Topic: Individual assignment

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BUSM 3886

Week 6 Global Institutions and Governance

Dr Joseph H. Kim School of Management

RMIT University

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Today’s lecture

• Multilateral institutions of global trade and monetary systems

• Regional and bilateral economic integration

• Current issues and implications for businesses

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What is global governance?

"Global governance is governing, without sovereign authority, relationships that transcend national frontiers.

Global governance is doing internationally what governments do at home“ (Frinkelstein, 1995, p. 369)

“Global governance is …

instance of governance in the absence of government” (Ruggie, 2014, p. 5)

• Implies absence of central authority and the need for collaboration and cooperation among governments and others

• Means to achieve global governance include activities of intergovernmental organisations and cooperative arrangements among states

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Growing importance of global governance

• Weakening of nation state and rise of globalised non- government organisations and MNEs

• Blurred distinction between private and public sectors • Globalisation making national borders, distance and geographic

space less relevant • Laissez-faire requiring increase in administrative functions

“Global public domain…is no longer conterminous with the system of states…[it] exists in transnational non-territorial spatial formation, and is anchored in…institutional networks…across and beyond borders” (Ruggie, 2004, p. 519)

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Selected multilateral organisations

Policy agenda Global Regional

Trade WTO EU, NAFTA, ASEAN, Mercosur

Monetary IMF EU (Eurozone), CFA franc

Peace UN OSCE

Development finance World Bank ADB, AfDB, EBRD, IDB

Climate change Kyoto Agreement, Copenhagen Accord,

Paris Accord

Financial sector regulation

Basel Committee

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WTO • Multilateral organisation establishing rules for international trade, and

resolving trade-related conflicts between nations - Handle disputes constructively - Common set of rules through the principle of non-discrimination - Raise income, generate jobs and stimulate economic growth • Origins in the General Agreement on Tariffs and Trade (GATT) - GATT (1948–1994): Agreement, not an organisation - Reducing level of tariffs: 40% (1948)  3% (2005) [in developed

economies] • Established in 1995 to replace GATT • Encompassing GATT along with two sisters organisations

- General Agreement on Trade in Services (GATS) - Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS)

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Main areas of WTO

Umbrella Agreement establishing the WTO

Three main areas Goods

(GATT)

Services

(GATS)

Intellectual

property

(TRIPS)

Conflict resolution Dispute settlement mechanism

Transparency Trade policy reviews

Source: https://www.wto.org/

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WTO and dispute settlement

• Dispute settlement mechanism as one of core activities of the WTO

- aims to resolve conflicts between governments over trade- related matters

- only WTO member government can bring cases • Dispute settlement process

- consultation request - establishment of a panel - panel report - appellate review - implementation

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WTO and dispute settlement

• WTO does not have its own enforcement capability • Any country that has lost a dispute case can choose its own

options: - change its laws or practices to be in compliance - pay compensation to the winning country - defy the ruling by doing nothing and be willing to suffer trade retaliation by winning countries known as ‘punitive duties’ • Is WTO over-reaching?

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Doha Development Agenda

• A round of WTO negotiations started in Doha, Qatar, in 2001 • ‘Doha Development Agenda’ aimed to; - reduce agricultural subsidies in developed countries to facilitate exports from developing countries - slash tariffs, especially in industries that developing countries might benefit (such as textiles) - free up trade in services - strengthen intellectual property protection • First round in history of GATT/WTO to specifically aim at

promoting economic development of developing countries • The complexity of an agreement on ‘everything’ among member

countries in the Doha Round proven to be a challenge • What is the future Of WTO?

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Criticisms of WTO?

• A systematic bias toward rich countries and multinational corporations

• Decision-making process • Single-mindedly promoting trade at the expense of environment

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IMF

• A multilateral organisation promoting international monetary cooperation and providing temporary financial assistance to countries with balance of payments problems

• IMF Conditionality: conditions that IMF attaches to loans to bail out countries in financial distress, usually requires “belt- tightening”

- Reducing government borrowing – Higher taxes and lower spending - Higher interest rates to stabilise the currency - Allow failing firms to go bankrupt - Structural adjustment: Privatisation, deregulation, reducing corruption and bureaucracy

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IMF

• Criticisms of IMF - Lack of accountability - Creation of moral hazard - Appropriateness of ‘one-size-fits-all’ strategy? • Financial crisis of 2008 leading to renewed debates around the

pros and cons of IMF conditionality

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Regional and bilateral economic integration

• After Doha there has been a proliferation of bilateral FTAs • Provides preferential treatments to members and

discriminates against non-members • Critics argue bilateral FTAs;

- permit countries with large markets to use their bargaining power to more effectively

- create trade diversion: a change in trade pattern away from comparative advantage due to trade barrier

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Estimated trade creation and diversion effects of TTIP

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Current debate: Development agenda

• Inequality between nations and persistent poverty in many developing countries as major challenges for the world economy

• Multilateral banks (e.g. World Bank) established to help fund development projects (transportation infrastructure, agricultural irrigation projects, banking sector reform etc.) and advise governments to facilitate their economic growth

• Development projects may provide opportunities for MNEs to engage in infrastructure development

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Current debate: Climate change agenda

• The environmental impact of human activity is also a major concern of the 21st century, with the major focus on the warming of the Earth’s atmosphere due to greenhouse gas (GHG) emissions.

• Kyoto Protocol (1997): an agreement committing developed countries to limit their GHG emission

- After more than a decade of Kyoto Protocol, GHG emissions increasing at an accelerating rate

• Copenhagen Accord (2009): a declaration by developed and developing countries to combat climate change

- aimed to limit the level of global warming to no more than 2◦C by the end of the century - developed countries committed to reduce their GHG emissions by 80% by 2050

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Current debate: Climate change agenda

• Paris Agreement (2016): a comprehensive climate agreement signed by 195 UN members

- aimed at keeping a global temperature rise below 2◦C above pre- industrial levels - US withdrew from the agreement in 2017 • Standards and incentive schemes vary across countries

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Implications for businesses

• Businesses need to understand the rules of the game at both global and regional levels to assess challenges and opportunities

• Businesses ought to make the most of their home region as they are often better prepared to compete on regional rather than global levels

• Businesses need to be aware of and possibly engaged in political discussions as these may shape the business environment of the future