Friday, September 15, 2006

The spaghetti bowl problem

A few months ago Greg Mankiw worried about Democrat Ned Lamont's views on trade.

I responded by arguing that in int'l trade it was the big fish (WTO negotiations) that needed frying and to ignore distractions on the periphery:

I see that this is one of those issues that could make you (or any reasonable economist) lean towards the Republican position. But, I would take a careful look at the actual trade deals that have been passed since TPA was granted to GWB. They have opened up far fewer (and smaller) markets than the ones led by Clinton and the administration has put very little effort into promoting broader-based (WTO) trade agreements.

As someone concerned with international development, it is actually easy to see that the recent bilateral agreements (specifically US-Chile and US-Jordan which I am most familiar with) are far more lopsided in the number of remaining tariff restrictions than a multilateral agreement would be. Each country ends up negotiating to appease their own special interest groups and you end up with ~100 goods that are exempted from tariff reductions coming into the U.S. from a (very) small country like Chile.

So while the average Republican may be better than the average Democrat on trade, it looks like Clinton was far better than Bush on trade (and very possible that Gore could have been as well).

Well, today the International Herald Tribune Globalization Blog brings in heavy hitter Jagdish Bhagwati to back me up.

The money quote:
The architects of GATT, looking at the degeneration of the world trading system in the 1930’s into protectionism and discriminatory trade in the form of bilateral preferences, had vowed: Never again. They had made non-discrimination, and its embodiment in the Most Favored Nation clause (which guarantees to every member the lowest tariff by any member), the central principle of GATT. But they had allowed for an exception in the case of free trade areas (FTAs) and customs unions in Article 24. I am sure they thought this Article would be used rarely. But today, there are over 300 such FTAs formed or announced, and they are multiplying by the week! The culprits in this game were the Europeans. But the Americans, led by former United States Trade Representative Robert Zoellick, joined in actively. And now the Asians are busy doing their own bilaterals as well; there are elements of both “monkey see, monkey do” and tit-for-tat in what they are doing. But the whole world has practically collapsed into bilateralism which is driven by sloppy arguments and failure of leadership by the major powers such as the United States.

These Preferential Trade Agreements (PTAs), among other problems, have created a chaotic system of preferences. I have called it the “spaghetti bowl” problem since eating spaghetti makes a mess for my tie and shirt!

Thanks to the PSD Blog for the link.


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