Since the end of World War II, the multilateral trading system, embodied in the GATT-WTO, has allowed a gradual and significant liberalization of trade mainly by lowering tariff barriers among its members. In addition to the WTO system, today a growing number of bilateral and regional trade agreements play an essential role in trade relations. Bilateral and regional trade agreements can play a complementary role to the WTO and further promote international trade liberalization without undermining the multilateral trade agenda.
Bilateral and regional trade agreements allow the parties to pursue a more ambitious liberalization agenda than in the WTO, where progress is inevitably slower since decisions must be agreed to by the full membership. The EU pursues free trade agreements that are WTO+ both in terms of deeper liberalization and the inclusion of trade-related issues that are not fully covered in the multilateral system, such as investment, government procurement, trade facilitation, competition and sustainable development.
Cutting import tariffs is still important but the bulk of trade barriers today lies elsewhere. This is why the EU believes that the most effective trade agreements should remove regulatory barriers, which means market access for services and investment, opening up public procurement, better protection of intellectual property, and more reliable supplies of raw materials and energy. In the EU´s experience, these are the agreements with a better chance of really developing trade, fostering economic growth and ultimately improving peoples' standards of living.
The benefits of comprehensive and balanced Free Trade Agreements (FTAs) are twofold: on the one hand, experience shows that countries can seek a more ambitious agenda by including these new issues in bilateral and regional agreements. On the other hand, WTO members experience how these new "best practices" disciplines can promote trade and see the benefit of incorporating them in the multilateral system.
This is why bilateral and regional trade agreements can be complementary with the multilateral trading system and prepare the ground for further multilateral trade liberalization.
However, this positive effect on multilateral trade liberalization can be achieved by bilateral and regional trade agreements only to the extent that they liberalize substantially all trade among the parties. When countries decide to selectively liberalize different goods and services with different partners, the effect of these trade agreements will be mainly to entrench distorted trade flows without any incentive to consolidate the liberalization level into the multilateral system.
Thus, to produce the best results, bilateral and regional free trade agreements should liberalize substantially all trade, without excluding entire sectors and product categories. The EU has therefore always argued that bilateral and regional trade agreements should provide for the liberalization of substantially all trade (which is also a WTO condition) and lead to real economic integration.
This does not mean that sensitivities could or should not be taken into account. A bilateral agreement can be designed to take into account these sensitivities, for instance through appropriate transition mechanisms. Bilateral and regional agreements should also take account the level of development of its parties. For instance, specific asymmetries can be incorporated, allowing less developed countries longer liberalization schedules. The EU, in its free trade agreements with developing partners, always includes mechanisms and tools such as longer transition phases, cooperation provisions, impact assessments, etc. aimed at identifying and addressing possible adjustment costs and at facilitating the implementation of the commitments by our partners. That being said, the degree of asymmetry that can be included in the agreements will necessarily depend on the level of development of the partners. Least Developed Countries, for instance, cannot be compared with emerging countries which are already well inserted in global trade flows and take advantage of international trade.
Finally, we should not underestimate the value that regional trade agreements may have for peace and political stability. As a prime example, the EU - but also the MERCOSUR (the common market and political agreement of Argentina, Brazil, Paraguay, and Uruguay) - experience shows how a regional arrangement that started as a free trade area and gradually involved greater economic integration among its parties while opening to its neighbours, can provide invaluable political stability at the same time as it contributes to improving the quality of life of its citizens.
Gaspar Frontini is Head of the Latin America Unit at the Directorate General for Trade (DG Trade) at the European Commission, where he oversees all trade relations and negotiations with this region. Mr. Frontini holds a PhD in Economics from the Fondation Nationale de Sciences Politiques.