World trade talks fail, threatening a new era of protectionism

The world was on the brink of a fresh outbreak of trade wars and protectionism yesterday after five years of fraught negotiation over a new trade deal ended in failure.

Hopes that a new agreement would create $300bn (£162bn) of wealth and drag millions of people out of poverty were in tatters after a meeting of the major powers dissolved into bitter acrimony.

Last-ditch talks between the six most powerful trading blocs collapsed after they failed to strike a deal to slash farm subsidies, the issue that has threatened to sink the talks since they were launched in 2001.

The failure opens the way to an increase in trade wars and protectionism that will slow economic growth and worsen global poverty, experts said. It will also trigger a fresh round of bilateral trade deals that would favour rich countries at the expense of small nations.

It marked the end of five years of fraught negotiations and experts warned that several more years would pass before new talks could begin.

Richard Lambert, director-general of the CBI, said: "This is as serious as it could possibly be. The collapse of the talks puts the whole multilateral trading system in jeopardy."

The six most powerful trading blocs - the EU, US, Brazil, India, Australia and Japan - suspended talks after just 14 hours of a planned two-day session.

The meeting had been called after the heads of state of the Group of Eight rich nations used their annual summit in Russia to order trade negotiators to return to the bargaining table.

Ministers from the "Big Six" immediately began a round of mutual recrimination while anti-poverty campaigners accused rich countries of sacrificing the livelihoods of the world's poor to meet their own political agendas.

Peter Mandelson, the EU's trade commissioner, blamed the US, saying it was the only country to fail to respond to the G8's call. "The US was unwilling to acknowledge the flexibility being shown by others and, as a result, felt unable to show any flexibility on farm subsidies," he said.

Brazil also suggested the US was most at fault for the collapse of the talks on Monday, saying negotiations on farm subsidies had made least progress.

India and Japan also joined in the fray. Kamal Nath, the Indian finance minister, said all countries improved their offer "except one country".

The US trade representative Susan Schwab, who has been under domestic pressure not to give more ground, said the EU was trying to protect itself by blaming the US. "Their average tariff is twice as high as ours and their farm subsidies are more than three times what ours are," she said.

Hopes of a trade deal had come to rest on a three-way deal - dubbed the "golden triangle" by Pascal Lamy, the head of the World Trade Organisation, which arbitrates the negotiations. Under his plan, the EU would have cut its tariffs on farm imports, the US would have cut its domestic agricultural subsidies, while developing countries would have opened up their industrial goods markets to the West.

The US has demanded that countries cut tariffs by more than 60 per cent, but was attacked over its $22bn-a-year farm budget.

The EU agreed to eliminate export subsidies by 2013 and raised its offer to cut tariffs to 51.5 per cent from 39 per cent but was attacked by both the US and the G20 middle income states for not going further.

Meanwhile the G20, which said the Doha round had been intended to help the least-developed countries, insisted rich countries should move first before they offered concessions.

Their stance was backed by anti-poverty groups who accused the rich countries of wallowing in a "welter of selfishness". Clare Melamed, senior trade analyst at Christian Aid, said: "It seems the selfish intransigence of the US and Europe has finally wrecked any chance of a successful outcome for these trade talks."

Phil Bloomer, director of policy at Oxfam, said: "Rich countries have failed to deliver on promises to cut harmful farm subsidies while insisting poor countries unfairly open their markets."

However, lobby groups that have always claimed a new trade round would make poorer countries worse off welcomed the news. John Hilary, director of campaigns at War on Want, said: "The collapse is good news for the world's poor. Any chance of a genuinely pro-poor outcome was lost long ago."

For the business community, the fear will be that ministers' failure to agree will lead to countries putting up new barriers to trade.

Over the past 12 months, the US has blocked the takeover of ports by a Dubai company, while EU governments have declared firms from gas providers to yoghurt producers to be key strategic assets.

Mark Vaile, the Australian trade minister, said it would lead to more trade rows as countries realised there was no point in waiting for a new trade deal to help resolve disputes.

The talks were launched in November 2001 in the Qatari capital of Doha, that gave its name to the negotiations. They missed an initial 2004 deadline after a summit in Mexico in 2003 collapsed in similar scenes of blame and name-calling.

Although the talks limped on, they were overshadowed by a deadline of July 2007, when the US President George Bush loses his authority to present Congress with the fait accompli of a trade deal it can accept or reject but not amend. British officials had said it was vital to get an outline deal on the table before the summer shutdown to leave enough time to finalise a deal for congressional approval.

The failure will be a particular embarrassment for Tony Blair, who hailed a successful trade deal as a key potential outcome of the G8 summit in Gleneagles he chaired last year.

Ministers insisted neither the trade talks nor the WTO were finished. Last night the Department of Trade and Industry said the round had not failed. "There remains time to reach agreement and the WTO members have the responsibility to show flexibility over the next weeks to allow an agreement to be concluded," a spokeswoman said. "We cannot let this opportunity slip away."

However, Mr Lamy said it would take more than "a little bit of time or a little bit of compromise" to bridge the gaps.

India's Mr Nath went further. When asked how long the suspension of the talks could last, he replied: "Anywhere from months to years."

Countdown to collapse

* 1994: Uruguay trade deal, which had faced collapse in 1990, is signed.

* 1999: Pressure to give better deal to poor countries leads to summit in Seattle that ends in failure and violence on the streets.

* 2001: After 9/11, WTO members agree to launch fresh talks, known as the Doha Development Round.

* 2003: Ministerial summit in Cancun, Mexico, collapses over farm subsidies and 2004 deadline is pushed back.

* 2004: Core members of the WTO find enough agreement to give the Doha round new momentum.

* 2005: Latest ministerial summit in Hong Kong manages to keep the show on the road but makes little progress.

* June 2006: WTO boss Pascal Lamy declares process "in crisis". G8 summit calls on countries to get back to the negotiating table.

* July 2006: Six key countries gather at the WTO's headquarters in Geneva for first of series of meetings. Talks finally fail after just 14 hours.