Time is running short for a World Trade Organisation (WTO) deal that could boost economies and the flurry of contacts and number-crunching in Davos will indicate whether the impasse can be broken soon or will drag on for years, negotiators say.
"Davos will be important as a weather vane," said a European Union official. "It probably won't go into full ministerial negotiating mode. What's important will be the political signal, and the strength of it, to facilitate resuming negotiations."
Hopes for a deal took a hit last July when the WTO suspended its Doha round of negotiations to lower trade barriers around the world, mainly because of big differences over farm goods.
Launched in 2001 after the attacks on the United States with the aim of easing poverty around the world as well as helping economic growth, the round has suffered several setbacks. Without a breakthrough in the coming weeks, it could be on hold for several years.
US President George W. Bush is due to lose his `fast-track' powers for trade deals in June and the 2008 presidential election will dominate US politics soon.
Trade experts say failure of the Doha round would not only limit growth in trade and investment flows but also hurt the credibility of the multilateral system that is supposed to give poor countries more muscle when dealing with industrial powers.
The alternative of a `spaghetti bowl' of bilateral deals risks making business more complicated, and on terms less favourable to developing countries, they say.
Around 30 trade ministers will meet on the sidelines of the annual World Economic Forum in Davos beginning on Wednesday, culminating in a broad trade gathering next Saturday. The US and EU trade chiefs will play crucial roles. Last year they swapped blame for the July breakdown. But they have recently talked of new momentum after Bush said this month he was committed to a deal, boosting technical-level talks to narrow transatlantic differences on farm trade.
"(Countries have decided that) rather than talking past each other about the bumper-sticker numbers, where we encountered our impasse in July ...let's go behind those numbers and look at key priorities, key sensitivities in conjunction with the top-line numbers," US Trade Representative Susan Schwab said last week.
Brussels and Washington both hope for signs in Davos from developing countries, led by Brazil and India, that they could go further with planned cuts to tariffs on imports of industrial goods, such as cars and chemicals, and give more access to foreign service providers, like banks and port operators.
But the developing countries have so far held out for more farm concessions from the rich world.
Negotiators say there is little chance of completing a deal by June 30, when Bush's fast-track powers expire, but they hope the Democrat-run Congress might put party politics aside to extend them for a few months, if an outline is on the table.
But Europeans are worried that Congress could push for a new U.S. farm bill that leaves farm subsidy ceilings intact, a move that would jeopardise big efforts in the WTO talks to cut them.
EU trade chief Peter Mandelson faces domestic pressure from European farming countries led by France, which has warned him not to go too far with cutting import tariffs for farm goods.
FARM SUBSIDIES: The United States has offered to cut the amounts it is allowed to spend on subsidies to farmers under WTO rules by 60 %. But the European Union and leading developing countries say that it could still spend over $22 billion a year, more than 2005 spending of some $19.5 billion. It is widely assumed that the United States has at least a further $5 billion of cuts up its sleeve made up of so-called ‘product-specific de minimis’ support, which it rarely uses. The United States is also under pressure to tighten disciplines in the so-called ‘blue box’, which is a half-way house between farm aid that is considered trade-distorting and aid that is not, like rural development spending. The EU, which spends far more, has offered a 70 % cut in subsidies, but could go to 75 % if the United States went to 65.