The remarkable shift in the locus of global economic dynamism over the last two decades has paralysed multilateral rule-making on a range of economic issues. The stalemate in the World Trade Organisation and the climate change negotiations, as well as the lacklustre showing of the Group of Twenty (G20), are symptomatic
of the tussle between the Group of Seven (G7) economies and the emerging economies over the price the latter group must pay to sit at the high table.
Despite the frenetic activity in Geneva, there is little possibility of a deal on the Doha Round over the summer. In the climate change negotiations, despite some progress in Cancun in December 2010, there are no signs of thaw on the main issue — the reluctance of many developed countries, especially the US, to deliver on the binding commitments they had taken under the United Nations Framework Convention on Climate Change (UNFCCC) to significantly reduce greenhouse gas (GHG) emissions. The much-heralded G20 has been unable to rise to the expectations of a global economy experiencing severe turbulence. The early promise of concerted action on critical issues like global imbalances, exchange rates, fiscal and monetary policy coordination and commodity price volatility, remains to be realised.
While the issues at the heart of the impasse are complex and involve many actors, the common denominator is the differences between the G7 countries and emerging economies like Brazil, China and India on their contributions to the outcomes. The stalemate can only be broken by a political rapprochement on “burden sharing” between the two sides. Regrettably, the present economic and political situation in these countries makes such a rapprochement difficult in the near term.
The major issue impeding the conclusion of the Doha Round is the insistence of the US that emerging economies like Brazil, China and India provide deeper market access in all areas — agriculture, industrial goods and services. At the same time, there is little clarity on what the US can bring to the table. In the absence of the Trade Promotion Authority, the US administration has limited negotiating flexibility and continues to pitch its demands at levels which are clearly unrealisable.
Despite his best intentions, US President Barack Obama, at odds with Congress on a range of issues, will find it difficult to push a Doha deal through Congress, which does not include major new concessions from emerging economies, especially China. There are no indications that the emerging economies are prepared to dig deep into their pockets to make the deal palatable to US Congress.
The climate change negotiations display a similar divide. The position of the US that it will only agree to commitments which its Congress legislates and that these commitments will not be subject to international compliance procedures has brought down the bar considerably on what can be achieved.
At the same time, the insistence of developed countries that the emerging economies accept binding commitments to reduce their GHG emissions alters the discourse fundamentally. A major element of the principle of equitable burden-sharing in the UNFCCC is the need for developed countries to reduce their emissions in order to provide carbon space that developing countries need for their development.
The long-term cooperative action agreed to in Cancun commits developing countries to greater international scrutiny through “measurement, reporting and verification” of their mitigation actions as well as a process for international consultations and analysis (ICA). It thus goes a considerable distance in meeting the demand of developed countries that developing countries make verifiable commitments. But there is little indication of long-term commitments by developed countries to provide financial resources or facilitate technology transfers to enable developing countries to meet the obligations they are being asked to undertake.
In both negotiations, emerging economies like India find themselves in a similar dilemma. Given their increasing role on the global stage, they have a strong stake in the success of multilaterally agreed outcomes. Yet the price they are being asked to pay could require them to compromise on their development imperatives.
An example of this is the demand of the US in the Doha Round negotiations that emerging economies bring down tariffs in key industrial sectors to near zero levels. This poses a huge policy conundrum for India because of the large employment potential of these sectors.
India expects to add around 60 million to its labour force in the next five years, and its manufacturing sector will have to play a major role in providing new employment opportunities. The National Manufacturing Policy under finalisation seeks to expand the contribution of manufacturing to gross domestic product (GDP) from the present level of 16 per cent to 25 per cent in 10 years. Among other things, this will require maintenance of minimum tariff protection in identified sectors.
Similarly, constraints in availability of international funding and environmental technology will hamper India’s ability to implement more ambitious policies to moderate the rise in its GHG emissions. India’s energy deficit is a major constraint on its development and its most abundant energy endowment is high ash coal. This limits its policy flexibility in meeting its energy demands, especially in an international environment, which does not facilitate a shift to more environment friendly but expensive options.
The recent joint intervention of the G7 to limit the yen’s rise provides a counterpoint to the relative ineffectiveness of the G20 in addressing global monetary and financial challenges. The latest round of meetings of the G20 has highlighted the difficulty of arriving at actionable consensus on issues where there are divergent interests among members.
Despite these difficulties, emerging economies have no real option but to persist with the multilateral process while strengthening their policy structures domestically to conform to putative global consensus on key global challenges. India’s National Action Plan on Climate Change is a good example of such policy actions.
At the end of the day, however, the logic of globalisation demands multilaterally agreed solutions. For this to happen, emerging economies will need to find the way forward on key issues in multilateral negotiations without compromising on their national development objectives.
That is a tight rope to walk and demands greater diligence and transparency in domestic policy-making to identify areas of flexibility. At the same time, consultations in formats like the Brics (Brazil, Russia, India, China and South Africa) and India, Brazil and South Africa (IBSA) need to focus on how emerging economies can contribute to revitalising the multilateral process.
Ujal Singh Bhatia was India’s ambassador to the World Trade Organisation, 2004-10