Termites in the Trading System: How Preferential Agreements Undermine Free Trade

By Jagdish Bhagwati

{Oxford University Press: 2008}

Summer 2009

In Termites in the Trading System: How Preferential Agreements Undermine Free Trade, Professor Jagdish Bhagwati explains the perils of preferential trade agreements (PTAs) and how these instruments can endanger the stability of the global trading system.

PTAs allow countries to reduce, or sometimes eliminate, tariffs on certain products from countries party to the arrangements. There are currently more than 300 PTAs worldwide.

Bhagwati, a widely respected economist and author of the acclaimed In Defense of Globalization, explains that PTAs hearken back to the problematic protectionist trading system of the 1930s. During that era, discriminatory practices created instability because, while larger countries had resources to withstand potential disadvantages of PTAs, the agreements seriously handicapped smaller countries and exporters.

The book deals discusses methods for managing PTAs in order to return to a system of multilateral free trade. The stumbling blocks created by the agreements are serious impediments to creating a stable world economy, according to Bhagwati.

“With his usual blend of brilliance, wit and bluntness, [Bhagwati] describes the rise of PTAs and analyzes why it has occurred and how it threatens the multilateral trading system,” said Andre Sapir, professor of economics at the Universite Libre de Bruxelles and the former economic advisor to European Commission President Romano Prodi. “This book is essential reading, not only for economists and trade diplomats, but for anyone concerned with the design of the institutions that are central to our prosperity.”