As John Lennon wrote, 'life is what happens when you are busy making other plans.' How true for Australia's plans for the G20. Life is not being kind in the lead-up to the Brisbane G20 Summit.
The head winds for the summit so far include:
- International organisations (the IMF and World Bank) lowering their forecasts for global growth.
- Equity markets being hit with concerns of rising geopolitical tensions ( Ukraine, Gaza, Syria, Iraq).
- Economic sanctions being imposed by some G20 members (US, EU, Australia, Canada) on another G20 member (Russia) and that member imposing trade sanctions on other G20 members.
- A G20 member (Argentina) defaulting on its external debts.
- Another G20 member (the US) continuing to block agreed governance reforms of the IMF.
- One G20 member (India) vetoing an agreed WTO trade deal, a move which has brought into question the future of the WTO and the multilateral trading system.
To add to the depressing developments, Indian Central Bank Governor Raghuram Rajan (who is famous for forecasting the 2008 financial meltdown) has warned that the world economy is on the brink of another market crash. To top things off, the World Health Organisation has called the Ebola outbreak an international health emergency.
How should the G20 react to these developments? It must confront them; it must deal with reality. If it did not, any collective commitment coming from a G20 meeting to strengthen global growth or do anything else would be hollow.
The G20 — not only at the summit in November but also when G20 finance ministers meet in Cairns in September — must discuss the impact of rising geopolitical tensions on the global economy. It would be surreal if, in the face of the developments listed above, a meeting of world leaders or finance ministers limited their discussions to technical economic and financial issues. As Michael Spence has noted, rising geo-political tensions are a major threat to global co-operation and economic prospects. If the G20 truly is a global economic steering committee, it must adapt to developments and respond to all the challenges and threats to the global economy.
One of the threats to global economic cooperation that the G20 must confront is the impact of India's veto of the Bali WTO trade deal.
The G20 must respond and restore confidence in the multilateral trading system and the WTO. Tom Miles sums up much of the reaction to India's decision when he says that 'India has dealt a potentially fatal blow to the World Trade Organization's hopes of modernising rules of global commerce and remaining the central forum of multilateral trade deals'. Simon Evenett from the Swiss Institute for International Economics said that 'without a serious shake-up, the WTO's future looks like that of the League of Nations.'
The world economy has prospered with a rules-based global trading system administered by the WTO. However, trade liberalisation through the WTO's Doha round has dragged on for over 13 years and in response, countries have sought progress through bilateral or regional trade deals. While this may benefit the countries involved, it has not been a positive for the global trading system and the countries excluded. There is a 'noodle bowl' of trade arrangements, often mutually incompatible, which discriminate against non-members, mainly developing countries. This trend has undermined the WTO, including its vital dispute resolution mechanism.
In the absence of the WTO's mediation of trade disputes and its capacity to deliver binding rulings, the world economy would likely be engulfed in retaliatory trade wars. For example, China recently lost an appeal at the WTO in a case brought by the US, EU and Japan to challenge China's restrictions on exports of rare earths. In the absence of the WTO's dispute resolution mechanism, the US and the other countries would probably have retaliated with their own restrictive measures.
For the sake of the global economy, the G20 must act decisively to restore faith in the global trading system and the future of the WTO.
How? At the Brisbane Summit, G20 members should commit to rolling back protectionist measures introduced since the global financial crisis, including non-tariff measures. The G20 should ask the WTO to monitor, report and make public progress with the rollback. The G20 chair should seek individual commitments from members for the early implementation of the Bali trade facilitation agreement. G20 members should not wait for the formal ratification of the agreement but include in their individual growth strategies the steps they are taking to facilitate trade. If one member does not make such a commitment, it should not stop action by others.
At the Brisbane Summit, G20 leaders should call on WTO trade ministers to conclude the Doha round and leaders should set the strategic direction for the WTO in a post-Doha world. This should be one that does not repeat the ambitious and wide-ranging Doha program with its 'nothing is agreed until everything is agreed' agenda. In future, negotiations should target specific areas and allow for plurilateral agreements, where WTO members may opt in. The discussions over the future of the WTO should be anchored around the governance and implications of global value chains.
As chair of the G20 in 2014, Australia has to ensure that the G20 is nimble, does not become preoccupied with a set agenda, and responds to challenges and risks that arise. One of those challenges is to save the WTO.
Image courtesy of the G20 Australia website.