The imperative of free trade

Secretary-General of the OECD
The liberalisation of trade and foreign investment has stimulated innovation, encouraged efficiency and promoted growth. Open trade has been a driving force for stability and prosperity. It has been a precondition for the fourteen-fold expansion in world trade in goods since 1950 and a six-fold increase in world production.
As closed trade ushered in depression and war in the 1930s, open trade has paved the way for continued post-war growth and prosperity. It has brought immense gains for consumers in terms of new products and products of better quality and lower price. It has forced producers to adjust, but those adjustments are necessary to reap the benefits from trade and technological change. The winners by far outnumber the losers in this process.Managing such change and dealing with the human anxieties that go with it require special efforts. Governments have to explain to their citizens the advantages of the open, rules-based trading system, particularly when there are protectionist calls for adjustment and innovation to stop. The arguments against open trade that tend to be heard in the developed economies often raise the spectre of massive job losses to 'unfair' low-wage competitors in developing countries. But trade with those countries in fact offers enormous opportunities and, as with all trade, mutual benefit.OECD economies have made efficiency gains from their access to lower-cost suppliers, and they have found new and dynamic markets for their own goods and services. Moreover, growth in the developing and transition economies offers enormous markets for the future. By 2010, for instance, there will be more than a billion consumers in developing countries with per capita incomes exceeding those of some OECD countries today. The developing world already absorbs about a quarter of OECD exports. By early next century that figure should rise to about a third.From its inception the OECD has been committed to contributing to the expansion of world trade on a multilateral, non-discriminating basis, as well as contributing to sound economic growth in member as well as non-member countries. The OECD must continue the solid analytical work which can help the World Trade Organisation (WTO) to move forward on trade liberalisation, stressing the importance of ensuring that the non-OECD countries, particularly those in transition, become fully integrated into the global trading system. But it is also important for the OECD to help governments to sell the message of the benefits of free trade not only to bureaucracies and politicians but to others who shape public opinion. Ultimately it is the citizen who has to be reached - and to be reassured both that trade-induced changes are beneficial for society and that society is committed to helping those faced by adjustment.The importance, and inevitability, of change has been stressed in many aspects of OECD work, including the OECD Jobs Study. In the context of jobs and unemployment, OECD countries have committed themselves to a series of macro-economic and structural-policy recommendations to improve job prospects. These recommendations take account of the necessity that economies, industries and firms adjust, but also stress the importance of helping individuals to adapt through better education and training policies in the context of life-long learning.The OECD also has an important role to play in recognising that the nature of trade is changing and is thereby throwing up new issues that require discussion and agreement. The trade agenda of the future must move well beyond the traditional issues of trade between national economies to meet the demands of a globalising one. Investment issues are at the forefront. Firms invest to trade and trade to invest. About a third of all trade in goods across borders takes place within firms. The old model of manufacture in one country and sale in another has given way to an international process of manufacture, assembly, finishing and marketing which leap-frogs national boundaries. This makes the old concept of goods of national origin less and less relevant, a change reflected in the way that firms do business. The decisions on whether to set up a business in a foreign market (market presence) or to export your product there (market access) depends on the global strategy of the firms concerned. That calls for rules of the game that provide for national treatment of both foreign and domestic suppliers and non-discrimination between foreign suppliers for both market access and market presence.There has already been a partial multilateral response in the form of the incorporation of investment-related disciplines in the General Agreement on Trade in Services (GATS) and the Trade Related Investment Measures (TRIMs) Agreement in the WTO. The OECD was also asked in 1995 to launch negotiations on a Multilateral Agreement on Investment (MAI) within the OECD with the aim of reaching an agreement by mid-1997. The MAI would provide a comprehensive framework for foreign direct investment, widening the scope of existing liberalisation and providing legal security for international investors. The proposed agreement would seek to ease market access, essentially by embodying the principle of national treatment (foreign investors having the same legal treatment as national companies) in a multilateral context. The MAI would be open to all OECD countries, and to non-member countries, who are being consulted during the negotiation process. In view of the importance of investment to the development process, it is to be hoped that the agreement will be subscribed to by a large number of countries. Investment, after all, like trade, is to the advantage of both the provider and recipient alike.The OECD is uniquely adapted to carry forward this kind of work. Its analytical capacity is proven. And it has already shown that it can apply that analysis to practical ends. The emphasis has to move from theory to practice, where international trade is an issue of the most pressing global concern. That is why the OECD has to focus its efforts on the new trade agenda. The work initiated on new dimensions of market access, the MAI, trade and competition, trade and the environment, trade, employment and labour standards, and bribery will help develop credible policies and approaches to facilitate further liberalisation. It will also encourage confidence in the communities of the OECD countries that trade liberalisation is indeed in their interests.©OECD Observer No. 201, August/September 1996

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