Evaluation of the 2020 G20 Leaders Declaration by Bundesverband der Deutschen Industrie e.V.

POSITION | EXTERNAL ECONOMIC POLICY

Evaluation of the 2020 G20 Leaders Declaration Leaders Declaration Largely Repeats Claims of Other G20 Initiatives and Lacks New or Innovative Policy Solutions

December 2020

Background

23. Oktober 2017

From 21 – 22 November, the Saudi-Arabian Presidency held its virtual (due to the Covid-19 pandemic) G20 Summit. The Saudi Presidency was anchored in the motto “realizing opportunities of the 21st century for all” with the following three overarching goals: ▪

Empowering people

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Safeguarding the planet

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Shaping new frontiers

The G20 Summit culminated in a ten-page Leaders’ Declaration, which touched on a variety of global policy challenges, including the Covid-19 pandemic and global health, trade and investment, transportation and travel, the financial sector, digital economy, international taxation, sustainable development, employment and education, women’s empowerment, and energy and climate. Unfortunately, the Leaders’ Declaration largely lacks new or innovative policy solutions or commitments and spends disproportionately too much time repeating the claims of other G20 initiatives and statements. German industry regrets that the G20 Leaders’ Declaration does not unanimously support the Paris agreement. German industry, however, is pleased to see the recommendations on women’s empowerment.

Evaluation of the 2020 G20 Leaders Declaration

Evaluation: Policy Area Specific Trade, Investment, and Open Markets German industry regrets the terseness of the statement on trade and investment, which lacks ambition and specificity. The key challenges facing the rules-based trading system, including protectionism, state-owned enterprises, industrial subsidies, and distortions caused by dumping and unilateral tariffs, are not addressed in any way. In the Declaration, the G20 leaders do note that “structural problems in some sectors, such as excess capacities, can cause a negative impact.” The wording appears weak considering the severity of the problem, particularly with regard to steel. It is necessary to work immediately towards a level playing field by reducing subsidies and overcapacities. The Covid-19 pandemic has led to a weakening demand in a number of sectors, thus exacerbating the problem. The mere recognition that negative impacts exist is stating the obvious. Measures need to be taken swiftly and strongly. The stated commitment to open markets needs to be backed up by an appeal to implement measures towards a “free, fair, inclusive, non-discriminatory, transparent, predictable, and stable trade and investment environment,” as expressed by the leaders. It is not sufficient to strive to realize this goal, but rather, concrete steps must be agreed upon, particularly on the part of China. One possible step alongside the G20 process would be to see stronger commitments by China in its offers in the negotiations towards the EU-China Comprehensive Agreement on Investment. Apart from recognizing the contribution of the Riyadh Initiative on the Future of the WTO, the Organization is not mentioned at all, and BDI finds it quite disappointing that the G20 countries could not come to agreement in support of WTO reform in any specific pillars or the Joint Initiatives, such as on MSMEs, e-commerce, or on trade and gender. What is welcomed by German industry, however, is the recognition of the need to increase the sustainability and resilience of supply chains at every level and the objective of inclusive economic growth. To this end, we look forward to the efforts of the upcoming G7 Presidency under the United Kingdom and hope that this group can make more ambitious commitments. Global Health and the Covid-19 Pandemic German industry very much welcomes the central role given to health in the Leaders’ Declaration. Covid-19 is recognized as a global challenge which needs to be tackled jointly and decisively. It should be emphasized that financial resources and licensing of intellectual property are specifically mentioned. In this context, we call for recognition of the critical role played by effective intellectual property in defeating the virus, in helping to drive economic recovery, and in enabling the private sector to make sustainable contributions to solve the crisis. Covid-19 treatment, diagnostics, and vaccination are correctly prioritized, and immunization is correctly defined as a global public good. Pandemic preparedness is rightly referenced as a crucial criterion for the future. The central role of the WHO is emphasized, an important signal after the criticism thereof and announced withdrawal of the United States therefrom. The issue of health has not always been a central topic on the G20 agenda in recent years, which will likely be rectified in the future. Reference is made to the Italian Presidency, during which health will be a priority, with a Task Force dedicated to this topic. Not only does the Declaration mention the pandemic, but in addition, universal health coverage and – inparticular – the importance of financing. These are crucial to strengthening health systems in a sustainable way. However, there is a lack of concrete measures being mentioned. The Declaration also addresses cooperation in innovation, the importance of combating antimicrobial resistance, and the

Evaluation of the 2020 G20 Leaders Declaration

associated one-health approach. Furthermore, the Declaration references efforts made to combat infectious and non-communicable diseases. Without concrete action, there stands the risk that this remains a mere declaration of intent. In this context, more attention should have been paid to the central importance of Health System Strengthening (HSS) as a key element and prerequisite for achieving the aforementioned goals and SDG 3 – Good Health and Well-Being for People. Energy, Environment and Climate German industry regrets that the G20 did not include some core topics of the present global debate on climate change in the Leaders’ Declaration, such as carbon pricing, renewable energy, and the growing importance of hydrogen, all the more as those instruments require global cooperation to unfold their positive impact. The final communiqué of the B20 earlier this year dealt with these questions. Political leaders and their business partners can reconcile political goals with business cases. German industry welcomes that the G20 recalls the Paris Agreement and reiterates support for tackling pressing environmental challenges such as climate change and biodiversity loss. BDI supports the fact that the G20 has made a clear commitment to the Circular Carbon Economy Platform. It can become a central element, not only in conserving the planet’s resources, but also in making a substantial contribution to fight climate change. BDI also welcomes that the G20 underlines the importance of utilizing the widest variety of fuels and technology options and leading energy transitions to realize the "3E+S" (Energy Security, Economic Efficiency, and Environment + Safety). Financial Policy German industry strongly supports the G20’s reaffirmation of its commitment to the international financial architecture consisting of the International Monetary Fund (IMF), World Bank Group, multilateral development banks and the Financial Stability Board (FSB). This is good news for the concept of multilateralism in the financial arena. We find it important to focus on the classification of an orderly transition from the reference rate LIBOR to alternative interest rates, as well as on sustainable finance, financial inclusion, and financial stability, with particular regard to climate change. We additionally welcome the G20 agreement on debt relief for developing countries. This is the first step towards cushioning the consequences of the pandemic for developing and emerging economies. A more comprehensive approach will become indispensable in the coming months. Digital Economy It is positive that the G20 recognizes the importance of digitalization, also as an enabler to overcome the COVID-19 crisis. The declaration puts an important focus on the topic of connectivity as the backbone of the digital economy, which BDI supports. The declaration does not say how connectivity could be reached, and the G20 also does not set proper aims for connectivity. The EU can take this focus to heart and advance its own connectivity strategy swiftly and potently. The Covid-19 pandemic has led to this important project being somewhat sidelined. However, the commitment of the European Commission to invest in connectivity and put its strategy into practice should not be a victim of shifting to supposedly more immediate priorities. Industry stands ready as a partner in this endeavour. It is positive that the G20 underlines the importance of the trustful and secure free flow of data and cross border data flows. Nevertheless, the G20 leaders do not go further by mentioning, for example,

Evaluation of the 2020 G20 Leaders Declaration

that unnecessary forced data localization should be avoided. It is also positive that the G20 recognizes the importance of promoting security in the digital economy and that they expressed their will to continue to promote multi-stakeholder discussions to advance innovation and a human-centred approach to Artificial Intelligence (AI). In summary, even though the declaration uses supportable key words and policy ideas, the declaration stays quite vague and avoids defining any concrete strategy or aims. Africa Sub-Saharan Africa’s economy will experience its first recession in a quarter century this year: It is expected to decline by between two and five percentage points. The UN Development Program (UNDP) warns that almost half of all jobs in Africa could be lost. According to forecasts, Covid-19 will increase the proportion of the population living in poverty in Africa from 33 to 38 percent. This underlines the urgent need for economic recovery in African countries. The BDI therefore clearly supports the commitment of this year’s G20 Leaders’ Declaration to support African countries in overcoming the crisis, including by exploring more sustainable financing options for growth in Africa. BDI also welcomes the G20’s continued support for the G20 Initiative on Supporting the Industrialization in Africa and LDCs, the G20 Africa Partnership and the Compact with Africa. The Compact with Africa was initiated under the German G20 presidency in 2017 to promote private sector investments in Africa. While driven by Germany, enhanced support from the other G20 countries is needed to have a sustainable impact. In addition, the African Free Trade Area (AfCFTA) should be high on the G20 agenda. The agreement covers a total of 1.2 billion consumers and could create a joint gross domestic product (GDP) of over €2 trillion. By 2022, all tariffs on services and 90 percent of product duties on the continent are to be eliminated. Africa’s GDP could increase by one percent, total employment by 1.2 percent per year, and intra-African trade by 33 percent. If properly implemented, the free trade area, more than any other factor, can boost Africa’s economic growth and combat extreme poverty in the long-term. By 2050, the AfCFTA could reduce extreme poverty by more than six percent. The African free trade zone also offers companies tremendous opportunities. It facilitates long-term investment and trade for German companies with more than 50 African countries. Development The G20 is correct in its analysis that the social and economic impact of the pandemic will be substantial and that it is imperative that efforts to end poverty and tackle inequalities are accelerated. While the Leaders’ Declaration refers to the corresponding annex documents in the area of development (e.g. The G20 Support to Covid-19 Response and Recovery in Developing Countries and the Financing for Sustainable Development Framework), it lacks a clear commitment to the role of the private sector to achieve the goal of sustainable development. As stated in the annex document 2020 Annual Update on G20 Development Commitments and the G20 Action Plan on the 2030 Agenda for Sustainable Development, it is crucial to enhance the role of political risk insurance to mobilize private sector investments in low-income countries. Likewise, we support the enhancement of innovative financing instruments such as blended finance, as referenced in the annex document Financing for Sustainable Development Framework. What is missing, however, is a reference to the necessity of a functioning level playing field in the area of export credits. The G20 neither addresses the need for a reform of the existing OECD consensus system nor the unfair competition of financing conditions outside of the consensus rules.

Evaluation of the 2020 G20 Leaders Declaration

While we strongly support the statement that “universal, secure and affordable connectivity is a fundamental enabler for the digital economy as well as a catalyst for inclusive growth, innovation and sustainable development,” we would add that in this regard, particularly the use of satellite data should be further enhanced. International Taxation German industry welcomes the commitment of the G20 leaders to find a solid, long-term framework for an international, consensus-based tax architecture by mid-2021. While the recently published Blueprints show that significant progress has been achieved by the members of G20/OECD Inclusive Framework on BEPS, several key challenges remain unsolved. When addressing the remaining issues in order to reach a global and consensus-based solution, all participating stakeholders should strive to further simplify the very complex proposals that would currently lead to disproportionately high implementation efforts compared to the expected revenue gains. Policymakers should also prioritize means to ensure increased tax certainty and to avoid double taxation risks. Women’s Empowerment German industry welcomes the inclusion of the section of the Leaders’ Declaration on women’s empowerment, an important topic highlighted by the B20 Women in Business Action Council. It is positive that the G20 emphasizes the importance that the pandemic must not increase gender inequality and recognizes female empowerment as a cross-cutting issue that should be recognized in all policy areas. German industry is pleased that the G20 countries commit themselves in the Declaration to “promote gender equality, combat stereotypes, reduce pay gaps and address the unequal distribution of unpaid work and care responsibilities between men and women.” Transportation and Travel We welcome the commitment of the G20 countries to keep global transport routes and supply chains open and sustainable. It is of great importance for German industry that logistics and supply chains continue to run smoothly. Cross-border and international transport must be made possible in coordination with the international community and oriented towards the local state of affairs of the pandemic. In general, international cooperation should continue with measures to remedy the situation and enable greater resilience of and across all modes of transport.

Evaluation of the 2020 G20 Leaders Declaration

Impressum Bundesverband der Deutschen Industrie e.V. (BDI) Breite Straße 29, 10178 Berlin www.bdi.eu T: +49 30 2028-0 Editors Alexander Boxler T: +49 30 2028-1484 a.boxler@gha.bdi.eu Philipp Gmoser T: +32 279 21012 p.gmoser@bdi.eu Robin Kunst T: +49 30 2028-1751 r.kunst@bdi.eu Anne Lauenroth T: +49 30 2028-1563 a.lauenroth@bdi.eu Dr. Stormy-Annika Mildner T: +49 30 2028-1562 s.mildner@bdi.eu Eberhard von Rottenburg T: +49 30 2028-1542 e.vonrottenburg@bdi.eu Sven Schönborn T: +32 279 21011 s.schoenborn@bdi.eu Stefanie Stündel T: +32 279 21015 s.stuendel@bdi.eu Katherine Tepper T: +49 30 2028-1499 k.tepper@bdi.eu Dr. Serhat Ünaldi T: +49 30 2028-1522 s.uenaldi@bdi.eu Document Number: 1282