Global Governance

What are the challenges and opportunities for the G20?

This article is published in collaboration with ICTSD.
U.S. President Barack Obama (C) gestures as he meets with European leaders to discuss the situation in Ukraine, at the G20 in Brisbane November 16, 2014. Pictures are (L-R) Spanish Prime Minister Mariano Rajoy, Italian Prime Minister Matteo Renzi, French President Francois Hollande, Obama, British Prime Minister David Cameron, German Chancellor Angela Merkel, European Council President Herman Van Rompuy and European Commission President Jean-Claude Juncker.

Since the G20 was formed in the aftermath of the 2008 financial crisis, its development can be divided into two phases, writes Zhenyu Sun. Image: REUTERS

Zhenyu Sun
Chairman, China Society for World Trade Organization Studies
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Global Governance

Established in the aftermath of the 2008 global financial crisis, the G20 Summit has played an important role in global economic governance. Its development can be divided into two phases.

The first phase includes the first three Summits: the Washington Summit (November, 2008), the London Summit (April, 2009) and the Pittsburgh Summit (September, 2009). Significant achievements were realised in this period, with G20 leaders devoting themselves to combating the global financial crisis. Priority was given to joint efforts to stimulate growth, enhance financial regulation, increase bailout money and fight trade protectionism. At the London Summit, G20 leaders agreed to double the funds available to the IMF to $750 billion. At the Pittsburgh Summit, G20 leaders developed a “Framework for Strong, Sustainable and Balanced Growth”, and set up clear targets for structural reform in the international financial institutions – namely, a gradual shift of quota share and voting power towards developing countries in the IMF and the World Bank.

The first three Summits have served to enhance the coordination of international macro-economic policy, and fiscal and monetary policies. By including more countries in this macro-economic coordination, the G20 played a crucial role in stimulating and restoring the world economy.

The second phase ranges from the Toronto Summit (2010) up to present day. During this period, G20 leaders extended the scope of issues on the agenda to include finance, trade, structural reform, anti-corruption, development, energy security, green growth, and many other topics. The Summits proceeded in a comparatively smooth manner. Yet, as Member States started individual economic reform and restructuring, differences emerged and breakthroughs on major issues became more difficult.

However, there has been some progress. At the 2010 Toronto Summit, Developed Members of the G20 pledged to cut fiscal deficit in half by 2013 in response to the European debt crisis. In the same year, at the Seoul Summit held in November, development was named as a major topic of the G20 Summit for the first time. At the Summit, a multi-year action plan was produced covering nine sectors, including infrastructure and human resource development. At the Brisbane Summit (2014), G20 leaders pledged to add an extra 2 percentage points to global GDP growth by 2018.

Each of these Summits has seen state leaders calling for the completion of the Doha Round, which would promote trade liberalisation, and boost growth and employment. In particular, at the 2013 Saint Petersburg Summit and the 2015 Antalya Summit, the G20 leaders provided guidance in facilitating the conclusion of the early harvest agreements at MC9 in Bali and MC10 in Nairobi, which helped build confidence in the prospect of concluding the Doha Round among Members.

Challenges and Opportunities for the G20

Since international organisations have served as places to balance national interests among Members ever since WWII, it all boils down to how responsibilities and rights are distributed in terms of global public goods. As Member States are at various development stages, their challenges vary greatly as well, and hence carry different appeals in international organisations.

The G20 Summit is unique in that it has no conventions, no charter, no permanent secretariat and no international legal status. It is a summit meeting attended by heads of states where the host country reserves the greatest sway over the agenda and settings. One major challenge now facing the G20 is that not all resolutions passed at the G20 Summit are fully implemented. This is partly due to under-representation: of the 200 countries worldwide, only 10% are included in G20 decision-making, thereby denting the organisation’s authority. G20 authority is also weakened since some major members sometimes fail to fulfil their commitments (e.g. the delay of the IMF reform due to resistance from the U.S. Congress).

In spite of all of these limitations, the founding of the G20 itself signifies an end to the era when developed countries dominated global economic governance. By raising their voices and building on their influence, emerging economies, the BRICS in particular, will be able to steer world economy towards a more just, balanced and rational future.

How Can the 2016 Hangzhou Summit Contribute to Global Trade and Economy?

The 2016 G20 Summit is set to be held in Hangzhou, China in September. It is the first time that China will host the G20 Summit, a feat that will open up a great opportunity for China to “offer more Chinese solutions, contribute Chinese wisdom and provide the international community with more public goods,” as President Xi Jinping has stated. At the G20 Hangzhou Summit, state leaders will continue to coordinate financial and macro-economic policies so as to expand on common ground in financial regulations. Meanwhile, the Summit will shed light on how the G20 can be further institutionalised and how its execution of the Agreements reached can be better enforced. In the field of trade and economic cooperation, I believe that priority should be given to the following areas:

First, efforts should be made to conclude the Doha Round before starting to negotiate “new issues”.

I believe that, as the largest trader worldwide, China will engage G20 leaders to work on the important issues, such as the Doha Round negotiations, so as to send out a clear political message. The trade ministers’ meeting in Nairobi last year succeeded in dealing with the agricultural export competition issue, agricultural stockpile in developing countries, as well as LDC issues. But still many issues remain to be concluded. The majority of WTO Members are against the idea of abandoning the Doha Round to deal with the “new issues”. The credibility of the WTO as an international organisation is at stake if the Doha Ministers’ mandate to give priority to addressing developing countries’ concerns is compromised. Therefore the leaders of the G20 should give clear signals that the promise on behalf of the ministers, made to developing countries at Doha, should be kept.

The G20 leaders should encourage WTO Members to refocus on the multilateral process and work out a programme for the next stage. As a first step, Members could identify the “low hanging fruits” such as environmental goods and DSU, as well as some issues of importance such as NAMA and services. The negotiations of NAMA and services should take into account the progress in the plurilateral negotiations on EGA and TiSA. The agricultural domestic support and market access are more sensitive and complicated, and will have to be dealt with in a balanced way with S&D and SSM for developing countries.

As for the new issues such as investment, e-commerce and SMEs, the G20 leaders may prefer to put forward proposals for WTO Members to initiate some kind of discussion, while the formal negotiations might best be commenced immediately after the conclusion of the Doha Round.

Second, under the grand vision of “One Belt, One Road”, efforts should be made to facilitate investment, as well as cooperation in infrastructure and real economy.

Investment was first included in the G20 agenda at the 2014 Brisbane Summit. Boosting growth through expanded investments was especially underlined at the Antalya Summit last year. More investment from Member States looks imperative in order for an extra 2 percentage points of global GDP growth to be aggregated by 2018. The current challenge for investment is a lack of appropriate projects. There are acute infrastructure shortages in Africa, Middle East, South Asia, Latin America and even North America. However, infrastructure projects rarely yield quick economic returns, making them unlikely without support from governments and international financial institutions. The G20 Hangzhou Summit should encourage international and regional financial institutions to join together with local governments and local banks to finance infrastructure projects. At the same time, governments of both developed and developing countries should provide necessary services and encourage their construction companies to explore opportunities for closer cooperation in this area.

Third, collective efforts should be made to promote development.

At the Millennium Summit of the United Nations in September, 2000, the Millennium Development Goals (MDGs)were adopted by world leaders to combat poverty, hunger, diseases, illiteracy, environment deterioration and gender inequality. The potential fulfilment of the post-2015 MDGs is conditional on the facilitation of stable, equitable and inclusive growth.

The major challenges for meeting the post-2015 MDGs lie in the huge gap between the aid funds available and those promised. In addition, global downward pressure and trade protectionism have both become obstacles for the realisation of the MDGs.

Relative to other economic and financial issues, development is of far-reaching significance and concerns the majority of developing countries. The G20 should strengthen its ties with the UN to give the organisation and all of its relevant institutions full agency in promoting development. Also, the G20 needs to enhance the role of international financial institutions towards the end of fueling growth and reducing poverty. G20 leaders need to urge developed countries to meet their international obligations to donate 0.7% of GDP as aid funds. Also, Duty-Free and Quota-Free treatment should be granted to LDCs, and the issues related to rules of origin should be properly addressed as soon as possible. Redoubled efforts are also needed in fields like infrastructure and food security so as to address the North-South imbalance.

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