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G-7, G-20, RCEP, ASEAM, RTAs - Part 2
5.0 GROUP OF 20 NATIONS (G-20)
5.1 What is the Group of 20 Nations
(G-20)
The Group of Twenty (G20) is the premier forum for its members' international economic cooperation and decision-making. Its membership comprises 19 countries plus the European Union. Each G20 president invites several guest countries each year.
All G20 leaders (Presidents or Prime Ministers) meet annually. In addition, Finance Ministers and Central Bank Governors meet regularly during the year to discuss ways to strengthen the global economy, reform international financial institutions, improve financial regulation and implement the key economic reforms that are needed in each member economy. Underpinning these meetings is a year-long program of meetings among senior officials and of working groups coordinating policy on specific issues.
5.2 How did it come into being
The G20 started in 1999 as a meeting of Finance Ministers and Central Bank Governors in the aftermath of the Asian financial crisis. Then came the global financial crisis of 2007. In 2008, the first G20 Leaders' Summit was held, and the group played a key role in responding to the global financial crisis. Its decisive and coordinated actions boosted consumer and business confidence and supported the first stages of economic recovery. G20 leaders have met nine times since 2008.
5.3 Which are the nations
The Group of Twenty, or G20, is the premier forum for international cooperation on the most important aspects of the international economic and financial agenda. It brings together the world's major advanced and emerging economies.
The G20 comprises Argentina, Australia, Brazil, Canada, China, EU, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, UK and the USA. The G20 Countries together represent around 90% of global GDP, 80% of global trade, and two thirds of the world'spopulation.
5.4 Objectives of G20
The objectives of the G20 are:
- Policy coordination between its members in order to achieve global economic stability, sustainablegrowth;
- To promote financial regulations that reduce risks and prevent future financial crises; and
- To create a new international financialarchitecture.
5.5 The model of G-20
The G20 is a good model, although without any formal charter or secretariat, for global cooperation in today's world. Its response to the global financial crisis is a testament to the impact G20 members can make when working together. The G20 introduced trillions of dollars in fiscal stimulus packages worldwide, which saved or created millions of jobs that would otherwise have been destroyed. It also put in place measures to limit the collapse of financial markets and helped maintain consumer and business confidence.
The G20 is supported by international organisations, including the Financial Stability Board (FSB), the International LabourOrganisation (ILO), the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), the United Nations (UN), the World Bank (WB) and the World Trade Organization (WTO). These and several other organisations are invited to attend key G20 meetings.
G20 also works with its official engagement groups, the B20, C20, L20, T20 and Y20, comprising business, civil society, organisedlabour, academia and youth.
5.6 G-20 Osaka Summit 2019
The G20 Summit, which Japan hosted for the first time, included G20 members, 8 invited countries, and representatives from 9 international organizations, and was historically the largest summit ever held in Japan. Leaders of the major countries gathered this year's Summit to identify a common ground, and tojointly grapple with major issues related to world economy.
Amidst worldwide uneasiness and dissatisfaction stemming from changes accompanying globalization, Japan took leadership as the Presidency, ensuring that the G20 expressed strong message to the world via G20 Osaka Leaders' Declaration, which includes various areas such as leading global economic growth through promoting free trade and innovation, and addressing inequalities, as well as contributing to resolving environmental and global challenges.
The 15th, 16th and 17th G-20 summits are scheduled for 2020, 2021 and 2022 in Saudi Arabia, Italy and India, respectively.
5.7 Organisational structure of G20
The G-20 operates without a permanent secretariat or staff. The chair rotates annually among the members and is selected from a different regional grouping of countries. The chair is part of a revolving three-member management group of past, present and future chairs referred to as the Troika. The current chair of the G-20 is Mexico; the next Chair will be Russia.
The preparatory process for the G20 Summit is conducted through the established Sherpa and Finance tracks that prepare and follow up on the issues and commitments adopted at the Summits. The Sherpas' Track focuses on non-economic and financial issues, such as development, anti-corruption and food security, while addressinginternal aspects such as procedural rules of the G20 process. The Sherpas carry out important planning, negotiation and implementation tasks continuously.
The Finance Track focuses on economic and financial issues. The Sherpa and Finance tracks both rely on the technical and substantive work of a series of expert working groups. Additionally, the thematic agenda is developed through the organization of several Ministerial Meetings, such as the Joint Meeting of Finance and Development Ministers, and the Labour, Agriculture and Tourism Ministerial meetings.
5.8 The first summit, 2008
The First Summit was hosted by the US President in Washington in November 2008 to develop a coordinated response to the global financial crisis. At the First Summit, the Leaders discussed the causes of the global economic and financial crisis and agreed to implement an Action Plan around three main objectives, namely, (i) Restoring global growth, (ii) Strengthening the international financial system and (iii) Reforming international financial institutions.
6.0 REGIONAL COMPREHESIVE ECONOMIC PARTNERSHIP (RCEP)
6.1 What is the RCEP
The Regional Comprehensive Economic Partnership (RCEP) is a so-called mega-regional economic agreement being negotiated since 2012 between the 10 ASEAN (Association of South-East Asian Nations) governments and their six FTA partners: Australia, China, India, Japan, New Zealand and South Korea.
The RCEP is driven largely by the ASEAN. Indeed, the project originated in, and expands upon, the stitching together of five existing ASEAN+1 trade agreements, that ASEAN signed with Japan, South Korea, China, India, Australia and New Zealand.
The RCEP negotiations were launched at the Phnom Penh at a summit between the leaders of ASEAN and its six partners who occupies the remaining member of the RCEP on 20 November 2012.
6.2 Goal of the RCEP negotiations
The stated goal of the negotiations is to "boost economic growth and equitable economic development, advance economic cooperation and broaden and deepen integration in the region through the RCEP". The proposed RCEP would cover almost every aspect of economy such as goods, services, investment, economic and technical cooperation, intellectual property rights (IPR), rules of origin, competition and dispute settlement.
Objective of RCEP negotiations is to "achieve a modern, comprehensive, high-quality and mutually beneficial economic partnership agreement among the ASEAN Member States and ASEAN's FTA Partners. RCEP will cover trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement and other issues." (from the Guiding Principles and Objectives for Negotiating the Regional Comprehensive Economic Partnership).
6.3 Negotiations and details
The negotiations missed several deadlines repeatedly, even though they gained momentum since 2016. India was wary of the outcomes, since merchandise exports from China could easily swamp domestic markets, given the vast reduction in tariffs expected. At the same time, India may not be able to exploit the goods market thrown open in South Korea and China, as goods exports is not a big strength. For services, India has been pushing for greater opening-up.
There were concerns that the deal could go beyond the rules agreed to at the World Trade Organisation, known as the Trade Related Aspects of IPRs (TRIPS) agreement.
Various movements, including environmental groups, trade unions, domestic workers, farmers, hawkers, and people living with HIV have been raising their concerns over the trade deal since the text got leaked. Thousands of them marched against the harmful provisions in the trade deal, demanding transparency from governments, in Hyderabad, India, in July 2017 and organised a People's Convention on RCEP.
6.4 Scale and importance of the RCEP
The RCEP, when realized, will become the largest trade bloc in terms of population with nearly 3.5 billion people. It will also have an estimated 40% of world's GDP and dominating 30% of global trade. A unique importance of the ambitious RCEP formation is that it contains the three biggest economies of Asia - China, India and Japan. The trade arrangement has big future potential as it holds the two of the fastest growing largest economies - China and India.
6.5 ASEAN centrality under RCEP
A leading feature about the RCEP is that it is proposed as a refined and unified version of the existing free trade arrangement that the ASEAN has with the six partners - China, Japan, India, South Korea, Australia and New Zealand. For the members of RCEP, already there is bilateral FTAs. But being just bilateral, they have different regulations, rules of origin requirements etc. A unified FTA will facilitate trade more. Hence, the RCEP is modelled on FTAs of the ASEAN group with others and hence it is in an ASEAN+1 FTAs format. ASEAN +1 FTAs refers to the FTAs that ASEAN group have signed with each of the neighboring six countries - China, Japan, Korea, India, Australia and New Zealand.
6.6 Areas of RCEP negotiations
Interestingly, the RCEP's trade agenda is quite broad as well as deep compared to large number of other trade arrangements. It covers the entry level trade liberalization effort on goods and widens to services though the extent of service trade engagement is keenly watched. At the same time, the RCEP makes negotiations on higher order liberalization issues like intellectual property rights, competition and ecommerce. The usual issues like investment and dispute settlement are also part of negotiations. In this context, the RCEP has a deep coverage matching to the several other West - bound RTBs.
The RCEP negotiation includes: trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement, e-commerce, small and medium enterprises (SMEs) and other issues.
6.7 Challenges before RCEP
Formation of the RCEP is not easy because of several economic and political hurdles.
- There are huge economic dissimilarities between the trading members. China is highly industrialized and is a trade powerhouse. India has more development objectives while connecting with trade. Japan and South Korea are innovation economies that excelled the world. Other ASEAN economies have long history of running FTAs though they are small in size.
- There is difference in perception about the extent of trade liberalization. China want more commodities and higher tariff cuts. India on the other hand, prefers some restrictions as the country's industrial sector is at the beginning state of development. Overall, most of the partners have a notion that China may dominate the RCEP because of its huge size economy and well competitive industrial sector advantages.
- Politically, there is less synergy between the RCEP members in the context of unresolved territorial dispute of China with other members - Japan, China and some other East Asian economies.
- The implications for access to medicines are even more alarming. Japan and South Korea are channeling demands by big pharma for longer patent terms and for monopoly rights over clinical trial data. These provisions could undermine access to price-lowering generic medicines, and thus, life-saving treatment for millions of people in the developing world.
6.8 Benefits of RCEP
RCEP has the potential to deliver significant opportunities for businesses in the East Asia region, given the fact that the 16 RCEP participating countries account for almost half of the world's population; contribute about 30 per cent of global GDP and over a quarter of world exports. RCEP will provide a framework aimed at lowering trade barriers and securing improved market access for goods and services for businesses in the region, through:
- Recognition to ASEAN Centrality in the emerging regional economic architecture and the interests of ASEAN's FTA partners in enhancing economic integration and strengthening economic cooperation among the participating countries;
- Facilitation of trade and investment and enhanced transparency in trade and investment relations between the participating countries, as well as facilitation of SMEs' engagements in global and regional supply chains; and
- Broaden and deepen ASEAN's economic engagements with its FTA partners.
RCEP recognises the importance of being inclusive, especially to enable SMEs leverage on the agreement and cope with challenges arising from globalisation and trade liberalisation. SMEs (including micro-enterprises) make up more than 90% of business establishments across all RCEP participating countries and are important to every country's endogenous development of their respective economy. At the same time, RCEP is committed to provide fair regional economic policies that mutually benefit both ASEAN and its FTA partners.
7.0 What do Regional Trade Deals (RTAs) do
The big question always is - do regional deals balkanise the world? Do they fragment what otherwise would be a uniform global trading system?
In classical economic theory, free trade boosts prosperity by encouraging nations to focus on their relative strengths. The reality of regional deals is different. Customs unions sometimes divert rather than create trade by inducing consumers to buy from inefficient producers. A hypothetical example: Thailand makes widgets more cheaply than Mexico, but Americans buy them from Mexico due to lower tariffs on Mexican goods. Such a diversion hurts the global economy, keeping resources from the places where they would be used most productively.
According to Prof. Jagdish Bhagwati (Columbia University) "regional deals might be stumbling, not building, blocks towards freer trade worldwide". Many had hoped that regional agreements in the early 1990s would lead to global pacts. But Mr Bhagwati argued that less efficient producers would lobby for regional accords, seeking protection inside them.
7.1 Developments since 1990s
The past 20 years bear out certain warnings. Since 1994 there have been more than ten regional deals a year on average but only one global deal: the World Trade Organisation's underwhelming "Bali package" of 2013, that led to the first WTO TFA in 2014-15. Moreover, forecasts about the regional deals now under negotiation or ratification - the TPP and TTIP - highlight the dangers of trade diversion.
7.2 Are they really bad
Stumbling block risk - On closer scrutiny, regional deals do not look so bad. As of 2008 less than 17% of global trade flows were subject to any preferential treatment. Instead, there has been a spectacular decline in tariffs in general. The average rate applied by Latin American countries fell from 13.1% in 1996 to 4.8% in 2012, according to the World Bank. Developing countries in Africa, Asia and Europe have also slashed tariffs.
Trade diversion risk - Despite the gloomy forecasts for countries excluded from TPP and TTIP, regional deals have a good record in practice. Almost all have boosted trade for non-members, albeit not by as much as for members. The reason is that trade deals nowadays have relatively little to do with tariffs; they focus instead on deeper regulatory issues such as rules governing capital flows and competition policy.
7.3 Benign RTAs
America and Peru, in their free-trade deal, promised that one another's firms would get just as good access to telecoms services as local companies. That may sound like a non-tariff preference for American firms in Peru, since, say, Japanese companies do not get the same guarantee. But the nationality of firms is malleable: Toyota USA qualifies since it is incorporated in America. Second, aligning regulations is more like a public good than a preference, since countries outside the deal also benefit. The European Union's shared standards on mobile telecoms, for instance, make life easier for all firms doing business in Europe, wherever they are headquartered.
America's decision to exclude China from TPP at the outset, is based on severe restrictions that US wants on state-owned firms, which are central to China's economy. If TPP is completed, America could then invite China to join, presenting a limited opportunity. So China is trying to craft an Asian free-trade pact, with America on the outside. Describing regional deals as stumbling or building blocks often misses their real importance. They are also power bases. Countries use them to project their vision of free markets on to the global economy.
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