 2008: $233,432;
Rank by value 2008: 1;
Pre-FTA growth rate 2002-2005: 8%;
Post-FTA growth rate 2006-2008: -2%;
Change in growth rates: -9%.
End use category description: Soybeans;
Dollar value 2008: 48,231;
Rank by value 2008: $10;
Pre-FTA growth rate 2002-2005: 2%;
Post-FTA growth rate 2006-2008: -19%;
Change in growth rates: -21%.
End use category description: Passenger cars, new and used;
Dollar value 2008: $13,182;
Rank by value 2008: 22;
Pre-FTA growth rate 2002-2005: 70%;
Post-FTA growth rate 2006-2008: 47%;
Change in growth rates: -23%.
End use category description: Other agricultural materials for industry-
unmanufactured;
Dollar value 2008: $35,013;
Rank by value 2008: 11;
Pre-FTA growth rate 2002-2005: 86%;
Post-FTA growth rate 2006-2008: 52%;
Change in growth rates: -34%.
End use category description: Parts for civilian aircraft;
Dollar value 2008: $18,256;
Rank by value 2008: 18;
Pre-FTA growth rate 2002-2005: 63%;
Post-FTA growth rate 2006-2008: 24%;
Change in growth rates: -39%.
End use category description: Corn;
Dollar value 2008: $90,094;
Rank by value 2008: 4;
Pre-FTA growth rate 2002-2005: 45%;
Post-FTA growth rate 2006-2008: -18%;
Change in growth rates: -62%.
End use category description: Electric apparatus and parts, not
elsewhere classified;
Dollar value 2008: $11,543;
Rank by value 2008: 25;
Pre-FTA growth rate 2002-2005: 99%;
Post-FTA growth rate 2006-2008: -13%;
Change in growth rates: -112%.
End use category description: Nonfarm tractors and parts;
Dollar value 2008: $13,106;
Rank by value 2008: 23;
Pre-FTA growth rate 2002-2005: 396%;
Post-FTA growth rate 2006-2008: 268%;
Change in growth rates: -128%.
End use category description: Other animal feeds, not elsewhere
classified;
Dollar value 2008: $54,258;
Rank by value 2008: 9;
Pre-FTA growth rate 2002-2005: 313%;
Post-FTA growth rate 2006-2008: 75%;
Change in growth rates: -238%.
Sources: GAO analysis using end use data from Commerce and ITC.
[End of table]
Table 9: U.S. Imports from Morocco: Top 25 Categories by Value, Pre-and
Post-FTA Average Annual Growth Rates, and Change in Growth Rates
between Periods (Dollars in thousands):
End use category description-top 25 categories ranked by largest
percentage change in growth rate:
End use category description: Fertilizers, pesticides, and
insecticides;
Dollar value 2008: $65,213;
Rank by value 2007: 3;
Pre-FTA growth Rate 2002-2005: -86%;
Post-FTA Growth Rate 2006-2008: 5,620%;
Change in growth rates: 5,705%.
End use category description: Fruits and preparations, including frozen
juices;
Dollar value 2008: $26,721;
Rank by value 2007: 9;
Pre-FTA growth Rate 2002-2005: -56%;
Post-FTA Growth Rate 2006-2008: 53%;
Change in growth rates: 109%.
End use category description: Generators, transformers, and
accessories;
Dollar value 2008: $2,802;
Rank by value 2007: 23;
Pre-FTA growth Rate 2002-2005: -39%;
Post-FTA Growth Rate 2006-2008: 41%;
Change in growth rates: 80%.
End use category description: Sulfur and nonmetallic minerals;
Dollar value 2008: $368,788;
Rank by value 2007: 1;
Pre-FTA growth Rate 2002-2005: 13%;
Post-FTA Growth Rate 2006-2008: 83%;
Change in growth rates: 70%.
End use category description: U.S. goods returned, and reimports;
Dollar value 2008: $4,172;
Rank by value 2007: 20;
Pre-FTA growth Rate 2002-2005: -49%;
Post-FTA Growth Rate 2006-2008: 5%;
Change in growth rates: 55%.
End use category description: Sporting and camping apparel, footwear,
and gear;
Dollar value 2008: $4,569;
Rank by value 2007: 19;
Pre-FTA growth Rate 2002-2005: 18%;
Post-FTA Growth Rate 2006-2008: 55%;
Change in growth rates: 37%.
End use category description: Apparel and household goods-cotton;
Dollar value 2008: $43,992;
Rank by value 2007: 5;
Pre-FTA growth Rate 2002-2005: -23%;
Post-FTA Growth Rate 2006-2008: 12%;
Change in growth rates: 35%.
End use category description: Minimum value shipments;
Dollar value 2008: $5,130;
Rank by value 2007: 18;
Pre-FTA growth Rate 2002-2005: 6%;
Post-FTA Growth Rate 2006-2008: 34%;
Change in growth rates: 28%.
End use category description: Vegetables and preparations;
Dollar value 2008: $53,299;
Rank by value 2007: 4;
Pre-FTA growth Rate 2002-2005: 1%;
Post-FTA Growth Rate 2006-2008: 20%;
Change in growth rates: 20%.
End use category description: Fish and shellfish;
Dollar value 2008: $29,961;
Rank by value 2007: 8;
Pre-FTA growth Rate 2002-2005: -1%;
Post-FTA Growth Rate 2006-2008: 11%;
Change in growth rates: 12%.
End use category description: Apparel and household goods-other
textiles;
Dollar value 2008: $29,994;
Rank by value 2007: 7;
Pre-FTA growth Rate 2002-2005: -21%;
Post-FTA Growth Rate 2006-2008: -24%;
Change in growth rates: -3%.
End use category description: Other (clocks, portable typewriters,
other household goods);
Dollar value 2008: $3,002;
Rank by value 2007: 22;
Pre-FTA growth Rate 2002-2005: 5%;
Post-FTA Growth Rate 2006-2008: 2%;
Change in growth rates: -3%.
End use category description: Other (tobacco, waxes, nonfood oils,
fatty acids, natural materials used in the preparation of medicines,
dyes, and perfumes);
Dollar value 2008: $12,006;
Rank by value 2007: 12;
Pre-FTA growth Rate 2002-2005: 5%;
Post-FTA Growth Rate 2006-2008: -2%;
Change in growth rates: -7%.
End use category description: Semiconductors and related devices;
Dollar value 2008: $92,390;
Rank by value 2007: 2;
Pre-FTA growth Rate 2002-2005: 1%;
Post-FTA Growth Rate 2006-2008: -16%;
Change in growth rates: -17%.
End use category description: Tea, spices, and preparations;
Dollar value 2008: $8,898;
Rank by value 2007: 15;
Pre-FTA growth Rate 2002-2005: 38%;
Post-FTA Growth Rate 2006-2008: 21%;
Change in growth rates: -18%.
End use category description: Artwork, antiques, stamps, and other
collectibles;
Dollar value 2008: $1,990;
Rank by value 2007: 24;
Pre-FTA growth Rate 2002-2005: 6%;
Post-FTA Growth Rate 2006-2008: -48%;
Change in growth rates: -53%.
End use category description: Apparel and household goods-wool;
Dollar value 2008: $13,716;
Rank by value 2007: 11;
Pre-FTA growth Rate 2002-2005: 42%;
Post-FTA Growth Rate 2006-2008: -12%;
Change in growth rates: -54%.
End use category description: Toiletries and cosmetics;
Dollar value 2008: $8,680;
Rank by value 2007: 16;
Pre-FTA growth Rate 2002-2005: 89%;
Post-FTA Growth Rate 2006-2008: 11%;
Change in growth rates: -79%.
End use category description: Footwear of leather, rubber, or other
materials;
Dollar value 2008: $9,290;
Rank by value 2007: 14;
Pre-FTA growth Rate 2002-2005: 67%;
Post-FTA Growth Rate 2006-2008: -14%;
Change in growth rates: -82%.
End use category description: Other parts and accessories;
Dollar value 2008: $16,023;
Rank by value 2007: 10;
Pre-FTA growth Rate 2002-2005: 125%;
Post-FTA Growth Rate 2006-2008: -4%;
Change in growth rates: -129%.
End use category description: Electric apparatus and parts, not
elsewhere classified;
Dollar value 2008: $1,871;
Rank by value 2007: 25;
Pre-FTA growth Rate 2002-2005: 134%;
Post-FTA Growth Rate 2006-2008: -19%;
Change in growth rates: -154%.
End use category description: Liquified petroleum gases;
Dollar value 2008: $3,953;
Rank by value 2007: 21;
Pre-FTA growth Rate 2002-2005: 236%;
Post-FTA Growth Rate 2006-2008: 20%;
Change in growth rates: -216%.
End use category description: Food oils and oilseeds;
Dollar value 2008: $9,672;
Rank by value 2007: 13;
Pre-FTA growth Rate 2002-2005: 288v;
Post-FTA Growth Rate 2006-2008: -21%;
Change in growth rates: -309%.
End use category description: Miscellaneous nonferrous metals (cobalt,
mercury, antimony, etc.);
Dollar value 2008: $32,312;
Rank by value 2007: 6;
Pre-FTA growth Rate 2002-2005: 504%;
Post-FTA Growth Rate 2006-2008: 103%;
Change in growth rates: -401%.
End use category description: Industrial organic chemicals;
Dollar value 2008: $8,667;
Rank by value 2007: 17;
Pre-FTA growth Rate 2002-2005: 495%;
Post-FTA Growth Rate 2006-2008: -18%;
Change in growth rates: -514%.
Sources: GAO analysis using end use data from Commerce and ITC.
[End of table]
Factors other than the FTA were very important in trade between the
United States and Morocco during this period including weather,
exchange rates, high commodity prices, and growth, among other dynamics
of the market. For example, Moroccan officials noted that factors such
as competition with Asian producers, the expiration of the multifiber
agreement, and the exchange rate hampered Morocco's export sales to the
United States of textiles and apparel. U.S. apparel importers, however,
told us that the strict rules of origin, combined with concerns over
whether Moroccan suppliers could meet associated customs documentation
and accounting requirements, were also factors dampening buyer's
initial enthusiasm in Moroccan apparel suppliers after the FTA, despite
their reputation for fashion.
Trade in Services:
Commerce notes that services (mainly tourism) represent about 54
percent of Morocco's GDP. The FTA helps reinforce the ongoing
development of Morocco's legal and regulatory reforms and development
plans for a number of sectors that are of interest to U.S. service
providers in areas such as telecommunications, e-commerce, and various
professional services areas. The FTA has also helped to enhance
transparency in Morocco's regulatory framework. Unfortunately, data on
U.S. bilateral trade in services with Morocco are not available from
the BEA, and other data are limited, but the UN does provide sufficient
data to give some picture of Morocco's services trade with the world by
service category.
For 2007, the UN estimates that Morocco's total service exports to the
world reached $13.4 billion, representing growth of over 230 percent
since 2001. Based on 2006 data, about 61 percent of services exports
was in travel, 15 percent was in transport, and 24 percent was in
"other services." Over half of the "other services" category was
composed of "other business services," and government services and
communications also represented sizable shares.
The UN estimates that Morocco's total services imports from the world
attained a level of $5.97 billion, representing growth of 181 percent
since 2001. Based on 2006 data, about 45 percent of services imports
were in "other services," 39 percent were in transport, and almost 16
percent were in travel. Within the "other services" category, most was
in either "other business services" or government services.[Footnote
89]
FDI:
Some data on FDI for Morocco are available from BEA, and they can be
supplemented with data from UNCTAD and other sources. [Footnote 90]
Regarding U.S. (outward) FDI in Morocco, the most recent figures show
that, as of 2007, the stock of U.S. FDI in Morocco was only $238
million. This level of FDI represents a minuscule share of total U.S.
outward FDI (0.008 percent). Although the small level of FDI represents
a large increase over the level in 2006, the first year of the FTA, the
level of U.S. outward FDI in 2007 is still lower than total U.S.
outward FDI during the period 2001-2003.
UNCTAD data provide figures for total inward FDI in Morocco, including
FDI by the United States, that helps put these figures into
perspective. Total inward FDI has been growing steadily, reaching $32.5
billion in 2007. In fact, between 2000 and 2007, inward FDI in Morocco
had an annual average growth rate of over 50 percent. Comparing the
level of inward FDI from the UNCTAD data with the level of U.S. FDI
into Morocco from the BEA data suggests that U.S. FDI has not played a
significant role in the growth of investment in Morocco.[Footnote 91]
Turning to outward FDI, UNCTAD data show that Morocco's FDI appears to
have been growing steadily, reaching $2.0 billion in 2007. The major
countries in which Morocco invests include France, Canada, and
Mauritania. By industry, Moroccan FDI is in mining and services
(specifically, finance and business services). BEA data on inward U.S.
FDI from Morocco shows a level of only $5 million, which did not change
over the period 2004-2007.
U.S. and Moroccan Perspectives on Issues Related to the FTA:
Although the Moroccan FTA has only been in force since 2006, from the
U.S. perspective, there have been some promising commercial trends. For
instance, the American Farm Bureau Federation (AFBF) told us that,
since the FTA came into force in 2006, U.S. agricultural exports to
Morocco have grown exponentially, and Morocco's rank as a U.S. export
destination for agriculture rose from 38th to 24th.[Footnote 92] Most
of this gain has been the result of grain exports; however, some
horticultural products have also expanded trade. For instance, the
apple industry began exporting to Morocco as a result of the duty-free
tariff rate quota established under the U.S.-Morocco FTA. Until that
FTA was implemented, the 50 percent tariff served as a very effective
barrier to trade, according to the AFBF. On the investment side, an
official of AmCham in Morocco noted that many U.S. businesses have
interests in Morocco, including Pfizer and Coca Cola. As far as the
textile industries, AmCham explained that Fruit of the Loom recently
invested $166 million in a new business in Morocco that was linked to
the U.S.-Morocco FTA. AmCham added that they invested because of the
lower customs duties brought about by the FTA.
From the Moroccan perspective, some government officials noted that so
far they had not benefited from the agreement as they had hoped.
Moroccan trade concerns included trade statistics discrepancies, the
lack of sanitary and phytosanitary (SPS) certification issues for
tomatoes; customs obstacles; and a request for early phasing out of
U.S. tariffs on certain Moroccan goods, which was not accepted.
[Footnote 93]Also, a private association of businesses in Morocco
stated that "since Moroccan firms conduct business in French, the
barrier to obtaining information about the rules, the U.S. market, and
promotion is language." Logistics was also cited as a problem. Some
officials noted that there is no direct shipping line between Morocco
and the United States, thereby increasing the costs for Moroccan firms.
Currently, this business association envisions the port in Tangier
(Tangier-Med) to act as a hub. Other Moroccan officials stated that the
benefits of the agreement lie in the future. Other Moroccan officials
stated that the benefits of the agreement lie in the future. For
instance, one Moroccan academician agreed with this view and stated
that one should not only look at the FTA's impact on trade but also at
the "spillover effects" of the agreement including technological
changes, government institutions, and reforms.
There are several trade and regulatory capacity building programs
associated with the U.S.-Morocco FTA. Commerce's Commercial Law
Development Program (CLDP) Team works with developing countries in
adjusting their laws relating to investments and regulatory policy to
conform with new trade agreements. Along with the United States Agency
for International Development, they helped Morocco institute commercial
laws and arbitration laws, as well as insurance laws and pharmaceutical
laws, without which firms could not invest previously. The Morocco New
Business Opportunities (NBO) program was initiated in response to the
FTA in 2006 and is a 4-year program financed by USAID in partnership
with the Ministry of Commerce, Industry and Economic Upgrading. The
main objective of the NBO is to assist Moroccan enterprises in the
manufacturing sector to take advantage of exporting opportunities to
the U.S. The two priority sectors that are part of their national
strategy to build capacity to develop and maintain long-term,
commercial partnerships with U.S. companies are the textile and garment
industry and the leather industry. Specifically, the NBO program
provides technical support, training, and business contacts to Moroccan
exporters in order for them to successfully promote their products in
the U.S. market.
[End of section]
Appendix VI: Average Annual Growth Rates of Bilateral Trade with FTA
Partner Countries Compared with Overall U.S. Trade:
For each of the four selected FTAs, we examined the average annual
growth in bilateral trade for several years prior to the agreements and
compared that with growth rates after the agreements for a similar
period of years (see table 10). Across partner countries, we found that
post-FTA average annual growth rates for U.S. exports were all higher
than pre-FTA growth rates and, in some instances, average growth went
from negative to positive. For U.S. imports, we found that average
annual growth rates were higher in three out of the four partner
countries, all except for Jordan, which had a high rate of growth pre-
FTA. Also, except for Singapore, the average annual growth rates for
U.S. exports and imports with the partner countries were all higher in
the post-FTA period than those for similar time periods for total U.S.
exports and imports with the rest of the world.
Methodology and Data Used:
First, to calculate average annual growth rates for U.S. exports and
imports with the partner countries, we selected an equal number of
years both before and after the selected FTAs came into force. For
example, since both the Singapore FTA and Chile FTA came into force in
2004, we calculated an average annual growth rate of bilateral trade
for a pre-FTA period of 5 years before 2004 and a post-FTA period of 5
years after implementation. For the Morocco FTA, which came into force
in 2006, we calculated equal periods of 3 years before and after the
agreement. Similarly, for Jordan, which came into force on December
2001, we calculated estimates of growth based on equal 7-year periods
before and after the agreement came into force. Second, we obtained
trade data for the United States and the partner countries from the ITC
Interactive Tariff and Trade Dataweb for the appropriate years. Third,
we adjusted the export or import series for inflation using the GDP's
Implicit Price Deflator. Fourth, we calculated year-to-year growth
rates for the series and then took an average growth rate for each pre-
and post-FTA period. Fifth, we then subtracted the pre-FTA average
annual growth rate from the post-FTA growth rate and sorted these
differences in descending order for each product category. Finally, for
comparison, we also calculated the average annual growth rates of U.S.
trade with the world for the same periods as for each of the FTAs.
[Footnote 94]
Table 10: Average Annual Growth Rates of Bilateral Trade with Partner
Countries Pre-and Post-FTA and U.S. Growth in Trade with the World for
Similar Time Periods:
Bilateral FTA partner country: Singapore (5-year average period): U.S.
exports to Singapore;
Average annual growth rates of bilateral trade with partner countries:
Pre-FTA period: -0.9%;
Average annual growth rates of bilateral trade with partner countries:
Post-FTA period: 8.6%;
U.S. exports and imports with world: U.S. exports;
Average annual growth rates for U.S. trade for similar time periods as
FTA: Pre-FTA period: -1.2%;
Average annual growth rates for U.S. trade for similar time periods as
FTA: Post-FTA period: 9.3%.
Bilateral FTA partner country: Singapore (5-year average period):
Imports from Singapore to United States;
Average annual growth rates of bilateral trade with partner countries:
Pre-FTA period: -6.1%;
Average annual growth rates of bilateral trade with partner countries:
Post-FTA period: -0.3%;
U.S. exports and imports with world: U.S. imports;
Average annual growth rates for U.S. trade for similar time periods as
FTA: Pre-FTA period: 4.9%;
Average annual growth rates for U.S. trade for similar time periods as
FTA: Post-FTA period: 7.8%.
Bilateral FTA partner country: Chile (5-year average period): U.S.
exports to Chile;
Average annual growth rates of bilateral trade with partner countries:
Pre-FTA period: -9.1%;
Average annual growth rates of bilateral trade with partner countries:
Post-FTA period: 32.6%;
U.S. exports and imports with world: U.S. exports;
Average annual growth rates for U.S. trade for similar time periods as
FTA: Pre-FTA period: -1.2%;
Average annual growth rates for U.S. trade for similar time periods as
FTA: Post-FTA period: 9.3%.
Bilateral FTA partner country: Chile (5-year average period): Imports
from Chile to United States;
Average annual growth rates of bilateral trade with partner countries:
Pre-FTA period: 9.3%;
Average annual growth rates of bilateral trade with partner countries:
Post-FTA period: 14.1%;
U.S. exports and imports with world: U.S. imports;
Average annual growth rates for U.S. trade for similar time periods as
FTA: Pre-FTA period: 4.9%;
Average annual growth rates for U.S. trade for similar time periods as
FTA: Post-FTA period: 7.8%.
Bilateral FTA partner country: Morocco (3-year average period): U.S.
exports to Morocco;
Average annual growth rates of bilateral trade with partner countries:
Pre-FTA period: -4.5%;
Average annual growth rates of bilateral trade with partner countries:
Post-FTA period: 40.8%;
U.S. exports and imports with world: U.S. exports;
Average annual growth rates for U.S. trade for similar time periods as
FTA: Pre-FTA period: 5.6%;
Average annual growth rates for U.S. trade for similar time periods as
FTA: Post-FTA period: 10.3%.
Bilateral FTA partner country: Morocco (3-year average period): Imports
from Morocco to United States;
Average annual growth rates of bilateral trade with partner countries:
Pre-FTA period: 4.0%;
Average annual growth rates of bilateral trade with partner countries:
Post-FTA period: 20.6%;
U.S. exports and imports with world: U.S. imports;
Average annual growth rates for U.S. trade for similar time periods as
FTA: Pre-FTA period: 9.9%;
Average annual growth rates for U.S. trade for similar time periods as
FTA: Post-FTA period: 5.1%.
Bilateral FTA partner country: Jordan (7-year average period): U.S.
exports to Jordan;
Average annual growth rates of bilateral trade with partner countries:
Pre-FTA period: 1.6%;
Average annual growth rates of bilateral trade with partner countries:
Post-FTA period: 12.5%;
U.S. exports and imports with world: U.S. exports;
Average annual growth rates for U.S. trade for similar time periods as
FTA: Pre-FTA period: 3.1%;
Average annual growth rates for U.S. trade for similar time periods as
FTA: Post-FTA period: 5.8%.
Bilateral FTA partner country: Jordan (7-year average period): Imports
from Jordan to United States;
Average annual growth rates of bilateral trade with partner countries:
Pre-FTA period: 52.9%;
Average annual growth rates of bilateral trade with partner countries:
Post-FTA period: 27.2%;
U.S. exports and imports with world: U.S. imports;
Average annual growth rates for U.S. trade for similar time periods as
FTA: Pre-FTA period: 6.4%;
Average annual growth rates for U.S. trade for similar time periods as
FTA: Post-FTA period: 6.5%.
Sources: GAO analysis using data from Commerce and ITC, years 1994
through 2008.
[End of table]
Results of Overall Growth Rates for Trade with Partner Countries Pre-
and Post-FTAs:
Across partner countries, we found that post-FTA average annual growth
rates for U.S. exports were all higher than pre-FTA growth rates, and
for Singapore, Chile, and Morocco, average growth went from negative to
positive. Also, except for Singapore, these growth rates with partner
countries for U.S. exports were also higher than average annual growth
rates of all U.S. exports during the same time periods. For the Chilean
and Moroccan FTAs, the post-FTA annual growth rates for U.S. exports
were considerably higher than the pre-FTA period growth rates,
increasing from -9.1 percent to 32.6 percent, and from -4.5 percent to
40.8 percent, respectively. The growth in U.S. exports to Jordan and
Singapore were more modest, increasing to 12.5 percent and 8.6 percent,
respectively. U.S. import growth rates for the four partner countries
were larger or less negative in the post-FTA period than the pre-FTA
period for Singapore, Chile, and Morocco, but less for Jordan. The
result for Jordan, in which overall growth goes from 52.9 percent in
the pre-FTA period to 27.2 percent in the post-FTA period, coincides
with our analysis for the product categories where less than half of
the top 25 U.S. import categories from for Jordan experienced growth in
the post-FTA period (see appendix II for an analysis of pre-and post-
FTA growth rates of U.S. imports from Jordan by product category).
However, this result is likely due to the fact that the QIZ program
spurred such huge rates of growth prior to the Jordan FTA, especially
in the apparel categories. However, the growth rates of U.S. imports
from Jordan following the FTA and their value were quite sizeable also,
but just not as large as pre-FTA levels. Notably, except for Singapore,
the average annual growth rates of U.S. exports and imports with the
partner countries were all higher in the post-FTA period than those for
similar time periods for total U.S. exports and imports with the rest
of the world.
[End of section]
Appendix VII: Comments from the Department of Labor:
U.S. Department of Labor:
Deputy under secretary for International Affairs:
Washington, D.C. 20210:
May 18, 2009:
Dr. Loren Yager:
Director, International Affairs and Trade:
U.S. Government Accountability Office:
Washington, D.C. 20548:
Dear Dr. Yager:
Thank you for the opportunity to review the draft GAO report,
International Trade: Selected Free Trade Agreements Have Resulted in
Commercial Benefits, but Progress on Labor and Environment Has Been
Limited. One of the overall findings of your report--that provisions in
these agreements designed to ensure that workers share in the benefits
of trade has not been given the same attention as the commercial
obligations--is an important concern of mine and of the Department of
Labor.
While the United States has focused resources and attention on ensuring
that commitments made by our trading partners to open their markets are
upheld, the same has not been true for the labor provisions of these
agreements. In line with Administration priorities, the Department of
Labor will be placing a new emphasis on ensuring that all aspects of
our trade agreements-including the labor provisions-are fully respected
and enforced. We will work with our trading partners to help bring the
opportunities of trade to both their workers and ours.
In order to reinvigorate the labor cooperation process and enforcement
mechanisms envisioned in our free trade agreements, the President's
Fiscal Year 2010 budget for the Department of Labor includes additional
funds for staff and resources in the International Labor Affairs Bureau
(ILAB). This additional support will allow ILAB to significantly
improve its ability to monitor labor issues in FTA countries, provide a
strengthened mechanism for enforcement of trade agreements, develop
cooperative activities with FTA partners, and research facts relating
to specific labor situations and submissions. This increase will allow
ILAB to be more proactive in monitoring and addressing these issues,
with the opportunity to work with FTA countries prior to labor
incidents which warrant the filing of a submission.
The Department of Labor looks forward to working towards building a
trading system that respects the rights of workers and expands
opportunities for all workers and their families. Our efforts to
improve the administration and enforcement of our free trade agreements
are an important component of this work.
Sincerely,
Signed by:
Sandra Polaski:
Deputy Under Secretary:
[End of section]
Appendix VIII: Comments from the Department of State:
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
United States Department of State:
Washington, D.C. 20520:
MAY 18 2009:
Ms. Jacquelyn Williams-Bridgers:
Managing Director:
International Affairs and Trade:
Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548-0001:
Dear Ms. Williams-Bridgers:
We appreciate the opportunity to review your draft report,
"International Trade: Selected Free Trade Agreements Have Resulted in
Commercial Benefits, but Progress on Labor and Environment Has Been
Limited," GAO Job Code 320544.
The enclosed Department of State comments are provided for
incorporation with this letter as an appendix to the final report.
If you have any questions concerning this response, please contact
Steve Rhee, Labor and Environment Officer, Bureau of Economic, Energy
and Business Affairs at (202) 647-4367.
Sincerely,
Signed by:
James L. Millette:
cc:
GAO - Kim Frankena:
EEB- David D. Nelson (Acting):
State/OIG - Mark Duda:
[End of letter]
Department of State Comments on GAO Draft Report:
International Trade: Selected FTAs Have Resulted in Commercial
Benefits, but Progress and U.S. Oversight on Labor and Environment Have
Been Limited (GAO-09-439 GAO Code 320544):
Thank you for the opportunity to respond to the GAO draft report
"International Trade: Selected FTAs Have Resulted in Commercial
Benefits, but Progress and U.S. Oversight on Labor and Environment Have
Been Limited."
Overall comments:
We believe that the meaningful structural and institutional reforms
enacted as a result of the FTA process in Morocco, Chile and Jordan are
significant achievements not adequately recognized by the study.
Establishment of environmental ministries (Jordan) and overhaul of
Jordan's environmental and Morocco's labor codes represent significant
enhancements for environmental and labor protection regimes. Chile is
in the process of creating an environmental ministry. The study
undervalues these accomplishments. The real question for this study
should be whether the free trade agreements led to significant
improvements in labor and environmental standards. We believe that this
answer to this question is an unqualified yes. [See comment 1]
The report should highlight how the FTAs and environmental and labor
cooperation mechanisms have made environmental and labor protection a
higher priority in these countries. While perhaps not yet perfect,
these countries have made significant progress in strengthening and
enforcing their laws that they likely would not have made without the
FTAs and cooperation mechanisms.
State believes that the report should distinguish more clearly between
FTA environment/labor chapters and environmental/labor cooperation
mechanisms. When a government signs an FTA, it agrees to comply with
the provisions in the labor and environment chapters. Once the FTA
enters into force, it has a duty to comply with those provisions
whether or not the U.S. provides support through cooperation. If one of
our FTA partner governments is not meeting these obligations, then the
U.S. has the discretion to decide whether to address the noncompliance
through mechanisms in the FTA. [See comment 2]
General Labor and Environment Comments:
Labor and environmental cooperation with our FTA partner governments is
(and has been) a high priority for the State Department. State
negotiates labor and environmental cooperation mechanisms, negotiates
work plans for implementing the mechanisms, coordinates activities that
occur under the work plans, and attempts to find funding sources for
implementing activities or facilitate activities that require little
funding but still have significant impacts. State continually strives
to improve effective coordination with our partners in the interagency
and internationally and to achieve measurable results on the ground.
However, State has been severely hampered by the lack of human and
financial resources to undertake this work. For example, until now,
Congress has not dedicated any funding for FTA-related environmental
cooperation with Chile, Jordan, Morocco, or Singapore. Where Congress
has provided funds for FTA implementation, as with CAFTA-DR, our
technical cooperation has been robust, and we have had significant
impact for a relatively small amount of investment. In the face of very
limited funding, State has tried to identify other funding sources and
connect those sources to other agencies for implementation. State has
also tried to be creative by holding DVCs, undertaking exchanges, and
pursuing other relatively low-cost capacity building with our partners.
In 2009, consistent with the President's budget request, Congress did
appropriate $3 million for FTA-related environmental cooperation (non-
CAFTA-DR). So, we anticipate more robust cooperation with some of these
countries.
State has had a measure of success on these fronts. For example, State
connected the Environmental Protection Agency (EPA) and the Department
of Interior (DOI) with the Middle East Partnership Initiative (MEPI)
program. As a result, EPA and DOI conducted environmental projects in
Morocco with MEPI funding. State also has worked collaboratively with
USAID Jordan to fund activities in the Jordan - U.S. Work Program.
State has held low cost DVCs with officials from Singapore and Chile on
energy efficiency in government buildings and clean laboratories, as
well as between US and Chilean labor experts. State has worked with the
Department of Labor to identify alternate sources of funding to
implement labor programs, such as an OAS-funded exchange on labor
hotlines between US and Chilean experts.
In general, the report seems to set an unrealistic standard for
determining successful implementation of Environment Chapters of FTAs
and Environmental Cooperation Mechanisms. The report describes that
three of the four partners reported ongoing challenges to enforcing
environmental laws. However, every government has challenges enforcing
its environmental laws. In State's view, the standard for whether an
FTA or Environmental Cooperation Mechanism (ECM) is successful should
not be whether, after three, five, or even 10 years, a government no
longer has "challenges" in enforcing its environmental laws. [See
comment 3]
Rather, the relevant question is whether that government has made
substantial progress in improving its laws and enforcement since the
FTA and ECM entered into force. Some of these countries started with
almost no environmental infrastructure. The FTAs and ECMs have
increased environmental protection as a priority in these countries,
but they cannot be expected to solve all environmental problems in a
few years. At least now, environmental protection is a focus of
national attention, as evidenced by the report's descriptions of the
many improvements that the governments have made to their environmental
laws and enforcement.
Similarly, while State appreciates the attention to detail regarding
the evolution of the labor situations in the four FTA partner
countries, several statements are incorrect or unclear, and some
mischaracterize the underlying situation. One example is an unfortunate
oversimplification of the process by which the interagency helped
develop and support the Better Work Jordan Program.
On the other hand, environmental cooperation generally is geared toward
promoting conservation and protection of the environment, such as the
prevention of pollution and the degradation of natural resources and
ecosystems in support of sustainable development. With our FTA
partners, the U.S. works to strengthen their environmental institutions
and laws, improve enforcement, and provide opportunities for civil
society engagement in environmental decision-making and enforcement.
In the end, however, even if we provide a partner government a
significant amount of support through labor and environment
cooperation, it is still up to that government to ensure that it is
meeting its FTA obligations. We continually stress this with our
trading partners.
Jordan and Environmental Issues Comments:
The report understates the progress Jordan has made regarding
environmental protection. Since the FTA entered into force and we
issued our Joint Statement on Environmental Technical Cooperation,
Jordan has made tremendous strides to strengthen its environmental
institutions and improve environmental enforcement. Jordan has, among
other things, created an Environment Ministry with responsibility for
all environmental protection matters in Jordan and established the
Royal Rangers (formerly the Environmental Rangers) to enforce
environmental laws and regulations in the areas of pollution and
natural resources. The U.S. Government provided Jordan assistance to
accomplish these things. Now, EPA is training the Rangers to conduct
investigations of environmental crimes. In October 2008, EPA hosted a
very successful study tour of the United States' Environmental
Enforcement and Compliance System for officials from Jordan's Ministry
of Environment, the Royal Rangers, and the Royal Society for the
Conservation of Nature. The Department of Interior is working with the
Royal Society for the Conservation of Nature and other key partners to
strengthen their ability to meet obligations in the Convention on
International Trade in Endangered Species of Wild Flora and Fauna
(CITES) and improve visitor services in protected areas. USAID is
implementing a broad spectrum of environmental projects, including on
water conservation, waste and waste water management, and biodiversity
conservation. [See comment 4]
Chile and Environmental Issues Comments:
Chile deserves much credit for progress it has made in strengthening
its environmental institutions and encouraging public participation in
environmental decision-making. Chile has an environment minister and is
in the process of changing its national environmental authority into a
full Environment Ministry. Chile also recently sought input and views
from environmental groups when developing its national strategies and
other initiatives, such as the launch of its national climate change
action plan. The report states that the United States missed an
opportunity to use the FTA to cooperate with Chile to address problems
in its salmon and forestry industries because U.S. agencies did not
engage with Chile. However, USDA and FDA have conducted activities
related to salmon and the 2009-2010 US Embassy Work Plan includes
forestry projects. Moreover, State organized a major meeting in
Washington, D.C. on U.S.-Chile parks cooperation in fall 2008.
The GAO seems to confuse the Environmental Affairs Council (EAC) with
the Joint Commission on Environmental Cooperation (JCEC). Although
there are project areas listed in the FTA environment chapter, the EAC
does not have its own work plan. In its 2007-2008 Work Plan, the JCEC,
included the following Activities: "Building Capacity for Assuring
Compliance with Environmental Laws, and Regulations," "Reducing
Environmental Impacts of Mining," "Improving Agricultural Practices,"
"Building Capacity for Protected Area Management," "Marine Protected
Areas," and "Marine Science and Fisheries." If funding becomes
available, State hopes to pursue activities in these areas.
Singapore and Environmental Issues Comments:
As the report notes, Singapore has an excellent record of environmental
protection. State has nevertheless pursued environmental cooperation
with Singapore in a number of areas. For example, Singapore is a large
transshipment point. We have worked with Singapore to try and curb
illegal logging and wildlife trade. The United States and Singapore
cohosted a workshop from October 30 to November 2, 2007, in Singapore
to train regional port inspectors and customs authorities to identify
ramin wood. This training program reflects an important commitment by
key government agencies from the United States, Singapore, Malaysia,
Indonesia, and China to work together in an effort to curb illegal
traffic in this endangered species of timber. TRAFFIC Southeast Asia
conducted a training workshop on Wildlife Trade Regulation from July 29-
30, 2008 for checkpoints and CITES officers, which featured basic
techniques in handling live specimens of wild fauna and case studies of
the illegal freshwater turtle and tortoise trade in Southeast Asia and
the python trade in Singapore. During a study tour in September 2008,
two officials from the Singapore Agri-Food and Veterinary Authority
(AVA)--the CITES Management Authority of Singapore--consulted with the
Fish and Wildlife Service and various other U.S. agencies that
implement CITES and exchanged information on law enforcement methods
and CITES implementation practices and systems.
Morocco and Environmental Issues Comments:
Morocco also has made strides in its efforts to preserve and protect
the environment since the 2006 entry-into-force of the FTA. State
believes, however, that the report undervalues the cooperative
environmental work undertaken with Morocco. EPA has completed at least
eight trainings. EPA also is working to help Morocco implement a
program for enforcing environmental rules and regulations in its
textile sector, as well as to assist Morocco in developing industry
partnerships that will address compliance assistance and pollution
prevention issues. The Department of Interior worked with USAID to
develop sustainable tourism in three regions of Morocco, promoting
environmental conservation and generating income for rural communities.
The U.S. Trade and Development Agency awarded a grant to a Moroccan
agency for managing the detritus and waste water from olive oil
factories. The grantee will partner with a U.S. company to do a
feasibility study for a treatment plant in the Sebou River basin.
NOAA's National Ocean Service will implement a UNEP/National Plan of
Action project to update the baseline data needed for science-based
decision making in protecting the ecosystems in three of Morocco's
protected areas. This project should also help develop integrated
watershed management for these regions. The United States was able to
undertake these activities even though there has been no dedicated
funding for environmental cooperation with Morocco.
State also appreciates and welcomes Moroccan officials' desire
reflected in the report-to step up our environmental cooperation
program. Provided funding becomes available, State looks forward to
deepening and strengthening our program in the near future.
GAO Recommendation:
We recommend that the Secretary of State direct the Bureau of Oceans,
Environment and Science (OES) to develop a structured approach to
manage and monitor the implementation of environmental cooperation
mechanisms and projects. This should include information such as number
and nature of activities, source and amount of funding, and impact
evaluations. Furthermore, OES should use this information to publicly
report to Congress assessing the outcomes of projects as well as their
compliance with applicable U.S. trade policy goals.
The State Department appreciates GAO's recommendation to develop a
structured approach to manage and monitor the implementation of
environmental cooperation mechanisms and projects.
State is not entirely clear what GAO means by "structured approach."
State currently employs a number of approaches to manage and monitor
implementation of environmental cooperation mechanisms and projects.
State regularly holds interagency meetings to receive updates on Work
Plan and project implementation, as well as high level meetings to
discuss projects and progress in meeting objectives in the
environmental cooperation mechanisms. State also maintains a database
in an effort to keep track of activities in each country. Without
dedicated funding, however, it has proven to be very difficult to track
funding associated with our cooperative environmental work. In many
cases, State has used very little or no foreign assistance funds to
undertake activities. For example, State has facilitated digital video
conferences (DVCs) with environment officials from Chile and the United
States that required a significant amount of staff time. It is
difficult to put a dollar value on these kinds of activities, yet
failing to take them into account would undervalue the amount that
State contributes to environmental cooperation. [See comment 5]
Moreover, State continually strives to improve the management and
monitoring of this work. For example, in the Central America Free Trade
Agreement (CAFTA-DR) region, State has provided a grant to the
Organization of American States to independently monitor and evaluate
our work there. State has not had funding to do anything similar with
other countries such as Jordan, Chile, Singapore, or Morocco. But,
again, we believe that robust monitoring and evaluation of this work is
very important, and we are always looking for ways to improve.
State also welcomes the recommendation of publicly reporting to
Congress on assessing the outcomes of projects and overall success of
environmental cooperation.
The following are GAO's comments on the Departments of State's letter
dated May 19, 2009.
GAO Comments:
1. GAO agrees that some important progress in strengthening
environmental and labor protection has been achieved in FTA partners,
notably in putting in place structures and institutions that had been
absent in some countries, such as the Ministry of Environment in
Jordan. As a result, we changed the title of our report from "Selected
FTAs Resulted in Commercial Benefits, but Progress on Labor and the
Environment Has Been Limited" to "Four FTAs GAO Reviewed Resulted in
Commercial Benefits, but Challenges on Labor the Environment Remain."
We reviewed the body to ensure these positive steps and U.S. officials'
perspectives on progress are given due weight. For example, we added
new information on environmental cooperation projects such as
Interior's help to Jordan on CITES and noted Chile's nascent steps to
allow civil society input into environmental decision making. In
addition we recognize that the existence of FTA obligations may have
been a factor in influencing partner action. The labor law improvements
Morocco enacted had been long-pending prior to the FTA. The QIZ program
does not require adherence to core labor standards, but the Jordan FTA
requires partners to strive to ensure that labor principles and
internationally recognized labor rights set forth in the FTA are
recognized and protected by domestic law. Under the Jordan FTA, parties
also commit to not fail to enforce its laws, through a sustained or
recurring course of action or inaction, in a manner affecting trade
between the parties.
2. GAO has revised the report to more clearly distinguish between FTA
environmental chapters and environmental cooperation mechanisms and
recognize the partners' are obligated by their FTA commitments.
3. State suggests GAO's report sets an unrealistic standard for
determining success on the environment. GAO disagrees.
First, GAO's standards for judging FTA success in producing
environmental progress are grounded in TPA goals and FTA requirements,
and ensuing, related commitments or agreed goals on environmental
cooperation. For example a principal negotiating objective under TPA is
to strengthen the capacity of United States trading partners to protect
the environment through the promotion of sustainable development. An
FTA requirement on the environment call for parties to "strive to
ensure" or "ensure" that their laws provide for high levels of
environmental protection and to continue to improve those laws as well
as to "not fail to effectively enforce its environmental laws, through
a sustained or recurring course of action or inaction, in a manner
affecting trade between the parties." As State notes, some of these are
FTA requirements are quite broad.
Second, GAO's judgments are based on the evidence made available to it
about post-FTA developments and their significance. While the evidence
we gathered has certain limitations, it nonetheless is authoritative
and sufficient in the sense that it truly represents what can and
cannot be said about FTA partners' "progress to date." In terms of
evidence, GAO appreciates State's call for us to "determine whether
there has been substantial progress by partners in improving
environmental laws and enforcement." Indeed we had hoped to do just
that. Unfortunately, the information made available to us by U.S.
agencies about partners' laws and enforcement did not permit such an
evaluation by GAO. As noted in the report, a baseline assessment of the
partners' laws and enforcement is not included in any depth in the
environmental review prepared by USTR. Though some partners reportedly
did prepare them, agencies produced no such documents in response to
our request for background on partner environmental regimes. Our
interviews with EPA indicated that they may informally review or
comment on partners' environmental regimes, but that no template or
check list of what a strong environmental regime should include is
used. EPA officials rather stressed that a lot depended on the
country's legal context and its institutional and technical starting
point. Moreover, State, USTR, and EPA told us they do not routinely
monitor or report on changes in partners' environmental regimes. These
agencies' responses to our document requests bore this out and did not
surface much information.
Absent agreed or available baseline documentation and ongoing
monitoring reports, GAO undertook efforts to identify on its own legal
and institutional changes that had occurred in conjunction with or
after the FTA's entry into effect, as well as FTA-related cooperative
projects. This was done by searching secondary sources of foreign laws
and soliciting documentation from U.S. agencies such as State and Labor
in Washington, and U.S. Embassies abroad during fieldwork. However, we
did not independently assess or evaluate the foreign laws. We sought to
compare the project-related information to agreed plans and priorities,
but this often proved difficult to match in practice. In the case of
labor, there were no articulated priorities or plans, though there
usually were project evaluations. In the case of the environment, there
were agreed priorities and plans, but their general nature made it
difficult to match projects, determine their significance, or assess
the extent to which they satisfied expectations. The particulars of
what a project involved in terms of funding or activities conducted
often did not exist, nor were project evaluations available.
We also solicited partners' and U.S. officials' own assessment of this
progress and the significance of their remaining challenges. U.S.
officials' for example noted that due to the directional and
aspirational nature of FTA commitments, they seek to "do no harm" and
"do good works" and pointed to visible signs of improvement in certain
partners, notably Jordan. We supplemented this information from
official sources on partner developments versus expectations with
feedback from selected experts and environmental stakeholders. For
example, we spoke with an expert at the NAFTA Environmental Commission
involved in a 10-year retrospective on progress under that cooperative
arrangement, with ECLAC and ILO officials in Chile, with the chair and
several liaisons to the Trade and Environment Policy Advisory
Committee, and with in-country environmental groups identified and
arranged by our State Embassy control officers. We relied on, report,
and attribute the information we were able to gather. We have expanded
the discussion of these sources and their limitations in the scope and
methodology sections of the report.
Third, GAO took steps to assure a fair and balanced assessment of the
extent of progress. On environment, for example, U.S. and partner
government officials both told GAO that the FTAs were not intended to
resolve all environmental problems and we now highlight this in the
report. GAO had already noted in the background that differences in
country context and the length of time FTAs have been in effect likely
are important factors in the extent of observable progress. We
reiterate this now in the conclusion. While the evidence we obtained
led GAO to conclude that there has been some progress to date in
improving partners' capacity to protect the environment, we do not
suggest that FTAs fix all of the partners' environmental problems in a
few years. GAO also includes information provided by agency officials
intended to place these four FTAs in the broader context of progress
over time and with more experience and resources.
4. State highlights, by partner, examples of environmental progress. We
have supplemented somewhat our treatment of these developments in the
report.
5. GAO has expanded its description of the gaps and clarified its
recommendation for a "more structured approach" in response to State's
request for a better explanation of what is missing and would be
helpful.
[End of section]
Appendix IX: Comments from the Office of the United States Trade
Representative:
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
Executive Office Of The President:
Office Of The United States Trade Representative:
Washington, DC 20508:
June 9, 2009:
Dr. Loren Yager:
Director, International Affairs and Trade:
U.S. Government Accountability Office:
Washington, D.C. 20548
Dear Dr. Yager:
We appreciate the opportunity to review and comment on the draft of the
General Accountability Office's (GAO) report, International Trade: Four
FTAs GAO Reviewed Resulted in Commercial Benefits, but Challenges on
Labor and Environment Remain (Report). The Office of the U.S Trade
Representative (USTR) appreciates the GAO's recognition that each of
the four free trade agreements (FTAs) that the GAO examined produced
commercial benefits at home and in the partner country. We are
confident that we can continue to build on the record of reaping
commercial benefits from all of our FTAs, and ensuring that our FTAs
also provide, fully consistent with their terms, for protection of core
labor standards for workers and enhanced protection of the environment.
USTR is reviewing our current FTAs and formulating new policies on
implementing, monitoring and enforcing our agreements. The
Congressional-Executive Agreement of May 2007, which added key
commitments on labor standards and environmental protections to our
recent FTAs, is a touchstone for future work. Ensuring that all
provisions of our FTAs, including labor standards and environmental
protections, are fully implemented and enforced is a priority as we go
forward for USTR and other agencies.
USTR's work in recent months with Peru to address concerns related to
environmental protection and Panama on labor standards issues
demonstrates the Obama Administration's commitment to address
environmental protection and labor issues vigorously and proactively.
In the case of Peru, USTR and other agencies have been engaged
continually over the past two years with the Government of Peru on
implementation of our FTA, including the Forrest Sector Annex to the
Agreement. Last month, President Obama established an interagency
committee with responsibility for overseeing the implementation of that
Annex. Moreover, the United States and Peru have met under the
Environmental Cooperation Agreement and are developing a work plan and
proposed projects. With regard to Panama, USTR and other agencies have
been working to address concerns expressed about implementation of core
labor standards. That work has already resulted in the Government of
Panama issuing three Decrees to address important aspects of these
labor issues.
While we agree that we need to ensure that each of our FTAs benefits
Americans and achieves fully the labor and environment goals that each
sets out, the GAO staff's reporting on and analysis of what agencies
have done on FTA labor standards and environmental protection issues
and what agencies are called on to do gives, in some respects, an
inaccurate picture of the situation. This inaccurate depiction may
result in misunderstanding of or confusion about future work and
cooperative efforts with our FTA partners on labor standards and
protection of the environment. This failure to focus on actions that
are required under our FTAs and the Trade Act of 2002 (2002 Act) can
give the impression that FTA obligations or the requirements of the
2002 Act are not being met. This lack of precision also applies to the
Report's description of our FTA partners' actions and the challenges
they face on labor standards and improving environmental protection.
Further, the Report's analysis often ignores a key element of the
commitments on labor standards and environmental protection--that an
FTA partner not "fail to effectively enforce its [environmental]/
[labor] laws, through a sustained or recurring course of action or
inaction, in a manner affecting trade between the Parties." [See
comment 1]
We recognize that more can be done on monitoring and enforcing the
labor and environment provisions of our FTAs. Going forward, the Report
will be useful in evaluating and prioritizing resource needs, as well
as in the event we identify additional resource needs for monitoring
and enforcement of our FTAs, in particular with regard to those
provisions relating to labor standards and environmental protections.
This Administration is working to ensure that our FTAs benefit
Americans through improved conditions for trade that expand
opportunities for workers and their families, farmers, ranchers, and
businesses, improved implementation of core labor standards, and
enhanced environmental protections. We hope that we can have a common
understanding of the guidance and direction that Congress has provided
and those that this Administration will set.
Sincerely,
Signed by:
Timothy M. Keif:
General Counsel:
The following are GAO's comments on the Office of the United States
Trade Representative's letter dated June 9, 2009.
GAO Comments:
1. USTR said in some instances GAO had portrayed an inaccurate and
potentially misleading picture of U.S. agency responsibilities,
partner's actions, and outstanding challenges. In response, GAO made
several technical corrections and ensured criteria were cited. In the
revisions we made, we also sought to make clearer distinctions between
requirements for U.S. agencies under TPA, FTA chapters, and associated
cooperation mechanism agreements, versus more general expectations for
U.S. agencies based on USTR's overall responsibilities for the
operation of the U.S. trade agreements program, leading and guiding
U.S. trade policy, and monitoring and enforcing trade agreements. We
acknowledge that evaluation of the progress attained was based, in
part, on interviews with responsible foreign and U.S. government
officials and selected private sector interests and experts. USTR also
indicated that GAO should have given more prominence to the FTA
commitment that an FTA partner not fail to enforce its environmental
and labor laws through a sustained or recurring course of action or
inaction, in a manner affecting trade between the parties (USTR's
underlining for emphasis retained). GAO already distinguishes between
this binding FTA obligation and other, more "aspirational"commitments.
However, we believe that by definition all of the FTA commitments on
labor and the environment are trade-related, because they are contained
in a trade agreement, and thus appropriate for inclusion within the
scope of our review of progress attained as result or since the entry
into force of these FTAs. Moreover, some FTA commitments and FTA
cooperative goals are broad or generally applicable, rather than being
limited to traded sectors.
In each of the four FTAs and associated annexes we reviewed, partners
recognize that cooperation provides enhanced opportunities to improve
labor standards and strive to ensure their laws provide for high levels
of environmental protection. Moreover, in contesting the Labor Advisory
Committee's criticisms of the Chile and Singapore FTAs, we note that
USTR itself stated that FTA labor provisions "create a forum to in
which disputes regarding any labor-related matter of concern may be
raised" and "create cooperative mechanisms to improve worker
rights."[Footnote 95] USTR added that "the U.S. Department of Labor had
already embarked upon a cooperative program with Chile to improve the
administration of its labor laws and enhance labor justice." Finally,
while GAO relied on the information available to document partner
progress on labor, we reviewed the report to eliminate references to
lack of protections for workers in non-traded sectors.[Footnote 96] GAO
notes that some of the FTA-related cooperative plans and projects
address labor and environmental matters that are more general in
nature, versus being strictly trade-related. For example, one of the
agreed areas of focus for cooperation in the U.S.-Chile FTA is
increasing the use of cleaner fuels, and one of the associated
environmental cooperation projects State documented in Chile pertains
to diesel bus emissions in Santiago. We continue to include this among
the FTA-related progress reported.
[End of section]
Appendix X: GAO Contact and Staff Acknowledgments:
GAO Contact:
Loren Yager, (202) 512-4347 or yagerl@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Kim Frankena, Assistant
Director; Venecia Kenah, Analyst-in-Charge; Ann Baker; Kenneth Bombara;
Barbara El Osta; Francisco Enriquez; Leyla Kazaz; Karen Deans; Etana
Finkler; and Grace Lui contributed to this report. Expert advice was
provided by Martin DeAlteriis, Mike Hix, and Revae Moran.
[End of section]
Footnotes:
[1] Trade Act of 2002, Pub. L. No. 107-210, Title XXI, 116 Stat. 933,
993.
[2] See GAO, International Trade: Further Improvements Needed to Handle
Growing Workload for Monitoring and Enforcing Trade Agreements,
[hyperlink, http://www.gao.gov/products/GAO-05-537] (June 30, 2005);
GAO, International Trade: Strategy Needed to Better Monitor and Enforce
Trade Agreements, [hyperlink,
http://www.gao.gov/products/GAO/NSIAD-00-76] (Mar. 14, 2000); GAO,
International Trade: Intensifying Free Trade Negotiating Agenda Calls
for Better Allocation of Staff and Resources, [hyperlink,
http://www.gao.gov/products/GAO-04-233] (Jan. 12, 2004); and GAO,
International Trade: An Analysis of Free Trade Agreements and Private
Sector Consultations under Trade Promotion Authority, [hyperlink,
http://www.gao.gov/products/GAO-08-59] (Nov. 7, 2007).
[3] For the purposes of this report, we use the term "environmental
cooperation agreements" to refer to the U.S.-Jordan Joint Statement on
Environmental Technical Cooperation, Washington, Oct. 24, 2000; the
Environmental Cooperation Agreement between the Government of the
United States of America and the Government of Chile, Santiago, June
17, 2003; the Memorandum of Intent between the Republic of Singapore
and the United States of America on Cooperation in Environmental
Matters, Washington, June 13, 2003; Morocco's Joint Statement on
Environmental Cooperation, Rabat, June 28, 2004; and the Memorandum of
Intent between the Republic of Singapore and the United States of
America on Cooperation in Environmental Matters.
[4] Pub. L. No. 107-210. TPA is authority periodically given by
Congress to the President. It establishes conditions and procedures
under which the President can submit legislation approving and
implementing trade agreements such as FTAs that Congress can approve or
disapprove but cannot amend or filibuster. Previously known as "fast
track" negotiating authority, it was in effect from 1975 to 1994 and is
considered critical to congressional passage of FTAs and global trade
agreements. For a further discussion of Congress' decision to launch a
reciprocal trade agreements program in 1934 and to enact "fast track"
in 1974 and periodically thereafter, despite its fundamental authority
under the Constitution for regulating international trade, see
Committee on Ways and Means, U.S. House of Representatives, Overview
and Compilation of U.S. Trade Statutes, iv-v.
[5] According to USTR, the United States had the following FTAs in
effect in 2008: Israel, Canada, Mexico, Jordan, Chile, Singapore,
Australia, Morocco, the Dominican Republic, El Salvador, Guatemala,
Honduras, Nicaragua, and Bahrain. Three of these entered into force
prior to 2001 (Israel, Canada, and Mexico). President Bush proclaimed
the entry into force of FTAs with Costa Rica, Peru, and Oman effective
February 1, 2009, in the closing months of his administration.
[6] Those with Colombia, Panama, and Korea.
[7] See [hyperlink, http://www.gao.gov/products/GAO-08-59].
[8] A bipartisan trade deal reached between Congress and the executive
branch in May 2007 resulted in a new trade policy template that created
a more detailed delineation (beyond TPA) of FTA provisions on labor and
the environment, as well as clarifications intended to assure proper
balance between commercial and other societal goals in the areas of
intellectual property, investment, government procurement, and port
services. For example, FTA partners are to maintain in their law and
practice five basic internationally recognized labor principles, and
the FTAs incorporate specified multilateral environmental agreements.
FTA obligations on labor and environment also became fully enforceable
on par with commercial provisions. This new guidance was applied to the
Peru, Colombia, Panama, and Korea FTAs; Peru has since been approved
and has entered into effect.
[9] After the parties entered into the U.S.-Jordan FTA, the parties
entered into the United States-Jordan Joint Statement on Environmental
Technical Cooperation which created a Joint Forum on Environmental
Technical Cooperation to broaden and deepen effective cooperation on
technical environmental issues. After the parties entered into the U.S.-
Chile FTA, the parties entered into the Agreement Between the
Government of the United States of America and the Government of the
Republic of Chile on Environmental Cooperation to establish a framework
for cooperation between the Parties to promote the conservation and
protection of the environment, the prevention of pollution and
degradation of natural resources and ecosystems, and the rational use
of natural resources, in support of sustainable development. After the
parties entered into the U.S.-Singapore FTA, the parties entered into
the Memorandum of Intent between the Republic of Singapore and the
United States of America on Cooperation in Environmental Matters to
identify environmental issues of mutual interest to the two
governments, and to establish a mechanism through which the two
governments can pursue cooperative efforts in those areas. After the
parties entered into the U.S.-Morocco FTA, the parties entered into the
U.S.-Morocco Joint Statement on Environmental Cooperation which
established a Working Group on Environmental Cooperation to broaden and
deepen effective cooperation on environmental issues.
[10] Ongoing reporting on the Dominican Republic-Central America Free
Trade Agreement was required as part of its implementing legislation.
See Dominican Republic-Central America-United States Free Trade
Agreement Implementation Act, Pub. L. No. 109-53, §403, 119 Stat. 462,
496 (2005).
[11] Generally, the trade agreements program includes all activities
consisting of, or related to, the negotiation or administration of
international agreements that primarily concern trade and that are
concluded pursuant to the authority vested in the President by the
Constitution, 19 U.S.C. 1351, the Trade Expansion Act of 1962, and the
Trade Act of 1974, as amended.
[12] Statement of Warren Maruyama, General Counsel, Office of the
United States Trade Representative before the Senate Finance Committee,
May 22, 2008.
[13] See, for example, [hyperlink,
http://www.gao.gov/products/GAO-05-537], [hyperlink,
http://www.gao.gov/products/GAO/NSIAD-00-76], especially 15-16 and
appendix II, and GAO, International Trade: Improvements Needed to Track
and Archive Trade Agreements, GAO NSIAD-00-24 (Dec. 14, 1999).
[14] See 19 U.S.C. § 3808 and Notice of Redelegation of Authority and
Further Assignment of Functions, 67 Fed. Reg. 71,606 (Dec. 2, 2002).
[15] Among other things, the office serves as a point of contact with
agencies of the U.S. government, other FTA parties, the public,
governmental groups, business representatives, labor organizations, and
other nongovernmental organizations.
[16] Unlike post TPA agreements, however, the Jordan FTA does not
include an investment chapter due to the preexistence of a Bilateral
Investment Treaty with Jordan.
[17] This tariff rate represents the Permanent Normal Trade Relations
rate (referred to as the Most-Favored Nation [MFN] rate in other
countries) to all countries at that time and does not include any
preferences programs.
[18] For example, for products entering the United States from Chile,
the only significant duties were on agricultural products and food;
most manufacturing products had tariffs that averaged below 2 percent.
[19] Given the number of factors that affected trade between the United
States and these nations, we did not attempt to isolate the effects of
FTAs. Instead, we analyzed trends in descriptive trade and investment
data and provided statistical and graphic summaries of the changes in
trade before and after the FTAs.
[20] Studies referenced are: ITC, U.S.-Morocco Free Trade Agreement:
Potential Economywide and Selected Sectoral Effects (Washington, D.C.:
ITC Pub. No. 3704, June 2004); ITC, U.S.-Chile Free Trade Agreement:
Potential Economywide and Selected Sectoral Effects (Washington, D.C.:
ITC Pub. No. 3605, June 2003); U.S.-Singapore Free Trade Agreement:
Potential Economywide and Selected Sectoral Effects (Washington, D.C.:
ITC Pub. No. 3603, June 2003); ITC, Economic Impact on the United
States of a U.S.-Jordan Free Trade Agreement (Washington, D.C.: ITC
Pub. No. 3340, September 2000).
[21] For a discussion of how different studies on trade agreement
effects compare and differ, see ITC, "The Effects of Fast-Track Trade
Agreements on the U.S. Economy," USITC International Economic Review,
USITC Pub. 3638, September/October 2003.
[22] For example, since the Singapore FTA was implemented in 2004, we
calculated an average growth rate of bilateral trade for a pre-FTA
period of 5 years before and 5 years after implementation. For
comparison, we also calculated the average annual growth rate of U.S.
trade with the world for the same periods--5 years before 2004 and 5
years after. We calculated the same periods for the Chile FTA; for the
Morocco FTA, 3 years before and 3 years after; and 7 years before and 7
after for the Jordan FTA.
[23] 19 U.S.C. § 2112 note. Under the United States-Israel Free Trade
Area Implementation Act of 1985, a qualifying industrial zone is an
area that "(1) encompasses portions of the territory of Israel and
Jordan or Israel and Egypt; (2) has been designated by local
authorities as an enclave where merchandise may enter without payment
of duty or excise taxes; and (3) has been specified by the President as
a qualifying industrial zone." In relation to the QIZs, for an article
to receive an elimination or modification of duties it must be: (1)
wholly the growth, product, or manufacture of the West Bank, the Gaza
Strip, or a qualifying industrial zone or is a new or different article
of commerce that has been grown, produced, or manufactured in the West
Bank, the Gaza Strip, or a qualifying industrial zone; (2) imported
directly from the West Bank, the Gaza Strip, Israel, or a qualifying
industrial zone; and (3) the sum of the cost or value of the materials
produced in the West Bank, the Gaza Strip, Israel, or a qualifying
industrial zone, plus the direct costs of processing operations
performed in the West Bank, the Gaza Strip, Israel, or a qualifying
industrial zone is not less than 35 percent of the appraised value of
the product at the time it is entered into the United States.
[24] The countries that make up the Mercosur regional trade agreement
include Brazil, Argentina, Uruguay, Paraguay, and Venezuela; Chile,
Bolivia, Columbia, Ecuador, and Peru are associate members.
[25] Using ITC data for the top 25 export and import product categories
by value of the United States and the partner countries, we subtracted
annual average pre-FTA growth rates from post-FTA growth rates for the
same number of years before and after the agreements. We then ranked
the differences in growth between the pre and post-FTA periods in
descending order to determine which categories grew the most since the
FTAs came into force.
[26] In this analysis, U.S. import product categories from both Jordan
and Morocco had greater post-FTA growth rates in 40 percent of their
top 25 product categories. For Singapore and Chile, 64 and 52 percent
of product categories, respectively, had higher annual average rates of
growth after the FTAs came into force.
[27] Recently revised BEA data show that 62 percent of the total U.S.
stock of FDI in Singapore is in holding companies, and total financial-
related FDI (including banking and finance) is about 70 percent. About
17 percent of U.S. FDI is in manufacturing, and computers and
electronics constitute 60 percent of manufacturing.
[28] Of the $193 billion in U.S. affiliate sales, $182 billion was in
goods, and over $9.3 billion was in services. Compared with the pre-FTA
period, sales of goods grew 123 percent, and services grew almost 48
percent.
[29] BEA data on sales by MOFAs of U.S. multinational corporations is
not available for Jordan and Morocco.
[30] While Jordan does not maintain official detailed statistics of
FDI, aggregate inflows of registered capital tracked by the Central
Bank indicate that the main source countries for foreign investment are
Middle Eastern (Iraq, Kuwait, United Arab Emirates, Saudi Arabia,
Egypt, and Bahrain) or European (Denmark, Belgium, and the United
Kingdom).
[31] "Special 301" (as added by Section 1303 of Omnibus Trade and
Competitiveness Act of 1988, Pub. L. No. 100-418, to the Trade Act of
1974 (19 U.S.C. §2242) is designed to enhance the United States'
ability to negotiate improvements in foreign intellectual property
regimes. USTR is required to conduct an annual review to identify
foreign countries that deny "adequate and effective" protection of IPR
or "fair and equitable market access" to U.S. persons relying upon IPR
protection. Countries may be placed on "priority watch" or "watch"
lists if their intellectual property laws or enforcement practices are
of major concern to the United States.
[32] Cumulation provisions are provisions within a trade agreement that
allow for the import of inputs from "third countries" in other regions
or trade agreements to count toward a country's content rule of its
rules of origin. Trade agreements with cumulation provisions are
considered to be more flexible than those without them because a
country can potentially source inputs from multiple countries. See,
Paul Brenton, "Rules of Origin in Free Trade Agreements" (Washington,
D.C.: The World Bank Group, International Trade Department, Trade Note
4, May 29, 2003).
[33] Concerning the issue with the Moroccan trade statistical
discrepancies, the two countries are having ongoing consultations among
participants from the U.S. Census and USTR, and the Moroccan Office des
Changes (Foreign Exchange Office) to resolve these issues. U.S.
officials explained that, after an examination of this issue by both
countries, it was found that Moroccan statistics had failed to fully
account for exports sent to the United States via third countries which
resulted in U.S. import statistics showing a higher volume of imports
from Morocco than Moroccan statistics show as being exported to the
United States. Concerning partner countries meeting U.S. standards,
including sanitary and phytosanitary standards, U.S. officials
commented that it often takes many years for the Animal and Plant
Health Inspection Service (APHIS) of the U.S. Department of
Agriculture, to certify products. For Moroccan tomatoes, we were told
that APHIS has published a draft regulation, which is the first step in
the process.
[34] During the negotiations for the U.S.-Singapore FTA, USTR announced
an "integrated sourcing initiative" in which information technology
products, manufactured on two Indonesian islands off the Singapore
coast and by a number of other Association of Southeast Asian Nations
countries in the region and shipped from Singapore, would be considered
to be of Singapore origin. The initiative was limited to information
technology products (100 or more types), which do not involve a
sensitive sector in the U.S, and would receive tariff-free treatment.
This initiative was expected to be a boon to the economy, as
electronics is a major industrial output sector for Singapore.
Subsequently, during congressional deliberations over the FTA,
provisions of the integrated sourcing initiative were modified.
[35] The assessment involved visits to 70 of 111 garment factories
operating in the QIZs at that time; of these, 63 employed migrant
workers.
[36] Ministry officials said subcontracting is a widespread practice in
Chile that enables firms to employ workers through temporary contracts,
often for substantially lower wages and with less safety protection
than direct employees who work alongside them.
[37] 19 U.S.C. § 3802(c)(8).
[38] 19 U.S.C. § 3802(c)(7).
[39] See Chile FTA Annex 18.5, para. 4, Singapore FTA Annex 17A, para.
3, and Morocco FTA Annex 16-A, para. 4.
[40] Of the $3.072 million, State's Middle East Partnership Initiative
provided nearly $100,000 to add a gender equity component to ILAB's
labor relations project.
[41] Under the Chile FTA, this body is called the Free Trade
Commission.
[42] Under the Singapore and Morocco FTAs, the Joint Committee is
required to meet annually unless the parties agree otherwise.
[43] The Chile FTA required the establishment of a similar entity, the
Labor Affairs Council. Under the Singapore and Morocco FTAs, the Joint
Committees could choose to establish labor affairs subcommittees. The
Jordan FTA did not mention such an entity.
[44] However, as the most recently implemented FTA among these four,
Morocco has only had one Joint Committee meeting, in March 2008.
[45] The revised public submission process faced its first test through
this submission--a complaint filed by the AFL-CIO and six Guatemalan
labor unions in April 2008 concerning alleged FTA labor violations in
Guatemala, including the murders of two union leaders. ILAB reviewed
the submission and issued its findings and recommendations in January
2009, in which it confirmed a number of violations but declined to
recommend consultations, stating that the Guatemalan government had
cooperated with ILAB's review and made efforts to address some of the
issues raised. ILAB recommended a series of corrective actions by
Guatemala and committed to reassess the situation within 6 months.
[46] The labor chapter of the U.S.-Chile FTA details the establishment
of a Labor Affairs Council to oversee implementation of and review
progress under the labor chapter. The council is required to meet
within the first year after the date of entry into force of the FTA and
thereafter as the Council considers necessary. Chile FTA, Art. 18.4.
[47] Government of Chile, Direccion del Trabajo, Division de Estudios,
"Los Derechos Laborales del Tratado de Libre Comercio Chile-Estados
Unidos en la Industria Forestal y en la Industria del Salmón,"
Cuadernos de Investigacion 32, December 2007. [hyperlink,
http://www.dt.gob.cl/documentacion/1612/article-95495.html], accessed
on Jan. 27, 2009. GAO had informal translations of key sections of the
report done for this engagement.
[48] Under the U.S.-Singapore FTA, the Joint Committee is required to
meet annually unless the parties agree otherwise.
[49] Under the U.S.-Chile FTA, the parties established an Environmental
Affairs Council to discuss the implementation of, and progress under,
the environment chapter. The parties also agreed to undertake
cooperative environmental activities including by negotiating a United
States-Chile Environmental Cooperation Agreement (ECA). Under the ECA,
the parties established a Joint Commission for Environmental
Cooperation to establish and develop programs of work resulting from
the ECA which takes into account the views and recommendations of the
Environment Affairs Council established by the FTA.
[50] Jordan FTA, Article 5.2; Singapore FTA, Article 18.1; Chile FTA,
Article 19.1; Morocco FTA, Article 17.1.
[51] Jordan FTA, Article 5.2; Singapore FTA, Article 18.1; Chile FTA,
Article 19.1; Morocco FTA, Article 17.1.
[52] The environmental review of the Jordan FTA was required under
Executive Order 13141, and the environmental reviews of the Singapore,
Chile, and Morocco FTAs were required by TPA section 2102(c)(4).
[53] TPA section 2102(c)(4), codified at 19 U.S.C. § 3802(c)(4),
specifies that the required environmental reviews are to be consistent
with Executive Order 13141 and its relevant guidelines.
[54] GAO's understanding is that in practice, the TPA required
environmental review is based, in part, on economic models that predict
trade-agreement impacts, versus oriented towards how non-FTA induced
trade growth generally might influence production and potentially
affect the environment. Yet, in Jordan's case, it had a very small
apparel sector at the time the FTA was modeled by the ITC. Situations
such as salmon with Chile show that post-FTA trade growth has occurred
in sectors with relatively low pre-FTA barriers. Ongoing monitoring of
such trade is not routine.
[55] 19 U.S.C. § 3808. USTR redelegated this function to OMB. 67 Fed.
Reg. 71,606 (Dec. 2, 2002).
[56] 19 U.S.C. § 3808.
[57] OES made a request for the first time to obtain funds to implement
cooperation activities in fiscal year 2009.
[58] Under 19 U.S.C. § 3808, an implementation and enforcement plan is
required to be submitted for each FTA when it is submitted to Congress
for approval. The plan shall include: (1) border personnel requirements
- a description of additional personnel required at border entry
points, including a list of additional customs and agricultural
inspectors, (2) agency staffing requirements - a description of
additional personnel required by federal agencies responsible for
monitoring and implementing the trade agreement, (3) customs
infrastructure requirements - a description of additional equipment and
facilities needed by the United States Customs Service, (4) impact on
state and local governments - a description of the impact the trade
agreement will have on state and local governments as a result of
increases in trade, and (5) cost analysis - an analysis of the costs
associated with each of the items listed in (1)-(4).
[59] CITES stands for the Convention on International Trade in
Endangered Species of Wild Flora and Fauna, a multilateral
environmental agreement.
[60] In 1974, Congress mandated creation of a private sector advisory
system to ensure that representatives from private business and other
groups with a stake in trade policy could provide input as negotiations
unfolded. See Trade Act of 1974, Pub. L. No. 93-618, 88 Stat. 1996,
codified at 19 U.S.C. § 2155. A three-tier structure of committees
advises the President on overall U.S. trade policy, general policy
areas, and technical aspects of trade agreements. GAO reviewed this
structure in 2002, see GAO, International Trade: Advisory Committee
System Should Be Updated to Better Serve U.S. Policy Needs. GAO-02-876
(Washington, D.C.: Sept. 24, 2002). Note that in obtaining comment and
perspective, members were asked to do so in their individual capacity,
rather than in their capacity as advisors. The views GAO obtained may
not necessarily reflect the views of either other participants in the
committee system, or of those outside the system.
[61] See the U.S. ITC Interactive Tariff and Trade DataWeb. [hyperlink
http://dataweb.usitc.gov/].
[62] For Jordan, in both the overall and the product category analysis,
we did not consider the year 2001 as "post-FTA" period, as the Jordan
FTA came into force in December of 2001. Also, for Jordan, for the
"overall" comparison of growth rates, we used data from 1994/1995 to
2000/2001 for the pre-FTA period and 2001/2002 to 2007/2008 for the
post-period or 7 years for each period. For the product category
comparison, since this was more data intensive and we used a different
methodology, we drew only the "current" data from the ITC data web
which starts in 1996. Therefore, for this analysis, for the pre-FTA
categories for Jordan, we used data from 1996 through 2001 (6 years)
and 2002 through 2008 (7 years) for the post-FTA period.
[63] For U.S. exports to these FTA partners, the top 25 end use
categories represented 75 percent for Jordan, 80 percent for Chile, 83
percent for Singapore, and 84 percent for Morocco of the total value of
U.S. exports to these partner countries in 2008. For U.S. imports from
these partner countries, the top 25 product categories accounted for
99.5 percent for Jordan, 97 percent for Chile, 94 percent for
Singapore, and 97 percent for Morocco of the total value of imports in
2008.
[64] The results of the growth rate analysis by product category for
each FTA partner country are in appendixes II through V.
[65] [hyperlink, http://www.bea.gov].
[65] [hyperlink, http://unstats.un.org/unsd/servicetrade/default.aspx].
[66] [hyperlink, http://www.gao.gov/products/GAO-08-59].
[67] The Jordan FTA states this commitment as "strive to ensure that
such labor principles and the internationally recognized labor rights
set forth in paragraph 6 are recognized and protected by domestic law."
[68] 19 U.S.C. 2112 note.
[70] 19 U.S.C. 2112 note. Under the United States-Israel Free Trade
Area Implementation Act of 1985, a qualifying industrial zone is an
area that "(1) encompasses portions of the territory of Israel and
Jordan or Israel and Egypt; (2) has been designated by local
authorities as an enclave where merchandise may enter without payment
of duty or excise taxes; and (3) has been specified by the President as
a qualifying industrial zone." In relation to the QIZs, for an article
to receive an elimination or modification of duties it must be: (1)
wholly the growth, product, or manufacture of the West Bank, the Gaza
Strip, or a qualifying industrial zone or is a new or different article
of commerce that has been grown, produced, or manufactured in the West
Bank, the Gaza Strip, or a qualifying industrial zone; (2) imported
directly from the West Bank, the Gaza Strip, Israel, or a qualifying
industrial zone; and (3) the sum of the cost or value of the materials
produced in the West Bank, the Gaza Strip, Israel, or a qualifying
industrial zone, plus the direct costs of processing operations
performed in the West Bank, the Gaza Strip, Israel, or a qualifying
industrial zone is not less than 35 percent of the appraised value of
the product at the time it is entered into the United States.
[71] This tariff rate represents the Most-Favored Nation (MFN) rate to
all countries at that time and does not include any preferences
programs.
[72] We also performed a similar analysis grouping apparel and
nonapparel categories separately using the same pre-and post-FTA time
periods. Here we found that the "apparel" results all had greater
annual average rates of growth in the pre-FTA period, while a majority
of the "nonapparel" categories, 52 percent, had greater growth rates in
the post-FTA period. We believe that this result is due to the
influence of the QIZs, which came about in the pre-FTA period and
affected mostly the apparel industries. Unlike the apparel categories,
the textile category, however, had greater growth in the post-FTA
period.
[73] Note that the available data do not tell us the U.S. share of
these service exports and imports.
[74] Note that BEA data on sales by affiliates of U.S. multinational
corporations (MNC) (majority-owned funding affiliates, MOFA) is not
available for Jordan.
[75] Oxfam, "All Costs, No Benefits: How TRIPS-Plus Intellectual
Property Rules in the US-Jordan FTA Affect Access to Medicines," Oxfam
Briefing Paper, March 2007.
[76] For evidence of this, PhRMA cites a paper by Michael Ryan,
"Intellectual Property Reforms, Pharmaceuticals, and the Health
Competitiveness in Jordan: Misunderstanding and Misinformation from
Oxfam International," Creative & Innovative Economy Center, George
Washington University Law Center (Washington, D.C.: 2007).
[77] For more information on IPR and international trade policy and
public health policy, see GAO, Intellectual Property: U.S. Trade Policy
Guidance on WTO Declaration on Access to Medicines May Need
Clarification, [hyperlink, http://www.gao.gov/products/GAO-07-1198]
(Sept. 28, 2007).
[78] For more detailed description of the Singapore FTA and other
information see: The United States-Singapore Free Trade Agreement:
Message from the President of the United States transmitting a draft of
proposed legislation and supporting documents to implement the United
States-Singapore Free Trade Agreement (FTA), pursuant to 19 U.S.C.
3805(a)(1)(A) and (B) 108th Congress, 1st Session, House Document 108-
100, July 16, 2003; Dick K. Nanto, The U.S.-Singapore Free Trade
Agreement: Effects After Three Years (Washington, D.C.: Congressional
Research Service, RL34315, Jan. 7, 2008); Dick K. Nanto, The U.S.-
Singapore Free Trade Agreement (Washington, D.C.: Congressional
Research Service, RL31789, June 15, 2004).
[79] The comprehensive inclusion of all service sectors, unless
otherwise specified in the list of reservations, under the specific
disciplines of the services chapter and the general disciplines of the
trade agreement. A "negative list" approach requires that
discriminatory measures affecting all included sectors be liberalized
unless specific measures are set out in the list of reservations. This
contrasts with the "positive list" approach, which involves the
voluntary inclusion of a designated number of sectors in a national
schedule indicating what type of access and what type of treatment for
each sector and for each mode of supply a country is prepared to
contractually offer service suppliers from other countries. [hyperlink,
http://www.sice.oas.org/Dictionary/SV_e.asp].
[80] The Association of Southeast Asian Nations or ASEAN was
established in 1967 in Bangkok by the five original member countries,
Indonesia, Malaysia, Philippines, Singapore, and Thailand. Brunei
Darussalam joined on 1984, Vietnam on 1995, Lao PDR and Myanmar on
1997, and Cambodia on 1999. Launched in 1992, the ASEAN Free Trade Area
aims to promote the region's competitive advantage as a single
production unit. The elimination of tariff and nontariff barriers among
member countries is expected to promote greater economic efficiency,
productivity, and competitiveness.
[81] A holding company is a corporation that limits its business to the
ownership of stock in and the supervision of management of other
corporations.
[82] Organization of Cooperation and Development, OECD Reviews of
Labour Markets and Social Policy - Chile, 2009.
[83] In 2007, the World Bank estimated Chile's Gini coefficient, an
index of income inequality, was at 54.9 percent, which is high by Latin
American and world standards. The OECD estimated that the Gini
coefficient for Chile was 53 percent during the mid-2000s, while the
OECD average is at 0.31. The values of the Gini coefficient range
between 0, "perfect equality" (everyone has the same income) and 1,
which represents "perfect inequality" (or all income goes to one
person).
[84] Argentina is a member of Mercosur, a regional trade agreement
including Brazil, Argentina, Paraguay, Uruguay, and Venezuela that
Chile entered into as an associate member in 1996.
[85] Central Bank of Chile.
[86] A negative position for the stock of FDI seems odd but can occur
due to a number of valuation adjustments to historical-cost positions,
as discussed in Jeffrey H. Lowe, "Direct Investment, 2004-2007:
Detailed Historical-Cost Positions and Related Capital and Income
Flows," Survey of Current Business (2008) 38.
[87] More specifically, this was due to concerns about inadequate
protection against unfair commercial use for data generated to obtain
marketing approval; insufficient coordination between Chile's health
and patent authorities to prevent the issuance of marketing approvals
for patent-infringing pharmaceutical products (commonly known as
"linkage"); continuing copyright piracy and trademark counterfeiting;
and the need for greater efforts to meet standards set out in the TRIPS
Agreement of the U.S.-Chile FTA and other international agreements.
[88] The main objective of a bilateral tax treaty is to avoid double
taxation. Countries enter into bilateral income tax treaties to
allocate taxing rights on cross-border income between the source and
residence state, thus avoiding excessive taxation that could otherwise
result if both countries applied the full force of domestic law. In
addition, tax treaties mitigate differences between two tax systems by
coordinating definitions and practices of taxation, and establish
methods of cooperation in tax administration.
[89] Again, note that the available data do not tell us the U.S. share
of these service exports and imports.
[90] Note that BEA data on sales by affiliates of U.S. MNCs (MOFAs) are
not available for Morocco.
[91] Secondary source data (AmCham) indicate that France constitutes 75
percent of FDI in Morocco, followed by Spain with 5 percent, while the
United States has less than 1 percent (apparently consistent with BEA
data). AmCham indicates that almost 60 percent of inward FDI is in
telecommunications, and almost 12 percent is in tourism.
[92] The American Farm Bureau also noted that while these trends were
promising, they were likely aided by recent global trade trends, such
as the increases in global commodity prices.
[93] Concerning the issue with the Moroccan trade statistical
discrepancies, the two countries are having ongoing consultations among
participants from the U.S. Census and USTR, and the Moroccan Office des
Changes (Foreign Exchange Office) to resolve these issues. U.S.
officials explained that after an examination of this issue by both
countries, it was found that Moroccan statistics had failed to fully
account for exports sent to the United States via third countries which
resulted in U.S. import statistics showing a higher volume of imports
from Morocco than Moroccan statistics show as being exported to the
United States. Concerning partner countries meeting U.S. standards,
including sanitary and phytosanitary standards, U.S. officials
commented that it often takes many years for the Animal and Plant
Health Inspection Service (APHIS) of the U.S. Department of
Agriculture, to certify products. For Moroccan tomatoes, we were told
that APHIS has published a draft regulation, which is the first step in
the process.
[94] Many other factors were also likely affecting trade in both the
pre-and post-FTA periods, such as commodity price changes, exchange
rates, and other bilateral and regional trade agreements. As well, FTA
specific changes such as lowering tariff and nontariff barriers
increase market access and provide gains from trade.
[95] See Office of the United States Trade Representative, Response to
the Labor Advisory Committee Report on the Proposed Chile and Singapore
FTAs, pp. 2-3.
[96] For example, State issues annual reports and human rights which
include descriptions of whether trade partners' provide the 5 core ILO
labor rights in law and practice and the International Trade Union
Confederation regularly issues reports on countries' compliance with
these core labor standards in conjunction with WTO Trade Policy
Reviews.
[97] Chile FTA, Annex 19.3, para. 1 (h).
[End of section]
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