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The G20 and Trade

The G20 and Trade

Posted on Friday, August 7, 2015

Stuart Harbinson, Fellow of Asia Global Institute, discusses possible options that could strengthen the World Trade Organization.

The last G20 Leaders' Summit Communique, from Brisbane in November 2014, illustrates the extent to which the group's scope of deliberation has expanded from its original focus on financial issues. There is still a strong focus on finance. However, in addition, the leaders discussed many other subjects, including trade.

One of the main areas of trade to which the G20 is paying attention is the theme of "strengthening the WTO."  This indicates that G20 Leaders understand the centrality of the rules-based multilateral trading system and the need to ensure that it remains relevant and robust.  As the Brisbane Leaders' Communique stated: "We need a strong trading system in an open global economy to drive growth and generate jobs."

The Leaders went on to say:

"A robust and effective WTO that responds to current and future challenges is essential… We commit to implement all elements of the Bali package and to swiftly define a WTO work programme on the remaining issues of the Doha Development Agenda to get negotiations back on track. This will be important to restore trust and confidence in the multilateral trading system. We agreed to discuss ways to make the system work better when we meet next year."

The WTO in many respects is in good shape. Its dispute settlement and monitoring functions are doing quite well. But the main focus of G20 concern at present, rightly, is how to strengthen its negotiating pillar.

Here, two general points should be made. First, despite the travails over Doha, GATT and WTO history shows that, when there is a real will to do a deal, it gets done. Even in the supposedly bad patch of the last 20 years, a lot has been accomplished - negotiations on telecoms, financial services, information technology, the accessions of China, Russia, Saudi Arabia, and a revision of the government procurement agreement have succeeded. Recently, the WTO has concluded a ground-breaking deal on trade facilitation and an important upgrade of the information technology agreement ("ITA II"). Negotiations which may yet find their way into the WTO are also going ahead on trade in environmental goods and trade in services.

The point is that there is no fundamental institutional flaw in the WTO that is preventing deal making. Over the last 20 years the WTO has found a procedural solution whenever the collective will has called for it. Conversely, when the collective will is insufficient or absent, deals do not get done, as was ever the case even in GATT days.

Secondly, it is common to talk about "the WTO" as if it were a third person or inanimate object. This is wrong. The WTO is its member governments. And the G20 are its most influential members. They collectively have the power to make things happen - or not. The G20 itself cannot of course be a trade negotiating forum. But there needs to be a frank recognition that the reason Doha is stuck is that significant differences exist between some of the main G20 countries on the substance of a Doha outcome.

In 2010, G20 Leaders urged Doha Round negotiators to "complete the end game." Sadly, this was not followed through. Key G20 trade negotiators stuck to their entrenched positions, resulting in continued deadlock.

What can be done to strengthen the WTO in the short and long term?

The short term involves looking at the prospects for the coming WTO Nairobi Ministerial Conference in December 2015. Nothing could contribute more to reviving the WTO than having a successful conference in Nairobi.

Success should be defined as reaching agreement, even at a reduced level of ambition - on the core issues of the Round - agriculture, industrial products and services.

Nairobi is a delicate moment for the WTO. Success would be a shot in the arm and enable it to plan for a brighter future. Failure would consign it to be the custodian of a "lowest common denominator", and in some cases outdated, rule book for the foreseeable future. The way back would not be easy. Some countries would simply walk away from Doha. Others would still want to pursue it. Not only would there be no agreement on Doha issues, there would not even be any agreement on what the WTO's negotiating agenda was. All the negotiating action and energy would move even further away from the WTO. The business community would be further alienated.

By playing a key catalytic role in achieving success at Nairobi, the G20 could demonstrate in the clearest terms the value it truly places on the multilateral trading system. But this requires a determination to make the hard choices necessary to forge a compromise. In 2010, the G20 failed to follow through. We will soon see whether the challenge will be accepted this time around. Not only are there high stakes for the WTO, but the G20's own credibility, given its track record of support for the WTO over a number of years, is also involved.

In the medium to long term, there are at least two broad areas to which more attention is needed to strengthen the system.

  1. Re-building confidence and understanding among WTO members

It has been apparent for some time now that there is no common understanding about the purpose of WTO negotiations and how best to achieve results. The old normative consensus - inherited from the GATT - was that multilateral trade negotiations were aimed at gradual and progressive trade liberalisation. This is now insufficient. For many members, the aims are "rebalancing" and creating "policy space."  For others, to be relevant, the WTO needs to tackle "21st Century issues."

These fundamentally different visions underlie many of the problems of recent years. It's time to have a basic conceptual discussion and to try to reach some common understanding - or at least a better appreciation of respective positions - so that the WTO can move ahead more effectively in future.  Consideration of the "incentivized flexibility" approach embodied in the recent Trade Facilitation Agreement, and whether it could be applied elsewhere, might be a good starting point.

  1. Engaging in dialogue on major trade policy trends

The WTO is not a think-tank. But a relevant future agenda cannot be shaped without adequate discussion among the member governments. It is bizarre that major issues facing the global trading system such as the relationship between regionalism and multilateralism, how to nurture global value chains, and the trade slowdown should be discussed at the lofty level of G20 Leaders when these issues are ignored in the WTO itself.

There may be concerns about spill over into negotiations.  But not everything the WTO does has to have a mercantilist negotiating motivation. What sort of a World Trade Organization is it that does not seriously deliberate on major trade policy issues? How can its members understand each other when overarching issues are ignored? Why should business take the WTO seriously when it seems to live in its own hermetically-sealed bubble?

The Nairobi Ministerial Conference, catalyzed by the G20, could launch a process at the WTO, to discuss at least some of these topics and any related issues that the members are interested in.

The Director-General, as the custodian of the system, might be given the mandate to follow up. It would complement the G20's interests. Results would not be quick. But it would foster a greater sense of ownership and collective responsibility. And it would bring the WTO closer to the real world.

Is it asking too much of the G20 to come to the rescue of the WTO? Possibly that is so. After all, the G20 is a relatively new process which is largely in the hands of politicians and senior officials who in some cases may not be very familiar with the arcane technicalities of trade negotiations.

On the other hand, G20 Leaders have been sufficiently concerned about the state of the global trading system to enter the fray. Should not words be followed up with at least some action? In the end, the answer to this question seems to revolve around national policy coherence. Are the trade negotiators in the WTO on the same page as their Leaders - or are Leaders on a different page from their trade negotiators?

G20 Trade Ministers will meet under Turkey's chairmanship in October 2015, leading up to the Summit in November.  The WTO Nairobi Ministerial Conference follows in December.

Watch this space.

The views expressed in this article are the author's own and do not necessarily reflect Asia Global Institute's editorial policy.

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