Chance for G20 to build on WTO progress

Visiting Fellow, RIETI

As this year’s G20 host, Indonesia has its work cut out managing the geopolitics of Russia’s membership. But it now also has the opportunity to build on the Geneva Package agreed by the WTO.

Despite the hype, the World Trade Organisation is not dead, and nor is globalisation.

The 12th Ministerial Conference, or MC12, of the WTO in June produced a “Geneva Package” that included only the second new multilateral agreement (after the Trade Facilitation Agreement) in the WTO’s 27-year history — to end fisheries subsidies — as well as a commitment to reform the institution and restore the dispute settlement system to ensure the enforcement of rules.

The fisheries agreement is not only an important environmental measure but it has also restored the WTO’s negotiating credibility.

And not a moment too soon as the world needs to fight back against economic policies deployed by economically illiterate populists.

The rules for economic exchange and institutions for economic co-operation that grew from the Bretton Woods institutions after the protectionism and populism of the 1930s were as much about political security as they were economic security.

And now great power politics again threaten the order that evolved out of Bretton Woods.

Strategic competition between China and the United States has made global cooperation much harder. Both countries are the source of global uncertainty, but neither has yet walked away from the WTO or global arrangements such as the G20.

The world’s two largest powers account for about 30 per cent of the global economy, and between them have the clout to undermine certainty about the rules. At the same time, countries representing 70 per cent of the global economy want a rules-based order that constrains the major powers.

The already difficult situation has been worsened by Russia’s invasion of Ukraine and the resulting food and energy crises. Recovery from the pandemic is incomplete, and we’re starting to see what a changing climate looks like.

The darkening global scene makes the good news out of Geneva WTO ministerial meetings last month that much more significant.

The Geneva Package also included measures relevant to the issues that confront the WTO’s 164 members today: an agreement to limit (or at least to “exercise restraint” on implementing) export restrictions on food; bolster trade co-operation during crises – including during pandemics – and to extend a moratorium on customs duties on e-commerce.

The agreement to reform the WTO and how it functions will help to move the body beyond the paradigm of single undertakings involving all member countries having to agree to everything to proceed with anything.

Ministers also decided on a waiver under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) that allows for the manufacture and export of COVID-19 vaccines without the consent of the patent holder.

WTO members were able to conclude an agreement on a highly contested subject and do so in a way that distinguishes one developing country from another, a long-standing problem in the WTO.

China, as a developing country with vaccine manufacturing capacity, excluded itself from the waiver, so the deal could proceed, illustrating that developing country status in the WTO need not preclude differentiation in the application of rules.

None of these measures are perfect; nor will they resolve the core issues behind the fracturing of the global order. But they are a rare step in the right direction and demonstrate that multilateral cooperation is far from dead.

China’s compromise was important. The Biden administration might not be able to depart from Trump’s America First tariffs on China and the US veto of dispute settlement body judges, but at least Washington is not playing spoiler in global governance, as it did under the previous administration. India remains recalcitrant in the WTO but it at least did not veto the Geneva Package.

MC12 provides momentum, but turning it into a game-changer for the trading order will require a level of political resolve from G20 leaders that has thus far proved elusive. The G20 is not a negotiating forum and does not represent the 164 members of the WTO, but it can mobilise political will from the major powers. What happens next is important.

The G20 must give a collective boost to the rules-based order by stressing that autarky and unilateralism are simply a recipe for protectionist capture, retaliation and trade friction.

As this year’s G20 host, Indonesia has its work cut out managing the geopolitics of Russia’s membership. But it now also has the opportunity to build on the Geneva Package.

Indonesia alone accounts for about half of South-East Asian gross domestic product and population. It is also chair of the Group of 33 developing countries in the WTO and has the ability to build bridges between the main protagonists in a geopolitically fraught world.

There’s a lot at stake. The postwar order enmeshed the United States, at the time the world’s largest economy and then as now the most important military power, in a system of rules that constrained its ability to use its economic power for its own strategic ends.

The accession of China to the WTO in 2001 was the beginning of a process by which it was similarly embedded into an order that constrains its ability to coerce smaller nations economically.

The WTO — weakened though it has been — is more relevant than ever. The process of enmeshing the major powers in rules was given a boost in Geneva. The test is whether that process continues in Bali.

Shiro Armstrong is Director of the Australia-Japan Research Centre and editor of East Asia Forum at the Australian National University and Visiting Fellow at RIETI.

July 21, 2022 Australian Financial Review

August 5, 2022

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