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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:

January 2004:

WORLD TRADE ORGANIZATION:

Cancun Ministerial Fails to Move Global Trade Negotiations Forward; 
Next Steps Uncertain:

GAO-04-250:

GAO Highlights:

Highlights of GAO-04-250, a report to the Chairman, Committee on 
Finance, U.S. Senate, and to the Chairman, Committee on Ways and 
Means, House of Representatives 

Why GAO Did This Study:

Trade ministers from 146 members of the World Trade Organization 
(WTO), representing 93 percent of global commerce, convened in Cancun, 
Mexico, in September 2003. Their goal was to provide direction for 
ongoing trade negotiations involving a broad set of issues that 
included agriculture, nonagricultural market access, services, and 
special treatment for developing countries. These negotiations, part 
of the global round of trade liberalizing talks launched in November 
2001 at Doha, Qatar, are an important means of providing impetus to 
the worlds economy. The round was supposed to be completed by January 
1, 2005. However, the Cancun Ministerial Conference ultimately 
collapsed without ministers reaching agreement on any of the key 
issues. GAO was asked to analyze (1) the divisions on key issues for 
the Cancun Ministerial Conference and how they were dealt with at 
Cancun and (2) the factors that influenced the outcome of the Cancun 
Ministerial Conference.

What GAO Found:

Ministers attending the September 2003 Cancun Ministerial Conference 
remained sharply divided on handling key issues: agricultural reform, 
adding new subjects for WTO commitments, nonagricultural market 
access, services (such as financial and telecommunications services), 
and special and differential treatment for developing countries. Many 
participants agreed that attaining agricultural reform was essential 
to making progress on other issues. However, ministers disagreed on 
how each nation would cut tariffs and subsidies. Key countries 
rejected as inadequate proposed U.S. and European Union reductions in 
subsidies, but the U.S. and EU felt key developing nations were not 
contributing to reform by agreeing to open their markets. Ministers 
did not assuage West African nations concerns about disruption in 
world cotton markets: The United States and others saw requests for 
compensation as inappropriate and tied subsidy cuts to attaining 
longer-term agricultural reform. Unconvinced of the benefits, many 
developing countries resisted new subjectsparticularly investment and 
competition (antitrust) policy. Lowering tariffs to nonagricultural 
goods offered promise of increasing trade for both developed and 
developing countries, but still divided them. Services and special 
treatment engendered less confrontation, but still did not progress in 
the absence of the compromises that were required to achieve a 
satisfactory balance among the WTOs large and increasingly diverse 
membership. 

Several other factors contributed to the impasse at Cancun. Among them 
were a complex conference agenda; no agreed-upon starting point for 
the talks; a large number of participants, with shifting alliances; 
competing visions of the talks goals; and North-South tensions that 
made it difficult to bridge wide divergences on issues. WTO decision-
making procedures proved unable to build the consensus required to 
attain agreement. Thus, completing the Doha Round by the January 2005 
deadline is in jeopardy.

www.gao.gov/cgi-bin/getrpt?GAO-04-250.

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:  

Stalemate Loomed on Eve of Cancun Ministerial, as Preparatory Process 
Was Slow to Yield Progress:  

Differences on Key Issues Remain Unresolved after the Cancun 
Ministerial:  

Several Factors Cited in the Talks' Collapse:  

Concluding Observations:  

Agency Comments and Our Evaluation:  

Appendixes:

Appendix I: Objectives, Scope, and Methodology:  

Appendix II: Significant Events in the WTO Negotiations before and 
during the Cancun Ministerial Conference:  

Appendix III: "Developing Countries" in the World Trade Organization:  

Appendix IV: Comments from the Office of the U.S. Trade Representative:  

Appendix V: GAO Contact and Staff Acknowledgments:  

GAO Contacts:  

Staff Acknowledgments:  

Tables: 

Table 1: "Developing" World Trade Organization Members as of July 2003: 

Figures: 

Figure 1: Key Milestones through the Fifth Ministerial Conference, as 
Planned at the Beginning of Negotiations: 

Figure 2: Comparison of Harmonizing Formula to Across-the-Board Tariff 
Cut: 

Figure 3: Chairman's Proposal Based on Average Bound Tariffs: 

Figure 4: Key Negotiating Deadlines Missed Before September 2003 Cancun 
Ministerial: 

Abbreviations: 

ACP: African, Caribbean, Pacific: 

CAP: Common Agricultural Policy: 

EU: European Union: 

GNI: gross national income: 

LDC: least developed country:

NGO: nongovernmental organization:

TNC: Trade Negotiations Committee:

TRIPS: Agreement on Trade-Related Aspects of Intellectual Property 
Rights:

USTR: Office of the U.S. Trade Representative:

WTO: World Trade Organization:

Letter 
January 15, 2004:

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

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

Trade ministers from 146 members of the World Trade Organization (WTO), 
representing 93 percent of global commerce, convened in Cancun, Mexico, 
in September 2003. Their goal was to provide direction for ongoing 
global trade negotiations. These negotiations, part of the global round 
of trade liberalizing talks launched in November 2001 at Doha, Qatar, 
are an important means of providing stimulus to the world's economy by 
lowering barriers to international trade in goods and 
services.[Footnote 1] However, the Cancun Ministerial Conference 
ultimately collapsed without ministers reaching agreement on any key 
issues, thus impairing progress toward concluding the round by its 
scheduled completion date of January 1, 2005.

Because of the collapse of the ministerial in Cancun, Mexico, in 
September 2003, you asked us to analyze the progress and status of the 
Doha Round negotiations and the factors contributing to the meeting's 
ultimate lack of success. In this report, we describe (1) the overall 
status of the negotiations on the eve of the WTO ministerial conference 
at Cancun, (2) the divisions on key issues for the Cancun Ministerial 
Conference and how they were dealt with at Cancun, and (3) the factors 
that influenced the outcome of the Cancun Ministerial Conference.

To address these objectives, we met with and obtained documents from a 
wide variety of World Trade Organization, U.S., and foreign government 
officials in Washington, D.C., and Geneva, Switzerland, the WTO's 
headquarters. In addition, we met with officials from private sector 
groups. We also attended the Cancun Ministerial Conference. A full 
description of our scope and methodology can be found in appendix I.

Results in Brief:

On the eve of the World Trade Organization's Cancun Ministerial 
Conference in September 2003, the Doha Development round negotiations 
were behind schedule, and their successful completion was in doubt, 
based on our analysis and interviews with officials participating in 
the talks. The Cancun ministerial had symbolic and practical importance 
to the Doha Round of WTO negotiations, which, according to official 
status reports, had seen limited progress since its launching at the 
last meeting of trade ministers in November 2001. The Cancun 
ministerial meeting had two important goals, one symbolic and one 
practical. Symbolically, the Cancun meeting afforded ministers an 
opportunity to regain momentum necessary to conclude the Doha Round of 
negotiations by the scheduled January 2005 deadline. Practically, 
ministers needed to provide direction to negotiators on key issues that 
had thus far eluded consensus. With stalemate in the ongoing global 
trade negotiations looming, by July 2003, it was clear that a long list 
of required action items faced ministers at Cancun. However, only in 
the final weeks before the ministerial did countries begin to make 
concessions and move away from their long-held positions.

Hopes for breakthroughs still accompanied their September 2003 meeting, 
but ministers from WTO members ultimately were unable to bridge the 
wide substantive differences on key issues that faced them coming into 
Cancun, and as a result these key issues must still be dealt with for 
the round to continue. They recognized that making progress on 
agriculture was key to achieving progress in other areas. However, 
agreement on detailed methods to accomplish the goal of achieving 
significant agricultural reform through cuts in tariffs and subsidies 
proved impossible. Meanwhile, efforts by the European Union (EU), 
Japan, and others to add new issues such as investment to the global 
system of trade rules continued to engender strong resistance, 
particularly from those developing nations that remained unconvinced 
that the gains would outweigh the costs. On nonagricultural market 
access, discussions never resolved the key questions of how deeply 
developing nations, particularly the more advanced ones, would cut 
tariffs and what flexibility they would retain to insulate sensitive 
sectors. Ongoing services negotiations failed to receive a needed boost 
in participation, and many developing countries remained dissatisfied 
with proposed responses to their demands for special treatment and for 
relief from difficulties they were still experiencing in implementing 
existing WTO obligations.

Several other factors influenced the outcome of and contributed to the 
impasse at Cancun. The agenda for Cancun itself was large and complex 
because WTO members had missed earlier deadlines for decisions. As a 
result, ministers were asked to achieve in 5 days what had proved 
impossible to accomplish in the prior 22 months--all without the 
benefit of agreement to use the text provided as a starting point for 
discussion. Meanwhile, the sheer number of participating countries and 
emerging alliances made consensus-building difficult. For example, the 
assertive approach to agricultural reform by a group of key developing 
nations led by Brazil put the United States and the EU, traditionally 
at odds over agriculture, on the defensive together against calls for 
cuts in their domestic support payments. North-South tensions between 
developing and developed countries, already latent in the declaration 
that launched the round, became exacerbated. Noting that the ongoing 
talks are termed the "Doha Development Agenda," developing countries 
stressed their vision that the focus should be on addressing their 
needs and demands. However, developed nations were not prepared to 
liberalize their policies unilaterally and argued that lowering trade 
barriers is pro-, not anti-, development. Additionally, an initiative 
for immediate reform of the cotton sector, an issue of economic 
importance to several West and Central African nations, was difficult 
for the United States and others to deal with, in part because it is 
tied to the broader and more long-term question of agriculture reform. 
Facing wide substantive divergences and limited decision-making 
procedures, the WTO proved unable to build the consensus required for 
attaining agreement at Cancun.

Background:

The WTO administers rules for international trade, provides a mechanism 
for settling disputes, and offers a forum for conducting trade 
negotiations. Such negotiations periodically involve comprehensive 
"rounds," with defined beginnings and ends, in which a large package of 
trade concessions among members is developed and ultimately agreed on 
as a single package. A total of eight rounds have been completed in the 
trading system's 56-year history. Each of the last 3 rounds cut 
industrial nations' tariffs by about one-third overall.[Footnote 2]

WTO membership has increased since the organization's creation in 1995 
to 146 members, up from 90 contracting parties of the General Agreement 
on Tariffs and Trade (the WTO's predecessor) when the Uruguay Round of 
negotiations was launched in 1986. WTO membership is also diverse in 
terms of economic development, consisting of most developed countries 
and numerous developing countries. The WTO has no formal definition of 
a "developing country." However, the World Bank classifies 105 current 
WTO members, or approximately 72 percent, as developing countries. In 
addition, 30 members, or 21 percent of the total, are officially 
designated by the United Nations as "least developed 
countries."[Footnote 3]

The ministerial conference is the highest decision-making authority in 
the WTO and consists of trade ministers from all WTO members.[Footnote 
4] The outcome of ministerial conferences is reflected in a fully 
agreed-upon ministerial declaration. The substance of these 
declarations is important because it guides future work by outlining an 
agenda and deadlines for the WTO until the next ministerial conference. 
The WTO General Council, made up of representatives from all WTO 
members, implements decisions that members adopt in between ministerial 
conferences. Decisions in the WTO are made by consensus--or absence of 
dissent--among all members rather than on a majority of member votes, 
as it is in many other international organizations.

At the fourth ministerial conference in Doha, Qatar, in November 2001, 
WTO members were able to reach consensus on a new, comprehensive 
negotiating round, officially called the Doha Development 
Agenda.[Footnote 5] The Doha Round is the first round of global trade 
negotiations since the conclusion of the Uruguay Round in 1994. The 
Doha Declaration sets forth a work program for the negotiations on 
agriculture, services, nonagricultural market access, and other issues. 
In addition, the work program emphasizes the development benefits of 
trade and the need to provide assistance to developing countries to 
help them take advantage of these benefits. The Doha Declaration also 
sets forth a structure and series of interim deadlines for the 
negotiations. Specifically, it established a Trade Negotiations 
Committee (TNC) open to representatives from all WTO members to oversee 
the negotiations, as well as several subsidiary bodies. In addition, it 
laid out several deadlines and other milestones through the next 
ministerial conference by which time negotiators were to make decisions 
on issues under negotiation. In the months following Doha, WTO members 
agreed that the next ministerial conference would occur in Cancun, 
Mexico, in September 2003. Figure 1 presents key milestones through the 
Cancun Ministerial Conference.

Figure 1: Key Milestones through the Fifth Ministerial Conference, as 
Planned at the Beginning of Negotiations:

[See PDF for image]

[A] Modalities include rules and guidelines for future negotiations.

[End of figure]

The Doha Declaration also set several general goals for the next 
(Cancun) ministerial conference, namely, to take stock of progress at 
midpoint of the Doha negotiations, to provide necessary political 
guidance, and to make decisions as necessary. However, at their fifth 
ministerial conference held in Cancun, Mexico, from September 10 to 14, 
2003, WTO ministers were neither able to achieve these goals nor bridge 
wide differences on individual negotiating issues. They concluded the 
conference with only an agreement to continue consultations and convene 
a meeting of the General Council by mid-December 2003 to take actions 
necessary to move toward concluding the negotiations.

Stalemate Loomed on Eve of Cancun Ministerial, as Preparatory Process 
Was Slow to Yield Progress:

The Cancun Ministerial Conference provided an opportunity for both 
symbolic and practical progress in the Doha Round of negotiations. 
These opportunities were of heightened importance because negotiators 
had by their own admission failed to make sufficient progress to meet 
interim deadlines set out in the Doha Declaration, at least in part 
because members were awaiting the results of the agricultural reform 
efforts in the EU. Consequently, real give-and-take did not truly begin 
until the final weeks before the ministerial, leaving little time to 
bridge the substantial differences that existed on key issues.

Cancun Ministerial Held Symbolic and Practical Importance for the 
Negotiations:

The September 2003 WTO Ministerial Conference held in Cancun, Mexico, 
had symbolic and practical importance for the Doha Round of 
negotiations. On the symbolic level, several WTO officials we met prior 
to the meeting noted that the Cancun Ministerial Conference might be a 
means to regain the momentum needed to bring the Doha Round to a 
successful conclusion. The Doha Round promised to be the most 
comprehensive round of global trade negotiations yet, involving a 
commitment to further liberalize trade, update trade rules, and further 
integrate developing countries into the world economy. The Cancun 
Ministerial Conference occurred at roughly the midpoint in the 3-year 
negotiations. However, based on our meetings with country delegations 
and WTO officials in Geneva and public statements by WTO officials, on 
the eve of the ministerial there was a sense true negotiations had not 
really begun. In particular, although WTO member governments had 
succeeded in actively submitting and discussing many proposals to 
achieve the general goals laid out at Doha, they had been less 
successful in narrowing their differences on these proposals or coming 
up with workable plans for developing specific national commitments (or 
schedules) to lower trade barriers.

WTO members held differing views on the symbolic importance of the 
Cancun Ministerial Conference. For instance, U.S. and some other member 
country officials, as well as WTO officials, expressed hope that the 
Cancun Ministerial Conference would create the political will to 
achieve a meaningful and ambitious agreement by the deadline that would 
benefit all participants. WTO officials we spoke with, for example, 
stressed that Cancun needed to provide a "boost" of fresh momentum to 
the flagging talks. Other members planned to use the meeting to focus 
on the centrality of agriculture reform. However, some members 
downplayed the symbolic importance of the ministerial and viewed it 
merely as an opportunity to take a mid-point assessment of the 
negotiations.

At a practical level, Cancun was viewed as critical to provide 
negotiators with direction in key areas that had thus far eluded 
consensus, according to WTO and member country officials. With just 16 
months before the agreed-upon deadline of January 1, 2005, for 
concluding the negotiations, working-level progress in resolving 
outstanding issues was effectively stalled. Breaking the logjam hinged 
upon receiving clear ministerial direction in several key areas. For 
example, guidance was needed on the specific goals and methods that 
would be used to liberalize trade in agriculture.

Lack of Progress in Negotiations Required Scaling Back Expectations for 
Cancun:

Progress on narrowing substantive differences in advance of the Cancun 
ministerial proved slow. As late as July 2003, observers and 
participants in the negotiations noted that WTO members were simply 
restating long-held positions on key issues and had yet to engage in 
real negotiations. For instance, in July 2003, the WTO Director General 
said that negotiators had been waiting to see what others are willing 
to offer without showing flexibility themselves. The chairmen of some 
of the negotiating groups repeated this sentiment in their statements 
to the July meeting of the Trade Negotiations Committee. (See app. II 
for a discussion of significant events in the WTO negotiations before 
and during the Cancun Ministerial Conference.):

A key factor hindering the progress of Doha Round talks had been the 
pace and extent of reform of the EU's Common Agricultural Policy 
(CAP).[Footnote 6] Agriculture was considered by many WTO members to be 
a linchpin to achieving progress in all other areas of the Doha 
negotiating agenda. After considerable internal debate, on June 26, 
2003, the EU agreed to CAP reform. Among other things, the reform would 
ensure that for many agricultural products, the amount of subsidy 
payments made to farmers would be independent from the amount they 
produce. Yet even after the EU CAP reform was announced, other members 
stated that they were still waiting to see the EU's internal reform 
translated into a significantly more ambitious WTO negotiating 
proposal. The EU resisted making a new WTO proposal, arguing that in 
effect it was being forced to pay for reform twice by reforming its 
internal policy once and then being asked by WTO negotiators to reform 
again to be able to conclude an agreement.

Another factor hindering overall progress was perceived linkages 
between various negotiating topics.The Doha Round's outcome is to be a 
"single undertaking," meaning a package deal involving results on the 
full range of issues under negotiation such as agriculture, services, 
and nonagricultural market access. As a result, trade-offs are expected 
to occur among issues to accomplish an overall balance satisfactory to 
all members. Thus, it is difficult to make progress on one issue 
without achieving progress on other issues. For example, many 
developing nations consider agriculture their number one priority and 
have been unwilling to make offers to open up their services markets 
until they see more progress on agricultural reform. On the other hand, 
the EU and Japan, who expect to make concessions on agriculture, wanted 
a commitment at Cancun to begin negotiations on several issues that 
were new to the trading system--investment, competition (antitrust), 
government procurement, and trade facilitation--which are collectively 
known as Singapore issues.[Footnote 7]

By our mid-July meetings in Geneva it was clear that expectations for 
Cancun were being scaled back because of the overall lack of progress. 
Instead of issuing "modalities," (numerical targets, timetables, 
formulas, and guidelines for countries' commitments), for example, WTO 
officials and country representatives we met with suggested that 
"frameworks," or more general guidance on what types of concessions 
each participant would make, might be a more appropriate goal for 
Cancun. In other words, instead of ministers agreeing on some specific 
target, such as "all nations will cut tariffs by one-third," they would 
agree to something more general, such as all nations are expected to 
cut tariffs by a certain method and with the following kinds of results 
(e.g., substantially liberalizing trade and reducing particularly high 
tariffs).

Real Negotiations Finally Began in the Weeks Just Before the Cancun 
Ministerial:

The negotiations began to make some progress at the end of July, when 
trade ministers from a diverse group of approximately 30 WTO members 
met in Montreal, Canada, to discuss the status of the negotiations. 
During this meeting, ministers encouraged the United States and the 
European Union to provide leadership in the negotiations by narrowing 
their differences on the key issue of agriculture. The United States 
and the European Union agreed to do so, and in August they presented a 
joint framework on agriculture.

In addition, in late August, the General Council removed a potential 
obstacle to progress at the Cancun ministerial by approving an 
agreement involving implementation of the Agreement on Trade-Related 
Aspects of Intellectual Property Rights (TRIPS) and public health 
declaration adopted in Doha.[Footnote 8] The Doha TRIPS and public 
health declaration directed WTO members to find a way for members with 
insufficient pharmaceutical manufacturing capacity to effectively use 
the flexibilities in TRIPS to acquire pharmaceuticals to combat public 
health crises. U.S. and WTO officials and representatives from other 
WTO members we met with had identified this as an important symbolic 
issue for the WTO as an institution, especially for WTO members from 
Africa. They had urged its prompt resolution to create a more favorable 
climate for the Cancun ministerial meeting. Despite resolving the TRIPS 
issue and attaining some movement on agriculture in the final weeks 
before the Cancun ministerial, differences persisted on other key 
issues in the negotiations on the eve of the meeting.

Differences on Key Issues Remain Unresolved after the Cancun 
Ministerial:

The Cancun Ministerial Conference failed to resolve substantive 
differences on key issues: agriculture (including cotton), the 
"Singapore issues," market access for nonagricultural goods, services, 
and development issues that included special and differential treatment 
for developing countries. Key countries' principal positions were far 
apart, and certain aspects of each issue were particularly contentious. 
Although many looked to the Cancun ministerial to provide direction 
that would enable future progress, it ultimately ended without 
resolving any of the members' wide differences on these issues.

Progress on Agriculture Was Central to Movement on Other Issues:

Agriculture is central to the Doha Round of trade negotiations, both in 
its own right and because many WTO members say that progress on other 
negotiating fronts is not possible without significant results in 
agriculture. The Doha Declaration calls for negotiations to achieve 
fundamental agricultural reform through three "pillars" or types of 
disciplines (rules): (1) substantially improving market access; (2) 
reducing, with a view to phasing out, all forms of export subsidies 
(export competition);[Footnote 9] and (3) substantially reducing trade-
distorting domestic support (subsidies).[Footnote 10] Additionally, 
the declaration imposed two interim deadlines on WTO agriculture 
negotiators: a March 31, 2003, deadline for establishing modalities 
(rules and guidelines for subsequent negotiations), and a deadline to 
submit draft tariff and subsidy reduction commitments at the Cancun 
meeting. Negotiators missed both deadlines. As a result, the goal for 
the Cancun ministerial was to adopt a framework and set new deadlines 
for subsequent work on the three main pillars of the agriculture 
negotiations. The delay in EU CAP reform, as well as the 2002 U.S. Farm 
Bill,[Footnote 11] which was projected to increase U.S. agricultural 
support spending complicated resolution of these issues. Many WTO 
members felt this bill undermined the relatively bold negotiating 
stance the United States assumed in the WTO, which called for making 
substantial reductions in trade-distorting domestic support and 
tariffs.

Various countries or groups of countries differ in their objectives for 
the agriculture negotiations. The Cairns Group[Footnote 12] of net 
agriculture exporting countries and the United States envisioned an 
ambitious agricultural liberalization agenda. The United States 
proposed a two-phase process to reform agriculture trade in the WTO. 
The first phase of the proposal would eliminate export subsidies and 
reduce and harmonize tariff and trade-distorting domestic support 
levels over a five-year period. The second phase of the proposal is the 
eventual elimination of all tariffs and trade-distorting domestic 
support. Other developed country members such as the EU, Japan, Korea, 
and Norway favored a more limited agenda. This group and several other 
small developed countries argued for flexibility to maintain higher 
tariffs in order to protect their domestic agriculture production. 
Finally, many developing countries wanted a reduction in developed 
country agriculture subsidies and market access barriers while, at the 
same time, wanting less ambitious obligations to liberalize their own 
market access barriers.

Differences on Agricultural "Pillars" Remained Wide:

Domestic support. Arguing that such programs resulted in lower world 
prices and displacement of their producers from global markets, many 
developing countries forcefully pressed the developed countries to make 
significant cuts to their trade-distorting domestic support programs, 
particularly the United States and the European Union, which in 1999 
totaled $16.9 billion and 47.9 billion euros ($45 billion at 1999 
exchange rates), respectively.[Footnote 13] Although they agreed in 
principle on the desirability of reducing trade-distorting 
subsidies,[Footnote 14] both the United States and the European Union 
resisted further disciplines on their abilities to support domestic 
agriculture in ways that present WTO rules consider to be non-trade 
distorting. For example, they opposed calls to cap and reduce subsidies 
that are not currently subject to spending limits under the WTO. The EU 
argued that its CAP reform already addressed developing country demands 
by making domestic support payments independent of production, in 
principle making the payments less trade distorting, even though total 
expenditures will not be lowered. However, several WTO members 
indicated that the reforms were not ambitious enough. In addition, the 
United States said that it would not reduce its domestic support for 
agriculture unless other members, namely the EU, made cuts that 
substantially reduced the wide disparities in allowed trade-distorting 
domestic support. The United States also demanded that developing 
countries provide something in return for cutting subsidies, such as 
lowering their tariffs on U.S. exports.

Market access. The United States viewed attaining additional market 
access as an important objective in the negotiations. U.S. and Cairns 
Group negotiators proposed a harmonizing formula for tariff reduction 
known as the Swiss formula that would subject the higher tariffs to 
larger cuts. Other members, including the EU, Japan, and Korea, favored 
an across-the-board average cut and a minimum cut per product (tariff 
line).[Footnote 15] As illustrated in figure 2, this approach would 
generally result in less liberalization than if the harmonizing formula 
were used. Many developing countries, and the Cairns Group, proposed 
substantially less liberalizing developing country tariff reductions, 
in part to counter continued use of subsidies in developed countries. 
Finally, according to their official statements, numerous smaller 
developing countries emphasized the importance of trade preferences to, 
and the negative effects that erosion of trade preferences would have 
on, smaller, more vulnerable economies.

Figure 2: Comparison of Harmonizing Formula to Across-the-Board Tariff 
Cut:

[See PDF for image]

[A] Assuming an across-the-board cut of 25 percent.

[B] Assuming a "Swiss 25" formula.

[End of figure]

A harmonizing formula reduces high tariffs more aggressively than 
across-the-board average tariff cuts. In the above example, for a given 
initial tariff (with the exception of low tariffs), the harmonizing 
formula leads to a lower final tariff than the across-the-board average 
tariff cut. The difference between the final tariff rates is 
highlighted.

Export competition. The United States, the Cairns Group, and many 
developing countries wanted to eliminate export subsidies for 
agricultural products. The EU, the primary employer of export 
subsidies, envisioned a substantial reduction and elimination of export 
subsidies for certain products but not a total elimination. It also 
tied any cuts in export subsidies to the adoption of stricter 
disciplines on U.S. food aid and export credits.[Footnote 16] Like the 
United States, the EU also sought stricter disciplines on export state-
trading enterprises.

As previously noted, the United States and the European Union had 
responded to calls to provide leadership by narrowing their differences 
on the three pillars of agricultural reform before the Cancun meeting. 
In a mid-August framework, the U.S. and the EU proposed reductions in 
trade-distorting domestic agricultural support, with those members with 
higher subsidies making deeper cuts and a three-pronged strategy to 
reduce agricultural tariffs. With respect to export subsidies, the 
framework eliminated export subsidies for some agricultural products 
and committed members to reduce budgetary and quantity allowances for 
others. Reaction to the framework was negative and swift, in part 
because it implied less ambitious reductions in domestic 
support[Footnote 17] and market access barriers than the original U.S. 
proposal, which U.S. officials emphasize is still on the table, and did 
not completely eliminate export subsidies. For example, within a week a 
newly formed group of developing countries, commonly referred to as the 
Group of 20 (G-20)[Footnote 18] for its 20 members, presented a counter 
framework that implied deeper cuts in domestic agricultural subsidies 
by developed countries, a tariff reduction formula that allowed 
developing countries to make less substantial cuts, and the total 
elimination of export subsidies. The draft ministerial declaration 
presented to ministers in late August contained elements of both 
proposals.

Although extensive discussions on agriculture did occur at Cancun, they 
ultimately failed to bridge the substantial gaps that remained. Sharp 
divisions remained on the extent to which the developing countries 
should be required to open their markets and whether it was possible to 
eliminate all export subsidies. On domestic support, divisions remained 
concerning the extent of cuts in trade-distorting domestic support and 
the question of whether additional disciplines on non trade-distorting 
support were desirable. Furthermore, the prominence of the G-20 of 
developing countries relative to the more diverse Cairns Group at the 
meeting imposed a North-South dynamic on the agriculture negotiations. 
Specifically, several developed countries criticized the G-20's 
negotiating tactics, including their failure to offer market access 
concessions such as tariff cuts in exchange for substantial cuts in 
developed country subsidies and their demands for a long list of 
changes to the Conference Chairman's draft text, even though very 
little time remained to negotiate. Meanwhile, representatives from the 
G-20 argued that the developed country proposals and framework offered 
very modest gains and maybe even some steps backward in efforts to 
liberalize world agricultural trade.

Cotton Issues Involved Subsidy Elimination and Compensation:

In addition to the three main agricultural pillars that were the agreed 
focus of the Doha agriculture negotiations, the Sectoral Initiative in 
Favour of Cotton put forward by four West and Central African countries 
figured prominently in the Cancun ministerial discussions. The 
initiative was added to the ministerial agenda in the weeks leading up 
to Cancun and does not appear in the Doha Declaration. The proposal by 
these cotton exporting countries singled out three WTO members--the 
United States, the European Union, and China--as the primary cotton 
subsidizers. They claimed that these subsidies were driving down world 
prices and that many of their farmers no longer found it profitable to 
produce cotton, a concern given their contention that cotton plays an 
essential role in their development and poverty reduction efforts.

The cotton initiative's guidelines called for immediately establishing 
a mechanism at Cancun to eliminate all subsidies on cotton and a 
transitional mechanism to compensate farmers in cotton-producing least 
developed countries (LDC) that suffered losses in export revenue as a 
result of cotton subsidies. Specifically, the proposal called for 
reducing all cotton support measures by one third annually for 3 years, 
thereby eliminating all support for cotton by year-end 2006. In 
addition, the proposal stipulated that any cotton-subsidizing WTO 
member would be a potential contributor to a proposed transitional 
compensation mechanism. The transitional compensation mechanism would 
last up to 3 years. The sectoral initiative did not specify the total 
amount of compensation to be paid but cited a recent study that the 
direct and indirect losses for the 3 years--1999 to 2002--were $250 
million and $1 billion, respectively, for the countries of West and 
Central Africa.

The cotton initiative was discussed at length in Cancun; however, there 
was no resolution. The reason for the failure was that certain members 
had difficulty supporting a transitional compensation mechanism within 
the context of the WTO and saw the issue of cotton as hard to separate 
from the larger agricultural agenda. U.S. efforts to respond to the 
region's immediate concerns on cotton by broadening the original 
initiative made little headway, despite some evidence that falling 
world cotton prices were also attributable to other factors such as 
competition from manmade fibers. The failure to resolve the cotton 
initiative to the satisfaction of the developing countries had a 
negative impact on the overall tone of the Cancun meeting, because 
certain developing countries viewed the issue as a litmus test for the 
WTO and thought the proposed response fell far short of addressing 
their pressing needs. The issue also took on symbolic importance, 
becoming a political rallying point for a number of countries' 
frustrations.

Singapore Issues Remained Contentious:

The Doha Declaration established a deadline for deciding how to handle 
negotiations aimed at adding four new issues, called the Singapore 
issues, to the global trading system. The four Singapore issues are 
investment, competition (antitrust), transparency (openness) in 
government procurement, and trade facilitation (easing cross-border 
movement of goods). According to the draft ministerial text presented 
to ministers before Cancun, ministers were to decide by explicit 
consensus the basis for starting actual negotiations on these issues, 
or to continue exploratory discussions on them. However, the wording of 
the Doha Declaration left unclear what was to specifically occur in 
Cancun. Certain members thought the declaration implied that formal 
negotiations were to begin in Cancun and that the only issue for Cancun 
was the type of negotiation. Others thought the declaration implied 
that formal negotiations could only begin if there were explicit 
consensus among the members at Cancun to do so.

Key players' positions were divided into three main camps. A group of 
developed and developing country members led by the European Union, 
Japan, and South Korea strongly advocated starting negotiations on all 
four issues, including investment and competition, which were 
particularly controversial. These nations had succeeded at Doha in 
getting the four issues included as part of the round's overall package 
but only on the condition that explicit agreement be reached at Cancun 
on the parameters to negotiate these issues. Many developing countries, 
on the other hand, had consistently expressed their strong opposition 
to the inclusion of the Singapore issues in the WTO negotiating agenda 
and several viewed Cancun as their opportunity to block negotiations on 
these issues. For example, India argued that for many of these 
countries, undertaking new obligations in these areas would have 
presented too great a burden, since they were still having difficulty 
implementing their Uruguay Round obligations. They also were not 
convinced of the development benefits that would result. A third group 
of countries, including the United States and some developing nations, 
were willing to negotiate but wanted each issue considered on its own 
merit. However, some of the developing countries linked their 
willingness to negotiate with progress in other areas such as 
agriculture. The United States had been pushing the issues of 
transparency in government procurement and trade facilitation. The 
United States was also willing to negotiate on competition policy and 
investment, but had some concerns that included whether negotiations 
could call into question its enforcement of strong antitrust laws and 
match the high standards that are a feature of its bilateral investment 
agreements.

The discussions at Cancun on the Singapore issues were contentious and 
contributed to the breakdown of the ministerial. Early in the week, a 
group of 16 developing countries argued that because there was no clear 
consensus on the modalities for the negotiations as required by the 
Doha Declaration, the matter of whether to add these four new issues to 
the negotiations should be dropped from the Cancun agenda and moved 
back to Geneva for further discussion. The draft text issued later that 
week called for beginning negotiations on two issues and setting 
deadlines for trying to reach agreement on possible bases for 
addressing the other two issues. This text was discussed on the last 
day of the conference, but in the end, compromise on this divisive 
subject proved impossible.

Proposed Tariff Formulas for Nonagricultural Market Access Were 
Divisive:

Lowering barriers to market access of nonagricultural goods was also an 
important point of contention leading into the Cancun ministerial. The 
Doha Declaration stated that negotiations on nonagricultural market 
access should be aimed at reducing or, as appropriate, eliminating 
tariffs for nonagricultural products, including reducing or eliminating 
tariff peaks[Footnote 19] and tariff escalation,[Footnote 20] as well 
as nontariff barriers. The Doha Declaration also said that the 
liberalization of nonagricultural goods should take fully into account 
the principle of special and differential treatment[Footnote 21] for 
developing countries, including allowing for "less than full 
reciprocity" in meeting tariff reduction commitments. Because WTO 
members missed a May 31, 2003, deadline for reaching agreement on 
modalities for nonagricultural market access that would govern 
preparation of national schedules of barrier-cutting commitments, the 
goal for Cancun was to establish a "framework" or basic approach to 
tariff and nontariff barrier liberalization that would then be 
supplemented by more detailed modalities later.

Even though there are important differences in the situations and 
individual positions of various developing countries--a fact the United 
States likes to emphasize--WTO members were largely divided along 
North-South lines in nonagricultural market access talks going into the 
Cancun meeting. The United States and other developed countries were 
pushing for substantial cuts in tariffs and wanted the high overall 
tariffs of key developing countries like India and Brazil to come down. 
For example, India has an average bound tariff of 34 percent on 
nonagricultural products, while China and Cte d'Ivoire have average 
bound tariffs of 10 percent or less. The United States also aimed to 
seek a high level of ambition in opening markets and expanding trade 
for all countries through a harmonizing formula that cuts tariffs in 
all countries. In addition, it wanted to reduce wide disparities among 
members' tariffs as well as reduce low tariffs. Publicly, the 
developing countries were fairly united in saying that any 
liberalization needed to leave them sufficient flexibility to address 
their special needs and should involve greater cuts by richer countries 
than poor ones. In May 2003, the chairman of the negotiating group on 
market access issued a "chair's proposal," attempting to reconcile WTO 
members' various positions, including on tariff cutting formulas, 
sectoral liberalization, and special and differential 
treatment.[Footnote 22]

Coming into Cancun, two major proposals for cutting tariffs--one from 
the market access chairman and another from the United States, EU, and 
Canada--were under active discussion, though all of the numerous 
original proposals submitted by WTO members remained "on the table." 
These two proposals differed in the type of mathematical formula that 
would be used to determine how much each member would be expected to 
reduce its tariffs. The proposed tariff formula developed by the 
chairman as a compromise would largely differentiate among countries 
according to their current overall average bound tariff rate. 
Specifically, a country with higher average bound tariffs would have to 
reduce its bound tariffs at a lesser rate than a country with lower 
average bound tariffs. To use an illustrative example, Brazil, with 
higher overall bound rates to begin with, would have to cut a 10 
percent bound tariff on a particular product to approximately 7.5 
percent, or by 25 percent. Malaysia, with lower overall bound tariffs, 
would have to slash a 10 percent bound tariff to 6 percent, or by 40 
percent (see fig. 3).[Footnote 23] Proponents argue that this formula 
would recognize each country's differing starting points for 
liberalization while still accomplishing significant cuts in bound 
tariff rates. Some officials counter that average bound tariffs are not 
a direct or good indicator of development status or needs. Moreover, 
they expressed concern that this formula would require more reduction 
from nations that have lower overall bound tariffs. The United States 
was concerned that this would effectively punish countries that have 
previously liberalized, while rewarding countries that had not 
liberalized. In addition, the United States was concerned that this 
proposal was based on average bound tariff rates, which would not 
necessarily lead to lower applied rates. Many developing countries' 
bound tariff rates are higher than the tariffs they currently apply. 
For example, Brazil has an average bound tariff of 31 percent and a 15 
percent average applied rate. Real liberalization will only occur if 
countries reduce bound tariffs to below currently applied rates.

Figure 3: Chairman's Proposal Based on Average Bound Tariffs:

[See PDF for image]

Note: Assumes a coefficient of 1 is used for all countries.

[A] Using an average tariff of 4 percent.

[B] Using an average tariff of 15 percent.

[C] Using an average tariff of 30 percent.

[End of figure]

The Chairman's proposal implies that countries with a high average 
tariff are required to lower their tariffs on a given product by a 
lesser amount than countries with a low average tariff. In figure 3 
above, Brazil is not required to reduce any given tariff as much as 
Malaysia.

On the other hand, the United States, the European Union, and Canada 
developed an alternative framework for negotiations. This framework 
calls for all countries to use a single harmonizing formula, such as a 
Swiss formula, where the coefficient of reduction does not depend on a 
country's average bound tariff rate. For example, if a Swiss formula 
using a coefficient of 8 were used, all countries would have to cut a 
10 percent tariff on a particular product to 4 percent. Nevertheless, 
the U.S., EU, Canada framework does foresee some differentiation among 
countries. For example, it suggested that countries could be rewarded 
for "good behavior" by giving credits to countries that commit to do 
things that are considered sound trade policy, such as putting a 
ceiling on, or binding, a high 
percentage of their tariffs.[Footnote 24] According to U.S. Trade 
Representative (USTR) officials, the credits would allow them to lower 
tariffs by a lesser amount than that implied by the formula. Developing 
countries, however, say this approach is inconsistent with the Doha 
mandate, which states developing countries as a whole will be allowed 
to make lesser commitments. In addition, they fear that they would have 
to cut tariffs much more than developed countries in absolute terms. As 
a result, just prior to the Cancun meeting, a few nations such as India 
reasserted their interest in an across-the board or linear approach to 
cutting tariffs on nonagricultural goods, similar to that depicted in 
figure 2. Under a linear approach, all tariffs would be cut at the same 
rate and therefore the results would not be harmonizing. The 
discussions at Cancun never got into the detailed proposals that had 
been debated before Cancun and failed to bridge these gaps on tariff 
formulas.

At Cancun, WTO members were also considering the complete elimination 
of tariffs in to-be-agreed-upon sectors, including ones that are 
particularly important to developing countries. However, the issues of 
choice of sectors and participation in the elimination remained 
controversial. Many developing countries wanted sectoral elimination to 
be voluntary. Also under debate was whether sectoral elimination should 
result in zero tariffs, harmonization, or a differentiated outcome for 
developed versus developing countries. The United States and many other 
countries thought that sectoral initiatives were an important way to 
supplement the general tariff cutting formula and to achieve their 
ambitious liberalization objectives. The United States wanted to make 
sure all countries competitive in a given sector would participate in 
sectoral elimination regardless of their level of development.

Consistent with the Doha mandate, WTO members were also considering 
special treatment for developing countries and new entrants such as 
recently acceded members in implementing their tariff commitments. This 
included longer periods to implement the tariff reductions, 
differentiation in how sectoral initiatives would be applied, and not 
making reduction commitments mandatory. The developed countries 
recognized that many nations, particularly least developed and other 
vulnerable economies, need flexibility to deal with sensitive sectors 
and other adjustment needs. However, they opposed across-the-board 
flexibility for all developing countries, including the more advanced 
ones.

At Cancun, some steps were taken to address the inherent trade-off 
between committing to ambitious tariff liberalization and retaining 
flexibility. The World Bank and the International Monetary Fund, for 
example, provided assurances that they were prepared to work with 
developing nations to help offset lost tariff revenue and address 
concerns related to erosion of preferences. Nevertheless, ministers did 
not resolve the debates over tariff-cutting formulas, the mandatory 
nature of sectoral elimination, and the degree of flexibility to accord 
to developing countries. Progress was not made on these issues because 
progress was not made or expected in agriculture nor on the Singapore 
issues.

Energizing Services Negotiations Was a Key U.S. Goal for the Cancun 
Ministerial:

The Doha Declaration set a deadline for WTO members to complete the 
work they had initiated in January 2000 to further open services 
markets under the General Agreement on Trade in Services. In contrast 
with agriculture and industrial market access, the services group had 
already agreed on how to conduct these talks,[Footnote 25] which are 
under way. The goal for Cancun--particularly for the United States--was 
to energize the ongoing services negotiations and to set a deadline for 
submission of improved offers[Footnote 26] to lower barriers to 
services. According to a WTO official, only 38 (counting the EU as one 
member) of the WTO's 146 members had submitted offers before the Cancun 
ministerial.[Footnote 27] Although 18 of these offers were from 
developing countries, as defined by the World Bank, many large 
developing countries such as India, South Africa, Egypt, and Brazil had 
not submitted offers. Some of these nations, as well as others such as 
Argentina, China, and Mexico had their own market access ambitions, 
including further easing of the temporary movement of their services 
suppliers across national borders.

Services negotiations regained some momentum before Cancun due to two 
important events. First, the language contained in the draft Cancun 
Ministerial Declaration incorporated several of the demands from 
developing countries such as the need to conclude negotiations in rule-
making in areas such as emergency safeguard measures[Footnote 28] for 
services. Second, the adoption of modalities on September 3, 2003, for 
the special and differential treatment[Footnote 29] of LDCs was 
expected to boost the participation of LDCs in the services 
negotiations. However, little progress was made in the services 
negotiations at Cancun because advances on other issues under 
negotiation, especially in agriculture, were needed in order to enable 
further movement.

Special Treatment Was Highest Priority for Many Developing Country 
Members:

Many developing countries were greatly concerned about receiving 
special treatment in the form of making lesser commitments in ongoing 
global trade talks and receiving assistance in implementing existing 
WTO agreements. Global trade rules have long included the principle 
that developing countries would be accorded special and differential 
treatment consistent with their individual levels of development, 
including the notion that they would not be expected to fully 
reciprocate tariff and other 
concessions made by developed countries.[Footnote 30] In the Doha 
Declaration, WTO members agreed that all special and differential 
treatment provisions in existing WTO agreements should be reviewed with 
a view to strengthening them in order to make them more precise, 
effective, and operational. The declaration requires the WTO's 
Committee on Trade and Development to identify those special and 
differential treatment provisions that are mandatory and those that are 
nonbinding and to consider the legal and practical implications of 
turning the nonbinding ones into mandatory obligations. According to 
USTR officials, part of the continuing difficulty of this work has been 
the problems of separating work on special and differential treatment 
from the work underway in actual individual negotiating groups (e.g., 
agriculture) and the lack of progress on related issues such as 
graduation/differentiation,[Footnote 31] which is also part of the 
Committee on Trade and Development's work programme.

Also, as part of the Doha Declaration, WTO members committed themselves 
to address outstanding implementation issues[Footnote 32] and set a 
December 2002 deadline for recommending appropriate action on them, but 
they missed that deadline. Although there was agreement on a number of 
implementation issues at Doha, outstanding issues remain in areas like 
trade related investment measures, anti-dumping rules, and textiles. 
These issues have proved divisive, even among developing countries.

At Cancun, ministers were asked to endorse and immediately implement a 
subset of the numerous proposals for special and differential treatment 
as well as to set a new deadline for resolving outstanding special and 
differential treatment and implementation issues.[Footnote 33] For some 
developing countries, progress on these issues at Cancun was key to 
their willingness to negotiate further market liberalization in other 
areas. In addition, the African Group[Footnote 34] in particular wanted 
to better ensure that the needs of the WTO's poorest member countries 
would be satisfactorily addressed in the overall package of Doha Round 
results.

However, developed and developing countries fundamentally disagreed in 
their interpretation and use of special and differential treatment. For 
example, government officials from several developed countries echoed 
their desire to better target special and differential treatment by 
adopting a needs-based approach. According to these officials, special 
and differential treatment provisions should be tailored to match the 
various levels of development and the particular economic needs of 
developing countries.[Footnote 35] Many developing countries, on the 
other hand, wanted an expansion of special and differential treatment. 
Their expansionist ambition was reflected in 88 proposals for 
additional special treatment obligations, mostly from the African Group 
and the group of least developed countries. Among other things, the 
proposals sought additional technical support and called for an 
exemption for developing countries and LDC members from requirements to 
comply with existing WTO obligations that they believed would be 
prejudicial to their individual development, financial, or trade needs 
or beyond their administrative and institutional capacity. Developed 
countries and more advanced developing countries considered many of 
these demands to be problematic because some changes proposed would 
alter the balance of the Uruguay Round agreements.

In the end, however, developed countries and some developing countries 
appeared ready to move forward on some of these proposals at Cancun, 
had the ministerial proved successful. The General Council Chairman 
worked carefully with a diverse group of key countries to put this 
package together. A total of 24 special and differential treatment 
proposals, including some related to implementation issues, were 
included in the draft Cancun Ministerial Declaration sent to Cancun 
from Geneva. An additional three proposals were added during the course 
of the Cancun meeting. While some developing nations argued that these 
proposals were of little economic value and felt agreeing to these 
proposals at Cancun would create a false sense of progress, other 
developing countries were willing to accept the package in return for 
assurances of future advances.

As for implementation issues, discussions on developing country 
proposals in this area were overshadowed at Cancun by another issue--a 
push by the EU and other European countries to secure greater 
recognition and protection of geographical indications (place names) 
for specialty agricultural products.[Footnote 36] Many countries, 
including the United States, Australia, New Zealand, and some Latin 
American nations, strongly resisted, because they produce and market 
products under widely used terms such as "Champagne" and "Roquefort 
cheese" that the European nations were seeking to protect and 
monopolize.

In the end, no agreement was reached at Cancun on special and 
differential treatment or on implementation issues.

Cancun Meeting Ended without Resolving Any Major Issue:

Despite a full ministerial agenda of issues requiring resolution, the 
only actual decision taken relating to the negotiations at Cancun was 
that the WTO's General Council should meet by December 15, 2003. The 
closing session on Sunday, September 14, adopted a short ministerial 
statement expressing appreciation to Mexico for hosting the talks, 
welcoming Cambodia and Nepal to the WTO, and stating that participants 
had worked hard to make progress in the Doha mandate but that "more 
work needs to be done in some key areas to enable us to proceed toward 
the conclusion of the negotiations." To achieve this, the concluding 
ministerial statement directed officials to continue working on 
outstanding issues with a renewed sense of urgency and purpose. The 
failure to make progress in resolving the major substantive issues at 
Cancun left the Doha Round in limbo and resulted in a major setback 
that will make attaining an overall world trade agreement by January 1, 
2005, more difficult, according to WTO Director General Supachai and 
key WTO member country representatives. Specifically, no further 
negotiating sessions have been scheduled, although informal efforts to 
get the talks back on track have continued.

The Cancun ministerial declaration directed the Chairman of the General 
Council to coordinate this work and to convene a meeting of the General 
Council at the senior officials level no later than December 15, 2003 
"to take the action necessary to move toward a successful and timely 
conclusion of the negotiations." However, on December 9, WTO General 
Council Chairman Perez del Castillo notified the heads of delegation 
that there was a lack of "real negotiation" or "bridging of positions" 
in the informal talks. Because he believed insufficient convergence had 
occurred to take "necessary action to conclude the round," he presented 
a Chair's report outlining key issues and possible ways ahead. He also 
recommended that all negotiating bodies be reactivated in early 2004, 
after new chairs are chosen. The December 15, 2003, General Council 
meeting generally accepted this recommendation, according to the 
chairman's closing remarks.

Several Factors Cited in the Talks' Collapse:

According to government officials, trade negotiations observers, 
authoritative reports, and GAO observations and analysis, several other 
factors contributed to the Cancun meeting's collapse. The ministerial 
agenda was complex, and unwillingness by some nations to work with the 
text presented by the General Council Chairman hampered progress. In 
addition, the large number of participants and emerging coalitions 
influenced the meeting's dynamic. Competing visions and goals for the 
Doha Round, particularly between developed and developing countries, 
and a high-profile initiative on cotton, fueled North-South tensions. 
Meanwhile, the WTO's cumbersome decision-making process did not lend 
itself to building consensus.

Complex and Full Agenda Presented:

The agenda for Cancun was not only complex, it was also overloaded. 
This situation was due to the stalemate that had characterized the Doha 
Round up to Cancun, in which the negotiators had missed virtually all 
self-imposed deadlines. The Doha Declaration already had specified that 
certain items were to be on the agenda for the next (Cancun) 
ministerial, such as deciding how to handle negotiations on the 
Singapore issues (see fig. 4). But as interim deadlines came and went 
without agreement, other issues were added to the Cancun agenda.

Figure 4: Key Negotiating Deadlines Missed Before September 2003 Cancun 
Ministerial:

[See PDF for image]

[End of figure]

Although the goal of reaching agreement on these issues for achieving 
trade liberalization had eluded negotiators during the previous 22 
months of work in Geneva, they proposed to reach agreement on all of 
them in Cancun, even though they had just 5 days to do so.

No Agreed Starting Point for Discussion:

Adding to the complexity of the task, the Cancun ministerial began 
without an agreed-upon text as a starting point for discussion. In late 
August, the General Council Chairman issued a revised draft ministerial 
declaration. This version included draft frameworks for modalities for 
agriculture, nonagricultural market access, and the Singapore issues. 
These draft frameworks still included multiple bracketed items (items 
to be agreed upon) and lacked specific details in several areas. 
However, not all WTO members agreed to use this draft as the basis for 
ministers' discussion in Cancun.

Efforts to produce a new text of a ministerial declaration from which 
to work took considerable time at Cancun. The first 3 days of the 5-day 
conference were devoted to formal and informal meetings. The Conference 
Chairman, the Mexican Foreign Minister finally presented a draft text 
at a meeting on the fourth day of the 5-day conference (September 13). 
Just 30 hours remained until the scheduled close of the conference, yet 
ministers needed 6 hours to study the new text. The meeting to obtain 
reactions to the text took another 6 hours. More than 115 nations 
spoke, one after the other, with most ministers criticizing various 
points of the draft and repeating well-established positions. A WTO 
spokesman later reported that the only consensus evident that night was 
that the text was unacceptable to many WTO members. The U.S. Trade 
Representative advocated moving forward when he took the floor about 
halfway through the meeting. He expressed willingness to work with the 
draft, urged a collective sense of responsibility, and warned fellow 
trade ministers that they should not let the perfect become the enemy 
of the good. Certain other members such as Sri Lanka, Uruguay, Chile, 
and China were among the few other countries that made positive 
statements. After another several hours of critical interventions, 
however, the Conference Chairman closed the meeting, expressing concern 
that with less than 15 hours remaining, members did not appear to be 
willing to reach a consensus. A WTO spokesperson later reported that 
they could see a clear problem emerging because differences in 
positions were hardening.

Large Number of Participants and New Developing Country Coalitions Add 
Complexity:

Achieving consensus at Cancun was a very complex undertaking due to the 
large number of participants and the emerging coalitions that affected 
the meeting's dynamics. Participants in the WTO talks at Cancun 
included 146 members with vastly different economic interests, levels 
of development, and institutional capacities. Moreover, the number of 
delegates at Cancun was substantially larger than the number of 
delegates at the Doha ministerial, which occurred shortly after 
September 11, 2001. Nongovernmental organizations (NGO) were also 
participating. The 1,578 registered NGO participants included business 
as well as a range of public interest (labor, environment, consumer, 
development, and human rights) groups, and both were active in seeking 
to influence the negotiations. For example, NGOs, such as the 
development advocacy group Oxfam, underwrote the literature being 
distributed on the cotton initiative, and poverty relief organization 
Action Aid's press release immediately called the Conference Chairman's 
draft text "a stab in the back of poor countries.":

The emergence of two developing country coalitions also affected the 
dynamics of the Cancun meeting. Brazil was widely seen as the leader of 
the G-20 group of developing countries pressing for bigger cuts in 
developed country agricultural subsidies. The United States and the 
European Union, traditionally at odds over agriculture, complained that 
the group was engaged in confrontational tactics that were more 
directed at making a point than at making a deal. However, the group 
claimed that it took a businesslike and professional approach to the 
negotiations and had succeeded in highlighting the centrality of 
agricultural reform to the Doha Round's success. Another strong 
coalition that emerged in Cancun was a group of 92 countries made up of 
the African, Caribbean, Pacific (ACP) African Union /LDC countries. 
This group's main objective was to ensure that the WTO's poorest 
countries' interests were taken into account. In the end, their views 
were decisive, as their refusal to accept negotiations on the Singapore 
issues and other members' insistence to negotiate these issues 
triggered the Conference Chairman's decision to end the ministerial.

Developed and Developing Countries Had Competing Visions of Doha's 
Promise:

In addition to a complex agenda and volatile meeting dynamics, the 
participants appeared to have competing visions of what the round had 
promised. Noting that the negotiations were titled the "Doha 
Development Agenda," developing countries still expected that the talks 
would focus primarily on their needs. For many, this meant progress on 
agriculture, while others stressed meaningful accommodation of their 
special needs. U.S. officials, on the other hand, told us that they 
would like to see further differentiation of the as-yet-undefined term 
"developing countries." Some U.S. officials told us that developing 
countries' reluctance to open their markets is contrary to sound 
development policies, because lowering trade barriers is pro-, not 
anti-development. Moreover, various studies had shown that a 
significant share of the estimated economic benefits of the Doha Round 
would be due to an expansion of trade between developing countries as 
they reduced their trade barriers to each other's goods.

As the days of the ministerial wore on without consensus, frustrations 
increased. The developed nations accused the developing countries of 
grandstanding and of not making an effort to reach agreement. Officials 
from some developed countries complained, for example, that developing 
countries had not approached the negotiations in the spirit of 
reciprocity but instead were focused on making demands without 
expecting to make concessions. In essence, developing countries were 
not seen as negotiating in good faith.

Developing countries also felt frustrated and believed that the lack of 
progress in the negotiations was due to an absence of political will by 
the developed countries to fulfill the promises at Doha. For example, 
developing countries believed that the developed countries had not 
offered enough on agriculture, the issue that many developing countries 
cared about the most.

The differences in expectations are illustrated in reactions to the 
cotton initiative, which served as a focal point for concerns about 
developed country agriculture subsidies. The WTO Director General 
personally urged ministers to give the matter full consideration and 
held consultations with the interested parties in an attempt to forge a 
compromise. While the African proponents believed that agreement on 
this issue would have been a sign of good faith, the United States 
viewed the request for monetary compensation as inappropriate and 
better suited to a development assistance venue. When the Conference 
Chairman issued his draft text, many countries reacted negatively to 
the proposed compromise on cotton. Brazil, speaking on behalf of the G-
20, referred to the proposal as totally insufficient. The Chairman's 
text did not mention the elimination of subsidies but instead suggested 
that West African countries diversify out of cotton. The fact that the 
cotton initiative is one of the four key issues that the General 
Council Chairman has focused on after the ministerial, along with 
agriculture, industrial market access, and the Singapore issues, 
demonstrates its continued importance.

WTO Consensus-Building Process Broke Down:

Finally, certain participants have also cited the WTO's cumbersome 
process for achieving consensus as contributing to the collapse of the 
talks. The WTO operates by consensus, meaning that any one participant 
opposing an item can block agreement. In the EU Trade Commissioner's 
closing press conference in Cancun, he expressed frustration that there 
was no reliable way within the WTO to get all 146 member nations to 
work toward consensus. Relatively few formal meetings involving all 
members actually occurred in Cancun, although plenary sessions and 
working groups took place. Moreover, formal negotiating sessions 
involving all members were not conducive to practical discussion or to 
achieving consensus. Instead, they often involved formal speeches. As a 
result, small group meetings were used to obtain frank input and 
conduct actual negotiations. Although efforts were made to keep the 
whole membership involved through daily heads of delegations meetings, 
certain members expressed a sense of frustration and confusion as 
epitomized by indignation by some members at the subjects being 
discussed during the green room meeting on the last day.

The Conference Chairman's decision to make the controversial Singapore 
issues, and not agriculture, the first and last item for discussion on 
the last day of the ministerial conference caused a backlash by a group 
of developing countries that ultimately precipitated the meeting's 
collapse. As opposed to the day-to-day negotiations, which are overseen 
in Geneva by the Director General acting as the head of the TNC and by 
the General Council Chairman, WTO ministerial conferences are unusual 
in that the Conference Chairman is the only person with the power to 
call and adjourn meetings, to invite participants, and to choose the 
topics for discussion. At Cancun, after the heads of delegations 
meeting the night before, the Chairman decided, after consulting with 
certain ministers, that he needed to see if there was any way to reach 
consensus on the Singapore issues, which seemed to him to be 
intractable. As a result, he convened a closed-door meeting of about 30 
ministers broadly representative of the whole WTO membership on the 
morning of the final day of the conference to discuss them. According 
to reports, the EU representative reiterated at the beginning of this 
final, closed-door meeting his long-standing position that all four 
Singapore issues must be negotiated. Some developing countries, on the 
other hand, opposed starting negotiations on those issues. As the 
meeting progressed, the EU agreed to drop two (investment and 
competition), maybe even three (government procurement), of the 
Singapore issues--leaving trade facilitation on the table. This EU 
concession reportedly prompted some traditional opponents such as 
Malaysia and India to show some flexibility. The Chairman then recessed 
the meeting and asked the ministers to confer with other ministers who 
were not present in the "green room" to see whether there was consensus 
to negotiate on at least one of the Singapore issues.

During the break, at a meeting of the African, Caribbean, Pacific 
(ACP), LDC, and African Union members, many of the ministers present 
voiced surprise and indignation over the sequencing of topics under 
discussion in the closed-door meeting. They were upset that the 
Singapore issues were being discussed rather than agriculture. The 
Singapore issues were seen as rich members issues, while agriculture 
and cotton resonated with the poorer countries. Finally, members of the 
ACP/African Union/LDC coalition believed that no deal was better than a 
bad deal, and a deal on the Singapore issues in the absence of any 
agreement on agriculture or the cotton initiative was deemed a bad 
deal. As one country member rhetorically asked during the debate--"What 
are we taking home for the poor? We must say no.":

When the 30-country meeting reconvened, Botswana reported the decision 
of the ACP countries to the group, indicating that they could not 
accept negotiation on any of the Singapore issues, including trade 
facilitation, because "not enough was on the table." According to 
reports, Korea, on the other hand, said it could not accept dropping 
any of the Singapore issues.

The Conference Chairman then said that consensus could not be reached 
and decided to close the conference without agreement on any issue. At 
a press briefing later that afternoon after the collapse of the talks, 
the Chairman explained that he had begun with the Singapore issues 
because of the dissent voiced on that issue during the meeting the 
night before. He further explained that he had decided to end the 
ministerial because it was clear to him that consensus could not be 
reached. Some countries, including certain EU member states and some 
developing countries, however, complained about what they saw as a 
precipitous decision to end the talks.

Concluding Observations:

The Cancun Ministerial Conference highlighted the challenge of meeting 
the high and sometimes competing expectations created at Doha of both 
developing and developed countries, particularly with respect to 
negotiations on critical agricultural issues. While the issue has been 
contentious for many years, the Cancun experience demonstrates that 
forward movement on agriculture is central to the possibility of making 
further progress in the Doha Development Round. Although the Cancun 
meeting ended because of the lack of consensus on negotiating the 
Singapore issues, what many developing nations wanted from the 
developed world were concessions on agriculture, in particular dramatic 
reductions in export subsidies and domestic support.

At this point, it is difficult to predict how the setback at Cancun 
will ultimately affect the Doha Development Round negotiations. There 
are some signs that both developed and developing countries are 
rethinking their positions. The United States and the European Union 
have shifted away from taking an active leadership role, but have 
recently signaled some willingness to engage in further negotiations. 
Although a number of G-20 members have abandoned the group or made 
statements undercutting its unanimity of views, the group's founders 
still appear intent to play a leadership role in pushing for global 
agriculture reform. While progress remains possible, political events 
scheduled to occur over the next year may add uncertainty to the 
negotiating process. For example, in the United States, the 2004 
presidential and congressional elections are looming, and protectionist 
pressures are rising along with the U.S. trade deficit. Elections in 
Europe and in one of the largest developing countries, India, may also 
have an impact on the negotiations. Finally, how WTO members handle 
long-simmering disputes on such topics as corporate tax subsidies and 
steel could also affect the negotiating climate. In this regard, 
President Bush's recent decision to lift safeguard tariffs on steel may 
be viewed as an important development.

As we have noted in previous reports, the WTO has often found it 
difficult to achieve consensus and bridge its members' strongly held, 
disparate views on politically sensitive issues, in part because it is 
an ever-growing, more complex, and diverse organization.[Footnote 37] 
Various devices, such as interim deadlines, were put in place for the 
first stage of Doha negotiations to redress these significant 
organizational challenges, but they fell short of achieving desired 
progress. The WTO Director General and General Council Chairman have 
been given the green light to work with WTO members to narrow 
differences on key issues in hopes that they can still salvage an 
agreement by the January 1, 2005, deadline. However, the failure to 
achieve substantive progress by mid-December casts further doubt.

One important consideration is that the delay in WTO negotiations could 
intensify momentum for concluding bilateral, subregional, or regional 
trade agreements. This has already happened in the United States, 
which, though remaining engaged in the WTO, has recently concluded 
three such agreements (Chile, Singapore, and Central America), is 
currently conducting negotiations on three others (Australia, Morocco 
and Southern African Customs Union), and has committed to begin 
negotiations on five others (Dominican Republic, Bahrain, Thailand, 
Panama, and the Andean region) as well as the 34-nation Free Trade Area 
of the Americas. Additional possibilities are in the wings. The effect 
that a proliferation of these kinds of agreements would have on the WTO 
is unclear.

Agency Comments and Our Evaluation:

We requested comments on a draft of this report from the U.S. Trade 
Representative, the Secretary of Commerce, the Secretary of 
Agriculture, and the Secretary of State, or their designees. USDA's 
Foreign Agricultural Service agreed with our report's factual findings 
and analysis. Commerce's Deputy Assistant Secretary for Agreements 
Compliance provided us with technical oral comments on the draft, which 
we incorporated into the report as appropriate. The Secretary of State 
declined to comment on our report. The U.S. Trade Representative 
provided formal comments (see app. IV), indicating that many of the 
issues identified in GAO's analysis are consistent with the U.S. 
assessment of issues that must be addressed to put negotiations back on 
track in 2004. He stressed the United States is ready to exercise 
leadership provided other countries are prepared to negotiate 
meaningfully. The Assistant U.S. Trade Representative for WTO and 
Multilateral Affairs and other USTR staff also provided us with oral 
comments. While agreeing with much of the report's information, they 
provided a number of factual and technical comments, which we 
incorporated as appropriate. In addition, USTR staff expressed some 
concern that the overall tone of the report placed too much emphasis on 
the importance of the Cancun ministerial itself and on the North-South 
divide, particularly given the meeting's mandate from Doha and 
individual country positions. While we stand by the overall balance 
struck in our report, we did add some information to reflect the 
diversity within developing country ranks evident on certain issues.

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 Web site at 
[Hyperlink, http://www.gao.gov] http://www.gao.gov.

If you or your staff have any questions about this report, please 
contact me at (202) 512-4347. Additional GAO contacts and staff 
acknowledgments are listed in appendix V.

Loren Yager: 
Director, International Affairs and Trade:

Signed by Loren Yager: 

[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 analyze (1) the overall 
status of the World Trade Organization's (WTO) negotiations on the eve 
of the WTO's ministerial conference at Cancun, Mexico, in September 
2003; (2) the key issues for the Cancun Ministerial Conference and how 
they were dealt with at Cancun; and (3) the factors that influenced the 
outcome of the Cancun Ministerial Conference.

We followed the same overall methodology to complete the two first 
objectives. From the WTO, we analyzed the 2001 Doha Ministerial 
Declaration and related documents, the July and August versions of the 
draft Cancun Ministerial Declaration, and other speeches and proposals 
from WTO officials, as well as some negotiation proposals from WTO 
members. From the WTO, U.S. government agencies, and foreign country 
officials, we obtained background information regarding negotiating 
proposals and positions.

We met with a wide variety of U.S. government and private sector 
officials, foreign government officials, and WTO officials. Before the 
Cancun ministerial, we met with officials from the Office of the U.S. 
Trade Representative (USTR) and the U.S. Departments of Commerce, 
Agriculture, and State. We also met with officials from the Grocery 
Manufacturers of America and the Pharmaceutical Researchers and 
Manufacturers of America. In addition, we met with representatives from 
developed and developing countries in Washington, D.C., including 
Australia, Malaysia, Brazil, and Costa Rica. Further, we traveled to 
the WTO's headquarters in Geneva, Switzerland, where we met with WTO 
officials and member country representatives from developed and 
developing countries, including Australia, Canada, the European Union 
(EU), Japan, Brazil, China, Malaysia, Mexico, and India.

To analyze the factors that influenced the outcome of the Cancun 
ministerial, we attended the Cancun Ministerial Conference in Mexico in 
September 2003. In Cancun, we attended USTR congressional briefings and 
went to press conferences and meetings open to country delegates. Also, 
we reviewed domestic and international news media reports; news 
releases on the developments at the ministerial conference and 
statements about the outcome of the ministerial conference from the 
WTO, the U.S. and foreign governments, and other international 
organizations.

To analyze the various tariff cutting formulas being proposed, we 
employed the following procedure. For agricultural market access, we 
compared an across-the-board tariff cut of 25 percent (also known as 
the "Uruguay Round" formula)[Footnote 38] to a harmonizing or "Swiss 
formula" with a coefficient of 25.[Footnote 39] On nonagricultural 
market access, we analyzed the Chair's proposal.[Footnote 40] We 
employed a coefficient of 1 for the Chair's proposal. Since the Chair's 
proposal includes average overall tariffs as part of the formula, we 
compared how final tariffs on products with a given tariff level to 
begin with would differ for countries with average tariffs of 4 
percent, 15 percent, and 30 percent. We selected the United States, 
Malaysia, and Brazil as examples of countries that respectively fit 
into those categories on the basis of WTO annual World Trade Report 
data on average overall bound tariff rates.

We performed our work from June to October 2003 in accordance with 
generally accepted government auditing standards.

[End of section]

Appendix II: Significant Events in the WTO Negotiations before and 
during the Cancun Ministerial Conference:

July 2003: 

Trade Negotiations Committee (TNC) meets; The Chairman of the TNC, 
which had been established to oversee the Doha Round of global trade 
talks, reported that while the work of the TNC and its subsidiary 
bodies intensified in 2003, real negotiations had not yet begun.

WTO General Council Chairman prepares draft ministerial declaration; 
The text is intended as a first draft of an operational text through 
which ministers at Cancun would register decisions and give guidance 
and instruction in the negotiations. It reflects a lack of progress on 
key issues, as shown by its skeletal nature and the bracketed 
(disputed) items relating to "modalities" (rules and guidelines for 
subsequent negotiations) for agriculture, nonagricultural market 
access, and the Singapore issues (investment, competition [antitrust], 
government procurement, and trade facilitation).

Montreal mini-ministerial occurs; Approximately 30 trade ministers 
from WTO members meet in Montreal to prepare for the Cancun 
Ministerial Conference. At the meeting, the ministers encourage the 
United States and the EU to narrow their differences on the central 
issue of agriculture.

August 2003: 

U.S. and EU submit joint agriculture framework; The framework includes 
reductions in domestic support, with those members with higher 
subsidies making deeper cuts, a three-pronged strategy to reduce 
tariffs, and reduction of export subsidies.

Group of 20 Developing countries submit agriculture counterproposal; 
The proposal includes substantial cuts in domestic subsidies by 
developed countries, a tariff reduction formula that allows developing 
countries to make less substantial cuts, and the elimination of export 
subsidies.

General Council Chairman and WTO Director General submit revised draft 
ministerial declaration; Now 23 pages, the text continues to reflect 
significant differences between members on many issues. It includes 
frameworks for modalities in agriculture and nonagricultural market 
access as well as proposed modalities on each of the Singapore issues. 
Additionally, it includes a section related to a proposal by Burkina 
Faso, Benin, Chad, and Mali to eliminate cotton subsidies and provide 
compensation to the four countries while the subsidies are phased out.

General Council approves Agreement on Trade-Related Aspects of 
Intellectual Property Rights (TRIPS) and public health solution; WTO 
members complete discussions mandated in Doha to make it easier for 
poorer countries to import cheaper generic drugs made under compulsory 
licensing if they are unable to manufacture the medicines themselves. 
The United States, previously the only member preventing an agreement, 
joins the consensus after the General Council Chairman provides a 
statement regarding WTO members' shared understanding of the 
interpretation and implementation of the decision.

September 10, 2003: 

Day 1 of Cancun Ministerial Conference; Mexican President opens the 
ministerial conference, and ministers start work on key issues. The 
Conference Chairman appoints ministers to facilitate discussions on 
key issues--agriculture, nonagricultural market access, development 
issues, Singapore issues, and other issues. Ministers also debate a 
proposal on cotton from four African members.

Day 2; The first informal heads of delegation meeting occurs, and the 
Director General is appointed to facilitate discussions on the cotton 
initiative. Group discussions also take place on agriculture, 
nonagricultural market access, the Singapore issues, development 
issues, and other issues.

Day 3; A second informal heads of delegation meeting occurs in the 
morning and includes reports by the facilitators on each issue. 
Working group meetings continue throughout the day and conclude with a 
heads- of-delegation meeting at night. The Conference Chairman commits 
to draft a new version of the ministerial text and circulate it by the 
middle of the following day.

Day 4; The Conference Chairman distributes a new draft ministerial 
text at a meeting with heads of delegations and then asks them to 
study the text and reconvene in the evening. After ministers 
reconvene, many criticize the draft text, arguing that their 
particular concerns have not been included. At the close of the 
meeting, the Conference Chairman warns ministers that if the 
ministerial conference fails, the negotiations might take a long time 
to recover.

Day 5; The Conference Chairman begins closed-door consultations with 
30 ministers representing a wide range of regional and other groups on 
the subject of the Singapore issues. During these consultations, 
positions shift, allowing the possibility of dropping two or possibly 
three of the issues. The Conference Chairman then suspends the meeting 
to allow participants to meet with their respective groups. When they 
return, there is no consensus on three, and the Conference Chairman 
decides to close the ministerial conference. Ministers subsequently 
approve a ministerial statement that instructs members to continue 
working on outstanding issues and to convene a meeting of the General 
Council by December 15 to take necessary action. 

Source: Analysis of WTO and U.S. government documents.

[End of table]

[End of section]

Appendix III: "Developing Countries" in the World Trade Organization:

The World Trade Organization (WTO) states that "about two thirds" of 
its 146 members are "developing countries." However, there are no WTO 
definitions of "developed" or "developing" countries--although the WTO 
does specifically recognize the 30 WTO members defined as "least 
developed countries" (LDC) by the United Nations. Instead, developing 
countries in the WTO are designated on the basis of self-selection 
within each individual WTO agreement. This is not necessarily 
automatically accepted because other WTO members can challenge the 
decision of another WTO member to make use of the special 
provisions[Footnote 41] available to developing countries. In fact, 
given the political sensitivities and potential legal issues involved, 
the WTO Secretariat does not list or distinguish developing countries 
in its reports; for example, it produces annual trade statistics 
organized by geographical region and not development status.

The World Bank, however, does use the term "developing 
economies"[Footnote 42] in its reports to denote the set of "low and 
middle income" national economies (subdivided into lower middle and 
upper middle) that it classifies on the basis of gross national income 
(GNI) per capita. We have used this definition to compile the list of 
"developing" WTO members in table 1. The World Bank divides all 
economies according to annual GNI per capita, calculated using the 
World Bank Atlas method.[Footnote 43] The 2002 GNI ranges in U.S. 
dollars for the groups are the following: "low income," $735 or less; 
"lower middle income," $736 - $2,935; "upper middle income," $2,936 - 
$9,075; and "high income," $9,076 or more.

Table 1: "Developing" World Trade Organization Members as of July 2003:

1; Country: Albania; World Bank income group: Lower middle income; 
Other: [Empty].

2; Country: Angola; World Bank income group: Low income; 
Other: LDC.

3; Country: Argentina; World Bank income group: Upper middle income; 
Other: [Empty].

4; Country: Armenia; World Bank income group: Lower middle income; 
Other: [Empty].

5; Country: Bangladesh; World Bank income group: Low income; 
Other: LDC.

6; Country: Belize; World Bank income group: Upper middle income; 
Other: [Empty].

7; Country: Benin; World Bank income group: Low income; 
Other: LDC.

8; Country: Bolivia; World Bank income group: Lower middle income; 
Other: [Empty].

9; Country: Botswana; World Bank income group: Upper middle income; 
Other: [Empty].

10; Country: Brazil; World Bank income group: Lower middle income; 
Other: [Empty].

11; Country: Bulgaria*; World Bank income group: Lower middle income; 
Other: [Empty].

12; Country: Burkina Faso; World Bank income group: Low income; 
Other: LDC.

13; Country: Burundi; World Bank income group: Low income; 
Other: LDC.

14; Country: Cameroon; World Bank income group: Low income; 
Other: [Empty].

15; Country: Central African Republic; World Bank income group: Low 
income; Other: LDC.

16; Country: Chad; World Bank income group: Low income; 
Other: LDC.

17; Country: Chile; World Bank income group: Upper middle income; 
Other: [Empty].

18; Country: China; World Bank income group: Lower middle income; 
Other: [Empty].

19; Country: Colombia; World Bank income group: Lower middle income; 
Other: [Empty].

20; Country: Congo, Dem. Rep.; World Bank income group: Low income; 
Other: LDC.

21; Country: Congo, Republic; World Bank income group: Low income; 
Other: [Empty].

22; Country: Costa Rica; World Bank income group: Upper middle income; 
Other: [Empty].

23; Country: Cte d'Ivoire; World Bank income group: Low income; 
Other: [Empty].

24; Country: Croatia; World Bank income group: Upper middle income; 
Other: [Empty].

25; Country: Cuba; World Bank income group: Lower middle income; 
Other: [Empty].

26; Country: Czech Republic*; World Bank income group: Upper middle 
income; Other: EU/2004.

27; Country: Djibouti; World Bank income group: Lower middle income; 
Other: LDC.

28; Country: Dominica; World Bank income group: Upper middle income; 
Other: [Empty].

29; Country: Dominican Republic; World Bank income group: Lower middle 
income; Other: [Empty].

30; Country: Ecuador; World Bank income group: Lower middle income; 
Other: [Empty].

31; Country: Egypt, Arab Republic; World Bank income group: Lower 
middle income; Other: [Empty].

32; Country: El Salvador; World Bank income group: Lower middle income; 
Other: [Empty].

33; Country: Estonia*; World Bank income group: Upper middle income; 
Other: EU/2004.

34; Country: Fiji; World Bank income group: Lower middle income; 
Other: [Empty].

35; Country: Gabon; World Bank income group: Upper middle income; 
Other: [Empty].

36; Country: Gambia, The; World Bank income group: Low income; 
Other: LDC.

37; Country: Georgia; World Bank income group: Low income; 
Other: [Empty].

38; Country: Ghana; World Bank income group: Low income; 
Other: [Empty].

39; Country: Grenada; World Bank income group: Upper middle income; 
Other: [Empty].

40; Country: Guatemala; World Bank income group: Lower middle income; 
Other: [Empty].

41; Country: Guinea; World Bank income group: Low income; 
Other: LDC.

42; Country: Guinea-Bissau; World Bank income group: Low income; 
Other: LDC.

43; Country: Guyana; World Bank income group: Lower middle income; 
Other: [Empty].

44; Country: Haiti; World Bank income group: Low income; 
Other: LDC.

45; Country: Honduras; World Bank income group: Lower middle income; 
Other: [Empty].

46; Country: Hungary*; World Bank income group: Upper middle income; 
Other: EU/2004.

47; Country: India; World Bank income group: Low income; 
Other: [Empty].

48; Country: Indonesia; World Bank income group: Low income; 
Other: [Empty].

49; Country: Jamaica; World Bank income group: Lower middle income; 
Other: [Empty].

50; Country: Jordan; World Bank income group: Lower middle income; 
Other: [Empty].

51; Country: Kenya; World Bank income group: Low income; 
Other: [Empty].

52; Country: Kyrgyz Republic; World Bank income group: Low income; 
Other: [Empty].

53; Country: Latvia*; World Bank income group: Upper middle income; 
Other: EU/2004.

54; Country: Lesotho; World Bank income group: Low income; 
Other: LDC.

55; Country: Lithuania*; World Bank income group: Upper middle income; 
Other: EU/2004.

56; Country: Macedonia, Former Yugo. Rep.; World Bank income group: 
Lower middle income; Other: [Empty].

57; Country: Madagascar; World Bank income group: Low income; 
Other: LDC.

58; Country: Malawi; World Bank income group: Low income; 
Other: LDC.

59; Country: Malaysia; World Bank income group: Upper middle income; 
Other: [Empty].

60; Country: Maldives; World Bank income group: Lower middle income; 
Other: LDC.

61; Country: Mali; World Bank income group: Low income; 
Other: LDC.

62; Country: Mauritania; World Bank income group: Low income; 
Other: LDC.

63; Country: Mauritius; World Bank income group: Upper middle income; 
Other: [Empty].

64; Country: Mexico; World Bank income group: Upper middle income; 
Other: [Empty].

65; Country: Moldova; World Bank income group: Low income; 
Other: [Empty].

66; Country: Mongolia; World Bank income group: Low income; 
Other: [Empty].

67; Country: Morocco; World Bank income group: Lower middle income; 
Other: [Empty].

68; Country: Mozambique; World Bank income group: Low income; 
Other: LDC.

69; Country: Myanmar; World Bank income group: Low income; 
Other: LDC.

70; Country: Namibia; World Bank income group: Lower middle income; 
Other: [Empty].

71; Country: Nicaragua; World Bank income group: Low income; 
Other: [Empty].

72; Country: Niger; World Bank income group: Low income; 
Other: LDC.

73; Country: Nigeria; World Bank income group: Low income; 
Other: [Empty].

74; Country: Oman; World Bank income group: Upper middle income; 
Other: [Empty].

75; Country: Pakistan; World Bank income group: Low income; 
Other: [Empty].

76; Country: Panama; World Bank income group: Upper middle income; 
Other: [Empty].

77; Country: Papua New Guinea; World Bank income group: Low income; 
Other: [Empty].

78; Country: Paraguay; World Bank income group: Lower middle income; 
Other: [Empty].

79; Country: Peru; World Bank income group: Lower middle income; 
Other: [Empty].

80; Country: Philippines; World Bank income group: Lower middle income; 
Other: [Empty].

81; Country: Poland*; World Bank income group: Upper middle income; 
Other: EU/2004.

82; Country: Romania*; World Bank income group: Lower middle income; 
Other: [Empty].

83; Country: Rwanda; World Bank income group: Low income; 
Other: LDC.

84; Country: Senegal; World Bank income group: Low income; 
Other: LDC.

85; Country: Sierra Leone; World Bank income group: Low income; 
Other: LDC.

86; Country: Slovak Republic*; World Bank income group: Upper middle 
income; Other: EU/2004.

87; Country: Solomon Islands; World Bank income group: Low income; 
Other: LDC.

88; Country: South Africa; World Bank income group: Lower middle 
income; Other: [Empty].

89; Country: Sri Lanka; World Bank income group: Lower middle income; 
Other: [Empty].

90; Country: St. Kitts and Nevis; World Bank income group: Upper middle income; 
Other: [Empty].

91; Country: St. Lucia; World Bank income group: Upper middle income; 
Other: [Empty].

92; Country: St. Vincent and the Grenadines; World Bank income group: 
Lower middle income; Other: [Empty].

93; Country: Suriname; World Bank income group: Lower middle income; 
Other: [Empty].

94; Country: Swaziland; World Bank income group: Lower middle income; 
Other: [Empty].

95; Country: Tanzania; World Bank income group: Low income; 
Other: LDC.

96; Country: Thailand; World Bank income group: Lower middle income; 
Other: [Empty].

97; Country: Togo; World Bank income group: Low income; 
Other: LDC.

98; Country: Trinidad and Tobago; World Bank income group: Upper 
middle income; Other: [Empty].

99; Country: Tunisia; World Bank income group: Lower middle income; 
Other: [Empty].

100; Country: Turkey; World Bank income group: Lower middle income; 
Other: [Empty].

101; Country: Uganda; World Bank income group: Low income; 
Other: LDC.

102; Country: Uruguay; World Bank income group: Upper middle income; 
Other: [Empty].

103; Country: Venezuela; World Bank income group: Upper middle income; 
Other: [Empty].

104; Country: Zambia; World Bank income group: Low income; 
Other: LDC.

105; Country: Zimbabwe; World Bank income group: Low income; 
Other: [Empty].

Source: GAO analysis of WTO and World Bank information.

Notes:

*=Listed by the Organization for Economic Cooperation and Development 
as a "Country in Transition" receiving aid, but not a "traditional" 
developing country.

EU/2004=Applicant joining European Union in May 2004.

[End of table]

Under the World Bank definition, the WTO membership currently has 105 
developing economies, 30 of which are defined by the United Nations as 
LDCs. This includes 44 low income countries; 35 lower middle income 
countries; and 26 upper middle income countries. There are 40 high 
income WTO members (not counting the EU's separate membership). The 
Cancun ministerial also recognized that upon ratification in their 
national parliaments, Cambodia and Nepal will accede to the WTO, both 
of which are LDCs.

[End of section]

Appendix IV: Comments from the Office of the U.S. Trade Representative:

EXECUTIVE OFFICE OF THE PRESIDENT 
THE UNITED STATES TRADE REPRESENTATIVE 
WASHINGTON, D.C. 20508:

JAN 7 2004:

Mr. David M. Walker:

Comptroller General of the United States 
U.S. General Accounting Office 
Washington, D.C. 20548:

Dear Mr. Walker:

Thank you for the opportunity to submit comments on the draft General 
Accounting Office (GAO) report entitled: "World Trade Organization: 
Cancun Ministerial Fails to Move Global Trade Negotiations." The Bush 
Administration considers the current round of multilateral trade 
negotiations - the Doha Development Agenda (DDA) - to be an integral 
part of our broader trade strategy to foster economic growth through 
comprehensive agricultural reform and wide-ranging trade 
liberalization in goods and services. I wanted to offer our comments as 
we look ahead to the DDA in 2004.

Your report provides a useful snapshot of the developments leading to, 
and at, the World Trade Organization's (WTO) Fifth Ministerial 
Conference in Cancun, Mexico, last September. Clearly, as the report 
confirms, agriculture is at the heart of the DDA. In the weeks leading 
up to the Cancun meeting, the United States and Europe, at the request 
of other Members, tried to developed a framework for agriculture to 
move those talks forward. It is significant that the Chair's text that 
was sent to Cancun included the outlines of that framework, and the 
structure remains in the draft Cancun text. Unfortunately, in Cancun 
many other WTO Members were unable to engage in the give-and-take 
necessary to move the negotiations forward. While this lack of progress 
in agriculture was the overriding issue that contributed to the 
impasse, it was also true that the evolution of the trading system, 
particularly the increased role and participation of many more 
countries, mostly developing countries, made the negotiations much more 
complex.

As the GAO is aware, the United States played a key role in launching 
the WTO negotiations at Doha, advanced them by proposing the 
elimination of all tariffs on goods and huge cuts in agricultural 
tariffs and subsidies, and solved the contentious access-to-medicines 
issue prior to the Cancun ministerial. After Cancun, the United States 
suggested a resumption based on the draft Cancun text, an idea that has 
won widespread support around the world. A realistic assessment is that 
progress now will depend on the European Union's willingness to 
eliminate agricultural export subsidies; the EU and Japan being 
flexible on opening agricultural market access as well as cutting other 
subsidies, along with the United States; mid-level developing countries 
lowering their barriers for goods, agriculture, and services; a 
compromise on the so-called "Singapore issues"; and continued 
commitment from all countries.

Since Cancun, many countries at various levels of development have 
signaled their agreement that Cancun represented a missed opportunity 
for the trading system and have shown an interest in returning to the 
negotiating table. As I write this letter, the WTO General Council has 
completed its work for the year, with the submission of an important 
report by Chairman Perez-del-Castillo on the key issues that need to be 
addressed if the Round is to move forward. Many of the issues outlined 
by the Chairman have been identified in your analysis, and are 
consistent with the U.S. assessment of issues that must be addressed if 
negotiations are to be put back on track in the new year.

As others determine their interest and flexibility in the WTO 
negotiations, U.S. trade policy is freeing trade all around the world 
through our FTA initiatives around the globe.	These efforts, combined 
with our continued strong commitment to the multilateral trading system 
and the maintenance of the rules-based system embodied in the WTO, are 
powerful incentives for progress in 2004. Whether others are ready to 
meet the challenges identified remains to be seen. The United States is 
ready to exercise its leadership in the new year in moving the WTO 
agenda forward, provided that other countries are prepared to negotiate 
meaningfully. Thus, we hope and expect that as other governments 
reflect on the Chair's statement that they, too, will signal a 
readiness to engage in the real give-and-take of negotiations.

I appreciate the work of the GAO in analyzing the progress to date in 
the WTO on the Doha Development Agenda. We look forward to working with 
other WTO Members to put the negotiations on a sound, and ultimately 
successful, footing.

Sincerely,

Robert B. Zoellick: 

Signed by Robert B. Zoellick: 

[End of section]

Appendix V: GAO Contact and Staff Acknowledgments:

GAO Contacts:

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

Staff Acknowledgments:

In addition to the individuals named above, Jason Bair, Etana Finkler, 
R. Gifford Howland, David Makoto Hudson, Jos Martinez-Fabre, Rona 
Mendelsohn, Jon Rose, and Richard Seldin made key contributions to this 
report.

(320195):

FOOTNOTES

[1] The negotiations are formally called the Doha Development Agenda 
but are commonly referred to as the Doha Round.

[2] See WTO, Cancun Briefing Notes, "Facts for the Fifth," http://
www.wto.org/english/thewto_e/minist_e/min03_e/brief_e/brief24_e.htm.

[3] The 30 least developed countries are listed in appendix III. WTO 
rules provide these nations special treatment.

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

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

[6] CAP is a set of rules and regulations governing agricultural 
production in the EU. CAP rules cover most aspects of agricultural 
activity, including support to farmers, production methods, marketing, 
and controls over quantities of food that different agriculture sectors 
can produce.

[7] The term Singapore issues originated from the work program of the 
1996 ministerial conference in Singapore, which created three working 
groups on the issues of trade and investment, trade and competition 
policy, and transparency in government procurement. Trade facilitation 
was also highlighted as a priority in the Singapore Declaration.

[8] WTO members were unable to reach consensus by the mandated December 
2002 deadline due to U.S. insistence that certain protections for 
research-based pharmaceutical companies be included in an agreement. 
Consultations on the issue intensified during the summer, as WTO 
members concluded that it must be resolved by the Cancun Ministerial 
Conference. At the end of August, the General Council approved a 
decision on implementation of paragraph 6 of the Doha Declaration on 
TRIPS and public health with an attached statement by the General 
Council Chairman regarding WTO members' shared understanding of the 
interpretation and implementation of the decision. The agreement waived 
certain provisions of the TRIPS agreement that prevented countries from 
exporting generic copies of patented medicines. 

[9] 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 applying to exports only.

[10] Domestic supports are payments made to farmers that raise prices 
or guarantee income. They include such measures as government buying at 
a guaranteed price and commodity loan programs, or making direct 
payments to farmers. 

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

[12] The members of the Cairns Group are Argentina, Australia, Bolivia, 
Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Indonesia, 
Malaysia, New Zealand, Paraguay, the Philippines, South Africa, 
Thailand, and Uruguay. The group takes its name from the city in 
Australia where members first met in 1986. 

[13] This is the latest year that WTO data are available.

[14] The WTO classifies agricultural domestic support into three 
categories identified by "boxes": green (permitted), amber (trade-
distorting subsidies that must be reduced), and blue (production 
limiting). Thirty WTO members have commitments to reduce their trade-
distorting amber box supports. All the rest of the WTO members are 
capped at zero.

[15] This is also known as a "Uruguay Round" formula, because it is the 
same approach to cutting agriculture tariffs that was used during the 
prior round of global trade talks.

[16] Export credit guarantee programs are programs that offer loan 
guarantees to buyers in certain countries where credit markets are not 
fully developed.

[17] Importantly, the U.S.-EU framework included a provision that would 
modify current WTO regulations on "blue box" subsidies (see fn. 14). 
The U.S.-EU framework would modify the definition such that U.S. 
countercyclical payments (those payments made to producers when the 
price received by farmers for a commodity is less than the target 
price) authorized under the 2002 Farm Bill could be counted in this 
category. Many countries reacted negatively to this aspect of the U.S.-
EU compromise.

[18] The group had 20 members originally, but its membership has 
fluctuated since tabling the agriculture framework. 

[19] Tariff peaks are tariffs that exceed a selected reference level. 
National tariff peaks are considered to be those tariffs that exceed 
three times the national mean tariff.

[20] Tariff escalation is a practice that countries often use, whereby 
they increase tariffs in relation to the degree of processing found in 
a product.

[21] An extensive discussion of special and differential treatment 
appears later in this report.

[22] The chair's proposal also addressed elimination of low duties and 
non-tariff barriers.

[23] If a coefficient of 1 was used in the chairman's formula. This GAO 
calculation is based on overall average tariff rates of 30 percent and 
15 percent, respectively. See appendix I for further details. The 
chairman did not specify coefficients to be used, and Malaysia 
presented a proposal that different coefficients be used for different 
countries.

[24] Additional flexibility would be available to the least developed 
and International Development Association (IDA) only countries. IDA-
only countries are countries that are eligible to borrow from the IDA, 
a concessional World Bank lending facility for the world's poorest 
countries, which are not also qualified to borrow from the Banks' 
regular lending facility, the International Bank for Reconstruction and 
Development.

[25] See document #S/L/92 - http://docsonline.wto.org The guidance and 
procedures for the negotiations included two key principles: (1) no 
sectors should be excluded from the negotiations, and (2) negotiations 
to further open services markets can occur in bilateral, plurilateral, 
or multilateral groups, mainly using a request-offer method, with 
results applied to all WTO members equally on a most-favored-nation 
basis. 

[26] In the context of the services negotiations, members' offers in 
services include the addition of new sectors, the removal of existing 
limitations or the binding of modes of supplying services not currently 
committed, the undertaking of additional commitments, and the 
termination of exemptions that deny equal treatment to foreign services 
suppliers. 

[27] These members had submitted initial offers before Cancun: 
Argentina, Australia, Bahrain, Bolivia, Canada, Chile, China, Chinese 
Taipei, Colombia, Czech Republic, Fiji, Guatemala, Hong Kong-China, 
Iceland, Israel, Japan, Korea, Liechtenstein, Macao-China, Mexico, New 
Zealand, Norway, Panama, Paraguay, Peru, Poland, Senegal, Singapore, 
Slovak Republic, Slovenia, Sri Lanka, St. Kitts & Nevis, Switzerland, 
Thailand, the European Union, Turkey, United States, and Uruguay. See 
appendix III for a list of developing countries. 

[28] These measures are provisions in trade agreements that permit a 
party to suspend its obligations when imports cause or threaten to 
cause serious harm to domestic producers. The General Agreement on 
Trade in Services does not yet have such provisions, although article X 
requires negotiations on this matter. 

[29] Special and differential treatment includes, among other things, 
the concept that exports from developing countries should be given 
preferential access to markets of developed countries and that 
developing countries participating in trade negotiations need not fully 
reciprocate the concessions they receive. See document # WT/MIN (01)/
DEC/1-Paragraph 44 - http://docsonline.wto.org

[30] Specifically, paragraph 8 of article XXXVI of the General 
Agreement on Tariffs and Trade merits special mention. It states that 
developed countries do not expect reciprocity for commitments they make 
in trade negotiations to reduce or remove tariffs and other barriers to 
the trade of developing countries. An interpretative note clarifies 
that the sentence "do not expect reciprocity" means that developed 
countries do not expect developing countries, in the course of trade 
negotiations, to make contributions that are inconsistent with their 
individual development, financial, and trade needs.

[31] Graduation and differentiation proposals would establish different 
levels of flexibilities for Members at different levels of development, 
and set some criteria for countries to graduate out of these 
flexibilities. 

[32] Implementation issues refer to a set of issues relating to 
developing countries' ability to implement existing WTO agreements. 
First, many developing countries considered their Uruguay Round 
obligations to be too heavy for them. Second, developing countries 
believed that there should be negotiations to redress the unfair 
balance of the responsibilities they carried. Third, developing 
countries argued that in order to meet some of their obligations, they 
needed additional technical assistance and extended deadlines. Under 
these circumstances, some developing countries argued that new 
obligations should not be negotiated until they could fulfill their 
current ones.

[33] See document # Job(03)/150/Rev.1 - paragraph 11 and 12 http://
docsonline.wto.org. 

[34] The members of the African Group include Angola, Benin, Botswana, 
Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Congo, 
Congo (Democratic Republic), Cte d'Ivoire, Djibouti, Egypt, Gabon, The 
Gambia, Ghana, Guinea, Guinea Bissau, Kenya, Lesotho, Madagascar, 
Malawi, Mali, Mauritania, Mauritius, Morocco, Mozambique, Namibia, 
Niger, Nigeria, Rwanda, Senegal, Sierra Leone, South Africa, Swaziland, 
Tanzania, Togo, Tunisia, Uganda, Zambia, and Zimbabwe. 

[35] Levels of development among developing countries vary 
significantly. Based on that fact, the World Bank makes a distinction 
among developing countries by categorizing them as low-income, lower-
middle income, upper-middle, and high-countries. However, WTO rules 
contain no such distinction. See appendix III. 

[36] Geographical indications are names that identify a good as 
originating in a country, region, or locality where a given quality 
reputation is essentially attributable to its geographical origin. The 
TRIPs Agreement currently protects geographical indications, but the EU 
and others have sought to increase those protections in several parts 
of the current negotiations.

[37] See U.S. General Accounting Office, World Trade Organization: 
Seattle Ministerial Outcomes and Lessons Learned, GAO/T-NSIAD-00-86 
(Washington, D.C.: Feb. 10, 2000) and U. S. General Accounting Office, 
World Trade Organization: Early Decisions Vital to Progress in Ongoing 
Negotiations, GAO-02-879 (Washington, D.C.: Sept. 4, 2002).

[38] A linear or across-the-the board tariff cutting formula means all 
tariff rates will be reduced by the same percentage. Assume that the 
initial tariff rate prior to negotiations is given by t0 and the final 
tariff rate resulting from the negotiations is t1. The expression, 
which relates the two tariff rates, where c is a constant parameter, 
would be:

[See PDF for formula]

[End of figure]

The final tariff rate would necessarily depend upon both the parameter 
c and the initial tariff rate. The original tariff rate is not a 
determinant of the rate of reduction. For purposes of this illustrative 
example, we used the parameter 0.75 to represent a 25 percent across-
the-board tariff cut. 

For further information, see WTO, Formula Approaches To Tariff 
Negotiations (Note By The Secretariat) TN/MA/S/3/Rev.2, April 11, 2003.

[39] According to the WTO, the harmonizing or so-called Swiss formula 
that has been used so far in tariff negotiations has the following 
specification.

[See PDF for formula]

[End of figure]     

The formula has the property of being a function of both the initial 
tariff and the coefficient a. The coefficient can be negotiated. For 
purposes of this illustrative example, we used a coefficient of 25.

[40] The chair's formula is defined as it was described in report by 
the chairman, Ambassador Girard, to the Trade Negotiations Committee, 
WTO Document TN/MA/12, September 1, 2003, Annex I, Para. 7, p. 8 and 9.

[See PDF for formula]

[End of figure]

where, 

t1 is the final rate, to be bound in ad valorem terms

t0 is the base rate

ta is the average of the base rates

B is a coefficient with a unique value to be determined by the 
participants. For purposes of our analysis, we assumed a coefficient of 
1 would be used for all countries. However, the Chair's proposal does 
not specify the value of coefficient and leaves open the possibility 
that a different coefficient could be used.

[41] Developing country status in the WTO brings certain rights. For 
example, provisions in some WTO agreements provide developing countries 
with the right to restrict imports to help establish certain 
industries, longer transition periods before they fully implement 
agreement terms, and eligibility to receive technical assistance. See 
article XVIII of the General Agreement on Tariffs and Trade (GATT), 
articles IV, XII, and XXV of the General Agreement on Trade in 
Services, and articles 66 and 67 in the Agreement on Trade-Related 
Aspects of Intellectual Property Rights. In addition, developing 
countries may benefit from the Generalized System of Preferences, under 
which developed countries may offer nonreciprocal preferential 
treatment (such as zero or low duties on imports) to products 
originating in those developing countries the preference-giving country 
so designate. See Decision on Differential and More Favourable 
Treatment, Reciprocity and Fuller Participation of Developing 
Countries, adopted under GATT in 1979. 

[42] World Bank publications with notes on the classification of 
economies state that the term "developing economies...does not imply 
either that all the economies belonging to the group are actually in 
the process of developing, nor that those not in the group have 
necessarily reached some preferred or final stage of development."

[43] The Atlas conversion factor for any year is the average of a 
country's exchange rate (or alternative conversion factor) for that 
year and its exchange rates for the 2 preceding years, adjusted for the 
difference between the rate of inflation in the country, and for 2001 
onwards, that in the Euro Zone, Japan, the United Kingdom, and the 
United States. A country's inflation rate is measured by the change in 
its gross domestic product deflator.

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