COVER TORONTO SUMMIT'88

THE LAKESIDE SUMMIT

MARK NICHOLS June 20 1988
COVER TORONTO SUMMIT'88

THE LAKESIDE SUMMIT

MARK NICHOLS June 20 1988

THE LAKESIDE SUMMIT

COVER TORONTO SUMMIT'88

The setting for three days of summit talks by the leaders of the world’s seven major industrial democracies is a windowless underground room with an octagonal conference table in downtown Toronto. Along one wall are booths for interpreters providing simultaneous translation in five languages, while senior aides, located at consoles electronically linked to teams of advisers, stand ready to deal with unexpected questions. The austere setting on the heavily guarded lower level of the cavernous Metropolitan Toronto Convention Centre contrasts starkly with the more classical background chosen for the annual summits in the past— Venice’s Palazzo Grassi last year and the French Château de Rambouillet for the first meeting in 1975. Still, the purpose of the Toronto summit is the same: to foster balanced economic growth among the leading nations of the nonCommunist world. While the leaders can congratulate themselves on the economic surge that followed last October’s stock market crash, they faced the spectre of renewed inflation—and a number of divisive issues that have strained relations among them.

Bunker: Beyond the bunker-like meeting room—the basement location was chosen not only for security reasons but because the convention centre’s largest meeting rooms are there—the summit is being openly exploited for political and commercial purposes. While municipal officials seized on the opportunity to show off Toronto to the world, the summit gave Prime Minister Brian Mulroney, with an election in the offing, a chance to take a starring role on the world stage. The second economic summit on Canadian soil makes Mulroney the chairman for a meeting that involves a cast of strikingly different

personalities: British Prime Minister Margaret Thatcher, President Ronald Reagan of the United States, President François Mitterrand of France, West German Chancellor Helmut Kohl, Japanese Prime Minister Noboru Takeshita and Italian Prime Minister Ciriaco De Mita.

War: The issues they faced include persistent trade imbalances that have darkened relations between some of the allies and rapidly growing agricultural subsidies, which have triggered a price war between North America and Europe. Any attempt to bring about a quick reduction in farm subsidies faced resistance by most of the European leaders and by Jacques Delors, the French president of the 12-nation European Community commission who attends the talks on behalf of nonsummit EC members. Also attending the summit are the Group of Seven (G7) ministers of finance and foreign affairs who also meet separately, with Finance Minister Michael Wilson and External Affairs Minister Joe Clark acting as chairmen.

Despite the massive influence of the U.S. economy in the world, Reagan, with only seven months remaining in his presidency—he attended his first summit at Montebello, Que., in 1981—was expected to assume a less commanding role than at past summits. As a result, outsiders

OE SUMMIT

foresaw little substantive discussion on the festering issue of the U.S. $183.6-billion budget deficit, which has helped to make the United States the world’s largest debtor nation—and the summit nations its major creditors. With Reagan reduced to lame-duck status, the summit now will be dominated by the powerful and opposing personalities of Thatcher and Mitterrand. The rivalry between the two might well pose problems for Mulroney in his role as chairman. “The chemistry is going to be very difficult,” said a senior Canadian official of the British and French leaders. “They’re not very fond of each other.”

Pride: With a Canadian federal election due in less than 15 months, Mulroney’s fourth economic summit— and the first in Canada since he took office in September, 1984—presented him with an opportunity to appear statesmanlike. Mulroney’s G7 colleagues were expected to help. An unspoken tradition that has grown up since the first summit requires visiting leaders to co-operate in making the host appear decisively in charge. When Mulroney reads the final summit communiqué before television cameras at Toronto’s Roy Thomson Hall on June 21, he will appear on a blue-and-grey set, isolated from the other leaders. “The set communicates a sense of pride in

your country,” said Donald Dixon, executive producer of the CBC’s hostbroadcaster unit, which is in charge of broadcast facilities at the summit.

At the same time, Toronto—as Canada’s largest and most affluent city—is promoting its bid for the 1996 Summer Olympics before an estimated 3,000 foreign journalists and broadcasters (page 40). Other summit visitors include the official delegations that range in size from the 400-member American group to the 50 Britons accompanying Thatcher.

As the leaders take stock, they have a good deal in the recent record to satisfy them. Despite the October stock market plunge, their nations finished the year with an average growth rate of 3.1 per cent, while inflation stayed at 2.8 per cent. This year, growth is expected to continue at slightly lower levels and inflation may be higher, but most economists scrapped earlier predictions of a recession later in 1988.

Mood: Still, the U.S. budget deficit and a trade deficit, which—despite a recent improvement—is projected to total $190 billion in 1988, have created a volatile mood in the international economy. Dismal February U.S. trade figures announced in April caused the value of the dollar to plunge and triggered a 101-point decline on the New York Stock Exchange. Subsequently, the U.S. commerce department announced that American exports had picked up, reducing the trade deficit in March to $14.6 billion from $17.6 billion in February. The prospect of a higher-than-expected U.S. growth rate triggered fears of rising inflation. Said Allen Sinai, who is the president of the Boston Co. and Economic Advisors Inc.: “With industries operating at near-full

capacity, the tremendous strength in exports inflationary pressures.”

suggests

Several of the leaders, including Mitterrand and De Mita, want a new commitment to the Louvre Accordannounced by G7 finance ministers at Paris’s Louvre Palace in February, 1987. At the time, Japan and West Germany undertook to stimulate their economies, and the United States promised to take strong measures to reduce its budget deficit—in the hope of making Japan and West Germany buy more U.S. goods, while reducing U.S. imports. Although Washington is aiming at a $21-billion reduction in its budget deficit in the current fiscal year, American officials say that neither the Japanese nor the West Germans have made sufficient efforts to expand their economies. Indeed, one of the summit’s main thrusts is toward “structural adjustments” in areas such as privatization, deregulation and increased competitiveness within the G7 nations—all measures aimed at encouraging greater growth among the Western economies.

With so much uncertainty on the horizon,

Mulroney won agreement among his summit colleagues for a back-to-basics approach at the Toronto meeting, with the emphasis on economic issues, leaving discussion of social and political questions until later in the conference.

Some changes in the summit agenda were worked out by Sylvia Ostry, Canadian ambassador for multilateral trade—and Mulroney’s personal representative for the summit—and her G7 counterparts. At Mulroney’s urging, the leaders were meeting twice without their finance and foreign ministers to discuss areas in which foreign policy issues and economic affairs are linked.

Debt: The complex issue of Third World debt may be an area in which the summit can produce results, thanks to a Canadian compromise suggestion. While no major proposals are likely for the Latin American nations, whose obligations make up a large portion of the total $1.5 trillion in Third World debt, some summit leaders are interested in helping a group of 22 impoverished African debtor nations that owes a total of $55 billion to banks and governments, ■■■j A proposal this spring for government subsidi^ zation of reduced interest rates on some loans met opposition from some summit powers. The United States, for one, said that the proposal was contrary to U.S. law. Canada—which has written off $672 million in debts owed by 13 African countries in the past 10 months— suggested that nations that objected to interest-rate reduction could help by forgiving some government-to-government loans and offering longer repayment periods for others. Last week, France put forward a package of proposals that included a suggestion to simply forgive a portion of the debts. Meanwhile, Washington dropped its objections to reduced interest rates.

Also planned were discussions on ways of achieving greater progress at the current round of trade-liberalization talks by the 94-nation General Agreement on Tariffs and Trade before the midterm review scheduled for Montreal from Dec. 5 to 9. Despite common ground on some issues, each leader headed to the summit with a set of personal priorities. The summit nations and where they stand:

• BRITAIN: The revitalized British economy is expanding at a rate second only to Japan’s, and, as a result, Thatcher has few contentious issues to raise. Despite continuing high unemployment (9.4 per cent), Britain’s economy grew by an estimated 4.5 per cent last year. Thatcher will urge other leaders to follow Britain’s example and speed up deregulation and privatization measures.

• THE UNITED STATES: With the U.S. economy showing unexpected strength—it grew at an estimated annual rate

SUMMIT UPS AND DOWNS

The annual economic summits aim to foster prosperity and to fight inflation and unemployment. Weighted average percentages, including Gross Domestic Product growth, for all seven summit nations (OECD figures):

of 3.9 per cent in the first quarter of 1988—Washington is g pressing long-standing demands that Japan and West | Germany do more to stimulate their economies. As well, g Reagan was expected to underline a request that Trea-1 sury Secretary James Baker has been conveying to his ^ fellow G7 finance ministers. Washington wants them to o help keep the U.S. dollar stable during the run-up to 2 November’s presidential election by intervening in international markets to prevent currency fluctuations.

• FRANCE: Although the French economy moved ahead by only two per cent last year, growth is expected to rise to three per cent this year. Because he believes that exchange-rate fluctuations are harmful to Third World countries, Mitterrand—re-elected president just five weeks ago—is pushing a proposal to replace the U.S. dollar as the basic international currency, perhaps with a unit based on the combined values of the U.S. dollar, the Japanese yen and the nominal currency used in the European Community, the ecu.

• WEST GERMANY: Some of Kohl’s officials have expressed annoyance over “Germany-bashing” by Washington. Bonn fears that—with only two-per-cent growth forecast for West Germany this year—sales of West German cars and other goods in the United States could trigger protectionist action. West Germany’s trade surplus has declined, and officials in Bonn say that they cannot expand the economy further without risking increased inflation.

• JAPAN: Takeshita maintains that Japan has taken significant steps to help ease the U.S. trade crisis. By stimulating domestic demand and making the rich Japanese market more accessible to foreign producers, Japan last year reduced its surplus in world trade by $3.5 billion, to $97.4 billion. Takeshita is known to fear protectionist pressures in Washington, and he calls the Omnibus Trade Bill that is now before Congress— providing for stiff action against trading tactics that Washington considers unfair—

“a dangerous trend.”

• ITALY: With a 2.9per-cent growth rate expected for Italy this year, De Mita wants better co-ordination of economic policies. He is pressing Washington to adopt more effective measures to reduce its budget deficit and wants the Japanese and West Germans to expand their economies.

“It is true that fiscal policies have moved in the right direction,” said an Italian official,

“but it is also true that they have not gone very far.”

• CANADA: Mulroney wants to find ways of ending the war over agricultural subsidies between Washington and Europe that, he says, has obliged Ottawa and the provinces to provide a costly array of support measures, including price stabilization and subsidized crop insurance. With the Canadian economy enjoying strong growth—it is expected to expand by 3.8 per cent this year—Canada’s short-term outlook is encouraging. But Canada could come under fire for its slow progress in reducing the $28.9-billion federal budget deficit, which at 5.2 per cent of gross domestic product is one of the highest among G7 nations.

Glut: Agricultural subsidies remain one of the most troublesome issues before the summit. During the past decade, the success of improved varieties of grain and other crops has contributed to a growing world agricultural glut, while farmers have come to rely on subsidies in the face of cutthroat international competition. As a result, under the EC’s Common Agricultural Policy, European farmers now receive subsidies worth $85 billion a year, amounting to 49 per cent of farm incomes, while U.S. farmers receive $36 billion (35 per cent of income) in the form of subsidies. Canadian farmers—who face the prospect of a damaging drought in the West this summer—receive more than $8 billion in annual subsidies, or 46 per cent of total farm income.

Washington, which has mounted an aggressive program of export subsidies to counter similar European measures, wants the G7 nations to dismantle farm subsidies by the year 2000. But European governments insist that Washington should halt its export subsidies before negotiations can start. Because of the deep divisions over the issue, the final summit communiqué may contain only a cautiously worded undertaking to seek ways of phasing out agricultural supports—as did last year’s Venice communiqué.

Indeed, because recent summits have produced few immediate results, some critics say that they are a waste of time. Others say that by becoming splashy media spectacles, summits have lost the sense of urgency that was present when French president Valéry Giscard d’Estaing first invited Western leaders 12 V2 years ago to deal with pressing economic issues. Said Robert Hormats, a vice-president of

the New York City merchant banking firm of Goldman Sachs International who, as an assistant secretary of state helped arrange U.S. participation in eight previous summits: “The summit process will be seriously jeopardized unless it can soon re-establish some of the relevance it had in those early days.”

Goal: Mulroney’s determination to produce a more businesslike affair was intended to steer the Toronto s meeting in that direc5 tion. To help achieve § that goal, Canadian of; ficials were intent on 5) having the final cornil muniqué reflect the substance of the summit discussions, rather than, as in the past, being a document drafted in advance by key advisers. At the same time, summit officials point out that even seemingly bland communiqué declarations can have important repercussions. According to Ostry, summits “become a focal point for forward planning involving key departments” in each country. As a result, when leaders commit themselves to a course of action at the summit level, their declarations serve to mobilize their bureaucrats to find ways of fulfilling the summit undertakings.

Still, the greatest value of the summit experience may be at the human level —by allowing the assembled leaders to meet face to face and test one another’s mettle. “These summits are probably not negotiating sessions,” said a senior U.S. government official. “The basic objective is for these people to get a feel for each other.” And the real effect of just what is said or agreed to in Toronto’s windowless summit chamber may only be apparent in the complex unfolding of economic events in the years ahead.

MARK NICHOLS

HILARY MACKENZIE

and BRUCE WALLACE

in Ottawa,

IAN AUSTEN

in Washington,

ANDREW PHILLIPS

in London and Paris and correspondents’ reports