Termites in the Trading System: How Preferential Agreements Undermine Free Trade

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Termites in the Trading System: How Preferential Agreements Undermine Free Trade

By Jagdish Bhagwati
Oxford University Press, 2008
160 pp. $24.95
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The Columbia University economist Bhagwati takes strong exception to the proliferation of so-called free-trade areas (which are mostly really preferential trade areas since they contain significant exemptions) in recent years through the efforts of many parties, especially the United States and the European Union. His perspective is markedly different, however, from that of most American opponents of these areas, who often object to their trade-liberalizing features. Bhagwati fears that free-trade areas will lead to a significant diversion of trade from its lowest-cost channels, that they divert policymakers' attention and political attention more generally from the much more important multilateral trade liberalization, and that they force unrelated issues into the trade agenda, such as labor rights and environmental issues. In this short book, which draws heavily on his more technical work and that of his former students, Bhagwati explains in nontechnical terms why the United States' emphasis on free-trade areas -- which started under Ronald Reagan and continued under subsequent presidents, and has included much more explicitly unrelated political criteria under George W. Bush -- will contribute to an irrational "spaghetti bowl" of bilateral trade agreements. This concern heightens the importance of a successful conclusion to the now-stalled Doha Round of multilateral trade negotiations.