Going bilateral or multilateral - which way is the road headed?

Are bilateral trade agreements and multilateralism mutually exclusive? Can one co-exist with the other? Should one co-exist with the other?

Article XXIV (5) of the GATT 1947 provides for forming Free Trade Areas and is not considered an abrogation of multilateral commitments.

Accordingly, the provisions of this Agreement shall not prevent, as between the territories of contracting parties, the formation of a customs union or of a free-trade area or the adoption of an interim agreement necessary for the formation of a customs union or of a free trade area...

Article V of the General Agreement on Trade in Services, titled "Economic Integration" provides for bilateral agreements:

1. This Agreement shall not prevent any of its Members from being a party to or entering into an agreement liberalizing trade in services between or among the parties to such an agreement, provided that such an agreement:

(a)  has substantial sectoral coverage, and
 

(b)  provides for the absence or elimination of substantially all discrimination, in the sense of Article XVII, between or among the parties, in the sectors covered under subparagraph (a), through:
 

(i)  elimination of existing discriminatory measures, and/or
 

(ii)   prohibition of new or more discriminatory measures,
 

either at the entry into force of that agreement or on the basis of a reasonable time-frame, except for measures permitted under Articles XI, XII, XIV and XIV bis. 

Thus, the WTO framework does provide for regional and bilateral engagements along with the multilateral system. This is evidenced by the fact that there are numerous bilateral and regional free trade agreements across the globe. The resulting multiplication and intertwining of rules and obligations is often referred to in trade literature as the spaghetti bowl effect of regional trade agreements.

However, is the bilateral and regional proliferation desirable is another question. What is tending to happen now is that new standards (gold, silver and bronze) on rule setting on e-commerce, labour, State Owned Enterprises are happening outside the multilateral system in these regional and bilateral settings. Is that necessarily a bad thing or is it required for slow adoption by the multilateral system with varying growth trajectories?

Robert Lighthizer, USTR in a recent press report seems to suggest the two should not co-exist and the US could go for one at the expense of the other:

“The FTAs, in my opinion, we should just get rid of them. We should have a multilateral system or a bunch of bilateral systems,” Lighthizer said. “And to be honest, I can go either way. But we can’t have people who...profess to multilateralism and then go around basically being the biggest proponents of a bilateral system.”

Which way the world's largest economy and trading partner will go will definitely have an impact on the multilateral trading system and the institutions that govern it.