The World Trade Organization (WTO) Director-General, Supachai Panitchpakdi, recently raised concerns about the rising number of bilateral and regional trade agreements and their potential for discriminatory trade relations. While it is easy to simply dismiss his comments as trying to shut down the competition in the business of trade agreements, the proliferation of these agreements requires some thought about their benefits.

The answer to the simple question of do these bilateral and regional trade agreements discriminate is yes. NAFTA provides market access for the three participants that is not available to other trade partners. The same is true for other U.S. agreements with countries like Australia, Chile and Jordan. It is also true for the Mercosur agreement among Argentina, Brazil, Paraguay and Uruguay. The European Community that began in the 1950s and evolved into the current European Union provided discriminatory market access for member countries. The current 148 members of the WTO provide for discriminatory market access, with non-members like Russia, Vietnam and Iran left on the outside.

The key point is that these agreements discriminate in favor of free trade for the members of the group. With the exception of the current EUs policies, the basic approach has been to increase market access for the member countries without making access more restrictive for non-members. The U.S.-Australia Free Trade Agreement lowers trade restrictions between the two countries, but does not increase import barriers for other countries.

If the goal of trade agreements is freer trade, bilateral and regional trade agreements can help to achieve that objective. While supporters of free trade would like to have all countries and all products move rapidly to free trade, the reality is that has not happened and is not likely to happen in the near term. This is a situation where the perfect should not be the enemy of the good. Lowering trade barriers any place in the world is good news for consumers and producers alike.

Bilateral trade agreements are not a new idea. In 1860, Britain and France reached agreement on a free-trade treaty that ended centuries of trade barriers between the two countries. This was partly an outgrowth of Britains unilateral decision in 1846 to repeal a system of agricultural import protections known as the Corn Laws. Because of the trade relationships the two countries had with other countries around the world, increasing standards of living spread to other trading partners. One can only speculate about how the history of the past 125 years would have been different had the free trade movement in Britain and France not lost out to imperialism and nationalism as the 19th century came to a close.

Regional trade agreements are much easier to negotiate than to successfully implement. In December of 2004 the four full members of Mercosur, Argentina, Brazil, Paraguay and Uruguay, met to work on issues that have developed over the 10 years it has been in effect. The countries have failed to integrate their economies as hoped because they have pursued dissimilar economic policies. After the Argentine economy imploded in 2001, they imposed quotas and tariffs on Brazilian consumer products like washing machines and refrigerators. These internal conflicts have prevented the four countries from completing a trade agreement with the EU and fully participating in discussions on the Free Trade Area of the Americas (FTAA). Part of Mercosurs problem is that the countries failed to deal with fundamental issues in the original agreement, like Argentina preventing the inclusion of sugar in the agreement because they wanted to protect their industry from Brazils world competitive industry.

The recent Association of South-East Asian Nations (ASEAN) trade agreement that would create the worlds largest free trade area has raised concerns that China will use the agreement as a way to enhance its economic and political power at the expense of the United States. Concerns about blocs of countries are a holdover from the Cold War days of the past century when governments used economic agreements as political weapons against other countries. Trade agreements that are voluntary and move toward freer trade do not lend themselves to coercive actions to control other countries. Also, given the spotty record of its compliance with commitments under the WTO rules, China is not likely to offer many trade enticements to its regional trading partners.

Bilateral and regional trade agreements can also complement the multilateral WTO agreement. The agreements can be testing grounds for provisions that could be used in the WTO. Countries that feel left out of one or more regional agreements have an incentive to work harder for a WTO agreement that would have all countries abide by the same trade rules. The WTO provisions also can serve as a backstop when bilateral and regional agreements falter. There is a high probability those agreements will suffer stress as economic policies diverge as happened with Argentina in Mercusor on 2001 and Mexico in NAFTA in the mid-1990s.

Trade agreements – be they bilateral, regional or multilateral – are not ends in themselves. They are stepping stones along the path toward free trade. If a bilateral or regional trade agreement lowers trade barriers for participating countries without increasing trade barriers for other countries, it is a positive step toward free trade. Agreements that fail to deliver on increased trade are bad agreements. As the Foreign Minister of Paraguay commented in a discussion on the FTAA, We dont need more bureaucracy. We have enough with Mercusor.