G7 performance on trade

Maria Marchyshyn, lead researcher on trade, G7 Research Group, shares the data on trade commitments and compliance and asserts that Biarritz is an opportunity to underscore trade as a tool to combat inequality and promote inclusive growth

As the G7 leaders arrive in Biarritz for their summit, US-China trade tensions, new tariffs, Brexit, an expected global economic slowdown, and increased unilateralism and nationalism raise questions about trade as a pillar of prosperity. However, as the United States and some others turn inwards, countries are signing new trade agreements and diversifying their partners. Trade continues to grow, even as it ebbs and flows in this new turbulent global environment. Summits often provide an impetus for concluding new free trade agreements and a platform for addressing disputes. This year’s G7 summit in France is an opportunity to show that trade can help combat inequality and be a pillar of inclusive economic growth.

Conclusions

Trade has been one of the three top issues at every G7 summit since 1975. The G7 has been a strong proponent of the multilateral trading system with the World Trade Organization at the centre. G7 communiqués contained an average 1,057 words (15%) on this topic per summit. The four summits with the most words on trade were in 2005, 2006, 2007 and 2009. The summits from 2003 to 2007 each issued a stand-alone document on trade. The 2017 and 2018 summits dedicated among the least words to trade: 106 words and 139 words respectively. Since the peak of 45% in 1979 and 39% in 1975 the percentage declined to 2% in 2017 and 1% in 2018. The main topics have been rejecting protectionism, urging members to conclude WTO rounds and encouraging trade liberalisation, with some references to protecting the environment, securing energy supplies, regional relations, assisting developing countries through aid for trade and protecting labour rights.

Commitments

Since 1975, G7 leaders have made 338 public, collective, precise, future-oriented and politically binding commitments on trade. They account for 6% of all commitments identified by the G7 Research Group.

The highest number of trade commitments was 24 in 2013, with the second highest of 21 in 1977. No commitments on trade came in 1985 and 1992. The period between 2013 and 2017 produced commitments in double digits, spurring great strides in trade liberalisation. The number fell to five in 2018 as the United States began opposing any mention of anti-protectionism.

Compliance

The G7 Research Group has assessed 41 commitments on trade and found compliance averaged only 64%. This is below the 75% average across all subjects. Two commitments made in 2000 achieved perfect compliance – on launching a new round of WTO negotiations. The next highest score was in 2004 with 94%, on showing strong commitment to multilateral negotiations. Six months after the 2018 summit, compliance on the one assessed commitment on trade was 56%.

The lowest scores revolved around protectionism, with 0% compliance from 1983 on resolving current trade issues, 11% from 2009 on refraining from new barriers to trade and 15% from 1982 on further opening markets.

By member, the European Union at 84% complies the most with its trade commitments, followed by Canada at 76% and the United Kingdom at 73%.

Corrections

There are several low-cost measures for G7 leaders to improve compliance with their trade commitments.

Historically, the more commitments on trade produced at a summit, the higher the rate of compliance. The 20 commitments with the highest compliance were issued at summits with on average 25% (or two) more commitments than the summits with the lowest compliance.

Holding a trade ministerial meeting does not lead to higher compliance with trade commitments. Between 1982 and 1999, when the trade ministers of the United States, European Union, Canada and Japan met annually, average compliance was 38%, or lower than the 68% average for years with no such meetings. Trade ministers’ meetings, although useful, are thus unnecessary or even unhelpful for improving compliance.

At this time, the G7 should reinforce its commitment to the multilateral trading system. Bilateral and regional negotiations are creating a complicated, disconnected web of trade agreements that are difficult to navigate both for businesses and for investors. A reference to the WTO increases compliance by 73%. Commitments that refer to the WTO average 79% compliance, while those that do not average only 57%. Addressing WTO reform and encouraging WTO-consistent trade agreements are two important topics that need to be discussed at Biarritz.

Including a one-year timeline into the commitment also increases compliance, while having a multi-year timetable decreases it.

To achieve higher compliance, the G7 leaders should thus produce more commitments on trade, refer to the WTO, and include a one-year timetable but avoid multi-year timelines and trade ministerial meetings.