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G-20 leaders fail to generate ‘international economic cooperation’

LiveMint logoLiveMint 18-07-2017 D. Ravi Kanth

When parts of Hamburg almost came under a siege on the evening of 7 July following violent protests by anti-globalization activists, leaders from a score of dominant countries were inside the security bubble enjoying a classical music concert at Elbphilharmonie, a newly constructed hall on the waterfront. As host of the G20 summit, German Chancellor Angela Merkel corralled the leaders—from the US President Donald Trump to Prime Minister Narendra Modi, Russia’s President Vladimir Putin to China’s President Xi Jinping, and from the newly elected French President Emmanuel Macron to Brazilian President Michel Temer, among others—for a performance of Beethoven’s ninth symphony “Ode to Joy”. And it was a surprise to see Modi physically moving his fingers and feet during the final movement by vocal soloists in a chorus. Perhaps Modi was immersed in tandol, the movement of body, as against mandol, the turmoil of the soul.

That the ninth symphony, “a hymn to humanity, peace, and international understanding,” is one of the finest works in the mainstream repertory of Western classical music is well known. But, the G20 leaders failed to generate that peace and international understanding which was at the heart of Beethoven’s final symphony. Otherwise, it is difficult to explain why the leaders had to settle for a set of discordant compromises that fail to address the grave challenges on various fronts. Issues such as macro-economic imbalances, the growing debt problem of developing countries, inequality, poverty, and the existential challenge of climate change were not even adequately addressed.

“The battle-lines are drawn,” and “the stage is set for a clash between a protectionist America and a free-trading Germany,” wrote The Economist magazine on 7 July, when the leaders began their deliberations. While “Mrs Merkel is absolutely right to proclaim the message of free trade”, she and her compatriots “need to understand that Germany’s surpluses are themselves a threat to free trade’s legitimacy,” it suggested.

However, the issue of current and trade account imbalances did not even remotely figure in the blueprint for “building resilience” in the world. The Hamburg Declaration, for example, contains several issues under the title of “building resilience”. The issues include a “resilient global financial system”; “international financial architecture”; “international tax cooperation and financial transparency”; “safeguarding against health crises and strengthening health systems”; and, “combating antimicrobial resistance (AMR).”

It underscored the importance of “an open and resilient financial system, grounded in international standards,” and the need to finalize the Basel III framework without significantly increasing overall capital requirements across the banking sector. The Basel III framework aims at a global, voluntary regulatory framework on bank capital adequacy, stress testing, and market liquidity risk.

The declaration mentioned the progress made in transforming “shadow banking into resilient market based finance since the financial crisis” and underscored the need for completing the 15th General Review of International Monetary Fund Quotas, including a new quota formula, by the annual meetings of 2019. The 20 industrialized and developing countries agreed to continue further work on “a globally fair and modern international tax system” and cooperating on “pro-growth tax policies”. It suggested that there is a “satisfactory level of implementation of the agreed international standards on tax transparency” for tackling tax evasion and illegal bank accounts.

India claimed that at its insistence the language on tackling “terrorist financing” was strengthened. “As an important tool in our fight against corruption, tax evasion, terrorist financing and money laundering we will advance the effective implementation of international standards on transparency and beneficial ownership of legal persons and legal arrangements, including the availability of information in the domestic and cross-border context,” the Hamburg declaration maintained.

Shockingly, the G20 countries did not even address the frictions stemming from bulging capital surpluses of a few countries while the rest of the world, including the US, are locked up in continued deficits. The US President complained about the issue of trade surpluses and deficits, but it was set aside. The recurring tensions between the surplus countries and the deficit nations has continued to manifest in one form or the other since 1960s. And it has become much more serious with the Trump administration threatening retaliatory measures against the surplus countries almost on a daily basis.

“When there are excessive imbalances, when there is excessive inequality, or instability in the financial system, all those three are bad for stability, for the sustainability of growth... We do not shy away from saying that,” Christian Lagarde, the head of the IMF, has warned, according to a report in The Guardian on 17 April. Yet, the G20 leaders did not even address the issue of excessive imbalances because of the continued opposition from Germany.

On global trade and multilateral trade liberalization, the leaders merely struck bland compromises that would precipitate the problems arising from continued asymmetries in the international trading system. The G20 trade sherpas who are tasked with finalizing the declaration remained divided because the US refused to acknowledge the problem of “protectionism”. The Trump administration had also refused to pursue “multilateral” and “developmental” solutions as demanded by developing and the poorer countries and insisted that it will only embrace bilateral outcomes in which the US industry and workers secured maximum benefits.

Hours before the meeting came to a close on 8 July, the US agreed to include “protectionism” and the need to “keep markets open” in the final Hamburg declaration. In return, for including its core trade priorities such as “reciprocal and mutually advantageous trade and investment frameworks” and a “level playing field,” the US agreed to include the language on the need to “continue to fight protectionism including all unfair trade practices.”

Due to the continued US opposition to multilateral trade and developmental initiatives, the Hamburg declaration failed to suggest the outcomes that members of the World Trade Organization must accomplish at the WTO’s 11th ministerial meeting in Buenos Aires in December. In short, the summit of the G20 leaders has not proved to be a “premier forum for international economic cooperation.”

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