How can the G20 support the multilateral trading system? China’s contribution

by Xinquan Tu, Naijiang Wang, 
February 2016

Since the introduction of the institution of G20 summits in 2008, these talks have emerged as a new global governance mechanism out of a crisis-management emergency, serving to carry forward the G20 as the hub of global economic governance. Trade and investment issues have growing importance in these changes. The issues of trade governance were initially raised in the G20 in an effort to stand against trade protectionism. As a result, the WTO did well in avoiding trade protectionism after the financial crisis. But the Doha Round has not reached a successful close, partly due to failure on behalf of the G20 to provide stronger political guidance.

In 2016, China will chair the G20 summit. Since joining the WTO in 2001, China has become one of the most important members in the WTO and in global economic governance. This is the first time that China hosts a high-level forum of global governance. In order to show China’s responsibility as the world’s biggest trader of goods, China should put forward positive initiatives, as well as constructive and feasible policy proposals to support the multilateral trading system at this summit.

Previous G20 meetings have regularly stood in favour of the multilateral trading system since 2008. In general, this support of the multilateral trading system is reflected in four aspects. First, the G20 stood against trade protectionism and strengthened the WTO’s function, which extended the existing moratorium on new trade restrictions and protectionist measures. Tariffs proliferated and trade remedy measures such as anti-dumping and countervailing duties reached a peak in 2009. But the frequency of these measures declined sharply in the next few years, so they did not have much negative impact on economic recovery. From a practical standpoint, the G20 had reached the expected target in controlling trade protectionism and preventing trade war.

Second, in support of the Doha Round, the G20 pledged assistance to the WTO with the objective of achieving positive results as early as possible at each summit. Moreover, the G20 provided guidance for ministerial talks and even made a clear timetable. But the leaders of the G20 did not extend the discussions on these issues further. All the commitments made by the G20 were principled and lacked explicit roadmaps and schemes. Insufficient attention to the Doha Round and trade issues meant that the G20 hardly reached any substantial achievements in promoting the Doha Round.

Thirdly, the issue of coordinating bilateral, regional and plurilateral trade agreements was mentioned in Brisbane summit and Antalya summit. The G20 no longer considered the WTO as the only, most important approach to achieve liberalization of trade. Bilateral, regional and plurilateral trade agreements are feasible options to trade liberalization provided that other trade agreements are coordinated and compatible with the WTO.

The fourth aspect is to support basic functions of the WTO. The G20 emphasized its support for the WTO’s work, such as dispute settlement mechanism, at the Mexico summit. At the Brisbane summit, the G20 also proposed Aid for Trade plans.

In general, the G20 has always granted attention to the WTO. The value of the WTO has also been acknowledged by the G20 leaders. As the G20 gradually shifts to a regular global economic governance mechanism, it should pay more attention to trade and investment issues. Particularly in recent years, the sharp decline in trade growth has become an enormous potential crisis to the development of the world economy. However, the multilateral trading system is ignored by certain core WTO members, including the United States. They exhibit a preference for huge regional trade agreements (RTAs), which presents the G20 with more challenges in promoting the multilateral trading system. China, the largest beneficiary of the WTO and largest trading country, will chair the G20 summit in 2016. To ensure the success of the G20 meeting and help with the development of the multilateral trading system, China should have courage and wisdom to cope with these issues.

The liberalization of trade and investment is a worthwhile goal for China to pursue, because China believes that such liberalization will promote economic development. But, unlike developed countries, China moves beyond simply emphasizing liberalization and concentrates more on balancing development and opening up, as China considers liberalization as a means to development rather than a goal in of itself. Moreover, China considers the multilateral trading system to be the best way to promote global trade and investment. Hence, China stresses other channels like regional and plurilateral trade agreements as supplements for the WTO rather than potential substitutions.

Thus, we argue that China certainly should continue backing the multilateral trading system, and make every effort to promote the undertaking of feasible commitments by G20 leaders. President Xi has already stated the important issues of the G20 summit in China. One of the four key issues in his speech is “to promote dynamic global trade and investment,” which essentially clarified China’s working orientation and its standing on the multilateral trading system. The G20 members will fully discuss on this basis and put forward policy proposals. Finally these policy suggestions will be incorporated into the summit announcement, communiqué and other documents from the Investment and Trade Working Group files. Therefore, in order to strengthen the practicality and comprehensiveness of the multilateral trading system, the G20 could make a further clarification to support it. Based on the above analysis, we think China could raise the following policy proposals at the 2016 G20 summit to promote the multilateral trading system:

First, the central position of the WTO on global trade governance should be stressed. Although former G20 summits had similar statements, it is necessary to bring forward such statements under the signing of the TPP. As an international organization driven by its members, the WTO cannot reach an achievement without its members’ support. But the G20 members already diverge on this issue. The Nairobi Ministerial Declaration made two different statements on the Doha Round for two group members, which further highlights the difficulties and problems faced by the WTO. Although declarations made by the G20 do not have binding force, there is still great importance in acquiring political endorsement from the WTO core members.

Second, the G20 should hold a clearer viewpoint on the relationship between the different negotiation routes of bilateral, regional and plurilateral negotiations. It is also required to set up guiding principles to coordinate bilateral, regional and plurilateral trade agreements. We should clarify the central position of the WTO in the world trading system, and provide more resources and a mandate for the WTO Secretariat for tracking and evaluating the content and effect of regional and plurilateral negotiations. Then, we can focus on negotiating results beyond the WTO rules and preventing the regional trade agreements from damaging other WTO members’ necessary benefits under the WTO framework. But we should also respect the rights of WTO members to launch regional negotiations because the RTAs contribute towards exploring new fields and promoting liberalization of trade and investment. Meanwhile, RTAs are required to provide publicly available negotiating text as far as possible and officially notify WTO in a timely manner. We should view plurilateral negotiations as the key supplements to the multilateral trading system in putting forward negotiations for new or special issues. But launching a plurilateral negotiation should incorporate the endorsement of all WTO members and, thus, the negotiation should be opened up to all members. The boundaries, procedures and principles of plurilateral negotiations should be clarified. Moreover, the WTO Secretariat needs to participate in the whole process of plurilateral negotiations and require that the negotiations keep other members informed. The results of the negotiations should be regulated by the dispute settlement mechanism.

Third, the G20 should strengthen its support for the WTO’s routine functions, particularly seeking to improve the WTO’s dispute settlement mechanism. The WTO’s daily work has been affected by the stalled Doha Development Round negotiations. The members’ interest in and support for the WTO have declined, which meant that, as a result, some WTO departments faced the shortages of resources, funds and personnel. If we allow the problem to continue unchecked, it will result in the further undermining of the WTO’s value and authority. Therefore, China should advise the G20 members to raise their resource input and capital budget for the WTO, especially adding support for the WTO’s dispute settlement mechanism. The G20 can help to create consensus as soon as possible to increase the staff size of the appeal body and the legal services agency. The members also need to cultivate talented personnel who are specialized in the dispute settlement mechanism, especially in trying to help developing countries. On this issue, China could take a lead on an initiative to donate a certain amount of funds towards strengthening the WTO’s dispute settlement mechanism.

Fourth, the G20 should continue standing against trade and investment protectionism. Standing against protectionism is a proper theme of WTO, but the political commitment made by the G20 leaders against protectionism still has significant value. In particular, it should be emphasized that the WTO members shall follow the WTO’s rules including the principles of non-discrimination and trade liberalization. The 2016 granting of China’s market-economy status is a key point. Although some countries have different legal interpretations on that issue, discriminatory anti-dumping against China undoubtedly runs contrary to the spirit of the WTO. In the G20 summit, China can urge concerned members to follow the spirit of the WTO rather than to find excuses in some clauses or in words on paper.

Fifth, the G20 could encourage the WTO to become a more important platform for discussing new trade issues. Nowadays, a crucial reason for many WTO members’ turn to plurilateral negotiations is that these countries believe they cannot start new negotiations under the WTO framework before the conclusion of the Doha Round. In actuality, this is a false perception because if all or most WTO members have consensus, the WTO can also discuss or even launch negotiations surrounding new issues without ending the Doha Round. The completion of ITA-II and negotiations on environmental goods are typical examples. However, in order to remove the worries among the WTO members, especially among developing countries, the WTO needs to further clarify procedures under the WTO framework to launch plurilateral negotiations on specific issues. Nevertheless, the obstruction from other WTO members will not work because some countries can only launch plurilateral negotiations outside the WTO if they are willing to seek a negotiation such as TISA negotiation. The results of these kinds of plurilateral negotiations could represent an even greater disadvantage for such excluded countries because, where even the WTO Secretariat is completely excluded from the negotiation, these excluded countries can know nothing about the contents, progress and impact of the negotiations. China has already shown a more open and inclusive attitude on this issue. Hence, China should embrace the opportunity presented by the G20 and encourage other developing countries to discuss and negotiate new issues under the WTO framework. The key point is to keep the WTO as the main channel of global trade governance.

Xinquan Tu is Deputy Director of the China Institute for WTO Studies at the University of International Business and Economics, Beijing (UIBE). Naijiang Wang is a PhD Student at UIBE.

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