TWN Info Service on WTO and Trade Issues (Jul17/10)
17 July 2017
Third World Network
Group of 20: Building resilience amidst "imbalances" and
Published in SUNS #8500 dated 12 July 2017
Geneva, 11 Jul (D. Ravi Kanth) - The leaders of the Group of 20 developed and
developing countries on Saturday (8 July) delivered a blueprint for
"Building Resilience" in the world, but without addressing the grave
"imbalances" between capital surplus and deficit nations, as well as
"inequality" in access to food and affordable medicines.
The "G20 Leaders' Declaration" for "sharing an interconnected
world" unveiled in Hamburg on 8 July covers several issues under the title
The issues include "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)".
Under another heading "improving sustainable livelihoods", the G20
leaders addressed issues such as "energy and climate," "leading
the way towards sustainable development," "women's empowerment,"
"towards food security, water sustainability, and rural youth
employment," and "resource efficiency and marine litter".
Emphasizing the importance of "an open and resilient financial system,
grounded in international standards," the G20 leaders spoke about
finalizing the Basel III framework without significantly increasing overall
capital requirements across the banking sector.
[The June meeting of the Basel Committee on Banking Supervision (BCBS) ended
without consensus on finalizing the Basel-III framework. SUNS]
The Basel III framework aims at a global, voluntary regulatory framework on
bank capital adequacy, stress testing, and market liquidity risk.
The declaration also mentioned about the progress made in transforming
"shadow banking into resilient market based finance since the financial
The leaders also called for completing the 15th General Review of IMF Quotas,
including a new quota formula by the annual meetings of 2019.
The 20 countries also agreed on continuing further work on "a globally
fair and modern international tax system" and cooperating on
"pro-growth tax policies".
It mentioned about a "satisfactory level of implementation of the agreed
international standards on tax transparency" for tackling tax evasion and
illegal bank accounts.
"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 boldly announced.
Surprisingly, there is no mention of the global tensions arising out of the
bulging surpluses of capital by a few countries while the rest of the world,
including the most dominant economy of the United States, are locked up in
The US President Donald Trump apparently complained about the issue of trade
surpluses and deficits, pointing out that his country maintains huge trade
deficits with most of the countries sitting at the table.
Asked whether the issue of imbalances between capital-surplus countries such as
Germany, China, and Japan among others on the one side and deficit countries
such as the US, India, Brazil, Argentina, and South Africa on the other was
discussed, India's Sherpa Arvind Panagariya told SUNS that while the issue was
discussed, there was no specific outcome.
Ironically, on the day when the G20 leaders' meeting concluded, The Economist
magazine on July 8 said that "Germany's current account surplus [of US$300
billion] is bad for the global economy."
It said while the German chancellor Angela 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
The recurring tensions between the surplus countries and the deficit nations is
not a new issue.
The head of the International Monetary Fund (IMF), Ms. Christine Lagarde, said
that criticism of Germany's trade surplus is valid, according to a news story
in The Guardian on 17 April.
"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,"
she said candidly.
Lagarde also called for debt relief for Greece suggesting that "if the
Greek debt is not sustainable in accordance with the IMF's rules and on the
basis of reasonable parameters, we will not participate in the program."
In his book "And The Weak Suffer What They Must?: Europe, Austerity, and
the Threat to Global Stability", former Greek finance minister Yanis
Varoufakis has argued succinctly as to how the recurring tensions between the
surplus countries and the deficit nations - "one nation's deficit is another's
surplus" - remain unaddressed despite the 2008 financial crisis.
Keynes's blueprint of a surplus recycling mechanism that was required by the
Bretton Woods system "would be to maintain monetary stability everywhere,
to keep both surpluses and deficits in check throughout the Western world, and
at the first sign of crisis in a troubled nation, speedily recycle surpluses
into it so as to prevent the crisis spreading."
But it was shot down by the then world's sole surplus country, the US, which
went into deficits in the 1960s.
The Nixon Shock of 1971 paved the way for creating a dollarized global economy
in which the US always retained an "exorbitant privilege."
Simultaneously, Wall Street became the Global Minotaur, according to
Varoufakis, for sucking the surpluses from China and Germany while servicing a
Varoufakis said Germany's controversial role in the European coal and steel
cartel that subsequently led to the creation of the European Union and the
European Monetary System, which finally led to the single currency the euro,
have all along been challenged by successive French leaders starting with
Charles de Gaulle.
Germany's export-based industry thrived because of the flawed European monetary
system and "the export of German goods and German profits to the rest of
the eurozone created debt-fuelled" annual growth in Greece and Ireland
till the 2008 crisis wrecked the world economy, the former Greece finance
minister had argued.
Despite such a problem persisting for more than 70 years and having aggravated
the financial crises, the G20 leaders under the presidency of Germany simply
chose to turn a blind eye.
In a way, the failure to create a surplus-recycling mechanism has led to the
creation of Donald Trump's outright protectionist measures such as the latest
bout of restrictions.
President Donald Trump finally unveiled the "Buy American/Hire
American" executive order on 18 April ostensibly for cracking down on
abuses in the H-1B visa program for skilled workers and for the federal government
to strengthen its various "Buy American" provisions that give
preference to domestically produced products and also for a 220-day study of US
trade agreements that effectively give foreign companies the right to be
treated as domestic companies under the so-called WTO plurilateral Agreement on
Immediately, Australia and New Zealand joined the chorus for imposing
restrictions on foreign skilled workers while declaring that they would only
hire their nationals.
In short, the continuation of "austerity economics" by the Hamburg
declaration without addressing the grave imbalances in the global economy are a
cause for concern.
If anything, the declaration will only perpetuate the problems of imbalance and
inequality in the global economy.