Jagdish Bhagwati, from the Council on Foreign Relations and Columbia University, New York, has written this book to point out that PTAs (preferential trade agreements) are acting like termites, eating away at the multilateral trading system relentlessly and progressively. He says, “To use another analogy appropriate to what is happening, the proliferating PTAs are leading miserably to what might be aptly described as a trade wreck.” He adds that phenomena like free trade areas (FTAs), customs unions (CUs) and less comprehensive, partial preferential reductions of trade banners are inherently discriminating as they reduce trade barriers for members of the trade agreements but not for the non-members.
The author explains the reasons why PTAs have now turned into a pandemic in the world trading system and how the architects of the GATT had not ever imagined the consequences of it. Many vaguely understood that free trade was good and the policymakers in the developed countries embracing the liberal international economic order – a precursor to the pro-globalisation proponents of late years – saw any form of trade liberalisation as good. A free trader was supposed to be a supporter of trade liberalisation – any reduction of trade barriers was supposed to be as good as any other. Because when a free trade area is formed and trade barriers are eliminated among members, it of course, leads to freer trade. But if external barriers by the member countries are left unchanged, then the handicap suffered by non-members in the markets of member-countries increases. This constitutes increased protection.
So FTAs are two-faced: the free trade among members, but increase protection against non-members. This means that they are fundamentally different from free trade. Thus it is no wonder that developing countries are forming PTAs among themselves.
The author explains why the worries have increased over PTA in the past two decades as the PTAs continue to proliferate and the downsides of this phenomenon with economists expressing alarm at the development.
Several Director- Generals of the GATT and the WTO have shown keen awareness of the problem and expressed their alarm. Three options have been explored: 1. halting the formation of new PTAs and eliminating the preference in existing PTAs through built-in reductions of the differentials between the MFN tariffs on non-members and the preferential tariffs on members; 2. reducing the chaos of the spaghetti bowl through harmonisation and the other techniques that turn the spaghetti into lasagna; 3. using multilateral trade negotiations such as the Doha Round to reduce the MFN tariffs to negligible levels and consequently the preferences, that is, preferences relative to zero would be zero.
This is a technical book meant for planners and economists.
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