G20 priorities to tackle the challenges of global trade governance and pursue the 2030 Agenda for Sustainable Development
- On its seventieth anniversary, the multilateral trading system faces heightened risk and policy uncertainty.
- In the face of these risks, G20 leaders have a historic responsibility to preserve the gains derived from global economic integration, including increased living standards and productivity, as well as technology diffusion and, most important, global peace and security.
- The article puts forward concrete steps that G20 members could take in support of a rules-based system, global economic governance, and achieving the UN Sustainable Development Goals. These include strategic and specific considerations.
This year, 2018, marks the seventieth anniversary of the multilateral trading system, which, according to Renato Ruggiero, the first director-general of the World Trade Organization, “ranks among the greatest economic achievements of the post–World War II era.”
Indeed, the negotiations that led to the entry into force of the General Agreement on Tariffs and Trade (GATT) in 1948 aimed to ensure postwar stability and avoid actions such as the Tariff Act of 1930 (commonly known as the Smoot-Hawley Act), which increased American import duties on 20,000 products “as the world was tumbling into the Depression.” The imposition of these tariffs by the United States and the subsequent retaliatory response from other trading nations “led to the virtual halting of international commerce.”
Through successive rounds of negotiations between 1948 and 1994, the GATT “presided over periods that saw some of the highest growth rates in international commerce.” The establishment of the WTO in 1995 was the culmination of a long journey towards the creation of a multilateral organisation in charge of international trade as part of a broader system of global economic governance. The WTO provides its members with a forum in which to negotiate, solve disputes, and monitor the implementation of commitments under the WTO agreements. Today, 98 percent of world trade is conducted under its rules.
While the benefits from international trade under a rules-based system are generally acknowledged (higher living standards, increased productivity, and technology diffusion), surprisingly, less emphasis is placed on its central role in enabling global peace and security: “the undeniable driving force behind the creation of the post-war economic rules and architecture.”
For the past 70 years, the multilateral trading system has been shaped by the principles of national treatment and most favoured nation treatment that, in turn, have provided the transparency and predictability for international trade to flourish. Currently, these principles, together with the mechanism to protect their effective implementation, are under threat.
The multilateral trading system under threat
Pressures on the multilateral trading system manifest themselves in various ways. For instance, the Dispute Settlement Mechanism, in particular the functioning of the WTO Appellate Body, is being weakened by the US blockage of all appointments to vacant (judge) positions. Under the current circumstances, the Appellate Body would function with only three members and, as they leave office, it would be forced to halt its duties. Such a situation would deprive the system of its capacity to adopt panel decisions and enforce trade rules.
Furthermore, in January 2018 the United States increased tariffs on solar panels from China. Subsequently, citing “national security” concerns, it also increased tariffs on steel and aluminium products, from Canada, the European Union, and Mexico, among others. Members have questioned how these measures could be justified under GATT Article XXI (which provides for exceptions to protect “essential security interests”). These unilateral measures have prompted retaliatory responses from those members who consider them a breach of the US obligations under the WTO.
The current trading environment could hardly be under more pressure. WTO director-general Roberto Azevêdo highlighted this reality in his mid-year report to the Trade Policy Review Body, noting that “the uncertainty created by a proliferation of trade-restrictive actions could place economic recovery in jeopardy.” In his remarks on the report, after urging WTO members to refrain from implementing new trade-restrictive measures and to reverse existing ones, he reminded them: “Growth, jobs and recovery are at stake – as well as the health of the trading system on which we all rely.”
On the investment front, the World Investment Report 2018 from the United Nations Conference on Trade and Development (UNCTAD) notes, among other developments, a decline by 23 percent in global flows of foreign direct investment in 2017 and the stagnation of growth in global value chains.
Furthermore, the report highlights that the prediction of a “very modest” recovery for 2018 and the negative trend in foreign direct investment (which remains the main external source of finance for the developing world) is “a long-term concern for policymakers worldwide, especially for developing countries, where international investment is indispensable for sustainable industrial development.” The report also emphasises the risks and policy uncertainty and the negative impact that “escalation and broadening of trade tensions” could have on investment in global value chains, as well as the effect that tax reforms in the United States, and “greater tax competition,” can have on global investment patterns. It therefore underlines the importance of a “conducive global investment environment, characterized by open, transparent and non-discriminatory investment policies.”
Against this background, the G20 leaders and policymakers have a crucial role to play in reducing policy uncertainty, in making multilateralism prevail over unilateralism, and finally, in mobilising resources and forging partnerships to advance the 2030 Agenda for Sustainable Development. Together, G20 countries account for 85 percent of global GDP and 75 percent of international trade; therefore, the impact of their policy decisions cannot be emphasised strongly enough. G20 leaders and policymakers should de-escalate tensions and lead by example in making sustainable policy choices. This article contends that these choices should focus on three strategic elements.
Adjusting rules for a changing balance of power
In the current circumstances of tension, WTO members should seek a new balance for international trade rules that reflects the changing power dynamics without modifying the WTO consensus rule. The coming change from unipolar to multipolar power dynamics has become more visible in recent years. Forecasts such as Global Trends: The Paradox of Progress from the US National Intelligence Council chart these dynamics and preview the consolidation of multiple geopolitical powers across different regions. In the context of international trade, diplomatic initiatives are starting to confront this new reality. The initiative announced by French president Emmanuel Macron to call an initial conference between the United States, the European Union, China, and Japan in November 2018 to address the reform of the WTO is a positive development. This process should be broadened to include all G20 members who have the responsibility to raise their voice in defense of multilateralism.
Unblocking the dispute resolution system at the WTO
The functioning of the Dispute Settlement Mechanism has been highlighted by President Macron as one of the main items of discussion. Any potential outcome in this area must respect and preserve the letter and the spirit of the Dispute Settlement Understanding and aim at restoring and securing the sustainable functioning of the Appellate Body. G20 members should support concrete proposals aimed at finding a solution to unblock the impasse there.
Forging partnerships for sustainable development
Developments on the trade and investment field require action by the G20 to bring certainty, transparency, and predictability back into the system. Solid and effective partnerships are necessary to tackle these challenges and reduce policy uncertainty, not least to achieve the Sustainable Development Goals (SDGs). G20 leaders can shape new alliances at the WTO and make it remain a forum to forge partnerships for sustainable development, in line with SDG 17.
Urgent action from G20 members is required on two fronts: first, on the implementation of commitments and on the negotiation of new provisions; and second, on more systemic issues. The first set of actions means continuing to work on and support the implementation of the Trade Facilitation Agreement (TFA); successfully concluding current negotiations on fisheries subsidies; and supporting initiatives on investment facilitation and on e-commerce. The second set of actions includes an urgent call to de-escalate tensions, unblock the Appellate Body, and preserve the integrity of the multilateral trading system.
Support the full implementation of the Trade Facilitation Agreement
WTO members have continued to work towards the implementation of the TFA, which has the potential to reduce global trade costs between 10 percent and 18 percent. Currently, the TFA has a rate of implementation of approximately 60 percent, which suggests that much remains to be done. G20 members should continue working towards the full implementation of the TFA as well as supporting capacity building, for instance, to strengthen the functioning of the National Committees on Trade Facilitation.
Adopt new disciplines on fisheries subsidies
At the 11th WTO Ministerial Conference, WTO members agreed to continue working towards an agreement on disciplines that prohibit certain forms of fisheries subsidies that contribute to overcapacity and overfishing, and eliminate subsidies that contribute to illegal, unreported and unregulated fishing.
G20 members, which include some of the biggest fishing nations, should express their full support to the efforts led by the chair of the Negotiating Group on Rules (Ambassador Roberto Zapata, from Mexico) to successfully conclude the negotiations on fisheries subsidies, as agreed. Such an outcome would be a “triple win” in terms of trade (elimination of trade-distorting subsidies), environment (protection of fisheries resources), and development (through provisions on special and differential treatment). A WTO agreement on fisheries subsidies would be one of the most meaningful contributions of the WTO membership to SDG 14.
Support investment facilitation
The Joint Ministerial Statement on Investment Facilitation for Development calls for the beginning of “structured discussions with the aim of developing a multilateral framework on investment facilitation.” Among other elements, the initiative aims at improving the transparency and predictability of investment measures and streamlining and speeding up administrative procedures and requirements.
G20 members should welcome this initiative as a positive development and support these discussions. The G20 Trade and Investment Working Group could identify areas to deepen the analytical work in support of the investment facilitation initiative. The OECD policy brief Towards an International Framework for Investment Facilitation represents a very meaningful contribution to such analysis.
Enable countries to benefit from e-commerce
The “new industrial revolution” and the agenda around the “digital economy” can be an opportunity to forge partnerships and to assist developing and least developed countries in the design and implementation of sustainable policies for the digital economy that contribute to their development objectives. G2O members should explore ways to help these countries benefit from this new source of trade, through a coherent and inclusive agenda, and enable their participation in the exploratory work “toward future WTO negotiations on trade-related aspects of electronic commerce,” called for in the Joint Ministerial Statement on Electronic Commerce.
G20 members could draw inspiration from the preparatory work for the negotiations on trade facilitation that included a clear scope for the negotiations; the acknowledgement of the need to enhance technical assistance and support for capacity building; innovative special and differential treatment provisions beyond the “traditional transition periods” for implementing commitments and the identification of needs and priorities (needs assessment) “as an integral part of the negotiations.”
Once the scope of the negotiations has been determined, G20 members should support needs assessments initiatives. One possible action could be to increase their support to the UNCTAD e-Trade Readiness Surveys, among other capacity-building activities, in close coordination with other relevant international organisations.
Call for action
The priorities described require strong leadership, a solid legal framework, and a politically conducive environment if they are to have a significant impact on the current situation. It would be virtually impossible for WTO members to engage in new discussions or undertake new commitments in the absence of predictable and transparent rules and when confronted with the turmoil of risk and policy uncertainty.
G20 leaders should live up to their responsibility at this crucial time in history and reiterate their support to the multilateral trading system. As a matter of priority, they should collectively acknowledge the role of the WTO as a fundamental pillar of global economic governance as well as its contribution to global peace and security; take the necessary steps to de-escalate trade tensions and remove unilateral measures; and restore the functioning of the WTO’s Appellate Body. They should also support partnerships at the WTO on trade and investment facilitation, e-commerce, and fisheries subsidies and engage in an inclusive and coherent WTO reform process that contributes to a stable and predictable rules-based system, without modifying the consensus rule.
The 2018 G20 Leaders’ Declaration must restate the value of multilateral cooperation to tackle the urgent global challenges we are facing and acknowledge that a rules-based system is needed, not only to preserve the gains from global economic integration, but to be faithful to the core objective that underpinned its creation: to contribute to global peace and security.
This article is extracted from the ICTSD compilation on How the G20 Can Help Sustainably Reshape the Global Trade System.
Soledad Leal Campos is an independent consultant on international trade and investment.