This article provides an in-depth analysis of the frequently problematic interplay of regional and bilateral treaties regulating international economic law. Though academics have long debated whether regional and bilateral instruments threaten the hegemony of the multilateral trading system, they have paid no attention to the equally far-reaching tensions arising between regional and bilateral agreements themselves. Instead, scholars almost universally have treated bilateral and regional commercial agreements as functionally indistinguishable. This article draws on recent case studies to show that bilateral commercial treaties comprise a distinct and important mode of cooperation that at times operates in ways inconsistent with the aims of some regional organizations and frameworks. It also examines possible outcomes for such conflicts of law and incorporates the findings into a critical reassessment of the possible costs and benefits of multi-level economic integration.
A revolutionary shift in international cooperation is underway. Many governments, frustrated with dissension hampering multilateral trade reform at the World Trade Organization ("WTO"), are now turning to bilateral and regional treaties to forward their commercial interests.1 Under these agreements, which rocketed from fewer than 390 in 1989 to more than 2,400 today,2 states have relinquished key aspects of their economic sovereignty to participate in two-party pacts and regional trade clubs like the North American Free Trade Agreement ("NAFTA") and the European Union ("EU"). As a result of such cooperation, most countries no longer may levy tariffs easily, subsidize their domestic industries, or expropriate foreign investment without compensation. Instead, states are increasingly bound by what some commentators describe as a "spaghetti bowl"3 of side arrangements and special commitments that restrict their ability to extract rents from participants in their economic alliances.
Though academics have occasionally discussed whether regional and bilateral instruments threaten the hegemony of the multilateral trading system, they have paid no attention to equally important tensions arising between regional and bilateral agreements themselves. Instead, scholars almost universally have treated bilateral and regional agreements as functionally indistinguishable. This Article argues, however, that bilateral instruments comprise a distinct and important mode of cooperation that at times operates inconsistently with the aims of some regional organizations and their members. In addition to seriously undermining the collective bargaining efforts of regional organizations, bilateral agreements potentially alter the economic relations between an organization's stronger and weaker members. Generally, stronger countries in regional organizations are positioned to craft internal and external regional policies that protect their own sensitive markets while liberalizing those of weaker members. Bilateralism unsettles this arrangement by granting smaller states opportunities to leverage relationships with outsiders and at times liberalize their markets in ways more economically favorable than those available regionally.
The conflict between overlapping bilateral and regional regimes, which this Article refers to as "structural inconsistency," carries critical implications for international economic law. Unlike bilateral treaties, which, as nondiscriminatory arrangements, are not designed to keep counterparties from signing future agreements with other parties, regional treaties are at times exclusive arrangements that prohibit signatories from independently concluding commercial agreements with third parties. As a result, regional agreements may obstruct bilateral treatymaking and, in the process, prevent members from maximizing their own welfare-as well as that of the region. This insight suggests that regional treaties hold implications for efficiency in bilateral settings that are potentially as far reaching as regionalism's impact on multilateral forums, where regional institutions often stymie efforts to initiate broad global reforms. …