Collapse of trade negotiations is not an unusual phenomenon. It has happened time and time again. The latest failure at Potsdam, Germany, is not a big surprise. It was set up to prepare the end game for concluding the beleaguered Doha trade negotiations. The five-day summit of the Group of Four trade ministers from the United States, the European Union, Brazil and India was abandoned half-way through the third day when it became clear that the differences seemed unbridgeable.

At the core of the breakdown is an issue of simple exchange rate. It involves what the United States is prepared to do on its billions of dollars of trade-distorting farm subsidies and the European Union on its high border protection measures on farm products. In return, the two developing countries – Brazil and India – are required to indicate their commitment to reduce their industrial tariffs. The US vehemently opposed cutting its farm subsidies below US $17 billion, notwithstanding that its farm subsidies last year amounted to only US $10.8 billion. The EU was not ready to cut its import tariffs on farm products by more than 51 per cent as against demands to reduce the tariffs by 54 per cent. Though they fought against each other at the failed Geneva meeting last year, the US and the EU buried all their differences this time round and teamed up to force Brazil and India to deliver on ambitious cuts in the import duties on industrial products. Using a complex Swiss formula for industrial products, which was resisted by the industrialised countries in the agricultural trade, the two trans-Atlantic trade elephants insisted vehemently that the developing countries agree to a cut of over 70 per cent in industrial tariffs.

In short, the trans-Atlantic trade partners tried to tilt the balance at Potsdam on the plea that their domestic constituencies have to be satisfied with whatever reform they undertook in agriculture. Brazil and India refused to yield ground and insisted on complying with the Doha mandate that stipulated that the developing nations would have lesser commitments than industrialised countries. Moreover, the US turned its back on other developmental issues such as providing patent disclosure norms for genetic materials or improving the flow of non-immigration service providers from developing countries to rich countries. India is right to say that “without an attitudinal change in the mindsets” of the US and the EU, the Doha trade negotiations are bound to fail.