Multilateralism and Regionalism in Global Economic Governance

Trade, Investment and Finance

Junji Nakagawa

• Publisher: Taylor & Francis
• Year: 2012
• eBook ISBN: 9781136703645
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

Reconciling regionalism and multilateralism is a challenge common to all branches of global economic governance. While the Bretton Woods/GATT (WTO) institutions, decades-old multilateral framework for global economic governance, are facing serious challenges to their effectiveness, regional framework are emerging as complementary or alternative means of global economic governance. The real challenge is how to reconcile multilateralism and regionalism in global economic governance. This book tackles this problem by analysing issues of multilateral/regional conciliation and coordination in global economic governance, focusing on Asia.

Chapters of the book deal with challenges of multilateralism and regionalism in three fields of global economic governance, namely, global monetary/financial governance, global trade governance, and global investment governance. The major regional focus is on Asia, though some chapters deal with regionalism in Europe and North America. Topics include Asian Monetary Fund and Asian financial architecture, open accession provisions of regional trade agreements, and APEC's role in multilateral investment rules.

As a whole, the book elucidates the contemporary reach of Asian regionalism in global economic governance, and shows the neat balance between regionalism and multilateralism in global economic governance. It is of particular use to the students and practitioners of international economic law, international political economy, international finance and international economics, both with and without Asian focus.

1 Multilateralism and Regionalismin Global Economic Governance

An introduction

Junji Nakagawa

Introduction

The legal and institutional framework for governing the world economy for the past 65 years, the Bretton Woods/GATT (WTO) system,¹ is suffering from decreasing effectiveness. The financial crisis triggered by the bankruptcy of Lehman Brothers in September 2008 rapidly spilt over globally, aggravating not only the global financial system but also the real economy. However, the three pillars of the Bretton Woods/GATT (WTO) system have played a limited role in dealing with the crisis.

The IMF has been monitoring member countries’ monetary and financial policy, but it could not prevent the outbreak of the current crisis. Nor could it prevent its global contagion. The IMF provided emergency lending to Iceland and Central and Eastern European countries totalling US$50 billion, but that was far smaller than the amount provided by major developed countries and emerging market countries in rescuing their own domestic financial markets, based on the policy coordination achieved through the relatively newly born G20.²

The World Bank provided a record US$89 billion in support to developing and middle-income countries between July 2008 and January 2010,³ but its role as principal provider of long-term development finance seems to have substantively declined, considering the far larger amount of finance provided by emerging economies, notably China, Brazil and India, and those provided through private firms in developed countries investing in developing countries during the same period.

In the wake of the financial crisis, in February 2009, the director-general of the WTO reported to the Trade Policy Review Body on trade developments associated with the financial crisis, enumerating a number of measures taken by WTO member countries to protect their domestic industries at the expense of imports.⁴ In addition, following a request by G20 leaders, the WTO secretariat, together with the secretariats of the OECD and UNCTAD, has regularly been reporting on G20 countries’ protectionist measures in trade and investment.⁵ Though these had the effect of informing the world about WTO member countries’, and notably G20 countries’, trade/investment restrictive measures associated with the crisis, their effect as deterrents to such measures was limited, as is shown by the fact that many G20 countries still maintain such measures or have introduced new ones.⁶

On the other hand, while the Doha Round of the WTO, which was launched in November 2001, has been virtually stalled for the past several years with a limited chance of an early conclusion, a number of bilateral and regional free trade agreements (FTAs) have been concluded since the late 1990s, and are expected to be concluded among the members of the WTO, which further reduces the status of the WTO as a main forum for trade liberalization.

The Bretton Woods/GATT system was established as a quintessential multilateral framework for the management of the post-war world economy at the initiative of the USA. It reflected the view that the Great Depression and the subsequent block economy had contributed to the outbreak of World War II. After 65 years, the current financial crisis demonstrates the weakness in the Bretton Woods/GATT (WTO) system in preventing crisis and in dealing with it. Does this mean the end of the Bretton Woods/GATT (WTO) system? Is the world heading towards regional economic blocks and protectionism?

This book will try to answer these questions by analysing the relationship between multilateralism and regionalism in global economic governance, with a regional focus on Asia. It argues that the relationship between multilateralism and regionalism substantially differs sector by sector, and that efforts have been made in each sector to achieve a delicate balance between multilateralism and regionalism, though there are instances of conflict between these two methods of global economic governance.

This chapter comprises five sections. The first elucidates the concept of global governance and the two main methods in global governance, namely multilateralism and regionalism. The following three sections describe the relationship between multilateralism and regionalism in three sectors of the world economy – monetary/financial affairs, international trade and international investment – and briefly introduce the chapters brought together in the book. The final section offers some conclusions.

Changing Structure of Global Economic Governance

The Concept of Global Governance

The concept of governance came to be used in academic literature in the 1990s to refer to a group of new phenomena where, as a result either of the malfunctioning of the existing government or of the emergence of new issues, a new governing system was introduced. It refers to new governing systems at various levels and/or in various issue areas, including corporate governance, local governance, welfare governance, regional governance (notably the EU) and global governance.

The meaning of ‘governance’ differs slightly for each level or issue area. For instance, local governance and welfare governance refer to a situation where the existing government, local or national, does not function well in achieving its policy goals. Corporate governance refers to a situation where the existing management structure of a corporation, which differs country by country or company by company, needs to be reorganized for better corporate performance or better management accountability to its stakeholders, including board members, shareholders and employees. On the other hand, global governance refers to a situation where global issues⁷ may not be solved effectively by the existing inter-state system, such as international law and international organizations.

There has been no central government in the world, and global issues have been solved mainly through inter-state systems such as international law, international organizations or international regimes.⁸ Global governance refers to a situation where such existing inter-state system of governing global issues has come to be malfunctioning, and new actors including NGOs, individuals and firms, new methods including informal regimes⁹ and organizations and new norms are needed to supplant or even replace the existing inter-state system for solving global issues.

There is no authentic definition of the term ‘global governance’, but the most comprehensive and representative is that of the Commission on Global Governance, who define it as:

the sum of many ways individuals and institutions, public and private, manage their common affairs. It is a continuing process through which conflicting or diverse interests may be accommodated and cooperative action taken. It includes formal institutions and regimes empowered to enforce compliance, as well as arrangements that people and institutions either have agreed to or perceive to be in their interest.¹⁰

This definition comprises the four fundamental factor of global governance, namely:

1 the purpose (management of the matters of common interest, which cover a wide range of issues from military/security to economic, environmental, public health and human rights);

2 the actors (both public and private actors including national governments, international organizations, NGOs, individuals and firms);

3 the methods (both formal and informal regimes and organizations, multilateral, regional, bilateral and unilateral methods); and

4 the norms (for accommodating interests and for coordinating actions).

As Yoshinobu Yamamoto aptly points out,¹¹ ‘global governance’ and ‘international regime’ have a lot of factors in common. Both have a common function of managing and/or solving global issues through cooperation among relevant actors (governance as ‘function’¹²). But, as Yamamoto points out, they differ in the structure or mechanism for achieving such function. Notably, they differ in actors, methods and issue areas (governance as ‘structure’). An international regime is constituted by sovereign states as sole actor, uses rules as sole method for solving issues and ordinarily aims at solving issues in a single issue area. On the other hand, global governance comprises not only sovereign states and international organizations but NGOs, individuals and firms. It employs not only rules but also many other methods, including programmes and concerted actions, and cooperative methods at multilateral, regional, bilateral and unilateral levels. Finally, it aims at solving issues in a broad range of areas where a solution at the global level is needed. This comes from the acknowledgement among scholars and practitioners that a number of global issues emerged in the 1990s which need the involvement of multiple actors and the employment of multiple methods for their solution.¹³

Global Economic Governance – Issue Areas and Methods

Global governance covers a wide range of issue areas, but the focus of this book is limited to global economic governance, that is, governance for solving issues in the global economy. As this limited focus is still broad, covering all kinds of global economic issues including movement of goods, capital, humans, information and any combination thereof, this book covers the three major sectors of the global economy, namely global monetary/financial affairs, international trade and international investment. This selection of issue areas is primarily based on the traditional classification of international economic law, namely international monetary/financial law, international trade law and international investment law.¹⁴

One striking characteristic of global economic governance in these three sectors is the difference in the method of governance – the difference in the extent to which a multilateral system provides rules and principles for governing the sector and the difference in the extent to which formal legal rules provide guidance. Governance of global monetary/financial affairs is characterized by the weak but constant involvement of multilateral system (the Bretton Woods system sensu stricto¹⁵) and the prevalence of informal policy coordination through the club-model mechanism (G7, G8 and G20). Governance of international trade, on the other hand, is characterized as rule-based governance provided by a multilateral institution (the GATT and the WTO). Governance of international investment is different from either, as it is increasingly governed by rules but they come from bilateral agreements (bilateral investment treaties (BITs) and investment chapters of FTAs), not from multilateral agreements. The difference comes from the different historical paths that these governance mechanisms have taken in each sector (path dependency).

On the other hand, there is a common characteristic in the contemporary governance mechanisms in these sectors, that is, the surge of regionalism. A regional governance mechanism has come to play a greater role in monetary/financial affairs, notably in Europe and, to a lesser extent, in Asia as well. In international trade, an increasing number of bilateral and regional FTAs are being concluded, while the Doha negotiation has been almost stalled for quite some time. In international investment, BITs, investment chapters of FTAs and investor-state arbitration based on them have constantly been the major governance mechanism, but their number has been rapidly increasing during the past two decades.¹⁶

The recent surge of regionalism has made the task of governing the global economy more complicated and burdensome than before, since it has added to the methods of governance and the resulting burden of coordination among ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright
• Contents
• List of illustrations
• List of contributors
• Acknowledgements
• 1. Multilateralism and regionalism in global economic governance: an introduction
• 2. How to avoid anticompetitive effects of state interventions in times of financial crisis
• 3. Designing an Asian financial architecture
• 4. An institutional approach to the needs and possibilities of a financial cooperation system in East Asia
• 5. East Asian financial integration: a road ahead
• 6. Open accession provisions in FTAs: a bridge between regionalism and multilateralism?
• 7. Dynamic process of a transnational dispute settlement as an autopoietic system? Lessons from cases in North America involving the WTO, NAFTA and domestic laws
• 8. APEC’s role in rationalizing international investment obligations
• 9. Vertical allocation of competences for investment treaties in the European Union
• 10. Investment treaties and public goods
• 11. China’s evolving international investment treaty policy towards liberalism
• List of public documents
• Bibiliography
• Index