Commercial breakdown: the WTO's Doha development round of negotiations has been trying with scant success to lower trade barriers between the world's rich and poor countries for the past five years. Sundaraju Srinath analyses its failure this summer to achieve consensus.

A declaration by six key members of the World Trade Organisation (WTO) in July signalled the end of the latest series of free-trade talks that started in 2001 in Doha, Qatar. The main reason for this was a deadlock on agricultural subsidies. While the US blamed the stalemate on the European Union and India for failing to match its tariff reductions on imported farm products, they argued that it hadn't offered any significant cuts in its export subsidies. Also, many members from the developing world felt that the developed nations were guilty of double standards in pushing them to reduce tariffs and improve transparency while themselves giving little ground on cutting their own agricultural subsidies.

In his opening address at the second experts' meeting of the Action Committee on Raw Materials in Abuja a few days later, Nigeria's president, Olusegun Obasanjo, echoed their concerns. He complained that the WTO's trade liberalisation policy had forced many developing countries to open up their borders to expensive goods from the developed world in exchange for their low-priced raw materials.

The WTO World Trade Report 2006 states that subsidies awarded by the 21 richest countries to their own industries were worth $250bn over the past year. The US is reported to be increasing its share of the total from $19bn to $23bn. Subsidies of this size distort global pricing and keep the playing field tilted in its favour. Farmers constitute about two per cent of the US population and account for about the same proportion of the country's gross domestic product. But the big agri-corporations corner the major farm subsidies--and they are effective political lobbyists.

The report acknowledges that there are other types of subsidy, such as those to help build infrastructure, promote R&D, protect the environment and so on. Pascal Lamy, the WTO's director-general, feels that moving away from protectionist payments and towards these forms of subsidy can actually level the playing field and provide real rewards across the board. But such a shift would be politically difficult for leaders of the developed nations: there is already public opposition in these countries to the outsourcing of jobs to the developing world--a trend that's believed to be the outcome of trade liberalisation.

With such diametrically opposed views and entrenched positions at the negotiating table, it's no wonder that the Doha round has faltered again. But its failure poses a serious threat to the most comprehensive attempt to provide a multilateral rules-based system that could level the playing field for all 149 WTO members. Last year, for example, the organisation was able to call the US to heel after finding that subsidies to American cotton farmers had broken its rules, depressed world prices and damaged Brazil's cotton exports. (Having said that, the two countries are still in dispute over whether the US has properly implemented the measures imposed on it.)

The G20 group of developing nations is trying to salvage the situation by organising a summit at Brasilia as FM goes to press in the middle of September. G20, which was formed in 2003 as the result of an EU-US initiative at the WTO ministerial conference in Cancun, Mexico, represents 60 per cent of world's population and 21 per cent of all agricultural exports. But a study by the Delhi-based Centre for Trade and Development has shown how divided this group which includes Argentina, Brazil, China and India--is in its trading interests.

If we consider the food subsidies issue, nearly 80 per cent of the subsidies in contention cover cereals, beef and dairy products. Brazil and Argentina are also members of the Cairns Group, which accounts for over a quarter of the world's agricultural exports. They have an offensive interest in agriculture -ie, they advocate the scrapping of trade barriers--while India and China have a defensive interest. Here Brazil and Argentina stand to gain both ways. If farm subsidies are phased out by the developed nations, their exports will increase in relation to Cairns Group exports. Similarly, if developed nations demand matching concessions, Brazil and Argentina could force G20 to fall in line. This would hurt India's agricultural industry, where suicide rates among farmers are already on the increase. These won't be the only differences among the G20 members, either, so it's debatable whether the Brasilia meeting will be successful.

Australia is also organising an international meeting of major players at the end of September in what could be the last hope of putting the WTO negotiations back on track. Be that as it may, from India's point of view the pressure on its defensive approach to agriculture will be relieved temporarily. Then again, the suspension of non-agricultural market access is a major loss to the country, as its textile exports are now subject to both tariff and non-tariff barriers.

One of the mandates of this failed round of talks was to address the development concerns of the least developed nations. The possibility of duty-free, quota-free access to developed markets is remote for them. The absence of a WTO accord will weaken their bargaining position in bilateral trade deals. The breakdown of negotiations does not mean the end of world trade, of course, but in bilateral trade a weaker nation has to sacrifice more before it is allowed open market access to a stronger nation. This situation breeds winners and losers. For example, Canada and Mexico have each seen a decline in exports as a result of their free-trade agreement with the US. India, too, has had only limited success in bilateral trade. Multilateral negotiations, therefore, provide a healthier forum and allow developing nations, with their numerical strength, to form stronger alliances. This should give them a bigger say without having to make so many sacrifices.

According to Brazil's foreign minister, Celso Amorim, who is convening the G20 meeting, bilateral deals are no substitute for an agreement covering 149 nations. Steps must be taken to restore the Doha round of negotiations. Otherwise, there's a real risk that countries will return to trade protectionism and retaliatory measures. But the December deadline for the resumption of talks appears overoptimistic, and it will require courage, concerted effort and concern for the starving populations of the least developed countries on the part of all players to revive the WTO.

Sundaraju Srinath is an ACMA in Chennai.