5:03 PM Dec 20, 1994


Geneva 20 Dec (Chakravarthi Raghavan) -- The Paris-based secretariat of the OECD has cautiously signalled the need for taking up in the new World Trade Organization some new trade issues, but warning at the same time against using these issues and the trade policy to further them as a pretext for protectionist practices.

In its year-end half-yearly publication Economic Outlook, the secretariat in its introduction has mentioned in this connection competition issues, labour standards (what it calls 'core' standards) and environment issues.

Outlining its views in terms of trade policy, the OECD secretariat says that the conclusion of the Uruguay Round and the impending transformation of the GATT into the WTO are "potentially very positive events" for the world economy.

The progressive implementation of the commitments in the Final Act and the important built-in agenda for further negotiations, inter alia on services and agriculture, should keep up the trade liberalization momentum, the secretariat says.

It adds: "Under this new policy framework and with ongoing structural changes in the international economy, some new trade issues have acquired prominence".

In one group are international differences in business practices and policies which affect them -- public procurement, competition and other aspects of business policy, openness to foreign investment and technology policy -- can impinge on international trade in ways that are perceived to be "unfair".

Even though these differences have narrowed , many issues remain to be resolved, the secretariat notes in its introduction.

"International agreements to harmonise the legal and regulatory framework in which businesses operate can address this problem by eliminating divergences which work to the advantage or disadvantage of business in particular countries.

"However, it is important to bear in mind that a framework which minimises the amount of change that is required in many countries is not necessarily the best.

"The challenge for governments is to achieve a consensus on where harmonisation would be helpful and, in such cases, to identify a set of rules that will increase the contestability of the markets concerned."

Referring to pressures to use trade policy to advance environment or labour standards objectives, the OECD secretariat says:

"It would clearly be inappropriate to use restrictive trade policies to offset lower wages, as this would deny the benefits of comparative advantage to both the developed and the developing countries.

"On the other hand, there may be a small set of 'core' labour standards based on fundamental human and civil rights -- though the ILO has been unable to date to agree on which of many conventions would constitute such a set -- which prohibit practices such as forced labour, that the international community finds unacceptable."

"Pressures are also increasing," the OECD says, "to use trade policy to further environmental objectives.

"It may taken time to reach consensus on areas of disagreement, including on free rider problems in the context of global environmental agreements. However, it is important that governments find a multilateral approach which ensures that these issues are not used as a pretext for protectionist practices."

In reviewing world trade, the secretariat notes that world trade which picked up sharply and projected to rise to nearly nine percent in 1994, will however slow down slightly in 1995 and 1996 to about eight percent, according to the OECD's year-end Economic Outlook.

The rise in world trade in 1994 was mainly the result of more buoyant trade among OECD countries. But this intra-OECD trade, which accounts for nearly 60% of total world trade, is projected to decelerate over the next two years as domestic demand gains outside the US will be insufficient to offset the slow-down in the US.

But other components of the world trade will remain strong and exports from OECD area to non-OECD regions are projected to rise by nearly 10 percent during 1995 and 1996, and imports from these other regions to the OECD also rising nearly as rapidly.

The trade between non-OECD countries, which has been increasing in importance for a number of years is also projected to continue to rise rapidly -- with Southeast Asia remaining, as in the past, the world's most dynamic region. Growth of exports of central and eastern European countries are also expected to pick up significantly.

But in the US, import volumes which have risen at rates in excess of ten percent in 1993 and 1994 are projected to slow significantly over the next two years, while its export volumes should increase at double digit rates, reflecting a good competitive position and strong economic growth outside US.

The current account deficit is projected to increase to nearly $175 billion in 1995, from around $155 billion in 1994, and decline only slowly in 1996 -- but show no improvement as a share of GDP.

Over the past two decades, and reflecting the liberalisation and internationalization of financial markets during the 1980s, the current account transactions of the OECD countries have to a growing extent been influenced by the evolution of invisible trade -- in particular financial services (mainly banking and insurance services) and investment income flows.

Transactions in non-merchandise trade have grown faster on average than merchandise trade and the share of invisibles in world trade in goods and services has risen from one-quarter in 1975 to more than a third in 1993.

At the world level, the trade in non-factor services (NFS) is dominated by a few large countries: the US, France and Germany on the credit side and US, Germany and Japan on the debt side.

Non-OECD countries accounted in 1993 only for six percent of world trade in NFS, with half of that originating in the South-East Asian countries.

Reflecting the expansion of financial transactions between OECD countries, trade in 'other' private services (including financial services as well as communication and business services like distribution, accounting, engineering and legal services) increased by 13 percent per year in dollar terms during 1975-1992 in the OECD area.

In the United States credits on non-factor services in 1993 was 24.5 percent of the total trade, while debits was 15.5 percent (compared to 19.1 and 15 percent respectively in 1992). But US investment income credits declined to 15.1% in 1993 compared to 24.2% in 1992, while on the debit side the figures were respectively, 13.3% and 15.5%.

Japan, on the other hand in 1993 had a 10.1% of its total trade on the credit side of the NFS, and 24.3% on the debit side. But on investment income its credit side went up from 10.1% in 1992 to 26.6% in 1993, while on the debt side it went up from nine to 25.4%.

While world merchandise trade has been dominated by the OECD countries -- a large part of the merchandise trade is concentrated in manufactures, and is now more of the "intra-industry" type, with simultaneous imports and exports of very similar goods.

A large proportion of OECD merchandise trade is also between the member countries and, within this, there has been trend towards increased intra-regional trade.

While share of non-OECD countries in this trade has remained fairly constant (at around 30-35%), there has been a major redistribution of both exports and imports among the non-OECD countries.

Till about the sharp fall in oil prices in 1986, OPEC was by far the largest non-OECD exporter and, with central and east European and African countries, was also among the largest importers.

But since then with lower oil prices and lower quantitities exported translating into lower export revenues and imports, OPEC's importance in world trade has diminished substantially.

A number of non-OECD countries in Asia (the Dynamic Asian Economies, DAEs) have emerged as important trading partners of the OECD countries and their share in world trade as a group has been increasing steadily. By 1993, the DAE's shares of exports and imports as percentages of world trade was similar to or just below those of the US.

The early 1990s has seen emergence of China as a country with sizeable and fast growing share in world exports and imports.

Latin America maintained a fairly constant share in world during that period, while central and eastern economies saw a collapse, with their share falling from 7-8 percent of world trade to three percent in 1993.

Non-OECD exports consisted mainly of primary commodities till the 1980s, but manufactured goods now account for more than 60% of the total -- an increase from around 25% since 1975.

This shift largely reflects rising importance of China and the DAEs.

In China there has been a shift away from reliance on export of primary goods to exports of products with relatively low technological content (textiles, footwear, toys and other consumers goods), accounting by 1991 for more than 50% of Chinese exports.

In the DAEs on the other growth, growth has been concentrated in medium- and high-technology goods -- particularly computers, electrical and communication goods. In Singapore and Korea, the share of exports of such products increased from five to 60% between 1975 and 1991. In Taiwan, the industrial sector is dominated by plastics and electronics industries (compared to food and beverages in the early 1980s).

With the notable exception of Mexico, countries in Latin America and in Central and Eastern Europe have not matched the developments in the Asian countries, OECD says.

Manufactured exports have either increased at a much slower rate or been fairly stable as a percent of total exports and have remained concentrated in goods with a low-technological content.

Non-OECD manufactured imports have risen as rapidly as manufactured exports and since mid-1970s, non-OECD trade, like that of the OECD, has been characterised by a substantial increase in intensity of trade within the region.

But OECD countries still remain the most important markets and suppliers of non-OECD countries.

Reflecting the greater importance of Asia and potential effects of NAFTA, the most notable evolution concerning OECD-non-OECD trade has been the diminishing importance of Europe as a trading partner and the increasing importance of the US as a destination of non-OECD exports.

Following the signature of the European Association agreements with the EC, trade between central and eastern European countries and OECD countries in Europe has increased, though it remains marginal given the sharp output contract in these countries and restrictions on their access to EC markets.

Since mid-1980s, the growth of South-East Asian import volume demand addressed to OECD countries has consistently exceeded that of intra-OECD trade and has contributed to real GDP growth in the OECD area, the OECD secretariat says.

In late 1980s, there was a rapid increase in OECD FDI flows to the DAEs and, more recently, OECD investors have also begun to target China -- atleast as much to gain access to the emerging domestic market there as to take advantage of producing locally at lower cost.

Japan's FDI in China has risen recently, representing a shift away from traditional subcontracting -- for e.g. in textiles and clothing -- to consumer electronics and machine-tool industries to serve the local market.

The nature of trade relationship between OECD and non-OECD countries in sectors traditionally dominated by OECD countries have changed.

Exporters from S-E.Asian region have made considerable market-share gains in manufacturing since 1975. And while US imports from China were almost negligible in 1975, by 1992 their share in total US import had risen to almost five percent -- making China the sixth biggest foreign supplier in the US. Out of the 12 largest non-oil exporters to the US, in 1992, five were from the non-OECD Asia compared with none in 1975.

There is a relatively similar trend in Japan -- with imports from China now accounting for more than seven percent of total imports, compared to 2.5% in 1975. Also, the DAEs and China have overtaken US as the principal foreign supplier of the Japanese market.

The rising importance of S.E.Asian economies as exporters to OECD countries has occurred despite a market deterioration in international competitiveness of the NICs since the mid-1980s -- largely due to rising wages and appreciating currencies.