WTO and SDT
Bilateral trade agreements and the world trading system
Factors driving the proliferation of bilateral trade agreements
Authors:
J. Menon
Publisher:
ADB Institute , 2006
Why have bilateral trade agreements (BTAs) been proliferating? What are their impacts on multilateralism and the world trading system? The key to answering these questions, this paper argues, is identifying the factors that have motivated their creation. These fall into three broad categories of factors related to international events, strategic considerations, and economic motivations.
However, while the proliferation of BTAs is fragmenting the world trading system, the impact of individual BTAs varies depending on which of these factors motivated their creation:
- most of the event-driven BTAs appear to either support multilateralism or have a positive effect on the world trading system
- all of the strategically motivated BTAs appear to have a negative effect
- of the economically motivated BTAs, sector-expanding and market-restoring BTAs have the potential of supporting the multilateral process, while market-creating and sector-excluding BTAs appear to threaten it
The author considers that BTAs will continue proliferating until the world trading system is so distorted that countries will be forced to seek a remedy. The response most likely to be effective would be the completion of the Doha round with minimum compromises. If this option fails, countries might instead elect to equalise preferences across BTAs and offer them to non-BTA countries on a Most Favoured Nation basis in order to remove the administrative burden of multiple BTAs, and to eliminate distortions to country and global trade patterns.
