Insights from the 19th Century Wave of Bilateral Trade Agreements for the WTO Era

Abstract

The world trading system is now dual. Preferential (i.e., discriminatory) trade agreements (PTAs) coexist with the non-discriminatory GATT-WTO system. PTAs have proliferated since the mid-1980s and most observers believe that they are here to stay. However, history shows that two previous waves of PTAs receded. This article investigates the reasons for the end of trade liberalization during the first wave of preferential agreements in the 19th century, in order to get insights for the current world trading system. It argues that there are strong similarities in the factors that triggered the proliferation of preferential agreements in the 19th century and at the end of the 20th century. In the absence of an international organization like the WTO, the network of bilateral trade agreements containing the Most Favoured Nation (MFN) clause formed the backbone of the international trade architecture. For this reason and also because bilateral trade agreements can serve the goal of trade liberalization as much as the implementation of a protectionist policy, the network of bilateral agreements did not collapse with the global shift towards greater protectionism at the end of the 19th century. Instead, akin to the WTO today, not only did this architecture accommodate protectionist pressures during an economic crisis, but it also constrained them. In ensuring a safety net and respect for basic rules, the WTO is thus essential for the sustainability of the PTAs.