G20 Osaka Progress on International Trade

July 2, 2019 | Last updated: July 18, 2019

Dennis J. Snower

According to widespread reports on the G20 Osaka Summit in the media, the G20 achieved little if anything on international trade. What received most media attention was that the G20 Leaders’ Declaration stopped short of denouncing protectionism. The resulting impression was that the G20 had achieved little, that G20 initiatives stand in opposition to national interests, and that the G20’s shared sense of purpose has been lost amidst the resurgent inward-looking politics of many countries today. This impression is seriously misleading and unconstructive. It strengthens the widespread misconception that G20 multilateralism regarding international trade is necessarily in conflict with national goals and that international trade tends to favor the affluent few at the expense of the neglected many. This misconception is the outcome of a zero-sum narrative, whereby one country’s gain from international trade is another country’s loss. It is a dangerous misconception, since it leads voters to support politicians who use international trade as an excuse for pursuing socially divisive policies that make it impossible to spread the gains from globalization among all population groups.  

There is a very different, more productive and hopeful interpretation of the G20 Osaka results on international trade. The G20 Leaders’ Declaration called for “free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open. International trade and investment are important engines of growth, productivity, innovation, job creation and development” (§8). This statement must be understood in terms of the overarching theme of the Japanese G20 Presidency: “… we will strive to create a virtuous cycle of growth by addressing inequalities and realize a society where all individuals can make use of their full potential. We are resolved to build a society capable of seizing opportunities, and tackling economic, social and environmental challenges, presented today and in the future, including those of demographic change.” These aims are consonant with the theme of “recoupling” of the T20 Summit in Tokyo: In the light of the danger that economic prosperity can become decoupled of societal prosperity, the G20 should focus on societal prosperity – the wellbeing of individuals in thriving communities – and seek to recouple economic prosperity with social wellbeing. See, for example, the following T20 Policy Briefs: 

This broad theme is reiterated in the notion of Society 5.0: “We share the notion of a human-centered future society, which is being promoted by Japan as Society 5.0” (§10).

If the recoupling theme is taken seriously, it has far-reaching implications for the global governance on international trade, infrastructure investment and taxation. In particular, the goal of recoupling means that the promotion of international trade is not an end in itself. Rather, trade is an instrument to promote human wellbeing within flourishing societies within our planetary boundaries. In the future, this will require the G20 countries to measure the gains from trade not exclusively in terms of GDP across countries, but also take environmental sustainability, human empowerment and social solidarity into account. For instance, if a readjustment of global value chains raises the value of worldwide goods and services, but destroys natural and social capital, then the resulting gains from trade would be represented as the difference between the increase in manufactured capital and the decrease in natural and social capital. This idea is captured in the statement “We strive to realize a free, fair, non-discriminatory, transparent, predictable and stable trade” (§8). In this context, it is important to emphasize that international trade does not take place in a vacuum. To generate maximal gains from trade, appropriate fiscal, monetary and structural policies are required at the national level. This is an area where multilateral trade agreements must be well coordinated with national macroeconomic policies. 

Relevant T20 Policy Briefs in this area include the following:

The G20 Summit was also the occasion for historic action to reduce protectionist barriers. The EU and the South American economic bloc Mercosur concluded a massive trade agreement, the EU’s largest trade deal to date. The agreement covers a market for goods and services covering nearly 800 million consumers, the greatest number of people covered by a trade agreement thus far. This agreement comes in the aftermath of recent EU trade agreements with Canada, Mexico and Japan, all concluded since President Trump took office. 

This development is to be understood in the light of a new approach to international trade governance that is gradually taking shape among major trading nations. The new approach is summarized in the following statement from the Leaders’ Declaration: “we recognize the complementary roles of bilateral and regional free trade agreements that are WTO-consistent” (§8). Instead of an explicit attempt to bring all trade agreements under the aegis of the World Trade Organization (WTO), the G20 aims to make regional trade agreements consistent with the broad framework of WTO agreements. Acceptance of this principle could have a significant influence on the design of future trade agreements, helping the world economy enter into harmonious rule-based trading system. Within this system, countries that pursue protectionist policies would witness are structuring of global value chains to their detriment. 

Furthermore, the Leaders’ Declaration also recognized the need to reform the WTO in order to broaden gains from international trade. The Declaration reaffirmed “support for the necessary reform of the World Trade Organization (WTO) to improve its functions… We agree that action is necessary regarding the functioning of the dispute settlement system consistent with the rules as negotiated by WTO members” (§8). A major issue to be addressed will include making the WTO capable of providing a level playing field for market economies and state capitalist systems. T20 Policy Briefs dealing with WTO reform include 

WTO rules have thus far focused on produced goods, giving far less attention to services, particularly electronic services. This is a large and ever-growing gap in trade governance, since service trade currently comprises most of the growth in international trade. Furthermore, the new digital age is blurring the boundary between goods trade and services trade, since the export and import of goods is commonly combined with a variety of digital services. On this account, it is unfortunate that services trade is governed by a different body of international rules than goods trade. The G20 Leaders’ Declaration addresses these problems, reaffirming “the importance of interface between trade and digital economy, and note the ongoing discussion under the Joint Statement Initiative on electronic commerce, and reaffirm the importance of the Work Programme on electronic commerce at the WTO” (§12). 

T20 Policy Briefs relevant to trade in digital services include

The rapidly evolving developments in e-commerce require a more flexible and experimental approach to policy than was needed for trade in manufactured goods in the past. Accordingly, the Leaders’ Declaration states, “To further promote innovation in the digital economy, we support the sharing of good practices on effective policy and regulatory approaches and frameworks that are innovative as well as agile, flexible, and adapted to the digital era, including through the use of regulatory sandboxes” (§11). 

Thereby the G20 Leaders’ Declaration provides a useful, urgently needed framework for the continued governance of international trade, specifying the appropriate division of responsibilities on the national and international levels and providing a vision for the required collaboration between national and international trade policies. 


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