Remarks by Angel Gurría, OECD Secretary-General, delivered at the Trade Policy Luncheon Discussion “Standstill in the Doha Round - are bilateral free-trade agreements a way out of the dead-end?”
Berlin, 30 October 2012
Dear State Secretary, dear Pascal, ladies and gentlemen:
Let me start by thanking you, Madame Herkes, for your initiative to bring us together to discuss the benefits of multilateral and bilateral trade agreements and exchange on what could be our future narrative for trade.
It has been almost 11 years since the Doha Development Agenda was launched and a successful conclusion remains elusive. Meanwhile, world trade has changed dramatically with the onset of the global economic crisis and creeping protectionism, evidenced in the regular monitoring of protectionist measures that we do for the G20. At the same time, our economic interdependence is increasing due, in part, to the emergence of global value chains. We need to re-think the role of trade and the tools of trade policy, and to re-invigorate efforts to open markets further.
Attention in Geneva is now moving to negotiate separately one issue on which progress appears feasible: trade facilitation. The benefits of an agreement here are substantial; an OECD study estimates that reducing global trade costs by 1% would increase world-wide income by more than USD 40 billion, 65% of which would accrue to developing countries. It is also the case that lengthy or unreliable export and import times not only reduce trade volumes but also the probability that firms will enter export markets for time-sensitive products.
There are also on-going negotiations within the WTO to conclude an International Services Agreement, but with a reduced number of players. And increasing attention is being focused on concluding regional or bilateral trade agreements. By January 2012, the WTO had received 511 notifications of free trade agreements, while 319 were in force. It is important to ensure that these efforts complement, rather than compete with, multilateral market opening.
I am convinced that increased trade openness, accompanied by appropriate active labour market and social protection policies, is a core component of an effective G20 structural policy response to the current economic challenges. We have repeated this message at the OECD for some time and provided evidence-based recommendations in this regard.
Ambitious market opening in traditionally high support sectors, such as agriculture and manufacturing is required, but it is also essential to open markets for services trade. Services not only provide the bulk of new employment and income in many countries. In areas such as the financial and telecommunications sectors, they also provide vital input for the production of other goods and services. Germany in particular needs to deregulate in some services sectors. It ranks, for example, 22 out of 27 OECD countries in terms of strictness in the professional services sector.
The whole process of producing goods, from raw materials to finished products, is increasingly carried out wherever the necessary skills and materials are available at competitive cost and quality. Advances in information and communications technologies have helped make the emergence of global value chains possible for both goods and services.
I do not have to tell you in Germany, and in particular to the people around this table, that manufactured goods still account for the largest share of international trade (75%). But improvements in technology, standardisation, infrastructure growth and decreasing data transmission costs have all facilitated the sourcing of services from abroad. In particular, “knowledge work” such as data entry or research and consultancy services can easily be carried out via the Internet and e-mail, and through tele- and video-conferencing. Here, Germany has a lot to catch-up in order to be better prepared for a knowledge-based economy.
In effect, the share of services in trade is significantly under-estimated because of measurement difficulties associated with electronic transmissions, and because services are often embedded in physical goods.
Moreover, most trade today is in intermediate inputs – over 50% of global goods trade and over 70% of global services trade. Firms are importing world class inputs in order to improve their productivity and competitiveness, in both domestic and export markets. To put it simply: you need to import in order to export successfully.
Together with the WTO, we have recently launched an initiative to study this phenomenon and distill its policy implications. This is not an academic exercise, and has the potential to affect the political debate and, one would hope, the trade negotiating tactics of countries. While it is common to hear concerns that imports threaten domestic jobs, the reality is that jobs are increasingly created as part of global value chains. Trade flows in value-added terms will indicate where these jobs are created and highlight the benefits of trade for all economies involved in the value chain.
Let me illustrate this with a product such as a motor vehicle. With gross flows of exports, the full value of the car is attributed to the exporting country, let’s say Germany. But it is relatively easy to break this value down into the direct content provided by domestic, in this case around 80%, and foreign suppliers, thus around 20%. But this does not tell the whole story. It doesn't reflect the upstream impact of German suppliers to the motor vehicle industry who may have sourced their components, or parts of them, from abroad. If you look at the value-added content of German motor vehicles by accounting for all of these upstream effects, then a significantly smaller share of the export of the motor car, around 70%, generates value-added in Germany.
When account is taken of the importance of global value chains in world trade, mercantilist-styled “beggar thy neighbor” strategies turn out to be “beggar thyself” miscalculations.
For example, a study of the European shoe industry highlights that shoes “manufactured in Asia” incorporate between 50% and 80% of European Union value-added. In 2006, anti-dumping rights were introduced by the European Commission on shoes imported from China and Vietnam. An analysis in value-added terms would have revealed that the incidence of the anti-dumping rights fell more on EU value-added than on that of its trading partners.
We should not be naïve: we know that hard evidence will not be enough to unlock the negotiations in Geneva. But it is a useful place to start. And if we were to start focusing on the implications of looking at trade in value added terms, then we will begin to better understand why countries are clamoring for free trade areas in the absence of progress in the DDA. Countries want to ensure that their businesses do not miss out on being part of these global value chains.
Ideally, our objective in trade policymaking is to promote initiatives that lower trade costs and reduce discrimination. Such initiatives can deliver better growth and employment outcomes. This was confirmed by the International Collaborative Initiative on Trade and Employment (ICITE), led by the OECD and involving 10 international and regional organizations. Their conclusions are clear: open markets further; protect workers, not jobs. It also means: invest in education and skills training to allow workers to seize newly emerging opportunities, and in robust safety nets to assist those unable to adapt on their own. When such supporting policies are in place, trade-generated growth is more inclusive. As a result, trade and market openness becomes a more potent tool for generating better quality jobs and boosting growth.
Ladies and gentlemen,
Stepping back from the multilateral trading system would leave everyone worse-off. In the current environment of anaemic growth and high unemployment, we are in particularly dire need for vigorous and concerted multilateral efforts to move forward and reduce barriers to economic integration.
OECD will continue to bring to you and to the world our evidence-based analysis and policy options in support of a job-rich and sustainable recovery.
Meeting with Chancellor Merkel and Heads of International Organisations (Berlin, 30th - 31st October 2012)