The Doha Development Agenda: The WTO Framework Agreement
Released: 2005-02-10T00:00:00

Background and Overview of the Framework Agreement

The Framework Agreement is the latest achievement in the Doha Development Agenda(DDA) round of trade negotiations at the WTO. This round of trade negotiations was launched atthe 4th Ministerial of the WTO at Doha, Qatar in November 2001. Trade ministers set an ambitiousagenda to negotiate an accord by January 1, 2005. The 5th Ministerial Conference, to take place in2003, would serve as a mid-term review for the negotiations.

The work program devised at Doha folded in continuing talks (the built-in agenda) onagriculture and services and launched negotiations on the reduction or elimination of non-agricultural(industrial) tariffs, clarification and improvement of disciplines for existing WTO agreements onantidumping and subsidies, and topics relating to special and differential (S&D) treatment fordeveloping countries and assistance to developing countries with the implementation of existingWTO commitments. Trade ministers at Doha agreed to continue discussions on the "Singaporeissues" (government procurement, trade facilitation, investment, and competition policy) and tolaunch negotiations if an "explicit consensus" was reached on these issues at the 5th MinisterialConference in 2003. The Doha Ministerial Declaration also directed negotiators to resolve a disputerelated to the ability of least developing countries to access generic medicines for HIV/AIDS andother epidemics.

The Doha Ministerial documents paid special attention to the concerns of developingcountries, and the round was formally entitled the Doha Development Agenda. This emphasis waspartly in order to get the developing countries -- a majority of the WTO's membership -- to agree tothe commencement of the round. However, some developing countries had difficulty inimplementing their Uruguay Round commitments, and many developing countries have expressedconcern about undertaking new obligations. At Doha, negotiators agreed to resolve issues related totheir implementation of the Uruguay Round agreements, to negotiate special and differentialtreatment for developing countries in the new round, and to provide technical assistance in thenegotiations and implementation of the agreements.

Negotiations proceeded at a slow pace. Several deadlines for agreement on negotiatingmodalities -- i.e. methodologies by which negotiations are conducted -- were missed in theagriculture, industrial market access, and other negotiating groups. In addition, deadlines forsubmitting requests and offers in the services negotiations were also missed by many participants. Negotiators looked toward the 5th Ministerial -- which took place September 10-14, 2003 in CancÃºn,Mexico -- to resolve the modalities. In the weeks before CancÃºn, negotiating documents to achievethis resolution were criticized by all sides, and expectations for the Ministerial were reduced fromagreeing on modalities to achieving an agreement on the framework for negotiating the modalitiesto be used in future negotiations.

From CancÃºn to Geneva. The CancÃºnMinisterial, however, failed to achieve even these expectations. Trade ministers at CancÃºn becameembroiled in disputes over agriculture and the Singapore issues. The G-20, an informal group ofdeveloping countries led by Brazil, India, China, and South Africa, demanded substantialconcessions from developed countries in the agriculture negotiations in response to perceived UnitedStates-European Union (EU) collaboration. Some developing countries also refused to support thebeginning of negotiations over the Singapore issues, which had been pushed by the EU, because ofsovereignty issues or capacity constraints. In the end, deadlock over the Singapore issues broke upthe talks before agriculture issues were even formally discussed.

Subsequent to the collapse of the talks, U.S. and EU negotiators criticized both the substanceand tactics of the G-20 group. Developing countries defended their actions as representing theirparamount interest in breaking down the agricultural barriers and subsidies in the United States andthe EU. Initially, U.S. reaction in the aftermath of the Ministerial was to give increased emphasisto the negotiation of bilateral and regional free trade agreements (FTA). The European Unionundertook a review of its policy towards the WTO and multilateral trade negotiations.

However, signs of movement in the negotiations could be detected by the beginning of 2004. In January, U.S. Trade Representative Robert B. Zoellick sent a letter to the 147 WTO tradeministers expressing the hope that 2004 would not be "a lost year for the WTO negotiations." Whileeschewing concrete proposals, the letter signaled U.S. reengagement with the process. The EU'sacceptance, meanwhile, of the elimination of agricultural export subsidies "by date certain" alsomoved the negotiations along. Compromise was also achieved over the negotiation of the Singaporeissues as the EU and others decided that the inclusion of competition policy, investment, andgovernment procurement in the round had to be abandoned if the negotiations were to move forwardin the face of developing- country resistance. Developing countries too played an active part innegotiations this year, first by India and Brazil negotiating directly with the developed countries (asthe so-called "non-party of five") on agriculture, and second by working toward acceptance of tradefacilitation as a subject for negotiation.

After intense negotiations in late July 2004, WTO members reached what has become knownas the Framework Agreement (or the July package) which provides broad guidelines for completingthe Doha round negotiations. The agreement contains a 4-page declaration, with four annexes (A-D)covering agriculture, non-agricultural market access, services, and trade facilitation, respectively. In addition, the agreement acknowledges the activities of other negotiating groups (such as those onrules, dispute settlement, and intellectual property) and exhorts them to fulfill their Doha roundnegotiating objectives. The agreement also abandons the January 1, 2005 deadline for thenegotiations, but instead sets December 2005 as the date for the 6th Ministerial to be held in HongKong.

U.S. Priorities. Throughout the Doha Round,increased market access for U.S. agriculture, industrial goods, and services has been the primary goalfor U.S. negotiators. In the agricultural negotiations, the United States has sought improved marketaccess, especially from developing countries, and the end of all export subsidies. The United Stateshas also sought expansive tariff liberalization in the non-agricultural market access talks, includingsupport for an early proposal for a "tariff-free world" by the year 2015 and for sectoral tariffelimination. The United States has also made cross-border trade in services a priority, reportedlyseeking to have services make up one of the pillars of the Framework Agreement. (1) The United States has beenless concerned with the disposition of the Singapore issues, with USTR Zoellick at one pointreportedly referring to them as a "distraction." (2) The United States has also sought to limit the scope of negotiationson disciplines to WTO rules, especially in light of Congressional support for maintaining currentU.S. trade remedy practices.

Previous rounds of trade liberalization were successful in reducing tariffs in the manufacturedgoods sector. That negotiated liberalization has proceeded further in this area perhaps is reflectedin the distribution of world trade. Of the $7.6 trillion exchanged in world trade in 2002, industrialgoods comprised 71.9%, agriculture 7.6%, and services 20.5%. Trade in services was only broughtunder world trade rules by the Uruguay Round's General Agreement on Trade in Services in 1995.Agriculture, though previously negotiated, remains a thorny issue for both producer and consumer,and developed and developing countries. The liberalization of these sectors potentially offers thegreatest boost to world trade, but also potentially the most wrenching changes to the societies thatundertake them.

The Agriculture Framework Agreement(3)

Introduction. The agreement on a framework forcompleting the agriculture negotiations in the DDA is contained in Annex A of the "July package." The Framework Agreement addresses the three "pillars" of agricultural trade liberalization identifiedin the 2001 Doha Ministerial Declaration: substantial reductions in trade-distorting domestic support;the phase-out, with a view to total elimination, of all export subsidies; and substantial improvementsin market access. (4) Failureto agree on a framework for the agriculture negotiations would have contributed to uncertainty aboutprospects for concluding the DDA and about the viability of the WTO as a global forum fornegotiating further farm trade liberalization. The Framework now becomes the basis forestablishing specific formulas, schedules, end dates and other parameters (referred to as"modalities") for achieving DDA objectives for agriculture during the next phase of negotiationswhich seem likely to continue into 2006.

U.S. aims for the DDA negotiations include substantial market opening for agriculturalproducts by all WTO members, especially, the developing countries. The United States wants allagricultural export subsidies eliminated. The United States has consistently maintained thattrade-distorting domestic support should be reduced substantially, but also wants to preserve"safety-net" farm income programs enacted in the 2002 farm bill. (5) The European Union (EU),while willing to eliminate export subsidies over time, wants an end to export credit guarantees andsome food aid programs that it claims are export subsidies. The EU also wants to maintain directdecoupled payments to farmers (along with payments linked to production) established underrecently enacted reforms of its Common Agricultural Policy (CAP). The developing countries, alarge and diverse group that constitutes a majority of WTO members, want special and differentialtreatment with respect to tariff or subsidy reduction. The poorest or least developed countries(LDCs) among them want to maintain the trade preferences they currently enjoy.

Many U.S. agricultural interest groups support multilateral agricultural trade liberalization.These groups believe that trade-offs possible in a comprehensive negotiation would result inimproved market prospects for U.S. agricultural exports. For most U.S. farm groups, the trade-offof most interest is substantial market opening by developing countries in exchange for substantialreductions in domestic support by developed countries. U.S. producers of import-sensitive crops(e.g., citrus, dairy, sugar, some fruits and vegetables), who feel disadvantaged by previous tradeagreements (e.g., NAFTA) or threatened by possible new agreements, are less supportive ofagricultural trade liberalization.

Key provisions in the agriculture framework address trade-distorting domestic support,export competition, market access, cotton subsidies, and other issues.

Trade-Distorting Domestic Support. Overall,trade-distorting support of agriculture will be reduced by means of a "tiered" or "banded" approachapplied to achieve "harmonization" in the levels of support. (6) Harmonization in this casemeans that WTO member countries having higher levels of trade-distorting domestic support willmake greater overall reductions. Developed subsidizing countries will make a "down payment" onthe overall cut by reducing trade-distorting domestic support 20% from bound (maximum permitted)levels of support in the first year after negotiations are completed. WTO member countries willmake separate reduction commitments in the components of trade-distorting support, i.e., amber box(most trade-distorting), de minimis (a category of spending now exempted from cuts if it accountsfor less than 5% of the value of production), and blue box (currently defined as payments based onfixed areas and yields; a fixed level of production or a fixed number of livestock).

Product specific amber box support will be capped at average levels according to amethodology to be negotiated; and the definition of the blue box will be modified to include directpayments that do not require production (e.g., U.S. counter-cyclical support) (7) , and capped at 5% of amember country's average total value of agricultural production during an historical period. Deminimis spending also will be reduced according to a formula to be negotiated. Non-trade distortingmeasures (green box) will be reviewed to ensure that they have no, or at most minimal, tradedistorting effects or effects on production. Developing countries will receive special and differentialtreatment for all types of trade-distorting support in the form of longer implementation periods andlower reduction commitments; least developed countries (LDCs) will not be required to make anycuts in domestic support.

Export Competition. By "the end date" to benegotiated, WTO member countries will eliminate: export subsidies, and export credits, creditguarantees or insurance programs with repayment periods beyond 180 days. By the same end date,WTO member countries will eliminate trade-distorting practices of exporting State TradingEnterprises (STEs) and the provision of food aid not in conformity with disciplines to be agreed,including disciplines to prevent commercial displacement. Developing country WTO members willbenefit from longer implementation periods for phasing out export subsidies. Furthermore, WTOmember countries will ensure that export credit programs appropriately provide for differentialtreatment in favor of least-developed and net food-importing countries. STEs in developingcountries which enjoy special privileges to preserve domestic price stability and ensure food securitywill receive special consideration for maintaining monopoly status.

Market Access. All WTO member countries(except the least developed countries -- LDCs) will reduce import tariffs using a tiered formula. Harmonization of tariff levels will be achieved through deeper cuts in higher tariffs. Tariffreductions will be made from bound, not applied, rates; higher tariffs will be subject to deeper cutswith some flexibility for "import-sensitive" products. The number of tiers (bands) and the tariffreduction for each band remain to be negotiated. WTO countries may designate a number (to benegotiated) of sensitive products for which "substantial improvement" in market access must beachieved through a combination of tariff quota increases and tariff reductions applied to eachproduct. Developing countries will be able to designate a number of products as "special products,"based on criteria of "food security, livelihood security, and rural development needs." These specialproducts will be eligible for more flexible treatment as regards market access. A Special SafeguardMechanism (SSM) will be established for developing countries, while a Special AgriculturalSafeguard (SSG) for developed countries (as currently provided for in the Uruguay RoundAgreement) remains under negotiation. (Safeguards permit reversion to previous tariff levels ifimports surge.)

Cotton. Cotton was not mentioned in the 2001Doha Ministerial Declaration. However, a number of African cotton producing and exportingcountries proposed a sectoral initiative on cotton that called for eliminating all trade-distorting cottonsubsidies and providing compensation for economic losses of African cotton producers whilesubsidies were phased out. (8) The United States, while not agreeing with the African proposal,worked with the African countries on a formulation in the Framework to address the cotton initiative. The "July package" stresses the importance of the sectoral initiative on cotton (the decision) , whilethe agriculture Framework (Annex A) provides that work on cotton will be carried out under all threepillars and that the DDA will work to achieve "ambitious results expeditiously."

Other Issues Addressed in the Framework. Theagriculture Framework states that "particular concerns of recently acceded countries will beeffectively addressed through specific flexibility provisions." This provision is viewed as aconcession to China who argued that it had already made substantial commitments in all three pillarsin its accession negotiations. Sectoral initiatives (e.g., a proposal for zero-for-zero tariffs in oilseedsadvanced earlier by the United States), differential export taxes (as employed by Argentina), andgeographical indications (GIs, protection for products with geographical names (9) , an important issue for the EUand some other countries) remain "issues of interest but not agreed." Disciplines on exportprohibitions and restrictions will be strengthened. Rules on agricultural trade policy monitoring andsurveillance will be enhanced so as to ensure transparency, including "through timely and completenotifications" with respect to commitments in the three pillars.

Implications for U.S. Agriculture. An eventualagreement on agricultural trade liberalization in the DDA round would have both market effects forthe U.S. agricultural sector as well as effects on U.S. agricultural policies and programs.

Market Effects. Market effects of global agriculturaltrade liberalization are difficult to estimate at this point in the negotiations because such specificsas the extent of tariff reduction, the timing for the elimination of export subsidies, or the percentagereductions in trade-distorting support remain to be negotiated. In general, however, substantial tariffreductions (or increased market access quotas) could result in expanded exports of many U.S.commodities including grains, oilseeds, cotton, and fruits and vegetables. Other U.S. commoditysectors such as dairy or sugar could experience more intense competition from foreign suppliers, butthose effects would be mitigated by designating such products as import-sensitive (as provided inthe Framework Agreement) and therefore subjecting them to longer phased reductions in tariffsand/or increases in quotas. Export subsidy elimination could also benefit a number of U.S.commodity sectors, e.g., dairy, meat and livestock products, and cereals by improving competitiveconditions in third-country markets, but tightening of disciplines on U.S. export credit programscould penalize producers of commodities that have benefitted from such programs, e.g., grains andcotton. Market effects of reducing trade-distorting domestic support should be to increase prices forcommodities that have benefitted from payments that encourage excess production and downwardpressure on prices.

Policy and Program Effects. The harmonizingapproach in the agriculture Framework suggests that others, notably the European Union (EU),would have to cut trade-distorting support more than would the United States. In the EU case, itsbound level of amber box support is currently (depending on exchange rates) around $80 billionwhile the U.S. bound level is $19 billion. According to U.S. trade negotiators, the United Stateslikely should have no difficulty in meeting the aim of cutting the sum of trade-distorting supportlevels by 20% in the first year as reductions would be made from "bound", or permitted, rather than"applied", or actual, levels. The U.S. Dept. of Agriculture (USDA) estimates that the U.S. boundlevel of domestic support under a new WTO agreement could be as high as $39 billion (the currentU.S. bound level of support for amber box spending plus estimates of the future bound levels of deminimis and blue box spending), while actual spending could be considerably less, rendering the20% cut in the first year meaningless for the United States. However, depending on the outcome ofthe negotiations, future cuts could be higher, provided that other countries also substantially reducetheir trade-distorting support and tariffs. Some in Congress have expressed opposition to cuts in"safety-net programs" put in place by the 2002 farm bill, as would be required by the agricultureFramework agreement. Cotton is the only agricultural commodity mentioned by name in theagriculture Framework. U.S. cotton producers object to this singling out of cotton for specialattention. (10)

The elimination of EU export subsidies has been a longstanding objective of U.S. agriculturaltrade policy as has requiring greater transparency by STEs such as the Canadian Wheat Board. Pressure from U.S. and developing country WTO members in the DDA round plus successivereforms of the EU's Common Agricultural Policy (CAP), which has reduced its reliance on exportsubsidies, led the EU to offer to eliminate them by a date certain. In exchange, however, the EUcountered that all forms of export subsidies, including U.S. export credit guarantees and food aid,should be eliminated. This trade-off between export subsidies and export credit and food aidprograms is reflected in the Framework Agreement. USDA's export credit guarantee programs,which have provided guarantees for about $4 billion of agricultural exports annually in recent years,apparently would be substantially altered by the agreement. Current U.S. export credit programs canguarantee financing of from 180 days to 10 years. (11)

U.S. food aid programs (e.g., P.L. 480 Title II commodity donations for humanitarianpurposes) which meet the criterion of not displacing commercial sales appear to be unaffected bythe Framework Agreement. (12) Although earlier versions of the Framework implied thatcommodity food aid would be eliminated in favor of cash grants, the agreed-upon framework statesthat "...(t)he question of providing food aid exclusively in fully grant form" will be addressed in thenegotiations. The role of international organizations vis-a-vis WTO member countries' food aidprograms will also be addressed in the negotiations.

The DDA and the Next Farm Bill. DDAnegotiations seem likely to be concluding just as Congress would be taking up a new farm bill tosucceed the six-year Food Security and Rural Investment Act of 2002 ( P.L. 107-171 ). Whileimplementing legislation, as called for in the Trade Act of 2002 (Title XXI of P.L. 107-210 ), wouldbe a vehicle for conforming U.S. law to a DDA trade agreement, farm bill changes may be neededto meet U.S. commitments in a final DDA agreement on agriculture. Farm bill programs that mostlikely would be candidates for change would include commodity price and farm income support(Title I of P.L. 107-171 ) and export and food aid programs (Title III of P.L. 107-171 ). Members andcommittees will be monitoring the continuing agriculture negotiations with attention to the economicbenefits anticipated from further global agricultural trade liberalization and to the adjustments thatcould accompany a new multilateral agricultural trade agreement.

Non-Agricultural Market Access(13)

Non-agricultural market access (NAMA) received less scrutiny than agriculture innegotiations for the Framework Agreement. The Framework integrated draft language on NAMAprepared for the CancÃºn Ministerial in September 2003; a text that was neither approved norconsidered at CancÃºn. In the Geneva deliberations, developed nations sought to include the CancÃºnlanguage wholesale, yet developing countries resisted. They insisted on a paragraph, included in thefirst paragraph of the text, indicating that "additional negotiations are required to reach agreementon the specifics of some of these elements," the elements being the formula, treatment of unboundtariffs, flexibilities for developing countries, participation in sectoral tariff modalities, andpreferential tariff beneficiaries. USTR Zoellick reportedly minimized the importance of thislanguage, emphasizing that it was about "specifics" of already agreed upon "elements." (14) However, the insistenceof developing countries to the incorporation of this language in the text, and not as a preamble orchairman's statement- implying a lesser legal status, indicates that developing countries place adifferent significance on this paragraph. Depending on the interpretation accorded it, this paragraphcould reopen many of the issues worked-out in the Framework text. It also reflects the continuedlack of consensus on many of the basic components of the market access negotiations.

Future progress in the market access negotiations rests on the resolution of several issues, onwhich the Framework Agreement often provides only general guidance. These include the modalityfor reducing tariffs, the binding of developing country tariffs, the issue of sectoral tariff elimination,and special and differential treatment (SDT) for developing countries. As indicated by the openingparagraph, inserted at the insistence of developing countries, none of these issues have been settled.

While other areas of WTO negotiations have received greater scrutiny in the Doha round,trade of industrial and primary products, the subject of the NAMA negotiations, continue to makeup the bulk of world trade. Nearly $5.5 trillion in manufactures and primary products were tradedworldwide in 2002, accounting for 72% of world trade activity. (15) In the United States,industrial and primary products accounted for 65% of exports and 79% of imports in 2003. (16) Hence, the outcome ofthese negotiations could have a substantial impact on U.S. trade patterns and on the world economy.

Tariff Reduction. The Framework Agreementendorsed the use of a non-linear formula applied on a line-by-line basis as a modality to conducttariff reduction negotiations. A non-linear formula can work to even out or harmonize tariff levelsbetween participants. This type of formula could result in a greater percentage reduction of highertariffs than lower ones, resulting in a greater equalization of tariffs at a lower level than before. Bycontrast, an example of a linear formula would be one that reduced tariffs by a certain percentageacross the board. Consequently, this formula would not change the relative tariff rates betweenmembers. A country with relatively high tariffs before undergoing the formula would still have hightariffs relative to other countries afterwards. This approach is generally favored by countries withhigh tariffs or certain tariff peaks that the country seeks to preserve. Certain non-linear formulas,such as an harmonization formula, seek to even out or harmonize the tariff rates among nations.

An harmonization formula would also work to reduce tariff peaks and tariff escalations,another stated goal of the declaration. Tariff peaks are considered to be tariff rates of above 15% andoften protect sensitive products from competition. Tariff escalation is the practice of increasingtariffs as value is added to a commodity. As an example of tariff escalation, cotton would come inwith a low tariff, fabric would face a higher tariff, and a finished shirt would face the highest tariff.Tariff escalation is often employed to protect import-competing, value-adding industry. Theemphasis on tariff peaks and escalation results from findings that the use of peak tariffs andescalations are particularly levied against the products of developing countries, as well as becomingincreasingly costly to the consumer in developed countries. (17) The Framework does notspecify implementation period for tariff cuts, but developing countries are to be afforded longerimplementation periods.

Tariff Binding. The Framework encourages thecontinued binding of tariffs. Tariffs are bound when a country commits not to raise them beyonda certain level. Therefore, binding has been seen as the first step in tariff reduction. Bound tariffsare often significantly higher than tariff levels that are actually applied, which has led to questionsas to the usefulness of reductions from bound rather than applied rates.

The United States supports reduction from applied rates, which would result in greater cutsto actually levied tariffs. Some contend that the use of the applied rate may serve as a disincentivefor countries to undertake unilateral liberalization. Countries would likely hesitate to undertakeunilateral tariff reductions if they know that multilateral liberalization efforts would use such ratesas a starting point. It may also increase the incentive to raise applied rates prior to negotiation. (18)

Under the Framework Agreement, tariff reductions would be calculated from the bound,rather than the applied, level. Reductions in unbound tariff lines would be calculated from twice thecurrently applied rate. Participants (i.e., developing countries) who have bound less than 35% of theirtariff lines would be exempt from tariff reduction commitments in the Round provided that they bindthe remainder of their non-agricultural tariff lines.

In addition, all tariffs would be bound in ad valorem terms; all remaining non ad valorem tariffs would be converted and bound by a methodology to be determined by negotiation. An advalorem tariff is set as a percentage of the value of an imported good, while a non- ad valorem tariffuses some other measurement such as a fixed rate per unit or weight of goods. While non-ad valorem tariffs are more prevalent in agriculture, they continue to be employed for non-agricultural tariffs andare not solely a developing country phenomenon. A recent study calculated that 4.2% of lines in theUnited States tariff schedule remained non ad-valorem and for Switzerland the figure was 82.8percent. (19)

Non-Tariff Barriers. The industrial market accesstalks also encompass negotiations on the reduction of non-tariff barriers (NTBs). NTBs include suchactivities as import licensing, quotas and other quantitative import restrictions, conformityassessment procedures, and technical barriers to trade. The Framework instructs members to submitnotification of NTBs by October 31, 2004 for negotiators to identify, examine, categorize and,ultimately, negotiate. The Framework "takes note" of several modalities by which negotiations onNTBs could proceed.

Sectoral Tariff Reductions. The Framework alsoidentifies sectoral tariff elimination as a modality for NAMA negotiations. The Framework instructsnegotiators to define issues of product coverage and participation. This represents a retreat fromprevious draft texts that specifically proposed sectors (electronics, fish and fish products, footwear,leather goods, motor vehicle parts and components, stones, gems and precious metals, and textilesand clothing) for sectoral tariff elimination. (20) While the text anticipates flexibility for developing countrymembers, it also stresses the importance of involvement "by all participants," thus discouraging thepossibility that developing countries could opt out of these negotiations.

Special and Differential Treatment for DevelopingCountries. The text affords several flexibilities to developing country members.The Framework permits developing countries longer periods to implement tariff reductions.Developing countries may also avail themselves of either of the following flexibilities: (1) applyingless than formula cuts for up to 10% of tariff lines provided that the cuts applied are no less than halfthe formula cuts and that the tariff lines do not exceed 10% of the value of imports; or (2) keepingtariff lines unbound, or not applying formula cuts for 5% of tariff lines provided they do not exceed5% of a member's imports. LDCs would not be required to apply formula cuts, nor participate in thesectoral cuts, but would undertake to "substantially" increase the level of bound tariffs.Developed-country participants and others are encouraged to grant LDCs duty-free and quota-freeaccess to their markets by a date not specified. Newly- acceded countries would also be givenflexibilities based on the market access commitments of their accessions. The Framework alsoacknowledges the challenge of designing tariff reductions for countries that are already beneficiariesto various preference programs such as the U.S. African Growth and Opportunity Act or theEuropean Union's Everything But Arms Initiative. In devising the formula, credit is to be given forautonomous liberalization in developing countries.

Services(21)

Background. Trade in services is only mentionedbriefly in the WTO negotiating framework and was given its own annex in the FrameworkAgreement only after proponents strongly argued for such treatment. Authors of initial drafts of theFramework had lumped services trade in with "other issues." "Services" refers to a broad range ofeconomic activities, essentially any economic activity that is not a tangible good, for examplefinancial services, tourism, transportation, and legal services.

Services account for a major and growing portion of the U.S. economy and for a good portionof the rest of the world economies. (22) In 2003, services accounted for about 58% of U.S. GrossDomestic Product (GDP), a sharp increase from 42% of GDP in 1965. In 2003, services industriesemployed 83% of the U.S. workforce, a substantial rise from 66% in 1965. (23) The World Bankestimates that in 2002, services accounted for 68% of total world GDP. (24)

Services, while important, play a smaller role in U.S. trade than they do in the U.S. economyas a whole. In 2003, services accounted for 30.1% of U.S. exports of goods and services and 14.1%of U.S. imports of goods and services. (25) Several factors may account for the smaller figure: mostservices must be bought and sold through direct contact between the buyer and seller and are notconducive to cross-border trade; while nations have reduced or eliminated tariffs and other barriersto trade in goods, they have been more reluctant to liberalize trade in services; and data limitationshave resulted in under-reporting of trade in services.

Services are bought and sold via four means or "modes": (1) cross-border trade; (2)consumption abroad where the consumer physically travels to another country to buy the service; (3)commercial presence where the service is provided by a firm in one country via its branch, agency,or wholly-owned subsidiary located in the country of the buyer; and (4) the temporary presence ofnatural persons where an individual supplier travels temporarily to another country to supply services(so-called mode 4 services). Negotiations in bilateral, regional or multilateral fora, to liberalize tradein services, focus on reducing barriers in one or more of these four modes.

Multilateral rules on trade in services are very new and were established under the GeneralAgreement on Trade in Services (GATS) as part of the set of agreements reached during the UruguayRound negotiations. They are administered by the World Trade Organization(WTO) which wasestablished on January 1, 1995 also as part of the Uruguay Round. The GATS contains basicprinciples and rules on trade in services, some of which, for example, national treatment andmost-favored-nation treatment, are parallel to long-established rules for trade in goods under theGeneral Agreement on Tariffs and Trade. Article XIX of the GATS required WTO members to begina new set of negotiations on services in 2000 as part of the so-called WTO "built-in agenda." It wasagreed before the Doha Ministerial that services negotiations would operate in a request-offer format.The new set of GATS negotiations began in February 2000, and during the remainder of that year,the members reviewed the status of commitments already made and developed a set ofguidelines. (26)

Doha Round Negotiations. The negotiations onservices were folded into the agenda of the new round at the November 2001 WTO Ministerial inDoha, Qatar. In their declaration establishing the agenda for the new round, the ministers affirmedtheir support for the work that had already been accomplished in the services negotiations. EachWTO member first indicates what general concessions they request from the other members andthen, separately, each member indicates what concessions it is willing to offer. Members stipulatedon the Doha documents that by June 30, 2002, GATS members should have submitted their requestsfor commitments from other members to liberalize trade in services and, by March 31, 2003, shouldsubmit their offerings of what their initial commitments would be toward liberalizing trade inservices in their economies.

The United States had completed its requests for commitments from other member countries on July 1, 2002. The U.S. requests call for many of the countries to improve transparency inregulations of services to boost efficiency across all services industries. In addition, U.S. requestscentered on reduction of trade restrictions in 12 service industries: telecommunications; finance;express delivery; energy; environment; distribution services; education and training; lodging andother tourism services; professional services; computer and related services; advertising services;and audiovisual services. (27)

Other countries, including the 15 members of the EU, submitted their own requests, includingrequests made of the United States to reduce trade barriers in services. Of note, is a request by theEU, Japan, South Korea, and Norway that the United States provide greater access to its markets forforeign maritime services providers. Japan, for example, points to the Jones Act of 1920, whichlimits shipping within the United States to vessels manufactured, owned, and operated by U.S.companies. The EU has also focused some of its requests on the U.S. financial sector, particularlyrestrictions on the foreign establishment of state-chartered subsidiaries, branches, or representativeoffices. (28)

On March 31, 2003, the United States submitted its offer on reducing trade barriers inservices to meet the deadline established in the Doha Ministerial statement. The U.S. offer covers15 areas: accounting services; advertising and related services; audiovisual and related services;distribution services; education and training services; energy services; environmental services;express delivery services; financial services; legal services; movement of natural persons (mode 4);small and medium-sized services enterprises; telecommunications, value-added network, andcomplementary services; and transparency in domestic regulation. (29)

The negotiations on services have gone slowly since the Doha Development Agenda waslaunched. Besides the United States, 43 other WTO members (the EU is counted as one member)have made offers on reducing their trade barriers. Some negotiators and other observers have arguedthat not much progress would be made until the WTO negotiators resolved how agricultural issueswould be addressed. (30) Developing countries were reluctant to make offers on services until they saw how far some of thedeveloped countries were willing to go on agriculture. Because the Framework Agreementaddressed many agricultural trade issues, supporters of liberalized trade in services are anticipatingthat the services negotiations will gain momentum.

Framework Issues. The Framework itselfmentions services only briefly because they were not the focus of the negotiations over theframework and the parameters of the negotiations had already been established as part of the "built-inagenda" and in the Doha Ministerial Declaration that launched the new round. The Frameworkreaffirms the commitments made in the Doha Ministerial Declaration and charges the negotiatorsto complete and submit their initial offers as soon as possible, to submit revised offers by May 2005and to ensure that the offers are of high quality. The Framework also charges the negotiators to bearin mind when making their offers the sectors and modes of supply that are of interest to developingcountries.

The negotiating Framework notes the particular interest that developing countries have inissues pertaining to mode-4 supply of services. A number of developing countries, includingAfrican countries and India, have complained that developed countries' offers to date have beenlargely deficient in the area of mode-4. They assert that the developed countries often require acommercial presence by the foreign supplier and/or employ strict requirements, such aspre-employment conditions, economic needs tests, and quota restrictions on visas before permittingtemporary entry of foreign professionals. (31) Because developing country concerns run head-on into U.S. andEU heightened post-9/11 concerns about entry of foreigners, this issue could be difficult as theservices negotiations progress.

In many member countries, services are a large portion of economic activity. Yet, servicesaccount for only a small portion of total trade, indicating many untapped opportunities for trade inservices if barriers are eliminated. However, for many countries, especially developing countries,liberalization in services trade is a very sensitive issue that may make achieving the opportunitiesdifficult if not elusive.

Trade Facilitation(32)

Background. The WTO negotiating Frameworksets forth modalities for negotiations on trade facilitation. As one of the Singapore issues, tradefacilitation was pushed by the EU and other countries but met resistance from some developingcountries. Developing country members were not necessarily opposed to the goals of tradefacilitation, but they were reluctant to negotiate new commitments in the WTO for many reasons,mainly because they wanted the Doha round to focus on settling implementation issues fromprevious agreements. They were also concerned about their capacity to implement potentially costlytrade facilitation agreements. However, developed country members (including the United States)insisted that trade facilitation would benefit all members by creating a more efficient global tradingsystem, and they agreed to include provisions on technical assistance and special and differentialtreatment in the negotiating Framework to ensure that developing country needs were met. This mayhave influenced the developing countries to agree to the inclusion of trade facilitation in thenegotiating Framework.

Previous WTO rules have addressed trade facilitation, but it was first introduced as a separatetopic in the WTO at the Singapore Ministerial in 1996. The Doha Ministerial statement agreed tocontinue discussions on trade facilitation and to begin negotiations after setting modalities at theCancun Ministerial. The trade facilitation discussions in the WTO since Doha have concentratedon three core areas: improving the relevant articles of the GATT 1994; individual country needs andpriorities regarding trade facilitation, especially those of developing countries; and technicalassistance to developing countries in the area of trade facilitation.

Trade facilitation aims to improve the efficiency of international trade through strengtheningtrade rules concerning customs procedures. It has become a more important issue in recent years astrade has been liberalized and trade flows have increased. Because of these trends, the costs ofcomplying with administrative trade procedures comprise a greater portion of the total costs of tradethan before. (33) Thesecosts can come from overly cumbersome and redundant documentation requirements, delays inprocessing goods through customs, and nontransparent or unequally enforced importation rules andrequirements. In the modern "just in time" economy, where traders rely on quick turnaround andshipping to meet orders, this poses a significant problem. According to the United NationsConference on Trade and Development (UNCTAD), the average customs transaction involves 20-30different parties, 40 documents, 200 data elements (30 of which are repeated 30 times), and there-keying of 60-70% of all data at least once. (34)

WTO negotiations on trade facilitation seek to improve trade procedures by utilizingtechnology more effectively, enhancing cooperation among customs and other officials, reducingdocumentation requirements and other administrative burdens, and ensuring a fair and transparentsystem of administering trade. Trade facilitation has the potential to reduce the cost of trade,increase opportunities for trade, diminish corruption associated with customs procedures, increasecompliance with customs rules, and reduce the cost of goods to consumers for both developed anddeveloping countries. Trade facilitation may have the most visible impact on small and mediumenterprises (SMEs), because they are often priced out of international trade due to the relatively highcosts of administrative barriers for small volumes of goods. Since SMEs are said to contributesignificantly to job creation and economic growth in both developed and developing countries,increasing their ability to benefit from trade may positively affect world economic growth.

U.S. Position. The United States has the potentialto benefit from trade facilitation in the same way as other countries. Certain U.S. industries inparticular rely on the ability to quickly clear goods through customs, such as agricultural importersand exporters, and the express delivery industry. U.S. trade with developing countries may alsobenefit. Such trade has been increasing; total U.S. trade with LDCs nearly doubled from 1996 to2003, from $7.6 billion to $14.1 billion, and U.S. trade with its Generalized System of Preferences(GSP) beneficiaries increased by 73%, from $193 billion in 1996 to $261 billion in 2003. (35) This trade has traditionallybeen hindered by several factors, including the fact that developing countries tend to have the leastefficient administrative trade procedures. Now that other barriers to trade with developing countries,such as protective tariff regimes, are being dismantled, trade facilitation may help both the UnitedStates and developing countries further realize gains from trade with each other. Reducing the costsof trade with developing countries could help U.S. businesses establish new export markets andlower-cost suppliers in developing countries. The United States may also become more involvedin providing technical assistance as part of a negotiated agreement in trade facilitation.

The United States has worked with other WTO members toward launching trade facilitationnegotiations, through its membership in the so-called "Colorado Group." This group comprises adiverse group of entities, including the United States, Australia, Canada, Chile, Columbia, CostaRica, the European Union, Hong Kong China, Hungary, Japan, Korea, Morocco, New Zealand,Norway, Paraguay, Singapore, and Switzerland. The current controversy in trade facilitation is thatmany of the developing countries are opposed to new WTO disciplines, and they would preferoptional guidelines. However, many other countries agree with the U.S. position that a rules-basedsystem is essential for establishing accountability and implementing concrete changes to facilitatetrade. They also agree that developing country concerns can be adequately addressed throughattention to technical assistance and special and differential treatment.

Issues for Negotiation. The negotiatingFramework modalities cover the three core issues of trade facilitation that member countries havebeen discussing since Doha: clarifying and improving aspects of certain existing WTO rulesconcerning trade facilitation; providing technical assistance to developing countries; and identifyingand considering the needs and priorities of all countries, especially developing countries, includingspecial and differential treatment. It does not specifically state whether the negotiations will resultin guidelines or new rules, yet it provides for assistance to developing countries in implementingwhatever rules may be negotiated.

The existing WTO rules singled out for attention are Articles V, VIII, and X of the GeneralAgreement on Tariffs and Trade (GATT). (36) Each of these articles concern different aspects of tradefacilitation, and they were initially agreed on prior to the formation of the WTO. Trade facilitationwas seen as less important than market access and other areas negotiated under the GATT during thistime, and thus the GATT does not provide specific rules for customs procedures. Article V dealswith Freedom of Transit, the rights of goods passing through a territory between countries. ArticleVIII deals with Fees and Formalities Connected with Importation and Exportation, requiring efficientand fair fees for moving goods in and out of countries. Article X deals with the Publication andAdministration of Trade Regulations, requiring transparent trade regulations and the equalenforcement of these regulations, including a judicial review process. In order to carry out its task,the Framework further directs the Trade Negotiations Committee to establish a Negotiating Groupon Trade Facilitation, and appoint its chair.

The negotiations are to consider the principle of special and differential treatment fordeveloping countries. Special and differential treatment has traditionally meant granting longertransition periods for developing countries, but the Framework states that the extent and timing ofentering into commitments shall be related to the implementation capabilities of developing countrymembers. Also, the members agreed that developing countries will not be required to undertakeinfrastructure investments beyond their means. The Framework encourages developed countrymembers to provide technical assistance to developing countries within the area of trade facilitation.

Through the negotiations, members agree to identify their own trade facilitation needs andpriorities, and consider the concerns of developing countries regarding the potential costs ofproposed measures. Technical assistance and capacity building for developing country participationin the negotiations is emphasized, and developed member countries are expected to provide thisassistance. Developed country members are also expected to provide support in implementing thecommitments that arise from the negotiations, whether that be in building human and institutionalcapacity or physical infrastructure. The Framework recognizes that a negotiated agreement mayrequire some members to further develop their infrastructure, and this may be burdensome for somedeveloping countries. In this case, developed countries are expected to make every effort to ensuresupport and assistance for implementing the commitments. However, a developing country will notbe required to implement a commitment with costs beyond its means if it does not receive adequatesupport from developed member countries. That stipulation is necessary because the Frameworkpoints out that developed countries cannot commit to open-ended support. The members also agreeto review the support and assistance provided, and assess whether it supports implementing thenegotiated agreements.

Looking Ahead

The Framework Agreement resolved several contentious issues regarding the negotiation ofa future agriculture agreement. For other issues, the Framework was less clear or the issue was leftunaddressed. Much work remains to be done to flesh out the Framework to an actual agreement ontrade liberalization. For the Doha negotiations to succeed, however, these issues must be addressedand resolved. In turn, the manner by which these issues are resolved may influence the level ofCongressional support for any resulting agreement.

Agriculture. Agreement to reduce domestic support according to aharmonizing formula (WTO members with higher levels of trade-distorting support must cut more)represents substantial progress, but difficult negotiations are expected over specifics such as thepercentage cuts in overall support and in specific categories of trade distorting support (amber box,newly-defined blue box, and de minimis ).

Similarly, the EU's concession on eliminating export subsidies is supposed tobe matched with U.S. cuts in export credit guarantees and food aid programs. Just how parallelreductions in these programs might be achieved as well as the schedule and end date for eliminatingexport subsidies likely will be difficult negotiating issues. The market access provisions of theagricultural Framework Agreement are less precise than those for domestic support or exportcompetition.

A critical trade-off to be resolved is the extent of market opening by mid-leveldeveloping countries such as Brazil or India versus the extent of reduction in trade-distortingdomestic support that developed countries will make. Resolving this trade-off is critical to bothrealizing market benefits from further agricultural trade liberalization as well as gaining eventualsupport in Congress for a WTO trade agreement.

Services. Regarding the services negotiations, mode-4 delivery of services(temporary entry of foreign personnel) will likely be an issue of critical interest to some membersof Congress. Provisions pertaining to temporary entry of personnel were included in the free tradeagreements that the United States entered into with Chile and Singapore. Members were stronglycritical of trade agreements that included provisions affecting U.S. immigration policy, and vowedto oppose future agreements that did so. (37) Mode-4 is the most critical issue for a number of largedeveloping countries, including India and China who have criticized the offers made by developedcountries, including the United States, that have restricted Mode-4 liberalization to foreigners whoare executives and highly skilled employees of foreign firms that have an established presence in thelocal economy.

Non-Agricultural Market Access. Although the NAMA language wasreplicated from the 2003 CancÃºn text, language inserted at the insistence of the developing countriescasts doubt on the finality of these decisions. The first activity of negotiators is to determine the tariffformula, or whether to use or whether to use a different tariff reduction modality. The success of theNAMA negotiations may also depend on cooperation of developing countries, some of which arewithholding active participation awaiting progress in the agriculturenegotiations.

Trade Facilitation. In establishing talks on trade facilitation, membercountries may first reach an agreement on whether to negotiate new rules, or merely guidelines, fortrade facilitation. This may be accomplished by first reaching agreement on concrete steps for theprovision of technical assistance, and the application of special and differential treatment. Developing countries may prove more likely to engage in the talks if they are confident that they willnot be forced to take measures beyond their capacity, and it may be possible to agree to negotiatenew rules.