paper series saViNG MULTiLaTeraLisM RENOVATING THE HOUSE OF GLOBAL ECONOMIC GOVERNANCE FOR THE 21ST CENTURY JeNNifer HiLLMaN The German marshall Fund oF The uniTed sTaTes © 2010 The German Marshall Fund of the United States. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the German Marshall Fund of the United States (GMF). Please direct inquiries to: The German Marshall Fund of the United States 1744 R Street, NW Washington, DC 20009 T 1 202 683 2650 F 1 202 265 1662 E [email protected] This publication can be downloaded for free at http://www.gmfus.org/publications/index.cfm. Limited print copies are also available. To request a copy, send an e-mail to [email protected]. GMF Paper Series The GMF Paper Series presents research on a variety of transatlantic topics by staff, fellows, and partners of the German Marshall Fund of the United States. 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Saving Multilateralism Renovating the house of global economic governance for the 21st century Brussels Forum Paper Series March 2010 Jennifer Hillman* The German Marshall Fund of the United States Introduction: Coping with Complexity 3 Solid Foundations: The Architecture of Global Economic Governance 6 The Great Recession and the Steering Committee of the World Economy 10 The IMF, World Bank, and WTO: From Crisis to Reform 15 Guardian of Global Finance: The International Monetary Fund 17 From Reconstruction to Development: The World Bank 20 Negotiating the Rules: The World Trade Organization 24 Renovating the House of Global Economic Governance for the 21st Century 27 The Harbinger of Global Governance: Political Leadership and the G20 28 Reaffirming Multilateralism in a World of Regionalism 30 Transatlantic Multilateralism for the 21st Century 33 Conclusion 37 Bibliography 38 *Jennifer Hillman is a senior transatlantic fellow at the German Marshall Fund of the United States and a current member of the World Trade Organization’s Appellate Body Previously, she served as commissioner at the U S International Trade Commission and general counsel and chief textiles negotiator at the Office of the U S Trade Representative The author would like to thank Joe Guinan, Roman Balin, Dan Price, Peter Sparding, Debra Steger, and Kati Suominen for their help with this paper 1 Introduction: Coping with Complexity Last December, the eyes of all those with a failure to reach agreements can best be seen as part stake in international affairs turned to Europe of a long-term trend toward increased complexity First they looked to Geneva, for signs that the in the world that makes it nearly impossible to long-running Doha Round of multilateral trade reach traditional multilateral binding accords, negotiations at the World Trade Organization combined with a waning of faith on the part of (WTO) would get back on track after years of many countries in multilateralism and multilateral stalemate Then observers turned to Copenhagen, institutions hoping to see a binding and comprehensive The long-term This increased complexity stems from a number agreement reflecting a commitment on the part of trend toward of seismic shifts in international relations—and the world’s governments to address the pressing increasing global challenge of climate change They were to especially in international economic relations— some of which have been unfolding over the complexity be sorely disappointed Inscribed on the faces of combined with a those struggling to reach agreements was a deep course of decades while others are of more recent waning faith in frustration with multilateral processes that were origin Government policies and international multilateralism proving incapable of delivery Instead of agreement, arrangements for collective decision-making the images playing out on television screens and in have not kept pace with changes in the world, and multilateral newspapers around the world were of fractiousness especially the high degree of international institutions and division, due in part to the large number of economic integration and interdependence With makes it nearly participants and contentiousness of the issues decolonization came increases in the number of impossible to faced; of anger, on the part of all those who felt countries who are players on the world stage as reach traditional marginalized by the process; and of concern, from well as a rebalancing of global economic power that binding those looking for signs that the world still has the has continued with the rise of the BRICs (Brazil, multilateral Russia, India, and China) and the other emerging capacity to reach accords when it really matters accords. market economies The collapse of the Soviet The failure of these meetings to produce formal bloc, accompanied by market reforms in China agreements—or even specific paths to reaching and India in the 1980s and 1990s accelerated the agreements in the future—despite the high stakes rapid integration of the global economy Where and the political capital that had been invested in previously only about half the world’s population— advance left many questioning the ability of the the Oraganisation for Economic Co-operation world’s leaders to meet global challenges, shedding and Development (OECD) countries, plus parts of a spotlight on the institutions and fora that were Latin America and Asia—were engaged in global established for the purpose of achieving multilateral economic activity, suddenly people everywhere solutions to the most pressing collective problems were brought together in a single world economy of the 21st century based on capitalism and markets Why did these meetings fail? Many had assumed At the macro-level, this led to shifting trade that the most significant economic crisis since the flows and patterns of foreign direct investment, Great Depression and the overwhelming scientific a rise in the number and size of multinational and circumstantial evidence of damaging changes companies and financial institutions, and surging to our climate would compel world leaders to global demand It also meant a corresponding set aside their differences and reach meaningful increase in the speed with which goods, agreements But it did not happen It is not that the money, and technology traverse the globe At problems are not big enough or urgent enough The the micro-level, the “great doubling” of the Saving Multilateralism 3 Renovating the house of global economic governance for the 21st century global workforce has had a direct effect on more cumbersome processes at the multilateral wages, income levels, and employment in the level Despite a new multilateralist president in advanced industrial countries, in some instances the United States, the momentum in the world of prompting fears of economic insecurity and global governance today is in the wrong direction, a public backlash against “globalization ”1 to be found in the hundreds of regional, sub- regional, and bilateral agreements that have come Taken together, all these factors have stretched the into force in the last several decades With each The inability capacity of the current institutions of multilateral such agreement comes a lessening of the energy, to create new governance to a breaking point, leading to time, and resources left for multilateralism and institutions or fragmentation and the emergence of deep divisions multilateral institutions—along with the hard fact among groups of countries at different stages of reach agreements that the toughest global problems thus remain on economic development Throw in the increases means greater the table, unsolved and insoluble through such in the complexity of the issues themselves and the regional arrangements reliance on—and degree to which these issues overlap and affect one greater need another and the problems of the 21st century begin Third, the paper contends that, in the absence of for renovation to look too complex to handle any prospect of building a new global economic of—the existing architecture, the existing institutions of multilateral international This paper argues that learning to operate in this economic governance must be “renovated ” Their economic vastly more complex world will require more governance structures need to be changed to reflect institutions, the multilateralism, not less It means greater reliance the dramatic shifts in the distribution of economic than ever on those economic institutions and IMF, the World weight among countries, their mandates revised fora that have already learned to function in a Bank, and the in order to ensure that they cover a wider range of global fashion—particularly the World Bank, WTO.