This weekend, Hangzhou, a Chinese city famous for the Alibaba headquarters, kites and silk products, will host the latest G20 Summit.
The hope is that the decisions made at the meeting will send the global economy soaring like those kites for which the city is known. But with geopolitical tensions and terrorist attacks still threatening to blow things off course, leaders will have their work cut out.
To make things tougher, the starting point is not great. Global trade has plateaued. Export volumes have dropped in emerging Asia, Japan and the United States. And FDI flows are expected to decline in what’s left of 2016.
Whether or not it can be achieved will largely depend on if and how leaders can pick up and strengthen their work and commitment in trade and investment cooperation, in addition to two existing pillars of fiscal and finance cooperation. So what must they do?
Trade and investment – the key to global economic growth
They should start by endorsing the terms of reference of the G20 trade and investment working group (TIWG), and define it as a sustainable platform for trade and investment cooperation.
Trade and investment have been two important engines of global economic growth. But throughout G20 history, trade and investment cooperation has been rather ad hoc and intermittent – surprising given its significance to the world economy.
There are positive signs. For example, all G20 members have actively participated in three TIWG meetings over the past seven months, with support from the B20 and T20, as well as key international organizations. Thanks to the TIWG’s preparation work, G20 trade ministers made a joint statement in July – the first trade ministers’ official statement in G20 history – which encompassed three policy documents on global trade growth strategy, investment policy principles and working mechanism, and two consensuses about supporting multilateral trading system and strengthening inclusive global value chains.
Active participation of G20 members in the TIWG shows the existence of a consensus on the value and potential of a trade and investment working mechanism. This has also proven to be effective in helping trade ministers reach agreements on various important issues.
Leaders should recognize this consensus and instruct members to sustain this TIWG working scheme to promote trade and investment cooperation as a key pillar for the G20 in the future.
As a second step, leaders at the G20 Summit should inject a stronger political impetus for trade and investment cooperation by highlighting a few key principles and frameworks.
Trade ministers have made progress in agreeing on a couple of substantial issues, including plans to combat trade restrictive measures, to increase the coherence of trade and investment policies, and to enhance the transparency of regional trade agreements. If leaders could give further signals in some of these important areas, it will make a positive contribution to invigorating global economic growth and employment.
It is worth noting here that the G20 has for the first time agreed on a set of principles for investment policy. From the very beginning, there was a big gap in this area among members. Developed economies called for policies that included open, transparent and non-discriminatory principles. Developing countries put more weight on the development dimension of investment policies, insisting on a bigger domestic policy space.
After more than 10 rounds of negotiations, trade ministers reached an agreement on nine principles for investment policy. Although the work done towards these non-binding norms may look like baby steps, it lays a good foundation for future cooperation on investment. More importantly, it shows the G20 is a valuable framework that can facilitate consensus-building and deliver forward-looking outcomes.
Leaders can also draw lessons from the TIWG achievements and bring these into future G20 presidencies.
One important lesson will be to ensure there are regular interactions between G20 officials and independent, specialized experts. According to a comment made by a senior official, many TIWG outcomes have stemmed from the G20 representatives who participated in a workshop organized by ICTSD and T20 in Nanjing in April 2016 prior to the second TIWG meeting.
There are two main advantages of such interactions between G20 officials and independent experts. The first is that they bring and generate independent and global views. Participating officials and experts do not represent their countries or institutions; instead, they are global citizens discussing possible trade and investment cooperation under the G20 in a free and non-negotiating environment. This helps G20 officials prepare for the TIWG with a clear global picture in addition to their own countries’ perspective.
The second advantage is that these interactions provide specialized expertise. There have been so many new developments in such a short space of time in the area of trade and investment, which means there’s a real need for a safe space for mutual learning between officials and experts. The experience in Nanjing shows that peer learning not only sharpens participants’ own saws, but also builds synergies that lead to some positive proposals. In short, regular interactive dialogues among G20 representatives and independent experts could help the depth and length of trade and investment cooperation.
The G20 is at a critical moment: it is in the process of transforming itself from a crisis management scheme to a system for long-term economic governance. There has therefore never been a more important time for a sustainable platform for trade and investment cooperation.
If G20 leaders at Hangzhou can endorse this trade and investment working group, send a clear political signal of support for some of the key principles, and encourage regular dialogue between G20 officials and independent experts, it will stabilize the trembling kite that is the world economy, ensuring it can fly high.