Summary:
Jagdish Bhagwati argues that freeing trade through Free Trade Agreements (FTA) is not good idea. Free Trade Agreements (FTAs) have several crippling downsides. Main problem with these bilateral and regional agreements is that they exclude other countries. They should be called Preferential Trade Agreements (PTAs) instead. We currently have a "spaghetti bowl" of preferences and, as a result, chaos in the world trading system. Lobbies have used FTAs to impose demands unrelated to trade on these nations, increasing resentments abroad. Supporting free trade by supporting FTAs: no better example of folly wrought by good intentions. The right way to reduce trade barriers is on a multilateral basis and in a nondiscriminatory way. Need Doha Round of multilateral trade negotiations to succeed. (Published: 02/07/08)
Notes:
- Jagdish Bhagwati: free trade advocate extraordinaire
- book: Termites in the Trade System
- current political debate on free trade for America
- two different questions
- Should we have free trade?
- If we agree that we should, how should we trade freely?
- typical argument against free trade
- free trade may increase income and wealth, but it suppresses workers' wages ands even harms the middle class
- but: trade even may have moderated the fall in wages that labor-saving technical change is producing
- but: freeing trade through Free Trade Agreements (FTA) is not good idea
- FTAs better described as Preferential Trade Agreements (PTA)
- they free trade for members only
- is like freeing trade on a discriminatory basis
- FTAs have several crippling downsides that must be recognized
- they will often divert trade from cheaper nonmember sources to more expensive member sources, bringing harm rather than good
- the enormous growth of such FTAs, now more than 350 and still growing, has led to a systemic effect: creating a "spaghetti bowl" of preferences and chaos in the world trading system
- in one-on-one negotiations between America and weak, smaller FTA partners, several lobbies have imposed demands unrelated to trade on these nations, increasing resentments abroad
- e.g. labor unions seeking to raise standards and production costs of rival firms abroad, financiers seeking absence of capital controls, and firms wanting higher patent protection
- reasons to believe that these preferential trade agreements have slowed down our progress on the multilateral freeing of trade
- success Doha Round of multilateral trade negotiations is essential to strengthening the multilateral trading system, which is beneficial to all
- American doctrine of inducing multilateral trade liberalization by signing on FTAs has proven to be a chimera
- need to put a moratorium on more FTAs, while treating those already ratified as water under the bridge
- free traders that are passionate supporters of FTAs:
- no better example of folly wrought by good intentions
- right way to reduce trade barriers, he explains, is on a multilateral basis and in a nondiscriminatory way
- main problem with these bilateral and regional agreements is that they exclude other countries
