Eurozone Struggles Dominate G-20 Agenda at Mexico Summit
The ongoing difficulties posed by the eurozone crisis took centre stage during this week’s annual gathering of G-20 leaders, dominating discussions that also touched on rising protectionist measures and the importance of open trade for the economic recovery. While other subjects, such as food security and green growth - priorities of the G-20 Mexican presidency - were also addressed in the final leaders’ declaration, some critics argued that these topics took a backseat to the Europe-focused talks during the two-day event.
The 18-19 June gathering in the Pacific resort city of Los Cabos came on the heels of the Greek parliamentary elections, which gave a narrow win to a party that had backed an EU and International Monetary Fund (IMF) bailout for the struggling EU member state. The result took away some of the initial pressure on G-20 leaders, observers noted, who had feared the consequences for the Los Cabos summit and for the world economy as a whole should Greek voters choose a party whose policy positions could risk Athens leaving the eurozone.
However, the relief of the Greek elections quickly dissipated, as questions emerged on how best to resolve the debt crisis in Italy and Spain.
Extended details of how Europe plans to resolve its debt difficulties were limited in the final G-20 declaration to pledges that Euro Area members would take “all necessary measures to safeguard the integrity and stability of the area,” among other commitments. Analysts, however, predict that next week’s Euro summit in Brussels could lead to the unveiling of a more detailed approach - specifically regarding whether some of the austerity-first policies advocated by Berlin might be eased in order to lessen the borrowing costs for Madrid and Rome.
Suggestions were also included in the final declaration indicating that Europe could eventually move toward a banking union, with G-20 leaders “support[ing] the intention to consider concrete steps toward a more integrated financial architecture, encompassing banking supervision, resolution and recapitalisation, and deposit insurance.” However, observers note, such a pact is still a long way from becoming reality.
The IMF, meanwhile, announced on Monday that the total additional funds pledged by donor countries to the international finance institution had now risen from US$430 billion to US$456 billion, which could provide what Managing Director Christine Lagarde called “a second line of defence” should current funds be exhausted.
Anti-protectionism pledge extended
With the European debt crisis playing in the background, tensions have been rife among G-20 members in recent months over new data indicating a scale-up in protectionist measures, despite commitments made in earlier gatherings to refrain implementing such policies during the crisis. These frictions have been compounded further by news of slowing trade growth in both developed and emerging economies.
The UK-based Centre for Economic Policy Research’s Global Trade Alert (GTA), for instance, found that at least 110 protectionist measures have been introduced since last year’s G-20 summit in Cannes, while also noting that the amount of protectionism in 2010 and 2011 had been higher than previously estimated.
WTO data, meanwhile, finds that the accumulation of all trade restrictive measures among G-20 countries during the crisis now accounts for nearly four percent of G-20 trade and three percent of world merchandise trade - a result that WTO Director-General Pascal Lamy recently deemed “alarming.” (See Bridges Weekly, 13 June 2012)
Some non-G20 officials, such as Chilean President Sebastián Piñera, speaking at the B-20 meeting of business representatives ahead of the G-20 gathering, openly urged G-20 members to avoid protectionist measures that could have a negative impact on countries such as Chile, which largely relies on exports.
“The whole world wants protection in times of crisis, but it isn’t possible for all of us to protect ourselves by closing our borders, because in the long run protection is a chimera that ultimately hurts all countries,” the Chilean leader said.
In their final communiqué, leaders ultimately agreed to extend their protectionism standstill and rollback commitments to 2014, which originally had a 2013 end-date. However, agreeing on the final language on protectionism was a difficult process, according to Mexican President Felipe Calderón.
“There was resistance from some countries, but beyond that what we have to value is that we did manage to get a consensus eventually and arrive at an agreement to extend this standstill clause,” he told reporters.
While some countries - such as Argentina, Brazil, and South Africa - were not in favour of extending the original 2013 deadline further, others had called for a new 2015 deadline, according to Reuters.
“It wasn’t easy, it provoked a long discussion and was one of the final areas to be agreed… but the important thing was that it was achieved,” Calderón concluded.
However, some trade observers were sceptical of whether the new 2014 deadline would indeed have much of an impact, given that the earlier 2013 commitments had led to a mixed result.
“At Los Cabos the G-20 has merely extended their previous promises - doing so doesn’t make those promises any more credible,” Global Trade Alert’s Simon Evenett, who is based at the University of St. Gallën, told Bridges. “The G-20 has gotten away with it because too many people pulled their punches on protectionism for too long. Monitoring protectionism is not for the meek.”
Despite reaching consensus on the protectionism-related language, divides among G-20 members over rising trade barriers were evident at the high-level meet, with British Prime Minister David Cameron naming such measures as one of the five “big threats” to the global economy today.
“We’ve seen the expropriation of a multinational company, requirements that export revenues in oil, gas, and mining sectors be exchanged in local financial institutions, new regulations on foreign exchange assets of residents, insurance companies required to repatriate foreign assets, and limits imposed on investment in farmland, and that’s just from one G-20 member,” Cameron said, in a salvo apparently aimed at fellow G-20 country Argentina.
“We have to do better than this,” the UK prime minister added. “We all know that Doha has come off the rails. But that doesn’t mean we give in to protectionists.”
Doha divides appear intact
The eleven-year Doha Round of trade talks at the WTO, which was declared at an impasse last December, also featured in the final language of the leader’s declaration.
“In line with the Cannes Communiqué, we stand by the Doha Development Agenda mandate and reaffirm our commitment to pursue fresh, credible approaches to furthering trade negotiations across the board,” leaders said, reiterating calls made at earlier meetings of trade ministers in France, Mexico, and Russia this year for achieving a possible trade facilitation pact and streamlining WTO accession procedures for least developed countries.
However, in spite of the G-20’s pledges in favour of concluding the eleven-year talks, an effort by Brazil to set a 2014 goal date for reopening the stalled negotiations reportedly struggled to gain support, with the differing priorities among the countries present blocking any sort of consensus on how to move forward.
“Some countries have agricultural subsidies, some countries think that there is protectionism in services, others saw problems in industry,” Brazilian President Dilma Rousseff told reporters.
Regional initiatives gain traction
In the absence of movement in the multilateral trade negotiations, the focus on bilateral and regional deals was apparent at the G-20 summit, with support for such pacts expressed by various leaders.
Notably, officials from the Trans-Pacific Partnership (TPP) countries announced at the G-20 summit that they would be extending invitations to both Mexico and Canada to join the nine country talks, following a seven month consultation process between the nine current TPP members and the two prospective new entrants. (For more on the TPP, see our related story in this issue.)
The possibility of an EU-US bilateral deal - an idea that has also increased in prominence over the past few months - was also raised by US President Barack Obama and UK Prime Minister David Cameron in their respective speeches.
“Even as we build this new framework for trade in the Asia Pacific, we’re also working to expand our trade with Europe,” Obama said on Tuesday. “So today, the United States and the European Union agreed to take the next step in our work towards the possible launching of negotiations on an agreement to strengthen our already very deep trade and investment relationship.”
The US President did not give further details on such a discussion; however, a report from a high-level working group tasked with analysing the feasibility of such a deal is scheduled to deliver an interim report later this month.
Cameron, for his part, also advocated for an EU-US deal, as well as the clinching of pacts with Canada, India, and Singapore and the launching of talks with Japan, as he had at this January’s World Economic Forum in Davos.
The UK Prime Minister also stressed the importance of establishing an African free trade area for reducing poverty; the African Union has said that it hopes to set up a Continental Free Trade Area by 2017.
Developing country concerns left behind?
As in previous years, the eurozone-heavy focus of the high-level gathering drew criticism from some observers, who argued that developing country concerns - such as in the area of food security - were being left by the wayside, despite strong language from both the B-20 and civil society groups that had called for more concrete action in this area.
The result of the G-20’s eurozone agenda, according to anti-poverty group Oxfam, was a “disappointing outcome” for developing countries.
“Europe’s crisis must be fixed because it is becoming a serious drain on developing countries,” Carlos Zarco, Oxfam’s spokesperson said after the end of the meeting.
“But it’s not good enough for the G20 to have fought over growth versus austerity in Europe. Leaders have failed to keep the world’s poorest in their sights, despite the fact that more than half these people live in G20 countries.”
With regards to food security, leaders reaffirmed their 2011 commitment “to remove export restrictions and extraordinary taxes on food purchased for non-commercial humanitarian purposes by the World Food Programme” - a topic that had been controversial at last year’s Cannes summit, and was ultimately not adopted at the WTO due to opposition from some of the larger G-20 developing countries in particular. (See Bridges Weekly, 9 November 2011 and 7 December 2011).
The issue of export restrictions was also addressed in the G-20 agriculture vice ministers’ report, where officials “noted the need to continue seeking a resolution of this issue in the WTO.” However, the impasse in the Doha trade talks has cast a shadow on this and other issues, with no active attempts to move the question forward this year.
With only some of the G-20 leaders expected to attend the UN Conference on Sustainable Development (Rio+20), questions have been raised in some circles about the extent of the G-20’s commitment to the UN gathering, which is kicking off today in Rio de Janeiro, Brazil.
In their communiqué, G-20 leaders pledged to “reaffirm our commitment to sustainable development” at this week’s UN summit, noting that “inclusive green growth in the context of sustainable development and poverty eradication can help achieve our development and economic goals, while protecting our environment, and improving social well-being on which our future depends.”
To that end, G-20 leaders agreed to continue self-reporting, on a voluntary basis, on “current actions taken to integrate green growth and sustainable development into structural reform agendas,” with a pledge to continue such voluntary reporting next year.
“We highlight that green growth and sustainable development have strong potential to stimulate long term prosperity and well being,” leaders said, adding that they would continue helping developing countries “sustain and strengthen their development through appropriate measures, including those that encourage inclusive green growth.”
On Tuesday, G-20 leaders also welcomed a private sector initiative launched by the B-20’s Green Growth Task Force. The newly-announced Green Growth Action Alliance, a public-private partnership comprised by companies and international financial institutions, aims to focus on driving greater investments into clean energy, transportation, agriculture, and other green growth areas.
The same B-20 task force has also advocated for G-20 governments to launch negotiations toward a sustainable energy trade agreement; create a robust price on carbon through co-ordinated international policies; end fossil fuel subsidies and other types of support in this area; and to direct part of carbon price revenues to support innovation in sustainable technologies.
Mexico will keep the G-20 Presidency for the next six months, after which Russia will take the helm of the group. The next G-20 leaders’ summit will be held next year, in St. Petersburg.
The G-20 leaders’ declaration, as well as the Los Cabos Action Plan on Growth and Jobs, are available here.
ICTSD reporting; “G20 targets growth to restore confidence,” FINANCIAL TIMES, 19 June 2012, “World Leaders Make Little Headway in Solving Debt Crisis,” NEW YORK TIMES, 19 June 2012é “CORRECTED-UPDATE 1-G20 extends free trade vow despite split,” REUTERS, 19 June 2012; “Piñera llamó a potenciar libre comercio y a evitar proteccionismo en Cumbre del G-20,” UPI, 18 June 2012.
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