The Feuds Over Trade 9789814377263

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THE FEUDS OVER FREE TRADE

The Institute of Southeast Asian Studies (ISEAS) was established as an autonomous organization in 1968. It is a regional research centre for scholars and other specialists concerned with modern Southeast Asia, particularly the many-faceted problems of stability and security, economic development, and political and social change. The Institute's research programmes are the Regional Economic Studies Programme (RES), Regional Strategic and Political Studies Programme (RSPS), Regional Social and Cultural Studies Programme (RSCS), and the Indochina Programme (ICP). The Institute is governed by a twenty-two-member Board of Trustees comprising nominees from the Singapore Government, the National University of Singapore, the various Chambers of Commerce, and professional and civic organizations. A ten-man Executive Committee oversees day-to-day operations; it is chaired by the Director, the Institute's chief academic and administrative officer.

Jagdish Bhagwati THE FEUDS OVER FREE TRADE

Published by Institute of Southeast Asian Studies Heng Mui Keng Terrace Pasir Panjang Singapore 119596

E-mail: [email protected] World Wide Web: http://www.iseas.ac.sg/pub.html All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies. © 1997 Institute of Southeast Asian Studies, Singapore

The responsibility for facts and opinions expressed in this publication rests exclusively with the author, and his interpretations do not necessarily reflect the views or the policy of the Institute or its supporters.

Cataloguing in Publication Data Bhagwati, Jagdish The feuds over free trade. 1. Free trade. 2. International trade. 3. Tariff preferences. 4. World Trade Organization. I. Title. HF1711 B57 1997

sls96-114374

ISBN 981-3055-59-6 Typeset by Superskill Graphics Pte Ltd Printed and bound in Singapore by Stamford Press Pte Ltd

CONTENTS

Opening Address Chia Siow Yue 1 The Feuds over Free Trade ]agdish Bhagwati 7 Questions and Answers 59

This paper was delivered by Professor Jagdish Bhagwati, Arthur Lehman Professor of Economics and Professor of Political Science, Columbia University at a Public Lecture organized by the Institute of Southeast Asian Studies in Singapore on 18 September 1996.

OPENING ADDRESS Chia Siow Yue

Distinguished guests 7 ladies and gentlemen. The Institute of Southeast Asian Studies is honoured that you have taken time from your busy schedules to attend this Public Lecture. That so many of you are gathered here this evening reflects the eminence of our guest speaker, Professor Jagdish Bhagwati and the topicality of his lecture on "Feuds over Free Trade 77 • Before I introduce our eminent guest speaker for this evening, may I take a few minutes of your time to acquaint you with the activities of the Institute of Southeast Asian Studies 7 or ISEAS for short? ISEAS was established in 1968 as an autonomous regional research centre focusing on Southeast Asia. The aims of the In1

Chia Siow Yue

stitute are to promote and stimulate scholarly research and policy analysis 1 and to enhance public awareness of the region in the areas of economics 1 politics 1 social and cultural change 1 transformation of transitional economies 1 issues of regional stability and security1 and opportunities and challenges of regional co-operation and integration. Over the years 1 the geographical scope of ISEAS has extended from Southeast Asia 1 mainly the ASEAN states 1 the Indochina states and Myanmar to encompass relations with other countries and regions 1 particularly Northeast Asia 1 Europe and the United States. Since the mid-seventies 1 ISEAS has become the focal point for research 1 policy analysis and academic networking on regional co-operation in the region. We have organized research projects 1 seminars and roundtables on ASEAN. In recent years 1 we have extended our geographical scope to encompass APEC. We organize an annual APEC Roundtable for the academic community and have been designated as Singapore 1s only APEC national study centre. In the latter capacity1 we network with similar designated centres in the APEC region. With the establishment of the Asia-Europe initiative 1 we are also increasingly networking with 2

Opening Address

institutions in Europe itself. We are also now getting involved in the Indian Ocean Rim initiative. So ladies and gentlemen, in short, ISEAS has redefined Southeast Asia as the core encompassing the Pacific Rim, the Indian Ocean Rim and Europe. We are trying to put Southeast Asia on the map. I now turn to our distinguished speaker, Professor Jagdish Bhagwati. Professor Bhagwati is a guest of ISEAS under our Distinguished Fellow in International Economics and Finance Programme. We had wished that Professor Bhagwati could spend a longer time at ISEAS so that we could benefit from his intellectual productivity. But given his extremely busy schedule, we are quite happy that he is able to be with us in Singapore for only a few days to deliver this Public Lecture as well as to engage in discussions with the National University of Singapore economists, the Economic Society of Singapore, and various government ministries and statutory boards. A short profile of Professor Bhagwati has been circulated to you earlier. I shall only give a few highlights. He is Arthur Lehman Professor of Economics and Professor of Political Science at Columbia University in New York. He was born in India and stud3

Chia Siow Yue

ied at Cambridge, Oxford and MIT (Massachusetts Institute of Technology). He worked in India for a while as Professor of Economics at the prestigious Indian Statistical Institute and then decided to join the American academia. He taught at MIT for twelve years before joining Columbia University. Although he has been in American academia for nearly three decades, he has maintained a close interest with the land of his birth. He has written three books on India, including one with his eminent economist wife, Padma Desai, who is the Harriman Professor of Comparative Economics Systems and a Sovietologist at Columbia University. Professor Bhagwati was also recently an adviser to India's Finance Minister on India's economic reforms. Professor Bhagwati is an outstanding academic economist and policy analyst and a prolific researcher. He has published more than 200 articles and over 40 volumes and is the founder of two prestigious academic journals. He is widely regarded as one of the foremost international trade theorists of his generation. He is a strong advocate of global free trade and an ardent supporter of GATT (General Agreement on Tariffs and Trade) and the WTO (World Trade Organi4

Opening Address

zation). He served as economic policy adviser to the Director-General of GAIT during 1991 to 1993. Professor Bhagwati is also an eloquent and, you will experience it later, a very fast speaker. While attending a meeting once, I was told that he is the fastest tongue east of Suez, that means, he is faster than the average Indian, and we know how fast the average Indian can speak. He will speak to us this evening on the topic of "Feuds over Free Trade 11 • With the growth of regionalism and sub-regionalism in this part of the world, and with the WTO Ministerial Meeting to be held in Singapore in early December this year, we all look forward to hearing Professor Bhagwati's views on multilaterism and regionalism. The lecture will be followed by a question and answer session and after that we will have refreshments served. Thank you. Professor Bhagwati please.

5

THE FEUDS OVER FREE TRADE Jagdish Bhagwati

Ladies and Gentlemen. At the outset, I should say how delighted I am to be in Singapore today. Small islands have often played big roles on the world stage. The nineteenth century was British: if the sun never rose in this island, as I can testify from my many years in Cambridge and Oxford, it never set in its huge empire. The twentyfirst is clearly going to be the Pacific century, with Japan leading the way with its remarkable post-war recovery and growth. And now your own country, a yet smaller island, among the East Asian countries, is leading the way with its economic miracle, exerting an influence that is disproportionate to your size, creating an "empire by example". 7

]agdish Bhagwati

That example relates to the role of trade as a critical, if not central, ingredient in the process of economic growth. I recognize that recently the East Asian miracle has been discounted, even denied, by some on the ground that it is all a question of high investment rates, and no alchemy may be found in your experience. But this is downright silly: the miracle is in fact that private (and near-private) investment rates have risen to phenomenal levels that have no counterpart in history. And that miracle cannot be explained except by reference to the integration of your economies into the world economy with its expanding, dynamic markets -an insight that is immediately obvious when one contrasts the experience of India which in the late 1950s turned to an inward-looking trade policy that constricted the inducement to invest to only domestic markets, and crippled it in consequence. Then again, you got a double "whammy" because the rapidly rising export earnings enabled you to import what economists call "new-vintage" equipment that embodied technical progress: and there is little doubt that the social return on such