We’re moving towards a test of the WTO’s institutional strength:

Canada has launched a dispute at the World Trade Organisation over the use of “trade-distorting” agricultural subsidies by the US.

The dispute singles out payments to American corn farmers but also challenges the total level of US agricultural subsidies…

The timing of the challenge is aimed at influencing the formation of a new farm bill in the US Congress, where there is resistance to reform from Senators and Representatives from farm states.

The bicycle theory of trade negotiations says that in the absence of momentum towards further trade liberalization, protectionist influences are likely to induce policy backsliding (a bicycle can’t stand still very long – it falls over). The WTO’s rules-based framework could serve as a backstop against retreat from previous liberalization gains, but only if its dispute rulings are respected by members. As the world’s largest economy, the United States is in the best position to defy the WTO if it wishes.

Here’s the best possible outcome: The WTO rules against the US subsidies and the Bush administration complies with the decision. This means that (1) the WTO is institutionally sufficient to preserve the liberal trading system while the Doha negotiations are on pause, and (2) American negotiators may discount the value of holding onto their agricultural subsidy bargaining chips if they risk being struck down in the future and make a greater effort to get something in exchange for them by reinvigorating the Doha round rather than walking away empty-handed.

The world case scenario? That’s left as an exercise for the reader…