OECD activities in 1995

OECD activities in 1995

Doc. 7615

9 July 1996

Report

Rapporteur: Mr LEERS, Netherlands, Group of the European People's Party

Summary

This report will be presented at the enlarged debate 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 in certain countries and the new trade agenda following the establishment of the World Trade Organisation and prior to the WTO ministerial meeting in late 1996.
The report also examines the prospects for further OECD enlargement following the recent accession of the Czech Republic and Hungary 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 orientation under its new Secretary General.

I. Preliminary draft resolution

1.The enlarged Parliamentary Assembly, composed of delegations from OECD and Council of Europe member countries, has examined the activities of OECD in the light of the Organisation's 1995 annual report, and the contributions by the various Assembly committees concerned. It commends the OECD for its systematic and balanced approach, based on profound and in-depth analysis, of economic and social issues of concern to its members and beyond, and for the results obtained. The enlarged Assembly welcomes the annual opportunity to contribute to the achievement of the organisation's objectives.
A.Economic policies and cooperation in related fields
2.The economic recovery observed in the OECD area since 1995 is holding firm in some countries such as the United States, while slackening, sometimes considerably, in others, especially in Mexico and several European countries. Growth in the OECD area was 2.9% in 1994, slowed to around 2% in 1995, and is forecast to remain at that level in 1996. By contrast, world merchandise trade grew by almost 10% in 1994 and by 8.5% in 1995, and is forecast to slow further to around 7% in 1996.
3.Inflation in the OECD area stood at 3.9% in 1994 and 3.3% in 1995. A reduction to around 2.5% is forecast for 1996, signifying that it is well under control over the medium-term barring unforeseen price increases in important primary commodities.
4.By contrast, unemployment is the chief political worry in numerous OECD member countries, especially in continental Europe. In the OECD area as a whole it stood at 7.5% in 1995, and is expected to remain at around the same level in 1996. However, this figure masks large differences, such as between United States with 5.5% and OECD-Europe with 10.5%. In the latter area the point is being reached where for reasons of both social stability and state finances new ways must urgently be found to tackle this problem at its roots.
5.Certain countries in transition in central and eastern Europe are showing impressive economic gains and are rapidly shedding the vestiges of communism. Others are reforming more slowly, with growth correspondingly weaker. In several of the Newly Independent States the transition process is running into pronounced difficulties. Growth rates in south-east Asia and east Asia, including China, continue to outpace those in the OECD area, and are expected to do so over the medium term. In all these countries, infrastructure constraints, inflation, unequal wealth distribution, population pressures, unemployment and environmental degradation may make their presence felt.

6.The enlarged Assembly calls on OECD member countries:

i.to combat unemployment with new resolve and creativity, basing themselves on the recommendations contained in the OECD's 1994 Jobs Study, in particular as regards ways of creating a friendly climate for employment and entrepreneurship; rendering social protection systems more conducive to reintegration into active life; preparing the population and especially the young for a new era of intense world-wide competition based on knowledge and skills; and adapting national economies to this new reality through reform in all sectors while preserving essential values of society;

ii.to pursue the restoration of sound public finances necessary for long-term growth, both by reducing expenditure and by stimulating the productive forces in society;

iii.to do their utmost to ensure that the 1996 World Trade Organisation (WTO) ministerial meeting in Singapore is based on a comprehensive and balanced agenda and elaborates concrete ways to consolidate and build on the Uruguay Round outcomes, to unlock further trade liberalisation and further strengthen the multilateral trading system with environment protection and improved social conditions for workers worldwide;

iv.to promote the eventual integration of all countries in transition into the rules-based multilateral trade liberalisation framework of the WTO, and to continue their material and conceptual support to these countries, whether directly or through international institutions;

v.to maintain, even in the present period of budgetary constraints, their efforts to assist the poorer developing countries, in particular by implementing the OECD Development Assistant Committee's commitment of May 1996 to substantially reducing poverty, infant mortality and environment destruction in the developing world by the year 2015;

7.With regard to the OECD, the enlarged Assembly:

i.welcomes the Organisation's systematic follow-up to its 1994 Jobs Study and encourages it to provide member states with clear choices in their fight against unemployment;
ii.recognises the importance of the contribution the OECD has made to economic reform in countries in transition, and to maintaining and broadening its links with the Dynamic Non-member Economies, the major developing economies (China, India and Indonesia) and with other countries through the organisation's Emerging Market Economy Forum;
iii.welcomes the rapid progress made towards a Multilateral Agreement on Investment open also to non-OECD countries and trusts it will set high standards for the liberalisation and protection of international investment as well as for the settlement of disputes, and include reference to the need for environment protection and improved social conditions;
iv.believes that the heightening pace of world economic change will make it necessary for the OECD to engage increasingly in future oriented, cross-disciplinary studies to prepare its member countries in time for necessary adjustments, and that this part of its work should be given adequate resources.
v.supports efforts to make the fullest use of the OECD as a forum for consultation on new areas that can either later be taken up within the WTO or supplement work in that body - for instance as regards environment protection, labour and social standards, as well as the compliance of regional trade agreements with WTO principles;
vi.recognises that budgetary constraints in this and coming years will require not only careful consideration of work programmes and the setting of priorities, while welcoming the new Secretary General's intention to implement a reform strategy to increase the Organisation's efficiency;

8.With regard to the OECD membership, the enlarged Assembly:

i.welcomes the accession of Mexico, the Czech Republic and Hungary and hopes that the accession of Poland, the Republic of Korea and the Slovak Republic can take place in the near future;
ii.notes with satisfaction the Organisation's intensified contacts with a considerable number of other economically advancing non-member countries and hopes these contacts will result either in membership or in otherwise mutually beneficial relationships;

II. Explanatory Memorandum by Mr LEERS

Contents

I.INTRODUCTION

II.THE GLOBAL ECONOMIC SITUATION

III.UNEMPLOYMENT

IV.THE NEW WORLD TRADE AGENDA

V.THE OECD IN A CHANGING WORLD ECONOMY:ENLARGEMENT AND OUTREACH

a.New and expected members

b.Relations with dynamic non-member economies

c.Relations with central and east European countries and the Newly Independent States

d.Development cooperation

VI.CONCLUDING COMMENTS

a.Follow-up to previous enlarged Assembly resolutions

b.The OECD and the future

I.INTRODUCTION

The enlarged debate of the Parliamentary Assembly on OECD activities is scheduled to be held on 25 September 1995. The present preliminary draft report is based on the Rapporteur's discussions with Members of the OECD Secretariat held in April 1996 and on the meeting which the Committee on Economic Affairs and Development held on 21 June 1996 with the OECD's new Secretary General, Mr DonaldJohnston and senior officials of the organisation. Parliamentary delegations from Canada and Mexico, as well as an observer delegation from the European Parliament also participated on this occasion. It also takes into consideration the results of the OECD Ministerial Meeting held in May 1996.

Even more so than in earlier Assembly reports on OECD activities, your Rapporteur will concentrate on a few single topics he chose to highlight in his discussions with the OECD. In chapter II the general economic indicators in the OECD area (and beyond) will be examined, in order to arrive at an overall understanding of the worldwide economic situation. Chapter III will take up the extremely worrisome unemployment situation, in particular in Europe, while Chapter IV will deal with the OECD's links with future member countries and many others worldwide. The final Chapter will focus on the important role of the OECD in a future of which we understand little but desperately need to know more. Recent comments by the OECD's new Secretary General, Mr Donald Johnston, on where he wants to take the Organisation in the years ahead are very encouraging in this respect and will be described in greater detail later in this report. The reader who wants to learn more about the detailed activities of the Organisation is referred to the soon-to-appear 1995 annual report of the OECD, as well as contributions from other committees of the Assembly dealing with matters within their particular competence.
II. THE GLOBAL ECONOMIC SITUATION
If a year ago the economies of OECD member countries were seen as coming out of an unusually long and severe recession, today one notices a considerable slowing-down of that recovery, even though the situation varies among countries. The slow-down is particularly pronounced in Germany, due to factors such as taxation levels, interest rates, wage levels, pensions and insufficient demand. OECD projections in June 1996 are for overall growth this year in the OECD area of 2.1%, a forecast which was revised downwards from 2.5% in late 1995.
The United States economy is operating somewhat below capacity and is expected to grow at 2.3 % in 1996 with capacity constraints loosening and inflation at 2.1%. However, there has been little growth in real earnings. Indeed, technological and trade developments have tended further to depress the wages of the unskilled. Non-wage labour costs have risen strongly, due mainly to added contributions for health care. The mix of monetary and fiscal policy has been persistently unbalanced, and there is a need for fiscal consolidation.
Japan's growth rate for 1996 is expected at 2.2%, up from 0.9% in 1995. This notwithstanding, excessive regulation and lack of competition in the sheltered domestic sector continue to restrain productivity and income growth. The fiscal situation has deteriorated and there is a need for substantial consolidation also because of the ongoing ageing of the population. The economies of Australia and New Zealand are benefiting from the strong growth of many neighbouring nations even though they have also been affected by Japan's economic difficulties.
The Canadian economy, forecast to grow by 2.1% in 1996, is to some extent helped by the US upturn, even though the country's room for manoeuvre is limited by its considerable public debt. The Mexican economy, forecast to show a 3% growth in 1996, is still recovering from the country's currency and economic crisis in early 1995. The economic boom in large parts of Latin-America, as well as the strong performance of the US economy, should certainly help this new OECD member country in ensuring a broad-based recovery.
The overall growth rate in OECD - Europe is expected at 1.6%, down from 2.7% in 1995. The United Kingdom growth rate is forecast at 2.2% for 1996. The growth rate of France has been revised downwards to 1%, and that of Germany, which as late as last year was predicted at 2.5%, now stands at 0.5%. Countries like Spain (5.6%), Italy (1.7%), Sweden (1.3%) and Finland (2.4%) confirm the general trend toward a certain slackening of the recovery. On the other hand, the new OECD member country the Czech Republic (5.6%) shows a healthy growth rate. Other central and eastern European countries not members of the OECD show slower growth rates, reflecting both difficulties in their transition to a market-oriented economy and the economic slow-down in Western Europe.
Unemployment in the United States stands at 5.5% reflecting the strong recovery previously referred to, and in Japan at around 3.3%. In OECD-Europe, however, unemployment has risen to high levels (10.5%), particularly among the unskilled and the young, threatening to aggravate social exclusion. The need for fiscal positions to be corrected is urgent, despite the high unemployment.
The OECD ministerial meeting held in May 1996 nevertheless saw strong fundamentals in many OECD countries which they thought strengthen prospects for better economic growth after the present unexpected slowdown in the activity in certain countries. It was pointed out that inflation is generally low, that interest rates have come down substantially and that movements in exchange rates of the major currencies have improved prospects for non-inflationary growth. The Ministers nevertheless recognised certain serious challenges, in particular high deficits and public debt, unemployment and various rigidities in the economic systems.
Germany deserves special mention in its capacity as Europe's largest economy. Generally speaking, if the German economy runs smoothly, so do those of the rest of Europe. The country today finds itself in a tricky situation, and its problems will doubtless affect the rest of Europe.
The German slow-down reflects a number of developments. Firstly, the cost of unification -that is, the integration of the former East Germany - has proven much costlier than originally foreseen, while at the same time economic recovery in the new L�nder has been slower than expected. The cost of unification has raised taxation to a level such as to put a damper on further economic growth. Secondly, the strict monetary policies traditionally followed by the German Bundesbank have been pursued in order to avoid any over-heating of the economy. The Bundesbank has for some time already progressively reduced its interest rates, but real interest rates, especially long-term, are still high, reducing the possibility of economic recovery.
Thirdly, German real wages are high, leading many companies to expand operations in countries with lower labour costs, such as in central and eastern Europe or overseas. Finally, present and future pensions are a burden on the economy, as is over-regulation in many sectors of economic activity. In Germany, as in other countries such as the Rapporteur's own The Netherlands, cultural and social values stand pitted against apparent economic requirements.

In the past the underlying strength of the German economy was always so solid as to belie the Cassandras. This may again be the case, but it could also be that the German economy is facing one blow too many to be able anew to pursue fully its traditional role as a European and world economic locomotive.
The Rapporteur engaged his OECD interlocutors in a discussion on the proposed European Monetary Union scheduled to involve at least a number of EU countries, and the difficult road ahead toward that goal. The budget deficit criterion of 3% contained in the Maastricht Treaty on European Union will, as matters now look, not be met by any of the major EU countries slated for early adhesion to EMU. Of late, countries like Germany and France have announced resolute plans to reduce the 1997 deficit in order to meet the EMU criteria. Perhaps these criteria can be met. On the other hand there is the risk that such plans they may lead to an excessive depression of economic activity and hence even higher unemployment, which in turn will necessitate higher unemployment benefits and again increase budget deficits. At any rate, delaying the final date for the EMU could prove risky, especially since certain smaller EU countries, such as Luxembourg and the Netherlands, will meet the convergence criteria in time.
The OECD has long advocated steps to render the public finances in member countries sounder. In the May 1996 OECD Ministerial communiqu�, member countries resolve to "reduce fiscal deficits, by limiting public expenditure where appropriate, restore sound public finances and improve public sector management in order to improve growth prospects and help prepare social and economic changes in the future". OECD is concerned, however, about the high, and still growing, ratio of gross public debt to GDP, which this year stands at around 74% in the OECD area. (By this year the debt/GDP ratio is approximately 96% in Japan, 120% in Italy, 94% in "Canada, 136% in Belgium and 120% in Greece.) In this situation the leeway for budgetary expansion to stimulate the economy � la Keynes remains extremely limited.
The OECD has, thus, for a long time been a force for change in the way we look at public finances, and comments by the OECD's Secretary General, Mr Donald Johnston, indicate that it will continue to play such a role also in the future. The Rapporteur fully supports the OECD in this quest. What we need is an offensive approach to make our finances sounder, not one of escaping from an unpleasant reality.
Whether governments will have the nerve to pursue long-term consolidation of public finances will also depend on the mood in the population as a whole. The more the general public sees public deficits as a problem, for themselves but even more so for their children and grandchildren, the more governments may find the resolve to pursue policies which in the short-term are dolorous but in the long-term both necessary and beneficial. Once the public deficit and debt situation has become sounder, there will be more scope for expansionary policies, lower interest-rates and greater confidence in the future. The latter in particular will lead to higher spending, necessary for economic growth. A virtuous circle could emerge.
By contrast, if the public mood remains hostile to the short-term sacrifices just mentioned, then political action may be delayed, leading to higher costs of reform in the future, more radical sacrifices and possibly social discontent. At he same time it must be recognised that public patience is running thin after so many years of belt-tightening without any tangible improvement in sight. This makes the problem extremely difficult

to solve. Cutting expenditure is very important, especially in the field of social security. However, any reductions in budget deficits reached by such cuts risk being affected by necessary higher investments in education, infrastructure and new technology.
Is there a risk that tightening fiscal policies are being carried too far or come at the wrong moment in the economic cycle? The OECD's June 1996 Economic Outlook at any rate states that a simultaneous fiscal consolidation in virtually all the world's industrialised countries would "represent a unique situation". It goes on to say that in that event monetary policy will have to bear the burden of preventing all major industrialised nations from falling to a simultaneous slump. The argument is that fiscal consolidation has a much better chance of success in conditions of prosperity. The risk is that the efforts at fiscal retrenchment will take place in a period of economic slack, and only result in deficits higher than at the beginning.
The Rapporteur's general impression resulting from his talks with the OECD is that the populations in OECD countries in general, and those of OECD-Europe in particular, are at present asking too much of the productive system. Our countries have become used to a high degree of social protection ever since the building of the welfare state in the 1950s and l960s. Our systems have in many respects become "old", unable to respond to the new challenges of the world economy. New technology, especially in telecommunications, makes physical distance next to irrelevant, including for the movement of capital. Cheaper transport, including by air, turns far-away countries with lower labour costs into serious competitors to the established industrialised ones, especially through multinational companies operating in the open trade climate created by the Uruguay Round and the World Trade Organisation.
In the massive transformation of world economic activity and wealth currently under way, the OECD area no longer has the same preeminent position as before. The rest of the world, such as south-east and east Asia and Latin-America and even parts of Africa, already want a greater say. They are soaring ahead with growth-rates much higher than those in Europe. In these countries there is a strong concentration on work rather than leisure, and savings rates to underlie future growth are much higher than in OECD countries. True, they also have their problems, such as insufficient attention paid to infrastructure investment and political and military tensions at regional level. However, the constructive challenge that they pose should not be underestimated, and it can not, nor should it, be halted or turned back.
The OECD Ministers for their part at their May 1996 meeting considered the globalisation of the economy to be the product of the interaction between trade and technological progress. They recognised the right of all countries to participate in world development and of all consumers to benefit from increasingly vigorous competition between producers. They caution, however, that in order to take advantage of these prospects for improved living conditions and progress, individuals, enterprises and countries would have to show themselves capable of rapid and continuous adaptation.
OECD countries in general, and European OECD countries in particular, have to respond to these challenges if they want to remain prosperous in the next century.The remedies advocated by the OECD for years centre around the concepts of price stability, fiscal consolidation and structural reform. A spirit of change has to take hold of in particular Western Europe. The later this is done the harder will be the sacrifices. In addition, many OECD countries are facing a 'population crisis in reverse' through the rapid ageing of their populations. While this may in future reduce unemployment among

the fewer young, it will also lead to greater strains on the pension systems which in most OECD countries are paid out of current budgets, not accumulated from the past. It is difficult to recommend any particular action to resolve the pension and public health crises, for systems are different in the various countries. The aim everywhere must be, however, to avoid a situation where fewer and fewer of the professionally active have to earn the pensions and pay for the health services of an ever larger group of the retired or ill.
III.UNEMPLOYMENT
Unemployment in the OECD area currently stands at some 34 million people, equivalent to 7.7% of the labour force. Variations are, however, considerable between countries. In OECD-Europe the figure is twenty-one million or 10.5% of the active labour force, whereas the United States registers only seven million unemployed, or 5.5% of the active labour force. Furthermore, in the United States the proportion of the long-term unemployed (more than one year) among the jobless is much less than in Europe. The figures for Canada (9.3%) Australia (8.7%) and New Zealand (6.2%) are also lower than for Europe. Japan has less than 4% unemployment, although this figure conceals many people who are "outside" the work force, such as women who will only enter it periodically. In Japan, companies out of solidarity try to hold on to employees that may no longer be needed, an approach which also keeps down unemployment figures but which could hurt the companies in question over the longer term.
The major concern is, however, OECD Europe, with two-thirds of total OECD area unemployment. In Europe unemployment is rapidly becoming the number one political priority, as governments search in increasing desperation for new ideas.
No other international organisation has studied the employment/unemployment issue more profoundly than the OECD, especially through its major Jobs Study of 1994. Previous reports to the enlarged Assembly, and especially that of last year (Doc. 7348; Rapporteur: Mrs Durrieu, France, Socialist Group) have given ample attention to this study and to the problem as such.
The OECD sees much of the present unemployment, especially in Europe, as structural rather than cyclical. Many OECD countries have over the years built up an "unfriendly" climate for employment, innovation and entrepreneurship, causing rigidities to be built into our economic, political and social systems.
For instance, the current tax benefit systems in many OECD member countries, especially in Western Europe, create strong disincentives as regards work. The OECD Jobs Study mentions, inter alia:
-the "unemployment trap", which results when unemployment and related benefits are in excess of or near the after-tax wage or 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", which arises with the combined effect of the withdrawal of social welfare benefits and payment of income taxes and social security

contributions on additional earnings mean that a low wage earner has no incentive to work harder or invest in training;
-the "fiscal wedge", through which the tax burden on lower incomes is such that many people in such income brackets have little incitement to advance professionally.
The OECD, not only in the Jobs Study but also in its report "Making Work Pay", encourages us to look afresh at ways of getting out of these "traps and more generally of reforming our whole system of social protection built up since the end of the Second World War. Structural policy responses are being required. A member of the European Parliament observer delegation thought that high taxes in Europe had a depressing effect on employment, and called on governments to make more efficient use of their social expenditure budgets.
What, then, is meant by structural reform? The OECD mentions a number of them, such as financial market liberalisation, which gives rise to a number of benefits such as a wider range of financial products, lower intra-mediation costs and better allocation of funds. Another structural reform is in the field of product market competition, whether domestically or through international competition. This improves resource allocation, permits the capturing of increasing returns, leads to a faster diffusion of innovation. Other structural reforms relate to the tax transfer system, a reform of pensions and education.
While growing unemployment is certainly to a considerable extent due to unstoppable technological evolution referred to above, this should not cause governments to a state of resignation. On the contrary, it should embolden them to try new methods to counter these trends. We know, for instance, that our economies must grow at least 2.5% per year (some say over 3%) in order even to maintain employment at the existing level. That is, there seems to be a natural "build-down" of employment of about 2.5% per year. We therefore have to choose policies which permit our economies to grow faster. This can presumably not be done without considerable de-regulation and structural reform in numerous sectors of the economy.
Cities, where so much of the high long-term unemployment is concentrated, also, however, offer impressive opportunities for investment and job creation. However, these opportunities should be shaped by public policies that recognise that the contribution of cities to national productivity is composed of many factors - some social, others environmental or economic. The OECD is examining both policies that reduce the problem of distressed urban areas, and those that enhance the job creation potential of cities.
The OECD strongly believes in a shift from passive to "active" labour market policies. In other words, encouraging an unemployed person to find a role in the workplace is better than just ensuring him a guaranteed revenue. 'Springboards' are better than 'safety-nets'. The Rapporteur very much shares this view. We have to abandon what has often in the past been an excessively 'passivising' approach, in favour of a more aggressive look at the real obstacles to finding employment. At the same time, it is important to ensure that active programmes do not become "parking slots" for the unemployed, or simply serve as a means to renew benefit entitlements. The Organisation is engaged in a follow-up to its major 1994 "OECD Job Study". It carries out continuous reviews of the efficiency of public employment services, especially as to what measures seem to work and which do not.
The OECD officials which the committee met in June 1996 also pointed to the great burden placed on national budgets by massive use of early retirement. The Organisation suggested increasing the retirement age through active labour policies capable of harnessing the experience and the still intact energy of many elderly people.
The OECD is examining to what extent the actions of individual member countries follow the recommendations of the 1994 Jobs Study. So far Italy, Spain, Denmark, the Netherlands, the United Kingdom and New Zealand have been studied. While the monitoring indicate that the messages of the Jobs Study were the right ones, the difficulties of implementation, related to the trade-offs at the margin between efficiency and equity, have become much clearer. It must be recognised that it is only by managing to adapt that economies can become more efficient and richer, thereby being able to create more jobs. Access to a job is just as much an equity issue as relative income levels, and it is important to note that participation in paid employment, even a low paid job, helps to improve life time incomes and consequently reduces income inequality over time. Hence, while a trade-off may exist in the short run, there is potential for reforms that enhance both efficiency and equity goals over time.
There is, nevertheless, nearly always resistance to pushing through structural reforms, even if the economic case for reform is accepted. The country reviews brought out a number of rigidities, reflecting different historical backgrounds and institutional settings, that contribute to high levels of unemployment in several countries. Reforms in such cases might clash with status quo but not necessarily with broader equity concerns, although particular vested interest groups may argue that this is the case. Such difficulties, in some case the lack of political will, have meant that progress in implementing the strategy has been slow. However, the evidence from the limited number of country reviews to date has shown that those countries which have done the most to bring their policies into line with the Jobs Study recommendations are those where the employment situation has improved the most.
The choice seems increasingly to be between two approaches. One is the "Anglo-Saxon model", so-called because it allegedly reflects policies primarily practised by the United States and to a certain extent the United Kingdom. By this is meant a larger role for market forces in creating employment, even it were to lead to reduced job security, lower pay for some and wider wage disparity.
The other approach might be called "continental west-European", by which is meant, in particular, a strong social partnership and a certain wage restraint in exchange for greater job security and social services. This approach is sometimes also referred to as the "Rhineland model", signifying a synergy between government action and market forces.
Whether we choose the one or the other of these, or something in between, certain OECD countries will place high priority on preserving the essentials of a socially fair and socially cohesive society. They would see a society lacking in those values as being not only unjust, but also leading to untenable social friction, insecurity, and possibly even unrest. Your Rapporteur certainly does not wish to conjure up spectres of the past, but recalls that mass unemployment presents a danger to democracy. There must be a "middle road" of continuing structural reform and acceptable social security even though he clearly recognises the need for often painful reforms, as pointed out in Chapter II.
Members of the Canadian and Australian delegations at the committee's June 1996 meeting stressed the need to find a solution to the problem of youth unemployment, which they saw as threatening the very fabric of society. They also maintained that the public educational system ought to provide general learning, which could then be applied to various careers. It is, they said, essentially for companies to take care of professional training. Canada indeed seems to experience a shortage of specialised workers in certain industrial sectors, in spite of relatively high unemployment.

A common feature of both the "Anglo-Saxon" and the "Rhineland" models is their view that entrepreneurship and innovation are key elements ensuring continued productivity improvement, wealth and new jobs, and that the development of small and medium-sized enterprises is the key to an adaptive economy. Hence governments need to pursue broadly based approaches which will encourage vigorous enterprise creation. To be effective, programmes that foster entrepreneurship should form integral parts of local development strategies. This is so because geographically targeted, area-based policies have proven more effective than sectoral measures.
Knowledge and the creation and sharing of information are rapidly becoming dominant forces in the world economy. This will require more people equipped with the types of knowledge demanded by markets. The share of new jobs necessitating little or no skills is rapidly shrinking, while that calling for a high degree of general or specialised knowledge is becoming more important. Hence, says the OECD, we must improve education.
The Ministers of Education of OECD member countries met in early 1996 to evaluate work under the current mandate and guide future work of the Organisation in this field. The Ministers adopted the principle of Life-long Learning for All as a key element in creating the conditions of sustainable growth, improved employment prospects and social and individual well-being. They requested the OECD to carry out further analyses on how best to implement a strategy. As a priority, they agreed to strengthen the foundations of learning throughout life, promote better links between learning and work, improve incentives for investment in skills and, as a means of achieving these goals, foster partnerships involving parents, schools, communities and governments at central, regional and local level.
A survey on adult literacy has been carried out, one major finding in which was that some 20-25% per cent of the workforce aged 50 to 64 have very low reading ability, with obvious consequences for employment opportunities. However, the situation is also serious for youngsters, and the fact that we are living in a visual rather than a literary era does not help reading skills. This is so even though one consequence of more communication should be precisely a more intensive use of, and use for, the written language, the nuances of meaning and the knowledge of foreign languages. One can only encourage OECD to attach the highest priority to its work in the educational and training area.
Unemployment is the primary cause of social exclusion. Very low wages nurture poverty. More generally, economic globalisation appears to be associated with new kinds of social cleavages and increasing divergence of the life chances of large social groups, between those near the top and those near the bottom. Investing in the truly disadvantaged; linking school and work; sustaining and building capacities of local communities; and better and new forms of urban organisation are among new responses that policy-makers should explore in order to address this problem. Social cohesion and democratic institutions and values are at stake. Work in this area is being undertaken by the Urban Affairs Programme of the OECD.
IV.THE NEW WORLD TRADE AGENDA
The ratification of the Uruguay Round and the establishment last year of the World Trade Organisation are major landmarks in the evolution of the world's trading system. They represent the culmination of efforts made over nearly half a century to open markets, establish worldwide rules and build institutions in the trade policy field.
The Uruguay Round and the WTO also represent the beginnings of a dynamic process providing for further liberalisation and improvement in the world trading system. The OECD sees itself as an increasingly essential forum for laying the conceptual foundations for new WTO initiatives. Many of the new areas are not yet fully defined, but they are likely to relate increasingly to domains so far considered 'domestic', such as services, investment conditions, competition, environment, tax policy, regulatory reform and possibly labour conditions. The new Secretary General of the OECD made it clear, at the committee's June 1996 meeting, that he very much wants to strengthen the links between the OECD and the WTO in the direction already taken.
A 'preparatory' role for the OECD seems all the more natural considering both the WTO's large and heterogeneous membership (now standing at 119) compared with the relative homogeneity of OECD member countries. However, whatever proposals may be emerging from OECD talks will have to adapted to the worldwide WTO reality. Impulses are likely to come from more and more sources, including developing countries which actually have become among the staunchest defenders of the Uruguay Round and the WTO.
A more active role for the OECD vis-�-vis the WTO was also recently called for by thee new OECD Secretary General Mr Johnston. "We must be committed to helping the WTO to move the trade agenda forward", he said, adding that "the OECD can keep momentum going on trade in some of the most critical areas." Trade, he concluded, would be a priority under his leadership, "because everything flows from trade and investment." The Rapporteur welcomes this stance, while expressing the hope that both organisations will maintain their individual characteristics and personality.
The OECD wishes to provide its full support to a strong and effective WTO, capable of adapting the multi-lateral trading system to new challenges in a rapidly globalising world economy. The OECD also believes that upcoming challenges must be faced now, so as to maintain the momentum of trade liberalisation provided by the Uruguay Round and the WTO.
The OECD is making its contribution toward a successful WTO Ministerial meeting in Singapore at the end of this year. It in particular wants to see negotiations carried to a fruitful conclusion in such fields as financial services, basic telecommunications, the movement of natural persons and maritime transport. The OECD also considers that the broader dimensions of market access will need to be considered in the context of further moves to liberalise trade and investment.
These include domestic policies in the field of competition, investment, regulatory reform, technological innovation, environment, labour policies, restrictive market structures and anti-competitive business practices. As the world economy becomes increasingly intertwined, these areas can to a lesser and lesser extent be considered purely domestic. As regards the Singapore summit a word of caution may, however, be in order. If too many new items are put on the agenda, then this may detract it from what should be its immediate duty, namely to make sure that the Uruguay Round commitments are implemented fully and rapidly.

One example of the above is the OECD's work on a Multi-lateral Agreement on Investment (MAI). The OECD's work on the MAI started in 1995, and the aim is to reach an agreement by the time of the OECD Ministerial Meeting in 1997. The MAI will provide a broad multi-lateral framework for investment and will be open also to non-OECD countries. It will set high standards for the liberalisation and protection of international investment and for the settlement of disputes. The OECD wants to conclude the MAI quickly so as to avoid any 'slipping' in the degree of openness to foreign investment by the world community. Even though improvements in the investment climate have been observed over the past few years, there are still examples of discrimination and exceptions to the "National Treatment Principle" (that is, equality of treatment by a host country vis-�-vis domestic and foreign investment). It is hoped that the MAI, if ratified by a sufficient number of OECD and non-OECD member countries, may cover up to 80% of all foreign investment in the world.
One committee member wished social and environmental standards to be included in the MAI. She also wanted multinational enterprises to be subjected to the same scrutiny as certain countries when it came to observing minimum social standards among their employees, in particular but not exclusively in the developing world. She also called on the OECD to permit the less developed countries a say in the drafting of the MAI, in order to avoid it being too focused on the priorities of the industrialised countries. The Rapporteur was informed, however, that the OECD has already for some time engaged in an intensive dialogue with various non-member countries to keep them informed about the ideas and ambitions the organisation is striving for in the field of investment.
Several non-European participants in the committee's June 1996 meeting at OECD headquarters, especially from Canada and Mexico, expressed their strong objections to the recently enacted legislation in the United States aimed at inhibiting other OECD countries' trade with certain nations deemed 'untouchable' by the United States. They saw this "extra-territorial" reach of US legislation as infringing on their countries' rights to engage in open international trade, and as contrary to the credo of WTO and other international organisations.
The OECD also hopes to play a role in areas where the world community, and indeed OECD member countries themselves, are divided - such as the relationship between trade and environment protection, and between trade and labour standards. Finally, the WTO might build on the OECD's growing expertise in the field of civil aviation in the areas of in particular competition and trade. Aviation is already an important factor in the world economy as regards for instance tourism and cargo, and worldwide competition rules are increasingly needed.
The most determined OECD contribution can be expected in the first of these fields. The organisation has a unique set-up bringing together trade and environment experts and member governments. The departure point is that trade and environment policies need not be in conflict, and that trade can be pursued without compromising the achievement of sustainable development. The Rapporteur agrees fully with this approach, especially since the welfare of future generations may be at stake if, for instance, de-forestation in tropical regions continues unabated. The Rapporteur also believes that numerous multilateral environment agreements, such as the Montreal Protocol and the Basle Agreement deserve to be made 'WTO-compatible'. However, it is important to ensure that achievements in the protection of the environment, essential as they may be, do not put up new obstacles to free trade.

Labour standards are trickier. Some OECD member countries tend to see lower labour standards, including lower wages, as part of the "comparative advantage" of certain countries. They consider efforts to impose higher labour standards on developing countries as protectionism in disguise. Other OECD member countries, however, maintain that an integrating world economy has to harmonise labour standards and even wages to a certain extent, lest there be a worldwide erosion of standards and wages. The OECD has studied possible linkages between trade, employment and investment on the one hand, and such "core" labour standards in order to see what mechanisms might be used worldwide to promote them. The Organisation seems to feel that this whole area is one where the International Labour Organisation could also usefully take a stand. The Rapporteur is, as he believes all his colleagues in the enlarged Parliamentary Assembly, anxious to see the entire world adopt labour standards adequate to protect the basic rights and welfare of workers, especially those which some OECD countries consider "core" ones, ie relating to human rights. Again, however, it is important to ensure that this concern should not be used by some as a pretext for protectionism, since that would ultimately hurt all those in developing countries who stand to gain from more open trade.
Your Rapporteur raised the question of compatibility between regional trade groupings - such as the European Union and NAFTA - and the worldwide multi-lateral trading system embodied by the WTO. After all, as we move toward freer and freer trade worldwide, are regional groupings necessary? Might they indeed sabotage the multi-lateral trading system by their growing number and by preferences granted to members of a given group when compared to those outside it? In a meeting which the Committee on Economic Affairs and Development held at WTO headquarters in November1995, its Director-General, Mr Ruggiero expressed a certain concern in this regard.
The OECD pointed to the considerable advantages gained from various trade groupings around the world, such as Mercosur in Latin-America, but also recognised that problems may arise at the contact points between various trade groupings. In a report to the OECD Ministerial Council in 1995 entitled "After the Uruguay Round: the way ahead", the Organisation states that it is necessary "to ensure that regional trade arrangements ... are consistent both in letter and in spirit with the newly-strengthened multi-lateral trading system and that [they] add to the momentum of liberalisation and ... strengthen the global trading system". The OECD will pursue its analysis of this issue.
The Rapporteur for his part believes that, as long as regional trade groups fully adhere to WTO principles (or even go beyond them), they can serve as a vanguard for the WTO and as a source of new initiatives which can subsequently be taken up by the Organisation.
The Rapporteur also raised the possibility of a backlash in OECD countries against continued world trade liberalisation. The risk is that the constant "down-sizing" of companies, as they adapt to international competition, will undermine public support for the open multi-lateral system. People may increasingly feel that unfair competition results from international differences in domestic policies, business practices and levels of prices, wages or living standards.
The OECD clearly recognises this risk, even though its member countries may be divided on the issue. There is no doubt, however, that the OECD casts its full weight behind the success of the WTO and the Uruguay Round which - according to WTO estimates - will provide a worldwide income gain of up to 510 billion dollars per year by 2005.

The Assembly's Committee on Agriculture and Rural Development will deal with agriculture in greater detail. Suffice it for this Rapporteur to commend the OECD on its preparatory work on agricultural reform ever since the 1980s. It is a good example of the OECD's role in helping the world economic system adapt to new challenges. Mention should also be made of the work of the OECD's Rural Development Programme, and in particular the activities aiming at sustainable management of natural resources and the protection of the rural cultural heritage.
The Uruguay Round stipulates progressive reductions in price support export subsidies over the next few years, and it will be difficult for any country to try to depart from these rules. The OECD can also take credit from the greater transparency gained as regards the agricultural policies pursued by different countries and their impact, and we can expect new initiatives to be taken at the 1997 OECD Ministerial Meeting to be devoted to this subject. One OECD interlocutor called it "the world's unfinished business". The most noticeable development of late is the overall price increases worldwide, reflecting not only poor harvests but also higher world-wide consumption of animal feed (eg in China) and the reduction of protectionism and price supports. One British member of the committee was strongly in favour of freer trade in agricultural commodities, which she saw as permitting the sector to prosper with less subsidies over time.
UNCTAD - the United Nations Conference on Trade and Development - has become an efficient forum for developing countries in their efforts to contribute to the WTO process, and more recently they have announced an interest in achieving greater integration with that body. Meanwhile, a proposal has been made by the Rapporteur's own country, The Netherlands, to incorporate UNIDO into UNCTAD. One member of the committee made a general call for stronger cooperation between the OECD and various United Nations Specialised Agencies in the field of economic development.
Other areas where the OECD has done considerable work and where its experiences could be shared with the WTO include the fight against corruption in international business transactions and the liberalisation of air transport policies. On the subject of tax evasion, the committee at its June 1996 meeting was informed that the Council of Europe-OECD Convention on Mutual Administrative Assistance in Tax Matters has now been ratified by Denmark, Finland, Norway, Sweden and the United States, and had entered into force on 1 April 1995. It is the Rapporteur's hope that as many other Council of Europe and OECD countries as possible will sign and ratify this important convention in the near future.
V.THE OECD IN A CHANGING WORLD ECONOMY: ENLARGEMENT AND OUTREACH
a. New and expected members
As already indicated, the membership of OECD is enlarging, so that it now stands at 27. Mexico joined in 1994, followed by the Czech Republic in December 1995 and Hungary at the May 1996 OECD Ministerial meeting. Poland is scheduled to join in July 1996, and the Republic of Korea is expected to adhere by the end of this year. Advanced negotiations are also underway with the Slovak Republic. A committee member from a

Baltic country expressed the hope that the countries of that region would soon be able to join the OECD.
The Rapporteur also welcomes the pledge by OECD Ministers in May 1996 to "bring to an early and satisfactory conclusion the accession processes of Poland, as well as for Korea and the Slovak Republic as soon as each of these countries is ready and able to assume all the responsibilities of OECD membership". The Ministers, on the same occasion, went on to promise to "strengthen cooperation with Russia, develop dialogue with dynamic non-member economies and, more generally, with emerging market economies, and to intensify cooperation with the major economies in the various regions of the world".
b. Relations with dynamic non-member economies
The efforts of the OECD to serve as a "think-tank" for more and more of the advanced and emerging market economies is shown by its intensifying co-operation with the so-called Dynamic and Emerging Non-member Economies (DENEs). Three programmes are worth mentioning. The first is the OECD/DNME Policy Dialogue focused on those dynamic non-member economies (DNMEs) whose performance and policies are increasingly converging with those of OECD member countries. Started in 1989 with the so-called Dynamic Asian Economies (DAEs) - Hong Kong, Malaysia, Korea, Singapore, Chinese Taipei and Thailand - it has since been extended to Argentina, Brazil and Chile. Since 1995 China, India and representatives of Indonesian business and academic life participate in some of the activities. The dialogue covers the field of trade, finance, investment, taxation and macro-economic developments. More recently it has been enlarged to topics such as the environment, labour markets, maritime transport and steel.
Since 1995 there is also an OECD Emerging Market Economy Forum aimed at other non-OECD countries engaged in market-oriented policy reform. The participation of non-member countries in this Forum is on a "variable geometry" basis, according to their relevance to the topic concerned. The first meeting under this programme was attended by over a dozen countries such as Egypt, Israel, South Africa, Venezuela and Vietnam.
Finally there is the OECD's programme of dialogue and co-operation with China, launched in 1996. The spectacular rise of China as an economic power, now the 11th in the world, is of profound importance to OECD member countries. Following a visit by the OECD Secretary General to China in July 1995, the Organisation held a high-level Forum for the Future conference in January 1996 on the economic prospects of the country. The general conclusion was that China will continue to experience high growth rates of 7-10% over the coming years, and that it will for some time combine rapid technological development with relatively low wages, and that it will have important implications for the world economy in the decades ahead. China's continuing integration into the world economy is a challenge to international cooperation.
c. Relations with central and east European countries and the Newly Independent States.
Turning to OECD relations with central and eastern European countries and the newly independent states (NIS), the memberships of the Czech Republic and Hungary, as well as the advanced negotiations for membership with Poland and Slovakia, have already

been mentioned. The Organisation is also developing its relations with Bulgaria, Romania and Slovenia. A "Declaration of Co-operation" with Russia was signed in June 1994.
The OECD's vehicle for assisting the country's transition is its Centre for Co-operation with the economies in transition (CCET). The CCET aims to promote policy dialogue by providing advice on the design and implementation of appropriate policies, legal framework development and institution building, as well as limited and focused forms of training. The work is 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 in particular Poland and the Slovak Republic (and previously also for the Czech Republic and Hungary); and the programme for the Newly Independent States of the former Soviet Union.
It is no exaggeration to say that the Partners in Transition Programme extended to the Czech Republic, Hungary, Poland and the Slovak Republic have tangibly contributed to the successful transformation of the economies of these countries. The OECD's general economic and sectoral reviews have played a key role in policy formulation. Fulfilling OECD membership obligations as regards the codes of liberalisation of capital movements and invisible transactions, as well as the investment instrument has also contributed importantly to anchoring and deepening market structures in these countries.
Your Rapporteur was informed by OECD officials dealing with the economies in transition that considerable progress continues to be made in stabilising the economies in question, in developing legal institutional structures and in resuming growth and investment.
At the same time, however, the OECD sees this overall picture as concealing large differences in economic performance among countries. Thus, the contrast remains stark between the countries of central and eastern Europe, including the Baltic states, which embarked on the transition process earlier and where economic performance has been distinctly better than most of the New Independent States of the former Soviet Union (NIS). The latter have moved less rapidly and more reluctantly onto the reform path. Output is still falling and inflation remains high in spite of recent progress.
Secondly, notwithstanding the significant progress achieved so far and the fact that four of the most advanced transition economies (the Czech Republic, Hungary, Poland and the Slovak Republic) have become or are about to become members of the OECD, in most countries the transition process in its wider sense is far from being over.
For one thing, macro-economic stabilisation remains to be achieved or consolidated in many countries. Inflation is high and must be brought down, implying the pursuit of tight monitory and fiscal policies. Public expenditure must be restructured towards an appropriate share of investment in human capital, provision of adequate business infrastructure and the establishment of targeted social safety nets. Social security and pensions in particular remain one of the important areas of pending structural reform in many countries.
In some countries, notably in the NIS, the legal and institutional framework of a market economy has still to be completed, while in many others the institutional structures are far from working efficiently. Property rights as regards land-ownership need to be clarified in most NIS and the Baltic states.
Furthermore, a large number of the bigger enterprises must be restructured, and corporate governance improved. There also remains the need to promote the development of small- and medium-sized enterprises as catalysts for economic growth and restructuring. More generally, the share of the private sector in countries like Bulgaria, Romania and most of the NIS countries must be further expanded, and a level playing field for private business established. This means, in particular, that competition laws must be enacted and enforced, and the abuse of dominant market positions in the production, distribution and infrastructures of sectors prevented.
The financial sector in most transition countries remains underdeveloped, with too narrow a range of services being supplied by different financial intermediators and instruments. The OECD is concerned about the fragility of the banking system, as evidenced by recent banking crises, and believes that efficiency must be further improved. The problem of the large share of non-performing loans must be addressed. Effective bankruptcy laws need to be introduced or implemented to ensure an orderly winding- down of insolvent or obsolete enterprises. Many banks must be restructured, recapitalised and privatised, and effective supervision of the banking system has still to be put into place. Money laundering is another problem.
There also remains considerable scope for improving public governance with, in particular, a reform of the civil service, the provision of adequate public services, the eradication of corruption and impartial implementation of unambiguous laws. Worth mentioning in this context is the OECDs 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. SIGMA at present benefits eleven reforming countries in the region: Albania, Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia. The programme aims at transforming the public institutions of these countries, thereby facilitating economic and political transition.
The Rapporteur raised the issue of implementation of legislation in the countries concerned. The OECD said that there was often an inflation in laws, with the resulting confusion of overlapping and problems of implementation. This aspect of the OECDs work on behalf of transition economies takes on particular importance when one considers the role of a functioning public administration for economic development.
The OECD also considers it important to develop appropriate physical infrastructure such as modern telecommunications, efficient transportation systems and environmentally sound and reliable electricity and water supplies. More generally, from a longer term perspective many of the preconditions to sustain balanced growth still remain to be established. These rely inter alia on higher ratios of adequate domestic savings and investment relative to GDP. Foreign direct investment will continue to play a significant role in providing not only capital and equipment but also managerial skills and ties to trade networks. An environment conducive to foreign investment will have to be created or maintained. The OECD is trying to contribute to this process by preparing investment guides for a number of the countries in question.
The OECD's co-operation with Russia has deepened, through the implementation of the special country programme established under the 1994 Declaration of Co-Operation between the OECD and Russia. On 20 May 1996 Russia submitted an application to join the OECD. The request was greeted by Mr Franz Vranitsky, the Austrian Chancellor, who presided the 1996 Ministerial meeting of the OECD as "positive" and as an "important political signal for the continuation of economic reforms in Russia".
A key activity in 1995 was the preparation and publication of a first OECD economic survey of Russia, followed by a seminar in Moscow where issues raised in the survey were discussed by a wide audience of policy-makers, researchers and representatives of business and labour organisations. The programme covers a whole range of economic and social issues, including anti-monopoly and competition policies, taxation, industrial restructuring and regional developments, labour market and social issues, education and training, agriculture, foreign direct investment and nuclear safety.
Country-specific programmes have also been implemented for Bulgaria, Romania and Slovenia, providing focused assistance and drawing up and implementing policies that sustain viable market-oriented economies. Co-operation with all the transition countries, including those not benefiting from a country specific programme, has continued within the framework of the Centre's General Work Programme. It has mainly involved the organisation of seminars, workshops, technical missions and participation in the specialised advisory groups concerning privatisation, investment, industry and environment, entrepreneurship and promotion of small- and medium-sized enterprises.
If the Partners in Transition Programmes with the four Visegrad countries are being wound down as these countries become members of OECD, all the other programmes of the Centre will continue in 1996. As stabilisation is achieved - which is not the case in many transition economies, especially in the NIS - the success of reform will depend increasingly on the effectiveness of structural policies. This should be familiar territory for the OECD, which focuses on such issues on behalf of its member countries. The rapporteur is convinced that the OECD will continue to have an important role to play in providing focused policy advice to the transition countries to help them sustain the pace and scope of reform.
Regarding trade relations with western Europe, and in particular the European Union, the OECD recognised that there were still obstacles in sectors such as agriculture and textiles, but also that trade has increased considerably in recent times, with exports to western Europe being a major factor behind economic development in the region. The OECD also recognises that one aim of many central and eastern European countries in seeking OECD membership is ultimately to become members of the European Union. OECD membership could certainly be instrumental in this regard by helping to develop domestic economies, but it also has to be pointed out that the criteria for EU membership are different from those governing accession to OECD. In concluding, the Rapporteur welcomes and strongly supports the OECD's work on behalf of economic reform in central and eastern Europe and in the NIS.
We must be ensured, however, that there is a minimum of overlap among the many international organisations active in this field. The OECD has informed the Rapporteur that the risk of overlap seems to have decreased more recently. For one thing, the CCET is actively coordinating its initiatives with those of other donors, especially international organisations including the Council of Europe. More than half of its activities are done jointly with other international organisations. Finally, coordination has by now to a large extent shifted from international groups like the G-24 or the World Bank to the recipient countries themselves. The latter are reported to have become increasingly efficient in coordinating incoming aid.
d. Development cooperation
The development assistance of OECD countries is co-ordinated through the organisation's Development Assistance Committee (DAC), in which 21 of the 27 member

countries participate (ie all except The Czech Republic, Greece, Hungary, Iceland, Mexico, and Turkey). The DAC tries to foster co-ordinated, integrated, effective, adequately financed international efforts in support of sustainable economic and social development.
However, the OECD's activities in the field of development co-operation take place against a background of stagnating, indeed in many countries decreasing, official development aid. In 1993 the drop was 5% in real terms compared to the year before, and the decrease is likely to have been bigger since, not least for reasons of budgetary restraint in many donor countries. The decrease has hurt both bilateral assistance (ie between one donor and one recipient country) and multilateral aid (ie through international organisations). Indeed, under these constraints, many governments will feel growing pressure to reduce their multilateral efforts in order to maintain bilateral programmes.
This is the wrong time to cut down on aid, however, the OECD warns, especially when considering that four-fifths of the world's population will be living in developing countries by the year 2000. A British member of the committee in this context observed, however, that no economic study had been able to prove a link between the level of development aid and the pace of a country's economic growth. He referred in particular to South-East Asia which had received little aid, and certain countries in Africa which had received considerable amounts and yet showed little or no development.
Other members of the committee objected to this analysis by pointing to the crucial importance of development aid for the economic growth in past decades of a country such as Korea. A member of the Australian delegation said he firmly believed that trade, rather than development aid, was the key factor in fostering economic growth in developing countries. An OECD official, during the committee's June meeting at OECD headquarters, recalled that there were many instances in the world where development assistance had created an unprecedented improvement in human welfare.
The Committee on Economic Affairs and Development had the privilege of holding an exchange of views, in March 1996, with MrJames Michel, Chairman of the DAC, in which he stressed that at the present stage in economic development in many developing countries, it was vital that assistance continue undiminished, especially in sectors not adequately taken care of by private flows.
DAC recommendations emphasise that people should be at the centre of global change. The 1995 Ministerial Statement on Development Partnership inter alia calls for development co-operation to be regarded as an investment to beneficiary and donor countries alike rather than as a sacrifice; to serve to combat poverty at its roots; to complement other resources placed at the disposal of developing countries such as domestic and foreign private investment; for other policies of OECD countries to complement, not run counter to, development cooperation; and for aid to demonstrate effectiveness and efficiency.
The 1996 OECD ministerial communique went on to "recognise that sustainable progress in developing countries is of increasing global importance, and that the linkages between developing and developed countries should be mutually reinforcing and supportive of development". The Ministers agreed to "work together .... to promote the integration of developing countries into the globalising world economy, and to maximise the effectiveness and coordination of the global aid system".
The OECD also stresses that resources provided through aid will increasingly have to be locally owned and administered; that strategies need to be country-specific; and that aid is not, and should not, be the main instrument for growth in less developed countries but merely assist the efforts of the recipient country itself. Another aim is to achieve better co-ordination among multilateral donors and among governments giving bilateral aid to a given country.
The OECD is also stressing "good governance", and is trying to build in anti-corruption measures in aid procurement. It also attempts to make sure that assistance favours the protection of the environment and the preservation of peace.
On 7 May 1996, the DAC, on behalf of all the OECD member countries participating in its activities and after a year of discussions, agreed on an ambitious 20-year plan to ease suffering in developing nations and improve living standards there. Among the goals are:

-to cut the number of the world's poorest in half by 2015. (Today, an estimated 1.3 billion people live in 'extreme poverty', defined as subsisting on the equivalent of a dollar or less a day);
-to reduce infant mortality by two thirds worldwide by 2015, and make family planning, including access to contraceptives (but not abortion), available to all families;
-help all developing nations put into place an environmental protection plan by 2015 to curb pollution and the wasting of natural resources.

The Rapporteur wishes to pay tribute to the OECD for making this long-term commitment, even though it is not yet clear what instruments the DAC and the OECD will use or create to make it come true. He hopes that it will reverse the trend of diminishing development assistance previously referred to.
The OECD also has a Development Centre, in which a large majority of OECD countries participate (as do three non-member countries, Argentina, Brazil and the Republic of Korea). The Centre, which co-operates closely with the Council of Europe's North/South Centre in Lisbon, operates rather autonomously from the rest of the OECD, and no doubt stimulates new ideas with its many activities.
VI.CONCLUDING COMMENTS
a.Follow up to previous enlarged Assembly resolutions.
The enlarged Assembly, in its latest Resolution 1069 (1995) on OECD activities, called on the OECD to do numerous things. Firstly, the Assembly expressed the hope that the Czech Republic, Hungary, Poland, the Slovak Republic and Korea could soon become members. In the case of the Czech Republic and Hungary this is meanwhile the case, and Poland's accession is expected in July 1996. Negotiations for accession are already well advanced with the two other countries mentioned.
The Assembly also called for deepening contacts with numerous other non-member countries, and this is also well under way.
The Assembly's requested the OECD to refine further the general conclusions contained in its 1994 Jobs Study, in particular in order to understand the reasons behind the large differences in unemployment observed among member countries, and in order to improve the means to combat unemployment. A follow-up report which focuses on structural policies to promote employment will be presented to the May 1996 Ministerial meeting.

The enlarged Assembly also asked the OECD to "formulate the major principles to guide development cooperation in the next century". This has also been given a tangible follow-up as reported in chapter V. At the 1996 Ministerial Meeting a report will be considered entitled "Shaping the 21st Century: The Contribution of Development Contribution".
The enlarged Assembly also asked the OECD to "examine further the significance, direction and means of reform in regulatory regimes". As has been mentioned, the OECD is pushing ahead in this field as well.
The enlarged Assembly further encouraged the OECD to "explore and formulate issues (such as labour and social standards, protection of the environment, competition in investment) for subsequent negotiation in the World Trade Organisation and the Bretton Woods institutions". Two relevant reports will go to OECD ministers this year: one on trade, employment and labour standards, and the other on the issue of strengthening the coherence between trade and competition policy.
The enlarged Assembly also welcomed "the OECD's commitment to negotiating, by 1997, in the Multilateral Agreement on Investment which will be open also to non-member countries". As has been mentioned under chapter IV, discussions on the MAI have covered much ground over the last year, and a progress report is being submitted to OECD ministers later in 1996.
The enlarged Assembly also welcomed the OECD's "intensified work against combat and bribery and corruption in international transactions". Two pertinent reports will be presented to OECD ministers in 1996. One concerns the implementation of the recommendations on bribery in international business transactions; the other deals with anti-corruption proposals for bilateral aid procurement and includes a Recommendation on the non-tax deductibility of bribes to foreign public officials.
The Assembly also asked the OECD to "pay greater attention to (other previous recommendations of the enlarged Assembly) such as ways of reaching greater international currency stability, the economic and social consequences of reduced military outlay..." (an issue returned to this year by a member of the Canadian delegation), and asked it to "continue to monitor the effects of financial deregulation on the world economy". The Rapporteur was informed that at over the past twelve months, the OECD Economic Policy Committee has discussed the issue of financial liberalisation and macroeconomic stability, and that it is currently monitoring the problem of stability and sustainability on the international scene, including exchange rate developments.
The above list of OECD follow-up is not complete, yet it shows that the OECD is taking action on several issues of great concern to the enlarged Assembly.
b.The OECD and the future
The end of super-power confrontation has led to economic issues taking the centre stage in world affairs. OECD countries stand before extremely difficult choices and an uncertain economic future. The established industrialised market economies have to see about their own economic development or they may soon be overtaken by emerging economies - a development which is all the more welcome as it was deemed Utopian only some 20 years ago. Many OECD countries have grown staid in their structures, timid in their responses to problems which, unless corrected in time, may in due course become insurmountable.

The long-term consequence of the contacts mentioned in Chapter V (The OECD's enlargement and outreach) may well be an OECD comprising as members all economically advanced democracies in the world. However desirable this may be, it could also put a strain on the efficiency of the Organisation and force it to change its working methods. It is possible that the periods of informal contact with candidate countries will be longer in the future, and the criteria for membership more exacting. As important as it is for the OECD to remain open and selective in its relations with member countries, as vital it is that it maintain the high standards established over the years.
No other international organisation commands the same breadth and depth of expertise in economic and social policy analysis as the OECD. It is in a unique situation both to conduct interdisciplinary work and to monitor and evaluate future developments. Examples of the former are the recent Jobs Study and the ongoing activities combining trade and competition, investment and the environment. With respect to work on the longer-term future, the OECD's International Futures Programme has recently examined the possibility of global capital shortages in the decades ahead, as well as China's likely long-term economic and social development. It is currently planning a conference on issues surrounding globalisation and social cohesion. The Rapporteur takes great encouragement in the previously referred to statements by the new OECD Secretary General to turn the Organisation into a more active force in the international economic debate. At the same time Mr Johnston ensured the Committee on Economic Affairs and Development in June 1996 that he would in no way permit the OECD to become 'politicised' or partisan in any way - a role where it would soon lose its long-established reputation for objectivity and impartiality.
Indeed, we politicians face a whole range of economic and social issues which promise to have far-reaching repercussions on our economies and societies in the years ahead. There is, to begin with, the problem of reducing the public debt deficits through a reform of the health, pensions and public services systems.
Related to this is the ageing of the population that can be observed in the majority of OECD countries, including the United States and Japan. While this may lead to a reduction in unemployment it also makes the financing of pensions more acute. The ageing issue was very prominent during the committee's meeting with the OECD Secretary General in June 1996. One OECD official said that its impact on the public health systems and pension systems in OECD member countries would be enormous. He saw private schemes as a possible way to obviate these problems. Numerous members of the committee joined the OECD in expressing their great concern over this situation.
More generally, we need to ask ourselves how long we can continue to pursue 'business as usual' as regards economic policy. Is there a crisis of economic policy? Do we need to take new factors into account, possibly different from those we have inherited from the agricultural and industrial eras.
Will populations become disaffected with the way we politicians manage the economy? Will protectionism come back as a backlash against the "down-sizing" pursued in all sectors of the economy? Do we need to look afresh at the issue of working time, the different types of work we reward, or do not reward?
Is there also a crisis of society, in that we neglect those near to us in our search for ever greater profits? What values do we transmit to our children, and what values do we let them absorb through the media?
These are just a few of the questions that we, and the OECD, must ask ourselves, and urgently. A paradox resides in the fact that never in the past has more of the world been involved in the global economy, yet at the same time we seem unable to reconcile this extraordinary opportunity with the prospect of greater happiness and a more humane society built on peace, co-operation, tolerance and norms. It will be too much to ask any one organisation, such as the OECD, to provide all the answers. Nevertheless, if given the right resources it can help us along some of the way.
In conclusion, the Rapporteur submits for the enlarged Assembly's attention the text of a draft Resolution which was provisionally adopted at the committee's meeting in Paris in June 1996. No doubt this text will be amended and expanded at the meeting of the enlarged Committee in September 1996 preceding the debate in the enlarged Assembly. The aim, as in previous years, will be to arrive at a comprehensive, OECD and Council of Europe - wide, statement not only on the OECD and its work but on the world economic situation as a whole as seen by the parliamentary representatives of all the countries concerned. The Rapporteur is, like all his committee colleagues, very much heartened by the stated wish of Mr Johnston, the OECD's new Secretary General, to maintain the closest possible links with the parliamentarians of OECD member countries, and particularly with the members of the enlarged Assembly. We look forward to welcoming him to the enlarged Assembly's debate in September this year.

Reporting committee: Committee on Economic Affairs and Development

Budget implications for the Assembly: none

Reference to committee: standing mandate

Draft resolution provisionally adopted by the committee on 21 June 1996

Secretaries of the committee: MM. Torbiorn and Bertozzi

Footnote: 1This provisonal report is distributed in conformity with Rule 28 (2) of the Rules of Procedure. The enlarged committee will vote on the draft resolution on 24 September 1996.

Footnote: 2By the Committee on Economic Affairs and Development