a

GAO

United States Government Accountability Office

Report to the Chairman, Committee on 

Finance, U.S. Senate, and to the 

Chairman, Committee on Ways and 

Means, House of Representatives

May 2005 WORLD TRADE 

ORGANIZATION

Global Trade Talks 

Back on Track, but 

Considerable Work 

Needed to Fulfill 

Ambitious Objectives

GAO-05-538
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

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

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Loren Yager at 

(202) 512-4347 or yagerl@gao.gov. 

Highlights of GAO-05-538, a report to the 

Chairmen, Senate Committee on Finance 

and House Committee on Ways and 

Means 

May 2005

WORLD TRADE ORGANIZATION

Global Trade Talks Back on Track, but 

Considerable Work Needed to Fulfill 

Ambitious Objectives 

During 2004, Doha Round negotiations got back on track as trade ministers 

signed a framework agreement known as the “July package.” By committing 

to eliminate agricultural export subsidies, the agreement’s main achievement 

was to recognize the importance of agriculture in the round and thus reopen 

talks on other issues. Since this breakthrough, negotiations are picking up 

momentum, as WTO members are working toward deadlines for more 

detailed agreements at the December 2005 Hong Kong ministerial 

conference. Yet despite the improved negotiating atmosphere, the talks are 

behind schedule, and considerable work remains on the numerous issues 

that must constitute a final agreement. 

Progress has been uneven on the six negotiating issues identified as central 

to the Hong Kong meeting—agriculture, trade facilitation (customs reforms), 

industrial market access, services, WTO rules, and development issues. The 

United States has particular reform interests in the first four of these issues. 

Progress has occurred on two of them: in agriculture, based on agreements 

in the July framework, and trade facilitation, for which talks have finally 

been started. However, little progress has been made on industrial market 

access and services, two other issues of interest to the United States. 

 

Several factors could affect progress in the critical period leading up to the 

December 2005 Hong Kong ministerial. Achieving consensus among the 

WTO’s 148 members is a challenging task, and diverse economic incentives 

and competing visions add complexity to the negotiations. Cooperation by 

the United States, the European Union, and some of the developing 

countries is also seen as key to a successful conclusion before U.S. Trade 

Promotion Authority expires in mid- 2007, an implicit deadline for the talks. 

The outcome of ongoing World 

Trade Organization (WTO) 

negotiations is vital to the U.S. 

economy, because trade with WTO 

members accounts for about onefifth of the U.S. gross domestic 

product. The current round of trade

negotiations—called the Doha 

Round—was supposed to end by 

January 2005 with agreement on 

the key issues of agriculture, 

industrial market access, services, 

and to strengthen the trading 

system’s contribution to economic 

development. Failure to reach any 

agreement at the last WTO 

ministerial meeting in Cancun, 

Mexico, in September 2003, put the 

talks behind schedule and 

threatened the outcome; however, 

talks resumed in 2004, and a new 

ministerial conference will convene 

in Hong Kong in December 2005. In 

light of these events, and with the 

impending renewal decision on 

U.S. Trade Promotion Authority, 

which streamlines the process by 

which Congress approves trade 

agreements, GAO was asked to 

assess (1) the overall status of the 

Doha Round negotiations, (2) 

progress on key negotiating issues, 

and (3) factors affecting progress 

toward concluding the 

negotiations. 
Page i GAO-05-538 World Trade Organization

Contents

Letter 1

Results in Brief 2

Background 4

Doha Round Behind Schedule but July Framework Injected New 

Momentum into Trade Talks after Failed Cancun Ministerial 8

Negotiators Have Made Uneven Progress in Key Issue Areas 15

Several Factors Pose Challenges to Successful Negotiations in Hong 

Kong 20

Concluding Remarks 27

Agency Comments and Our Evaluation 28

Appendixes

Appendix I: Objectives, Scope, and Methodology 29

Appendix II: Agriculture 31

Appendix III: Industrial Market Access 43

Appendix IV: Services 49

Appendix V: Economic Incentives for Doha Negotiations 54

Appendix VI: Trade Negotiating Interests and Affiliations of Leading 

Merchandise Exporters 62

Appendix VII: GAO Contacts and Staff Acknowledgments 67

Tables Table 1: Overall Goals for the Doha Round Negotiations from the 

Doha Declaration, U.S. Trade Promotion Authority 

Legislation, and USTR 7

Table 2: Trade Weighted Average Ad Valorem Agricultural Tariff 

Rates for Selected Countries and Products. (Tariffs in 

percent) 39

Table 3: Models Estimating the Economic Benefits from Tariff 

Reduction in the WTO Doha Round 57

Figures Figure 1: Timeline of Significant Events in the WTO Negotiations 

from the Cancun Ministerial to August 2004 11

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

Forward 14

Figure 3: Types of Domestic Supports—WTO Definitions 34
Contents

Page ii GAO-05-538 World Trade Organization

Figure 4: Recent Amber Box Spending Patterns for the European 

Union and United States, as Measured by Aggregate 

Measure of Support 35

Figure 5: Tariff Reduction Formulas Considered for Improving 

Agricultural Market Access 41

Figure 6: Potential Special and Differential Treatment Provisions 

Discussed in the July Framework on NAMA 44

Figure 7: Various Formula Specifications for Tariff Reductions 

Considered with the NAMA Negotiations 45

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Page 1 GAO-05-538 World Trade Organization

United States Government Accountability Office

Washington, D.C. 20548

A

May 31, 2005 Letr

The Honorable Charles Grassley

Chairman

Committee on Finance

United States Senate

The Honorable William H. Thomas

Chairman

Committee on Ways and Means

House of Representatives

U.S. trade with members of the World Trade Organization (WTO) totaled 

$2.1 trillion in 2004, accounting for almost one-fifth of U.S. gross domestic 

product. As such, the United States has a considerable stake in WTO 

negotiations launched in November 2001 that aim to liberalize trade by 

lowering tariffs and other distortions to global trade in agriculture, 

industrial goods, and services and to strengthen the trading system’s 

contribution to economic development. Officially known as the Doha 

Development Agenda, the talks are being conducted under the auspices of 

the WTO and are the latest in a series of negotiating “rounds” among its 

members, which now number 148 nations and customs territories. Past 

GAO reports have highlighted the ambitious list of 19 substantive issues 

being addressed in what is now known as the Doha Round and the 

challenges WTO members have faced in making progress. Notably, the 

failure of the September 2003 meeting of trade ministers at Cancun, 

Mexico, set back the talks and made meeting the original January 2005 

deadline for conclusion impossible. The President recently requested a

2-year extension of Trade Promotion Authority (TPA) from Congress, 

which streamlines congressional approval of trade agreements, for 

purposes of pursuing a final Doha Round agreement, among others. TPA 

legislation allows for such an extension unless a disapproval resolution is 

passed by either House of Congress by June 30, 2005. The U.S. Congress 

will also consider the 5-year WTO membership review, as called for in 

section 125 of the Uruguay Round Agreements Act.1

1

Section 125 of the Uruguay Round Agreements Act requires the U.S. Trade Representative 

to report once every 5 years on the effects of the WTO agreement on the interests of the 

United States and the value of continued U.S. participation in the WTO. It sets forth a 

procedure whereby congressional approval of U.S. participation in the WTO could be 

withdrawn.
Page 2 GAO-05-538 World Trade Organization

Given the importance to the United States of the WTO Doha Round and 

Congress’s present TPA renewal decision, you asked GAO to provide a 

status report on the WTO negotiations. In this report, the latest in a series, 

we assess (1) the overall status of the WTO Doha Round negotiations; (2) 

developments on key negotiating issues since the previous (January 2004) 

GAO report; and (3) factors affecting progress in the negotiations.

To address these objectives, we met with and obtained documents from a 

wide variety of WTO, U.S., and foreign government officials, as well as 

academic experts and private sector groups (including business 

associations, law firms, and civil society groups), both in Washington, D.C., 

and Geneva, Switzerland. We also reviewed international tariff and trade 

data from the WTO and the United Nations. We determined that these data 

were sufficiently reliable for the purposes of our analysis. Appendix I 

provides a full description of the scope and methodology of our work. We 

conducted our work from March 2004 through March 2005 in accordance 

with generally accepted government auditing standards.

Results in Brief Overall, the Doha Round is behind schedule, but the global trade talks have 

regained their footing and achieved some forward momentum since the 

failed Cancun ministerial. Leadership by both developed and developing 

nations, an improved process, hard work, and a willingness to compromise 

resulted in a July 2004 framework agreement widely credited with putting 

the Doha Round back on track. The negotiating participants we spoke with 

are generally pleased that a July 2004 framework agreement and its 

breakthrough in agriculture reform has succeeded in demonstrating 

broader commitment to success and effectively breaking the deadlock in 

the negotiations. Agriculture remains the top issue for many participants, 

and dissatisfaction with progress on agriculture has held up movement on 

the other 18 issues on the negotiating agenda. Negotiators report that the 

July framework has enabled technical negotiations to proceed in a much 

improved atmosphere, despite political transitions in some countries 

during the fall of 2004. Nevertheless, those with whom we spoke 

universally stressed that considerable work remains to be done if the Doha 

Round’s promise is to be realized—particularly because simultaneous 

agreement on all issues is required for agreement. Moreover, progress thus 

far in 2005 has proved slower than hoped, causing WTO Director-General 

Supachai Panitchpadki to sound a warning over prospects for success in 

Hong Kong.
Page 3 GAO-05-538 World Trade Organization

For its part, the United States has made it clear that issues besides 

agriculture are important to satisfy its balance of interests. It is seeking 

evidence of others’ commitment to liberalize barriers to industrial goods 

and services by the pivotal December 2005 Hong Kong ministerial, whose 

goal is to set the stage so final bargaining can occur in 2006. Such progress 

is also vital to attaining U.S. Trade Promotion Authority objectives—and 

realizing U.S. economic gains—for the Doha Round. 

Progress has been uneven among the six negotiating issues identified as 

key to the Hong Kong ministerial—agriculture, trade facilitation, industrial 

(nonagricultural) market access, services, development issues, and WTO 

rules. Two issues the United States has advocated have progressed. 

Discussions on agriculture are the most advanced, with the July 2004 

framework capturing the important new commitment to eliminate all 

export subsidies at an agreed-upon date. The formal launching of talks on 

trade facilitation—the simplification and streamlining of customs 

procedures--also is progress on an issue increasingly seen as a “win-win” 

proposition for developed and developing countries alike. Little progress 

has been made on two other issues of interest to the United States. First, on 

industrial market access, the primary achievement has been to establish an 

agenda for discussion, though disagreement persists on the two main 

methods being considered for achieving substantial liberalization. Second, 

the current number and quality of offers on opening access to national 

services markets are still inadequate, according to participants. The 

remaining two issues are being pressed by other WTO members and also 

have not progressed very far. Debate over the July framework showed 

WTO members are still divided over how to best approach development 

issues, but more ready to consider practical accommodations to address 

concrete problems. Meanwhile, negotiations on various trade “rules” have 

intensified, with the United States and other members who are users of 

trade remedy laws facing calls for considerable change to their 

antidumping and countervailing duty regimes—measures used to counter 

unfairly priced and subsidized imports. 

Several interrelated factors could affect progress in the critical months 

culminating in the Hong Kong ministerial. Achieving agreement among the 

WTO’s large membership has long been recognized as complicated, given 

its consensus-based decision making structure. The task before WTO 

negotiators is particularly difficult, partly due to differences in the 

economic benefits and costs countries expect from trade liberalization. For 

example, some developing countries that currently benefit from 

preferential access to developed country markets are resisting ambitious 
Page 4 GAO-05-538 World Trade Organization

reduction of multilateral trade barriers out of fear that it will erode their 

margins of preference and reduce their exports. Coalitions have been 

instrumental in consolidating views among like-minded members, but the 

active participation by developing countries that sometimes have 

competing visions to developed countries has added to the complexity of 

achieving consensus. Progress at the WTO still depends on strong 

leadership by—and good relations between—the United States and the 

European Union, but political transitions have preoccupied them into early 

2005. Analysts agree that action on high-profile WTO dispute settlement 

cases such as cotton and sugar could prove important to ongoing 

agriculture negotiations. Moreover, proponents say the avid pursuit of 

trade negotiations outside the WTO is spurring on WTO progress, but 

others warn it is detracting attention and resources from the Doha Round.

Several negotiators indicated that if extended for 2 years by June 1, 2005, 

the final expiration of TPA in mid-2007 is serving as the implicit deadline 

for the Doha Round, and effectively means it must conclude by December 

2006. Finally, preparations for the Hong Kong ministerial have begun, but 

are still incomplete.

We conclude by noting that despite limited progress to date and 

considerable challenges ahead, some of the trade experts we consulted are 

confident that an ambitious, balanced outcome is still attainable—if 2005 

results in sufficient progress. Others warn that hard decisions are 

necessary and time is short if an outcome that lives up to Doha’s promises 

is to be achieved. We received comments on a draft of this report from the 

Office of the U.S. Trade Representative and the Departments of 

Agriculture, Commerce, and State indicating that these agencies generally 

agreed with our findings.

Background The World Trade Organization (WTO) was established as a result of the 

Uruguay Round on January 1, 1995, as the successor to the General 

Agreement on Tariffs and Trade (GATT). Based in Geneva, Switzerland, the 

WTO administers agreed-upon rules for international trade, provides a 

mechanism for settling disputes, and serves as a forum for conducting 

trade negotiations. There are currently 148 WTO members, up from 90 

GATT members when the Uruguay Round was launched in 1986 and from 

128 members in 1995.
Page 5 GAO-05-538 World Trade Organization

The highest decision-making authority in the WTO is the ministerial 

conference, which consists of trade ministers from all WTO members and 

occurs every 2 years.2

 The outcome of ministerial conferences is a 

ministerial declaration that guides future work. The WTO General Council, 

which consists of representatives from all WTO members, is empowered to 

make decisions between ministerial conferences. Decisions in the WTO are 

made by consensus—or absence of dissent—among all members rather 

than a simple majority. 

At the fourth ministerial conference in Doha, Qatar, in November 2001, 

WTO members reached consensus to launch a comprehensive negotiating 

round, the Doha Development Agenda or Doha Round.3

 The Doha Round is 

the ninth round of trade liberalizing negotiations since the trading system’s 

founding in 1947. These rounds result in legally binding international 

obligations on members both in terms of the trade barriers they are allowed 

to maintain, such as tariffs (import taxes), and the trade rules (disciplines) 

they are to abide by. Failure to comply is subject to binding dispute 

settlement and possible trade retaliation. In the Doha ministerial 

declaration, WTO members set a number of overall objectives for the 

round, such as the need to ensure that developing countries, particularly 

the least-developed, secure growth of world trade commensurate with their 

needs for economic development (see fig. 1 for a list of the overall Doha 

objectives). The declaration sets forth a work program that covers 19 

negotiating areas, including agriculture, services, and market access for 

nonagricultural goods (also known as industrial market access).4

 Within 

each of those areas, WTO members set specific goals.5

 WTO members also 

established a Trade Negotiations Committee, chaired by the WTO Director 

General, to oversee the round’s progress. Because the Doha Round is a 

2

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

3

For additional information on the fourth ministerial conference and the Doha Development 

Agenda, see GAO, World Trade Organization: Early Decisions Are Vital to Progress in 

Ongoing Negotiations, GAO-02-879 (Washington, D.C.: Sept. 4, 2002). 

4

The 19 negotiating areas are implementation-related issues and concerns; agriculture; 

services; market access for nonagricultural products; trade related aspects of intellectual 

property rights; relationship between trade and investment; interaction between trade and 

competition policy; transparency of government procurement; trade facilitation; WTO rules; 

dispute settlement understanding; trade and environment; electronic commerce; small 

economies; trade, debt, and finance; trade and transfer of technology; technical cooperation 

and capacity building; least-developed countries; and special and differential treatment.

5

A detailed discussion of the goals for each area is provided in the appendixes of this report.
Page 6 GAO-05-538 World Trade Organization

package, or “single undertaking” in WTO parlance, simultaneous agreement 

on all issues is required to finalize an agreement.

In negotiating the Doha Round on behalf of the United States, the Office of 

the United States Trade Representative (USTR) is also guided by certain 

goals, notably the goals outlined by the Trade Promotion Authority (TPA) 

granted by Congress in 2002. TPA’s goals for USTR negotiators include 

overall and principal objectives and promotion of certain priorities. In 

addition to TPA, USTR has its own goals for the Doha Round outlined in a 

required official notification to Congress in November 2002.6

 (See fig. 1 for 

a description of the TPA and USTR goals.) In general, USTR states that it 

plans to use the Doha Round negotiations to strengthen the multilateral 

trading system, improve the operation of the WTO, and liberalize 

international markets. USTR places special emphasis on creating new 

export opportunities for the United States in agriculture, manufacturing, 

and services. USTR must explain how any resulting agreement makes 

progress towards TPA goals when submitting it for consideration for 

congressional approval under TPA’s expedited approval procedures. TPA is 

set to expire in mid-2005, but provides a procedure for the President to 

request a one-time extension of the authority to July 1, 2007. The President 

recently requested such an extension, which is automatic unless Congress 

disapproves it by June 30, 2005.

6

Such notification is required by law, under the Bipartisan Trade Promotion Authority Act of 

2002 (P.L. 107-210). The issue areas USTR specifies goals for are trade in agricultural goods, 

trade in industrial and other goods, trade in services, trade in intellectual property rights, 

electronic commerce, trade facilitation, trade and investment, government procurement, 

competition policy, transparency/regulatory reform, labor (including child labor), regional 

trade agreements, trade and the environment, fisheries subsidies, border taxes, trade 

remedy laws and disciplines, and dispute settlement.
Page 7 GAO-05-538 World Trade Organization

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

and USTR

Sources: WTO, TPA, and USTR documents. 

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

Doha Declaration Goals

• To maintain the process of reform and liberalization of trade policies, thus ensuring that the system plays its full part in promoting 

recovery, growth, and development.

• To ensure developing countries, and especially the least-developed among them, secure a share in the growth of world trade 

commensurate with the needs of their economic development.

• To address marginalization of least-developed countries in international trade and to improve their effective participation in the 

multilateral trading system.

• To stress commitment to the WTO as the unique forum for global trade rulemaking and liberalization, while also recognizing that 

regional trade agreements can play an important role in promoting the liberalization and expansion of trade and in fostering 

development.

• To continue to work with the Bretton Woods institutions for greater coherence in global economic policymaking.

• To reaffirm commitment to the objective of sustainable development.

• To reaffirm the right of members under the General Agreement on Trade in Services to regulate, and to introduce new regulations on, 

the supply of services.

• To reaffirm commitment to internationally recognized core labor standards.

• To attach great importance to concluding accession proceedings as quickly as possible, particularly for least developed countries.

• To ensure internal transparency and the effective participation of all members.

TPA Goals

• To obtain more open, equitable, and reciprocal market access.

• To obtain the reduction or elimination of barriers and distortions that are directly related to trade and that decrease market opportunities 

that otherwise distort U.S. trade.

• To further strengthen the system of international trading disciplines and procedures, including dispute settlement.

• To foster economic growth, raise living standards, and promote full employment in the United States and to enhance the global 

economy.

• To ensure that trade and environmental policies are mutually supportive and to seek to protect and preserve the environment and 

enhance the international means of doing so, while optimizing the use of the world’s resources.

• To promote respect for worker’s rights and the rights of children consistent with core labor standards of the International Labor 

Organization.

• To seek provisions in trade agreements under which parties to those agreements strive to ensure that they do not weaken or reduce the 

protections afforded in domestic environmental or labor laws as an encouragement for trade.

• To ensure that trade agreements afford small businesses equal access to international markets, equitable trade benefits, and expanded 

export market opportunities, and provide for the reduction or elimination of trade barriers that disproportionately impact small 

businesses.

• To promote the universal ratification and full compliance with the International Labor Organization Convention Concerning the 

Prohibition and Immediate Action for the Elimination of the Worst Forms of Child Labor.

USTR Doha Round Goals

• To open markets around the globe for American workers, farmers, and companies, with special emphasis on creating new export 

opportunities in agriculture, manufacturing, and services.

• To bring home a set of world trade agreements that enhances economic growth and prosperity in the United States and its trading 

partners (especially in the developing world, most notably in Africa) by reducing and eliminating barriers to trade.

• To strengthen the multilateral trading system and improve the operation of the WTO.
Page 8 GAO-05-538 World Trade Organization

The Doha declaration also set several goals for the following ministerial 

conference. However, at the ministerial conference held in Cancun, 

Mexico, from September 10-14, 2003, WTO ministers were unable to 

achieve these goals or to bridge wide, substantive differences on individual 

negotiating issues. They concluded the unsuccessful conference with WTO 

members sharply divided along North-South (developed-developing 

country) lines and agreed only to continue consultations and convene a 

meeting of the General Council by mid-December 2003 to take steps to 

move the negotiations forward. As we noted in our January 2004 report,7

the Doha Round of WTO negotiations had missed virtually all of the 

established milestones for progress during its first two years. The 

breakdown at Cancun threatened to derail the talks completely. The 

December 2003 General Council meeting did not result in any agreements, 

except to resume talks in early 2004. As a result, WTO negotiators missed 

the original deadline of January 1, 2005, for concluding a Doha Round 

agreement. Thus, at the time our last report was issued, in January 2004, 

the Doha Round’s prospects were uncertain.

Doha Round Behind 

Schedule but July 

Framework Injected 

New Momentum into 

Trade Talks after 

Failed Cancun 

Ministerial

Despite the Doha Round starting 2004 on an uncertain note, political 

leadership, intensified dialogue, and a series of conciliatory gestures 

resulted in adoption by WTO members of a framework agreement on key 

negotiating issues called “the July framework” or “package.” The 

framework is credited with putting global trade talks back on track, and 

participants report that they have finally begun to make progress. Recent 

high-level meetings have sought to focus and accelerate work that leads up 

to a December 2005 ministerial conference in Hong Kong. The Hong Kong 

meeting is now hoped to result in decisions that will help determine how 

ambitious the Doha Round will be in terms of cuts in subsidies, tariffs, and 

other barriers. But even if negotiators reach the goal of setting the stage for 

finalizing a Doha Round agreement in 2006, WTO negotiations are about 2 

years behind their original target date.

7

GAO, World Trade Organization: Cancun Ministerial Fails to Move Global Trade 

Negotiations Forward; Next Steps Uncertain, GAO-04-250 (Washington, D.C.: Jan. 15, 

2004). 
Page 9 GAO-05-538 World Trade Organization

 Shows of Leadership and 

More Interactive Process 

Spur Progress

Contrary to post-Cancun gloom, 2004 witnessed a resumption of Doha 

negotiations. Active leadership by the United States and the European 

Union (EU) proved essential to progress, as did a more interactive process 

and hard bargaining. Former U.S. Trade Representative Robert Zoellick is 

widely credited with taking the initiative to resume talks with a January 

2004 letter to fellow trade ministers urging them to keep 2004 from being a 

lost year for the WTO and suggesting various ways to make the agenda 

more manageable. He followed up on the letter with extensive foreign 

travel to meet with other WTO nations and rally support for resuming talks. 

WTO Director-General Supachi also traveled extensively as part of an 

active outreach effort to WTO member country officials.

WTO members reactivated Doha negotiating groups in February 2004 with 

new chairs intent on ensuring more fruitful member-to-member 

discussions. Summing up the status after his visits with foreign officials, 

Ambassador Zoellick concluded that a breakthrough on agriculture was 

“absolutely the key” to progress. WTO members undertook intensive 

efforts to reach a breakthrough on agriculture both in Geneva and at highlevel meetings among key nations. Observers credited the EU Trade 

Commissioner Lamy’s offer in May to eliminate export subsidies with 

providing a tangible incentive to reach agreement on agriculture. Several 

conciliatory initiatives were also taken to allay specific developing country 

concerns. For example, a workshop held in Benin emphasized the 

importance of cotton reform to growth and poverty reduction in Africa. To 

alleviate poorer countries’ concerns over adjustment costs that were 

holding back overall trade liberalization, the EU suggested the WTO’s 

poorest members in Africa and elsewhere should be offered the “Round for 

Free”—that is, they would benefit from others’ concessions without having 

to offer much if anything in return. The offer sparked a debate over this 

differentiation by making it clear that the EU felt the Doha Round offered, 

and expected, more of other developing countries.

Developing countries also took on leadership roles and actions that 

contributed to progress. After Cancun, there was skepticism in some 

quarters as to whether the newly-created coalitions of developing countries 

would be able to maintain cohesion and play constructive roles. However, 

according to other participants, throughout 2004, these groups articulated 

their positions clearly and negotiated effectively with other groups, 

including the industrialized countries. For example, the group of populous 

developing countries with agricultural interests known as the Group of 20 

(G-20) issued a late May paper setting forth principles to govern tariff cuts 

to help bridge wide differences in agricultural market access. Malaysia 
Page 10 GAO-05-538 World Trade Organization

played a key role in shaping the novel terms for trade facilitation 

negotiations.

The WTO negotiating process also became more effective, contributing to 

progress. In our last report, we noted that the WTO’s large number of 

members made formal gatherings increasingly ineffective and more 

suitable for speech-making or restating well-known-positions than for 

advancing the negotiations. Moreover, members often focused their efforts 

toward influencing the negotiating group chairmen, rather than other 

members. In early 2004, a series of mini-ministerials and other smaller, 

informal group meetings were used to foster direct interaction between 

members and became the real venues for moving the negotiations forward. 

Negotiating groups on specific issues also adopted informal meetings that 

featured more direct member-to-member dialogue rather than the prior 

chair-driven process.

Yet, leadership and process improvements alone were not sufficient to 

attain agreement. Hard work and willingness to compromise were also 

required. The wide remaining gaps on agriculture and unrealized demands 

on other issues were apparent at a late June 2004 meeting of the WTO 

Trade Negotiations Committee. WTO Director General Supachai 

Panitchpadki urged members then, and at a ministerial among African 

nations shortly thereafter in Mauritius, to seize the opportunity before 

them and show the flexibility required to seal a deal. With the July 16 

release of a draft text, 2 weeks of day-and-night negotiating—often in 

intensive small group settings—were begun. An ad hoc group called the 

Five Interested Parties (or Group of Five)—composed of five key players in 

agriculture8

—was critically important in bridging developed/developing 

country differences and shaping agreement (even though some members, 

such as the Group of 10 net agricultural importers, complained about being 

left out of these deliberations). Finally, on July 31, 2004, WTO members 

reached a deal on a framework agreement and adopted it formally at a 

WTO General Council meeting. 

8

The group included Australia, Brazil, the European Union, India, and the United States.
Page 11 GAO-05-538 World Trade Organization

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

The main features of the July framework agreement were: establishing key 

principles for each aspect of global agricultural trade reform, launching 

negotiations to clarify and improve WTO rules on customs procedures 

(trade facilitation), identifying the key elements of negotiations to improve 

industrial (nonagricultural) market access, and stressing the importance of 

liberalizing access to services markets and addressing outstanding 

development concerns.9

 It also set a notional December 2005 date for the 

next WTO ministerial in Hong Kong but did not set a new deadline for 

concluding the Doha Round. A veteran U.S. negotiator suggested they had 

pleasantly “surprised themselves” in reaching agreement at the WTO on a 

long-sought framework. The framework was widely praised by its key 

architects and many of their stakeholders, though it drew skepticism from 

some corners. 

Fifth WTO 

ministerial in 

Cancun ends 

in failure

WTO Director 

General calls for 

resumption of talks

Least developed countries issue Dakar 

Declaration covering a number of negotiating 

issues, with emphasis on development

EU Trade Commissioner indicates willingness to 

eliminate agricultural export subsidies and calls 

for a "Round for Free" for developing countries

African Union ministers issue Kigali Declaration 

covering issues critical to development of Africa

G-20 issues proposal on a framework to 

establish agricultural modalities

USTR Zoellick sends 

letter to all WTO 

ministers calling for reengagement, followed 

by around-the-world 

tour to meet ministers 

in person

G-5 (Australia, Brazil, 

India, the EU, and the 

United States) meets to 

discuss agriculture, 

releases nonpaper

G-90 ministerial in Mauritius reemphasizes special consideration for 

weak and vulnerable economies, while 

Director General urges flexibility by all 

members

July 16: First draft of July Package 

issued by General Council Chair

July 31: Framework Agreement 

adopted

2004

Source: GAO, based on WTO, USTR, and other information.

Sept. Oct. Nov. Dec. Jan. Mar. May Feb. Apr. June July Aug. Sept. Oct. Nov. Dec.

2003

9

The full framework (World Trade Organization, “Doha Work Program: Decision Adopted by 

the General Council on 1 August 2004,” WT/L/579, Aug. 2, 2004) is available at www.wto.org. 
Page 12 GAO-05-538 World Trade Organization

July Framework Unlocks 

Negotiations and Improves 

Negotiating Atmosphere 

The July 2004 framework is widely credited with putting the Doha Round 

“back on track” and renewing political commitment to its ultimate success. 

Up until then, it had proved impossible to make meaningful progress on 

any of the other 18 issues of the round because key members linked 

movement on those issues to satisfactory progress on agriculture. Several 

participants went so far as to suggest that the July 2004 framework meant 

WTO members had prevented failure in the Doha Round and the WTO from 

becoming obsolete as a forum for liberalizing trade. A number of officials 

and experts we met with maintain that the package represents important 

progress and provided a sound basis for productive technical work on all 

issues during an anticipated political hiatus in the fall of 2004, when the 

European Commission changed and the United States held elections.

Considerable Work Remains 

on All Issues

While GAO’s examination does reveal some progress on all fronts either in 

the July framework or afterwards, participants and experts widely agree 

that considerable work remains on all issues if the Doha Round is to be 

concluded successfully as a package deal. Notably, experts agree that 

translating political commitment into concrete cuts in agricultural 

subsidies and tariffs involves grueling negotiations over myriad technical 

details. Without such commitment, loopholes and exemptions could 

undermine hoped-for liberalization. Moreover, agriculture is recognized as 

having achieved greater progress than other issues, such as industrial 

market access and services, which are essential for attaining an acceptable 

balance of issue interests among the WTO’s 148 members. While cautioning 

that each issue will advance at its own rate and urging others not to insist 

on lock-step progress, U.S. negotiators have made it clear they must see 

evidence of others’ commitment to liberalize barriers to industrial goods 

and services by the WTO ministerial now officially slated for December 13-

18, 2005, in Hong Kong so that member-to-member negotiations can begin 

in earnest. Such progress is also vital to attaining U.S. TPA objectives—and 

realizing U.S. economic gains—for the Doha Round.

Next 6 Months Will 

Determine How Ambitious 

the Doha Round Will Be

With tough battles on the details of agriculture reform ahead and the need 

for progress on other issues, the coming 6 months are crucial. U.S. 

negotiators are hopeful that groups will concentrate on working through 

the issues and ensure they are sufficiently advanced to obtain needed 

decisions by the December 2005 Hong Kong ministerial. If so, and if the 

Hong Kong ministerial results in the needed decisions, there is at least a 
Page 13 GAO-05-538 World Trade Organization

reasonable prospect for the talks to conclude by the end of 2006 with 

meaningful results. 

Early 2005 high-level meetings have sought to focus negotiations ahead of 

the December 2005 Hong Kong ministerial. At the late January 2005 miniministerial in Davos, Switzerland, and the subsequent mid-February Trade 

Negotiations Committee meeting, WTO members generally agreed to focus 

on six issues in Hong Kong. These six issues are: (1) agriculture, (2) 

industrial or nonagricultural market access (NAMA), (3) services, (4) trade 

facilitation, (5) “rules” such as subsidies and antidumping, and (6) 

development. They also generally agreed that the Hong Kong ministerial’s 

goal is to set the stage for final negotiations in 2006.

Although there is not yet agreement about what this entails, U.S. 

negotiators report that it is widely accepted that by the time of the Hong 

Kong ministerial WTO negotiators should seek to finalize “modalities” on 

agriculture and NAMA—that is, numerical targets, formulas, industrial 

sectors for potential sectoral agreements, and technical guidelines for 

countries’ commitments on cutting tariffs and subsidies. By the Hong Kong 

ministerial, negotiators should also have made progress in services, market 

access, and rules discussions and narrowed the focus, and possibly have 

begun to outline or draft texts on trade facilitation and development issues.

These deliverables will be critical in determining how ambitious the Doha 

Round will be in terms of cuts in tariffs, subsidies, and other barriers to 

trade, and what the overall balance will be across various issues. Finalizing 

modalities is also an important interim step before concrete negotiations 

can occur among WTO members. WTO members had hoped that by midJuly 2005 they would be able to get a sense of how well their balance of 

issue interests are being met through such means as producing a “first 

approximation” of the relevant texts or conducting stocktaking meetings 

on negotiating progress. However, at a late April 2005 TNC meeting WTO 

Director-General Supachai expressed concern about meeting these goals, 

noting that across the board progress has fallen short of what is required. 

He urged greater unity of purpose and warned that without better progress, 

WTO members could be facing major problems for Hong Kong. At an early 

May 2005 meeting of the Organization for Economic Cooperation and 

Development (OECD) in Paris, ministers called for a heightened sense of 

urgency in the negotiations and expedited preparations for the Hong Kong 

conference. After the Paris meeting, trade officials from certain WTO 

members reached an informal agreement on a technical issue—on the
Page 14 GAO-05-538 World Trade Organization

method for converting specific tariffs to ad valorem10 tariffs—that was 

considered significant because it had been blocking progress in the 

agriculture negotiations for months. 

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

WTO Negotiations Are 

About 2 Years Behind Their 

Original Target Date 

Even with the July framework and a successful Hong Kong ministerial, 

slow overall progress and the Cancun setback means the Doha Round now 

is unlikely to conclude before December 2006, 2 years after the originally 

established deadline of January 2005. However, past rounds have taken 

10“Ad valorem” signifies any charge, tax, or duty that is applied as a percentage of value. An 

ad valorem tariff rate is a trade tax calculated as a percentage of the value of the product 

being traded.

2005 2006 2007

Jan. Mar. May Feb. Apr. June July Aug. Sept. Oct. Nov. Dec. Oct. Nov. Dec.

2004

Oct. Nov. Dec. July Aug. Sept.

May 3-4: OECD ministerial in 

Paris

May 31: Deadline for selection 

of new Director General

May 31: Services offers due

March 1: USTR 

submission to 

Congress of 5-year 

review of WTO 

participation

March 2-4: Miniministerial in 

Mombasa, Kenya

March 30: USTR 

request for 2-year 

TPA extension

Jan. 1: Originally 

scheduled 

conclusion of 

Doha Round 

(postponed)

Jan. 29: Miniministerial in 

Davos, 

Switzerland

Dec. 13-18: 

Hong Kong 

ministerial

July: "First approximation" of 

modalities for agriculture, industrial 

market access, and other issues 

targeted

July 21-22: Trade Negotiations 

Committee meeting

July 27 and 29: General Council 

meeting

July 31: Deadline for Committee on 

Trade and Development to complete 

review of all outstanding agreementspecific proposals and report to 

General Council

Dec. 31: Director 

General 

nominations due

Dec. 2006: 

Conclusion of 

Doha Round 

expected

July 2007: 

Renewed TPA 

would expire

June 30: TPA 

renewal deadline

June 30: Deadline 

for General Council 

to take appropriate 

action on 

implementation 

issues

Source: GAO, based on WTO, USTR, and other information.

Sept. 1: New 

Director 

General's term 

to begin
Page 15 GAO-05-538 World Trade Organization

longer than originally planned, and the last two rounds—which involved 

fewer countries—each took 6 or more years to complete.

Experts offer mixed views as to whether this lag is cause for concern. A 

number of experts we spoke with stressed that the real question is not how 

long the round is taking, but how ambitious—in terms of liberalization and 

reform—the Doha Round’s result will be. Some were fairly pessimistic. For 

example, one USTR and WTO Secretariat veteran termed the progress to 

date not only pitiful but worrying. Another expert said he did not believe 

the round was on track for achieving its ambitious liberalization and 

development objectives and expressed concern because the hardest issues 

still have not been tackled. As a result, this expert felt that the round would 

only conclude by December 2006 if work accelerates and political 

engagement increases. However, other experts said it is too early to give up 

on the round’s success. One expert stressed that ups and downs—such as 

build-ups before deadlines and let downs after missing milestones—are 

typical in trade negotiations. Another expert noted that failures can often 

be vital to achieving worthwhile agreements and suggested Cancun was 

such an event. Both he and another expert indicated that there is still time 

for the Doha Round to conclude with meaningful results in all key 

negotiating issues. However, they said there is no more time to spare if a 

balanced, ambitious package is to be attained because even past rounds 

have required at least a year and a half of very hard bargaining to conclude. 

That time is upon us, if one works backwards from the July 1, 2007, 

expiration of any renewed U.S. Trade Promotion Authority.

Negotiators Have Made 

Uneven Progress in 

Key Issue Areas

Negotiating progress has varied markedly in the six issues designated as 

key work areas at the upcoming Hong Kong ministerial—(1) agriculture, 

(2) trade facilitation, (3) industrial (nonagricultural) market access, (4) 

services, (5) development issues, and (6) rules. Some advances have been 

clear in two issues advocated by the United States, agriculture and trade 

facilitation, although negotiations in the latter have just begun. As detailed 

in appendixes III and IV, very limited progress has occurred so far in two 

other issues being advocated by the United States—industrial market 

access and services. Progress has also been limited on two other issues 

being advocated by other WTO members—development-related issues and 

rules. Reform of WTO rules remains an area of controversy, with the United 

States and other users of the trade remedy laws pitted against many other 

countries over whether to maintain and even strengthen current rules. 
Page 16 GAO-05-538 World Trade Organization

Progress Made in All Three 

Pillars of Agricultural 

Reform, but Difficult Debate 

Lies Ahead

As detailed in appendix II, negotiators pressed hard in 2004 to make some 

progress on all three pillars for agricultural reform: (1) export competition, 

(2) domestic supports and (3) market access. The centerpiece of WTO 

member countries’ efforts was the July 2004 framework agreement to 

remove all export subsidies at a future date. This commitment had long 

been sought by the United States and other nations, but involved a tradeoff: the agreement to negotiate disciplines in other agricultural export 

competition programs, including U.S. export credit and food aid programs, 

and state trading enterprises. The framework also set ceilings on certain 

trade-distorting domestic supports (subsidies), though negotiators will 

need to further define and set comprehensive reduction schedules for such 

trade-distorting domestic supports. The framework also establishes the 

principle that countries with higher trade-distorting domestic supports and 

tariffs reduce them comparatively more. 

Market access, the third area of reform, proved the most difficult to 

negotiate. As further explained in appendix II, the July framework 

established a principle of tiered and harmonized reductions in tariffs, but 

did not resolve the differences on how this would be accomplished. 

Negotiators still need to agree on numerous outstanding details if WTO 

members are to achieve modalities at the December 2005 Hong Kong 

ministerial. Technical work on issues including tariff rate quota 

administration,11 export credit repayment terms, and converting tariffs into 

ad valorem equivalents has begun. Yet, the months-long stalemate on the 

last issue frustrated progress until May 2005. Moreover, according to many 

experts, the big battles that will determine how ambitious the Doha round 

will be--- over whether and how trade-distorting domestic support 

categories will be redefined, setting domestic support and tariff reduction 

formulas, and defining the sensitive and special products that can be 

insulated from tariff cuts—remain to be fought.

Launched after Years of 

Discussion, Trade 

Facilitation Negotiations in 

Early Stages

WTO members finally agreed in the July framework to formally launch 

negotiations on trade facilitation (customs reforms). Trade facilitation, 

together with three other issues—investment, government procurement, 

and competition policy—had been under consideration and intense debate 

by WTO members for the past 7 years (since the Singapore ministerial). 

11Tariff rate quotas are a tariff whereby lower tariffs are specified for a specific quantity and 

higher tariffs are specified for quantities that exceed the quota.

Export competition, domestic supports, and market 

access comprise the "three pillars" within WTO 

agricultural negotiations.

 Export competition refers to a variety of programs 

designed to promote a country's exports, 

including export subsidies contingent on export 

performance, export credit programs, and state 

trading enterprises.

 Domestic supports, often called "subsidies," are 

payments made to farmers who raise prices or 

guarantee income. They include such measures 

as government buying at a guaranteed price, 

commodity loan programs, and direct payments 

to farmers.

 Market access refers to lowering tariff and nontariff barriers to trade, such as tariff rate quotas.
Page 17 GAO-05-538 World Trade Organization

Trade facilitation is an issue that the United States is very interested in 

bringing into the trading system in order to establish the transparent and 

swift customs procedures that are vital to realizing the benefits of market 

access concessions. The July framework contained agreement by explicit 

consensus to begin negotiations on trade facilitation and contained an 

annex specifying the goals, scope, and other understandings associated 

with their launch.12 Notably, WTO members agreed that “the extent and 

timing of entering into commitments [on trade facilitation] shall be related 

to the implementation capacities of developing and least-developed [WTO] 

(m)embers....” WTO members also decided to halt work toward 

negotiations on the remaining three “Singapore issues” of investment, 

government procurement, and competition policy for the remainder of the 

Doha Round. Since the July framework, WTO members created a 

negotiating group and selected a chair. The group has met several times, 

and various countries, including the United States, have tabled proposals. 

According to a U.S. trade official, two potentially difficult issues are 

dispute settlement and technical assistance to help developing countries 

defray implementation costs. While WTO members did not set specific 

goals on trade facilitation for Hong Kong, the United States is hopeful that 

negotiators can make meaningful progress in evaluating proposals. Some 

experts we spoke with said that progress on this issue is increasingly seen 

as a “win-win” proposition for developed and developing countries alike.

Little Progress in Narrowing 

of Differences on Industrial 

Market Access

As detailed in appendix III, thus far WTO members have made little 

progress in negotiations aimed at securing improved industrial market 

access, a key U.S. objective in the Doha Round. The July framework for 

industrial market access established an agenda for discussion and, since 

July, negotiators have addressed some technical issues. However, 

disagreement persists over the two main methods being considered for 

liberalization of trade in industrial goods: the tariff reduction formula and 

sectoral initiatives that would further reduce tariffs in agreed-upon sectors. 

Such disagreement is reflected in the lack of consensus over the tariff 

reduction guidance in the July framework. As of late April 2005, 

disagreement continued over the type of tariff reduction formula to use, the 

extent of exceptions to the formula that would be available to developing 

countries, and whether or not sectoral agreements should be included and 

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

2, 2004.
Page 18 GAO-05-538 World Trade Organization

on what terms. Nevertheless, achieving a meaningful agreement in 

industrial market access will be essential for the United States. 

Services Talks Still Lagging Services liberalization is also a key U.S. objective in which progress is 

lagging, as discussed further in appendix IV. Initially thought to be a 

lynchpin of the Doha Round, services talks have taken a back seat relative 

to other issues. Although several economists and trade experts argue that 

both developed and developing countries would greatly benefit from 

services trade liberalization, certain developing countries perceive this goal 

as a developed country priority. Nevertheless, the inclusion of services in 

the July framework, on an equal footing with agriculture and industrial 

market access, represented a victory of sorts and resulted from efforts on 

the part of both developed and developing country members. Since the July 

framework, talks on the domestic regulation of services have shown signs 

of progress. Technical negotiations on market access are also underway 

but have yet to translate into many new or improved offers in the lead up to 

May 31, 2005, the deadline set by the July framework. As a result, WTO 

members and officials remain disappointed with the number and quality of 

offers. For example, many developing countries have a keen interest in 

liberalizing the temporary movement of service professionals, but 

developed countries have so far shown few signs of movement towards 

more responsive offers. 

WTO Members Still Divided 

Over How to Approach 

Development Issues

On development, WTO members are grappling with developing country 

concerns in the areas of special and differential treatment (S&DT) and 

implementation of their past WTO commitments in light of the July 

framework’s calls for decisions by July 2005. Conceptual divisions between 

developed and developing countries, and among developing countries, 

remain unresolved. They involve such basic issues as whether participating 

in trade liberalization and abiding by the agreed-upon trade rules is good or 

bad for development and whether S&DT is an across-the-board right for all 

developing countries, or an ad hoc privilege available only on a case-bycase basis to meet justified needs, particularly of the WTO’s poorest 

members. The chair has had only limited success to date in getting 
Page 19 GAO-05-538 World Trade Organization

members to move to a practical, problem-solving stage.13 However, as 

negotiations on agriculture and other market access areas move forward, 

specific S&DT language is being included. Certain negotiators told us that 

future progress on S&DT seems increasing likely to come out of technical 

negotiations within specific negotiating committees, more so than the 

Committee on Trade and Development, which examines it as a systemic 

issue.

Negotiations on 

Antidumping Rules 

Intensifying, with United 

States on Defensive

Review and possible reform of WTO “rules” for trade remedies such as 

antidumping against unfairly priced imports is prominent and controversial 

in the Doha agenda, though not in the July framework. Other WTO 

members, notably a coalition of 15 developed and developing nations 

known as Friends of Antidumping Negotiations, have advanced numerous 

proposals for extensive reform of existing trade remedy rules. Some of the 

proposed reforms target U.S. practices that have also been challenged 

under WTO dispute settlement procedures. In 2004, WTO members 

participated in an active schedule of meetings to discuss these proposals in 

depth. Proponents are pushing to intensify negotiations with a view to 

having rules be a major component of a Hong Kong package. According to 

U.S. government officials, the United States remains committed to 

preserving the effectiveness of trade remedies but wants increased 

transparency abroad.

13To achieve more fruitful dialogue, the Chairman proposed that the group adopt a new 

approach for discussing the outstanding proposals. First, they would agree to keep certain 

principles in mind--such as the objective of securing effective market access for products of 

export interest to developing countries, the need to give developing countries flexibility 

when implementing WTO commitments in certain situations, and the desirability of a rulesbased trading system. Second, they would discuss proposals with a view towards either 

modifying them or coming up with another alternative for addressing the underlying issue or 

concern. Third, they would also consider cross-cutting issues such as capacity-building and 

coherence in policymaking between the WTO and other multilateral agencies. However, 

partly due to concerns by some of the more advanced developing countries that this could 

open the door to differentiation among developing countries, which they strongly oppose, 

this approach has yet to be operationalized. See, for example, WTO, Report by the Chairman 

of the Special Session of the Committee on Trade and Development, Mr. Faizel Ismail, to the 

Trade Negotiations Committee, WTO/TN/CTD/11, Feb. 14, 2005.
Page 20 GAO-05-538 World Trade Organization

Several Factors Pose 

Challenges to 

Successful 

Negotiations in Hong 

Kong

Seven interrelated factors may influence the Doha Round’s progress in 

resolving substantive differences in the lead-up to the Hong Kong 

ministerial. First, achieving internal consensus on a balanced package for 

trade liberalization and successfully negotiating a result that is acceptable 

to 148 members is an enormously complicated task. Second, formation of 

coalitions may facilitate consensus building, but developing countries 

show no signs of taking a less assertive role in pressing their sometimescompeting vision for the WTO’s Doha Development Agenda. Third, U.S. and 

EU cooperation remains pivotal, but leadership transitions may change 

relationships. Fourth, analysts agree that action on high-profile WTO 

dispute settlement cases such as trade remedies and cotton could prove 

important to ongoing negotiations. Fifth, trade negotiations pursued 

outside the WTO are widely seen as affecting the Doha Round, though 

opinion differs on how. Sixth, there are timing considerations, with the 

mid-2007 expiration of any renewed U.S. Trade Promotion Authority acting 

as an implicit deadline. Finally, preparation strategy has proved critical to 

past WTO ministerial success, but there is mixed news on preparations for 

the Hong Kong ministerial.

Negotiators Face a Complex 

Task

The complexity of the task itself could make it hard for Doha negotiators to 

achieve consensus. Several experts and negotiating participants told us 

that the scope of work remaining is considerable and that the current 

round is more complex than past rounds because the number of countries 

actually participating is larger and the issues are, in some sense, unfinished 

work from prior negotiations. The fact that agriculture had not been 

addressed for most of the trading system’s first half century was cited 

frequently as evidence of its thorny nature. The last (Uruguay) round 

succeeded in the complex challenge of adding agriculture, services, and 

intellectual property rights to the trading system for the first time. The 

Doha Round is ambitious because it aims to cut subsidies and trade 

barriers from the Uruguay Round’s high levels. In industrial goods, the 

Doha goal of having all members conform to specific methods for 

liberalizing tariffs on all products differs from past practice of relying 

primarily on member-to-member bargaining to secure tariff cuts. (Past 

practice did result in substantial liberalization, but left in place high 

barriers on some goods and in some countries.)

The diversity of economic costs and benefits also makes the task complex. 

Studies emphasize that both developed and developing countries are 

positioned to benefit from the Doha Round, but individual countries face 
Page 21 GAO-05-538 World Trade Organization

varying economic incentives that could affect their willingness to 

compromise on issues at the Hong Kong ministerial. The Doha talks have 

been fueled by the premise that international trade can positively benefit a 

country’s overall growth and development. As discussed more fully in 

appendix V, a number of expert studies have emerged in response to the 

negotiations that estimate potential worldwide economic gains exceeding 

$100 billion under an ambitious liberalization scenario. However, the 

distribution of economic gains may vary within and between countries, 

creating perceived winners and losers. For example, several studies 

estimate economic losses from agricultural liberalization for regions that 

are large net importers of food, such as North Africa and the Middle East, 

because the removal of developed country subsidies may increase world 

food prices. Other experts point out that for countries receiving 

preferential trade access the estimated economic benefits from worldwide 

trade liberalization may not reflect export losses from erosion of those 

preferences. Potential losses in tariff revenue may also be a concern to 

certain developing countries that heavily rely on trade taxes for 

government financing. In April 2004, to assist developing countries with 

potential adjustment costs to trade liberalization, the IMF introduced a new 

lending program called the Trade Integration Mechanism (TIM). 

Maturing of Country 

Coalitions May Facilitate 

Progress, but Differences in 

Visions between Developing 

and Developed Countries 

Persist 

Coalitions of WTO members have been a factor in both leading and 

preventing movement forward in the Doha negotiations. At Cancun, the 

large number of participants proved unwieldy and the unexpected 

emergence of developing country coalitions challenged traditional ways of 

negotiating. Since then, country coalitions have matured and now advance 

common priorities of many types. See appendix VI for a depiction of some 

major groups of countries and their negotiating interests. Developing 

countries in particular have become more active and influential, according 

to various participants. A number of ad hoc groups have arisen around 

other issues. For example, the Colorado Group has led discussion on trade 

facilitation issues; a variety of “friends” groups have formed to advocate 

positions in the services negotiations; and the Friends of Antidumping 

Negotiations group has pressed for changes in the antidumping agreement. 

This mode of operations has been particularly valuable to developing 

country members, which sometimes cannot afford to maintain enough staff 

in Geneva to attend all negotiating sessions that interest them. By reaching 

an agreement on negotiating proposals within groups, coalitions also help 

to overcome the difficulty of creating consensus in an organization as large 

as the WTO. By the same token, they may strengthen opposition to 

proposals that some members might not otherwise care about. Country 
Page 22 GAO-05-538 World Trade Organization

coalitions also have other drawbacks, according to several participants—

they cannot be relied on exclusively as interlocuters because country 

interests vary and not every country is included; internal communication is 

critical, but sometimes breaks down; and coalitions’ efforts to forge 

common positions may leave little room for negotiating maneuver.

Developing countries are not monolithic in their interests, but there is still 

some evidence that developing and developed countries have competing 

visions of Doha Development Round’s promise and that satisfying 

developing country’s expectations may be difficult--factors we identified as 

challenges in prior reports. While developed countries tend to stress the 

development benefits projected to accrue from agriculture reform and 

trade liberalization, developing country coalitions, in various formations, 

have continued to emphasize the need for special and differential 

treatment. The largest group of developing countries, the Group of 90 

G-90), has advanced specific special and differential treatment proposals, 

protection against erosion of trade preferences, and trade facilitation 

approaches that address implementation costs and capacity building 

issues. However, satisfying these demands--without prejudicing the 

interests of other developing countries—has proven difficult. In addition, 

four least-developed African cotton-producing countries successfully 

lobbied in July 2004 for a special focus on cotton within agricultural 

negotiations, but have expressed dissatisfaction with progress attained 

since then and called for decisive action by Hong Kong. 

Leadership Critical, but 

U.S.-EU Political Transitions 

May Change Relationships 

and New WTO DirectorGeneral Is Being Selected

Despite more active and positive participation by developing countries, 

2004 also demonstrated that leadership and cooperation by the United 

States and the EU remains essential. A special relationship between U.S. 

and EU leaders contributed to the Doha ministerial’s success and to the 

July 2004 package. But the U.S.-EU trade principals have changed since 

then. Two very important participants in the negotiations, who played 

pivotal roles in launching the round in 2001 and reviving the Doha 

negotiations in 2004 after Cancun, U.S. Trade Representative Robert 

Zoellick, and the EU’s Trade Commissioner, Pascal Lamy, are both out of 

those offices. The President named a new USTR in mid-March who 

assumed office on April 29, 2005. In the interim, continued direction by the 

Acting USTR kept the United States engaged in negotiations. However, the 

relationship that develops among new U.S.-EU leaders could influence 

Hong Kong’s success. Their will to lead is also vital. Over the coming 

months, the United States will face important tests of its trade leadership, 

such as potentially divisive domestic debates over the Central American 
Page 23 GAO-05-538 World Trade Organization

Free Trade Agreement (CAFTA), competition from China, TPA renewal, 

and continued U.S. WTO membership. The EU, meanwhile, has made some 

statements that suggest it “gave most” in 2004 and thus is expecting others 

to reciprocate with ambitious offers for services and industrial market 

access offers.

The WTO has been in the midst of selecting a replacement for the position 

of Director-General (DG). Three WTO committee chairs are personally 

conducting the vetting process whereby those candidates with the least 

support from the members are expected to withdraw voluntarily. The last 

DG selection became so contentious along North-South lines that the job 

ultimately had to be shared by dividing the DG’s six-year term between two 

candidates – Mike Moore of New Zealand and the current DG, Supachai 

Panitchpakdi of Thailand. To avoid a similar situation, WTO members 

agreed to a selection process and timetable. Mr. Supachai’s term ends on 

August 31, 2005; by May 31, WTO members aim to select a new Director 

General who will assume the DG’s position in September, just three months 

before the Hong Kong ministerial. A smooth transition is necessary to 

ensure members can concentrate on the difficult negotiations needed to 

achieve results at Hong Kong. (It appears that a new DG has been selected 

– France’s Pascal Lamy - and that the process worked well avoiding a 

contentious north/south divide. Specifically, on May 13, 2005, the General 

Council Chair informed WTO delegations that Mr. Lamy had received the 

broadest support from the WTO members and that therefore she would 

recommend that WTO members appoint Mr. Lamy as the next Director 

General of the WTO starting September 1, 2005. On May 26, 2005, WTO 

General Council officially named Mr. Lamy, the next Director General. 

Welcoming the move, current WTO Director General Supachai pledged to 

“make every effort to move the Doha Development Agenda negotiations as 

far as possible to ensure that we are well positioned for our Hong Kong 

ministerial conference in December.”)

Ongoing Disputes Could 

Affect Negotiating 

Dynamics

WTO disputes often have little day-to-day impact on negotiations, but 

several ongoing disputes may affect the negotiating atmosphere leading to 

Hong Kong. In recent months, Brazil won two high-profile cases against the 

United States and the European Union. Both rulings are expected to 

influence the Doha agriculture negotiations. In March 2005, the WTO 

Appellate Body upheld a panel finding against U.S. cotton subsidies, stating 

that certain types of current U.S. domestic supports result in significant 

price suppression in world markets. The United States has informed the 

WTO that it intends to come into compliance and is now consulting with 
Page 24 GAO-05-538 World Trade Organization

Congress and stakeholders about possible reforms. The European Union 

has vowed to reform its sugar sector in the wake of an adverse WTO ruling, 

but is facing challenges to its proposals to reform its banana regime to 

conform with another adverse ruling. The United States is also facing calls 

to bring its trade remedy laws and actions into conformity with adverse 

WTO rulings. With the EU and Canada both imposing millions of dollars in 

retaliation starting in May because the U.S. has not repealed the Continued 

Dumping Subsidy Offset Act (also known as the Byrd Amendment), there is 

a risk of a negative spillover into the Doha negotiations. In part to avoid a 

similar situation, the United States and the EU have been trying to resolve 

their dispute over aircraft subsidies.

Free Trade Negotiations 

Outside of the WTO 

Affecting Progress

Although WTO members and experts have divergent views on the effects of 

the numerous free trade negotiations that take place outside of the WTO, 

they widely agree that the negotiation of preferential trade agreements 

(PTA)14 have an impact on multilateral trade talks such as the Doha 

Round.15 The Bush administration has actively pursued PTAs as part of its 

trade liberalization strategy, and more generally, these extra-WTO 

agreements have flourished worldwide since the mid-1990s. Proponents of 

PTAs claim that they offer opportunities for achieving deeper and faster 

liberalization than is possible in the WTO by allowing members to negotiate 

with subgroups of likeminded countries. Once in place, they argue, PTAs 

can demonstrate the benefits of freer trade to nonmembers, thereby 

encouraging greater multilateral liberalization. In contrast, opponents 

claim that the rising number of PTAs increases the administrative and legal 

complexity of international trade and adds to the difficulty of building an 

open, rules-based trading system. After weighing many of the arguments in 

its report on the future of the WTO, a Consultative Board to the Director 

General recently stated that there is “real reason to doubt that the pursuit 

of multiple PTAs will enhance, rather than undermine, the attractiveness of 

multilateral trade liberalization—at least in the short and medium term.”16

14Preferential trade agreements encompass several types of trade agreements, such as free 

trade agreements that two or more countries negotiate outside of the WTO framework. 

These include free trade agreements, customs unions, common markets, and economic 

unions. 

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

16Consultative Board to the Director General. The Future of the WTO: Addressing 

Institutional Challenges in the New Millennium, World Trade Organization, 2004. 
Page 25 GAO-05-538 World Trade Organization

Among other objections, the Board expressed concern that such 

agreements are diverting skilled and experienced negotiating resources 

and reducing enthusiasm for the Doha Round.

Timing Constraints Timing considerations are also relevant. WTO negotiators are keenly aware 

that the United States will consider revamping comprehensive farm 

legislation slated to expire in 2007 and want to make sure it includes WTOagreed reforms. Moreover, the duration of U.S. Trade Promotion Authority 

is, in effect, operating as an implicit deadline for concluding the Doha 

Round, according to numerous participants and experts. If Congress 

renews TPA in mid-2005, the Doha Round agreement would be eligible for 

approval under TPA provided it was signed by the President by June 30, 

2007. However, the President must fulfill a number of procedural 

requirements and meet certain time frames established by TPA.17 Thus, the 

WTO Doha negotiations would need to conclude by the end of December 

2006 to meet TPA’s statutory requirements.18 If the Doha Round agreement 

required no changes to trade remedy laws, the effective deadline could 

change to the end of March 2007.

17Specifically, TPA includes the following requirements:

• at least 180 days before signing a trade agreement, the President must report to revenue 

committees (House Ways and Means and Senate Finance) on agreement provisions that 

might require amendments to U.S. trade remedy laws

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

• no later than 30 days after President notifies Congress of intent to enter into agreement, 

private sector advisory committees must submit reports on trade agreements to 

Congress, the President, and USTR. However, this imposes no requirements on the 

President. 

• at least 90 days before entering into agreement, the President must provide the ITC with 

details of the agreement and request an assessment

• USTR must consult closely with revenue committees, the Congressional Oversight 

Group, and other congressional committees with jurisdiction over affected subject 

areas.

18This assessment is based strictly on these TPA procedural requirements. It does not take 

into account other potential requirements. 
Page 26 GAO-05-538 World Trade Organization

Ministerial Preparations 

Under way, but Still 

Incomplete

A preparation strategy has proved to be critical to WTO ministerial success 

(Doha) and failure (Cancun and Seattle) in the past, but there is mixed 

news on preparations for Hong Kong. Ministerials are important because 

unlike political summits or annual meetings of other international 

organizations, actual negotiations occur and decisions are made to enable 

future work. Indeed, ministerials are the only occasion when trade 

ministers of all WTO members gather to provide high-level political 

direction. As noted above, the December 2005 Hong Kong ministerial is 

pivotal so that final bargaining on cuts in subsidies and tariffs can occur 

and a Doha package can be finalized by the end of 2006.

On the positive side, although Ministers at Hong Kong will face a complex 

and full agenda, WTO members are trying to narrow differences and clarify 

options prior to the ministerial. Moreover, there is general agreement on 

which issues will be discussed and on concrete deliverables desired. In late 

January and mid-February 2005, WTO members agreed that they would aim 

to make concrete progress by July on a Hong Kong package. In March, 2005 

WTO members agreed on a work plan.

On the negative side, April 2005 meetings and our issue-by-issue analysis 

suggest that wide substantive differences persist and progress in bridging 

them is lagging, but WTO ministerials have inherent limits and drawbacks 

in resolving them. First, ministerials can get out of hand if too many 

unresolved issues are presented or if politically charged issues dominate. 

Second, the glare of the public spotlight can make compromise difficult. 

WTO ministerials are large, public events that can involve high-profile 

confrontations over politically sensitive issues (e.g., labor at Seattle, Trade 

Related Aspects of Intellectual Property Rights (TRIPS) and Public Health 

at Doha, cotton at Cancun). The atmosphere surrounding the July 2004 

framework was markedly different, in part because WTO negotiators 

operated outside public view. Third, there has been no change in the 

process for conducting ministerials, which is, by all accounts, unclear and 

sometimes chaotic.19 Past experiences at Cancun and Seattle have shown 

the risk associated with this situation. 

19For example, appointed facilitators often are asked by the host country to bridge 

differences over issues, but delays in naming facilitators and the fact that they are not as 

familiar with the issues under debate as the negotiating group chairs can cause delays and 

confusion.
Page 27 GAO-05-538 World Trade Organization

Concluding Remarks Taking into consideration that two of the three last WTO ministerials ended 

in failure, we have noted some positive developments in the current WTO 

negotiating environment compared to that just before Cancun. For 

instance, the July framework represented progress, and since the July 2004 

Framework, there has been significant activity and positive engagement by 

all member countries, including developing countries. Members are very 

aware of the tight deadlines and work remaining prior to the Hong Kong 

ministerial. If they are successful in meeting their goals for interim 

progress, the risk of arriving in Hong Kong with an overly full agenda will 

be reduced. 

However, as we pointed out in the report, the ministerial faces a number of 

potential challenges—and some risk of falling short of its ambitious goals 

without a greater sense of purpose, according to WTO Director-Supachai’s 

latest assessment. Furthermore, issue progress requires compromise, but 

substantive movement toward convergence is still not evident in most 

areas. Agriculture remains central to the round. Despite some progress, 

developed country commitments to undertake painful agricultural reform 

are at least partly contingent on movement on market access. Yet, technical 

talks on market access are bogged down, and meetings have only recently 

broken the impasse. Moreover, even with recent proposals, there is scant 

evidence that key countries are willing to make commitments to liberalize 

access to their markets for industrial goods and services. But cutting 

barriers from today’s high levels will be the source of any projected gains 

from the Doha round to rich and poor countries alike--and deemed vital to 

achieving balanced results. Deadlines for deciding development issues 

loom in July 2005, but discussions on outstanding proposals have yet to 

become fruitful. The United States, meanwhile, is facing tests of its trade 

leadership at home and calls by other WTO nations for urgent action on 

cotton, as well as greater receptivity to difficult demands in services and 

antidumping. 

With an effective deadline of December 2006, the question is whether the 

rest of 2005 will see sufficient progress to enable final agreement on a 

package that offers gains to all WTO members. Some experts remain 

optimistic that the Doha Round can deliver its promised benefits. Others 

say tough decisions are necessary for progress and warn time is short given 

the substantial work remaining.
Page 28 GAO-05-538 World Trade Organization

Agency Comments and 

Our Evaluation

We requested comments on a draft of this report from the U.S. Trade 

Representative, the Secretary of Agriculture, the Secretary of Commerce, 

and the Secretary of State, or their designees. The Assistant U.S. Trade 

Representative for WTO and Multilateral Affairs and other USTR staff 

indicated general agreement with the report, but provided us with several 

technical comments, which we incorporated as appropriate. The 

Department of Agriculture’s Foreign Agriculture Service agreed with our 

report’s factual findings and analysis, but provided several technical 

comments, including data on non-ad valorem tariffs, which we 

incorporated as appropriate. The Department of State’s Director of 

Multilateral Trade, Bureau of Economic and Business Affairs, indicated 

agreement with GAO’s findings and analysis, and provided a technical 

comment, which we incorporated. The Department of Commerce provided 

written comments, indicating that “GAO analysts have focused on the 

essential pieces of the negotiating puzzle” and “accurately portrayed the 

broad state of progress and existing negotiating tensions in the key areas” 

(see app. IV). In addition, the Deputy Assistant Secretary for Agreements 

Compliance and other Commerce staff provided us with oral technical 

comments on the draft, which we incorporated as appropriate.

We are sending copies of this report to interested congressional 

committees, the U.S. Trade Representative, the Secretary of Agriculture, 

the Secretary of Commerce, and the Secretary of State. We will also make 

copies available to others upon request. In addition, the report will be 

available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me 

at (202) 512-4347. Contact points for our Offices of Congressional Relations 

and Public Affairs may be found on the last page of this report. GAO staff 

who made major contributions to this report are listed in appendix VII.

Loren Yager

Director, Interational Affairs and Trade
Page 29 GAO-05-538 World Trade Organization

Appendix I

Objectives, Scope, and Methodology ApApenednxidexiIs

The Chairman of the Senate Committee on Finance and the Chairman of 

the House Committee on Ways and Means asked us to assess (1) overall 

progress in the WTO Doha Round of negotiations, (2) progress in specific 

negotiating areas, and (3) factors affecting progress.

We followed the same overall methodology to complete all three of our 

objectives. We obtained, reviewed, and analyzed documents from a variety 

of sources. From the WTO, we analyzed the 2001 Doha Ministerial 

Declaration, the Doha Work Programme Draft General Council Decision 

of 31 July 2004, known as the “July framework,” as well as numerous 

negotiating proposals from WTO member countries and other documents. 

From U.S. government agencies and foreign government officials, we 

obtained background information and documentation regarding 

negotiating proposals and positions. We also obtained information on dayto-day developments from reputable trade publications.

We met with officials from key U.S. government agencies, including the 

Department of Agriculture, the Department of Commerce, the Office of the 

U.S. Trade Representative, the State Department, and the Department of 

the Treasury, to obtain perspectives on progress in the negotiations overall 

and individual issue areas and factors affecting negotiations. The State 

Department arranged meetings with various of its country desk officers to 

provide us with perspectives on key WTO participating member nations. 

We also met with trade representatives from developed and developing 

countries located in Washington, D.C., including Australia, Brazil, Canada, 

Chile, Costa Rica, the European Union, Guyana, Japan, Malaysia, New 

Zealand, Norway, Singapore, South Korea, and Switzerland. Further, we 

met with private-sector representatives from specific business sectors, 

including the American Sugar Alliance, the National Association of Wheat 

Growers, National Corn Growers Association, the Coalition of Services 

Industries, the National Association of Manufacturers, and the Zero Tariff 

Coalition. We met with nongovernmental organizations (NGO), including 

Oxfam America and the Carnegie Endowment; and trade experts from 

institutions including the United Nations Conference on Trade and 

Development (UNCTAD); Georgetown University; the Cato Institute; the 

Institute for International Economics, the American Enterprise Institute; 

the World Bank; Columbia University; the University of Toronto; the 

Manufacturers Alliance; and the Institute for International Business, 

Economics, and Law, the University of Adelaide, Australia; White and Case; 

and C&M International. 
Appendix I

Objectives, Scope, and Methodology

Page 30 GAO-05-538 World Trade Organization

To illustrate tariff profiles for examples of developed and developing 

countries, we reviewed international tariff and trade data from the World 

Bank’s World Integrated Trade Solution (WITS) database, which contains 

member-supplied data from the WTO and the United Nations. Though these 

organizations are limited in their ability to verify official country data, we 

concluded that the data is sufficiently reliable for the purposes of our 

analysis based on accuracy checks regularly performed on the database 

and its’ wide usage in the negotiations.

Prior to the July 2004 mini-ministerial, with the assistance of USTR and the 

State Department, we traveled to WTO headquarters in Geneva to obtain 

foreign government official, private sector, and nongovernmental 

organizational views on progress. We followed this initial visit to Geneva 

with another trip in late June and early July 2004, to meet with U.S. and 

WTO officials and observe the Trade Negotiations Committee negotiations; 

a visit in September 2004, to obtain official reactions to the July framework; 

and a mid-April 2005 update. The series of visits to Geneva resulted in 

interviews with WTO member country officials from developed and 

developing countries including Australia, Brazil, the European Union, 

India, Jamaica, Japan, and Singapore. We also met with WTO officials, 

including the agriculture, industrial (nonagricultural) market access, 

services, development, and trade facilitation negotiating group chairs. In 

total, we conducted more than 130 interviews with negotiators and trade 

experts.

We performed our work from March 2004 through April 2005 in accordance 

with generally accepted government auditing standards.
Page 31 GAO-05-538 World Trade Organization

Appendix II

Agriculture ApendxiI

Given the importance of agriculture in the Doha Round negotiations, 

coalitions of countries regrouped in 2004 and focused on making progress 

on the three pillars in agricultural reform of export subsidies, domestic 

supports, and market access. The most notable achievement thus far has 

been agreement in the July 2004 framework to remove all export subsidies 

at some future date. The framework also set ceilings on certain tradedistorting domestic support categories. However, disagreement persists 

over how to define such categories and set reduction schedules, as well as 

how to improve market access through a tariff reduction formula and the 

definition of sensitive and special products that can be insulated from tariff 

cuts.

Export Competition The May 9, 2004, EU letter from Pascal Lamy and Franz Fischler to WTO 

member countries offered to eliminate all export subsides1

 -- with no 

products excluded – if suitable agreements were reached on market access 

and domestic support. This offer was warmly welcomed by member 

countries; for decades, the United States and other countries have 

advocated completely eliminating export subsidies.

Lamy and Fischler conditioned their offer on what they termed “full 

parallelism,” meaning the commitment to eliminate all export subsidies is 

linked to establishing new disciplines in other export competition 

programs, including U.S. export credit and food aid programs, as well as 

export state trading enterprises. The move reinvigorated negotiations, 

country officials and we agreed, because the European Union had 

previously offered only the substantial reduction and elimination of export 

subsidies for certain products, not total elimination. 

The EU’s offer, valued at about US $9 billion, meant other countries with 

substantial export competition programs, such as the United States, would 

need to agree to undertake disciplines on them.2

 The July framework 

envisions new disciplines on export credits, food aid, and state trading 

enterprises. 

1

Export subsidies are subsidies contingent on export performance. For example, they 

include cost reduction measures, such as subsidies to lower the cost of marketing goods for 

export, and internal transport subsidies that apply to exports only.

2

According to its 2001 notification to the WTO, the EU spent about $2.3 billion of the 

approximately $9 billion it is allowed to spend on export subsidies.
Appendix II

Agriculture

Page 32 GAO-05-538 World Trade Organization

• The framework is likely to force the substantial restructuring of U.S. 

export credit programs, trade officials say, and our analysis supports 

this conclusion. For example, the July framework language stipulates 

that export credit programs may not have financing repayment periods 

of longer than 180 days. The main U.S. export credit programs, General 

Sales Manager (GSM)-102 and GSM-103, have repayment periods from 6 

months to 3 years and up to 10 years, respectively.3

• All food aid programs are subject to scrutiny and could be subject to 

new disciplines, with certain U.S. programs the focus of international 

attention, country officials and trade experts told us. The European 

Union and many African nations advocate that food aid be made only in 

grant form. They also want to make sure food aid is not a mechanism for 

surplus disposal when commodity prices are low and commodity stocks 

are high, because this can trigger commercial displacement. This 

agreement would have implications for the United States’ Title I P.L. 480 

food aid program , which provides for long-term, low interest loans to 

developing countries for their purchase of U.S. agricultural 

commodities, and the Section 416b food aid program, which authorizes 

USDA to donate surplus agricultural commodities overseas. As a result, 

the U.S. successfully sought changes in a July 16 draft text for the 

framework agreement, which had called for disciplines to “ensure that 

food aid is not used as a mechanism for surplus disposal and to prevent 

commercial displacement” [italics added]. However, the framework text 

agreed upon in late July makes no such mention of surplus disposal. 

Instead, it indicates that there will be future discussions on “providing 

food aid exclusively in fully grant form.” 

• Finally, the framework calls for disciplines to remove the export subsidy 

components of state trading enterprises, including the government 

financing of and underwriting losses of such programs. U.S. goals for the 

negotiations reflect long-held concerns about the exercising of 

monopoly power on imports and exports through these institutions. As a 

result, Canada and Australia are likely to face tighter disciplines on their 

wheat state trading enterprises, trade officials and experts told us.

3

The 2002 Farm Bill authorized $5.5 billion in annual farm exports for GSM-102 and GSM-103 

programs. The legislation authorized an additional $1 billion for emerging markets through 

2007.
Appendix II

Agriculture

Page 33 GAO-05-538 World Trade Organization

Domestic Supports Many developing and developed countries are seeking substantial 

reductions in developed country trade-distorting domestic support4

programs because these programs can reduce world prices and displace 

otherwise competitive producers from world markets. The European 

Union and the United States in 2001 together accounted for the majority of 

global spending in trade-distorting domestic supports. The U.S. has 

publicly stated it would significantly reduce its trade-distorting domestic 

support spending if other WTO member nations agree to ambitious 

outcomes in other areas, such as market access. 

In July, WTO members agreed that the eventual Doha Round agreement 

would contain a strong element of harmonization in reductions of tradedistorting domestic support programs by developed countries, with those 

countries with larger subsidy programs cutting more. This dovetails with 

U.S. aims in the domestic supports pillar, since the European Union still 

outspends the United States. The framework sets ceilings on certain kinds 

of trade-distorting domestic supports and calls for the capping and future 

reduction of others. The July framework also called for a substantial 

reduction in the overall level of trade-distorting support from bound levels.

To examine how these broad guidelines could affect existing European 

Union and the United States programs, we have reviewed the various 

categories of domestic supports, which the WTO classifies into “boxes:” 

amber, blue, green, and de minimis supports. Figure 3 describes the 

categories of WTO-recognized domestic support programs.

4

Domestic supports (often called “‘subsidies”) are payments made to farmers that raise 

prices or guarantee income. They include such measures as government purchases at 

guaranteed prices, commodity loan programs, and direct payments to farmers. 
Appendix II

Agriculture

Page 34 GAO-05-538 World Trade Organization

Figure 3: Types of Domestic Supports—WTO Definitions

The WTO classifies agricultural domestic support into main categories 

identified by traffic-light color-coded “boxes” that range from most to least 

trade-distorting: Red, e.g. spending not permitted in these types of 

supports; amber, domestic supports that are production- and tradedistorting, the total value of which was capped and then reduced; blue, 

production-limiting subsidies that have marginal trade-distorting effects; 

and green, non- or minimally-trade distorting, and thus permitted. 

De minimis is a category that captures other domestic supports, including 

market price support measures, direct production subsidies, or input 

subsidies. There is no requirement to reduce de minimis trade-distorting 

domestic support for any year in which the aggregate value of the productspecific support does not exceed 5 percent of the total value of production 

of the agricultural product in question. In addition, non-product specific de 

minimis support which is less than 5 percent of the value of total 

agricultural production is also exempt from reduction. 

Trade-distorting support is comprised of a country’s expenditures in 

Amber Box, Blue Box, and de minimis supports. In other words, it does not 

include Green Box measures.

 The WTO classifies agricultural domestic support into main categories identified by 

traffic-light color-coded "boxes" that range from most to least trade-distorting: Red, 

e.g. spending not permitted in these types of supports; amber, domestic supports 

that are production- and trade-distorting, the total value of which was capped and 

then reduced; blue, production-limiting subsidies that have marginal trade-distorting 

effects; and green, non- or minimally-trade distorting, and thus permitted. 

De minimis is a category that captures other domestic supports, including market 

price support measures, direct production subsidies, or input subsidies. There is no 

requirement to reduce de minimis trade-distorting domestic support for any year in 

which the aggregate value of the product-specific support does not exceed 5 percent 

of the total value of production of the agricultural product in question. In addition, nonproduct specific de minimis support which is less than 5 percent of the value of total 

agricultural production is also exempt from reduction. 

Trade-distorting support is comprised of a country's expenditures in Amber Box, 

Blue Box, and de minimis supports. In other words, it does not include Green Box 

measures.

Types of Domestic Supports-WTO Definitions

Source: GAO.
Appendix II

Agriculture

Page 35 GAO-05-538 World Trade Organization

For Amber Box supports, the most trade-distorting category, the July 

framework calls for final bound thresholds5

 to be reduced substantially, 

using a tiered approach whereby members with more substantial support 

programs will be placed in higher tiers and forced to cut more. As 

illustrated in figure 4 below, this provision will narrow the difference 

between the levels the United States and European Union are authorized to 

spend versus the amount they actually spend. 

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

of Support

In absolute terms, the European Union spends substantially more in Amber 

Box programs than the United States and accounts for more than half of 

the total amount notified by the 30 WTO members that use such domestic 

supports. The U.S. is permitted to spend less than one-third of what the EU 

is permitted. In recent years the European Union spent just over half of 

5

Bound thresholds refer to the permitted levels of spending.

0

10

20

30

40

50

60

70

80

 1995 1996 1997 1998 1999 2000 2001

European Union - dollars in billions

0

10

20

30

40

50

60

70

80

 1995 1996 1997 1998 1999 2000 2001

United States - dollars in billions

Source: GAO, based on USDA and GAO analysis of USDA and EU data.

Allowed Amber Box spending level

Actual Amber Box spending level
Appendix II

Agriculture

Page 36 GAO-05-538 World Trade Organization

what it is permitted to spend on these trade-distorting domestic supports, 

and its actual spending has declined. 

By contrast, trade experts and officials told us that other countries are 

concerned about U.S. domestic subsidy programs due to the United States’ 

trend of increased spending. The United States has supplied official WTO 

notifications through 2001 that indicate its Amber Box program spending 

was within established WTO limits, but its actual spending in Amber Box 

supports grew from $6.2 billion in 1995 to $15.6 billion in 2001, the most 

recent year data are available.

Furthermore, as we reported in our January 2004 report, the 2002 Farm 

Bill6

 could increase U.S. agricultural support spending and shift its 

composition. Specifically, the 2002 Farm Bill created a new category of 

domestic support programs, dubbed “countercyclical payments,” which are 

income support payments to farmers when the market price for a covered 

commodity falls below a legislatively-set target price. As a result, the 

United States has pushed in the WTO Doha Round for a redefinition of the 

WTO Blue Box, in which it currently does not spend – so that as long as the 

Blue Box exists it has greater flexibility to allow access for other programs 

that are less trade- distorting to count against its current, unused ceiling for 

this category of domestic supports. 

The July framework language regarding the Blue Box was favorable to the 

United States, trade officials and experts told us. It redefines the Blue Box 

to allow direct payments that do not require production limitations7

 if 

based on certain criteria.8

 This has met with sharp resistance from the G-20 

and other WTO members that seek significant reductions in all forms of 

trade-distorting domestic supports. These members are concerned that by 

allowing the United States to place its countercyclical payments in the 

redefined Blue Box, the United States will not be forced to reduce its tradedistorting domestic support programs and could in fact increase its total 

sum of trade-distorting domestic support. As recently as March 2005, the

G-20 called for further disciplines on price-linked supports in the 

6

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

7

In contrast to the existing definition, which specifies that Blue Box measures must be 

production-limiting.

8

Criteria provisionally include fixed production conditions, such as acreages, yields, and 

historical production levels.
Appendix II

Agriculture

Page 37 GAO-05-538 World Trade Organization

provisionally redefined Blue Box to allow the compensations for some, but 

not all, of the difference between market and target prices, among other 

proposals.

The July framework calls for a cap on the Blue Box of 5 percent of the 

production value, with historical spending patterns to be determined as a 

base. This could affect the European Union, trade officials and experts told 

us, which in 2001 spent 23.7 billion euros in Blue Box supports, or 9.6 

percent of its total agricultural production. 

To ensure ambitious cuts in domestic support, the July framework also 

calls for a substantial reduction in overall trade-distorting support, 

specifically the sum of Amber Box spending as measured by “Final Bound 

Total AMS,” Blue Box payments, and de minimis programs—with a 20 

percent cut to be made in that total in the first year of implementation.9

However, the specific extent of reductions was left to future negotiations.

Finally, on non- or minimally trade-distorting “Green Box” domestic 

supports, the framework called for a review, but not a capping or cut of 

these supports. The G-20 has charged that certain current Green Box direct 

payments to producers contradict the Green Box criteria of being non- or 

minimally trade-distorting. The United States and the European Union have 

resisted caps and cuts, but agreed to examine concerns about abuse. The 

United States spent about $51 billion in these types of supports, according 

to its 2001 notification to the WTO, the most recent year that data are 

available. 

Market Access Market access remains the most difficult pillar of the negotiations, country 

officials and experts told us. Major agricultural exporters including 

Canada, Australia, and Brazil want to expand their overseas markets. The 

United States is the world’s largest exporter of agricultural products, is a 

highly competitive producer of many products, and has significant 

offensive interests in this area. The United States has conditioned domestic 

support cuts on gains in market access. However, many developing 

countries have resisted liberalization, arguing they do not have the means 

9

The United States spent about $7 billion in de minimis payments while the European Union 

spent less than Euros 1 billion on these supports in 2001, the most recent year data are 

available.
Appendix II

Agriculture

Page 38 GAO-05-538 World Trade Organization

to subsidize exports or domestic production, and that tariffs are their only 

source of leverage and protection in the agricultural negotiations. 

Though the July 2004 framework states that a numerical formula will be 

used to cut tariffs from current bound rates, countries differ strongly over 

the type of formula they prefer. The methodology for converting specific 

tariffs into ad valorem equivalents10, upon which the tariff reduction 

formula would be applied, also frustrated progress in the market access 

negotiations for months. Such differences are based on the widely 

divergent tariff profiles among WTO members. Specifically, several studies 

by the Organization for Economic Cooperation and Development and the 

World Bank find that for agricultural goods, developed countries tend to 

have lower average bound and applied tariffs.11 However, developed 

countries have a greater percentage of specific (non-ad valorem) tariffs and 

tariff peaks.12 The products where developed countries have specific tariffs 

tend to be those with high levels of protection and the products where they 

have tariff peaks tend to be those of export interest to developing 

countries. In contrast, developing countries have uniformly higher bound 

tariffs, though currently applied tariff rates tend to be far lower than bound 

tariff rates and specific tariffs are rare. To illustrate these different tariff 

profiles, table 1 provides agricultural goods weighted average tariff rates 

for a selected set of countries and products. Due to member differences 

over the methodology for calculating ad valorem equivalents, the data 

excludes specific tariffs.

10A specific tariff is a trade tax levied as a monetary amount per unit of import. An ad 

valorem tariff is a trade tax calculated as a percentage of the value of the product being 

traded. To convert a specific tariff into an ad valorem equivalent, an import price for the 

product is needed. In the market access negotiations, some members advocated using the 

world input price. The EU advocated using the import price recorded by each country. In 

May, 2005, members eventually agreed on a combination of both prices. 

11Bound tariffs are the rates WTO member nations are permitted to charge and can raise 

only under strictly prescribed circumstances.

12Tariff peaks are tariffs that exceed a selected reference level. 
Appendix II

Agriculture

Page 39 GAO-05-538 World Trade Organization

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

Source: WITS World Bank Integrated Database.

a

Notes on data: Due to member differences over estimating ad valorem equivalents, the data excludes 

specific tariffs. Since specific tariffs tend to apply to products with higher protection levels, this 

exclusion may bias the data downward in certain circumstances.

b

Domestic peaks are tariffs that exceed three times the average tariff for a country. International peaks 

are tariffs that exceed 15 percent.

c

Tariff rates for dairy products are those for chapter 4 in the U.S. Harmonized Tariff Schedule (HTS). 

Tariff rates for edible fruits and nut products are those for HTS chapter 8. Tariff rates for tobacco 

products are those for HTS chapter 24.

In line with these general patterns, the table shows that developed country 

members such as the United States, the European Union, and Japan have 

relatively low average bound and applied ad valorem tariff rates that range 

from around 2 percent to 7 percent. However, by excluding specific tariff 

rates, the table does not show the full extent to which these countries 

protect their agricultural sectors. According to the World Bank, the 

European Union, for example, has specific tariff rates on 44 percent of its 

agricultural product lines. A 2001 study by the U.S. Department of 

Agriculture employed a certain methodology for converting ad valorem 

US EU Japan India Indonesia Kenya Venezuela

Average bound tariff 2.5 3.0 6.8 126.2 54.2 100.0 73.6

Average applied tariff 3.0 5.2 7.1 53.8 4.7 22.3 16.2

Maximum applied tariff 350.0 74.9 50.0 182.0 170.0 100.0 20.0

Share of applied domestic peaks b 6% 14% 30% 11% 5% 1% 0%

Share of applied international peaks b 4% 11% 28% 89% 6% 59% 49%

Agricultural imports as a share of total imports 4% 7% 10% 7% 12% 13% 13%

Dairy Productsc

 Average applied tariff 10.9 10.8 27.3 30.9 5.0 25.0 19.6

 Share of international peaks 11% 2% 55% 100% 0% 100% 91%

 Yogurt – HTS Code 040310 17.3 n/a 27.5 30.0 5.0 25.0 20.0

Edible Fruits and Nutsc

 Average applied tariff 0.1 9.5 8.5 40.6 5.0 27.7 15.0

 Share of international peaks 1% 7% 16% 94% 0% 62% 0%

 Bananas – HTS Code 080300 0.0 16.0 10.2 30.0 5.0 25.0 15.0

Tobaccoc

 Average applied tariff 70.6 25.4 0.1 30.0 0.3 20.8 15.4

 Share of international peaks 11% 16% 27% 100% 0% 100% 56%

 Smoking Tobacco – HTS Code 240310 257.0 74.9 16.6 30.0 11.7 30.0 20.0

Year of Data 2003 2004 2003 2002 2002 2001 2002
Appendix II

Agriculture

Page 40 GAO-05-538 World Trade Organization

equivalents and estimated that the non-trade weighted average tariff rate 

for agricultural goods in the United States, the EU, and Japan was 12 

percent, 30 percent, and 58 percent respectively.13 Additionally, for the 

example products of dairy, fruits and nuts, and tobacco, the United States, 

the European Union, and Japan have relatively high tariffs and a large share 

of international peaks.14 The United States’ average tariffs in the tobacco 

sector are extremely high, at around 71 percent. 

Developing countries such as India, Indonesia, Kenya, and Venezuela have 

much higher average bound tariffs, ranging from 54 percent in Indonesia to 

126 percent in India. However, in each of these cases, there are substantial 

gaps between the bound and applied tariff rates. 

The contrast between developed and developing country tariff profiles has 

fueled a sharp debate on what formula to use to conduct tariff reduction, 

country officials and trade experts told us. Some developed countries, 

including the United States, have advocated for a harmonizing formula 

called a Swiss formula, that would reduce high tariffs by a larger 

percentage than low tariffs. Developing countries and, particularly netexporters such as Brazil with high bound tariffs want more flexibility than 

the Swiss formula would offer. As an alternative, they advocate a banded 

approach, which divides tariffs into a series of bands and applies an 

average tariff reduction within each band. The banded approach would 

apply larger reductions to higher tariff bands—thereby addressing 

developed country tariff peaks – but would be less harmonizing than a 

Swiss formula. A formula that combines elements of both Swiss formula 

reductions and linear reductions is a blended approach.15

13See Economic Research Service, Profiles of Tariffs in Global Agricultural Markets, 

Washington: US Department of Agriculture, 2001. This paper chose to use the world input 

unit value as a proxy for the input price based on data from the Agricultural Market Access 

Database – which largely draws on data from the WTO and United Nations. This 

methodology differs, however, from that agreed upon in the WTO negotiations.

14The average U.S. tariff on edible fruit and nut products is an exception, at only 0.1 percent.

15The blended formula would apply an average tariff cut to a certain percentage of tariff 

lines, the Swiss formula cuts to another percentage of tariff lines, and provide duty-free 

access to the remainder. 
Appendix II

Agriculture

Page 41 GAO-05-538 World Trade Organization

Figure 5: Tariff Reduction Formulas Considered for Improving Agricultural Market 

Access

The United States was among a handful of nations that in June 2004 penned 

and circulated a draft market access white paper attempting to strike a 

compromise. The paper called for a different type of a tiered formula 

approach, where within each band a certain percentage of bound tariffs 

would be cut by a Swiss (harmonizing) formula and a certain percentage of 

bound tariffs would be cut by a linear percentage. A certain number of 

tariff lines would be exempt from either a Swiss or linear cut. Instead, 

liberalization would be handled through tariff rate quota increases. This in 

effect allows member countries to shield themselves from substantial 

reduction commitments for certain products by self-designating them as 

“sensitive products.” 

Continued disagreement on the tariff reduction formula is significant 

because variations in the type of formula could result in widely different 

results. Recent studies indicate that for developed countries, the banded 

approach reduces applied tariff rates in some instances more than the 

blended approach. These studies further indicate that the blended 

approach could have a greater impact in reducing bound rates in 

developing countries due to the homogeneity of their bound rates at 

relatively high levels. However, irrespective of the type of tariff reduction 

formula chosen, the degree of liberalization will strongly be affected by the 

degree of ambition within the formula, as determined by the coefficients, 

 Blended approach: an approach where tariffs cuts would be applied by three 

methods. Some tariffs would be made duty-free, some tariffs would be reduced by 

an average linear cut with a minimum reduction per product (the Uruguay Round 

approach), and some tariffs would be reduced by a Swiss formula.

 Banded approach: an approach where tariffs would be divided into bands and 

reduced by an average linear cut within each band. Higher tariff bands would be 

reduced by a larger percentage than lower tariff bands.

Linear formula: a formula where all tariff 

rates will be reduced by the same 

percentage. The general mathematical 

specification is:

Swiss formula - a nonlinear formula that is 

harmonizing because it subjects higher tariff 

rates to larger tariff cuts. The general 

mathematical specification is:

Tariff Reduction Formulas Considered for Improving Agricultural Market Access

t

1 = c*t0

where t1 is the final tariff rate, to is the 

initial tariff rate, and c is a constant 

parameter.

t

1 = (a*t0)/(a+t0)

where t1 is the new tariff, t0 is the 

initial tariff, and a is the coefficient to 

be negotiated.

Source: GAO.
Appendix II

Agriculture

Page 42 GAO-05-538 World Trade Organization

and by the exceptions to the formula through sensitive product 

designation.

Negotiators had hoped to agree on the formula to cut tariffs in July 2004 but 

were unable to do so. Instead, they agreed that (1) the future formula will 

be a single approach for developed and developing countries; (2) the future 

formula will be tiered, with progressive reductions achieved through 

deeper cuts in higher tariffs; and (3) all WTO members will have some 

flexibilities in applying cuts to sensitive products that will be used in the 

future. Under the framework, increased market access on sensitive 

products will be achieved through expanded tariff quota rates and tariff 

reductions.

Sensitive products and special products—whereby developing countries 

are allowed to declare additional products exempt from standard 

reductions under certain criteria, such as rural development or food 

security needs—are likely to be among the most contentious battles going 

forward, trade officials and experts told us. The G-20 and other negotiating 

groups have stressed that the exceptions for sensitive products – whereby 

countries are permitted to declare certain key commodities as sensitive 

and exempt them from standard tariff reduction schedules—is at odds with 

the liberalizing mission of the Doha Round. Sensitive product exceptions 

could be used to protect developed country tariff peaks, these countries 

say, and greatly undermine the ambitious nature of any agreement.
Page 43 GAO-05-538 World Trade Organization

Appendix III

Industrial Market Access ApendxiI

Negotiators report that during the period between Cancun and the July 

framework, members avoided discussing differences in industrial market 

access (nonagricultural market access or NAMA) so that they could focus 

on the agricultural negotiations. As a result, while the negotiating 

atmosphere has improved, the July framework represents a lack of 

movement on key issues in the industrial market negotiations relative to 

Cancun. In fact, the framework consists simply of the text that was 

circulated in Cancun with the addition of a paragraph stating that 

agreement on substantive elements of the text had not yet been reached. 

While negotiators are using the framework as an agenda for discussion, the 

framework lacks both consensus and specificity on the two main methods 

being considered for liberalization of trade in industrial goods—a tariff 

reduction formula and sectoral initiatives—as well as the flexibilities that 

developing countries will be offered in applying these methods. As of the 

spring 2005, consensus on these substantive issues had not yet been 

reached. 

The Tariff Reduction 

Formula

WTO members remain divided over the tariff reduction formula and its 

application. The July framework suggests a nonlinear formula, to be 

applied line by line to bound tariff rates, with the aim of reducing or 

eliminating tariff peaks and tariff escalation.1

 Despite the framework’s 

disclaimer that agreement on the formula had not been reached, 

negotiators we spoke with indicated that members have generally accepted 

the idea of a nonlinear formula. Nonetheless, there remain strong 

differences over countries’ preferences for the type of nonlinear formula 

chosen and the formula coefficients. The July framework also suggests a 

variety of ways in which special and differential treatment could be 

provided. Negotiators we spoke with suggest that members agree that least 

developed countries (LDCs), as well as countries with a low percentage of 

bound tariffs, can be exempted from reducing their tariffs through a 

formula, but the degree to which other developing countries can exempt 

products from the formula and qualify for longer implementation periods 

remains controversial. 

1

A nonlinear formula would apply different percentage reductions to tariff rates at different 

levels. A tariff peak is a tariff that exceeds a selected reference level. Tariff escalation is a 

practice that countries often use, whereby they increase tariffs in relation to the degree of 

processing found in a product.
Appendix III

Industrial Market Access

Page 44 GAO-05-538 World Trade Organization

Figure 6: Potential Special and Differential Treatment Provisions Discussed in the 

July Framework on NAMA

Country preferences for the formula and application of special and 

differential treatment provisions continue to reflect those advocated prior 

to Cancun and are largely based on the varying tariff profiles among WTO 

members. Similar to conditions in agriculture, tariff profiles for nonagricultural goods suggest that (1) developed countries have bound almost 

all of their tariffs at relatively low levels, though certain products are 

characterized by tariff peaks; (2) products where developed countries have 

high tariffs tend to be among those of export interest to developing 

countries such as textiles and apparel or leather and footwear; and (3) 

developing countries, in many but not all cases, have limited tariff bindings 

and relatively high bound tariffs, though currently applied tariff rates tend 

to be far lower than bound tariff rates. 

Developed country members that have relatively low tariffs want 

significant tariff liberalization in order to access new markets in developing 

countries that have relatively high tariffs.2

 The United States, for example, 

2

Some developing country members that are seeking access to new markets, such as Costa 

Rica, Pakistan, and several Central and Eastern European countries, also advocate an 

ambitious approach in NAMA. Some of these countries belong to the informal coalition 

called the “Friends of Ambition.”

 Developing countries with less than a certain percentage of their tariff lines that are 

bound could fully bind their tariffs at an average level rather than participate in tariff 

reductions through a formula. The current text suggests that countries with less than 

35 percent of tariff lines that are bound could qualify. Least-developed countries 

would also be expected to increase their level of bindings but would be exempt from 

the tariff reduction formula and sectoral initiatives.

 Developing countries that are subject to a tariff reduction formula could (a) apply less 

than formula cuts to some percentage of tariff lines as long as the cuts made are at 

least half of the formula cuts and (b) keep some percentage of tariff lines unbound. For 

both exceptions, the selected tariff lines could not exceed a certain share of the total 

value of a country's imports. The current text suggests that the percentage of tariff 

lines for less than formula cuts could be 10 percent, and the percentage of tariff lines 

to keep unbound could be 5 percent.

 Longer implementation periods would be provided, though unspecified, for developing 

country commitments.

The July Framework provides for three general avenues for which special and differential 

treatment for developing countries could be pursued:

Potential Special and Differential Treatment Provisions Discussed in the 

July Framework on NAMA

Source: GAO.
Appendix III

Industrial Market Access

Page 45 GAO-05-538 World Trade Organization

is strongly pressing for an industrial market access agreement that would 

effectively lower tariffs in key developing countries for which an estimated 

71 percent of foreign duties on U.S. manufactured exports are assessed, 

according to the National Association of Manufacturers. To achieve this 

result, the United States, the EU, and other developed country members, as 

well as some developing country members that have autonomously 

liberalized in the past, continue to support a Swiss-type formula – a 

harmonizing nonlinear formula that would reduce high tariffs by a larger 

percentage than low tariffs. Such a formula would also address tariff peaks 

and escalation. [SIDEBAR] To account for special and differential 

treatment, the United States has proposed that developing countries could 

apply a different coefficient within the Swiss formula than developed 

countries, implying more moderate liberalization. The EU and Norway have 

proposed a “credit-based approach” where the flexibility in the formula 

coefficient for developing countries would be determined uniquely for each 

country based on credits for commitment to apply the formula without 

exception or participation in sector agreements, for example. 

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

NAMA Negotiations

In contrast, some developing countries emphasize that due to their higher 

average tariff rates, harmonizing formulas that reduce higher tariffs more 

than lower tariffs would result in greater percentage cuts for developing 

Girard formula: a nonlinear formula 

proposed by the former Chair of the NAMA 

negotiating group that differentiates among 

countries according to their current overall 

average bound tariff rates. Countries with 

higher average bound tariffs would reduce 

their bound tariffs at a lesser rate than 

countries with lower average bound tariffs. 

The general mathematical specification is: 

Nonlinear formula: a formula that would apply different percentage reductions to tariff 

rates at different levels.

Prior to the Cancun ministerial, the WTO received 17 proposals for different tariff 

reduction formulas. Key concepts are defined below.

Swiss formula: a nonlinear formula that is 

harmonizing because it subjects higher tariff 

rates to larger tariff cuts. The general 

mathematical specification is: 

Various Formula Specifications for Tariff Reductions Considered with the 

NAMA Negotiations

t

1 = (a*to)/(a+t0)

where t1 is the new tariff, t0 is the 

initial tariff, and a is the coefficient to 

be negotiated.

t

1 = (B*ta*to)/(B*ta+t0)

where t1 is the new tariff, t0 is the initial 

tariff, ta is the average initial tariff and B is 

the coefficient to be negotiated.

Source: GAO.
Appendix III

Industrial Market Access

Page 46 GAO-05-538 World Trade Organization

countries than developed countries—a result that they argue contradicts 

the principle of special and differential treatment. As such, they continue to 

support a Girard type formula—a non linear formula proposed by the 

former Chair of the industrial market access negotiating group that is based 

on each country’s average tariff rate and allows countries with higher initial 

tariffs to reduce those tariffs at a lesser rate than countries with lower 

initial tariffs.3

 They also support a more extensive application of special 

and differential treatment exceptions such that developing countries can 

maintain the flexibility to pursue industrial policies to promote growth of 

new industries and protect themselves against some of the adjustment 

costs of ambitious liberalization commitments.

Continued disagreement on the tariff reduction formula is significant 

because variations in the type of nonlinear formula chosen, the formula 

coefficients, treatment of unbound tariffs, and exceptions to the formula 

could result in widely different results. For example, both the World Bank 

and UNCTAD have analyzed the Swiss and Girard non-linear formulas by 

using hypothetical coefficients and have found that: 

• Swiss formula reductions tend to be larger than Girard formula 

reductions, particularly for the high tariff rates found in developing 

countries.

• While effective at reducing developed country tariff peaks, the Girard 

formula may also entail greater tariff cuts than the Swiss formula for 

developing countries that have lower average tariffs resulting from 

autonomous liberalization.

• The wide wedge between bound and applied tariff rates in developing 

countries limits the amount of trade liberalization achieved through any 

formula.

Nonetheless, echoing our analysis of market access negotiations in 

agriculture, the actual degree of liberalization that is achieved through 

these formulas or any other formula will strongly be affected by the degree 

of ambition within the formula, as determined by the coefficients, and by 

3

The Girard formula, when proposed, was to be accompanied by seven sectoral agreements. 

Recently, India, Brazil, and Argentina tabled a new proposal that is based on the Girard type 

formula but does not mention sector agreements.
Appendix III

Industrial Market Access

Page 47 GAO-05-538 World Trade Organization

exceptions to the standard tariff reduction schedules that will be offered 

through special and differential treatment.

Sectoral Initiatives WTO members also remain divided over sectoral initiatives. The July 

framework states that sectoral agreements should supplement the tariff 

reduction formula with an aim to eliminate or harmonize tariffs in key 

sectors of interest to developing countries.

4

The United States and other 

members have proposed the notion that participation should be based on a 

principle of “critical mass,” meaning that countries that account for the 

majority of trade in a sector should participate such that mutual gains are 

obtained without problems of free-ridership from nonparticipants.5

However, we were told that key developed and developing country 

members disagree strongly over whether sector agreements should be 

included in an industrial market access agreement. 

The United States has specific objectives for industrial market access as set 

out by its Trade Promotion Authority legislation: to focus on improving 

market access for U.S. exports and to increase global participation in 

sectoral agreements that reduce or eliminate barriers in key sectors, such 

as textiles and apparels and civil aircraft. Developed country members 

such as the United States, New Zealand, and Japan strongly support the 

inclusion of sector agreements because they can result in greater 

liberalization outcomes than even ambitious formula cuts. Specifically, 

they argue that only cuts that bring bound rates below currently applied 

rates would actually liberalize trade. Such members have conducted 

education and outreach with developing countries regarding potential 

requirements and flexibilities for sectoral agreements, as well as the likely 

economic benefits they could receive from ambitious trade liberalization. 

Nonetheless, certain developing countries, such as Brazil, do not support 

this method of liberalization and remain concerned about potentially 

4

While the framework itself did not specify which sectors should be included, earlier drafts 

provided by the industrial market access Chairman lists among others, electronics; fish and 

fish products; footwear; leather goods; motor vehicle parts and components; stones, gems, 

and precious metals; and textiles and clothing. Sector representatives in the U.S. are also 

interested in other sectors, such as chemicals, wood and paper products, and processed 

foods.

5

The notion of critical mass was first used with the Information Technology Agreement 

(ITA) where, according to one trade expert, countries accounting for 90 percent of trade in 

that sector were participants. 
Appendix III

Industrial Market Access

Page 48 GAO-05-538 World Trade Organization

mandatory participation. They argue that sector agreements could create 

an overly ambitious pace of reform. 
Page 49 GAO-05-538 World Trade Organization

Appendix IV

Services ApendxiIV

Accounting for 78 percent of private sector GDP1 and 80 percent private 

sector employment in the United States, services constitute a core priority 

for U.S. negotiators. Initially thought to be a lynchpin of the Doha Round, 

services talks have taken a backseat position relative to other issues. 

Nevertheless, the inclusion of services in the July 2004 text on an equal 

footing with the key market access pillars of agriculture and industrial 

market access resulted from efforts by both developed and developing 

country members and industry coalitions. Although some developing 

countries are reticent about services negotiations, generally perceiving 

them as a developed country interest, many developing countries have a 

particular interest in obtaining commitments under mode 4, which governs 

the temporary movement of service-delivery professionals. 

Notwithstanding these points of contention, since July, talks on the 

domestic regulation of services have shown signs of progress, as have

technical negotiations on market access. However, these have yet to 

translate into improved offers. An opportunity for significant services 

liberalization could be foregone if negotiations do not intensify.

Services negotiations aim to reduce barriers to international trade by 

improving the General Agreement on Trade in Services (GATS) which (1) 

ensures the increased transparency and predictability of international trade 

rules and domestic regulations governing services industries (rulemaking); 

and (2) promotes progressive liberalization of services markets through 

bilateral negotiations (market access2

).3 The Doha Declaration states that 

members shall submit initial services offers by March 31, 2003, a deadline 

that many members missed. Following the Cancun ministerial, and in the 

run up to the July framework, services negotiations made slow progress. 

Rule-making talks were stalled, and although the 2003 deadline had long 

past, pending market access offers outnumbered those submitted. 

Observers said there lacked a “critical mass” of offers for market access 

talks to make substantial progress. Those offers that were tabled were 

1

U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, 

June 2004. 

2

“Rulemaking” is conventionally used to refer to GATS rules and disciplines on domestic 

regulation. “Market access” is commonly used to refer to commitments on both market 

access and national treatment. 

3

Market access is typically negotiated bilaterally, following the so-called request-offer 

approach, whereby members request specific commitments from one another in a series of 

bilateral negotiations, and respond by presenting an offer to all WTO members.
Appendix IV

Services

Page 50 GAO-05-538 World Trade Organization

characterized as being of poor quali1ty. Movement had become contingent 

upon advances in other areas, particularly agriculture. 

July Framework Sets New 

Deadlines

Nevertheless, the final version of the July framework placed services on an 

equal footing with agriculture, industrial market access, and the other areas 

considered essential to a final Doha Round package. Initially, services were 

absent from the text. However, a specific section and annex on this sector 

were added after several developed and developing countries, as well as 

industry coalitions from the U.S., the EU, Australia, India, Hong Kong, 

China, Japan, Brazil, and Canada argued for their inclusion. Specifically, 

the July framework reasserts the importance of achieving services 

liberalization and urges members to intensify their efforts to conclude the 

negotiations on rulemaking. With a view to providing market access to all 

members, the text calls upon members to submit high-quality offers, 

particularly in the sectors and modes of supply of export interest to 

developing countries. It specifically names mode 4 as being among these, 

and sets May 2005 as the deadline for members to table new offers. 

Progress Since July After they agreed to the July framework, members held several multilateral 

and bilateral meetings and discussed rules, domestic regulation, and 

market access with renewed momentum. Technical talks were ongoing on 

all fronts. On the rule-making side, members initiated new discussions4

 on 

emergency safeguards,5

 subsidies and government procurement, but none 

of these issues came close to resolution. Certain East Asian developing 

countries continued to advocate creation of an emergency safeguard 

mechanism for services, reflecting concerns over their experience with the 

1997 financial crisis. However, many WTO members reportedly see an 

emergency safeguard for services as being technically unfeasible and/or, in 

the case of the United States and most other developed countries, 

undesirable. Discussions on domestic regulation were more promising. 

4

GATS contains several negotiating mandates in rule-making areas which members felt 

unable to consider in detail within the time frame of the Uruguay Round. These negotiations 

are conducted in two Working Parties, one on Domestic Regulation and one on GATS Rules. 

The latter Working Party is charged with negotiations on emergency safeguards, 

government procurement, and subsidies.

5

Emergency safeguards are measures that would allow for the temporary suspension of 

market access, national treatment, and/or any additional commitments that members may 

have assumed in individual sectors.
Appendix IV

Services

Page 51 GAO-05-538 World Trade Organization

Several proposals triggered constructive debates on regulatory disciplines 

and transparency.6

On the market access side, talks were said to be progressing on a technical 

level. After July 2004, a few more developing countries tabled initial offers, 

bringing their number up to 52,7

 and bilateral talks seemed to have regained 

momentum. One gauge of movement was embodied by the intensification 

of informal meetings held by so-called Friends groups, which assemble 

subsets of member countries around issue-specific concerns such as 

financial services, energy services or mode 4. However, WTO officials said 

that sufficiently detailed negotiations on specific services sectors had still 

yet to begin. Moreover, a general concern with the current offers is that 

they do not fully bind, let alone deepen, the level of liberalization that 

members have already, de facto, achieved outside of the WTO. Another 

potential problem is that these offers do not systematically schedule 

commitments in every service sector. Some have signaled notable absences 

and weaknesses in financial, insurance, communication, audio-visual, and 

professional services—sectors of interest to the United States—but also 

maritime services and others of interest to different members. In response, 

a number of countries are pushing for the universal adoption of minimum 

requirements, or “benchmarks,” in given industries such as financial 

services. Approximately 40 developing countries have not submitted initial 

services offers at all—not counting LDCs. According to one WTO official, 

their failure to table services offers does not strictly reflect a lack of means, 

though in some cases it may. WTO officials felt that the outcome of 

intensified bilateral and informal talks would only become clear after May 

2005, the deadline for tabling new and revised services offers. 

Forward movement in the months leading up to the Hong Kong ministerial 

and beyond will depend on members overcoming four challenges. First, 

several officials we spoke with stated that insufficient technical capacity 

could prevent a number of developing countries from tabling initial or 

revised services offers before the Hong Kong ministerial. Second, resolving 

the contentious, mainly North-South disagreement over the extent of 

liberalization under mode 4 may be crucial to achieving progress in market 

access. The temporary movement of service-delivering professionals is a 

6

Issues at the heart of these talks include technical disagreements on licensing and 

qualification standards. 

7

Counting the 25 current EU members as one.
Appendix IV

Services

Page 52 GAO-05-538 World Trade Organization

politically sensitive issue for many developed countries, and their offers 

under mode 48

 are generally unsatisfactory to most developing countries 

with ambitions in this area, such as India. Despite their demands, the U.S. 

government has clearly expressed its reticence to grant other members 

more extensive market access under mode 4 than is reflected in its existing 

commitments. According to U.S. negotiators, certain commitments under 

this mode could involve modifying domestic immigration law, and certain 

countries are simply not prepared to make this move within the WTO 

framework.9

 Given the priority placed on obtaining mode 4 concessions, 

this discord may become increasingly problematic.

A third factor that could affect progress in services negotiations is the 

question of balance. Malaysia, Thailand, and the Philippines allegedly want 

a concession on emergency safeguards before fully engaging in market 

access bargaining. Brazil has tied its willingness to press forward in 

services talks to obtaining satisfaction in agriculture. Continuing to tie 

progress in services talks relative to other areas could be problematic, as 

the request-offer approach to negotiating services liberalization is 

inherently and comparatively slow. Moreover, the greater complexity of 

identifying and dismantling often opaque barriers to trade in services slows 

the speed of services talks. The head of the WTO Secretariat’s services 

division thinks that members will take 18 months to reach a meaningful 

agreement once they start negotiating on a more detailed level than they 

are currently. Finally, there is wide agreement that negotiators need to 

summon more political and technical resources from their capitals to 

conclude a meaningful services agreement. More than in other areas of 

trade, barriers to trade in services often occur behind borders, such that 

dismantling these measures requires involvement on the part of national 

8

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

9

In a World Bank study, Chaudhuri, Matoo and Self (2004) specify that with respect to mode 

4, the GATS covers two categories of measures: “those affecting ‘service suppliers’ of a 

Member’ of the GATS (i.e., self-employed suppliers who obtain their remuneration directly 

from customers) and those affecting the natural persons of a member who are ‘employed by 

a service supplier of a Member, in respect of the supply of a service.’ The Annex also states 

that the GATS does not apply to measures affecting individuals seeking access to the labor 

market of a member country, or to measures regarding citizenship, residence, or 

employment on a permanent basis. . . As Winters (2003) points out, unlike with the mass 

migration of less skilled workers, fears about cultural identity, problems of assimilation, and 

the drain on the public purse are not really relevant to mode 4. Host country concerns often 

pertain to national security, the difficulty in enforcing temporariness, and the impact on the 

labor market.” The two authors note that what lacks clarity in GATS includes the definition 

of “temporary movement,” and the types of contracts it covers. 
Appendix IV

Services

Page 53 GAO-05-538 World Trade Organization

ministries, subfederal level regulators, and various authorities not normally 

involved in trade policy. This poses a problem for many small developing 

countries.
Page 54 GAO-05-538 World Trade Organization

Appendix V

Economic Incentives for Doha Negotiations ApendxiV

The Doha trade negotiations aim to increase international trade in order to 

improve member countries’ economic growth and development. 

Economists have used trade models to generate numerous studies that 

estimate potential economic gains from trade liberalization for developed 

and developing countries alike. These estimates vary significantly, 

depending upon the extent of trade liberalization assumed and other key 

characteristics of the models. Several studies find that estimated 

worldwide economic gains accrue to both developed and developing 

countries. However, the distribution of economic gains may vary within 

and between countries, creating perceived winners and losers. As such, the 

individual economic incentives that countries face may differ, thereby 

affecting each country’s negotiating goals within Doha.

Doha Round Liberalization 

Is Expected to Yield 

Benefits and Costs

A primary rationale driving the Doha liberalization agenda is the belief that 

international trade can positively benefit a country’s overall growth and 

development. Potential benefits occur as international trade increases 

competition and specialization, provides greater access to technology, and 

expands export markets. Over time, a more liberal trading regime may 

reduce costs on both imported manufacturing inputs and exported final 

products that create incentives for foreign producers to invest in new 

production – benefits typically referred to as dynamic gains from trade. 

While the role of international trade in fostering growth and development 

has become more widely accepted, economists have also argued that trade 

liberalization can involve significant adjustment costs.1

 Adjustment costs 

may include unemployment in sectors that are not internationally 

competitive or costs of fiscal reform as governments heavily dependent on 

trade taxes shift toward income or production taxes. Additionally, 

international trade may yield an uneven distribution of economic gains, 

creating temporary winners and losers between countries as well as within 

them. As each country participates in the Doha negotiations, it is working 

to achieve a balanced package of commitments that will be politically 

acceptable to its various domestic constituencies. 

1

Some economists have highlighted that developing countries may also face some specific 

challenges with trade liberalization such as greater instability due to volatile export markets 

and an increased reliance on international debt to finance trade deficits. See appendix IV in 

GAO-05-150 for further discussion.
Appendix V

Economic Incentives for Doha Negotiations

Page 55 GAO-05-538 World Trade Organization

Nevertheless, without considering distributional issues, several studies 

predict that both developed and developing countries stand to benefit 

economically from multilateral liberalization. Developed countries are 

positioned to receive gains from trade liberalization since they are large 

traders and currently face relatively high tariffs for exports into developing 

countries, particularly for industrialized goods. Developing countries stand 

to receive gains from trade liberalization due to the fact that developed 

countries often have pockets of high average tariffs on products that 

developing countries tend to export. High developed country tariffs tend to 

apply to agricultural and processed agricultural goods as well as to light 

manufactures such as textiles and clothing. When weighted by the amount 

of trade occurring under them, these tariffs translate into significant trade 

barriers for developing countries. Developing countries also stand to gain 

significantly from liberalization by other developing countries. The share of 

developing countries’ agricultural exports going to other developing 

countries rose from 28 percent in the 1980s to 37 percent in 2001. However, 

in many cases, barriers imposed by developing countries on goods from 

other developing countries are even higher than those they face from 

developed countries, impeding potential South-South trade between 

developing countries. 

Economists Use Trade 

Models to Estimate 

Economic Gains

Economists often estimate the benefits and costs of easing trade 

restrictions by examining a recent period and estimating how trade and 

economic welfare would have been different under a scenario where 

certain trade restrictions were eased. Concurrent with the WTO and other 

trade negotiations, numerous trade models have been used to simulate 

liberalization of trade policies and calculate the likely range of effects on 

variables such as exports and imports, tariff revenues, production, prices, 

and income. Many of these studies use a computable general equilibrium 

(CGE) model called the Global Trade Analysis Project (GTAP) model. 

GTAP is a global general equilibrium model that describes the relationship 

between all sectors within an economy and all economies worldwide. In its 

general form, GTAP is a static model, which means that it simulates how 

economies will respond only to the trade policy change being examined. 

Results generated from GTAP should be interpreted as order-of-magnitude 

results rather than single point best estimates because the assumptions 

regarding how responsive economic variables are to policy changes drive 

the results.

Extensions of GTAP and other CGE models have been made to take into 

account how economies will grow over time. These dynamic versions of 
Appendix V

Economic Incentives for Doha Negotiations

Page 56 GAO-05-538 World Trade Organization

GTAP may include information on growth rates of capital, investment, and 

productivity. Additionally, while the general form of GTAP includes an 

assumption of perfect competition and constant returns to scale, 

extensions of GTAP have incorporated characteristics readily observed in 

manufacturing, such as imperfect competition and increasing returns to 

scale.2

 In these cases, trade liberalization can lead to greater specialization 

and increased economic gains over time. However, information on how 

firms respond to market changes in the long run is inherently more difficult 

to measure with certainty and, as such, results yielded from these models 

should be viewed with this limitation in mind.

Estimated Economic Gains 

from Trade Liberalization 

Vary

Table 2 provides a listing of various estimates of the economic gains from 

trade liberalization under selected trade liberalization scenarios. The table 

is not comprehensive but is intended to illustrate the wide range of results 

estimated through trade models – economic benefits ranging from $22 

billion to $574 billion worldwide. Results vary depending upon the type of 

model (static vs. dynamic), key assumptions in the model (perfect 

competition or imperfect competition), and the ambition of the 

liberalization scenario. 

2

Increasing returns to scale refers to production conditions where the cost per unit of 

production falls as the level of production rises. When production for exports expands, the 

decrease in unit costs will create greater economic benefits. Imperfect competition is 

correlated with increasing returns to scale because firms whose production is characterized 

by this condition are able to capture some monopoly powers.
Appendix V

Economic Incentives for Doha Negotiations

Page 57 GAO-05-538 World Trade Organization

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

Model Tariff reduction scenario Sectors included

Estimated annual

economic benefit

($US billions)a

Static models that assume perfect competition

Anderson et al 100% linear cut Agriculture

Manufacturing

$254

Cernat et al 50% linear cut Agriculture 

Manufacturing

$40

De Cordoba and 

Vanzetti 

50% linear cut for industrialized countries; 33% linear cut for 

developing countries; capped maximum rate, sector initiatives; 5% of 

lines excluded for developing countries 

Agriculture

Manufacturing 

Services

$123

Swiss formula cut at 6.8% for industrialized countries and 25% for 

developing countries; 5% of lines excluded for developing countries

$108

Hertel and Martin 33% linear cut Manufacturing $107

IMF and World 

Bank 

100% linear cut Agriculture 

Textiles

$194

Laird et al 50% linear cut for industrialized countries; 33% linear cut for 

developing countries 

Manufacturing $22

Swiss formula cut with certain zero tariff initiatives in chosen sectors $33

OECD 50% linear cut; decline in trade costs equal to 1% of trade; tariff cuts 

apply if rate falls below applied level 

Agriculture

Manufacturing 

Services

$117

Swiss formula cut with coefficient of 5; decline in trade costs equal to 

1% of trade; tariff cuts apply if rate falls below applied level

$159

100% linear cut; decline in trade costs equal to 1% of trade $174

Shakur et al 36% linear tariff cut; reduction of agricultural subsidies Agriculture 

Manufacturing

$38

100% linear tariff cut; elimination of agricultural subsidies $82

World Bank (1) Tariff targets of 5% (10%) and 1% (5%) for agriculture and 

manufacturing respectively for industrialized (developing) countries; 

capped maximum rates; elimination of subsidies

Agriculture 

Manufacturing

$291b

Static models that assume imperfect competition

Brown et al 33% linear cut Agriculture

Manufacturing

Services

$574

Francois et al Swiss cut with maximum tariff of 25%; 50% reduction in agriculture 

subsidies and services barriers; decline in trade costs equal to 1.5% 

of trade

Agriculture

Manufacturing

Services

$206

100% linear cut in tariffs, agriculture subsidies and services barriers; 

decline in trade costs equal to 1.5% of trade

$367

Dynamic models that assume perfect competition

World Bank (2) 100% linear cut; removal of subsidies Agriculture

Manufacturing

$385b
Appendix V

Economic Incentives for Doha Negotiations

Page 58 GAO-05-538 World Trade Organization

a

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

b

Results are for the year 2015.

Sources: 

Anderson et al., “The Cost of Rich (and Poor) Country Protection to Developing Countries.” Journal of 

African Economies, vol. 10, no. 3 (2001): 227-257.

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

De Cordoba, S.F., and Vanzetti, D., “Now What? Searching for a Solution to the WTO Industrial Tariff 

Negotiations”, Geneva: UNCTAD, 2005.

Hertel, T.W., and Martin, W., “Second-Best Linkages and the Gains from Global Reform of 

Manufactures Trade.” Review of International Economics, vol. 9, no. 2 (2001): 215-232.

IMF and World Bank, “Market Access for Developing Country Exports – Selected Issues”, Washington, 

IMF: 2002.

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

OECD, The Doha Development Agenda: Welfare gains from Further Multilateral Trade Liberalization 

with Respect to Tariffs, Paris: OECD, 2003.

Shakur et al, “How Comprehensive will be the Doha Round? Experiments with Agricultural and Nonagricultural Reforms.” New Zealand: Massey University Discussion Paper 02.11, 2002.

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

Washington: World Bank, 2003.

Brown et al, “Computational Analysis of Multilateral Trade Liberalization in the Uruguay Round and 

Doha Development Round.” Ann Arbor: University of Michigan Discussion Paper No. 489, 2002.

Francois et al, Economic Benefits of the Doha Round for the Netherlands, the Hague: Agricultural 

Economics Research Institute, 2003.

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

Nagarajan, N, The Millennium Round: An Economic Appraisal , Brussels: CECA Economic Papers, 

No. 139, 1999.

For example, the level of tariff cuts and sectors included for liberalization 

determine the ambition of the liberalization scenario and are one important 

factor accounting for variation in the results in table 2. Anderson et al. 

estimate gains of $254 billion with a full removal of tariffs on agricultural 

and industrial goods, while Cernat estimates gains of $40 billion with a 50 

percent reduction. An OECD model on liberalization in agriculture, 

manufacturing, and services shows that as tariff reductions are increased 

from a 50 percent linear tariff cut to a more ambitious Swiss formula tariff 

cut, to a 100 percent tariff cut, economic gains rise from $117 billion to $159 

billion to $174 billion, respectively. Several studies suggest that 

Dynamic models that assume imperfect competition

Nagarajan 50% linear cut; decline in trade costs equal to 1% of trade. Agriculture

Manufacturing

Services

$385

(Continued From Previous Page)

Model Tariff reduction scenario Sectors included

Estimated annual

economic benefit

($US billions)a
Appendix V

Economic Incentives for Doha Negotiations

Page 59 GAO-05-538 World Trade Organization

liberalization of agriculture will provide significant benefits to developing 

countries, despite the small size of agriculture in global output. Models by 

Anderson et al. and the World Bank estimate that roughly two-thirds of 

global economic gains from the liberalization of agricultural and industrial 

goods come from agricultural liberalization. The study by Brown et al., 

however, estimates that the largest economic benefits, $414 billion, come 

from liberalization of services and that there is an actual global net loss of 

income from agricultural liberalization of $3 billion.3

Several studies in table 2 also find that the distribution of economic 

benefits between developed and developing countries may be relatively 

even (ranging from 40 percent to 60 percent for each). Such benefits as a 

share of GDP, however, would be much larger for developing countries. For 

example, according to estimates by the World Bank, liberalization of both 

agricultural and industrial tariffs would provide $385 billion in economic 

benefits that would be equally divided between developed and developing 

countries. However, relative to their income levels, developing countries 

would gain 1.5 percent of GDP compared to 0.5 percent of GDP for 

developed countries. Several studies emphasize that the majority of gains 

for developed countries derive from lowered tariffs by other developed 

countries – a finding that is true for developing countries as well. 

In addition to caveats previously discussed, three limitations of trade 

models should be acknowledged:

• Difficulty in measuring current levels of protection. Many trade model 

estimates are based on analysis of current levels of trade protection that 

are difficult to measure due to the presence of nontariff barriers, non-ad 

valorem tariffs, and gaps between bound tariffs and applied tariffs. In 

some cases, data on tariffs may not be current enough to include 

information relating to preferential tariff rates or country accessions to 

the WTO. As a result, economic benefit estimates yielded from these 

data may be overstated because they account for tariff reductions that 

have already taken place. Economic benefit estimates may also be 

overstated if the analysis is focused on reductions in bound tariffs rather 

than reductions in applied tariffs – wrongly assuming that any reduction 

in the bound rate would translate into an equal reduction in the applied 

rate.

3

This result is partially due to the assumption of constant returns to scale for agriculture but 

increasing returns to scale for nonagriculture.
Appendix V

Economic Incentives for Doha Negotiations

Page 60 GAO-05-538 World Trade Organization

• Costs of adjustment. Many trade model estimates do not take into 

account adjustment costs to trade liberalization, such as a rise in 

unemployment or consumer prices during a transition period to the new 

trade policies. The more ambitious the liberalization scenario, the 

greater the long-term economic gain—as well as the short-term 

economic costs—are likely to be. Development institutions such as the 

World Bank, IMF, and United Nations have placed recognition on these 

costs, though there is presently limited understanding of the extent of 

such costs. 

• Structural features of some economies. Many trade model estimates use 

general assumptions regarding industry characteristics, which may not 

account for positive effects due to industrial policies. Some economists 

have noted that under certain conditions there are potential benefits in 

using tariffs to support growth in new industries. 

Trade Liberalization May 

Create Both Winners and 

Losers

While many studies estimate that trade liberalization is likely to result in 

economic benefits worldwide, there is likely to be differentiation in 

economic gains between and within individual countries. In the short run 

when adjustment costs are present, liberalization is likely to create winners 

and losers. For example:

• Net food exporters vs. net food importers. Regions that are significant 

agricultural exporters are expected to gain significantly from the 

agricultural liberalization measures being negotiated in Doha. However, 

the estimated gains are smaller and sometimes negative in regions that 

are large net importers of food because the potential removal of 

developed country subsidies may increase world food prices. The IMF 

estimates that major net exporters of food in Latin America and subSaharan Africa could gain between 0.3 percent and 0.6 percent of GDP 

from agricultural liberalization, while major net food importers in North 

Africa and the Middle East could lose 0.3 percent of GDP. Other large 

net food importing countries include South Korea, Russia, and 

Venezuela. 

• Countries that do not receive trade preferences vs. those that do.

Certain developing countries are offered nonreciprocal trade 

preferences into developed country markets. Under multilateral trade 

liberalization, those preferences may be eroded as overall tariff rates are 

reduced. As such, countries that do not receive trade preferences may 

gain a competitive advantage over developing countries that currently 
Appendix V

Economic Incentives for Doha Negotiations

Page 61 GAO-05-538 World Trade Organization

participate in preference programs. Potential economic costs associated 

with erosion of preferential access are difficult to determine, however, 

given the mixed empirical evidence on program benefits.4

 The IMF notes 

that erosion of sugar and banana preferences could be a concern. 

Mauritius, for example, benefits substantially from preferential access 

for its sugar exports, and Caribbean nations benefit from preferential 

access for banana exports. 

• Traders vs. non-traders in tariff revenue dependent countries. For 

countries that are dependent on tariff revenues to finance government 

operations, the tax burden on importers who pay those tariffs may be 

relatively high compared with the burden on consumers or domestic 

industries that pay consumption or production taxes. As tariffs are 

reduced through trade liberalization, tariff revenues may also be 

reduced if there is not a sufficient increase in the quantity of imports in 

response to lower tariff rates. In such cases, the burden of financing 

government operations may shift away from traders and toward nontraders within an economy. For African least-developed countries that, 

on average, rely on tariffs for 34 percent of government revenue, the 

potential distributional consequences from lower trade taxes is likely to 

be an important adjustment cost to trade liberalization. 

4

Several studies note that benefits have been limited due to already low developed country 

tariffs and poor program utilization rates. Empirical examination of the more recent 

targeted programs, such as the United States’ African Growth and Opportunity Act (AGOA) 

or the European Union’s Everything but Arms (EBA) initiative, suggests that the economic 

impact has been greater.
Page 62 GAO-05-538 World Trade Organization

Appendix VI

Trade Negotiating Interests and Affiliations of 

Leading Merchandise Exporters ApendxiVI

Exports by Sector (%)

Top 50 merchandise 

exporters in 2003 (in rank 

order of dollars exported) EUa G-90b Agriculture

Industrial

goods Services

Germany X 5 81 15

United States 7 64 29

Japan 1 85 14

China 5 84 11

France X 9 70 21

United Kingdom X 4 64 32

Netherlands X 16 66 19

Italy X 6 75 19

Canada 11 76 13

Belgium X 8 71 21

Hong Kong 2 80 18

South Korea 2 83 15

Mexico 5 88 7

Spain X 11 54 34

Taiwan n/a n/a n/a

Singapore 2 79 19

Russian Federation 6 82 11

Sweden X 6 71 23

Switzerland 2 73 25

Malaysia 8 78 14

Austria X 5 64 31

Ireland X 6 70 24

Saudi Arabia 1 93 7

Thailand 14 68 18

Brazil 27 59 14

Australia 21 58 22

Norway 5 71 23

Denmark X 15 52 32

United Arab Emirates n/a n/a n/a

Indonesia 14 75 10
Page 63 GAO-05-538 World Trade Organization

Areas of Negotiation

Agriculture Industrial Goods Services Trade Facilitation Rules

Cairns

Groupc G-20d G-10e G-33f

Friends of

Ambitiong

Tariffs

over

10%h

Have

tabled

offersi

Core

Groupj

Colorado

Groupk FANsl

Have initiated

over 75

antidumping

investigations

since 1995

X* X* X* X*

XX X X

X X X XX

XX X X

X* X* X* X*

X* X* X* X*

X* X* X* X*

X* X* X* X*

X XX X X

X* X* X* X*

X X XX

XX X X X X X

X XX X X

X* X* X* X*

X XX

X X XX

X* X* X* X*

X X X XX

X XX

X* X* X* X*

X* X* X* X*

XX X X X

XX X X X X

X XX X X

X X X XX

X* X* X* X*

XX X X X
Appendix VI

Trade Negotiating Interests and Affiliations 

of Leading Merchandise Exporters

Page 64 GAO-05-538 World Trade Organization

Exports by Sector (%)

Top 50 merchandise 

exporters in 2003 (in rank 

order of dollars exported) EUa G-90b Agriculture

Industrial

goods Services

India 9 57 34

Poland X 7 73 20

Finland X 7 80 13

Czech Republic X 5 80 16

Turkey C(m) 8 62 30

Hungary X 7 75 19

Philippines 5 87 8

South Africa X 8 79 14

Iran 3 92 5

Israel 4 69 27

Portugal X 7 65 28

Argentina 43 47 10

Algeria n/a n/a n/a

Venezuela 2 95 4

Ukraine 12 68 21

Slovak Republic X 5 80 16

Chile 29 52 19

Nigeria X n/a n/a n/a

Vietnam 24 61 15

Kuwait n/a n/a n/a

(Continued From Previous Page)
Appendix VI

Trade Negotiating Interests and Affiliations 

of Leading Merchandise Exporters

Page 65 GAO-05-538 World Trade Organization

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

Notes:

Non-WTO members are shaded.

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

Union.

a Other members of the European Union are Cyprus, Estonia, Greece, Latvia, Lithuania, Luxembourg, 

Malta, and Slovenia. Turkey is a candidate for membership, as are Bulgaria, Croatia, and Romania.

b

The G-90 is a large umbrella group including the least developed countries and other countries from 

Africa, the Caribbean, and the Pacific.

c

Other members of the Cairns Group are Bolivia, Colombia, Costa Rica, Guatemala, New Zealand, 

Paraguay, and Uruguay.

d

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

e

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

f

Other members of the G-33 are Antigua and Barbuda, Barbados, Belize, Benin, Botswana, Congo, 

Cote D'Ivoire, Cuba, Dominican Republic, Grenada, Guyana, Haiti, Honduras, Jamaica, Kenya, 

Areas of Negotiation

Agriculture Industrial Goods Services Trade Facilitation Rules

Cairns

Groupc G-20d G-10e G-33f

Friends of

Ambitiong

Tariffs

over

10%h

Have

tabled

offersi

Core

Groupj

Colorado

Groupk FANsl

Have initiated

over 75

antidumping

investigations

since 1995

X X X XX X

X* X* X* X*

X* X* X* X*

X* X* X* X*

X X XX

X* X* X* X*

XX X X

X X X

X

X XX

X* X* X* X*

XX X X X

X

XX X X

X* X X* X* X*

XX X X X X

XX X X

X
Appendix VI

Trade Negotiating Interests and Affiliations 

of Leading Merchandise Exporters

Page 66 GAO-05-538 World Trade Organization

Mauritius, Madagascar, Mongolia, Mozambique, Nicaragua, Pakistan, Panama, Peru, Senegal, St. 

Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Sri Lanka, Suriname, Tanzania,Trinidad 

and Tobago, Uganda, Zambia, and Zimbabwe.

g

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

h

Tariffs examined were most favored nation rates for the latest year available from the WTO. European 

Union member country rates were aggregated.

i

Other WTO members that had tabled services offers, as of March 29, 2005, are Bahrain, Barbados, 

Bolivia, Bulgaria, Colombia, Costa Rica, Dominican Republic, Egypt, El Salvador, Fiji, Gabon, 

Grenada,Guatemala, Guyana, Honduras, Iceland, Jordan, Kenya, Liechtenstein, Macao, Mauritius, 

New Zealand, Panama, Paraguay, Peru, Senegal, St. Kitts and Nevis, Sri Lanka, Suriname, and 

Uruguay, as well as other countries that are members of the European Union.

j

Other members of the Core Group are Bangladesh, Botswana, Egypt, Cuba, Jamaica, Kenya, 

Mauritius, Tanzania, Trinidad and Tobago, Uganda, Zambia, and Zimbabwe.

k

Other members of the Colorado Group are Colombia, Costa Rica, Morocco, New Zealand, and 

Paraguay.

l

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

mC indicates that Turkey is a candidate for membership in the European Union.
Page 67 GAO-05-538 World Trade Organization

Appendix VII

GAO Contacts and Staff Acknowledgments ApendxiVI

GAO Contacts Kim Frankena (202) 512-8124

Venecia Rojas Kenah (202) 512-3433

Staff 

Acknowledgments

In addition to the individuals named above, Michelle Munn, Kendall 

Schaefer, Emilie Cassou, Ann Baker, Mark Keenan, Jose Martinez-Fabre, 

Jonathan Rose, Jamie McDonald, and Ernie Jackson made key 

contributions to this report. 

(320260)
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