Economy, Globe, Uncategorized, United Kingdom

The architecture of international cooperation must be updated

Commercial tensions, increasing protectionism and a growing mistrust of the entities that design the architecture of global economics pose new challenges for those countries wishing to safeguard multilateralism as an instrument of cooperation.

 

Ivette Fernández

 

Lack of consensus among nations in adopting common policies to tackle climate change and other geopolitical matters constitute a major pitfall. A similar hurdle and sign of damage to the current international order is an increase in political confrontations between the world’s most powerful countries, which hinders the establishment of joint strategies regarding matters vital for humanity’s progress.

This lack of consensus is exhibited in a recent report from the World Economic Forum. After U.S. President Donald Trump’s arrival in the White House, fears that he would make protectionism the order of the day were realised with the announcement of a rise in importation fees and the introduction of new importation tariffs.

The new situation produced the right conditions for certain commercial trade alliances to be reshuffled. One that stands out among them is the agreement between the European Union and Japan which touches almost a third of global GDP and will have a direct impact on 600 million people.

Another prominent deal is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) which has been signed by Australia, Brunei, Canada, Japan, Malaysia, New Zealand, Peru, Singapore, Vietnam and Mexico, and which came into effect last December.

The engagement of the countries mentioned represents almost 15% of international trade, attracting 13% of direct foreign investment and contributing almost 14% of global GDP.

In Asia, they are working on the Regional Comprehensive Economic Partnership (RCEP) which could become one of the largest trade networks in the world, with the potential to include 45% of the population, 40% of total volume of trade and more than 30% of global GDP.

The design of the RCEP which, according to its defenders, should be ready by the end of the year, brings together 10 member states of the Association of Southeast Asian Nations and another 6 Asia-Pacific nations. Notwithstanding the reshuffling of trade alliances to defend their interests against the policies passed by Washington, experts agree that protectionism and tensions between the U.S.A. and other countries will cause damage to a lesser or greater degree.

According to the report from the World Economic Forum that delved into the opinions of a thousand specialists, 88% of interviewees are convinced that international trade agreements will be affected in one way or another in the current year.

In response to a changeable and convulsive landscape, the leaders of large economies such as Japan and Germany are advocating for reform to the institutions that maintain the architecture of the world economy like the World Trade Organisation (WTO), the International Monetary Fund (IMF) and the World Bank.

At the 49th edition of the World Economic Forum held in Davos recently, the Japanese prime minister, Shinzo Abe, requested reform at the WTO because, he said, urgent structural changes are needed to help resolve disputes sparked in this area. Making a similar intervention, Angela Merkel of Germany also appealed for reform at the IMF and World Bank.

Such institutions must better reflect the relationships between powers in the world, the German chancellor claimed as she emphasised how indispensable multilateralism is for positive development around the globe. As of now, some countries are already developing a strategy to strengthen and modernise the WTO. The initiative is being spearheaded by Canada and the European Union who, in recent months, made a joint statement expressing their clear and firm support of a regulated multilateral trade system, just as they consider the WTO’s role essential in guaranteeing said order.

Yet the international organisation has for some months suffered a considerable blow to its credibility since, as its Director-General Roberto Azevedo has asserted, the United States are blocking the nomination of new members to the Appellate Body, the committee charged with settling disputes brought before it by members.

In the meantime, more and more alarm bells are ringing about a slowdown in the world economy due, in large part, to the onslaught of US protectionism.

As regards 2019, the World Bank has predicted that disputes about import tariffs will force a downturn in global growth which will stand at 2.9% by year’s end and, in 2020, will reach 2.8% growth.

The IMF, for its part, deemed tensions over trade one of the primary contributing factors in the weakening of global economic growth this year and next.

According to the WTO, between October 2017 and October 2018, its member states adopted 137 new measures considered restrictive to trade.

The figure covered by these regulations is equal to 588 billion 300 million dollars and is seven times larger than the amount recorded for the previous year. It equates to an average of 11 new measures per month compared to the 9 recorded per month in analysis of the preceding period.

Commenting on this situation, the Organisation warned that the escalation of restrictive trade policies would carry potentially serious risks, with a consequential effect on growth, jobs, and consumer prices around the world. (PL)

(Translated by Elizabeth Dann – Email: elizabethdann@blueyonder.co.uk)

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