OECD Observer
Home
Menu
A new network for open economies and inclusive societies

Who would have guessed just a decade ago that trade and investment policies would emerge today as one of the most contested fields in OECD countries? We’ve had protests about globalisation before, but this time it seems different. As Martin Wolf wrote in the Financial Times, “The era of globalisation under a US-led order is drawing to a close… The question is whether protectionism and conflict will define the next phase”.

For very open economies like the Netherlands this question of how the “next phase” will shape up in 2017 and beyond is of critical importance. At this juncture, the Dutch economy is growing at a solid 2% per year pace with unemployment coming down rapidly to 5%, but the downward risks are all related to where the global economy is heading. Many other countries have a similarly high exposure to shifts in the global economy. More than two-thirds of OECD countries score above average when it comes to indicators of openness to trade, trade policy, FDI openness and infrastructure for trade. Several emerging and developing economies, though below average on such scores, aspire to further opening up their economies and drawing on the global economy to improve their well-being.

The OECD has a pivotal role to play in leading these aspirations. And it cooperates with other international organisations, such as the WTO, the IMF and the World Bank, in clearly demonstrating the adverse impact of rising protectionism, keeping track of what’s happening in trade and investment and stimulating policy dialogue on how to foster global inclusive growth. But the OECD plays a special role too, as a harbinger of ideas and solutions, and presenting visions and roadmaps to follow, particularly in times of uncertainty, such as now. In this light it is very fitting that the focus of June’s OECD Ministerial Meeting (MCM) under the Danish presidency was “making globalisation work for all”.

And it was on that occasion a group of 19 countries announced the formation of a new Network for Open Economies and Inclusive Societies. The aim is to take forward the momentum for policy improvements, and proactively join forces to advance a well-functioning, open and fairly balanced global economy. The Network will be facilitated by the OECD and has the dual purpose of firstly, targetting peer learning and effective exchange of good practices, and secondly, providing a powerful new voice in the international policy arena.

The context could not be more challenging for the new Network, given the backlash against globalisation in some OECD countries and the morose trading situation globally. Indeed, some experts believe that the relationship between trade and GDP growth is undergoing a fundamental shift, which according to OECD analysis has contributed to a slowdown in productivity.

Could it be that low trade growth is somehow intertwined with the general global growth malaise? To what extent is a contraction in so-called global value chains (GVCs) to blame, in which case slower trade would be just a natural outcome, and therefore not a major concern?

We need to find answers to such questions. It is clear that the rise of trade restrictions in G20 countries surely is not helpful. We also know that the business reality does not distinguish between trade and investment as two separate decisions for companies. Even though the general trend over the past two decades has been one of liberalisation of foreign direct investment (FDI), recently, large FDI projects have been subjected to closer scrutiny by recipient countries. Deeper analysis would help us understand how different factors contribute to the trade and investment slowdown and how trade and investment impact labour markets and economic growth within countries.

Overall, we need to ask ourselves some tough questions about the public backlash against globalisation, about what went wrong and how to do better. One question is how to rebalance our trade and investment policies towards a fairer, more sustainable and inclusive system. A concrete step to address this would be to respect the high standards set out in the OECD Guidelines for Multinational Enterprises (MNEs), as a key element of trade and investment policies. The OECD Ministerial Statement 2017, which affirms strong support for the MNE Guidelines, is a positive step in this direction. Another challenge is to devise more effective complementary domestic policies to help people deal faster and more successfully with trade-related job losses if and when they occur. Ideally, this entails not only effective “safety nets” but also so-called “trampoline” policies to help people springboard back into new jobs.

It is also crucially important to reduce excessive inequalities and enhance opportunities that help support productive economies and societies. The Netherlands for instance, has shown over several decades that it is feasible to combine a very open economy and growth with a high degree of inclusiveness at the same time. But there are limits to what can be achieved when exclusion of segments of society is also rooted in the lack of an international level playing field  and  poor global governance.  We also need to redouble our efforts to effectively implement and widen the adherence by more G20 and other countries to the OECD Anti-Bribery Convention and key OECD standards in areas such as corporate governance of state-owned enterprises (SOEs) operating abroad, international co-operation in competition law enforcement, and an orderly liberalisation of capital movements.

  In this spirit our Network members are committed to:

•             Advancing open trade and investment (including in data), while minimising risks associated with greater interconnectedness;

•             Fighting protectionism while promoting a global level playing field for trade and investment;

•             Respecting and advancing high standards for responsible business conduct across borders (such as the OECD Guidelines for Multinational Enterprises, the Anti-Bribery Convention, Principles of Corporate Governance, Principles for Internet Policy Making and the Inclusive Framework on Base Erosion & Profit Shifting);

•             Reducing excessive inequalities in income, wealth, jobs, health, education, and promoting more inclusive growth.

The 19 founding members of the Network are predominantly economies exhibiting a high degree of openness in terms of trade and investment, but the Network is open to all countries (including emerging and developing economies), ambitiously sharing the conviction of combining greater openness with more inclusive economies to tangibly foster well-being and advance better lives for their citizens. The members of the Network aim to enhance accountability through social dialogue and plan to discuss progress (or lack thereof) with relevant stakeholders from business, labour and civil society at least once a year.  

Let Martin Wolf’s article quoted above be a wake up call for us to do much more to promote a better, more open world for all. That is the future which our new Network is determined to shape.

 ----------------------------------------

*Network founding members are Argentina, Belgium, Canada, Chile, Colombia, Costa Rica, Czech Republic, Finland, Germany, Hungary, Japan, Latvia, Luxembourg, Netherlands, Norway, Peru, Poland, Spain and Sweden. For more on the launch of the Network for Open Economies and Inclusive Societies, see press release, 8 June 2017 at https://www.permanentrepresentations.nl/permanent-representations/pr-oecd-paris/news/2017/05/24/launch-network-for-open-economies-and-inclusive-societies

References and further reading

IMF/World Bank/WTO (2017), Making Trade an Engine of Growth for All.

Obstfeld, M. (2016), Get on Track with Trade, IMF, Finance & Development.

OECD (2017), OECD Economic Outlook, Volume 2017 Issue 1: Preliminary version, OECD Publishing, Paris.

International Chamber of Commerce (ICC) (2015), Open Market Index (OMI)

OECD (2017), "Making trade work for all", OECD Trade Policy Papers, No. 202, OECD Publishing, Paris.

Timmer, M.P., B. Los, R. Stehrer and G.J. de Vries (2016), An Anatomy of the Global Trade Slowdown based on the WIOD 2016 Release, GGDC Research memorandum 162, University of Groningen.Van den Berg, M. (2016), From a Free Trade Regime to a Responsible Trade and Investment Regime, OECD Insights.

Wolf, M. (2017), The march to world disorder, Financial Times, 6 January 2017.