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Changing Patterns at the G7 Summit
Nicholas Bayne

G8 Governance No.1 (May 1997)

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Economic Policies and Institutions

It is important to examine the Summits' impact in four key areas: trade; environment; debt and the IMF; and the UN.

Trade and the GATT/WTO

Trade and the Uruguay Round was the major economic issue between the G7 in the four Summits from 1990 to 1993. At each the leaders pledged themselves to action to bring the Uruguay Round to a successful conclusion that year. Each time they failed, because of disputes among themselves. The Summit lost much credibility and reputation from these failures. It was much criticised, including by me.

With the passage of time, what the Summits did in those four years seems more impressive. The failure to agree the Round, at least in 1990 and 1991 was because of deep US/European differences over agriculture. On other things, the Summits contributed a lot to the final outcome. They kept the negotiations going through the recession and held protectionism at bay. They pushed for a solid and binding dispute settlement mechanism - the centrepiece of the new World Trade Organization(WTO). They gave high-level backing to the idea of the WTO itself. They provided in 1993, the final year of the negotiations, the pressure at the Tokyo Summit which drove their trade ministers to strike the essential deal on market access.

Where did they go wrong? A deadline seemed obvious in 1990, as the US fast-track authority was running out. The Europeans gained a tactical victory on agriculture at Houston in July 1990. But they were unable to exploit it and ended up with all the blame for failure at the Heysel Conference in December. In retrospect, the European Community (EC) needed longer to bring in its internal reforms in agriculture, so that it could accept substantial commitments in the Round. So even in 1990 a deadline looks mistaken. But having missed the first, it would have been wiser not to set others. However, this is the wisdom of hindsight. At the time deadlines looked like the best way of keeping up pressure for results. It is hard to see what alternative pressure might have worked better.

Despite this history, the Summit needs to keep involved in trade and related issues. The G7 need to make good at the Singapore WTO ministerial meeting what they agreed at Lyon. There is still much to do to ensure the WTO establishes its multilateral rules and extends them into other sectors, such as investment. Protectionist pressures revive each time these external disciplines invade another part of the economy. The Summit serves to remind the leaders of their international responsibilities, so that they do not give way to protectionism. That has been the Summit's role from the beginning.


International environment policy was a major issue at the 1989 Paris Arch Summit - two sessions of the leaders and one third of the Declaration were devoted to it. The next two Summits continued this attention, preparing for the Rio United Nations Conference on Environment and Development(UNCED) conference in 1992.

Those Summits did much to focus world attention on the environment. They promoted key concepts: environment policies should be based on sound economics and work with markets; global issues must involve all countries, so that developing countries are helped to avoid the errors of the industrial world. They also identified key subjects - the ozone layer, climate change, biodiversity, conservation of forests and oceans - which came together at Rio. The exchanges at the Summits were not easy, as the Europeans, especially Germany, as well as Canada, were ambitious, while the US was often sceptical. But the Summits stimulated new thinking and cooperation on unfamiliar issues.

But the Summits did not focus on the tangle of institutions in this field. In consequence, there was a loss of momentum after Rio, with commitments not being met. Environmental institutions remained fragmented. Meanwhile the G7 leaders seem rather to have lost interest, except in the special issue of nuclear safety in East Europe, especially Ukraine. Though G7 environment ministers meet each year, this is not due to instructions from the Summit; and it is not clear that the leaders pay much attention.

There has been a rather similar experience with other transnational issues, such as terrorism, drugs, money laundering and international crime. The Summits have attracted attention to these issues and made some short-term impact. But only money laundering has found an effective institutional home in the Financial Action Task Force (FATF). The others tend to come back to the Summit again in times of crisis, as terrorism did at Lyon.

So far this has been a mixed report. The Summits have stimulated international treatment of key issues and advanced agreement. But they have been held back by differences between the US and Europe, most seriously during the Uruguay Round. Some good initiatives ran out out of steam for lack of effective institutions. This led the Summits, consciously or not, to decide, at Naples in 1994, to look more systematically at institutions and their reform. They started the process at Halifax in 1995 with the International Monentary Fund (IMF)/International Bank For Reconstruction and Development(IBRD) and the UN. This was the first time the Summit attempted a review of institutions. But it proved timely and well judged and is becoming a dominant theme of the fourth cycle.

Debt and the IMF

The Summits of the third and fourth cycles have given most attention to debt among IMF subjects. The Brady Plan, to help countries deeply indebted to the banks, was agreed in 1989. at Paris. "Toronto terms" for low-income debtors were agreed in Toronto in 1988; they were amended and improved several times at the Summits, with the most recent push given at Lyon in 1996, leading to agreement on a new debt strategy for the poorest countries at the 1996 IMF annual conference.

The process of agreement at the Summit was often laborious. "Trinidad terms" were launched by John Major as finance minister in September 1990 but were not finally accepted till Naples in 1994. But the process usually worked, for several reasons. Finance ministers are at the Summit and can easily convey messages to the IMF. The Summit falls between the spring and autumn IMF meetings; it can thus help to build on the spring outcome to clinch agreement in the autumn. Though there have been some US/Europe clashes, quite often one or more Europeans have rallied to the US position - European Community discipline does not apply in this area.

Despite this relative success, I was surprised when, for Halifax in 1995, Prime Minister Chretien picked IMF and IBRD as the first target institutions for reform. His original ideas on exchange rates would probably not have got far. But the Mexican crisis of early 1995 changed everything. There was a short bitter clash between the US and Europe. But everyone quickly recognised the IMF's procedures and warning signals were inadequate to deal with a crisis on this scale in today's mobile markets. New approaches were needed and the Summit was well placed to stimulate work at lower levels and give it a strong push.

As a result of the work done for Halifax, the IMF has better standards of economic data, for early warning; stronger surveillance techniques, for prevention; and larger funds on which to draw in times of crisis. Transatlantic agreement was easily found. The impetus for reform persisted into 1996 - Lyon gave attention to the supervision of banks and financial markets in vulnerable countries, another element of prevention.

United Nations Reform

Halifax also made a start in proposing reforms of the economic activities of the UN. This was not as carefully prepared as with the IMF and was recognised as being more difficult. The direction of IMF reform was generally agreed; this was not the case with the UN, where there were many conflicting views. Developing countries were suspicious about proposals coming from the G7. Great tact was needed to get them accepted.

Even so, Halifax decided to seek reforms over a very wide field and set up an extensive system of follow-up. This was reviewed at Lyon, which made further recommendations, almost wholly ignored by the media. On French initiative, these focused on the institutions concerned with development and helping poorer countries. A good symbol was provided by the G7 leaders' first joint meeting with the heads of UN, IMF, IBRD and WTO - though the fact of the meeting was more significant than the content of the discussion.

The process is likely to continue at Denver and in the UK, in 1997 and 1998. It is highly necessary. But it faces many obstacles, as compared with the reform of IMF and IBRD.

First, in the Fund and Bank senior management accept the need for change and are happy to work with the G7. At the UN, it is not clear how much support there is for the ideas being proposed by the G7 for reshaping UN institutions and the secretariat.

Second, the persistent US arrears in payments to the UN are a double handicap. They reduce the authority of the G7, while adding to the UN's troubles.

Third, in the Fund and Bank, the Summit worked on policy proposals, with some consequential changes in management and organisation. But with the UN almost all is management and organisation - the policy content is very small. It is much harder to persuade people to make changes in these conditions. It is also not clear that these mundane managerial issues will retain the attention of heads of government through a long, tough campaign of reform.

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