Germany’s successful G20 presidency

Noe van Hulst, Ambassador of the Netherlands to the OECD, Chair of the IEA Governing Board

OECD Secretary-General Angel Gurría with German Chancellor Angela Merkel at the G20 Summit 2017 in Hamburg; ©Christian Charisius/AFP

How should we assess the German presidency of the G20? Despite a complicated political situation, Chancellor Angela Merkel’s team worked with their characteristic determination or Ausdauer to achieve concrete actions and advance their three aims of building resilience, improving sustainability and assuming responsibility. The Leaders’ Declaration, Shaping an interconnected world, rightly sends the message that “we can achieve more together than by acting alone”.

But while the presidency was a success, it was hardly a walk in the park. Obviously, there were difficult and profound discussions on trade and investment, but isn’t that what the G20 is for? Exactly when perspectives are diverging, there is an urgent need for open and frank talks in the G20, and in the OECD for that matter. Given that background it was even more important for the communiqué to state that “we commit to further strengthen G20 trade and investment co-operation”. As I wrote in my last post, to us it is critical that G20 countries remain committed to keep markets open and fight protectionism. At the same time, we must all do much more domestically to ensure that the benefits of trade and investment are shared more widely, and internationally to achieve a more level playing field.

With respect to the last point, the G20 calls for stronger action to tackle market-distorting subsidies and excess capacities in industrial sectors. The recently created Global Forum on Steel Excess Capacity, facilitated by the OECD, is pressed to come up with concrete policy solutions by November 2017 “as a basis for tangible and swift policy action”. It’s time to deliver in this key area, and to set an example to follow for other industrial sectors with excess capacities.

As for levelling the global playing field and making supply chains more responsible and sustainable, the OECD Guidelines for Multinational Enterprises held much of the limelight as an instrument for upholding high labour, environmental and human rights standards. Important elements like exercising due diligence, access to remedy and grievance mechanisms are extensively mentioned in the G20 communiqué. Another area the G20 continues good work on is international standards on tax transparency and implementing measures to tackle Base Erosion and Profit Shifting (BEPS). This remains one of the most game-changing OECD contributions to the G20’s efforts to fix globalisation, with more to come in the future, for instance on the tax challenges raised by digitalisation.

On climate change, a lot has been said and written about the US decision to withdraw from the Paris Agreement. But we should not forget that the US is continuing its work on clean energy (including renewables), as was recently reaffirmed in Beijing at the Clean Energy Ministerial (CEM) meeting, the Secretariat of which is housed at the IEA. Meanwhile, the other G20 countries reaffirmed their strong commitment to the Paris Agreement, so the global energy transition will keep moving forward.

All in all, the German presidency was in my view a success. Germany navigated some very difficult political waters with aplomb and achieved meaningful results. The OECD’s work and standards also received a deserved boost. As for the Netherlands, we were happy to be a “wild card” participant of this G20 and supporter of the German G20 presidency, and now look forward to supporting those of Argentina in 2018, Japan in 2019 and Saudi Arabia in 2020 in any way we can.

References and further reading:

Clean Energy Ministerial 8 (CEM8), 6–8 June 2017, Beijing, China, http://www.cleanenergyministerial.org/Events/CEM8

German G20 Presidency, https://www.g20.org/Webs/G20/EN/Home/home_node.html

Van Hulst, Noe (2017), “A new network for open economies and inclusive societies”, OECD Observerhttp://oecdobserver.org/news/fullstory.php/aid/5884/

How to Assess China’s G20 Presidency

Xijinping G20Noe van Hulst, Ambassador of the Netherlands to the OECD

It was a unique event, for sure: China hosting its first G20 summit in Hangzhou on 4-5 September. The city where Chinese leader Mao Zedong half a century ago regularly met with Third World guerrilla leaders to discuss the battle against US “imperialism”. China has come a long way since then, now leading the G20 push to escape from the “low-growth trap”, stalling globalization and the tide of rising protectionism. With growth persistently too low and trade even lagging this low rate, it is time for more decisive policy action. The overall result in the final communique has been coined The Hangzhou Consensus: linking a vision based on innovative, sustainable economic growth and a well-balanced policy mix with forcefully tackling inequalities and promoting an open global economy.  It is encouraging to see China make the case for a rules-based global system of open trade and investment. Of course, this commitment also should have important consequences for domestic policies in China, as well as in other G20 countries. In this context, it’s a remarkable step that G20 leaders have now agreed to tackle the excess capacity in the steel market.

What was striking in China’s approach to the G20 presidency is the welcome focus on medium- and long-term structural economic policies, in combination with an orientation on policy-action. Trade and investment moved up on the policy agenda, resulting in a G20 Strategy for Global Trade Growth and G20 Guiding Principles for Global Investment Policymaking. Completely new was the emphasis on innovation, digital economy and the New Industrial Revolution, nicely brought together in a G20 Blueprint on Innovative Growth. In addition, there was a drive to deliver an Enhanced Structural Reform Agenda, identifying priority areas for structural reforms and monitoring a new set of quantitative indicators.

As always, implementation will be key, especially on reversing adverse trends in trade, investment, structural reform and Internet control. Although these elements were in my view the most remarkable, of course many other policy areas have also been advanced:  taxation, finance, employment, entrepreneurship, sustainability, energy, green finance and climate change. The announcement by both China and the US of their ratification of the Paris Agreement on Climate Change was widely welcomed as an important step in the transition to a low-carbon economy.

Another remarkable factor about China’s G20 presidency is the continuing important role of the OECD Secretariat. Although China is not a member of OECD, it nevertheless relied substantially on the analytical support and assistance of the OECD Secretariat in a substantial number of key areas, e.g. innovation, trade and investment, structural reform, employment, inequality, green finance and taxation. This can be interpreted as an important sign of appreciation for the quality of the work. We can observe a welcome rapprochement between China and the OECD Secretariat, as well as with the IEA in the energy field. The OECD Secretariat also showed laudable flexibility and adaptability in responding timely to the G20’s call to pull together a new Inclusive Framework on Base Erosion and Profit Shifting (BEPS), which now has 85 countries, including many developing countries, committed to the BEPS roadmap.

Of course, much work is still ahead of us. Apart from the existing work streams, the OECD is tasked with taking forward the work on innovation/digital economy, overcapacity in the steel market (within a new Global Forum led by OECD) and designing tax policies for inclusive growth, among other things. The Netherlands views the supporting role of the OECD Secretariat in the G20 as very useful, as it provides non-G20 OECD countries an important window on and bridge to the G20.

Where is the G20 heading? Created as a mechanism for crisis management, it is now moving in the direction of a “steering committee” of the global economy. China’s emphasis on medium- and long-term structural policies has been helpful in this respect. Some observers express disappointment with the G20’s effectiveness in the face of persistent weak growth and a widely proliferating G20 agenda. This is partly understandable, in particular where it comes to insufficient implementation of agreed G20 commitments, like on trade and structural reform. That’s why structural policy measures following the 2014 G20 commitment to raise global GDP by an additional 2% by 2018 have so far only resulted in 1% according to OECD and IMF calculations. And it has been widely reported that G20 protectionism has been on the rise, contrary to what has been agreed. However, as the G20 expert Tristram Sainsbury (of the Australian Lowy Institute) says: “if the G20 did not exist, we would have to invent it”. With so many global problems requiring coordinated collective policy responses or new global standard-setting, not even big countries can go at it alone. At the same time, it is in the G20’s own interest to find constructive channels of engagement with non-G20 countries, some of whom are at the vanguard of policy innovation, implementing first what later often becomes mainstream in the rest of the world.

After the successful G20 summit in Hangzhou, we already start looking forward to the German presidency of the G20 in 2017. We would expect Germany to further advance the G20 attention for structural policies, including on topics like the digital economy, health care and responsible business conduct in global value chains. Undoubtedly, the OECD Secretariat will again provide the presidency useful analytical support. Wir werden bald sehen!

Useful links

OECD to help put innovation at heart of G20 global growth strategy

OECD and the G20

G20 serves an appetiser to a potential investment policy feast

G20-China-2016-logo-300Following endorsement of the G20 Guiding Principles for Global Investment Policymaking by G20 Trade Ministers in Shanghai on 10 July 2016, Ana Novik, Head of the OECD Investment Division, highlights the importance of follow-through on this important stepping stone to greater policy coherence.

In an economy where global value chains (GVCs) are increasingly pervasive – with the production of goods and provision of services fragmented across borders – and where the growth in cross-border trade and investment flows remains relatively sluggish, structural reform and policy coherence in the “trade-investment nexus” is more important than ever. As the global economy still struggles to achieve “escape velocity” from its post-crisis torpor, these can be the keys to unlock stronger growth and raise living standards for all.

Investment is understood to be a critical component of the GVC equation. So, recognising the economic salience of more coherent investment policymaking, G20 Trade Ministers endorsed new G20 Guiding Principles for Global Investment Policymaking at their meeting in Shanghai on 9-10 July 2016. This came about as a result of careful negotiation, supported by the OECD and other international organisations, through the G20’s new Trade & Investment Working Group (TIWG).

China’s initiative in establishing the TIWG during its 2016 G20 Presidency, and in putting investment policy coherence centre stage, sets a high bar for the German and Argentine Presidencies to follow in 2017 and 2018. Not only is this new working group an ideal forum for high-level policy makers to advance the multilateral trade and investment agendas separately but, crucially, it represents an opportunity to bolster policy coherence between them by exploiting synergies and recognising interdependencies.

Under China’s dynamic leadership, the G20 TIWG has served up a taste of what is possible. If policy makers can maintain this momentum at a global level, and implement conforming investment policy reforms at domestic level, these Guiding Principles may yet come to be seen as the appetiser to a feast. Critically, while the Guiding Principles help chart a way forward, it will be the political will of G20 member countries to advance reforms and engage in further constructive global dialogue that will determine their ultimate impact.

Sound, coherent policy frameworks in home and host countries can both ensure that private and international investment contribute significantly towards economic and social development, and enhance the attractiveness of countries’ investment climates. Getting these policy frameworks right is the rationale underpinning both the new G20 Guiding Principles for Global Investment Policymaking and the existing OECD Policy Framework for Investment, with which they are closely aligned.

The Guiding Principles entail nine key elements of guidance for policy makers:

  1. Avoid protectionism.
  2. Ensure non-discrimination.
  3. Protect investors.
  4. Make policy transparently.
  5. Aim for policy coherence for sustainable growth and inclusive growth.
  6. Recognise government’s right to regulate.
  7. Pursue effective and efficient promotion and facilitation policies.
  8. Observe best practices for responsible business conduct and corporate governance.
  9. Continue international investment dialogue.

Together, the Guiding Principles aim to foster an open, transparent and conducive global policy environment for investment. Although they are non-binding in nature, the Guiding Principles can help promote coherence in national and international policymaking, providing greater predictability and certainty for businesses so long as policy makers ensure they are well reflected through policy reforms.

The Role of the OECD and its Policy Framework for Investment

Providing critical support to TIWG negotiations over the first half of 2016, the OECD – working closely with the Chinese Presidency and UNCTAD – helped facilitate the constructive discussions leading to agreement on the Guiding Principles. In particular, inspiration was drawn from the OECD Policy Framework for Investment to ensure the Guiding Principles were as strong and balanced as possible. For example, there is a good balance between strong protection for investors, on the one hand, and, on the other hand, the imperative for investors to observe applicable instruments for corporate governance, such as the G20/OECD Principles of Corporate Governance, and responsible business conduct, such as the OECD Guidelines for Multinational Enterprises. Building on its existing body of work, the OECD also contributed substantively to the TIWG’s broader discussions on policy coherence in the trade-investment nexus as well as on investment facilitation and related policy issues. Furthermore, the OECD played host to a meeting of the TIWG, on the margins of its annual Ministerial Council Meeting during the first week of June 2016.

First developed in 2006 as a response to the Monterrey Consensus, and updated in 2015 as a means to mobilise private investment for development in the context of the Sustainable Development Goals, the OECD Policy Framework for Investment (PFI) takes a comprehensive, whole-of-government approach to investment climate reform. The objective of the PFI is to mobilise private investment that supports steady economic growth and sustainable development, contributing to economic and social well-being around the world. Covering 12 policy areas (from investment policy to trade policy, and from responsible business conduct to green investment), the PFI is non-prescriptive and emphasises policy coherence across those areas. It eschews one-size-fits-all solutions and encourages policy makers to ask appropriate questions about their economy, their institutions and their policy settings.

Useful links

G20 agrees Guiding Principles for Global Investment Policymaking

G20 Guiding Principles for Global Investment Policymaking

OECD Policy Framework for Investment

OECD Guidelines for Multinational Enterprises

G20/OECD Principles of Corporate Governance

The rise of the G20 and OECD’s role

G-20 Summit in Antalya: Turkish PM Erdoğan and OECD SG Gurria
G-20 Summit in Antalya: Turkish PM Erdoğan and OECD SG Gurria

Noe van Hulst, Ambassador of the Netherlands to the OECD

With the eyes of the world on the G20 summit in Antalya, we are reminded how G20 has become a well-established ‘brand’ in the global governance landscape. Yet, it’s only as recently as 1999 that the G20 was created as an informal platform of “systemically significant countries” in response to the financial crisis in Asia and on the initiative of the US and Canada. For many years, the G20 remained below the radar screen, working quietly but effectively at the level of Ministers of Finance and Central Bank Governors, e.g. in the area of countering the financing of terrorism, which is still a very relevant topic. This situation changed completely in 2008 when the global financial crisis hit us all. On the initiative of French president Sarkozy and UK Prime Minister Brown, US president Bush called for the first ever G20 Leaders meeting to fight the crisis in a coordinated way and to avoid a global economic depression. What started as a one-off crisis summit, however, soon became a permanent tradition. In 2009, under the presidency of US president Obama, the Group declared that the G20 is henceforth “the premier forum for international economic cooperation”. Attention gradually shifted from fighting the crisis (2008-2010) to structural policies for a sustainable and balanced recovery of global economic growth. Although the legitimacy of the G20 as a ‘self-appointed club’ is periodically questioned, the G20 is today well-established as the only global forum where advanced and emerging economies cooperate on an equal footing.

Since 2010 the G20 agenda started to broaden to topics beyond strict financial and economic policy issues: e.g. agriculture and food security, trade, investment, employment, taxation, anti-corruption, energy, climate, SMEs. In parallel, we are witnessing a wider range of G20 Ministerial meetings beyond just Finance: Labour, Agriculture, Trade, Foreign Affairs, Tourism and under the current Turkish presidency recently the first ever Energy Ministers meeting.

What about the effectiveness of the G20 so far? On this key question, opinions among analysts differ. Most people agree that the G20 has been successful in tackling the global financial and economic crisis, with coordinated policies on aggregate demand, more stringent financial regulation and restraining protectionism. However, it is proving to be tougher to make significant progress on the more structural policy areas which often require sensitive domestic policy changes. A good example is the implementation of the Brisbane Growth Strategies, where the OECD Secretariat, in a joint report with IMF and World Bank Group for the Antalya summit, found that less than 50% of the policy commitments encapsulated in the National Growth Strategies have been fully implemented, raising G20 GDP by 0.8% by 2018, while the target is 2.1%. So much more needs to be done, as G20 Leaders acknowledge in their communique.

Although the G20 emphasizes its flexible and informal nature, we do see a certain degree of institutionalisation with (sous-) sherpas, working parties and expert groups. Furthermore, a growing group of stakeholders is trying to influence the G20 agenda. This group ranges from business (B20) to trade unions (L20), NGOs (C20), youth (Y20), think-tanks (T20) and since the Turkish presidency also women (W20).

The G20 doesn’t have a permanent Secretariat and instead relies on the support of established international organisations. Slowly but surely, the OECD Secretariat has evolved into what is increasingly referred to as the “quasi-Secretariat” of G20. To a certain extent, this is a natural development since the OECD has widely acknowledged strong competences in data collection, benchmarking and solid, evidence-based economic analyses in areas that are closely aligned with the broadening G20 agenda. Many of the other international organisations have a more limited mandate and competence base. Hence, OECD is uniquely positioned to make significant contributions to the G20 work on issues like (green) growth, financial regulation, climate finance, agriculture and food security, anti-corruption, employment and inequality, (green) investment and trade. The same applies to the IEA in the important field of energy which of course is closely linked to climate change. For non-G20 OECD countries, the OECD and IEA roles in the G20 provide a very important window of information and a channel for constructive engagement.

A great example of OECD’s important role in supporting the G20 work is the Base Erosion and Profit Shifting (BEPS) project. Mandated by the G20, OECD and G20 countries worked jointly for two years on an impressive set of new international tax standards and measures, addressing issues like preventing treaty shopping, country-by-country reporting, fighting harmful tax practices and many others. The final package has just now received the strong endorsement by G20 Leaders in Antalya. In my view the BEPS project is a game-changer because of the unprecedented process in which OECD and G20 countries worked on the development of new international tax standards on an equal footing. This has proven to be a very effective and inclusive way of dealing with a highly complicated and controversial topic. Even though the initial drive came from the G20, the technical work in an extended OECD Committee (with emerging and developing economies participating on an equal footing) created the necessary co-ownership from countries outside the G20. This may well provide an excellent best-practice model of how to proceed in equally complicated policy issues outside the tax area.

Turkey’s presidency of the G20 has consistently pursued the 3i’s of “Implementation, Investment, Inclusiveness”. The Antalya final communique is a clear testimony to this.

On a personal note, I want to thank the Turkish presidency warmly for including our Minister of Trade & Development Ploumen in the G20 Trade Ministerial meeting in October. As we are looking ahead to the Chinese presidency of the G20 in 2016, it seems that trade and investment cooperation will be one of the top priority areas. In the light of the worrying projections on trade growth in OECD’s latest Economic Outlook, this is highly appropriate and very welcome indeed. Surely, the OECD Secretariat can play a key role here in supporting the G20 to make tangible progress in boosting global trade and investment, which is so critical to restoring healthy growth of the global economy.

Useful links

Read the Ambassador’s blog (in Dutch)

OECD and the G20

 

Growth and development—for whom?

Innovations in measuring poverty and inequality

Today’s post is from Stephen Groff, Deputy Director of the OECD Development Co-operation Directorate.

UNDP’s Human Development Report, launched this morning at OECD headquarters in Paris, stresses that today’s development challenges require a new outlook. There are no silver bullets or magic potions for human development. Rather than trying to replicate past experience, we need to focus on new opportunities. Rather than attempting to apply policy prescriptions, we need to adapt general principles and guidelines to the local context. And we must address major new challenges—in particular, climate change—and build democratically accountable global institutions to deal with them. Our analysis must go deeper, and we must consider carefully the multidimensionality of development objectives.

The Human Development Index was one of the first serious attempts to broaden the debate around just how we measure development. Over time, the development community has moved from an initial, rather simplistic stance of increased GDP as synonymous with development, to an array of indicators for ranking how countries and people are faring. In recent years, the debate has become much more pronounced with the Stiglitz-Sen-Fitoussi commission and the OECD’s work on measuring the progress of societies.

At OECD we recognize how important measurements are; they are, quite simply, our means of defining success. And as such, we feel that it is vital to consider development outcomes in their multiple facets—not just poverty or income growth levels.  Growth is a means to an end, and not an end in itself. The Human Development Report confirms this central truth, and also makes it clear that there is no single pathway to success. Each country must have the ownership, capacity and resources to find their own solutions to their own development challenges.

In this respect, it is very positive to see the G20’s growing focus on development. Having just attended the G20 Summit in Seoul, I was fortunate to witness as global leaders confirmed the challenge of closing development gaps as a core element of their economic o-operation.

This is good news for at least two reasons. First, the G20 countries are the largest global economies and major partners of low-income countries (LICs), and what they do matters a lot for LICs’ growth. Second, G20 countries bring to the development debate new perspectives and fresh ideas—in particular, they bring their own development experiences and skills, enriching the menu of options available to LICs for the design of their development strategies and policies.

In Seoul, the G20 adopted the Seoul Development Consensus for Shared Growth and an action plan comprising nine pillars to promote LICs’ growth. The G20 is uniquely placed to provide leadership in advancing the international development agenda and achieving the MDGs. They can do this by: improving their own policies; sharing their development experiences; providing assistance to build capacity; and offering strategic guidance to international organizations, thereby enhancing the effectiveness of the multilateral system.  It is essential that all these work together toward the ultimate objective of improving the impact of G20 policies on LICs’ growth.

The OECD—like the G20—takes a comprehensive approach to development and to knowledge sharing, cross-fertilisation and policy coherence, placing development at the core of our work and engaging our full range of policy communities. With decades of experience in development, we are pleased to be mandated by the G20 to work closely with the UN, the World Bank and other international organisations to contribute to implementing the action plan. We believe that our contributions will help the G20 to identify what works when promoting growth and poverty reduction, to better assess the impact of G20’s own policies on LIC growth, and to find ways of maximizing positive impacts.

The G20 approach to development is underpinned by a fundamental belief in the core importance of growth.  This is the right perspective as growth is a necessary component of development but it is also important to remember that the rate of poverty reduction depends on the pattern, and not only the pace, of growth.  One of the key messages of the HDR—and one that I know the G20 will heed—is that growth does not automatically equate to other aspects of development.  Nor is there a minimum threshold of growth required for countries to develop.

At OECD, we are keen to share our experience regarding what makes growth benefit the poor—something we have been exploring for years in the DAC and its Network on Poverty Reduction. More generally, we will continue to put a strong emphasis on measuring the progress of societies, because people, as the HDR says, are the real wealth of nations.

Useful links

Human Development Index

OECD work on G20 issues