Remarks by the OECD Secretary-General, delivered at the G20 Trade Ministerial Working Lunch
Sydney, Australia, 19 July 2014
Global Value Chains- GVCs - are today a dominant feature of the global economy. A good produced in the European Union and exported to the United States may include raw materials from China and Australia, and it may use services from Japan and India. Goods and services are no longer produced by a firm in one country and sold to consumers in a second country; production is fragmented around the world and components are traded across borders multiple times.
The income from trade flows within GVCs doubled between 1995 and 2009; in China it increased 6-fold. Income growth means more job growth. In 2008 between 10 and 35% of business sector jobs in G20 countries were engaged in export activities; in the US, for example, one fifth of export related jobs can be attributed to consumers in East and Southeast Asia. Foreign affiliates operating in G20 countries contribute a significant share of the domestic value added in exports – as much as 25% in Russia, for example.
This high and growing level of interconnectedness across all our economies matters a great deal for G20 Trade Ministers: trade can be and should be at the centre of our efforts to stimulate growth. I want to focus on just four points:
1. Inefficient customs and other border procedures impose unnecessary costs on traders every time an import or an export crosses a border – OECD estimates that just a 1% reduction in these trade costs would generate benefits of about 40 billion USD. The WTO Trade Facilitation Agreement reached in Bali offers an immediate opportunity to realise these benefits. G20 Trade Ministers, can demonstrate leadership by acting quickly to implement the Bali Agreement – by being early adopters.
2. Our work on GVCs shows very clearly that firms rely on access to world class inputs in order to increase their productivity growth – in other words, firms in all of your countries are importing in order to be able to export successfully. As illustrated all too well in last month’s WTO-OECD-UNCTAD report on trade and investment protectionism, we must avoid introducing new forms of protectionism; but it is time now to do more, to begin to wind back restrictive measures that prevent firms from importing and exporting. Doing so can stimulate business activity and lead to higher growth and jobs.
3. Our analysis also shows that services sectors play a vital role in well-functioning GVCs; services are not just important contributors to economic growth and jobs in their own right, they also provide essential contributors to competitive manufacturing sectors.
The new OECD Services Trade Restrictiveness Indices allow the world’s major services suppliers, including most though not yet all G20 countries, to benchmark their performance and to identify opportunities to perform better. No G20 country is either the best or the worst in all of the 18 sectors covered by the STRI. We all have something to learn and opportunities to improve on. By being early adopters of good practice services regulations you can stimulate both your manufacturing and your service sector economies, driving growth and creating new job opportunities.
In research provided to the G20 Finance Ministers the IMF, the OECD and WB concluded that an additional 2% GDP growth about the baseline by 2018 was achievable and that most of that – 1.3% was due to services sector reform. This is substantial, the growth strategies as they stand would only deliver 0.9.
4. But participation in GVCs is not automatic and some less developed countries and smaller firms are at risk of being left behind. Even in more developed economies widespread and inclusive growth is not automatic. Effective flanking policies to accompany trade and investment opening are essential. The nature of these policies varies by country, its stage of development, its resource endowments, and so on.
In addition to on-going data development and policy analysis, the OECD is supporting a platform for countries to exchange views and experiences on the policies and practices that work best for them. A number of G20 countries and seven other international organisations already participate actively and I would encourage all of you to join us; we can learn a great deal from each other.
Ministers, trade opening can accelerate our efforts to stimulate growth.
But trade and investment opening alone are insufficient – trade policies need to be embodied in effective structural policies to turn potential opportunities into real gains, and to enable those gains to be widespread across all parts of society. This is why the OECD so strongly supports the Australian G20 Presidency efforts to better reflect trade and investment as essential elements of a strong, balanced and sustainable framework for growth, jobs, and development.
The OECD continues to be committed to working with partner organisations on these important issues in support of your efforts at both national and G20 levels.