What Are the Vectors of Future BRICS Trade Integration?

18.08.2015

The sequencing of BRICS-induced integration would not only deliver greater trade and investment liberalization but would also serve to reconcile some of the contradictions between regionalism and multilateralism.

The grouping of BRICS countries is taking on increasing prominence in the world economy despite the well-known difficulties experienced by its members on the growth front. The appeal to join the organization from other countries of the developing world is gaining momentum, while the BRICS are now actively embarking on the creation of new institutions, such as the BRICS Development Bank, which could serve as the building blocks of a more equitable and stable international financial architecture. But amid the multiple aims put forward with respect to the BRICS and the Development Bank, including the pursuit of infrastructure projects and dealing with poverty, one key area that appears to be overlooked or underestimated is trade integration.

Indeed, the slowdown in BRICS economies that is taking place amid signs of global growth problems is driven not only by such fundamental factors affecting the global economy as adverse demographics, declining rates of growth in productivity, infrastructural constraints, regulatory policies in the financial sector, but also sub-par structural and trade policies that result in record high levels of protectionism. This latter factor is complemented by the spectre of competitive devaluations across the globe that may be given an impulse on the back of the recent moves to weaken the Chinese yuan.

In view of the relatively high level of import barriers in some of the BRICS economies, there is significant scope to exploit the high potential of trade creation via mutual trade liberalization that would redound not only to its members but the entire global economy and its growth potential. On a global scale, the trade liberalization coming from the BRICS would serve to counter the negativity associated with the threat of competitive devaluations. For Russia trade liberalization would provide more scope for economic diversification through access to more markets, while for China it would be a step towards going up the value chain given that countries like Vietnam are competing with it at the low end. More broadly, a trade policy agenda for BRICS or the road-map of their integration (including the sequencing of such measures) could envisage the following priorities:

- Bilateral trade and investment accords between the key members of the grouping: for Russia, which has already advanced significantly in developing trade ties with China, trade accords on the basis of a Free Trade Agreement (FTA) may be considered with respect to South Africa, Brazil and India. Mutual integration could also be pursued on the basis of the liberalization of mutual investment flows as well as flexible forms of trade/investment integration that do not necessarily amount to a full-fledged FTA.

- Continental/regional trade integration facilitated by BRICS institutions: each BRICS members serves as the core for regional integration: Russia in the CIS, China in East Asia, India in South Asia, South Africa in the African continent, as well as Brazil in South America – the BRICS may seek to provide impetus to such regional/continental integration impulses to pursue trade creation and spread the benefits from bilateral mutual integration to members of regional/continental groupings.

- Trans-continental trade/investment integration: such closer ties across continents will be largely founded on anterior headway in bilateral and regional trade integration. Accordingly, with sufficient progress in forming regional trade accords led by the respective members of the BRICS, the next stage could involve trans-continental alliances between the likes of the Eurasian Economic Union and MERCOSUR. Such accords pursued by the BRICS could offer a competitive response to the formation of trans-continental blocks in the Atlantic and the Pacific regions.

- Alliances with other continental and transcontinental integration groups: as economic integration progresses within the BRICS, there will be increasing scope to build trade/investment alliances with other regional and trans-continental groups in the world economy – for example between BRICS and ASEAN or MERCOSUR. The BRICS may also seek coordination with some of the key centers of world’s economic integration such as the EU, NAFTA or the Transatlantic trade and investment partnership (TTIP).

- Global integration initiatives: greater trade integration among BRICS could increase their leverage in global institutions, including in the WTO. With Russia now a member of the World Trade Organization, the BRICS may form a full-fledged alliance/club to coordinate their trade strategies along the lines of APEC or other such groups (overall there are dozens of such alliances/groups within the WTO). Acting in concert the BRICS could move more decisively in pushing through a more balanced trade liberalization agenda that would overcome the decades-long gridlock afflicting the WTO.

As regards the latter point on the role of the BRICS in addressing the voids in global trade regulation, there are several priorities that appear to be particularly topical:

- Enforcing “open regionalism” : the norms of the WTO regarding the formation of Regional Trade Agreements (RTAs) and the positive spillovers to third parties should be adhered to by organization’s members with the BRICS observing these principles of “open regionalism” in the pursuit of the above regional/trans-regional integration projects.

- Dealing with protectionism in trans-border investment flows: currently the global regulatory framework in trans-border investment flows is weak, which resulted in the propagation of protectionism in this area both in developing and developed economies. A concerted effort to overcome protectionism in this area via the WTO as well as other international organizations would provide an important catalyst for boosting the growth potential of the global economy

- Greater accountability and transparency in the formation of RTAs: the WTO needs to be more active in assessing the impact of RTAs on global trade as well as in monitoring the formation of such groupings.

Most importantly, the nature of trade integration pursued by the BRICS and its institutions could be rendered more inclusive (open to participation for other developing and developed economies) as opposed to the exclusive nature of integration largely pursued in the past that was based on narrow geographical or “commonality of values” criteria. The emergence of BRICS offers the world economy a unique opportunity to re-load the international integration process and to render it truly global, nondiscriminatory and more compliant with the global rules of the WTO.

Through pursuing regional integration across virtually all continents (which makes such integration truly global and inclusive) and with due consideration accorded to global WTO rules, the above sequencing of BRICS-induced integration would not only deliver greater trade and investment liberalization but would also serve to reconcile some of the contradictions between regionalism and multilateralism. Overcoming the contradictions between bilateral, regional and multilateral/global integration would serve as a crucial breakthrough in overcoming the roadblocks to global growth. 

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.

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