"Reshuffling the Deck of Global Economic Cards"
It is my pleasure to be here with you today. The Bahrain Global Forum could not come at a more timely moment. In introducing the Forum, John Chipman said that it seeks to explore the principal global economic governance issues of today's increasingly inter-dependent world.
It seeks to explore the role that new country groupings, such as the G-20, would play. Whether the G-2, US-China relations, would become the "organizing principle" of the new world order. The way in which different regions of the world would relate to each other. All of these questions are extremely topical. They are indeed amongst the main questions that we should be asking ourselves today.
My comments today will aim at the following. First, to give you my perspective on main the changes in the global economic governance landscape that we have been witness to, in the past few years. Second, to give you some taste of how this rebalancing has, and is, occurring within the institution that I am in charge of – namely, the World Trade Organization. And, third, to position international trade for you in the economic, and post-economic, crisis worlds.
There is no doubt that global economic governance is undergoing a major "overhaul," if I may say so. The past few years have witnessed the rise of emerging developing countries, and a rebalancing of global economic power away from the developed to the developing world.
It has also seen the "developing world" categorization become too simple to capture the actual diversity of players on the international landscape. Today, there is a wide disparity in the levels of income of countries that we call "developing." Some are middle to high-income countries, while others are extremely low-income, "Least-Developed Countries."
Our interdependence has also grown over the years – it has grown beyond anyone's imagination in fact! With the climate crisis, we have discovered that the world – our planet – is an indivisible whole. With the food crisis, that we will always need each other to feed ourselves. With the flu epidemic, that speedy international cooperation is vital. And with the economic crisis, that the collapse of one part of an economy could trigger a chain-reaction across the globe, if we do not act as one. Our interdependence, needless to say, also extends to many other spheres, such as political security, that would be beyond the realm of these remarks.
But with this increasing interdependence, the world is rightly asking now whether we have the right institutions and systems in place to govern this interdependence properly. I spoke earlier of emerging developing countries. Well, with their emergence, another question has sprung. Do the institutions of global "economic" power that we have today accurately reflect the weight of different players? The emerging developing world is rightly claiming its fair share of global economic decision-making power, if I may call it that.
The rise of the G-20, as an economic forum, is just the first manifestation of what I call a "reshuffling of the deck of global economic cards." The G-20 Leaders' Statement at the Pittsburgh Summit self-designated the group as (I quote) "the premier forum for international economic cooperation" (unquote). An ambitious task!
The G-20, in some ways, is a representative body, in that it embraces countries from both North and South America, Europe, Africa, the Gulf, Asia, and Oceania. But the jury is still out on two matters. First, will the G-20 really deliver as the "the premier forum for international economic cooperation"? It has certainly helped coordinate the response to the subprime crisis. But has not yet, visibly, filled in the regulatory gap in international finance that was the main cause, if not "the" cause, of the financial explosion. As President Lula said on Friday, we have not yet done our homework! Second, how will the G20 interact with the other pillars of the global economic architecture?
Today the world has a range of economic "treaty" organizations, such as the WTO, the Bretton Woods Institutions, and many UN organisations at its disposal. And it also has other groupings, such as the G7, the G8, ASEAN and the African Union, to name but a few. All of these economic organizations and groupings interact, in one way or another, with the United Nations.
Where, within this landscape, would the G-20 operate? My own sense is that the G20's role lies in providing leadership to address key economic governance issues. Decision-making belongs in the treaty-based organisations. At the same time, the UN needs to reinforce its role in acting as a forum of global accountability; which means that ECOSOC may need a reshuffle.
Clearly some areas of our global governance architecture are in need of urgent reinforcement. Serious work is now underway, for example, on the issue of climate change. But international work on an issue such as migration has barely started. Looking at "economic" governance, taxation and currency issues, are clearly lagging behind.
But as we strengthen the portions of the global economic governance architecture that we think are weak, the rebalancing of "decision-making power" has to take place in tandem.
We have seen reforms now take place with the capital increase of the World Bank, and the developing world being given greater powers; and similar reforms that are now underway in the IMF.
But the readjustment of voting rights, whether in the World Bank or the IMF, the merger of institutions or the emergence of new ones are simply tools, and not ends in themselves. They are to serve the people. As the European Union, which offers one of the most sophisticated models of regional economic integration has shown, "people" and "citizens" must be brought along.
All players within this new economic order will have to adjust their modus operandi of the past, to the new responsibilities of the present, and for the benefit of future generations. Greater democracy, and greater involvement, will also mean that hard decisions will need to be made from time to time; contributions if not sacrifices will be required.
We saw at the Copenhagen Climate Summit, readjustments that the G-77 coalition of developing countries has had to undergo. We basically saw a wider diversity of developing country interests come to the fore. The same will have to happen in the economic sphere, where the high-income developing world will have to step up to the challenge, rather than sit in line with much poorer countries.
All of this power play that I have just described, plays out in the World Trade Organization on a day-to-day basis. Why do you think the Doha Round of trade negotiations is taking so long!
What we see in the Doha Round is an attempt by the developing world to set the "trade record" straight; to rebalance of the rules of the international trade game in its favour. Developing countries scored their first victory by calling this Round of trade negotiations a "development" round. They scored their second victory by placing "agricultural" market opening at the heart of the negotiation; a sector of key economic interest to many of them. And, they scored their third victory by insisting on "special and differential treatment" and "less than full reciprocity" (which is the translation of "common but differentiated responsibility" in our jargon) across all sectors of the negotiation.
Now, contrary to the Bretton Woods Institutions, the WTO treaty accords each member of the organization, one vote. The WTO mostly operates by consensus, and has seldom voted. However, the underlying power balance of one member, one vote, is the governing principle that members leverage to forge their consensus! It is precisely because of this principle, that the G-20 Leaders' Statement at the Pittsburgh Summit made mention of World Bank and IMF reform, but not of the WTO.
This does not mean, however, that economic power is not being reshuffled within the WTO. It is. And on a day-to-day basis, for that matter, but not in terms of the decision-making structure of the organization. Rather, in terms of the substance, shape and form, of the regulatory framework for international trade. This is one of the reasons why it is vital to conclude the Doha Round in my opinion. The conclusion of the Round will be one of the world's first confirmations of a changed economic power balance.
When you look at the agricultural subsidies of members such as the EU, the US, Japan or Switzerland that have crowded developing world exports out of international markets, you discover the need for the Doha Round. These subsidies would be slashed by about 80%.
Some closing thoughts on the role of international trade during, and post, the economic crisis. Despite a collapse of global demand and supply, and hence of world trade, compared to 1929 levels, countries have not backtracked from their commitments and obligations under WTO rules. Despite protectionist pressures, they have, by and large, not even used the policy space left to them by WTO Agreements. In fact many members – such as Mexico, Canada, and Malaysia – have even used the opportunity to enact further trade reforms.
Early in the crisis, I instituted a special monitoring mechanism aimed at detecting trade restrictive measures around the globe. A sort of "WTO Radar Screen," if you will. It was intended to capture any backward, protectionist, movement by a WTO member, and allow for a frank and open dialogue with other members on the subject. The Radar Screen was endorsed by the G-20 Leaders in London, and has shown our members' refusal to turn their backs on policies that helped integrate them into the world economy. As a result trade is as open today as it was at the beginning of the crisis.
Today, we are seeing a V-shaped recovery of world trade. After a fall of 12% in real terms in 2009, we now forecast a rebound of world trade of about 9.5% this year.
The multilateral trading system has resisted its first big "stress test" and has shown its value. But if I have a message for you today, it is that we must not become complacent. We must remain vigilant against protectionist pressures. Global economic integration should go forward, with the Doha Round acting as a vitally needed global economic stimulus package. Estimates suggest that it would inject over $300 billion a year into the global economy.
The Doha Round, and the WTO, for that matter, do not operate in isolation though. They are part of the new and emerging "triangle" of global economic governance, linking the G-20 to international organizations, and to the UN system. It is vital, therefore, that we stabilize that triangle.
Thank you for your attention.
