COE 51,21 WARRENTON, VIRGINIA 15-16, 2017 OCTOBER EMERGING MARKETS FORUM

2017 GLOBAL MEETING The Emerging Markets Forum was created by the Centennial Group as a not-for-pro t initiative to bring together high-level government and corporate leaders from around the world to engage in dialogue on the key economic, nancial and social issues facing The Future of emerging market countries. Globalization under New The Forum is focused on some 70 market economies in East and South Asia, Eurasia, Latin Political Realities America and Africa that share prospects of superior economic performance, already have or Alejandro Jara seekT htoe create Futu a rconducivee of Glo businessbaliza environmenttion unde rand N earew of P near-termolitical interestRealit toie sprivate investors, both domestic and international. Our current list of EMCs is shown on the back Background cover. We expect this list to eveolve over time, as countries’ policies and prospects change. Paper

Further details on the Forum and its meetings may be seen on our website at http://www.emergingmarketsforum.org

The Watergate O ce Building, 2600 Virginia Avenue, NW, Suite 201

Washington, DC 20037, USA. Tel:(1) 202 393 6663 Fax: (1) 202 393 6556 Emerging Markets Email: [email protected] Forum A nonprofit initiative of the Centennial Group

The Future of Globalization under New Political Realities

Alejandro Jara

During the run-up to the 10th WTO Ministerial Confer- Lamy convened in 2012-20131. While the focus is on inter- ence held in Nairobi in December 2015, something quite national trade, the conclusions are generally applicable to unusual took place. Brazil and the European Union (EU) other areas of national and international economics and presented a joint proposal aimed at terminating agricul- politics, including climate change. ture export subsidies in the multilateral trading system. Two leaders from opposites sides—the EU traditionally Drivers of change defending agriculture export subsidies and domestic sup- port, and Brazil spearheading countries wanting to level The world economy is changing the agriculture playing field. Such initiatives are only valu- Globalization has changed our world in ways scarcely able to the extent they lead to concrete results. Much to imaginable by bygone generations. A combination of new the surprise of most delegations, observers, the press, and technologies, social adaptation, policy openness, and other stakeholders, Nairobi delivered a decision to put an innovative business models has led to intensified economic, end to agriculture export subsidies and most other forms social, and political interdependence among nations. At of export assistance. the same time, the center of economic and political gravity At a time when many state that globalization is stalled, is shifting. The rise of Asia and emerging economies in if not suffering reversals, the above example is a powerful other parts of the world is ushering in a new configuration indication that international cooperation on trade issues is of economic power and influence. This is a continuing pro- alive and can deliver results, provided adequate and timely cess, and we are now beginning to see the emergence of leadership is exercised. Foreign investment continues to Africa. Globalization has made for a much richer world, but flow, capital markets continue to be global, and trade lib- ensuring a better distribution of opportunity and inclusive eralization continues to take place (not always multilaterally growth remain key challenges, as does the imperative of but certainly on a bilateral or plurilateral basis). At the same environmental sustainability. Globalization has made our time, processes of national integration—a sort of national world more robust in some ways and more fragile in others. globalization—continue to take place as measures such as Globalization can only be reversed at prohibitive cost. The the recent national sales tax reform in India, to say noth- question is how to best manage and direct this rich source ing of several policies applied in and elsewhere, all of opportunity, and what is needed by way of more and reflect the robust growth of the middle class in emerging better international cooperation. economies. Globalization is an endless process which has acceler- Expanding trade and investment reflect globalization ated and deepened in the last decades, and presumably On the economic front, the internationalization of will continue to do so. This implies that the forms and society is reflected in the explosion of international trade, processes of globalization also change. It is therefore investment, and capital markets. World trade growth has very important to have in mind what the drivers of these outstripped production growth by a significant margin changes are in order to better understand the necessary every year in the post-Second World War period, except adjustments and adaptions. Many approaches can be for the relatively few occasions when output growth has used to describe such drivers. This paper has chosen to dipped and turned negative. rely “heavily” on the conclusions of a Panel on Defining the Future of Trade that former WTO Director General Pascal 1. To rely “heavily” means that the structure and much of the language of the relevant part of the report has been maintained, of course with the necessary adjustments. See https://www.wto.org/english/thewto_e/dg_e/ dft_panel_e/future_of_trade_report_e.pdf 1  ALEJANDRO JARA 2 Japan; RepublicofKorea; Malaysia;;Oman;Singa GDP. Theyhavealsobecomemore importantdestinations developing countries now constitute about half of world 20 years,whilethoseofNorth-SouthandSouth-South years were topersist,by2020 the share ofSouth-South growth product ininternational and factor movements. of FDIhasbeenfarfrom steady, experiencingsuccessive old measure. growing importanceofservicestotheworldeconomy. and sources ofFDI. and one in Latin America. The list has a few surprises— trade and foreign investment, it is difficultWithout to and investmentaccountedforbyemergingdevelop about half, as opposed to less than one-quarter using the Geographical shifts in trade and investment reflect since 1991.Thatrateofgrowth impliesthatthevolumeof suppliers of commodities, as would have been the pattern suppliers ofcommodities,aswouldhavebeenthepattern changing powerrelationships egies forSustainedGrowth andInclusiveDevelopment,World Bankon when servicesare measured intermsoftheirreal con witnessed from arangeofemerging economies. trade have expanded. If the trends observed inthe last few these economies were in Asia, one in Africa, one in Europe than gross flows –the share of servicesinglobal tradeis tribution totrade–thatisintermsofvalue-addedrather for aperiod of 30 years (or more) between the second pore; ChineseTaipei; andThailand. managed toaverageGDPgrowth of7percent (orhigher) peaks andtroughs. 2. CommissiononGrowth andDevelopment,TheGrowth Report:Strat Botswana; Brazil; China; , China; Indonesia; FDI almostdoubledeverysixyears.However, thegrowth Recent statisticalworkbytheOECDandWTOshowsthat ing powerparityterms,theeconomiesofemergingand increasingly sophisticatedservices.Measured inpurchas in thepast,butasproducers ofmanufactured goodsand imagine theattainmentofhighgrowth that wehave ing economies have been a striking feature of the overall increased byanaverageofsome12percent peryear half ofthe20thcenturyandearly21stcentury. Ten of behalf oftheCommission onGrowth andDevelopment,2008. The share of North-North trade has shrunk in the last These and similar economies have not grown merely as According to the Growth Commission, Only recently havewebeguntorealize more fullythe In recent years,therisingshares trade ofinternational For itspart,worldforeign direct investment(FDI)inflows 2 13 economies - - - - - “Geneva Consensus.” Technology istheengineofglobalization 24 percent in2011). obligations. Thispartlyexplainsthedifficulties encountered countries whoseshare diminishesmayfeelthreatened, of abject poverty. But this also brings about power shifts opportunities, andhasbeeninfluentialinpullingmillionsout growing share ofoutward investment,thesenewpatterns construction ofvaluechains.Thedevelopmentthejet on efficiency. Thesechangeshavenurtured theinterna are notalwayswillingtoassumegreater responsibilities or a greater share oftheirdecision-makingpower, although are transformingnationalattitudestowards foreign direct aircraft –afasterandlowercostoptionthanpiston-driven and inexpensive means of communication. In reducing and time.Inotherwords, to bepoliticallysustainable,glo wise nondescriptmetalboxof standardized dimensions, trade, climate change, and the international financialand trade, climatechange,andtheinternational cooperation.Those that poseachallengeforinternational trade wouldhaveincreased to34percent (compared to tionalization ofproduction andcontributedgreatly tothe the costofdistance,technologyhasplacedapremium the costofdistanceandfostered new, instantaneous, threatening totheemployment andsocialsecurityof fold overthelast50years.Sea transporthasalsoevolved possibly because their capacity to influence outcomes portionately more inward investmentandaccountfora Cambridge, 2013. planes– hasreduced transportationcostsmore thanten- cooperation,whattheformer policies andinternational many. Thenecessary statesmanshipandvisionbyleaders monetary architecture. Director GeneraloftheWTO, PascalLamy, hascalledthe 3. Lamy, Pascal,“TheGenevaConsensus.MakingTrade Work forAll”, in managing international relations insuchdiverseareasin managinginternational as increased. Emergingeconomiesontheotherhandclaim is reduced, thoughinabsolutetermstheirwelfare has in emerging and increasingly self-confident economies investment. in significantways.Thearrival ofthecontainer, another is achieved,abalancethatdifferent ineveryjurisdiction is onlypossibleandsustainableiftheappropriate balance be difficult to overstate. New technologies have shrunk byappropriate publicbalization needstobeharnessed The globalshiftineconomicpoweroffers manynew The influence of technology as a driver of change would The influenceoftechnology asadriverofchange would As emerginganddevelopingeconomiesattractpro Changes of this magnitude are also disrupting and 3 - - - - THE FUTURE OF GLOBALIZATION UNDER NEW POLITICAL REALITIES  3 ------It is a fact that international value chains have regional It is a fact that international value chains have regional The GATT/WTO’s traditional mainstay of non-discrimi The GATT/WTO’s This more realistic view of trade also emphasizes key key trade also emphasizes view of realistic This more likely to result in missed opportunities. likely to result become increasingly preferential have led to increased competitive pressure on costs and competitive pressure have led to increased hubs—North America, Europe and Southeast and Easternhubs—North America, Europe by competitiveness considerations. Adequate infrastruc international production processes through component component through international processes production ily entail manufacturing. While international value chains partly in of production, standards improved ingly towards it is not only a matter of a close nexus between trade and it is not only a matter of the goods and services markets investment—the fusion of services in The role of this story. is a fundamental part is them separately in policy terms Treating internationally. natory trade has increasingly yielded ground to preferential to preferential yielded ground natory trade has increasingly policies. As a mechanism for economic diversification, diversification, policies. As a mechanism for economic produc rather than having to dominate entire production, jobs and moved increas prices, they have also created a devel From consumer transparency. to greater response markets are deeply integrated today, both nationally and and both nationally deeply integrated today, markets are International cooperation in trade and investment has Policy is an important determinant of effective supply Policy is an important determinant of forms of support can help this process along, although although along, process this help can support of forms tion lines. The services-intensity of many value chains also tion lines. The services-intensity of many balanced be also must for deeper involvement the quest administration and proper policy design, predictability, ture, they are essential partners in supply chain production. But supply chain production. essential partners in they are numbers. In short, estimated in gross than one–quarter as chain participation Successful participation depends crucially on a range of on a range of Successful participation depends crucially services are almost half of total trade, rather than less trade, rather than less almost half of total services are and investment along with greater and better internationaland investment along with greater add more value domestically along value chains. Different Different chains. value along domestically value more add make a strong These realities all crucial in this regard. are attributing it to the last producer along the supply chain. along the supply it to the last producer attributing alternativejust longer no markets, accessing of means are that trade reveals measuring for metric a value-added cooperation. value chains allow countries to insert themselves into themselves into countries to insert allow chains value opportunities that do not necessar diversification offers governments perspective, opmental to ways seek often trade affecting to barriers holistic approach for a more case of the technological content of trade, instead of merely merely of instead of trade, content technological the of These and investment. between trade complementarities Using under-estimated. has been virtually all economies Asia. Other regions have little participation in such chains. Asia. Other regions ------Advances in information and communication technol in information and communication Advances The value-added trade picture underlines the extent extent the underlines picture trade value-added The The embrace of globalization is starkly reflected in the The embrace of globalization is starkly reflected beginning to end in single countries, either for domestic for domestic beginning to end in single countries, either buying, and selling. Together these innovations have made buying, and selling. Together built around it and dedicated to the speedy, predictable, predictable, the speedy, it and dedicated to built around in the 1970s to some 40 percent today. This increasingly This increasingly today. in the 1970s to some 40 percent ilarly, these trade relationships are reflected in the import in the import reflected are these trade relationships ilarly, in different tasks along the supply chain, from the earliest tasks along the supply chain, from in different makes protectionism meaningless. Value-added measure meaningless. Value-added makes protectionism ment also imparts important information about the origins reflected in the growing share of intermediate goods in of intermediate goods in share in the growing reflected production stages to final consumption. Because com production longer no is it multiple locations in produced are ponents to a single origin without possible to attribute final products porations (MNCs) or through networks of small and networks of small and porations (MNCs) or through process medium-sized enterprises (SMEs), the production rise of international value chains. Gone are the days when rise of international value chains. Gone are from was largely about fabricating products production more of the world’s people gain access. Business is being people of the world’s more harnessing of ways innovative and new by re-configured pro highly integrated world, just-in-time possible today’s phones, and the internet have revolutionized industries industries phones, and the internet have revolutionized resulted in an entire industry (the logistics industry) being (the logistics industry) industry in an entire resulted 50 percent to 60 percent of total merchandise trade. Sim of total merchandise to 60 percent 50 percent foreign investment for income, growth, and jobs. Moreover, Moreover, and jobs. growth, income, for investment foreign and consume. further transform the way we produce trade. Today, this share is, on average, anywhere between is, on average, anywhere this share trade. Today, the world.” To have a more accurate picture, trade needs trade picture, accurate more a have To world.” the in terms of value-added, which transforms to be measured perceived. are the way in which trade relations today often involves several countries, each specializing specializing today often involves several countries, each technology will not stand still. Robotics and 3D printing will technology will not stand still. Robotics and takes place on the internet, and this will grow further as further as takes place on the internet,grow and this will chains sizes the organic relationship between imports and exports, sizes the organic relationship sale or export. Whether within large multinational cor sale or export. Whether within large multinational safe, and low-cost delivery and handling of traded goods. handling of traded delivery and safe, and low-cost and nature of interdependence among nations. It empha of interdependence and nature adding to the reliance of the global economy on trade and adding to the reliance content of exports, which has risen from around 20 percent 20 percent around content of exports, which has risen from years ago the WTO Secretariat coined the term “made in years ago the WTO Secretariat creating a misleading impression. To illustrate this, several illustrate this, To a misleading impression. creating electronic communication in production, consumption, consumption, production, in communication electronic ogy and the development of the personal computer, smart of the personal computer, ogy and the development and trade now variety of commerce of all kinds. A wide duction, value chains, and offshoring of many tasks, all of many tasks, all duction, value chains, and offshoring Joined-up production—the rise of international value value Joined-up production—the rise of international  ALEJANDRO JARA 4 13 separatePTAs. EveryWTOmemberbelongsto,orat criminatory basis,andlessthan2percent ofworldtrade every signofcontinuingtoincrease innumber. Halfofthem outcomes, evenofa extended toallcountriesonanon-discriminatorybasis. Or they may entail obligations for signatories with benefits embody someelementsofdiscrimination.Agreements as potentialtradebarriersand sources ofdiscrimination. areas, includingagriculturalandlabor-intensive manufac are cross-regional. and developingcountries.Around halfofthePTAs inforce are bilateral,andalmosttwo-thirds are betweendeveloped a area, implyingadiscriminatoryoutcomeforthird parties. a balanceofrightsandobligationsinparticularpolicy arrangements. Thishasoccurred foracomplexarrayof sures are agoodexampleofwhatcouldbe specific policyareas. Preferential arrangementsestab Some policyareas, whetherthesubjectofspecificagree will bytheirverynature tendtowards non-discriminatory 300 PTAs are currently in operation and many more under trade costs,notleastbecause tradersmayoftenneedto tured products, the overwhelming impression of modern tariffs. Despitethepersistenceofhightariffs inkeyproduct focusing onspecificissuesmayornotbediscrimi points. Thismeansthatregulations are farmore important more thanfour-fifths of trade flowstakeplaceonanon-dis pute settlement. multiplication of Preferential Trade Agreements (PTAs) and ments orfoldedintogeographically-basedarrangements, preferential arrangementscanfocusoncountriesor raised challengesforthecore principleofnon-discrimi reasons. It has increased trading opportunities but also not withaccesstocapitalbuttheinvestor–Statedis negotiation. Onaverage,eachWTOmemberbelongsto natory. Thiswilldependontheirdesign.Theymaysimply nation enshrinedinmultilateralism.Inconceptualterms, PTAs is that they are not primarily about tariffs. Indeed, BITs investment,thoughmostdeal regulate international Bilateral InvestmentTreaties (BITs) hastakenplace.Over is eligibleforpreference marginsabove10percentage ization hastakenhold,beginninginthe1980s,arapid implicate asub-group ofcountrieswhichestablishes least is negotiating, at least one PTA. Similarly, over 6,000 lished geographically(amongcountries)willbydefinition de jure While PTAs liberalize trade, they can also add to In manyPTAs, ithasproven noeasiertoeliminatehigh PTAs are notnewtotheGATT/WTO, buttheyshow Notwithstanding themultiplewaysinwhichglobal non-discriminatory outcome. de facto basis.Trade facilitationmea de facto or ------The increasingroleofnon-tariffmeasures(NTMs) discrimination thatcompelsacountrytoseeksuch good reasons whythefundamentallogicofnon-discrimi of countries may be easier or politically more attractive, expansion ofpreferential tradeopeningamongsubsets ciency, orcorruption. or theymayhavethateffect becauseofthewaytheyare of purposes,withvaryingimplications fortrade.Theyare of processing. Thisescalationcanreduce opportunities opening. Asmosttariffs havetumbled, however, some of unilateral,bilateral,plurilateral,andmultilateraltrade globalization. eralization and better rules are to their benefit. In other concluded thedegree ofliberalization increases forapar arrangements toavoidbeingdiscriminatedbypartners are not.Theycantakemanyformsandserveawidearray along theaffected valuechains. international are alsoafflicted bytariffs thatescalatewiththedegree seek PTAs presumably becausetheyperceive more lib who concludePTAs withthird parties.Theinspirationis world economy. Ontheotherhand,someregulatory where developingcountrieshavecomparativeadvantage, words, are these governments actively pursuing more therefore notaltogethernegative.Asmore agreements are their purview. Theymayalsoleadtoregulatory divergence, these measures are byindicatingtheonethingthatthey they haveprogressively becomelesssignificantasa result ticular jurisdiction,butitdoesnotnecessarilyreduce the for developing countries to acquire additional value-added reform underPTAs maybeintrinsicallynon-discriminatory, regulatory innature. They maybedesignedtolimittrade nation—a cornerstone of post-war trade governance—no ofpost-wartradegovernance—no nation—a cornerstone negotiate numerous crisscrossing regimes of origin rules. PTAs canbeexclusionary, leaving smaller countriesoutside intentional orotherwise,resulting insegmentationofthe implemented, eitherwithalack oftransparency, ineffi but theeconomicbenefitsfrom suchanopeningmaybe both astotherole andtherelevance oftheWTO.The high tariff valuechainsforsome peaksremain. International longer servesausefulpurpose. needtoaskthemselvesifthere areless. Governments leading toa labor-intensive manufactured andagriculturalproducts, level ofdiscriminationworldwide.Similarly, governments To alargeextent,PTAs represent a struggle against The riseofregionalism raisesimportantquestions The termnon-tariff measures (NTMs)onlytellsuswhat Although tariffs remain aninstrumentoftradepolicy, de facto MostFavored Nation(MFN)dividend. - - - - THE FUTURE OF GLOBALIZATION UNDER NEW POLITICAL REALITIES  5 ------have documented this reality, the latter having latter the reality, this documented have 5 http://www.globaltradealert.org. Protectionism has increased, including through including through has increased, Protectionism In the post-crisis years, trade slowed considerably, considerably, In the post-crisis years, trade slowed Changes accelerated by globalization do have benefits,Changes accelerated by globalization do The backlash against globalization is strong and unde globalization is strong The backlash against 5. See below global GDP growth, reversing a long-term trend. a long-term trend. reversing below global GDP growth, but also costs. Instabilities and crises in some markets will but also costs. Instabilities and crises in some inate against foreign products or service suppliers have or service suppliers have products inate against foreign important influx of refugees in many countries. These shifts in many countries. refugees influx of important The financial crisis of 2008-09 brutally ity and insecurity. Why the backlash against globalization? Why the backlash normal,” is something economists are debating. The latest normal,” is something economists are estimate the upwards revised WTO by released numbers niable. One does not need to go too far to see the political niable. One does not reduced the value of houses and savings for thousands the value of houses and savings for thousands reduced I will concentrate on a few. I will concentrate on a few. for growth in world trade in goods in 2017 to 3.6 per in world for growth the multilateral legal framework. Even by the conservative that discrim Many of the measures to about 3 percent. plainly consistent are measures that many trade-restrictive the strong political impact it has had, compounded by compounded by impact it has had, political the strong with WTO (or at least foreseen in WTO but nevertheless in WTO but nevertheless with WTO (or at least foreseen many forms of protectionism, while being able to prevent still has room to improve rules or establish new disciplines, to improve still has room such as in the fields of subsidies and investment. standards of WTO the stock of trade restrictive measures is measures of WTO the stock of trade restrictive standards support of globalization. The reasons for this are many, but many, for this are The reasons support of globalization. Whether this will revert to pre-crisis numbers or is a “new numbers or is a “new to pre-crisis Whether this will revert Both WTO and the Global WTO-consistent measures. not being constrained by approach comprehensive a more of trade of whole The trade. world of percent 5 over least at and movements of people are also perceived as a conse as a perceived also are people of movements and demographic of the advantage to take position in the are of one of the dilemmas of an interdepen a stark reminder challengeable) shows that the multilateral trading system challengeable) shows that the multilateral trading system cent, whereas global GDP growth is being estimated at estimated at is being global GDP growth cent, whereas come in the form of subsidies, such as bail-outs. The fact contrasts with strong reactions against immigration and immigration and against reactions with strong contrasts surveys confirm a decline in the consequences. Different a sense of fragil often have global impact, bringing about was This crisis of people in many high-income countries. 2.8 percent. 2.8 percent. dent world—regulations are local but markets are global. local but markets are are dent world—regulations quence of globalization. Africa, like India, on the other hand other the on India, like Africa, globalization. quence of dividend. Africa is about 3 percent; trade of India and Brazil amounts amounts Brazil and India of trade percent; 3 about is Africa Trade Alert Trade ------4 NTMs motivated by public policy considerations may may NTMs motivated by public policy considerations Divergent public policy design is likely to carry trade carry trade Divergent public policy design is likely to Increasingly, NTMs are associated with public policy policy with public associated NTMs are Increasingly, Another element of change is the flattening of demo be about avoiding unnecessary friction or unwarranted be about avoiding unnecessary friction or unwarranted benefits of trade. Both the design and the implementation benefits of trade. Both the design and the becomes more interdependent, and rising incomes also and rising incomes also interdependent, becomes more in trade relations takes on an additional layer of complex in trade relations for uniformity in cases where cannot be the search ity – imperative and impart an additional advantage to domes imperative and impart an additional advantage is to ensure that NTMs do not unnecessarily truncate the is to ensure increase concerns of this nature. Information and commu concerns this nature. increase of icies to consumer-protection policies. Where public policy Where policies. icies to consumer-protection playing field is not attained through informs NTMs, a level unjustifiable discrimination. nications technologies have helped raise awareness and and have helped raise awareness nications technologies member countries to wealthier jurisdictions, made pos may be a reflection of different social preferences and and social preferences of different may be a reflection point to guard against is if they do so excessively or with point to guard reduction or elimination, like with tariffs. Public policy moti Public like with tariffs. or elimination, reduction In China, the curve also flattens as a consequence of the of consequence a as flattens also curve the China, In to be met from local resources. The EU has seen con local resources. to be met from tic producer interests. While NTMs may reduce trade, the While NTMs may reduce interests. tic producer trade as a means appropriately yields to public policy as as policy public to yields appropriately means a as trade tariffs, and they merit closer attention than ever before. before. attention than ever they merit closer and tariffs, well restrict trade, such as in the case of the prohibition prohibition the of case the in as such trade, restrict well siderable migrations, particularly from Eastern European Easternsiderable migrations, particularly from European this sible by its internal of movement. However, freedom an attempt to homogenize societal preferences would be an attempt to homogenize societal preferences can only Cooperation in this case an intrusive step too far. an end. The trade policy challenge in this context, however, context, however, an end. The trade policy challenge in this graphic curves in high and upper middle-income countries. be able The demand for skills will not one-child policy. costs. But divergence can occur for different reasons. It It reasons. costs. But divergence can occur for different values. In this case, the notion of “leveling the playing field” of measures can lead to dual-purpose policy, unwittingly or unwittingly can lead to dual-purpose policy, of measures a public policy otherwise. An intervention could both meet empower consumers. But they may also limit trade of trade in harmful products. In such cases, even when this is not their explicit intention. on grounds such as health, safety, and environmental environmental and safety, health, as such grounds on vations for intervening have become more commonplace have become more vations for intervening objectives and raise issues of far greater complexity than far greater and raise issues of objectives discrimination. quality. The pursuit of these objectives grows as the world objectives grows The pursuit of these quality. 4. This factor is not mentioned in the Panel on Defining the Future of Trade. of 4. This factor is not mentioned in the Panel on Defining the Future The Flattening Demographic Curves The world has been moving from producer-protecting pol producer-protecting has been moving from The world  ALEJANDRO JARA 6 “developing countries”labelstojustifytheirresistance to The levelsofprotection manytimesrespond to“collec zations orregional arrangements. Manyemergingpowers country saidatameetingoftheEMF some yearsago:“Iampersuaded field” becomesmore difficult, totheextentsuchvalues due tolackofskills.Immigrationisdepictedasstealing erly and equitably; that the political parties are no longer erate andbesolidary. Suchtrusthasbeenseverely eroded. everywhere. country. Thecooperation necessaryto“leveltheplaying erosion of“sovereignty” organi inthealtarofinternational cooperative arrangements.Thosewhoperceive theirrel challenged as others pursue their interests through other at theirexpense. are threatened. as foodsafety, financialstability, culture, andenvironment. are seekingchangestomultilateral arrangementstobetter ative powerhasdiminishedare reluctant toseefurther acts like a conveyor belt. People who are threatened do and innovation is important and bound to increase. Trade scant; andthatothers(foreigners) are thebigbeneficiaries while inotherspublicfinancesplacelimitsonsuchpolicies. weak shieldstoeconomiccrisesandcapacitybuildingis with thespeed and depthofreforms required toaddress the latterarise,discourseof thebenefitslosescredibility. the problems ofthoseingreater need.Examplesabound tive preferences,” in other words values that differ in each the expense of emerging economies. Their leadership is providing responses totheirproblems; thatinstitutionsare reflect thenew realities, butoftenshieldthemselvesbehind mies are seeingtheirrelative share ofbenefits reduced at undertake more obligations. not seeorcannottheriseinopportunities,possibly People perceive thatmarketsare nolongerworkingprop But insomejurisdictionsthesocialsecuritysystemisweak, that politiciansalwaystaketherightdecision. Butthemarketsdon’t wait for them!” investment asaresult, are perceived aswaystoexport jobs tojurisdictionswithcheaperwagesthebenefitof jobs orloweringwages.Globalvaluechains,andforeign 6. AsthedistinguishedPresident oftheCentralBankaSouth American been proclaimed withoutacknowledgingthecosts.When big multinationals. Trust isakeycomponentthatbindssocietiestocoop The disruptionofjobsbrought aboutbytechnology After decadesofdominance,industrializedecono Consumers demandgreater protection inareas such Only toofrequently thebenefitsofglobalizationhave Social safetynetsprovide someprotection andrelief. Political institutionsinmanycountriesdonotrespond 6

------degree cooperation, to generatethe appro ofinternational views, whichshouldbedirected athowbesttocounter essary toreflect a new equilibrium. For example, how to opinion, guesswhoprevails! etc. In contrast, the losers will express the emotions of expertise. Theycansurely dobetteratcollecting,organiz costs to voters and taxpayers. On the other hand, inter ously reluctant toprovide information that signalspossible of transparency whichshouldbeovercome byagreater organized inawaytomakeitaccessibleandunderstand War- no longer work. A broad new understanding is nec WTO hasdonemuchprogress, alotmore canbedone World Bankare ahead of otherorganizations,andwhilethe adhered to more rigorously. are But governments notori assess theprobable impactandcoststotheireconomies. analysis compelsactorstoplayitsafebynotaccepting and understandableinformation.Lessinformation asked tomakedecisionswithoutadequate,accessible, able toallpeopleorcountries.Thisisaseriousproblem sion-making and communications to the public. OECD and sion-making and communications to the public. OECD and without requiring theconsentofmembers. tional levelbypublic,private,andcivilsocietystakeholders the past–created intheaftermathofSecondWorld havebeenreluctanttilateral cooperation,governments to terms todescribeeconomicgrowth, more employment, the backlashtoglobalizationandidentifynecessary follow are some elementsto help move theexchange of for a—thedeveloped-developingcountrydichotomyisno further integrateChinaintoWTOandotherinternational In addition,suchbenefitsare usuallyexplainedinabstract Information isabundantlikeneverbefore, butnotalways must betheoutcomeofdiscussionsatEMF. What move forward. Asinanypoliticalsystem,thebalancesof priate formatsofinformationthatcanfreely andspeedily political support. unemployment or loss of income. In the battlefield of public national organizations have awealth of information and negotiations andeventualobligationsbecausetheycannot Present disciplinestoenhancetransparency shouldbe What canandshouldbedone? ing, andanalyzinginformationtoempowertheweak build atrustworthybasisforpoliticianstouseintheirdeci shouldbe be madeavailable.Nopersonorgovernment longer relevant. Transparency andenhancementofanalyticalcapacity. What shouldbedoneatthelocal,national,andinterna Finally, whilemanyoftheproblems require more mul ------

THE FUTURE OF GLOBALIZATION UNDER NEW POLITICAL REALITIES  7 - - - that, since the early 90s, have concluded that, since the early 90s, 7 Official statements by the new leadership of the U.S.A. statements Official Consequently, governments and agencies should governments should and agencies Consequently, A new or revamped round of trade negotiations cannot round A new or revamped A most glaring example of the huge transformations of the huge transformations A most glaring example The private sector has a key role to play. After all, they all, After play. to role key a has sector private The leadership has been largely absent, be it on trade or cli be it on trade has been largely absent, leadership engagement leave no doubt that they will privilege bilateral Singapore, South Korea, among others. South Korea, Singapore, Ocean, all Central America countries, Mexico, Malaysia, Vietnam, China, not expect major multilateral breakthroughs in the near in the near not expect major multilateral breakthroughs risks and provide employment. Their interests cannot be cannot be employment. Their interests risks and provide particular interests are met, even though the outcomes outcomes the though even met, are interests particular multilateral cooperation. and issues that require problems and balances that can become political realities present more obligations in the international system. The required the international obligations in system. The required more before time some take probably will it and change, mate found. In are takes place and new “balances” repositioning action. paving the way for future EU, Japan, and major economies such as the U.S.A., no SDT is necessary. ple. In other words, fully materialized without better rules and liberalization in fully materialized without better rules and liberalization in future. future. to seek reforms. By the same token, other members have to seek reforms. by other developed often heavily resisted they espouse are the U.S.A. astake place without a consensus that includes conducive not usually are fora formal and Open seen. be to to undertake explorations of changes of this magnitude. the meantime, experiments such as trade facilitation or thethe meantime, experiments “devel number of is the increasing that have taken place in the U.S. the WTO that have for long caused discomfort well as other emerging economies. Therefore, one should one should well as other emerging economies. Therefore, widespread PTAs with other trading partners, including trading partners, including with other PTAs widespread systemically blocked any progress on any issue until their until on any issue any progress blocked systemically such engagement by governments and agencies remains are the ones that more often than not undertake economic the ones that more are and emerging members. and dimensions of the the nature and to continue to refine negotiations. The format for an acceptable basis for future and approaches. Valuable as these examples are, they they are, as these examples Valuable and approaches. can go only as far as governments are willing to assume willing to assume as far as governmentscan go only are subsidies will be explored, export elimination of agriculture oping countries” aspects of to certain over multilateral action. With regards as certain rulings of the such government and industry, dispute settlement mechanism, it has signaled its intention dispute settlement mechanism, it has signaled devote their time and energy to engage, perhaps quietly, China. In such endeavors, reciprocity is the guiding princi guiding the is reciprocity endeavors, such In China. And, most importantly, to devise a process that reflects that reflects to devise a process And, most importantly, 7. For example, all South American countries, with a coast in the Pacific ------The failure of the Doha of the Doha The failure In addition, the establishment of pro the establishment In addition, The above, like the example at the The above, like the example at the Leadership. A different view of the world. A different view of the Accountability. The trading system reacted in a limited way. The best way. in a limited reacted The trading system la carte”—enshrined in the Trade Facilitation Agreement Agreement Facilitation la carte”—enshrined in the Trade led to a progress that made the political economy much much economy political the made that progress a to led level as Egypt or Sri Lanka, was no longer considered to was no longer considered level as Egypt or Sri Lanka, beginning of this paper, demonstrate that international international that demonstrate paper, this of beginning be a “balanced” outcome. Examples abound. In short, In short, be a “balanced” outcome. Examples abound. become a political non-starter in the domestic debate debate become a political non-starter in the domestic in the same direction but each one at a speed suited to its in the same direction worked to deliver a individual needs. Since this approach Differential Treatment (SDT) for developing countries—“a (SDT) for developing countries—“a Treatment Differential Development Agenda (DDA) trade negotiations is very (DDA) trade negotiations is very Development Agenda resources. This allows extreme flexibility whereby all move flexibility whereby extreme This allows resources. WTO negotia it will be used in future presumably result, pursuant to which such members would only implement pursuant to which such members would only implement more difficult. difficult. more required to substantially liberalize agriculture and non-ag to substantially liberalize agriculture required That Brazil would contribute at the same goods. riculture made such balance quickly untenable. That China would made such balance quickly untenable. That extensive commit in view of its pay nothing or very little, 2001, by 2008 had the accession to the WTO in ments in much a failure of a process organized to reflect in a bal a in reflect to organized process a of failure a much place and is made available to all. Without to made available is and place indepen the failure to organize the negotiations along more flexible lines to organize the negotiations along more failure formance of the “emergent” economies, lead by China, lead by China, formance of the “emergent” economies, tions (or other fora). taking place in industrialized countries that were being being were that countries industrialized in place taking while “one size doesn’t fit all” was quite apparent by 2001, by apparent quite was all” fit doesn’t size “one while approved in the Bali (2014) WTO , in the Bali (2014) WTO Ministerial Conference, approved and would be given extra benefits. The spectacular per and would be given extra benefits. The anced manner the world segmented by categories of by categories of anced manner the world segmented anism of the WTO. according to a presentation made years ago in a session made years to a presentation according cooperation can produce results that create new paths new paths that create results cooperation can produce obligations to the extent they had the human and material example was the establishment of a new Special and example was the establishment of a new Special and oped countries who would not be required to contribute to contribute oped countries who would not be required countries—the developed countries who should make the countries—the developed countries who at liberalization and better disciplines; the efforts greatest the least devel of their development shortcomings; and extent is what happens at the Trade Policy Review mech at the Trade extent is what happens of proposed measures and post-implementation takes takes and post-implementation measures of proposed a large and to what happened at the IMF, is the EMF, of cesses and methodologies whereby independent reviews reviews independent methodologies whereby cesses and developing countries who cannot fully reciprocate in view developing countries who cannot fully reciprocate dence of review the risk is that “peer review” becomes becomes review” the risk is that “peer dence of review “peer protection” in international organizations, which in international organizations, which “peer protection”  ALEJANDRO JARA 8 Asia, andLatinAmericahavemuchtosay. Theirfuture and denomination did not occur by happenstance. Rather, it is das thatspellouttheirexpectationsintermsofmultilateral of opennessandcompetition, ofnon-discriminationand evidence iscrystalclearabout thebefitsofglobalization, voters. Indemocracies,they moveinonedirection or community. change, itisextremely difficult ifnotpainfultoarrest or cess that, depending onpolicies,cantake different speeds class musthavesomethingtosay. ManycountriesinAfrica, continuing reform andprogress. Thecaseforglobaliza employment. Businessesshoulddrawupshort-termagen or intellectual property will reduce welfare, wages, and another dependingonwhocommands themajority. The about local able ideas. Politicians and othersconcerned and depth.Sincethebasisisinnovationtechnological a depiction of a spectacular reality and promise. They are and improved forms of cooperationon trade and invest should gobeyondandtouchuponspecifics.Itbe statements of their views and preferences. Perhaps they too abstracttobetranslatedintopoliticalaction.Itmust the losersare more vocal.Asseen,globalizationisapro to othereconomies,suchasthe“developed”countries, the direct “winners.”While this reality isalsoofhugebenefit the millionspulledoutofpoverty, theburgeoningmiddle tect andpromote theirinterests. Besidesmostbusinesses, tion withinarules-basedsystemwillnotbemadebythe to aninformeddiscussionthatwillgiveshapeenhanced tion withmore andbetteremployment.Itisincumbenton the rules-basedtradingsystemembodiedinWTO. promoting globalization.Countries are and governments mation to further a discussion that leads to action (or not) matters havetobeprovided withtheagendaandinfor reverse the process. However, going forward requires polit rising expectations are atstake. “Emerging markets” as a minds andexpectationsofallare engaged. ment. Ultimately, globalization can only be sustainable if the results willattimesbecontradictory, butthiscanonlylead progress, accountableifnotmet. andholdgovernments up tothemlinkandquantifybetterrulesliberaliza Businesses usuallyengageinimportant,butgeneric, ical sustainability. While this may sound obvious, it’s still be coinedintermsthatare specifictoeachcountry, ifnot balization toprotect arules-basedsystemandpress for businesses toshowhowrestrictions ontrade,investment, losers. Thepresent orprospective “winners” have topro Global punditsmaylayoutthebasicandindispens Other stakeholdersshoulddolikewise.Probably the Most ofall,itisincumbentonthe“winners”glo ------The evidencemustbetranslatedintoaddressing themost develop theirownfactsandanalysis.Otherwisetherisk only comefrom them.Businesses,thinktanks,andother captured bypopulismorother“isms”thatseekpower. ability. Theevidencemustbecommunicatedandshared. stakeholders haveacrucialifnotvitalrole toplay. Whatwill with thosewholoseandsuffer. with emotionsonalevel-playingfield,whilebeingsolidary the “EmergingMarketsForum”do? tive, thinktanks,business,andotherstakeholdersmust to bemovedandsupported(oropposed).Whilepublic Leadership, therefore, underthepresent circumstance, will is to leave open the field to misinformation, which is often institutions generate theirown information and narra is ahugetask,butpossiblyittheonlywaytocompete ofpeopleinlocalcommunities.This immediate concerns inclusiveness, oftransparency, andaccount governance, balization. Noothercountrieswillmakeandprotect them. “Emerging” marketsstandtolosethemostfrom de-glo Decision makers—governments and politicians—need Decision makers—governments - - -

COE 51,21 WARRENTON, VIRGINIA 15-16, 2017 OCTOBER EMERGING MARKETS FORUM

2017 GLOBAL MEETING The Emerging Markets Forum was created by the Centennial Group as a not-for-pro t initiative to bring together high-level government and corporate leaders from around the world to engage in dialogue on the key economic, nancial and social issues facing Current and emerging market countries. Future Threats to Multilateralism: The Forum is focused on some 70 market economies in East and South Asia, Eurasia, Latin Causes and America and Africa that share prospects of superior economic performance, already have or Possible seek to create a conducive business environment and are of near-term interest to private Remedies investors, both domestic and international. Our current list of EMCs is shown on the back cover. We expect this list to eveolve over time, as countries’ policies and prospects change. Johannes F. Linn Background Paper

Further details on the Forum and its meetings may be seen on our website at http://www.emergingmarketsforum.org

The Watergate O ce Building, 2600 Virginia Avenue, NW, Suite 201

Washington, DC 20037, USA. Tel:(1) 202 393 6663 Fax: (1) 202 393 6556 Emerging Markets Email: [email protected] Forum A nonprofit initiative of the Centennial Group