The Future of the Global Trade and Investment Architecture: Pursuing Sustainable Development in the Global Economy
The global trade and investment architecture (GTIA) plays a critical role in shaping the organisation and structure of international commerce – from production and distribution to consumption. In so doing, the architecture impacts trade and investment outcomes, with a range of economic, social, and environmental implications. Yet the GTIA faces a suite of tensions and questions—some longstanding and some new—about whose interests it best advances, its distributional impacts, as well as its responsiveness to changing market forces and needs, and political demands.
A critical review of the GTIA is necessary on several grounds. First, the implications for the GTIA of several “game changers” in the global trade and investment arena demand attention, including the rise of emerging economies and subsequent shifts in economic and geo-political dynamics; the growth of the digital economy; the upsurge of global value chains (GVCs) and international production networks; and new inter-governmental commitments in the United Nations’ (UN) 2030 Sustainable Development Agenda. Numerous references to trade and investment in the Agenda’s Sustainable Development Goals (SDGs) signal increasing recognition of the ways trade and investment flows, rules, and policies can exacerbate social and environmental challenges but may equally be part of the solution to these. The world’s new to-do list also raises questions about where and how the GTIA needs updating to facilitate more sustainable development.
Second, ongoing changes in the trade and investment landscape—in what is traded and among whom, as well as in the types of negotiations and cooperation that governments pursue—give rise to new opportunities and challenges, spurring numerous questions about how the GTIA can respond and should evolve. As the GTIA is populated by a growing multitude of bilateral and regional deals, questions about the political and practical significance of mega-regional and plurilateral approaches abound, as do their implications for faltering multilateral trade negotiations and the role of the World Trade Organization (WTO). In addition, the rise of trade in services, developing countries’ boosted share of world trade and investment, the growth of South-South trade, and increasing intersections between trade and investment flows, all present a changing scene for the GTIA. Further, the rise of GVCs—combining goods, services, investment, intellectual property (IP), and know how—alters the mechanics of international commerce and complicates the traditional boundaries of trade and investment disciplines.
Meanwhile, governance arrangements still fail to adequately address many long-standing challenges, most notably enduring developing country calls for greater action to address their needs. Further, the proliferation of private standards and the emphasis of contemporary trade and investment diplomacy on “behind the border” regulatory matters are just two examples of how the contours of cooperation are evolving and the array of actors expanding. They also highlight the rising interest in moving beyond treaty negotiations to new modalities for cooperation, from soft law approaches and technical cooperation to public-private partnerships.
Third, the GTIA faces pressures to help tackle a growing list of economic, social, and environmental challenges. Mounting public concerns about rising inequality, vulnerability in the global economy, and demands for greater inclusiveness set the context in which policy debates on trade and investment occur. Multiple, intersecting crises—in food, migration finance, pandemics, climate change, and security—similarly generate political pressures on the GTIA to respond. For example, the trade and investment system is increasingly called up on to assist in the transition to a low-carbon economy. Meanwhile, a range of labor unions and civil society groups view contemporary trade and investment agreements as inextricably linked to a globalisation process associated with a range of ills—from unemployment to migration pressures; the rising power of large corporations; and threats to national regulatory powers, among others.
In national parliaments, recurring disputes between legislators confident in open markets and those who disdain them accompany heated debates on proposals to integrate provisions on labor, the environment, human rights, and development considerations into new trade and investment deals. The financial crises of recent years have rightly revived debate about the suite of flanking policies and national institutions required for closer international integration to serve national sustainable development priorities. The ensuing domestic politics of trade and investment drive both expectations of the international architecture and pressures on it.
Against this backdrop, governments, stakeholders, and experts offer a regular supply of policy proposals to address the various game changers, trends, and challenges at hand. What is less prevalent, however, is critical thinking on their implications for the trade and investment architecture. And yet questions abound. Is the contemporary GTIA adequately equipped to respond to the gamut of challenges and dynamics it faces? Are the various components of the GTIA achieving their intended purposes and are they moving collectively in the right direction? Where does the GTIA perform well and where are there gaps, systemic problems, or structural weaknesses? Looking ahead, what changes or improvements to the architecture are needed urgently, and over the medium term? And what are the scenarios if governments and stakeholders fail to act—what kinds of problems, challenges, or crises may emerge?
This overview paper presents a mapping of the GTIA and a scoping of some of the core issues and debates at hand. Looking across the global trade and investment landscape, it proposes a set of key game changers, emerging issues, and enduring challenges that raise questions for conversations on the future of the GTIA.
The paper does not assume or promote the notion that a perfect “divine architecture” exists or that such an architecture could be negotiated among governments with diverse political and economic interests. As a scoping exercise designed to spur conversations among experts, the paper does not take positions on where reforms are most urgent or advocate particular options. However, we do view the architecture as open and evolving, where change is a constant. The GTIA’s evolution over several decades illustrates that governments and stakeholders have the power to shape the GTIA, albeit with varying degrees of power and influence. It also reflects the multiple and sometimes competing goals for international cooperation on trade and investment. As such we emphasise the need for critical examination of assumptions on the visions and principles as well as the purposes and rationales—economic, strategic, political, social and environmental—that shape international cooperation on trade and investment and associated governance arrangements.
Although we adopt the familiar term “architecture,” we use it as short hand for an evolving ecosystem comprising international agreements, arrangements, institutions, and processes as well as private initiatives and public-private efforts. Together, this ecosystem establishes the global playing field for trade and investment, as well as the formal and “default” rules of the game. It also serves numerous practical functions ranging from the provision of platforms for negotiation and dispute settlement to the provision of Aid for Trade.
Across the ecosystem, a diversity of actors—governments, industry, international organisations, research institutions and civil society groups—have and exert different kinds of power. Material resources and economic might are clearly at play, but power is also expressed through legal agreements, through ideas embedded in policy advice and capacity building, and through discourse. The architecture thus reflects wider political and economic power relations—and asymmetries—and is also a framework through which power dynamics are expressed. Some players are dominant across the system and some on discrete parts of the architecture; while large multinational enterprises (MNEs) drive agendas for inter-governmental cooperation on many trade and investment issues, civil society groups play a leading role on the incorporation of many social and environmental considerations.
Moving beyond a more traditional focus on the global “trade architecture,” the ambit of the E15Initiative is on a broader “trade and investment” architecture. Although widely analysed as two separate legal regimes, with distinct foundations, there are strong grounds for considering these together in this scoping exercise—the growing intersections of flows mentioned above; the push to widen the regulation of international investment to better serve sustainable development priorities; the growing number of agreements that already link trade and investment; and the fact that responses to many social and environmental challenges call for coherent approaches to the international regulation of both trade and investment. The call to combine considerations of the future of the trade and investment architectures reflects this latter quest for greater coherence and the need for constructive discussion; it does not imply a position for or against a more unified global or multilateral architecture nor a view on what it might look like.
Setting aside partisan, special, or national interests, the vision underpinning the E15Initiative’s work on the GTIA is of an architecture that serves the international community’s commitment to sustainable development, driven by concerns for ensuring that trade and investment flows, rules, and policies help foster environmental integrity, equity, inclusiveness, and human well-being. On this basis, the landscape of the GTIA that we map out includes the wider constellation of international agreements, institutions, laws, processes, and actors that intersect with the “core” trade and investment architecture. Our mapping also underscores the GTIA’s links to wider global governance arrangements and processes on issues ranging from finance and development aid to security and the environment.
Debates and questions on the future of the GTIA can be usefully clustered into four themes, namely: its scope; its existing and potential governance functions; its internal complexity; and its links to wider global governance processes.
On scope, for instance, there are numerous questions about the principles that should undergird international cooperation on trade and investment as well as about issues, existing and emerging, that demand greater attention within the architecture or require new collaborative frameworks. Questions are also plentiful on the GTIA’s governance functions, whether some are missing and which deserve greater attention, bolstering, or rethinking.
The internal complexity and fragmentation of the GTIA raises questions about subsidiarity, the intersection of its many rules, and the division of labour among a plethora of inter-governmental institutions and processes, as well as the appropriate response to the rise of private sector initiatives. There are also numerous debates on how the GTIA can be better informed by wider global governance processes and contribute to these. How, for example, can the GTIA be anchored more concretely in priorities expressed in the 2030 Agenda and contribute to the implementation of the SDGs? What should be the role of platforms such as the UN and the Group of Twenty (G20) on trade and investment?
The role of national governments is clearly critical across the GTIA. This paper underscores that the ways governments organise decision-making processes at the domestic level—and provisions they make for transparency and public participation; contribute to animating the GTIA’s various functions; and their interactions with its many components each matter to the GTIA’s future.
This overview paper is broad in scope, but so is the topic at hand. It is offered as a starting point for a journey meant to inspire reflection on future of the GTIA in a complex, rapidly evolving, and yet fragile world.
Tag: Compliance and Transparency, Dispute Settlement, Finance and Development, Functioning of the WTO, Global Trade & Investment Architecture, Global Value Chains, Investment Policy, Monitoring, Multilateral Rulemaking, Negotiations, Regional Integration, Regional Trade Agreements, Soft Law, Sustainable Development Goals, System Legitimacy