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Distinguished guests,
Colleagues,
Friends all,
Thank you for the invitation to contribute to this discussion on the rules-based international order and where it is headed.
For many decades post the second world war, our rules-based international order has served us well as a solid foundation for stability, development, growth and increases in incomes and living standards.
However today, the rules-based order is under significant pressure.
Pressures on trading patterns and risk of economic fragmentation as a result of geopolitical tensions and strategic competition have been developing for some time.
The Pandemic further accentuated some of those pressures.
We have a major war in Europe, which is into its third year;
The evolving conflicts in the Middle East;
New strains of protectionism;
There are growing concerns about economic coercion, security of supply and market concentration – including and in particular in the context significantly growing demand for a range of key products required to support the green and digital transformations around the world.
Despite the overall very challenging context, the global economy has shown remarkable resilience.
Growth is set to continue, even if at a more modest pace by historical standards.
Emerging Asia – that is, China, India, Indonesia and dynamic Asian Economies – continues to account for more than half of all global growth.
Global trade, albeit still weak is showing signs of improvements.
Headline and core inflation have continued to decline.
Global financial conditions have begun to ease.
But despite those positive signs, we cannot be complacent.
We need to rebuild trust and confidence in the global trading system.
We must restore the negotiation, rule-making and adjudication functions of the WTO.
We must resist the fragmentation of the global economy into blocks.
There is much we must do, and indeed there is much we can do.
What role can the OECD play?
We need to make the right policy choices to improve medium to long term growth prospects while addressing our shared global challenges.
The need to boost stagnant productivity, including by tackling counterproductive barriers that hold back global trade and investment flows and further innovation.
The need to tackle climate change in a way that is globally effective and fair.
The need for a policy approach to the digital transformation and AI, which ensures the broad diffusion of its benefits and facilitates further innovation, while also providing for the appropriate mitigation and management of evolving risks and disruptions.
The need to respond to the economic, fiscal and social impacts of population ageing.
Well-functioning global markets, a global level playing field and a rules-based trading system in good working order are a key foundation to help us manage all of those challenges.
Our latest Economic Outlook, released on 2 May, shows that trade growth is recovering gradually.
Global trade rose in the fourth quarter of last year, as a result of strong growth in China, Korea and the United States.
Recent high-frequency indicators on merchandise trade and export orders suggest that the recovery of trade is continuing into this year.
But looking ahead, the case for continuing trade liberalisation is no longer being made - certainly not strongly and persuasively enough.
Even though trade liberalisation has delivered sustained increases in incomes and living standards around the world – including Australia, where from 1986 to 2016 it is estimated to have increased GDP permanently by at least 5.4% and increased real wages by at least 7.4%.
Current increases in trade restricting measures will have a negative impact on business activity, on growth, on income convergence and on the costs of the green transition – last year, 11.8% of the value of G20 imports were affected by import restrictions implemented since 2009.
We need to reinvigorate trade liberalisation efforts around the world.
Globalisation, open markets, freer global trade and investment flows, the expansion of global trade have very significantly contributed to increased incomes and living standards around the world, helping to lift hundreds of millions of people out of poverty.
Globalisation and open markets demonstrably drive growth – they promote competition, innovation, productivity growth and efficiency.
More trade and more investment means stronger growth, more jobs, higher incomes and lower costs for consumers.
De-globalisation, decoupling or economic fragmentation would make us all poorer.
It would mean lower growth, fewer jobs, lower incomes and higher costs for consumers and business.
It will mean that we will end up selling fewer goods and services into the global market and be forced to pay more for the goods and services we buy.
It would also cause further supply chain disruptions, leading to overall reductions in economic efficiency.
Yes, we need to make globalisation work better for people.
We need to ensure we have, to the greatest extent possible, a fair global level playing field for trade, with well-functioning global markets based on a rules-based global trading system in good working order.
We need to ensure that everyone has the opportunity to participate in and benefit from the upside of expanding global trade and that the environmental and social implications, and indeed all the risks, are better managed.
But let’s not throw the baby out with the bath water. Improve the way globalisation works for people. Don’t stop or reverse it.
There is nothing wrong with de-risking.
Any business facing risks will assess its risks and develop strategies to better manage those risks.
Excessive concentration of production and supply base or the customer base for that matter increases risk.
So it’s of course appropriate in the context of some of the supply chain disruptions experienced in the wake of COVID and more recently the impact of Russia’s war against Ukraine to assess those risks and seek to address them.
But let’s do so in a sensible and balanced way and without unnecessarily putting at risk the upside benefits that come with expanding global trade.
Helping policymakers to manage these pressures, and to get the balance right, is a key priority for the OECD.
Supporting open trade on a level playing field is a part of our DNA – our predecessor organisation, the Organisation for European Economic Co-operation, was established in the aftermath of the Second World War in 1948 with a mandate that included lifting trade barriers in Europe.
The Organisation helped form a new rules-based international order, grounded in its Members’ shared commitment to the preservation of individual liberty, democracy, the rule of law, the protection of human rights and market-based economic principles.
These values have stood the test of time.
On the strong foundation of those shared values and principles, and on the basis of the data and the evidence, our job at the OECD is to help governments around the world develop and implement better policies for better lives.
In relation to trade, our unique databases provide governments and researchers with granular, product-level trade data to assess concentration in supply chains.
Earlier this year, we published new analysis using this data to identify 50 products that are highly vulnerable to shocks due to limited suppliers and substitutability, ranging from:
- the pharmaceutical sector, for instance certain types of antibiotics,
- to manufacturing, where of course semiconductor concentration is a key concern,
- to mining outputs.
We have also analysed production concentration in the raw material and manufacturing supply chains that are critical for the green transition.
Production of these minerals remains highly concentrated, for example with China producing 87% of magnesium, 62% of graphite and 60% of rare earths.
Upstream, China accounts for 80% of the world’s solar panel manufacturing and 70% of cobalt processing.
The OECD also remains committed to encouraging further progress on trade liberalisation, supporting a more level playing field, generating new opportunities and helping to mitigate the risks of concentration.
And open, well-functioning global market on the strong foundation of rules-based global trade is a key building block of improved economic security.
We can manage potential risks and disruptions in concentrated supply chains without decoupling, without undermining trade as the foundation of our shared prosperity.
There are range of things we need to do, which the OECD is supporting:
First, we continue to strengthen the global rules-based order through the development, promotion and implementation of OECD standards and best practices across a broad range of policy areas.
This important area of our work is focused on facilitating economic co-operation and ensuring fair competition.
The OECD has a comprehensive global relations strategy to promote the adoption of OECD standards and best practices globally.
Accession to the OECD is the most direct way to achieve adherence to OECD standards and best practices.
There continues to be strong interest from key countries around the world to join the OECD and hence to commit themselves to alignment with our standards and best practices.
Earlier this year the OECD Council made the historic decision to commence accession discussions with Indonesia.
Hot of the press, earlier this week, our Council has also just made the decision to commence accession discussions with Thailand.
This means the biggest and second biggest economies in Southeast Asia, the most dynamic growth region of the world, are now engaged in a process of alignment with OECD standards and best practices as a means to anchor their reform agenda towards becoming advanced economies.
Indonesia and Thailand are joining Argentina, Brazil and Peru from Latin America and Bulgaria, Croatia and Romania as EU countries as current accession candidate countries.
Indonesia and Thailand engaged in this process will have a beneficial impact on the rules-based order across their region and beyond.
This is also important for trade liberalisation efforts
For example, our Services Trade Restrictiveness Index helps identify opportunities for further services trade liberalisation for some of Australia’s key trading partners, including Indonesia and Thailand, which at this point remain much more restrictive than the OECD average.
Second, helping build capacity to identify and anticipate risks.
Our “Keys to Resilient Supply Chains” policy toolkit provides practical advice to policymakers on risk assessment, as well as managing those risks.
One critical element is close co-ordination between governments and the businesses that are active in these supply chains, which can help businesses identify new diversification opportunities, and help government identify regulatory obstacles to diversification.
We are also helping policymakers share best practices with risk management in our Supply Chain Interdependency Network and the OECD Forum on Critical Supply Chains.
Through our Trade Committee, we have also collected experiences on economic coercion, its broader impacts, and how to manage it, from jurisdictions including Australia, Lithuania, Japan and Moldova to support the identification of best practices.
And we are supporting dialogue focused on the particular challenges of complex supply chains.
For example, our Semiconductor Informal Exchange Network, which Australia actively participates in, helps enhance transparency on semiconductor production data and semiconductor policies, bringing together government, labour, civil society and business representatives.
Third, helping countries enable further investment to increase production in key supply chains, including by improving infrastructure and tackling regulatory burdens.
Supply chain diversification can be a powerful force for growth and development around the world – countries such as Mexico, Thailand and Viet Nam have seen their exports rise as direct trade between China and the United States has fallen.
The right policy environment is essential to make the most of these opportunities, and ensure shifting trade patterns do not weigh on global growth.
We are, for example, undertaking studies with Costa Rica, Indonesia, Mexico, Panama, the Philippines and Viet Nam to identify bottlenecks in local semiconductor supply chains.
These studies provide targeted advice on ensuring an enabling environment for semiconductor manufacturing, including regulatory frameworks, skills strategies and policies to enhance diversification of input sources.
More broadly, we are helping countries address barriers to the trade in services, which are a key input for expanding production in a broad range of industries, including manufacturing and mineral production.
The OECD’s Services Trade Restrictiveness Index shows Australia as performing very well, as the 9th least restrictive out of 50 countries covered.
However, barriers in key enabling sectors such as transportation or information technology are on the rise in key jurisdictions such as Indonesia and Viet Nam, which risk holding back development and growth.
I am confident that the OECD accession process will have beneficial impacts across Southeast Asia more broadly, beyond accession candidate countries Indonesia and Thailand.
Infrastructure is another key enabler of scaling up production.
We will be hosting the Secretariat for the Blue Dot Network, the world’s first certification framework for quality infrastructure projects.
The Network provides a voluntary, private-sector-focused and government-supported certification scheme for infrastructure projects.
Blue Dot Network certifications will be a powerful tool, supporting countries to attract critical infrastructure finance, and providing businesses with an internationally-recognised way to meet investor and customer expectations on sustainability.
Fourth, providing objective data and analysis to support trade liberalisation, including by supporting discussions at the WTO.
By improving subsidy transparency across agriculture, fisheries, fossil fuels and industrial sectors, our data provides a sound evidence base for further progress in negotiations on subsidies.
Our analysis supported the renewal of the e-commerce Moratorium secured at this year’s Thirteenth WTO Ministerial Conference, to support continued growth in digital trade.
We are also tracking export restrictions in key areas such as critical minerals, where the number of restrictions has increased more than five-fold in the last decade.
Because Australia does not impose any such restrictions, it has a particularly important role as a source of secure and reliable supply of these minerals going forward.
Fifth, helping countries implement sound foreign investment controls that address national security concerns without undermining market functioning and business certainty.
The OECD’s data suggests foreign investment restrictions have been on the rise since 2008.
When well-designed, they can be a valuable tool to address risks, such as non-market-based investments in critical infrastructure or advanced technology, which are coming into greater focus on light of growing geopolitical tensions.
However, arbitrary, opaque and politicised processes can undermine certainty and limit beneficial foreign investment at a time when it is much-needed to support jobs, innovation and new infrastructure.
The OECD’s “Recommendation on Guidelines for Recipient Country Investment Policies relating to National Security” sets out key principles to balance openness with necessary risk mitigation, including non-discrimination, transparency, predictability, proportionality and accountability.
Sixth, helping governments design sound industrial policies.
A growing set of countries across the OECD are adopting industrial policies in order to boost growth, employment, and resilience, address key trading dependencies and enable the digital and green transformations – from the semiconductor strategies in the EU and the US, to the “GX” green transformation strategy in Japan.
For these initiatives to be as effective as they can be, and as we need them to be, it is essential that they leverage, rather than undermine, well-functioning markets.
We cannot afford to engage in a subsidy race.
Rather, we need well-targeted investments focused on generating knowledge spillovers, and tackling well-defined market failures.
Towards this, we’ve compiled evidence on industrial policy interventions to help identify what works and what doesn’t.
Our analysis shows that the right foundational policies, like effective competition policy and low trading barriers, are key.
Research and development tax credits and subsidies have been shown to be effective in stimulating innovation, but when it comes to targeted grants provided directly to businesses, these should be focused on young and small firms to maximise impacts.
For larger, better established firms, public loans or guarantees can be more effective, particularly to help de-risk investments that are likely to generate significant public returns.
The OECD’s Recommendation on Competitive Neutrality also provides guidance for governments that can shape their industrial strategies so as to avoid disrupting a level playing field, as well as a framework for thinking about sources of disruptions from distortionary conduct in other jurisdictions.
Seventh, on enhancing the social and environmental sustainability of trade and investment.
Making trade work better for people is a matter of economic security.
As we seek to expand and diversify global supply chains, we need businesses to conduct due diligence on those supply chains to manage potential negative impacts – from respect for labour rights to addressing risks of corruption and pollution.
This is essential to ensure that investments are compatible with our values and broader policy objectives, to protect a social license to operate, and to strengthen relationships with the countries that will play an increasingly important role in the shifting configuration of global supply chains.
The OECD’s standards and tools on Responsible Business Conduct, help create a level-playing field for responsible businesses, while providing guidance on ensuring due diligence is risk-based and proportionate.
This helps avoid counterproductive divestment in developing countries.
We updated our Guidelines for Multinational Enterprises last year, to provide businesses with strategies to enhance the credibility, comparability and tracking of businesses’ net zero transition commitments, the responsible deployment of AI technologies, and preventing improper political involvement such as influencing policies with misleading data.
Finally – we need ambitious action on climate change, which is globally as effective as we need it to be and which is as global trade friendly as possible.
It is global trade friendly climate action, climate action that benefits from open markets with strong trade and investment flows, that will help us keep the costs of the transition down.
With a diversity of approaches to carbon mitigation around the world, there are significant risks of negative cross-border spillover effects as a result of insufficiently well co-ordinated action across individual jurisdictions around the world.
Negative spillover risks like carbon leakage, trade tensions triggered by climate protectionism.
When what we need is to identify and seize all possible opportunities of positive cross-border spillovers, ensuring that all countries can benefit from the latest innovations and cost gains, and that in a global market all countries can make their best contribution based on their specific opportunities to achieving the global objective of carbon neutrality.
For this purpose, at the OECD we have established the Inclusive Forum on carbon mitigation approaches – which has now 59 Members from around the world, including 14 G20 economies.
It is designed to help optimise the global emissions reduction impact of efforts around the world through comprehensive and systematic data and information sharing about carbon mitigation approaches around the world;
Through evidence based mutual learning on what works best;
And by providing a platform for inclusive multilateral dialogue on how to best achieve our global climate objectives while avoiding counterproductive climate policy related trade disputes.
The bottom line is that open well function markets will help us keep the cost of the climate transition lower and more affordable than it would be in a climate protectionist environment.
In closing,
The sustainable expansion of global trade and investment remains one of the most important drivers of further economic development and growth and increases in incomes and living standards – including and especially for developing and emerging economies around the world.
We have a shared interest in supporting and strengthening it.
This is a core motivating principle of the OECD’s global engagement beyond our membership.
We continue to broaden the reach of our standards and best practices, including on trade, to enhance their effectiveness, and provide a globally better co-ordinated policy environment for businesses and investment.
The Indo-Pacific remains a key priority region for these efforts, given it is an increasingly important centre of global growth, trade and population, and given the region’s central role in helping address shared global challenges.
We work with like-minded countries across Asia who share concerns with our Members about economic coercion and security, and who are deeply committed to further alignment with OECD standards, like Indonesia, the largest economy in Southeast Asia and the world’s third largest democracy, which has embarked on the OECD Accession Process.
We also continue pursue productive engagement with other countries in the region that have differing views, focusing on opportunities for mutually beneficial dialogue and co-operation on an equal footing – we cannot make progress on climate change, or boosting global growth and development, without them.
This allows me to close on an optimistic note.
Trade is the foundation of our shared prosperity.
Nowhere is this more clear than in Australia.
Let’s continue to reach out to the many willing partners across the world, so that we can optimise the transitions underway in our economies and societies, make trade work better, and use sound, evidence-based strategies to strengthen our economic security, without compromising opportunity and prosperity.
Thank you.
Working with over 100 countries, the OECD is a global policy forum that promotes policies to preserve individual liberty and improve the economic and social well-being of people around the world.