solution

Much has been written on the rising number of intermediary-level institutions operating between the global level of decision-making, where bodies like the UN or the WTO function, and the local level, where national governments rule supreme. This intermediary space of governance features very different kinds of players, ranging from non-governmental organizations to international financial institutions and regional associations (see Chapter 4). In addition, there is no real consensus on the powers awarded to the bodies acting within this category, or the extent to which they have the right to be involved in decision-making on other levels. Hence the growing number of countries today with political movements that loudly proclaim their reluctance to see any real power transferred to a regional association. On the other hand, there is also an understanding that the increasingly crossborder nature of finance demands an ‘adequate institutional infrastructure’ (Obstfeld 2012). Here the question is no longer whether power should be shifted to the regional level, but how much and in what form.

An example of this debate can be witnessed in the European and Asian approaches to two major international business dilemmas facing these regions, respectively trade and finance. The EU experienced severe economic hardship in late 2011 and early 2012 when a number of longstanding problems came together, led by the sovereign debt crisis epitomized by Greece’s inability to reimburse its debts. The consequence of the crisis was lower demand for products resulting in massive job losses across the continent. As often happens at times of crisis, politicians representing their struggling constituencies focused on protecting narrow national interests, especially in countries whose open border policies have led to trade deficits and the perception that jobs are being shipped abroad. History has shown that there is greater consensus in favour of free trade during a strong economy than in a recession. For instance, with an election coming up in May 2012, it was no surprise when incumbent French President Nicolas Sarkozy used a campaign speech to advocate government intervention in the allocation of public contracts to ensure that the business is given to local companies instead of foreign competitors (Economist 2012a). More noteworthy is the fact that this stance was supported by Karel de Gucht, a Belgian serving as EU Trade Commissioner (Barker et al. 2012), a role traditionally fulfilled by strong advocates of free trade.

The market for public procurement contracts amounts in many countries to as much as 15–20 per cent of GDP. To open up these particular kinds of markets, around 40 countries worldwide have signed a ‘governmentprocurement agreement’ (GPA) framework. The problem is that China is not one of these signatories. Moreover, in volume terms, twice as many EU contracts are open to foreign bidders than in the USA and 13 times more than in Japan. Sensitive to this imbalance, Mr De Gucht claimed that it would be ‘naïve’ not to level the playing field by ensuring that European producers receive the same market access abroad as foreign interests enjoy in Europe. Frenchman Michel Barnier, the EU’s Single Market Commissioner, further supported the approach with the suggestion that foreign bidders might be shut out of any state contracts exceeding €5 million (and featuring at least 50 per cent foreign product content) if local municipalities, national governments, or the EU itself determined that the bids came from countries that discriminated against European producers. In the eyes of the proposal’s authors, this tougher attitude should result in greater ‘reciprocity’.

Not all EU members were happy with the new focus, however, with Germany in particular expressing a great deal of concern. The possibility that the new legislation might be used by one European member state against another, undermining the whole mission of the EU, was a real fear. The new preference for European producers could also result in increasing public procurement costs and therefore waste taxpayers’ money. Lastly, this kind of aggressive attitude might increase the likelihood of further trade wars between EU member states and their partners. Of course, given Germany’s strong export performance, it is in this country’s interest to maintain the status quo in the international trade system, unlike fellow EU members who tend to do less well in competitive global markets. One lesson here is that neighbouring countries might join forces in a regional association yet maintain completely opposed policy objectives in certain areas.

This European furore can be contrasted with the more serene arrangements found in Asia in spring 2012, when China, Japan, and South Korea came together with ASEAN members (see Chapter 4) to devise a framework defending the region against the kind of financial instability from which it suffered in the late 1990s (Economist 2012b). The common purpose of the countries involved was to find a mechanism for mutual aid in case of a liquidity crisis. This was not the first attempt at such an understanding. In 2000, for instance, the Chiang Mai Initiative (CMI) culminated in bilateral agreements between national central banks, with signatories promising to provide one another with liquidities if needed. This was followed by years of economic dialogue, culminating in the 2010 CMI agreement where the earlier promises were turned into something binding. Only a relatively small amount of money was involved, however—$240 billion, a sum well below what would be needed to stave off a capital outflow crisis. This suggests that the relative tranquillity with which a regional consensus has been reached in Asia can be partially explained by the modest sums involved. What then becomes questionable is how friendly intra-regional relations would become if bold plans to develop a heavily resourced ‘Asian Monetary Fund’ were ever to take shape. It is easy to get along with one’s neighbours when this does not cost very much. It is quite a bit more difficult when the stakes get higher.