The G20 summit took place over September 4-5 in Hangzhou, China amid an increasingly hostile international economic environment: The global economy is suffering from weak economic growth and a slowdown in global trade and investment. The IMF warned in its World Economic Outlook that the world economy was growing “too slow for too long”.[1] In this negative global climate, the G20 as a group needs to prove itself as the premier forum for international economic cooperation and give clear answers to these long-term economic challenges.
The Chinese presidency put four ‘I’s’ at the centre of the agenda: The G20 was aimed to make progress “towards an Innovative, Invigorated, Interconnected and Inclusive World Economy”. This included (new) measures to increase growth, ways to enhance trade and investment and achieve inclusive growth and development.[2] Germany will take over the G20 presidency at the end of the year under the guiding principles of stability, sustainability and responsibility. What has been accomplished and what are the main economic issues that it will need to address?
Devising new growth plans
“Growth is still weaker than desirable.” This statement is written in the opening paragraph of the G20 leaders’ communiqué from Hangzhou. In 2014 in Brisbane, leaders had promised to introduce national growth plans with the aim of boosting by 2018 the group’s overall GDP by more than 2 per cent above the planned trajectory. However, according to the IMF summit note, not much had happened in this regard so that the 2018 target will likely be missed.
Christine Lagarde, IMF managing director, therefore warned that forceful action was now needed on growth.[3] The G20 leaders promised swift and full implementation of the growth plans and introduced a new ‘Hangzhou Action Plan’. But the actual outcome of these promises remains unclear; the German presidency must increase the peer accountability of these reforms.
China also stressed the importance of new paths for growth. It emphasized structural reforms, as well as innovation and digitalization. There is a lot of common ground on these issues between the Chinese and German presidencies. Germany has been advocating structural reforms for a long time, being of the opinion that monetary policies have largely been exhausted. Innovation and digitalization of the economy as a way to increase growth and productivity also rank high on the list of German priorities. In 2017, during the German presidency, there will, for the first time, be a meeting of the G20 ministers responsible for the digital economy.
Trade and investment as fuel
Trade and investment are important for growth. But since 2012, the global trade volume has grown by 3% annually, only half the growth rate before the financial crisis. Global protectionism has increased too: the latest Global Trade Alert stressed that in 2015 the resort to protectionism was 50% up in comparison to 2014.[4]
The G20 has failed on trade issues. Despite yearly promises (including Hangzhou) to roll back existing protectionist measures and to refrain from new ones, G20 members were responsible for 81% of them in 2015.[5] Furthermore, the countless pledges to successfully conclude the Doha Development Round have proven fruitless. In this regard, China’s decision to establish a Working Group on Trade and Investment has been long overdue.
What needs to be done?
First, the Chinese and the German presidencies need to make sure that the moratorium on protectionist measures is more than just lip service. Real action by the G20 members and a stronger peer review on this issue are of crucial importance.
Second, China and Germany need to send a clear message that an open multilateral trading system is important. The credibility of the WTO is at stake. A clear pathway is needed on the way forward for the Doha Round. All major trade players are at the G20 table and they must show flexibility in crucial issues. The G20 must also look for common ground on new trade issues.
Third, the G20 needs to deal with growing regionalism. Transatlantic Trade and Investment Partnership, Trans Pacific Partnership and Regional Comprehensive Economic Partnership, despite recent setbacks, have the potential to shape the global trading order. The G20 members need to ensure that these agreements are WTO compatible, inclusive, open, and serve as stepping stones for multilateral rules.
Fourth, the G20 needs to craft a new and positive trade agenda. In many industrialised countries there is a rising skepticism about globalisation and the benefits of free trade, which is coupled with growing populist tendencies. The ‘Brexit’ decision of the British public is one expression of these developments. The G20, as the leading group of systemically important countries, needs to address these fears and make a convincing case for free trade and globalisation. Hangzhou took this issue on the agenda; Germany must follow up on it.
Fifth, the G20 also needs to deal with investment matters. Foreign investment is barely regulated on a global level. Instead, we have a fragmented system of bilateral and regional investment treaties. An important first step to harmonise this system will be the non-binding ‘G20 Principles for Global Investment’[6] which were endorsed by the G20 trade ministers in July 2016. They call for open, non-discriminatory, transparent and predictable conditions for investment while reaffirming the right to regulate investment for legitimate public policy purposes. These principles are in clear view and the German presidency needs to develop them further.
Making it inclusive
The Hangzhou statement stressed that growth needed to be strong, sustainable and balanced, but also inclusive for all people and all countries. In this regard, China made clear that sustainable development was important.[7] In the final communiqué, the G20 reaffirmed its commitment to implement the 2030 UN Agenda for Sustainable Development and initiated the G20 Action Plan on the 2030 Agenda. Germany, as one of the leading countries with regard to sustainable policies, must now provide further tangible results during its presidency. This includes the issue of sustainable growth in connection with social inclusiveness.
Germany will put economic, trade, and financial issues high on the G20 agenda in 2017. In addition, the German chancellor Merkel wants to deal with climate change, energy, global health, and migration.[8] These issues are important. But the German G20 presidency needs to have clear deliverables on (sustainable) growth and development, as well as on trade and investment issues to maintain its legitimacy as the central forum for global economic cooperation.
Dr. Claudia Schmucker is Head of the Globalisation and World Economy Programme at the German Council on Foreign Relations, Berlin.
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References
[1] IMF, World Economic Outlook: Too Slow for Too Long, IMF, April 2016, <www.imf.org/external/pubs/ft/weo/2016/01/>.
[2] G20 Leaders’ Communiqué: Hangzhou Summit, September 5, 2016, <www.g20.utoronto.ca/2016/160905-communique.html>.
[3] ‘Lagarde Urges Action to Deliver on G20’s Hangzhou Commitments’, IMF Press Release No. 16/394, September 5, 2016, <www.imf.org/en/News/Articles/2016/09/05/pr16394-Lagarde-Urges-Action-to-Deliver-on-G20-Hangzhou-Commitments>.
[4] Simon J. Evenett and Johannes Fritz, ‘Global Trade Plateaus, the 19th Global Trade Alert Report’, CEPR Press, July 2016, <www.globaltradealert.org/sites/default/files/GTA%2019%20-%20World%20Trade%20Plateaus_0.pdf>.
[5] Ibid.
[6] G20, ‘Annex III: G20 Guiding Principles for Global Investment Policymaking’, July 10, 2016, <www.g20.utoronto.ca/2016/160710-trade-annex3.html>.
[7] G20 Leaders’ Communiqué: Hangzhou Summit, September 5, 2016, <www.g20.utoronto.ca/2016/160905-communique.html>.
[8] Bundesregierung, ‘Deutsche G20-Präsidentschaft 2017: Inhaltliche Vorbereitungen laufen’, August 5, 2016, <www.bundesregierung.de/Content/DE/Artikel/2016/08/2016-08-01-themen-der-g20-praesidentschaft.html;jsessionid=0A70A31F35716F0882461B182F00B44A.s7t1?nn=393164>.