- Spaghetti Bowl Effect
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The Spaghetti Bowl Effect is a phenomenon of international economic policy that refers to the complication which arises from the application of domestic rules of origin in the signing free trade agreements across nations. The effect leads to discriminatory trade policy because the same commodity is subjected to different tariffs and tariff reduction trajectories for the purpose of domestic preferences[1]. With the increase in FTA's throughout the international economy, the phenomena has led to paradoxical, and often contradictory outcomes amongst bilateral and multilateral trade partners.
The effect is seen as a measure of political risk for firms which seek to invest in nations with complex measures of intellectual property rights and contract law. The term was first used by Jagdish Bhagwati in his 1995 paper U.S. Trade Policy: The Infatuation with Free Trade Agreements. Subsequently, Bhagwati has used the term on various occasions in describing a problem of FTAs. He named it the Spaghetti Bowl Effect:
referring to the manner in which half-finished products and parts go around various FTA networks using tariff differentiation in an effort to export finished products to the consumer countries at the lowest price; he visualized this as crisscrossing lines and likened these strings of lines to strands of spaghetti tangled in a bowl.[2]More recently, the term has been used by scholars to explain the difficulties of East Asian Free Trade Agreements in solving the intertwined mass of preferential trading arrangements between ASEAN members.
See also
References
Categories:- International trade
- International economics
- Open economy macroeconomics
- Country of origin
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