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G20 needs efforts to promote trade facilitation

Author  :  Liang Junwei     Source  :    Chinese Social Sciences Today     2016-11-01

Since the G20 Pittsburgh Summit in 2009, the G20 has become a major forum for international economic cooperation. It represents the progress made in global economic governance and reform. The theme of this year’s summit “Toward an Innovative, Invigorated, Interconnected and Inclusive World Economy” expresses the desire of all G20 members to build a new pattern for world economic governance to promote growth.

Affected by the global financial crisis and the European debt crisis, emerging economies and developed countries alike are experiencing economic recession. Many countries are taking various measures to protect trade and employment as well as to encourage investment.

Through the global value chain, the highly integrated element and product circulation system makes countries closely interconnected. No one country can be an exception to this system. G20 members should make joint efforts to improve global economic governance, increase connectivity among regions and trade facilitation to invigorate the world economy. Three principles must be observed accordingly.

One is to abandon the practice of protectionism and carry forward sustainable development as well as inclusive growth in trade and investment. Protectionism results from differences in opinion about the factors influencing economic growth and employment. Those who are for protectionism believe that exports—especially a trade deficit—will increase unemployment and slow growth, while protective policies will increase the market shares of domestic enterprises and raise employment.

However, the truth is that within the global value chain, where international trade and investment is highly integrated, trade friction and protective measures will add to the cost of trade, which will be transferred onto the price of importing products by domestic enterprises.

In 2016, G20 Ministers of Trade agreed on the G20 Guiding Principles for Global Investment Policymaking and decided to implement the Trade Facilitation Agreement, which is conducive to building an open, non-discriminatory, transparent and predictable environment for investment, reshaping a transparent and open global value chain, as well as promoting sustainable development and inclusive growth of trade and investment.

The second principle is to establish mechanisms for regional interconnection and stick to mutually beneficial cooperation and connectivity in trade and investment. Currently, there are more than 400 regional trade agreements around the globe.

On the one hand, these agreements help to strengthen connections between countries within one region. On the other hand, they can lead to separation of different regions and protectionism.

For example, both the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership adopted the “yarn forward” principle for most textile products, which means that only those products produced by raw materials from NAFTA and TPP members can enjoy related preferential tariff treatment.

A mechanism for regional interconnection will produce public goods that can promote connectivity and trade and investment. It will contribute to eliminating unilateralism and isolationism as well as obstacles for connecting value chains of different regions, and then finally realize mutually beneficial cooperation in its true sense.

The third principle is to advance structural reform and stimulate vitality in trade and investment through systematic innovation. From the perspective of microeconomic governance, practice has proven that quantitative easing alone is not sufficient to break the structural obstacles restricting growth. The general direction should be to encourage innovation and relax control while encouraging competition and greater openness.

From a macroscopic standpoint, new governance mechanisms, institutions and regulations should be introduced to enhance the discourse power of developing countries and give full play to the role of emerging markets in global economic recovery.

At the same time, we should also note that economic recession takes on various forms from country to country, which means their needs are diverse. Therefore, they must adopt tailored policies. It is difficult to find a balance between different parties’ interests within a short time, and this status quo will complicate structural reform.

 

Liang Junwei is from the Department of International Economy and Trade at Shandong University (Weihai).

Editor: Yu Hui

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