The developing countries have only hurt their own people in Cancun

The failure of the World Trade Organisation at Cancun is the greatest failure in international trade since the US plunged the world economy into recession by hiking tariffs in the late 1920s and early '30s. It is a stunning example of governments blowing up the institution that helps them most. The event changes the political landscape for trade liberalisation. It will encourage more bilateral and regional agreements.

Inside the WTO it creates a new divide: between those who think the institution is important and those who don't. This may change Australia's idea about who are its friends and who are not.

There is no way the Doha Round can now finish on time by the end of 2004. That was anyway unlikely. In addition, the credibility of the WTO is now on the block.

What went wrong?

Unbridgeable differences over agriculture? No effort was made to finish those negotiations at Cancun. A new version of the mandate for the negotiations had been developed. Most believed it would get them back on track. It had clear benefits for developing countries.

The sticking point was over two minor issues that no one could have dreamed would bring a WTO ministerial to its knees: making government procurement more transparent and "facilitating" trade (that is, easier Customs clearances).

The European Union asked that it be kept in the negotiations and it would take investment and competition policy off the table to keep things moving. This was a good deal. Too good, in fact. Investment shouldn't have been surrendered.

Nevertheless, the developing countries drew a line in the sand. They would not agree. There were no billions in subsidies here, no outrageous tariffs, just a couple of good ideas. What they were gambling with was the welfare of their own people. They had a smoking gun. It was pointed at the heads of their own people. "Take another step," they told the EU, "and we'll pull the trigger." They did.

Mexico's minister Luis Debrez understood this. "If we can't agree on those [soft] issues, there is no point talking about agriculture," he said. He wound up the conference. Officials in Geneva are now to sort these issues out.

So, what were the developing countries playing at? Brazil was the first culprit. It was adamant that the US and the EU should liberalise, not it (Brazil is the world's most competitive producer of oilseeds, chicken meat, citrus and sugar, and has high tariffs), and that no developing country should have to liberalise. The EU and the US made it clear that Brazil had to pull its weight.

Brazil organised a bloc of developing countries to oppose cuts in trade barriers for these countries.

The second factor was the Africans. There is now a large group of them in the WTO. They behave as if they are in the UN. They forget, or don't care, that what they do in the WTO affects their own people. It is almost as if the failed-state syndrome that is becoming such a headache in Africa has wafted into the WTO.

And they have paid the price. Brazil will not get access to markets in Europe and the US without the help of the WTO. And it has just marginalised itself. The African members of the WTO have derailed the only global system capable of providing opportunities for growth.

Australia has little choice but to make an effort to repair the WTO. It is too important to neglect. There is a new divide in the organisation: those who would prefer to play political games and those who want to make it work. Australia may find itself working in collaboration with those it has traditionally opposed, to get the institution back on its feet.

Of course, the WTO will not collapse. But it is an option to give up negotiating cuts in trade barriers. If the EU and US elect to go down that path, industrialised economies will be OK. Their tariffs are already low and bound under WTO law to stay low.

Developing economies with higher trade barriers would be the losers. The system would not be able to give them support to cut trade barriers and promote growth. It would be their choice. Pity about their citizens.