EU gives ground on farm subsidies

WTO breakthrough is only the end of the beginning of exhaustive talks on free trade

The World Trade Organisation yesterday appeared to achieve an historic breakthrough, with the European Union agreeing to begin talks on phasing out the Common Agricultural Policy.

The agreement came amid chaotic scenes and feats of brinkmanship as India led a successful bid to defeat the European Union's demand for wide-ranging negotiations for a whole new trade framework.

Ministers from 142 countries yesterday hammered out an eleventh-hour agreement to launch a new round of talks on trade liberalisation after the European Union finally conceded that its Common Agricultural Policy might have to be scrapped. Negotiators worked around the clock in an exhausting all-night session. The World Trade Organisation meeting in Qatar over-ran its scheduled official deadline of midnight on Tuesday as hopes of a vital breakthrough started to emerge.

On the eve of Ramadan in this Muslim state, members of the WTO agreed to launch a new round of detailed talks that must now be concluded by the end of 2004 and which the World Bank claims could boost growth by $2.8 trillion (£1.9 trillion) by 2015.

The deal almost dragged into a seventh day as India – angry about preferential treatment given to Pakistan because of the Afghan conflict – demanded the EU scrap its demands for new rules on treatment of foreign investors. As tempers frayed one Belgian negotiator said: "Does India have a problem for every solution?"

The rows continued even as staff at the Sheraton Hotel complex cleared up the debris of the last 144 hours of non-stop talks. Some journalists slept overnight on the hotel floor while one Muslim journalist carried out his prayers in the media centre for fear of missing a breaking development.

The very fact that a deal has been signed will be seen as a huge achievement. At many points during these six days of talks between members – who include representatives from the US, UK and 80 developing and very poor nations – it looked as if the whole negotiation would collapse in a storm of blame and acrimony as it did in Seattle two years ago. Robert Zoellick, the US representative, said: "We can lose the stain of Seattle."

The deal will now be hailed as a mark of the benefits of co-operation in the face of threats of terrorist attacks and should act as a boost to the world economy, which is currently teetering on the brink of recession.

The talks almost collapsed yesterday afternoon after India, backed by 19 other countries, refused to agree to sign a deal that committed it to launching negotiations in two years' time on a range of issues. This included a new framework of minimum standards for competition policy, treatment of foreign investors, transparency in state-awarded contracts and moves to speed up customs procedures. Developing countries had strongly resisted and said they did not have the infrastructure to build a legal and competition framework to western standards from scratch.

After hours of sometimes angry exchanges and shuttle diplomacy, India secured a public "clarification" from the chair of the conference, Qatari economy minister Youssef Hussain Kamal, that any member of the WTO could block the start of negotiations on any of these issues.

Murasoli Moran, India's finance minister, threatened to walk out if he did not get his way, Asked whether he was intimidated by the US and EU, he said: "No, I intimidated them." He declined to comment on reports Tony Blair, the Prime Minister had phoned the Indian government to put pressure on the country to sign the deal.

The EU appeared to have made a historic concession on its farm subsidy policy. Franz Fischler, the EU's agriculture commissioner, said: "It was clear from the very beginning that we have to give and to take also something." The EU, which spends two-thirds of its budget on the Common Agricultural Policy, has agreed to a round of negotiations with the aim of achieving a "substantial reduction in, with a view towards phasing out, agricultural export subsidies". The EU accepted this language in exchange for an agreement by its opponents, which include many agriculture-based developing countries in Africa and Asia, that the talks can start "without prejudging the outcome of the negotiation".

Patricia Hewitt, the Secretary of State for Trade and Industry, said the WTO statement was a "very good outcome" for Britain. "This enormously strengthens our hand in driving through reform of the CAP. We have long regarded it as essential so that British consumers can benefit from cheaper world food prices," she said, adding it was needed ahead of EU enlargement and would boost the livelihoods of farmers in poor countries.

The French had led a rearguard fight against the use of any wording that implied elimination of the CAP but the deal was passed by a meeting of all 15 EU trade ministers, including Ms Hewitt. However there will be a long way to go on agriculture. A spokesman for a member of the Cairns Group of mainly southern hemisphere agricultural countries, noted: "The EU can go back to Europe and say that the Cairns Group wanted us to abolish the CAP but we said no. Now there will be four years of fighting and a lot of blood on the floor."

Developing countries celebrated a deal on access to medicines, which allows them to break patents held by western pharmaceutical giants to drugs they need to improve public health and manufacture cheaper generic drugs.

Edward Rugumayo, the head of the Ugandan delegation told The Independent: "My delegation has got a lot more than it bargained for. We got 30 per cent of what we wanted which is a lot." However the EU also won a crucial agreement on the right to reject food imports that are not labelled with information on GMOs, hormones and sustainable farming methods. Now a trade and environment committee to looks at issues of labelling, patents on new life forms such as seeds and GMOs and the impact of environmental measures on poorer countries – who are worried it is a front for protectionism.