Monthly Archives: June 2008

I had the pleasure of seeing distinguished trade economist Jagdish Bhagwati speak yesterday. He is promoting his new book, Termites in the Trading System: How Preferential Agreements Undermine Free Trade. Bhagwati’s insights are well worth sharing.

He attacked the current wave of bilateral Free Trade Agreements… on the grounds that they hurt free trade. Bhagwati, always a stickler for precision of language, thinks these FTAs are better called PTAs, or Preferential Trade Agreements. By only including a few countries, they are discriminatory by their very nature. True free trade does not discriminate.

The agreements are also too complicated. They contain provisions that have nothing to do with trade, such as labor and environmental standards. Trade-unrelated provisions can slow economic growth, and can intrude on nations’ sovereign right to make their own laws. They also turn international trade law into a complex thicket that is all but impossible to navigate; simplicity is beautiful.

Bhagwati’s preferred approach is to revive the Doha round, and to institute much broader, less discriminatory agreements like the Free Trade Area of the Americas (FTAA).

He also had a few things to say about the presidential candidates’ trade positions. In short, neither gets it. McCain is solidly pro-trade, but confused. He thinks PTAs are the same thing as free trade. Obama is harder to read. His heart seems to be in the right place, but he appears to have been captured by his party’s labor and environmental interests. Obama has to appeal to his base, so he says things he shouldn’t.

Bhagwati’s approach to trade is simple, principled, and refreshing. But I fear that he is letting the perfect be the enemy of the good. The Doha round is all but dead, despite a few recent stirrings. The FTAA is less than likely in the current political climate. PTAs are certainly not ideal, but they’re all we have right now. Some progress is better than none.

Who knew bananas could be controversial? The U.S. and the EU are locked in a heated dispute over banana tariffs. Ecuador, Guatemala, Honduras, and Mexico are also parties to the complaint. The EU gives preferential treatment to former colonies of Britain, France and Portugal for banana imports. That means most of Latin America faces unfair tariffs.

The WTO ruled last month that the EU’s tariffs violate international trade rules. The ruling isn’t the end of the matter, though. The case, which dates all the way back to February 1996, has been further delayed. Brussels objected, so the WTO is granting more time for negotiations.

One wonders what is left to negotiate after twelve and a half years.

If the EU officials had the best interest of their constituents at heart, they would drop their trade barriers. The EU’s preferential treatment of certain countries comes at European consumers’ expense — as well as the banana producers of five nations.