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1. The Council of the OECD met on 18th and 19th May at Ministerial level. The meeting was chaired by Mr. Kjell-Olof Feldt, Minister of Finance and Mrs. Anita Gradin, Minister for Foreign Trade, of Sweden. The Vice-Chairmen were Mr. James A. Baker III, Secretary of the Treasury of the United States, and Mr. Panayotis Roumeliotis, Minister of National Economy of Greece. The following records the agreements reached by Ministers.
2. There are encouraging features in the current economic situation:
3. OECD Governments will build on these developments in order to enhance job-creating, non-inflationary growth and to sustain it over the forthcoming years. There are no grounds for complacency. Important challenges remain:
4. Macroeconomic policies and structural adjustment policies support each other and must be exploited to the full. Improving the quality of structures and the flexibility of markets strengthens the responsiveness of economies, enhances the effectiveness of macroeconomic management and improves the prospects for strong and sustainable growth. In turn, such prospects make structural adjustment more attractive and rewarding. International cooperation is an important ingredient of both macro and microeconomic policies.
5. All OECD Governments will contribute to the cooperative effort through the pursuit of monetary and fiscal policies aimed at supporting job-creating, non-inflationary growth, correcting external imbalances, containing budget deficits, striking appropriate balances between domestic saving and investment, maintaining orderly financial markets and achieving greater exchange-rate stability. They will intensify their action, nationally and internationally, to reform structural policies especially in such areas as trade, agriculture, industrial subsidies, tax systems, financial markets and international investment. In this context, they consider it important to promote widespread understanding and acceptance of structural reforms among business, labour and the public at large. Dialogue involving social partners has made a contribution to this end in a number of countries.
6. Ministers welcome the report on the reform of structural policies by the Economic Policy Committee (" Progress and Priorities in the Reform of Microeconomic Policies ") and endorse the priorities identified in Section II of this report. They invite the Secretary-General to develop further and strengthen the OECD's surveillance of structural reform and call for a report at next year's Ministerial meeting.
7. For the United States, the essential requirement is to reduce further the Federal budget deficit. The U.S. Administration and Congress are agreed on this objective, and action will be taken to ensure that the budget deficit is brought down substantially in 1989 and subsequent years. Structural reforms will be pursued with a view to improving the overall investment/saving balance, to strengthening the international competitiveness of the industrial sector and to reducing government spending, as well as removing distortions created by policies for example, agricultural support. Monetary policy will be guided by the objective of ensuring that the economy remains on a path towards price stability, while nurturing orderly conditions in financial and foreign exchange markets. Continued budget deficit reduction and stronger private saving will ease pressures on monetary policy and will forestall domestic inflation pressures. Moreover, these actions will make room for continued strong expansion of U. S. exports and will contribute to a reduction of the U. S. current account deficit and hence to greater financial stability. Resisting protectionism remains a priority objective, as is the early implementation of the Free Trade Agreement with Canada in conformity with international obligations and the objective of maintaining and strengthening the open, multilateral trading system.
8. In Japan, the current process of growth led by strong domestic demand and accompanied by rapidly rising imports, which has been contributing to international adjustment, needs to be sustained. The short-term outlook in this respect is favourable. The Japanese Government will seek to ensure that this process continues. Fiscal policy will remain flexible within the medium-term framework of fiscal consolidation. Monetary policy will be conducted with care to contain the provision of liquidity within ranges consistent with non-inflationary growth of demand, while continuing to contribute to external adjustment. Sustained structural reforms will contribute to reduced inflation risks and to adjustment, thereby expanding consumption opportunities and increasing imports. Policies are being designed and implemented, inter alia, to improve market access and to further promote deregulation as well as structural adjustment in wide-ranging fields including agriculture, land use policy, the tax system and the distribution system.
9. In Europe, structural reforms will be continued and intensified. These reforms, combined with flexible implementation of macroeconomic policies, are essential to maintain growth in demand and production and to enhance the economic potential of Europe. This will build confidence, improve the responsiveness of economies, create a better climate for investment and thereby strengthen the prospects for non-inflationary growth and better employment. While taking account of the differences between countries, European governments will continue to cooperate in the conduct of their structural and macroeconomic policies so as to maximise the benefits from reform and to increase the scope for policy action by individual countries.
10. The programme of the European Community to complete the internal EC market by 1992, together with joint efforts by the Community and EFTA countries to deepen and extend their cooperation beyond the current free trade agreements to create a European Economic Space, are imparting a strong momentum to structural policy reform and to growth. These moves will be taken in line with the objective of maintaining and strengthening the open, multilateral trading system and in conformity with international obligations.
11. Particular attention will be given by European Governments to the following reforms:
12. These reforms will create expanding opportunities for innovation and employment. They will also contribute to dissipating inflationary risks and to an environment conducive to lower interest rates. Stepping up the pace of structural reform in Germany will, interalia, strengthen domestic demand and contribute to a reduction of its persistently large current account surplus and hence to a better distribution of external balances within Europe and globally. Mutually supportive fiscal and monetary policies in Europe will take full advantage of the scope for growth created by structural reforms and contribute to a climate of confidence, productive investment, price stability and lower unemployment .
13. Canada, New Zealand and Australia will pursue thorough structural reform. In the period ahead, Canada will undertake a second stage of tax reform and implement the recently concluded Free Trade Agreement with the United States in conformity with international obligations and in line with the objective of maintaining and strengthening the open, multilateral trading system. In addition, Canada will continue to give priority to reducing its budget deficit. It will also pursue further reforms in a broad range of sectors, including in agriculture, to reduce economic distortions. New Zealand, which has undertaken the most far-reaching market reforms of any OECD country to open its economy to international competition and dismantle extensive government intervention in domestic markets, will continue to implement this programme. Australia will continue its broad programme of structural reform, including deregulation of domestic markets and extending significantly exposure to international competition.
14. The situation and performance of developing countries vary widely. However, central to the prospects of all is a global economic environment conducive to strong and sustainable growth. The OECD countries have made a commitment to this objective. They will do all possible to ensure more open markets for the exports of developing countries, and they consider it important to maintain and as far as possible increase both official development assistance, particularly in grant form, and other financial flows. They will also encourage industrial and technological cooperation, and direct investment .
15. The developing countries, in turn, have important responsibilities in improving their own performance and policies, strengthening their credit-worthiness, creating a more attractive climate for investment and ensuring more open markets. The necessary, far-reaching domestic policy efforts are often difficult. Nonetheless they are essential. Many countries have already embarked on major growth-oriented reforms, whose success, in part, depends upon continued OECD support.
16. A number of middle-income countries with large debt burdens continue to have difficulty in achieving the financial stability and resumed investment necessary for sustainable growth. Generalised approaches or across-the-board measures cannot provide the appropriate answer to their differing problems. All parties involved must therefore continue efforts, on a case by case basis, to deal efficiently with debt problems and new financing needs, including a broad "menu" of market- oriented options for commercial bank debt. Such approaches should take due account of the adjustment efforts of the developing countries concerned. To support these directions for the debt strategy, it is important that the IMF, the World Bank and other international financial institutions be equipped with adequate facilities and resources. In this regard, Ministers welcome the recent agreement on a General Capital Increase for the World Bank and the ongoing adaptation of the IMF's policies and instruments aimed at strengthening its central role in the debt strategy. They also welcome the efforts made in the Paris Club.
17. The important contribution that international direct investment, too, can make to adjustment and growth is now gaining wider recognition in developing countries. However, significant obstacles to the flow of direct investment remain and should be addressed by both host and home countries, and through cooperative action. The welcome new activities of the Multilateral Investment Guarantee Agency and the International Finance Corporation will help stimulate international investment in developing countries.
18. For the poorer developing countries the IDA replenishment, World Bank co-financing arrangements with bilateral donors and the Enhanced Structural Adjustment Facility of the IMF will help alleviate their situation. Improved terms for consolidating the debt of the poorest developing countries notably in Sub-Saharan Africa are also making a contribution. Nevertheless, debt burdens continue to mount. Proposals to ease these burdens for the poorest countries undertaking structural adjustment efforts therefore merit careful consideration, including, where possible, interest rate reduction in official rescheduling or alternative measures having a similar impact. Improved official development assistance, in quality and in quantity, is essential.
19. Important actors in the world economy are emerging from among the newly industrialising economies. This is a welcome development. It provides these economies with the opportunity to play an increased role in the cooperative effort to manage the open world economy and confers upon them a greater responsibility in the international adjustment process commensurate with their capacity. Discussions involving these actors recognising mutual interests and taking into account the diversity of the economies concerned could contribute to better understanding and the convergence of views on policy cooperation for the continued growth and development of the world economy.
20. The world trade picture shows a number of contrasts. Trade is growing robustly. However, protectionist pressures and trade tensions remain strong. While OECD Governments have generally resisted these pressures, a fairly significant number of import restrictions have been either extended or introduced; there are still many serious bilateral disputes though it is encouraging to note a more marked tendency to look for settlements within the GATT framework; the propensity for unilateral measures or bilateral agreements which are sometimes discriminatory remains a particularly serious threat to multilateralism. In order to create an environment conducive to the success of the Uruguay negotiations, resolute efforts will be made by the OECD countries to fight protectionism and to resolve trade frictions on an amicable and non-discriminatory basis. In this context, Ministers recognise the need to strengthen the multilateral trading framework and the importance of better functioning of the GATT. Within the Organisation broad ranging work, including strengthened monitoring of trade policies, will support these efforts.
21. The Uruguay Round has been proceeding satisfactorily in line with the timetable set in January 1987. A number of important proposals on the issues to be negotiated have been lodged, including on subjects such as agriculture, tropical products, services, intellectual property, safeguards and institutional issues such as dispute settlement and GATT functioning. As they enter their more difficult phase, it is vital to ensure the momentum of these ambitious negotiations, which aim to strengthen the multilateral system and adapt it to the needs of the modern world. The greatest possible advance must be made in the months to come, in all areas of the negotiations, so as to reach before the end of the year the stage where tangible progress can be registered. To this end, Member countries should seek to agree on a framework approach on all issues. Thus it will be possible to hold a mid-term review, at the meeting scheduled for December in Montreal, that establishes a solid base for the full and complete success of the negotiations in accordance with the Punta del Este Declaration .
22. The Uruguay Round should lead to positive results which ensure mutual advantage and increased benefits for all participants. The negotiations must take duly into account the growing and differentiated role of developing countries in the world economy, hence their interests and the responsibilities which they must bear, according to their level of development. In accepting higher levels of obligation within the GATT framework the more advanced developing countries would contribute to, and benefit from, the strengthening of the multilateral system. For developing countries, as for OECD members, trade liberalisation can play a positive role in rationalising and invigorating their economies.
23. The behaviour of Member countries in trade matters will inevitably influence the climate of the Uruguay negotiations. It is essential, therefore, that, in line with commitments made, particularly at Punta del Este, standstill undertakings be strictly adhered to and that efforts be intensified to rollback protectionist measures that have been in force for a number of years. The abuse of anti-dumping and countervailing procedures will have to be avoided.
24. The adjustment and growth policies which Member countries intend to pursue and intensify should also contribute to the success of the Uruguay negotiations by improving the expansion of activity and exchange market stability.
25. Liberalisation of trade in services remains an important objective for OECD members, because of the growing contribution of marketable services in their economies and those of their trading partners. The Organisation will persevere with its work in this field, particularly on approaches to a multilateral services agreement and on the strengthening of the OECD Codes.
26. Ministers took note of the joint report of the Agriculture and Trade Committees ("Monitoring and Outlook of Agricultural Policies, Markets and Trade") and endorsed its conclusions. There has been some recent improvement in the market balance for certain commodities, resulting partly from supply control policies or from producer responses to market signals and stock disposal measures, and partly from weather conditions. Despite this improvement, supply in the OECD area, stimulated by policies which prevent an adequate transmission of market signals to farmers, continues to exceed effective demand. The resulting economic and trade problems remain acute. Since the beginning of the decade, according to OECD Secretariat estimates, the cost of agricultural support for the OECD as a whole imposed on tax payers and consumers has nearly doubled, reaching about 200 billion ECUs per year in 1984-1986. It is difficult to make an assessment of the trend of policies and their consequences over a relatively short period. Some encouraging efforts have been undertaken, but it is clear that there has been only limited progress overall since the Ministerial Council in May 1987. It is therefore imperative that policy reform efforts be strengthened by all Member countries as a matter of urgency. In this context it is essential that measures already introduced are underpinned by further positive actions. This will contribute to much-needed structural adjustment as well as to the success of the Uruguay Round.
27. Further measures will be taken, based upon the principles agreed upon at the last Ministerial Council, to allow market signals increasingly to influence the orientation of agricultural production, by way of a progressive and concerted reduction of agricultural support as well as by all other appropriate means, while consideration may be given to social and other concerns. Concerted international action on a multi-country, multi-commodity approach will strengthen the process of reform. Ministers reaffirm that the Uruguay Round is of decisive importance in this context.
28. The Uruguay Round negotiations are providing a setting within which Member countries will continue to seek agreements reinforcing the attainment of viable long term reform in agriculture as defined by Ministers in 1987. It is important that the mid-term review add impetus to the negotiating process in this as in other fields. To this end Member countries should seek to agree on a framework approach, in conformity with paragraph 21, including short term as well as long term elements which will promote the reform process as launched last year and relieve current strains in agricultural markets.
29. Since trade tensions on agricultural markets remain very serious, notably due to the persistence, and in some cases intensification of all forms of support, including export subsidies and import restrictions, Member countries are urged to take measures in conformity with the Ministerial Communique of 1987, including its long term objective, in order to avoid confrontational and destabilising trade policies.
30. The Organisation will pursue its work on the monitoring of agricultural reform and the process of structural adjustment in agriculture. In this context, it will carry out thorough analysis of the effects of measures which are envisaged or have been taken. The improvement and updating of the analytical tools, such as the PSE/CSE and the OECD agricultural model, will be pursued. The Organisation will also study the possible contribution to agricultural reform that might be made by measures such as the quantitative limitation of production or resources used in agriculture; direct income support; other measures aimed at facilitating structural adjustment; and policies for rural development including environmental aspects. The work on the economy-wide effects of agricultural policies in the OECD countries will also be actively pursued and broadened.
31. Liberalisation and regulatory reform in financial markets have improved the efficiency of financial intermediation and strengthened competition, thus enlarging the role for market judgements in guiding investment decisions. However, the stock market crisis of October 1987 and, in particular, the speed and pervasiveness with which shocks were transmitted between markets and across countries, have raised concerns about potential vulnerabilities and the limits of policies based on purely national approaches. International cooperation to ensure the smooth working of financial markets will be extended both within the OECD and more widely. The Organisation will intensify its efforts to analyse the nature and functioning of the emerging global financial system and to identify gaps and inadequacies in the coverage and coordination of prudential arrangements, especially in the case of securities markets.
32. International investment has a significant role in the promotion of structural adjustment and technical advance, easing payments imbalances and contributing to economic efficiency and growth. Signs of emerging protectionist pressures in the investment area are therefore worrying. Ministers express their determination to resist such protectionism; to maintain an open investment climate; to fulfil their international commitments in this respect, notably those in the OECD Codes; and to strengthen the OECD National Treatment instrument. The review of the 1976 Declaration on International Investment and Multinational Enterprises provides an important opportunity to reinforce the International framework for furthering liberalisation and maintaining an open investment climate in the OECD economies. A progressive step-by-step approach will be developed towards extending the application of National Treatment. Backsliding must be avoided. Ways to set in place an effective process for further liberalisation will be explored. The balance that has characterised the Organisation s approach to international investment questions, including between the different elements of the Declaration, should continue to prevail.
33. Technological progress is one of the major driving forces in the development of the world economy. Among the aspects which figure prominently on the policy agenda of Member Governments are: the process of generation and diffusion of new technologies; their potential contribution to more dynamic economic performance and greater social welfare; the interaction between technology and society; and the implications for environment. Recognising the growing importance of these questions and their international dimension, Ministers welcome the broad orientation for the future work of the Organisation contained in the Progress Report of the Secretary-General and invite the Secretary-General to report in due course to the Council at Ministerial level. They also welcome the recent Recommendation by the OECD Council on Principles for International Cooperation in Science and Technology [PRESS/A(88)21] which, reflecting the importance of science and technology to economic growth and social development, will promote openness in this area.
34. While taking account of their differing situations, environmental protection and enhancement are important objectives in all Member countries. To this end, environmental considerations should be taken fully into account in a balanced and efficient manner in all appropriate areas of governmental decision making, thereby contributing to sustainable growth, as underlined in the report of the World Commission on Environment and Development. The Organisation s work on the integration of environmental and economic considerations in policy making will be extended and strengthened accordingly. Priority is also placed on continued efforts to address environmental problems of a transboundary nature . Furthermore, the Organisation will intensify its efforts on global issues, including climate-warming, and on environmental degradation in developing countries. In this context, the Organisation should continue its work on developing common approaches to the environmental review of bilateral and multilateral assistance projects as a further contribution to sustainable development.
35. Occupational adaptability has become increasingly important in the modern work-place. Education systems must be geared to provide all young people with the fundamental competence to acquire skills and to adapt through their working life. Every effort should be made to have public and private opportunities for training and retraining available to meet the needs of all members of the workforce and all those wishing to join it. It is important that work-place opportunities for individual adaptation and redeployment be as widespread as possible. Attention should be given to the problem of the long-term unemployed.
36. Social protection systems, which are of considerable importance not only for the security and well-being of individuals but also for the efficiency and adjustment capacity of economies, are generally under budgetary constraint. This is particularly the case for publicly funded health care and pensions. These issues will be at the centre of the discussion at the meeting of Ministers of Social Policy on 6th-7th July.
37. The energy situation has changed considerably over the last several years. In the present circumstances, security of supply in the short term at reasonable conditions is available. Nonetheless, energy security remains a central objective in both the short and the long term, through emergency preparedness and through structural changes leading to a more sustainable energy mix. Structural adjustments are taking place in all energy markets and industries in response to changing supply and demand patterns and prices, and new technologies, and as a result of government policies. Meanwhile, important issues relating to energy trade, to research and development, to environment and safety, to emergency preparedness, and to non-Member countries are receiving greater policy attention.
38. In this situation, agreed energy policies regarding diversification of energy sources, development of indigenous energy resources, greater energy efficiency, enhancement of emergency response mechanisms and further liberalisation of energy trade should be continued. Careful monitoring and analysis of energy developments in Member countries and, increasingly, elsewhere in the world will continue, in order to ensure that structural and policy adaptations necessary to maintain energy security take place.
 
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