Foreign Assistance
U.S. Trade Capacity Building Extensive, but Its Effectiveness Has Yet to Be Evaluated Gao ID: GAO-05-150 February 11, 2005Many developing countries have expressed concern about their inability to take advantage of global trading opportunities. The United States considers this ability a key factor in reducing poverty, achieving economic growth, raising income levels, and promoting stability. U.S. trade capacity building assistance is designed to address these concerns. GAO (1) identified the nature and extent of U.S. trade capacity building; (2) described how agencies implement such assistance, including coordination; and (3) assessed whether agencies evaluate its effectiveness.
U.S. trade capacity building is primarily a collection of existing trade and development activities placed under the umbrella of trade capacity building. The U.S. government initiated an annual governmentwide survey in 2001 to identify U.S. trade capacity building efforts, which it defined as assistance meant to help countries become aware of and accede to the World Trade Organization (WTO); implement WTO agreements; and build the physical, human, and institutional capacity to benefit from trade. U.S. agencies self-reported that they had provided almost $2.9 billion in trade capacity building assistance to over 100 countries from fiscal years 2001 through 2004. The Agency for International Development (USAID) reported providing about 71 percent of the trade capacity building funding. Agencies are coordinating their assistance through the trade capacity building interagency group formed in 2002 to help countries negotiate and implement U.S. free trade agreements. Most of the U.S. agencies we reviewed are not systematically measuring the results of their trade capacity building assistance or evaluating its effectiveness. Although some agencies have set program goals for building trade capacity, they have not generally developed performance indicators, compiled data, or analyzed the results in terms of building trade capacity. USAID's March 2003 strategy for building trade capacity includes a limited number of performance indicators. USAID officials have stated that developing such indicators is difficult but have begun work independently and with other international donors toward that end. Without a strategy for evaluating the effectiveness of its trade capacity building assistance, the United States cannot identify what works and what does not work to ensure the reasonable use of resources for these efforts.
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-05-150, Foreign Assistance: U.S. Trade Capacity Building Extensive, but Its Effectiveness Has Yet to Be Evaluated
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Report to Congressional Requesters:
February 2005:
Foreign Assistance:
U.S. Trade Capacity Building Extensive, but Its Effectiveness Has Yet
to Be Evaluated:
GAO-05-150:
GAO Highlights:
Highlights of GAO-05-150, a report to congressional requesters:
Why GAO Did This Study:
Many developing countries have expressed concern about their inability
to take advantage of global trading opportunities. The United States
considers this ability a key factor in reducing poverty, achieving
economic growth, raising income levels, and promoting stability. U.S.
trade capacity building assistance is designed to address these
concerns. GAO (1) identified the nature and extent of U.S. trade
capacity building; (2) described how agencies implement such
assistance, including coordination; and (3) assessed whether agencies
evaluate its effectiveness.
What GAO Found:
U.S. trade capacity building is primarily a collection of existing
trade and development activities placed under the umbrella of trade
capacity building. The U.S. government initiated an annual
governmentwide survey in 2001 to identify U.S. trade capacity building
efforts, which it defined as assistance meant to help countries become
aware of and accede to the World Trade Organization (WTO); implement
WTO agreements; and build the physical, human, and institutional
capacity to benefit from trade. U.S. agencies self-reported that they
had provided almost $2.9 billion in trade capacity building assistance
to over 100 countries from fiscal years 2001 through 2004. The Agency
for International Development (USAID) reported providing about 71
percent of the trade capacity building funding. Agencies are
coordinating their assistance through the trade capacity building
interagency group formed in 2002 to help countries negotiate and
implement U.S. free trade agreements.
Most of the U.S. agencies we reviewed are not systematically measuring
the results of their trade capacity building assistance or evaluating
its effectiveness. Although some agencies have set program goals for
building trade capacity, they have not generally developed performance
indicators, compiled data, or analyzed the results in terms of building
trade capacity. USAID‘s March 2003 strategy for building trade capacity
includes a limited number of performance indicators. USAID officials
have stated that developing such indicators is difficult but have begun
work independently and with other international donors toward that end.
Without a strategy for evaluating the effectiveness of its trade
capacity building assistance, the United States cannot identify what
works and what does not work to ensure the reasonable use of resources
for these efforts.
Funding for U.S. Trade Capacity Building Assistance, by Category,
Fiscal Years 2001–2004:
[See PDF for image]
[End of figure]
What GAO Recommends:
GAO recommends that the Administrator of USAID and the U.S. Trade
Representative (USTR), as co-chairs of the trade capacity building
working group, in consultation with other agencies that fund and
implement trade capacity building assistance, should develop a strategy
to systematically monitor and measure results and evaluate the
effectiveness of this assistance. The Administrator of USAID should
direct the agency to set milestones for completing its efforts to
develop indicators for results measurement and periodic evaluations.
USAID agreed with both recommendations. USTR re-iterated trade capacity
building and interagency coordination‘s role in linking trade and
development. Treasury highlighted cooperation with USAID on such
assistance.
www.gao.gov/cgi-bin/getrpt?GAO-05-150.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Yvonne D. Jones at (202)
512-2717 or jonesy@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
U.S. Trade Capacity Building Is Existing Activities Labeled as Trade
Capacity Building, Distributed Worldwide, and Primarily through USAID:
Agencies Implement Assistance Based on Broad Criteria and Are Beginning
to Incorporate Trade Capacity Building into Their Approach to
Assistance:
Most Agencies Are Not Systematically Monitoring, Measuring, or
Evaluating Their Assistance in Terms of Building Trade Capacity:
Conclusion:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: U.S. Government Trade Capacity Building Database:
Appendix III: Total U.S. Funding for Trade Capacity Building, by Region
and Country, Fiscal Years 2001-2004:
Appendix IV: The Linkages between Trade and Development:
Appendix V: Comments from the U.S. Agency for International
Development:
GAO Comments:
Appendix VI: Comments from the Office of the U.S. Trade Representative:
Appendix VII: Comments from the Department of the Treasury:
Appendix VIII: GAO Contact and Staff Acknowledgments:
GAO Contact:
Staff Acknowledgments:
Tables:
Table 1: U.S. Government Trade Capacity Building Categories and Their
Definitions:
Table 2: Total Trade Capacity Building Funding for U.S. Government
Agencies, Fiscal Years 2001-2004:
Table 3: USAID 2003 Trade Capacity Building Strategy:
Figures Figures:
Figure 1: Funding for U.S. Government Trade Capacity Building
Assistance, by Category, Fiscal Years 2001-2004:
Figure 2: Trade Facilitation--Business Services and Training:
Figure 3: Trade Facilitation--Export Promotion:
Figure 4: Trade Facilitation--Customs Operation and Administration:
Figure 5: Agriculture Development--Exporting Fruits and Vegetables:
Figure 6: Physical Infrastructure--Telecommunications:
Figure 7: U.S. Trade Capacity Building Funding by Region, Fiscal Years
2001-2004:
Figure 8: Total Trade Capacity Building Funding by Region and Category,
Fiscal Years 2001-2004 (millions of dollars):
Figure 9: U.S. Government Agency Distribution of Trade Capacity
Building, Fiscal Years 2001-2004:
Abbreviations:
CAFTA: Central American Free Trade Agreement:
GPRA: Government Performance and Results Act of 1993:
OECD: Organization for Economic Cooperation and Development:
USAID: U.S. Agency for International Development:
USDA: U.S. Department of Agriculture:
USTDA: U.S. Trade and Development Agency:
USTR: Office of the U.S. Trade Representative:
WTO: World Trade Organization:
Letter February 11, 2005:
The Honorable Christopher Shays:
Chairman:
Subcommittee on National Security, Emerging Threats, and International
Relations: Committee on Government Reform:
House of Representatives:
The Honorable Michael Turner:
House of Representatives:
Many developing countries have expressed concern about their inability
to take advantage of global trading opportunities because they lack the
capacity to participate in international trade. In 2001, the least-
developed countries called for technical assistance to strengthen their
institutions and trade-related infrastructure,[Footnote 1] and the
World Trade Organization Doha Ministerial Declaration stated that
technical cooperation and capacity building were important and should
be used to help countries benefit from the multilateral trading system.
The United States considers the ability to participate in and benefit
from the global trading system key factors in reducing poverty,
achieving economic growth, raising income levels, and promoting
stability. In 2002, the President's Trade Policy Agenda[Footnote 2]
pledged the United States would provide tools and training to countries
needing help to benefit from the global trading system. As a result,
U.S. government agencies have provided trade capacity building
assistance through a variety of programs to help these countries.
In response to your request for information about U.S. trade capacity
building assistance, this report (1) identifies the nature and extent
of U.S. trade capacity building assistance; (2) describes how agencies
implement such assistance, including coordination; and (3) assesses
whether agencies evaluate its effectiveness.
To address these objectives, we reviewed relevant agency documents and
analyzed available data on trade capacity building. We assessed the
U.S. Government Trade Capacity Building database, which reflects annual
governmentwide surveys initiated in 2001 about U.S. trade capacity
building activities and is administered by the U.S. Agency for
International Development (USAID). We determined that the required data
elements in the database are sufficiently reliable for the purposes of
this review.[Footnote 3] We focused our review on the six U.S. agencies
funding and implementing 96 percent of the trade capacity building
assistance, concentrating primarily on USAID, because it provided the
bulk of the funding, as well as the Office of the U.S. Trade
Representative (USTR).[Footnote 4] We conducted fieldwork in El
Salvador, Ghana, and Egypt, choosing these countries because they were
among the 20 countries receiving the most trade capacity building
funding, and they represented different regions and income levels (low
and middle income). In those countries, we reviewed USAID mission
strategy documents, contracts, and cooperative agreements with the host
governments. We also interviewed mission officials, contractors, and
host country government officials and visited several trade capacity
building projects. In addition, we reviewed relevant U.S. congressional
documents and legislation. Appendix I contains a full description of
our objectives, scope, and methodology. Appendix II elaborates on how
USAID created its trade capacity building database. Appendix III
provides further details on U.S. funding for trade capacity building
assistance. In addition, we have included information on the
relationship between trade and economic development in appendix IV.
We performed our work from September 2003 to November 2004 in
accordance with generally accepted government auditing standards.
Results in Brief:
U.S. trade capacity building is primarily a collection of existing
trade and development activities placed under one umbrella. The U.S.
government initiated a survey in 2001 to capture qualitatively and
quantitatively the nature and extent of existing trade-related capacity
building activities. It defined trade capacity building as assistance
meant to help countries become aware of and accede to the World Trade
Organization (WTO); implement its agreements; and build the physical,
human, and institutional capacity to benefit more broadly from a rules-
based trading system. Specific categories included trade facilitation,
such as customs modernization and export promotion; human resources and
labor standards, such as workforce development and protecting worker
rights; agricultural development, such as promoting agribusiness;
financial sector development, such as monetary and fiscal policy
reforms; and infrastructure development, such as increasing the number
of telephone lines. U.S. trade capacity building is not a discrete area
with its own budget. However, 18 U.S. agencies self-reported that they
had obligated almost $2.9 billion for trade capacity building
activities in over 100 countries from fiscal years 2001 through 2004.
Overall, the assistance was distributed worldwide, although the focus
differed somewhat from region to region. USAID reported providing about
71 percent of trade capacity building assistance funding.
Agencies have traditionally implemented trade and development
assistance based on broad criteria such as national security, foreign
policy, and country needs, and some agencies have begun to incorporate
trade capacity building into how they approach such assistance. For
instance, the Departments of Agriculture and State, USAID, and the U.S.
Trade and Development Agency (USTDA) are considering trade capacity
building in their assistance planning, while USAID is training its
staff on trade capacity building concepts, designing trade capacity
building funding instruments, and starting to identify trade capacity
building activities for budgeting purposes. In addition, several
agencies are focusing some assistance on countries participating in
trade preference programs and trade agreements with the United States.
Agencies are also framing their assistance in terms of building trade
capacity through their coordination via the USTR-and USAID-led trade
capacity building interagency group formed to facilitate countries'
participation in free trade agreement negotiations with the United
States. In addition, USTR led special trade capacity building working
groups dedicated to specific trade negotiations. For example, El
Salvador government officials stated that working group efforts have
helped donors better coordinate assistance related to the Central
American Free Trade Agreement (CAFTA).
The six agencies we reviewed are not systematically monitoring or
measuring the results of their trade capacity building activities or
evaluating its effectiveness in terms of building trade capacity. While
some agencies have set program goals for building trade capacity, they
have not generally developed performance indicators,[Footnote 5]
compiled performance data, or analyzed the results in terms of building
trade capacity. As the primary provider, USAID presented goals for
building trade capacity in its March 2003 trade capacity building
strategy and included a limited number of performance indicators to
monitor results and measure performance against those goals as called
for under standard government practices.[Footnote 6] USAID officials
have stated that developing trade capacity building performance
indicators is difficult, including, for instance, measuring results for
activities that focus broadly on economic development whose benefits
are harder to quantify. However, USAID is working on its own, and in
collaboration with other donors, to develop a common framework for
results monitoring and assessing trade capacity building efforts.
Agencies have also not conducted program evaluations, a formal
assessment of the effects of a program or policy, of their trade
capacity building efforts. Without a strategy for systematically
monitoring and measuring results and evaluating the effectiveness of
trade capacity building efforts, the United States cannot ensure the
reasonable use of resources for such assistance or credibly demonstrate
its usefulness as a U.S. trade and development policy.
To provide more objective information on the progress of U.S. trade
capacity building efforts and allow the United States to assess their
effectiveness, we make the following two recommendations:
* The Administrator, USAID, and the U.S. Trade Representative, as co-
chairs of the trade capacity building interagency group, in
consultation with other agencies that fund and implement trade capacity
building assistance, should develop a cost effective strategy to
systematically monitor and measure program results and to evaluate the
effectiveness of U.S. trade capacity building assistance.
* The Administrator, USAID, should direct the agency to set milestones
for completing its efforts to develop trade capacity building
performance indicators to be used by (1) its field missions to monitor
and measure the results of their trade capacity building efforts and
(2) its relevant agency bureaus to conduct periodic program
evaluations. USAID should share its findings with other agencies that
fund and implement trade capacity building assistance.
We provided a draft report to the Office of the U.S. Trade
Representative, the U.S. Agency for International Development, the
Departments of Agriculture, Labor, State, and Treasury, and the U.S.
Trade and Development Agency. We received technical comments from the
Office of the U.S. Trade Representative, the U.S. Agency for
International Development, the Departments of Labor and State, and the
U.S. Trade and Development Agency. The Department of Agriculture
provided no comments. We received written comments from the U.S. Agency
for International Development, the Office of the U.S. Trade
Representative, and the Department of the Treasury, which are reprinted
in appendixes V through VII. The U.S. Agency for International
Development agreed with our two recommendations. USAID emphasized the
large number of agencies involved, the diversity of trade capacity
building programs, the cost-effectiveness of different approaches, and
the importance of taking into account the unique needs of each USAID
country mission. The Office of the U.S. Trade Representative reiterated
the important role of trade capacity building in linking trade and
development and of interagency coordination in connecting trade
capacity building to trade negotiations. The Department of the Treasury
believed that the report provided a good example of cooperation and
mutual support between the Department's Office of Technical Assistance
and USAID in providing trade capacity building, and emphasized that its
role in helping countries to institute financial reform contributed to
building trade capacity.
Background:
Developing countries expressed reservations about undertaking further
trade liberalization at the 1999 Seattle WTO ministerial conference, as
they were still experiencing economic difficulties despite previous
market reforms. In response to developing country concerns, the 2001
WTO Doha Ministerial Declaration said that technical assistance should
be designed to assist developing, least-developed, and low-income
countries to meet their WTO obligations and draw on the benefits of an
open, rules-based multilateral trading system. To implement the
declaration, in December 2001, the WTO created the Doha Development
Agenda Global Trust Fund to help developing countries build capacity
and establish a reliable basis for funding WTO-related technical
assistance (to which the United States has contributed $3 million, to
date). In addition, in November 2002, the WTO and the Organization for
Economic Cooperation and Development (OECD) created a database to
provide comprehensive information on bilateral donor and multilateral/
regional agency support for trade capacity building.
The Congress included trade capacity building in the African Growth and
Opportunity Act of 2000[Footnote 7] to help eligible countries meet the
act's requirements. The act provides that sustained economic growth in
sub-Saharan Africa depends in large measure on the development of a
receptive environment for trade and investment. The act instructs the
U.S. Customs Service to provide technical assistance to beneficiary
countries in developing and implementing visa systems for textile
transshipment and for antitransshipment enforcement.[Footnote 8] In
addition, the Congress, in the Bipartisan Trade Promotion Authority Act
of 2002,[Footnote 9] declared that among the principal negotiating
objectives of the United States are to strengthen the capacity of the
U.S. trading partners to promote respect for core labor standards and
to protect the environment. That act calls for the President to seek to
establish consultative mechanisms with parties to trade agreements to
promote respect for core labor standards and compliance with
International Labor Organization conventions on child labor, to develop
and implement standards for the protection of the environment and human
health, based on sound science. It provides for the President to direct
the Secretary of Labor to provide technical assistance to countries
wishing to establish trade agreements on its labor laws, if
needed.[Footnote 10]
In providing funding for trade capacity building in the foreign
operations appropriations for fiscal years 2003 and 2004, the House
appropriators called trade capacity building a critical element of
development assistance because it can "be leveraged to generate
economic growth, reduce poverty, [and] promote rule of law—."[Footnote
11] The Congress earmarked funds appropriated in fiscal years 2003 and
2004 for trade capacity building. Specifically, the Congress provided
that not less than $452 million in fiscal year 2003 should be made
available for trade capacity building. Out of this amount, $159 million
and $2.5 million were earmarked for USAID and USTDA, respectively.
[Footnote 12] Similarly, in fiscal year 2004, the Congress provided
that not less than $503 million should be made available for trade
capacity building with $190 million earmarked specifically for USAID.
[Footnote 13] The appropriations for each of those fiscal years also
provided for funding from accounts managed by other agencies, including
the Departments of State and Treasury, although amounts were not
specified for the individual accounts.[Footnote 14]
U.S. Trade Capacity Building Is Existing Activities Labeled as Trade
Capacity Building, Distributed Worldwide, and Primarily through USAID:
U.S. trade capacity building is primarily a collection of existing
activities placed under the umbrella of trade capacity building by a
U.S. government survey. Initiated in 2001, this survey was to capture,
qualitatively and quantitatively, U.S. agencies' existing activities
promoting trade-related capacity building in transitioning
economies[Footnote 15] and developing countries. The survey defined
trade capacity building and asked agencies to place their assistance
into a range of categories and estimate funding obligated for each
category. U.S. trade capacity building is not a discrete area with its
own budget. However, 18 agencies have self-reported that they obligated
almost $2.9 billion for trade capacity building activities in over 100
countries from fiscal years 2001 through 2004. Overall, the assistance
was distributed worldwide, although the focus differed somewhat from
region to region. USAID reported providing 71 percent of the trade
capacity building assistance.
United States Categorizes a Range of Assistance as Trade Capacity
Building:
The U.S. government survey administered by USAID defined trade capacity
building as activities meant to help countries become aware of and
accede to the WTO; implement WTO agreements; and build the physical,
human, and institutional capacity to benefit more broadly from a rules-
based trading system.[Footnote 16] The survey asked agencies to place
their assistance into several categories, including WTO awareness, WTO
agreements, trade facilitation, human resources and labor standards,
physical and economic infrastructure, agriculture development,
environmental sector trade and standards, financial sector development,
competition policy and foreign investment incentives, and services
trade development (table 1 provides further information about these
categories).
Table 1: U.S. Government Trade Capacity Building Categories and Their
Definitions:
Categories: WTO awareness and accession;
Definitions: To provide a basic understanding of the WTO agreements. To
help accession candidates identify changes to laws, regulations,
policies, and procedures necessary to complete negotiations on the
terms of WTO membership.
Categories: WTO agreements;
Definitions: To support countries' efforts toward compliance and
implementation, including institution building, so developing and
transition countries may reap the benefits of membership.
Categories: Trade Facilitation: Business services and training;
Definitions: To improve associations and networks in the business
sector, as well as to enhance the skills of business people engaged in
trade.
Categories: Trade Facilitation: Export promotion;
Definitions: To increase market opportunities for developing country
producers.
Categories: Trade Facilitation: Customs operation and administration;
Definitions: To help countries modernize and improve their customs
offices.
Categories: Trade Facilitation: E-commerce development and information
technologies;
Definitions: To help countries acquire and use information technology
to promote trade by creating business networks and disseminating market
information.
Categories: Trade Facilitation: Regional trade agreement capacity
building;
Definitions: To increase the ability of regional trade agreements and
individual countries to facilitate trade and help potential regional
trade agreement members.
Categories: Trade Facilitation: Other trade facilitation;
Definitions: To facilitate the flow of trade in other ways.
Categories: Human resources and labor standards;
Definitions: To support labor standards, worker rights, trade unions,
workforce development, business education, and the social aspects of
trade.
Categories: Physical infrastructure development;
Definitions: To establish trade-related telecommunications, transport,
ports, airports, power, water, and industrial zones.
Categories: Agriculture development;
Definitions: To support trade- related aspects of agriculture and
agribusiness, excluding WTO agreements.
Categories: Environmental sector trade and standards;
Definitions: To establish environmental standards or to promote
environmental technology.
Categories: Governance, transparency, and interagency coordination;
Definitions: To support legal and institutional reforms to improve
governance and make policies more transparent and to help government
agencies function more effectively in the trade policy arena.
Categories: Financial sector development;
Definitions: To support reforms in the financial sector, monetary and
fiscal policy, exchange rates, commodity markets, and capital markets.
Categories: Competition policy and foreign investment incentives;
Definitions: To help design and implement antitrust laws, as well as
laws and regulations related to investment and investor protections.
Categories: Services trade development: Tourism sector development;
Definitions: To help countries expand their international tourism
sectors, including eco- tourism.
Categories: Services trade development: Other services development;
Definitions: To help countries develop trade in services in sectors
other than tourism, including financial services, energy,
transportation, and education.
Sources: USTR and USAID.
[End of table]
Agencies estimated their obligated funding for each category from 2001
through 2004. The largest obligations were for trade facilitation at 27
percent, followed by human resources and labor standards at 16 percent,
agriculture development at 12 percent, financial sector development at
11 percent, and physical infrastructure development at 8 percent. The
governance, transparency, and interagency coordination category and the
WTO-related category each received an estimated 6 percent of this
assistance (see fig. 1).
Figure 1: Funding for U.S. Government Trade Capacity Building
Assistance, by Category, Fiscal Years 2001-2004:
[See PDF for image]
Note: Other trade capacity building categories included environmental
sector trade and standards, competition policy and foreign investment
incentives, and services trade development including tourism.
[End of figure]
Trade Facilitation:
According to the database, a significant portion of U.S. funding for
trade capacity building assistance, or 27 percent, supported trade
facilitation activities such as business services and training, export
promotion, customs operation and administration, and E-commerce
development and information technologies. For instance, to facilitate
trade in El Salvador and Ghana, USAID financed matching grants to
artisans and small-to-medium-sized firms for business services
training, product design, and packaging. U.S. assistance helped several
artisans and firms develop ways to increase their capacity to market
and export their products by improving product design and packaging and
arranging trade fair visits to the United States and Europe (see figs.
2 and 3).
Figure 2: Trade Facilitation--Business Services and Training:
[See PDF for image]
[End of figure]
Figure 3: Trade Facilitation--Export Promotion:
[See PDF for image]
[End of figure]
In another example of trade facilitation, U.S. Customs and Border
Protection officials trained Ghana's Customs, Excise, and Preventive
Service officials in procedures to comply with the African Growth and
Opportunity Act textile visa enforcement system to prevent illegal
transshipment and use of counterfeit documents relating to the
importation of apparel products into the United States (see fig. 4).
Figure 4: Trade Facilitation--Customs Operation and Administration:
[See PDF for image]
[End of figure]
Human Resources and Labor Standards:
The U.S. Department of Labor funds a number of programs to strengthen
labor systems and improve occupational safety and health. For instance,
a project in Central America seeks to improve labor law compliance,
while another project in Central America aims to reduce the incidence
of workplace injuries. In Ghana, USAID provided technical assistance to
a government committee drafting new labor legislation and focused on
increasing worker collective bargaining by encouraging workers to work
with members of the nonprofit and philanthropic sectors.
Agriculture Development:
For agriculture development, assistance is used to extend the benefits
of trade to rural sectors and support trade-related aspects of
agribusiness. In Ghana and El Salvador, U.S. assistance is supporting
Salvadoran and Ghanaian food producers' efforts to meet sanitary and
phytosanitary standards through training.[Footnote 17] In El Salvador,
U.S. assistance helped small-to-medium-sized farmers export fruits and
vegetables (see fig. 5). U.S. Department of Agriculture officials also
helped African nations meet export requirements under the African
Growth and Opportunity Act by sponsoring training on quality control,
risk analysis, and food safety.
Figure 5: Agriculture Development--Exporting Fruits and Vegetables:
[See PDF for image]
[End of figure]
Financial Sector Development:
Under the category of financial sector development, U.S. assistance
supports reforms in banking and securities markets and implementation
of laws and regulations that promote trade-related investment to
provide an enabling environment for international trade. For instance,
several U.S. Treasury officials have worked to reform Ghana's banking
and tax systems. Specifically, these U.S. officials have helped the
government of Ghana to restructure the funding relationship between the
Ministry of Finance and the Central Bank, improve tax collection
procedures, and strengthen the financial sector.
Physical Infrastructure Development:
U.S. assistance for physical infrastructure development helps establish
trade-related telecommunications, transport, ports, airports, power,
water, and industrial zones. For instance, according to USAID, U.S.
assistance to improve the telecommunications sector helps Egypt's
ability to increase trade and investment (see fig. 6). U.S.
telecommunications infrastructure projects have led to the installation
of hundreds of thousands of telephone lines, serving more than 4
million Egyptians. Joint U.S.-Egyptian investments in the sector have
supported the institutional strengthening of Egypt Telecom and the
improvement and expansion of telecommunications networks throughout
Egypt. Under a current telecommunications project, a state-of-the-art
network operations center is being constructed, and several initiatives
to strengthen the telecommunications infrastructure system are being
carried out.
Figure 6: Physical Infrastructure--Telecommunications:
[See PDF for image]
[End of figure]
WTO-Related:
U.S. trade capacity building supports an array of activities to help
developing countries participate fully in the WTO and the global
trading system generally and to implement their current and future
trade commitments. For example, U.S. assistance helped create a WTO
unit within the Egyptian Ministry of Foreign Trade to enable the
ministry to participate in international trade negotiations and
implement trade agreements. Moreover, this assistance provided training
to unit officials on trade policy formulation and equipment to allow
these officials to develop statistics and databases related to trade.
Governance, Transparency, and Interagency Coordination:
This assistance supports institutional reform to improve governance and
make policies more transparent. It also helps different ministries
function more effectively in the trade policy arena. For example, in
Ghana, U.S. assistance has supported workshops for the government, the
private sector, and civil society to discuss and develop Ghana's trade
policy.
U.S. Trade Capacity Building Distributed Globally:
The United States supports trade capacity building assistance globally,
covering six regions including Asia, Central and Eastern Europe, the
former Soviet Republics, Latin America and the Caribbean, the Middle
East and North Africa, and sub-Saharan Africa. The Middle East and
North Africa received the most funding, or 24 percent (see fig. 7).
Figure 7: U.S. Trade Capacity Building Funding by Region, Fiscal Years
2001-2004:
[See PDF for image]
[End of figure]
Funding per category of trade capacity building varied by region (see
fig. 8). Overall, the trade facilitation category dominated with about
a third of the funding in each region except for sub-Saharan Africa
(about 27 percent) and Asia (about 17 percent). In Asia, the human
resources and labor standards category received the most trade capacity
building funding. In the former Soviet Republics, assistance for
financial sector development received 20 percent of the funding.
Figure 8: Total Trade Capacity Building Funding by Region and Category,
Fiscal Years 2001-2004 (millions of dollars):
[See PDF for image]
Note: Numbers and percentages are rounded. Thus, the percentage columns
may not total to 100 percent.
[End of figure]
USAID Provides the Bulk of Trade Capacity Building:
USAID provides most of the funding for trade capacity building
assistance, with $423 million (71 percent), $477 million (75 percent),
$554 million (73 percent), and $611 million (68 percent) in each of
fiscal years 2001, 2002, 2003, and 2004, respectively (see fig. 9).
Figure 9: U.S. Government Agency Distribution of Trade Capacity
Building, Fiscal Years 2001-2004:
[See PDF for image]
[End of figure]
Other key funding agencies, in decreasing order of funding during the
4-year period, were the U.S. Departments of Labor and State at
approximately 15 percent and 4 percent, respectively, and the Overseas
Private Investment Corporation and USTDA, both with about 2 percent.
The other main providers of trade capacity building over the past 4
years include the U.S. Departments of Agriculture, Energy, and the
Treasury (see table 2).
Table 2: Total Trade Capacity Building Funding for U.S. Government
Agencies, Fiscal Years 2001-2004:
Dollars in millions.
U.S. government agency: USAID;
Total TCB funding, FY 2001-2004: $2,064;
Percentage total funding, FY 2001-2004: 71.2%.
U.S. government agency: Department of Labor;
Total TCB funding, FY 2001-2004: $424;
Percentage total funding, FY 2001-2004: 14.6%.
U.S. government agency: Department of State;
Total TCB funding, FY 2001-2004: $128;
Percentage total funding, FY 2001-2004: 4.4%.
U.S. government agency: Overseas Private Investment Corporation;
Total TCB funding, FY 2001-2004: $69;
Percentage total funding, FY 2001-2004: 2.4%.
U.S. government agency: USTDA;
Total TCB funding, FY 2001-2004: $64;
Percentage total funding, FY 2001-2004: 2.2%.
U.S. government agency: Department of Energy;
Dollars in millions: Total TCB funding, FY 2001-2004: $37;
Percentage total funding, FY 2001-2004: 1.3%.
U.S. government agency: Export-Import Bank;
Dollars in millions: Total TCB funding, FY 2001-2004: $31;
Percentage total funding, FY 2001-2004: 1.1%.
U.S. government agency: Department of the Treasury;
Total TCB funding, FY 2001-2004: $29;
Percentage total funding, FY 2001-2004: 1.0%.
U.S. government agency: Department of Agriculture;
Total TCB funding, FY 2001-2004: $26;
Percentage total funding, FY 2001-2004: 0.9%.
Source: GAO analysis of U.S. Government Trade Capacity Building
database, fiscal years 2001-2004.
Note: Percentages do not add up to 100 percent because agencies
providing lesser funding are not included.
[End of table]
Agencies Implement Assistance Based on Broad Criteria and Are Beginning
to Incorporate Trade Capacity Building into Their Approach to
Assistance:
Agencies have traditionally implemented trade and development
assistance based on broad criteria such as national security and
foreign policy considerations. Some agencies are beginning to
incorporate trade capacity building into their approach to trade and
development assistance. For instance, the Departments of State and
Agriculture, USAID, and USTDA are taking into account trade capacity
building in their planning. USAID is training its staff on trade
capacity building concepts, designing funding instruments for trade
capacity building, and starting to identify trade capacity building
activities for budgeting purposes. Several agencies are focusing
assistance on countries participating in trade preference programs and
trade agreements with the United States. Agencies are also recasting
some of their assistance to focus on trade capacity building through
coordination via the trade capacity building interagency group formed
in June 2002 to facilitate countries' participation in free trade
agreement negotiations with the United States.
Agencies Implement Trade and Development Assistance Based on Broad
Criteria:
U.S. agencies are providing assistance to recipients based on broad
criteria. Agency officials cited national security and foreign policy
considerations, which are often driven by the Department of State,
regional factors, and the countries' expressed needs, as important
factors in determining how to match assistance to recipients.
Following are examples of how some agencies have applied broad criteria
in choosing recipients and types of trade and development activities:
* National security: Agency officials cited the prevention of terrorism
as driving assistance to certain areas. For example, the Department of
State asked the U.S. Department of Agriculture (USDA) to provide
assistance for rural development in Afghanistan. In addition, USTDA
officials stated that national security has gained prominence in their
work since September 11, 2001, particularly in the area of air and sea
transportation.
* Foreign policy: Agency officials said foreign policy was an important
factor in directing assistance to certain countries. For example, USDA
is helping Colombia develop alternative crops to reduce illicit drug
production. In addition, USTDA considers foreign policy when it
responds to requests from U.S. ambassadors and other Department of
State officials.
* Regional considerations: Agency officials sometimes tailor their
assistance to particular regions. For example, USTDA officials said
that they try to create geographic balance in their portfolio and work
with regional clusters when it makes sense to share information among
nearby countries, such as working with India and Pakistan on a
telecommunications conference. In addition, USAID officials stated that
they have worked on regional economic growth in Central America, for
example, by taking stock of each government's capabilities through
diagnostic tools.
* Country needs: Agency officials said that countries' expressed needs
are an important factor (in conjunction with other factors) in
selecting trade capacity building activities and recipients. USDA
officials stated that they have used responses from a WTO questionnaire
to develop a benchmark for developing country needs regarding plant,
animal, and human health requirements. USTDA officials said that they
have specialized in translating country needs into projects by
conducting feasibility studies and arranging for the appropriate
technical assistance. Department of Labor officials considered country
needs by working directly with labor ministries. For example, Labor
officials said that they respond to requests from Central American
countries for help in identifying inspection systems, expediting
dispute resolution outside the courts, and informing the public about
Central American countries' labor laws. Finally, according to USAID
officials, their agency's strength lies in having resident country
missions, which allow staff to gain insight into countries' motivations
and needs regarding trade. Generally, USAID field missions have the
lead in devising program-planning requirements for USAID assistance.
Some Agencies Are Beginning to Incorporate Trade Capacity Building into
Their Approach to Assistance:
Some agencies, USAID in particular, are beginning to focus on trade
capacity building in managing their assistance. For instance, the
Department of State, USAID, USDA, and USTDA are incorporating trade
capacity building into their planning. USAID is training its staff on
trade capacity building concepts, designing trade capacity building-
specific funding instruments, and beginning to identify trade capacity
building activities for budgeting purposes. Several agencies have also
provided assistance to support trade agreements and trade preference
programs.
USAID and USDA have incorporated trade capacity building in their
fiscal year 2005 congressional budget justifications. For example,
USAID included as a key initiative for fiscal year 2005 trade capacity
building in support of WTO and bilateral U.S. government trade
objectives. In addition, in their joint strategic plan for fiscal years
2004 through 2009, the Department of State and USAID stated that they
"will strengthen the capacity of developing and transitional economies
to participate in, and benefit from, trade by enhancing their ability
to respond positively to global opportunities—." USAID also called
trade capacity building a key result of its economic growth strategic
goal in its fiscal year 2003 annual performance and accountability
report. USDA included a strategic objective to "support international
economic development and trade capacity building" under its strategic
goal of enhancing economic opportunities for agricultural producers.
Furthermore, USTDA included a performance goal in its 2004 performance
plan to provide capacity building activities to support USTR in trade
negotiations.[Footnote 18]
In addition, both USAID and USDA have issued formal strategies for
providing trade capacity building.[Footnote 19] USAID's 2003 strategy,
Building Trade Capacity in the Developing World, emphasizes that while
ongoing activities address a variety of trade capacity building needs,
USAID will focus new activities on helping countries participate in and
implement trade agreements and take advantage of trade opportunities.
Ways to increase trade opportunities include strengthening economic
policies; removing trade barriers; and building well-functioning
economic, political, and legal institutions. USDA's strategy targets
its trade capacity building initiatives on promoting science and rules-
based regulatory frameworks for agricultural trade and supporting
improved understanding of agricultural biotechnology and expanded trade
in safe food products developed by biotechnology.
USAID is training its headquarters and field staff on trade issues,
including the WTO framework and principles, the current multilateral
negotiating agenda, and trade capacity building best practices. USAID
has also conducted seminars for its economic officers in the field
missions on its approach to trade capacity building.
USAID is also using specialized contract mechanisms to fund trade
capacity building assistance quickly. For instance, its "trade capacity
building support mechanisms" provide quick funding (new requests for
technical assistance can be addressed "in as little as" 3 weeks) to
help USAID missions help countries assess their trade constraints and
prioritize their trade-related technical assistance needs. The project
also provides short-term technical assistance to assist missions in
designing, implementing, monitoring, and evaluating trade-related
technical assistance, such as technical training for trade officials
and trade workshops for public and private sector leaders. USAID
reports that these assessments have focused on integrating trade into
poverty reduction strategies and negotiating and implementing free
trade agreements.
USAID officials are beginning to attribute, or identify, funding for
trade capacity building activities for budgeting purposes. For example,
in budgeting for each of their strategic objectives, USAID is
identifying amounts to be attributed to activities that are considered
trade capacity building. The purpose is to ensure that funding reflects
the priorities of the agency and the Congress. However, one USAID
official said that this was particularly difficult for trade capacity
building because it was relevant to multiple strategic objectives, and
funding was programmed in more than one office.
Several agencies considered supporting countries participating in trade
preference programs and trade agreements with the United States to be
an increasingly important factor driving their trade and development
assistance. For instance, a USDA official stated that there has been a
change in thinking regarding the role of the Foreign Agricultural
Service in developing countries. Traditionally, the mission of the
Foreign Agricultural Service has been to promote U.S. agricultural
exports. Officials said that the African Growth and Opportunity Act of
2000 has made the Service more aware of the limitations that developing
countries have in exporting their agricultural products and that
helping them to do so will "win friends" in multilateral trade
negotiations. For instance, the Foreign Agricultural Service worked
with the Animal and Plant Health Inspection Service to help the act's
recipients set up animal and plant inspection systems for exporting
their products. The Department of Labor has provided trade capacity
building assistance to improve countries' enforcement of their labor
laws, in response to requests from USTR consistent with authority in
the Bipartisan Trade Promotion Authority Act of 2002. For example, it
has allocated funds to strengthen the capacity of labor ministries in
Central American countries to enforce their national labor laws. A
USAID official said that USAID's work to help Central American
countries has become more market-oriented, and improved social and
economic conditions have laid the foundation for negotiating and
implementing CAFTA.
Trade Capacity Building Interagency Group Coordinates Assistance on
Free Trade Agreement Negotiations:
Another new trade capacity building initiative was the formation,
shortly after the November 2001 Doha ministerial, of the trade capacity
building interagency group dedicated to coordinating trade capacity
building in support of free trade agreements, which USTR co-chairs with
USAID.[Footnote 20] The Assistant U.S. Trade Representative for Trade
Capacity Building said that U.S. success at the negotiating table
depends upon the meshing of trade and aid. In fact, the trade capacity
building interagency group has spun off special working groups to
facilitate specific trade negotiations such as CAFTA, bilateral
agreements with Morocco and the Dominican Republic, and the free trade
agreement negotiations with the Andean region. The CAFTA working group
met in tandem with CAFTA negotiating groups to help CAFTA countries
develop national strategies for implementing the agreement. These trade
agreement-specific working groups are led by USTR.
The Trade Capacity Building Interagency Group:
Agency officials told us that they meet as frequently as once a month
to coordinate trade capacity building at the policy level and that the
meetings are informal and have no written guidelines or minutes. A USTR
official said that the U.S. Trade Representative places primary
importance on coordinating trade and development policy and that this
has been critical to the successful negotiation of free trade
agreements with Morocco, Central America, and Chile. According to one
interagency group participant, USTR informs the group about progress in
ongoing free trade agreement negotiations and any trade capacity
building needs emerging from the negotiations. Agency attendees then
exchange information about their trade capacity building activities to
determine whether any might meet negotiating countries' needs. Although
USTR might suggest possible trade capacity building initiatives,
specific trade capacity building projects do not typically emerge from
the meetings but are worked out later. One official said that USTR
likes to go into negotiations with information on what trade capacity
building assistance agencies are already providing countries. The
meetings are mostly informational, ensuring that all U.S. agencies
"speak with one voice" on trade capacity building, according to this
official. Another official said that USTR's role was to persuade the
other agencies to provide funding for trade capacity building to
support the free trade agreements and that the agencies then provide
what they can.
The Working Group Dedicated to CAFTA:
A CAFTA-dedicated trade capacity building working group met in tandem
with the six CAFTA negotiating groups[Footnote 21] during each of the
nine rounds of CAFTA negotiations. Each CAFTA country prepared a
national strategy to define and prioritize its trade capacity building
needs. U.S. agencies, five international institutions,[Footnote 22]
corporations, and nongovernmental organizations were to provide trade
capacity building assistance. According to a USAID official, the CAFTA
trade capacity building working group had no direct role in the
negotiations and did not influence the outcome of the negotiations.
Rather, it strove to ensure that countries were made aware of the trade
capacity building assistance available or already provided to them. The
trade capacity building assistance that emerged from the CAFTA trade
capacity building working group included both reorienting existing
activities and creating new ones. For example, USAID funds in Honduras
were redirected to establish a trade unit in one of the Honduran
ministries, helping it determine staffing needs and providing some
office equipment. An example of a new initiative coming out of the
working group was a commercial law diagnostic tool and a new regional
program to help countries meet the customs reforms called for in a
CAFTA chapter.
According to participants, the CAFTA country national strategies and
the process for creating them were important tools for prioritizing and
focusing CAFTA countries' trade capacity building needs. One USAID
official explained that, at first, CAFTA countries created "wish lists"
that were somewhat unrealistic, asking for projects beyond the scope of
donor resources. An official in the USAID mission to El Salvador stated
that the mission and other donors have worked with the El Salvador
Ministry of Economics to develop trade capacity building project
profiles, a common template to prioritize trade capacity building
needs. Ultimately, the profiles reflected the needs and priorities of
both sides. The National Action Plan for Trade Capacity Building issued
in July 2003 by the government of El Salvador emerged in part from this
exercise. The plan lays out what trade capacity building is needed to
help El Salvador prepare for, participate in, and implement CAFTA and
transition to free trade. According to USAID officials, the Ministry of
Economics used the plan in its strategic planning. One USAID official
stated that the national plans are meant to be flexible as needs change
but should impose discipline on donors and recipients to stay within
agreed-upon priorities. Government of El Salvador officials stated that
the CAFTA trade capacity building process helped donors to better
coordinate their assistance and will encourage the enforcement of
environmental laws.
Benefits of Interagency Group and Working Groups Cited by Participants:
A USDA official said that the trade capacity building interagency group
meetings have given agencies insight into U.S. views on free trade
agreements and have sometimes alerted USDA to agriculture policy issues
about which it was unaware. A USTDA official stated that the
interagency meetings have improved coordination among agencies and
helped USTDA focus on trade capacity building activities with the most
value to recipients and donors. They also said that USTR and other
agencies have become more aware of what each is doing to provide trade
capacity building. In addition, the meetings have helped agency
officials form relationships and contacts to better provide trade
capacity building.
U.S. agency officials in Washington had positive comments about the
CAFTA trade capacity building coordination process. One USDA official
called the process an agile mechanism to provide assistance quickly and
pull the right people together to provide it. A USTDA official said
that the process had helped negotiators "sell" CAFTA to CAFTA countries
because countries are getting concrete help on specific projects such
as port modernization that have tangible benefits. An official from the
Department of State called it a rapid response mechanism. Officials
from the Departments of Labor and the Treasury and USAID stated that
the system allowed donors to identify country needs and avoid
duplication. For example, USAID was able to plan its customs work
appropriately when the Inter-American Development Bank informed the
CAFTA trade capacity building working group that it was providing a
regional customs program.
Most Agencies Are Not Systematically Monitoring, Measuring, or
Evaluating Their Assistance in Terms of Building Trade Capacity:
For the most part, the six agencies we reviewed are neither
systematically monitoring nor measuring program performance against
program goals in terms of building trade capacity, neither are they
evaluating the effectiveness of their trade capacity building
activities. While some of the agencies we reviewed have set program
goals for building trade capacity, generally, most have neither
developed performance indicators related to trade capacity building,
nor have they compiled performance data and analyzed the results in
terms of building trade capacity. USAID presented goals for building
trade capacity in its March 2003 strategy, Building Trade Capacity in
the Developing World, with a limited number of performance indicators
to monitor or measure results and measure performance against those
goals. USDA's trade capacity building strategy does not include
performance indicators. Although USAID officials have called developing
trade capacity building performance indicators difficult, they are
working toward that end independently and with other donors.
Among the six agencies we reviewed, only USAID and USDA have strategies
for trade capacity building other than what is contained in strategic
plans and annual performance plans. As shown in table 3, USAID's 2003
strategy lays out goals with a limited number of trade capacity
building performance indicators to measure performance against goals.
USDA's trade capacity building strategy, which focuses on promoting a
rules-based regulatory framework for agricultural trade and on
supporting better understanding of agricultural biotechnology,
contains no performance indicators.[Footnote 23] A performance
indicator is a specific value or characteristic to measure output or
outcome. An "output measure" records the actual level of activity or
whether the effort was realized and can assess how well a program is
being carried out. An "outcome measure" assesses the actual results,
effects, or impact of an activity compared with its intended purpose.
Table 3: USAID 2003 Trade Capacity Building Strategy:
USAID trade capacity building strategy: Participation in trade
negotiations;
Trade capacity building goal: Support WTO accessions;
Trade capacity building performance indicator: New WTO accessions.
Trade capacity building goal: Help negotiators analyze benefits of
trade;
Trade capacity building performance indicator: None.
Trade capacity building goal: Train negotiators on procedures;
Trade capacity building performance indicator: None.
USAID trade capacity building strategy: Trade agreement implementation;
Trade capacity building goal: Help countries implement WTO
requirements;
Trade capacity building performance indicator: Number WTO obligations
implemented.
Trade capacity building goal: Help countries satisfy trade preference
requirement;
Trade capacity building performance indicator: None.
USAID trade capacity building strategy: Economic responsiveness for
trade;
Trade capacity building goal: Improve quality of trade;
Trade capacity building performance indicator: Increased exports of
processed commodities[A].
Trade capacity building goal: Improve quality of investment;
Trade capacity building performance indicator: Foreign direct
investment flows.
Trade capacity building goal: Improve customs administration;
Trade capacity building performance indicator: Customs clearance times.
Trade capacity building goal: Increase competition in service sector;
Trade capacity building performance indicator: None.
Trade capacity building goal: Strengthen commercial law;
Trade capacity building performance indicator: None.
Trade capacity building goal: Develop financial sector;
Trade capacity building performance indicator: None.
Trade capacity building goal: Strengthen competition and antitrust;
Trade capacity building performance indicator: None.
Trade capacity building goal: Develop business services;
Trade capacity building performance indicator: None.
Trade capacity building goal: Improve agricultural capacity;
Trade capacity building performance indicator: None.
Trade capacity building goal: Remove barriers to small and medium
enterprises;
Trade capacity building performance indicator: None.
Source: GAO analysis of USAID's 2003 strategy, Building Trade Capacity
in the Developing World.
[End of table]
[A] In some sectors, developing country producers are not processing
their raw commodities and thus do not benefit from the value-added
portion of production. The value-added is the amount by which the value
of an article is increased at each stage of its production, exclusive
of initial costs.
USAID has acknowledged the difficulty of developing a set of trade
capacity building performance indicators for missions to use in their
performance monitoring plans. A USAID official stated that the agency
had not, to date, developed a set of trade capacity building indicators
because most of the agency's trade capacity building activities focus
broadly on economic development, whose benefits are difficult to
quantify. Although currently many missions use increased exports as an
indicator, one USAID official pointed out that exports can increase for
reasons unrelated to trade capacity building. The USAID official also
said that coming up with indicators is sometimes less of a problem than
collecting the data, which can be hard to come by in many developing
countries. For instance, USAID contractors may have to rely on a
country's private sector to obtain data on value-added products since
the local government would not collect such data. On a small project,
with individual firms, this would be feasible, but it would be costly
for a whole sector, the official said. Furthermore, another USAID
official stated that USAID has struggled to help missions understand
the distinction between economic development projects and trade
capacity building projects. For instance, the official said that,
although USAID had undertaken many agricultural projects in the past,
many project activities were not linked to markets and trade. One USDA
official said, however, that he considered the development of new
institutions, laws, and regulations to be good performance indicators
for trade capacity building efforts.
Despite the challenges of monitoring and measuring the results of trade
capacity building assistance, USAID is working on its own and through
the international community to develop trade capacity building
performance indicators for missions to use in their performance
monitoring plans. USAID has contracted for a consultant's study and
expects to have a draft report on trade capacity building indicators in
the near future. Furthermore, USAID is not alone in dealing with the
difficulties of evaluating trade capacity building efforts, as other
countries face the same issues. USAID has been collaborating with other
country donors through the OECD's Development Assistance Committee to
develop a common framework for results monitoring and assessment of
trade capacity building efforts. To date, the OECD committee members
have discussed a flexible "tool kit" of trade capacity building
indicators, in recognition that the wide range of trade capacity
building projects would argue against using the same indicators for all
trade capacity building activities.
Based on our interviews, U.S. agencies have not specifically conducted
program evaluations to assess the effectiveness of their trade capacity
building efforts. Program evaluation is an assessment of the effects of
a program or policy that can measure unintended results, both good and
bad, and can be used to validate or find error in a program's basic
purposes and premises. GPRA called for agencies to improve
congressional decision making by providing more objective information
on the relative effectiveness and efficiency of their programs and
spending.[Footnote 24]
According to agency officials with whom we spoke, some agencies have
evaluated their activities but not in relation to trade capacity
building. For instance, Department of Labor officials stated that Labor
evaluates its projects against project-specific objectives that are not
trade capacity building objectives. USTDA officials stated that they
have a set of measures for the development effectiveness of each of
their activities. USTDA officials stated further that, while they have
recently developed a system for evaluating the development impact of
their activities over the next 6 years, the system is not meant to
measure trade capacity per se. USTDA officials do believe, however,
that their development impact measures will in most cases ultimately
serve as a good proxy for measuring trade capacity building impact.
Examples of effectiveness in the USTDA system would include the
percentage of activities that lead to the adoption of market-oriented
reforms or result in the transfer of advanced technology to increase
productivity. Finally, USTDA officials emphasized that few of their
trade capacity building activities are mature enough to be evaluated.
The Department of State evaluates the effectiveness of its
International Visitor Leadership Program[Footnote 25] with general
anecdotal feedback from participants. One USDA official said that the
agency has not done any assessments specifically of the effectiveness
of its trade capacity building efforts, but that USDA did do program
evaluations. For example, one USDA evaluation concluded that a
refrigeration project resulted in improved refrigeration management and
a reduction in perishable losses of one company of 60 percent.
USAID reported in May 2004 that it has conducted fewer program
evaluations overall since instituting its performance measurement
system under GPRA, replacing them with annual reports "that measure
progress toward specific goals on a country by country basis" rather
than evaluating the effectiveness of the program as a whole. In
addition, one USAID official said that USAID moved away from using
formal evaluations about 10 years ago because of lack of personnel. In
October 2004, USAID issued the report, USAID Trade Capacity Building
Programs: Issues and Findings, which examined issues related to USAID's
trade capacity building assistance programs.[Footnote 26] The report
concluded that USAID should collect and analyze more trade capacity
building data to monitor results and use those results to conduct
program evaluations. It also said that USAID should conduct more and
better evaluations of its trade capacity building projects to know what
approaches work best and under what conditions.
While several of the agencies we reviewed emphasized trade capacity
building in their strategic plans or annual performance plans, and two
agencies have produced trade capacity building specific strategies, the
lack of performance data linked to trade capacity building limits their
ability to monitor and measure current results. In addition, without
evaluations identifying what trade capacity building activities are
effective, the agencies will have difficulty determining whether their
efforts are achieving their overall trade capacity building goals.
Finally, as we discuss in appendix IV, greater openness to
international trade can have a variety of effects, both positive and
negative, on different aspects of developing countries' domestic
economies. Therefore, evaluating the effectiveness of trade capacity
building efforts is important to identify those that build trade
capacity and those that do not and to determine if any negative effects
should be mitigated.
Conclusion:
The executive branch and the Congress have elevated trade capacity
building as a crucial tool for U.S. trade and development policy. This
warrants a comprehensive, coordinated approach to its delivery, based
on solid evidence of its effectiveness in generating economic
development and growth through trade. The challenge is that the
estimated $2.9 billion in U.S. trade capacity building assistance
covers multiple categories of assistance across numerous types of trade
and development programs that have many goals and are implemented by
multiple agencies. The cross-cutting nature of this assistance argues
for a coordinated approach to its implementation. The trade capacity
building interagency group has demonstrated that a coordinated approach
is possible under the right circumstances by bringing agencies together
to deliver relevant, focused, and timely technical assistance to
countries participating in free trade agreements. The cross-cutting
nature of trade capacity building also makes it difficult to evaluate.
While agencies track the results of individual activities, they do not
consistently do so in terms of building trade capacity, in part, due to
the relative newness of the concept and the lack of a common framework
for evaluation. USAID is working independently and in conjunction with
other country donors to develop a common set of indicators to monitor
and measure performance and to assess trade capacity building
effectiveness. Without evaluating the effectiveness of its trade
capacity building assistance, the United States cannot ensure the
reasonable use of resources devoted to such assistance, determine
whether the assistance is helping countries participate in and benefit
from trade, and credibly demonstrate that trade capacity building is a
useful U.S. trade and development policy.
Recommendations for Executive Action:
To provide more objective information on the progress of U.S. trade
capacity building efforts and allow the United States to assess their
effectiveness, we make the following two recommendations:
* The Administrator, U.S. Agency for International Development, and the
U.S. Trade Representative, as co-chairs of the trade capacity building
interagency group, in consultation with other agencies that fund and
implement trade capacity building assistance, should develop a cost-
effective strategy to systematically monitor and measure program
results and to evaluate the effectiveness of U.S. trade capacity
building assistance.
* The Administrator, U.S. Agency for International Development, should
direct the agency to set milestones for completing its efforts to
develop trade capacity building performance indicators to be used by
(1) its field missions to monitor and measure the results of their
trade capacity building efforts and (2) its relevant agency bureaus to
conduct periodic program evaluations. The U.S. Agency for International
Development should share its findings with other agencies that fund and
implement trade capacity building assistance.
Agency Comments and Our Evaluation:
We provided a draft report to the Office of the U.S. Trade
Representative, the U.S. Agency for International Development, the
Departments of Agriculture, Labor, State, and the Treasury, and the
U.S. Trade and Development Agency. We received technical comments from
the Office of the U.S. Trade Representative, the U.S. Agency for
International Development, the Departments of Labor and State, and the
U.S. Trade and Development Agency. The Department of Agriculture
provided no comments. We received written comments from the U.S. Agency
for International Development, the Office of the U.S. Trade
Representative, and the Department of the Treasury, which are reprinted
in appendixes V through VII.
The U.S. Agency for International Development agreed with our two
recommendations. Regarding our first recommendation, USAID emphasized
the importance of considering the large number of agencies involved,
the diversity of trade capacity building programs, and the cost-
effectiveness of different approaches to monitoring and evaluating
trade capacity building activities. In addition, USAID believed that
developing a monitoring and evaluation system should be done
selectively, starting with programs with the clearest links to building
trade capacity. Regarding our second recommendation, USAID noted that
the Administrator had directed the agency to reinstate its overall
project evaluation efforts, and that USAID had several ongoing efforts
to support the recommendation. USAID noted, however, that standard
indicators designed to report on agencywide trade capacity building
program performance will not be sufficient to monitor the effectiveness
of all aspects of every trade capacity building project. USAID country
missions will need to continue to develop specialized indicators that
are tailored to local goals, opportunities, constraints, and needs.
The Office of the U.S. Trade Representative reiterated the important
role of trade capacity building in linking trade and development by
providing developing countries with the tools to maximize trade
opportunities offered by multilateral and bilateral trade agreements
and trade preference programs. In addition, USTR believed that the
discussion in the report about interagency coordination demonstrated
the importance of linking trade capacity building needs with the needs
generated by trade negotiations.
The Department of the Treasury complimented our assessment, stating
that the report provided a good example of cooperation and mutual
support between the Department's Office of Technical Assistance and
USAID in providing trade capacity building. Treasury also emphasized
that its role in helping countries to institute financial reforms
contributed to building trade capacity.
We will send copies of this report to appropriate congressional
committees and to the U.S. Trade Representative; the Administrator,
USAID; the Secretaries of the Departments of Agriculture, Labor, State,
and the Treasury; and the Director, U.S. Trade and Development Agency.
We also will make copies available to others upon request. In addition,
the report will be available at no charge on the GAO Web site at
[Hyperlink, http://www.gao.gov].
If you or your staff have any questions concerning this report, please
contact me at (202) 512-2717 or at [Hyperlink, jonesy@gao.gov]. Another
GAO contact and staff acknowledgments are listed in appendix V.
Signed by:
Yvonne D. Jones:
Acting Director, International Affairs and Trade:
[End of section]
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
The Chairman and Vice Chairman of the House Subcommittee on National
Security, Emerging Threats, and International Relations, Committee on
Government Reform, asked us to provide information about U.S. trade
capacity building assistance. This report (1) identifies the nature and
extent of U.S. trade capacity building; (2) describes how agencies
implement such assistance, including coordination; and (3) assesses
whether agencies evaluate its effectiveness. To address these
objectives, we reviewed agency information on trade capacity building
programs. We visited overseas missions in Egypt, El Salvador, and
Ghana; we chose these countries because they were among the 20
countries receiving the most trade capacity building funding, and they
represented different regions and income levels (low and middle
income). We initially interviewed officials from 12 U.S. agencies
responsible for trade capacity building activities. We then narrowed
this down to the six agencies that funded and implemented 96 percent of
trade capacity building assistance. These agencies were the Departments
of Agriculture, Labor, State, and the Treasury, the U.S. Agency for
International Development (USAID), and the U.S. Trade and Development
Agency. We also interviewed officials from the Office of the U.S. Trade
Representative, an agency with a coordination role. We concentrated our
review on USAID as it provided the bulk of the funding.
To describe the nature and extent of trade capacity building, we
reviewed documents from the World Trade Organization regarding the Doha
ministerial conference in 2001 and subsequent international work on the
Doha Development Agenda. We also reviewed documents from the
Organization for Economic Cooperation and Development and the United
Nations Conference on Trade and Development. To determine the U.S.
definition of trade capacity building, we examined congressional
documents providing guidance on funding and implementation, as well as
relevant U.S. legislation, and relevant agency documents. We also
examined the guidance and definitions specified in the U.S. government
trade capacity building survey administered by USAID. We surveyed
economic literature on the relationships among trade, economic growth,
and development in developing countries. We examined U.S. government
reports on trade capacity building assistance, annual agency reports,
and agency trade capacity building planning and project documents.
Because USAID--as the primary funder of trade capacity building--
administers foreign aid through a decentralized organizational
structure, we visited USAID missions in Egypt, El Salvador, and Ghana
to observe a range of trade capacity building activities. At the
missions overseas, we examined program documents and interviewed USAID
officials to understand the types of trade capacity building programs
the missions manage. In addition, in conjunction with our work at the
missions, we held meetings with other key U.S. government officials,
USAID contractors, host government ministry officials, and various
trade capacity building recipients. We analyzed data from the U.S.
Government Trade Capacity Building database to identify the major
funding categories, agencies, and recipients of trade capacity building
assistance. To assess the reliability of the U.S. Trade Capacity
Building database, we reviewed the survey instruments used to collect
the data, examining country activity sheets and survey forms, and
performed our own data reliability tests. We also interviewed the USAID
contractor that manages the data collection and analyzed the steps the
contractor took to ensure data reliability. For example, we asked the
contractor how the survey data were collected, what quality checks were
performed, and what other internal controls were in place. In
Washington, D.C., we asked U.S. officials at the Departments of
Agriculture and Labor and the U.S. Trade and Development Agency a
standard set of data reliability questions. In El Salvador and Ghana,
we conducted data reliability interviews with officials at the USAID
missions. We determined that the data in the database were sufficiently
reliable for the purposes of identifying the major categories of trade
capacity building funding, the agencies funding the trade capacity
building programs, and the regions and countries receiving trade
capacity building funding.
To examine how agencies implement trade capacity building assistance,
we examined agency documents on trade capacity building activities,
strategic plans, and other relevant documents. We asked agency
officials about factors affecting agency decisions concerning the type
of assistance provided, the countries selected as recipients, and the
amount of funding. We focused our interviews on officials at USAID, the
U.S. Trade and Development Agency, and the Departments of Agriculture,
Labor, State, and the Treasury at this stage because these agencies
reported implementing and funding 96 percent of the trade capacity
building assistance in fiscal years 2001 to 2003 (we obtained 2004 data
at the end of the review). To assess how U.S. agencies coordinate the
allocation of trade capacity building assistance, we reviewed published
reports on trade capacity building activities, agency strategies, and
program documents. In Egypt, El Salvador, and Ghana, we interviewed
U.S. officials responsible for implementing trade capacity building
activities, as well as host government officials in Egypt, El Salvador,
and Ghana. We observed one meeting of the interagency group on trade
capacity building.
To assess whether agencies evaluate the effectiveness of their trade
capacity building efforts, we analyzed U.S. agency project documents,
annual reports, performance and accountability reports, and reports on
trade capacity building. Using interview responses and analyses of the
reports and documents related to trade capacity building, we examined
these agency efforts against the Government Performance and Results Act
of 1993 criteria for performance monitoring and program evaluation. We
also examined performance and monitoring principles used by
multilateral donors and international organizations that we identified
by reviewing a GAO analysis of relevant U.S. legislation and
Organization for Economic Cooperation and Development documents.
We conducted our work between September 2003 and November 2004 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: U.S. Government Trade Capacity Building Database:
The U.S. government has conducted an annual survey of U.S. agencies'
trade capacity building assistance efforts since 2001. The survey
collects funding data for an entire agency or U.S. Agency for
International Development (USAID) mission in the given fiscal year.
U.S. agency officials complete the survey by providing financial
information on funds obligated for various projects and activities in a
given year. Actual expenditures of funds for these activities may not
occur until a year or two after the survey. For example, the fiscal
year 2002 database accounts for obligations in fiscal year 2002.
However, activities may not occur and thus may not be expended until
fiscal year 2003, or 2004, or even later.
To answer the survey, an agency official typically goes through all of
the agency's projects for a given fiscal year and reviews the survey
guidance, including the trade capacity building categories (see table 1
for complete list of categories), to determine which projects are
related to trade capacity building. The officials then assign a
percentage amount of the total funded project to a trade capacity
building category. An "other" category is provided for activities that
do not fit the given trade capacity building categories in the survey.
In addition, activities in the database are often not discrete projects
but parts of larger programs. For instance, the USAID/Egypt mission has
a $200 million Commodity Import Program, but only $50 million of the
project is counted as trade capacity building and included in the
database.
The database, created by a USAID contractor from the surveys, is
available online at [Hyperlink, http://qesdb.cdie.org/tcb/index.html].
It provides information by type of activity, by recipient country, and
by U.S. government agency. Agencies are grouped in three ways: those
that fund, those that implement, and those that both fund and implement
trade capacity building activities. The database provides financial
information for the period of fiscal years 1999-2004.
According to the survey administrator, the technical team reviewed
completed survey forms, checking for accuracy and consistency in the
reporting and allocation of funding to various trade capacity building
categories. In addition, the survey administrator told us that,
whenever a report was ambiguous or incomplete, the technical team
worked with the reporting U.S. government agency, department, or field
mission to amend the data.
[End of section]
Appendix III: Total U.S. Funding for Trade Capacity Building, by Region
and Country, Fiscal Years 2001-2004:
Sub-Saharan Africa.
Ghana: $29,927,888.
Uganda: $27,743,099.
Mali: $27,607,881.
Mozambique: $25,213,673.
Nigeria: $23,939,886.
Tanzania: $15,430,805.
South Africa: $13,692,349.
Zambia: $13,393,999.
Kenya: $12,972,366.
Malawi: $11,792,899.
Madagascar: $11,529,257.
Rwanda: $9,231,315.
Guinea: $7,064,200.
Senegal: $6,459,699.
Djibouti: $4,055,393.
Ethiopia: $3,856,120.
Namibia: $3,769,406.
Burkina Faso: $3,235,739.
Cape Verde: $2,691,582.
Togo: $2,382,931.
Angola: $2,329,613.
Benin: $2,135,007.
Niger: $2,018,243.
Sudan: $1,510,000.
Chad: $1,268,075.
Botswana: $1,241,214.
Cameroon: $943,671.
Zimbabwe: $917,183.
Sao Tome and Principe: $842,000.
Sierra Leone: $680,744.
Guinea-Bissau: $456,451.
Somalia: $341,763.
Eritrea: $286,065.
Democratic Republic of the Congo: $230,744.
Mauritius: $221,881.
Gabon: $204,000.
Cote d'Ivoire: $143,243.
Liberia: $135,007.
Equatorial Guinea: $60,243.
Swaziland: $51,673.
Republic of the Congo: $42,000.
Seychelles: $29,673.
Lesotho: $29,671.
Burundi: $18,243.
Comoros: $18,243.
The Middle East and North Africa.
Egypt: $368,681,820.
Jordan: $89,044,521.
West Bank/Gaza: $53,887,443.
Morocco: $31,246,244.
Iraq: $30,937,093.
Algeria: $20,522,312.
Lebanon: $7,617,685.
Tunisia: $2,585,799.
Yemen: $1,629,800.
Asia:
Philippines: $83,151,774.
Afghanistan: $74,164,544.
India: $52,112,068.
Indonesia: $42,814,171.
Vietnam: $27,907,332.
East Timor: $17,811,672.
Cambodia: $13,084,108.
China: $11,950,869.
Bangladesh: $11,143,378.
Sri Lanka: $10,921,899.
Thailand: $10,882,524.
Pakistan: $10,805,050.
Mongolia: $7,671,651.
Nepal: $7,306,111.
Malaysia: $1,275,940.
South Korea: $107,570.
Central and Eastern Europe:
Croatia: $52,611,706.
Serbia and Montenegro: $40,927,481.
Romania: $29,847,580.
Kosovo: $22,085,000.
Macedonia: $18,050,785.
Turkey: $13,557,051.
Bulgaria: $9,618,365.
Albania: $8,337,351.
Bosnia and Herzegovina: $5,043,617.
Poland: $3,251,685.
Hungary: $823,031.
Czech Republic: $794,000.
Lithuania: $182,964.
Latin America and the Caribbean:
Colombia: $57,130,219.
El Salvador: $50,897,447.
Peru: $32,772,265.
Honduras: $30,999,529.
Bolivia: $29,982,491.
Nicaragua: $28,665,994.
Mexico: $26,445,300.
Haiti: $24,827,060.
Brazil: $24,653,613.
Ecuador: $20,523,601.
Dominican Republic: $17,886,126.
Jamaica: $16,550,835.
Guatemala: $9,030,579.
Paraguay: $4,359,903.
Guyana: $4,212,111.
Panama: $4,095,311.
Chile: $2,074,119.
Costa Rica: $927,996.
Argentina: $533,840.
Venezuela: $195,160.
St. Kitts and Nevis: $124,000.
Belize: $60,000.
Uruguay: $57,920.
Barbados: $7,690.
Bahamas: $6,300.
Trinidad and Tobago: $6,300.
Dominica: $6,290.
St. Lucia: $6,290.
St. Vincent and the Grenadines: $6,290.
Former Soviet Republics:
Russia: $71,551,713.
Kazakhstan: $44,751,387.
Georgia: $43,502,461.
Ukraine: $39,040,826.
Armenia: $36,422,648.
Kyrgyzstan: $25,857,573.
Azerbaijan: $17,965,498.
Uzbekistan: $11,997,984.
Tajikistan: $6,882,771.
Moldova: $2,499,569.
Turkmenistan: $1,512,500.
Source: GAO analysis of U.S. Government Trade Capacity Building
database.
[End of table]
[End of section]
Appendix IV: The Linkages between Trade and Development:
Assistance to developing countries for trade capacity building is based
on the premise that international trade can positively benefit a
country's overall growth and development. Economists postulate that
these potential benefits come as trade increases competition and
specialization, provides greater access to technology for domestic
producers, expands export markets and earnings, and fosters new foreign
investment and institutional reforms. However, economists have also
argued that international trade can create significant challenges for
developing countries, such as greater instability due to volatile
export markets, increased reliance on international debt to finance
trade deficits, and exacerbated income inequality and unemployment.
Following the rapid growth of certain East Asian countries, and more
recently China, the role of international trade in fostering growth and
development has become more widely accepted. Some empirical studies
have confirmed a positive relationship between trade liberalization and
growth; however, others question the robustness of these results and
stress that greater openness does not uniformly lead to development.
International Trade May Benefit Growth and Development through a
Variety of Channels:
Economic theory predicts a variety of ways in which international trade
can positively affect a country's growth and development.[Footnote 27]
First, greater openness to imports from other countries increases
competition in the country's domestic market. This can lead to greater
efficiency as less competitive producers are driven out of the market.
In addition, resources will shift to more competitive producers and
industries enabling them to expand.[Footnote 28] Second, these
expanding domestic producers may now be able to export their products
to a worldwide market, rather than sell them only in the local economy.
With a larger market, some producers also may benefit from economies of
scale in production; that is, they are able to reduce their costs per
unit of output by producing on a larger scale. Third, overall
productivity in the economy can increase due to greater competition and
specialization. Competition increases the number of efficient producers
and reduces the number of less efficient producers. Fourth, imports
also may provide access to machinery and equipment that the domestic
economy does not produce but are needed so domestic firms can expand.
These imports may embody technology and innovations that the domestic
economy lacks but which help improve labor productivity and benefit
industries that use them.
Increased openness to trade may also create incentives for foreign
direct investment and institutional reforms, both of which may
facilitate growth. For example, a more liberal trading regime that
reduces costs on both imported manufacturing inputs and exported final
products may create incentives for foreign producers to invest in new
production in the domestic market since the cost of foreign-produced
components used domestically is lower and producers can export more
competitively.[Footnote 29] Lower tariffs mean the domestic industry
can import components used in their final products more cheaply, while
lower export taxes enable the final products to be sold at a lower
price internationally. Increased foreign investment expands developing
countries' stock of capital, technology, and managerial expertise,
which may expand production directly through new subsidiaries and have
positive spillover effects on other companies and industries in the
economy. Trade liberalization also may positively affect institutional
development and reform. For example, some economists argue that greater
competition from imports may encourage institutional reforms and reduce
corruption by reducing the monopoly power of domestic interests that
benefited from the protected market. At the same time, export
industries that are expanding to take advantage of opportunities in the
world market have an incentive to lobby for further reforms that
increase the competitiveness of the domestic economy.
Greater Dependence on Trade May Also Create Significant Challenges for
Developing Countries:
Economists have also pointed to a variety of significant challenges
that international trade raises for developing countries. For example,
many developing countries have significant exports of primary products,
such as agriculture and raw materials. Dependence on these types of
exports, particularly for countries that generate their export earnings
from a few products (such as coffee, cocoa, or bananas), creates large
economic fluctuations since primary product prices tend to be
relatively unstable. In addition, many developing country exporters
also have faced deterioration in their terms of trade, as the prices of
their export products fell relative to the prices they paid for their
imports. This can create a situation in which trade barrier reductions
in the domestic market increase demand for imports and displace
domestic production, but export sectors do not expand to capture these
resources because prices in world markets are declining. Consequently,
the gap between export earnings and import payments may lead developing
countries to maintain current account deficits. This means that more
foreign currency for imports is paid for imports than received from
selling exports. To acquire foreign currency to cover this deficit,
countries need an inflow of foreign financial assistance, either
through private investment or public assistance (such as loans and
aid). Persistent current account deficits were partly responsible for
the accumulation of debt among developing countries in the 1980s and
1990s.
Some economists point out that, although trade may benefit a country's
growth and overall wealth, distributional problems such as wage
inequality, unemployment, and poverty may accompany this growth and be
contrary to a country's development goals. For example, trade
liberalization may worsen a country's income distribution and reduce
the wages of low-skilled workers if it encourages (as a result of
increased foreign competition) the adoption of technologies that favor
more skilled workers. In addition, the economic changes induced by
greater competition may affect workers, industries, and communities
disproportionately.
Greater Acceptance of Important Role for International Trade in
Development:
The potentially positive role of international trade on economic growth
and development is not a new concept. Eighteenth-century economists
such as Adam Smith and David Ricardo argued for the benefits of
international trade for economic growth. In the twentieth century, the
rise of trade barriers among the major trading nations and the
resulting decline of international trade has been cited as one of the
reasons for the depth and duration of the worldwide recession in the
1930s.[Footnote 30] Following World War II, the reduction of trade
barriers among trade partners was seen as an important component of the
world economic system. The General Agreement on Tariffs and Trade was
inaugurated in 1947 and then followed by successive rounds of
negotiations, which resulted in the formation of the World Trade
Organization in 1995. Similarly, the United Nations Conference on Trade
and Development was formed in 1964 because of a general understanding
that trade and development were interrelated.
Despite these developments, economists and developing countries from
the 1950s through the 1970s held divergent views about the best
policies for growth and development. These views involved engaging the
world market versus sheltering certain industries from competition
until they were better able to compete. Ultimately, the divergent
experiences of developing countries over this period led to a broader
acceptance of the role of openness to international trade in fostering
economic growth and development. Many countries, such as Argentina, El
Salvador, Ghana, and Nigeria, pursued an inwardly focused development
strategy known as import substitution. This strategy focused on
restrictive trade policies that sought to protect certain domestic
industries in order to foster a diverse industrial base.[Footnote 31]
On the other hand, certain East Asian economies, including Hong Kong,
Korea, Singapore, and Taiwan, pursued a more outwardly focused
development strategy known as export promotion, which sought to
encourage industrial development by tapping into larger export markets
rather than relying on protected domestic markets.[Footnote 32]
Although the debate between these two broad approaches has swung back
and forth, export promotion, and trade liberalization in general, was
more broadly accepted by the 1980s as the dominant development
strategy. This was due in large part to the rapid growth of the East
Asian economies, as well as China more recently, and the relatively
stagnant growth of many countries that pursued more restrictive
policies. Openness to trade, sound fiscal and monetary policy, security
of property rights, and privatization were key policy prescriptions in
what became known as the "Washington Consensus." This consensus
generally characterized the advice of the World Bank and International
Monetary Fund (both based in Washington, D.C.) to developing
countries.[Footnote 33]
As a result, since the 1980s, a variety of countries have liberalized
their trade regimes by reducing trade barriers through unilateral,
bilateral, regional, and multilateral trade negotiations. The range of
policies that affect the trade openness of particular countries makes
it difficult to measure levels of openness over time and across
countries. However, a wide variety of evidence shows that developing
countries have liberalized their trade regimes extensively over the
past two decades. For example, average tariffs of developing countries
have fallen from around 36 percent in the early 1980s to around 16
percent currently, based on World Bank and International Monetary Fund
statistics. However, the trend to greater openness varied among regions
and countries, with Latin America tending to move the most rapidly and
comprehensively, while South Asian countries made little progress until
the 1990s. For Ghana and Egypt--countries we visited in our work--
average tariffs were similar in the early 1980s at 43 percent and 47
percent, respectively. However, Ghana reduced its average tariff much
more rapidly than Egypt, so that currently Ghana's average tariff is
about half that of Egypt (16 percent compared to 30 percent).
Some Empirical Studies Confirm a Positive Relationship between Trade
and Growth, but Critics Raise Caution:
A large economics literature exists on the relationship between trade
and growth. Many studies have attempted to empirically measure (and
confirm) the relationship between a country's level of openness to
trade and per capita income, or the relationship between changes in
trade flows and changes in gross domestic product (growth). For
example, regularly cited research by economists David Dollar, Aart
Kraay, Jeffrey Sachs, Andrew Warner, Dan Ben-David, and Sebastian
Edwards generally finds an important relationship between changes in
trade flows or liberalization and growth rates across countries.
[Footnote 34] The studies construct measures of openness to trade and
econometrically estimate the relationship to growth, controlling for
causality (e.g., growth may also spur increased trade) and other
factors that affect growth. Similarly, research over the past 15 years
by economists Robert Hall, Charles Jones, Andrew Rose, Jeffrey Frankel,
and others have found that large differences across countries in the
level or the growth rate of real GDP per capita may be systematically
related to the level (or degree) of openness of those countries.
[Footnote 35] However, these studies have also found that institutional
quality, such as the effectiveness of government, is also an important
factor affecting growth and difficult to separate from the effects of
openness.
Although there is a general acceptance that trade can play an important
role in economic development, some economists have criticized the
methodologies used to study the relationship between openness and
growth. For example, Francisco Rodriguez and Dani Rodrik argue that
methodological problems in this literature leave the results open to
diverse interpretations.[Footnote 36] They find little convincing
evidence that changes in trade policy (i.e., reductions in government-
imposed trade barriers) are significantly associated with economic
growth. One challenge that affects the robustness of studies trying to
estimate the impact of trade liberalization on economic growth is
constructing reliable and reasonable measures of "openness." The few
measures that are relatively widely available, such as tariff rates, do
not fully capture the wide range of policies that governments may put
into place to affect trade. Data are not readily available on barriers
other than tariffs (e.g., nontariff barriers such as quotas) for many
developing countries. Furthermore, for those countries for which some
data are available, generally only information on whether or not
nontariff barriers are in force is available, rather than precise
information on their relative restrictiveness or actual effect on
trade.
In addition, less is known about the relationship between trade
capacity building and other factors affecting economic growth and
development (such as institutions and human capital). Although
increased trade appears to be potentially beneficial to growth and
development, countries that have liberalized over time have had mixed
experiences. As mentioned above, institutional factors also appear
important, as do geographical factors (proximity to trade partners), in
the extent to which countries benefit from greater connectedness to the
world economy. Countries in sub-Saharan Africa have remained relatively
less developed and marginalized compared to developing countries
elsewhere, despite undergoing some degree of trade liberalization.
Trade liberalization alone does not appear to be a sufficient criterion
for development but is one of several important factors. Also, the
speed at which the global economy evolves may initially benefit a
developing country but later pose difficulties as labor tries to adjust
to new conditions. For example, the removal of textile and apparel
trade restrictions on January 1, 2005, by developed economies such as
the United States and European Union will allow China and other large
clothing producers to compete against other developing countries for
their market share previously protected by the quotas.[Footnote 37]
Some economies may have difficulties adjusting to rapid changes in
their export markets after having built up significant industries under
the quota system.
[End of section]
Appendix V: Comments from the U.S. Agency for International
Development:
U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT:
JAN 18 2005:
Yvonne Jones:
Acting Director:
International Affairs and Trade:
U.S. General Accounting Office:
441 G Street, N.W.:
Washington, D.C. 20548:
Dear Ms. Jones:
I am pleased to provide the U.S. Agency for International Development's
(USAID) formal response on the draft GAO report entitled Foreign
Assistance: U.S. Trade Capacity Building Extensive, but Its
Effectiveness Has Yet to Be Evaluated (GAO-05-150).
We have reviewed the draft report and appreciate the time and effort of
your team. There are, however, several points raised in the report
concerning USAID's progress on which we have provided comments in the
enclosed document.
Thank you for the opportunity to respond to the GAO draft report and
for the courtesies extended by your staff in the conduct of this
review.
Sincerely,
Signed by:
Steven Wisecarver:
Acting Assistant Administrator:
Bureau for Management:
Enclosure: a/s:
USAID Comments on GAO Draft Report Entitled: FOREIGN ASSISTANCE: U.S.
Trade Capacity Building Extensive, but Its Effectiveness Has Yet to be
Evaluated (January, 28, 2005):
This report calls attention to an important element of the President's
strategy, set out in the September 2002 National Security Strategy of
the United States, to "ignite a new era of global economic growth
through free markets and free trade." As the report notes, U.S. Trade
Capacity Building (TCB) also responds to developing countries' own
aspirations to take full advantage of the opportunities created by
participation in the rules-based global trading system.
The report provides a timely review of the progress we have made in
this area to date. I am pleased that the GAO finds the data collected
by USAID in the Administration's annual surveys of TCB efforts to be
sufficiently reliable for the purpose of the review. I also appreciate
the GAO's recognition of the benefits of close coordination among the
many involved U.S. agencies through the inter-agency working group.
The United States commitment to TCB is well substantiated by the
statistics cited in the draft report. Between Fiscal Year 2001 and
Fiscal Year 2004, U.S. funding for TCB assistance increased by over
50%. This has been one of my own top priorities at USAID, which
accounted for over 70% of all TCB projects funded during this period. I
am pleased that the Congress has provided strong and consistent support
for these efforts.
I would like to clarify one point relating to the draft report's
general characterization of U.S. TCB efforts. The draft report states
in several places that those efforts are a "collection of existing
trade and development activities, placed under one umbrella." In recent
years, however, we have designed and implemented a wide variety of
significant new TCB assistance activities and tools. For example, in
response to the U.S.-Morocco Free Trade Area, USAID developed new
methods for providing training on the complex issues relating to trade
in services. In response to the Central American Free Trade Area
(CAFTA), we provided "quick response" assistance to help the Central
American countries improve civil society outreach and consultative
procedures on trade policy issues. In support of Mozambique's efforts
under the Integrated Framework for Trade-Related Assistance to Least
Developed Countries, USAID was the first bilateral donor to provide
assistance for a "Diagnostic Trade Integration Study" that integrates
trade into a country's national poverty reduction strategy. There are
many other examples.
Further, many of USAID's field programs have been significantly
modified to focus more specifically on trade capacity building, taking
advantage of U.S. bilateral and multilateral trade initiatives and many
developing country governments' increasing commitment to trade-led
development strategies. This is reflected, for example, in USAID's new
Agriculture Strategy, with its strong focus on the contribution that
trade can make to rural development. It is important to note that a
coordinated TCB strategy, which focuses a broad range of assistance
activities on the central goal of improving a country's participation
in the global trading system, is much greater than the sum of its
parts. I am convinced that this strategy continues to significantly
improve the overall effectiveness and impact of U.S. assistance efforts
in many developing countries.
USAID is committed to working closely with the other U.S. agencies that
implement TCB assistance, as well as with the Office of the U.S. Trade
Representative and the U.S. trade policy community, to maximize the
benefits of these trade and development synergies. As the report
recognizes, the various inter-agency coordination mechanisms this
Administration has established in support of the Doha Development
agenda, the Central America Free Trade Area, and other trade
initiatives have made invaluable contributions to this work.
We appreciate and fully support the GAO's recommendation, on page 47 of
the draft report, that USAID "set milestones for completing its efforts
to develop trade capacity building performance indicators ... and share
its findings with other agencies that fund and implement trade capacity
building assistance." A number of ongoing USAID efforts will contribute
to this objective. Most notably, Administrator Natsios has directed the
Bureau for Policy and Program Coordination (PPC) to re-energize USAID's
overall project evaluation capacity and efforts. As part of that
effort, PPC is now working with USAID field missions and other bureaus
to develop a standard set of program components and corresponding
indicators that will be used to report on and guide all our assistance
projects worldwide, including in the area of trade capacity building.
Administrator Natsios has instructed PPC to develop standard program
performance indicators for this and USAID's other program components by
June 2005, for sharing with our field missions, so that by September
30, 2005, they will be ready for inclusion in our Annual Report. It is
important to note that these standard indicators, designed to report on
Agency-level TCB program performance, will not, by themselves, provide
a sufficiently detailed basis for monitoring the effectiveness and
impact of all aspects of every individual TCB project in the field.
Different levels of development and region-and country-specific
variations in other circumstances will continue to require that USAID
missions also develop specialized indicators that are carefully
tailored to local goals, opportunities, constraints, and needs.
The development of both global and local TCB indicators will build on a
number of sector-specific "best practice" evaluations and reports
produced by the Bureau for Economic Growth Agriculture and Trade
(EGAT), including:
"Improving Trade Policy Coordination and Dialogue in Developing
Countries: A Resource Guide"
"Poverty Reduction and Agricultural Trade in Sub-Saharan Africa:
Recommendations for USAID Interventions"
"Trade Capacity Building in the Services Sector: A Resource Guide"
"Customs-Related Technical Assistance for Trade Capacity Building: A
Resource Guide"
"Enterprise Growth Initiatives: Strategic Directions and Options"
Our development of indicators will also build, as the GAO's draft
report notes, on a detailed EGAT study of TCB performance indicators by
a contractor with extensive experience in implementing these projects
around the world. The contractor is currently evaluating dozens of
indicators previously developed by USAID, the World Bank, the OECD, the
World Economic Forum, UNCTAD, and other international donors and
centers of technical expertise on the subject. This analysis will be
completed in the first quarter of 2005. We expect it to make an
important contribution both to the development of the standard TCB
indicators that are to be completed by June 2005, and to the more
detailed indicators that our field missions will continue to develop
for individual project monitoring plans.
We fully support the objective of the GAO's other recommendation -
improved impact monitoring of all U.S. TCB efforts. It will be
important to pursue that objective taking into careful account the
large number of agencies involved, the diversity of TCB programs, and
the cost-effectiveness of different monitoring approaches. We believe a
starting point can be the USAID's work (see second GAO recommendation)
which will cover more than 70% of the total U.S. TCB portfolio. Impact
monitoring of other programs will need to be approached selectively,
focusing on programs with the clearest links to trade capacity and for
which monitoring can be undertaken at a reasonable cost.
Given the technical nature of this work, we also believe it would be
more appropriate for this recommendation to be directed to the agencies
as a whole, rather than to senior officials. These considerations
suggest amending the draft recommendation as follows:
The U.S. Agency for International Development and the Office of the
U.S. Trade Representative, as co-chairs of the trade capacity building
interagency working group, in consultation with other agencies that
fund and implement trade capacity building assistance, should develop a
cost-effective strategy to monitor and measure program results and
evaluate the effectiveness of U.S. trade capacity building assistance.
In recent years, the United States has provided strong leadership in
strengthening the international commitment to trade capacity building
and in developing the technical skills, tools and resources to making
that commitment effective. The results have been impressive and
widespread. USAID welcomes GAO's support for these efforts.
The following are GAO's comments on the U.S. Agency for International
Development's letter dated January 18, 2005.
GAO Comments:
1. We have made changes in the report language to recognize that, while
many U.S. trade capacity building efforts are existing activities, some
trade capacity building activities are new.
2. To ensure accountability, it is GAO policy to address
recommendations to agency officials, rather than to the agency as a
whole. However, we have added the term "cost-effective" to the
recommendation as suggested in the letter.
[End of section]
Appendix VI: Comments from the Office of the U.S. Trade Representative:
EXECUTIVE OFFICE OF THE PRESIDENT:
DEPUTY UNITED STATES TRADE REPRESENTATIVE:
WASHINGTON, D.C. 20508:
JAN 10 2005:
Ms. Yvonne D. Jones:
Acting Director:
International Affairs and Trade:
Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Ms. Jones:
Thank you for giving our agency the opportunity to comment on your very
important report on Trade Capacity Building (TCB). As your report
notes, TCB is a critical part of the U.S. Government's strategy of
enabling developing countries to negotiate and implement market-opening
and reform-oriented trade agreements. Good trade agreements can drive
positive internal reforms that (a) challenge the frequently protected
and failed domestic status quo with a breath of competition from
abroad; and (b) result in better use of current developing country
resources and movement onto a path of more rapid economic growth.
The evidence for this proposition is clear. For example, World Bank
research shows income per capita in globalizing developing countries
grew more than 3 times faster than in non-globalizers in the 1990s.
Absolute poverty rates for globalizers have also fallen sharply over
the last 20 years. The World Bank also finds that trade barrier
elimination in conjunction with related development policies would
accelerate the decline in the number of people in poverty in 2015 by an
additional 300 million --more than the whole population of the United
States. Thus, developing countries that generate growth through trade
will be less dependent on official aid over time.
TCB is of particular importance to the current U.S. Trade
Representative, Ambassador Robert B. Zoellick, who recognizes the
importance of linking trade and development by providing developing
countries with the tools to maximize trade opportunities provided by
multilateral bilateral trade agreements and preference programs. In
response to the increase of developing countries as WTO members and new
FTA partners, Ambassador Zoellick established USTR's Office for Trade
Capacity Building in April 2002. The mission of this office has been to
work with the U.S. Agency for International Development, other U.S.
agencies, international institutions, non-government organizations and
private sector representatives to better coordinate TCB efforts to
maximize their effect.
I appreciate your recognition that our emphasis on the critical linkage
between better interagency coordination and more effective TCB has been
a factor in changing the culture within the USG with regard to TCB.
While U.S. development agencies had provided hundreds of millions of
dollars of technical assistance relating to trade in the past, this
assistance ran the risk of not being coordinated with TCB needs
generated by trade negotiations. We have encouraged development
agencies like USAID to be more cognizant of trade and trade agreements
in their programs.
We have helped establish a brand new interagency process to facilitate
this cooperation. USTR and USAID now co-chair the TCB Interagency
Group, comprised of over 10 agencies that meet monthly to coordinate on
overall TCB --free trade negotiations, WTO issues, the Integrated
Framework, preference programs, etc. This group has been valuable in
making sure that assistance not only substantively supports various
trade objectives, but does so in a timely fashion.
Another innovation has been the creation of TCB Working/Cooperative
Groups in free trade negotiations that operate in parallel to the
negotiating groups. These groups are comprised of the United States --
with USTR leading the interagency team --and its free trade partners.
They discuss assistance at each round of negotiations, such as in our
Andean and SACU negotiations. These groups also invite the
participation of non-governmental organizations, representatives from
the private sector, and international institutions such as the Inter-
American Development Bank and the World Bank. Our efforts have
attracted the participation of organizations as diverse as Humane
Society International and the Business Coalition for Capacity Building.
We have asked our partners to develop an assessment --a "national
strategy"--that defines their TCB needs. The national strategy provides
U.S. agencies and other donors with a guide to target their programs
while disciplining the developing country as it prioritizes its needs
and coordinates internally amongst its own agencies.
We believe that these innovations are a major reason why funding for
TCB continues to exist in a time of major budget pressure on U.S.
foreign assistance. The new structures we have in place provide
Congress with a tangible mechanism to support. Further, the interagency
process has sensitized agencies to what TCB is, which makes them more
aware of how their ongoing programs relate and how their future
programs can be designed to be supportive of trade agreements. This is
probably a reason why agencies have conducted more TCB activities in
the last couple of years according to the USG survey administered by
USAID.
I thank you for giving us the opportunity to comment on your report. I
commend you for a job well done. USTR will continue to be committed to
improving the quality of TCB and building on our successes to date.
Sincerely,
Signed by:
Ambassador Josette Sheeran Shiner:
[End of section]
Appendix VII: Comments from the Department of the Treasury:
DEPARTMENT OF THE TREASURY:
WASHINGTON, D.C.
ASSISTANT SECRETARY:
January 3, 2005:
Dear Mr. Friberg,
Thank you for the letter sent from Ms. Yvonne Jones, Acting Director
from the Government Accountability Office (GAO), to Secretary Snow on
December 13, and for the opportunity to review and comment on the draft
GAO report entitled "Foreign Assistance: U.S. Trade Capacity Building
Extensive, but Its Effectiveness Has Yet to be Evaluated".
Treasury Department staff from the Office of Technical Assistance (OTA)
appreciated the opportunity to meet you and your staff in recent weeks
as you prepared this report. These discussions improved our
understanding of the objectives the GAO had in writing this report. The
discussions also provided assurances to us that the portions of the
draft report were accurate concerning financial resources coming from
OTA and contributing to trade capacity building.
I wish to compliment you and your staff for preparing this assessment
of funding devoted to trade capacity building as defined by the World
Trade Organization. While the total amount of funding from OTA and
identified as contributing to trade capacity building is relatively
small in comparison to total funding from all USG agencies, Treasury
appreciates the favorable recognition given us in the draft report. We
particularly appreciate your reporting of the favorable comments made
by officials from the U.S. Agency for International Development
concerning contributions made by OTA's financial advisors in Ghana. I
believe these comments demonstrate the cooperation and mutual support
our two agencies have achieved in recent years as we work side by side
in supporting reform in key countries around the world.
Treasury's technical assistance program is now active in more than
fifty countries in support of financial reform. As reforms are
implemented with a strong and enduring commitment from political
leaders, a clear, albeit at times indirect, contribution is also made
to trade capacity building. Treasury is proud to play a role in this
effort.
If you have additional questions on which Treasury might be helpful,
please feel free to call or contact James H. Fall, III, Deputy
Assistant Secretary for Technical Assistance Policy. His telephone
number is: 202-622-0667 and e-mail address is:
james.fall do.treas.gov.
Sincerely,
Signed by:
Randal K. Quarles
Assistant Secretary for International Affairs:
Mr. Emil Friberg:
Assistant Director:
International Affairs and Trade:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
E-mail: friberg@gao.gov:
[End of section]
Appendix VIII: GAO Contact and Staff Acknowledgments:
GAO Contact:
Emil Friberg (202) 512-8990:
Staff Acknowledgments:
In addition to the individual named above, Nina Pfeiffer, Rhonda
Horried, Ann Baker, and Tim Wedding made key contributions to this
report. Martin De Alteriis, Lynn Cothern, Etana Finkler, Curtis L.
Groves, and Ernie Jackson also provided assistance.
(320200):
FOOTNOTES
[1] Least-developed countries, 50 countries designated as such by the
United Nations, expressed this concern in a declaration made at a July
2001 trade ministers' meeting in Zanzibar.
[2] The Trade Policy Agenda and Annual Report of the President of the
United States on the Trade Agreements Program are submitted to the
Congress pursuant to Section 163 of the Trade Act of 1974, as amended
(19 U.S.C. 2213).
[3] The survey was only administered annually in fiscal years 2001
through 2004 but contains data for fiscal years 1999 through 2004.
Based on the survey administrator's data collection efforts for fiscal
years 1999 and 2000 data, GAO determined that the data for these two
years were not sufficiently reliable for our purposes. For instance,
when data were collected in 2001 for fiscal years 1999 and 2000, the
survey respondents had to provide data for the previous two years, as
well as the current year, and it is possible that they did not provide
complete data on the previous years due to the burden imposed on them
or a lack of records. The fact that the numbers for those first two
years are smaller than for the last four would be consistent with that
possibility. See appendix I for a detailed explanation. For the
database, see www.qesdb.cdie.org/tcb/index.html.
[4] The six agencies funding and implementing 96 percent of trade
capacity building assistance included the Departments of Agriculture,
Labor, State, and the Treasury; the U.S. Trade and Development Agency;
and USAID.
[5] For the purposes of this review, performance measures and
indicators are equivalent terms.
[6] The Government Performance and Results Act of 1993 (GPRA) requires
that federal agencies set goals and report annually on program
performance.
[7] Title I, Pub. L. No. 106-200.
[8] See Pub. L. No. 106-200, Section 113.
[9] Title XXI of the Trade Act of 2002, Pub. L. No. 107-210, Section
2102.
[10] Pub. L. No. 107-210, Section 2102 (c) (7).
[11] See H. Rpt. No. 108-222, 108TH Cong., 1ST Sess. 22 (2003). See
also, H. Rpt. No. 107-663, 107TH Cong., 2ND Sess. 21 (2002).
[12] See Div. E of Pub. L. No. 108-7, Titles I and II.
[13] See Div. D of Pub. L. No. 108-199, Title II.
[14] The appropriations cover accounts overseen by the Departments of
State and Treasury, USAID, and USTDA. The accounts include "Trade and
Development Agency," "Development Assistance," "Transition
Initiatives," "Economic Support Fund," "International Affairs
Technical Assistance," and "International Organizations and Programs."
In addition, the foreign operations appropriations bill for fiscal year
2005 provides that not less than $507 million should be made available
for these same accounts for trade capacity building.
[15] Transitioning economies, such as the former Soviet Union, are
those that are converting from economies built on state ownership,
central planning, and bureaucratic control into ones relying on private
ownership, market relationships, and individual choices.
[16] The U.S. approach to trade capacity building is similar to that of
the WTO and the OECD, except that the joint WTO/OECD database created
to monitor bilateral donor and multilateral/regional agency support for
trade capacity building excludes activities to enhance the
infrastructure necessary for trade, such as transport, storage,
communications, and energy. The United States, on the other hand,
includes in its database physical and economic infrastructure, such as
trade-related telecommunications, transport, ports, airports, power,
water, and industrial zones.
[17] The WTO Agreement on Sanitary and Phytosanitary Measures sets out
rules on how governments should apply food safety and animal and plant
health measures to ensure that their consumers are being supplied with
food that is safe to eat.
[18] GPRA requires executive agencies to complete strategic plans in
which they define their missions, establish results-oriented goals, and
identify the strategies they will need to achieve those goals. The act
also requires that executive agencies prepare annual performance plans
that articulate goals for the upcoming fiscal year that are aligned
with their long-term strategic goals.
[19] The other agencies we reviewed did not have trade capacity
building-specific strategies.
[20] USTR also created the Office for Trade Capacity Building in April
2002 to coordinate trade capacity building efforts associated with
trade negotiations, now headed by the Assistant U.S. Trade
Representative for Trade Capacity Building.
[21] The six CAFTA negotiating groups covered market access, investment
and services, labor, environment, institutional provisions such as
dispute settlement, and government procurement.
[22] The five international institutions included the Inter-American
Development Bank, the Central American Bank for Economic Integration,
the Economic Commission for Latin America and the Caribbean, the
Organization of American States, and the World Bank.
[23] GPRA requires executive agencies to include results-oriented goals
linked to indicators that the agency will use to measure performance
against the results-oriented goals.
[24] GAO has reported that GPRA recognizes and encourages both
performance measurement and program evaluation. Performance
Measurement and Evaluation: Definitions and Relationships, GAO/GGD-98-
26 (Washington, D.C.: April 1, 1997). In addition, the OECD has stated
that performance measurement and program evaluation complement each
other and allow for examination of results and impact. The DAC
Guidelines: Strengthening Trade Capacity for Development (Paris: OECD,
2001), 63-64.
[25] The Department of State's International Visitor Leadership Program
annually brings foreign nationals to the United States to meet and
confer with their professional counterparts and learn about the United
States. The visitors are current or potential leaders in government,
politics, the media, education, labor relations, the arts, business,
and other fields.
[26] The analytical research for this report is contained in the
following published USAID documents: An Evaluation of Trade Capacity
Building: Overview; USAID Support for WTO/FTA Accession and
Implementation; USAID Behind-the-Border Trade Capacity Building; and
Regional Trade Agreements: A Tool for Development?
[27] For additional discussion of the relationship between trade and
development, see, for example, Handbook of Development Economics, vol.
II, H. Chenery and T. N. Srinivasan, eds. (New York, NY: Elsevier
Science Publishers, 1989) and vol. III, J. Behrman and T. N.
Srinivasan, eds. (New York, NY: Elsevier Science Publishers, 1995);
Michael Todaro and Stephen Smith, Economic Development, 8th ed.
(Boston, MA: Addison-Wesley, 2003); and Gerald Meier and James Rauch,
Leading Issues in Economic Development, 7th ed. (New York, NY: Oxford
University, 2000).
[28] However, as changes occur in the domestic economy due to increased
import competition, some individuals, companies, and industries may
face greater costs than benefits. For example, even if the overall
economy grows from trade liberalization, industries facing greater
competition from imports may contract, leaving workers unemployed. For
some of these workers, gaining employment in industries that are
expanding may be difficult even over a long period of adjustment (see
discussion in next section for challenges that may arise from trade
liberalization).
[29] However, economics literature also points out that high trade
barriers may encourage foreign investment because businesses cannot
access a country's consumers if they do not have a local presence. This
type of investment is designed to replicate the company's operations in
other countries and depends on the size of the developing country's
market (smaller markets may not attract such investment).
[30] See, for example, Charles Kindleberger, The World in Depression,
1929-39 (Berkeley: University of California Press, 1973), 291-308.
[31] Import substitution as a development policy tool does involve
international trade--both through the initial importation of capital
goods for industrialization, as well as the eventual exportation of
industries once they are able to compete in world markets.
[32] Some have pointed to these countries' industrial policies and
selective use of trade restrictions, particularly those that provided
support for certain industries, as key components of their development
strategies. Also, others have pointed out that if all developing
countries pursue export promotion strategies with similar products,
then the world prices of these products will fall, affecting the terms
of trade and limiting the effectiveness of this development strategy.
[33] The effectiveness of strategies connected to the Washington
Consensus has been debated. See for example, Joseph Stiglitz,
Globalization and Its Discontents (New York, NY: W. W. Norton &
Company, 2002) and Jagdish Bagwhati, In Defense of Globalization (New
York, NY: Oxford University Press, 2004).
[34] For example, see David Dollar and Aart Kraay, "Trade, Growth, and
Poverty," World Bank Working Paper (Washington, D.C.: World Bank, June
2001); David Dollar, "Outward-Oriented Developing Economies Really Do
Grow More Rapidly: Evidence from 95 LDCs, 1976-85," Economic
Development and Cultural Change, vol. 40, no. 3 (1992); Jeffrey Sachs
and Andrew Warner, "Economic Reform and the Process of Global
Integration," Brookings Papers on Economic Activity, vol. 1995, no. 1;
Dan Ben-David, "Equalizing Exchange: Trade Liberalization and Income
Convergence," Quarterly Journal of Economics, vol. 108, no. 3 (1993);
and Sebastian Edwards, "Openness, Productivity and Growth: What Do We
Really Know?" Economic Journal, vol. 108, no. 447 (1998).
[35] For a review of this literature as well as a discussion of some of
its criticisms, see Andrew Berg and Anne Krueger, "Trade, Growth, and
Poverty: A Selective Survey," IMF Working Paper WP/03/30 (Washington,
D.C.: International Monetary Fund, February 2003).
[36] See Francisco Rodriguez and Dani Rodrik, "Trade Policy and
Economic Growth: A Skeptic's Guide to the Cross-National Evidence," in
NBER Macroeconomic Annual, Ben S. Bernanke and Kenneth Rogoff, eds.
(Cambridge, MA: MIT Press, 2000).
[37] Under the World Trade Organization's Agreement on Textile and
Clothing, quotas on textile and apparel products were allowed to remain
in place until 2005. The agreement committed countries to remove quotas
between 1995 and 2005 in four steps. The final step on January 1, 2005,
removed all remaining quotas. The United States provided relatively
generous quota access to Mexico and certain countries in the Caribbean
Basin and Africa.
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