The annual G20 meetings of the heads-of-state of the 20 largest economies accounting for over 80 percent of the world’s GDP are infamous for grand promises of new programs that quickly disappear when the meetings adjourn. The real value in the gatherings is the wording of the Leaders’ Declaration at the close of the meeting for public policies for which the heads-of-state believe they need to have opinions. The positions taken on issues like trade are usually bland enough that no one has serious objections, but once in a while forward thinking comes through.
The declaration from last week’s meeting in St. Petersburg, Russia was a concise 27 pages with issues ranging from quality jobs, to financial regulations, to climate change. Trade was item number three in the body of the report after getting a paragraph in the declaration’s preamble where leaders supported free trade within the WTO rules-based system. They also committed to refrain from protectionist measures and enhance transparency in trade.
Almost half of the one page of detailed comments on trade dealt with the WTO and the upcoming ninth Ministerial Conference of the WTO in December in Bali, Indonesia. The leaders saw an agreement in Bali on trade facilitation and some agricultural and development issues as a ‘stepping stone’ to further multilateral trade liberalization and progress in the Doha Round of trade policy negotiations, now coming up on its 12th year anniversary. For them, Doha is not dead. They believe transparency is a cornerstone of the multilateral trade system and committed to complying with WTO notification requirements in a timely manner.
They extended through 2016 their pledge first given in 2008 to not adopt new protectionist measures and to roll back existing ones. They commented positively on the monitoring of trade and investment restricting measures by the WTO, the Organization of Economic Cooperation and Development (OECD) and the UN Committee on Trade and Development (UNCTAD). Since 2008 the three organizations have jointly monitored the G20 countries concerning restrictive trade measures. For the seven months ending in May, the G20 countries implemented more than 100 new restrictive trade measures, with fewer removed and the total number continuing to grow. Many of the G20 leaders recognize they are part of the problem and are willing to take criticism in the hope it will retard the move toward protectionism by their countries and others.
The EU Commission was even more direct in a report released just days before the G20 meeting. In 2008, they began monitoring 31 of their major trading partners, including the G20 countries. They identified 150 new trade restrictions introduced in the last year with only 18 restrictive measures removed. Brazil, Argentina, Russia and Ukraine were noted for having applied the heaviest tariff rate increases. Brazil also accounted for more than one-third of the restrictions related to government procurement, followed by Argentina and India. The EU has counted almost 700 new restrictive trade measures since they began monitoring the 31 countries in 2008. Some leaders at the G20 are knowingly pursuing protectionist’s policies, but won’t publicly acknowledge that reality because their own citizens are harmed by those policies.
The last trade issue the G20 countries addressed was global value chains (GVC), “We recognize the importance of better understanding the rapid expansion of global value chains (GVCs) and impacts of participation in GVCs for growth, industrial structure, development and job creation.” The head-of-state or staff person who included this point in the Leaders’ Declaration made a critical contribution to understanding 21st century trade. Trade has generally been thought of as a one way process of exports or imports, but trade has increasingly become a value chain across borders in which companies in several countries participate. A country either adopts some level of free trade and transparency or is left out of GVCs and has only one-dimensional trade.
The G20 heads of state asked the WTO, OECD and UNCTAD to continue research to study the impacts on economic growth and job creation. They also note that “making available value-added trade statistics may help countries in due course to decide upon appropriate policymaking options to benefit from GVCs.” This is not a new idea. The Asian Development Bank Institute in 2010 examined the supply chain of the iPhone to determine the value added. The iPhone technically contributes to the U.S. trade deficit with China by assuming that the entire value of the wholesale phone is created in China, the country exporting the completed product. The components were actually manufactured by companies based in China and several other countries. The only part of the entire process that is unambiguously “Chinese” is the final assembly that added only $6.50 to the $178.96 wholesale value of an iPhone.
Some of the leaders of developing countries in the G20 were probably thinking about how to become part of the manufacturing or assembly part of global supply chains, but that would be missing part of the bigger picture. The ADBI study examined only the composition of the $178.96 in manufacturing costs. The iPhones in 2010 typically retailed for 50% to 100% more than that. The difference consisted of the value of Apple’s intellectual property and the value of marketing the latest consumer product. Korean companies like Samsung, LG and Hyundai are now earning additional margins as wholesale marketers of their finished products.
The WTO and OECD are developing a data base to show the value added by trade. In traditional trade data, services account for less than one-fourth of total world trade. On a value-added basis, services account for more than half of trade for countries like the U.S. and Germany. This is an ongoing project to develop the best measures of trade in the era of GVCs. The G20 leaders asked for a report from the OECD in the first half of 2014.
The inclusion of trade transparency and global value chains in the G20 Leaders’ Declaration does not signal the end of destructive trade policies. It does indicate that countries that see trade as critical to economic growth understand the need for new trade policies and are making their voices heard. That is good news for the WTO Ministerial Conference in December and trade policy discussions in coming years.