Business Analysis: UK seeks to end deadlock on trade

White Paper attacks 'macho mercantilism' and details plan to end farm subsidies for rich

The British Government yesterday pledged to use its twin presidency of the Group of Eight rich nations and the European Union next year to push for a breakthrough in the stalled world trade negotiations.

The British Government yesterday pledged to use its twin presidency of the Group of Eight rich nations and the European Union next year to push for a breakthrough in the stalled world trade negotiations.

Patricia Hewitt, the Secretary of State for Trade and Industry, laid out the UK's "new vision", criticising Washington and Brussels for protecting their own markets while pushing poor countries to open up to free trade. She called on Brussels to end subsidies for European farmers and attacked the trend towards protectionism under the Bush administration.

She condemned the "macho mercantilism" of countries that aimed solely to see what they could get out of a trade round and implicitly blamed the EU for the failure of the trade talks in Cancun, Mexico, in September.

Ms Hewitt published a White Paper on trade and investment in what was the most coherent statement of government policy for four years. The document appeared to mark a major philosophical change of thinking within the DTI away from the liberalisation-at-all-costs approach of the last White Paper in 2000.

It comes just three weeks before trade ministers from the 148 members of the World Trade Organisation meet in Geneva for a last-gasp bid to revive the global negotiations that collapsed in acrimony last autumn.

"This White Paper comes at a pivotal moment for the international trade agenda for our partners in Europe and the rest of the international community," Ms Hewitt said. "I hope we can agree a framework for the negotiations that failed in Cancun. But we have a great deal to do and I know it is not a done deal."

The meeting in Geneva on 28 and 29 July is the last chance to get any agreement before the deadline for the current trade talks launched in 2001 - 1 January 2005 - runs out. There is no chance of getting a complete agreement within six months, but agreement in Geneva would at least keep the spirit alive.

Supachai Panitchpakdi, the WTO director-general, this week said that if the July deal was not agreed, "it would spell a minor disaster ... it might be major". Failure could kick the talks into the long grass ahead of the US presidential election and a change of leadership in the EU's executive later this year.

The crucial disagreement between developed and developing countries was over agriculture. Rich nations pay some $300bn a year to their farmers in the form of subsidies and other assistance. At the same time they impose tariffs and other obstacles to imports from poorer countries - especially for processed products that carry the higher value. So-called tariff peaks on farm goods are as high as 506 per cent in the EU and 350 per cent in the US.

The White Paper, which echoes comments in an interview with Ms Hewitt in The Independent in May, contains one of the UK's most outspoken condemnations of the European agricultural policy. "Tariffs in particular are still unacceptably high to the detriment of consumers and producers in both developed and developing countries," it says. "The Government's long-term goal will be to abolish progressively all trade-distorting agricultural subsidies and all barriers to agricultural trade."

Yesterday's document is a clear sign the UK will use its presidency of the EU, which begins on 1 June next year, to push its agenda in face of opposition from some countries, such as France. The EU offered in May to give up all export subsidies as long as other countries were prepared to do the same. For Ms Hewitt this is not enough. "All forms of export subsidies must be eliminated if we are to secure real development benefits - one form of export subsidy being replaced by another is not the answer," she said.

Ms Hewitt also had harsh words for the US, attacking its rising levels of farm subsidies at a time when the EU had cut them, and the rising tide of protectionism in the world's largest economy. As president of the G8, the UK will have plenty of opportunity to preach its pro-development message to the US, while as chair of the EU, it will give the UK a driving seat in terms of agricultural reform.

The UK is likely to be tougher with itsEuropean partners after being accused of doing too little, too late to prevent the EU's tough stance from contributing to the failure of Cancun. "This White Paper will be my calling card at the Commission," she said. The White Paper shows the UK now clearly blames Brussels for the "mistakes" of Cancun. "Leaving all signals of flexibility to the last minute no longer works," it said.

DTI officials said that this was a new philosophical approach. "It's all Patricia," said one. "She has recognised that this one of the most important issues and that there is a political imperative from a progressive politician's point of view."

The minister encapsulated this "new direction", saying it provided a "better understanding of the constraints faced by developing countries. She said: "It is time to end the mercantilist style of trade negotiations which treat opening markets as concessions that have to be battled over. Poorer countries should not be expected to pay a price for any concession on subsidies, tariffs or market opening by a developed country."

Oxfam said the White Paper was a "robust commitment" to open up Europe's markets to developing countries. Justin Forsyth, its director of policy, said it was a "welcome step away from the market fundamentalism" of the 2000 White Paper. "The Government has nailed its colours to the mast on radical reform of the CAP [Common Agricultural Policy] including an end to dumping farm products on world markets, a measure that would lift millions out of poverty."

But Oxfam and several other campaign groups said that the White Paper was still too enthusiastic on free trade and that it did not go far enough on issues such as medicines for the Third World and rules to govern the behaviour of multinationals.

Christian Aid said Ms Hewitt's comment on a new approach to trade talks ignored EU demands that Asian, Caribbean and Pacific countries open up their markets to Europe. "There is nice new language but no new thinking," said Andrew Pendleton, its senior trade policy officer. "It makes clear the Government is still addicted to liberalisation as a cure for all ills."

Tim Rice, trade policy officer for ActionAid, said: "By insisting that developing countries continue to liberalise [their markets], the Government is failing to learn the lessons of recent decades."

There is evidence the Government's support for globalisation could run into opposition at home, especially from trade unions concerned by the exodus of jobs overseas - an issue that has featured in the US. The TUC yesterday said 750,000 manufacturing jobs had disappeared since Labour won power as the UK lost ground to low-wage and heavily subsidised rivals.

Ms Hewitt said that for every manufacturing job lost over the past seven years, two new jobs had been created elsewhere in the economy. "It is quite wrong to talk down service sector jobs as if they were all temporary jobs in McDonald's. They are not. The average salary in a service sector job is higher than in manufacturing," she said.