“The move away from a high-car­bon econ­omy, where coal, gas, and oil in­ter­ests of­ten dom­i­nate, is just one of sev­eral ma­jor changes in the global geo-eco­nomic or­der”

Financial Mirror (Cyprus) - - FRONT PAGE -

Last year was a mem­o­rable one for the global econ­omy. Not only was over­all per­for­mance dis­ap­point­ing, but pro­found changes – both for bet­ter and for worse – oc­curred in the global eco­nomic sys­tem.

Most no­table was the Paris cli­mate agree­ment reached last month. By it­self, the agree­ment is far from enough to limit the in­crease in global warm­ing to the tar­get of 2 Cel­sius above the pre-in­dus­trial level. But it did put ev­ery­one on no­tice: The world is mov­ing, in­ex­orably, to­ward a green econ­omy. One day not too far off, fos­sil fu­els will be largely a thing of the past. So any­one who in­vests in coal now does so at his or her peril. With more green in­vest­ments com­ing to the fore, those fi­nanc­ing them will, we should hope, coun­ter­bal­ance pow­er­ful lob­by­ing by the coal in­dus­try, which is will­ing to put the world at risk to ad­vance its short­sighted in­ter­ests.

In­deed, the move away from a high-car­bon econ­omy, where coal, gas, and oil in­ter­ests of­ten dom­i­nate, is just one of sev­eral ma­jor changes in the global geo-eco­nomic or­der. Many oth­ers are in­evitable, given China’s soar­ing share of global out­put and de­mand. The New De­vel­op­ment Bank, es­tab­lished by the BRICS (Brazil, Rus­sia, In­dia, China, and South Africa), was launched dur­ing the year, be­com­ing the first ma­jor in­ter­na­tional fi­nan­cial in­sti­tu­tion led by emerg­ing coun­tries. And, de­spite US Pres­i­dent Barack Obama’s re­sis­tance, the China-led Asian In­fra­struc­ture In­vest­ment Bank was es­tab­lished as well, and is to start op­er­a­tion this month.

The US did act with greater wis­dom where China’s cur­rency was con­cerned. It did not ob­struct the ren­minbi’s ad­mis­sion to the bas­ket of cur­ren­cies that con­sti­tute the In­ter­na­tional Mon­e­tary Fund’s re­serve as­set, Spe­cial Draw­ing Rights (SDRs). In ad­di­tion, a half-decade af­ter the Obama ad­min­is­tra­tion agreed to mod­est changes in the vot­ing rights of China and other emerg­ing mar­kets at the IMF – a small nod to the new eco­nomic re­al­i­ties – the US Congress fi­nally ap­proved the re­forms.

The most con­tro­ver­sial geo-eco­nomic de­ci­sions last year con­cerned trade. Al­most un­no­ticed af­ter years of desul­tory talks, the World Trade Or­gan­i­sa­tion’s Doha De­vel­op­ment Round – ini­ti­ated to re­dress im­bal­ances in pre­vi­ous trade agree­ments that fa­vored de­vel­oped coun­tries – was given a quiet burial. Amer­ica’s hypocrisy – ad­vo­cat­ing free trade but re­fus­ing to aban­don sub­si­dies on cot­ton and other agri­cul­tural com­modi­ties – had posed an in­sur­mount­able ob­sta­cle to the Doha ne­go­ti­a­tions. In place of global trade talks, the US and Europe have mounted a di­vide-and­con­quer strat­egy, based on over­lap­ping trade blocs and agree­ments.

As a re­sult, what was in­tended to be a global free-trade regime has given way to a dis­cor­dant man­aged-trade regime. Trade for much of the Pa­cific and At­lantic re­gions will be gov­erned by agree­ments, thou­sands of pages in length and re­plete with com­plex rules of ori­gin that con­tra­dict ba­sic prin­ci­ples of ef­fi­ciency and the free flow of goods.

The US con­cluded se­cret ne­go­ti­a­tions on what may turn out to be the worst trade agree­ment in decades, the so-called Trans-Pa­cific Part­ner­ship (TPP), and now faces an up­hill bat­tle for rat­i­fi­ca­tion, as all the lead­ing Demo­cratic pres­i­den­tial can­di­dates and many of the Repub­li­cans have weighed in against it. The prob­lem is not so much with the agree­ment’s trade pro­vi­sions, but with the “in­vest­ment” chap­ter, which se­verely con­strains en­vi­ron­men­tal, health, and safety regulation, and even fi­nan­cial reg­u­la­tions with sig­nif­i­cant macroe­co­nomic im­pacts.

In par­tic­u­lar, the chap­ter gives for­eign in­vestors the right to sue gov­ern­ments in pri­vate in­ter­na­tional tri­bunals when they be­lieve govern­ment reg­u­la­tions con­tra­vene the TPP’s terms (in­scribed on more than 6,000 pages). In the past, such tri­bunals have in­ter­preted the re­quire­ment that for­eign in­vestors re­ceive “fair and eq­ui­table treat­ment” as grounds for strik­ing down new govern­ment reg­u­la­tions – even if they are non-dis­crim­i­na­tory and are adopted sim­ply to pro­tect cit­i­zens from newly dis­cov­ered egre­gious harms.

While the lan­guage is com­plex – invit­ing costly law­suits pit­ting pow­er­ful cor­po­ra­tions against poorly fi­nanced gov­ern­ments – even reg­u­la­tions pro­tect­ing the planet from green­house-gas emis­sions are vul­ner­a­ble. The only reg­u­la­tions that ap­pear safe are those in­volv­ing cig­a­rettes (law­suits filed against Uruguay and Aus­tralia for re­quir­ing mod­est la­bel­ing about health haz­ards had drawn too much neg­a­tive at­ten­tion). But there re­main a host of ques­tions about the pos­si­bil­ity of law­suits in myr­iad other ar­eas.

Fur­ther­more, a “most fa­vored na­tion” pro­vi­sion en­sures that cor­po­ra­tions can claim the best treat­ment of­fered in any of a host coun­try’s treaties. That sets up a race to the bot­tom – ex­actly the op­po­site of what US Pres­i­dent Barack Obama promised.

Even the way Obama ar­gued for the new trade agree­ment showed how out of touch with the emerg­ing global econ­omy his ad­min­is­tra­tion is. He re­peat­edly said that the TPP would de­ter­mine who – Amer­ica or China – would write the twen­tyfirst cen­tury’s trade rules. The cor­rect ap­proach is to ar­rive at such rules col­lec­tively, with all voices heard, and in a trans­par­ent way. Obama has sought to per­pet­u­ate busi­ness as usual, whereby the rules gov­ern­ing global trade and in­vest­ment are writ­ten by US cor­po­ra­tions for US cor­po­ra­tions. This should be un­ac­cept­able to any­one com­mit­ted to demo­cratic prin­ci­ples.

Those seek­ing closer eco­nomic in­te­gra­tion have a spe­cial re­spon­si­bil­ity to be strong ad­vo­cates of global gov­er­nance re­forms: If au­thor­ity over do­mes­tic poli­cies is ceded to supra­na­tional bod­ies, then the draft­ing, im­ple­men­ta­tion, and en­force­ment of the rules and reg­u­la­tions has to be par­tic­u­larly sen­si­tive to demo­cratic con­cerns. Un­for­tu­nately, that was not al­ways the case in 2015.

In 2016, we should hope for the TPP’s de­feat and the be­gin­ning of a new era of trade agree­ments that don’t re­ward the pow­er­ful and pun­ish the weak. The Paris cli­mate agree­ment may be a har­bin­ger of the spirit and mind­set needed to sus­tain gen­uine global co­op­er­a­tion.

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