International trade: Rekindling interest in a multilateral rules-based approach

Which role for the G7 in international trade

International trade is one of the themes that used to constitute the very raison d’être of the G7, alongside international security and energy policy.

The G7 approach to trade has been traditionally based on a set of key principles on which all member countries could agree, namely the commitment to fight protectionism and the prominence of the rules-based multilateral trading system, anchored in the WTO. But today these principles are increasingly under attack.

Not only is protectionism on the rise, but there is also disagreement as to where the system should be headed, and discontent about its effectiveness, with substantial risks for the world economy. In particular, if the trade sanctions imposed by the US administration were to escalate further, this would affect global trade negatively and could even lead to a trade war in which all parties would lose. Moreover, global trade might also suffer if the current regionalization of trade flows were to further deepen as a result of the partial disintegration of global value chains.

The real challenge today is twofold, first to make G7 countries commit to engage in a discussion so as to find a new consensus, and secondly to find the appropriate way to adapt the current multilateral trading system to new realities (both in terms of power balance and of trade practices).

Recent initiatives and political statements show that such willingness exists in several countries, rooted in the widespread acknowledgement of the shortcomings of the present situation. Yet the difficulties met to issue a joint statement on trade at the end of the 2018 Summit in Charlevoix are a testament to the deep disagreements prevailing on these issues within the G7.

The depth of the disagreements is particularly clear with respect to the response to be given to the Chinese challenge resulting from its State- controlled economy. Overall, while there may be wide agreement on the nature of the concerns, the views are diverging with regards to possible solutions. It is important, however, to preserve G7 unity, and avoid another 6+1 solution.

It may be worth reminding at this stage that the “informal minilateralism” exemplified by the G7 (as well the G20) should be seen as a new component of the larger multilateral system aimed at complementing the work of traditional multilateral organizations and, when relevant, at supporting their reform. The G7 per se cannot make decisions (let alone binding decisions), but sets the agenda and issues recommendations or lays the ground for further cooperation within formal multilateral fora.

In other words, the primary role of the G7 is to provide strategic leadership and guidance, while the details are determined and implemented elsewhere, primarily within and by international organizations. However, it is important to make sure that concrete steps follow once the initial impulse has been given. Accordingly, institutional innovations are needed to ensure a better implementation and monitoring mechanism. Tightening and clarifying relations with international institutions are a way of achieving this goal and should therefore be a priority.