«Battle for Globalisations? BRICS and US Mega-Regional Trade Agreements in a Changing World Order MARKO JUUTINEN AND JYRKI KÄKÖNEN © 2016 Observer ...»
These arguments resonate with the so-called 'China Threat' theory of the American realists,33 referring to the rising power of China and its greater The Debate on Change: General Outlines consequent role in world affairs. For example, Brzezinski34 proposed that the US should actively seek pathways to accommodate Eurasian states within the Western order. Were this to fail, Brzezinski argued, the second imperative would be to prevent the formation of an anti-hegemonic alliance between China, India, and Russia. More recently, John Mearsheimer,35 another prominent realist, has noted that China and the US are destined to be adversaries and that China poses a genuine threat to the liberal world order.
Basically then, this perspective is similar to the thesis by Kumar, but the American realists reflect on the change from a Western or US perspective.
Correspondingly, what Kumar perceives to be a positive phenomenon is seen by the American realists as a threat. Not everybody accepts these two perspectives of change—views that may be divergent and yet are also similar. In fact, not a few prominent academics are of the view that no real change is really upon the world; that this so-called power shift (or 21st century regionalism) is not significantly changing the rules and principles of global governance. A key argument from this standpoint is that BRICS—while changing the contours of global geoeconomics—still adheres to the traditional norms of international trade. What is intriguing is that BRICS' rise to economic prominence can be attributed to the flows of international trade. China's conduct within the World Trade Organization (WTO), for example, has been that of a rulefollowing power that preserves the status quo.37 This resonates with the interpretation that the BRICS alliance is not a symptom of a changing global order but an attempt by the BRICS elites to gain better access to the networks of transnational capitalist class. This position is prominently held by political-economy analysts of the Marxist school.38 Similarly, proponents of liberal institutionalism hold that any benefits of the status quo slowly but compellingly diffuse liberal norms, constraining divergent BRICS political economy initiatives. The thesis of change is further questioned by those who see BRICS as a weak coalition of heterogeneous countries with conflicting interests; they suggest that the principal factor that brings BRICS together is an interest in eroding Western hegemony.40 On the other hand, BRICS' perspectives to political economy, global economic governance, development policies but also responsibility to protect (R2P) seem to be different from those of the West. Most scholars indeed agree that BRICS have rejected the dominant political economy paradigms of the liberal order, including a market-oriented regulatory system, fiscal austerity, and Battle for Globalisations?
comprehensive liberalisation of trade.41 Simultaneously, BRICS have retained varying measures of direct or indirect state control over markets, most notably in China. With regard to R2P the BRICS maintain that use of force, can be authorised only if a state requests intervention and that the sovereignty of the state in question is upheld during the span of the operation.
What remarks can be made from this review of the current debates? Firstly, that it is founded on the power shift and its effects. Secondly, that even though power shift is agreed upon there is no scholarly understanding as far as its consequences are concerned, or the nature of the change in global order.
Indeed, researchers from Marxist and liberal institutionalist backgrounds seem often to reject the notion of change. In contrast, however, realists and non-Western scholarship also emphasise that change is upon the world. More importantly, change involves conflicting interests. From this perspective, the worst scenario of 21st-century regionalism is disintegration of global governance or the inability of states and regions to cooperate.
Similar lines of thought can be found in more specialised discussions on the shifting landscape in global trade regime. Within this narrower conceptualisation of 21st-century regionalism,like earlier discussed, the TPP and TTIP and the RCEP are the two major poles of change. At one end of this, debate are those who, like Ana Capling, John Ravenhill and Daniel Hamilton, believe in multilateralising regionalism. This refers rather to the effect of the Western Mega-Regionals than the RCEP. The idea is that even the RCEP will contribute to multilateralism and that there is no inherent conflict between the two processes.
The rationale can be explicated in the following manner. First, RCEP would bring Asian preferential trade agreements under one umbrella, thus streamlining the Asian trade regime.45 Second, the interconnectedness of the world economy would contribute to the externalisation of the TPP and TTIP standards, even to countries covered by the RCEP. For a more explicit explanation, reference can be made to what Anu Bradfort has called the 'Brussels Effect'. According to Bradfort, four conditions must be met for an economic area to externalise its standards: a sizeable market (providing an incentive to business to follow the strict rules); regulatory capacity; preference for strict rules; and the propensity to regulate.46 In the case of TTIP and TPP, the first condition is clearly met; the two agreements together would account for about 60 percent of world GDP. Regulatory capacity, meanwhile, depends The Debate on Change: General Outlines on the ability of the trade area to enforce the new standards and this would hold for the EU, Japan, Australia and Canada. The proposed regulatory cooperation in TTIP and TPP covers interstate-level cooperation, ministerial cooperation, and sector-based cooperation between competent authorities, thus contributing to the regulatory capacity of the Mega-Regional trade areas.
Preference for strict rules and the propensity for them can also be confirmed as these are at the heart of the developed country trade policy. In consequence, despite some expected trade diversion, one can argue that the TTIP and TPP standards will prevail in the long run. This is the first school of thought.
Other researchers, however, focus on trade diversion. From the economic perspective, trade diversion means loss of the advantages of international competition because the trade flows are directed or influenced more by politics (in the form of Preferential Trade Agreements or PTAs) rather than the principle of comparative advantage. From a governance perspective this implies the lack of ability to achieve common principles and standards. It also counters the idea of the classic theory on peace and liberal commercialism – that by increasing commercial relations, peoples and states come closer together. The ability to achieve common terms of conduct underpins this notion. This perspective then emphasises the dissonance of PTAs and the new MRTAs with the multilateral trade regime set up by the 148 signatories of the Marrakesh Agreement Establishing the World Trade Organization in 1994.52 Besides these two main perspectives, some also argue that the TTIP and TPP are vastly overestimated. This school of thought focuses on the long-standing trade disputes between, for example, the EU and US and, secondly, on the economic weight of the RCEP countries and the emerging markets at large.
The implication of trade disputes involving different regulatory approaches to politically sensitive issues—like hormones and GMO or privacy protection between the EU and US—will not be solved through Western MRTAs. At the same time, it lies in EU's interest and that of its member states to enhance their ties with the emerging economies. The combined effect of these factors are twofold. First, they obstruct the members of TTIP and TPP from forming an effective 'Mega-Regional Trade Area' by keeping them apart and, secondly, they push the members closer to the emerging markets and RCEP. The extreme interpretation of this school of thought is the building of the global trade regime not along the ambitious agenda of the developed countries but along the 'illiberal' agenda of the East.
Change from a Dominant Power Perspective T he two previous sections have described the broad outlines of the change in world order and the debates surrounding it. This section goes further into the state-centric perspective to change within the theoretical framework of power transition theory.
According to power transition theory, developed by A.F.K. Organski in his World Politics (1958) and elaborated by, for example, Tammen et al.(2000), power in international order is inherently linked to states. Power transition theorists maintain that an analysis of power shifts should comprise an examination of national goals of the most powerful states, i.e., to what extent are they satisfied or dissatisfied with the current order and to which extent their objectives are competitive. This analysis should proceed with a comparison of actual power, which the power transition theorists conceive of as a compound of three dynamic elements: population; economic productivity;
and government stability, or the ability of government to use its common resources. Power shift leads to changes when the old dominant power loses its predominance, and this takes place when the competitors achieve an 80percent threshold of power with regard to the dominant state. This threshold, power transition theorists argue, is based on empirical evidence.54 In economic terms, no single state has yet reached the threshold. BRICS economy as a whole, however, has already passed it. Some analysts refute this perspective by arguing that instead of economic output the focus should be on per-capita issues. However, power transition theorists claim that per capita is rather irrelevant to power in international relations. Thus a nation with relatively low per capita can still be a powerful nation if it has a large Change From A Dominant Power Perspective population, its economic output is high, and the government accordingly has an abundance of resources and the ability to use them effectively.
The rise in BRICS' military expenditures emphasises the point. As illustrated in Table 2, BRICS' military expenditures have followed the trend of their economic output (as illustrated subsequently). In 1991 their share of US expenditures was 27 percent while in 2014 that share had risen to 65 percent.
According to a recent RAND report, China's military expenditures have already given it the ability to contend US military supremacy in East Asia.
In terms of population, the BRICS together account for about 40 percent of the entire world population at 7.3 billion, while US share is only four percent. For power transition theorists, BRICS then and in particular the Eurasian trio, should be the pivotal focus of rebalancing – as Brzezinski argued in the 1990s and as indicated by the US' Pivot to Asia policy. The rest of this section focuses primarily on economic output.
This section presents comparative data on economic output for the US and a) individual BRICS countries, and b) BRICS as a whole. The purpose is to emphasise the economic and the resulting political significance of BRICS as a whole. To be able to pose a challenge to the status quo world order, BRICS cooperation is necessary, because the US still is more powerful than any single BRICS state, China included. From the power transition perspective, lack of effective cooperation among the BRICS will give time for the US to
Battle for Globalisations?
counterbalance the three Eurasian giants. Through cooperation, the BRICS already have the economic leverage to speak to the US as an equal. Taking population and geographic scope of the BRICS into account and assuming firstly, that BRICS indeed cooperate effectively for common interests and secondly, that US rebalancing policies fail—it stands clear that the PostWestern Age is already upon the world.
The rest of this section discusses the following issues:
(i) Comparison of economic output between states (ii) Comparison of economic output between US and BRICS (iii) Financial power shift Comparing Economic Output: US and BRICS Economic productivity provides an approximation of power parity.57 The present analysis involves two different types of comparison: state-level comparisons of individual BRICS with the US, and comparison of the BRICS, as an entity, with the US. GDP data from the World Bank (1960–2014) are used as empirical reference point. These data are reported in current US$ and converted from national currencies at official yearly market exchange rates (World Bank 2015a). State-level comparisons comprise the following:
I. Real GDP for US vs. each BRICS member in 1960–2014 II. Real GDP for US vs. each BRICS member in 1960–2014 with fixed start value for individual states The first comparison shows that, in real GDP terms, the US is threatened only by China while the rest of BRICS are still far behind both leading countries, as illustrated by Figure 1. Moreover, even China is not close to the threshold of power parity. However, the steep growth of Chinese GDP indicates a high likelihood of overtaking as suggested by Goldman Sachs researchers.58 Remarkably, China's growth rate since economic reforms commenced in 1978 has consistently approximated 10 percent per annum.59 In 2014, China became the world's largest economy in terms of PPP-adjusted (purchasing power parity) GDP – that is, adjusted with regard to the amount of goods and services that one dollar can buy in China in contrast to what it can in US or in Change From A Dominant Power Perspective international markets.60 (This measure is not suitable for international comparisons of national GDPs and thus a better suitable standard measure from the World Bank's is employed here.) Figure 1: Real GDP, US and BRICS members, 1960-2014.