-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-596		

TITLE:     World Trade Organization: Limited Progress at 
Hong Kong Ministerial Clouds Prospects for Doha Agreement

DATE:   04/26/2006 
				                                                                         
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GAO-06-596

     

     * Report to the Chairman, Committee on Ways and Means, House of
       Representatives
          * April 2006
     * WORLD TRADE ORGANIZATION
          * Limited Progress at Hong Kong Ministerial Clouds Prospects for
            Doha Agreement
     * Contents
          * Results in Brief
          * Background
          * Limited Progress Since Mid-2004 Causes WTO Members to Recalibrate
            Goals for Hong Kong
               * Some Technical Progress Achieved but Key Milestones Missed
               * Countries Still Divided over Toughest Issues in Fall 2005
               * Goals Lowered for December 2005 Hong Kong Ministerial
          * Hong Kong Resulted in Several Limited New Commitments, but
            Postponed Key Decisions on Cutting Tariffs and Other Barriers
               * Members Formally Commit to Conclude Negotiations by 2006
               * Ministers Focused on Export Competition Issues and Cotton,
                 but Made Little Progress on Other Aspects of Agricultural
                 Negotiations
               * Several Proposals on Development Issues Were also Adopted at
                 Hong Kong
               * Little Progress Made in Other Important Areas
          * Several Factors Make Meeting 2006 Deadlines Challenging, and Have
            Raised Doubts about the Likelihood of an Ambitious Outcome within
            the TPA Time Frame
               * Expiration of TPA Is Seen as a Hard Deadline
               * Most Members Continue to Profess High Ambition and Work Has
                 Resumed in Earnest
               * Members Further Motivated by Risks of Forfeiting Potential
                 Economic Benefits
               * Clearer Outlines of a Grand Bargain Enable Concerted Effort
               * Impasse on Agriculture Continues to Constrain Progress
               * "Political Will" to Break Deadlock Still Absent and Timing
                 for Making Hard Political Choices Is Not Propitious
               * Against Looming Deadlines, Many Difficult and Time-
                 Consuming Steps Remain
               * Difficulty Foreseen in Meeting Deadline with an Ambitious
                 Outcome Leads Experts to Float Other Options
          * Concluding Observations
          * Agency Comments and Our Evaluation
     * Objectives, Scope, and Methodology
     * GAO Contacts and Staff Acknowledgments

Report to the Chairman, Committee on Ways and Means, House of
Representatives

April 2006

WORLD TRADE ORGANIZATION

Limited Progress at Hong Kong Ministerial Clouds Prospects for Doha
Agreement

Contents

Tables

Figures

April 26, 2006Letter

The Honorable William M. Thomas Chairman Committee on Ways and Means House
of Representatives

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 2006.1 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, 2007.2 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,3 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.

Results in Brief

Between mid-2004 and the eve of the WTO's Hong Kong ministerial conference
in December 2005, WTO members made little progress toward their goal of
making the major decisions in six core areas  that would be needed to set
the stage for final negotiations in 2006: (1) agriculture, (2)
nonagricultural (or industrial) market access, (3) services, (4) trade
facilitation (simplification of customs procedures), (5) development
issues, and (6) WTO rules (including antidumping and subsidies). During
this period, trade facilitation negotiations got off to a good start and
some progress on technical issues was achieved in most other areas of the
negotiations, although this generally took longer and proved more
contentious than expected. Key milestones were missed, including the May
2005 deadline for submitting new and revised offers in the services
negotiations, which was not met by most members. Despite significant
proposals on cutting agricultural subsidies and tariffs submitted in
October 2005, it was clear to members by November that the negotiating
positions of key players were too far apart to achieve major agreements at
the December ministerial. To avoid a potentially disastrous collapse at
Hong Kong, the new WTO Director-General steered members toward lowered
expectations for the meeting. As a result, they shifted the focus to
narrower initiatives primarily intended to lock in progress to date and
benefit least-developed country members.

The Hong Kong ministerial resulted in modest agreements on a narrow range
of agricultural and development issues, but postponed decisions on how
much to cut tariffs and other barriers. Notably, WTO members conditionally
agreed to eliminate agricultural export subsidies by 2013 and to provide
least-developed countries duty-free and quota-free access to
developed-country markets for at least 97 percent of their products.
However, little progress was made on other core areas of the broader Doha
negotiating agenda, including two of the United States'
priorities-services and nonagricultural market access. Despite its modest
achievements, the Hong Kong ministerial declaration formally committed
members to conclude an overall agreement on the Doha Round by the end of
2006 and set a series of interim deadlines to meet that goal. For example,
April 30, 2006, was the new date for establishing "modalities"-broad
guidance on the extent of each country's reductions in tariffs, subsidies,
and other trade barriers-for agricultural and nonagricultural goods.
Members' schedules, reflecting how they propose to apply these modalities
in their national commitments, are due July 31, 2006, and will be the
basis for the final phase of negotiations.

WTO members and observers recognize that achieving an agreement within the
time remaining in 2006 will be challenging, given the limited progress to
date and the scope and difficulty of the work outstanding. Members
continue to profess high ambitions, however, and most view  expiration of
TPA on July 1, 2007, as a hard deadline that drives the need to conclude
negotiations in 2006. Since Hong Kong, some steps toward achieving their
agreed-upon goals have been taken, such as gaining agreement among key
members to use simulations of the impact of proposed cuts in subsidies and
tariffs as a basis for discussions. Nevertheless, factors such as the
failure to meet most prior deadlines, the ongoing impasse on core areas
such as agriculture, and the difficult political decisions needed to
resolve them, cause experts to be skeptical. In particular, the trade-offs
required to finalize the agreement will need to be made when political
events such as elections are taking place, which will constrain key
countries. Moreover, even if a breakthrough is achieved, many difficult
and time-consuming steps must be completed before entering an agreement.
Thus, the ability to meet the 2006 deadlines with an ambitious outcome-one
that would result in a strengthened and measurably freer global trade
environment-is in doubt. While holding out some hope for a satisfactory
outcome, several experts in fact warn that outright collapse, substantial
delay, or a minimal outcome are possible.

We solicited comments on a draft of this report from the Office of the
U.S. Trade Representative (USTR), and the Departments of Agriculture,
Commerce, and State; these agencies generally agreed with our substantive
findings and offered a few minor technical corrections, which we
incorporated.

Background

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).4 USTR negotiates on behalf of the
United States in WTO negotiations.

Table 1: Major Negotiating Groups in the World Trade Organization

                                        

    Country group            Countries                     Interest           
Groups of 4, 5, United States, EU, Brazil, and The G-5 helped negotiate    
and 6           India (plus Australia in G-5;  the July 2004 framework     
                   Japan in G-6)                  agreement on agriculture    
(G-4, G-5, G-6)                                and variants of this group  
                                                  are now a key negotiating   
                                                  group for the Doha Round    
European Union  Austria, Belgium, Cyprus,      Political union that        
(EU)            Czech Republic, Denmark,       negotiates as a group in    
                   Estonia, Finland, France,      the Doha Round              
(currently has  Germany, Greece, Hungary,      
25 members)     Ireland, Italy, Latvia,        
                   Lithuania, Luxembourg, Malta,  
                   Netherlands, Portugal, Poland, 
                   Slovak Republic, Slovenia,     
                   Spain, Sweden, and             
                                                  
                   United Kingdom                 
Group of 20     Argentina, Bolivia, Brazil,    Developing countries united 
(G-20)          Chile, China, Cuba, Egypt,     on agriculture negotiations 
                   Guatemala, India, Indonesia,   
(currently has  Mexico, Nigeria, Pakistan,     
21 members)     Paraguay, Philippines, South   
                   Africa, Tanzania, Thailand,    
                   Uruguay, Venezuela, Zimbabwe   
Group of 10     Bulgaria, Iceland, Israel,     Net food importers and      
(G-10)          Japan, Liechtenstein,          subsidizers                 
                   Mauritius, Norway, South       
                   Korea, Switzerland, and        
                   Chinese Taipei                 
Group of 90     Members of the African Union;  Coalition of the poorest    
(G-90)          the LDCs; and the African,     and least-developed         
                   Caribbean, and Pacific (ACP)   countries in the WTO        
                   Groupa                         
Cotton Four     Benin, Burkina Faso, Chad, and West African                
(C-4)           Mali                           cotton-producing countries  
                                                  advocating a WTO initiative 
                                                  to assist their cotton      
                                                  farmers                     

Source: GAO analysis of WTO documents.

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.5 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, 2005.6 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 Cancun
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).7 WTO members also agreed to hold their
next ministerial in Hong Kong in December 2005. However, our last report8
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.

Limited Progress Since Mid-2004 Causes WTO Members to Recalibrate Goals
for Hong Kong

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 Cancun,
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).

Figure 1: Agenda for Hong Kong Focused on Only 2 of the 16 Doha
Negotiating Areas

Some Technical Progress Achieved but Key Milestones Missed

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.9 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.10 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.11 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.

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

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.

Countries Still Divided over Toughest Issues in Fall 2005

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.12 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.13

Table 2: Agriculture Market Access Proposals Revealed Wide Differences
among Key Players in Expectations for Developed Countries

                                        

                                       U.S.   G-20                 EUa  G-10b 
Tariff rate reduction goals       55-90% 45-75%              20-60% 27-45% 
Maximum tariff rate (cap)            75%   100%     100% (no cap on   None 
                                                   sensitive products) 
Sensitive products, as a              1%     1%            Up to 8%    15% 
percentage of all agricultural                                      
products                                                            

Sources: U.S., G-20, EU, and G-10 proposals.

aThese terms are from the EU's second proposal of Oct. 28, 2005; the 20%
tariff reduction minimum takes into account the "pivot" concept.

bThe G-10 proposal included two approaches to tariff reductions-"linear"
and "flexible." This table presents the G-10's linear approach to
facilitate comparison with the other members' proposals that are also
based on the linear approach.

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.14
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.15 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.16 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 tariffs17 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.18 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.19

Goals Lowered for December 2005 Hong Kong Ministerial

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 Cancun 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.

Hong Kong Resulted in Several Limited New Commitments, but Postponed Key
Decisions on Cutting Tariffs and Other Barriers

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.

Members Formally Commit to Conclude Negotiations by 2006

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.

Ministers Focused on Export Competition Issues and Cotton, but Made Little
Progress on Other Aspects of Agricultural Negotiations

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,20 known collectively as the Cotton Four
(C-4). Since the Cancun 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.21 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.

Several Proposals on Development Issues Were also Adopted at Hong Kong

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.22

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.23 The
declaration also urged developing countries to take on the same commitment
to LDCs if they were able.

Moreover, following up on 2005 work,24 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.

Little Progress Made in Other Important Areas

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:

o postpone reaching agreement on modalities until April 30, 2006;

o call for comparable levels of ambition25 in market access for
agriculture and NAMA; and

o 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:

o accelerate negotiations by adopting a plurilateral approach, whereby
groups of countries jointly present offers to other groups; and

o 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.

Several Factors Make Meeting 2006 Deadlines Challenging, and Have Raised
Doubts about the Likelihood of an Ambitious Outcome within the TPA Time
Frame

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.

Expiration of TPA Is Seen as a Hard Deadline

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.26 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.)

Most Members Continue to Profess High Ambition and Work Has Resumed in
Earnest

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.

Members Further Motivated by Risks of Forfeiting Potential Economic
Benefits

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,27 indicate that economic gains
could be as high as $574 billion globally and $144 billion in the United
States.28 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 2015,29 while a Carnegie Endowment study predicts
income gains of $40 to $60 billion from what it deems plausible outcomes
of the Doha Round.30 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.

Clearer Outlines of a Grand Bargain Enable Concerted Effort

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,31
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.

Impasse on Agriculture Continues to Constrain Progress

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.32 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.

"Political Will" to Break Deadlock Still Absent and Timing for Making Hard
Political Choices Is Not Propitious

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.33
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.

Against Looming Deadlines, Many Difficult and Time-Consuming Steps Remain

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.34 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.

Figure 3: Key Selected Deadlines in 2006 for the Doha Negotiations

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.

Table 3: Principal U.S. Government Activities to Conclude Doha Round
Agreements

                                        

            U.S. Government activities                    Time frames         
TPA requires USTR to consult closely with      Throughout negotiations     
congressional revenue committees (i.e., the    
House Ways and Means and Senate Finance        
Committees), the Congressional Oversight       
Group, and other congressional committees      
with jurisdiction over areas affected by the   
WTO Doha agreement.                            
Negotiate agriculture and NAMA modalities.     January-April 2006          
Develop national tariff schedules and other    May-July 2006               
binding commitments based on modalities for    
agriculture and NAMA. Prepare and submit       
revised services offers.                       
Verify schedules, finalize sectoral and        August-December 2006        
non-tariff barrier agreements, and engage in   
"request-offer" negotiations with individual   
WTO members or groups.                         
TPA requires that at least 180 days before     December 31, 2006           
entering into a trade agreement, the           
president must report to congressional         
revenue committees on the range of proposals   
being negotiated that could require            
amendments to U.S. trade remedy laws, and how  
the proposals relate to the principal U.S.     
negotiating objectives concerning those laws.  
TPA requires that at least 90 days before      April 1, 2007               
entering into an agreement, the president      
must notify Congress of his intent to enter    
into the agreement.                            
TPA requires that at least 90 days before      April 1, 2007               
entering into agreement, the president must    
provide the ITC with details of the agreement  
"as it exists at that time" and request ITC    
to prepare and present to the president and    
Congress an assessment of the agreement's      
likely impact on the U.S. economy and          
specific industry sectors. Between the time    
of the president's request and the ITC's       
submission of the assessment, the president    
must "keep ITC current with respect to         
details of the agreement."                     
TPA requires that no later than 30 days after  May 1, 2007                 
the president notifies Congress of intent to   
enter into an agreement, private sector        
advisory committees must submit reports on     
the agreement to Congress, the president, and  
USTR.                                          
The president must enter into an agreement     July 1, 2007                
before this date for the agreement to qualify  
for approval under TPA's expedited             
procedures.                                    
TPA requires that within 60 days after         August 31, 2007             
entering into an agreement, the president      
must submit to Congress a description of the   
changes to existing law he believes would be   
required to bring the United States into       
compliance with the agreement.                 
TPA requires that no later than 90 days after  September 30, 2007          
the president enters into the agreement, the   
ITC must submit its impact report to the       
president and Congress.                        
The president is required by TPA to submit to  No date specified, but both 
Congress the final text of the agreement,      houses of Congress must be  
together with a draft of the implementing      in session                  
bill, a statement of administrative action,    
and supporting information.                    

Source: GAO analysis of WTO milestones and TPA requirements.

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.

Difficulty Foreseen in Meeting Deadline with an Ambitious Outcome Leads
Experts to Float Other Options

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.35 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.36 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.

Concluding Observations

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.

Agency Comments and Our Evaluation

We requested comments on a draft of this report from the U.S. Trade
Representative, the Secretary of Agriculture, the Secretary of Commerce,
and the Secretary of State, or their designees. The Assistant U.S. Trade
Representative for WTO and Multilateral Affairs 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 [email protected] . 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.

Loren Yager Director, International Affairs and Trade

Objectives, Scope, and MethodologyAppendix I

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.

GAO Contact and Staff AcknowledgmentsAppendix II

Loren Yager, Director   (202) 512-4347 or [email protected]

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.

(320353)

www.gao.gov/cgi-bin/getrpt? GAO-06-596 .

To view the full product, including the scope

and methodology, click on the link above.

For more information, contact Loren Yager at (202) 512-4347 or
[email protected].

Highlights of GAO-06-596 , a report to the Chairman, House Committee on
Ways and Means

April 2006

WORLD TRADE ORGANIZATION

Limited Progress at Hong Kong Ministerial Clouds Prospects for Doha
Agreement

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.

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. As illustrated
below, 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.

Key Selected Deadlines in 2006 for Doha Negotiations
*** End of document. ***