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June 13, 2003
G-8 Summit Skirts Touchy Issues
In an idyllic setting with a green Alpine meadow and snow-
-capped peaks in the background, leaders of the world’s most industrialized countries met, June 1-3, in Evian, France. Tens of thousands of protestors against the gathering were held back miles from the scenic venue overlooking the Geneva Lake. The participants too meticulously skirted the areas bearing touchy issues to avoid vitiating an already tense environ between the US and the European Union, France and Germany in particular, following the conflict and ensuing bitterness over the war in Iraq.
Leaders of the industrial powers -Britain, Canada, France, Germany, Italy, Japan, Russia and the US - appeared to have followed an old adage that a diplomat thinks twice before saying nothing. The summit declaration bore this out being nothing but a bland statement of what had been stated in earlier gatherings.
French President, Jacques Chirac, however, did more than any other summit host to broaden the agenda and the guest list beyond the traditional members. Leaders of 14 non-members of the Group were also invited including China, India and Saudi Arabia to attend the opening session. This gave them an opportunity to discuss development issues with leaders of the wealthiest industrialized nations.
The participation of President Hu Jintao of China marked a major shift in his country’s policy towards the group that Beijing has always derided as a rich man’s club. China had so far refused to participate in international power politics outside the UN. It had, for instance, declined the Japanese invitation to attend the Okinawa summit of the Group in 2,000. But, the Chinese bend with the wind rather than break by standing against its gust. China is now the preferred country for investments by the Group; it has a surplus of $100 billion a year in its balance of payments with the US alone. Pragmatic considerations too drove it to the summit.
Prime Minister Atal Vehari Vajpayee of India returned from the ego-boosting summit as the hegemon of South Asia. No other country of the region was invited. No wonder, in a statement soon after his return, he offered to talk with Pakistan on Kashmir, but only on that portion of Kashmir which is under the control of Pakistan!
The media limelight was focused on the US and French Presidents. Their gestures and body language were also closely monitored. In keeping with the French tradition of excellence in diplomacy, President Chirac gave not the slightest hint of his earlier bitter criticism of Bush’s policy of war on Iraq.
Possibly, President Bush had succeeded in the one-on-one meetings, held earlier, to assuage Jacques Chirac’s feelings of hurt and to meet France’s expectations in the post-war Iraq. A change of heart was reflected in the support France gave a few days earlier to the Bush administration on a UN resolution lifting sanctions against Iraq.
Yet, there is plenty of lingering animosity and conflict of interests between the two countries. It may be recalled that unprecedented protest rallies were held all over Europe against the US policy of attacking Iraq. The main faultlines may, however, be traced to conflicting economic and fiscal interests. Some analysts have contended that this summit was held amid the most serious set of economic problems ever since the summit process started in 1975.
The main problems are: (1) the decline in the conversion rate of the dollar, (2) widespread deflation , and (3) disagreement over the international trading system.
Decline of the dollar: The greenback has fallen roughly 40 percent since its high point against the Euro in Oct. 2000. By May 25 it had reached the rate of $1.00=Euro 0.84 - a record low. The slide of the dollar makes US-made goods cheaper and more competitive on foreign markets. On the local market too, it admits of the manufacturer increasing his margin of profit by enhancing his price to almost the level of the costlier imported items. With the increase in US exports, the country’s economy will come out of the current recession while sending the European economies into it. In the pre-summit deliberations of officials, Europeans pleaded for a strong dollar. President Bush said in an interview on Russian TV: “The policy of my administration is for there to be a strong US dollar. The market, at this point in time, has devalued the dollar, which is contrary to our policy”. But, the US Treasury Secretary, John Snow, and American firms and economists have all welcomed the decline for the good of the economy. The decline is also benefiting all those economies whose currencies are tied to the dollar - East Asian states for instance. This has added further pressure on all the Euro-dominated economies.
Spread of deflation: For the first time since the depression of 1930, the world economy, particularly that of Europe, is under the threat of deflation. The joint statement of the G-8 leaders declared their commitment to “pursue with strong resolve our fight to improve the integrity of the international economy”, and that “all conditions exist now for a recovery”. The reality behind such pleasantries is more akin to the threat of deflation aggravated by narrow national interests.
Trade Wars: Trade disputes between the US and the EU have intensified in recent weeks. On May 7, the World Trade Organization (WTO) granted the EU the right to impose $4 billion - the largest ever sum- in punitive tariffs against US products since Washington had failed to comply with a WTO ruling against a tax break for US-based corporations.
On May 13, the Bush administration filed a complaint at the WTO over the EU’s ban on genetically modified food. If the ban is not lifted, it is likely to have international ramifications. The scare generated by the EU has made some African countries to decline the modified food even in aid.
To recap, the currency conversion rate is perhaps the immediate and most significant problem which needs to be tackled early before it upsets the apple-cart of Western economies. Washington Post’s prominent commentator, Robert Samuelson, had this to say on the eve of the summit:
“To anyone with a sense of history, the Bush administration’s decision to bless a cheaper dollar must seem disquieting. Huge US trade deficits have flooded the world with so many US dollars that a sizeable currency decline was likely. But by making US exports cheaper and hurting other countries’ exports, this raises the spectre of ‘beggar thy neighbour’ policies - of protecting your industries at the expense of other countries. It is not free trade; it’s political trade. In the 1930s, these sorts of policies arguably contributed to World War II. We need to avoid repeating this.”
(Arifhussaini@hotmail.com Ph: 714-280-1902)
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