FTA: ADB warns of risk of ‘spaghetti bowl’ mess

Tokyo, February 8:

A proliferation of bilateral free trade deals in Asia risks creating a ‘spaghetti bowl’ of overlapping measures that could actually harm companies, the head of the Asian Development Bank (ADB) said.

“We now have an explosion of new trade and investment incentives — currently 15 under implementation, close to 10 signed, more than 20 under negotiation and at least 16 more proposed,” said Haruhiko Kuroda. He referred to this as a ‘spaghetti bowl’ or ‘Asian noodle’ effect because the initiatives overlap in country coverages but vary in scope.

If various free trade agreements (FTAs) exist in Asia, a Thai company for example importing goods could be subjected to complicated rules depending on the origin of the products it is buying.

“For a Thai company this administrative cost could be huge,” said Kuroda, a former Japanese vice-minister of finance and adviser to prime minister Junichiro Koizumi who took up the reins of the ADB in November 2004.

A single free trade area across East Asia would solve the problem but could be hard to ach-ieve, he added. One possibility was the creation of a free trade pact between Japan and China which cou-ld then be enlarged to include other countries but this would be hard to achieve politically given stra-ined ties between the two nations.

“From a purely economic perspective, if we have a Japan-China FTA then a major part of trade in Asia will be covered by this and it could help lead to an overarching Association of South East Asian Nations (ASEAN) FTA,” he said.

“However, at this time we don’t have any signs of such negotiations (between Japan and China).” Relations between Tokyo and Beijing have reached a low ebb amid Chinese anger at Japanese prime minister’s controversial visits.

With the governments of the two Asian nations barely talking to each other, the ASEAN grouping would likely be a more efficient vehicle for the creation of a pan-Asian free trade pact, Kuroda suggested. The China-Japan rift was also likely to restrain the growth of trade and investment between the two neighbours, although to date the impact has been limited, the ADB chief warned.

“In spite of deteriorating diplomatic relations, the Japan-China trade and investment relationship has strengthen-ed and this will not change much.” But if relations continue to worsen, “that could hamper trade and investment and growth might be slo-wer than otherwise,” Kuroda said.