Can the G20 summit pave a path for the future of multilateral trade?
Since it first convened two decades ago, the Group of 20 summit has been regarded as a forum for developed and developing countries to take collective action against economic uncertainties.
Now, as Japan prepares to host the summit for the first time, multilateralism and global collectivism have faced headwinds, especially regarding the backbone of economic growth: trade.
The United States is retreating from its role as a champion of multilateral trade as populism and nationalism surge. The U.S. and China are locked in a battle over trade and have imposed tariffs on each other’s goods. The World Trade Organization is failing to keep up with rapid technological changes, critics say, bringing its effectiveness into question.
Amid increasing volatility, the G20 summit in the city of Osaka later this week may turn out to be one of the most consequential moments for the future of multilateral trade, which could have serious repercussions on the economic landscape for decades to come.
“By retreating from multilateral engagement and leadership, the United States is forfeiting the market access benefits from trade agreements concluded by others,” Wendy Cutler, a former United States trade representative official and vice president of Asia Society Policy Institute in Washington, D.C., said in an email.
“Moreover, the U.S. is losing its seat at the table to make the rules and set the standards for how trade and investment is and will be conducted."
What’s on the agenda
For sure, the most attention-grabbing headline emanating from Osaka may be about the bilateral summit between U.S. President Donald Trump and Chinese President Xi Jinping amid the raging trade war between the largest and second-largest economies of the world.
And yet, aside from the sideline bilateral meetings, the focus of the Osaka G20 will no doubt be on trade. There, Japan and other countries will seek to make progress in some areas pertaining to multilateral trade. One of the agendas is WTO modernization — something Japan has been passionate about.
The WTO serves as an administrator of trade agreements and an adjudicator in trade disputes. It aims to promote global trade by eliminating tariff and nontariff barriers and establishing rules on trade practices such as intellectual property rights.
For years, though, developed and developing countries have been at odds over trade rules and practices. Developing countries want tariffs and subsidies on agricultural products slashed in richer countries, whereas developed countries have been pressing developing countries to liberalize their service sectors. Additionally, issues such as digital trade and state-owned enterprises that have been “not considered in earlier rounds have emerged,” the U.S. Congressional Research Service noted in a report released in March.
The U.S. is particularly frustrated with the WTO’s dispute settlement system — which the Trump administration claims is meddling in America’s internal affairs. The country has been hindering bids to appoint judges to the Appellate Body, which effectively eviscerated its function.
“Simply put, we have not been treated fairly by the World Trade Organization,” Trump said in November 2017. He has hinted the U.S. may withdraw from the WTO.
At the G20 trade and digital economy ministerial meeting earlier this month, the ministers agreed in the communique to “undertake necessary WTO reform with a sense of urgency” and “confirm the importance of the role of the WTO in generating opportunities and addressing various challenges.” Communiques require consensus but are nonbinding.
Fukunari Kimura, a Keio University economist and a Research Institute of Economy, Trade and Industry consulting fellow, said the ministerial meeting communique added momentum for the Osaka summit regarding WTO reform efforts. RIETI is the research arm of Japan’s trade ministry.
Digital trade is another issue that will be high on the agenda. Despite the quickly rising popularity of e-commerce, there hasn’t been clear, universal regulation. Even though current multilateral trade rules are applied to some aspects of e-commerce issues, they are not as thorough and regarded as outdated, the Congressional Research Service report noted.
Kimura said countries still have differing views of data and privacy. The European Union, where expectation of privacy is high, regards data as a domestic economic matter while the United States and Japan see it as a part of trade.
Assault on multilateralism
For years, world leaders had pushed for multilateral trade at G20 summit. In communiques, they had been able to unequivocally take a stand against protectionist measures.
At the same time, the world also encountered grievances toward multilateralism. Countries were frustrated at the glacial pace of WTO reforms for years. Even as free-trade agreements flourished around the globe, there was almost always pushback on each deal made from respective domestic forces seeking to protect their industries.
When Trump was elected in 2016, he utilized the backlash against globalism to his advantage. On his first full weekday as president, Trump pulled the U.S. out of the Trans-Pacific Partnership, a landmark trade deal that would have covered 40 percent of the world economy.
Fulfilling his campaign promise, Trump had declared the TPP “was a very bad deal for the United States” and that he prefers bilateral deals.
“Multilateralism has become a bad word for the (Trump) administration,” Cutler said.”The view is that the U.S. has lost over the years through its engagement in the international trading system. With the United States in retreat, a vacuum has been created.”
As acting deputy U.S. trade representative, Cutler was responsible for trade deals and negotiations in the Asia-Pacific region, including the TPP. Now vice president of the Asia Society Policy Institute think tank in Washington, D.C., she said Asia-Pacific countries, particularly trade-dependent and “middle power” ones, must step up and lead reform efforts in trade issues.
After the collapse of the original TPP, the rest of the signatories drew up its successor, the TPP-11, or the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Although it only covers a far lower percentage in trade than the original TPP, the new deal went into effect last December.
“The region has benefited enormously from the rules-based trading system, and have the most to lose if it unravels,” Cutler said.
Japan’s leadership role
Riley Walters, a policy analyst on Asian economy and technology at the Heritage Foundation, gave credit to Prime Minister Shinzo Abe on trade and data governance. Still, he added, Japan assuming leadership is not the same as the U.S. doing so, simply because of the size of its economy.
Koji Tomita, a Foreign Ministry official representing Japan at the G20 summit, said at a conference last month that regaining public confidence in multilateralism is one of the summit’s goals.
“In the light of growing (economic) downturn risks, it is obvious that the Osaka summit has to focus on this condition,” Tomita said. “But the challenge is that we have to do so against the (backdrop) of declining public confidence in multilateralism.”
The U.S. shift away from multilateralism may continue beyond the Trump presidency, says Mary Lovely, a Syracuse University economist focusing on U.S.-China relations and a senior fellow at the Peterson Institute for International Economics.
Pointing out that Democrats have not distanced themselves from Trump on China, Lovely said it isn’t clear how much support there is within the Democratic Party for a return to multilateralism and a support for free trade.
Shujiro Urata, an economist at Waseda University Graduate School of Asia-Pacific Studies, said Japan should be forceful in opposing protectionism through a chair’s statement, which does not require consensus, in the Osaka summit.
“If Prime Minister Abe is a truly good friend of President Trump, I think (Abe) should explain scrupulously and patiently why protectionism is wrong to Trump,” instead of worrying about U.S. reactions, Urata said.
It is expected that trade-related topics will make a lot of headlines, including the potential meeting with Trump and Xi.
But the G20 Osaka summit might come to something of a futile end if leaders focus too much on it, said Naoyuki Yoshino, dean of the Asian Development Bank Institute, a Tokyo-based think tank.
Rather, they should seek to reach consensus on other areas like data governance and the environment, he said.