1. Can the G20 save the world from global recession?
In the latest world economic outlook, the International Monetary Fund forecasted that 70 percent of the global economy will experience a slowdown this year. In fact, this is IMF’s third downgrade since October.
Recently, we’ve seen some encouraging signs. The latest indicators from China were better than expected, signaling that the government stimulus may be working. Brexit has been postponed until October. The US and China are in intensive talks and may be nearing an agreement. The US Fed and the European Central Bank are most likely to refrain from raising interest rates in 2019 in an effort to support the economy.
But risks remain. The US economy's post-financial crisis expansion, which is nearing the 10-year mark, is now clearly losing steam. Europe seems to be struggling with the weakness of the financial sector in Italy and Germany, while the prospect of Brexit is not at all clear. Japan has a consumption tax hike scheduled for October. Tension between the US and China is likely to continue, even if a temporary deal is struck between the two. G20 leaders need to agree to avoid policy missteps that may harm the global economy.
2. How can the G20 address the issue of global imbalances?
US President Donald Trump has been blaming China, Japan and Europe for his country’s trade deficit. It’s true that these trading partners have a current account surplus. However, the risk of the so-called US twin deficits, namely the fiscal deficit and the current account deficit, is not going away no matter how much the US imposes trade tariffs on its trading partners. In fact, the trade tensions have damaged American farmers and exporters. President Trump’s signature tax cut has added to the country’s fiscal deficit.
China, Japan and the EU are all in bilateral talks with the US, but Japanese officials say that they want to stress that multinational talks are more important and meaningful when it comes to addressing the issue of global imbalances.
3. Will the G20 be able to reach a consensus on data governance and principles of new international taxation rules?
Japanese Prime Minister Shinzo Abe spoke at the World Economic Forum in Davos and declared that the G20 leaders will be discussing data governance at the Osaka summit. Big data is a source of wealth and prosperity, which means ensuring a free flow of non-personal data is important. But protecting intellectual property, personal data and information regarding national security intelligence is a must. Japan will call on ways to facilitate data use while protecting intellectual property and start an "Osaka track" under the World Trade Organization.
Another topic related to the era of a digitalized economy that's on the agenda is the global tax system. G20 members have agreed that they need to mull new international tax rules for multinational companies to fit the digital era, which is a big step forward. Many taxpayers are becoming increasingly critical of IT titans such as Google, Apple, Facebook, and Amazon, saying that the giants are using tax evasion tools and are not paying their fair share.
Yet they are still far from agreeing on how they will make the change. The OECD released a consultation paper in February that shows the proposals submitted from its member countries. Sources say that at the G20 ministerial meeting held in mid-April, members spent a vast amount of time talking about this issue. They’ve agreed that they need to change the existing profit allocation and nexus rules.
They will also talk on ways to address tax evasion. Some countries say nations with higher tax rates should be provided a right to "tax back" profits subject to zero or very low rates of taxation in tax havens. The discussion will continue until 2020 as scheduled, but it is up to the G20 leaders to speed up the process by agreeing to give a political endorsement at the Osaka meeting.
4. Can the G20 deal with new challenges, such as the aging population, crypto-assets, and market fragmentation?
G20 members are not immune from changes in society, and they can use the opportunity to discuss new challenges on the horizon. Japan will be leading discussions on themes such as preparing and coping with an aging society, regulating crypto-assets, and fixing market fragmentation.
Chairing the G20 has become a more difficult task over the years as protectionism grows. More countries are increasingly looking inward, pursuing their own national interests. The leadership of Japan as well as the framework of the G20 itself is being tested.
The G20 Summit is a framework that was established a decade ago to deal with the global financial crisis. But that does not mean that the leaders need an ongoing crisis in order to cooperate and collaborate. It’s up to the leaders to make a difference by working together to avoid another global crisis.