World

The St Petersburg G20: the summit that time forgot?

By J Brooks Spector 3 September 2013

By now, under normal circumstances, the annual economic and financial gabfest known as the G20 summit would be getting voluminous, heavyweight commentary and reporting in the world’s newspapers, on radio and television and on the websites of every think tank on the globe. This year’s meeting is, after all, scheduled to begin in just three days. J. BROOKS SPECTOR, even while he is keeping his own watchful eye on the Syria situation, spares a moment to look at the upcoming G20 meeting.

In any normal year at G20 summit time the various heads of government, as well as an army of lower level officials, journalists, advisors, consultants and policy advocates from hordes of NGOs, descend on the host city. This year it’s St Petersburg, Russia’s turn and the Russian President is the official chair for the leaders summit. But this, of course, is most definitely not a normal year. Right now, instead of focusing on tweaking the international financial system, improving institutional economic governance, or adjusting the international trading regimen, everyone is keeping an extremely careful watch on Syria’s civil war, especially for any further use of chemical weapons or the launch of an American punishment barrage as a response to the use of sarin gas against Syrian civilians.

According to the G20’s website, “The G20 was formally established in September 1999 when finance ministers and central bank governors of seven major industrial countries (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States) met in Washington, DC in the aftermath of the financial crisis of 1997-1998, which revealed the vulnerability of the international financial system in context of economic globalization and showed that key developing countries were insufficiently involved in discussions and decisions concerning global economic issues.”

Earlier in 2013, this year’s version seemed like it might be a fairly reasonable, standard-style G20, especially given the world’s focus on the long lingering after-effects of the 2008-2009 financial crisis. The earlier preparatory meetings, such as the one in Moscow in July involving top financial officials, had gone relatively well. The joint statement at the end of the meeting said, for example, that “Growth and creating jobs remains our priority” and that the governments in the organization, whose economies, taken together, total about 90% of total global economic activity, “are fully committed to taking decisive actions to return to a robust, job-rich growth path.”

At the time this seemed to indicate a slowly growing consensus in the direction of supporting some continued economic stimulus measures. Without taking an open swipe at austerity measures being set in motion (such as America’s automatic federal budget cuts), the final statement seemed to lean towards the idea that global recovery remained too weak to risk with broad cuts in unemployment benefits, job training, education and other public sector outlays. Even the Germans failed to object to this expansionary wording.

At the time, at least, this agreement seemed a positive scene-setter for the St Petersburg meeting. Many observers argued world leaders would attempt to downplay concerns about the dangers of continuing government budgetary deficits, given the flabbiness of the global economy in a still-uneven recovery. Even demand in China had come down significantly from earlier high levels (along with still-anaemic real growth in Europe and the US) and so one big topic from the discussions for the big meeting seemed to be how demand in China would be stimulated in the future to help the rest of the world’s economies.

The meeting also set out some proposals on how to curb tax avoidance by those gigantic corporations that transcend national borders, a discussion that has taken on real fire after disclosures that some companies, like, for instance, Starbucks, had paid no, as in zero, corporate tax in the UK, despite sales of over $600-million from its 700 shops there. Now it might well be years before real changes happen in the tax regimens of the various countries, if for no other reason than because corporations would lobby long and hard to preserve their valuable tax breaks. Nevertheless, the proposals represented a visible response to growing pressures in various nations for governments to address this widely perceived inequity in national tax laws. There is real anger when taxpayers hear that major companies end up paying less tax than individual employees in the company. Of course, a second reason is that the governments of virtually every nation are searching desperately for new sources of tax revenue.

The list of proposals to address such visible unfairness included ideas to stop companies from “treaty shopping” – the scenario where companies seek to identify countries with the lowest tax rates and then figure out how to book their profits there, even if the preponderance of their income is earned somewhere else. Such proposals included stricter rules about defining a company’s permanent presence for tax purposes and ways to limit the practice of transfer pricing – the clever shuttling of profits and losses between subsidiaries to disguise them as internal corporate payments for subcomponents, parts, goods and copyright or patent royalties. Other proposals speak to how to standardize the way profits are counted across borders and among subsidiaries so as to preclude something called BEPS, “base erosion and profit shifting.”

Topics like these actually promised to provide some real sparkle to the G20 discussions, as well as the inevitable flood of briefings, briefing papers and backgrounders by advisors about who pushed and who resisted progress. And, of course, the final communiqués would generate lots of interest on the part of policy makers, the global NGO community, businesses and the world media.

But then again, all of these clever ideas were brought forward and discussed before the real bun fight over Edward Snowden and the even bigger Syrian-poison-gas-red-line-punishment-attack-plan erupted. When Snowden, after he had released mountains of data on the American surveillance agency, the NSA, to the media, fled the US for Hong Kong and then moved on to a prolonged temporary residence in the transit lounge of Moscow’s airport, the resulting unpleasantness became the precipitating cause for Barack Obama to cancel his planned summit with Russia’s President Vladimir Putin.

According to American officials Snowden was the final straw, rather than the only reason, but the result sets up the G20 leaders meeting as a more fraught affair. Just how will the Russian and American leaders deal with one other in St Petersburg, now that did not have their Moscow summit to swap insults?

In fact, US-Russian relations have been coming apart for several years. This has been going on since Putin reclaimed the presidency, and after the “re-set” efforts to reinvigorate the fraying ties between the two nations of then secretary of state Hillary Clinton in her meetings with President Dmitri Medvedev (whose term was bracketed by Putin administrations).

Then came Syria. Well, actually, Syria’s been here for thousands of years but the increasingly vicious, now two-year-old civil war that had erupted as one of the last waves of the Arab Spring has now killed 100,000 people, forced even more Syrians into internal or international refugee status and provoked savage retaliatory attacks from government forces against insurgents and innocents alike. Some time ago Barack Obama uttered his famous (or infamous, depending on who you are) “red line” statement, saying that the use of chemical weapons would be the thing that pushed the West to punish the regime, even if it didn’t mean they were gunning for actual regime change.

In the past week or so America has claimed it now has proof of Sarin nerve gas attacks on civilians by government’s forces. This has led President Obama to invoke a plan for a punitive attack on Syrian installations to dissuade the regime from using such weapons again. Given the fact Russia is a firm Syrian ally, has been Syria’s primary arms seller and operates a naval base at Tartus on the Mediterranean coast, unsurprisingly the Russians have reacted very strongly against these American promises.

Instead of supporting the US, or at least remaining neutral, they have claimed the Americans were behaving like “a monkey holding a hand grenade” and blocked any UN sanction of a punishment raid on Syria. This has increased the likelihood that what was already promising to be a slightly awkward meeting between Putin and Obama at the same table, glowering at one another, will now be a G20 meeting with even more ill-feeling and rancour over American intentions to deliver a message to Syria via a salvo of cruise missiles.

Reuters noted that “Less than three months after Vladimir Putin was cast as a pariah over Syria at the last big meeting of world leaders [the G8 in Northern Ireland], the Russian president has glimpsed a chance to turn the tables on Barack Obama. The U.S. president’s dilemma over a military response to an alleged poison gas attack in Syria means Obama is the one who is under more pressure going into a G20 summit in St Petersburg on Thursday and Friday. ‘We need to remember what’s happened in the last decade, the number of times the United States has initiated armed conflicts in various parts of the world. Has it solved a single problem?’ Putin asked reporters on Saturday in the city of Vladivostok. ‘Afghanistan, as I said, Iraq … After all, there is no peace there, no democracy, which our partners allegedly sought,’ he said during a tour of Russia’s far east.” It doesn’t sound like Putin is of a mind to keep the attention of the conferees focused like a laser beam on global economic issues during this G20 meeting, now does it.

The meeting later this week – the bringing together of heads of government, finance ministers, central bankers and countless aides from Australia, India, Argentina, France, Canada, Russia, China, Brazil, Germany, Indonesia, Saudi Arabia, Mexico, Italy, Japan, America, Turkey, the United Kingdom, South Korea, South Africa and the European Union – will be held in the Constantine Palace, one of St Petersburg’s architectural gems and about as lovely a place as there is for high-minded, forward-thinking negotiations and the solving of the world’s problems. Instead it is going to be an uphill slog to focus on the world’s considerable economic and financial issues, and away from the Syrian inferno, poison gas, American cruise missiles and just how US Congress will respond to Barack Obama’s gambit to get them to endorse military action against Syria rather than having him take all the flak alone.

This will be a foregone opportunity because there is so much that needs to be discussed on a fairly urgent basis. The global economy is in a vast state of transformation and the discontinuities from past to future need to be managed adroitly. As Adam Posen, head of the highly regarded Peterson Institute for International Economics recently wrote, “In international politics, as has long been foretold, the ‘American century’ of 1945–2000 has given way to a world where the United States remains the leader but is losing dominance. So the global system is somewhere between outright conflict and smooth international governance.” An anodyne final communiqué and the postponing of real discussions in favour of some geopolitical posturing at St Petersburg will simply put even more pressure on future meetings to square things away. DM

For more, read (and listen to):

  • Emerging Market Turmoil on the Eve of the G-20: Arvind Subramanian explains why India, Brazil, and other emerging market economies feel they are the victims of US monetary policy switches, Part 1 and Part 2 at the Peterson Institute for International Economics
  • The Global Economy Is Now Distinctly Victorian (an op-ed by Adam Posen), at the Peterson Institute for International Economics
  • Analysis: Putin sees chance to turn tables on Obama at G20, at Reuters
  • G-20 Ministers Aim for More Job Growth, at the New York Times
  • G-20 Backs Plan to Curb Tax Avoidance by Large Corporations, at the New York Times
  • What is the G20, at the G20 website The Swedish model for economic recovery (an op-ed by C Fred Bergsten, the director emeritus of the Peterson Institute for International Economics), in the Washington Post

Photo: A general view shows Konstantinovsky (Konstantin) Palace, the main venue of the G20 Summit, in Strelna on the suburbs of St. Petersburg, September 1, 2013. G20 leaders will meet in St. Petersburg on September 5 and 6, according to the official website. REUTERS/Alexander Demianchuk

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