A fragmented multilateralism?

Amid ongoing attacks by U.S. President Donald Trump, the battle for the future of multilateralism has commenced. Previous demands for pragmatic reforms have escalated into pressure for the wholesale transformation—or even total destruction—of the global framework of multilateral institutions. Trump seems to prefer a “system” in which bilateral deals replace the multilateral rules-based order. As the U.S. is still the world’s most advanced (and one of the largest in terms of market prices) economy in the world, he believes America can get the best “deal” by negotiating alone, unbound by international rules—a view that extends to military affairs.

Although multilateralism had made substantial progress since the end of the Second World War, there was a need for continuous reform, owing to changes in the structure of the world economy. By the late 1990s, emerging-market economies had grown in size and market share, overtaking the “Quad” (the U.S., Canada, the European Union, and Japan), which had dominated the General Agreement on Tariffs and Trade and the GATT’s successor, the World Trade Organization. A similar change in “economic weight” affected the International Monetary Fund and the World Bank. At the heart of this change was the spectacular growth of China.

In the case of the WTO, the sheer number of developing countries that had joined also made adjustment necessary. The inability to conclude the Doha Round of negotiations, after 14 years of talks, was a symptom of the problem. In the 2010s, a system emerged in which mega-regional trade negotiations—most importantly, those for the Trans-Pacific Partnership and the Trans-Atlantic Trade and Investment Partnership, and other “minilateral” negotiations took place outside the WTO framework.

Trump’s attacks, coming after the failure of the Doha Round, may lead to the end of a functional WTO. But the debate about the WTO’s fate is part of a wider discussion concerning multilateralism, which includes the United Nations, the G-20, and the IMF. At the risk of oversimplifying, three alternative “systems” appear to be possible.

The first alternative is a system dominated by bilateral deals, in which international rules and international law are absent. This would apply not only to trade, but also to the many “behind the borders” regulatory issues that have become part of trade negotiations. It would also minimize the roles of the IMF and the Financial Stability Board, and end the G-20-led multilateral effort to prevent a race to the bottom by corporations’ tax optimization strategies. In its extreme form, this vision becomes one in which the “law of the jungle” prevails.

The second alternative is the current system, in which countries use global multilateralism to enforce common rules. This system includes many regional organizations; at the top of the system, however, sit global multilateral institutions such as the IMF, the World Bank, and the WTO, with the aim of formulating global rules and standards.

Finally, one can envision a system in which the attempt to establish global rules is abandoned, but regional or like-minded country groupings formulate their own sets of rules. This kind of system would accommodate the differences in preferences countries may have. In theory, it should be easy to conceive of two different regulatory systems that reflect, for example, the different priorities that the U.S. and the EU assign to privacy. In practice, however, implementing two different systems would be complicated, given the deep interaction between the U.S. and the EU, and has proven difficult in the case of the EU’s General Data Protection Regulation.

The first system discards all the efforts to provide global public goods and manage spillover effects, including those that have occurred over the last few decades. Countries would become players in a game of back-and-forth retaliation that creates losses even for the strongest, which would also likely lead to military conflict. It is exactly what the leaders of the victorious powers after World War II tried to avoid.

But rejection of the “law of the jungle” does not mean that everything is working well under the existing institutions and rules. There is a clear demand for some differentiation in rules and standards to accommodate varying preferences.

Does this mean we should adopt the third system, a fragmented multilateralism, with not much room for global institutions?

Once one has thought through the degree of interdependence, not only of the world’s economies, but of the world’s societies, it becomes clear that a strongly fragmented system would be unable to deliver the sought-after global public goods and benefits. There certainly is room for regional groupings or for like-minded countries to organize themselves. Our global institutions often do not follow the principle of subsidiarity.

Having said that, the need for global rules, such as those concerning climate, will increase with new technologies. We are at the beginning of a cognitive revolution that can only reinforce global challenges. Cybersecurity requires global action. An area which we are just beginning to think about, genetic engineering, will require global rules and restraints. In the military field, we have the nuclear non-proliferation treaty; soon we will need a treaty aimed at limiting the use of robot soldiers moved by artificial intelligence. In fact, more generally, the use of artificial intelligence will also require what might be called a new global ethics.

Cooperation among likeminded or geographically proximate countries should certainly be encouraged. But that is no substitute for global rules and standards that are required to confront the world’s existing and emerging challenges.