Agenda Item 2: Promoting Growth and Employment

Mr. Chairman,

Allow me at the outset to thank the Secretary-General for the many excellent reports presented at this meeting.

The promotion of economic growth and employment while maintaining a stable macro-economic environment is an extremely important topic. For Europe it furthermore relates to another delicate and sensitive issue of how to effectively reduce the high unemployment rate.

Looking at the overall macroeconomic environment, there are mixed signals. The good news is that economic growth has increased to a steady and sustainable pace in many countries without any major upward pressure on prices. At the same time, the fiscal situation has improved and interest rates have fallen. This is a welcome development which reflects to some extent successful economic policies.

The bad news is that growth in many European countries has recently been disappointing and unemployment remains at high levels. We must face the fact that in Europe, more than 10 per cent of the labour force is still out of work and unemployment is still high in spite of the upturn in most European economies.

We certainly welcome extensive analysis by the OECD on unemployment and useful proposals for action. But the measures applied need to be reexamined with due regard to the size of the problem. Unemployment becomes more and more severe with every recession. This means in simple terms that dealing successfully with the problem becomes ever more difficult and calls for more extensive measures.

The economic upturn will not solve the problem like may have happened in the past.

1) We need to act upon it.

2) New mesures are called for.

3) We have to tackle the structural part of the problem.

4) We have to promote flexibility, not only in the labour market but in the product and service markets as well.

This is a difficult task that calls for many measures. Such as removing trade barriers and removing various priviledges in the wellfare system that have been in force for decades.

These measures must be supported by macroeconomic policy. In this respect, it is important that monetary policy provides sufficient support for domestic demand, as there is an overriding need for fiscal consolidation in most European countries. Improvement in fiscal position are a condition for a sustained non-inflationary growth and employment. The message must get across to people that fiscal consolidation contributes in the end to lower unemployment.

The policy problem we are facing is that the costs of the structural measures needed are born up front and are very visible while the benefits mostly come in later and may not be so visible.

Mr. Chairman,

I think the OECD can be of assistance in this context by focusing on the policy trade- offs and the long-term benefits of these various structural measures. A better understanding of these issues can help to raise both business and consumer confidence, which has remained weak in many European countries.

Statement by Mr. Finnur Ingólfsson, Minister of Commerce and Industry, Iceland At the meeting of the OECD Council at Ministerial Level in Paris, May 21-23, 1996 Item 4: Charting the future of the OECD

Mr. Chairman,

Only a few words on this item since, with the exception of the budget, we find ourselves more or less in the same position on the future of the OECD as we were last year.

We wish to emphasize a continued support for the policy of selective admittance to the Organization in the near future, while at the same time the Organization continues to reach out in different ways to non-member countries, engaging them in a dialogue on some of the more important economic and trade issues. This is especially important with regard to countries such as Russia, China, India and Brazil.

As stated in the Secretary-General's report, the present OECD workload encompasses nearly all realms of governmental policy. This is exactly what makes the OECD such an effective contributor for its members in seeking viable solutions for its members. This broad mandate should be kept more or less intact while at the same time adjustments are made for new tasks such as the globalisation of information infrastructure and the information society. As I stated last year, new technologies develop rapidly and their effects on financial markets and economic issues have to analyzed so that appropriate policy steps can be taken. This work should continue to be one of the major undertakings of the OECD, since it is uniquely equiped for the task.

If there is a need to redefine some of the present activities, it should only be done after a careful evaluation by all members as to the trade-offs, both in the budgetery sense and also in relation as to ongoing work in other organisations.

As for the budgetary issue itself, we can support maintaining the present level of financial contribution. The OECD is an extremely well-run organisation in comparison to many other international bodies and probably has the most rigorous budgetary process of any international organisation. therefore any further cost-cutting must be done with extreme skill.

Mr. Chairman, thank you Statement by Mr Finnur Ingólfsson, Minister of Commerce and Industry Iceland. At the meeting of the OECD Council at Ministerial Level, Paris, 21- 22 May 1996

Agenda Item 3:

Strengthening the Multilateral System

Mr Chairman,

The World Trade Organization is now operational. The ministerial meeting later this year in Singapore will be an important forum to provide further direction for the WTO's future work. The effectiveness of WTO will ensure greater continuity and progress in global trade liberalization efforts. The strengthening of multilateral efforts through the creation of WTO calls for more focused work in areas where the inter dependence between OECD and WTO is particularly clear, such as in the area of investment. The complementary role of the OECD will be judged by the quality of its work in selected areas in particular the work on the Multilateral Agreement on Investments. Allow us in that regard to stress the following:

We welcome the progress of work made so far by the Negotiating Group on the Multilateral Agreement on Investment. We strongly support efforts to go beyond existing commitments to achieve a higher level of liberalization.

The quality of the agreement, will be measured against conclusions found in the Negotiating Groups report, namely those topics which go beyond existing liberalization commitments. In that regard effective provisions to regulate and control investment incentives must be included in the MAI.

There is room for certain general incentives for investments, for instance to encourage investments in innovation and research and development. Direct investments grants, and direct financial support of investment of the proportions seen in many recent investment decisions are clearly distorting capital flows. Such practices must be abolished both at national and the local level, albeit gradually.

The link between privatization and investment is indeed clear. That relation needs to be dealt with to assure a balance between the need to find acceptable ways to implement privatization on the one hand and the rights of foreign investors on the other.

A balance has to be found between the commitments and safeguard clauses and reservations. Lodging of unspecified reservations could severly undermine the effectiveness of the agreement.

The overall relationship between the MAI and other International agreements must be further examined.

We reaffirm our commitment to the early conclusions of the negotiations on the MAI. We look forward to a high quality agreement at the 1997 ministerial meeting.

A transparent, free and effective multilateral investment regime will contribute to economic growth. It allows countries to better exploit their competitive advantage. Hence there should be a strong incentive for other countries to adopt in due course the MAI through accession. Early and active consultation with those countries should aid that process.

Mr. Chairman,

The OECD can, make an important contribution to strengthen the multilateral trade and investment system. In addition to deeper involvement in investment affairs; further work in the area of trade and environment would seem to be an area where OECD activities could make an important contribution.

Finally Mr. Chairman,

For a small country like ours free trade and free flow of capital is of vital importance for innovation and economic growth. In these areas the OECD has an important role to play not least in ensuring stable conditions for foreign direct investment and through more effective controls on measure distorting investment flows.

Finnur Ingólfsson,
Minister of Industry and Commerce