The Organization for Economic Cooperation and Development (OECD)
Thirty four democracies in Europe, North America, the Pacific Rim, and Latin America comprise the Organization for Economic Cooperation and Development (OECD), established in 1961 and headquartered in Paris. The OECD member countries account for 78 percent of world GDP, 94 percent of world official development assistance, over half of the world's energy consumption, and 18 percent of the world's population.
The OECD is not just a grouping of economically significant nations, but also a policy forum covering a broad spectrum of economic, social, and scientific areas, from macroeconomic analysis to education to biotechnology. The OECD helps countries, both OECD members and non-members, reap the benefits and confront the challenges of a global economy by promoting economic growth, free markets, and efficient use of resources. Each substantive area is covered by a committee of member government officials, supported by Secretariat staff.
The emphasis is on discussion and peer review, rather than negotiation, though some OECD instruments are legally binding, such as the Anti-Bribery Convention. Most OECD decisions require consensus among member governments. In the past, analysis of issues in the OECD often has been instrumental in forging a consensus among OECD countries to pursue specific negotiating goals in other international fora, such as the WTO.
The OECD conducts wide-ranging outreach activities to non-member countries and to business and civil society, in particular through its series of workshops and "Global Forum" events held around the world each year. In 2008, the OECD completed comprehensive reviews of the economies of Indonesia and South Africa, both non-member countries that participate as observers in various OECD committees. Non-members may participate as observers of committees when members believe that participation will be mutually beneficial. The OECD carries out a number of regional and bilateral cooperation programs. The China program, for instance, supports China's efforts to establish a market economy and improve public governance.
The Trade Committee hosts a meeting of OECD member country trade ministers annually in the spring. The U.S. Trade Representative heads the U.S. delegation. Ministers from a number of key non-members also participate.
Trade Committee Work Program
In 2008, the OECD Trade Committee, its subsidiary Working Party, and its joint working groups on environment and agriculture, continued to address a number of issues of significance to the multilateral trading system. Members asked the Secretariat to focus its analytical resources on work that would advocate freer trade and facilitate WTO negotiations, deepening understanding of the rationale for progressive trade liberalization in a rules-based environment. The Trade Homepage on the OECD website contains up-to-date information on published analytical work and other trade-related activities.
Several major analytical pieces were developed or completed under the Trade Committee during 2008. These included the study Technical Barriers to Trade: Evaluating the Trade Effects of Supplier's Declaration of Conformity, which empirically assessed the impact and expected benefits of Supplier's Declaration of Conformity (SDOC) as a trade facilitating measure on trade flow, focusing on the harmonized introduction of SDOC throughout the EU for eligible medical devices, telecommunications and radio equipment and machinery.
The Trade Committee also released a number of Working Papers on topics such as "Technology Transfer and the Economic Implications of the Strengthening of Intellectual Property Rights in Developing Countries" and "Trade and Innovation." Building on 2006-2007 groundwork, the Trade Committee continued its "BRIICS" project - the development of country studies on Brazil, Russia, India, Indonesia, China and South Africa, in which each country is analyzed across a set of core issues (such as goods and services liberalization and intellectual property rights) and selected country-specific issues.
Work in the Trade Committee on trade in services continued to provide analysis and background relevant to services liberalization and WTO negotiations. Services not only provide the bulk of employment and income in many OECD countries, they also serve as vital inputs for producing other goods and services. In 2008, the OECD continued its analysis of this sector.
"Foreign Direct Investment (FDI) Spillovers and their Relationship with Trade," examined the increasing importance of FDI in international economic integration. The study indicated that service industries enjoy the strongest productivity-enhancing effects of FDI, and that trade liberalization can be seen as an important component of reform efforts designed to help countries maximize the benefits of FDI. Another paper, "Analysis of Subsidies for Services: the Case for Export Subsidies," took an exploratory first step in trying to understand the nature and scope of export subsidies in services.
During 2008, the OECD also provided analysis of two important service sectors: distribution and tourism. Tourism is an important sector for many developing countries with linkages to many other service sectors. In "Services Trade Liberalization and Tourism Development," the OECD explored the ways trade and investment liberalization could facilitate tourism sector growth in developing economies. "Market Structure in the Distribution Sector and Merchandise Trade" explored developments in the retail sector and the effects on trade in consumer goods.
The Trade Committee continued its work developing the first Services Trade Restrictiveness Index (STRI), a tool to measure the restrictiveness of regulations and other barriers affecting trade in services. During the year, the OECD collected data and examined barriers to trade in the three pilot sectors: business services, telecommunications, and construction services. Services experts met in June to discuss measures affecting trade in business services and in December to discuss measures affecting trade in telecommunications and construction services. The meetings were designed to identify and rank the most important barriers to trade in these services. The results of these discussions will assist in the development of STRI methodologies.
A Global Forum on Globalization and Emerging Economies in June 2008 in Paris, France provided an opportunity to discuss the consequences for significant international markets and for the political economy of trade reform of the recent growth of the BRIICS. Several regional trade-related events were also held in 2008, including a regional forum on Trade Facilitation in June 2008 in Cape Town, South Africa, organized in collaboration with the South Africa Revenue Service (SARS) and the European Union. The participating 65 stakeholders involved in trade facilitation in Eastern and Southern Africa included WTO negotiators, trade officials, customs officers and experts, private sector representatives and representatives from regional and multilateral organizations, and the forum focused on the impact of economic factors such as cost or importance of informal trade on the efficient implementation of trade facilitation commitments.
Dialogue with Non-OECD Members
The OECD continued its contacts with non-member countries to encourage the integration into the multilateral trade regime of developing and transition economies, such as the countries of Eastern Europe and Central Asia, leading developing economies in South America and Asia, and sub-Saharan African countries. Following the May 2007 decision of the OECD Council in Ministerial session, the OECD began a concerted drive to broaden and deepen its involvement with emerging new players in the global economy through its Accession and Enhanced Engagement Programs. In 2008, Chile, Estonia, Israel, Russia, and Slovenia continued the OECD accession process, while enhanced engagement program participation was offered to Brazil, China, India, Indonesia, and South Africa. Enhanced Engagement is a partnership arrangement that, depending on the interests and level of participation desired by the individual countries and upon approval by respective committees, may include elements of the following: committee participation, economic surveys, adherence to instruments, integration into the statistical reporting and information systems, sector-specific peer reviews, and other actions.
In 2008, the Trade Committee and its Working Party continued its discussion on how to enhance outreach to accession and enhanced engagement candidates and other interested non-members, encouraging nonmember economies to be observers on an ad hoc basis when their participation could both benefit from, and contribute to, the Trade Committee's work. The current regular observers in the Trade Committee are Argentina, Brazil, Chile, and Hong Kong China. These four observers, plus the remaining Enhanced Engagement and Accession countries were invited to participate in the trade ministers' session focused on the multilateral trading system at the June 2008 Ministerial Council Meeting.
Technical Assistance and Capacity Building
The Working Party of the Trade Committee and the OECD Development Assistance Committee (DAC) held two joint meetings during the year to discuss Aid for Trade (A4T). At the WTO's request, the OECD is supporting the A4T initiative in several ways: reporting on aid flows through the DAC's Creditor Reporting System database, and, in conjunction with the World Bank, advising on practical ways to monitor and evaluate A4T. As it did in 2007, the OECD is conducting a survey of donors and recipients on their strategies and practices in trade capacity building. This year's survey will build upon the baseline established by the 2007 survey. OECD and WTO staffs have been working closely with recipient countries to improve the response rate to the survey. Building on the November 2008 Global Forum on A4T and working through the Trade Committee's Working Party and the DAC, OECD members and staff will pursue further work, including with the World Bank, on the monitoring and evaluation framework. This will serve as preparation for the WTO's second Global Review of Aid for Trade in June 2009.
Environment and Trade
The OECD Joint Working Party on Trade and Environment (JWPTE) met twice in 2008 to continue its analysis of the effects of environmental policies on trade and the effects of trade policies on the environment, as well as its efforts to promote mutually supportive trade and environmental policies. During the year, the JWPTE contributed important work on environmental goods and services to support the WTO Doha negotiations, as well as work on identifying areas of synergy between trade and climate change mitigation policies.
The JWPTE also continued work on the environmental aspects of regional trade agreements (RTAs), including work on a checklist for trade negotiators. In this connection, the OECD held a workshop in October 2008 in Santiago, Chile. The extensive body of work highlights innovative environmental provisions in U.S. free trade agreements and associated cooperation mechanisms.
Agriculture and Trade
The Committee for Agriculture (CoAg) is the primary forum for discussing agriculture-related issues in the OECD. The CoAg has two flagship publications that are produced annually - the Agricultural Outlook and a review of Agricultural Policies in OECD Countries.
The Agricultural Outlook, which is prepared in conjunction with the Food and Agriculture Organization (FAO) of the United Nations, presents the OECD-FAO 10-year baseline for agricultural commodity production and trade. In addition to the OECD countries, the market projections in the report cover a large number of other countries and regions, including Brazil, Russia, Argentina, and South Africa. The 2008 report looked closely at the various factors contributing to earlier high commodity prices and the impact of record high fuel costs on producers.
The Agricultural Policies in OECD Countries report was released in June 2008. The new method of classifying policies designed to better reflect new, more decoupled but also more complx policy measures was further refined and improved. Findings from the review of agricultural polices in OECD member countries indicated that despite strong commodity prices and some reform efforts in some countries, overall support to agriculture remains high, but was down somewhat in 2007 as producer-favorable commodity prices eased the need for support. Coverage of the new U.S. farm bill and the EU midterm review is planned for the 2009 edition. The OECD also completed its PSE (Producer Support Estimate) Manual, which describes the methodology used to calculate indicators of agricultural support.
Other important activities this year included further work on biofuels, including the release of a major study on the efficiency and effectiveness of support policies in OECD countries. The role of biofuels in the run-up in international food prices was also a topic of analysis. In addition to the review in the Agricultural Polices report, detailed reviews for the agricultural economies of Japan and Korea were initiated in 2008.
A review of rural development in China was launched in 2007 and completed in 2008, in conjunction with the Public Governance and Territorial Development Directorate. Significant studies exploring the effect of non-tariff measures and the impact of animal diseases on trade were launched during the year.In late 2008, CoAg organized a Global Forum on Agriculture which looked at the role of small landholders in agriculture. A secondary topic was a review of the agricultural polices in seven major nonmember economies. In 2008, the OECD also began planning for a 2010 Agricultural Ministerial.
Labor and Trade
The 2008 OECD Employment Outlook continued the string of contributions on labor and trade found in this annual publication. In one chapter, it considered whether multinational enterprises (MNEs) promote better pay and working conditions in host countries, giving particular attention to OECD-based firms operating in developing and emerging economies, where concerns have been raised about the impact of MNEs on workers. In these economies, the OECD found that MNEs tend to pay higher wages at the firm level than their domestic counterparts, but strong evidence of better non-wage working conditions was not found. The OECD observed that many MNEs have adopted codes of conduct concerning labor practices in their foreign affiliate firms and discussed various policies aimed at strengthening the contribution of Foreign Direct Investment to improved wages and working conditions. The Employment Outlook is prepared by respected researchers in the Employment, Labor, and Social Affairs Directorate and is subject to peer review by a group of senior researchers from OECD Member governments. The United States actively participates in the peer-review group and currently holds the chair.
The Trade Union Advisory Committee (TUAC) to the OECD, made up of over 56 national trade union centers from OECD member countries, and the Business and Industry Advisory Committee (BIAC), which represents major business organizations in the 30 OECD member states, have played consultative roles in the operation of the OECD and its various committees since 1962. As part of the OECD Ministerial Council meeting in June 2008, joint consultations were held with TUAC and BIAC.
TUAC's statement emphasized the need to: minimize the risk of rising unemployment; regulate financial markets; address growing inequality; develop a more effective approach to corporate accountability and social responsibility; develop a global strategy for dealing with the challenges of attenuating climate change; follow through on development assistance pledges by OECD countries; and support OECD enlargement.
BIAC's statement emphasized that: sovereign wealth funds can contribute to the growth of OECD economies; the OECD has a leading role in promoting the freedom of cross-border investment and open markets for foreign investment, bearing in mind security considerations; climate change is a challenge to which all parts of society, including business, must respond; open trade and climate change policies can be mutually supportive; and cost-effective solutions to achieving climate stabilization goals are needed.
The OECD Arrangement for Officially Supported Export Credits (the Arrangement) places limitations on the terms and conditions of government-supported export credit financing, so that competition among exporters is based on the price, quality and serviceability of the goods and/or services being exported, rather than on the terms of government-supported financing. It also limits the ability of governments to tie their foreign aid to procurement of goods and services from their own countries (tied aid). The Participants to the Arrangement (Participants), a stand alone policy-level body of the OECD, are responsible for implementing the 30-year-old Arrangement and for negotiating further disciplines to reduce subsidies in official export credit support.
It has been estimated that the Arrangement saves U.S. taxpayers about $800 million annually. First, rules on minimum interest rates ensure that the Export-Import Bank of the United States, the U.S. export credit agency, no longer has to offer loans with below-cost interest rates and long repayment terms to compete with such practices by other governments. Second, agreement on minimum exposure fees for country risk has generally reduced costs. Finally, the "level playing field" created by the Arrangement's tied aid disciplines has created conditions for U.S. exporters to increase their exports by about $1 billion per year. These exports alone would have cost taxpayers about $300 million annually since 1993, if the United States had been compelled to create its own tied aid program to compete with other programs.
The OECD tied aid rules continue to reduce tied aid and redirect it from capital projects, where it has had trade-distorting effects, toward rural and social sector projects. Tied aid levels were nearly $10 billion in 1991 before the rules were adopted, but were $5.2 billion in 2007. For the first six months of 2008, the Participants provided $4 billion in tied aid. This is significantly higher than tied aid levels for the same period in 2007, which was $1.2 billion. However, as mentioned above, the tied aid rules help ensure that tied aid-financed projects represent bona fide development assistance and do not distort trade. For this reason, an increase in tied aid means an increase in the number of social sector and other such projects for which tied aid is not inappropriate.
After two years of negotiations, the Participants in July 2007 finalized a new agreement on official financing for aircraft, with Brazil participating as a full partner in the negotiations, even though it is not a member of the OECD Participants. Referred to as the Aircraft Sector Understanding (ASU), this agreement levels the playing field for the U.S. airline industry by eliminating or sharply reducing the official financing subsidies available to its foreign competitors. It also levels the playing field for U.S. manufacturers and exporters of airframes and related equipment. By requiring this financing to reflect a shared assessment of market risk, the ASU will allow aircraft sales campaigns to focus purchase decisions on price and quality, where U.S. producers excel, rather than on the terms and conditions of the financial packages, where subsidies have swayed purchase decisions. By eliminating or sharply reducing subsidies, the ASU encourages more use of market financing. The ASU covers all types of civil aircraft from jumbo jets to small planes and helicopters. In recent years, official financing for aircraft sales have supported deals valued at $7 billion to $10 billion annually, and the volume of financing has been growing rapidly.
In 2008, the Participants commenced a review to update the Nuclear Sector Understanding. The rules for nuclear power plant financing have not been updated since they were first agreed upon in 1984. They have seen little use over this period, either because they are considered too onerous or because of the past unpopularity of nuclear power. However, the recent and growing interest in nuclear power as a cheaper alternative to fossil fuels and one that does not produce greenhouse gases has been the impetus for the OECD to consider moderating the financing terms.
The OECD's current fee system for export credits sets the minimum fee levels to cover country risk for both sovereign and private borrowers. OECD members are free to charge whatever they want above this minimum to cover the buyer risk portion of a transaction for private sector borrowers. However, the nature of government financing has changed over the last decade, such that OECD members now sell their goods predominantly to private sector entities in foreign countries rather than to foreign governments. Because of this, the OECD launched a new initiative in 2008 that would establish a fee system to account for the commercial risk posed by private sector buyers. The Participants have asked the Working Group of Experts on Premium to report their progress by November 2009.
The Investment Committee of the OECD is the primary multilateral forum for addressing international investment issues. The Committee's discussions and analytical work help build international consensus on key emerging policy challenges with respect to international investment and on ways to promote sound investment policy and high standards of investment protection. The Committee also seeks to promote voluntary adherence by multinational enterprises to sound business practices. The Committee is responsible for monitoring and implementing the OECD Codes of Liberalization and the OECD Declaration on International Investment and Multinational Enterprises. The United States plays a major role in shaping investment-related work within the OECD.
In view of recent developments among members and key non-members regarding maintaining national security or protecting other important national interests in relation to foreign investment, the OECD Investment Committee continued work in 2008 on surveying practices in this area and evaluating their implications for sustaining and promoting an open investment policy among OECD members and nonmembers.
In March, October, and December 2008, the Committee hosted roundtables on "Freedom of Investment, National Security and 'Strategic' Sectors," in which OECD members and key non-members (e.g., Brazil, India, Russia, and China) continued to discuss approaches being taken to address national security interests and other essential interests and their potential implications for sustaining open investment policies. The roundtables focused on changes to legislative and regulatory practices at the juncture of investment policy and national security, threats to advances in investment liberalization, such as emerging protectionist pressures, and possible steps on international cooperation designed to address the issues.
The OECD has finished Phase One of the work, in which members and key non-members took stock of the state of investment policy and national security practices, discussed issues arising from the stocktaking portion of the work and is now looking to 2009 when the Secretariat will release a final report on the Freedom of Investment project. In the context of the project, the OECD has begun a discussion of the emerging issue of sovereign wealth funds (SWFs) in the global economy. The focus of the Committee's work is possible policy implications of SWF investment and sovereign investment generally and appropriate policies to address any concerns consistent with the imperative of maintaining open investment regimes.
In April 2008, the OECD published an Investment Committee report on "Sovereign Wealth Funds and Recipient Country Policies." This report draws on the broadly accepted principles identified by the OECD - non-discrimination, transparency, predictability, proportionality, and accountability - that characterize open investment policies and are guideposts against which countries that receive SWF investments can measure their inward investment policies. The OECD formally endorsed the report at its June ministerial. In addition to this report, the OECD Investment Committee will institutionalize regularly scheduled "peer monitoring" of the investment policies of its members and certain key non-members (such as China, Russia, and India) to continue to press countries to maintain open investment regimes.
In 2008, the OECD continued its investment policy dialogue with non-members. The Middle East-North Africa Initiative (MENA), which aims to mobilize private investment for the benefit of economic development in Middle Eastern countries, continued to hold ministerial forums designed to consolidate advances from previous meetings and begin a new phase of cooperation on investment and governance policies. During this time, the MENA initiative, which will extend until 2010, began a second phase focused on a peer-learning process, the establishment of regional knowledge networks for policy development, public governance, capacity building, and the establishment of benchmarks for reform targets.
The OECD continued in 2008 to promote the Policy Framework for Investment (PFI). Developed within the past three years, the PFI is a comprehensive diagnostic tool - covering 10 broad policy areas ranging from investment to trade, competition and corporate governance - designed for use in attracting and retaining foreign and domestic investment. Work on the PFI in Vietnam continued throughout 2008, based on a schedule mutually developed by the OECD and the government of Vietnam, and other countries have expressed an interest in using the PFI, based on Vietnam's experience.
Finally, the Investment Committee continued to play an active role in 2008 in promoting corporate social responsibility through its oversight of the voluntary OECD Guidelines for Multinational Enterprises. The Committee also continues to serve as a forum for exchanges of experience on the Guidelines among national contact points (NCPs) as a source of clarification with respect to the Guidelines. It further serves as a source of guidance in addressing the role of NCPs in promoting the Guidelines and in assisting firms in the resolution of issues that arise between them and others regarding their activities in relation to the Guidelines.
The United States supported efforts by the OECD Secretariat to review policies related to trade in inputs to steelmaking, including government restrictions on exports of raw materials. A number of non-OECD steelmaking countries, including India, China, and Russia, have been active in the OECD steel activities. In addition, work of the OECD Steel Committee continued to examine issues related to subsidies and capacity in the steel sector, as well as issues related to the challenges posed to the global steel industry by climate change mitigation policies
Since 1998, the OECD Trade Committee has contributed to OECD work on domestic regulatory governance with country reviews of regulatory reform efforts. The United States has supported this work on the grounds that targeted regulatory reforms (e.g., those aimed at increasing transparency) can benefit domestic and foreign stakeholders alike by improving the quality of regulation and enhancing market openness. Main areas of work on regulatory policy have included cutting red tape, policy principles, regulatory performance, regulatory tools, country reports, and outreach to non-members.
The Trade Committee's work on regulatory reform has two aspects: country reviews and product standards. In conducting country reviews, the Committee evaluates regulatory reform efforts in light of six principles of market openness: transparency and openness of decision-making; non-discrimination; avoidance of unnecessary trade restrictions; use of internationally harmonized measures, where available and appropriate; recognition of the equivalence of other countries' procedures for conformity assessment, where appropriate; and application of competition principles. It examines the mutually reinforcing relationship between trade, investment, and competition policies and promotes the substantial gains for developing countries in higher trade flows and income per capita through market and regulatory reform.
In 2008, the Trade Committee carried out in-depth member country analyses, focused on identifying regulatory processes, tools, and policies, adopted in order to support market openness and improve trade and investment opportunities. The report, "Brazil - Strengthening Governance for Growth," advocated the following: improved coordination between ministries, agencies, regulatory institutions and levels of government in the energy, telecommunications, and transport sectors; putting in place a system to assess the economic and social impact of new laws, with formal consultation processes; strengthening the accountability of regulatory agencies towards the public; and streamlining the appeals processes to reduce delays and increase certainty for investors.
The OECD Anti-Bribery Convention: Deterring Bribery of Foreign Public
The OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions entered into force in February 1999. The Convention was adopted by the then 29 members of the OECD and 5 non-members. The non-members were Argentina, Brazil, Chile, Bulgaria, and Slovakia (now an OECD member). The three parties to accede to the Anti-Bribery Convention most recently are Estonia (2004), South Africa (2007), and Israel (2008).
The Convention and the related 1997 Revised Recommendation on Combating Bribery in International Business Transactions require parties to criminalize the bribery of foreign public officials in executive, legislative, and judicial branches; impose dissuasive penalties on those who offer, promise, or pay bribes; end the practice of some OECD member countries of allowing tax deductibility of foreign bribes; and implement adequate accounting procedures to make it harder to hide illegal payments.
Prior to the entry into force of the Convention, the United States was alone in criminalizing the bribery of foreign public officials. As a result, U.S. firms were believed to have lost international contracts with an estimated value of billions of dollars every year due to non-U.S. firms' bribery payments to corrupt officials. Such payments also distort investment and procurement decisions in developing countries, undermine the rule of law, and create an unpredictable environment for business. These consequences can be particularly damaging in developing countries.
By the end of 2008, all parties to the Convention but Israel had undergone a review of their respective national legislation implementing the Convention (i.e., Phase One review) and 36 countries had completed the second phase (i.e., Phase Two) of peer monitoring - the evaluation of enforcement. Information on these reviews is available at http://www.export.gov/tcc and http://www.oecd.org. The Working Group on Bribery, which meets four times a year to monitor implementation of the Convention, agreed in March 2008 to begin permanent peer reviews on a four-year cycle, to begin in 2009, in chronological order, according to the date on which each country's Phase Two review was concluded.
The OECD Working Group on Bribery has begun a review of OECD anti-bribery instruments, covering issues related to the criminalization of the bribery of foreign public officials in international business transactions and detection/prevention of such bribery. The Working Group on Bribery is consulting stakeholders and partners for their views on what steps might need to be taken to strengthen the effectiveness of the anti-bribery instruments, based on major issues that have arisen in the course of monitoring implementation of those instruments since their adoption ten years ago.