G20 Finance Officials Call for Making Trade More Inclusive

23 March 2017

Finance ministers and central bank governors from the Group of 20 (G20) coalition of major economies wrapped up a two-day meeting in Baden-Baden this weekend, with their debate on issues ranging from trade and exchange rate policy to climate change setting the stage for future discussions ahead of this year’s leaders’ summit in Hamburg, Germany.

Going into the gathering, speculation was running high over how officials might address topics such as trade, protectionism, and climate finance in light of the change of leadership in the United States earlier this year. (See Bridges Weekly, 16 March 2017)

The 17-18 March meeting was the first since US President Donald Trump took office in January, pledging to implement an “America First” economic agenda focused on incentivising domestic manufacturing and otherwise increasing growth and jobs in the United States.

Defining trade

The communiqué released by finance officials on Saturday 18 March quickly drew scrutiny for its revised language regarding trade and protectionism compared to previous versions, along with what this might mean for the G20’s collective and individual approach on these subjects.

Specifically, G20 officials dropped past language to “resist all forms of protectionism,” a phrase which has been regularly used in finance communiqués for years.

Instead, the reference to trade focused mainly on making it more inclusive and ensuring that it translates into growth whose benefits are shared more broadly.

“We are working to strengthen the contribution of trade to our economies. We will strive to reduce excessive global imbalances, promote greater inclusiveness and fairness and reduce inequality in our pursuit of economic growth,” said the final communiqué.

The change in approach to trade language was reportedly in response to the US’ approach, led by newly-minted Treasury Secretary Steven Mnuchin, in a move that analysts suggest will add fuel to the existing debate over what terms such as free trade, fair trade, and protectionism actually mean and how these are defined.

Indeed, the discussion over what actually constitutes protectionism is not new to trade circles, with economists and political analysts alike debating over topics such as what falls under the heading of a “trade-restrictive measure” and what its policy impacts are in practice – an issue that has drawn further discussion in light of monitoring efforts by the WTO and other organisations of the G20’s policies and what these mean for cross-border trade flows.

According to the Reuters news agency, several officials in Baden-Baden did not push back much at this stage against the removal of the past protectionist pledge, in light of the fact that Mnuchin and Trump are still relatively new in their positions and their administration’s economic agenda is still in the process of being defined. China and France were reportedly among those arguing in favour of keeping the past language on resisting protectionism.

However, some finance officials have come out publicly to criticise the move and indicate that they hope to see the former language on protectionism used in future G20 documents. Finance ministers and central bank governors are due to meet again in the context of the Spring Meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG) in April, with G20 leaders to meet in Hamburg in early July.

“Important words missing in the G20 communiqué: multilateralism, fight against protectionism, Paris agreement and climate. I want them back!” said Pierre Moscovici, the European Commissioner for Economic and Financial Affairs, in a post on social media site Twitter.

Indonesian Finance Minister Sri Mulyani Indrawati has similarly said publicly that the outcome of Baden-Baden was “not very good” and cautioned that its outcomes would only increase “uncertainty” in an already difficult climate, particularly if it leads to more inward-looking policies that are to the detriment of poorer economies.

Meanwhile, G20 finance officials did maintain their past language regarding currency cooperation and avoiding the use of monetary policy in a way that could artificially make their exports more competitive.

“We will consult closely on exchange markets. We reaffirm our previous exchange rate commitments, including that we will refrain from competitive devaluations and we will not target our exchange rates for competitive purposes,” the finance officials said.

Following the finance officials’ meeting, IMF Managing Director Christine Lagarde called upon G20 members to continue working together in order to ensure that global growth improves steadily.

“We met at a time when growth is gaining momentum around the world and there are signs that the global economy has reached a turning point, even though uncertainties remain,” said the IMF chief.

“Strong monetary, fiscal, and structural policies matter more than ever for what comes next. Global cooperation and pursuing the right policies can achieve strong, sustained, balanced, and inclusive growth, while the wrong ones could stop the new momentum in its tracks,” she said.

Climate references dropped

Another notable omission from the statement was any reference to climate change – a significant shift compared to G20 finance communiqués from just last year that welcomed the UN’s Paris Agreement on climate change, called for its “timely implementation,” and pledged to continue working on climate finance in 2017.

The document released by finance officials on Saturday refers instead only to fossil fuel subsidy reform, while framing this in a context of efficiency and waste rather than as an environmental objective.

“We reaffirm our commitment to rationalise and phase out, over the medium term, inefficient fossil fuel subsidies that encourage wasteful consumption, recognising the need to support the poor. Furthermore, we encourage all G20 countries which have not yet done so, to initiate as soon as feasible a peer review of inefficient fossil fuel subsidies that encourage wasteful consumption,” said the communiqué, in language that echoed prior statements from the group.

The drop of any language specific to climate – including on the Paris Agreement and climate finance – not only goes against the group’s shared history, but may also complicate the German presidency’s stated objective of using this G20 cycle to continue the coalition’s support for the Paris Agreement’s implementation.

In 2016, the group’s leaders openly pledged their continued backing to the new UN climate treaty, which was adopted in 2015 and entered into force last November. The G20 leaders also supported the efforts of a “Climate Finance Study Group” established in 2012 to explore topics such as how to use financial flows to tackle the climate challenge.

Finance officials had made similar statements in favour of addressing climate change in communiqués issued throughout 2016, as in recent years.

At the UN climate talks last November, officials warned that current levels of both private and public finance support are far below what will be required to meet the objectives of either the Paris Agreement or the Sustainable Development Goals. (See Bridges Special Update, 13 November 2016)

The move to drop any reference to climate in the Baden-Baden communiqué was also credited to the US, given the views of the new administration on the subject. Trump had previously pledged to “cancel” Washington’s involvement in the Paris Agreement while on the campaign trail, though he has not yet moved to implement that promise.

However, the White House released last week its draft budget for the 2018 financial year, which would slash US funding for the UN Framework Convention on Climate Change (UNFCCC) and the Intergovernmental Panel on Climate Change (IPCC), as well as its financial support to the Green Climate Fund (GCF) among others.

The White House proposed budget is designed as a reflection of financial priorities, but is not law. Rather, the budget is determined by Congress, with the final version then sent to the president to sign or veto.

The UNFCCC is the international treaty that launched the United Nations agency responsible for global climate change negotiations, while the IPCC is tasked with the scientific reports on the state of climate change itself and its ramifications. The GCF is a relatively new project, formally launched in 2014 to help developing countries transition toward becoming lower-carbon, climate-resilient economies.

The GCF is part of a larger effort aimed at mobilising US$100 billion in climate aid to poorer nations by 2020. The US under former President Barack Obama had committed US$3 billion to the Green Climate Fund, of which approximately US$1 billion has been disbursed. (See Bridges Weekly, 20 November 2014)

G20 finance officials have in the past pledged that their developed country members will support the funding of the GCF, including as recently as last year. The G20 coalition has also released reports, action plans, or other work over the years on topics ranging from energy efficiency to the deployment of renewables.

ICTSD reporting; “G20 ministers give Mnuchin space to define Trump trade agenda,” REUTERS, 20 March 2017; “Signals from G20 finance meeting not very good, says Indonesian finance minister,” REUTERS, 20 March 2017; “Trump budget: US to stop funding UN climate process,” CLIMATE HOME, 16 March 2017.

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