Financial Post G7 Record

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Financial Post, Weekly edition, Sat 17 Jun 95, page 13

Keywords: International finance Corporations Lobbying GATT Foreign investment Economic summits Halifax

Key changes may be slow in coming

Neville Nankivell

Canadian and international business leaders gave Prime Minister Jean Chretien an extensive, clear-cut wish list for results they wanted from the summit. Submitted in person by the heads of the Canadian Chamber of Commerce and International Chamber of Commerce, they ranged from opposition to a world tax on currency speculation to support for further opening up of world trade and investment markets.

As the G-7 leaders, joined by Russia's Boris Yeltsin, went into their final political sessions, the business groups had achieved some of what they suggested. But many of the key changes they advocated will be slow in coming.

Economic policy and jobs. Business leaders emphasized the need to make individual countries responsible for putting their economic houses in order. Criticism that G-7 countries haven't co-ordinated policies effectively was wide of the mark, they said.

Instead, individual countries were not doing enough to tackle debt and deficit reduction and other structural problems. This messsage did seem to get through - there was agreement to reduce deficits. However, the G-7 leaders agreed to support the International Monetary Fund's call for bigger resources for emergency use but with strict policy conditions attached. With 24 million unemployed in G-7 economies alone, the business groups had also called for job-creation thrusts, but not through make-work projects or government intervention. They want more flexible labor and regulatory rules, lower taxation of business activity - especially payroll taxes - and a more open, competitive climate. The response to this was more talk at a special follow-up ''jobs summit'' in France early next year, probably in January. Its aim will be to put ideas on the table for stimulating job growth and - that old story - better co-operation between the G-7 countries.

Financial system reforms: Business supported active reform of international financial institutions such as the IMF and World Bank, wanting clearer mandates and less duplication for the so-called Bretton Woods institutions. Chretien had made this a top agenda item, and agreement was reached on new directions, such as an improved early warning system through better surveillance of national economic policies and financial markets and more disclosure of information. However, details still have to be worked out after discussions with non-G-7 countries. Change could be a long time coming, likely not fast enough or radical enough to satisfy most business groups.

Trade. The business community wanted further trade liberalization negotiations to build on improved post-Uruguay round market access and give momentum to the newly established World Trade Organization. This included calls for opening up government procurement policies, and a global agreement on information technology rules. The leaders endorsed more open markets, committed themselves to completing talks - now through the WTO - on liberalizing financial services and telecommunications, and urged closer co-operation between the WTO and other international institutions.

However, this issue was overshadowed by the impasse between the U.S. and Japan on auto trade. This dispute between the world's two trade giants threatens to ruin the start of the WTO. There are huge concerns over what happens if the U.S. threat of punitive tariffs on Japanese luxury car imports goes into effect, and the WTO's new dispute-settlement process then goes against the U.S. but is ignored. The fallout could be devastating. The issue for world trade is multi-lateralism (collective respect for agreed upon rules) versus unilateralism (going it alone). The leaders struggled to find the right words for this in their communique.

Investment rules: Business wanted further progress on liberalizing rules on foreign investment. This is being worked on through the larger OECD grouping's push for a multilateral agreement. The G-7 leaders said these negotiations were an ''immediate priority'' and promised to start discussions with the WTO on investment rules.

The Tobin tax. Business is dead set against a tax on foreign currency transactions proposed by U.S. economist James Tobin to discourage disruptive speculation and fund UN development programs. It is seen as a tax in disguise on international trade and impractical to implement. While raised in some discussions, the idea didn't catch on.

The environment. Business leaders warned to be careful of supporting measures to link trade with environmental standards. The costs could outweigh the desired objectives, they said, and distort cross-border trade and investment flows. Restrictions linked to environmental aims could be a form of trade protection. There was a lot of discussion on environmental issues, and a push for progress on global environmental law. There was also commitment to work through the WTO on trade and the environment to ensure compatibility of rules and policies. Where this will go is still uncertain.

Human rights. Business has also been worried about linking trade with human rights. Trade ties with countries abusing human rights does not represent de facto acceptance, the Canadian Chamber of Commerce said. However, this issue didn't surface much in summit discussion.

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Revised: June 3, 1995

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