WTO: Working Towards Organization: Part I. Development and State Aids

Legendary are the debacles that transpire during discussions of global trade - especially when those discussions are held by trade ministers. That was as true during the GATT era as it is during the WTO era. Who can forget the communiques to emerge from the Uruguay GATT sessions, the prolific promises that "the process continues to move forward" when even a cursory check of the details of the deal done would suggest the communique should read "We agree to disagree until we find we agree on something"?

The causes of the clashes on free trade are more comprehensible than arguments about banana imports and the use of hormones in beef suggest. Settle in with your favorite imported coffee or beer or wine and prepare for a rather complex but perhaps thought provoking contemplation of what actually lies at the roots of the Doha disaster.

If the WTO's struggle for legitimacy and respect could be summarized as one word, that word would be "development". In all aspects, development is a double-edge sword. While developing states need open commerce to find markets to sell their products, they also need protective state aids and subsidies to provide companies access to the capital they need to begin producing those items. While developed states welcome low-cost imports because their consumers will buy more products and the money supply will continue to circulate, they also need protective state aids and subsidies to prevent the migration of too many jobs.

The pace of development among the 147 WTO members differs widely. Therefore a one-size-fits-all policy simply will not work. As a very broad generalization - so broad in fact that any development analyst who may read this is sure to dash to the "back button" before finishing this paragraph - WTO members fit in three categories: (1) Developed states; (2) The heavily populated and rapidly industrializing states such as India and China; and (3) The poorest of the poor member states such as the west African republics. With 147 member states all motivated by diverging interests, it is nothing short of amazing that agreements ever are concluded. Conflict among these states is inevitable and requires everyone to sacrifice something to ensure agreement is found. Think of it as an example of a troublesome "fashionable consensus".

An issue such as agricultural subsidies reveals the layers of compromise. Developed states extend state aids and subsidies to their farmers who produce cotton, citrus, rice, and other crops. The GATT/WTO ideal promotes that these states must end their subsidies: Free trade means unfettered competition, right? He who can produce the best quality in conformance with supply and demand requirements will thrive whilst he who cannot satisfy those needs will wither. The poorest developing states then urge concessions: "Let us keep our subsidies a while longer so our farms can compete with the fully mechanized Western farms", they argue. Then the Western states reply: "Let us keep our subsidies a while longer too; if we end our subsidies, our farmers will be in an economically unsustainable situation". The end result: Developing and developed states need their subsidies for the same reason: To protect their agriculture sectors from the onslaught of foreign competition. For some entities and regional blocs such as the newly expanded European Union, these issues are crucial.

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