G20 credibility depends on its trade agenda: Statement of the participants in the Third EU-Asia Roundtable

Bernard Hoekman, Camilo Umana Dajud

The evolution of the world trading system no longer supports the delivery of opportunities that follow from innovations in international business. This column is a statement by participants at a roundtable held in the EU Centre for Global Affairs, University of Adelaide, on 22 August 2014, which offers suggestions to improve global trade governance. Given that Australia is hosting the G20 Summit in November, the roundtable focused on actions that the G20 should consider to help attain its objective of boosting global growth performance.

This statement reflects the outcome of an annual trade policy meeting of research institutes in the EU and Asia-Pacific. The roundtable was held in the EU Centre for Global Affairs, University of Adelaide, on August 22, 2014. Given that Australia is hosting the G20 Summit in November, the roundtable focused on actions in the trade area that the G20 should consider to help attain its objective of boosting global growth performance.

The challenge

The evolution of the world trading system no longer supports the delivery of opportunities that follow from the innovations in international business which are well underway.

The world trading system, as distinct from the WTO, now operates along a spectrum from the WTO at one end to bilateral preferential trade agreements at the other. In the middle, the dissatisfaction with the bilaterals’ ability to deliver benefits and the lack of progress in the single undertaking WTO is leading to more multi-member or mega trade agreements. We are concerned about their effect on the role of the WTO, whose future is made more uncertain by diverting resources away from its negotiations.

The evolution of the trading system has taken on a life of its own. This situation leads to risks. First, the choice of membership and invitations to participate in various trade integration initiatives runs risks of exacerbating security issues. This is all the more the case because some of the world’s largest developing economies find themselves at the periphery of arrangements in which for the sake of long-run growth they should be at the core. Mega-regionals are not designed to be open agreements, as is reflected in some of their names, i.e. the Transatlantic Trade and Investment Partnership, and the Trans-Pacific Partnership.

Second, the system evolves in a way which is not sufficiently tied to the interests of international commerce for all businesses, large and small, and for all communities. The ways of doing business internationally are rapidly evolving to include:

more complex production processes which run across borders and require unprecedented interactions between investment and trade,

the growth of services in international trade, magnified by new types of international transactions including digital forms,

the continuing growth of the movement of people to provide services.

In particular, services have emerged as a vital source of global growth, given their significance in each G20 economy and beyond. Accounting for upwards of 70% of GDP, their role in facilitating trade in goods and their contributions to trade in their own right, including e-commerce is undeniable. Services trade and investment impediments, including the consequences of restrictive domestic regulation, are now poorly dealt with. The world trading system has failed to address these critical issues which involve different policymaking processes and a wide range of regulatory institutions in each economy.

In this situation, opportunities are lost for the G20 members to deliver on their growth agenda. Yet the parameters of the evolution of the trading system are in the hands of governments and the G20 in particular. Action in response to this situation is critical for G20 credibility. We make the following suggestions.

Act on trade facilitation

Overall, we retain a strong commitment to the WTO, because its principles are the ones that help deal with the risks we listed above. But our concern is the gap between it and the real world trading system. We recommend action to add value in the package of work in the WTO to help re-establish its position, and trade facilitation can make a significant contribution.

As noted, a feature of the international business systems is the emergence of production processes that run across borders. This is a world where exporters are also importers. Critical to their success is to cut the costs of moving goods and services around the world—a goal that benefits all trading economies as well as all business firms including small and medium enterprises, not just those which are part of integrated production processes.

The failure to implement the Bali Trade Facilitation Agreement, which aims to reduce the costs of moving goods across borders, is therefore a major setback. It is regrettable that that some WTO members did not keep the commitment to implement the agreement. The Director General of the WTO has indicated a new work program in that respect from September, for which the G20 Leaders should demonstrate their support.

Should the work on the Bali Trade Facilitation Agreement have stalled by the time of their meeting, the Leaders should endorse again their common view of the value of the agreement. Building on their own extensive commitments made in the G20 process on trade facilitation, they should

agree to implement the Bali Trade Facilitation Agreement as an open plurilateral agreement

reaffirm their own commitments made in Bali to the aid for trade programs related to trade facilitation

Launch a review of the world trading system

The increasing gap between the WTO and the world trading system also reinforces our view that work on new approaches in the system is overdue. This will be a long agenda and involve a significant amount of work.

Leaders should initiate this process by establishing a panel of eminent persons to provide assessments of ideas for system reform. Care must be taken that the panel not be dominated by forces, which have guided the evolution of the trading system to its current juncture. It is important that a new model of global public policymaking be established, one which is transparent, which has a specific brief to focus on changes that add to global welfare, and which is inclusive.

We suggest, therefore, that the panel could be asked to respond to references endorsed by leaders. Those references should be made public, the panel should be open to public submissions, and the panel should be invited to issue a draft report before their final recommendations. The product of their work should be practical, implementable and widely applicable. The work of the panel should be hosted by the G20 Chair each year. In this context, we propose three references for reporting in 2015.

The first is the consideration of models for plurilateral cooperation.

The use of this approach is already happening and, as in the case of free-trade agreements, it will be important to put principles around its use. The panel would consider conditions in which sub groups of the WTO members could make progress on particular issues without a linkage to other issues. They would consider what principles should apply, what issues are to be considered, how the interests of non-participants and how their accession would be managed, how any agreement would be implemented and how disputes would be settled. An obvious specific application of this enquiry is trade facilitation. Another is the treatment of the Trade in Services Agreement negotiations. These negotiations complement the Trade Facilitation Agreement and they are already underway outside the WTO but all these questions apply to them, and for which there is currently no answer.

The second is the consideration of trade costs.

The panel would define the trade costs and consider setting a benchmark for the reduction in trade costs, such as 5% over 5 years. The panel would also consider tasking international agencies with the requisite capacity to provide Secretariat and coordination functions and to monitor the impact of the implementation and the progress to the benchmark. Such a focus on cutting trade costs is different but consistent with trade facilitation. It would extend beyond improving customs procedures and centre attention on reducing trade-related costs more broadly by streamlining or removing other sets of regulations and improving port efficiency and services infrastructure. Addressing the costs related to the provision of services would add to the benefits of the issues being considered in the Trade Facilitation Agreement. Recent research finds that moving all countries from their current position to half the distance to global best practice on trade facilitation defined in this way would increase global GDP by 4.7% or $2.6 trillion.

The third is a set of dialogues of regulators.

Regulations—norms on goods, regulations for designing services markets – are critical issues in the modern business system. The WTO has no comparative advantage in these complicated matters. The G20 leaders would ask the panel to design a series of dialogues of regulators to resolve this dilemma. Advice is important on their design since elsewhere, for example in dialogues of finance regulators, the outcome of a significant effort has been little impact. The brief to the regulators is critical. They would have a mandate to work for the welfare of domestic consumers, to consider methods of dealing with regulatory differences across their respective domains and to provide ideas on possible “co-governance” across economies.

Roundtable participants

Prof. Taeho Bark, Graduate School of International Studies, Seoul National University

Dr. He Fan, Deputy Director, Institute of World Economics and Politics, Chinese Academy of Social Sciences

Prof. Christopher Findlay AM, Executive Dean, Faculty of the Professions, University of Adelaide

Prof. Lingyun Gao, Institute of World Economics and Politics, Chinese Academy of Social Sciences

Prof. Bernard Hoekman, Global Governance Programme, European University Institute

Dr. Kenichi Kawasaki, Senior Fellow, National Graduate Institute for Policy Studies

Dr. Heungchong Kim, Vice President, Korea Institute for International Economic Policy

Hosuk Lee-Makiyama, Director, European Centre for International Political Economy

Prof. Patrick Messerlin, Sciences Po Paris

David Morfesi, Director, EU Centre for Global Affairs, University of Adelaide

Dr. Sebastien Miroudot, Senior Trade Policy Analyst, OECD

Prof. Yueju Ni, Institute of World Economics and Politics, Chinese Academy of Social Sciences

Prof. Innwon Park, Division of International Studies, Korea University

Prof. Yung Chul Park, Distinguished Professor, Division of International Studies, Korea University

Prof. Richard Pomfret, Professor of Economics, University of Adelaide

Dr. Ma Tao, Senior Research Fellow, IWEP, CASS

Prof. Shujiro Urata, Professor of Economics, Graduate School of Asia-Pacific Studies, Waseda University