Opening Remarks by Angel Gurría, OECD Secretary-General
Paris, 29 May 2013
Director General Lamy, Cher Pascal
Ladies and gentlemen,
After a marked slowdown in late 2012, the global economy is on the mend, but the recovery remains uneven and extremely slow by historical standards: 5 years after the start of the crisis, the output gap remains larger than in any past episode of crisis since the oil shocks of the 70’s. The increase in global trade volumes remains below its pre-crisis trend: world trade growth fell to 2% in 2012 — down from 5% in 2011, and is expected to remain sluggish in 2013 at around 3%. Global foreign direct investment (FDI) flows are still some 23 per cent below their 2007 peak.
Meanwhile, the WTO Doha Development Agenda (DDA) remains deadlocked and many governments are shifting attention from multilateral to regional trade arrangements. And with high unemployment and slower growth, the threat of protectionism looms ever larger.
Fortunately, the G20 countries have thus far demonstrated – notably through the standstill agreement of November 2008 - their willingness to act collectively against any shift towards protectionist measures. Our monitoring reports of G20 trade and investment measures, which we conduct twice a year with the WTO and UNCTAD, show that so far import-restricting measures adopted during the crisis and to date affect less than 3% of world trade.
This does not mean that we should be complacent. Even in the absence of any escalation in overt protectionist actions, new restrictions that are violating the spirit of the G20 standstill agreement are adding to the stock of measures that have been in place since before the crisis. The most recent trade restrictions no longer seem to be aimed at combating the temporary effects of the global crisis, but rather at trying to stimulate domestic recovery through industrial planning, which is an altogether longer-term affair.
It is imperative that governments, and in particular G20 governments, reinforce their commitment to resist protectionism in all forms and engage in further market opening initiatives as an integral part of the structural reform agenda. Further trade opening constitutes a potentially important source of confidence building and economic stimulus for the world as a whole, while at the same time helping to achieve a more inclusive and balanced global economy. This goes pretty much in line with the priorities of the Russian Presidency to the G20.
Structural reform induced by trade opening has been substantial in recent years, and we should continue to reinforce this path. Average industrial tariffs, for example, have been reduced to less than 5% in the EU, US, and Japan and significantly reduced in emerging economies. The result has been more productive economies, rapidly-rising per capita GDP growth and a massive reduction in poverty rates in emerging countries.
Another major structural change is the emergence of regional and global value chains. 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.
We have been working closely with many others, especially the WTO, but also with JETRO, WIOD, USITC, and China, to better understand the dynamics of global value chains and their trade policy implications. With the backing of the Mexican Presidency of the G20, we brought this work to the attention of G20 Trade Ministers – in Puerto Vallarta one year ago – and to G20 Leaders at the Los Cabos Summit. They conveyed their strong interest in this work and asked us to report on progress at the St. Petersburg Summit. This seminar is an important milestone in this process.
A new OECD-WTO Trade in Value Added database has just been released. The TiVA database accounts for trade in intermediates and calculates the contribution of each economy to the global value chain. This challenging recalculation of trade flows is essential to understand the economic consequences of trade for firms and governments.
The TiVA work highlights that success in international markets depends as much on the capacity to import high-quality inputs as on the capacity to export, with over 50% of goods and 70% of services trade in intermediate inputs. Tariffs on intermediate inputs are thus cumulative, and can impose punitive costs on downstream users and eventually final consumers, stifling growth. Let’s be clear, this evidence provides additional ammunition to continue supporting open markets for trade and investment.
To compete globally, firms need to respond quickly to demand, which is not possible when their intermediate inputs suffer unpredictable delays at the border. Trade facilitation measures, including faster and more efficient customs and port procedures, are thus crucial to the smooth operation of supply chains. OECD work estimates that comprehensive implementation of all trade facilitation measures currently being negotiated in the Doha Development Round would reduce total trade costs by 10% in advanced economies and by 13-16% in developing countries. It would also help boosts exports significantly, thus enabling participation in GVCs.
GVCs networks rely on the logistics chain, which requires efficient network infrastructure and complementary services. Trade flows in value-added terms reveal that the value created by services as intermediate inputs represents over 30% of the total value added in manufactured goods, a far more significant share than suggested by gross trade statistics. Liberalisation of services trade would allow for more efficient and higher quality services, enhancing the competitiveness of firms throughout the economy and facilitating global value chains.
Trade policy is a necessary but not sufficient tool to draw the benefits from global value chains for inclusive employment and income growth. Improving the business environment, combined with investments in people, infrastructure and innovation can help draw the benefits from GVCs. Labour market and social policies are important to facilitate adjustment, and are key ingredients in an effective package of complementary policies. Aid for Trade policies also have a role to play, in particular by helping the poorest countries integrate in GVCs.
Ladies and gentlemen, with the emergence of GVCs, the mercantilist approach that views exports as good and imports as bad, and that views market access as a concession to be granted in exchange for access to a partner’s market, is even more clearly counterproductive. In this context, “first movers” in liberalisation can also be the first to gain from specialisation and improve their position on international markets in downstream industries.
Hard evidence may not unlock the stalemate in the negotiations; but it is a useful place to start. I wish the discussions at the G20 level and in seminars like the one we are organising today may shed light so countries continue to support markets for trade and investment. At the OECD, we will continue helping on this effort.