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The G7 Summit and the Reform of
Global Institutions

Nicholas Bayne

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In my Government and Opposition/Leonard Schapiro lecture in 1993 I attempted an incomplete analysis of international economic relations after the end of the cold war, in particular the unexpected tensions and difficulties (1). The end of superpower confrontation had not only removed one incentive for Western countries to settle their economic disputes. It had also lowered the priority given to security issues, where national governments were in control, and had exposed their dwindling ability to take economic decisions, because of the extent of the interdependence which was the price paid for their prosperity. I could not think of a single area of domestic policy immune from international influence. Professor Susan Strange has developed a more trenchant analysis of this trend in her Government and Opposition/Leonard Schapiro lecture this year (2).

In consequence the scope for disputes between governments over trade and economic issues was growing steadily. But the rule-based international institutions, which might have regulated or deterred these disputes, had been weakened by the cold war divide; and the later groupings intended to improve coordination through discretionary management - notably the G7 Summits - were overloaded and inadequate.

The partial, tentative answers which I then offered focused on restoring a rule-based international system, operated through multilateral institutions of universal membership. Governments could hardly manage their economies, either nationally or through international coordination; but they could usefully create and observe sets of rules which encouraged open, unrestricted international regimes but prevented abuses and provided for the settlement of disputes. The General Agreement on Tariffs and Trade (GATT) offered the best example of this, since it had finally concluded late in 1993, albeit three years late, its Uruguay Round of negotiations. This greatly expanded and strengthened the international rules for world trade and provided for further removal of trade barriers. There were good prospects for international rules also for direct investment and for the global environment. But I saw much less progress on international financial issues, despite the volatility of foreign exchange markets.

As for the institutions, the International Monetary Fund (IMF) and the World Bank, since the cold war ended, had achieved almost world-wide membership. The GATT, now transformed into the World Trade Organization (WTO), was well advanced in this direction, though problems remained (and still remain) over admitting China and Russia. But the economic side of the United Nations (UN), with its complex of overlapping agencies and programmes, had yet to find a coherent role. As the global institutions revived and more countries became active players, I foresaw a loss in prestige and authority for the G7 Summit and similar groupings. Their best future strategy could be to act as catalysts in promoting change within the wider institutions, a more modest and austere role than in the past.

I am very pleased to be able, in this article, to pick up the threads of this argument again and to take it a stage further. The international economic system remains full of imperfections. The rules are incomplete; even the major democracies fail to keep them; and economic disputes proliferate and persist. But the momentum towards a rule-based system already begun in trade, investment and the environment is being maintained, though unevenly. Furthermore, new progress is being made in international financial relations, which before were lagging behind. There is fresh impetus to reform the UN's operations, as it celebrates its fiftieth anniversary in 1995. As Ghita Ionescu has pointed out in his Reading Notes (3), much of the innovatory pressure has come from the leaders of the G7 countries, at their Summits in Naples in 1994 and especially at Halifax in 1995. There they launched a systematic policy of working through international institutions, in a way never attempted before.

* The views expressed in this article are the personal views of the author and should not be taken as a statement of the official policy of HM Government.

Copyright ©, Government and Opposition 1995. Reproduced by permission of the author and Government and Opposition.

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