A Passionate Voice
| Author | Pravin Krishna |
| Position | Chung Ju Yung Distinguished Professor of International Economics Johns Hopkins University |
| Pages | 53 |
Page 53
How Preferential Trade Agreements Undermine Free Trade. A Council on Foreign Relations book, Oxford University Press, 2008, 160 pp., $24.95 (cloth).
Challenged by the mathematician Stanislaw Ulam to name a single proposition in all of social science that was both true and nontrivial, Paul Samuelson-the undisputed titan of 20th century economics-offered the principle of comparative advantage: "that it is logically true need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them." As Jagdish Bhagwati, a titan of 20th century international economics and author of Termites in the Trading System, might point out, these thousands of important and intelligent men have not done much better in grasping the distinction between free trade and free trade areas (trade agreements between a group of countries, described more precisely below), although that distinction also follows from a short set of axioms, and the failure to grasp it imperils the global trade system.
Bhagwati has been alerting the important and the intelligent to this distinction, and its relevance, for a long time, through both scholarly contributions and accessible writings in the popular press. In the early 1990s, when the recent drift in the direction of preferential trade agreements (PTAs) had only just begun, he stood as a lone cautionary voice against this fragmentation of the trade system (see his 1993 article "Regionalism and Multilateralism:
An Overview," in New Dimensions in Regionalism, edited by Jaime DeMelo and Arvind Panagariya, New York:
Cambridge University Press). Now, with the number of preferential agreements in the hundreds, and with the complexity of regulations governing the flow of goods and services into these countries growing proportionately, Bhagwati's caution seems particularly prescient.
Although the General Agreement on Tariffs and Trade (GATT), established in 1948, held nondiscrimination between member countries as a key principle, it sanctioned-through Article XXIV-exceptions to this principle, by permitting PTAs in the form of free trade areas (FTAs) and customs unions (CUs). According to the prevailing definitions, members of FTAs, such as the North American Free Trade Agreement (NAFTA) group...
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