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.
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.”
The ministerial conference is the highest decision-making authority in the  WTO and consists of trade ministers from all WTO members. 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. 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.
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).  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.
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. 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); and (3)  substantially reducing trade-distorting domestic support (subsidies).  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, 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 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. Although they agreed in principle on the desirability  of reducing trade-distorting subsidies, 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). 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.
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.
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 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) 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 and tariff escalation, 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  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 Côte 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.
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). 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.
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. 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, 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 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. 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 for services.  Second, the adoption of modalities on September 3, 2003, for the special  and differential treatment 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. 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, 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 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. 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 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.    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. 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.
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. 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 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.

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. and the final tariff rate resulting from the negotiations is t. The expression, which relates  the two tariff rates, where c is a constant parameter, would be: t× a ------------- t× B t×------------------------ tt is the final rate, to be bound in ad valorem terms t  is the base rate t 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. 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.

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

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 , 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.
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.
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.

“Developing Countries” in the World Trade Organization

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. “lower middle income,” $736 - $2,935; “upper middle income,” $2,936 -  $9,075; and “high income,” $9,076 or more.
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.

Comments from the Office of the U.S. Trade Representative

GAO Contacts and Staff Acknowledgments

	GAO Contacts

	Staff Acknowledgments

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

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Summary:
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 world's 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 subjects--particularly 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 WTO's 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.