Remarks by Angel Gurría
17 June 2016
Washington DC, United States
Dear Distinguished Guests, Ladies and Gentlemen,
Thank you for your welcome, and thank you to the Washington International Trade Association for hosting today’s event. The OECD is a longstanding advocate of open markets. I am delighted to be among so many ‘‘friends of trade’’ to share the OECD’s latest data, analysis and reflections on developments in the global trade landscape.
The benefits of trade are clear
Let me start with a few facts.
The benefits of international trade are clear.
International trade is in trouble
But international trade is in trouble! Trade as a driver of growth is slowing. In 2015, exports and imports in G20 countries fell by 11% and 13% in value terms, respectively. And things are not looking much better this year. For the first quarter of 2016, both exports and imports fell by around 4% – the seventh consecutive quarter in which both have declined. Adjusted for prices, world trade growth is not keeping up with GDP. We are experiencing the longest period of stagnation in the ratio of world trade to GDP in 70 years!
Some of this slowdown is cyclical, caused by lacklustre growth and steep falls in commodity prices. But structural factors are also at work, including maturing Global Value Chains; weak global investment, a key engine of trade; and shifts in major emerging economies, notably China.
The accumulation of new trade restrictive measures introduced over the past eight years is also weighing heavily on trade flows. And rapid advances in technology have catalysed new constraints to trade in the form of measures restricting the flow of data across borders. The threat of protectionism is looming large, especially the murky, behind the border type.
Trade is also facing strong headwinds from a sceptical public. The benefits of open markets tend to be longer-term and more diffused. But closed factories and lost jobs – whether they are due to trade or other factors like technological change – are felt immediately, and locally. The public debate can be frustratingly short-sighted, and risks raising support for protectionist measures.
Policy responses to boost trade
As friends of trade, what can we do?
Encouraging implementation of the WTO Trade Facilitation Agreement (TFA) is a step in the right direction. OECD analysis estimates that the TFA could cut trade costs from between 10% to over 17%, depending on a country’s level of development – with the greatest gains accruing to poorer countries. We should also step-up our collective pressure for governments to ratify and implement the expanded Information Technology Agreement; and push for the expedient conclusion of TISA and Environmental Goods Agreement negotiations.
The Trans-Pacific Partnership (TPP) offers another important opportunity to boost market opening and growth. The rapid advancement of agreements like TPP and others on environmental goods and information technology is essential if the international architecture is to catch up with new technologies and business models emerging from the digital economy. And these emerging areas also call for strengthened international regulatory co operation.
Above all, we must turn the tide of public scepticism on the benefits of trade. This is not just about myth busting facts. It goes deeper, it’s about providing adequate support for those adversely affected by trade. An unemployed steel worker does not take much comfort from knowing that programmers in Silicon Valley are thriving, or that T-shirts and smartphones are cheaper. What he or she needs is a decent job, new training and skills, and a robust social safety net to help through the transition. He or she may even need assistance moving to a region where jobs are available. The OECD’s 2016 Economic Survey of the United States, launched yesterday, includes recommendations on helping displaced workers get back to work.
To stop the populist appeal of protectionism in its tracks we also have to ensure people understand the current global context. Most trade today is in intermediates ─ firms are importing world class goods and services to add value, improve productivity and increase competitiveness, which they then sell in domestic and export markets. People have to understand that a tax on imports is like a tax on the most competitive firms and on exports! Policies that restrict access to foreign sources of intermediate goods and services are more likely to produce firm closures and job losses – the very outcomes they were designed to prevent.
This is borne out by the data. Almost 10% of US jobs depend on exports, half of which are with firms that are indirect exporters. A large share of those jobs is in services, many of which are embodied in manufactured goods. Our work shows that more than half of the value added of manufactures exports comes from the service sector. People have to understand that most trade is trade in products that are used to produce other products. As friends of trade, we have to make this message clearer!
The OECD’s role
The OECD is helping governments in these endeavours.
Our work on Global Value Chains is helping understand the effect of globalisation on trade. In particular the joint OECD – WTO Trade in Value-Added (TiVA) initiative addresses the value added by each country in the production of goods and services that are consumed worldwide. We are also developing an approach that integrates FDI flows into the TiVA framework, which will shed light on the trade-investment nexus.
Our Services Trade Restrictiveness Index supports global trade by identifying which policy measures restrict trade, and providing governments, policymakers, and negotiators with the information they need to open up trade, negotiate agreements and focus domestic reform efforts on priority sectors.
We work with the WTO to track aid-for-trade flows and share good practice so that developing countries can capitalise on the opportunities of international trade. We are also supporting the G20’s push to achieve higher growth through structural reforms, with an emphasis on trade. We are reflecting on how best to reconcile “openness” in the digital economy with demands for security and privacy, high on the agenda at the OECD Digital Economy Ministerial in Mexico later this month.
We are showing how services and manufacturing are intertwined and increasingly inseparable, how economies depend on imports to be competitive exporters, and how international trade and investment affect the nature and mix of jobs in our economies. We are showing how murky protectionism is depriving economies of much-needed productivity growth and jobs. And we are providing the evidence base that will enable governments to identify priority areas for reform across services, trade facilitation, and agriculture.
Ladies and Gentlemen,
The facts speak for themselves. The OECD has shown time and time again that trade openness, complemented by the right regulatory framework, by the right skills, education, labour and environmental policies, is essential in delivering the inclusive growth that our economies and our people so sorely need.