The G-20, which was set up to maintain economic security after two major financial crisis, seems to have lost its genie. The 11th G-20 Summit in Hangzhou city ended in a paradoxical situation. While a broad agreement was reached for a coordinated approach in terms of macroeconomic policies, little headway was made in concrete proposals.
Protectionism was univocally presented as the reason for the illness that currently afflicts the global economy. Beyond prudent financial and monetary policies, innovation was also endorsed as a remedy to the current crisis.
Even though the main agenda of the summit was the health of global economy, the summit was riddled with bilateral meetings. There was much bemoaning against political and financial terrorism and China’s decision not to accept the UNICLOS ruling on South China sea dispute.
Apart from meeting several world leaders and discussing key issues with them, Indian Prime Minister Narendra Modi spoke of Pakistan's involvement in supporting terrorism. Underlining that fighting corruption and black money is key to effective financial governance, Modi also asked G20 leaders to eliminate safe havens for economic offenders, unconditionally extradite money launderers and end excessive banking secrecy.
As anticipated, China, as the chair, failed to propel the G-20 summit towards a bold action plan that could improve the state of economic affairs. Observers in China believe that their country has been bogged down by its own economic pitfalls. Allegations of industrial over-capacity, which observers argue caused a disbalance in global growth, pushed China into a corner.
Before the summit meet, a big agenda was set up for the G-20 under the Chinese president. In May, Chinese Foreign Minister Wang Yi outlined an ambitious agenda for the summit. The main aim was to propel the global economy forward with other nations. He suggested a blueprint for innovative growth. He sought a cooperative initiative to industrialise Africa and least developed countries. To gear up international investment and security for investors, he suggested multilateral investment rules, as 3500 bilateral agreements have divided international trade. He wanted the G-20 to act as a coordinated force that would reduce the cost of trade.
In the summit, industrial over-capacity became a source of hot debate. European Commission President Jean-Claude Junker blamed Chinese industrial overcapacity for damage to its steel industry, resulting in severe job losses in recent years. China’s industrial over-capacity was deemed “unacceptable”. He said that China must set up a mechanism to address its problem of over-capacity.
India, too, suffers from Chinese industrial overcapacity. Like the European Union, Indian steel industry is in a moribund stage. In 2015-16 and 2014-15, India’s steel import surged by 25.6 percent and 71.0 percent respectively. This caused damage to domestic production.
India soon turned into a dumping ground for Chinese steel. Domestic finished steel production declined by 1.9 percent in 2015-16. Much of the damage was caused by a gushing flow of Chinese steel. China is the biggest exporter of steel to India. It accounted for 24 percent of the total steel import in 2015-16. This led the Indian government to put an embargo over Chinese dumping of steel in India by various non-tariff barriers since September 2015.
Most Chinese observers were waiting for a new direction from its leadership. They expect an announcement on the same by the end of the current year or at the beginning of next year. This was forecasted by Prof. Jefry Wilson of Murdoch University, Australia. But, he feared that since China was unsure of its model of reform, there were little chances that China would use G-20 chairmanship to project the model abroad.
What was the silver lining of the 11th G-20 summit? The international body called for a global forum to address steel excess capacity adjustment. Even though it did not discuss concrete steps to address the mismatch between excess capacity and demand in the world, this may prove a boon to India.
Hitherto, India was under severe attack for its protectionism measures to the domestic steel industry. It was ironical that EU, along with Japan, alleged India for its non-tariff barriers, which were not WTO reliant. India imposed safeguard duty on almost all finished steel for four years from September 2015 and MIP for eight months beginning from February 2016.
With the G-20 agreeing to a global forum for steel excess capacity adjustment, some solace may come to India with the hope that China may voluntarily restrain from the aggressive selling of steel in India. It may leverage Indian steel companies to spin off a life for the dormant steel industry.
However, at the same time, the bell of a strong global warning against protectionism will ring, which may hinder India to take restrictive measures in the trade.
(The views expressed are strictly personal.)