Thank you for the opportunity to speak today. It is a sign of how dedicated you are to the role of the B20 that you are here bright and early on Sunday morning – thank you for being here!
The World Bank is an active participant and supporter of the G20. We also value the critical role of the B20 in providing a private sector voice to inform G20 decision-making.
At the World Bank we believe that the G20 is an essential institution. We all know the statistics. The G20 accounts for roughly 80 percent of global output; three-quarters of world trade; half of global inward FDI and two-thirds of global outward FDI. Actions taken by the G20 also have a clear impact on developing countries outside the G20. 70 percent of non-G20 developing-country imports come from the G20 countries, and around 80 percent of those countries’ exports are directed to the G20.
In this context, it is clear that the policy choices made by G20 members can have very important effects on the global economy. It’s why your advice, and the involvement of organisations like my own, is so important in shaping the G20’s work.
I would like to focus my remarks today on the state of the global economy, and particularly on the state of global trade, and outline some ideas on where the G20 can intensify its efforts to address this challenging environment.
Global economic context
The global economy continues to be a source of concern. We continue to be concerned about low growth in advanced markets, despite the pick-up in growth in the US and Europe in recent years. Given our focus at the World Bank Group on the developing world, we are especially concerned about the slowdown in emerging markets, where growth rates have fallen by almost 1 percentage point since 2013—from more than 5 percent to about 4 percent.
In our view, there are three major drivers of this slowdown – slower growth in trade, increasing difficulty in gaining access to capital, and lack of progress in job creation.
The trade slowdown
Today, I would like to focus on the slowdown in global trade, and what actions the G20 could take this year and beyond to help address this.
History speaks for itself in showing us the scale of the current slowdown. In the two decades before the global financial crisis, a “normal” level of trade growth was roughly double the rate of global GDP growth.
Today, trade is now level with GDP growth.
This recent trade slowdown is linked partly to the current global economic context, like the sharp decline in commodity price, as well as longer-term trends, like the maturation of global value chains
But the story of the trade slowdown is not just about longer-term trends: Policies also have a key role. This is where the role of the G20 is so important.
G20 leadership for restoring trade growth
This year, we encourage the G20 to take concrete actions and set out a plan to reinvigorate global trade growth.
A comprehensive approach to lowering trade costs would be the best way of stimulating trade growth. By “trade costs” we mean addressing the costs created by all the frictions that exist when firms try to trade across borders. These costs remain high, in the order of 80% to more than 300% in tariff equivalent terms, even if they have fallen over time.
A G20 approach to restoring growth through lower trade costs could have four pillars:
- Cutting protectionism;
- Delivering results through trade negotiations;
- Implementing new reforms beyond trade negotiations;
- Further integrating developing countries into global trade.
Let me begin with protectionism. The G20 should avoid new protectionist trade measures and unwind trade-restrictive measures enacted since 2008. The stock of protectionist measure continues to grow. For example, the number of product lines subject to import restrictions by G-20 members has increased by half since 2007.
This has long been on the G20 agenda - and it has long been an area where the G20 has been subject to criticism. One idea to explore would be intensifying the existing process of monitoring protectionism, based on independent analysis by international organisations. This could be strengthened through a form of peer review by G20 members.
Second, as the largest global economies, accounting for three-quarters of global trade, G20 members must show leadership in delivering results through trade negotiations. At the multilateral level, we have had two WTO Ministerial Conferences that have delivered significant results, even if they have fallen short of the expectations that once existed for completing the Doha Round. An important task for the G20 is leading the definition of a new path forward in the WTO. This should be focused on achieving results, both on long-standing issues where trade barriers remain high, like agriculture, as well as in new areas like the digital economy.
Regional trade agreements also need to be part of the G20 approach, complementing multilateral trade opening through the WTO. For example, there is no doubt that conclusion of negotiations on the Trans-Pacific Partnership has been one of the most important trade developments of the new millennium. Implementation of TPP has the potential to inject much-needed growth into the global economy by lowering trade barriers in important economies. There is also the potential for new members to join the agreement, or to implement the standards set in TPP. Other large regional agreements are also in the picture, including the EU-US talks and the sixteen-country Regional Comprehensive Economic Partnership negotiations in East Asia. In order to maximize the positive impact of these RTAs, they should remain open and inclusive, and focused on extending the benefits of open markets to as many economies as possible.
There is also the potential this year for G20 members to show a leadership role in concluding plurilateral negotiations on important topics. For example, countries accounting for more than 86 percent of global trade in environmental goods are negotiating a plurilateral agreement in this area. Concluding these negotiations this year could be an important feature of G20 efforts to reinvigorate global trade. G20 members could also lead efforts to identify other areas for plurilateral negotiations, with the aim of extending the benefits of any new agreements to all WTO Members.
Third, G20 members should look beyond negotiations and implement reforms to reduce the trade barriers that generate high trade costs. Some of the priorities here include agriculture, services liberalization, improving connectivity, and addressing trade facilitation constraints, such as congestion at customs.
A comprehensive push to lower trade costs would have a particularly positive effect on SMEs. Although SMEs have an important role in employment and economic dynamism, they have far less capacity to manage high trade costs than larger firms.
A leading priority in this effort must be to ratify and implement the WTO Trade Facilitation Agreement. We have seen numerous estimates of how important implementation of the TFA will be. This is one of the key areas of our work with countries around the world. Due to strong demand from our client governments, the World Bank’s portfolio of trade facilitation projects has grown from $322 million in 2004, to more than $7 billion today.
G20 members could maximize the positive impact of the TFA by undertaking reforms in complementary areas. One priority is to boost the competitiveness of transport and logistics services. As many of you know only too well, the impact of trade facilitation reforms is significantly undercut if firms don’t have access to competitively-priced, reliable transportation and logistics services once they move their goods across the border. This underlines need to take a comprehensive approach to lowering trade costs.
Fourth, the G20 could lead the next wave of developing country integration into the global economy. Bringing many emerging and lower-income economies into global trade has been an important source of growth and dynamism in recent decades. However, low-income countries as a group still face trade costs that are around three times higher than advanced economies. These high trade costs mean that firms that might otherwise trade and invest in these markets of more than 600 million people go elsewhere. A political push from the G20 and more assistance to bring these countries into global trade could make a real difference.
These four pillars - cutting protectionism; achieving results through trade negotiations; undertaking reforms to lower trade costs; and assisting a new wave of developing countries to become more integrated into the global economy - would provide the basis for a G20 plan for reinvigorating trade growth.
The World Bank stands ready to support this effort. We participate actively in both B20 taskforces and the G20 itself. We have cutting edge research and data to inform policy-making by G20 members. We also have the expertise and financial capacity to support the implementation of reforms around the world, in collaboration with many public and private sector partners. We are currently financing more than $13 billion in trade-related projects around the world, and there is clear potential for this to grow even further.
Let me conclude by commending the B20 leadership, and all of you, for your energy and commitment to reinvigorating the global economy through engaging with the G20. As I said at the outset, the G20 has a unique policy-making role, but it is the private sector that often knows the challenges best, and also does the work of creating economic opportunities that stimulate growth, create jobs, and reduce poverty.
I thank you once again for the opportunity to speak and wish you all the best in your discussions here in Washington DC and through the rest of the year.