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Foreign Affairs: Perspectives on Foreign Affairs Programs and Structures (Letter Report, 11/08/96, GAO/NSIAD-97-6)

GAO summarized the views presented at its 1996 conference on foreign
affairs issues, focusing on the: (1) changed environment for foreign
policy; (2) influence and impact of U.S. programs; (3) role of
multilateral institutions; (4) world trade interests of the United
States; and (4) structure of the U.S. foreign affairs apparatus.
GAO found that: (1) conference participants agreed that increased effort
needs to be directed at improving management efficiency and program
effectiveness; (2) policymakers need to define U.S. interests more
clearly and to specify how they are to be achieved; (3) objective
assessments of the effectiveness of U.S. foreign policy programs serving
U.S. interests continue to be needed; (4) policymakers need to be kept
informed on the activities, operations, budgets, and management reform
efforts of multilateral organizations in order to assess how well U.S.
interests are being carried out; and (5) policymakers need to understand
how various U.S. agencies are in practice operating overseas and whether
coordination mechanisms need to be strengthened.
--------------------------- Indexing Terms -----------------------------
     TITLE:  Foreign Affairs: Perspectives on Foreign Affairs Programs 
             and Structures
      DATE:  11/08/96
   SUBJECT:  Strategic planning
             Interagency relations
             Foreign aid programs
             Foreign policies
             Foreign economic assistance
             International relations
             International trade
             Agency missions
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================================================================ COVER
Report to Congressional Committees
November 1996
Foreign Affairs
=============================================================== ABBREV
  APEC - Asia-Pacific Economic Cooperation forum
  DOD - Department of Defense
  EXIM - Export-Import Bank of the United States
  FSO - foreign service officers
  FSU - former Soviet Union
  GATT - General Agreement and Tariffs and Trade
  GDP - gross domestic product
  IAEA - International Atomic Energy Agency
  IMF - International Monetary Fund
  NAFTA - North American Free Trade Agency
  OECD - Organization for Economic Community Development
  USIA - U.S.  Information Agency
  USAID - U.S.  Agency for International Development
  USTR - U.S.  Trade Representative
  WTO - World Trade Organization
=============================================================== LETTER
November 8, 1996
The Honorable Jesse Helms
The Honorable Claiborne Pell
Ranking Minority Member
Committee on Foreign Relations
United States Senate
The Honorable Benjamin A.  Gilman
The Honorable Lee H.  Hamilton
Ranking Minority Member
Committee on International Relations
House of Representatives
This report summarizes the views presented at our 1996 conference on
foreign affairs issues.  The conference was designed to ensure that
our work is directed to the full range and complexity of U.S. 
foreign affairs activities to better assist the Congress in adjusting
U.S.  foreign affairs functions and structures to post-Cold War
realities.  We conducted this conference under our basic legislative
authority, and we are addressing this report to you because of the
committee's interest in these matters. 
Topics covered in the conference included
  -- the changed environment for foreign policy,
  -- the influence and impact of U.S.  programs,
  -- the role of multilateral institutions,
  -- the world trade interests of the United States, and
  -- the structure of the U.S.  foreign affairs apparatus. 
Summaries of conference discussions are provided in appendixes I
through IV.  Conference participants included present and former
government officials and private sector public policy experts
representing a broad range of interests.  (See app.  VI.)
A central theme that emerged from the 2 days of deliberation and
debate was that the needed rethinking of U.S.  foreign policy
objectives, requirements, and structures has not taken place at the
highest levels of the foreign policy agencies.  Conference
participants expressed a variety of views on the role and
requirements for U.S.  leadership in this transitional post-Cold War
period, and they highlighted the complexity of assessing the
effectiveness of U.S.  policies and programs.  They agreed that U.S. 
international economic activities need to be more clearly recognized
as a new reality of international engagement that merits higher
priority in the definition of U.S.  national interest.  In addition,
participants also noted that in this new era of constrained federal
budgets, increased effort needs to be directed at improving
management efficiency and program effectiveness.  The continued
absence of a broader consensus on foreign policy objectives, however,
raises the risk that the U.S.  government may not have appropriate
resource allocations, reflecting articulated priorities, or the
structure to deal with many post-Cold War issues. 
The various themes and issues raised by our conference participants
suggest that executive branch and congressional attention should
focus on the following topics. 
---------------------------------------------------------- Letter :0.1
A reassessment of U.S.  interests is a fundamental prerequisite to
undertaking any major restructuring of the foreign affairs agencies. 
Policymakers need to define U.S.  interests more clearly and to
specify how they are to be achieved.  With the end of the bipolar
era, issues such as humanitarian crises, terrorist threats,
environmental degradation, and trade and economic interests have
assumed greater weight in foreign policy decisions. 
---------------------------------------------------------- Letter :0.2
Objective assessments of the effectiveness of U.S.  foreign policy
programs in serving U.S.  interests continue to be needed.  These
programs include development assistance, humanitarian assistance,
public diplomacy, technology transfer, and export assistance. 
---------------------------------------------------------- Letter :0.3
Policymakers need to be kept informed on the activities, operations,
budgets, and management reform efforts of these numerous
international organizations in order to assess how well U.S. 
interests are being carried out. 
---------------------------------------------------------- Letter :0.4
The foreign affairs agencies have been slow to rethink and modernize
their management systems, and close scrutiny of their efforts to
reduce the budgetary costs of their operations is warranted. 
---------------------------------------------------------- Letter :0.5
New technologies can reshape and perhaps radically transform the
traditional roles of the Department of State and its overseas posts. 
For example, with so much information available almost
instantaneously from worldwide sources, the traditional reporting
functions of foreign service officers need to be rethought. 
---------------------------------------------------------- Letter :0.6
With so many U.S.  agencies now conducting programs and posting staff
overseas, the U.S.  ambassador may no longer be able to ensure that
these various U.S.  activities are coordinated and focused on the
highest priorities in U.S.  bilateral relationships.  Policymakers
need to understand how various U.S.  agencies are in practice
operating overseas and whether coordination mechanisms need to be
------------------------------------------------------------ Letter :1
We have recently completed or have under way work related to some of
the issues raised at the conference.  We recently issued reports on
options for the State Department\1 and for the U.S.  Information
Agency (USIA)\2 to adjust their operations to reflect new political
and budget realities.  We pointed out that the State Department has
done relatively little to reform and that it needs to fundamentally
rethink the way it does business.  We outlined several options that
State could pursue to address possible budget constraints, including
decreasing support costs, reducing overseas presence, and limiting
the Department's involvement in some government functions.  With
respect to USIA, we found that the agency had taken significant
reform actions, but we pointed out that some of its programs no
longer appear to have the importance they had when they were designed
decades ago. 
We also recently reported on the extent to which the World Bank
serves U.S.  interests and the status of its reform efforts.\3
We are currently developing reports on U.S.  participation in
different international organizations, focusing on the extent to
which U.S.  interests are served, and the extent of progress in
implementing management reforms.  These reports will be available for
the new Congress. 
\1 See State Department:  Options for Addressing Possible Budget
Reductions (GAO/NSIAD-96-124, Aug.  29, 1996). 
\2 See U.S.  Information Agency:  Options for Possible Budget
Reductions (GAO/NSIAD-96-124, Sept.  23, 1996). 
\3 See World Bank:  U.S.  Interests Supported but Progress on Reforms
Needed (GAO/NSIAD-96-212, Sept.  30, 1996). 
---------------------------------------------------------- Letter :1.1
We are sending copies of this report to the heads of key agencies,
including the Secretary of State, the Administrator of the U.S. 
Agency for International Development, and the Director of the U.S. 
Information Agency, and to other congressional committees.  We will
make copies available to others on request. 
This report reflects the views of the participants, which are not
necessarily those of our office.  This report was prepared under the
direction of Benjamin F.  Nelson, Director, International Relations
and Trade Issues, who may be reached on (202) 512-4128. 
Henry L.  Hinton, Jr.
Assistant Comptroller General
=========================================================== Appendix I
To establish a framework for the 2 days of discussions, the
conference began with a discussion of the current context for U.S. 
foreign policy and the difficulties of defining specific objectives
and strategy in the post-Cold War world. 
--------------------------------------------------------- Appendix I:1
Conference participants recognized that the dissolution of the Soviet
Union has posed a new set of challenges for the United States and the
international community.  Not only are numerous new republics now
struggling to reform their political and economic systems, but also
the end of the restraints imposed by the bipolar system has enabled
long-simmering disputes elsewhere in the world to erupt into armed
conflicts or humanitarian crises.  In addition, the dimension and
nature of the threat from weapons of mass destruction have changed
dramatically, with concerns now focusing on the capabilities and
actions of "rogue" states.  Moreover, issues such as the expansion of
organized crime internationally, mass refugee migrations,
environmental degradation, and the growing incidence of terrorism
have come to be recognized as further threats to U.S.  interests. 
In addition, the absence of bipolar conflict has also meant that (1)
traditional U.S.  allies are freer to disagree among themselves and
(2) issues in bilateral relationships that might have been suppressed
as secondary to security issues may now come to the fore.  It was
noted that allied disagreements over how to respond to developing
crises in the former Yugoslavia would have been suppressed for the
sake of anti-Soviet solidarity during the Cold War.  It was also
noted that trade frictions with Japan and human rights disputes with
China have recently assumed higher priority and visibility in
bilateral relationships.  When the United States resumed a
relationship with China in the 1970s, for example, China's human
rights record was far worse than it is now but was overlooked so that
the United States could align with China against the Soviet Union. 
For U.S.  policymakers and the American public, the Cold War with the
Soviet Union had been an all-encompassing one, in the sense that it
was global in scope, it was ideological as well as political and
military, and it involved a commitment on the part of the American
people to the primacy of security issues.  The end of the Cold War
brought public expectations for some sort of "peace dividend" arising
from the decreased demands of foreign policy.  The stable consensus
that had previously existed on the primacy of security issues has
disappeared, and other, domestic issues have captured public
attention.  Although the American people are affected by humanitarian
crises, they may not now be willing to support the type of long-term,
relatively expensive intervention efforts that are probably required
to address the causes of conflict in various areas of the world.  It
was noted that some interventions, such as in Haiti and in Bosnia,
have had time limits imposed that may make it unlikely that the
underlying problems will ever be solved. 
--------------------------------------------------------- Appendix I:2
With the world in a period of transition, the full implications of
the end of the Cold War are still unclear.  Participants recognized
that policy planning in these circumstances is difficult and that
policy-making has occurred largely on an ad hoc basis, in reaction to
humanitarian crises and unexpected ethnic conflicts. 
While traditional U.S.  foreign policy goals of peace, prosperity,
and democracy are still considered valid, further definition of how
they are to be achieved is difficult.  Questions remain about what
policy instruments work, how much to pay for them, and what kind of
effort the country is willing to make in the world. 
Several participants noted that arms control issues, particularly
relating to the proliferation of weapons of mass destruction, have
come to be recognized as highest priority issues.  But a more
specific definition of U.S.  interests in some regions of the world
has yet to be agreed upon. 
========================================================== Appendix II
Two conference panels addressed broad issues relating to the
management of U.S.  diplomacy in the post-Cold War era and the
continuing relevance, effectiveness, and impact of foreign aid
programs.  They covered the need for foreign aid to serve U.S. 
interests, the integration of modern technology into traditional
diplomatic efforts, and the possibilities for streamlining agency
-------------------------------------------------------- Appendix II:1
Participants generally recognized the need for government to be open
to new methods of conducting foreign affairs and organizing agency
activities.  Yet they also were aware that the uncertainties of this
post-Cold War transition period have made planning and
priority-setting difficult.  At high levels within the U.S. 
government, diplomacy has often been reactive and ad hoc.  The State
Department's top management has not taken the time to focus on
whether and what systemic changes may be needed in the day-to-day
conduct of diplomacy, according to the participants. 
Participants suggested that advances in information and
telecommunications technologies may have significant implications,
for example, regarding the reporting functions of State's foreign
service officers (FSO).  The public availability of so much more
information now calls into question the need for extensive embassy
staff reporting back to Washington.  The present cable writing and
review process may be too cumbersome, given the widespread use of
electronic mail and the possibilities of the Defense Messaging System
for transmitting classified communications.  And the need for
face-to-face diplomatic meetings might be reduced by using other
communication methods, such as videoconferencing. 
The question arose as to whether U.S.  embassy operations in some
areas of the world could be centralized in regional offices serving
various countries.  U.S.  diplomatic services are already provided on
a regional basis for some Caribbean island republics, and assessments
would need to be made of the requirements for diplomatic services in
other areas being considered for regional representation. 
Participants also recognized the changing structure of U.S. 
representation overseas, in the sense that the growth in the U.S. 
diplomatic presence has been in personnel assigned from other
agencies, such as Justice, Transportation, and the Treasury.  In
countries where this has happened, the U.S.  Ambassador and State
Department personnel have had to play a coordinating role to maintain
policy consistency and a supportive role in providing administrative
services to this growing, non-State presence.  Such embassies have
come to be referred to as "platforms" for U.S.  government
representation.  While several participants were willing to reassess
the types of skills and training FSOs would need in the future, they
also noted the advantages of the broad knowledge and experience of
FSOs and the need to be able to integrate the wide range of issues
and personnel from various agencies.  The Ambassador is expected to
know about agency activities being conducted within the country, but
this has not always been the case.  As one participant noted, it has
not been within the Secretary of State's power to direct or control
the activities of other Cabinet agencies, and it has been an illusion
that an ambassador in the field had a coordinating power that the
Secretary of State has not had.  The autonomy of other agencies has
increased in the past few years in part as a result of these
agencies' communications capabilities; no longer do overseas messages
have to go through State or intelligence agencies' communications
channels and, thus, no longer does the Ambassador have exclusive
control of information. 
-------------------------------------------------------- Appendix II:2
Participants acknowledged that foreign aid has primarily served U.S. 
political purposes over the last several decades and that often there
has been little demonstration that aid programs have effectively
served economic development goals. 
Participants disagreed on the extent to which foreign aid has been
effective in contributing to economic development.  One participant
cited South Africa, South Korea, Taiwan, and Thailand as countries
where foreign aid played a significant role in spurring development,
whereas another noted that development occurred only after these
countries enacted economic reforms, having realized that aid would
end.  One participant cited Egypt as a case where large amounts of
aid have had negligible effect.  Another participant, however,
pointed out that there has been significant fertility reduction in a
short period of time, even in rural Egypt; that agricultural
production is increasing significantly; and that Egypt's new economic
team is initiating a process of privatization. 
With respect to the future direction of U.S.  aid programs, it was
proposed that the principal purposes of foreign aid should be to
consolidate ongoing transitions to democracy in Eastern Europe and
the former Soviet Union (FSU), to strengthen regional peace in the
Middle East, and to address cross-border issues--such as drugs,
health threats, illegal immigration, and environmental
degradation--through cooperative international efforts.  With respect
to the Middle East, it was noted that there is a growing disjuncture
between the existing aid package focused overwhelmingly on Israel and
Egypt and the needs of an expanded peace process and that
consolidating the Middle East peace will involve a longer-term,
bilateral financial commitment to a broadened range of recipient
It was also noted that for the more dynamic countries--in particular,
Indonesia, Malaysia, Chile, Argentina, and Brazil--private sector
trade and capital flows are occurring to support development.  It was
generally agreed that U.S.  aid should be directed to the poorer
countries with little access to private capital markets and that aid
programs should be streamlined to focus on a narrow range of
activities having high development impact. 
One participant cited a recent study indicating a strong correlation
between the level of economic freedom in a country and the level of
economic growth, and other participants generally agreed that the
United States should emphasize the transition to free, open, and
growing economies as a priority goal of the U.S.  development
assistance program.  It was noted that a country such as Mozambique,
which is currently highly dependent on donor aid, would likely
benefit from private sector foreign investments if it instituted
economic reforms to open up its economy. 
Overall, participants agreed that U.S.  budget constraints will mean
U.S.  bilateral aid programs will have to be more focused and more
results oriented. 
-------------------------------------------------------- Appendix II:3
Participants agreed that reassessments of U.S.  foreign policy
programs should include efforts to streamline agency management. 
They cited the U.S.  Information Agency (USIA) as the agency having
done the most to rethink and reform its management processes, the
U.S.  Agency for International Development (USAID) as having taken
some initiatives, and the State Department as having stalled earlier
management reform initiatives. 
One participant highlighted the USIA's continuing mission in the
post- Cold War world, citing the numerous initiatives different U.S. 
agencies have taken and the need to explain these to the foreign
public at the same time as U.S.  diplomats are pressing these with
foreign governments.  This participant noted that less than 37
percent of the USIA's work in the field now is directly linked to the
State Department.  She said that explaining U.S.  economic and trade
policy positions has taken on a higher percentage of the USIA's work,
particularly for the U.S.  Trade Representative (USTR) on trade
issues and for the Treasury on the introduction overseas of the new
U.S.  currency.  In addition, it was noted that USIA had initiated
and achieved reforms in such areas as streamlining personnel and
cutting publications and exhibits. 
Participants noted that the State Department began a Strategic
Management Initiative over a year ago, but that progress stalled--
partly as a result of disagreements with the Congress over the extent
of streamlining needed and partly because State resisted setting
funding priorities among its functions.  One participant stressed the
importance of considering diplomacy as America's first line of
defense and of understanding the State Department's relatively small
budget compared with that for the Department of Defense (DOD).  He
suggested that the Congress and the executive branch try to find a
process that unifies rather than divides the foreign policy
community.  Participants generally agreed that the State Department's
management of technology improvements has been inadequate, due to the
lack of top-level attention, the expected high costs of such
improvements, and the possible threat these innovations might
represent to State's traditional way of doing business.  Overall,
participants observed that the State Department's top management has
tended to be intensely occupied by ad hoc crises and has not provided
the guidance for rethinking State's mission, functions, and
organizational needs. 
========================================================= Appendix III
The objective of this panel was to assess how U.S.  interests are
served through U.S.  participation in multilateral institutions such
as the United Nations and the international development banks.  Among
the topics discussed were weaknesses in the United Nations and the
promotion of U.S.  interests through programs of the World Bank, the
International Monetary Fund (IMF), and the regional development
------------------------------------------------------- Appendix III:1
Participants in this panel agreed that the post-Cold War era has
brought greater interest in examining the relevance, achievements,
and operations of international organizations. 
With respect to the United Nations, it was noted that wasteful habits
had developed during the 40 years of the Cold War and that curing
these is inherently difficult for an organization of 185 members
representing different cultures and forms of government. 
Participants discussed the need for the United Nations to clarify and
focus its mission on (1) maintaining peace and security; (2)
mobilizing and coordinating humanitarian relief; (3) establishing
norms both in technical fields and in broader areas such as human
rights, and health, environment, and labor standards; and (4)
supporting international development and growth by providing
results-oriented advice and encouraging technical cooperation.  U.N. 
efforts in handling transnational health and refugee problems and in
monitoring weapons proliferation were cited as especially noteworthy. 
Due to U.N.  management difficulties, it was noted that the United
States needs to reduce its expectations for the United Nations,
recognizing it principally as a forum for debate and for airing
international grievances.  According to this view, efforts should
continue to reduce the U.N.  budget and bureaucracy and to assess
specifically how the United Nations serves U.S.  interests. 
With respect to the international development banks, particularly the
World Bank, participants generally agreed that not enough attention
has been given to the implementation stage of major projects or to
the development of the private sectors within recipient countries. 
One participant questioned whether there had been any linkage between
foreign aid and development.  He noted that, for these institutions
to serve U.S.  interests, especially trade interests, they need to
contribute to countries' development; yet little direct evidence has
been presented that shows a causal link, not just a correlation,
between aid programs and development.  He noted that the World Bank
for most of its history had financed programs that supported
money-losing, state-owned enterprises and that did not encourage free
market economic reforms.  He noted that in the mid-1980s, the World
Bank became heavily involved in structural adjustment lending to
developing country governments, but that the pressure to lend money,
in part created by the incentive structure within the World Bank,
outweighed strict insistence on the implementation of free market
economic reforms.  This participant stated that the role of the
multilateral banks should principally be to provide technical
assistance and economic advice rather than to lend money. 
Another participant pointed out the banks' role in serving as a
critical catalyst for economic development.  He noted that, in
countries where the political will exists to achieve economic reform,
bank resources can provide the inducement to stay the course during
difficult times.  With the disintegration of the Soviet economy,
developing countries have become more receptive to free market
economic reforms.  In his view, withdrawing from this possible
catalytic role by reducing bank funding would be to miss an historic
------------------------------------------------------- Appendix III:2
Participants generally agreed that U.S.  involvement in multilateral
institutions should be assessed based on how these institutions serve
U.S.  interests.  Not all participants could agree, however, on how
extensive U.S.  interests are in specific geographic regions. 
The U.N.  nonproliferation and humanitarian activities were cited by
most participants as highly valuable in serving U.S.  global
interests.  The U.N.  Special Commission on Iraq and the
International Atomic Energy Agency (IAEA) have clearly served U.S. 
interests in discouraging the spread of weapons of mass destruction. 
The U.N.  role in leading humanitarian relief operations has also
served U.S.  interests in addressing the disruptions caused by
natural disasters and political upheavals.  And specialized agencies
have played important roles in controlling the spread of diseases and
setting international technical standards (for example, in fields
such as aviation, telecommunications, and shipping). 
U.N.  peacekeeping operations were cited as generally serving U.S. 
interests.  During the Persian Gulf War in particular, the United
Nations provided the legitimacy needed for gathering international
political, financial, and military support.  In other instances, it
was noted, the United Nations can be most valuable when opposing
parties sincerely want peace, as distinguished from situations when
U.N.  forces would be imposing peace on unwilling parties. 
It was noted that the United Nations has helped maintain sanctions
against countries supporting terrorism such as Iraq and Libya, has
established war crimes tribunals such as the ones set up to prosecute
war crimes in Rwanda and the former Yugoslavia, and has served as a
forum for denouncing Cuba's shoot-down of civilian aircraft.  In
addition, the United Nations has helped nations like South Africa,
Namibia, El Salvador, Cambodia, Mozambique, and Haiti in their
transitions from conflict to democracy. 
With respect to the multilateral development banks--including the
World Bank, the IMF, and the regional development banks--it was noted
that U.S.  interests are served through these banks if U.S.  trade is
promoted as a result of increased development.  But a question arose,
however, as to whether development progress could be linked to
foreign aid programs. 
It was noted that U.S.  interests are served through the multilateral
development banks by the banks' recent emphasis on the importance of
the private sector as the engine of growth and expansion in an
economy.  It was noted that a fundamental change in outlook had taken
place within some of these banks, which are now serving to support
countries' efforts to cut tariffs, to privatize, and to develop
market infrastructure such as banking and securities regulatory
structures.  In this way, U.S.  participation in multilateral
development banks may enable the United States to help shape future
economic relationships in Asia and Latin America, for example.  The
banks' efforts to build an economy in the Gaza Strip and the West
Bank and to help with the reconstruction in Bosnia were also cited as
ways U.S.  interests are also served. 
------------------------------------------------------- Appendix III:3
The discussions reflected the frustrations U.S.  officials have had
in pursuing management reforms within the multilateral institutions
over the past several years.  Part of the difficulty has been the
inherent problems of running such a varied organization as the United
However, one participant cited some reforms that have already been
initiated:  the establishment of a U.N.  Under Secretary General for
Internal Oversight Services to crack down on fraud and waste, the
appointment of an Under Secretary General for Administration and
Management who is an American with corporate accounting expertise,
the creation of a new efficiency board and high-level reform group,
and the adoption of a no-growth budget expected to result in a
10-percent reduction of the Secretariat's staffing level.  The United
States has also proposed a series of steps regarding reform of U.N. 
economic and social institutions, additional management improvements,
continued reform of the peacekeeping apparatus, and revision of the
U.N.  Security Council. 
This participant noted the difficulties of pressing these changes at
the same time as the United States has become seriously delinquent in
paying its accumulated debts.  He noted that U.S.  debts, rather than
reform proposals, tend to become the agenda of discussion and that
some members are now questioning whether the United States would pay
its debts even if desired reforms were undertaken.  He stated that
the executive branch will be asking the Congress to approve a 5-year
plan to pay arrears to the United Nations and that actual payment of
these funds would occur as the United Nations implements reforms,
keeps its budget down, and continues to cut unnecessary staff.  In
addition, the United States will be asking U.N.  members to reduce
the U.S.  assessment from 25 percent to 20 percent for the regular
Another participant, however, questioned whether any of these
attempts at reform would have taken place if the United States had
not withheld payments. 
A question arose concerning whether the United States needs to be a
member of so many international organizations.  Participants agreed
that the U.S.  decision this past year to drop out of the U.N. 
Industrial Development Organization was appropriate, since the agency
had failed to find a clear mission.  But one participant noted that
the United States cannot opt out of individual programs within larger
organizations.  Within the Food and Agriculture Organization or the
World Health Organization, for example, there may be wasteful
programs, but overall the United States finds these organizations to
be essential. 
With respect to management of the multilateral development banks, one
participant noted the need for closer oversight of the implementation
stages of development projects and for following through on the
conditions--usually related to the promotion of economic
reforms--that the IMF attaches to its loans.  Another participant
noted that the United States is over $1 billion behind in payments to
the concessional windows of these banks and that the poorest
countries may end up having to borrow on hard terms, thus possibly
becoming even more indebted later on. 
Finally, it was noted that the United States has received very little
support from other industrial country democracies in promoting
reforms in these multilateral institutions or in achieving results
from their activities.  It was suggested that the United States focus
more on gaining such international support for needed reforms in
these institutions. 
========================================================== Appendix IV
We held two panels addressing issues regarding U.S.  interests in
world trade and U.S.  government export promotion and finance
programs.  The panels considered questions relating to increased U.S. 
participation in the global economy, concerns over the labor and
environmental implications of such participation, the need for U.S. 
government export promotion and finance programs, and the U.S.  trade
deficit with Asian nations. 
-------------------------------------------------------- Appendix IV:1
Participants in these panels agreed that the United States has become
increasingly linked to the world economy and needs to continue to
pursue the economic opportunities that global economic growth offers. 
Several participants noted the extent to which U.S.  exports
contribute to the U.S.  economy.  In the 1990s, overall export growth
has accounted for one-third of the increase in U.S.  gross domestic
product (GDP).  Total exports over the last 5 years have accounted
for about 10 to 12 percent of total GDP.  In the agriculture sector,
exports have become relatively more important, with agricultural
exports accounting for about 25 percent of agricultural GDP and
expected to grow to about 30 percent by the year 2000.  The United
States remains the world's leading exporter, benefiting from rapidly
rising global demand for U.S.  farm products, information and
telecommunications technology, and aircraft. 
Over the past several years, however, the U.S.' preeminent role in
the world economy has been challenged by the emergence of strong new
competition, particularly from countries in Europe and Asia.  The
strongest markets for U.S.  products are also changing, with certain
rapidly growing developing countries now serving as the focus of U.S. 
trade competitors' attention. 
In addition, U.S.  foreign policy objectives are now seen to be
served by U.S.  economic "engagement" with other countries. 
Developing U.S.  trade and investment linkages with Eastern Europe
and the former Soviet republics can be a way to support the economic
and political reforms taking place in these countries.  And debate
continues on how to construct economic relationships with China in a
way that would demonstrate the benefits of observing internationally
agreed-upon rules and practices. 
-------------------------------------------------------- Appendix IV:2
Participants generally recognized that the U.S.  public has become
anxious about economic dislocations and related job insecurities. 
However, they disagreed on the extent to which these problems could
be attributed to recent international trade agreements or to
increased levels of U.S.  trade and investment flows overseas. 
One participant said that worker and environmental concerns have not
adequately been addressed in recent international agreements. 
According to this participant, U.S.  international economic policies
have been primarily business centered--emphasizing the protection of
business profits and property and tending to encourage businesses to
move operations around the globe in search of lowest cost labor or
most lax enforcement of environmental or labor regulations. 
Multilateral agreements have included very few rules regarding the
treatment of workers and the environment.  For example, the North
American Free Trade Agreement (NAFTA) and the World Trade
Organization (WTO) agreement did not initially address labor or
environment issues.  While there are now labor and environmental side
agreements to NAFTA and a WTO working group on labor rights issues,
the side agreements are not binding to the same degree as NAFTA and
in effect have proved unenforceable.  For example, in a case brought
under the labor side agreement, it was found that the Mexican
government had failed to enforce its own laws regarding workers'
rights to organize a union.  However, no penalties or remedies were
assessed; only a ministerial consultation took place. 
This participant also noted that economists have found that the
increased volume of trade has contributed to greater wage inequality
in the United States since 1980.  Jobs lost due to increased imports
have tended to involve lower wage and lower skilled workers, while
jobs gained from expanded exports have brought benefits for higher
skilled workers and the owners of capital.  Although the gains to
winners are presumed to be greater than the losses to losers, this
participant noted that the "losers" are the bottom 70 percent of the
U.S.  population, while the "winners" are the fairly small elite at
the top of the business community.  Lower skilled workers losing jobs
because of imports or because their factory is moved overseas often
cannot find higher skilled jobs and end up having to take, on
average, a 10-percent pay cut. 
Other participants noted that economic dislocations taking place now
in the United States are due largely to rapid technological changes
occurring in the U.S.  workplace.  They also said that trade and
investment flows affecting U.S.  jobs and foreign labor were already
occurring well before NAFTA was signed and that improving the U.S.-
Mexican economic relationship will have longer-range economic
benefits for the United States.  Further, the more open world trading
system promoted through the General Agreement on Tariffs and Trade
(GATT) and now the WTO has in fact tended to improve labor standards
in such countries as Taiwan, Singapore, and Hong Kong.  A consensus
does not yet exist on how to link trade and labor issues; one
participant noted that some developing countries would not welcome
certain international labor standards such as a global minimum wage. 
-------------------------------------------------------- Appendix IV:3
Participants shared the view that the international marketplace is
not perfectly open; that competitor governments assist their nation's
firms in winning sales; and that the U.S.  government, therefore, has
a legitimate role in assisting U.S.  exporters to counter and
discourage unfair foreign trade practices.  The U.S.  policy
objective, however, should remain that of reducing and eventually
terminating such government support. 
One participant noted that U.S.  government export support is
particularly important now that so many new markets are being
formed-- especially in rapidly developing countries--and new market
shares among competitors are being created.  In these markets,
competitor country governments are helping their companies succeed in
the crucial early days of establishing initial market shares. 
This participant noted that U.S.  government policy is to finance
only those projects that would not take place in the absence of
export financing.  Determining which projects are in this sense
"additional" is not easy, however, and the Export-Import (EXIM) Bank
of the United States makes such judgments on a case-by-case basis. 
Overall progress has been made toward privatization around the world,
it was noted, and this should favor moves toward more open markets
and eventually a reduction in EXIM's subsidy levels for U.S. 
U.S.  export promotion programs are viewed as necessary, because
imperfections in the way the marketplace provides information and
access tend to skew opportunities toward larger, multinational firms. 
Small and medium-sized U.S.  businesses are left at a comparative
disadvantage, especially in rapidly changing new markets, and these
are the types of firms to which U.S.  export assistance needs to be
directed.  Also, U.S.  agricultural firms still face a number of
allowable foreign government subsidies and trade-distorting
practices, and U.S.  government export support is directed at
countering these activities. 
It was noted that the United States continues to lag behind its major
competitors in terms of money and staff dedicated to export
promotion.  For example, the United Kingdom spent over eight times as
much, relative to GDP, as the United States did on export promotion
programs in 1994.  And France has 10 times the U.S.  export promotion
staff, relative to GDP. 
U.S.  firms have also had to compete in export markets with foreign
firms supported by high-level government advocacy efforts.  The
Commerce Department tracked 200 projects over an 8-year period and
found that U.S.  firms lost about 45 percent of those export
contracts at least partly as a result of foreign government
interventions favoring their national firms. 
-------------------------------------------------------- Appendix IV:4
The Asian countries have developed into major growth centers,
becoming both export competitors and important markets for U.S. 
goods and services.  The U.S.  overall trade deficit with Asia was a
matter of concern to some participants, although it was recognized
that U.S.  trade deficits stem from broader economic factors such as
domestic savings, investment, and consumption levels. 
One participant emphasized the importance of aggressive marketing by
U.S.  companies to enter Asian countries' markets and develop local
contacts and alliances.  This would include recognizing and
countering subsidized third-party competition from Europe and
elsewhere.  Another participant noted the importance of redeploying
the Department of Agriculture's export promotion efforts from mature
markets, such as Europe, to the expanding markets, particularly in
Pacific Rim countries.  He also agreed with our emphasis on the
continuing need to focus on long-term strategic planning in targeting
export promotion activities. 
With respect to China, it was noted that bringing China under the
rules of the international trading system, the WTO, would give U.S. 
exporters better access to China's growing internal market and would
discourage Chinese trade practices that violate international rules. 
One participant said that the terms for permitting China's entry into
the WTO need to commit China to the process of free market economic
reform and to prevent China from using its traditional tools of state
planning, such as quotas, administrative guidance, and import
substitution, to exclude U.S.  exports. 
One participant stated that imposing unilateral export sanctions is
not helpful in improving the U.S.-Asia relationship, because other
countries have indicated they will not adhere to these.  In his view,
trade relations should be delinked from nontrade issues.  In
addition, it was noted that China has the potential to become a
competitor to the United States in exporting some agricultural
products to Asian markets. 
Enforcing existing U.S.  trade laws and agreements with Asian nations
is also important in ensuring that fair trading relationships are
maintained with Asia.  One participant noted that there is nothing in
the WTO agreement that precludes the effective use of section 301 of
the U.S.  Trade Act of 1974.\1 In his view, aggressive implementation
of section 301 has been and continues to be a means for the United
States to stand up to foreign trade barriers, with foreign
governments remaining free to respond in kind when section 301
sanctions are imposed. 
Participants noted that other types of trade issues with Asian
nations can be handled in multilateral forums such as the
Organization for Economic Cooperation and Development (OECD) and the
Asia-Pacific Economic Cooperation forum (APEC).  Japan's "keiretsu"
business cartels, for example, have posed a major barrier to U.S. 
exports.  And while such cartels are not covered directly under
existing international agreements, the OECD has served as a forum for
addressing the issue of countries' varying competition practices. 
Also, APEC, as a regional grouping, holds promise as a means of
further opening markets. 
\1 Section 301 of the Trade Act of 1974, as amended (19 U.S.C.  2411)
serves as the U.S.  government's principal mechanism for addressing
unfair foreign trade practices. 
=========================================================== Appendix V
Our final panel sought to examine whether and how U.S.  foreign
policy agencies may need to be restructured to adjust to the
post-Cold War environment.  Suggested revisions included
possibilities for consolidating some of these agencies and for
emphasizing coordination of their activities. 
--------------------------------------------------------- Appendix V:1
As noted in appendix I, U.S.  foreign policy agencies now have had to
handle, on an ad hoc basis, a new variety of international events and
crises.  Policymakers have been struggling to define U.S.  interests
in this environment so as to guide decision-making on whether and how
the United States should become "selectively engaged." The broader
vision of enlarging the community of democratic, free market
countries is widely shared, but debate continues on the specifics of
individual actions the United States is prepared to take in support
of these broader goals. 
The overall foreign policy consensus that existed within the United
States during the Cold War has weakened at the same time the U.S. 
domestic consensus has strengthened for reducing the budget deficit. 
Pressures to lower the deficit have resulted in streamlining and
downsizing efforts across most federal agencies.  Yet in this
transitional post-Cold War period, foreign policy agencies have had
difficulty focusing foreign policy objectives and defining
requirements in order to establish budget priorities. 
Conference participants acknowledged that all these factors have led
to frictions between the Congress and the executive branch regarding
foreign policy budgeting.  Participants agreed, however, that efforts
should continue to rethink the purposes and requirements of U.S. 
foreign policy programs and agencies in order to separate core
activities from peripheral ones. 
--------------------------------------------------------- Appendix V:2
Several participants noted that proposals to consolidate certain
foreign affairs agencies sparked serious and valuable rethinking of
agency missions.  But some also felt that the pressure to consolidate
for budgetary reasons obscured understanding of the functional
differences among these agencies and the original rationale in
creating separate institutions.  One participant noted that USAID was
originally kept out of the State Department because aid programs and
development required a long-term perspective, whereas State
Department activities tended to require much shorter-term responses. 
For example, USAID has been called upon to handle humanitarian crises
and natural disasters in areas that may not have related directly to
State's foreign policy priorities, and some USAID projects can take
10 to 20 years to show clear results. 
Some participants emphasized that the purposes of U.S.  foreign
policy and programs need to be assessed and better understood before
agency restructuring can take place.  U.S.  policymakers need first
examine what the United States really wants to achieve in the world
and then decide on the appropriate structure. 
One participant noted that efforts have been made in the past to
restructure the government's trade functions to focus government
programs and to respond to the increased importance of international
trade in overall U.S.  foreign policy.  But these efforts made little
progress, in part, because the Congress' committee and appropriations
structure governing trade would also have to be significantly
changed.  Debate on this issue continues, however, because other
countries, such as Japan and France, have governments more focused on
supporting national commercial policies. 
--------------------------------------------------------- Appendix V:3
Conference participants agreed that technological advances, in
addition to facilitating day-to-day diplomacy through electronic mail
or videoconferencing, have also complicated diplomacy in this era of
broader U.S.  agency representation overseas.  Because communications
no longer always go through the Ambassador in the form of cables,
personnel from various agencies can communicate with Washington
officials outside formal State Department channels. 
So many U.S.  government activities now are carried out by non-State
personnel overseas that it can be difficult for the U.S.  Ambassador
even to be aware of each agency's activities.  Most participants
agreed that the State Department FSOs should not seek to be closely
involved in other agencies' specific programs but that they should
play an important role in coordinating and integrating the diverse
efforts of other agencies overseas. 
It was noted that greater emphasis is being given, at both the
Washington and embassy levels, to improving planning and
coordination.  Some embassies are attempting to model new ways of
working together in order to bring a more integrated and strategic
approach to U.S.  activities overseas.  USIA, for example, has been
stressing "forward engagement" to facilitate government relationships
by establishing bases of understanding among the local publics and
opinion leaders within countries before crises emerge.  Greater
policy integration could occur, also, if the State Department itself
gained a greater appreciation of the work USIA and other agencies do. 
Policy integration, it was noted, need not mean overriding the
distinct voices of foreign affairs agencies.  One participant pointed
out the advantages of having more than one government voice with
respect to certain foreign policies; for example, when the State
Department may need to maintain a relationship with a country
following inadvisable economic policies, USAID can be the one to
refuse a foreign aid program based on the country's not being a good
development partner. 
========================================================== Appendix VI
Gordon Adams
Associate Director, National Security and International Affairs
Office of Management and Budget
Doug Bandow
Senior Fellow
CATO Institute
Kenneth Brody
Former President and Chairman
U.S.  Export Import Bank
Larry E.  Byrne
Assistant Administrator for Management
U.S.  Agency for International Development
Lynn E.  Davis
Under Secretary of State for Arms Control and International
 Security Affairs
U.S.  Department of State
J.  Michael Farren
Vice President
Xerox Corporation
Laurie J.  Fitz-Pegado
Director-General, U.S.  and Foreign Commercial Service
U.S.  Department of Commerce
David Gordon
Deputy Director
Overseas Development Council
Martha C.  Harris
Deputy Assistant Secretary of State for Politico-Military Affairs
U.S.  Department of State
Tex Harris
American Foreign Service Association
John Howard
U.S.  Chamber of Commerce
Penn Kemble
Deputy Director
U.S.  Information Agency
Thea Lee
Economic Policy Institute
Michael Mandelbaum
School of Advanced International Studies
Johns Hopkins University
Warren Maruyama
Sidley and Austin
Allan I.  Mendelowitz
Executive Vice President
U.S.  Export Import Bank
Richard Moose
Under Secretary for Management
U.S.  Department of State
Donna M.  Oglesby
U.S.  Information Agency
Anthony E.  E.  Quainton
Director General of the Foreign Service
U.S.  Department of State
Charles Schmitz
Global Access Institute
August Schumacher, Jr.
Administrator, Foreign Agricultural Service
U.S.  Department of Agriculture
Jeffrey R.  Shafer
Assistant Secretary, International Affairs
U.S.  Department of the Treasury
Thomas P.  Sheehy
Jay Kingham Fellow in International Regulatory Affairs
Heritage Foundation
Sally Shelton
Assistant Administrator, Bureau for Global Programs,
 Field Support, and Research
U.S.  Agency for International Development
Joan E.  Spero
Under Secretary of State for Economic and Agricultural Affairs
U.S.  Department of State
George F.  Ward
Acting Assistant Secretary, International Organization Affairs
U.S.  Department of State
-------------------------------------------------------- Appendix VI:1
Frank C.  Conahan
Former Assistant Comptroller General
National Security and International Affairs Division
U.S.  General Accounting Office
Benjamin F.  Nelson
Director, International Relations and Trade Issues
National Security and International Affairs Division
U.S.  General Accounting Office
*** End of document. ***

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