Sumalatha K C

E-mail: 20jsia-skc@jgu.edu.in
M.A. (D.L.B.), Jindal School of International affairs, O.P. Jindal Global University


The interface between Regionalism, Multilateralism, Globalization has influenced global trade, the World economy, and international relations. Jagdish Bhagwati’s (Bhagwati, 1993) famous phrase “Regionalism building blocks or stumbling blocks” has made economists grapple with this debate. Globalization being deep-rooted and rising regional institutions have raised another debate whether Regionalism challenges Globalization or builds on it? This paper analyses the question from the perspective of these debates and highlights some of the challenges posed by emerging regional institutions like BRICS, RCEP to globalization and concludes that the current and future challenges require cooperation between regionalism, multilateralism and globalization rather than one vs another to address the dynamic global issues.

INTRODUCTION

Jagdish Bhagwati (1991) in his analysis of “Regionalism Vs Multilateralism”, gave a memorable Phrase, Are Regional integration arrangements(RIA) “Building blocks or Stumbling blocks” or a stepping stone towards multilateralism? (Regionalism versus Multilateralism, 1996) This has created a plethora of literature in the economy. Since the multilateral institutions are the means to ensure globalization and achieve global free trade,  whether RIA is good or bad for the multilateral system also pertains to the interface between RIA and globalization. To this effect, many researchers switch focus from the immediate consequence of economic welfare of the regional partners to the question of whether these regional integrations encourage or discourage evolution towards globally free trade.

This paper contributes to the current research of interface between regionalism, multilateralism, and globalization to analyse whether regionalism challenges globalization or build on it from the perspective of Regionalism vs Multilateralism. The paper is divided into the following sections: Section I explaining Regionalism, Multilateralism, Globalization. Section II providing a brief analytical framework of Regionalism vs Multilateralism. Section III, IV analysing the interface, and Challenges with emphasis on BRICS, RCEP. Section V deals with the aspect of co-operation and possibilities. Section VI containing final elaborations and conclusion.

I. Explaining Regionalism, Multilateralism, Globalization

Today we live in an interdependent and globalised world. The economy, trade, food and water security, energy security, environment, and peace are so interlinked between the countries, that no nation can claim self-sufficient or sustain in autarky. This global interaction accentuated the importance of Regionalism, Multilateralism, and Globalization.

Regionalism

Regionalism is loosely defined as any policy designed to reduce trade barriers between a sub-set of countries, regardless of whether the countries are contiguous or close to one another (Winters, 1996). Groupings like the European Union (EU) ASEAN, BRICS, RCEP are examples of Regionalism. The aspects favouring regionalism are:

  • Creating a viable economic unit
  • Economies of scale
  • Collective bargaining on the international scene.
  • Means of better resource management
  • Achieving sufficient size
  • Better overall development

Multilateralism

It is multiple countries working together on a given issue. Multilateralism is the character of today’s world economy or world economic system. According to Alan Winters (Winters, 1996), Multilateralism implies the degree to which discrimination is absent – Perhaps the proportion of trade partners that receive identical treatment and the extent to which the country’s trading regime approximates free trade.

The validity for Multilateralism from the Geopolitical perspective:

  • In a world dominated by powerful countries, Multilateralism provided an option for protecting and projecting national interests.
  • Multilateral, rule – based international regimes limit, though not fully constrain, the resort to unilateralism which is the hallmark of hegemony behaviour.
  • Multilateral financial and technological assistance has a lower political price to be paid than bilateral assistance.

United Nations (UN), WTO are examples of international institutions promoting multilateral arrangements. But Multilateralism is losing ground and becoming weaker and the fallout of Globalization effect accentuated the process further.

Globalization

Globalization has been defined as a vision of a borderless world organised mainly through the market principle. (Viswanathan, 2015) It strengthens of the functional dimension of development and the weakening of the territorial dimension of development. Globalization is not a new phenomenon; its existence can be found in the history of the past 100 years. The evolution can be seen under the following lens:

Globalization 1.0

It was pre-World War I Globalization that came with almost no government support, no global governance but made possible by the invention of steam and other forms of mechanical power. It took place under laissez -faire capitalism, imperialism and autocracy.

Globalization 2.0

The Post-world War II Phase was when trade in goods was combined with domestic policies, market, and government. Internationally, this phase saw the establishment of institute-based, rule – based, international governance like UN, IMF, WB, GATT / WTO.

Globalization 3.0

Richard Baldwin Call this phases ‘New Globalization’ (Baldwin, weforum.org, 2018). The key feature of this phase is factories crossing borders, the development of new technology like the internet, global integration of value chains.

Now the world is entering into the latest stage: Globalization 4.0 ( (Schwab, 2018); the digital revolution, involving cutting edge new technologies like Artificial Intelligence (A.I) that power forward with the explosion of information technology. This globalization process has impacted both regionalism and Multilateralism. How the dynamism of today’s world influences, the  relationship between them is analysed in the further sections.

II. Regionalism Vs Multilateralism

Free trade for all was enshrined by Adam Smith, Ricardo. This free trade for all is envisaged through multilateral institutions and eventually leading to Globalization. Jacob Viner’s classic analysis of the free trade benefits distinguishing between trade diversion and trade creation has led to the inquiry of Free trade association ( FTA ) welfare improving notion.

Trade creation refers to an expansion in world trade that results from the formation of a preferential trade arrangement (FTA & CU) (Husted & Melvin, 2013). Trade diversion is a shift in the pattern of the trade from low-cost world produces (Comparative advantage country) to higher cost FTA or CU Members. (Husted & Melvin, 2013) These effects on international trade led to questioning the purpose of GATT Article XXIV that permitted FTA’s & CU’s.

Article XXIV has been criticised for its weak enforcement. And multilateral organisation like WTO’s failure to arrive at a viable multilateral framework, failure to arrive at a consensus at Round Table, led to regional fragmentation and encouraged the spread of defensive regionalism.

The problem was aptly summed up by former Indian Prime Minister Manmohan Singh, “Non-workability of the existing structures has led to greater reliance on Plurilateral groupings”. (Viswanathan, 2015) But the rising Regionalism has a direct effect on Multilateralism.

III. INTERFACE BETWEEN REGIONALISM, MULTILATERALISM, GLOBALISATION

Regionalism challenge to Globalization with special focus on BRICS,RCEP

Alan Winters postulate that sector- specific lobbies of Regionalism are a danger to Multilateralism (Winters, 1996). They tend to stop blocs from moving to global free trade and probably increases the risk of catastrophe in the trading system. This claim also holds to Regionalism effect on Globalization, as the latter aims at the free flow of trade, goods, services, people.

Here the interface between Regionalism, Multilateralism, Globalization is analysed by examining the two cases of BRICS, RCEP.  These regional organisations fall into the category of “21st century Regionalism” (Richard Baldwin) (Juutinen & Kakonen, 2016), which captures the fact that regional organisations have arrived at the centre stage.

BRICS

The term BRIC coined by Goldman Sachs economist Jim O’ Neill represents Brazil, Russia, India, China and later joined by South Africa. The combined GDP of this grouping in 2019 is $ 46.22 billion and the two main pillars include

  • co-operation in multilateral fora
  • Inter – state co-operation.

BRICS support for multi -polar world order and its agenda include a demand for a comprehensive reform of the United Nations, World Bank, IMF. BRICS also founded the New Development Bank (NDB) in 2015, which shows the groupings ability to cooperate on a multilateral basis with equal footing with the U.S.

NDB is an international institution with an initial authorised capital of US $ 100 Billion. The rationale behind the NDB can be inferred as an alternative to the sluggish pace of reform of IMF. NDB is open for all UN Members, with the terms and conditions for membership being defined by the Board of Governors. The share of the voting power of the five original members is 55% of the total votes and the maximum voting power for any new member state is set at 7% NDB will remain an international financial institution dominated by BRICS, and is similar to the Bretton Wood bodies. (Juutinen & Kakonen, 2016)

From this perspective, it can be assumed that BRICS challenge the Globalization established by multilateral institutions and free trade market principle as envisaged by developed countries. From this standpoint it can be assumed that BRICS can change the contours of global geo-economics.

RCEP

RCEP launched on the margins of the 2012 East Asia Summit, is one of the “Mega Regional” free trade arrangements. It seeks to create 16-member trade architecture comprising ASEAN and their FTA Partners. This regional grouping accounts for almost half of the world’s population, over 30% of global GDP and a quarter of global exports. In terms of GDP and population, RCEP will constitute the world’s largest trading bloc. If India becomes its member,  RCEP is the first regional economic institution to have an Indo – Pacific geographic scope.

At the regional level, RCEP is a developing country – calibrated trade model (Seymour & Wilson, 2019). Its objectives are principally focused on liberalising barriers to goods and service trade at the border, eliminating tariff and non-tariff barriers, investment framework intended primarily to facilitate cross-border capital flows. For many developing countries, trade liberalization is challenging as tariff constitute a significant component of the State budget; competition from manufacturing imports and agricultural liberalisations constrains them in several days.  RCEP’s ambitions attempts to address these challenges for its members by avoiding more complex and costly WTO – Plus provisions. (Seymour & Wilson, 2019)

RCEP is regarded as a China -centric regional trade arrangement in contrast to TPP. These two mega-regional free trade arrangements can fragment global free trade, trade and economic harm to excluded countries (Countries that are not members) and increase trade restrictions.

Thus, from the analysis of these two regional free trade arrangements, we can see the prospect of Regionalism challenging Globalization.

IV. Other Challenges of Regionalism to Globalization

  • The Geo politicization of trade talk (Mitachi, 2015):

The surge of trade talks has taken place across the world, with a burgeoning number of negotiations being pan – regional, some being regional. These regional talks are likely to accelerate the multi polarization as oppose to Globalization. Multilateralism is sometimes referred to as a process whereby countries solve problems interactively and cooperatively (Yarbrough and Yarbrough 1992) (Winters, 1996). While such interactions could be affected by raising Regionalism.

  • Economic Warfare (Bhatia & Trenin, 2015):

Economic sanctions and restrictions are  prime tool of geo-economics. E.g., EU sanction on Russia. Economic sanctions are usually a double-edged sword, as it also hurts the country that applies sanction, and sanctions can provoke counter- sanctions. This makes the Multi National Corporation’s (MNC’s)  ‘de-globalization’ as they think twice before investing in certain markets abroad. Other consequences include changes in traditional foreign trade patterns in line with new geopolitical alignments. E.g., Russia, faced with western sanctions, accelerated its rapprochement with China thus strengthening regional ties.

  • State Capitalism (Rediker, 2015) :

There is a re-emergence of State capitalism after the financial crisis. For many years’ governments have used their ownership of companies and financial institutions to further their strategic goals. But today, they are extending their influence in powerful new ways and one way is Regionalism. The establishment of regional norms for strategic sectors is likely to  advance national interests via economic and regulatory tools.

For example, there are competing visions and standards for applying anti-monopoly tools to advance the national interest in the name of market competition. There are instances where the guise of “levelling the playing field’ is used to  justify  strategically important economic outcomes. These regional standards are increasingly being set by those countries whose national champions dominate. Example: Chinese external economic policies with regard to Belt and Road initiative (BRI) lean more towards State capitalism.

The implications of advancing the national agenda have global significance and thereby affecting Globalizations.

V. Aspects of co-operation between Regionalism, Globalization and Plausibility:

Regionalism has the potential to challenge Globalization. But from the profound analysis, it can be seen that  Regionalism is built on the interface between  Globalization, Regionalism and Multilateralism supporting each other, thus favouring Globalization.

Globalization refers to the webs of global interdependencies, forms of social interaction and the power relations that cross territorial and physical boundaries (Juutinen & Kakonen, 2016). In this sense, Globalization is not a unitary process but consist of multiple different and overlapping process. Larry Summers, wrote that regional trade arrangements are conducive to the process of economic Globalization because they share the same basic premises of commerce and thus have a common framework upon which the global trade regime can be built. (Juutinen & Kakonen, 2016)

From the standpoint of BRICS, it adheres to the traditional norms of international trade, and BRICS rise to economic prominence can be attributed to the flow of international trade. BRICS emphasise the role of macro-economic and trade policy coordination and the need to develop the public- private partnership. Within this context, it can be said that BRICS operate within the auspices of the WTO. RCEP also operate in accordance with WTO related aspects.

RTAs involve geographically proximate countries as members. But in many instances, it is problematic. For example, geographically proximate countries like India – Pakistan, India – China, USA –Russia  have rivalries affecting the regional groupings. And many of the disputes between members of the regional organisations are dealt with multilateral institutions like UN, WTO. Data by CEPR (Centre for Economic Policy Research) London shows that the success of the WTO at preventing trade wars is worth $ 340 Billion per year. According to Mina Mashayekhi & Taisuke Ito, developing countries have adopted RTAs as the nucleus of national development strategies for their progressive strategic integration into the world economy. (Mashayekhi & Ito, 2005)

Regionalism is built on Globalization can be understood from Ethier paper (Winters, 1996), that, developing countries start in autarchy. As the world grows through Globalization and liberalisation, these countries open up themselves to harness the benefit. If they reform successfully and attract an inflow of FDI these countries can gain a step increase in productivity. Therefore Regionalism, by which an industrial country offers a particular developing country a small preference on its exports, help overcomes the problem of competition by ensuring that the industrial country will invest in its partners (developing) country preferable. This is Regionalism as co-ordination, as it removes uncertainty for developing countries and encourages reforms and openness of its economy.

The co-operation between Regionalism, Multilateralism, Globalization was evidenced by WTO for concluding the Uruguay round. WTO (1995) said (Winters, 1996) “there is little doubt that …. The spread of Regionalism (was a) major factor in eliciting the concessions needed to conclude the round.

The emergence of global problems such as Pandemic, Climate change, the proliferation of weapons of mass destruction, Cyber security and many others have led to an increasing paradox of governance. The digital revolution characterised by a fusion of technologies is blurring the lines between the physical, digital and biological spheres (Schwab, weforum.org, 2016). The World now entering Globalization 4.0, where technologies shrink distances, open up borders & minds, bring people all across the globe closer together. Multilateralism promoting international cooperation remains the only way to manage these challenges.

CONCLUSION

The World has been so interdependent, and globalization has led to the deep penetration of the functional market in-to the national economies. Today, no product comes from a specific country tag. The prevailing global trend is that a product is designed in Country S, assembled in Country T, parts coming from Country X, Y and sold to the whole World from headquarters in Country Z. Thus, the final product today is “Made by World” and not by any specific country.

The static and dynamic gains of international free trade accrued by countries because of Globalization outweighs the criticism that globalization cause inequality. Manufacturing, service, investment and supply chain are closely linked. These integrated developments are ushering in a new era of Globalization. The changes that are underway today are not isolated to a particular country, region, industry or issue. They are universal and thus require a global response (Schwab, 2018). This necessitated cooperation between Regionalism, Multilateralism, Globalization, with a frame work of international cooperation becoming much more democratic, inclusive& people- centered.

This research paper supports Richard Baldwin’s (Baldwin, 2016), analysis that the World trade governance is heading towards a two-pillar system. The first pillar, the WTO, continues to govern traditional trade as it has done since it was founded in 1995. The second pillar is a system where disciplines on trade in intermediate goods &services, investment, & intellectual property protection, capital flows and the personnel movement are multi lateralised in mega regionals. And conclude by saying that Regionalism needs Multilateralism and Globalization, and there is an urgent need for a healthy symbiotic relationship. Regionalism is not against Globalization but is built on it and needs each other to face the complex and uncertain future. The paper concludes by highlighting Ramesh Thakur & Luke Van Langenhove words (Viswanathan, 2015) that “the policy authority for tackling global problems still belong to the States, while the sources of the problems and potential solutions are situated at trans-national or global levels”.

References

Baldwin, R. (2016). The World Trade Organization And The Future Of Multilateralism. The Journal Of Economic Perspectives Vol.30 No.1, 95 -115. Retrieved From https://www.jstor.org/Stable/43710012?Seq=1#Metadata_Info_Tab_Contents

Baldwin, R. (2018, December). weforum.org. Retrieved From https://www.weforum.org/Agenda/2018/12/If-This-Is-Globalization-4-0-What-Were-The-Other-Three/

Bhagwati, J. (1993). New Dimensions In Regional Integration Chapter 2 Regionalism And Multilateralism: An Overview. Cambridge University Press.

Bhatia, K., & Trenin, D. (2015). Geo-Economics Seven Challenges To Globalization Challenge One: Economic Warfare. World Economic Forum.

Husted, S., & Melvin, M. (2013). International Economics. Pearson.

Juutinen, M., & Kakonen, J. (2016). Battle For Globalizations? Brics And Us Mega-Regional Trade Agreements In A Changing World Order. Orf.

Mashayekhi, M., & Ito, T. (2005). Multilateralism And Regionalism : The New Interface. Newyork, Geneva: Unctad.

Mitachi, T. (2015). Geo-Economics Seven Challenges To Globalization Challenge Two: The Geopoliticization Of Trade Talks. World Economic Forum.

Rediker, D. (2015). Geo-Economics Seven Challenges To Globalization Challenge Three: State Capitalism 2.0. World Economic Forum.

Schwab, K. (2016, January). weforum.org. Retrieved From https://www.weforum.org/Agenda/2016/01/The-Fourth-Industrial-Revolution-What-It-Means-And-How-To-Respond/

Schwab, K. (2018, November). weforum.org. Retrieved From https://www.weforum.org/Agenda/2018/11/Globalization-4-What-Does-It-Mean-How-It-Will-Benefit-Everyone/

Seymour, H., & Wilson, J. (2019, November 4). orfonline.org. Retrieved From https://www.orfonline.org/Expert-Speak/Rcep-An-Economic-Architecture-For-The-Indo-Pacific-57242/

Viswanathan, H. H. (2015). The Changing Contours Of Regionalism and Multilateralism in  a Globalised World. ORF.

Winters, A. L. (1996). Regionalism Versus Multilateralism. Policy Research, Working Paper 1687, World Bank.


The opinions expressed in this article are those of the author (s). They do not purport to reflect the opinions or views of the Jindal Centre for the Global South or its members.


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