The current global governance system is in flux as the centrality of global institutions is weakened and the nation states are re-asserting their powers. At the same time the in-between layer of global governance (between global institutions and nation states), namely regional integration arrangements, is undergoing massive changes: apart from the formation of mega-regional blocks and the sheer rise in numbers resulting in “disorganization” (sometimes together with bilateral FTAs referred to as the “spaghetti bowl” of alliances), the regional integration projects along the South-South axis are becoming the focal point of “alternative economic integration” vis-à-vis the well-advanced integration system in the developed world. It is this intermediate layer of regionalism that may become a more prominent factor in the economic and political contradictions of the future world economy and the overall instability of the changing global governance system. There is hence a need to devise arrangements that may render greater stability in the global governance framework via coordination among regional institutions and integration arrangements.
At this stage the trade policies of most developed economies as well as the majority of BRICS developing economies have been delegated to the regional level – in the case of advanced economies the trade policy of most Western European economies has been delegated to the EU, while in the case of the BRICS three out of five members in the grouping are now forging their trade alliances with the outside world on the basis of their key regional trade arrangements – Eurasian Economic Union in the case of Russia, Mercosur in the case of Brazil and SACU in the case of South Africa.
But while the momentum of regional integration is still strong, it tends to outpace the process of coordination among the regional integration arrangements as well as their key institutions, such as regional development banks and regional financing arrangements (RFAs). With respect to the latter, coordination attempts have been undertaken only in the past 1-1.5 years via high-level discussions and seminars, while in the case of regional development banks the lack of coordination and joint efforts is increasingly evident against the backdrop of the widening scale and number of regional integration projects in Eurasia and other continents.
Whether in Eurasian space or in other parts of the world the unbridled and uncoordinated propagation of regional projects is starting to enter into the phase of contradiction, duplication and inefficiency. Cases in point include the lack of connectivity between the Eurasian Economic Union and the EU in Eurasia, between Mercosur and NAFTA in Western Hemisphere, as well as the overlapping or contradictory vectors of integration between the prospective projects of China’s Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP) in the Pacific. A more coordinated approach to regionalism in global governance is increasingly warranted and what is lacking in particular is the “institutional connectivity” among the respective regional development institutions and integration arrangements.
If there is an attempt to imbue regionalism with a more coordinated approach towards institutions and financing arrangements, it is likely to play out in Eurasia, which is witnessing the launching of some of the most ambitious and large-scale integration efforts, such as the Belt and Road Initiative (BRI). With a whole plethora of development institutions created by China to support this integration effort – Asian Infrastructure Investment Bank (AIIB), The Silk Road Fund to be supported by China Development Bank and the New Development Bank (NDB), as well as regional development institutions in Europe and Asia - there is tremendous scope to reap the benefits of a coordinated approach from the Eurasian development banks to pursuing the BRI goals of connectivity and infrastructure development.
In fact, there may be a case for a multilateral consortium of regional development banks and China’s development institutions – what may be referred to as the Silk road development consortium – that would seek to exploit the synergies in the cooperation of the existing Eurasian institutions along the Silk road route ranging from the European Investment Bank in the West to China Development Bank and the China-ASEAN Investment Cooperation Fund (CAF) in the East. The benefits could include possibilities for co-financing projects in the respective parts of Eurasia, the possibility to share expertise in infrastructure development, greater ability to develop longer term strategies on common project pipelines, as well as enhanced possibility complement rather than contradict or duplicate each other’s efforts in the Eurasian space.
A similar platform could be pursued by the Shanghai Cooperation Organization (SCO), whose priority would be to reconcile the integration impulses and priorities among the big three developing nations of Eurasia, namely Russia, China and India. A common SCO platform for cooperation among the respective regional development institutions could serve to attenuate the potential frictions in the East-West and North-South priorities of the transportation corridors of the big three developing nations. Discussions on the creation of a development bank for the Shanghai Cooperation Organization would potentially strengthen the institutional capacity of the organization for such coordination.
Taking this a step further, the Eurasian connectivity projects like the BRI could be replicated in other continents – Africa or South America, where the lack of infrastructure development and regional connectivity is stifling growth. In Africa the continental consortium of development institutions could include the respective regional development banks such as the Development Bank of South Africa, the African Development Bank, etc. A similar continental platform could be created in South America to include the Inter-American Development Bank (IADB), FOCEM, Development Bank of Latin America (CAF) and other development institutions.
Along with such intra-continental regional projects, a trans-continental integration platform could be performed by “BRICS-plus” via bringing together the core BRICS group and their regional partners in their key regional arrangements (Eurasian Economic Union for Russia, Mercosur for Brazil, etc). This could be further complemented by platform of regional development banks in which BRICS economies and their regional partners are members (Eurasian Development Bank, FOCEM, Development Bank of South Africa, etc) with a coordinating role performed by the New Development Bank (NDB). Another trans-continental layer of regional cooperation could be formed by regional financing arrangements (RFAs) with BRICS countries participation (the Eurasian Fund for Stabilization and Development, the Chiang Mai Multilateralized arrangement) coordinated via the BRICS CRA mechanism.
Even more broadly, there may be case for a global coordination mechanism among the largest regional integration arrangements from both the North and the South. Such a framework could operate separately on the basis of coordination among the respective regional development institutions or it could be coordinated via the global networks and organizations such as G-20 or the WTO. The G-20 could be the best forum to launch discussions on such a platform and/or on broader issues of coordination among regional integration arrangements, given that it brings together the largest developing and developed economies that in turn are leading powers in their respective regions/continents and that frequently lead the formation of a regional economic block. The list of some of the largest regional integration arrangements in such a framework could include NAFTA and the EU as well as MERCOSUR, Eurasian Economic Union and RCEP (once it is formed to include China and ASEAN countries).
In summary, what is missing in the current system of global governance is greater coordination among regional arrangements – a system of “syndicated regionalism” (Regionalism Inc.) that would fill the voids in regional economic cooperation. The process of coordination could be institutionalized via greater cooperation among the respective development banks and other institutions, with the road-map for greater coordination in the regional sphere spanning the likes of SCO and BRI in Eurasia, as well as similar regional/continental syndicates in Africa and Latin America. It could further include a trans-continental element in global governance in the form of BRICS+ and a North-South cooperation mechanism that brings together the largest regional integration groupings.
Re-building global governance architecture with regional blocks may serve to strengthen the “supporting structures” of the edifice of the global economy – with hardly any attention paid to coordination among regional arrangements, most of the coordination and regulation was focused on the nation state level or the level of global institutions. A globalization process that is based on integration and cooperation among regional blocks may harbor the advantage of being more sustainable and inclusive compared to the core-periphery paradigm of the preceding decades
Most importantly, “syndicated regionalism” offers the possibility of additional lines of communication, economic cooperation and crisis resolution at a time when the fragilities in the global economy are transcending national borders and taking on regional dimensions (hence IMF’s greater focus on evaluating regional economic vulnerabilities). A coordinated approach to regionalism allows the world economy to transcend some of the country-to-country barriers to economic cooperation, exploit regional “economies of scale” in advancing economic cooperation, while at the same time potentially attenuating the risks of confrontation among the competing integration projects. The latter in recent years are increasingly directed toward the formation of mega-regional blocks (the race to mega-regionalism) that in turn harbour ever greater dividends as well as greater risks.
Yaroslav Lissovolik is chief economist with the Eurasian Development Bank and Programme Director of the Valdai Discussion Club
