Canvassing China: G-20, free trade and China

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Published: September 10, 2016 6:12:18 AM

The country has been hit hard by the protective action against its exports in the US and EU

The Hangzhou G-20 summit exceeded most of its predecessors in the turbulence in its backdrop. Barring the G-20 Washington Summit in November 2008, which took place on the heels of the global financial crisis in September 2008, the Hangzhou summit was salient for the tensions that characterised its organisation. Some of the tensions emanated from difficult relations among the members. While China—the host of the summit—was saddling hostile ties with the US, EU, Japan and to an extent India, the US itself was on uncomfortable footing with European members (France, Germany) and hardly enjoying harmony with Russia. The UK, which went into the G-20 for the first time after voting to separate from the EU, was searching relations afresh. Apart from the bilateral issues, most G-20 members were heavily preoccupied with internal problems like managing refugees and curbing terrorist attacks. Matters were made more complicated by the sober global economic outlook and the summit taking place in the backdrop of the most vicious anti-trade sentiments witnessed in recent times.

In the run-up itself, it was obvious that trade would be a major issue on the agenda. The host China was determined to push trade to the forefront. Indications to the effect were evident at an earlier meeting of G-20 trade ministers held a few months ago. China’s intention of pushing the slogan for free-trade was a result of various factors. It was being hit hard by protective actions against its exports in various parts of the world, particularly Europe and the US. It was also beginning to get wary of the possibility of long-term crystallisation of protective trade outlooks in the US and EU, particularly in the former, with Donald Trump’s scathing attacks. Closer home, despite not encountering direct affronts, the creeping ‘Chinaphobia’, following the launch of the One Belt One Road (OBOR) project, made it apprehend fresh trade protectionism, mostly in form of resistance to Chinese investments.

While the US and EU were grappling to come to terms with the failure to push mega-RTAs like the TPP and TTIP and were hesitant to commit upfront to a liberal trade agenda at the G-20 for the fear of antagonising domestic constituencies, China’s effort to revive trade received support from other quarters. Most notable of these were from the WTO, OECD and IMF, all of whom expressed concerns over low global growth and the fact that robust growth in trade was a must for higher global growth. The G-20, eventually, ended up alluding quite a bit to robust growth in global trade and investment in its communiqué.

How much of the positive sentiments towards free trade reflected in the communiqué would translate into practice is difficult to predict, as such outcomes would depend on actions of individual members. China’s immediate objective would be to ensure the US and EU award it ‘market economy status’ which, according to its terms of accession to the WTO, is due at the end of the year. Overcapacity in the Chinese steel industry and the resultant difficulties faced by steelmakers elsewhere is a major reason for the reluctance to allow the China the status. Despite best efforts, China could not avoid the mention of steel in the communiqué. A Global Forum on steel would be set up for facilitating coordination in production and capacities among countries. The fact that the OECD would control the forum is a source of discomfort for not only China, but also India and other emerging market members, as they would be wary of OECD benchmarks and their effect on encouraging protective measures in OECD members on emerging market steel exports.

The most notable step ahead, if durable, in the communiqué on trade issues, is the reliance on the WTO as the best bet for reviving world trade. China, India and the rest of the BRICS ensured the Doha Development Agenda (DDA) got adequate emphasis as a goal to be achieved, along with greater integration of the African countries and LDCs with G-20 members. The WTO, it was noted, needs to be complemented by parallel regional trade agreements, thereby leaving the global space for the growth of the latter intact, notwithstanding current disappointments. The WTO is also urged to take on some of the major issues being discussed in these agreements for becoming more relevant and responsive.

All good words spoken and noted need to dissipate the doubts clouding the political outlook for trade in G-20 members. While China’s national interests of growth and regional expansion commit it to a pro-trade agenda, and a strong centralist state apparatus makes it capable of overlooking internal fissures, the same does not apply to most other members. Trade policymakers in the EU and US would find it damn hard to explain to stakeholders and constituencies why anti-trade postures may not apply to China. While China has done what it could have by getting the international community to endorse free trade, the endorsement would require much more to not remain a goal on paper.

The author is senior research fellow and research lead (trade and economic policy) in the Institute of South Asian Studies in the National University of Singapore. E-mail: isasap@nus.edu.sg, Twitter: @amitendu1

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