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Friday, November 12, 2010     GET REAL

G-20: Instead of 'Seoul Action Plan', world gets
a united stand against 'uncoordinated action'

By Donald Kirk

SEOUL — The devil is definitely in the details when it come to the results of a two-day talkfest among some of the world's most powerful leaders that was long on good intentions but short on solutions.


Lurking within the fine print of the "summit leaders' declaration" issued by the Group of 20 on Friday was the sense that no one is committed really to doing anything about the "imbalances" that are the primary concern of the United States and others suffering from huge deficits at the hands of China and other nations with huge trade surpluses.

All the leaders, from President Barack Obama to China's President Hu Jintao could agree on the simple statement that "uneven growth and widening imbalances are fueling the temptation to diverge from global solutions into uncoordinated action." And they all agreed that "uncoordinated policy actions will only lead to worse outcomes for all."

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The problem, though, was how to get beyond that platitude and on to anything like the "action" that would seem appropriate in what some people, notably the South Korean host, would like to go down in history as the "Seoul Action Plan".

Somehow the leaders seemed to have missed that goal entirely as they went on to reveal a plan that included a "commitment" that was obviously not a commitment at all.

They would, said their statement, "undertake macroeconomic policies" needed "to ensure ongoing recovery and sustainable growth and enhance the stability of financial markets" — surely no problem agreeing on that one.

Nor would the Chinese, the Germans and others protesting U.S. pressure on trade surpluses object to the equally vague resolve to move toward "more market-determined exchange rate systems while enhancing exchange rate flexibility to reflect underlying economic fundamentals and refraining from competitive devaluation of currencies."

Obama, after the release of the statement, was considerably more specific in singling out China while remaining as diplomatic as possible under the circumstances.

"We welcome China's rise," surely "good for the world and good for America," he said. "It's good to get people out of poverty."

There was, however, one problem — and that was China's currency. "The issue of the renminbi is an irritant not just to the United States but to a lot of trading nations." China, Obama observed with a frankness not shown by others publicly in their two days here, "spends enormous amounts of money interfering in the market to keep it undervalued."

That remark seemed almost like a warning of the dangers confronting China in dealing with the United States if the Chinese failed to increase the value of the yuan, which is also known as the renminbi.

"China has acknowledged it needs to transition," he said, "to reduce imbalances around the world."

Obama shrugged off the view of the Chinese and Germans, shared by many here, that the United States was depreciating its own currency, and instigating volatility on world financial markets, by a scheme for the U.S. Federal Reserve to buy $600 billion in Treasury bonds in order to overcome enormous deficits.

"This decision was not designed to have an impact on the dollar," he said. "It was designed to grow the economy."

There was no doubt Obama's one-on-one meetings with President Hu and Germany's Chancellor Angela Merkel had been superficially cordial, but there was also no doubt that he had not succeeded in convincing them to do much about reducing their surpluses. No one here seemed to want to bring up the American suggestion for keeping their trade surpluses within four percent of current accounts surpluses — an idea that was shot down at the meeting of finance ministers last month.

If currency imbalances was the most urgent topic confronting the Group of 20, the issue of the Korea-U.S. free-trade agreement (FTA) was equally important from the American viewpoint. In a sense the issues over such agreements issues were a microcosm of the greater problems of overall imbalances in trade.

Here too the devil is definitely in the details as Obama and President Lee both had to agree simply to extend frustrating talks on what to do about the overwhelming imbalance between Korean motor vehicle exports to the United States and U.S. exports to Korea.

"A lot of countries including South Korea depend on exports," Obama said. "They want to see it grow" — that is, to be able to spend ever more on imports from Korea and elsewhere. He was not, however, "interested in trade agreements just for the sake of trade agreements."

Somehow, he said, there must be a way "to find a sweet spot that works for both Korea and the United States." Both Obama and Lee agreed on Thursday that negotiators would work out "technical issues" besetting final approval of the FTA, which was actually concluded during the last year of the presidency of George W. Bush but needs ratification by the U.S. Congress and the Korean National Assembly.

Obama, who had opposed the FTA when he was a senator from Illinois in search of the presidential nomination in 2007, reminded Koreans of opposition by both workers and manufacturers in the United States to a deal that many fear would encourage an ever rising flood of Korean cars and trucks — and endanger the whole U.S. industry.

"It's important to take the extra time" on negotiations," Obama said. "I'm assured it's a win-win for American workers and Korean workers." But he added, "there are a lot of suspicions" since "some of these deals may not be good for America."

The failure to come to terms on FTA counts as a bitter disappointment to some of the prime advocates, including the United States Chamber of Commerce, which is convinced the agreement will encourage a major increase in two-way trade. The concern is that the FTA may still not get through a recalcitrant Congress.

Globally, though, the greater fear is the international currency wars will intensify while emerging-market countries line up behind China and others in criticizing U.S. financial policy and pressure.

That criticism was implicit in the leaders' statement that observed that "advanced economies" would be "vigilant against excess volatility and disorderly movements in exchange rates" — and "help mitigate the risk of excessive volatility in capital flows facing some emerging countries."

That was a calculated way of holding the U.S. responsible for some of the world's financial ills while removing some the blame from China and others who might not be doing much if anything to bring about significant reductions in the surpluses.

While everyone decried protectionism, Obama managed to imply the risks.

"Countries with large surpluses must shift away from depending on exports," he said. "No nation must assume the road to prosperity depends on exports to the U.S."

Bottom line: "We will continue to watch the appreciation of Chinese currency" — that is, to see if China would seriously raise the value of the yuan as a first step to cutting the burgeoning exports that U.S. critics say are killing U.S. industry.

"Uneven growth and widening imbalances are fueling the temptation to diverge from global solutions into uncoordinated action". And they all agreed that "uncoordinated policy actions will only lead to worse outcomes for all."

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