Further integrating low-income developing countries and SMEs into global value chains will help meet the G20’s target of boosting global growth by an additional 2.1% by 2018, writes Nihat Zeybekci, Minister for the Economy, Republic of Turkey

Following its establishment with the onset of the global financial crisis in 2008, the G20 emerged as a prominent forum in the global economy for coordinating global economic policies. Although some questioned its effectiveness at first, on the grounds that it has no enforcement mechanism, the G20’s designation as the premier forum for global economic governance, at the 2009 Pittsburgh Summit, strengthened its role in global policymaking.

Indeed, representing almost 85% of global gross domestic product, more than 75% of global trade and two-thirds of the global population, G20 countries are major global actors. With undeniable weight in the global economy, the G20 provides an important platform to act together and adopt integrated, coordinated, effective policies to meet global challenges. Although such platforms for policy coordination might be more urgently needed during crises, the G20 remains relevant for discussing solutions for longer lasting systemic issues.

Turkey’s agenda has focused on inclusive and robust growth through collective action. The focus on inclusiveness, as one of the three ‘I’s of Turkey’s G20 presidency, is particularly important. Turkey has extended the scope of G20 discussions to the rest of the world, especially by bringing the challenges facing low-income developing countries (LIDCs) to the attention of G20 countries.

Turkey’s aim is to ensure collective growth through sharing prosperity with those in vulnerable economic conditions. Trade is the easiest and most practical way of doing this. Turkey thus attaches great importance to trade, as a means of boosting global growth and sustainable development.

The four main issues on the G20’s trade agenda this year are the cyclical and structural reasons behind the global trade slowdown, policies for enhancing the participation of small and medium-sized enterprises (SMEs) and LIDCs into global value chains (GVCs), ways to strengthen the multilateral trading system, and the compatibility of regional trade agreements with the multilateral trading system.

Turkey grew by 3.8% in the second quarter of 2015, more than 24 members of the European Union. Nevertheless, its foreign trade has still been affected by the global slowdown.

Although, the Turkish economy continued to grow on average by 5.1% for 23 quarters and expects growth of 4% for 2015, exceeding World Trade Organization (WTO) forecasts for global growth at 2.8%. Turkey forecasts exports of $144.6 billion by the end of 2015, with a decrease of 8.3%.

As G20 president, Turkey attaches special importance to analysing the causes behind the global trade slowdown, in order to develop policies to overcome them.

Both cyclical and structural factors play a role. Cyclical factors such as weak demand in advanced economies offer some explanation, as do structural factors such as changes in the relationship between world trade and income. Only through deep and wide trade reforms can this trend be reversed and trade growth be revived.

Multilateral trade liberalisation

Accordingly, ensuring the implementation of the past commitments, including those on fighting protectionism, is key to reversing the slowdown in global trade. Indeed, the G20 has been exceptionally successful in, and therefore praised for, preventing the rise of protectionist measures after the 2008 crisis. The G20 still plays an important role in preventing protectionism, since, although the number of newly introduced protectionist measures by G20 countries has decreased recently, the cumulative number continues to increase since 2008.

One major factor affecting the slowdown since the financial crisis is maturing GVCs in the advanced parts of the world. Encouraging policies for fostering greater integration of LIDCs and SMEs into GVCs is important so LIDCs can play a more effective role, while also contributing to global trade.

Indeed, GVCs provide opportunities for SMEs and firms in low-income countries through enabling them to participate in global production chains without producing complete products. Through the internet and e-platforms, SMEs can integrate themselves digitally into the supply chain. Through integrating into the GVCs of multinational corporations, SMEs can become part of new production processes, transfer technology and skills, and enrich their access to markets and financial resources. Nevertheless, even slightest burdens imposed by outside factors affect their GVC participation disproportionately. Thus, effective policies are needed to boost the participation of LIDCs and SMEs in the GVCs, not only at the firm level, but also at national and global levels.

G20 discussions throughout the year clearly demonstrated that multilateral trade liberalisation can revive global trade growth. It requires strengthening the multilateral trading system and re-energising the Doha Development Agenda. A successful WTO ministerial conference in Nairobi in December 2015 will be key.

Clear attention to the role of regional trade agreements is also required to ensure they complement the multilateral trading system – as intended – rather than disrupt it. The global trading system must work efficiently and coherently across all elements, including bilateral, regional, plurilateral and multilateral agreements. Therefore, increasing the regional and multilateral complementarity remains a key issue, in terms of strengthening the multilateral trading system.

These issues were all discussed at the meeting of G20 trade ministers on 6 October 2015 in Istanbul. Our discussions on deep and broad policies to overcome the cyclical and structural factors underlying the global trade slowdown led to the reaffirmation of fully implementing the trade-related actions determined in comprehensive growth strategies of the G20 countries. The ultimate aim is to boost global growth by an additional 2.1% by 2018. The ratification and implementation of the WTO Trade Facilitation Agreement is one such commitment on which considerable progress has been achieved. As of the G20 trade ministerial meeting, 48 WTO members (almost one-third of its membership) had completed the internal procedures for ratification. Implementing measures could reduce trade costs by between 12% and 17.5%.

Regarding GVCs, we noted the importance of continuing vigilance on prioritising solutions to the problems faced by SMEs and LIDCs while keeping discussions alive on the G20 agenda. As policymakers, we have learnt necessary lessons from the discussions on what to do and what to refrain from.

Global trade complementarity

On the day before the meeting, the Transpacific Partnership was finalised. It was praised by the G20 countries, together with the call for regional trade agreements to complement the multilateral trading system and include a continuously working mechanism to include parties that remain outside. The way to increase global trade includes establishing cooperative relations among regional institutions and creating institutional structures throughout the world that have common commercial, economic and legal features.

With regard to improving the multilateral trading system, our deliberations clearly showed that all G20 countries are committed to the WTO and the multilateral trading system. We also discussed our expectations for the Nairobi ministerial meeting and our shared keen interest as well as willingness to deliver concrete outcomes despite possible differences. Most importantly, our discussions have increased the chances of success in Nairobi, which will help strengthen the multilateral trading system. The success of Nairobi, together with a successful United Nations climate change conference in Paris in December 2015, and the recent adoption of the Sustainable Development Goals, will definitely contribute to development.

China, which will hold the G20 presidency in 2016, declared it will organise a trade ministers’ meeting in Shanghai in 2016 – an announcement that was welcomed by all.

Trade remains an important tool for the global economy and for sustainable development. And so it remains for the G20 agenda and efforts on economic policy coordination. Turkey will continue to play its part in the most constructive way as one of the leading emerging economies of the world.