Rich nations refuse to let go of subsidies as WTO talks near

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Ministers from the member countries of the World Trade Organisation are flying to Hong Kong for a high-profile meeting, opening tomorrow, that was meant to spell out the details of a trade deal aimed at lifting the prosperity of the world's poorest countries.

Some 3,000 people marched through the city yesterday holding banners reading "Down with WTO". A total of 10,000 protesters are expected and 9,000 Hong Kong police are on standby.

For the UK, this meeting was billed as the crowning achievement of its presidency of the G8 after the deal in July to double aid and wipe out tens of billions of dollars of Third World debt. But there are bad omens; Hong Kong will at best keep the talks alive - but at worst will force ministers to turn off the life-support machine.

Coming just days after the deal cobbled together on climate change in Montreal and with a bitter fight over the EU budget likely towards the end of the week, the future of multilateralism looks bleak.

The WTO lowered - or "recalibrated" - its expectations for Hong Kong after it became clear the main trading blocs were light years away from signing up to a deal on cutting subsidies and lowering tariffs.

The talks have become deadlocked over demands, by poor and emerging countries, such as Brazil, for the US, Europe and Japan to end their $300bn-a-year (£170bn) subsidy regime.

The EU and US have already offered cuts but in the case of Europe that has enraged countries such as France, which have accused Peter Mandelson, the EU's trade commissioner, of exceeding his mandate.

Meanwhile, the rich countries have refused to make further offers until countries such as Brazil show what they are prepared to offer in terms of better access for Western companies to their service and manufacturing markets.

Edmund Hosker, the director of trade policy at the Department of Trade and Industry, admitted the deadlock was "disappointing" but said officials were optimistic that progress would be made this week.

Mr Mandelson warned that failure to keep the talks alive could trigger new fears for global peace and security. "I fear that, if they fail, we will be giving many people less confidence in the international system," he said.

The three ministers representing the UK at Hong Kong, the Secretary of State for Trade, Alan Johnson, the Agriculture Secretary, Margaret Beckett, and the Secretary of State for International Development, Hilary Benn, urged the two economic superpowers, the US and EU, to open their farm markets.

"We need to spend more time thinking about what we in rich countries should offer the developing world, and less about what we should protect," they said. "But we also need to see a balanced outcome in Hong Kong. We must aim for progress in non-agricultural areas as well, such as industrial goods and services. Agreement in these areas has the potential to increase global incomes by over $50bn a year."

But campaign groups warned that demands for liberalisation of services would trigger a walk-out by poor countries, and would in effect consign the trade talks to the bin and open the world up to the threat of a global trade war.

A poll of African delegates by Christian Aid found two-thirds felt their economy would suffer if they accepted what was on offer and more than half said they were prepared to wreck the talks.

What's on the negotiating table?

What's it all about? The meeting is meant to achieve progress towards signing a deal to conclude the Doha Development Round - so named because it was signed in the Qatar capital in 2001 - which is aimed at improving the lot of developing countries.

What poor countries want The last trade round, signed in Uruguay in 1994, opened their markets but left only promises to tackle rich countries' massive subsidies and support for farmers. Poor countries want this round to live up to its name and focus on boosting their people's livelihoods.

What rich countries want The EU, the US, Japan and others believe a trade negotiation means meansquid pro quo. They are prepared to cut the subsidies and tariffs that protect their farmers but want concessions in areas such as industrial goods and services.

What is likely to happen? Ministers have already lowered ambitions for this round, which was meant to agree on formulas for cutting tariffs and subsidies. The best hope is for some concessions to poor nations and a resolution to keep negotiating until the December 2006 deadline.

What's it all about? Brazil calls it the "motor", the traditional way for poor countries to start developing. It is also a symbol for rich countries. The EU spends 40 per cent of its budget on an industry that employs 2 per cent of the workforce. And, in 2002, the US approved a bill that gives farmers $175bn over 10 years.

What poor countries want An end to the $300bn a year of subsidies that pays every cow in the rich world $2 a day. Also, sharp cuts in tariffs so they can sell into rich markets. They want to see action against bugbears such as low tariffs on leather but high ones on shoes, penalising those who try to add value.

What rich countries want They have to offer to cut farm support but will meet internal opposition if they go too far. The EU has offered 70 per cent cuts in subsidies and 40 per cent cuts in tariffs. The US has offered to reduce subsidies by 80 per cent.

What is likely to happen? The EU cannot go further without antagonising the French. This could be a real deal blocker unless poorer countries and vocal opponents, such as Brazil, are prepared to sign up to some face-saving language for all parties.

What's it all about? Countries impose these duties on imports to protect their domestic manufacturing bases. They cover 60 per cent of world trade and liberalisation might benefit rich countries more. Countries have for the first time agreed to follow a formula that cuts the highest tariffs most.

What poor countries want It comes back to agriculture - if they have to cut their tariffs they want something in exchange. Beneath the surface are some tensions; tariffs between poor countries are high and should be cut. Within Brazil, manufacturers want the government to give way so they can import cheaper parts.

What rich countries want They want sizeable cuts in tariffs to open developing country markets in exchange for farm subsidy cuts. The EU has proposed a top tariff of 10 per cent for poor countries. The US wants parallel talks to eliminate some tariffs.

What is likely to happen? Probably little other than warm words at best. The WTO has said that failure to reach an accord would mean lost opportunities for industrial trade of the order of $50bn to $250bn.

What's it all about? Accounting for a third of world trade but 70 per cent of economic activity, they show the potential for expansion in trade. Unlike other areas, the talks are carried out on a bilateral basis, where countries volunteer areas for market access.

What poor countries want Some are nervous about letting giant western companies in before domestic rivals have been developed. The one thing that they do want is a better deal on the movement of labour, making it easier for their citizens to emigrate for better paid-jobs.

What rich countries want They want access to all markets, as 80 per cent of trade is by Western multinationals. The figure is 90 per cent for financial services such as banks and insurers and in sub-sectors such as telecoms, IT and construction.

What is likely to happen? No progress is needed to keep the show on the road - so there won't be much. Rich countries have said they won't back down from their demands for a deal on services but no one would want the talks to be stalled over this issue.

What's it all about? These are two issues on which the US is vulnerable. America's cotton support keeps prices high for 25,000 farmers in swing states to the detriment of 1 million Africans. The EU is pushing for a deal on cotton and for an agreement to open all rich markets to the least developed countries.

What poor countries want Four African countries want concessions. Failure to move on cotton pushed the last WTO meeting over the edge. US politicians have linked any deal with deep cuts in tariffs against US exports in other areas. A deal would undermine US relations with Central American countries.

What rich countries want The EU is happy to offer a deal on cotton and open access to poorer countries. The US is hostile and observers are suspicious that Brussels is lining Washington up as the fall-guy for any failure.

What is likely to happen? The EU is hoping its six-point plan, which includes cotton and textiles as well as four other relatively cost-free concessions, could be dressed up as the pro-development deal to come out of Hong Kong that keeps the talks on the road.