G20 Trade Ministers Meeting
Session 2: The slowdown in global trade
Remarks by Angel Gurría,
6 October 2015
(As prepared for delivery)
Trade plays an important role in driving economic productivity, investment and growth, and has the potential to create better jobs, increase wages, and improve working conditions. And yet, 2014 marked the third consecutive year in which global trade volumes grew less than 3%, and recent headlines have highlighted the fact that trade further contracted in the second quarter of 2015. The WTO stated just two days ago that the trade growth estimation for 2015 is 2.8%. Global flows of foreign direct investment also remain 40% below their pre-crisis levels. Trade and investment, the twin and complementary engines for reviving the world economy, are lagging behind.
We have had a good discussion yesterday and today – as most of you attended the G20/OECD Global Forum on International Investment (GFII) – about the possible causes of the trade and investment slowdown – whether it is cyclical or structural in nature. The reality is… it’s likely both. This is why the G20 ambition to boost collective GDP growth by at least 2% by 2018 is so important, as are the commitments made in G20 National Growth Strategies to prioritise opening markets and implement accompanying structural reforms.
As our work on measuring trade in value-added has shown, most trade today is in intermediate inputs – over 50% of goods trade and almost 70% of services trade. In this context, it is critical to avoid introducing new forms of protectionism, but also to commit to wind back restrictive measures that prevent firms from importing and exporting.
During the financial and economic crisis, many countries implemented localisation barriers to trade, most of which are still in place. Looking at only 8% of the measures that have been reported, OECD analysis shows that those measures alone have shrunk world imports by 12 billion US dollars, and world exports by 11 billion US dollars. Localisation barriers reduce competitiveness, stifle innovation, raise input costs and cause job losses in industries other than the ones targeted. In the current environment, we cannot afford to take such measures.
Another very practical step the G20 can take to reignite global trade is to reduce the unnecessary costs incurred by traders every time that an import or export crosses a border. The place to start is by implementing the WTO Trade Facilitation Agreement. Several G20 countries have already ratified the TFA, while others are making good progress. Let me recall that the OECD estimates that trade costs could be reduced by up to 17.5% in some countries once measures in the TFA are fully implemented – this represents money directly back into the pockets of businesses, and more efficient trade of goods and services along value chains.
The importance of opening services markets to international competition cannot be understated, given that they generate more than two-thirds of GDP globally, employ most workers in major economies, and create more new jobs than any other sector. The OECD Services trade (STRI) reveals that even modest reforms in regulations that restrict services trade could increase exports considerably, but also lower import prices of goods in some sectors and countries. By the same token, there is ample room for easing restrictions on foreign investment,which is pivotal to creating the production “infrastructure” and capacities underpinning global value chains. For instance, the OECD FDI Regulatory Restrictiveness Index shows that the infrastructure sectors remain specifically closed to foreign investment, more than the rest of the economy. Competition in key network industries that are the “backbone services” of the economy – such as telecom, logistics and transport – can significantly enhance the growth potential of the world economy. It should be at the core of G20 structural policy commitments.
As emphasized at the G20/OECD Global Forum on International Investment, trade and investment opening creates major opportunities. But for these benefits to materialize and to be equitably shared within our societies and across countries at all levels of development, a broad range of structural policy reforms accompanying policies is required, including in the areas of skills, education, social protection, as well as infrastructure investment and innovation. This is why the OECD strongly supports G20 efforts to table ambitious commitments in the areas of trade and investment, as part of a G20 broader structural and social reform agenda aimed at achieving strong, balanced and sustainable framework for inclusive growth, jobs, and development.