Bilateral trade agreements come in handy

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: there was need of an organisation that represents all societies and ensures that both developed and developing countries benefit equally in the era of globalisation. Hence, WTO was formed on the basis of the multilateral trading system. While no one denies the benefits fostered by existence of such a multilateral trade agreement, in reality, it has been difficult for the developed and developing countries to agree on the end game.

A direct consequence of slowdown in the Doha round was resurgence of regional trade agreements in the form of FTAs and bilateral trade agreements. FTAs, many of which are bilateral, are arrangements in which countries give each other preferential treatment in trade by eliminating tariffs and other barriers on goods. Each country continues its normal trade policies with other countries outside the FTA agreement.

One of the advantages of bilateral agreements is that countries can choose when to enter into agreements. The US and Canada were ready to start the FTA process in the mid-1980s. Mexico followed a few years later and the US—Canada FTA was folded into NAFTA. A US-Korea FTA would not have been doable 10 years ago. Regional or bilateral trade agreement also has an advantage over WTO in dealing with intractable trade problems than does WTO, which usually must cater to the lowest common policy denominator.

In theory, the global trade agreement is supposed to be an ideal solution in terms of resource allocation, economic welfare and economic prosperity. The next best solution is the regional trade agreement that lowers the trade barrier amongst members without having to lower barrier for non-members. However, systemic issues such as rules of origin, anti-dumping and subsidies are best left to be resolved as multilateral trade agreements.

WTO supports existence of such regional agreements as long as they are transparent and help deepen trade and economic liberalisation without raising the trade barrier for non-members or if such agreements create a way for trade diversion resulting in imports from an inefficient supply base. There are many reasons for the momentum of regional trade agreements to have picked up in recent past.

Regional agreements also help developing countries to experiment with domestic reforms, regulatory policies and to provide an opportunity for domestic market to learn how to cope with limited foreign competition before a full onslaught in a multilateral regime.