Restructuring Global Economic Rules & Institutions

In the same way that integrated economic structures gradually evolved during the historical development of Westphalian nation-states, we need an integrated design for the international economy to address the challenges of economic globalization and bring about equitable sustainable development. We need a world trade system that is committed to the global common good and to making the best use of trade and markets as instruments towards this end.

There must be a new emphasis, not only on improving trade arrangements and negotiations, but also on building the infrastructure and economic capacity (including universal education) that are needed to take advantage of trading opportunities. The following includes several structural reforms in the global trade and financial system that are necessary for the creation and support of sustainable development.

Join the discussion in the Restructuring the Global Economy forum.

Global Trade

Market access for developing countries

Two-thirds of the world's poor live in rural areas and depend upon agriculture for their livelihoods. Furthermore, most export earnings for the least developed countries come from agriculture. The continued protection of rich-country agricultural markets locks small farmers in poor countries out of these markets. Export subsidies in rich countries lead to increasing exports of agricultural goods to poorer countries, a process which destroys domestic markets in these countries, and condemns farmers to poverty. Rich countries must therefore remove export subsidies and trade-distorting support for agriculture.

Market access for developing countries must also be improved for semi-finished goods and processed primary products. Programs like "Everything but arms" are first steps in this direction. To strengthen trade flows among developing countries, tariffs between these countries may also be subject to reduction.

Join the discussion in the Market Access forum.

In our asymmetrical global economy, equal rules for non-equals lead to more inequalities. Thus, for a rules-based system to be fair, it must apply different rules to poor countries taking into account their specific and changing needs.

Development-oriented investment and build-up strategies as well as one-sided advantages for poorer countries should take priority over the full opening of markets to allow poor nations the best opportunities for development. Such strategies should especially promote micro level support, including micro-credit, financial support for rural agriculture, small loans for local entrepreneurs, rural health and education, as well as medical support through telecommunications technology.

Favorable treatment extended to developing nations under the Special and Differential Treatment provisions of the World Trade Organization (WTO) should include both least developed countries and other small, vulnerable and low-income countries, and allow them flexibility in implementing rules and commitments. In particular, trade rules should not constrain agricultural and industrial policies so that developing countries may be free to promote these sectors, if necessary, through tariffs and subsidies.

Join the discussion in the Development-oriented Investment forum.

Countertrade

Between 2 - 25% of world trade consists of countertrade. This alternative form of exchange, which utilizes non-cash transactions, has become an attractive alternative to traditional trade for several reasons. By creating value outside of the marketplace, trading partners are able to avoid typical debt and liquidity problems, including a lack of commercial credit, the unavailability of foreign exchange, and the barriers of a non-convertible currency. At the same time, countertrade stimulates domestic industries such as agriculture and mining, helps expand markets, and builds strong partnerships between buyers and sellers that create regional solidarity and cooperation. Countertrade is particularly useful in the world's most financially disadvantaged regions and should be promoted.

Join the discussion in the Countertrade forum.

Multilateral rules on competition

Multilateral rules on market competition are important to guarantee essential principles of competition in the global economy. A first step in this direction is the establishment of rules by the United Nations Conference on Trade and Development (UNCTAD) and the Organization for Economic Cooperation and Development (OECD) that require international corporations to apply the same restrictions and regulations on competition used in their own domestic markets to their operations in developing countries. Ultimately, a process for multilateral rules on competition should lead to the establishment of an international cartel office to guard against the formation of international monopolies and restrictive business practices.

Join the discussion in the Multilateral Rules on Competition forum.

Corruption

Corruption is both a cause of poverty and a barrier to overcoming it. It is one of the most serious obstacles to reducing poverty that undermines democracy and the rule of law distorting national and international trade. High-level corruption in poor nations could not exist without the enabling collaboration of corrupt financial, legal, and banking partners in the rich countries.

To effectively fight corruption at all levels, the institutions involved with tracking and punishing corruption have to have better financial and personnel resources. The exchange of information on corrupt business practices must also be improved between tax and customs authorities on the one hand, and prosecutors on the other. Public biddings should make the reasons for commissioning transparent. Persons and organizations convicted for corruption should be excluded from such biddings in the future, perhaps through their registration in an anti-corruption index. Whistle-blowers should be protected and sums from corrupt businesses confiscated. Petty corruption at lower levels must be fought through education and anti-corruption education, effective oversight and control mechanisms, implementation of codes of conduct, and also, if adequate, by improved payments for officials, who's temptation for corrupt behavior is curbed due to a decent standard of living.

Join the discussion in the Corruption forum.

Costs of transportation

Because of subsidies, transportation prices currently do not include their total social and ecological costs. If these subsidies were stopped and the true price of transportation paid, a re-regionalization of production and trade would be promoted, especially for goods of little value. Also helpful would be incentives for a gradual transfer from air and street traffic to water and railways. Such measures would benefit the environment by reducing CO2 emissions and would also encourage localities to become more self-reliant in their production of goods, creating new sources of value in the community.

Join the discussion in the Costs of Transportation forum.

Flexibility and services in the GATS

The General Agreement on Trade in Services (GATS), the WTO treaty which applies provisions governing the trade of commodities to the trade of services, should include greater flexibility for sovereign decisions by WTO members.

For example, GATS should allow individual nations to decide which sectors they want to open, to what degree, and at which point in time. It should also allow nations the right to exclude sectors from the GATS directly from the start of market openings, or after an open market has not brought about the desired positive results.

Services of general interest like education, cultural services and water supplies should be completely excluded from GATS negotiations and not considered exchange options for private sector market openings. An amendment to GATS regarding the exceptional rules that apply to services of general interest would be beneficial to both WTO members and the services sector.

Join the discussion in the Flexibility and Services in the GATS forum.

Patenting of genes, creatures, plants

Multilateral agreements such as the Trade-Related Aspects of Intellectual Property Rights (TRIPS) under the WTO should generally rule out the patenting of genes, creatures (including micro-organisms) and plants. Farmers should retain the right to reuse their seeds, exchange them for non-commercial purposes, and improve them through breeding. The interests of developing countries, indigenous people, and the protection of traditional wisdom should be further guaranteed by the Convention on Biological Diversity.

Join the discussion in the Patenting of Lifeforms forum.

Access to essential medicines

The amount of money invested in research on the world's most deadly health problems, such as tropical diseases, is negligible compared to that involved in overall pharmaceutical research. In addition, many existing vital drugs are unaffordable for people in developing countries due to current TRIPS laws. Research on the global health needs of the poorest areas of the world should be promoted and financed by the state, and equal access to the needed medicines should be guaranteed to all people.

Join the discussion in the Access to Medicines forum.

Corporate accountability

Corporations should be held accountable worldwide to the laws governing their domestic markets. Producers and exporting companies should be required to inform importing countries about any planned importation of domestically prohibited goods (DPG) and provide all information on the effects that these products may have and the reasons for their prohibition in the exporting country.

Voluntary standards for corporations, such as the Equator Principles on project finance in emerging markets, should be promoted. Civil society organizations should participate both in the formulation of standards and in the management of compliance. Voluntary standards must however not be used as an excuse to implement enforceable standards.

Join the discussion in the Corporate Accountability forum.

Financial Regulation / World Money & Finance

Monetary policy

The Bretton Woods system, created in 1944, is a financial as well as a monetary arrangement. This regime has been badly strained since the United States deregulated the international monetary system in 1971. By taking the world off the gold standard, the US required the world's Central Banks to abandon the central value system of Bretton Woods I and adopt floating exchange rates. Bretton Woods II has resulted in numerous monetary problems, including undisciplined credit creation, institutionalized deficit spending, excessive debt levels, and extreme volatility in national currency values and international exchange rates. Despite huge increases in credit and liquidity, the benefits of this monetary expansion have not been equally shared. While developed countries were subsidizing their deficit spending over the years through global sources of cheap labor and raw materials, the burden of these expansionary policies has most often fallen upon the poor people of developing nations and the unprotected natural resources of the global environment.

Developing nations learned many lessons as a result of the Latin debt crisis of the 1980s and the Southeast Asian debt crisis of 1997-98. When the International Monetary Fund intervened with large bailout packages, many of those nations fell further into debt and more dependent on the IMF's lending conditionalities. Since then, many nations across the developing world have sought to pay off these debts, increase export production, and save their foreign exchange. Financial surpluses have now reached record levels, particularly in nations with trade surpluses and substantial oil revenues. Sovereign wealth funds and new mega-credit institutions such as the Bank of the South, created in Latin America in 2007, are rapidly diminishing the global power and influence of the IMF and the Central Banks of many of the richest countries.

As the balance of global economic power shifts, the adverse burdens of the deregulated Bretton Woods II monetary system are now spreading to the citizens of developed nations. As a result of its credit policies, the US Central Bank allowed banks, hedge funds, and private equity firms to create risky financial tools they could not control. The resulting subprime mortgage crisis and recession in the United States has generated monetary instability across the world.

The world's Central Banks need to adopt a new framework that reflects the realities of globalization and the unwinding of the Bretton Woods II system. An international monetary conference must be called which truly represents the interests of all nations. On the agenda for discussion must be the establishment of

• a fully multilateral decision-making authority for monetary policy decisions
• a regulated credit system with an emphasis on global monetary discipline
• an international bailout mechanism with access to sufficient reserves
• and a new reserve base for the international monetary system.

The global adjustment that is needed will involve a substantial shift in our traditional economic understanding of economic value. Businesses and governments must recognize that the value of money is less a function of the marketplace than it is of social, cultural and natural resources. In this regard, world monetary policy must begin to embrace the full significance of sustainable and non-sustainable resources as an anchor of global currency reserve value.

Join the discussion in the Monetary Policy forum.

Stability / Exchange rate volatility

One possibility for curbing currency volatility and making money flows more transparent could be a Currency Transaction Tax (CTT). Implementation of such a tax would be of benefit both in terms of technical progress and centralization of the foreign exchange system. A CTT could include two tiers. The first is a very low tax on all currency transactions (e.g. 0.01%) focused on daily currency speculation that derives profits from market volatility. The second tier of the CTT would involve a flexible tax rate, which would take effect in the event of broader speculation during currency crises, when a massive wave of financial withdrawals produce sharp and sudden deviations from a defined exchange rate band. In combination, both tiers could effectively curb speculation, reduce the volatility of the currency market, and prevent, to some extent, currency crises. Revenues from the CTT should be used to finance global public goods and sustainable development in poorer countries and regions, such as improved health care or education programs.

A global trade currency, along the lines of expanded Special Drawing Rights through the International Monetary Fund, could also help to mitigate the effects of currency volatility on developing nations. Through the direct exchange of credit between businesses in all nations, bypassing the exchange rate regime, the pace of financial exchange and investment would become steadier and more predictable and the destructive effects of boom-and-bust swings would be greatly reduced.

Another means of promoting exchange rate stability, perhaps years in the future, would be the creation of a common reserve standard or asset base. Currency values could be established based on a basket of key global resources, both sustainable and non-sustainable, and adjusted according to their relative availability as long-term monetary reserves.

Join the discussion in the Exchange Rate Stability forum.

Regulation of hedge funds & derivative markets

A larger share of equity capital in businesses with high leverage effects would make high-risk speculation more expensive, and thereby, help to stabilize the international financial system. The Bank for International Settlements, the International Monetary Fund and the OECD should engage in better cooperation on the supervision of hedge funds and derivatives, providing for transparency and including the strict regulation of funds that operate from off-shore financial centers.

Join the discussion in the Hedge Funds & Derivatives forum.

Money laundering

To fight money laundering in an effective way, transparency of capital transfers is crucial, but also realizable because of the predominance of electronic transfers which can easily be monitored. Procedures for transparency must, however, respect human rights and fundamental freedoms. Cooperation by courts, the police and governmental administrations must also be improved to eliminate the utilization of 'special jurisdictions' for finance. Non-cooperating countries and territories (off-shore financial centers) must face sanctions for illegal practices. Starting with an obligation for systematic information and reporting on business connections between corporations or financial institutions and non-cooperating off-shore financial centers, sanctioning should also include restrictions, additional fees or the complete prohibition of such operations.

Join the discussion in the Money Laundering forum.

Locational competition and tax shelters

Some countries or regions offer artificially low rates of taxation to attract corporations to their territories, particularly the mobile parts of a business such as capital investment, holding and financing, administration of licenses, and assurance services. This form of tax shelter must be opposed. Political agreements concerning this matter can take the form of codes of conduct, and, if necessary, more binding forms including the cutting of all legal transactions with those zones. National taxes should also be better harmonized in order to stop the erosion of the tax base of nation-states.

Join the discussion in the Locational Competition forum.

Off-shore, on-shore financial centers and tax havens

Off-shore and on-shore centers, due to their special jurisdictions, encourage corruption and money-laundering, allow for high-risk financial speculation, and contribute to the erosion of the national tax base. These centers should adopt the OECD recommendations for cooperation with international institutions for financial supervision and regulation. Gradually, these regulations should become stricter in character. At the same time, national, regional and international financial supervision has to be improved and provided with more competencies. Corporations undertaking business relations with off-shore financial centers should at least be required to meet higher standards for equity capital. To promote transparency, these corporations should be registered in a public index.

Join the discussion in the Off-shore and On-shore Financial Centers forum.

Debt relief

The process of debt relief or debt cancellation for highly indebted poor countries should continue. It should involve more private sector contributions than presently exists. The Heavily Indebted Poor Countries Initiative (HPIC) that targets poverty reduction and integration of civil society organizations into the design and implementation of the debt relief process should also be expanded. Debt cancellation should be tied to specific development projects, and the savings realized from debt cancellation must not bypass the people in developing countries by flowing directly from aid donors to debt creditors. A nation's over-indebtedness, the potential for meeting its debt service obligations, and the unique factors pertaining to ecology, society and the role of women must all be taken into account in the implementation of debt relief programs.

Join the discussion in the Debt Relief forum.

International insolvency proceeding

An international insolvency proceeding should be established to guarantee well-regulated and fair debt relief for debtor nations that face severe debt and financial crises and cannot meet their debt service payments. Furthermore, all indebted countries should continue to prioritize serving their people's basic needs. The modalities and the institution governing an insolvency proceeding would need to operate fairly and transparently, under a neutral chair, and with equal participation by both debtors and creditors. Its decisions should also be binding.

Join the discussion in the International Insolvency forum.

Credit supply and access

The system of international credit allowance needs to be altered to include an accountable and equitable mechanism for access to global credit for all nations. While the need for credit clearly pertains to the poorest people in developing countries, small and medium-sized businesses as well as broad levels of the population around the world are facing increasing difficulties in getting access to credit or having to pay much higher prices for it. To guarantee that all people and companies have access to credit, alternative approaches to safeguard credits that have proven their worth in traditional small business economics and also in the worldwide micro-financing movement should be included in regulations on equity capital, such as Basel II.

Join the discussion in the Credit Supply forum.

Governance >>

Added by Administrator, last edited by Max Minh Tran on Apr 30, 2008 16:01