The G20’s key deliverable

Matthew P. Goodman, senior vice president and senior advisor for Asian economics at the Center for Strategic and International Studies, highlights the unique role of trade in a globalised yet challenged world

Despite its many shortcomings, the G20 serves three unique and vital roles in global economic governance: it solves problems in the world economy (at the extreme, managing systemic financial crises, as it did in 2008–09); it sets agendas for policy action in and among its members; and it builds habits of cooperation among a diverse group of countries that do not always get along.

Even – or especially – when there is no financial crisis to galvanise joint action in the problem-solving dimension, the G20’s agenda-setting function is particularly important. And nowhere is this truer than in trade. Although financial issues have dominated the G20’s work, trade has been at the core of its agenda since the G20 leaders first met in Washington in September 2008. At the current time of severe strain in the global trading system, Japan plays a critical role as this year’s host in ensuring that the G20 gives renewed momentum to the trade agenda at Osaka.

At each of the 12 summits prior to last year’s gathering in Buenos Aires, G20 leaders pledged – in one form or another – to oppose protectionism and boost global trade. Largely as a result of unilateral tariff action by the United States against China and numerous allies, as well as the Trump administration’s skepticism about multilateral trade initiatives, the Buenos Aires communiqué omitted the usual reference to protectionism. In a too-short paragraph near the end, however, it did note that “trade and investment are important engines of growth”, acknowledged the contributions of the multilateral trading system and called for joint work to reform the World Trade Organization.

Japan should push other G20 members to build on this language at Osaka, in several ways. First, leaders should specify the priorities for WTO reform and mandate that their trade officials work towards agreement by the time of the next WTO ministerial meeting in the summer of 2020.

Among the most pressing issues for reform are a better-functioning dispute settlement mechanism, enhanced notification of subsidies and other trade-distorting measures, and tightened criteria for self-designation of members as developing countries (a status that should clearly not apply to advanced countries such as Singapore and Korea, or to the world’s second-largest economy, China).

Second, Japan should push for endorsement by G20 leaders of a positive agenda on trade. Reviving a multilateral round along the lines of the Doha Development Agenda is a bridge too far. But the G20 could recognise and encourage the array of plurilateral and sectoral deals being discussed in Geneva: on e-commerce, trade facilitation, services and environmental goods. Leaders should also acknowledge the useful progress towards market opening and rule making in high-quality mega-regional agreements, notably the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and call  for expansion of their membership and ambition.

Finally, Japan should try to broker language in the Osaka communiqué that revives the long-standing pledge to oppose protectionism. With tit-for-tat tariff escalation underway between the United States and China, threats of new broad-based tariffs (for example on automobiles) and creeping protectionism everywhere, this is a dangerous time for the world trading system. The WTO estimates that global trade growth in 2019 will barely match the rate of growth in global gross domestic product, at 2.6%. If G20 leaders mean what they said last year in Buenos Aires – that trade is good for growth – then they should take a clearer stand against policies to restrict trade.

This is a tall order for any host country, and the Osaka outcomes are likely to fall short of these proposals. But Japan today arguably stands as the world’s leading champion of open markets and sensible rules on trade. In 2018 it managed the Herculean feat of concluding the CPTPP, just a year after US withdrawal from its predecessor agreement, the Trans-Pacific Partnership.

Tokyo also concluded a comprehensive deal with the European Union, the largest bilateral trade deal signed by either country, encompassing 28% of the world’s GDP. And earlier this year at Davos, Prime Minister Shinzo Abe threw down a gauntlet on digital governance when he called for a global conversation on his concept of ‘data free flow with trust’.

Abe should challenge his peers at Osaka to reinvigorate the G20 trade agenda at a time of great peril for the multilateral trading system.