China is about to step up for the first time as host of the G-20 this September and the country has been working hard to make a good impression. An important area in which China could focus is the acceleration of the liberalization of global trade and investment rules, an effort which has stalled. On July 9, 2016, China will host the G-20 Trade Ministers’ meeting in Shanghai to discuss ways to boost trade and investment cooperation through the G-20 forum.
As 2016 president of the G-20, this offers China a unique platform to lead the world economy out of the trade and investment slowdown. China has four goals in the G-20, known as the four “I’s”:
- Innovative: new path for growth (i.e., new digital age)
- Invigorated: reform global financial system
- Interconnected: strengthen trade and investment
- Inclusive: alleviate poverty and inequality through the United Nations' Sustainable Development Goals (SDGs)
China has consistently said it supports the multilateral trading system, but as the World Trading Organization (WTO) has faltered, China has looked to the G-20 to reinvigorate trade and investment. Unfortunately, the G-20’s track record isn’t great: The International Chamber of Commerce (ICC) gave the G-20 a grade of “poor” for its efforts to advance trade and investment related matters, the lowest of all the policy areas evaluated.
Liberalized trade and investment are essential to China’s own growth goals, so what are specific proposals that China can push in the G-20?
Priority Items for China
The Trade Facilitation Agreement (TFA) negotiated three years ago by WTO members has yet to be ratified by a two-thirds majority to come into force (82 members of the 108 needed have ratified). A successful TFA can cut trade transaction costs up to 17 percent, and lower income countries will see more substantial benefits. China should use its leadership position to persuade the five G-20 members that have not ratified the pact to do so. Then a more unified G-20 could lead by example and press other WTO members to follow suit so that the TFA could become a reality by the end of 2016.
The G-20 also needs to renew its commitment to avoid new protectionist measures and phase out existing actions that contravene G-20 “Standstill Agreements” in force since the Washington summit in November 2008. Unfortunately, these pledges have not been honored. A recent report noted that from mid-October 2015, G-20 economies applied 145 new trade-restrictive measures, the highest monthly average since recording began in 2009. Trade remedies like antidumping contributed the most to this rise. China’s leadership here, as the world’s largest trading nation in the world, could set an example.
Finally, China could try to lay the groundwork for an agreement on global investment rules. As the second largest destination of inward foreign direct investment (FDI), and fast increasing its outward FDI, China has a big stake in better rules. Unlike trade, which has global oversight in the form of the WTO, FDI has no World Investment Organization. The G-20 Summit could offer a launch pad for global investment governance, drawing both on templates written in the Organization for Economic Cooperation and Development (OECD) and the United Nations Conference on Trade and Development (UNCTAD) and on bilateral investment treaties now being negotiated by China, the United States, and the European Union.
What Else Could China Accomplish?
China could use the G-20 to push the Environmental Goods Agreement (EGA) in the WTO. This agreement seeks to slash or eliminate tariffs on a range of goods linked to the protection of the environment. Currently this covers around 150 products, although reports say a select group of countries want to cover more than 200 products.
Unfortunately, China is not in this select group and reportedly poses a “major problem” in advancing negotiations. China should overcome vested interests at home and support an ambitious EGA if it truly wants to champion the multilateral trading system. China has an enviable if distant record of using international agreements to advance domestic reforms. That same spirit needs to be revived in 2016.
Moreover, talk of an agreement on digital goods has been showing up. Alibaba chairman Jack Ma recently called for the G-20 to establish digital free trade zones that would, among other goals, enable small and medium enterprises to expand their exports through ecommerce. This is an ambitious concept, but China could start the conversation in September.
What Will China Accomplish?
The G-20 has a good opportunity to add momentum on TFA this year, but getting meaningful agreements to stop protectionist measures will be difficult. This is essential, however, to jump-starting global trade growth. On investment, currently there is little political will for any multilateral or plurilateral agreement; however, there could be some agreement for nonbinding rules. Meaningful progress on rules for investment will take years, but China must first build a strong foundation to pass to Germany, next year’s G-20 president, in September and keep the momentum going.
There is further hope for strengthening the WTO by concluding negotiations on the plurilateral EGA. If successful, EGA will join the recently agreed to expanded information Technology Agreement as the only major trade liberalization measure in the WTO in nine years.
China’s renewed push for trade and investment in the G-20 can strengthen the forum as a place to generate new ideas for trade liberalization. Realistically, meaningful progress on trade and investment in the G-20 will take years. China will pass the baton of the G-20 presidency to Germany after the Hangzhou summit on September, so Germany will have the opportunity to continue many of the initiatives China sets this year.