By Rajan Philips –
Six months in office, President Biden took his first foreign trip last week, attending the first in-person G7 summit after the pandemic over the weekend, at Carbis Bay in Cornwall, England, and meeting with Vladimir Putin on Wednesday in Geneva. In between, he attended a summit gathering of NATO member country leaders on Monday and met with the European Council on Tuesday. The G7, NATO and the EU meetings became occasions for diplomatic China bashing. And China responded in kind and more, through its Embassies in London and in Europe rather than by the mandarins in Beijing. China’s “wolf warrior” diplomacy might be irksome to old school sensibilities, but China seems to be in no hurry to change its modes of diplomacy to please anybody.
Everything is different now from the geopolitics of Cold War. Russia is no longer the West’s main adversary, and capitalism and socialism are not the same weighty words as they once were. Vladimir Putin is, at best, or worst, mostly a significant spoiler. It is China that looms large from the East, pre-occupying western powers, but the terms of engagement now are more competitive and less conflictual. The world is currently without any serious skirmishes, internal or otherwise. There is a lull even in the Middle East, and there are hopes that it might continue with both Benjamin Netanyahu and Donald Trump out of power, at least for now. But where violence has receded, the pandemic has taken over. And Cold War politics has given way to vaccine politics.
When history fails to turn
Yet, after much haggling and despite promises to do a lot more, G7 leaders were not able to come up with anything more than one billion vaccine doses when 11 billion of them are needed to immunize the world’s population. Gordon Brown, former British Finance Minister and later Prime Minister, has called the G7 summit another missed opportunity in the history of summits, “another turning point where history failed to turn.” He blamed G7 leaders for their failure to honour the pre-summit promise of Prime Minister Boris Johnson to vaccinate the entire world.
Besides Johnson, more than 100 former world leaders had called on G7 leaders to pledge $44bn of the $66bn needed to vaccinate the world, or eight billion doses and not one billion. A joint Norway-South Africa plan had worked out that eight billion doses donation would involve 27% contribution from the US and 22% contribution from the EU. The current US promise of 500 million doses amounts to 50%, which is a significant share but of the pathetically scaled down one billion promise of the Group of Seven countries. In early May , President Biden announced America’s support for waiving western vaccine patents to facilitate worldwide production and supply of COVID-19 vaccines. His radical turn surprised many, but found no support in G7 and the summit once again “failed to turn.”
Aid and welfare agencies are palpably disappointed with the poor show of vaccine generosity by the wealthiest of the world’s nations, and these civil societies are not likely to be enthused by President Biden’s clarion call for democracies of the world to unite against its autocrats. Nor are other G7 countries entirely enthusiastic about agreeing with the US policy towards China. A number of them do not want to alienate China which they see has a necessary role to play in the global economic recovery after the pandemic. To non-American observers, Biden’s position on China is not very different from that of Trump; what is different is the absence of Trump’s narcissism and racism. And America’s allies, while relieved at the exit of Trump and the entry of Biden, are also unsure that there will not be another political recession in the US similar to what they have had to unexpectedly encounter over the last five years.
Even though China was the main subject at the summit, the final statement reflected a balance between the pushes and pulls between America and its allies. Perhaps the sharpest note in the 70-point G7 statement could be the reopening of the ‘origin’ controversy involving the coronavirus. The summit’s call to make a “science-based” determination of the origins of COVID-19 may have better served its totally legitimate and objective purpose if the call too could have found a science-based origin rather than adversarial politics. Unfortunately, there is no international mechanism to facilitate such a consensus.
As Secretary General António Guterres rued last September marking the 75th anniversary of the United Nations, “the pandemic is a clear test of international cooperation — a test we have essentially failed.” The G7 summit, while it was positively different with Biden displacing Trump as America’s President, came no where near to rectifying the failure of international cooperation that the Secretary General was alluding to. There are many things about China that are not at all unexceptionable, but isolating a giant of a country and economic powerhouse is not the way to foster international co-operation, or to determine the truth about the origins of COVID-19.
Two days after G7, NATO got in on the act of targeting China, for first time in its deliberations, and calling China’s actions as a threat to “rules-based international order.” China responded calling NATO to stop “slandering” and to “devote more of its energy to promoting dialogue”. That NATO’s take on China may have been more a manifestation of bureaucratic overreach and not political consensus became evident from the notes of caution that came from the British and French leaders, among others. Prime Minister Boris Johnson asserted that nobody “around the table wants to descend into a new Cold War with China.” France’s Emmanuel Macron had earlier admonished that “China has little to do with the North Atlantic,” while Germany’s Angela Merkel had apparently emphasized that western alliances are “not about being against something, but for something”.
Besides COVID-19, the summit focused on human rights, again targeting China over human rights violations in Xinjiang and in Hong Kong. A somewhat positively competitive response to China was the announcement of a new global infrastructure plan. In an obvious counter to China’s Belt and Road infrastructure initiative, the G7 group at America’s prompting has come up with an initiative of its own, called “Build Back Better World (B3W).”
The new plan is expected to raise about $40 trillion by 2035, and will focus on improving “climate, health and health security, digital technology, and gender equity and equality” conditions in developing countries. By comparison, China’s Belt and Road initiative launched in 2013 is bankrolled solely by China to the tune of $160 billion and is expected to focus more on hard infrastructure projects. The rest of the world can only applaud the two initiatives while hoping that the two promoters will allow other countries to proportionately benefit from both, and not from one or the other.
An even more far reaching summit outcome is the agreement on global corporate taxation. Already in the runup to the summit, G7 Finance Ministers had reached a deal on (1) source-taxing corporations (i.e., to tax businesses in the countries where they conduct business and earn income); and (2) a global minimum tax proposal of 15% on businesses. The 15% rate is lower than the business tax rate in every G7 country, so this is not a tax increase in those countries. But what it will do is to expose to taxation multinationals and digital companies that now keep running for tax holidays and tax havens. Netherlands, Luxembourg, Singapore, and Ireland are among the more established tax havens, where “phantom investments” flow but no physical manifestations (as in factories, sales, or jobs) are seen. According to the IMF, “phantom investments” account for 40% of the world’s much coveted FDIs (Foreign Direct Investments). Is Sri Lanka’s Port City meant to be a magnet for its miniscule share of phantom investments?
The G7 agreement over global taxation is really the culmination of a much broader effort involving more than 100 countries working over a number of years. And the estimated revenues from global taxation are quite significant – ranging between $250 billion to $600 billion annually. While the G7 agreements is a big step forward, there are obstacles ahead as nothing can be done without the support of everyone. US Treasury Secretary Janet Yellen mooted the idea for global taxation long before the G7 summit, but it will have to pass muster in the US congress. There is broad support in the EU, but Ireland could be an outlier. The next forum for the global taxation effort will be the gathering of G20 Finance Ministers in Venice in July. Large countries from every continent including China and India will be at the table. Its outcome will offer clues about the pace of global taxation reform.
From Nixon to Biden
The Guardian in one of its editorials last week recalled something that no one in the US or China would seem to have bothered to note so far. It is that next month would be the 50th anniversary of Henry Kissinger’s secret mission to China to prepare the path for President Richard Nixon’s historic visit to China in February 1972. The visit lasted a week, “the week that changed the world,” as President Nixon famously declared. No one, not even President Biden, is going suggest that the new President’s first week of foreign forays in England and in Europe is going to change the world. But there is no denying the extent to which the world has changed between Nixon’s visit to China in 1972 and Biden’s visit to Europe in 2021. It is not that Nixon’s visit changed the world, but only that he seized the opportunity in a world that was already beginning to change.
Henry Kissinger reportedly assured Chinese leaders that “It is the conviction of President Nixon that a strong and developing People’s Republic of China poses no threat to any essential US interest.” Fifty years later, President Biden is calling on democracies to come together against the world’s authoritarian powers, primarily China. In a sense, Biden’s meeting with Russia’s Putin in Geneva last Wednesday caricatures Nixon’s historic visit to China. The summit was a useful necessity even if it was mostly meant for the domestic audiences of the two leaders. Putin wanted to show Russians that under him their country is still a force to reckon with, even though it no longer has the armour of a Soviet Union. For Biden, it yet another demonstration that Trump is gone and America is back. Yet, it was useful that the two leaders have opened a dialogue, which is essential if any headway is to be made, especially in the Middle East.
But it will be paradise lost if America and the West were to fail to open a new dialogue with China without isolating it or ganging up on it. Western leaders made the same mistake after the collapse of the Soviet Union, when they isolated Russia and invited all the former Warsaw Pact countries to join NATO and gang up on Russia. But there is no comparison between Russia without the Soviet Union and 21st century China that is set to surpass the US as the world’s biggest economy in a matter of decades. Yet, there are also growing backlashes against China even as its economic power grows, not only in the West but also in China’s own backyard and wider Asia. The EU, Lithuania and Hungary have recently blocked or put on hold economic partnership prospects with China. On the other side, Australia, South Korea, India, and South Africa are open to aligning themselves with G7 countries. They were all in sidebar attendance at the G7 summit.
If there is paradise to be regained, it can only be through the working of multilateralism. For all its unanticipated problems, the 21st century is remarkable for growing reality of multilateralism in spite of its serious institutional limitations. Beefing up the world’s multilateral institutions should be the first order of business for world leaders in whatever forums they gather. That was not anyone’s agenda at the G7 summit. Nor is it likely to be uppermost in China when it celebrates the centenary of the Chinese Communist Party on July 1.