As `peace clause' expires, WTO expects subsidy war

War clouds loom over the WTO as a peace clause, which has protected farm subsidizers like the US, is due to expire at the start of next year, experts said.

Such an event would further complicate efforts to liberalize trade after the collapse of global trade liberalization talks earlier this month in the Mexican resort of Cancun amid bitter divisions between rich and poor nations, they warned.

The abrupt end to the Cancun meeting spoiled plans to discuss extending the nine-year peace clause, borne from the 1994 Uruguay Round agreement, which prevents countries from complaining to a Dispute Settlement Body (DSB) about agriculture subsidies by other WTO member states.

A WTO meeting in Geneva in mid-December is the last chance of an extension, but developing nations that suffer most from heavily-subsidized exports are unlikely to agree without concessions from key subsidizing culprits such as the EU and Japan, experts said.

"As we speak today, the peace clause will come and go," predicted Canada's WTO ambassador, Sergio Marchi.

"In the aftermath of Cancun, I hope that people don't use the DSB vindictively ... to get even or settle scores," he cautioned.

A trade official from the EU predicted that failure to negotiate a deal by December would result in "quite a lot" of disputes.

The combative "G-22" alliance of developing countries, which includes Brazil and other members of the 17-nation Cairns Group of agricultural exporters, is most likely to use the powers unleashed as the clause expires.

However the EU official warned: "In this sort of atmosphere, everyone might start throwing things at each other."

A Brazilian source from the WTO in Geneva insisted his country did not have a hit list of member states it would target on the morning of Jan. 2, when the peace clause expires.

"At the same time, if we feel that a country is using trade-distorting subsidies then we would make a complaint," he conceded.

There is a slim possibility the peace clause may be extended at the ambassador-level WTO meeting on December 15, said the EU trade official.

"It would be a rolling thing that would be a threat hanging over people that subsidize agriculture," he explained.

Omar Hilale, the Moroccan ambassador disagreed, arguing that such a compromise was unlikely as many Latin American and Asian countries held very different views to those by nations such as the US.

"I remain pessimistic," he said.

A sharp rise in trade disputes would further prolong the Doha round of talks aimed at freeing up global trade, which already appears likely to miss its January 2005 deadline, according to trade experts.