General Issues and Regional Groups
Edited by Miroslav N. Jovanović
Chapter 6: Preferential Liberalisation in a Hub-and-Spoke Configuration versus a Free Trade Area
Ronald J. Wonnacott* If you don’t know where you’re going, you’ll end up somewhere else. Yogi Berra 1 INTRODUCTION Analysing the recent ad hoc proliferation of trade agreements that have now spread worldwide has long since required going far beyond the classic questions raised when two countries form a union (for example, Viner, 1950; Meade, 1955; Gehrels, 1956; and Lipsey, 1957). This chapter examines how a nation needs to evaluate new issues – in particular hub-and-spoke (H&S) complications that arise if a new country does not join an existing union, but instead signs a bilateral agreement with only one member (or subset of members) of the union; or when a hub country signs separate bilaterals with two (or more) spoke countries, leaving existing protection between those spokes.1 The US–Mexico–Canada negotiations in the 1990s illustrate how a US-centred H&S system could have developed, and how it would have compared to the full three-country North American Free Trade Agreement (NAFTA) that came into force in 1994 instead. The development of any H&S or even more complex current variant (or, for that matter, any preferential liberalisation) requires a country to analyse how it will be affected by any new preferences it may receive and any new discrimination it may face. In short, it must examine ‘Who is doing what and to whom?’ whether it is a negotiating participant, or simply a trading bystander. The country will also need to analyse the expected effects of any such preferential liberalisation...
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