GENEVA – In a breakthrough Saturday, trade ministers tentatively agreed on a plan to end export subsidies for farm products and cut import duties, a key step toward a comprehensive global accord that advocates say will boost the world economy.
The deal, under discussion since 2001, was expected to be approved by all 147 members of the World Trade Organization (search) later Saturday, opening the way for full negotiations to start in September.
"Developed countries have recognized that agricultural trade with a heavy subsidy component is not free trade," Indian Trade Minister Kamal Nath said. But he said that the United States, European Union (search) and other developed countries will also benefit by removing heavy agricultural subsidies from their budgets.
"It is a good deal for everybody," Brazilian Foreign Minister Celso Amorim (search) said. "It's a good deal for trade liberalization. It is also a good deal for social justice ... with the elimination of subsidies."
Economic theory says that reducing barriers to trade and allowing the market to dictate who makes what and at what price, will boost the global economy. A recent study by the University of Michigan found that cutting global trade barriers by a third would boost the world economy by $613 billion — the equivalent of adding a country the size of Canada.
But nations are reluctant to agree to big cuts in some areas because free trade creates losers as well as winners, and entire industries can be devastated in some countries if they are opened to foreign competition. So trade rounds are slow and laborious affairs.
On Saturday, some 20 key countries approved a document setting out the framework for a legally binding treaty. It will commit nations to lowering import duties and reducing government support in the three major areas of international trade — industrial goods, agriculture and service industries such as telecommunications and banking.
The delegations met late Saturday night to approve the document.
The deal sets back in motion the long-stalled "round" of trade liberalization treaty talks that were launched by WTO members in Doha, Qatar, in 2001, but delayed by the collapse of the body's ministerial meeting in Cancun, Mexico, last year.
In agriculture, the document agrees to eliminate export subsidies and other forms of government support for exports, while making big cuts to other subsidies. It includes a "down payment" that would see an immediate 20 percent cut in the maximum permitted payments by rich nations.
The highest agricultural import tariffs will face the biggest cuts, although no figures have yet been agreed. Nations will have the right to keep higher tariffs on some of the products they consider most important.
Tariffs on industrial products will also be cut according to a formula, but the exact details have yet to be established. Developing countries will have longer to make the changes.
The deal also approves the launch of new negotiations on trade facilitation — "further expediting the movement, release and clearance of goods" by streamlining customs procedures.
Developing countries in particular have been congratulating themselves for forcing issues onto the agenda that they say were ignored by rich nations in the past — such as the devastating effect of U.S. cotton subsidies on producers in Africa.
The so-called Group of 20 developing nations, led by Brazil, has had a major influence on discussions over the past year, and Brazil was one of the major players in drafting this week's agreement.
"Post-Cancun, the G20 was seen as a destructive force. Now it's seen as an essential part of a deal, so draw your own conclusions," said Brazilian Foreign Minister Celso Amorim.
This week's deal is referred to as a "framework" — it sets out a series of principles for liberalization, but stops short of details. Those must be negotiated in further talks, expected to start in September.
Everybody accepts that it will be impossible to achieve the aim of negotiators in Doha to finish the round by the end of this year. However, this week's agreement gives focus and direction to the discussions, and makes it much more likely that a fully treaty can be worked out next year.
That could lead to a final deal being signed in Hong Kong late next year, with the agreement coming into force in 2006.