Pulling in two directions

To what extent can nations take economic policy decisions within the country which won't be challenged at the WTO? The principle of “full sovereignty” would argue that the interests of the nation concerned are paramount and that, therefore, there can be no valid external constraints on such policy action. But is it feasible to promote such an outlook today?

Take the current global economic crisis where each economic power is trying to take the “best” possible measures to prevent activity within their frontiers from going beyond the point of no-return, as it were. Quite clearly, as the history of international economic cooperation has shown since the 1940s, global cooperation is the best possible way forward in such crises situations, the policies of each and every major player being dovetailed into that of its “economic neighbour” to get the most effective results globally.

LEVEL PLAYING FIELD

Theoretically, therefore, the efficacy of the global approach, as opposed to individual nation-initiatives, has worked despite the thorns and nettles in the way of implementation. The question is: will this mechanism hold good for the 21st century, in view of the fact that the rift between the “old rich”, on the one hand, and the “new rich” and the poor, on the other, has widened today compared with the time when the “old rich” called the shots?

Take, for instance, the recent view of the US Treasury Secretary, Mr Timothy Geithner, who focused attention on the “cooperation” of some other economies in making domestic US financial measures effective. Delivering an address at the Treasury last week, he said that “globalised financial markets mean that dangers to the US economy can arise from anywhere, and thus make a more level playing field vital”. More specifically, he said this was “particularly important in the reforms that toughen rules on capital, margin, liquidity and leverage, as well as in the global derivatives market”, and that, importantly, the US was “working to discourage other nations from applying softer rules to their institutions, in order to attract financial activity away from the US market and US institutions”.

It is evident that, to get the level playing-field Mr Geithner wants, Washington may have to use methods more forceful than just persuasion. The important point is that it may be more difficult to attain the goal today than it was 30 years ago, the danger being that the effort to attain the goal may lead to some other problems, with a bearing on the shifting strategic international scenario.

FRAGMENTATION

Another example is the recent ruling by the WTO appellate body on the case involving China and some other countries, including the US and the EU, on export restrictions on raw materials. Briefly, the substantive issue is that Beijing slapped restrictions on the export of some raw materials, which were shot down by the WTO dispute settlement mechanism. Among other things, this underscored the pre-eminence of global trade interest as codified in GATT 1994 and the Marrakesh Accord setting up the WTO vis-à-vis the interpretation of domestic, economic and environmental interest, in this specific case, by Beijing. Significantly, this move has come at a time when these economic powers which won the present case have been unable to agree on the Doha Round of multilateral trade negotiations.

While the urgent requirement for resolving global economic issues is concerted international action, the globe itself is becoming increasingly fragmented by economic powers of all hues promoting their own interests. A meeting point of the two is indispensable for the international economy to develop further, for which we need statesmen with stature.

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