Copenhagen: Convergence of National Interests;
Dynamics of 21st Century Power Structures;
Carbon Trade War?

London, UK - 22nd December 2009, 20:45 GMT

Dear ATCA Open & Philanthropia Friends

[Please note that the views presented by individual contributors are not necessarily representative of the views of ATCA, which is neutral. ATCA conducts collective Socratic dialogue on global opportunities and threats.]

We are grateful to:

. Hervé de Carmoy, Vice-Chairman of the Trilateral Commission Europe and Chairman of ETAM, Paris, for "Convergence of National Interests";
. Dr Harald Malmgren, Chief Executive, Malmgren Global, Washington DC, who has worked for Four US Presidents, for "Dynamics of 21st Century Power Structures"; and
. Prof Jim Rollo, Professor of European Economic Integration, University of Sussex, England and Editor of the Journal of Common Market Studies (JCMS), for "Carbon Trade War?";

in response to:

. Bill Emmott, Distinguished ATCA Contributor and Independent Writer, "Is the Copenhagen Analysis Right?"; and
. The ATCA Briefing, "Copenhagen Accord Heralds Geo-Political Power Shift".

Coal Stack and Hurricane

Convergence of National Interests

Dear DK and Friends

Bill Emmott is raising an important issue: he feels that Copenhagen does not mark a dramatic shift in terms of geopolitical strategic balance in the world. I maintain that the geopolitical power transformation has now become much more pronounced and visible, as highlighted accurately by the ATCA Briefing on Copenhagen. This is a major asset in the way power can and will be exercised in the future.

We all know that over the last ten years, the global balance of economic power has been shifting in favour of the Asiatic giants: China and India. The reasons are well recognised: Chinese and Indian rates of industrial growth; an accumulation of savings; as well as a fantastic jump in education and research.

During the same period the US has maintained its share of the world GDP and the Americans have woven an intensive network of strategic contacts with China and India at all levels of government and business albeit for different reasons. In the case of china, they have created sixty sub-commissions between the Chinese and the US government.

Nothing new, one could say! However, the world has changed dramatically in regard to a specific dimension and that is the growing convergence, for the time being, of national interests between China and the US and India. That convergence leads to common actions in world affairs such as finance, currency management and climate change. Not only does this represent a significant shift in power towards the Asian giants but this is to the detriment, partly of Europe and partly the international institutions such as the United Nations (UN) and the International Monetary Fund (IMF). Why? Because, together, the Asian giants and the US can get action, while the other parties seem to be quite ineffective.

What Copenhagen did is to reveal that fundamental shift in the global balance of power in the clear light of day whilst the whole world public was watching and forming opinion, thus further increasing the distance between Europe’s ability to get action to take place on its terms and the power of the United States and Asian giants acting in concert.

Amitié

Hervé

Hervé de Carmoy is Vice-Chairman of the Trilateral Commission Europe, and Chairman of ETAM, Paris. Previously he was chairman of Almatis (formerly Alcoa Specialty Chemicals), a majority-owned company of Rhône Group LLC in Frankfurt-am-Main. Until 2004, he was a partner of the Rhône Group LLC in New York and Paris since 1998. Prior to this position, he was chairman of the Banque Industrielle Mobilière et Privée (BIMP) and advisor to the chairman of HR Finances in Paris. Educated at l'Institut d'Études Politiques in Paris and at Cornell University in the United States, he began his career at Chase Manhattan Bank in 1963. After joining Midland Bank in 1978, Mr de Carmoy became director and chief executive international, London and Paris, and chairman of Thomas Cook, a position he held until 1988. He was thereupon chief executive of Société Générale de Belgique in Brussels until February 1991. Mr de Carmoy was also a Trilateral Commission task force author on Restoring Growth in the Debt-Laden Third World (1987, with Martin Feldstein and Koei Narusawa). He was elected European deputy chairman of the Trilateral Commission in 2004 and served as chairman of the French Group of the Commission. His most recent publication is L'Euramérique (2007).

Dynamics of 21st Century Power Structures

Dear DK and Friends

The ATCA Briefing on Copenhagen focused our attention on what the negotiating process portends for the future of multilateral cooperation: “…the overarching significance of Copenhagen lies in the manner in which it exemplifies how the geo-strategic contours of the 21st century have begun shifting.”

For many decades, the primary model for multilateral negotiation had been close diplomatic interaction between the US and Europe in pursuit of consensus, followed by joint efforts to draw the rest of the world into a process of collegial decision making. Transatlantic cooperation was the foundation of the Bretton Woods framework of institutions and rules for managing liberalization of trade and financial flows. This framework successfully brought about globalisation of the world economy, enabling a vast array of nations to rise up from dire predicament and to participate in rapid development of economic, technological, social, and even political advances.

What Copenhagen revealed to us is that globalisation had also realigned the power structure which underlies international cooperation, rivalries, and conflict. At Copenhagen, the US-EU basis for establishing international consensus failed, and was replaced by newly improvised collaborative efforts of a handful of countries led by China and India, and joined by the US. Most governments, including that of the US, found that they could not accept the EU’s proposed heavy reliance on regulatory mechanisms and targets.

Copenhagen was about the economic dynamics of the next several decades: the costs to be borne, and by whom. From that perspective, the European influence was perceived as that of relatively prosperous, well-intentioned intellectuals who believed they held the right answers for the rest of humankind. Politicians from other capitals, primarily concerned with domestic economic and social consequences of potential decarbonisation, emission cuts, and technology transfers, did not assign credence to what was perceived as a self-serving European agenda.

But even beyond that reluctance, most governments were not ready to accept the huge costs and limitations of economic growth that would be imposed on their industries and their peoples. A degree of international political cooperation was called for on a scale that has been proven again and again to be unachievable. The majority of governments, and especially their politicians and legislatures, still cannot find significant domestic support for yielding sovereignty over jobs and resources to “foreign” authorities.

Nonetheless, China’s leaders recognized that primary blame for failure of Copenhagen would have been laid at their doorstep unless they offered something positive. In the past, China might have remained in the background while another nation or group of nations was willing to step up to block international consensus. For example, when the Doha Round of international trade negotiations broke down last year, it was the Indian representative who effectively stood in the way of further progress, with a reluctant China well hidden in the background.

In Copenhagen, for the first time China firmly asserted a multilateral leadership role. Chinese diplomats gathered together the handful of other big, core economies that dwarf the rest of the emerging markets: Brazil, South Africa and India. Together with China, these countries were dubbed the BASIC coalition. President Obama evidently wanted to bring home to the US some achievement that could have political impact in Washington. With China clearly the leader, these countries offered to President Obama the only concrete proposal that he could show for his trip. There was little to negotiate. Accept the Chinese proposal – or not. The BASIC accord did not expose him to a wave of domestic political criticism. This US-BASIC accord was an agreement on the political intentions of leaders, without challenging the Constitutional authority of the US Congress to implement or reject what a President might agree.

It should be kept in mind that the Kyoto Accord taught President Clinton, and the rest of the world as well, that no US President has the power to negotiate and approve an agreement that would have the effect of changing US laws and circumscribing the authority of Congress. When Vice President Gore flew to Kyoto to consummate an environmental agreement the initial news throughout the world was that an historic breakthrough in global cooperation had been achieved. Instead, the Congress reacted by advising President Clinton that he should not seek Senate approval.

At the time of Congressional inaction on the Kyoto Accord, much blame was assigned to the reluctance of countries like China and India to participate. Congressional politicians argued that the US could not limit its own economy when other major world polluters were free to continue without restraint. Frankly, this was a convenient excuse for Congressional reluctance to act, but it was not the only reason for inaction. This rejection was not simply a matter of Republican reluctance. The “Blue” Democratic states of the US industrial heartland and Democrats in the states mining coal and producing oil and gas could not accept that accord. An open vote would have become a huge political embarrassment to President Clinton as well as to Vice President Gore. In subsequent years, President George W Bush received the same advice from Senate leaders, so he simply avoided addressing the Kyoto accord in the same way as President Clinton had done, by ignoring it.

Now that China and India seem to be party to some political commitment to limit environmental contamination, President Obama will likely use this apparent breakthrough to help gather support for the Waxman-Markey “cap and trade” carbon bill pending before Congress. It is doubtful that the Chinese and Indian recognition of their responsibilities will dramatically change the outlook for the President’s carbon initiative. He would still face objections, not only from Republicans, but from members of his own party which represent industrial, mining, and oil and gas sectors. In the midst of continuing high unemployment and in anticipation of rising taxes and costs underlying the President’s health care reforms, Congress will likely prove extremely reluctant in 2010 to impose dramatic new costs on the American economy. Based upon present polls indicating substantial losses of Democratic Congressional seats in next year’s elections, Democrats determined to keep their own seats are unlikely to go against popular resistance to new restrictions and costs of energy use.

While these immediate questions linger, the ATCA Briefing on Copenhagen raises more fundamental questions about the power structure of the world in the 21st century. Even before Copenhagen it was becoming evident that the Transatlantic power structure of preceding decades had fading influence, and that newly emerging powers were being asserted by a growing array of participants in the functioning of the world economy. In the struggle for broader acceptance of their initiatives, both the Europeans and the US increasingly engaged in a competition of rivalry for influence with other nations around the world. The functioning and voting structure of the IMF came into question. New regional arrangements for economic and political cooperation began to proliferate, sometimes taking the form of Free Trade Arrangements (FTAs) and sometimes less legally binding but enhanced cooperation. The structure of the UN Security Council and other UN bodies also came into question.

The Doha Round which had been under way for almost a decade under the framework of the WTO has now reached the point that a US-EU accord, even if it could be reached, would have only minor influence. The primary trade interests of both the EU and the US are now focused on the emerging markets, and particularly on China, India and the Asian tigers, and it is their objectives that must be reconciled with those of the advanced industrial world in order for a new international agreement to be achieved. There is little possibility of a breakthrough on that basis for at least the next couple of years.

The enlargement of the G-8 to a new G-20 framework gives the appearance of comprehensiveness, but the underlying reality is that this group is far too large to facilitate formulation of new initiatives. What will happen is that ad hoc collaboration of individual governments will take place within the G-20, and that these dynamic couplings will vary according to the issues being addressed, and the relative power of participants to affect the outcome. International financial reform will be of primary interest to some, but not all of the members; food supplies will take primacy for some but not others; relative emphasis on economic growth versus distribution of the gains from growth will vary; environmental issues will continue to “be of interest” but without enthusiastic pursuit of solutions by all members; geopolitical disruptions will from time to time interrupt and divert attention.

Separately, the Financial Stability Board (FSB) will grind out an array of important proposed reforms of the functioning of international financial markets, and national governments will intervene to impede or delay their implementation. Already, the EU and Eurozone governments, led by Germany, have been applying the brakes to reforms that would have painful consequences for European banks and insurers. The US and the Europeans can sometimes find common ground, but for the most part they are on different trajectories which reflect the national interests of the participants and the relative pace of adjustments to the Great Recession of the last couple of years.

At the heart of Copenhagen was President Obama’s apparent acceptance of the importance of the emerging “G-2” relationship of the US and China. From China’s point of view, the G-2 is a collaboration between the receding, but still relevant dominance of the US in world affairs, and the emerging power of China on the world stage. Given President Obama’s evident emphasis on the primacy of China in his recent trip to Asia, it seems natural that these two rivals would also find an array of common interests.

Recognising that the G-2 is a new reality, it may also be questioned whether China is really ready for such a potent role in world affairs. The Chinese economy has suffered grievously from the deepest downturn in world trade since the 1930s. The Chinese leadership has levitated its economy with a combination of fiscal and lending stimulants that reach half of China’s GDP. This artificially levitated economy is unstable, and will require continuous and obsessive attention to avert collapsing bubbles, growing unemployment, and massive problems of industrial stockpiling and growing overcapacity of industries for which there is inadequate world demand. China’s present leaders, and those to take over in 2012, will have their hands full in just the task of keeping the Chinese economy functioning without disruption. There can be doubt whether this China is yet ready to take on a role of global leadership.

In the meantime, the ATCA Briefing on Copenhagen correctly notes that the world’s geopolitical power structure will remain in flux, with the power structures of the past less and less able to provide a road map for the future. This poses new challenges to collegial decision-making in a world of ever closer interaction among nations and peoples of those nations, with continuously evolving changes in the dynamics of world power projection.

Best regards

Hal

Dr Harald Malmgren is Chief Executive of Malmgren Global and also currently the Chairman of the Cordell Hull Institute in Washington, DC, a private, not-for-profit "think tank" which he co-founded with Lawrence Eagleburger, former US Secretary of State. He is an internationally recognised expert on world trade and investment flows who has worked for four US Presidents. His extensive personal global network among governments, central banks, financial institutions, and corporations provides a highly informed basis for his assessments of global markets. At Yale University, he was a Scholar of the House and Research Assistant to Nobel Laureate Thomas Schelling, graduating BA summa cum laude in 1957. At Oxford University, he studied under Nobel Laureate Sir John Hicks, and wrote several widely referenced scholarly articles while earning a DPhil in Economics in 1961. His theoretical works on information theory and business organization have continued to be cited by academics over the last 50 years. After Oxford, he began his academic career in the Galen Stone Chair in Mathematical Economics at Cornell University.

Dr Malmgren commenced his career in government service under President John F Kennedy, working with the Pentagon in revamping the Defense Department's military and procurement strategies. When President Lyndon B Johnson took office, Dr Malmgren was asked to join the newly organised office of the US Trade Representative in the President's staff, where he had broad negotiating responsibility as the first Assistant US Trade Representative. He left government service in 1969, to direct research at the Overseas Development Council, and to act as trade adviser to the US Senate Finance Committee. At that time, he authored International Economic Peacekeeping, which many trade experts believe provided the blueprint for global trade liberalisation in the Tokyo Round of the 1970s and the Uruguay Round of the 1980s. In 1971-72 he also served as principal adviser to the OECD Wise Men's Group on opening world markets, under the chairmanship of Jean Rey, and he served as a senior adviser to President Richard M Nixon on foreign economic policies. President Nixon then appointed him to be the principal Deputy US Trade Representative, with the rank of Ambassador. In this role he served Presidents Nixon and Ford as the American government's chief trade negotiator in dealing with all nations. While in USTR, he became known in Congress as the father of "fast track" trade negotiating authority, which he first introduced into the historically innovative Trade Act of 1974. He was the first official of any government to call for global negotiations on liberalisation of financial services, and he was the first US official to call for the establishment of an Asian-Pacific Economic Cooperation arrangement, known in more recent years as APEC. In 1975 Dr Malmgren left government service, and was appointed Woodrow Wilson Fellow at the Smithsonian Institution. From the late 1970s he managed an international consulting business, providing advice to many corporations, banks, investment banks, and asset management institutions, as well as to Finance Ministers and Prime Ministers of many governments on financial markets, trade, and currencies. He has also been an adviser to subsequent US Presidents, as well as to a number of prominent American politicians of both parties. Over the years, he has continued writing many publications both in economic theory and in public policy and markets.

Carbon Trade War?

Dear DK and Friends

Two comments on Bill Emmott's percipient intervention:

G-2 Bipolarity

This appears to be the first public and explicit case of the G-2 at work governing the global economy and climate, as noted by the ATCA Briefing on Copenhagen. The G-2 may de facto be at the heart of the G-20 but they use that somewhat chaotic organisation as useful cover. Breaking cover in this way may be the first signal that we are in a bipolar world and of China acknowledging the burden of responsibility that comes with leadership. Let's hope this transfers to the WTO where Doha needs this level of bipolar leadership.

Carbon Trade War

Perhaps per contra the EU may have the moral high ground as Bill suggests but I worry that this might be an eventual excuse for the EU (and others not excluding the US - see drafts of Waxman-Markey) to introduce carbon tariffs against countries it asserts are not doing enough to meet the 2 degree Celsius goal. More precision in the Copenhagen result would not by itself have prevented such tariffs but lack of precision and apparent lack of commitment by trading partners could trigger a carbon trade war with malign effects on both the climate and on the global trade system.

Best wishes for 2010

Jim

Jim Rollo is Professor of European Economic Integration at the University of Sussex and Co-Director of the Sussex European Institute since 1999. He is Editor of the Journal of Common Market Studies (JCMS), a Research Affiliate at the Centre for Analysis of Regional Integration at Sussex and an Associate Research Fellow in the international Economics Programme at Chatham House. He is director of Interanalysis Ltd which design software to help trade negotiators. He was until December 1998, Chief Economic Adviser in the British Foreign Office and before that Director of the International Economics Research Programme at the Royal Institute of International Affairs in London. Between 1968 and 1989 he was an economic adviser to successive British Governments. He has published widely on international economic issues, principally in the field of European and global economic integration. His main research interests are trade policy and the economics of preferential trade liberalisation, agricultural policy, EU enlargement and EMU. Recent research includes on EMU and Enlargement; EU bilateral trade policy; EU enlargement; standards, domestic regulation and the trade policy; and on Climate Change and the potential for protectionism.

[ENDS]

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