A Good Week for Global Governance and Summitry

Alan S Alexandroff and Yves Tiberghien

For global governance watchers, this was THE big week of the year and summits galore! Between November 7th and November 16th, the world witnessed: one grandiose APEC meeting in Yanqi Lake (near Beijing) complete with a bilateral China-Japan “breakthrough;” a major US-China summit; an historic ASEAN and East Asia Summit held in Naypitaw, Myanmar; and a colorful G20 meeting in Brisbane, Australia.

Behind the pomp and drama, this infusion of global summitry seemed to advance world order – notwithstanding the chorus of those announcing growing global disorder. International order certainly seems better off after these summits. And the summits appear to be significantly more than just photo opportunities for leaders.

As pointed out by the IMF in its recent World Economic Outlook, the world economy is in difficult stage: growth is slowing in many parts of the global economy, trade protectionism remains a problem, global inequality is rising and eroding support for globalization, and global environmental risks appear to be rising faster than the global system appears to have the capacity to cope.

Most media watchers predicted a weak post-midterm election period for Obama; tense relations between the West and Russia; uncertainties about a possible Xi-Abe handshake; and weak institutional outcomes. Against expectations, the series of summits taking place over the last week and culminating with the G20 Leaders Summit in Brisbane made a material difference and advanced global governance in three main ways.

  • First, they allowed leaders of key countries to arrest the slide toward conflict and zero-sum games (we win; you lose), giving them a platform to seek positive bargains and inject a healthy dose of responsible leadership behind their cooperation. They permitted a modest cycle of mutual reinforcement to take place. Thus, the surprisingly positive US-China summit in Beijing may have given impetus for the modest US-India WTO breakthrough in Naypitaw, in turn setting the stage for a stronger final G20 declaration than expected a few days ago. They encouraged leaders to take action to support climate change. Note the decision by Indonesia’s new President to cut the fuel subsidy in his country (resulting in a 30% increase in gas prices) immediately on his return from Brisbane.
  • Second, the US-China Summit of November 12th and the final G20 declaration with associated pledges for the Climate Green Fund (especially by the US and Japan) generated unexpectedly positive momentum on the climate front. The global game allowed leaders from the US and China to gain support for their domestic priorities, generating elements of a healthy resonance between domestic and global levels. The G20 also handed off to Turkey the G20 hosting task with some momentum to advance global energy governance.
  • Third, despite competition between the US and China on various fronts, the reaffirmation of support for a pan-Pacific free trade effort (FTAAP at APEC and RCEP at EAS) and progress on global tax cooperation and, more surprisingly, the anti-corruption efforts result in a net progress in the global institutional architecture and a modest increase in trust for the global economy.
  • Behind such progress at the global level, it is also clear that the two players that dominated the global game throughout the sequence were China and the US. Both played stronger cards than expected. They jointly produced the biggest revelation of the week, namely the four main bilateral agreements announced on November 12th: a major climate deal with potential catalytic impact; a deal in IT trade that now goes back to the WTO ITA; the strengthening of military to military contacts; and a powerful visa deal for the two countries (with 10-year visas for business visitors and students). They also competed intensely in trade, development, and global institutions, both scoring points.

    By contrast, the voices from Europe, Japan, Russia, and India sounded quieter. It is fascinating to contrast the more multipolar situation in the London G20 of 2009 to the more ‘G2-like’ world of 2014. Likewise, the voices of middle powers such as Australia, Canada, and Korea also seemed weaker at this summit. Australia as Chair fought against US (and EU interests) on climate change and lost. It fought against BRICS on Russia and also lost.

    The following table offers a simplified scorecard on the three summits:

     

    Table 1. Scorecards of APEC, EAS, and G20 – November 2014

    Arena Global Governance Outcome US Score China Score
    Trade Positive (WTO trade facilitation + FTAAP) Some TPP progress FTAAP – moral high ground + RCEP
    + China-Australia FTA
    Development New resources and institutions, but fragmentation None AIIB Silk Road Fund BRICS Bank acceleration
    International Monetary System Limited None RMB-Canada Deal HK-Shanghai
    Energy Discussions on global energy governance start Stronger position due to shale gas China-Russia Energy Deal China-Australia
    Climate Major progress and momentum + Green Fund Strong leadership on two fronts Strong leadership shared
    Global Institutional Architecture Progress on tax file in G20 + mutual reinforcement on growth US targeted on IMF quota reform Selected as G20 host 2016 + praise as APEC host (demonstrated capacity)
    Geopolitical Advances / Stabilization Some limited progress on South China Sea (EAS) and China-Japan Australia-Japan-US trilateral
    + Impact in Myanmar
    + India-US progress
    + China-US progress
    Beijing to host South China sea code of conduct talks
    + Détente Japan-China
    – but limited progress India (not at APEC)

     

    The sequence reveals a combination of advancement in global institutions and competition between the US and China. On the whole, the US and China both won and the global public good benefitted as well. Not surprisingly, competition between China and the US continues, but the week showed that the major powers could collaborate, even while remaining competitors, especially in the Asia region.

    It is worth dwelling a little bit on the Brisbane G20 Leaders Summit – the largest of the gatherings. What was accomplished there? A few shocks are worth mentioning – and then there were a lot of “non-surprises.” One of the more predictable aspects were the headlines from most of the international press. Early headlines focused on the cool reception delivered to President Putin by various Western leaders and later, the early exit of Russia’s President. Putin left before the collective lunch and before the release of the communiqué following the lunch. All-in-all reasonable political theatre but little to do with the G20 agenda.

    Another anticipated part of the G20 agenda was the declaration that each G20 country had identified initiatives to lift economic growth an additional 2 percent beyond expectations. As the communiqué declared:

    This year we set an ambitious goal to lift the G20’s GDP by at least an additional two per cent by 2018. Analysis by the IMF-OECD indicates that our commitments, if fully implemented, will deliver 2.1 per cent. This will add more than US$2 trillion to the global economy and create millions of jobs.

    But there was something of a surprise here in this pledge on growth. Notwithstanding early Australian efforts to promote an infrastructure hub, the Global Infrastructure Initiative (GII) was a much toned-down effort. The hub, which will be situated in Sydney now will have 4-year expiration date. Its activity is muted, to say the least:

    We have agreed on a set of voluntary leading practices to promote and prioritise quality investment, particularly in infrastructure. To help match investors with projects, we will address data gaps and improve information on project pipelines.

    Though word had been that Chinese opposition would preclude agreement on an anti-corruption strategy, it was authentically surprising that the Chinese opposition had, in fact, faded. And as a result the G20 has ratified 2015-16 G20 Anti-Corruption Action Plan. Importantly in the Plan there is a call for countries to:

    …share information between law-enforcement agencies about the true owners of shell companies and trusts that can be used by wealthy individuals to evade taxes, launder money, and hide corruption.

    It is estimated that these shell companies are a major vehicle aiding in the illicit movement of funds out of country. And in addition, the G20 took further steps to deal with tax avoidance. Though not a surprise, the efforts to advance BEPS (Base Erosion and Profit Shifting) appear to remain ‘front-and-center’ in G20 action. As G20 leaders affirmed:

    Profits should be taxed where economic activities deriving the profits are performed and where value is created. We welcome the significant progress on the G20/OECD Base Erosion and Profit Shifting (BEPS) Action Plan to modernise international tax rules. We are committed to finalising this work in 2015, including transparency of taxpayer-specific rulings found to constitute harmful tax practices.

    Something of a surprise, however, was the really flaccid effort of the G20 on the question trade. G20 finance ministers and Australian leaders persistently urged greater trade liberalization. Yet, blandly repeating the now well-worn opposition to protectionism in the communiqué, the G20 committed additionally:

    …we will work to ensure our bilateral, regional and plurilateral agreements complement one another, are transparent and contribute to a stronger multilateral trading system under World Trade Organization (WTO) rules.

    Deciphering this statement is a near impossibility. Preferential arrangements are just that. They favor some, and not others. But the communiqué did tout the US-India “breakthrough” on food subsidy and it may – notice the use of the word “may” – lead to the passage of the Trade Facilitation Agreement at the WTO. In fact, efforts are underway in Geneva already.

    In the category of surprise was the rather pointed statement on the failure to implement the IMF quota reform. The communiqué included a statement on the consequences of the reform not being passed – i.e. that the US Congress fails to pass the legislation to provide for a capital increase:

    The implementation of the 2010 reforms remains our highest priority for the IMF and we urge the United States to ratify them. If this does not happen by year-end, we ask the IMF to build on its existing work and stand ready with options for next steps.

    And finally what would have been a surprise earlier, but possibly is no longer one, the promotion of climate change efforts. This statement in the communiqué follows the declarations by the US and China. This was a strong statement – especially given Australian opposition – urging announcements on nationally determined contributions to CO2 reductions for G20 members in advance of COP21 in Paris.

    So what’s the bottom line on Australian efforts? Though the government’s rhetoric far too often appeared better suited for an Australian election than a global summit, the Australians can be pleased that a number of initiatives made significant progress. While the Putin controversy “stole a March” for the economic initiatives – at least with respect to headlines – there was consistent effort to advance the macroeconomic and financial reform agendas. Still the APEC meeting was where the big agreements were announced.

    All in all – a good week for global summitry. A good week for US and Chinese leadership too.

     
     

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