Executive Summary
> Global economic governance is currently
undergoing a significant transformation led by
China and its emerging economy partners.
> China’s increased activism on the global stage rests
on the reform of established organisations, the
design of parallel institutions, the revitalisation of
neglected frameworks and the creation of novel
networks.
> One example of the creation of a new institution
concerns the New Development Bank, which is set
to complement the World Bank’s efforts, but may
also dilute the very standards in development
finance that the EU has long championed.
> After an initial focus of two years on Brazil, China,
India, Russia and South Africa (BRICS), the Bank
will co-opt new members.
> After failing to show a united front vis-à-vis the
Asian Infrastructure and Investment Bank (AIIB),
EU member states should now seize the
opportunity to respond strategically to a new
global institution created by non-traditional
powers

Ujvari, Balazs

Executive Summary

> Global economic governance is currently

undergoing a significant transformation led by

China and its emerging economy partners.

> China’s increased activism on the global stage rests

on the reform of established organisations, the

design of parallel institutions, the revitalisation of

neglected frameworks and the creation of novel

networks.

> One example of the creation of a new institution

concerns the New Development Bank, which is set

to complement the World Bank’s efforts, but may

also dilute the very standards in development

finance that the EU has long championed.

> After an initial focus of two years on Brazil, China,

India, Russia and South Africa (BRICS), the Bank

will co-opt new members.

> After failing to show a united front vis-à-vis the

Asian Infrastructure and Investment Bank (AIIB),

EU member states should now seize the

opportunity to respond strategically to a new

global institution created by non-traditional

powers

Archive of European Integration

  # 7.16 APRIL 2016 College of Europe | Dijver 11 | BE-8000 Bruges, Belgium | Tel. +32 (0)50 47 71 11 Website: www.coleurope.eu/cepob To contact the editors: cepob@coleurope.eu    The BRICS’ New Development Bank and the EU’s options Balazs Ujvari  Following decades of unchallenged Western dominance, the global governance system is currently being reshaped. Key emerging powers led by China have set out to increase their influence in global – economic – governance. Since Chinese President Xi Jinping took power in March 2013, Beijing has pursued global governance reform as a strategic objective. Its multi-pronged approach relies on the reform of established multilateral structures, the creation of parallel institutions, the revitalisation of neglected organisations and the promotion of novel networks that do not build on existing fora. This contribution focuses on China’s and its BRICS partners’ (Brazil, Russia, India and South Africa) aspiration to counter the traditional bodies of global economic governance through the establishment of parallel structures. More specifically, this Policy Brief assesses the challenge that the BRICS-led New Development Bank (NDB) poses to the European Union (EU) in the field of development policy and identifies ways in which the EU could respond to this challenge.  The NDB: complementary to or competing with existing economic governance fora?  On 15 July 2014, the leaders of the BRICS countries gathered in Fortaleza, Brazil, to sign the treaty establishing the NDB. The Bank is only one of a series of parallel multilateral institutions created by emerging powers in recent years. Others include the Contingent Reserve Arrangement (a BRICS alternative to the International Monetary Fund) and the Asian Infrastructure and Investment Bank (a China-led competitor to the Asian Development Bank). According to its Articles of Agreement, the NDB aims to ‘mobilize resources for infrastructure and sustainable development projects in BRICS and other emerging market economies and developing countries’. The NDB is only the second multilateral development bank (MDB) with a global rather than regional focus besides the World Bank. It is also the first formal multilateral institution with global reach that is led by non-Western powers, reflecting the shifting balance of global economic power from established to emerging powers. The lack of a precedence of the BRICS centrally sitting at the table in a global economic governance context also means that it is unknown if the rules guiding the NDB’s lending practices will differ from those observed by the Bretton Woods institutions.   The NDB is headquartered in Shanghai and has a starting capital stock of $50 billion to be raised to $100 billion over time. The capitalisation of the Bank began on 14 January 2016, when founding members made their first Executive Summary > Global economic governance is currently undergoing a significant transformation led by China and its emerging economy partners. > China’s increased activism on the global stage rests on the reform of established organisations, the design of parallel institutions, the revitalisation of neglected frameworks and the creation of novel networks. > One example of the creation of a new institution concerns the New Development Bank, which is set to complement the World Bank’s efforts, but may also dilute the very standards in development finance that the EU has long championed. > After an initial focus of two years on Brazil, China, India, Russia and South Africa (BRICS), the Bank will co-opt new members. > After failing to show a united front vis-à-vis the Asian Infrastructure and Investment Bank (AIIB), EU member states should now seize the opportunity to respond strategically to a new global institution created by non-traditional powers.     2 Theorising the ENP – Conference Report © Author name CEPOB # 1.15 December 2015 The BRICS’ New Development Bank and the EU’s options © Balazs Ujvari  CEPOB # 7.16 (April 2016) contributions worth a total of $750 million. The initial transfers form part of the Bank’s paid-in capital that is expected to total $10 billion ($2 billion per founding member) to be paid through seven tranches between 2016 and 2020. The NDB also has a subscribed capital of $40 billion that shareholders must provide when requested by the Bank. The management aims to leverage two to two and half times – that is, use various financial instruments, including borrowed capital, to increase the potential return of its investments – the current capital of $750 million and lend up to $2 billion this year. The NDB first intends to raise funds through the issuance of bonds in the Chinese bond market. This is due to the triple-A rating the Bank has acquired in the country, which will allow the institution to borrow relatively cheaply.    According to its founders, the NDB responds to the recognition that the existing set of financing schemes is inadequate to meet investment needs in infrastructure projects – a central pillar of development from the perspective of most developing countries. The Shanghai-based institution, according to official rhetoric, will reduce this gap by promoting improved connections in and between developing countries through the provision of infrastructure finance. As such, the Bank has been heralded to be complementary to traditional donors, who have largely neglected this aspect of development finance. Judged from this angle, the NDB may indeed act as a platform through which the BRICS seek to better respond to developing country needs informed also by their own recent experience with rapid economic catch-up. This new source of infrastructure finance may also be seen as an opportunity by the companies of developed countries (including those of the EU) wanting to and capable of doing business in the Global South. Importantly, however, the Bank is only expected to open its doors to non-BRICS countries after July 2017. This is essential as the Articles of Agreement specify that project tenders are only open to member countries.    In addition to complementing existing MDBs, the NDB seems to be driven by three further objectives. First, the institution can also be considered as a by-product of its founders’ disillusionment with the deeply ingrained disparity and the consequent democratic deficiency of global economic governance. By offering a real alternative to the World Bank, the five-country bloc also generates greater sense of urgency about the need for further reform of traditional international financial institutions, especially with regard to voting rights and governance mechanisms.   Second, it also reflects frustration with the cumbersome and overly bureaucratic lending operations of the traditional lenders. Some of the innovative solutions, including the non-resident – and unpaid – board of directors and governors, are hoped to accelerate lending by granting greater room for manoeuvre to the Bank’s resident management. At the same time, some see this as an explicit attempt on the part of the founders to limit future members’ influence on the senior management recruited from BRICS countries. This argument, however, contrasts with the fact that, at the time of writing, the Bank is actively recruiting both young and senior professionals from all over the world.   Lastly, the NDB will also have an impact on the ‘rules of the game’ in development finance, the extent of which remains to be seen. On the one hand, the BRICS are known to regard economic growth as a top priority, showing reluctance to subscribing to stringent standards of governance or environmental and social protection. The emergence of a new MDB on the horizon may therefore also lower  standards of lending in development finance in the medium to long term. This is because, to remain competitive, existing institutions (such as the World Bank) may need to adjust their standards regarding issues such as government backing of bidding companies, opaque bidding processes or lower environmental standards. The impact of lower standards and conditionality may also imply a higher risk of default, which will certainly be felt by the Bank when it looks to the international capital markets to leverage its financial resources. Some of these concerns have, nonetheless, been somewhat allayed lately as the NDB President K.V. Kamat has repeatedly declared the Bank’s intention to focus on green investments (e.g. solar projects) in its initial operations. In any case, given that the founders themselves have differing attitudes towards environmental and social regulation, it may take a while to create a common policy framework among themselves.  In addition to these considerations, the NDB could also serve to undermine the prevalence of the US dollar as the leading currency in international finance. As specified in its founding documents, the Bank ‘may provide financing in the local currency of the country in which the operation takes place’. In practice, this presently means that the Bank will lend in BRICS currencies, with the first loan to be performed in renminbi in China.  How the EU can react to the NDB  In Europe, the increased activism of China and its BRICS partners in global economic governance has so far not been seen as a development that merits strategic thinking at the EU level. As the AIIB case demonstrated, EU member states tend to privilege bilateral economic relations in their dealings with China and welcome the BRIC 3 Theorising the ENP – Conference Report © Author name CEPOB # 1.15 December 2015 The BRICS’ New Development Bank and the EU’s options © Balazs Ujvari  CEPOB # 7.16 (April 2016) country’s growing appetite to play the multilateral game. Such a position, however, often ignores that the Beijing-led multilateral institutions also serve geostrategic purposes, which are often contrary to EU interests. Arguably, when faced with new multilateral structures emanating from emerging powers, the EU’s fundamental interest lies in ensuring consistency between the policy approach of the institutions it champions and that of the new ones. As Alyson Bailes puts it, the EU’s ‘deepest interest lies in making others – and eventually the world – more like itself’. But how can this be done most effectively? Article 32 of the Treaty on European Union offers guidance to member states’ action in this regard. It states that ‘before entering into any commitment which could affect the Union's interests, each Member State shall consult the others within the European Council or the Council’. While often overlooked, it is worth pointing out that the possibility of a joint EU response to the AIIB was also briefly explored in the COREPER (the Council’s main preparatory body) and the Economic and Financial Committee but was eventually dismissed largely due to the UK’s unilateral decision to join the Bank. Assuming that member states draw the lessons from the AIIB case and manage to form a united front vis-à-vis the NDB, four fundamental scenarios can be envisaged about how the EU might react to it once the Bank starts co-opting new members: isolating it, shaping it, joining it individually, or joining it collectively. First, in order to safeguard the primacy of the institution the NDB is seeking to mirror  (the World Bank), EU member states could adopt an isolationist approach, refusing to consider membership and encouraging others to do the same. Such a reaction would, however, be hard to reconcile with the widely recognised need for infrastructure investment in emerging and developing countries, and also with repeated EU calls for the BRICS to assume increased responsibilities internationally.  Second, similarly to the United States’ response to the AIIB, EU member states could make their accession contingent upon the strict observance of certain social, environmental and other standards by the Bank. Surely, the co-option of developed countries could benefit the NDB by boosting its creditworthiness and therefore its ability to create a portfolio of well-performing debts. Yet, given that divergence from the World Bank’s perceived bureaucratic and rigid policies is among the NDB’s key priorities, it is unlikely that membership of developed countries will suffice to pressure the BRICS into compromising on their alternative approach to development policy.  The third option is that EU member states willing to bear the financial cost of membership join the Bank with the aim of influencing its evolution from the inside. This could entail regular consultations on the NDB’s agenda within certain preparatory bodies of the Foreign Affairs Council, such as the Working Group on Development Cooperation,  with the aim of coordinating the EU position. Although not resulting from a collective decision, the European response to the AIIB is most reminiscent of this path. The downside of this option is, however, that it does not necessarily guarantee a coherent EU representation within the Bank, allowing EU member states to follow individual considerations and to counteract the interests of EU member states not present in the NDB. Such divisions would be highly disadvantageous given that the prospective cumulative voting power of developed countries in the NDB is limited to maximum 20% of the total votes.  A fourth possibility is EU membership in the Shanghai-based institution. So as to achieve the Union’s key interest vis-à-vis the Bank, that of ensuring consistency between World Bank and NDB standards, this option might be the most rewarding for the EU. The NDB operates in the area of development policy where the relations between the EU and its member states are guided by shared parallel competences. In practice, this means that the EU has the competence to carry out activities and conduct a common policy, but the member states can also exercise competence. While the EU is only a member of one MDB – the European Bank for Reconstruction and Development – the Treaty of Lisbon encourages EU membership in other such bodies, too (Art. 21(1), second para., TEU).   Although the EU has not yet formally reacted to the NDB, the European Commission welcomed the creation of additional development financing options, provided they are complementary to existing institutions. A form of membership for the Commission – on behalf of the EU – in an area of shared competence is a rather complex yet not unprecedented  exercise (OECD-DAC Committee). Despite concerning an area of exclusive EU competence, the capital increase of the European Investment Fund (EIF) – where the Commission is a shareholder – in May 2014 represents one example of how this could be put into practice in the post-Lisbon context. The involvement of the European Investment Bank (EIB) could be more straightforward, as this institution has a track-record of BRIC 4 Theorising the ENP – Conference Report © Author name CEPOB # 1.15 December 2015 The BRICS’ New Development Bank and the EU’s options © Balazs Ujvari  CEPOB # 7.16 (April 2016) financing its participation in other bodies with own resources, if approved by the EIB board.  EU membership in the NDB is, however, not a purely intra-EU business. There are external obstacles, too. In line with the realist stance of the BRICS on state sovereignty, the NDB’s establishing treaty currently restricts membership to members of the United Nations, with the possibility of granting observer status to international financial institutions in its Board of Governors – a criterion the EU does not fulfil. Yet, the mandates of most international organisations are not set in stone. Hence, EU member states could try to shape – whether from the inside as members or from the outside, through existing bilateral strategic partnerships with the BRICS – the mandate of the evolving institution, including a joint campaign for a Regional Economic Integration Organisation (REIO) clause (a prerequisite to EU membership in international organisations). No time for ‘wait and see’  China’s and its BRICS partners’ increased activism in global governance is an ambivalent development from an EU perspective. While their recent efforts to shape the global economic governance system may be interpreted as a proof of their adherence to some form of multilateralism, the new institutions also serve to advance their own strategic interests. Hence the need for Europeans to come together and assess how each of the new structures impact on their political and economic interests.   When interests converge, EU member states have no reason not to support the increased willingness of the emerging powers to play a greater role in global economic governance, including their endeavours to improve on certain long-standing practices. When interests diverge, however, Europeans would be better off defending the established standards and norms that they have championed for decades. For the moment, the evolution of the NDB is at too early a stage to determine in which of these categories it falls. Nonetheless, building on the lessons of the AIIB case, EU member states would be well-advised to keep a strategic eye on the NDB and identify levers of influence to shape its evolution right from its inception. No time for ‘wait and see’!                   Views expressed in the College of Europe Policy Briefs are those of the authors only and do not necessarily reflect positions of either the series editors or the College of Europe. Free online subscription at www.coleurope.eu/CEPOB. Bibliography   European Political Strategy Centre, “The Asian Infrastructure and Investment Bank: A New Multilateral Financial Institution or a Vehicle for China’s Geostrategic Goals”, EPSC Strategic Notes, no. 1, 24 April 2015.    Okano-Heijmans, M. & D. Lanting, “Europe’s Response to China’s Activism: Balancing Hope and Fear in the New Age of Global Economic Governance”, Clingendael Report, October 2015.  Ujvari, B., “A New Development Bank in the Making”, Egmont Commentary, February, 2016.  Ujvari, B., “The Global Strategy – Reinvigorating the EU’s Multilateral Agenda?”, Egmont Security Policy Brief, no. 69, 23 March 2016.. About the Author Balazs Ujvari is a joint Research Fellow in the Europe in the World programme of Egmont – Royal Institute for International Relations and the European Policy Centre (EPC) in Brussels. He holds an MA in International Studies from Aarhus University and an MA in EU International Relations and Diplomacy Studies from the College of Europe. His research focuses on the European Union’s multilateral action  and the changing landscape of global economic governance. Balazs Ujvari is also a guest lecturer on these subjects at various universities including the College of Europe and the Free University of Brussels (VUB).  BRIC 

The BRICS’ New Development Bank and the EU’s options. College of Europe Policy Brief #7.16, April 2016

  
# 7.16 
APRIL 2016 
College of Europe | Dijver 11 | BE-8000 Bruges, Belgium | Tel. +32 (0)50 47 71 11 
Website: www.coleurope.eu/cepob 
To contact the editors: cepob@coleurope.eu  
  
The BRICS’ New Development Bank and the EU’s options 
Balazs Ujvari 
 
Following decades of unchallenged Western dominance, 
the global governance system is currently being 
reshaped. Key emerging powers led by China have set out 
to increase their influence in global – economic – 
governance. Since Chinese President Xi Jinping took 
power in March 2013, Beijing has pursued global 
governance reform as a strategic objective. Its multi-
pronged approach relies on the reform of established 
multilateral structures, the creation of parallel 
institutions, the revitalisation of neglected organisations 
and the promotion of novel networks that do not build 
on existing fora. This contribution focuses on China’s and 
its BRICS partners’ (Brazil, Russia, India and South Africa) 
aspiration to counter the traditional bodies of global 
economic governance through the establishment of 
parallel structures. More specifically, this Policy Brief 
assesses the challenge that the BRICS-led New 
Development Bank (NDB) poses to the European Union 
(EU) in the field of development policy and identifies 
ways in which the EU could respond to this challenge. 
 
The NDB: complementary to or competing with 
existing economic governance fora? 
 
On 15 July 2014, the leaders of the BRICS countries 
gathered in Fortaleza, Brazil, to sign the treaty establishing 
the NDB. The Bank is only one of a series of parallel 
multilateral institutions created by emerging powers in 
recent years. Others include the Contingent Reserve 
Arrangement (a BRICS alternative to the International 
Monetary Fund) and the Asian Infrastructure and 
Investment Bank (a China-led competitor to the Asian 
Development Bank). According to its Articles of 
Agreement, the NDB aims to ‘mobilize resources for 
infrastructure and sustainable development projects in 
BRICS and other emerging market economies and 
developing countries’. The NDB is only the second 
multilateral development bank (MDB) with a global rather 
than regional focus besides the World Bank. It is also the 
first formal multilateral institution with global reach that is 
led by non-Western powers, reflecting the shifting balance 
of global economic power from established to emerging 
powers. The lack of a precedence of the BRICS centrally 
sitting at the table in a global economic governance 
context also means that it is unknown if the rules guiding 
the NDB’s lending practices will differ from those observed 
by the Bretton Woods institutions.  
 
The NDB is headquartered in Shanghai and has a starting 
capital stock of $50 billion to be raised to $100 billion over 
time. The capitalisation of the Bank began on 14 January 
2016, when founding members made their first 
Executive Summary 
> Global economic governance is currently 
undergoing a significant transformation led by 
China and its emerging economy partners. 
> China’s increased activism on the global stage rests 
on the reform of established organisations, the 
design of parallel institutions, the revitalisation of 
neglected frameworks and the creation of novel 
networks. 
> One example of the creation of a new institution 
concerns the New Development Bank, which is set 
to complement the World Bank’s efforts, but may 
also dilute the very standards in development 
finance that the EU has long championed. 
> After an initial focus of two years on Brazil, China, 
India, Russia and South Africa (BRICS), the Bank 
will co-opt new members. 
> After failing to show a united front vis-à-vis the 
Asian Infrastructure and Investment Bank (AIIB), 
EU member states should now seize the 
opportunity to respond strategically to a new 
global institution created by non-traditional 
powers. 
 
 
 
 
2 
Theorising the ENP – Conference Report 
© Author name 
CEPOB # 1.15 December 2015 
The BRICS’ New Development Bank and the EU’s options 
© Balazs Ujvari 
 
CEPOB # 7.16 (April 2016) 
contributions worth a total of $750 million. The initial 
transfers form part of the Bank’s paid-in capital that is 
expected to total $10 billion ($2 billion per founding 
member) to be paid through seven tranches between 2016 
and 2020. The NDB also has a subscribed capital of $40 
billion that shareholders must provide when requested by 
the Bank. The management aims to leverage two to two 
and half times – that is, use various financial instruments, 
including borrowed capital, to increase the potential 
return of its investments – the current capital of $750 
million and lend up to $2 billion this year. The NDB first 
intends to raise funds through the issuance of bonds in the 
Chinese bond market. This is due to the triple-A rating the 
Bank has acquired in the country, which will allow the 
institution to borrow relatively cheaply.   
 
According to its founders, the NDB responds to the 
recognition that the existing set of financing schemes is 
inadequate to meet investment needs in infrastructure 
projects – a central pillar of development from the 
perspective of most developing countries. The Shanghai-
based institution, according to official rhetoric, will reduce 
this gap by promoting improved connections in and 
between developing countries through the provision of 
infrastructure finance. As such, the Bank has been 
heralded to be complementary to traditional donors, who 
have largely neglected this aspect of development finance. 
Judged from this angle, the NDB may indeed act as a 
platform through which the BRICS seek to better respond 
to developing country needs informed also by their own 
recent experience with rapid economic catch-up. This new 
source of infrastructure finance may also be seen as an 
opportunity by the companies of developed countries 
(including those of the EU) wanting to and capable of doing 
business in the Global South. Importantly, however, the 
Bank is only expected to open its doors to non-BRICS 
countries after July 2017. This is essential as the Articles of 
Agreement specify that project tenders are only open to 
member countries.   
 
In addition to complementing existing MDBs, the NDB 
seems to be driven by three further objectives. First, the 
institution can also be considered as a by-product of its 
founders’ disillusionment with the deeply ingrained 
disparity and the consequent democratic deficiency of 
global economic governance. By offering a real alternative 
to the World Bank, the five-country bloc also generates 
greater sense of urgency about the need for further 
reform of traditional international financial institutions, 
especially with regard to voting rights and governance 
mechanisms.  
 
Second, it also reflects frustration with the cumbersome 
and overly bureaucratic lending operations of the 
traditional lenders. Some of the innovative solutions, 
including the non-resident – and unpaid – board of 
directors and governors, are hoped to accelerate lending 
by granting greater room for manoeuvre to the Bank’s 
resident management. At the same time, some see this as 
an explicit attempt on the part of the founders to limit 
future members’ influence on the senior management 
recruited from BRICS countries. This argument, however, 
contrasts with the fact that, at the time of writing, the 
Bank is actively recruiting both young and senior 
professionals from all over the world.  
 
Lastly, the NDB will also have an impact on the ‘rules of the 
game’ in development finance, the extent of which 
remains to be seen. On the one hand, the BRICS are known 
to regard economic growth as a top priority, showing 
reluctance to subscribing to stringent standards of 
governance or environmental and social protection. The 
emergence of a new MDB on the horizon may therefore 
also lower  standards of lending in development finance in 
the medium to long term. This is because, to remain 
competitive, existing institutions (such as the World Bank) 
may need to adjust their standards regarding issues such 
as government backing of bidding companies, opaque 
bidding processes or lower environmental standards. The 
impact of lower standards and conditionality may also 
imply a higher risk of default, which will certainly be felt by 
the Bank when it looks to the international capital markets 
to leverage its financial resources. Some of these concerns 
have, nonetheless, been somewhat allayed lately as the 
NDB President K.V. Kamat has repeatedly declared the 
Bank’s intention to focus on green investments (e.g. solar 
projects) in its initial operations. In any case, given that the 
founders themselves have differing attitudes towards 
environmental and social regulation, it may take a while to 
create a common policy framework among themselves. 
 
In addition to these considerations, the NDB could also 
serve to undermine the prevalence of the US dollar as the 
leading currency in international finance. As specified in its 
founding documents, the Bank ‘may provide financing in 
the local currency of the country in which the operation 
takes place’. In practice, this presently means that the 
Bank will lend in BRICS currencies, with the first loan to be 
performed in renminbi in China. 
 
How the EU can react to the NDB 
 
In Europe, the increased activism of China and its BRICS 
partners in global economic governance has so far not 
been seen as a development that merits strategic thinking 
at the EU level. As the AIIB case demonstrated, EU 
member states tend to privilege bilateral economic 
relations in their dealings with China and welcome the 
BRIC 
3 
Theorising the ENP – Conference Report 
© Author name 
CEPOB # 1.15 December 2015 
The BRICS’ New Development Bank and the EU’s options 
© Balazs Ujvari 
 
CEPOB # 7.16 (April 2016) 
country’s growing appetite to play the multilateral game. 
Such a position, however, often ignores that the Beijing-
led multilateral institutions also serve geostrategic 
purposes, which are often contrary to EU interests. 
Arguably, when faced with new multilateral structures 
emanating from emerging powers, the EU’s fundamental 
interest lies in ensuring consistency between the policy 
approach of the institutions it champions and that of the 
new ones. As Alyson Bailes puts it, the EU’s ‘deepest 
interest lies in making others – and eventually the world – 
more like itself’. But how can this be done most 
effectively? Article 32 of the Treaty on European Union 
offers guidance to member states’ action in this regard. It 
states that ‘before entering into any commitment which 
could affect the Union's interests, each Member State 
shall consult the others within the European Council or the 
Council’. While often overlooked, it is worth pointing out 
that the possibility of a joint EU response to the AIIB was 
also briefly explored in the COREPER (the Council’s main 
preparatory body) and the Economic and Financial 
Committee but was eventually dismissed largely due to 
the UK’s unilateral decision to join the Bank. 
Assuming that member states draw the lessons from the 
AIIB case and manage to form a united front vis-à-vis the 
NDB, four fundamental scenarios can be envisaged about 
how the EU might react to it once the Bank starts co-opting 
new members: isolating it, shaping it, joining it 
individually, or joining it collectively. 
First, in order to safeguard the primacy of the institution 
the NDB is seeking to mirror  (the World Bank), EU member 
states could adopt an isolationist approach, refusing to 
consider membership and encouraging others to do the 
same. Such a reaction would, however, be hard to 
reconcile with the widely recognised need for 
infrastructure investment in emerging and developing 
countries, and also with repeated EU calls for the BRICS to 
assume increased responsibilities internationally.  
Second, similarly to the United States’ response to the 
AIIB, EU member states could make their accession 
contingent upon the strict observance of certain social, 
environmental and other standards by the Bank. Surely, 
the co-option of developed countries could benefit the 
NDB by boosting its creditworthiness and therefore its 
ability to create a portfolio of well-performing debts. Yet, 
given that divergence from the World Bank’s perceived 
bureaucratic and rigid policies is among the NDB’s key 
priorities, it is unlikely that membership of developed 
countries will suffice to pressure the BRICS into 
compromising on their alternative approach to 
development policy.  
The third option is that EU member states willing to bear 
the financial cost of membership join the Bank with the 
aim of influencing its evolution from the inside. This could 
entail regular consultations on the NDB’s agenda within 
certain preparatory bodies of the Foreign Affairs Council, 
such as the Working Group on Development Cooperation,  
with the aim of coordinating the EU position. Although not 
resulting from a collective decision, the European 
response to the AIIB is most reminiscent of this path. The 
downside of this option is, however, that it does not 
necessarily guarantee a coherent EU representation 
within the Bank, allowing EU member states to follow 
individual considerations and to counteract the interests 
of EU member states not present in the NDB. Such 
divisions would be highly disadvantageous given that the 
prospective cumulative voting power of developed 
countries in the NDB is limited to maximum 20% of the 
total votes.  
A fourth possibility is EU membership in the Shanghai-
based institution. So as to achieve the Union’s key interest 
vis-à-vis the Bank, that of ensuring consistency between 
World Bank and NDB standards, this option might be the 
most rewarding for the EU. The NDB operates in the area 
of development policy where the relations between the 
EU and its member states are guided by shared parallel 
competences. In practice, this means that the EU has the 
competence to carry out activities and conduct a common 
policy, but the member states can also exercise 
competence. While the EU is only a member of one MDB 
– the European Bank for Reconstruction and Development 
– the Treaty of Lisbon encourages EU membership in other 
such bodies, too (Art. 21(1), second para., TEU).   
Although the EU has not yet formally reacted to the NDB, 
the European Commission welcomed the creation of 
additional development financing options, provided they 
are complementary to existing institutions. A form of 
membership for the Commission – on behalf of the EU – in 
an area of shared competence is a rather complex yet not 
unprecedented  exercise (OECD-DAC Committee). Despite 
concerning an area of exclusive EU competence, the 
capital increase of the European Investment Fund (EIF) – 
where the Commission is a shareholder – in May 2014 
represents one example of how this could be put into 
practice in the post-Lisbon context. The involvement of 
the European Investment Bank (EIB) could be more 
straightforward, as this institution has a track-record of 
BRIC 
4 
Theorising the ENP – Conference Report 
© Author name 
CEPOB # 1.15 December 2015 
The BRICS’ New Development Bank and the EU’s options 
© Balazs Ujvari 
 
CEPOB # 7.16 (April 2016) 
financing its participation in other bodies with own 
resources, if approved by the EIB board.  
EU membership in the NDB is, however, not a purely intra-
EU business. There are external obstacles, too. In line with 
the realist stance of the BRICS on state sovereignty, the 
NDB’s establishing treaty currently restricts membership 
to members of the United Nations, with the possibility of 
granting observer status to international financial 
institutions in its Board of Governors – a criterion the EU 
does not fulfil. Yet, the mandates of most international 
organisations are not set in stone. Hence, EU member 
states could try to shape – whether from the inside as 
members or from the outside, through existing bilateral 
strategic partnerships with the BRICS – the mandate of the 
evolving institution, including a joint campaign for a 
Regional Economic Integration Organisation (REIO) clause 
(a prerequisite to EU membership in international 
organisations). 
No time for ‘wait and see’ 
 
China’s and its BRICS partners’ increased activism in global 
governance is an ambivalent development from an EU 
perspective. While their recent efforts to shape the global 
economic governance system may be interpreted as a 
proof of their adherence to some form of multilateralism, 
the new institutions also serve to advance their own 
strategic interests. Hence the need for Europeans to come 
together and assess how each of the new structures 
impact on their political and economic interests.  
 
When interests converge, EU member states have no 
reason not to support the increased willingness of the 
emerging powers to play a greater role in global economic 
governance, including their endeavours to improve on 
certain long-standing practices. When interests diverge, 
however, Europeans would be better off defending the 
established standards and norms that they have 
championed for decades. For the moment, the evolution 
of the NDB is at too early a stage to determine in which of 
these categories it falls. Nonetheless, building on the 
lessons of the AIIB case, EU member states would be well-
advised to keep a strategic eye on the NDB and identify 
levers of influence to shape its evolution right from its 
inception. No time for ‘wait and see’! 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Views expressed in the College of Europe Policy Briefs are those of the authors only and do not necessarily reflect 
positions of either the series editors or the College of Europe. Free online subscription at www.coleurope.eu/CEPOB. 
Bibliography  
 
European Political Strategy Centre, “The Asian Infrastructure and 
Investment Bank: A New Multilateral Financial Institution or a Vehicle 
for China’s Geostrategic Goals”, EPSC Strategic Notes, no. 1, 24 April 
2015.   
 
Okano-Heijmans, M. & D. Lanting, “Europe’s Response to China’s 
Activism: Balancing Hope and Fear in the New Age of Global Economic 
Governance”, Clingendael Report, October 2015. 
 
Ujvari, B., “A New Development Bank in the Making”, Egmont 
Commentary, February, 2016. 
 
Ujvari, B., “The Global Strategy – Reinvigorating the EU’s Multilateral 
Agenda?”, Egmont Security Policy Brief, no. 69, 23 March 2016.. 
About the Author 
Balazs Ujvari is a joint Research Fellow in 
the Europe in the World programme of 
Egmont – Royal Institute for International 
Relations and the European Policy Centre 
(EPC) in Brussels. He holds an MA in 
International Studies from Aarhus 
University and an MA in EU International 
Relations and Diplomacy Studies from the 
College of Europe. His research focuses on 
the European Union’s multilateral action  
and the changing landscape of global 
economic governance. Balazs Ujvari is also 
a guest lecturer on these subjects at 
various universities including the College 
of Europe and the Free University of 
Brussels (VUB). 
 
BRIC 


http://aei.pitt.edu/93096/1/ujvari_cepob_7%2D16%2Dfinal.pdf

The BRICS’ New Development Bank and the EU’s options. College of Europe Policy Brief #7.16, April 2016

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