a

GAO

United States General Accounting Office

Report to the Chairman, Committee on 

Finance, U.S. Senate, and to the 

Chairman, Committee on Ways and 

Means, House of Representatives

January 2004 WORLD TRADE 

ORGANIZATION

Cancun Ministerial 

Fails to Move Global 

Trade Negotiations 

Forward; Next Steps 

Uncertain

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

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Loren Yager at 

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

Highlights of GAO-04-250, a report to the 

Chairman, Committee on Finance, U.S. 

Senate, and to the Chairman, Committee 

on Ways and Means, House of 

Representatives 

January 2004

WORLD TRADE ORGANIZATION 

Cancun Ministerial Fails to Move Global 

Trade Negotiations Forward; Next Steps 

Uncertain 

Ministers attending the September 2003 Cancun Ministerial Conference 

remained sharply divided on handling key issues: agricultural reform, adding 

new subjects for WTO commitments, nonagricultural market access, 

services (such as financial and telecommunications services), and special 

and differential treatment for developing countries. Many participants 

agreed that attaining agricultural reform was essential to making progress on 

other issues. However, ministers disagreed on how each nation would cut 

tariffs and subsidies. Key countries rejected as inadequate proposed U.S. and 

European Union reductions in subsidies, but the U.S. and EU felt key 

developing nations were not contributing to reform by agreeing to open their 

markets. Ministers did not assuage West African nations’ concerns about 

disruption in world cotton markets: The United States and others saw 

requests for compensation as inappropriate and tied subsidy cuts to 

attaining longer-term agricultural reform. Unconvinced of the benefits, many 

developing countries resisted new subjects—particularly investment and 

competition (antitrust) policy. Lowering tariffs to nonagricultural goods 

offered promise of increasing trade for both developed and developing 

countries, but still divided them. Services and special treatment engendered 

less confrontation, but still did not progress in the absence of the 

compromises that were required to achieve a satisfactory balance among the 

WTO’s large and increasingly diverse membership. 

Several other factors contributed to the impasse at Cancun. Among them 

were a complex conference agenda; no agreed-upon starting point for the 

talks; a large number of participants, with shifting alliances; competing 

visions of the talks’ goals; and North-South tensions that made it difficult to 

bridge wide divergences on issues. WTO decision-making procedures proved 

unable to build the consensus required to attain agreement. Thus, 

completing the Doha Round by the January 2005 deadline is in jeopardy. 

Trade Ministers at Cancun Unable to Attain Satisfactory Balance among Differing Priorities 

for Developing and Developed Countries, Preventing Agreement on Any Issue 

Differing Priorities Issues Outcome

• Agricultural subsidies

• Cotton market disruption

• Special and differential treatment

• Implementing prior commitments

• Agricultural market access

• Lowering tariffs on manufactured goods

• New subjects for WTO commitments

• Services liberalization

Developed country priorities

Developing country priorities

Sources: GAO and MapArt.

• Agriculture

• Market access 

• Special and 

 differential

 treatment

• New subjects for 

 WTO commitments 

• Services 

 liberalization

No agreement

No agreement

No agreement

No agreement

No agreement

Trade ministers from 146 members 

of the World Trade Organization 

(WTO), representing 93 percent of 

global commerce, convened in 

Cancun, Mexico, in September 

2003. Their goal was to provide 

direction for ongoing trade 

negotiations involving a broad set 

of issues that included agriculture, 

nonagricultural market access, 

services, and special treatment for 

developing countries. These 

negotiations, part of the global 

round of trade liberalizing talks 

launched in November 2001 at 

Doha, Qatar, are an important 

means of providing impetus to the 

world’s economy. The round was 

supposed to be completed by 

January 1, 2005. However, the 

Cancun Ministerial Conference 

ultimately collapsed without 

ministers reaching agreement on 

any of the key issues. GAO was 

asked to analyze (1) the divisions 

on key issues for the Cancun 

Ministerial Conference and how 

they were dealt with at Cancun and 

(2) the factors that influenced the 

outcome of the Cancun Ministerial 

Conference. 
Page i GAO-04-250 World Trade Organization

Contents

Letter 1

Results in Brief 2

Background 3

Stalemate Loomed on Eve of Cancun Ministerial, as Preparatory 

Process Was Slow to Yield Progress 6

Differences on Key Issues Remain Unresolved after the Cancun 

Ministerial 10

Several Factors Cited in the Talks’ Collapse 27

Concluding Observations 33

Agency Comments and Our Evaluation 35

Appendixes

Appendix I: Objectives, Scope, and Methodology 37

Appendix II: Significant Events in the WTO Negotiations before and 

during the Cancun Ministerial Conference 40

Appendix III: “Developing Countries” in the World Trade Organization 42

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

Representative 47

Appendix V: GAO Contacts and Staff Acknowledgments 49

GAO Contacts 49

Staff Acknowledgments 49

Table Table 1: “Developing” World Trade Organization Members as of 

July 2003 43

Figures Figure 1: Key Milestones through the Fifth Ministerial Conference, 

as Planned at the Beginning of Negotiations 5

Figure 2: Comparison of Harmonizing Formula to 

Across-the-Board Tariff Cut 13

Figure 3: Chairman’s Proposal Based on Average Bound Tariffs 20

Figure 4: Key Negotiating Deadlines Missed Before September 

2003 Cancun Ministerial 28
Contents

Page ii GAO-04-250 World Trade Organization

Abbreviations

ACP African, Caribbean, Pacific 

CAP Common Agricultural Policy 

EU European Union 

GNI gross national income 

LDC least developed country

NGO nongovernmental organization

TNC Trade Negotiations Committee

TRIPS Agreement on Trade-Related Aspects of Intellectual Property 

Rights

USTR Office of the U.S. Trade Representative

WTO World Trade Organization

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Page 1 GAO-04-250 World Trade Organization

United States General Accounting Office

Washington, D.C. 20548

A

January 15, 2004 Letr

The Honorable Charles E. Grassley

Chairman

Committee on Finance

United States Senate

The Honorable William H. Thomas

Chairman

Committee on Ways and Means

House of Representatives

Trade ministers from 146 members of the World Trade Organization (WTO), 

representing 93 percent of global commerce, convened in Cancun, Mexico, 

in September 2003. Their goal was to provide direction for ongoing global 

trade negotiations. These negotiations, part of the global round of trade 

liberalizing talks launched in November 2001 at Doha, Qatar, are an 

important means of providing stimulus to the world’s economy by lowering 

barriers to international trade in goods and services.1

 However, the Cancun 

Ministerial Conference ultimately collapsed without ministers reaching 

agreement on any key issues, thus impairing progress toward concluding 

the round by its scheduled completion date of January 1, 2005.

Because of the collapse of the ministerial in Cancun, Mexico, in September 

2003, you asked us to analyze the progress and status of the Doha Round 

negotiations and the factors contributing to the meeting’s ultimate lack of 

success. In this report, we describe (1) the overall status of the negotiations 

on the eve of the WTO ministerial conference at Cancun, (2) the divisions 

on key issues for the Cancun Ministerial Conference and how they were 

dealt with at Cancun, and (3) the factors that influenced the outcome of the 

Cancun Ministerial Conference.

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

wide variety of World Trade Organization, U.S., and foreign government 

officials in Washington, D.C., and Geneva, Switzerland, the WTO’s 

headquarters. In addition, we met with officials from private sector groups. 

We also attended the Cancun Ministerial Conference. A full description of 

our scope and methodology can be found in appendix I. 

1

The negotiations are formally called the Doha Development Agenda but are commonly 

referred to as the Doha Round.
Page 2 GAO-04-250 World Trade Organization

Results in Brief On the eve of the World Trade Organization's Cancun Ministerial 

Conference in September 2003, the Doha Development round negotiations 

were behind schedule, and their successful completion was in doubt, based 

on our analysis and interviews with officials participating in the talks. The 

Cancun ministerial had symbolic and practical importance to the Doha 

Round of WTO negotiations, which, according to official status reports, had 

seen limited progress since its launching at the last meeting of trade 

ministers in November 2001. The Cancun ministerial meeting had two 

important goals, one symbolic and one practical. Symbolically, the Cancun 

meeting afforded ministers an opportunity to regain momentum necessary 

to conclude the Doha Round of negotiations by the scheduled January 2005 

deadline. Practically, ministers needed to provide direction to negotiators 

on key issues that had thus far eluded consensus. With stalemate in the 

ongoing global trade negotiations looming, by July 2003, it was clear that a 

long list of required action items faced ministers at Cancun. However, only 

in the final weeks before the ministerial did countries begin to make 

concessions and move away from their long-held positions.

Hopes for breakthroughs still accompanied their September 2003 meeting, 

but ministers from WTO members ultimately were unable to bridge the 

wide substantive differences on key issues that faced them coming into 

Cancun, and as a result these key issues must still be dealt with for the 

round to continue. They recognized that making progress on agriculture 

was key to achieving progress in other areas. However, agreement on 

detailed methods to accomplish the goal of achieving significant 

agricultural reform through cuts in tariffs and subsidies proved impossible. 

Meanwhile, efforts by the European Union (EU), Japan, and others to add 

new issues such as investment to the global system of trade rules continued 

to engender strong resistance, particularly from those developing nations 

that remained unconvinced that the gains would outweigh the costs. On 

nonagricultural market access, discussions never resolved the key 

questions of how deeply developing nations, particularly the more 

advanced ones, would cut tariffs and what flexibility they would retain to 

insulate sensitive sectors. Ongoing services negotiations failed to receive a 

needed boost in participation, and many developing countries remained 

dissatisfied with proposed responses to their demands for special 

treatment and for relief from difficulties they were still experiencing in 

implementing existing WTO obligations.

Several other factors influenced the outcome of and contributed to the 

impasse at Cancun. The agenda for Cancun itself was large and complex 
Page 3 GAO-04-250 World Trade Organization

because WTO members had missed earlier deadlines for decisions. As a 

result, ministers were asked to achieve in 5 days what had proved 

impossible to accomplish in the prior 22 months—all without the benefit of 

agreement to use the text provided as a starting point for discussion. 

Meanwhile, the sheer number of participating countries and emerging 

alliances made consensus-building difficult. For example, the assertive 

approach to agricultural reform by a group of key developing nations led by 

Brazil put the United States and the EU, traditionally at odds over 

agriculture, on the defensive together against calls for cuts in their 

domestic support payments. North-South tensions between developing and 

developed countries, already latent in the declaration that launched the 

round, became exacerbated. Noting that the ongoing talks are termed the 

“Doha Development Agenda,” developing countries stressed their vision 

that the focus should be on addressing their needs and demands. However, 

developed nations were not prepared to liberalize their policies unilaterally 

and argued that lowering trade barriers is pro-, not anti-, development. 

Additionally, an initiative for immediate reform of the cotton sector, an 

issue of economic importance to several West and Central African nations, 

was difficult for the United States and others to deal with, in part because it 

is tied to the broader and more long-term question of agriculture reform. 

Facing wide substantive divergences and limited decision-making 

procedures, the WTO proved unable to build the consensus required for 

attaining agreement at Cancun.

Background The WTO administers rules for international trade, provides a mechanism 

for settling disputes, and offers a forum for conducting trade negotiations. 

Such negotiations periodically involve comprehensive “rounds,” with 

defined beginnings and ends, in which a large package of trade concessions 

among members is developed and ultimately agreed on as a single package. 

A total of eight rounds have been completed in the trading system’s 56-year 

history. Each of the last 3 rounds cut industrial nations’ tariffs by about 

one-third overall.2

WTO membership has increased since the organization’s creation in 1995 to 

146 members, up from 90 contracting parties of the General Agreement on 

Tariffs and Trade (the WTO’s predecessor) when the Uruguay Round of 

negotiations was launched in 1986. WTO membership is also diverse in 

2

See WTO, Cancun Briefing Notes, “Facts for the Fifth,” 

http://www.wto.org/english/thewto_e/minist_e/min03_e/brief_e/brief24_e.htm.
Page 4 GAO-04-250 World Trade Organization

terms of economic development, consisting of most developed countries 

and numerous developing countries. The WTO has no formal definition of a 

“developing country.” However, the World Bank classifies 105 current WTO 

members, or approximately 72 percent, as developing countries. In 

addition, 30 members, or 21 percent of the total, are officially designated by 

the United Nations as “least developed countries.”3

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

WTO and consists of trade ministers from all WTO members.4

 The outcome 

of ministerial conferences is reflected in a fully agreed-upon ministerial 

declaration. The substance of these declarations is important because it 

guides future work by outlining an agenda and deadlines for the WTO until 

the next ministerial conference. The WTO General Council, made up of 

representatives from all WTO members, implements decisions that 

members adopt in between ministerial conferences. Decisions in the WTO 

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

than on a majority of member votes, as it is in many other international 

organizations. 

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

WTO members were able to reach consensus on a new, comprehensive 

negotiating round, officially called the Doha Development Agenda.5

 The 

Doha Round is the first round of global trade negotiations since the 

conclusion of the Uruguay Round in 1994. The Doha Declaration sets forth 

a work program for the negotiations on agriculture, services, 

nonagricultural market access, and other issues. In addition, the work 

program emphasizes the development benefits of trade and the need to 

provide assistance to developing countries to help them take advantage of 

these benefits. The Doha Declaration also sets forth a structure and series 

of interim deadlines for the negotiations. Specifically, it established a Trade 

Negotiations Committee (TNC) open to representatives from all WTO 

members to oversee the negotiations, as well as several subsidiary bodies. 

In addition, it laid out several deadlines and other milestones through the 

3

The 30 least developed countries are listed in appendix III. WTO rules provide these nations 

special treatment.

4

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

5

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

Agenda, see U.S. General Accounting Office, World Trade Organization: Early Decisions 

Are Vital to Progress in Ongoing Negotiations, GAO-02-879 (Washington, D.C.: Sept. 4, 

2002).
Page 5 GAO-04-250 World Trade Organization

next ministerial conference by which time negotiators were to make 

decisions on issues under negotiation. In the months following Doha, WTO 

members agreed that the next ministerial conference would occur in 

Cancun, Mexico, in September 2003. Figure 1 presents key milestones 

through the Cancun Ministerial Conference.

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

a

Modalities include rules and guidelines for future negotiations.

The Doha Declaration also set several general goals for the next (Cancun) 

ministerial conference, namely, to take stock of progress at midpoint of the 

Doha negotiations, to provide necessary political guidance, and to make 

decisions as necessary. However, at their fifth ministerial conference held 

in Cancun, Mexico, from September 10 to 14, 2003, WTO ministers were 

neither able to achieve these goals nor bridge wide differences on 

individual negotiating issues. They concluded the conference with only an 

agreement to continue consultations and convene a meeting of the General 

Council by mid-December 2003 to take actions necessary to move toward 

concluding the negotiations. 
Page 6 GAO-04-250 World Trade Organization

Stalemate Loomed on 

Eve of Cancun 

Ministerial, as 

Preparatory Process 

Was Slow to Yield 

Progress

The Cancun Ministerial Conference provided an opportunity for both 

symbolic and practical progress in the Doha Round of negotiations. These 

opportunities were of heightened importance because negotiators had by 

their own admission failed to make sufficient progress to meet interim 

deadlines set out in the Doha Declaration, at least in part because members 

were awaiting the results of the agricultural reform efforts in the EU. 

Consequently, real give-and-take did not truly begin until the final weeks 

before the ministerial, leaving little time to bridge the substantial 

differences that existed on key issues.

Cancun Ministerial Held 

Symbolic and Practical 

Importance for the 

Negotiations

The September 2003 WTO Ministerial Conference held in Cancun, Mexico, 

had symbolic and practical importance for the Doha Round of negotiations. 

On the symbolic level, several WTO officials we met prior to the meeting 

noted that the Cancun Ministerial Conference might be a means to regain 

the momentum needed to bring the Doha Round to a successful 

conclusion. The Doha Round promised to be the most comprehensive 

round of global trade negotiations yet, involving a commitment to further 

liberalize trade, update trade rules, and further integrate developing 

countries into the world economy. The Cancun Ministerial Conference 

occurred at roughly the midpoint in the 3-year negotiations. However, 

based on our meetings with country delegations and WTO officials in 

Geneva and public statements by WTO officials, on the eve of the 

ministerial there was a sense true negotiations had not really begun. In 

particular, although WTO member governments had succeeded in actively 

submitting and discussing many proposals to achieve the general goals laid 

out at Doha, they had been less successful in narrowing their differences 

on these proposals or coming up with workable plans for developing 

specific national commitments (or schedules) to lower trade barriers. 

WTO members held differing views on the symbolic importance of the 

Cancun Ministerial Conference. For instance, U.S. and some other member 

country officials, as well as WTO officials, expressed hope that the Cancun 

Ministerial Conference would create the political will to achieve a 

meaningful and ambitious agreement by the deadline that would benefit all 

participants. WTO officials we spoke with, for example, stressed that 

Cancun needed to provide a “boost” of fresh momentum to the flagging 

talks. Other members planned to use the meeting to focus on the centrality 

of agriculture reform. However, some members downplayed the symbolic 

importance of the ministerial and viewed it merely as an opportunity to 

take a mid-point assessment of the negotiations. 
Page 7 GAO-04-250 World Trade Organization

At a practical level, Cancun was viewed as critical to provide negotiators 

with direction in key areas that had thus far eluded consensus, according 

to WTO and member country officials. With just 16 months before the 

agreed-upon deadline of January 1, 2005, for concluding the negotiations, 

working-level progress in resolving outstanding issues was effectively 

stalled. Breaking the logjam hinged upon receiving clear ministerial 

direction in several key areas. For example, guidance was needed on the 

specific goals and methods that would be used to liberalize trade in 

agriculture.

Lack of Progress in 

Negotiations Required 

Scaling Back Expectations 

for Cancun

Progress on narrowing substantive differences in advance of the Cancun 

ministerial proved slow. As late as July 2003, observers and participants in 

the negotiations noted that WTO members were simply restating long-held 

positions on key issues and had yet to engage in real negotiations. For 

instance, in July 2003, the WTO Director General said that negotiators had 

been waiting to see what others are willing to offer without showing 

flexibility themselves. The chairmen of some of the negotiating groups 

repeated this sentiment in their statements to the July meeting of the Trade 

Negotiations Committee. (See app. II for a discussion of significant events 

in the WTO negotiations before and during the Cancun Ministerial 

Conference.) 

A key factor hindering the progress of Doha Round talks had been the pace 

and extent of reform of the EU’s Common Agricultural Policy (CAP).6

Agriculture was considered by many WTO members to be a linchpin to 

achieving progress in all other areas of the Doha negotiating agenda. After 

considerable internal debate, on June 26, 2003, the EU agreed to CAP 

reform. Among other things, the reform would ensure that for many 

agricultural products, the amount of subsidy payments made to farmers 

would be independent from the amount they produce. Yet even after the 

EU CAP reform was announced, other members stated that they were still 

waiting to see the EU’s internal reform translated into a significantly more 

ambitious WTO negotiating proposal. The EU resisted making a new WTO 

proposal, arguing that in effect it was being forced to pay for reform twice 

6

CAP is a set of rules and regulations governing agricultural production in the EU. CAP rules 

cover most aspects of agricultural activity, including support to farmers, production 

methods, marketing, and controls over quantities of food that different agriculture sectors 

can produce.
Page 8 GAO-04-250 World Trade Organization

by reforming its internal policy once and then being asked by WTO 

negotiators to reform again to be able to conclude an agreement.

Another factor hindering overall progress was perceived linkages between 

various negotiating topics.The Doha Round’s outcome is to be a “single 

undertaking,” meaning a package deal involving results on the full range of 

issues under negotiation such as agriculture, services, and nonagricultural 

market access. As a result, trade-offs are expected to occur among issues 

to accomplish an overall balance satisfactory to all members. Thus, it is 

difficult to make progress on one issue without achieving progress on other 

issues. For example, many developing nations consider agriculture their 

number one priority and have been unwilling to make offers to open up 

their services markets until they see more progress on agricultural reform. 

On the other hand, the EU and Japan, who expect to make concessions on 

agriculture, wanted a commitment at Cancun to begin negotiations on 

several issues that were new to the trading system--investment, 

competition (antitrust), government procurement, and trade facilitation—

which are collectively known as Singapore issues.7

By our mid-July meetings in Geneva it was clear that expectations for 

Cancun were being scaled back because of the overall lack of progress. 

Instead of issuing “modalities,” (numerical targets, timetables, formulas, 

and guidelines for countries’ commitments), for example, WTO officials 

and country representatives we met with suggested that “frameworks,” or 

more general guidance on what types of concessions each participant 

would make, might be a more appropriate goal for Cancun. In other words, 

instead of ministers agreeing on some specific target, such as “all nations 

will cut tariffs by one-third,” they would agree to something more general, 

such as all nations are expected to cut tariffs by a certain method and with 

the following kinds of results (e.g., substantially liberalizing trade and 

reducing particularly high tariffs).

7

The term Singapore issues originated from the work program of the 1996 ministerial 

conference in Singapore, which created three working groups on the issues of trade and 

investment, trade and competition policy, and transparency in government procurement. 

Trade facilitation was also highlighted as a priority in the Singapore Declaration.
Page 9 GAO-04-250 World Trade Organization

Real Negotiations Finally 

Began in the Weeks Just 

Before the Cancun 

Ministerial

The negotiations began to make some progress at the end of July, when 

trade ministers from a diverse group of approximately 30 WTO members 

met in Montreal, Canada, to discuss the status of the negotiations. During 

this meeting, ministers encouraged the United States and the European 

Union to provide leadership in the negotiations by narrowing their 

differences on the key issue of agriculture. The United States and the 

European Union agreed to do so, and in August they presented a joint 

framework on agriculture. 

In addition, in late August, the General Council removed a potential 

obstacle to progress at the Cancun ministerial by approving an agreement 

involving implementation of the Agreement on Trade-Related Aspects of 

Intellectual Property Rights (TRIPS) and public health declaration adopted 

in Doha.8 The Doha TRIPS and public health declaration directed WTO 

members to find a way for members with insufficient pharmaceutical 

manufacturing capacity to effectively use the flexibilities in TRIPS to 

acquire pharmaceuticals to combat public health crises. U.S. and WTO 

officials and representatives from other WTO members we met with had 

identified this as an important symbolic issue for the WTO as an institution, 

especially for WTO members from Africa. They had urged its prompt 

resolution to create a more favorable climate for the Cancun ministerial 

meeting. Despite resolving the TRIPS issue and attaining some movement 

on agriculture in the final weeks before the Cancun ministerial, differences 

persisted on other key issues in the negotiations on the eve of the meeting.

8

WTO members were unable to reach consensus by the mandated December 2002 deadline 

due to U.S. insistence that certain protections for research-based pharmaceutical 

companies be included in an agreement. Consultations on the issue intensified during the 

summer, as WTO members concluded that it must be resolved by the Cancun Ministerial 

Conference. At the end of August, the General Council approved a decision on 

implementation of paragraph 6 of the Doha Declaration on TRIPS and public health with an 

attached statement by the General Council Chairman regarding WTO members’ shared 

understanding of the interpretation and implementation of the decision. The agreement 

waived certain provisions of the TRIPS agreement that prevented countries from exporting 

generic copies of patented medicines. 
Page 10 GAO-04-250 World Trade Organization

Differences on Key 

Issues Remain 

Unresolved after the 

Cancun Ministerial

The Cancun Ministerial Conference failed to resolve substantive 

differences on key issues: agriculture (including cotton), the “Singapore 

issues,” market access for nonagricultural goods, services, and 

development issues that included special and differential treatment for 

developing countries. Key countries’ principal positions were far apart, and 

certain aspects of each issue were particularly contentious. Although many 

looked to the Cancun ministerial to provide direction that would enable 

future progress, it ultimately ended without resolving any of the members’ 

wide differences on these issues.

Progress on Agriculture Was 

Central to Movement on 

Other Issues

Agriculture is central to the Doha Round of trade negotiations, both in its 

own right and because many WTO members say that progress on other 

negotiating fronts is not possible without significant results in agriculture. 

The Doha Declaration calls for negotiations to achieve fundamental 

agricultural reform through three “pillars” or types of disciplines (rules): 

(1) substantially improving market access; (2) reducing, with a view to 

phasing out, all forms of export subsidies (export competition);9

 and (3) 

substantially reducing trade-distorting domestic support (subsidies).10

Additionally, the declaration imposed two interim deadlines on WTO 

agriculture negotiators: a March 31, 2003, deadline for establishing 

modalities (rules and guidelines for subsequent negotiations), and a 

deadline to submit draft tariff and subsidy reduction commitments at the 

Cancun meeting. Negotiators missed both deadlines. As a result, the goal 

for the Cancun ministerial was to adopt a framework and set new deadlines 

for subsequent work on the three main pillars of the agriculture 

negotiations. The delay in EU CAP reform, as well as the 2002 U.S. Farm 

Bill,11 which was projected to increase U.S. agricultural support spending 

complicated resolution of these issues. Many WTO members felt this bill 

undermined the relatively bold negotiating stance the United States 

assumed in the WTO, which called for making substantial reductions in 

trade-distorting domestic support and tariffs.

9

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

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

export, and internal transport subsidies applying to exports only.

10Domestic supports are payments made to farmers that raise prices or guarantee income. 

They include such measures as government buying at a guaranteed price and commodity 

loan programs, or making direct payments to farmers. 

11The Farm Security and Rural Investment Act of 2002 (P.L. 107-171, May 13, 2002).
Page 11 GAO-04-250 World Trade Organization

Various countries or groups of countries differ in their objectives for the 

agriculture negotiations. The Cairns Group12 of net agriculture exporting 

countries and the United States envisioned an ambitious agricultural 

liberalization agenda. The United States proposed a two-phase process to 

reform agriculture trade in the WTO. The first phase of the proposal would 

eliminate export subsidies and reduce and harmonize tariff and tradedistorting domestic support levels over a five-year period. The second 

phase of the proposal is the eventual elimination of all tariffs and tradedistorting domestic support. Other developed country members such as the 

EU, Japan, Korea, and Norway favored a more limited agenda. This group 

and several other small developed countries argued for flexibility to 

maintain higher tariffs in order to protect their domestic agriculture 

production. Finally, many developing countries wanted a reduction in 

developed country agriculture subsidies and market access barriers while, 

at the same time, wanting less ambitious obligations to liberalize their own 

market access barriers. 

Differences on Agricultural 

“Pillars” Remained Wide

Domestic support. Arguing that such programs resulted in lower world 

prices and displacement of their producers from global markets, many 

developing countries forcefully pressed the developed countries to make 

significant cuts to their trade-distorting domestic support programs, 

particularly the United States and the European Union, which in 1999 

totaled $16.9 billion and 47.9 billion euros ($45 billion at 1999 exchange 

rates), respectively.13 Although they agreed in principle on the desirability 

of reducing trade-distorting subsidies,14 both the United States and the 

European Union resisted further disciplines on their abilities to support 

domestic agriculture in ways that present WTO rules consider to be nontrade distorting. For example, they opposed calls to cap and reduce 

subsidies that are not currently subject to spending limits under the WTO. 

The EU argued that its CAP reform already addressed developing country 

demands by making domestic support payments independent of 

12The members of the Cairns Group are Argentina, Australia, Bolivia, Brazil, Canada, Chile, 

Colombia, Costa Rica, Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, the 

Philippines, South Africa, Thailand, and Uruguay. The group takes its name from the city in 

Australia where members first met in 1986. 

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

14The WTO classifies agricultural domestic support into three categories identified by 

“boxes”: green (permitted), amber (trade-distorting subsidies that must be reduced), and 

blue (production limiting). Thirty WTO members have commitments to reduce their tradedistorting amber box supports. All the rest of the WTO members are capped at zero.
Page 12 GAO-04-250 World Trade Organization

production, in principle making the payments less trade distorting, even 

though total expenditures will not be lowered. However, several WTO 

members indicated that the reforms were not ambitious enough. In 

addition, the United States said that it would not reduce its domestic 

support for agriculture unless other members, namely the EU, made cuts 

that substantially reduced the wide disparities in allowed trade-distorting 

domestic support. The United States also demanded that developing 

countries provide something in return for cutting subsidies, such as 

lowering their tariffs on U.S. exports.

Market access. The United States viewed attaining additional market 

access as an important objective in the negotiations. U.S. and Cairns Group 

negotiators proposed a harmonizing formula for tariff reduction known as 

the Swiss formula that would subject the higher tariffs to larger cuts. Other 

members, including the EU, Japan, and Korea, favored an across-the-board 

average cut and a minimum cut per product (tariff line).15 As illustrated in 

figure 2, this approach would generally result in less liberalization than if 

the harmonizing formula were used. Many developing countries, and the 

Cairns Group, proposed substantially less liberalizing developing country 

tariff reductions, in part to counter continued use of subsidies in developed 

countries. Finally, according to their official statements, numerous smaller 

developing countries emphasized the importance of trade preferences to, 

and the negative effects that erosion of trade preferences would have on, 

smaller, more vulnerable economies. 

15This is also known as a “Uruguay Round” formula, because it is the same approach to 

cutting agriculture tariffs that was used during the prior round of global trade talks.
Page 13 GAO-04-250 World Trade Organization

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

a

Assuming an across-the-board cut of 25 percent.

b

Assuming a “Swiss 25” formula.

A harmonizing formula reduces high tariffs more aggressively than across-the-board average tariff 

cuts. In the above example, for a given initial tariff (with the exception of low tariffs), the harmonizing 

formula leads to a lower final tariff than the across-the-board average tariff cut. The difference between 

the final tariff rates is highlighted.

Export competition. The United States, the Cairns Group, and many 

developing countries wanted to eliminate export subsidies for agricultural 

products. The EU, the primary employer of export subsidies, envisioned a 

substantial reduction and elimination of export subsidies for certain 

products but not a total elimination. It also tied any cuts in export subsidies 

to the adoption of stricter disciplines on U.S. food aid and export credits.16

16Export credit guarantee programs are programs that offer loan guarantees to buyers in 

certain countries where credit markets are not fully developed.
Page 14 GAO-04-250 World Trade Organization

Like the United States, the EU also sought stricter disciplines on export 

state-trading enterprises.

As previously noted, the United States and the European Union had 

responded to calls to provide leadership by narrowing their differences on 

the three pillars of agricultural reform before the Cancun meeting. In a midAugust framework, the U.S. and the EU proposed reductions in tradedistorting domestic agricultural support, with those members with higher 

subsidies making deeper cuts and a three-pronged strategy to reduce 

agricultural tariffs. With respect to export subsidies, the framework 

eliminated export subsidies for some agricultural products and committed 

members to reduce budgetary and quantity allowances for others. Reaction 

to the framework was negative and swift, in part because it implied less 

ambitious reductions in domestic support17 and market access barriers 

than the original U.S. proposal, which U.S. officials emphasize is still on the 

table, and did not completely eliminate export subsidies. For example, 

within a week a newly formed group of developing countries, commonly 

referred to as the Group of 20 (G-20)18 for its 20 members, presented a 

counter framework that implied deeper cuts in domestic agricultural 

subsidies by developed countries, a tariff reduction formula that allowed 

developing countries to make less substantial cuts, and the total 

elimination of export subsidies. The draft ministerial declaration presented 

to ministers in late August contained elements of both proposals.

Although extensive discussions on agriculture did occur at Cancun, they 

ultimately failed to bridge the substantial gaps that remained. Sharp 

divisions remained on the extent to which the developing countries should 

be required to open their markets and whether it was possible to eliminate 

all export subsidies. On domestic support, divisions remained concerning 

the extent of cuts in trade-distorting domestic support and the question of 

whether additional disciplines on non trade-distorting support were 

desirable. Furthermore, the prominence of the G-20 of developing 

countries relative to the more diverse Cairns Group at the meeting imposed 

17Importantly, the U.S.-EU framework included a provision that would modify current WTO 

regulations on “blue box” subsidies (see fn. 14). The U.S.-EU framework would modify the 

definition such that U.S. countercyclical payments (those payments made to producers 

when the price received by farmers for a commodity is less than the target price) authorized 

under the 2002 Farm Bill could be counted in this category. Many countries reacted 

negatively to this aspect of the U.S.-EU compromise.

18The group had 20 members originally, but its membership has fluctuated since tabling the 

agriculture framework. 
Page 15 GAO-04-250 World Trade Organization

a North-South dynamic on the agriculture negotiations. Specifically, several 

developed countries criticized the G-20’s negotiating tactics, including their 

failure to offer market access concessions such as tariff cuts in exchange 

for substantial cuts in developed country subsidies and their demands for a 

long list of changes to the Conference Chairman’s draft text, even though 

very little time remained to negotiate. Meanwhile, representatives from the 

G-20 argued that the developed country proposals and framework offered 

very modest gains and maybe even some steps backward in efforts to 

liberalize world agricultural trade.

Cotton Issues Involved Subsidy 

Elimination and Compensation 

In addition to the three main agricultural pillars that were the agreed focus 

of the Doha agriculture negotiations, the Sectoral Initiative in Favour of 

Cotton put forward by four West and Central African countries figured 

prominently in the Cancun ministerial discussions. The initiative was 

added to the ministerial agenda in the weeks leading up to Cancun and 

does not appear in the Doha Declaration. The proposal by these cotton 

exporting countries singled out three WTO members--the United States, the 

European Union, and China--as the primary cotton subsidizers. They 

claimed that these subsidies were driving down world prices and that many 

of their farmers no longer found it profitable to produce cotton, a concern 

given their contention that cotton plays an essential role in their 

development and poverty reduction efforts.

The cotton initiative’s guidelines called for immediately establishing a 

mechanism at Cancun to eliminate all subsidies on cotton and a transitional 

mechanism to compensate farmers in cotton-producing least developed 

countries (LDC) that suffered losses in export revenue as a result of cotton 

subsidies. Specifically, the proposal called for reducing all cotton support 

measures by one third annually for 3 years, thereby eliminating all support 

for cotton by year-end 2006. In addition, the proposal stipulated that any 

cotton-subsidizing WTO member would be a potential contributor to a 

proposed transitional compensation mechanism. The transitional 

compensation mechanism would last up to 3 years. The sectoral initiative 

did not specify the total amount of compensation to be paid but cited a 

recent study that the direct and indirect losses for the 3 years—1999 to 

2002—were $250 million and $1 billion, respectively, for the countries of 

West and Central Africa.

The cotton initiative was discussed at length in Cancun; however, there was 

no resolution. The reason for the failure was that certain members had 

difficulty supporting a transitional compensation mechanism within the 

context of the WTO and saw the issue of cotton as hard to separate from 
Page 16 GAO-04-250 World Trade Organization

the larger agricultural agenda. U.S. efforts to respond to the region’s 

immediate concerns on cotton by broadening the original initiative made 

little headway, despite some evidence that falling world cotton prices were 

also attributable to other factors such as competition from manmade 

fibers. The failure to resolve the cotton initiative to the satisfaction of the 

developing countries had a negative impact on the overall tone of the 

Cancun meeting, because certain developing countries viewed the issue as 

a litmus test for the WTO and thought the proposed response fell far short 

of addressing their pressing needs. The issue also took on symbolic 

importance, becoming a political rallying point for a number of countries’ 

frustrations.

Singapore Issues Remained 

Contentious

The Doha Declaration established a deadline for deciding how to handle 

negotiations aimed at adding four new issues, called the Singapore issues, 

to the global trading system. The four Singapore issues are investment, 

competition (antitrust), transparency (openness) in government 

procurement, and trade facilitation (easing cross-border movement of 

goods). According to the draft ministerial text presented to ministers 

before Cancun, ministers were to decide by explicit consensus the basis for 

starting actual negotiations on these issues, or to continue exploratory 

discussions on them. However, the wording of the Doha Declaration left 

unclear what was to specifically occur in Cancun. Certain members 

thought the declaration implied that formal negotiations were to begin in 

Cancun and that the only issue for Cancun was the type of negotiation. 

Others thought the declaration implied that formal negotiations could only 

begin if there were explicit consensus among the members at Cancun to do 

so.

Key players’ positions were divided into three main camps. A group of 

developed and developing country members led by the European Union, 

Japan, and South Korea strongly advocated starting negotiations on all four 

issues, including investment and competition, which were particularly 

controversial. These nations had succeeded at Doha in getting the four 

issues included as part of the round’s overall package but only on the 

condition that explicit agreement be reached at Cancun on the parameters 

to negotiate these issues. Many developing countries, on the other hand, 

had consistently expressed their strong opposition to the inclusion of the 

Singapore issues in the WTO negotiating agenda and several viewed 

Cancun as their opportunity to block negotiations on these issues. For 

example, India argued that for many of these countries, undertaking new 

obligations in these areas would have presented too great a burden, since 
Page 17 GAO-04-250 World Trade Organization

they were still having difficulty implementing their Uruguay Round 

obligations. They also were not convinced of the development benefits that 

would result. A third group of countries, including the United States and 

some developing nations, were willing to negotiate but wanted each issue 

considered on its own merit. However, some of the developing countries 

linked their willingness to negotiate with progress in other areas such as 

agriculture. The United States had been pushing the issues of transparency 

in government procurement and trade facilitation. The United States was 

also willing to negotiate on competition policy and investment, but had 

some concerns that included whether negotiations could call into question 

its enforcement of strong antitrust laws and match the high standards that 

are a feature of its bilateral investment agreements. 

The discussions at Cancun on the Singapore issues were contentious and 

contributed to the breakdown of the ministerial. Early in the week, a group 

of 16 developing countries argued that because there was no clear 

consensus on the modalities for the negotiations as required by the Doha 

Declaration, the matter of whether to add these four new issues to the 

negotiations should be dropped from the Cancun agenda and moved back 

to Geneva for further discussion. The draft text issued later that week 

called for beginning negotiations on two issues and setting deadlines for 

trying to reach agreement on possible bases for addressing the other two 

issues. This text was discussed on the last day of the conference, but in the 

end, compromise on this divisive subject proved impossible.

Proposed Tariff Formulas 

for Nonagricultural Market 

Access Were Divisive

Lowering barriers to market access of nonagricultural goods was also an 

important point of contention leading into the Cancun ministerial. The 

Doha Declaration stated that negotiations on nonagricultural market 

access should be aimed at reducing or, as appropriate, eliminating tariffs 

for nonagricultural products, including reducing or eliminating tariff 

peaks19 and tariff escalation,20 as well as nontariff barriers. The Doha 

Declaration also said that the liberalization of nonagricultural goods should 

take fully into account the principle of special and differential treatment21

19Tariff peaks are tariffs that exceed a selected reference level. National tariff peaks are 

considered to be those tariffs that exceed three times the national mean tariff.

20Tariff escalation is a practice that countries often use, whereby they increase tariffs in 

relation to the degree of processing found in a product.

21An extensive discussion of special and differential treatment appears later in this report.
Page 18 GAO-04-250 World Trade Organization

for developing countries, including allowing for “less than full reciprocity” 

in meeting tariff reduction commitments. Because WTO members missed a 

May 31, 2003, deadline for reaching agreement on modalities for 

nonagricultural market access that would govern preparation of national 

schedules of barrier-cutting commitments, the goal for Cancun was to 

establish a “framework” or basic approach to tariff and nontariff barrier 

liberalization that would then be supplemented by more detailed modalities 

later.

Even though there are important differences in the situations and 

individual positions of various developing countries—a fact the United 

States likes to emphasize--WTO members were largely divided along NorthSouth lines in nonagricultural market access talks going into the Cancun 

meeting. The United States and other developed countries were pushing for 

substantial cuts in tariffs and wanted the high overall tariffs of key 

developing countries like India and Brazil to come down. For example, 

India has an average bound tariff of 34 percent on nonagricultural 

products, while China and Côte d’Ivoire have average bound tariffs of 10 

percent or less. The United States also aimed to seek a high level of 

ambition in opening markets and expanding trade for all countries through 

a harmonizing formula that cuts tariffs in all countries. In addition, it 

wanted to reduce wide disparities among members’ tariffs as well as 

reduce low tariffs. Publicly, the developing countries were fairly united in 

saying that any liberalization needed to leave them sufficient flexibility to 

address their special needs and should involve greater cuts by richer 

countries than poor ones. In May 2003, the chairman of the negotiating 

group on market access issued a “chair’s proposal,” attempting to reconcile 

WTO members’ various positions, including on tariff cutting formulas, 

sectoral liberalization, and special and differential treatment.22

Coming into Cancun, two major proposals for cutting tariffs--one from the 

market access chairman and another from the United States, EU, and 

Canada--were under active discussion, though all of the numerous original 

proposals submitted by WTO members remained “on the table.” These two 

proposals differed in the type of mathematical formula that would be used 

to determine how much each member would be expected to reduce its 

tariffs. The proposed tariff formula developed by the chairman as a 

compromise would largely differentiate among countries according to their 

current overall average bound tariff rate. Specifically, a country with higher 

22The chair’s proposal also addressed elimination of low duties and non-tariff barriers.
Page 19 GAO-04-250 World Trade Organization

average bound tariffs would have to reduce its bound tariffs at a lesser rate 

than a country with lower average bound tariffs. To use an illustrative 

example, Brazil, with higher overall bound rates to begin with, would have 

to cut a 10 percent bound tariff on a particular product to approximately 

7.5 percent, or by 25 percent. Malaysia, with lower overall bound tariffs, 

would have to slash a 10 percent bound tariff to 6 percent, or by 40 percent 

(see fig. 3).23 Proponents argue that this formula would recognize each 

country’s differing starting points for liberalization while still 

accomplishing significant cuts in bound tariff rates. Some officials counter 

that average bound tariffs are not a direct or good indicator of development 

status or needs. Moreover, they expressed concern that this formula would 

require more reduction from nations that have lower overall bound tariffs. 

The United States was concerned that this would effectively punish 

countries that have previously liberalized, while rewarding countries that 

had not liberalized. In addition, the United States was concerned that this 

proposal was based on average bound tariff rates, which would not 

necessarily lead to lower applied rates. Many developing countries’ bound 

tariff rates are higher than the tariffs they currently apply. For example, 

Brazil has an average bound tariff of 31 percent and a 15 percent average 

applied rate. Real liberalization will only occur if countries reduce bound 

tariffs to below currently applied rates. 

23If a coefficient of 1 was used in the chairman’s formula. This GAO calculation is based on 

overall average tariff rates of 30 percent and 15 percent, respectively. See appendix I for 

further details. The chairman did not specify coefficients to be used, and Malaysia presented 

a proposal that different coefficients be used for different countries.
Page 20 GAO-04-250 World Trade Organization

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

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

a

Using an average tariff of 4 percent.

b

Using an average tariff of 15 percent.

c

Using an average tariff of 30 percent.

The Chairman’s proposal implies that countries with a high average tariff are required to lower their 

tariffs on a given product by a lesser amount than countries with a low average tariff. In figure 3 above, 

Brazil is not required to reduce any given tariff as much as Malaysia.

On the other hand, the United States, the European Union, and Canada 

developed an alternative framework for negotiations. This framework calls 

for all countries to use a single harmonizing formula, such as a Swiss 

formula, where the coefficient of reduction does not depend on a country’s 

average bound tariff rate. For example, if a Swiss formula using a 

coefficient of 8 were used, all countries would have to cut a 10 percent 

tariff on a particular product to 4 percent. Nevertheless, the U.S., EU, 

Canada framework does foresee some differentiation among countries. For 

example, it suggested that countries could be rewarded for “good behavior” 

by giving credits to countries that commit to do things that are considered 

sound trade policy, such as putting a ceiling on, or binding, a high 
Page 21 GAO-04-250 World Trade Organization

percentage of their tariffs.24 According to U.S. Trade Representative 

(USTR) officials, the credits would allow them to lower tariffs by a lesser 

amount than that implied by the formula. Developing countries, however, 

say this approach is inconsistent with the Doha mandate, which states 

developing countries as a whole will be allowed to make lesser 

commitments. In addition, they fear that they would have to cut tariffs 

much more than developed countries in absolute terms. As a result, just 

prior to the Cancun meeting, a few nations such as India reasserted their 

interest in an across-the board or linear approach to cutting tariffs on 

nonagricultural goods, similar to that depicted in figure 2. Under a linear 

approach, all tariffs would be cut at the same rate and therefore the results 

would not be harmonizing. The discussions at Cancun never got into the 

detailed proposals that had been debated before Cancun and failed to 

bridge these gaps on tariff formulas.

At Cancun, WTO members were also considering the complete elimination 

of tariffs in to-be-agreed-upon sectors, including ones that are particularly 

important to developing countries. However, the issues of choice of sectors 

and participation in the elimination remained controversial. Many 

developing countries wanted sectoral elimination to be voluntary. Also 

under debate was whether sectoral elimination should result in zero tariffs, 

harmonization, or a differentiated outcome for developed versus 

developing countries. The United States and many other countries thought 

that sectoral initiatives were an important way to supplement the general 

tariff cutting formula and to achieve their ambitious liberalization 

objectives. The United States wanted to make sure all countries 

competitive in a given sector would participate in sectoral elimination 

regardless of their level of development.

Consistent with the Doha mandate, WTO members were also considering 

special treatment for developing countries and new entrants such as 

recently acceded members in implementing their tariff commitments. This 

included longer periods to implement the tariff reductions, differentiation 

in how sectoral initiatives would be applied, and not making reduction 

commitments mandatory. The developed countries recognized that many 

nations, particularly least developed and other vulnerable economies, need 

24Additional flexibility would be available to the least developed and International 

Development Association (IDA) only countries. IDA-only countries are countries that are 

eligible to borrow from the IDA, a concessional World Bank lending facility for the world’s 

poorest countries, which are not also qualified to borrow from the Banks’ regular lending 

facility, the International Bank for Reconstruction and Development.
Page 22 GAO-04-250 World Trade Organization

flexibility to deal with sensitive sectors and other adjustment needs. 

However, they opposed across-the-board flexibility for all developing 

countries, including the more advanced ones. 

At Cancun, some steps were taken to address the inherent trade-off 

between committing to ambitious tariff liberalization and retaining 

flexibility. The World Bank and the International Monetary Fund, for 

example, provided assurances that they were prepared to work with 

developing nations to help offset lost tariff revenue and address concerns 

related to erosion of preferences. Nevertheless, ministers did not resolve 

the debates over tariff-cutting formulas, the mandatory nature of sectoral 

elimination, and the degree of flexibility to accord to developing countries. 

Progress was not made on these issues because progress was not made or 

expected in agriculture nor on the Singapore issues.

Energizing Services 

Negotiations Was a Key U.S. 

Goal for the Cancun 

Ministerial 

The Doha Declaration set a deadline for WTO members to complete the 

work they had initiated in January 2000 to further open services markets 

under the General Agreement on Trade in Services. In contrast with 

agriculture and industrial market access, the services group had already 

agreed on how to conduct these talks, 25 which are under way. The goal for 

Cancun—particularly for the United States—was to energize the ongoing 

services negotiations and to set a deadline for submission of improved 

offers26 to lower barriers to services. According to a WTO official, only 38 

(counting the EU as one member) of the WTO’s 146 members had 

submitted offers before the Cancun ministerial.27 Although 18 of these 

25See document #S/L/92 – http://docsonline.wto.org The guidance and procedures for the 

negotiations included two key principles: (1) no sectors should be excluded from the 

negotiations, and (2) negotiations to further open services markets can occur in bilateral, 

plurilateral, or multilateral groups, mainly using a request-offer method, with results applied 

to all WTO members equally on a most-favored-nation basis. 

26In the context of the services negotiations, members’ offers in services include the 

addition of new sectors, the removal of existing limitations or the binding of modes of 

supplying services not currently committed, the undertaking of additional commitments, 

and the termination of exemptions that deny equal treatment to foreign services suppliers.

27These members had submitted initial offers before Cancun: Argentina, Australia, Bahrain, 

Bolivia, Canada, Chile, China, Chinese Taipei, Colombia, Czech Republic, Fiji, Guatemala, 

Hong Kong-China, Iceland, Israel, Japan, Korea, Liechtenstein, Macao-China, Mexico, New 

Zealand, Norway, Panama, Paraguay, Peru, Poland, Senegal, Singapore, Slovak Republic, 

Slovenia, Sri Lanka, St. Kitts & Nevis, Switzerland, Thailand, the European Union, Turkey, 

United States, and Uruguay. See appendix III for a list of developing countries. 
Page 23 GAO-04-250 World Trade Organization

offers were from developing countries, as defined by the World Bank, many 

large developing countries such as India, South Africa, Egypt, and Brazil 

had not submitted offers. Some of these nations, as well as others such as 

Argentina, China, and Mexico had their own market access ambitions, 

including further easing of the temporary movement of their services 

suppliers across national borders.

Services negotiations regained some momentum before Cancun due to two 

important events. First, the language contained in the draft Cancun 

Ministerial Declaration incorporated several of the demands from 

developing countries such as the need to conclude negotiations in rulemaking in areas such as emergency safeguard measures28 for services. 

Second, the adoption of modalities on September 3, 2003, for the special 

and differential treatment29 of LDCs was expected to boost the 

participation of LDCs in the services negotiations. However, little progress 

was made in the services negotiations at Cancun because advances on 

other issues under negotiation, especially in agriculture, were needed in 

order to enable further movement.

Special Treatment Was 

Highest Priority for Many 

Developing Country 

Members

Many developing countries were greatly concerned about receiving special 

treatment in the form of making lesser commitments in ongoing global 

trade talks and receiving assistance in implementing existing WTO 

agreements. Global trade rules have long included the principle that 

developing countries would be accorded special and differential treatment 

consistent with their individual levels of development, including the notion 

that they would not be expected to fully reciprocate tariff and other 

28These measures are provisions in trade agreements that permit a party to suspend its 

obligations when imports cause or threaten to cause serious harm to domestic producers. 

The General Agreement on Trade in Services does not yet have such provisions, although 

article X requires negotiations on this matter. 

29Special and differential treatment includes, among other things, the concept that exports 

from developing countries should be given preferential access to markets of developed 

countries and that developing countries participating in trade negotiations need not fully 

reciprocate the concessions they receive. See document # WT/MIN (01)/DEC/1-Paragraph 

44 – http://docsonline.wto.org
Page 24 GAO-04-250 World Trade Organization

concessions made by developed countries.30 In the Doha Declaration, WTO 

members agreed that all special and differential treatment provisions in 

existing WTO agreements should be reviewed with a view to strengthening 

them in order to make them more precise, effective, and operational. The 

declaration requires the WTO’s Committee on Trade and Development to 

identify those special and differential treatment provisions that are 

mandatory and those that are nonbinding and to consider the legal and 

practical implications of turning the nonbinding ones into mandatory 

obligations. According to USTR officials, part of the continuing difficulty of 

this work has been the problems of separating work on special and 

differential treatment from the work underway in actual individual 

negotiating groups (e.g., agriculture) and the lack of progress on related 

issues such as graduation/differentiation,31 which is also part of the 

Committee on Trade and Development’s work programme. 

Also, as part of the Doha Declaration, WTO members committed 

themselves to address outstanding implementation issues32 and set a 

December 2002 deadline for recommending appropriate action on them, 

but they missed that deadline. Although there was agreement on a number 

of implementation issues at Doha, outstanding issues remain in areas like 

trade related investment measures, anti-dumping rules, and textiles. These 

issues have proved divisive, even among developing countries. 

30Specifically, paragraph 8 of article XXXVI of the General Agreement on Tariffs and Trade 

merits special mention. It states that developed countries do not expect reciprocity for 

commitments they make in trade negotiations to reduce or remove tariffs and other barriers 

to the trade of developing countries. An interpretative note clarifies that the sentence “do 

not expect reciprocity” means that developed countries do not expect developing countries, 

in the course of trade negotiations, to make contributions that are inconsistent with their 

individual development, financial, and trade needs.

31Graduation and differentiation proposals would establish different levels of flexibilities for 

Members at different levels of development, and set some criteria for countries to graduate 

out of these flexibilities. 

32Implementation issues refer to a set of issues relating to developing countries’ ability to 

implement existing WTO agreements. First, many developing countries considered their 

Uruguay Round obligations to be too heavy for them. Second, developing countries believed 

that there should be negotiations to redress the unfair balance of the responsibilities they 

carried. Third, developing countries argued that in order to meet some of their obligations, 

they needed additional technical assistance and extended deadlines. Under these 

circumstances, some developing countries argued that new obligations should not be 

negotiated until they could fulfill their current ones.
Page 25 GAO-04-250 World Trade Organization

At Cancun, ministers were asked to endorse and immediately implement a 

subset of the numerous proposals for special and differential treatment as 

well as to set a new deadline for resolving outstanding special and 

differential treatment and implementation issues.33 For some developing 

countries, progress on these issues at Cancun was key to their willingness 

to negotiate further market liberalization in other areas. In addition, the 

African Group34 in particular wanted to better ensure that the needs of the 

WTO’s poorest member countries would be satisfactorily addressed in the 

overall package of Doha Round results. 

However, developed and developing countries fundamentally disagreed in 

their interpretation and use of special and differential treatment. For 

example, government officials from several developed countries echoed 

their desire to better target special and differential treatment by adopting a 

needs-based approach. According to these officials, special and differential 

treatment provisions should be tailored to match the various levels of 

development and the particular economic needs of developing countries.35 

Many developing countries, on the other hand, wanted an expansion of 

special and differential treatment. Their expansionist ambition was 

reflected in 88 proposals for additional special treatment obligations, 

mostly from the African Group and the group of least developed countries. 

Among other things, the proposals sought additional technical support and 

called for an exemption for developing countries and LDC members from 

requirements to comply with existing WTO obligations that they believed 

would be prejudicial to their individual development, financial, or trade 

needs or beyond their administrative and institutional capacity. Developed 

countries and more advanced developing countries considered many of 

these demands to be problematic because some changes proposed would 

alter the balance of the Uruguay Round agreements.

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

34The members of the African Group include Angola, Benin, Botswana, Burkina Faso, 

Burundi, Cameroon, Central African Republic, Chad, Congo, Congo (Democratic Republic), 

Côte d'Ivoire, Djibouti, Egypt, Gabon, The Gambia, Ghana, Guinea, Guinea Bissau, Kenya, 

Lesotho, Madagascar, Malawi, Mali, Mauritania, Mauritius, Morocco, Mozambique, Namibia, 

Niger, Nigeria, Rwanda, Senegal, Sierra Leone, South Africa, Swaziland, Tanzania, Togo, 

Tunisia, Uganda, Zambia, and Zimbabwe. 

35Levels of development among developing countries vary significantly. Based on that fact, 

the World Bank makes a distinction among developing countries by categorizing them as 

low-income, lower-middle income, upper-middle, and high-countries. However, WTO rules 

contain no such distinction. See appendix III. 
Page 26 GAO-04-250 World Trade Organization

In the end, however, developed countries and some developing countries 

appeared ready to move forward on some of these proposals at Cancun, 

had the ministerial proved successful. The General Council Chairman 

worked carefully with a diverse group of key countries to put this package 

together. A total of 24 special and differential treatment proposals, 

including some related to implementation issues, were included in the draft 

Cancun Ministerial Declaration sent to Cancun from Geneva. An additional 

three proposals were added during the course of the Cancun meeting. 

While some developing nations argued that these proposals were of little 

economic value and felt agreeing to these proposals at Cancun would 

create a false sense of progress, other developing countries were willing to 

accept the package in return for assurances of future advances.

As for implementation issues, discussions on developing country proposals 

in this area were overshadowed at Cancun by another issue--a push by the 

EU and other European countries to secure greater recognition and 

protection of geographical indications (place names) for specialty 

agricultural products.36 Many countries, including the United States, 

Australia, New Zealand, and some Latin American nations, strongly 

resisted, because they produce and market products under widely used 

terms such as “Champagne” and “Roquefort cheese” that the European 

nations were seeking to protect and monopolize. 

In the end, no agreement was reached at Cancun on special and differential 

treatment or on implementation issues.

Cancun Meeting Ended 

without Resolving Any 

Major Issue

Despite a full ministerial agenda of issues requiring resolution, the only 

actual decision taken relating to the negotiations at Cancun was that the 

WTO’s General Council should meet by December 15, 2003. The closing 

session on Sunday, September 14, adopted a short ministerial statement 

expressing appreciation to Mexico for hosting the talks, welcoming 

Cambodia and Nepal to the WTO, and stating that participants had worked 

hard to make progress in the Doha mandate but that “more work needs to 

be done in some key areas to enable us to proceed toward the conclusion 

of the negotiations.” To achieve this, the concluding ministerial statement 

36Geographical indications are names that identify a good as originating in a country, region, 

or locality where a given quality reputation is essentially attributable to its geographical 

origin. The TRIPs Agreement currently protects geographical indications, but the EU and 

others have sought to increase those protections in several parts of the current negotiations.
Page 27 GAO-04-250 World Trade Organization

directed officials to continue working on outstanding issues with a 

renewed sense of urgency and purpose. The failure to make progress in 

resolving the major substantive issues at Cancun left the Doha Round in 

limbo and resulted in a major setback that will make attaining an overall 

world trade agreement by January 1, 2005, more difficult, according to 

WTO Director General Supachai and key WTO member country 

representatives. Specifically, no further negotiating sessions have been 

scheduled, although informal efforts to get the talks back on track have 

continued. 

The Cancun ministerial declaration directed the Chairman of the General 

Council to coordinate this work and to convene a meeting of the General 

Council at the senior officials level no later than December 15, 2003 “to 

take the action necessary to move toward a successful and timely 

conclusion of the negotiations.” However, on December 9, WTO General 

Council Chairman Perez del Castillo notified the heads of delegation that 

there was a lack of “real negotiation” or “bridging of positions” in the 

informal talks. Because he believed insufficient convergence had occurred 

to take “necessary action to conclude the round,” he presented a Chair’s 

report outlining key issues and possible ways ahead. He also recommended 

that all negotiating bodies be reactivated in early 2004, after new chairs are 

chosen. The December 15, 2003, General Council meeting generally 

accepted this recommendation, according to the chairman’s closing 

remarks.

Several Factors Cited 

in the Talks’ Collapse

According to government officials, trade negotiations observers, 

authoritative reports, and GAO observations and analysis, several other 

factors contributed to the Cancun meeting’s collapse. The ministerial 

agenda was complex, and unwillingness by some nations to work with the 

text presented by the General Council Chairman hampered progress. In 

addition, the large number of participants and emerging coalitions 

influenced the meeting’s dynamic. Competing visions and goals for the 

Doha Round, particularly between developed and developing countries, 

and a high-profile initiative on cotton, fueled North-South tensions. 

Meanwhile, the WTO’s cumbersome decision-making process did not lend 

itself to building consensus. 

Complex and Full Agenda 

Presented

The agenda for Cancun was not only complex, it was also overloaded. This 

situation was due to the stalemate that had characterized the Doha Round 
Page 28 GAO-04-250 World Trade Organization

up to Cancun, in which the negotiators had missed virtually all selfimposed deadlines. The Doha Declaration already had specified that 

certain items were to be on the agenda for the next (Cancun) ministerial, 

such as deciding how to handle negotiations on the Singapore issues (see 

fig. 4). But as interim deadlines came and went without agreement, other 

issues were added to the Cancun agenda. 

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

Although the goal of reaching agreement on these issues for achieving 

trade liberalization had eluded negotiators during the previous 22 months 

of work in Geneva, they proposed to reach agreement on all of them in 

Cancun, even though they had just 5 days to do so.

No Agreed Starting Point for 

Discussion

Adding to the complexity of the task, the Cancun ministerial began without 

an agreed-upon text as a starting point for discussion. In late August, the 

General Council Chairman issued a revised draft ministerial declaration. 

This version included draft frameworks for modalities for agriculture, 

nonagricultural market access, and the Singapore issues. These draft 

frameworks still included multiple bracketed items (items to be agreed 
Page 29 GAO-04-250 World Trade Organization

upon) and lacked specific details in several areas. However, not all WTO 

members agreed to use this draft as the basis for ministers’ discussion in 

Cancun. 

Efforts to produce a new text of a ministerial declaration from which to 

work took considerable time at Cancun. The first 3 days of the 5-day 

conference were devoted to formal and informal meetings. The Conference 

Chairman, the Mexican Foreign Minister finally presented a draft text at a 

meeting on the fourth day of the 5-day conference (September 13). Just 30 

hours remained until the scheduled close of the conference, yet ministers 

needed 6 hours to study the new text. The meeting to obtain reactions to 

the text took another 6 hours. More than 115 nations spoke, one after the 

other, with most ministers criticizing various points of the draft and 

repeating well-established positions. A WTO spokesman later reported that 

the only consensus evident that night was that the text was unacceptable to 

many WTO members. The U.S. Trade Representative advocated moving 

forward when he took the floor about halfway through the meeting. He 

expressed willingness to work with the draft, urged a collective sense of 

responsibility, and warned fellow trade ministers that they should not let 

the perfect become the enemy of the good. Certain other members such as 

Sri Lanka, Uruguay, Chile, and China were among the few other countries 

that made positive statements. After another several hours of critical 

interventions, however, the Conference Chairman closed the meeting, 

expressing concern that with less than 15 hours remaining, members did 

not appear to be willing to reach a consensus. A WTO spokesperson later 

reported that they could see a clear problem emerging because differences 

in positions were hardening. 

Large Number of 

Participants and New 

Developing Country 

Coalitions Add Complexity

Achieving consensus at Cancun was a very complex undertaking due to the 

large number of participants and the emerging coalitions that affected the 

meeting’s dynamics. Participants in the WTO talks at Cancun included 146 

members with vastly different economic interests, levels of development, 

and institutional capacities. Moreover, the number of delegates at Cancun 

was substantially larger than the number of delegates at the Doha 

ministerial, which occurred shortly after September 11, 2001. 

Nongovernmental organizations (NGO) were also participating. The 1,578 

registered NGO participants included business as well as a range of public 

interest (labor, environment, consumer, development, and human rights) 

groups, and both were active in seeking to influence the negotiations. For 

example, NGOs, such as the development advocacy group Oxfam, 

underwrote the literature being distributed on the cotton initiative, and 
Page 30 GAO-04-250 World Trade Organization

poverty relief organization Action Aid’s press release immediately called 

the Conference Chairman’s draft text “a stab in the back of poor countries.”

The emergence of two developing country coalitions also affected the 

dynamics of the Cancun meeting. Brazil was widely seen as the leader of 

the G-20 group of developing countries pressing for bigger cuts in 

developed country agricultural subsidies. The United States and the 

European Union, traditionally at odds over agriculture, complained that the 

group was engaged in confrontational tactics that were more directed at 

making a point than at making a deal. However, the group claimed that it 

took a businesslike and professional approach to the negotiations and had 

succeeded in highlighting the centrality of agricultural reform to the Doha 

Round’s success. Another strong coalition that emerged in Cancun was a 

group of 92 countries made up of the African, Caribbean, Pacific (ACP) 

African Union /LDC countries. This group’s main objective was to ensure 

that the WTO’s poorest countries’ interests were taken into account. In the 

end, their views were decisive, as their refusal to accept negotiations on the 

Singapore issues and other members’ insistence to negotiate these issues 

triggered the Conference Chairman’s decision to end the ministerial.

Developed and Developing 

Countries Had Competing 

Visions of Doha’s Promise 

In addition to a complex agenda and volatile meeting dynamics, the 

participants appeared to have competing visions of what the round had 

promised. Noting that the negotiations were titled the “Doha Development 

Agenda,” developing countries still expected that the talks would focus 

primarily on their needs. For many, this meant progress on agriculture, 

while others stressed meaningful accommodation of their special needs. 

U.S. officials, on the other hand, told us that they would like to see further 

differentiation of the as-yet-undefined term “developing countries.” Some 

U.S. officials told us that developing countries’ reluctance to open their 

markets is contrary to sound development policies, because lowering trade 

barriers is pro-, not anti-development. Moreover, various studies had 

shown that a significant share of the estimated economic benefits of the 

Doha Round would be due to an expansion of trade between developing 

countries as they reduced their trade barriers to each other’s goods.

As the days of the ministerial wore on without consensus, frustrations 

increased. The developed nations accused the developing countries of 

grandstanding and of not making an effort to reach agreement. Officials 

from some developed countries complained, for example, that developing 

countries had not approached the negotiations in the spirit of reciprocity 

but instead were focused on making demands without expecting to make 
Page 31 GAO-04-250 World Trade Organization

concessions. In essence, developing countries were not seen as negotiating 

in good faith.

Developing countries also felt frustrated and believed that the lack of 

progress in the negotiations was due to an absence of political will by the 

developed countries to fulfill the promises at Doha. For example, 

developing countries believed that the developed countries had not offered 

enough on agriculture, the issue that many developing countries cared 

about the most. 

The differences in expectations are illustrated in reactions to the cotton 

initiative, which served as a focal point for concerns about developed 

country agriculture subsidies. The WTO Director General personally urged 

ministers to give the matter full consideration and held consultations with 

the interested parties in an attempt to forge a compromise. While the 

African proponents believed that agreement on this issue would have been 

a sign of good faith, the United States viewed the request for monetary 

compensation as inappropriate and better suited to a development 

assistance venue. When the Conference Chairman issued his draft text, 

many countries reacted negatively to the proposed compromise on cotton. 

Brazil, speaking on behalf of the G-20, referred to the proposal as totally 

insufficient. The Chairman’s text did not mention the elimination of 

subsidies but instead suggested that West African countries diversify out of 

cotton. The fact that the cotton initiative is one of the four key issues that 

the General Council Chairman has focused on after the ministerial, along 

with agriculture, industrial market access, and the Singapore issues, 

demonstrates its continued importance. 

WTO Consensus-Building 

Process Broke Down

Finally, certain participants have also cited the WTO’s cumbersome process 

for achieving consensus as contributing to the collapse of the talks. The 

WTO operates by consensus, meaning that any one participant opposing an 

item can block agreement. In the EU Trade Commissioner’s closing press 

conference in Cancun, he expressed frustration that there was no reliable 

way within the WTO to get all 146 member nations to work toward 

consensus. Relatively few formal meetings involving all members actually 

occurred in Cancun, although plenary sessions and working groups took 

place. Moreover, formal negotiating sessions involving all members were 

not conducive to practical discussion or to achieving consensus. Instead, 

they often involved formal speeches. As a result, small group meetings 

were used to obtain frank input and conduct actual negotiations. Although 

efforts were made to keep the whole membership involved through daily 
Page 32 GAO-04-250 World Trade Organization

heads of delegations meetings, certain members expressed a sense of 

frustration and confusion as epitomized by indignation by some members 

at the subjects being discussed during the green room meeting on the last 

day.

The Conference Chairman’s decision to make the controversial Singapore 

issues, and not agriculture, the first and last item for discussion on the last 

day of the ministerial conference caused a backlash by a group of 

developing countries that ultimately precipitated the meeting’s collapse. As 

opposed to the day-to-day negotiations, which are overseen in Geneva by 

the Director General acting as the head of the TNC and by the General 

Council Chairman, WTO ministerial conferences are unusual in that the 

Conference Chairman is the only person with the power to call and adjourn 

meetings, to invite participants, and to choose the topics for discussion. At 

Cancun, after the heads of delegations meeting the night before, the 

Chairman decided, after consulting with certain ministers, that he needed 

to see if there was any way to reach consensus on the Singapore issues, 

which seemed to him to be intractable. As a result, he convened a closeddoor meeting of about 30 ministers broadly representative of the whole 

WTO membership on the morning of the final day of the conference to 

discuss them. According to reports, the EU representative reiterated at the 

beginning of this final, closed-door meeting his long-standing position that 

all four Singapore issues must be negotiated. Some developing countries, 

on the other hand, opposed starting negotiations on those issues. As the 

meeting progressed, the EU agreed to drop two (investment and 

competition), maybe even three (government procurement), of the 

Singapore issues—leaving trade facilitation on the table. This EU 

concession reportedly prompted some traditional opponents such as 

Malaysia and India to show some flexibility. The Chairman then recessed 

the meeting and asked the ministers to confer with other ministers who 

were not present in the “green room” to see whether there was consensus 

to negotiate on at least one of the Singapore issues.

During the break, at a meeting of the African, Caribbean, Pacific (ACP), 

LDC, and African Union members, many of the ministers present voiced 

surprise and indignation over the sequencing of topics under discussion in 

the closed-door meeting. They were upset that the Singapore issues were 

being discussed rather than agriculture. The Singapore issues were seen as 

rich members issues, while agriculture and cotton resonated with the 

poorer countries. Finally, members of the ACP/African Union/LDC 

coalition believed that no deal was better than a bad deal, and a deal on the 

Singapore issues in the absence of any agreement on agriculture or the 
Page 33 GAO-04-250 World Trade Organization

cotton initiative was deemed a bad deal. As one country member 

rhetorically asked during the debate— “What are we taking home for the 

poor? We must say no.” 

When the 30-country meeting reconvened, Botswana reported the decision 

of the ACP countries to the group, indicating that they could not accept 

negotiation on any of the Singapore issues, including trade facilitation, 

because “not enough was on the table.” According to reports, Korea, on the 

other hand, said it could not accept dropping any of the Singapore issues. 

The Conference Chairman then said that consensus could not be reached 

and decided to close the conference without agreement on any issue. At a 

press briefing later that afternoon after the collapse of the talks, the 

Chairman explained that he had begun with the Singapore issues because 

of the dissent voiced on that issue during the meeting the night before. He 

further explained that he had decided to end the ministerial because it was 

clear to him that consensus could not be reached. Some countries, 

including certain EU member states and some developing countries, 

however, complained about what they saw as a precipitous decision to end 

the talks. 

Concluding 

Observations

The Cancun Ministerial Conference highlighted the challenge of meeting 

the high and sometimes competing expectations created at Doha of both 

developing and developed countries, particularly with respect to 

negotiations on critical agricultural issues. While the issue has been 

contentious for many years, the Cancun experience demonstrates that 

forward movement on agriculture is central to the possibility of making 

further progress in the Doha Development Round. Although the Cancun 

meeting ended because of the lack of consensus on negotiating the 

Singapore issues, what many developing nations wanted from the 

developed world were concessions on agriculture, in particular dramatic 

reductions in export subsidies and domestic support. 

At this point, it is difficult to predict how the setback at Cancun will 

ultimately affect the Doha Development Round negotiations. There are 

some signs that both developed and developing countries are rethinking 

their positions. The United States and the European Union have shifted 

away from taking an active leadership role, but have recently signaled 

some willingness to engage in further negotiations. Although a number of 

G-20 members have abandoned the group or made statements undercutting 

its unanimity of views, the group’s founders still appear intent to play a 
Page 34 GAO-04-250 World Trade Organization

leadership role in pushing for global agriculture reform. While progress 

remains possible, political events scheduled to occur over the next year 

may add uncertainty to the negotiating process. For example, in the United 

States, the 2004 presidential and congressional elections are looming, and 

protectionist pressures are rising along with the U.S. trade deficit. 

Elections in Europe and in one of the largest developing countries, India, 

may also have an impact on the negotiations. Finally, how WTO members 

handle long-simmering disputes on such topics as corporate tax subsidies 

and steel could also affect the negotiating climate. In this regard, President 

Bush’s recent decision to lift safeguard tariffs on steel may be viewed as an 

important development.

As we have noted in previous reports, the WTO has often found it difficult 

to achieve consensus and bridge its members’ strongly held, disparate 

views on politically sensitive issues, in part because it is an ever-growing, 

more complex, and diverse organization.37 Various devices, such as interim 

deadlines, were put in place for the first stage of Doha negotiations to 

redress these significant organizational challenges, but they fell short of 

achieving desired progress. The WTO Director General and General 

Council Chairman have been given the green light to work with WTO 

members to narrow differences on key issues in hopes that they can still 

salvage an agreement by the January 1, 2005, deadline. However, the failure 

to achieve substantive progress by mid-December casts further doubt.

One important consideration is that the delay in WTO negotiations could 

intensify momentum for concluding bilateral, subregional, or regional trade 

agreements. This has already happened in the United States, which, though 

remaining engaged in the WTO, has recently concluded three such 

agreements (Chile, Singapore, and Central America), is currently 

conducting negotiations on three others (Australia, Morocco and Southern 

African Customs Union), and has committed to begin negotiations on five 

others (Dominican Republic, Bahrain, Thailand, Panama, and the Andean 

region) as well as the 34-nation Free Trade Area of the Americas. 

Additional possibilities are in the wings. The effect that a proliferation of 

these kinds of agreements would have on the WTO is unclear. 

37See U.S. General Accounting Office, World Trade Organization: Seattle Ministerial 

Outcomes and Lessons Learned, GAO/T-NSIAD-00-86 (Washington, D.C.: Feb. 10, 2000) and 

U. S. General Accounting Office, World Trade Organization: Early Decisions Vital to 

Progress in Ongoing Negotiations, GAO-02-879 (Washington, D.C.: Sept. 4, 2002).
Page 35 GAO-04-250 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 Commerce, the Secretary of Agriculture, 

and the Secretary of State, or their designees. USDA’s Foreign Agricultural 

Service agreed with our report’s factual findings and analysis. Commerce’s 

Deputy Assistant Secretary for Agreements Compliance provided us with 

technical oral comments on the draft, which we incorporated into the 

report as appropriate. The Secretary of State declined to comment on our 

report. The U.S. Trade Representative provided formal comments (see app. 

IV), indicating that many of the issues identified in GAO’s analysis are 

consistent with the U.S. assessment of issues that must be addressed to put 

negotiations back on track in 2004. He stressed the United States is ready 

to exercise leadership provided other countries are prepared to negotiate 

meaningfully. The Assistant U.S. Trade Representative for WTO and 

Multilateral Affairs and other USTR staff also provided us with oral 

comments. While agreeing with much of the report’s information, they 

provided a number of factual and technical comments, which we 

incorporated as appropriate. In addition, USTR staff expressed some 

concern that the overall tone of the report placed too much emphasis on 

the importance of the Cancun ministerial itself and on the North-South 

divide, particularly given the meeting’s mandate from Doha and individual 

country positions. While we stand by the overall balance struck in our 

report, we did add some information to reflect the diversity within 

developing country ranks evident on certain issues.

We are sending copies of this report to interested congressional 

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

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

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

available at no charge on the GAO Web site at http://www.gao.gov. 
Page 36 GAO-04-250 World Trade Organization

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

at (202) 512-4347. Additional GAO contacts and staff acknowledgments are 

listed in appendix V.

Loren Yager

Director, International Affairs and Trade
Page 37 GAO-04-250 World Trade Organization

Appendix I

Objectives, Scope, and Methodology AAppenednxidexiIs

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

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

overall status of the World Trade Organization’s (WTO) negotiations on the 

eve of the WTO’s ministerial conference at Cancun, Mexico, in September 

2003; (2) the key issues for the Cancun Ministerial Conference and how 

they were dealt with at Cancun; and (3) the factors that influenced the 

outcome of the Cancun Ministerial Conference.

We followed the same overall methodology to complete the two first 

objectives. From the WTO, we analyzed the 2001 Doha Ministerial 

Declaration and related documents, the July and August versions of the 

draft Cancun Ministerial Declaration, and other speeches and proposals 

from WTO officials, as well as some negotiation proposals from WTO 

members. From the WTO, U.S. government agencies, and foreign country 

officials, we obtained background information regarding negotiating 

proposals and positions. 

We met with a wide variety of U.S. government and private sector officials, 

foreign government officials, and WTO officials. Before the Cancun 

ministerial, we met with officials from the Office of the U.S. Trade 

Representative (USTR) and the U.S. Departments of Commerce, 

Agriculture, and State. We also met with officials from the Grocery 

Manufacturers of America and the Pharmaceutical Researchers and 

Manufacturers of America. In addition, we met with representatives from 

developed and developing countries in Washington, D.C., including 

Australia, Malaysia, Brazil, and Costa Rica. Further, we traveled to the 

WTO’s headquarters in Geneva, Switzerland, where we met with WTO 

officials and member country representatives from developed and 

developing countries, including Australia, Canada, the European Union 

(EU), Japan, Brazil, China, Malaysia, Mexico, and India. 

To analyze the factors that influenced the outcome of the Cancun 

ministerial, we attended the Cancun Ministerial Conference in Mexico in 

September 2003. In Cancun, we attended USTR congressional briefings and 

went to press conferences and meetings open to country delegates. Also, 

we reviewed domestic and international news media reports; news releases 

on the developments at the ministerial conference and statements about 

the outcome of the ministerial conference from the WTO, the U.S. and 

foreign governments, and other international organizations. 

To analyze the various tariff cutting formulas being proposed, we employed 

the following procedure. For agricultural market access, we compared an 
Appendix I

Objectives, Scope, and Methodology

Page 38 GAO-04-250 World Trade Organization

across-the-board tariff cut of 25 percent (also known as the “Uruguay 

Round” formula)1

 to a harmonizing or “Swiss formula” with a coefficient of 

25.2 On nonagricultural market access, we analyzed the Chair’s proposal.3 

We employed a coefficient of 1 for the Chair’s proposal. Since the Chair’s 

proposal includes average overall tariffs as part of the formula, we 

compared how final tariffs on products with a given tariff level to begin 

1

A linear or across-the-the board tariff cutting formula means all tariff rates will be reduced 

by the same percentage. Assume that the initial tariff rate prior to negotiations is given by t0

and the final tariff rate resulting from the negotiations is t1. The expression, which relates 

the two tariff rates, where c is a constant parameter, would be:

The final tariff rate would necessarily depend upon both the parameter c and the initial tariff 

rate. The original tariff rate is not a determinant of the rate of reduction. For purposes of 

this illustrative example, we used the parameter 0.75 to represent a 25 percent across-theboard tariff cut. 

For further information, see WTO, Formula Approaches To Tariff Negotiations (Note By 

The Secretariat) TN/MA/S/3/Rev.2, April 11, 2003.

2

According to the WTO, the harmonizing or so-called Swiss formula that has been used so 

far in tariff negotiations has the following specification.

The formula has the property of being a function of both the initial tariff and the coefficient 

a. The coefficient can be negotiated. For purposes of this illustrative example, we used a 

coefficient of 25.

3

The chair’s formula is defined as it was described in report by the chairman, Ambassador 

Girard, to the Trade Negotiations Committee, WTO Document TN/MA/12, September 1, 

2003, Annex I, Para. 7, p. 8 and 9.

where, 

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

t0 is the base rate

ta is the average of the base rates

B is a coefficient with a unique value to be determined by the participants. For purposes of 

our analysis, we assumed a coefficient of 1 would be used for all countries. However, the 

Chair’s proposal does not specify the value of coefficient and leaves open the possibility that 

a different coefficient could be used.

t1 c t = × 0

t1

a t × 0

a t + 0

= ------------

t1

B ta t × × 0

B ta t × × 0

= -----------------------
Appendix I

Objectives, Scope, and Methodology

Page 39 GAO-04-250 World Trade Organization

with would differ for countries with average tariffs of 4 percent, 15 percent, 

and 30 percent. We selected the United States, Malaysia, and Brazil as 

examples of countries that respectively fit into those categories on the 

basis of WTO annual World Trade Report data on average overall bound 

tariff rates.

We performed our work from June to October 2003 in accordance with 

generally accepted government auditing standards.
Page 40 GAO-04-250 World Trade Organization

Appendix II

Significant Events in the WTO Negotiations 

before and during the Cancun Ministerial 

Conference ApendxiI

July 2003 Trade Negotiations Committee (TNC) meets

The Chairman of the TNC, which had been established to oversee the Doha Round of global trade 

talks, reported that while the work of the TNC and its subsidiary bodies intensified in 2003, real 

negotiations had not yet begun.

WTO General Council Chairman prepares draft ministerial declaration

The text is intended as a first draft of an operational text through which ministers at Cancun would 

register decisions and give guidance and instruction in the negotiations. It reflects a lack of progress 

on key issues, as shown by its skeletal nature and the bracketed (disputed) items relating to 

“modalities” (rules and guidelines for subsequent negotiations) for agriculture, nonagricultural market 

access, and the Singapore issues (investment, competition [antitrust], government procurement, and 

trade facilitation).

Montreal mini-ministerial occurs

Approximately 30 trade ministers from WTO members meet in Montreal to prepare for the Cancun 

Ministerial Conference. At the meeting, the ministers encourage the United States and the EU to 

narrow their differences on the central issue of agriculture.

August 2003 U.S. and EU submit joint agriculture framework

The framework includes reductions in domestic support, with those members with higher subsidies 

making deeper cuts, a three-pronged strategy to reduce tariffs, and reduction of export subsidies. 

Group of 20 Developing countries submit agriculture counterproposal

The proposal includes substantial cuts in domestic subsidies by developed countries, a tariff reduction 

formula that allows developing countries to make less substantial cuts, and the elimination of export 

subsidies.

General Council Chairman and WTO Director General submit revised draft ministerial 

declaration

Now 23 pages, the text continues to reflect significant differences between members on many issues. 

It includes frameworks for modalities in agriculture and nonagricultural market access as well as 

proposed modalities on each of the Singapore issues. Additionally, it includes a section related to a 

proposal by Burkina Faso, Benin, Chad, and Mali to eliminate cotton subsidies and provide 

compensation to the four countries while the subsidies are phased out.

General Council approves Agreement on Trade-Related Aspects of Intellectual Property Rights 

(TRIPS) and public health solution

WTO members complete discussions mandated in Doha to make it easier for poorer countries to 

import cheaper generic drugs made under compulsory licensing if they are unable to manufacture the 

medicines themselves. The United States, previously the only member preventing an agreement, joins 

the consensus after the General Council Chairman provides a statement regarding WTO members’ 

shared understanding of the interpretation and implementation of the decision. 

September 10, 2003 Day 1 of Cancun Ministerial Conference

Mexican President opens the ministerial conference, and ministers start work on key issues. The 

Conference Chairman appoints ministers to facilitate discussions on key issues—agriculture, 

nonagricultural market access, development issues, Singapore issues, and other issues. Ministers 

also debate a proposal on cotton from four African members.

Day 2

The first informal heads of delegation meeting occurs, and the Director General is appointed to 

facilitate discussions on the cotton initiative. Group discussions also take place on agriculture, 

nonagricultural market access, the Singapore issues, development issues, and other issues. 
Appendix II

Significant Events in the WTO Negotiations 

before and during the Cancun Ministerial 

Conference

Page 41 GAO-04-250 World Trade Organization

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

Day 3

A second informal heads of delegation meeting occurs in the morning and includes reports by the 

facilitators on each issue. Working group meetings continue throughout the day and conclude with a 

heads-of-delegation meeting at night. The Conference Chairman commits to draft a new version of the 

ministerial text and circulate it by the middle of the following day.

Day 4

The Conference Chairman distributes a new draft ministerial text at a meeting with heads of 

delegations and then asks them to study the text and reconvene in the evening. After ministers 

reconvene, many criticize the draft text, arguing that their particular concerns have not been included. 

At the close of the meeting, the Conference Chairman warns ministers that if the ministerial 

conference fails, the negotiations might take a long time to recover. 

Day 5

The Conference Chairman begins closed-door consultations with 30 ministers representing a wide 

range of regional and other groups on the subject of the Singapore issues. During these consultations, 

positions shift, allowing the possibility of dropping two or possibly three of the issues. The Conference 

Chairman then suspends the meeting to allow participants to meet with their respective groups. When 

they return, there is no consensus on three, and the Conference Chairman decides to close the 

ministerial conference. Ministers subsequently approve a ministerial statement that instructs members 

to continue working on outstanding issues and to convene a meeting of the General Council by 

December 15 to take necessary action.

(Continued From Previous Page)
Page 42 GAO-04-250 World Trade Organization

Appendix III

“Developing Countries” in the World Trade 

Organization ApendxiI

The World Trade Organization (WTO) states that “about two thirds” of its 

146 members are “developing countries.” However, there are no WTO 

definitions of “developed” or “developing” countries—although the WTO 

does specifically recognize the 30 WTO members defined as “least 

developed countries” (LDC) by the United Nations. Instead, developing 

countries in the WTO are designated on the basis of self-selection within 

each individual WTO agreement. This is not necessarily automatically 

accepted because other WTO members can challenge the decision of 

another WTO member to make use of the special provisions1

 available to 

developing countries. In fact, given the political sensitivities and potential 

legal issues involved, the WTO Secretariat does not list or distinguish 

developing countries in its reports; for example, it produces annual trade 

statistics organized by geographical region and not development status.

The World Bank, however, does use the term “developing economies”2 in its 

reports to denote the set of “low and middle income” national economies 

(subdivided into lower middle and upper middle) that it classifies on the 

basis of gross national income (GNI) per capita. We have used this 

definition to compile the list of “developing” WTO members in table 1. The 

World Bank divides all economies according to annual GNI per capita, 

calculated using the World Bank Atlas method.3

 The 2002 GNI ranges in 

U.S. dollars for the groups are the following: “low income,” $735 or less; 

1

Developing country status in the WTO brings certain rights. For example, provisions in 

some WTO agreements provide developing countries with the right to restrict imports to 

help establish certain industries, longer transition periods before they fully implement 

agreement terms, and eligibility to receive technical assistance. See article XVIII of the 

General Agreement on Tariffs and Trade (GATT), articles IV, XII, and XXV of the General 

Agreement on Trade in Services, and articles 66 and 67 in the Agreement on Trade-Related 

Aspects of Intellectual Property Rights. In addition, developing countries may benefit from 

the Generalized System of Preferences, under which developed countries may offer 

nonreciprocal preferential treatment (such as zero or low duties on imports) to products 

originating in those developing countries the preference-giving country so designate. See 

Decision on Differential and More Favourable Treatment, Reciprocity and Fuller 

Participation of Developing Countries, adopted under GATT in 1979. 

2

World Bank publications with notes on the classification of economies state that the term 

“developing economies...does not imply either that all the economies belonging to the group 

are actually in the process of developing, nor that those not in the group have necessarily 

reached some preferred or final stage of development.”

3

The Atlas conversion factor for any year is the average of a country’s exchange rate (or 

alternative conversion factor) for that year and its exchange rates for the 2 preceding years, 

adjusted for the difference between the rate of inflation in the country, and for 2001 

onwards, that in the Euro Zone, Japan, the United Kingdom, and the United States. A 

country’s inflation rate is measured by the change in its gross domestic product deflator.
Appendix III

“Developing Countries” in the World Trade 

Organization

Page 43 GAO-04-250 World Trade Organization

“lower middle income,” $736 - $2,935; “upper middle income,” $2,936 - 

$9,075; and “high income,” $9,076 or more.

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

Country World Bank income group Other

1 Albania Lower middle income

2 Angola Low income LDC

3 Argentina Upper middle income

4 Armenia Lower middle income

5 Bangladesh Low income LDC

6 Belize Upper middle income

7 Benin Low income LDC

8 Bolivia Lower middle income

9 Botswana Upper middle income

10 Brazil Lower middle income

11 Bulgaria* Lower middle income

12 Burkina Faso Low income LDC

13 Burundi Low income LDC

14 Cameroon Low income

15 Central African Republic Low income LDC

16 Chad Low income LDC

17 Chile Upper middle income

18 China Lower middle income

19 Colombia Lower middle income

20 Congo, Dem. Rep. Low income LDC

21 Congo, Republic Low income

22 Costa Rica Upper middle income

23 Côte d'Ivoire Low income

24 Croatia Upper middle income

25 Cuba Lower middle income

26 Czech Republic* Upper middle income EU/2004

27 Djibouti Lower middle income LDC

28 Dominica Upper middle income

29 Dominican Republic Lower middle income

30 Ecuador Lower middle income

31 Egypt, Arab Republic Lower middle income

32 El Salvador Lower middle income
Appendix III

“Developing Countries” in the World Trade 

Organization

Page 44 GAO-04-250 World Trade Organization

33 Estonia* Upper middle income EU/2004

34 Fiji Lower middle income

35 Gabon Upper middle income

36 Gambia, The Low income LDC

37 Georgia Low income

38 Ghana Low income

39 Grenada Upper middle income

40 Guatemala Lower middle income

41 Guinea Low income LDC

42 Guinea-Bissau Low income LDC

43 Guyana Lower middle income

44 Haiti Low income LDC

45 Honduras Lower middle income

46 Hungary* Upper middle income EU/2004

47 India Low income

48 Indonesia Low income

49 Jamaica Lower middle income

50 Jordan Lower middle income

51 Kenya Low income

52 Kyrgyz Republic Low income

53 Latvia* Upper middle income EU/2004

54 Lesotho Low income LDC

55 Lithuania* Upper middle income EU/2004

56 Macedonia, Former Yugo. Rep. Lower middle income

57 Madagascar Low income LDC

58 Malawi Low income LDC

59 Malaysia Upper middle income

60 Maldives Lower middle income LDC

61 Mali Low income LDC

62 Mauritania Low income LDC

63 Mauritius Upper middle income

64 Mexico Upper middle income

65 Moldova Low income

66 Mongolia Low income

67 Morocco Lower middle income

68 Mozambique Low income LDC

69 Myanmar Low income LDC

(Continued From Previous Page)

 Country World Bank income group Other
Appendix III

“Developing Countries” in the World Trade 

Organization

Page 45 GAO-04-250 World Trade Organization

Source: GAO analysis of WTO and World Bank information.

70 Namibia Lower middle income

71 Nicaragua Low income

72 Niger Low income LDC

73 Nigeria Low income

74 Oman Upper middle income

75 Pakistan Low income

76 Panama Upper middle income

77 Papua New Guinea Low income

78 Paraguay Lower middle income

79 Peru Lower middle income

80 Philippines Lower middle income

81 Poland* Upper middle income EU/2004

82 Romania* Lower middle income

83 Rwanda Low income LDC

84 Senegal Low income LDC

85 Sierra Leone Low income LDC

86 Slovak Republic* Upper middle income EU/2004

87 Solomon Islands Low income LDC

88 South Africa Lower middle income

89 Sri Lanka Lower middle income

90 St. Kitts and Nevis Upper middle income

91 St. Lucia Upper middle income

92 St. Vincent and the Grenadines Lower middle income

93 Suriname Lower middle income

94 Swaziland Lower middle income

95 Tanzania Low income LDC

96 Thailand Lower middle income

97 Togo Low income LDC

98 Trinidad and Tobago Upper middle income

99 Tunisia Lower middle income

100 Turkey Lower middle income

101 Uganda Low income LDC

102 Uruguay Upper middle income

103 Venezuela Upper middle income

104 Zambia Low income LDC

105 Zimbabwe Low income

(Continued From Previous Page)

 Country World Bank income group Other
Appendix III

“Developing Countries” in the World Trade 

Organization

Page 46 GAO-04-250 World Trade Organization

Notes:

*=Listed by the Organization for Economic Cooperation and Development as a “Country in Transition” 

receiving aid, but not a “traditional” developing country.

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

Under the World Bank definition, the WTO membership currently has 105 

developing economies, 30 of which are defined by the United Nations as 

LDCs. This includes 44 low income countries; 35 lower middle income 

countries; and 26 upper middle income countries. There are 40 high income 

WTO members (not counting the EU’s separate membership). The Cancun 

ministerial also recognized that upon ratification in their national 

parliaments, Cambodia and Nepal will accede to the WTO, both of which 

are LDCs. 
Page 47 GAO-04-250 World Trade Organization

Appendix IV

Comments from the Office of the U.S. Trade 

Representative ApendxiIV
Appendix IV

Comments from the Office of the U.S. Trade 

Representative

Page 48 GAO-04-250 World Trade Organization
Page 49 GAO-04-250 World Trade Organization

Appendix V

GAO Contacts and Staff Acknowledgments ApendxiV

GAO Contacts Kim Frankena (202) 512-8124

Venecia Rojas Kenah (202) 512-3433

Staff 

Acknowledgments

In addition to the individuals named above, Jason Bair, Etana Finkler, R. 

Gifford Howland, David Makoto Hudson, José Martinez-Fabre, Rona 

Mendelsohn, Jon Rose, and Richard Seldin made key contributions to this 

report.

(320195)
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