The G20 After Osaka: Do Actions Speak Louder Than Words?

G20 Family photo

Foto: Alan Santos / PR  CC BY 2.0

The G20 summit in Osaka was perhaps most notable for the breakdowns that did not occur. Leaders have eventually agreed on a joint communiqué and endorsed consensual language on trade and many other issues. The nineteen members who had reaffirmed their commitment to the Paris Climate Agreement in Hamburg and Buenos Aires did so again. All of these outcomes were in doubt before and even during the summit. In one sense the Osaka communiqué has answered these doubts because it shows G20 leaders can still agree on issues of global importance.

But agreeing on a text is not an end in itself. It stands for the expectation that G20 members will actually work together or at least behave in a coordinated way with regard to the issues covered in the text they have agreed. This expectation can come from four sources:

(1) the acute pressure of an immediate emergency such as the global financial crisis in 2008,

(2) the agendas and goals the incumbent presidency has publicly announced for its summit,

(3) previous G20 commitments to comply with a joint discipline (e.g. their pledge against protectionism) or to pursue programmatic goals (e.g. the 2030 Agenda) and

(4) the visibility of the G20 as a group of leaders with a track record of creating and managing international cooperation.

This piece takes a look at where the Osaka text predicts cooperative behavior in response to the types of expectations mentioned above. It seems that G20 summit language works if it relies on deep seated routines of managing global interdependence. But it risks breakdown if those routines conflict with demands of domestic politics in G20 countries. The piece offers a way to explain this pattern and closes with an idea on improving G20 procedures.

 

Less than straight talk about trade

The tensions on trade among important G20 members have again tested the G20’s ability to manage a crisis. In Hamburg, the G20 had reaffirmed the binding nature of the existing trade system (“We underline the crucial role of the rules based international trading system”). It was on this basis that the G20 had pledged to refrain from protectionist measures as well as from competitive devaluations and envisaged trade reforms to improve distributional outcomes. This overall structure has changed in Buenos Aires and now in Osaka. At their 2019 summit, G20 leaders said nothing to confirm the trade system as it stands. Instead they found six adjectives to describe their ambition for the future: “We strive to realize a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment …”.

Given that a part of the tension revolves around the binding force of international rules, an earlier development in G20 language on the global financial system is also relevant here. This language has moved from the affirmative (G20 Finance Ministers, March 20th, 2018: “The global financial system must remain open, resilient and supportive of growth and grounded in agreed international standards”) to the aspirational (G20 Leaders, December 1st, 2018: “An open and resilient financial system, grounded in agreed international standards, is crucial to support sustainable growth”).

The binding force of World Trade Organization (WTO) law is now only indirectly acknowledged in a reference to WTO-consistent Free Trade Agreements. The traditional G20 pledge to resist protectionism has reemerged in a half sentence (“We strive … to keep our markets open”) and language from the G20 summit in 2018 on WTO reform as well as on necessary action on the WTO dispute settlement system is repeated in the Osaka leaders communiqué. The Osaka outcome also reiterates the commitment to refrain from competitive devaluations. A relatively new feature is the recognition that something needs to be done about excessive global current account imbalances. This is noteworthy because imbalances are often used to justify unilateral trade measures. The G20 now speak about “enhancing cooperation” on this contentious matter.

Even before the current acute tensions on trade there have been doubts about how credible G20 pledges against protectionism really were, given G20 countries’ observed behavior over time. These doubts may now grow. Protectionist measures are often justified as retaliation for behavior felt to be unfair. WTO law, in particular the Agreement on Subsidies and Countervailing Measures provides agreed criteria to judge if such measures are indeed permissible. Without this underlying consensus, just about any measure can be deemed as being either protectionist or an act of fair defense. As we have seen the G20 are now less prepared than before to voice their joint commitment to the order embodied in the WTO. In fact President Trump called the WTO “a terrible deal” in his remarks to the press conference immediately following the Osaka summit. This raises the question whether Osaka language on WTO reform and necessary action on its dispute settlement system really expresses the joint intention of leaders to repair perceived wrongs. Maybe it just repeats previous G20 language while the political will behind it is gone.

Similar doubts apply even to the standing commitment to refrain from competitive devaluations, which, coming from the G20 finance track, is among the more stable elements of G20 language. Certain G20 members now openly suspect others of managing exchange rates for competitive advantage. Together with the ongoing debate on central bank independence in some G20 countries, this creates a background against which countries may be tempted to excuse manipulation as necessary defense.

 

Linking domestic issues to the G20 Agenda

Osaka has also shown the relevance of the presidency’s priorities. Ever since the G20 is a leaders group, each presidency has drawn on its domestic policies to set the agenda. This can help to bring home the value added by the G20 to societies in different host countries. But it also risks accumulating commitments not equally supported by all G20 members. Osaka has found a balance in at least two cases: The G20 Principles for Quality Infrastructure Investment clearly reflect Japanese priorities and openly build on the G7 Ise Shima Principles for Promoting Quality Infrastructure Investment adopted by the G7 in 2016. But they still fit with the broader G20 Agenda. Given the urgency of building and maintaining infrastructure in many G20 countries, infrastructure is something like a permanent item for G20 discussions. After considering ways to finance infrastructure in 2018, defining criteria for quality in infrastructure was the apparent next step.

Likewise, the G20 Fukuoka Policy Priorities on Aging and Financial Inclusion  are visibly inspired by Japan’s response to its own ageing society. But the Japanese presidency has made it easy to see the relevance to the G20 agenda by linking the challenge of ageing with financial inclusion, a long standing item of discussions in the G20 finance track. A broader discussion about the economic issues ageing societies must face was held among G20 Finance Ministers in Fukuoka. All this goes to show that issue-specific cooperation still works, even if the G20 cannot absorb their differences on trade.

 

Holding the line

There is evidence of continued commitment to previous engagements. The reiterated pledge of nineteen members to the Paris Climate Agreement shows continuity, but this cannot be attributed to the G20 as a group. All G20 members remain committed to the 2030 Agenda  and set out specific actions in the Osaka Update. In addition to that, UNDP and OECD have provided a substantial report showing what the G20 have done to implement the 2030 Agenda. Behind the consensus language there are inevitable differences in how the 2030 Agenda is understood and implemented. But there is no gap between language and behavior that would put the Osaka language on the 2030 Agenda in doubt. This is notable because the very nature of the 2030 Agenda, cutting across sectors and calling for continuous action, presents a challenge to the usual way the G20 operates, keeping most working groups separate and changing priorities with each presidency.

Perhaps even more important is the fact that the G20 as a venue for collective action are much more engaged in implementing the 2030 Agenda than they acknowledge in the Osaka communiqué. The report issued by UNDP and OECD offers a granular picture of this engagement, cutting across G20 working groups and ranging from domestic resource mobilization to food security and rural youth employment. This may indicate that the everyday practice of multilateral cooperation is sometimes more resilient than it might look through the screen of high profile summitry.

 

Explaining the disconnect between language and behavior

So how does the G20 perform as a group that invites the expectation that members will continue working together? As we have seen, the picture is somewhat contradictory: On trade, the G20 have arguably not quite delivered as advertised in their communiqués. But on the 2030 Agenda, their performance is ostensibly better than their summit language shows. The clearest disconnect is perhaps para. 4 of the Osaka communiqué, where G20 leaders state that “trade and geopolitical tensions have intensified”, as if those tensions had not originated among their own countries.

Why do language and behavior in the G20 diverge? Here is a first try for an explanation: The G20 were established to manage interdependence between its members. It is now commonplace (and even true) to say that interdependence has grown in almost every aspect of our lives. But only crises seem to make us aware of how interdependent we have become. In times perceived as normal, managing global interdependence is not really a factor in the routine calculus of domestic politics. This is particularly true in advanced economies that historically have been less exposed to the vicissitudes of global integration, but now face growing pressures for adjustment. As a result, the realities of global interdependence were not sufficiently brought home to people in many G20 countries.

But we are much more interdependent than we think. And too often we do politics as if we were not. This may be the root cause of the disconnect. Interdependence originally emerges through self-organization in the private sector, witness the development of global value chains and the growing network of financing relationships between global banks. The everyday management of interdependence usually takes a technocratic form, as in the G20 tax agenda. It does appear in G20 communiqués but not in most domestic policy debates. This is why people often do not think about interdependence when they say what they expect of their leaders. In different ways, every G20 leader has to be responsive to his or her people. One option is to engage in protectionist measures that speak to ideas of national autonomy. If such measures are not consistent with G20 language, a leader may weigh this against his own domestic policy calculus. But if he takes protectionist measures, perhaps to give a signal to his base, at least some of the more robust routines of international cooperation will still continue.

It cuts both ways. If what you do for the 2030 Agenda represents interdependence, you can distance yourself by not mentioning too much of it in the communiqué. If communiqué language (for instance on trade) represents interdependence, you can distance yourself through visible acts of verbal contestation and noncompliance. From the communiqué’s point of view, this does look like an outside influence. This is why communiqué language can sometimes treat tensions among G20 members as if they were an external factor, remote from the routines of G20 cooperation.

The gap between language and behavior in the G20 is already doing damage because it hurts the expectation that others will be predictable and compliant. It is also hard to close. The routines of managing interdependence may be just as robust as the political wish to get away from them.

 

Operating under pressure

If the next global economic crisis strikes, eyes will turn to the G20 for a coordinated response. In spite of the ongoing tensions on trade there is reason to believe that the G20 will still find a way to work together and be able to tackle an emergency comparable to the 2008 crisis. While the benefits of trade are long-term, unequal and hard to predict, the immediate impact of a global crisis can be expected to align incentives and concentrate minds. Besides, there still is a number of issues where the interests of G20 countries converge. Every country needs to protect its tax base. This is why there is progress on the agreed G20 tax agenda. In Osaka the G20 even went a step further and agreed on a work program to address ways to tackle inappropriately low levels of effective taxation and the allocation of taxing rights.

Holding the line every year on programmatic commitments like the 2030 Agenda and the Paris Climate Agreement will probably remain a challenge for the G20. This challenge is inevitable, given the ambition inherent in those commitments. Part of it consists in the fact that they openly stand for global interdependence and are therefore particularly exposed to political gestures directed against interdependence. Further challenges may arise if G20 members do not anymore trust each other to comply with agreed disciplines such as WTO law and the pledge against protectionism. This trust is important, if only because it underpins other, more specific G20 commitments like the pledge to refrain from competitive devaluations. Without it, cooperation will yield to uncontrolled and escalating competition.

One way to go forward is perhaps to concentrate G20 summits on building robust personal consensus among leaders to give a few political impulses and leave the routines of managing global interdependence to international organizations and their own national administrations. This may even help close the gap between G20 language and behavior.

 

Disclaimer: This text reflects the author’s personal views only and cannot be construed as indicating the positions of Germany’s Federal Government or any part of it.

 

Photo: Roger A. Fischer

Roger A. Fischer is Head of the G7/G20 Division in Germany’s Federal Ministry for Economic Cooperation and Development.

Leave Comment

Deine E-Mail-Adresse wird nicht veröffentlicht. Erforderliche Felder sind mit * markiert.