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Getting the G-20 Behind More Effective Global Trade Rules

Group of 20 Leaders Need to Make Their Rhetoric on Global Trade a Reality

SOURCE: AP/ Charles Dharapak

President Barack Obama talks with World Trade Organization Secretary General Pascal Lamy, who warns that “the discrepancy between the commitments taken [by the G-20 countries to avoid protectionism] and the actions on the ground add to credibility concerns.”

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President Barack Obama will head to Mexico next week to meet with the heads of the Group of 20 leading developed and developing nations. On the agenda will be many issues, ranging from the cascading Eurozone crisis, slowing growth in China, an increasingly sluggish global economy, and the usual pledges by the G-20 leaders to avoid trade protectionism.

On many of these issues the G-20 will prove to be a valuable forum for discussion. But if the leaders at the group’s seventh meeting since 2008 are serious about playing a constructive role in promoting trade openness, avoiding protectionism, and reinforcing trust in the multilateral trading system then they must live up to their prior commitments and strengthen the ability of the World Trade Organization, or WTO, to act as a steward of global trading rules more effectively.

Sadly, the G-20 members boast a lackluster record of following their rhetoric up with action when it comes to global trade. The G-20 countries have collectively agreed to heed the “merits of the multilateral trading system as a way to avoid protectionism.” And they have promised to “stand by the Doha Development Agenda”—a plan to reduce global trade barriers in a way that supports economic development—in every communique coming out of the leaders’ summits so far. But the repetitive rhetoric without action is starting to get stale.

Indeed, G-20 members have increased the net number of protectionist measures each year since the onset of the financial crisis in 2008. The World Trade Organization reported that the 16 members of the Group of 20 that it monitors instituted 326 protectionist measures between 2008 and 2011. The average member has reported over 16 measures, and the median number of protectionist measures reported stood at 7.

The G-20 member that reported the most measures is Russia, with 80 protectionist measures. Japan reported only 1 measure, although one problem with these data is that countries are lax in notifying the WTO of changes in policies, laws, and regulations, so in reality many countries may have many more trade restrictions in place. (see Figure 1)

These are worrying trends. Pascal Lamy, the secretary-general of the WTO, in a speech earlier this month warned that “the implementation of new measures restricting or potentially restricting trade has remained unabated over the past seven months, which is aggravated by the slow pace of rollback of existing measures. The accumulation of these trade restrictions is now a matter of serious concern.” Lamy went on to warn that “the discrepancy between the commitments taken [by the G-20 countries to avoid protectionism] and the actions on the ground add to credibility concerns.” 

Yes, the G-20 can do better. Its leaders must hold each other accountable for living up to their commitments of avoiding trade restrictions. But for accountability to work, the G-20 must better equip the WTO with what it needs to be an effective steward of global trading rules. As the world’s premiere forum for economic governance, the G-20 is the best forum for this discussion and it must rise to the challenge. The discussion at the upcoming meeting, and subsequent ones, should examine how to:

  • Free the WTO from the shackles of the Doha Development Agenda
  • Strengthen the WTO’s data collection, research and policy analysis capacity
  • Improve the WTO’s ability to enforce trade obligations

Let’s examine each of these points briefly in turn.

Free the WTO from the shackles of the Doha Development Agenda

When asked in December 2011 whether the Doha round of trade negotiations is dead, Bernard Hoekman, a sector director in the World Bank’s trade department, responded, “Well, it’s not dead yet. It’s certainly in a coma.” He’s right, of course. At the G-20 summit in Cannes last year, the leaders finally admitted that “it is clear that we will not complete the Doha Development Agenda if we continue to conduct negotiations as we have in the past,” and then stated that “we need to pursue in 2012 fresh, credible approaches to furthering negotiations.” No country wants to take the blame for the round failing by being the first to declare it officially dead. One proposed solution would be for the G-20 to collectivize the blame by proposing a firm deadline for completing negotiations.

A new approach to multilateral trade negotiations would push the WTO to start over and institute a formal consultation process with nation-level stakeholders, especially in emerging and less-developed countries, to properly discern what matters to them most before establishing an agenda. The failure to conclude the Doha Round calls into question whether the so-called single undertaking approach to negotiations—where nothing is agreed until everything is agreed to—is in fact the best approach to global trade talks. Perhaps an alternative arrangement would be better. One proposal is exploring a variable geometry approach where subsets of WTO members agree on particular issues but not all members have to join every agreement.

Starting fresh does not mean throwing away the progress made so far in the Doha round, it means learning from the mistakes of the past and considering a new, more effective agenda and framework for the negotiations.

Strengthen the WTO’s data collection, research, and policy analysis capacity

The World Trade Organization needs to have more resources to strengthen its data collection, research, and policy analysis capacity. These are fundamental to its ability to effectively promote greater trade openness, negotiate trade agreements, and settle trade disputes.

The WTO’s data collection on nontariff trade barriers such as subsidies and services trade is limited and irregular. As more and more countries deploy nontariff barriers to gain a competitive advantage, and as services trade continues to become more important in global trade, the WTO should be in a position to monitor and analyze these trends.

Data, research, and analytical capacity are also important for the WTO to be able to help countries understand the connections between consumer demand, trade shocks, high unemployment and underemployment, as well as how they can hedge against them. The G-20 should mobilize support among its members to expand the remit of the WTO in this area.

Improve the World Trade Organization’s ability to enforce trade obligations

The G-20 members should work together to explore how the World Trade Organization can better enforce its trade rules starting with notification requirements. They could increase the resources and mandate of the organization’s secretariat to monitor and publicly red-flag countries that violate their WTO obligations. There are a number of countries that have failed to notify the WTO of their domestic subsidies in a timely manner. Russia just recently joined the WTO and as additional countries negotiate accession it is important that the secretariat has the ability to hold countries accountable to their accession obligations.

Conclusion

To the credit of the leaders of the Group of 20, they have repeatedly and publicly acknowledged the importance of effective global trading rules in charting a path forward for the multilateral trading system. And certainly protectionist responses to the 2008 global economic crisis were markedly muted compared to how countries have responded to past global recessions.

Yet the global economy today is more integrated, with countries more codependent than ever before. While countries may put fewer trade restrictions in place than they have in past recessions, the number of trade restrictions countries put in place since the onset of the 2008 crisis speaks volumes about the G-20’s largely ineffectual record on trade. It doesn’t have to be this way. The G-20 can play a key role in promoting a more open, transparent, and healthy global trading regime but it has to be willing to take difficult steps to change rhetoric into reality. 

Sabina Dewan is Director of Globalization and International Employment at the Center for American Progress. Jordan Bernhardt is a Special Assistant with the Economic Policy team at the Center.

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