The USA in World Integration
New Horizons in International Business series
Edited by Thomas L. Brewer and Gavin Boyd
Chapter 10: Regional trade agreements
211 10. Regional trade agreements1 Ronald J. Wonnacott INTRODUCTION Following World War II, US trade policy was based on a single-track commitment to multilateral liberalization in the GATT (General Agreement on Tariffs and Trade). With all countries participating in the reduction in trade barriers, this was quite different from the Europeans’ two-track commitment – not only to GATT liberalization but also to regional liberalization in their Common Market (now the EU, the European Union). However, since the 1989 Canada– US Free Trade Area, US policy has also been set on a two-track course of both multilateral liberalization in the GATT – now the World Trade Organization (WTO) – and regional initiatives covering a narrower subset of countries.2 The North American Free Trade Agreement (NAFTA) deﬁnes the extent to date of this initiative although the US administration has been attempting – so far unsuccessfully – to extend this to a Free Trade Area of the Americas (FTAA). This chapter sets out the simple economic theory of regional agreements: what a policy-maker should know before embarking on such an initiative. As such agreements multiply, it is essential to have a clear background frame of reference for what a regional FTA (Free Trade Agreement) does and does not do. What are the beneﬁts and costs to its members and outsiders? How should any FTA, such as the intended FTAA, be designed to act as a building block rather than stumbling block in multilateral WTO liberalization? What economic complications arise if a second major regional initiative – APEC,...
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