Global governance reform needs leadership from the developing world

Author: Editorial Board, ANU

The G7 is back. A post-Brexit “Global Britain” has ambitions for an international leadership role and has coordinated a call from the Group of Seven advanced economies for global rule reform. The United States has stopped playing spoilers in international meetings. Leadership and cooperation have been absent from the global community at a time when they were most needed during the COVID-19 pandemic. His return is welcome, although matching the new rhetoric with the substance will be a tougher game.

There were some eloquent announcements from the richer countries gathered in Cornwall, but less substantial. Commitment to donate one billion doses of COVID-19 vaccines to the poorest countries is below what is necessary. US President Joe Biden and British Prime Minister Boris Johnson have agreed on a new “Atlantic charter” which will simply open up travel across the Atlantic. With a straight face, the British call the ad package the ‘Cornish consensus‘.

The G7 is not as important as it used to be. This is why the G20 was elevated to the rank of leaders’ meeting in 2008 during the global financial crisis. The G7 accounted for 46% of the global economy in nominal terms before COVID-19. Including non-member guests Australia, India, South Africa, and South Korea, that’s about half of global GDP. In terms of purchasing power parity, the G7 represents 32% of the global economy and is smaller than the other 13 members of the G20.

The club of wealthy liberal democracies can no longer set global rules on their own, although they may aspire to lead an open, rules-based global economy. First, he must practice what he preaches. The United States has adults in charge again, but its foreign policy for a middle class seems a more diplomatic version of America First. Japan advocates a “free and open Indo-Pacific,” but has initiated a highly politicized economic feud with South Korea and, with Australia, has become more restrictive on foreign investment. “Global Britain” is smaller as it pulls out of Europe and could still exclude the City of London from the new deal on a 15% global minimum corporate tax rate.

The Cornwall meeting over the weekend holds promise for delivering global public goods to the rich world, but global leadership requires leading by example. The commitment to stronger action on climate change is a good example. The G7’s call for a reform of the WTO is welcome, but it will not be able to write the rules alone.

In our lead article this week, Shiro Armstrong cites the less-noticed APEC trade ministers meeting a week earlier as an example of global trade cooperation that can be at least as substantial. It is important to note that in APEC, “the focus differs from the G7 approach and includes the interests of developing countries”.

World trade rules are outdated and cover a smaller proportion of world trade each year. After the Uruguay Round transformed the GATT into the WTO, there was no successful multilateral round of WTO negotiations, as the Doha Development Round was all but dead. Rules are needed for trade in services, investment and the digital economy, and disciplines are needed for subsidies in fisheries, agriculture and industry.

Many in advanced industrialized economies accuse China of having the current trading system unworkable. Chinese state-owned enterprises and the protections and subsidies they receive distort competition in China, and because China is so big, these distortions affect the global economy. Like other major WTO members, China has become better at navigation, even in games, the system.

To blame China for an obsolete system where others have also played the spoiler, is to misdiagnose the problem. Reform in China will help but not save the WTO from itself. Existing rules have not been enforced since the United States vetoed the appointment of new judges in the WTO dispute settlement system. India is known to have vetoed WTO negotiations on issues such as trade facilitation.

China’s accession to the WTO in 2001 fundamentally changed the country and the global trading landscape. The price it had to pay at the time was that its commitments went beyond those of existing WTO members and others acceding to the trade body.

It’s not just China, but modern world trade that has broken the rules. Many of the issues in dispute are in areas where the rules do not exist. The absence of multilateral investment rules, for example, leaves open accusations of forced technology transfer, debt trap diplomacy and unfair competition.

The WTO needs broad support, if not consensus, to reform and rewrite its rules. The G7 needs China and the other half of the world to play ball to renovate the global trading system.

This is where “one of these developing countries – Indonesia, not China – could be the key to reforming global trade rules,” says Armstrong.

Indonesia will host the G20 in 2022 while there is still unlikely to be any certainty about a global recovery from COVID-19. “As a democratic and dynamic developing country with a Muslim majority, Indonesia has moral authority in global governance that it can exercise. She represents about half of the ten members of the Association of Southeast Asian Nations, whose economic size and population are strategically and economically significant, and chairs the Group of 33 developing countries of the ‘WTO’.

The East Asia Regional Comprehensive Economic Partnership Agreement (RCEP), concluded late last year, was conceived in Indonesia and it was Indonesia that spearheaded and drove the agreement. focused on ASEAN until conclusion. The reforms and market opening measures that China has committed to in the RCEP are important.

Indonesia presented an initiative for WTO reform at the G20 Osaka summit in 2019, but it was overshadowed by the Sino-U.S. Rivalry and the hosts trying to prevent US President Trump from doing so. blow up the top. He’ll have another chance next year, “Armstrong reminds us.

China and Indonesia can no longer use their developing country status as an excuse. They too must lead by example. Indonesia has avoided fully embracing international competition and has refused to engage in rule-making for the digital economy. China now needs to match its openness rhetoric with substance. Its size and growth caused problems for which others had to bear the costs of adjustment. His political assertiveness fueled uncertainties and insecurities, damaging his reputation as a partner.

Twenty years ago, the G7 represented 65% of the world economy. Today, the rest is 55 percent. Neither the G7 nor the others can reshape the global trade regime on their own. A G7 plus club that seeks to exclude the rest is inviting post-Trumpian global disintegration via another route and a declining global economy. China’s future as a modern economy still gives it a vital stake in fixing what is broken in the system. And the G20 remains the best chance of securing global adherence to the new rules of a post-COVID-19 world order.

The EAF Editorial Board is located at the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.

About Christopher Easley

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