*{TRADE AND SUSTAINABLE GROWTH
BIAC Statement to the OECD Trade Committee
October 23, 2001

Introduction}

Sustainable growth is fundamental. The international business community is fully committed
to advancing the complementary themes of economic growth, environmental health, as well
as development of human resources to the benefit of all sectors of society, which are, of
course, where our customers are found.

Multilateral trade policy has an important complementary role in helping countries absorb and
capitalise on the growth and development potential of a rapidly changing global marketplace.
For over 50 years the disciplines of the GATT/WTO system have made a major contribution
to economic growth and improved living standards around the world. BIAC continues to
support the launch of a broad-based, balanced, new trade negotiation at the Doha Ministerial,
as a matter of high priority. The world economy cannot afford a delay.

It is vital that this rules-based system remains strong and that it be attuned and improved in
the context of today’s dynamic global market place. Open markets have never been more
important to the diffusion of trade benefits for wealth creation and development at local and
international levels. The OECD has a critical role to play in developing fact-based analysis to
support development of policies that support open markets and their benefits.

Society needs to be assured of the net positive benefits that are created by sustainable growth,
and continued dialogue and analysis should focus on strengthening and developing policy
frameworks that maximise the environmental, development, and economic benefits of
globalisation. In this context, BIAC’s submission sets forth a number of positive assertions
that illustrate the benefits of sustainable growth and related institutional and trade policy
issues:

1. International trade and investment promote economic growth and economic freedom
through competition and consumer choice, and have proven fundamental to wealth
creation and poverty reduction, which in turn render environmental and societal benefits;

2. The WTO multilateral trading system is critical to the diffusion of trade benefits globally
through common disciplines that expand trade opportunities on a reciprocal basis;

3. The business community is a key contributor to the diffusion of technology, higher level
skills, and improved labour, health, safety and environmental conditions;

4. Open markets encourage a policy mosaic of good governance, which reinforces benefits
of trade and investment liberalisation.

BIAC urges the OECD to communicate these positive messages consistently across its work,
and we appreciate the opportunity make recommendations based on these assertions, noted
throughout this paper, for OECD work on trade related issues to sustainable growth.

*partie=titre 1. Sustainable Economic Growth: Realising the Benefits Through Trade and
Investment in Open Markets *partie=nil

International trade and investment promote economic growth and efficiency through
competition and consumer choice, and have proven fundamental to wealth creation and
poverty reduction that positively impact environmental and societal conditions and
opportunities.

BIAC supports recent OECD work on issues related to sustainability demonstrating that trade
and investment promote competition and economic growth. Trade and investment in turn
lead to poverty reduction, enhancing long-term development opportunities in poorer
countries. Moreover, they stimulate technology diffusion, and promote the kinds of structural
changes necessary to make more efficient use of natural and environmental resources and to
energise the education system essential to improved societal conditions.

The OECD study “Open Markets Matter,” presents evidence of the tangible benefits of
market liberalisation on employment, income distribution, and environmental protection, and
clarifies the relationship of trade rules to national sovereignty. BIAC urges the OECD to
communicate this message consistently across its work. We also welcome and support the
OECD’s efforts to develop a complementary publication “Open Services Markets Matter,”
recognising the increasing role that services play in trade flows and domestic economies.

Likewise, increased trade and investment promote opportunities for countries and companies
to employ more environmentally-efficient technologies, share good practices, and contribute
to environmental regulatory capacity building, particularly in developing countries. The
proper approach is to improve environmental policy, and not to restrict trade and investment.

Transboundary environmental challenges should be addressed through multilateral cooperative
approaches, rather than through trade discriminatory policies that lead to conflicts
and high transaction costs. These policies must be compatible with the multilateral trade rules
and should not discriminate against foreign direct investment. They should be based on
sound science, and be least trade restrictive, or they risk being ineffective and will limit the
benefits of trade and investment. Sound environmental management should consider the
interests of all affected parties and consider the full range of policy instruments, including
voluntary and market-based approaches.

Likewise, business recognises the importance of improved labour conditions in the global
economy. Treating our employees well is not an afterthought. As engines of development
and growth, trade and investment have helped raise living standards around the world, thus
leading to improved societal and labour conditions.

We maintain our position that it would be counterproductive to introduce trade sanctions for
violations of any agreed labour standards or to include binding labour clauses in trade
agreements or investment treaties. The failed attempts to engage the WTO in trade and labour
issues at the Seattle Ministerial reconfirm the wisdom of the Singapore Ministerial Decision
that the ILO, not the WTO, is the competent body to deal with the conditions of work. We
support strengthening the ILO so that it can credibly deal with violations of worker rights.
Specifically, BIAC supports the promotion of the ILO Declaration on Fundamental Principles
and Rights at Work, which addresses violations of fundamental workers rights and provides
targeted technical assistance to help countries observe these rights.

*partie=titre Recommendations for OECD Work: *partie=nil

• BIAC recommends that the OECD update its study “Open Markets Matter” as it is
an important tool for both promoting the benefits and addressing the challenges to
market liberalisation and sustainable growth.

• BIAC suggests that the OECD Trade Committee address the issue of structural
change and adjustment that result from trade liberalisation, and how various
markets adapt to these changes, for example across sectors and distinguishing
between services and manufacturing.

*partie=titre 2. The WTO and Sustainable Growth *partie=nil

The WTO multilateral trading system is critical to the diffusion of trade benefits globally,
through common disciplines that expand trade opportunities on a reciprocal basis.

As we have stated previously, the successful launching of a new WTO Round, with a broad
based and balanced agenda, is a high priority for BIAC. Support for the WTO as an
institution is also essential to success.

The WTO is an instrument of representative government. It is an intergovernmental
organisation that operates according to consensus of its members. All rules are proposed and
adopted according to this consensus. The WTO is designed to create and manage an agreed
set of rules that expand trade opportunities for all members, and to settle disputes when there
is conflict between members. At the WTO, all countries have equal access to the dispute
settlement mechanism, permitting smaller and developing countries to have equal footing to
larger and developed countries. Developing countries continue to seek WTO membership on
this basis, and engaging them is critical to their economic success and to the strength of the
WTO system.

BIAC repeats its call for improvements in WTO transparency, and suggests that such
improvements be combined with inclusiveness in national consultations with interested
parties.

Given the importance of trade and investment for economic growth, business stands by its
long-held view that there should be less rather than more special and differential treatment of
WTO members because such treatment has the perverse effect of impeding access to the
benefits of trade and competitive markets. One of the great achievements of the Uruguay
Round was the improved participation of developing countries in common trade disciplines.

We also recognise, however, that some countries may not be able to participate according to
their economic potentials in the global marketplace. While business has no expertise to
address the identification of such countries or to advise on the demarcation between LDCs
and developing countries, a longer-term policy objective should be to help those countries
become full participants in the WTO system.

Business has long recommended that there be increased co-ordination among the specialised
multilateral agencies to deal with related issues. The “Integrated Framework,” a coordination
among various such organisations for assistance to developing countries, is an
important step in that direction. We do support a leading role for the WTO within that effort
to co-ordinate “trade-related” capacity building aimed at improving the ability of countries to
be fully engaged.

Given the limited results of decades of aid to least developed countries, it may be important to
focus the new cycle of aid for capacity-building on improving the policy structure for markets
and trade opportunities as a matter of priority, including emphasis on capacity building to
promote environmental protection and societal programs.

In general, it is critical that the WTO maintain its present focus on setting the conditions and
rules for trade. The WTO does not have the expertise, resources, nor the political mandate to
promote policies in other areas. Attempts to promote an all-inclusive mandate risk
undermining WTO effectiveness.

*partie=titre Recommendations for OECD Work: *partie=nil

• BIAC suggests that the OECD develop further empirical evidence showing the
benefits and importance of the WTO framework and the multilateral trading
system, including in the area of services, that is critical to the confidence of
governments, business, and civil society, in the WTO framework.

• BIAC encourages OECD to study the potential benefits of investment rules in the
trade context, for example, through development of case studies of the factors in
investment liberalization and its impact.

*partie=titre 3. Business Engagement and Sustainable Growth *partie=nil

The business community is committed to sustainable growth, through innovation supported
by economic activity that results in technology diffusion, higher level skills, and improved
labour, health, safety and environmental conditions.

As OECD recently stated, “Business can play an important role in adopting and diffusing
sustainable practices world-wide, and in many instances may be ahead of governments in
implementation*{1}.”

*{1 “Policies to Enhance Sustainable Development,” OECD, 2001.}

Companies are key players in promoting innovation and sustainable growth, and through
investment and international trade they are significant agents of positive change at local and
international levels. The efforts of companies in this area often go unheard, but they are
inherent in the strategies and implementation of their management systems.

In this era of globalisation and economic integration, there is increasing pressure on business
to be responsible for the environment, for social conditions, poverty reduction, even for
education. Companies are investing significant resources to communicate to the public what
has made them competitive in the first place – good management systems -- which aim at
implementing good company practices and polices related to environmental health and safety,
quality of the working environment, employee benefits, and community relations.

For example, a recent survey of American manufactures illustrates a number of practices
followed by manufacturing companies with respect to ethical, labour, and environmental
standards in developing countries. The survey shows how manufacturing companies are
creating benefits in these areas through implementation of their management systems in
developing countries, and how the direct positive impact of these companies on labour and
environmental standards in the broader policy context, can be more effective than punitive
actions, for example trade sanctions, against developing country governments. *{2

2 U. S. Manufacturing Industry’s Impact on Ethical, Labor, and Environmental Standards in Developing
Countries: A survey of Current Practices. Manufacturers Alliance/MAPI and the National Association of
Manufacturers. April 2001. The survey can be found on the Internet at www.NAM.org.}

The annex to this statement includes a number of other illustrative cases describing the
positive contributions of business to sustainable economic growth and development.

In addition, the OECD MNE Guidelines, as the only comprehensive set of voluntary
principles for international business collectively endorsed by governments, serve as a
benchmark for company management systems. The Guidelines are an important OECD tool
with the clear aim of improving the climate for foreign direct investment, sustainable growth,
and to promote the positive contribution that multinational enterprises can bring to society.

Generally, multinational enterprises apply uniform environmental and labour standards in the
different locations in which they operate. According to a recent study by the Global
Environmental Management Initiative, GEMI, in many cases, they apply higher standards
than those required by the host government or followed by local companies.

At the same time, it is clear that there are limits on what should be expected from company
performance. Companies cannot substitute for governments in building the policy mosaic,
that is the co-ordinated legal framework and basic infrastructure needed to establish fully
functioning market economies that attracts business and is necessary for it to flourish.

*partie=titre Recommendations for OECD Work: *partie=nil

• Continued OECD focus on the new economy and benefits of trade and contribution
of firms for development at local and international levels in open markets, including
the impact of technology diffusion on development.

• BIAC believes that the World Summit on Sustainable Development (WSSD) should
have as its foundation a commitment to sustainable economic. Providing policy
support for the important economic and technological contributions of business to
sustainable growth should be an important part of the efforts of the WSSD and the
OECD.

*partie=titre 4. Open Markets Encourage Good Governance *partie=nil

While growth is essential, reaping the benefits of economic growth is dependent upon a
broader public policy mosaic supported by governments that enables the benefits of trade
and investment to be realised at the local and international level. Open markets encourage
development of good public governance.

Like business, governments also compete for trade and investment opportunities by offering
the best possible framework conditions for economic growth. Good governance is essential to
attract FDI and exports, which in turn increase consumer choice, create jobs, and most
importantly generate revenue for public spending on education and training that is essential
for economies to adjust to the benefits of growth.

In order to trade and invest in open markets, companies seek out market environments with
macroeconomic and societal stability, established rule of law, regulatory frameworks that
promote competition, enabling infrastructure, quality education and training opportunities,
protection for intellectual property rights, and the absence of corruption. Competition policy
applied in a rigorous and transparent way is also an essential governance tool.

The multilateral trading system provides additional certainty for business as WTO member
countries are committed to, in the context of the WTO agreement, implementing fundamental
principles including transparency, non-discrimination, and national treatment.

The role of governments is critical to the success of open markets, trade and investment and
the benefits they can bring. Governments create the rules and laws that govern the market
economy and they exercise their power to tax, which contributes to revenues that support
public programs such as education.

While economic integration, trade and diffusion of technologies support growth, they also
demand adjustment by the persons and economies that reap their benefits. The remedy for
dealing with these adjustments lies with education and training. Education – including
lifelong learning -- is fundamental to enabling a society to cope with the inevitable shifts and
opportunities in the labour market, and is a direct positive response to adapting to the
challenges created by liberalised markets and the diffusion of new technologies.

Most frequently, job losses and dislocations are the result of resource shifts to more
productive activities that are additive to economic growth. Thus access to education and
training allow trade and globalisation to contribute to the development of a country’s
economic resources instead of depleting them, which would be the result of holding back
trade or technological progress.

In short, it is the responsibility of governments to implement policy frameworks that support
sustainable growth, and permit its citizens to realise the benefits. The integration of markets
and increased removal of trade and investment barriers make governance instruments all the
more important to ensure contestable and fair markets.

*partie=titre Recommendations for OECD work: *partie=nil

• BIAC commends OECD for its horizontal approach to work on regulatory reform,
and urges continuation of Trade Committee work in this area, including in the
multidisciplinary country reviews.

*{Conclusion}

In our paper we have highlighted a number of positive points related to trade and sustainable
growth:

• International trade and investment promote economic growth and economic
freedom through competition and consumer choice, and have proven fundamental to
wealth creation, poverty reduction, environmental protection and management, and
societal development. The WTO multilateral trading system and specifically the
WTO is critical to the diffusion of trade benefits globally.

• The business community is a key contributor to diffusion of technology, higher level
skills, and improved labour, health safety and environment conditions. Open
markets encourage good governance which reinforces benefits of trade and
investment liberalisation

The OECD should carry out analysis that would contribute to and support continued
confidence building related to the positive returns from open markets, sustainable growth, and
the policy frameworks that are essential to the benefits of globalisation. It is critical that the
OECD Trade Committee be engaged in every aspect of horizontal work being done to support
and analyse policies that contribute to sustainable growth.

While business is convinced of the positive contribution of trade and open markets for
sustainable growth and development, we recognise that trade and investment liberalisation
alone are not enough, and that additional policies, as we have illustrated above together with
international policy co-ordination are necessary to realise the full benefits of liberalisation.

Finally, as BIAC stated in its April letter to the Chairman of the OECD Trade Committee,
“All efforts with regard to sustainable development begin with sustainable growth.”