The spread of international trade agreements
Since the end of the Uruguay Round in the mid-1990s, the world trade system has noted a spread of international trade agreements (ITAs) which has configured the world map of trading relationships so that it now resembles a ‘spaghetti bowl’. This bewildering range of geographical configurations of ITAs at regional and extraregional level containing a tangle of rules of origin prompts worries about an inefficient trading system that has become known as the ‘spaghetti bowl’ phenomenon (SBP). This chapter re-examines the relationship between ITAs and this inefficient system. It discusses the evidence of SBP by surveying relevant empirical studies on ITAs and analysing data. First, it presents the content of the political economy of trade agreements by reviewing the reasons for the formation of trade agreements, and gives some justifications for the proliferation of ITAs. Second, it analyses the available data on ITAs and trade, relating them to the existing studies in order to highlight the evidence on the trade diversion of ITAs. Finally, it is shown that the multiplication of ITAs might result in trade diversion effects owing to higher transaction costs that are the result of a mass of overlapping rules. Even if the percentage of world trade covered by ITAs has expanded sharply, the multiplication of ITAs nevertheless diverts trade even including some bilateral ITA relations would be expected to have no diversionary impact on trade. However, the relative size of trade creation and trade diversion depends on trade elasticities between the trading partners. With respect to the tangle of rules of origin, recent plurilateral agreements (intra- and extraregional) involving many countries, such as the Comprehensive Economic and Trade Agreement (CETA), the Trans-Pacific Partnership, etc., have the potential to reduce the SBP of ITAs especially if they supersede existing bilateral agreements and develop common rules (such as for rules of origin) to be applied by all the parties to an agreement. This chapter is intended as a tool for policymakers considering new regional trade agreements, and as a reference paper for academics interested in the SBP.