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Last Updated: Sunday, 1 August, 2004, 12:17 GMT 13:17 UK
Q&A: WTO trade breakthrough
World Trade Organisation draft agreement from Geneva
The draft agreement came after long talks in Geneva

The World Trade Organisation has salvaged global trade talks, with a compromise agreement to overcome a damaging rift between rich and poor countries. BBC News Online looks at why it took so long, and how the deal was reached.

What exactly were these talks about?

This is the latest stage in a process that began nearly three years ago.

In November 2001, WTO members met in Doha, Qatar, to agree on the Doha Development Agenda, intended to start negotiations on opening world markets to agricultural and manufactured goods.

This meeting was dubbed the "Doha round" of trade talks, and was meant to work towards a system of trade rules that were fairer to developing countries.

In September 2003, in Cancun, Mexico, a summit was held to hammer out agreement on the Doha round, and concentrated on four main areas - agriculture, industrial goods, trade in services, and a new customs code.

However those talks failed because rich and poor countries could not reach agreement, particularly on agriculture.

A new alliance of developing nations emerged that refused to sign a proposed agreement which they felt favoured the richer WTO members.

Why was agriculture such a big issue?

The poor countries accused the rich nations of protecting their farmers through subsidies, and then dumping their goods on poor countries at knock-down prices, undermining local farmers.

The subsidies, usually funded through the taxpayer via governments or trade associations, have made production costs for Western farmers cheaper.

This made them more competitive and as a result their production has increased.

As well as having subsidised goods pouring into their countries, the poorer nations have also claimed that when they tried to export their goods to the West, they were vying against subsidised agro-businesses.

Europe's Common Agricultural Policy, which swallows up nearly half the EU's annual expenditure, was in the firing line, as were multi-billion dollar subsidies given by the US government to its farmers, and especially to its cotton producers.

With cheap US cotton flooding the world, prices are down around the world, making west African cotton very hard to sell.

So what has been the breakthrough?

After talks in Geneva lasting well into Saturday night, key WTO members accepted proposals to cut the subsidies wealthy countries give their farmers for exports.

The key nations, including the US, the EU, Brazil and Japan, agreed to eliminate export subsidies at a date to be set, to limit other subsidies and to lower tariff barriers.

The plan includes a "down payment" that would see an immediate 20% cut in the maximum permitted payments by rich nations.

Developing countries also won the right to protect "special" products crucial to the well-being of their economies.

And in return?

Wealthier nations, among them the EU's members, won better access to markets in developing nations, particularly for industrial goods.

The draft deal also allows for moves to liberalise global trade in manufactured goods and services, although the WTO's poorest nations would not have to contribute.

Customs procedures should be simplified, and stricter rules on state aid for rural development introduced.

The WTO believed progress in the talks was crucial now, as there are US presidential elections in November, and a change in the European Commission in the autumn.

That could have led to talks being stalled for at least the next couple of years.

What happens next?

The deal opens the way for full negotiations to start in September. It is hoped progress can be made before the December 2005 WTO ministerial meeting in Hong Kong.

Analysts say it is vital that any new deal be agreed before 2007, when what is known as "fast-track legislation" expires in the US.

Without fast-track, which limits the power of the US Congress to alter trade deals negotiated by Washington, there is little prospect that the US would adopt a new pact.

EU Commissioner Lamy said that he now believed the Doha round could be completed by the end of 2005.

What are the potential long-term economic benefits?

According to the World Bank, a successful final deal could add $520bn (280bn; 420bn euros) to the world economy by 2015, if rich and developing countries cut their tariffs.

Most of the benefit would, the World Bank believes, go to poorer countries.

"This is really a good day for the world economy, for Europe and especially developing countries," said European Union Agriculture Commissioner Franz Fischler.

The BBC's John Moylan
"The impact of the deal is not likely to be felt for a decade or more"

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