global economic order and developing countries
TRANSCRIPT
Concept of Economic Order• Order (Palacios 2011) (“governance”): sum of explicit rules
(established by Bretton Woods institutions) or implicit rules (OECD and G20 recommendations that generate soft law i.e. no binding norms) that guides:
1. Actors’ behaviors2. Actors’ decisions 3. Relations between actors4. Distribution of power
• Current Order: Bretton Woods (1944)– Maintains hegemony of the western powers (USA and the
predominance of the USD)– Nowadays: DCs (middle powers) search to insert themselves
without abandoning “what they are” and with the idea to favor first their own development
World Bank
• Overview– Headquarters in Washington – 10.000 employees– Belongs to the UN system– President: Jim Yong Kim (since 2012)– President is from USA: • Wolfowitz (2005-2007); • Zoellick (2007-2012); • Jim Yong Kim (2012-present; even if he was born in Seoul)
• How does it work?
• Objective = – It is a Development bank => finance projects without
profitability–Search to promote “Development” through the promotion of
commerce, FDI and growth (insertion in globalization)
– Priority: DCs and LDCs
– It provides loans with a very low interest rate• Generally imposes some conditions • Main fields for interventions: Education, agriculture,
industry and health
– Works with • NGOs and local civil associations (“decentralization”)• Regional development Banks• UN agencies:
– UNICEF– WHO–UNDP with which it developed the HDI (Human
Development Index) which takes into account key dimensions of human development : education; life expectancy; GDP per capita– FAO
3 groups according to the WB
• Divided in 5 institutions
– IBRD: International Bank for Reconstruction and Development (created in 1944 to help Europe rebuild after WWII). Its mission is to grant credits to promote development
– IDA: International Development Association: to fight poverty through financial assistance and State consultation; designed to help LDCs
– IFC: International Finance Corporation is a financial institution that offers support (investment and consulting) to boost private sector in DCs (soft loans); goal: to maintain the local economic fabric
– MIGA: Multilateral Investment Guarantee Agency offers guarantee to MNFs willing to invest in a DC (when the country can not offer any guarantee on its own)
– International Center for Conflict Regulation: offers help for conflicts about investment between a MNF and DCs
Poverty according to the WB
• Poverty: people living with less than $2 a day
• Extreme poverty: people living with less than $1.25 a day
• WB participated (as an important actor) in the elaboration of the Millennium Development Goals (MDG) during the Millennium Summit:– Organized by UN in 2000– In total 189 UN members participated (there are 196 currently) and 23 IOs– The document is a commitment to help achieve the following 8 Goals by
2015 (most of them are very vague):
Source: Angus Madisson 2002
Extreme poverty has decreased: rates have fallen significantly in China, India and LAC
• Brazil: 5%• China: 10%• India: 15%• Indonesia: 18%• The Philipines:
18%• Angola: 25%• Nigeria: 42%• Chad: 79%
Source: WB
Top 10 countries with largest share of the global extreme poor (2000 Vs 2011)
Percentage of people living on less than $1.25 a day
Source: World Bank
2010 2011
Map established by the Oxford Poverty and Human Development Institute (2013)Percentage of people living on less than $1.25 a day
Actually international community agrees more and more that the most important problem of poverty is the way we define
“poverty”: we should review this concept to be able to elaborate a better strategy
1. Academics agree that we should consider the characteristics of the place where individuals live (Foucras 2012):
a. Prices are different depending on where individuals live so financial necessities are different:
• NYC Vs countryside in India – NYC: high purchasing power => high prices– Rural zones India: there is still a local production, with small
farmers adapting their prices to the low local purchasing power => India and WB try to preserve local dynamics and structures
b. Expectations/needs are different depending on where individuals live:
• The context of “normal lifestyle” will be different• Who is participating to the construction of this concept?
– Influenced by local culture (which is the product of history and the environmental context)
– Social programs of the Governments that build the “normal diet”, what should be a “decent house”, a “normal education”…
– IOs like OECD through recommendations– Trade marketing (big firms and banks) creates the idea of a
decent car, house, lifestyle,…… the way to dress– Movie industry and soap operas– Local and global mafias (Russian mafia)– Football players (transmitters of lifestyle)– Everybody daily is contributing to the creation of “what is or
should be the normal life”– ….
• Ex.: Mexico close to the border with Texas: high material expectations (ostentatious life)
Þ a vast majority of the population feels poor (despite the fact they earn much more than in rest of the country) and they behave as poor people => they tend to be violent (high willingness to collaborate with drug cartels)
• Ex.: In indigenous communities in the Amazonian forest: people live without any money and with very little material expectations and the Happiness Index is very high
ÞThere is not a positive correlation between economic poverty and violence (as thought initially WB)
2. Poverty is social created concept because every day we are building the “normal lifestyle” i.e. we are creating new necessities to be part of the dynamics (mostly material necessities)
– Ex. Internet or mobile phone (more and more sophisticated life): the access or not is creating inners and outers (= poor people because they can not access to the service due to the lack of recourses or the lack of education…)
– The cost of access to these “new necessities” tends to increase the poverty
3. Poverty is not a static concept (it is changing in space and time): nowadays expectations are growing everywhere (globalization extends occidental and consumption references) Þ more and more perception of necessities
4. Poverty is not only economic; it is more and more associated by international/national officials to the ability to access to the economic, social, cultural and political dynamics (Sen)
5. Many agree that our model tends to promote a poverty feeling due to individualism, lost of dignity and self-esteem (Sen)
6. Other point: poverty depend more and more on the inequality: more there is inequality more the person is going to feel poor (Piketty)
Þ To solve poverty it is not sufficient to focus only on static and monetary “poverty line” (this technical and quantitative way to evaluate is out of date)
=> we need (1) to develop a concept with variable geometry and (2) to democratize/universalize the debate about poverty
Access to electricity
Source: WB, 2014
Current situation of the world inequality: 1% of the global population have the same wealth as the rest of the population i.e. 99% (= 1% has 50% of the world wealth and 99% has
the same)
IMF• Overview
– Headquarters in Washington
– 188 members
– Director (always european): • Lagarde (2011 to present) • Strauss-Kahn (2007-2011)• Rato (2004-2007)• Kolher (200-2004)• Camdessus (1987-2000)
• Goals:
– To foster macroeconomic stability and global growth
– To promote international monetary cooperation
– To guarantee financial stability (avoid bankruptcy and provide aid to countries with strong BoP deficit)
– To facilitate international exchange – To guide public policies through Structural Adjustment
Programs (conditionality; promoting austerity => bad reputation among society due to the important interference)
• How does it operate?
– More a country applicate for a credit more IMF will impose it conditions
– Main interventions: • Greece (2010: 140billionsUSD);• Portugal (2011: 99billionsUSD); • Brazil (1998:42MMUSD); • Asia (1997:36billionsUSD); • Russia (1998:23billionsUSD); • Argentina (2001:22MMUSD); • Mexico(1994:18billionsUSD); • Turkey (2000:11billionsUSD)
When they need financial capital, ICs prefere to get it
in the financial market (national and international;
tax revenues as well) through issuing treasury
bills; reason: to avoid the intereference of the IMF
IMF loans • At first: lending to ICs (UK and France during 50s and 60s to foster reconstruction)
• During 1980s and 1990s: strong intervention in DCs (LAC, Asia, Commonwealth of Independent States[CIS]) to facilitate integration and to face crisis (1982, 1995, 1997, 1998, 1999, 2001)
• 2000s: Eastern Europe to ease its integration process with EU
• 2010s: Southern Europe and Ireland
Rewards for its move towars EU
Purpose: to save UK, France and German banks => Greece need money to pay back the debt it holds
with these banks otherwise this country will declare
bankruptcy => bankruptcy for European banks unless Govts nationalize this debt
Source: Guardian 2015
Generally, interest for IMF to lend money depend on the importance of the country according to the proper functioning of the global market
Countries that impact more on the stability of the global economy (key role) have more probability to receive attention from IMF (and others)
=> lack of certainty for most of the DCs, above all for countries (1) willing to stay out of the globalization (no members of WTO: Turkmenistan, South Sudan, Somalia, Eritrea, N. Korea) or weakly integrated to the globalization (India) =>
low weight(2) with a weak economy with regard to the global market (Africa)
– Voting rights depend on the capital contribution (quota): USA (16.7%), Japan (6%), Germany (5.9%), France and UK (4.9%), China (3.7%), Italy 3.7%…
BRICS: around 10.5% (China 3.7%; Russia 2.7%; India: 1.9%; Brazil: 1.4%; S. Africa: 0.8%)
– Current decisions (how to give a loan and to whom) 75% of the votes is required
– Reforms must have 85% of the votes USA “freezes” the voting process (16.7% = veto power)
=> Quota determine political power and the debt capacity
Voting power IMF
It is almost the same since WWII due to the difficulty to reform => the balance of power is crystallized/frozen
=> much more difficult to get access to the economic development for LDCs than ICs and emerging markets
Source: IMF (2006)
Special Drawing Right (SDR) : The future world currency?(currently = unit of account)
–Keynes first proposed a supranational currency known as "Bancor" at the Bretton Woods conference, but his proposal was rejected
• At the beginning, USD and gold were the world reserve assets. However, IMF created in 1969 SDR to supplement official reserves i.e. to be able to increase interventions (Hayes 2015)
• SDR is an international reserve asset (it is not held by private actors)
• Its value is based on a basket of 4 key international currencies: USD, Euro, British Pound and Yen
• There are speculation that the IMF might add the Chinese yuan => it would be the first emerging currency to be added to the IMF's reserves
• SDRs can be exchanged for currencies (around: 1 SDR = 1.39 USD)
• Other international organizations are using SDR as a unit of account to face monetary volatility: African Development Bank, Arab Monetary Fund, Islamic Development Bank, etc.
• China would like to use SDR in international trade:– to improve stability (average of different currencies => more certainty) – to make trade more equitable (currently: it depends on FED which determines
the value of USD=> value of import/export depends on US decisions)
BRICS and IMFDifficult for BRICS to take part of the operation (10.5% of the
votes)
=> BRICS created a new IMF more oriented to the “real development” of the members (New Development Bank)
New Development Bank• Multilateral development bank operated by the BRICS
• Alternative to the existing US-Japan-EU dominated WB and IMF
• The goal is to provide loans and liquidity to members (but also outside)
• Each member will be assigned one vote (≠ WB-IMF: it depends of the contribution)
• None of the members will have veto power (≠ WB-IMF)
BRICS:• More than 3 billion people (42% world population)• Cover more than 25% of the world’s land area • Represents 4 continents• Share of the world’s trade: 17%• Share of the world’s GDP: 20%• Account for more than 25% of global GDP
New Development Bank (NDB): refocus financial flows
• Each country brings 10bnUSD: this places it in the 7th position among development banks (capital base = 50bn.USD)
• 1st Chairman of the Board of Directors is Brazilian
• 1st Chairman of the Board of Governors is Russian
• 1st President of the Bank is from India (Kamath)
• The HQ of the Bank is in Shanghai
• An “African regional center” will be set up in Johannesburg
• 3 months later the NDB, China decided to promote the AIIB:
– Capital base: 100bnUSD (Beijing plans to provide the majority of the capital >50bn USD)
– Goal: to finance development projects in the region
– Official reason: The current Asian Development Bank (ADB) (leading lender in the region) is not able to face the growing demand for infrastructure
– 57 countries signed on as members (Asian, BRICS and many European countries)
China also created Asian Infrastructure Investment Bank (AIIB):
• HQ is located in Beijing
• Interesting because: Beijing provides an alternative source of loans for Asian countries (it will compete with WB and ADB i.e. USA & Japan; officially: “it will complement”)
• It confirms the new role of China and the orientation to assume leadership in the international economy
Þ Reduces USA and Japanese abilities to get political support through the use of WB or ADB (=> undermines Japanese and US influence in Asia which used WB to reward allies)
Þ USA view this Chinese initiative with deep suspicion and pressured Australia and South Korea to refrain from joining (Dreher et. al 2009; Lim and Vreeland 2013)
Outlook of the main regional/international Development banks (2014):
Voting power = political power in regional and national decisions in DCs (Wilkipedia 2015)
World Trade Organization (WTO)Overview
• Replaced the GATT Conferences: WTO became the successor organization in 1995
• WTO is an institution and not an agreement as was GATT
• 160 members (Yemen: 2004; Russia: 2012)
• Based on multilateral cooperation• HQ in Geneva• Director: R. Azavedo (2013, Brazil) (before: P. Lamy)• Dispute Settlement Body (DSB) (1995): To solve trade dispute: It is the only
IO able to fine any country that violates an international rule
• Voting: in practice all decisions are by consensus
Members and observers of the WTO
Missing:
• Turkmenistan• South Sudan• Somalia• Eritrea• North Korea• Monaco• San Marino• Palestinian territories• Bermuda• Micronesia• Palau• Tuvalu• Cook Islands• Marshall Islands
• China since 2001
• Russia since 2012
• Brazil, South Africa and India since 1948
• Goal: – To create the rules that govern international trade Þ To provide a common framework for the conduct of trade (“code
of conduct”) Þ To bring transparency, confidence, visibility and fairness
• 2 Principles:
• (1) Most Favored Nation (MFN; Art. 1) = Products from a member country must be treated no less favorably than coming from any other country (you can not privilege a country); normally:
Þ Free Trade Agreements (FTA) should be prohibitedÞ Generalized System of Preferences* (GSP) should be prohibited
• (2) National Treatment = Foreign goods must be treated no less favorably than domestic goods (i.e. Equivalence of treatment)
*Generalized System of Preferences (GSP)
– Is a preferential tariff system– It is when ICs lower tariffs for the LDCs
without looking for any reciprocity– It benefits of an exemption from the
Most favored nation principle
What does WTO pretend?:
– To promote international ‘trade and investment’ agreements
– To allow coherence and coordination between national economic policymaking
– To facilitate the negotiation and implementation of multilateral/regional trade agreements (ex.: FTA)
– To give Technical assistance for DCs
General exceptions to free trade (considered by WTO):
– International trade must protect: “public morals”, “human, animal or plant life” and “health” => forbidden to trade drugs, protected animals, ivory, products of childhood labor and prison labor…
• But arms trade is allowed: WTO protects indirectly the war industry through a "security exception" in the GATT (Article XXI); problem is that governments define for themselves their "essential security interests"
• Sellers are ICs
• Buyers are DCs
Source: Human Traffiking Statistics
Exceptions…
–WTO contains escape clause (Safeguards) permitting to reestablish tariffs or quotas as a result of “increasing imports causing serious injury to domestic producers” • Ex: Steel and USA or Textile and clothing during
several decades• DCs accuse ICs of overusing this rule
–WTO contains many exceptions for agriculture; consequence:
• Agriculture is protected in every nation• Highest levels of protection are in EU, USA and
Japan• Also in China, Brazil, India, Mexico...
Trade for agricultural goods is very disturbed due to subsidies: many ICs that should import are exporting and DCs that should export are importing
Agricultural imports and exports:
ICs have reached an equilibrium between imports and exports or tend to export; some DCs are net exporters (South American) and others are
net importers (Russia, China)
Source: CIA, 2012
Due to the high protected agricultural market in ICs it is difficult for DCs to export to ICs
=> they export mainly to DCs. Case of India (export to neighboring countries):
On the other hand, DCs have difficulties to preserve their agricultural sector because farmers have to compete with
subsidized products imported from ICs => threatens the food security (dependence from ICs)
Food security (access to food) is preserved in all ICs and is at risk in all DCs except Chile
The fact that many DCs are losing their food security has dramatic consequences in terms of access to alimentation:
• Individuals living in DCs depend on several external factors:– Value of the USD => many DCs spend important amounts of public
resources to maintain the value of the national currency– Willingness of the ICs to sell food products to these countries– Any kind of environmental crisis in the ICs (drought)
Losing food security affects the access to food and the Hunger Index:
• Furthermore importing food means a regime change Þ creates health problems
• Many are also questioning humanitarian operations in Africa:
– 1st it tends to destroy small farmers and local distribution networks (due to the distribution of free food; similar to the case of dumping)
– Once established among the population it is difficult for local producers to regain the market which they held before
=> It favors the penetration of new markets for US and European goods (wheat)
Due to subsidies in ICs, DCs have to dedicate an important share of their GDP to preserve their agriculture
Subsidies in DCs is the unique way to face/counteract ICs subsidies and to preserve agricultural sovereignty
Agricultural support estimate in terms of national GDP (2012)
Source: OECD
Example of Japan: Established very high tariffs to protect its agricultural sector
Source: Ministry of Agriculture, Japan
An other sector escaping to the rules of the WTO: Textile and Clothing
• For many decades trade was depending on Multi-Fiber Agreement (MFA) = imposition of unilateral quotas by ICs to slow imports from DCs
• 1995: WTO implemented an ATC (Agreement on Textiles and Clothing) which considered a 10-year transition period (1995-2005) to eliminate quotas => decreasing quotas until 2005
• Reality: many ICs are still imposing quotas but negotiated directly with DC governments (outside of WTO)
• Many DCs are concerned since China, India and other large producers (Bangladesh or Pakistan) are no longer subject to quotas to access to ICs markets:
It is more and more difficult to compete for many small countries: in Caribbean, Central America and Sub-Saharan
Africa (Mexico has serious problems to access to US market due to the Chinese competition)
• Countries which are not belonging to the WTO remain subject to ICs quotas
Even India ovetook Mexico in 2012
Share of global exports for textiles and clothing: Chinese share was 37% of global exports in 2013 (284 bn USD), far ahead of all
its competitors (EU is 2nd with 25%, India is 3rd with 4.7%)
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Textile and clothing exports in 2013 in millions of USD: China account for 37% of the total export
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Labor cost in the textile industryIn many DCs costs are lower than in China => many think that
production could move to other countries during the coming years
IC are still producing but they specialized in luxury goods
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FTAs (or Regional Trade Agreements RTAs) have proliferated:
• Nearly 300 notified to WTO
• They do not respect the principle of Most Favored Nation (since they give preferences to members)– Furthermore generally there is a system of “Preferential Rule”: a
product has to respect a minimum regional content to be able to move freely from a country to the other (NAFTA: 60%; AFTA: 40%)
• WTO does not prohibit FTA; reasons:– (1) Due to the slow progress of the multilateral negotiations– (2) It considers that it will accelerate multilateral negotiations– But there are conditions:
• WTO considers that FTA has to be a short term strategy • All FTAs have to accept “open regionalism”
Regional trade agreements in force:
Source: The Economist 2014
Number of FTAs by status only in Asia (2013): more or less 100 in force
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Under negotation:
1. Gulf Cooperation Council (GCC)
2. Japan-Korea3. Autsralia4. Norway5. Regional
Comprehensive Economic Partnership Agreement (RCEP): ASEAN + India + Australia + S. Korea
Gulf Cooperation Council• Regional intergovernmental political and economic Union • All Arab states of the Persian Gulf (except Iraq): Bahrain,
Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates• Founded in 1981• Goals:
– To defend common interests against occidental pressures– To formulate similar regulations in various fields such as religion,
finance, trade, customs and tourism– To foster scientific and technical progress in industry, mining,
agriculture and water – To promote cooperation of the private sector (encouraging joint
ventures)– To promote military cooperation (there is a common force)– To establish a common currency
• Candidates: Jordan, Morocco and Yemen
• Less and less countries are using this multilateral mechanism; most of them prefer a bilateral negotiation to resolve their problems
=> Due to asymmetric negotiations DCs tend to loose
• In the DSB: More sanctions in cases of• Dumping• Subsidies
Dispute Settlement Body (DSB)
List of Rounds and Outcomes (GATT and WTO); important dedication on tariff reductions
Tariffs on trade have almost disappearedCase of the USA
Doha’s Round started in 2001 with new issues in the agenda:
1. To eliminate ICs protection and subsidies mechanisms for Agriculture and Textiles
2. To eliminate all kind of Non-Tariff Barriers (ex: quantitative restrictions)
3. To deepen Labor standards: – In this area we observe a growing participation of the Labor
International Organization– The willingness to deepen Intl. legislation reflects the great concern
among trade unions from ICs: they want to slow down the decentralization/outsourcing that causes loss of jobs in the industrial sector
4. To consider more and more the Environment in the International Trade (DCs do not agree to incorporate this topic: they say that ICs will use it to implement new protectionist measures)
5. To develop rules for E-commerce
6. To incorporate Intellectual property: If WTO members reach an agreement it will give a preferential treatment to ICs specially for the pharmaceutical laboratories and their patents at the expense of DCs industry (India which have developed since the 1970s a generic drug industry by copying US and European formulas)
Tensions between alliances of ICs and DCs
Many claim that the Doha’s Round is a total failure and it reflects the impossibility to go
further with multilateral negotiations• After 14 years of hard negotiations
• Main reasons: – Many players: 160 countries willing to defend their interests +
non-state actors want to participate (NGOs)– Important concerns for DCs about trade asymmetry => DCs
developed capacity to organize themselves and to create alliances to balance ICs interests
– The tendency is protectionism due to the changing global order– New issues of the global agenda are very sensitive for all the
members
• USA cannot wait due to growing competition and because they are under threat of losing their hegemony i.e. global leadership (China is gaining much more than USA in the globalization) They want to accelerate regional negotiations; Objective: to maintain competitiveness, growth, employment and influence…but also to consolidate political influence to preserve hegemony. 2 important projects:– Trans-pacific Partnership (TPP)– Trans-Atlantic Trade and Investment Partnership (TTIP)
• China reacts to TPP: – Asian Infrastructure Investment Bank (AIIB)– ASEAN–China Free Trade Area (ACFTA)– Regional Comprehensive Economic Partnership Agreement
(RCEP): ASEAN + India + Australia + S. Korea
ASEAN–China Free Trade Area (ACFTA), • 11 members
• Started in 2010
• It is the largest FTA in force in terms of population (more than 2bn people) and 3rd largest in terms of GDP
• China started to relocate some labor intensive activities in the ASEAN to be able to preserve its worldwide competitiveness
TPP members: with US leadership
• TPP trade block leaded by USA
• RCEP trade block leaded by China
• Several countries are involved in both negotiations (Jap, Aust, NZ, Viet, Sing, Brunei and Malaysia)
• Is a forum for 21 Pacific member that promotes free trade in the region• It was created in 1989• Its goal is to reach a Regional FTA by 2020• It includes big actors: China, India, USA and Russia• APEC = RCEP + TPP + HK + Taiwan + Russia + Papua
Activity:
• Form groups of 3
• Answer the questions (20 minutes):1. What are the reasons why some DCs say that the
Globalization is not fair?2. How to make globalization fairer for DCs? 3. What are the obstacles to make it fairer?
• Make your presentation