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1. The Council of the Organisation for Economic Co-operation and Development met at Ministerial Level on 10th-11th May to strengthen co-operation among their countries, in both surmounting current economic problems and assuring a sustainable recovery of non-inflationary economic growth and employment throughout the interdependent world economy in the 1980s. Ministers reviewed the work done on the trade issues of the 1980s, reaffirmed their commitment to combat all forms of protectionism and gave guidance for the Organisation s future work. They expressed determination that renewed economic growth must be broadly shared and that the co-operation with developing nations must be pursued actively.
2. The meeting was chaired by the Right Honorable R.D. Muldoon, Prime Minister and Minister of Finance of New Zealand. The Vice-Chairmen were Mr. E. Rekola, Minister for Foreign Trade of Finland and Messrs. J. Delors, Minister of Economy and Finance and C. Cheysson, Minister for External Relations of France.
3. Ministers agreed that the short-term prospect is for moderate expansion of economic activity in the OECD area, including perhaps a recovery in employment next year, but not one sufficient to lead to an early reduction in current high levels of unemployment. In many countries, unemployment is being exacerbated by continuing high inflows into the labour market. Progress has been made by individual Member countries in creating the conditions for sustained non-inflationary growth, but this has been uneven.
4. The reduction in inflation should help to encourage a recovery in real demand and output, but continued high interest rates, budget deficits and market rigidities are constraining factors. Ministers stressed the need to ensure stronger growth and lower unemployment over the coming years. They are convinced that this can be achieved if all Member countries, in accordance with their varying room for manoeuvre and within the framework of a common strategy, can successfully overcome their internal problems along the lines set out below, taking proper account of international interdependence and constraints.
5. Ministers agreed to carry forward the broad strategy they have been following since the second oil shock, and emphasized in particular that:
6. Ministers agreed that within this broad strategy individual countries need to set their economic policies in accordance with the varying nature and severity of the structural and other impediments to growth faced by their economies. Ministers further stressed that close economic interdependence obliges all countries to pay careful attention to the external consequences of domestic policies. Convergent medium-term policies to establish non-inflationary growth are required.
Impediments to Better Performance
7. Ministers addressed the major structural and other impediments to a better performance and the appropriate range of policies to remedy them, stressing the need to continue to keep such problems and policies under close review. They recognised that failure to undertake such policies would lead to continuing slow growth, which itself undermines economic performance. It also increases the risk of protectionism. Slow growth involves not only insufficient productive investment but also the human costs of unemployment, including the erosion of skills and incentives to work, and the lack of work experience by unemployed youth.
The Inflation Constraint
8. Ministers agreed that although some countries have been successful in lowering underlying inflation, it nevertheless remains a serious problem. Where inflation or inflationary expectations are deeply entrenched, very high priority must continue to be placed on policies to bring inflation down.
Labour Costs, Profits and Employment
9. In a number of countries labour cost inflexibility and a squeeze on profitability have harmed employment. Low profitability and low rates of production have contributed to weak investment. High labour costs have encouraged capital-intensive investment even under conditions of high unemployment. Ministers agreed that while policies to address these problems were difficult to forge, there is a premium on them so as to speed required adjustment, and the reduction of high unemployment.
10. In some cases, wage settlements have reflected heightened emphasis on employment security and the reduction of costs. Ministers welcomed such innovative approaches. They emphasized that greater realism emerging in the collective bargaining process would foster and sustain the recovery of output and employment. Such efforts might be facilitated by strengthening the dialogue between social partners. Ministers stressed the need for effective policies designed to moderate statutory employment costs, to enhance productivity, and to, encourage innovation in the organisation of work. In this connection, Ministers welcomed the report from Mr. J.M. den Uyl of the Netherlands who presided over the March 1982 meeting of the OECD Manpower and Social Affairs Committee at Ministerial level.
Public Expenditure and Taxes
11. Ministers agreed that in many countries the growth in social security transfers has strained budgets, the increase in tax burdens has been too great, and at the same time public investment has been squeezed. These structural problems of budget control must continue to be tackled directly, independent of the desired overall budget deficit stance. They took the view that in general, when tax changes were enacted, these should remove distortions which discourage savings, employment and investment.
Public Sector Deficits
12. Public sector deficits are currently at historically high levels in most Member countries. Their reduction is a continuing policy objective. Ministers noted that weak activity and current high interest rates are factors adding to public sector deficits, but structural elements are also important in most countries. Ministers concluded that where public sector deficits are large relative to structural medium-term objectives, deficit reduction should not be postponed. Where underlying inflation has been significantly reduced, yet domestic demand is weak, the fiscal stance should be assessed with due regard to its likely impact on economic activity without jeopardising medium-term objectives.
High Interest Rates and International Tensions
13. Contrary to previous experience interest rates have remained high relative to inflation, thereby adding a new factor to public sector deficits and restraining demand in the private sector. Ministers recognised the variety of reasons for currently high interest rates noting, in particular, the impact of large budget deficits and uncertainty about the future course of fiscal and monetary policies. A durable reduction in interest rates ultimately rests on a durable reduction in inflation and inflationary expectations. Ministers recognised the importance and results of anti-inflationary policies in the United States because of the key role of its economy and the dollar in the world economy. Many felt that more action should be taken now to reduce future budget deficits considerably, in order to ease the pressure on interest rates and savings flows.
14. Ministers recognised the importance of a smoother working of the exchange rate adjustment mechanism. Ministers agreed that under present circumstances improved co-operation with regard to convergence of economic policies to reduce excessive exchange rate fluctuations, such as have occurred in recent years, is necessary. Ministers noted, among the complexity of factors affecting exchange rate, the international transmission of high interest rates stemming from the desire to avoid currency depreciation and its unwelcome consequences. Ministers took the view that the economic performance of the OECD as a whole would benefit, and current international trade tensions be lessened, if interest rates came down, and if opportunities for trade, capital flows and investment were increased.
Policies for Changing Oil Situation
15. Ministers welcomed the contribution that energy conservation and progress in switching away from oil have made towards the continued fall in oil demand. They were aware of the risk of complacency and noted the continuing need for policies directed towards progress in achieving greater fuel efficiency and a more balanced energy mix.
16. Ministers agreed that particular attention should be paid to energy pricing including the need for oil prices to consumers to reflect expected longer-term world market price trends.
Positive Adjustment Policies
17. The major changes taking place in the world economy-adjustment to past energy price increases, impact of new technologies, increasing role of the developing countries - call for continuing structural change in the industrialised countries. While this is often painful under present adverse conditions, it is essential for growth and the preservation of mutually beneficial trading relations in the world economy.
18. Ministers welcomed the work done in the Organisation over the past three years on policies to facilitate structural change, and the Final Report of the Special Group of the Economic Policy Committee on Positive Adjustment Policies. Underlining the importance they attach to this subject, they adopted the Statement annexed to this Communique and instructed the Organisation to continue to take positive adjustment policies into account in its ongoing work.
Current Trade Problems
19. Ministers reiterated their full commitment, as expressed in the Declaration on trade policy of June 1980, to the open and multilateral trade system. They are fully aware of the contribution that a further expansion of world trade can make to higher employment, improved productivity and rising income worldwide. They also noted that renewed non-inflationary growth would stimulate production and employment and thereby lessen protectionist pressures. The resumption of such growth could, however, be frustrated by a proliferation of trade restrictions and domestic policy measures having similar effects.
20. As a follow-up to the Declaration referred to above, Ministers reviewed developments in the trade policy field over the past year. Despite present economic difficulties, the international trading system has held up reasonably well. Ministers noted with concern, however, a further extension of protectionist pressures and trade measures, many of which are not governed by multilateral rules and disciplines, as well as the increase in bilateral tensions and disputes which affect the climate of trade relations. They recognised the dangers which these trends pose for the future of the system.
21. Ministers therefore agreed on the need for further joint efforts to resist protectionist pressures, and to resolve urgent short-term problems within the framework of the open and multilateral trading system. They are determined to maintain the credibility of this system at the present difficult juncture, and to work together with their trading partners on the longer-term issues which need to be tackled over the coming decade.
Safeguard Action
22. Ministers underlined the need for full application of international rules and disciplines. They also agreed on the importance of finding an early solution to the safeguard issue in the GATT framework.
Export Financing
23. Ministers welcomed the progress made on the issue of export credits towards the end of last year. They nevertheless regretted that it had not been possible for Participants to reach definite decisions on further improvements in the Arrangement at their meeting of 6th and 7th May. They noted however the initiative taken by the Chairman in presenting a set of measures which, taken as a whole, are intended to constitute a constructive compromise. They stressed the importance they attribute to the Arrangement and agreed that all necessary efforts should be made to preserve and strengthen this instrument of international economic co- operation. Ministers also recognised the need to avoid any risk of distortion of trade and aid in the use of financing instruments which associate export credits with aid to developing countries and noted that particular attention was at present being given to this problem in the Organisation.
Trade in the 1980s
24. Ministers welcomed the intensive work done by the Organisation on the trade issues of the 1980s as requested at their last meeting. This had enabled them to identify and discuss a number of likely key trends in the world trading system over the next decade. It should provide a valuable stimulus to strengthen international co-operation in the Organisation and elsewhere on trade and trade-related issues in response to the important changes taking place in the world economy.
Growing Interdependence and the Increasing Importance of Capital Movements
25. The key features of the past two decades - the rising share of trade in economic activity, the rap growth of financial interdependence, and the internationalisation of business- are likely to continue. Ministers recognise that this means that their economies are going to be more and more strongly influenced by developments in other countries.
26. The 1980s are likely to see the further evolution of an international monetary system which is characterised by large-scale capital movements and more flexible exchange rates, both strongly influenced by national macro-economic policies. Ministers noted that, should trade problems arise through excessive fluctuations in exchange rates, these can best be solved through improved co-operation regarding convergence of economic policies. In the light of this and the current trade problems described in paragraph 19, they requested the Secretary-General to examine ways of strengthening the existing work of the Organisation on the relation between macro-economic policies and trade policies.
27. Growing interdependence also means that each country's actions not only in the field of trade policy but also in such fields as industrial, manpower, social, regional, agricultural and fisheries policies, will increasingly impact on the interests of its trading partners. Ministers therefore agreed:
28. Ministers recognised the growing importance of international investment flows for economic growth and agreed that efforts should be made to strengthen international co-operation on investment issues, building upon the existing agreements to which Member countries have subscribed. Particular attention should be given, in this regard, to measures affecting international investments that can have implications for trade flows in a balanced way which takes into account the interests and preoccupations of both investing and host countries.
29. Ministers recognised that, with the reduction of trade barriers and the growing internationalisation of business activities, there is an increasing likelihood that private restrictive business practice arrangements in one country may adversely affect the interests of its trading partners. They noted that the coverage of the present international arrangements for dealing with issues which arise at the frontier between competition and trade policies should be studied further by the competent bodies of the Organisation with a view to strengthening international co-operation in these matters.
New Trading Partners
30. The rapid growth of new markets and the emergence of new competitors is expected to continue in the 1980s; perhaps one-half of the increase in OECD exports will be to non-Member countries, compare with only one-quarter before 1973. Ministers are convinced that this will be an important dynamic factor in the world economy, leading to new opportunities for mutually beneficial trade relations between industrialised and developing countries.
Rapid Technological Change
31. The development of new technologies can and should play a key role in revitalising the world economy and enhancing the comparative advantage of the industrialised countries in capital and skill-intensive activities. There are varying degrees of government involvement in this area. Ministers agreed that an examination should be made of the specific problems which may arise in trade in high technology products and where such problems are identified, of possible solutions. The Ministers also agreed that a study should be made of ways to facilitate the flow of technologies across national frontiers in order to promote economic growth and employment
Services
32. International transactions in services of all kinds have been growing rapidly and now amount to about one-third or world trade in goods. Ministers agreed that this will continue to be another important dynamic factor in world trade in coming years. They therefore decided to encourage the competent Committees to progress as soon as possible in their analytical and fact-finding work on the complex issues involved so as to be able, in the light of the results, to begin examining ways of removing unjustified impediments to international trade in services and of improving international co-operation in this area.
Agriculture
33. Ministers welcomed the report "Study of Problems of Agricultural Trade" prepared by the Organisation and endorsed its conclusions. They recognised that agricultural trade is affected by general economic developments and by domestic agricultural policies pursued by all countries which do not always take into account their international consequences. Ministers agreed that agricultural trade should be more fully integrated within the open and multilateral trading system. They recognised the specific characteristics of agriculture and the various objectives pursued by agricultural policies. Ministers agreed that the desirable adjustments in domestic policies can best take place if such moves are planned and co-ordinated within a concerted multilateral approach aimed at achieving a gradual reduction in protection and a liberalisation of trade, in which a balance should be maintained as between countries and commodities. They decided that the Organisation should study the various possible ways in which the above aims could be achieved as a contribution to progress in strengthening co-operation on agricultural trade issues and as a contribution to the development of practical multilateral and other solutions.
The GATT Ministerial Meeting
34. Ministers heard a statement by Mr.Arthur Dunkel, Director-General of the GATT, on the preparation for a meeting of the GATT at Ministerial level in November. Realising the importance for the multilateral trading system of constructive and forward-looking decisions at that meeting in the interest of all participants, they expressed the determination of their governments to participate fully and constructively in this meeting and its preparation. Ministers noted the relevance of the issues they had discussed for that meeting.
Economic Relations with Non-member Countries
Economic Relations with Developing Countries
35. Ministers reviewed economic relations with developing countries which are characterised by increasing interdependence and diversity. They noted that the prevailing adverse world economic environment has created significant pressures on the developing countries, including increased debt problems. While the most important determinants of development are the developing countries own efforts and policies, they emphasized the continuing commitment of their governments to co-operate with the developing countries in support of accelerated economic and social development. Ministers noted the progress made over the last year on international development co-operation both bilaterally and in multilateral fora while acknowledging generally that much further work needed to be done. They stressed the importance of implementing aid, trade, investment and finance policies in a comprehensive and co-ordinated manner in order to support the developing countries in their own efforts to strengthen their economic and social resilience.
The Dialogue
36. Noting the summary of the Co-Chairmen of the Cancun Summit held last October, Ministers confirmed the desirability of supporting at the United Nations, with a sense of urgency, a consensus to launch Global Negotiations on a basis to be mutually agreed and in circumstances offering the prospect of meaningful progress. They noted the recent proposals on launching the Global Negotiations which are currently under consideration in the United Nations and agreed upon the importance of vigorous efforts to reach a consensus, including the basis for a mutually satisfactory definition of the central role of the Conference and respect for the competence of the specialised fora. Without prejudice to these efforts, Ministers also declared their determination to carry forward policy-oriented consultations as well as negotiations and co-operation on particular issues with developing countries both in the appropriate international fora and bilaterally in order to achieve new progress and positive results. In this connection, they noted in particular the forthcoming meetings of the GATT at Ministerial level and UNCTAD Vl, in which they intend to participate actively and constructively.
Trade and Investment Co-operation
37. For both developing and developed countries, trade like non- inflationary growth plays a central role in the complex of interdependent relationships between export earnings, use of international capital, debt servicing and borrowing capacity. It is clear that economic growth should allow a harmonious development of international trade in particular for developing countries. Ministers noted the growing role of developing countries in international trade and investment. They agreed that it would be important to facilitate the fuller participation of these countries in the open and multilateral trading system, with its shared rights and responsibilities, in order to provide a sound basis for their progressive integration into the world market economy. They foresaw a need for the improvement of arrangements for the discussion and resolution of international economic problems of special relevance to developing countries. They are ready to discuss with developing countries how this process can be advanced in the appropriate international fora.
Aid
38. Ministers expressed the determination of their governments to maintain and, to the best of their ability, to increase the volume of aid to developing countries with a view to realising their commitments to the international aid objectives. They stressed the importance also of efforts to improve the quality and effectiveness of aid and also to facilitate flows of other financial resources to developing countries. In this connection, they underlined the essential role of the multilateral development institutions; they agreed on their need for continued substantial financial resources and encouraged increased co-ordination of multilateral and bilateral aid programmes. Ministers welcomed the increased importance being attached to the development of human resources in developing countries.
39. Ministers stressed the urgent character of the problems of developing countries, in particular the most disadvantaged among them, aggravated by present world economic conditions. They agreed that increased and better-adapted aid is necessary to assist notably the poorer countries in their development efforts and policies. They welcomed the constructive outcome of the United Nations Conference on the Least Developed Countries held in Paris in September 1981 and expressed their willingness to co-operate towards the implementation of the substantial new programme of action of that conference.
Food
40. The high priority and urgency of agricultural development and food production in developing countries is now accepted on all sides. Ministers welcomed and encouraged the new efforts being made to intensify international concertation and co-operation in this area, in particular initiatives for increased and better co-ordinated financial and technical assistance from developed countries in support of the formulation and implementation of comprehensive food strategies by developing countries. They recognised that this will require the commitment of sustained effort and resources by developed and developing countries.
Commodities
41. Ministers expressed their determination to continue their efforts to promote international co-operation in the commodity field. They reaffirmed their support for the Common Fund and its objectives urging that greater efforts be made by both developed and developing countries to bring the Agreement into operation as soon as possible. They also reaffirmed their support for further efforts to conclude commodity agreements where appropriate, taking due account of the specific characteristics of particular commodities.
Energy
42. Ministers agreed upon the importance of maintaining the impetus of energy development by strengthening and better co-ordinating bilateral and multilateral technical and financial assistance. They further recognised the need for identifying appropriate ways, for example in the World Bank, to organise and encourage additional public and private financial resources for this sector.
43. Ministers agreed on the importance of sustained and effective implementation of the Programme of Action adopted by the United Nations Conference on New and Renewable Sources of Energy in Nairobi which had established a constructive basis for improved co-operation with developing countries.
East-West Economic Relations
44. Ministers recognised the value of the different aspects of the work of the Organisation on East-West economic relations, and agreed that their interrelations should be considered further within the Organisation.
 
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