5 October 1994

Doc. 7123

1403-5/10/94-12-E

REPORT

in reply to the report on

OECD activities in 1993

(Rapporteur: Mr BLOETZER,

Switzerland, 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 and trade issues following the successful conclusion of the GATT Uruguay Round.

      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 and the Newly Independent States. Finally, the report discusses the follow-up given to previous resolutions of the enlarged Assembly, and the Organisation's future role.

I. 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 1993 annual report and the reports established in reply by the enlarged Assembly committees concerned.

A.       Economic policies and co-operation in related fields

2.       The world economy is undergoing profound and rapid change, driven by new technology, the rise of new economic centres, globalisation of business and ever fiercer competition. How the international community deals with this challenge will determine its prosperity and prospects for peace. The successful conclusion of the GATT Uruguay Round in December 1993 and the forthcoming establishment of a World Trade Organisation are positive developments toward improved global economic co-operation.

3.       Following an unusually long and severe recession, economic activity is steadily gathering strength in the OECD area, aided by greater consumer and producer confidence. Growth in the OECD area is expected to reach 2,6 % in 1994 and 2,9 % in 1995. The recovery is well established in North America, and it is becoming apparent in an increasing number of European countries. In Japan, economic activity is still hesitant. In a hopeful sign, world merchandise trade is expected to increase by nearly 7% in 1994, approaching the expansion rates of the late 1980s.

4.       The overall cautious outlook for OECD member countries contrasts with the much stronger growth rates experienced by countries in east and south-east Asia and Latin America, and by China. The situation in central and eastern Europe varies considerably — from the consolidation observed in for example Poland, the Czech Republic and Hungary, to the continued decline of the Russian economy. Large parts of sub-Saharan Africa show stagnating or even negative growth, and are in need of substantial economic aid.

5.       Unemployment in the OECD area is expected to reach an unacceptable 35 million in 1994 or 8,5% of the work force, varying from 6,3% in the United States to nearly 12% in European OECD member countries. Although worsened as a result of the recession, unemployment must be considered a structural phenomenon of the highest importance for the future of society, thus requiring new solutions.

6.       Inflation continues to be low, and is expected to stand at 2,1% in 1994 for the OECD area, laying the foundation for stable and sustained growth over the longer term.

7.       The enlarged Assembly calls on OECD member countries:

      i.       to continue vigorously to fight unemployment, by pursuing macro-economic and structural policies which produce strong, sustainable and non-inflationary growth and greater employment opportunities. The enlarged Assembly in this context notes the recommendations in the OECD's employment/unemployment study, which are founded both on society's solidarity with those out of work and on greater work flexibility, also as regards the mobility of the labour force;

      ii.       to concentrate on efforts to raise the educational and skill levels of the work force, in particular for the long-term unemployed and lower skilled, thereby preparing them for ever more intensive world competition and the greater trade opportunities that result therefrom;

      iii.        to consider seriously the possibility of more flexible working time, at the enterprise level, while maintaining productivity and competitiveness;

      iv.       to pursue structural reform, which tackle "social deficits" and enhance macroeconomic policies, thus enabling member countries to adjust to and benefit from the fundamental changes under way in the world economy;

      v.       to continue along the path of reducing budget deficits, an action necessary to contain interest rates and permit sustained economic recovery;

      vi.       to reduce national debts by reviewing public expenditure and tax break policies, and by closing personal and corporate loopholes to the greatest possible extent, so as to increase revenues;

      vii.       to work towards a reduction of the large current account imbalances which continue to hamper the smooth functioning of the world economy, especially through more open trade and transparency of national economies;

      viii.       to implement within the agreed period, and respectfully and effectively the rules and liberalisation commitments contained in the Uruguay Round package and resist protectionism;

      ix.       to work towards a reduction of the volatility of currency movements, possibly by agreed target zones for the major currencies.

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

      i.       to abandon protectionism expeditiously, in their trade and investment relations with these countries, thereby fostering the latters' integration into the world economy, and, through the World Trade Organisation and other multilateral organisations, assist developing countries in the transition of adopting the rules and disciplines of the multilateral economic system - and into the framework of the rules and disciplines of the multilateral economic system;

      ii.       in addition, to consider special measures for the Least Developed Countries, especially in sub-Saharan Africa, to improve their global trade prospects;

      iii.       to assist developing countries as they attempt the difficult process of reforming their economies - and to help them establish socially-just and environmentally-sound, market economies, based on democracy, human rights, the rule of law and efficient, well-respected institutions;

      iv.       to ensure that their investments in development programming are based on sound policies, to engage in a dialogue intended to increase the effectiveness of development activities, and to observe policy coherence among debt, trade, aid and migration policies should also be strengthened.

9.       The enlarged Assembly also calls on OECD member countries, in their relations with developing countries:

      i.       to pursue implementation of the OECD Development Assistance Committee's new policy guidelines for development co-operation, stressing "participatory development" implying the mobilisation of human resources throughout the population in recipient countries, and requiring "good governance";

      ii.       in particular to examine, on a regular basis within the OECD's Development Assistance Committee, whether the above principles are met.

10.       Relative to OECD, the enlarged Assembly:

      i.       welcomes the release of OECD's Employment/Unemployment Study and its decision to carry work forward, including by deepening and differentiating the analysis and policy recommendations through cross country work and by country;

      ii.       calls on the organisation to further develop its work in this field by presenting policy recommendations that will operate on several fronts, including:

      —re       moving disincentives to work and hire, through better designed social security and tax systems;—

      —in       creasing the individual's employability through better education, transition to work and on-the-job training;—

      —cr       eating new jobs by encouraging the creation and growth of businesses and the diffusion of technology; and —

      —ad       hering to macroeconomic policies that both encourage growth and make it sustainable;ii

      iii.       asks governments and parliaments to do their utmost to follow up the many valuable conclusions and recommendations contained in this study;

      iv.       encourages OECD to deepen its considerable work aimed at assisting economic reform in the countries of central and eastern Europe, the Newly Independent States and the economies in transition in Asia. The enlarged Assembly regards the projects launched by OECD's Centre for Co-operation with Economies in Transition as valuable tools toward this end, and asks OECD to ensure adequate co-ordination with other international institutions;

      v.       calls on the organisation to lay the conceptual foundation for a strategy of worldwide trade liberalisation within the framework of the future World Trade Organisation and other Bretton Woods institutions, emphasising the interface between international trade and national policies, in areas such as the environment, labour standards, competition, investment, and subsidies;

      vi.       particularly welcomes OECD's recommendation on bribery in international business transactions and endorses the organisation's efforts to promote its effective observance. It draws attention in this context to the Council of Europe's Convention on laundering, search, seizure and proceeds from crime, and the Council of Europe/OECD Convention on Mutual Administrative Assistance in Tax Matters, to which all Council of Europe and OECD countries can accede;

      vii.       notes with satisfaction the follow-up given by OECD to a number of recommendations for action made by the enlarged Assembly in its Resolution 1014 (1993) on OECD activities. These include membership expansion, as well as activities in the fields of fiscal consolidation, potential global capital shortages, the globalisation of capital movements, the longer-term consequences of structural change, and intensified assistance to the economies in transition;

      viii.       calls for a study on the apparent worldwide convergence of long-term interest rates, brought about by the liberalisation of capital movements, and on the negative impact of this process on regions experiencing lower economic growth;

      ix.       observes, however, that other activities called for in previous Assembly resolutions have not been awarded sufficient attention. These include ways of combating poverty, the importance of sound social policies in achieving economic growth and employment objectives, and the means to achieve greater currency stability and the economic and social implications of reduced military outlays;

      x.       strongly supports the work of OECD's Development Assistance Committee (DAC) as it develops a strategy to integrate into its policy framework the concept of environmentally sustainable development, assuring human dignity, as defined by the United Nations Conference on the Environment and Development;

      xi.        calls on the organisation to address the serious terms of trade losses of commodity exporters, on the understanding that financial compensation could be used to promote diversification into more promising products or markets.

11.       Furthermore, the enlarged Assembly reiterates the call made in its Resolution 988 (1992) for OECD to undertake an annual review of the implementation of the key orientations given in its policy statement "Development co-operation in the 1990s", while taking into account the criteria for development co-operation suggested in that resolution by the enlarged Assembly;

12.       Relative to OECD membership, the enlarged Assembly:

      i.       expresses the hope that the accession of new members will serve to strengthen pluralist parliamentary democracy and social justice in these countries;

      ii.       welcomes Mexico's recent accession to OECD;

      iii.       welcomes Korea's intention to make a formal application for membership this year with a view to becoming a member by the end of 1996 and notes with satisfaction OECD's commitment to starting the accession process as soon as Korea is ready to do so;

      iv.       notes with satisfaction OECD's commitment to starting the accession process also for the Czech Republic, Hungary, Poland and the Slovak Republic. The enlarged Assembly hopes that it will bring early results, and that it can be extended to other countries which meet the obligations and principles that follow from membership;

      v.       also notes with satisfaction the "Declaration on co-operation" recently signed with Russia, and hopes that it will establish a forum for detailed dialogue on necessary economic reform in that country;

      vi.       welcomes the steadily deepening dialogue with several other countries referred to as the Dynamic Non-Member Economies (DNMEs), and recommends that — apart from criteria such as a market economy and the adherence to a multilateral open trade system — democratic rule and respect of human and social rights should also be taken into consideration;

      vii.       welcomes the expanding contacts with other increasingly important economies, such as China, and hopes that OECD's contacts with non-member economies will promote the spread of OECD's aims and principles, and enable the organisation to tackle more efficiently the global challenges facing it.

13.       The enlarged Assembly is, however, concerned that a considerably enlarged OECD membership may also cause practical difficulties, and encourages the organisation to take the necessary measures to overcome them.

14.       Membership criteria should reflect, inter alia, the level of economic development, progress toward democratic government, and willingness to engage in a peer review. Most importantly, membership is contingent on countries assuming all the obligations and responsibilities of membership.

15.       It is important that OECD engage in close co-ordination with other international institutions active in the economic field, so as to avoid any overlap of activities.

16.       It is important to ensure adherence by all OECD member countries to the obligations and principles that follow from membership, especially as regards an open, multilateral trade system and the free movement of payments and capital. Member countries must preserve OECD's role as an intergovernmental "think tank" for understanding an increasingly complex international reality, for identifying at an early stage upcoming issues and opportunities, and for agreeing on ways to approach them.

17.       The OECD should continue to focus on conditions in non-OECD countries, and in particular on development in the poorest countries. Given increasing budget constraints and the increasing scope and complexity of Third World demands, continuing efforts to maximize the effective value of aid expenditures is critical. To that end, the DAC should continue to evaluate the quality, relevance and environmental impact of aid, with due respect to the social and cultural values of the receiving countries.

B.       Agriculture and rural development

18.       The enlarged Assembly requests governments of OECD member countries and, where appropriate, OECD itself:

      i.       to analyses likely short and long term effects of the GATT agreement signed in April 1994 and, to this effect, improve the statistical and analytical instruments necessary for the monitoring of agricultural and rural policy reform, including for the annual monitoring and outlook report on agricultural policies, markets and trade;

      ii.       to give particular emphasis to policy measures which would strengthen rural economies;

      iii.       to pursue this goal by encouraging local entrepreneurial developments and job creations in the agro-food and related sectors (including aquaculture, forestry and fisheries), and in other economic sectors (tourism, telecommunications, crafts, etc.) and to give more emphasis to the role of local markets for agricultural and rural development;

      iv.       to maintain an adequate level of services and infrastructures in rural areas in order to make the countryside a viable place to live;

      v.       to continue work on the interrelations between agricultural and environmental policy and strengthen the co-operation between the agricultural and environmental committees in this field paying, special attention to policy reforms which would favour the sustainable use of natural resources;

      vi.       to increasingly include in such policies evaluation and compensation for the farmer's contribution to the maintenance of common goods, such as the environment and the landscape;

      vii.       to work for the introduction of renewable energies and materials that can be produced by agriculture on an economically sound basis, or can make use of agricultural land, including aquaculture and forestry;

      viii.       to make this expertise available to the new democracies of central and eastern Europe and other economies in transition, including developing countries, in particular through studies on necessary policy reforms as well as through special activities dealing with major challenges for the reform process (development of markets, setting up of financial institutions, improvements of education and training);

      ix.       to continue and strengthen work on the economic and sustainable management of living marine resources.

C.       Migration, refugees and demography

      The enlarged Assembly invites OECD;

      i.       to step up its work on the regulation of migration, particularly by helping to boost co-operation between countries of origin and host countries, and by emphasising the close link between migration and development;

      ii.       to continue to extend the network of correspondents contributing to the Continuous Reporting System on Migration (SOPEMI);

      iii.       to ensure that policies for sustainable development take into account demographic indicators and the social and economic variables which influence them;

      iv.       to continue to study the ageing of the population and its consequences for the welfare policies of member states of OECD;

      v.       generally speaking, to strengthen co-operation with the Council of Europe on matters of migration and demography, such co-operation being based on a regular exchange of information relating to the respective work of the two organisations and on the complementary nature of their activities."

D.       Environment, regional planning and local authorities

      The enlarged Assembly invites the Governments of OECD member states and OECD itself:

i.       to introduce energy policies centred on the improvement of energy efficiency, the development of renewable sources of energy and safety;

ii.       to step up international co-operation in order to make more rapid headway with sophisticated efficient energy technologies;

iii.       to continue appraisal of environmental impact in order to identify the least expensive and most effective solutions;

iv.       to introduce practical and rapid measures which represent a real solution to the key issue of the deterioration of our environment;

v.       to boost co-operation with countries in a period of transition to enable them to meet the challenge of rapid economic growth without harming the environment.

II. Explanatory memorandum

by Mr BLOETZER

Contents

Page

I.       Introduction        10

II.       The world economic situation, with particular emphasis on the OECD

area. Growth, unemployment, inflation and other factors        10

III.       Unemployment        13

IV.       The implementation of the GATT Uruguay Round:

      The new trade agenda        18

V.       OECD in an evolving world economic context        20

      1.        Enlargement and outreach       20

      2.       Relations with central and eastern Europe and

      the Newly Independent States (NIS)        21

      3.       Development co-operation        24

VI.       Concluding comments        26

      1.       Follow-up to past enlarged Assembly resolutions        26

      2.       The OECD of the future        26

I. Introduction

1.       The debate in the Parliamentary Assembly on OECD activities will be held on 6 October 1994. Following the reform of the rules governing the debate, parliamentary delegations coming from OECD countries which are not members of the Council of Europe will participate with exactly the same rights (to vote and present amendments both in committee and in plenary Assembly) as delegations from the member states of the Council of Europe. In addition, the European Parliament can participate in an observer capacity, with a right to present amendments.

2.       This report has been revised in the light of the discussion which the Committee on Economic Affairs and Development held with the Secretary General of OECD and senior officials of the organisation on 27 June 1994. It also builds on the results of the OECD ministerial meeting, held on 7 and 8 June.

3.       Finally, a delegation composed of members of the United States House of Representatives held an exchange of views on OECD activities and on the present report with a delegation of the Parliamentary Assembly on 15 and 16 September 1994, at OECD headquarters in Paris. The discussion was very fruitful and dealt extensively with matters such as unemployment and trade issues. The United States delegation in a subsequent letter to the Rapporteur spoke of the wish for a "sustained relationship" with the Council of Europe which "would benefit all parties as the global community seeks to expand trade and open new markets, confront new and old security threats in the post-Soviet era, and charge co-operatively the course for the twenty-first century".

4.       Your Rapporteur does not aspire to completeness. For that the activities of OECD are too varied and manifold, apart from the fact that many of them will be covered in the contributions of other enlarged Assembly committees. Instead, it will concentrate on four priority areas:

      —th       e general economic situation in the OECD area and the rest of the world;—

      —th       e burning problem of unemployment; —

      —th       e post-Uruguay Round agenda; and—

      —OE       CD in the world economic context, especially as regards the organisation's enlargement and relations with central and eastern Europe, the Newly Independent States (NIS) and development countries.II

II. The world economic situation, with particular emphasis on the

OECD area. Growth, unemployment, inflation and other factors

5.       Following an unusually long and severe recession, economic growth is steadily gathering strength in the OECD area. Thus, OECD, in its June 1994 "Economic Outlook", talks of "well-established recoveries" in North America, the United Kingdom, Australia and New Zealand, and says that "recover is becoming apparent in an increasing number of continental European countries".

6.       For continental Europe as a whole, however, the expansion of domestic demand is modest. In Japan, economic activity is still hesitant, although recent indicators are encouraging. OECD now predicts an overall growth in the OECD area in 1994 of 2,6%, and of 2,9% in 1995 (following a 1,2% growth only in 1993). The strongest recovery is expected in the United States, at 4% this year, with a lowering to 3% in 1995. A tightening of interest rates is likely in that country, in order to contain any rekindling of inflation.

7.       OECD is cautiously optimistic at this stage, for the first time in some years. The organisation speaks of a "desynchronisation of growth rates" among different OECD economies, but at the same time it expects growth rates to come closer to each other over the next two years. The more optimistic note is also based on indications that confidence is slowly returning, first to the business sector and maybe later also to consumers. Characteristically, the OECD Ministerial Council in June 1994 spoke of recovery as "taking root .... and gradually gathering pace, allowing for an improved outlook for 1994 and 1995".

8.       A subsequent chapter in this report will be devoted to the unemployment problem, but a few figures will be given already here. Generally speaking, the much hoped-for reduction in unemployment will come only with a certain delay after economic growth has resumed. Some reduction is already being seen in the United States (current unemployment rate: 6,5%), the United Kingdom (9.7%), Canada (11%) and Australia (10,4%).

9.       However, in continental Europe and Japan the situation is still worsening. Unemployment in the continental European OECD member countries could reach 12% toward the end of 1994, up from 11,5% at present. In Japan it stands at 3% of the work force, but "hidden" unemployment in companies and among women points to a higher real figure, as is the case also in Europe and North America.

10.       Unemployment in the OECD area as a whole now stands at 8,25%. It could reach 8,5% by the end of 1994, with only a limited reduction expected in 1995. To sum up, a resumption of economic growth in the OECD area may be able to halt the increase of unemployment, but it is not likely to solve the problem.

11.       On a more positive note, inflation is at present lower than at any time over the last twenty or so years. It is likely to remain subdued, at 2,1% in the OECD area (not including Turkey). In OECD Europe it is expected at 2,9% in 1994, and at 2,1% in the United States. OECD expects some eight OECD member countries to have an inflation of less than 2% next year, and twenty to have less than 3%. In conclusion, a long period of low inflation may have started, even though there can never be any place for complacency in fighting this phenomenon.

12.       Large, structural current account imbalances between countries and world regions continue to plague the world economy, in particular between Japan on the one hand, and the United States and Europe on the other. One of the major tasks for the world community will be to deal with them constructively. The United States current account deficit now stands at 2% of GDP and is unlikely to shrink any further in the near future. The current account surplus of Japan vis-à-vis the rest of the world, stands at 3% of GDP, but could come down to 2,5% in 1995 if determined action is being taken.

13.       World trade, which increased by 3.3% in 1993, is expected to grow by 6,7% this year and 7,2% in 1995, thus returning to the rates of the late 1980s. Trade among OECD countries, which actually fell in 1993, is expected to increase again in 1994, perhaps by 5%, and to 6% or more in 1995.

14.       The picture would not be complete without referring to central and eastern Europe (to be dealt with in greater detail in Chapter IV), and to south-east Asia, China and Latin America. Central and east European countries — such as Poland, the Czech Republic and Hungary — experienced a certain economic consolidation in 1993, even though only Poland had actual growth (4%). Most central and east European countries saw their exports decline in that year (but Czech exports actually rose), while imports have generally increased. Some, such as Russia, experienced further falls in industrial production, whereas the latter stabilised in others, such as the Slovak Republic, Romania and Bulgaria. Overall growth in the region, excluding Russia, is predicted by OECD at 2% in 1994 and 3% in 1995.

15.       OECD's rather sober outlook for Europe contrasts with generally more upbeat predictions for Asia and Latin America. Growth in the so-called dynamic Asian economies (Republic of Korea, Taiwan, Hong Kong, Singapore, Thailand and Malaysia) stood at about 6.4% in 1993, and the rate will hold or even rise in 1994 and 1995.

16.       China's growth was a spectacular 13% in 1993, with a slight cooling — to around 10% — foreseen for 1994. For Latin America the figure for last year was 4%, a rate expected to be maintained this year and the next. Strong increases in domestic demand and intra-regional trade help explain this impressive development. In addition, the "pulling power" of Chinese demand is a positive factor in South-East Asia.

17.       Africa, sadly enough, provides the exception to the strong overall growth in much of the developing world. Especially sub-Saharan Africa seems for various reasons to be increasingly detached from the rest of the world economy, with stagnating or even negative growth. This is something to which the Rapporteur will return in Chapter IV.

18.       OECD countries on the whole seem to be learning fast from certain policy mistakes of the past, especially those made in the heady years of the 1980s. Strong efforts are being made to consolidate fiscal policy, of particular importance for keeping interest rates down and permitting sustained economic recovery. Sound public finances are vital, especially in order to reduce the burden which monetary policy (in particular money supply and central bank interest rates) has for so long had to carry alone.

19.       Improved confidence in long-term government finances will strengthen business and household spending. Household savings, which have been relatively high over the last few years given the general uncertainty about the economy (and fear of unemployment) could in this situation be reduced, raising consumption. Business investment may experience a revival, as is already apparent in the United States.

20.       Yet there is a long way to go before OECD economies can be said to have "turned the corner" in terms of fiscal balance and debt. In 1989 the overall fiscal deficit in OECD countries was 1,2% of GDP. In 1990 it had almost doubled, to 2,1%, followed by another doubling, to 4,2%, in 1993. Following the measures which are now being implemented or planned, it is expected to be reduced to 3,3% of GDP in 1995.

21.       Meantime, OECD countries' debt in relation to their GDP stood at less than 60% in the late 1980s. In 1993 it was 67,4%, and it is expected to rise to well over 70% in 1995. It is not expected to start coming down until the late 1990s, provided of course that countries stick to firm policies. OECD maintains that it will be more important than ever to pursue structural reform of our economies as economic activity picks up. We missed the chance during the "good" years in the latter half of the 1980s. If we miss this one the future debt burden will make economic recovery even more difficult.

III. Unemployment

22.       The reader will not be surprised at the attention given in this report to the scourge of unemployment, which is eating away like a cancer at our societies. The number of registered unemployed in the OECD area will climb to 35 million this year, and overall projections offer little hope of any marked improvement before the turn of the century. The social cohesion of our countries is under threat, and important changes in the way we run things will be required if we are successfully to tackle this problem. This was also the conclusion of the OECD Forum for the Future Conference called "OECD Societies in Transition: The Future of Work and Leisure" held in Paris in January 1994. OECD ministers at their June 1994 meeting for their part rightly called unemployment "... an unacceptable waste of human potential [and] an ordeal for those concerned — especially young people and the long-term unemployed ...".

23.       Seen over time unemployment rates have risen ever since the 1960s. In Japan, the rise has so far been modest (see Chapter I), while in the United States unemployment has fluctuated cyclically around a slightly rising trend. However, the unemployment rate in OECD Europe, which rose above 10% already in the early 1980s, is now again increasing. EFTA member countries have all attained record levels of unemployment in the 1990s, and recent rises in Finland, Norway, Sweden and Switzerland have been quite dramatic when compared with previous years.

24.       The pessimists are quick to point out that the private sector in European OECD member countries has not witnessed any net employment growth for the last twenty years. Apparently, the previous link between economic growth and increasing employment seems to have been weakened. Pessimists will also point to the "maturing" of certain service sectors that have hitherto contributed to growth in employment, such as banking, financial services, insurance and transport — all as a result of technological development and market integration. Finally, they will point to the trend of companies to locate services and manufacturing to lower-wage, developing countries.

25.       The optimists for their part point to the emergence of future "growth centres" in Asia, Latin America and central and eastern Europe, arguing that these will provide vast markets as they expand. Furthermore, they say, let us not underestimate the vitality of OECD economies themselves, not only in their ability to adjust, but also in their capacity to generate new products, services and hence employment. Small-and medium-sized enterprises are supposed to play a vital role in this economic renewal. The optimists also see the successful conclusion of the Uruguay Round and NAFTA (North American Free Trade Agreement) — and the consolidation of the European Single Market (the "1992" project, as expanded through the European Economic Area) as providing a long-term boost to economic consolidation.

26.       Whichever camp is more correct, it is generally agreed that annual growth rates in our economies need to be at least 2,5% if we are to ward off any further deterioration in unemployment. Although unemployment seems to be a general OECD area — and indeed world — problem, the picture is particularly bleak in Europe. Furthermore, the contrast with in particular the United States is stark. Not only has total employment grown much more rapidly in the United States of America than in Europe since 1970. In addition, the proportion of the population of working age that have a job has risen by over 10% in the United States, while it has fallen by more than 5% in the European Union countries. If we look at the private sector, the comparison is even worse: the slight total employment growth that occurred in the European Union as a whole over the last twenty years was due to public rather than private sector expansion. This tendency was even more pronounced in several EFTA countries.

27.       In the wake of the oil crises of 1973 and 1979 it was common to blame rises in unemployment on higher energy costs. By now, however, oil costs no more in real terms than it did before the first oil price shock in 1973. It also used to be true that real wages in Europe grew faster during the 1970s than was warranted by the growth in productivity. This, it was believed, created a squeeze on company profits and hence unemployment.

28.       However, since the early 1970s real wage growth has declined, and the share of total economic resources going to wages has fallen back to the level it had around 1970.

29.       If, therefore, we cannot hold either energy prices or "excessive" real wage growth responsible any longer for high unemployment, we have to look deeper. Could it be that unemployment has become its own driving force? Has it reproduced and fed on itself, in the process becoming more a structural than a cyclical problem in our societies?

30.       This is at least one conclusion in the "Employment/unemployment study policy report" prepared by OECD following the 1992 OECD Ministerial Council and finished in time for this year's ministerial meeting. It forms a comprehensive research effort on the reasons for and the remedies to the disappointing progress in reducing unemployment, and will also be discussed at the G-7 summit meeting in Naples in July 1994. What follows is a summary of its main conclusions, as well as of the discussions the Rapporteur held during his visit to OECD in April 1994.

31.       Another message from the study is that member countries have to become more innovative than in the past — in particular since the traditional, Keynesian method of combating unemployment through budgetary expansion can hardly be used any longer due to countries' debt situation. As was pointed out in Chapter II, the ratio of government debt to GDP increased enormously during the 1970s and 1980s. Many OECD countries have budget deficits close to record levels. Thus, the scope for expansionary action is severely limited. Indeed, the current high budget deficits also tell a story about their lack of effectiveness, for if they were the answer then we would long ago have eliminated unemployment!

32.       OECD has for a long time been aware of the impact of technological development on the economy in general, and on employment in particular. Its 1988-92 Technology Economy Programme (TEP) had as its goal to arrive at a better understanding, and measurement, of the "synergy" between technological change, the economy and the society, thus preparing the ground for proper policy responses. (The G-7 group of major industrialised countries has requested OECD to examine precisely this subject.) Since the conclusion of the TEP programme has been highlighted in previous Assembly reports on OECD activities, your Rapporteur wishes to go a step further in his discussion of this important subject.

33.       The media these days talk a lot about a "super information highway" that will affect every aspect of our private and professional lives. It is not only the "500 television channels" that may consternate us, or "interactive computer games", or "interactive films" (where the viewer can opt for different continuations of the plot). Experts predicts a swift merging of fibre optics, micro-processors, digital switches and video. Together, these will form a seamless web — the "information super highway".

34.       OECD's Employment/unemployment study concludes that new information technologies will require, even more than in the past, far-reaching changes in our social environment, our attitudes, and the way we work. Only if these conditions are met will potential productivity gains be realised, OECD concludes. Furthermore, it believes that if we use them effectively they should be able to foster long-term employment, rather than threatening it. It is clear that new technology eliminates certain types of activities. The question is: can it produce new, different work?

35.       Much of the discussion in OECD and Council of Europe member states is focused on a perceived "global shift" of manufacturing — as well as, increasingly — service employment away from well-to-do countries to countries with lower labour costs, for instance in east Asia. The argument is that the "employment content" of imports from non-OECD countries is greater than the "employment content" of OECD exports. Conventional economic theory holds that the fact of importing cheaper products and services leads to "gains from trade", and from there to increased real incomes and higher domestic demand. OECD still believes this is correct, and that in the long-term trade will not destroy jobs, but increase real incomes.

36.       This appears to be borne out by statistics. The importation of goods into OECD Europe from east Asia in 1992 represented only 1,3% of these countries' GDP — up by only 0,5% (from 0,8%) in 1982. Thus, this minute increase seems an unlikely candidate to explain unemployment.

37.       However, changes in technology and in trade flows appear to have affected the types of employment in demand. Evidence abounds of a decline in the demand for unskilled male labour in OECD countries. OECD observes that unskilled workers have formed a larger and larger part of the total number of jobless during the 1980s and up until the present time. Furthermore, the situation of unskilled workers worsened most in those countries where differences in wages between unskilled and skilled workers remained limited and rigid.

38.       If one central message of OECD's employment/unemployment study is that unemployment, in particular in Europe, is more structural than recessional, another conclusion is that the only way to tackle it successfully over time is to adjust to, rather than to resist, change. The study goes on to make specific recommendations across a whole range of micro-economic policy areas, including education and training.

39.       Some of them are no longer controversial: nurturing an entrepreneurial climate, improving the diffusion of technological know-how, or improving the skills of the labour force. Others touch a more sensitive nerve, namely the reform of social security and unemployment benefits and employment protection measures.

40.       The OECD study draws attention to the role of the level of wages. Wage levels are of vital importance to the individual, for they directly affect his standard of living. Even though, theoretically speaking, wages should fall if an industry's labour costs are too high, a host of institutional arrangements often prevent this from happening. "Employment protection" refers to regulations which make it difficult or expensive for employers to dismiss workers they no longer want to keep. The study suggests that employment protection may encourage a preference for "prime-age workers", whose abilities and experience are proven. The reverse side of the medal is that this could work against job chances for young people and older workers. Similarly, insufficient wage adjustment may preserve good incomes for a few, but may inhibit companies from hiring new workers, or encourage them to move production to lower-wage countries. (The agitated discussion in France about our adaptation of minimum wages for young people entering the labour market shows the sensitivity of this subject.)

41.       Low, indeed declining, geographical mobility of the work force is particularly noticeable in Europe, partly caused by a shortage of housing, as was pointed out in committee. Again, the contrast with the United States is stark. There, geographic mobility between states is an important adjustment mechanism for reducing high unemployment. Over the decades this Rapporteur can remember, there have been massive shifts in the United States work force from the east coast to the west and to the north, from the northern "rust belt" to the "sun belt" of the south, and so on. In Europe, such mobility is rendered much more difficult by national boundaries, as well as by linguistic and cultural differences.

42.       However, it is difficult to draw any far-reaching conclusions as to the advantages and disadvantages associated with different types of labour organisation in different countries. Nobody, for instance, can deny that Japan has been very successful in keeping unemployment low. And yet it has done so with relatively high industrial wages, and small differences in wages among regions. The country also has high direct taxes, a considerable degree of labour market regulation, and limited labour mobility among firms.

43.       Around the world, but especially in Europe, a discussion goes on about whether a reduction in working time could reduce unemployment through so-called "work sharing". Suffice it to say in this context that the matter is complicated. If indeed there is less work to go around, then our societies may well have to adapt by reducing working time. However, the OECD study suggests that any increase in employment due to a reduction in working time is offset by two opposing forces. Firstly, an increase in productivity of the workers that have been retained, making it less necessary to hire new ones. Secondly, an increase in employers' costs per unit of output which reduces competitiveness and thus employment.

44.       The study comes out in support of so-called "active labour market policies" (ALMPs), and says there is considerable scope for further and more effective such policies through careful programme design, implementation and monitoring.

45.       What, then, is the possible role of the level of unemployment benefits on unemployment? OECD evidence, and discussion in the committee, suggests that high unemployment benefits do not necessarily increase unemployment. Rather, benefits tend to do so only when they are not efficiently administered. When new benefits are introduced controls are normally tight. However, these are often difficult to keep up in the face of structural changes in the labour market and an increase in the number of beneficiaries. For instance, whereas in the early stages the unemployed will only receive benefits if they are available for new employment, this criterion tends to become less and less adhered to both by the authorities and by some of the unemployed.

46.       The OECD employment/unemployment study examined many other things, such as the beneficial effect that could be expected from a lessening of the tax burden on the use of labour, in particular low-skilled labour. It also recognises the responsibility of governments to make sure that those who are negatively affected by structural change are given assistance. The winners must continue to compensate the losers in the economic gamble, and labour market reforms should not be allowed to undermine social cohesion. The study also recognises that many of the structural reforms suggested will be politically difficult to implement.

47.       However, resistance to change and the defense of the status quo do not provide a suitable answer, and could indeed be a recipe for even greater social injustice in the future. We only have to think of the long-term unemployed who, in the words of last year's Assembly resolution on OECD activities (Resolution 1014 (1993)) give rise to the "marginalisation of entire categories of citizens and especially the young". Not only do those who go without a job for a long time lose their skills. What is worse, they will also lose their confidence. Getting into the habit of not having anything meaningful to do may be the hardest of all.

48.       Meanwhile, the "insiders", those in secure, stable and well-paid jobs risk gradually forgetting about the others. So far the term "two-thirds society" has been used, meaning that two-thirds have jobs and are well-off. Could it be that in the future, unless we take resolute action, we will have to talk about a "one-third society" instead, where only one-third are paid well and live in job security, whereas the rest drift further and further away from the mainstream of work and community life? What will happen to our social cohesion, to our political systems if this occurs?

49.       Where may new jobs be created? Here there are certain rather clear trends. For example, the share of occupations associated with farming, fishing, textiles, clothing and leather, and simple routine office operations, both in the private and the public sector, seems doomed to further decline. Meanwhile, jobs related to information and communications technology, medical and personal services, media, entertainment, tourism and environmental protection are expected to expand, some of them very substantially.

50.       The borderlines between occupational categories will become increasingly blurred. For instance, the distinction between manufacturing and servicing jobs is daily becoming less meaningful. Up to 80% of the jobs in manufacturing are in fact today non-production, service-type activities, such as engineering, design, sales and marketing. Furthermore, while the manufacturing may continue to shrink, the sector will continue to generate considerable indirect employment.

51.       The emergence of new industries, products and services in such fields as biotechnology, multi-media information and "virtual reality" will create jobs for which currently there is no classification. Nor do service jobs any longer fall easily into the low-paid, low-skill category. In fact, earnings in many service activities have out-stripped those in manufacturing over recent years, while certain relatively low-grade occupations are becoming increasingly skilled in nature.

52.       The jobs of the future, if less definable, can be expected to be more "horizontal" and mobile. They will require computer literacy, language skills, the ability to communicate and deal with people. There may be less emphasis on stable, salaried employment as such, as increasing numbers move from one activity to another.

53.       The many uncertainties as to future labour requirements clearly place an immense burden on the education and training system. The latter will have to respond to a multitude of demands from many age groups and social categories. Conversely, the "capacity for learning" will be even more crucial for tomorrow's citizens. At the committee's June 1994 meeting the question was rightly asked how OECD member countries will at the same time be able to pay more to reduce unemployment, for example for education and training, and reduce budget deficits. Ways will therefore have to be found to use available resources more efficiently.

54.       The Rapporteur has dealt at such length with the unemployment issue because he considers the challenge of overcoming it as absolutely vital to future social peace and the maintenance of democracy. He is therefore happy to note that the 1994 OECD ministerial meeting stated that "member country governments are giving very high priority" to the issue, and that they seem to agree on a way forward after many years of indecision. Significantly, they "reject protectionism of any kind, in order not to preserve artificially yesterday's jobs instead of preparing for those of tomorrow, including new well-paid jobs in emerging sectors". Furthermore, they maintain that "recent technical advances and the expansion of trade and investment create vast new opportunities for OECD countries to expand employment", provided that they show themselves "permanently innovative and able to adjust, constantly improving their economic efficiency".

IV. The implementation of the GATT Uruguay Round: The new trade agenda

55.       When the enlarged Assembly in last year's Resolution 1014 (1993) on OECD activities called for a speedy conclusion of the GATT Uruguay Round, it said that it could imbue a hesitant world economy with new dynamism, and realise economic gains worldwide through enhanced trade.

56.       Now that the Uruguay Round has been successfully negotiated, OECD's role as a "preparatory forum" for the Uruguay Round will find its continuation in helping to ensure that the Round becomes implemented — and also in preparing what is sometimes called the "new trade agenda" to be taken up by the forthcoming, new World Trade Organisation (WTO), planned to come into existence on 1 January 1995. The 1994 OECD ministerial meeting calls the conclusion of the Uruguay Round and the creation of the WTO "historic events which will mark an important step toward a universal trading system, and will enhance world trade leading to new opportunities for employment. They urged speedy ratification of the agreement."

57.        The Rapporteur believes that OECD has a special duty to lay the conceptual foundation for a strategy of worldwide trade liberalisation, not least between its member countries and the countries in central and eastern Europe. OECD ministers in their June 1994 communiqué indeed called on OECD to "actively support ... the WTO in implementing the Uruguay Round agreements and their work programmes. Drawing upon its multidisciplinary strength, OECD also will continue to monitor and analyse areas where further progress with liberalisation and the strengthening of the multilateral system may be required".

58.       OECD worked to prepare many of the issues dealt with in the Uruguay Round, such as services, intellectual property, investment and agriculture. While the Uruguay Round provides a good foundation for the future, the issues it covers (and some which it does not) are in constant evolution. For instance, a rapid globalisation of business is taking place, with new forms of commercial relations between firms and within them. Business wants to operate in an open world economy, and since more and more of them are established all over the world, the pressure in favour of liberalisation will be at least as strong as that in favour of protectionism.

59.       The "new trade agenda" departs from the realisation that future "trade" agreements can no longer be negotiated according to the traditional model. The Uruguay Round may well have been the last of its kind. Instead, large parts of the whole economic system of countries, and of the world, will be negotiated, and one important aspect will be whether this system is conducive or not to the operations of firms.

60.       Increasingly, domestic measures in the trade field of OECD member countries will be up for scrutiny, such as subsidies, anti-dumping and countervailing measures. Trade is more and more affected by policies regarding competition at national or, as in the case of the European Union, regional level.

61.       OECD takes a keen interest in trade issues as they relate to the environment. The organisation believes that trade and environmental protection are not in conflict with one another. It is bringing together trade and environmental experts in joint meetings to try to hammer out principles that can later on guide the WTO in its work.

62.       Work is also intensifying in the field of trade and competition law and policy. As more open trade will lead to more competition, it becomes particularly important to ensure that states do not undermine the effects of trade liberalisation through unfair competition at home.

63.       The same can be said for trade and investment. So-called "TRIMs", or "trade-related investment measures", are included in the Uruguay Round, after having first been conceived and defined within OECD.

64.       While another committee will deal with agriculture as it relates to the Uruguay Round, a few words are nevertheless in place in this report. OECD already in 1987 laid the foundation in a ministerial communiqué for a reform of agriculture in the OECD area. The 1993 OECD ministerial communique gives the figure of $ 354 thousand million in transfers from tax payers and consumers to the agricultural sector in 1992, an increase of 7% over the previous year. Serious distortions continue to affect international markets.

65.       OECD also recognises agricultural's close links with other sectors of the economy, as well as the multiple functions it performs. It has therefore repeatedly called for an integrated approach to agricultural reform, environmental protection and rural development. Such reform becomes all the more urgent when one considers the changes under way in the agriculture of central and eastern Europe. If the OECD area already now suffers from massive agricultural surpluses, and if central and eastern Europe is already increasing its agricultural output, then overproduction and subsidies will become even more difficult to maintain. Fresh thinking and a co-ordinated approach among different world regions are urgently needed to solve this particular problem.

66.       OECD considers it a success that agriculture is now firmly enshrined in the Uruguay Round, and that it will form part of the agenda of the new World Trade Organisation. The organisation believes that agricultural protectionism will be reduced in future years, and with it some of the distortion exercised on international markets. The June 1994 ministerial meeting duly instructed OECD to "ensure that there is no relaxation in the drive to reform agricultural policies". At the same time, OECD is studying measures to mitigate the effects of reform on the farming community.

67.       Other work by OECD to enrich the "new trade agenda" concern services and the taxation of multinational enterprises. Here OECD has rather strict rules, including a services code. Negotiations are under way with some countries seeking OECD membership to see wether they respect these rules.

68.       In the field of multinational companies OECD is concentrating on establishing international rules for so-called "transfer pricing", that is, the prices charged especially within multinational companies for various products or services. Transfer pricing, if not done at "armslength's standard", may mean considerable, possibly illegal, movements of capital between countries. Furthermore, OECD is exploring possibilities of negotiating a new multinational investment agreement, which would be binding on governments and include a mechanism for the settlement of disputes.

69.       If OECD wants to help shape the WTO's environmental agenda, it has to make sure that its member states pursue efficient environmental policies at home. In brief, OECD encourages the integration of environmental and economic policies in key economic sectors, the enhancement of the use of market mechanisms for environmental purposes, improving environmental performance within the OECD region and strengthening international co-operation. The "Environmental performance reviews" undertaken regularly are an expression of this ambition.

70.       Another aim is to reduce pollution in OECD countries, through better waste management, the control of chemical products, air quality management, the promotion of clean technologies, and the improvement of energy efficiency. A final objective is to promote international co-operation both with non-member countries (developing countries, the countries of central and eastern Europe, the NIS and the dynamic Asian economies) and with other international organisations such as the United Nations, in order to tackle such worldwide problems.

71.       The guiding principles — similar to those identified in rural policies — is that the "environmental dimension should form part and parcel of the whole gamut of economic policies". "The State of the Environment" is another regular publication, raising such global environmental problems as ozone depletion, climate change, marine pollution, deforestation, desertification, soil degradation and loss of biological diversity. In conclusion, the Rapporteur encourages OECD to incorporate environmental considerations in all policies under consideration, and to pursue the integrative study of environmental problems which it has pioneered. The aim should be to provide governments with tools, with which they can give environmental concerns their rightful, and much more central, place on the political agenda.

72.       Generally speaking, your Rapporteur is concerned that progress is very slow on the international co-operation aspects of environmental protection, in spite of the numerous conferences convened to discuss these issues. A newly emerging issue, that will also require international consensus, is that of ensuring that internationally recognised labour standards are adequately implemented. A thorough reflection on the best means to achieve this end is needed.

73.       Your Rapporteur considers that OECD has an important preparatory function for the WTO's work in these fields. He is heartened in this context by the instruction given by OECD ministers in June 1994, for OECD to prepare a report on trade and environment containing substantive conclusions as well as a study on "trade, employment and internationally recognised labour standards, including basic concepts, empirical evidence in trade and investment patterns and current mechanisms for promoting higher labour standards world-wide". Reports on both these subjects are to be presented at the OECD ministerial meeting next year.

V. OECD in an evolving world economic context

1.       Enlargement and outreach

74.       For many years OECD remained the "Club of Twenty-four" industrialised market economies. While this preserved a certain homogeneity among the participating countries, it did not alter the fact they are increasingly influenced by a number of rapidly rising nations outside the organisation. In consequence, OECD has over the years developed a closer and closer dialogue with a fair number of countries. One of these was Mexico, which joined OECD on 18 May 1994.

75.       Mexico has made important economic progress over the last decade. With the recently concluded North American Free Trade Agreement between Mexico, the United States and Canada, it has become vital for the organisation to have Mexico in its midst. The Rapporteur, and he is sure, in due course also the Assembly, warmly welcomes Mexico as a new member and looks forward to parliamentary representation from that country in future enlarged debates.

76.       As will be seen below (paragraph 77) the Czech Republic, Hungary, Poland and the Slovak Republic are most likely to become OECD members within the near future, and the Republic of Korea might also accede.

77.       Independent of the question of membership, OECD is steadily deepening its contacts with non-member countries. The "Dialogue with the dynamic non-member economies" — started in 1989 with Hong King, Korea, Malaysia, Singapore, Taiwan and Thailand — is being continued, and a high-level meeting between OECD countries and nations in east and south-east Asia as well as Latin America (Argentina, Brazil and Chile) will be held in Tokyo in October 1994. Its aim will be to chart the future course of relations, including closer co-operation between OECD and regional economic groupings in the regions mentioned. Common to the participating countries is that they will have to meet not only criteria such as a market economy and support for the multilateral open trade system, but also those of democratic rule and respect for human rights, particularly dear to the Council of Europe. The OECD Secretary General, in his discussion with the committee, summed up the organisation's approach to candidate countries as being at the same time "open" and "demanding". The OECD 1994 Ministerial Council also stressed China's growing importance in the world economy, and promised to explore prospects for "dialogue and co-operation". However, Beijing's record on human rights could hamper closer relations.

2.       Relations with central and eastern European countries and the Newly Independent        States (NIS)

78.       The first thing to note as regards OECD's relations with central and eastern Europe is that the Czech Republic, Hungary, Poland and the Slovak Republic — all Council of Europe member states — have applied for OECD membership. The OECD 1994 ministerial meeting said that it "welcomed" the applications, and asked for an "early start of negotiations with each of these countries ... in order to bring each of them into the organisation as soon as each is ready and able to assume all the responsibilities of membership". Needless to say, the Rapporteur, and he is sure the enlarged Assembly with him, fully shares this satisfaction.

79.       OECD ministers in another important passage asked the organisation to "consider how to develop for Bulgaria, Romania and Slovenia, in the light of their recent requests to the organisation, new country-specific programmes tailored to their particular requirements. They note that the other countries, in particular the Baltic states, may be interested in such country-specific programmes". All this illustrates OECD's major, and highly welcome, effort in assisting the transition economies in Europe and Asia.

80.       A "Declaration on co-operation" was signed on the same occasion with Russia, marking "the firm intention of both parties to deepen their existing active co-operation and policy dialogue". Ministers hoped that the agreement would "strengthen the ongoing transition process in Russia and contribute to the full and beneficial integration of this major country into the world economy". Mr André Ouellet, Canada's Minister of Foreign Affairs, hailed it as bringing Russia "closer to the western world and our way of doing business".

81.       The Rapporteur held extensive discussions with OECD officials regarding the situation in central and eastern Europe and in the Newly Independent States (NIS). In view of the importance attached by the Council of Europe to these regions (the thirty-two member state Organisation now counts several of them among its members), it would seem useful briefly to discuss the current economic situation there, before examining OECD's work in this field.

82.       The fundamental transformation which the reforming countries of central and eastern Europe have undergone since 1989 in the first few years produced a severe fall in output. Between 1989 and the first half of 1993, GDP in central and eastern Europe on average fell by around 30%, and industrial production by some 40%. The output collapse in the successor states of the former Soviet Union has been much more severe than in central and eastern Europe. The slump in output was accompanied by high inflation in many countries, deteriorating budget positions, and rising unemployment.

83.       Since 1993, however, the situation has become much more diversified among countries and regions. On the whole, stabilisation of the economy as well as structural reform have been much more pronounced in central and eastern Europe than in the NIS. The economic performance in Council of Europe member states like the Czech Republic, Hungary, Poland and Slovenia improved in 1993, with a particularly strong rise in Poland. Legal and institutional reform has made further progress as well. Financial discipline has been gradually tightened, and the private sector in many of these countries now account for more than 50% of GDP.

84.       Despite these significant advances, macro-economic tensions have persisted or even increased. Inflation has remained at a high level when compared to most OECD member countries, and budget deficits have not come down as hoped. Poland and Hungary have seen deteriorating current account balances, reflecting a surge in imports and reduced exports. Romanian GDP grew slightly (by 1%) last year, mainly because of an increase in agricultural production. Output declined, however, in Slovakia and Bulgaria, which also have seriously widening budget and current account deficits.

85.       For these seven countries — Bulgaria, the Czech Republic, Hungary, Poland, Romania, Slovakia and Slovenia — prospects for 1994 point to some strengthening of output and a slight easing of inflation. Budget deficits are likely to remain high (between 5% and 7% of GDP), while unemployment may reach between 13% and 18% of the labour force (except in the Czech Republic where it is much lower).

86.       In the three Baltic countries of Estonia, Latvia and Lithuania, the drop in GDP appears to have bottomed out in 1993 amid signs of economic growth. After gaining independence in 1991, these countries had to face a dramatic rise in the price of imported energy and raw materials to world market levels, and the destruction of trade flows with the former Soviet Union. The resulting fall in GDP averaged about 50%. After a period of high inflation, stringent efforts were made to stabilise the economies, and national currencies were introduced. Since then, significant progress has been made in reducing domestic imbalances. Continued privatisation, industrial restructuring and a reorientation of trade to the west are pressing issues for each of these countries, as is the adjustment to a less energy-intensive production and consumption.

87.       In the NIS, average output continued to fall substantially in 1993, perhaps by as much as 15%. Russia's GDP is believed to have receded by 12% in 1993, after a 19% fall in 1992. Inflation remains high, with certain countries even registering hyper-inflation — mainly due to widening budget deficits and a lack of control over credit and monetary creation.

88.       It is difficult to predict when recovery in the NIS countries might come about, given political uncertainties and the lack of willingness of many among them to embark on coherent reform. For the non-oil producing NIS countries, the difficulties are compounded by the previously mentioned rise of energy prices to world levels. On the whole, output is likely to fall further this year, although less than in previous years. Much will depend on the future course of stabilisation and structural reform in Russia. The new agreement reached with the International Monetary Fund concerning the so-called Second Tranche of the Structural Transformation Facility, amounting to US$ 1,5 thousand million will, it is hoped, strengthen the ability of the Russian Government to continue reform and fight inflation.

89.       OECD threw itself head-on into the challenge of assisting central and eastern Europe, as well as the NIS. The Centre for Co-operation with European Economies in Transition (CCET) began its activities in 1990, and by now uses over 10% of OECD's total resources, with eighty full-time staff members. Resources are divided roughly equally between the Partners in Transition Programme (PIT) — especially directed toward the Czech Republic, Hungary, Poland and Slovakia — and the NIS Project aimed at the republics of the former Soviet Union. (Assistance is also provided to central and east European countries not participating in the PIT programme.)

90.       The CCET aims at promoting policy dialogue and providing advice on the design and implementation of appropriate policies — including training activities in support of policy implementation and institution building. The centre tries to maintain a balance between multi-country regional activities and more focused country-specific assistance. These activities address the evolving needs and priorities of the beneficiary countries, and reflects their degree of co-operation with OECD. The PIT programme in particular tries to prepare the Visegrad Group countries to meet the conditions for future OECD membership. Indeed, as mentioned the Czech Republic, Hungary, Poland and the Slovak Republic have already formally requested membership.

91.       OECD assistance includes "Country Reviews" of the economic policies and performance of beneficiary countries. They include analyses of specific sectors in each country; advice on privatisation and investment, industry and the environment, as well as taxation.

92.       The CCET has four priorities. The first relates to the restructuring of the enterprise sector and the implications for the labour market and social policies. It covers issues of privatisation and private sector development (in particular small-and medium-sized enterprises) and the promotion of foreign direct investment. Advice is also given on the development of labour market and a social protection system. This seems to the Rapporteur an urgent task, considering that social safety-nets are often not satisfactory and active labour market policies virtually absent in most of the transition countries. One activity concerns the transformation to civilian production of defence industries in Russia — an activity called for in previous enlarged Assembly resolutions.

93.       A second priority of the centre is to help build a legal and institutional framework to support a market-based economy. Tax reform, bankruptcy and legal corporate legislation, accounting, competition policy, financial sector reform and foreign trade are included under this heading.

94.       A third priority concerns statistics, such as the establishment of national accounts and price records, short term economic indicators and business surveys, labour market statistics, agricultural data and government revenue statistics.

95.       A final priority builds on OECD's acquired expertise in various areas, such as trade — in particular the integration of reforming countries into the multinational trading system — agriculture, education, environment, nuclear safety, science, technology and industry, communications and transports.

96.       Another activity through which OECD assists central and eastern Europe is the so-called SIGMA (Support for Improvement in Governance and Management). This is a joint initiative of OECD and the European Union. It aims at helping at present eleven CEECs — Albania, Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia — to transform their public administrations and thereby facilitate economic and political transition. Seventy-five percent of SIGMA's money comes from the European Union's PHARE Programme. SIGMA co-operates closely with the Council of Europe in many activities, which is natural considering the Council's emphasis on the building of efficient administrations, the respect of human rights and the rule of law.

97.       The centre co-operates closely with other multilateral institutions, among them the Council of Europe. It is worth mentioning in this context that OECD has created a computerised data bank — the so-called Register of Technical Assistance — which is playing a useful role in avoiding duplication of effort among international institutions.

98.       The Rapporteur believes that OECD's action on behalf of central and eastern Europe and the NIS group of countries is most useful. Clearly, the transformation process is proving more difficult, lengthy and costly than initially expected. Clearly also the situation of the two main regions — central and eastern Europe and the NIS — is becoming increasingly diversified, as is that among individual countries within the regions. OECD's work constitutes a flexible, diversified and cost-effective approach.

3.       Development co-operation

99.       Development co-operation with the south formed an important part of the Rapporteur's discussions with OECD. The organisation's Development Assistance Committee guides and co-ordinates the official development assistance of all member countries. The DAC's preliminary figures for official development assistance in 1993 show a substantial decrease reflecting budgetary pressures in most member countries. It is not yet clear whether this may be the start of a trend or how different groups of countries are affected. It is clear, however, that the continuing needs for aid and the possibilities for using it effectively must be emphasised. The DAC in 1993 began the process of updating the traditional lists of developing countries, to reflect both the economic progress achieved by an increasing number, and the new recipients of both official development assistance and other official aid. In OECD's annual development co-operation report of 1993, all official aid to the entire range of these countries is being included. This constitutes a rich source of information for anyone interested in the issue.

100.       Considerable debate is going on in the DAC on the efficacy of assistance, following the publication in 1992 of the Manual of DAC Principles for Effective Aid. The emphasis is on "participatory development", that is, one which involves all layers of the population in developing countries. Furthermore, emphasis is laid on the link between "good governance" and democracy, human rights and accountable government. It is to be noted in this context that the June 1994 Ministerial Council endorsed OECD's recommendation on bribery in international business transactions, and invited "member countries and as many non-member countries as possible" to observe it. Furthermore, the organisation was asked to study the "effectiveness and amount of aid needed for the world's poorest countries, especially in sub-Saharan Africa".

101.       Thus, an overarching concept in OECD development thinking is "good governance" and a major new set of DAC orientations in 1993 addressed the complex of questions relating to participatory development, good governance, democratisation and human rights. They imply the building of a "civil society" capable of ensuring democracy and combating corruption. If the belief some decades ago was that money could solve all problems, then it has now given way to the realisation that sustainable human development is a by far more important determinant of success. Your Rapporteur recommends that OECD member countries examine, on a regular basis within the OECD's Development Assistance Committee (DAC), whether the principles of "good governance", a "civil society" including economic and social reform, democratisation, human rights, protection of the environment and non-excessive spending on the miliary are respected by individual recipient countries, ie whether the latter fulfil the conditions for continued assistance.

102.       The emphasis today is on building up the capacity of recipient countries to manage themselves. Donor countries less and less go in with a "blueprint" for development. Instead, the accent is put on working together with the local people to get them involved. For instance, when it comes to building up a system of tax collection, donors usually will say: "You must come up with a plan" instead of "We have a plan for you".

103.       The Rapporteur in general found OECD's work on development co-operation very constructive, and he is convinced that the ongoing dialogue between donor OECD countries about the results of assistance permits a early recognition of mistakes and a correction of policies. The OECD Development Centre — of which recently Argentina and Brazil have become members — has published a series of highly interesting so-called policy briefs on such issues as disarmament in developing countries, environmental management, sustainable development in rural Africa, employment creation and trade liberalisation. The Development Centre is at present working with a large number of non-governmental organisations in order to establish a special register of NGOs active in development co-operation. In this it co-operates closely with the Council of Europe's North-South Centre in Lisbon.

104.       A Conference on "Migration and International Co-operation: Challenges for OECD countries" was organised in Madrid in March 1993 by OECD, jointly with the Canadian and Spanish authorities. In its effort to provide possible responses to accelerating migration movements and increasing numbers of potential emigrants towards OECD countries, the conference stressed the need to understand the links between international co-operation, economic development and migration.

105.       The conference deepened the exploration of some of these linkages. It recognised that effective strategies for broad-based economic and political development are the long-term key to maintaining migration at healthy levels for both sending and receiving societies, but that there is no "quick fix" or short-cut to that result. Multilateral and regional trade liberalisation, increased flows of investment and technology, sound policy dialogue and effective development co-operation deserve increased support for many reasons, among them the ultimate goal of managing south-north as well as south-south migration.

106.       The Rapporteur naturally enough raised the issue of the tragic civil war which has erupted in Rwanda. OECD representatives said that what had happened to that country was particularly bitter, considering that many promising developments had preceded it, including political reform and a seeming reconciliation among the major ethnic groups of the country. Few people had realised that Rwanda in fact was a "powder keg" ready to blow up at any moment. Perhaps, also, the leaders of the country had become too preoccupied with international issues, too little attention being paid to domestic problems. One lesson to be drawn from Rwanda and similar cases in the developing world could be that donor countries should pay greater attention than before to the "good governance" aspect, and orient assistance accordingly. Could DAC with its vast experience not list countries where "governance" is a problem, so as to help donor countries in planning future aid and possibly avert similar disasters? Another suggestion made in the committee was for DAC to give added attention to demographic issues in developing countries, especially population growth.

VI. Concluding comments

1.        Follow-up to past enlarged Assembly resolutions

107.       The enlarged Assembly in past resolutions has asked OECD to take up or deepen its study of certain areas which it deemed of importance. Indeed, a number of recommendations for action given by the enlarged Assembly in its Resolution 1014 (1993) on OECD activities have been followed up by the organisation. These include:

      — me       mbership expansion to render OECD's circle more compatible with the global issues it treats (dealt with in Section IV. 1); —

      — fi       scal consolidation; —

      — po       tential global capital shortages; —

      —th       e globalisation of capital movements, including new financial instruments and techniques; —

      —th       e longer-term consequences of structural change; —

      — in       tensified assistance to the economies in transition;—

      — wa       ys of combating poverty.10

108.       It should be noted, however, that other activities called for in previous enlarged Assembly resolutions have not been followed up by OECD. These include:

      — me       ans to achieve greater international currency stability; —

      — th       e economic and social implications of reduced military outlays; —

      — th       e relationship between democracy, human rights and social equality on the one hand, and the ability to carry out growth-promoting structural adjustment based on popular consensus on the other. 10

109.       In addition, the enlarged Assembly's Resolution 988 (1992) asked OECD to "undertake a yearly review of the key orientations given in its policy statement, development co-operation in the 1990s", and to take into account, in so doing, five criteria which the enlarged Assembly felt should influence "the volume, channels and forms of continued assistance". The first and foremost criterion was the poverty in the recipient country, which should form an "absolute requirement to help". The others were the demonstrated efforts by the recipient country to realise democracy and human rights, to introduce economic and social reform, to reduce excessive military spending, and to protect the environment.

2.       The OECD of the future

110.       The world which OECD is asked to make more understandable for us is in fundamental change. As we have seen the current recession in large parts of the OECD area and the world is not only cyclical in nature but forms part of a general, and increasingly rapid, overhaul of the world economy. New economic powers spring up, challenging the old. Central and eastern Europe and the successor republics of the Soviet Union are undergoing a difficult process of political and economic construction. The Maastricht Treaty on European Union has entered into force, with important provisions for a single currency in a few years within the Economic and Monetary Union (EMU). Three EFTA countries — Finland, Norway and Sweden — will shortly hold popular referenda on whether they should enter the Union, after the Austrian people voted in favour in June 1994. The GATT Uruguay Round has been concluded and heralds a new era in international economic relations, in which, as the Secretary General of OECD put it in his statement before the committee, the whole world, rather than just a few regions or continents, is for the first time in history integrated in the economic life of the planet.

111.       The Rapporteur believes that OECD is essential for member countries — and for an increasing number of others — to try jointly to grasp what is going on, and to suggest appropriate policy responses. As the OECD's Secretary General pointed out to the committee, the organisation is under constant "market pressure" to do so — from the governments of member countries and from the public. The United States Secretary of State, Warren Christopher, at the 1994 OECD ministerial meeting, called on OECD to seek a "broader role" in the world economy and labelled it "a model and an instrument of wider integration in the post-cold war world". Free discussion is probably more fruitful for this purpose than formal negotiations, and well-pondered guidelines better suited to a changing reality than directives or conventions. OECD's International Futures Programme and the conference held in January this year on the theme "OECD Societies in Transition: The Future of Work and Leisure" are examples of the usefulness of these types of exchanges.

112.       Many are the current thoughts about OECD's future role or, better, roles. One will no doubt remain that of co-ordinating policies of the "established" market economies — somewhat corresponding to what has been the outward, "traditional" image of the organisation. Another will continue to be that of setting formal and informal rules for international economic behaviour.

113.       However, OECD's rapidly growing involvement in central and eastern Europe points to an important additional mission — one which indeed brings it back to its "pre-OECD" origins — that is, the Organisation for European Economic Co-operation (OEEC), which oversaw the use of Marshall Plan funds. (The OEEC was transformed into the OECD and given its present mandate in 1960.) As will be recalled, the Marshall Plan was offered to all of Europe, including the Soviet Union and the states in central and eastern Europe that had come under its domination. The Soviet Union declined to participate, and pressured the countries in its orbit of influence to do the same. Thus, only sixteen European countries in the end participated, and it is a welcome irony of history that OECD should now be able take up the OEEC's aborted work in central and eastern Europe (alas, minus the Marshall Plan money!).

114.       A third, and related, important mission is, of course, to involve all the emerging economies in the world — be they in or outside Europe — in increasingly close co-operation in OECD's numerous areas of activity. This is something which the enlarged Assembly has repeatedly called for. OECD advises member countries. However, these are increasingly affected by countries and regions in the world that are outside the organisation. If OECD members are thus to have an influence over such events, then bringing these countries and regions into its fold will be more and more essential. And what better settings for such a dialogue than OECD?

115.       One may, on the other hand, have doubts as to how well OECD would be able to function with, say, forty or fifty member countries. The balance between representativeness on the one hand, and efficiency and efficacy on the other, will therefore be both important and difficult to uphold in the future. In view of this it is important that OECD should take the necessary measures to overcome the difficulties that will arise. The OECD Secretary General in his talks with the committee raised the possibility of forming "constituencies" among member countries to deal with different subjects, somewhat along the lines of the International Monetary Fund.

116.       It is at the same time important that OECD avoid any overlap with other international institutions active in the economic field, such as the International Monetary Fund, which also engages in economic forecasts. The IMF, it is true, does not attempt to relate micro- and macro-aspects to the same degree as does OECD, and also has many operational tasks unique to it. But close co-ordination nevertheless seems called for, also with bodies such as the World Bank or the Economic Commission for Europe of the United Nations especially as regards co-operation with the economies in transition.

*

* *

      Reporting committee: Enlarged Committee on Economic Affairs and Development.

      Budgetary implications for the Assembly: none.

      Reference to committee: standing mandate.

      Draft resolution adopted on 5 October 1994 by the Committee on Economic Affairs and Development at its Enlarged Meeting with delegations from the parliaments of Australia, Canada and Japan and with representatives from other committees concerned.

      Members of the committee: Mr Holtz (Chairman), Dame Peggy Fenner, (Vice-Chairperson), MM. Andreoli, Billing, Gudmundur Bjarnason, Mrs Blattmann, MM. Bloetzer, Bogar (Alternate: Szalay), Bonnici, Mrs Burbiené, MM. Buzatu, Caballero (Alternate: Ms Guirado), Coviello, Davis, Demiralp, Draguiev, Mrs Durrieu, MM. Figel, Flückiger, Gjellerod, Goerens, Goop, Hellström, Kempinaire, Kilic, Kittelmann (Alternate: Meyer zu Bentrup), Kolar, Albrecht Konecny (Alternate: Gusenbauer), La Russa, Latronico, Leers, Le Grand, Malinowski (Alternate: Wielowieyski), Mändmets, Mautner-Markhof, Molloy, Novak, Pahor, Pavlidis, Pinto, Pirinski, Puche Rodriguez-Acosta, Radulescu Botica, Rehn, Rodrigues, Mrs von Teichman, MM. Townend, Uczkiewicz, Valleix, Mrs Verspaget, MM. Vrettos, Wintgens.

      Delegations from non-European OECD member countries:

      Australia: MM. Price, Lieberman, Ms Fatin, MM. Fitzgibbon, Minchin

      Canada: Mr Caccia, Mrs Terrana, Mr Landry

      Japan: MM. Chuma, Koga, Hayakawa, Hayashida, Matsumae

European Parliament: Mr Metten

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

      Secretaries to the committee: MM. Torbiörn and Mezei.