Global Economy

Affected by increasing trade and financial flows, international economic equilibrium is changing quickly. Globalization thus makes one think about both the place held by France and Europe in this new world and the regulatory mechanisms essential for controlling this phenomenon that creates wealth and opportunities, but is also a factor of instability and increased inequality.

Major international trade

World growth influenced by increased trade: on the whole, globalization is a positive, wealth-creating phenomenon.

  According to the IMF, world growth in 2005 stands at 4.3%, which is the strongest since 1973. Accordingly, approximately 1,500 billion dollars in additional wealth were created. This growth is largely due to the increase in the international trade in goods and services (+7.5% in 2004). Thus, in France, 25% of the economic activity and 20% of jobs are linked to exports from French companies.

  Thanks to the different rounds of negotiations in the context of GATT and then the WTO, the liberalization of trade has made it possible to reduce average customs duties to 4% worldwide. Investment and capital flows have also increased and the daily trade volume now stands at more than 1,500 billion dollars, which is equivalent to nine-tenths of the foreign exchange reserves of the world’s banks.

Globalization is disrupting traditional economic equilibrium by integrating new players into the economic competition.

  Information and communications technologies are magnifying the effects of trade liberalization and each commercial opportunity can be seized in real time. Progress made in the area of transport and lower transport costs are making the world a much smaller place. It is now possible to capitalize on the comparative advantages of each country, and, as a result, to relocate certain types of production and outsource certain activities to other countries.

  Changes in the division of work at the international level are disrupting the way in which activities are allocated among the various geographic areas. On the whole, it benefits developing countries, the weight of which in international trade has increased significantly: between 1992 and 2003, their share in world exports grew from 16% to 35% and their share in imports rose from 27% to 44%. This development mainly benefits the Asian economies.

The phenomenon of globalization is still extremely unequal, accentuating the marginalization of the least developed countries.

  The success of certain emerging countries must not overshadow the continuing marginalization of many regions of the world: 12 developing countries account for 75% of exports and receive 75% of foreign investment flows; the 176 other countries share the balance. Conversely, the 49 least developed countries still account for only 0.25% of world exports. The difference between the per capita income (measured in purchasing-power parity) of the world’s 15 richest countries and that of the world’s 15 poorest countries is 1 to 46.

  Africa continues to be marginalized: this continent now accounts for only 1.6% of the value of global exports, whereas this figure was 3.3% in 1980. The total turnover of the world’s two biggest companies is greater than Africa’s entire Gross National Product. Life expectancy in Africa dropped from 50 years in 1990 to 46 years in 2002, due specifically to the alarming spread of major pandemics - HIV/AIDS in particular.

Collective regulations are essential for controlling globalization and responding to its huge challenges.

Globalization poses a certain number of challenges.

  The challenge of development:

• Progress has been made toward achieving the Millennium Development Goals (MDG), but it is unequal and inadequate, and more than one billion people continue to survive on less than one dollar a day.

• The countries of the South are first and foremost responsible for their development. Only growth, influenced by private-sector development, investment and trade, will overcome extreme poverty. But invoking market forces alone would tend to ensnare the most impoverished countries, which do not have the resources needed to fit into globalization, in the poverty trap even more. Therefore, the amounts of official development assistance (ODA) must be increased. France has committed to bringing its ODA to 0.7% of its gross national income by 2012 (compared with 0.47% in 2005). As a body, the Member States of the European Union have decided to agree to a comparable initiative by 2015.

• Developing countries also need more stable and more predictable resources than traditional ODA. To this end, France has proposed that innovative financing sources for development be set up, supplementing traditional official assistance. In a first phase, an international solidarity contribution on plane tickets will be applied in France, beginning on 1 July 2006. Part of the proceeds from the contribution will be allocated to the fight against HIV/AIDS, tuberculosis and malaria, and in particular to the purchase of antiretroviral drugs.

  The challenge of the environment:

• The risks of uncontrolled use of the planet’s resources have now been proven. The dangers threatening biodiversity and the issue of climate change (with the proven risk, according to the interministerial climate study group - GIEC - of an average temperature increase on the planet of between 1.4 and 5.8°C by 2100, rising water levels and an increase in the frequency of extreme climatic phenomena) are just so many symptoms of this. The long-term sustainability of the world energy model, which is 85% based on fossil energy (with world consumption forecast to increase by 60% by 2030), is also a burning issue.

• The consequences of the damages inflicted on the environment affect the most impoverished first: 800 million people are affected by desertification and more than a billion do not have access to drinking water.

• In terms of the fight against climate warming, France will meet the commitments made in the context of the Kyoto Protocol and is aiming to reduce its greenhouse gas emissions by 75% by 2050. At the international level, the agreement reached during the Climate Change Conference (28 November-9 December 2005) in Montreal will make it possible to begin negotiations on a second commitment period for reducing greenhouse gases in industrialized countries and to open discussions between the countries involved in the Rio Convention, aiming to take appropriate measures to fight climate change.

• France is also promoting the creation of a United Nations for the Environment, which could, in particular, develop synergies and coherence among the various international players intervening in the environment.

  The challenge of respecting each country’s identities and social equilibrium in an increasingly open world.

• Globalization is leading to competition among social models (labour law, social protection) and a standardization of these models based on the “lowest social bidder” is thus feared. Developing countries sometimes liken social standards to protectionist measures and the international community is struggling to define a better connection between social and economic requirements perceived as being incompatible. France continues to support proposals that aim to better articulate the dialogue between international economic and financial institutions and organizations, such as the ILO.

• In addition, globalization gives rise to new uncertainties: positions held in the international division of labour are never set in stone, and cycle reversals in interdependent economies can be dramatic. In a context marked by capital mobility and volatility as well as by the significant psychological phenomena of anticipation, the financial crises of emerging countries have often had serious social consequences.

Devising new regulations for humanizing globalization and giving it more of a sense of solidarity.

  Underdevelopment favours the persistence of political and demographic instabilities. Therefore, beyond basic humanitarian considerations, it is definitely in the political and economic interest of developed countries to offer the populations of poor countries a credible alternative to resignation and despair. Accordingly, the wealth created by globalization must be redistributed in a more equitable manner. France supports this position.

  This will be achieved by increasing official development assistance, establishing innovative financing sources for development, and taking the specific characteristics of the least developed countries into consideration in the trade rules negotiated at the WTO. In the context of the Doha Development Round, France is campaigning with the European Union for special treatment to be given to developing countries - and the least developed countries in particular. The Hong Kong conference resulted in significant progress being made in terms of development:

• With the active support of the European Union, the decision of 30 August 2003 to ensure that the least developed countries have access to drugs, was consolidated in the TRIPS Agreement (Trade-related aspects of intellectual property rights), benefiting developing countries.

• Developed countries, and those developing countries able to do so, have agreed to open their markets free of duty and quotas to all products from LACs (or at least for 97% of tariff lines) by 2008, or, at the latest, for the beginning of the agreement implementation period. Accordingly, the European Union has succeeded in getting its main partners to make commitments similar to those decided by the Council in September 2000 (“Everything but arms” regulation)

• The United States has agreed to put an end to support to cotton exports in 2006, thereby conforming to the conclusions of the WTO panel, which had condemned the US in March 2005. In addition, the US has also accepted the principle, wherein the reduction of domestic cotton support should be more ambitious than in the context of the general formula, which will be maintained, and that it must be implemented more quickly.

  Governments are not the only parties that must react: companies’ initiatives toward increased social and environmental responsibility (membership in the Global Compact launched by the Secretary General or the guidelines of the OECD) must also be encouraged.

  Governments alone cannot be the only parties responsible for managing international public property, including the environment, and solving problems that call for the mobilization of all (poverty, health issues, etc.). International organizations must play a key role in view of these global challenges. Sometimes not as effective as they should be, these multilateral organizations - the UN first and foremost - need to be strengthened. France is pleading in favour of this, in order to reaffirm the legitimacy of these forums in view of the temptation of unilateralism. This reform must be based on two major objectives: restoring the ability of the Economic and Social Council (ECOSOC) to play a genuine role in terms of driving and coordinating in the system, and promoting the reform of the functioning and financing of United Nations operational agencies to ensure their consistency and effectiveness in the field. France is also championing the creation of a public forum for economic and social governance, which would be entrusted with giving the impetus needed to international institutions, promoting the coordination of governments and international institutions, anticipating global problems better and defining joint courses of action. This initiative is in line with the logic of the “enlarged dialogue” alongside the G8 meeting launched in 2003 at the Evian Summit under the French Presidency.

Updated on 03/01/06