Tuesday, March 26, 2013

Durban Summit and China in the BRICS Multilateralism



We have witnessed the world moving away from unipolarity to bipolarity and now to multipolarity. The US is not declining; however, its clout is fading away as other countries such as China and India are rising.  The multipolarity is reflected not only in the emerging economies but also in the organizations formed by the states and also those by the non state actors. The heterogeneous multipolarity has called for a structural change. Various scholars have tried to find out answers to these structural changes. Samuel Huntington (1999:35) has coined the notion of Uni-multipolar structure with the US in the core and various other countries extending diplomatic, economic and military support for its initiatives. Some of its representations have been obvious in the invasion of Iraq, Afghanistan and recently the NATO led regime change in Libya. Such a structural arrangement is unsustainable in long term, the Libyan crises is a pointer to this, where the US including its allies remained non-committal on sending ground forces. Richard Haass (2008:44) has argued that ‘nonpolarity’ is the answer, where a dozens of countries could have the capability of ‘exercising different powers.’ Giovanni Grevi (2009:9) on the other hand argues that the world is becoming increasingly “interpolar” which is “multipolarity in the age of interdependence.” He puts the state at the centre, however, agrees that non-state actors could inflict a severe blow on the system. The 9.11 and 26.11 terror strikes in the US and India are pointer to the capabilities acquired by the non-state actors and their disastrous consequences. Whatever may be the acronyms, all are a pointer to multilateralism in the age of global interdependence. Multilateralism or multi-multilateralism is not necessarily an ultimate solution to bilateral or multilateral problem, however, is extremely important for conflict resolutions and enhancing understanding and cooperation among the nations, the BRICS is just an example of that, and China has furthered its strategic depth in politico-economic affairs not only amongst the BRICS but also in the world at large .
 
The acronym, BRIC was coined by Jim O’Neill (2001), an economist with the Goldman Sachs in a paper entitled “The World Needs Better Economic BRICs” published in 2001. Yet in another paper Dominic et. al. (2003) argues that over the next 50 years, the BRICs could become a much larger force in the world economy and could be larger than the G6 in US dollar terms. For example the GDP of the BRICS would be around 85 trillion USD comparing 66 of the G6 countries. Therefore, the notion signals a shift in the global economic power away from the G7 economies toward the emerging economies with China as a dominating force. The BRIC thesis holds that China and India will become the hub of world’s manufactured goods and services, while Brazil and Russia will become leading suppliers of raw materials. This however, may not hold true for the future, as China is determined to move away from the labor intensive industries to R&D and high end manufacturing during the 12th Five Year Plan (2011-2015) as revealed by the Chinese Premier Wen Jiabao in his 2011 Government Work Report and also in 2013 work report.  

At present, the BRIC account for more than 25% of the world’s land mass; more than 40% of world population; over 50% of world economic growth; and around 15% of the world economy.  The economic indicators are bound to further shift the balance given the impressive growth rates in these countries. With South Africa, the world’s 31st-largest economy joining the ranks, the BRICS has started to wield even more influence in the world economy. Even though, South Africa’s 286 billion US dollar economy and population of 49 million pales in comparison to other BRIC members, especially China and India, however, it is the most advanced economy in Africa; the largest trade partner of China in Africa; and more importantly has provided a gateway to the BRICS into Africa for greater trade and investment. Furthermore, South Africa’s entry has given the BRIC a voice in the African Continent, and is bound to strengthen the economic base of a multi-polar world on the one hand, and create conditions for strengthening of the global peace and security on the other.

China in BRIC Summits:  

The BRIC was formally institutionalized as an international forum during the First BRIC Summit hosted by Russia in June 2009 albeit the BRIC Foreign Ministers had met in Yekaterinburg a year earlier. The summit primarily dealt with the global economic crisis and looked for answers as how to build a new international financial system. In this regard, the Chinese and Brazilian move to invest 40 and 10 billion US dollars respectively in International Monetary Fund (IMF) bonds was considered as a move to diversify their dollar-heavy currency reserves, as these nations, especially China was increasingly apprehensive about the safety of the exchange reserves held in US dollar denominated assets. China holds about over 3 trillion US dollars in foreign exchange reserves, of which more than 70 percent are held in US dollar assets. BRICS nations hold a total of $3.8 trillion in international reserve assets excluding gold, 42 percent of the world's total. It is discernable that why China should initiate such a step in the BRICS multilateralism.

It is owing to this fact that the BRICS nations call for the reforms of the world organizations, including the financial institutions and the United Nations, and demand greater role for the emerging economies in these bodies. This is obvious from the BRIC foreign ministerial meeting on May 16, 2008 in Yekaterinburg prior to the first BRIC summit at the same place in 2009. During the meeting, the BRIC nations called for the emerging economies to play more assertive role in the World Bank and the International Monetary Fund. This has also been endorsed by the G20 summit held in South Korea in November 2010, of which all the BRIC nations are members. The reform of the world financial institutions is considered as an important step towards a more legitimate, credible and effective system of governance where emerging economies like India and China will find greater representation.

Impressive growth trajectory of the BRICS nations, and the currency appreciation especially in China has provided a huge opportunity for the investors in BRIC assets; meanwhile, the BRICS countries are also contemplating to buy each other’s bonds and swap currencies so as to reduce their dependence on dollar; and why not when the combined reserves of these countries are so huge. Apart from discussing economic issues at the first summit, the BRIC countries also issued political statements concerning the UN reforms and the global food security in the wake of inflationary trend in the world food prices in 2007-08.

The Second BRIC Summit was hosted by Brazil in Brasilia on 15 April 2010. At the close of the summit, a Joint Statement was issued that highlighted various issues of common concern such as global governance, international financial issues, trade, agriculture, climate change, energy and terrorism etc. issues. As regards the global governance, the group called for supporting “a multi-polar, equitable and democratic world order, based on international law, equality, mutual respect, cooperation, coordinated action and collective decision-making of all States.” In this respect the member nations hailed G-20 as the premier forum for international economic coordination and cooperation.  The role of multilateral diplomacy with the United Nations playing the central role in dealing with global challenges and threats was also stressed. 

In order to make the governance structures of IMF and World Bank more representative, the BRIC nations reiterated that there is a need to shift the voting power in favor of emerging market economies in respect to their relative weight in the world economy. In order to reduce their dependence on dollar trade, the grouping resolved to study the feasibilities of monetary cooperation, including local currency trade settlement arrangement between BRIC countries. The BRICs also urged all states to resist all forms of trade protectionism and fight disguised restrictions on trade, and pledged to make sustained efforts to achieve the MDGs of the UN by 2015.

As regards agriculture, the BRIC decided to create an agricultural information base system of member states and enhance agriculture technology cooperation and innovation. On energy and climate change, the BRIC reiterated their resolve to develop cleaner, more affordable and sustainable energy systems, to promote access to energy and energy efficient technologies and practices in all sectors, and sought western cooperation and support for the same. United Nations Framework Convention on Climate Change and the Kyoto Protocol were considered as the framework for international negotiations on climate change. As far as terrorism is concerned, the statement stated that terrorism cannot be justified by any reason, and urged early conclusion of negotiations in the UN General Assembly of the Comprehensive Convention on International Terrorism and its adoption by all member states. The statement also called for “Alliance of Civilizations” by way of which dialogue among civilizations, cultures, religions and peoples would be strengthened.

The Third BRIC Summit was held in April 2011 in Hainan province of China. It formally became BRICS as South Africa joined the summit. Chinese President Hu Jintao, who presided the summit delivered a speech entitled “Broad Vision, Shared Prosperity,” and held that the 21st century should be marked by peace, harmony, cooperation and scientific development. At the ministerial level meetings the four impressed upon China to open its markets for more value added products, e.g the Indian pharmaceuticals, Brazilian aircrafts etc. they also voiced their concern about the artificially undervalued Yuan that they claimed was undermining the exports from these countries. The stand on issues such as, reforms of the international monetary system, terrorism, and the Libyan crisis were reiterated. China also endorsed the aspirations of India, Brazil and South Africa for permanent membership of the UNSC. 
The Fourth Summit under the theme "BRICS Partnership for Global Stability, Security and Prosperity "was held in Delhi and the close of the summit a declaration was issued on March 29, 2012.  Concerns we expressed at the global economic situation, and the priority was accorded to restore market confidence and global growth. BRICS leaders felt that it is critical for advanced economies to adopt responsible macroeconomic and financial policies, avoid creating excessive global liquidity. In this context, the G20 was considered as a premier forum for international economic cooperation. The call for a more representative international financial architecture, with an increase in the voice and representation of developing countries and the establishment and improvement of a just international monetary system was reiterated. The leaders also considered the possibility of setting up a new Development Bank for mobilizing resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries. On international issues, the members expressed deep concern at the current situation in Syria and called for an immediate end to all violence and violations of human rights. Commitment to multilateral diplomacy with the United Nations playing a central role in dealing with global challenges and threats was reiterated. In this regard, the need for a comprehensive reform of the UN, including its Security Council was reaffirmed. Besides there was a Delhi Action Plan that envisaged ministerial meetings of BRICS nations. 
The Fifth Summit was held in Durban South Africa between March 24 and 26 under the themeThe theme of Durban summit is "BRICS and Africa Partnership for Development, Integration and Industrialization." The focus of this summit was the establishment of Development Bank, the feasibility study of which has been completed and report submitted to the respective governments. The leaders reached an agreements on the development bank and the contingency fund. BRICS also launched a business council to drive private sector investment among them and a think tank council to assist with innovations. The size of the contingency fund has been worked around $100 billion, in which China would contribute a $41 billion share, followed by Brazil, Russia and India with $18 billion each, and South Africa with $5 billion. It is believed that it would take a year or so for each nation to regulate the fund, and a final agreement could be signed when the BRICS meet next year in Brazil. Some of the contentious issues would be where to host such a bank and how much the respective countries are asked to contribute towards it. Whether it would be a level playing field, or the countries are permitted to pool funds at will, remains to be seen. There are also apprehensions that China may wield more influence on the establishment of such a bank with more financial and governing powers.

The Cooperation

There are various sectoral initiatives between the BRICS aimed at strengthening cooperation. There are ministerial meetings as regards agriculture and development, finance and trade, and various meetings of governors of the central banks, heads of the statistical institutions, and conference of the think tanks of BRICS nations. There are plans to publish a joint encyclopedia of the BRICS too. On security issue the BRICS insists on common security and the resolution of conflicts in a peaceful way, and calls for regional security cooperation.
 
Besides, there are various agreements and frameworks concluded among the BRIC countries such as the Shanghai Cooperation Organization (SCO), where India is included in the capacity of an associate member and could become a full member in future as Russia has supported its candidature; the IBSA, which unites Brazil, India, and South Africa in annual dialogues; and more importantly, all BRIC nations including the new entrant are the members of G20. South Africa, India and Brazil will also take up a two-year seat on the United Nations’ Security Council from this year, resulting in all BRIC nations being represented on the council.

Challenges

Regardless of the potentials and opportunities, and the reach through every continent, the BRICS will face enormous challenges as they do not have a common agenda. Added to this, they are not an economic block like the European Union or a political alliance like the NATO, albeit capable of converting their economic prowess into a greater geopolitical clout; all have diverging interests, and at times conflicting (Ariel Cohen et. al. 2010). 

First of all, the mammoth economic growth of the BRICS counties is dependent on the manufacturing based on raw materials such as iron ore, copper, aluminum, fossil fuel and natural gas; technological breakthrough in renewable energy could shift the balance again in favor of G 7, and could result in slower economic growth than anticipated. Secondly, the so-called currency manipulation by some BRICS countries has ‘harmed’ the manufacturing in some countries, as admitted by the Brazilian finance minister Guido Mantega recently. Thirdly, there is an asymmetric relationship between the polities and economies of the BRICS nations. For example, the economy of China is bigger than the rest 4 and holds over $3 trillion of reserves, over 30% of the world reserves; its political clout is also bigger, as it holds the veto power in the UNSC besides being talked as the G2 partner with the US. Fourthly, the political equations between India, China and Russia are impregnated with ‘mutual mistrust’ and huge ‘security deficit’, especially between India and China on the issue of border, and China’s entente with its ‘all weather friend’ Pakistan. Fifthly, some other regional flashpoints weather in the South China Sea or in the subcontinent could make the cooperation between major BRICS countries irrelevant.  Sixthly, the domestic issues, especially the increasing social imbalance in the BRICS nations could also pose serious challenges to the internal security and economic development in these countries. 

And finally, even though India has welcomed South Africa’s entry into the folds of BRICS, but it is believed that the entry has also intensified the rivalry between India and China, for China would like to dilute IBSA by amalgamating it into the BRICS. India knows that China has a domineering role in the BRICS and would like to keep its strategic space open by way of IBSA. Since Africa is India’s major foreign policy target for the year 2011, it may not be willing to dilute IBSA so easily. The South African entry could open this ‘alliance’ to other emerging economies such as Indonesia, Vietnam and South Korea in Asia, and Egypt and Saudi Arabia in the Middle East. Nonetheless, so far the going has been good for China, including other members. The differences so far have not boiled down to open conflicts; it remains to see how far China would be able to steer its agenda through BRICS as well as other multilateral forums.

References:

Ariel Cohen, Lisa Curtis, Derek Scissors, and Ray Walser (2010) “Busting the Brazil/Russia/India/China (BRIC) Myth of Challenging U.S. Global Leadership” The Heritage Foundation, paper no. 2869, April 10, 2010 http://report.heritage.org/wm2869 (Feb 28, 2011)
Council on Foreign Relations (2010) BRIC Summit Joint Statement, April 2010, http://www.cfr.org/brazil/bric-summit-joint-statement-april-2010/p21927 (February 15, 2011)
DominicWilson and Roopa Purushothaman (2003) “Dreaming with BRICs: The Path to 2050” Goldman Sachs Global Economics Paper No. 99, http://www2.goldmansachs.com/ideas/brics/book/99-dreaming.pdf
Giovanni Grevi (2009) “The Interpolar World: A New Scenario”, Occasional Paper 79, Paris: EU Institute for Security Studies, June 2009, p. 9.
Jim O’Neil (2001) “Building Better Global Economic BRIC” Goldman Sachs Global Economics Paper No. 66 http://www2.goldmansachs.com/ideas/brics/building-better-doc.pdf
Richard N. Haass (208) “The Age of Nonpolarity: What Will Follow US Dominance”, Foreign Affairs, vol.87:3
Samuel P. Huntington (1999) “The Lonely Superpower”, Foreign Affairs, vol. 78:2 , pp. 35-49.
Thomas Renard ( 2009) “A Brick in the World: Emerging powers, Europe and the world order” Egmont paper, The Royal Institute for International Relations, Brussels



No comments: