|To overcome crisis and strife, Indonesia’s G20 needs to ensure open commerce | Business|
Indonesia’s G20 needs to secure open trade to overcome crisis and conflict
Russia’s invasion of Ukraine has made the agenda of cooperation to overcome the pandemic very difficult. It has also threatened to completely derail the G20 summit. But the global community has shown its ability to swiftly coordinate economic sanctions and present a largely united front against a war of aggression. Despite the tragedy of the conflict and its impact on the global economy, it also underscores the security dimension of economic interdependence.
Coordinated economic and financial sanctions on Russia are imposing huge costs for the Russian economy. Whether they help end the conflict depends on other factors, but the sanctions have internalized some of the costs of its aggression to Russia. Economic sanctions and trade measures can help curb bad behavior and give the global community non-military tools to fight to the extreme against military aggression. But collective action can only be effective given a high degree of economic interdependence, where countries need each other to maintain their economic activities. China is more integrated into the global economy and appears to distance itself from Russia.
Maintaining an interdependent open economic order is a powerful tool for achieving peace. Crucial to this is an effective multilateral trading system with a strong World Trade Organization (WTO) at its center. The crisis in Ukraine could be a catalyst to strengthen the scaffolding that lifts the global economy.
The World Trade Organization is in crisis at the heart of the world trading system. For two decades it has largely failed to update global trade rules or open new markets. Bilateral free trade agreements have overcome those objectives, although more recently the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership Agreement have made progress for their members. The dispute settlement body at the WTO has not had a judge for a US veto since the end of 2019, so it can no longer enforce rules keeping markets open. The multilateral trading system can be revived by set about reforming the WTO.
Maintaining an interdependent open economic system is also a necessary condition for economic recovery from the pandemic. Any recovery will be short-lived without the open international markets needed for a prosperous Asian and world economy. The G20 is the only group that can mobilize support from the world’s most powerful economies to reform global institutions such as the WTO. A strong trade arrangement with the WTO is essential to support the recovery in the post-pandemic era and to meet the new economic challenges.
Indonesia should keep the G20 focused on cooperative outcomes and guide economic recovery. The challenge is to focus on a small number of strategic outcomes rather than one long and unattainable wish list. Clear progress on WTO reform will be a monumental legacy of Indonesia’s leadership of the G20.
Indonesia has a moral authority that few other countries do to set a clear strategic direction for WTO reform. Indonesia stepped up at the Osaka G20 summit in 2019 to articulate a comprehensive plan to reform the World Trade Organization. The initiative was welcomed and received support from other G20 countries, leading to the Riyadh Initiative for the Future of the World Trade Organization in 2020, but progress has been slow.
Indonesia should now propose the G20 Common Framework for the WTO Reform Strategy Paper to guide reform initiatives. Indonesia’s position as the chair of the Group of 33 Developing Countries in the WTO may bridge the issue between the main characters in a geopolitically packed environment. Indonesia successfully led the conclusion of RCEP, the world’s largest regional trade agreement, in a time of rising protectionism, great power strategic competition and a pandemic-induced recession.
The days of big multilateral deals like the Uruguay Round are likely to end, given the death of the Doha Round, with all members agreeing on everything needed to reach a conclusion. In a world of bottom-up rule making and consolidated unilateral action, leadership and action led by multilateral principles is needed.
The world trading system is at risk of fragmentation as new rules are built around political factions. New sectors such as the digital economy require multilateral regulations, and regional action can be directed toward that goal.
A strategy is needed to revive the WTO’s three main functions of trade liberalisation, trade policy monitoring and trade dispute resolution. There are sensitive issues such as developing country status and subsidies, but also less contentious areas for quick progress such as transparency and new trade measures of notification. A signal by the G20 on its willingness to determine the direction and scope of WTO reform would help move things along.
The broad work that has been accomplished on reforming the WTO could inform the G20 Common Framework and the stages of its implementation. The G20 is not a negotiating forum, but can mobilize the political will necessary to progress at the WTO and elsewhere.
As one of the proponents of WTO reform, Indonesia should join the Multiparty Interim Appeal Arbitration Arrangement (MPIA), which mimics the work of the WTO’s dispute settlement body with Europe, China, Singapore, Australia and 20 other WTO members. does. Finding a solution to a working WTO dispute settlement system is a top priority, but until then, as a concrete, confidence-boosting step, Indonesia is calling on others to join the MPIA in the lead-up to the G20 summit. May announce preparedness, especially to be followed in the field. It will strengthen the credibility of Indonesia’s trade policy leadership as well as supporting WTO reform.
Indonesia has the opportunity and responsibility to put the global economy on the right track. This could bring India – the perennial trade policy spoiler – and Brazil into an action plan for their G20 presidents and help bring India closer to East Asia’s supply chains. Indonesia holds the ASEAN presidency in 2023 and can build momentum with regional implementation of the G20 outcomes as the RCEP is ready this year.
A strong multilateral trading system with an effective trade organization would be a necessary condition for being strong, including discouraging the escalation of the already escalating geopolitical tensions. The G20 presents an important opportunity for President Joko Widodo to focus on strategic priorities where Indonesia has traction and can lead by example.
Shiro Armstrong is director of the East Asian Economic Research Bureau at The Australian National University.
Yose Rizal Damuri, Executive Director, Center for Strategic and International Studies, Jakarta.