Spaghetti bowl effect

Spaghetti bowl effect refers to a problem of free trade agreements (FTAs) in rules of origin that designate which country a product comes from. Jagdish Bhagwati first used the term in his 1995 paper U.S. Trade Policy: The Infatuation with Free Trade Agreements. A country might sign FTAs with other nations having different regulations on rules of origin, and a company can enjoy zero tariffs in exporting its products to one nation, but may not be eligible for preferential policies in other nations. In an effort to export finished products to importing countries at the lowest price, companies might produce half-finished products and parts in different countries to leverage tariff differentiation in FTA agreements. This leads to a crisscrossing of jurisdictions, much like spaghetti tangled in a bowl. In Asian countries, the effect is sometimes called "noodle bowl effect".

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Different from North America and Europe, Asia has not set up a universal free trade area. Instead, countries have signed many bilateral or multilateral free trade agreements. These agreements have contributed to convenient trades between the countries signing the agreements, but it also caused the spaghetti bowl effect. Companies are facing complicated rules and regulations and their costs are increasing.