Hamburg G-20 Summit highlights global political rifts

EVEN by the usual standards of Group of 20 (G-20) Summits, the Hamburg G-20 Summit had limited substance to show for the protracted high level dialogue.

The Hamburg G-20 Leaders’ Declaration had little in the way of substantial new action points and was largely inconclusive.

The main “highlight” of the declaration was the clear rift between the US and the other G-19 countries on the issue of climate change.

The Hamburg G-20 Leaders Declaration recognised the US decision to withdraw from the Paris Agreement on climate change, with the US stating that it would immediately cease the implementation of its current nationally determined contribution to the agreement.

Meanwhile, the other G-19 countries reaffirmed their commitment to the Paris Agreement and to supporting partner developing countries in adapting to the impact of climate change.

The US government has proposed in the US President’s 2018 Budget to cease payments to the United Nations’ (UN) climate change programmes and to eliminate US funding in 2018 for the Green Climate Fund.

The US government’s 2018 Budget proposal also plans to provide no funding for US State Department and US Agency for International Development bilateral activities with partner countries to address climate change.

Following the US decision to withdraw from the Paris Agreement on climate change, global leadership on tackling climate change will likely be driven by the European Union (EU) and China. Meanwhile, China has also taken a global leadership role in boosting development financing for developing countries, through the Belt and Road Initiative.

China has also led recent initiatives to create new multilateral development banks for financing infrastructure development, including the creation of the Asian Infrastructure Investment Bank as well as the New Development Bank.

On the issue of excess capacity in industrial sectors, the G-20 Summit in Hangzhou held in September 2016 had agreed to establish a Global Forum on Steel Excess Capacity.

Although no further progress on this was reported at the Hamburg Summit, G-20 Leaders asked for members of the forum to fulfil their commitments to enhance information sharing and co-operation by August 2017 and to rapidly move forward with policy solutions to reduce excess capacity in the global steel industry.

China phased out 65 million tonnes of steel capacity in 2016 and a further 42 million tonnes in the first five months of 2017, although China is still estimated to have considerable excess steel capacity.

Many countries, including the US, EU and India, have imposed countervailing duties on certain types of steel imports in line with World Trade Organisation anti-dumping rules.

In April 2017, US President Donald Trump signed a presidential memorandum for an investigation into whether steel imports constitute a threat to US national security, which could eventually result in US tariffs that eliminate the negative effects of steel imports on the national security of the US, including negative impacts on US government revenue and on US economic welfare.

One important positive outcome of the G-20 Summit declaration was an agreement that for the development of Sustainable Global Supply Chains, the G-20 would take immediate and effective measures to eliminate child labour by 2025, as well as to eliminate forced labour, human trafficking and modern slavery.

Much of the action at the G-20 Summit took place on the sidelines, as global leaders had bilateral meetings on key geopolitical issues such as the North Korean crisis and the ongoing civil war in Syria.

Although the G-20 Leaders Declaration made no statement about either crisis, the trilateral meeting between the US, Japan and South Korea at the Northeast Asia Security Dinner on the sidelines of the summit has agreed to push for a UN Security Council resolution with tougher sanctions against North Korea.

China is the dominant export market for North Korean exports, with coal being the single most important export item to China. Therefore, China’s decision to suspend coal imports from North Korea since February 2017 should significantly reduce the flow of foreign exchange (forex) to North Korea, putting more financial pressure on the North Korean regime.

However in tandem with trade sanctions, the US also wants to cut off any alternative conduits for North Korea to finance its nuclear weapons and ballistic missile programmes.

This requires shutting off alternative forms of forex flows to the North Korean regime, such as remittances from North Koreans working abroad and any businesses worldwide that could be remitting funds to the North Korean government.

Some non-North Korean banks and companies that have been doing business with North Korea could therefore be vulnerable to US sanctions if evidence is found that they acted as a conduit for illicit North Korean financial activity or facilitated North Korea’s nuclear weapons and missiles programme.

The US objective is to ramp up economic and financial pressure on the North Korean regime to try to negotiate a peaceful solution to the escalating crisis on the Korean peninsula.

The Hamburg G-20 Summit was notable for the lack of G-20 cohesion on key geopolitical and economic challenges facing the world, with no mention of the crises related to North Korea, Syria or Qatar.

At least in the near term, the momentum for global policy action on key geopolitical and economic risks is therefore more likely to be led by smaller coalitions of major nations rather than collective G-20 actions.

  • Rajiv Biswas is the Asia-Pacific chief economist for IHS Markit and the author of “Asian Megatrends” published by Palgrave Macmillan in 2016.