Negotiations aimed at reaching a consensus on the Doha Round, the World Trade Organization’s (W.T.O.) global trade agreement, collapsed on July 24, 2006. Pascal Lamy, the W.T.O.’s director general, formally suspended the last-ditch talks in Geneva, which centered on agricultural tariffs and trade-distorting subsidies, because an agreement could not be reached between the six core negotiators - the United States, India, Brazil, the European Union, Japan, and Australia.

The negotiating parties were in agreement that this round of talks needed to produce a consensus on farm issues if a final agreement were to be reached by the end of this year.

The trade agreement is part of the W.T.O.’s ambitious agenda set in Doha in the aftermath of September 11, 2001. The 21-subject declaration that emerged in Doha set out to resolve disputes on agricultural trade, trade-related aspects of intellectual property rights, transparency in government procurement, and other subjects for the W.T.O members, which now include 149 governments.

The effective deadline for the Doha Round was the end of this year; however, because of the complexity of the agreement, this timeline now seems impossible. In mid-2007, the White House’s authority to negotiate trade deals without congressional interference will expire. After this time, the terms of any trade agreement negotiated by the US President will be subject to approval by the Senate, rather than an up-or-down vote as under the current agreement.

There is little chance that the President’s fast-track negotiating authority will be extended by the next Senate, which will be sworn in next January, or that any agreement would make it out of the Senate without major changes.

This Round collapsed, as many before it did, in a deadlock between farm import tariff users and farm subsidy users. Washington continued to argue for steep cuts in farm import tariffs, which are used by the European Union, India, and Japan, while refusing further cuts in its agricultural subsidies. Four of the six negotiating parties blamed US intransigence as the downfall of this last round of talks.

Brazil, usually aligned with the United States on farm tariffs, began to shift its position away from that of the United States and toward the European Union earlier this year, after Brussels was held to blame for the lack of progress at the December ministerial meeting in Hong Kong. Only Australia neglected to single out the United States for the failure.

While the trade agreement is highly controversial, observers agree that the fate of the Doha Round was an integral determinant of how globalised market economies would interact in the future. Without a W.T.O. agreement, bilateral and regional negotiations will largely draw the rules for international trade. This will lead to increased costs for transnational corporations, as complying with localized trade laws in several different countries is inherently more complicated than adhering to a single, global system.

Nevertheless, some companies in the United States and the European Union prefer to do business under bilateral trade deals because their governments can generally set the terms for these deals.

Different models predict a wide variety of outcomes for how the trade agreement would affect those it was initially proposed to help, the least-developed countries, but most economists agree that free trade increases wealth in the long run and on the whole through the operation of comparative advantage. In the near term, however, many least-developed countries that enjoy highly favourable trade terms with economically-mature states may have seen their comparative advantage challenged by other poor countries.

The Doha Round’s failure is part of a larger trend toward economic nationalism in the advanced economies. For domestic political reasons, Washington and Brussels are currently unwilling to open up politically sensitive markets to international competition.

A sign that Washington was no longer fully engaged in the trade talks came in April when Rob Portman was shifted to the Office of Management and Budget, and Susan Schwab took his place as US trade representative. A personnel shift at this critical juncture was a sign that the Bush administration did not expect the Doha Round to be concluded this year.

The European Union is also going through a period of economic nationalism, with France leading this trend. In August 2005, France announced that it would protect strategic domestic industries from buyouts by foreign companies. The Spanish government has similarly protected Edelsa from foreign suitors.

Brussels’ position, however, is slightly more complicated than Washington’s. Some competitive exporters, such as Germany, generally favour liberalization because it is to their benefit. Also, Brussels has begun cracking down on national governments for protectionist moves. On April 4, the European Union started legal action against almost all European governments because of the insufficient liberalization of their energy markets.

A similar move led to an agreement to liberalize the service sector in May.

It is nearly impossible for a compromise on the Doha Round to be reached this year. Even the prospect of a watered-down agreement, often referred to as “Doha light,” seems dim. Bilateral and regional trade agreements will constitute the majority of trade agreements for the near future. This shifts the advantage to wealthy states with the resources to negotiate favourable terms, although it will also make international trade more complicated than it would have been under the Doha agreement for transnational corporations.

The future of the W.T.O. is also uncertain. Without the trade agreement, the multilateral organization will lose one of its major reasons for existence. It will still play a role in deciding trade disputes, but because the organization is member-driven, it may fall apart if the major economies begin to resist its trade rulings. It can be expected that a barrage of litigation will hit the EU and US farm sectors following the collapse of the Doha Round and Brazil’s success in challenging Washington’s cotton subsidies in March 2005.

As of now, Washington and Brussels have excellent track records of following W.T.O. rulings because they can use the same dispute panels to their advantage. If the United States and the European Union no longer see an advantage in following W.T.O. rulings, the organization’s existence will be threatened.