The mounting protectionism emanating from the US in the past month has reached a point of being one of the key risks to the sustainability of the recovery in global economic growth. But apart from the direct effects of such protectionism on the dynamism of the world economy there may be significant effects with respect to the evolving structure of economic alliances and global economic architecture. In particular, a further exacerbation in trade tensions is likely to undermine the effectiveness of global institutions such as the World Trade Organization (WTO) and raise the attractiveness of bilateral and regional alliances as an alternative to multilateralism in global organizations.
For developing economies the appeal of actively pursuing regionalism is further accentuated by a number of factors. On the one hand global institutions present a paradoxical mix of either lack of effectiveness when votes are equally distributed among countries (WTO) or notable inequality in the distribution of voting shares between developing and developed economies (IMF). On the other hand, the regional integration in the developing world is sorely lacking structure and coordination as opposed to the integration pattern in the advanced economies — suffice it to compare the patterns observed in North America vs South America and in Europe vs. Asia.
The issue hence is not a quantitative increase in the number of regional integration arrangements in the Global South, but rather a rise in coordination and quality of existing regional groups, with the coordination framework enabling developing economies to exploit synergies in the various regional integration projects. Such coordination may be performed by a set of integration platforms that seek to aggregate existing regional arrangements to come up with tangible economic dividends for developing economies in the trade, financial and investment spheres. Accordingly, the array of integration platforms may be composed of two groups – the regional integration platforms that are based on the cooperation between the various geographies of regional trading arrangements (RTAs)/ regional investment arrangements (RIAs) and secondly the financial institutional platforms of the developing world. The former group may be divided into three layers:
— Regional integration represented by such arrangements as the Eurasian Economic Union or Mercosur
— Pan-continental arrangements such as African Union, CELAC, or the proposed SCO+ (represented by SCO as well as ASEAN and the Gulf Cooperation Council (GCC) – see Valdai publication “Imago Mundi: a South-South concert of continents”, January 31, 2018)
— Trans-continental coordination: BRICS+ that brings together the largest regional integration groups of the developing world where BRICS countries play a leading role; or the proposed Trilateral intercontinental alliance (TRIA) that brings together AU, CELAC and SCO+ (see Valdai publication: “Imago Mundi: a South-South concert of continents”, January 31, 2018)
The second group, namely the financial platforms of cooperation of the Global South could include the following:
— A platform for regional development banks and funds of developing countries such as the Eurasian Development Bank (EDB) or the SAARC Development Fund (SDF)
— A platform for regional financing arrangements (RFAs) such as the Eurasian Fund for Stabilization and Development (EFSD) or the Latin American Reserve Fund (FLAR)
— A platform for Sovereign Wealth Funds (SWFs) such as China Investment Corporation (CIC) or ADIA
The first group of integration platforms (based on RTAs and RIAs) expands the scope for trade and investment alliances across the South-South perimeter, with each preceding level serving as a foundation for higher levels of integration. Such complementarity and mutual reinforcement is also meant to be elicited from the second group of platforms, whereby the platform covering the cooperation of the regional (and national) development banks addresses the micro-level of economic integration at the level of companies and sectors, while the RFA platform coordination improves the macro conditions for project financing. The platform of Sovereign Wealth Funds (the only one that is not of regional nature and brings together the funds from national constituencies) could also serve to improve the conditions for closer South-South cooperation, including in the regional context via co-financing joint priority/integration projects and promoting the use of national currencies with the possibility of strengthening their regional and global roles.
Given the interdependencies among all these South-South platforms there may be a case for some coordination to be undertaken either via the BRICS+ framework and the annual BRICS summits or via a separate forum that brings together representatives from all these platforms to discuss policy outlook and the modalities of joint cooperation. At the same time the operation of such platforms in the Global South needs to be rendered flexible, while at the same time being guided by a set of core principles and modalities that characterize regional integration that is in line with the development goals set by the UN, WTO and other multilateral organizations:
— Sustainability – integration directed at lowering imbalances and inequalities across the global economy
— Inclusiveness – possibility of participation in integration arrangements available to third parties
— Openness – benefits of economic integration and liberalization being made available to third parties
— Structured approach to integration – integration that avoids duplication, tensions and seeks to exploit synergies and complementarities
The effects of the emergence of integration platforms of the Global South on the evolution of the global economy and the re-building of global economic architecture could be significant. First and foremost the array of such platforms could serve to overcome the fragmentation in the pattern of South-South regional alliances. The aggregation of existing platforms and closer cooperation among the main regional arrangements and institutions could help to boost developing countries’ position in global institutions such as the WTO and the IMF. The effects of trade and investment liberalization in the context of South-South cooperation may also be viewed as being less onerous for developing economies compared to large scale liberalization vis-a-vis advanced economies. In the end the aggregation of the integration platforms of South-South cooperation could provide the much needed boost to global economic liberalization and market openness at a time when the developed world is yet to come to grips with what may well prove to be one of the most elemental waves of protectionism in the past century.