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G20 struggles to deal with China, U.S

Differences between China and the United States could undermine the G20 summit that Canada is hosting this summer, and are calling into question the continued existence of the new world club.

OTTAWA — Differences between China and the United States could undermine the G20 summit that Canada is hosting this summer, and are calling into question the continued existence of the new world club.

As the summit’s host, and because it is seen as an honest broker, many G20 countries are looking to Canada to sort out the differences, which are rapidly escalating, sources tell The Canadian Press.

But that’s easier said than done.

“The G20 worked well as long as the single goal was to avert catastrophe. Now the hard part is beginning,” said Wendy Dobson, co-director of the Institute for International Business at the University of Toronto’s Rotman School of Management.

“Leaders must keep their eyes fixed on medium-term reforms and lead. If they fail to do so in the next two years we will have to ask whether the G20 can survive the global financial crisis.”

The key goal of June’s G20 summit in Toronto is to stabilize the global economy for years to come, Prime Minister Stephen Harper stated last week in an address to G20 negotiators in Ottawa.

Central to that goal is finding ways for China to do less global selling, and the United States to do less buying and borrowing.

Unless China lets its currency appreciate and unless the United States brings down its debt load, the future of the global economy is up in the air, explained Dobson in an e-mail exchange.

Both countries, however, are digging in their heels, increasingly reluctant to make the wholesale changes that many believe are necessary for the fundamental rebalancing of global forces.

And now the G20, in Canada’s hands, is perplexed at how to move forward.

“The big issue is China, of course. There is a difference between the Asian view of how to deal with China and the North American view,” said a well-placed source.

North American insiders have suggested they would like to see everyone in the G20 gang up on China and exert pressure for more flexibility in its exchange rate.

But some Asian countries are arguing for a less confrontational approach, that would see China and other countries agree to a broader package of domestic reforms, and slip currency appreciation into the pack.

The divisions over China are just one example of the difficulties the G20 is having in forming a consensus among such a large group that brings together advanced and emerging economies.

There is growing concern that the fledgling G20 is splintering into regional interests, exposing stark differences between its Asian, European and North American members.

Emerging countries are recovering much more quickly than advanced countries from the global recession, and have begun removing stimulus measures. Advanced countries, however, want to see stimulus continue until recovery is well entrenched everywhere.

And there is much wrangling over the role of the G20 itself. Canada and other small G8 members want to see the G8 remain a leading force in global politics, but powerful emerging countries in the G20 would prefer to see the larger group dominate.

Canada’s decision to hold the G8 summit in Huntsville, Ont., right before the G20 meeting in Toronto at the end of June is still not sitting well with emerging markets. They feel the smaller group is “dictating the show” and “cooperating and colluding to set the agenda” for the G20, sources say.

Differences of opinion over how to discuss climate change and banking reform also loom large.

In an effort to control the tension, a special working group of Canadian and South Korean experts has been quietly brought together to build a consensus and to work on solutions. It is led by political heavyweights from both countries, and reports back to the top G20 negotiatiors.

The Canadian co-chair of the group is Derek Burney, a former chief of staff and Canadian ambassador to former prime minister Brian Mulroney, as well as the head of the 2006 transition team for Harper. Burney, a seasoned international diplomat with much experience in Asia, was also tapped by Harper most recently in 2007 as a leading member for his special panel on Canada’s future in Afghanistan.

His Korean counterpart is Yung Chul Park, the former senior economic adviser to the president of South Korea, and one of South Asia’s premier economists.

The group met behind closed doors last week, where they discussed what advice to give negotiators on economic recovery, international financial reform, global trade, as well as climate change and energy security.

They made very little progress on climate change, sources said, and there’s a growing sense that the Toronto summit will barely address the issue.

The experts generally felt there was a need to look beyond the floundering Doha round of trade talks for progress in knocking down trade barriers.

And they left the Ottawa meeting with an uneasy feeling that unless the G20 powers hash out a more effective strategy for economic stability soon, the world risks tumbling into another downturn.

The need for major changes of direction in both China and the United States came up at every turn, and there was agreement that the G20 is the best hope the world has for driving those changes.

As one insider summed up: “That is a legitimate concern, that this thing could come off the rails because of divisions — not just about China, but divisions about how you develop coordinated exit strategies.”