Failure to agree trade deal could trigger '1930s-style' disaster

THE EUROPEAN Commission's Irish-born director general for trade David O'Sullivan has warned that a failure to agree a global trade deal could provoke a 1930s-style Great Depression.

However, he has expressed optimism about the prospect of achieving a breakthrough in long-running World Trade Organisation (WTO) talks, which are due to re-start today in Geneva.

"The odds of a deal are 60-40 [ in favour]," Mr O'Sullivan told The Irish Times, while issuing a stark warning about the "siren voices" of protectionism, which may have been strengthened by the current difficulties experienced by the global economy.

"It is always a battle to make the case for free trade when those who feel they are losing out are often more vociferous than the great majority who benefit.

"There is always a temptation to return to protectionism - as an instrument of policy this is what brought us close to disaster in the 1930s. I hope there is sufficient understanding of this economic reality in the political classes across the world that we won't let ourselves repeat that mistake," he said.

Ministers from at least 30 countries will meet throughout this week in Geneva in an effort to find an acceptable compromise to liberalise world trade in agriculture, industrial products and services by cutting tariffs and trade distorting subsidies. The talks have been dragging on for seven years and key differences remain between the developed economies - the US, EU, Japan and Australia - and developing countries such as Brazil, China and India.

Mr O'Sullivan pinpoints three key issues that need to be resolved this week to lay the basis for a final WTO agreement later in the year: a willingness by the US to cut farm subsidies; the question of opening markets for farm imports; and persuading developing states such as Brazil, India and China to cut tariffs levied on imports of industrial goods.

For states such as Ireland with large agricultural interests, a WTO deal holds the prospect of increased competition from low-cost beef producers such as Brazil.

However, Mr O'Sullivan contends that the EU has done a "very good job of reconciling the need for Europe to open our agricultural markets . . . while at the same time securing firmly our defensive interests in the most sensitive sectors". By according beef as a sensitive product in the EU, imported beef would not benefit from the full tariff cut for agricultural products, he said.

The Irish Farmers Association (IFA) has warned that sensitive product status would not save the industry from feeling the brunt of international competition, estimating that 100,000 jobs would be put at risk in rural communities. The Government has also expressed grave concern over the commission's conduct of the WTO negotiations.

Mr O'Sullivan said a WTO deal concluded now would be better for Irish farmers because it would take into account the 2003 reform of the common agricultural policy (CAP). A delay could persuade other trade blocs to demand extra tariff and subsidy cuts in future while the current deal on the table would not threaten the future of EU agriculture.

He dismissed arguments advanced by the Government and France that this is not the time to open EU agriculture to competition because of concerns over food security.

"The current food crisis demonstrates rather the need for more openness and more access to encourage people to produce efficiently and sell into markets that need food. I find it very paradoxical that at a time of food shortages people think the correct response is to close borders rather than to open them as fully as possible," said Mr O'Sullivan.

He added that a deal this week would provide a positive boost for the world economy.

"It would show that the WTO is capable of playing the same role in the 21st century that the GATT and the WTO played in the second half of the 20th century of building and developing a rules-based multilateral trading system which has been a huge source of prosperity for all countries participating," he said.

"If we are not able to do the deal next week the consensus view is that probably the negotiation will have to be put on the backburner for a year or two and then resumed after the electoral cycle in the US."