2015 Results: Transformation of Globalization, Regionalization of Governance

The main economic trend in 2015 was a decisive turn towards regional and macro-regional tools of economic governance. Globalization has not stopped, but it is rapidly losing its positions as a universal trend in the sphere of rules and institutions.

Global players are moving quickly to change the focus of economic governance from global to macro-regional and trans-regional levels.

The main events in this sphere were the Trans-Pacific Partnership (TPP) agreement signed by the US, Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru in Atlanta, USA, on October 5, and the Russian-Chinese declaration on cooperation in coordinating the development of the Eurasian Economic Union and the Silk Road Economic Belt, signed in Moscow on May 8.

The United States and the European Union continued discussing the creation of a macro-regional economic union, the Transatlantic Trade and Investment Partnership (TTIP), though less energetically than the TPP project. China, Japan, India and the ASEAN countries considered creating an alternative to the TPP for Asia, the Regional Comprehensive Economic Partnership (RCEP).

These events have turned a new page in the development of global economic order and global history and mark the end of globalization and global economic governance as we have known it for the past 25 or 30 years. Global mechanisms such as GATT or WTO will not expire, but they will cease to be political priorities of key players in creating favorable conditions for their development. They are yielding their positions to regional and macro-regional communities with different rules and standards, a trend that will increase the fragmentation of the economic governance system in a globalized and interdependent world.

This process is led by the United States. Unwilling to give up global leadership and facing resistance from the new centers of power to the promotion of the rules that suit Washington, the United States is imposing its rules on individual regions and macro-regions. The TPP comprises traditional US allies and close partners and countries that seriously fear China’s economic and subsequently political domination. Beijing did not attend the TPP negotiations and was only invited to join it after the TPP agreement had been signed. The EU members and associated countries, but not Russia, are likely to be invited to join the TTIP.

On the one hand, the non-Western centers of power are not barred from the US-led regional associations. Rather, China, Russia and India have been offered to choose between accepting Washington’s rules and facing marginalization. The policy of involving them in the US-centered economic world order has not been abandoned but has been tightened and extended: instead of adjusting this world order to the new centers of power, these countries are being encouraged to accept the rules that were developed without due consideration for their requirements. Washington continues to work towards a global economic order but through the back door, by creating regional associations in the hope that the other centers of power will come around, eventually joining them sooner or later.

On the other hand, there is little chance, at least in the short and medium term that the non-Western leaders will humbly accept these rules and join the US world order through regional associations. Rather to the contrary. China has proposed creating a regional economic community, the Regional Comprehensive Economic Partnership (RCEP), which would unite the leading Asian economies less the United States. Chinese experts and diplomats say off record that even if and when China joins the TPP, it will be only on its own terms and not those that have been coordinated in Atlanta without its participation.

Therefore, economic order in Asia Pacific, which has become the main global economic center, will remain fragmented for a long time due to the fact that it precludes the participation of China and the United States in the same economic community. Many experts believe that the TPP can operate without China and the RCEP without the United States for an indefinite period of time. Likewise, the TTIP, if created, will exist for quite a long time without Russia. Since it is not the WTO but these regional instruments that will determine the rules of economic relations for the United States and China as the two main poles of the global economy, economic governance will be further fragmented and the global economic order will split into several regional communities.

This process spread to Eurasia in 2015, although the coordination of the Eurasian Economic Union (EAEU) and the Silk Road Economic Belt (SREB) radically differs from the US-led regional economic blocs. These blocs’ rules are formulated by the United States and reflect the US’s priority goal of in-depth liberalization, whereas the coordination of the EAEU and the SREB implies a flexible and mutual adaptation of these groups for the purpose of mutual development: the SREB will be used as an instrument for deepening Eurasian economic integration, while the EAEU development will offer huge advantages to China.

Therefore, this is neither a regional bloc nor an association when one of the players forces its own rules and standards upon the other members. Moreover, the coordination of the EAEU and the SREB will not produce a closed institution. The SREB transport routes will not be limited to the EAEU countries, because China’s priority partner is the EU and so the SREB’s goal is to connect the EU, the EAEU and China. That said, this is obviously a regional project that can result in the creation of an economic community of Greater Eurasia with China and the EAEU as the core, but also including India, Iran, the RCEP countries and the EU.

That the TPP was established and the coordination of the EAEU and the SREB was launched in 2015 point to a new stage of globalization and economic governance. The weakening global regimes and institutions are being replaced with macro-regional communities, some of them US-led and others rallying around Russia and China. These communities will continue to maintain close economic ties with each other and will actually depend on one another, but the fragmentation of the global economy into zones of different economic rules and standards will grow stronger. This process runs parallel with the revival of an open great-power rivalry and is essentially part of it. The world, while being interdependent, is breaking up into fragmented parts in terms of governance (the rules and institutions of global economic and political regulation).

Although the main element of fragmentation is the transfer of the center of gravity in economic governance to the regional and macro-regional level, you can also detect elements of fragmentation on a global level. The creation of alternative mechanisms of global economic governance continued in 2015 as a reaction of the non-Western centers of power to the unwillingness of the United States and the West as a whole to share powers within the framework of traditional institutions and the tendency to use their leading positions at these institutions for political purposes. Take for example, how the US and the EU approved unilateral sanctions against Russia in 2014 and then extended them in 2015. On the heels of this decision, the West also decided to change the IMF rules in order to prevent Ukraine’s default. Given the US and EU’s long-time inability to adjust the IMF to the new lineup of forces in global economy, the hurried change in the IMF rules designed to prevent Ukraine’s default is proof that these traditional global governance institutions are used in the political interests of the United States and its closest allies.

In this situation, the non-Western parties are forced to create their own governance systems. The brightest examples in 2015 were the creation of the BRICS New Development Bank (NDB) and the Asian Infrastructure Investment Bank (AIIB).

Russia and China have already ratified the NDB agreement, under which the bank will have initial capital in the amount of $100 billion and will be governed by the participating countries on a rotating basis. This has paved the way for the launch of the NDB in 2016. In June 2015, a group of 57 countries signed an agreement on the establishment of the AIIB, with three largest shareholders – China, India and Russia – holding 26.6%, 7.5% and 5.92% share packages, respectively.

The NDB and the AIIB are being promoted as direct rivals of the IMF, the World Bank and the Asian Development Bank (ADB) that is controlled by Japan.
Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.