Bilateralism in a Multilateral World

Abstract

Most policy makers and trade economists acknowledge that multilateralism is a superior alternative to bilateral and regional trade agreements for all countries. Regional and bilateral agreements are best understood as preferential trade agreements (PTAs) because they assign to contracting parties certain preferences that are not available to other states. At the end of 2004, the World Trade Organization (WTO) had been notified of around 300 PTAs that had been negotiated among member countries. With the growing popularity of preferential trade agreements, a recent report on the future of the WTO lamented the reality that the most favored nation (MFN) clause, a central pillar of the WTO, was in danger of becoming Least Favored Nation clause.1 WTO and the General Agreement on Tariffs and Trade (GATT) have accepted the inevitability of some preferential trade agreements as long as they resulted in genuine liberalization of trade among participant countries and provided such agreements did not result in higher trade barriers against external countries (Article 24). Still this was a reluctant acceptance and or the many PTAs that have been signed, few are actually consistent with multilateral trade rules, but as Jeffrey Schott points out none were actually ruled by the GATT or WTO as being inconsistent.2