The title is a nod to Jonathan Dingel's excellent trade blog.
A U.S. - Korea trade agreement is going to impact third parties. These impacts create incentives for these countries themselves to seek FTAs with the U.S. and Korea. A variety of news stories have been addressing this.
This is not an attractive alternative to a multilateral approach through the World Trade Organization, as this Financial Times editorial points out: One trade deal done, thousands to go (Apr 3). Martin Wolf also weighs in: A Korean-American strand enters trade’s spaghetti bowl (Financial Times, Apr 3):
This month marks the 60th anniversary of the General Agreement on Tariffs and Trade, of which Cordell Hull was a founding father. It also sees the announcement of a “free trade agreement” between his country and South Korea. The core of the Gatt was non-discrimination. The core of the new agreement is its opposite. Thus has the US taken the betrayal of its erstwhile principles even closer to its logical conclusion....
In this case, the US and South Korea agree to discriminate in favour of exporters or investors based in each other’s territory. The obvious potential economic cost of such an agreement is what Jacob Viner, the great inter-war trade economist, called “trade diversion”. In other words, the partners might shift from more competitive to less competitive suppliers. In this case, however, trade diversion may be modest, since these two countries are among the world’s most competitive suppliers of a wide range of goods and services.
A more significant economic cost, however, is systemic. The number of preferential trade agreements has exploded upwards in recent years (see chart). An agreement between the US and South Korea is itself a quantum leap in this progression... Other countries will be desperate to avoid the adverse effects upon them. This makes probable yet another jump in the prevalence of such agreements.
Several of the stories in the survey of press clippings below discuss the way the U.S.-Korea agreement encourages further bilateral agreements. He goes on:
That will have at least two further economic consequences. First, an increasing proportion of the world’s trade is sure to be governed by the diverse rules of origins and special procedures of a host of discriminatory bilateral and plurilateral agreements. That guarantees an explosion in administrative complexity. Second, every further bilateral agreement will alter the degree of preference enjoyed by existing suppliers. That guarantees an explosion of business uncertainty. These are indeed inevitable results of what Prof Bhagwati has called the “spaghetti bowl” of preferences....
