Jan 12, 2018 in Law

International Commercial Law

The core purpose of the present study lies in the theoretical investigation and evaluation of all the pros and cons of bilateral and regional Free Trade Agreements (hereinafter referred to as FTAs). In this sense, the current research is going to provide a comprehensive and accurate answer to the following research question: Are bilateral and regional Free Trade Agreements beneficial and justifiable legal instruments?

To facilitate the progress of answering the above-captioned research question, it has been decided to elaborate a series of pertinent research objectives. Hence, the objectives of the present study must be enumerated as follows:

  • Make insight into the nature of bilateral and regional FTAs.
  • Bing into light the principal advantages of bilateral and regional FTAs.
  • Expatiate on the fundamental disadvantages of bilateral and regional FTAs.
  • Expound on the collapse of the Doha Round.

II. The nature of bilateral and regional FTAs. Brief analysis

Above all, it should be iterated that the major purpose of the present study is to examine both benefits and drawbacks of bilateral and regional FTAs. This purpose can not be achieved without defining the term FTA first. Thus, in its broad sense, the concept of a Free Trade Agreement may be defined as a legal, binding arrangement which establishes free trade between nations.

According to Merriam-Webster Dictionary (n.d.), free trade is a form of trade which is grounded on the unconfined international exchange of goods with tariffs ‘used only as source of revenue’. Therefore, Free Trade Agreements establish zones of free trade devoid of import quotas, tariffs and preferences on goods.

To elaborate further, it might be appropriate to note that free trade agreements can be classified into several groups such as multilateral, regional, and bilateral FTAs. Apparently, the main criteria of the aforementioned categorization are the number of participants and geographical areas covered by the agreements. Thus, multilateral FTAs are concluded between multiple states. On the other hand, bilateral FTAs are arranged only between two states. In the context of regional agreements, it needs to be clarified that this form of treaties is arranged in relation to a specified region of the world in order to establish free trade there.

Also, according to Simon Lester and Bryan Mercurio (2009), the main discrepancy between regional trade agreements and bilateral trade agreements is that the first form of FTAs involves more than two countries and is concluded predominantly among states in the particular geographical zone. As for bilateral trade agreements, they are concluded between two countries ‘that may or may not be in the same region’.

Another approach to the classification of trade agreements may be found in the study by Anne van de Heetkamp and Ruud Tusveld (2011). According to the researchers, it is possible to differentiate between unilateral, bilateral and multilateral agreements.

Thus, unilateral trade agreements are defined as trade incentives, which are proposed by an importing country with the purpose to stimulate the engagement of the exporting country in international economic processes and, consequently, are aimed at enhancing the exporting country’s economy. In the context of the two other types of free trade agreements, Heetkamp and Tusveld (2011) are disposed to think that bilateral and multilateral agreements are reciprocal arrangements ‘where the benefits are reaped by exporters and importers from all parties to the agreement’.

Elaborating further, Heetkamp and Tusveld (2011) assay that the choice between either a multilateral or bilateral agreement, as well as the determination of the state to implement unilateral trade incentives, depends on a variety of elements to be considered. These elements include the natural resources, economic status of the partner country, current export and import volumes, geopolitical location etc.

Notwithstanding the common purpose, bilateral and regional trade agreements substantially differ from multilateral FTAs. According to Simon Lester and Bryan Mercurio (2009), bilateral and regional free trade agreements have become a reliable alternative to multilateral FTAs in view of the stalling trade negotiations during the Doha Development Round. To verify the aforesaid statement, an in-depth analysis of both advantages and disadvantages of bilateral and regional FTAs should be made.

III. Advantages of bilateral and regional FTAs

After the nature of bilateral and regional FTAs has been clarified, and it is necessary to bring into light their main benefits. According to Lester and Mercurio (2009), advantages of certain types of FTAs may be divided into absolute and comparative (p. 32). Absolute advantages of bilateral and regional FTAs originate from the nature of free trade, which is regulated by all kinds of FTAs. Thus, the absolute advantage of bilateral and regional agreements lies in the fact that these treaties help to establish reliable connections between different partner states.

For instance, in the context of Singapore, bilateral and regional free trade agreements are regarded as ‘superhighways that connect Singapore to leading economies and new markets’.

Another absolute advantage of bilateral and regional FTAs stems from the capabilities these treaties to fill the gap in situations when multilateral trade negotiations come to impasse, and a breakthrough of this predicament is not expected at the present time.

This benefit of bilateral and regional FTAs may be exemplified by the case of Japan, where FTA and EPA have become the only means towards the augmentation of trade liberalization and investment measures, which are not currently regulated in the multilateral framework of the World Trade Organization. According to Buckley, Lo, and Boulle (2008), the establishment of the principles of most-favored-nation treatment and national treatment guarantee to Japanese investors has strengthened competition law in the East Asian region and provided investors from various Asian countries with equal opportunities.

The absolute advantage of regional bilateral FTAs as a means to fill the gaps in multilateral relations can also be associated with the case of New Zealand and Singapore. According to Grant, Loh, Sen, and Institute of Southeast Asian Studies (2008), Singapore successfully employ the strategy of bilateral and regional negotiations with its Asia-Pacific neighbor in order to participate in both different free trade processes and regional integration, ‘while maintaining focus on the WTO’ (p. 12).

Apart from absolute advantages, bilateral and regional FTAs have a wide range of comparative benefits. These benefits may be exemplified by the case of Australia. In this sense, it might be appropriate to note that Australia has engaged in the proliferation of bilateral and regional free trade agreements after the current level of multilateral trade negotiations has proven difficult (Australian Government Productivity Commission 2010, p. iv).

The analysis of the effects of bilateral and regional FTAs on Australian economy helps to discern the following comparative benefits of these treaties. First, Australia’s bilateral and regional trade agreements have led to many clear decreases in trade and investment barriers between agreement partners. Second, bilateral and regional free trade agreements make wider influences on the liberalization of trade and investment barriers, feasibly affecting multilateral and unilateral reforms.

Third, bilateral and regional free trade agreements facilitate economic integration between the members of agreements. Fourth, bilateral and regional agreements have potential to evolve into bigger agreements becoming ‘a means to achieve wider economic integration’ (Australian Government Productivity Commission 2010, p. 183). This advantage may be exemplified with the Canada-US bilateral agreement as a predecessor to the wide NAFTA agreement. Fifth, it has been found that regional agreements such as ASEAN-CEPT agreement in the Asia-Pacific are capable to foster economic and regional integration.

IV. Disadvantages of bilateral and regional FTAs

After the fundamental advantages of bilateral and regional FTAs have been discussed, it is necessary to shed some light on their drawbacks and limitations. In this connection, it is possible to agree with Eugen Dimant (2011) that bilateral and regional free trade agreements have the nature of temporary agreements. Thus, bilateralism and regionalism are always regarded as an intermediate link between economical independence, on the one hand, and full economic integration, on the other hand. On these grounds, it is irrelevant to rely on bilateral and regional free trade agreements as stable alternative to multilateralism.

Eugen Dimant (2011) writes that the Doha Development Agenda (hereinafter referred to as the DDA) has triggered the convergence of trade restrictions and political openness on the part of ASEAN members. This means that bilateral and regional trade negotiations are dependent on the state of affairs in the domain of multilateralism. The author contends that some reluctant and hesitating ASEAN countries, including Malaysia and the Philippines, started moving towards more advanced bilateral agreements; thus, ‘trying to accomplish an aggregated contract for an ultimate ASEAN-China FTA, ultimately including all ASEAN countries with transitive bilateral agreements leading to a multilateral facet’.

Taking into consideration Eugen Dimant’s arguments, it is possible to arrive at the conclusion that bilateral and regional free trade agreements are concluded with the purpose of economic integration and enlargement. The scholar makes evident that bilateralism is not purposed to substitute multilateralism. The case of ASEAN is a clear example how bilateral negotiations tend to become increasingly sophisticated in order to guarantee the transition to multilateralism in the final analysis.

Another noticeable limitation of bilateral and regional free trade agreements lies in the feature that these treaties may associate with the ability of powerful countries in terms of applying pressure upon developing or other weaker powers into accepting conditions, which are, in most cases, oppressive (Trebilcock & Howse 2005, p. 646). According to Nesadurai and Dijwandono (2009), the more countries use bilateral agreements, the more restricted the utility of such agreements.

To proceed further, bilateral agreements may have a weakness of being drafted under a strong political influence (European Commission for Democracy through Law 2002, p. 128). As the matter of fact, bilateral and regional free trade agreements are more vulnerable to political impacts due to the inherently political nature of bilateral relationships. In contrast to multilateralism, bilateral partnership is usually based on reciprocal political and economic benefits without creating equal opportunities for other states wishing to join the members of the agreement. That is why bilateral agreements are more pragmatic and politically motivated. Also, bilateral and regional treaties often contain low existing standards when referring to international law.

To continue, disadvantages of regional free trade agreements may be exemplified with the case of US-Pacific Rim regional FTA. Thus, according to US International Trade Commission (1989), the proposition of a regional agreement was encountered negative responses such as ‘unworkable’, ‘impossible’, ‘ridiculous’, ‘too big’, and merely ‘plain dumb’ (p. viii).

The main disadvantages ascribed to a US-Pacific Rim FTA should be specified in the following points. First, the regional agreement is difficult to negotiate with several countries at once, and would lead to the failure in accomplishing its purposes.

Second, the regional FTA cannot avoid the global economic cost of trade diversion and ‘distorted comparative advantage’ (US International Trade Commission 1989, p. ix). Third, such trade agreement might harm political relations with the countries that are not involved in the negotiation; thus, consequently, incite formation of protectionism and competition in the region. Fourth, the regional FTA may inflict damage on economic relations, because, by leaving pertinent parts of the world out of the negotiation, it would inevitably disregard significant global trading interests.

V. The collapse of the Doha Round as the latest phase of multilateral trade negotiations

The Doha Round of the World Trade Organization (WTO) was triggered in 2001 as the new round of multilateral negotiations. In contradistinction with the previous Uruguay Round, initially scheduled for four (but continuing over seven years), the Doha Round negotiations were scheduled for three years, in order to reach consensus by the end of 2004.

According to the World Trade Organization (n.d.), the Doha Round is the latest round of trade negotiations among the member states of the WTO. Hence, the principal objective of this round is to attain fundamental reform of the international trading system by way of introducing lower trade barriers and amend rules concerning trade. The mandate for the negotiations was provided by the Doha Ministerial Declaration. This notwithstanding, the Doha Round of negotiations is recognized as failure.

According to Lori Wallach and Deborah James (2006), there is no public surprise in the collapse of the WTO’s Doha Round on July 24, 2006. The scholars purport that the WTO system of corporate globalization has failed to implement the promised advantages of enhanced economic prosperity ‘while economic, social, and environmental conditions have worsened in many rich and poor countries alike’ (Wallach & James 2006). Therefore, the main reason for the collapse stems from the inadequacy between the postulated objectives of the World Trade Organization and actual results. Wallach and James (2006) assay that, since the establishment of the Doha Round of negotiations, every deadline on economic issues from the service sector liberalization to industrial tariffs has passed. Given this, economic environments for the majority of the WTO’s member states have deteriorated instead of the practical functioning of the promised endowments.

The Doha Round is often called a ‘Development Round’. Despite this, many researchers argue that the documents unravel that the Doha Round’s agenda is more directed towards the achievement of future gains and expansion of the existing WTO regime rather than towards the elimination of current problems.

Conclusions

After everything has been given due consideration, it should be generalized that bilateral and regional Free Trade Agreements are both beneficial and justifiable legal instruments beyond controversy. They are desirable alternatives to multilateralism. However, the existence of bilateral and regional FTAs should not undermine multilateralism as a global process. Thus, the research question was answered comprehensively.

Besides, the research objectives were reached entirely.

  • The insight into the nature of bilateral and regional FTAs was made
  • Fundamental advantages of bilateral and regional FTAs were ascertained
  • Principal disadvantages of bilateral and regional FTAs were discussed
  • The situation around the collapse of the Doha Round of negotiations was clarified.

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