The Rumble in Russia: A G20 primer
Today and tomorrow, the leaders of the major economic nations, their finance ministers and central bankers will meet to discuss global economic and financial issues in St. Petersburg’s Constantine Palace.
The summit takes place against the backdrop of the Syrian crisis and the recent coup in Egypt; these issues inevitably will spill over into informal discussions. On the economic front leaders face the challenges of joblessness, especially youth unemployment in Europe, the relative slowdown in the Chinese economy with its attendant effects on other developing economies, and the sluggish recovery in developing nations. We are also witnessing competitive devaluations and the creeping rise of protection.
Meet the G20
The G20, originally a meeting of finance ministers, their deputies and central bankers, was formed in 1999 in the wake of the Asian and Russian financial crisis with then-Finance Minister Paul Martin playing a lead role. It was raised to the leaders level in the wake of the 2007-2008 financial crisis when President George W. Bush convened a summit in Washington in November, 2008 to address the economic crisis.
G20 leaders reconvened in London (April, 2009) in Pittsburgh (October, 2009) in Toronto (August, 2010) in Seoul (November, 2010), in Cannes (November, 2011) and in Los Cabos, Mexico (June, 2012). Next year’s G20 will be hosted by Australia.
The leaders’ summit is the culmination of a year-long process of meetings which — in addition to the discussions of central bankers, finance ministers (whose meetings under Russian leadership also included labour ministers) and sherpas — includes sessions involving representatives of labour, business, think-tanks, youth, girls (Belinda Stronach was a driving force behind the Girls 20 summit) and civil society.
The member countries include the G8 nations — Canada, United States, Japan, France, Germany, Italy, the United Kingdom and Russia — as well as Argentina, Brazil, Mexico, Australia, China, India, Indonesia, Korea, Turkey, Saudi Arabia and South Africa. Their economies cover two-thirds of the world’s population and account for over 80 per cent for world trade and global production.
The heads of the International Monetary Fund and World Bank participate, as do the heads of the European Union and European Commission and the head of the European central bank. Other national leaders also have been invited to discuss specific topics, such as development.
The G20’s ‘standing’ agenda
The G20 has developed a de facto standing agenda. First item on that agenda is the restoration of a multitlateral trading system. Expect leaders to address the topic, but there is no sense the WTO Doha Round will be concluded soon. Today, movement on multilateral trade rests with the Trans-Pacific Partnership and a series of smaller regional groupings.
Another item on that agenda is protectionism. The 2013 Global Trade Alert observes that over 3,330 new government protectionist measures — trade remedies, local content requirements, discriminatory regulatory practices — have been reported since 2008. A record 431 measures were imposed in the last year in what the GTA calls “a quiet, artful, wide-ranging assault on free trade”.
The G20 nations account for 65 per cent of protectionist measures, notwithstanding their pledge for a ‘standstill’ at the London 2010 summit.
The agenda also includes international investment. Barriers to investment continue to plague G20 economies. Governments need to further open their economies.
Another agenda item: fiscal policy. This means saving in good times so you can spend in recession and then get back to balance as quickly as possible.
Finally, there is sustainable development. It is easy to look at the Millenium Development goals as a glass half-empty. However, significant progress has been made in increasing the resources of international financial institutions, building infrastructure, improving food security, financial inclusion and reducing the cost of remittances.
Developing countries now account for more than half of the world’s economic activity and more than half of global exports. China is now the number one world exporter. A recent report from the Lowy Institute argues that development and global economic issues must be ‘mainstreamed’ into the G20’s core agenda.
What does the St. Petersburg summit want to achieve?
On the website created for St. Petersubug, Russian President Vladimir Putin said that he had two objectives for the summit: achieving balanced growth and job creation. The ‘watchwords’ of the meeting will be:
- Growth through quality jobs and investment;
- Growth through trust and transparency;
- Growth through effective regulations.
Eight priority areas have been identified:
- A framework for strong, sustainable and balanced growth;
- Jobs and employment;
- International financial architecture reform;
- Strengthening financial regulation;
- Energy sustainability;
- Development for all;
- Enhancing multilateral trade;
- Fighting corruption.
What is it likely to achieve?
Don’t expect a lot. Watch for action on the following:
Implementation of the IMF’s 2010 Quota and Governance Reform. IMF Executive Director Christine Lagarde says that “completing the 2010 quota and governance reform is essential to the Fund’s legitimacy and effectiveness.” It requires a doubling of the IMF quota resources and reviewing the IMF quota formula in order to adequately reflect the current weights of its members.
Resurrecting the Doha Round. Currently on life support, a global agreement could result in GDP increases of approximately $960 billion and create over 18 million jobs worldwide, according to a study by the Peterson Institute’s Gary Huffbauer and Jeff Schott prepared for the International Chamber of Commerce. At their April meeting in Doha, the ICC argued for progress in five areas:
- Concluding a trade facilitation agreement;
- Implementing duty-free and quota-free market access for exports from least-developed countries;
- Phasing out agricultural export subsidies;
- Renouncing food export restrictions;
- Expanding trade in IT products and encourage growth of e-commerce worldwide.
Exchange rate and incentives competition. The number of governments competing for foreign investment by lowering their tax rates has increased. As Martin Wolf recently observed, “policies aimed at export-led growth impose contractionary pressure on trading partners, particularly in times of deficient aggregate demand and ultra-low interest rates. In the last decade, we have seen the largest and most persistent exchange rate interventions ever.”
Structural reform. The OECD has encouraged the G20 to embrace structural reforms and a switch in emphasis from politically-charged current account rebalancing to labour product market reforms for medium-term growth and a growing consensus on fiscal frameworks.
The division over how to deal with debt-to-GDP. The U.S. and others favour a more flexible stance. They are not likely to agree on specific quantitative fiscal targets but likely will concentrate instead on reducing debt-to-GDP over the medium term.
What does Canada want?
Prime Minister Harper wants the summit to result “in commitments for further action on key issues such as financial regulation and trade liberalization.”
Our main objectives include commitments toward:
- Greater transparency: Canada and Russia have co-chaired the G-20 Anti-Corruption Working Group.
- Accountability: In tracking progress on commitments made at previous G-20 Summits and especially on the Development Working Group commitments established at the Toronto G-20 Summit.
- Financial sector reform: G20 members have agreed to implement the regulatory requirements of Basel III, the international standard for stronger regulation of the banking sector.
Beyond the summit agenda, a great deal of other business gets done at these meetings. Mr. Harper can be expected to discuss the Canada-Europe trade agreement with European leaders, progress on the Trans Pacific Partnership and the always-important Canada-U.S. agenda with President Obama.
So do we really need a G20?
Yes. The G20 filled a gap in the architecture of top-table meetings.
The permanent members of the Security Council — Russia, China, France, Britain and the United States — represent the world of 1945 and the early Cold War. As we have seen over Syria and other crises, getting the Security Council to act constructively is very difficult. Reforming the Security Council to make it more representative of today’s geo-political situation has been an exercise in futility.
The G-8 group is Eurocentric and does not include China, India or Brazil. So the G-20 made sense.
Like the G8, much of the value of the G20 is in its process. More people will work on the draft of the final communiqué than will actually read it but the process of getting there is what really matters. The ongoing meetings between central bankers and finance ministers (the original G20) now include separate discussions with business, civil society and think-tanks.
What matters at these summits is not the prepared statements at the main table but the frank discussions and informal meetings that take place in the corridors and meeting rooms around the main conference. Winston Churchill, who popularized the word ‘summitry’, observed that ‘jaw-jaw’ between leaders is better than ‘war-war’.
The best Canadian sources for G20 documentation with a chronology of past summits is at the University of Toronto’s G20 Information Centre, managed for years by John Kirton. The Center for International Governance Innovation (CIGI) in Waterloo has done excellent work on the G20, especially its priorities for the G20 published for the St. Petersburg summit. This primer owes much to the session recently held at the Rideau Club, moderated by CIGI’s Fen Hampson, with Canadian Council of Chief Executives CEO John Manley, Russian Ambassador Georgiy Mamedov and CIGI’s Domenico Lombardi and Rohinton Medhora.