Free Trade Agreements and Governance of the Global Trading System

IN 1995 when the WTO was established, it seemed to be final confirmation of the success of a system that had managed multilateral trade relations since 1947. It provided an institutional framework within which governments were not only able to negotiate reductions in trade barriers but also to bind themselves to rules of conduct that, in principle, were both universal and nondiscriminatory. About the same time, however, the new wave of regional and bilateral free trade agreements (FTAs) was beginning to gather strength. For some, this has emerged as a threat to the central role of the WTO as manager of the trading system and even to presage the fading of an era of multilateralism in trade relations. For others, it has been a call to revise long-held conceptions about the multilateral system and to embrace a more complex world composed of networks of multilateral, plurilateral, regional and bilateral arrangements. In this article, we aim to contribute to this debate by exploring how far FTAs have strengthened or weakened global governance of the trading system. For the most part, the contribution of economists to the debate has centred around the effects of preferential tariff regimes (including their rules of origin) on merchandise trade and trade relations. We think that the almost exclusive focus on tariff regimes is too narrow a prism. For one thing, we are sceptical of the practical significance of the tariff preferences that have been actually introduced in affecting trade flows. More important, the focus on tariff barriers leaves aside the other major aspects of trade relations that multilateral, plurilateral, regional and bilateral arrangements seek to address. Central to these