Hub-and-Spoke System In FTAs Network And Asian Regional Economic Integration

Free Trade Agreements (FTAs) proliferated as a large network all around the world since 1990's. The purpose of this paper is to address the "hub-and-spoke"complications that arise if a country signs a FTA with more than two countries independently. This paper analyse the characteristic of hub-and-spoke system, and point out the asymmetry is the essence of hub-and-spoke system. In order to become a member of FTA, small country makes some compromises to sign the agreement. If a country becomes the hub, it will receive a larger share of a smaller income total. The hub lets the hub-and-spoke system develop, and spoke may negotiate with outside countries in ways that may impose substantial damage on the hub. So the hub-and-spoke system is the second choice and self-intensified. It allows further economic integration without approval of other members, but it brings more complications by the relationship between this choice and the rules relating to new arrangements with outside countries. There are many difficulties to achieve an integration institution in East Asia. A large number of bilateral FTAs would accelerate the economic integration. The hub-and-spoke system in FTAs network help to save transaction cost and reduce the Free-rider problem. China should speed up to achieve bilateral FTA to acquire the welfare income and avoid the loss. Every country should reinforce cooperation to achieve economic integration in East Asia.