1

THE ECONOMIC OUTLOOK , DECEMBER 1971 OECD's CODE FOR LIBERALISING CAPITAL

MOVEMENTS TRADE MEASURES AND THE ^ADJUSTMENT OF BALANCES OF PAYMENTS ^DEVELOPMENT ASSISTANCE: THE CURRENT PICTURE HIGH-LEVEL MEETINGS AT OECD CONTENTS OECD

3 DEVELOPMENT ASSISTANCE : THE OB SERVER CURRENT PICTURE by Edwin M. Martin, Chairman of OECD" s Development Assistance Committee

N° 55 DECEMBER 1971 6 TRADE MEASURES AND ADJUST¬ MENT OF THE BALANCE OF PAY¬ MENTS

by Serge De vos, Head of Division, OECD's Trade Direc¬

torate

9 OECD GROUP ON TRADE AND RELA¬ TED PROBLEMS

Published bi-monthly in English and French by 10 TOWARDS RATIONAL FISHERY MANAGEMENT THE ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT 13 HIGHLIGHTS FROM THE OECD ECO¬ NOMIC OUTLOOK - December 1971

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38 OECD'S CODE FOR LIBERALISATION All correspondence should be addressed to the Editor. OF CAPITAL MOVEMENTS

44 REUNION OF THE " GROUP OF FOUR " PHOTOS : Cover : USIS ; paze 9 : L. Jouan - OECD ; page 11 : USIS ; pages 20-26 : L. Jouan - OECD ; pages 28-29 : Ravagnan for OECD ; pages 30, 37 and 45 : L. Jouan - OECD. 46 NEW OECD PUBLICATIONS DEVELOPMENT ASSISTANCE : THE CURRENT PICTURE

by Edwin M. Martin, Chairman of OECD's Development Assistance Committee (i)

On the major issues of development assistance 1971 will show any significant overall improvement over the growth of aid, terms, untying and the grant¬ 1970 although of course some countries will do much ing of preferences to the exports of less deve¬ better. And the perspective for 1971 as well as 1972 for loped countries the record is hardly encour¬ the contributions [of the United States (which in 1970 aging, especially in light of the " promises " of the Se¬ accounted for some 50 per cent of the total GNP of cond Development Decade. DAC Member countries, and whose contributions The " promise " highlight was the adoption of a accounted for nearly 40 per cent of the DAC total Strategy for Development by the United Nations General and for 45 per cent of official development assistance) Assembly on 25th October, 1970. The Strategy's recog¬ is clouded by the 10 per cent administrative cut in nition of the importance of specific social goals, its expenditures and by the delay in Congressional action introduction of a goal for net official development on the foreign aid authorisation bill. assistance (though not accepted as stipulated by some donors) and its at least indirect implication of a goal for population growth were all pretty much unthinkable at The Promise of Preferences the governmental level ten years ago when the First Another " promise " within the United Nations Development Decade began. framework was that made by the industrialised countries at UNCTAD II in New Delhi, in the spring of 1968, to The Record on Volume introduce as soon as possible general, non-reciprocal As to performance: the key goal for developed coun¬ tariff preferences on imports from developing countries of tries in the 1960's was to reach a net flow of resources to manufactures and semi-manufactures. Trade policy is developing countries of 1 per cent of GNP. Tn 1961, the not a DAC responsibility, but it is of the greatest impor¬ year the goal was accepted, the figure actually obtained tance and has an impact on all aspects of the develop¬ was 0.95 per cent; in 1970, at the end of the decade, the ment partnership. Jn 1970 a " promise " was made in comparable figure was only 0.74 per cent (2). And this specific terms: in the fall of that year, OECD did transmit at a time when DAC citizens had on the average $ 1 ,470 detailed proposals on the matter to the UNCTAD which more per capita to spend. were accepted. For the key category of official development assistance, While a number of developed countries put these pro¬ volume has also tended to decline from 0.52 per cent of posals into effect in the course of 1971 , as was generally GNP to 0.34 per cent during the decade as compared with expected at the time the specific "promise " was made 0.70 per cent proposed as a target in the UNCTAD Stra¬ last fall, not all, including the largest, the United States, tegy (though not unanimously accepted). This decrease have yet done so. The status of United States action on took place over a period when government expenditures this "promise" will greatly affect the atmosphere in rose by $ 136 billion; of this sum only $ 1.5 billion could which all development matters will be considered by the be found for development purposes in yearly budgets Third UNCTAD Conference to be held in the spring of though at the same time governments were able to increase 1972 in Santiago, Chile. their annual military expenditures by $ 39 billion. In this context it is important that we seek a solution The declining trend in both official and overall deve¬ to current trade and monetary differences among the lopment assistance is largely the responsibility of a few developed countries which will promote rather than limit donors, principally the major ones, and it is only fair to world trade and which will encourage the export growth record that not all countries " looked the other way ". potential of the developing countries.

As the chart shows, six countries were above the 1 per (continued on page 4) cent mark in 1970 for the total flow of resources, and as to official development assistance, the decline in the per¬ centage of GNP was due to substantially smaller percen¬ (1) The Chairman'syearly official report " 1971 Review, tages for Belgium, France, the United Kingdom and the Development Assistance : Efforts and Policies of the United States (in alphabetical order); on the other hand, Members of the Development Assistance Committee " Australia, Canada, Denmark, the Netherlands, Norway, has just been published. Sweden and Switzerland have all increased their official (2) Excluding newfigures, availablefor thefirst time in development assistance as a percentage of GNP very 1970, on private voluntary organisations such as religious substantially during the 'Sixties. and other charitable groups which amounted to % 840 mil¬ Judging from those estimates we have received in the lion. If this figure is included, the percentage of GNP course of annual reviews this year, it seems unlikely that reached was 0.78 per cent. TERMS

VOLUME 1970 Whether

or not target * * * reached

NETHERLANDS Yes

FRANCE Yes

BELGIUM Yes

AUSTRALIA Yes

UNITED KINGDOM Yes

PORTUGAL No

JAPAN No

GERMANY Yes

ITALY No

CANADA Yes

SWEDEN Yes

AUSTRIA No

SWITZERLAND No Total Net Flow of Re¬ sources to Developing countries as a % of DENMARK GNP Yes

Net Official Develop¬ ment Assistance as a UNITED STATES % of GNP Yes

NORWAY Yes

* Target recommended in DD-II Strategy but not accepted by all donor countries.

** Target accepted by all DAC Members.

*** Target accepted by all DA C Members : 70 % of official development assistance commitments as grants ; or for 85 % of ODA each transac¬ t/on to have minimum grant element of 61 % ; or 85 % of ODA to have an average grant element of at least 85 ",,. The volume at qualify¬ ing terms must not be significantly below the DAC average.

ing of the terms of assistance provided by Member govern¬ Terms and Untying ments to developing countries and to increase the grant element in those loans. All DAC countries pledged United Nations' " promises " are not the only ones themselves to work towards these goals, and a new target which have turned out to be hard to translate into action. intended to be more rigorous was adopted in 1969. In 1965, the DAC adopted a " terms target " by unani¬ By 1970 five of the sixteen countries that make up the mity, the purpose of which was to set goals for the soften DAC had not yet reached this goal (see chart) although all had accepted it in principle. In actual practice terms more on education, and those of Latin America 15 per have not improved much and the grant element in loans cent more. In both the Far East and Middle East, is falling. military budgets were a higher percentage of GNP than This factor, along with the stagnation in volume, par¬ in developed countries. ticularly of official development assistance, might cause a Unfortunately, military expenditures are not only a crisis which could be very serious for all of us: appar¬ drain on local resources, but purchases of expensive ently with the limited volume of concessional funds, equipment from developed countries may represent a there is pressure on many countries to expand the volume drain of one or two billion dollars a year of scarce foreign of their export credits in order to get essential things done. exchange. Added to the similar wastage of hard-earned Export credits have been going up at unprecedented rates. foreign currencies for the repurchase of foreign invest¬ Taking official and private export credits together, the ments already paid for, and the considerable investments increase in 1970 in net amount outstanding was over in donor countries by citizens of a few developing coun¬ $ 2.8 billion, a greater increase than in 1969 by $ 270 mil¬ tries, we have three outflows that are a proper cause for lion. Their hard terms are the sorts of burden that could concern by all those who seek rapid and truly indepen¬ create a serious crisis in payment capacity with even a dent progress for each developing country. modest fall in exports. In too many cases, existing economic and social struc¬ In mid-1971 the prospects were good that most donors tures have meant that economic development only accen¬ would agree to untie their bilateral development loans tuated income gaps and increased rather than reduced the which cover some $ 2 billion of flows, all in the category number of poor. Those employed in the modern sector of official development assistance and that all DAC of business and government and landowners in the tradi¬ Members would agree not to tie their future contribu¬ tional sector have prospered greatly, while the majority of tions to multilateral financial institutions. OECD's the population the urban unemployed or under-em¬ Development Assistance Committee bad substantially ployed, the subsistence farmers and farm labourers advanced the drafting of the text of an agreement on unty¬ have shared little in the rising GNP. While comparisons ing bilateral loans and multilateral contributions, in¬ between developing countries give little support to the cluding detailed guidelines which would reasonably ensure popular slogan to the effect that " the rich are getting that international competitive bidding for such untied richer and the poor are getting poorer ' ', within many indi¬ funds would be real and not just a formality. But while vidual developing countries this is, unfortunately, too substantial progress has been made in the negotiations, close to what is happening. the agreement on untying has not yet been concluded, Nor, in many cases, have these poorer groups benefited due in part to recent developments in the field of equitably from government social programmes. Even trade and monetary policies. where tax structures may be progressive and this is usually more so in theory than in fact expenditure pat¬ Diversion of Energy terns are usually highly regressive, especially as regards the rural population, still over two-thirds of the total. The failure to translate public official positions into Thus, dual societies are being reinforced, not eliminated. donor performance has been so conspicuous so often for Partly as a result of this last factor, but also reflecting so many governments that it is not surprising that a the impact of rapid change on the values of traditional "credibility gap " has emerged. But it would give an societies, more and more countries face a political polar¬ incomplete picture of development reality to fail to note isation which is breeding extremist violence by both that pledges by governments of developing countries to governments and private groups of a sort hard to control use their resources first and foremost to improve the in even the most developed societies. It represents a well-being of their impoverished citizens have also been costly diversion of energies from the central task of im¬ too often "promises ", followed by less than adequate proving human conditions. performance. National pride, desire for personal gain or political power, weak bureaucracies, have all contri¬ In many ways the most fundamental problems for development in the 'Seventies are those of which we have buted in varying degrees in many countries to waste of scarce resources, more often their own than ours. only recently become aware the need for job creation, Scarce resources have gone too often to expanding pur¬ family planning, relevant education, improved nutrition poseless military establishments, although in much smal¬ and enhanced agricultural productivity. There is plenty of room, it seems to me, in all of these areas for research. ler volume than for donors. But they are far from negli¬ gible, having been estimated at $ 24 billion in 1970, and We are just beginning to awaken to the fact, a fact which most of our corporations learned long ago, that very sub¬ are rising even more rapidly than those of developed stantial expenditures on research are profitable. Re¬ countries, having gone up about one-third in terms of search, however, will not be of much help unless there is 1968 prices in only four years. In the latest year for the political will, the administrative skill and the financial which this comparison is available 1968, they had resources to apply what we learn. Solutions to these prob¬ reached around 4 per cent of GNP though still short of lems do not and will not permit us to avoid the issue of the developed countries' 7.2 per cent (3). In that year, volume of aid. Effective action will take more resources. despite an exceptionally rapid growth of education bud¬ gets (4), developing countries spent 50 per cent more of (3) Including centrally-planned economies. public funds on their armed forces than on education. (4) In some countries private education, not included here, is African governments, however, spent over 50 per cent of substantial importance. TRADE MEASURES AND ADJUSTMENT OF THE BALANCE OF PAYMENTS

by Serge Devos, Head of Division, OECD Trade Directorate

During the last 15 years industrialised coun¬ tionary, action, governments may be tempted to tries have only rarely taken far-reaching combine such action with trade measures in order trade measures to correct deficits in their to avoid too great a degree of unemployment. balance of payments; those countries Governments are also reluctant, for a variety of which have had recourse to such action have, with reasons, to devalue or revalue their currencies. From one or two exceptions, utilised measures other than the point of view of the trade balance there is an the quantitative restrictions provided for in Article analogy, despite some significant differences, be¬ XII of the GATT in particular import surcharges tween a devaluation of the currency and trade mea¬ or import deposits. sures, particularly an import duty combined with an The problem is whether there is now a risk of more export subsidy. In fact the trade measures may be frequent recourse to such measures and, if so, whether chosen because they are likely to affect trade more existing international rules and procedures are well quickly, are more flexible and are not irreversible suited to present circumstances. as is the case with a change in the rate of exchange. These questions were being asked well before the It is a fact that trade measures have been taken imposition of an import surcharge by the United as an alternative to parity changes, but in most cases Slates on 15th August or the similar measure taken the trade measures have in fact heralded a change by Denmark on 21st October: during the last three in exchange rates though sometimes the change years in particular, mechanisms for adjusting the has been long in coming. balance of payments have been subjected to re¬ On the whole, however, given the various possible examination precisely because of the developments means of financing a deficit, it may be said that which led to the present crisis. the Bretton Woods mechanisms for correcting deficits worked comparatively well over a fairly long period; Trade Measures and the Mechanisms and trade measures have been employed, with various degrees of stringency, on only four or five occasions. for Adjusting Balance of Payments This may have been partly due to the fact that the period was a generally favourable one from an eco¬ Trade measures play only a marginal role in the nomic point of view, characterised by full employ¬ balance-of-payments adjustment mechanisms which ment and expanding economies: it is precisely in were devised as part of the Bretton Woods monetary situations of excess demand that measures directly system. These mechanisms have been examined in a affecting the trade balance, are particularly inap¬ report by Working Party No. 3 of the OECD Econo¬ propriate or even counter-productive. mic Policy Committee (1). Some people believe that the country-to-country In the present system there is little automaticity ; differences in cost trends observable in recent years on the whole governments have to intervene in order are likely to become more pronounced and per¬ to correct disequilibria. The prevalent view of the manent, and that the priority which will have to adjustment process gives priority to internal mea¬ be given to human and social aims will make it sures, monetary and fiscal policy, in restoring exter¬ impossible in future to subordinate internal econo¬ nal equilibrium. Parity changes are reserved for mic policies to external constraints. If this were cases of structural imbalance due to changes in to be so, the danger of disequilibrium would be relative competitiveness. Trade measures, while greater and there would be a growing tendency to not entirely ruled out, are considered as contingency seek to achieve balance on external account through measures to be used only in serious situations when external measures. Then recourse to controls over quick results are absolutely essential. the flow of goods and restrictions on tourism Under the Bretton Woods system comparatively and capital movements as well might become close co-ordination of economic policies is necessary, more prevalent. Such considerations were in fact and external objectives may impose constraints on the basis for suggestions that the monetary system economic policies. The economic context or poli¬ tical considerations may lead governments to consi¬ der these constraints as too severe in certain cases. ] ) " The Balance of Payments Adjustment Process Thus when the correction of a deficit calls for defla August 1966 be modified, and more specifically that exchange have their full effect, or guarantee a stable equili¬ rates be made more flexible. brium after they have been withdrawn, unless they II is not the purpose of this article to discuss the are accompanied by internal measures aimed either pros and cons of providing such flexibility, or the at reducing excess demand or restoring the compe¬ various possible methods of introducing it, both of titive position. which are controversial matters. It is by no means For the international community, there are both certain that too much flexibility is desirable especial¬ political and economic reasons for opposing trade ly from the trade point of view. On the other hand, measures designed to correct balance-of-payments flexibility confined within narrow limits would pro¬ deficits. Such measures introduce distortions into bably not solve the problem. These remarks do individual countries' economies and into world trade, not imply any value judgment; the purpose of this and above all they may upset the process of libera¬ article is to define the problem of recourse to trade lisation both what has already been achieved and measures and to set it in the proper context. II further progress. Clearly, negotiations to lower must however be noted that excessive manipulation customs duties, for example, become practically of exchange rates would give rise to the same prob¬ impossible if the results are likely to be nullified or lems as the adoption of trade measures. attenuated at any time by the imposition of a sur¬ charge. Recourse to Trade Measures: Nonetheless, the possibility of having recourse to trade measures must probably be maintained, at Effects, Guiding Principles least as a safeguard clause. Such safeguards would and International Co-operation survive in a more flexible monetary system, although in such a case the need to resort to this form of action would be further reduced. This being so, In case oj a deficit there are two types of problem. The first is how to act in such a way that the need for recourse to If it is agreed that the trade balance of a given trade measures is avoided: this is a problem of country must be improved by a given amount, this economic management and international co-operation. can only be achieved, whatever the means employed, The second is how to make such recourse subject by increasing the imports of the country's trading to international discipline by requiring the measures partners and/or by reducing their exports. The taken to conform to certain guiding principles. path chosen however is clearly not unimportant The Council of OECD has, on a proposal of the whether from the standpoint of its economic effects Trade Committee, adopted such a set of principles or its political advisability. (see inset). They are still of a very general nature, There is no real controversy over the theoretical first because it is difficult, and perhaps not even or qualitative analysis of the effects of trade mea¬ expedient, to force any future actions into a very sures in cases of balance-of-payments deficit. The rigid pre-determined framework in view of the difficulties arise when quantitative evaluation is variety of situations that may arise; and secondly attempted; quantitative conclusions drawn from because governments, partly with such considera¬ specific cases must be viewed with caution and do tions in mind, do not wish unduly to limit their not lend themselves to generalisation. freedom of choice. A report by OECD's Secretary F"or the country concerned it would seem that General which served as the basis for the work of the the effects, particularly in the case of surcharges, Trade Committee (2) gives some indication of the have been comparatively limited in both amount and duration. In fact trade measures seem to have been designed to check the growth of a deficit rather (2) This report has just been published under the title " Trade than to make any appreciable reduction in it. In Measures and Adjustment of the Balance oj Payments : an any event it is recognised that trade measures cannot Analysis of Measures and their Effects ".

The Council of OECD has approved the danger the process of liberalisation, from should be applied in conformity with the following conclusions of the Trade Commit¬ the standpoint both of the results a/ready principle of non-discrimination; tee on trade measures and balance of achieved and of future progress. should in no way be employed to pro¬ payments adjustment. In balance-of-payments deficits there¬ vide disguisedprotection for one or more " It is important for a healthy and stead- fore: sectors of activity. The action should y growth of economies and international 1 ) Governments must continue to pursue be clearly identifiable and its aims stated trade that prononouced balance-of-pay¬ policies of balance-of-payments adjust¬ without any ambiguity; ments disequilibria be corrected. Meas¬ ment based on measures that are likely to should be implemented in such a way ures to reduce barriers to trade are among restore a durable equilibrium and designed as to avoid as far as possible any sudden the various forms of action which can help to avoid recourse to trade measures. disturbance of trade flows. reduce balance-of-payments surpluses. 2) If a government is nevertheless obliged, 3) To avoid the need for recourse to restric¬ On the other hand, trade measures can in a serious situation requiring rapid action tive trade measures and, should the case only provide a limited and temporary to have recourse to trade measures, such arise, to supervise the application of any contribution to the reduction of balance-of- measures: trade measures introduced, the available payments deficits. They present serious in¬ should be taken only as an exceptional facilities and machinery for international conveniences both for the country concern¬ step in con/unction with internal meas¬ consultation should be used: ed and for its partners: they introduce ures designed to remedy the causes of as effectively and as early as possible; distortions into countries' economies and the deficit; taking account of the need for an overall into international trade, adversely affect the should be applied for as short a period approach to adjustment of balance-of- development of international trade and en as possible; payments. " significance of these principles and the direction tory fashion under a multilateral system of trade, in which they could be strengthened if this were they are likely to accentuate the balance-of-payments felt to be desirable. difficulties of other countries. Measures taken by For example, if one considers the basic issue a surplus country, on the other hand, are by defi¬ of when trade measures might be justified, a question nition an encouragement to the trade of all its part¬ arises as to whether such action should be limited ners. to cases in which there is a trade deficit and in which Admittedly the action taken by a surplus country in that deficit is mainly responsible for the overall a given situation does not necessarily permit deficit payments deficit? Or would it be fair to include countries to avoid taking protective measures. Each as well cases in which an unfavourable trend in the individual case is different, and it would be dangerous trade balance, even if the latter is still in surplus, to generalise, though the contribution of the surplus is responsible for the balance of payments deficit? countries should perhaps be seen in a longer-term It is evident that these questions are directly linked context. to balance of payments objectives, and while it is Although surplus countries have taken measures true that progress in international co-operation of trade liberalisation on various occasions in the requires agreement on, or harmonisation of, these last twenty years, there are factors which limit the objectives, it may be unwise to fix rules which possibility of such action on a continuing basis or might in actual fact impede such co-operation. on a larger scale. The main consideration is that Perhaps more important is the question: what abolition of trade barriers is achieved through mul¬ type of measures may be taken in a given case ? tilateral negotiations; unilateral action, therefore, Under Article XII of the GATTand other inter¬ is felt to deprive the country concerned of a bargain¬ national agreements as well the only trade mea¬ ing counter with which to exert pressure on its sures which countries are entitled to take to correct partners to liberalise their own trade. their balance of payments deficits are quantitative In any event, the scope for action in the trade restrictions. Yet in practice, with the exception of field is increasingly limited because of the very France in 1968, no country has utilised quantitative progress already made towards liberalisation. Ob¬ measures in the last 12 years; instead they have had viously a system can be conceived and one was recourse to other types of action and in particular in fact introduced by Germany whereby a import surcharges and import deposits. Should this surplus country subsidises imports and taxes exports. de facto situation be recognised and the range of So far as the trade balance is concerned such a approved measures widened ? The question is not measure is roughly tantamount to a revaluation of merely an academic one. By leaving too much freedom the currency. There is accordingly a danger that in the choice of measures, recourse to trade action it may like the similar measures in the opposite may be encouraged and become more common. From direction taken by a deficit country be interpreted this point of view, the difficulties of introducing quanti¬ as heralding a revaluation and hence give rise to tative restrictions are an argument in favour of this speculative movements which make such a change type of measure which also has the advantage, from the inevitable. point of view of the country concerned, that they are practically certain to achieve intended results. Quantitative restrictions, however, make for such International Co-operation rigidity in trade, such distortion and complexity that the question arises whether it would not be preferable to On the whole, the problem of trade measures in recognise the surcharge as a measure more suited to the balance of payments adjustment mechanism is, present conditions. Another argument in the same as in other fields of international economic relations, vein may be pertinent: if an important principle is one of establishing guiding principles which are bypassed, there may be repercussions on the whole both sufficiently precise to impose genuine discipline of international discipline which would thereby be and sufficiently flexible to take into account complex rendered less effective. situations. The difficulties of reaching a satisfac¬ tory compromise on this matter, and the absence of sufficiently precise principles to serve as a guide for policy, give added importance to international In case of a surplus co-operation. The first task of international co-operation is to In the case of countries with a surplus, the ques¬ prevent situations in which strong corrective action tion of whether or not trade measures should be will be necessary. The second, at the stage of cor¬ used to regain equilibrium is only one aspect of the recting disequilibria, is to permit adoption of the general problem the role which such countries solution which is most suitable from the point of can play in adjusting international payments. This, view both of the country concerned and of the inter¬ too, has been a major subject of debate for some national community. Co-operation should make it years. Though resolved in theory by recognition possible to agree on the role to be played by each of the fact that both deficit and surplus countries deficit and each surplus country. Genuine co¬ have a part to play in restoring equilibrium, the operation should make it possible to forestall a crisis, problem is still a very real one, and is in fact at the but the present example shows us how much room heart of the present crisis. for progress there still is in this regard. From a practical, apolitical point of view the A concerted solution to problems of international corrective measures taken by a surplus country have payments implies at least a minimum of agreement an advantage over those taken by deficit countries: and harmonisation of a whole set of objectives, and since the latter must be applied in non-discrimina this is undeniably a difficult task.

s OECD GROUP ON TRADE AND RELATED PROBLEMS

THE OECD Council meeting at Ministerial level on

7th and 8th June, 1971, examined the perspectives for

international trade and agreed that broader opportuni¬

ties for progress towards the general aim of liberalisation of

international trade should be explored within the Organisation.

In order to examine the trade problems defined by the Minister¬

ial meeting, a group of personalities designated by their respective

Governments and, in one instance, by the Commission of the

European Communities has been formed by the Secretary General.

The group will identify the problems, assess their relative urgency, consider how these problems might be dealt with, and set out

options for their solution. The Chairman of the Group is

Mr. Jean Rey.

Chairman of the Group It is expected that the Group will submit a report in the spring Jean REY, from 1967 to 1970 President of the Commission of the European of 1972 in time for the meeting of the OECD Council at Minister¬ Communities, and formerly Belgian Minister for Reconstruction and for ial level. Economic Affairs:

MEMBERS OF THE OECD GROUP

Giuseppe CARON (Italy) OEEC; former Vice-President of the Commission of the Euro¬ Senator ; former Vice-President of the Commission of the EEC, pean Economic Community. former Minister for the Budget and Economic Planning ; former Under Secretary of State in several Ministries. Bertil Gotthard OHLIN (Sweden) University Professor ; former Minister of Commerce. William D. EBERLE (United States) Ambassador; Special Representative for Trade Negotiations. Arthur F.W. PLUMPTRE (Canada) Tom HAGUIWARA (Japan) Professor of Political Economy ; former Assistant Deputy Minis¬ Former Ambassador; former Commissioner General for the ter, Department of Finance. World Exhibition in Osaka, 1970. Sir Richard POWELL (United Kingdom) Gùnther HARKORT (Germany) Company Chairman ; former Permanent Secretary, Board of Former Secretary of State for Foreign Affairs. Trade and Ministry of Defence.

Théo C. HIJZEN (Commission of the European Com¬ Hans SCHAFFNER (Switzerland) munities) Former President of the Swiss Confederation. Head of the Directorate-General for External Trade.

Robert MARJOLIN (France) Hendrikus Johannes WITTEVEEN (Netherlands) Professor of Political Economy ; former Secretary-General of Senator; former Finance Minister. International exploitation of sea fisheries is nearing the danger level. For some species of fish there are still possibilities of heavier catches, but for the most valuable commercial species the peak has been reached (even the Indian Ocean tuna fisheries are probably already being exploited at nearly the maximum sustainable yield) . Fleet mobility is so great that any grounds abandoned because of overfishing are again exploited intensively as soon as stocks show signs of recovery. As this development is the result of technical progress, the industrialised countries are in a strong position, for their highly mechanised fleets can operate far from their home bases and may even exhaust distant fishing-grounds. All these efforts are too costly and for some natural resources cause a substantial loss of potential. That is why, in the midst of steadily expanding economies, the fishing industries lag behind. Many sectors are in difficulty and there arefew fisheries which do not receive substantialfinancial aid. OECD seldom deals with the conditions of raw material supply where abundance is governed by natural laws. The fact that fisheries are receiving special attention reflects a socio-economic fact: the dependence of the fishing communities in all maritime TOWARDS Member countries on the maintenance of fish stocks. In seeking to preserve the natural resources of the sea, the effect of regulatory measures on everyone-not just the fishermen-for RATIONAL whom they provide a livelihood must be taken into account. Economic and not only technical or biological factors are thus of great importance and the OECD Fisheries Committee is seeking FISHERY to stress this aspect of the problems. Thefollowing article, which gives a picture of the current situation and the action taken to improve it, has been prepared by Mr. Paul Adam, Head of the MANAGEMENT OECD Fisheries Division.

When the economist con¬ Once fishing begins, the natural siders fishery prob¬ equilibrium is disturbed. Losses lems he must break due to fishing are added to natural his habit of reasoning mortality; but the latter is also on the basis of aggregates and reduced through a natural and averages. Fish populations are automatic substitution: fishing in equilibrium in relation to the reduces the size of stock and food environment in which they live requirements (i.e. consumption of and find their food. But it is a fish by fish) decrease proportion¬ dynamic equilibrium, like a pen¬ ately. Even casual fishing thus dulum always swinging back to the introduces an effective, if invol¬ vertical but never staying there. untary, element of management. In fisheries, averages have very little chance of being the real There is no real opposition be¬ figures at a given moment. tween stockbreeding and fishing; If a fish population is left in there is merely a progressive trans¬ its natural state, its numbers and ition from an unexploited popu¬ total weight will vary from year lation whose level is controlled by to year according to ecological high natural mortality to a modern conditions and the supply of food. properly managed "herd" with a Natural mortality varying with cur¬ minimum of natural deaths, the rent conditions and population size fish being tended as carefully as provides the regulatory mechanism, possible and "slaughtered" as soon

10 The interaction of all these fac¬ tors results in a state of equili¬ brium, or rather a continual fluc¬ tuation around that equilibrium. As a result, the fishermen too are faced with a situation of con¬ tinual short-term fluctuations, for they have to adjust to the biolo¬ gical imbalances. Moreover, on "being introduced into the system, fishing itself brings with it eco¬ nomic diseqilibria if only because of the technical progress and growth involved. Although very little is known about the mechanisms of long- term climatic variations, their impact is clear: in the early Twen¬ ties there was no cod west of Greenland, but since then several hundred thousand tons have been caught there; now it seems that these waters are becoming colder and less hospitable and the cod are leaving them. In 1970-71 the Icelandic stock might even have been augmented by a larger than usual migration from the west of Greenland. But whether the cod will disappear completely from these waters and, if they do, whether they will return, as they did on several occasions in the 19th century, we do not know. To take another example, varia¬ tions in the stock and migration patterns of herring so impor¬ tant to the North Sea countries- are frequently mentioned by his¬ torians as a reason for the rise and fall of the Hansa towns, the Netherlands, etc., but the rhythm of these variations and the causes of these very long-term cycles are not known; the cycles are simply noted after the event.

As to the fishermen, their situa¬ tion is known and the present long-term prospect is one of great instability. Steadily increasing demand due to rising population and higher standards of living puts pressure on the fishermen to step up production. They are helped to do so by technical progress, espe¬ cially since 1960 the date of a real revolution in fishery techno¬ logy when stern trawling, on¬ board freezing and intensive use of electronic equipment came into as they reach the size required for variations in total stock size widespread use. The intensifica¬ the market. governed by natural mortality, tion of fishing, which of course annual recruitment and the mor¬ first affects the most profitable There is therefore a continual tality which results from fishing; commercial species, results in over¬ action and reaction, involving the annual variations in environ¬ fishing; and overfishing is tending following basic elements: ment and food supply. to spread to all waters. Many

11 North Atlantic species (herring, a network of specialised agencies A better knowledge of these eco¬ cod, plaice, sole, haddock, red- for the conservation of fish stocks nomic interrelationships would not fish, etc.) are already being exploi¬ and the control of sea fisheries. only be useful to those negotiating ted at least somewhat beyond the In addition, there are bilateral or regulatory measures but would also maximum sustainable yield. multilateral agreements for the throw light on the dynamics of Only a few, e.g. saithe, seem to same purpose but without inde¬ fish populations, which with inten¬ be still below the optimum level. pendent institutional support. sive fishing are highly dependent In such a situation the risk This system is a pragmatic one on fishing mortality rates. that a species will become totally which is justified by the fact that This problem therefore involves extinct is rare: when an operation each area is characterised by a an unusual mixture of elements becomes unprofitable, fishing slows well-defined ecological and bio¬ and no pure economics or pure down or is interrupted and the logical complex and by a basic science. The biologist bases his stock can then be reconstituted simularity of fishing fleets and research into the dynamics of fish least until intensive fishing techniques within the region. population on commercial catches; becomes possible once more. How¬ Unfortunately the progress and the administrator discussing ever, overfishing entails adverse achieved in these various contexts details of future regulations often economic factors increasing is very slow. All too often the has to take into account the social instability of usable resources and measures adopted might have been situation in regions where fishing loss of potential ones, excessive effective if they had been taken is the sole activity or one of the international competition on fish¬ earlier, but can no longer yield few possible activities. Scientific ing grounds, a variety of aids adequate results when applied to evidence is not enough; a good and subsidies in almost all coun¬ a situation which has deteriorated deal of practical evidence must tries (each claiming to give more since. This is the other side of be brought to bear as well. than the next), and a continual the coin to the pragmatism that The international machinery, race for technical progress entail¬ has prevailed until now. Three which is still far from providing ing more and more capital invest¬ difficulties are to blame for this the legal and statutory frame¬ ment: five or six years ago a large slowness: work needed for the rational ma¬ freezer-trawler was estimated at first, national negotiators wish nagement of world fisheries, may around 10 million French francs, to minimise the immediate losses soon feel the influence of oil or whereas the most recent German which control would impose on mineral vested interests, which distant-water trawlers are now the fisheries for which they are are far more powerful than fish¬ being ordered at around 25 mil¬ responsible; eries. It is high time to give world lion French francs. According to secondly, the sense of equality fisheries a little more attention the 1970 Review of Fisheries in between partners means that only than they have had recently. OECD Countries (OECD, Paris regulations which have the same As a contribution to this end 1971), construction costs for fish¬ consequences for all partners are the Fisheries Committee organised ing vessels have probably doub¬ accepted. This is extremely dilfi- an International Symposium on led in a decade. cult to achieve for a given area Fish Production, in Paris at the and even more difficult with regard end of November. The discus¬ INTERNATIONAL SEA to neighbouring areas; some fleets sions covered many fish produc¬ remain stationed in a given area tion problems which are obviously FISHERY whereas others move; regulations international by nature, but above MANAGEMENT might then have disastrous con¬ all the economic factors which sequences for one fleet and no are essential for more rational Although the problem of ratio¬ effect at all on another which, resource management. nal management of international once its quota had been exhausted, fisheries is becoming more acute would immediately move on to ONE SOLUTION : and more urgent than before, it unregulated areas; CO-OPERATION is not new. It has been topical thirdly, negotiations on fishery for several decades and various questions are highly specialised, The economic problem of fish¬ bodies have already been estab¬ for if the rules adopted are to eries can only be solved by inter¬ lished in order to try to solve it. be applicable and beneficial, they national co-operation in the broad¬ There are specialised interna¬ must be attuned to a set of very est sense of the term. As such tional agencies, with which OECD complex phenomena, involving fish it demands an active contribution maintains close contact especially biology, vessel and gear techno¬ by OECD to better knowledge on statistical matters, of which logy, the economics of trade in and understanding of the econo¬ the best known are the North sea products and the sociology mic phenomena governing inter¬ East and North West Atlantic of fishing communities. national fishery trends. This may Fisheries Commissions, but there It is therefore recognised as seem a modest role, confined to are others in the Pacific for indi¬ essential to examine the problem a narrow economic field, but it vidual species (salmon, halibut, of overfishing not only from the ranges over all the oceans of the tuna); a new one has just been set point of view of biological resources world. The maintenance of pros¬ up for Atlantic tuna and another but also from that of economics. perous commercial fisheries must is about to be established for the Since today markets are more and be regarded as a guarantee of South East Atlantic. It is pro¬ more closely integrated, economic clean seas. After all, fish and the bable that in a short time nearly factors link fish stocks which have food on which they live cannot all the oceans will be covered by nothing in common biologically. prosper in polluted waters.

12 Highlights from OECD ' ECONOMIC ' ^ OUTLOOK

ECONOMIC PROSPECTS - DOMESTIC AND INTERNATIONAL ASPECTS

In many OECD countries the pressure of demand is now at a relatively low level, and, in spite of the fact that evidence of lower rates of wage and price inflation remains sparse, most countries are aiming to move gradually towards higher employment levels. In considering the problems of achieving this, account has also to be taken of the need to strengthen the United States balance of payments. This will have some defla¬ tionary impact on other countries; but this is unlikely to be important in the period ahead.

An improvement in the US balance of payments will, in itself, add to demand pressures inside the United States where the extra demand can well be accommodated. By the same token, a faster growth of US exports, and a slower growth of the exports of other countries than would otherwise have occurred, will have a deflationary impact elsewhere. Since demand pressures in many other countries are now relatively low, a further reduction, however inevitable, would not in itself be something to be welcomed. In practice, however, the effect will be spread over a period of years, as trade patterns respond gradually to new conditions. More¬ over, it will not be the only influence emanating from the United States. For demand is in any case likely to be expanding appreciably faster in the United States than in other countries over the year ahead; and this will in turn tend to support demand in other countries. It seems clear therefore, that the net effect of US action on demand in other countries will not create unmanageable problems for them with respect to domestic policies. (Continued on page 14. ) The analysis contained in the OECD's Economic Outlook,, from zvhich extracts are presented here, was completed before the agreement reached in Washington on 18th December on the realignment of exchange rates and the suppression of the United States' import surcharge. Prior to this agreement, a major difficulty in assessing the prospects was the possibility that the prevailing uncertainties might have a serious depressive impact on economic activity. However, the decision taken in Washington should not only make an important contribution to correcting the fundamental disequilibrium in the balance of payments position of the United States, but should also go a long way to dispelling the cloud of uncertainty and pessimism apparent in business circles in recent months.

This makes the forecast, contained in the Economic Outlook., of a faster rate of expansion in the OECD area over the next six months, more rather than less probable, with some further acceleration likely in the second half of the year.

Demand management yet, been only minor relaxation, in view of the continuing rate of increase of costs and prices. In many smaller and the problem of inflation countries, also, policy remains restrictive. As a result, present trends and policies point to an The slow rates of growth experienced in the last acceleration of the growth of output in the first half year or two by many OECD countries, though not in of 1972. In the seven major OECD countries output themselves advantageous, have in general resulted from might expand at an annual rate of between 5 and government policies aiming to reduce demand pressures, 5^ per cent a rate roughly in line with the longer-term as a means of bringing under control the excessive rise average. The pace of recovery will be more marked in of costs and prices. While different countries are at some countries than in others. Output growth in different stages in this process, in many OECD countries Japan, Germany and Italy may show some acceleration, the time has come for a new inflexion of policy, aiming but it is likely to remain well below potential. In again at faster growth. France output could rise at an annual rate of more than As yet, however, success in dealing with inflation is 5 per cent a figure somewhat short of the growth of still limited. While there is thus a continuing problem, potential. In the United Kingdom activity may expand there are new opportunities for dealing with it. Now roughly in line with the growth of capacity. In the that demand pressures have been brought down to a United States and Canada, growth may be faster than much lower level, there is a good chance of combining potential, with a reduction of the present under-utilisa- renewed expansion with continued progress in slowing tion of human and physical resources; but by mid- 1972 down the rate of price increase. It is important that unemployment will probably still be significantly above this opportunity should not be missed, and that expan¬ permanently acceptable levels. sion should be kept within due limits, so as not again The first half of 1971 saw no significant slowdown in to provoke inflationary tensions, and so that expansion the rate of price increase in the OECD area. In the may follow a course that is sustainable. seven major countries taken together, the GNP deflator The room for manoeuvre is indicated by the degree appears to have continued to rise by 5^ per cent (annual of slack that now exists in different economies. Output rate). The same is true of consumer prices on a in the United States is about 6 per cent below the level comparison of the first half of this year with the first compatible with an unemployment rate of 4.5 per cent. half of 1970. It seems likely, however, that there will In the remainder of the OECD area the corresponding be an improved performance in the second half of 1971. figure is probably around 3-J per cent (1), with substantial The rise in the GNP deflator for the second half of 1971 margins of unused resources in the United Kingdom and the first half of 1972 is forecast to be (at an annual and Canada, and more recently in Japan and Italy, but rate) some 4 to A\ per cent for the area as a whole. not in Germany or France, nor in most of the smaller The task of bringing inflation under control has led industrialised countries in Europe. The reduction of to intensified activity in the area of price and incomes demand pressures means that labour markets in various policies in most OECD countries. Of those European countries are now slack. countries which maintain standing machinery for price There has been a significant shift in demand man¬ and/or incomes policies (for example the Nordic coun¬ agement policies in the last twelve months; policies tries and France), many have accentuated their use. have become more expansionary or less restrictive, not only in the United States, but also in the United King¬ (I) This is an estimate of the amount by which GNP is below levels dom, Japan and Italy. In France there has been no compatible with normal capacity utilisation ratios and levels of unem¬ marked change, however, and in Germany there has, as ployment corresponding to the average of the last decade.

14 And several other countries, whose prior stabilisation of payments. This danger could clearly be increased policies had not included direct action on prices and under present circumstances although the present very incomes (for example Ireland and the United States), high level of reserves in many countries should act as a have now adopted important new measures. counterweight. Less favourable foreign trade conditions are not the only factor behind the present and prospective weakness External adjustment and its implications of private investment. The persistence of price inflation for demand management at fairly low levels of activity may have thrown some doubt on the willingness of governments to take suffi¬ The deflationary impact of the United States' balance- cient expansionary action. Social unrest, squeezed of-payments adjustment can already be gauged fairly profits and large excess capacity are factors which, roughly, even though the precise size of the swing to separately or combined, are affecting investment deci¬ be aimed at may not yet be generally agreed. If the sions in a number of Member countries. And although adjustment were to be within the range indicated in some of them are typical of the present stage of the Table 4, the total deflationary impact on other OECD cycle, they may tend to amplify the reaction of private countries combined would be equivalent to rather less investors in other countries to any deflationary impulse than one per cent of one year's GNP. This might be originating from the United States. spread over two years or more, i.e. the primary defla¬ For each country the deflationary impulse coming tionary impact might amount to one-third or one-half from the adjustment of the United States external per cent of GNP per year. (This estimate assumes that position will at least in part be offset by expansionary the greater part of the swing would be achieved through policies in the United States and other countries to parity changes, involving a deterioration in the U.S. restore full employment. Here it is important to note terms of trade and, therefore, a swing which would be that the United States is further ahead in the present larger in volume than in value.) cycle than most other countries. The OECD forecasts Though these figures may seem relatively small when (see section on conjunctural prospects and Table 7) suggest compared with the existing margin of unused capacity that GNP will be rising at an annual rate of 6 per cent outside the United States, equivalent to some 3£ per in North America in the first half of next year compared cent of GNP, the need for external adjustment will create with around 4 per cent elsewhere. This dichotomy problems for certain countries in the field of demand could well continue into the second half of next year. management. In support of optimism it can be argued If so, the more rapid rate of expansion in the United that the present situation is to a considerable extent States will, in itself, have a significant adverse impact on cyclical, in the sense that there are a number of semi- its trade balance (2). Thus, relative cyclical conditions autonomous forces which, with the passage of time, may well delay the swing in the United States current will be making for recovery. Once governments' account. This will tend to cushion the deflationary expansionary policies begin to show results, for example, impact on other countries, pushing it forward into 1973. both re-stocking and a decline in consumers' savings By that time, with appropriate policies, recovery should ratios should provide a substantial additional stimulus. have picked up momentum in countries where there is Against this it needs to be borne in mind that the at present an uncomfortably large margin of slack. deflationary impact emanating from the United States The general conclusion is that the demand man¬ is likely to have multiplier effects. Particularly in the agement problems involved in an orderly adjustment more export-oriented economies, sharper competition should be manageable. A different question is how far and reduced profit margins in foreign markets may have the uncertainties of the present situation might have an adverse impact on investment plans. In the past, a depressive impact on output and employment. It is countries in a cyclically weak position have often been suggested below that, if the balance-of-payments uncer¬ able to count on strong export demand as an exogenous tainties were to continue for any length of time, the factor helping to spark off a cyclical upswing and reduce deflationary impact by the middle of next year could the need for domestic expansionary action. With an be quite marked larger, indeed, than that involved in adjustment of the magnitude now needed to restore the an orderly and fairly distributed external adjustment United States' balance of payments to equilibrium, this spread over a two-year period. Early agreement on element of buoyancy will clearly be attenuated. the immediate issues raised by the crisis would seem of Those countries whose trade is likely to be appreciably great importance from the viewpoint of output and affected by the swing in the United States balance of employment. payments could be inhibited themselves from taking expansionary action, lest it further damage their balance The balance of payments aspects of payments. It is therefore important that when countries are planning expansionary action to offset the The United States Payments Situation effects of exchange-rate or other adjustment measures, The United States' payments position, though by no they should have some assurance of similar action by means the only major factor, is one important element other countries. Under conditions of rather general in the present situation. The following paragraphs weakness of demand, there is always a danger that countries will hang back from taking sufficient expan¬ (2) This could be estimated at some % 2'/2 billion (annual rate) for the sionary action because of concern about their balances change between the second half of 1971 and the second half of 1972.

15 therefore discuss the present imbalance in the United A. THE CURRENT SURPLUS States' payments situation as a background to assess¬ of the OECD area and of the United States, 1960-70

ment of problems facing the OECD area as a whole. Cyclically adjusted (1) The major cause of the United States balance of $ billion payments crisis has been a steady deterioration in its II current account position since 1965 (Chart A) (3). This

trend was to some extent disguised by temporary cyclical 10 - / factors notably in 1970, when the current account

actually improved but by much less than might have 9 - / been expected given the developing slack in the United OECD Total y>y States and continuing boom in many other countries. 8 Abstracting from these cyclical influences, the position 7 deteriorated continuously by an amount averaging v $ 1^ billion a year. The whole of the counterpart may 6 be found in a radical improvement in the current -\ ', account position of other OECD countries, who also / / \ 5 \ - s benefited from a substantial increase in the combined N

current surplus of the OECD area as a whole (Chart A). 4 / Many factors lie behind the deterioration in the /

United States' current account over this period: for 3 United States i example, the impact of trade policies, military expen¬ diture (4), and structural changes in the economies of the ? United States and its main competitors. Domestic in¬ \ \

i - flation in the latter part of the 1960's also played an \ \ important role. Despite this inflation, the domestic price s s level in the United States rose less than in any other \ major country over the period 1963 mid 1971 , with the 1 exception of Canada (Chart B, first column). The United 1 1 1 1 1 1 States, however, belongs to a group of countries where 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 probably mainly for structural reasons export prices 1. Adjusted also for certain other temporary influences The series for the O E C D area is based have tended to rise much more, relative to domestic on the sum of O E C D countries' reported balances with all countries. Official transfers are not included. prices than on average in the OECD area (Chart B, second column). On the basis of the relationships ob¬

served during this period, for example, the United States' more than those of the United States were the United domestic price level would have had to have risen by Kingdom and France, but this was more than offset by 1^ percentage points less than on average in other the devaluations of sterling and the French franc in 1967 OECD countries, merely to prevent a deterioration in and 1969 (Chart B, third column (5).) the relative export price position. The only major coun¬ The deterioration in the United States current balance tries whose export prices (in domestic currencies) rose since 1965 has been offset to some extent by develop¬ ments on capital account. Net long-term capital out¬ flows to developed countries were much lower in the

Table 1 last three years of the decade than in the preceding United States current account, 1965-1970 seven years with the United States in fact becoming S billion a net importer of long-term capital from Western Europe

Current balance Goods, services (2) after on normal and private cyclical definition transfers^ adjustment b

(1) (2) (3) (3) The term "current account" is used here to cover the balance on goods, services, and private transfers. In Conjunctival Prospects the normal definition is used, i.e. including official transfers. The figures 1965 4.3 6.1 6.1 shown in Chart A and in the third column of Table 1 have been "cyclically adjusted" . They are estimates of what the situation would have been 1966 2.4 4.3 5.0 if demand and output in the United States had been at a level compatible 1967 2.1 3.9 4.3 with 4.5 per cent unemployment, and if all other countries had been 1968 -0.4 1.3 3.6 experiencing demand pressures equivalent to the average prevailing over 1969 -0.9 0.7 0.8 the period 1955-70.

1970 0.4 2.2 -0.2 (4) Net military foreign exchange costs included in the current account rose from S 2.1 billion in 1964 to S 3.4 billion in 1970. In the first half of 1971 they were running at an annual rate of S 2.7 billion. fl) Including Government pensions. (5) The behaviour of export prices in domestic currency is not entirely b) Adjusted also for strikes and certain other temporary influences, for independent of exchange-rate changes. In this case, some part of the example, the effects on U.S. investment income of the high interest levels in increase shown for the United Kingdom and French export prices in 1970. domestic currency was made possible by the devaluation, and would not have occurred without it.

16 Table 2 Annual averages 1970 1960-64 1965-67 1968-69

United States Summary balance Balance on goods, services and private transfers a 5.19 4.81 1.07 2.18 of payments Official grants -1.85 -1.84 -1.68 -1.74

Long-term capital -4.36 -1.99 -1.53 -3.72 Developed countries '' -1.89 -1.80 1.48 -0.20 Of which : Canada -0.70 -1.20 -1.18 -1.06

Other -1.19 -0.60 2.66 0.86

Other countries -2.47 -3.19 -3.01 -3.52

Basic balance -1.02 -2.02 -2.14 -3.28

Short-term capital (including errors and omissions) -1.50 0.71 4.29 -7.65

Balance on official settlements -2.52 -1.31 2.15 -10.93

Memorandum items

a) Includir g Government pensions. Official transfers and long-term capital to LDC's

b) Westerr Europe, Canada and Japan. (DAC data) 4.4 5.3 5.2 5.4

in 1968-70 (Table 2). Official grants to less-developed countries (more significant in the case of Japan because countries have tended to decline and long-term capital of its large trade links with the United States). The outflows to those countries have increased only slowly. evaluation of the 1970 payments positions of different As a result, the United States' basic balance has dete¬ countries on the basis of cyclically adjusted data tends, riorated significantly less than the current balance in general, to support the view that the counterpart to before the present speculative crisis. And although the weakness of the United States' current account last swings in short-term capital resulting from changes year was widely spread throughout the OECD area. in relative monetary conditions had been very sharp, no underlying deterioration seemed perceptible on this B.THE RISE IN DOMESTIC AND EXPORT PRICES, account. 1963-mid-1971 It is widely agreed that parity changes are not a desirable or appropriate substitute for counter-cyclical Export prices. demand management action and that they should only (June-July 1971) including exchange be made in response to situations of fundamental dis¬ rate changes to May 1, 1971 (in $) equilibrium. It is for this reason that estimates have been Export prices (June-July 1971) made of what the payments situation of the United including exchange States, and of other countries, would have been if these rates change to mid-November 1971 cyclical influences were eliminated i.e., if all countries had been at normal levels of output and employment. Secretariat estimates of such " cyclically adjusted " current balances for 1970 are set out in Table 3. These estimates are necessarily imprecise and the methods of estimation are in course of development. But the figures shown in Table 3 are likely to indicate the rough orders of magnitude involved. These figures show that the actual current balances in 1970 gave a significantly distorted picture of the underlying positions in that year. They suggest that the current account position of the United States was one of underlying deficit (as compared with an actual surplus of over $ 2 billion^ when allowance is made for the " favourable " effects on the balance of both the large margins of slack in the United States and high demand pressures in foreign countries. They suggest, conversely, that Japan, the EEC countries as a whole, and the group " Other OECD " were in a significantly stronger underlying position than the actual figures would suggest: here, fairly high demand pressure at home was combined with some degree of slack in partner

17 the end of the adjustment period. To achieve equilibrium

Table 3 on basic balance, the current account surplus should Actual and cyclically adjusted equal the level of official grants and total net long-term current balances in 1970 a capital outflows. The United States assumes that there $ billion will be no increase in its aid effort and that its net flows of long-term capital to other developed countries will be Cyclical Cyclically Actual nil or negligible, despite a lifting of existing restraints adjust¬ adjusted balance on such outflows. On these assumptions, a current sur¬ ment '' balance plus of $ 6 billion would be required to achieve basic (1) (2) (1-2) balance(6). The United States believes it should aim to have, for a while a surplus on basic account implying United States 2.2 2.4 -0.2 a current account surplus, of the order of S 9 billion. United Kingdom 1.8 0.9 1.0 Together with the United States' own estimate of where 5.4 EEC 3.3 -2.1 the current account will be in a year's time, this would Canada 1.3 0.5 0.8 imply a " swing " of $ 13 billion. The implications of Japan 2.1 -1.2 3.4 these scales of adjustment are shown in Table 4. Other OECD -1.4 -1.5 0

Total OECD 9.4 -1.0 10.4 Implications for Other OECD Countries To assess the implications of a major improvement Note: Detail may not add due to rounding. in the United States' current balance for other OECD a) Goods, services and private transfers. countries, it is necessary to form a view about the size b) Adjustment for cyclical factors and also for certain other temporary influences, notably the effects on U.S. interest payments of the very high of the " cake " available to be cut up in other words, short-term interest rates prevailing during 1970. Also, the total OECD area's balance of payments on investment income was abnormally low in the size of the combined surplus of the OECD area as 1970, partly reflecting high interest rates throughout the area, and this factor a whole(7). Excluding cyclical influences, this has tended largely explains the negative adjustment shown for total OECD. to increase since 1963 (Chart A). The upward trend may have been temporarily interrupted by the rise in oil prices. But other factors (such as the historically high Table 4 level of non-OECD countries' reserves and increasing Amount of adjustment action needed aid efforts on the part of some countries) are likely to S billion work in the opposite direction next year. On balance, it may be reasonable to take S 1 1 billion as the potential Adjustment action needed assuming U.S. current account cyclically-adjusted surplus of OECD as a whole in 1972. U.S. underlying deficit in 1972 of: surplus after adjustment To indicate how an improvement in the United $2 billion S 4 billion States' position might affect other OECD countries, three illustrative patterns are shown in Table 5.

10 a) A United States' current surplus of $ 6 billion,

11 which would be just sufficient to cover official aid 13 and private long-term capital outflows to less- developed countries equal to 0.5 per cent of GNP in 1973-74. b) A United States' surplus of § 7 billion, sufficient An assessment of the adjustment required in the to cover the aid and long-term private outflow United States balance of payments must be based on assumed by the United States' authorities, and the two judgments. First, it is important to look not only envisaged persistent negative element in errors and at recent figures but also at the position that would be omissions. reached if action were not taken. By 1972 it is to be c) A current surplus of S 9 billion, sufficient to yield expected that the trade deficit of the United States some overall surplus, as a safety margin. would have grown appreciably. As noted earlier, the Given the total size of the " cake " suggested above, United States current balance, on a cyclically adjusted these three alternatives would leave combined current basis, deteriorated on average by $ 1% billion a year surpluses of $ 5, $ 4 or $ 2 billion to be shared by other from 1965 to 1970. If this is projected forward, with OECD countries. some allowance for the lagged effect of relative cost and The full effects of exchange rate action normally take price trends and exchange rate changes (up to but not after 1st May, 1971), an underlying deficit of about (6) i.e. on current account plus long-term capital account. U.S. aid to developing countries (including long-term private capital outflows) has $2 billion is obtained for 1972. The United States recently amounted to some S 5Y2 billion, or 0.5 per cent of GNP.

authorities themselves feel that developments in the (7) The discussion here assumes that the whole of the counterpart Oj trade balance so far this year indicate that a larger the swing in the United States'' current account is to be found within the OECD. deterioration is taking place, and that on the same assumptions the current deficit could have grown to $ 4 billion by 1972. Second, it must depend on a judge¬ Continued on page 31 ment about the desirable size of the current surplus at

is October TEN YEARS OF ECONOMIC EVOLUTION

International co-operation by means of TOP-LEVEL aWSULTATIOlXS

12th-13th October SCIENCE MINISTERS

GOVERNMENT ECONOMIC 18th-19th October ADVISERS

DEVELOPMENT ASSISTANCE 21st-22nd October COMMITTEE

CONFERENCE ON THE

25th-27th October UTILISATION OF

HIGHLY QUALIFIED MANPOWER

CONFERENCE ON

2nd-5th November INSTITUTIONAL MANAGEMENT IN HIGHER EDUCATION

30th September, 1971, marked the tenth anniversary

of the date on which OECD officially came into exist¬ November ence as the successor of the Organisation for European

Economic Co-operation. During the following weeks,

in addition to the normal schedule of meetings of the

Council, Committees and other bodies of the Organisa¬

tion, a number of high-level meetings took place under

OECD auspices which pointed up the wide and varied

nature of its current activities. Certain of these pro¬

ceedings are reviewed in the following pages. \ EVALUATION CONFERENCE ON INSTITUTIONAL MANAGEMENT INHIGHER EDUCATION l*aris. 2nd'5thj\orentber. 1H7M

From November 2nd through November 5th rectors, vice-chancellors, presidents, other executives and planners from 83 universities met with government officials from OECD countries to review the results of a series of experimen¬ tal projects on managerial innovation in universities, carried out under the auspices of OECD's Centre for Educational Research and Innovation (CERI); the objective of the exercise was to find better methods of allocating resources in this very delicate and impor¬ tant field of management. For this purpose eight universities had been brought together by the CERI and teams set up in each institution to work on spe¬ cific problems common to virtually all universities. The main projects presented to the meeting were: A multidisciplinary team including an engineer, an economist, a sociologist and an operations research The Netherlands : J. Westenberg, Amsterdam University, Roe/and J. in 7 specialist worked towards development of a planning Veld, Leiden Univ., H.J. Hopman, Amsterdam Univ., J.A. Acherman Utrecht and control system at the University of Copenhagen Univ., Jean Scheiss, Leiden Univ. Ireland : Vice Chancellor McCarthy, where expansion in enrolments has been particularly Timothy Morgan Carey, University College, Cork. rapid and the teaching load increased because of smaller class sizes. The team made an inventory of the key elements in the decision making process, (for example student-teacher ratios over the years, and the number of tenure as against non-tenure staff) and quantified these elements insofar as possible so as to provide a comprehensive view of the university system as a whole. A simulation model was also developed to forecast the effects on total costs and manpower requirements of various innovations such as introduction of new curricula, reduction of class size, change in faculty promotion schemes etc. At the same time a planning model was developed in which central decision making was restricted to a concern with aggregate costs and achievements while, within a wide range, choices of how to allocate re¬ sources were left to decentralised units. At the University of Nijmegen in the Netherlands Denmark : Bo Munch-Andersen, Prof. Arne Jensen, Technical University of Denmark ; Niels Hammer-Jespersen, Ministry of Education a detailed study was made of how staff members spend their time in activities such as teaching which take up a more or less fixed number of hours as against other activities which make varying demands on staff time such as research supervision. On the basis of these calculations and student flow data, a model was used to derive man-hour requirements for staff and total current expenditures. Eight interrelated econometric studies at the Uni¬ versity of Lancaster in the United Kingdom were merged into a university-wide development plan in¬ tended to be part of a 5-year planning process. Among the subjects studied were the effect on teach¬ ing loads of different course structures and student numbers, how increased student populations could, in the aggregate, be accommodated given the existing financial restraints, the implications of growth lor library funds and other ancillary services. , . . iT . . ,T, .. , , -, . , rians Lowbeer (Sweden, Chairman of the Conference), At Nanterre in France (Université de Pans Ouest) Benson E. Lane Timmons (Deputy Secretary General, OECD).

20 I he feasibility of setting up a new post-graduate investigated likely increases in costs with expanding degree in economics was studied, the intent being to student numbers, taking into account economies of get a programme agreed upon by students, by aca¬ scale due to such factors as underuse of facilities. demic staff and by representatives of industry. The The results showed that enrolment could be doubled decision making process involved in selling up the while funds were increased by only seventy per cent new programme would be analysed and resource re¬ without a need to alter current course structures or quirements estimated. to sacrifice the quality of education. At Chalmers University of Technology in Gothen¬ In addition to these eight projects, the conference burg, Sweden, the team is setting up a planning- discussed work carried out within the CERI, in parti¬ programme-budgeting system (PPBS) for undergra¬ cular three comparative studies of university costs duate education which will be extended to graduate and resource utilisation based on CERI's survey of education and research. 100 universities in Member countries. The University of Novi Sad in Yugoslavia has been Presentation and evaluation of this work developed designing an information system to be used in fore¬ into a general discussion of the common problems casting student flows and choice of subject within involved in managing universities at a time when they the university. Entrance criteria for students of va¬ are moving from the stage of elitism to one of mass rious socio-economic and regional background are also education. The participants were able to conclude under study as is the relation between the type of that there is " a need for more systematic effort to graduates to be produced and regional and national organise and disseminate available information on needs. university management methods " and that OECD A I the Free University of Berlin a team has been should continue to promote research in this field. working on an information system designed to help in Following the expressed desire at the Conference the planning personnel and physical facilities. One re¬ Organisation will be developing arrangements for a quisite of the system is that it be available to staff more widespread and intensive effort of co-operation and students alike. based on the current work of the small group of The University of Bradford in the United Kingdom universities.

AT THE CONFERENCE

Austria Dr. Ludwig Otruba, Director, Federal Ministry Greece M. Filippides, Director General of the Minis¬ for Science and Research. try of Education. Dr. Raul Kneucker, General Secretary of the Rectors' Standing Committee. Ireland Michael Donald McCarthy, Vice Chancellor, National University of Ireland, President, Uni¬ Belgium Jean Baugniet, Honorary Rector, Free Uni¬ versity College, Cork. versity of Brussels. Netherlands Ir. P. Buringh, President, Agricultural Univer¬ Canada Dr. M. Richer, Secretary General of the Coun¬ sity, Wageningen. cil of Ministers of Education, Ministry of G. Brenninkmeyer, Rector, Catholic Univer¬ Education. sity of Nijmegen. Gaston Denis, Director of Development Ser¬ C. F. Scheffer, Rector, Katholieke Hogeschool, vice, Ministry of Education, Quebec Province. Tilburg. H. H. Walker, Deputy Minister, Dept. of A. Wattel, Rector, State University at Gro- Colleges and Universities, Government of ningen. Ontario. Norway A. Halvorsen, Director, University of Bergen.

Denmark Mogens Fog, Rector, University of Copenha¬ Portugal Fernando Carvalho Barreira, Rector, Univer¬ gen. sity of Lisbon. Erling Olsen, Rector, Roskilde University Centre. Spain Mariano G. Ibar, Director of Educational Sciences Institute, University of Deusto, Finland Nils Westermarck, Professor, Chairman of the Bilbao. Council for Higher Education. Jaakko Uotila, President, Finnish Council of Sweden Hans Lowbeer, Chancellor of the Swedish University Rectors, University of Tampere. Universities, Chairman of the Conference. Nils Gralen, Rector, Chalmers University of France M. Salomon, Department Head and Perma¬ Technology, Gothenburg. nent Counsellor, Ministry of Education. Sune Bergstrom, Rector, Karolinska Institutet, M. Groshens Director in charge of Planning, Stockholm. Ministry of Education. Henri Gastaut, President, University of Aix- Turkey Insan Dogramaci, Rector, Hacattepe Univer¬ Marseille. sity, Ankara. Henri Bricaud, President, University of Bor¬ Arif Payaslioglu, Dean, Faculty of Arts and deaux II. Sciences, Middle East Technical University, Pascal Arrighi, President, University Centre of Ankara. Toulon and of the Var. United E. G. Edwards, Vice Chancellor of the Uni¬ Françoise Moret-Bailly, President, University Kingdom versity of Bradford. of Dijon. Sir Derek Lang, Chief Administrative Officer, René Rémond, President, University of University of Stirling. Paris X, Nanterre. Clifford Whitworth, Vice-Chancellor, Univer¬ Jean Roche, General Delegate, International sity of Salford. University Relations. United States Michel Alliot, President, University of Paris VII. Dorothy Gilford, US Office of Education. Yugoslavia Prof. Petar Drezgic, Rector, University of Germany D. L. Freytag, Hochschul-lnformations Sys¬ Novi Sad. tem GmbH.

21 POLICIES FOR

' c ECONOMIC PROGRESS IN fM»SEVENTIES

by Emile van Lennep, Secretary General of OECD

rBlhc layout and extenl of the presenl Committee already has considerable experience in scientific research U structure of OECD is shown opposite. Il is fram- into environmental problems. But we now have to bring JÊ ed to deal with all major aspects of economic fully into our analysis the consequences for economic policy. Our tasks, and the machinery employed policy. by the international OECD Secretariat to deal with them, In assessing the costs of various possible counteractions are explained in greater detail in these pages. to problems caused by pollution, for instance, it must The Organisation and the policies it sets itself to carry be possible to form some estimate of the benefits which out must straightaway be put into proper perspective. are likely to accrue from their being put into effect. But Its plans are essentially forward-looking - - but they are who is going to pay for a better environment -- the tax¬ rooted in the experience gained since, in the Forties, the payer, the consumer, the enterprises causing the pollu¬ Marshal] Plan convincingly demonstrated for the first tion ? What will be the effects on the existing socio-eco¬ time the practicability and value of international econo¬ nomic structures of countermeasures, and how will any mic co-operation. The concept of interdependence has necessary structural changes be implemented ? Many of since become generally accepted by the twenty-two Mem¬ these problems, too, have international implications; and ber countries, belonging to three continents, which today decisions involving the allocation of resources and shifts constitute OECD. in industrial production and activity are ultimately poli¬ tical and not to be solved on national or piecemeal lines. OECD has certain characteristics peculiar to itself. Neither a regional organisation (such as, for example, the Another instance of a field in which OECD has much European Economic Community) nor a worldwide group¬ experience, but which it is now necessary to integrate into ing of the United Nations type, its twenty-two Member the overall approach to the qualitative aspects of growth, countries share the market type of economy. An expres¬ is that of education. Here again a new Committee of the sion of the collective will of its Members, the Organisa¬ Organisation has been set up. tion is designed for inter-governmental co-operation; it These are the kinds of problems facing the OECD group has no ambition to submit national economic policy deci¬ of Member countries with respect to policies affecting their sions to supra-national decision-making. As an organi¬ own economy. The other major preoccupation is the dis¬ sation, it seeks to influence the economic policies of Member charge of their responsibilities toward the developing coun¬ states in such a way that basic growth and welfare objec¬ tries. OECD countries form by far the largest suppliers tives can be met not only within the single country but of aid both financial and technical some 95 per cent of within the whole OECD area and in the world economy the global total of such aid from official and private sour¬ as a whole. ces together. In a rapidly changing world, economic policies are At the May 1970 Ministerial Council meeting it was subject to constant transition. They call for the shedding agreed that the OECD should play its full part in the of economic approaches that have outgrown their use¬ Second Development Decade of the United Nations. fulness, the substitution of new thinking and new methods. This means an effort to increase the financial flows This belief underlies the work programmes of OECD. to developing countries, especially with regard to official development assistance, and to increase contributions to The broad lines of present policy were laid down at multilateral agencies. a meeting of the Council at Ministerial level held in May 1970. These included the objective of an increase in real But this is not the whole story : efforts must also be national product for the OECD area of the order of 65 per made to improve the quality of aid. Improved geogra¬ cent as a collective growth target for the 'Seventies. phical distribution of aid; a fairer adjustment of the finan¬ cial terms of assistance to the economic and financial This ambitious objective is essential if full employment situation of the recipient countries; the " untying " of is to be achieved and claims on real resources met. But aid ; generalised, non-reciprocal and non-discriminatory the question must be faced squarely : What is the point tariff preferences in favour of developing countries of " more " unless more means " better " ? In pursuing these are some of the measures designed to ensure that its activities on the qualitative aspects of growth the Orga¬ OECD countries and developing countries alike become nisation will seek to incorporate in its work on the overall partners in development. allocation of resources the results attained in specific The development of international economic co-opera¬ fields : science policy, education policy, manpower and tion on a multilateral basis over the last twenty-live years social affairs, environment. This is new ground for is a great achievement. The various organisations all economists; it is encouraging to note that in most Member have their role to play as bearers of the hope for a still countries the first steps are being taken to establish indi¬ better organised international community. The impor¬ cators that go beyond measuring economic achievement tance of a balanced progress of the world economy is recog¬ in the traditional quantitative terms. nised as a prerequisite for avoiding serious conflict in To take problems of the environment as an example of the remaining years of this century. This is the challenge the present OECD approach, among new bodies recently facing the Member countries of OECD. This is the set up is an Environment Committee. The Organisation challenge facing OECD on its tenth anniversary. suggest to governments the alternative solutions for collaboration between interested Member countries in which are not always in a position to derive full benefit from many of the general measures in favour of develop¬ Excerpts from Secretary General's opening remarks Continued from page 22 dealing with new problems of international co-operation. 1IHIUI1 I 1 I 1 I research on the biological effects of toxic chemicals intro¬ Continued from page 27 The continuing efforts to promote co-operation in fun¬ duced into society including co-operation on related ing countries. Work is being undertaken by the DAC 'This High- Level Meeting takes place against a background of a major crisis damental research through the creation of centres of epidemiological studies, having regard for the work of and other OECD bodies aimed at examining the basic in the international monetary system. On several occasions I have already excellence were noted. problems and at suggesting possible solutions. The nomic consequences of scientific and technological other international organisations. underlined that there are no reasons for undue alarm or fears for a world-wide trends. The effort of making such studies should be Ministers welcomed the co-operative programmes bers might contribute more effectively to the development Committee urged that high priority be given to this work, recession provided that the appropriate economic policies are pursued by the shared and the results exchanged through the Organisa¬ developed by the Organisation in response to the recom¬ Science and Technology for of the "least-developed countries ", i.e. those countries in preparation for the Third United Nations Conference on most important countries. So far the reactions in various countries to the measures taken by the United States Government have also indicated a wide¬ tion, in order to develop more effective methods and mendations of their 1 968 Conference, notably in the fields :; .... whose levels of development are especially low and Trade and Development in April-May 1972. Developing Countries spread confidence in the methods of international co-operation built up over evaluate national case studies. of educational research and innovation, environmental the last 25 years. technologies, road research and transportation, computer The importance of the work of the Organisation bearing "But we are nevertheless in a crisis and its solution will require many efforts, utilisation, scientific and technical information and the on the role of science and technology in achieving the plenty of imagination and a spirit of compromise. I feel that we all have a Promoting Research Co-operation heavy responsibility not to let the present difficulties weaken our determina¬ management of technology. broad objectives of the International Development Strategy between Member Countries for the Second Development Decade was stressed. These tion to give full support to the efforts of the developing countries. Future co-operation would be strengthened by inten¬ "Fortunately, in our days, times of crisis are also times of analysis, review and efforts will necessitate more research sponsored by Member Intensified scientific and technical co-operation among sified mobility of research workers, and the Organisation confrontation, on a national basis, and in bilateral and multilateral frame¬ the OECD countries will be required in the 1970's to should study means for facilitating the exchange of countries specifically directed to the problems of the works. "It is entirely in accordance with the spirit of co-operation on which the achieve common economic, social and environmental research workers among government laboratories in developing countries, and co-operation between Member OECD Convention and the work of this Committee are based that DAC objectives and ensure more effective utilisation of resources Member countries. countries in such research should also be strengthened Members should make all possible efforts to increase substantially the volume for research and development. It is of growing impor¬ The importance of international consultation among through OECD in harmony with the activities of other inter¬ of their financial resource transfers to developing countries. tance to harmonise national efforts, as distinct from the science policy officials in Member countries leading to national organisations. " We have now for the first time a list of the ' hard core ' least-developed coun¬ creation of centralised international institutions. interrelated national research programmes was recognised. The special experience of the developing Member tries. These countries are the poorest of the poor and on that account may justly claim special consideration from the international community. But countries in utilising technology for the expansion of their Emile van Lennep (Secretary General OECD), Continuing efforts are needed to strengthen the scienti¬ OECD provides a convenient and flexible framework for Mr. Wataru Hiraizumi (Japan, Chairman), Dr. von Dohnanyi (Germany), many of them have the impression that their interests receive, if anything, economies should be used to assist less developed areas. Hi'vey Brooks (Chairman of Secretary General's ad hoc Group). fic and technological capactiy of, and to study the transfer promoting international co-operation in this direction and Alexander King (OECD Director General for Scientific Affairs). less attention than those of the more advanced developing countries. The Alexander King (OECD Director General for Scientific Affairs). of technology to, developing Member countries. the Organisation should study the possibility of : introduction of the generalised system of preferences has served to illustrate this point. The least-developed countries have drawn attention to the fact The Organisation should assemble information on the co-ordination in planning the construction and inter¬ that, as the coverage of most of the preferences schemes is concentrated on performance of international and bilateral programmes and national utilisation of national "big-science" facilities, for manufactures and semi-manufactures, of which they have a/most no produc¬ projects, propose means for establishing better relation¬ example in the fields of astronomy and high-energy tion, they will derive scant benefit from the preferences system. The prospects ships between national and international efforts, and physics; for action in the trade field seem limited. There is thus a strong case for special financial and technical assistance to the least-developed countries and it is to be hoped that concrete measures can be devised in time for the Santiago Conference, at which this problem will be a major issue." -~. .

m Mr. Paul Gérin-Lajoie (Canada), n MEMBER COUNTRIES' DELEGATES AND OBSERVERS AT THE MEETING-, Mr. Jacques de Larosière (France). OF MINISTERS OF SCIENCE

Australia Sir Hugh Ennor, C.B.E., Secretary, Department Luxembourg Mrs. Frieden, Minister for Cultural Affairs. of Education and Science. Netherlands Mr. M. L. de Brauw, Minister without port Austria Madame Herta Firnberg, Federal Minister for folio in charge of science and education. Science and Research. Norway Mr. Bjartmar Gjerde, Minister of Ecclesiastical '-JE** ~~"X » \ Mr. Raymond Scheyven (Belgium). Rt. Hon. Richard Wood Belgium Mr. R. Ockrent, Ambassador, Permanent Affairs and Education. tf/Q* > \ J (United Kingdom). Representative at OECD. Portugal Mr. Rogerio Martins, Secretary of State for Canada The Hon. Alastair Gillespie, Minister of State Industry. for Science and Technology. Mr. Abreu Faro, Under Secretary of State for Denmark Mr. B. Brynskov, Permanent Deputy Secretary Education. of State, Ministry of Education. DELEGATES TO THE DAC HIGH-LEVEL MEETING Spain Mr. José Luis Villar Palasi, Minister of Educa Sir Hugh Ennor (Australia) Mrs. Herta Firnberg (Austria) The Hon. Alastair Gillespie (Canada) Mr. Jaakko Itala (Finland) Mr. François Ortoli (France) Mr. C.A. Panaghiotakis (Greece) Finland Mr. Jaakko Itala, Minister of Education. tion and Science.

France Mr. François Ortoli, Minister of Industrial and Sweden Mr. S. Moberg, Minister without portfolio, in Australia Sir Ronald Walker, Ambassador, Permanent Norway Mr. Thorvald Stoltenberg, Under-Secretary Edgar Kroiler (OECD), Scientific Development. charge of education and cultural affairs. Representative to OECD. of State for Foreign Affairs. Rinieri Paulucci di Calboli (Assistant Secretary General, OECD), Dr. Antonio Santos Labiza, Under-Secretary Germany Dr. von Dohnanyi, Secretary of State, Minis¬ Switzerland Mr. H. P. Tschudi, Federal Counsellor, Head Austria Mr. Georg Zuk, Director, Federal Chancellery. Portugal Emile van Lennep (Secretary General, OECD), try of Education and Science. of the Federal Department of the Interior. of State, Treasury. Edwin M. Martin (Chairman DAC), André Vincent (Director of Development Belgium Mr. Raymond Scheyven, Minister for Devel Greece Sweden Mr. E. Michanek, Director-General, Swedish Assistance OECD), Hellmuth Fuhrer (Deputy Director). Mr. C.A. Panaghiotakis, Minister of Culture Turkey M. Sinasi Orel, Minister of National Educa¬ opment Co-operation. and Science. International Development Agency (SIDA). tion. Canada Mr. Paul Gérin-Lajoie, President, Canadian Iceland Switzerland Mr. Fritz Rothenbuhler, Ambassador, Dele¬ Mr. Henrik Sv. Bjornsson, Ambassador, Head United Kingdom Mr. J. F. Embling, C.B., Deputy Under Secre¬ International Development Agency. IPf"» gate of the Federal Council for Trade Agree¬ of the Permanent Delegation to OECD. tary of State, Department of Education and Denmark Mr. Hans Erik Kastoft, Deputy Under-Secre ments. Ireland Mr. Eamonn L. Kennedy, Ambassador, Head Science. tary of State, International Development of the Permanent Delegation to OECD. United Kingdom Rt. Hon. Richard Wood, Minister for Over¬ United States The Honourable Edward E. David, Jr., Science Agency (DANIDA), Ministry of Foreign seas Development. Italy Hon. Camillo Ripamonti, Minister for the Co¬ Adviser to the President of the United States, Affairs. ordination of Scientific and Technological Director, Office of Science and Technology, United States Dr. John A. Hannah, Administrator, Agency France Mr. Jacques de Larosière, Head of Service, Research. Executive Office of the President. for International Development. V Finance Ministry. Japan Mr. Wataru Hiraizumi, Minister of State for Yugoslavia Mr. Trpe Jakovlevski, Member of the Federal _d Commission of the European Communities Science and Technology and Chairman of the Executive Council and Head of the Federal Germany Prof. Dr. Sohn, Secretary of State, Federal Mr. Hans-Broder Krohn, Director-General meeting. Committee for Science and Technology. Ministry for Economic Co-operation. for Development Aid. Italy Mr. Giuseppe Lattanzi, Economic Coun Mr. Harvey Brooks, Dean, Division of Engineering and Applied Physics, Harvard OBSERVERS sellor, Budget Ministry. OBSERVERS University, Chairman of the Secretary General's ad hoc Group on New Concepts Council of Europe Japan Mr. Masao Sawaki, Director-General, Eco of Science Policy nomic Co-operation Bureau, Ministry of IBRD Mr. Michael L. Hoffman, Associate Director, Mr. Lujo Toncic-Sorinj, Secretary General. Foreign Affairs. Development Services Department. UNESCO Commission of the European Communities Netherlands Mr. C. Boertien. Minister for Development IMF Mr. Jean-Paul Salle, Director, European Mr. A. Spin elli, Member of the Commission of the European Communities. Mr. René Maheu, Director General. Co-operation. Office. Mr. Ralph H/rschtritt, Mr. Ernest Stern, Dr. John. A. Hannah, Mr. Stuart H. Van Dyke Mr. José Luis Villar Palasi (Spain) Mr. '. Moberg (Sweden) Mr. H.P. Tschudi (Switzerland). Hon. Camillo Ripamonti (Italy) Mrs. Frieden (Luxembourg) Mr. Bjartmar Gjerde (Norway) (United States).

26 HIGH-LEVEL MEETING OE THE OECD DEVELOPMENT ASSISTANCE COMMITTEE

THE Tenth Annual High-Level Meeting of the Devel¬ ious obstacles which DAC Members may face in ensur¬ opment Assistance Committee (DAC) took ing adequate growth for their development assistance. place on 21st-22nd October. Ambassador Edwin M. Martin chaired the meeting which was The Terms of Aid attended by ministers or senior officials of the seventeen The problem of indebtedness is becoming increasingly Members, together with representatives of the IBRD and preoccupying for a number of developing countries, IMF (1). partly owing to the large volume of export credits. Recog¬ The main headings of the discussions and conclusions nising the importance of the expansion of exports from are outlined below. developing countries and of sound financial management in keeping their debt burdens manageable, there is a The Second United Nations' need for an adequate volume of official development Development Decade assistance at appropriately concessionary terms as a means of alleviating this problem. In 1972 the DAC will, The importance of the Resolution adopted by the in the light of the first three years' experience, review the General Assembly of the United Nations on a Strategy for 1969 Recommendation on financial terms, including the Second Development Decade led DAC Members to provisions on their harmonisation. reaffirm their determination to do everything possible to ensure the success of the new Decade. Untying of Aid

The Situation As regards the untying of development loans and in Developing Countries contributions to multilateral institutions, some progress has been achieved. Untied contributions to multilateral A high average growth rate of GNP persists in the organisations have represented a growing share of total developing countries but the benefits of the expansion assistance; some DAC Members have decided to relax, are very uneven as among different countries and sectors to varying extents, their tying practices. Following the of the population, owing to such factors as rapid popula¬ decision of the previous DAC High-Level meeting, a tion increase, inequality of income distribution and possible agreement for the untying of multilateral contri¬ unemployment. Improvements in the situation would butions as well as the reciprocal untying of bilateral require continuing efforts by donor countries to supple¬ development loans has been under study. While sub¬ ment those of the developing countries themselves. stantial progress has been made on a draft agreement on untying, work has not been finalised, due in part to The Flow of Resources recent developments in the field of trade and monetary The total net flow of resources (2), (3) from DAC policies. The Committee invited Member countries in Members to developing countries and multilateral agen¬ the meantime to pursue their efforts to mitigate the cies increased in 1970 by around 7 per cent to $ 15.5 adverse effects of aid tying and urged them to take such billion, largely owing to the expansion of export credits steps as may be required to further reduce the scope of and other private flows. Net official development assis¬ such aid tying. All DAC Members reiterated their support tance disbursements rose by less than 3 per cent, but for the principle that contributions to multilateral institu¬ taking account of increased prices this means virtually tions should not be tied and that such untied contribu¬ no change in real terms in the amount of official develop¬ tions should be increased. ment assistance made available. Total flows in 1970 represented 0.78 per cent of the combined GNP of Mem¬ The Problem of the Least- ber countries and official development assistance, 0.34 Developed Countries per cent. Within these overall averages there were wide There was detailed discussion of ways in which Mem- disparities among Member countries, both with respect to the percentages of GNP and to the progress in 1970. DAC Members should do their best to increase the flow of financial resources to developing countries with ( 1 ) The members of the Committee are:Australia, A ustria, Belgium, special attention to the volume and quality of official Canada, Denmark, France, Germany, Italy, Japan, the Netherlands, development assistance. Despite the reductions by some Norway, Portugal, Sweden, Switzerland, the United Kingdom, the governments of originally planned levels of official United States and the Commission of the European Communities. development assistance, the level of such disbursements The International Bank for Reconstruction and Development and the International Monetary Fund participate as observers. is expected to rise for those countries both in the current (2) Including, for the first time, grants by private voluntary year and in 1972. It was agreed that the DAC should agencies totalling $ 840 million. further study the ways and means to overcome the var (3) Net of amortisation.

Continued on page 25) INTERGOVERNMENTAL CONFERENCE ON THE UTILISATION OFHIGHLY QUALIFIED PERSONNEL

Venice, 25th-27th October. I07I

The second OECD Intergovernmental Conference on the Utilisation of Highly Qualified Personnel was held in Venice on 25th-27th October, 1971. Among the 158 participants from 22 OECD countries were Ministers, parliamentarians and officials responsible for educational and manpower policies, representatives of international organisations, and employers' and employees' associations. Proposals for inclusion in the programme of work of OECD were drawn up by the Conference and will be considered by the appropriate bodies of the Organisation.

Opening the Conference, Gérard Eldin, OECD Deputy Secretary General, drew attention to its multidisciplinary nature, involving as it did educational specialists, statisti¬ cians, economists, and representatives of employers and trade unions. It thus conformed to the "hori¬ zontal approach" favoured by OECD and decided upon at the first OECD Conference held in Paris in 1966. At the earlier Conference, Member countries were invited to set up multidisciplinary groups to draw up policies for training of highly qualified personnel. As a result, these national groups had prepared studies and recommendations for consideration by the re¬ sponsible authorities in their countries; and had pre¬ pared for the use of the new Conference a far-reaching series of reports on the problems to be discussed. Mr. H. French, Dept. of Education and Science, United Kingdom; Five policy issues formed the crux of these national Prof. A. Capocaccia, University of Genoa, Italy; Mr. Raymond Vattier, studies during the period preceding the Conference: Ministry of Education, France; Mr. H.Janne, former Minister, Free University of Brussels, Belgium; Rector Jean Capelle, France. vocational adaptation; the improvement of personnel policies; knowledge of and changes in the relationships be¬ tween education and employment; new responsibilities for the educational system ; and; the coordination of activities. Among the conclusions agreed upon by the Conler- ence in the course of its final plenary session, the following have special bearing on future OECD work in this field:

Recurrent education

The Conference discussed in detail the requirements for manpower policy in the field of in-career education and training, and mobility and career development.

Eor the purposes of long-term policy, it would be Mr. M. Love/1, Assistant Secretary for Manpower, necessary to envisage new ways of relating the educa- Department of Labor, United States.

28 Gérard E/din (Deputy Secretary General, OECD) ; the Hon. Pier-Luigi Romita (Italy, Chairman) ; Prof. D. Sette (Univ. of Rome, Italy) ; Ambassador Francesco Cavalletti di O/iveto Sabino (Head of Permanent Delegation of Italy to OECD); R.Grégoire (Counsellor of State, France).

tional system to flic needs of the individual in his pro¬ to the benefits of personnel management methods fessional or vocational career. In particular, an enabling all concerned to increase and improve their alternative to the ever-lengthening process of youth qualifications. This calls for the establishment of a education, whereby alternating periods of work and new category of highly qualified personnel, namely education can lead to a more satisfying and realistic personnel managers. process of individual development in modern society, should be explored. This could take the form of a Improvement of research system of " recurrent education " in which education opportunities are spread throughout working life, and The Conference recommended that OECD should related to the motivations and aspirations of the endeavour to stimulate the activities of personnel individual as they unfold in his active life. research institutes to improve existing knowledge in matters of qualifications by means of better research Personnel policies techniques. This might be done by the setting up of a joint working party among the institutes concerned.

Existing systems of in-career education and train¬ Co-ordination of activities ing can only produce fruitful results if the personnel policies of employers, including the public authorities, were to be improved and modernised. In this re¬ The Conference agreed that it was necessary to spect, future work to be carried out under the OECD increase co-ordination among all those engaged in programme should include the study and general work on the problems which lie at the "inter-face" of diffusion of personnel policies of up-to-date underta¬ education and employment: government agencies kings and the findings of associations specialising in (Ministries of Education, Manpower, Industry, etc.), this field. II should also include the study of proce¬ employers' and employees' organisations; and urged dures designed to extend to all personnel including that a new body of multidisciplinary nature should those not working in the up-to-date firms referred be set up at the OECD level.

OFFICERS OF THE CONFERENCE

The Honourable Pier-Luigi Romita, Under Secretary of State, Chairman of Working Party II on Education and Training in the Ministry of National Education (Italy), Chairman. course of the Working Life.

Mr. French, H M Chief Inspector, Department of Education and Mr. M. Lovell, Assistant Secretary for Manpower (Department of Science (United Kingdom), Chairman of Working Party II in Labor, United States), Chairman of the session on job prospects. succession to M. Capelle.

Dr. G. N. Perry, Deputy Minister, Ministry of Manpower and M. G. Ducray, Director of the Centre of Studies and Research on Immigration (Canada), Chairman of the Working Party I on Qualifications (France) preparation of the Conference's Careers and Mobility. Conclusions.

M. le Recteur Jean Capelle, Rapporteur of the Cultural Family and M. R.Grégoire, Counsellor of State (France) General Rapporteur Social Affairs Commission of the National Assembly (France), of the Conference.

2') WORKING PARTYNS OF THE ECONOMIC POLICY COMMITTEE Parus, inih-mih October. IH7I

Working Party 3 of the OECD Economic ment required for the United States and the implica¬ Policy Committee, which is composed of tions for other countries" at the request of the Minis¬ the high officials responsible for general ters of the Group of Ten. Otmar Emminger, Chairman economic policy in their respective coun¬ of the group and vice-president of the German Central tries, and of central bankers, has a watchdog role as Bank, explained at a press Conference following the regards balance of payments problems. It comprises meeting that the job of the Working Party was " to the representatives of the ten leading industrialised clarify the economic magnitudes involved in the return Member countries of OECD (see list). to a world payments equilibrium ". The Working Party met on 18th - 19th October to " We started from the assumption that nearly the assess " the scale of the balance of payments adjust- entire swing-around in the US balance of payments will have to be brought about within the group of countries which comprise the OECD ", stated Dr. Emminger. " The other countries are mostly deve¬ loping countries and cannot be expected to bear the burden. That's why OECD was the most appropriate forum for discussion ". The actual content of the discussions of this group is confidential, but the subjects covered included alternative appraisals of the structural trend in the US balance of payments and of the appropriale target for the US current account; what these differing estimate imply for the balance of payments of the other countries; and the extent to which balance of payments aims of each Member country are compat¬ ible with I hose of the others. The balance of pay¬ ments problems were examined against the back¬

J.C.R. Dow (Assistant Secretary General, OECD), ground of the general economic climate in which the 0. Emminger (Germany, Chairman), S.N. Marris (OECD) adjustment will have to take place.

REPRESENTATIVES OF OECD MEMBER COUNTRIES AND OF OTHER INTERNATIONAL ORGANISATIONS AT THE WORKING PARTY 3 MEETING

Canada Mr. S. Handfield-Jones, Director of Interna Sweden Mr. N. Sjonander, Under-Secretary, Minis tional Financial Affairs, Department of try of Finance. Finance. Mr. S. Joge, Deputy Governor, Bank of Mr. R. W. Lawson, Deputy Governor, Bank Sweden. of Canada. Switzerland Mr. A. Hay, Director-General, Swiss Nation France M. Claude Pierre-Brossolette, Director of the al Bank.

Treasury, Economics and Finance Ministry. M. A. Peter, Deputy, Federal Finance Admi¬ M. Bernard Clappier, Sub-Governor, Bank nistration. of France. United Kingdom Mr. A. D. Neale, Second Permanent Secre¬ Germany Dr. W. Hankel, Ministerialdirektor, Eco tary, H M Treasury. nomics and Finance Ministry. Sir Ronald MacDougall, Chief Economic Dr. H. Hartig, Ministerialdirigent, Economics Adviser, H M Treasury. and Finance Ministry. Mr. J. Morse, Executive Director, Bank of Italy M. S. Palumbo, Inspector-General, Treasury. England. M. R. Ossola, Deputy Director-General, United States Mr. Paul A. Volcker, Under-Secretary for Bank of Italy. Monetary Affairs, Treasury. Japan Mr. Y. Kashiwagi, Special Counsellor, Mr. J. Dewey Daane, Governor, Federal Ministry of Finance. Reserve Board. Mr. T. Hosomi, Vice-Minister, Ministry of BIS M. R. Larre, General Manager. Finance. M. M. Gilbert, Economic Adviser. Mr. H. Yukawa, Executive Director, Bank of Japan. IMF Mr. J. M. Fleming, Deputy Director, Netherlands Dr. C. J. Oort, General Treasurer, Ministry Research Department. of Finance. EEC Mr. U. Mosca, Director General, Economic Dr. G. A. Kessler, Director, Central Bank. and Financial Affairs.

30 Table 5 Implications of United States' aims for other countries

% billion

U.S. in U.S. in Highlights from " bare " full U.S. aim of balance " balance " " surplus "

Total OECD surplus OECD with rest of world 11 II 11 Of which : United States 6 7 9 ECONOMIC Other OECD 5 4 2

aims if they were prepared to embark on a multilateral OUTLOOK effort to increase their aid efforts. The amount of adjustment action needed depends on the size of the underlying disequilibrium and the appropriate aims for the United States and other coun¬ tries. The illustrative alternatives on both aspects are brought together in Table 4. The estimate of the amount of adjustment action needed, either through exchange-rate changes or other measures, ranges, on these assumptions, from $ 8 billion to $ 13 billion.

e The Timing of the Adjustment As past parity changes have shown, the impact of exchange rate changes is far from instantaneous. The first reaction of the exporters of a country which revalues may be to accept lower profit margins on^their foreign sales, and only later to shift some of their effort to the more profitable home market. Similarly, the exporters at least two years to come through. By that time there of a country which devalues need time to exploit their may have been a further increase in the OECD area's new opportunities in foreign markets. In the case of the combined current surplus. The rising trend in the 1960's United States, a significant part of the deterioration in reflected, in part, rising private capital outflows to de¬ the trade balance has reflected the building up of pro¬ veloped countries to exploit attractive investment oppor¬ duction facilities by American companies outside the tunities, and these can be expected to continue. The United States. For them adjustment will depend largely reserve position of the developing countries has, more¬ on the investment decisions they take from now on, over, been strengthening in the later 1960s, in part rather than on diverting output from present facilities because of their share approximately S 1 billion in to different sales outlets. It seems unlikely that more SDR allocations since 1970. Furthermore, several than half of the adjustment will be accomplished by the OECD countries are engaged in a major effort to increase end of the first year, and quite possibly less. their aid; and it may be hoped that, if satisfactory solutions are found in other fields, the United States The Impact on Trade Flows will feel able to cancel its aid cuts and begin to increase The growth in the volume of OECD trade has slowed its contribution. down sharply from 12 per cent in 1969 to around 6 per The implication is that other countries' current cent in 1971. Under normal circumstances it could be accounts are unlikely, in practice, to weaken as much expected to pick up again over the next 12-18 months as the figures shown in Table 5, would indicate. By the as the recovery in activity gathers momentum. A conti¬ time the adjustment has been completed, the size of the nuation of present uncertainties and unsettled conditions cake will have increased. And if the new pattern of in foreign exchange markets could, however, lead to a exchange rates correctly reflects the changed competitive further slowdown in the first half of next year. conditions, it would be possible for all OECD countries An appropriate realignment of exchange rates should to aim at higher current surpluses than have been not in the absence of protectionist measures have a suggested here without any inconsistency in their significant effect on the growth of total world trade. (Continued on page 32)

31 There will necessarily be adjustments to the composition posed and many exchanges rates have moved up against of world trade as between different countries. Although the dollar. However undesirable and unbalanced the in balance of payments terms the adjustments appear present collection of ad hoc measures may be consider¬ rather large, they appear much smaller when looked at ed to be, it is important to recognise that the disparate against trade flows. Exchange rate changes vis-à-vis the movement of exchange rates, together with the United dollar will both tend to increase other countries' imports States import surcharge and other measures, would, if and depress their exports. Excluding the United States, maintained, produce a significant improvement in the the total of OECD countries' imports and exports United States' current balance. amounted to some $350 billion in 1970. It is not a The way exchange rate changes since May 1971 have question of countries experiencing a drastic reduction in modified the previous pattern of export price relation¬ their exports, but rather of some clearly manageable ships is shown in Chart B (last column). Clearly, the modifications in what are very large and rising trade importance for a given country of an exchange-rate flows. For example, an improvement in the United change in another country will depend on the extent to States' trade balance of $ 8 billion, if spread over two which these countries trade with each other or compete years and evenly divided between imports and exports, in third markets. Estimated " effective " changes in would mean that other OECD countries' imports, exchange rates comparing the position in mid-November instead of rising by 10 \ per cent a year (average of the with that on 1st May are shown in Table 6. The main last decade) would need to rise by 1 1% per cent and their point to emerge is that on account of exchange rale exports by 93/4 per cent instead of 1 1 per cent. changes abroad the United States doliar had, at 15th November, been effectively depreciated by some 4 per The Impact on Reserves cent since 1st May. The counterpart of this deprecia¬ In the first nine months of 1971, mounting specula¬ tion has not been evenly spread. Changes from the tion against the dollar and in favour of strong currencies May position range from effective appreciations of the was reflected in massive capital outflows from the United order of 1\ per cent for Japan and d\ per cent for States, probably amounting to as much as $ 23 billion. Germany, little change for the United Kingdom, and The resulting United States deficit on official settlements effective depreciations of about 2 per cent for Italy and was financed very largely via increasing liabilities, so nearly 5 per cent for France. The effective depreciation that by end-September countries' total recorded reserves of the Canadian dollar since May 1971 follows an had reached $ 118 billion, an increase of $ 38y billion appreciation of 7 per cent in the preceding 12 months so from the beginning of 197C. For the immediate future, that, compared with its position in May 1970 the Cana¬ therefore, there are ample reserves, and virtually no dian dollar had effectively appreciated by some 6 per country need be concerned about the possibility of cent. The effective devaluation of the US dollar by 4 reserve losses rather the contrary. per cent might, if unchanged, in due course have prod¬ Looking further ahead, it is relevant that most uced an improvement of the US current account of OECD countries other than the United States have some $ 3-4 billion. been in surplus on official settlements most of the time through the 1960s. As is well-known, the major count¬ erpart to these surpluses was (in the early years) a net Table 6 increase in monetary gold, large United States deficits Nominal and effective changes in exchange rates financed mainly through an increase in official liabilities Spot rates in mid-November compared with official parities on 1st May 1971 and, in the last two years, allocations of SDR's by the Per cent International Monetary Fund. If the adjustment pro¬ cess is successful, the second of these sources of reser¬ Changes on ves will no longer exist. Indeed, there should at some Nominal average in Effective point be substantial backflows of short-term funds to changes other changes the United States, entailing an equivalent destruction of countries reserves. It is a proposition of fundamental importance that a consistent set of balances of payments is difficult United States 0 4.1 -4.1 or impossible if all OECD countries (or even a majority United Kingdom 3.9 3.6 0.3 of them) plan to increase their reserves out of payments France 0 a 4.7 -4.7 surpluses. The reason for a country aiming at balance Germany 9.5 3.2 6.3 of payments surplus is, largely, to enable it to play safe Italy 2.0 4.1 -2.1 with its reserve position. To the extent that this is true, Belgium-Luxembourg 7.7 4.5 3.2 it is relevant to note that this purpose could equally be Netherlands 8.2 4.5 3.7 met by " unearned " annual allocations of SDRs'. Canada 0.7 >> 1.8 -1.1 Japan 9.7 2.1 7.6 What has Happened so Far Other OECD 4.7 3.9 0.8 The figures shown in Table 4 are illustrations of the amount of policy action that might be needed as compared a) Commercial franc. with the situation prevailing before May 1971. Since /;) Change relative to average of May 1971 spot rates. then the United States' import surcharge has been im

M In terms of balance of payments effects, the combi¬ means that it may have a large balance of payments nation of the surcharge of 10 per cent on imports of effect, though one unacceptable to other countries as manufactures and the discriminatory clauses attached to a permanent feature. the investment tax credit scheme recently under discus¬ There is general acceptance that the present collec¬ sion by the United States Congress were probably as tion of ad hoc measures needs to be replaced at an important as the exchange-rate changes just discussed. early date by an agreed pattern of exchange-rate adjust¬ Contrary to these effective exchange rate changes ments and the abolition of the U.S. import surcharge. which affect individual countries' relations with a// other But an assessment of the impact that these measures countries the United States surcharge only affects an might eventually have had if kept on long enough is of individual country's exports to the United States. some theoretical interest in that it provides an idea of Thus, the impact of the surcharge on individual coun¬ the eventual importance of the impulses to which the tries depends on the importance of their export trade economies of OECD countries have been subject as a with the United States. Thus, the impact of the sur¬ result of the measures. The above analysis suggests charge on individual countries depends on the import¬ that the exchange rate changes and other ad hoc meas¬ ance of their export trade with the United States in the ures in force in November would, if maintained, have commodities affected, in relation to their total exports. sufficed to produce in due course an adjustment some¬ The following figures indicate the ranking of the ten what below the lower end of the figures indicated in OECD countries most affected. The differences are Table 4 as the adjustment that may be required. (8) very large, with Japan and Canada clearly standing out as the countries most affected. Among major European countries Italy, Germany and the United Kingdom rank high. France does not figure in the list, as under 5 per Also contained in Economic Outlook N" 10 are fore¬ cent of her total exports are affected. Spain is the most casts for the overall economic picture, discussion of affected of the smaller OECD countries, followed by Switzerland. price movements and of monetary and financial de¬ velopments for the OECD area. The following is a summary of the major trends in each of the three Proportion of countries' total exports subject fields. to United States' import surcharge CONJUNCTURAL PROSPECTS Per cent 1. Japan 29 The fact that OECD output has grown faster this 2. Canada 16

*_ year than in 1970 largely reflects the revival of demand 5. Spain I! in North America where the shift towards more expan¬ 4. Italy 9 sionary policies began early in 1 970. Elsewhere, cyclical 5. Germany 9 positions have generally been less advanced, with de¬ 6. United Kingdom 8 mand in a number of countries still weakening in re¬ 7. Switzerland 8 sponse to anti-inflationary policies and/or autonomous 8. 6 Portugal influences. 9. Belgium 5 Since policies in most major countries are now de¬ 10. Sweden 5 signed to stimulate demand, there are powerful technical factors working towards an acceleration of the growth Even though the import surcharge is considered a of OECD output in the first half of 1972 (see Table 7); temporary device, it may be useful to keep in mind an these could result in relatively strong advance in North important characteristic which distinguishes it from an America accompanied by some recovery in Japan and exchange rate change. A currency devaluation facilit¬ Europe. As noted earlier, however, uncertainties con¬ ates balance of payments adjustment by providing the cerning future exchange rate relationships and world price incentive to a transfer of real resources. If the trade conditions could seriously affect business confidence devaluation is successful, the transfer of real resources and substantially weaken the expected rise in output. will be greater than the nominal improvement to the The outcome is likely to depend to a large extent on balance of payments because the country will suffer a whether there is a general feeling that rapid progress is loss in its terms of trade. In other words, it will need being made towards an orderly solution of the present to export more in terms of real resources for a given international problems. An essential prerequisite would import of real resources from abroad. An import seem to be avoidance of further restrictive measures in surcharge, on the other hand, achieves lower imports the field of international trade and payments. by taxing foreign supplies. The country imposing it The volume of total OECD trade will probably have does not suffer a terms of trade loss, but rather a terms- grown by only about 6 per cent in 1971 (see Table 8). of-trade gain as foreign exporters try to keep their Foreign trade prices have continued to rise strongly, market share by lowering their export prices. And the rest of the world may suffer a volume loss of exports (8) Starting from a 1972 underlying current account position of without the benefits of the greater volume of imports in % 2 to 4 billion, the adjustment required to reach a surplus of S 6 bil¬ exchange. This characteristic of an import surcharge lion (the lower end of the illustrative range) would be $ 8 to 10 billion.

33 and recent appreciations against the dollar have had the next year, the effects of recent ad hoc measures being to effect of further raising prices measured in that currency. a great extent offset by expected cyclical changes. The dollar value of trade may thus have risen in 1971 by 1 1-12 per cent. On the assumptions outlined below, PRICES COSTS AND the rate of increase may be about the same in the first STABILISATION POLICIES half of 1972, with about half the rise representing Up to the third quarter of 1971, disappointing pro¬ growth in real terms. gress had been made in reducing the rate of price in¬ Changing relative cyclical positions this year have creases in the OECD area. A significant acceleration led to sharp disequilibrating swings in current balances, of consumer price increases in Europe was barely offset with the United States moving into sizeable deficit and by deceleration in North America and Japan (see chart C.) Japan more than doubling its surplus. Current ac¬ Wage costs continued to rise at a very high rate, although count positions may not change much in the first half of there was relatively little sign of their continuing

Average Table 7 1958-59

to 1970 "1971 1970 1971 1972 Growth of real GNP in 1968-69 1 11 I 11 I seven major countries

Percentage changes from United States GNP 4.5 -0.7 3 -1.7 -0.2 4.1 6 previous period at seasonally Canada GNP .4.8 3.3 H 2.3 3.5 6.8 6* 6 adjusted annual rates Japan GNP 11.2 10.7 4| 10.4 9.5 4.2 H 6 France GDP 5.7 5.9 Si 6.0 5.2 5.7 5i 51 Germany GNP 5.1 5.4 3 + 6.1 2.3 6.2 0 2 5.7 5.2 i 11.5 0.4 0.1 1 i Italy GDP 2 1 4 2i United Kingdom GDP 3.1 2.2 H 1.0 3.5 -1.4 5 31 2.1 2.0 4.0 Total of above countries" 5.4 2.4 ->4- 5i ..) At 1970 exchange rates. 3i

1970 From previous -rom previous half-year Table 8 S year 1970 1971 1972

bill. 1970 1971 I II I II I Foreign trade of the OECD area"

Volume Per cent changes, seasonally adjusted Imports 8.7 5| 8.6 6.9 5.1 5| 6± annual rates Exports 9.6 5| 10.3 6.1 6.3 4 5| Estimates and forecasts Average value v

Imports 5.4 5* 7.3 3.2 5.5 7 4i Exports 5.6 5* 7.3 4.0 5.1 8 5i

Value b

Total trade c

Imports 209.1 14.6 m 16.4 10.5 10.9 I2J HI Exports 214.5 15.7 ni 18.4 10.5 11.7 12* 111

Intra-OECD

Exports 156.4 15.7 ni 18.6 10.0 12.4 11| 111

..) Adjusted for statistical discrepancy Extra-OECD in the recording of intra-OECD trade, 11.5 6.9 16 and for the timing effects of the Canadian Imports 52.6 11.7 10 V 10.0 H strikes (in late 1969) the General Motors Exports 58.1 14.9 12 19.0 7.5 13.8 12 + H'r strikes (late 1970), anticipation of U.S. steel strike (mid- 1971). and for the estimated shift between 1968 and 1969 of German Memorandum item : imports and exports affected b> speculation and the export tax. The effect > of the U.S. Recorded figures'' dock strikes are assumed to work them- selves out within the second hi If of 1971. Total trade IN />) In terms of U.S. dollars. value b c c) Including trade with unspecified origins/destinations. Imports 15.0 m 17.5 10.0 11.5 11| 11| ./) Adjusted lor statistical discrepancy 16.1 H v 19.5 9.8 12.6 in the recording of intra-OECD trade. Exports Hi 12| 1

34 acceleration. The slow-down in production in Europe resort to direct price and incomes policies (see chart D.) and Japan aggravated the rise in unit labour costs. Price freezes or restraint operations have been introduced Governments have responded to the stubbornness of in the majority of OECD countries, and the extent of inflation with an unusually widespread and synchronised involvement by the authorities in wage bargaining has

C. CHANGE IN CONSUMER PRICES

1962-70 and 1969-71

Percentage changes, at annual rates

OECD Total

8 -

6

- 4 t/

-

2 - 2

Month on month

Month on 6 months earlier

seasonally adjusted - 0 0 not seasonally adjusted

OECD Europe 0 E CD E uro pe

12 -

- - - 10

i sa.

8 - /7 *^l\l / /' average 62 70 V'/N fi ^~ . A / \ AZu^ \ i^y/v \ *** / t ...... r "S"»^y ; u / \ 4 / \ / ttT A / average 62-70

- - - 2

0 - 0

United States Uni ted States

- -

- - - -

- \Jr\\A / \ - 6

average 62-70 N^^ / W^^^** n.s.a.

- -* /

1 / n.s.a. /

- _ 2 - 1 / average 62-70

1 i i i i i i i i i i i i i i i i i i i i i i i 1 i i 1 i i 1 i i

19621963 1964 1965 1966 1967 1968 1969 1970 1969 1970 1971

35 D. CALENDAR OF DIRECT ACTION ON PRICES

AND INCOMES IN 1970-71

Voluntary price restraint Canada

Price and

Construction industry measures wage freeze Phase II: prices and incomes measures United States

Accentuated

price restraint France

Partial price controls, public tariffs frozen Italy i Voluntary price restraint United Kingdom

Partial price freeze General price freeze Denmark

1969 stabilisation agreement National wage and price agreement Finland

Price freeze and prohibition of wage drift Norway

Partial

price freeze General price freeze Sweden

Wage agreement |l, Ireland

Wage pause [11

Price control of varying degrees Netherlands

Accentuated price control New price control provisions Belgium

ii i i i i I i i i i i i 1 i i i i i i i i i i

1970 1971 1972

1 . Precise dates vary according to individual wage contracts also increased markedly. There are reasons to hope This was after an unprecedented rise in central banks' that the combined effect of official policies and changing international reserves the counterpart of a consider¬ conjunctural conditions (eased demand pressures in able easing of commercial banking systems' liquidity. some countries and growing productivity gains in North Fortunately, some monetary ease is appropriate to America and the United Kingdom) will permit an im¬ the economic circumstances of most recipient countries proved price performance to establish itself in late 1971 at the present time. Looking ahead, agreement on the and early 1972. new shape of the international monetary system could lead to large backflows. Depending on the conjunctural MONETARY AND FINANCIAL situation, there could be a need for active offsetting DEVELOPMENTS policies by the countries affected.

Massive capital outflows from the United States dominated the recent international financial scene. In addition there are notes on economic developments Entirely speculative in nature, the pressure of the flows in each of the major OECD countries and a special sup¬ forced most other OECD countries to depart from plement contains an econometric study on capital their previous exchange rate regimes, and induced flows by Prof. William H. Branson and Raymond D. widespread use of exchange controls and similar devices. Hill Jr.

36 INTERNATIONAL INSTITUTE FOR THE MANAGEMENT OF TECHNOLOGY

AN OECD-sponsored training more about the meaning of total main features of the new Institute. and service centre design¬ management. Projected expenditure for the first ed to improve management perform¬ Continual adaptation of its training three years will rise to a level of about ance in the development and use of programmes to meet new ideas or 3 million European units of account technology in the public and private new needs in the management of in the third and subsequent years. sector in Europe formally came into technology, research contributing to The sources of income are course being on 6th October (1). innovations aiding practical manage¬ fees and direct contributions from ment and the training of managers governments and industries. The Convention setting up the in technology, and participation of centre the International Institute technical managers from industry, for the Management of Technology government and universities in a (1) See OECD Observer N° 47, in Milan (Italy) was signed at number of countries are among the August 1970. OECD headquarters by the Permanent

Representatives of six participating Emile van Lennep, Secretary-General of OECD, greets members of the IIMT Study Committee. Member governments, Austria, France, the German Federal Republic, Italy, the Netherlands and the United King¬ dom, in the presence of the Secretary- General of OECD, Mr. Emile van Lennep, and of the Italian Under- Secretary of State for Foreign Affairs, Dr. Mario Pedini. As well as repre¬ sentatives of industry and the scien¬ tific community, among those present at the ceremony was the Mayor of Milan, Signor Aldo Aniasi, whose city made available the restored Collegio della Stelline to accommodate the Institute.

The Institute has been set up on inter-disciplinary lines to enable executives with insufficient technical training who are yet responsible for the management of technology-in¬ tensive organisations to learn more about the technical problems involved, and scientists and engineers to learn

M OECD'S CODE FOR LIBERALISATION OF CAPITAL MOVEMENTS

General Principles OECD countries agreed a decade ago that freedom of five years or more which have often been the object for some, mainly longer-term kinds, of private capital of intense trade competition among the industrial flows direct investment, portfolio investment and nations. various forms of personal capital but also short- Reservations term commercial credits, is a desirable objective for the developed countries in that such movements of The drafters of the Code were aiming at construct¬ capital promote more efficient utilisation of available ing an instrument which would assist countries in economic resources. moving in an orderly manner towards their common OECD's Convention states that Members will aim of freedom for international flows of private "pursue their efforts to extend the liberalisation of capital as those flows are defined in the Code capital movements", and this principle is embodied whilst making practical arrangements to meet the in a legal instrument, a Code of Liberalisation of situation of countries which, for various reasons, Capital Movements, to which all Member countries consider that they are unable to apply in full, and at except Canada adhere (1). all times, the stipulation of liberalisation. They sought Liberalisation means that private individuals and to achieve this result, first by allowing for exceptions firms are free to carry out the transactions covered through lodging reservations or requesting derogations by the Code and to take money out of one country in respect of specific forms of capital movements and, and bring it into another to effect the operation. If secondly, by entrusting surveillance of the working governments require that such transactions be report¬ of the Code to a special committee of independent ed (as a check on their authenticity for example or experts, the Invisible Transactions Committee. for statistical purposes) this procedure is not to be Countries are permitted to lodge reservations to used as a restrictive mechanism. Liberalisation mea¬ specific items at the time they adhere to the Code, sures must be applied to all countries on a non-dis¬ when a new item is added or the scope of an already- criminatory basis as must any restrictions. existing one broadened. Generally speaking reserva¬ tions on the more important items cannot be extended Coverage of the Code or added to; they can only be withdrawn or their scope narrowed (2). Each country's reservations The range of items covered by the Code includes are periodically reviewed by OECD's Invisible Trans¬ not only those considered economically desirable but actions Committee to see whether or not they are some which, it is felt, should not be impeded for social reasons: gifts and inheritances, for example, still justified. These reviews are carried out against the background of special country reports now being and the transfer of capital from life assurance. The prepared on the overall financial policies of each list (see chart) is by no means immutable and can be changed or added to when countries agree to do country, including exchange control policy (3). In the course of these reviews the Invisible Transactions so. Thus, for example, discussions are now going on within OECD as to the desirability of making Committee may find that the original reasoning transactions in securities of institutions for collective behind the restrictions no longer holds or that the investment (mutual funds) a separate item in the country's overall economic position has improved Code. enough to justify the removal of some restrictions, On the other hand, certain kinds of flows are and may urge that certain reservations be dropped. excluded from the Code's coverage which means (Continued on page 40) that governments have not committed themselves to abstain from regulating them. Short-term financial (1) Canada considers that its situation as regards capital movements credits and loans are specifically omitted, as are the is a special one which does not permit it to adhere to the Code. buying and selling of short-term treasury bills and (2) Except on List B which contains the issue of securities, operations in unlisted securities, credits and loans not connected other short-term money market securities, because they with trade in goods or services, etc.; on List B items reservations are the vehicle for hot money and because control of can be lodged or reintroduced at any time. such flows is often considered necessary to buttress (3) "The Capital Market, International Capital Movements unci Restrictions on Capital Operations" . Reports so far published domestic monetary policy. Certain long-term trans¬ cover Germany (1969), Austria, Denmark and Norway (1970). actions are also excluded, notably commercial credits Spain, Sweden and Switzerland (1971).

38 PRESENT RESERVATIONS (1)

E o c/. XI CD E? -a *-> 3 c CD CD ta c CD c CD _CD +-< Full Reservation CO E -a 0) C -a c O CD c D) to c _CD ~G (J) CD o c CD _Q 3 CD _3 'CD CD c CD _*_ E _2 CD Q. | +-< Q. N "O +- c/. E CD E CD 'a. CD +-* c/> c c CD O CO CD Limited Reservation CD CD _C o T3 3 a> CD CD +-1 < i-L LL. X C/) "I CD m CD 4-/ < a 3 'E _J z 'c D

Inward direct investment.

Outward direct investment.

Liquidation of direct investment in the country concerned by non-residents. Introduction of domestic securities on a recognised foreign security exchange. Introduction of foreign securities on a recognised domestic security exchange. Purchase in the country concerned by non-residents of listed securities.

Sale in the country concerned by non-residents of listed securities. o O O

Purchase abroad by residents of listed securities. o o o o o

Sale abroad by residents of listed securities. o

Sale of real estate by non- residents.

Inward commercial credits (in cases where a resident partcipates in the underlying commercial or service transaction). o o

Outward commercial credits (in cases where a resident participates in the commercial or service transaction). Q

Personal capital movements.

Life assurance

Sureties and guarantees by residents in favour of non¬ residents.

Use of blocked funds for operations of a capital nature.

Cession of blocked funds between non-residents.

(1) As of December 1 , 1971 , On items included in List A of the Code. There is also a List B which contains the issue of securities, operations in unlisted securities, credits and loans not connected with trade in goods or services, etc. ; on those items, reservations may be lodged or reintroduced at any time. Greece, Iceland and Turkey are not included because they have obtained a general exemption from the Code under a derogation clause.

PAST AND PRESENT DEROGATIONS

May 1964 Switzerland ions on certain outward personal capital Introduced regulations making it illegal for movements (family loans' gifts and endow¬ financial institutions to be instrumental in net ments, dowries, emigrants' assets). new investment of foreign funds in Swiss Derogation still in effect. securities. Measures withdrawn in October 1966. April 1969 Italy Restricted outward investment in mutual funds. May 1966 United Kingdom Derogation still in effect. Restricted direct investment and cash gifts outside the Sterling Area. Restrictions withdrawn in January 1970 and July 1969 Denmark March 1971 respectively. Restricted outward portfolio investment. Some of measures withdrawn so derogation no longer necessary, others covered by new January 1968 United States reservation to Code. Restricted transfers in connection with direct investment abroad. Derogation still in effect. September 1969 Sweden Restricted outward direct investment, out¬ ward portfolio investment in Swedish secu¬ May 1968 France Restricted outward portfolio investment, out¬ rities and transfers of emigrants' assets. ward commercial credits and outward financial Derogation still in effect. credits and loans.

Restrictions withdrawn in September 1968. November 1970 Finland Short-term commercial credits by non-resi¬ November 1968 France dents to residents restricted. Reintroduced above restrictions plus restrict Derogation still in effect.

39 INTERNATIONAL MOVEMENTS OF PRIVATE MEDIUM AND

LONG-TERM CAPITAL (1) Selected OECD Countries: annual average 1967-1970(US % billion)

E _^ o c\i CD c/) XI XI

CD u> CD Xi > .-__ c C CD c CD c CD c c C CD CD CD O CD XI CO CD X! CD CD CD _2 C C/3 Q. E CD E CD CD C "D CD 3 Q_ CD o C _c CD CD CD Xi g co Li. < LL CD CD CO CJ Belgium CD CD 'c Q E Luxembourg 2 D _D

NET FLOW (difference between inflow and outflow)

0

1 L

2

Source : OECD-IMF Balance of Payments Statistics and national sources. (1) Includes credits and loans having a maturity of one year or more. (2) Average 1967-69.

Many of the reservations have in fact been with¬ There are several different types of situation in drawn or narrowed since Member countries have which derogation is permitted: Greece, Iceland and adhered to the Code. Thus for example, reservations Turkey are completely exempted from their liberali¬ to cover the blocking of foreign-owned funds were sation obligations, because of overall economic and numerous in the early Sixties and now there are financial problems related to their degree of develop¬ none. By the same token, some countries which ment. (Other countries continue to apply the Code started with many restrictions now have very few to the three). (see chart for the present situation). Germany and The most common reason for derogating is that a Luxembourg have liberalised all items under the country finds itself in balance of payments difficul¬ Code and in some cases such as Belgium, Switzer¬ ties. If so, it may be permitted to withdraw tempo¬ land and the United States, the reservations are few rarily a measure of liberalisation. In such a case, in number. Japan is an example of a country that OECD must decide whether or not invocation of the has made rapid progress in the last two years in derogation clause is justified. This means that the removing reservations. Thus there is evidence of measure must be reported "forthwith" to OECD's long-term progress towards liberalisation. Invisible Transactions Committee, along with the reasons for taking it. The action itself and the con¬ Derogations text within which it has been taken will be discussed in this Committee as will the probable efficiency of However there is another way in which a country the measure in reaching the desired aims and the can be relieved of some or all of its obligations under likely impact on other countries. The Committee the Code by invoking a derogation clause (under may try to get the country to remove the measure Article 7); and recourse to this procedure has become and make specific proposals to this end or it may more frequent since 1968 (see Inset). recommend granting the cover of the derogation

40 clause. Since the Committee is an expert group, its findings do not commit governments. The final decision with regard to granting a derogation rests with the OECD Council. Thus the Code provides not only a legal definition If the derogation is accepted, it too is reviewed of the objectives agreed upon in the field of capital periodically until liberalisation has been restored. movements but also a mechanism for measuring per¬ When a country derogates and this is one of the formance against the objective. It also provides essential features of the Code which applies to reser¬ machinery to deal with what are considered to be vations as well there must be no retaliation on the unjustified restrictions and to exert pressure on Mem¬ part of the other Members: they will continue to ber countries to liberalise their treatment of capital apply the Code to the country in question. movements.

Extracts from OECD's Code for the Liberalisation of Capital Movements

conclusion or execution of transactions Article 4 Part I and for transfers specified in an item set out in List A or List B of Annex A OBLIGATIONS IN EXISTING UNDERTAKINGS WITH to this Code. MULTILATERAL REGARD TO CAPITAL b. A Member may lodge reservations INTERNATIONAL MOVEMENTS relating to the obligations resulting A GREEMENTS from paragraph (a) when: Nothing in this Code shall be regar¬ Article 1 i) An item is added to List A of ded as altering the obligations under¬ Annex A to this Code; GENERAL UNDERTAKINGS taken by a Member as a Signatory of ii) Obligations relating to an item the Articles of Agreement of the Inter¬ in that List are extended ; national Monetary Fund or other a. Members shall progressively abo¬ Hi) Obligations relating to any such lish between one another, in accor¬ existing multilateral international item begin to apply to that agreements. dance with the provisions of Article 2, Member; or restrictions on movements of capital iv) At any time, in respect of an Article 5 to the extent necessary for effective item in List B. economic co-operation. Measures de¬ Beservations shall be set out in CONTROLS signed to eliminate such restrictions Annex B to the Code. AND FORMALITIES are hereinafter called " measures of c. Whenever the liquidation proceeds liberalisation ". of non-resident owned assets may be a. The measures of liberalisation pro¬ vided for in this Code shall not limit h. Members shall, in particular, en¬ transferred, the right of transfer shall deavour: include any appreciation of the origi¬ the powers of Members to verify the i) To treat all non-resident owned nal assets. authenticity of transactions or trans¬ assets in the same way irrespec¬ d. Whenever existing regulations or fers nor to take any measures required tive of the date of their formation, to prevent evasion of their laws or international agreements permit loans and between residents of different Mem¬ regulations. ii) To permit the liquidation of all bers otherwise than by issuing market¬ b. Members shall simplify as much non-resident owned assets and as possible all formalities connected able domestic securities or by using, the transfer of such assets or of with the authorisation or verification in the country in which the borrower of transactions or transfers and shall their liquidation proceeds. resides, funds the transfer of which is c. Members should use their best restricted, the repayment obligation co-operate, if necessary, to attain such offices to ensure that the measures of simplification. may be expressed or guaranteed in the liberalisation are applied within their currency of either of the two Members overseas territories. Article 6 concerned. d. Members shall endeavour to extend EXECUTION OF TRANSFERS the measures of liberalisation to all members of the International Mone¬ A Member shall be deemed to have PUBLIC ORDER tary Fund. complied with its obligations as re¬ AND SECURITY e. Members shall endeavour to avoid gards transfers whenever a transfer introducing any new exchange restric¬ may be made: The provisions of this Code shall tions on the movements of capital or i) Between persons entitled, by the not prevent a Member from taking the use of non-resident owned funds exchange regulations of the .State and shall endeavour to avoid making action which it considers necessary from which and of the State to for: existing regulations more restrictive. which the transfer is to be made,

Article 2 i) The maintenance of public order respectively, to make and/or to or the protection of public health receive the said transfer; MEASURES morals and safety; ii) In accordance with international OF LIBERALISATION ii) The protection of its essential agreements in force at the time security interests; the transfer is to be made; and a. Subject to the provisions of para¬ Hi) The fulfilment of its obligations Hi) In accordance with the monetary graph (b) (iv), Members shall grant relating to international peace arrangements in force between any authorisation required for the and security. the State from which and the

41 State to which the transfer is to between other Members in authorising paragraphs (a), (b) and (c) with a be made. the conclusion and execution of trans¬ view to determining whether each actions and transfers which are listed Member is complying with its obligat¬ Article 7 in Annex A and which are subject to ions under this Code. any degree of liberalisation. CLAUSES OF DEROGATION Article 12

NOTIFICATION a. If its economic and financial Article 10 situation justifies such a course, a AND EXAMINATION Member need not take the whole of the EXCEPTIONS OF RESERVATIONS measures of liberalisation provided for TO THE PRINCIPLE LODGED UNDER in Article 2 (a). OF NON-DISCRIMINATION ARTICLE 2 (b) b. If any measures of liberalisation SPECIAL CUSTOMS taken or maintained in accordance a. Each Member lodging a reserva¬ OR MONETARY SYSTEMS with the provisions of Article 2 (a) tion in respect of an item specified in result in serious economic and finan¬ List B of Annex A to the Code shall Members forming part of a special cial disturbance in the Member State forthwith notify the Organisation of customs or monetary system may concerned, that Member may with¬ its reasons therefor. apply to one another, in addition to draw those measures. b. Each Member shall notify the measures of liberalisation taken in c. If the overall balance of payments Organisation within a period to be accordance with the provisions of of a Member develops adversely at a determined by the Organisation, whe¬ Article 2 (a), other measures of libe¬ rate and in circumstances, including ther it desires to maintain any reser¬ ralisation without extending them to the state of its monetary reserves, vation lodged by it in respect of an other Members. Members forming which it considers serious, that Mem¬ item specified in List A or List B of part of such a system shall inform the ber may temporarily suspend the Annex A to this Code, and if so, state Organisation of its membership and application of measures of liberalisa¬ its reasons therefor. those of its provisions which have a tion taken or maintained in accor¬ r. The Organisation shall examine bearing on this Code. dance with the provisions of Article 2 each reservation lodged by a Member (a). in respect of an item specified in: d. However, a Member invoking pa¬ i) List A at intervals of not more ragraph (c) shall endeavour to ensure Part II than eighteen months; that its measures of liberalisation: ii) List B within six months of noti¬ fication, and at intervals of not i) Cover, twelve months after it has PROCEDURE invoked that paragraph, to a rea¬ more than eighteen months there¬ sonable extent, having regard to after; the need for advancing towards unless the Council decides otherwise. Article 1 1 the objective defined in sub-para¬ d. The examinations provided for in graph (ii), transactions and trans¬ paragraph (c) shall be directed to NOTIFICATION fers which the Member must making suitable proposals designed to authorise in accordance with AND INFORMATION assist Members to withdraw their re¬ Article 2 (a) and the authorisa¬ FROM MEMBERS servations. tion of which it has suspended, Article 13 since it invoked paragraph (c) ; a. Members shall notify the Organi¬ and sation, within the periods which the NOTIFICATION ii) Comply, eighteen months after it latter may determine, of the measures AND EXAMINATION has invoked that paragraph, with of liberalisation which they have taken MADE UNDER ARTICLE 7 its obligations under Article 2 (a). and of any other measures which have e. Any Member invoking the provis¬ a bearing on this Code, as well as of a. Any Member invoking the provis¬ ions of this Article shall do so in such a any modifications of such measures. ions of Article 7 shall notify the Orga¬ way as to avoid unecessary damage b. Members shall notify the Organi¬ nisation forthwith of its action, toge¬ which bears especially on the financial sation forthwith of any cases in which ther with its reasons therefor. or economic interests of another Mem¬ they have by virtue of remark (ii) b. The Organisation shall consider ber and, in particular, shall avoid any against Section I of List A of Annex A the notifications and reasons sub¬ discrimination between other Mem¬ to this Code imposed restrictions on mitted to it in accordance with the bers. specific transactions or transfers relat¬ provisions of paragraph (a) with a ing to direct investments and shall view to determining " whether the \rli 8 state their reasons for doing so. Member concerned is justified in in¬ c. Members shall submit to the Orga¬ voking the provisions of Article 7 and, RIGHT TO BENEFIT nisation, at intervals determined by in particular, whether it is complying FROM MEASURES the Organisation, but of no more than with the provisions of paragraph (e) OF LIBERALISATION eighteen months, information concern¬ of that Article ". ing: c. If the action taken by a Member in Any Member lodging a reservation i) Any channels, other than official accordance with the provisions of under Article 2 (b) or invoking the channels, through which trans¬ Article 7 is not disapproved by the provisions of Article 7 shall, neverthe¬ fers are made, and any rates of Organisation, that action shall be less, benefit from the measures of libe¬ exchange applying to such trans¬ reconsidered by the Organisation every ralisation taken by other Members, fers, if they are different from the six months or, subject to the provis¬ provided it has complied with the official rates of exchange; ions of Article 15 on any other date procedure laid down in Article 12 or ii) Any security money markets and which the latter may deem appro¬ Article 13 as the case may be. any premiums or discounts in priate. relation to official rates of ex¬ d. If, however, in the opinion of a Article 9 change prevailing therein. Member other than the one which has NON-DISCRIMINA TION d. The Organisation shall consider invoked Article 7, the circumstances the notifications submitted to it in justifying the action taken by the A Member shall not discriminate as accordance with the provisions of latter in accordance with the provi-

42 sions of that Article have changed, requirements of its economic develop¬ Organisation decides on some other that other Member may at any time ment, the Organisation may grant that exceptional procedure. refer to the Organisation for reconsi¬ Member a special dispensation from deration of the case at issue. those obligations. Article lb e. If the action taken by a Member in accordance with the provisions of Article 1."> REFERENCE paragraph (a), (b) or (c) of Article 7 TO THE ORGANISATION SPECIAL REPORT has not been disapproved by the Orga¬ INTERNAL AND EXAMINATION nisation, then, if that Member subse¬ ARRANGEMENTS quently invokes paragraph (a), (b) or CONCERNING (c) of Article 7 of the Code of Libera¬ DEROGATIONS lisation of Current Invisible Opera¬ MADE UNDER ARTICLE 7 (not reproduced) tions, or, having invoked one paragraph of Article 7 of this Code, invokes a. A Member invoking the provisions Article 17 another paragraph of that Article, its of paragraph (c) of Article 7 shall REFERENCE case shall be reconsidered by the Orga¬ report to the Organisation, within ten TO THE ORGANISATION nisation after six months have elapsed months after such invocation, on the measures of liberalisation it has restor¬ since the date of the previous consider¬ RETENTION, ation, or on any other date which the ed or proposes to restore in order to INTRODUCTION attain the objective determined in latter may deem appropriate. If an¬ OR RE-INTRODUCTION other Member claims that the Member sub-paragraph (d) (i) of Article 7. OF RESTRICTIONS in question is failing to carry out its The Member shall, if it continues to obligations under paragraph (e) of invoke these provisions, report to the Article 7 of this Code or paragraph (e) Organisation again on the same sub¬ (not reproduced) of Article 7 of the Code of Liberalisa¬ ject but with reference to the objec¬ tion of Current Invisible Operations, tive determined in sub-paragraph (d) the Organisation shall consider the (ii) of Article 7 within sixteen Part III case without delay. months after such invocation. i) If the Organisation, following its /;. If the Member considers that it TERMS OF REFERENCE consideration in accordance with para¬ will not be able to attain the objective, graph (b), determines that a Member if shall indicate its reasons in its report is not justified in invoking the provis¬ and, in addition, shall state: Article 18 ions of Article 7 or is not complying i) What internal measures it has COMMITTEE with the provisions of that Article, it taken to restore its economic FOR INVISIBLE shall remain in consultation with the equilibrium and what results Member concerned, with a view to have already been attained, and TRANSACTIONS restoring compliance with the Code. ii) What further internal measures it GENERAL TASKS ii) If, after a reasonable period of proposes to take and what addi¬ time, that Member continues to invoke tional period it considers it will a. The Committee for Invisible the provisions of Article 7, the Orga¬ need in order to attain the objec¬ Transactions shall consider all ques¬ nisation shall reconsider the matter. tive determined in sub-paragraph tions concerning the interpretation or If the Organisation is then unable to (d) (i) or (d) (ii) of Article 7. implementation of the provisions of determine that the Member concerned r. In cases referred to in paragraph this Code or other Acts of the Council is justified in invoking the provisions (b), the Organisation shall consider relating to the liberalisation of capital of Article 7 or is complying with the within a period of twelve months, and, movements and the use of non-resident provisions of that Article, the situation if required, of eighteen months from owned funds and shall report its of that Member shall be examined by a the date on which the Member invoked conclusions thereon to the Council as special Ministerial Group, unless the the provisions of paragraph (c) of appropriate. Organisation decides on some other Article 7, whether the situation of that b. The Committee for Invisible exceptional procedure. Member appears to justify its failure Transactions shall submit to the to attain the objective determined in Council any appropriate proposals in sub-paragraph (d) (i) or (d) (ii) of connection with its tasks as defined in Article II Article 7 and whether the measures paragraph (a) and, in particular, with taken or envisaged and the period the extension of measures of liberali¬ EXAMINATION considered by it as necessary for sation as provided in Article 1 of this OF DEROGATIONS attaining the objective determined, Code. MADE IN ACCORDANCE appear acceptable in the light of the WITH ARTICLE 7 objectives of the Organisation in the Article HI MEMBERS IN PROCESS commercial and financial fields. OF ECONOMIC d. If a Member invokes the provis¬ (This article refers to a number of DEVELOPMENT ions of both paragraph (c) of Article 7 matters which are mainly of a proce¬ of this Code and paragraph (c) of dural character and is not reproduced a. In examining the case of any Article 7 of the Code of Liberalisation here). Member which it considers to be in the of Current Invisible Operations the process of economic development and periods of twelve and eighteen months Article 20 which has invoked the provisions of referred to in paragraph (c) shall run from the date of the earlier invocation. Article 7 the Organisation shall have (not reproduced) special regard to the effect that the e. If following any of the examina¬ economic development of the Member tions provided for in paragraph (c) the has upon its ability to carry out its Organisation is unable to approve the Part IV obligations under paragraph (a) of arguments advanced by the Member Articles 1 and 2. concerned in accordance with the pro¬ MISCELLANEOUS b. In order to reconcile the obliga¬ visions of paragraph (b) the situation tions of the Member concerned under of that Member shall be examined by paragraph (a) of Article 2 with the a special Ministerial Group, unless the (not reproduced)

43 reed public statement of their judge¬ ment about OECD, but left no doubt that they were proud of the REUNION OF sequel to their work, and enthusiastic about what the " remodelled " orga¬ nisation had accomplished over the THE space of 10 years. It was agreed that in lieu of a " statement ", / } shoultl write a personal interpreta¬ "GROUP OF FOUR tion of their discussion, which I am glad to do. Such a reunion inevitably gives In the accompanying article, Ambassador W. Randolph Burgess, former one a sense of the sweep of history. Undersecretary of the United States Treasury, recalls the setting-up of and The 12-year lifespan of OEEC, from the work carried out by the "Four Wise Men" in the changeover from the 1948 to 1960, had seen the launch¬ Organisation for European Economic Co-operation (OEEC) to the Orga¬ ing of a great experiment as to whe¬ nisation for Economic Co-operation and Development (OECD). ther 18 countries, similar in basic Why was this group brought into being and who were the "Four ideals, but vastly different in many Wise Men" ? other respects, and with deep nation¬ Ambassador Burgess, their Chairman, explains in his article the reasons al roots, could learn to work more the recovery of war-torn Europe from its economic collapse, the grow¬ ing sense of interdependence between the industrialised free-market effectively together. They did so in economies of the world which led the Heads of State of France, Ger¬ impressive fashion. Of course, the many, the United Kingdom and the United States, at a summit meeting motivation was compelling. That held in Paris in 1959, to decide that future co-operative effort should period was under the shadow of the be devoted to the objectives of furthering the development of the less- life and death struggles of war and developed countries, and of pursuing trade policies aimed at the post-war penury. The Marshall sound use of economic resources and good economic relations. Plan was to be administered. With Further exploration by the eighteen OEEC European countries, it came the necessity to break down Canada and the United States of the prospects opened up by their decision the barriers to the free flow of goods, led to the creation of the Group of Four on Economic Organisation : the "Four Wise Men". capital, and people. That this ef¬ The members of this group symbolised to some extent the varied fort was crowned with so much suc¬ characteristics of the countries which would eventually form the remod¬ cess was due in no small measure to elled Organisation. OEEC. But with that job done, Ambassador Burgess himselfrepresented the leading Western economic was there the stimulus for continued power, which had provided the means for European recovery, and North effective co-operation? It was at American participation in general. that juncture when the task was The two European economic groupings the European Economic passed to our " Group of Four ". Community and the European Free Trade Association were symbolised Lei me recall the circumstances. In (though not represented) by M. Bernard Clappier (France ) and Sir Paul (now Lord) Gore-Booth (UK) respectively. June of 1959, the London "Atlantic Finally, Mr. Xenophon Zolotas of Greece symbolised the group of Congress " proposed a new Atlantic smaller European countries which had a role to play in the free-market initiative. Then a " Summit ' economy alongside that of their larger partners. meeting of four heads of government These four, in their report "A Remodelled Economic Organisation" , look place in Paris. They passed laid the foundations for the wider, more experienced group of countries the ball to meetings of representatives which today shares in the economic alliance of OECD. Their proposals of 13, and then 20 countries who economic growth with stability; economic expansion in less-developed in turn asked our " Group of as well as in the Member countries; the lowering of trade barriers between Four " to draw up a specific plan. nations remain the expression of the motives which animate the work of the Organisation for Economic Co-operation and Development. To reinforce the impetus of the OEEC experiment, we made these major proposals: A. Membership - lo include the US and Canada and then Japan ; - to IN September, the " Group of at the offices of the Atlantic Institute do this we removed the word " Euro¬ Four ," who in I960 drew up on the invitation of John W. Tulhill, pean " from the name. the charter for OECD, held its Director General. B. Development - we put this im¬ a meeting in Paris. They The " Four " were W. Randolph portant word into the name, and in came together unofficially, and at Burgess, US, Chairman, Bernard so doing recognised responsibility their own initiative, to survey the Clappier, France, Lord Gore-Booth, towards the developing countries. results of their handiwork after 10 UK, and Xenophon Zolotas, Greece. C. Economic consultation and ac¬ years. They conferred with Sec¬ AI this September meeting, Ihey tion - we proposed a vastly broaden¬ retary General Emile van Lennep made no attempt to compose an ag ed undertaking.

44 growth in broad social as well as economic terms. In dividing up the work on this topic, and avoiding duplication of effort, OECD has accepted a major assignment along with the UN and NATO. But besides recounting the speci¬ fic areas where the organisation has proved Us value, it seems to me fair to look at the overall picture. That picture shows that in these 10 years the gross national product and na¬ tional income of the OECD countries as a whole have doubled to reach a height and quality never before known. We have our troubles of crime and pollution but we must never forget these are the diseases of prosperity, perhaps of over-prospe¬ rity, which we must learn to treat as effectively as we are learning to (real poverty and physical disease. What about the next 10 years? Are there indeed challenges to which we can rise as effectively as in the past? And is the machinery of in¬ ternational organisation adapted to the new struggles ? We have already mentioned several of these challenges. The monetary structure of the past 22 years performed well: its essen¬

IrV. Randolph Burgess tials are sound, but it needs modern¬ ising. There must be changed par¬ As the Four of us met after 10 Especially impressive is the increase ities and better methods of adjust¬ years, what have been the results ? in private investment and in the ment. While this is a major res¬ Membership including one new activity of multinational agencies. ponsibility of the IMF, the more European Member, Finland, has Member countries continue to strive compact OECD with its 23 industrial grown to 23, with Japan a full Mem¬ towards the aim of transferring as countries, and its experienced and ber and now Australia, which is no much as 1 per cent of their gross able staff, is fortunately available slight change in breadth of outlook: national product. But much remains and is taking a leading role in the it gives the OECD an impressive to be clone in this field. negotiations. stance as representing the great indu¬ Consultation in turn has perhaps Similarly, in the field of trade, strial countries of the free world, been most effective in monetary policies need to be harmonised with together with their great economic questions. Working Party Num¬ monetary trends, and problems of challenges and opportunities. ber Three, chaired for years by economic growth and stability. The Development, the objective to Emile van Lennep and now by Dr. potential contribution of OECD which is dedicated the Development Emminger, and working with the has been recognised in the appoint¬ Assistance Committee, has seen the International Monetary Fund, has ment of a new, high level group on results of a persistent and imagina¬ been a central instigator of new trade and related problems. tive analysis of whal the developed ideas for increasing resources and At this time when the six coun¬ countries have been doing with improving monetary mechanisms. tries of the EEC are by way of and for the less developed. The This task, one should add, is in the becoming ten countries, there is continuing measurement and con¬ midst of further evolution at this special need for an agency to seek frontation with respect to the amount moment. The same methods of con¬ harmonisation of trade and other and character of that contribution, sultation have been applied effective¬ economic policies of the ten with the both public and private, has been a ly in many fields. policies of North America, and potent stimulus. In 10 years, the Among the new ventures of Japan, and the developing countries. flow of assistance has steadily risen OECD has been its plunge into the That is a pressing job for OECD. and its effectiveness vastly improved. problems of improving the quality of Still another problem involves the The total annual transfer of resour¬ the environment. Emphasis has implications of the rapid spread of ces is now over $ 15,000,000,000. been placed on the need to look at great industrial corporations with

45 their facilities for shifting produc¬ tion and funds among regions. OECD has already established close NEW OECD PUBLICATIONS relations with business groups, for it recognises the capacity of these TRADE MEASURES AND ADJUST¬ INTERNATIONAL TOURISM AND MENT OF THE BALANCE OF PAY¬ TOURISM POLICY IN OECD MEM¬ corporations to contribute to the MENTS. An analysis of measures and BER COUNTRIES 1971. Evolution of prosperity of the countries in which their effects. Report by the Secretary tourism in OECD Member countries in they operate, under suitable, and General of OECD (December 1971) 1970 and the early months of 1971 (Sep¬ tember 1971) encouraging, conditions. The obli¬ 96 pages £0.92 $2.75 F 12 SF 9.40 DM8.40 162 pages £1.70 S 4.75 F 22,00 Sw.lr. 19,00 gations are reciprocal. OECD ECONOMIC SURVEYS DM 15.00

In these and other new and old DEVELOPMENT ASSISTANCE. Ef¬ Series 1971-1972 CANADA (October forts and policies of the Members of the questions, the advantages of OECD 1971), 68 pages Development Assistance Committee. Re¬ are: The booklet £ 0.35 S 1.00 F 4,50 Sw.fr. 3.50 DM 3.20 port by Edwin M. Martin, Chairman of A. Its membership is small enough Subscription (full series to be published) : the Development Assistance Committee £ 5.80 t 16.50 F 76,00 Sw.fr. 58,00 1971 REVIEW (December 1971) to be flexible but large enough to DM 51.00 204 pages £ 2.30 $ 6.50 F 30,00 Sw.fr. 23,40 DM 20.00 include the principal actors on the THE CAPITAL MARKET, INTERNA¬ free world stage. TIONAL CAPITAL MOVEMENTS, RE¬ " Development Centre Studies " - B. Its charter and organisation are STRICTIONS ON CAPITAL OPERA¬ Employment Series No 3 : TIONS IN SPAIN (November 1971) flexible and broad enough lo give it EMPLOYMENT AND UNEMPLOY¬ 96 pages ii 1.05 I 3.00 F 14,00 Sw.fr. 12 50 MENT IN CEYLON, by P.J. Richards DM 9.80 viability in a broad range of econo¬ (November 1971) mic, social and scientific problems URBAN TRAFFIC NOISE. Strategy for 214 pages £1.22 % 3.50 F 16,00 Sw.fr. 14,00 DM 11.00 with Iheir political implications. Improved Environment (November 1971) 168 pages £ 1 .37 * 4.00 F 18,00 Sw.fr. 16,00 MANPOWER MOVEMENTS AND LA¬ C. It has been steadily building up DM 12.50 BOUR MARKETS, by Bernard Kayser methods of analysis and of reaching INTERNATIONAL STANDARDISA¬ (October 1971) understanding, and a reputation for TION OF FRUIT AND VEGETABLES. 212 pages £1.30 I 5.75 F 17.00 ISw.fr. 15,00 DM 7 7.70 objectivity and impartiality which Citrus fruits (September 1971) THE SOCIAL PARTNERS FACE THE elicit increasing confidence in its 72 pages £ 1.85 I 5.25 F 24,00 Sw.fr. 21,00 DM 16.30 PROBLEMS OF PRODUCTIVITY AND work. It has been developing the EMPLOYMENT, by Yves Delamotte (No¬ FIFTH INTERNATIONAL CONFEREN¬ vember 1971) habit of taking the long look ahead. CE ON MAGNETOHYDRODYNAMIC 204 pages £1.00 S 3.00 F 13,00 Sw.fr. 1 1 ,00 Now, let me try in closing to ELECTRICAL POWER GENERATION DM 9.10 stale a personal conclusion which I (Munich 19th-23rd April, 1971). Proceed¬ ings (October 1971) " Reviews of Manpower and Social believe is shared by my associates Policies " series : 502 pages £ 4.88 S 74.00 F 65,00 Sw.fr. 50,00 DM 43.00 of the " Group of Four ". MANPOWER POLICY IN BELGIUM

Great as have been the accomp¬ GLOSSARY OF TERMS AND SYM¬ (September 1971) BOLS IN THERMIONIC CONVERSION, 190 pages £1.60 $4.50 F 21,00 Sw.lr. 18.50 lishments of OECD, its future DM 14.30 1971 (November 1971) success will depend upon a new 118 pages £175 t 5.00 F 23,00 Sw.fr. 20,00 " Reviews of National Science Policy " understanding and vision on the DM 15.60 series :

part of the nations and people who OIL STATISTICS 1970. Supply and Dis¬ AUSTRIA (October 1971) are Us members. They must learn posal /STATISTIQUES PÉTROLIÈRES. 248 pages £ 2.45 S 7.00 F 32,00 Sw.fr. 27,00 DM 21.60 Approvisionnement et Consommation (Sep¬ to think internationally. tember 1971) SPAIN (November 1971) From early childhood the people 160 pages, bilingual £ 1 70 S 4.75 F 22,00 726 pages £ 0.85 S 2.50 F 1 1,00 Sw.fr. 10,00 of our different countries have been Sw.fr. 19,00 DM 15.00 DM 7.70 brought up lo think in national THE CEMENT INDUSTRY. Statistics " Review of National Scientific and terms: the flags, the songs, Ihe tradi¬ 1970. Trend 1 971 /L'INDUSTRIE DU Technical Information Policy "series : CIMENT. Statistiques 1970. Tendan¬ CANADA (October 1971) tions, the pride in strength and ce 1971 (October 1971) 162 pages £0.85 % 2.50 F 11,00 Sw.fr. 10,00 victory. 40 pages, bilingual ... £ 0.62 ? 7.75 F 8,00 DM 7.70 Sw.fr. 7,00 DM 5.60 This alone is not good enough for " OECD Informatics Studies " series today's complicated and perilous THE NON-FERROUS METALS INDUS¬ N° 2 - DIGITAL INFORMATION AND TRY 1970/L'INDUSTRIE DES MÉTAUX world. We are slowly, all loo slowly THE PRIVACY PROBLEM, by G.B.F. NON FERREUX (October 1971) Niblett (September 1971) discovering that we must think in 82 pages, bilingual ... .£ 0.90 S 2.75 F 12,00 60 pages £ 0.70 S 2.00 F 9.00 Sw.fr. 8,00 broader terms. Only as our vision Sw.fr. 10,50 DM 8.40 DM 6.30 expands can international organisa¬ THE PULP AND PAPER INDUSTRY " Reviews of National Policies for Education " series : tions like OECD count upon the 1970-1971 /L'INDUSTRIE DES PATES ET PAPIERS (October 1971) full support they require, and UNITED STATES (October 1971) 182 pages, bilingual ... £ 1.37 S 4.00 F 18,00 434 pages £3.45 S 10.00 F 45,00 Sw.fr. 37,00 Sw.fr. 16,00 DM 12.50 the effective operation of these orga¬ DM 29.80

nisations offers our best hope for " Road Research " series : JAPAN (November 1971) 164 pages £1.50 % 4.50 F 20,00 Sw.rr. 77,50 peace and prosperity. RESEARCH INTO ROAD SAFETY AT DM 13.60 To put it very simply. OECD JUNCTIONS IN URBAN AREAS (No¬ OECD AT WORK FOR ENVIRON¬ is a fine tool. We need the will to vember 1971 ) 52 pages £ 0.62 $ 1.75 F 8,00 Sw.lr. 7,00 MENT (November 1971) use it ever more, effectively. DM 5.60 34 pages tree on request W. Randolph Burgess

46 WHERE TO OBTAIN OECD PUBLICATIONS

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