Inter-American Development Bank
facebook
twitter
youtube
linkedin
instagram
Abierto al públicoBeyond BordersCaribbean Development TrendsCiudades SosteniblesEnergía para el FuturoEnfoque EducaciónFactor TrabajoGente SaludableGestión fiscalGobernarteIdeas MatterIdeas que CuentanIdeaçãoImpactoIndustrias CreativasLa Maleta AbiertaMoviliblogMás Allá de las FronterasNegocios SosteniblesPrimeros PasosPuntos sobre la iSeguridad CiudadanaSostenibilidadVolvamos a la fuente¿Y si hablamos de igualdad?Home
Citizen Security and Justice Creative Industries Development Effectiveness Early Childhood Development Education Energy Envirnment. Climate Change and Safeguards Fiscal policy and management Gender and Diversity Health Labor and pensions Open Knowledge Public management Science, Technology and Innovation  Trade and Regional Integration Urban Development and Housing Water and Sanitation
  • Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer

Beyond Borders

  • HOME
  • CATEGORIES
    • Asia – LAC
    • Innovation and Technology
    • Investment Attraction
    • Public-Private Alliances
    • Regional Cooperation
    • Regional Integration
    • Trade & Investment Agreements
    • Trade Facilitation
    • Trade Promotion
  • Authors
  • Spanish

The Spaghetti Bowl and International Supply Chains

May 1, 2018 by Juan Blyde - Valeria Faggioni 2 Comments


Latin America regional integration can be characterized by the co-existence of multiple trade agreements: there are 33 of these in total, their membership is limited in scope, and they generally act as separate silos which lack important interconnections between them.

Common sense indicates that while this “spaghetti bowl” of agreements might encourage production linkages among the members of each agreement, it might also limit the emergence of supply chains between countries across agreements by making it too costly for producers to use foreign inputs from outside their respective blocs due to the combination of tariff rates and rules of origin (the provisions that determine the official origin of a good).

It is no wonder that Latin America compares unfavorably to other regions regarding participation in international supply chains in general and in the formation of regional supply chains in particular.

Given the state of integration in Latin America, the question is whether fixing this spaghetti bowl could lead to the emergence of more regional supply chains.

One way to answer this question is to look at one modest experience in our region in which the spaghetti bowl was eliminated. Let’s start by looking at how this spaghetti bowl came to life. Between 1995 and 2001, Mexico signed three separate free trade agreements (FTAs) with countries in Central America: one with Costa Rica (1995), one with Nicaragua (1998), and one with the “Northern Triangle” of El Salvador, Guatemala, and Honduras (2001).

Because these agreements had separate rules of origin, in practice they functioned as though there was one hub (Mexico) and three separate spokes (each FTA) that did not interact with each other. For example, chocolates from Costa Rica would not encounter tariff charges in Mexico as long as they were produced entirely in Costa Rica, but the same chocolates would pay a tariff duty in Mexico if they used cocoa paste from Honduras.

In 2011, however, all the countries signed a new agreement with a single set of rules of origin.

The original spaghetti bowl of three noninteractive agreements was effectively changed by a single agreement that gave firms much more flexibility regarding where they could source their inputs from within Central America.

Evidence using data from Costa Rica suggests that this increased flexibility when sourcing inputs might have triggered more production sharing across countries in the region. For instance, based on a comparison using transaction-level data before and after the agreement, it is revealing that between 2010 and 2013, the number of Costa Rican firms exporting to Mexico that used imported inputs from other Central American countries increased by 20%, while the number of Costa Rican firms exporting to Mexico that did not use imported inputs from Central America did not increase between these two years.

Likewise, a comparison of the sourcing patterns of Costa Rican exporters purchasing inputs from Guatemala, Honduras, Nicaragua, or El Salvador before and after the agreement reveals that the agreement almost doubled the percentage of inputs from these countries being used in exports that target the Mexican market.

Accordingly, this early evidence supports the notion that increasing the flexibility for exporters to source their inputs from other countries in the region might lead to more regional supply chains.

The Pacific Alliance countries provide another interesting example of a group of different, noninteracting FTAs being superseded by a single agreement. It would be interesting to analyze how this enlarged trade area will impact the formation of regional supply chains in the coming years.

Solving the spaghetti bowl in Latin America at the continental level may not be as hard as it appears, according to a recent IDB publication. This may greatly expand the set of potential countries within the region which Latin American firms can source inputs from, which could lead to major efficiency gains.


Filed Under: Regional Integration, Trade & Investment Agreements, Trade Facilitation, Trade Promotion Tagged With: Global Value Chains, International trade, Regional Integration, Trade Facilitation

Juan Blyde

Juan S. Blyde is Lead Economist in the Integration and Trade Sector of the Inter-American Development Bank. He specializes in researching areas such as the relationship between trade and firm productivity, trade and transportation costs, and international value chains. Juan has a PhD in economics from the University of Colorado at Boulder and a BA in economics from the Andrés Bello Catholic University (Venezuela). Before joining the IDB, he worked as an economist in the Economic Advisory Office of the Venezuelan Congress. Juan's research has been published in different academic journals such as the Journal of International Economics, Review of International Economics, International Economic Journal and Review of World Economics, among others.

Valeria Faggioni

Valeria Faggioni es Asistente de Investigación del Sector de Integración y Comercio del Banco Interamericano de Desarrollo. Valeria obtuvo su MSc en Economía de London School of Economics and Political Science y su Licenciatura en Economía y Finanzas del Instituto Tecnológico y de Estudios Superiores Monterrey. Valeria está interesada en temas de Economía Internacional, Desarrollo y Economía Laboral.

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Follow Us

Subscribe

Search

Integration Trade

On this blog, the IDB Integration and Trade Sector shares reflections on the role of trade, investment, cooperation, and regional integration for development in Latin America and the Caribbean. Subscribe and join the conversation.

Related posts

  • Why fragmented integration hampers fragmented international production
  • 5 Data Visualization Tools in INTrade to help you get a handle on LAC trade and integration
  • What’s the future of Free Trade Agreements?
  • Why Are We Celebrating the Entry into Force of the Additional Trade Protocol to the Pacific Alliance?
  • 5 things you need to know about inclusive rules of origin and why it will affect trade

Categories

Footer

Banco Interamericano de Desarrollo
facebook
twitter
youtube
youtube
youtube

Blog posts written by Bank employees:

Copyright © Inter-American Development Bank ("IDB"). This work is licensed under a Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives. (CC-IGO 3.0 BY-NC-ND) license and may be reproduced with attribution to the IDB and for any non-commercial purpose. No derivative work is allowed. Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC- IGO license. Note that link provided above includes additional terms and conditions of the license.


For blogs written by external parties:

For questions concerning copyright for authors that are not IADB employees please complete the contact form for this blog.

The opinions expressed in this blog are those of the authors and do not necessarily reflect the views of the IDB, its Board of Directors, or the countries they represent.

Attribution: in addition to giving attribution to the respective author and copyright owner, as appropriate, we would appreciate if you could include a link that remits back the IDB Blogs website.



Privacy Policy

Copyright © 2023 · Magazine Pro on Genesis Framework · WordPress · Log in

Banco Interamericano de Desarrollo

Aviso Legal

Las opiniones expresadas en estos blogs son las de los autores y no necesariamente reflejan las opiniones del Banco Interamericano de Desarrollo, sus directivas, la Asamblea de Gobernadores o sus países miembros.

facebook
twitter
youtube
This site uses cookies to optimize functionality and give you the best possible experience. If you continue to navigate this website beyond this page, cookies will be placed on your browser.
To learn more about cookies, click here
X
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled

Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.

Non-necessary

Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.

SAVE & ACCEPT