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 Prof. Jagdish N. Bhagwati is one of the world’s foremost authorities on international trade. Most of his works focus on the key role of free trade in shaping the global economic order, and this is evident in his latest book “In Defense of Globalization” (2004) in which he argued that globalization, if properly regulated, is the most powerful force for social good in the world. Prof. Bhagwati spoke with ASEANONE editor on a number of issues, including the increasing trends of free trade arrangements in Asia today. Below are excerpts of this interview.
ASEANONE: How do you describe the growth in trade flows in the world today? What do you think is the most important factor that is driving its growth – multilateral, bilateral trading or unilateral system?
At the outset, with East Asian growth having revived, and with China and India continuing to perform strikingly well, the decline in trade barriers, in any form, is not necessarily the big driver. At any given level of trade barriers,
you can still have growth in both trade and income. But trade barriers have indeed come down. India, for instance, has dropped its average industrial tariffs from about 75% in 1991 to about
25% now that is a big change. Her quantitative restrictions have also fallen. Much of this has been unilateral: a phenomenon that is underestimated because of the focus on reciprocal trade deals in the media. I document some of this unilateral trade liberalization in a massive research-based volume titled “Goping Alone” which I published With MIT Press about five years ago. There is surely some effect in the last ten years from the reductions in trade barriers in the Uruguay Round. I doubt if bilateral PTAs (preferential trade agreements) have added much. And where they have, it is not clear that it has been beneficial. Thus, while trade and income expansion usually go together, this is not the case in Mexico whose trade, but not income, has expanded considerably since NAFTA was signed. Can it be that the trade expansion has taken the form of welfare-reducing trade diversion (to USA) rather than welfare-enhancing trade creation?
ASEANONE: A standard argument against preferential trade agreement is that it will lead to trade diversion. Is this a real concern?
I just touched on this. I think we need to be careful about this as it is dangerous to forget that Free Trade Agreements which I prefer to call Preferential Trade Agreements are free trade for the members but, by increasing the handicap of non-members in the FTA markets, also constitute protection against non-members. Trade diversion arises only because members enjoy lower tariffs than non-members. Trade diversion arises only because members enjoy lower tariffs than non-members. So, for countries like Singapore with negligible MFN tariffs, there is no fear of trade diversion at all; they can safely enter bilaterals. But for a country like India or Pakistan with high external MFN trade barriers, the danger of trade diversion is much greater. They are therefore well advised not to go down the route of PTAs, as far as trade is concerned. But then there is also the problem that when you enter into PTAs with a hegemonic power like the EU or the United States, that hegemon extracts from you all kinds of "non-trade" concessions. I have written extensively about this; and there is now increased awareness that the big powers have turned the trade game into a "non-trade" game. Just look at the sorry history of US bilaterals, and also at the unashamed way in which the EU dispenses trade favors depending on all kinds of political criteria. I might add that it is noteworthy that almost no PTAs among only developing countries contain these extraneous "non-trade" issues like IPP, labor standards, and environmental standards...more |
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