US and EU near agriculture trade deal

Trade negotiators from the US and European Union are edging a deal that could restart stalled world trade talks, according to people familiar with the discussions.

The progress follows a meeting of high-level officials that finished at the weekend and constant cabinet-level contact between Washington and Brussels in the run up to the World Economic Forum meeting in Davos <http://www.ft.com/davos2007> , Switzerland, this week, officials said.

The proposed outline of an agreement between the world's two largest trading blocs includes politically explosive concessions that are already causing rifts in Europe and alarm in the US farm lobby.

The fragile deal that is starting to emerge has yet to be finalised and comes amid tremendous uncertainty about whether negotiators can get the political backing to achieve a breakthrough in the Doha round of trade talks.

The deal that has been taking shape behind closed doors includes a proposal by Brussels to cut barriers to foreign agricultural products by an average of at least 54 per cent and a conditional offer by the US to lower the ceiling on its domestic farm subsidies to close to $17bn (EUR13.1bn, £8.6bn).

This tentative pact represents a significant advance beyond entrenched battle lines over farm policy that have impeded wider trade talks for years. Both sides have also explored yet deeper cuts to tariffs and subsidies, according to people familiar with the dialogue.

An official said: "We are trying to get to the absolute limit of what is politically feasible without falling off a cliff."

The latest round of transatlantic talks began four days ago and included detailed technical discussions about ways to narrow differences over exemptions for so-called sensitive products such as beef and dairy produce. A senior EU trade official said the talks were "constructive but not definitive".

Both sides are also aware that the provisional EU offer on tariff cuts could lapse under the strain of opposition from Paris, which has demanded that the farm talks in Doha be put on the agenda of the meeting of EU agriculture ministers next Monday.

This hostile political environment makes the progress in negotiations all the more remarkable and has prompted Brussels to seek the support of Angela Merkel, the chancellor of Germany.

While Germany has traditionally played a key role in persuading Paris to accept trade deals, the poor state of Franco-German relations suggests that while Berlin might find it easier to push for a deal, France might feel freer than before to block it.

The Bush administration has also met key figures on Capitol Hill who will shape policy on agriculture and trade under the new Democratic leadership of Congress. But it is likely to take weeks to establish whether Congress would consider renewing President George W.?Bush's trade promotion authority - which expires in six months and is needed to complete a deal.

These approaches included an appeal to Collin Peterson, the influential chairman of the agriculture committee in the House of Representatives, to tone down his opposition to the renewal of trade promotion authority.

The congressman said after the meeting that he remained deeply critical of US trade policy but was not determined to wreck a Doha deal that included meaningful benefits for US farmers.

Mr Bush is also likely to use his State of the Union speech on Tuesday to address growing public and political concerns about the economic disruption caused by trade.

But this is unlikely to quash scepticism at the World Trade Organisation about the political mandate of US and EU negotiators, or cure the breakthrough-fatigue shared by participants and observers of the Doha round.

Any agreement is also contingent on reciprocal concessions by Brazil and India on lowering barriers to trade in industrial goods and services - which are still under negotiation.

Brazil has been negotiating separately with the US and EU and dispatched a senior diplomat to Delhi over the weekend to try to broker a common position ahead of talks planned for Davos. A US trade official said the Swiss forum would allow for important meetings to take place but would not produce any public statement on a "breakthrough".

But there was sufficient expectation that fresh political impetus would emerge from the forum that the G20 group of developing nations was mobilising to hold multilateral talks next week in Geneva.