Globalization and the current political economy are complex, if only because many concepts interact with each other. So, this page provides a general overview of how the current world works. And it does that by explaining most of the concepts you need.
The Asia-Pacific Economic Cooperation (APEC) is a political and economic cooperative forum focusing on trade and economic policy in the Asia-Pacific region. Created in 1989 in Australia by 12 countries – including the main South-Asian countries, the United States, Canada, and New Zealand – the APEC was progressively expanded to include China (1991), various South-American countries such as Chile, Peru or Mexico (between 1994 and 1998) or Russia (1998). As of today, the organization regroups 21 members and has progressively become a major political actor both on a regional and international scale. In late 2016, in fact, the APEC’s decision to push its trade liberalization agenda forward while the US and President-Elect Trump announced the end of the TPP free trade agreement (see also TPP) suggested that the organization might in time gain significant leadership towards managing and influencing the political economy of the region.
The Association of South-East Asian Nations (ASEAN) is the second major political organization of the Asia-Pacific region, together with APEC. In contrast with APEC which is truly international in scope and reach, the ASEAN has remained a small-size structure. Founded in 1967 as an association for regional cooperation and peace with the idea of formulating ‘One vision, One identity, One community’, it evolved between 2003 and 2015 to become an ‘ASEAN Community’ built on three major pillars (political & security, economic development, socio-cultural development) and is equipped with a constituting Charter, legal status, a functional institutional framework and a free-trade agreement aimed at facilitating exchanges between the members. As of today, the ASEAN has remained focused on geographic proximity between its member countries and it is therefore very different from the APEC organization, however in light of shifts in US trade policy the ASEAN might gain in visibility with countries such as Colombia trying to build durable relations.
Although there is no precise definition of the ‘Asia-Pacific’, the term has a wide regional scope and multiple dimensions. Geographically, the Asia-Pacific represents half of the world’s population. The core of the region is obviously Asia (including East, South-East and South Asia), but it also tends to be stretched within a circle surrounding Australia and reaching the Middle-East, Russia and the East coast of the American continent, from the United States down to Chile. The Asia-Pacific also has a political dimension given the growing importance of the APEC and ASEAN organizations which respectively regroup 21 and 10 countries.
The ‘BRICs’ term is commonly employed to designate Brazil, Russia, India and China, joined since the years 2010 by South Africa. Originally thought as an economic classification of the leading developing economies by the Goldman Sachs bank in 2001, the ‘BRIC’ countries have over time developed a cooperation organization – including the New Development Bank aimed at financing infrastructure development – and regularly discuss economic development matters at summits. Yet, although various countries such as Indonesia or Argentina have expressed their interest in joining the group, the BRICs economies have underperformed lately and their efforts to build unity have not reached the notoriety of regional organisations such as the APEC or the ASEAN which in contrast tend to have a greater influence on the political economy of the Asia-Pacific.
The Comprehensive Economic and Trade Agreement (CETA) is one of the major modern regional free trade agreements. Negotiated until 2014 as a means to relieve 98% of the tariffs between the European Union and Canada, it has been signed by Canada in late 2016, was approved by every EU member, and now has to be ratified both at the EU level and by each member country. Although largely debated, CETA is an important milestone in the modern free trade-based political economy. Prior to CETA, the last large trade agreement had been the North American Free Trade Agreement (NAFTA) signed between the United States, Canada and Mexico in 1994. Nowadays, various mega-agreements such as the TPP between the US and eleven Asia-Pacific countries and the T-TIP between the US and the EU are being negotiated, however numerous criticisms by the civil society are applying tremendous pressure on the projects which might thus never materialize. In the Asia-Pacific region, additional agreements are also under discussion, in particular, RCEP and FT-AAP (see also free trade negotiations, free trade agreements and Mega-agreements).
Competition is a key component of modern free trade and, together with market access, is an important marker when it comes to international trade. To businesses, fair competition is about benefiting from a leveled playing field where all actors have similar opportunities to develop and strive. In many industries including agriculture or steel production, for instance, economic actors complain about the numerous subsidies aimed at boosting national producers against foreign competitors and which create anti-competitive market distortions (see also Overcapacity). To policymakers and free trade negotiators, competition is therefore about creating (or not) rules equally applicable to all so as to facilitate the fair development of cross-border trade while limiting market distortions (see also free trade negotiations, protectionism and subsidies).
The ‘Doha Round’ designates the negotiation round which started in 2001 in Doha under the World Trade Organization’s supervision. While the previous Uruguay Round had delivered in terms of intellectual property protection and services facilitation, the Doha Development Agenda ambitioned to give developing economies a better access to international trade and markets by providing them with a legal framework for free trade. In reality, however, the multilateral negotiations ended in a deadlock because the negotiators never reached a consensus on agricultural products, a highly competitive sector where public subsidies have a major role to play but, at the same time, have important distorting effects on markets. As a result, the round has been delayed until it was terminated in December 2015 during the Nairobi Ministerial Conference where the negotiators eventually agreed to disagree and to move on. Meanwhile, countries have started to negotiate outside of the WTO, so that the Doha Round is also being criticised as the Round which demonstrated the Organization’s inability to reach satisfying agreements on trade (see also free trade, WTO and multilateralism).
Free trade is a cornerstone feature of the modern political economy, based on the idea that markets ought to evolve depending on offer and demand, without interference from the state. The theory was originally developed by philosophers and political economists such as Adam Smith (The Wealth of Nations, 1776) and David Ricardo (Principles of Political Economy and Taxation, 1821), who believed that competition, the division of labour, the value given to labour, and the theory of comparative advantages – i.e. states should focus on selling what they produce best and rely on others to acquire what they cannot manufacture in a satisfactory manner – could prevail over mercantilist methods. This idea of mutually beneficial specialisation is nowadays at the heart of modern free trade, and countries organise the opening of markets and the reduction of barriers to this extent, at the multilateral level through the World Trade Organization or at the bilateral – and increasingly regional – levels through numerous free trade negotiations and agreements (see also free trade negotiations, free trade agreements and mega-agreements). Free trade however fails to reach unanimity and in reality various barriers have appeared, starting with protectionist measures taken by states to support their industries, or with civil society protests carrying anti-liberal messages (see also protectionism and liberalism).
FREE TRADE AGREEMENTS
Also known as FTAs, free trade agreements are the final outcomes of free trade negotiations (see also ‘Free Trade Negotiations’). As treaties, they create rules of international law which bind their signatories. Historically, trade agreements used to be negotiated on a bilateral basis in parallel to bilateral investment treaties promoting cross-border investments. In modern times, however, trade agreements involving multiple countries and covering additional issues such as investment or competition are becoming the norm. As of today, in fact, mega-regional agreements such as the TPP (Asia-Pacific), the T-TIP and CETA (Europe) or RCEP have become key features of the global political economy, even though they are increasingly controversial in many jurisdictions (see also free trade, mega-agreements).
FREE TRADE NEGOTIATIONS
Negotiations aimed at facilitating trade relations across borders have taken place constantly over the past decades, in line with free trade theories based on the idea that free markets are mutually beneficial (see also free trade). Amongst the main goals are greater market access and the prohibition of discrimination, but over the years numerous topics have been added to the negotiation agendas. At the level of the World Trade Organization (WTO), multilateral negotiations have focused on trade in services, intellectual property protection and agriculture (see also Doha Round and multilateralism). In parallel, bilateral and regional negotiations have furthermore included issues such as investment, competition or financial services into the scope of negotiations (see also free trade negotiations).
The Free Trade Agreement of the Asia Pacific (FT-AAP) is a mega-agreement project which attracts much attention because of its highly political nature (see also mega-agreements). Originally launched as a regional cooperation effort under the leadership of the United States, it eventually became a Chinese-led effort when Washington rather focused on developing its own Trans-Pacific Partnership agreement with Asia-Pacific partners, excluding China (See also TPP). So far, the FTA-AP is at the project stage and is far beyond the agreement reached by the TPP partners. However, it would likely include more members than the TPP and, with the announced US withdrawal from TPP following President Trump’s change in trade policy, the APEC – of which the United States is a party – insisted during its 2016 Summit on the importance of making progress on Beijing’s FTA-AP efforts. Hence, the FTA-AP, if ever negotiated, signed and ratified, could give the APEC an important coordination role while granting China an important policy and rule-maker status in terms of international trade. To be continued…
Globalisation is probably the easiest and most efficient word available to characterize and describe the current global political economy, but defining it is difficult because it requires taking into account a variety of dimension and variables. In the main, globalization comes with a major paradigm shift: whilst trade, politics, law, technology, philosophy or culture used to be local, all these have nowadays gone global. Technology has allowed fast globe-wide communications, culture has become a border-less concept largely influenced by American or Asian trends, while freedom of movement has allowed the people to see the world. Globalisation naturally has an economic dimension too. Capitals, goods and services are now truly mobile, companies have become worldwide legal structures capable of using local particularities to suit their needs while integration, free trade doctrines and the fall of frontiers and tariffs have become the norm. Of course, the word is also very political in essence. the facilitation of movements and the opening of markets has been made possible because global policies and rules have been put into place, while local and regional politics have played a double role, both as catalysts or killjoys (see also regionalism, protectionism and nationalism). Inevitably, globalisation is also used as a bad word, to denounce all the excesses of today and tomorrow’s liberal and liberalisation-focused political economy: job losses, competition amongst countries to attract investors, or the idea that while the system does not serve all equally it is now for countries to fit into the integration mould designed by the powerful.
The current political economy is characterized by its globalized and liberal nature (see also Globalisation), but liberalism is a broad and multilayered concept which nowadays is also used in a generic manner to describe neo-liberal ideologies. Liberalism, originally, is a political philosophy according to which individual freedom and market self-regulation bring economic, civil and cultural progress. In other words, promoting and preserving individual freedoms related to speech, religion or worship is as important as ensuring that markets remain free of public intervention, which shall be restricted to protecting the rule of law and private property, democracy and individual freedoms. In the 1930’s, however, this definition of liberalism evolved with the ideology developed by John Meynard Keynes (General Theory of Employment, Interest and Money, 1936) who suggested that state interventionism would actually be necessary to counter certain market failures and stimulate demand. In fact, Keynesian liberalism became the prevailing doctrine in the post-WWII era, where large economic support took place under the Marshall Plan aimed at re-building Europe. In modern times, however, liberalism is used as a generic term to describe neo-liberalism, a model based on the continuous breaking of trade barriers to achieve development. Neo-liberalism started after John Williamson’s suggestion of ten principles for the sound management of economic difficulties in South America, including the necessity to conduct sound fiscal policies to avoid deficits, better public spending aimed at infrastructure more than subsidies, tax and exchange rate reforms, privatisation, deregulation and, more significantly, trade liberalisation, investment liberalisation and the protection of property rights. Hence, in the following years, these standards of sound economic management became the norm for neo-liberals who soon gave liberalism and the modern political economy an increasingly large free-trade and investment dimension under which the removal of trade and investment barriers and restrictions would increase economic, social and cultural development and efficiency (see also free trade and liberalisation).
Today’s political economy is largely liberal and, at the global policy-making level, is particularly characterized by extensive liberalization policies aimed at reducing or breaking barriers to free trade (see also free trade and liberalism). Liberalisation is partly organised within the World Trade Organization where the facilitation of trade in goods and services is promoted through large-scale multilateral trade negotiations, however in recent years and following the failure of the Doha Round the world has seen important liberalisation negotiations taking place on a bilateral basis or, increasingly, through mega-agreements characterised by their regional and preferential dimension (see also multilateralism, free trade negotiations, mega-agreements and regionalism). Increasingly, however, liberalisation is facing criticisms and, whilst its opponents used to be described as extreme anti-globalisation activists protesting against G-20 meetings, criticisms questioning a lack of representation and demanding job preservation policies are nowadays heard far more loudly, giving rise to increasingly protectionist and nationalist policies, not to mention Brexit (See also protectionism and nationalism).
Market access is a cornerstone principle and core objective of liberalization and trade negotiations which, over the past decades, have aimed at facilitating trade in goods and services across borders. Simply put, market access negotiations are about making sure that trade actors are given a reciprocal right to access foreign markets in a fair, transparent and non-discriminatory manner. Discrimination, here, aims at ensuring that foreigners are to be treated as equals to domestic business actors (the ‘National Treatment’ dimension) and that there should be no difference between foreigners, wherever they come from (the ‘Most-Favored Nations’ dimension). In other words, since all free trade agreements would typically include a market access provision, any new bilateral or plurilateral trade negotiation is about giving nationals of the signatories a preferential and reciprocal right to access the domestic markets of the other signatories.
The notion of ‘market economy’ is a contentious aspect of the modern political economy which is strongly related to the concepts of free trade, liberalism and liberalization. Simply put, market economies – in contrast with centrally-planned economies – are guided by the inputs, interactions and economic decisions of private economic actors rather than by the interventions and planning of central governments. In theory, market economies would be characterized by the idea that investment, trade, production and distribution decisions (not to forget prices) are determined by demand and offer, without public intervention or public subsidies. In practice, most developing and developed economies however rely on subsidies to either promote or protect their industries from exterior competition, which has created major deadlocks during the Doha Round negotiations over the past 15 years. Hence, this criteria is only partially reliable and in practice whether a country has a market economy would rather depend on whether its does play by the rule – i.e. refrains from intervening and allows the private sector to drive the economy. Currently, the market economy issue is particularly polemical, particularly in the Chinese context, because China’s economic model is largely based on central planning, subsidised industries and state-owned enterprises (SOEs) investing in key sectors both domestically and abroad. This is particularly visible with the highly contentious steel overcapacity issue which has led major international actors such as the United States or the European Union to impose important tariffs on Chinese steel products in order to preserve their domestic producers from cheap steel products, while refusing the idea of recognising China as a market economy.
Mega-Agreements or mega-regional agreements are an increasingly component of the modern political economy. Following the failure of the Doha Round negotiations and the inability of the World Trade Organization to drive free trade negotiations under the multilateral model, leaders and negotiators have since the years 1995 had recourse to bilateral and plurilateral liberalisation and market access facilitation talks which, recently, have increasingly taken the form of large regional agreements regrouping 10+ to 50+ countries. For instance, the NAFTA agreement was the first large regional treaty between the US, Canada and Mexico, but larger treaties between the US and eleven countries of the Asia-Pacific region (the TPP), between the US and Europe (the T-TIP), between Europe and Canada (CETA), between the South-East Asian countries (ASEAN), between the ASEAN and its partners (RCEP), or the FTA-AP amongst Asia-Pacific countries (FTA-AP) are currently the focus of many discussions. In addition, the Trade in Services Agreement (TiSA) can be cited for its very large scale (50+ countries) even though it focused on services liberalisation more than on regional cooperation.
Multilateralism has long been a cornerstone principle for shaping the global trade system. As the guiding mechanism of trade negotiations under the World Trade Organization (WTO), the term ‘multilateralism’ has long been used to describe the idea that policymaking was to be made by consensus only. However, the ‘all or nothing’ principle has failed to generate results and in reality the negotiating countries have refused to fit in a ‘one size fits all’ mould. Instead, they have used multilateral negotiations as a bargaining chip to either obtain concessions or block negotiations when such concessions would not take place. As of today, multilateral negotiations have thus been stopped (see also Doha Round) for this very reason and regional negotiations have largely taken over (see also regionalism and free trade agreements).
Nationalism is one of the political movements appearing as a response to globalisation. While today’s world is increasingly interconnected with more free trade and converging liberal politics at the global level, a fear of liberalisation has progressed, leading more and more to the idea that better representation could only be achieved by giving preference to national interests and priorities. In economic terms, the failure of multilateralism has led to a wave of constructive regionalism, but in other circumstances nationalism has been about setting a rather protective form of politics. At some point very common in South American countries, nationalist doctrines are now gaining weight in other economies with various countries – including President Trump’s United States – now promoting a certain form of protectionism. In social, cultural and political terms, the trend has thus given a larger voice to nationalist groups, particularly in Europe.
The North American Free Trade Agreement (NAFTA) was signed in 1994 as the first trilateral and regional trade agreement, by the United States, Canada and Mexico. The agreement was a very important step in global trade negotiations because, at a time where trade policy was only made by consensus under the WTO’s multilateral model (see also multilateralism), it included into a single document the views of three countries on various issues – including trade in goods, government procurement, investment, services or intellectual property – which were discussed more complexly (or nor) at the multilateral level.
OBOR (One Belt One Road)
The OBOR or ‘One Belt One Road’ is a large scale trade development project launched by the Chinese Government in order to expend the reach of Chinese businesses towards European markets. Geographically, the OBOR project is about giving enterprises access to a vast amount of countries (and markets) between China and Europe, either through air, sea or lands. Strategically, OBOR is about sustaining the Chinese economy, not by supplying the world with cheap products as was before, but by putting into place large scale infrastructure developments along the way, so as to make the former Silk Road a modern and efficient trade mechanism. Hong Kong, in particular, is expected to benefit from OBOR by becoming an even more important financial place in Asia. however, although some projects are already being finance, the precise content of the OBOR plan is largely unknown at the moment. To be continued…
The Organization of the Petroleum Exporting Countries (OPEC) is and intergovernmental Organization created in the 1960’s and nowadays regrouping 12 countries from the Middle-East, South-America and Africa, with the aim of ‘co-ordinat[ing] and unify[ing] petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry’ (source: opec). Currently, the OPEC organization is particularly involved in the various complex and highly political negotiations – within OPEC but also with Russia – aimed at taking decisions on potential oil production cuts, with the objective of guaranteeing barrel prices in the future.
Overcapacity is a problematic aspect of the current global political economy. Generally related to the Chinese steel production industry, it describes the subsidised overproduction of steel by Chinese manufacturers at unbeatable costs. The trend has been a key aspect of the Chinese economic development model which until recently relied on massive exports and progressively transformed China into the de facto world’s workshop for textiles, consumer and electronics or steel products. In relation to steel, however, the model – mostly organised through subsidised state-owned companies (see also SOEs) – has created more offer than demand and has generated important stocks of cheap steel products which have by the same token made the global prices fall. Currently, steel overcapacity is therefore a major topic for discussion and negotiation between China, the United States and the European Union, which are refusing to recognise China as a Market Economy and impose increasingly high taxes on Chinese steel products to protect their markets and preserve their producers from unfair competition.
Protectionism is one of the answers adopted by various countries as an answer to globalisation and to counter the potentially negative effects of trade liberalisation. At the level of the World Trade Organization (WTO), the emphasis is put on the promotion of liberalisation and the fight against protectionism. However, while the modern political economy is largely based on free trade, market opening, free competition and the prohibition of subsidies, many countries find that in order to protect their industries from cheaper foreign producers – and from countries which do not play by the rules – their domestic markets must be protected. Recently, for instance, protectionism has been largely advocated by nationalist ideologies in Europe whilst the word has also been largely cited during the presidential campaign in the United States, notably in response to Chinese policies supported by subsidies and central planning and leading to issues such as steel overproduction largely affecting steel producers worldwide.
The Regional Comprehensive Economic Partnership (RCEP) is one of the currently negotiated regional mega-agreements aimed at promoting and facilitating trade. Focusing on the Asia-Pacific Region, it aims at creating a free trade regulatory framework between the ten ASEAN countries and the states with which the ASEAN organisation already has free trade agreements – i.e. Australia, China, India, Japan, South Korea and New Zealand. The RCEP negotiations were formally launched in November 2012 and are frequently criticised for being both unambitious (regarding environmental and social standards especially) and never-ending, nonetheless, the RCEP agreement could be significant. First, it would create a 16+ framework for trade liberalisation including China and India – whilst the TPP agreement regrouping 12 Asia-Pacific countries excluded those two countries – and would thus have a possibly significant reach because it would apply to about 30% of world GDP. Second, by being implemented – in contrast with TPP from which the US withdrew, it would send the message that the Asia-Pacific is moving forward with liberalisation. Hence, RCEP could – together with the ASEAN agreement – constitute a significant progress in terms of regionalism as well as a political and economic integration step in the Asia-Pacific region.
Regionalism is a significant trend in the current political economy. In practice, due to the failure of the Doha Round and the inability of the World Trade Organization to achieve successful negotiations over the past fifteen years, regional efforts have progressively replaced ‘multilateralism’ as the prevailing trade negotiation system, with various large-scale regional mega-agreements such as the TPP, T-TIP, CETA or RCEP agreements negotiated by multiple partners on a regional preference basis.
State-Owned Enterprises (SOEs) are business entities partially or fully owned by states, and which have the purpose of executing commercial plans as set forth by governmental policies. In the Middle-East, SOEs are created to manage and maximise the investment and efficiency of oil-cash, globally. In China, in contrast, SOEs are relied upon to invest both in domestic strategic industries (such as the steel industry) and abroad, through the acquisition of foreign strategic entities. SOEs are one of the issues at the centre of the overcapacity and market economy controversies currently discussed between China, the United States and the European Union.
Subsidies are large amounts attributed by states to support an industry during its development, both on domestic and international markets. Subsidies together with custom tariffs are amongst the issues dealt with within trade negotiations under the World Trade Organization (WTO), because they are considered as having negative distorting impacts on markets. As far as countries are concerned, subsidies are a never-ending controversial issue because their legitimacy varies depending on the perspective. For the United States and the European Union, for instance, the Chinese subsidies on steel have led to overproduction and have flooded markets with cheap steel – that producers would not be able to produce without state support – but to Chinese producers such support is key to accessing global markets. To the contrary, agricultural subsidies paid by the European Union are defended as being essential to the survival of European farmers incapable of facing the competition created by developing economies, while the said developing economies have requested for years that such subsidies be cancelled and market access given granted to them.
The Trans-Pacific partnership (TPP) is a free trade Agreement which negotiation has been led by the United States with eleven countries of the Asia-Pacific region. The TPP negotiations started in 2008 as an extension of the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP) between Brunei, Chile, New Zealand, and Singapore (2005). Led since then by the United States, it aimed at creating a broad Asia-Pacific trade cooperation with countries representing about 40% of global GDP (Australia, Canada, Japan, Malaysia, Mexico, Peru and Vietnam), while negotiations opened to various matters – Investment, Sanitary and Phytosanitary Measures, Financial Services, Telecommunications, Electronic Commerce, Government Procurement, Competition, SOEs, Environment, etc. – not otherwise discussed as part of multilateral talks under the WTO. In December 2016, after months of an anti-trade presidential campaign, President Elect Trump however reiterated that protectionism against China would be key to making ‘America Great Again’ and announced that withdrawing from TPP would be his first measure, thus bringing to a stop an agreement otherwise signed by the other partners.
Like the TPP negotiations, the Transatlantic Trade and Investment Partnership (T-TIP) is a free trade regional mega-agreement proposal negotiated by the United States with the European Union. As the TPP, and in line with regionalism trends lately, the T-TIP only operates on a regional preference basis and introduces into the scope of negotiations various topics not included into WTO talks so far, however political pressure after the Brexit have led political leaders in Europe to suggest that the agreement would not be in their interest and would essentially serve the United States. Hence, the future status of the agreement is uncertain at the moment.
World Trade Organization
The World Trade Organization was created in 1995 as a result of the Uruguay Round of negotiations, under the General Agreement on Tariffs and Trade (GATT) which lasted between 1986 and 1994. Designed as a forum for trade negotiation and trade facilitation, the WTO regroups 164 members and aims at fighting protectionism, at creating global frameworks on a consensus basis (see also multilateralism), while offering a dispute settlement mechanism regularly relied upon by states complaining from the trade-distorting and anti-competitive measures taken by their counterparts. In reality, however, the Doha Development Agenda launched in 2001 led to a global political deadlock because developing and developed economies would not reach a unanimous consensus on agricultural subsidies issues. Hence, the ability of the WTO to coordinate and serve as a catalyst for trade negotiations in the future is being questioned, while in practice its member states have progressively conducted alternative bilateral and plurilateral negotiations which nowadays generate mega-agreements.