Thu Jul 24, 2008 10:19am EDT

By Laura MacInnis and Robin Pomeroy

GENEVA (Reuters) - Talks to salvage a global trade deal faced a crunch point on Thursday after three days of scant progress, and French President Nicolas Sarkozy said he would not sign a deal in its current form.Full Size

Rich and poor countries remained at loggerheads as to who must make the next move and officials said it would become clear on Thursday whether it was worth pursuing the talks.

Collapse could add more years of delay to the World Trade Organization's Doha negotiations to bring down barriers to exports worldwide.

"What I see is big divergences still. We'll see during the day if it is possible to bridge these gaps," Argentina's chief negotiator Nestor Stancanelli said as he arrived at WTO headquarters on the shores of Lake Geneva.

The talks were originally due to run until Saturday but delegates say they will either flop before then because of the deep differences or drag on well into next week.

"We are potentially closer than we have ever been to a deal, but the final steps are the hardest and still look formidable," said EU Trade Commissioner Peter Mandelson on his weblog.

France's Sarkozy, concerned about scaling back the EU's farm import tariffs for little return, said he would not to sign up for the deal currently on the table.

"We will not sign this agreement that is on the table if it is not modified," Sarkozy told reporters in France. He has previously criticized Mandelson's handling of the WTO talks.

The so-called development round, launched in the Qatari capital in 2001, is meant, among other things, to make it easier for developing countries to export farm produce by reducing rich countries' subsidies and import tariffs on agricultural goods.

The United States and the European Union have made offers on agriculture, but are pushing developing countries to open their borders for imports of industrial goods like cars and chemicals, and services like banking and telecommunications.

BLEAK ASSESSMENT

Without a breakthrough before the August break, the Doha round risks further years of delays due to next year's changes at the U.S. White House and at the European Commission.

A European diplomat said trade talks often needed a crisis to get to a breakthrough. "All parties will have think very hard about their role in any negotiating failure," he said.

A U.S. industry representative said Washington negotiators gave lobbyists "a pretty bleak assessment" of the talks.

Supporters of the round say it is needed more than ever to give a rare, positive signal to a slowing global economy.

Japan's exports unexpectedly shrank in June for the first time in nearly five years, data showed on Thursday.

Brazilian President Luiz Inacio Lula da Silva dropped his recently optimistic tone to warn the United States and the EU they risked bringing down the round because their offers on farm subsidies and tariffs fell short, Brazilian media said.

Japan said it wanted to shield more its agricultural products, such as rice, from big import tariff cuts.

U.S. Trade Representative Susan Schwab has urged developing countries to come forward with offers of their own after she offered to cap trade-distorting subsidies to U.S. farmers at $15 billion a year, a level many countries still consider too high.

Schwab said a group of key ministers had made "a little progress" at talks which ended shortly before dawn on Thursday.

The ministers from Australia, Brazil, China, the EU, India, Japan and the United States are due to meet again at 4:00 pm (1400 GMT) to see if they can break the deadlock.

(Additional reporting by William Schomberg, Doug Palmer and Jonathan Lynn; writing by Robin Pomeroy and William Schomberg; Editing by Jon Boyle)

WASHINGTON - Sales of existing homes fell more sharply than expected in June as the housing industry continued to be bruised by the worst slump in more than two decades.

The National Association of Realtors reported that sales dropped by 2.6 percent last month to a seasonally adjusted annual rate of 4.86 million units. That was more than double the decline that had been expected and left sales 15.5 percent below where they were a year ago.

The downward slide in sales depressed prices, too. The median price for a home sold in June dropped to $215,100, down by 6.1 percent from a year ago. That was the fifth largest year-over-year price drop on record.

The drop in sales pushed inventories of unsold single-family homes and condominiums to 4.49 million units, up by 0.2 percent. That represented a 11.1 month supply at the June sales pace, the second highest level in the past 24 years.

Sales were down in all regions of the country except the West, which posted a 1 percent sales increase. Sales fell by 6.6 percent in the Northeast, 3.4 percent in the Midwest and 3.1 percent in the South.

Analysts said that until the inventory level is reduced to more normal levels, the slump in housing is likely to persist. The inventory level is being driven higher by a massive wave of mortgage foreverSeeking to address the housing crisis, Congress is moving to pass a sweeping package of rescue measures. The plan includes support to keep as many as 400,000 homeowners from losing their homes to foreclosure and a federal lifeline to bolster troubled mortgage giants Fannie Mae and Freddie Mac.

The House passed the bill Wednesday and the Senate is expected to pass the proposal in coming days, sending it to President Bush. The president has dropped a threatened veto over a portion of the bill.

WASHINGTON — The Bush administration plans to shift nearly $230 million in aid to Pakistan from counterterrorism programs to upgrading that country’s aging F-16 attack planes, which Pakistan prizes more for their contribution to its military rivalry with India than for fighting insurgents along its Afghan border.

Some members of Congress have greeted the proposal with dismay and anger, and may block the move. Lawmakers and their aides say that F-16s do not help the counterterrorism campaign and defy the administration’s urgings that Pakistan increase pressure on fighters of Al Qaeda and the Taliban in its tribal areas.

The timing of the action caught lawmakers off guard, prompting some of them to suspect that the deal was meant to curry favor with the new Pakistani prime minister, Yousaf Raza Gilani, who will meet with President Bush in Washington next week, and to ease tensions over the 11 members of the Pakistani paramilitary forces killed in an American airstrike along the Afghan border last month.

The financing for the F-16s would represent more than two-thirds of the $300 million that Pakistan will receive this year in American military financing for equipment and training.

Last year, Congress specified that those funds be used for law enforcement or counterterrorism. Pakistan’s military has rarely used its current fleet of F-16s, which were built in the 1980s, for close-air support of counterterrorism missions, largely because the risks of civilian casualties would inflame anti-government sentiments in the Federally Administered Tribal Areas.

State Department officials say the upgrades would greatly enhance the F-16s’ ability to strike insurgents accurately, while reducing the risk to civilians. The officials, who spoke on condition of anonymity because Congress was weighing the plan, said the timing was driven by deadlines of the American contractor, Lockheed Martin.

Having the United States pay for the upgrades instead of Pakistan would also free up cash that Pakistan’s government could use to help offset rising fuel and food costs, which have contributed to an economic crisis there, the State Department officials said.

Under the original plan sent to Congress in April, the administration intended to use up to $226.5 million of the aid to refurbish two of Pakistan’s P-3 maritime patrol planes, buy it new airfield navigation aids and overhaul its troubled fleet of Cobra attack helicopters. The State Department notified Congress last week that the administration had changed its mind and would apply the funds to the F-16s.

Lawmakers immediately bridled at the shift, questioning whether the counterterrorism money could be spent more effectively. “We need to know if this is the best way to help Pakistan combat Al Qaeda and the Taliban,” Senator Patrick J. Leahy, a Vermont Democrat who heads the appropriations subcommittee on State Department and foreign operations, said in a statement.

Representative Nita M. Lowey, a New York Democrat who heads the House appropriations subcommittee on foreign operations, said in a statement, “It is incumbent on the State Department and Pakistan to demonstrate clearly how these F-16s would be used to fight Al Qaeda and the Taliban in order to get Congressional support.”

In a two-page notification to Congress, the State Department said that upgrading the avionics, targeting and radar systems of Pakistan’s older F-16s would “increase the survivability of the aircraft in a hostile environment” and make the “F-16s a more valuable counterterrorism asset that operates safely during day and night operations.” The notification said the modernized systems would also increase the accuracy of the F-16s’ support of Pakistani ground troops, lessening the risks of civilian casualties.

Many Congressional officials remain unconvinced. “Using F-16s this way is like hitting a fly with a sledgehammer,” said one senior Senate Democratic aide, who spoke on condition of anonymity because of the current negotiations. It remains unclear whether any lawmaker will block or postpone the financing, and risk harming relations with Pakistan any further.

Even if approved, the upgraded F-16s would not be available until 2011, said one House aide who had been briefed on the issue, and who spoke on condition of anonymity, raising the question whether the funds could be spent on counterterrorism equipment that could be employed more quickly.

Pakistan agreed to buy about 70 F-16s in the 1980s, and about 40 were delivered before Congress cut off all aid and military sales in 1990, citing Pakistan’s secret development of nuclear weapons.

A new deal was struck after the Sept. 11 attacks to allow Pakistan to buy newer models, in part to reward Pakistan’s cooperation in fighting terrorism. In 2006, Pakistan was a major recipient of American arms sales, including the $1.4 billion purchase of up to 36 new F-16C/D fighter aircraft and $640 million in missiles and bombs. The deal included a package for $891 million in upgrades for Pakistan’s older F-16s.

At that time, the United States agreed to use $108 million of its annual security aid to Pakistan to retrofit the older F-16s with equipment to make them comparable to the newer models that will be delivered in the next several years. But the administration promised Congress that the Pakistani government would pay for the rest of the upgrades with its own funds. With Pakistan now facing economic hardships, top Pakistani leaders appealed to senior State Department officials to help defray the costs of the ongoing upgrades.

The debate over the F-16 financing comes at a time when Congress has grown increasingly frustrated with the administration’s Pakistan policy, arguing it has been weighted too heavily on security assistance. The United States has given more than $10 billion in military aid to Pakistan since the Sept. 11 attacks, when President Pervez Musharraf agreed to become an ally in the campaign against terrorism. Of that amount, $5.5 billion was specifically intended to reimburse the counterinsurgency efforts by the Pakistani Army, but Congressional auditors have said that Pakistan did not spend much of that money on counterinsurgency.

Senior administration officials, including top military officers, are also voicing increasing exasperation with Pakistan’s efforts to combat militants in the mountainous region along the border with Afghanistan. “We need Pakistan to put more pressure on that border,” Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, said on “The NewsHour With Jim Lehrer” on PBS on Tuesday.

Thu Jul 24, 2008 7:29am EDT

WASHINGTON (Reuters) - The U.S. government's former point man in the fight against the heroin trade in Afghanistan has accused Afghan President Hamid Karzai of obstructing counter-narcotics efforts and protecting drug lords.

Thomas Schweich, who resigned last month from the State Department's narcotics bureau, said in an article to appear on Sunday in the New York Times magazine that the Afghan government was deeply involved in shielding the opium trade.

"While it is true that Karzai's Taliban enemies finance themselves from the drug trade, so do many of his supporters," Schweich wrote in article posted on the newspaper's Web site.

"Narco-corruption went to the top of the Afghan government," he wrote, adding that drug traffickers were buying off hundreds of police chiefs, judges and other officials.

Schweich also criticized the Pentagon for refusing U.S. military support for drug eradication efforts and arguing that it was someone else's job to clean up the drug business after the war is over.

"The trouble is that the fighting is unlikely to end as long as the Taliban can finance themselves through drugs -- and as long as the Kabul government is dependent on opium to sustain its own hold on power," he said.

Schweich said NATO allies have also resisted the anti-poppy offensive. "The British military were even more hostile to the anti-drug mission than the U.S. military," he wrote.

Poppy cultivation has expanded rapidly in Afghanistan since 2006 and the country is supplying 90 percent of the world's heroin.

Schweich, who was the senior counter-narcotics official in the U.S. embassy in Kabul for two years, said Karzai resisted drug enforcement arrests and eradication of poppy fields in wealthy areas of the Pashtun south, his power base.

"Karzai was playing us like a fiddle," Schweich wrote. "The U.S. and its allies would fight the Taliban; Karzai's friends could get rich off the drug trade; he could blame the West for his problems; and in 2009 he would be elected to a new term."

Poppy eradication this year will be less than a third of the 20,000 hectares that Afghanistan eradicated in 2007, he said.

"An odd cabal of timorous Europeans, myopic media outlets, corrupt Afghans, blinkered Pentagon officers, politically motivated Democrats and the Taliban were preventing the implementation of an effective counter-drug program," he said.

(Writing by Anthony Boadle; editing by Vicki Allen)

Wed Jul 23, 2008 10:16pm EDT

CINCINNATI (Reuters) - U.S. immigration agents raided eight Mexican restaurants in northern Ohio on Wednesday and arrested 58 employees as part of a criminal operation against illegal immigrants, federal authorities said.

All those arrested were citizens of Mexico and working at Casa Fiesta, a chain of Mexican restaurants in Ashland, Fremont, Norwalk, Oberlin, Oregon, Sandusky, Vermillion and Youngstown, Ohio, Immigration and Customs Enforcement said in a statement.

It said the raid was the culmination of more than a yearlong investigation.

Of the 58 arrested, 54 were men. Three of the four women were released on their own recognizance on humanitarian grounds, ICE said. They are still required to appear before a federal immigration judge who will determine whether they have a legal right to remain in the United States.

The raid was the latest targeting businesses employing illegal workers.

In May, ICE arrested more than 300 workers at Agriprocessors Inc, a kosher meat plant in Postville, Iowa. In August 2007, hundreds of workers at a Koch Foods chicken plant near Cincinnati were detained in raids, while hundreds more were detained in December 2006 after a raid at Swift & Co meat plants in six states.

ICE said it had made 949 criminal arrests in worksite-related raids since October 2007, including the arrests of 105 owners, managers, supervisors or human resources employees who face charges ranging from harboring to knowingly hiring illegal aliens.

Immigration, specifically what do about 12 million illegal immigrants living in the United States, is a divisive national issue.

(Reporting by Andrea Hopkins; Editing by Peter Cooney)