‘Developing democracies, not China, should fill in gap left by US’ | india-news | Hindustan Times
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‘Developing democracies, not China, should fill in gap left by US’

Professor of law at Yale David Singh Grewal spoke to Hindustan Times about the current moment in the economic order, the challenges to the international trade order, the tensions within and between the global north and south, World Trade Organization (WTO), and the potential opportunity and risks present in the current moment.

india Updated: Dec 08, 2016 13:18 IST
Prashant Jha
The world is now, and likely to remain, more globalised than at any other point in human history. (Reuters Photo)
The world is now, and likely to remain, more globalised than at any other point in human history. (Reuters Photo)

David Singh Grewal is a professor of law at Yale University and currently a visiting professor at Stanford. Grewal, who has done extensive work on economic history, is the author of two books, Network Power - The Social Dynamics of Globalisation and The Invention of the Economy.

His recent work has revolved around international trade law, global economic governance, intellectual property law, and law and economics – themes that assumed tremendous importance during the US presidential campaign and will be key issues of the Donald Trump presidency.

In Delhi recently, Grewal spoke to Hindustan Times about the current moment in the economic order, the challenges to the international trade order, the tensions within and between the global north and south, World Trade Organization (WTO), and the potential opportunity and risks present in the current moment.

Excerpts:

Q. After Brexit and Trump, there is a lot of interest in the international economic order. There are questions about whether we will see a continuation of the current order or disruption. As someone who has worked extensively on economic history, what explains the current moment?

A. The first thing to note is that the world is now, and likely to remain, more globalised than at any other point in human history. The WTO itself has largely succeeded in its original mission – in eliminating tariffs across a wide swathe of industrial goods across most countries of the world. The backdrop to the reaction against globalisation, we must recognise, is a realisation of a much fuller globalisation than any architect of the post-war international order could have dreamed of.

So why the backlash? I think it comes in part because of the changing nature of recent trade agreements, but also because some of the effects of trade liberalisation on particular domestic constituents of the north have been neglected. Whether the backlash is contingent or generational remains to be seen. But we must understand that the backlash itself is taking place against A deep and sustained globalisation, and the changing nature of trade agreements in recent decades.

Backlash against trade

Q. What is the changing nature of the trading regimes?

A. Economic liberalisation has largely succeeded in abolishing the high tariffs of the immediate aftermath of World War II. These were the target of coordinated action by countries which were signatories to GATT. The trade regime has now moved on to “next generation” issues.

These include intellectual property regulations, regulatory harmonisation, schemes for global governance concerning things like environmental, labour and safety standards, and most controversially, new forms of dispute resolution which bypass the traditional national court system of signatory countries to involve ad-hoc tribunals judging questions of THE compatibility of state policy with investment expectations. This is the so-called investor-state dispute resolution.

All of these next generation issues are highly controversial. We should note that they are a departure from the traditional tariff and subsidy agenda of trade. They make the trade into something more like global governance. There are lots of reasons to be in favour of lower tariffs that may not necessarily move over into these forms of global governance.

Q. It is precisely because of these next generation issues that countries like India are reluctant to sign on to some of these trading regimes. The feeling here is these issues give a competitive edge to the dominant actors in the global north. The surprising thing is that the backlash emanates from the same countries, which actually have an advantage.

A. If you think of each of the countries of the north as a single unit and assume that the interests of dominant corporations constitute the national interest, then you end up with the puzzle that next-generation issues which seem to precisely favour the north – say the shift away from tariffs to intellectual property – are also opposed in the north. But if we consider the different constituencies within these countries, we can see that these trading regimes may be of benefit to powerful corporate interests but they are not by any means working for the majority.

One way of interpreting the backlash is that the pent-up majority concern about the ways in which people’s economic lives seem to be slipping away from them has become directed partly correctly and partly unfairly at trade. An anti-trade agenda has been exploited by parties of the right in the absence of any real attention to these issues by parties of the left. You might have thought the welfare of the industrial working class was a traditional bread and butter issue of the left. But under the centralising governments of (Bill) Clinton and (Tony) Blair, a whole set of new global issues became the focus of Democratic and Labour party and the results in terms of the movement of the industrial workers over to the right is obvious from Brexit and Trump.

So we should understand international trade law not simply as a set of international agreements between countries conceived as unitary blocs, but as itself implicated in ongoing distributional conflict, or if you want to be polemical, class conflict, within countries both within the north and south. If we see it as instrument of distributive conflict, or class conflict, you can see that a trade agreement which in theory can benefit everyone has been turned into an instrument by which the demands of the traditional working class in the north can be resisted by corporate actors who are now free to move. The surprise about the backlash in the countries of the south is echoed by the elites of the countries of the north, who had assumed that it could be business as usual in spite of the ways in which trade agreements were undermining national sovereignty or the relative position of the working class.

The north-south dynamic

Q. Would it be correct to argue that as long as the global north had the dominant share of the exports – the US was responsible for two-thirds of exports at one point – it had enough to ensure some kind of distribution within its own bloc and was thus comfortable with the economic order. Now as the south is acquiring a competitive edge, it is able to wrest some advantages for its own working class, the north is turning back on the rules of the order.

A. I think it would be correct if we were only talking about the traditional bread and butter issues of the tariffs. There is a straightforward argument to be made that – as the countries of the south have developed, have changed their relative position vis-a-vis the north – they have generated a backlash. But the backlash is not a self-protecting move by the elites in the north – they would like increased trade. It is a democratic revolt by the masses, which has found new channels for expression of political discontent.

I can understand the discontent in the south against the backlash in the north. But as we move to next generation issues, it is by no means clear to me that this kind of trade agenda is advantageous for the developing world either. This provides an opportunity for the countries of the south to put forward a trade agenda which is genuinely development-friendly, which is not the agenda of increased intellectual property protections, upward regulatory harmonisation, and special investor-state tribunals.

The next generation issues, if anything, will consolidate the positions of elites of the global north. For that reason, it is being opposed by developing world progressive interests and now a reaction by the traditional working classes of the North.

Q. You would then tell India this is an opportunity?

A. It should be an opportunity. With the US stepping back partly from its role as the leader international liberal world, I think it is the moment for India, Brazil, South Africa, and Indonesia as large developing world, democratic countries to step forward and push a trade agenda that works for both development and democracy. The idea that the US will step back, and China will fill the gap, is not desirable for either democratic or developmental policies internationally. This is the time for a new international democratic developing world alliance to come forward and reinvigorate talks at WTO about what a post-Doha round of negotiations would look like.

Q. But even if it is not desirable, are we seeing China occupy that leadership role? That concerns Indian strategists.

A. It is not obvious to me why that should be the case. The Regional Comprehensive Economic Partnership – the rival Pacific trading arrangement – involves many of the same players as TPP. It is not obvious to me – since it is still at the preliminary negotiation stage – what it will accomplish. If it moves away from next generation issues and brings in a new and genuinely interesting approach to trade, I would love to see that. If it is traditional bread and butter agreement, it is not obvious why China should be greatly empowered by that over the existing WTO regulations.

The big event in the international trade order in the past 15 years was China’s entry into the WTO in 2001, which upended everything, and consolidated a liberal global order. The TPP has more symbolic than practical importance, and I suspect the same will be true for RCEP.

Returning to WTO

Q. You see this as a good moment to go back to the WTO?

A. It seems to me that WTO, if it was invigorated by energy from democratic developing countries, is the appropriate and natural forum for world trade. Going back to WTO avoids the problem of trade fragmentation, which is to say a motley of different agreements covering overlapping jurisdictions while also not covering all the countries of the world. The WTO is presumptively the more legitimate form for conducting global trade negotiations. It may be the case that it will be difficult to get next generation issues through WTO where every country has a voice. But It is not a new discovery that the trade order which was being pushed in Doha was not in the interests of all the countries of the world. We will need a new and different trade agenda.

Q. One of the reasons WTO did not work out from the Indian perspective was agricultural subsidies, which the global north maintained for its constituents even as it pushed countries of the south to remove protective layers. You see us having moved beyond those battles?

A. On the contentious issue of agriculture, it would not be worth renewing trade talks at WTO. My own view is that agriculture does not fit into the pattern of industrial goods. Doha was twice killed by India on the issue of agricultural harmonisation – it is not just subsidies in the north that makes it contentious. Even if subsidies were removed, it is by no means clear why the poor Indian farmer would want to or should have to compete with highly industrialised agro-business of the north. And when you have 70% of the people living in villages, there is no reason why a drop in rural incomes would be good even for urban constituencies despite cheaper food prices.

Q. So that was a legitimate stand?

A. Absolutely. My sense is agriculture should be off the agenda. And a new developmentally focused trade agenda should look at figuring out what would be appropriate opt-outs and safeguards in the trade regimes, which could include giving up on strict intellectual property regimes and rolling back some of the next generation reforms.

Immigration

Q. Beyond trade, one element of globalisation was mobility of labour. Are we seeing the beginning of the end of that?

A. I don’t think we are going to see the end of that.

There is too much to be gained on all sides from the international movement of labour. But what we are seeing is the scapegoating of the newcomers to the industrial north, who are being used as pawns in a political game. I am afraid that will not go away. There will always be xenophobic sentiment, particularly when the economy is failing many ordinary people.

I think the backlash against immigration represents just the most visible sign of a general feeling of a lot of people in the majorities in the north that their economic lives have spiralled out of control. They no longer have the job security or security from the state that their parents or grandparents took for granted. It is hard to understand this as a structural feature in the development of global capitalism, even though it is. It is easier to understand this as the fault of the other guy you see on the shop floor who has come from elsewhere. And it is easy for parties on the right who don’t want to seriously consider a critical restructuring of globalisation to basically engage in scapegoating as an alibi to continue business as usual.

But as I said, from the standpoint of immigration, it will likely be business as usual, along with an increase in tension. I think there is too much to be gained from labour flows from the south to the north on all sides.

Going back to the past

Q. You have been making this distinction between the first thirty years after World War II and the decades after that. What distinguished these periods, and where are we now?

A. Thomas Piketty, the French economist, and many others have drawn attention to the fact that the 30 years after the World War II were an exceptional period in many respects. In the aftermath of the war, there was a period of high and widely shared growth among a wide swath of developed countries. The geopolitics of the Cold War was also such that it favored the emergence of a very ambitious programme of international economic integration, both in GATT and the early institutional forms of European Union. It is true that trade was disruptive of the traditional division of labour among countries, but it was not so opposed by the working classes because there were enough jobs people could migrate into in a growing economy. In terms of geopolitics too, one of the anxieties about free trade has always been the way that it empowers your national rivals. But in the conditions of the Cold War, the eastern bloc did not want to trade and play the same capitalist game as the west. So, for example, the US could trade very freely without undermining its geopolitical position – it empowered mainly its western allies through western trade.

The economic position begins to change in the mid-70s as Piketty and others have illustrated. You begin to get large-scale disruption, working-class wage stagnation, and other economic features missing during the exceptional years. That put pressure on trade regimes, one result of which in the US was the beginning of the fast track trade regime for getting trade deals done with fewer obstacles.

After the end of the Cold War, the geopolitics also changes. The US is now China’s largest trading partner, but these are also involved in minor hostilities with a risk of major hostility.

This kind of situation is actually the historical norm. Going back to the 17th century, what you find are countries which are both military rivals and trading partners, with the result that this is a highly uncertain and sometimes explosive situation. But that was not present in the immediate aftermath of the World War II. So we now have an agenda for global economic integration which reflects conditions that no longer obtain. Many national and international elites who want to push for more globalisation came of age at a time when international trade was safe in ways that are no longer safe.

Q. So you are suggesting the good times were the exception. And what we are seeing is how the world has been.

A. Yes, this is how the world has been. The fact that this was the way the world has been was noticed by many prominent intellectuals in the first half of the 20th century, including John Maynard Keynes.

What we are seeing is a reversion to the historic norm, which has two main features. First, the distributional consequences of global economic integration are not even shared out within countries, which can generate resentment and backlash. And second, the geopolitical consequences of trade among military rivals generates a potentially explosive situation.