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Report to Congressional Requesters: 

United States Government Accountability Office: 


March 2007: 

World Trade Organization: 

Congress Faces Key Decisions as Efforts to Reach Doha Agreement 


GAO Highlights: 

Highlights of GAO-07-379, a report to congressional requesters 

Why GAO Did This Study: 

President Bush has identified the success of global trade talks 
launched in Doha, Qatar, in November 2001 as one of the United States’ 
top trade policy priorities. Known as the Doha Development Agenda, the 
talks are an important means of spurring global growth and development. 
Completing the talks in 2006 was considered essential for an agreement 
to qualify for streamlined congressional consideration under the U.S. 
Trade Promotion Authority. However, the talks collapsed in late July 
2006 in the face of wide differences over the extent of agricultural 
reform and how best to promote economic development in poor countries. 
Efforts to break the deadlock continue. 

Given the tenuous state of this central plank of U.S. trade policy, GAO 
updated its series of prior reports. In this report, we assess (1) the 
overall status of the Doha Round negotiations now and the progress that 
had been made prior to and since the breakdown of the talks, (2) the 
substantive divisions among key World Trade Organization (WTO) members 
that led to an environment of deadlock and the eventual suspension of 
the negotiations, and (3) the possible economic and other ramifications 
if the round is not concluded satisfactorily. 

What GAO Found: 

The Doha talks remain deadlocked, and their ultimate success is 
uncertain. However, the recent resumption in negotiations and renewal 
decisions facing Congress in 2007 create a window for breaking the 

* Regarding agriculture, WTO members differ sharply over how much to 
reduce barriers that distort production and trade, namely import 
restrictions such as tariffs (import taxes) and government payments and 
other “domestic support” to farmers. As the world’s largest 
agricultural exporter, the United States is seeking to sharply reduce 
foreign barriers to U.S. exports and has insisted on attaining greater 
promise of commensurate market access gains before agreeing to further 
cut its trade-distorting payments to U.S. farmers. The European Union 
(EU) is among the major agricultural players that have resisted this, 
and it has joined forces with developing countries in demanding U.S. 
subsidy cuts far beyond those already offered. In particular, the EU 
and developing countries have pressed the United States to cut 
subsidies below current spending and to disavow certain programs that 
could lead to future increases. 

* Regarding development, members remain divided over how the WTO can 
best promote economic growth and reduce poverty in the developing 
countries. Despite their diverse interests, developing countries 
maintain solidarity in pressing myriad demands for special treatment 
that would shield them from liberalizing their own imports. The United 
States believes such liberalization is not only critical to fostering 
development, but needed for WTO members to maximize the likely economic 
gains to both developed and developing countries, and to offset 
anticipated losses for some countries. 

Participants and observers offer mixed views on the implications if 
Doha is not successfully concluded. Some warn of forgone economic 
gains, a weakened global trading system, and a more difficult U.S. 
trade policy environment. Others suggest that the ramifications are 
much more limited. Congress faces renewal decisions in 2007 on two key 
pieces of legislation— Trade Promotion Authority and the Farm Bill—that 
could spur a breakthrough and be pivotal to the trading system and the 
future U.S. role in it. 


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 

[end of section] 



Results in Brief: 


Doha Talks Resumed after Months of Suspension, but No Breakthrough Is 
in Sight: 

Persistent Disagreements on Agriculture and Development Contribute to 
the Impasse: 

Participants Have Contrasting Views on Implications of Doha's Impasse: 


Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 


Farm Program Payments and Payment Limitations: 


Crop and Revenue Insurance: 

Food Aid: 

Agricultural Trade: 

Doha Round Negotiations: 


Table 1: U.S. Reform Proposal on Domestic Support and Estimated 
Domestic Spending Outlays for 2005: 

Table 2: Estimated Economic Effect of a Potential Doha Multilateral 
Trade Agreement: 


Figure 1: Summary of WTO Agriculture Agreement Boxes: 

Figure 2: Differences between Bound and Applied Tariffs in Developing 
and Developed Countries: 

Figure 3: Government Payments for U.S. Farm Programs, 1996-2005: 


CAP: Common Agricultural Policy: 
CRS: Congressional Research Service: 
EU: European Union: 
FAPRI: Food and Agricultural Policy Research Institute: 
FTA: free trade agreement: 
GATT: General Agreement on Tariffs and Trade: 
G-6: Group of 6: 
G-8: Group of 8: 
G-10: Group of 10: 
G-20: Group of 20: 
G-33: Group of 33: 
G-110: Group of 110: 
LDC: least-developed country: 
SSG: special safeguard: 
SSM: special safeguard mechanism: 
TPA: U.S. Trade Promotion Authority: 
TRQ: tariff-rate quota: 
UNCTAD: United Nations Conference on Trade and Development: 
USTR: Office of the U.S. Trade Representative: 
USDA: U.S. Department of Agriculture: 
WTO: World Trade Organization: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

March 5, 2007: 

The Honorable Jim McCrery: 
Ranking Minority Member: 
Committee on Ways and Means: 
House of Representatives: 

The Honorable Wally Herger: 
Ranking Minority Member: 
Subcommittee on Trade: 
Committee on Ways and Means: 
House of Representatives: 

In November 2001, the World Trade Organization (WTO) launched a new 
round of global trade negotiations at Doha, Qatar. The negotiations 
cover a broad range of issues, including agriculture, nonagricultural 
(industrial) market access, and services. Officially known as the Doha 
Development Agenda, the talks are the latest in a series of negotiating 
"rounds" among WTO members, which now number 150 nations and customs 
territories. President Bush identified completing the talks as a major 
U.S. trade policy priority for 2006. On July 24, 2006, after 5 years of 
negotiations and a deadlock on issues of agriculture reform and on how 
best to support development by the WTO's poorest members, WTO Director- 
General Pascal Lamy called for an indefinite suspension of the 
negotiations in spite of the July 1, 2007, expiration of the U.S. Trade 
Promotion Authority (TPA). TPA streamlines congressional approval of 
trade agreements, and its expiration has served as a de facto deadline 
for the WTO talks. 

Considering the tenuous state of this central plank of U.S. trade 
policy and the possible implications for the global trading system, we 
updated our series of reports on the WTO negotiations.[Footnote 1] In 
this report, we assess (1) the overall status of the Doha Round 
negotiations now and the progress that had been made prior to and since 
the breakdown of the talks, (2) the substantive divisions among key WTO 
members that led to an environment of deadlock and the eventual 
suspension of the negotiations, and (3) the possible economic and other 
ramifications if the round is not concluded satisfactorily. 

To address these objectives, we met with and obtained documents from a 
wide range of WTO, U.S., and foreign government officials as well as a 
cross section of selected academic experts and private sector groups 
(including agricultural commodity groups, business associations, and 
civil society groups) in Washington, D.C., and Geneva, Switzerland. We 
also attended the September 2006 WTO Public Forum in Geneva. We 
conducted our work from June 2006 through February 2007 in accordance 
with generally accepted government auditing standards. 

Results in Brief: 

A successful conclusion of the global trade talks remains uncertain, 
although resumption of the talks was recently achieved after a 6-month 
hiatus in the negotiations. WTO Director-General Lamy decided to 
suspend negotiations in late July 2006 after key members proved unable 
to break the impasse over agriculture. In the months after the December 
2005 Hong Kong ministerial meeting, WTO members had made headway on 
issues such as trade facilitation and reforming WTO "rules" on regional 
trade agreements and antidumping. However, there was no breakthrough on 
the key decisions needed to produce market access schedules to 
liberalize trade in agriculture, manufactured goods, and services-- 
where most of Doha's trade-creating gains were expected. Eleventh-hour 
involvement by world leaders proved insufficient to overcome resistance 
to reform and satisfy key players' demands for a balanced, mutually 
beneficial outcome. A series of high-level pronouncements of commitment 
to a full resumption of the talks were made since the July suspension 
finally culminating in formal across-the-board resumption of the talks 
in February 2007. However, changes in position have yet to materialize. 

Substantive differences over agriculture and philosophical differences 
over development precipitated the negotiations' collapse. The talks 
broke down in July due to persistent disagreement over agricultural 
market access and levels of domestic support for agriculture among key 
players, such as the United States, the European Union (EU), and 
developing countries led by Brazil and India. The United States is 
insisting on sizable market access gains through larger overall cuts in 
tariffs than the EU or developing countries are willing to accept. It 
also wants to sharply limit the percentage of specific agricultural 
products that the EU and developing countries can shield from full 
tariff liberalization. The United States insists that only ambitious 
market access gains will permit it to offer further reductions in 
domestic support. The EU and developing countries believe that U.S. 
support levels should be reduced below current spending, and they have 
bristled at perceived U.S. pressure that they reciprocate for support 
cuts with "dollar-for-dollar" gains in market access. In addition, 
behind the deadlock on agriculture lies a perhaps more fundamental 
conflict among WTO members about what a "development round" means and 
how best to spur development in less-developed countries. The 
disagreement centers on how trade liberalization contributes to 
development and to what extent developing countries should be expected 
to open their markets. U.S. negotiators emphasize the development 
benefits of removing trade barriers, while many developing countries 
reject the idea of paying for U.S. subsidy reform and fear the 
potential social and economic consequences to poor populations of 
lowering their own barriers to imports. As a result, agreement on how 
to satisfy developing countries' demands for protection without 
codifying exceptions that would sharply limit market access gains has 
thus far eluded negotiators. Nevertheless, WTO members have moved 
forward with plans to provide additional trade-related assistance to 
developing countries. 

Participants and experts express varying views on the ramifications of 
Doha's possible failure for the global and WTO member economies, the 
world trading system, and U.S. trade policy. Some participants and 
experts warn of forgone economic gains, a weakened multilateral trading 
system, and dimmed prospects for congressional renewal of TPA and 
reform of U.S. farm programs. First, they warn, the economic gains 
projected to result from a Doha agreement, for both the world overall 
and the U.S. economy in particular, would not be realized. Second, the 
multilateral trading system could face intense pressures if WTO 
members' frustrated expectations and ill will spill over into regular 
WTO work, result in more trade disputes, or divert energies toward more 
exclusive regional trade deals. Finally, they argue that the leadership 
the United States has historically shown in the global trading system 
is being questioned and could be tested if poor Doha prospects cause 
Congress to balk at renewing TPA and reforming U.S. farm programs. Yet, 
others suggest that the ramifications in all three areas may be much 
more limited. First, some of the desired economic gains, which are 
relatively modest to begin with, could still be secured by other means, 
such as unilateral liberalization. Second, some of the countries most 
resistant to liberalization at the WTO showed some willingness to cut 
barriers in other contexts since July. Third, in the United States, 
debate is already occurring over the terms of extension of TPA and 
whether to proactively reform or continue subsidies associated with the 
2002 Farm Bill. Nevertheless, the on-going impasse of the Doha talks 
has effectively placed Congress at the center of the controversy 
because what the United States does in 2007 on TPA and Farm Bill 
renewal is widely seen as pivotal to the WTO and its role in the 
trading system. 

We provided a draft of this report to the Office of the U.S. Trade 
Representative (USTR) and the Departments of Agriculture (USDA), 
Commerce, and State. USTR and USDA provided technical comments, which 
we incorporated where appropriate. State and Commerce had no comments 
on the draft report. 


The WTO was established as a result of the Uruguay Round of trade 
negotiations on January 1, 1995, as the successor to the General 
Agreement on Tariffs and Trade (GATT). Based in Geneva, Switzerland, 
the WTO is led by a Director-General and 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 150 WTO member 
nations and customs territories with widely diverse levels of economic 
development. Global trade negotiations occur in periodic comprehensive 
"rounds," in which a large package of trade concessions among members 
is developed and ultimately agreed on as a single package; this process 
requires simultaneous agreement on all issues. Countries often 
negotiate as members of groups loosely named after the size of their 
membership,[Footnote 2] such as the Group of 10 (G-10),[Footnote 3] the 
Group of 20 (G-20),[Footnote 4] the Group of 33 (G-33),[Footnote 5] and 
the Cairns Group[Footnote 6]--groups that represent key negotiating 
positions on agriculture issues. Moreover, the EU negotiates on behalf 
of all of its member nations. USTR negotiates on behalf of the United 
States, in regular consultation with Congress, executive branch 
agencies, and official private sector advisors, among others. 

At Doha, Qatar, in November 2001, WTO members reached consensus to 
launch the Doha Development Agenda or Doha Round,[Footnote 7] the ninth 
round of trade liberalizing negotiations since the trading system's 
founding in 1947. The Doha ministerial declaration established a work 
program with a number of negotiating areas, and members set specific 
goals for each area and negotiating groups to achieve them.[Footnote 8] 
The Doha declaration also put a special emphasis on addressing the 
needs and interests of developing countries in the negotiations. Of the 
Doha negotiating areas, agriculture remains the top issue for many 
participants and has been described as the lynchpin of the Doha 
negotiations. Reform of agriculture was first added to the trading 
system in the last (Uruguay) round, but domestic and export subsidies 
and tariff barriers remained. In July 2004, WTO members reached a 
framework agreement that established certain principles and agreed 
means for reform in agriculture as well as other Doha work areas. 

The Doha Round for agriculture commits countries to lower barriers in 
world agricultural markets and sets forth three "pillars" for 
agricultural trade reform related to (1) export competition programs 
(export subsidies), (2) domestic support (subsidies and other 
assistance to farmers), and (3) market access (including tariffs and 
tariff-rate quota (TRQ) levels that limit imports).[Footnote 9] 
Regarding domestic support, one of the main premises of the existing 
WTO Agreement on Agriculture is whether government programs that 
support agriculture are trade distorting: Does the program affect trade 
by changing production levels, market prices, and/or export or import 
levels? In general, under the WTO agreement, domestic support programs 
that distort trade were limited and reduced, while programs that do not 
distort trade were exempt from alteration. Domestic support programs 
have been classified into categories called "boxes" based, in part, on 
the extent to which the programs are thought to be trade distorting. 
These boxes are called Green Box, Amber Box, and Blue Box. The Doha 
negotiations aim to lower levels of trade-distorting support in the 
Amber and Blue Boxes. Figure 1 provides a summary of the boxes. 

Figure 1: Summary of WTO Agriculture Agreement Boxes: 

[See PDF for image] 

Source: GAO analysis of WTO commitments on agriculture. 

[End of figure] 

Agriculture reforms were an important issue at the most recent WTO 
ministerial conference, held in Hong Kong, China, in December 2005, 
where ministers sought to make progress in the negotiations.[Footnote 
10] However, as we noted in our April 2006 report,[Footnote 11] limited 
progress in the negotiations since mid-2004 and missed milestones in 
2005 caused WTO members to lower expectations for the Hong Kong 
ministerial. New agriculture proposals were made in October 2005 in an 
effort to reinvigorate the talks, but the proposals revealed wide gaps 
in the positions of the United States, the EU, and other key players. 
The agenda at the Hong Kong ministerial shifted from making decisions 
on core areas[Footnote 12] of the negotiations to focusing on narrower 
initiatives, particularly in agriculture and development, that could 
help the talks move forward, if only marginally. Members made the 
following commitments and also set new deadlines for needed decisions 
at the Hong Kong ministerial. Notably, they agreed to: 

* eliminate all forms of agricultural export subsidies by 2013; 

* eliminate, for developed countries, all forms of export subsidies for 
cotton in 2006; 

* establish duty-free and quota-free access for at least 97 percent of 
the tariff lines of developed countries' imports from least-developed 
countries (LDC)[Footnote 13] by 2008 or by the start of implementation 
of the Doha agreements; 

* complete the round in 2006; 

* reach "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--for cutting 
tariffs and subsidies for agricultural and industrial goods and set 
disciplines on food aid, export credits, state trading, and other 
aspects of export competition by April 30, 2006; and: 

* submit national schedules of commitments embodying the modalities for 
agriculture and industrial goods and present revised offers for 
liberalizing trade in services by July 31, 2006. 

Nevertheless, with nearly all tough decisions put off until 2006, the 
tension between members' original high ambitions and the TPA[Footnote 
14] time frame had become acute, as we noted in our last report on this 
matter.[Footnote 15] The expiration of TPA on July 1, 2007, which 
enables the President to present a final Doha agreement to Congress for 
an "up-or-down" vote within a fixed period of time, has served as the 
de facto deadline for the round. Due to various U.S. TPA-related 
notification and consultation requirements, concluding the negotiations 
in 2006 was essential for a Doha agreement to qualify for streamlined 
congressional consideration under TPA. 

Doha Talks Resumed after Months of Suspension, but No Breakthrough Is 
in Sight: 

On July 24, 2006, WTO Director-General Pascal Lamy suspended the global 
trade talks over an impasse in the agriculture negotiations, despite 
some progress before the July 2006 suspension. Prior to the suspension, 
world leaders made an appeal for flexibility and movement, but it 
proved insufficient to overcome the deadlock. During the suspension, 
countries professed commitment to the talks and urged their resumption, 
but these failed to bridge their differences. Nevertheless, as a result 
of these pronouncements, WTO Director-General Lamy announced a "soft re-
launch" of the negotiations at the working level in mid-November. An 
informal ministerial meeting among some WTO members was held on January 
27, 2007, on the margins of the World Economic Forum meetings held in 
Davos, Switzerland. Although no breakthrough was announced, key 
participants emerged more hopeful for progress in the near term. On 
February 7, 2007, Director-General Lamy announced in his report to the 
WTO General Council that talks had resumed fully. 

Lack of Progress in Negotiations Prompted Director-General Lamy to 
Suspend Talks in Late July 2006: 

On July 24, 2006, Director-General Lamy announced the indefinite 
suspension of the Doha negotiations after the Group of 6 (G-6)[Footnote 
16] key WTO players failed to break a deadlock over agriculture that 
had prevailed, largely unabated, since prior to the Hong Kong 
ministerial. According to Lamy, unblocking the negotiations would 
require parallel movement by key players on what he refers to as the 
"triangle of issues"[Footnote 17] that is, the United States would have 
to agree to further cut its payments to domestic farmers; the 
EU[Footnote 18] would have to agree to increase other countries' access 
to its agricultural markets; and advanced developing countries, such as 
Brazil and India, would have to agree to lower tariffs on manufactured 
goods. This would enable WTO members to reach an agreement on 
modalities. Lamy said such movement could only occur in concert, but 
each group continued to insist that others move first. Lamy classified 
the suspension period as a "time out to review the situation, time out 
to examine available options, and time out to review positions." 

Following the December 2005 Hong Kong ministerial, members made 
important progress on some issues. For example, at Hong Kong, WTO 
members authorized the chair of the negotiating group on rules to 
produce a draft text to serve as the basis for final negotiations. 
Negotiators reviewed numerous proposals in an attempt to narrow 
members' positions in these areas. However, although the chair reported 
that he could meet this mandate, he was not able to do so because of 
the suspension. In addition, the negotiating group on trade 
facilitation continued to make good progress in reviewing proposals for 
expediting the movement of traded goods. However, due to the lack of 
agreement over agriculture that persisted despite intense efforts at 
both the political and technical level, WTO members have not been able 
to move forward on key decisions in other areas of the negotiations 
that would lead to market access schedules to liberalize trade in 
agriculture, manufacturing goods, and services--where the bulk of 
Doha's trade gains are anticipated. 

Before the suspension of the talks, trade negotiators met in Geneva in 
late June 2006 for high-level meetings that failed to unlock the 
negotiations. However, it was agreed at these meetings that Director- 
General Lamy would take a more proactive role as a catalyst "to conduct 
intensive and wide-ranging consultations" to achieve agricultural and 
nonagricultural modalities. Prior to these meetings, Lamy had publicly 
suggested a "20-20-20" formula as a possible resolution to the impasse 
that called for (1) the United States to accept a ceiling on domestic 
farm subsidies under $20 billion; (2) the use of the G-20 proposal of 
54 percent as the minimum average cut to developed country agricultural 
tariffs; and (3) a tariff ceiling of 20 for developing country 
industrial tariffs--in other words, a "Swiss" formula with a 
coefficient of 20 for reducing developing country industrial tariffs by 
cutting higher tariffs more than lower ones.[Footnote 19] This proposal 
was criticized by all sides and was not officially discussed or 

Days before Director-General Lamy suspended the talks, he made an 
eleventh-hour appeal directly to world leaders at the G-8 summit at St. 
Petersburg, Russia.[Footnote 20] Lamy said the leaders needed to act to 
avert a "failure" in the nearly 5-year-old negotiations by providing 
their trade negotiators "further room for negotiation" to finalize 
figures for subsidy and tariff cuts in agriculture and industrial 
products. He also told the leaders that, in his estimation, the 
differences between members were not insurmountable--on the order of a 
few percentage points more than the concessions already proposed. "The 
problem is not technical, but political," he said--members were asking 
too high a price for the additional benefits demanded. In response to 
Lamy's appeal, the G-8 leaders stated that they were in favor of a 
trade deal and would give the necessary flexibility to their trade 
negotiators to secure a deal. The G-8 leaders also issued a statement 
calling for WTO members to work with "utmost urgency for conclusion of 
the Round by the end of 2006" and promising "renewed commitment to 
pursue a high level of ambition in all areas of the negotiations with a 
view to reaching a meaningful and balanced outcome." However, the 
leaders' involvement proved unsuccessful in overcoming the differences 
on trade issues; the flexibility some had pledged and others had 
apparently expected to be forthcoming did not materialize. Instead, 
less than 1 week later, a short, acrimonious G-6 meeting quickly 
dissolved into a collapse that prompted Lamy to suspend the 
talks.[Footnote 21] Despite the talks' February 2007 resumption, the 
suspension all but ensured that any eventual agreement will not be 
reached in time for consideration under the current TPA. 

Although Enthusiasm for Resuming Talks Varied during the Suspension, 
Talks Resumed in February 2007: 

After the July suspension, numerous countries declared their commitment 
to the round and desire for a resumption. These statements largely did 
not go beyond reiterating commitment and blaming one another for the 
breakdown. Nevertheless, it could be argued that the statements 
clarified to some extent what a desirable Doha agreement would entail 
in practice. 

In our interviews with various WTO members and officials in Geneva and 
Washington, D.C., we noted disagreement over whether a near-term 
resumption of talks was likely or desirable. At our late September 
meetings in Geneva, country officials said that while the impasse was 
regrettable, they expected that the talks could be resumed in the near 
future. However, they also universally expressed a sense that 
reengaging prior to the November 2006 U.S. election was fruitless 
because U.S. political commitments to agriculture reform and to 
leadership at the WTO were seen as vital to closing a Doha deal. 
Several foreign government officials were adamant that more must be put 
on the table regarding agriculture and development to make Doha 
worthwhile. Nevertheless, there was a sense that technical work on 
certain knotty issues would be productive in the interim. Upon our 
return to Washington, however, we found officials and business persons 
less optimistic that talks would resume soon and not always convinced 
that they should resume. 

A growing sense that prolonging the suspension was not desirable and 
members' pronouncements of commitment prompted WTO Director-General 
Lamy to announce a "soft re-launch" of the negotiations at the working 
level in mid-November. This informal restart of the talks consisted of 
quiet diplomacy in capitals and chair-centered informal meetings in 
Geneva. Lamy also encouraged chairs of negotiating groups to carry out 
contacts and consultations as they judged most appropriate, to increase 
the opportunities for participants to begin to test each other's 
positions again and explore possible options to take the negotiations 
ahead. Lamy warned members that the "window of opportunity" to 
negotiate is limited--"there must be significant progress by the early 
spring if we are to have a chance of finishing the round next year." An 
informal ministerial meeting among some WTO members was held on January 
27, 2007, on the margins of the World Economic Forum meetings being 
held in Davos, Switzerland. Although no breakthrough was announced, key 
participants emerged more hopeful for progress in the near term. U.S. 
Trade Representative Schwab reported "a new sense of optimism and 
momentum" and hope that, with hard work and good faith, WTO members 
would find the will and the way to produce results that alleviate 
poverty and stimulate growth through new trade flows. On February 7, 
2007, Lamy announced that the Doha talks had resumed fully, across the 

Persistent Disagreements on Agriculture and Development Contribute to 
the Impasse: 

Underlying the breakdown in July 2006 were fundamental and persistent 
differences on agriculture between the United States, the EU, and 
developing country groups. As the world's largest exporter of 
agricultural products, the United States insists on obtaining greater 
access to markets in the EU and other leading agricultural trading 
partners than have been offered to date. Behind this issue is a 
significant disagreement over how much countries can shield "sensitive" 
or "special" products from tariff reduction. At the same time, key 
negotiating partners, particularly the EU and the G-20 developing 
country group, argue that the United States must improve on its October 
2005 offer to cut its agricultural subsidies (domestic support) for 
them to commit to greater market access. Specifically, countries 
contend that certain domestic support provided by the United States 
distorts trade, and that the U.S. proposal does not translate into real 
cuts in program spending. Beyond the deadlock on agriculture, WTO 
members are divided by an underlying conflict about what a "development 
round," as the Doha Round is characterized, should accomplish. 

The United States Calls for the EU and Developing Countries to Increase 
Market Access to Balance Further Domestic Support Reductions in 

With forecasted agricultural exports of over $77 billion in 2007, the 
United States seeks greater market access for farm products in the 
current Doha Round from both developed and developing countries. The 
United States considers increased market access an essential factor in 
balancing its proposed reductions in domestic support programs. 
Increased access into developing countries is especially significant 
since these markets, characterized by high growth in income, 
population, and urbanization, are the fastest growing U.S. markets for 
agricultural products such as livestock products and feeds, fruits, 
vegetables, and processed products. Moreover, market access barriers 
such as tariffs account for the largest share of agricultural policy 
distortions worldwide[Footnote 22]--they are the trade barriers most 
widely used by countries, directly affecting market prices for both 
consumers and producers.[Footnote 23] Agricultural products still face 
significant tariff barriers in both developed and developing countries. 
Until the Uruguay Round negotiations, agriculture had not been a part 
of the multilateral trade negotiations, so it has not had the same 
opportunity for liberalization as manufactured products. As a result, 
the Doha declaration and July 2004 framework agreement called for 
significant cuts in agricultural tariffs so that meaningful trade 
liberalization could be realized. The prevalence of high tariff 
barriers in agriculture can be characterized as consisting of (1) a 
small number of tariff lines protecting the bulk of domestic production 
in certain countries, particularly developed countries (known as tariff 
peaks); (2) processed or higher value products that have higher tariffs 
(known as tariff escalation) as compared to bulk products; and (3) a 
large proportion of tariff lines that have much larger WTO "bound" 
tariffs than the tariffs countries actually apply (or "applied 
tariffs"), especially in developing countries.[Footnote 24], [Footnote 
25] This difference is often referred to by negotiators as "water" in 
the tariff. Moreover, U.S. officials say U.S. exporters face high 
tariffs on numerous products in key markets such as the EU, Japan, and 

Currently, the United States has lower bound agricultural tariffs than 
the EU and much lower bound tariffs than the advanced developing 
countries. For example, the U.S. average bound agricultural tariff is 
12 percent, compared with 16 percent for the original 15 EU countries, 
a 105 percent average among South Asian countries, and a global average 
of 62 percent.[Footnote 26],[Footnote 27] The worldwide applied tariff 
average is much lower (19 percent), and because tariff cuts are 
negotiated from the bound rates, fairly significant cuts may be 
required to achieve actual tariff reductions in the Doha Round. Figure 
2 illustrates the large differences between bound and applied 
agricultural tariff rates in developing countries compared with 
developed countries. 

Figure 2: Differences between Bound and Applied Tariffs in Developing 
and Developed Countries: 

[See PDF for image] 

Source: Anita Regmi and John Wainio, "Varying Tariff Profiles 
Illustrate Difficulties in Negotiating Cuts," Amber Waves, col. 4, no. 
4 (September 2006), 27. 

[End of figure] 

The United States and the EU Remain Divided on Overall Agricultural 
Tariffs Cuts: 

Compared with other key negotiating proposals, the U.S. proposal of 
October 2005 offered the largest overall reductions in the central 
component of market access, the overall tariff reduction formula. WTO 
members have agreed to cut agriculture tariffs by use of a tiered 
approach, whereby members' tariffs will be divided into tiers and then 
cut by agreed percentages, with the higher percentage cuts in the 
higher tiers. The negotiating parties, however, still need to agree on 
the thresholds for the tiers, the cuts that will apply, and the number 
of tariff lines or products that will be shielded from the formula 
cuts. Specifically, the United States proposed tariff cuts in the tiers 
for developed countries of 55 to 90 percent, compared with a 35 to 60 
percent cut proposed by the EU and a 45 to 75 percent cut proposed by 
the G-20.[Footnote 28] According to USTR, these represent a 66 percent 
average cut by developed countries for the U.S. proposal, a 54 percent 
average cut for the G-20 proposal, and a 39 percent average cut for the 
EU proposal. Since the Hong Kong ministerial, the EU has signaled a 
willingness to move closer to the G-20 position on tariff cuts. Press 
articles that GAO corroborated with several official sources cite this 
movement in average tariff cut by the EU as about 10 percentage points 
more than its previous offer, or about a 50 percent average cut. 
Nevertheless, the United States did not consider this movement to be 
adequate, since the signaled offer came less than halfway between the 
U.S. and the EU offers and was achieved through cutting tariffs on 
goods that the United States does not export, such as tropical 
products. Moreover, U.S. officials did not consider the G-20 proposal 
to be a true middle ground because, among other things, it envisaged 
higher tariff thresholds for each tier, which translates into lower 
cuts overall. For example, the G-20 set the threshold of the "highest 
tier," which will undergo the greatest liberalization, at more than 70 
percent (with a 75 percent tariff reduction), whereas the United States 
set it at more than 60 percent (with an 85 to 90 percent tariff 
reduction). The tariff cuts for developed countries are important in 
their own right, and they are also important because they will be the 
base from which developing countries will cut their tariffs. In 
general, it is assumed that developing countries' tariff cuts will be 
two-thirds those of developed countries, so the higher the developed 
country tariff cuts, the higher the developing country cuts.[Footnote 

Number and Treatment of Sensitive and Special Products Remain Major 
Points of Contention: 

Unlike the EU and certain developing country groups, the United States 
seeks to sharply limit the number of both sensitive and special 
products and calls for greater liberalization of these products. 
Sensitive products are ones that all countries can designate to face 
tariff cuts that would be lower than the overall tariff reduction, in 
return for TRQ expansion. The special product category is only for 
developing countries and would be subject to lower cuts or possibly 
exempt from tariff reductions. WTO members agreed in principle to these 
exemptions as part of the July 2004 framework, but are still discussing 
the scope of these exemptions. At the Hong Kong ministerial, members 
agreed that developing country members will have the flexibility to 
self-designate an "appropriate" number of tariff lines as special 
products guided by indicators based on the criteria of food security, 
livelihood security, and rural development needs. 

The issue of sensitive products has set the EU, the G-10, and certain 
developing countries against countries that want expanded market 
access, such as the United States and members of the Cairns Group. 
Members differ over the number of sensitive products and their 
treatment. Regarding the number, the current U.S. proposal offers a 1 
percent exemption for sensitive products, while the EU has proposed up 
to 8 percent of tariff lines as sensitive. In the run-up to the July 
2006 meetings, however, there were some indications that the EU could 
move to an offer of 4 to 5 percent as sensitive products. However, 
studies have shown that exempting sensitive products from some or all 
trade liberalization could severely limit the overall level of market 
access into a country. For instance, the World Bank estimated that if 
even 2 percent of tariff lines avoided meaningful new access, about 75 
percent of the gains from the Doha Round could be lost.[Footnote 30] As 
for their treatment, while WTO members have agreed that some 
liberalization through TRQ expansion will be required, the United 
States proposes a methodology or modality that would expand TRQs to a 
greater extent than proposed by the EU. Notably, the United States is 
proposing to use domestic consumption rather than imports (which the EU 
advocates) as the base for TRQ expansions. The EU maintains that 
consumption fails to account for a product's "sensitivity"; the United 
States and others counter that the level of imports is artificially 
depressed due to trade restrictions. Recently, some parties, 
particularly the G-10 and the EU, have come forward with "hybrid" 
approaches, basing these levels on both consumption and existing TRQ 

Similarly, there is currently a wide gap between countries' proposals 
on the number and treatment of "special" products--products that 
developing countries can self-designate for more lenient tariff cuts 
guided by indicators based on the criteria of food security, livelihood 
security, and rural development needs. Developing countries consider 
special-product flexibility essential to the success of their poverty- 
reduction and rural development strategies. The United States would 
prefer to see very few special products allowed--specifically, about 5 
tariff lines--and would prefer that these be subject to greater 
liberalization through tariff reductions or TRQs than proposed by 
developing country members. Developing countries argue, however, that 5 
tariff lines may not even allow countries to designate one product as 
"special." For example, milk products cover from 8 to 37 tariff lines, 
depending upon which country's tariff schedule is used. The G-33 
developing countries are proposing at least 20 percent of their tariff 
lines designated as special products, which could range from 130 to 300 
tariff lines in key exporting countries. The U.S. Secretary of 
Agriculture has termed this a "nonstarter" for the United States, and 
WTO officials we spoke with suggested it is unacceptable to many other 
members. The G-33 also proposed that tariffs for half of these products 
would not be reduced at all, and the other half would be liberalized 
little (by 10 percent). The United States, on the other hand, would 
like to see increases in market access over time for special products. 
According to several stakeholders, one of the major problems in the 
negotiations was that very little attention or analysis was devoted to 
this issue until just before the process broke down last July. 
Moreover, emotions have run high: demanders have insisted that the 
livelihood of their large, rural populations is an important social and 
development issue that is not negotiable, while exporting nations have 
termed these commercially significant "loopholes" that could easily be 

Further complicating these issues is uncertainty about which products 
of export interest to the United States would be selected as sensitive 
or special by countries. Negotiations have been sequenced in such a way 
that WTO members would not know which products would be designated 
"special" until after the modalities were agreed upon and then applied 
by countries to their detailed tariff schedules. Yet, knowing these 
designations is critical to determining the likely U.S. gains from 
liberalization. Nevertheless, several studies have attempted to 
identify potential sensitive or special products in key markets, 
confirming the importance of product selection: 

* On sensitive products, an analysis by the Food and Agricultural 
Policy Research Institute (FAPRI)[Footnote 31] used the following three 
criteria for identifying "sensitive" products: (1) commodities with 
high levels of protection, (2) commodities of high economic value, and 
(3) situations where implementing tariff reductions, such as those 
required for nonsensitive products, results in larger increases in 
imports and reductions in prices than the additional amount of imports 
resulting from the required TRQ expansion for sensitive products. The 
authors concluded that the following products were likely to be 
designated as sensitive: rice in Japan, South Korea, and the 
Philippines; sugar in the United States and the EU; and butter in the 
United States. The authors explained that the impact on U.S. 
agricultural production, trade, and prices was strongly affected by the 
choices made regarding sensitive products and the rules regarding TRQ 
increases for these products. 

* For special products, while certain broad criteria have been agreed 
to, such as food and livelihood security, the indicators or basis for 
the designation of these products are broad, hard to measure, and only 
indicative rather than binding in nature.[Footnote 32] Since the top 
U.S. exports into developing markets are concentrated in a relatively 
few products, an analysis done by USDA found that having only 5 percent 
of tariff lines designated as special and exempted from tariff cuts 
could mean that 90 percent or more of U.S. exports to these countries 
would not be liberalized. The WTO Secretariat came up with similar 
results in an analysis for the negotiating group chair. While not 
directly addressing their trade relevance to the United States, a 
series of independent country studies, done by the International Centre 
for Trade and Sustainable Development in collaboration with local 
researchers, suggests that an "appropriate" number of special products 
would probably range from 6 to 20, and on average represent about 10 
percent of a country's agricultural tariff lines. In these studies, the 
products most commonly selected as special products were beef, chicken, 
corn, milk and dairy products, onions, pork, potatoes, rice, tomatoes, 
and some vegetable oils.[Footnote 33] 

In addition to the issues of sensitive and special products, the United 
States is equally concerned about the special safeguard mechanism 
(SSM)--designed to allow countries to temporarily increase import 
duties to deal with surges in import volumes or rapid declines in 
import prices. Under the Uruguay Round, the special safeguard (SSG) 
pertains to countries, primarily developed countries, that opted for 
tariffication (where quotas were converted to tariffs).[Footnote 34] In 
the Doha Round, developing countries have insisted that they need 
access to a similar mechanism, or the SSM, on the basis of their 
particular food and livelihood security and rural development needs. 
Other WTO members have accepted this in principle, but believe that 
there should be a link between these provisions and the extent of 
liberalization already undertaken. More specifically, the G-33 group 
believes that all products, including special products, should be 
eligible for the SSM, while the United States, Canada, Australia, and 
others argue that only products that are liberalized should be 
eligible. Other major differences between the proponents of the SSM and 
other countries include the remedy or the additional tariff allowed, 
the safeguard's duration, and the trigger that would enable the special 
safeguard. According to one U.S. official that we spoke with, the 
United States is primarily concerned that the price-and volume-based 
triggers for the SSM could too easily be set off and that conditions 
giving rise to them are hard to predict. There also is disagreement 
between negotiating parties about the status of the present SSG. While 
most of the G-33, the Cairns Group, and the United States agree that it 
should be eliminated, other groups, such as the EU and the G-10, do not 
want to see the present SSG eliminated. In other words, the latter 
groups think both developed and developing countries should have access 
to the SSG. 

The EU and Developing Country Groups Say the U.S. Offer Does Not Cut 
Domestic Support Sufficiently: 

In contrast to market access, the United States is on the defensive on 
domestic support for agriculture. The United States proposed reductions 
in domestic support in its October 2005 offer, but the EU and 
developing countries believe that U.S. support levels should be further 
reduced below current spending.[Footnote 35] They are also concerned 
that the proposal contains "water" that could enable the United States 
to increase spending in the future. Moreover, there is contention over 
whether there is a "dollar-for-dollar" trade-off being demanded between 
market access and domestic support by the United States in the 

While many believe agriculture is a unique sector that requires certain 
safety nets, economic studies have shown that production and trade- 
distorting subsidies can depress commodity prices on world 
markets.[Footnote 36] In the WTO, these policies are categorized 
according to the extent to which they are considered to distort trade, 
with Amber Box (as measured by the so-called aggregate measure of 
support) being the most trade distorting, Blue Box trade distorting to 
a lesser extent, and Green Box minimally or not trade distorting. The 
Uruguay Round capped and reduced spending in the Amber Box below the 
level spent in the base period of 1986 through 1988 (a period of 
relatively high supports resulting from depressed market prices), but 
permitted unlimited spending on policies that meet the Blue Box and 
Green Box criteria. In addition, members were given a "buffer" to 
provide product-and nonproduct-specific subsidies equal to 5 percent or 
less of the value of production (for developed countries) that was 
deemed "de minimis" and thus not counted against the Amber Box 
ceiling.[Footnote 37] However, if product-or nonproduct-specific de 
minimis support exceeds this threshold level by even one dollar, it all 
must be accounted for as Amber Box. Because of the large differences 
between the level of support permitted by the Uruguay Round Agreement 
on Agriculture and the actual spending since then, a gap called "water" 
has emerged that means even fairly large reductions in proposed 
ceilings may have little to no actual impact on policy. Moreover, as 
part of the July 2004 framework agreement, the United States secured 
WTO members' commitment to expand the new Blue Box to include "programs 
that do not require production," such as the countercyclical payments 
established by the 2002 Farm Bill, and to set its ceiling at 5 percent 
of the value of production.[Footnote 38] Another innovation of the Doha 
Round is the widening of support that would be disciplined in the 
concept of the "overall trade-distorting support," which is the sum of 
the Amber Box, the permitted de minimis, and the Blue Box support. 

During the last several years that they notified to the WTO,[Footnote 
39] the Congressional Budget Office estimated the total levels of 
average annual domestic support to agriculture (Amber Box, Amber Box de 
minimis, Blue Box, and Green Box) for the United States, the EU, and 
Japan were $71 billion, $87 billion, and $29 billion, respectively, 
amounting to about 84 percent of world domestic support.[Footnote 
40],[Footnote 41] However, mainly because their agricultural sectors 
are very large, the EU, the United States, and Japan individually 
provide smaller rates of domestic support than some other countries as 
a percentage of the value of their total agricultural output, each 
averaging a rate of about 37 percent from 1998 through 2002.[Footnote 
42] Under the Uruguay Round, the final bound ceiling for Amber Box 
support to be reached when its results were fully phased in by year-end 
2001 was substantially higher for the EU--about $82.9 billion compared 
with $19.1 billion for the United States. However, since this period, a 
comparison of the amounts and composition of domestic support has 
become much more complex because of a variety of factors, including (1) 
the United States has not notified domestic support to the WTO since 
2001, and the EU has only recently notified its support for years 2002- 
03 and 2003-04 (see footnote 40); (2) recent changes in domestic farm 
policies by both the United States and the EU; and (3) EU enlargement-
-that is, the addition of 10 new member countries in 2004. For 
instance, the 2002 U.S. Farm Bill added to program spending in the 
Amber and Green Boxes, including, among other things, higher marketing 
loan rates; the countercyclical program; fixed direct payments; and 
increased environmental program spending, such as the Conservation 
Security Program. In the EU, with the Common Agricultural Policy (CAP) 
reforms of 2003 and 2004, the trend has been away from Amber Box price 
support programs and Blue Box programs (in this case, direct payments 
that are commodity-specific) and more toward Green Box supports, such 
as the introduction of "single-farm" payments. However, the CAP reforms 
would leave import barriers unchanged and export subsidies would be 
reduced only in response to limited support price reductions and lower 
export levels. 

The major criticism of the October 2005 U.S. offer on domestic support 
was that the level of overall trade-distorting support--which includes 
the sum of Amber Box, Amber Box de minimis, and Blue Box support--did 
not represent a "real" cut in actual program spending and should be 
reduced. Specifically, while the reduction in the Amber Box limit would 
probably require certain program changes under the current U.S. 
proposal, trading partners believe that the cut proposed for U.S. 
overall trade-distorting support does not represent a "real" cut from 
current levels. Per the U.S. proposal, this support would be reduced 53 
percent, while the EU and the G-20 countries proposed reductions of 60 
and 75 percent, respectively. As table 1 shows, the U.S. offer would 
bring this level to about $22.5 billion after 5 years. However, in 
2005, actual support for these programs was estimated at about $19.7 
billion. Allowing higher U.S. trade-distorting domestic support 
ceilings after the Doha Round is implemented than is presently spent is 
not acceptable to many WTO members. Key U.S. stakeholders in the 
negotiations, however, argue that the ceiling should not be set at or 
below the level of support in 2005 (or any one year) because the nature 
of the programs is such that payments vary from year to year, depending 
on market conditions. Moreover, the de minimis ceilings themselves 
fluctuate annually with the value of production. Finally, the United 
States and other WTO members disagreed on the base period to be used 
for setting the new product-specific caps for Amber Box--the United 
States would prefer 1999 to 2001 as the base (when U.S. support was 
higher due to lower U.S. crop prices), whereas other negotiating 
parties prefer 1995 to 2000 as the base (which includes both low and 
high support years). 

Table 1: U.S. Reform Proposal on Domestic Support and Estimated 
Domestic Spending Outlays for 2005: 

Dollars in billions. 

Amber Box ceiling (Uruguay Round final bound total); 
Present ceiling: $19.1; 
October 2005 U.S. proposal: Percentage cut: (60%); 
October 2005 U.S. proposal: Ceiling: $7.6; 
Actual 2005 spending: $12.5. 

Blue Box ceiling (per July 2004 framework agreement; based on 2005 U.S. 
production value); 
Present ceiling: 9.6; 
October 2005 U.S. proposal: Percentage cut: (50); 
October 2005 U.S. proposal: Ceiling: 4.8; 
Actual 2005 spending: 5.0. 

Product-specific de minimis; 
Present ceiling: 9.6; 
October 2005 U.S. proposal: Percentage cut: (50); 
October 2005 U.S. proposal: Ceiling: 4.8; 
Actual 2005 spending: 0.2. 

Nonproduct-specific de minimis; 
Present ceiling: 9.6; 
October 2005 U.S. proposal: Percentage cut: (50); 
October 2005 U.S. proposal: Ceiling: 4.8; 
Actual 2005 spending: 2.0. 

Overall trade-distorting support; 
Present ceiling: $47.9; 
October 2005 U.S. proposal: Percentage cut: (53%); 
October 2005 U.S. proposal: Ceiling: $22.5; 
Actual 2005 spending: $19.7. 

Source: GAO analysis of USDA data. 

Note: Data analysis using information on bound levels and base levels 
of Amber Box, Blue Box, and de minimis; October 2005 percentage cuts 
and proposed ceiling levels from the U.S. proposal; and unofficial USDA 
estimates for 2005 outlays. 

[End of table] 

Members also are concerned that the U.S. proposal would enable it to 
increase "de minimis" support. As seen in table 1, there is significant 
"water" between bound levels of support and actual support in both the 
product-specific and nonproduct-specific de minimis categories. Other 
countries are quick to point out that the United States could 
potentially expand programs under this category in the future. But U.S. 
officials say that this category is the least used, and since it is 
based on year-to-year production value, it is a risky category to rely 
upon. Moreover, the de minimis level may be higher in the U.S. proposal 
because Congress wants flexibility to decide what to do with U.S. farm 
programs in the 2007 Farm Bill. 

While welcoming proposed U.S. cuts in spending under the new Blue Box, 
other key players want additional disciplines. The October 2005 U.S. 
proposal would reduce the cap on Blue Box spending from 5.0 to 2.5 
percent of the total value of agricultural production based on a 
historical period to be determined. This reduction translates into 
about a $5 billion ceiling, whereas the 2002 Farm Bill allows as much 
as $7.6 billion in countercyclical payments. Recent spending on 
countercyclical payments suggests that the proposal on Blue Box would 
not constrain spending in most years, but would provide a cap in low- 
priced years.[Footnote 43] Nevertheless, other member countries 
continue to press for disciplines (i.e., product-specific caps) to 
ensure that Blue Box payments actually have minimally trade-distorting 

As shown in table 1, the U.S. offer would reduce the ceiling for Amber 
Box, the most trade-distorting support, by 60 percent--from about $19.1 
billion to $7.6 billion. These cuts are significant and would require 
some changes to present U.S. programs, since unofficial estimates of 
Amber Box support in the United States was about $12.5 billion in 2005. 
Examples of Amber Box programs include marketing loan benefits and milk 
and sugar price supports. However, the extent to which these programs 
would have to change depends on future commodity prices. If prices were 
high, the programs may require only small changes. However, larger 
changes might be required if prices were lower because current programs 
would lead to greater spending. A recent study by FAPRI estimating the 
effects of the U.S. offer on U.S. farm programs demonstrated that the 
offer would require some significant cuts or changes to the 2002 Farm 
Bill provisions for Amber Box and Blue Box support. Specifically, this 
study suggests that these reductions to the Amber Box and new Blue Box 
could translate into about an 11 percent cut in loan rates (reducing 
loan deficiency payments)[Footnote 44] and a 7 percent cut in target 
prices (reducing countercyclical payments). However, in both scenarios 
of the FAPRI models, most farmers would experience increased overall 
crop and livestock receipts due to higher demand and prices caused by 
lower tariffs, the expansion of TRQs, and the removal of export 
subsidies worldwide. 

Although not officially supported by the United States, the EU and 
developing countries have complained that the United States would like 
to see "dollar-for-dollar" compensation in market access (tariff cuts) 
in exchange for further reducing its domestic support levels. The EU 
trade commissioner did so publicly at the time of the July breakdown, 
and various foreign government officials did so in our September 
meetings in Geneva. Moreover, according to a recent United Nations 
Conference on Trade and Development (UNCTAD) report, which covered the 
suspension of the Doha talks, other WTO members from developing 
countries do not believe that this "dollar-for-dollar" equivalence 
between domestic subsidy reductions and market access is 
acceptable.[Footnote 45] The UNCTAD report noted that some countries 
believe that since domestic support is inherently trade distorting, a 
"dollar-for-dollar" exchange is not possible, and greater reductions in 
domestic support are required. 

However, both U.S. officials and the Farm Bureau deny that they are 
insisting on a strict "dollar-for-dollar" trade-off. A USDA official 
explained that the United States is seeking rough parity among the 
three pillars of agricultural reform and needs to see broadly 
commensurate U.S. market access gains. According to this U.S. official, 
the notion of a "conversion rate" between the pillars of market access 
and domestic support came about as a result of an analysis by the 
American Farm Bureau Federation. An August 2006 article by the Farm 
Bureau's chief economist indicated that the federation had analyzed the 
extent to which market access gains could be used to offset the adverse 
affects on U.S. producers of domestic support reductions and found that 
trade gains from a 50 percent reduction in tariffs would offset a 50 
percent reduction in domestic support.[Footnote 46] The article further 
indicated that the United States' October 2005 proposal appears to meet 
the criteria of generating enough trade gains to offset the proposed 
reductions in domestic support. Farm Bureau officials told us that the 
bureau's position is that it has to see a positive balance--or at least 
not a negative balance--between cuts in domestic support versus gains 
from market access. Specifically, the net impact on U.S. farm income of 
losses from cuts in U.S. domestic support should be fully offset by 
gains in U.S. farm income driven by cuts in foreign tariffs or other 
improvements in foreign market access, but would depend on the specific 
products involved. 

WTO Members Are Divided by Underlying Conflict on Expectations from a 
"Development Round" 

Another issue facing WTO members is an underlying conflict about their 
fundamental expectations from the Doha Round--a round that originated 
with the intention of focusing on the interests and needs of developing 
countries. Despite this shared objective, the views of developed and 
developing country members often diverge on the desired outcome of a 
"development round." Developing countries are playing a more pivotal 
role than in past rounds and have maintained a show of solidarity at 
critical moments, despite their diverse interests. Two developing 
countries that have informally led the developing country camp--Brazil 
and India--are now included in the inner circle of the Doha 
negotiations because of their major role in world trade as well as 
their leadership roles. Recent economic studies generally confirm that 
some developing countries face particular challenges in trade 
liberalization related to worker displacement, and that a few are 
likely to lose overall from a Doha agreement. The United States and 
other developed countries tend to emphasize the benefits of opening 
markets, while generally developing countries tend to be wary of the 
economic and social effects of lowering their own trade barriers. All 
agree that developing countries should receive assistance to adjust to 
and benefit from trade liberalization. 

Intent of the Doha Development Agenda Was to Help Developing Countries 
Benefit from Trade: 

WTO members began the Doha talks with the intention of helping 
developing countries benefit from international trade. Although the 
Doha ministerial declaration did not define specific outcomes from the 
negotiations for developing countries, it referred often to addressing 
issues of interest to developing countries and providing assistance to 
them. The preamble to the Doha declaration explicitly addressed the 
development objective of the round, as follows: 

"We recognize the need for all our peoples to benefit from the 
increased opportunities and welfare gains that the multilateral trading 
system generates. The majority of WTO Members are developing countries. 
We seek to place their needs and interests at the heart of the Work 
Programme adopted in this Declaration. …We shall continue to make 
positive efforts designed to ensure that developing countries, and 
especially the least-developed among them, secure a share in the growth 
of world trade commensurate with the needs of their economic 

Without this emphasis, several foreign officials we met with in Geneva 
told us, the round might never have been started, because many 
developing countries had ongoing difficulties in implementing the 
Uruguay Round agreements and said they were not prepared to make new 

WTO members mean different things when they refer to the "development 
dimension" of the Doha negotiations. Many developing countries express 
a concern about ensuring that trade rules are applied fairly to all 
countries. They see the Doha Round as an opportunity, even a promise, 
to redress trade rules that they believe particularly harm poor 
countries. For example, at the Hong Kong ministerial, Pakistan's 
Commerce Minister defined development as "synonymous with the end of 
discrimination against developing countries." This concern is focused 
on trade barriers imposed by developed countries in sectors of 
particular interest to developing countries, such as agriculture and 
textiles and apparel. 

Developing Countries Have Diverse Trade Interests, Yet Maintain 
Solidarity in the Doha Negotiations: 

Developing countries--which now make up some two-thirds of WTO's 
membership and a growing share (over one-quarter) of world trade--have 
diverse trade interests in the Doha negotiations. Some countries have 
strong offensive interests in gaining more access to world markets for 
their exports in certain sectors, such as Brazil in agriculture and 
China in manufactured goods; while others express primarily defensive 
interests in protecting their industries and markets from imports, such 
as the island countries that consider themselves part of the "small and 
vulnerable economies" group. Some countries have a combination of 
interests, such as India, which has offensive interests in services and 
defensive interests in agriculture. 

Despite their different trade interests, developing countries have 
organized into a newly assertive force since they precipitated the 
collapse of WTO's Cancun Ministerial in 2003 and have displayed public 
solidarity at key points in the negotiations. Their common link is the 
demand for a development focus in the talks. They also insist that 
agriculture be negotiated first before they are willing to resolve 
other issues of interest to developed countries--that is, manufactured 
goods and services. They have demonstrated relative unity in the Doha 
Round by adopting elements of various groups' key concerns in joint 
public statements. For example, at the Hong Kong ministerial, several 
developing country coalitions came together as the informally named "G- 
110" to draw attention to a number of shared, general demands, such as 
the removal or reduction of trade-distorting subsidies and the 
extension of duty-free, quota-free access to LDCs.[Footnote 47] In 
September 2006, G-20 ministers and officials met with the coordinators 
of the G-110 coalitions, plus others, to discuss the suspension of the 
negotiations. Their joint statement described the suspension as "an 
unacceptable situation for all developing countries," reiterated their 
"shared interest in a pro-development outcome" for the round, and 
highlighted "the indivisibility of such a development agenda." 
Developing countries have largely avoided divisiveness so far by not 
jointly addressing issues on which there is dissension, such as the 
details of special-product designation. As the architect of these 
gatherings, Brazil has modified its aggressive agricultural negotiating 
stance in the talks to accommodate the defensive interests of other 
developing countries, primarily because it highly values its role as 
the G-20 leader. China also has stood with the developing countries in 
the G-20 and the G-33, despite urging by the United States and others 
for it to step away from the pack and assert its interests in market 

Trade Liberalization Poses Particular Challenges for Some Developing 

A primary rationale driving the Doha liberalization agenda is the 
belief that international trade can benefit a country's overall growth 
and development. International trade increases competition and 
specialization, provides greater access to technology, and expands 
export markets, enabling some producers to achieve economies of scale. 
Over time, a more liberal trading regime may reduce costs on both 
imported manufacturing inputs and exported final products, creating 
incentives to invest in new production. Greater integration with the 
global economy may also spur foreign investment, providing additional 
capital for development and growth of the local economy. 

However, trade liberalization also can involve significant adjustment 
costs. These costs may include unemployment in sectors that are not 
internationally competitive, may include fiscal reform as governments 
heavily dependent on trade taxes shift toward income or production 
taxes, and may contribute to worsening of inequality. Developing 
countries also may face some specific challenges, such as greater 
instability due to volatile export markets and an increased reliance on 
international debt to finance trade deficits. Finally, trade is not the 
only factor affecting a country's economy or the only means of 
increasing its growth. For example, human capital development through 
education and the strengthening of institutions and the rule of law 
also play important roles in a country's economic development.[Footnote 

Economic models of the potential effects of a Doha agreement generally 
predict overall benefits for most developing countries. However, these 
models find that some developing countries in sub-Saharan Africa and 
the Mediterranean region may actually lose overall from a Doha 
agreement, due to several factors (see the discussion of these models 
in the next section of this report). First, developing countries in 
these regions generally benefit already from preferential access into 
the U.S. and the EU markets that could be eroded under a Doha 
agreement. Second, U.S. and EU agricultural subsidies tend to reduce 
the price of certain agricultural products on the world market. While 
this can harm domestic agricultural producers in developing countries, 
it benefits those countries that import more food than they export. 
Many of these net-food importers are in sub-Saharan Africa. Third, 
potential special and sensitive product exemptions previously discussed 
in this report would limit the scope of liberalization. When these 
exemptions are factored in, the gains from Doha that otherwise would 
have been possible and that would have offset some of the other losses, 
do not materialize. 

Many Developing Countries Are Wary of Opening Markets: 

In part for these reasons, many developing countries are wary of 
undertaking broad liberalization for imports. While they want to share 
in the growth of global trade by increasing their exports, they fear 
the negative economic and social effects of relaxing their own trade 
barriers. They hold that their development needs would best be met by 
limiting the degree and speed with which they open their markets in the 
Doha Round. 

Protecting large numbers of poor people who make a living in industries 
that may have difficulty competing internationally is a priority for 
many developing countries. India, with over 600 million poor rural 
farmers, has been one of the most vocal countries on this issue. India 
has defended special and differential measures and the G-33's demand to 
allow developing countries to protect a relatively large percentage of 
agricultural products through special-product designation. The African, 
Caribbean, and Pacific Group of countries, which receive preferential 
access to the EU and are often dependent on a few export products, have 
repeatedly called for the negotiations to soften the impact of erosion 
of preferences. Specifically, they would like to preserve "a 
commercially meaningful preference margin" by identifying products 
potentially affected and having countries that provide preferences 
apply smaller tariff cuts over a longer time. However, some developing 
countries are vigorous advocates of trade liberalization to achieve 
development goals and have objected to such efforts to limit market 
access in developing countries. Costa Rica and Colombia, for example, 
spoke out to WTO members at the time of the July collapse, criticizing 
both developed and developing countries for a lack of flexibility. 

Some trade experts agree that developing countries should be given the 
latitude (or "policy space") to develop their economies before being 
expected to remove their trade protections. They maintain that each 
country's development needs are specific and trade rules need to be 
flexible. They also point out that most developed and advanced 
developing countries achieved economic growth by using strategic trade 
barriers at certain points in their history. These experts, and most 
developing countries, advocate for trade liberalization to be 
undertaken over years, or even decades, in phases that allow their 
economies to grow before opening markets fully. 

United States Is a Strong Advocate for Trade Liberalization: 

In contrast, the United States is one of the most outspoken advocates 
for trade liberalization. U.S. negotiators emphasize that lifting trade 
barriers and opening markets is essential to making economic gains from 
trade agreements. They point out that about half of the estimated 
benefits to developing countries from a Doha agreement come from 
liberalization by other developing countries. Thus, aside from its own 
commercial interests in more open markets overseas, the United States 
maintains that developing countries would benefit from an ambitious 
Doha agreement that leads to significant market opening by all parties, 
except LDCs. U.S. officials acknowledge that liberalization involves 
adjustment costs, but they state that these costs are typically short 
term and can be mitigated through social safety nets. They agree that 
developing countries should receive assistance to address transition 
issues and take advantage of trade opportunities. 

Members Agree to Help Developing Countries Adjust to and Benefit from 
Trade Liberalization: 

WTO members already plan to give developing countries flexibility in 
complying with WTO agreements, through what are called special and 
differential treatment provisions. While the full extent of these 
flexibilities has yet to be decided, these provisions would apply to 
most aspects of an agreement, including agriculture, manufactured 
goods, and services. For example, the flexibilities are likely to allow 
developing countries to make smaller tariff cuts and phase them in over 
a longer time. WTO members also have decided that WTO's poorest 
members--LDCs--would be exempted from most liberalization commitments 
in a Doha agreement. 

Although the future of the Doha Round is uncertain, WTO members also 
have decided to move ahead with providing increased "Aid for Trade" to 
help developing countries take advantage of trade opportunities, 
regardless of the outcome of the current negotiations. The WTO 
Secretariat, individual members, and international organizations have 
provided technical and financial assistance for years to help 
developing countries and LDCs meet existing WTO obligations; 
participate in the negotiations; and build institutional, human, and 
physical capacity to benefit from the trading system. The level of such 
assistance has increased since the start of the Doha Round, but 
international consensus has recently arisen that these resources need 
to grow and become better coordinated. 

During 2006, WTO members endorsed recommendations from two task forces 
on improving assistance. One task force, charged at Hong Kong with 
developing ways to "operationalize" Aid for Trade, outlined policies 
for identifying and fulfilling trade-related needs of developing 
countries. Its report recommendations focused on coordinating resources 
and activities at the national, regional, and global levels and 
strengthening monitoring and evaluation to ensure effectiveness and 
accountability by both donors and recipients. The task force and 
Director-General Lamy urged WTO members and other stakeholders to carry 
out the recommendations as soon as possible, underscoring that Aid for 
Trade was not tied to the Doha Round and should be considered a 
complement to, and not a substitute for, a multilateral trade 
agreement. The report stressed that additional, predictable sources of 
funding were necessary and urged Lamy to "clarify" the Aid for Trade 
pledges made at the Hong Kong ministerial. The United States had 
pledged to double its trade-related assistance for developing countries 
to $2.7 billion a year by 2010, the EU had said it would commit 2.0 
billion euros a year by 2010, and Japan offered to provide $10.0 
billion from 2006 through 2008. 

The second task force recommended strengthening a program called the 
"Integrated Framework" that provides assistance specifically to LDCs in 
the early stages of building trade capacity.[Footnote 49] Earlier 
evaluations of this program showed it had generally failed in 
integrating trade into countries' development plans and in providing 
adequate resources. The task force estimated that about $400 million 
would be needed over 5 years to finance the recommended actions. 

USTR officials hope to make the Aid for Trade and Integrated Framework 
recommendations more concrete and workable. Some major decisions on the 
enhanced Integrated Framework, such as clarifying the legal status of a 
new executive secretariat and trust fund and their relationship with 
the WTO, are still pending. Regarding Aid for Trade, the WTO will 
provide only limited assistance, but Director-General Lamy would like 
it to play an important--and new--role in coordinating and monitoring 
assistance provided by bilateral and multilateral donors. U.S. 
officials said there is a high level of commitment among WTO members to 
move forward on both initiatives and, in particular, to make the 
enhanced Integrated Framework operational early in 2007. They said that 
making progress on these efforts is important to maintaining 
credibility with developing countries and ensuring that these countries 
begin to see more benefits from the trading system. 

Participants Have Contrasting Views on Implications of Doha's Impasse: 

Participants and experts express varying views on the ramifications of 
Doha's possible failure for the global and WTO member economies, the 
world trading system, and U.S. trade policy. Some participants and 
experts warn of forgone economic gains, a weakened multilateral trading 
system, and dimmed prospects for both congressional renewal of TPA and 
reform of U.S. farm subsidies. Others say the ramifications on all 
three fronts may be much more limited. What the United States does in 
2007 is expected to prove pivotal for the WTO and U.S. trade 

Without a Doha Agreement, Potential Economic Gains Might Not Be 

The Doha Round has the potential to break new ground in the 
liberalization of agriculture trade, while opening up new areas of 
services and goods trade. A range of economic studies predict that both 
the global economy as a whole and the United States as a nation would 
gain overall from the multilateral trade agreement envisaged. However, 
if the Doha Round fails, these potential economic gains would not be 
realized. Some of these benefits could be achieved through unilateral 
actions, such as a reduction in domestic subsidies or through regional 
free trade agreements (FTA). But the resulting gains would likely be 
more limited for the United States than the already relatively modest 
gains estimated from a Doha agreement. 

Doha Focused on Largest Remaining Barriers to World Trade: 

Some officials and observers of the Doha Round point out that the 
negotiations have included significant groundbreaking liberalization in 
agriculture and could potentially expand market access significantly in 
other areas. WTO Director-General Lamy is not alone in arguing that 
what has already been notionally agreed to in the Doha Round is 
significant in terms of reform and liberalization and in some areas 
would go beyond what was achieved in the last (Uruguay) round of global 
trade talks. By the December 2005 Hong Kong ministerial, WTO members 
had agreed to phase out export subsidies altogether and to provide duty-
free, quota-free access to LDCs for at least 97 percent of tariff 
lines. The Uruguay Round resulted in some liberalization of agriculture 
and services markets, and set a baseline of rules as well as subsidy 
and market access levels. In the Doha Round, across-the-board "formula" 
cuts are being discussed for both agriculture and manufactured goods 
that would apply to most WTO members and most tariff lines, although 
the depth of these cuts is still under debate. This approach to cutting 
barriers is more encompassing than that employed in the Uruguay Round 
and means more trade will be secured by WTO disciplines. Increased 
market access in core services such as financial services and 
telecommunications, as well as steps to streamline the transit and 
clearance of goods, are also expected to produce tangible gains. 

Extent of Potential Economic Gains May Not Be Realized without a Doha 

An international trade agreement reducing trade barriers and subsidies 
would economically benefit the United States and the world economy, 
overall, according to economic models.[Footnote 50] Although some 
individuals and groups within countries could be made worse off (such 
as farmers who lose their subsidies), the net effect on the world 
economy and the United States individually would likely be 
positive.[Footnote 51] For example, a recent World Bank study estimated 
that a potential Doha agreement could (under a certain scenario) 
increase worldwide real income by about $96 billion annually by 2015 
and increase U.S. real income by about $5 billion annually. Other 
models offer similar predictions on the overall positive effect on the 
world and the United States, although the benefit magnitude varies. 
Table 2 shows the results of four recent studies that rely on the most 
recent tariff and trade data available and model likely Doha 
outcomes.[Footnote 52] 

Table 2: Estimated Economic Effect of a Potential Doha Multilateral 
Trade Agreement: 

U.S. dollars in billions. 

Carnegie Endowment, 2006[A]; 
Annual change in real income after an agreement is implemented: World: 
Annual change in real income after an agreement is implemented: United 
States: $6.5; 
Annual change in real income after an agreement is implemented: 
Developed countries: $28.5; 
Annual change in real income after an agreement is implemented: 
Developing countries: $30.1. 

Centre d'Etudes Prospectives et d'Informations Internationales, 2004 
(trade liberalization in agriculture only)[B]; 
Annual change in real income after an agreement is implemented: World: 
Annual change in real income after an agreement is implemented: United 
States: 4.0; 
Annual change in real income after an agreement is implemented: 
Developed countries: 18.3; 
Annual change in real income after an agreement is implemented: 
Developing countries: (0.8). 

International Food Policy Research Institute, 2006[C]; 
Annual change in real income after an agreement is implemented: World: 
Annual change in real income after an agreement is implemented: United 
States: Not available; 
Annual change in real income after an agreement is implemented: 
Developed countries: 32.0; 
Annual change in real income after an agreement is implemented: 
Developing countries: 22.7. 

World Bank, 2006[D]; 
Annual change in real income after an agreement is implemented: World: 
Annual change in real income after an agreement is implemented: United 
States: 4.9; 
Annual change in real income after an agreement is implemented: 
Developed countries: 79.2; 
Annual change in real income after an agreement is implemented: 
Developing countries: 16.1. 

Source: GAO analysis of studies listed in notes a through d. 

Note: Since the final results of a Doha agreement are not known, 
modelers estimate the degree of liberalization they think is likely. We 
chose, for illustration purposes in this table, those scenarios that 
represented the modelers' baseline scenario for a likely Doha 
agreement. However, many times modelers include multiple scenarios that 
represent different potential scenarios (e.g., tariff cuts of 20 
percent versus 40 percent) to show how different agreements affect each 
economy. For details on the exact specification used by each model, as 
well as a comparison of other scenarios, refer to the original studies. 

[A] Sandra Polaski, Winners and Losers: Impact of the Doha Round on 
Developing Countries (Washington, D.C.: Carnegie Endowment for 
International Peace, 2006). 

[B] Antoine Bouet, Jean-Christophe Bureau, Yvan Decreaux, and Sebastien 
Jean, "Multilateral Agricultural Trade Liberalization: The Contrasting 
Fortunes of Developing Countries in the Doha Round," Paper 2004-18 
(Paris, France: Centre d'Etudes Prospectives et d'Informations 
Internationales, November 2004). "Developing countries" in this table 
combines "developing countries" and the "poorest countries" from this 

[C] Antoine Bouet, Simon Mevel, and David Orden, "Two Opportunities to 
Deliver on the Doha Development Pledge," Research Brief No. 6 
(Washington, D.C.: International Food Policy Research Institute, July 

[D] Kym Anderson, Will Martin, and Dominique van der Mensbrugghe, 
"Market and Welfare Implications of Doha Reform Scenarios," in Kym 
Anderson and Will Martin (eds.), Agricultural Trade Reform and the Doha 
Development Agenda (Washington, D.C.: World Bank, 2006). 

[End of table] 

These estimated gains, although positive, are relatively modest 
relative to the size of the U.S. and world economies. For example, the 
increase of $4.9 billion annually for the U.S. economy estimated by the 
World Bank represents only 0.03 percent of the U.S. economy, and the 
estimated gains globally represent less than one-quarter of 1 percent 
of the world economy. However, as we noted in our last report, real 
income gains of $50 billion to $90 billion annually are roughly 
comparable to global aid flows in recent years.[Footnote 53] Countries 
might gain additional benefits from trade liberalization due to 
productivity improvements and increased investment as the economy 
becomes more efficient and competitive. These "dynamic" gains from 
trade liberalization are modeled in some studies and can double or 
triple the estimated economic gains over time.[Footnote 54] 

The estimated gains also are not uniform within and across countries. 
As is well known, trade liberalization creates winners and losers. The 
studies we reviewed suggest the following: 

* For developed economies such as the United States, the EU, and Japan, 
some of the largest expected benefits from a Doha agreement come from 
liberalization of their domestic agriculture markets. However, these 
changes can create challenges for the producers of the specific 
agricultural products that lose protection and subsidies. Outside of 
agriculture, there has been concern in the United States and other 
developed economies over the effect of competition from large 
developing economies, such as China and India, on domestic 
manufacturing and services workers.[Footnote 55] A Doha agreement may 
increase this competition; however, it also may help to create 
relatively better access for U.S. producers in these markets. 

* For developing economies, the expected benefits and costs of a 
potential Doha agreement vary widely. For example, in the World Bank 
and Carnegie studies, both Brazil and China are expected to gain from 
Doha overall, but for different reasons. Brazil benefits from greater 
market access in agriculture, while China benefits largely from greater 
access in manufacturing. On the other hand, both studies show that 
Mexico is likely to lose somewhat from a Doha agreement due to the 
erosion of its preferential access to the U.S. market under the North 
American Free Trade Agreement. Some lesser developed countries in Sub- 
Saharan Africa and the Mediterranean region also could be made worse 
off overall by a Doha agreement due to preference erosion and higher 
imported food prices. 

* Studies by international economists show that global poverty is 
likely to be reduced overall after a Doha agreement, but some countries 
may actually experience an increase in poverty.[Footnote 56] 

The most recent economic models, such as those highlighted in table 2, 
generally estimate lower benefits from trade liberalization than 
previous models. Earlier economic models relied on tariff and trade 
regime data that did not fully include benefits that many countries 
already received through preferential trade programs (such as the U.S. 
African Growth and Opportunity Act) and FTAs. Thus, the models 
overestimated liberalization benefits resulting from trade 
liberalization since they include some liberalization that had already 
occurred. For example, a 2002 World Bank study estimated real income 
gains from a Doha agreement that were significantly larger than a 
similar scenario estimated in the previously mentioned 2006 study. 
Although the models had similar assumptions and methodology, they 
differed in their underlying data on current trade protections that 
countries faced.[Footnote 57] 

Some Economic Gains Could Be achieved without a Doha Agreement: 

Some of the economic gains expected from a Doha agreement could be 
achieved unilaterally or through regional FTAs. However, these gains 
may be difficult to implement outside of a comprehensive agreement like 
Doha and would probably result in lower benefits. For example, the 
majority of economic gains for the United States (about $3 billion of 
the $5 billion) are due to the reduction in export subsidies and 
domestic support payments to farmers, on the basis of the World Bank 
model.[Footnote 58] Although certain U.S. farmers benefit from these 
federal government payments, overall they cause distortions and cost 
the federal government and taxpayers more than the benefits received by 
those particular farmers. The United States could unilaterally reduce 
its own subsidies and achieve some of the expected gains. However, 
politically it may be difficult for the United States to reduce these 
programs without similar reductions by the EU and other major 
subsidizers that often compete with U.S. producers. 

The United States also would derive gains from greater market access 
abroad--whether agricultural products, manufactured goods, or services--
but this depends on other countries' willingness to lower trade 
barriers. Regional agreements such as FTAs continue to be vigorously 
pursued and may provide some of the same market access that could be 
achieved at the WTO, but by their nature involve fewer benefits because 
they cover fewer countries and less trade.[Footnote 59] In addition, 
negotiations with larger U.S. trade partners under the Free Trade Area 
of the Americas, which includes Brazil, have not advanced recently, and 
the United States does not have current negotiations under way with 
Japan and the EU. 

Some Warn That WTO's Role Could Be Undermined by Prolonged Doha Delay, 
but Others See July Offer as a "Bad Deal" 

Some participants and observers said the impact of the July 
negotiations' collapse on the WTO would depend on the length of the 
suspension. A short pause was seen as inevitable and possibly useful. A 
prolonged lapse was seen by many as likely to harm the WTO as an 
institution and the global trading system generally. 

The consequences of failing are considerable, some fear. Seeking to 
stress this, Director-General Lamy likened Doha's precarious state to a 
disease putting the WTO's "economic lungs, political heart, and 
systemic bone structure" at risk. Specifically, he explained, failure 
to conclude the talks would deprive WTO members of the economic 
stimulus created by trade liberalization; the WTO's political 
legitimacy would be questioned if it is unable to address issues of 
fairness that concern many members; and the WTO's value and functioning 
would be weakened if bedrock principles of nondiscrimination are eroded 
and the system bears the brunt of resolving conflicts among members. 
More recently, Lamy warned that Doha's failure could fuel a political 
backlash by developing countries against the United States and other 
developed nations. 

Others share the concern that WTO's authority and integrity could be 
weakened. In a recent business-sponsored poll, more than 70 percent of 
1,060 economic experts surveyed said they were "concerned" or "very 
concerned" about Doha's collapse in July. Among other things, these 
experts predicted rising protectionism and diminished export 
opportunities at a time when global economic growth prospects are 
"clouded."[Footnote 60] Others warn that: 

* The number and intensity of trade disputes could rise. 

* Frustration could spill over into regular WTO work. 

* Regional deals such as FTAs could proliferate, which may create 
trade, but they carry risks--such as discriminatorily distorting trade 
against nonparticipants and further marginalizing the poorest WTO 

Already, since June, nine new disputes have been initiated at the WTO; 
several ongoing disputes have intensified; and more disputes, 
particularly on agriculture, are considered likely. For example, Canada 
just initiated the first stage of WTO dispute settlement against U.S. 
corn subsidies. Regionally, the EU has shifted its stance from focusing 
primarily on the WTO to renewed pursuit of bilateral free trade deals. 
India also has actively pursued bilateral agreements, despite its 
professed fears over significant liberalization in the WTO context. 

Some U.S. and foreign officials and other observers are less concerned 
about adverse effects on the trading system from Doha's collapse. Among 
other things, they argue that: 

* The WTO will remain central regardless. 

* The WTO can withstand the uncertainty of the present deadlock. 

* Waiting for a better package and political timing is sensible. 

* Other options for liberalization, such as unilateral liberalization, 
FTAs, and WTO accessions, are available, if second best. 

* A bad deal would have been worse for the trade system. 

In general, U.S. government officials, congressional leaders, and 
business representatives we consulted remain convinced that what was on 
offer by others in July 2006 was a "bad deal" that would have been 
detrimental to U.S. interests and to the trading system. Certain 
foreign officials we spoke with also expressed somewhat similar 
sentiments, in that they said holding fast to Doha's ideals and holding 
out for more significant results was preferable to accepting existing 
offers. Indeed, some see insistence on more liberalization as a welcome 
sign of determination to ensure the WTO's continued relevance and 
promoting growth potential. 

Breaking the Doha impasse, many participants and trade experts agree, 
depends on political will and timing. The desire by key WTO members to 
move forward with liberalization without a Doha agreement is seen by 
some as a good sign. For example, UNCTAD's long-standing, but elusive, 
goal of liberalizing trade among developing countries moved somewhat 
closer to realization with a recent announcement that developing 
countries had agreed to cut applied tariffs up to 30 percent.[Footnote 
61] Yet, as some commentators have pointed out, agriculture is 
politically sensitive in virtually all countries, large and small, 
developed and developing. In the United States, for example, the 
sensitivity involves reducing payment support to farmers or large 
agricultural interests that have come to rely on these payments. In 
other countries, just increasing market access to other countries is of 
social and political concern. In France, for example, in addition to 
the economic implications, farming has special social and cultural 
dimensions that make liberalization of the sector a particularly 
sensitive issue. As a result, observers believe that it may be 
difficult for the EU to offer market access concessions given the 
French presidential elections in mid-2007. In developing countries, 
moreover, rural farming populations are typically the poorest and have 
the least access to other types of jobs and income. 

Creating a healthier negotiating dynamic also is considered key to 
breaking the Doha impasse. A noticeable lack of trust among key WTO 
players appears to be contributing to the difficulty in striking a 
compromise. This may help explain why developing countries have refused 
to break ranks and insisted that the agriculture issue must be resolved 
first, before industrial goods and services are negotiated. Unlike past 
times when Doha breakthroughs have occurred, the United States and the 
EU have been at odds since before the Hong Kong ministerial. A number 
of countries say they are unwilling to "go first" in making offers or 
concessions, for fear that the other members will "pocket" these offers 
without providing enough in return. Since the July collapse, U.S. Trade 
Representative Schwab has sought to establish a better basis for 
progress with counterparts, yet stressed that "you first" tactics and 
artificial deadlines have not worked and should not be repeated. 

Other groups with an interest in the negotiations said that the pause 
provided a welcome opportunity to refocus. For example, the United 
Nations' Food and Agriculture Organization stated "the Doha Round 
collapsed because of a fundamental lack of fairness in its vision, its 
process, and its projected outcomes." It urged that "when negotiations 
restart, the Doha Round should truly be a development round approached 
in a broader and participatory way…that deals seriously with supply 
side capacity and related investment needs for the least-developed 
countries." Despite predicting that a Doha agreement may not be 
completed until 2009 or after, one of the Carnegie Endowment's trade 
specialists suggests relief, rather than alarm, is 
appropriate.[Footnote 62] She argues that rebuilding a bipartisan 
consensus in the United States in favor of trade liberalization and 
reorienting WTO talks to deal with what she believes are well-founded 
demands for flexibility by developing countries and with worldwide 
fears of job loss will provide a better foundation for an eventual Doha 

Congress Faces Pivotal Decisions in 2007 on Whether to Renew Trade 
Promotion Authority and the 2002 Farm Bill: 

The uncertainty over whether the WTO talks will progress is occurring 
at a time when Congress faces key decisions. Two of these decisions in 
2007 are seen as bellwethers of U.S. intentions at the WTO: that is, 
TPA and the Farm Bill. 

TPA Renewal Considered Vital for Concluding Doha Deal: 

Congressional renewal of TPA is considered essential to finalizing a 
Doha deal. U.S. trade officials argue that TPA is vital to keep the 
United States "in the game" at global talks and to conclude bilateral 
and regional FTAs. Such agreements are negotiated on the United States' 
behalf by the President and USTR. Under TPA, Congress must vote up or 
down on any negotiated trade agreement within a fixed period of time. 
Present authority expires on July 1, 2007, and without TPA, U.S. trade 
partners may be reluctant to seal "their best deal" if there is a 
concern that Congress would avoid acting on the legislation or demand 
that parts of the agreement be renegotiated. However, President Bush 
formally asked Congress to renew TPA on January 31, stating that "the 
only way America can complete Doha and make headway on other agreements 
is to extend Trade Promotion Authority." Such renewal will require 
congressional passage of new legislation. Key congressional leaders are 
now debating the terms and goals for renewal. 

Prospects for passing new TPA legislation remain uncertain, but are 
considered stronger if a Doha agreement is in sight. U.S. Trade 
Representative Susan Schwab has stressed that bipartisanship on trade 
has prevailed in the past and is possible in the future. Several 
leading U.S. agriculture and business groups say they will fight for 
TPA renewal. To this end, an umbrella group called Trade for America 
was launched in February 2007 to represent the interests of U.S. 
companies and trade associations that want TPA renewal. Among the 
concerns expressed about present TPA by current Chairs of the House 
Ways and Means and Senate Finance Committees, for example, is that 
Congress has not always been sufficiently consulted by the executive 
branch in recent trade negotiations. Other concerns include fears over 
U.S. job losses and inadequate worker adjustment mechanisms; laxness in 
recent approaches to enforcing trade agreements and managing currency 
imbalances; and the need to do more to prevent a race to the bottom in 
terms of U.S. wages and labor and environmental protections. Still, 
having more hope for success at the WTO--and tangible gains for U.S. 
interests--is considered key to mobilizing support for TPA. 

Shape of the 2007 Farm Bill Could Affect (and Be Affected by) Doha's 

The lack of progress of the Doha negotiations could affect the 
likelihood of U.S. agricultural subsidy reform in 2007. Several aspects 
of the Farm Bill expiring in September 2007 pertain to subsidies 
covered by the WTO that are being discussed in the Doha Round. The 
administration and some farm groups are among those urging reform 
despite Doha's collapse. They say reform is needed to make U.S. 
programs less vulnerable to challenge under existing WTO rules and 
could help the United States in Doha negotiations. Others, including 
several influential farm groups, think renewing the 2002 Farm Bill 
largely intact is desirable in its own right or advisable until the 
United States secures a more level playing field with key partners in 
terms of subsidies and trade barriers. 

The United States is already obligated under existing WTO agreements to 
ensure that its farm programs conform with agreed-upon 
restrictions.[Footnote 63] The 2002 Farm Bill was considered by some to 
be a setback to global agricultural reform because, among other things, 
it reestablished the link between income support payments and market 
prices. In part as a result, the present Farm Bill is projected by the 
Congressional Research Service (CRS) to result in $21.975 billion in 
commodity-specific support in fiscal year 2006.[Footnote 64] The amount 
and distribution of government expenditures for all U.S farm programs, 
from the introduction of the 1996 Farm Bill that implemented U.S. 
Uruguay Round commitments until the present, are shown in figure 3. The 
general depiction is of payments in subsequent years that were higher 
than 1996 and 1997. Ad hoc emergency payments contributed to increases 
from 1999 to 2001, with the largest payments for all programs occurring 
in 2005. 

Figure 3: Government Payments for U.S. Farm Programs, 1996-2005: 

[See PDF for image] 

Source: GAO analysis of USDA/ERS data. 

Note: Data do not include miscellaneous payments; payments for peanuts 
and tobacco have been combined; and marketing loan and loan deficiency 
payments have been combined. Also, note that these are all government 
payments, irrespective of the "boxes" that they may be related to 
within the WTO context. 

[End of figure] 

As explained in a previous section, official U.S. proposals tabled in 
the Doha Round would, if ultimately agreed to by WTO members, involve 
substantial change in some U.S. agricultural policies that would 
require statutory changes to the Farm Bill.[Footnote 65] While the 
President was in a position to make such proposals at the WTO in 2005 
and seeks to influence the legislative debate in 2007, it is Congress 
that writes the Farm Bill. 

Some Advocate Agricultural Reform Despite Doha Delay: 

Since July's suspension, the Secretary of Agriculture has continued to 
emphasize the administration's commitment to reforming U.S. farm 
programs in 2007 to ensure that they are "equitable, predictable, and 
beyond challenge." The Secretary disagrees with those who say the 
breakdown of the Doha negotiations makes it advisable for the United 
States to stick with its present policies, saying policies encouraging 
free trade and market access will be of benefit to U.S. farmers, 

Five of the reasons offered involve trade or trade agreements, as 

* Trade is important to U.S. agriculture. Exports of high-value 
products, such as hides, nuts, and dried fruit, have been outpacing 
domestic demand for two decades.[Footnote 66] Regarding bulk 
commodities, three-fourths of U.S. cotton production, nearly one-half 
of U.S. wheat and rice crops, and one-third of U.S. soybean and tobacco 
production are exported. 

* WTO rules are important to this trade's continuation and growth. A 
former USDA official recently noted that "as the largest agricultural 
exporter, the United States benefits most from a rules-based trading 
system," and that "the WTO provides the only rules applying to 
agricultural products adhered to worldwide." Although U.S. farm 
interests have made known their frustration about ongoing difficulties 
in selling to foreign markets for products ranging from poultry to 
rice, these WTO rules and the WTO's binding dispute settlement system 
have been used to successfully challenge some barriers to U.S. exports, 
such as unjustified bans on beef, apples, and biotechnology crops, and 
duties on high-fructose corn syrup. 

* Key aspects of the current U.S. agriculture subsidies have already 
been successfully challenged at the WTO, and more challenges are 
likely. In September 2006, Brazil secured a formal WTO review of U.S. 
compliance with the WTO's adverse ruling in the Brazil cotton dispute 
and said it will seek up to $3 billion in retaliation regarding 
prohibited subsidies and $1.037 billion in retaliation regarding 
actionable subsidies if noncompliance is found. Some of the needed 
changes to the marketing loan and countercyclical payment programs were 
expected to be dealt with in the 2007 Farm Bill.[Footnote 67] In late 
October, CRS concluded that all major U.S. commodity program crops are 
potentially vulnerable to challenge at the WTO, after analyzing 
existing U.S. WTO obligations, the criteria applied in the WTO's cotton 
ruling, and U.S. spending under the 2002 Farm Bill and other 
legislation.[Footnote 68] Oxfam and others suggest that more cases are 
being readied, with rice among the U.S. products targeted by other 
nations. If these prove successful, the United States would be 
obligated to change or face retaliation, without offsetting concessions 
from others. 

* Market-opening commitments the United States has made under the North 
American Free Trade Agreement and the Central American-Dominican 
Republic Free Trade Agreement may make the present U.S. sugar program-
-which relies on import restrictions to keep domestic price levels 
above world prices--unworkable, USDA suggests. 

* A former USDA official and U.S. agriculture negotiator said "the best 
hope for an eventual WTO agreement may be changes in U.S. domestic farm 
policy for the 2007 Farm Bill." For example, some argue that shifting 
toward Green Box spending, which does not distort prices, production, 
and trade, would give U.S. negotiators more room for maneuver on 
domestic supports at the WTO. 

A number of farm groups and other agricultural policy experts also see 
an immediate need for change. They support reforming the Farm Bill in 
2007, rather than extending it in its current form, despite Doha's 
delay. In addition to echoing the Secretary's views, specific reasons 
for reform include the need to (1) address the distortions that our 
current policies may cause in production and trade and (2) establish 
agricultural policy that allows farmers to make long-term economic 
decisions. The commodity title is the focus of many proposals for 
change, with some farm groups seeking expanded support and others 
seeking less. Groups such as the National Corn Growers Association, 
National Association of Wheat Growers, and American Soybean Association 
believe adjustments to commodity programs are needed to make them more 
beneficial to their producers and, in some cases, more compliant with 
current WTO provisions. Other farm groups, academics, and agricultural 
experts seek to minimize the farm sector's reliance on product- 
specific, trade-distorting (Amber Box) programs, such as price supports 
or loan deficiency payments, with proposals that include, among other 
approaches, (1) environmental and land stewardship programs that reward 
farmers for the environmental services they provide;[Footnote 69] (2) 
direct payment programs that would not be linked to specific types of 
production, so as to comply with Green Box standards;[Footnote 70] (3) 
whole farm, revenue insurance approaches to a farm safety net that 
would cover all commodities;[Footnote 71] and (4) buy-out programs, 
similar to the present buy-out programs for tobacco and 
peanuts.[Footnote 72] Moreover, there are calls for reductions or 
alterations in the marketing loan programs and countercyclical payments 
to make them less susceptible to WTO challenge. 

As this report was going to publication, USDA offered a new proposal 
for the 2007 Farm Bill. The administration has proposed several changes 
that, according to USDA, could, on balance, make farm programs 
potentially less market distorting and less likely to face WTO 
challenge. For a number of commodities, the proposal lowers or shifts 
payments away from those that are linked to present market prices and 
toward greater fixed payments. Major portions of the administration's 
proposal include: 

* Basing marketing loan rates on actual commodity market prices in 
recent years; specifically, by setting loan rates equal to 85 percent 
of a 5-year Olympic average (the last 5 years minus the high and low 
prices), which has the effect of reducing them. In addition, they would 
also be subject to a maximum level. This would particularly affect 
cotton loan rates, which have come under a great deal of scrutiny at 
the WTO. 

* Continuing support of the sugar and dairy programs, counted as part 
of the Amber Box at the WTO, in a similar manner as in the current Farm 
Bill. Specifically, for dairy, the proposal maintains the current 
support price of milk at $9.90 per hundredweight and reauthorizes the 
Milk Income Loss Contract Program, a countercyclical program for dairy, 
while basing it on reduced and historical payment rates. For sugar, the 
proposal continues price supports for raw and refined sugar at their 
current levels through the use of the sugar TRQ as well as the 
reinstatement of domestic marketing allotments when imports exceed 
1.532 million short tons. 

* Increasing the amount of direct payments by $5.5 billion, which are 
potentially classified at the WTO as Green Box. Along with this change 
is a proposal to remove the "fruit and vegetable" planting restriction 
on program crop acres that are considered base acres for determining a 
farmer's direct payments--in response to the WTO cotton ruling's 
discussion of direct payments' compliance with WTO rules. 

* Changing the current countercyclical payment program to a revenue- 
based program that would pay out when market revenue (commodity yield 
times market price) falls below a target level. However, revenue would 
not be based on the individual farmer's revenue, but would be 
calculated from a national average yield for the crop times the higher 
of the national season-average market price or the marketing loan rate. 

* Ending the "three-entity rule," which permits farmers to establish 
corporations and other entities that allow the amount of payments 
received to exceed statutory limits. In contrast to the current Farm 
Bill, the proposal links the payments to an individual and sets the 
payment limit at $360,000. To receive commodity program payments, a 
farmer must meet a new bound on Adjusted Gross Income (wages and other 
income minus farm expenses and depreciation), which has been reduced 
from $2.5 million to a new limit of $200,000. 

* Including an additional $7.8 billion for conservation programs--to 
simplify and consolidate conservation programs, and to create a new 
Environmental Quality Incentives Program and a Regional Water 
Enhancement Program. 

While USDA's Farm Bill proposal has been welcomed in some quarters and 
accepted as a contribution to the congressional debate, trading 
partners have generally urged even more ambitious reform, and some U.S. 
farm groups continue to prefer programs in the 2002 Farm Bill. 

GAO reports concerning 21st century challenges and commodities 
highlight other reasons to consider certain reforms in 2007.[Footnote 
73] For example, we have reported extensively on the U.S. cotton 
program, which is one of the most highly supported farm programs, and 
added to the policy debate on dairy, peanuts, rice, and sugar. We also 
have reported on U.S. food aid, payment limitations, crop insurance, 
revenue insurance, and conservation programs. (For a list of these 
reports, see the Related GAO Products section at the end of this 
report.) In a November 17, 2006, letter, the Comptroller General of the 
United States identified the integrity and equity of federal farm 
programs as one of several suggested areas for oversight for the 
incoming 110th Congress. Among other things, the Comptroller General 
noted that more than $25 billion is spent annually by the federal 
government on subsidies and on disaster and conservation payments for 
farmers, but just 10 percent of the recipients collect 70 percent of 
the benefits. Moreover, we have found that each year thousands of 
producers falsely collect crop insurance, while individuals with 
limited involvement in farming qualify for subsidy payments and evade 
payment limits.[Footnote 74] 

Opponents of Reform: 

Nevertheless, many groups want to extend the present Farm Bill largely 
"as is" or with minor changes. The program is popular, and keeping U.S. 
leverage could better position it to pursue future cuts in foreign 
barriers, some say. Farm groups such as the American Farm Bureau 
Federation, the National Farmers Union, the National Cotton Council, 
and the USA Rice Federation, among others, have proposed extending the 
2002 Farm Bill in its current form. These groups' reasons are diverse, 
although two common arguments for extending the bill have emerged: (1) 
the bill's current farm programs are beneficial to producers and merit 
extension and (2) delays in the Doha negotiations make Farm Bill reform 
impractical. Several groups recognize the level of support the current 
Farm Bill enjoys among farmers and cited the benefits of current farm 
policy as a reason for extension. USDA notes that debate over U.S. farm 
support typically involves diverse stakeholders with varying goals, 
such as price and income support and higher or more stable prices. 
Given the limited progress in the Doha talks, a number of organizations 
have asserted that U.S. lawmakers cannot accurately predict the outcome 
of trade negotiations and, therefore, are not in a position to make 
appropriate changes to the Farm Bill. Such groups generally believed an 
extension of the 2002 Farm Bill would maintain the United States' 
negotiating leverage and increase its probability of achieving 
reductions in other nation's agricultural subsidies and tariffs, 
notably in key markets like the EU. Nevertheless, some farm groups said 
they would support minor changes to the bill to comply with current 
trade rules or would support additional changes at a more appropriate 
future date. 

The view that it would be unwise to "get ahead" of WTO was echoed in 
our meetings with some U.S. officials. In addition, some U.S. 
industrial manufacturing interests and agriculture interests that do 
not receive subsidies under the Farm Bill told us that they see cuts in 
U.S. farm subsidies as the major bargaining chip the United States has 
to play in the Doha Round. Thus, they advised holding onto this 
leverage until there is greater certainty of U.S. export gains, 
especially since active support by U.S. agriculture interests has been 
key to congressional passage of any trade legislation. 


Despite calls from a variety of voices around the world to successfully 
resolve the remaining issues in the negotiations, the future of the 
Doha Development Round remains highly uncertain. Our research suggests 
that the breakdown in the talks in 2006 had both political and 
practical dimensions, which was perhaps not surprising given the 
sensitivity of the issues involved; the building tension between 
members' original ambitions; their overall lack of progress in 
achieving them; and the tight, unmovable timetable associated with the 
U.S. Trade Promotion Authority. Agricultural trade has proven highly 
sensitive, in part because it is one of the last remaining areas of 
protection to be tackled by the WTO. Developed nations such as the 
United States, the EU, and Japan have complex programs that provide 
different combinations of domestic support, export subsidies, and 
import restrictions such as tariffs and quotas. While these programs 
may well be costly to these nations' overall welfare, they have proven 
to be beneficial to powerful interests and are strongly supported by 
those groups. Moreover, key players are seeking not only to reduce the 
barriers left during the last round, but to redress perceived 
disparities among them. An even more fundamental disagreement between 
developed and developing nations surrounds the relationship between 
trade and development. While the Doha Development Agenda recognizes the 
benefits and welfare gains from a more open multilateral trading 
system, certain developing nations remain unconvinced by research 
showing that a large share of projected benefits from a more open 
trading environment would come from opening markets in other developing 
countries, as well as in removing their own trade barriers. 

Given the sensitive and complex nature of the issues and the 
fundamental disagreements between major groups within the negotiations, 
WTO deadlines have proven to be ineffective in moving negotiations to 
closure. External events are potentially more meaningful, but they 
sometimes add further complexity to the process. The end of TPA in July 
2007 creates uncertainty about the prospects of any WTO agreement that 
might be achieved, as well as potentially closes out the series of 
bilateral negotiations the United States has under way. Congressional 
action on the Farm Bill also complicates the WTO negotiations, as many 
resist major changes to the Farm Bill or are unwilling to do so in 
advance of a global WTO agreement. As a result, a successful 
negotiation now not only requires an agreement that creates sufficient 
gains to be distributed among 150 diverse nations, but also requires a 
willingness by Congress to actively support those talks through renewed 
TPA and in the details of a new Farm Bill. 

Agency Comments and Our Evaluation: 

USTR and USDA broadly agreed with our draft report, but provided us 
with several technical comments and issue characterizations, which we 
incorporated in the report as appropriate. Overall, USTR asked us to 
reflect somewhat more diversity of developing countries' demands and 
positions, based on their experience in negotiating with them on both 
agriculture and nonagricultural market access issues. We added some 
material to reflect this. The Departments of Commerce and State had no 

We are sending copies of this report to interested congressional 
committees; the U.S. Trade Representative; and the Secretaries of 
Agriculture, Commerce, and 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 

If you or your staffs have any questions about this report, please 
contact me at (202) 512-4347 or Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made major contributions to 
this report are listed in appendix II. 

Signed by: 

Loren Yager Director, International Affairs and Trade: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

In this report, we assess (1) the overall status of the Doha 
Development Round now and the progress that had been made prior to and 
since the breakdown of the talks, (2) the factors and substantive 
divisions among key World Trade Organization (WTO) members that led to 
an environment of deadlock and the eventual suspension of the 
negotiations, and (3) the possible economic and other ramifications if 
the round is not concluded satisfactorily. We conducted this work upon 
specific request by Congress. GAO is not a policymaking agency of the 
U.S. government and thus is not authorized to take a position on the 
Doha Round overall or on specific issues related to the round. 

We followed the same overall methodology to complete all three of our 
objectives. We obtained, reviewed, and analyzed documents from a 
variety of sources. From the WTO, we analyzed the 2001 Doha ministerial 
declaration; the Doha work program decision adopted by the General 
Council on August 1, 2004, known as the "July framework agreement"; the 
Hong Kong ministerial conference declaration from December 2005; 
statements by the WTO Director-General and negotiating group 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. A variety of international organizations, experts, former 
officials, private sector interests, and other actors have commented on 
Doha's difficulties, and we have monitored scholarly journals and other 
sources for these perspectives. We also obtained information on day-to- 
day developments from reputable trade publications. 

To assess the status of the Doha negotiations, we met with officials 
from various U.S. government agencies, including the Office of the U.S. 
Trade Representative and the Departments of Agriculture, Commerce, and 
State, to obtain information on progress in the negotiations and on 
specific issues and factors affecting the negotiations. Furthermore, we 
attended conferences and seminars that discussed these issues, such as 
those sponsored by the Carnegie Endowment for International Peace, the 
German Marshall Fund of the United States, the Global Business 
Dialogue, and the Washington International Trade Association. 

To assess what led to the environment of deadlock and the eventual 
suspension of the negotiations, we talked with more than 35 officials 
from the major negotiating parties in Geneva, Switzerland, and 
Washington, D.C., including officials from the United States; the 
European Union; and the developing countries of Bangladesh, Benin, 
Brazil, China, India, Indonesia, Kenya, South Africa, and Zambia, about 
their respective proposals and views regarding why the negotiations 
collapsed. Second, since the negotiations broke down over agriculture, 
we interviewed agricultural economists who are experts in international 
trade and domestic farm policy, and who are familiar with the issues of 
market access and domestic support. In addition, we met with officials 
from U.S. industry groups such as the National Corn Growers 
Association, the American Farm Bureau Federation, the National 
Cattlemen's Beef Association, and the National Association of 
Manufacturers. Third, we surveyed current research on major proposals 
in the negotiations, including analyses contained in academic journal 
articles, government reports, nongovernmental organization reports, and 
press releases. Finally, we attended several conferences that pertained 
to the economic analyses of agriculture and development aspects of the 

To assess the possible economic and other ramifications if the round 
was not resumed in a short period of time or if the talks could not be 
successfully concluded, we discussed these potential effects with the 
range of officials and experts previously mentioned. For the economic 
effects, specifically, we reviewed the economics literature and 
identified specific studies that calculated the estimated effects of 
potential Doha agreements. Building on our analysis from prior reports, 
we identified specific recent studies that included both (1) likely 
liberalization scenarios based on the status of the negotiations at the 
time (rather than studies that just examined the potential effects from 
complete liberalization of all trade barriers) and (2) the most recent 
tariff and other trade regime data that take into account the range of 
preferential trade programs that currently exist. We then compared 
these studies and the range of potential economic effects from various 
Doha scenarios. To examine the other ramifications, including the 
potential effects on the stature of the world trading system and the 
implications for domestic legislation, including the Trade Promotion 
Authority and the 2007 Farm Bill, we discussed the relationship of Doha 
and the implications of its failure with country representatives, WTO 
officials, and other trade experts (previously mentioned). We also 
reviewed documents and studies that discuss these implications. 
However, because the actual effects of a Doha failure are unknown and 
determined by a wide range of factors, we do not predict or measure the 
full ramifications of a collapse in the negotiations. Rather, we 
identify those areas indicated by our analysis that could potentially 
be affected. 

With the assistance of the Office of the United States Trade 
Representative and the State Department, we traveled in September 2006 
to WTO headquarters in Geneva. We met with WTO member country 
officials, including those from Australia, Bangladesh, Benin, Brazil, 
China, the European Union, India, Indonesia, Japan, Kenya, South 
Africa, and Zambia. We also met with WTO officials, including a Deputy 
Director-General and the Director of Agriculture. At the U.S. mission, 
we met with officials overseeing the agriculture, industrial 
(nonagricultural) market access, and service negotiations, as well as 
with the Deputy Chief of Mission. We also met with organizations and 
groups following the negotiations, such as the International Centre for 
Trade and Sustainable Development and Oxfam. During our trip, we also 
attended the WTO Public Forum. Upon returning from our trip, in October 
2006, we briefed House Ways and Means Committee staff on the status of 
the Doha negotiations. 

We performed our work from June 2006 through February 2007 in 
accordance with generally accepted government auditing standards. 

[End of section] 

Appendix II: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Loren Yager, (202) 512-4347 or 

Staff Acknowledgments: 

In addition to the individual named above, the following persons made 
major contributions to this report: Kim Frankena, Assistant Director, 
and Venecia Rojas Kenah, Analyst-in-Charge, as well as Ann Baker, Karen 
Deans, Barbara El Osta, Marisela Perez, and Timothy Wedding. The team 
benefited from the expert advice and assistance of Ron Maxon, Paige 
Gilbreath, and Carol Bray as well as Martin de Alteriis and Ernie 

[End of section] 

Related GAO Products: 


Dairy Industry: Information on Milk Prices, Factors Affecting Prices, 
and Dairy Policy Options. GAO-05-50. Washington, D.C.: December 29, 

Peanut Program: Potential Effects of Proposed Farm Bill on Producers, 
Consumers, Government, and Peanut Imports and Exports. GAO-01-1135R. 
Washington, D.C.: September 26, 2001. 

Dairy Industry: Estimated Economic Impacts of Dairy Compacts. GAO-01- 
866. Washington, D.C.: September 14, 2001. 

Dairy Industry: Information on Milk Prices and Changing Market 
Structure. GAO-01-561. Washington, D.C.: June 15, 2001. 

Fluid Milk: Farm and Retail Prices and the Factors That Influence Them. 
GAO-01-730T. Washington, D.C.: May 14, 2001. 

Dairy Products: Imports, Domestic Production, and Regulation of Ultra- 
Filtered Milk. GAO-01-326. Washington, D.C.: March 5, 2001. 

Sugar Program: Supporting Sugar Prices Has Increased Users' Costs While 
Benefiting Producers. GAO/RCED-00-126. Washington, D.C.: June 9, 2000. 

Sugar Program: Changing the Method for Setting Import Quotas Could 
Reduce Cost to Users. GAO/RCED-99-209. Washington, D.C.: July 26, 1999. 

Commodity Programs: Impact of Support Provisions on Selected Commodity 
Prices. GAO/RCED-97-45. Washington, D.C.: February 21, 1997. 

Agricultural Marketing: U.S. Cotton Market Before and After Import 
Assessments. GAO/RCED-96-49. Washington, D.C.: January 22, 1996. 

Cotton Program: Costly and Complex Government Program Needs to Be 
Reassessed. GAO/RCED-95-107. Washington, D.C.: June 20, 1995. 

Sugar Program: Impact on Sweetener Users and Producers. GAO/T-RCED-95- 
204. Washington, D.C.: May 24, 1995. 

Rice Program: Government Support Needs to Be Reassessed. GAO/RCED-94- 
88. Washington, D.C.: May 26, 1994. 

Sugar Program: Changing Domestic and International Conditions Require 
Program Changes. GAO/RCED-93-84. Washington, D.C.: April 16, 1993. 

Cotton Program: The Marketing Loan Has Not Worked. GAO/RCED-90-170. 
Washington, D.C.: July 31, 1990. 

Farm Program Payments and Payment Limitations: 

Farm Program Payments: USDA Should Correct Weaknesses in Regulations 
and Oversight to Better Ensure Recipients Do Not Circumvent Payment 
Limitations. GAO-04-861T. Washington, D.C.: June 16, 2004. 

Farm Program Payments: USDA Needs to Strengthen Regulations and 
Oversight to Better Ensure Recipients Do Not Circumvent Payment 
Limitations. GAO-04-407. Washington, D.C.: April 30, 2004. 

Farm Programs: Information on Recipients of Federal Payments. GAO-01- 
606. Washington, D.C.: June 15, 2001. 

Farm Programs: Observations on Market Loss Assistance Payments. GAO/ 
RCED-00-177R. Washington, D.C.: June 30, 2000. 

U.S. Department of Agriculture: Marketing Assistance Loan Program 
Should Better Reflect Market Conditions. GAO/RCED-00-9. Washington, 
D.C.: November 23, 1999. 


Agricultural Conservation: USDA Should Improve Its Management of Key 
Conservation Programs to Ensure Payments Promote Environmental Goals. 
GAO-07-370T. Washington, D.C.: January 17, 2007. 

USDA Conservation Programs: Stakeholder Views on Participation and 
Coordination to Benefit Threatened and Endangered Species and Their 
Habitats. GAO-07-35. Washington, D.C.: November 15, 2006. 

Agricultural Conservation: USDA Should Improve Its Process for 
Allocating Funds to States for the Environmental Quality Incentives 
Program. GAO-06-969. Washington, D.C.: September 22, 2006. 

Conservation Security Program: Despite Cost Controls, Improved USDA 
Management Is Needed to Ensure Proper Payments and Reduce Duplication 
with Other Programs. GAO-06-312. Washington, D.C.: April 28, 2006. 

Environmental Information: Status of Federal Data Programs That Support 
Ecological Indicators. GAO-05-376. Washington, D.C.: September 2, 2005. 

Agricultural Conservation: USDA Should Improve Its Methods for 
Estimating Technical Assistance Costs. GAO-05-58. Washington, D.C.: 
November 30, 2004. 

Columbia River Basin: A Multilayered Collection of Directives and Plans 
Guides Federal Fish and Wildlife Activities. GAO-04-602. Washington, 
D.C.: June 4, 2004. 

Agricultural Conservation: USDA Needs to Better Ensure Protection of 
Highly Erodible Cropland and Wetlands. GAO-03-418. Washington, D.C.: 
April 21, 2003. 

Agricultural Conservation: Survey Results on USDA's Implementation of 
Food Security Act Compliance Provisions. GAO-03-492SP. Washington, 
D.C.: April 21, 2003. 

Livestock Agriculture: Increased EPA Oversight Will Improve 
Environmental Program for Concentrated Animal Feeding Operations. GAO- 
03-285. Washington, D.C.: January 16, 2003. 

Agricultural Conservation: Survey of USDA State Technical Committee 
Members. GAO-02-371SP. Washington, D.C.: March 1, 2002. 

Agricultural Conservation: State Advisory Committees' Views on How USDA 
Programs Could Better Address Environmental Concerns. GAO-02-295. 
Washington, D.C.: February 22, 2002. 

Natural Resources Conservation Service: Additional Actions Needed to 
Strengthen Program and Financial Accountability. GAO/RCED-00-83. 
Washington, D.C.: April 7, 2000. 

Crop and Revenue Insurance: 

Crop Insurance: More Needs to Be Done to Reduce Program's Vulnerability 
to Fraud, Waste, and Abuse. GAO-06-878T. Washington, D.C.: June 15, 

Crop Insurance: Actions Needed to Reduce Program's Vulnerability to 
Fraud, Waste, and Abuse. GAO-05-528. Washington, D.C.: September 30, 

Crop Insurance: USDA Needs to Improve Oversight of Insurance Companies 
and Develop a Policy to Address Any Future Insolvencies. GAO-04-517. 
Washington, D.C.: June 1, 2004. 

Crop Insurance: USDA's Progress in Expanding Insurance for Specialty 
Crops. GAO/RCED-99-67. Washington, D.C.: April 16, 1999. 

Crop Revenue Insurance: Problems With New Plans Need to Be Addressed. 
GAO/RCED-98-111. Washington, D.C.: April 29, 1998. 

Crop Insurance: Opportunities Exist to Reduce Government Costs for 
Private-Sector Delivery. GAO/RCED-97-70. Washington, D.C.: April 17, 

Food Aid: 

Foreign Assistance: USAID Completed Many Caribbean Disaster Recovery 
Activities, but Several Challenges Hampered Efforts. GAO-06-645. 
Washington, D.C.: May 26, 2006. 

Maritime Security Fleet: Many Factors Determine Impact of Potential 
Limits on Food Aid Shipments. GAO-04-1065. Washington, D.C.: September 
13, 2004. 

Foreign Assistance: Observations on USAID's Commodity Import Program in 
Egypt. GAO-04-846T. Washington, D.C.: June 17, 2004. 

Foreign Assistance: Lack of Strategic Focus and Obstacles to 
Agricultural Recovery Threaten Afghanistan's Stability. GAO-03-607. 
Washington, D.C.: June 30, 2003. 

Foreign Assistance: Sustained Efforts Needed to Help Southern Africa 
Recover from Food Crisis. GAO-03-644. Washington, D.C.: June 25, 2003. 

Food Aid: Experience of U.S. Programs Suggests Opportunities for 
Improvement. GAO-02-801T. Washington, D.C.: June 4, 2002. 

Foreign Assistance: Global Food for Education Initiative Faces 
Challenges for Successful Implementation. GAO-02-328. Washington, D.C.: 
February 28, 2002. 

Foreign Assistance: U.S. Food Aid Program to Russia Had Weak Internal 
Controls. GAO/NSIAD/AIMD-00-329. Washington, D.C.: September 29, 2000. 

Foreign Assistance: Donation of U.S. Planting Seed to Russia in 1999 
Had Weaknesses. GAO/NSIAD-00-91. Washington, D.C.: March 9, 2000. 

Foreign Assistance: North Korean Constraints Limit Food Aid Monitoring. 
GAO/T-NSIAD-00-47. Washington, D.C.: October 27, 1999. 

Foreign Assistance: North Korea Restricts Food Aid Monitoring. GAO/ 
NSIAD-00-35. Washington, D.C.: October 8, 1999. 

Agricultural Trade: 

Trade Adjustment Assistance: New Program for Farmers Provides Some 
Assistance, but Has Had Limited Participation and Low Program 
Expenditures. GAO-07-201. Washington, D.C.: December 18, 2006. 

Analysis of Data for Exports Regulated by the Department of Commerce. 
GAO-07-197R. Washington, D.C.: November 13, 2006. 

International Trade: Customs' Revised Bonding Policy Reduces Risk of 
Uncollected Duties, but Concerns about Uneven Implementation and 
Effects Remain. GAO-07-50. Washington, D.C.: October 18, 2006. 

Export Promotion: Trade Promotion Coordinating Committee's Role Remains 
Limited. GAO-06-660T. Washington, D.C.: April 26, 2006. 

International Trade: Further Improvements Needed to Handle Growing 
Workload for Monitoring and Enforcing Trade Agreements. GAO-05-537. 
Washington, D.C.: June 30, 2005. 

International Trade: U.S. Agencies Need Greater Focus to Support 
Mexico's Successful Transition to Liberalized Agricultural Trade under 
NAFTA. GAO-05-272. Washington, D.C.: March 25, 2005. 

Free Trade Area of the Americas: Missed Deadline Prompts Efforts to 
Restart Stalled Hemispheric Trade Negotiations. GAO-05-166. Washington, 
D.C.: March 18, 2005. 

Tobacco Exports: USDA's Foreign Agriculture Service Lacks Specific 
Guidance for Congressional Restrictions on Promoting Tobacco. GAO-03- 
618. Washington, D.C.: May 30, 2003. 

World Trade Organization: First-Year U.S. Efforts to Monitor China's 
Compliance. GAO-03-461. Washington, D.C.: March 31, 2003. 

Free Trade Area of the Americas: Negotiators Move Toward Agreement That 
Will Have Benefits, Costs to U.S. Economy. GAO-01-1027. Washington, 
D.C.: September 7, 2001. 

International Trade: Concerns Over Biotechnology Challenge U.S. 
Agricultural Exports. GAO-01-727. Washington, D.C.: June 15, 2001. 

Agricultural Trade: Impacts of the Andean Trade Preference Act on 
Asparagus Producers and Consumers. GAO-01-315. Washington, D.C.: March 
15, 2001. 

World Trade Organization: U.S. Experience in Dispute Settlement System: 
The First Five Years. GAO/T-NSIAD/OGC-00-202. Washington, D.C.: June 
20, 2000. 

World Trade Organization: Progress in Agricultural Trade Negotiations 
May Be Slow. GAO/ T-NSIAD-00-122. Washington, D.C.: March 7, 2000. 

U.S.-Mexico Border: Better Planning, Coordination Needed to Handle 
Growing Commercial Traffic. GAO/NSIAD-00-25. Washington, D.C.: March 3, 

Pork Industry: Trade Barriers and Other Factors Limit Federal Programs' 
Potential to Increase Exports. GAO/RCED-00-41. Washington, D.C.: 
February 1, 2000. 

Doha Round Negotiations: 

World Trade Organization: Limited Progress at Hong Kong Ministerial 
Clouds Prospects for Doha Agreement. GAO-06-596. Washington, D.C.: 
April 26, 2006. 

World Trade Organization: Global Trade Talks Back on Track, but 
Considerable Work Needed to Fulfill Ambitious Objectives. GAO-05-538. 
Washington, D.C.: May 31, 2005. 

World Trade Organization: Cancun Ministerial Fails to Move Global Trade 
Negotiations Forward; Next Steps Uncertain. GAO-04-250. Washington, 
D.C.: January 15, 2004. 

World Trade Organization: Early Decisions Are Vital to Progress in 
Ongoing Negotiations. GAO-02-879. Washington, D.C.: September 4, 2002. 


[1] GAO, World Trade Organization: Limited Progress at Hong Kong 
Ministerial Clouds Prospects for Doha Agreement, GAO-06-596 
(Washington, D.C.: Apr. 26, 2006); World Trade Organization: Global 
Trade Talks Back on Track, but Considerable Work Needed to Fulfill 
Ambitious Objectives, GAO-05-538 (Washington, D.C.: May 31, 2005); 
World Trade Organization: Cancún Ministerial Fails to Move Global Trade 
Negotiations Forward; Next Steps Uncertain, GAO-04-250 (Washington, 
D.C.: Jan. 15, 2004); and World Trade Organization: Early Decisions Are 
Vital to Progress in Ongoing Negotiations, GAO-02-879 (Washington, 
D.C.: Sept. 4, 2002). 

[2] For example, the G-20 now has more than 20 members and the G-33 has 
more than 40 members. 

[3] G-10 members are Bulgaria, Iceland, Israel, Japan, Liechtenstein, 
Mauritius, Norway, South Korea, Switzerland, and Chinese Taipei. 

[4] G-20 members are Argentina, Bolivia, Brazil, Chile, China, Cuba, 
Egypt, Guatemala, India, Indonesia, Mexico, Nigeria, Pakistan, 
Paraguay, the Philippines, South Africa, Tanzania, Thailand, Uruguay, 
Venezuela, and Zimbabwe. 

[5] G-33 members are Antigua and Barbuda, Barbados, Belize, Benin, 
Botswana, China, Cote d'Ivoire, Cuba, Democratic Republic of Congo, 
Dominican Republic, Grenada, Guyana, Haiti, Honduras, India, Indonesia, 
Jamaica, Kenya, Madagascar, Mauritius, Mongolia, Mozambique, Nicaragua, 
Nigeria, Pakistan, Panama, Peru, the Philippines, Senegal, South Korea, 
Sri Lanka, St. Kitts and Nevis, St. Lucia, St. Vincent and the 
Grenadines, Suriname, Tanzania, Trinidad and Tobago, Turkey, Uganda, 
Venezuela, Zambia, and Zimbabwe. 

[6] Cairns Group members are Argentina, Australia, Bolivia, Brazil, 
Canada, Chile, Colombia, Costa Rica, Guatemala, Indonesia, Malaysia, 
New Zealand, Paraguay, the Philippines, South Africa, Thailand, and 

[7] For additional information on the fourth ministerial conference and 
the Doha Development Agenda, see GAO-02-879. 

[8] There are currently 16 negotiating areas in the Doha work program: 
implementation-related issues and concerns; agriculture; services; 
market access for nonagricultural products; trade-related aspects of 
intellectual property rights; trade facilitation; WTO rules; dispute 
settlement understanding; trade and environment; electronic commerce; 
small economies; trade, debt, and finance; trade and transfer of 
technology; technical cooperation and capacity building; least- 
developed countries; and special and differential treatment. 
Originally, the Doha declaration set forth 3 other potential 
negotiating areas (that is, transparency of government procurement, 
interaction between trade and competition policy, and relationship 
between trade and investment). 

[9] Under a TRQ, a lower "in-quota" tariff applies to a limited 
quantity of imports, while a higher, often prohibitive, "over-quota" 
tariff applies to any imports that exceed the quota. 

[10] The Hong Kong ministerial was the sixth since the establishment of 
the WTO in 1995. Ministerial conferences are convened at least every 2 
years, and the outcome is reflected in a fully agreed-upon ministerial 

[11] GAO-06-596. 

[12] The six core areas are agriculture, development, nonagricultural 
market access, rules, services, and trade facilitation. 

[13] The WTO recognizes as LDCs those countries that have been 
designated as such by the United Nations. Since 1971, the United 
Nations has denominated LDCs as "a category of States that are deemed 
highly disadvantaged in their development process…facing more than 
other countries the risk of failing to come out of poverty." In its 
2003 review of LDCs, the United Nations identified LDCs as countries 
with a 3-year average estimate of gross national income per capita 
under $900, among other criteria. 

[14] Title XXI of the Trade Promotion Authority (TPA) Act of 2002 (Pub. 
L. No. 107-210) gives the president the authority to conclude trade 
deals around the world and to submit legislation approving and 
implementing the agreement subject to an up-or-down vote by Congress, 
using expedited procedures within a fixed time period. To qualify, the 
President must notify Congress of his intent to enter a Doha agreement 
and request the U.S. International Trade Commission to provide him and 
Congress with an assessment of its likely effect by April 1, 2007, and 
any agreement resulting from the Doha negotiations must be entered into 
by the President before July 1, 2007. Expedited consideration is also 
contingent on the President's compliance with requirements for 
consultations with and notices and reports to Congress before, during, 
and after negotiation of the agreement. In negotiating the Doha Round 
on behalf of the United States, the Office of the USTR is guided by the 
goals outlined by TPA, including overall and principal objectives and 
promotion of certain priorities. 

[15] GAO-06-596. 

[16] G-6 members are Australia, Brazil, the EU, India, Japan, and the 
United States. 

[17] The "triangle of issues" refers to the balance between 
agricultural market access, agricultural domestic support, and 
nonagricultural market access. The third side of the triangle is 
developing country tariff cuts for nonagricultural goods. The idea is 
to achieve some sort of "balanced ambition" within and across key 
issues in the round that involve preparation of binding country- 
specific schedules of commitments. 

[18] EU members are Austria, Belgium, Bulgaria, Cyprus, Czech Republic, 
Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, 
Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, 
Portugal, Romania, Slovak Republic, Slovenia, Spain, Sweden, and the 
United Kingdom. 

[19] The "Swiss formula" is a nonlinear mathematical formula that (1) 
produces a narrow range of final tariff rates from a wider set of 
initial tariffs and (2) specifies a maximum final rate, no matter how 
high the original tariff. A key feature is a number (the coefficient) 
that is negotiated and plugged into the formula to determine the 
maximum final tariff rate. The formula is so-named because it was first 
proposed by Switzerland in the 1970s in the Tokyo Round of trade 

[20] In addition to leaders of the G-8 nations (i.e., Canada, France, 
Germany, Italy, Japan, Russia, the United Kingdom, and the United 
States), leaders from Brazil, China, the EU, India, Mexico, and South 
Africa, as well as the heads of the African Union and the Commonwealth 
of Independent States, were present. 

[21] Our understanding is that the talks collapsed after expectations 
from all sides were not fulfilled. According to observers and 
officials, during the last formal negotiating meeting in Geneva last 
July, many countries had come to the table expecting that the United 
States would announce an improved offer on domestic subsidy cuts. 
However, they were very surprised, and reportedly some countries were 
even offended, when the United States did not produce the expected 
offer. The United States for its part, however, apparently decided not 
to improve its offer because, on the basis of the limited flexibility 
for movement other members had signaled, it felt that its negotiating 
partners were unwilling or not ready to reciprocate with meaningful 
market access concessions. In addition, there was a sense among U.S. 
negotiators that they had effectively run out of time under TPA, given 
its various notification and consultation requirements. 

[22] USDA estimated that agricultural tariffs accounted for 52 percent 
of world price distortions, compared with 31 percent due to domestic 
subsidies, 13 percent due to export subsidies, and 4 percent due to the 
interaction among these policies. 

[23] Although most economists believe that liberalizing market access 
barriers would provide the most gains from trade, some recent studies 
show that domestic subsidies can be quite trade distorting by way of 
cross-subsidization, exit deterrence (i.e., keeping otherwise 
uncompetitive or unprofitable farmers in production), risk reduction, 
and wealth effects such as higher land prices. 

[24] Kym Anderson, Harry de Gorter, and Will Martin, "Market Access 
Barriers in Agriculture and Options for Reform," Trade, Doha, and 
Development: A Window into the Issues, Richard Newfarmer (ed.), World 
Bank (2006), chapter 6. 

[25] WTO bound tariffs are the maximum tariff rates that WTO members 
may impose on imports, as agreed to in the Uruguay Round Agreement on 
Agriculture. Applied tariffs are the rates countries actually charged 
on imports and typically are the annual tariff rates published by 
national customs authorities for duty administration purposes. Applied 
tariffs may be below or equal to bound tariffs, but may not exceed 

[26] USTR reports that the EU-25 average bound tariff rate is 24 

[27] It should be noted that, in fact, members' tariffs are only bound 
at the WTO at the detailed, product-specific or "tariff line" level and 
not all tariffs are "ad valorem" or set as a percentage of import 
value. As a result, data on average bound tariffs are indicative in 
nature and may differ, depending on such factors as how the averages 
are calculated (e.g., a simple average of the rates over the number of 
lines or a trade-weighted basis) and whether any attempt is made to 
estimate tariffs that would be charged for those lines subject to 
"specific" rates, such as 2 cents per pound. 

[28] The United States also has offered the lowest tariff cap of 75 
percent, compared with the higher cap of 100 percent offered by the EU 
and the G-20. 

[29] According to some U.S. negotiators that we spoke with, while it is 
a working assumption in the negotiations that developing country tariff 
cuts will be roughly two-thirds of developed countries, this has not 
been formally agreed to, nor is there agreement on how it would work in 
practice. They warn that with more complex modalities and subelements 
of the tiers, some proposals would mean this fraction could be reduced 
to something much smaller, or, for example, two-thirds of two-thirds or 
four-ninths of the original developed country tariff cut. 

[30] Kym Anderson and Will Martin, World Bank, "Agricultural Trade 
Reform and the Doha Development Agenda," World Economy, vol. 28, no. 9 
(September 2005). However, the study also states that much of this 
could be recouped if WTO members agreed to caps on tariffs. 

[31] FAPRI, "U.S. Proposal for WTO Agriculture Negotiations: Its Impact 
on U.S. and World Agriculture," Center for Agricultural and Rural 
Development, CARD Working Paper 05-WP 417 (December 2005). 

[32] For example, according to a proposal by the G-33 on special 
products, an indicator may be that "a significant proportion of the 
domestic production is produced by vulnerable populations such as 
tribal communities, ethnic groups, women, aged people, or disadvantaged 

[33] These 11 country studies and their methodologies are available at and include the countries of Barbados, Ecuador, 
Fiji Islands, Honduras, Papua New Guinea, Pakistan, Peru, the 
Philippines, Sri Lanka, and Vietnam. These studies used a set of food 
security, livelihood security, and rural development indicators similar 
to those proposed by the G-33 and took into account variables such as 
the current levels of protection, including the difference between the 
bound and applied tariff rates, as well as import vulnerability. 

[34] However, the present SSG is available to all WTO members (both 
developing and developed) that have them listed in their country 

[35] In this report, we refer to spending and domestic support 
similarly. However, both of these, including the term "spending," do 
not necessarily translate into taxpayer-financed support to farmers, 
but may be due to the difference between an administered price and a 
market price. 

[36] World Bank, Global Economic Prospects: Realizing the Development 
Progress of the Doha Agenda 2004 (2003), chapter 3. 

[37] The de minimis level for developing countries is 10 percent of the 
value of production under the Uruguay Round. In the United States, 
examples of nonproduct-specific de minimis support include programs for 
crop insurance subsidies and grazing subsidies. 

[38] In the current Blue Box (as with the Green Box), as set forth in 
the Uruguay Round Agreement on Agriculture, the amount of permissible 
subsidies is not limited. However, in the Doha July 2004 framework 
agreement, it was decided that these payments would be capped at less 
than 5 percent of a country's total value of agricultural production 
based on a historical period to be determined. Also, as part of the 
Agreement on Agriculture, subsidies that would otherwise qualify as 
Amber Box are classified as Blue Box when they require farmers to limit 
production, such as in a marketing quota or land set-aside. However, in 
the 2004 framework agreement, the definition of the Blue Box was 
broadened to include "direct payments that do not require production" 
if, for example, such payments are based on fixed or unchanging bases 
or yields. This would allow the United States to include 
countercyclical payments in this classification. 

[39] Member countries are required to notify or submit documents to the 
WTO each year that detail their expenditures on domestic government 
support to their agriculture sectors. The notifications, submitted 
annually, include the aggregate measure of support, an index of the 
monetary value of a country's support to its commodity-and noncommodity-
specific support policies that are considered trade distorting. In 
addition, these notifications also include Green Box and Blue Box 
support policies, which are not presently subject to reduction 

[40] The averages for the United States and the EU are estimates from 
1998 through 2001, whereas Japan's estimate of average domestic support 
is for 1998 through 2002. The United States has not notified its annual 
levels of domestic support to the WTO since 2001, and Japan has not 
done so since 2002. Recently, according to USDA, the EU has notified 
its levels of domestic support for 2002-03 and 2003-04. The 
Congressional Budget Office notes that a caveat to these estimates is 
that most countries report their subsidies in currencies other than 
dollars, and the office converted to dollars using exchange rates so 
that the numbers from different countries could be compared in a common 
unit of measure. However, over time, exchange rates can fluctuate, and 
using dollars for other countries' support levels could be misleading 
because of exchange rate changes. 

[41] Congressional Budget Office, Policies That Distort World 
Agricultural Trade: Prevalence and Magnitude (August 2005), 22, table 

[42] Policies That Distort World Agricultural Trade, 18. 

[43] Countercyclical payments are made to participating producers when 
the marketing year average price received by farmers for a covered 
commodity is less than the target price. Target prices are set in 
legislation and apply only to the covered commodities of barley, corn, 
grain sorghum, oats, peanuts, rice, soybeans and other oil seeds, 
upland cotton, and wheat. After being eliminated in the 1996 Farm Bill, 
target prices were restored under the 2002 Farm Bill. 

[44] A loan deficiency payment is the amount by which the loan rate 
(the price per unit at which the government provides nonrecourse or 
recourse loans to farmers by the Commodity Credit Corporation) exceeds 
the posted county price or prevailing world market price, and thus is 
equivalent to the marketing loan gain that could alternatively be 
obtained for crops under loan. Loan deficiency payments are available 
for barley, corn, dry beans, grain sorghum, honey, lentils, mohair, 
oats, rice, small chickpeas, soybeans and other oilseeds, upland 
cotton, and wool. 

[45] UNCTAD, Report of the Trade and Development Board on Its Fifty- 
Third Session, Volume I, Trade and Development Board, Fifty-Third 
Session (Geneva, Switzerland: Oct. 11, 2006). 

[46] Robert E. Young, "The Coming Tug of War: Forces Moving the 2007 
Farm Bill," Journal of Agriculture and Applied Economics (August 2006). 

[47] This statement was made on behalf of the G-20; the G-33; LDCs; the 
African Group; the Small Economies; and the African, Caribbean, and 
Pacific Group of States. 

[48] For more discussion of the potential benefits and challenges of 
trade liberalization for developing countries, see GAO, Foreign 
Assistance: U.S. Trade Capacity Building Extensive, but Its 
Effectiveness Has Yet to Be Evaluated, GAO-05-150 (Washington, D.C.: 
Feb. 11, 2005), appendix IV. 

[49] The Integrated Framework for Trade-Related Technical Assistance to 
Least-Developed Countries, launched in 1997, is sponsored by six 
multilateral agencies: the International Monetary Fund, the World Bank, 
the WTO, the International Trade Center, UNCTAD, and the United Nations 
Development Program. Its goals are to help LDCs integrate trade 
priorities into their national development plans and encourage 
coordination of assistance to LDCs for these priorities. 

[50] This means that the resulting changes in the production, prices 
and wages, and trade would result in greater economic welfare than 
without these changes. The economic studies discussed below generally 
measure increased economic welfare in terms of real (i.e., inflation- 
adjusted) income gains for the economy, as a whole. 

[51] In addition, not all countries are predicted to gain from a 
potential Doha agreement. In a previous section of this report, we 
discuss some of the developing countries and regions that could 
potentially lose economically and the reasons that this may occur. 

[52] For additional discussion on economic models of trade negotiations 
and a list of previous economic studies, see our prior study, GAO-05-
538, appendix V. 

[53] Kimberly Ann Elliot, "Can Doha Still Deliver on the Development 
Agenda?" Policy Brief No. PB06-5 (Washington, D.C.: Institute for 
International Economics, June 2006). 

[54] Economic models of international trade agreements have inherent 
limitations. Although they are useful to compare the relative magnitude 
of various policy changes (such as trade liberalization) and identify 
the likely winners and losers from such changes, they are not intended 
to forecast the actual economic situation in the future since other 
changes (e.g., technology) will occur. In addition, models vary in the 
degree to which they account for adjustment costs, institutional and 
market structures in individual countries, and other details that can 
affect the outcomes for specific groups and regions. For more 
discussion of the strengths and limitations of these models, see GAO-05-
538, appendix V. 

[55] For more discussion of these issues, see recent GAO work on the 
issue of offshoring, including Offshoring: U.S. Semiconductor and 
Software Industries Increasingly Produce in China and India, GAO-06-423 
(Washington, D.C.: Sept. 7, 2006), which includes a list of all GAO 
work on the subject. 

[56] For example, see Ann Harrison (ed.), Globalization and Poverty 
(Chicago, IL: University of Chicago Press, 2006); and Thomas Hertel and 
L. Alan Winters, Poverty and the WTO: Impacts of the Doha Development 
Agenda (Washington, D.C.: World Bank, 2006). 

[57] World Bank, Global Economic Prospects 2002: Making Trade Work for 
the Poor (Washington, D.C.: World Bank, 2002). 

[58] However, other models find that greater benefits come from other 
sectors. For example, in the Carnegie Endowment model, the United 
States gains relatively more from various trade liberalization 
scenarios due to manufacturing liberalization than from agricultural 
liberalization. Also, studies that include services liberalization 
(although difficult to model) generally show large gains from greater 
services market access abroad for the United States and other developed 
countries. This is consistent with the U.S. service industry's own 

[59] Regional agreements tend to be customs unions or FTAs, which 
either eliminate tariffs among partners completely or on substantially 
all trade among them, thereby reducing tariffs among partner countries 
more than is likely under a multilateral Doha agreement. However, 
regional agreements also can divert trade to less-efficient suppliers 
and may still exclude sensitive sectors. 

[60] The poll was sponsored by the International Chamber of Commerce 
and the Ifo Institute for Economic Research at the University of Munich 
and reported on Dec. 5, 2006. 

[61] This is known as the Global System of Trade Preferences or GSTP. 

[62] Sandra Polaski, "The Future of the WTO," Carnegie Endowment for 
International Peace Policy Outlook (September 2006). 

[63] The United States is already obligated at the WTO to keep its farm 
spending within limits negotiated as part of the Uruguay Round 
Agreement on Agriculture that became effective January 1, 1995. 
Specifically, WTO rules state that domestic support programs that do 
not meet specified criteria intended to ensure that they have "no, or 
at most minimal, trade-distorting effects or effects on production" are 
to be measured and then reduced and capped. The current U.S. ceiling 
for such Amber Box programs is $19.1 billion, but the U.S. potentially 
has about another $20.0 billion in allowed spending if it qualifies for 
de minimis exemptions. Regarding export subsidies, the United States is 
only allowed to provide them if they were properly notified and do not 
exceed specified levels. Should another WTO member choose to challenge 
it, U.S. farm support spending in excess of these limits could be found 
to constitute a violation of WTO obligations of the Agreement on 
Agriculture. Moreover, with the expiration of the "peace clause" in 
2004, if another WTO member demonstrated that such spending was causing 
or threatening serious prejudice to its interests, it would violate WTO 
obligations under the Subsidies and Countervailing Measures Agreement, 
regardless of whether it falls within or below the established spending 
caps. The peace clause refers to Article 13 of the Agreement on 
Agriculture, which protects countries using subsidies that comply with 
the agreement from challenges under other WTO agreements. 

[64] Randy Schnepf and Jasper Womach, Potential Challenges to U.S. Farm 
Subsidies in the WTO: A Brief Overview, CRS (Oct. 25, 2006), 5, table 

[65] For a discussion of the possible need for changes to U.S. export 
subsidy, food aid, and domestic support programs as a result of 
proposals under discussion in Doha talks, see Charles E. Hanrahan and 
Randy Schnepf, WTO Doha Round: The Agricultural Negotiations, CRS 
(Sept. 12, 2006), 26-28. 

[66] USDA FAS Fact Sheet, The Importance of Agricultural Trade 
(February 2006). 

[67] According to CRS, although Congress passed legislation authorizing 
elimination of the Step 2 program, which was found to be a prohibited 
export subsidy, Brazil has pressed for further reductions in U.S. 
cotton support in response to the panel ruling. As a result, according 
to CRS, additional permanent modifications to U.S. farm programs may 
still be needed to fully comply with the "actionable subsidies" portion 
of the WTO ruling, most likely in the context of the 2007 farm bill. 
See Ralph M. Chite, Agricultural Issues in the 109th Congress, CRS 
(Oct. 6, 2006). 

[68] Randy Schnepf and Jasper Womach, Potential Challenges to U.S. Farm 
Subsidies in the WTO, CRS (Oct. 25, 2006). 

[69] American Farmland Trust, Agenda 2007: A New Framework and 
Direction for U.S. Farm Policy (Washington, D.C.: May 8, 2006). 

[70] The Chicago Council on Global Affairs, Modernizing America's Food 
and Farm Policy: Vision for a New Direction, Report of the Agricultural 
Task Force, Catherine Bertini, August Schumacher Jr., and Robert L. 
Thompson, Co-chairs (2006). 

[71] "Whole-farm revenue" programs have been proposed as a new form of 
income stabilization that would not be linked to production of 
particular commodities and, thus, less production and trade distorting. 
One such example of a whole-farm revenue program, revenue insurance, is 
an insurance program offered to farmers that pays indemnities on the 
basis of revenue shortfalls. 

[72] David Orden, "Feasibility of Farm Program Buyouts: Is It a 
Possibility for U.S. Sugar?" Presented at the third annual North 
American Agrifood Market Integration Workshop, "Achieving NAFTA Plus," 
Calgary, Canada (May 31-June 2, 2006). 

[73] GAO, 21st Century Challenges: Re-examining the Base of the Federal 
Government, GAO-05-325SP (Washington, D.C.: February 2005). 

[74] As previously noted, agriculture is one of the most heavily 
protected and distorted economic sectors across the globe, and the 
United States is by no means the only country facing challenges in 
designing and managing efficient and fair programs. Indeed, earlier GAO 
work on trade topics, such as export credits and the role of foreign 
state-trading enterprises in undermining U.S. exports, highlighted such 

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