One of the most significant stories over the past two weeks of G20 frenzy got little of the attention it deserved. It was the news that most rich donor countries are continuing to renege on the promises to increase development aid they made the last time the UK hosted a big heads of government jamboree – the Group of Eight summit in Gleneagles, Scotland, in 2005.
Why so important? Because it shows the fundamental problem that the G20 has yet to prove it can overcome. Groupings that produce grandiloquent promises of international action are only worthwhile when they materially affect the domestic policy debates in their member countries. Breaking the G8 aid pledges has inflicted no significant political damage on anyone. (Italy is the worst laggard, and yet Silvio Berlusconi, one of the Gleneagles signatories, is back in power again in 2009.) In that regard, there is scant evidence yet that the G20 can perform any better than its widely discredited older cousin.
First, and most importantly, the G20 summit had no impact on the “No Pasarán!” proclaimed by Germany and France on the critical issue of more fiscal stimulus. To the European public, Barack Obama may be a combined reincarnation of JFK and FDR but when it comes to influencing Angela Merkel he comes a poor second to the exigencies of German coalition politics.
Second, as shown by the fine whistle-blowing work done by the World Trade Organisation and the World Bank, the vague no-protectionism promises made at November’s G20 meeting have been widely broken. Perhaps things would have been even worse without the pledge, but close examination underlines the critical distinction between a binding treaty and a group hug.
Take the “Buy American” brouhaha. After the White House intervened, Congress made the provisions compatible with the US’s international obligations – but only those with actual legal standing backed up by trade sanctions, namely the WTO and Nafta agreements. The G20 pledge appeared to sway Washington not at all. China, India and Brazil, G20 members but not signatories to the WTO government procurement agreement, can go whistle. The US Congress has a pretty good (if not perfect) record of complying with real trade treaties but not of being swayed by the gusts of hot air emanating from international talk-shops.
Or look at the EU’s protectionist folly, namely its recent decision to reintroduce export subsidies for dairy products. It has been suggested to me that Brussels was deliberately showing other countries what they had missed by failing to reach agreement in the so-called “Doha round” of trade talks, which would have outlawed such payments. Don’t want to deal in Doha? You’ll get European butter dumped in your lap. And don’t expect the G20 promise to protect you.
As for the International Monetary Fund, giving it more firepower is a good thing, though that process was well in train before the G20 alighted on it as a deliverable. But when it comes to improving global economic management, the fund’s ability to affect its member governments’ actions will likely remain limited to those which actually need its money.
If Gordon Brown has finally given up his old habit of attempting to press the IMF to stop criticising UK economic policy and dismissing the evaluations that do emerge, that is all to the good. Yet that does not mean anyone is going to change policy because of what the fund says unless they are forced to borrow from it. (Excitable speculation aside, the UK isn’t at that stage yet.) In return for its new cash contribution, for example, what Beijing wants – even more than a bigger vote on the fund’s board – is for the IMF to shut up about the Chinese exchange rate.
This caution is not a counsel of despair. It is a recognition that the worth of the G20 will be proved not in the pressure of a communiqué drafting room in London but in decisions taken in months to come in the parliaments and congresses, finance and trade ministries, presidential offices and prime ministerial studies of the world.
And given the disappointments thus far, the burden of proof is on G20 governments to show that their new pledges will mean any more than the trail of broken promises that has marked the way to this sorry pass.
Alan Beattie is the FT’s world trade editor
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