Interview: Radhika Desai, professor at the Department of Political Studies, director of Geopolitical Economy Research Group at the University of Manitoba (Canada) and member of the Valdai Discussion Club, discusses the growth of regional trade agreements and possible implications for developing economies, such as Russia.

President Barack Obama, center, sitting next to Australia’s Prime Minister Malcolm Turnbull, left, and U.S. Trade Representative Michael Froman, right, speaks during a meeting with other leaders of the Trans-Pacific Partnership countries in Manila, Philippines, Wednesday, Nov. 18, 2015, ahead of the start of the Asia-Pacific Economic Cooperation (APEC) summit. Photo: AP

The annual Asia-Pacific Economic Cooperation (APEC) summit started in Manila, Philippines on Nov. 18. This year, one of the most urgent topics expected to be discussed during the summit will be the U.S.-led project of the Trans-Pacific Partnership (TPP), the text of which has been already released.

The free trade pact already includes 12 Pacific Rim economies - Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam – and thus will constitute the creation of one of the largest trade agreements ever attempted. 

While  some experts claim that the TPP benefits over the short-term will most likely be limited, there is some degree of concern that the agreement might put those states not involved in the partnership in an unfavorable position. Some even suggest that if the TPP in the future acquires its own institutional structures (its own secretariat and a dispute resolution mechanism), it then might even make APEC irrelevant. In that case, Russia, China and other states might find themselves outside and will not be able to benefit, which certainly poses a threat to these countries’ interests.

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With more and more regional trade agreements (RTAs) signed and planned in the future (612 notifications of such agreements were submitted to the WTO), what implications will this have on the world economy as a whole and local economies in particular? What does the “backward” trend from more open economies toward more closed economies and managed trade means for the World Trade Organization? 

Russia Direct reached out to Radhika Desai, professor at the Department of Political Studies, director of Geopolitical Economy Research Group at the University of Manitoba (Canada) and member of the Valdai Discussion Club, to discuss these questions and assess where Russian interests fit in this changing environment of the world economy.

Radhika DesaiRussia Direct: How could the current trend towards more economic trade regionalization influence international trade dynamics over the long term?

Radhika Desai: The most important thing to know about the RTAs, such as the TPP, is the following: In 1995 the WTO was launched with great fanfare. Everybody thought that it would eventually include the whole world and everyone would benefit. But the reality of free trade is different. The WTO actually has made no progress in concluding any new trade deals. 

Naturally there are conflicts between Western countries and the emerging economies, and there are other conflicts between emerging economies and still developing economies. All these conflicts mean that if you decide to create a single set of rules for the whole world, there are bound to be countries that are going to object because it doesn’t quite fit them. 

RTAs are the rational response to coming to trade agreements that are suitable for a smaller group of countries.  In theory there is nothing particularly wrong with them. In practice what has often happened when regional trade agreements have involved Western countries is that they demand rules which are good for their big corporations but are not good for ordinary people, not only in other states but also in Western countries themselves. 

The second problem with RTAs concerns the question of how significant they are. If you look at the most recent statistics and analysis that are even coming out from the IMF and the World Bank, both of which would love to say that world trade is growing, it is clear that they are forced to admit that the trade growth has slowed down, for a number of reasons. The most important of them are the following.

More and more, domestic markets are becoming really important for countries. The bigger countries like Russia, China, and India are well-placed because they have large populations, so they can develop their own markets and use that as an engine of growth for quite a long time. That’s very good but it definitely means that trade becomes less important. 

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Another reason is “tertiarization” [A shift from the primary and secondary sectors to the tertiary sector. – Editor’s note]. As more and more economies develop, they leave behind the phase of manufacturing where you are producing tradable goods. You then enter into a more sophisticated and complex economy in which the bulk of your consumers and producers are in the same country. This also makes trade less important. 

For these reasons the significance of TPP should be questioned. The TPP has just been signed and it still needs to be approved by the respective parliaments. In Canada, for example, a new liberal government was elected which doesn’t agree with what the previous hyper-conservative government has done during the past ten years. So you can’t really know whether a country like Canada will actually approve it. 

Of course, economic partnerships are very good but the important thing is to engage in economic partnerships that are beneficial for the economy as a whole and that means beneficial for ordinary people. 

RD: Today we are seeing the situation in which the old traditional ideas of a global liberal economy are not popular anymore and states are pursuing the opposite, in the form of protectionist policies. Economic sanctions are once again imposed on specific countries like Russia and the number of regional agreements is growing. Will this trend continue in the coming years? 

R. Desai: The signs are that we will see more possibilities for managed trade. However, there is one very important caution. Countries, particularly those like India and Russia with a relatively powerful capitalist class, should be aware of the role this class plays. It’s better if the capitalists’ role is such that it will benefit the economy as a whole rather than just a small number of people. 

When you have powerful capitalists, they want more freedom for capital, both domestic and foreign, because they want to tie up with foreign capital. If that trend prevails over a concern to develop the economy as a whole, it will prevent countries like Russia and India from fully realizing the potential that multipolarity has for creating very dynamic and vibrant economies capable of expanding growth and material prosperity of ordinary people. 

Think about the golden age of capitalism – the 1950s and 1960s. Because the power of the West was circumscribed, Russia, China and many of the developing countries were trying to pursue autonomous growth. The West could not impose its policies on these countries and because of that we had more state-managed economies. 

The most state-managed period in the history of capitalism was the most dynamic. Why? Because if the states are able to manage their economy so that everybody is employed, economic growth is fast, then there will be more prosperity, more trade and more benefit all around.

RD: If we have more state-managed economies around the world, then what implications will it have for the future of the WTO?

R. Desai: Frankly speaking, the WTO is dead, it’s not going anywhere. Part of the reason why the U.S. and Europe are pursuing regional trade agreements (TPP, Canada-EU trade agreement) is because they want to entrench in a kind of supra-constitutional level freedoms for capitalists, particularly for financial capital. 

I think it’s bad for their own economies but the governments are in the pockets of financial capitalists so they are doing these things but it’s not good for the EU and U.S. economies and ordinary people. It’s very likely that we will see opposition to these agreements building up in these countries. 

The thing that the liberal government was elected in Canada showed that the people were fed up with the policies carried out by the conservatives. In the U.S., Bernie Sanders, the left-wing politician, is attracting huge crowds. He is not very radical and he is going to compromise with Hillary Clinton but the people believe what he is saying. The fact that they are there shows that the opposition to these sorts of things is increasing. If Sanders doesn’t fulfill the expectations of these people, they’ll find another leader. 

The same goes for Jeremy Corbin in England. Nobody imagined that he would be elected the leader of the Labour Party. The discontent is now erupting in different Western countries and it will also erupt elsewhere. 

RD: What is your take on the development of the BRICS? Which direction are they moving toward?

R. Desai: They are now standing at the crossroads. One way is to move toward managed trade and prosperity; another way –  towards free trade and financial flows but for the sole benefit of the capitalist class. 

I would say that what is happening In China is very important. There is a struggle within the government: Pro-capitalist forces want to go towards free trade while others and the Communist Party are pushing towards fighting inequality and corruption. China’s fate depends on which one wins. If the pro-capitalist faction wins, the ability of Communist Party to continue to rule China will be in question. 

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In Russia and India, the governments seem to be aware of these risks. On the other hand, the capitalist class will pull them in one direction, while on the other, the need for reelection and people’s support will pull them in another direction. Which way it turns out, we will see.

RD: What is your forecast for the development of Russian economy in the coming year? Do you think the sanctions regime will be lifted any time soon? 

R. Desai: My personal opinion is that sanctions are not bothering Russia. Russia’s problem is not sanctions. Since 2000 they have managed to stabilize the economy, but that was 15 years ago. You need a new project how are you going to develop the Russian economy and ensuring it’s diversified away from energy dependence. 

I have been to St. Petersburg and Moscow Economic Forums and met many people there who agree that Russia needs an industrial policy. Sergey Glazyev [Russian politician and economist, member of Russian Academy of Science since 2008. – Editor’s note] who is quite close to Vladimir Putin believes that as well. I think voices like these need to be heard. I am not saying everything he is saying is right, but the general direction is good. If the government takes this road and sets out a clear plan, the Russian government has a lot of potential. 

RD: The past two years have showed that what seems to be beneficial from the economic point of view is often sacrificed in order to gain some political leverage which counters the ideals of economic liberalism. From your point of view, what comes first – economics or politics?  

R. Desai: I would say it’s always politics. Economics has certain logic to it, but politics is always in command. One of the goals of politics is to create a good economy. So politics should be directed at helping the economy which benefits the whole of society and can be dynamic and competitive, that allows the people to fully realize their potential and creativity.

All this rhetoric of free markets is a lot of rubbish, because in reality the very countries that espouse these policies, they don’t practice them themselves. They want other people to practice them. [Ronald] Reagan was the great free market proponent, but he also was the most protectionist president in the history of America.