Free Trade Today, by Jagdish Bhagwati.
Princeton University Press, 2002

Jagdish Bhagwati is recognized by The Economist magazine, and others in the economics field as the leading scholar on liberal trade. His new contribution to the wide-ranging debate on the subject is based on three lectures given at the Stockholm School of Economics. The lectures, prepared for economists, were not easy reading. However, they were well worth the effort.

Traditional Arguments Against Free Trade
Bhagwati's first lecture deals with the accusation that free trade "would not maximize the size of the pie we could make from our resources, know-how, and trading possibilities," (p. 47) and concludes by putting these arguments, so prevalent between 1930s and the 1980s, to rest. When faced with a complex situation, which might indicate to some that free trade is not working, Bhagwati's analysis shines.

"I would boldly say therefore that we can confidently instruct our policymakers and tell our students, that free trade is a policy that makes eminent sense."

For example, he admits that free trade might not be the best policy for a country so small that it may be faced with what economists call a "market distortion." "We also realized, as no one had pointedly done earlier, that if a suitable policy was addressed to offset that distortion, then we could get back to endorsing free trade" (p. 27). He simplifies his observation by referring to the ancient proverb of the challenge of killing two birds with a single stone—two "stones," free trade, and reasonable policies to compensate for country specific factors— may be in order.

In another example of his ability to get to the heart of the disagreements about free trade, Bhagwati distinguishes that supporting free trade does not necessarily mean you are for "free short term capital flows, for free direct investment, for free immigration" (p. 10).

Confident of having put the traditional arguments against free trade to rest, he contemplates whether free trade can be credited not only with increasing the size of the pie, but also with creating an expanded middle class, which seeks the end of authoritarianism and promotes democracy. Bhagwati notes that discussion of social issues opens the door for common arguments against free markets, namely that they are "incompatible with important broader goals such as egalitarian income distribution, environmental protection, labor standards, and human rights" (p. 44). These subjects are addressed in the second lecture.

Environmental and Social Arguments Against Free Trade
Bhagwati's second lecture addresses a wide variety of social issues commonly brought up by critics of free trade, and the problems he sees in bundling trade agreements with human rights or environmental concessions.

With clear logic, Bhagwati explains why he thinks that environmental rules can and should be different in each country, even if two countries have an equal commitment to protecting the environment, because of their different national objectives and policies, in addition to varying stages of development. He argues persuasively that controls needed to protect the environment should be separate from trade agreements, in order to achieve the best results for each objective.

Similarly, he argues that using trade sanctions to control child labor is likely to be counterproductive, pushing children and their families into worse situations, not better ones. A more hands-on approach to social issues is encouraged by Bhagwati. He recommends that instead of sanctions, governments "work with local NGOs, ensure that children go to school when taken off work, and guarantee that the poor parents' incomes do not shrink below the survival line when the children's income disappears" (p. 79).

After addressing both the traditional arguments against free trade in his first lecture, and the newer environmental and social objections in his second lecture, Bhagwati concludes: "I would boldly say therefore that we can confidently instruct our policymakers and tell our students, that free trade is a policy that makes eminent sense" (p. 93).

Getting to Free Trade
In his final lecture, Bhagwati explores four alternative methods to achieve free trade. Some of these routes are different from what might be expected. Unilateral elimination of trade barriers is the approach favored by trade economists. Because Bhagwati argues that reducing trade barriers is desirable regardless of what your trading partner does, he thinks that the normal negotiating approach is counterproductive, and does not encourage Preferential Trade Agreements (PTAs), such as NAFTA and Mercosur. They "inevitably politicize trade more than multilateral trade agreements do" (p. 110).

Further, they create artificial results. For example, U.S. trade that NAFTA diverts to Mexico may be trade that we otherwise would have transacted with Taiwan. Bhagwati argues that conventional unilateralism and multilateral reciprocity are the preferred approaches, while Preferential Trade Agreements such as NAFTA, and aggressive unilateralism are "a pox on the world trading system" (p. 95).

Bhagwati's concern regarding PTAs is more deeply felt than any other issue in the text. He concludes, "while the case for free trade is robust, having surmounted the traditional objections over two centuries, and is capable of meeting the recent objections from civil society and labor unions as well, the headlong rush into preferential trade has left free trade in a sorry state" (p. 119).

Free Trade Today was prepared for economists and is best understood by those with their expertise, but it provides much for all of us to ponder.

About the Author (From Princeton University Press)
Jagdhish Bhagwati is University Professor at Columbia University and Andre Meyer Senior Fellow in International Economics at the Council on Foreign Relations. He was Economic Policy Adviser to the Director General, GATT (1991-93). Currently, he is Special Adviser to the UN on Globalization and External Adviser to the Director General, WTO. Five volumes of his scientific writings, and two of his public policy essays, have been published by MIT Press. The recipient of three festschrifts in his honor, he has also received several prizes and honorary degrees.

Contributed by William Early, Founder, Global Envision

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