Rift With Emerging Economies Grows Amid Calls to Expand G-8

By James G. Neuger

July 10 (Bloomberg) -- The Group of Eight summit ended with the world's richest nations at odds with the most populous ones over climate change, agriculture subsidies and food prices.

The emerging economies represented at the meeting, led by India and China, refused to sign on to the G-8's pledged 50 percent cut in emissions by 2050, even after pressure from U.S. President George W. Bush. They also complained about subsidies developed nations give farmers.

The G-8, for its part, carped at its poorer cousins for stockpiling food supplies and keeping currencies artificially cheap to give exports a competitive edge.

Discord at the meeting, on the Japanese island of Hokkaido, raised questions about the future suitability of the G-8 as a forum to tackle global issues. After the emerging-economy guests upstaged the summit, French President Nicolas Sarkozy told reporters that meetings of the eight wealthiest nations are too exclusive.

``G-8 is an outdated concept,'' said Sung Won Sohn, a former White House economist and retired president of Los Angeles-based Hanmi Financial Corp., the largest Korean-American bank, in an interview. ``It is a rich-countries' party. It should be expanded to include key players in the world economy.''

Sarkozy's call for a bigger ``G'' to coordinate global economic policies was ignored by most leaders and shrugged off by next year's host, Italian Prime Minister Silvio Berlusconi. He said the current format permitted ``frank conversations.''

Wealth, Population

The G-8 -- the U.S., the U.K., Japan, Germany, Italy, France, Canada and Russia -- represents 870 million people who generate 62 percent of the world's economy, according to the University of Toronto's G8 Research Group. The so-called G-5 developing nations that attended the summit -- China, India, Brazil, Mexico and South Africa -- account for 11 percent of global output and 2.8 billion people, 41 percent of the world's population.

The division between the G-8 and the emerging economies was evident in the summiteers' pronouncements on the environment. Bush said ``all major economies'' needed to work together to reduce greenhouse-gas emissions, while Indian Prime Minister Manmohan Singh said eradicating poverty should come first because ``a quarter of our population lives on less than a dollar a day.'

The finger-pointing reopened a debate over whether the advanced economies' club, which expanded to eight when Russia joined in 1998, should enlarge again to reflect the global economic realignment.

Quality Dialogue

``Don't call it G-13, don't call it G-16,'' said Jose Angel Gurria, a Mexican who is secretary-general of the Organization for Economic Cooperation and Development, in an interview. ``Just keep the quality of the dialogue.''

At a press conference, Sarkozy said it was ``unreasonable to seek to tackle global issues without India, China, a country from South America, one from Africa and even an Arab country.''

Three leaders gave brief reactions and no substantial discussion ensued, according to a Japanese official's account of the closed-door meeting.

Every G-5 member will grow faster than the 1.3 percent rate projected for the ``advanced economies'' this year, led by China at 9.3 percent and India at 7.9 percent, according to the International Monetary Fund.

``It's not 1975 anymore, so for core economic issues in the globalized world, China and India are indispensable,'' said Andrew Cooper, associate director of the Centre for International Governance Innovation in Waterloo, Canada.

Climate Dispute

The biggest dispute between the two camps came over climate change. The G-8 said the route to solutions led through the G-5. Bowing to demands by Bush, the industrial eight -- producing 62 percent of global greenhouse gases -- insisted on ``sharing'' the goal of cutting carbon pollution with the less energy efficient developing world.

The G-5 issued its response from Sapporo, a half-hour helicopter ride from the G-8 enclave. In a dig at the gas- guzzling habits of SUV-driving Americans, the five demanded ``sustainable consumption patterns and lifestyles'' in the northern hemisphere.

Yesterday, the G-5 succeeded in stripping the numerical targets out of a joint statement with the G-8, along with Australia, Indonesia and South Korea. Mexican President Felipe Calderon said the rich world was shirking its ``unavoidable responsibility.''

Undervalued Currencies

G-8 criticisms weren't limited to climate. Taking aim at China, the G-8 leaders said some emerging economies are profiting from unfairly undervalued currencies.

Countries including India, China and Vietnam also were rebuked for stockpiling foods such as rice and corn to cope with rising prices instead of exporting them.

The lesser-developed countries blamed rich-world agricultural subsidies -- such as the European Union's 2008 handouts of 55 billion euros for farming and rural aid, or the five-year, $289 billion farm bill endorsed by the U.S. Congress in May -- for inflating prices and stifling food production in the southern hemisphere.

``There's no gain, no use to try to find a kind of scapegoat,'' IMF Managing Director Dominique Strauss-Kahn said in an interview.

Italy's Berlusconi will host next year's wrangling at a former American nuclear submarine base on Santo Stefano, a pink granite island off the northeast coast of Sardinia.

The Group of Five will be ready: It plans to meet two months earlier in Brazil.

To contact the reporter on this story: James G. Neuger in Toyako, Japan at jneuger@bloomberg.net