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Economic Co-operation: Summitry, Institutions, and Structural Change

by John Kirton

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Institutional Development for Trade and Investment Co-operation

In the realm of trade and investment co-operation, the market environment faced by the world's international institutions is also relatively benign, as steady gains in world trade have brought benefits to most major powers, and politically consequential disruptions to relatively few(28). The primary threat, flowing from the end of the cold war, is the decline in the consensus of embedded liberalism, as a new emphasis on predatory or subversive liberalism, centred on competitiveness, strategic trade policy and reciprocity and fairness, has arisen in, or been transposed to, the economic sphere, in the United States and other leading trading powers (Higgott 1996). Related to it is a pronounced regionalization, as the cold war-bred European Community was joined, in the single year of 1994, with commitments to accept or develop full-fledged free trade areas in North America, the full western hemisphere, and the Asia-Pacific region, with the United States and Canada at the common hub.

In the face of such severe challenges the G7 and its trade ministers' Quadrilateral have served as an effective transregional forum for catalysing a meaningful if less far-reaching movement toward multilateral trade liberalization, managing major bilateral trade tensions between the major powers, and ensuring continuing liberalization on a sectoral basis. Its major challenges are to develop regimes to link trade with the environmental, labour, government procurement and other policy arenas exposed in deep integration, to stimulate and shape a multilateral regime for the investment that is now so integrally linked with trade and with the environmental labour and other policies connected to the trade regime, and guide the future institutional development and membership of the WTO.(29)

In its preparatory process and through the on-site presence of trade ministers, the 1993 Tokyo G7 Summit produced the market access agreement that provided the decisive political impetus to conclude the Uruguay Round of GATT and GATS and establish the WTO.(30) At Halifax in 1995 and Lyon in 1996 respectively, it provided the solidarity required to contain the bilateral tensions, bred by US assertiveness and extraterritoriality, over US-Japanese automotive trade, and the Helms-Burton Act. Most recently, its Quadrilateral, assisted by regional institutions such as APEC, has helped overcome America's unilateral defection to secure sectoral liberalization in information technology, telecommunications, and prospectively, financial services.

The first of the future challenges faced by the international trading system and the G7 as its central manager is to define regimes for the “new” deeper integration issues of trade and environment, trade and labour, and bribery and corruption (as a component of transparency in government procurement) Progress is likely to come more rapidly in the area of environment, despite the prevailing tendency to date to treat the subject as a question of divisive north- south redistribution, and the limited progress the G7 has made to date in setting directions and defining principles for the nascent regime. Unlike labour, the environment is at its core an issue of the global commons. Transborder ecological spillovers are more pervasive than those of labour migration. There are robust regional regimes, most notably in Europe and North America, to serve as a model and stimulus. And there is no single multilateral organization, akin to the International Labour Organization, to which the task can be delegated.

The task of developing a Multilateral Agreement on Investment, long beset by north-south divisions similar to those in the trade-environment debate, received a major impetus from the 1995 Halifax G7 Summit, where leaders agreed a high-quality agreement would be developed for three years in the consensus forum of the OECD, and then taken for final negotiation into the much broader and diverse forum of the WTO. The production of such an agreement has the overwhelming support of the global business community, who face a plethora or restrictions and patchwork of differing rules in the various countries in which they operate and Bilateral Investment Treaties through which they deal. It also benefits from the regional stimulus of NAFTA and its important investment provisions (Rugman and Gestrin 1996). Yet the slow progress thus far in generating an MAI, despite the support of the business community, the United States, and the NAFTA model, underscores the continuing power of national governments, and the need for high- level G7 impetus to secure such deep integration.

The final trade challenge is developing the WTO as an institution in the period following the first ministerial meeting in Singapore in December 1996. One component is whether the future lies in a continuation of sectoral arrangements, incremental improvements, or another major round of negotiations. Here the failure of the US at Naples in 1994 to receive G7 endorsement of its “Open Markets 2000" initiative reflects more the absence of careful US preparation rather than the new impotence of the G7 to play its traditional role. However the current debate between regionalism and multilateralism within each of the G7's major trade liberalizing leaders - the United States, United Kingdom and Canada - and the lack of leadership shown by the United States in the lead up to the Denver Summit promises slow progress in this area. The G7 has proven more efficacious in developing the WTO as the fourth pillar of the international economic system, by including its head along with those of the IMF, IBRD and United Nation in the lunch with G7 leaders at Lyon in 1996. However it has yet to confront the question of membership, notably, when and on what terms the WTO will admit as members Russia, a democratic power and partial G7/G8 member, ahead of or along with China, and bear the burden of absorbing both.

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