Global Economic Forum to Expand Permanently
 

PITTSBURGH (By Edmund L. Andrews, NYT) September 25, 2009 — President Obama will announce Friday the once elite club of rich industrial nations known as the Group of 7 will be permanently replaced as a global forum for economic policy by the much broader Group of 20 that includes China, Brazil, India and other fast-growing developing countries, administration officials said Thursday.

The move highlights the growing economic importance of Asia and some Latin American countries, particularly since the United States and many European countries have found their banking systems crippled by an economic crisis originating in excesses in the American mortgage market.

For more than three decades, the main economic group was the Group of 7 — the United States, Britain, Canada, France, Germany, Italy and Japan. During the Clinton years, Russia was gradually added, not because of the size of its economy, but to help integrate it with the West. Administration officials said the group would still meet twice a year to discuss security issues. But for practical purposes, the smaller group will become more like a dinner club that defers to the broader group on the economic issues that have dominated summit meetings for nearly three decades. The development, as Mr. Obama was hosting a summit meeting here for leaders of the Group of 20 — 19 countries and the European Union — also highlighted the lingering disparity between the elite group of mostly Western powers and the mass of poorer nations. For all of Mr. Obama’s talk about greater inclusiveness for countries like Brazil and China, the meeting in Pittsburgh remains dominated by the financial crisis that began in the United States and has preoccupied the old boys’ club.

The issue many developing countries feel much more strongly about — knocking down barriers to trade, especially in politically sensitive sectors like agriculture — is barely likely to be part of the official discussions.

Rather, the packed agenda includes proposals to raise capital requirements for financial institutions, rein in executive compensation and reduce imbalances between shop-till-you-drop countries like the United States and export behemoths like China, Germany and Japan.

Even as Mr. Obama participated in his first Group of 8 meeting in July in L’Aquila, Italy, he seemed to have doubts about its suitability as a forum for solving the world’s problems. At the time, his aides characterized the session as merely a way station between Group of 20 meetings.

“We view this meeting and this discussion as a midpoint between the London G-20 summit and the Pittsburgh G-20 summit,” said Mike Froman, the president’s chief negotiator.

The merits of the different sizes of gathering — 8 nations, 19 or sometimes something in between — have been vigorously debated.

Proponents of the smaller group say the friendships it fosters are important when friction arises in the group or outside it in one-on-one policy disputes between nations. They also point to complications that arise when 20 countries with vastly different economies try to reach agreement on setting exchange rates or other complex financial questions.

Supporters of the larger group say the emerging nations, and the huge slice of the world’s population they represent, must have a seat at the table to debate not only economic issues, but also environmental issues like climate change.

Though the huge expansion of global trade has been at the heart of “global imbalances” Obama officials say they want to address, European and Asian officials gathering here say they cannot tell whether Mr. Obama really wants to push for more open trade. He and his economic advisers have repeatedly warned against responding to the economic crisis by erecting barriers to imports.

But global leaders, noting Mr. Obama’s words are not always in sync with his actions, wonder if the president is a free trader or a protectionist.

Less than two weeks ago, he set off a dispute with China when he approved hefty new tariffs on imports of Chinese automobile and truck tires. Chinese leaders denounced the move and threatened to retaliate with barriers against American chicken exports.

European officials are quietly grumbling the United States has yet to become engaged in an effort to revive work on a new global agreement to knock down barriers in areas like agriculture and business services.

That effort is also a top priority for fast-growing countries like Brazil, whose leaders have become important new players on the world stage.

“With Obama’s move on the tire tariffs, the hypocrisy on trade pledges is really quite apparent,” said C. Fred Bergsten, director of the Peterson Institute for International Economics. “I would expect the other countries to beat up on the U.S., and they deserve it.”

Notwithstanding Mr. Obama’s decision on Chinese tires, administration officials have strenuously avoided economic quarrels with China. For years, American officials have complained at international meetings that China was deliberately undervaluing its currency to give its exports a price advantage.

On Thursday, Treasury Secretary Timothy F. Geithner did not even mention the issue. He went out of his way to praise China for responding to the financial crisis by increasing domestic spending with one of the world’s most aggressive economic stimulus programs.

“If you look at what has happened in China, you will see they have made a very substantial effort to increase domestic demand,” Mr. Geithner said.

But Mr. Obama has been largely silent about what he would like to accomplish on trade, especially when it comes to politically charged issues like American barriers to agricultural imports.

One reason for the United States’ hesitation is trade-opening agreements are extremely unpopular with organized labor, which is always an important Democratic constituency, but is especially vital now because it is providing enormous support for Mr. Obama’s campaign to expand health care coverage.

Senator Sherrod Brown, Democrat of Ohio and a leading critic of American trade agreements, held a news conference this week to argue the leaders meeting in Pittsburgh should support trade laws that preserve or strengthen manufacturing companies. “Leaders of the G-20 nations have an opportunity to clarify legitimate government actions, like trade enforcement, are not acts of protectionism,” Mr. Brown said.

Global trade went through wrenching reductions last fall, as countries around the world plunged into the deepest recessions most of them had suffered in decades. Consumers in the United States and other wealthy countries slashed their spending, sending export-heavy countries like Japan and China into a tailspin.

Making matters worse, credit markets were so frozen companies involved in trade often found it impossible to finance routine business deals.

Financial officials have been relieved the economic crisis has not yet provoked a chain reaction of protectionist restrictions by countries trying to preserve their home industries.

But many governments have been less than enthusiastic about reviving efforts for a sweeping new global agreement to open more markets. The Doha round of trade talks, begun in 2001, stalled several years ago, and supporters have been unable thus far to rebuild momentum.

José Manuel Barroso, the president of the European Commission, called Thursday for wealthy countries to complete negotiations on a new global agreement as quickly as possible. President Luiz Inácio Lula da Silva of Brazil pleaded this week a new trade agreement would “greatly speed the global economic recovery.”

But trade experts say no agreement is possible without a strong commitment by the United States, and financial officials from other countries say the Obama administration’s silence suggests it is not ready to make that kind of effort.