International Economic Institutions – Wake-up Call for the United States and Europe

April 21, 2007

The Atlantic Council issued a strong wake-up call for the United States and Europe. In its report (mentioned in my previous post regarding the WTO) entitled “Transatlantic Leadership for a New Global Economy”, it urges the United States and Europe to lead the way in building a new international institutional architecture for the world economy. It argues that globalisation has fundamentally changed the current economic and political power equilibrium, rendering the international governance architecture based on Bretton Woods, created at a time where the US and Europe were the sole important heavyweights (apart from the USSR..), irrelevant today. The US and the EU need to lead the way to changing the current institutional framework. Given the current state of play in world affairs, a very welcome wake-up call. The policy conclusions are the most interesting and highly relevant. Here they are:

“The United States and the European Union should convene the major and emerging economic powers in a Conference on Global Economic Governance aimed at restructuring the existing institutional architecture along the following lines:

  • To prepare the World Bank and the International Monetary Fund for new the global economy:

• The heads of the IMF and the World Bank should be chosen on merit;
• Emerging economies should have greater voting power, while European representation is consolidated
into two seats, eurozone and non-eurozone;
• The roles of the World Bank and IMF should be more clearly delineated so they are better able to
cooperate, and the executive directors should be “double-hatted;”
• Planning should begin now for a merger of the Bank and the Fund by 2030.

  • A restructured G8 should be the forum for strategic discussions among major governments:

• The G8 at the heads-of-state level should focus on political issues;
• The fi nance ministers, in a new “G7 Plus” format, should become the primary advisory body of the
global economy, and be open to leading emerging economies, including Russia, China, India, Brazil,
South Africa, South Korea, and others;
• The U.S. and the EU should reinvigorate their bilateral consultations and summit process.

  • The Organization for Economic Cooperation and Development (OECD) should:

• Maintain its role as the economic club for democracies and market economies, while broadening
its membership and strengthening its role as a testing ground for creative thinking on economic issues.

  • The International Energy Agency (IEA) should be enhanced to deal with a global energy market:

• The IEA should develop special partnerships with China, India, and other non-OECD consumers,
with a clear timetable for membership;
• The IEA should engage in a more extensive dialogue with the producer states;
• The enhanced IEA should be given a mandate to facilitate cooperation over natural gas supplies in
case of emergency.

  • The WTO must be preserved and strengthened as a major institution in the management of the global economy. To that end, the United States and the EU should:

• Push for bilateral and regional trade accords to be compatible with WTO requirements;
• Strengthen the successful WTO dispute resolution process by making it more transparent — by opening
hearings and appeals to the public and allowing non-parties to fi le amicus briefs — while working
with developing countries to improve their capacity to enforce trade agreements.

  • The United States and the EU must also exert leadership by showing a new way forward in reducing trade barriers. As a fi rst step toward a more open global market, the U.S. and the EU should negotiatea series of agreements aimed at creating a barrier-free “Enhanced Transatlantic Market.” They should:

• Establish a barrier-free Transatlantic Investment Market, removing obstacles to foreign ownership
except for narrowly defi ned national security restrictions;
• Launch negotiations for a Framework Regulatory accord, along the lines proposed by Chancellor
Merkel, and with guidelines for the process of establishing regulations;
• Liberalize market access for developing countries by moving their trade preferences for those countries
toward a single set of rules.

The United States and the European Union must lead a broader effort to remove trade barriers in the global economy by engaging major trading nations in negotiating WTO-compatible accords. Specifically, after the conclusion of the Doha Round, the United States and the European Union should engage their partners in a set of negotiations using the concept of variable geometry to:

Work with like-minded WTO members to eliminate barriers to trade in products and services over
the next ten years, extending those reductions on an MFN basis while ensuring that “free riding” is
minimized;
• Negotiate accords with interested WTO members to liberalize market access in specifi c sectors;
• Work with like-minded WTO members to reduce additional barriers that extend across sectors in such
areas as competition policy and government procurement.

  • The United States and the European Union must work to strengthen the global energy market by:

• Reinforcing market mechanisms, with an emphasis on transparency and governance;
• Developing a more united policy toward Russia and its energy companies;
• Identify joint action to protect energy supplies and critical infrastructure;
• Launch a new, jointly funded effort to develop future energy technologies as part of a new post-Kyoto
international consensus;
• Push the global community to establish an international nuclear fuel cycle bank.”

Yes, the US and Europe can no longer assume they are leading the game. The institutions they created after the war are in crisis: their legitimacy, purpose, and effectiveness have suffered dramatically. They must overcome the remainders of domination complexes, acknowledge an in fact so welcome shift in the world economy in which new countries are achieving substantial prosperity for their populations, and, by acting now, make sure that they remain the ones who shape it in such a way that freedom, peace and prosperity prevail. (If not, we will have, indeed, a “multi-polar” world where Putin and Hu Jintao have a bigger say – do we want this?)

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