Global Policy Forum

Trade ministers from six key countries have reached an impasse in Geneva after marathon negotiations failed to make headway. The failure could jeopardise the four-year effort to liberalise world trade. But what would it mean to people in rich and poor countries alike?

The world has been trying to reach a new deal to expand free trade, with a special emphasis on helping poor countries. Talks have been going on since 2001, but progress has been very slow. A key meeting in Hong Kong in December 2005 failed to make a breakthrough.

Advocates of a trade deal say it would help end poverty in developing countries, while rich countries could also benefit if they can sell more goods and services abroad. They say a deal would boost global growth and increase jobs, but critics say it would cost jobs in developing countries and hurt poor people.

Why have the talks broken down?

Since the end of the Hong Kong meeting, the World Trade Organization (WTO) has set a number of deadlines to make progress. The key issue is how far the US and the EU will reduce their barriers to agricultural exports from developing countries, including both subsidies and tariffs.

In return, the rich countries want larger developing countries like Brazil and India to lower their barriers to imports of manufactured goods. But after four years of talking, it appears that none of the key parties is prepared to compromise enough to push the talks to a conclusion. In particular, the US and the EU are both facing strong pressure from their domestic farm lobbies not to go too far in reducing protection for the agricultural sector.

Who is to blame?

As the prospects for a deal have receded, each side has sought to blame the other. The EU says that the US has been too ambitious and has not shown enough flexibility to reach agreement. The US, in its turn, blames protectionist pressures around the EU Common Agricultural Policy. And the developing countries say that the rich nations were never serious about opening up their markets, and until they do, they are in no hurry to open their own.

The key problem has been that free trade in agriculture - the centrepiece of this trade round - is far more difficult to negotiate than free trade in manufacturing. Although small, the agricultural lobbies are powerful, and the industrial lobbies in rich countries have not exercised much leverage to push through a trade deal.

What happens now?

The talks could be revived later, but they are facing a major obstacle in the US. The US government has only been granted "fast track" negotiating authority by Congress until July 2007. Fast track, or trade promotion authority, means that Congress must vote the deal up or down as a whole, otherwise opponents could add wrecking amendments and force the US to renegotiate the whole deal.

In the current political climate in the US Congress, facing mid-term elections and with trade deals already unpopular because of the huge trade deficit, an extension is unlikely to be agreed. And any trade deal without the participation of the world's largest economy would be meaningless. So the talk of reviving the talks in a few months' time sounds unrealistic.

What if the trade round collapses?

It may be too early to say that it is the complete end of this round of trade negotiations - some rounds have lasted for many years. A failure to complete a trade round could have serious consequences for the WTO, which was only created in 1995, and for the multilateral trading system.

Countries might increasingly move to negotiate individual trade deals between each other, which would put small countries at a disadvantage. Business would be worried that the certainty that there are a set of international trade rules would be undermined.

The main losers would be the larger developing countries like Brazil, India, and South Africa, who have many agricultural products they would like to export to rich countries. The poorest countries, who have been offered free market access as part of any trade deal, have less capacity to benefit from any market opening. That is why some NGOs say that no deal is better than a bad deal for the poor, and that it would be better to start from scratch to redesign the world trading system in a fairer way.

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