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COMMUNIQUE OF THE MEETING
OF THE OECD COUNCIL AT MINISTERIAL LEVEL
26-27 May 1997
TUAC EVALUATION

Overview

1. The 1997 OECD Ministerial Council's agenda covered three issues:- promoting sustainable growth and social cohesion; pursuing trade and investment liberalisation; and the future role of the OECD itself. The CommuniquJ issued at the end of the meeting gave more attention than in past years to the social risks inherent in the current situation, but its policy response was to repeat the familiar message that governments must maintain "macroeconomic discipline" and move ahead with "comprehensive product and factor market reforms". However, differences of focus are appearing and the OECD Secretary-General has himself drawn attention to the need for social progress to keep in step with economic development if political stability is to be maintained, although in his comments on the achievements of meeting the "social dimension" was noticeably absent.
2. TUAC, in consultations with the Ministers, warned that fiscal austerity and increased job insecurity were leading to a popular backlash against globalisation. The Chair of the Consultations the then French Finance Minister M. Jean Arthuis said (one week before being voted out of office) that electorates clearly did not understand the benefits of globalisation. Nuances of difference appeared in the debates between the Ministers over the scope for more growth-orientated macroeconomic policies and the content of labour market reforms. The OECD's future may well depend on it being ahead of and not behind public discussion in these areas, and so acting as a catalyst for government action on the social dimension of globalisation.
3. A central priority must be for the OECD to shift its emphasis away from "negative labour market flexibility" towards achieving adaptable labour markets which help generate high quality jobs that maintain social cohesion. The October OECD Labour Ministers' meeting by focusing on the problems of low pay, active labour market policies and lifelong learning could be an important step. In this way the OECD could make a more useful contribution to the likely evolving agenda at the G7/G8 meetings following the Denver Summit - the November 1997 Kobe G7 Employment Conference, a possible 1998 G7/G8 Jobs Conference in the UK and the Birmingham G7/G8 Summit.

Promoting Sustainable Growth and Social Cohesion (§6)

4. The central thrust of the policies according to OECD Ministers required to promote sustainable growth and social cohesion remains "sound" public finances, vigilance against inflation and more structural reform, including the "elimination" of structural rigidities in factor markets (i.e. labour markets) and more extensive regulatory reform. Although the CommuniquJ says that "attention needs to be given to improving the prospects for the most vulnerable in society" it fails to say how this can be done against a background of fiscal austerity and less regulation of labour markets either through legislation or collective bargaining. It falls short of the trade union demands for more expansionary growth policies and a more equitable distribution of the benefits of growth.

5. It appears that a slight upward revision has been made to the forecast for OECD-wide growth for 1997-98, which is now estimated to average 2.5 - 3 per cent, based on an expected upturn in continental Europe. Importantly, the CommuniquJ recognises the existence of output gaps in some countries and the need for "some differences in the short-run orientation of macroeconomic policies". This goes some way to recognising the need for a more growth- orientated monetary policy in continental Europe and the avoidance of excessive tightening in Japan. Continued cooperation on exchange rates is also called for.

6. Fiscal deficit reduction is said to remain a priority, but this is for "most countries" as opposed to the whole of the OECD. Deficit reduction is to be primarily achieved through reductions in the level of expenditures but it is also said that the quality of expenditures should be improved, with an increased focus on "programmes that contribute to economic growth through enhancing human capital and innovation."

7. The CommuniquJ recognises that the elimination of unemployment remains the major economic policy challenge for governments. It argues that the bulk of unemployment is structural although cyclical unemployment exists in some countries. It is now recognised that the gap between the "haves" and the "have-nots" within some countries "may have widened"; that concerns exist about widening income inequalities or unequal access to opportunities; and that preventative action is needed to prevent people from drifting into long-term unemployment and social exclusion. Policies are also required to improve access to work, encourage greater employment and raise earnings prospects.

8. As regards the role of the Jobs Strategy recommendations, the CommuniquJ leans towards a more balanced view of the way forward than the OECD's Economic Development Review Committee (EDRC) which has been carrying out the surveillance of the follow-up. Little is said on the need to cut minimum wages and weaken collective bargaining in order to raise wage inequality, which received high priority in the EDRC's work and much is made of the need to have effective active labour market policies, which were in part dismissed by the EDRC. Attention is also given to tax and benefit reforms to improve incentives to find and stay in employment; the importance of adopting "best policy practices" for innovation and technology diffusion; skills enhancement, and the need to implement strategies for lifelong learning; and to ensure that groups at risk actively participate in society. The OECD asks for an update on implementation at the next meeting and a further full report in 1998.

9. In contrast to previous years, trade policies were not at the forefront of the OECD Ministerial Council. The CommuniquJ refers to the outcome of the WTO Conference in Singapore (which has given "strong impetus to further liberalisation"), stressing the complementary role of the OECD in preparing future trade negotiations through trade policy analysis and the linkages of domestic policies with international trade (the so-called "new trade issues"). Although the formula contained in paragraph 25 on "the interaction between trade policy and other policies" does not provide a taxonomy, it is implicitly understood to cover the environment, competition, investment and potentially also labour standards.

10. The 1996 OECD Report on Trade, Employment and Labour Standards made a useful contribution to the international debate. If the OECD is to be relevant to the growing discussion on the social dimension of globalisation it has to continue work in this area. It is therefore significant that the CommuniquJ argues that "building on OECD work in this area is important to better understand the subject". Specific support for further OECD work on the issue appears to have come from a number of countries and this will now have to be followed up. OECD Ministers also re-stated the formula agreed in the Singapore Ministerial Declaration in that "they reaffirmed their commitment to observe internationally recognised core labour standards as well as to reject the use of labour standards for protectionist purposes".

11. In a separate Ministerial Statement on the Multilateral Agreement on Investment (MAI), Ministers expressed their "determination" to conclude the negotiations in time for next year's Ministerial Council. However, as it stands now, there are some 600 reservations made by Member countries on the existing draft agreement. A background report given to Ministers by the MAI Negotiating Group on the state of the negotiations indicates a consensus view to annex the OECD Guidelines on Multinational Enterprises to the MAI. It is TUAC's view that this should be done in clear and strong fashion and be accompanied by a binding labour and environment clause in the text of the Agreement itself.

12. Other relevant issues in this part of the Ministerial debate included a range of trade and competition distorting practices which the Ministerial Council agreed to tackle: - once ratified, the OECD Shipbuilding Agreement should establish normal competitive conditions in the shipbuilding industry; - negotiations on officially supported export credits for agricultural products should be concluded "as soon as possible"; - an OECD-wide approach to combat harmful tax competition between countries was agreed on in principle and a report on this is expected to the 1998 OECD Ministerial Council; - a new Convention on Combating Bribery in International Business Transactions should be negotiated by the end of this year so as to criminalise bribery of foreign public officials in bidding for investment contracts. The Convention should enter into force in the course of 1998.

13. The discussion o7f future membership was dominated by the parallel signing in Paris of the Treaty on NATO enlargement and the discussion of the treatment of Russia's request for OECD membership. Accession remains a medium-term possibility, with the focus in the short term of the intensification of cooperation "in order to assist the Russian Federation in its progress towards establishing a fully-fledged market economy within a framework of democratic institutions." (Protocol signed 27 May 1997) This involves the establishment of a Liaison Committee between the OECD and Russia. Divisions were apparent at the Ministerial between countries as to whether OECD membership should stop for the time being after Slovakia's now likely accession or whether an early round of new accessions including some from Latin America should be envisaged.

14. The OECD reform process was welcomed given "continuing resource pressures", although conflicts may soon appear between the needs of functional reform and budget driven reform. The OECD is also likely to develop a "communications strategy" and is to produce a report "explaining the benefits of trade and investment liberalisation". TUAC has long been calling for an OECD "inreach" programme of more intensive debate and dialogue with the social partners and is ready to play an active and constructive part in this. However, this should be a two-way process and not simply a mechanism for economists "explaining the benefits" of their policies to the public.