Ronald J. Wonnacott

Liberalization in the western hemisphere: New challenges in the design of a free trade agreement

Abstract This paper deals with problems that countries encounter when they enter into overlapping free trade associations, with special reference to the Americas. We discuss four closely related issues: (1) inefficiencies caused by overlapping free trade areas; that is, by a “hub-and-spoke” system; (2) rules of origin; (3) the comparative merits of free trade associations (FTAs) and customs unions (CUs); and (4) the NAFTA rule of accession. Overlapping free trade areas can cause trade distortions, with negative effects concentrated on the smaller members. These effects cannot be eliminated by bilateral agreements among the “spokes” because of rules of origin, which are a significant complication in any FTA. We conclude by recommending a “hybrid” FTA, with no rules of origin for products where the members agree upon common external tariffs or where all members have low tariffs. This would combine some of the advantages of FTAs and customs unions.

The Economic Case for Reciprocal Trade Negotiations: Gains from Both Imports and Exports

1 The neverending story of regional trade agreements 3 Roberto V. Fiorentino 2 Multilateralising regionalism: spaghetti bowls as building blocks on the path to global free trade 31 Richard E. Baldwin 3 Multilateral versus regional trading arrangements: substitutes or complements? 90 Richard G. Lipsey and Murray G. Smith 4 Contemporary regionalism 121 Wilfred J. Ethier 5 The World Trade Organization and international economic integration: legal aspects 136 Dencho Georgiev 6 Preferential liberalisation in a hubandspoke confi guration versus a free trade area 150 Ronald J. Wonnacott 7 The economic case for reciprocal trade negotiations: gains from both imports and exports 167 Paul Wonnacott and Ronald J. Wonnacott 8 Understanding the barriers to entry eff ects of rules of origin in preferential trading arrangements with an application to Asian FTAs 187 Olivier Cadot, Jaime de Melo and Alberto PortugalPérez 9 The limits to integration 204 Michele Fratianni and Francesco Marchionne 10 Technology and globalisation 226 Richard G. Lipsey 11 Globalisation: an anatomy 239 Miroslav N. Jovanović

Canada-U.S. Free Trade: Retrospect and prospect

Abstract This is a revised version of a response by the authors at a joint session of the American Economic Association and the North American Economics and Finance Association in Atlanta on December 28, 1989 on the topic “The Canada-U.S. Free Trade Agreement: The Wonnacotts after 20 Years.”

6. Policy Options

This section discusses some of the options available to the Commission or state agencies, with encouragement by the Commission, to correct the conditions that led to the unusually high and volatile prices in the West during the summer of 2000. Those conditions were: a general shortage of generation throughout the West, an over-reliance on spot market purchases by the IOUs in California, insufficient demand responsiveness to price, and a highly politicized process for setting price caps for the Cal-ISO. The options are summarized below first and then discussed in the following section. To encourage investment in new generation: ! Adopt policies that encourage and facilitate the investment in new generation. Tight generation resources were a major factor contributing to high prices. Easing local siting approval processes in California could encourage more investment and ultimately bring on more electricity supply. At the federal level, the Commissions wholesale price policies have an important effect on investment decisions and should be designed to create incentives to spur new investment in generation and transmission. To remedy the over-reliance on spot market purchases: ! Eliminate the requirement that the three California IOUs must buy and sell through the PX. This can be implemented by the Commission (1) requiring a change in the eligibility provisions of the PX tariff or (2) changing its policies applicable to wholesale spot markets. ! Require the IOUs to hedge and forward contract through the PX and bilateral transactions. This can be implemented either by the CPUC or by the FERC. ! Require all in-California thermal generation capacity to be bid into the forward California markets. This option might increase the amount of capacity available in the forward markets. To provide more demand response to wholesale prices: ! Encourage California to implement policies to increase retail demand responsiveness to price. The Commission has no authority over retail rates in California; however, California may undertake retail market reforms that will greatly benefit wholesale markets. Competition among energy service providers for the retail load of the IOUs would create strong downward pressure on the price of energy in California. Just allowing large retail consumers to face the price in the wholesale market would provide more demand responsiveness to the wholesale market. If state policy is to allow load serving entities to pass through the costs of energy and ancillary services directly to