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Global Economic Governance in the Wake of the Asian Infrastructure Investment Bank: Is China Remaking Bretton Woods?

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Global Economic Governance in the Wake of the Asian Infrastructure Investment Bank: Is China Remaking Bretton Woods? Journal of World Investment & Trade 19 (2018) 542–569 Global Economic Governance in the Wake of the Asian Infrastructure Investment Bank: Is China Remaking Bretton Woods? Chien-Huei Wu Institute of European and American Studies, Academia Sinica, Taipei, Taiwan [email protected] Abstract This article examines China’s participation in the trade, monetary and development assistance fields and concludes that China’s rise does not undermine the centrality of the Bretton Woods institutions or Word Trade Organization (WTO) in global econom- ic governance. Whereas China’s participation in the WTO presents some challenges to the long dominance of the United States and the European Union, it reaffirms the central role of the WTO. China’s monetary strategy also indicates the continuing im- portance of the International Monetary Fund (IMF) in the international monetary regime. Whereas the Asian Infrastructure Investment Bank (AIIB) introduces some competition to the World Bank and the Asian Development Bank (ADB), China’s ef- forts in establishing new multilateral development banks are mainly driven by its frus- tration with stalled reforms of the Bretton Woods institutions. By and large, China’s economic emergence does not challenge, but reaffirms, the post-World War II global economic architecture. Keywords Bretton Woods – World Trade Organization (WTO) – global economic governance – Asia Infrastructure Investment Bank (AIIB) – Transatlantic Trade and Investment Partnership (TTIP) – BRICS – International Monetary Fund (IMF) – Reminbi – special drawing rights * Associate Research Professor, IEAS, Academia Sinica, PhD in Laws (European University Institute). © koninklijke brill nv, leiden, 2018 | doi:10.1163/22119000-12340098 Global Economic Governance in the Wake of the AIIB 543 1 Introduction The post-World War II economic architecture underpinned by the Bretton Woods system was a political and intellectual product of the transatlantic al- liance. With the Transatlantic Trade and Investment Partnership (TTIP), the European Union (EU) and the United States hoped to forge a closer alliance and advance a new horizon of governance in international economic law. However, such a stronger partnership, and the attendant high expectations, face challenges not only from within the transatlantic block but also from emerging economic powers – the BRICS countries (Brazil, Russia, India, China and South Africa) in general and China in particular. This challenge can be seen in the upset and disappointment expressed by the United States when the United Kingdom, followed by Germany, France and the Netherlands, decided to join the Asian Infrastructure Investment Bank (AIIB), which is seen as a rival to the Bretton Woods institutions (and to the Asian Development Bank (ADB)) and may reshape the Bretton Woods system.1 Whether or not the assertion that the AIIB is reshaping the Bretton Woods system is true remains to be seen; nonetheless, doubtless the AIIB presents great challenges to the transatlantic alliance and, consequently, transatlantic governance. In this context, this article aims to examine transatlantic gover- nance in the wake of the AIIB, which can be seen as part of China’s tripartite ef- forts to internationalize its economy: firstly through its accession to the World Trade Organisation (WTO); secondly, through the internationalization of its currency by bilateral currency swap agreements (‘swaps’), off-shore currency exchange, and successful efforts to include the Chinese Yuan into a basket of currencies of special drawing rights (SDR) in the International Monetary Fund (IMF); and thirdly, through establishing a lending bank under the initiative of the AIIB. On the one hand, China’s challenge to transatlantic economic gov- ernance is comprehensive, involving trade, monetarism, and development. On the other hand, China’s efforts to internationalize its economy mirror those of Japan during the 1970s and 1980s, which in turn, reinforces the underlying structure of the Bretton Woods system. The substance of this article will cover three fronts. In the trade aspect, the article will examine China’s role in trade negotiations in multilateral fora and ask how conventional trade negotiation patterns dominated by the EU and United States have been challenged and reshaped. In the monetary dimension, 1 Yelin Hong, ‘The AIIB Is Seen Very Differently in the US, Europe and China’ (The Diplomat, 8 May 2015) <https://thediplomat.com/2015/05/the-aiib-is-seen-very-differently-in-the-us- europe-and-china> accessed 22 June 2016. Journal of World Investment & Trade 19 (2018) 542–569 544 Wu this article investigates China’s efforts to internationalize its currency and looks at the progress of IMF reform, asking whether the dominance of the transatlantic alliance in the Bretton Woods institutions is justified, and how it might be challenged. Thirdly, in the development dimension, this article explores whether China’s lending activities, largely led by the China Export- Import Bank, and now informed by the perspective of the AIIB, may present a threat to the good governance disciplines set forth by the World Bank in its lending activities. The remainder of this article is organized as follows. Section II traces the role of Bretton Woods institutions and the General Agreement on Tariffs and Trade (GATT)/WTO regime in global economic architecture and explores how the dominance of the transatlantic alliance in global economic gover- nance is challenged by the rise of China in international relations. Section III examines three dimensions of China’s efforts to internationalize its economy: trade, monetarism, and development. The article then concludes that China is not forging a new Bretton Woods and GATT/WTO architecture; on the con- trary, it is reinforcing the underlying role the Bretton Woods institutions play in global economic governance. 2 Bretton Woods, Global Economic Governance and the Rise of China 2.1 Bretton Woods and the Global Economic Architecture Even before World War II came to an end, political and intellectual leaders in the United States and Europe had started to outline the architecture of post-war global governance, which is manifested economically in the Bretton Woods institutions and the GATT regime and politically in the United Nations system.2 Over the past few decades, the United States and Europe have con- tributed to the formulation and shaping of the international agenda. In fact, they are the main driving force behind these post-war global institutions and multilateral regimes.3 Institutionally, the Bretton Woods institutions privilege the United States by giving it veto power in major decision-making processes. 2 On the origin of Bretton Woods institutions and the GATT, see Raymond F Mikesell, The Bretton Woods Debates: A Memoir (Princeton University Department of Economics 1994); Douglas A Irwin, Petros C Mavroidis and Alan O Sykes, The Genesis of the GATT (CUP 2008). 3 Hungdah Su, ‘EU–Taiwan Relationship Since 1981’ in Thomas Christiansen, Emil Kirchner and Philomena B Murray (eds), The Palgrave Handbook of EU-Asia Relations (Palgrave MacMillan 2013) 23. Journal of World Investment & Trade 19 (2018) 542–569 Global Economic Governance in the Wake of the AIIB 545 Operationally, the United States and Europe continuously occupy the highest positions of these two institutions. Ideologically, the Bretton Woods institu- tions (and the GATT/WTO regime) prioritize market economy, rule of law and democratic governance, a trifecta encapsulated in the so-called Washington Consensus.4 The dominance of the United States and Europe in global economic gov- ernance was nonetheless challenged by first Japan in the 1970s and then the BRICS in the late 1990s and into the new millennium. With fast-moving eco- nomic growth, BRICS countries claim that the current global economic archi- tecture favours the transatlantic partners and aim to assert a greater presence in global economic governance.5 Moreover, emergent countries display a weak sense of ownership of the rules underlying the global economic architecture given their absence or weak voice when these rules were shaped. Therefore, the challenges presented by the emergence of BRICS countries, China in par- ticular, is an alternative development path other than the prescription of the Washington Consensus and a competition for new rules for the global eco- nomic order. In the first place, the fast pace of China’s economic growth lends strength to the argument that economic growth does not necessarily rely on political free- dom and human rights protection, or even effective property rights. Economic liberalization can be insulated from political reform. This development model differs from the path consistently advocated by the Bretton Woods institutions. Moreover, China’s anxiety for reshaping the rules of the global economic order has moved China to join the free trade agreement (FTA) race and to estab- lish the AIIB. In response, the transatlantic alliance has aimed to, in part, pre- empt China’s efforts in pursuing new rules by setting global standards with the TTIP negotiations. Nonetheless, the transatlantic alliance diverges as to whether to join the AIIB or not. In view of these divergences, the return of China to prominence in international economic relations is sometimes seen as a threat. 4 For a clear depiction of this controversial concept of Washington Consensus, see John Williamson, ‘What Washington Means by Policy Reform?’ in John Williamson (ed), Latin American Adjustment: How
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