GENEVA (Reuters) - Marathon talks on a new global trade pact collapsed on Tuesday as the United States and India refused to compromise over a proposal to help poor farmers deal with floods of imports.
Ministers from other countries expressed incredulity that the trade liberalization talks could have foundered in their ninth day over a technical measure to restrict imports.
"Someone coming from another planet would not believe that after the progress made, we would not be able to conclude," Brazil's Foreign Minister Celso Amorim said.
"This is a very painful failure and a real setback for the global economy at a time when we really needed some good news," an emotional EU Trade Commissioner Peter Mandelson told reporters, adding that developing countries would suffer most.
The collapse could hurt business sentiment -- even if it will have no immediate impact on trade -- and could fuel protectionist sentiment, encourage more bilateral trade deals and call into question how the world will deal with complex issues like climate change and the food crisis.
The failure to reach a breakthrough at the World Trade Organisation after nearly seven years of talks means the prospects for resuming the Doha talks to free up world trade -- if they can be resuscitated after the setback -- could be put back several years.
But WTO chief Pascal Lamy said ministers wanted him to revive the talks quickly and he would not "throw in the towel."
Lamy said the deal would eventually have saved the world economy $130 billion a year just in lower tariffs.
He called ministers from about 35 key WTO players to Geneva last week to seek a breakthrough in the Doha round, launched in late 2001 to boost the world economy and help developing countries export their way out of poverty.
Ministers reached about 80-85 percent of an outline deal on the core areas of agriculture and industrial goods, he said.
But differences in these areas between rich and poor countries and importers and exporters proved too much to bridge.
The final stumbling block, which dominated talks on Monday and Tuesday, concerned the "special safeguard mechanism" -- a proposal to let developing countries raise farm tariffs in the face of a surge in imports or collapse in prices.
Developing countries like India and Indonesia said they needed the measure to protect millions of subsistence farmers from unexpected shocks arising from opening up their borders.
But the United States feared its agribusinesses would lose new markets just as it made painful cuts in its farm subsidies.
Developing country food exporters like Costa Rica and Uruguay said the measure as framed would cut them off from key markets and even reduce existing trade.
"It's unfortunate in a development round, the last mile we couldn't run because of an issue concerning livelihood security," Indian Commerce Minister Kamal Nath said.
The United States and European Union had also clashed with big emerging countries like India and China over flexible treatment for developing nations in cutting industrial tariffs.
U.S. Trade Representative Susan Schwab said U.S. offers for the talks remained on the table.
"To ensure that the advances we made this week are not lost, the United States will continue to stand by our current offers, but we maintain that they are still contingent on others coming forward with ambitious offers that will create new market access. So far, that ambition is not evident," Schwab said.
But when or whether the talks could resume remains unclear.
Brazil's Amorim said it could take 3 or 4 years. Mandelson said he saw no real chance of resolving core issues in the foreseeable future.
Next year's change of U.S. president and EU Commission could sideline the talks or see priorities change. U.S. Democratic presidential candidate Barack Obama has said trade negotiations should include labor and environment standards.
"An Obama administration might just say we have to start over with a clean slate," said Gary Hufbauer, senior fellow at Washington's Peterson Institute for International Economics.
Even as ministers reaffirmed their commitment to the WTO and open trade, there were fears that Tuesday's setback could fuel protectionist sentiments.
"I think it's a strong negative and it really follows on the heels of a retreat from globalization and trade that were really the building blocks for the prosperity of the last several decades. It's scary," said Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut.
The WTO's role as umpire of the world trading system is now likely to come more into focus as its 153 members resort to trade disputes rather than trade liberalization negotiations.
Additional reporting by Laura MacInnis, Robin Pomeroy and William Schomberg; Editing by Jon Boyle