US President Joe Biden, Britain’s Prime Minister Boris Johnson, Canada’s Prime Minister Justin Trudeau, France’s President Emmanuel Macron, German Chancellor Angela Merkel, Italy’s Prime Minister Mario Draghi, Japan’s Prime Minister Yoshihide Suga, European Commission President Ursula von der Leyen and European Council President Charles Michel attend a session during the G7 summit in Carbis Bay, Cornwall, Britain, 11 June 2021 (Photo: Reuters/Kevin Lamarque/Pool).
There have been some lofty sounding announcements from the richest countries gathered in Cornwall but less substance to match. The commitment to donate one billion doses of COVID-19 vaccines to poorer countries falls short of what’s needed. US President Joe Biden and UK Prime Minister Boris Johnson agreed on a new ‘Atlantic Charter’ that will simply open travel up across the Atlantic. With a straight face the British are calling the package of announcements the ‘Cornwall consensus’.
The G7 is no longer as important as it used to be. That’s why the G20 was elevated to a leaders’ meeting in 2008 during the global financial crisis. The G7 accounted for 46 per cent of the global economy in nominal values prior to COVID-19. Including the non-member invitees Australia, India, South Africa and South Korea, that’s about half of global GDP. In purchasing power parity terms, the G7 is 32 per cent of the global economy and smaller than the remaining 13 G20 members.
The club of rich liberal democracies can no longer set global rules alone though it can aspire to lead an open, rules-based global economy. First, it has to practise what it preaches. The United States once again has adults in charge but its foreign policy for a middle class looks a more diplomatic version of America First. Japan preaches a ‘Free and Open Indo-Pacific’, but it initiated a highly politicised economic spat with South Korea and, together with Australia, has become more restrictive towards foreign investment. ‘Global Britain’ is smaller as it retreats from Europe and may yet exclude the City of London from the new agreement on a global minimum corporate tax rate of 15 per cent.
The Cornwall meeting over the weekend shows promise for the provision of global public goods from the rich world but global leadership requires leading by example. The commitment to stronger action on climate change is a case in point. The G7’s call for reform of the WTO is welcome but it won’t be able to write the rules alone.
In our lead article this week, Shiro Armstrong points to the less remarked APEC trade ministers’ meeting a week earlier as an example of global cooperation on trade that may be at least as consequential. Importantly in APEC ‘the emphasis differs from the G7 approach and is inclusive of developing country interests’.
The global trade rules are outdated and cover a smaller proportion of global commerce each year. After the Uruguay Round transformed the GATT into the WTO, there has been no successful multilateral round of WTO negotiations, with the Doha Development Round as good as dead. Rules are needed for trade in services, investment and the digital economy, and disciplines are needed on subsidies to fisheries, agriculture and industry.
Many in the advanced industrialised economies blame China for the current trading system being unworkable. Chinese state-owned enterprises and the protections and subsidies they receive distort competition in China, and because China is so large, these distortions affect the global economy. Like other major WTO members, China has become better at navigating, even gaming, the system.
To lay the blame on China for an outdated system where others have also played spoiler misdiagnoses the problem. Reform in China will go a way towards helping but will not save the WTO from itself. The existing rules are not enforceable since the United States vetoed the appointment of new judges to the WTO dispute settlement system. India is notorious for exercising its veto in WTO negotiations on issues like 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 trading body.
It’s not just China but modern global commerce that has outgrown the rules. Many of the issues under contention are in areas where rules do not exist. The lack 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.
That’s where ‘one of those developing countries — Indonesia, not China — could be key to reform of global trade rules’ says Armstrong.