Changing the Global Architecture
May 22, 2007 Tuesday
By Stuart E. Eizenstat and Grant D. Aldonas

While the global economy has changed dramatically since World War II,
the postwar institutions that the U.S. and Europe created to manage it
have not. The rapid integration of global markets has outpaced the
ability of those bodies -- principally the International Monetary Fund,
World Bank, World Trade Organization, G-8 and International Energy
Agency -- to adapt.

Economic power has shifted toward Asia and Latin America. Today China,
India, Brazil, Russia and other emerging countries represent 45% of
global GDP, up from 39% in 1995. They also represent 40% of world
exports and 65% of foreign-exchange holdings. This group's economic
position is now comparable to the combined position of the U.S. and the
European Union. Yet these emerging players have a much less central role
in global economic governance than their importance dictates. The U.S.
and the EU must strike a new bargain with emerging powers and
restructure the global institutions for the 21st century, or risk losing
international economic leadership.

The need for change is most evident in the architecture of the IMF and
World Bank. The U.S. and Europe should end their duopoly on selecting
the heads of these agencies, beginning with the next elections scheduled
for 2010. Their leadership should be chosen on merit world-wide.
Emerging economies should have greater voting power and board
representation, while EU representation should be consolidated into two
seats: one for members of the euro currency and one for EU members
outside the euro zone. At the IMF, EU members currently hold seven
directorships out of 24.

To remain relevant in a changed world, the IMF should focus on
surveillance to prevent crises and on acting as a lender of last resort,
whereas the Bank should focus exclusively on development. One way to end
the current confusion about their roles and ensure coordination would be
to "double hat" the executive directors so that they serve both
institutions. This will help the Bank and Fund sort out their
responsibilities and prepare to merge by 2030.

The WTO, created more recently as a successor to the General Agreement
on Tariffs and Trade, represents a great leap forward institutionally,
as countries have been willing to use it to resolve their trade
disputes. But more needs to be done to bring the WTO into the 21st
century. The organization could start by opening up its crown jewel, the
binding dispute-resolution process, to public hearings and by allowing
legal briefs in these cases from third parties, including NGOs. It
should also work with developing countries to improve their capacity to
enforce trade agreements.

That's not all for the WTO. Regardless of whether the Doha Round
succeeds or fails, the era of traditional global trade rounds that
require a consensus of some 150 nations is over. The world economy is
changing too rapidly to wait five to seven years only to agree on the
lowest common denominator.

After Doha, it will be time for a new approach, one that brings together
like-minded countries to develop a range of different agreements, in the
form of a "variable geometry" within the WTO. This will allow those
governments willing to move forward, and with the most at stake, to take
responsibility for reducing barriers rather than forcing them to wait
until consensus is achieved among all.

As a start, the EU and U.S. should give developing countries greater
access to the trans-Atlantic marketplace. The current arbitrary and
often conflicting rules the U.S. and EU impose on their preference
programs should be replaced by a single set of rules that assures
consistency and the greatest degree of market access.

The EU and the U.S. should also rally like-minded countries to eliminate
barriers to trade in products and services over the next 10 years. As
reductions are agreed, the benefits would be extended to all WTO members
using the existing "most favored nation" principle. If countries stay on
the sidelines as free riders, products crucial to their economies should
be excluded from the benefits of liberalization. Moreover, the EU and
the U.S. should recruit other WTO members to liberalize market access in
specific sectors, especially those dominated by new technologies such as
nanotechnology. These sectoral accords should be premised on strict
adherence to WTO rules.

To be effective in this effort, the U.S. and the EU must strengthen
their bilateral relations. The most significant step they could take
would involve the establishment of a barrier-free Trans-Atlantic
Investment Agreement. Specifically, the U.S. and the EU should eliminate
all investment restrictions, such as those the U.S. imposes on airlines
and telecommunications, leaving only narrowly tailored national-security
exceptions. By removing barriers to investment and financial flows,
which far exceed U.S.-EU trade flows, the U.S. would send an
extraordinarily positive signal to markets and to other governments
about our openness to trade and investment.

Less dramatic changes are needed for the G-8, the International Energy
Agency and the OECD. Each of these organizations too can be made more
inclusive by adding key developing countries as members in recognition
of changing political and economic realities.

Only by sharing leadership with emerging nations can the U.S. and EU set
the course for the new global economy -- and avoid a world that becomes
increasingly protectionist and fragmented. We must choose to lead or
accept being left behind.

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Mr. Eizenstat held several senior positions in the Carter and Clinton
administrations, including ambassador to the EU. Mr. Aldonas was
undersecretary of commerce for international trade in the current Bush
administration. They co-chaired the Atlantic Council's commission on
Trans-Atlantic Leadership in the Global Economy.