G20 and its Significance – Explained, pointwise

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Introduction

In the late 1990s, as the existing geo-economic multilateral order was found ineffective in dealing with the Mexican, Asian and Russian financial crises, countries moved towards forming G20. A group of developed and emerging economies, including OECD and BRICS, were chosen as a ‘perfect mix’ of the old world and new to create the new grouping. The G20 played an important role in shaping and strengthening global architecture and governance on all major international economic issues. It recognised that global prosperity is interdependent and economic opportunities and challenges are interlinked. The current challenge is to craft new approaches to overcome the acute global discord and grouping’s shortcomings in the international arena.

What is G20 and its background?

The Group of G20 (G20) comprises Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, United Kingdom, and the United States along with the European Union. Spain is a permanent invitee, as are several international agencies like the UN, the IMF, ASEAN, the African Union, etc.

Member Nations of G20 UPSC

Countries in light blue are represented through the membership of the EU.

G20 members currently account for ~80% of world GDP, 75% of global trade, and 60% of the global population. The group was founded in 1999 after the Asian financial crisis as a forum for the Finance Ministers and Central Bank Governors to discuss global economic and financial issues. It was later upgraded to the level of Heads of State/Government and was designated the ‘premier forum for international economic cooperation’. Since 2011, the G20 Summit has been held annually, under the leadership of a rotating Presidency. 

The G20 initially focused largely on broad macroeconomic policy, but it has since expanded its ambit to include trade, climate change, sustainable development, energy, environment, climate change, anti-corruption etc.

The objectives of the G20 are: (a) Policy coordination between its members in order to achieve global economic stability, sustainable growth; (b) Promote financial regulations that reduce risks and prevent future financial crises; (c) Create a new international financial architecture.  

What is the organizational structure of G20?

The G20 does not have a charter or a secretariat. The Presidency, aided by the countries holding the Presidency before and after it (Troika), is responsible for setting the agenda of each year’s Summit. At present, the Troika is made up of Italy (2021), Indonesia (2022) and India (2023).

The G20 process is led by the Sherpas of member countries, who are personal emissaries of the Leaders. The Sherpas oversee negotiations over the course of the year, discussing agenda items for the Summit and coordinating the substantive work of the G20. 

The G20’s work is divided into two tracks: the Finance Track and the Sherpa Track. Within the two tracks, there are working groups in which representatives from the relevant ministries of the members as well as from invited/guest countries and various international organizations participate.

What is the significance of G20?

First, It is a more representative grouping in comparison to its predecessors like G7 which comprised only industrialized economies and also ignored the interests of the global south. Moreover, while the share of G7 countries in the global economy has been falling, G20’s share has been largely consistent.

Economic Share GDP of G20 Nations UPSC

Source: Council on Foreign Relations

Second, it plays a major role in tackling financial crises effecting global economy. For instance, during the 2007 financial crisis, G20 members took concerted actions, including boosting spending and lowering trade barriers, to revive economies.

Third, It offers an opportunity to undertake bilateral or trilateral meetings with leaders of 20 countries on the sidelines of G20 summits.

Fourth, the economic and financial clout of the group provides a dominant say to the grouping in critical international matters like world tarde, climate change, data decentralization etc.

Fifth, It also played a pivotal role in providing relief to countries during the COVID-19 pandemic. The G20 countries agreed to suspend debt payments owed to them by some of the world’s poorest countries, providing billions of dollars in relief. Further in October 2021, G20 leaders pledged to help vaccinate 70% of the world’s population by mid-2022.

What are the challenges surrounding G20?

Russia-Ukraine Crisis: This is currently the biggest roadblock impairing functioning as the U.S and its allies are not willing to sit on the same table with Russia and its allies. This may cause a severe stalemate in the grouping’s functioning and impair its progress.

Rising Protectionism: Globalization is retracting, and multilateral organizations have a credibility crisis. Countries around the world are choosing to be ‘G-zero’ over the G7, G20, BRICS, P5 (UNSC Permanent Members) and others.

‘G-zero’ is a term coined by political commentator Ian Bremmer to denote Every Nation for Itself.

The current US administration under President Biden has agreed to reverse various decisions of the Trump administration on climate change and migration but not on tariff policy. They have so far kept most of earlier tariffs in place, though the US recently reached an agreement with the EU to replace the tariffs on steel and aluminum products with a quota arrangement.

Informal structure of G20: It has no permanent secretariat. The agenda changes every year according to the priorities of the presiding nation. So, critics say that G20 basically was an extension of the G7.

Influences decision-making of smaller countries: The smaller countries, which are not a member of the G20 grouping, have to implement the declarations and commitments agreed by G20 nations for their growth and opportunity e.g., the G20 nations agreed to end international financing for coal power plants. So, a small nation can not get any finance from G20 nations for a new coal power plant and has to use its own limited financial resources or phase out coal and look for other alternatives.

Not able to address challenges within member nations: The G20 grouping is not able to solve the issues within its member nations like the US-China issue on trade, the US – Russia divide on nuclear weapons, etc.

No Enforcement mechanism: The G20’s toolkit ranges from simple exchanges of information and best practices to agree on common, measurable targets. None of this is achieved without consensus, nor is it enforceable, except for the incentive of peer review and public accountability. Further, the G20 declarations are not legally binding.

Under-representation of Africa: Except for South Africa, none of the African nations is a member of the G20.

What should be a new global vision for G20?

First, the starting point should be building on the global consensus in the Vienna Declaration on Human Rights 1993 reaffirming the indivisibility of all human rights. Ensuring adequate food, housing, education, health, water and sanitation and work for all should guide international cooperation. 

Second, grouping needs to harness the potential of the digital information technology revolution. This requires redefining digital access as a “universal service” that goes beyond physical connectivity to sharing specific opportunities available. Further, open access software should be offered for more cost-effective service delivery options, good governance and sustainable development.

Third, it needs to focus on the space sector for finding solutions to problems of natural resource management ranging from climate change-related natural disasters, supporting agricultural innovation to urban and infrastructure planning.

Fourth, public health should be made a key agenda especially after the deadly impact of COVID-19. Further,  a major global challenge is the rapidly growing antimicrobial resistance which needs new antibiotics and collaboration between existing biotechnology facilities.

Fifth, a Global Financial Transaction Tax, considered by the G20 in 2011, needs to be revived to be paid to a Green Technology Fund for Least Developed Countries.

What lies ahead?

Bridging powers between the East and West: The global economic disruption caused by Western economic sanctions and the ongoing boycott of Russia in global economic forums need initiatives from the countries like India, Indonesia and South Africa. They can act as bridging powers between the East and West.

Formalization of G20: The G20 has to include objectives, vision and mission statements, a permanent secretariat, and staff to oversee commitments and ensure continuity in the agenda.

Focus more on domestic commitments: The G20, instead of international commitments, can focus on domestic commitments and start implementing them. For instance, instead of ending international financing for coal power, the G20 Nations should phase out domestic coal consumption. This will create a significant impact as G20 nations represent more than 75% of the world’s greenhouse gas emissions.

Make it more representative: A 2011 report had criticized the G20’s exclusivity, so the G20 has to make itself more representative.

Conclusion

India, which will assume the Presidency of the G20 in December 2022, will have to bear the burden of ensuring the G20’s continued existence in a globally polarized world through 2023. The challenge before India will be to assist Indonesia in protecting the idea of the G20 and keeping it away from fragmentation in the face of geopolitical fissures.

Syllabus: GS II, Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

Source: The Hindu, The Hindu, Ministry of External Affairs, Council on Foreign Relations

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