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New powers challenge old rules of world trade

By Liu Junhong (China Daily)
Updated: 2008-08-27 15:31

Recently the Doha round of the World Trade Organization negotiations ended without any progress. Pessimistic observers believe this means globalization is doomed. From a macro point of view, however, it only signifies that the era when the United States and the European Union (EU) set the rules of international affairs is about to end. The rising tide of regionalization and linking up of markets worldwide reflect the reality that globalization has affected every fiber of the world economy, while the rise of emerging economies symbolizes that globalization has entered a new era.

In the fall of 2003, US investment giant Goldman Sachs published a thesis titled Dreaming with BRICs: the Path to 2050. The paper for the first time puts emerging powers - Brazil, Russia, India and China - on the same plane in a fresh forward look at the layout of world economic development toward the mid-21st century. The acronym BRIC has since become a key word in observing the current global economy. Behind the scene is the rise of emerging and transforming economies, especially in the Asia-Pacific region, where the simultaneous rise of multiple economic powers makes it the most dynamic corner in the world.

Against this backdrop it has become an important topic in the area of international economics to justify and rationalize the global economic order. The rise of emerging market economies foretells a reconfiguration of the power structure in the world. The participation of emerging markets such as the BRIC nations in globalization will unavoidably help make the world economic order more just and reasonable.

As a matter of fact, from the start of the Doha round of WTO talks in 2001 till the Cancun conference ran aground in 2003 and, most recently, the compromise deal secretly hashed out by developed countries was collectively rejected by emerging nations. All these events reflect the new trend in globalization after the rise of emerging market economies. This also illustrates the fact that the days when major powers set the rules while poor nations could not but follow will soon be history.

In the years since the financial crisis in 1997 the East Asian regional cooperation process has made considerable headway. It not only reflects the reality that globalization is developing in East Asia, or the whole Asia-Pacific region for that matter, but also serves as a mirror that magnifies the new characteristics of the era of globalization.

First of all, East Asian regional cooperation reflects a new page in globalization. At the end of 1997 the Association of Southeast Asian Nations (ASEAN) summit invited state leaders of China, Japan and South Korea to discuss regional cooperation and seek ways to deal with crises and maintain the sustainable development of the regional economy. The gathering gave birth to the unique format for regional cooperation known as "10+3", which has insisted since the very start on the principle of "diversity, openness and inclusiveness", abandoning the practice of conglomerating regional economy, and seeking realistic ways to reduce the cost of regional development and avoid economic and financial risks.

Second, this regional cooperation is rich in content and diversity. It began as "functional cooperation" aimed at preventing financial crisis and has expanded to foreign trade, services, culture, education and security, to name a few. It has also formed its own relevant system and framework for cooperation and set the general goal of building an "East Asian Community". The negotiation between China and ASEAN on forming a free trade zone, in particular, always followed the principles set by WTO for exceptional provisions in free trade agreements (FTA) and promoted global free trade by first implementing bilateral or regional free trade. In this sense it is safe to say that East Asian regional cooperation is an important part of the global trade liberalization led by WTO.

Third, East Asian cooperation is very inclusive and maintains a positive and open attitude toward various forms of cooperation both within and outside the region. The initiation of the annual East Asian Summit in 2005 saw Australia, New Zealand and India become members immediately; regional powers Japan and South Korea have formed bilateral FTAs with Mexico, Chile and the US. Last year the US proposed the concept of a cross-Pacific free trade area designed to put East Asian regional cooperation back into the Asia Pacific Economic Cooperation (APEC) framework. The Asia-Europe Meeting, APEC meeting and East Asia summit series have formed a new inter-supplementary and multi-axel system that reflects the new characteristics of the era of globalization.

Since 2004 the world economy has been filled with risks of widespread inflation as the price of crude oil kept rising. Price hikes go hand in hand with economic downturn and constitute a common problem facing most countries. And since last year, the subprime problem has plunged the US into the most serious financial crisis since the great depression of the 1930s and sent shock waves through securities markets all over the world. Between October 2007 and June this year the total value of stock prices in 50 major securities markets around the world shrunk by US$10 trillion, a drop of 17 percent. Meanwhile, markets of strategic resources such as grain and minerals around the world also displayed the rare characteristics of chain fluctuation, rendering the once-popular "detachment theory" of world economy completely meaningless.

Faced with this reality, the World Trade Organization, which includes 150 countries and regions, is arguably the only mechanism capable of bringing trade benefits to the world as a whole by driving global trade liberalization. After the Kennedy round of the 1960s, the Tokyo round of the 1970s and the Uruguay round, which spanned the 1980s and 90s, such persistent efforts have managed to expand world trade despite repeated setbacks in trade liberalization talks. The actual value of global trade in proportion to the world's total GDP reached 25 percent in 2006, as the process of multilateral trade liberalization brought real benefits to nations of the world.

Regrettably, however, the ghost of trade protectionism hidden deep inside the psyche of developed countries remains the fundamental obstacle for trade liberalization as it has always been. So far the US, Japan and the European Union have maintained their huge agricultural subsidies and kept forbidding import duties on farm produce that have proved nightmarish to developing nations.

Even under this circumstance developed countries are still pressing developing nations to fully open up their domestic markets to the peril of their relatively weak economy, with intellectual property rights and investment agreements at the ready as means of blackmail. Apparently it all comes down to this key issue: the advancement of global trade liberalization and the sustainable development of the world economy depend on developed countries' ability and willingness to abandon their arrogance and sit down with developing nations for serious talks aimed at formulating free rules applicable throughout the world.

The author is a researcher with China Institute of Contemporary International Relations