Christine Lagarde, Minister for the Economy, Industry and Employment of France and Angel Gurría, OECD Secretary-General
05/06/2008 - France had the great privilege of chairing the OECD Ministerial Council Meeting 2008, which focused on the theme: Outreach, Reform and the Economics of Climate Change. Following up on the landmark decision of the MCM 2007, we welcomed for the first time the participation of the candidate countries (Chile, Estonia, Israel, Russian Federation, Slovenia) and the Enhanced Engagement countries (Brazil, India, Indonesia, People’s Republic of China, South Africa) in all sessions at this year’s MCM. In that context, Ministers also welcomed the Report on Accession and the Report on Enhanced Engagement: Towards a Stronger Partnership Between Major Emerging Economies and the OECD. We also benefited from consultations with representatives from business and industry (BIAC), trade unions (TUAC) and civil society more broadly at the OECD Forum.
The Current Economic Situation
Ministers discussed the shocks which have hit the global economy over the past year and how best to respond. They agreed that the overall performance has been better than could be expected but called for continued close policy co-ordination to facilitate the expected upturn. On the financial market front, the situation has improved since March but current credit conditions are restraining investment. Commodity prices have risen tremendously and driven up headline inflation but may not rise further in the near term. Concerning housing markets, continued cooling is expected in most OECD countries. Ministers attributed the OECD countries’ resilience to the headwinds in their economies to their structural reforms and sound macroeconomic policies pursued over recent years.
Ministers also discussed economic developments in the major non-OECD countries, especially their influence on OECD countries, which are part of a relationship that has evolved over time. They recognised that rapid growth in emerging market economies is one factor boosting commodity prices, as well as a welcome source of demand supporting activity in OECD countries. Ministers agreed, therefore, that it is in the interest of all to support healthy emerging economies. Ministers took note of the recent rise in food and commodity prices, and in particular oil prices, and agreed on the need to closely monitor the social and economic impact of such trends.
Ministers were concerned about inflationary pressures and indications that inflationary expectations may be drifting upwards. Ministers agreed that attention needs to be paid to fiscal balances, especially where inflationary pressures persist, and to pursue structural reforms.
The Pursuit of Relevance for a Better World Economy – Strategic Orientations for the OECD
Ministers congratulated the Secretary-General on his strong leadership, as reflected in the report on the Pursuit of Relevance for a Better World Economy. This report underlines the important achievements of the OECD, sets out ways to improve delivery of the best policy alternatives to OECD Members and explores the key challenges to sustainable growth in a medium to long-term perspective. Ministers expressed their strong support for the Organisation to deliver on its challenging tasks.
Ministers welcomed the progress in the Ministerial mandates of previous years. This includes, in particular, the agenda on Enlargement and Enhanced Engagement, the Innovation Strategy and the Political Economy of Reform initiative. They welcomed the efforts pursued by the Organisation to co-ordinate better with other international organisations and encouraged the Secretary-General to move forward in this direction. Enhanced Engagement partners and candidate countries expressed their appreciation for the opportunity to strengthen their links with the OECD.
Ministers showed strong appreciation of the OECD’s positive contributions based on the high-quality policy advice, multi-disciplinary perspectives and peer-learning approaches which make the OECD uniquely placed to expand its engagement with new actors and collectively address key global challenges. They called for the OECD to continue to prioritise and focus on those issues where its comparative advantage could be fully exploited.
Ministers recognised that new challenges continue to emerge to which the OECD will need to adapt and respond. They agreed that the economics of climate change, pressure on resources, inequality and global poverty remain high priorities for the OECD and should be among the themes pursued. Ministers welcomed the reflection on the role of the OECD in the global governance architecture and encouraged the OECD to pursue its vision in this area. The OECD is considered an ideal partner to fill some of the gaps in addressing global challenges. They adopted the Declaration on Policy Coherence for Development. Ministers from Estonia and Slovenia adhered to the Declaration.
The Economics of Climate Change
Ministers recognised that climate change is one of the greatest challenges that the global economy is currently facing and agreed that urgent policy action is needed. Ministers agreed that each country will need to devise its own comprehensive mix of policies, depending on national circumstances. Many Ministers observed that market instruments, including taxes and carbon-trading schemes, financial and tax incentives, removal of subsidies, loan guarantees, and elimination of tariffs on environmental goods and services are key to addressing climate change. These mechanisms must be complemented with other instruments, especially investment in clean technologies, regulatory instruments and standards, and sectoral approaches.
Ministers emphasised the importance of international co-operation in addressing both climate change mitigation and adaptation. Many Ministers stressed that the principle of common but differentiated responsibility and respective capability for addressing climate change is fundamental for achieving an ambitious and affordable international agreement. Some participants stressed the need for financing mechanisms and arrangements to help share the costs of action amongst countries and thus build growing international support for climate change policies. To keep the cost of action low, such mechanisms will have to include all major emitters of greenhouse gases, in terms of both countries and sectors. An effective post-2012 international framework on climate change and the related national policies will need to stimulate innovation and contribute to the development, deployment and diffusion of low-carbon technologies and practices - in particular energy efficiency, carbon capture and storage technologies, renewables and nuclear energy. The diffusion of technologies to developing countries, in particular, needs to be accelerated. The OECD, with at least 20 years’ experience working in this area, can play a significant role in international efforts by providing economic analysis to address climate change. Ministers called on the OECD to continue appropriate work in this area, in collaboration with the IEA and other international organisations. Ministers suggested, variously, that future work could analyse and compare concrete national and international policy options to reduce greenhouse-gas emissions from a wide range of activities; analyse incentives for major emitters to take part in international action, including understanding the impacts of climate change on different regions and sectors, and the benefits and co-benefits of action; assess the impact of alternative policies on competitiveness, carbon leakage, financing, technological development and transfer; consider how policies could provide certainty to private investors and remain flexible at the same time; and analyse the economic costs, benefits and distributive aspects of climate change adaptation and mitigation policies. Many Ministers recognised that OECD analysis is a valuable input to the G8 Summit in Hokkaido, the climate Conference of Parties (COP)14 in Poznan in December 2008 and the COP 15 in Copenhagen in 2009. The recent Development Assistance Committee (DAC) Statement of Progress on Integrating Climate Change Adaptation into Development Co-operation was welcomed.
Political Economy of Reform
The Chair began by presenting the reform strategies she deemed effective in the light of her own experience, emphasising the timetable and simultaneous implementation of reforms. Mexico, Slovenia and Sweden offered lessons on the political economy of fiscal and labour market reforms. In the informal discussions, Ministers found that presenting a balanced “package” of reforms was often helpful in gaining public acceptance and overcoming resistance from special interest groups. They agreed that advisory mechanisms, such as ad hoc commissions, were particularly useful in designing an ambitious reform programme. Ministers highlighted the importance of conveying a clear message speaking directly to citizens, in order to increase understanding of the case for reform. They pointed out that the approach to reform depended on country contexts. In many cases, building broad coalitions transcending political majorities can be instrumental for successful implementation.
They underlined the value they attach to the OECD’s longstanding contributions to the design, implementation and political economy aspects of reform, based on its methods of evidence-based comparative analysis and peer review. Ministers looked to the OECD for continued analysis of the political economy of reform and increased support to governments in their domestic reform processes.
The Multilateral Trading System
Ministers welcomed the timely opportunity provided by the OECD Ministerial Council Meeting for a frank exchange on the state of multilateral trade negotiations and future priorities. Representatives from Argentina; Hong Kong, China; BIS; EFTA; IMF; the World Bank; and the WTO took part in this discussion.
They underlined the need for more open markets for trade in agricultural and industrial goods and services, and called for a swift, ambitious and balanced conclusion to the Doha Round of WTO negotiations. In the current context of economic uncertainty and market turbulence, international trade can make an important contribution to global growth and development, and can help, in the long run, respond to global challenges such as poverty reduction and climate change. It can also help attenuate the problems caused by high food prices by exploiting the potential of markets to balance global supply and demand.
There is a pressing need to deepen and improve understanding of the implications of open markets and international trade, and to build a solid case for further trade liberalisation. In this respect, Ministers called upon the OECD to engage actively in communicating the important contribution that open markets make to improving global growth, security, and prosperity. As tariffs continue to be reduced, non-tariff measures need to be addressed so that domestic objectives can be achieved without creating unnecessary obstacles to international trade. Ministers indicated that they look to the OECD for analysis and advice in this area, and, in particular, endorsed current work aimed at developing an innovative approach to quantifying trade restrictions in the services sector.
Sovereign Wealth Funds (SWFs)
SWFs have become a key player in the new financial landscape. Ministers welcomed the benefits that SWFs bring to home and host countries and agreed that protectionist barriers to foreign investment would hamper growth. They recognized the rapidity by which the OECD has responded to the mandate given by the G7 Finance Ministers and other OECD Members. Ministers praised the Report by the Investment Committee on SWFs and the guidance they give to recipient countries on preserving and expanding an open environment for investments by SWFs while protecting legitimate national security interests. They expressed their support for the work at the IMF on voluntary best practices for SWFs as an essential contribution and welcomed the continuing co-ordination between the OECD and the IMF. Ministers looked forward to future work on freedom of investment by the OECD, including surveillance of national policy developments. They adopted the OECD Declaration on SWFs and Recipient Country Policies and were joined by Ministers from Chile, Estonia and Slovenia, who adhered to the Declaration. This Declaration constitutes another example of the OECD’s capacity to set international standards.
Key Challenges for Growth and Prosperity
Ministers from OECD’s Enhanced Engagement countries, Candidate countries and Member countries discussed the role that the OECD can play in addressing key challenges to growth and prosperity in the world economy. Ministers of Enhanced Engagement countries and Member countries confirmed their resolve to continue to work in partnership in order to develop specific Enhanced Engagement initiatives allowing for a more focused, comprehensive and coherent dialogue and co-operation. The Secretary-General was invited to continue to explore and develop recommendations to Council on how to expand the OECD’s relations with other selected countries and regions of strategic interest, noting with satisfaction the growing interest of countries from South East Asia in OECD activities since their last meeting.
Ministers focused in particular on urgent policy challenges, including food-price inflation and its linkages to broader issues such as alternative fuels, climate change and impacts on distribution of income and growth within economies. They welcome the analysis and recommendations of the OECD work on food prices and the OECD-FAO Agricultural Outlook. Causes and consequences of the recent price hike were discussed and there was broad agreement that the OECD should contribute to developing the right medium and long-term policy responses which need to include the development, agriculture, environment and investment dimensions. They encouraged the OECD to pursue work on the impacts of demography on economic and social performance and competitiveness of countries. They endorsed the need for further efforts to encourage increased investments and productivity growth, particularly in less developed countries, with a view to strengthening the supply side of global agriculture. They also underlined the potential price distorting effects of protectionism and subsidies. They stressed the need for improved information, education and skill development in the field of agriculture. Ministers welcomed further work aimed at continuing to monitor developments in agricultural markets and promote sound international policy responses to address the long-term structural factors driving food prices.
OECD Reform of Financing
The Ministers agreed on a major reform of financing of the OECD that, in the context of its enlargement, will ensure that the Organisation has a solid financial foundation in the long term. This reform will preserve the OECD's influence, relevance and excellence, permit a broader and deeper engagement with major non-Member economies, and allow the OECD to continue to meet emerging priorities. With this agreement, OECD Members have reflected the great importance they attach to the OECD and to the benefits they receive from OECD membership. The Chair expressed her deep appreciation to the leadership of Ambassador Neple from Norway who has skilfully achieved a successful outcome and praised the previous work of Ambassador Smidt from Denmark as well as the Secretariat for their commitment and support.