Global Value Chains and trade rules

Heard Mark Wu from Harvard Law School talk at IIFT recently on the relevance of global trade rules in the context of Global Value Chains. Was fascinating.

And also came across this interesting piece by Sungjoon Cho and Claire Kelly on the same subject titled "Are World Trading rules passé?"

GVC and trade rules definitely seem to be the next big area of research...

Globalization and the end of the welfare state?

Globalization and domestic policy autonomy have been viewed as irreconcilable realities. Sovereignty is under severe stress due to international economic realities that get manifested in trade rules and national policy decisions. How constrained are states in their domestic policy making abilities b international trade rules? Is it really a constraint? Is the constraint absolute or limited? Is national sovereignty a thing of the past taken over  by the realities of international trade? Critics have also argued that as a result of the limits on domestic policy making, the welfare state too has receded. The active involvement of the State in economic decision making too has seen a general decline.

Is it the end of the welfare state then? Katherine Wall in this piece seems to think so. Highly critical of globalization's impact on domestic sovereignty she states:

"More explicitly, economic globalization, in its most recent form, has been limiting the capacity of states to determine their own policy outcomes in three main ways: through trade and economic integration; financial markets; and the competition for employment. Due to the increasing pressure of international competition in trade markets as well as the increased mobility of capital and multi-national corporations, states are incentivized to cut labour costs, to reduce the price of goods and services, reduce taxation to make their domestic market more competitive, and to decrease the size and scope of the welfare state.

          ...

The human world is complex and there are likely to be a variety of causes of the retrenchment of welfare policies in developed states, like the UK. Ideological commitment to welfare provision, domestic institutional frameworks, and the local specificities of each economy, mediate the extent to which globalization impacts on the extent of policy making autonomy within nation-states. Nevertheless, the root cause of this shift has a global economic foundation. Without increased economic integration and dependency, without the opening of capital markets, without competition for employment and specialization it is unlikely that states would be forced to choose between economic growth and social welfare provision. In an era of new economic, social and political challenges, when welfare services and support needs to expand to meet need and demand, globalization is limiting the range of policy options available to states, limiting state sovereignty, entailing a retrenchment of the welfare state in developed nations. If the state no-longer has the capacity to provide the economic and social rights its citizens demand, the question is, what or who will?"

Is the international economic order that restrictive? Many feel that the nation state has not lost its relevance even though globalization has gained prominence. Other international trade law experts feel that there is sufficient scope within international trade law to exercise domestic policy space. Thus, this pitting globalization against domestic sovereignty would not entirely be true. We also notice that inspite of reduction of trade barriers and protectionism, States do play an active role in national discourse. Globalization has not impacted many areas of domestic discourse. The State is at liberty to pursue its national agenda based on democratic decision making in almost all areas of governance. International trade rules do not proscribe the role of the State in providing benefits. Neither does it prescribe an economic model to be followed by the State to engage with its citizens. An active "State" is not necessarily an anathema to globalization subject to the restrictions that WTO law places on every State. 

Ofcourse, it cannot be blatantly protectionist or discriminatory.There are limits to State sovereignty but it does not imply that the role of the State in disbursing welfare and providing for its citizens is impacted drastically.One normally takes extreme positions in the debate on globalization - either that State sovereignty is completely eroded and a state of doom is in store or that globalization offers all the answers that the State cannot. the truth, like everywhere else, is somewhere in the middle. It is the constant endeavor to find that middle ground that must engage policy experts and administrators.

Knowledge@Wharton interviews on globalization

Knowledge@Wharton had two interesting interviews recently. One of Pankaj Ghemawat and the other of Pascal Lamy

Pankaj Ghemawat essentially argues that the world is not as integrated as it is made out to be. In this semi-golbalised world, the benefits of integration, he feels, are immense. I had blogged about his views earlier here.

"So what I do in this particular chapter in World 3.0 is put together a lot of existing literature rather than just saying the gains are large, suggesting that when you pay attention to the customarily excluded components, you can bring the gains from trade liberalization itself up to 2% to 3% of the GDP without even really relying on very far-fetched estimates. Then there is service liberalization which people think can add and get us up to 4% or 5 % of GDP. Then there are flows other than products and services. There are flows of capital, flows of people, flows of information. 

People flows are really the big numbers. Some people at Stanford have done an analysis suggesting complete liberalization of immigration could double the world's GDP. Of course, that seems a bit optimistic given where we are. So I rely on estimates that more moderate increases might add another couple of percentage points to global GDP, around 3% to 4%. Around immigration, the gains are just huge as all the studies suggest."

Pascal Lamy speaks about the future of the multilateral trading system in the context of the impasse in the Doha round of trade negotiations.The risk of bilateral trade agreements and the relevance of multilateral trade negotiations are touched upon. Highlighting the political economy of trade negotiations and the complexity of concluding multilateral trade negotiations I found this point interesting:

"The second reason, and this raises a fundamental problem of trade negotiations, [is that] in this game, the losing parties know precisely why they lose and are able to form coalitions to support their causes, while the winning parties are often unaware they won. The tee-shirt you are buying cheaper today doesn't come with a "Thank You, WTO" sign on it! I have been working on international trade for 20 years, and unsurprisingly, it turns out that in emerging countries, public opinion is more and more open to trade liberalization, while in developed countries, it is less and less favorable to it -- not in the name of the poor in the South anymore, as was the case in radical circles in the 1990s, but on behalf of the poor in the North. The positive impact is obscured by the difficulties associated with the restructuring of Western economies -- by the crisis, of course -- but also by the great shift from industrialized countries to emerging countries, which may lead [some] to think that unemployment is due to relocation. Under these conditions, negotiators from developed countries now have less room to maneuver."

The debate about the extent of globalization, trade rules, the political economy of reducing barriers to trade and the way countries react to it continues.