The process of adopting new rules and agreements within WTO is based on the principles of consensus, that is, the consent of all participants. At that, bilateral or minor multilateral regional contracts do not contradict the principles of WTO, and many countries rely on them as a quick and flexible shortcut to free trade and globalization.
These may be
free trade agreements (FTAs), preferential trade agreements (PTAs), or regional trade agreements (RTAs) . At the time of the WTO establishment in 1995, 47 such contracts were made, and there were 57 agreement notifications. Today, the number of regional agreements
has reached 301 and 480 agreement notifications, given only 164 WTO member countries
If lines on a map were to represent every regional agreement between countries, each with own rules, tariffs and institutional structure, the map would look like a spaghetti bowl. The growing number of free trade agreements, which oust WTO multilateral negotiations as an alternative way to globalization, is called the spaghetti bowl effect.
The term was pinned by Jagdish Bhagwati, an American economist of Indian descent, in his workUS Trade policy: The infatuation with free trade agreements
The authors idea is simple: the more trade agreements countries conclude among themselves, the more complex and less open trade processes become. And this, in turn, slows down globalization of trade and increases the number of barriers between countries.
A large number of regional agreements violate one of the main principles of the WTO, the Most Favoured Nation regime: grant someone special favour, and you have to do the same for all other WTO members. At that, many FTAs differentiate between WTO member countries when applying tariffs and setting up barriers.
It is difficult to determine the origin of the goods for imposing tariffs and administrative costs rise. Small and medium-sized companies cannot afford this. It plunges the overall competitiveness of the WTO member countries.
Bhagwati believes that expanding bilateral trade between FTA participants is a direct fire against trade with other countries, which in turn also stalls the process of globalization. At that, developed economies use the situation to their advantage by imposing non-trade measures, while multilateral talks would ensure liberalization.
To the point, based on the research conducted by scientists at Keio University
, Japan, the spaghetti bowl effect does exist.
Many experts are convinced that in this situation, WTO should assume the initiative. Maria Panezi, LL.D.
, believes that WTO can become a committed stakeholder that closely monitors the context and the conclusion of the FTAs, PTAs and RTAs, and informs the non-participating countries of such agreements. The expert suggests calling a moratorium on the signing of any regional agreements, but so far, this is hardly possible due to their large number .
And yet, despite the spaghetti bowl effect, regional agreements remain the primary driver of international trade. For example, in 2017, about 50% of world trade was between countries that signed the FTAs, and a third were governed by deep trade agreements (here trade rules go beyond traditional tariffs and existing WTO agreements). Even excluding the European Union trade, about one-third of world trade took place under such agreements
Trade agreements are of high importanc
e for many developed countries, but not as much for most developing countries, except for a few countries in Southeast Asia, South Africa, Latin America and India .
For Russia, it also becomes a matter of preference, since negotiations on an FTA agreement between the EAEU and India are underway
from the joint group, who studied the FTAs feasibility, concluded that this measure would further develop trade between the EAEU member states and India by 3040% . For more information on foreign trade relations between Russia and India, read a special edition of analytical digest
in the Analytics
section of the Roscongress portal.