BRICS Development Paths and Integration Opportunities

Andrey Sarilov, participant of the VI BRICS International School – special for InfoBRICS

Against the backdrop of waning integration impulses in the developed world, the largest developing economies are forging ahead with new initiatives directed at revitalizing regional integration an example of such integration is BRICS. Given the size and potential of each of the BRICS members, we must hope for greater synergy in the interaction of the world's leading emerging economies. One of the ways to strengthen BRICS development as well as the lingering contradictions may be to shift the focus from trade liberalization or large-scale integration among its core members towards building a wider framework of integration/cooperation in the developing world that fills the voids of integration and opens new gateways for cooperation among BRICS and their partners across continents. That kind of framework may be realized through China’s initiative to create a BRICS+ circle that according to China’s foreign minister Wang Yi will represent a new platform for the South-South cooperation via holding dialogues with other major developing countries or groups of developing countries to establish a more extensive partnership.

The first thing to realize about the uniqueness of the BRICS is that each member is also a leading economy in its continent or sub-region within a regional integration arrangement: Russia in the Eurasian Economic Union (EEU), Brazil in Mercosur, South Africa in the South African Development Community (SADC), India in the South Asian Association for Regional Cooperation (SAARC), and China in the Shanghai Cooperation Organisation (SCO), in the China-ASEAN Free Trade Area and the prospective Regional Comprehensive Economic Partnership (RCEP). All countries that are partners of the BRICS in these regional integration arrangements may form what might be termed as the ‘BRICS+ circle’ that becomes open to flexible and multiple modes of cooperation on bilateral or regional basis. Thus, rather than expanding the core set of BRICS members, the BRICS+ initiative seeks to create a new platform for forging regional and bilateral alliances across continents and aims at bringing together the regional integration blocks, in which BRICS economies play a leading role. Accordingly, the main regional integration blocks that could form the BRICS+ platform.

In the trade and investment sphere the BRICS+ network could encourage expanding the set of FTAs/PTAs across individual countries or regional blocks of the BRICS+ grouping. Trade alliances do not have to follow the standard path of comprehensive FTAs, but could also involve targeted/limited liberalization via preferential agreements (PTAs). Investment alliances and liberalization measures could be concluded in the form of lowering barriers for FDI into strategic sectors or companies as well as via lowering capital controls in mutual transactions. One of the transmission mechanisms that could be employed to facilitate the propagation of trade and investment alliances within the BRICS+ framework might be raising the priority accorded by BRICS+ economies to an alliance with a country that has become a member of one of the core RTAs within the BRICS+ network or that has concluded trade or investment alliances with an individual country or regional block within BRICS+. An FTA alliance forged by South Korea, for example, with the Eurasian Economic Union could improve the possibilities for this country to conclude alliances with other regional blocks or individual countries in BRICS+.

Cooperation in international organizations, including the Bretton Woods institutions to increase the consolidated voting share. In the IMF the consolidated share of the BRICS is just below the 15% mark. The addition of BRICS+ partners would raise the consolidated share of the vote by 1- 2 percentage points (depending on the exact composition of the BRICS+ circle) to more than 15%, which would enable the BRICS+ to have a blocking stake with respect to the key decisions of the Fund. BRICS+ countries could also form alliances in other international organizations, including the WTO, where a BRICS+ group in negotiations could complement other SouthSouth alliances, for example in G20 or G33.

Cooperation between development banks and other development institutions formed by BRICS+ economies, namely the Eurasian Development Bank (EDB), the Development Bank of South Africa (DBSA), the SAARC Development Fund (SDF), Mercosur Structural Convergence Fund (FOCEM), China Development Bank (CDB), China-ASEAN Investment Cooperation Fund (CAF), and the New Development Bank (NDB). Within this group of development institutions, the NDB could potentially perform a coordinating role with respect to BRICS+ initiatives, while there could also be a role for the Asian Infrastructure Investment Bank (AIIB), which can serve as a platform for bringing together the financing from developing and developed economies. Within this network of regional development institutions, cooperation could be targeted at cofinancing investment projects as well as initiatives and programs aimed at fostering the attainment of key development goals (human capital development, ecology, financial sector integration/cooperation).

Use of national currencies/payment systems: the BRICS+ circle could serve as an extensive platform for creation of BRICS+ countries’ payment systems and expansion in their use. It could also serve as a platform for extending the use of national currencies in mutual trade and investment transactions, thus reducing dependency on the US dollar and the euro. The countries that form part of the regional blocks of BRICS+ could support each other’s efforts in promoting creation of international financial centres (though admittedly there may be also competition, particularly in a regional context) via listing companies in the exchanges of BRICS+ economies. There may also be greater cooperation in advancing some of the BRICS+ currencies as reserve currencies that become part of gold and currency reserves of the respective Central Banks.

Thanks to regional integration on almost all continents (which makes such integration truly global and inclusive) and due consideration of global WTO rules, the above-described sequence of integration caused by BRICS will not only ensure greater liberalization of trade and investment, but also reconcile some of the contradictions between regionalism and multilateralism. Overcoming the contradictions between bilateral, regional and multilateral/global integration would serve as a decisive breakthrough in removing obstacles to global growth.

In fact, the BRICS+ circle forms the internal "regional rim" of the BRICS economies partnership, which consists of key regional integration blocks, such as MERCOSUR, SATS, EAEU, etc. The BRICS++ circle forms a circle of bilateral unions (with individual countries or regional blocks) on the terms of the FTA or on the basis of other types of economic agreements integration (including in the investment sphere). Both BRICS+ and BRICS++ expand the set of alliances for all countries included in this broader circle, while existing trade or investment agreements can serve as the basis for multilateral transactions with other members of the expanded group. If you manage to increase your economic weight.

And what about the rest of the world, which is not directly part of the BRICS+ and BRICS++ structures? Firstly, a framework of cooperation between the BRICS+ circle and the developed world is needed, which can be based on existing FTAs or comprehensive economic agreements with developed countries formed by BRICS+ economies (FTAs between SACU and the European Free Trade Association (EFTA) or the Comprehensive Economic Partnership Agreement between Japan and India). The liberalization of investments with the countries of the developed world can be carried out within the framework of such joint projects, as well as within the WTO and other global organizations, where the BRICS+ countries could form a single group.

The expediency of the BRICS+ format emanates in part from the tendencies that the BRICS and the global economy have been affected in the past several years. Firstly, there is the increasing domination of regionalism in the global economy that manifests itself in the creation of regional mega-blocks. Secondly, trade policies of some BRICS members are increasingly determined by their priority RTA — the EEU in the case of Russia, SACU in the case of South Africa, and Mercosur in the case of Brazil. Indeed, regionalism appears to be an important element of trade and overall external economic policy in the majority of BRICS economies. In fact, when China advanced its BRICS FTA proposal, other BRICS countries alluded to difficulties in following this format due to the transfer of trade policy to the RTA level (Brazil and Mercosur being a case in point).

Another sign of the growing importance of regionalism in BRICS politics was the decision of India, the host of the 2016 BRICS Summit, to invite the leaders of the Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation (BIMSTEC) to hold a joint meeting with BRICS.

Indeed, this practice of inviting representatives of the main RTAs (and, possibly, the relevant banks/development funds) created by the BRICS countries could become a model of BRICS+ actions at the initial stages of formation. The heads of the five main regional blocs, as well as the relevant development institutions, could meet during the BRICS summits to discuss their integration agenda and define development/integration goals for the future. Alternatively, each country hosting the BRICS summit can invite representatives of its respective regional bloc to strengthen the partnership between this RTS and the BRICS countries. Such an agreement leaves the BRICS+ structure with a coordinating role in formulating the agenda of globalization and South-South cooperation at the initial stages of its functioning.

Within the framework outlined above, the essence of the BRICS+ initiative is not to expand the core of the BRICS by including the largest developing countries, but rather to create a network of alliances that would be comprehensive and represent all major regions/continents of the developing world. . In this regard, the BRICS+ paradigm has more to do with inclusivity and diversity than with the selection of the biggest heavyweights. By the very nature of its presence in all key regions and continents of the developing world, BRICS can fulfill a unique role as a comprehensive platform for economic cooperation around the world. Thus, the BRICS+ concept is, first of all, a different approach to economic integration and a different way of structuring alliances on a global scale.

In this regard, the BRICS+ principle is in some way a technological step forward compared to the principle of territorial and exclusive regionalism. The BRICS+ integration structure, spread all over the world, is very similar to the eBay trading platform, which provides all potential network participants with the opportunity to exchange preferences and concessions regardless of their location. This is different from the regionalism of the Trans-Pacific Partnership (TPP) or the Transatlantic Trade and Investment Partnership (TTIP), which are limited to a certain place or area, no matter how large it may be. The dispersed and decentralized nature of BRICS is not a disadvantage in terms of integration, but is an advantage in promoting a more open and inclusive integration structure. In this respect, BRICS+ is not territorial, unipolar,

As for the developing world, the BRICS+ system could focus on filling the gaps in global integration — by eliminating the lack of integration in some regions of the developing world (primarily in Asia and Africa), the model of economic integration could become similar to what can be called "balanced regionalism" or "sustainable regionalism", and not regionalism, which seeks to benefit only the leaders of the world economy. Sustainable regionalism can include helping developing countries achieve the UN Sustainable Development Goals for the period up to 2030 by gaining greater access to markets and technologies, as well as infrastructure development.

The key question that needs to be asked today is: "What kind of structure of integration and globalization do we need for sustainable development"? The answer is to move away from the "core-periphery" model of globalization, which is characterized by extreme global imbalances and high inequality, to a decentralized structure "without a core — without a periphery" of BRICS+. The BRICS+ structure should also recognize that globalization will be inherently incomplete, and thus should strive to emphasize the possibility for different standards and ways of integration, in contrast to the proselytizing approach to imposing universal standards, which is fraught with violations and reversals.

Most importantly, the nature of trade integration that BRICS and its institutions are striving for could be made more inclusive (open to the participation of other developing and developed countries), in contrast to the exceptional nature of integration, which was largely pursued in the past and was based on a narrow geographical or "community of values" criterion. The emergence of BRICS offers the world economy a unique opportunity to reboot the international integration process and make it truly global, non-discriminatory and more in line with the global rules of the WTO.

The current global setting characterized by waning integration and liberalization impulses in the developed world presents a possibility and a need for a renewed impetus towards economic integration in the world economy. The global integration process is in need of a sufficiently strong starting engine, a new platform of integration that can compensate for the lack of momentum coming from the ‘old platform’ of the developed world. The BRICS grouping, being present in all the key regions and continents of the developing world, could serve as the basis for such a new comprehensive global platform of integration, but may encounter limitations in largescale integration among its core heavyweights. To overcome these limitations a wider context for the BRICS that may take on the form of BRICS+ would serve to broaden the possibility set of economic alliances that can be forged across a greater array of countries and regions. In this respect China’s BRICS+ initiative announced earlier this year is timely in terms of breathing new life into the evolution of the BRICS as well as delivering a new impetus to the process of global economic integration.

The BRICS+ framework provide opportunities for greater trade and investment integration as well as a supportive institutional framework of coordination among regional development banks and development of financial systems. The key principle in this process is to allow for substantial flexibility in the multilateralization of alliances to include trade and/or investment, as well as the possibility of regional and/or bilateral alliances. In this respect the pattern of BRICS+ integration is more akin to that of ASEAN and East Asia in general, which is characterized by the prevalence of bilateral alliances and variations in integration patterns as opposed to the pattern of the EU predicated on a set of uniform standards targeting the creation of one single block. On the contrary to the core-periphery pattern prevalent in the preceding decades, the BRICS+ model provides an opportunity for open and diversified integration in the global economy. The result is a global economy that is characterized by divergence of various models of development rather than a convergence towards one sole model or standard.

In the end, the new vision of integration in the form of BRICS+ could drag the world economy out of its misery of persistently low growth rates. It appears that new principles and new approaches in advancing openness and integration are required. We need to think about integration, growth and globalization in new and in hitherto abnormal ways to surmount the ‘new normal’. We need to shift gears from the old ‘core-periphery’ paradigm to veritable sustainable development, which in the integration sphere is to be based on greater diversity, equality of opportunity and due care with regard to spillover and trade diversion effects.

Source: InfoBrics