termites in the trading system
TRANSCRIPT
-
8/8/2019 Termites in the Trading System
1/13
Termites in the trading system -
How preferential agreementsundermine free trade
JAGDISH BHAGWATI
Rahul SehgalRoll No. 38
MIB 1stSem
-
8/8/2019 Termites in the Trading System
2/13
What each Chapter is talking about
PTA and trade agreements in 20th Century
GATT article XXIV
Consequences
Prospective Solutions
-
8/8/2019 Termites in the Trading System
3/13
PTA (
Preferential Trade Agreements)
A Preferential trade area (also Preferential trade agreement, PTA) isa trading bloc which gives preferential access to certain products from theparticipating countries. This is done by reducing tariffs, but not byabolishing them completely. A PTA can be established through a tradepact. It is the first stage of economic integration.
Why it is known as Preferential Trade?
Discriminate against non participating countries
May not choose lowest cost source
Trade diversion
Switch from low cost foreign suppliers to higher cost foreign suppliers inpartner
Trade creation
Switch from high cost domestic production to lower cost foreign
production
-
8/8/2019 Termites in the Trading System
4/13
Contd
The European Union
India and Afghanistan
The Central American Free Trade Agreement (CAFTA)
The North American Free Trade Agreement (NAFTA) The Central European Free Trade Agreement (CEFTA)
Association of Southeast Asian Nations (ASEAN)
More than 350PTAs have been reported to WTOand around 200 are in effect
-
8/8/2019 Termites in the Trading System
5/13
-
8/8/2019 Termites in the Trading System
6/13
Contd...
PTAs during the 20
th
Century Not all trade agreements are created equal. More of a
protectionist approach.
Beggar myNeighbourtrade policy - fragmentationof the global economy into competing trading blocs andpreferential arrangements JOANROBINSON (1937).
The right way to reduce trade barriers is on a multilateralbasis and in a non discriminatory way (MFN mostfavoured nation).
-
8/8/2019 Termites in the Trading System
7/13
GATT Article XXIV
After World War II, America led the world in creating the General Agreement onTariffs and Trade (GATT), which did just that, by encouraging the reduction oftariffs and liberalization of other import restrictions.
Article XXIV of the General Agreement on Tariffs and Trade (GATT) provides animportant exception to Article 1 (most favoured nation clause) by permittingcountries to enter into preferential free trade agreements (PTAs). That is, tariffreductions must be applied in a non discriminatory manner to all signatories to theagreement.
Members of FTAs like NAFTA and the custom unions (CU) like the EU shouldeliminate trade barriers.
The GATT was the onlymultilateral instrument governing international trade from1948 until the WTO was established in 1995.
-
8/8/2019 Termites in the Trading System
8/13
Contd
Political imperatives that led the United States to abandon its
once-principled stand on non discrimination and admit Article
XXIV's exceptions.
US Canada bilateral trade
In the 1950s, six European countries were allowed to form a
common market under the exception granted by Article XXIV
of the GATT charter.
In the 1970s, less developed members were allowed to sign
PTAs with each other.
-
8/8/2019 Termites in the Trading System
9/13
CONSEQUENCES
Bad for smaller countries
US Columbia FTA
The Mexico Soft Drinks Case
Disadvantage of NAFTA (HFCS Controversy)
Inclusion of Trade Unrelated Agendas
Labour and environmental standards
Intellectual property enforcement.
Social standards be grafted into trade agreements.
-
8/8/2019 Termites in the Trading System
10/13
Contd
The "spaghetti-bowl"phenomenon: Discriminatory tariff rates
Rules of origin
Content requirements Inclusion of nontrade issues in trade agreements
An ever-increasingly complex web of preferential
commitments and rules of origin adds to thecosts of trade and weakens any sense ofresponsibility to a single multilateral order.
-
8/8/2019 Termites in the Trading System
11/13
-
8/8/2019 Termites in the Trading System
12/13
What should we do now?
Things that are not possible: Halting the formation of PTAs
dramatic expansion of global trade
cross-border investment
Output
Consolidating agreements into less discriminatory regional blocs or encouraging PTA membersto lower their external barriers.
Transparency Mechanism for Regional Trade Mechanisms
Only feasible solution:
Reduce global MFN tariffs to such negligible levels that PTAs no longer matter.
Depends upon future unilateral efforts at trade liberalization and further progressat the WTO.
-
8/8/2019 Termites in the Trading System
13/13THANKYOU!!