The G7 Summit: A Reboot for Multilateralism, but Not Up to Speed

By Katie Gallogly-Swan

For some observers, the recent G7 Summit on June 11-13, 2021 was a revival of multilateralism after an unprecedented year of collective tragedy during the COVID-19 pandemic.

Tangible evidence of that revival shows indications of a more serious approach from major economies to the multiple crises facing the world. But with commitments falling far short of ambitions, there is still a huge distance to travel to secure the green and just recovery the world needs.

Below is a whirlwind tour of the key issue areas covered in the Carbis Bay G7 Summit Communique, and the progress gap to watch in the year ahead.

Build Back Better for the World and Climate

Perhaps the most interesting development at the Summit was the announcement of a new infrastructure partnership entitled ‘Build Back Better for the World’ (B3W) to grant developing countries improved access to financing for low-carbon projects with four focus areas —climate, health and health security, digital technology and gender equity and equality.

Billed as a ‘Green Marshall Plan’,  the plan would include a grand investment push to support decarbonization, while spurring economic recovery. The original Marshall Plan to rebuild Europe after World War II amounted to 8-9 percent of receiving countries’ GDP and was delivered mainly in the form of grants, providing countries the best chance of rebooting their economies and strengthening their industrial capacities. The world needs this level of investment ambition to secure a global green and just recovery, as only a few weeks ago the International Energy Agency released a new report on pathways to energy transition and called on leaders to double investment in renewables to $5 trillion by 2030.

However, at this stage, it’s not clear what numbers are on the table. Considering that advanced economies have yet to meet the $100 billion climate finance target for developing countries, it may take some time before assessing whether B3W is truly the historic announcement it could – and should – be.  Furthermore, there are key concerns – namely the geopolitical positioning that trailed the announcement and the ‘market-led’ approach to “mobilize private capital through development finance” – that may ultimately undermine the goals of the partnership.

Other announcements on climate were less promising, as key targets such as “an overwhelmingly decarbonized power system in the 2030s” were dropped from the final communique. Leaders kept the focus on limiting warming above 1.5C, but disappointed with the pledge of “net zero no later than 2050,” and conspicuously lacked the financing and timelines to achieve it.. The lack of clarity on this goal notably included a failure to agree on a timeline to phase-out coal, and despite pledges to end state funding of coal, there was no acknowledgement that private financiers in G7 countries are among the largest investors of overseas coal.

Greening the financial system also featured, primarily in the announcement to make climate-related financial disclosures mandatory across their respective economies, and more broadly agreeing to establish “the necessary market infrastructure for private finance to support and incentivize the net zero transition,” including carbon pricing policy levers. The question is whether these market-based approaches will be complimented by regulatory policies to transform production and consumption in line with climate and nature goals – the most effective route as advocated in the recent Dagupta Review.

Vaccines

With the world far from free of COVID-19, the global public health response was another key policy area for the G7 Communique, which sketched out the beginnings of a more coordinated public health response to this and future pandemics.

Central to mounting an adequate response in the coming months will be increasing global vaccine access – recognized as the strongest stimulus the world economy can generate. G7 commitments on vaccines, however, were met with disappointment including from vaccine access activists, the United Nations Secretary General, the World Health Organization (WHO) and the International Monetary Fund (IMF). While the WHO has stated that 11 billion vaccines are needed to vaccinate 70 percent of the world, the G7 committed to donate or finance only 1 billion doses for lower income countries over the next year – 130 million of which had been previously announced.

A major critique of the vaccine commitments underscored that G7 leaders are still prioritizing how to divide the existing pool of vaccines, rather than massively scaling up manufacturing everywhere. Indeed, some members of the G7 – namely the United Kingdom and European Union – continue to oppose the proposed waiver on certain provisions of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement that is now heading to text-based negotiations at the World Trade Organization (WTO) and would be the first step towards faster, cheaper mass manufacturing. While some mentions of increasing manufacturing across regions were made, without taking vital precursor steps – agreeing to the waiver, enabling technology transfer and sourcing new financing– it is unclear how this action alone will meet the global vaccination challenge.

Economic Recovery

In the absence of a coordinated global recovery strategy, economic prospects across much of the developing world have been left in the hands of powerful creditor countries, such as those in the G7.

Debt suspension rather than cancelation has been the favored response and in amounts that show little appreciation for the deep economic stress the pandemic has caused. At this G7, there were no signals that members were ready to confront the shortcomings of their response to the debt crisis: the G20 Common Framework still does not include all countries facing debt distress, many of whom are also climate vulnerable, and has yet to find a way to compel private creditors to participate.

G7 leaders reaffirmed their support of the Special Drawing Rights (SDRs) allocation worth $650 billion that is now working its way through the IMF apparatus after being blocked by the Trump administration. There is broad recognition that the slice apportioned to lower income countries is far less than their need, while G7 countries will be allocated approximately $263 billion worth of SDRs.

G7 leaders should be applauded for their proposal to “magnify the impact of this general allocation for countries most in need” by voluntarily channeling their own unused SDRs to the tune of $100 billion. However, this still doesn’t meet even conservative estimates of the financing shortfall for developing countries, and there is a risk that favured recycling mechanisms may be laden with regressive conditionalities, further indebtedness, or reductions, as pursued by the G7 host country, in Overseas Development Assistance.

The agreement to move forward on a global minimum corporation tax rate is a step in the right direction to remove incentives for tax havens, but it has come under fire from tax and inequality experts and developing countries for critical failings. New tax revenue will mostly benefit wealthier countries, where companies are headquartered, whether or not profit are made elsewhere. The proposed rate would also not target all multinationals, is far lower than anticipated or desired and still faces political hurdles in developed-country tax havens. Of course, multilateral approaches always include negotiation and compromise, but so far, this is a deal hashed out between G7 members. It must include and address the concerns of lower-income countries before a decision is made at the G20 Finance Ministerial in July 2021 to truly tackle the race-to-the-bottom.

One significant development was a more explicit focus on the need to tackle inequality and recognition of the failures of the response to the 2008 Financial Crisis where “the recovery was not uniform across all parts of society.” The communique went so far as to explicitly recognize the “importance of social protection systems and the critical role and incredible contribution of caregivers in our societies, often unpaid and often disproportionately women.” However, it is not yet clear if these words will translate into better working conditions and salaries for care workers, or the growing precarious workforce in G7 economies, never mind elsewhere in the world. Indeed, the tide has not yet turned for countries accessing IMF resources, who are still subject to austerity conditionalities that undermine resilient public services.

Trade

While the world has seen unprecedented breaks with the economic status quo to respond adequately to the pandemic, one orthodoxy revealed to be more stubborn is the commitment to unregulated global trade and financial flows as a good in and of itself. For some observers, the best strategy to build back better after the COVID-19 crisis is to double down on pre-pandemic trade policies, integrating deeper into the global economy and improving ‘competitiveness’ to attract foreign investment.

The trade sections of the G7 communique evidence this trend, but also acknowledge the need to reform the trading system for a more resilient global economy and to align trade with Paris Agreement commitments. However, this version of reform appears to focus on securing the interests of advanced economies, while reneging on pillars of the rules-based system that are priorities for developing countries.

Advanced economies historically used strategic industrial policies to build and diversify their economies, but such policies are labeled “unfair” and “harmful” by the G7 communique. Lower income countries urgently need policy space for such levers to have any hope of advancing progress on either development or climate ambitions, but instead G7 countries are challenging what little policy space is afforded by virtue of the principle of ‘special and differential treatment’ at the WTO.

Such self-interest threatens the credibility of the G7’s commitment to cooperation and a recovery for all, both of which are fundamental to achieving collective ambitions.

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The promise of a return to multilateralism has understandably raised hopes that G7 leaders will be ready to meet today’s challenges and this G7 Summit has provided some first steps towards potentially transformative ideas. There are plenty of summits in the second half of 2021 for these ideas to mature and establish a new era of materialism built not on zero-sum contests, but on the vital lesson of interdependence the global community has learned from the pandemic: no one is safe until everyone is safe.