Cotton deal holds key to WTO subsidy row

Europe and the United States were last night facing a three-pronged attack by some of the world's poorest countries seeking massive concessions as part of a deal to push ahead with an agreement to liberalise free trade.

Ministers were locked in talks over demands by developing countries for swingeing cuts in rich countries' support for farmers and the key cotton industry and over demands by poor nations to scrap plans to include issues such as global investment rules in the current round of talks. The challenges are a sign that the developing countries plan to mount a concerted operation to maximise their gains, at least in these early stages of the five-day negotiations.

America and the EU were holding talks with the G21, an unexpected coalition of developing countries only formed this week to demand large cuts in EU, US and Japanese farm subsidies. Celso Amorim, Brazil's foreign minister, who earlier had stormed out of a meeting with the US, said: "This has already altered profoundly the correlation of forces in [the WTO]. It will be instrumental in bringing nearer the reform we have been speaking about for so long."

Mr Peter Allgeier, the US deputy chief trade representative said: "The attitude that best describes our point of view is that we are perplexed by this group because it is extremely diverse and it would be interesting to look back [to] see what their individual views were on these issues."

The group includes large food producers such as Brazil and poorer countries such as Egypt that benefit from cheap world food prices and aid from the US.

Margaret Beckett, Secretary of State for Environment, said: "The EU is in a strong position and has made a strong offer and the idea that the G21 is rock solid - well only time will tell."

Delegates were locked in overnight talks on Wednesday night over a demand by four African countries for major concessions over the cotton trade. Benin lodged the proposal on behalf of Burkina Faso, Chad and Mali four of the poorest countries in the world. Almost half of global domestic cotton subsidies are paid by the United States to its producers - around US$2.2bn (£1.4bn) in 2001-2002.

The European Union spent only $700m, but cotton is only produced in Greece and Spain, making EU subsidies the highest per pound of cotton in the world - up to 180 per cent of the global price.

Benin's Industry and Commerce Minister Fatiou Vihotogbe Akplogan called on the WTO to "cut out the gangrene that is eating at the strategic fibre of our economies".

"If nothing is done urgently and solidly, this could lead to the total loss of revenue for our producers, an increase in poverty and the destruction of our economic system," he said.

The EU and US said they sympathised with the plight of the countries but said the issue was "more complicated than it first seemed".

The EU said it "shared the concerns" but pointed out that it was a net importer of cotton while its own production amounted to just 2 per cent of world production.

It is understood the African countries have held firm. Phil Bloomer, head of advocacy at Oxfam, said: "This is about the increasing assertiveness of developing countries and is a litmus test as to whether this will really be a development round [of talks]."

Meanwhile, India vowed to oppose calls by the European Union, Japan and US for negotiations to begin on rules guaranteeing investor access to foreign markets.