- Nov 10 2015
The G20 Summit at Antalya in Turkey is expected to focus extensively on infrastructure investment on one hand and climate and energy policy on the other. The latter seems quite natural, ahead of the Conference of Parties in Paris in December.
This year’s G20 Summit at Antalya, Turkey will be held between 15th and 16th November. The Summit comes towards the end of a year that has seen great global economic stress - a slowdown of the Chinese economy, a depressed global commodities market, and above all, insufficient recovery from the Global Financial Crisis of 2007-2009. The lingering threat of sovereign defaults in Southern Europe and the uncertain future of the Eurozone at large will provide a sombre backdrop for the Antalya Summit. So will COP-21 and the divergent views of how to address climate change. The Turkish are presiding over the Summit this year and have shaped an agenda that seeks to address the uncertain nature of the global economy.
At the Brisbane Summit last year, G20 adopted an ambitious Action Plan that seeks to raise the G20 GDP by an additional 2 percent by 2018. The Brisbane Action Plan seeks to promote a collective growth strategy that is "stable," "sustainable," "inclusive," and "resilient." Under the Turkish Presidency, the agenda for inclusive and robust growth is organized around three pillars: (1) Enhancing Resilience, (2) Shifting Recovery and Lifting Potential and (3) Buttressing Sustainability. The Resilience pillar has - as components - financial regulations, international financial architecture, international taxation, and anti-corruption measures. The Recovery and Lift pillar consists of macro policy coordination, investment, employment, and trade. The Sustainability pillar will guide development, energy and climate negotiations.
Taxation: The most significant international taxation issue in front of the G20 is combating Base Erosion and Profit Shifting (BEPS), a strategy with a negative externality which - according to the OECD -- refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid." BEPS is typically understood within the framework of transfer pricing.
The OECD-G20 BEPS Action Plan (introduced in 2013 G20) was reiterated in the Brisbane Summit last year. In particular, the Brisbane Communiqué endorsed a global Common Reporting Standard for automatic exchange of tax information (AEOI). However, a stronger approach -- beyond AEOI -- to combating BEPS in form of making tax liability information about multinationals public seems to be too sensitive to be politically viable. News reports from the Brisbane Summit indicate as much.
The OECD-BEPS Action Plan had 15 action items out of which 7 were delivered last year. At the table this year are 8 more and a consolidation of all 15 into a single package, to be delivered in October. From GOI point of view, two of this year’s deliverables, Action 3 ("Strengthen Controlled Foreign Corporation Rules") and Action 12 ("Require Taxpayers to Disclose their Aggressive Tax Planning Arrangements"), are of particular interest. Under the Turkish Presidency international taxation falls under the "Enhancing Resilience" pillar of inclusive and robust growth. It is, therefore, important to present BEPS and other international taxation issues in terms of sustainability of the G20 collective growth agenda.
Employment: Jobs have been at the centre of G20 agendas since the Great Recession. The Brisbane Communiqué reaffirmed this commitment. In particular, it set the target of "of reducing the gap in [labour force] participation rates between men and women ... by 25 per cent by 2025, taking into account national circumstances". It also asked member countries to commit to reduction in youth unemployment, emphasize training and apprenticeships and enforce social protection measures for workers. A report on progress along these lines is expected this year, per last year’s Communiqué. From GOI point of view, it is important that emphasize our national commitments in this direction; the "Skill India" initiative is a salient example.
Last year’s Summit highlighted several issues around employment in G20 countries that need to be addressed immediately. The first and foremost one was that the "jobs gap is projected to remain substantial in several G20 economies until at least 2018." The second issue was that quality of employment - measured by gains in real wages - continues to be a problem. The final issue was the need of reforms in product markets to ensure quality job creation.
The Turkish Presidency Priorities situates employment under the pillar of "Strengthening Recovery and Lifting Potential," alongside investment, trade, and macro policy coordination. This grouping (which points to linkages between the four areas) needs to be leveraged further. The IMF Jobs and Growth Group points out how "macroeconomic instability can interact with [income] inequality to reduce growth" (p. 28 of Fund Considerations document). As a converse: Better employment outcomes, by definition, reduce income inequality and alongside macro policy coordination (which counteracts cyclical downsides) can promote sustainable growth. Small and medium enterprises (SME) - a focal priority for the Turkish Presidency - remain a major source of employment in G20 countries. Integrating SME into global value chains and into international trade can also contribute positively towards better employment outcomes. To summarize, it is important to situate the discussion around jobs within the broader "Strengthening Recovery and Lifting Potential" pillar.
Infrastructure investment: The Brisbane Summit introduced a multi-year Global Infrastructure Initiative (GII) a "programme to lift quality public and private infrastructure investment". Under this Initiative, the private sector, national and international development banks will work "to create a climate that facilitates higher investment, particularly in quality infrastructure and small and medium enterprises," according to the G20 Note on Global Infrastructure Initiative and Hub. A complimentary programme introduced in Brisbane was a Global Infrastructure Hub which will work as a knowledge-sharing platform that will "yield ongoing improvements to the functioning of infrastructure markets." The Hub has a 4-year mandate.
The Turkish Presidency seeks to build on this in two different ways. One, it seeks to create a World SME Forum through the International Chamber of Commerce. Two, towards financial intermediation for infrastructure funding, it seeks to promote non-traditional sources such as equity-based financing. This seeks to take forward one of the stated aims of the GII: the treatment of development of infrastructure as an asset class.
Since Brisbane, infrastructure financing has seen to main developments, both of which are likely to impact discussions this year. One was the New Development Bank (NDB) which was - operationally - brought to existence during the 7th BRICS Summit earlier this year. The NDB has, as its primary focus, development finance including investments in infrastructure. The second development was the creation of the Chinese-led Asian Infrastructure Investment Bank (AIIB) which takes, as its name suggest, infrastructure-driven growth as an economic primary. One expects AIIB to become a more prominent theme under the Chinese Presidency next year. India has high stakes in the success of both initiatives.
It should be emphasized that nothing in the Brisbane GII prevents G20 to engaging more deeply with NDB and, eventually, AIIB. In fact, the Brisbane Communiqué explicitly pledges to "support similar initiatives by other development banks and continued cooperation amongst them."
Energy and climate finance: The Brisbane Summit recognized that "strong and resilient energy markets are critical to economic growth". It also endorsed the G20 Principles of Energy Collaboration around "energy access, energy institutions, energy markets, energy security and sustainable growth and development," according to the G20 Energy Sustainability Working Group 2014 Co-chairs’ Report. Under the Turkish Presidency, energy, development and climate negotiations make the third pillar of inclusive and robust growth: "Buttressing Sustainability."
The 2014 G20 Energy Sustainability Working Group advanced recommendations in the following areas: (1) global energy architecture, (2) energy efficiency, (3) strengthening gas markets, (4) inefficient fossil fuel subsidies, (5) transparency and regulation. Current market conditions driven by reduced aggregate demand (and geopolitical shifts) will most likely drive the discussion around energy markets at this year’s Summit.
Energy sustainability and environmentally sustainable growth are inexorably linked. Given the timing of this year’s Summit - a few months before the Paris climate change conference - one expects significant commitments from G20 towards climate finance. Last year, the G20 Climate Finance Study Group (CFSG) identified the following policy options: (1) financing for adaptation, (2) alternative sources and approaches to enhance climate finance and its effectiveness, (3) enabling environments, in developing and developed countries, to facilitate the mobilization and effective deployment of climate finance, and (4) examining the role of relevant financial institutions and multilateral development banks in mobilizing climate finance. At this year’s meetings, the CFSG is expected to report on the fragmented structure of current climate finance, approaches for mobilizing the private sector, and on the effectiveness of the 2014 policy options.
The Antalya Summit is expected to focus extensively on infrastructure investment on one hand and climate and energy policy on the other. The latter seems quite natural, ahead of the Conference of Parties in Paris in December. The G20 leaders are most likely to also deliberate on the international security situation, especially the persistent threats from para-state actors in the Middle East. Next year, the G20 will be hosted by the Chinese, who are most likely to shape the agenda that paves a way for them to integrate Chinese views on infrastructure finance and suggest a greater role for institutions like the AIIB; this would not be easy for them given the staunch American opposition for the same. India is also - apparently - likely to bid to host the G20 in the next couple of years after the Chinese. It is up to the Indian government and civil society to start shaping a defining agenda towards that.
(The writer is a Fellow at Observer Research Foundation, Delhi)