World Trade Organization: Limited Progress at Hong Kong Ministerial Clouds Prospects for Doha Agreement
Published: 2006-04-26T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: U.S. officials often call the World Trade Organization's (WTO) Doha Development Agenda or "Round" of global trade talks, launched in Doha, Qatar, in November 2001, a "once in a generation opportunity" to expand trade. President Bush has identified their success as his administration's top trade priority. Due to various U.S. notification and consultation requirements, concluding the negotiations in 2006 is essential for a Doha agreement to qualify for congressional consideration under U.S. Trade Promotion Authority (TPA), which expires July 1, 2007. A ministerial meeting among the WTO's 149 members was held on December 13-18, 2005, in Hong Kong, China, to make decisions needed to advance the talks. Given the importance of the WTO Doha Round to the United States, GAO was asked to provide an update on the status of the negotiations. In this report, the latest in a series on the negotiations, we (1) provide the status of the Doha negotiations on the eve of the Hong Kong ministerial, (2) review the outcome of the Hong Kong ministerial, and (3) discuss the prospects for concluding the Doha Round before TPA expires in July 2007.
section_title: What GAO Found
paragraphs: WTO members made little progress in 2005 toward their goal of completing the steps needed to set the stage for finalizing the Doha Round of global trade talks. The key milestones for progress through July were missed. Despite new proposals on agricultural subsidy and tariff cuts submitted in October 2005, it was clear by November that key players were too far apart to achieve the major decisions planned for the December ministerial. To avoid a failure, members agreed to lower expectations for the meeting. The Hong Kong ministerial resulted in modest agreements on a narrow range of agricultural and development issues. Ministers made little progress on the broader Doha negotiating agenda, including two other U.S. priorities--services and nonagricultural market access. Nevertheless, WTO members renewed their resolve to successfully conclude the Doha Round by the end of 2006 and set new interim deadlines under a compressed schedule to meet that goal. Critical decisions that will determine each member's cuts in tariffs and other barriers were due April 30 and July 31, 2006, but the April 30 deadline will be missed. WTO members continue to profess commitment to accomplish the ambitious agenda set at Doha. However, with nearly all tough decisions put off, the tension between members' original high ambitions and the U.S. TPA timeframe has become acute. Since the Hong Kong ministerial, members have taken concrete steps to help build consensus. Yet, the ongoing impasse on core areas such as agriculture, and the difficult political decisions needed to resolve it, cause many experts to be skeptical. Numerous time-consuming steps still must be completed in the little more than a year left before TPA expires. While holding out hope for an agreement that lives up to Doha's promise, experts say outright collapse, substantial delay, or modest results are all possible outcomes.

section_title: Letter
paragraphs: Trade ministers from members of the World Trade Organization (WTO)  gathered in Hong Kong, China, in December 2005, for a meeting that was  originally expected to yield agreements considered critical for concluding  the Doha Round negotiations by the end of 2006. Launched in November  2001 in Doha, Qatar, these negotiations involve 149 nations and encompass  a far-reaching, ambitious agenda for liberalizing trade ranging from  reducing tariffs and eliminating subsidies, to bolstering economic  development in poor countries. Because the Doha Round is considered a  “package deal”—or single undertaking in WTO parlance—simultaneous  agreement by all members on all issues is required to finalize an agreement.  U.S. and WTO officials acknowledge that concluding the negotiations in  2006 is essential for a Doha agreement to qualify for the streamlined  congressional approval procedures of the U.S. Trade Promotion Authority  (TPA), which expires July 1, 2007. President Bush has identified the  success of the Doha Round negotiations as his administration’s top trade  priority.
Given the importance of the WTO Doha Round to the United States, you  asked us to provide an update on the status of these negotiations. In this report, the latest in a series, we (1) provide the status of the Doha  negotiations on the eve of the Hong Kong ministerial, (2) review the  outcome of the Hong Kong ministerial, and (3) discuss the prospects for  concluding the Doha Round before TPA expires in July 2007.
To address these objectives, we met with, and reviewed documents from a  range of WTO, U.S., and foreign government officials, as well as academic  experts and private sector groups (including business associations, law  firms, and civil society groups) in Washington, D.C.; Geneva, Switzerland;  and Brussels, Belgium. We also attended the sixth WTO ministerial  conference in Hong Kong, China. To assess the prospects for success, we  relied on the views of selected participants and experts representing a  range of institutional perspectives (government, academia, “think tanks,”  nongovernmental organizations, business groups, and other trade policy  observers), as well as our own analysis. We conducted our work from May  2005 through March 2006 in accordance with generally accepted  government auditing standards.
subsections: section_title: Background
paragraphs: The WTO was established as a result of the Uruguay “Round” on January 1,  1995, as the successor to the General Agreement on Tariffs and Trade  (GATT). Based in Geneva, Switzerland, the WTO administers agreed-upon  rules for international trade, provides a mechanism for settling disputes,  and serves as a forum for conducting trade negotiations. WTO membership  has increased since 1995, and there are currently 149 WTO member nations  and customs territories that are diverse in terms of economic development;  these members negotiate individually or as a member of a group of  countries (see table 1 for some of the major country groupings). While the  WTO has no formal definition of a “developing country,” the World Bank  classifies 105 current WTO members—or approximately 72 percent—as  developing countries; 32 of these members are officially designated as  “least-developed countries” (LDCs). USTR negotiates on behalf of the  United States in WTO negotiations.
The WTO ministerial conference held in Hong Kong, China, from December  13–18, 2005, was the sixth since the establishment of the WTO in 1995.  These ministerial conferences, convened at least every 2 years, bring  together trade ministers from all WTO members. The outcome of a  ministerial conference is reflected in a fully agreed-upon ministerial  declaration. The substance of these declarations guides future work by  outlining an agenda and deadlines for the WTO until the next ministerial  conference. Decisions in the WTO are made by consensus—or absence of  dissent—among all members, rather than by a simple majority. Periodic  “mini-ministerials,” or informal meetings among small groups of selected  WTO members, are often used to advance dialogue on issues.
At the Hong Kong conference, ministers sought to make progress in the  ongoing multilateral trade negotiations, officially known as the Doha  Development Agenda. Formally launched at the fourth WTO ministerial  conference in Doha, Qatar, in November 2001, the negotiations are the  latest in a series of global trade talks (negotiating rounds) dating back  nearly six decades. They are intended to reduce trade barriers and  facilitate the free flow of commerce throughout the world. A major  objective of the Doha negotiations is development—that is, to help  developing countries realize the economic benefits of trade and enable  them to take advantage of trading opportunities.
The Doha ministerial declaration established a work program with a  number of negotiating areas and set the goal for concluding the  negotiations by January 1, 2005. Of the 16 current negotiating areas,  market access in agriculture, services, and nonagricultural (industrial)  products (NAMA) are the three U.S. priorities. WTO members set specific  goals for each area and set up various negotiating groups to achieve them.  In agriculture, the Doha work program commits countries to lower barriers  in world agricultural markets and sets forth three pillars for agricultural  trade reform: export competition (subsidies), domestic support (subsidies  and other assistance to farmers), and market access (tariffs). Agriculture  remains the top issue for many participants and has been described as the  lynchpin of the Doha negotiations. Lack of progress in liberalizing  agriculture is partly due to the fact that it was first added to the trading  system in the last (Uruguay) round, which left high subsidies and tariff  barriers in place. Doha negotiations in services aim to ensure increased  transparency and predictability of rules and regulations governing services  and to promote liberalization of service markets. The goal of the NAMA  negotiations is to reduce or eliminate tariffs and non-tariff barriers. The  agriculture and NAMA negotiations involve first reaching agreement on  “modalities”—the formulas, thresholds, dates, and other numerical  benchmarks that members will commit to meet when they revise their  WTO schedules of subsidy and tariff commitments. This guidance then is  translated into national tariff schedules specifying what tariff will be  charged on each product. Members are then “bound” not to exceed these.
Concluding the round will require simultaneous agreement on all issues,  because WTO members have agreed it will be a package deal (or “single  undertaking” in WTO parlance). As a result, trade-offs are expected to  occur among issues to accomplish an overall balance satisfactory to all  members. When it is final, the trade agreement will impose legally binding  international obligations on WTO members governing the trade barriers  they are allowed to maintain (such as tariffs) and the trade rules by which  they must abide. Failure to comply is subject to binding dispute settlement  and possible trade retaliation.
To date, the negotiations have progressed fitfully. Our January 2004 report  explained the factors that caused the September 2003 Cancún ministerial to  collapse in acrimony and confusion, including sharp North-South  (developed-developing country) divisions on key issues. For example,  developing countries rejected the proposed U.S. and EU reductions in  agricultural subsidies as inadequate, but the United States and the EU felt  developing countries were not contributing to reform by agreeing to open  their markets. Moreover, 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. In 2004, the Doha Round negotiations started again on an  uncertain note; however, political leadership, intensified dialogue, and a  series of conciliatory gestures resulted in WTO members adopting an  agreement on key issues in the negotiations known as the “July framework  agreement,” which is credited with achieving sufficient progress on  agriculture to put the global trade talks back on track and reopen  discussion of other issues. The main features of the framework agreement  were to establish key principles for each aspect of global agricultural trade  reform; identify the key elements of negotiations to improve  nonagricultural market access; stress the importance of liberalizing access  to services markets and addressing outstanding development concerns;  and launch negotiations to clarify and improve WTO rules on customs procedures (trade facilitation). WTO members also agreed to hold their  next ministerial in Hong Kong in December 2005. However, our last report  noted that, despite the improved negotiating atmosphere, the negotiations  were effectively 2 years behind schedule and considerable work remained  on the numerous issues that would constitute a final agreement. Pursuant  to the Trade Act of 2002, in March 2005, the president requested a 2-year  extension of TPA, and the extension went into effect.
section_title: Limited Progress Since Mid-2004 Causes WTO Members to Recalibrate Goals for Hong Kong
paragraphs: Despite the impetus provided by the framework agreement, the Doha  negotiations moved slowly throughout 2005. As we reported last year, WTO  negotiators began 2005 with a resolve to complete the round in 2006 and set  the stage by agreeing to make progress in 6 of the 16 Doha negotiating  areas by the end of 2005—agriculture, NAMA, services, trade facilitation,  development issues, and WTO rules. However, limited progress was made  before the Hong Kong ministerial, as the talks stalled in fall 2005 amid  stalemate over fundamental issues on agriculture and NAMA. To avoid  another failed meeting, such as at the last ministerial in Cancún, Mexico,  expectations for the Hong Kong ministerial were lowered. The agenda for  the meeting shifted from making key decisions on the six core areas to  focusing on narrower initiatives, particularly in agriculture and  development, that could help the talks move forward, if only marginally  (see fig. 1).
subsections: section_title: Some Technical Progress Achieved but Key Milestones Missed
paragraphs: In early 2005, at a mini-ministerial meeting in Davos, Switzerland, and  subsequently at a February meeting among all WTO members, WTO  members agreed that the goal of the Hong Kong ministerial was to set the  stage for the final phase of the Doha negotiations, which would enable the  round to conclude in 2006. To that end, they agreed to seek to finalize  modalities for both the agriculture and NAMA negotiations at Hong Kong,  and to make significant progress in four other core areas—services, trade  facilitation, development issues, and WTO rules (which covers subjects  such as subsidies, antidumping measures, and regional trade agreements).  Deliverables in these six areas are critical in determining how ambitious  the Doha Round will be in terms of cuts in tariffs, subsidies, and other  barriers to trade, as well as the ultimate balance across member interests  and issues.
Despite these ambitious goals, the overall pace of the negotiations was  slow throughout most of 2005, and even progress on technical issues was  difficult to achieve. For example, in the agriculture and NAMA talks,  negotiators were able to agree on a preliminary basis to methodologies for  converting specific tariffs into ad valorem equivalents (tariffs based on a  percentage of value), a necessary step before potential tariff reductions  could be calculated and considered. However, reaching this agreement for  agriculture proved to be contentious and occupied the negotiators’ time  through early May, delaying the discussion of more central issues such as  how to make tariff and subsidy cuts. On many issues, negotiators made  incremental progress by narrowing the number of options under  consideration or fleshing out principles or methods without coming to full  agreement. On NAMA, for example, a list of products to be covered by the  negotiations was compiled, but there was disagreement about including  some items, and no agreement on whether the list should be considered  definitive or just a guideline.
In 2005, WTO members missed the key milestones they had set to keep the  talks on schedule for completion at the end of 2006 (see fig. 2). In the  services negotiations, many WTO members failed to submit offers for  opening their markets to foreign services-providers by a May 2005 deadline.  Just before the ministerial, the services negotiating group chair reported  having 69 initial and 30 revised offers, but 23 members had not yet  submitted any offer. In addition, the chair described many of the offers as  disappointing, because they did not provide new market access or bind  access at existing levels. In development, the negotiating group made little  progress toward a July 2005 deadline to prepare recommendations to  improve special and differential treatment. WTO members also missed an  informal but important milestone to reach agreement in July 2005 on a  “first approximation” of the modalities for agriculture, NAMA, and other  issues, which negotiators had hoped to finalize at the Hong Kong  ministerial. As deadlines were missed during the spring and summer of  2005, WTO’s then-Director-General warned negotiators that the talks were  not moving fast enough to reach this goal. In early July, the Director- General stated flatly that “these negotiations are in trouble,” adding that  WTO members faced “a crisis of immobility” that threatened their ability to  deliver decisions at the Hong Kong ministerial.
We noted in our last report that U.S. and EU leadership has been essential  to making progress in the WTO trade negotiations and that relations  between their newly appointed trade principals could influence success at  Hong Kong. However, a number of events made the leadership transition  and U.S.–EU relations more difficult in 2005. A gap of several months  occurred between the time when then-current U.S. Trade Representative  Robert Zoellick was nominated Deputy Secretary of State in early January  2005 and when his replacement, Rob Portman, was confirmed in late April  by the Senate as the new Trade Representative. At that time, a U.S.–EU  aircraft dispute was flaring, and influential U.S. congressmen took umbrage  at comments by the new EU Trade Commissioner, Peter Mandelson,  directed at U.S. policies on cotton subsidies. In addition, some U.S.  negotiators were also occupied with finalizing the Dominican Republic– Central America–United States Free Trade Agreement and ensuring its  approval by Congress, which was finally secured on July 28, 2005.
section_title: Countries Still Divided over Toughest Issues in Fall 2005
paragraphs: Fundamental divisions among WTO members became very clear in the fall  of 2005 when members found themselves deadlocked over conflicting  market access goals. In October, key members and country coalitions put  forth detailed agriculture proposals that were intended to re-energize the  negotiations and resolve key issues before the Hong Kong ministerial. The  United States; the EU; the Group of 20 (G-20) coalition of developing  countries; and the Group of 10 (G-10)—a coalition of primarily developed  countries that import most of their food—laid out their positions on cutting  agricultural subsidies and tariffs and what they expected in return from  trading partners. The differences among these parties’ positions were  particularly evident in their approaches to market access (see table 2). The  U.S. proposal centered on an offer to cut U.S. domestic farm subsidies  substantially, along with aggressive tariff cuts ranging from 55 to 90 percent  for all developed countries. However, the offer was contingent on higher  subsidy cuts and “ambitious” market access improvements by other  countries, particularly the EU and the G-20. Many WTO members received  the proposal as a significant effort to unblock the negotiation, but some  countries were doubtful that the proposed subsidy cuts were as substantial  as billed. The EU proposed smaller agricultural tariff cuts, with more  exemptions for protecting “sensitive” products from competition from  imports. This offer was contingent on certain concessions from other  members, notably substantial market opening in NAMA and services from  the more advanced developing countries of the G-20, especially Brazil and  India. The G-20 proposal on agricultural market access, submitted earlier in  the year, was presented as a middle ground, as the suggested tariff cuts for  developed countries fell between the U.S. and EU proposals.
The EU’s market access offer became the focus of criticism before the  ministerial, as neither the United States nor the G-20 considered it  acceptable. They demanded that the EU cut its tariffs further and reduce  the number of sensitive products that would be exempted from the  standard tariff cuts. USTR noted that the EU’s proposal would allow for  tariff cuts of as little as 20 percent on about four-fifths of EU tariff lines.  Also, according to USTR, the EU could effectively limit competition from  imports, due to the large number of sensitive products it had proposed to  shield from liberalization (about 142 tariff lines). Although the EU revised  its offer at the end of October 2005, it was again quickly rejected as  insufficient.
The EU held the stance in the Doha Round that its chief gains were to be  found in the industrial and services sectors underpinning its economy.  Specifically, the EU wanted countries such as India and Brazil to offer real improvements in access to their industrial and services markets. EU  members had already agreed to reform the EU’s domestic support  programs and to eliminate export subsidies as part of the framework  agreement and believed they had gotten little in return. In internal  consultations in late October, France warned the EU negotiating team that  it should not overstep its mandate, which in its view was strictly tied to  existing agricultural subsidy spending and the 2003 reform of the EU’s  Common Agricultural Policy, by making concessions in the negotiations  that would not be acceptable to EU member states.
The stand-off continued, as Brazil and India refused to make improved  NAMA or services offers until the EU made a better agricultural market  access offer. As leaders of the G-20, Brazil and India complained that the  EU wanted developing countries to accept much lower tariffs in NAMA  than it was willing to offer in agriculture—an export area where many  developing countries have a competitive advantage. They insisted that  developed countries’ market access offers in agriculture be proportional to  the market access demanded of developing countries in NAMA and  services. However, the EU said its offer was not only final, but conditional,  and would be withdrawn if demanders persisted in seeking “something for  nothing”—or in the EU Trade Commissioner’s words, “real cuts by Europe,  paper cuts by others.”
Despite the intense focus on agriculture, negotiations continued on  industrial goods and services trade, but the knotty conflicts we reported  last year continued to impede their progress. On NAMA, negotiators circled  around the problem of what tariff reduction formula to use, with signs of  potential agreement on a “Swiss” formula that would even out tariff levels by cutting higher tariffs more than lower ones. However, negotiators  could not agree on the type of Swiss formula to use and the selection of  coefficients that would determine the reductions for developed and  developing countries. In addition, the treatment of unbound tariffs was  not settled, and the degree to which developing countries would have the  flexibility to deviate or exempt products from the formula was  controversial. On services, negotiators were stalled over proposals to alter  the bilateral negotiating format, speed the pace of the negotiations, and  encourage greater participation and better market access offers by more  countries. Suggestions included the use of numerical targets, with  members covering a certain percentage of service sectors in their offers,  and a plurilateral negotiating approach whereby groups of countries  collectively present “requests” to other groups of countries for market  access improvements and then the recipient countries reply with market  access “offers” to the demanding countries. However, developing countries  criticized these suggestions as overly prescriptive, and a constraint on their  freedom to opt out of services liberalization or selectively liberalize  sectors.
The trade facilitation negotiations made good progress throughout the  year, as did the negotiations on rules, but remained at the stage of exploring  proposals versus bridging gaps in positions. Trade facilitation negotiators  put forward a large number of proposals for expediting the movement of  traded goods, and developing countries participated actively. Negotiations  on various trade “rules” intensified, with the debate focusing on the divide  between the traditional and new users of trade remedy laws (measures  used to counter unfairly priced and subsidized imports)—including the  United States—and non-users that have called for significant change in  users’ antidumping and countervailing duty regimes. Rules negotiators  conducted in-depth discussions of such proposed changes and narrowed  the list of issues somewhat, according to U.S. officials. While proposals  aimed at U.S. practice remain a concern, U.S. officials report that  proponents had difficulty justifying or gaining consensus for their more  radical proposals. Rules negotiators also considered U.S. proposals to  improve transparency and due process in trade remedy proceedings and  made progress on developing new disciplines on subsidies (including fish  subsidies) and transparency for regional trade agreements.
section_title: Goals Lowered for December 2005 Hong Kong Ministerial
paragraphs: The flurry of activity in October gave way to the realization in November  that the gaps between key negotiating positions were still too wide for  negotiators to reach any major decisions by December, and the agenda for  Hong Kong was scaled back. New WTO Director-General Pascal Lamy,  whom members had installed that fall with hopes that his energetic style  might bring negotiators to decisions more quickly, had begun his term by  declaring that his goal for Hong Kong was to take the Doha negotiations  “two thirds of the way” to conclusion. By early November 2005, Lamy  concluded that members had not bridged their differences enough to draft  texts with specifics on modalities in the core negotiating areas and urged  members to “recalibrate” their expectations for the ministerial. He  suggested that members focus on what could reasonably be achieved,  rather than risk a failure reminiscent of previous ministerials in Cancún  and Seattle. The text for a Hong Kong ministerial declaration should thus  try to capture progress or any decisions made since the framework  agreement and provide a range of numbers (or “outer parameters”) to  indicate how other decisions had been clarified, if not narrowed down.  Members recognized that no one would be served by presenting the  ministers with an overly full and unresolved agenda. They agreed to focus  on what was achievable, while stressing they remained committed to an  ambitious outcome for the round.
The agenda for Hong Kong quickly changed to reflect these scaled-back  expectations and focus on several development issues. Lamy called for the  ministerial to deliver on several narrow measures to benefit the 32 LDCs  that are WTO members. In addition, the EU and certain developing  countries voiced the view that an “early harvest” on development issues  was important symbolically. Immediately before the ministerial, the Group  of 90 (G-90)—a coalition of the African Union; the LDCs; and the African,  Caribbean, and Pacific Group—issued a statement reminding WTO  members that the Doha ministerial declaration had placed the needs and  interests of developing countries at the heart of the Doha Round and that  they expected concrete benefits from Hong Kong. India and other  developing-country coalitions made similar statements. The EU Trade  Commissioner emphasized the importance of making a “down payment” on  the trade agreement to the poorest countries at Hong Kong. He stated that  the Doha negotiations were a development round and “not an agricultural  exporters’ round,” leading the U.S. Trade Representative and key members  of Congress to question whether the EU’s efforts to shift the focus to  development were somewhat self-serving.
The draft declaration text, as transmitted in early December for  consideration at the ministerial, contained few provisions for new  agreements to be made at Hong Kong. The provisions included calling on  ministers to adopt decisions on five LDC proposals and to set new  deadlines for completing modalities and other aspects of the negotiations.  Annexes to the draft text on the six core negotiating areas represented full  agreement by WTO members in only one area—trade facilitation. The  annexes on the five other core areas simply summarized the members’  positions at that point in time, and postponed key decisions that would be  necessary before member-to-member bargaining over each nation’s  schedules of commitments could begin.
section_title: Hong Kong Resulted in Several Limited New Commitments, but Postponed Key Decisions on Cutting Tariffs and Other Barriers
paragraphs: WTO members arrived in Hong Kong intent on avoiding a stalemate and  ensuring continued progress in the negotiations. The ministerial  declaration that was adopted reflects commitment to complete the Doha  negotiations in 2006 and agreement on a narrow set of issues. Agriculture,  of critical concern for many members, continued to occupy much of the  negotiators’ attention at the ministerial. Economic development issues also  were featured prominently at Hong Kong, with nearly round-the-clock  negotiations finally yielding several concrete steps to alleviate some  concerns of the WTO’s poorest members. Other U.S. priorities, however—  notably services and NAMA—made little progress at the ministerial.
subsections: section_title: Members Formally Commit to Conclude Negotiations by 2006
paragraphs: Negotiators at Hong Kong succeeded in avoiding deadlock and meeting— or even exceeding—the lowered expectations for the ministerial. Having  failed to meet many of the important milestones they had set for  themselves in 2005, and aware of the difficult ground still to be bridged, in  Hong Kong members reaffirmed their commitment to a successful and  timely completion of the round. In doing so, they agreed to a new deadline  for completing the round by the end of 2006 and interim deadlines under a  compressed schedule by which to reach agreement on the difficult issues  that had eluded them thus far. For example, they set April 30, 2006, as the  deadline for WTO members to agree on modalities for cutting tariffs and  subsidies for agricultural and nonagricultural goods. The next key deadline  is July 31, 2006, when countries will be expected to submit national  schedules of commitments embodying the modalities for agriculture and  NAMA, and to present revised offers for liberalizing trade in services.
section_title: Ministers Focused on Export Competition Issues and Cotton, but Made Little Progress on Other Aspects of Agricultural Negotiations
paragraphs: In Hong Kong, negotiators focused primarily on three agricultural issues:  elimination of export subsidies, in-kind food aid, and the demands of a  group of African countries on cotton. However, they did not address the  underlying differences on agricultural market access and made little  progress on other areas in the agriculture negotiations.
First and most significantly, members agreed to eliminate all forms of  agricultural export subsidies on a parallel basis by 2013. Reaching  consensus on this deadline proved to be difficult, however. The EU, the  largest user of agricultural export subsidies, insisted on progress in  developing parallel disciplines on export credit programs, state trading  enterprises, and other aspects of export competition before agreeing on a  deadline to end export subsidies. On the other hand, the G-20 and other  major agricultural exporters, including the United States, wanted a 2010  deadline for abolishing agricultural export subsidies before turning to other  export competition issues. Heated debate on an export subsidies deadline  continued throughout the ministerial, with Brazil reportedly threatening to  pull out of the talks at one point. The compromise adopted involved a  commitment to eliminate a substantial part of the export subsidies in  phases by the end of 2010 if an agreement enters into force in January 2008.
Second, negotiators devoted considerable time to discussing whether in- kind food aid distorts international commodities markets, but they failed to  reach consensus on this issue. The EU maintains that in-kind food aid is  trade-distorting and represents a form of export subsidy. At Hong Kong, EU  negotiators sought a commitment from other members to phase out in-kind  food aid and to move toward an international system of cash-only  assistance that would allow countries in need to purchase food from the  most convenient and commercially viable sources. The United States,  however, as the main provider of in-kind food aid, resisted this move,  arguing that in-kind food is often critical in emergencies such as famines  and natural disasters. The ministerial declaration deferred setting  disciplines on food aid until April 30, 2006, in conjunction with the adoption  of overall modalities for agriculture. The ministers did agree to certain  principles, including a guarantee that such disciplines would include a  mechanism, called a “safe box,” to ensure the availability of food for needy  populations in emergency situations.
Third, negotiators in Hong Kong also addressed the demands raised by a  group of four African countries, known collectively as the Cotton Four   (C-4). Since the Cancún ministerial, the C-4 countries have sought to bring  attention to the plight of African farmers, who face falling international  prices for cotton and diminishing opportunities in overseas markets. At  Hong Kong, the C-4 countries, supported by others, obtained a commitment  by developed countries to eliminate all forms of export subsidies for cotton  in 2006. This provision, aimed primarily at the United States, coincides with  existing U.S. plans to eliminate cotton export subsidies by that time. The  C-4 also obtained a commitment from developed countries to provide duty- free, quota-free access for cotton exports from least-developed countries  when the agreements resulting from the Doha negotiations are  implemented. Moreover, the C-4 secured a new commitment that the  overall Doha agreement on agriculture would entail deeper and faster cuts  in domestic cotton subsidies relative to cuts in domestic support for  agricultural commodities in general.
The Hong Kong ministerial declaration reflects more limited progress on  several other agricultural issues. On the domestic support pillar, the  declaration contained a new commitment to ensure that the total of all  trade-distorting domestic support to farmers must be reduced, possibly  involving cuts beyond those agreed to for specific categories of farm  payments—known as “boxes” in WTO parlance. The declaration also  adopted a framework with three levels or “bands” for reducing domestic  farm subsidies, which were based on the amount of financial support  provided by members. The United States would fall in the middle of these  bands, along with Japan, while the EU would be in the top band, and other  countries that provided domestic support to farmers would be in the lowest  band. Members in the higher bands would be expected to make deeper  cuts. Similarly, in the market access pillar, the declaration reflects  convergence on an arrangement calling for four bands for tariff reductions,  with higher cuts for higher tariffs. Finally, the Hong Kong declaration noted  that developing countries will be granted additional flexibility to protect  their domestic agricultural production by self-designating special products  and having access to a volume- and price-based special safeguard  mechanism to protect against import surges.
section_title: Several Proposals on Development Issues Were also Adopted at Hong Kong
paragraphs: The Hong Kong ministerial conference also devoted substantial attention to  certain development issues. The prominence of these issues may have  contributed to a public show of unity among some 110 developing  countries at Hong Kong. Nevertheless, a number of developing-country  officials expressed concerns about their different needs and priorities at  the ministerial, and in private meetings in the weeks just before the  conference.
Formal adoption of five proposals made by LDCs was among the most  significant agreements related to development at the ministerial. Among  these proposals was a controversial initiative to secure duty-free, quota- free access to developed countries’ markets. LDCs, supported by the EU,  had sought complete duty-free, quota-free access for all of their products.  However, the United States opposed this initiative for various reasons,  including the fact that, as proposed, the initiative exceeded the current U.S.  statutory authority, which sets conditions on preferential market access to  protect U.S. commercial interests and to advance certain U.S. policy goals.  U.S. Trade Representative Portman also indicated that numerous  developing countries that do not qualify for LDC status had raised concerns  about being disadvantaged in the U.S. market. In the end, the compromise  called for duty-free and quota-free access for at least 97 percent of tariff  lines of developed countries’ imports from LDCs, and for steps to be taken  to achieve complete coverage thereafter. The declaration also urged  developing countries to take on the same commitment to LDCs if they were  able.
Moreover, following up on 2005 work, the declaration invited the creation  of a WTO task force to recommend how “aid for trade” can contribute to  Doha development goals by helping developing countries take advantage of  new trade opportunities. The declaration also called for members to  increase their financial commitments for technical assistance and capacity  building to help developing countries participate in trade negotiations and  implement the WTO agreements. At Hong Kong, the United States and  others made new commitments outside the WTO declaration. Notably, the  United States pledged it would double its “aid for trade” to developing  countries to $2.7 billion a year by 2010; the EU announced it would raise its  commitment to 2 billion euros per year by 2010; Japan offered to provide  $10 billion from 2006 through 2008.
section_title: Little Progress Made in Other Important Areas
paragraphs: Little progress was made in two other areas of the Doha negotiations  critical to U.S. interests—NAMA and services.
In NAMA, negotiators decided to:  postpone reaching agreement on modalities until April 30, 2006;  call for comparable levels of ambition in market access for agriculture   reaffirm the goal of reducing or eliminating tariffs in various ways,  notably by adopting a Swiss formula approach that cuts high tariffs  more than lower tariffs to achieve these reductions.
However, negotiators did not agree on specific numbers (coefficients) for  the Swiss formula, which would determine the depth of cuts and final tariff  ceilings for members. The range of cuts proposed by members prior to  Hong Kong is wide. Moreover, they left unresolved the controversy over  how much flexibility developing countries will retain to deviate or exempt  products completely from the formula.
In services, members agreed to:  accelerate negotiations by adopting a plurilateral approach, whereby  groups of countries jointly present offers to other groups; and  clarify that participation in plurilateral negotiations would be voluntary,  as members would be able to decide whether or not to respond to the  requests presented to them.
The Hong Kong declaration addressed numerous other issues, ranging from  trade facilitation to rules, but they received minimal attention at the  conference. On trade facilitation, for example, the declaration categorized  previous proposals and endorsed drafting a text of new commitments. On  rules, WTO members reaffirmed their commitment to substantial results,  set several new goals, and authorized the chair of the Committee on Rules  to produce a draft text embodying proposed changes to existing WTO  agreements on antidumping and subsidies to serve as the basis for final  negotiations.
section_title: Several Factors Make Meeting 2006 Deadlines Challenging, and Have Raised Doubts about the Likelihood of an Ambitious Outcome within the TPA Time Frame
paragraphs: WTO members and observers recognize that achieving a balanced and  ambitious outcome for global trade talks within the TPA time frame will be  challenging, and the window of opportunity is quickly closing. Efforts to  make progress are under way. However, a mix of motivating and  constraining factors creates tension between the feasibility of meeting the  2006 deadlines and members’ ambition for a far-reaching agreement.  Motivating factors include a desire to reap the economic benefits that some  experts forecast would result from further trade liberalization and the fact  that the outlines of a “grand bargain”—or key trade-offs involved in any  deal—are becoming clearer. On the other hand, factors constraining  progress include the difficulty of breaking the ongoing impasse over  agriculture, political constraints in key WTO member states, and the  significant amount of work to be done in the time remaining. Some officials  maintain that success remains possible, but emphasize that members need  a greater sense of urgency and the political will to cut trade barriers from  current levels. Other officials and many experts are skeptical that success  is possible within the TPA timeframe. In the event that an ambitious  agreement cannot be reached within the TPA timeframe, members may be  forced to consider extending the talks or concluding them with more  modest results.
subsections: section_title: Expiration of TPA Is Seen as a Hard Deadline
paragraphs: Generally seen by the United States and other WTO members as a hard  deadline, the expiration of TPA on July 1, 2007, is a motivating factor to  concluding the negotiations. Failure to meet that deadline would risk  expiration of TPA and make U.S. approval of an agreement more difficult.  The Doha Round agreement would be eligible for approval under TPA,  provided it was signed by the president before July 1, 2007, when the  authority lapses. Continuing negotiations without TPA is possible but  would jeopardize the president’s ability to present a final Doha agreement  to Congress for an “up or down” vote within a fixed period of time.  Congress would then be in a position to avoid acting on the legislation or to  demand that certain parts of the agreement be renegotiated. According to  USTR, the WTO agreement would need to reach Congress by the spring of  2007 to meet the TPA deadline. As discussed later, renewing TPA is not  presently contemplated. (When TPA was renewed in 2002, after an 8-year  lapse, the legislation passed the House of Representatives by only three  votes.)
section_title: Most Members Continue to Profess High Ambition and Work Has Resumed in Earnest
paragraphs: Most WTO members maintain that they are committed to the goal of  achieving an ambitious Doha agreement. The concept of ambition refers to  the scope and level of trade liberalization to which WTO members are  willing to commit. A high level of ambition, for example, would result in a  comprehensive agreement in which members commit to significant  reductions in tariffs, subsidies, and other trade barriers across most, if not  all, core issues under negotiation. Such a robust agreement should result in  a strengthened and measurably freer global trade environment and added  impetus for economic growth and development. An outcome with a low  level of ambition, on the other hand, would result in little actual trade  liberalization and create few new opportunities for growth.
WTO members and the Director-General continue to work on ways to  facilitate the successful conclusion of the negotiations. Since the talks  resumed in late January 2006, negotiators have been engaged in a flurry of  activities designed to speed up the process and find practical ways to  narrow their differences. These include holding a series of mini- ministerials among small groups of WTO members and intensified bilateral  consultations, setting more interim deadlines, developing questionnaires  and reference papers to advance dialogue, and conducting simulations on  the effects of tariff cuts under various scenarios. In February, Director- General Lamy indicated that these activities represented a needed shift  from general principles to discussion of concrete numbers and text, and  were resulting in a heightened awareness of the need for movement by all  players, in concert, toward a middle ground. At that time, he stated that he  had no indication that agreeing on modalities would not be possible by  April 30, 2006. Shortly thereafter, U.S. Trade Representative Portman  reported that the United States and the EU were making progress in  narrowing some differences on agriculture. In addition, the first deadline  since the Hong Kong ministerial was successfully met, as members  submitted plurilateral requests in the services negotiations by the agreed-to  deadline of February 28, 2006. Over 14 requests for market access in  sectors such as financial and express delivery services were submitted,  with the United States participating in 10; more are expected.
section_title: Members Further Motivated by Risks of Forfeiting Potential Economic Benefits
paragraphs: Also motivating the negotiations is the risk of foregoing the expected  benefits from a successful Doha agreement. The economic benefits from  trade liberalization occurring as a result of the Doha Round could be  significant. The Organization for Economic Cooperation and Development  and trade experts in general agree that only a comprehensive multilateral  process of negotiation, in which political and economic trade-offs are  maximized, can realize all the benefits of market opening and rules  strengthening. Agricultural reform in particular has largely been kept out of  regional agreements and would need to involve the present WTO  protagonists to be meaningful. Some estimates, as reported in a  Congressional Research Service report, indicate that economic gains  could be as high as $574 billion globally and $144 billion in the United  States. Other estimates are more modest. For example, a 2005 World  Bank study projects global gains ranging from $84 billion to $287 billion  annually by the year 2015, while a Carnegie Endowment study predicts  income gains of $40 to $60 billion from what it deems plausible outcomes  of the Doha Round. Although this represents a small share of global and  U.S. income, some economists and development advocates argue that  global trade liberalization—particularly of agricultural products and other  products of interest to developing countries—could still play a role in  promoting economic opportunity and alleviating poverty. For example, the  additional income would equal or surpass aid flows to developing  countries, and leading developing country exporters such as Brazil, India,  China, Thailand, and Argentina would stand to capture sizeable gains.
Nevertheless, such projected overall gains can mask important differences,  and several authoritative studies suggest that some groups and nations face  potential losses and near-term adjustment costs that merit particular  consideration in the negotiations.
section_title: Clearer Outlines of a Grand Bargain Enable Concerted Effort
paragraphs: Another factor that could facilitate reaching agreement in the negotiations  relates to the outlines of a “grand bargain” (the necessary trade-offs, or  benefits and concessions, among the players) that, according to some  observers, are becoming more apparent. According to WTO Director- General Lamy, each country or group now knows what it needs to do. The  United States, for example, is expected to make further reductions to its  domestic agricultural subsidies and clarify how it will handle  countercyclical payments to compensate farmers for low commodity  prices, and the EU is expected to reduce its domestic agricultural  subsidies and cut agricultural tariffs. In return, large developing countries  such as Brazil, India, and China are expected to lower barriers to  agriculture, industrial goods, and services sufficiently to create new market  opportunities. In general, other developing countries would be asked to  liberalize as their capacity allows and would benefit from special treatment  and trade capacity building assistance. The clarity of the trade-offs  necessary for a deal—although requiring difficult reforms—could result in  a concerted effort among key nations to bridge their differences and  address areas of importance to their trading partners.
section_title: Impasse on Agriculture Continues to Constrain Progress
paragraphs: Despite indications of an outline for a “grand bargain,” the negotiations to  date have centered on agriculture and remain deadlocked on this issue. In  mid-February, and again in late March, U.S. Trade Representative Portman  remarked that the negotiations have largely lost the momentum generated  by the United States’ October 2005 proposal on agriculture. According to  WTO Director-General Lamy, the United States, the G-20, and the Cairns  Group regard the EU’s market access offer as inadequate. Since Hong  Kong, the EU has held firmly to its position that its October 2005 offer is  serious and that others must first make concrete and commercially  meaningful proposals in areas of interest to the EU before it would even  contemplate improvements in its offer. According to the EU, these would  restore needed “balance” among the key players’ market access interests.  However, it remains unclear whether the European Commission has the  flexibility to improve its October offer. In fact, a March 2006 memo to the  European Commission signed by 13 of its 25 member nations stated that  the EU’s October 2005 offer “exhausted and may have exceeded” all the  room for maneuver they had on domestic support and market access, and  that even improved offers on NAMA and services would not justify an  improvement. The United States also faces pressure from many WTO  members to improve and clarify its agricultural offer, particularly on  domestic support. Brazil and India, negotiating on behalf of the G-20,  maintain that until there is more movement on agriculture, they will not  negotiate reciprocal concessions on the other core issues—namely NAMA  and services. They also insist that any cuts in NAMA and services must be  proportional to those by developed countries on agriculture and that, in  general, developed countries should cut their tariffs more than developing  countries. As a result, they argue, developed-country demands for across- the-board cuts that harmonize tariff levels across countries and bring  developing-country tariffs below presently applied rates are excessive. A  group of 11 developing countries that includes Brazil and India recently  stressed that they need flexibility to shield products from liberalization so  that they can pursue industrial policies and manage structural adjustment.  A March mini-ministerial among six key players—the EU, the United  States, Japan, Australia, Brazil, and India—failed to yield breakthroughs.  Rather than moving in concert, as they had pledged in January, players  signaled little or no flexibility, according to reports. Since the meeting, U.S.  Trade Representative Portman and Secretary of Agriculture Mike Johanns  have said publicly they are increasingly doubtful that sufficient “political  will” exists to conclude a deal in 2006.
section_title: “Political Will” to Break Deadlock Still Absent and Timing for Making Hard Political Choices Is Not Propitious
paragraphs: Breaking the impasse over agriculture remains key to reaching agreement  on the whole of the Doha agenda. However, the political will to liberalize  and make the quality of offers and concessions necessary to break the  impasse is not yet evident. In addition, the political timing of elections  scheduled for 2006 in several countries, including the United States, the  EU, and Brazil, could make concessions at this time even more difficult.
In the United States, 2006 is a congressional election year, and Congress  already seems to be divided on support for further trade liberalization.  Faced with increasing trade deficits, heightened competition from China,  and workers’ displacement as jobs move overseas, the approval of free  trade agreements has become a difficult proposition. Congressional  deliberations on the Dominican Republic–Central America Free Trade  Agreement in 2005 were extremely contentious, and it passed Congress by  only two votes. U.S. Trade Representative Portman has attempted to  rebuild bipartisan consensus on U.S. trade policy. However, some leaders  in Congress have publicly stated that unless the United States gains  significant market access on agriculture, NAMA, and services—particularly  in the large developed and developing nations that U.S. business groups  have identified as liberalization priorities—they will not agree to a deal.
Timing is sensitive for other reasons as well. For example, most provisions  of the present U.S. farm bill expire in September 2007, and Congress will  begin work on the legislation to reauthorize U.S. farm programs in 2006.  Congressional leaders want to take into account the framework likely to  emerge from the WTO negotiations when drafting a bill, in part to avoid  exposing farmers to the uncertainty associated with WTO challenges to  U.S. programs. However, some are skeptical that a WTO agreement will be  completed in time and urge the drafting of legislation independent of WTO  negotiations. Other congressional members and some farm organizations  advocate the extension of the current farm bill until the outcome of the  Doha negotiations is clear. In the meantime, certain members of Congress  have urged the administration not to “tie their hands” in drafting a new  farm bill and have asked executive branch agencies to coordinate closely  with congressional committees to ensure that they can work with any  result being negotiated at the WTO.
Other key players also face political constraints. The EU’s current political  problems range from member states’ rejection of the EU constitution to  violent protests by disaffected immigrants and youths. One expert recently  noted that EU budget negotiations in December did not deliver an  agreement to cut back on the EU’s agricultural support spending, as some  EU members such as the United Kingdom had hoped. Instead, only  agreement to review spending in 2008-2009 was achieved. France, in  particular, has been adamant in its opposition to any further EU  concessions on agriculture in the WTO negotiations, but it is not alone. EU  Commissioner Mandelson has recently affirmed that the EU member states  are united in insisting that all main parties to the talks should be prepared  to offer more to get more in the talks, while stressing that others need to  offer more in areas of interest to the EU. Brazil will hold presidential  elections in the fall of 2006; however, its negotiating strategy is not  expected to change. In its powerful role as leader of the G-20 and as one of  the nations with the most to gain from the negotiations, Brazil is likely to  hold fast to its position that any movement on NAMA and services will be  proportional to (and dependent on) what it achieves in agriculture. India’s  new government has kept its markets open to certain imports, but remains  reticent about commitments to liberalize its agriculture and industrial  markets further; the government’s stance is attributed to the perceived  benefits of retaining “policy space” for development, and concerns that its  many small domestic producers would be unable to withstand heightened  competition from China and other foreign nations. Several officials stated  that they believe China’s rise as a manufacturing and export power has  made many nations wary of committing to cut tariffs at the WTO. China, in  turn, has not played a visible role in pressing for liberalization in the Doha  negotiations.
These political constraints have led some observers and stakeholders to  propose high-level political intervention to break the impasse. Notably,  some trade experts and at least two heads of state have suggested a “trade  summit” at which national leaders from key countries such as the EU, the  United States, Brazil, and India could meet to make the commitments  necessary in the core negotiating areas and break the impasse. In early  March, British Prime Minister Tony Blair and Brazilian President Luiz  Inacio Lula da Silva issued a public call for such a WTO summit. On the one  hand, they recognize that this action would require commitment to  strengthening the world’s economy and global trading system at a time  when protectionist tendencies may be on the rise. Yet, they argue that the  risks of letting the Doha talks fail or languish in uncertainty would be  contrary to members’ and the institution’s best interests. U.S. officials offer  mixed reactions to the idea of a “trade summit”: some think a leaders’  meeting may be desirable if the ministers’ efforts fail, and others question  its usefulness. U.S. Trade Representative Portman, for example, recently  stated that summits between the leaders of Britain and France within the  EU, rather than broader international summits, may be more productive.
section_title: Against Looming Deadlines, Many Difficult and Time- Consuming Steps Remain
paragraphs: Shortly after the Hong Kong ministerial, the Director-General estimated  that 40 percent of the work necessary for completing the negotiations  remained; he noted that the most recent 5 percent of the work had taken  nearly 17 months to complete. However, just over a year remains before the  president would have to enter into a final WTO agreement to qualify for  TPA consideration by Congress. Keeping to the deadlines is critical if the  major issues are to be dealt with and necessary steps completed, according  to U.S. and WTO officials. However, the track record for meeting deadlines  in these negotiations is not promising. We noted in our last report that the  talks were unlikely to conclude before December 2006, which would be 2  years after the originally established deadline of January 2005. Indeed,  most interim deadlines in the negotiations have been repeatedly deferred.
Even if a political breakthrough on agriculture were to be achieved, U.S.  and WTO officials agree that finalizing each country’s schedule of WTO  commitments on agriculture, NAMA, and services would be time- consuming, with little margin for missed deadlines (see fig. 3 for a timeline  of negotiation deadlines in 2006). First, members must make up for lost  time after missing the critical deadline of April 30, 2006, for agreeing to  modalities in agriculture and NAMA. This means they must agree on the  formulas, thresholds, dates, and other numerical benchmarks that  members will be committed to meet when they revise their current WTO  commitments. However, to finalize these commitments, a host of technical  issues fraught with political and practical implications must be addressed.  In February 2006, for example, the chairman of the negotiating group on  agriculture presented a list of 70 questions that he believed would need to  be addressed to complete modalities. In mid-March, a U.S. official told us  that WTO members had been focusing on about 15 modalities issues but  had not come close to compromise on any. In NAMA, meanwhile, the  negotiating chair identified 14 issues in his March 27 report that still need  work to finalize modalities—particularly the tariff reduction formula,  treatment of unbound tariffs, and flexibilities for developing countries. The  list did not include how to interpret the linkage between ambition in  agriculture and NAMA established at Hong Kong, which has since been the  topic of heated debate.
Second, once modalities are agreed to, the United States and other  members must take a series of important and time-consuming steps to  reach a final agreement. For example, members must draft revisions of  their national tariff schedules to indicate how they intend to meet their  modalities commitments for each product or tariff line. The draft  commitment schedules in agriculture and NAMA are to be completed by  July 31, 2006. A U.S. official told us that only when the draft schedules are  submitted will other members see which products will be liberalized. Then,  a process of verifying schedules, finalizing sectoral agreements, and  bargaining among individual members (known as “request–offer”) begins.  According to U.S. officials, verification is critical because the modalities  text will allow different interpretations of commitments, and only  countries’ national schedules are legally binding. They said that most  experienced observers agree that this process is vital to achieving intended  results and may require 6 to 8 months to complete. Even if the current  schedule for submitting schedules is met, little time would remain in 2006  to do this work.
Third, as indicated in table 3, before and after an agreement is finally  entered into, the United States must take certain steps to comply with TPA.  The president must notify and solicit input from Congress and ask the  International Trade Commission (ITC) for an assessment of the  agreement’s likely impact on the U.S. economy and specific industries  before signing an agreement. The agreement itself must be entered into  before July 1, 2007. Once an agreement is entered into, the U.S.  administration would have to draw up an implementing package that would  include implementing legislation and a plan, known as a statement of  administrative action, to carry out the agreement under existing law; this is  likely to be a laborious effort, according to U.S. officials. The  implementation package for the Uruguay Round, for example, filled  hundreds of pages. U.S. officials said the plan must specify how existing  U.S. programs, regulations, and legislation will be adjusted to comply with  WTO commitments. The implementing package, one official noted, must  also contain a series of reports (e.g., an analysis of how the agreement  serves U.S. commercial interests) and a description of how the agreement  meets TPA-mandated negotiating objectives.
Fourth, a series of other complex and difficult issues that are crucial to  some members may need to be resolved before a final WTO agreement is  possible; however, WTO members have largely postponed dealing with  them until after the core issues are resolved. This sequential approach— putting off some issues until other issues are decided—puts further stress  on the time available to conclude an agreement. For example, a variety of  developing-country concerns and calls for changes to WTO rules in areas  such as antidumping, trade facilitation (customs reform), and services are  on the agenda; several of these issues may prove intractable. The cross- cutting issue of erosion of preferences illustrates the complexities. A  number of WTO members are small developing countries with economies  dependent on one or two commodity exports. Currently, some of them rely  heavily on the preferential tariff treatment they receive for their exports in  the EU, the United States, and other developed countries. As a result, they  regard reducing worldwide tariffs as a clear threat to their economic well- being. Yet foregoing or delaying the benefits of multilateral liberalization so  these countries can retain their preferred access is not acceptable to many  other WTO nations. A seminar to explore options for dealing with this issue  was held in April 2006.
section_title: Difficulty Foreseen in Meeting Deadline with an Ambitious Outcome Leads Experts to Float Other Options
paragraphs: WTO member states still say that they remain committed to the goal of  concluding the Doha Round with robust results by the end of 2006. The fact  that all members continue to be engaged in efforts to accomplish this task  is a positive sign; if the political will can be found to accommodate each  others’ ambitions and produce an acceptable “grand bargain,” then it would  be difficult but not impossible to conclude the Doha Round successfully  within the TPA timeframe. However, the limited progress to date and the  significant amount of work remaining has raised questions about the  feasibility of an ambitious outcome by the 2006 deadline, particularly  without more active leadership from the highest levels. A January poll of  negotiators, policy makers, and experts located in Geneva and key country  capitals revealed that none of the Geneva respondents believe WTO  members will meet their goal for completing the negotiations in 2006 and  only 2 percent of all respondents believed they would meet the April 30  modalities deadline. Moreover, the officials and experts we consulted  believe that by July 2006, it will be clear whether the goal of completing an  agreement within the TPA timeframe can be met. Backloading modalities  on agriculture and NAMA to July would, however, “guarantee failure,”  according to WTO Director-General Lamy. These concerns have led  numerous experts and observers to suggest that there may be different  outcomes, including (1) no results in the round, (2) negotiations continuing  beyond mid-2007 with uncertain results, or (3) conclusion of the round  with modest results within the TPA timeframe. Each involves trade-offs. 1. No results in the round. At Davos in late January, the EU Trade  Commissioner was quoted as stating that so little was being offered by  other countries that the EU would stand to lose next to nothing if the Doha  negotiations failed. (His official remarks since then, however, emphasize  the EU’s commitment to Doha’s success, while stressing the need for  reciprocity.) In February, WTO Director-General Lamy indicated that  without sufficiently ambitious results, there will be no Doha outcome. U.S.  Trade Representative Portman has said the United States is committed to  doing everything it can to bring an agreement together. Yet he added that if  the Doha negotiations are not concluded by the end of 2006, “there is a real  danger the Doha Round could drift into a long, unpredictable period of  stagnation.” Some analysts and business groups also warn the round has  gone off course for lack of political will, and accepting various premises for  avoiding liberalization; they say that a pause or collapse would be better  than reaching a “bad deal.” Yet a complete collapse of the Doha Round is  generally seen as the least desirable outcome by observers, who believe  that members will try to avoid total failure because so much is at stake. In  addition to forfeiting the economic and welfare gains expected from Doha’s  successful conclusion, WTO Director-General Lamy and numerous  observers warn that failure to achieve agreement may pose risks to the  credibility of the WTO as an effective or even relevant institution. Although  the WTO itself—with its extensive set of binding commitments and vast  coverage in terms of country membership and world trade volume—would  no doubt continue, experts caution that Doha’s failure could strain the  global trading system. For example, Director-General Lamy has expressed  the view that developing countries, particularly the smallest and weakest,  would be among the biggest losers. Others say one potential outcome of a  failed round could be the proliferation of regional and bilateral trade  agreements, further weakening the “most favored nation” principle—the  concept of equal treatment for all members that is a pillar of the  multilateral trading system. The United States has already announced its  intention to move vigorously in 2006 to negotiate new bilateral and regional  agreements. In fact, some in Congress have encouraged the United States  to pursue bilateral free trade agreements with countries such as Korea, in  part to encourage countries that are resisting liberalization at the WTO to  take notice. Other WTO functions, such as the legitimacy of the dispute  settlement system, also could be weakened. 2. Negotiations continue beyond mid-2007 with uncertain results.  Another possible outcome would be to continue the talks in the hope of a  more robust outcome at a later date. Experts note that past rounds have  taken longer than originally planned, and the last round—which involved  fewer countries—took 7.5 years to complete. However, because of the  importance of TPA for U.S. ratification, it is unclear whether countries  would choose to continue negotiations without TPA or let the negotiations  pause until TPA is extended or renewed. One scenario would be to  continue the negotiations without TPA, with the hope that TPA is  eventually renewed, although congressional observers believe that  extension or renewal of TPA is an uncertain and difficult proposition in the  near term. A second scenario would be to put the negotiations on hold for  an indefinite time until TPA is extended or renewed. Some experts think  that renewal or extension of TPA would probably have a better chance if it  were linked to an extension of the U.S. farm bill or if the Doha negotiations  showed potential of concluding with an ambitious result. Because of these  uncertainties, the difference between outright failure of the round and  continuing or suspending the negotiations may only be clear after some  years have passed.  3. Concluding the round with modest results within TPA’s timeframe.  This scenario would avoid the risks of outright failure and the uncertainty  inherent in continuing the talks beyond mid-2007. However, a modest  outcome may not be acceptable to many WTO members as it may not  include sufficient gains to offset the costs; or—in trade negotiators’  language—the agreement would not result in a “balanced package.” EU  Trade Commissioner Mandelson stated publicly early in 2006 that the EU  would “reluctantly settle” for a minimalist outcome, but WTO Director- General Lamy said a “cheap round is not an option,” and U.S. Trade  Representative Portman quickly rejected “Doha-lite” as falling short of  success and being difficult to promote domestically. In addition, a more  modest package would leave countries with more ambitious goals little  alternative but to pursue other avenues for liberalization, such as bilateral  agreements.
section_title: Concluding Observations
paragraphs: WTO members undertook an ambitious set of goals when they launched  the Doha Development Agenda more than 4 years ago. Our May 2005 report  ended by noting that some of the experts we had consulted were confident  that an ambitious, balanced outcome of the round could be attained—if  2005 resulted in sufficient progress. Other experts warned that hard  decisions were necessary and time was short if an outcome living up to  Doha’s promises were to be achieved. Progress in 2005 through the Hong  Kong ministerial, however, was considerably less than WTO members  hoped. With nearly all tough decisions put off until 2006, the tension  between members’ original high ambitions and the TPA time frame has  become acute. This is evident in the increasing divide between the official  statements of WTO members and the expectations of experts on whether  the round can be completed before TPA’s expiration on July 1, 2007. U.S.  officials often call the Doha Round a “once in a generation opportunity”  because the last global trade round took a decade to launch and complete  and another decade to implement. WTO Director-General Lamy recently  stressed that WTO members will soon face the “moment of truth” for the  Doha Round. In part for this reason, some observers expressed dismay at  the timing of the president's announcement that he was nominating U.S.  Trade Representative Portman to be Director of the Office of Management  and Budget. At press time, WTO Director-General Lamy had just announced  the April 30 modalities deadline would be missed, necessitating a shift to  continuous text-based negotiations in the coming weeks. He urged  members to deal coolly and constructively with the situation, avoiding  recrimination and showing fresh determination to accelerate progress.   With just over a year left to produce an agreement that qualifies for TPA, it  remains unclear whether the WTO can create an environment where  members perceive it is in their interest to make the significant changes in  their current positions, and other decisions, that cumulatively would fulfill  the vision of the Doha Development Agenda.
section_title: Agency Comments and Our Evaluation
paragraphs: We requested comments on a draft of this report from the U.S. Trade  Representative, the Secretary of Agriculture, the Secretary of Commerce,  and the Secretary of State, or their designees. The Assistant U.S. Trade  Representative for WTO and Multilateral Affairs indicated general  agreement with the report’s conclusion that the WTO Doha negotiations are  not where they should be and provided us with several technical  comments, which we incorporated as appropriate. The Department of  Commerce’s Deputy Assistant Secretary for Agreements Compliance  indicated that, overall, the report fairly portrays the state of the  negotiations and the key problems U.S. negotiators are facing; they  provided several technical comments on rules negotiations, which we  incorporated. The Department of Agriculture’s Director, Multilateral Trade  Negotiations Division, International Trade Policy, Foreign Agricultural  Service, raised a minor point about the state of discussions on ad valorem  equivalents, which we incorporated. The Department of State’s Director of  Multilateral Trade, Bureau of Economic and Business Affairs, did not raise  any substantive concerns with the report.
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, this report will be  available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  at (202) 512-4347 or yagerl@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this reported are  listed in appendix II.
section_title: Objectives, Scope, and Methodology
paragraphs: In this report, we (1) provide the status of the Doha negotiations on the eve  of the Hong Kong ministerial, (2) review the outcome of the Hong Kong  ministerial, and (3) discuss the prospects for concluding the Doha Round  before U.S. Trade Promotion Authority (TPA) expires in July 2007.
We followed the same overall methodology to complete all three of our  objectives. We obtained, reviewed, and analyzed documents from a variety  of sources. From the World Trade Organization (WTO), we analyzed the  2001 Doha ministerial declaration; the Doha work program decision  adopted by the General Council on August 1, 2004, known as the “July  framework agreement”; the final and earlier versions of the December  Hong Kong ministerial conference declaration; reports by the Director- General and negotiating chairs; and negotiating proposals and other  documents from WTO member countries. From U.S. government agencies  and foreign country officials, we obtained background information  regarding negotiating proposals and positions. We also obtained  information on day-to-day developments from trade publications.
To assess the status of the Doha negotiations before Hong Kong, we met  with a variety of U.S. government agencies, including the Office of the U.S.  Trade Representative (USTR) and the Departments of Agriculture,  Commerce, and State, to obtain information on progress on the  negotiations and on the issue areas and factors affecting the negotiations.  We also met with representatives from Brazil in Washington, D.C. Further,  we met with officials from the Mauritius Sugar Syndicate, the Food Trade  Alliance, the National Farmers Union, and the National Cotton Council. In  addition, we attended conferences and seminars, such as those sponsored  by the American Bar Association in partnership with the Washington  International Trade Association, and the Global Business Dialogue.
With the assistance of USTR and the State Department, in October 2005 we  traveled to WTO headquarters in Geneva and European Union (EU)  headquarters in Brussels. We met with WTO member country officials at  each location, including those from the EU, Japan, Mauritius, Australia,  Benin, Burkina Faso, Chad, Mali, and members of the African, Caribbean,  and Pacific group. We also met with WTO officials, including the industrial  (nonagricultural) market access, services, and trade facilitation negotiating  group chairs. Upon returning from our trip, in November 2005, we briefed  your staff on the status of the Doha negotiations prior to the Hong Kong  ministerial conference.
To assess the outcome of the Hong Kong ministerial conference, we  attended the Hong Kong conference in December 2005. In Hong Kong, we  attended USTR congressional briefings and went to press conferences and  meetings open to country delegates. We also collected the views of experts,  relying primarily on (1) published articles in reputable sources such as  Foreign Affairs and Foreign Policy; (2) publications put out by a range of  organizations following the ministerial and Doha talks, such as the Institute  for International Economics, the International Food and Agricultural Trade  Policy Council, the Center for Economic Policy Research, the International  Centre for Trade and Sustainable Development, the Center for Global  Development, Bryan Cave, the American Society of International Law,  Oxfam, and the South Centre, as well as officials at the World Bank, the  Organization for Economic Cooperation and Development, the EU, and the  Congressional Research Service; and (3) seminars and conferences  sponsored by the Department of Agriculture and groups such as the  Georgetown Law School and the American Bar Association, the Cordell  Hull Institute, the American Enterprise Institute, Women in International  Trade, the Washington International Trade Association, the Woodrow  Wilson Center for International Scholars, the Center for Strategic and  International Studies, and the Carnegie Endowment for International  Peace. Though many of these seminars and conferences we attended  occurred in Washington, D.C., collectively they represent a range of  perspectives from “think tanks,” government, academia, business,  nongovernmental organizations, and former trade officials in the United  States and elsewhere. Also, we reviewed news media reports, news  releases on the developments at the ministerial conference, and statements  about the outcome of the ministerial conference from the WTO, U.S. and  foreign governments, and other international organizations.
To assess prospects for success, we relied on the perspectives of  participants and experts, as well as our own analysis. We defined success  with an “ambitious outcome” as meeting WTO members’ originally agreed  goals and U.S. objectives as set forth in TPA legislation and associated  requirements.
We performed our work from May 2005 through March 2006 in accordance  with generally accepted government auditing standards.
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Kim Frankena, Assistant  Director, Ann Baker, Lynn Cothern, Juan Gobel, Ernie Jackson, Venecia   Rojas Kenah, and Marisela Perez made key contributions to this report.