By David Lawder and Leika Kihara
BADEN BADEN, Germany - The world's financial leaders will renounce competitive devaluations and warn against exchange rate volatility, a document showed on Friday, but are likely to struggle to find common ground on trade and financing against climate change.
The difficulty stems from a major shift in the views of the United States, where the new Trump administration is considering protectionist trade measures to curb imports and considers efforts to try to halt global warming a "waste of money".
Finance ministers and central bank governors of the world's top 20 economies are meeting in the spa town of Baden Baden in Germany to discuss world economic issues and will publish a joint communique on Saturday.
A draft of the statement showed that, for now, the issue of trade and protectionism is not mentioned at all. This breaks with a decade-old tradition of the G20 endorsing free trade and rejecting protectionism.
"It's about the right wording, it's about the openness of the world trade systems in the final communique," German Finance Minister Wolfgang Schaeuble said before talks began.
U.S. Treasury Secretary Steven Mnuchin said on Thursday in Berlin that the Trump administration had no desire to get into trade wars, but certain trade relationships need to be re-examined to make them fairer for U.S. workers.
G20 officials said the United States was ready to accept a phrase backing "free and fair" trade, given that the meaning of "fair" was open to interpretation. Europe was keen on adding that trade should be "rules-based", meaning subject to rules of the World Trade Organisation (WTO).
European delegations have also explicitly rejected protectionism.
Facing a stand-off, Schaeuble, whose country holds the rotating presidency of the G20 this year, has floated the idea that the issue of trade might be left out of the communique altogether to avoid a clash.
IMF Managing Director Christine Lagarde seemed to back him when she said on Thursday, in an apparent reference to U.S. President Donald Trump, that new government leaders with a protectionist agenda needed time to get to know how international bodies work and better prepare their position.
Some G20 officials had doubts if trade ought to take such a prominent spot in discussions of finance ministers and central bank governors and signalled there was no urgency to reaching a deal now, as it could be left to a leaders' summit in July.
But other G20 countries argue that goods trade makes up almost half of global GDP output and therefore is very much an issue for finance ministers trying to accelerate global growth. They argue a reference to trade in the statement is needed.
CLIMATE CHANGE FINANCING REMOVED
The G20 might also drop their explicit endorsement to finance the fight against global warming, the draft showed.
At their last meeting in July 2016 the G20 ministers said they encouraged all signatories of the Paris Agreement on climate change to bring the deal into force as soon as possible and honour their financial pledges it a timely way.
But U.S. President Donald Trump, who took office in November, has called global warming a "hoax" concocted by China to hurt U.S. industry and vowed to scrap the Paris climate accord aimed at curbing greenhouse gas emissions.
Trump's administration on Thursday proposed a 31 percent cut to the Environmental Protection Agency's budget as the White House seeks to eliminate climate change programmes and trim initiatives to protect air and water quality.
Asked about climate change funding, Mick Mulvaney, Trump's budget director, said on Thursday, "We consider that to be a waste of money."
AGREEMENT ON FOREX
The G20 do agree, however, to show continuity in their foreign exchange policies.
The draft communique, which may still change and is to be published only on Saturday, reinstated the phrases used in past years in communiques on foreign exchange markets that were absent from the earliest version.
"We reiterate that excess volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability," the draft said.
"We will consult closely on exchange markets. We reaffirm our previous exchange rate commitments including that we will refrain from competitive devaluations and we will not target exchange rates for competitive purposes," it said.
U.S. President Donald Trump has accused Japan of exploiting a weak yen to give exports an unfair trade advantage, leaving Japanese policy-makers worried that Washington may upend a G20 agreement that gives Tokyo room to intervene in the currency market to stem any unwelcome yen spike.
But Japanese Finance Minister Taro Aso said he agreed with his U.S. counterpart Steven Mnuchin on the need to abide by the G7 and G20 agreements on currency policy, including a warning that excess currency volatility is undesirable.
"We agreed that it was important to maintain the G7 and G20 agreements on currency policy," Aso told reporters after meeting with Mnuchin on Friday on the sidelines of a Group of 20 finance leaders' weekend gathering.
G20 officials also played down European concerns that the U.S. administration would roll back the tougher "Dodd-Frank" U.S. financial reforms enacted after the 2008-2009 financial crisis.
"This concern is not big," Schaeuble said.
(Additional reporting by Michael Nienaber, Joseph Nasr, and Yann Le Guernigou in Paris; writing by Jan Strupczewski; Editing by Balazs Koranyi and Hugh Lawson)