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Last Updated: Wednesday, 24 May 2006, 08:44 GMT 09:44 UK
Trade talks still on a knife-edge
By Steve Schifferes
BBC News economics reporter at the OECD in Paris

Anti-Doha protesters outside the WTO headquarters in Geneva, 15 May 2006
Support for a trade deal is fading among activists

Trade ministers from the EU and the US are meeting in Paris this week to try and revive faltering talks aimed at securing a world trade deal.

The head of the World Trade Organization, Pascal Lamy, has said reaching a deal is possible.

However, he has warned that it will require "a higher degree of political traction" from the US, the EU and richer developing countries.

The US Trade Representative-designate, Susan Schwab, who is leading the US delegation, said the current Doha trade round had reached a "critical period".

And Mark Vaille, the Australian trade minister who is hosting the talks, has said "time is running out" to reach a deal.

He warned that failure to agree a trade plan before the end of the year could set back hopes of trade liberalisation for years, perhaps decades.

Problems of the deal

At the sidelines of the Organisation for Economic Co-operation and Development (OECD) meeting in Paris, intense debate has been taking place on why the trade talks have stalled.

The Doha Development Round, which began in 2001, was aimed at giving poor countries a greater share in the world trading system by opening up agricultural markets in Western countries.

But for now, the talks are still deadlocked, with the EU and the US both saying that the other side has not gone far enough on agricultural liberalisation.

Sao Paulo city centre
Brazil is seeking further concessions in the Doha round

At the same time, middle-income countries such as Brazil and India are saying they will only open their industrial goods markets when they see real concessions by the rich countries.

On Wednesday, Peter Mandelson, the EU trade commissioner, told the OECD that the EU was prepared to improve its agriculture offer - but only if it received something in return.

"We... are prepared to go further still. But we cannot be the sole banker of this round."

But the deputy US trade ambassador to the WTO, Peter Allgeier, played down the significance of the offer.

"A minimal change would not be nearly sufficient to the level that we believe is needed for there to be new trade flows," he said.

[Oxfam's statement is] very dangerous and a foolish thing to say
Professor Jagdish Bhagwati, Columbia University

Mr Lamy, who is looking less optimistic at each meeting at which he appears, was in no doubt as to why the talks were proving tough.

He told the OECD that it was because the WTO was aiming very high, with deeper cuts, larger changes in the world trade system, and a fairer trading system than ever before.

He argued that if successful, a deal would be a major recognition of a fairer trading system with, for the first time, significant concessions to the needs of poor countries.

'Dangerous' approach

Since the talks stalled at Hong Kong in December, support for a trade deal seems to be fading among development charities such as Oxfam.

They argue that rather than accept a poor deal, developing countries would be better off postponing or abandoning a deal.

"We think it is more feasible that developing countries should hold out for a better deal, which means the prolongation of the process," Oxfam's Jeremy Hobbs said in April.

But Professor Jagdish Bhagwati, a leading trade economist at Columbia University, told BBC News that Oxfam's position was "very dangerous and a foolish thing to say".

US Trade Representative-designate Susan Schwab
Susan Schwab is among those trying to revive the Doha process

He said they were doing great harm to developing countries by telling them they could get concessions without having to make painful changes of their own.

In his view, trade is the key engine of economic growth and poverty reduction.

Prof Bhagwati argued that the poorest countries in Africa had already received key concessions from the rich, including duty-free, tariff-free access for the majority of their goods.

But he accepted that to make any trade deal more politically acceptable, poor developing countries should be offered a safety net.

This would mean that, for example, industrial workers who were displaced by the opening of markets received some compensation and retraining.

Prof Bhagwati says this should be paid by the rich countries through such multi-lateral institutions as the World Bank, as poor country governments, unlike Western countries, could not afford to offer it on their own.

Who is to blame?

Some people believe that brinkmanship is in the nature of trade deals, and that all sides will make last-minute concessions when the real deadline nears.

Others argue that the only solution is to lower ambitions in order to get minimalist agreement, 'Doha-lite', with some concessions for poor countries but less of a grand bargain on agriculture and industry.

US President George W Bush
President Bush's authority seems to be draining away

A third solution would be to try and extend the talks for longer, as often happened in past trade rounds.

But that would run up against growing protectionist pressures in the US, where Presidential authority to negotiate a trade deal expires on 1 July 2007.

With President Bush's authority ebbing, most observers believe it is unlikely he could win a vote to extend the "fast-track" authority which forces Congress to vote on any trade deal without making damaging amendments.

The chances of getting a trade deal through Congress have also been weakened by Mr Bush's decision to move his well-respected trade negotiator, Robert Portman, to another role in the administration.

Observers like former Mexican president Ernesto Zedillo fear that the US is losing its appetite for a multilateral trade deal and turning instead to a series of bilateral negotiations with its allies.

He warns that "the greatest long-term harm could be a reversion to regional trade agreements" and says that "I cannot think of any WTO member who would win, now or in the foreseeable future, from a weakened WTO."

But with the clock ticking, that outcome is looking increasingly likely.

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