The G-20 and International Economic Cooperation: Background and Implications for Congress

Summary

Congress exercises oversight over the Administration's participation in the G-20, including the policy commitments that the Administration is making in the G-20 and the policies it is encouraging other G-20 countries to pursue. Additionally, legislative action may be required to implement certain commitments made by the Administration in the G-20 process.

The G-20 in 2015

Turkey holds the rotating presidency of the G-20 in 2015 and is hosting the 2015 leaders' summit on November 15-16, 2015, in Antalya, Turkey. The president of the G-20 sets the agenda for the year, and Turkey is focusing on "inclusive and robust growth through collective action." To advance this goal, the G-20 is focusing on three pillars under Turkey's leadership:

• Strengthening the global recovery and lifting the growth potential for the G-20 economies, through fiscal and monetary policy cooperation, reforms to improve the investment climate and unlock private sector investments, the creation of better quality jobs, and support of the multilateral trade system;
• Enhancing resilience of the global economy, particularly by finalizing implementation of financial regulatory reforms, continuing work on reform of the international financial architecture, securing progress on international tax initiatives, and continuing the collective fight against corruption; and
• Enhancing sustainability in the global economy, by focusing on the integration of developing and low-income countries into the world economy, the improvement of energy market access and energy investments, and climate change financing.

In preparation for the November summit, a number of meetings have been held among lower-level government officials, most prominently among the G-20 finance ministers and central bank governors but also the G-20 agriculture, energy, and labor ministers. Meetings also have been held among a number of nongovernmental groups, including private sector, civil society, and think tank organizations. Some analysts are also looking ahead to 2016, when China will hold the rotating presidency for the first time.

Effectiveness of the G-20

Some analysts say that while the G-20 was instrumental in coordinating the response to the global financial crisis of 2008-2009, its effectiveness has diminished as the urgency of the crisis has waned. They argue that the G-20 has failed to provide adequate international leadership in key policy areas, such as responding to the Eurozone crisis or forging a conclusion to the World Trade Organization (WTO) Doha Round of trade negotiations. They also maintain that the G-20 as a group is too heterogeneous and its agenda is too ambitious. Others argue that the G-20 is a critical forum for discussing major policy initiatives across major countries, such as financial regulatory reform, and encouraging greater cooperation, even if agreement on policies is not always reached. They also argue that it serves as a useful steering committee for the international economy and that having the G-20 policy-making infrastructure in place is important for timely international responses to future crises.

The Group of Twenty, or G-20, is a forum for advancing international economic cooperation and coordination among 20 major advanced and emerging-market economies.¹ Originally established in 1999, the G-20 rose to prominence during the global financial crisis of 2008-2009. It is now considered to be the premier forum for international economic cooperation, a position in effect held for decades following World War II by a smaller group of advanced economies (the Group of 7, or G-7).² The G-20 leaders meet annually, and meetings among lower-level officials are held throughout the year. The next G-20 leader meeting is scheduled to be held in Antalya, Turkey, on November 15-16, 2015. The G-20's focus is generally on financial and economic issues and policies, although related issues have also been discussed, including food security, foreign aid, the environment, and foreign policy issues, among others.

Congress exercises oversight over the Administration's participation in the G-20, including the policy commitments that the Administration is making in the G-20 and the policies it is encouraging other G-20 countries to pursue. Additionally, legislative action may be required to implement certain commitments made by the Administration in the G-20 process. Commitments made by the Administration at the G-20 may shape the congressional legislative agenda.

This report analyzes why countries coordinate economic policies and the historical origins of the G-20; how the G-20 operates; major highlights from previous G-20 summits, plus an overview of the agenda for the next G-20 summit; and debates about the effectiveness of the G-20 as a forum for economic cooperation and coordination.

Since World War II, governments have created and used formal international institutions and more informal forums to discuss and coordinate economic policies. As economic integration has increased over the past 30 years, however, international economic policy coordination has become even more active and significant. Globalization may bring economic benefits, but it also means that a country's economy can be affected by the economic policy decisions of other governments. These effects may not always be positive. For example, if one country devalues its currency or restricts imports in an attempt to reverse a trade deficit, another country's exports may decline. Instead of countries unilaterally implementing these "beggar-thy-neighbor" policies, some say they may be better off coordinating to refrain from such negative outcomes. Another reason countries may want to coordinate policies is that some economic policies, like fiscal stimulus, are more effective in open economies when countries implement them together.

Governments use a mix of formal international institutions and international economic forums to coordinate economic policies. Formal institutions, such as the International Monetary Fund (IMF), the Organization for Economic Co-operation and Development (OECD), the World Bank, and the World Trade Organization (WTO), are typically formed by an official international agreement and have a permanent office with staff performing ongoing tasks.³ Governments have also relied on more informal forums for economic discussions, such as the G-7, the G-20, and the Paris Club.⁴ These economic forums do not have formal rules or a permanent staff.

Prior to the global financial crisis of 2008-2009, international economic discussions at the top leadership level primarily took place among a small group of developed industrialized economies. Beginning in the mid-1970s, leaders from a group of five developed countries—France, Germany, Japan, the United Kingdom, and the United States—began to meet annually to discuss international economic challenges, including the oil shocks and the collapse of the Bretton Woods system of fixed exchange rates. This group, called the Group of Five, or G-5, was broadened to include Canada and Italy, and the Group of Seven, or G-7, formally superseded the G-5 in the mid-1980s. In 1998, Russia also joined, creating the G-8.⁵ Russia did not usually participate in discussions on international economic policy, which continued to occur mainly at the G-7 level. Meetings among finance ministers and central bank governors typically preceded the summit meetings. Macroeconomic policies discussed in the G-7 context included exchange rates, balance of payments, globalization, trade, and economic relations with developing countries. Over time, the G-7's and, subsequently the G-8's, focus on macroeconomic policy coordination expanded to include a variety of other global and transnational issues, such as the environment, crime, drugs, AIDS, and terrorism.

Although emerging economies became more active in the international economy, particularly in financial markets starting in the early 1990s, this was not reflected in the international financial architecture until the Asian financial crisis in 1997-1998.⁶ The Asian financial crisis demonstrated that problems in the financial markets of emerging-market countries can have serious spillover effects on financial markets in developed countries, making emerging markets too important to exclude from discussions on economic and financial issues. The G-20 was established in late 1999 as a permanent international economic forum for encouraging coordination between advanced and emerging economies. However, the G-20 was a secondary forum to the G-7 and G-8; the G-20 convened finance ministers and central bank governors, while the G-8 also convened meetings among leaders, in addition to finance ministers.

Emerging markets were also granted more sway in international economic discussions when the G-8 partly opened its door to them in 2005.⁷ The United Kingdom's Prime Minister Tony Blair invited five emerging economies—China, Brazil, India, Mexico, and South Africa—to participate in its discussions but not as full participants (the "G-8 +5"). The presence of emerging-market countries gave them some input in the meetings but they were clearly not treated as full G-8 members. Brazil's finance minister is reported to have complained that developing nations were invited to G-8 meetings "only to take part in the coffee breaks."⁸

It is only with the outbreak of the global financial crisis in fall 2008 that emerging markets have been invited as full participants to international economic discussions at the highest (leader) level. There are different explanations for why the shift from the G-7 to the G-20 occurred. Some emphasize recognition by the leaders of developed countries that emerging markets have become sizable players in the international economy and are simply "too important to bar from the room."⁹

Others suggest that the transition from the G-7 to the G-20 was driven by the negotiating strategies of European and U.S. leaders. It is reported that France's president, Nicolas Sarkozy, and Britain's prime minister, [author name scrubbed], pushed for a G-20 summit, rather than a G-8 summit, to discuss the economic crisis in order to dilute perceived U.S. dominance over the forum, as well as to "show up America and strut their stuff on the international stage."¹⁰ Likewise, it is reported that President George W. Bush also preferred a G-20 summit in order to balance the strong European presence in the G-8 meetings.¹¹ Some attribute the G-20's staying power to the political difficulties of reverting back to the G-7 after having convened the G-20 leaders.

Source: G-20 website, http://www.g20.org.

Notes: The European Union (EU) is a member of the G-20. Pink (for color copies) or medium gray (for black-and-white copies) indicate members of the European Union (EU) that are not individually represented in the G-20.

The G-20 meetings among heads of state, or "summits," are the focal points of the G-20 discussions. Starting in 2011, the G-20 leaders began convening annually, although various lower-level officials meet frequently before the summits to begin negotiations and after the summits to discuss the logistical and technical details of implementing the agreements announced at the summits. Specifically, the G-20 finance ministers and central bank governors meet several times a year, and other ministers may also be called to meet at the request of the G-20 leaders. For example, in 2015 there are meetings among agriculture, energy, labor, and trade ministers. In addition, there are meetings among the leaders' personal representatives, known as "sherpas."¹²

Overall, the G-20 process has led to the creation of a complex set of interactions among many different levels of G-20 government officials. Some argue that the high frequency of interactions is conducive to forming open communication channels, while others argue that the G-20 process has created undue administrative burden on the national agencies tasked with implanting and managing their countries' participation in the G-20 process.

Within the U.S. government, the Department of the Treasury is the lead agency in coordinating U.S. participation in the G-20 process. However, the G-20 works on a variety of issues, and the Department of the Treasury works closely with other U.S. agencies in their G-20 work, including the Federal Reserve, the State Department, the U.S. Agency for International Development, and the Department of Energy. The White House, particularly through the National Security Council and the U.S. Trade Representative, is also heavily involved in the G-20 planning process. The U.S. sherpa is the Deputy National Security Advisor for International Economic Affairs, a position currently held by Caroline Atkinson.

Unlike formal international institutions, such as the United Nations and the World Bank, the G-20 does not have a permanent headquarters or staff. Instead, each year, a G-20 member country serves as the chair of the G-20. The chair hosts many of the meetings, and is able to shape the year's focus or agenda. The chair also establishes a temporary office that is responsible for the group's secretarial, clerical, and administrative affairs, known as the temporary "secretariat." The secretariat also coordinates the G-20's various meetings for the duration of its term as chair and typically posts details of the G-20's meetings and work program on the G-20's website.¹³

Year

Country

Year

Country

1999-2001

Canada

France

India

Mexico

Mexico

Russia

Germany

Australia

China

Turkey

Australia

China

South Africa

Germany

Brazil

India

United Kingdom

South Korea

In addition to the G-20 members, some countries attended the G-20 summits at the invitation of the country chairing the G-20. In 2010, the G-20 formalized the participation of five non-G-20 members at the leaders' summit, of which at least two would be African countries.¹⁴ Several regional organizations and international organizations also attend G-20 summits. For example, official participants typically have included representatives from the European Commission; the European Council; the International Labour Organization (ILO); the International Monetary Fund (IMF); the Organization for Economic Co-operation and Development (OECD); the United Nations (UN); the World Bank; and the World Trade Organization (WTO).

All agreements, comments, recommendations, and policy reforms reached by the G-20 finance ministers, central bankers, and leaders are done so by consensus. There is no formal voting system as in some formal international economic institutions, like the IMF. Participation in the G-20 meetings is restricted to members and invited participants and is not open to the public. After each meeting, however, the G-20 publishes online the agreements reached among members, typically as communiqués or declarations.¹⁵ The G-20 does not have a way to enforce implementation of the agreements reached by the G-20 at the national level beyond moral suasion; the G-20 has no formal enforcement mechanism and the commitments are non-binding. This contrasts with the World Trade Organization (WTO), for example, which does have formal enforcement mechanisms in place.¹⁶

Location

Date

Major Highlights (Selected)

1.

Washington, DC, United States

November 2008

• Focused on immediate management of the global financial crisis.
• Pledges to coordinate financial regulatory reform; focus on expansionary macroeconomic policies, both fiscal and monetary, to support aggregate demand; and refrain from protectionist trade policies.

2.

London, UK

April 2009

• Focus continued to be on immediate management of the financial crisis, reiterating many of the commitments from the 2008 summit in Washington, DC, regarding crisis management.
• Pledges to increase funding for the IMF and the MDBs by $1.1 trillion, including a tripling of the IMF's lending capacity; commitments to coordinate fiscal stimulus; create the Financial Stability Board (FSB) to coordinate and monitor progress on regulatory reforms.

3.

Pittsburgh, United States

September 2009

• Summit occurred as the financial crisis was bottoming out, although unemployment was generally still rising in some advanced economies.
• Announcement that, henceforth, the G-20 would be the "premier" forum for international economic cooperation.
• Announced the creation of a new framework for addressing global imbalances and promoting growth, the "G-20 Framework for Strong, Sustainable, and Balanced Growth."
• Pledges to increase the voting power of emerging economies at the international financial institutions, in addition to reiterating pledges made at previous summits, as well as specific development and environmental goals.

4.

Toronto, Canada

June 2010

• Summit was held against a backdrop of growing uncertainty about the Eurozone, and was viewed as a foundational summit for more ambitious announcements at the South Korean summit later in 2010.
• Summit broadly addressed five areas: growth; correcting global imbalances; financial sector reform; international financial institutions and development; and fighting protectionism while promoting trade and investment.
• Advanced economies announced targets for fiscal consolidation.

5.

Seoul, South Korea

November 2010

• First summit hosted by a country that is not a member of the G-7.
• Announced a "Seoul Development Consensus," which emphasized, among other things, that governments can play a positive role in development and the importance of infrastructure in development.
• Endorsed tougher capital standards for banks, discussed global safety nets and the need for further studies on capital controls, and called for a doubling of IMF quotas (the core source of financing for IMF loans).

6.

Cannes, France

November 2011

• Summit was held during heightened concerns about Eurozone debt crisis, and persisting concerns about high unemployment in some advanced economies.
• Discussions focused on reforming the international monetary system; fostering employment; food price volatility; functioning of energy markets; the environment; development; and anti-corruption.

7.

Los Cabos, Mexico

June 2012

• First summit hosted by a Latin American country.
• Attention was focused on the ongoing Eurozone crisis, and European efforts and policies to respond to the crisis, and the need for job creation worldwide. A "Los Cabos Growth and Jobs Action Plan" was announced.
• Discussions also focused on trade; the international financial architecture; food security and commodity price volatility; development; "green" growth; and anti-corruption measures.

8.

St. Petersburg, Russia

September 2013

• The summit declaration focused on economic issues: growth, jobs, investment, multilateral trade, tax avoidance, international financial architecture, financial regulation, development, climate change, and corruption.
• News reports indicate that discussions among G-20 leaders focused on potential international responses to chemical weapons attacks against civilians in Syria. The focus on Syria led some analysts to call for the creation of a formal foreign policy track in the G-20, to run parallel to the finance track in the G-20.

9.

Brisbane, Australia

November 2014

• The agenda focused on global economic growth, including the goal of boosting collective G-20 GDP growth by 2.1% over the next five years. Infrastructure investment was emphasized as a way to boost growth, including the creation of a Global Infrastructure Hub, as a way to provide a network between governments, the private sector, development banks, and other international organizations to improve the functioning and financing of infrastructure markets.
• The summit also addressed climate change, trade, female participation in the workforce, anticorruption efforts, and IMF reforms.
• Russia's participation in the 2014 summit was one of the most controversial issues in the lead-up to the summit. Several G-20 members, including the United States, the European Union, Australia, Canada, and Japan, have imposed economic sanctions on Russian individuals and entities in response to the situation in Ukraine. The G-7 leaders also began convening without Russia for the first time since the late 1990s. Ultimately, Russian President Vladimir Putin attended the summit but left early.

Source: G-20 website, http://www.g20.org; CRS analysis.

• Strengthening the Global Recovery and Lifting Potential: In response to sluggish and fragile growth, discussions on the necessary policies to raise the pace of global growth will be a priority. These discussions will focus on macroeconomic policy coordination among the G-20 countries as well as boosting infrastructure investment, creating better quality jobs, and supporting the multilateral trading system.
• Enhancing Resilience: The G-20 is also to focus on making the global economy more resilient to possible future shocks. A number of issues will be emphasized to increase the resilience of the global economy, including finalizing implementation of new regulatory frameworks, completing IMF reforms that increase the voice of emerging markets in the institution, strengthening IMF surveillance, increasing bilateral and multilateral cooperation between tax authorities, and strengthening the fight against corruption in the public and private sector, including emphasizing transparency in government-business relations.
• Enhancing Sustainability: The G-20 will focus on issues of development, energy, and climate finance, with a particular focus on supporting efforts to eradicate poverty and ensure sustainable development in low-income developing countries.

In addition, the G-20 leaders are expected to discuss the migration crisis, terrorism, food security, and country-specific investment strategies, as well as to continue work in existing areas, such as financial market reforms.²² Security concerns about the summit were raised following an October 2015 bombing in Turkey's capital that killed 128 people. News reports indicate that security around the summit will be tight, and there are no plans to postpone or relocate the event.²³

Some analysts are also looking ahead to 2016, when China will hold the G-20 presidency for the first time. They are debating what kind of G-20 leader China will be and what items China will prioritize for the G-20 agenda.²⁴ U.S. Treasury officials reportedly have suggested that growth strategies will be a major topic at next year's G-20 session.²⁵

As the urgency of the global financial crisis of 2008-2009 wanes, there has been speculation about how effective the G-20 will be moving forward. Three scenarios have been discussed. Specifically, the G-20 as a coordinating forum will be (1) effective; (2) ineffective; or (3) effective in some instances but not others. These possible scenarios are discussed in greater detail below.

Some believe that the G-20 will be an effective forum for international economic cooperation moving forward. The G-20 will be able to play this role, it is argued, for three reasons. First, the G-20 includes all the major economic players at the table, representing two-thirds of the world's population, 90% of world GDP, and 80% of world trade,²⁶ but at the same time is small enough to facilitate concrete negotiations. Second, the involvement of national heads of state in the negotiations could serve to facilitate commitments in major policy areas. Third, as the issues discussed by the G-20 leaders expand, the G-20 may be able to facilitate cooperation by enabling trade-offs among major concerns, such as climate change and trade, that are not possible in issue-specific forums and institutions.

G-20 optimists typically point to the G-20's successes at the height of the financial crisis, when the G-20 played a unique, strong, and central role in steering the recovery efforts. The G-20 was the source of major decisions regarding fiscal stimulus, regulatory reform, tripling the IMF's lending capacity, and other response efforts. The G-20 also tasked other international organizations, such as the Bank for International Settlements (BIS), the IMF, the World Bank, and the Financial Stability Board (FSB), with facilitating, monitoring, or implementing various aspects of the response to the crisis. Finally, G-20 proponents argue that, even if agreement on policies is not always reached, it is a critical forum for discussing major policy initiatives across major countries and encouraging greater cooperation.

Others are skeptical that the G-20 will be an effective forum for international cooperation moving forward for at least four reasons. First, the G-20 includes a diverse set of countries with different political and economic philosophies. As economic recovery becomes more secure, it is argued that this heterogeneous group with divergent interests will have trouble reaching agreements on global economic issues. Some argue that the G-20 has failed to provide adequate leadership in responding to the Eurozone crisis or in helping forge a conclusion to the Doha negotiations.

Third, some experts believe that the G-20 will be ineffective because it has no enforcement mechanism beyond "naming and shaming" and with little follow-up will not be able to enforce its commitments. As evidence that the G-20 is an ineffective steering body in the international economy, G-20 skeptics point to the portions of recent G-20 declarations that merely reiterate commitments made by countries in other venues and institutions or at previous G-20 summits. Likewise, some of the declarations identify areas that merit further attention or study, without including concrete policy commitments.

Fourth, some argue that the G-20's effectiveness since the crisis has diminished because the issues covered by the G-20 have broadened, but there is now little follow-through from one summit to the next. For example, a major deliverable from the Toronto summit in June 2010 was targets for fiscal consolidation among advanced economies. However, these targets received little attention in the subsequent G-20 summit in Seoul in November 2010, where the focus shifted to development, among other issues. Likewise, France's focus for the November 2011 summit was on reform of the international monetary system, but it is not clear how much attention was focused on subsequent summits.

A third scenario represents a middle ground between the previous two, namely, that the G-20 will be effective in some instances but not others. It is argued the G-20 could be an effective body in times of economic crisis, when countries view cooperation as critical, but less effective when the economy is strong and the need for cooperation feels less pressing. Proponents of this view point to the strong commitments achieved during the height of the crisis compared to what many view as the weaker outcomes of subsequent summits, when the economic recovery was underway (although unemployment remains high in several advanced economies).

Another variant is that the G-20 will prove effective in facilitating cooperation over some issue areas but not others. For example, the G-20 could be effective in coordinating monetary policy across the G-20 countries, by providing a formal structure for finance ministers, central bankers, and leaders to gather and discuss monetary policy issues. In most countries, central banks exercise largely autonomous control over monetary policy issues and would have the authority to implement decisions reached in G-20 discussions. Likewise, the G-20 may be effective at tasking other international organizations, such as the IMF and the FSB, with various functions to perform or reports to write. By contrast, it is argued that the G-20 could find coordination of other policies more difficult. One example may be fiscal policies, because although finance ministers and national leaders undoubtedly can influence fiscal policies at the national level, control over fiscal policies in many countries ultimately lies with national legislatures. It is not clear to what extent national legislatures will feel bound in their policy-making process by decisions reached at the G-20 and thus how effective G-20 coordination on these issues will be.

(2015 GDP in current prices [forecasts], in billions of U.S. dollars)

Rank

G-20 Member

Non G-20 Member

GDP

Rank

G-20 Member

Non G-20 Member

GDP

United States

17,968

Turkey

722

European Union

16,266

Switzerland

677

China

11,385

Saudi Arabia

632

Japan

4,116

Argentina

579

Germany

3,371

Taiwan

519

United Kingdom

2,865

Nigeria

493

France

2,423

Sweden

484

India

2,183

Poland

481

Italy

1,819

Belgium

459

Brazil

1,800

Norway

398

Canada

1,573

Iran

397

South Korea

1,393

Thailand

374

Australia

1,241

Austria

373

Russia

1,236

United Arab Emirates

339

Spain

1,221

South Africa

317

Mexico

1,161

Malaysia

313

Indonesia

873

Hong Kong

308

Netherlands

751

Philippines

299

Author Contact Information

Acknowledgments

Susan Chesser, Information Research Specialist, assisted with research on G-20 protests.