Dialogues on Globalization Series Is Globalization in Trouble?
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No. 39 Speakers Simon Evenett Dialogues on Globalization Series Professor of International Is Globalization in Trouble? Trade and Development at the University of St Gallen Yes, globalization is Alejandro Jara in deep trouble! Counsel, King & Spalding, Geneva & former Deputy Simon Evenett presented evidence drawn Director General, WTO from five years of his research to raise the alarm about “hidden” protectionism. He stated, Jean-Pierre Lehmann “Most protectionism is not easy to spot and is IMD Emeritus Professor of International Political hard to monitor and count – that’s why it stays Economy out of reports.” Since the onset of the global financial crisis, there have been instances of Moderator governments resorting to measures that tilt the Carlos Braga playing field in favor of domestic commercial Professor of International interests. Some of these actions do not fit Political Economy and the customary definition of protectionism, but Director of The Evian The world economy has become increasingly nonetheless hurt the commercial interests of Group@IMD interconnected and interdependent in the other countries. Figure 1 (black line) shows Research & post-World War II era. Although the term the total number of protectionist measures Development “globalization” may mean different things that governments worldwide engaged in Ivy Buche to different people, it essentially conveys annually. It was cause for concern in 2009, Lindsay McTeague the idea of linkages among countries and G20 leaders committed to a halt on driven by international trade and services, implementing new distortions to global with concurrent flows of capital, including commerce. There was a dip in 2010/11 as In June 2014, about 70 foreign direct investment (FDI), technology, economies recovered, but thereafter, a sharp executives, academics information and people – leading to increased rise in protectionism occurred. The scenario and representatives integration of markets across political is even more serious when viewed after from governments and boundaries. Since the 2008 financial crisis, correcting for reporting lags – the data (red civil society attended a however, there are signs that the momentum line) reveal a steep increase in protectionism thought-provoking debate of economic integration is stalling, trade measures in 2012, reaching levels much organized by The Evian liberalization seems to be losing its appeal as worse than 2009. Based on these findings, he Group@IMD. A panel a major policy objective, and new regulatory stressed, “If governments were worried then, of speakers, moderated initiatives have often adopted a protectionist they should be even more worried now!” by Professor Carlos bias that constrains the movement of Braga, looked at the goods, labor and capital. To begin the future of globalization and discussion on whether globalization is questioned whether it is in trouble or not, Professor Carlos A. facing a real threat. The Primo Braga began by asking whether audience was also asked – for reasons that are politically to rate the proposition that motivated – we are going to see a globalization is in trouble, situation similar to the 1930s when both before and after the there was a significant roll-back of the debate, and the findings process of economic integration and were shared in real time. an increase in “beggar-thy-neighbor” types of policies. Could the process of For more about The Evian Group@IMD international economic integration (i.e. see www.imd.org/eviangroup/ globalization) be reversed? Figure 1: Number of beggar-thy-neighbor measures implemented © 2014 IMD – International Institute for Management Development. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means without the permission of IMD. Professor Evenett explained that in 2009/10 of global commerce have multiplied, so most of the protectionist measures were have the means available to governments taken by industrialized countries, but since to disadvantage foreign firms, thus helping then large emerging countries have been nations to circumvent WTO rules. catching up. This protectionism took place despite the WTO’s global architecture These points are consistent with Professor of trade rules and the spread of regional Evenett’s reality check with MNCs which trade agreements. He highlighted three noted that their biggest concern is key reasons for the WTO’s ineffectiveness corporate political risk – encountering all in stopping these practices: sorts of unanticipated policy risks on the ground in the many countries in which • The types of “beggar-thy-neighbor” they operate. For example, the European policies have changed, so they are Commission is investigating some major not being caught by WTO’s standard international firms for tax avoidance, while safety net. Instead of tariffs and the British government voiced concerns quotas, the “new” protectionism has over US Pfizer’s bid to buy AstraZeneca. taken the form of trade-distorting He concluded, “Termites are eating away subsidies, government contracts and at globalization. There are many ways access to credit on easier terms, tax to frustrate globalization and distort There are many ways to breaks, financing deals with strings competition – it is not just about raising frustrate globalization attached, local content requirements for trade barriers and tariffs – and we are and distort competition multinational companies (MNCs) going seeing a lot of it now!” – it is not just about to foreign countries, and bailouts. raising trade barriers • The way the WTO measures No, globalization will and tariffs – and we are protectionism often relies on “inaccurate continue to move forward! seeing a lot of it now! data” that focuses on the wrong trade barriers. Such data reveals only the tip With his deep experience in negotiating of the iceberg of global protectionism, trade agreements, Alejandro Jara took an while the bulk remains hidden under the optimistic view. While he agreed that the surface, as revealed in reports from the financial crisis had seen the introduction Global Trade Alert (GTA) think-tank (see of some protectionist measures, such as Figure 2). Consequently, the WTO does anti-dumping duties, producer subsidies not see the big picture of the extent to and buy-local provisions, he argued that which global trade is being affected. these policies were largely piecemeal and • WTO rules, centered as they are on tariffs ad hoc. They did not result in a significant and more transparent trade policies, are closing of markets and the world did incomplete and weak. Just as the types not retreat into isolationism – in fact, it has struggled to move forward toward Figure 2: WTO focus on G20 trade restrictions is a poor guide to global liberalization. World trade rebounded protectionist totals in 2010 and has been growing steadily but slowly, ever since. Furthermore, he stressed that technology, a key driver of globalization, would certainly continue to move forward, not backward. It is difficult, if not impossible, to reverse it. Because of greater interdependence, local measures increasingly impact other economies (through a technical standard or a subsidy), or even have a global impact (carbon emissions). Thus, there is a need for better global governance or cooperation, usually achieved through international treaties, MOUs, actions by international or regional agencies, and a myriad of soft and hard laws. Better governance is necessary to harness globalization and ensure that people are able to benefit from reforms. Has global Page 2 www.imd.org insights@IMD governance been up to the challenge? • The virtuous cycle of global value chains, Certainly not! Many countries have FDI, services and the impact on SMEs. dysfunctional political systems that impede an effective and timely response. At the In summing up, he asserted, “Things will multilateral level (for climate change issues, move in the right direction even though IMF governance, the Doha round) it is the it may be bumpy and possibly take time. same. Political leadership has been lacking, We need better global governance, except at the beginning of the financial crisis institutions, accountability and rules but when the G-20 played an active role. we will get there.” A bigger role for corporations is envisaged by coming together, for Now for something completely example during World Economic Forum different – the Asian perspective meetings, to give a country-specific scorecard highlighting the metrics of poor Professor Jean-Pierre Lehmann looked performance, which will serve to hold at the challenge of globalization from the governments accountable. Governments Asian perspective. He contended that would hate to be exposed in this way! viewing globalization as a win-win does Mr Jara acknowledged that some not necessarily correspond to reality. First, paradoxes exist in global trade. On the one the historical dynamics of globalization hand, the rate of growth has slowed due, are too often forgotten. During the 19th Things will move in the in part, to changes in global value chain and 20th centuries, in the era of European right direction even mechanisms, which are susceptible to expansionism, Asia was exploited and though it may be bumpy policy disruptions; changes in FDI patterns impoverished. By 1950, its share of global and possibly take time. and even non-economic considerations. gross domestic product (GDP) had dropped We need better global On the other hand, there is greater to less than