G20 - Balance of power is shifting from developed to emerging economies

The Leaders of the G20 recently had their fifth meeting since the start of the world recession in 2008. Many commentators view the outcome as neither surprising nor particularly disappointing. The Leaders build on their original commitments to support and stabilise the global economy and to lay the foundation for reform. They adopted an Action Plan which focuses on five policy areas namely: monetary and exchange rate polices, trade and development policies, fiscal policies, financial reforms, and structural reforms. However, given the complex world that we live in, these countries will have to rely on a number of international organisations such as the WTO, World Bank and IMF to pursue these reforms.

In the area of monetary and exchange rate policies, they agreed to follow “more market-determined exchange rate systems” to reflect underlying economic fundamentals. This came in response to China’s unwillingness to allow the Yuan to appreciate and America’s push for more liquidity into its banking system. However, in reference to concerns of emerging markets with overvalued flexible exchange rates such as South Africa, countries may respond with “carefully designed macro-prudential measures”. This could be interpreted as giving these countries the go-ahead to take the necessary steps to deal with the vast capital inflows into their economies, which have driven the currency gains.

On the issue of trade and development they reaffirmed their previous commitment to refrain from protectionist trade actions and to conclude the Doha Round of multilateral trade negotiations. They also agreed to formulate medium-term fiscal consolidation plans for advanced economies in line with the Toronto commitment. This commitment must ultimately bring about the stabilisation or reduction of government debt to GDP ratios by 2016 and to at least halve deficits by 2013.

The Leaders agreed to raise international financial regulation standards and to ensure that national authorities fully implement current global standards. They endorsed the policy framework by the Financial Stability Board to address problems related to systemically important financial institutions and banks that are purported to be too-big-to-fail. This latest undertaking comes in response to the financial crisis that was caused by reckless and irresponsible risk taking by banks and other financial institutions, combined with major regulatory and supervisory failures.

These decisions came amid a related debate on the reform of international financial institutions. These organisations, originally responsible for the regulation of the international economy after the Second World War, were created for a different time and purpose. Urgent reforms were necessitated by the realities of a multi-polar global economy where developing countries are now key global players. In response to better reflect these realities, the voting powers of developing and transition countries at the World Bank were increased earlier this year. The 3.13 percentage point increase in the voting power of these countries brought their share to 47.19 percent.

Similarly, the IMF’s Executive Board also announced governance reforms earlier this month. This will bring about a 6 percent shift in the voting power of developing countries. Accordingly, the top ten shareholders of the Fund; the United States, Japan, the four largest European economies (France, Germany, Italy and the United Kingdom), and the BRICs (Brazil, China, India and the Russian Federation) will better reflect their ranking in the global economy.

One thing is clear; the balance of power is shifting from developed to emerging economies.

By: JB Cronje - Tralac South Africa
http://www.tralac.org/cgi-bin/giga.cgi?cmd=cause_dir_news_item&cause_id=1694&news_id=95688&cat_id=1059

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Implementation of SADC Protocols

The highest decision-making body, the Summit of heads of State or Government, of the Southern African Development Community (SADC) met this week in Windhoek, Namibia to take stock among other things of the progress made in the implementation of various legal commitments. SADC was established in terms of the SADC Treaty which entered into force in 1993. One of the objectives of the Treaty is the adoption of policies aimed at the progressive elimination of obstacles to the free movement of labour and capital, goods and services, and of the people of the region among member states.

Consequently, in line with this objective member states adopted the SADC Trade Protocol in 1996. The Trade Protocol came into force in 2000 after ratification by two thirds of the member states. Angola (2003) and Madagascar (2006) acceded at a later stage. Three member states, Malawi, Angola and DR Congo are not currently implementing the SADC Trade Protocol even though Malawi ratified the Protocol in 1999 and Angola is party to it. The implementation of the SADC Free Trade Area started in 2000 and was officially launched in 2008 after a transition period of eight years. The regional block claims to have liberalised 85% of trade in goods that originates among its members. It is envisaged that the SADC FTA will be fully implemented in 2012 with the completion of tariff phase down schedules on trade in sensitive products.

In addition, the member states adopted a roadmap (Regional Indicative Strategic Development Plan) in 2003 for the achievement of deeper regional economic integration and propose the establishment of a customs union by 2010, common market by 2015 and an economic union by 2018. The establishment of the SADC Customs Union has not commenced and will in all likelihood be postponed. Nonetheless the important thing is that members started a process for the integration of their economies even though it might take longer than planned. Despite cooperation on the achievement of economic integration, the member states also cooperate on numerous other issues. This would not have been a problem had the members not allowed dual membership with other regional initiatives with similar aims, objectives and timeframes. This confused and complicated a seemingly clear approach to regional integration.

Countries are for example required to allocate scarce financial and human resources to the implementation of the various integration projects and to the establishment of new institutions in line with their obligations. Almost all government departments are in one way or another involved in the negotiation, implementation, monitoring and evaluation of regional commitments. It also places an additional burden on national legislatures to give effect to obligations through the adoption of new or amendment of existing legislation. The costs of belonging to a regional integration block are duplicated when a particular country is party to multiple initiatives. In some instances these regional arrangements have conflicting obligations creating an implementation nightmare for those individual countries with dual membership.

It is here where the root of the problem lies. The members of SADC have signed not less than 23 protocols and a number of declarations, charters and memoranda of understanding on various matters ranging from illicit drugs and control of firearms to trade, fisheries, mining and finance and investment. All of these protocols have entered into force, even the protocol on the establishment of a tribunal for the adjudication of disputes arising from the interpretation and application of obligations. Unfortunately, many member states do not view their legal obligations with the necessary earnest it deserves because very few, if any, consequences have ever flown from the non-implementation of commitments. Dispute resolution through the adjudicating body has only been used in exceptional cases. Regrettably, a rules-based dispensation has not yet come about. As a result, some states are very slack when it comes to the incorporation of their obligations into domestic law. However, it is important to acknowledge and address these technical problems in the functioning of the regional arrangement. The countries in southern Africa cannot prosper when they view and address problems in isolation. They need each other’s assistance to tackle problems of mutual concern. They also need effective secretariats that can oversee the implementation of regional policies and speak on behalf of the collective.

http://www.tralac.org/cgi-bin/giga.cgi?cmd=cause_dir_news_item&cause_id=1694&news_id=91436&cat_id=1059

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