Reply to the report on OECD activities in 1994

17 July 1995

Doc. 7348

1403-27/9/95-17-E

REPORT

in reply to the report on

OECD activities in 1994

(Rapporteur: Mrs DURRIEU,

France, Socialist Group)

Summary

This report will be presented at the enlarged debated of the Assembly on the activities of OECD. It examines the general economic situation in the OECD area and the world, covering the overall outlook for OECD member countries and addressing a number of major economic and social problems confronting them — in particular high unemployment and the new trade agenda following the establishment of the World Trade Organisation.

The report also examines the prospects for further OECD enlargement following Mexico's recent accession to the Organisation, and relations with "Dynamic non-member economies" as well as the countries of central and eastern Europe, the Newly Independent States and the developing countries. Finally, the report discusses the follow-up given to previous resolutions of the enlarged Assembly, and the Organisation's future work.

I. Draft resolution

1. The enlarged Parliamentary Assembly, composed of delegations from OECD and Council of Europe members countries, has examined the activities of OECD in the light of the Organisation's 1994 annual report and the reports by the various Assembly committees concerned.

A. Economic policies and co-operation in related fields

2. In general, OECD member countries are now emerging from a particularly long and severe recession. Growth in the OECD area was 1,2% in 1993 and 2,9% in 1994. It is expected to reach 2,7% in 1995 and remain broadly at this level in 1996, that is at high levels insufficient to reduce significantly unemployment in OECD countries. This growth is slackening somewhat and shows no signs of quickening. Meanwhile, world trade growth accelerated from 3,3% in 1993 to 8,2% in 1994, and is expected to continue on the same path in the years ahead. There are signs of a weakening of growth in some OECD economies and slower growth in trade volumes in 1995. While continued economic growth is necessary for employment creation, it should not be at the expense of social and environmental standards.

3. Inflation in the OECD area was 3,4% in 1993 and 3,9% in 1994. A slight increase to 4,1% is forecast for 1995, with a slight reduction to 3,7% in 1996. Efforts to contain inflation must bear in mind the social consequences of monetary and fiscal policies and the need for appropriate policies to create jobs.

4. Unemployment in the OECD area stood at 8,1% in 1994. A reduction to 7,9% is expected in 1995, with a further reduction to 7,6% in 1996. Unemployment remains too high, at unacceptable levels, made worse by an uneven share between certain categories, putting social cohesion at risk. Additional efforts will be required to move closer to full employment and especially to reduce high rates of unemployment among youth and those displaced by rapid economic and technological change.

5. It must be noted that there are considerable differences between OECD member countries. While the recovery seems to be taking hold in most European countries, some other OECD member countries, notably the United States, seem to be experiencing a downturn in their growth cycles, and Japan continues to experience sluggish growth. Levels of unemployment vary considerably among OECD member countries, a sign of the importance of national policies in combating a phenomenon whose causes are increasingly structural as distinct from cyclical in nature. Reducing long-term structural unemployment must therefore become a top national priority of OECD governments as indicated by the commitment stated in the OECD Ministerial communiqué of May 1995.

6. Outside the OECD area, several countries in the former Soviet Union and central and eastern Europe are showing significant economic progress, and the rate of growth in the OECD area is overshadowed by rates in South East Asia. At the same time, other regions, including Sub-Saharan Africa and certain countries in the Asia-Pacific region, continue to experience economic distress and heavy debt burdens. Poverty, environmental degradation and population pressures constitute major challenges for the developing world and for many of the economies in transition.

7. The enlarged Assembly calls on OECD member countries:

i. to fight unemployment by building on the conclusions of the OECD's 1994 Jobs Study and the findings in the ILO's 1995 World Employment Report, and in particular to follow the OECD's recommendations for structural reform of national economies permitting stronger economic growth, for a better trained and more flexible workforce, and for a system of social protection adapted to the challenges of a new economic reality, especially in the field of employment, and which gives greater incentive to work while preserving social justice and cohesion; and by adopting outline legislation on working time with a view to reducing it and making it more flexible.

ii. to use the circumstances of economic recovery to restore balance to public finances, in terms not only of expenditure control but also of achieving equitable taxation systems and considering revenue options for financing needed public services; and, through these combined fiscal efforts, to contain interest rates, to free national savings for more productive investment, and to provide the basis for sustaining long-term growth.

iii. to promote, where appropriate, regulatory reform aimed at structural adjustment;

iv. to respect fully the Uruguay Round agreement and the authority of the World Trade Organisation, especially as regards the orderly settlement of disputes;

v. to maintain the momentum of trade liberalisation as a vehicle for economic growth, including through active preparation for an ambitious World Trade Organisation Ministerial meeting in Singapore in 1996;

vi. to intensify efforts designed to correct major current account imbalances, while submitting any trade dispute for settlement within the World Trade Organisation;

vii. in addition to pursuing sound domestic policies, to take measures to stabilise their currencies by, seeking to reform the international financial institutions — notably the role of the IMF as discussed by the Halifax G-7 Summit — and to strengthen the supervision of liberalised international financial markets, giving consideration to the issue of excessive volatility arising from short-term speculations;

viii. to refrain from unilateral decisions and measures which purport to have other countries, or foreign companies operating abroad, alter their practices to comply with such decisions or measures; parliamentarians do not recognise the legitimacy of measures having an extraterritorial impact on trade and investment flows;

8. The enlarged Assembly also calls on OECD member countries, in their relations with economies in transition and developing countries:

i. to promote the integration of these countries into the world economy, in accordance with the rules and disciplines adopted under the Uruguay Round agreement and the World Trade Organisation, taking efforts to ensure that all countries are able to benefit from rules-based multilateral trade liberalisation, including the least developed and poorest countries;

ii. to raise the level and/or quality of assistance to the developing countries in greatest need, in order to achieve sustainable development and human security on a global basis — giving particular attention to the priorities of poverty reduction, basic human needs, education and health, environmental protection, human rights, democratic development, rule of law, good governance, private sector development, the role of women and a strong civil society.

9. With regard to OECD, the enlarged Assembly:

i. calls on the Organisation to refine further the general conclusions contained in the 1994 Job Study, in order to understand the reasons behind the large differences in unemployment observed among member countries, and to improve the means to combat unemployment;

ii. asks the Organisation to examine the possibility of developing adequate indicators to assess the performance of investment in human capital, as indicated in the Ministerial communiqué of May 1995;

iii. encourages the OECD to examine further the significance, direction and means of reform in regulatory regimes;

iv. invites it to report annually on the action it has taken on the recommendations of the enlarged Assembly;

v. welcomes the recent Ministerial statement of the OECD's Development Assistance Committee, — "Development Partnership in the New Global Context" — and encourages the Organisation to formulate the major principles to guide development co-operation in the next century;

vi. in this context calls on the Organisation to encourage to encourage the reduction of military expenditures in favour of the goals of sustainable development for human security, and to foster the development of innovative international sources of revenue to fund these goals.

vii. asks it to continue its analysis and dialogue on supporting the process of liberalisation of traditional areas of international trade, while pursuing its research into emerging trade policy issues;

viii. encourages the OECD to study the implications of the new world economy for the social protection systems in member countries, in preparation of its 1996 Ministerial Conference on the Role of Social Protection on the Eve of the Third Millennium, in co-operation with the Enlarged Parliamentary Assembly on OECD, and in addition to assess the economic implications of the ageing populations in OECD countries;

ix. welcomes the OECD's important contribution to economic reform in the countries of central and eastern Europe, the Newly Independent States and the economies in transition in Asia, and encourages it to direct particular resources to those countries facing the greatest difficulties;

x. encourages the OECD to explore and formulate issues (such as labour and social standards, protection of the environment, competition and investment) for subsequent negotiation in the World Trade Organisation and the Bretton Woods institutions.

xi. in this regard, welcomes in particular the OECD's commitment to negotiating, by 1997, a Multilateral Agreement on Investment which will be open also to non-member countries;

xii. welcomes the OECD's intensified work to combat bribery and corruption in international transactions, and encourages the Organisation to intensify its co-operation with the Council of Europe in this field;

xiii. notes with satisfaction the follow-up given by the OECD to numerous previous recommendations of the enlarged Assembly, but calls on the Organisation to pay greater attention to others, such as ways of reaching greater international currency stability, the economic and social consequences of reduced military outlays, and to continue to monitor the effects of financial deregulation on the world economy.

xiv. welcomes the Uruguay Round's success in integrating agriculture into the final agreement, and calls on OECD to continue to monitor agricultural policies, markets and trade, in particular those covered in the Uruguay Round so-called "Blue Box";

10. With regard to OECD's membership, the enlarged Assembly:

i. welcomes the OECD's accession negotiations with the Czech Republic, Hungary, Poland, the Slovak Republic and Korea, and hopes they will be successfully concluded in the near future;

ii. notes with satisfaction the OECD's deepening contacts with numerous other non-member countries and hopes that the Organisation will eventually include, or maintain mutually beneficial contact with, all economically advanced democracies;

iii. recalls, however, the importance of ensuring that all OECD member countries subscribe to the principles and obligations which follow membership, especially as regards an open, multilateral system of trade and investment as well as unqualified adherence to the social, political and economic values that have brought OECD's present membership together, and that they preserve the OECD's role as a forum for identifying, examining and tackling economic issues and opportunities;

iv. observes that a considerably enlarged OECD membership would also cause practical difficulties, and asks the Organisation to remain open and selective in its relations with non-member economies, to maintain the tradition of high standards for OECD membership, and to study ways and means of overcoming these difficulties in order to continue to be an effective and efficient organisation for economic co-operation and development, reflecting the realities of the world economy;

B. Agriculture

1. The enlarged Assembly considers that the conclusion of the GATT Uruguay Round provides a new framework for international trade in agricultural commodities. The agreement will also have important consequences for agricultural policy reforms worldwide.

2. The enlarged Assembly believes that agriculture, in addition to its traditional function of food and animal feed production, could increasingly be asked to furnish renewable raw materials for industry and the energy sector.

3. It is of the opinion that modern agriculture can produce quality food products at reasonable prices, fully respecting the environment, given the right conditions for such production. The relationship between agriculture or forestry and the environment must therefore find expression in policy reform. Special attention should, however, be given to biotechnological inventions and their use.

4. The enlarged Assembly is of the opinion that rural development must receive increased attention for a variety of social, cultural, economic and environmental reasons. Agriculture, forestry, fisheries, aquaculture and hunting will continue to be important users of the land area of rural regions and different sectorial policies must acknowledge this fact.

5. The enlarged Assembly considers that the development of agriculture and forestry as part of a broader rural development programme is of vital importance for economic and social stability and progress in the European economies in transition.

6. It is anxious that continued over-fishing will deplete fish resources and lead to major difficulties for fishermen and the fishing industry.

7. For these reasons, the enlarged Assembly requests governments of OECD member countries and, where appropriate, OECD itself:

a. to continue work on the monitoring and outlook of agricultural policies markets and trade;

b. in this context, to analyse the consequences for the agro-food sector and for rural society of the new GATT agreement (effects on farm income, vitality of the agricultural sector, etc);

c. to analyse the development of markets for renewable raw materials for industry and the energy sector;

d. to increase work on agricultural, forestry and fisheries policy reform with the aim of achieving sustainable use of natural resources and to assure acceptance of this principle in other policy areas, such as trade policy;

e. to carefully follow and analyse the consequences of the commercialisation of agricultural and food products derived through modern biotechnology;

f. to give more importance to the work on rural development. This work should in particular focus on policy measures for the strengthening of the economic function, for the economic recognition of the ecologic function and for the fostering of the socio-cultural function of rural areas. Attention should be given to policy reforms for the creation of new employment in rural areas and for the upgrading of traditional employment with a view to attracting young people to the countryside. Decentralisation of decision-making and services could be an important instrument to stimulate rural development;

g. to intensify efforts to assist European economies in transition in the upgrading of their agricultural and forestry sectors, in the development of new markets (local and traditional as well as the opening up of western markets) for agricultural products, and more generally for rural development;

h. to continue and intensify work on economic aspects of fisheries management and in particular on the impact of different management regimes on the vitality, health and competitiveness of the fisheries sector as well as on the socio-economic situation of coastal communities.

C. Environment, Regional Planning and Local Authorities

In keeping with the spirit of Assembly Resolution 1045 (1994) on the energy-environment interface adopted on 4 October 1994, the enlarged Assembly calls on the governments of OECD member countries and OECD itself to:

i. promote a more realistic price policy which takes account of the social and environmental cost of any form of energy;

ii. encourage more rational use of energy by means of energy savings in households and services but above all in industry and transport;

iii. pay special attention to the energy efficiency of fossil fuels and the new cleaner burning techniques which can be applied to them;

iv. devise and implement genuine policies aimed at:

a. promoting techniques for recovering energy from industrial waste;

b. encouraging the use of renewable energy sources;

c. developing alternative energy sources, making them economically viable and using them wherever they can be cost-competitive;

v. consider ways of defining the responsibilities of the more highly developed countries vis-à-vis the poorer countries in respect of the cost of the investment required to carry out recommended environmental protection measures, particularly those relating to:

a. the development of new cleaner burning techniques;

b. the safety of nuclear power stations, and

c. the selection of environmentally-friendly industrial infrastructures and production methods;

and develop a spirit of solidarity in contributing to the financial effort required to protect the global environment.

II. Explanatory memorandum

by Mrs DURRIEU

Contents

Page

I. INTRODUCTION 9

II. THE WORLD ECONOMIC SITUATION, WITH PARTICULAR

EMPHASIS ON THE OECD AREA. GROWTH,

UNEMPLOYMENT, INFLATION AND OTHER FACTORS. 9

III. UNEMPLOYMENT 12

IV. THE NEW WORLD TRADE AGENDA 16

V. THE OECD IN A CHANGING WORLD ECONOMY 18

a. Enlargement and outreach 18

b. Relations with central and east European countries

and the Newly Independent States (NIS) 20

c. Development co-operation 21

VI. CONCLUDING COMMENTS 22

a. Follow-up to previous enlarged Assembly Resolutions 22

b. The OECD of the future 23

I. Introduction

1. The enlarged debate of the Parliamentary Assembly on OECD activities will be held on 28 September 1995. This draft report is based in large part on discussions with members of the OECD Secretariat in April 1995. It has been revised in the light both of the committee deliberations in May 1995 and of the exchange of views the committee had with Mr Jean-Claude Paye, Secretary General of OECD and senior officials of the Organisation, on 26 June 1995, in which a Canadian parliamentary delegation and a delegation from the European Parliament also participated. Finally, it takes into account the OECD ministerial meetings held on 23 and 24 May 1995.

2. It is impossible for the Rapporteur to cover every single one of the numerous activities of the Organisation. The reader is also referred to the 1994 Annual Report of OECD and contributions from other committees dealing with matters within their competence. She will concentrate on present and future activities of OECD, and place them in the wider world economic context. Finally, she expresses her warm thanks to her predecessor as Rapporteur, Mrs Guirado, for all the work she has done in preparing the earlier versions of this report.

3. This report concentrates on four main issues:

— the world economic situation, with particular emphasis on the OECD area;

— unemployment;

— the new international trade agenda;

— OECD in the world economic context, especially as regards the Organisation's future enlargement and relations with non-member countries.

II. The world economic situation,

with particular emphasis on the OECD area,

growth, unemployment, inflation and other factors

4. OECD economies are coming out of what has been an unusually long and severe recession. In some, but by far not all, OECD member countries, recovery has been sufficiently rapid and sustained to bring unemployment down. The projection for the OECD area is for continued steady growth without a revival of inflation as a whole. However, this relatively optimistic outlook will be contingent on countries' following sound, sustainable economic policies. The OECD recommendations can be summed up around the concepts: "price stability", "fiscal consolidation" and "structural reform". We shall return to them in the following chapter, and only note here that the 1995 OECD Ministerial Communiqué committed member governments to "seek sustainable development and non-inflationary growth. A good mix of economic, social and environmental policies, when consistent with budget restraint, will create jobs, bring prosperity and strengthen our societies". Nevertheless, it will probably be less dynamic than at the time of the previous upturn. Whereas early this year OECD was forecasting a 3% growth rate for 1995 and 1996 in OECD countries, its latest forecast has been revised downwards to 2,7%. As for the IMF it is now forecasting 2,5% in 1995 and 2,3% in 1996. It is therefore vital that the countries concerned follow sound, sustainable economic policies.

5. In the United States, following a year when the economy was running close to capacity, the cooling down is sharper and earlier than expected and could deteriorate into recession. OECD's main concern is that the recent tightening of the money supply proves sufficient to ensure a "soft landing". In the United Kingdom, Australia and New Zealand, the recovery is slightly more recent than in the United States, and here OECD hopes for economic policies to be sufficiently strict to ensure continued low inflation. Canada, too, is well advanced in its recovery, although concern in financial markets about the degree of rigour in continued fiscal consolidation has not yet been fully overcome.

6. The economies of Ireland, Denmark and Norway are also expanding strongly, with little inflationary pressure. The situation in Finland and Sweden is, however, showing a certain imbalance, in that the export sector is booming to such an extent as to risk sending inflationary pressure to the rest of the economy. Fiscal consolidation has started in these countries, but in the case of Sweden, it will have to be continued for some considerable time to restore confidence in financial markets. In the majority of the countries in continental Europe, recovery is taking root, with the economies operating relatively far from full capacity. Their growth is less vigorous than had been hoped and is unlikely to exceed 3%. Furthermore, the exchange rate crisis is maintaining dangerous instability, entailing losses of competitiveness, particularly for France and Germany. Inflation is still low, and not likely to pose a problem within the foreseeable future.

7. Japan continues to have relatively low economic growth. Inflation, on the other hand, is virtually non-existent and interest rates low. However, the recent dramatic upward pressure on the yen, in particular, vis-à-vis the dollar, will have adverse implications for economic activity and has increased support for structural reform in Japan. In that respect, the recent deregulation package proposed by the Japanese Government is a step in the right direction.

8. However, low inflation has a price. Unemployment in the OECD area stands at 7,75% this year, down from 8,1% in 1994, and with a continued expected reduction to 7,5% in 1996. Differences are, however, marked between, on the one hand, countries with relatively low unemployment such as the United States (5,75%) and Japan (3%) though this may be viewed as high by Japanese standards and, on the other, European OECD member countries with unemployment reaching on average over 10,5% of the labour force.

9. Even in Europe, however, the picture differs as between countries. In 1996, the United Kingdom's unemployment rate is projected to be 7,5%, Germany's 8,75% and France's 11,5%. Unemployment rates are projected to remain very high in Spain and Finland. It is clear that we shall have to look deeper into these differences to try and explain their origin. Social safety nets in Europe are much more elaborate than in the United States, and it is important that they be maintained, even if they are adapted in order to cope better with the difficult economic situation.

10. On a brighter note world trade registered a healthy 9,8% increase in 1994 (up from 3,3% in 1993) and can be expected, in the wake of the Uruguay Round, to continue similar growth rates in coming years. The two factors which give the greatest hope for the future are precisely the continuation of low inflation in the OECD area (and the world) and the strong increases in world trade. Together they will, must, bring enhanced prosperity to the nations of the world — a prosperity which, if accompanied by strenuous efforts at structural reform, will eventually translate into higher employment.

11. OECD worries, however, about unhealthy public finances in nearly all OECD countries. Even though the general government deficit for the OECD area as a whole is projected to decline as a per cent of GDP (from 4,5% in 1993 to about 3% in 1996), the ratio of gross public debt to GDP should continue to rise (from 70,4% in 1993 to 74% in 1996). In 1996, the debt/GDP ratio may be around 96% in Japan, 120% in Italy, 94% in Canada, 136% in Belgium and 120% in Greece. With public debt expected still to be at around current levels by the year 2000, the leeway for budgetary expansion in order to stimulate the economy will be extremely limited.

12. OECD's 1995 Ministerial Communiqué vowed to "meet the pressing need for fiscal consolidation and sustainable fiscal positions in order to free national savings for more productive investment, and to help address issues such as the emerging demands of our ageing populations as well as our increasing health care requirements".

13. This was echoed at the committee's 26 June meeting with OECD by more than one member. For electoral reasons, politicians tend to find it easier to increase rather than curtail spending. But if public opinion better understands the deficit problem it will become easier to master it.

14. Deregulation of international capital movements, especially in the wake of the Mexican currency crisis. OECD sees general merit in deregulation, but feels it could and should be improved without turning into "re-regulation". It recommends greater transparency and data analysis. However, increased government responsibility for the functioning of banks and other financial institutions is not recommended, the argument being that this could lead to these actors not taking responsibility for their actions. Likewise, a tax on international financial movements as it has been proposed was seen as involving major technical problems of collection and administration. The destabilising effects of international speculation on member states' economic policies should be combated and a more mutually supportive organisation of international markets obtained. The Rapporteur points out that, technical criticism of this tax notwithstanding, it remains a path to explore with a view to achieving that improved organisation. The previously mentioned Ministerial Communiqué reflects the above thinking in recommending member countries to "further promote adequate prudential supervision of banking and non-banking financial institutions and greater transparency in financial markets".

15. As for the recent currency and economic crisis in Mexico, OECD noted there were worrying signs beforehand for those who wanted to see, primarily in the preponderance of short-term debt in the total debt portfolio of the country. Furthermore, the flight to strong currencies such as the German mark, the Japanese yen and the Swiss franc was not provoked solely by the Mexican situation, but influenced also by economic uncertainty elsewhere, such as in Italy and Spain. In other words, the markets attacked the weakest currencies and took refuge in the strongest.

16. Several factors contributed to sharp movements in exchange rates among major currencies earlier this year. Among them, OECD cited changing perceptions about relative economic conditions in the major regions, the acceleration of official reserve diversification by OECD and non-OECD countries out of dollars, the less satisfactory inflation track record in the United States and the deterioration of the US net external position. It was the general belief in OECD that the yen's appreciation would come to an eventual halt, either through enhanced Japanese deregulation or through market realisation that the dollar was undervalued. Meanwhile, the implications of the yen's appreciation on foreign direct investment, exports and foreign debt of South East Asian countries have been quite important. The Ministerial Communiqué, for its part, said that OECD member countries would "continue to cooperate on exchange rates, thereby helping to promote greater stability in financial markets, to preserve the ongoing development, and to contribute to continued expansion of international trade and investment".

17. A later section in this report will deal with the economic situation and prospects in other parts of the world, notably central and eastern Europe and the NIS. Suffice it to say, here, that the majority of the emerging economies in the world not belonging to OECD have been growing since 1990 at significantly higher rates than in most OECD countries. Indeed, the growth in South East Asia and Latin America seem increasingly "decoupled" from that in the OECD area. Surely this must be considered an encouraging sign, for it shows that these economies — with hopefully others to follow — are no longer dependent for their economic development on the traditional industrialised countries. Indeed, they may well form a much needed "engine" for growth in OECD countries in coming years.

III. Unemployment

18. As with previous reports of the enlarged Assembly, the unemployment issue is of central concern. OECD unemployment stood at 34 million in 1994, equivalent to 8,1% of the labour force (8,2% in 1993). In addition, it looks set to remain high over the rest of the decade. OECD medium-term projections suggest it could fall to no more than 7% by the year 2000. This level is too high and unacceptable, all the more so for the fact that, as the Rapporteur has already pointed out, the differences between member states are considerable, and it does not reflect the uneven distribution of unemployment among the categories, some of which are particularly affected, with many falling into the long-term unemployed category, and even into exclusion. The Rapporteur has already pointed to considerable differences between OECD member countries as regards their success in reducing unemployment. These differences would indicate that there are answers, that for example a 12% unemployment rate is not a predicament somehow decided by a higher power, but rather to a large extent a result of national policies. Our countries are exchanging experiences with developing countries as to why certain of the latter have succeeded much better than others. Why could they not do the same with each other on unemployment?

19. Economic growth alone cannot be the complete answer. Given the past performance of many European economies, output needs to grow by more than 2,5% in order to improve unemployment performance. Something more is needed, for much of the present unemployment, especially in Europe, is structural in nature rather than conjunctural.

20. Several members of the committee have pointed to the disturbing fact that if unemployment rises in a recession, it no longer seems to come down significantly, or at all, when the economy picks up. What is wrong, with our policies, or with reality? Are we doomed to witness ever higher unemployment over the years in this way, and to accept the devastating notion "once unemployed, always unemployed"? Surely we must not allow this to be the case.

21. The Parliamentary Assembly of the Council of Europe was also represented at Council of Europe workshops on unemployment and structural reform in Europe. The workshops tried to identify certain of the causes behind the present employment situation in Europe, such as technological developments and the globalisation of the economy. In addition to unemployment it drew attention to increasing "precarious employment", as well as increasing inequalities and poverty and social exclusion. Among the action recommended was the elimination of labour market rigidities and an industrial policy supporting the creation of small and medium-sized enterprises. The Rapporteur regrets that reductions in working hours and the pool of what are known as "locally-based" jobs were not mentioned as possible ways of cutting unemployment.

22. OECD for its part recommends a number of measures, aimed at increasing labour market flexibility; and an evolution from "passive" to "active" labour market policies in order to reach a better match between the qualifications of the workforce and the requirements in jobs offered.

23. OECD's current work programme includes a number of labour market "thematic" reviews exploring the relationship between unemployment and the tax-benefit system, the role of active labour market policies, technology and employment and the interaction between macroeconomic and structural policies.

24. Much of OECD's current work in this field is guided by its major report "The OECD Jobs Study", prepared on the instructions of the 1992 OECD Ministerial Council and finished in the spring of 1994. The Rapporteur strongly recommends the reader to consult this comprehensive research effort on the reasons for and remedies to unemployment, which also exists in a summary report form. It was covered in detail in last year's enlarged Assembly report (Resolution 1046 (1994) and Doc. 7123; Rapporteur: Mr Blœtzer). In brief, the Jobs Study recommends a balanced mix of macroeconomic and structural policies to tackle the unemployment problem. The latter cover a wide range of areas including policies to upgrade skills and competencies, to foster technical innovation and diffusion, and to encourage entrepreneurship as well as more deregulation in labour and product markets. Work to implement the conclusions of the Jobs Study is now in progress, in particular through the preparation of "country notes" and the launching of thematic reviews.

25. Skill is important not only on the factory floor but also in the management suites of big companies. There have been recent examples where global market developments could have, but have not, been detected in time, with major lay-offs of workers as a result.

26. In the context of its examination of the labour market impact of the tax benefit system, OECD draws particular attention to the so-called "unemployment trap" and "poverty trap". The "unemployment trap" results when unemployment and related benefits are in excess of or near the after-tax wage/salary of the person concerned, had he or she been employed. He or she therefore has no incentive to seek renewed employment, and over time becomes less and less adapted to changing professional requirements. The "poverty trap" is related to the "unemployment trap". The "poverty trap" arises when the combined effect of the withdrawal of social welfare benefits and the payment of income taxes and social security contributions on additional earnings mean that a low-wage worker has no incentive to work harder or invest in training.

27. While doubts about the effectiveness of many active labour market policies are one factor accounting for the slow progress made in many OECD countries in shifting resources from passive income support to active measures, the latest recession, which produced a large jump in unemployment, undoubtedly played a major role. When unemployment increases sharply, this puts immediate upward pressure on public spending on income support while governments find it difficult to expand the panoply of effective active measures quickly.

28. A third complication is the "fiscal wedge". Whereas marginal taxation has, in recent years, been lowered for higher incomes, the tax burden on lower incomes has hardly been eased at all. Again, this leads to a situation which hinders the development of jobs requiring little skill.

29. OECD considers that the institutions of social protection need to be reformed in a number of European countries in particular. In the current world economic environment, it says, a number of these programmes impede our economies' capacity to adjust to profound and rapid changes in technology and world competitive pressures.

30. In brief, OECD wishes to see a change in the way we look at social protection. It sees many of our social policies as having their origin in the beginning of this century, with the welfare state being constructed essentially after the second world war. Now, however, the argument goes, we have a new and rapidly changing world economy with profound and rapid technological development. What is more, the globalisation of the world economy pits one country's system of social protection against that of every other.

31. However, OECD does not see the solution as lying in a society which would be lacking in solidarity or social cohesion. This it sees as fundamentally inefficient because of the social tension and the insecurity that would follow. In order to identify a strategy OECD will hold a conference in 1996 on the role of social policies on the eve of the third millennium.

32. OECD also feels that the very meaning of social assistance has changed. If some 30 years ago it was considered a last recourse intended for a small number of the truly needy, today it has become the main means of existence for a large number of long-term unemployed people who are increasingly excluded from the mainstream of economic activity. Furthermore, social assistance as such is getting a bad name among the general public, which is upset at cases of abuse.

33. As regards labour market policies OECD recommends a shift from "passive" to effective "active". OECD believes that it is better to help an unemployed person to find a role in the work place, rather than just ensuring them a guaranteed revenue, preferring "spring boards" to "safety nets". The Rapporteur nevertheless emphasises the need to keep a equitable and advanced social protection system. The burden of unemployment allowances does not seem to be a cause of the economic crisis, but one of its consequences.

34. In brief, OECD believes that labour market policies have failed in certain respects, such as :

— in their choice of objectives. For instance, training programmes for professions for which there is little market demand;

— in not targeting programmes to those people who could draw the greatest benefit from them;

— in paying insufficient attention to the improvement of people's employment prospects;

— in the lack of coherence and effectiveness in delivering programmes by different national, regional and local authorities.

35. OECD research on the effects of active labour market policies reveals that many of these policies do work. For example, programme evaluation from a range of OECD countries have demonstrated that job counselling, motivation and job search assistance schemes have proved to be particularly cost-effective. OECD work also stresses the key role of the public employment service in enhancing the effectiveness of active labour market policies; in order to achieve this objective, the co-ordinating role of the public employment services needs strengthening.

36. OECD's 1995 Ministerial Communiqué resolved to "fight unemployment as a top priority, particularly that of the low-skilled, youth and the long-term unemployed, which can lead to social exclusion; and to enhance income potential, particularly for the low end of the scale".

37. Finally, a few words about education, although this may be dealt with by another Assembly committee. The role of education in OECD's work has been upgraded in the sense that what was formerly an expert committee will now become a Ministerial committee. The Organisation puts great store in "permanent education", with three emphases: basic education; preparation of young people for professional life, stressing general aptitude; and flexibility on the part of the unemployed as far as profession and geography are concerned.

38. An important question is how specialised an education should be which is meant to prepare young people for professional life. If too specialised, what happens if the economy reduces demand for that particular profession? If too general, what about the specialist knowledge that may be required?

39. Another question has to do with apprenticeships, a system well developed in a country like Germany, but less so in many other countries. What should be the role of the government in this field, and what should be the input by the social partners? Themes for the future include work on financing life-long learning, and on education indicators.

40. What, then, about the "delocalisation" argument, that is that multinational companies in OECD countries move especially manufacturing operations to low-wage, non-OECD countries? An OECD study published recently ("Financial Market Trends", June 1995) found that "only 17% of the stock of outward investment by the ten largest outward investors are, on average, in non-OECD countries". Thus, the report concludes, "Rather than a structural shift away from OECD countries, the rising non-OECD share in the early 1990s was at least partly the result of the recession in major OECD countries and the combined effect of economic growth and policy reform outside of the OECD area". In other words, unemployment in the OECD area must have other more fundamental causes than the departure of multinationals.

41. In conclusion and to tie up with the discussion in the previous section, most of the measures to combat unemployment discussed in this chapter are at the "micro" level. For their success, they will depend on appropriate "macro" policies raised in Chapter II, such as structural reform, fiscal consolidation and price stability. In an interesting paragraph of the 1995 OECD Ministerial Communiqué, the Organisation is asked to "effectively integrate macro-economic and micro-economic analyses and policy recommendations, and monitor their implementation". The Rapporteur fervently hopes that OECD succeeds in this task, for it is high time we start seeing both the "forest" and "trees".

42. It seems necessary to obtain better compliance with the rules of international trade within the WTO framework, particularly with a view to putting an end to the restrictions which, in many cases, are tantamount to concealed protection. It is similarly appropriate to take action to put an end to the evident under-valuation of certain currencies, which is tantamount to "monetary dumping". Lastly, it seems desirable to make compliance with social standards covered by international agreements part of the international organisation of labour.

43. It is appropriate to wonder about the consequences of changes in international trade. The global organisation of international trade is based upon the superiority of free trade, a superiority demonstrated by the comparative costs theory. This theory, however, no longer operates today. Firstly because the speed of transport, of information exchanges, of technology transfers and of capital flows now makes it possible to produce any product anywhere. The only difference in terms of costs is now the cost of wages, and the gaps are so wide that the developed countries cannot bear the comparison. Secondly because international trade is no longer regarded as trade between nations, but as being between firms within the framework of the international splitting up of the productive processes. Continued application of the outmoded rules of free trade leads the countries of Europe into a never-ending effort to achieve productivity gains resulting in both reductions in wage costs and unemployment. The price equality inherent in any competitive market will occur at a level unacceptable in the light of the social progress of the European countries. This without benefits for the workers of the third world countries.

44. At the same time, OECD clearly recognises that there is no one solution valid for all countries. For that they are too different. Fundamentally, the Organisation recommends a system where those without employment are not only encouraged financially to look for jobs, but also one where societies are able, through economic growth and entrepreneurship, to supply them.

45. These conclusions reiterate the conventional liberal analysis of OECD. The Rapporteur nevertheless emphasises that other more modern paths should also be explored, including a reduction in working hours and the harmonisation of international standards in order to redefine work profiles so that growth generates large numbers of jobs.

IV. The new world trade agenda

46. Far from wishing to isolate itself from this new world reality, OECD is seeking not only greater contacts with economically important non-member countries, but is also prepared help shape the new international trade agenda.

47. The enlarged Assembly has for some time called on the Organisation to help lay the conceptual foundation for a strategy of world-wide trade liberalisation within the framework of the new World Trade Organisation established as a result of the Uruguay Round, concluded in December 1993.

48. Contrary to what some may think, the establishment of an open and multilateral world trade system is not ensured simply because of the creation of the World Trade Organisation. For a formal institution can sometimes be more easily deadlocked by international conflict than a more informal arrangement such the WTO's predecessor GATT. OECD will have a major mission in providing a forum where its member countries can explore and reach consensus on issues which can subsequently be presented to the WTO for worldwide negotiation.

49. Certain members of the committee stressed, however, that such a team work between OECD and the WTO should not result in any kind of "diktats" by the rich OECD nations to the global WTO community. Surely this is, however, not OECD's intention, apart from the fact that it would not be possible at a time when OECD is the first to recognise how much of the world's economic activity in fact goes on outside its own area. OECD can and should help conceive certain ideas, following which the WTO decides and administers. The 1995 OECD Ministerial Communiqué reflects this thinking when it commits the member countries to "actively pursuing, through the necessary consensus building, the possibilities of new initiatives to reduce in a global and balanced way trade barriers and other trade distorting measures".

50. During the 1986-1993 Uruguay Round negotiations, OECD worked to prepare many of the issues that were later included in the Round, such as services, intellectual property, trade-related investment measures and agriculture. If, as many now predict, the Uruguay Round was the last of its kind, and if future negotiations will be conducted subject by subject in a less formal negotiation setting, then the role of OECD in laying "conceptual foundations" will be even greater.

51. Central to OECD's approach to trade matters is the view that trade policy is now operating in a context of closer interlinkages with other policy areas. Classical trade barriers such as tariffs and quotas — the Uruguay Round signifies a 40% reduction in tariffs, with 44 % of world trade becoming tariff free — will become less of a concern, while national policies which either hinder access by foreign exporters or investors or unduly favour domestic interests will take on a greater importance.

52. If OECD's work on trade and competition policy is progressing, that on trade and investment is close to fruition. At the May 1995 OECD Ministerial meeting, Ministers gave OECD a mandate for the immediate start of negotiations aimed at reaching a Multilateral Agreement on Investment (MAI) by the Ministerial meeting of 1997. This agreement would provide a broad multilateral framework for international investment with high standards for the liberalisation of investment regimes and investment, protection, and with effective dispute settlement procedures. The MAI would be a free-standing international treaty and would be open to accession by non-OECD member countries, which will be consulted as the negotiations progress.

53. OECD has for several years studied the inter-relationship between trade and environmental protection. The work is based on the presumption that trade and environment policies need not be in conflict, but that trade can be pursued without compromising the achievement of sustainable development, which aims to meet the needs of the present generation while enabling future generations to meet theirs. A report presenting the results of extensive analytical work on a wide range of trade and environment issues was presented to OECD Ministers in 1995 and made public. OECD continues to be the only international organisation that brings together both trade and environment experts from governments for this purpose. OECD's trade and environment experts group will continue to hold regular meetings to extend their analyses and try to establish principles that can later guide the WTO.

54. Another important achievement in 1994 was the conclusion of the so-called OECD Agreement Respecting Normal Competitive Conditions in the Commercial Shipbuilding and Repair Industry.

55. Although it is for the Assembly's Committee on Agriculture to deal with agriculture in more detail, I would like to underline that the Uruguay Round's success in integrating agriculture in the final agreement was in no small measure the result of agricultural reforms advocated by OECD ever since a Ministerial Communiqué on the subject in 1987.

56. In brief, the development has been away from price support and towards income support for farmers, which gives rise to less surpluses and exports upsetting world markets. The progressive reductions in price support and export subsidies is firmly defined in the Uruguay Round, and it will be extremely difficult for a country to try to depart from it. The increased emphasis on income support has the further advantage of being more transparent, so that tax-payers can see more clearly how much of their money goes to this particular sector. OECD will hold a Ministerial meeting in 1997 to identify the further challenges in the agro-food sector.

57. Another important issue is the acceptance and respect of world-wide labour standards and OECD's possible role in promoting them within the World Trade Organisation. OECD's position is that, although wider promotion of such standards could be beneficial, it was not the role of OECD to decide whether or not the World Trade Organisation was the proper body to shoulder the principal responsibility for such an object. This topic is highly controversial, both inside and outside OECD. This promotion is a clear a task for the International Labour Organisation. What OECD has been asked to do is an objective analysis of the possible links between trade, employment and internationally recognised labour standards. This exercise is under way.

58. Beyond that, OECD experts seem cautious in adopting a stand on the issue of social standards based principally on moral values. It was argued that lower wages in a country can be seen as part of its competitive advantage vis-à-vis richer nations. Other aspects must also be taken into account: differences in cultural patterns, for instance in the case of young people working with their parents in agriculture. Child or prison labour is clearly a moral concern, but it seems that there are relatively few products on world markets stemming from such practices and hence little justification in using trade sanctions to obtain changes in the laws and practices of the countries concerned. Overall, however, OECD member countries should promote social standards in the world, and help eliminate abusive child and prison labour. At any rate, the committee stresses the importance of labour and social standards, and feels that OECD should deal with the issue.

V. The OECD in a changing world economy

a. Enlargement and outreach

59. With Mexico's joining OECD in 1994, a new era can be said to have begun for the Organisation. For many years before that, OECD had remained the "Club of Twenty-Four" industrialised market economies, so the acceptance of an "emerging" economy such as Mexico also testified to a fundamental change in the world economy.

60. Mexico is, however, only the beginning. OECD has long-standing contacts with the Republic of Korea, which now participates as an observer in most OECD committees. A formal Korean application to join OECD was launched in March 1995, and is expected to lead to membership before the end of 1996. Membership negotiations are also under way with the four "Visegrad countries" the Czech Republic, Hungary, Poland and the Slovak Republic. It is reasonable to expect that several of these countries will join OECD by the middle of 1996. The 1995 OECD Ministerial Communiqué for its part calls on OECD to "bring the accession processes of the Czech Republic, Hungary, Poland, the Slovak Republic and Korea to their conclusion as soon as each of these countries is ready and able to assume all the responsibilities of OECD membership and thereby to participate in its network of disciplines".

61. OECD is steadily developing its contacts with additional non-member countries. Building on the successful Policy Dialogue with Dynamic Non-Member Economies (DNMEs) started in 1989, a "High-Level Informal Meeting" was held in Tokyo in October 1994. The meeting established the broad lines of future relations, including that with certain regional economic organisations. Among the decisions taken, it was agreed that the OECD/DNME Policy Dialogue would be broadened to include China, India and Indonesia on a case-by-case basis, and that high-level meetings would be held on a regular basis in the future.

62. OECD's working contacts go even further. China, meanwhile, the eleventh economic power in the world, will receive the Secretary General of OECD in July 1995, a visit that will examine the scope for mutually beneficial dialogue and co-operation. A wide variety of relationships will also be pursued by means of a forum for dialogue with emerging market economies in Asia, Africa, Europe and Latin America. As endorsed by the OECD Council at Ministerial level in May, the structure to promote this dialogue will provide for a flexible programme of activities that will function in accordance with the principles, objectives and rules of OECD. The committee hopes that the Organisation can contribute to a situation where China, can avoid environmental destruction as it develops and that China will make progress towards the implementation of universal principles of human rights.

63. OECD will doubtless change considerably as and when more countries join. The Organisation is aware that an overly restrictive attitude to enlargement would make it increasingly detached from economic reality, with decisions reached having less and less of an impact as the share of economic activity pursued outside the OECD area steadily expands. It believes that, through this deepening of working contacts at different levels, all participants will benefit whether members or non-members, and increase the Organisation's influence in the world.

64. In fact, the share of current OECD countries' GDP in the world economy is expected to decline from 54% in 1990 to 44% in 2010, with developing countries accounting for 31,9% as opposed to 22,5% today — and the six Dynamic Asian Economies (Hong Kong, Korea, Malaysia, Singapore, Taiwan and Thailand) will alone be responsible for 14,2%.

65. The long-term goal must surely be for OECD eventually to include or have close contacts with all economically advanced democracies in the world. This may not preclude, however, that after the next accessions, the periods of informal contact with candidate countries will be longer, and the criteria for membership more exacting. In addition, with a considerably larger membership OECD will no doubt have to change its working methods, a subject to which we shall return in Chapter VI.

b. Relations with central and east European countries and the Newly Independent States (NIS)

66. We have already noted the good prospects for early membership of the Czech Republic, Hungary, Poland and Slovakia. OECD is developing country specific programmes tailored to the particular situation of Bulgaria, Romania and Slovenia. In addition, the "Declaration of Co-operation" signed in June 1994 between OECD and the Russian Federation is making good progress. The aim is to mark the "firm intention of both parties to deepen their existing active co-operation and policy dialogue" and to "strengthen the ongoing transition process in Russia and to contribute to the full beneficial integration of this major country into the world economy".

67. OECD's vehicle for assisting the countries in transition is its Centre for Co-operation with the Economies in Transition (CCET). It began its activities in 1990, and has a budget of 160 million French francs, representing over 10% of OECD's total budget.

68. The CCET aims at promoting policy dialogue and providing advice on the design and implementation of appropriate policies. Activities within the CCET Programme are divided into three main categories: the General Work Programme, involving two or more transition economies, often with a regional focus; the Partners in Transition (PIT) Programme for the Czech Republic, Hungary, Poland and the Slovak Republic; and the Programme of Technical Assistance to the New Independent States (NIS) of the former Soviet Union.

69. The CCET has four priorities:

— restructuring the enterprise sector, taking into account the implications for labour market and social policies;

— building the legal and institutional framework to support a market-based economy;

— improving statistics, and

— addressing key structural adjustment issues.

70. In addition, and also part of OECD's programme for central and eastern Europe, is the Programme of Support for Improvement in Government and Management (SIGMA). SIGMA is a joint initiative of OECD/CCET and EC/PHARE financed mainly by the European Union's PHARE programme. It is implemented by OECD's Public Management Service. SIGMA at present benefits 11 reforming countries in the region: Albania, Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia. This programme aims at transforming their public institutions, thereby facilitating economic and political transition.

71. OECD's action on behalf of central and eastern Europe and the NIS is of great benefit to both sides. The CCET is pragmatic and flexible in its approach, and tailors its activities to meet the evolving and specific needs of the transition economies.

72. The transition process has proved more difficult, lengthy and costly than was generally expected at the time of the fall of the Berlin wall. However, there is palpable progress in several countries in the region, with growth rates exceeding those of the majority of OECD member countries. Progress in the transition towards a market economy remains uneven between the different countries. Indeed, there is a danger that economic difficulties will threaten the progress of market reforms in some countries. It is particularly important to maintain assistance efforts towards such countries.

c. Development co-operation

73. OECD member countries each year devote over 50 billion dollars to development co-operation with the poorer nations of the world. That assistance is co-ordinated through OECD's Development Assistance Committee (DAC), in which 22 of the 25 member countries participate. The mission of the DAC is to foster co-ordinated, integrated, effective and adequately financed international efforts in support of sustainable economic and social development. The 1995 OECD's Ministerial Communiqué indeed calls on OECD and DAC to "elaborate the strategic orientations for development co-operation into the next century in the light of changing economic, human, environmental and technological conditions".

74. DAC principles for aid can be summed up in a few key concepts. Development programmes must be people-centred and participatory. They must recognise the principal responsibility of the developing country, and emphasise the importance of coherence among the economic, social, political and environmental aspects of sustainable development. These aims are clearly stated in the "DAC Policy Statement on Development Co-operation in the 1990s", and in the "DAC Principles for Effective Aid", and reiterated in very concise form in the DAC Ministerial Statement Development Partnership in the New Global Context, adopted in May 1995. It should be noted that the countries with which DAC is concerned are no longer only the "traditional" developing countries, but also the new recipients of official development assistance and other official aid, for instance in central and eastern Europe as well as in central Asia.

75. OECD sees the end of the Cold War as relieving development co-operation of a wasteful and distracting political competition among countries, and of the accompanying ideological debate about state and market. The globalisation of trade, finance and communications offers unprecedented opportunities for integrating developing countries into the world economy and, more generally, for extending the range of shared interests, values and linkages that could diminish the risk of conflict and facilitate co-operation in areas of common concern.

76. Indeed, OECD's Development Assistance Committee sees the prospect of a historic breakthrough over the next 30 years to diminish poverty, increase the means to satisfy basic needs and maintain a decent standard of living, and have a greater opportunity for all to participate in the political and economic process. The theme of "sustainable development for human security" features prominently in the DAC Annual Report for 1994.

77. DAC believes that, against a background of increased trade and improved market access by developing countries, our vision of development co-operation must contemplate a relatively smaller role for assistance as countries become better able to finance their own development. Aid cannot be more than a catalyst and complement other economic activities and investments to promote development. However, in your Rapporteur's view such assistance is still much needed in the poorest developing countries for human development in particular in the fields of education, health and women's emancipation.

78. Aid resources should be used in combination with greater coherence in trade and other policies in industrialised countries, so as to help developing countries in their efforts to integrate themselves into the global economy. OECD studies estimate that when the trade liberalisation of the Uruguay Round comes into effect in the next decade, the annual benefits will exceed 80 billion dollars. This is more than the total annual amount of development assistance!

79. However, not all members in our committee share this optimistic view. Some of them fear that the Uruguay Round risk to further widen the gap between rich countries and the Less Developed Countries. In this sense, they feel, the Uruguay Round was a mixed blessing to the developing world. Your Rapporteur believes that the effects of the Uruguay Round on the developing countries need to be kept under close surveillance so as to avoid that they undermine the efforts of these countries to rise from poverty.

80. OECD hopes, however, that aid efforts by developed countries will not diminish at the very moment when so much progress is being observed. In order to promote aid efficiency the DAC publishes the peer reviews of Members' programmes, and crystallises today's rationale for aid, the strategies followed, and the overriding commitment to effectiveness in a succinct Statement on "Development Partnerships in a New Global Context", published in May 1995 and subsequently endorsed by the Council of OECD at Ministerial level.

81. An account of OECD's work in the field of development co-operation would not be complete without mentioning its Development Centre, in which the large majority of OECD member countries participate, as do three non-member countries: Argentina, Brazil and Korea. The Centre analyses economic and social development issues of common concern to OECD and developing countries, and formulates practical conclusions and policy recommendations which are the subject of informal dialogues with decision-makers in the countries directly concerned. Development Centre conferences, seminars and workshops on specific topics give individuals from Africa, Asia and Latin America — representatives of the business, financial and academic communities, civil servants and high-level government officials — an opportunity to freely express their views. The Development Centre co-operates closely with the Council of Europe's North-South Centre in Lisbon.

VI. Concluding comments

a. Follow-up to previous enlarged Assembly Resolutions.

82. The enlarged Assembly in past resolutions has asked OECD to take up or deepen its study of certain areas deemed to be of particular importance. The Organisation has followed up several recommendations, for instance, to expand its membership so as to render it more compatible with the global issues it treats; to intensify its search for ways to combat poverty; or to identify the consequences of the globalisation of capital movements.

83. As regards the enlarged Assembly's Resolution 1046 of 1994 the Rapporteur notes with satisfaction OECD's efforts to deepen and differentiate the analyses and recommendations reached in the Jobs Study through country comparisons and country studies. The continued effort to assist the transition countries has already been referred to. As regards the enlarged Assembly's recommendation for OECD to assist the World Trade Organisation in various fields, this is already being implemented with vigour. Finally, the enlarged Assembly's call for a greater linkage of development co-operation with democratic human rights principles is also being met.

84. The committee is glad to see that OECD followed up the enlarged Assembly's recommendation, in its Resolution 1014 (1993), to "examine the question as to whether the world suffers from a shortage of capital, and if so what can be done to remedy this situation". At a conference held in April 1995 by the OECD Forum for the Future on the theme "Future Global Capital Shortages: Fact or Fiction?", it was concluded that action now by OECD governments could play a major role in avoiding the risk that after the year 2005 serious imbalances in saving and investment in OECD countries will spark a rise in real interest rates around the world, jeopardising economic growth for the long-term, and saddling governments with a spiralling debt repayment burden. The conference, which brought together senior finance ministry officials and central bankers, leading private bankers, chief economists from multinational enterprises and eminent academics, said that this risk primarily concerns OECD countries, due to excessive public sector spending, in particular in view of the sharp increase in future years in the share of people aged 65 and over.

85. The committee hopes that OECD will devote even greater attention to the consequences of financial deregulation. The collapse of the Barings bank gave us all food for thought and OECD must, together with other competent organisations, formulate recommendations for governments and the financial community as to how an even more serious event of this kind can be avoided. Finally, our committee, at its June 1995 meeting with OECD raised the prospect of further ratifications of the Council of Europe/OECD Convention on Mutual Administrative Assistance in Tax Matters, to which all Council of Europe and OECD countries can accede in order to combat international tax evasion and economic crime. The OECD's Fiscal Committee will look into the matter, and we hope the Organisation will be able to report new positive developments .

b. The OECD of the future.

86. OECD is not an executive Organisation, nor does it distribute resources. It is an institution which was originally created to help orient the Marshall Plan in post-war Europe, a task which over time was transformed into a more global one.

87. Its task today is to make the economic world in which we are living more understandable to us. This world is changing faster than perhaps at any time in human history. New economic powers appear to compete with the old. The latter have to be on their guard if they do not want to be overtaken. Formerly state-run economies are adopting market principles and joining the world economy. At the same time as the world's most ambitious and complex trade negotiation has been concluded — the Uruguay Round — regional economic groupings are expanding or are forming.

88. OECD has to deal with all these developments, on behalf of its member countries but increasingly also on behalf of the rest of the world. The task of strengthening co-operation among its member countries may more and more be supplemented by that of building bridges with the rest of the world — that is with nations as well as with international fora such as the World Trade Organisation, the International Monetary Fund and the World Bank.

89. The committee sees particular potential in OECD's co-operation with the World Trade Organisation, for the latter risks becoming overburdened with the enormous task of implementing the Uruguay Round. As has been pointed out by OECD, working closely with non-member economies could prepare numerous issues for formal WTO negotiations — for instance in environment and trade, the liberalisation of foreign direct investment, and trade and competition.

Reporting committee: Committee on Economic Affairs and Development.

Budgetary implications for the Assembly: none.

Reference to committee: Standing mandate.

Draft resolution adopted by the Committee on Economic Affairs and Development on 27 September 1995 at its enlarged meeting with delegations from the Parliaments of Australia, Canada, Japan and Mexico and with representatives of the other committees concerned.

Members of the committee: Mr Davis (Chairman), MM. Rodrigues, Ala-Nissilä (Alternate: Paasilinna), Andreoli, Bársony, Behrendt, Benetatos, Billing, Mrs Blattmann, MM. Bloetzer, Bogár, Mrs Burbiené, MM. Buzatu, Caballero (Alternate: Mrs Guirado), Mrs Calner, MM. Cerqueda Gispert (Alternate: Bartumeu-Cassany, Coviello, Demiralp, Mrs Degn, Mrs Durrieu, Mr Fenech, Dame Peggy Fenner, MM. Figel, Goop, Grimsson, Gusenbauer, Jagmetti, Kempinaire, Kiliç, Kirilov, Kiršteins, Kolář, La Russa, Latronico, Le Grand, Leers, Liapis, Malinowski, Mautner-Markhof, McDowell (Alternate: Brennan), Minkov, Muravschi, Novák, Pahor, Pinto, Poppe, Puche (Alternate: Recoder), Radulescu Botica, Rippinger, Schmitz, Sinka, Telgmaa, Townend, Uczkiewicz, Wielowieyski, Valleix, Mrs Verspaget, MM. Wintgens.

Australia: MM. Beahan, Lloyd, Connolly, Tanner, Macdonald, Latham

Canada: MM. Caccia, Perrault, Solomon, Mitchell

Japan: MM. Nakayama, Nakano, Taguchi, Narasaki, Mrs Hironaka

Mexico: MM. Solana, Sales, Nava, Navarro

N.B. The names of those members present at the meeting are printed in italics.

Secretaries to the committee: Mr Torbiörn and Mr Bertozzi.