AIAIMS

G20 and RTO

A Project Report for International Business

2010

[20] Saif Khan

[9] Swapna Rao
[23] Khalid Khan
[57] Mudasser Kassimi
[19] Abdul Gafoor

Submitted To professor Ganachari

The
G20
 The Group of Twenty Finance Ministers and Central Bank
Governors (G-20, G20, Group of Twenty) is a group of finance
ministers and central bank governors from 20 economies: 19
countries plus the European Union, which is represented by the
President of the European Council and by the European Central
Bank. Their heads of government or heads of state have also
periodically conferred at summits since their initial meeting in
2008. Collectively, the G-20 economies comprise 85% of global
gross national product, 80% of world trade (including EU intra-
trade) and two-thirds of the world population.

The G-20 was proposed by former Canadian Finance

Minister Paul Martin (later, Prime Minister) for cooperation and
consultation on matters pertaining to the international financial
system. It studies, reviews, and promotes discussion (among
key industrial and emerging market countries) of policy issues
pertaining to the promotion of international financial stability,
and seeks to address issues that go beyond the responsibilities
of any one organization. With the G-20 growing in stature since
the 2008 Washington summit, its leaders announced on
September 25, 2009, that the group will replace the G8 as the
main economic council of wealthy nations.

The heads of the G-20 nations have met semi-annually at

G-20 summits since 2008. The most recent was held in Toronto
on June 26–27, 2010, and the next will be in Seoul on
November 11–12, 2010. Starting in 2011, G-20 summits will be
held annually.
 Organization
The G-20 operates without a permanent secretariat or
staff. The chair rotates annually among the members and is
selected from a different regional grouping of countries. The
chair is part of a revolving three-member management group
of past, present and future chairs referred to as the Troika. The
incumbent chair establishes a temporary secretariat for the
duration of its term, which coordinates the group's work and
organizes its meetings. The role of the Troika is to ensure
continuity in the G-20's work and management across host
years.

Member countries and organizations

In 2010, there are 20 members of the G-20. These include,
at the leaders summits, the leaders of 19 countries and of the
European Union, and, at the ministerial-level meetings, the
finance ministers and central bank governors of 19 countries
and of the European Union :
1. When was the G-20 set up?

The G-20 first meeting was held in Berlin on December 1516, 1999.

2. Why was the G-20 set up?

The G-20 was created as a response both to the financial crises of

the late 1990s and a growing recognition that key emerging-market
countries were not adequately included in the core of global economic
discussion and governance. Prior to the G-20 creation, similar groupings
to promote dialogue and analysis had been established at the initiative
of the G-7. The G-22 met at Washington D.C. in April and October 1998.
Its aim was to involve non-G-7 countries in the resolution of global
aspects of the financial crisis then affecting emerging-market countries.
Two subsequent meetings comprising a larger group of participants (G-
33) held in March and April 1999 discussed reforms of the global
economy and the international financial system. The proposals made by
the G-22 and G-33 to reduce the world economy's susceptibility to
crises showed the potential benefits of a regular international
consultative forum embracing the emerging-market countries. Such a
regular dialogue with a constant set of partners was institutionalized by
the G-20 creation in 1999.

3. How does the G-20 differ from the G-7?

The G-7 was established in 1976 as an informal forum of seven

major industrial economies: Canada, France, Germany, Italy, Japan, the
United Kingdom and the United States of America. The G-7 conducts
dialogue and seeks agreement on current economic issues on the basis
of the comparable interests of those countries. The G-20 was
established in 1999 and reflects the diverse interests of the systemically
significant industrial and emerging-market economies. (see: About the
G-20). It has a high degree of representativeness and legitimacy on
account of its geographical composition (members are drawn from all
continents) and its large share of global population (two-thirds) and
world GNP (around 90 per cent). The G-20's broad representation of
countries at different stages of development gives its consensus
outcomes greater impact than those of the G-7.

4. Can all member countries exert equal influence?

Achieving consensus is the underlying principle of G-20 activity

with regard to comments, recommendations and measures to be
adopted. There are no formal votes or resolutions on the basis of fixed
voting shares or economic criteria. Every G-20 member has one 'voice'
with which it can take an active part in G-20 activity. To this extent the
influence a country can exert is shaped decisively by its commitment.

5. What are the criteria for G-20 membership?

In a forum such as the G-20, it is particularly important for the

number of countries involved to be restricted and fixed to ensure the
effectiveness and continuity of its activity. There are no formal criteria
for G-20 membership and the composition of the group has remained
unchanged since it was established. In view of the objectives of the G-
20, it was considered important that countries and regions of systemic
significance for the international financial system be included. Aspects
such as geographical balance and population representation also
played a major part. 

6. How are the G-20 taking forward work remitted to Finance

Ministers by Leaders.

The G-20 Finance Ministers were tasked from the Pittsburg

Summit to take forward work in the following areas;

 Framework for Strong, Sustainable, and Balanced Growth

 Strengthening the International Financial Regulatory System
 Modernizing our Global Institutions to Reflect Today's Global
Economy
 Reforming the Mandate, Mission, and Governance of the IMF
 Reforming the Mission, Mandate, and Governance of Our
Development Banks
 Energy Security and Climate Change
 Strengthening Support for the Most Vulnerable
 Putting Quality Jobs at the Heart of the Recovery
 An Open Global Economy

In addition to these 20 members, the following forums and institutions,

as represented by their respective chief executive officers, participate
in meetings of the G-20:

 the Managing Director of the International Monetary Fund

 the Chairman of the International Monetary Fund
 the President of the World Bank
 International Monetary and Financial Committee
 the Chairman of the Development Committee
Membership does not reflect exactly the 19 largest national economies
of the world in any given year. The organization states:

“ In a forum such as the G-20, it is particularly important for the

number of countries involved to be restricted and fixed to
ensure the effectiveness and continuity of its activity. There are
no formal criteria for G-20 membership and the composition of
the group has remained unchanged since it was established. In
view of the objectives of the G-20, it was considered important
that countries and regions of systemic significance for the
international financial system be included. Aspects such as
geographical balance and population representation also played
a major part. ”

All 19 member nations are among the top 32 economies as measured in

GDP at nominal prices in a list published by the International Monetary
Fund (IMF) for 2008. Not represented by membership in the G-20 are
Switzerland (19), Norway (25), Taiwan (26), Iran (28) and Venezuela
(31) even though they rank higher than some members. Spain (9),
Netherlands (16), Poland (18), Belgium (20), Sweden (22), Austria (24),
Greece (27) and Denmark (29) are included only as part of the EU, and
not independently. When the countries' GDP is measured at purchasing
power parity (PPP) rates, all 19 members are among the top 24 in the
world in 2008, according to the IMF.[10] Iran (17), Taiwan (19) and
Thailand (23) are not G-20 members, while Spain (12), Netherlands (19)
and Poland (20) are only included in the EU slot. However, in a list of
average GDP, calculated for the years since the group's creation (1999–
2008) at both nominal and PPP rates, only Spain, Netherlands, Taiwan,
and Poland appear above any G-20 member in both lists
simultaneously.
 ABOUT G20

The G20 was established in 1999, in the wake of the 1997

Asian Financial Crisis, to bring together major advanced and
emerging economies to stabilize the global financial market.
Since its inception, the G20 has held annual Finance Ministers
and Central Bank Governors' Meetings and discussed measures
to promote the financial stability of the world and to achieve a
sustainable economic growth and development.

To tackle the financial and economic crisis that spread

across the globe in 2008, the G20 members were called upon to
further strengthen international cooperation. Accordingly, the
G20 Summits have been held in Washington in 2008, and in
London and Pittsburgh in 2009.

The concerted and decisive actions of the G20, with its

balanced membership of developed and developing countries,
helped the world deal effectively with the current financial and
economic crisis. The G20 has already delivered a number of
significant and concrete outcomes. It committed to implement
the unprecedented and most coordinated expansionary
macroeconomic policies, including the fiscal expansion of US$5
trillion and the unconventional monetary policy instruments;
significantly enhance the financial regulations, notably by the
establishment of the Financial Stability Board(FSB); and
substantially strengthen the International Financial
Institutions(IFIs), including the expansion of resources and the
improvement of precautionary lending facilities of the IFIs.

Reflecting on these achievements and recognizing that

more needs to be done to ensure a strong, sustained and
balanced global recovery, the G20 Leaders at Pittsburgh
Summit designated the G20 as the premier forum for
international economic cooperation. In 2010, the June Summit
will be held in Canada, and the November Summit will be held
in the Republic of Korea.

Building on past achievements and close cooperation

among members, the G20 will double its efforts in 2010 to help
the world make a successful transition from global recovery to
stronger, more sustainable and balanced growth

Invitees
Typically, several countries that are not permanent members of
the G20 are nonetheless extended invitations to participate in
the summits. The invitees are chosen by the host country. For
the 2010 summits, for example, both Canada and South Korea
invited Ethiopia (chair of NEPAD), Malawi (chair of the African
Union), Vietnam (chair of ASEAN), and Spain. One of the world's
10 largest economies, Spain has been invited to every summit.
Canada also invited the Netherlands (world's 16th largest
economy) while Korea invited Singapore.
 Both Canada and South Korea invited seven international
organizations: the United Nations, the International Labour
Organization, the World Bank, the International Monetary
Fund, the Organisation for Economic Cooperation and
Development, the World Trade Organization, and the Financial
Stability Board.

History

The G-20, which superseded the G33, which had itself

superseded the G22, was foreshadowed at the Cologne Summit
of the G7 in June 1999, but was formally established at the G7
Finance Ministers' meeting on 26 September 1999. The
inaugural meeting took place on 15–16 December 1999 in
Berlin. In 2008 Spain and Netherlands were included by French
invitation for the G-20 Leaders Summit on Financial Markets
and the World Economy.

In 2006 the theme of the G-20 meeting was “Building and

Sustaining Prosperity”. The issues discussed included domestic
reforms to achieve “sustained growth”, global energy and
resource commodity markets, ‘reform’ of the World Bank and
IMF, and the impact of demographic changes due to an aging
population. Trevor A. Manuel, MP, Minister of Finance, South
Africa, was the chairperson of the G-20 when South Africa
hosted the Secretariat in 2007. Guido Mantega, Minister of
Finance, Brazil, was the chairperson of the G-20 in 2008; Brazil
proposed dialogue on competition in financial markets, clean
energy and economic development and fiscal elements of
growth and development.

In a statement following a meeting of G7 finance ministers

on 11 October 2008, US President George W. Bush stated that
the next meeting of the G-20 would be important in finding
solutions to the (then called) economic crisis of 2008. An
initiative by French President Nicolas Sarkozy and British Prime
Minister Gordon Brown led to a special meeting of the G-20, a
G-20 Leaders Summit on Financial Markets and the World
Economy, on 15 November 2008.

Summits
The G-20 Summit was created as a response both to the
financial crisis of 2007–2010 and to a growing recognition that
key emerging countries were not adequately included in the
core of global economic discussion and governance. The G-20
Summits of heads of state or government were held in addition
to the G-20 Meetings of Finance Ministers and Central Bank
Governors who continued to meet to prepare the leaders'
summit and implement their decisions. After the debut summit
in Washington, D.C. during 2008, G-20 leaders met twice a year
in London and Pittsburgh in 2009, Toronto and Seoul in 2010.

Beginning in 2011, when France will chair and host the G-

20, the summits will only be once a year Mexico will chair and
host the leaders summit in 2012

Critiques

Exclusivity of membership

Although the G20 has stated that the group's "economic weight
and broad membership gives it a high degree of legitimacy and
influence over the management of the global economy and financial
system," its legitimacy has been challenged. With respect to the
membership issue, US President Barack Obama has noted the difficulty
of pleasing everyone: "everybody wants the smallest possible group
that includes them. So, if they're the 21st largest nation in the world,
they want the G-21, and think it's highly unfair if they have been cut
out."
Norwegian perspective

In an interview with Der Spiegel Norwegian Foreign Minister

Jonas Gahr Støre called the G-20 "one of the greatest setbacks since
World War II." Although Norway is the largest contributor to
development programs in the World Bank and United Nations, it is not
a member of the E.U. and thus not represented in the G-20 even
indirectly. Norway, like the other 180 nations not among the G-20, has
little or no voice within the group. Støre characterized the G-20 as a
"self-appointment group", arguing that it undermines the legitimacy of
organizations set up in the aftermath of World War II, organizations like
the IMF, World Bank and United Nations:

The G-20 is a self-appointed group. Its composition is determined by the major

“ countries and powers. It may be more representative than the G-7 or the G-8, in
which only the richest countries are represented, but it is still arbitrary. We no
longer live in the 19th century, a time when the major powers met and redrew the
map of the world. No one needs a new Congress of Vienna. ”
Global Governance Group (3G) response

According to Singapore's representative to the United Nations, UN

members who are not G20 members have responded to the G20's
exclusivity by either reacting with indifference, refusing to acknowledge
the G20's legitimacy, or accepting that the G20 will be the premier
forum for international economic cooperation going forward but
hoping to "engage the G-20 as the latter continues to evolve so that our
interests are taken on board." Out of this latter group Singapore has
taken a leading role in organizing an informal "Global Governance
Group" of 28 non-G20 countries, with the idea being that by working
collectively they might channel their views into the G20 process more
effectively. Singapore's chairing of the Global Governance Group was
cited as a rationale for inviting Singapore to the November 2010 G20
Summit in South Korea.
Concerns about transparency and advancement of neoliberalism and corporate globalization

The G20's transparency has also been questioned by critics who

call attention to the absence of a charter and the fact that the most
important meetings are closed-door. Critics propose an alternative such
as an Economic Security Council within the United Nations, where
members should be elected by the General Assembly based on their
importance in the world economy and the contribution they are willing
to provide to world economic development.
 The cost and extent of summit-related security is often a
contentious issue in the hosting country and G-20 summits have
attracted protesters from a variety of backgrounds, including
anarchists, anti-capitalists and nationalists.

A development agenda
for the G-20

The G20 has come a long way from its inception as a group
of finance ministers and central bank governors, formed in the
wake of the Asian financial crisis. Its initial agenda was limited.
It was established as a forum for encouraging the adoption of
the Washington Consensus by Asian and other emerging
economies in order to prevent another financial sector
meltdown.

This objective was perhaps overachieved. The need to

demonstrate global solidarity and collective action in tackling
the financial crisis and subsequent global recession led to the
resurrection and elevation of the G20 to Summit level in
November 2008. Collective action by G20 leaders helped to
unfreeze global financial markets, prevent the recession from
turning into a depression and engender a quick recovery. The
declarations at the end of successive summits in Washington
(November 2008), London (April 2009) and Pittsburgh
(September 2009) gave credence to the idea of the G20 having
emerged as the principal global forum for financial and
economic governance.

This was reinforced by the establishment of several

working groups covering the entire range of issues at the heart
of the present crisis. The inclusion of development issues in the
agenda for the G20 Summit in Seoul in November 2011
apparently marks a new stage in the group’s evolution.

The objective is to give greater legitimacy to the G20 and

ensure greater attention to global equity concerns. This policy
brief makes two central arguments.

Firstly, while it is important to include development issues

in the G20 agenda, this could be done with greater impact once
the future existence and efficacy of the group is ensured.

Secondly, the G20 should focus on a selective number of

development issues related to critical constraints to achieving
rapid, equitable and sustainable growth in developing
economies. Otherwise, by spreading itself too thinly, it risks
becoming yet another layer in the hierarchy of agencies
overseeing global efforts for promoting development.

THE G20’S RELEVANCE

 Following the 2010 G20 Summit in Toronto, the continued
relevance of the G20 is unclear. The communiqué released at
Toronto differs from those issued after previous summits, as it
does not present
a common stance of all G20 members on major global issues. It
seems that like the G8, the G-20 is unable to bridge the
differences in member states’ approaches to handling the
recovery. Members are attempting to go their own way in
continuing with or exiting from the fiscal stimulus, depending
on their national circumstances.

It appears that collective action is limited: there was

disagreement over issues in the financial sector such as
imposing a tax on banks for funding future bail-outs. The UK
and the US have both gone ahead with their own measures for
improving financial sector regulation without waiting for the
final recommendations from the expanded Financial Stability
Board. Where trade and protection are concerned, there is
precious little cooperation, other than once again repeating the
desirability of completing the Doha Round – but with no
suggestions of how to do so.

It will be difficult to convince the leaders of G20 member

countries of the forum’s continued usefulness. It seems that
the G20 is suddenly in need of a major boost in order to
achieve greater coherence and relevance. The choice of
maternal and child nutrition as the principal theme for the G8
Summit at Huntsville, close to Toronto, just one day before the
G20 Summit,was rather odd, as it undercut the very
raisond’être of the G20 Summit. In order for the G20 to emerge
as the principal forum for addressing global economic and
financial issues, the G8 must remove these issues from its
agenda. This does not seem to be happening, however.
Moreover, given that the political situation sets the essential
context for economic and financial issues, it is perhaps artificial
to discuss political and economic issues in separate forums and
not expect any overlap.

If the G20 is to emerge as the new ‘high table’ for global

issues, political and security issues need to be brought within
its purview - rather than taking financial and economic issues
back to the G8, as was apparently done in Toronto. Greater
clarity will perhaps be achieved in the next round of G8 and
G20 meetings, to be hosted by France in 2011, but for the
moment, the continued relevance of the G20 remains
uncertain.

To guarantee the continued relevance and evolution of the

G20 as a global forum, its legitimacy and credibility must be
ensured. It is sometimes argued that the G20’s legitimacy is
questionable as it is a self selected grouping, which cannot
claim to be representative of the global community.
Suggestions for achieving greater legitimacy range from
establishing objective criteria for membership; implementing a
system of constituencies; or expanding the membership to
reflect a more balanced geo-strategic composition.

These suggestions are an attempt to formalize the G20,

and therefore strike at the very basis of the formation that is by
definition and design an informal group which does not want to
either replicate or substitute the United Nations or its organs.
The trade-off between representation and formal authority, on
the one hand, and efficiency, on the other, has been well
recognised. For informal groups like the G20, legitimacy is
necessarily derived from their ability to deliver on their chosen
mandate and objectives. Legitimacy for the G20 will therefore
come from implementing the decisions taken by the leaders at
successive summits.

Thus, the crucial issue is to ensure the necessary follow-up

of the decisions and their implementation in a timely manner.
The G20’s record on this score is rather patchy. Its major
achievements have been the trebling of the IMF’s capital base,
the growth of the Asian Development Bank’s capital base and
increasing the voice and vote of emerging and developing
economies by 5 per cent in the World Bank. However,areas in
which the G20 has been less successful include the lack of
ostensible progress on the Doha Round despite repeated
exhortations; the emergence of new forms of ‘messy
protectionism’; an inability to break the status quo on the
reformof the IMF’s governance structure; and a lack of
unanimity regarding banking sector reforms, including the
inability to agree on either a tax on banks or a uniform set of
counter-cyclical prudential or capital provisioning norms.

The process of multilateral surveillance for achieving

balanced economic growth has also only just begun, and here
again major economies seem to be opting for their own
national solutions. If the G20 is unable to improve its
implementation record, both its legitimacy and credibility will
be significantly damaged and the forum will rapidly lose
relevance. It is therefore critical that leaders focus on these
existential issues, making them an immediate priority.

They should pay far greater attention to establishing

implementation and follow- up mechanisms, as well as
addressing the issue of whether or not to establish a
secretariat. It would be wise to consider creating an
appropriate incentive structure that will produce greater
compliance with collective decisions among member countries.
Adding development issues to the G20 agenda will be useful
only if the group remains relevant and is perceived as effective
in implementing its objectives.

A DEVELOPMENT AGENDA FOR G20

South Korea has taken the initiative to put ‘development’
as a separate item on the agenda for the summit in Seoul in
November 2010, with President Myung-bak Lee first spelling
out the priorities in his address at Davos. However, it is worth
noting that, despite their preoccupation with the global
financial crisis, G20 leaders also referred to development issues
in earlier summits.

The rationale for including them is to try and achieve a

more balanced outcome from globalisation and improve equity
both across countries and within each economy. This will make
the G20 more relevant and acceptable to developing
economies, which are not included in the grouping. Promoting
the development agenda will help accelerate growth in
developing economies and reverse the trend of worsening
equity across countries, which has been evident over the past
three decades.

Without such ‘convergent growth’, the G20 will be

perceived as an expansion of the rich nations’ cartel to
maximize the benefits from globalization to the detriment of
poorer countries. This will engender large-scale opposition, the
beginnings of which were discernible in Toronto.

This provides a compelling rationale for the G20 to

prioritise development issues. On the other hand, there is a
danger that the development agenda being suggested for
adoption by the G20 is too large and precludes effective follow
up or implementation. It has been proposed that the G20
should oversee practically the entire range of development
activities. This includes the building of physical infrastructure;
human resource development; poverty alleviation measures;
raising agriculture productivity; improved effectiveness of
development aid; better management of water resources,
labour standards and employment issues; and adoption of
measures for mitigation of the impact of climate change.

This is far too ambitious and impractical an agenda for a

Summit-level forum. Moreover, it duplicates the mandates of
existing ultilateral organisations such as the World Bank,
Regional Development Banks and UN agencies. There are,
however, three development issues where the G20 could play
an effective role. First, it could take up the issue of global aid
architecture and the adoption of globally accepted norms for
channelling aid flows from old and new donors. Presently,
these issues are overseen by the Development Assistance
Committee (DAC) of the OECD, which has tried through the
Paris Declaration and the Accra Action Programme to devise
some global benchmarks for donors.

However, large emerging economies like Brazil, China,India

and Turkey have now become major donors, but they are not
party to DAC initiatives as they are not OECD members. This
prevents effective coordination and in some cases could work
against the implementation of desirable sanctions against
truant governments. On the other hand, nearly all existing DAC
members(perhaps excepting Sweden and Japan) are failing to
fulfil their own pledge to allocate 1 per cent of their GDP to
development aid.

Apparently, there is insufficient peer pressure within the

DACto make them uphold their commitment. Such an issue,
where the global community would benefit from greater
coordination between emerging and advanced economies, and
which requires a degree of ‘naming and shaming’ to encourage
accountability, would be ideally suited for adoption by the G20.
However this would naturally be conditional
upon the G20 resolving its existential problems bybuilding
credibility and acquiring legitimacy.

For example, a coordinated G20 effort to improve the

volume, design and delivery of development aid for sub-
Saharan Africa and the poorest countries in Asia would surely
result in a win-win outcome. Itcould lead to higher allocations
by the advanced economies; greater compliance with
governance norms on the part of new donors and more
effective coordination of the delivery of aid programmes on the
ground.

This in turn would help raise incomes and accelerate

growth in Africa and in the least developed economies,
providing much-needed
impetus to global economic activity. Second, the G20 must take
up the issue of developing new norms for the transfer of
technology that are less onerous for the least developed
economies.

This should also be extended to cover emerging green

technologies across the entire spectrum of goods and services.
The issue of access to necessary and green technologies has
long divided the global community into ‘Us and Them’, or
‘Owners and Users’.

These divisions are particularly harmful in terms of

technologies needed to overcome the consequences of
extreme poverty
Third, it is becoming increasingly clear that the existing
asymmetry between near-complete freedom and flexibility of
movement of capital across national borders and highly
restricted movement of migrants across the same borders is no
longer tenable if globalization is to succeed and deliver on its
promise of convergent growth.

The argument against labor mobility across national

borders is based on the rather out-dated notion of maintaining
a degree of social and cultural homogeneity in a world which is
increasingly a global village. In this era of high connectivity
thanks to faster travel, the internet and collapsing economic
borders owing to multilateral or bilateral comprehensive
economic cooperation agreements, this is an increasingly
archaic understanding. Every segment of the global economy
will have to increasingly reflect the pluralistic nature of the
global community and be equipped to handle it. This is the only
way forward if a clash of civilizations is to be avoided.

Moreover, we cannot expect to receive the full benefits

from globalization if two major factors of production
(technology and human resources) suffer from restricted
mobility. As mentioned above, this restricted mobility of labor
and technology can also be seen as responsible for the
increasing inequity and lack of convergence that currently
characterizes the global economy.

These three development issues warranting the G20’s

attention are somewhat controversial, with major implications
for both advanced and emerging economies. There are no rapid
solutions to these concerns. But they are critical to the future
Success of the global community in confronting negative
realities including climate change, human And drug trafficking
and pandemics.

By accepting the essential multiethnic and increasingly

pluralistic Nature of the global community and of its
constituents, we can engender the necessary spirit of collective
responsibility and accountability. The present divide between
‘Us and Them’ that characterize sall global forums will only
begin to dissipate if there is some progress towards freer
movement of human capital and skills across borders.

In any case, with rapidly ageing populations in a number of

advanced economies, this phenomenon may soon be upon us.

It is surely wiser for a global body like the G20 to

anticipate this difficulty and take the necessary preparatory
action. The G20 is the appropriate forum for taking on such
challenging issues. They require collective political will that the
G20 alone can achieve. They are more important than the other
development issues that are currently being proposed for
adoption by the G20 which are fairly routine in nature and
better left to other organizations.
 G20s Role in the Post-Crisis World
Key Messages

The November G20 Summit, chaired by the Republic of

Korea, will be the first one overseen by a non-G8 country. This
represents a unique opportunity to enhance this leadership’s
forum effectiveness and credibility and to broaden the
confidence and momentum that the Korean Presidency has
already generated and that needs to be maintained.

The Korean Presidency should be ambitious but also

pragmatic. The G20 must first show it can deliver on existing
commitments. It is in delivering that the G20 will ensure its
legitimacy. The Korean Presidency needs to strike a delicate
balance: it must encourage the G20 to begin thinking and acting
long-term, beyond the exigencies of crisis management; but
also make sure that such strategic foresight does not divert
efforts from short-term imperatives. The Toronto summit was
billed as a ‘post-crisis’ meeting but was forced to narrow its
focus to questions of fiscal retrenchment. Barring further
instability and crisis, Seoul will provide an opportunity for the
G20 finally to deliberate on its role beyond reactive crisis fire-
fighter.
 We welcome the Korean Presidency’s initiative to include
development in the agenda. There is a case for adding some
new items to the agenda; but this should be done in a way that
facilitates progress on economic cooperation and governance
issues and not distract from them.

Even an eventual slowdown in global economic recovery

should not shake the political resolve of G20 leaders in the
compliance of commitments and the pursuit of their agenda.
Against this background, the following recommendations were
put forward for the Seoul Summit and the G20 in the years to
come:
Legitimacy and Efficiency:

Recommendation 1: Reinforce the G20’s role in global

economic governance in the post-crisis world.

Recommendation 2: Frame the agenda and institutionalize the

relationship with relevant multilateral organizations and actors
in order to avoid duplication of mandates and foster
complementarities.

Recommendation 3: Focus on its current agenda and deliver on

its commitments in order to ensure legitimacy.

Recommendation 4: Ensure the G20s efficiency by maintaining

a manageable size, a valuable process, a workable agenda, and
adequate cost management. Reform of Quotas at International
Financial Institutions:
Recommendation 5: Grant greater voting power to emerging
economies and developing countries in the IFIs by ending the
US veto right and Europe’s overrepresentation.

Recommendation 6: Consider the reform the IMF quota

formula by including other relevant indicators. To date, around
80% of this formula is based on GDP. Other elements such as
population and reserves could also be considered.

Recommendation 7: Implement the decision to select the

President of the World Bank and the Managing Director of the
IMF on the basis of merit and regional representation.

Recommendation 8: Address future international financial

challenges, such as, international monetary reform and the
need for a global financial safety net.

Accountability Mechanisms
Recommendation 9: Define the role of the G20 as the premier
leadership forum that can provide political guidance on issues
of concern for economic cooperation and governance.

Recommendation 10: Strengthen the accountability of the G20

through the application of results measurement, commitment
monitoring and mutual assessments.
Recommendation 11: Foster transparency to enhance people’s
ability to have faith in the quality of the decision-making.

Recommendation 12: Define and establish an outreach strategy

that allows for two-way accountability with relevant institutions
and non G20 countries.

Development Priorities for a G-20 Agenda

Recommendation 13: Enhance national capacities and create an

enabling international environment for the development of
sustainable global growth and wellbeing. The experience of the
Republic of Korea can serve as an inspiring reference for
developing countries.

Recommendation 14: Promote green and inclusive economic

growth, employment creation and investment in human capital,
all principles that apply to global efforts for development,
including within G20 Members.

Recommendation 15: Take a more determined and creative

stance on global free trade. This is an opportunity for the G20
to take concrete steps to conclude the Doha Round and fulfill
the commitments of the Doha Development Agenda.

Recommendation 16: Address the existing contradiction

between freedom in capital movements and the still significant
barriers in the movement of labor in order to avoid asymmetric
globalization.

2009 G-20 London Summit Highlights

Each year the G-20 writes a report on their findings, known as

the Communiqué. The April 2nd, 2009 talking points found in
the Communiqué are as:-

 Strengthen financial regulation.

  Restore confidence in the economy, produce growth
and jobs.

 Promote global trade and investment while rejecting

protectionism.

 Build and inclusive, green and sustainable recovery.

 Repair the financial system.

Steps taken by G-20 members:-

G-20 members agreed on the immense step to recover the

despair economy by agreeing on $1 trillion and to restore
credit, growth and jobs. G-20 members agreed on raising $500
billion IMF resources to $750 billion, the fund can make
available to countries worst hit by the global crisis.

The group also agreed to authorize the Multilateral

Development Bank (MDB) to lend an additional $100 billion, as
well as increase support of trade finance to $250 billion, and
use additional resources from gold sales to finance the poorest
countries.Limits on hedge funds, executive pay, credit-rating
companies and risk-taking by banks.

China and Russia proposed replacing the dollar as the

world ’s mainreserve currency with a proposed to change the
US dollar as the world currency and instead of that use the SDR
(special drawing right).

China’s central bank governor, Zhou Xiaochuan, offered a

bold proposal to overhaul the global monetary system and
replace the Greenback (dollar) with the IMF SDR (Special
Drawing Right).

What are the reasons ?

The outbreak of the [credit] crisis and its spillover to the

entire world reflected the systemic risks in the existing
international monetary system. Whole world needs the
international reserve currency to secure global financial
stability and facilitate world economy growth.
When the use of currency (greenback) as the exchange rate
which itself is in the grip or the parent of such crisis, would
definitely not create any stability.

The other suggested was that the change would not only
eliminate the risks associated with paper “fiat” currencies , such
as the dollar and pound – which are backed only by the credit
of the issuing
country , rather than by g old – but would make it possible to
manage global liquidity and imbalances more effectively .
What is a Special Drawing Right (SDR)
 “The SDR (Special Drawing Right) is an artificial "basket"
currency used by the IMF (International Monetary Fund) for
internal accounting purposes”. The SDR is also usedby some
countries as a peg for their own currency, and is used as an
international reserve asset.

At present, the currencies in the basket are, by weight, the

United States dollar, the Euro, the Japanese yen, and the Pound
sterling. Holders of SDRs can obtain these currencies in
exchange for their SDRs in two ways: first, through the
arrangement of voluntary exchanges between members; and
second, by the IMF designating members
with strong external positions to purchase SDRs from members
with weak external positions.
Regi
ona
l
Tra
de
Agr
ee
me
nts
Introduction

Regional block is the initiative taken by regional

governments in one region to liberalize and facilitate intra
regional trade, by establishing either free trade areas or custom
unions. Regional trade has been gaining increasing importance
in the international economy. It accounts for 55% of total global
trade2.

Regional trade agreements (RTAs) total number increased

by 8 times comparing to the 80s total number. Currently, RTAs
dominate on 40% of international trade. The stumbling in
multilateral negotiations, as well as their ramification and
complexity, led to more promotion of regional trade day after
day. RTAs offer several advantages to the member countries,
considering their various types. They also contribute in
developing the region, and they increase the activity of their
countries in the multilateral trade system.

RTAs are main part of developmental plans for most

developed and developing countries. Despite the fears that
RTAs may have negative impacts on international trading
system, total number of these agreements is still increasing
rapidly, especially after 2000. This direction gained more depth
with the accession of great economic blocs and important
developing countries to the ground of competition, motivated
by their desire to get wider market accession. RTAs are notable
phenomenon that is irreversible.
 During recent years, the number of preferential
agreements, as well as preferential trade portion of global
trade, has been continuously increasing. For example, in 2004,
WTO secretariat received 43 RTA notifications, which makes the
year 2004 a historical year for the RTAs. WTO members deal
with RTAs as a policy- trading tool, or as a complementation to
the Most Favored Nation (MFN) policy. Economic
considerations are one face of RTAs complex strategy, but there
are several other faces, such as political considerations and
others. This proliferation of RTAs is a challenge and an
advantage for the WTO and multilateral system at the same
time. The critical role of regional blocs is embedded in shrinking
economic impacts of countries’ boarders in one region.

Over the last fifteen years Regional Trade Agreements

(RTAs) have become defining features of the modern economy
and a powerful force for globalization. By the beginning of2005
more than 250 RTAs had been notified to the World Trade
Organization (WTO).The example of the European Union as an
economically successful trade agreement and peaceful political
arrangement has much to offer the world. Whilst the EU is the
product of a unique political and economic landscape, other
RTAs also have the potential to build peace and prosperity.

However, without a clear understanding of their potential

hazards, RTAs also run the risk of escalating tensions and
hindering development. RTAs can be divisive and exclusive, and
their terms can embed regional tensions and power
imbalances. Especially when negotiated between countries of
differing economic power, trade agreements can exert
powerful leverage on the political stability of the economically
weaker partner.

Poorly designed and implemented RTAs have led to

heightened tensions between countries and arguably increased
the risk of inter-state conflict. At the same time, the political
and economic adjustment costs involved in pursuing regional
trade integration have undermined local livelihoods and
created winners and losers, spurring competition between
groups.

As the December 2005 Ministerial meeting of the WTO in

Hong Kong draws closer there is a growing realization that
intransigence amongst both developed and developing country
trade negotiators may yet stall progress toward lowered tariff
barriers and increased market access. With a multilateral trade
system that is repeatedly frustrated by the competing interests
of the 148 members of the WTO, countries are increasingly
seeking to advance their national interests outside the agreed
multilateral framework of the General Agreement on Tariffs
and Trade (GATT).

If the talks fail to produce substantive results then it is

likely that renewed energy will be put toward regional trade
integration as a more flexible way of liberalizing trade and
pursuing other geo-political goals. In short, the Regional Trade
Agreements is likely to become a more, not less, common
feature of the world economy. The debate on RTAs has tended
to revolve around the somewhat narrow topic of what the
trend means for multilateral trade liberalization; whether RTAs
are a “stumbling block” or a “stepping stone” to
multilateralism.

However, as the European Union shows, trade agreements

can presage deep and profound economic, social and political
changes. Aid donors and the international community have
been particularly keen to promote regional integration in the
developing world as a ‘hands- off’ stepping-stone toward
greater interdependence, trade liberalization and stability. Yet
while the process promises much in terms of greater
interdependence and stronger regional institutions it also
presents grave dangers.

Sample of prominent RTAs

 General trends related to RTAs in the
international scope
Since 2005, four mainstreams that reflect RTAs
developments can be noticed:

1. There is noticeable change in positions of countries that

have been always relying on multilateral trade liberalization to
make RTAs the core of their trading strategy in the next stage.

2. RTAs became complex, and in many cases, their

legislative systems are ore strict and detailed than the WTO’s.
 3. Reciprocal preferential agreements between developed
and developing countries are increasing, which reflects less
dependency of some developing countries on none reciprocal
preferential system.

4. Although RTAS are regional, the dynamics of RTAs show

similar types of separation and coherence; first, we witness
increasing number of cross regional agreements, which
represent considerable portion of growing RTAs activities, and
second, RTAs based on continental ground are also more active
and vital comparing last decades.

Types of RTAs

Concerning RTAs types, the most common type of RTAs

are free trade area agreements (FTAs), which represent 84% of
total active RTAs; according to such agreements, trade barriers
among members are eliminated, but each member can
maintain its policies against third parties. Restricted
agreements and custom unions (an RTA that adopt single
foreign trade policy for all members) represent 8% each.

Moreover, there are sub-forms of custom unions that

imply deeper integration, such as common markets, which are
custom unions that allow moving production factors as well as
products across borders, and economic unions, which imply
higher level of harmonization in terms of national economic
policies4 and allow moving products and product factors across
members intra borders. The reason behind FTAs' domination is
that they demand less time for negotiation, and minor level of
political harmonization among members.

Each member can maintain its own policy towards third

parties; however, custom union requires establishing common
tariff and harmonizing foreign trade policies, which mean more
losses in terms of members' own margins, longer period for
negotiations, more complicated negotiations and m re
extended time for implementation.

Preferential agreements as a special type of RTAs

Preferential agreements are discriminatory polices that

seek trade liberalization with specific partners. International
trading system is characterized by huge number of preferential
agreements, which can be categorized in two groups: bilateral
symmetrical agreements that imply symmetrical trade
liberalization, and asymmetrical unilateral agreements that
imply asymmetrical trade liberalization aiming to support one
country.

The supported country in this case gains better market

accession to its partners' markets, without being requested to
open its national markets at the same level. This second type of
preferential agreements is used widely as a mean to integrate
developing countries within the international trading system.
Some observers think that the increased rush towards RTAs
means necessarily that discriminatory preferences' share in
RTAs are increasing, which will leave negative impacts on the
multilateral trading system.

Terms of RTAs

RTAs are economic initiatives that aim to practice free trade.

Depth of RTAs differ from one to another. Some RTAs cover limited
area of custom tariffs, while others wrap a wider ran e and
more comprehensive arena, and include a long array of trade
legislations.

Recent agreements are not restricted to tariff reduction

only, but they add more complicated issues, such as Sanitary
and Phytosanitary measures, Technical Standards, None Trade
Barriers (NTBs), environment and Aid for Trade. Regarding RTAs
members' commitments, they differ according to agreement's
type. In case of FTAs, trade barriers among RTAs members are
to be eliminated or reduced, but individual commercial policies
with third parties are to be kept and maintained, which allow
members to protect their sensitive sectors.

However, this may conversely add problems to the

national economy if a third party exported its products to a
member country, and then re-exported them to the member
country protecting the sector.
 The custom union doesn't face such problems because it
doesn't imply eliminating or reducing trade barriers among
members only, but also unifying members’ foreign trade
policies (especially customs); nonetheless, it will be difficult for
a member to protect one sector because it needs it to
negotiate the issue with all other members to agree on high
unified tariff for all members.

Main regional blocs

The phenomenon of RTAs is imminent in the western

hemisphere and Asian pacific rather than other regions. RTAs in
these two regions are agreement to unify the western
hemisphere (North and South America) in one FTA. ASIAN
initiative, which was launched in order to develop trade in
Asian countries, and NAFTA, which comprise the US, Canada
and Mexico in one area.

In addition, Southern Common Market (MERCSUR) and

Andean group can be mentioned in terms of South America. In
Africa, there is Southern African Development Community
(SADC), and in Europe, the scenery is characterized by the EU,
which is the biggest trading force internationally, and also
European Economic Area (EEA)7. Moreover, if the EU reaches
an agreement with MERCSUR, the largest FTA in the history will
appear on the stage of international economy.
 Specifications of RTAs

1. The scenery of FTAs currently is various and complex.

Moreover, the complexity increases in parallel with the
overlapping of FTAs through and among world countries. Some
economists name this situation "spaghetti dish". In fact, more
than half-current international trade is conducted through
intraregional blocs, either current blocs or potentials. Almost
each country in the world is a member of one FTA at least, too.

2. Although RTAs are classically referred to as WTO+, but

this is not necessarily very true. For instance, while an
agreement that restrict imposing antidumping measures in its
region can be considered a WTO+, this can't be said about
agreements that include less restricted legislations about
intellectual properties than what has been mentioned in the
TRIPS8.

3. Geographical considerations play a central role in

custom unions. Usually, FATs are stroked among – the so called
– natural partners, such as the Great Arab Free Trade Area
(GAFTA), the EU and North America Free Trade Area (NAFTA).
However, once a country consumed its region's potentials, it
starts looking for preferential agreements with countries that
belong to other regions.
 4. "Rules of origin" is an original character of FTAs, where
each member can maintain its custom system against third
parties. These rules are considered a tool to determine whether
imported goods deserve to be treated preferentially or not, and
to block faked products from accessing the region with low
tariff.

5. Currently, countries are rushing towards bilateral

agreements rather than custom unions. This creates huge
increasing in intersections and overlapping among agreements,
in shade of that each has its own schedule and rules of origin.

6. If the agreement adopts the principle of Big Bang

(immediate, comprehensive and complete liberalization), and
liberalizes all tariffs for all products once the agreement is
activated, then there will be no need to negotiate a
commitments' agenda. However, this rarely occurs, and usually
most agreements have a timetable for reducing taxes
bilaterally. The schedule of tariff reduction may be
asymmetrical, so it grants a member longer period for
implementation or exemption from tariff reduction in some
sensitive sector, in other cases, the schedule could be
symmetrical.
 The relationship between the WTO and
FTAs

If RTA rules were is harmonization with the WTO

multilateral rules, the RTA would be complimentary the
multilateral liberalization, but if the RTA was discriminatory
against third parties, or was imposing complex net of trading
system, then it would be in conflict with WTO rules and
multilateral trading system. The stumbling in Doha Round
negotiations resulted in strengthening regional relationships.

Some countries claim that their participation in RTAs

would motivate Competitively multilateral liberalization
through developing trade liberalization in several fronts. Other
countries are attracted to RTAs as a mean to protect their
market accession, in shade of absence of MFN liberalization. In
the following points, main features of WTORTAs relationships
are reviewed.

1. WTO and RTAs share the same target, which is trade

liberalization, but RTAs are discriminatory, on contrary of the
WTO. Tracing the same target with different approaches might
lead to bilateral tensions. Considering that maintaining trade
liberalization based on MFN principle is facing increasing
difficulties, and that sectors of interest for some countries are
exempted from multilateral negotiations' agenda, there would
be no choice to resume trade through RTAs. RTAs allow
members to liberalize specific favorable markets.

2. According to MFN liberalization's supporters, prevalence

of RTAs would "hinder international trade model, which the
WTO tries to establish, and would undermine the transparency
and predictability in international trade." RTAs also "create
difficulties for third parties through reducing attentions paid to
multilateral trade agenda, and generating deep-rooted
interests and benefits among RTA member countries, which will
induce them later to resist international efforts for shrinking
margins of preferences"

One of the possible results of these tensions is threatening

developmental balance in the WTO through increasing
investment and trade variety, especially if the liberalization is
preferential. One possible impact also is threatening work and
production environment; Basically, RTAs may raise production
costs through legislative complexities, and shift the production
from which comparative advantage is dominating to where
competitive advantage (preference) is prevailing.”
Some economists see that RTAs offer some advantages to
developing countries, but multilateral trading agreement that
reduce protectionism, especially in areas that developing
countries have comparative advantages in them, would
promise the most possible benefits for developing countries.
 3. WTO negotiations about RTAs: in Doha declaration,
there was a signal to the RTAs as a possible major player in
terms of trade liberalization promotion, and fastening
economic development. The declaration also emphasized the
need to a harmonized relationship between multilateral and
regional progresses. Consequently, ministers agreed to launch
special negotiations in order to clarify and enhance rules and
procedures related to the RTAs in the WTO.

The idea was to facilitate establishing cross-regional trade

agreements, try to find better controlling on RTAs dynamic, and
reduce risks resulted from RTAs proliferation. After launching
negotiations about rules of RTAs in Doha round, some technical
issues were put on table of negotiations, such as rules of origin
and proposed procedures to ensure that RTA rules are
consistent with WTO rules. R As negotiations proceeded on two
ways: one of technical nature, and another with loyal and
regulatory scheme.

Negotiations made some progress on the second way, but

they still facing some difficulties considering strong correlation
between RTAs rules with other legislative area. Regarding the
first way, WTO members signed formal agreement about initial
decision that comprises a mechanism to ensure transparency in
terms of RTAs. The decision was applied since December 2006;
the rest is waiting the conclusion of Doha round.
 4. WTO rules about RTAs: basically, RTAs are against WTO
none discrimination principle, but article 20 of GATT, as well as
WTO agreement 1994, exempt RTAs from these rules,
conditioned to respect some provisions that circle around one
point: the RTA has to be in favor of multilateral liberalization,
and not in contrast with it. The provisions can be summarized in
two points:

a. The aim of an RTA should be trade facilitation among its

members, and not hinder third parties’ trade.
b. Enabling Clause: it means the possibility of launching
preferential agreements with developing countries, in case they
do not create barriers to third parties’ trade, and the WTO
secretariat is informed about the agreements.

WTO members are obliged to inform the WTO secretariat

about new RTAs, and their harmony with the WTO rules will be
discussed in RTAs and bilateral committee, then the committee
states its final decision about each agreement.

Economic Analysis of RTA

The economic impact of an RTA depends on its special

engineering, partners' trading impact, and the level of
liberalization agreed on. Analyzing FTAs is more complex than
analyzing multilateral trading liberalization. WTO rules request
members (not in case of RTAs) to never raise a tariff higher than
their counterparts in other member countries, and never
reduce a tariff for one member countries and exclude others.

Therefore, any tariff reduction for a country would be

for all member countries, and any increasing in importation
from one member country would replace national production
(and not importation from another member country). However,
in terms of FTAs, reducing trade barriers for one country would
increase competitiveness towards imports from other countries
as well as national production.

Consequently, the increase in imports from one country

may r place other countries' exports or it may replace national
production. Economists name replacing national production by
one country's exports trade creation, because it results in
increasing net trade. Replacing other countries' exports is called
trade diversion, because it does not increase net trade but
diversifies its sources.

The important difference between trade creation and

trade diversion is that the former may produce economic
benefits differently from the latter. Although trade creation
may harm some sectors, it is useful in general. Trade creation
occurs only when the import price is lower than national
production's cost. Therefore, it allows getting the same
product by lower price; however, trade diversion is less
probable to be useful. Some sectors may benefit from trade
diversion, but that is only due to loosing some returns for the
benefiting country only.
 In general, RTAs are expected to increase both trade
creation and trade diversion, but if trade iversion is bigger than
trade creation, the result of the RTA may be a partial injury
rather than a total benefit. Nonetheless, the more RTAs are
launched, the more recent RTAs are expected to be less trade
diversion, and more contradicting the previous RTAs trade
diversion.

At the end, establishing individual FTA with all countries

in the world would eliminate trade diversion' infuence
completely and keep trade creation's impact only. Just as if the
negotiations were multilateral. At the end, it is more probable
that developing countries would loose in a south-south
agreement than in joining a north-south agreement. The reason
is that south-south agreement is expected to have little trade
creation. Similarly, there is real probability that only one
country gains in a south-south agreement, while other partners
loose. The biggest loser mostly will be the poorest partner.

Conclusion
In all cases, RTAs are expected to continue their extension in
the light of the huge various motivations to launch such
agreements, and regardless of the results of multilateral
negotiations. The most important challenge is how to find a
way to maximize profits in the context of RTAs, incorporating
them with the WTO and reducing any negative impact of
them.
The end