European Union and preferential arrangements

The driving force behind Preferential Arrangements (PAs)1 between countries is rarely economics alone. It was the profound wish to move away from the cycle of armed conflict between the European nations that prompted the creation of the European Coal and Steel Community which was the forerunner of the European Union (EU). It has also been argued that the move towards the next phase of the enlargement of the EU which is expected to see the entry of a number of Central and Eastern European countries into the Union, forms part of an effort to forestall a return to the Cold War division of Europe (Dehaene, 2000). Nevertheless economic considerations do play a very important role in Preferential Arrangements. Free trade among members, common external tariffs, free movement of factors of production, coordination of macro-economic policies and acceptance of a single currency are among some of the well-known phases which PAs might go through. Although PAs have a long history, they acquired considerable policy attention particularly since the early 1960s. In analysing the post World War II trends in Preferential Arrangements, some economists make a distinction between a first, and a second wave of such Arrangements. The first wave of PAs was inspired by the emergence of the European Economic Community. It appeared to lose momentum during the 1970s. The second wave starting in the 1980s has turned out to be far more powerful and continues to spread rapidly, even as the process of multilateral trade liberalisation makes progress under the auspices of the World Trade Organisation (WTO). Increasingly there are interlinkages between PAs of various types among countries located in different parts of the world.