Table of Contents

The terms of the debate on globalization have shifted. In many polities, the distributional impacts of globalization have created strong constituencies interested in its reform. Many political and economic analysts have also underlined that given globalization’s large-scale consequences for socioeconomic cohesion, failure to address its more rampant dimensions would further increase political instability in democratic societies.1 This debate is now well entrenched. A major effort is required to reform the rules and institutions of international governance with a view not only to mitigating the negative consequences of globalization but also, possibly, to enhancing its positive externalities.

Depending on their levels of development and competitive advantages, different groups of countries have advanced various options to rewire globalization. And yet, a sizable gap remains between these well-justified demands and the realities of globalization reform. When it comes to the feasibility of reforming globalization, three sets of issues can be discerned according to their level of convergence.

The First Basket: Significant Convergence

In the first basket are policy areas on which the reform agenda is well advanced. This basket includes the rules on international taxation, among them the 2021 agreement under the aegis of the Organization for Economic Cooperation and Development on a framework to combat base erosion and profit shifting (BEPS)—the practice of aggressive tax avoidance. This framework has two objectives. The first is to reach an understanding on a global minimum corporate tax rate to prevent global companies from seeking establishment in low-tax jurisdictions and, essentially, to preempt a race to the bottom for ever-lower corporate taxation. The second objective is to deliberate on the modalities of a digital services tax to be imposed on large digital companies.

The BEPS agreement can be viewed as a major multilateral accomplishment that will help rebalance global tax revenues to the advantage of smaller nations. These countries had been disadvantaged by the prevailing rules, which apportioned tax revenues based on firms’ physical places of establishment.

The creation of a global minimum corporate tax rate is also expected to help smaller nations derive more tax revenues from global corporations by discouraging aggressive tax planning. Large taxpayers in those countries are generally the subsidiaries of multinational enterprises, which rely on their intricate knowledge of global tax rules and tax loopholes to minimize their tax burdens. For instance, as Elizabeth Sidiropoulos states in the chapter on Africa, in countries surveyed by the 2019 African Tax Outlook, published by the African Tax Administration Forum, on average 6.3 percent of large taxpayers generated 77.7 percent of tax receipts.

Another area of policy convergence relates to rules on international finance. A global agreement was reached in August 2021 for the distribution of $650 billion worth of special drawing rights (SDRs)—an international asset held by the International Monetary Fund—to increase global liquidity. The urgency of a proper response to the demand shock induced by the coronavirus pandemic created a conducive environment for this decision. This was the first significant allocation of SDRs since 2009.

Sinan Ülgen
Ülgen is a senior fellow at Carnegie Europe in Brussels, where his research focuses on Turkish foreign policy, nuclear policy, cyberpolicy, and transatlantic relations.
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An interesting development in this sphere is the establishment of alternative institutions of international finance to work in parallel with the Bretton Woods bodies. Brazil, Russia, India, China, and South Africa (the BRICS countries) have taken the lead on the creation of the New Development Bank (NDB). Sidiropoulos expects this institution to provide competitive reform pressure on existing organizations. She claims that “by providing developing economies with credible alternative financing, the NDB has put pressure on the World Bank and regional multilateral development banks to reform their governance structures, investment priorities, and operational rules.” This pressure is limited considering that loans are extended only to the NDB’s five member countries, but the bank will soon expand its membership to three more countries.

From China’s perspective, as set out in the chapter by Minghao Zhao, Zhao Wenxiang, Ding Yifan, Lyu Jinghua, Wei He, and Jodi-Ann Wang, the NDB is viewed as a platform that can boost Beijing’s influence in the developing world. The authors argue such regional arrangements can also help alleviate liquidity pressures when needed. For Russia, as Dmitri Trenin indicates, the NDB’s role is to help with the process of de-dollarization by promoting the use of national currencies in international trade.

The Second Basket: Difficult Convergence

The second basket includes policy areas where convergence has proved arduous. On trade policy reform, for instance, the gap between developed and developing nations remains substantial. The failure of the Doha Development Round of multilateral trade negotiations was a significant drawback. But it illustrated the discrepancies in the positions of the major negotiating powers. Developing countries continue to push for more equitable trade rules. These nations’ priorities are to ascertain the functionality of special and differential treatment, get recognition for their need to maintain policy spaces unencumbered by binding global rules, amend intellectual and industrial property rights to ease their access to technology, and uphold multilateralism. Developing countries also resist the contagion of the trade agenda to environmental and labor issues.

The lack of consensus on these major themes has compelled the large trading nations to chart an alternative path for trade liberalization. This has taken the form of a proliferation of regional and mega trade agreements as well as plurilateral negotiations with a specific focus. In the chapter on Europe, Richard Youngs and I note that as a major trading bloc, the European Union (EU) has completed or launched more preferential trade negotiations in recent years than any other power. The union now has over seventy bilateral trade accords and has opened but not yet concluded many other talks. We refer to the EU’s position as an increasing focus on “instrumentalized globalization through political negotiation, as opposed to rules-based market liberalization.”

Similarly, Rozlyn C. Engel and Tobin Hansen highlight the United States’ burgeoning interest in pursuing sector-specific deals instead of revitalizing truly multilateral efforts. The authors indicate that “for now, bold action on major new trade deals, which have proved time consuming to negotiate and difficult to manage politically, is off the table” and that the U.S. administration will concentrate instead on “more issue-specific agreements that can be framed as solving concrete problems.”

The drawback of this direction of travel for developing nations is twofold. First, new rules crafted as part of these initiatives continue to reflect the economic and commercial priorities of the industrialized world. As such, developing countries face the prospect of remaining in the unenviable position of being rule takers. There is a vivid debate about whether preferential trade agreements and plurilaterals can be considered the building blocks of a rules-based global order. But even if some of these rules that were originally crafted for and by regional groups achieve the status of global norms, such a process will fail to satisfy concerns of inclusivity and demands for a more balanced and equitable trade regime. Second, the proliferation of preferential trade agreements creates a more complicated regulatory and compliance environment for smaller countries and their exporters, undermining their international competitiveness.

On reform of the World Trade Organization (WTO), the main dividing line is about the utility and inclusivity of the organization’s dispute settlement mechanism. Sidiropoulos maintains that the mechanism has not been useful for African countries because of its underlying design. Retaliation for noncompliance with WTO rules is limited to the economic value of bilateral imports. As a result, small exporters can never credibly threaten large countries because a small nation’s imports from a larger defendant may constitute only a minor share of that defendant’s total exports.

In addition, the representation of WTO dispute settlement bodies, including its Appellate Body (AB), is due to be improved. The African Group at the WTO has proposed that the number of AB members be increased from seven to nine and that the body’s composition take into account elements such as regional and gender balance and multilingualism. Developing countries’ lack of involvement in these mechanisms as arbiters is also problematic because these states are not involved in the development of jurisprudence or in the shaping of obligations and interpretations that can support developmental aims.

The Third Basket: Limited Convergence

The third basket includes policy areas with incomplete convergence. Climate action is a good example. Here, the positive news is the near-universal acknowledgment of this global challenge, as illustrated by the almost 200 countries that have become parties to the 2015 Paris Agreement.2 Developed and developing nations are united in the challenge of combating climate change. As set out by Suyash Rai and Anirudh Burman in the chapter on India, part of this shift is due to the growing realization in developing nations of their vulnerabilities to climate change.

And yet, below the surface, many important cleavages remain. Of particular significance are equity concerns, which are essentially rooted in the asymmetry between emissions and burdens. On the one hand, most human-driven carbon emissions in the atmosphere originate in economic activities performed in or for affluent countries. On the other hand, large emerging markets have become today’s main emitters and economic powerhouses.

This discrepancy is at the core of the divisions over responsibility for mitigating carbon emissions today. Developing countries claim that industrialized nations, because of their outsize historical emissions, should take the lead not only in mitigating those emissions at the global level but also in helping developing nations meet their mitigation and adaptation targets. Yet, global commitments for mitigation are still widely insufficient to meet the needs of poorer nations. Sidiropoulos remarks that $20–$30 billion per year will be required just for climate change adaptation in Africa to 2030, according to African Development Bank estimates.

One widespread criticism of global efforts to address climate change is the lack of emphasis on adaptation compared with mitigation. Many developing nations deplore the low funding earmarked for adaptation. Interestingly, China has opted to use climate finance as part of its diplomatic charm offensive, contributing to Beijing’s soft power. As indicated in the chapter on China, ahead of the 2015 Paris climate summit, Chinese President Xi Jinping established a China South-South Climate Cooperation Fund to provide $3.1 billion to support developing countries in tackling climate change. Subsequently, Xi elaborated on his commitment through the 10-100-1,000 initiative, in which China would establish ten low-carbon industrial parks, one hundred climate mitigation and adaptation projects, and 1,000 training opportunities on climate change in thirty-four developing countries.

Meanwhile, the EU has allocated higher funding to help developing countries transition to low-carbon economies. Youngs and I recall that the union now provides nearly half of the world’s climate funding, with external climate projects accounting for €23.2 billion ($26.9 billion) in 2019. But even for the EU, the balance between mitigation and adaptation remains highly skewed. For example, in 2018, the European Investment Bank’s adaptation portfolio amounted to $432 million, compared with $5.3 billion for mitigation.

The EU has indeed espoused a global leadership role in climate action, including with its ambitious European Green Deal. And yet, this package, which seeks to make Europe climate neutral by 2050, has led to criticism that the union is instrumentalizing the climate transition to protect its commercial interests. As indicated in the chapter on Europe, one of the main links between the EU’s climate and globalization policies is the bloc’s increasing use of climate-related trade conditionality. Youngs and I observe that

the EU is set to make third countries’ respect of the 2015 Paris Agreement on climate change a core precondition in all of its external trade deals. So-called green clauses have become a more prominent part of the union’s trade agreements and one of the most tangible ways in which the climate priority has begun to infuse other areas of EU external action.

More importantly, the union’s planned measures to combat carbon leakage and, particularly, its Carbon Border Adjustment Mechanism (CBAM) have triggered another important debate. The EU plans to impose tariff-like duties on imports of energy-heavy products, such as steel and aluminum, to prevent carbon leakage by discouraging these industries from moving to jurisdictions that do not have stringent carbon-mitigation measures. But these proposals are widely seen as inimical to the interests of developing nations. Sidiropoulos maintains that these practices, which essentially amount to a cross-border carbon tax, represent an impediment to the development aims of African nations. She states that “Africa wants the carbon space to pursue some of its economic development through existing and new fossil fuels. African countries consider it unjust for the international community to place immediate and stringent mitigation barriers on them without compensation and financial assistance.”

A similar concern is shared by Francisco Urdinez in the chapter on Latin America, where he reports that

there is concern in Latin America that some negative externalities produced by developed countries in their efforts to achieve the Paris Agreement goals will fall on the region. Amid the environmental transition, there are real worries that the impacts associated with the extraction of raw materials in the Global South, such as lithium, cobalt, copper, coltan, and green hydrogen, may reduce the carbon footprints of richer countries at the expense of the environments of underdeveloped states.

In the chapter on Russia, Trenin underlines the potential negative implications of a carbon tax for a resource- and commodity-based economy like Russia’s.

As a result, the EU’s CBAM is likely to trigger not only debates about the mechanism’s compatibility with WTO rules but also, possibly, a more insidious divide that pits the interests of developing nations against those of more mature economies. It would therefore be highly useful for EU policymakers to lead on creating an inclusive process for a more holistic analysis of the CBAM’s global impact with a focus on the development agenda, which goes beyond the mechanism’s first-order trade impact. So far, the analytical focus has been on these measures’ compatibility with WTO rules, but the coming acrimonious debate will be on their developmental impact.

A similarly incongruous policy landscape dominates the governance of data and technology. There are no real convergences on the multilateral rules that underpin the regime of intellectual and industrial property rights. For developing economies, it is critical to prevent today’s digital divide from setting off a new form of income trap, in which emerging and developing countries become rent payers to developed nations that have secured positions in the digital economy and produce increasingly sophisticated technology. The global intellectual property regime needs a broad review to improve access to technology for developing countries while assuaging the legitimate concerns of developed economies over the security of their innovations.

Since the Doha round, developing countries have asked for better terms for technology transfers, disclosure requirements, compulsory licensing flexibilities, and extensions of transition periods in the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Developing states have argued for compulsory licensing measures to be extended to generic products to increase access to essential medicines, especially during national emergencies. However, deliberations have not led to meaningful progress, as the negotiating sides fundamentally disagree on the essence of the ownership of knowledge. The rise of intangibles as a source of value creation in the global economy has stimulated appetites to strengthen the enforcement of the TRIPS agreement, expand the realm of intellectual property, and reinforce the protection of algorithms in ongoing e-commerce negotiations at the WTO.

On data regimes, national regulatory approaches are shaped by the political, economic, and social priorities of individual countries. The EU, for instance, favors an open internet and free data flows as long as a robust personal data protection regime is in place. The union’s General Data Protection Regulation (GDPR) is currently the most advanced policy for protecting private data, and it applies globally to all collectors, controllers, and processors of European data. The regulation clearly defines personal data and privacy as fundamental rights of all EU residents and establishes the conditions under which cross-border data exchanges with third countries are allowed.

The United States, by contrast, has a market vision of the internet and promotes data liberalization to foster innovation, growth, and trade. Washington opposes data localization measures that put its tech companies at a disadvantage abroad. The U.S. trade representative underscores that data flow restrictions are key barriers to digital trade. Washington takes a position on innovation that is directly linked to national security. In U.S. domestic debates and political philosophy, data privacy rights are balanced against commercial and national security interests and the freedom of speech.

Meanwhile, China advocates greater recognition of sovereign rights in cyberspace and a more significant role for nation-states in internet governance. Through its 2016 cybersecurity law, Beijing has implemented a series of measures, often dubbed the Great Firewall of China, that restrict transfers of data from mainland China and allow broad scope for government access to vaguely defined types of information. China also has the most comprehensive data localization regulation in the world under the guidance of the country’s holistic concept of national security. The Chinese approach to internet and technology governance has provoked strong reactions from U.S. and European tech firms and governments and raised the risk of a bifurcated internet. Even so, parts of Beijing’s approach have already appeared in models adopted by other jurisdictions, such as Nigeria and Tanzania.

The data economy offers developing countries, with their large populations not yet online, outstanding leapfrogging opportunities as well as considerable potential to trigger economies of scale and scope. But in reality, as the coronavirus pandemic has exposed, most countries have trouble navigating the challenges of digitization and often lack the enforcement mechanisms, technical capacity, and human resources needed to fully engage in the global data economy. Many states have yet to establish legal protection for personal and public data, while many of those that have done so lack the capacity to enforce existing frameworks. Only a few countries have rules that encourage the mixing of personal and public data for the purposes of efficiency and innovation.

Successful Western Leadership

There are, nonetheless, two areas in which a degree of policy convergence has emerged as a result of successful regulatory leadership by Western nations. The first is data privacy, where the EU’s GDPR has served as a template for many countries. Dozens of nations, including other advanced economies, such as Canada, Israel, and Japan, have opted to create privacy regimes that are aligned with or based on the GDPR. Their aim in doing so is either to preserve their access to the EU market or to benefit from European expertise—or both. In many ways, therefore, the EU has successfully exported its regulatory model for data protection.

The second area relates to the nexus of technology and competition rules. A key consideration in this respect is the potential role of competition policies to counteract the economies of scale enjoyed by many large tech companies and, ultimately, shape more economically advantageous outcomes for citizens. The multifaceted market dominance of U.S. and Chinese platform companies has triggered competition concerns around the world. Many countries have reacted by initiating competition investigations to reduce the negative impact of oligopolistic practices. Thought leadership, coupled with the important jurisprudence of competition authorities on both sides of the Atlantic, can provide a more general blueprint for leveraging competition rules to rebalance economic profits to the advantage of citizens.

Globalization, Development, and Equity

On a final note, there is a variety of views on how to reform globalization. But debates and recommendations focus unavoidably on policy areas such as trade or global finance that are generally seen to contribute to the dynamics of globalization. As such, the debates suffer from siloization. What is needed is a multidisciplinary effort to broaden discussions to the many policy-driven aspects of globalization, with a focus on equity. Given that the backlash against globalization is fueled by its negative distributional impacts and the perception that it leads to unfairness, the international community needs a comprehensive analysis of globalization’s outcomes and recommendations that span many policy fields.

Back in 2006, the Commission on Growth and Development was established with the backing of a few national governments, a private foundation, and the World Bank, with the aim to improve understanding about the policies that underpin rapid economic growth. The members of the commission were chosen from developing countries, based on their real-world policy experience. The commission’s recommendations were published in 2008 as “The Growth Report: Strategies for Sustained Growth and Inclusive Development.”3

Today, a similar, high-level analytical task force is needed to resolve the question of how to rewire globalization. As this compilation has shown, there are plenty of sound policy recommendations from various governments at different levels of development. These proposals need to be categorized and streamlined with a focus on how to repair globalization and ensure that its future trajectory is much more closely aligned with the goal of equitable outcomes. That should be the task of a high-level commission on globalization, development, and equity.

Notes

1 See, for instance, Dani Rodrik, Straight Talk on Trade: Ideas for a Sane World Economy (Princeton: Princeton University Press, 2017).

2 “Paris Agreement—Status of Ratification,” United Nations Framework Convention on Climate Change, https://unfccc.int/process/the-paris-agreement/status-of-ratification.

3 “The Growth Report: Strategies for Sustained Growth and Inclusive Development,” World Bank, 2008, https://openknowledge.worldbank.org/handle/10986/6507.