[Free Trade] WTO's Lamy Says Lack of Trade Pact Would Damp Growth

from Bloomberg

By Gemma Daley

Sept. 20 (Bloomberg) -- Global economic growth would be damped if nations fail to reach an agreement on free trade, said World Trade Organization Director General Pascal Lamy.

WTO talks faltered in July for an accord the World Bank estimates would have been worth $96 billion in global commerce. Negotiations broke down mainly because of differences over agriculture. The U.S. demanded tariff cuts by India, Japan and the European Union while refusing demands to reduce its own farm subsidies.

``There is an impressive trade pact on the table and it would be a quantum leap for economies,'' Lamy said in Cairns, northern Australia, where he is attending a meeting of trade officials from 19 nations, including the U.S. and Japan. ``The consequences of a failure of the round is less potential for economic growth and less potential to reduce poverty.''

International Monetary Fund Managing Director Rodrigo de Rato says world economic growth will suffer without a global trade accord.

If an agreement ``does not materialize, prospects are for lower growth,'' de Rato said in Singapore yesterday. U.S. Treasury Secretary Henry Paulson this week said ``protectionist sentiment'' eclipses even global imbalances as a growth risk.

The WTO talks were aimed at agreeing on lower tariffs, subsidy cuts and other steps to stimulate trade. That proposal itself was scaled back from earlier efforts. Countries squabbled over agricultural subsidies and tariffs on industrial goods.

Domestic Politics

Officials from 19 countries, including the U.S. and Japan, are meeting in Cairns and will discuss a plan for the European Union to slash farm subsidies by a further 5 percent and the U.S. to cut $5 billion from farm subsidies, Australian Trade Minister Mark Vaile said yesterday.

``We have to focus on the domestic politics of the European Union and the United States,'' Lamy said. ``The question is whether countries have the courage, stamina and momentum to go this extra mile.''

Failure to reach a deal on world trade would hamper a global economy already at risk from inflation, rising oil prices and a slowing U.S. housing market, the IMF has said.

Lamy said negotiators had a ``brief'' window of opportunity to conclude negotiations. The WTO must reach an accord this year to leave enough time for the U.S. Congress to approve a final agreement before the Bush administration's negotiating mandate ends in July 2007.

`Serious Point'

``If there was better and more decisive political drive from the major players, we could arrive at a solution,'' Carlo Trojan, the European Ambassador to the WTO, said on the sidelines of the three-day conference in Cairns. ``I think it is still do-able.''

Trade officials from the U.S., Europe and more than 20 countries last week agreed that talks for a global agreement to dismantle market barriers must resume.

``We are at a very serious point of discussions,'' Alan Oxley, chairman of the Asia-Pacific Economic Co-operation said on the sidelines of the conference. ``It's critical we reach an agreement at this meeting to move forward in a meaningful way.''

Australian Prime Minister John Howard said he remained ``optimistic'' officials would conclude a multilateral negotiation.

``Things do not look good at the moment, but we must not be deterred,'' Howard told reporters in Cairns. ``I remain optimistic we can achieve a breakthrough.''

New Zealand Trade Minister Phil Goff said the so-called Cairns Group of agricultural exporting nations including Argentina and Canada, which was formed in 1986 and accounts for 13 percent of the global economy, would issue a statement to the WTO.

``We will call for the resumption of the world trade talks,'' Goff said in an interview in Cairns. ``We will be building pressure for resumption of the talks, mainly for some convergence between the European Union and the U.S.''

To contact the reporter on this story: Gemma Daley in Cairns at gdaley@bloomberg.net