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Report to the Chairman, Committee on Finance, U.S. Senate, and to the 
Chairman, Committee on Ways and Means, House of Representatives: 

May 2005: 

World Trade Organization: 

Global Trade Talks Back on Track, but Considerable Work Needed to 
Fulfill Ambitious Objectives: 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-538]: 

GAO Highlights: 

Highlights of GAO-05-538, a report to the Chairmen, Senate Committee on 
Finance and House Committee on Ways and Means: 

Why GAO Did This Study: 

The outcome of ongoing World Trade Organization (WTO) negotiations is 
vital to the U.S. economy, because trade with WTO members accounts for 
about one-fifth of the U.S. gross domestic product. The current round 
of trade negotiations—called the Doha Round—was supposed to end by 
January 2005 with agreement on the key issues of agriculture, 
industrial market access, services, and to strengthen the trading 
system’s contribution to economic development. Failure to reach any 
agreement at the last WTO ministerial meeting in Cancun, Mexico, in 
September 2003, put the talks behind schedule and threatened the 
outcome; however, talks resumed in 2004, and a new ministerial 
conference will convene in Hong Kong in December 2005. In light of 
these events, and with the impending renewal decision on U.S. Trade 
Promotion Authority, which streamlines the process by which Congress 
approves trade agreements, GAO was asked to assess (1) the overall 
status of the Doha Round negotiations, (2) progress on key negotiating 
issues, and (3) factors affecting progress toward concluding the 
negotiations. 

What GAO Found: 

During 2004, Doha Round negotiations got back on track as trade 
ministers signed a framework agreement known as the “July package.” By 
committing to eliminate agricultural export subsidies, the agreement’s 
main achievement was to recognize the importance of agriculture in the 
round and thus reopen talks on other issues. Since this breakthrough, 
negotiations are picking up momentum, as WTO members are working toward 
deadlines for more detailed agreements at the December 2005 Hong Kong 
ministerial conference. Yet despite the improved negotiating 
atmosphere, the talks are behind schedule, and considerable work 
remains on the numerous issues that must constitute a final agreement. 

Progress has been uneven on the six negotiating issues identified as 
central to the Hong Kong meeting—agriculture, trade facilitation 
(customs reforms), industrial market access, services, WTO rules, and 
development issues. The United States has particular reform interests 
in the first four of these issues. Progress has occurred on two of 
them: in agriculture, based on agreements in the July framework, and 
trade facilitation, for which talks have finally been started. However, 
little progress has been made on industrial market access and services, 
two other issues of interest to the United States. 

Several factors could affect progress in the critical period leading up 
to the December 2005 Hong Kong ministerial. Achieving consensus among 
the WTO’s 148 members is a challenging task, and diverse economic 
incentives and competing visions add complexity to the negotiations. 
Cooperation by the United States, the European Union, and some of the 
developing countries is also seen as key to a successful conclusion 
before U.S. Trade Promotion Authority expires in mid- 2007, an implicit 
deadline for the talks. 

www.gao.gov/cgi-bin/getrpt?GAO-05-538. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Loren Yager at (202) 512-
4347 or yagerl@gao.gov. 

[End of section]

Contents: 

Letter: 

Results in Brief: 

Background: 

Doha Round Behind Schedule but July Framework Injected New Momentum 
into Trade Talks after Failed Cancun Ministerial: 

Negotiators Have Made Uneven Progress in Key Issue Areas: 

Several Factors Pose Challenges to Successful Negotiations in Hong 
Kong: 

Concluding Remarks: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Agriculture: 

Appendix III: Industrial Market Access: 

Appendix IV: Services: 

Appendix V: Economic Incentives for Doha Negotiations: 

Appendix VI: Trade Negotiating Interests and Affiliations of Leading 
Merchandise Exporters: 

Appendix VII: GAO Contacts and Staff Acknowledgments: 

Tables: 

Table 1: Overall Goals for the Doha Round Negotiations from the Doha 
Declaration, U.S. Trade Promotion Authority Legislation, and USTR: 

Table 2: Trade Weighted Average Ad Valorem Agricultural Tariff Rates 
for Selected Countries and Products. (Tariffs in percent): 

Table 3: Models Estimating the Economic Benefits from Tariff Reduction 
in the WTO Doha Round: 

Figures: 

Figure 1: Timeline of Significant Events in the WTO Negotiations from 
the Cancun Ministerial to August 2004: 

Figure 2: Key Milestones in the WTO Negotiations in 2005 and Forward: 

Figure 3: Types of Domestic Supports--WTO Definitions: 

Figure 4: Recent Amber Box Spending Patterns for the European Union and 
United States, as Measured by Aggregate Measure of Support: 

Figure 5: Tariff Reduction Formulas Considered for Improving 
Agricultural Market Access: 

Figure 6: Potential Special and Differential Treatment Provisions 
Discussed in the July Framework on NAMA: 

Figure 7: Various Formula Specifications for Tariff Reductions 
Considered with the NAMA Negotiations: 

Letter May 31, 2005: 

The Honorable Charles Grassley: 
Chairman: 
Committee on Finance: 
United States Senate: 

The Honorable William H. Thomas: 
Chairman: 
Committee on Ways and Means: 
House of Representatives: 

U.S. trade with members of the World Trade Organization (WTO) totaled 
$2.1 trillion in 2004, accounting for almost one-fifth of U.S. gross 
domestic product. As such, the United States has a considerable stake 
in WTO negotiations launched in November 2001 that aim to liberalize 
trade by lowering tariffs and other distortions to global trade in 
agriculture, industrial goods, and services and to strengthen the 
trading system's contribution to economic development. Officially known 
as the Doha Development Agenda, the talks are being conducted under the 
auspices of the WTO and are the latest in a series of negotiating 
"rounds" among its members, which now number 148 nations and customs 
territories. Past GAO reports have highlighted the ambitious list of 19 
substantive issues being addressed in what is now known as the Doha 
Round and the challenges WTO members have faced in making progress. 
Notably, the failure of the September 2003 meeting of trade ministers 
at Cancun, Mexico, set back the talks and made meeting the original 
January 2005 deadline for conclusion impossible. The President recently 
requested a 2-year extension of Trade Promotion Authority (TPA) from 
Congress, which streamlines congressional approval of trade agreements, 
for purposes of pursuing a final Doha Round agreement, among others. 
TPA legislation allows for such an extension unless a disapproval 
resolution is passed by either House of Congress by June 30, 2005. The 
U.S. Congress will also consider the 5-year WTO membership review, as 
called for in section 125 of the Uruguay Round Agreements Act.[Footnote 
1]

Given the importance to the United States of the WTO Doha Round and 
Congress's present TPA renewal decision, you asked GAO to provide a 
status report on the WTO negotiations. In this report, the latest in a 
series, we assess (1) the overall status of the WTO Doha Round 
negotiations; (2) developments on key negotiating issues since the 
previous (January 2004) GAO report; and (3) factors affecting progress 
in the negotiations. 

To address these objectives, we met with and obtained documents from a 
wide variety of WTO, U.S., and foreign government officials, as well as 
academic experts and private sector groups (including business 
associations, law firms, and civil society groups), both in Washington, 
D.C., and Geneva, Switzerland. We also reviewed international tariff 
and trade data from the WTO and the United Nations. We determined that 
these data were sufficiently reliable for the purposes of our analysis. 
Appendix I provides a full description of the scope and methodology of 
our work. We conducted our work from March 2004 through March 2005 in 
accordance with generally accepted government auditing standards. 

Results in Brief: 

Overall, the Doha Round is behind schedule, but the global trade talks 
have regained their footing and achieved some forward momentum since 
the failed Cancun ministerial. Leadership by both developed and 
developing nations, an improved process, hard work, and a willingness 
to compromise resulted in a July 2004 framework agreement widely 
credited with putting the Doha Round back on track. The negotiating 
participants we spoke with are generally pleased that a July 2004 
framework agreement and its breakthrough in agriculture reform has 
succeeded in demonstrating broader commitment to success and 
effectively breaking the deadlock in the negotiations. Agriculture 
remains the top issue for many participants, and dissatisfaction with 
progress on agriculture has held up movement on the other 18 issues on 
the negotiating agenda. Negotiators report that the July framework has 
enabled technical negotiations to proceed in a much improved 
atmosphere, despite political transitions in some countries during the 
fall of 2004. Nevertheless, those with whom we spoke universally 
stressed that considerable work remains to be done if the Doha Round's 
promise is to be realized--particularly because simultaneous agreement 
on all issues is required for agreement. Moreover, progress thus far in 
2005 has proved slower than hoped, causing WTO Director-General 
Supachai Panitchpadki to sound a warning over prospects for success in 
Hong Kong. 

For its part, the United States has made it clear that issues besides 
agriculture are important to satisfy its balance of interests. It is 
seeking evidence of others' commitment to liberalize barriers to 
industrial goods and services by the pivotal December 2005 Hong Kong 
ministerial, whose goal is to set the stage so final bargaining can 
occur in 2006. Such progress is also vital to attaining U.S. Trade 
Promotion Authority objectives--and realizing U.S. economic gains--for 
the Doha Round. 

Progress has been uneven among the six negotiating issues identified as 
key to the Hong Kong ministerial--agriculture, trade facilitation, 
industrial (nonagricultural) market access, services, development 
issues, and WTO rules. Two issues the United States has advocated have 
progressed. Discussions on agriculture are the most advanced, with the 
July 2004 framework capturing the important new commitment to eliminate 
all export subsidies at an agreed-upon date. The formal launching of 
talks on trade facilitation--the simplification and streamlining of 
customs procedures--also is progress on an issue increasingly seen as a 
"win-win" proposition for developed and developing countries alike. 
Little progress has been made on two other issues of interest to the 
United States. First, on industrial market access, the primary 
achievement has been to establish an agenda for discussion, though 
disagreement persists on the two main methods being considered for 
achieving substantial liberalization. Second, the current number and 
quality of offers on opening access to national services markets are 
still inadequate, according to participants. The remaining two issues 
are being pressed by other WTO members and also have not progressed 
very far. Debate over the July framework showed WTO members are still 
divided over how to best approach development issues, but more ready to 
consider practical accommodations to address concrete problems. 
Meanwhile, negotiations on various trade "rules" have intensified, with 
the United States and other members who are users of trade remedy laws 
facing calls for considerable change to their antidumping and 
countervailing duty regimes--measures used to counter unfairly priced 
and subsidized imports. 

Several interrelated factors could affect progress in the critical 
months culminating in the Hong Kong ministerial. Achieving agreement 
among the WTO's large membership has long been recognized as 
complicated, given its consensus-based decision making structure. The 
task before WTO negotiators is particularly difficult, partly due to 
differences in the economic benefits and costs countries expect from 
trade liberalization. For example, some developing countries that 
currently benefit from preferential access to developed country markets 
are resisting ambitious reduction of multilateral trade barriers out of 
fear that it will erode their margins of preference and reduce their 
exports. Coalitions have been instrumental in consolidating views among 
like-minded members, but the active participation by developing 
countries that sometimes have competing visions to developed countries 
has added to the complexity of achieving consensus. Progress at the WTO 
still depends on strong leadership by--and good relations between--the 
United States and the European Union, but political transitions have 
preoccupied them into early 2005. Analysts agree that action on high- 
profile WTO dispute settlement cases such as cotton and sugar could 
prove important to ongoing agriculture negotiations. Moreover, 
proponents say the avid pursuit of trade negotiations outside the WTO 
is spurring on WTO progress, but others warn it is detracting attention 
and resources from the Doha Round. Several negotiators indicated that 
if extended for 2 years by June 1, 2005, the final expiration of TPA in 
mid-2007 is serving as the implicit deadline for the Doha Round, and 
effectively means it must conclude by December 2006. Finally, 
preparations for the Hong Kong ministerial have begun, but are still 
incomplete. 

We conclude by noting that despite limited progress to date and 
considerable challenges ahead, some of the trade experts we consulted 
are confident that an ambitious, balanced outcome is still attainable-
-if 2005 results in sufficient progress. Others warn that hard 
decisions are necessary and time is short if an outcome that lives up 
to Doha's promises is to be achieved. We received comments on a draft 
of this report from the Office of the U.S. Trade Representative and the 
Departments of Agriculture, Commerce, and State indicating that these 
agencies generally agreed with our findings. 

Background: 

The World Trade Organization (WTO) was established as a result of the 
Uruguay Round on January 1, 1995, as the successor to the General 
Agreement on Tariffs and Trade (GATT). Based in Geneva, Switzerland, 
the WTO administers agreed-upon rules for international trade, provides 
a mechanism for settling disputes, and serves as a forum for conducting 
trade negotiations. There are currently 148 WTO members, up from 90 
GATT members when the Uruguay Round was launched in 1986 and from 128 
members in 1995. 

The highest decision-making authority in the WTO is the ministerial 
conference, which consists of trade ministers from all WTO members and 
occurs every 2 years.[Footnote 2] The outcome of ministerial 
conferences is a ministerial declaration that guides future work. The 
WTO General Council, which consists of representatives from all WTO 
members, is empowered to make decisions between ministerial 
conferences. Decisions in the WTO are made by consensus--or absence of 
dissent--among all members rather than a simple majority. 

At the fourth ministerial conference in Doha, Qatar, in November 2001, 
WTO members reached consensus to launch a comprehensive negotiating 
round, the Doha Development Agenda or Doha Round.[Footnote 3] The Doha 
Round is the ninth round of trade liberalizing negotiations since the 
trading system's founding in 1947. These rounds result in legally 
binding international obligations on members both in terms of the trade 
barriers they are allowed to maintain, such as tariffs (import taxes), 
and the trade rules (disciplines) they are to abide by. Failure to 
comply is subject to binding dispute settlement and possible trade 
retaliation. In the Doha ministerial declaration, WTO members set a 
number of overall objectives for the round, such as the need to ensure 
that developing countries, particularly the least-developed, secure 
growth of world trade commensurate with their needs for economic 
development (see fig. 1 for a list of the overall Doha objectives). The 
declaration sets forth a work program that covers 19 negotiating areas, 
including agriculture, services, and market access for nonagricultural 
goods (also known as industrial market access).[Footnote 4] Within each 
of those areas, WTO members set specific goals.[Footnote 5] WTO members 
also established a Trade Negotiations Committee, chaired by the WTO 
Director General, to oversee the round's progress. Because the Doha 
Round is a package, or "single undertaking" in WTO parlance, 
simultaneous agreement on all issues is required to finalize an 
agreement. 

In negotiating the Doha Round on behalf of the United States, the 
Office of the United States Trade Representative (USTR) is also guided 
by certain goals, notably the goals outlined by the Trade Promotion 
Authority (TPA) granted by Congress in 2002. TPA's goals for USTR 
negotiators include overall and principal objectives and promotion of 
certain priorities. In addition to TPA, USTR has its own goals for the 
Doha Round outlined in a required official notification to Congress in 
November 2002.[Footnote 6] (See fig. 1 for a description of the TPA and 
USTR goals.) In general, USTR states that it plans to use the Doha 
Round negotiations to strengthen the multilateral trading system, 
improve the operation of the WTO, and liberalize international markets. 
USTR places special emphasis on creating new export opportunities for 
the United States in agriculture, manufacturing, and services. USTR 
must explain how any resulting agreement makes progress towards TPA 
goals when submitting it for consideration for congressional approval 
under TPA's expedited approval procedures. TPA is set to expire in mid- 
2005, but provides a procedure for the President to request a one-time 
extension of the authority to July 1, 2007. The President recently 
requested such an extension, which is automatic unless Congress 
disapproves it by June 30, 2005. 

Table 1: Overall Goals for the Doha Round Negotiations from the Doha 
Declaration, U.S. Trade Promotion Authority Legislation, and USTR: 

Doha Declaration Goals: 

* To maintain the process of reform and liberalization of trade 
policies, thus ensuring that the system plays its full part in 
promoting recovery, growth, and development; 
* To ensure developing countries, and especially the least-developed 
among them, secure a share in the growth of world trade commensurate 
with the needs of their economic development; 
* To address marginalization of least-developed countries in 
international trade and to improve their effective participation in the 
multilateral trading system; 
* To stress commitment to the WTO as the unique forum for global trade 
rulemaking and liberalization, while also recognizing that regional 
trade agreements can play an important role in promoting the 
liberalization and expansion of trade and in fostering development; 
* To continue to work with the Bretton Woods institutions for greater 
coherence in global economic policymaking; 
* To reaffirm commitment to the objective of sustainable development; 
* To reaffirm the right of members under the General Agreement on Trade 
in Services to regulate, and to introduce new regulations on, the 
supply of services; 
* To reaffirm commitment to internationally recognized core labor 
standards; 
* To attach great importance to concluding accession proceedings as 
quickly as possible, particularly for least developed countries; 
* To ensure internal transparency and the effective participation of 
all members. 

TPA Goals: 

* To obtain more open, equitable, and reciprocal market access; 
* To obtain the reduction or elimination of barriers and distortions 
that are directly related to trade and that decrease market 
opportunities that otherwise distort U.S. trade; 
* To further strengthen the system of international trading disciplines 
and procedures, including dispute settlement; 
* To foster economic growth, raise living standards, and promote full 
employment in the United States and to enhance the global economy; 
* To ensure that trade and environmental policies are mutually 
supportive and to seek to protect and preserve the environment and 
enhance the international means of doing so, while optimizing the use 
of the world's resources; 
* To promote respect for worker's rights and the rights of children 
consistent with core labor standards of the International Labor 
Organization; 
* To seek provisions in trade agreements under which parties to those 
agreements strive to ensure that they do not weaken or reduce the 
protections afforded in domestic environmental or labor laws as an 
encouragement for trade; 
* To ensure that trade agreements afford small businesses equal access 
to international markets, equitable trade benefits, and expanded export 
market opportunities, and provide for the reduction or elimination of 
trade barriers that disproportionately impact small businesses; 
* To promote the universal ratification and full compliance with the 
International Labor Organization Convention Concerning the Prohibition 
and Immediate Action for the Elimination of the Worst Forms of Child 
Labor. 

USTR Doha Round Goals: 

* To open markets around the globe for American workers, farmers, and 
companies, with special emphasis on creating new export opportunities 
in agriculture, manufacturing, and services; 
* To bring home a set of world trade agreements that enhances economic 
growth and prosperity in the United States and its trading partners 
(especially in the developing world, most notably in Africa) by 
reducing and eliminating barriers to trade; 
* To strengthen the multilateral trading system and improve the 
operation of the WTO. 

Sources: WTO, TPA, and USTR documents. 

Note: Goals for each specific negotiating area or issue were also set. 

[End of table]

The Doha declaration also set several goals for the following 
ministerial conference. However, at the ministerial conference held in 
Cancun, Mexico, from September 10-14, 2003, WTO ministers were unable 
to achieve these goals or to bridge wide, substantive differences on 
individual negotiating issues. They concluded the unsuccessful 
conference with WTO members sharply divided along North-South 
(developed-developing country) lines and agreed only to continue 
consultations and convene a meeting of the General Council by mid- 
December 2003 to take steps to move the negotiations forward. As we 
noted in our January 2004 report,[Footnote 7] the Doha Round of WTO 
negotiations had missed virtually all of the established milestones for 
progress during its first two years. The breakdown at Cancun threatened 
to derail the talks completely. The December 2003 General Council 
meeting did not result in any agreements, except to resume talks in 
early 2004. As a result, WTO negotiators missed the original deadline 
of January 1, 2005, for concluding a Doha Round agreement. Thus, at the 
time our last report was issued, in January 2004, the Doha Round's 
prospects were uncertain. 

Doha Round Behind Schedule but July Framework Injected New Momentum 
into Trade Talks after Failed Cancun Ministerial: 

Despite the Doha Round starting 2004 on an uncertain note, political 
leadership, intensified dialogue, and a series of conciliatory gestures 
resulted in adoption by WTO members of a framework agreement on key 
negotiating issues called "the July framework" or "package." The 
framework is credited with putting global trade talks back on track, 
and participants report that they have finally begun to make progress. 
Recent high-level meetings have sought to focus and accelerate work 
that leads up to a December 2005 ministerial conference in Hong Kong. 
The Hong Kong meeting is now hoped to result in decisions that will 
help determine how ambitious the Doha Round will be in terms of cuts in 
subsidies, tariffs, and other barriers. But even if negotiators reach 
the goal of setting the stage for finalizing a Doha Round agreement in 
2006, WTO negotiations are about 2 years behind their original target 
date. 

Shows of Leadership and More Interactive Process Spur Progress: 

Contrary to post-Cancun gloom, 2004 witnessed a resumption of Doha 
negotiations. Active leadership by the United States and the European 
Union (EU) proved essential to progress, as did a more interactive 
process and hard bargaining. Former U.S. Trade Representative Robert 
Zoellick is widely credited with taking the initiative to resume talks 
with a January 2004 letter to fellow trade ministers urging them to 
keep 2004 from being a lost year for the WTO and suggesting various 
ways to make the agenda more manageable. He followed up on the letter 
with extensive foreign travel to meet with other WTO nations and rally 
support for resuming talks. WTO Director-General Supachi also traveled 
extensively as part of an active outreach effort to WTO member country 
officials. 

WTO members reactivated Doha negotiating groups in February 2004 with 
new chairs intent on ensuring more fruitful member-to-member 
discussions. Summing up the status after his visits with foreign 
officials, Ambassador Zoellick concluded that a breakthrough on 
agriculture was "absolutely the key" to progress. WTO members undertook 
intensive efforts to reach a breakthrough on agriculture both in Geneva 
and at high-level meetings among key nations. Observers credited the EU 
Trade Commissioner Lamy's offer in May to eliminate export subsidies 
with providing a tangible incentive to reach agreement on agriculture. 
Several conciliatory initiatives were also taken to allay specific 
developing country concerns. For example, a workshop held in Benin 
emphasized the importance of cotton reform to growth and poverty 
reduction in Africa. To alleviate poorer countries' concerns over 
adjustment costs that were holding back overall trade liberalization, 
the EU suggested the WTO's poorest members in Africa and elsewhere 
should be offered the "Round for Free"--that is, they would benefit 
from others' concessions without having to offer much if anything in 
return. The offer sparked a debate over this differentiation by making 
it clear that the EU felt the Doha Round offered, and expected, more of 
other developing countries. 

Developing countries also took on leadership roles and actions that 
contributed to progress. After Cancun, there was skepticism in some 
quarters as to whether the newly-created coalitions of developing 
countries would be able to maintain cohesion and play constructive 
roles. However, according to other participants, throughout 2004, these 
groups articulated their positions clearly and negotiated effectively 
with other groups, including the industrialized countries. For example, 
the group of populous developing countries with agricultural interests 
known as the Group of 20 (G-20) issued a late May paper setting forth 
principles to govern tariff cuts to help bridge wide differences in 
agricultural market access. Malaysia played a key role in shaping the 
novel terms for trade facilitation negotiations. 

The WTO negotiating process also became more effective, contributing to 
progress. In our last report, we noted that the WTO's large number of 
members made formal gatherings increasingly ineffective and more 
suitable for speech-making or restating well-known-positions than for 
advancing the negotiations. Moreover, members often focused their 
efforts toward influencing the negotiating group chairmen, rather than 
other members. In early 2004, a series of mini-ministerials and other 
smaller, informal group meetings were used to foster direct interaction 
between members and became the real venues for moving the negotiations 
forward. Negotiating groups on specific issues also adopted informal 
meetings that featured more direct member-to-member dialogue rather 
than the prior chair-driven process. 

Yet, leadership and process improvements alone were not sufficient to 
attain agreement. Hard work and willingness to compromise were also 
required. The wide remaining gaps on agriculture and unrealized demands 
on other issues were apparent at a late June 2004 meeting of the WTO 
Trade Negotiations Committee. WTO Director General Supachai 
Panitchpadki urged members then, and at a ministerial among African 
nations shortly thereafter in Mauritius, to seize the opportunity 
before them and show the flexibility required to seal a deal. With the 
July 16 release of a draft text, 2 weeks of day-and-night negotiating-
-often in intensive small group settings--were begun. An ad hoc group 
called the Five Interested Parties (or Group of Five)--composed of five 
key players in agriculture[Footnote 8]--was critically important in 
bridging developed/developing country differences and shaping agreement 
(even though some members, such as the Group of 10 net agricultural 
importers, complained about being left out of these deliberations). 
Finally, on July 31, 2004, WTO members reached a deal on a framework 
agreement and adopted it formally at a WTO General Council meeting. 

Figure 1: Timeline of Significant Events in the WTO Negotiations from 
the Cancun Ministerial to August 2004: 

[See PDF for image] 

[End of figure] 

The main features of the July framework agreement were: establishing 
key principles for each aspect of global agricultural trade reform, 
launching negotiations to clarify and improve WTO rules on customs 
procedures (trade facilitation), identifying the key elements of 
negotiations to improve industrial (nonagricultural) market access, and 
stressing the importance of liberalizing access to services markets and 
addressing outstanding development concerns.[Footnote 9] It also set a 
notional December 2005 date for the next WTO ministerial in Hong Kong 
but did not set a new deadline for concluding the Doha Round. A veteran 
U.S. negotiator suggested they had pleasantly "surprised themselves" in 
reaching agreement at the WTO on a long-sought framework. The framework 
was widely praised by its key architects and many of their 
stakeholders, though it drew skepticism from some corners. 

July Framework Unlocks Negotiations and Improves Negotiating 
Atmosphere: 

The July 2004 framework is widely credited with putting the Doha Round 
"back on track" and renewing political commitment to its ultimate 
success. Up until then, it had proved impossible to make meaningful 
progress on any of the other 18 issues of the round because key members 
linked movement on those issues to satisfactory progress on 
agriculture. Several participants went so far as to suggest that the 
July 2004 framework meant WTO members had prevented failure in the Doha 
Round and the WTO from becoming obsolete as a forum for liberalizing 
trade. A number of officials and experts we met with maintain that the 
package represents important progress and provided a sound basis for 
productive technical work on all issues during an anticipated political 
hiatus in the fall of 2004, when the European Commission changed and 
the United States held elections. 

Considerable Work Remains on All Issues: 

While GAO's examination does reveal some progress on all fronts either 
in the July framework or afterwards, participants and experts widely 
agree that considerable work remains on all issues if the Doha Round is 
to be concluded successfully as a package deal. Notably, experts agree 
that translating political commitment into concrete cuts in 
agricultural subsidies and tariffs involves grueling negotiations over 
myriad technical details. Without such commitment, loopholes and 
exemptions could undermine hoped-for liberalization. Moreover, 
agriculture is recognized as having achieved greater progress than 
other issues, such as industrial market access and services, which are 
essential for attaining an acceptable balance of issue interests among 
the WTO's 148 members. While cautioning that each issue will advance at 
its own rate and urging others not to insist on lock-step progress, 
U.S. negotiators have made it clear they must see evidence of others' 
commitment to liberalize barriers to industrial goods and services by 
the WTO ministerial now officially slated for December 13-18, 2005, in 
Hong Kong so that member-to-member negotiations can begin in earnest. 
Such progress is also vital to attaining U.S. TPA objectives--and 
realizing U.S. economic gains--for the Doha Round. 

Next 6 Months Will Determine How Ambitious the Doha Round Will Be: 

With tough battles on the details of agriculture reform ahead and the 
need for progress on other issues, the coming 6 months are crucial. 
U.S. negotiators are hopeful that groups will concentrate on working 
through the issues and ensure they are sufficiently advanced to obtain 
needed decisions by the December 2005 Hong Kong ministerial. If so, and 
if the Hong Kong ministerial results in the needed decisions, there is 
at least a reasonable prospect for the talks to conclude by the end of 
2006 with meaningful results. 

Early 2005 high-level meetings have sought to focus negotiations ahead 
of the December 2005 Hong Kong ministerial. At the late January 2005 
mini-ministerial in Davos, Switzerland, and the subsequent mid-February 
Trade Negotiations Committee meeting, WTO members generally agreed to 
focus on six issues in Hong Kong. These six issues are: (1) 
agriculture, (2) industrial or nonagricultural market access (NAMA), 
(3) services, (4) trade facilitation, (5) "rules" such as subsidies and 
antidumping, and (6) development. They also generally agreed that the 
Hong Kong ministerial's goal is to set the stage for final negotiations 
in 2006. 

Although there is not yet agreement about what this entails, U.S. 
negotiators report that it is widely accepted that by the time of the 
Hong Kong ministerial WTO negotiators should seek to finalize 
"modalities" on agriculture and NAMA--that is, numerical targets, 
formulas, industrial sectors for potential sectoral agreements, and 
technical guidelines for countries' commitments on cutting tariffs and 
subsidies. By the Hong Kong ministerial, negotiators should also have 
made progress in services, market access, and rules discussions and 
narrowed the focus, and possibly have begun to outline or draft texts 
on trade facilitation and development issues. 

These deliverables will be critical in determining how ambitious the 
Doha Round will be in terms of cuts in tariffs, subsidies, and other 
barriers to trade, and what the overall balance will be across various 
issues. Finalizing modalities is also an important interim step before 
concrete negotiations can occur among WTO members. WTO members had 
hoped that by mid-July 2005 they would be able to get a sense of how 
well their balance of issue interests are being met through such means 
as producing a "first approximation" of the relevant texts or 
conducting stocktaking meetings on negotiating progress. However, at a 
late April 2005 TNC meeting WTO Director-General Supachai expressed 
concern about meeting these goals, noting that across the board 
progress has fallen short of what is required. He urged greater unity 
of purpose and warned that without better progress, WTO members could 
be facing major problems for Hong Kong. At an early May 2005 meeting of 
the Organization for Economic Cooperation and Development (OECD) in 
Paris, ministers called for a heightened sense of urgency in the 
negotiations and expedited preparations for the Hong Kong conference. 
After the Paris meeting, trade officials from certain WTO members 
reached an informal agreement on a technical issue--on the method for 
converting specific tariffs to ad valorem[Footnote 10] tariffs--that 
was considered significant because it had been blocking progress in the 
agriculture negotiations for months. 

Figure 2: Key Milestones in the WTO Negotiations in 2005 and Forward: 

[See PDF for image] 

[End of figure] 

WTO Negotiations Are About 2 Years Behind Their Original Target Date: 

Even with the July framework and a successful Hong Kong ministerial, 
slow overall progress and the Cancun setback means the Doha Round now 
is unlikely to conclude before December 2006, 2 years after the 
originally established deadline of January 2005. However, past rounds 
have taken longer than originally planned, and the last two rounds-- 
which involved fewer countries--each took 6 or more years to complete. 

Experts offer mixed views as to whether this lag is cause for concern. 
A number of experts we spoke with stressed that the real question is 
not how long the round is taking, but how ambitious--in terms of 
liberalization and reform--the Doha Round's result will be. Some were 
fairly pessimistic. For example, one USTR and WTO Secretariat veteran 
termed the progress to date not only pitiful but worrying. Another 
expert said he did not believe the round was on track for achieving its 
ambitious liberalization and development objectives and expressed 
concern because the hardest issues still have not been tackled. As a 
result, this expert felt that the round would only conclude by December 
2006 if work accelerates and political engagement increases. However, 
other experts said it is too early to give up on the round's success. 
One expert stressed that ups and downs--such as build-ups before 
deadlines and let downs after missing milestones--are typical in trade 
negotiations. Another expert noted that failures can often be vital to 
achieving worthwhile agreements and suggested Cancun was such an event. 
Both he and another expert indicated that there is still time for the 
Doha Round to conclude with meaningful results in all key negotiating 
issues. However, they said there is no more time to spare if a 
balanced, ambitious package is to be attained because even past rounds 
have required at least a year and a half of very hard bargaining to 
conclude. That time is upon us, if one works backwards from the July 1, 
2007, expiration of any renewed U.S. Trade Promotion Authority. 

Negotiators Have Made Uneven Progress in Key Issue Areas: 

Negotiating progress has varied markedly in the six issues designated 
as key work areas at the upcoming Hong Kong ministerial--(1) 
agriculture, (2) trade facilitation, (3) industrial (nonagricultural) 
market access, (4) services, (5) development issues, and (6) rules. 
Some advances have been clear in two issues advocated by the United 
States, agriculture and trade facilitation, although negotiations in 
the latter have just begun. As detailed in appendixes III and IV, very 
limited progress has occurred so far in two other issues being 
advocated by the United States--industrial market access and services. 
Progress has also been limited on two other issues being advocated by 
other WTO members--development-related issues and rules. Reform of WTO 
rules remains an area of controversy, with the United States and other 
users of the trade remedy laws pitted against many other countries over 
whether to maintain and even strengthen current rules. 

Progress Made in All Three Pillars of Agricultural Reform, but 
Difficult Debate Lies Ahead: 

As detailed in appendix II, negotiators pressed hard in 2004 to make 
some progress on all three pillars for agricultural reform: (1) export 
competition, (2) domestic supports and (3) market access. The 
centerpiece of WTO member countries' efforts was the July 2004 
framework agreement to remove all export subsidies at a future date. 
This commitment had long been sought by the United States and other 
nations, but involved a trade-off: the agreement to negotiate 
disciplines in other agricultural export competition programs, 
including U.S. export credit and food aid programs, and state trading 
enterprises. The framework also set ceilings on certain trade- 
distorting domestic supports (subsidies), though negotiators will need 
to further define and set comprehensive reduction schedules for such 
trade-distorting domestic supports. The framework also establishes the 
principle that countries with higher trade-distorting domestic supports 
and tariffs reduce them comparatively more. 

Market access, the third area of reform, proved the most difficult to 
negotiate. As further explained in appendix II, the July framework 
established a principle of tiered and harmonized reductions in tariffs, 
but did not resolve the differences on how this would be accomplished. 
Negotiators still need to agree on numerous outstanding details if WTO 
members are to achieve modalities at the December 2005 Hong Kong 
ministerial. Technical work on issues including tariff rate quota 
administration,[Footnote 11] export credit repayment terms, and 
converting tariffs into ad valorem equivalents has begun. Yet, the 
months-long stalemate on the last issue frustrated progress until May 
2005. Moreover, according to many experts, the big battles that will 
determine how ambitious the Doha round will be---over whether and how 
trade-distorting domestic support categories will be redefined, setting 
domestic support and tariff reduction formulas, and defining the 
sensitive and special products that can be insulated from tariff cuts-
-remain to be fought. 

Launched after Years of Discussion, Trade Facilitation Negotiations in 
Early Stages: 

WTO members finally agreed in the July framework to formally launch 
negotiations on trade facilitation (customs reforms). Trade 
facilitation, together with three other issues--investment, government 
procurement, and competition policy--had been under consideration and 
intense debate by WTO members for the past 7 years (since the Singapore 
ministerial). Trade facilitation is an issue that the United States is 
very interested in bringing into the trading system in order to 
establish the transparent and swift customs procedures that are vital 
to realizing the benefits of market access concessions. The July 
framework contained agreement by explicit consensus to begin 
negotiations on trade facilitation and contained an annex specifying 
the goals, scope, and other understandings associated with their 
launch.[Footnote 12] Notably, WTO members agreed that "the extent and 
timing of entering into commitments [on trade facilitation] shall be 
related to the implementation capacities of developing and least- 
developed [WTO] (m)embers.…" WTO members also decided to halt work 
toward negotiations on the remaining three "Singapore issues" of 
investment, government procurement, and competition policy for the 
remainder of the Doha Round. Since the July framework, WTO members 
created a negotiating group and selected a chair. The group has met 
several times, and various countries, including the United States, have 
tabled proposals. According to a U.S. trade official, two potentially 
difficult issues are dispute settlement and technical assistance to 
help developing countries defray implementation costs. While WTO 
members did not set specific goals on trade facilitation for Hong Kong, 
the United States is hopeful that negotiators can make meaningful 
progress in evaluating proposals. Some experts we spoke with said that 
progress on this issue is increasingly seen as a "win-win" proposition 
for developed and developing countries alike. 

Little Progress in Narrowing of Differences on Industrial Market 
Access: 

As detailed in appendix III, thus far WTO members have made little 
progress in negotiations aimed at securing improved industrial market 
access, a key U.S. objective in the Doha Round. The July framework for 
industrial market access established an agenda for discussion and, 
since July, negotiators have addressed some technical issues. However, 
disagreement persists over the two main methods being considered for 
liberalization of trade in industrial goods: the tariff reduction 
formula and sectoral initiatives that would further reduce tariffs in 
agreed-upon sectors. Such disagreement is reflected in the lack of 
consensus over the tariff reduction guidance in the July framework. As 
of late April 2005, disagreement continued over the type of tariff 
reduction formula to use, the extent of exceptions to the formula that 
would be available to developing countries, and whether or not sectoral 
agreements should be included and on what terms. Nevertheless, 
achieving a meaningful agreement in industrial market access will be 
essential for the United States. 

Services Talks Still Lagging: 

Services liberalization is also a key U.S. objective in which progress 
is lagging, as discussed further in appendix IV. Initially thought to 
be a lynchpin of the Doha Round, services talks have taken a back seat 
relative to other issues. Although several economists and trade experts 
argue that both developed and developing countries would greatly 
benefit from services trade liberalization, certain developing 
countries perceive this goal as a developed country priority. 
Nevertheless, the inclusion of services in the July framework, on an 
equal footing with agriculture and industrial market access, 
represented a victory of sorts and resulted from efforts on the part of 
both developed and developing country members. Since the July 
framework, talks on the domestic regulation of services have shown 
signs of progress. Technical negotiations on market access are also 
underway but have yet to translate into many new or improved offers in 
the lead up to May 31, 2005, the deadline set by the July framework. As 
a result, WTO members and officials remain disappointed with the number 
and quality of offers. For example, many developing countries have a 
keen interest in liberalizing the temporary movement of service 
professionals, but developed countries have so far shown few signs of 
movement towards more responsive offers. 

WTO Members Still Divided Over How to Approach Development Issues: 

On development, WTO members are grappling with developing country 
concerns in the areas of special and differential treatment (S&DT) and 
implementation of their past WTO commitments in light of the July 
framework's calls for decisions by July 2005. Conceptual divisions 
between developed and developing countries, and among developing 
countries, remain unresolved. They involve such basic issues as whether 
participating in trade liberalization and abiding by the agreed-upon 
trade rules is good or bad for development and whether S&DT is an 
across-the-board right for all developing countries, or an ad hoc 
privilege available only on a case-by-case basis to meet justified 
needs, particularly of the WTO's poorest members. The chair has had 
only limited success to date in getting: 

members to move to a practical, problem-solving stage.[Footnote 13] 
However, as negotiations on agriculture and other market access areas 
move forward, specific S&DT language is being included. Certain 
negotiators told us that future progress on S&DT seems increasing 
likely to come out of technical negotiations within specific 
negotiating committees, more so than the Committee on Trade and 
Development, which examines it as a systemic issue. 

Negotiations on Antidumping Rules Intensifying, with United States on 
Defensive: 

Review and possible reform of WTO "rules" for trade remedies such as 
antidumping against unfairly priced imports is prominent and 
controversial in the Doha agenda, though not in the July framework. 
Other WTO members, notably a coalition of 15 developed and developing 
nations known as Friends of Antidumping Negotiations, have advanced 
numerous proposals for extensive reform of existing trade remedy rules. 
Some of the proposed reforms target U.S. practices that have also been 
challenged under WTO dispute settlement procedures. In 2004, WTO 
members participated in an active schedule of meetings to discuss these 
proposals in depth. Proponents are pushing to intensify negotiations 
with a view to having rules be a major component of a Hong Kong 
package. According to U.S. government officials, the United States 
remains committed to preserving the effectiveness of trade remedies but 
wants increased transparency abroad. 

Several Factors Pose Challenges to Successful Negotiations in Hong 
Kong: 

Seven interrelated factors may influence the Doha Round's progress in 
resolving substantive differences in the lead-up to the Hong Kong 
ministerial. First, achieving internal consensus on a balanced package 
for trade liberalization and successfully negotiating a result that is 
acceptable to 148 members is an enormously complicated task. Second, 
formation of coalitions may facilitate consensus building, but 
developing countries show no signs of taking a less assertive role in 
pressing their sometimes-competing vision for the WTO's Doha 
Development Agenda. Third, U.S. and EU cooperation remains pivotal, but 
leadership transitions may change relationships. Fourth, analysts agree 
that action on high-profile WTO dispute settlement cases such as trade 
remedies and cotton could prove important to ongoing negotiations. 
Fifth, trade negotiations pursued outside the WTO are widely seen as 
affecting the Doha Round, though opinion differs on how. Sixth, there 
are timing considerations, with the mid-2007 expiration of any renewed 
U.S. Trade Promotion Authority acting as an implicit deadline. Finally, 
preparation strategy has proved critical to past WTO ministerial 
success, but there is mixed news on preparations for the Hong Kong 
ministerial. 

Negotiators Face a Complex Task: 

The complexity of the task itself could make it hard for Doha 
negotiators to achieve consensus. Several experts and negotiating 
participants told us that the scope of work remaining is considerable 
and that the current round is more complex than past rounds because the 
number of countries actually participating is larger and the issues 
are, in some sense, unfinished work from prior negotiations. The fact 
that agriculture had not been addressed for most of the trading 
system's first half century was cited frequently as evidence of its 
thorny nature. The last (Uruguay) round succeeded in the complex 
challenge of adding agriculture, services, and intellectual property 
rights to the trading system for the first time. The Doha Round is 
ambitious because it aims to cut subsidies and trade barriers from the 
Uruguay Round's high levels. In industrial goods, the Doha goal of 
having all members conform to specific methods for liberalizing tariffs 
on all products differs from past practice of relying primarily on 
member-to-member bargaining to secure tariff cuts. (Past practice did 
result in substantial liberalization, but left in place high barriers 
on some goods and in some countries.)

The diversity of economic costs and benefits also makes the task 
complex. Studies emphasize that both developed and developing countries 
are positioned to benefit from the Doha Round, but individual countries 
face varying economic incentives that could affect their willingness to 
compromise on issues at the Hong Kong ministerial. The Doha talks have 
been fueled by the premise that international trade can positively 
benefit a country's overall growth and development. As discussed more 
fully in appendix V, a number of expert studies have emerged in 
response to the negotiations that estimate potential worldwide economic 
gains exceeding $100 billion under an ambitious liberalization 
scenario. However, the distribution of economic gains may vary within 
and between countries, creating perceived winners and losers. For 
example, several studies estimate economic losses from agricultural 
liberalization for regions that are large net importers of food, such 
as North Africa and the Middle East, because the removal of developed 
country subsidies may increase world food prices. Other experts point 
out that for countries receiving preferential trade access the 
estimated economic benefits from worldwide trade liberalization may not 
reflect export losses from erosion of those preferences. Potential 
losses in tariff revenue may also be a concern to certain developing 
countries that heavily rely on trade taxes for government financing. In 
April 2004, to assist developing countries with potential adjustment 
costs to trade liberalization, the IMF introduced a new lending program 
called the Trade Integration Mechanism (TIM). 

Maturing of Country Coalitions May Facilitate Progress, but Differences 
in Visions between Developing and Developed Countries Persist: 

Coalitions of WTO members have been a factor in both leading and 
preventing movement forward in the Doha negotiations. At Cancun, the 
large number of participants proved unwieldy and the unexpected 
emergence of developing country coalitions challenged traditional ways 
of negotiating. Since then, country coalitions have matured and now 
advance common priorities of many types. See appendix VI for a 
depiction of some major groups of countries and their negotiating 
interests. Developing countries in particular have become more active 
and influential, according to various participants. A number of ad hoc 
groups have arisen around other issues. For example, the Colorado Group 
has led discussion on trade facilitation issues; a variety of "friends" 
groups have formed to advocate positions in the services negotiations; 
and the Friends of Antidumping Negotiations group has pressed for 
changes in the antidumping agreement. This mode of operations has been 
particularly valuable to developing country members, which sometimes 
cannot afford to maintain enough staff in Geneva to attend all 
negotiating sessions that interest them. By reaching an agreement on 
negotiating proposals within groups, coalitions also help to overcome 
the difficulty of creating consensus in an organization as large as the 
WTO. By the same token, they may strengthen opposition to proposals 
that some members might not otherwise care about. Country coalitions 
also have other drawbacks, according to several participants--they 
cannot be relied on exclusively as interlocuters because country 
interests vary and not every country is included; internal 
communication is critical, but sometimes breaks down; and coalitions' 
efforts to forge common positions may leave little room for negotiating 
maneuver. 

Developing countries are not monolithic in their interests, but there 
is still some evidence that developing and developed countries have 
competing visions of Doha Development Round's promise and that 
satisfying developing country's expectations may be difficult--factors 
we identified as challenges in prior reports. While developed countries 
tend to stress the development benefits projected to accrue from 
agriculture reform and trade liberalization, developing country 
coalitions, in various formations, have continued to emphasize the need 
for special and differential treatment. The largest group of developing 
countries, the Group of 90 G-90), has advanced specific special and 
differential treatment proposals, protection against erosion of trade 
preferences, and trade facilitation approaches that address 
implementation costs and capacity building issues. However, satisfying 
these demands--without prejudicing the interests of other developing 
countries--has proven difficult. In addition, four least-developed 
African cotton-producing countries successfully lobbied in July 2004 
for a special focus on cotton within agricultural negotiations, but 
have expressed dissatisfaction with progress attained since then and 
called for decisive action by Hong Kong. 

Leadership Critical, but U.S.-EU Political Transitions May Change 
Relationships and New WTO Director-General Is Being Selected: 

Despite more active and positive participation by developing countries, 
2004 also demonstrated that leadership and cooperation by the United 
States and the EU remains essential. A special relationship between 
U.S. and EU leaders contributed to the Doha ministerial's success and 
to the July 2004 package. But the U.S.-EU trade principals have changed 
since then. Two very important participants in the negotiations, who 
played pivotal roles in launching the round in 2001 and reviving the 
Doha negotiations in 2004 after Cancun, U.S. Trade Representative 
Robert Zoellick, and the EU's Trade Commissioner, Pascal Lamy, are both 
out of those offices. The President named a new USTR in mid-March who 
assumed office on April 29, 2005. In the interim, continued direction 
by the Acting USTR kept the United States engaged in negotiations. 
However, the relationship that develops among new U.S.-EU leaders could 
influence Hong Kong's success. Their will to lead is also vital. Over 
the coming months, the United States will face important tests of its 
trade leadership, such as potentially divisive domestic debates over 
the Central American Free Trade Agreement (CAFTA), competition from 
China, TPA renewal, and continued U.S. WTO membership. The EU, 
meanwhile, has made some statements that suggest it "gave most" in 2004 
and thus is expecting others to reciprocate with ambitious offers for 
services and industrial market access offers. 

The WTO has been in the midst of selecting a replacement for the 
position of Director-General (DG). Three WTO committee chairs are 
personally conducting the vetting process whereby those candidates with 
the least support from the members are expected to withdraw 
voluntarily. The last DG selection became so contentious along North- 
South lines that the job ultimately had to be shared by dividing the 
DG's six-year term between two candidates - Mike Moore of New Zealand 
and the current DG, Supachai Panitchpakdi of Thailand. To avoid a 
similar situation, WTO members agreed to a selection process and 
timetable. Mr. Supachai's term ends on August 31, 2005; by May 31, WTO 
members aim to select a new Director General who will assume the DG's 
position in September, just three months before the Hong Kong 
ministerial. A smooth transition is necessary to ensure members can 
concentrate on the difficult negotiations needed to achieve results at 
Hong Kong. (It appears that a new DG has been selected - France's 
Pascal Lamy - and that the process worked well avoiding a contentious 
north/south divide. Specifically, on May 13, 2005, the General Council 
Chair informed WTO delegations that Mr. Lamy had received the broadest 
support from the WTO members and that therefore she would recommend 
that WTO members appoint Mr. Lamy as the next Director General of the 
WTO starting September 1, 2005. On May 26, 2005, WTO General Council 
officially named Mr. Lamy, the next Director General. Welcoming the 
move, current WTO Director General Supachai pledged to "make every 
effort to move the Doha Development Agenda negotiations as far as 
possible to ensure that we are well positioned for our Hong Kong 
ministerial conference in December.") 

Ongoing Disputes Could Affect Negotiating Dynamics: 

WTO disputes often have little day-to-day impact on negotiations, but 
several ongoing disputes may affect the negotiating atmosphere leading 
to Hong Kong. In recent months, Brazil won two high-profile cases 
against the United States and the European Union. Both rulings are 
expected to influence the Doha agriculture negotiations. In March 2005, 
the WTO Appellate Body upheld a panel finding against U.S. cotton 
subsidies, stating that certain types of current U.S. domestic supports 
result in significant price suppression in world markets. The United 
States has informed the WTO that it intends to come into compliance and 
is now consulting with Congress and stakeholders about possible 
reforms. The European Union has vowed to reform its sugar sector in the 
wake of an adverse WTO ruling, but is facing challenges to its 
proposals to reform its banana regime to conform with another adverse 
ruling. The United States is also facing calls to bring its trade 
remedy laws and actions into conformity with adverse WTO rulings. With 
the EU and Canada both imposing millions of dollars in retaliation 
starting in May because the U.S. has not repealed the Continued Dumping 
Subsidy Offset Act (also known as the Byrd Amendment), there is a risk 
of a negative spillover into the Doha negotiations. In part to avoid a 
similar situation, the United States and the EU have been trying to 
resolve their dispute over aircraft subsidies. 

Free Trade Negotiations Outside of the WTO Affecting Progress: 

Although WTO members and experts have divergent views on the effects of 
the numerous free trade negotiations that take place outside of the 
WTO, they widely agree that the negotiation of preferential trade 
agreements (PTA)[Footnote 14] have an impact on multilateral trade 
talks such as the Doha Round.[Footnote 15] The Bush administration has 
actively pursued PTAs as part of its trade liberalization strategy, and 
more generally, these extra-WTO agreements have flourished worldwide 
since the mid-1990s. Proponents of PTAs claim that they offer 
opportunities for achieving deeper and faster liberalization than is 
possible in the WTO by allowing members to negotiate with subgroups of 
likeminded countries. Once in place, they argue, PTAs can demonstrate 
the benefits of freer trade to nonmembers, thereby encouraging greater 
multilateral liberalization. In contrast, opponents claim that the 
rising number of PTAs increases the administrative and legal complexity 
of international trade and adds to the difficulty of building an open, 
rules-based trading system. After weighing many of the arguments in its 
report on the future of the WTO, a Consultative Board to the Director 
General recently stated that there is "real reason to doubt that the 
pursuit of multiple PTAs will enhance, rather than undermine, the 
attractiveness of multilateral trade liberalization--at least in the 
short and medium term."[Footnote 16] Among other objections, the Board 
expressed concern that such agreements are diverting skilled and 
experienced negotiating resources and reducing enthusiasm for the Doha 
Round. 

Timing Constraints: 

Timing considerations are also relevant. WTO negotiators are keenly 
aware that the United States will consider revamping comprehensive farm 
legislation slated to expire in 2007 and want to make sure it includes 
WTO-agreed reforms. Moreover, the duration of U.S. Trade Promotion 
Authority is, in effect, operating as an implicit deadline for 
concluding the Doha Round, according to numerous participants and 
experts. If Congress renews TPA in mid-2005, the Doha Round agreement 
would be eligible for approval under TPA provided it was signed by the 
President by June 30, 2007. However, the President must fulfill a 
number of procedural requirements and meet certain time frames 
established by TPA.[Footnote 17] Thus, the WTO Doha negotiations would 
need to conclude by the end of December 2006 to meet TPA's statutory 
requirements.[Footnote 18] If the Doha Round agreement required no 
changes to trade remedy laws, the effective deadline could change to 
the end of March 2007. 

Ministerial Preparations Under way, but Still Incomplete: 

A preparation strategy has proved to be critical to WTO ministerial 
success (Doha) and failure (Cancun and Seattle) in the past, but there 
is mixed news on preparations for Hong Kong. Ministerials are important 
because unlike political summits or annual meetings of other 
international organizations, actual negotiations occur and decisions 
are made to enable future work. Indeed, ministerials are the only 
occasion when trade ministers of all WTO members gather to provide high-
level political direction. As noted above, the December 2005 Hong Kong 
ministerial is pivotal so that final bargaining on cuts in subsidies 
and tariffs can occur and a Doha package can be finalized by the end of 
2006. 

On the positive side, although Ministers at Hong Kong will face a 
complex and full agenda, WTO members are trying to narrow differences 
and clarify options prior to the ministerial. Moreover, there is 
general agreement on which issues will be discussed and on concrete 
deliverables desired. In late January and mid-February 2005, WTO 
members agreed that they would aim to make concrete progress by July on 
a Hong Kong package. In March, 2005 WTO members agreed on a work plan. 

On the negative side, April 2005 meetings and our issue-by-issue 
analysis suggest that wide substantive differences persist and progress 
in bridging them is lagging, but WTO ministerials have inherent limits 
and drawbacks in resolving them. First, ministerials can get out of 
hand if too many unresolved issues are presented or if politically 
charged issues dominate. Second, the glare of the public spotlight can 
make compromise difficult. WTO ministerials are large, public events 
that can involve high-profile confrontations over politically sensitive 
issues (e.g., labor at Seattle, Trade Related Aspects of Intellectual 
Property Rights (TRIPS) and Public Health at Doha, cotton at Cancun). 
The atmosphere surrounding the July 2004 framework was markedly 
different, in part because WTO negotiators operated outside public 
view. Third, there has been no change in the process for conducting 
ministerials, which is, by all accounts, unclear and sometimes 
chaotic.[Footnote 19] Past experiences at Cancun and Seattle have shown 
the risk associated with this situation. 

Concluding Remarks: 

Taking into consideration that two of the three last WTO ministerials 
ended in failure, we have noted some positive developments in the 
current WTO negotiating environment compared to that just before 
Cancun. For instance, the July framework represented progress, and 
since the July 2004 Framework, there has been significant activity and 
positive engagement by all member countries, including developing 
countries. Members are very aware of the tight deadlines and work 
remaining prior to the Hong Kong ministerial. If they are successful in 
meeting their goals for interim progress, the risk of arriving in Hong 
Kong with an overly full agenda will be reduced. 

However, as we pointed out in the report, the ministerial faces a 
number of potential challenges--and some risk of falling short of its 
ambitious goals without a greater sense of purpose, according to WTO 
Director-Supachai's latest assessment. Furthermore, issue progress 
requires compromise, but substantive movement toward convergence is 
still not evident in most areas. Agriculture remains central to the 
round. Despite some progress, developed country commitments to 
undertake painful agricultural reform are at least partly contingent on 
movement on market access. Yet, technical talks on market access are 
bogged down, and meetings have only recently broken the impasse. 
Moreover, even with recent proposals, there is scant evidence that key 
countries are willing to make commitments to liberalize access to their 
markets for industrial goods and services. But cutting barriers from 
today's high levels will be the source of any projected gains from the 
Doha round to rich and poor countries alike--and deemed vital to 
achieving balanced results. Deadlines for deciding development issues 
loom in July 2005, but discussions on outstanding proposals have yet to 
become fruitful. The United States, meanwhile, is facing tests of its 
trade leadership at home and calls by other WTO nations for urgent 
action on cotton, as well as greater receptivity to difficult demands 
in services and antidumping. 

With an effective deadline of December 2006, the question is whether 
the rest of 2005 will see sufficient progress to enable final agreement 
on a package that offers gains to all WTO members. Some experts remain 
optimistic that the Doha Round can deliver its promised benefits. 
Others say tough decisions are necessary for progress and warn time is 
short given the substantial work remaining. 

Agency Comments and Our Evaluation: 

We requested comments on a draft of this report from the U.S. Trade 
Representative, the Secretary of Agriculture, the Secretary of 
Commerce, and the Secretary of State, or their designees. The Assistant 
U.S. Trade Representative for WTO and Multilateral Affairs and other 
USTR staff indicated general agreement with the report, but provided us 
with several technical comments, which we incorporated as appropriate. 
The Department of Agriculture's Foreign Agriculture Service agreed with 
our report's factual findings and analysis, but provided several 
technical comments, including data on non-ad valorem tariffs, which we 
incorporated as appropriate. The Department of State's Director of 
Multilateral Trade, Bureau of Economic and Business Affairs, indicated 
agreement with GAO's findings and analysis, and provided a technical 
comment, which we incorporated. The Department of Commerce provided 
written comments, indicating that "GAO analysts have focused on the 
essential pieces of the negotiating puzzle" and "accurately portrayed 
the broad state of progress and existing negotiating tensions in the 
key areas" (see app. IV). In addition, the Deputy Assistant Secretary 
for Agreements Compliance and other Commerce staff provided us with 
oral technical comments on the draft, which we incorporated as 
appropriate. 

We are sending copies of this report to interested congressional 
committees, the U.S. Trade Representative, the Secretary of 
Agriculture, the Secretary of Commerce, and the Secretary of State. We 
will also make copies available to others upon request. In addition, 
the report will be available at no charge on the GAO website at 
[Hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-4347. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. GAO staff who made major contributions to this 
report are listed in appendix VII. 

Signed by: 

Loren Yager: 
Director, International Affairs and Trade: 

[End of section]

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

The Chairman of the Senate Committee on Finance and the Chairman of the 
House Committee on Ways and Means asked us to assess (1) overall 
progress in the WTO Doha Round of negotiations, (2) progress in 
specific negotiating areas, and (3) factors affecting progress. 

We followed the same overall methodology to complete all three of our 
objectives. We obtained, reviewed, and analyzed documents from a 
variety of sources. From the WTO, we analyzed the 2001 Doha Ministerial 
Declaration, the Doha Work Programme Draft General Council Decision of 
31 July 2004, known as the "July framework," as well as numerous 
negotiating proposals from WTO member countries and other documents. 
From U.S. government agencies and foreign government officials, we 
obtained background information and documentation regarding negotiating 
proposals and positions. We also obtained information on day-to-day 
developments from reputable trade publications. 

We met with officials from key U.S. government agencies, including the 
Department of Agriculture, the Department of Commerce, the Office of 
the U.S. Trade Representative, the State Department, and the Department 
of the Treasury, to obtain perspectives on progress in the negotiations 
overall and individual issue areas and factors affecting negotiations. 
The State Department arranged meetings with various of its country desk 
officers to provide us with perspectives on key WTO participating 
member nations. We also met with trade representatives from developed 
and developing countries located in Washington, D.C., including 
Australia, Brazil, Canada, Chile, Costa Rica, the European Union, 
Guyana, Japan, Malaysia, New Zealand, Norway, Singapore, South Korea, 
and Switzerland. Further, we met with private-sector representatives 
from specific business sectors, including the American Sugar Alliance, 
the National Association of Wheat Growers, National Corn Growers 
Association, the Coalition of Services Industries, the National 
Association of Manufacturers, and the Zero Tariff Coalition. We met 
with nongovernmental organizations (NGO), including Oxfam America and 
the Carnegie Endowment; and trade experts from institutions including 
the United Nations Conference on Trade and Development (UNCTAD); 
Georgetown University; the Cato Institute; the Institute for 
International Economics, the American Enterprise Institute; the World 
Bank; Columbia University; the University of Toronto; the Manufacturers 
Alliance; and the Institute for International Business, Economics, and 
Law, the University of Adelaide, Australia; White and Case; and C&M 
International. 

To illustrate tariff profiles for examples of developed and developing 
countries, we reviewed international tariff and trade data from the 
World Bank's World Integrated Trade Solution (WITS) database, which 
contains member-supplied data from the WTO and the United Nations. 
Though these organizations are limited in their ability to verify 
official country data, we concluded that the data is sufficiently 
reliable for the purposes of our analysis based on accuracy checks 
regularly performed on the database and its' wide usage in the 
negotiations. 

Prior to the July 2004 mini-ministerial, with the assistance of USTR 
and the State Department, we traveled to WTO headquarters in Geneva to 
obtain foreign government official, private sector, and nongovernmental 
organizational views on progress. We followed this initial visit to 
Geneva with another trip in late June and early July 2004, to meet with 
U.S. and WTO officials and observe the Trade Negotiations Committee 
negotiations; a visit in September 2004, to obtain official reactions 
to the July framework; and a mid-April 2005 update. The series of 
visits to Geneva resulted in interviews with WTO member country 
officials from developed and developing countries including Australia, 
Brazil, the European Union, India, Jamaica, Japan, and Singapore. We 
also met with WTO officials, including the agriculture, industrial 
(nonagricultural) market access, services, development, and trade 
facilitation negotiating group chairs. In total, we conducted more than 
130 interviews with negotiators and trade experts. 

We performed our work from March 2004 through April 2005 in accordance 
with generally accepted government auditing standards. 

[End of section]

Appendix II: Agriculture: 

Given the importance of agriculture in the Doha Round negotiations, 
coalitions of countries regrouped in 2004 and focused on making 
progress on the three pillars in agricultural reform of export 
subsidies, domestic supports, and market access. The most notable 
achievement thus far has been agreement in the July 2004 framework to 
remove all export subsidies at some future date. The framework also set 
ceilings on certain trade-distorting domestic support categories. 
However, disagreement persists over how to define such categories and 
set reduction schedules, as well as how to improve market access 
through a tariff reduction formula and the definition of sensitive and 
special products that can be insulated from tariff cuts. 

Export Competition: 

The May 9, 2004, EU letter from Pascal Lamy and Franz Fischler to WTO 
member countries offered to eliminate all export subsides[Footnote 20] 
--with no products excluded - if suitable agreements were reached on 
market access and domestic support. This offer was warmly welcomed by 
member countries; for decades, the United States and other countries 
have advocated completely eliminating export subsidies. 

Lamy and Fischler conditioned their offer on what they termed "full 
parallelism," meaning the commitment to eliminate all export subsidies 
is linked to establishing new disciplines in other export competition 
programs, including U.S. export credit and food aid programs, as well 
as export state trading enterprises. The move reinvigorated 
negotiations, country officials and we agreed, because the European 
Union had previously offered only the substantial reduction and 
elimination of export subsidies for certain products, not total 
elimination. 

The EU's offer, valued at about US $9 billion, meant other countries 
with substantial export competition programs, such as the United 
States, would need to agree to undertake disciplines on them.[Footnote 
21] The July framework envisions new disciplines on export credits, 
food aid, and state trading enterprises. 

* The framework is likely to force the substantial restructuring of 
U.S. export credit programs, trade officials say, and our analysis 
supports this conclusion. For example, the July framework language 
stipulates that export credit programs may not have financing repayment 
periods of longer than 180 days. The main U.S. export credit programs, 
General Sales Manager (GSM)-102 and GSM-103, have repayment periods 
from 6 months to 3 years and up to 10 years, respectively.[Footnote 22]

* All food aid programs are subject to scrutiny and could be subject to 
new disciplines, with certain U.S. programs the focus of international 
attention, country officials and trade experts told us. The European 
Union and many African nations advocate that food aid be made only in 
grant form. They also want to make sure food aid is not a mechanism for 
surplus disposal when commodity prices are low and commodity stocks are 
high, because this can trigger commercial displacement. This agreement 
would have implications for the United States' Title I P.L. 480 food 
aid program, which provides for long-term, low interest loans to 
developing countries for their purchase of U.S. agricultural 
commodities, and the Section 416b food aid program, which authorizes 
USDA to donate surplus agricultural commodities overseas. As a result, 
the U.S. successfully sought changes in a July 16 draft text for the 
framework agreement, which had called for disciplines to "ensure that 
food aid is not used as a mechanism for surplus disposal and to prevent 
commercial displacement" [italics added]. However, the framework text 
agreed upon in late July makes no such mention of surplus disposal. 
Instead, it indicates that there will be future discussions on 
"providing food aid exclusively in fully grant form."

* Finally, the framework calls for disciplines to remove the export 
subsidy components of state trading enterprises, including the 
government financing of and underwriting losses of such programs. U.S. 
goals for the negotiations reflect long-held concerns about the 
exercising of monopoly power on imports and exports through these 
institutions. As a result, Canada and Australia are likely to face 
tighter disciplines on their wheat state trading enterprises, trade 
officials and experts told us. 

Domestic Supports: 

Many developing and developed countries are seeking substantial 
reductions in developed country trade-distorting domestic 
support[Footnote 23] programs because these programs can reduce world 
prices and displace otherwise competitive producers from world markets. 
The European Union and the United States in 2001 together accounted for 
the majority of global spending in trade-distorting domestic supports. 
The U.S. has publicly stated it would significantly reduce its trade- 
distorting domestic support spending if other WTO member nations agree 
to ambitious outcomes in other areas, such as market access. 

In July, WTO members agreed that the eventual Doha Round agreement 
would contain a strong element of harmonization in reductions of trade- 
distorting domestic support programs by developed countries, with those 
countries with larger subsidy programs cutting more. This dovetails 
with U.S. aims in the domestic supports pillar, since the European 
Union still outspends the United States. The framework sets ceilings on 
certain kinds of trade-distorting domestic supports and calls for the 
capping and future reduction of others. The July framework also called 
for a substantial reduction in the overall level of trade-distorting 
support from bound levels. 

To examine how these broad guidelines could affect existing European 
Union and the United States programs, we have reviewed the various 
categories of domestic supports, which the WTO classifies into "boxes:" 
amber, blue, green, and de minimis supports. Figure 3 describes the 
categories of WTO-recognized domestic support programs. 

Figure 3: Types of Domestic Supports--WTO Definitions: 

[See PDF for image] 

[End of figure] 

The WTO classifies agricultural domestic support into main categories 
identified by traffic-light color-coded "boxes" that range from most to 
least trade-distorting: Red, e.g. spending not permitted in these types 
of supports; amber, domestic supports that are production-and trade- 
distorting, the total value of which was capped and then reduced; blue, 
production-limiting subsidies that have marginal trade-distorting 
effects; and green, non-or minimally-trade distorting, and thus 
permitted. 

De minimis is a category that captures other domestic supports, 
including market price support measures, direct production subsidies, 
or input subsidies. There is no requirement to reduce de minimis trade- 
distorting domestic support for any year in which the aggregate value 
of the product-specific support does not exceed 5 percent of the total 
value of production of the agricultural product in question. In 
addition, non-product specific de minimis support which is less than 5 
percent of the value of total agricultural production is also exempt 
from reduction. 

Trade-distorting support is comprised of a country's expenditures in 
Amber Box, Blue Box, and de minimis supports. In other words, it does 
not include Green Box measures. 

For Amber Box supports, the most trade-distorting category, the July 
framework calls for final bound thresholds[Footnote 24] to be reduced 
substantially, using a tiered approach whereby members with more 
substantial support programs will be placed in higher tiers and forced 
to cut more. As illustrated in figure 4 below, this provision will 
narrow the difference between the levels the United States and European 
Union are authorized to spend versus the amount they actually spend. 

Figure 4: Recent Amber Box Spending Patterns for the European Union and 
United States, as Measured by Aggregate Measure of Support: 

[See PDF for image]

[End of figure]

In absolute terms, the European Union spends substantially more in 
Amber Box programs than the United States and accounts for more than 
half of the total amount notified by the 30 WTO members that use such 
domestic supports. The U.S. is permitted to spend less than one-third 
of what the EU is permitted. In recent years the European Union spent 
just over half of what it is permitted to spend on these trade- 
distorting domestic supports, and its actual spending has declined. 

By contrast, trade experts and officials told us that other countries 
are concerned about U.S. domestic subsidy programs due to the United 
States' trend of increased spending. The United States has supplied 
official WTO notifications through 2001 that indicate its Amber Box 
program spending was within established WTO limits, but its actual 
spending in Amber Box supports grew from $6.2 billion in 1995 to $15.6 
billion in 2001, the most recent year data are available. 

Furthermore, as we reported in our January 2004 report, the 2002 Farm 
Bill[Footnote 25] could increase U.S. agricultural support spending and 
shift its composition. Specifically, the 2002 Farm Bill created a new 
category of domestic support programs, dubbed "countercyclical 
payments," which are income support payments to farmers when the market 
price for a covered commodity falls below a legislatively-set target 
price. As a result, the United States has pushed in the WTO Doha Round 
for a redefinition of the WTO Blue Box, in which it currently does not 
spend - so that as long as the Blue Box exists it has greater 
flexibility to allow access for other programs that are less trade- 
distorting to count against its current, unused ceiling for this 
category of domestic supports. 

The July framework language regarding the Blue Box was favorable to the 
United States, trade officials and experts told us. It redefines the 
Blue Box to allow direct payments that do not require production 
limitations[Footnote 26] if based on certain criteria.[Footnote 27] 
This has met with sharp resistance from the G-20 and other WTO members 
that seek significant reductions in all forms of trade-distorting 
domestic supports. These members are concerned that by allowing the 
United States to place its countercyclical payments in the redefined 
Blue Box, the United States will not be forced to reduce its trade- 
distorting domestic support programs and could in fact increase its 
total sum of trade-distorting domestic support. As recently as March 
2005, the G-20 called for further disciplines on price-linked supports 
in the provisionally redefined Blue Box to allow the compensations for 
some, but not all, of the difference between market and target prices, 
among other proposals. 

The July framework calls for a cap on the Blue Box of 5 percent of the 
production value, with historical spending patterns to be determined as 
a base. This could affect the European Union, trade officials and 
experts told us, which in 2001 spent 23.7 billion euros in Blue Box 
supports, or 9.6 percent of its total agricultural production. 

To ensure ambitious cuts in domestic support, the July framework also 
calls for a substantial reduction in overall trade-distorting support, 
specifically the sum of Amber Box spending as measured by "Final Bound 
Total AMS," Blue Box payments, and de minimis programs--with a 20 
percent cut to be made in that total in the first year of 
implementation.[Footnote 28] However, the specific extent of reductions 
was left to future negotiations. 

Finally, on non-or minimally trade-distorting "Green Box" domestic 
supports, the framework called for a review, but not a capping or cut 
of these supports. The G-20 has charged that certain current Green Box 
direct payments to producers contradict the Green Box criteria of being 
non-or minimally trade-distorting. The United States and the European 
Union have resisted caps and cuts, but agreed to examine concerns about 
abuse. The United States spent about $51 billion in these types of 
supports, according to its 2001 notification to the WTO, the most 
recent year that data are available. 

Market Access: 

Market access remains the most difficult pillar of the negotiations, 
country officials and experts told us. Major agricultural exporters 
including Canada, Australia, and Brazil want to expand their overseas 
markets. The United States is the world's largest exporter of 
agricultural products, is a highly competitive producer of many 
products, and has significant offensive interests in this area. The 
United States has conditioned domestic support cuts on gains in market 
access. However, many developing countries have resisted 
liberalization, arguing they do not have the means to subsidize exports 
or domestic production, and that tariffs are their only source of 
leverage and protection in the agricultural negotiations. 

Though the July 2004 framework states that a numerical formula will be 
used to cut tariffs from current bound rates, countries differ strongly 
over the type of formula they prefer. The methodology for converting 
specific tariffs into ad valorem equivalents[Footnote 29], upon which 
the tariff reduction formula would be applied, also frustrated progress 
in the market access negotiations for months. Such differences are 
based on the widely divergent tariff profiles among WTO members. 
Specifically, several studies by the Organization for Economic 
Cooperation and Development and the World Bank find that for 
agricultural goods, developed countries tend to have lower average 
bound and applied tariffs.[Footnote 30] However, developed countries 
have a greater percentage of specific (non-ad valorem) tariffs and 
tariff peaks.[Footnote 31] The products where developed countries have 
specific tariffs tend to be those with high levels of protection and 
the products where they have tariff peaks tend to be those of export 
interest to developing countries. In contrast, developing countries 
have uniformly higher bound tariffs, though currently applied tariff 
rates tend to be far lower than bound tariff rates and specific tariffs 
are rare. To illustrate these different tariff profiles, table 1 
provides agricultural goods weighted average tariff rates for a 
selected set of countries and products. Due to member differences over 
the methodology for calculating ad valorem equivalents, the data 
excludes specific tariffs. 

Table 2: Trade Weighted Average Ad Valorem Agricultural Tariff Rates 
for Selected Countries and Products. (Tariffs in percent) A: 

Average bound tariff; 
US: 2.5; 
EU: 3.0; 
Japan: 6.8; 
India: 126.2; 
Indonesia: 54.2; 
Kenya: 100.0; 
Venezuela: 73.6. 

Average applied tariff; 
US: 3.0; 
EU: 5.2; 
Japan: 7.1; 
India: 53.8; 
Indonesia: 4.7; 
Kenya: 22.3; 
Venezuela: 16.2. 

Maximum applied tariff; 
US: 350.0; 
EU: 74.9; 
Japan: 50.0; 
India: 182.0; 
Indonesia: 170.0; 
Kenya: 100.0; 
Venezuela: 20.0. 

Share of applied domestic peaks [B]; 
US: 6%; 
EU: 14%; 
Japan: 30%; 
India: 11%; 
Indonesia: 5%; 
Kenya: 1%; 
Venezuela: 0%. 

Share of applied international peaks [B]; 
US: 4%; 
EU: 11%; 
Japan: 28%; 
India: 89%; 
Indonesia: 6%; 
Kenya: 59%; 
Venezuela: 49%. 

Agricultural imports as a share of total imports; 
US: 4%; 
EU: 7%; 
Japan: 10%; 
India: 7%; 
Indonesia: 12%; 
Kenya: 13%; 
Venezuela: 13%. 

Dairy Products[C]: Average applied tariff; 
US: 10.9; 
EU: 10.8; 
Japan: 27.3; 
India: 30.9; 
Indonesia: 5.0; 
Kenya: 25.0; 
Venezuela: 19.6. 

Dairy Products[C]: Share of international peaks; 
US: 11%; 
EU: 2%; 
Japan: 55%; 
India: 100%; 
Indonesia: 0%; 
Kenya: 100%; 
Venezuela: 91%. 

Dairy Products[C]: Yogurt - HTS Code 040310; 
US: 17.3; 
EU: n/a; 
Japan: 27.5; 
India: 30.0; 
Indonesia: 5.0; 
Kenya: 25.0; 
Venezuela: 20.0. 

Edible Fruits and Nuts[C]: Average applied tariff; 
US: 0.1; 
EU: 9.5; 
Japan: 8.5; 
India: 40.6; 
Indonesia: 5.0; 
Kenya: 27.7; 
Venezuela: 15.0. 

Edible Fruits and Nuts[C]: Share of international peaks; 
US: 1%; 
EU: 7%; 
Japan: 16%; 
India: 94%; 
Indonesia: 0%; 
Kenya: 62%; 
Venezuela: 0%. 

Edible Fruits and Nuts[C]: Bananas - HTS Code 080300; 
US: 0.0; 
EU: 16.0; 
Japan: 10.2; 
India: 30.0; 
Indonesia: 5.0; 
Kenya: 25.0; 
Venezuela: 15.0. 

Tobacco[C]: Average applied tariff; 
US: 70.6; 
EU: 25.4; 
Japan: 0.1; 
India: 30.0; 
Indonesia: 0.3; 
Kenya: 20.8; 
Venezuela: 15.4. 

Tobacco[C]: Share of international peaks; 
US: 11%; 
EU: 16%; 
Japan: 27%; 
India: 100%; 
Indonesia: 0%; 
Kenya: 100%; 
Venezuela: 56%. 

Tobacco[C]: Smoking Tobacco - HTS Code 240310; 
US: 257.0; 
EU: 74.9; 
Japan: 16.6; 
India: 30.0; 
Indonesia: 11.7; 
Kenya: 30.0; 
Venezuela: 20.0. 

Year of Data; 
US: 2003; 
EU: 2004; 
Japan: 2003; 
India: 2002; 
Indonesia: 2002; 
Kenya: 2001; 
Venezuela: 2002. 

Source: WITS World Bank Integrated Database. 

[A] Notes on data: Due to member differences over estimating ad valorem 
equivalents, the data excludes specific tariffs. Since specific tariffs 
tend to apply to products with higher protection levels, this exclusion 
may bias the data downward in certain circumstances. 

[B] Domestic peaks are tariffs that exceed three times the average 
tariff for a country. International peaks are tariffs that exceed 15 
percent. 

[C] Tariff rates for dairy products are those for chapter 4 in the U.S. 
Harmonized Tariff Schedule (HTS). Tariff rates for edible fruits and 
nut products are those for HTS chapter 8. Tariff rates for tobacco 
products are those for HTS chapter 24. 

[End of table]

In line with these general patterns, the table shows that developed 
country members such as the United States, the European Union, and 
Japan have relatively low average bound and applied ad valorem tariff 
rates that range from around 2 percent to 7 percent. However, by 
excluding specific tariff rates, the table does not show the full 
extent to which these countries protect their agricultural sectors. 
According to the World Bank, the European Union, for example, has 
specific tariff rates on 44 percent of its agricultural product lines. 
A 2001 study by the U.S. Department of Agriculture employed a certain 
methodology for converting ad valorem equivalents and estimated that 
the non-trade weighted average tariff rate for agricultural goods in 
the United States, the EU, and Japan was 12 percent, 30 percent, and 58 
percent respectively.[Footnote 32] Additionally, for the example 
products of dairy, fruits and nuts, and tobacco, the United States, the 
European Union, and Japan have relatively high tariffs and a large 
share of international peaks.[Footnote 33] The United States' average 
tariffs in the tobacco sector are extremely high, at around 71 percent. 

Developing countries such as India, Indonesia, Kenya, and Venezuela 
have much higher average bound tariffs, ranging from 54 percent in 
Indonesia to 126 percent in India. However, in each of these cases, 
there are substantial gaps between the bound and applied tariff rates. 

The contrast between developed and developing country tariff profiles 
has fueled a sharp debate on what formula to use to conduct tariff 
reduction, country officials and trade experts told us. Some developed 
countries, including the United States, have advocated for a 
harmonizing formula called a Swiss formula, that would reduce high 
tariffs by a larger percentage than low tariffs. Developing countries 
and, particularly net-exporters such as Brazil with high bound tariffs 
want more flexibility than the Swiss formula would offer. As an 
alternative, they advocate a banded approach, which divides tariffs 
into a series of bands and applies an average tariff reduction within 
each band. The banded approach would apply larger reductions to higher 
tariff bands--thereby addressing developed country tariff peaks - but 
would be less harmonizing than a Swiss formula. A formula that combines 
elements of both Swiss formula reductions and linear reductions is a 
blended approach.[Footnote 34]

Figure 5: Tariff Reduction Formulas Considered for Improving 
Agricultural Market Access: 

[See PDF for image] 

[End of figure] 

The United States was among a handful of nations that in June 2004 
penned and circulated a draft market access white paper attempting to 
strike a compromise. The paper called for a different type of a tiered 
formula approach, where within each band a certain percentage of bound 
tariffs would be cut by a Swiss (harmonizing) formula and a certain 
percentage of bound tariffs would be cut by a linear percentage. A 
certain number of tariff lines would be exempt from either a Swiss or 
linear cut. Instead, liberalization would be handled through tariff 
rate quota increases. This in effect allows member countries to shield 
themselves from substantial reduction commitments for certain products 
by self-designating them as "sensitive products."

Continued disagreement on the tariff reduction formula is significant 
because variations in the type of formula could result in widely 
different results. Recent studies indicate that for developed 
countries, the banded approach reduces applied tariff rates in some 
instances more than the blended approach. These studies further 
indicate that the blended approach could have a greater impact in 
reducing bound rates in developing countries due to the homogeneity of 
their bound rates at relatively high levels. However, irrespective of 
the type of tariff reduction formula chosen, the degree of 
liberalization will strongly be affected by the degree of ambition 
within the formula, as determined by the coefficients, and by the 
exceptions to the formula through sensitive product designation. 

Negotiators had hoped to agree on the formula to cut tariffs in July 
2004 but were unable to do so. Instead, they agreed that (1) the future 
formula will be a single approach for developed and developing 
countries; (2) the future formula will be tiered, with progressive 
reductions achieved through deeper cuts in higher tariffs; and (3) all 
WTO members will have some flexibilities in applying cuts to sensitive 
products that will be used in the future. Under the framework, 
increased market access on sensitive products will be achieved through 
expanded tariff quota rates and tariff reductions. 

Sensitive products and special products--whereby developing countries 
are allowed to declare additional products exempt from standard 
reductions under certain criteria, such as rural development or food 
security needs--are likely to be among the most contentious battles 
going forward, trade officials and experts told us. The G-20 and other 
negotiating groups have stressed that the exceptions for sensitive 
products - whereby countries are permitted to declare certain key 
commodities as sensitive and exempt them from standard tariff reduction 
schedules--is at odds with the liberalizing mission of the Doha Round. 
Sensitive product exceptions could be used to protect developed country 
tariff peaks, these countries say, and greatly undermine the ambitious 
nature of any agreement. 

[End of section]

Appendix III: Industrial Market Access: 

Negotiators report that during the period between Cancun and the July 
framework, members avoided discussing differences in industrial market 
access (nonagricultural market access or NAMA) so that they could focus 
on the agricultural negotiations. As a result, while the negotiating 
atmosphere has improved, the July framework represents a lack of 
movement on key issues in the industrial market negotiations relative 
to Cancun. In fact, the framework consists simply of the text that was 
circulated in Cancun with the addition of a paragraph stating that 
agreement on substantive elements of the text had not yet been reached. 
While negotiators are using the framework as an agenda for discussion, 
the framework lacks both consensus and specificity on the two main 
methods being considered for liberalization of trade in industrial 
goods--a tariff reduction formula and sectoral initiatives--as well as 
the flexibilities that developing countries will be offered in applying 
these methods. As of the spring 2005, consensus on these substantive 
issues had not yet been reached. 

The Tariff Reduction Formula: 

WTO members remain divided over the tariff reduction formula and its 
application. The July framework suggests a nonlinear formula, to be 
applied line by line to bound tariff rates, with the aim of reducing or 
eliminating tariff peaks and tariff escalation.[Footnote 35] Despite 
the framework's disclaimer that agreement on the formula had not been 
reached, negotiators we spoke with indicated that members have 
generally accepted the idea of a nonlinear formula. Nonetheless, there 
remain strong differences over countries' preferences for the type of 
nonlinear formula chosen and the formula coefficients. The July 
framework also suggests a variety of ways in which special and 
differential treatment could be provided. Negotiators we spoke with 
suggest that members agree that least developed countries (LDCs), as 
well as countries with a low percentage of bound tariffs, can be 
exempted from reducing their tariffs through a formula, but the degree 
to which other developing countries can exempt products from the 
formula and qualify for longer implementation periods remains 
controversial. 

Figure 6: Potential Special and Differential Treatment Provisions 
Discussed in the July Framework on NAMA: 

[See PDF for image] 

[End of figure] 

Country preferences for the formula and application of special and 
differential treatment provisions continue to reflect those advocated 
prior to Cancun and are largely based on the varying tariff profiles 
among WTO members. Similar to conditions in agriculture, tariff 
profiles for non-agricultural goods suggest that (1) developed 
countries have bound almost all of their tariffs at relatively low 
levels, though certain products are characterized by tariff peaks; (2) 
products where developed countries have high tariffs tend to be among 
those of export interest to developing countries such as textiles and 
apparel or leather and footwear; and (3) developing countries, in many 
but not all cases, have limited tariff bindings and relatively high 
bound tariffs, though currently applied tariff rates tend to be far 
lower than bound tariff rates. 

Developed country members that have relatively low tariffs want 
significant tariff liberalization in order to access new markets in 
developing countries that have relatively high tariffs.[Footnote 36] 
The United States, for example, is strongly pressing for an industrial 
market access agreement that would effectively lower tariffs in key 
developing countries for which an estimated 71 percent of foreign 
duties on U.S. manufactured exports are assessed, according to the 
National Association of Manufacturers. To achieve this result, the 
United States, the EU, and other developed country members, as well as 
some developing country members that have autonomously liberalized in 
the past, continue to support a Swiss-type formula - a harmonizing 
nonlinear formula that would reduce high tariffs by a larger percentage 
than low tariffs. Such a formula would also address tariff peaks and 
escalation. [SIDEBAR] To account for special and differential 
treatment, the United States has proposed that developing countries 
could apply a different coefficient within the Swiss formula than 
developed countries, implying more moderate liberalization. The EU and 
Norway have proposed a "credit-based approach" where the flexibility in 
the formula coefficient for developing countries would be determined 
uniquely for each country based on credits for commitment to apply the 
formula without exception or participation in sector agreements, for 
example. 

Figure 7: Various Formula Specifications for Tariff Reductions 
Considered with the NAMA Negotiations: 

[See PDF for image] 

[End of figure] 

In contrast, some developing countries emphasize that due to their 
higher average tariff rates, harmonizing formulas that reduce higher 
tariffs more than lower tariffs would result in greater percentage cuts 
for developing countries than developed countries--a result that they 
argue contradicts the principle of special and differential treatment. 
As such, they continue to support a Girard type formula--a non linear 
formula proposed by the former Chair of the industrial market access 
negotiating group that is based on each country's average tariff rate 
and allows countries with higher initial tariffs to reduce those 
tariffs at a lesser rate than countries with lower initial 
tariffs.[Footnote 37] They also support a more extensive application of 
special and differential treatment exceptions such that developing 
countries can maintain the flexibility to pursue industrial policies to 
promote growth of new industries and protect themselves against some of 
the adjustment costs of ambitious liberalization commitments. 

Continued disagreement on the tariff reduction formula is significant 
because variations in the type of nonlinear formula chosen, the formula 
coefficients, treatment of unbound tariffs, and exceptions to the 
formula could result in widely different results. For example, both the 
World Bank and UNCTAD have analyzed the Swiss and Girard non-linear 
formulas by using hypothetical coefficients and have found that: 

* Swiss formula reductions tend to be larger than Girard formula 
reductions, particularly for the high tariff rates found in developing 
countries. 

* While effective at reducing developed country tariff peaks, the 
Girard formula may also entail greater tariff cuts than the Swiss 
formula for developing countries that have lower average tariffs 
resulting from autonomous liberalization. 

* The wide wedge between bound and applied tariff rates in developing 
countries limits the amount of trade liberalization achieved through 
any formula. 

Nonetheless, echoing our analysis of market access negotiations in 
agriculture, the actual degree of liberalization that is achieved 
through these formulas or any other formula will strongly be affected 
by the degree of ambition within the formula, as determined by the 
coefficients, and by exceptions to the standard tariff reduction 
schedules that will be offered through special and differential 
treatment. 

Sectoral Initiatives: 

WTO members also remain divided over sectoral initiatives. The July 
framework states that sectoral agreements should supplement the tariff 
reduction formula with an aim to eliminate or harmonize tariffs in key 
sectors of interest to developing countries.[Footnote 38] The United 
States and other members have proposed the notion that participation 
should be based on a principle of "critical mass," meaning that 
countries that account for the majority of trade in a sector should 
participate such that mutual gains are obtained without problems of 
free-ridership from nonparticipants.[Footnote 39] However, we were told 
that key developed and developing country members disagree strongly 
over whether sector agreements should be included in an industrial 
market access agreement. 

The United States has specific objectives for industrial market access 
as set out by its Trade Promotion Authority legislation: to focus on 
improving market access for U.S. exports and to increase global 
participation in sectoral agreements that reduce or eliminate barriers 
in key sectors, such as textiles and apparels and civil aircraft. 
Developed country members such as the United States, New Zealand, and 
Japan strongly support the inclusion of sector agreements because they 
can result in greater liberalization outcomes than even ambitious 
formula cuts. Specifically, they argue that only cuts that bring bound 
rates below currently applied rates would actually liberalize trade. 
Such members have conducted education and outreach with developing 
countries regarding potential requirements and flexibilities for 
sectoral agreements, as well as the likely economic benefits they could 
receive from ambitious trade liberalization. Nonetheless, certain 
developing countries, such as Brazil, do not support this method of 
liberalization and remain concerned about potentially mandatory 
participation. They argue that sector agreements could create an overly 
ambitious pace of reform. 

[End of section]

Appendix IV: Services: 

Accounting for 78 percent of private sector GDP[Footnote 40] and 80 
percent private sector employment in the United States, services 
constitute a core priority for U.S. negotiators. Initially thought to 
be a lynchpin of the Doha Round, services talks have taken a backseat 
position relative to other issues. Nevertheless, the inclusion of 
services in the July 2004 text on an equal footing with the key market 
access pillars of agriculture and industrial market access resulted 
from efforts by both developed and developing country members and 
industry coalitions. Although some developing countries are reticent 
about services negotiations, generally perceiving them as a developed 
country interest, many developing countries have a particular interest 
in obtaining commitments under mode 4, which governs the temporary 
movement of service-delivery professionals. Notwithstanding these 
points of contention, since July, talks on the domestic regulation of 
services have shown signs of progress, as have technical negotiations 
on market access. However, these have yet to translate into improved 
offers. An opportunity for significant services liberalization could be 
foregone if negotiations do not intensify. 

Services negotiations aim to reduce barriers to international trade by 
improving the General Agreement on Trade in Services (GATS) which (1) 
ensures the increased transparency and predictability of international 
trade rules and domestic regulations governing services industries 
(rulemaking); and (2) promotes progressive liberalization of services 
markets through bilateral negotiations (market access[Footnote 
41]).[Footnote 42] The Doha Declaration states that members shall 
submit initial services offers by March 31, 2003, a deadline that many 
members missed. Following the Cancun ministerial, and in the run up to 
the July framework, services negotiations made slow progress. Rule- 
making talks were stalled, and although the 2003 deadline had long 
past, pending market access offers outnumbered those submitted. 
Observers said there lacked a "critical mass" of offers for market 
access talks to make substantial progress. Those offers that were 
tabled were characterized as being of poor quality. Movement had 
become contingent upon advances in other areas, particularly 
agriculture. 

July Framework Sets New Deadlines: 

Nevertheless, the final version of the July framework placed services 
on an equal footing with agriculture, industrial market access, and the 
other areas considered essential to a final Doha Round package. 
Initially, services were absent from the text. However, a specific 
section and annex on this sector were added after several developed and 
developing countries, as well as industry coalitions from the U.S., the 
EU, Australia, India, Hong Kong, China, Japan, Brazil, and Canada 
argued for their inclusion. Specifically, the July framework reasserts 
the importance of achieving services liberalization and urges members 
to intensify their efforts to conclude the negotiations on rulemaking. 
With a view to providing market access to all members, the text calls 
upon members to submit high-quality offers, particularly in the sectors 
and modes of supply of export interest to developing countries. It 
specifically names mode 4 as being among these, and sets May 2005 as 
the deadline for members to table new offers. 

Progress Since July: 

After they agreed to the July framework, members held several 
multilateral and bilateral meetings and discussed rules, domestic 
regulation, and market access with renewed momentum. Technical talks 
were ongoing on all fronts. On the rule-making side, members initiated 
new discussions[Footnote 43] on emergency safeguards,[Footnote 44] 
subsidies and government procurement, but none of these issues came 
close to resolution. Certain East Asian developing countries continued 
to advocate creation of an emergency safeguard mechanism for services, 
reflecting concerns over their experience with the 1997 financial 
crisis. However, many WTO members reportedly see an emergency safeguard 
for services as being technically unfeasible and/or, in the case of the 
United States and most other developed countries, undesirable. 
Discussions on domestic regulation were more promising. Several 
proposals triggered constructive debates on regulatory disciplines and 
transparency.[Footnote 45]

On the market access side, talks were said to be progressing on a 
technical level. After July 2004, a few more developing countries 
tabled initial offers, bringing their number up to 52,[Footnote 46] and 
bilateral talks seemed to have regained momentum. One gauge of movement 
was embodied by the intensification of informal meetings held by so- 
called Friends groups, which assemble subsets of member countries 
around issue-specific concerns such as financial services, energy 
services or mode 4. However, WTO officials said that sufficiently 
detailed negotiations on specific services sectors had still yet to 
begin. Moreover, a general concern with the current offers is that they 
do not fully bind, let alone deepen, the level of liberalization that 
members have already, de facto, achieved outside of the WTO. Another 
potential problem is that these offers do not systematically schedule 
commitments in every service sector. Some have signaled notable 
absences and weaknesses in financial, insurance, communication, audio- 
visual, and professional services--sectors of interest to the United 
States--but also maritime services and others of interest to different 
members. In response, a number of countries are pushing for the 
universal adoption of minimum requirements, or "benchmarks," in given 
industries such as financial services. Approximately 40 developing 
countries have not submitted initial services offers at all--not 
counting LDCs. According to one WTO official, their failure to table 
services offers does not strictly reflect a lack of means, though in 
some cases it may. WTO officials felt that the outcome of intensified 
bilateral and informal talks would only become clear after May 2005, 
the deadline for tabling new and revised services offers. 

Forward movement in the months leading up to the Hong Kong ministerial 
and beyond will depend on members overcoming four challenges. First, 
several officials we spoke with stated that insufficient technical 
capacity could prevent a number of developing countries from tabling 
initial or revised services offers before the Hong Kong ministerial. 
Second, resolving the contentious, mainly North-South disagreement over 
the extent of liberalization under mode 4 may be crucial to achieving 
progress in market access. The temporary movement of service-delivering 
professionals is a politically sensitive issue for many developed 
countries, and their offers under mode 4[Footnote 47] are generally 
unsatisfactory to most developing countries with ambitions in this 
area, such as India. Despite their demands, the U.S. government has 
clearly expressed its reticence to grant other members more extensive 
market access under mode 4 than is reflected in its existing 
commitments. According to U.S. negotiators, certain commitments under 
this mode could involve modifying domestic immigration law, and certain 
countries are simply not prepared to make this move within the WTO 
framework.[Footnote 48] Given the priority placed on obtaining mode 4 
concessions, this discord may become increasingly problematic. 

A third factor that could affect progress in services negotiations is 
the question of balance. Malaysia, Thailand, and the Philippines 
allegedly want a concession on emergency safeguards before fully 
engaging in market access bargaining. Brazil has tied its willingness 
to press forward in services talks to obtaining satisfaction in 
agriculture. Continuing to tie progress in services talks relative to 
other areas could be problematic, as the request-offer approach to 
negotiating services liberalization is inherently and comparatively 
slow. Moreover, the greater complexity of identifying and dismantling 
often opaque barriers to trade in services slows the speed of services 
talks. The head of the WTO Secretariat's services division thinks that 
members will take 18 months to reach a meaningful agreement once they 
start negotiating on a more detailed level than they are currently. 
Finally, there is wide agreement that negotiators need to summon more 
political and technical resources from their capitals to conclude a 
meaningful services agreement. More than in other areas of trade, 
barriers to trade in services often occur behind borders, such that 
dismantling these measures requires involvement on the part of national 
ministries, subfederal level regulators, and various authorities not 
normally involved in trade policy. This poses a problem for many small 
developing countries. 

[End of section]

Appendix V: Economic Incentives for Doha Negotiations: 

The Doha trade negotiations aim to increase international trade in 
order to improve member countries' economic growth and development. 
Economists have used trade models to generate numerous studies that 
estimate potential economic gains from trade liberalization for 
developed and developing countries alike. These estimates vary 
significantly, depending upon the extent of trade liberalization 
assumed and other key characteristics of the models. Several studies 
find that estimated worldwide economic gains accrue to both developed 
and developing countries. However, the distribution of economic gains 
may vary within and between countries, creating perceived winners and 
losers. As such, the individual economic incentives that countries face 
may differ, thereby affecting each country's negotiating goals within 
Doha. 

Doha Round Liberalization Is Expected to Yield Benefits and Costs: 

A primary rationale driving the Doha liberalization agenda is the 
belief that international trade can positively benefit a country's 
overall growth and development. Potential benefits occur as 
international trade increases competition and specialization, provides 
greater access to technology, and expands export markets. Over time, a 
more liberal trading regime may reduce costs on both imported 
manufacturing inputs and exported final products that create incentives 
for foreign producers to invest in new production - benefits typically 
referred to as dynamic gains from trade. 

While the role of international trade in fostering growth and 
development has become more widely accepted, economists have also 
argued that trade liberalization can involve significant adjustment 
costs.[Footnote 49] Adjustment costs may include unemployment in 
sectors that are not internationally competitive or costs of fiscal 
reform as governments heavily dependent on trade taxes shift toward 
income or production taxes. Additionally, international trade may yield 
an uneven distribution of economic gains, creating temporary winners 
and losers between countries as well as within them. As each country 
participates in the Doha negotiations, it is working to achieve a 
balanced package of commitments that will be politically acceptable to 
its various domestic constituencies. 

Nevertheless, without considering distributional issues, several 
studies predict that both developed and developing countries stand to 
benefit economically from multilateral liberalization. Developed 
countries are positioned to receive gains from trade liberalization 
since they are large traders and currently face relatively high tariffs 
for exports into developing countries, particularly for industrialized 
goods. Developing countries stand to receive gains from trade 
liberalization due to the fact that developed countries often have 
pockets of high average tariffs on products that developing countries 
tend to export. High developed country tariffs tend to apply to 
agricultural and processed agricultural goods as well as to light 
manufactures such as textiles and clothing. When weighted by the amount 
of trade occurring under them, these tariffs translate into significant 
trade barriers for developing countries. Developing countries also 
stand to gain significantly from liberalization by other developing 
countries. The share of developing countries' agricultural exports 
going to other developing countries rose from 28 percent in the 1980s 
to 37 percent in 2001. However, in many cases, barriers imposed by 
developing countries on goods from other developing countries are even 
higher than those they face from developed countries, impeding 
potential South-South trade between developing countries. 

Economists Use Trade Models to Estimate Economic Gains: 

Economists often estimate the benefits and costs of easing trade 
restrictions by examining a recent period and estimating how trade and 
economic welfare would have been different under a scenario where 
certain trade restrictions were eased. Concurrent with the WTO and 
other trade negotiations, numerous trade models have been used to 
simulate liberalization of trade policies and calculate the likely 
range of effects on variables such as exports and imports, tariff 
revenues, production, prices, and income. Many of these studies use a 
computable general equilibrium (CGE) model called the Global Trade 
Analysis Project (GTAP) model. GTAP is a global general equilibrium 
model that describes the relationship between all sectors within an 
economy and all economies worldwide. In its general form, GTAP is a 
static model, which means that it simulates how economies will respond 
only to the trade policy change being examined. Results generated from 
GTAP should be interpreted as order-of-magnitude results rather than 
single point best estimates because the assumptions regarding how 
responsive economic variables are to policy changes drive the results. 

Extensions of GTAP and other CGE models have been made to take into 
account how economies will grow over time. These dynamic versions of 
GTAP may include information on growth rates of capital, investment, 
and productivity. Additionally, while the general form of GTAP includes 
an assumption of perfect competition and constant returns to scale, 
extensions of GTAP have incorporated characteristics readily observed 
in manufacturing, such as imperfect competition and increasing returns 
to scale.[Footnote 50] In these cases, trade liberalization can lead to 
greater specialization and increased economic gains over time. However, 
information on how firms respond to market changes in the long run is 
inherently more difficult to measure with certainty and, as such, 
results yielded from these models should be viewed with this limitation 
in mind. 

Estimated Economic Gains from Trade Liberalization Vary: 

Table 2 provides a listing of various estimates of the economic gains 
from trade liberalization under selected trade liberalization 
scenarios. The table is not comprehensive but is intended to illustrate 
the wide range of results estimated through trade models - economic 
benefits ranging from $22 billion to $574 billion worldwide. Results 
vary depending upon the type of model (static vs. dynamic), key 
assumptions in the model (perfect competition or imperfect 
competition), and the ambition of the liberalization scenario. 

Table 3: Models Estimating the Economic Benefits from Tariff Reduction 
in the WTO Doha Round: 

Static models that assume perfect competition: 

Model: Anderson et al; 
Tariff reduction scenario: 100% linear cut; 
Sectors included: Agriculture; Manufacturing; 
Estimated annual economic benefit ($US billions)[A]: $254. 

Model: Cernat et al; 
Tariff reduction scenario: 50% linear cut; 
Sectors included: Agriculture; Manufacturing; 
Estimated annual economic benefit ($US billions)[A]: $40. 

Model: De Cordoba and Vanzetti; 
Tariff reduction scenario: 50% linear cut for industrialized countries; 
33% linear cut for developing countries; 
capped maximum rate, sector initiatives; 
5% of lines excluded for developing countries; 
Sectors included: Agriculture; Manufacturing Services; 
Estimated annual economic benefit ($US billions)[A]: $123. 
Tariff reduction scenario: Swiss formula cut at 6.8% for industrialized 
countries and 25% for developing countries; 
5% of lines excluded for developing countries; 
Estimated annual economic benefit ($US billions)[A]: $108. 

Model: Hertel and Martin; 
Tariff reduction scenario: 33% linear cut; 
Sectors included: Manufacturing; 
Estimated annual economic benefit ($US billions)[A]: $107. 

Model: IMF and World Bank; 
Tariff reduction scenario: 100% linear cut; 
Sectors included: Agriculture Textiles; 
Estimated annual economic benefit ($US billions)[A]: $194. 

Model: Laird et al; 
Tariff reduction scenario: 50% linear cut for industrialized countries; 
33% linear cut for developing countries; 
Sectors included: Manufacturing; 
Estimated annual economic benefit ($US billions)[A]: $22. 
Tariff reduction scenario: Swiss formula cut with certain zero tariff 
initiatives in chosen sectors; 
Estimated annual economic benefit ($US billions)[A]: $33. 

Model: OECD; 
Tariff reduction scenario: 50% linear cut; 
decline in trade costs equal to 1% of trade; 
tariff cuts apply if rate falls below applied level; 
Sectors included: Agriculture; Manufacturing Services; 
Estimated annual economic benefit ($US billions)[A]: $117. 
Tariff reduction scenario: Swiss formula cut with coefficient of 5; 
decline in trade costs equal to 1% of trade; 
tariff cuts apply if rate falls below applied level; 
Estimated annual economic benefit ($US billions)[A]: $159. 
Tariff reduction scenario: 100% linear cut; decline in trade costs 
equal to 1% of trade; 
Estimated annual economic benefit ($US billions)[A]: $174. 

Model: Shakur et al; 
Tariff reduction scenario: 36% linear tariff cut; reduction of 
agricultural subsidies; 
Sectors included: Agriculture; Manufacturing; 
Estimated annual economic benefit ($US billions)[A]: $38. 
Tariff reduction scenario: 100% linear tariff cut; elimination of 
agricultural subsidies; 
Estimated annual economic benefit ($US billions)[A]: $82. 

Model: World Bank (1); 
Tariff reduction scenario: Tariff targets of 5% (10%) and 1% (5%) for 
agriculture and manufacturing respectively for industrialized 
(developing) countries; capped maximum rates; elimination of subsidies; 
Sectors included: Agriculture; Manufacturing; 
Estimated annual economic benefit ($US billions)[A]: $291[B]. 

Static models that assume imperfect competition: 

Model: Brown et al; 
Tariff reduction scenario: 33% linear cut; 
Sectors included: Agriculture; Manufacturing; Services; 
Estimated annual economic benefit ($US billions)[A]: $574. 

Model: Francois et al; 
Tariff reduction scenario: Swiss cut with maximum tariff of 25%; 
50% reduction in agriculture subsidies and services barriers; decline 
in trade costs equal to 1.5% of trade; 
Sectors included: Agriculture; Manufacturing; Services; 
Estimated annual economic benefit ($US billions)[A]: $206. 
Tariff reduction scenario: 100% linear cut in tariffs, agriculture 
subsidies and services barriers; 
decline in trade costs equal to 1.5% of trade; 
Estimated annual economic benefit ($US billions)[A]: $367. 

Dynamic models that assume perfect competition: 

Model: World Bank (2); 
Tariff reduction scenario: 100% linear cut; 
removal of subsidies; 
Sectors included: Agriculture; 
Manufacturing; 
Estimated annual economic benefit ($US billions)[A]: $385[B]. 

Dynamic models that assume imperfect competition: 

Model: Nagarajan; 
Tariff reduction scenario: 50% linear cut; decline in trade costs equal 
to 1% of trade; 
Sectors included: Agriculture; Manufacturing; Services; 
Estimated annual economic benefit ($US billions)[A]: $385. 

[A] Models rely on base year data from various years, including 1995 
and 1997. 

[B] Results are for the year 2015. 

Sources: 

Anderson et al., "The Cost of Rich (and Poor) Country Protection to 
Developing Countries." Journal of African Economies, vol. 10, no. 3 
(2001): 227-257. 

Cernat et al., Back to Basics: Market Access Issues in the Doha Agenda, 
Geneva: UNCTAD, 2002. 

De Cordoba, S.F., and Vanzetti, D., "Now What? Searching for a Solution 
to the WTO Industrial Tariff Negotiations", Geneva: UNCTAD, 2005. 

Hertel, T.W., and Martin, W., "Second-Best Linkages and the Gains from 
Global Reform of Manufactures Trade." Review of International 
Economics, vol. 9, no. 2 (2001): 215-232. 

IMF and World Bank, "Market Access for Developing Country Exports - 
Selected Issues", Washington, IMF: 2002. 

Laird et al, "Market Access Proposals for Non-Agricultural Products", 
Geneva: UNCTAD (2004): 

OECD, The Doha Development Agenda: Welfare gains from Further 
Multilateral Trade Liberalization with Respect to Tariffs, Paris: OECD, 
2003. 

Shakur et al, "How Comprehensive will be the Doha Round? Experiments 
with Agricultural and Non-agricultural Reforms." New Zealand: Massey 
University Discussion Paper 02.11, 2002. 

World Bank (1), Global Economic Prospects: Realizing the Development 
Promise of the Doha Agenda, Washington: World Bank, 2003. 

Brown et al, "Computational Analysis of Multilateral Trade 
Liberalization in the Uruguay Round and Doha Development Round." Ann 
Arbor: University of Michigan Discussion Paper No. 489, 2002. 

Francois et al, Economic Benefits of the Doha Round for the 
Netherlands, the Hague: Agricultural Economics Research Institute, 
2003. 

World Bank (2), Global Agricultural Trade and Developing Countries, 
Washington: World Bank, 2004. 

Nagarajan, N, The Millennium Round: An Economic Appraisal , Brussels: 
CECA Economic Papers, No. 139, 1999. 

[End of table]

For example, the level of tariff cuts and sectors included for 
liberalization determine the ambition of the liberalization scenario 
and are one important factor accounting for variation in the results in 
table 2. Anderson et al. estimate gains of $254 billion with a full 
removal of tariffs on agricultural and industrial goods, while Cernat 
estimates gains of $40 billion with a 50 percent reduction. An OECD 
model on liberalization in agriculture, manufacturing, and services 
shows that as tariff reductions are increased from a 50 percent linear 
tariff cut to a more ambitious Swiss formula tariff cut, to a 100 
percent tariff cut, economic gains rise from $117 billion to $159 
billion to $174 billion, respectively. Several studies suggest that 
liberalization of agriculture will provide significant benefits to 
developing countries, despite the small size of agriculture in global 
output. Models by Anderson et al. and the World Bank estimate that 
roughly two-thirds of global economic gains from the liberalization of 
agricultural and industrial goods come from agricultural 
liberalization. The study by Brown et al., however, estimates that the 
largest economic benefits, $414 billion, come from liberalization of 
services and that there is an actual global net loss of income from 
agricultural liberalization of $3 billion.[Footnote 51]

Several studies in table 2 also find that the distribution of economic 
benefits between developed and developing countries may be relatively 
even (ranging from 40 percent to 60 percent for each). Such benefits as 
a share of GDP, however, would be much larger for developing countries. 
For example, according to estimates by the World Bank, liberalization 
of both agricultural and industrial tariffs would provide $385 billion 
in economic benefits that would be equally divided between developed 
and developing countries. However, relative to their income levels, 
developing countries would gain 1.5 percent of GDP compared to 0.5 
percent of GDP for developed countries. Several studies emphasize that 
the majority of gains for developed countries derive from lowered 
tariffs by other developed countries - a finding that is true for 
developing countries as well. 

In addition to caveats previously discussed, three limitations of trade 
models should be acknowledged: 

* Difficulty in measuring current levels of protection. Many trade 
model estimates are based on analysis of current levels of trade 
protection that are difficult to measure due to the presence of 
nontariff barriers, non-ad valorem tariffs, and gaps between bound 
tariffs and applied tariffs. In some cases, data on tariffs may not be 
current enough to include information relating to preferential tariff 
rates or country accessions to the WTO. As a result, economic benefit 
estimates yielded from these data may be overstated because they 
account for tariff reductions that have already taken place. Economic 
benefit estimates may also be overstated if the analysis is focused on 
reductions in bound tariffs rather than reductions in applied tariffs - 
wrongly assuming that any reduction in the bound rate would translate 
into an equal reduction in the applied rate. 

* Costs of adjustment. Many trade model estimates do not take into 
account adjustment costs to trade liberalization, such as a rise in 
unemployment or consumer prices during a transition period to the new 
trade policies. The more ambitious the liberalization scenario, the 
greater the long-term economic gain--as well as the short-term economic 
costs--are likely to be. Development institutions such as the World 
Bank, IMF, and United Nations have placed recognition on these costs, 
though there is presently limited understanding of the extent of such 
costs. 

* Structural features of some economies. Many trade model estimates use 
general assumptions regarding industry characteristics, which may not 
account for positive effects due to industrial policies. Some 
economists have noted that under certain conditions there are potential 
benefits in using tariffs to support growth in new industries. 

Trade Liberalization May Create Both Winners and Losers: 

While many studies estimate that trade liberalization is likely to 
result in economic benefits worldwide, there is likely to be 
differentiation in economic gains between and within individual 
countries. In the short run when adjustment costs are present, 
liberalization is likely to create winners and losers. For example: 

* Net food exporters vs. net food importers. Regions that are 
significant agricultural exporters are expected to gain significantly 
from the agricultural liberalization measures being negotiated in Doha. 
However, the estimated gains are smaller and sometimes negative in 
regions that are large net importers of food because the potential 
removal of developed country subsidies may increase world food prices. 
The IMF estimates that major net exporters of food in Latin America and 
sub-Saharan Africa could gain between 0.3 percent and 0.6 percent of 
GDP from agricultural liberalization, while major net food importers in 
North Africa and the Middle East could lose 0.3 percent of GDP. Other 
large net food importing countries include South Korea, Russia, and 
Venezuela. 

* Countries that do not receive trade preferences vs. those that do. 
Certain developing countries are offered nonreciprocal trade 
preferences into developed country markets. Under multilateral trade 
liberalization, those preferences may be eroded as overall tariff rates 
are reduced. As such, countries that do not receive trade preferences 
may gain a competitive advantage over developing countries that 
currently participate in preference programs. Potential economic costs 
associated with erosion of preferential access are difficult to 
determine, however, given the mixed empirical evidence on program 
benefits.[Footnote 52] The IMF notes that erosion of sugar and banana 
preferences could be a concern. Mauritius, for example, benefits 
substantially from preferential access for its sugar exports, and 
Caribbean nations benefit from preferential access for banana exports. 

* Traders vs. non-traders in tariff revenue dependent countries. For 
countries that are dependent on tariff revenues to finance government 
operations, the tax burden on importers who pay those tariffs may be 
relatively high compared with the burden on consumers or domestic 
industries that pay consumption or production taxes. As tariffs are 
reduced through trade liberalization, tariff revenues may also be 
reduced if there is not a sufficient increase in the quantity of 
imports in response to lower tariff rates. In such cases, the burden of 
financing government operations may shift away from traders and toward 
non-traders within an economy. For African least-developed countries 
that, on average, rely on tariffs for 34 percent of government revenue, 
the potential distributional consequences from lower trade taxes is 
likely to be an important adjustment cost to trade liberalization. 

[End of section]

Appendix VI: Trade Negotiating Interests and Affiliations of Leading 
Merchandise Exporters: 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Germany; 
EU [A]; 
Exports by Sector (%): Agriculture: 5; 
Exports by Sector (%): Industrial goods: 81; 
Exports by Sector (%): Services: 15; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]: *; 
Areas of Negotiation: Services: Have tabled offers[I]: *; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]: *; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995: *. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): United States; 
Exports by Sector (%): Agriculture: 7; 
Exports by Sector (%): Industrial goods: 64; 
Exports by Sector (%): Services: 29; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Japan; 
Exports by Sector (%): Agriculture: 1; 
Exports by Sector (%): Industrial goods: 85; 
Exports by Sector (%): Services: 14; 
Areas of Negotiation: Agriculture: G-10[E]; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]; 
Areas of Negotiation: Rules: FANs[L]. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): China; 
Exports by Sector (%): Agriculture: 5; 
Exports by Sector (%): Industrial goods: 84; 
Exports by Sector (%): Services: 11; 
Areas of Negotiation: Agriculture: G-20[D]; 
Areas of Negotiation: Agriculture: G-33[F]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): France; 
EU [A]; 
Exports by Sector (%): Agriculture: 9; 
Exports by Sector (%): Industrial goods: 70; 
Exports by Sector (%): Services: 21; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]: *; 
Areas of Negotiation: Services: Have tabled offers[I]: *; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]: *; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995: *. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): United Kingdom; 
EU [A]; 
Exports by Sector (%): Agriculture: 4; 
Exports by Sector (%): Industrial goods: 64; 
Exports by Sector (%): Services: 32; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]: *; 
Areas of Negotiation: Services: Have tabled offers[I]: *; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]: *; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995: *. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Netherlands; 
EU [A]; 
Exports by Sector (%): Agriculture: 16; 
Exports by Sector (%): Industrial goods: 66; 
Exports by Sector (%): Services: 19; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]: *; 
Areas of Negotiation: Services: Have tabled offers[I]: *; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]: *; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995: *. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Italy; 
EU [A]; 
Exports by Sector (%): Agriculture: 6; 
Exports by Sector (%): Industrial goods: 75; 
Exports by Sector (%): Services: 19; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]: *; 
Areas of Negotiation: Services: Have tabled offers[I]: *; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]: *; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995: *. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Canada; 
Exports by Sector (%): Agriculture: 11; 
Exports by Sector (%): Industrial goods: 76; 
Exports by Sector (%): Services: 13; 
Areas of Negotiation: Agriculture: Carins Group[C]; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Belgium; 
EU [A]; 
Exports by Sector (%): Agriculture: 8; 
Exports by Sector (%): Industrial goods: 71; 
Exports by Sector (%): Services: 21; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]: *; 
Areas of Negotiation: Services: Have tabled offers[I]: *; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]: *; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995: *. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Hong Kong; 
Exports by Sector (%): Agriculture: 2; 
Exports by Sector (%): Industrial goods: 80; 
Exports by Sector (%): Services: 18; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]; 
Areas of Negotiation: Rules: FANs[L]. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): South Korea; 
Exports by Sector (%): Agriculture: 2; 
Exports by Sector (%): Industrial goods: 83; 
Exports by Sector (%): Services: 15; 
Areas of Negotiation: Agriculture: G-10[E]; 
Areas of Negotiation: Agriculture: G-33[F]; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]; 
Areas of Negotiation: Rules: FANs[L]; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Mexico; 
Exports by Sector (%): Agriculture: 5; 
Exports by Sector (%): Industrial goods: 88; 
Exports by Sector (%): Services: 7; 
Areas of Negotiation: Agriculture: Carins Group[C]: ; 
Areas of Negotiation: Agriculture: G-20[D]; 
Areas of Negotiation: Industrial Goods: Tariffs over 10%[H]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Rules: FANs[L]; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Spain; 
EU [A]; 
Exports by Sector (%): Agriculture: 11; 
Exports by Sector (%): Industrial goods: 54; 
Exports by Sector (%): Services: 34; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]: *; 
Areas of Negotiation: Services: Have tabled offers[I]: *; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]: *; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995: *. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Taiwan; 
Exports by Sector (%): Agriculture: N/A; 
Exports by Sector (%): Industrial goods: N/A; 
Exports by Sector (%): Services: N/A; 
Areas of Negotiation: Agriculture: G-10[E]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Rules: FANs[L]. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Singapore; 
Exports by Sector (%): Agriculture: 2; 
Exports by Sector (%): Industrial goods: 79; 
Exports by Sector (%): Services: 19; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]; 
Areas of Negotiation: Rules: FANs[L]. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Russian Federation; 
Exports by Sector (%): Agriculture: 6; 
Exports by Sector (%): Industrial goods: 82; 
Exports by Sector (%): Services: 11. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Sweden; 
EU [A]; 
Exports by Sector (%): Agriculture: 6; 
Exports by Sector (%): Industrial goods: 71; 
Exports by Sector (%): Services: 23; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]: *; 
Areas of Negotiation: Services: Have tabled offers[I]: *; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]: *; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995: *. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Switzerland; 
Exports by Sector (%): Agriculture: 2; 
Exports by Sector (%): Industrial goods: 73; 
Exports by Sector (%): Services: 25; 
Areas of Negotiation: Agriculture: G-10[E]; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]; 
Areas of Negotiation: Rules: FANs[L]. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Malaysia; 
Exports by Sector (%): Agriculture: 8; 
Exports by Sector (%): Industrial goods: 78; 
Exports by Sector (%): Services: 14; 
Areas of Negotiation: Agriculture: Carins Group[C]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Trade Facilitation: Core Group[J]. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Austria; 
EU [A]; 
Exports by Sector (%): Agriculture: 5; 
Exports by Sector (%): Industrial goods: 64; 
Exports by Sector (%): Services: 31; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]: *; 
Areas of Negotiation: Services: Have tabled offers[I]: *; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]: *; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995: *. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Ireland; 
EU [A]; 
Exports by Sector (%): Agriculture: 6; 
Exports by Sector (%): Industrial goods: 70; 
Exports by Sector (%): Services: 24; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]: *; 
Areas of Negotiation: Services: Have tabled offers[I]: *; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]: *; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995: *. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Saudi Arabia; 
Exports by Sector (%): Agriculture: 1; 
Exports by Sector (%): Industrial goods: 93; 
Exports by Sector (%): Services: 7. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Thailand; 
Exports by Sector (%): Agriculture: 14; 
Exports by Sector (%): Industrial goods: 68; 
Exports by Sector (%): Services: 18; 
Areas of Negotiation: Agriculture: Carins Group[C]; 
Areas of Negotiation: Agriculture: G-20[D]; 
Areas of Negotiation: Industrial Goods: Tariffs over 10%[H]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Rules: FANs[L]. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Brazil; 
Exports by Sector (%): Agriculture: 27; 
Exports by Sector (%): Industrial goods: 59; 
Exports by Sector (%): Services: 14; 
Areas of Negotiation: Agriculture: Carins Group[C]; 
Areas of Negotiation: Agriculture: G-20[D]; 
Areas of Negotiation: Industrial Goods: Tariffs over 10%[H]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Rules: FANs[L]; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Australia; 
Exports by Sector (%): Agriculture: 21; 
Exports by Sector (%): Industrial goods: 58; 
Exports by Sector (%): Services: 22; 
Areas of Negotiation: Agriculture: Carins Group[C]; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Norway; 
Exports by Sector (%): Agriculture: 5; 
Exports by Sector (%): Industrial goods: 71; 
Exports by Sector (%): Services: 23; 
Areas of Negotiation: Agriculture: G-10[E]; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]; 
Areas of Negotiation: Rules: FANs[L]. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Denmark; 
EU [A]; 
Exports by Sector (%): Agriculture: 15; 
Exports by Sector (%): Industrial goods: 52; 
Exports by Sector (%): Services: 32; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]: *; 
Areas of Negotiation: Services: Have tabled offers[I]: *; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]: *; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995: *. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): United Arab Emirates; 
Exports by Sector (%): Agriculture: N/A; 
Exports by Sector (%): Industrial goods: N/A; 
Exports by Sector (%): Services: N/A. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Indonesia; 
Exports by Sector (%): Agriculture: 14; 
Exports by Sector (%): Industrial goods: 75; 
Exports by Sector (%): Services: 10; 
Areas of Negotiation: Agriculture: Carins Group[C]; 
Areas of Negotiation: Agriculture: G-20[D]; 
Areas of Negotiation: Agriculture: G-33[F]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Trade Facilitation: Core Group[J]. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): India; 
Exports by Sector (%): Agriculture: 9; 
Exports by Sector (%): Industrial goods: 57; 
Exports by Sector (%): Services: 34; 
Areas of Negotiation: Agriculture: G-20[D]; 
Areas of Negotiation: Agriculture: G-33[F]; 
Areas of Negotiation: Industrial Goods: Tariffs over 10%[H]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Trade Facilitation: Core Group[J]; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Poland; 
EU [A]; 
Exports by Sector (%): Agriculture: 7; 
Exports by Sector (%): Industrial goods: 73; 
Exports by Sector (%): Services: 20; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]: *; 
Areas of Negotiation: Services: Have tabled offers[I]: *; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]: *; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995: *. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Finland; 
EU [A]; 
Exports by Sector (%): Agriculture: 7; 
Exports by Sector (%): Industrial goods: 80; 
Exports by Sector (%): Services: 13; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]: *; 
Areas of Negotiation: Services: Have tabled offers[I]: *; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]: *; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995: *. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Czech Republic; 
EU [A]; 
Exports by Sector (%): Agriculture: 5; 
Exports by Sector (%): Industrial goods: 80; 
Exports by Sector (%): Services: 16; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]: *; 
Areas of Negotiation: Services: Have tabled offers[I]: *; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]: *; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995: *. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Turkey; 
EU [A]: C(m); 
Exports by Sector (%): Agriculture: 8; 
Exports by Sector (%): Industrial goods: 62; 
Exports by Sector (%): Services: 30; 
Areas of Negotiation: Agriculture: G-33[F]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Rules: FANs[L]; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Hungary; 
EU [A]; 
Exports by Sector (%): Agriculture: 7; 
Exports by Sector (%): Industrial goods: 75; 
Exports by Sector (%): Services: 19; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]: *; 
Areas of Negotiation: Services: Have tabled offers[I]: *; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]: *; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995: *. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Philippines; 
Exports by Sector (%): Agriculture: 5; 
Exports by Sector (%): Industrial goods: 87; 
Exports by Sector (%): Services: 8; 
Areas of Negotiation: Agriculture: Carins Group[C]; 
Areas of Negotiation: Agriculture: G-20[D]; 
Areas of Negotiation: Agriculture: G-33[F]; 
Areas of Negotiation: Trade Facilitation: Core Group[J]. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): South Africa; 
G-90[B]X; 
Exports by Sector (%): Agriculture: 8; 
Exports by Sector (%): Industrial goods: 79; 
Exports by Sector (%): Services: 14; 
Areas of Negotiation: Agriculture: Carins Group[C]; 
Areas of Negotiation: Agriculture: G-20[D]; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Iran; 
Exports by Sector (%): Agriculture: 3; 
Exports by Sector (%): Industrial goods: 92; 
Exports by Sector (%): Services: 5; 
Areas of Negotiation: Industrial Goods: Tariffs over 10%[H]. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Israel; 
Exports by Sector (%): Agriculture: 4; 
Exports by Sector (%): Industrial goods: 69; 
Exports by Sector (%): Services: 27; 
Areas of Negotiation: Agriculture: G-10[E]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Rules: FANs[L]. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Portugal; 
EU [A]; 
Exports by Sector (%): Agriculture: 7; 
Exports by Sector (%): Industrial goods: 65; 
Exports by Sector (%): Services: 28; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]: *; 
Areas of Negotiation: Services: Have tabled offers[I]: *; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]: *; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995: *. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Argentina; 
Exports by Sector (%): Agriculture: 43; 
Exports by Sector (%): Industrial goods: 47; 
Exports by Sector (%): Services: 10; 
Areas of Negotiation: Agriculture: Carins Group[C]; 
Areas of Negotiation: Agriculture: G-20[D]; 
Areas of Negotiation: Industrial Goods: Tariffs over 10%[H]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Algeria; 
Exports by Sector (%): Agriculture: N/A; 
Exports by Sector (%): Industrial goods: N/A; 
Exports by Sector (%): Services: N/A; 
Areas of Negotiation: Industrial Goods: Tariffs over 10%[H]. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Venezuela; 
Exports by Sector (%): Agriculture: 2; 
Exports by Sector (%): Industrial goods: 95; 
Exports by Sector (%): Services: 4; 
Areas of Negotiation: Agriculture: G-20[D]; 
Areas of Negotiation: Agriculture: G-33[F]; 
Areas of Negotiation: Industrial Goods: Tariffs over 10%[H]; 
Areas of Negotiation: Trade Facilitation: Core Group[J]. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Ukraine; 
Exports by Sector (%): Agriculture: 12; 
Exports by Sector (%): Industrial goods: 68; 
Exports by Sector (%): Services: 21. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Slovak Republic; 
EU [A]; 
Exports by Sector (%): Agriculture: 5; 
Exports by Sector (%): Industrial goods: 80; 
Exports by Sector (%): Services: 16; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]: *; 
Areas of Negotiation: Industrial Goods: Tariffs over 10%[H]; 
Areas of Negotiation: Services: Have tabled offers[I]: *; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]: *; 
Areas of Negotiation: Rules: Have Initiated over 75 antidumping 
investigations since 1995: *. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Chile; 
Exports by Sector (%): Agriculture: 29; 
Exports by Sector (%): Industrial goods: 52; 
Exports by Sector (%): Services: 19; 
Areas of Negotiation: Agriculture: Carins Group[C]; 
Areas of Negotiation: Agriculture: G-20[D]; 
Areas of Negotiation: Industrial Goods: Friends of Ambition[G]; 
Areas of Negotiation: Services: Have tabled offers[I]; 
Areas of Negotiation: Trade Facilitation: Colorado Group[K]; 
Areas of Negotiation: Rules: FANs[L]. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Nigeria; 
G-90[B]X; 
Exports by Sector (%): Agriculture: N/A; 
Exports by Sector (%): Industrial goods: N/A; 
Exports by Sector (%): Services: N/A; 
Areas of Negotiation: Agriculture: G-20[D]; 
Areas of Negotiation: Agriculture: G-33[F]; 
Areas of Negotiation: Industrial Goods: Tariffs over 10%[H]; 
Areas of Negotiation: Trade Facilitation: Core Group[J]. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Viet Nam; 
Exports by Sector (%): Agriculture: 24; 
Exports by Sector (%): Industrial goods: 61; 
Exports by Sector (%): Services: 15; 
Areas of Negotiation: Industrial Goods: Tariffs over 10%[H]. 

Top 50 merchandise exporters in 2003 (in rank order of dollars 
exported): Kuwait; 
Exports by Sector (%): Agriculture: N/A; 
Exports by Sector (%): Industrial goods: N/A; 
Exports by Sector (%): Services: N/A. 

Source: GAO analysis of WTO documents and data, World Bank export data, 
and other information: 

Notes: 

Non-WTO members are shaded. 

* indicates that the country participated in the group or the action as 
a member of the European Union. 

[A] Other members of the European Union are Cyprus, Estonia, Greece, 
Latvia, Lithuania, Luxembourg, Malta, and Slovenia. Turkey is a 
candidate for membership, as are Bulgaria, Croatia, and Romania. 

[B] The G-90 is a large umbrella group including the least developed 
countries and other countries from Africa, the Caribbean, and the 
Pacific. 

[C] Other members of the Cairns Group are Bolivia, Colombia, Costa 
Rica, Guatemala, New Zealand, Paraguay, and Uruguay. 

[D] Other members of the G-20 are Bolivia, Cuba, Egypt, Pakistan, 
Paraguay, Tanzania, and Zimbabwe. 

[E] Other members of the G-10 are Bulgaria, Iceland, Liechtenstein, and 
Mauritius. 

[F] Other members of the G-33 are Antigua and Barbuda, Barbados, 
Belize, Benin, Botswana, Congo, Cote D'Ivoire, Cuba, Dominican 
Republic, Grenada, Guyana, Haiti, Honduras, Jamaica, Kenya, Mauritius, 
Madagascar, Mongolia, Mozambique, Nicaragua, Pakistan, Panama, Peru, 
Senegal, St. Kitts and Nevis, St. Lucia, St. Vincent and the 
Grenadines, Sri Lanka, Suriname, Tanzania,Trinidad and Tobago, Uganda, 
Zambia, and Zimbabwe. 

[G] Other members of the Friends of Ambition are Costa Rica and New 
Zealand. 

[H] Tariffs examined were most favored nation rates for the latest year 
available from the WTO. European Union member country rates were 
aggregated. 

[I] Other WTO members that had tabled services offers, as of March 29, 
2005, are Bahrain, Barbados, Bolivia, Bulgaria, Colombia, Costa Rica, 
Dominican Republic, Egypt, El Salvador, Fiji, Gabon, Grenada,Guatemala, 
Guyana, Honduras, Iceland, Jordan, Kenya, Liechtenstein, Macao, 
Mauritius, New Zealand, Panama, Paraguay, Peru, Senegal, St. Kitts and 
Nevis, Sri Lanka, Suriname, and Uruguay, as well as other countries 
that are members of the European Union. 

[J] Other members of the Core Group are Bangladesh, Botswana, Egypt, 
Cuba, Jamaica, Kenya, Mauritius, Tanzania, Trinidad and Tobago, Uganda, 
Zambia, and Zimbabwe. 

[K] Other members of the Colorado Group are Colombia, Costa Rica, 
Morocco, New Zealand, and Paraguay. 

[L] Other members of the Friends of Antidumping Negotiations (FANs) are 
Colombia and Costa Rica. 

[M] C indicates that Turkey is a candidate for membership in the 
European Union. 

[End of table]

[End of section]

Appendix VII: GAO Contacts and Staff Acknowledgments: 

Kim Frankena (202) 512-8124; 
Venecia Rojas Kenah (202) 512-3433: 

Staff Acknowledgments: 

In addition to the individuals named above, Michelle Munn, Kendall 
Schaefer, Emilie Cassou, Ann Baker, Mark Keenan, Jose Martinez-Fabre, 
Jonathan Rose, Jamie McDonald, and Ernie Jackson made key contributions 
to this report. 

(320260): 

FOOTNOTES

[1] Section 125 of the Uruguay Round Agreements Act requires the U.S. 
Trade Representative to report once every 5 years on the effects of the 
WTO agreement on the interests of the United States and the value of 
continued U.S. participation in the WTO. It sets forth a procedure 
whereby congressional approval of U.S. participation in the WTO could 
be withdrawn. 

[2] According to WTO rules, ministerial conferences are to be held at 
least once every 2 years. 

[3] For additional information on the fourth ministerial conference and 
the Doha Development Agenda, see GAO, World Trade Organization: Early 
Decisions Are Vital to Progress in Ongoing Negotiations, GAO-02-879 
(Washington, D.C.: Sept. 4, 2002). 

[4] The 19 negotiating areas are implementation-related issues and 
concerns; agriculture; services; market access for nonagricultural 
products; trade related aspects of intellectual property rights; 
relationship between trade and investment; interaction between trade 
and competition policy; transparency of government procurement; trade 
facilitation; WTO rules; dispute settlement understanding; trade and 
environment; electronic commerce; small economies; trade, debt, and 
finance; trade and transfer of technology; technical cooperation and 
capacity building; least-developed countries; and special and 
differential treatment. 

[5] A detailed discussion of the goals for each area is provided in the 
appendixes of this report. 

[6] Such notification is required by law, under the Bipartisan Trade 
Promotion Authority Act of 2002 (P.L. 107-210). The issue areas USTR 
specifies goals for are trade in agricultural goods, trade in 
industrial and other goods, trade in services, trade in intellectual 
property rights, electronic commerce, trade facilitation, trade and 
investment, government procurement, competition policy, transparency/ 
regulatory reform, labor (including child labor), regional trade 
agreements, trade and the environment, fisheries subsidies, border 
taxes, trade remedy laws and disciplines, and dispute settlement. 

[7] GAO, World Trade Organization: Cancun Ministerial Fails to Move 
Global Trade Negotiations Forward; Next Steps Uncertain, GAO-04-250 
(Washington, D.C.: Jan. 15, 2004). 

[8] The group included Australia, Brazil, the European Union, India, 
and the United States. 

[9] The full framework (World Trade Organization, "Doha Work Program: 
Decision Adopted by the General Council on 1 August 2004," WT/L/579, 
Aug. 2, 2004) is available at www.wto.org. 

[10] "Ad valorem" signifies any charge, tax, or duty that is applied as 
a percentage of value. An ad valorem tariff rate is a trade tax 
calculated as a percentage of the value of the product being traded. 

[11] Tariff rate quotas are a tariff whereby lower tariffs are 
specified for a specific quantity and higher tariffs are specified for 
quantities that exceed the quota. 

[12] See paragraph 1g. and Annex D of World Trade Organization Document 
WT/L/529, August 2, 2004. 

[13] To achieve more fruitful dialogue, the Chairman proposed that the 
group adopt a new approach for discussing the outstanding proposals. 
First, they would agree to keep certain principles in mind--such as the 
objective of securing effective market access for products of export 
interest to developing countries, the need to give developing countries 
flexibility when implementing WTO commitments in certain situations, 
and the desirability of a rules-based trading system. Second, they 
would discuss proposals with a view towards either modifying them or 
coming up with another alternative for addressing the underlying issue 
or concern. Third, they would also consider cross-cutting issues such 
as capacity-building and coherence in policymaking between the WTO and 
other multilateral agencies. However, partly due to concerns by some of 
the more advanced developing countries that this could open the door to 
differentiation among developing countries, which they strongly oppose, 
this approach has yet to be operationalized. See, for example, WTO, 
Report by the Chairman of the Special Session of the Committee on Trade 
and Development, Mr. Faizel Ismail, to the Trade Negotiations 
Committee, WTO/TN/CTD/11, Feb. 14, 2005. 

[14] Preferential trade agreements encompass several types of trade 
agreements, such as free trade agreements that two or more countries 
negotiate outside of the WTO framework. These include free trade 
agreements, customs unions, common markets, and economic unions. 

[15] Economists agree that PTAs either create or divert trade, 
depending on circumstances. 

[16] Consultative Board to the Director General. The Future of the WTO: 
Addressing Institutional Challenges in the New Millennium, World Trade 
Organization, 2004. 

[17] Specifically, TPA includes the following requirements: 

at least 180 days before signing a trade agreement, the President must 
report to revenue committees (House Ways and Means and Senate Finance) 
on agreement provisions that might require amendments to U.S. trade 
remedy laws

at least 90-day notice to Congress required before signing a trade 
agreement 

no later than 30 days after President notifies Congress of intent to 
enter into agreement, private sector advisory committees must submit 
reports on trade agreements to Congress, the President, and USTR. 
However, this imposes no requirements on the President. 

at least 90 days before entering into agreement, the President must 
provide the ITC with details of the agreement and request an assessment

USTR must consult closely with revenue committees, the Congressional 
Oversight Group, and other congressional committees with jurisdiction 
over affected subject areas. 

[18] This assessment is based strictly on these TPA procedural 
requirements. It does not take into account other potential 
requirements. 

[19] For example, appointed facilitators often are asked by the host 
country to bridge differences over issues, but delays in naming 
facilitators and the fact that they are not as familiar with the issues 
under debate as the negotiating group chairs can cause delays and 
confusion. 

[20] Export subsidies are subsidies contingent on export performance. 
For example, they include cost reduction measures, such as subsidies to 
lower the cost of marketing goods for export, and internal transport 
subsidies that apply to exports only. 

[21] According to its 2001 notification to the WTO, the EU spent about 
$2.3 billion of the approximately $9 billion it is allowed to spend on 
export subsidies. 

[22] The 2002 Farm Bill authorized $5.5 billion in annual farm exports 
for GSM-102 and GSM-103 programs. The legislation authorized an 
additional $1 billion for emerging markets through 2007. 

[23] Domestic supports (often called "'subsidies") are payments made to 
farmers that raise prices or guarantee income. They include such 
measures as government purchases at guaranteed prices, commodity loan 
programs, and direct payments to farmers. 

[24] Bound thresholds refer to the permitted levels of spending. 

[25] The Farm Security and Rural Investment Act of 2002 (P.L. 107-171, 
May 13, 2002). 

[26] In contrast to the existing definition, which specifies that Blue 
Box measures must be production-limiting. 

[27] Criteria provisionally include fixed production conditions, such 
as acreages, yields, and historical production levels. 

[28] The United States spent about $7 billion in de minimis payments 
while the European Union spent less than Euros 1 billion on these 
supports in 2001, the most recent year data are available. 

[29] A specific tariff is a trade tax levied as a monetary amount per 
unit of import. An ad valorem tariff is a trade tax calculated as a 
percentage of the value of the product being traded. To convert a 
specific tariff into an ad valorem equivalent, an import price for the 
product is needed. In the market access negotiations, some members 
advocated using the world input price. The EU advocated using the 
import price recorded by each country. In May, 2005, members eventually 
agreed on a combination of both prices. 

[30] Bound tariffs are the rates WTO member nations are permitted to 
charge and can raise only under strictly prescribed circumstances. 

[31] Tariff peaks are tariffs that exceed a selected reference level. 

[32] See Economic Research Service, Profiles of Tariffs in Global 
Agricultural Markets, Washington: US Department of Agriculture, 2001. 
This paper chose to use the world input unit value as a proxy for the 
input price based on data from the Agricultural Market Access Database 
- which largely draws on data from the WTO and United Nations. This 
methodology differs, however, from that agreed upon in the WTO 
negotiations. 

[33] The average U.S. tariff on edible fruit and nut products is an 
exception, at only 0.1 percent. 

[34] The blended formula would apply an average tariff cut to a certain 
percentage of tariff lines, the Swiss formula cuts to another 
percentage of tariff lines, and provide duty-free access to the 
remainder. 

[35] A nonlinear formula would apply different percentage reductions to 
tariff rates at different levels. A tariff peak is a tariff that 
exceeds a selected reference level. Tariff escalation is a practice 
that countries often use, whereby they increase tariffs in relation to 
the degree of processing found in a product. 

[36] Some developing country members that are seeking access to new 
markets, such as Costa Rica, Pakistan, and several Central and Eastern 
European countries, also advocate an ambitious approach in NAMA. Some 
of these countries belong to the informal coalition called the "Friends 
of Ambition."

[37] The Girard formula, when proposed, was to be accompanied by seven 
sectoral agreements. Recently, India, Brazil, and Argentina tabled a 
new proposal that is based on the Girard type formula but does not 
mention sector agreements. 

[38] While the framework itself did not specify which sectors should be 
included, earlier drafts provided by the industrial market access 
Chairman lists among others, electronics; fish and fish products; 
footwear; leather goods; motor vehicle parts and components; stones, 
gems, and precious metals; and textiles and clothing. Sector 
representatives in the U.S. are also interested in other sectors, such 
as chemicals, wood and paper products, and processed foods. 

[39] The notion of critical mass was first used with the Information 
Technology Agreement (ITA) where, according to one trade expert, 
countries accounting for 90 percent of trade in that sector were 
participants. 

[40] U.S. Department of Commerce, Bureau of Economic Analysis, Survey 
of Current Business, June 2004. 

[41] "Rulemaking" is conventionally used to refer to GATS rules and 
disciplines on domestic regulation. "Market access" is commonly used to 
refer to commitments on both market access and national treatment. 

[42] Market access is typically negotiated bilaterally, following the 
so-called request-offer approach, whereby members request specific 
commitments from one another in a series of bilateral negotiations, and 
respond by presenting an offer to all WTO members. 

[43] GATS contains several negotiating mandates in rule-making areas 
which members felt unable to consider in detail within the time frame 
of the Uruguay Round. These negotiations are conducted in two Working 
Parties, one on Domestic Regulation and one on GATS Rules. The latter 
Working Party is charged with negotiations on emergency safeguards, 
government procurement, and subsidies. 

[44] Emergency safeguards are measures that would allow for the 
temporary suspension of market access, national treatment, and/or any 
additional commitments that members may have assumed in individual 
sectors. 

[45] Issues at the heart of these talks include technical disagreements 
on licensing and qualification standards. 

[46] Counting the 25 current EU members as one. 

[47] Mode 4 is an issue in both market access and domestic regulation 
negotiations. 

[48] In a World Bank study, Chaudhuri, Matoo and Self (2004) specify 
that with respect to mode 4, the GATS covers two categories of 
measures: "those affecting 'service suppliers' of a Member' of the GATS 
(i.e., self-employed suppliers who obtain their remuneration directly 
from customers) and those affecting the natural persons of a member who 
are 'employed by a service supplier of a Member, in respect of the 
supply of a service.' The Annex also states that the GATS does not 
apply to measures affecting individuals seeking access to the labor 
market of a member country, or to measures regarding citizenship, 
residence, or employment on a permanent basis. . . As Winters (2003) 
points out, unlike with the mass migration of less skilled workers, 
fears about cultural identity, problems of assimilation, and the drain 
on the public purse are not really relevant to mode 4. Host country 
concerns often pertain to national security, the difficulty in 
enforcing temporariness, and the impact on the labor market." The two 
authors note that what lacks clarity in GATS includes the definition of 
"temporary movement," and the types of contracts it covers. 

[49] Some economists have highlighted that developing countries may 
also face some specific challenges with trade liberalization such as 
greater instability due to volatile export markets and an increased 
reliance on international debt to finance trade deficits. See appendix 
IV in GAO-05-150 for further discussion. 

[50] Increasing returns to scale refers to production conditions where 
the cost per unit of production falls as the level of production rises. 
When production for exports expands, the decrease in unit costs will 
create greater economic benefits. Imperfect competition is correlated 
with increasing returns to scale because firms whose production is 
characterized by this condition are able to capture some monopoly 
powers. 

[51] This result is partially due to the assumption of constant returns 
to scale for agriculture but increasing returns to scale for 
nonagriculture. 

[52] Several studies note that benefits have been limited due to 
already low developed country tariffs and poor program utilization 
rates. Empirical examination of the more recent targeted programs, such 
as the United States' African Growth and Opportunity Act (AGOA) or the 
European Union's Everything but Arms (EBA) initiative, suggests that 
the economic impact has been greater. 

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