A strengthened Global Economic Governance: Part 3 Global Economic Governance Agenda

Pedro_SOUSABy Pedro Sousa our Vice President,

The third in a series 4 articles entitled ‘The global economic disorder calls for a strengthened Global Economic Governance’

 

“The political problem of mankind is to combine three things: economic efficiency, social justice and individual liberty.” – John Maynard Keynes

 

3. GLOBAL ECONOMIC GOVERNANCE AGENDA

There is a massive opportunity to address economic issues that are of common interest and benefit. Macroeconomic stability, inclusive growth, climate change, trust in public institutions, youth unemployment and financial regulation (“too-big-to-fail” banks or assessment of a financial transactions tax), all hit the nail on the head of what is needed to be done to overcome one of the toughest economic and social crises we have seen. Reindustrialization is another theme that should be in the global agenda. Current conditions make it ideal to take advantage of current low costs of borrowing and under-utilized labour resources, and embark on large-scale projects to build and repair essential infrastructure in our developed and emerging economies.

On Trade, we have been witnessing a turn towards regionalism in recent years. Regional, pan-regional, and bilateral trade talks are a symptom of the seemingly multipolar world order, or disorder, we are experiencing. Russia and China are increasingly challenging the Western multilateral system, taking advantage of the economic momentum of each player and exerting greater influence in their neighbourhoods. While mixing security agendas with Trade, Russia’s endeavours to create an anti-NATO bloc with Kazakhstan, Armenia and Belarus, shows the will to create a Eurasian Economic Union (EEU). China is pushing for the Regional Comprehensive Economic Partnership, against the US-led Trans-Pacific Partnership. If you add to the mix, the Eurasian Development Bank and China’s Asian Infrastructure Investment Bank, the Moscow and Beijing agenda starts to become crystal clear. There are even other regional initiatives that don’t necessarily wish to enter a geo-economic battle with multilateral Western institutions. In Latin America, four emerging economies have recently created their own new trade club. Mexico, Colombia, Chile and Peru have created the Pacific Alliance which has a clear mission of bridging these countries with Asian economies. This is seen as something that is lacking and that could potentially bring a new wave of development and growth to Latin America. Facilitation of trade between these countries would be a challenge to Brazil, the standout economic power of Latin America. Brazil and Argentina have tried to influence the region through Mercosur but have not been able to advance the trade agenda in that forum. Assessing this geo-economic regional focus is of crucial importance for the global economy. Some protectionist measures have been designed and barriers to trade and foreign direct investment continue to hamper growth in both advanced and emerging-market countries. Thus, there is an opportunity to harness the regional trade focus of recent years. Promoting cross-border trade and investment is one way to support global demand while boosting potential growth in individual countries. Innovation and global market integration in general are key drivers of productivity gains and should be strongly encouraged. Goods and services are no longer produced by a firm in one country and sold to consumers in another. Production is fragmented around the world, while components cross borders multiple times as value is added to output along the way. Goods produced in the EU and exported to the US may include raw materials from China and Malaysia, and use services from Japan and India. This is what is known as global value chains (GVCs).  Looking beyond national structural policy reforms and the G20 process itself, the WTO plays the central role in ensuring a well-functioning, rules-based, multilateral trading system. Alongside the ILO, this is the best option to collectively work on boosting trade, growth and jobs. But because progress in trade negotiations at the WTO remains stalled, many countries are turning their attention to plurilateral and regional trading arrangements (RTAs) as second-best options for opening markets. Many RTAs can go beyond multilateral rules on investment, movement of capital and persons, competition and state-owned enterprises, e-commerce, and anti-corruption. There is a notable trend towards adopting such “WTO-plus” commitments by an increasingly representative number of WTO members. This greater degree of convergence of interests augurs well, at least from a technical perspective, for the possibility of also adopting these commitments on a multilateral basis. Recent mega-initiatives, such as the Transpacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP), and the Regional Comprehensive Economic Partnership (RCEP) among ASEAN countries, also have the potential to address essential trade policy questions across a much wider geographical scope. Whether on a unilateral, regional or multilateral basis there is widespread interest in doing more to ensure that trade, investment and complementary policies can contribute to a much-needed stimulus to global economic activity. But that interest needs to be turned into policy action. Given the modest progress towards an open and fair multilateral trading system, stepping up bilateral, regional, and sectorial agreements is an option worth pursuing. As the world is changing from a unipolar American moment to a somewhat disorderly multipolar system, these regional and geopolitical agreements seem to be thriving, at least, in willingness to create them. If these new regional initiatives are a step to multilateral agreements, they may bring positive development in the future by bringing progress. It is fair to say that some of these trade deals might not even happen, like the TTIP. European countries won’t let the hard fought European Social model be threatened in this trade agreement. It is important to understand with an estimated impact of 1% in 10 years on the growth of GDP, it will not be TTIP that leads the European economy out of the crisis. It cannot be designed only to benefit export-oriented countries such as Germany, the Netherlands, Sweden and the United Kingdom. Ultimately, the EU won’t let the TTIP disrupt the balance between the social partners and big business. And rightfully so, the EU should not let the best democratic, economic and social model that this planet has seen get affected, on the contrary, it should be strengthened, so that we achieve sustainable inclusive growth dynamic. If well designed, these agreements could eventually constitute the basis for expanding membership, so as to approach, in time, the multilateral goal. If not, we run the risk of having geopolitical rivalry among major powers that creates economic warfare through trade deals, harming everyone involved, including global consumers, workers and businesses. Multilateralizing the 21st century regionalism would be a good way to ensure that the ongoing mega-regional talks are constructive steps toward improving the multilateral trade governance system.

The best-designed structures can achieve little without the political will to resolve conflicts through dialogue. In order to make progress, countries must learn to defend their principles while respecting those of others, and never to lose sight of their shared interests and objectives. Strong, effective, and inclusive multilateral institutions can play a vital role in combating this instability and fostering cooperation. No one will disagree on the global need to create a policy environment that promotes sustained economic growth. A lot can be achieved by incorporating multidimensionality into policy design, helping identify trade-offs, complementarities and unintended consequences of policy choices, particularly in a multilateral platform. We cannot fail to fall into the mistakes that the pre-crisis thinking led to. The message must prevail through time: the need to pursue more inclusive growth and well-being agendas, highlighting that inequalities are multi-dimensional and that tackling them should be achieved through better access to employment opportunities and to health and education services. In a multipolar world, actors with widely divergent worldviews must work together to advance their shared interest in security, stability, and prosperity. It is time for all of the world’s powers to recognize their responsibility for making constructive cooperation a reality.

 

 

 

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