Incoterms_® and Commercial Contracts

In 2008, 20 heads of state and government decided to take over the reins of a collapsing world economy and to rebuild the foundations of the global governance system. The Group of Twenty (G20), which started as a grouping of finance ministers and central bank governors, is now fully established as the highest-level policy forum for international economic cooperation.

Business has a clear stake in the success of the G20. As the everyday practitioners of the global economy, companies are set to play an increasingly influential role in G20 action to foster economic growth, promote open trade and investment, build a more stable financial system, secure a clean business environment, and facilitate the transition towards a low-carbon economy. With its mixed membership of advanced and emerging economies, the G20 is in a powerful position to shape the rules of engagement for competing in global markets.

When G20 leaders held their first meeting in Washington in November 2008, their immediate concern was to pull the world from the abyss of another Great Depression. The outbreak of the global financial crisis, and the risk of a complete meltdown of the world economy, prompted an unprecedented spirit of cooperation among the world’s leading economic powers.

After a short period of relief in late 2009 and 2010, the global economy is once again on dangerous ground with the resurgent threat of recession fed by Europe’s debt crisis, sluggish growth in the US, and spillover effects in key emerging markets. In today’s multi-polar, multi-speed world economy, differences of view are starting to emerge among nations on how to address the longer-term structural issues on the global policy agenda.

At the core of the G20 lies the idea that governments can achieve more by working together than by acting on their own. Beyond the immediate task of coping with today’s economic turmoil, G20 leaders face the increasingly pressing challenge of developing more effective ways to govern an interdependent world with an integrated global economy.

ADAPTING TO NEW ECONOMIC REALITIES

The rise of the G20 brings two major changes to the global governance system. Replacing the Group of Eight (G8) as the world’s principal forum for international economic cooperation, the G20 gives a bigger role and influence to fast-growing developing nations, which represent half of its membership. By meeting at heads of state and government level, the G20 places global economic issues at the top
[Page10:]
of the international political agenda. These two major developments represent a tacit recognition of the deep transformations which the global economy has experienced over recent years.

The beginning of the 21st century marks a shift in the balance of economic power, with dynamic emerging countries from Africa, Asia, Latin America and the Middle East making important breakthroughs in global economic competition. According to the World Bank, emerging and developing nations accounted for 42% of international trade flows in 2010, up from 26% in 1995¹. The Economist estimated that, in 2010, the developing world represented 38% of world GDP, 60% of global energy consumption, 52% of all purchases of motor vehicles, 82% of mobile-phone subscriptions, and only 17% of global public-sector debt². Today, over three-quarters of all foreign exchange reserves are held by countries with developing economies. Sovereign wealth funds and multinational companies from emerging countries have become key sources of international investment. One third of foreign direct investment flows in the developing world originate from other developing countries. Whereas the US, Europe and Japan were the dominant forces in the global economy for half a century after World War II, the World Bank estimates that, by 2025, six major emerging economies (Brazil, China, India, Indonesia, South Korea and Russia) will collectively account for more than half of global growth.

The speed at which the breakdown of the US mortgage market turned into a crisis of global scale revealed the extraordinary degree of integration and interdependency of today’s world economy. Within months of the outbreak of the crisis, the United States, Europe, Japan and Russia dragged each other into recession. China, Brazil, India and other emerging economies fared better, but took a hit as credit contracted and world trade plunged. Interdependencies are not only a source of risk, however. They often represent a force for good. The rapid rebound from the crisis in late 2009 and 2010 would not have been possible without the healing effect of steady demand from key emerging markets. Through trade and investment activities, business is a powerful conduit for spreading growth from one country to another. Most of today’s goods sold
[Page11:]
are now “Made in the World” rather than in any single country, as companies build their business models around global value chains, with research, design, manufacturing and marketing activities distributed across several regions of the world.

As national economies become more intertwined, the policy actions of national governments tend to have important spillover effects on other countries. For example, in farm trade, export restrictions by one major exporting country can have a destabilizing effect on world prices and lead to greater food insecurity in nations that rely on food imports to feed their population. In the field of macroeconomics, loose monetary policies in one large economy may result in a surge of capital outflows and create inflationary pressures in other countries. In today’s interdependent world, increased dialogue among governments is vital to foster a better understanding of the economic interactions among nations. Stronger intergovernmental cooperation is also needed to tackle major challenges which transcend national boundaries and which governments are increasingly unable to resolve on their own. The big issues of today, including climate change, food and energy security, water scarcity, and long-term economic stability all require global solutions which can only be devised through the collective engagement of all countries.

[Page12:]

FILLING A GAP IN THE GLOBAL GOVERNANCE SYSTEM

The institutional structure which was created to help manage international economic relations after World War II has, to a large extent, failed to keep pace with the speed and depth of changes in the global economy. First, it was unable to prevent the build-up of systemic risks which led to the global financial and economic crisis of 2008-2009. Second, it proved ill-equipped to bring a rapid and forceful response to the crisis once it was in full swing.

All intergovernmental organizations and mechanisms which have been established to facilitate international economic cooperation, such as the Bretton Woods institutions (the World Bank and the International Monetary Fund), the United Nations system, the World Trade Organization, and the G8, have made significant contributions to global economic development in their respective areas of competence. However, none of them has been able to avoid an erosion of their influence due to a perceived lack of legitimacy and efficiency.

The G20, thanks to its top-level political weight and flexible operating structure, hopes to re-energize the global governance system. Pascal Lamy, Director-General of the World Trade Organization, has said that the rise of the G20 could represent the missing piece of the “triangle of coherence” of global governance. The first side of the triangle is now the G20, which provides political leadership and policy direction. The second side comprises member-driven intergovernmental organizations, which supply technical expertise and specialized input. The third side of the triangle is the United Nations, which provides a framework for global legitimacy and accountability.

By introducing a new level of global economic governance, the G20 adds a number of strengths which could significantly enhance the effectiveness of policy-making at international level.

• The G20 is able to deal quickly and in a concerted manner with the challenges posed by today’s fast-paced world economy. Its informal nature as a forum and its relatively limited membership facilitate trust-building and rapid decision-making, particularly in times of stress - such as during food or financial crises - when the international community cannot afford long deliberations and lowest common denominator answers.
• With the G20, emerging economies are finally given a role commensurate with their growing weight in the global economy. The G20’s membership, which brings together the world’s most advanced economies and 10 countries with big emerging markets, is a recognition that today’s global challenges can only be addressed effectively if emerging economies are included more actively into the international decision-making process.
  [Page13:]
• The G20 represents a valuable vehicle to promote progress in multilateral discussions taking place in other global settings, such as the World Trade Organization, the United Nations Framework Convention on Climate Change, and the Bretton Woods institutions. By helping to iron out the differences that divide their members and by importing consensus into their deliberations, the G20 can act as a catalyst to improve the effectiveness and performance of multilateral intergovernmental institutions more generally.

IMPROVING THE GLOBAL BUSINESS CLIMATE

The rise of the G20, and its projected role as a steering committee for the world economy, has strong implications for business. Companies, large and small, are key players in the global economic system, both as producers and users of the innumerable goods and services that flow across borders every day. Businesses raise capital in financial markets, take part in global value chains, import energy and other inputs, export their products and services, invest across countries, and pay taxes everywhere they buy and sell and operate. Their prosperity is directly linked to the evolution of the world economy – and the evolution of the rules which govern cross-border economic activities.

There are many facets of the G20 process which could contribute to improve the global business climate, not only in G20 countries, but across the world.

Business has a lot to win from increased intergovernmental cooperation to help preserve an open world economy, and much to lose from a return to inward-looking nationalism and protectionism. When countries agree to keep trade open and are mindful of each others’ interests when developing new policies, companies benefit from reduced uncertainty and greater confidence to invest internationally. When governments lose their cooperative spirit, businesses run the risk of getting caught in the middle of trade and currency wars which protectionist measures inevitably lead to. Business leaders therefore have every reason to lend strong support to the G20 as one of the main promoters and enablers of international economic cooperation, together with the World Trade Organization and other multilateral institutions.
[Page14:]

On financial sector reform, trade policy and agriculture, the G20 is adopting strategic orientations and executive decisions that are changing the policy framework for international business. G20 action to restore global economic growth and boost countries’ competitiveness is vital for the long-term health of companies. Looking forward, the G20 is paying closer attention to green growth and commodity markets, with a special focus on food and energy prices. The G20 is also examining ways to boost economic development through increased investment in infrastructure and a stronger, global effort to combat corruption - two areas of critical importance to business. In all these fields, world business could greatly benefit from a closer partnership with G20 governments to ensure that the input and priorities of internationally active companies are reflected in G20 decisions.

G20 leaders have clearly expressed their desire to engage more closely with the global business community. They have consistently reiterated “the importance of private sector-led growth and job creation” in their successive summit declarations. A very important precedent was set in November 2010 when the Republic of Korea convened a “G20 Business Summit” (known as B20) ahead of the G20 Seoul Summit. Over 100 corporate chief executives exchanged views with G20 leaders on the state of the global economy. A few months later the International Chamber of Commerce (ICC) - the world business organization - created a permanent platform to deliver business input into the G20 process, including future B20 events. The ICC G20 Advisory Group, which is composed of business leaders and chief executive officers from major global corporations, will represent the priorities of business worldwide and interact with G20 governments before, during and after G20 summits. ICC has also embarked on a series of regional consultations to collect views on the G20 agenda from chambers of commerce and smaller companies from around the globe.

A BUSINESS GUIDE

This guide aims to help business leaders to gain a better understanding of the G20 process and to identify the critical impact that G20 policy developments may have on business.

Chapter I takes a brief look at the origins of the G20 and the rationale for its transformation into a top leadership group. It describes the G20 membership and the participation of non-G20 actors in the G20 process.
[Page15:]

Chapter II highlights the main outcomes of the six G20 summits at the level of heads of state and government which have taken place between 2008 and 2011.

Chapter III presents the making-of G20 summits by describing the “sherpa” process and the pivotal role of the G20 finance and other G20 ministerial groupings. This chapter also describes the role and functioning of G20 business summits.

Chapter IV analyzes the outcome of G20 work – from summit to summit – in each of the major substantive areas covered by the G20 process, with a special focus on those of special interest for business: restoring global economic growth and stability, promoting open trade and investment, reforming the financial sector, addressing the threat of climate change, fighting corruption, and closing the development gap.

Finally, a short concluding chapter summarizes the main accomplishments of the G20 since 2008 and the key challenges the group will need to address in order to strengthen its position and performance as the world’s top economic forum for intergovernmental cooperation.

---

---