Brown plans G7 initiative to rescue trade talks

Gordon Brown yesterday seized control of the Government's trade agenda following the collapse of the World Trade Organisation talks last week in Cancun.

The Chancellor of the Exchequer is planning to urge his colleagues in the Group of Seven (G7) nations who are meeting in Dubai today to use their statement to revive the talks, which only have 14 months left to achieve a deal to cut barriers to free trade.

Mr Brown will express his "bitter disappointment at the breakdown of the Cancun talks" and call for their "speedy resumption", according to a Treasury official. Failure in Mexico threatened "the sustainability of the global recovery" the official added.

The WTO negotiations collapsed in disarray on Sunday after rich and poor countries clashed over cuts in farm subsidies and industrial tariffs, and over demands for fresh negotiations for new rules for multinationals.

The European Union was blamed for sticking to its demands for the launch of talks on new rules to safeguard western investments in the developing world - something poorer countries refused to accept.

Patricia Hewitt, the Trade Secretary, made a last-minute appeal to Pascal Lamy, the EU trade commissioner, to drop the demands. The Treasury is also understood to have grown increasingly concerned the talks were headed for failure.

Yesterday, the Treasury official said: "Political commitment from the highest levels of government is essential to get the talks back on track.... All countries and all continents have to play their part."

He said that Britain wanted "root and branch" reform of the EU's system of farm support and subsidies. Although the EU agreed a limited reform of CAP earlier this year, the Treasury official said: "Clearly we must go further."

The International Monetary Fund and World Bank, who were holding their annual meeting in Dubai, lamented the failure in Cancun. Jim Wolfensohn, the president of the World Bank, said: "Our real hope would be that they would continue to work within a multilateral context. The poor of the world will be the losers." The IMF's chief economist, Ken Rogoff, called the collapse of the trade talks a "tragedy".

However, the influence of the G7 will be undermined by the decisions of France and Germany not to attend. Mr Brown is staying only a short time despite his key role as chairman of the IMF's monetary and financial committee. He will arrive this morning and fly out again tomorrow night.

It is understood he is very keen to return to London as his wife is expecting their baby early next month. The UK delegation has already been cut in half following reported concerns over possible terrorist attacks.

The G7 is also expected to discuss the issue of undervalued Asian currencies. In a draft report leaked yesterday, one passage goes beyond the G7's stock phrase about the need to monitor closely exchange rate movements and refers specifically to the need for market forces. "In the context of exchange rates, we will strengthen the dialogue with other major economic areas to promote a smooth adjustment of international imbalances, based on market mechanisms," the draft statement reads.

While Britain is keen to avoid disorderly adjustments to foreign exchange markets, the Treasury official said he doubted that "the communique will set a new direction for (G7) exchange rate policy," adding: "There is no consensus about what that direction should be."