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| Oxford University Press
How Preferential Agreements Undermine Free Trade
View related content: International Economics
Jagdish Bhagwati, the internationally renowned economist who uniquely combines a reputation as the leading scholar of international trade with a substantial presence in public policy on the important issues of the day, shines here a critical light on preferential trade agreements, revealing how the rapid spread of PTAs endangers the world trading system.
Numbering by now well over 300, and rapidly increasing, these preferential trade agreements, many taking the form of Free Trade Agreements, have re-created the unhappy situation of the 1930s, when world trade was undermined by discriminatory practices. Whereas this was the result of protectionism in those days, ironically it is a result of misdirected pursuit of free trade via PTAs today. The world trading system is at risk again, the author argues, and the danger is palpable.
Writing with his customary wit, panache and elegance, Bhagwati documents the growth of these PTAs, the reasons for their proliferation, and their deplorable consequences which include the near-destruction of the non-discrimination which was at the heart of the postwar trade architecture and its replacement by what he has called the “spaghetti bowl” of a maze of preferences. Bhagwati also documents how PTAs have undermined the prospects for multilateral freeing of trade, serving as stumbling blocks, instead of building blocks, for the objective of reaching multilateral free trade.
Jagdish Bhagwati is an adjunct scholar at AEI.
Praise for Termites in the Trading System
“The world’s foremost trade policy scholar explains why what he calls ‘preferential trade arrangements’ are not a path towards global free trade, but a dangerous step away from it. A long-standing and brave opponent of these arrangements and particularly of those between hegemonic powers and developing countries, Jagdish Bhagwati explains how they promote costly trade diversion, interfere with the efficient operation of global business and allow great powers to extract unjustified concessions from weaker countries. This book underlines the abiding wisdom of non-discrimination, the now almost completely forgotten founding principle of the world trading system, and concludes that the only way to return to sanity is by movement towards free market access for all.”
–Martin Wolf, chief economics commentator, Financial Times
“The founding fathers of the postwar trading system wisely chose non-discrimination as its central principle. But the last fifteen years have witnessed its erosion due to the proliferation of Preferential Trading Agreements. Jagdish Bhagwati, the leading trade economist of our time, rang first the alarm bells about the resulting ‘spaghetti bowl’ of discriminatory rules and regulations. Now, with his usual blend of brilliance, wit and bluntness, he describes the rise of PTAs and analyzes why it has occurred and how it threatens the multilateral trading system. This book is essential reading not only for economists and trade diplomats, but for anyone concerned with the design of the institutions that are central to our prosperity.
–Andre Sapir, professor of economics, Universite Libre de Bruxelles, former economic adviser to European Commission president Romano Prodi (2001-2004)
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