Here are two articles about regional trade agreements (RTAs) and preferential trade agreements (PTAs). The more liberal The Economist magazine argues that RTAs is popular right now but it undermines full gains from global trade because they come at the expense of similar pact at the global level-- thus eroding potential global gains from global trade. Bhagwati calls preferential trade deals "termites in the trading system." See Rodrik's and Stiglitz's books and papers for a different perspectives on the benefits of globalization, the Doha Round, and free trade.
Regional Trade Agreements: A second-best choice
...Now Mr Nath has said “yes”. On August 28th India agreed a free-trade agreement with the ten fast-growing countries in the Association of South-East Asian Nations. ASEAN also announced a second big regional deal, with Australia and New Zealand. Coming so soon after Doha’s collapse, the two agreements sent a powerful message. The global trade talks may have stumbled, but regional pacts are pushing ahead, particularly in the fastest-growing part of the world economy. According to the World Trade Organisation (WTO), over 200 regional and bilateral agreements are in place with many more under negotiation. More than 100 came into force during Doha’s seven exasperating years.
...That is disturbing. Every trade deal should be measured on its own merits. But, for all their political appeal, bilateral and regional deals are never a substitute for progress at the WTO. Multilateral trade rounds are the foundation of the trading system because they are based on the “most favoured nation” principle—that any tariff cuts offered to one country must be offered to them all. Regional and bilateral deals are based on discrimination. They lower tariff barriers between their signatories, but not everyone else. Discrimination means that, although regional deals create new trade among their members, they may also divert it from lower-cost outsiders.
Should free traders applaud the rise of preferential trade deals?
...On August 28th they trundled through Singapore. The ten members of the Association of South-East Asian Nations (ASEAN) agreed on a trade deal with India and reached a separate accord with Australia and New Zealand. Together, the agreements cover trade worth about $70 billion in 2006.
...These preferential deals violate the principle of “most-favoured nation” (MFN), which holds that any favour offered to one member must be offered to all. But that principle now has few defenders in the world’s trade ministries. In his new book, “Termites in the Trading System”, Jagdish Bhagwati of Columbia University points out that negotiators see any deal as a “feather in your cap”. But economists know better. By playing favourites with its trading partners, a country can dupe itself into paying more for its imports. Its consumers may switch from a low-cost supplier to a more expensive one, only because the new supplier can sell its goods duty-free and the other cannot. The consumer pays less, but the Treasury is deprived of tariff revenue. Thus discriminatory trade deals do not just hurt those left out.
